Expenses and loan growth are up in the second quarter of this year for San Antonio-based Cullen/Frost Bankers, with plans to keep expanding in Texas.
Cullen/Frost’s total loans increased 6.3% on a year-over-year basis this quarter, while total noninterest expense also rose 9.5%. The expansion represented 37% of total loan growth, 44% of total deposit growth and 24% of all new commercial relationships.
“The success of our earlier locations are now funding the current expansion efforts,” Chairman and CEO Phillip Green said Thursday during the company’s earnings call. “This strategy is both durable and scalable.”
Costs have gone up, but the bank’s revenue has not kept pace. From 2022 to 2024, noninterest expenses increased 27.2% to $1.3 billion, while revenue saw just an 18.3% uptick to $2 billion.
The $51 billion-asset company, which operates as Frost Bank, has invested in more than just its expansion efforts, such as technology, but Green said those decisions will soon pay off for investors.
“We expect that we’ll have some nice accretion to this program in 2026,” he said. “It’s not like an acquisition where you get some accretion and it kind of stays at that level. It should increase over time. It will increase over time.”
The bank, which has 209 branches, according to the Federal Deposit Insurance Corp, expects its Dallas and Austin expansion to finish within the next 18 months, but Cullen/Frost
As of June 2024, Cullen/Frost had a 2.5% market share and a 4.8% branch share in Houston and a 1% market share and a 3.6% branch share in Dallas, compared to 27% market share and a 10% branch share in San Antonio, Chief Financial Officer Dan Geddes said on the call, citing FDIC data.
“We have just tremendous room for growth in Houston and Dallas to get to even par on our branch share,” Geddes said. “There’s just this optimism that we can continue to grow deposits, especially if we are entering a lower interest rate market where deposit growth has typically accelerated for us.”
In the merger and acquisitions realm, Cullen/Frost has a firm stance: it’s not interested. Green said the bank’s organic growth per billion dollars is about half as expensive as the current acquisitions market.
But Green said he is certainly open to Cullen/Frost’s competitors participating in mergers and acquisitions.
“When we see acquisition activity occurring in our marketplace, it really is to our benefit because it creates dislocation, it creates dissatisfaction, it just creates noise in the marketplace and really provides us opportunities to pick up business,” he said. “I’m kind of looking forward, frankly, to some of this acquisition activity that we had.”
The bank’s expansion efforts broke even over the first half of this year as expected, but Cullen/Frost still beat analysts’ expectations in multiple areas this quarter. The bank’s earnings per share came in at $2.39, 3.9% above expectations of $2.32, according to S&P Capital IQ.
Net income increased by 7.3% from the second quarter of last year to $155.3 million, while revenue rose 8.3% to $429.6 million from $396.7 million last year.
Deposits fell 1.7% compared to
Shares in Cullen/Frost were trading at $127.41 after the market closed on Thursday, a daily decrease of 4.95%.