Frost eyes 25-branch expansion
Plan would create more than 200 jobs in the area
Frost Bank plans to nearly double its bank-branch presence in the Houston area over the next two years.
The largest regional bank based in San Antonio announced Thursday it will open 25 branches and create more than 200 jobs in the Houston region by the end of 2020.
Frost, a subsidiary of Cullen/ Frost Bankers Inc., already has 32 branches and about 600 employees in Houston. The expansion represents a nearly 19 percent increase in Frost’s 133-branch network in the state.
Frost is going against the trend of banks closing branches because of too much capacity and more customers banking remotely with cellphones and computers. Even Frost last year closed about 3 percent of its locations, which it deemed old or inefficient.
“While many other banks are reducing their presence, Frost is growing,” Cullen/Frost Chairman and CEO Phil Green said. “We’ve just got more opportunity, I believe, to leverage what we are in Houston, where we’ve been for 40 years or so.”
“This is Cullen/Frost investing in Texas for the longer term,” said Brady Gailey, a securities analyst with Keefe, Bruyette & Woods in Atlanta. “This isn’t just a branching strategy. They want to be a bigger part of the Houston economy. Frost has been a smaller player there relative to the opportunity they have there.”
Frost recently began a sponsorship with the Houston Rockets. The bank has had a marketing relationship with the San Antonio Spurs, including players’ jerseys sporting the the bank’s logo.
Opening more branches in Houston will project Frost’s brand and puts its staff in a community to execute a community banking strategy, Green added. Branch locations also will help Frost gather deposits, which it uses to make loans, Gailey said.
Frost eventually plans to do a similar expansion in Dallas, where Green said the bank is under-represented.
Frost expects the Houston expansion will negatively impact next year’s earnings by 19 cents a share. A typical new branch loses about $1.5 million in its first two to three years before turning a profit, Green said.
“I’m really excited about what (the expansion) does for our growth trajectory over the next five to seven years in Houston,” he added.
Asked why Frost chose to open branches rather than acquire a bank in the Houston market, Green replied, “It’s better for us to build than to buy it.”
Also Thursday, Cullen/Frost reported it earned $115.8 million, or $1.78 cents a share, on about $353 million revenue for the three months ended Sept. 30. By comparison, it posted earnings of $91.1 million, or $1.41 a share, on $346 million in revenue for the same period last year. Earnings climbed about 21 percent.
The company was expected to earn $1.72 a share in the latest quarter, the average estimate of 13 analysts polled by Bloomberg.
“These robust earnings reflect our emphasis on sustainable, above-average organic growth,” Green said. “When we visit our customers across Texas, they tell us they’re optimistic about opportunities ahead of them.”
“I thought it was a pretty good quarter,” said Brett Rabatin, an analyst with Piper Jaffray & Co. in Nashville. But he attributed Frost beating the analysts’ consensus estimate to a lower loan loss provision than expected — $2.7 million in the latest quarter versus $11 million a year ago.
The bank had $13.8 billion in loans at the end of the quarter, up 8.7 percent from a year ago when it had $12.7 billion in loans.
“Loan growth was a little soft,” Rabatin said.
Total deposits were $26.3 billion at the end of the quarter, down slightly from $26.4 billion a year ago.
The holding company’s shares closed Thursday at $92.09, up 34 cents from Wednesday’s close of $91.75 — a 52-week low. The shares have fallen nearly 24 percent since closing at an all-time high of $120.77 May 21.
Cullen/Frost had $31.2 billion in assets as of Sept. 30.