Cullen/Frost Q2 2025: Unpacking Contradictions in Loan Growth, Deposit Betas, and Competitive Pressures

Deposit beta and interest rates, loan growth expectations and factors, impact of rate cuts on net interest margin (NIM) and income, competition in lending, and loan growth and demand are the key contradictions discussed in Cullen/Frost Bankers, Inc.'s latest 2025Q2 earnings call.



Strong Financial Performance and Growth:
- Cullen/Frost Bankers, Inc. reported earnings of $155.3 million or $2.39 per share in Q2 2025, compared to $143.8 million or $2.21 per share in Q2 2024.
- Average loans grew 7.2% year-over-year, and average deposits increased 3.1%.
- The growth was driven by organic expansion efforts, including new loan and deposit generation, and a strong customer growth strategy.

Loan and Deposit Expansion:
- Expansion efforts generated $2.76 billion in deposits and $2.03 billion in loans, with a combined increase of 69,000 new households.
- The expansion now represents 9.6% of company loans and 6.6% of company deposits, with a 35% and 25% growth rate for loans and deposits, respectively.
- These achievements are part of the company's ongoing strategy to increase market share and expand its customer base in target regions.

Margin and Interest Income:
- The net interest margin improved by 7 basis points to 3.67%.
- The increase was primarily due to a mix shift from low-yielding balances at the Fed to higher-yielding loans and securities.
- This trend reflects the bank's prudent asset management, allowing it to take advantage of favorable interest rate conditions.

Credit Quality and Credit Growth:
- The bank's overall credit quality remains healthy, with net charge-offs at 21 basis points of average loans for the second quarter.
- Nonperforming assets declined to $64 million, down from $85 million at year-end.
- Credit growth, particularly in commercial real estate and energy sectors, indicates strong demand for lending services, although competitive pressure is noted in these sectors.