Summary of Cullen/Frost Bankers, Inc. Q3 2025 Earnings Call

1Key Financial Results and Metrics

Earnings:: Q3 2025 net income reached $172.7 million, or $2.67 per share, a 19.2% increase from $144.8 million, or $2.24 per share, in Q3 2024.

Return on Assets (ROA):: 1.32%, up from 1.16% year-over-year.

Return on Equity (ROE):: 16.72%, compared to 15.48% in the prior year.

Average Deposits:: $42.1 billion, a 3.3% increase from $40.7 billion in Q3 2024.

Average Loans:: $21.5 billion, a 6.8% increase from $20.1 billion in Q3 2024.

Credit Quality:: Nonperforming assets decreased to $47 million (22 basis points of loans), down from $64 million last quarter and $106 million a year ago. Net charge-offs were $6.6 million (12 basis points of average loans).

2Strategic Updates and Business Highlights

Organic Growth:: The bank's expansion strategy yielded positive results, with expansion deposits and loans at $2.9 billion and $2.1 billion, respectively, contributing to nearly 10% of total loans and 7% of total deposits.

Consumer Business:: Strong performance in consumer checking households, growing 5.4% year-over-year, and record mortgage lending metrics.

Commercial Business:: Period-end commercial loans grew by 5.1% year-over-year, with notable increases in energy (17%) and commercial & industrial (C&I) loans (6.8%).

Wealth Management and Insurance:: Both sectors showed growth, with trust and investment fees up 9.3% year-over-year.

3Forward Guidance and Outlook

Net Interest Income Growth:: Expected to increase by 7% to 8% for the full year, up from prior guidance of 6% to 7%.

Net Interest Margin (NIM):: Anticipated improvement of 12 to 15 basis points over the previous year's margin of 3.53%.

Loan and Deposit Growth:: Full-year average loan growth projected at 6.5% to 7.5%, and average deposit growth expected between 2.5% and 3.5%.

Noninterest Income:: Updated projection for growth is now 6.5% to 7.5%, an increase from 3.5% to 4.5% guidance.

4Bad News, Challenges, or Points of Concern

Competitive Pressures:: Increased competition in the Texas market, particularly in pricing and structure, was noted, although management remains confident in their competitive positioning.

Interest Rate Sensitivity:: Anticipated Fed rate cuts may impact NIM, with potential headwinds from the interest rate environment affecting profitability.

Expense Growth:: Noninterest expenses rose by 1.7% linked quarter, driven by higher compensation and technology costs, with expectations for future expense growth to moderate to mid-single digits.

5Notable Q&A Insights

NIM Outlook:: Management acknowledged that upcoming Fed rate cuts could pressure NIM but expressed optimism that deposit volumes could help stabilize margins.

Credit Quality Monitoring:: While credit quality remains strong, management is closely monitoring sectors such as commercial real estate and the impact of oil price volatility on borrowers.

Expansion Strategy:: The bank plans to continue its organic growth strategy rather than pursue mergers and acquisitions, emphasizing a preference for organic market entry.

Operating Leverage:: Management is focused on achieving operating leverage through continued organic growth and expense management, with expectations for improved profitability from new branches. Overall, Cullen/Frost Bankers demonstrated strong financial performance in Q3 2025, supported by effective organic growth strategies and solid credit quality, while also navigating competitive pressures and potential interest rate impacts.