CFR

• Overall Financial Results

  • Q2 2026 net income was $170.4 million, up 9.7% year-over-year from $155.3 million
  • Earnings per share (EPS) was $2.70, up 13% year-over-year from $2.39
  • Return on average assets was 1.3% and return on average common equity was 15.41%, outperforming industry averages
  • Average total deposits were $42.6 billion, up from $41.8 billion year-over-year; average total loans grew to $22.6 billion, up from $21.1 billion year-over-year
  • Net interest margin (NIM) was 3.75% in Q2, up 1 basis point quarter-over-quarter

• Organic Growth Strategy

  • Organic expansion launched in late 2018 has driven 47% cumulative growth in consumer checking accounts, with one-third of current customers added since expansion began, confirming the strategy is doable and scalable
  • 82% of new consumer customers added in the last 12 months are under 45 years old (millennials/Gen Z/Gen Y), with 42% of total current consumer customers in this demographic; top reasons new customers choose Frost are convenient branch locations (even for online openers), followed by reputation and family recommendations
  • 5 new branches opened since the last call, with 5 more planned to open in the remainder of 2026

• Credit Quality

  • Total criticized problem loans (risk-rated 10) totaled $917 billion at quarter-end, down from $989 billion both last quarter and year-over-year, driven by successful anticipated resolutions
  • Non-performing assets totaled $114 million at quarter-end (0.49% of period-end loans, 0.21% of total assets), up from $73 million last quarter; the increase is almost entirely from one $54 million Austin multifamily CRE loan going through a property sale expected to resolve in H2 2026, with only a $1.5 million specific reserve held against it
  • Q2 2026 net charge-offs were $9.5 million (annualized 17 basis points of average loans), compared to 11 basis points last quarter and 21 basis points year-over-year

• Balance Sheet & Investment Portfolio

  • Total average investment portfolio was $20.6 billion in Q2, up $796 million quarter-over-quarter; the portfolio taxable equivalent yield increased 11 basis points quarter-over-quarter to 3.96%
  • Q2 2026 investment purchases totaled $2.2 billion, consisting of $1.95 billion of agency MBS yielding 5.32% and $259 million of municipals yielding 5.57% tax-equivalent
  • Portfolio duration decreased to 4.9 years from 5.2 years quarter-over-quarter, reducing interest rate risk
  • Linked-quarter average total deposits increased $394 million, with 80% of the increase in interest-bearing deposits; June 2026 average commercial deposits increased 3.6% ($770 million) from March 2026, and average July 2026 deposits are tracking an annualized 3.9% increase

• Full year 2026 net interest income (NII) growth guidance updated to 4.75% to 5.25%, up from the prior range of 3.5% to 5%; guidance assumes one 25 basis point Fed funds rate hike in September 2026
• Full year 2026 NIM improvement guidance narrowed to 10 to 13 basis points over 2025's 3.66% NIM, from the prior 10 to 15 basis point range
• Full year 2026 average loan growth guidance raised to 7 to 8%, up from the prior 6 to 7% range
• Full year 2026 average deposit growth guidance held steady at 2 to 3%, unchanged from prior guidance
• Full year 2026 non-interest income growth guidance raised to 7.5% to 8.5%, up from the prior 4% to 5% range, driven by stronger than expected wealth management market gains and growing customer-driven fee income
• Full year 2026 non-interest expense growth guidance lowered to 4.5% to 5% year-over-year, down from the prior 5% to 6% range, driven by better than expected first half expense management and growing scale reducing incremental expansion costs
• Full year 2026 net charge-offs are expected to range from 15 to 20 basis points of average loans
• Full year 2026 effective tax rate guidance lowered to 15.5% to 16%, from the prior 15.5% to 16.5% range
• Management expects to maintain positive operating leverage into 2027, with potential for further NIM growth in 2027 if interest rates do not drop sharply

1. Consumer Banking: Total outstanding consumer loans reached $4.5 billion, with 20% year-over-year growth ($751 million annualized growth), driven by $533 million year-over-year growth in mortgage lending and $198 million growth in home equity products. Consumer checking account household growth accelerated to 5.7% year-over-year, up from 5.3% last year. Consumer non-interest income grew 11% year-over-year ($2.8 million increase). Consumer deposits fell 0.7% quarter-over-quarter due to seasonal trends. Consumer banking contributed 20% of overall loan growth and approximately 35% of non-interest income growth. 2. Commercial Banking: The 90-day weighted loan pipeline increased 11% quarter-over-quarter to a record $2.17 billion, split evenly between CNI and C&E/CRE, with 62% of the pipeline from existing customers. Quarter-over-quarter new loan commitment growth was 15% for CNI, 33% for CRE, 47% for energy, and 13% for personal. New commercial relationships were down 1% quarter-over-quarter but marked the fifth consecutive quarter over 1,000 relationships, with 22% of new relationships coming from branch expansion markets. Commercial service charges grew 22% year-over-year, and billable services grew nearly 10% year-over-year. Commercial banking contributed 62% of total loan growth. 3. Wealth Management & Insurance Brokerage: Non-interest income from these lines is growing above prior expectations, driven by higher market levels boosting managed assets and growing customer adoption of wealth management services. Wealth management managed accounts grew 2-3% year-to-date. Overdraft service charges (consumer/commercial) grew 14.4% year-over-year, and interchange income from Visa cards is tracking well above expectations. 4. Expansion Branches: Expansion branches now hold $3 billion in loans (13.4% of total company loans, up from 10.5% year-over-year) and $3.7 billion in deposits (8.7% of total company deposits, up from 7.4% year-over-year). Expansion branches contributed 53% of total company loan growth and 72% of total deposit growth year-over-year, with 38% year-over-year loan growth and 20% year-over-year deposit growth. The segment delivered 16 cents of EPS accretion (5.8% of total Q2 2026 EPS) and 30 cents of year-to-date EPS accretion (5.9% of total year-to-date EPS), and added over 100,000 new customer households.

• Intensifying competition in Texas lending and deposit markets: competition on loan structure (particularly for CRE) has led to loosened credit standards from competitors, forcing Frost to walk away from some deals to preserve credit discipline; large-balance deposit competition includes aggressive temporary rates that Frost chooses not to match, leading to some lost deposit opportunities
• Single-family homebuilders, particularly independent middle-tier and starter-home builders, face pressure from high mortgage rates reducing demand, leading to margin compression as builders buy down rates to attract buyers; this has resulted in some minor risk rating increases, though balance sheets remain generally strong
• A small number of 2022-early 2023 vintage multifamily CRE loans (primarily in Austin) were underwritten at much lower rates and construction costs, and some may require reclassification as non-performing as they work through resolutions, though most have strong sponsorship and limited expected loss
• Higher interest rates increase deposit costs, creating pressure on net interest margin that is only partially offset by asset repricing
• Rising Fed rates could slow loan demand and deposit growth over time, though current pipeline activity remains strong

Q: What is the level of competitive pressure in Texas lending and deposits, and how is Frost responding? / A: Management confirms intensifying competition, particularly for CRE loans where competitors are loosening structure terms in a race to the bottom. Frost is willing to compete on price for quality relationships and has not seen significant deal loss on the CNI side, but will not sacrifice credit structure for growth. On deposits, competition is concentrated in large-balance opportunities where competitors offer temporary aggressive rates; Frost maintains transparent, stable pricing and selectively competes on price to retain core relationships, leading to a modest increase in deposit costs.

Q: Why was 2026 non-interest expense guidance lowered even as revenue guidance was raised? / A: The adjustment is driven by better than expected first half 2026 expense performance (first half expense growth came in at 4.5-4.6%), giving management clearer full year visibility. Growing scale also reduces incremental expansion costs: 13-15 new branches per year create a smaller percentage growth in expenses now that the branch network is much larger than it was at the start of expansion. Management still expects typical seasonal expense increases in Q4 from annual stock award vesting, but overall growth remains controlled.

Q: What is driving the upward revision to loan growth guidance, and how is Frost winning share despite strong competition? / A: A key driver is that Q2 2026 booked over $600 million in revolving lines with less than 10% current advance, creating a natural tailwind as utilization normalizes in the second half of the year. Frost continues to win ~78% of opportunities from customers of recently consolidated/ acquired banks, as customers value Frost's consistent credit culture and stable client coverage versus disrupted service at merged banks. The bank will not loosen credit structure to win growth, resulting in some lost deals but maintaining high quality loan growth.

Q: What are the expectations for deposit beta as rates rise in the second half of 2026? / A: Current deposit beta on interest-bearing deposits is 46%; management expects beta to drift down slightly to the low 40% range in the back half of the year due to pricing tier adjustments made for higher-balance consumer accounts and moderating competitive positioning. June end total deposit cost was 1.11%, with interest-bearing deposit cost at 1.66%, and a September rate hike remains expected to be net positive for NII and NIM.