Cullen/Frost ups deposit rates to remain competitive

Cullen/Frost Bankers Inc. has already started to raise its deposit rates in order to remain competitive, executives said on the company's first-quarter earnings call.

After the Federal Reserve raised interest rates by 25 basis points in March, Cullen/Frost raised its deposit rates by a beta of 28% for interest-bearing deposits. The company expects a beta of 30% for interest-bearing deposits and a 20% overall beta for each future hike.

"We're going to be competitive on rates," CFO Jerry Salinas said. "We want to ensure that we do what we say we're going to do, which is make sure that we are competitive in the marketplace against all the peers, not just the too-big-to-fail."

The strategy is more proactive than the bank's stance during the last rate-hike cycle when it waited until rates had gone up 100 basis points before moving materially, Salinas said.

"We said we didn't want to do that this time," Salinas said.

A recent survey from IntraFi Network found that the majority of banks will hold off on raising their deposit rates until the Fed funds target reaches higher levels; 34% said they will wait until another 50-basis-point increase, and 38% said they will hold off until another 75-bps increase.

While the decision "wasn't easy and it wasn't inexpensive," it was "the right thing to do," Chairman and CEO Phillip Green said on the call.

Another recent decision the bank made that was neither easy nor inexpensive was raising its minimum pay to $20 an hour in December 2021, Green said.

As a result of that wage increase, the company increased its noninterest expense guidance for the year. Cullen/Frost now expects total expenses for 2022 to grow by low double digits, as opposed to previous guidance it provided in January of high-single-digit growth.

The company's current expansion efforts in Houston and Dallas will also contribute to the increase, Salinas said.