Cullen/Frost Bankers is putting a bigger focus on the consumer market as it contends with the effects that higher deposit rates are having on its margins.
With deposit costs rising, the San Antonio bank has been pursuing a consumer-focused growth strategy that "could open up some new opportunities" in markets where it has established a footprint, CEO Phil Green told analysts Thursday during an earnings call.
In an interview after the call, Green said that Cullen/Frost has always been focused on consumers. "What we've been demonstrating, however, in the last few years, is our value proposition, which is resonating more with the consumer market and has given us more ability to have success in that market," he said.
The parent company of Frost Bank reported that its average total deposits grew to $45.8 billion during the third quarter, a 17.1% rise that bucked the recent industrywide trend. Its average interest-bearing deposits were up 23.4% from the same period last year, while non-interest-bearing deposits grew 8.9%.
The growth in interest-bearing deposits has come at a cost.
"What we pay for new deposits is higher," Green said during the interview. At the same time, he said, "current customers are keeping more money with us, and we're getting new customers."
"I think that's a pretty good place to be," Green said.
Even though the company's deposit costs rose, its net interest margin expanded by 29 basis points. Net interest income rose to $355.5 million, a 44.5% increase from the same period last year.
Banks have felt
Green said that the $52.4 billion-asset company's growth has gotten a boost from
The expansions have also contributed to higher expenses. During the third quarter, expenses rose 18.3% from the year-ago period to $257.9 million, driven by a 27.3% increase in salaries and wages from last year's third quarter as the bank has expanded its footprint across Texas.
Cullen/Frost plans to add four branches in Dallas during the fourth quarter after previously opening six locations in the area. Next year, 20 more branches are expected to open across the bank's footprint, including in Houston.
Heading into the fourth quarter, Chief Financial Officer Jerry Salinas told analysts that deposit growth may get "softer."
Along with the increase in deposits during the third quarter, Cullen/Frost's total loans increased 3.7% year over year to $16.8 billion.
Around half of the loans the bank originated in Dallas during the third quarter came from its consumer business, compared with 20% in Houston. At the same time, Green told analysts, consumer growth "might help us as we evaluate some of these new markets," such as Austin, that the company is considering entering.
While many banks added to their loan-loss reserves during the third quarter, Frost's loss provisions fell by 6.4% to $234.3 million.
Noninterest income was up 7.1% year over year to $99.8 million, with service charges on deposit accounts up 9% during the same period but down 3.7% from the second quarter following
Net income of $169.8 million rose 57.2% from the same period last year. The bank reported earnings per share of $2.60, above the $2.22 average of estimates from analysts surveyed by FactSet Research Systems.
