Cullen/Frost Bankers in San Antonio is sticking with its organic expansion plan even as other midsize banks are turning to mergers and acquisition to drive growth.
The $50.9 billion-asset parent of Frost Bank booked $2.4 billion of new commercial loans in the fourth quarter, which company executives said validates its decisions to open more than two dozen branches in the Houston market over the past three years and pursue a similar path in Dallas.
“M&A is not something that’s on our radar,” Chairman and CEO Phil Green said in an interview after the company announced its fourth-quarter results Thursday. “We’ve cast our lot on the organic strategy.”
The new commercial lending commitments were up 64% from the beginning of 2020 and jumped 37% from the previous three months, executives told analysts Thursday. Overall, the $50.9 billion-asset parent of Frost Bank reported $15.4 billion in average loans at Dec. 31, up 2.7% from a year earlier and 4% from the prior quarter.
Cullen/Frost opened its 25th branch in Houston in 2021 after announcing an expansion into the market three years earlier. The bankers hired in those locations have already exceeded their lending targets, Green said.
Another eight or nine Houston locations are planned for this year and 2023, the bank announced Thursday. Meanwhile, about 25 offices are planned in Dallas, with the first opening this month. The bank has forecast “high-single-digit” loan growth this year, Green said.
Still, competition for loans is fierce, Green said on the bank’s earnings call.
Of the deals Cullen/Frost lost out on in the fourth quarter, 64% were the result of potential clients finding easier terms or more attractive loan structures elsewhere,
That’s up from 56% of the deals lost one year before because of competition elsewhere. Still, Green said that he has no plans to loosen underwriting when “there's no green pasture on the other side of the fence of great credit quality.”
“It might look good, but it’s a wasteland out there,” Green told the analysts.
In the interview, Green pointed to other potential headwinds, particularly the run-up in lumber prices. Supply chain bottlenecks from timberlands around the world
“It’s spiking again,” Green said of the price of lumber. “At least one project that I know of was deferred because of the cost increases that they have seen.”
The bank reported $101 million in net income for the fourth quarter, up 14% year over year. Revenue rose nearly 5% from a year earlier to $349 million. Noninterest expenses rose 6.7% year over year on higher occupancy costs and increases in wages and employee benefits.
