Cullen/Frost Bankers, Inc. (NYSE:CFR.PRA) Q1 2016 Earnings Conference Call - Preliminary Transcript

Apr 27, 2016 • 11:00 am ET


Cullen/Frost Bankers, Inc. (NYSE:CFR.PRA) Q1 2016 Earnings Conference Call - Preliminary Transcript


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Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cullen/Frost Bankers First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]

Thank you. Mr. Greg Parker, Executive Vice President and Director of Investor Relations, you may begin your conference.

Greg Parker

Thank you, Rob. This morning's conference call will be led by Phil Green, Chairman and CEO; and Jerry Salinas, Group Executive Vice President and CFO. Before I turn the call over to Phil and Jerry, I need to take a moment to address the Safe Harbor provisions. Some of the remarks made today will constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 as amended.

We intend such statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended. Please see the last page of the text in this morning's earnings release for additional information about the risk factors associated with these forward-looking statements. If needed, a copy of the release is available at our website or by calling the Investor Relations department at 210-220-5632.

At this time, I'll turn the call over to Phil.

Phillip D. Green

Thank you, Greg. Good morning and thanks for joining us. Today, I will review first quarter 2016 results for Cullen/Frost. Our Chief Financial Officer, Jerry Salinas, will provide additional comments about our performance and our outlook before we open it up for questions.

Our first quarter earnings of $1.07 a share were down slightly from $1.10 last year, but we're up sharply from the $0.90 reported in the previous quarter, several factors significantly affected the quarter. Regulators unveiled a new bright line leverage tests on the shared national credit exam for E&P companies. The test is based on the ratio of total company debt to all types of cash flow or of all debt -- debt of all types to cash flow and to EBITDA and very significantly impacted their review of credits. It was also a big change from the guidance, which they've given in previous years regarding collateral coverage.

We recognized additional provisions for the quarter under this new criteria. We also applied this new more stringent criteria of debt-to-EBITDA to our non-shared national credit energy portfolio resulting in higher classifications and provisions. We also changed our underwriting criteria to recognize the new guidance for new deals. As oil prices dropped sharply during the quarter to the mid 20s, we booked additional provisions to set aside specific reserves for some affected credits.

At the same time, we reduce our energy -- at the same time, we reduce our exposure to energy and our municipal portfolio by selling $444 million in non-insured bonds from energy intensive economies and replacing them with PSF insured securities. The sale of these municipal securities resulted in the gain