CFR Q1 Deep Dive: Expansion Drives Growth Amid Deposit and Loan Momentum

Texas-based financial institution Cullen/Frost Bankers (NYSE: CFR) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 7.7% year on year to $540.2 million. Its non-GAAP profit of $2.30 per share was 6% above analysts’ consensus estimates.

Is now the time to buy CFR? Find out in our full research report (it’s free).

StockStory’s Take

Cullen/Frost Bankers’ first quarter results were well received by the market, as investors looked past a modest revenue miss and focused on the company’s strong underlying business trends. Management attributed performance to robust loan and deposit growth, ongoing expansion of financial centers, and continued strength in both consumer and commercial banking. CEO Phil Green emphasized, “Our expansion efforts have generated $2.64 billion in deposits, $1.9 billion in loans, and 64,000 new households,” highlighting the effectiveness of the bank’s organic growth strategy. The quarter also saw the 11th consecutive period of 20%+ consumer loan growth, driven by real estate lending and new mortgage products.

Looking ahead, management expects continued benefits from recent securities purchases, improving deposit costs, and steady loan growth to support operating performance. CFO Dan Geddes outlined a cautious approach to forecasting, noting that guidance assumes four interest rate cuts this year but remains sensitive to changes in the rate environment. The bank anticipates mid- to high-single-digit average loan growth and 2% to 3% deposit growth for the year, with non-interest income buoyed by insurance, interchange, and service fees. Management is also closely monitoring technology expenses and potential macroeconomic headwinds, stating, “Technology costs have been the largest growth area in our expense base, and we remain vigilant on credit quality and underwriting discipline.”

Key Insights from Management’s Remarks

Management credited expansion in Texas, consumer loan growth, and a strong commercial pipeline as key factors driving first quarter performance, while also noting deposit cost improvements and higher yields from new securities purchases.

• Texas financial center expansion: The bank’s continued opening of new branches in Texas, including its 200th location, has driven significant growth in deposits and new household relationships, supporting both consumer and commercial segments.
• Consumer loan growth momentum: For the 11th straight quarter, consumer loan balances grew over 20% year-over-year, primarily due to robust demand for home equity and new mortgage products. Management highlighted the success of cross-selling mortgages to new customers moving to Texas.
• Commercial activity and pipeline: The commercial banking team set a record for customer outreach, resulting in a 27% increase in the loan pipeline versus the previous quarter. However, commercial real estate payoffs and increased competition remain headwinds for sustained loan growth.
• Deposit mix and pricing discipline: Deposit costs declined in the quarter, aided by a shift away from higher-cost certificates of deposit to lower-cost consumer and commercial accounts. Management expects deposit betas (the sensitivity of deposit rates to market rates) to remain steady as interest rates decline.
• Insurance and non-interest income gains: Insurance commissions rose 15% year-over-year, driven by better alignment between insurance and commercial banking, as well as increased referrals. Management views this broadening of non-interest income as a positive for overall revenue stability.

Drivers of Future Performance

Looking ahead, management expects continued growth to be supported by Texas expansion, disciplined expense management, and sensitivity to the interest rate environment.

• Loan and deposit growth focus: Expansion into new Texas markets and steady customer acquisition are expected to drive mid- to high-single-digit loan growth and 2% to 3% deposit growth over the year. Management sees continued opportunity from new relationships and migration trends into Texas.
• Interest rate and margin dynamics: The outlook assumes four interest rate cuts in 2025, but management notes that fewer rate cuts could boost net interest income (NII). Net interest margin is forecast to improve from higher-yielding securities and stable deposit costs, but remains sensitive to changes in the yield curve.
• Expense and technology management: Technology costs continue to be a major area of expense growth; management expects these to stabilize after recent “generational investments.” Credit quality and disciplined underwriting remain focal points, with no significant tightening expected unless macro conditions worsen.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) sustained growth from Texas market expansion and the addition of new financial centers, (2) the impact of interest rate changes on net interest income and deposit costs, and (3) ongoing trends in non-interest income, especially insurance and mortgage contributions. Execution in managing technology expenses and maintaining credit quality will also be key signposts for future financial stability.

Frost Bank currently trades at $126.51, up from $116.46 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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