Cullen/Frost Bankers(CFR) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Unaudited statements show a slight asset decrease to $51.4 billion, while Q2 net income rose to $155.3 million Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $51,409,360 | $52,520,259 | -2.1% | | Total Cash and Cash Equivalents | $7,116,087 | $10,234,258 | -30.5% | | Net Loans | $20,976,692 | $20,484,662 | +2.4% | | Total Deposits | $41,683,614 | $42,722,748 | -2.4% | | Total Liabilities | $47,209,050 | $48,621,671 | -2.9% | | Total Shareholders' Equity | $4,200,310 | $3,898,588 | +7.7% | Consolidated Income Statement Highlights (in thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $429,604 | $396,712 | $845,824 | $786,763 | | Credit Loss Expense | $13,129 | $15,787 | $26,199 | $29,437 | | Non-interest Income | $117,273 | $111,190 | $241,284 | $222,567 | | Non-interest Expense | $347,128 | $316,964 | $695,194 | $643,181 | | Net Income | $157,003 | $145,499 | $307,925 | $281,189 | | Net Income Available to Common Shareholders | $155,334 | $143,830 | $304,587 | $277,851 | | Diluted EPS | $2.39 | $2.21 | $4.69 | $4.27 | - Q2 2025 comprehensive income rose to $145.7 million from $112.4 million YoY, while six-month comprehensive income improved to $419.5 million from $91.1 million due to a positive swing in other comprehensive income[10] - Total shareholders' equity increased from $3.90 billion to $4.20 billion, driven by net income of $307.9 million and other comprehensive income of $111.5 million, offset by $129.9 million in dividends[13] - Cash dividends per common share increased to $1.00 in Q2 2025 from $0.92 in Q2 2024, and six-month dividends rose to $1.95 from $1.84[12][13] Six Months Ended June 30, Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $(155,339) | $618,013 | | Net Cash from Investing Activities | $(1,876,213) | $(65,589) | | Net Cash from Financing Activities | $(1,086,619) | $(2,094,916) | | Net Change in Cash and Cash Equivalents | $(3,118,171) | $(1,542,492) | - The significant decrease in cash was driven by net cash used in investing activities, including $8.3 billion in securities purchases, and financing activities, including a $1.0 billion net decrease in deposits[14] - Notes detail accounting policies, financial instruments, credit quality, capital adequacy, and segment performance, including key portfolio and risk disclosures[15][16][17] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Higher net interest income drove a 9.6% YoY increase in six-month net income, with the net interest margin expanding to 3.63% Key Performance Metrics | Metric | 6M 2025 | 6M 2024 | | :--- | :--- | :--- | | Net Income Available to Common Shareholders | $304.6M | $277.9M | | Diluted EPS | $4.69 | $4.27 | | Return on Average Assets | 1.20% | 1.14% | | Return on Average Common Equity | 15.59% | 16.13% | - The six-month net income increase was driven by higher net interest income ($59.1M), non-interest income ($18.7M), and lower credit loss expense ($3.2M), partially offset by higher non-interest expense ($52.0M)[141] - Q2 2025 taxable-equivalent net interest income increased 7.9% YoY to $450.6 million, with the net interest margin expanding to 3.67%[152][155] - NII growth was driven by lower deposit costs and higher asset volumes, partially offset by lower yields on loans and Federal Reserve deposits[157][158] - As of June 30, 2025, 40.6% of the loan portfolio had a fixed interest rate, with the remainder tied to SOFR and the prime rate[144] - Six-month credit loss expense decreased to $26.2 million in 2025 from $29.4 million in 2024, primarily related to loans[170] - The allowance for credit losses on loans increased to $277.8 million, remaining stable at 1.31% of total loans[227] - Management used a deteriorating economic forecast and applied significant qualitative overlays ($152.9 million) for risks like office building exposure[227][233][240] - Six-month non-interest income increased 8.4% to $241.3 million, with key drivers including[171](index=171&type=chunk]: - Trust and investment management fees: Increased 7.6% to $86.6 million as trust assets reached $50.9 billion[172] - Service charges on deposit accounts: Increased 13.5% to $57.8 million[174] - Insurance commissions and fees: Increased 8.3% to $34.9 million[178] - Six-month non-interest expense increased 8.1% to $695.2 million, with key drivers including[187](index=187&type=chunk]: - Salaries and wages: Increased 7.9% to $323.0 million due to merit increases and higher headcount[188] - Employee benefits: Increased 15.8% to $75.0 million[189] - Technology, furniture, and equipment: Increased 13.7% to $80.7 million from higher cloud and software costs[193] - Total loans grew 2.4% to $21.3 billion since year-end 2024, with growth in energy, commercial real estate, and consumer real estate loans[211] - Non-accrual loans decreased to $62.4 million (0.29% of total loans) from $78.9 million (0.38% of total loans) at year-end 2024[220][221] - The company maintains a strong capital and liquidity position, with all regulatory capital ratios significantly exceeding 'well-capitalized' minimums[252][257] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with a +100 bps rate shock projected to increase net interest income by 1.2% Interest Rate Sensitivity on Net Interest Income (Next 12 Months) | Rate Change | NII Variance (as of June 30, 2025) | NII Variance (as of Dec 31, 2024) | | :--- | :--- | :--- | | +200 bps | +2.4% | +2.8% | | +100 bps | +1.2% | +1.5% | | -100 bps | -1.0% | -1.1% | | -200 bps | -2.2% | -2.2% | - Model simulations indicate the balance sheet was slightly less asset-sensitive at June 30, 2025, compared to year-end 2024[263] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the period end[266] Part II - Other Information Item 1. Legal Proceedings Ongoing legal actions are not expected to have a material adverse impact on the company's financial statements - Management does not expect ongoing legal proceedings to materially impact the company's financial statements[267] Item 1A. Risk Factors No material changes to risk factors have been identified since the 2024 Annual Report on Form 10-K - No material changes in risk factors were identified since the 2024 Form 10-K filing[268] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities A $150 million stock repurchase program is in place, with no shares repurchased under the plan during the quarter - The board authorized a $150.0 million stock repurchase program in January 2025, which remains fully available[270] - During Q2 2025, 606 shares were repurchased solely in connection with the vesting of stock compensation awards[270][271] Item 5. Other Information The company maintains an Insider Trading Policy, and no directors or officers have established Rule 10b5-1 trading arrangements - The company has an established Insider Trading Policy for its directors, officers, and employees[274] - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were reported for the period[274]