Cullen/Frost Margin Widens as Loan Growth Accelerates
Taxable-equivalent net interest income rose 4.3% to $470.1 million as lending gained momentum.
Cullen/Frost Bankers (CFR), the Texas-focused regional bank, reported a broader lending contribution to second-quarter interest income as its margin edged higher. Taxable-equivalent net interest income rose 4.3% YoY and 2.0% QoQ to $470.1 million, returning close to the fourth-quarter level. Net interest margin expanded 1 bp QoQ and 8 bps YoY to 3.75%.
Average loans rose 7.4% YoY and 2.8% QoQ to $22.6 billion, accelerating from sequential growth of 1.6% in the first quarter and 1.0% in the fourth quarter. Average deposits rebounded 0.9% QoQ to $42.6 billion after declining 2.6% in the previous period, leaving them 2.1% higher YoY.
The deposit recovery extended across both major funding categories. Average non-interest-bearing deposits increased by $83 million QoQ to $14.03 billion, while interest-bearing balances rose by $310 million to $28.59 billion. Non-interest-bearing accounts held near 32.9% of total deposits.
Deposit-cost relief paused during the quarter. Total deposit costs increased 4 bps QoQ to 1.08%, matching a 4-bps rise in earning-asset yields to 4.92%. Deposit costs remained 21 bps below the year-earlier period, helping preserve the YoY margin expansion despite a 15-bps decline in earning-asset yields.
Fee revenue supplied additional YoY growth, though seasonal insurance commissions pulled the total below the first quarter. Non-interest income rose 9.4% YoY to $128.3 million and fell 5.9% QoQ. Deposit-service charges increased 17.2% YoY to $34.2 million on customer growth and higher transaction volumes, while trust and investment-management fees gained 9.1% to $47.6 million.
Cullen/Frost returned more capital while maintaining a sizable regulatory cushion. Its CET1 ratio declined 12 bps QoQ to 13.95% as the bank repurchased about 655,000 shares for $90 million. Another $140 million remained under its authorization, and the quarterly common dividend increased to $1.03 a share from $1.00.
Credit trends weakened from the first quarter. Credit-loss expense increased to $9.8 million, net charge-offs rose to $9.5 million and the annualized charge-off rate climbed 6 bps to 0.17%, though each measure remained better than a year earlier. Non-accrual loans jumped 56% QoQ to $112.7 million, or 0.49% of loans, while the allowance ratio declined to 1.23%. The faster loan pace entered the second half alongside a higher level of problem credits and renewed pressure on deposit pricing.