Frost Bank’s second quarter was marked by ongoing expansion efforts, robust loan and deposit growth, and intensified market competition. Despite exceeding Wall Street’s revenue and non-GAAP profit expectations, the market reacted negatively to the results. Management cited increased operating expenses tied to branch expansion and higher marketing spend as key factors that pressured margins. CEO Phil Green noted, “We continue to see solid results, and it's been driven by the hard work of our Frost Bankers and the extension of our organic growth strategy.” The quarter also saw strong consumer and real estate lending activity, but competitive pricing and structural pressures in commercial lending weighed on profitability.

Is now the time to buy CFR? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Frost Bank’s Q2 Earnings Call

• Jared Shaw (Barclays): Asked about continued margin compression and capital utilization. CEO Phil Green explained competitive pricing pressures in lending but stressed a focus on prudent structure, while CFO Dan Geddes reiterated prioritizing dividend protection over share repurchases at current stock levels.
• Ebrahim Poonawala (Bank of America): Questioned when shareholders would see bottom-line benefits from expansion, given expense growth outpacing revenue. Green responded that meaningful earnings accretion from new branches is expected in 2026, with Geddes highlighting room for further market share gains in Dallas and Houston.
• Casey Haire (Autonomous Research): Inquired about the conservatism in net interest income guidance, noting possible upside from fewer rate cuts. Geddes explained guidance reflects ongoing shifts in deposit mix toward higher-cost products, which could limit margin upside despite favorable rate movements.
• Peter Winter (D.A. Davidson): Asked if branch expansion might extend beyond Texas. Green stated there are no plans to expand outside Texas, emphasizing opportunities to fill gaps within existing markets and the preference for organic growth over acquisitions.
• Jon Arfstrom (RBC Capital Markets): Probed the timeline for expansion branches to match legacy branch returns. Geddes clarified that branches typically break even in years 1–4, with accretion starting in years 5 and beyond, and noted the current expansion is near aggregate breakeven.

Catalysts in Upcoming Quarters

In the coming quarters, our team will focus on (1) tracking the pace at which new Texas branches reach profitability, (2) monitoring deposit mix shifts and their impact on net interest margin, and (3) assessing competitive pressures in commercial lending. Additionally, we will be watching for any changes in the timing or magnitude of Federal Reserve rate cuts and how those influence both funding costs and loan demand.

Frost Bank currently trades at $124.85, down from $134.22 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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