Business Overview and History Cullen/Frost was founded in 1868 as a mercantile partnership in San Antonio, Texas, and was later chartered as a national banking association in 1899 under the name Frost National Bank. In 1977, the company was incorporated as a Texas business corporation and adopted the name Cullen/Frost Bankers, Inc. Throughout the 1980s and 1990s, Cullen/Frost expanded its operations by opening new branch locations across Texas and acquiring several smaller banks and financial services companies, establishing a strong presence in key Texas markets such as Austin, Dallas, Fort Worth, Houston, and the Permian Basin region.
During the savings and loan crisis in the late 1980s, Cullen/Frost faced increased scrutiny from regulators, higher compliance costs, and asset quality issues. However, the company successfully navigated these challenges by maintaining disciplined underwriting standards and a diversified loan portfolio. In the 2000s, Cullen/Frost continued its organic growth and made strategic acquisitions, including the purchase of a Dallas-based insurance agency in 2004 to diversify its revenue streams.
Throughout its history, Cullen/Frost has remained committed to its community banking model, emphasizing personalized service, local decision-making, and active community involvement. This focus on building long-term relationships with customers has been a key driver of its success over the decades.
As of December 31, 2024, Cullen/Frost has grown into one of the largest independent bank holding companies headquartered in Texas, with consolidated total assets of $52.5 billion. The company's banking subsidiary, Frost Bank, operates approximately 194 financial centers across Texas, serving customers in the Austin, Dallas, Fort Worth, Gulf Coast, Houston, Permian Basin, and San Antonio regions. Frost Bank offers a comprehensive array of commercial and consumer banking services, as well as trust and investment management, insurance, brokerage, and other financial services.
One of Cullen/Frost's key strategic initiatives has been its organic expansion efforts, which the company launched in late 2018. At that time, Frost Bank had 131 financial centers across the state. As of the midpoint of 2025, the company will have opened its 200th location, with plans for further expansion in the coming years. This methodical and disciplined approach to growth has enabled Cullen/Frost to establish a stronger presence in high-potential markets and steadily grow its customer base.
Financial Performance and Ratios Cullen/Frost's financial performance has remained strong, even in the face of economic challenges. In the full year 2024, the company reported net income available to common shareholders of $575.9 million, or $8.87 per diluted share. This compared to $591.3 million, or $9.10 per diluted share, in the prior year. The company's annual revenue for 2024 was $2.06 billion, with annual operating cash flow of $989.53 million and annual free cash flow of $861.76 million.
In the most recent quarter (Q4 2024), Cullen/Frost reported revenue of $556.44 million and net income of $153.2 million. This represented year-over-year growth of 6.3% in revenue and 52% in net income. The increase in revenue and net income was primarily driven by higher net interest income and non-interest income, partially offset by increased credit loss expense and non-interest expense.
The company's return on average assets (ROAA) stood at 1.19% in Q4 2024, up from 0.82% in Q4 2023, while its return on average common equity (ROCE) was 15.58% in Q4 2024, up from 13.51% in the previous year. These metrics demonstrate Cullen/Frost's ability to generate consistent profitability, even in a more challenging operating environment.
Cullen/Frost's balance sheet remains well-capitalized, with a common equity Tier 1 capital ratio of 13.62% and a total risk-based capital ratio of 15.53% as of December 31, 2024. The company's tangible book value per share was $58.62 at the end of 2024, up from $55.76 a year earlier.
Loan and Deposit Growth One of the key drivers of Cullen/Frost's performance has been its consistent loan and deposit growth. In the fourth quarter of 2024, the company's average loans increased by 9% year-over-year to $20.3 billion, with strong growth across its commercial and consumer loan portfolios.
On the deposit side, Cullen/Frost's average deposits stood at $41.9 billion in the fourth quarter of 2024, up from $41.2 billion in the same period of the prior year. The company has maintained a solid deposit base, with a high proportion of low-cost, core deposits, which has helped support its net interest margin and overall profitability.
Expansion and Market Share Gains Cullen/Frost's organic expansion strategy has been a key factor in its growth and market share gains. The company's investments in new financial centers, along with its focus on providing exceptional customer service, have enabled it to capture a larger share of the Texas banking market.
In the fourth quarter of 2024, the company's expansion efforts had generated $2.4 billion in deposits, $1.8 billion in loans, and added more than 59,000 new households. These figures represent 101%, 151%, and 130% of the company's original goals, respectively, demonstrating the success of its expansion strategy.
Cullen/Frost's growth has been particularly strong in the Houston and Dallas markets, where it has been able to leverage its strong brand and customer-centric approach to gain market share. The company's expansion into the Austin region has also been promising, with the opening of its sixth location in the fourth quarter of 2024.
Challenges and Risks Like other financial institutions, Cullen/Frost faces a range of challenges and risks, including the ongoing impact of the COVID-19 pandemic, rising interest rates, and increased competition from both traditional banks and emerging financial technology (fintech) firms.
The company's exposure to the energy sector, which accounts for approximately 5.4% of its loan portfolio, also presents a potential risk, as the industry continues to grapple with volatility in commodity prices and the transition to renewable energy sources.
Additionally, Cullen/Frost, like all banks, is subject to a extensive regulatory framework, which can introduce compliance costs and operational complexities. The company's ability to navigate this regulatory landscape effectively will be crucial to its long-term success.
Outlook and Guidance Despite the challenges, Cullen/Frost remains optimistic about its future prospects. For the full year 2025, the company is guiding for net interest income growth in the range of 4% to 6%, with an expected improvement of around 10 basis points in its net interest margin compared to 3.53% in 2024.
On the loan and deposit front, Cullen/Frost is projecting full-year average loan growth in the mid- to high-single digits and average deposit growth between 2% and 3%. The company also anticipates growth in non-interest income in the range of 1% to 2%, and a high-single-digit increase in non-interest expenses.
Cullen/Frost expects net charge-offs in the range of 20-25 basis points of average loans and an effective tax rate between 15-16% for 2025. The company plans to make around $4 billion in investment portfolio purchases in 2025, with about half occurring in Q1. Additionally, Cullen/Frost anticipates that the Federal Reserve will cut rates by 225 basis points in 2025, with cuts in June and September.
Cullen/Frost's management team remains committed to its disciplined approach to growth, risk management, and delivering exceptional customer service. As the company navigates the evolving economic landscape, its strong fundamentals, diversified business model, and strategic initiatives position it well to continue generating value for its shareholders.
Business Segments Cullen/Frost operates two primary business segments: Banking and Frost Wealth Advisors.
The Banking segment includes both commercial and consumer banking services. On the commercial side, the bank provides a wide array of lending and cash management products to corporations and other business clients. The consumer banking services include direct lending and depository services. As of December 31, 2024, the commercial and industrial loan portfolio made up 29.5% of the total loan portfolio. Energy loans comprised 5.4% of the total loan portfolio. Commercial real estate loans accounted for 48% of the total loan portfolio. Consumer real estate loans made up 15% of the total loan portfolio. The remaining 2.1% consisted of consumer and other loans.
In 2024, the Banking segment reported net income of $561.1 million, a decrease of 3% compared to 2023. This was primarily driven by a $61 million increase in non-interest expense and an $18.8 million increase in credit loss expense, partially offset by a $48.2 million increase in net interest income and a $13.5 million increase in non-interest income.
The Frost Wealth Advisors segment provides fee-based services within private trust, retirement services, and financial management, including personal wealth management and securities brokerage. In 2024, this segment reported net income of $36.9 million, an increase of 11% compared to the prior year. The increase was primarily attributable to a $17.3 million rise in non-interest income, driven by growth in trust and investment management fees, other charges and commissions, and other non-interest income.
The Non-Banks segment, which includes the parent company and certain other insignificant non-bank subsidiaries, reported a net loss of $15.4 million in 2024, compared to a net loss of $13.9 million in 2023.
Liquidity and Capital Position Cullen/Frost maintains a strong liquidity position, with cash and cash equivalents of $10.23 billion as of December 31, 2024. The company's debt-to-equity ratio stood at 0.057, indicating a conservative approach to leverage. As a member of the Federal Home Loan Bank (FHLB), Cullen/Frost had approximately $6.3 billion in total borrowing capacity based on available, pledgeable collateral as of December 31, 2024.
Conclusion Cullen/Frost Bankers has demonstrated its resilience and adaptability in the face of economic challenges, delivering steady growth and maintaining robust financial performance. The company's strategic focus on organic expansion, coupled with its commitment to customer service and prudent risk management, has enabled it to gain market share and strengthen its position as a leading financial institution in Texas.
While the company faces a range of risks, including the ongoing impact of the pandemic, rising interest rates, and competitive pressures, Cullen/Frost's management team has proven its ability to navigate these challenges effectively. With a strong balance sheet, disciplined approach to growth, and a clear strategic vision, the company is well-positioned to continue delivering value to its shareholders in the years to come.