Cullen/Frost Bankers (NYSE:CFR), Inc. is witnessing an upward trend in its loan balances and net interest income (NII), while consistently distributing capital, according to recent company reports. Despite the challenges posed by increasing costs and a lack of diversification in its loan portfolio, the company is expanding across Texas, aiming to stimulate long-term growth.
The Texas-based banking corporation's balance sheet has displayed robustness over time, with both deposits and loan balances on a steady rise. This increase in deposit balances is expected to boost liquidity, enabling the company to offer loans and cater to other general business requirements. Over the next three years, Cullen/Frost anticipates compound annual growth rates of 4.3% for loans and 0.7% for deposits.
The company's organic growth is evident in its notable NII increase over the years, driven by high interest rates and strong loan balances. Despite potential pressures from rising deposit costs, a high-interest rate environment, decent loan demand, and exposure to non-interest-bearing deposits—a low-cost funding source—are predicted to continue fueling NII growth. The company forecasts NII to rise by 16.4% this year, dip slightly in 2024, then rebound with a 3.3% growth in 2025.
In terms of geographic expansion, Cullen/Frost is making significant progress in the profitable Texas markets. The company plans to double its financial centers to 34 in Austin by 2026—a region that represents the third-largest deposit market in Texas where Cullen/Frost holds the fourth-largest market share with over $5 billion in deposits.
This follows Cullen/Frost's completed 25-branch expansion program in Houston in 2021 and an ongoing 28-branch expansion in Dallas that reached halfway completion as of April 2023. The favorable business conditions, low-tax environment, and attractive demographics in these regions are expected to stimulate deposit and loan growth for the company.
Cullen/Frost's capital distribution activities are also projected to bolster investor confidence. In July 2023, the company announced a 5.7% increase in its quarterly dividend to 92 cents per share. Furthermore, as of June 30, 2023, nearly $72 million worth of authorization remained available under its current stock repurchase program.
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