Earnings call transcript: Cullen/Frost Bankers beats Q2 2025 forecasts

Cullen/Frost Bankers Inc. reported robust financial results for the second quarter of 2025, surpassing both earnings and revenue forecasts. The company posted earnings per share (EPS) of $2.39, exceeding the anticipated $2.31. Revenue reached $567.83 million, beating the forecast of $550.88 million. According to InvestingPro analysis, the stock is currently fairly valued, trading at a P/E ratio of 14.06. The company has maintained an impressive 32-year streak of consecutive dividend increases, demonstrating strong financial stability. Despite the positive results, the stock saw a slight decline of 0.57% in aftermarket trading, closing at $133.28.

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Key Takeaways

• Cullen/Frost Bankers exceeded earnings and revenue expectations for Q2 2025.
• The company’s expansion in Texas continues to drive growth.
• Despite strong results, the stock declined slightly in aftermarket trading.

Company Performance

Cullen/Frost Bankers demonstrated solid growth in Q2 2025, with earnings of $155.3 million, up from $143.8 million in the same quarter last year. The company’s strategic focus on the Texas market, particularly in Houston, Austin, and Dallas, has bolstered its competitive position. The expansion strategy has also contributed to a substantial increase in both deposits and loans.

Financial Highlights

• Revenue: $567.83 million, up from $550.88 million forecasted
• Earnings per share: $2.39, up from $2.31 forecasted
• Return on Average Assets: 1.22%
• Return on Average Common Equity: 15.64%
• Average deposits increased by 3.1% year-over-year
• Average loans grew by 7.2% year-over-year

Earnings vs. Forecast

Cullen/Frost Bankers reported an EPS of $2.39, surpassing the forecast of $2.31, a 3.46% surprise. Revenue also exceeded expectations, coming in at $567.83 million against a forecast of $550.88 million, marking a 3.08% surprise. This performance highlights the company’s ability to outpace market expectations consistently.

Market Reaction

Despite the earnings beat, Cullen/Frost Bankers’ stock fell by 0.57% in aftermarket trading. The stock closed at $133.28, down from $134.04. This movement suggests a cautious market sentiment, potentially due to competitive pressures in the lending environment.

Outlook & Guidance

Looking ahead, Cullen/Frost Bankers expects net interest income to grow by 6-7% in 2025, with mid-to-high single-digit loan growth. The company anticipates deposit growth of 2-3% and has revised its non-interest income growth guidance to 3.5-4.5%. The expansion is expected to be earnings accretive by 2026. According to InvestingPro data, five analysts have recently revised their earnings estimates upward for the upcoming period, with analyst targets ranging from $109 to $156 per share.

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Executive Commentary

CEO Phil Green stated, "We expect to have some nice accretion to this program in 2026," highlighting the potential long-term benefits of the company’s expansion strategy. He also emphasized the company’s focus on organic growth, noting, "Our currency is strong relative to others, but we’re not interested in inorganic growth."

Risks and Challenges

• Competitive lending environment may pressure margins.
• Slight decline in the loan pipeline could impact future growth.
• Economic uncertainties could affect consumer and commercial lending.

Q&A

During the earnings call, analysts inquired about the company’s loan pipeline and expansion strategy. CFO Dan Geddes noted that expansion branches are expected to reach breakeven in the next 1-2 years, reflecting the company’s confidence in its growth initiatives.

Full transcript - Cullen/Frost Bankers Inc (CFR) Q2 2025:

Operator/Moderator: Thanks, Sherri. This afternoon’s conference call will be led by Phil Green, Chairman and CEO and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended.

Please see the last page of text in this morning’s earnings release for additional information about the risk factors associated with these forward looking statements. If needed, a copy of the release is available on our website or by calling the Investor Relations department at (210) 220-5234. At this time, I’ll turn the call over to Phil.

Phil Green, Chairman and CEO, Cullen Frost: Thanks, AB. Good afternoon, everyone, and thanks for joining us. Today, we’ll review second quarter twenty twenty five results for Cullen Frost and our Chief Financial Officer, Dan Geddes, will provide additional commentary and guidance before we take your questions. In the 2025, CullenFrost earned $155,300,000 or $2.39 a share and that compared with earnings of $143,800,000 or $2.21 a share reported in the second quarter last year. Our return on average assets and average common equity in second quarter were 1.2215.64% respectively.

And that compares with 1.1817.08% in the same quarter last year. Average deposits in the second quarter were $41,800,000,000 an increase of 3.1% over the $40,500,000,000 in the second quarter last year. Average loans grew to $21,100,000,000 in the second quarter, an increase of 7.2% compared with $19,700,000,000 in the second quarter of last year. We continue to see solid results and it’s been driven by the hard work of our Frost bankers and the extension of our organic growth strategy. During the second quarter, we achieved the milestone of opening our two hundredth location, the Pflugerville Financial Center in the Austin region.

At that time at the time that we started this strategy in late twenty eighteen, we had around 130 financial centers, which means that we’ve increased that number by more than 50% since that time. And we continue to identify more locations around the state to extend our value proposition to more customers. At the end of the second quarter, our overall expansion efforts had generated $2,760,000,000 in deposits, dollars 2,003,000,000.000 in loans and almost 69,000 new households. Looking at year over year growth, expansion average loans and deposits increased $521,000,000 and $544,000,000 respectively, representing growth of 3525%. The expansion now represents 9.6% of company loans and 6.6% of company deposits using average June month to date balances.

As we’ve mentioned, the successes of our earlier expansion locations are now funding the current expansion effort and we expect the overall effort will be accretive to earnings in 2026. And as I’ve said many times, this strategy is both durable and scalable. Average consumer deposits make up about 46 percent of our total deposit base and we continue to see consistently high organic growth. Checking household growth, which is our bellwether measure of customer growth increased what we believe to be an industry leading rate of 5.4%. Consumer deposits continue to strengthen with 3.7 year over year growth and it’s encouraging to see a return to steady checking balance growth after a post pandemic period where growth was weighted towards CDs.

Our consumer real estate loan portfolio, which stands at $3,300,000,000 in outstandings has been seeing strong growth from both our second lien home equity products as well as our newer mortgage product. In total, the portfolio grew outstandings by $600,000,000 year over year, which is a 22% growth rate. All in all, this balanced organic growth is only possible because of our success expanding into some of the most dynamic markets in the country and our unwavering institutional commitment to an excellent customer experience. And that commitment hasn’t just been in place past few years, it’s been a key part of our culture for our one hundred and fifty seven year history. Looking at our commercial business.

Average loan balances grew by $817,000,000 or 4.9% year over year. CRE balances grew by 6.8%, energy balances increased 22% and C and I balances decreased by about 1%. Second quarter represented an all time record for calls, following our prior record in Q1 of this year. Year to date, there’s been a 7% increase in calls, putting us on track for the strongest year for calls ever. Booked opportunities for the quarter increased 36%, following a strong in Q1.

Booked opportunities increased for both customers and prospects in both large and core opportunities and across all loan categories. Losses to pricing decreased 28%, while losses to structured continued to increase reaching the second highest quarter ever for losses due to structure. And I think this represents the level of competition developing in the market. At the end of the day, we added just under $2,000,000,000 in new loan commitments for the second quarter, which was 56% more than Q1. And as we said before, the increase was seen across large and core as well as all loan categories.

Finally, we recorded ten sixty new commercial relationships in the second quarter, our second highest quarterly total ever and a 9% increase over the first quarter. About half of our new commercial relationships in the second quarter continue to come from the too big to fail banks. Our overall credit quality remains good by historical standards with net charge offs and non accrual loans both at healthy levels. Non performing assets declined to $64,000,000 at the end of the second quarter compared with $85,000,000 at year end. Most of this decrease came from a pay down on a C and I revolving line of credit, which currently classified as non accrual.

The quarter end figure represents 30 basis points of period end loans and 12 basis points of total assets. Net charge offs for the second quarter were $11,200,000 compared to $9,700,000 last quarter and $9,700,000 a year ago. Annualized net charge offs for the second quarter represent 21 basis points of average loans. Total problem loans, which we define is risk grade 10, some people call that OAEM or higher totaled $989,000,000 at the end of the second quarter, up from $889,000,000 at the end of the year. Virtually all the increase was related to multifamily loans in the criticized risk grade 10 category for which we expect resolutions to occur in the 2025.

With the exception of the risk grade migration that I just mentioned in the multifamily CRE portfolio, which we expected, our overall commercial real estate lending portfolio remained stable with steady operating performance across all asset types and acceptable debt service coverage ratios. Our loan to value levels are similar to what we’ve reported in prior quarters. With that, I’ll turn it over to Dan.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Thank you, Phil. Let me start off by giving some additional color on our expansion results. As Phil mentioned, we continue to be pleased with the volumes we’ve been able to achieve. On a year over year basis, the expansion represented 37% of total loan growth and 44% of total deposit growth. Looking at calls for the quarter, the Frost commercial bankers and expansion branches represented 17% of total calls, 11% of customer calls and 28% of prospect calls.

For new commercial relationships, 24% of all new commercial relationships were brought in from the expansion and when looking at just expansion regions of Houston, Dallas and Austin, new commercial relationships represented 37% of the total for those combined regions. With regard to book loans in the second quarter, 9.4% of total book loans or $183,000,000 were from the expansion with about 53% of those being core loans. Additionally, loans booked by our bankers expansion branches this quarter increased 58% on a linked quarter basis. Now moving to second quarter financial performance for the company. Regarding net interest margin, our net interest margin percentage was up seven basis points to 3.67% from the 3.6% reported last quarter.

Our net interest margin percentage was positively impacted primarily by a mix shift from balances held at the Fed into higher yielding loans and securities, both taxable and non taxable. Looking at our investment portfolio, the total investment portfolio averaged 20,400,000,000 during the second quarter, up $1,000,000,000 from the previous quarter. Investment purchases during the quarter totaled $857,000,000 consisting of $475,000,000 in agency MBS securities yielding five point seven two percent and $378,000,000 in municipal securities, which had a taxable equivalent yield of 5.98%. During the quarter, $675,000,000 of treasuries matured yielding three point zero six percent and $76,000,000 of municipals rolled off at an average taxable tax equivalent yield of 4.05. The net unrealized loss on the available for sale portfolio at the end of the quarter was $1,420,000,000 compared to $1,400,000,000 reported at the end of the first quarter.

The taxable equivalent yield on the total investment portfolio during the quarter was 3.79%, up 16 basis points from the previous quarter. The taxable portfolio averaged $13,800,000,000 up approximately $877,000,000 from the prior quarter and had a yield of 3.48%, up 19 basis points from the prior quarter. Our tax exempt municipal portfolio averaged $6,600,000,000 during the second quarter, up $140,000,000 from the first quarter and had a taxable equivalent yield of 4.48%, up 10 basis points from the prior quarter. At the end of the second quarter, approximately 69% of the municipal portfolio was pre refunded or PSF insured. The duration of the investment portfolio at the end of the second quarter was five point five years, flat with the first quarter.

Looking at funding sources, on a linked quarter basis, average total deposits of $41,760,000,000 were up $102,000,000 from the previous quarter. The linked quarter increase was primarily driven accounts. The cost of interest bearing deposits in the second quarter was 1.93%, down one basis point from 1.94% in the first quarter. As a reminder, we tend to see weaker deposit flows in the first half of the year and stronger flows in the back half of the year and the majority of that seasonality is driven by commercial non interest bearing deposits. Customer repos for the second quarter averaged $4,250,000,000 up $103,000,000 from the first quarter.

The cost of customer repos for the quarter was 3.23%, up 10 basis points from the first quarter. Looking at non interest income and expense, I’ll point out a couple of seasonal items impacting the linked quarter results. Non interest income, insurance commissions and fees were down $7,200,000 Remember, the first quarter is typically our strongest quarter for group benefit renewals and annual bonus payments received. On the expense side, employee benefits were down $9,300,000 The first quarter was impacted primarily by increased payroll taxes and four zero one matching expense related to our annual incentive payments that are paid during that quarter. Other expenses were up 5,900,000 and were primarily impacted by higher planned advertising and marketing expense during the quarter of $4,200,000 Regarding our guidance for full year 2025, our current outlook includes two twenty five basis point cuts for the Fed funds rate in 2025 with cuts in September and October.

Despite the revised rate cuts expectations, we expect net interest income growth for the full year to fall in the range of 6% to 7% compared to our prior guidance of 5% to 7% growth. For net interest margin, we still expect an improvement of about 12 to 15 basis points over our interest margin of 3.53% for 2024. This is consistent with our prior guidance. Looking at loans and deposits, we continue to expect full year average loan growth to be in the mid to high single digits and expect full year average deposits to be up between 23%. Our updated projection for full year non interest income is growth in the range of 3.5% to 4.5%, which is an increase from our prior guidance range of 2% to 3% growth.

And we expect non interest expense growth to be in the high single digits. Regarding net charge offs, we expect full year 2025 to be similar to 2024 and in the range of ’20 to 25 basis points of average loans. Our effective tax rate expectation for full year 2025 remains unchanged from last quarter at 16% to 17%. And with that, I’ll turn the call back over to Phil for questions.

Phil Green, Chairman and CEO, Cullen Frost: Thank you, Dan. Okay. We’ll open up for questions now.

Conference Operator: Thank Our first question is from Jared Shaw with Barclays. Please proceed.

Jared Shaw, Analyst, Barclays: Good afternoon, everybody.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Hey, Jared. Hey, Jared.

Jared Shaw, Analyst, Barclays: Maybe starting on the loan growth side, you talked a little bit about losses due to pricing down, but losses due to structure up from new production. What are you seeing in terms of pricing? Is there spread compression continuing? Or what are you seeing in terms of pricing there?

Phil Green, Chairman and CEO, Cullen Frost: I it’s more competitive than it was. It depends on the asset class. In corporate real estate, commercial real estate, it would be there are a lot of people that have put pencils down and were out. And I think we’re seeing price compression there for sure. And it’s just getting more competitive, think, as the outlook improves.

So I think you’re seeing it across the board. I think the structure is the more important thing to me though, because that just to me represents how aggressive banks are out there. And usually it results in guarantees, burn offs, equity levels, those kind of things. And we would we’re in a position where we’re competing on price. We want to compete on price.

We don’t want to lose good business to that. And as you’ve heard Dan talk about our funding costs, I really believe we’re a low cost producer in the market. So there’s really no reason for us to not be aggressive competitively on price. As it relates to structure, that’s where you can get in trouble. And our culture is one that we want to make sure that we’re protecting the balance sheet, protecting the portfolio, depositors, shareholders, etcetera.

So, it’s what we’re seeing there.

Jared Shaw, Analyst, Barclays: Okay. All right. Thanks. And then if I could follow-up. Capital continues to grow.

You’re almost at nearly 14% CET1. Certainly plenty to fund the growth expectation there. How should we think about your thoughts around capital growth from here and capital utilization?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Jared, this is Dan. I think we want to continue to build our capital. Our priority is going to be the dividend, protect the dividend as Jerry left as his parting words, I won’t forget that. And but I think for right now, I think we’re looking at just building that capital base. So I think those right now I think that’s our focus.

We don’t have any plans we have. We certainly have a repurchase program that we could utilize if the opportunity presented itself. But right now the stock price is holding up and I don’t see us at this level utilizing it. I don’t know, Phil, if you want to add anything.

Phil Green, Chairman and CEO, Cullen Frost: No, think you’re right. I think our capital focus is number one dividend is important to protect. I think it’s a distinction of our company. I think our shareholders like and expect it. I know this one does.

And we’ve got good growth. I don’t think the economy is growing as fast as it will be growing. I think that we’re keeping powder dry and we’ll wait on developments. I don’t think we’re at a point right now where we have to do something dramatic on capital.

Jared Shaw, Analyst, Barclays: Okay. When you’re looking at capital, are you primarily focusing on TCE growing from here? Is that what you would like to see higher?

Phil Green, Chairman and CEO, Cullen Frost: Yes, think so. I think the risk base, because of our balance sheet, the way it is with so much in low capital cost securities, I mean, I don’t really look at I don’t think Dan looks as much at the total capital numbers. It’s more of those overall ones. Okay.

Casey Haire, Analyst, Autonomous Research: Thanks.

Conference Operator: Our next question is from Ebrahim Poonawala with Bank of America. Please proceed.

Ebrahim Poonawala, Analyst, Bank of America: Hey, good afternoon, Phil.

Jared Shaw, Analyst, Barclays: Good afternoon.

Ebrahim Poonawala, Analyst, Bank of America: Dan, how are you? I had a question. So I’ve been supportive and we’ve been very sort of fans of your growth strategy over the last few years. I think the question you’re getting from investors is like if I go back and look at 2022, earnings have flatlined, expense growth has significantly outpaced revenue growth. Just talk to us that from a shareholder perspective, when do we start seeing the benefits of all the investments that you made when we think about just bottom line results around earnings growth?

And hopefully that will then translate into a better stock price. Would love your perspective on how you think about it and how shareholders should think about it given the last three years?

Jared Shaw, Analyst, Barclays: Thanks. Yes.

Phil Green, Chairman and CEO, Cullen Frost: It’s a good question, Ebrahim. And what I’d say is that and Dan has said before that we expect to have some nice accretion to this program in 2026. It’s not just going to be one time. It’s not like an acquisition where you get some accretion and it kind of stays at that level. It should increase over time.

It will increase over time. But what I’d say about expense levels in the last three years or so, certainly, we’ve been investing in our expansion effort and I think to the great benefit of shareholders. But there have been other things too that we’ve had to deal with. When you look at cost levels, demand deposits, what interest rates have done and just pressure on that. So there’s factors there.

We’ve been investing in our people and we’ve I think to great effect, our turnover levels are half really what the industry is now. If you look at the investments we’ve made in technology, we talked about some generational investments we made a couple of years ago that we continue to make investments to keep our company at a very high competitive level. That’s really what’s happening. It’s not just the expansion effort that’s going on. And so I think Dan has talked about, we think the rate of growth in expenses will be headed down over time because of some of these investments will really pay off some technical debt in some cases in technology just the rate of growth and expenses on expansion as the expansion effort gets bigger and bigger, the marginal investment is less.

So I’m not concerned about seeing returns from this. I think that the numbers that we that I just reported in my comments, we’re over $2,000,000,000 in loans now. When I saw that, I mean, it kind of gets your attention. Deposits about $2,700,000,000 I think that I think we’re going to see and Dan can talk about the expansion and what we expect there. What I’m hopeful of is that the legacy part of the business, as the economy picks up, and I believe that it is, I think it’s poised to really pick up.

That’s where I think that you and you get some of the legacy operation operating and moving forward along with the expansion, that’s where I think we can see some really nice returns.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Ebrahim, I’ll just kind of add to that kind of a little bit of a longer term approach here is when we go back and look at the expansion markets versus our more legacy markets. If I go back into 2018, we had just a two percent market share in Houston and a 2.4% branch share. Now looking back where we are in June 2024 with and I’m using June 2024 because that’s FDIC data, we have a 2.5% market share and a 4.8% market share, almost 5%. So that’s about 50% when you compare branch share to market share. If I look at some of our legacy markets like San Antonio, we have about a 10% branch share, but about a 27% market share.

And if I look at if I look even at Austin, we have a 5% branch share and a 7.3% market share. So we have and then Dallas where we were just getting started and kind of halfway through in 2024, we have a 3.6% branch share and that’s up from 1.4% back in 2018, but only a 1% market share. So we have just tremendous room for growth in Houston and Dallas to get to even par on our branch share, which in markets that we’ve been established that we far exceed. So I think there’s just this optimism that we can continue to grow deposits, especially if we are entering in a lower interest rate market where deposit growth would has typically accelerated for us.

Ebrahim Poonawala, Analyst, Bank of America: Got it. Thanks for that response. And just as a quick follow-up on deposit growth, do you think we are at a point where non interest bearing or DDA balances should begin to stabilize and we start seeing growth? Or is it still unclear whether or not DDA levels off around this 13,000,000,000 to $14,000,000,000 level?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: So I think we’ve kind of we’re kind of bumping near the bottom. I don’t know if it’s we’re quite at there, but I’m encouraged by just what I’ve seen in the last couple of weeks in terms of deposit flows that you’re starting to see the DDA balances grow. So I’m encouraged that typically in the second half of the year again our commercial customers will build up their DDA balances towards the end of the year and into the kind of end of this third quarter and into the fourth quarter. So I would expect it to, but to be determined.

Phil Green, Chairman and CEO, Cullen Frost: I think that the we mentioned the consumer, we sort of returned to seasonal trends along with the growth in consumer and we’ve seen checking account growth. I think that is as I mentioned, I think is more in line with what we’ve typically seen. We’re hopeful that and I think we’ve seen sort of return to seasonal trends in commercial DDA, but there’s so many other factors that businesses deal with and you’re dealing with such large amounts of money. It’s hard to say definitively that we are on that seasonal track and we’re going to see that growth through the end of the year. I don’t know of a reason why we wouldn’t, but it’s what we’re waiting on now is seeing those seasonal trends manifest themselves as they typically would in the half last half of the year.

Peter Winter, Analyst, D.A. Davidson: Got it. Thank you.

Conference Operator: Our next question is from Casey Haire with Autonomous Research. Please proceed.

Casey Haire, Analyst, Autonomous Research: Thanks. Good afternoon, everyone. Follow-up on the NII guide, it seems just a little conservative with day count, you’re going to get a little bit of natural health in the third quarter. And the guide doesn’t assume much growth. Just wondering what like are loan pipelines slowing down?

Like what’s driving or what’s the main factor in what appears to be a pretty flat run rate in the 2025 here?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Casey, it the net interest margin will improve, but since it’s a full year guidance, it doesn’t a rate cut towards the back of the year isn’t going to impact the full year. And again, I think we’re seeing consistent loan volume. We should have some back half of the year payoffs in real estate, some in energy as well. But it’s if we see higher volumes in deposits, maybe you see to the upside of that guidance.

Casey Haire, Analyst, Autonomous Research: Okay. And apologies if I missed this. Got you. Okay. Apologies if I missed this, but the pipeline, did you guys quantify that up or down

Jared Shaw, Analyst, Barclays: Yes. For as of

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: It was only down 1%. Yes. It’s pretty consistent. Considering I think you reported the commitments in the second quarter being around $2,000,000,000 So to see the pipeline with us close out a lot of those opportunities and essentially replace them and to only see it down 1% is encouraging to as we look at kind of the ninety day pipeline into this third quarter and start of the fourth.

Phil Green, Chairman and CEO, Cullen Frost: And the relationship numbers were strong as well. I don’t see a slowdown in that. We’ve seen draws under commitments be weaker, just the line utilization, it was probably down 1% from a quarter ago, maybe down then maybe add another 1.5% if you’re looking versus a year ago, maybe another percent. So I think businesses have had some uncertainty they’ve had to deal with. And so I think they’re waiting around for more clarity.

We’ve heard that clearly from our loan officers in the marketplace. And I think as more clarity is developing around trade policy, I really believe there’s just my feeling based on what we hear from customers, I think that we’re going to see some activity in projects that were on hold right now or were on hold say three months ago beginning to move forward if they still think the economics are good. And they’re not really just waiting on trade policy. One of the things I think we heard clearly from them is that they’re to see if there’d be a recession, right? Nobody’s going to want to expand into a recession.

And so I think there’s a general feeling that that’s less likely. And so I think that’s going to clear up some uncertainty from some customers. So I’m looking forward to seeing some movement in the next in the back half of the year.

Operator/Moderator: Great. Thank you.

Conference Operator: Our next question is from Peter Winter with D. A. Davidson. Please proceed.

Peter Winter, Analyst, D.A. Davidson: Hi, good afternoon. I wanted to follow-up on the net interest income question because I also thought it would be the higher end. I thought you would have increased that upper end of the range just because originally, you were assuming four rate cuts and there’s a negative impact, I think, about 1,700,000.0 per quarter. And now it’s only two rate cuts. So with less rate cuts, why not see an increase to the upper end of the net interest income?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Peter, some of that is just where those deposits are going. You’re seeing our CD balances, which are higher cost. Those had kind of flattened in the first quarter, but we actually saw them increase and we’re seeing some good volumes there. So that’s probably just the disintermediation and where the deposit mix is, I would say is the biggest driver of just where that NIM would end up.

Peter Winter, Analyst, D.A. Davidson: Okay.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: So if we continue to see it going into higher cost deposits that would put pressure on the guidance on that NIM.

Peter Winter, Analyst, D.A. Davidson: Got it. And just with the branch expansion strategy, Phil, your opening remarks, you talked about you’ve identified some more locations. Just I’m just wondering as you’re getting closer to completing the projects, do you is the focus to continue to expand in Houston, Dallas, Austin? Or is there some consideration maybe to shift this de novo strategy outside of Texas into other high growth markets?

Phil Green, Chairman and CEO, Cullen Frost: Yes, Peter. Not outside of Texas. I think the thing that we’re we’ve been doing is we’ve been making sure that we’ve got locations, which we have lined up in the pipeline, so that as we’re bringing in these some of these announced expansions in these markets, like Dallas and Austin, which remain, that we’ve got the ability to move into other markets without fighting to find a location and going through all that going through the negotiations that go along with that. I’ve been talking to our team over the last year, let’s look where the puck is going and let’s make sure that we’re that’s where we’re going to be. And because some of these markets, I would describe it this way, When we get through with Austin, Dallas will be through it in next twelve months, say Austin, say the next year and a half, that strategy that began in Houston will be eight years old from the first branch that we opened.

Well, Houston has grown a ton in eight years. And I don’t want to say what markets that we’re not in that we consider because I don’t want to tip my hand, but you look at some of the markets around there, they have had explosive growth and over that eight year period. So I think there’s plenty of places that we can go both in Houston and Dallas and frankly probably there’s some more in Austin that we can expand into, but it’s a different deal. We’re not filling these gaping holes in the market that we used to have. It’s going to be finding these really high growth areas and sort of going along with the growth.

And then I’ll say at the same time, it won’t just be in the places where we’ve had expansion, Houston, Dallas and Austin. It’s going to be some other markets where we’re filling in, in some more legacy markets. We just opened one in Fort Worth area that was blown away by the growth that we’ve had in the Alliance area. And so there are plenty of great locations. We’ve got them lined up.

We’ve acquired many and these are all in Texas and we’re going to be focused on the best high growth locations that we can identify. And I’m very optimistic about what we’re going to be able to do there. We don’t want stop growing. As Dan said, we it’s great to have $2,000,000,000 that we didn’t have to pay a premium for in an acquisition that we now have through acquisition, got 69,000 relationships that have selected for us to do business, for example. I mean, it’s great to have that.

But and there’s we’re still at a small market share in Dallas. We’re at a small market relatively small market share in Houston. There’s so much work for us to do and so much there’s so much ore for us to mine out of these great markets. That’s where our focus is going to be.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: I want to say the markets of Dallas and Houston deposit markets are larger than the states of Colorado and Arizona. And so you think about just the opportunities in just those two markets, where what we started eight years ago in Houston, we would look at a trade area and we had just huge holes in the market, really nothing north on if you’re familiar with Houston on Interstate 59, nothing Northwest on 249 and really nothing West Of The Beltway on I-ten. And so we filled in kind of some large gaps in Houston to where now we could come back and maybe more with a rifle approach, really identify maybe some markets that we feel like with our customer service, consumer lending that has really surprised us in Dallas how well it’s gone that they might be markets that we would consider now.

Peter Winter, Analyst, D.A. Davidson: Got it. Thanks. Very helpful. Appreciate it. Our

Conference Operator: next question is from Manav Gamsalia with Morgan Stanley. Please proceed.

Manav Gamsalia, Analyst, Morgan Stanley: Hi, good afternoon. Hello. Phil, you spoke about lending getting a little bit more competitive. Are you seeing that on the deposit side as well, given many other banks are talking about C and I loan growth accelerating. Are you seeing some pressure on deposit side as well?

Phil Green, Chairman and CEO, Cullen Frost: I don’t think we’ve seen that to this point. Fact, I’ll tell you that there are cases where we might lose a deal. The structure is probably what the way that works, but we’ll keep the depository relationship that happens a lot. We really hate lose a relationship, which we by the way define as having the primary deposit account. So we haven’t seen that.

I think our rates are solid in the marketplace. So it’s not really a competitive rate thing. And I think the service proposition that we bring to the table, I mean, can look at the Greenwich awards, the J. D. Power awards.

I mean, it’s hard, normally you can’t buy that any other place. And so haven’t seen that same thing on the deposit side to this point.

Manav Gamsalia, Analyst, Morgan Stanley: Got it. And then maybe to get your thoughts on your interest in bank M and A. Clearly, M and A is picking up in Texas. We’ve seen a few deals announced over the past few weeks. You guys have the currency to do bank M and A.

So any thoughts on inorganic growth here?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Yes.

Phil Green, Chairman and CEO, Cullen Frost: Doing your job to ask the question. And so that’s it’s a good question. But and yes, our currency is strong relative to others, but we’re not interested in inorganic growth. There are many reasons around it. But with what we’re doing today and the focus that we’re able to bring on customer service, focus on being in the right markets that we choose to be hiring the right people to staff and be leaders in these markets.

I mean, it’s very there’s so much clarity there for our company and our staff. And we’re not worried about the regulatory aspects. We’re not worried about converting old systems. We’re not worried about closing old locations and rebranding. There’s so much cost associated with it.

And I’ll back to one other thing too that I’ve said before is, if you look at the costs we have all in for this organic growth per $1,000,000,000 it’s about half what you’re seeing paid in the markets for acquisitions. So it’s if you’re able to pull it off and you’ve got a value proposition that will sell in the marketplace and an organic strategy, I think for our shareholders is just so superior and the and there’s really no need for us to give large pieces of this company that’s been heavily curated with regard to brand and customer base and markets, etcetera, to others that might have cobbled together a franchise of sorts. I just don’t see that as a value for our shareholders. And I think they’re best served by allowing our shareholders who gave us the ability to create a company that can grow organically, let them have the benefit of that growth and those returns as we continue to prosecute this strategy. That’s the way I’m seeing it.

I’m convinced of it. And so I’m interested in participating in the M and A activity. And I’ll tell you just one other thing, and it’s just the reality is that when we see expansion not expansion, when we see acquisition activity occurring in our marketplace, it really is to our benefit because it creates dislocation, it creates dissatisfaction, it just creates noise in the marketplace and really provides us opportunities to pick up business. And we’ve seen that, I won’t name names, we’ve seen some really great examples of that over the last few years. And I’m kind of looking forward frankly to some of this acquisition activity they may have.

Manav Gamsalia, Analyst, Morgan Stanley: And that gives you the ability to pick up both customers as well as bankers?

Phil Green, Chairman and CEO, Cullen Frost: Absolutely.

Manav Gamsalia, Analyst, Morgan Stanley: All right. Thank you.

Conference Operator: Our next question is from Matt Olney with Stephens Inc. Please proceed.

Matt Olney, Analyst, Stephens Inc.: Thanks for taking the question guys. Just a few follow ups here. On the deposit competition, it looks like the deposit beta so far have been around 50% so far in this cycle, which I think is a little bit better Thank you. A little bit better than you were assuming previously. Dan, are you assuming similar betas from here on the remaining Fed cuts in your guidance?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Yes. I think you should see as the Fed funds go down that so far we’ve been able to kind of keep the similar betas. We’ll always kind of check the competition, especially likely on that CD just to make sure that we’re offering a fair square deal to our customers that’s competitive in the marketplace. And again, we have the deposit base to do that.

Matt Olney, Analyst, Stephens Inc.: Okay. Thanks for the color, Dan. And then as far as the EBITDA guidance on the non interest income, positive revision there, any more specifics you can provide on the improved outlook versus a few months ago?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: On the non interest income? Yes. So I think a couple of things. One, the stock market has been healthier and we weren’t exactly sure when we issued our guidance where the market would go. There wasn’t a lot of clarity.

Seems like we’ve gotten some tariff clarity and then the markets responded accordingly. So that’s probably one. The others are mainly, I would say, just volume related. When you think about interchange and service charges, that’s just that’s us growing customers. And so we’re continuing to add new customers.

Initially, at the beginning of the year, we were looking at some interchange in the back half of the year, regulation that didn’t that we’ve pushed out. We don’t know when that will be addressed. And so we’ve kind of taken it out of 2026. And that’s and then probably on the the only other thing I’ll add on the back half of the year is we had a really strong 2024 capital markets. And so, so far in 2025 we’re certainly behind in 2024.

We may have a this third quarter you’re seeing some opportunities with some school districts in their bond underwriting. So I would expect third quarter to be a little stronger there, but likely that will go away in the fourth quarter. So those would be kind of just some things that you could expect.

Matt Olney, Analyst, Stephens Inc.: Thank you.

Conference Operator: Our next question is from Catherine Miller with KBW. Please proceed.

Phil Green, Chairman and CEO, Cullen Frost0: Thanks. Good afternoon.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Hey, Catherine.

Ebrahim Poonawala, Analyst, Bank of America: So just to follow-up

Phil Green, Chairman and CEO, Cullen Frost0: on that service charge comment. So we should kind of keep service charges at these current levels or maybe even growing a little bit versus taking

Manav Gamsalia, Analyst, Morgan Stanley: were modeling a little bit

Phil Green, Chairman and CEO, Cullen Frost0: of a change from the lower interchange. But your point was just basically take that out and continue to grow service charges from here. Is that fair?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: That’s fair. I think what we’re seeing is we’re it is truly just a volume. It’s not like we’re increasing fees on consumers. We’re it’s really truly we just have a lot more customers and we’re opening up locations and bringing in new accounts.

Phil Green, Chairman and CEO, Cullen Frost0: Great. Okay. Perfect. And then I wanted to follow-up on the deposit piece. Where are your new deposits coming in today relative to where maybe that 129 cost of deposits are today?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: It’s broad based and I’m looking at kind of some information on just where it’s coming on recently and it’s we’ve seen it recently, like I’m talking about July, coming in broad based. We’re seeing CD growth, but we’re also seeing some good DDA growth. So I don’t think it’s overly weighted in one way or the other. But it’s kind of more back to seasonal trends that we’ve had in the past.

Phil Green, Chairman and CEO, Cullen Frost0: Got it. But would it be fair to think if we were in a higher for longer environment, so we did not get cuts that that deposit cost would actually start to come up a little bit from here just given higher competition?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: I think if you yes, maybe you would see I wouldn’t expect it necessarily in the back half of the year just because typically our commercial customers and our consumer trends are looking like they’re returning to seasonal trends where interest on checking and DDA would increase. You might see a shift if there’s more movement into CDs or our money market funds or our repo account that funding costs would go up. But I don’t think materially you’ll see it change much.

Phil Green, Chairman and CEO, Cullen Frost: So that would be more of a mix. A mix effect.

Phil Green, Chairman and CEO, Cullen Frost0: More of a mix versus

Phil Green, Chairman and CEO, Cullen Frost: below market in some way and we have to catch up with the market.

Phil Green, Chairman and CEO, Cullen Frost0: Got it. Okay. Great. Appreciate that. Thank you.

Conference Operator: Our next question is from Jon Arfstrom with RBC Capital Markets. Please proceed.

Phil Green, Chairman and CEO, Cullen Frost1: Hey, thanks. Good afternoon.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Hey, Jon. Hey, Jon.

Phil Green, Chairman and CEO, Cullen Frost1: Just a few follow ups here. On lending, where is the competition coming from? Is it too big to fail banks or is it regionals or community banks or all of the above?

Phil Green, Chairman and CEO, Cullen Frost: I think it’s all of the above. Although I will say, I’ve seen to feel like there’s a little bit more pressure coming from smaller, maybe banks a little smaller than us. They’re sort of waking up to having some money, I guess, to go into some of these asset classes. And they typically will be a little bit more aggressive on underwriting. So it seems like I’ve seen that, but it’s really everywhere.

Peter Winter, Analyst, D.A. Davidson: Yes. Okay.

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Yes. Larger loan opportunities is where we really see the competition, larger high quality. I mean that’s there’s not a lot of them. And so when they come around, it can get pretty competitive on both pricing and structure.

Casey Haire, Analyst, Autonomous Research: Okay.

Phil Green, Chairman and CEO, Cullen Frost1: On the margin and NII outlook and rates, how much does that change without cuts? I’m not necessarily thinking between now and the end of the year. You mentioned that Dan, but how impactful is a 25 basis point cut to margin and NII just in general?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Yes. So we it’s for the year impact, it’s like you said, it’s not going to make it a big dent in the full year net interest margin. On one cut, again, it’s around that $1,800,000 per month. And so you’re could see it if we don’t get any cuts for a full year. That I’m going to just kind of give you a range that could be depending on a lot of factors.

It could you could see it bump up for a full year, more in the kind of two to four basis points. Okay.

Phil Green, Chairman and CEO, Cullen Frost1: Good. That’s helpful. And then

Casey Haire, Analyst, Autonomous Research: any

Phil Green, Chairman and CEO, Cullen Frost1: I’m just looking at your numbers. You have a 1.2% ROA and a 16% almost 16 ROE. And I think you’re saying that thirty year branches are at breakeven in aggregate. How long does it take for the I hate to use the word project, but for the project expansion project to reach something like the average returns of your legacy branches? And any guidelines on how much the branch expansion can contribute to earnings over the next year or two?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: We’ll probably hold off until really we give 2026 guidance on the just what impact on the kind of earnings per share. But I can just kind of talk in generalities. Again, kind of years one through four, you’re really kind of in that breakeven stage of the expansion. And then you start to see in years five and beyond, really where there’s accretion. And so what and you have a good point.

I think we’ve got like 14 of our locations in Houston that are now over five years. Well, as we said has kind of been paying for the expansions in Dallas and in Austin. And so as Dallas matures, you’re going to see Dallas become breakeven in the next year to eighteen months. And so it doesn’t drag on Houston. And then really Houston ends up covering Austin, which is at that time in 2026, you won’t have you’ll have some you’ll have accretion at that point.

It’s just right now you have Houston covering some of Dallas because the average age of a Dallas branch is right at two years, whereas the average age of Houston one point zero is around five years. So just as it matures and you start to see more branches go beyond the four years and then five years and beyond is when you’ll see kind of that shift mix of more branches in years five and beyond than you have in years one through four. So we’re probably, I would say, three or four years to where you’re going to see, again, it’s just kind of math. If we’re building 10 to 12 branches basically one a month for the last six years, well, you’re not going to have as many in years five through 10, but in another four or five years, you’re going to see more branches in those years five through ten.

Phil Green, Chairman and CEO, Cullen Frost1: Okay. But and you’re still saying it’s basically breakeven in aggregate at this point or near breakeven, is that right?

Dan Geddes, Group Executive Vice President and CFO, Cullen Frost: Through the first two quarters, we’re breaking even.

Phil Green, Chairman and CEO, Cullen Frost1: Yes. Okay. All right. Thank you, guys.

Conference Operator: There are no further questions at this time. I would like to hand the conference back over to management for closing remarks.

Phil Green, Chairman and CEO, Cullen Frost: Okay. Well, appreciate everybody’s interest as always and you all have a good day. Thank you. We

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