Cullen/Frost Bankers, Inc. (CFR) Earnings & Analysis

Latest quarter

Cullen/Frost’s Q3 revenue was $767.7 million, up from $745.8 million a year earlier. On the measure used by the consensus, revenue was $634.2 million, above the $616.7 million estimate. Adjusted earnings per share were $2.94 on the consensus measure, above the $2.79 estimate.

The company’s filing reported $178.5 million in net income available to common shareholders, or $2.84 per diluted share, compared with $172.7 million, or $2.67 per share, a year earlier. The filing attributed the increase primarily to higher net interest and non-interest income, partly offset by higher expenses and credit loss expense.

Cullen/Frost said average loans rose 9.0% and average deposits increased 3.6% from a year earlier. Its taxable-equivalent net interest margin rose to 3.78%, helped by higher average loan volumes and lower average costs for interest-bearing deposits and repurchase agreements. The filing said trust and investment management fees also increased, reflecting higher average equity valuations and growth in managed accounts.

The company reported free cash flow of $257.0 million, compared with $211.7 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Phil Green said he had been surprised by the durability of loan activity as rates rose. In response to questions about demand, he said smaller banks were being more aggressive on loan structures and that Cullen/Frost was willing to compete on price for customer relationships.

Green said consumer real estate lending drove consumer loan growth, with consumer loans ending Q3 at $4.66 billion, up 18.7% year over year. He also described mortgages as a way to build broader relationships: since the program began, 37% of new mortgage customers had opened additional products.

CFO Dan Geddes said loan growth was broad-based across commercial lending, investor commercial real estate and consumer real estate. He estimated that around 42% of loan growth came from customers acquired during the preceding year.

On margins, Geddes said the Q3 net interest margin rose to 3.78% from 3.75% in Q2 as the bank shifted funds held at the Federal Reserve into loans and securities. Higher volumes of interest-bearing deposits and repurchase agreements partly offset that effect. He also said the available-for-sale portfolio’s net unrealized loss increased to $2 billion at quarter-end from $1.1 billion at the end of Q2 following a rise in rates.

Geddes said expansion branches had grown to $3.25 billion in loans and $4 billion in deposits. Asked about further expansion, he said the company had plans for 14 openings in 2027. He also said Cullen/Frost expected to invest in wealth management, including adding advisers, although its 2027 budget was still being completed.

On deposit pricing, Geddes said higher rates in targeted consumer money-market tiers helped balances rise around 1% after a decline in Q2. He said the strategy was intended to capture more business from younger customers.

Guidance

For full-year 2026, Geddes raised Cullen/Frost’s expected net interest income growth to 5% to 5.5%, from 4.75% to 5.25%. He raised the average loan growth forecast to 8 to 8.5% from 7 to 8%.

Geddes also raised expected non-interest income growth to 8.5% to 9%, from 7.5% to 8.5%. He said non-interest expense growth was expected to be in the 5% range, at the upper end of the prior 4.5% to 5% range, reflecting additional incentive accruals and advertising expense.