Frost Bank’s parent company profits rise 58% in Q3

Based in San Antonio Frost bank Earnings at parent company have soared in the past quarter due to increased lending volumes and rising interest rates.

Cullen/Frost Bankers Inc. reported net income of $168.1 million, or $2.59 per share, on revenue of $479.3 million in the three months ended Sept. 30. By comparison, he earned $106.3 million, or $1.65 per share, on $362.5 million in revenue in the same period last year.

On an annual basis, profits jumped 58% while revenues soared 32%.

“These results in our overall growth show that our investments and sustainable (internal) growth strategy are paying off and that our business is well positioned for success,” Cullen/Frost Chairman and CEO Phil Green said Thursday. during a conference call with analysts. .

Investors reacted positively to the results, pushing Cullen/Frost’s stock price up $6.24, or 4.4%, to $148.16, slightly below its all-time high.

READ MORE: Top Frost Bank executive says Texas economy remains ‘very strong’

The bank holding company easily beat Consensus estimate from 13 analysts of $2.23 per share for the last quarter, as tracked by Yahoo Finance.

“I think more recently the reason they’re higher than expected is really because Frost is a big beneficiary of higher interest rates,” said Keefe, Bruyette & Woods analyst Brady Gailey. “People underestimated how much extra money Frost would make with higher rates. That’s been playing out over the last two quarters.

This will probably continue as well. Frost CEO Jerry Salinas said the bank expects the Federal Reserve to raise interest rates by 3/4 percent next week and another 1/2 percent in December. .

The bank is one of the biggest beneficiaries of rate hikes because it has significantly more cash on its balance sheet than its peers, Gailey said. In addition, its loan portfolio is heavy with floating rate loans. Yields on these loans generally increase when the Fed raises rates.

Frost ended the third quarter with just under $17 billion in loans, compared to $15.8 billion in the same period last year.

A view of Frost Tower, headquarters of Cullen/Frost Bankers Inc., from San Pedro Creek Cultural Park in downtown San Antonio.

San Antonio Express-News/Staff Photographer Sam Owens

“The portfolio’s year-over-year growth has been broad-based,” Green said. About half came from commercial real estate loans, a third from commercial and industrial loans and the rest from consumer real estate.

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It had $46.6 billion in deposits at the end of the last quarter compared to $39.6 billion a year ago. Frost shared the interest rate increases with its customers by offering higher rates on deposit accounts, Green said, which led to increased deposits.

“It’s still a great deposit base, allowing the business to make more money as rates go up,” Gailey said.

The bank’s net interest margin – a measure of the difference between what it earns in interest on loans and what it pays in interest on deposits – climbed 0.45 percentage points from the second quarter to reach 3.01% at the end of September. The last time it was above 3% was nine quarters ago. Gailey expects the margin to continue to grow, but not at this rate.

“The puck is always moving in the right direction for Frost,” he said.

The $116.8 million increase in revenue year-over-year more than offset an almost $40 million increase in non-interest expense, which includes salaries, benefits and other elements. Wages and salaries have climbed about $28 million, or nearly 28%, over the past year.

This increase is “pretty dramatic and necessary to keep the best group of people here and attract new ones,” Green said.

Frost attributed the increase in employee pay to annual merit and market increases and the implementation of a $20-an-hour minimum wage he passed in December. Additionally, earnings have been hurt by its expansion into Houston and Dallas, as well as preparations to offer a mortgage product for the first time since 2000.

The mortgage team is preparing to launch its pilot program with plans to roll it out on a wider basis in stages beginning late this year and early next year, Green said.

“It’s exciting to see how we’re creating a comprehensive process for originating and managing mortgages,” he added.

When completed next year, Frost will have added 33 branches in Houston. In Dallas, it is adding 30 branches through 2024.

Frost will continue to invest in four areas of the business, Green said. These areas are people, technology, branches and marketing.

It had nearly $53 billion in assets at the end of the third quarter.

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