President, Group Executive Vice President & Chief Banking Officer, CULLEN/FROST BANKERS INC
Cullen/Frost Bankers CEO: Guiding to Sustainability | Mad Money | CNBC
The banking group has been under pressure lately, but could regional players buck the trend? Jim Cramer hears from the CEO of ...
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In a September 2018 interview on CNBC's *Mad Money*, Phil Green, Chairman and CEO of Cullen/Frost Bankers, discussed the bank's performance and outlook. Green stated that the bank was guiding to "sustainability" and aiming for "consistent above-average sustainable organic growth through great customer experiences." He attributed the bank's double-digit loan growth partly to decreased regulatory uncertainty following the 2016 election, saying that "the rate of regulation would slow" and that this gave businesses "more clarity to move forward." Green also noted that strong employment in Texas was driving wage increases but said that "business has been great," particularly in the energy sector, with the Permian Basin "as hot as it's ever been." Green reported that non-performing assets were improving quarter-over-quarter and that problem loans were down 25% from a year earlier. He described Texas as "arguably the best economy to operate in the world" and said the bank was "asset sensitive," meaning higher interest rates benefit it directionally. Green expressed optimism about the economy, stating, "I like people being put to work and making good money, and they do, and everybody benefits."
Transcript (17 segments)
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Jim Cramer0:05
So part of this journey season, I feel like most of the banks just haven't gotten the kind of credit they deserve for reporting some truly excellent results, as I talked about the top of the show. But there have been a few exceptions that just really have been standouts. Ones that have delivered strong quarters and actually some other stocks or stocks in rally exceptions like Frost Bankers, CFR. It's a Texas-based regional bank that's the number one player in San Antonio and Corpus Christi. Yep, last Thursday Frost shot the lights out in the stock went higher, but you may have missed it because they're reported on the busiest day of earnings season. Now the company delivered a bountiful 13 cent earnings beat off of a dollar 48 basis higher than expected, rising net interest margins, average loans of 10% year over year. Since then, Frost has been performing like a champ. In fact, the stock's now up more than 20% for 2018. Can this stock keep climbing? Let's check in with Phil Green, the Chairman and CEO of Frost Bankers, to find out more about the quarter and this company's prospects. Mr. Green, welcome back to Make Money.
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Phil Green1:01
Thank you, Jim. Great to be back.
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Jim Cramer1:04
All right, so Phil, a lot of banks did not report very big loan growth. You had double-digit loan growth. How much of this is just an element of what I would regard as being deregulation, a sense that the tax changes are working, and let's just call it, because I think I loved when you said it, a sense of optimism in Texas?
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Phil Green1:25
Well, you know, Jim, there's really a couple of things. One, Texas is a great economy. It's arguably the best economy to operate, I think, in the world, and we're taking advantage of that because we're in some great markets. I think the tax act has helped. I think some of the investment that's been done by companies buying equipment to take advantage of the depreciation rules, etc., has been a positive. But that really hasn't been what's been driving our growth. It's been a help to it, but our growth is that our people understand what they're supposed to be doing. They're really executing, and they're just taking advantage of the economies that we're in right now.
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Jim Cramer1:59
In a part of the Q&A where you were asked by Alex Lao about customer optimism, you did mention that the tariffs are a bit of a game changer in terms of the costs of rebar, of steel, but otherwise deregulation is far more than offsetting that when it comes to your customers' desire to take loans down. So talk to us about that for a second.
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Phil Green2:19
You know, I think that this deregulation thing is a big deal. You know, after the last election that we had, not long after that, we talked about how there was a change in feel, a change in optimism of business owners. And I think in retrospect, it was because there was a lot of decreased uncertainty. Because there was a lot of uncertainty about what the new administration would do. But I think one thing that was intuitively understood was that the rate of deregulation, the rate of regulation would slow, and that in fact has happened. It's happened for our business, it's happened for other businesses. And when business has more clarity with regard to deregulation, I think it helps them move forward. And that's been something that we've seen consistently.
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Jim Cramer3:08
We have seen, not to attack the media that was done enough on Saturday Night Live, what else corresponds to everybody? There is a sense these days that you know what, you can't win, you can't lose. There is such strong employment that wages are going up. I heard you say that yes, there are parts of Texas that have under 4% unemployment. Yes, labor costs are going up, but that doesn't mean that business is going down.
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Phil Green3:29
Oh no, it doesn't. In fact, you know, business has been great. You know, you take the energy business. You know, there was a problem a couple of years ago, and we've been moving out of it. You know, the Permian Basin is as hot as it's ever been. I saw some numbers on the first quarter growth on energy employment. It was 21% annualized growth. Rig count three-year high. So the energy business is really, I think, recovered, particularly in the Permian, and it's beginning to recover in the Eagle Ford and some of the other basins in the state. But if you look broadly at the rest of the economy, we've had great growth. You know, it's hard to find people, but really good companies with good relationships can. But that is something that I say that we as a nation need to be doing is figuring out how to solve the labor supply issue that we have. And we have seen increases in cost of labor. It's just a factor of supply and demand.
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Jim Cramer4:20
There you go, because I think a lot of people feel like it should never go up. That's okay to have booming business. Net interest margin, best increase that I've seen of the banks that I follow. How are you able to have such a huge increase in what is basically risk-free money?
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Phil Green4:37
It's two things. One, we're asset sensitive. Higher interest rates benefit us, so they're up directionally. That's a benefit to us. The second thing, as you said earlier, loan growth 10%, and that's broad-based. It's with regard to big deals, it's the smaller core deals, it's consumer loans, it's commercial real estate. So we're in great markets and we're able to take advantage of that.
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Jim Cramer4:56
You guys have always stuck by your knitting. That non-performing asset, has it ever been lower? Non-performing assets?
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Phil Green5:04
Yeah, they are improving quarter over quarter. If you look at problem loans, if we define as risk grade 10 or higher loans, those are down by 25% from a year ago. It's rather remarkable.
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Jim Cramer5:16
Wesley, I want to be sure that north of 10% of loan book for energy, you're okay with that?
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Phil Green5:23
Yeah, what we've guided to was high single digits on loan growth. It could be more than that at times and maybe less than that at times, although I hope that's not the case. You know, we've been guiding to high single digits, and the thing we're really guiding to, Jim, is sustainability. What we want is consistent, above-average, sustainable organic growth through great customer experiences and making people's lives better. And we do that within the great economies of Texas, and it's been good for us.
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Jim Cramer5:47
We need you up here. I'm so tired of people being so negative. I like people being put to work and making good money, and they do, and everybody benefits. I want to thank Phil Green, Chairman and CEO of Frost Bankers, for putting a little, what I regard as being, optimism in the stories that we hear. Thank you so much, sir.
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Phil Green6:05
Thanks, Jim. What can I say? You know, when people are paid more, and despite what the papers say, that's good. Their money's back in.
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Jim Cramer6:13
Booyah! Jim Cramer here from there, buddy. Thanks for watching. You see me, see you on YouTube. Click here to subscribe and get the jump on my exclusives with CEOs, plus market news, investing advice, and a whole lot more.