Cullen Frost 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Best year ever for new relationships/loan opportunities

“Even without the WNB acquisition, this has been our best year ever for new relationships, new loan opportunities and new loan commitments. We continue to see a steady increase in the percentage of our pipeline from existing customers. This is important because our success rate is much better with these opportunities. The willingness of our customers to seek financing also is a good indicator of an improving economy”

Losing loans on structure when they do, which is good

“I’m also encouraged that the ratio of lost opportunities continues to be about 60/40 in favor of structure this year. That means that we were competitive in pricing without sacrificing credit quality, and that’s exactly where we want to be.”

We continue to see signs the economic recovery is extending

“Despite the recent roller coaster ride in the stock market, we continue to see positive signs that economic recovery is extending to mainstream. Businesses are hiring again, consumer confidence is up and small business owners are taking advantage of opportunities to expand in a prudent way.”

Comfortable with how strong the pipeline is

“it slowed down a little bit. But what I’m very comfortable with is how strong the pipeline is.”

There’s a lot at play in an oil downcycle as to credit pressure

“depending on what price settles out and how long it stays there, it’s really going to have a lot to do with what’s happening. And this also we got to recognize when you get a downturn like this, you’re going to see lower drilling cost and many factors are in play as we go along hedging dividend policies, debt management. There would be some sales and purchase decisions. And certainly depending on which location in the United States basins have a wide difference in economic quality.”

We’re making loans assuming an oil price of $52

” we also lend 65% of these amounts after you do all those calculations. And so 2015 oil would mean we’re loaning $52 a barrel and $2.40 on natural gas. We always factor in other differentials such as transportation and unique lifting and secondary cost. So it all results in the numbers even being a little bit lower than that”

Customers still fine at $75 and cuts come at $70

“Based on our conversation with our customers, cost of delivering finance production really needs around $75 a barrel you’re still receiving a good favorable return. If it gets to $70 a barrel, it would delay some projects not all projects, and you would also see some aggressive cuts and expenses. ”

Answer to the question: ‘Are you being too conservative?”

“You and I didn’t know each other in the ’80s, and I can talk to you about it without my shrink sitting next to me. And I got a pretty deep scar that’s healed from. And I tell you what the way you blow a bank up is making bad loans. And there’s a lot of crazy stuff going on right now. And as I told you, I am extremely pleased that we’re staying true to what we were doing. And when you look kind of deeper into details, I told you the structure is still about 60% and 40%. That’s where we want.”

“Are we working hard to make every deal work? You bet we are. But I don’t want to be talking to you 3 years from now about all the problems we created when everybody was just going crazy and you got a little bit of — not a little bit, you got a lot of just everybody thinking you can make any deal and it’ll work out.”