Cullen/Frost Bankers Q3 Earnings Call Highlights

Key Points

• Third-quarter results improved: Net income rose 3.4% year over year to $178.5 million, while EPS increased 6.4% to $2.84. Average loans grew 9% and deposits increased 3.6%.
• Growth was broad-based: Consumer loans rose 18.7%, the commercial loan pipeline reached a record $2.5 billion, and branch expansion contributed $0.22 per share to quarterly EPS.
• Frost raised its 2026 outlook: The bank now expects net interest income growth of 5%–5.5%, average loan growth of 8%–8.5% and non-interest income growth of 8.5%–9%, while continuing to monitor multifamily and homebuilder credit exposure.

Cullen/Frost Bankers NYSE: CFR reported third-quarter 2026 net income of $178.5 million, up 3.4% from a year earlier, as loan growth, deposit gains and branch-expansion activity supported results. Earnings per share rose 6.4% year over year to $2.84 from $2.67.

Return on average assets was 1.31%, compared with 1.32% in the prior-year quarter, while return on average common equity was 16.16%, compared with 16.72% a year earlier. Average deposits totaled $43.6 billion, rising 3.6% year over year, and average loans reached $23.4 billion, up 9%.

Consumer and Commercial Growth

Chairman and CEO Phil Green said the company’s consumer bank continued to benefit from investments in expansion, products and technology. Consumer loans ended the quarter at $4.66 billion, an 18.7% increase from a year earlier. Consumer real estate lending was a major contributor, and Frost’s mortgage portfolio surpassed $1 billion.

Green said 46% of mortgage customers since the program began were new to Frost, and 37% of those new customers subsequently opened additional products. Consumer deposits increased by $297 million during the quarter, primarily reflecting higher money-market balances. Consumer non-interest income rose $2.6 million, or 9.4%, from a year earlier.

Commercial activity also remained strong. Frost’s 90-day weighted loan pipeline reached a record $2.5 billion, up 16% from the previous record set in the second quarter. New commercial loan commitments increased 4% from the second quarter, bringing year-to-date commitments 19% higher. Commitments for core loans under $10 million reached a quarterly record of $1.2 billion.

The company added more than 1,000 new commercial relationships for the sixth consecutive quarter, according to management. Expansion locations accounted for 21% of new commercial relationships, while relationships generated through bank merger-and-acquisition disruption were up 73% year to date from the prior-year period.

During the question-and-answer session, Chief Financial Officer Dan Geddes said loan growth was broad-based. About 40% of linked-quarter growth came from commercial and industrial loans and owner-occupied real estate, another 40% came from investor commercial real estate, and most of the remaining growth came from one-to-four-family consumer real estate lending.

Branch Expansion Adds to Earnings

Geddes said the branch expansion strategy contributed $0.22 per share, or 8.4% of earnings per share, during the third quarter. Year-to-date expansion-related accretion totaled $0.51 per share, or 6.6% of earnings per share.

Loans from expansion branches increased 40% year over year and represented 13.9% of total loans, compared with 10.8% a year earlier. Deposits from those branches rose 23% and represented 9.1% of total deposits, up from 7.6%. Expansion locations held $3.25 billion in loans and $4 billion in deposits at quarter-end.

The company opened one Dallas-area location during the quarter and expects to open four more by year-end, bringing the 2026 total to 12. Geddes said Frost currently plans about 14 openings in 2027 and expects annual openings to remain in a range of roughly 12 to 15 in the near term, with the potential for a higher pace over time.

Green said expansion depends not only on branch sites but also on recruiting the right local bankers and coordinating branch activity with Frost’s other business lines. He said the company has secured future locations in Texas markets but does not want to outpace its ability to execute its relationship-based strategy.

Margin, Securities and Funding

Net interest margin increased 3 basis points from the second quarter to 3.78%. Geddes said the improvement reflected a mix shift from lower-yielding balances at the Federal Reserve into loans and investment securities, partly offset by higher volumes of interest-bearing deposits and customer repurchase agreements.

The investment portfolio averaged $21.2 billion, up $592 million from the prior quarter. During the quarter, Frost purchased $1.6 billion of securities, including agency mortgage-backed securities, Treasuries and municipal securities. The tax-equivalent yield on the total investment portfolio increased 13 basis points sequentially to 4.09%.

The company’s available-for-sale securities portfolio had a net unrealized loss of $2 billion at quarter-end, compared with $1.1 billion at the end of the second quarter, reflecting the recent increase in rates. The investment portfolio’s duration was five years, up from 4.9 years in the prior quarter.

Average deposits increased $950 million from the second quarter, with about 65% of the growth in interest-bearing deposits. Average deposits in October were $44.4 billion, Geddes said. The cost of interest-bearing deposits rose 12 basis points sequentially to 1.73%.

Looking forward, Geddes said Frost expects overall deposit betas of roughly 50% to 55% if rates rise, while loan betas are expected to be about 80%. The company’s outlook assumes one 25-basis-point Federal Reserve rate increase in December.

Credit Quality and Updated Outlook

Total problem loans were $902 million at quarter-end, down from $917 million in the second quarter but above $828 million a year earlier. Non-performing assets declined to $67 million from $114 million in the prior quarter after a large multifamily commercial real estate loan paid off in full through an expected property sale.

Net charge-offs totaled $8.4 million, compared with $9.5 million in the second quarter and $6.6 million a year earlier. Annualized net charge-offs equaled 14 basis points of average loans.

Management said it continues to monitor older-vintage multifamily projects, as well as interest-rate-sensitive homebuilder loans. Green said Frost had several remaining multifamily credits with different maturity dates, but he expressed confidence in the borrowers and the bank’s underwriting. Geddes said homebuilder loans totaled about $290 million, while consumer credit performance remained healthy.

For full-year 2026, Frost raised its guidance for net interest income growth to 5% to 5.5%, from a prior range of 4.75% to 5.25%. It also raised expected average loan growth to 8% to 8.5% and lifted its non-interest income growth outlook to 8.5% to 9%.

• Net interest margin is expected to improve by approximately 10 to 13 basis points from the 2025 full-year level of 3.66%.
• Average deposit growth is expected to be 2% to 3%.
• Non-interest expense growth is expected to be about 5%, reflecting additional incentive compensation accruals and advertising spending.
• Net charge-offs are expected to equal 15 to 20 basis points of average loans.
• The effective tax rate is projected at 15.5% to 16%.

Frost repurchased approximately 93,000 shares for $15 million during the third quarter. Year-to-date repurchases totaled $175 million, or 1.26 million shares, under its $300 million authorization.

About Cullen/Frost Bankers (NYSE:CFR)

Cullen/Frost Bankers, Inc is a financial holding company headquartered in San Antonio, Texas. Its principal subsidiary, Frost Bank, provides banking and financial services to individuals, businesses and institutions throughout Texas.

Frost Bank offers personal and commercial deposit accounts, loans, mortgages, treasury management, payments and other business banking services. The company also provides wealth management, trust and investment services, brokerage services and insurance solutions through its related businesses.

Frost traces its history to 1868, when Thomas Claiborne Frost founded the bank in San Antonio.

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