BOK Financial Corporation (BOKF) Q3 2015 Earnings Report, Transcript and Summary

Welcome to the BOK Financial Corporation Third Quarter 2015 Earnings Conference Call and Webcast. [Operator Instructions]. I would now like to turn the conference over to Mr. Joe Crivelli, Senior Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us to discuss the BOK Financial Corporation's third quarter 2015 financial results. Today we'll hear remarks about the financial results and outlook from Steve Bradshaw, CEO, Steven Nell, CFO, Norm Bagwell, EVP, Regional Banks and Stacy Kymes, EVP Corporate Banking. In addition, PDFs of the slide presentation and press release that accompanies this call are available on our website at www.bokf.com Before we begin I'd like to remind everyone that during this conference call management will make certain forward-looking statements about its outlook for 2015 and beyond that involve risks and uncertainties. Forward-looking statements are generally preceded by words such as believes, plans, intends, expects, anticipates or similar expressions. Forward-looking statements are protected by the safe harbor contained in the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ from expectations include but are not limited to those factors set forth in our filings with the SEC. BOK financial is making these statements as of October 28th, 2015 and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call. I will now turn the call over to Steve Bradshaw.

Thanks, Joe. Good morning, everyone. Thanks for joining us. I trust everyone has seen our earnings release for the third quarter which was issued earlier this morning. As shown on slide 4, the company earned $74.9 million or $1.09 per share, that's down $4.3 million or $0.06 per share from the second quarter and down $741,000 from the third quarter of 2014 but flat on an EPS basis due to our buyback activity. The main reason for the sequential decrease in earnings was softness in certain fee-generating businesses, in particular mortgage, brokerage and training and wealth management. In addition, there was a significant negative adjustment on the valuation of our mortgage servicing rights as interest rates decrease at the end of the quarter. Steven Nell will discuss all of these in more detail in a moment. On a positive note, loan growth remained strong and was in-line with our expectations from mid-to high single-digit growth. Credit quality also remained strong and the quality loan loss provision was within our expected range. We continue to believe our loan portfolio and in particular our interview portfolio is well positioned to weather the current commodities downturn. Finally there was good expense management across the business with operating expenses down sequentially. We continue to expect EPS growth for the full year and also for 2016. During the quarter, we were very active with our buyback program, buying back 1.258 million shares at an average price of $63.79 per share. As this exhausts our previous 2 million share buyback authorization, the Board of Directors has provided new authorization for the company to purchase up to 5 million additional shares subject to market conditions and regulatory approval. The Board of Directors also increased our quarterly dividend 2.4% to $0.43 per share. This is the 11th consecutive year that we've increased our quarterly dividend. We continue to believe that share buybacks and regular quarterly dividends are an effective way to return excess capital to shareholders while we continue to seek accretive acquisition opportunities of both banks and also fee-generating businesses. Turning to slide 5, we posted 1.6% sequential loan growth for the quarter or 6.4% annualized. The loan book is up 12.3% compared to the same time last year, Norm and Stacy will cover loan growth in detail later in the call, but we are seeing what we expected for the second half of 2015, softness in energy and strength throughout the rest of the portfolio with just a few exceptions. We continue to believe we are taking market share from the large national banks through greater execution without sacrificing our improving credit underwriting standards and our business model which emphasizes relationship solutions across a broad set of lending, deposit and fee businesses creates a competitive advantage over similar size and smaller banks. Fiduciary assets were down 3% during the quarter as market returns were negative, while we grew new assets by approximately 500 million, the steep decline in the market during the third quarter absorbed this and more. We've grown assets under management for 15 consecutive quarters now, so I'm really not surprised to see a bit of a pause, especially considering the state of the market during the third quarter. Steven Nell will now cover the financials in more detail. Steven?

Thanks, Steve. Turning to slide 7, net interest revenue and margin continue to benefit from ongoing remix of our balance sheet. Net interest revenue for the third quarter was $178.6 million up $2.9 million or 1.7% compared to the second quarter. On a year-over-year basis, net interest revenue was up $11.8 million or 7.1%. The growth in net interest income was driven by higher loan balances during the quarter, as we did not have a material benefit of nonaccrual interest recoveries as we've seen in prior quarters. We recorded a 7.5 million provision for credit losses in the third quarter in-line with our expectations. Net interest margin excluding the impact of the federal home loan bank, federal reserve trade was 2.73% stable on both the sequential and year-over-year basis and as expected has remained relatively stable over the five quarters shown on the slide. On slide 8, fees and commissions were $164.7 million for the third quarter, down 4.6% on a sequential basis, but up 3.9% year over year. Brokerage and trading was down 12.3% sequentially and down 10.4% year over year. The investment banking business had a very strong first half of the year and closed a lot of deals, so part of this was simply pipeline rebuild. However, a portion of this was due to less deal flow in the oil and gas industry which has led to lower loan syndication fees. In addition our mortgage TBA business was down during the quarter, in-line with the lower mortgage production volume across the industry. Transaction card was down 0.8% sequentially and up 3% year over year. Strong growth and bank card fees were offset by decreases in TransFund network revenues. Fiduciary and asset management was down 5.8% sequentially and up 3.6% year over year, part of the sequential decrease was due to the tax preparation revenues which were realized in the second quarter, part was due to reduction in asset values due to market movements. A reduction in fees and our mineral management business also contributed to the decrease. Mortgage banking was down 10% sequentially, but up 23.7% year over year. The quarterly results were consistent with the industry due to higher overall interest rates which suppressed refinancing volumes. Deposit service charges and fees were up 5.7% sequentially and 4.9% year over year, primarily due to the higher overdraft usage during the quarter. As you can see on the far right column of the slide for the trailing 12 months ended September 30th, 2015 total fees and commissions were not up 9.1% compared to the same period last year, well ahead of our mid-single-digit target. Mortgage and fiduciary and asset management were both well into the double digits on this basis. Expenses are highlighted on slide 9, total operating expenses were down 1.1 sequentially and up 1.3% year over year. Personnel expense was $129.1 million, down $3.6 million or 2.7% from the second quarter. Incentive compensation was $2.7 million lower and payroll tax was down $1.6 million due to lower Social Security taxes. Regular compensation expense increased $1.1 million. Other operating expenses were 95.6 million, up $1.1 million or 1.2% sequentially, included in other operating expenses was a $2.6 million charge for litigation settlement as well as an $800,000 charitable contribution. Turning to the balance sheet on slide 10, the available for sale securities portfolio is down $199 million for the third quarter and is down $506 million from the same period last year. Liability sensitivity is 0.70% at quarter end. Period-end deposits were $20.6 billion at quarter end, down 440 million from the end of June due to situational declines with trust clients as well as seasonal declines in public funds balances. BOK Financial continues to be extremely well capitalized and we believe the capital metrics shown here on slide 10 are in the top quartile or quintile of our peer group. As of September 30th, we estimate that we have approximately $500 million of excess capital available for deployment. Turning to slide 11, our guidance assumptions for the balance of 2015 were as follows. Mid-to high single-digit loan growth in the fourth quarter, continued modest improvement in quarterly net interest income as we've seen the past two quarters. We continue to expect loan loss provisions for the full year to fall within our forecasted $15 to $20 million range which implies a loan loss provision in the range of $3.5 million to $8 million for the fourth quarter. On a rolling 12-month basis, we continue to expect mid-single-digit revenue growth in fees and commissions and we continue to expect expenses to run in the $225 to $230 per quarter range for the balance of 2015. Our preliminary expectations for 2016 are as follows, continued mid-to high-single-digit loan growth, stable net interest margin and increasing net interest income, provision for credit losses in the range of $25 to $30 million, continued mid-single-digit growth from fee businesses on a trailing 12-month basis. We expect to continue to manage expense growth to below the rate of revenue growth. We expect EPS growth for the full year and we expect to continue to return capital to shareholders through dividends and stock buybacks. In the near term we expect to keep our securities portfolio flat, but we will continue to monitor the interest rate environment and respond appropriately. Norm Bagwell and Stacy Kymes will now review the loan portfolio in more detail. I'll turn the call over to Norm.

Thanks, Steven. First let's look at the loan portfolio on a market-by-market basis. As you can see on slide 13, growth remains nicely balanced on a geographic basis with Arizona and Kansas City leading the way. In both of these markets we're seeing strong growth from business banking, private banking and healthcare which drove the results during the quarter. Texas remained strong with 2.7% sequential growth with growth nicely balanced across all of our lines of business. Outside of the energy portfolio, the commodities downturn hasn't materially impacted the growth in our business. Commercial industrial, commercial real estate and personal lending were all up nicely in Texas on a sequential basis. Arkansas was the only market that shrank significantly on a sequential basis and that was due to one large pay down that had a major impact on what is a relatively modest-sized loan portfolio. You can see that six of our eight markets generated healthy year-over-year growth with Arizona, Texas and Kansas City showing the highest year-over-year growth percentage, 32.6%, 17.7% and 17.6% respectively. As indicated on slide 14 of the presentation, commercial loans were essentially flat this quarter at $9.8 billion. As expected, the energy portfolio was down sequentially as Stacy will discuss in a moment and healthcare continued to grow nicely, up 5.8% sequentially. On a year-over-year basis, commercial loans were up 14.3% which each segment contributing to growth led by healthcare, manufacturing and services. Slide 15, shows the overall loan portfolio of the company. Commercial loans were flat, while CRA remained extremely strong, residential mortgage was likewise flat, while consumer was up 8.3%, sequentially led by private banking loan growth. All lending categories grew at a double-digit pace on a year-over-year basis with the exception of residential mortgage which is largely comprised of nonconforming, floating rate jumbo loans, not a growing category in the current interest rate environment. On slide 16, loan yields were down 11 basis points in the quarter with six basis points of the decrease due to interest recoveries realized last quarter and the balance attributable to the competitive environment. Stacy will now discuss energy lending, commercial real estate and credit quality. Stacy?

Thanks, Norm. Let's talk first about energy lending. Slide 18 shows our energy portfolio as of September 30th. At quarter end our energy portfolio was $2.8 billion and the E&P line utilization was 57%. In addition, 53% of energy commitments and 48% of energy outstanding's are shared national credits. As we've mentioned in past calls, we underwrite these credits exactly the same as we underwrite all of our other energy credits, including a review and analysis by our independent, internal engineering staff. What we are seeing energy credit migration as expected, we are also seeing the underlying companies do the things they need to repay those debts, such as raise capital, sell assets or refinance elsewhere. To that end, given that we are now approaching the one-year anniversary of the OPEC announcement that precipitated the slide in oil prices last November, I'm often asked that my view towards our portfolio has changed, it has. I feel better about the portfolio than I did 11 months ago. This is precisely because our customers have taken the actions needed to position themselves to perform throughout the downturn. They have cut expenses, raised additional capital and reduced CapEx budgets to manage during the current depressed commodity price environment. In addition, many of the credits I was more concerned about at the start of the downturn have paid us off and are out of the bank. There continues to be a very healthy market for oil and gas assets, so companies needing to divest production assets still have a strong bid for those assets. Private equity capital remains available to assist the buyers. At the bottom of this slide, we show the overall gross loss rate on the energy portfolio over the last 10 and 15 years which you've seen before in previous investor presentations. But it bears repeating that our loss experience in particular in the E&P portfolio is minimal across several commodity price cycles. This is because of the disciplined nature we approached this business with and should give shareholders a level of comfort about our ability to navigate commodity price downturns. This is not to say we will have no losses, but that we expect losses to be manageable. In my view, the opportunity cost of the growth headwind is a greater risk than the risk of loan losses over the next few quarters. On slide 19 we are providing some additional details around our energy credits. At quarter end special mention or criticized loans were $196.3 million or 6.9% of the portfolio, up from $112.8 million or 3.9% of the portfolio at June 30. Potential problem loans were 96.4 million or 3.4% of the portfolio, down from $124.1 million or 4.3% last quarter. Nonaccrual loans were $17.9 million or 0.6% compared to $6.8 million at June 30. We believe this demonstrates that credit migration in the portfolio has been manageable for BOK Financial. The portion of our combined allowance for credit losses attributed to the energy portfolio totaled 2.05% of energy outstanding loans at September 30, and an increase from 1.74% of outstanding energy loans at June 30. We updated our quarterly stress test during October due to lower commodity price levels, we modified our starting substance to $34 oil from $40 and $225 natural gas from $2.50, escalating both at a slower pace before capping at five years at $45 for oil and $2.70 for gas. Despite the reduced price levels, the results of our stress test are consistent with what we've seen in prior quarters and supports our view that there may be continued migration of credit grades, but no material losses expected in the portfolio. We are approximately 40% of the way through the fall borrowing base redetermination season. To date we have seen borrowing-based reductions in the 10% to 20% range which is likewise in-line with expectations. Turning to slide 20, the commercial real estate book grew 6.6% in the third quarter, and is up 18.8% year over year. Our commercial real estate pipelines remain strong at quarter end, and we're seeing good deal flow of very high-quality lending opportunities across our market territory. Our Houston market is perhaps the most exposed to the energy downturn. At the end of the quarter, our total CRA exposure in Houston was $329 million or 2.2% of our total loan portfolio. Of the Houston CRE exposure, approximately 43% was in retail, 8% in office, 20% in multifamily and 20% in industrial with balance in other CRE. It bears mentioning that we had no downtown Houston office exposure in the portfolio at quarter end. Credit quality overall remains strong at quarter end, as shown on slide 21, the combined allowance per loan losses was 1.35% of [indiscernible] loans and represented 232.5% of nonaccrual loans, both very healthy metrics. NPAs [ph] excluding those guaranteed by government agencies were 0.78% of period-end loans and repossessed assets, down from 0.82% last quarter. Net annualized charge-offs to average loans were five basis points this quarter. Steve Bradshaw will now make some closing statements before we open the call for Q&A. Steve?

Thanks, Stacy. All told, it was a solid quarter for BOK Financial. We continue to grow loans and are seeing the benefit of our nearly two-year effort to reposition earning assets for a rising rate environment as net interest income has grown now for two consecutive quarters. We continue to be mindful of expense growth and pay for risk and compliance and information technology initiatives with expense containment elsewhere in the business. And while I'm disappointed that our fee-generating businesses didn't execute quite as well this quarter as in the first half of the year, I believe this is more due to quarter-to-quarter lumpiness and interest rate volatility in some of our fee businesses than any underlying issues. We continue to carefully monitor credit quality and remain comfortable that our portfolio is well positioned in the current commodities environment. I believe the credit metrics that Stacy just covered and the credit metrics in particular are associated with our energy portfolio places at or near the top of our peer group. This is a testimony to our time-tested conservative underwriting culture, one that has served the company and its shareholders well across a number of credit cycles the past 25 years. We remain focused on deployment of our excess capital and finding acquisition opportunities that will strengthen our franchise and augment our presence in key markets, both on the whole bank and fee business side of the equation. Our M&A team continues to have very productive dialogue with the attracted targets that we've identified. However, in the meantime we are focused on returning capital to shareholders. As mentioned, we've increased our dividend for the 11th consecutive year and our Board has authorized a new 5 million share buyback. With that we'll open the call for your questions. Operator?

[Operator Instructions]. And our first question comes from Ken Zerbe from Morgan Stanley. Please go ahead.

I guess maybe starting off with comments on acquisitions. You guys, it sounds like you're getting a little more aggressive in at least the commentary around it. I know in the past you've looked at small things or certain build-out of certain markets, but has the thought process changed? Are you looking to do something a little more aggressive or larger or are you just looking at more tuck-ins still?

I think the focus is really the same. I think the way we're thinking about it is this is going to be a when-not-if situation for us, but more than likely it will occur in market, so we're still focused on banks that are really in that 0.5 billion to 3 billion range in market. We think that's the best opportunity to enhance the franchise. So that focus really hasn't changed, but the activity level and the call effort going on throughout the organization certainly remain strong.

And then in terms of your guidance, the fees - just want to make sure I understand this right. You actually threw in the thing called which is the trailing 12-month basis, but for 2016. Just want to make sure I don't read anything too much into this. Like, 2016 should be on a sort of year-over-year basis or were you trying to convey something different about fees? Because when I look at your '15 guidance, actually it should have to take my fee number down pretty noticeably in fourth quarter versus where it's been to hit mid-single digits. And I'm just trying to make sure I actually build in sort of mid-single digit growth properly off of the right base which I was hoping you can help us clarify. Thanks.

You have enough lumpiness in the fee businesses that it's better to look at it on a year-over-year bases and not a quarter-to-quarter basis. You'll have some movement in mortgage, you'll have, as you saw this quarter, brokerage and trading was down a little bit, yet if you look at that from a year ago, we've actually grown quite a bit. So we like to look at it over a 12-month period just because of the nature of the volatility that you see in some of our fee businesses. That's really what we're saying.

And then just last question I had, just on credit, most of the banks we've heard from kind of say the same thing that you guys do, the provision expansions stay low. Just want to get a sense, if there is further deterioration in energy which there might be, do you guys have a lot of flexibility on the rest of the portfolio to continue to reduce reserves such that you can build energy reserves without meaningful increase in provision or are you truly saying that you just don't think that there is going to be a big increase in energy reserve builds from here? Thanks.

Well I think that, you know, that's all dependent upon facts and circumstances at the time. From my perspective, Ken, you know, our allowance is very healthy. We've done a good job of maintaining and building that, we’ve built it a bit this quarter and I think as we move throughout next year we'll see how the year unfolds, but clearly we have a very healthy allocation to the energy side, but we'll also have to see how the rest of the portfolio weathers the impact of lower commodity prices.

Our next question comes from [indiscernible]. Please go ahead.

You all were pretty aggressively clearly on buying back stock this quarter and I was just looking for some additional color around your pricing thresholds and should we in general expect buybacks to continue at this elevated level in the coming quarters?

Yes. Really the way we look at capital allocation, our net income and retained earnings can support our loan growth and our dividend payment which leaves, you know, dollars left and excess capital that we currently have left for M&A activity as well as buyback activity, and we just felt like there was a good opportunity. You know, the price had been much higher in previous quarters. We're pretty confident with our position even with the low energy rates or prices and so we felt very good about buying back stock, and one of the reasons that we sought a higher buyback threshold from our Board and received it and we'll continue that in the future.

Okay. And then turning to the funding, so funding costs continue to come down pretty nicely. Is it pretty safe to say that you're at or very close to the bottom there, and if you could just also provide a little bit of color on the deposit outflows this quarter and your expectations for deposit growth in the coming quarter and into 2016? Thank you.

I will start with the deposit outflow. I don't think there was anything really trend oriented there. We had some specific outflows in our commercial portfolio which happens from time to time, so I'm not seeing a trend there necessarily. I do think we'll have some outflow if rates begin to rise out of the deposits, but I don't think this quarter was necessarily indicative of any kind of trend at this point. 32 basis points is probably about as low as we can drive our interest-bearing liability costs. So I'm not expecting much differential there in future quarters.

Our next question comes from Jennifer Demba from SunTrust. Please go ahead.

Just wondering if you could give us some color on what you're seeing in the Oklahoma economy with lower energy prices? I know you mentioned at the beginning of your monologue that everything has stayed pretty strong in Texas, but you did mention there were some pockets of weakness. So I was just wondering if you can elaborate on that.

Yes. Well, we, of course, track unemployment rates in Oklahoma and Texas, and you have had some job declines in both markets, particularly in the energy industry which is down 9% in Texas, it's down about 20% in Oklahoma. However, if you look at Texas, you had a 4.8% unemployment rate in September last year and now it's 4.2% this year, so really in good shape. And in Oklahoma, I believe we had a 4.2% unemployment rate last year and it's 4.4% today. So the markets are staying really pretty strong despite some decline in the energy space.

Just to put another data point on it, even with the decrease in energy jobs that Steven referenced, overall non-farm payrolls are up in both states year over year. So that's a pretty good indicator that the states are creating jobs at a fast enough pace to replace the lost energy jobs.

Our next question comes from Brett Rabatin from Piper Jaffray. Please go ahead.

I appreciate the additional color around energy, so that's helpful. Can you maybe give us an update on what you guys have hedged through '16 on natural gas and oil?

Well, consistent with the past. I think, you know, we don't necessarily look at our portfolio on a hedge basis because that can be misleading and kind of lead us to an answer that may not be indicative of where we are. So when we run our stress test, we run our stress test unhedged and then we go back and look at mitigates to those customers who show up on that stress test and look at their hedging portfolio to see how they stack up. I can tell you from review of the most recent stress test which was more punitive than the previous test, there really weren't any new names that kicked up that weren't already on our list of folks that we were concerned about. That process was informative from that perspective because we know the population of folks who we expect to struggle a bit here with lower commodity prices and are already working with them to help them resolve, just like you saw on the last quarter folks are moving off the list and that's going to be a process that we go through over the coming few quarters with lower commodity prices.

Okay. And speaking of the stress test, Stacy, maybe you can talk about natural gas is kind of taking a pretty good dip here recently and your stress test as two and quarter, any thoughts on that?

Yes, I think two things. Number one, do I wish we would have started a little bit lower? Probably so, but we also didn't anticipate gas running to just a little over $2 here either. I think the point of the stress test is it's a present value calculation. That fifth year we don't get on gas, I think we get back to $2.75. So that's a pretty onerous test when you look at it over that long a time horizon, and so the [indiscernible] necessarily isn't indicative. If you go back and look at like the next 12 months on the forward strip, that kind of gives you a little bit better indication and our 225 would still be above that. But clearly, those who have a higher concentration in gas are going to struggle here, particularly if the winter remains warm and gas drawdowns are not very strong. But the other side of that, there is really two pieces to that, one is roughly 60% of our portfolio is oil, the other piece of that is on the gas side, gas is kind of been in a bear market for several years now, so many of these customers have kind of become accustomed to making it work with lower prices here. So clearly it's a factor, but it hasn't changed our outlook or how we look at our portfolio today.

Okay. And then I want to make sure, it seems like the loan growth is commercial real estate and then healthcare and C&I, is that sort of what we're likely to see over the next year as continue growth in C&I and maybe a little focus growth, I'm sorry, growth in CRE and little growth in C&I?

I think so. I think healthcare and CRE will continue to be good areas of growth for us, and then I'll let Norm talk a little bit about the C&I portfolio.

We're seeing good steady pipelines across all of our markets, really led by Texas, Arizona, Colorado, and Missouri, Kansas and I think our guidance on the loan growth continues to be on track.

Our next question comes from Matt Olney from Stephens. Please go ahead.

Stacy, it sounds like the energy cycle so far has played out pretty much as you expected. I'm curious as we look ahead towards 2016, what's your expectations are and, specifically, I'm curious what your thoughts are about when the wind energy industry will see some consolidation and what does that consolidation mean for some of your borrowers?

Sure. I'll talk about my outlook and kind of maybe how that compares the way I've talked about it. But I want to kind of preface that by saying we're not managing to what we think may happen as we look at our portfolio today. We are managing to what the forward strip says. And we're not working with borrowers under the anticipation that that commodity prices will rise at some point. We work with them in today's environment with today's prices. That said, we've said from the very beginning when we talked about this that historically it's a 12 to 15 month process from the point of the decline. So we're really kind of marking time from the Friday after Thanksgiving last year when OPEC made their announcement. I think that still feels right to me from a historical perspective. The only hedge I may provide to that is that when we saw the head [indiscernible] with oil at $62 plus in the second quarter last year that may have delayed that cycle a quarter. So if I'm off there, I think I'm off by a quarter as a result of the kind of pop we had in oil in late June and early July last year. But I still think that that time frame is relevant in whether it's April next year or July next year, I don't know that we need to be that precise, but I think the market dynamics we still continue to believe will work to return oil in particular to an equilibrium price, not necessarily the old high price, but a new equilibrium price that the market participants can function normally at and economically at. And, that's probably in that $55 to $60 range really depending upon what the cost of drilling activity is once prices start to come up. We continue to believe that there is some risk for prices to come up and if everybody begins to drill again to create pressure on supply and to have, you know, a double dip until the market figures that out, I think we saw that to some extent with the head fake [ph] and we'll just have to wait and see how that plays out, but that is one of the risk factors. With respect to consolidation, I think we're seeing some aspects of that today certainly from a property divestiture perspective we're seeing that, and I think as the cycle elongates, you'll continue to see perhaps companies consolidating to manage expenses, G&A expenses to a lower level, and we'll see opportunities from both of those. I think that there will be headwind from pay-downs in this environment, you're going to see borrowers who are looking to delever appropriately and that's going to create the headwind, but there will be some offset with companies who are consolidating or buying property sets from borrowers who are divesting that creates additional borrowing opportunity for us to offset some of that headwind.

And then on expenses, a few quarters ago we were talking a lot about the technology compliance build-out, and that was going to be partially offset by some branch closings. As we look forward on expenses, what are the major drivers to think about the next few quarters?

Yes. I think our run rate reflects the majority of those investments in IT and compliance in other areas and we gave some guidance on that early in the year. We've provided the guidance around the total expense level, and I feel comfortable for the next couple of quarters that we'll fall in that range because most of those expenditures are now - have kind of embedded in the run rate. And we have worked not only with the branch closures but we've worked in other areas to try to offset some of the more expensive IT kind of investments we're making. So we're constantly looking at it, working in a number of areas to try to cover as much of that as possible, and our goal in '16, as we stated is to try to grow the revenue side of the equation, but certainly come in underneath that in terms of the expense growth for next year and gain some operating leverage in that fashion.

Our next question comes from John Moran of Macquarie. Please go ahead.

Maybe just a quick follow-up on one I think one that was asked around the fee lines earlier on. Would it be reasonable to - and I mean I understand the guidance is kind of mid single-digit growth year on year and kind of looking at a trailing 12, but just given the volatility that was in 3Q, is it safe to assume that with equity markets kind of behaving a little bit better and having recovered that some of those line items sort of bounce back in 4Q on a run rate basis?

I think that could be the case, particularly in the wealth management space for trust. We did have some valuation declines in our assets under management which drives some of our fees and trust, and certainly if you have a better equity market in the fourth quarter then you'll gain part of that back. I think that's true. You know, if there are some volatility in the interest rate market and in the mortgage space, then that will create some forward sales opportunity in our TBA business where we help our clients risk manage their portfolios. So we're hopeful that that bounces back as well.

We also had really in the second quarter in the mortgage business we switched over to a new operating system and that created some disruption in terms of that pipeline build and we saw the impact of that in the third quarter. That's largely behind us today. Fourth quarter typically or seasonally is not a strong mortgage quarter, but we've at least got some self-created headwind, if you will behind us, so that should even things out in that business line as well.

The other one probably for Steven Nell, just the AFS [ph] securities yield and then I think you said it in your prepared remarks, liability sensitive was 0.7% at quarter end, is that a 100 basis point shock scenario?

That's a 200 basis points shock scenario, is the 0.7% is a 200 basis points shock scenario. And, you know, in terms of the yield, I think the AFS portfolio is right around 2%, maybe 2.01, and, you know, we're seeing investment opportunities at about that level in the short duration mortgage backed security market. So I see that, you know, generally flat as we move forward. And I think we gave a little bit of guidance around keeping the portfolio flat in the fourth quarter. I think we'll do that. There is enough uncertainty on the timing of when rates may increase. We're moving closer and closer to neutrality from a very slight liability sensitive position. The remix of our earning asset base from loans more towards loans away from securities will kind of help balance that out over time. So I think we're in a good spot.

Okay. And no noise this quarter from [indiscernible] or anything like that?

No. Not to speak of this quarter.

And then the last one I had was really I think Norm, CRE strengthened and I think it came up in one of the other questions and you guys eluded to it a little bit in the slides, it looks like it was really strong in Phoenix and DFW. Could you give us a sense of what's going on there by geography, by product type and maybe what the new money yields are there and anything you see going on in the competitive landscape there?

Well, this is Stacy, I think from the CRE perspective, if you look in Phoenix, you know, our Phoenix office really covers Arizona, California and Salt Lake City, and there is really strength in those markets across the board by product type, and we've seen the benefit of that. In DFW, you continue to see good development in the metroplex and high-quality borrowers. I think the - you know, what you're going to yield on those loans is going to range depending upon the nature of the borrower and probably prefer not to get into specific yields, but I think that we're not seeing those yields of being squeezed here, they're staying pretty stable for good quality borrowers with good projects in those markets.

[Operator Instructions]. Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead.

Just a couple questions back on the energy portfolio. I was wondering if you could give us a sense of where the current utilizations fall relative to the borrowing base availability in the energy book?

Well, the utilization today on the E&P portfolio is at 57%, and I think you'll see that utilization continue to increase with commodity price staying low as commitments get reduced through the redetermination cycle. So there will be some paydowns, but I expect that the commitment levels will fall faster than the outstandings will. So I would expect you'll continue to see higher levels of utilization on the E&P side as we move forward, but I do believe that borrowers are very committed to debt repayment and deleveraging with free cash flow in this environment.

Okay. And then kind of following up on that, as you're through 40% of the process here in the fall, can you give us an idea of, any meaningful percentage of companies that have had shortfalls that had to get made up with paydowns or with adding additional assets to the borrowing base?

That's a typical process that's part of every redetermination, to the extent that there is a shortfall, the convention has always been that there's a six-month effectively cure period for borrowers to reduce their commitments or sell assets, add equity etcetera and that's a normal part of the redetermination process. We had that in the spring, we have instances of that in the fall here as well, but that is to be expected and really part of what you're seeing with some of the credit migration in energy is borrowers who are experienced in that and working through that, but we evaluate each of those individually to determine their ability to repay and that's reflected in how we kind of credit grade the portfolio.

Having no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Mr. Crivelli for closing remarks.

Thanks again, everyone for joining us. If you have any questions today, you can call today at 918-595-3027 or email me at jcrivelli@bokf.com. We will talk to you later.

The conference is now concluded. Thank you for attending today's presentation. You may disconnect.