Frost Bank (CFR)

Texas-based financial institution Cullen/Frost Bankers (NYSE:CFR) met Wall Streets revenue expectations in Q4 CY2025, with sales up 8.3% year on year to $580.9 million. Its GAAP profit of $2.56 per share was 3.8% above analysts’ consensus estimates.

Company Overview

Tracing its roots back to 1868 when it was founded during Texas's post-Civil War reconstruction era, Cullen/Frost Bankers (NYSE:CFR) operates Frost Bank, a Texas-based financial institution providing commercial and consumer banking, wealth management, and insurance services.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Cullen/Frost Bankers competes with other regional banks operating in Texas such as Prosperity Bancshares (NYSE:PB), Texas Capital Bancshares (NASDAQ:TCBI), and Comerica (NYSE:CMA), as well as national banks with significant Texas presence including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Luckily, Frost Bank’s revenue grew at a decent 11% compounded annual growth rate over the last five years. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Frost Bank’s recent performance shows its demand has slowed as its annualized revenue growth of 6.1% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Frost Bank grew its revenue by 8.3% year on year, and its $580.9 million of revenue was in line with Wall Street’s estimates.

Net interest income made up 76.8% of the company’s total revenue during the last five years, meaning lending operations are Frost Bank’s largest source of revenue.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Frost Bank’s EPS grew at a remarkable 14.2% compounded annual growth rate over the last five years, higher than its 11% annualized revenue growth. However, we take this with a grain of salt because its efficiency ratio didn’t improve and it didn’t repurchase its shares, meaning the delta came from factors we consider non-core or less sustainable over the long term.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Frost Bank, its two-year annual EPS growth of 4.4% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, Frost Bank reported EPS of $2.56, up from $2.36 in the same quarter last year. This print beat analysts’ estimates by 3.8%. Over the next 12 months, Wall Street expects Frost Bank’s full-year EPS of $9.92 to stay about the same.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Frost Bank has averaged a Tier 1 capital ratio of 13.7%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Frost Bank has averaged an ROE of 15.3%, impressive for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Frost Bank.

We struggled to find many positives in these results. Its net interest income missed and its EPS slightly exceeded Wall Street’s estimates. Overall, this was a softer quarter. The stock traded up 3.9% to $140.42 immediately after reporting.

Updated: January 29, 2026 at 9:17 AM EST

Before making an investment decision, investors should account for Frost Bank’s business fundamentals and valuation in addition to what happened in the latest quarter.

Frost Bank doesn’t top our investment wishlist, but we understand that it’s not a bad business. To kick things off, its revenue growth was good over the last five years. And while Frost Bank’s projected EPS for the next year is lacking, its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

Frost Bank’s P/B ratio based on the next 12 months is 1.8x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $138.27 on the company (compared to the current share price of $140.42).