Cullen/Frost Bankers, Inc. (CFR) is a financial holding company and bank holding company headquartered in San Antonio, Texas that provides a broad array of banking and financial services throughout numerous Texas markets. The company reported annual net income of $597,973,000, annual revenue of $1,987,206,000, annual operating cash flow of $478,845,000, and annual free cash flow of $320,215,000 in its most recent fiscal year.

Financials

In the second quarter of 2024, Cullen/Frost earned $143.8 million, or $2.21 per share, compared to $160.4 million, or $2.47 per share, in the same quarter last year. The company's return on average assets and average common equity in the second quarter were 1.18% and 17.08% respectively, compared to 1.30% and 19.36% in the same period of 2023.

These results reflect Cullen/Frost's continued execution on its organic growth strategy. Average deposits in the second quarter were $40.5 billion, down 1.2% from $41 billion in the same quarter last year. The company did not utilize any Federal Home Loan Bank advances, brokered deposits or reciprocal deposit arrangements to build its deposit base. Average loans grew by more than 11% to $19.7 billion in the second quarter, up from $17.7 billion in the same period of 2023.

Business Overview

Cullen/Frost's organic expansion efforts continue to drive strong results. The company's Houston expansion, which includes both the initial Houston 1.0 and the more recent Houston 2.0 initiatives, has reached 102% of its deposit goal, 142% of its loan goal, and 119% of its new household goal on a combined basis. The Dallas market expansion has reached 141% of its deposit goal, 187% of its loan goal, and 178% of its new household goal. The company has also opened the first three locations in its Austin expansion project, with several more planned to open before the end of 2024.

In total, Cullen/Frost's expansion efforts have generated $2.2 billion in deposits, $1.5 billion in loans, and added 50,783 new households since the program began. The expansion branches are growing at an impressive rate, representing 7.6% of the company's total loans and 5.4% of its total deposits as of the second quarter of 2024.

Cullen/Frost's consumer banking business also continues to perform well, with average consumer loan balances up more than 22% year-over-year to $571 million. This growth was driven by record consumer real estate lending, including both second lien home equity loans and the company's new mortgage product offerings. At the end of the second quarter, Cullen/Frost's mortgage portfolio stood at $132.4 million.

On the commercial side, average loan balances increased at an annualized rate of 8.7% for commercial and industrial loans and 10% for commercial real estate loans on a linked-quarter basis. The company brought in 977 new commercial relationships in the second quarter, a 19% increase over the prior quarter and the second highest quarterly increase on record. New loan commitments totaled $1.98 billion in the second quarter, up 58% from the first quarter and 29% from the same period last year.

Credit quality remains healthy, with net charge-offs representing 19 basis points of period-end loans in the second quarter, compared to 17 basis points a year ago. Non-performing assets totaled $75 million at the end of the second quarter, or 38 basis points of period-end loans and 15 basis points of total assets.

Outlook

Looking ahead, Cullen/Frost has provided updated guidance for 2024. The company now expects full year average loan growth in the high single-digit to low double-digit range, up from its previous guidance. On the deposit side, the company expects full year average deposits to be flat to down 2%, down from its prior guidance of flat to up 2%.

Cullen/Frost projects net interest income growth in the range of 2% to 3% for the full year, down slightly from its previous guidance of 2% to 4%. The company expects net interest margin to trend slightly upward each quarter for the remainder of 2024. Non-interest income is expected to grow 2% to 3%, up from the prior guidance of flat to up 1%. Non-interest expense growth is projected in the 6% to 7% range on a reported basis, down from the previous 6% to 8% guidance.

Liquidity

The company continues to maintain a strong capital position, with a Common Equity Tier 1 ratio of 13.35% and a Total Capital ratio of 15.27% as of June 30, 2024. Cullen/Frost paid a quarterly dividend of $0.92 per common share during the second quarter of 2024.

Conclusion

Overall, Cullen/Frost's consistent execution on its organic growth strategy, healthy credit quality, and prudent capital management position the company well to navigate the current economic environment. The company's diversified business model, strong Texas franchise, and focus on building long-term customer relationships provide a solid foundation for continued success.