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CULLEN/FROST BANKERS, INC. (CFR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid linked-quarter growth: tax-equivalent net interest income rose 2.0% QoQ to $433.7M, average deposits returned to growth (+2.8% QoQ), and average loans rose 1.3% QoQ; NIM slipped 3 bps to 3.53% on lower loan/Fed balance yields partly offset by lower deposit costs .
  • Asset quality remained healthy with net charge-offs of $14.0M (27 bps annualized) and nonaccruals down to $78.9M (38 bps of loans), while the ACL/loans ratio held at 1.30% .
  • Management initiated 2025 guidance: NII growth +4–6%, NIM +~10 bps vs. 2024 (3.53%), average loans +5–9%, average deposits +2–3%, noninterest income +1–2%, noninterest expense high-single-digit growth, net charge-offs 20–25 bps, and tax rate 15–16% .
  • Capital deployment/catalysts: maintained $0.95 dividend and authorized a new $150M share repurchase program; also planning ~$4B of 2025 securities purchases (about half in Q1), funded by liquidity and maturing/callable cash flows .

What Went Well and What Went Wrong

  • What Went Well

    • Deposits re-accelerated: average deposits +2.8% QoQ and +1.7% YoY; average NIB DDA +2.9% QoQ, reflecting regained momentum into year-end .
    • PPNR drivers firm: tax-equivalent NII +$8.6M QoQ to $433.7M; TE NIM resilient at 3.53% despite rate headwinds; noninterest income +$9.1M YoY, led by trust & investment management and service charges .
    • Consumer/expansion success: consumer loans up $610M in 2024 (+21% YoY) with nine consecutive quarters of 20%+ growth; expansion since 2018: $2.4B deposits, $1.8B loans, 59k+ new households; no reliance on FHLB/brokered deposits .
    • Quote: “We continue to see excellent results with our organic growth strategy… what you see is what you get” — Phil Green .

  • What Went Wrong

    • NIM dipped 3 bps QoQ, driven by lower yields on Fed balances and loans; partly offset by lower deposit costs; unrealized AFS losses widened to $1.56B (up $429M QoQ) as rates moved during the quarter .
    • Credit cost ticked up vs. Q3: credit loss expense $16.2M (vs. $19.4M Q3 but higher net charge-offs $14.0M vs. $9.6M), though still modest by historical standards .
    • Expense intensity remains elevated: Q4 noninterest expense $336.2M vs. $313.7M ex-FDIC in Q4’23 (+7.2% YoY ex-surcharge), reflecting people/tech/expansion investments; management expects high-single-digit expense growth again in 2025 .

Financial Results

Core P&L and Profitability

MetricQ4 2023Q3 2024Q4 2024
Net interest income (tax-equivalent) ($MM)$409.9 $425.2 $433.7
Non-interest income ($MM)$113.8 $113.7 $122.8
Non-interest expense ($MM)$365.2 $323.4 $336.2
Credit loss expense ($MM)$16.0 $19.4 $16.2
Diluted EPS ($)$1.55 $2.24 $2.36
Net interest margin (%)3.41% 3.56% 3.53%
Return on avg assets (%)0.82% 1.16% 1.19%
Return on avg common equity (%)13.51% 15.48% 15.58%
Cash dividend per share ($)$0.92 $0.95 $0.95
Consensus EPS (S&P Global)N/A – unavailableN/A – unavailableN/A – unavailable

Balance Sheet Averages

MetricQ4 2023Q3 2024Q4 2024
Average loans ($BN)$18.61 $20.08 $20.35
Average deposits ($BN)$41.18 $40.73 $41.89
Avg non-interest-bearing DDAs ($BN)$14.70 $13.66 $14.05
Avg interest-bearing deposits ($BN)$26.49 $27.07 $27.83
Average shareholders’ equity ($BN)$3.11 $3.87 $4.06

Asset Quality

MetricQ4 2023Q3 2024Q4 2024
Net charge-offs ($MM)$10.88 $9.64 $13.96
NCOs, annualized (% avg loans)0.23% 0.19% 0.27%
ACL on loans ($MM)$246.0 $263.1 $270.2
ACL / loans (%)1.31% 1.31% 1.30%
Non-accrual loans ($MM)$60.91 $104.88 $78.87
NALs / total loans (%)0.32% 0.52% 0.38%

Capital

MetricQ4 2023Q3 2024Q4 2024
CET1 risk-based capital (%)13.25% 13.55% 13.62%
Tier 1 RBC (%)13.73% 14.02% 14.07%
Total RBC (%)15.18% 15.50% 15.53%
Leverage ratio (%)8.35% 8.80% 8.63%

Yields and Costs

MetricQ4 2023Q3 2024Q4 2024
Loans yield (%)6.92% 7.12% 6.77%
Securities yield (%)3.24% 3.40% 3.44%
Earning assets yield (%)5.00% 5.26% 5.05%
Cost of interest-bearing deposits (%)2.27% 2.41% 2.14%
Net interest spread (%)2.52% 2.66% 2.73%

Notes: Company did not report formal “segments”; key revenue drivers are net interest income and diversified fee income categories .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net interest income growthFY 2025Not previously provided+4% to +6%New
Net interest marginFY 2025 vs 2024 (3.53%)Not previously providedImprove by ~10 bpsNew
Average loan growthFY 2025Not previously providedMid- to high-single digits (CFO acknowledged 5–9%)New
Average deposit growthFY 2025Not previously provided+2% to +3%New
Noninterest income growthFY 2025Not previously provided+1% to +2%New; includes assumed H2 impacts from OD/interchange risk
Noninterest expense growthFY 2025Not previously providedHigh single digitsNew
Net charge-offsFY 2025Not previously provided20–25 bps of average loansNew
Effective tax rateFY 2025Not previously provided15%–16%New
Securities purchasesCY 2025Not previously provided~$4B purchases; ~half in Q1New
Deposit betas (cumulative)CycleCommentary only~45% expectationMaintained commentary

Additional capital actions: $0.95 Q1’25 dividend declared; authorized up to $150M share repurchase through Jan 28, 2026 .

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
Deposits & betasAvg deposits down 0.5% QoQ; deposit cost for interest-bearing 2.34% Avg deposits +0.6% QoQ; IB deposit cost 2.41%; NIM 3.56% Avg deposits +2.8% QoQ, +1.7% YoY; IB deposit cost down to 2.14%; NIM 3.53% Deposit growth resumed; costs rolling off; NIM near-peak levels
Loans & pipelinesAvg loans +2.8% QoQ; +11.3% YoY Avg loans +2.2% QoQ; +11.8% YoY; new commitments strong Avg loans +1.3% QoQ; CEO: new opps robust; 2025 loan growth mid-high single digits; CRE slower, paydowns expected Growth moderating from high base; CRE headwind; consumer remains strong
Credit qualityNALs $75.0M; ACL/loans 1.28%; NCOs 20 bps ann. NALs rose to $104.9M; ACL/loans 1.31%; NCOs 19 bps ann. NALs improved to $78.9M; ACL/loans 1.30%; NCOs 27 bps ann. NALs declined QoQ; NCOs ticked up but remain modest
Investment portfolio/AOCITE securities yield 3.38%; duration not disclosed; purchases ongoing TE securities yield 3.40% TE securities yield 3.44%; AFS unrealized loss $1.56B (+$429M QoQ); 2025 plan ~$4B purchases Gradually rising yields; active reinvest; AOCI volatile with rates
Tech/IT & OpExTech/furniture/equipment +8.8% YoY; cloud services rising TFE +7.1% YoY; cloud/services/soft. amortization higher TFE +15.3% YoY; cloud/services/maintenance rising; 2025 opex growth HSD; 2026 moderation targeted Continued modernization spend; investment tapering post-2025
Regulatory fees——2025 guide embeds potential overdraft/interchange changes (H2); interchange -$1M/month from July assumption Regulatory headwind embedded prudently
Capital actionsDividend raised to $0.95 Maintained $0.95 dividend $0.95 dividend; new $150M buyback authorization Returning capital opportunistically

Management Commentary

  • “We continue to see excellent results with our organic growth strategy… what you see is what you get.” — Phil Green, on balance sheet quality and organic expansion .
  • “Our current outlook [for 2025] includes two 25 bp cuts… we expect NII growth of 4%–6% and NIM to improve ~10 bps vs. 2024.” — Dan Geddes on 2025 framework .
  • “Deposit beta will be in that ~45% range on a cumulative basis… we treated customers fairly on the way up and we’re continuing that on the way down.” — Management on pricing posture .
  • “We’re looking at around a $4B investment purchase strategy in 2025, utilizing about half in Q1.” — Management on securities deployment; >$2B maturities/calls/prepayments expected .
  • “We’re in growth mode… investments are helping us reduce risk and get better; expect expense growth to moderate as we approach the ‘reaping’ phase.” — Management on operating leverage timeline .

Q&A Highlights

  • Loan growth: guide mid- to high-single digits (CFO acknowledged 5–9% range), with consumer strength and CRE paydowns as a headwind; pipelines/commitments healthy into 2025 .
  • Securities strategy: $4B 2025 purchases ($2B in Q1), funded by ~$2B of maturing/callable/prepay cash flows and liquidity; aiming to benefit from positively sloped curve .
  • Deposit betas and rate sensitivity: cumulative betas around 45%; each 25 bp cut approximates ~$1.7M/month NII headwind “all else equal,” subject to deposit behavior and balance sheet mix .
  • Expenses: 2025 high-single-digit growth as modernization continues; 2026 seen as an inflection toward moderation; disciplined approvals for FTE and >$100k capex .
  • Capital allocation: dividend priority remains; buyback is opportunistic (utilized ~$50M around $100/share previously); open to evaluating preferred retirement but no current plans .

Estimates Context

  • S&P Global (Capital IQ) consensus for Q4 2024 EPS and revenue was not retrievable at this time due to an API limit; therefore, we cannot present a beat/miss vs. consensus for the quarter. As a result, estimate comparisons are marked N/A in the tables above. Management’s 2025 guidance provides a basis for sell-side revisions (NII growth +4–6%, NIM +~10 bps, loans +5–9%, deposits +2–3%) .

Key Takeaways for Investors

  • Core earnings power steady: TE NII growth (+2% QoQ) with only a modest 3 bps NIM dip underscores durability; deposit costs are easing and deposit balances are growing again .
  • 2025 framework constructive: management guiding to NII growth and modest NIM expansion despite anticipated Fed cuts; average loan growth mid- to high-single digits with consumer momentum .
  • Credit normalizing but contained: NCOs at 27 bps, ACL stable at 1.30% of loans; nonaccruals improved QoQ—watch CRE paydowns and private credit bridge dynamics .
  • Capital return levers: sustained dividend and new $150M buyback authorization add flexibility; CET1 at 13.62% provides capacity while funding growth/investment plans .
  • Balance sheet optionality: ~$4B of planned 2025 securities purchases (half in Q1) to redeploy liquidity and maturing cash flows, while AOCI remains rate-sensitive (Q4 unrealized loss $1.56B) .
  • Expense arc: high-single-digit 2025 opex growth reflects final leg of modernization/expansion; management targets moderation thereafter—operating leverage opportunity as investments harvest .
  • Regulatory watch items: 2025 guide prudently embeds potential overdraft/interchange impacts (assumed H2 timing; interchange -$1M/month from July), reducing downside surprise risk if adopted .

Sources: Q4 2024 8‑K/press release and detailed tables ; Q4 2024 earnings call transcript remarks and Q&A and parallel transcript ; prior-quarter earnings materials for Q3 2024 and Q2 2024 .