Cullen/Frost Bankers Q4 Earnings Call Highlights

Cullen/Frost Bankers (NYSE:CFR) reported higher earnings for the second quarter of 2025, alongside year-over-year growth in both deposits and loans, and provided updated full-year guidance that reflects its current interest-rate assumptions and business momentum. Management also discussed continued progress in its multi-year branch expansion strategy across Texas, while noting intensifying competition in certain lending categories.

Second-quarter earnings and balance sheet growth

Chairman and CEO Phil Green said the company earned $155.3 million, or $2.39 per share, in the second quarter of 2025, compared with $143.8 million, or $2.21 per share, in the second quarter of 2024. Return on average assets was 1.22% and return on average common equity was 15.64%, versus 1.18% and 17.08%, respectively, in the year-ago quarter.

Average deposits were $41.8 billion, up 3.1% from $40.5 billion a year earlier. Average loans rose to $21.1 billion, an increase of 7.2% from $19.7 billion in the prior-year quarter.

Branch expansion milestones and customer growth

Green highlighted progress in the bank’s organic expansion strategy, noting the opening of the company’s 200th location during the quarter: the Pflugerville Financial Center in the Austin region. Since launching the strategy in late 2018, the company has increased its financial center count from roughly 130 to 200.

As of the end of the second quarter, management said the overall expansion effort had generated $2.76 billion in deposits, $2.003 billion in loans, and nearly 69,000 new households. On a year-over-year basis, expansion average loans and deposits increased by $521 million and $544 million, representing growth of 35% and 25%, respectively. Using average June month-to-date balances, expansion activity represented 9.6% of company loans and 6.6% of company deposits.

Green reiterated expectations that the expansion initiative will become accretive to earnings in 2026 and said early expansion locations are funding newer markets.

Consumer deposits represented about 46% of total deposits, Green said, and “checking household growth” increased 5.4% year-over-year, which he described as a bellwether for customer growth. Consumer deposits rose 3.7% year-over-year, and Green said the company is encouraged by a return to steady checking-balance growth after a period when growth was more heavily weighted toward certificates of deposit.

In consumer lending, Green said the $3.3 billion consumer real estate portfolio grew outstandings by $600 million year-over-year, a 22% growth rate, driven by second-lien home equity products and a newer mortgage offering.

Commercial lending activity and competitive environment

Green said average commercial loan balances grew $817 million, or 4.9%, year-over-year. Within that:

• CRE balances grew 6.8%
• Energy balances increased 22%
• C&I balances decreased about 1%

Management described strong commercial activity metrics in the quarter. Green said second quarter calls set an all-time record, following a record in the first quarter, and year-to-date calls were up 7%. “Booked opportunities” increased 36% for the quarter, and the company added just under $2 billion in new loan commitments, which Green said was 56% more than the first quarter.

At the same time, management pointed to rising competitive pressures. In response to a question about pricing and underwriting terms, Green said he is seeing price compression in commercial real estate as more lenders re-enter the market, and he emphasized that competition is also showing up in deal structure, including items such as guarantees, equity levels, and other terms. He said the bank is willing to compete on price, but remains focused on protecting the balance sheet when it comes to structure.

Credit quality, margin trends, and 2025 guidance

Green said credit quality remained good by historical standards, with healthy net charge-offs and non-accrual levels. Non-performing assets declined to $64 million at quarter-end from $85 million at year-end, driven largely by a paydown on a non-accrual C&I revolving line of credit. The quarter-end non-performing assets represented 30 basis points of period-end loans and 12 basis points of total assets.

Net charge-offs were $11.2 million in the second quarter, compared with $9.7 million in the prior quarter and $9.7 million a year earlier. Annualized net charge-offs were 21 basis points of average loans. Total problem loans (Risk Grade 10) totaled $989 million, up from $889 million at year-end, with management attributing virtually all of the increase to criticized multifamily loans and expecting resolutions in the third and fourth quarters of 2025.

CFO Dan Geddes said net interest margin rose 7 basis points sequentially to 3.67%, primarily due to a mix shift from balances held at the Fed into higher-yielding loans and securities. He noted investment portfolio activity, including purchases of $475 million in agency MBS (yielding 5.72%) and $378 million in municipal securities (taxable equivalent yield 5.98%), while $675 million of treasuries matured (yield 3.06%) and $76 million of municipals rolled off (taxable equivalent yield 4.05%). The net unrealized loss on the available-for-sale portfolio ended the quarter at $1.42 billion, compared with $1.4 billion at the end of the first quarter.

On funding, average total deposits increased $102 million sequentially to $41.76 billion. The cost of interest-bearing deposits was 1.93%, down 1 basis point from the first quarter. Customer repos averaged $4.25 billion, and their cost increased to 3.23%, up 10 basis points.

Geddes updated full-year 2025 guidance based on an outlook that includes two 25-basis-point Fed cuts in September and October. Key guidance items included:

• Net interest income growth: 6% to 7% (prior guidance: 5% to 7%)
• Net interest margin: improvement of about 12 to 15 basis points over 2024’s 3.53% (unchanged)
• Average loan growth: mid- to high-single digits
• Average deposit growth: 2% to 3%
• Non-interest income growth: 3.5% to 4.5% (prior guidance: 2% to 3%)
• Non-interest expense growth: high single digits
• Net charge-offs: similar to 2024, about 20 to 25 basis points of average loans
• Effective tax rate: 16% to 17% (unchanged)

During the Q&A, management said deposit mix remains a key variable in margin outcomes, with Geddes pointing to growth in higher-cost CDs as one factor affecting the net interest income outlook. Management also discussed capital priorities, emphasizing continued capital building and protecting the dividend, while noting the company has a repurchase authorization that could be used if conditions warrant.

On strategy, Green said the bank is not interested in pursuing bank M&A and remains focused on organic growth within Texas, arguing the company’s organic approach is less costly than paying acquisition premiums and avoids integration challenges. He also said industry consolidation can create customer and banker dislocation that benefits Cullen/Frost.

About Cullen/Frost Bankers (NYSE:CFR)

Cullen/Frost Bankers, Inc is the holding company for Frost Bank, a Texas-chartered financial institution whose origins date back to 1868 in San Antonio. As one of the oldest banking organizations in the state, it offers a broad range of services to individuals, small and large businesses, and institutional clients. Core banking activities include commercial lending, deposit services, cash management and trade finance, while consumer products cover residential mortgages, personal lines of credit and home equity loans.

Beyond traditional banking, the company provides comprehensive treasury and equipment leasing solutions tailored to support working capital and capital expenditure requirements.