Cullen Frost 3Q15 Earnings Call Notes

Loan market remains competitive

“The loan market continues to be very competitive, our lost loan opportunities show more deals lost to structure the pricing we remain consistent in our underwriting standards and that credit discipline serves as well.”

Credit quality favorable but non performings up q/q

“I’m pleased to report that our credit quality remains favorable, traditional measures of credit quality are strong delinquencies continue to be well below 1% at 0.64%. Non-performing assets were $58.2 million down 8% from the $63 million reported in the third quarter of last year and up $5.8 million from the $52.4 million in the second quarter of 2015.”

Performing well in this oil environment because this is what was expected when we talked to our customers

“there’s a few key headlines and I think are very important they show why we are performing well in this significant decrease in oil price. We remain in close and continual contact with our energy customers. Current conditions align with what customers expected when we visited with them late last year and early this year. Customers are at executing their plans and strategies and are adjusting their business plans and cost structures in a prudent and practical manner.”

We’re underwriting to $50 in 2016 and $70 in 2019

“Regarding our production based borrowers, which is 72% of our portfolio, it is important to note that our current price deck has oil at $50 a barrel for 2016 with some escalation through 2019 topping out at $70 a barrel.”

Texas has slowed but still lower unemployment than rest of the US

“Looking at the Texas economy, well Texas economy growth has slowed in 2015, it is still projected to produce positive growth for the year along with an unemployment rate almost 1% lower than the nation”

Capex budgets could be down 40% depending on how close your are to the drill bit

“as I mentioned to you we are about 10% or 15% down now. And it could be as much as 30% to 40% and this stuff moves around depending on, you know how close you are to the drill bit. How much service work, you got but I would say to you that in my opinion you know you squeezed a lemon about as much as you can.”

You can’t get blood out of a turnip

“I think the service industry has been very aggressive I think they’ve done a great job of cutting cost. But you can’t get blood out of a turnip.”

It’s tough for a bank under $1B to survive after Dodd Frank

“Bank M&A, you know those continues to be a lot of dating in the little banks under a billion dollars because you know regulation has made it or they can survive, which is a shame…I think you are going to see the little guys get together to try to get over $1 billion I don’t blame them their survivors and work hard but it’s a shame what Dodd Frank and all the stuff did to the industry in America.”

Redeterminations starting, but we’re so close to our customers that we’ve got a good idea of what’s going on

“It’s just starting, but from our standpoint I gave you some color which we believe what the results will be already because we spent, we are so close to our customers, we got pretty good understanding so we will know more by year end exactly what’s going on.”

Competition has increased from “stupid bankers.” The Fed is creating bubbles.

“It’s just stupid bankers, and there are both big and little ones. You get all this pressure, that’s one of the benefits of the Feds getting out of keeping interest rates low for ever as they are creating some other bubbles. You know where they are, and hedge funds, and all kinds of private equity investments. And so what happens, the math is pretty simple you’re sitting there want to go loans because the yield better and so you start doing stupid things and lowering your standards now.”

The Permian basin is one of the best honey hole in the world

“It’s surprising with oil down end up from 100 take a number 45, 43 wherever it is – one of the things that if you are out there, but people will kind observe is how much traffic and there are still lot of traffic. I think you know its going to slowdown a lot, its got to but what’s you can’t forget is that the Permian basin is one of the best honey holes that you’ve got for all in the world. And so you are going to continue to have some activity.”

Historically it takes 80 months to get through an energy cycle so we’re probably in the first 3-4 innings of this

“people out there tell us that it historically when they go a down cycle there it usually takes 80 months to get through it and you can pick your starting point of this down cycle but we’re certainly in that I would say probably in the first three or four innings of that cycle.”