# Frost Bank (CFR) — Financial Analysis

**Exchange:**   
**Coverage as of:** 2026-Q2  
**Updated:** 2026-06-12  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/CFR/thesis · /stocks/CFR/memo

## Financial Snapshot

---
source: coverage-next-full
step: 04
ticker: CFR
company: Cullen/Frost Bankers, Inc.
title: Financial Quality & Adversarial Sweep
generated: 2026-06-11
---

### Step 04 — Financial Quality & Adversarial Sweep: CFR (Cullen/Frost Bankers)

#### 1. Statement Quality Assessment

##### 1a. Income Statement Quality

CFR's reported income statement is high quality with minimal adjustment risk. Key observations: [S2] [S3]

**Revenue recognition:** Net interest income is straightforward — accrual-basis interest on loans/securities, reduced by interest expense on deposits/borrowings. No revenue recognition controversy. Noninterest income from trust services is also straightforward AUM-fee based. No contingent revenue streams or complex revenue recognition to unpack.

**One-time items / normalizations:**
| Item | Year | Amount | Direction |
|------|------|--------|-----------|
| Special FDIC deposit insurance surcharge | FY2023 | ($51.5M) | Reduce income; one-time industry-wide charge |
| Houston/Dallas branch opening costs | FY2023–FY2025 | ~$30–50M incremental | Ongoing; expected to decline as branches mature |
| Provision for credit losses | FY2020 | ($241M) | COVID reserve build; non-recurring |
| Securities gains/losses | Varies | Modest | Often small; HTM portfolio shields volatility |

**Adjusted Net Income (FY2023):** Adding back the $51.5M FDIC surcharge (at ~21% effective tax): ~$40.7M after-tax add-back → adjusted net income ~$638M vs. reported $598M. This helps explain why FY2023 EPS ($9.10) appeared to slightly exceed FY2024 ($8.87) despite underlying business improvement in FY2024. [S3]

**AOCI / Unrealized losses:** CFR's equity declined from $4.44B (FY2021) to $3.14B (FY2022) primarily due to AOCI unrealized losses on the AFS securities portfolio as rates spiked. The HTM portfolio ($3.4B) shields additional losses from equity. As rates moderate, unrealized losses have been recovering — equity recovered to $4.57B by FY2025. This was a balance-sheet accounting artifact, not an operating performance issue. [S2]

##### 1b. Balance Sheet Quality

**Loan book quality:**
- Allowance for Credit Losses (ACL): ~$250–265M as of mid-2024; ~1.2–1.3% of gross loans
- NCO ratio: Historically below 0.1% (exceptional); rising modestly toward 0.2–0.25% as post-COVID normalization proceeds
- Non-performing loans: Disclosed as low in recent 10-Ks; specific NPL ratio below peer medians
- Energy loan concentration (~10–15% of loans): Primary credit risk concentration; well-managed historically through multiple oil-price cycles

**Securities portfolio:**
- HTM securities: $3.4B (FY2025) — carries locked-in yields, insulates book equity from rate moves but limits flexibility
- AFS securities: Larger portion of the ~$22–24B total securities portfolio; subject to mark-to-market equity impact
- Municipal bonds: Significant portion of securities portfolio, providing tax-equivalent yield benefits

**Deposit quality:**
- Uninsured deposits: 52% as of FY2025 10-K — elevated vs. large banks (~35–40%), but context matters: CFR's depositor base is heavily commercial (operating accounts) with multi-product relationships, not concentrated in a single industry (unlike SVB's venture client base)
- 10 largest depositor relationships: Not disclosed, but commercial diversification is cited as a mitigant

**Off-balance-sheet exposures:**
- Unfunded loan commitments: Standard for commercial banking; not a material quality concern
- No significant securitization, off-balance-sheet SPE, or synthetic derivative concentration reported

##### 1c. Cash Flow Statement Quality

Operating cash flow is volatile year-to-year for CFR due to the securities portfolio timing effects. FY2025 operating CF of $274M was notably below FY2024's $990M — but this reflects securities portfolio changes, not underlying earnings deterioration. Net income of $649M is the cleaner profitability signal. [S2]

Dividend coverage: Dividends paid $262M in FY2025 vs. net income $649M → payout ratio ~40%, sustainable with meaningful buffer. 31+ consecutive years of dividend increases signals management commitment to dividend growth. [S5]

#### 2. Adversarial Research Sweep

*Note: This analysis covers short reports, adverse regulatory actions, investigations, lawsuits, and material controversies. No earnings transcripts were reviewed; analysis is based on SEC filings, proxy, and web search for adverse events.*

##### 2a. Short Seller Reports
**Finding: None identified.** [S6]
No material short seller reports targeting CFR were identified through web search. CFR has a very low short interest ratio (typically <2% of float), consistent with a conservative bank with a long track record and no accounting complexity. The bank's simple Texas-only model and transparent reporting leave little surface area for activist short positions.

##### 2b. SEC / Regulatory Investigations
**Finding: None identified.** [S6]
CFR discloses the standard "we are subject to legal proceedings from time to time" language in the 10-K risk factors. No material SEC enforcement actions, DOJ investigations, OCC formal agreements, or consent orders are disclosed in the FY2025 10-K or recent 8-Ks.

##### 2c. Consumer Complaints / CFPB Actions
**Finding: Low risk.** [S6]
CFR's J.D. Power #1 Texas customer satisfaction ranking (39+ consecutive years as claimed in investor materials) is inconsistent with material consumer complaint patterns. No CFPB public enforcement action against CFR was identified. Standard banking complaint activity is expected for a bank of CFR's size.

##### 2d. Environmental / ESG Litigation
**Finding: Not material.** [S6]
Energy sector lending (~10–15% of loans) creates indirect ESG exposure. Some ESG-focused investors have flagged fossil fuel lending as a concern. However, no ESG-related litigation or regulatory action targeting CFR's lending practices was identified.

##### 2e. Employment / Governance Controversies
**Finding: None identified.** [S6]
DEF 14A (2026 proxy) shows 96%+ say-on-pay approval, no significant shareholder proposals against management, and no noted employment-related lawsuits of significance. Executive compensation structure (83% at-risk, no employment agreements) appears well-designed. [S4]

##### 2f. CRE / Loan-Quality Red Flags
**Finding: Watch list item — CRE concentration.** [S3]
The primary financial risk identified in 10-K risk factors is commercial real estate concentration. The 10-K discloses:
- Commercial real estate (including construction): ~30–35% of gross loans
- Energy: ~10–15% of gross loans
- Combined "concentration" risk: ~45–50% of loan book in sectors with potential correlated stress

However, CFR's actual historical credit performance has been exceptional — NCO rates below 0.1% in most years, reserve adequacy consistently above peer medians, and no significant impairment events through multiple Texas real estate and energy cycles. This is a known risk, not a hidden risk.

##### 2g. Uninsured Deposits
**Finding: Elevated but manageable.** [S3]
52% uninsured deposits (reported in FY2025 10-K) is above the national average. In the context of SVB (which had 94% uninsured from a single-industry depositor base), CFR's profile is meaningfully different: diversified across Texas industries and geographies, with commercial clients whose deposit relationships are multi-product and long-standing. Risk is manageable but should be monitored.

#### 3. Quality Summary

| Quality Dimension | Assessment | Score (1–5) |
|------------------|-----------|-------------|
| Revenue recognition | Clean, straightforward | 5 |
| One-time item transparency | Well-disclosed; FDIC surcharge clearly flagged | 5 |
| Securities portfolio management | Prudent HTM shield; AFS manageable | 4 |
| Credit quality | Exceptional historical NCO record | 5 |
| Governance / compensation | Shareholder-aligned, transparent | 5 |
| Uninsured deposit risk | Elevated concentration; managed by diversification | 3 |
| Regulatory / litigation | No material issues | 5 |
| **Overall Quality** | **High** | **4.6 / 5.0** |

**Conclusion:** CFR is a high-quality bank with transparent financials, exceptional credit culture, and minimal accounting complexity. The primary risks are balance-sheet structural (uninsured deposits, securities portfolio mark-to-market, CRE concentration), not earnings quality or governance related.

#### Source Index

| ID | Source |
|----|--------|
| S1 | Business model |
| S2 | SEC EDGAR XBRL (CIK0000039263) |
| S3 | SEC 10-K FY2023, FY2024, FY2025 |
| S4 | DEF 14A 2026 (proxy) |
| S5 | StockAnalysis.com / consensus data |
| S6 | Web search — adverse events, short reports, regulatory actions |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/CFR/fundamental

## Navigation

- Overview: /stocks/CFR
- Financials (this page): /stocks/CFR/financials
- Thesis: /stocks/CFR/thesis
- Investment Memo: /stocks/CFR/memo
- Coverage universe: /stocks