Cullen/Frost Bankers Inc
NYSE:CFR
Cullen/Frost Bankers Inc
Cullen/Frost Bankers Inc., with its stalwart presence in the financial landscape, weaves a rich narrative of enduring legacy and modern acumen. Founded in 1868 as Frost Bank in San Antonio, Texas, this venerable institution has grown to become a formidable force in regional banking. Its story is rooted in a commitment to relationship banking, focusing on personalized customer service, which sets it apart in an industry often dominated by digital interactions. The bank thrives by serving a diverse clientele, including private individuals, small businesses, and large corporations, offering a range of services that span commercial and consumer banking, wealth management, and investment advisory services.
The company's financial strength pivots on a robust model of generating income primarily through net interest margins. This involves leveraging deposits to issue loans — from commercial and industrial loans to real estate and consumer loans — and earning the spread between interest paid on deposits and interest received on loans. Additionally, Cullen/Frost supplements its income with non-interest revenue streams, including fees from wealth management, treasury management services, and insurance products. By focusing keenly on disciplined credit underwriting and prudent risk management, Cullen/Frost not only sustains its profitability but also fortifies its reputation as a resilient, trusted financial partner across the Lone Star State.
Earnings Calls
In the fourth quarter of 2024, Cullen/Frost reported a significant increase in net income, reaching $153.2 million or $2.36 per share, compared to $100.9 million a year prior. Although full-year earnings slightly decreased to $575.9 million from $591.3 million, 2024's earnings per share were $8.87. Average deposits grew to $41.9 billion, while loans surged by 9% to $20.3 billion. Looking forward, management expects net interest income growth of 4-6% for 2025, anticipating loan growth in mid to high single digits, and guiding for noninterest income to increase by 1-2%. Their ongoing expansion is projected to enhance earnings from 2026 onward.
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Greetings. Welcome to Cullen/Frost Bankers Fourth Quarter and Full Year 2024 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now 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 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 in 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.
Good afternoon, everyone, and thanks for joining us. Today, we'll review our fourth quarter and full year 2024 results for Cullen/Frost and our Chief Financial Officer, Dan Geddes, will provide additional commentary and guidance before we take your questions. In the fourth quarter, Cullen/Frost earned $153.2 million or $2.36 a share compared with earnings of $100.9 million or $1.55 per share reported in the same quarter last year. And for the full year 2024, the company's net income available to common shareholders was $575.9 million and that compared with 2023 earnings available to common shareholders of $591.3 million.
On a per share basis, 2024 full year earnings were $8.87 per share compared with $9.10 per share reported for the full year 2023. Our return on average assets and average common equity in the fourth quarter were 1.19% and 15.58%, respectively. That compares with 0.82% and and 13.51% for the same period last year. Average deposits in the fourth quarter were $41.9 billion up from $41.2 billion in the fourth quarter last year. Average loans grew by 9% to [ $20.3 billion ] in the fourth quarter compared with $18.6 billion in the fourth quarter last year. We continue to see solid results driven by the hard work of our Frost bankers and the expansion effort that we have going today. As was the case in previous quarters, Cullen/Frost didn't utilize any FHLB advances or broker deposits are reciprocal because arrangements to build insured deposit percentages or to fund liquidity. So the way I continue to like to say it is -- and when you look at our balance sheet, what you see is what you get. We continue to see excellent results with our organic growth strategy.
We launched it at the end of 2018. And when we did, Frost had 131 financial centers across Texas. Around the midpoint of this year, we'll open up our 200th location, and we'll keep going from there by identifying strong markets where our value proposition will make an impact. At the end of the fourth quarter, our overall expansion efforts continue to grow and had generated $2.4 billion in deposits, $1.8 billion in loans. And added more than 59,000 new households. For deposits, loans and households, these represent 101%, 151% and 130% of gold, respectively.
Our Houston and Dallas efforts continue to perform consistent with what we've reported in the past. We opened our sixth location in the Austin region in the fourth quarter, and we're now approximately 1/3 through that effort. Early results continue to be very encouraging and in line with the other expansion markets. As we've mentioned before, the successes of the earlier expansion locations are now funding the current expansion effort. And we expect the overall effort will be accretive to earnings beginning in 2026. As the proverb says, there's a time to sell and a time to read were given their reaping time. And as I've said many times, this strategy is both durable and scalable.
The investments we've made in organic expansion, new products, marketing, technology, and our employees are driving outstanding growth throughout our consumer business. We've had record consumer growth for the year with a $610 million increase in average outstanding balances for consumer loans. This represents a 21% annual growth rate and our third consecutive year of high-quality consumer loan growth of over 20%. 2/3 of the growth comes from our second lien home equity products and the other [ 1/3 ] comes from our new mortgage program that has been nationally recognized for its excellence in customer experience. We funded $75 million in mortgage loans in the fourth quarter. And at the end of 2024, our total 1 to 4 mortgage portfolio stood at $259 million.
Consumer checking household growth, our measure of customer growth continued its 4-year industry-leading run of 6% or greater growth. Consumer deposits, which make up 47% of our company's total deposit base grew 3.2% for the year. We consider this to be excellent deposit growth in an environment of intense competition for deposits. And consumer deposits are now 51% higher than our 2019 pre-COVID balances, a total increase of $6.5 billion over that period. Altogether, this represents an 8.6% compound annual growth rate over the past 5 years with all of that organic growth.
I'm very excited to see the consistency and sustainability of our results over multiple years, and we're working hard to continue on this trajectory. Overall, our investments in organic expansion as well as new products, marketing, technology and our employees are helping drive this outstanding growth across the consumer business. Now looking at our commercial business, period-end loan balances grew by $1.3 billion or 8.3% year-over-year. CRE balances grew by 11%, energy balances grew by 20% and C&I balances increased by 2.4%. New commercial relationships in 2024 were the highest annual level ever. Even beating the Silicon Valley impacted 2023 level by 1%. For the year, the expansion accounted for 20% of new commercial relationships in 2024. And half of our total new commercial relationships are coming from what we call the 2 big [ deval ] banks.
New loan commitments totaled $2 billion in the fourth quarter and were up 24% from the third quarter. Finally, new loan opportunities were up 35% from the same quarter a year ago and represented our highest fourth quarter level ever. Our overall credit quality remains good by historical standards with net charge-offs and nonaccruals both at healthy levels. Nonperforming assets totaled $93 million at the end of the fourth quarter compared with $106 million last quarter and $62 million in the fourth quarter of 2023. The quarter end figure represents 45 basis points of period-end loans and 18 basis points of total assets.
Net charge-offs for the quarter were $14 million compared with $9.6 million last quarter and $10.9 million a year ago and annualized net charge-offs for the fourth quarter represented 27 basis points of average loans. Total problem loans, which we define as risk grade 10 OAEM or higher, totaled $943 million at the end of the fourth quarter compared with $839 million at the end of the third quarter.
Our overall commercial real estate lending portfolio remains stable with steady operating performance across all types and acceptable debt service coverage ratios, our loan-to-value levels are similar to what we reported in prior quarters. When you put all that together, these results demonstrate what happens when you combine Frost values with the right strategies and the best banking markets in the United States and provide the best customer experiences with the best team anywhere. We are very well positioned to move ahead into 2025 and to extend the Frost value proposition to more customers around the state.
And with that, I'll turn it over to Dan.
Thank you, Phil. Let me start off by giving some additional color on our expansion results. As Phil mentioned, we continue to be pleased with the volumes we've been able to achieve. Looking at the fourth quarter, Linked quarter growth and expansion average loans and deposits were $130 million and $128 million, respectively, representing 32% and 22% annualized growth. Now moving to the fourth quarter financial performance for the company. Regarding the net interest margin, through fourth quarter, net interest income was up $9 million or 2.3% on a linked-quarter basis. Our net interest margin percentage was down 3 basis points to 3.53% from the 3.56% reported last quarter. Our net interest margin percentage was negatively impacted by lower rates on balances held at the Fed in loans and offset by higher volumes of balances at the Fed and loans, together with lower rates on deposits.
Looking at our investment portfolio. The total investment portfolio averaged $18.6 billion during the fourth quarter, down $257 million from the prior quarter. During the fourth quarter, investment purchases totaled $840 million with $754 million being Agency MBS securities yielding 5.8% and $64 million being municipals with a taxable equivalent yield of 5.35%. I'll note that approximately $500 million of the Agency MBS yielding 5.91% that we purchased did not settle until January 21, 2025. During the quarter, we had $500 million of treasuries mature at an average yield of 0.96%. The net unrealized loss on the available-for-sale portfolio at the end of the quarter was $1.56 billion, an increase of $429 million from the $1.13 billion reported at the end of the third quarter. The tax flow equivalent yield on the total investment portfolio during the quarter was 3.44%, up 4 basis points from the third quarter. The taxable portfolio, which averaged $12.1 billion, down approximately $149 million from the prior quarter at a yield of 2.99%, up 5 basis points from the prior quarter.
Our tax-exempt municipal portfolio averaged $6.5 billion during the fourth quarter down $108 million from the third quarter and had a taxable equivalent yield of 4.33%, up 1 basis point from the prior quarter. At the end of the fourth quarter, approximately 69% of the municipal portfolio was pre-refunded or PSF insured. The duration of the investment portfolio at the end of the fourth quarter was 5.7 years, up from 5.4 years in the third quarter.
Looking at funding sources. On a linked-quarter basis, average total deposits of $41.9 billion were up $1.2 billion from the previous quarter. The linked quarter growth was roughly half in money markets, 1/3 in noninterest-bearing accounts with the remainder being savings in IOC accounts. Average noninterest-bearing demand deposits were up $393 million or 2.9% over the third quarter while interest-bearing deposits increased $759 million or 2.8% when compared to the previous quarter. The cost of interest-bearing deposits in the fourth quarter was 2.14%, and down 27 basis points from 2.41% in the third quarter. Thus far in January, both current and month-to-date average deposits are in line with fourth quarter averages. Customer repos for the fourth quarter averaged $3.9 billion, up $168 million from the third quarter. The cost of customer repos for the quarter was 3.34%, down 38 basis points from the third quarter.
Looking at noninterest income and expense, I'll point out a couple of seasonal items impacting the linked quarter results. Regarding other noninterest income, as in years past, we received our normal annual Visa bonus during the fourth quarter totaling $4.6 million. Salaries and wages, including -- included approximately $8 million in higher stock compensation compared to the third quarter. As a reminder, our stock awards are granted in October of each year and some awards by their nature, require immediate expense recognition. Regarding our guidance for full year 2025. Our current outlook includes 225 basis point cuts for the Fed funds rate in 2025 with a cut in June and September. Given that, we expect net interest income growth for the full year in the range of 4% to 6%. For net interest margin, we expect an improvement of around 10 basis points compared to our net interest margin of 3.53% for 2024. Looking at loans and deposits, we expect full year average loan growth to be in the mid to high single digits and expect full year average deposits to be up between 2% and 3%. Based on current projections, we are projecting growth in noninterest income in the range of 1% to 2% and noninterest expense to be in the high single digits.
Regarding net charge-offs, we expect full year 2025 to be similar to 2024 and in the range of 20 to 25 basis points of average loans. Regarding taxes, we currently expect the full year 2025 to come in between 15% and 16%.
With that, I'll turn the call over to Phil for questions.
Thank you, Dan. We'll open the call up now for questions.
[Operator Instructions] Our first question is from Manan Gosalia with Morgan Stanley.
I wanted to start on loan growth. The guide for mid- to high single-digit loan growth. It implies a little bit of a slowdown from last year. But judging by your comments, they were all fairly positive in terms of new commercial relationships, new loan commitments. So wanted to get a sense if there's any conservatism baked in there? Or are we just growing off of a higher base, which is driving that slowdown? Any thoughts you can share there would be great?
Thanks. I would say without getting too granular about it. Overall, I would expect really good consumer loan growth to continue. That's the point where it's seen a little over 15% of our portfolio and the growth there has been, I think, a 20% plus growth for 9 quarters in a row. I think C&I growth has been interesting in terms of what we've seen there. And I think that's going to continue to be good, especially based on what we've seen in new opportunities. And I think the slowdown if it happens, would be with CRE, where you've got -- we haven't had the same velocity of new deals, particularly in multifamily and [ portal ] office. And what you're seeing with a lot of the growth we've had over the last several quarters has been really funding of deals that were put in place really a couple of years ago.
And so that I expect to slow a little bit of a headwind. I think maybe see that in the single digit -- low single-digit area. But that's really all I would say. I think we're really expecting to have a pretty good year with regard to loan growth and absent the slowdown with the CRE fundings that you'll see it should be pretty good.
And are there any paydowns being factored in on that CRE side? Or is it just a function of the value of the curve is higher, and therefore, you expect lower demand there?
I think it's going to be more of a factor of expected paydowns that we have some projects, as Phil mentioned, that have funded up. And just by their very nature, we're primarily an interim construction lender. We help you get the projects built and stabilized and now they're likely ready to be either sold or moved into a permanent loan. So that's really just the factor. And then what Phil mentioned earlier is we're looking at a fair amount of commercial real estate loans, but are -- we're just not booking at the same rate. They're just -- with interest rates higher for longer, they're a little harder to pin out -- and we're not going to itemize our credit quality either.
Our next question is from Will Jones with KBW.
Summing in for Kathryn Miller this afternoon. just wanted to keep follow-up on that balance sheet growth conversation. It sounds like with the outlook for loan growth, maybe outpacing what you expect on the deposit side. Do you feel like the the investment portfolio really will hold more flat? Like in other terms, you don't expect to be a net purchaser of securities in 2025?
Right now, we've had this, I'll call it, kind of optionality with our balance sheet, with our liquidity rates being close to 20%. And so we're going to look to invest some of that in the first quarter. And so you can look for our purchases to accelerate here in the first quarter of securities. We feel like we can we can utilize some of that liquidity to both support loan growth, as you mentioned, but also take advantage of the -- what the yield curve is giving us right now and with it being more positively sloping.
Yes. Okay. And any way to quantify how aggressive you guys may be and kind of taking down from your liquidity?
Yes. So we're looking at about a little over $2 billion in securities that will either mature or expect to be called or for prepayments. And so we'll have that available to use. And so we're looking at around a $4 billion investment purchase strategy in 2025 with utilizing about half of that in the first quarter.
Okay. Great. That's awesome color. And just switching over to the margin and NII guidance. Just in terms of deposit betas, I know last quarter, we had kind of talked about landing in the 45% range, full cycle just just really kind of matching what you're able to do on the out cycle. But if you look at where deposit costs came in this quarter, I mean you've already really nearly matched that beta -- so I guess the question is, did you kind of view that more as a pull forward the bid? I know we talked about maybe a little bit of a lag effect. But do you see like maybe you pulled forward a little bit of that beta this quarter and you kind of see that stabilize as growth picks up for the industry next year and deposit cost position is a little more fierce? Or -- do you feel like that beta has a little bit more staying power and you could even outperform on deposit costs as we move to this year?
I do think that, that deposit beta will be in that 45% range on a cumulative basis. So I don't think we're too far off. And we're going to listen to the customers and competition. and see what we need to do in terms of pricing for our deposit products. But right now, we feel good about -- we treated customers fairly on the way up, and we're kind of continuing that trend on the way down.
Yes. Okay. And then, just lastly for me. I know when we talked historically in terms of each cut, have about $1 million a month impact NII. Do you guys still see it the same way? Is that still how we should kind of think about how rates have an initial impact to the income statement?
Yes. I think it's around about $1.7 million. That's kind of where we plan for that cut for one.
Yes. I'd just say that's other things equal number there. So be careful with that. It remains to be seen what happens with deposits, positive or negative with all of that. So, yes. Well, the number is accurate. It is what it is. It's pretty linear in terms of the arithmetic. What else happens in the balance sheet and around all that remains to be seen. Just always need to say that.
Our next question is from Ben Gerlinger with Citi.
I think you guys said you start -- you opened your 6 branch in Austin. I mean you have probably another dozen more to go. And then [ '26 ] is the filing a year. When you think about just kind of growth in expenses, do you think kind of -- I know you're not going to get '26 guidance '25, but what we should see this year should be kind of replicated a gain on growth and then expenses of '26 -- or is there something that's being pulled forward in the expense phase to get to the high single-digit records?
When I'm looking at '25, we're continuing to invest in technology and a lot of it is replacing legacy systems that we'll continue to do '25 and prime to '26. And then also just in terms of compliance, cybersecurity. And then the people and our continued expansion. So I think in terms of -- we've done a lot of the heavy lifting, I would say, in terms of a lot of the people component. And so that pace of growth in terms of us building out that infrastructure, especially in IT. And then you'll see growth relative to our growth and the expansion in terms of people. But I think we feel good about that we've we're compensating people fairly and competitively and our benefits are in line with the market and actually really strong. So it's a great value proposition to have -- and we experienced kind of lower attrition than the industry.
So that investment is paying off. But if that gives you enough color for '25, I hope it does.
Yes. No, I want to understand, you guys are in growth mode. So it makes sense that you're investing. And then Phil or whoever wants to field the question, when you think about competition in the market, some of the banks that have seen a better pace of growth, whether it be footprint extension or expansion or just a faster growth in general kind of cited people or other banks or frankly, nonbanks more aggressive in the space I just kind of curious, is it largely just rate that isn't -- or is there something beyond that where the competition is increasing. I know you not change your box on credit republics, but -- have you seen an increased pace in competition over the past 60 to 90 days?
I would say the short answer is yes, we have. And a few things going on. Some is from banks and some are -- it's from nonbanks. The banks, I think, really represents from banks that had sort of put their pencils down on let's say, the commercial real estate side. And for the good deals that you're seeing, you're seeing at least anecdotally, what I've seen on some of the deals we've lost, there's been sort of a drifting back some of these pre-COVID underwriting methodologies, which is kind of basically more money longer term, no guarantees kind of thing and pricing lower. That's always going to be the case. And that will come in in wages, and then we'll receive a commenced. So that's one thing. I think the other thing that's a little bit different over the last 3 months from what I've seen, as you've seen more private equity engaged in the marketplace, the main place that we've seen that, and actually, it's been kind of a good thing in the short term has been private equity around real estate, commercial real estate bridge financing and mostly seeing that in the multifamily projects.
And the value proposition they typically give is the rate is not all that different, really, a little bit higher. They don't have the same rigorous criteria, at least the ones I've seen on debt service coverage ratios, maybe amortization or interest only. It's really -- it's in there to get that project where it is today to a stabilized situation. Why don't you get to stabilization, and then you can see an agency lender, maybe a traditional permanent lender come in, that kind of thing. So a lot of options or sale. Cap rates are still really good for the multifamilies. But that asset class has got well-known headwinds that it's been up against whether it's been higher rates. Our operating costs more supply, which means slower lease-up and now they've got -- they're actually leasing up, but they're using more free rent. And all those things put pressure on the traditional bank metrics of debt service coverage ratio, et cetera. But if you just get to that stabilization, just get to that breakeven or a little bit higher on the coverage and the cash man, there are lots of options available. So that's a positive that we've seen. I think as we've asked ourselves, okay, well, where is this going?
What might we be sorry about with the private equity entrance 3 years from now, it's probably that you're beginning to see them show up on some of the more, what I'll call, traditional construction lending, development lending. And so there's a lot of money in that industry, and they're looking for things to do, and I think we'll see them more over time. But right now, that's kind of what we've seen competitively and as I said, in the case of the private equity and multifamily is a good thing for us and for the lenders right now new borrowers.
Our next question is from Peter Winter with D.A. Davidson.
I wanted to ask about the capital strategies going forward? Obviously, top priority is organic growth, but you did announce a share buyback. I'm just curious how active you plan to be with the buyback? And secondly, if there's any thought of maybe retiring some of the preferred securities as a use of capital?
If you -- I would say right now, our focus is really plain vanilla. It's maintained the dividend, keeping that solid. I think we've increased it for 31 years and Jerry Salinas has just retired at the beginning of the year. And his [indiscernible] words keep the dividend strong. So he's looking on the call right now, he'd be bang in the table. But -- so it's that we want to make sure we've got plenty of room for growth. And as far as other things like you mentioned, the buyback is totally opportunistic. We utilized about what was it down $50 million.
That's right.
I think we bought in around $100 or so. And so it's been good for shareholders. But frankly, I hope not to have the opportunity to buy low on the stock, really. And then with regard to the preferred, you just have to look at it and see what the numbers sit. I'm just to be honest, we haven't really talked about it. But since you asked, we'll look at it. But thanks for the heads up on it.
And then if we could just go back to expenses. I hear you about the investments that you're making with the branch build-out and the investments in technology. I'm just surprised it's probably a little bit higher than what I was expecting just thinking that was going to moderate more than what we've seen the last few years, and it's still pretty elevated. I'm just wondering, just outlook with expenses, when we should see it kind of moderate from these type of levels.
The way we look at this is that these are investments that are going to set us up on this path of growth that we're on. And -- and so certainly, we're going to look at 2026 as a time when we could see some abatement in that growth. And I had -- I look back and kind of look at our expense growth over the last 4 years and if I take out the FDIC limit from '21 to '22 is 16% and then 15% and then 10% and then now we're guiding kind of high single digits. So it's trending in the right direction. But -- and we're certainly mindful of expenses. We're not just everything that any new FTE or CapEx over $100,000 still goes by my desk and Phil's for approval. So we're watching expenses where we can, but we're certainly -- there's certainly a risk of not making these investments as well. And so we're we're well on our way to replacing these lacy systems that if we didn't, we would regret it in the future.
Peter, we're a pretty conservative group. And -- it kind of makes the hair stand up on the back of your neck when you look at how much money we're spending. I mean, just to be perfectly honest. I mean everything that we look at is there's a lot of accountability with it, and we are certain it's helping us get better. It's helping us grow. It's helping us reduce risk. And so -- and as someone said earlier, we're in a growth mode, and we are -- so -- and we've been building that up, right? So there's been some foundational things that we've done. But Dan and I and the management team spend a lot of time talking about it. We're not happy with this level of expense growth. But I don't think we're doing anything wrong with it. It's just we'd like to see it moderate some because like I said in my comments, there's time for for someone and time for reef, and we really are looking forward to getting to that point, that reaping point and to do that most effectively, we're going to have to bring those expenses down to a more moderate level.
I don't think that we're going to be in the mode of just cutting expenses or just growing at inflation because we are growing. I mean and I like that, and we want to do that. But as far as where we are right now, I mean our sense is that we're kind of chosen now what we had to do to this point. But we're really looking forward to getting returns on these investments, and we'll do that. Our team and our company will do that.
And just looking at where we're in money we have our investments in technology, it's kind of the digital experience, modernization and transformation. We're looking, as I mentioned, security, fraud and compliance risk management. And then as Phil mentioned, we're just -- we're a growing company. And we're adding more branches, more people and more products with our mortgage product.
That's perfect. And just to be clear, the expense growth of high sell digit is on a GAAP basis for '24. Is that correct?
Yes.
Okay. Our next question is from Jon Arfstrom with RBC Capital Markets.
Question back on loan growth. You got some pretty strong pipeline growth. And I'm just curious what you're thinking on what would bring you in at the lower end of the range, what would take you to the higher end of the range?
I'm just going to throw out payoffs in commercial real estate. I mean there are a lot of people looking to utilize some of this private equity bridge financing and some people sell them things if they can't, but I'd say it's mainly payoffs. For example, let's take this quarter, I think we moved multifamily deals to risk rate can, okay? So that's a problem loan category. But I'm not worried about any of them because most of them, 60% of them are in the process of working with private equity to pay it off. There are -- they're going to work out, but part of them working out is those balances are going to leave, right? So if we had those 5 left, that'd probably be -- I'm going to guess around numbers, $150 million.
So -- so if we see a lot of that, that could be sort of a onetime push down. That would be my main thing that I could see we're bringing it to little end. The high end is you know who knows. I think that the economy has been really picked up and activity has really picked up after the election. And you've eliminated some of that uncertainty that where we -- we think C&I loans go down for, I think, 4 months in a row, leading up the election, I think they're up every month since. And so that's just beginning, and we'll see where that takes us. I don't think anybody knows it right now. But I think we do get just more activity and you get -- I hate to use the word animal spirits, but those find their way into people doing projects, and that's a real thing. We can see it maybe be a little higher. I guess you might see energies grow a little bit there. It's been pretty -- it's grown a little bit in the near term, that always moves around a bit on what our borrowers are doing. But stuff like that, I think it would just see in general, the water level would go up, that would be it.
When you guys say mid- to high, you're you're saying [ 5% to 9% ] basically. And maybe it's safe to be in the middle. I don't want to pin you down, but that's the way I'm thinking about it?
That's a good range.
Okay. And to use full year average or period end, I know we're getting ticky-tacky, but?
That's full year average.
Full year average, okay. And then on noninterest income, you guys had a strong year, and you pulled back the growth rate a little bit. But anything you would call out in the '24 growth rates in the big categories, trust investment management, insurance interchange. Anything you would call out as unsustainable. It just seems like you could do a little better than I'm just curious on your guide?
I guess one thing I'll point out is Capital Markets had a tremendous year in '24. And so we're not necessarily expecting to duplicate that. We underwrote a lot of bond offerings here in Texas. And so they had a great year. That's one notable. The other is just a little bit of unknown of interchange and overdraft regulation and when that kicks in. And so we have that baked into our [ '25 ] growth as well.
Our next question is from Ebrahim Poonawala with Bank of America.
Just one follow-up. I heard you on any versus so getting some, I guess, payoff from all these investments -- but just talk about -- you talked about 200 branches this year, 131 in 2019 based on I'm sure the work you all have done -- is that enough? Or is there a point, 2 years from now where you could go from 200 to 250. Just would love to hear your thoughts about how much you max the market opportunity with this branch expansion. And is there more to go? And is there a reason why you're not doing that today versus down the road?
Yes. Ebrahim, we're going to continue to do it. So you're going to see a regular cadence, I believe, in our identification of and our developing great markets in the state. And the way to think about it is we've talked about it, let's say, in the next 2 years, we're done with Dallas and we're done with Austin, okay? Well, at that time, that will be -- the Houston 1.0 expansion will be 7 or 8 years, I guess, to be 8 years old, right? And so if you look at Houston, it has grown a tremendous amount for the last 8 years. So there's going to be the opportunity for us to take advantage of where the market's gone. And instead of plugging really big holes within the city like we did with 1.0 and 2.0 we're going to have the opportunity to move into markets where you're growing, for example, it's growing really strongly West.
We finally got to Katie and now that we're in a Katie Texas, everyone's saying, well, how about the communities west of that, for example. You see the same thing in Dallas and other markets. So I think what we're we'll be doing is identifying where are those -- where the -- where we didn't get to take advantage the first time in the expansion in those markets and then also going to where -- where that market is growing. One of the things that I've asked our team to do over the last year or so is just to be honest, is look where the puck is going. It's the state's growing. And I want to have locations that we have warehouse and what we believe will be great markets as they develop and have those in our hip pocket so that we can bring those out and not be -- not take a year or 1.5 years to scramble and find something in the market that's really starting to take off.
So -- that's why I say I think this is durable and scalable. I think we'll continue to be doing this for a good period of time. One thing to keep in mind, Ebrahim and I know you we've been with you on this a long time. You talk about it. But one thing to think about is the longer we do it, the higher and higher percentage of our market locations that are new and that are not so legacy that there's -- there's no development left no growth it is. And so if we continue to do, I don't know, let's say, just numbers of locations a year, that number will be a smaller and smaller percentage of our current balance sheet. And so I think the -- we'll continue to do it, but I think that the impact of it is going to be relatively less as we continue to grow. And then the really good thing is as we talk about [ Solan and Reef ] I have to give Dan credit for that one any thoughts -- is that -- it's -- we're finally going to get to see -- and our shareholders are finally get season pay off for this. And I think that it's going to be in place for a long time.
And the -- 2 markets that we're in Houston and Dallas. In June of this year, we had a 2.5% market share in Houston and just over 1% market share in Dallas. So there's just in those 2 markets, there's plenty of room for us to grow there.
[Operator Instructions] We do have a follow-up question from Peter Winter with D.A. Davidson.
Sorry about this. Just Dan, can I just clarify the point on the fee income outlook with the overdraft fees. You're assuming that some change to the way overdraft fees are calculated get reduced? And I'm just wondering if that's baked into the guidance and how much of an impact that is?
It is baked in there towards the back half of the year and then interchange as well. Just -- again, that may or may not happen. But we have it in there.
We hope it doesn't.
Yes. but yes, it's -- especially on the overdraft our overdrafts have been basically growing as we've been growing customers. We've been trying to do what we can to -- I mean, that's not something that is going to make our dreams come through this overdraft fees. And we offer overdraft grace and other products to help, but you've seen just the consumer kind of spend the excess money that they received during the post-pandemic era. So you've seen that kind of tick up a little bit and go back towards -- closer towards prepaying them in kind of per customer rates. But if that's changed, then we may not -- that may not be something that we can expect to get the same amount of fee income from.
Can you quantify like how much you earned in '24 and what type of level you expect in '25?
Yes. So -- and just looking at -- just in terms of what we did in in higher fee income. Retail this is from '23 to '24, it was about a $5.5 million component of that growth, we had. And so we have that basically kind of -- we have that limit in '25. And same thing, we are reducing about $1 million a month starting in July.
We have reached the end of our question-and-answer session. I would like to turn the conference back over to Phil for closing remarks.
Everybody, we thank you for your interest and for participating with this call today. And with that, it will be adjourned. Thank you.
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.