Cullen/Frost Bankers (CFR) Q3 Earnings call transcript Oct 31, 2024

Cullen/Frost Bankers Inc. recently held its third-quarter 2024 earnings conference call, revealing a robust performance with a focus on organic growth and expansion strategies. The call, led by Chairman and CEO Phil Green, highlighted the company's solid financial results and optimistic outlook for the future.

Financial Performance and Expansion Strategies

The company reported a third-quarter net income of $144.8 million, or $2.24 per share, down from $154 million, or $2.38 per share, in the same period last year. Despite this decrease, the return on average assets and average common equity stood at 1.16% and 15.48%, respectively, showcasing a strong financial foundation.

One of the key highlights of the call was the company's expansion efforts. Cullen/Frost has made significant strides in its Houston and Dallas markets, with Houston expansion projects nearing completion and Dallas expansion efforts well underway. The company also announced the launch of its first three locations in Austin, with plans to open more before the end of the year. These expansion efforts have resulted in impressive growth, with $2.3 billion in deposits, $1.6 billion in loans, and over 55,000 new households added to the bank's customer base.

Customer Growth and Loan Performance

The call also emphasized the company's focus on customer growth, particularly in the Consumer business. Cullen/Frost achieved its best quarter for customer growth, adding over 7,300 new checking households and maintaining an industry-leading 6% year-over-year growth rate. The company's focus on top-quality service, great technology, and convenient expanding network of locations has contributed to this success.

In terms of loan performance, average loans grew by 11.8% to $20.1 billion, with significant growth in second lien home equity and home improvement products. The company's investment in organic expansion, new products, marketing, technology, and employees is driving this exceptional loan growth across its Consumer business.

Investment Strategy and Outlook

The call also touched upon the company's investment strategy, with Dan Geddes, incoming CFO, providing insights into the investment portfolio's performance. The company's net unrealized loss on available-for-sale portfolio decreased, and the taxable equivalent yield on the total investment portfolio increased, reflecting a prudent investment strategy.

Looking ahead, the company expects full-year net interest income growth in the range of 2% to 3%, with continued loan growth and a focus on maintaining a strong deposit base. The outlook for the Consumer business remains positive, with expectations of continued growth in checking households and loan balances. The company's expansion efforts, particularly in Dallas and Austin, are expected to drive further growth and contribute to earnings accretion beginning in 2026.

Investor Questions and Answers

During the Q&A session, investors raised concerns about the trajectory of the net interest margin, the competitive landscape, and the company's expansion plans. Phil Green and Dan Geddes provided reassuring responses, highlighting the company's strong financial position, competitive edge, and focus on organic growth.

Conclusion

Cullen/Frost Bankers Inc.'s third-quarter earnings call underscored the company's robust financial performance, strategic expansion efforts, and optimistic outlook for the future. With a focus on organic growth and a strong commitment to customer service, the company is well-positioned to navigate the challenges and opportunities in the banking sector. As the company continues its expansion plans and invests in technology and customer experience, it is poised for continued success in the years ahead.