Executive Summary

EPS of $2.30 beat consensus by $0.13; “revenue” (S&P-defined) missed, but net interest margin expanded 7 bps to 3.60% and noninterest income grew 11% YoY, driven by insurance and service charges .
Management raised full‑year NII growth guidance to 5–7% (from 4–6%) and NIM improvement to 12–15 bps (from ~10 bps), citing higher‑yield securities purchases and lower deposit costs; tax rate raised to 16–17% .
Average loans +8.8% YoY to $20.8B and average deposits +2.3% YoY to $41.7B; CET1 13.84% underscores capital strength .
Board increased quarterly dividend 5.3% to $1.00, reinforcing capital return while buybacks remain opportunistic; dividend cadence is a stock‑supportive catalyst .

What Went Well and What Went Wrong

What Went Well

Net interest margin improved to 3.60% (up 7 bps QoQ) on higher‑yield securities and lower interest‑bearing deposit costs; CFO: “we expect NII growth…5% to 7%” for 2025 .
Robust noninterest income: insurance commissions +14.9% YoY; service charges +15.4% YoY; trust & investment management fees +9.8% YoY, reflecting organic growth and market tailwinds .
Strategic expansion: ~200 locations by next month; 50%+ increase since 2018; consumer checking households up 5.7% YoY and mortgage balances grew, supporting durable organic growth. CEO: “our strong first quarter results demonstrate that our strategy is working” .

What Went Wrong

S&P-defined “revenue” missed consensus again; despite EPS beat, reported revenue lagged estimates across recent quarters [GetEstimates*].
CRE headwinds: elevated payoffs (~$430M in Q1 vs ~$150M a year ago) and competitive pressure (pricing/structure) constrain loan growth despite record pipelines .
Non‑accrual loans rose to $83.5M (vs $78.9M in Q4); allowance ratio edged up to 1.32%; reserve build included tariff/recession risk adjustments .

Financial Results

Income, EPS, and “Revenue” vs Estimates

Metric	Q3 2024	Q4 2024	Q1 2025
Diluted EPS ($)	$2.24	$2.36	$2.30
S&P “Revenue” Actual ($MM)*	$498.7*	$520.2*	$527.2*
S&P “Revenue” Consensus ($MM)*	$519.8*	$535.9*	$541.5*
Net Interest Income ($MM)	$404.3	$413.5	$416.2
Net Interest Income (TE) ($MM)	$425.2	$433.7	$436.4
Noninterest Income ($MM)	$113.7	$122.8	$124.0
NIM (%)	3.56%	3.53%	3.60%

Note: Values with asterisks retrieved from S&P Global.*

Balance Sheet and KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Avg Loans ($MM)	$20,084	$20,346	$20,788
Avg Deposits ($MM)	$40,733	$41,885	$41,658
ROA (%)	1.16%	1.19%	1.19%
ROE (%)	15.48%	15.58%	15.54%
CET1 (%)	13.55%	13.62%	13.84%
Non‑accrual Loans ($MM)	$104.9	$78.9	$83.5
Allowance for Credit Losses ($000)	$263,129	$270,151	$275,488
ACL / Loans (%)	1.31%	1.30%	1.32%
Net Charge‑offs ($000)	$9,640	$13,962	$9,691

Segment/Component Breakdown (Selected)

Component	Q3 2024	Q4 2024	Q1 2025
Service Charges on Deposits ($MM)	$27.41	$27.91	$28.62
Insurance Commissions & Fees ($MM)	$14.84	$14.21	$21.02
Trust & Investment Mgmt Fees ($MM)	$41.02	$43.77	$42.93
Deposit Insurance ($MM)	$7.24	$6.92	$7.18

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Fed funds cuts assumption	FY 2025	2 cuts (Jun, Sep)	4 cuts (Jun, Jul, Sep, Oct)	Increased cuts
Net Interest Income (YoY)	FY 2025	+4% to +6%	+5% to +7%	Raised
NIM improvement vs 2024	FY 2025	~+10 bps	~+12 to +15 bps	Raised
Avg Loan Growth	FY 2025	Mid‑ to high‑single digits	Mid‑ to high‑single digits	Maintained
Avg Deposits Growth	FY 2025	+2% to +3%	+2% to +3%	Maintained
Noninterest Income Growth	FY 2025	+1% to +2%	+2% to +3%	Raised
Noninterest Expense Growth	FY 2025	High single digits	High single digits	Maintained
Net Charge‑offs (bps of avg loans)	FY 2025	20–25 bps	20–25 bps	Maintained
Effective Tax Rate	FY 2025	15%–16%	16%–17%	Raised

Earnings Call Themes & Trends

Topic	Q3 2024 (Q‑2)	Q4 2024 (Q‑1)	Q1 2025 (Current)	Trend
Deposit beta & costs	Early down‑beta expectations; mix shift into CDs	Cost of interest‑bearing deposits fell 27 bps QoQ to 2.14%	Cumulative beta ~47%, spot ~50%; cost down to 1.94%	Improving funding costs
Bond portfolio strategy	Optionality; limited purchases	Purchases $840MM (MBS 5.8% yield), $500MM treasuries matured at 0.96%	Purchases $2.1B (MBS 5.82%, munis 5.55%); plan ~$850MM more; 2025 roll‑offs just under $2B	Accretive reinvestment driving NIM
CRE/payoffs & private credit	Problem loans down; NPL uptick from identified credit	Competitive landscape heating; private credit bridging CRE	~$430MM payoffs; loss to pricing/structure up 65%; private credit bridges multifamily	Payoffs headwind; competition elevated
Consumer growth & mortgage	Consumer loans +21% YoY; mortgage portfolio $179MM	Mortgage fundings $75MM; portfolio $259MM; consumer loans +21%	11th straight quarter ~20% growth; mortgage fundings $39MM; balances $297MM, 30% new‑to‑bank	Durable consumer momentum
Tariffs/macro sentiment	Pent‑up demand pre‑election; asset sensitivity noted	2025 plan assumed 2 cuts	Customers show confidence passing through costs; guide now 4 cuts	Mixed macro; cautious but confident
Capital return	Buybacks ~$20MM YTD at ~$102 avg	New $150MM buyback authorization; dividend $0.95	Dividend raised to $1.00; buybacks opportunistic	Dividend prioritized

Management Commentary

CEO Phil Green: “We remain focused on…sustainable organic growth…our strong first quarter results demonstrate that our strategy is working” .
CFO Dan Geddes: “Despite…4 rate cuts, we…now expect net interest income growth…5% to 7%…and NIM improvement…12 to 15 bps” .
CEO Phil Green on expansion: 200th location imminent; >50% increase since 2018; strategy “durable and scalable” .
CFO on deposits: interest‑bearing deposit cost 1.94% (down 20 bps QoQ); April month‑to‑date deposits rebounded to ~$41.9B .

Q&A Highlights

Deposit beta: Cumulative ~47%, spot ~50%; management aims to mirror up‑cycle beta on the way down while remaining competitive .
NII/NIM drivers: Higher‑yield securities (MBS ~5.82%, munis ~5.55%) and lower deposit costs are primary tailwinds; additional treasury maturities in May to help .
Loan growth vs payoffs: CRE payoffs (~$430MM in Q1) and bridge financing from private credit offset strong pipelines; discipline maintained amid pricing/structure competition .
Capital management: Dividend increased to $1.00; buybacks remain opportunistic given valuation .
Credit/Reserves: Problem loans declined QoQ; reserve build reflected tariff and recession risk prudence .
Mortgage: Growth continues from a small base with strong internal referrals; 30% of loans are to new customers .

Estimates Context

Metric	Q3 2024	Q4 2024	Q1 2025	Beat/Miss
EPS Actual ($) vs Consensus ($)*	2.24 vs 2.174	2.36 vs 2.167	2.30 vs 2.170	Beat each quarter*
“Revenue” Actual ($MM) vs Consensus ($MM)*	498.7 vs 519.8	520.2 vs 535.9	527.2 vs 541.5	Miss each quarter*

Note: Values retrieved from S&P Global.*

Implications: Street will likely adjust models upward for NII/NIM and noninterest income, but may keep “revenue” cautious given S&P classification and ongoing CRE payoffs; tax rate guidance raises EPS drag by ~50–100 bps vs prior guide .

Key Takeaways for Investors

Quarter quality: EPS beat with NIM expansion and strong fee growth; underlying profitability and ROA/ROE remained solid .
Forward setup improved: Raised NII/NIM and noninterest income guidance, aided by accretive securities reinvestment and easing deposit costs .
Loan growth tempered by CRE payoffs: Expect mid‑ to high‑single‑digit average loan growth with headwinds from refinancing/sales; consumer and C&I should carry the load .
Capital strength and returns: CET1 ~13.8% supports growth and dividend; dividend increase to $1.00 adds yield support; buybacks opportunistic .
Watch risk factors: Non‑accruals ticked up and reserve build reflects tariff/recession risks; remain disciplined on structure/pricing amid rising competition .
Expansion optionality: 200 locations and market share runway in Texas underpin multi‑year organic growth and fee income scalability .
Trading lens: Near‑term catalysts include NIM trajectory, deposit cost declines, and dividend increase; potential volatility around CRE payoffs and regulatory changes to overdraft/interchange fees .

CULLEN/FROST BANKERS, INC. (CFR)·Q1 2025 Earnings Summary