ABA Banking Journal 5/08 - (Page 33) COVER STORY “I don’t know how to tell our people to go out and be ‘independent.’ But I do know how to help coach our group to build value and take care of customers” — Dick Evans, Cullen/Frost Bankers mortgages had lost their relationshipbuilding features, and become a financial commodity with too little profitability. Similarly, the bank had dropped out of the credit card business two decades ago, seeing that it was becoming a scale business, and not one where relationship building took place. Any time a business begins to resemble a commodity, Frost Bank begins to get itchy. Indirect lending is another field that management decided to exit, in recent years, for much the same reasons. “There came a time when there were so many people in the business that we could no longer build an ‘A’-quality portfolio,” says Evans. “So we chose to exit.” Staples that still work With more and more banking services appearing to be moving towards commoditization, isn’t there a risk that Cullen/Frost will find itself operating in a shrinking circle? Evans doesn’t credit that notion over- much. He says that rather than dwelling too long on the businesses that Cullen/Frost has exited, people should spend some time focusing on the ones they entered. One example is the bank’s extensive leasing business. Also, while it has expanded into nontraditional banking services, the bank continues to do well with some business banking staples that demand custom tailoring. Almost half of the loan portfolio consists of C&I loans, for instance, which Evans notes breed demand deposits. (The bank’s largest industrial concentration is in energy.) Nearly 60% of the bank’s real estate loans are owner-occupied. “That builds relationships,” says Evans, “and brings in the deposit side and drives fee income, just as C&I loans do.” The bank enjoyed a 4.69% net interest margin in 2007. By contrast, banking companies tracked in Lehman Brothers’ Mid-/Small-Cap Bank Monitor (including Cullen/Frost), showed an average NIM of only 3.64% in 2007. About 42% of 2007 revenues came from fees, and about half of that came from fees on commercial customers and correspondent banks. Frost still maintains a very healthy correspondent operation among 289 Texas banks, with much of the program devoted to check processing. Indeed, Cliff McCauley, executive vice-president, correspondent banking, says this business line gives Frost Bank the efficiency of a payment volume of a bank of $50 billion— about three times its actual size. “This is a purposeful complement to our main franchise,” McCauley explains. Insurance can be humbling Cullen/Frost has built major operations in trust, wealth management, investments, and insurance. Ask Dick Evans about Cullen/Frost’s experience in insurance, and lessons learned in that business, and he gives you a quick, ironic grin. “When you show up on a Monday STRICTLY BY THE BOOK continued on page 39 Subscribe at www.ababj.com ABA BANKING JOURNAL/MAY 2008 33 http://www.ababj.com
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.