Cullen Frost 2Q16 Earnings Call Notes

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Cullen/Frost Bankers’ (CFR) CEO Phil Green on Q2 2016 Results

The current level of problems in the energy space remains manageable

“At Frost, our typical energy borrower has spent his entire career in the business and many are second or third generation in the energy industry. They have been through cycles before and will go through them again. Our energy customers continue to execute their plans and strategies and they are communicating well with us. The current level of problems remains manageable. ”

Non-accrual book had a hospital loan which was resolved

“The one non-energy credit was commercial real estate. It was a hospital that has some problems. It was in bankruptcy foreclosure and it was sold. We recovered all of our balances, all our principal and interest, all our expenses, attorney fees, etcetera. It was sold for much more than what we had looked for or the – it was sold for a great price. The other two were energy credits. ”

Energy portfolio continues to improve, and we did stress these loans down to $30 oil

“I don’t know the exact price point. I would say that the portfolio though has been – is continuing to improve. You have got – we did stress it before with oil prices down to $30 a barrel. And so we recognize that part of it. The energy customers that we have remember, been working through problems and we are beginning to see as I mentioned earlier, deals get done, lot of capital go into the business. And the fact that this has happened isn’t just a recent phenomenon, our customers have been working on these plans for the last year.”

Jerry Salinas

Houston’s economy is softer but still formidable

“Houston’s economy is softer, but still formidable given the energy setbacks. Despite shedding 20% of its energy jobs since employment peaked 18 months ago, Houston continues to add jobs in refining and petrochemicals and healthcare services. Houston overall employment is down about 1.2% year-to-date, although its 4.7% unemployment rate it’s still lower than the national average.”

Our portfolio is stable at $40. There are opportunities to make good returns

“At $45 oil, our portfolio is stable. As it relates to the oil piece of the portfolio, we are actually seeing some customers who are increasing drilling. We are seeing rig counts increase particularly in the Permian Basin at $45. I think our portfolio is probably stable at $40, say $40 to $45 as it relates to oil. Given the technology that’s happened and the improvements in technology, improvements in efficiencies and drilling, $40, $45 you can make the decent return if you are in the good plays.”

We have begun to see sales of properties at these prices

“Another thing we have seen at these price levels is we have begun to see sales of properties. Just some of our customers, just anecdotally one of them had $400 million sale of public company. Once – some things that are working right now, either have been done or pending, once got a $50 million sale.”