Cullen/Frost Bankers reported third-quarter 2026 diluted earnings per share of $2.84, compared with $2.67 a year earlier. Net income available to common shareholders increased to $178.5 million from $172.7 million, supported by higher lending volumes, a wider net interest margin, and increased fee income.
Diluted EPS exceeded the $2.79 consensus benchmark used in this review. Revenue on a taxable-equivalent presentation totaled approximately $626.7 million, above the $608.7 million consensus. On a GAAP basis, net interest income plus non-interest income totaled approximately $603.8 million. These two revenue measures should not be treated as interchangeable.
The quarter’s central theme was growth. Frost expanded loans, deposits, and customer relationships, but higher operating expenses and credit-loss provisions limited how much of that progress reached the bottom line.
Business Update: Customer Expansion Supported Lending and Deposits
Loan Growth Continued Through the Quarter
Average loans increased 9.0% year over year to approximately $23.4 billion. They also increased 3.3% from the second quarter, demonstrating that lending growth continued sequentially rather than depending solely on the prior-year comparison.
A larger loan portfolio provides more interest-earning assets, but balance-sheet expansion is only one part of the equation. The value of that growth depends on whether lending income adequately compensates for funding costs, operating expenses, and credit risk.
This quarter showed progress on income generation. Taxable-equivalent net interest income increased 5.8% to $490.8 million, supported by higher lending volumes and an improvement in net interest margin.
Deposits Expanded Alongside Lending
Average deposits increased 3.6% year over year to approximately $43.6 billion and rose 2.3% sequentially. Average non-interest-bearing demand deposits increased to approximately $14.4 billion from $13.8 billion a year earlier.
The increase in deposits indicates that Frost was adding funding relationships alongside its lending activity. Growth in non-interest-bearing balances was particularly relevant because those accounts do not carry a direct interest expense.
However, average loans grew faster than average deposits. That does not, by itself, establish a funding concern, but it makes future deposit growth and pricing important to sustaining profitable lending expansion.
Customer Relationships Grew Across the Franchise
Total consumer and commercial customer households increased 5.4% from September 2025.
The expansion extended beyond traditional banking. Managed customer accounts in Wealth Management increased by more than 5%, while Frost Insurance Agency’s commercial customer count increased by more than 10%.
These developments suggest the quarter’s progress was not confined to higher balances from existing borrowers. Frost also added relationships across banking, wealth management, and insurance.
The next test is converting those customer additions into durable deposits, recurring fees, and profitable lending. Customer acquisition strengthens the franchise only when the revenue generated over time justifies the associated staffing, technology, and servicing costs.
Organic Expansion Remained Central to the Strategy
Management continued to emphasize organic expansion in Texas. The strategy was reflected in both customer growth and the expense base.
Expansion can support future revenue by increasing the number of customer relationships and broadening the services provided to them. However, the costs of hiring, promotion, and technology are recognized before every new relationship reaches its full earning potential.
That timing helps explain why the quarter showed stronger business activity but more modest growth in total net income.
Net Interest Income: Higher Volumes and a Wider Margin
Net interest margin increased to 3.78%, compared with 3.69% a year earlier and 3.75% in the second quarter.
The improvement was not simply the result of loans earning higher yields. Average loan yield declined year over year to 6.27% from 6.61%, while the average cost of interest-bearing deposits declined to 1.73% from 1.94%.
The earnings outcome therefore reflected the interaction of lending volumes, asset yields, funding costs, and balance-sheet composition.
The sequential comparison was more mixed. The average cost of interest-bearing deposits increased from 1.61% in the second quarter to 1.73%, even as net interest margin improved by three basis points.
This makes deposit pricing an important watchpoint. Sustaining margin improvement will depend on how assets and liabilities reprice, as well as the composition of new business.
Fee Income: Wealth Management and Deposit Services Added Support
Non-interest income increased 8.2% to $136.0 million.
Trust and investment management fees rose to $49.5 million from $44.8 million. Investment management fees and oil-and-gas-related fees contributed to the increase.
Deposit service charges increased to $36.3 million from $31.4 million, while insurance commissions and fees rose more modestly to $15.8 million from $15.4 million.
These businesses provide revenue beyond net interest income. Their growth is important because a broader customer relationship can generate several revenue streams rather than relying on lending alone.
Property Gains and Securities Losses Nearly Offset
The quarter included $7.6 million of gains from sales of excess bank properties and $7.5 million of losses on securities sales.
The two disclosed items were nearly offsetting before tax, although they arose from different activities. Looking at the property gains without considering the securities losses would give an incomplete picture of their contribution.
For assessing recurring performance, the more useful indicators were the changes in investment management fees, deposit service charges, insurance income, and operating expenses.
Expenses: A Larger Franchise Came With Higher Costs
Non-interest expense increased 7.0% to $377.2 million.
Salaries and wages increased by approximately $13.0 million. Annual merit and market adjustments contributed, alongside employee growth associated partly with organic expansion.
Advertising and promotion expenses increased by approximately $6.4 million. Technology, furniture, and equipment expenses also increased, including higher cloud-services and software-maintenance costs.
These increases illustrate the near-term cost of expanding the franchise. Additional staff, marketing, and technology can support future revenue, but they also raise the earnings hurdle the business must clear.
The operating picture was therefore constructive but not unqualified. Business volumes and revenue increased, while higher expenses absorbed part of the benefit. Net income available to common shareholders grew approximately 3.4%, below the 6.4% increase in diluted EPS.
Credit Quality: Sequential Improvement, but a Mixed Annual Comparison
Credit-loss expense increased to $12.1 million from $6.8 million a year earlier and $9.8 million in the second quarter.
Net charge-offs were $8.4 million, above the $6.6 million recorded a year earlier but below the second quarter’s $9.5 million.
Non-accrual loans declined sharply from $112.7 million in the second quarter to $63.7 million. However, they remained above the $44.8 million recorded a year earlier.
The appropriate interpretation is balanced. Several credit indicators improved sequentially, but the year-over-year comparison was less favorable.
The allowance for credit losses represented 1.23% of total loans, unchanged sequentially and below 1.31% a year earlier. That ratio should be assessed alongside loan growth, portfolio composition, charge-offs, and problem-loan trends rather than used alone to judge reserve adequacy.
Capital, Buybacks, and Dividends
Cullen/Frost ended the quarter with a Common Equity Tier 1 capital ratio of 13.76%, compared with 14.14% a year earlier. The company reported that its regulatory capital ratios remained above well-capitalized thresholds and applicable minimum requirements.
During the quarter, Frost repurchased 92,700 common shares for $15.0 million. Approximately $125.0 million remained under the existing repurchase authorization at quarter-end.
The board also declared a fourth-quarter common dividend of $1.03 per share, payable December 15, 2026, to shareholders of record on November 30.
Reported shareholders’ equity declined year over year, while adjusted equity excluding accumulated other comprehensive income or loss increased. These measures describe different aspects of the balance sheet and should not be treated as substitutes for one another.
Guidance and Outlook
The earnings release reviewed for this article did not establish a new numerical full-year guidance range. This review therefore does not describe annual guidance as raised, lowered, or reaffirmed based solely on that release.
The main operating priorities remain:
- Sustaining loan growth without weakening underwriting discipline.
- Attracting deposits while managing funding costs.
- Converting customer additions into recurring banking, wealth, and insurance revenue.
- Controlling expenses as the franchise expands.
- Maintaining credit quality as the loan portfolio grows.
These are analytical watchpoints, not management-issued numerical targets.
Analysis and Review
Franchise Growth Was Broader Than Lending Alone
Loans, deposits, banking households, managed accounts, and insurance customers all increased. That breadth is more informative than EPS growth alone because it shows expansion across several parts of the customer franchise.
However, customer growth is an input, not a complete measure of financial success. Its value depends on whether those relationships generate sufficient recurring income to cover acquisition and servicing costs while producing attractive returns.
EPS Growth Outpaced Growth in Total Profit
Diluted EPS increased approximately 6.4%, while net income available to common shareholders increased approximately 3.4%. A lower diluted share count contributed to the difference.
Repurchases can improve per-share results, but they should not be confused with faster growth in total business earnings. Both measures matter when evaluating the quarter.
Margin Improvement Was Encouraging
The wider net interest margin supported income growth despite a lower average loan yield than a year earlier.
However, the sequential increase in interest-bearing deposit costs shows why further margin expansion should not be assumed. Asset repricing, deposit pricing, and the mix of new business will remain important influences on profitability.
Expense Conversion Is the Main Operating Test
Frost’s expansion produced measurable growth in customers and balances, but it also required higher spending.
The critical question is whether revenue from the larger franchise can grow faster than the associated expense base over time. This quarter demonstrated business momentum, but only modest growth in total common-shareholder earnings.
Credit Trends Require Continued Monitoring
The sharp sequential decline in non-accrual loans was encouraging. Nevertheless, higher year-over-year credit-loss expense and charge-offs argue against describing credit quality as uniformly stronger.
The most useful assessment will track several indicators together rather than relying on one favorable quarterly movement.
Conclusion
Cullen/Frost delivered a quarter of expanding customer relationships, stronger lending volumes, and improved net interest margin. Wealth management and deposit-service income provided additional support beyond the lending business.
Higher operating expenses and increased year-over-year credit costs limited profit growth. Diluted EPS also benefited from a lower share count, making total net income an important companion measure.
The operating direction was constructive. The next challenge is converting the expanding franchise into stronger earnings growth while preserving funding discipline and credit quality.
Key Financial Tables
Amounts are USD millions unless otherwise stated. Figures are rounded. GAAP and taxable-equivalent revenue presentations are identified separately.
Earnings and Consensus Scorecard
| Metric | Q3 2026 Actual | Consensus Used | Result |
|---|---|---|---|
| Diluted EPS | $2.84 | $2.79 | Beat by $0.05 |
| Revenue on a taxable-equivalent presentation | $626.7 million | $608.7 million | Beat by approximately $18.0 million |
| Taxable-equivalent net interest income | $490.8 million | $480.6 million | Beat by approximately $10.2 million |
The taxable-equivalent revenue presentation combines taxable-equivalent net interest income and non-interest income. It is not the GAAP revenue total.
Key Income-Statement Items
| Metric | Q3 2026 | Q2 2026 | Q3 2025 |
|---|---|---|---|
| GAAP net interest income | 467.9 | 447.7 | 441.6 |
| Non-interest income | 136.0 | 128.3 | 125.6 |
| GAAP net interest income plus non-interest income | 603.8 | 576.0 | 567.3 |
| Non-interest expense | 377.2 | 361.7 | 352.5 |
| Credit-loss expense | 12.1 | 9.8 | 6.8 |
| Net income available to common shareholders | 178.5 | 170.4 | 172.7 |
| Diluted EPS | $2.84 | $2.70 | $2.67 |
| Net interest margin | 3.78% | 3.75% | 3.69% |
Totals may differ slightly from the sum of displayed components because of rounding.
Revenue Breakdown
| Revenue Component | Q3 2026 | Q3 2025 |
|---|---|---|
| GAAP net interest income | 467.9 | 441.6 |
| Trust and investment management fees | 49.5 | 44.8 |
| Deposit service charges | 36.3 | 31.4 |
| Insurance commissions and fees | 15.8 | 15.4 |
| Interchange and card transaction fees | 6.8 | 5.5 |
| Other charges, commissions, and fees | 13.9 | 14.7 |
| Securities transaction losses | (7.5) | — |
| Other non-interest income | 21.1 | 13.7 |
| Total non-interest income | 136.0 | 125.6 |
Components may not sum precisely because of rounding.
Key Balance-Sheet Items
| Period-End Metric | Sept. 30, 2026 | June 30, 2026 | Sept. 30, 2025 |
|---|---|---|---|
| Total assets | 54,516 | 53,881 | 52,533 |
| Loans | 23,657 | 22,976 | 21,446 |
| Total deposits | 44,222 | 43,334 | 42,517 |
| Reported shareholders’ equity | 3,974 | 4,623 | 4,461 |
| Adjusted equity excluding AOCI | 5,578 | 5,474 | 5,385 |
AOCI means accumulated other comprehensive income or loss. Adjusted equity is distinct from reported shareholders’ equity.
Credit, Capital, and Returns
| Metric | Q3 2026 | Q2 2026 | Q3 2025 |
|---|---|---|---|
| Net charge-offs, USD millions | 8.4 | 9.5 | 6.6 |
| Non-accrual loans, USD millions | 63.7 | 112.7 | 44.8 |
| Loan-loss allowance / total loans | 1.23% | 1.23% | 1.31% |
| Common Equity Tier 1 ratio | 13.76% | 13.95% | 14.14% |
| Return on average assets | 1.31% | 1.30% | 1.32% |
| Return on average common equity | 16.16% | 15.41% | 16.72% |
Disclaimer
This article is for informational and educational purposes only and is not investment advice or a recommendation to buy, sell, or hold any security. It does not consider individual investment objectives, financial circumstances, or risk tolerance.
Figures may be rounded, revised, or superseded. Consensus estimates vary by provider and timing. Taxable-equivalent and adjusted measures supplement, but do not replace, GAAP financial information.
Forward-looking assessments involve uncertainty, and actual outcomes may differ materially. Investing involves risk, including loss of principal. Readers should independently evaluate company disclosures and seek appropriately qualified advice where necessary.