Cullen/Frost Bankers Posts Strong Q2 Earnings, Driven by Texas Expansion and Loan Growth

San Antonio-based Cullen/Frost Bankers, Inc. (NYSE: CFR), the parent company of Frost Bank, delivered a robust financial performance for the second quarter of 2025, with earnings rising on the back of solid growth in both its loan portfolio and customer deposits. The company also revised its full-year guidance, reflecting its current interest rate outlook and sustained business momentum.

Chairman and CEO Phil Green announced quarterly net income of $155.3 million, or $2.39 per share, up from $143.8 million, or $2.21 per share, in the same period last year. The bank's return on average assets improved to 1.22% from 1.18%, though return on equity saw a slight dip to 15.64%.

The quarter was marked by continued balance sheet expansion. Average deposits grew 3.1% year-over-year to $41.8 billion, while average loans jumped 7.2% to $21.1 billion. A significant driver of this growth remains the bank's multi-year strategy to expand its physical footprint across Texas. During the quarter, Frost Bank opened its 200th financial center in Pflugerville, near Austin. Since the initiative's launch in late 2018, the network has grown from approximately 130 locations.

"Our expansion markets are performing ahead of expectations," Green stated. He reported that the expansion effort has now generated $2.76 billion in deposits and $2 billion in loans, attracting nearly 69,000 new households. These newer markets now account for 9.6% of total loans and 6.6% of total deposits. Management reiterated its expectation for the expansion to become accretive to earnings in 2026.

On the lending front, strength was broad-based. The consumer real estate portfolio grew by 22% year-over-year, fueled by home equity products. Average commercial loan balances also increased by 4.9%. Green noted record levels of commercial client calls and a 36% quarterly increase in "booked opportunities."

However, the earnings call also surfaced notes of caution. Green pointed to "intensifying competition," particularly in commercial real estate lending, where he observed price compression and more aggressive deal structures as lenders re-enter the market. "We'll compete on price, but we will not compromise on structure to protect our balance sheet," he emphasized.

Credit metrics remained stable by historical standards. Non-performing assets declined to $64 million. Net charge-offs for the quarter were $11.2 million. The bank did note an increase in total problem loans, primarily tied to criticized multifamily loans, but expects resolutions in the coming quarters.

Chief Financial Officer Dan Geddes reported a net interest margin of 3.67%, up 7 basis points sequentially, aided by a shift out of low-yielding Fed balances. Based on an assumption of two Federal Reserve rate cuts later in 2025, management updated its full-year guidance, anticipating continued loan growth and a stable to slightly improving margin profile, though tempered by a higher mix of certificate of deposit funding.

When asked about mergers and acquisitions, Green firmly dismissed the idea, doubling down on the bank's organic growth strategy within Texas. "Our approach is less costly than paying acquisition premiums and avoids the immense integration challenges. Industry consolidation often creates dislocation, which actually presents an opportunity for us to attract both customers and talented bankers," he argued.

Market Voices: Analyst & Investor Reactions

Eleanor Vance, Senior Bank Analyst at Lone Star Capital: "Frost's results underscore the power of its Texas-centric model. The deposit growth is healthy, and the expansion metrics are impressive. Their discipline on underwriting in a competitive environment is the right long-term play, even if it means conceding some short-term volume."

Marcus Thorne, Portfolio Manager at Hillcrest Advisors: "The ROE decline is a minor concern, but likely temporary given the investment phase of expansion. The guide seems prudent. What I like is the clear path to accretion from new branches and the pristine credit quality. This is a steady compounder."

David Chen, Managing Partner at Clearwater Equity Partners: "Enough with the 'Texas is great' mantra. Loan growth is good, but where's the innovation? They're opening brick-and-mortar stores like it's 1995 while digital banks are eating their lunch on cost. That margin is fragile if the Fed cuts more than twice. This is a legacy play, not a growth story."

Rebecca Soto, Independent Investor and Frost Bank Customer: "As a small business owner in Austin, I switched to Frost two years ago when they opened here. The service is phenomenal—they know my name. These numbers tell me they're growing because they focus on relationships, not just transactions. That's why I'm a shareholder too."