Cullen/Frost chief warns about risky commercial lending

Cullen/Frost Bankers in San Antonio warned of heightened competition for business borrowers even as it reported a healthy increase in loans.

Average loans rose 6.8% year over year to $14.2 billion in the first quarter. Growth occurred across all loan categories, and competition has intensified along with it, especially in commercial lending, CEO Phil Green said on a conference call with analysts Thursday.

“A good indicator is the number of deals we lose on price and structure,” he said. Among commercial real estate deals that Cullen/Frost has lost out on this year, he said, roughly 78% have been for reasons relating to loan structure, with the remainder related to pricing reasons.

Green said he does not want to underprice loans or go too far in softening underwriting in the interest of growth, as he says some banks and nonbanks have done.

Phillip Green, Chairman and CEO of Cullen/Frost Bankers.

“We don’t need the practice. We actually want to make money,” Green said. “We’ll say no to deals that look like they don’t make sense, and I want us to. I’m glad our people are taking that approach.”

Meanwhile, the bank is in the midst of expanding in Houston. It plans to double its branch count there in the next two years. Cullen/Frost so far has added two branches out of a total of 25 that it plans to open in 2019 and 2020. The new locations have not resulted in a lot of growth yet for the bank, but Green preached patience in his remarks to analysts.

“The Houston expansion isn’t going to create a lot of growth immediately, but we feel confident that it’s going to help us expand in that market,” he said.

Net income for the $31.3 billion-asset Cullen/Frost rose 9.6% to $114.5 million. Earnings per share came in at $1.79, or 5 cents higher than the mean estimate of analysts surveyed by FactSet Research Systems.

Net interest income increased 7.3% to $246.5 million, and the net interest margin expanded 27 basis points to 3.79%.

Average deposits decreased 1.2% to $26.1 billion.

Noninterest income increased 5.8% to $96.8 million. Most types of fee income grew on a year-over-year basis, except for deposit service charges, which declined slightly. Insurance commissions and fees rose 15.2% to $18.4 million. Trust and investment management fees rose 7.1% to $31.7 million.

Credit quality improved from last year. Cullen/Frost reported net charge-offs totaling $6.8 million, compared with $12.4 million a year ago. The company set aside $11 million as a provision for loan losses, up from $6.9 million last year, to keep pace with loan growth.

Noninterest expenses rose 2.6% to $201.8 million in the first quarter.

For reprint and licensing requests for this article, click here.
Commercial lending Regional banks Earnings Texas
MORE FROM AMERICAN BANKER