What helped Cullen/Frost expand its 3Q margin

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Expenses associated with its continuing Houston expansion ate into Cullen/Frost Bankers’ profits, but the San Antonio company also avoided the margin compression that plagued many other banks in the third quarter.

The $32 billion-asset parent of Frost Bank relied on a combination of loan growth and deposit pricing to keep margin pressures in check during the period ended Sept. 30. In fact, the net interest margin widened 10 basis points from a year earlier to 3.76%


Chairman and CEO Phil Green said that because Frost Bank was early to raise deposit rates in mid-2017, it had more leeway in managing those costs down in a falling rate environment.

“We’ve continued to see [deposit] growth, and we’ve been really focused on maintaining a fair rate, a rate that’s representative of the marketplace,” he told American Banker after the company issued third-quarter results Thursday. “We look around the market, see what the alternatives are and as long as we’re providing quality service in other ways, we’ve been able to hang on to relationships and hang on to deposits.”

Frost’s deposit growth strategy involves a mix of physical and digital channels. Green said that 30% of new accounts were opened online or through the bank’s mobile app, while small-business customers still want branch access.

Deposits rose slightly year over year to $26.4 billion.

Loans grew 5.8% to $14.5 billion, with expansion in commercial real estate, consumer and commercial and industrial lending, Green said. Net interest income increased 4% to $276.6 million.

Frost’s overall net income fell 5% to $109.8 million, mainly due to an 8% increase in expenses, which totaled $209 million. Most of that expense increase was associated with Frost’s Houston expansion plan, as the company added employees and branches. Salaries and wages rose 7% to $94 million, and employee benefits increased 14.4% to $21 million. Net occupancy expenses rose 22% to $24.2 million.

Frost recently opened its seventh branch in the Houston area. It is slightly behind schedule on its plan to open 11 by year-end, but executives said Thursday that the bank still will open 25 branches there by the end of 2020.

The company's stock finished Thursday at $90.08, down 2.6%.

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Deposits Net interest margin Regional banks Earnings Frost Bank
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