$115.37
$181.34
bear $115.37
base $154.30
bull $181.34
margin of safety $95.00
market price* $155.05
Cullen/Frost is the holding company for Frost Bank, a Texas-only commercial and consumer bank with about 204 financial centers in Austin, Dallas, Fort Worth, Houston, San Antonio, the Gulf Coast (Corpus Christi and the Rio Grande Valley) and the Permian Basin. At June 30, 2026 it held about $53.9 billion of assets and $43.3 billion of deposits. It earns mainly the spread between what it pays for deposits and what it earns on loans and securities (net interest income of $1.74 billion in 2025), plus fee income. How we measured earnings. We measure what a shareholder could take out of the business each year: cash from operations, less swings in working capital, less stock compensation, less the part of capital spending needed just to stay in place. For a bank we also treat two non-cash charges as real recurring costs instead of adding them back: the provision for credit losses and the amortisation of premiums paid on securities. On that basis earnings per share were $4.11 (2016), $5.55, $7.22, $4.41, $2.57, $6.79, $8.59, $7.78, $7.89 and $8.99 (2025). Three years are not representative of today's bank. 2019 carried $207 million of capital spending against $34 million to $79 million in 2016 to 2018. 2020 carried a $241 million pandemic-era provision for credit losses. 2021 was earned at near-zero interest rates, before the repricing of loans and deposits that began in 2022. We therefore anchor on 2022 to 2025, whose median is $8.24 per share. In 2025 operating cash flow was only $274 million against $649 million of net income, because accrued interest payable and other liabilities fell by $559 million. We did not trace the cause of that movement; we removed it as working-capital timing, so it does not affect our earnings figures. Growth credited, and what was left out. Earnings per share rose 13.9% in 2025 ($8.99 versus $7.89), and every case here starts below that pace: the base case assumes 4.0% in year 1. The growth we credit is the continuation of something the bank has done for many years, through the 2020 pandemic and the 2023 bank stress, funded from its own deposits: diluted earnings per share rose from $4.70 in 2016 to $9.92 in 2025 (8.7% a year), loans grew by $1.7 billion, $2.0 billion and $1.2 billion in 2023, 2024 and 2025, and the filing describes ongoing investment in organic expansion in its markets. We credit less than that record and taper it as the base grows. We give no credit for acquisitions, new products, a rebound in rates or wider margins, and we assume no growth at all after year 10; instead we assume the existing earnings power simply continues, as the franchise has through every cycle in our data. Growth is not free for a bank: it must hold more capital as it grows, so each year we deduct growth times about $70 of book value per share (for example $2.80 of the $8.57 earned in year 1 of the base case) and count only the remainder as cash available to owners. A bank's deposits and other funding are the raw material of its business and interest on them is already deducted from earnings, so the only claim we subtract is the $145.5 million of 4.45% Series B preferred stock, worth about $111 million at a 6% discount rate, or $1.76 per share. Base case, $154.30 per share. Earnings start at $8.24 and grow 4.0% in year 1, easing by a quarter point a year to 1.75% in year 10, reaching $10.94 per share, and then stay flat. The next ten years of cash available to owners are worth $54.26 per share today, and the flat earnings after year 10 are worth $101.79. The business is worth $156.06 per share, it owes $1.76 (preferred), leaving $154.30. Bear case, $115.37 per share. Two named pressures. First, funding mix: non-interest-bearing deposits fell from about $18.4 billion (roughly 43% of deposits) at the end of 2021 to $14.1 billion (33%) at the end of 2025, and further migration into interest-bearing accounts as rates fall would compress the margin. We therefore reset earnings to $6.79, what the bank earned in 2021. Second, credit: the bank lends only in Texas, and 2020 showed a provision of $241 million against $44 million in 2025. We assume a repeat in year 2, an extra $2.45 per share after tax, and growth of only 2% for five years and 1% for five more, then flat. The business is worth $117.13 per share ($43.80 from the first ten years, $73.33 after), it owes $1.76, leaving $115.37. Because this is a bank with no maturing debt to refinance, the bear case is driven by earnings, not by a funding problem. Bull case, $181.34 per share. Earnings stay at the 2025 level of $8.99, which the bank has already reached, and growth runs at 5.5% easing to 2.8% in year 10, still below its 8.7% per-share record, reaching $13.50 per share, then flat. The business is worth $183.09 per share ($57.49 from the first ten years, $125.60 after), it owes $1.76, leaving $181.34. What we tested. The main risk to the base case is that falling rates cut earnings. The record so far does not show it: in 2025 interest paid on deposits fell to $533 million from $629 million, while net interest income rose 8.2% to $1,736 million, and in the first half of 2026 net interest income rose 4.8% and net income rose 11.4% to $343 million ($5.35 per diluted share against $4.69). The first-half buyback of $163 million also cut the diluted share count to about 62.5 million from 64.1 million for 2025; we give no credit for that beyond the per-share history. What would make us wrong: a Texas real estate or energy downturn larger than the one the bank absorbed in 2020, or continued loss of non-interest-bearing deposits without offsetting growth. Change since our August 2026 analysis (base $123, bear $70, bull $144). That version discounted at 10%; this one uses a fixed 6% rate with the risk carried in the cases, which raises all three values. Earnings are lower this time, $8.24 anchor against $9.75 before, because we now charge stock compensation, capital spending above depreciation and securities premium amortisation, and we deduct the capital a bank must retain to grow. The bear case rises mainly because of the discount rate, not because we see less risk. The margin-of-safety price is $95, about 38% below the base case and about 18% below the bear case. That is a wider cushion than for a steady business because earnings depend on the interest-rate cycle and on one state's credit conditions; from that price, a return to base value over a few years, plus dividends, implies roughly a 20% annual return in the base case.