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Cullen/Frost (CFR) Thrives on Organic Growth Amid Cost Woes
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Cullen/Frost Bankers, Inc.’s (CFR - Free Report) robust loan book, solid net interest income (NII) and stable capital distribution activities are likely to support its financials. However, the company is affected by mounting costs and an undiversified loan portfolio.
Cullen/Frost's remarkable growth in NII indicates that organic growth is a key strength. Over the previous five years (2018–2023), the metric registered a CAGR of 10.2%. High interest rates and steady credit growth provided support for this. Although NII declined in the first quarter of 2024, the current high interest rate environment, the expected decline in deposit costs, decent loan demand and exposure to non-interest-bearing deposits will likely boost NII in the upcoming period.
The company’s strong balance sheet position is encouraging. Its deposits witnessed a five-year compound annual growth rate (CAGR) of 9.1% (2018-2023), while loans, net of unearned discounts, recorded a CAGR of 6%.
In the first quarter of 2024, the uptrend continued for loan balances while deposit balances declined. The company’s solid loan pipeline and the Federal Reserve signaling interest rate cuts later this year will further support loan growth. Also, new branch openings are expected to support loan and deposit growth.
Cullen/Frost's has expanded its presence in the lucrative Texas markets. In June 2023, the company announced plans to double its financial centers to 34 in the Austin region by 2026. Management opened the first few centers in 2023 and expects to open another 17 regional branches by 2024.
In 2021, Cullen/Frost completed its 25-branch expansion program in the Houston region. Capitalizing on the success of its footprint growth in Houston, the company planned a similar 28-branch expansion in Dallas. By 2023 end, the Dallas branch expansion reached its two-third mark. Given the pro-business and a low-tax scenario, along with compelling customer demographics in the region, such efforts will likely support growth going forward.
In the past three months, shares of this Zacks Rank #3 (Hold) company have declined 11.7% compared with the industry's 6.7% fall.
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Besides the positives mentioned above, CFR's escalating expenses expose it to operational risks. Non-interest expenses witnessed a CAGR of 9.5% over the last five years (2018-2023), with the uptrend continuing in first-quarter 2024. This was primarily due to an increase in salaries and wages, employee benefits, technology, furniture, and equipment expenditure.
Further, the majority of Cullen/Frost's loan portfolio comprises commercial loans (including commercial and industrial as well as commercial real estate loans). Its loan mix underpinned nearly 79.6% of commercial loans as of Mar 31, 2024. The rapidly-changing macroeconomic backdrop may put some strain on commercial lending.
Stocks to Consider
Some better-ranked bank stocks are First Community Bankshares, Inc. (FCBC - Free Report) and Third Coast Bancshares, Inc. (TCBX - Free Report) .
First Community Bankshares’ earnings estimates for the current year have moved north by 8.8% in the past 60 days. The company’s shares have gained 21% in the past year. At present, FCBC sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Third Coast Bancshares’ 2024 earnings estimates have been revised upward by 10.1% in the past 60 days. The stock has gained 25.1% in the past year. Currently, TCBX carries a Zacks rank #2 (Buy).
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Cullen/Frost (CFR) Thrives on Organic Growth Amid Cost Woes
Cullen/Frost Bankers, Inc.’s (CFR - Free Report) robust loan book, solid net interest income (NII) and stable capital distribution activities are likely to support its financials. However, the company is affected by mounting costs and an undiversified loan portfolio.
Cullen/Frost's remarkable growth in NII indicates that organic growth is a key strength. Over the previous five years (2018–2023), the metric registered a CAGR of 10.2%. High interest rates and steady credit growth provided support for this. Although NII declined in the first quarter of 2024, the current high interest rate environment, the expected decline in deposit costs, decent loan demand and exposure to non-interest-bearing deposits will likely boost NII in the upcoming period.
The company’s strong balance sheet position is encouraging. Its deposits witnessed a five-year compound annual growth rate (CAGR) of 9.1% (2018-2023), while loans, net of unearned discounts, recorded a CAGR of 6%.
In the first quarter of 2024, the uptrend continued for loan balances while deposit balances declined. The company’s solid loan pipeline and the Federal Reserve signaling interest rate cuts later this year will further support loan growth. Also, new branch openings are expected to support loan and deposit growth.
Cullen/Frost's has expanded its presence in the lucrative Texas markets. In June 2023, the company announced plans to double its financial centers to 34 in the Austin region by 2026. Management opened the first few centers in 2023 and expects to open another 17 regional branches by 2024.
In 2021, Cullen/Frost completed its 25-branch expansion program in the Houston region. Capitalizing on the success of its footprint growth in Houston, the company planned a similar 28-branch expansion in Dallas. By 2023 end, the Dallas branch expansion reached its two-third mark. Given the pro-business and a low-tax scenario, along with compelling customer demographics in the region, such efforts will likely support growth going forward.
In the past three months, shares of this Zacks Rank #3 (Hold) company have declined 11.7% compared with the industry's 6.7% fall.
Besides the positives mentioned above, CFR's escalating expenses expose it to operational risks. Non-interest expenses witnessed a CAGR of 9.5% over the last five years (2018-2023), with the uptrend continuing in first-quarter 2024. This was primarily due to an increase in salaries and wages, employee benefits, technology, furniture, and equipment expenditure.
Further, the majority of Cullen/Frost's loan portfolio comprises commercial loans (including commercial and industrial as well as commercial real estate loans). Its loan mix underpinned nearly 79.6% of commercial loans as of Mar 31, 2024. The rapidly-changing macroeconomic backdrop may put some strain on commercial lending.
Stocks to Consider
Some better-ranked bank stocks are First Community Bankshares, Inc. (FCBC - Free Report) and Third Coast Bancshares, Inc. (TCBX - Free Report) .
First Community Bankshares’ earnings estimates for the current year have moved north by 8.8% in the past 60 days. The company’s shares have gained 21% in the past year. At present, FCBC sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Third Coast Bancshares’ 2024 earnings estimates have been revised upward by 10.1% in the past 60 days. The stock has gained 25.1% in the past year. Currently, TCBX carries a Zacks rank #2 (Buy).