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CB

CULLEN/FROST BANKERS, INC. (CFR)·Q2 2025 Earnings Summary

Executive Summary

  • EPS of $2.39, up 8.1% YoY and 3.9% QoQ; net income available to common rose to $155.3M as net interest margin expanded 7 bps QoQ to 3.67% .
  • Average loans grew 7.2% YoY to $21.1B and 1.3% QoQ; average deposits rose 3.1% YoY to $41.8B and 0.2% QoQ, demonstrating durable organic growth across Texas markets .
  • Management raised FY25 net interest income growth guidance to 6–7% (prior 5–7%), kept NIM improvement +12–15 bps vs 2024, lifted non‑interest income growth to 3.5–4.5% (prior 2–3%), and maintained net charge‑offs at 20–25 bps and tax rate at 16–17% .
  • Consensus comparison: EPS beat ($2.39 vs $2.31*) while revenue missed ($533.7M* vs $552.1M*); guidance raises and NIM expansion are positive catalysts, while expense growth and CRE risk migration are watch‑items .
  • Board declared a $1.00 common dividend for Q3 2025 and $11.125/share Series B preferred dividend, reinforcing commitment to capital returns as CET1 reached 13.98% .

What Went Well and What Went Wrong

What Went Well

  • Strong loan and deposit growth: “We again posted solid loan growth... we saw a slight increase in average total deposits compared to the first quarter” — Phil Green, CEO .
  • NIM expansion and investment portfolio repositioning: NIM rose to 3.67% (+7 bps QoQ) driven by mix shift into higher‑yielding loans and securities; taxable‑equivalent investment yield rose 16 bps QoQ to 3.79% .
  • Expansion strategy traction: 200th location opened; expansion generated $2.76B deposits, $2.003B loans and ~69k new households; booked opportunities +36% QoQ and ~1,060 new commercial relationships (second‑highest ever) .

What Went Wrong

  • Expense pressure: Non‑interest expense rose 9.5% YoY to $347.1M, led by salaries/benefits, technology, and advertising/promotions .
  • Asset quality normalization: Net charge‑offs increased QoQ to $11.2M (0.21% annualized) and criticized multifamily CRE risk grade migration elevated problem loans to $989M (expected to resolve in 2H25) .
  • Deposit mix adds NIM friction: CFO highlighted higher CD volumes and mix shift as a headwind to the upper end of NII/NIM outcomes despite fewer expected Fed cuts .

Financial Results

Core Results vs Prior Year, Prior Quarter, and Estimates

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Net Income Available to Common ($MM)$143.8 $153.2 $149.3 $155.3
Diluted EPS ($)$2.21 $2.36 $2.30 $2.39
Net Interest Income (TE) ($000)$417,621 $433,726 $436,404 $450,558
Non‑Interest Income ($000)$111,190 $122,824 $124,011 $117,273
Net Interest Margin (%)3.54% 3.53% 3.60% 3.67%
Return on Avg Assets (%)1.18% 1.19% 1.19% 1.22%
Return on Avg Common Equity (%)17.08% 15.58% 15.54% 15.64%

Non‑Interest Income Breakdown

Category ($000)Q2 2024Q4 2024Q1 2025Q2 2025
Trust & Investment Mgmt Fees$41,404 $43,765 $42,931 $43,669
Service Charges on Deposit Accounts$26,114 $27,909 $28,621 $29,151
Insurance Commissions & Fees$13,919 $14,215 $21,019 $13,879
Interchange & Card Fees$5,351 $5,764 $5,402 $5,619
Other Charges/Commissions/Fees$13,020 $15,208 $13,586 $13,967
Other$11,382 $16,075 $12,466 $10,988
Total Non‑Interest Income$111,190 $122,824 $124,011 $117,273

Asset Quality and Capital

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Credit Loss Expense ($000)$15,787 $16,162 $13,070 $13,129
Net Charge‑Offs ($000)$9,726 $13,962 $9,691 $11,151
NCOs (% of Avg Loans, Annualized)0.20% 0.27% 0.19% 0.21%
Allowance for Credit Losses on Loans ($000)$256,307 $270,151 $275,488 $277,803
ACL as % of Period‑End Loans1.28% 1.30% 1.32% 1.31%
Non‑Accrual Loans ($000)$74,987 $78,866 $83,534 $62,393
CET1 Risk‑Based Capital Ratio (%)13.35% 13.62% 13.84% 13.98%

Balance Sheet KPIs

Metric ($MM)Q2 2024Q4 2024Q1 2025Q2 2025
Average Loans$19,652 $20,346 $20,788 $21,063
Average Deposits$40,510 $41,885 $41,658 $41,760
Period‑End Total Deposits$40,318 $42,723 $42,391 $41,684
Net Interest Income to Avg Earning Assets (%)3.54 3.53 3.60 3.67

Estimates vs Actuals (S&P Global)

MetricQ2 2025 ConsensusQ2 2025 Actual
Primary EPS Consensus Mean2.31*2.39*
Revenue Consensus Mean ($)552,121,870*533,748,000*
Primary EPS – # of Estimates12*—
Revenue – # of Estimates8*—
Target Price Consensus Mean ($)137.60*137.60*

Note: Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Income GrowthFY 20255–7% 6–7% Raised (upper end)
Net Interest Margin vs 2024 (3.53%)FY 2025+12–15 bps +12–15 bps Maintained
Average Loan GrowthFY 2025Mid‑ to high‑single‑digits Mid‑ to high‑single‑digits Maintained
Average Deposit GrowthFY 20252–3% 2–3% Maintained
Non‑Interest Income GrowthFY 20252–3% 3.5–4.5% Raised
Non‑Interest Expense GrowthFY 2025High single digits High single digits Maintained
Net Charge‑Offs (% of Avg Loans)FY 202520–25 bps 20–25 bps Maintained
Effective Tax RateFY 202516–17% 16–17% Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
Organic Expansion & AccretionDeposits back to growth; continued location build; emphasis on expansion investments 200th location; $2.76B deposits/$2.003B loans; ~69k new households; accretive from 2026 Strengthening execution; nearing broader accretion
Deposit Seasonality & MixQ4 noted growth in non‑interest bearing; Q1 normal seasonality Slight QoQ average deposit increase; mix shift into CDs weighing on NIM upper range Seasonal recovery with mix headwind
NII/NIM Outlook vs RatesNIM 3.53% in Q4; 3.60% in Q1 NIM 3.67%; guide NII 6–7% and NIM +12–15 bps over 2024 with two 25 bp cuts assumed Improving NIM; cautious on mix
Competitive Dynamics—Pricing competition rising; losses to structure increasing; focus on balance sheet protection More competitive pricing/structure
Capital & DividendsRepurchase authorization; dividend continuity CET1 ~14%; priority to protect dividend; repurchase only opportunistic Build capital; dividend focus

Management Commentary

  • “Our strong performance in the second quarter demonstrates the durability of our organic growth model...” — Phil Green, CEO .
  • “Net interest margin... up seven basis points to 3.67%... impacted by mix shift from balances held at the Fed into higher yielding loans and securities...” — Dan Geddes, CFO .
  • “We expect net interest income growth... 6% to 7%... net interest margin improvement of about 12 to 15 basis points over... 3.53% for 2024.” — Dan Geddes, CFO .
  • “We want to continue to build our capital. Our priority is going to be the dividend...” — Dan Geddes, CFO .
  • “We’re not interested in inorganic growth... organic strategy... is so superior...” — Phil Green, CEO .

Q&A Highlights

  • Pricing and structure: Management sees broadening competition with pricing compression in CRE and rising losses to structure; will compete on price but maintain underwriting discipline to protect the balance sheet .
  • Capital priorities: CET1 ~14%; emphasis on sustaining dividend; buybacks only if valuation warrants; build capital steadily .
  • NII/NIM guidance conservatism: Mix shift into higher‑cost deposits (CDs) tempers upside despite fewer cuts vs earlier assumptions; pipeline down only ~1% with commitments ~$2B in Q2 .
  • Expansion accretion timing: Years 1–4 breakeven; accretion from year 5 onward; Houston covering Dallas/Austin until maturity; aggregate expansion near break‑even through H1 .
  • M&A stance: Firmly focused on organic growth; expects to benefit from dislocations caused by peer M&A in Texas .

Estimates Context

  • Q2 2025 EPS beat: $2.39 actual vs $2.31 consensus*, with 12 EPS estimates*.
  • Q2 2025 revenue miss: $533.7M actual* vs $552.1M consensus*, with 8 revenue estimates*.
  • Target price consensus stood at $137.60*.
  • Implication: Estimates likely drift higher on NIM trajectory and raised NII/non‑interest income guidance, but expense growth and deposit mix could cap near‑term upward revisions .

Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • NIM expansion and raised NII guidance point to improving core earnings power even as competition intensifies .
  • Deposit growth resumed with normal seasonality; watch deposit mix (CDs) as key lever for margin realization in 2H25 .
  • Expense growth remains elevated (tech, advertising, headcount); expect operating leverage to improve as expansion matures and “technical debt” investments tail off .
  • Asset quality stable overall; non‑accruals declined QoQ; monitor multifamily CRE criticized migration and NCOs staying within 20–25 bps guidance .
  • Capital trajectory supportive of dividend; CET1 ~14% provides growth capacity without near‑term need for buybacks or inorganic deals .
  • Organic expansion remains the central growth engine with demonstrated customer acquisition and cross‑sell momentum; accretion expected to build through 2026 .
  • Near‑term trading: Positive bias on guidance raise and NIM print; sensitivity to deposit mix headlines and CRE commentary in updates could drive volatility .