8-K: Cullen/Frost Bankers Reports Lower Third Quarter Earnings Despite Loan Growth

Cullen/Frost Bankers reported a decrease in net income for the third quarter of 2024 compared to the same period last year, despite growth in loans and net interest income.

Summary

• Cullen/Frost Bankers, Inc. announced its third quarter 2024 results, with net income available to common shareholders at $144.8 million, down from $154.0 million in the third quarter of 2023.
• Earnings per diluted common share were $2.24, compared to $2.38 a year earlier.
• The return on average assets was 1.16 percent, and the return on average common equity was 15.48 percent for the third quarter of 2024.
• Net interest income on a taxable-equivalent basis increased by 4.4 percent to $425.2 million compared to the third quarter of 2023.
• Average loans grew by $2.1 billion, or 11.8 percent, to $20.1 billion compared to the same quarter last year.
• Average deposits decreased slightly by $94.7 million, or 0.2 percent, to $40.7 billion compared to the third quarter of 2023.
• For the first nine months of 2024, net income available to common shareholders was $422.7 million, a decrease of 13.8 percent compared to $490.4 million for the same period in 2023.
• Diluted earnings per share for the first nine months of 2024 were $6.51, compared to $7.54 in the prior year period.
• Non-interest income for the third quarter of 2024 totaled $113.7 million, an increase of 7.3 percent from the third quarter of 2023.
• Non-interest expense was $323.4 million for the third quarter of 2024, an increase of 10.3 percent compared to the same period last year.
• The company reported a credit loss expense of $19.4 million and net loan charge-offs of $9.6 million for the third quarter of 2024.
• The allowance for credit losses on loans was 1.31 percent at September 30, 2024.
• Non-accrual loans were $104.9 million at the end of the third quarter of 2024.
• The board declared a fourth-quarter cash dividend of $0.95 per common share.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there is growth in loans and net interest income, the decrease in net income and increase in expenses temper the positive aspects. The increase in non-accrual loans is also a concern.

Positives

• Net interest income increased by 4.4 percent year-over-year, reaching $425.2 million.
• Average loans saw a significant increase of 11.8 percent, totaling $20.1 billion.
• Non-interest income grew by 7.3 percent, reaching $113.7 million.
• The company's capital ratios remain strong, exceeding well-capitalized levels and Basel III minimum requirements.
• The company saw the beginning of an expected seasonal increase in deposits.
• Total loan originations for Frost Mortgage recently passed $200 million.

Negatives

• Net income available to common shareholders decreased from $154.0 million to $144.8 million year-over-year.
• Earnings per diluted common share decreased from $2.38 to $2.24 year-over-year.
• Returns on average assets and average common equity decreased compared to the same period last year.
• Average deposits decreased slightly by 0.2 percent year-over-year.
• Non-interest expense increased by 10.3 percent year-over-year.
• Credit loss expense increased to $19.4 million from $11.2 million year-over-year.
• Non-accrual loans increased to $104.9 million from $67.2 million year-over-year.

Risks

• The company faces risks related to changes in interest rates, economic conditions, and the financial performance of borrowers.
• There are risks associated with changes in credit loss reserve requirements and the company's liquidity position.
• The company is exposed to technological changes, cyber incidents, and disruptions to its systems.
• The company's performance could be affected by changes in consumer spending and borrowing habits.
• The company is subject to legal and regulatory risks, including changes in laws and regulations.
• Global wars, military conflicts, terrorism, or other geopolitical events could adversely affect financial markets and supply chains.

Future Outlook

The company expects a seasonal increase in deposits and continued growth in loans and new relationships.

Management Comments

• In the third quarter we saw the beginning of an expected seasonal increase in deposits and continued growth in loans and new relationships, said Cullen/Frost Chairman and CEO Phil Green.
• Frost bankers continued to provide outstanding experiences to customers across all of our regions and all areas of the business.

Industry Context

The results reflect the current banking environment, where increased interest rates are boosting net interest income, but also increasing expenses and credit loss provisions. The company's focus on organic growth and customer experience is a common strategy in the competitive banking sector.

Comparison to Industry Standards

• Cullen/Frost's return on average assets of 1.16% is within the range of regional banks, but lower than some of the top performing national banks.
• Their return on average common equity of 15.48% is solid, but lower than some peers who have benefited from higher interest rates or more aggressive lending strategies.
• The loan growth of 11.8% is strong compared to some regional banks that have seen slower growth or even contraction in their loan portfolios.
• The increase in non-interest expense of 10.3% is higher than some peers, indicating potential areas for cost management.
• The increase in non-accrual loans to $104.9 million is a concern, and will need to be monitored closely, as it is higher than some of their peers.

Stakeholder Impact

• Shareholders will receive a fourth-quarter dividend of $0.95 per common share.
• Customers will continue to receive banking, investment, and insurance services.
• Employees may see continued investment in organic expansion and potential salary increases.
• Creditors will be interested in the company's capital ratios and asset quality.

Next Steps

• The company will host a conference call on October 31, 2024, to discuss the results.
• The company will pay a fourth-quarter cash dividend on December 13, 2024, for common stock and December 16, 2024, for preferred stock.

Key Dates

Keywords

Cullen/Frost, Bank, Earnings, Financial Results, Net Income, Loans, Deposits, Interest Income, Non-Interest Income, Expenses, Dividends, Capital Ratios