Cullen/Frost Bankers, Inc. (CFR): what the price assumes

In the published model solve dated 2026-Q2, anchored at $162.62, Cullen/Frost Bankers, Inc. (CFR) is priced for 17.5% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/CFR

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 10% cost of equity; ROE searched up to the 15.3% ROE ceiling.

How unusual the bet is: elevated

Valuation X-Ray

The price is supported by asset-based value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Asset

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 2.7%); the inversion above states its own rate.

Per-Model Detail (n=5)

Economic-Unit Decomposition (Sum Of The Parts)

The issuer is a funded financial business. Debt, interest, and cash flows are operating inputs, so industrial EV, net-debt, WACC, and free-cash-flow lenses do not apply; value the common-equity claim with book, earnings, capital, and payout economics.

No unit-level total common-equity value is stated. Each financial unit requires supported standalone common equity, normalized earnings, capital adequacy, and payout capacity. Consolidated debt, interest, and cash are operating balances, not an enterprise-to-equity bridge; company-level book, earnings, capital, and payout lenses remain the coherent cross-checks.

Solvency

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

• Stated book value and tangible book value are the same figure at Cullen/Frost, 71.80 dollars of book per share, which means the equity behind the stock is real capital rather than the accumulated premium of past acquisitions.

• The price, at 2.35 times that book, sits at the very top of its peer group and assumes the bank keeps earning an elite-tier return on equity for roughly three decades, against the 14.5% it has actually been earning lately.

• Concentration is the specific risk to watch: real estate made up 64.1% of total loans at December 31, 2025, and the weighted-average risk grade on the energy book, a much smaller 5.0% of loans, deteriorated to 6.16 from 5.58 over the year.

Bull Case

A screen looking at this bank sees 2.35 times book value and stops there, which is the wrong place to stop. The number that explains the premium is not on the income statement at all. It is the price of money. During the first quarter of 2026 the average rate paid on interest-bearing liabilities was 1.72%, down 40 basis points from 2.12% a year earlier, while average deposits still grew by $567.9 million. Deposits got cheaper and there were more of them. That combination is rare, and it is the entire foundation of a bank's economics: what you pay for funding sets the floor under every loan you will ever make.

The second thing the screen misses is what the book value is made of. Stated book value per share and tangible book value per share are both $71.80. There is no gap between them, which means the equity carries essentially no goodwill, which in turn means the bank has not spent decades buying growth and capitalizing the receipts. A bank that grows by opening doors rather than by writing checks for other banks ends up with a smaller book value and a higher return on it, and the return on equity here has recently been running near 14.5%. Two banks with identical returns are not identically valuable if one of them has a third of its equity sitting in acquisition premiums.

The business behind that funding advantage is deliberately unfashionable. Frost is organized around two segments, Banking, which includes commercial and consumer services alongside the insurance agency, and Frost Wealth Advisors, with a third holding-company segment that is immaterial. Commercial services run to the practical: treasury and cash management, foreign exchange, standby and import/export letters of credit, documentary collections for customers doing business across the border. That is the plumbing of a mid-sized Texas company's finances, and once a business runs its payroll, its receivables and its trade paper through one bank, moving is genuinely painful. Relationship stickiness is what a 1.72% funding cost looks like from the customer's side.

Wealth is the quieter compounder. Trust and investment fees rose in the first quarter of 2026 on higher valuations in managed accounts and on growth in the number of accounts, with an additional contribution from the timing of court-approved fees on a large guardianship trust. Fee income of that kind carries no credit risk and consumes no capital. It is also the natural extension of the commercial franchise: the same business owners whose companies bank at Frost eventually need somewhere to put the proceeds.

Capital allocation is conservative in the specific way that suits this model. Roughly 64.4% of earnings went out as dividends and buybacks in the latest fiscal year, leaving more than a third retained to fund loan growth, and the share count has edged down about 0.5% a year over the four years to March 2026. No dilution, a growing book, and a return well above what shareholders require. That is what compounding looks like when nobody is doing anything clever.

Bear Case

Real estate made up 64.1% of total loans at the end of 2025, up from 63.0% a year earlier. That is the exposure that matters most, and it is not diversified away by geography, because the geography is Texas. The 10-K is direct about the linkage, listing among the factors that could reduce access to funding "a downturn in the Texas or national economy, difficult credit markets or adverse regulatory actions against us". Property values, construction activity, energy employment and state economic growth are not independent variables here. They are one variable wearing four hats, and every one of them is set outside the bank.

The energy book is smaller than its reputation but it is moving the wrong way. Energy loans were 5.0% of total loans at December 31, 2025, down from 5.4%, yet the weighted-average risk grade on that portfolio deteriorated to 6.16 from 5.58 over the same year. Alongside it, commercial and industrial loans graded watch and special mention rose by $127.3 million. Neither figure is alarming on its own. Both are the kind of early drift that shows up in the risk grades a year or two before it shows up in charge-offs, and it is happening while oil and gas activity is being set by prices and policy the bank does not influence.

Rates are the second external lever, and they cut in the direction opposite to the last year's good news. The funding cost that fell 40 basis points in the first quarter fell because policy rates fell. The same policy path repriced the asset side too: the quarter's net interest income analysis attributes changes partly to the average yield on interest-bearing deposits held at the Federal Reserve, which is the most rate-sensitive asset a bank owns. A bank holding a large balance at the central bank earns exactly what policy pays and not a basis point more. The 10-K notes the obvious constraint, that interest rates "are highly sensitive to many factors that are beyond our control".

Against all of that sits the price. At 2.35 times book the shares carry the highest price-to-book in their peer group, and the return the price is paying for runs above what the bank has actually earned: an elite-tier return sustained for something like three decades before it normalizes. Roughly half of the firms that have reached that level of return sustained it even ten years. The arithmetic of a bank is unsentimental about what happens if the assumption slips. Price-to-book and return on equity are two ends of the same lever: if the return drifts back toward the level a good but ordinary bank earns, the multiple of book the market will pay drifts with it, and a premium of this size has a long way to travel before it becomes a discount.

The competitive backdrop is not standing still either. The company names financial technology competitors among the forces that could pull deposits or offer customers alternative investment options. The funding advantage that justifies the premium is precisely the thing a digital competitor attacks first, because a deposit that pays little is the easiest deposit in the country to bid away.

Valuation

Nothing about this price is subtle. At $164.23 the shares change hands at 2.35 times book value, the highest multiple of book in the peer group, and the assumption embedded in that is specific: the market is paying for the bank to keep earning an elite-tier return on equity, a little above fifteen percent, for something on the order of three decades before it fades. Expressed as a level held forever rather than a level held for a long time, that is about 18.7%. The bank has recently been earning about 14.5%. So the premium is not asking for a transformation. It is asking for persistence, at a level slightly above what it currently achieves, for longer than most banks stay excellent. Roughly half the firms that have reached this level of return sustained it a decade.

The methods used to triangulate the business all land under the price, though they land at very different depths. The earnings-power lens is closest, with the price only about 2% above where that family centers. The price sits about 23% above the peer-multiple family, about 21% above the forward-growth family, and about 27% above the book-based family. Read the pattern rather than the individual numbers: no family reaches the price, but none of them is being left far behind either. This is a stock priced at a modest premium to every conventional lens at once, which is a different situation from one where a single growth method has run away from the others.

The lens built for banks is the most informative of the set. It multiplies tangible book by the ratio of the return the bank earns to the return its shareholders require, then trims the result for the credit reserve carried against the loan book, which stands at about 1.29% of loans. On those inputs it supports a multiple of tangible book only slightly under what the market is actually paying. That is a meaningfully different verdict from the one a generic screen produces, and the reason is the one that shows up everywhere in this bank's numbers: the equity here is not padded with goodwill, so the return is being measured against real capital. Book value per share and tangible book value per share are both 71.80 dollars.

Capital, not leverage, is the frame for a deposit-funded balance sheet, and the picture is orderly. About 64.4% of earnings went out as dividends and buybacks in the latest fiscal year, which leaves a real retention for funding loan growth, and the share count has been falling about 0.5% a year over the four years to March 2026. Trailing earnings of $10.27 against a book value of 71.80 dollars per share is the whole thesis in two numbers. What the buyer at today's price is underwriting is not a recovery and not an expansion, but the continuation of an ordinary-looking bank doing an unusual thing for a very long time.

Catalysts

The cost of money is the live variable, and it moved decisively in the most recent quarter. The average rate paid on interest-bearing liabilities came down to 1.72% in the three months to March 31, 2026, from 2.12% in the same period a year earlier, while average deposits grew $567.9 million, or 1.4%. Both halves of that matter. Falling funding costs widen the margin, but a large share of the asset side sits in an interest-bearing account at the Federal Reserve, which reprices immediately when policy does. The next few margin prints will show which side of the balance sheet repriced faster, and that is the single most useful number to watch here.

Credit metrics are the second thing to track, because they have started to move before losses have. The weighted-average risk grade on the energy portfolio moved to 6.16 at the end of 2025 from 5.58 a year earlier, and commercial and industrial loans in the watch and special mention grades increased by $127.3 million over the same period. Risk grades are the earliest formal signal a bank publishes. If the next annual disclosure shows that drift continuing, provisions follow, and provisions hit earnings faster than any margin change.

Fee income has its own timing wrinkle worth knowing about in advance. Trust and investment management revenue rose in the first quarter of 2026 on higher managed-account valuations and a larger number of accounts, and partly on the timing of certain court-approved fees tied to a large guardianship trust. That last item is lumpy by nature. A reader comparing this segment quarter to quarter should expect the market-linked portion to track asset values and the court-approved portion to arrive whenever a court says so.

Peer Cohorts (Per Segment, With Filing Citations)

Banking (reported)

• CBSH (COMMERCE BANCSHARES, INC.)
• FY2025 10-K: …of credit policies of monetary and fiscal authorities, the Company makes no prediction as to possible future changes in interest rates, deposit levels or loan demand, or their effect on the financial statements of the Company. The financial industry operates under laws and regulations that are under regular review by…
• FY2025 10-K: …cbsh:InterestFeesForgivenMember 2025-01-01 2025-12-31 0000022356 us-gaap:CommercialPortfolioSegmentMember cbsh:BusinessLoanMember cbsh:OtherLoanRestructuringMember 2025-01-01 2025-12-31 0000022356 us-gaap:CommercialPortfolioSegmentMember cbsh:ConstructionAndLandLoansMember us-gaap:ExtendedMaturityMember 2025-01-01…
• BOKF (BOK FINANCIAL CORP)
• FY2025 10-K: …$46.3 million, including a $33.3 million increase in personnel expense and a $13.0 million increase in non-personnel expense. The increase in net income before taxes attributed to Funds Management and Other reflects the ongoing application of the Company's transfer pricing methodology. Table 14 - Net Income Before…
• FY2025 10-K: Personnel expense increased $12.8 million, or 7%, largely driven by increased incentive compensation costs, annual merit increases, and salary adjustments. Non-personnel expense increased $3.3 million, or 3%, as the prior year included a recovery of operational losses. The average outstanding balance of loans…
• ZION (ZIONS BANCORPORATION, NATIONAL ASSOCIATION)
• FY2025 10-K: …• Advanced business succession and estate planning solutions COMPETITION We operate in a highly competitive environment. Our primary competitors for loans, deposits, and other banking services generally include commercial banks, credit unions, fintechs, and private credit or debt funds. Many of these financial…
• FY2025 10-K: …local authority and accountability, including locally informed pricing and product customization, to maximize customer satisfaction, strengthen community relationships, and improve profitability and shareholder returns. The affiliate banks are supported by an enterprise-level segment-referred to as the "Other"…
• CBU (COMMUNITY FINANCIAL SYSTEM, INC.)
• FY2025 10-K: …financial condition and results of operations going forward. ​ Certain negative developments affecting the banking industry have eroded customer confidence in the banking system and may have adverse impacts on the Company's business. ​ The high-profile collapse of certain U.S. banks has generated significant market…
• FY2025 10-K: .7 million in contingent consideration arrangements. The Company recognized $8.4 million of customer list intangible assets and $2.9 million of goodwill in conjunction with these acquisitions. ​ Segment Information ​ The Company has identified four reportable operating business segments: Banking and Corporate,…
• BPOP (POPULAR, INC.)
• FY2025 10-K: …amount of such secured loans is increased to one third of the paid-in capital of the bank and its reserve fund. In no event may the total of unsecured and secured loans to any one person, firm, partnership or corporation exceed an aggregate amount of 33 1/3% of the paid-in capital and reserve fund of the bank. If the…
• FY2025 10-K: …all these parameters to be successful. We experience pricing pressure as some of our competitors seek to increase market share by reducing prices for services or the rates charged on loans, increasing the interest rates offered on deposits or offering more flexible terms. Increased competition could require that we…
• WAFD (WAFD, INC.)
• FY2025 10-K: …lending and other general business purposes. In addition to deposits, the Bank derives funds from loan repayments, advances from the Federal Home Loan Bank of Des Moines ("FHLB - DM"), borrowings from the Federal Reserve Bank ("FRB"), and from investment repayments and sales. Loan repayments are a relatively stable…
• FY2025 10-K: …were classified as held for sale. Interest Rates, Loan Fees and Service Charges. Interest rates charged by the Bank on loans are primarily determined by the competitive loan rates offered in its lending areas and in the secondary market. Loan rates reflect factors such as general interest rates, the supply of money…
• UCB (UNITED COMMUNITY BANKS INC)
• FY2025 10-K: …deposits and capital to fund anticipated loan growth; • maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • hire and retain adequate bankers, management personnel and systems to…
• FY2025 10-K: …that have been integrated into the existing financial and banking systems, such as artificial intelligence, machine learning and continued development of smartphone applications have also been utilized by non-bank competitors, which has siphoned a portion of the revenues from those services away from banks and…
• PB (PROSPERITY BANCSHARES, INC.)
• FY2025 10-K: …with a wide variety of banking products and services. The Company staffs its banking centers with experienced bankers who possess lending expertise to effectively serve their community and gives them authority with centralized support to make certain pricing and credit decisions, avoiding the bureaucratic structure…
• FY2025 10-K: …business is highly competitive, and the profitability of the Company depends principally on its ability to compete in its market areas. The Company competes with other commercial banks, savings banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and…

Frost Wealth Advisors (reported)

• NTRS (NORTHERN TRUST CORP)
• FY2025 10-K: …its FTP methodology, impacting the allocation of Net Interest Income to the Asset Servicing and Wealth Management segments. As a result, the approximate impact on the Asset Servicing and Wealth Management segments was a $ 132.0 million decrease and a $ 132.0 million increase in Net Interest Income, respectively, for…
• FY2025 10-K: …subsidiaries, including support from locations in North America, Europe, the Middle East, and the Asia-Pacific region. At December 31, 2025, total Asset Servicing assets under custody/administration (AUC/A), assets under custody, and assets under management (AUM) were $17.4 trillion, $13.6 trillion, and $1.3…
• TROW (PRICE T ROWE GROUP INC)
• FY2025 10-K: …services, like our other advisory contracts, is satisfied over time and revenue is recognized as time passes. The performance obligation for distribution is satisfied at the point in time when an investor makes an investment into the product. Accordingly, a portion of the investment advisory fees earned from these…
• FY2025 10-K: …collateralized loan obligations. Our investment advisory fees are generally computed using the value of assets under management at a contracted annual fee rate or an effective fee rate for those products with a tiered-fee rate structure. For the majority of our revenue, the value of the assets under management used…
• BEN (FRANKLIN RESOURCES, INC.)
• FY2025 10-K: …the Company. We have one operating segment, investment management and related services. We offer our services and products under our various distinct brand names, including, but not limited to, Alcentra ® , Apera ® , Benefit Street Partners ® , Brandywine Global Investment Management ® , Canvas ® , Clarion Partners ®…
• FY2025 10-K: …classes. Our equity capabilities include value, deep value, core value, blend, growth and growth at a reasonable price, convertibles, sector, Shariah, smart beta and thematic investments. Our fixed income capabilities include government, municipals, corporate credit, bank loans, securitized, multi-sector, and other…
• AMP (AMERIPRISE FINANCIAL INC)
• FY2025 10-K: …amp:AdviceAndWealthManagementMember 2023-01-01 2023-12-31 0000820027 us-gaap:OperatingSegmentsMember us-gaap:InvestmentAdviceMember amp:AssetManagementSegmentMember 2023-01-01 2023-12-31 0000820027 us-gaap:OperatingSegmentsMember us-gaap:InvestmentAdviceMember amp:RetirementAndProtectionSolutionsMember 2023-01-01…
• FY2025 10-K: …srt:ConsolidatedEntityExcludingVariableInterestEntitiesVIEMember us-gaap:FairValueInputsLevel3Member 2025-12-31 0000820027 amp:ContingentConsiderationLiabilityMember us-gaap:MeasurementInputDiscountRateMember srt:ConsolidatedEntityExcludingVariableInterestEntitiesVIEMember us-gaap:FairValueInputsLevel3Member…
• SEIC (SEI INVESTMENTS COMPANY)
• FY2025 10-K: …upmarket focus and cross‑selling SEI's investment capabilities alongside technology and trust‑based custody, with increasing attention to alternatives access. Competitors for our asset management services may include in-house investment teams and global asset management firms, such as LPL Financial and BlackRock.…
• FY2025 10-K: …of operations or financial condition. 27 Ending Asset Balances This table presents ending asset balances of our clients, or of our clients' customers, for which we provide management or administrative services through our subsidiaries and partnerships in which we have a significant interest. Ending Asset Balances (In…
• RJF (RAYMOND JAMES FINANCIAL INC)
• FY2025 10-K: …as a part of our recruiting activities. See Note 2 for a discussion of our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable. September 30, $…
• FY2025 10-K: The firm also offers a mentoring program to all associates who seek additional guidance and advice on their career growth. In alignment with our focus on human capital development and a people-centric culture, we offer voluntary inclusion networks open to all associates and advisors. These networks foster connection…
• LPLA (LPL Financial Holdings Inc.)
• FY2025 10-K: …planning, financial planning and asset management solutions. Please consult Part I, "Item 1. Business" for information related to our business activities. 39 Table of Contents Our Sources of Revenue Our revenue is derived primarily from fees and commissions from products and advisory services offered by our advisors…
• FY2025 10-K: …assets per advisor growing over time. Business services and planning and advice services are a source of organic growth as a larger share of advisors adopts these service solutions. Attracting New Assets to Our Platform We intend to grow the assets served by our platform across traditional markets and through new…
• IVZ (Invesco Ltd.)
• FY2025 10-K: …of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The company is exposed to interest rate risk primarily through its Debt and Cash and cash equivalent investments. On December 31, 2025, the interest rates on 48.8% of the company's borrowings were fixed for a…
• FY2025 10-K: 4208 srt:MinimumMember 2025-12-31 0000914208 srt:MaximumMember 2025-12-31 0000914208 us-gaap:MoneyMarketFundsMember 2025-12-31 0000914208 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2025-12-31 0000914208 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member 2025-12-31 0000914208…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.