Frost Bank’s CEO expects intense banking competition in Texas may cool slightly after some lenders making “structure-light” loans learn over time whether their decisions were right.
CEO Phil Green told analysts during the bank’s second-quarter earnings call Thursday that Frost is seeing heightened lending competition, and when the bank loses deals, it’s mainly commercial real estate loans and related to loan structure.
To Green, it seems like “a bit of a race to the bottom on some of these structures,” he said. “We see people who are very aggressive in the market, and then things turn a little bit and they disappear.”
A day earlier, executives at Texas peer Prosperity Bank said competition in the state, particularly from larger banks, was making it tough to grow loans profitably. Many top-10 banks as well as regionals such as Fifth Third, Huntington and Regions are chasing business in Texas as the state’s population and business presence has expanded.
“We're not going to put a bunch of stuff on the books,” Prosperity CEO David Zalman said Wednesday, “just to grow loans and not be profitable and take the risk.”
While $54 billion-asset Frost seeks to remain competitive on price, the structure element of loans can be tough, because it’s “dangerous to do that poorly,” Green said in an interview.
If economic conditions sour as loans mature, “you could end up working through some problems that you didn’t want to,” Green said. “If they're not quite what you thought they were, you're going to figure it out in a couple of years.”
He pointed to lenders not requiring a guarantee on a loan as an example.
Green said the San Antonio-based bank’s low funding costs allow it to be flexible with pricing, and Frost’s lending approach is based on relationships.
“We’re not looking to just get volume by having low price,” he said. “We’re really applying this to relationships that are really strong and prospects that are potential relationships that are really strong. We’re trying to use it with discretion and use it for business that makes sense for us.”
Frost’s average loans for the second quarter grew about 7% year over year and 3% from the prior quarter, to $22.6 billion, according to an earnings release.
Still, there are limits, and the bank still has a business to run.
“Some of that's just common sense and your feel for what you should get paid for a particular business or risk,” Green said. “What is it about obscenity the Supreme Court said? ‘You know it when you see it.’ And some of the pricing can be pretty obscene.”
Amid a competitive deposit environment, Frost saw increased volumes of interest-bearing deposits and a higher overall cost of deposits in the second quarter, as CFO Dan Geddes indicated the bank has seen some yield-seeking behavior.
The bank is seeing highly competitive rates for certificates of deposit or money market accounts, and some with “urgency,” where the rate will disappear if action isn’t taken by a certain time period, which Frost doesn’t do, Geddes said Thursday.
Facts Only
* Frost Bank's CEO Phil Green expects intense banking competition in Texas may cool slightly.
* Lenders are learning whether "structure-light" loan decisions were correct over time.
* When the bank loses deals, competition is mainly seen in commercial real estate loans and loan structure.
* Prosperity Bank executives noted that competition from larger banks makes profitable loan growth difficult in Texas.
* Prosperity CEO stated a preference against putting on-balance sheet items solely to grow loans without profitability and risk.
* Frost's average loans for the second quarter grew about 7% year over year and 3% from the prior quarter, totaling $22.6 billion.
* Frost’s lending approach is based on relationships rather than just low pricing.
* The bank experienced increased volumes of interest-bearing deposits and a higher overall cost of deposits in the second quarter.
* The bank is seeing competitive rates for certificates of deposit or money market accounts.
Executive Summary
Full Take
The narrative suggests an evolving dynamic where structural risk in lending practices is becoming a central focus of competition, moving beyond simple pricing battles. The concern raised by Frost’s CEO about "structure-light" loans points to a systemic tension between aggressive market maneuvering and long-term viability. The fact that lenders are now testing these structures implies a shift from short-term competitive advantage to risk-adjusted sustainability; if these structures fail during economic souring, the consequences will be realized years later. This mirrors the broader observation from Prosperity Bank that chasing volume without profitability is unsustainable in a growing market context. Furthermore, the contrast between Frost's relationship-based lending philosophy and the broader market trend of yield-seeking behavior among depositors suggests diverging strategies for managing capital. The mention of pricing being potentially "obscene" highlights an underlying friction regarding perceived fairness versus actual risk management, suggesting that the structure of financial products itself is ripe for regulatory or public scrutiny. What drives this pattern is the inherent tension between immediate transactional gain and long-term portfolio stability when applied to complex financial instruments.
Bridge Questions: If lenders are learning through experience, what specific mechanisms or metrics are most effective in signaling sound structure versus dangerous overextension? How will evolving regulatory environments respond to these emerging risks in commercial real estate lending? What is the true long-term cost—to the bank and the economy—of prioritizing immediate volume over the sustainable structures Green advocates for?
Sentinel — Human
The text appears to be a standard journalistic report synthesizing direct quotes and figures from an earnings call, indicating a human reporting origin focused on financial analysis.