8-K: Cullen/Frost Reports Strong Second Quarter 2025 Earnings Driven by Loan and Deposit Growth

Cullen/Frost Bankers, Inc. announced robust second-quarter 2025 financial results, reporting increased net income, diluted EPS, and significant growth in both loans and deposits.

Summary

• Net income available to common shareholders for the second quarter of 2025 was $155.3 million, an increase from $143.8 million for the second quarter of 2024.
• Diluted earnings per common share for Q2 2025 reached $2.39, up from $2.21 in Q2 2024.
• Net interest income on a taxable-equivalent basis was $450.6 million for Q2 2025, representing a 7.9% increase compared to $417.6 million in Q2 2024.
• Average loans for Q2 2025 grew by $1.4 billion, or 7.2%, to $21.1 billion compared to $19.7 billion a year earlier, and increased 1.3% from Q1 2025.
• Average deposits for Q2 2025 increased by $1.3 billion, or 3.1%, to $41.8 billion compared to $40.5 billion in Q2 2024, and rose 0.2% from Q1 2025.
• The net interest margin for Q2 2025 was 3.67%, up from 3.54% in Q2 2024 and 3.60% in Q1 2025.
• Non-interest income totaled $117.3 million in Q2 2025, a 5.5% increase from $111.2 million in Q2 2024, driven by higher trust and investment management fees and service charges on deposit accounts.
• Non-interest expense for Q2 2025 was $347.1 million, up 9.5% from $317.0 million in Q2 2024, primarily due to increases in salaries and wages, employee benefits, and other non-interest expenses.
• Credit loss expense was $13.1 million in Q2 2025, consistent with Q1 2025 but down from $15.8 million in Q2 2024.
• Net loan charge-offs were $11.2 million in Q2 2025, compared to $9.7 million in Q1 2025 and Q2 2024.
• Non-accrual loans decreased to $62.4 million at the end of Q2 2025, down from $83.5 million at the end of Q1 2025 and $75.0 million at the end of Q2 2024.
• Capital ratios remain strong, with Common Equity Tier 1 at 13.98%, Tier 1 at 14.43%, and Total Risk-Based Capital at 15.88% at June 30, 2025, all exceeding well-capitalized levels and Basel III minimum requirements.
• The board declared a third-quarter cash dividend of $1.00 per common share and $11.125 per share of Series B Preferred Stock.

Sentiment

Score: 8

Explanation: The company reported strong financial results with significant year-over-year growth in key metrics like net income, EPS, net interest income, loans, and deposits. Capital ratios remain robust, and non-accrual loans decreased. While expenses increased and return on common equity slightly declined, the overall performance indicates healthy organic growth and financial stability.

Positives

• Net income available to common shareholders increased to $155.3 million in Q2 2025 from $143.8 million in Q2 2024, demonstrating strong profitability growth.
• Diluted earnings per common share rose to $2.39 in Q2 2025 from $2.21 in Q2 2024, indicating improved per-share earnings.
• Net interest income on a taxable-equivalent basis grew by 7.9% year-over-year to $450.6 million, reflecting effective interest rate management.
• Average loans increased by 7.2% year-over-year to $21.1 billion, and 1.3% quarter-over-quarter, signaling robust lending activity and demand.
• Average deposits increased by 3.1% year-over-year to $41.8 billion, and 0.2% quarter-over-quarter, indicating continued customer trust and funding stability despite seasonal weakness.
• Net interest margin improved to 3.67% in Q2 2025 from 3.54% in Q2 2024, indicating better profitability from lending activities.
• Non-interest income increased by 5.5% year-over-year, driven by growth in trust and investment management fees (up $2.3 million or 5.5%) and service charges on deposit accounts (up $3.0 million or 11.6%).
• Non-accrual loans decreased significantly to $62.4 million in Q2 2025 from $83.5 million in Q1 2025, indicating improved asset quality.
• Capital ratios (Common Equity Tier 1 at 13.98%, Tier 1 at 14.43%, Total Risk-Based at 15.88%) remain well above regulatory minimums, demonstrating strong financial resilience.
• The board declared an increased common stock dividend of $1.00 per share for the third quarter, up from $0.95 in the previous quarter, benefiting shareholders.

Negatives

• Return on average common equity decreased to 15.64% in Q2 2025 from 17.08% in Q2 2024.
• Non-interest expense increased by 9.5% year-over-year to $347.1 million, outpacing non-interest income growth, primarily due to higher salaries and wages (up $10.9 million or 7.2%), employee benefits (up $4.0 million or 14.0%), and other non-interest expenses (up $10.1 million or 16.8%).
• Net loan charge-offs increased to $11.2 million in Q2 2025 from $9.7 million in Q2 2024, indicating a slight deterioration in loan performance.

Risks

• The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board and the implementation of tariffs and other protectionist trade policies.
• Inflation, interest rate, securities market, and monetary fluctuations.
• Local, regional, national, and international economic conditions and the impact they may have on the company and its customers.
• Changes in the financial performance and/or condition of borrowers.
• Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.
• Changes in estimates of future credit loss reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.
• Changes in the company's liquidity position.
• Impairment of goodwill or other intangible assets.
• The timely development and acceptance of new products and services and perceived overall value of these products and services by users.
• Changes in consumer spending, borrowing, and saving habits.
• Greater than expected costs or difficulties related to the integration of new products and lines of business.
• Technological changes.
• The cost and effects of cyber incidents or other failures, interruptions, or security breaches of the company's systems or those of its customers or third-party providers.
• Acquisitions and integration of acquired businesses.
• Changes in the reliability of vendors, internal control systems or information systems.
• The company's ability to increase market share and control expenses.
• The company's ability to attract and retain qualified employees.
• Changes in the company's organization, compensation, and benefit plans.
• The soundness of other financial institutions.
• Volatility and disruption in national and international financial and commodity markets.
• Changes in the competitive environment in the company's markets and among banking organizations and other financial service providers.
• Government intervention in the U.S. financial system.
• Political or economic instability.
• Acts of God or of war or terrorism.
• The potential impact of climate change.
• The impact of pandemics, epidemics, or any other health-related crisis.
• The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.
• The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) and their application with which the company and its subsidiaries must comply.
• The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.
• The company's success at managing the risks involved in the foregoing items.
• Prolonged uncertainty, elevated tariff levels or their wide-spread use in U.S. trade policy could weaken economic conditions and adversely impact the ability of borrowers to repay outstanding loans or the value of collateral securing these loans or adversely affect financial markets.

Future Outlook

The filing contains forward-looking statements but does not provide specific quantitative guidance or projections for future periods. It highlights the company's organic growth model and consistent execution as drivers of its strong performance.

Management Comments

• "Our strong performance in the second quarter demonstrates the durability of our organic growth model and is a testament to the consistent focus and execution of Frost bankers throughout the state and in every area of the company."
• "We again posted solid loan growth, and despite the second quarter typically being a seasonally weak period for deposits, we saw a slight increase in average total deposits compared to the first quarter." Phil Green, Cullen/Frost Chairman and CEO.

Industry Context

The results reflect a regional bank's ability to achieve organic growth in loans and deposits, even in a potentially challenging interest rate environment (as indicated by the net interest margin increase) and seasonal deposit weakness. The increase in non-interest income from trust and investment management fees suggests positive market conditions impacting asset values, while increased service charges indicate growing customer activity. Rising expenses, particularly salaries and benefits, are common across the banking sector due to talent competition and inflation.

Comparison to Industry Standards

• No specific comparable companies, projects, or results are mentioned in the filing for direct comparison to industry standards.

Stakeholder Impact

• Shareholders are positively impacted by increased net income, diluted EPS, and a declared higher common stock dividend ($1.00 vs. $0.95 previous quarter), along with strong capital ratios indicating financial stability.
• Employees are positively impacted by increases in salaries and wages and employee benefits, partly attributed to organic expansion and an increase in employee count.
• Customers are impacted by increased service charges on deposit accounts, but overall growth in active customer accounts and deposits suggests continued engagement and trust in the company's services.

Next Steps

• A conference call will be held on Thursday, July 31, 2025, at 1 p.m. Central Time (CT) to discuss the results for the quarter.
• The third-quarter cash dividend of $1.00 per common share is payable September 15, 2025, to shareholders of record on August 29, 2025.
• The cash dividend of $11.125 per share of Series B Preferred Stock (or $0.278125 per depositary share) is payable September 15, 2025, to shareholders of record on August 29, 2025.

Key Dates

Recommendation

The company demonstrated strong financial performance with significant growth in core banking metrics (net income, EPS, loans, deposits, net interest income) and improved net interest margin. Capital ratios are robust and exceed regulatory requirements, indicating financial strength and stability. The reduction in non-accrual loans points to improving asset quality. While expenses increased, they are partly attributable to strategic organic expansion. The declared dividend increase further signals confidence. These factors suggest a healthy and growing business, making it an attractive investment.

Keywords

Banking, Financial Services, Regional Bank, Texas, Commercial Banking, Retail Banking, Wealth Management, Loans, Deposits, Net Interest Income, Earnings, Dividends, Capital Ratios, Credit Quality, SEC Filing, 8-K, Q2 2025