Frost Bank parent keeps humming, once again smashes Wall Street's expectations

In spite of swirling uncertainty over tariffs and inflation, the San Antonio-based parent company of Frost Bank continued to operate like a well-oiled machine as it once again surpassed Wall Street’s expectations.

Cullen/Frost Bankers Inc. earned $172.7 million, or $2.67 per share, in the third quarter, well above the $144.8 million, or $2.24 share, in net income produced in the same period last year.

The latest per-share result came in far ahead of the $2.38 expected by 14 Wall Street analysts, according to financial news and analysis website Seeking Alpha.

Frost posted $589.3 million in revenue in the three months ended Sept. 30, up more than 9% from the $538.9 million generated in the same quarter last year. Revenue is comprised of net interest income, essentially the difference between what it makes on loans and what it pays on deposits, and non-interest income.

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Company Chairman and CEO Phil Green described the bank’s financial performance as “across the board.” 

“In the third quarter, our business saw continued steady loan growth as well as the beginning of our usual seasonal strength in deposit flows in the back half of the year,” he said in a statement. “We remained as laser-focused as ever on pursuing our strategy of opening new locations, extending the Frost experience to more families and businesses.”

Frost, which has added about 70 branches in Houston, Dallas and Austin since 2018, now has about 200 locations.

“We continue to build momentum in our newer markets, and we are well-positioned to continue to deliver above-market (internal) growth in any interest rate environment,” Green said.

Analysts at financial services firm TD Cowen recently called Frost a “unicorn” and “perhaps the best run bank in the nation” based on its ability to offer investors “stronger than peer growth.” Frost had $52.5 billion in assets as of Sept. 30 and ranks among the 50 largest banks in the country.

“Cullen/Frost is one of the very few ‘sleep at night’ stocks,” meaning that it’s a stable financial institution that provides investors with peace of mind, TD Cowen added.

TD Cowen initiated coverage of Cullen/Frost last month, rating the stock a “buy” and issuing a $154 price target. Cullen/Frost was trading at about $124, up about 2%, Thursday morning.

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Frost said it averaged $21.5 billion in loans in the third quarter, up nearly 7% from $20.1 billion in the same period last year.

Bankers at 70 financial institutions surveyed by the Federal Reserve Bank of Dallas reported increased loan volume and demand in September despite continuing credit tightening.

“Bankers’ outlooks are mixed,” the Federal Reserve noted. “Survey respondents expect an acceleration in loan demand and increasing business activity six months from now but a moderate deterioration in loan performance.” 

Frost’s net charge-offs, or delinquent loans unlikely to be repaid, shrank to $6.6 million from $9.6 million a year ago. 

It had almost $44.8 million in nonaccrual loans — those where the payments are at least 90 days late — at the end of the third quarter, down sharply from almost $105 million a year ago.

The bank’s credit loss expense, which is the amount it sets aside for potential losses, fell to $6.8 million from $19.4 million.

Frost had average deposits of almost $42.1 billion, up 3.3% from $40.7 billion a year ago.