Cullen/Frost Bankers, Inc.

Greetings, and welcome to Colin Frost Bankers Incorporated's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It has been my pleasure to introduce A.B. Mendez, Senior Vice President and Director of Investor Relations. Thank you. You may begin.

Thanks, Sherry. This afternoon's conference call will be led by Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO. Before I turn the call over to Phil and Dan, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended. We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained and the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available on our website or by calling the Investor Relations Department at 210-220-5234. At this time, I'll turn the call over to Phil.

Thanks, AB. Good afternoon, everyone, and thanks for joining us. Today, we'll review second quarter 2025 results for Cullen Frost, and our Chief Financial Officer, Dan Geddes, will provide additional commentary and guidance before we take your questions. In the second quarter of 2025, Cullen Frost earned $155.3 million, or $2.39 a share, and that compared with earnings of $143.8 million or $2.21 a share reported in the second quarter last year. Our return on average assets and average common equity in the second quarter were 1.22 percent and 15.64 percent, respectively. And that compares with 1.18 percent and 17.08 percent in the same quarter last year. Average deposits in the second quarter were $41.8 billion. an increase of 3.1% over the $40.5 billion in the second quarter last year. Average loans grew to $21.1 billion in the second quarter, an increase of 7.2% compared with $19.7 billion in the second quarter of last year. We continue to see solid results, and it's been driven by the hard work of our Frost bankers and the extension of our organic growth strategy. During the second quarter, we achieved the milestone of opening our 200th location, the Pflugerville Financial Center in the Austin region. At the time that we started this strategy in late 2018, we had around 130 financial centers. which means that we've increased that number by more than 50% since that time. And we continue to identify more locations around the state to extend our value proposition to more customers. At the end of the second quarter, our overall expansion efforts had generated $2.76 billion in deposits. $2.03 billion in loans, and almost 69,000 new households. Looking at year-over-year growth, expansion average loans and deposits increased $521 million and $544 million, respectively, representing growth of 35 percent and 25%. The expansion now represents 9.6% of company loans and 6.6% of company deposits using average June month-to-date balances. As we've mentioned, the successes of our earlier expansion locations are now funding the current expansion effort and we expect the overall effort will be accretive to earnings in 2026. And as I've said many times, this strategy is both durable and scalable. Average consumer deposits make up about 46% of our total deposit base, and we continue to see consistently high organic growth. Checking household growth. which is our bellwether measure of customer growth, increased at what we believe to be an industry-leading rate of 5.4%. Consumer deposits continue to strengthen with 3.7% year-over-year growth, and it's encouraging to see a return to steady checking balance growth after a post-pandemic period where growth was weighted towards CDs. Our consumer real estate loan portfolio, which stands at $3.3 billion in outstandings, has been seeing strong growth from both our second lien home equity products as well as our newer mortgage product. In total, the portfolio grew outstandings by $600 million a year over year, which is a 22% growth rate. All in all, This balanced organic growth is only possible because of our success at expanding into some of the most dynamic markets in the country and our unwavering institutional commitment to an excellent customer experience. And that commitment hasn't just been in place the past few years. It's been a key part of our culture for our 157-year history. Looking at our commercial business, Average loan balances grew by $817 million, or 4.9%, year over year. CRE balances grew by 6.8%. Energy balances increased 22%. And CNI balances decreased by about 1%. The second quarter represented an all-time record for calls. following our prior record in Q1 of this year. Year to date, there's been a 7% increase in calls, putting us on track for the strongest year for calls ever. Booked opportunities for the quarter increased 36%, following a strong 90-day weighted pipeline in Q1. Booked opportunities increased for both customers prospects in both large and core opportunities and across all loan categories. Losses to pricing decreased 28%, while losses to structure continued to increase, reaching the second highest quarter ever for losses due to structure. And I think this represents the level of competition developing in the market. At the end of the day, we added just under $2 billion in new loan commitments for the second quarter, which was 56% more than Q1. And as was said before, the increase was seen across large and core, as well as all loan categories. Finally, we recorded 1,060 new commercial relationships in the second quarter, our second highest quarterly total ever, and a 9% increase over the first quarter. About half of our new commercial relationships in the second quarter continue to come from the too-big-to-fail banks. Our overall credit quality remains good by historical standards, with net charge-offs and non-accrual loans both at healthy levels. Non-performing assets declined to $64 million at the end of the second quarter, compared with $85 million at year-end. Most of this decrease came from a paydown on a C&I revolving line of credit, which is currently classified as non-accrual. The quarter-end figure represents 30 basis points of period-end loans and 12 basis points of total assets. Net charge-offs for the second quarter were 11.2 million, compared to 9.7 million last quarter and 9.7 million a year ago. Annualized net charge-offs for the second quarter represent 21 basis points of average loans. Total problem loans, which we define, is risk grade 10. Some people call that OAEM or higher. totaled $989 million at the end of the second quarter, up from $889 million at the end of the year. Virtually all of the increase was related to multifamily loans and the criticized Risk Grade 10 category, for which we expect resolutions to occur in the third and fourth quarters of 2025. With the exception of the risk-grade migration that I just mentioned in the multifamily CRE portfolio, which we expected, our overall commercial real estate lending portfolio remains stable with steady operating performance across all asset types and acceptable debt service coverage ratios. Our loan-to-value levels are similar to what we reported in prior quarters. With that, I'll turn it over to Dan.