Cullen/Frost Bankers, Inc. Q4 FY2025 earnings call

• Expansion efforts: Fourth quarter expansion EPS accretion was $0.12 vs $0.09 in Q3. Houston 1.0 contributed $0.15 per share, Houston 2.0 and Dallas at breakeven, Austin costing $0.03 per share. Expansion represented 42% of total loan growth and 38% of total deposit growth in 2025.
• Financial performance: Fourth quarter net income $164.6 million (+7.4% YOY), full year net income $641.9 million (+11.5% YOY). Average deposits $43.3 billion (+3.5% YOY), average loans $21.7 billion (+6.5% YOY).
• Credit quality: Nonperforming assets $72 million, net charge-offs $5.8 million in Q4. Successful resolution of multifamily commercial real estate loans in 2025, with progress expected to continue in 2026.
• Wealth management: New organization structure implemented to position Frost Wealth Management for long-term organic growth and better client service.

Consumer business: Strong results driven by excellent customer experience. Consumer bank had 5.8% checking household growth in 2025, marking fifth consecutive year of industry-leading growth. Mortgage lending platform had $595 million in loans outstanding by end of 2025, with a $173 million increase in Q4. Commercial business: Closed 2025 with highest number of calls ever (+8% YOY) and record new relationships (4,091, +8% YOY). New loan commitments in Q4 up 22% QoQ, driven by commercial real estate and energy. Wealth management: Implemented new organization structure to drive organic growth and better client service. Expansion deposits exceeded $3 billion, expansion loans stood at $2.37 billion, adding over 78,000 new households (11% of loans, 7% of deposits).

• Net interest income expected to grow 3%-5% in 2026.
• Net interest margin expected to improve 5-10 basis points compared to 2025's 3.66%.
• Average loan growth expected 5%-7%, average deposits growth 2%-3% in 2026.
• Noninterest income expected to grow 4%-5%, noninterest expense expected 5%-6%.
• Net charge-offs expected 20-25 basis points of average loans in 2026.
• Effective tax rate expected 15%-16% in 2026.
• Board approved new $300 million share repurchase program.

• Competition from new entrants and pricing pressure.
• Uncertainty around resolution of specific loans (shared national credit and beverage distribution business).
• Impact of macroeconomic factors on loan and deposit growth.

Q: Jared Shaw asked about credit, specifically the shared national credit loan and risk grade 10 loan migrations.

A: Phillip Green said no charge-off on the shared national credit, with a $10 million specific reserve set aside. Dan Geddes added about flat risk grade 10 with $220 million in resolution.

Q: Ebrahim Poonawala inquired about loan/deposit growth guidance and expense growth.

A: Dan Geddes said loan growth guidance accounts for multifamily loan payoffs and timing, deposit growth affected by competitive environment. Expense growth expected to be steady with some quarterly variations.

Q: Catherine Mealor asked about loan growth outlook and operating leverage.

A: Dan Geddes mentioned payoffs replaced by commitments, consumer loan growth expected high teens, and market disruption from M&A as an opportunity.

Q: Casey Haire asked about fee income guidance and capital buybacks.

A: Dan Geddes said fee income has drags from money market and annuity income, buybacks expected to be more consistent in 2026.

Q: Peter Winter asked about deposit service charges and new entrants.

A: Phillip Green said deposit service charges grow due to new account growth and customer usage of opt-in products. Dan Geddes added commercial service charge income affected by rate cuts.

Q: David Chiaverini asked about loan pipelines and M&A.

A: Dan Geddes said pipeline up 16% YOY with opportunities in commercial real estate, and Phillip Green stated no interest in M&A due to organic growth efficiency.

Q: Benjamin Gerlinger asked about guidance basis and 1Q outlook.

A: Dan Geddes said guidance is GAAP, with 1Q having seasonality in insurance renewals.

Q: Jon Arfstrom asked about margin outlook without rate cuts and credit provision.

A: Dan Geddes said rate cuts impact net interest income, and provision could tick down with positive credit trends.