BOK Financial Corp (BOKF) 2015 Q3 法說會逐字稿

Good day, and welcome to the BOK Financial Corporation third-quarter 2015 earnings conference call and webcast.

(Operator Instructions)

Please note: This event is being recorded.

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 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 28, 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 our earnings was softness in certain fee-generating businesses, in particular mortgage, brokerage and trading, and wealth management.

In addition, there was a significant negative adjustment on the valuation of our mortgage servicing rights, as interest rates decreased 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 remains strong, and was in line with our expectations for mid- to high-single-digit growth. Credit quality also remains strong, and the quarterly 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 proven credit underwriting standards; and that our business model, which emphasizes relationship solutions across a broad set of lending, deposit and fee businesses, creates a competitive edge 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 the 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 non-accrual interest recoveries as we had 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 a 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 in 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 in 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 30, 2015, total fees and commissions were 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 was 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. At September 30, 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 are 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 million 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 million to $230 million 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 million 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 and 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 paydown 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 CRE 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 non-conforming, 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 6 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 30. 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 outstandings 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.

While 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 if 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 through 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 of 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 approach 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.

Non-accrual 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 contributed to the energy portfolio totaled 2.05% of energy outstanding loans at September 30, 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 assumptions to $34 oil from $40, and $2.25 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-base 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 remained 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 CRE 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 multi-family, and 20% in industrial, with the 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 for loan losses was 1.35% of period-end loans, and represented 232.5% of non-accrual loans, both very healthy metrics. NPAs, excluding those guaranteed by government agencies, were 0.78% of period-end loans and repossessed assets, down from 0.82% last quarter. Net annualized chargeoffs to average loans were 5 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 associated with our energy portfolio, place us 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 attractive 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)

Our first question comes from Ken Zerbe from Morgan Stanley. Please go ahead.

Great. Thank you, good morning.

Good morning, Ken.

I guess maybe starting off with comments on acquisitions. It sounds like you're getting a little more aggressive in terms of at least the commentary around it. I know in the past you've looked at small things or certain buildout 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 more at tuck-ins still?

Yes, Ken. This is Steve Bradshaw. 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 would 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 remains strong.

Got it. Okay. Then, in terms of your guidance, the fees -- just want to make sure I understand this right. You threw in the thing called -- which was the trailing 12-month basis, but -- for 2016. Just want to make sure I don't read anything too much into this. 2016 should be on a year-over-year basis? Or, were you trying to convey something different about fees? Because when I look at your 2015 guidance, I actually should have to take my fee number down pretty noticeably in fourth quarter, versus where it has been, to hit mid-single digits. I'm just trying to make sure I build in mid-single-digit growth properly off of the right base which I was hoping you can help us clarify. Thanks.

Okay, Ken, this is Steven. We -- you have enough lumpiness in the fee businesses that it's better to look at it on a year-over-year basis 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.

Got it. Okay. No. And, that totally makes sense. And then, just last question I had, just on credit. I -- most of the banks that we've heard from say the same thing that you do, that provision expense should stay low. Just want to get a sense, if there is further deterioration in energy, which there might be. Do you 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's going to be a big increase in energy reserve builds from here? Thanks.

I think that, that's all dependent upon facts and circumstances at the time. From my perspective, Ken, our allowance is very healthy. We've done a good job of maintaining and building that. We 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.

Okay. All right. Thank you very much.

Our next question comes from Frank Barlow from KBW. Please go ahead.

Good morning, and thanks for taking my questions.

Good morning.

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

Yes. Really the way I look at -- we look at capital allocation, our net income and retained earnings can support our loan growth and our dividend payment, which leaves 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. The price had been much higher in previous quarters. We're pretty confident with our position, even with the low energy rates -- or prices. 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 outflow 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 don't -- 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.

Great. Thank you.

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

Thank you. Good morning.

Good morning.

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. I was just wondering if you could elaborate on that.

Yes. We track, of course, 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.

Jennifer, this is Joe Crivelli. 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.

Thanks so much.

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

Hi. Good morning.

Hi, Brett.

Good morning.

I wanted to -- I appreciate the initial color around energy. That's helpful. Can you maybe give us an update on what you have hedged through 2016 on natural gas and oil?

Well, consistent with the past. We don't necessarily look at our portfolio on a hedged basis because that can be misleading and 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 mitigants 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 in 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 taking a pretty good dip here recently, and your stress test is to 2.25. 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 really 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 prompt month, or the near month, necessarily isn't indicative.

If you go back and look at the next 12 months on the forward strip, that gives you a little bit better indication, and our [2.25] 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's 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 has been in a bear market for several years now, so many of these customers have 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 wanted to make sure, it seems like the loan growth is commercial real estate and then healthcare and C&I. Is that what we're likely to see over the next year is continue growth in C&I and maybe a little focus growth -- I'm sorry, growth in CRE and a 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.

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

Okay. Great. Appreciate all the color.

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

Great. Good morning.

Good morning

Hi, Matt.

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 your expectations are? And, specifically, I'm curious what your thoughts are about when the energy industry will see some consolidation? And, what does that consolidation mean for some of your energy borrowers?

Sure. I'll talk about my outlook and maybe how that compares with 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're managing to what the forward strip says. And, we're not working with borrowers under the anticipation 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, 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 fake 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 pop we had in oil in late June and early July last year.

But, I still think that, that time frame is relevant, and whether it's April next year or July next year -- I don't know. I don't know that we need to be that precise, but I think that 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 a double dip until the market figures that out. I think we saw that to some extent with the head fake, 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 you're -- 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 paydowns 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.

That's great, Stacy. Thanks for the color. And then, on expenses. A few quarters ago, we were talking a lot about the technology compliance buildout, 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 we've -- 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 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 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 2016, 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.

Thank you.

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

Hello. Thanks. Maybe just a quick follow-up on, I think, one that was asked around the fee lines earlier on. Would it be reasonable to -- and I understand the guidance is mid-single-digit growth year on year and looking at a trailing 12. But, just given the volatility that was in 3Q, is it safe to assume that, with equity markets behaving a little bit better and having recovered, that some of those line items 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 had -- we did have some valuation declines in our assets under management which drives some of our fees in 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. If there is 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.

This is Bradshaw. 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.

Okay. Great. That's helpful. The other one, probably for Steven Nell. Just the AFS securities yield? And, I think you said it in your prepared remarks, liability sensitive was 0.7% at quarter end. Is that 100-basis-point shock scenario?

That's a 200-basis-point shock scenario -- is the 0.7% is a 200-basis-point shock scenario. And, in terms of the yield, I think the AFS portfolio is right around 2%, maybe 2.01%. And, we're seeing investment opportunities at about that level in the short-duration mortgage-backed security market. So, I see that generally flat as we move forward.

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's 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 [premam] or anything like that?

No. Not to speak of this quarter.

Okay. Great. And then, the last one I had was, Norm, CRE strength. I think it came up in one of the other questions, and you alluded 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 that you see going on in the competitive landscape there.

Well, I would say -- this is Stacy. I think from the CRE perspective, if you look in Phoenix, our Phoenix office really covers Arizona, California, and Salt Lake City. There's 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 -- 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 being squeezed here. They're staying pretty stable for good quality borrowers with good projects in those markets.

Terrific. Thanks very much.

(Operator Instructions)

Our next question comes from Jerry Tenner from D.A. Davidson. Please go ahead.

Hi, good morning. It's Gary Tenner. 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 EMP 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 suspect 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 EMP 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, 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, et cetera, 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 experiencing 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 credit grade the portfolio.

All right. Fair enough. Thanks.

Thank you.

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 any closing remarks.

Thanks again, everyone, for joining us. If you have any further questions, you can call me today at 918-595-3027 or e-mail me at jcrivelli@BOKF.com. We'll talk to you later.

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