• Earnings: $149.3 million or $2.30 per share, compared to $134 million or $2.06 per share in the same quarter last year.
• Return on Average Assets: 1.19%, up from 1.09% last year.
• Return on Average Common Equity: 15.54%, compared to 15.22% last year.
• Average Deposits: $41.7 billion, a 2.3% increase from $40.7 billion last year.
• Average Loans: $20.8 billion, an 8.8% increase from $19.1 billion last year.
• Net Interest Margin: 3.60%, up 7 basis points from 3.53% last quarter.
• Net Charge-Offs: $9.7 million, compared to $14 million last quarter and $7.3 million a year ago.
• Nonperforming Assets: $85 million, down from $93 million at year-end.
• New Loan Commitments: $1.28 billion, up 1.5% from $1.26 billion last year.
• Consumer Loan Growth: 20.5% year-over-year.
• Commercial Loan Growth: $1.1 billion or 6.6% year-over-year.
• CRE Balances Growth: 8.9% year-over-year.
• Energy Balances Growth: 19.8% year-over-year.
• Consumer Checking Customer Growth: 5.7% year-over-year.
• Financial Centers: Reached 200 locations, up from around 130 in late 2018.

• Warning! GuruFocus has detected 5 Warning Signs with AXTI.

Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cullen/Frost Bankers Inc (NYSE:CFR) reported a significant increase in earnings, with $149.3 million or $2.30 per share, compared to $134 million or $2.06 per share in the same quarter last year.
• The company achieved a return on average assets of 1.19% and a return on average common equity of 15.54%, both showing improvement from the previous year.
• Cullen/Frost Bankers Inc (NYSE:CFR) continues to expand its presence, with plans to open its 200th financial center, marking a 50% increase in locations since 2018.
• The consumer banking segment showed strong growth, with average consumer loan balances increasing by 20.5% year-over-year.
• The company was recognized by J.D. Power as number one in Texas for consumer banking satisfaction for the 16th consecutive year, highlighting its strong customer service reputation.

Negative Points

• Average total deposits decreased by $228 million from the previous quarter, primarily due to lower noninterest-bearing accounts, following normal seasonal trends.
• The company faces headwinds from commercial real estate (CRE) payoffs, impacting loan growth despite a strong pipeline.
• Net charge-offs increased to $9.7 million from $7.3 million a year ago, indicating some deterioration in credit quality.
• The cost of interest-bearing deposits remains a concern, although it decreased to 1.94% from 2.14% in the previous quarter.
• Cullen/Frost Bankers Inc (NYSE:CFR) anticipates four rate cuts in 2025, which could impact net interest income growth if fewer cuts occur.

Q & A Highlights

Q: How should we think about the deposit beta on interest-bearing deposits as we move through your rate cut assumptions? A: Dan Geddes, Group Executive Vice President and CFO, explained that the cumulative beta is about 47%, and the spot beta is around 50%. As rate cuts occur, they expect this level to hold up, maintaining the same beta on the way down as on the way up.

Q: How should we think about the trajectory of expenses through the year, and are there any additional technology initiatives? A: Dan Geddes noted that expenses were impacted by the first quarter of 2024's FDIC special assessment. For the next three quarters, expenses are expected to be in the high single digits. Phillip Green, CEO, added that technology costs have been rising and are a significant part of noninterest expenses, but they have peaked from previous large investments.

Q: What are the conversations like with commercial customers regarding the economic backdrop? Are they deferring investments? A: Phillip Green stated that some customers are waiting for clarity, particularly regarding trade deals and tariffs. However, there is a high level of confidence among customers in their ability to pass costs along, and there is no significant pessimism.

Q: Why didn't the loan growth guide increase despite a strong pipeline? A: Dan Geddes mentioned headwinds from CRE payoffs, which are impacting loan growth. Despite a strong pipeline, payoffs from large multifamily projects and private credit bridge financing are keeping loan growth guidance stable.

Q: Can you provide more color on the bond book and reinvestment strategy, especially with expected rate cuts? A: Dan Geddes explained that they expect maturities or paydowns of just under $2 billion for the rest of the year, rolling off at around a 3.40% yield. They plan to reinvest some of this while also building liquidity and funding loan growth.

Q: How sensitive is the consumer client base to inflation and macroeconomic trends? A: Phillip Green noted that consumer spending remains stable, with continued borrowing on home equity and good mortgage numbers. Despite some uncertainty, job growth and low unemployment support consumer stability.

Q: What drove the reduction in problem loans this quarter? A: Phillip Green highlighted payoffs and resolutions, including a $70 million problem credit payoff and a $100 million apartment project refinancing. Dan Geddes added that they built reserves to account for tariffs and recession risks.

Q: What is the reason for adding two more rate cuts to your guidance? A: Dan Geddes stated that they are staying conservative compared to the market or yield curve, and they do not want to get ahead of themselves with predictions.

Q: How is the mortgage business performing, and does the current backdrop change any assumptions? A: Phillip Green explained that the mortgage business is growing from a small base, driven by internal referrals and a strong product offering. Despite industry challenges, they are optimistic about meeting their goals.

Q: What is holding back expectations on noninterest income growth? A: Dan Geddes mentioned that volume-driven factors like interchange and service charges could lead to upside potential. The expansion strategy and new relationships across Texas are expected to contribute positively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.