James Abbott - Director of IR Harris Simmons - Chairman and CEO Paul Burdiss - CFO Scott McLean - President and COO.

Steven Alexopoulos - JPMorgan Marty Mosby - Vining-Sparks David Darst - Guggenheim Securities Geoffrey Elliott - Autonomous Research Ken Zerbe - Morgan Stanley Michael Young - SunTrust Robinson Humphrey Kevin Usdin - Jefferies Brad Milsaps - Sandler O'Neill John Pancari - Evercore Partners Joe Morford - RBC Capital Markets David Eads - UBS Paul Miller - FBR Capital Markets Dave Rochester - Deutsche Bank Chris Spahr - CLSA John Moran - Macquarie.

Welcome to Zions Bancorporation's Third Quarter 2015 Earnings Results webcast. This webcast is being recorded. I will now turn the time over to James Abbott, Director of Investor Relations..

Thank you, Sabrina [ph], and good evening everyone. We welcome you to this conference call to discuss our third quarter 2015 earnings. Our primary participants today will be Harris Simmons, Chairman and Chief Executive Officer; Scott McLean, President and Chief Operating Officer; and Paul Burdiss, Chief Financial Officer.

I would like to remind you that during this call we will be making forward-looking statements, although actual results may differ materially. We encourage you to review the disclaimer in the press release dealing with forward-looking information which applies equally to statements made in this call.

A fully copy of the earnings release, as well as a supplemental slide deck, are available at ZionsBancorporation.com. We will be referring to the slides during this call. We intend to limit the length of this call to one hour, which will include a question-and-answer session.

During that sessions we ask you to limit your questions to one primary and one related follow-up question to enable other participants to ask questions. With that, I will now turn the time over to Harris Simmons..

Thanks very much, James, and welcome to all of you as we discuss our third quarter results. On Slide 3 of the text presentation are some key points, and several of these are highlights or initiatives that are working well and within expectations.

There are a couple of areas that still need some improvement, and I'll touch on a few of these in my remarks.

But as an overarching comment, I would say that I'm very encouraged with both the pace of the improvements and the very substantial nature of the projects on which we are working, all of which are designed to help produce return on equity that is considerably strong than our recent -- stronger than our recent results, as well as to maintain strong asset quality and to enable the Company to be more nimble at adapting to a rapidly changing banking environment which in turn we expect will drive solid and sound growth.

So the first thing I'd mention on Slide 3 is the charter consolidation efforts are working well. As I mentioned in the press release, we've received regulatory approval to consolidate our seven subsidiary banks under a single national bank charter, and we expect to complete that on December 31st this year.

And in addition to regulatory approval, many of the tasks that need to be accomplished are tracking well, and I'm pleased with the work of a lot of groups within the Company that are working hard to make this happen on schedule.

We will continue to emphasize our locally oriented leadership structure and the power of our strong local brands in each market we serve. We really believe that's the strength of the Company. We're simultaneously streamlining our risk and credit organizations and enhancing the local credit decision-making authority that we have out in the field.

On Slide 4, we're introducing a new scorecard graph with the bar on the left illustrating the commitment to achieve $120 million of gross cost savings by 2017. The bar on the right illustrating the projected progress to be achieved by yearend. We are on track to achieve half of the targeted cost reductions by yearend.

And I would note that our subsidiary banks are already exceeding 50% of their total aggregate goal. We are encouraged with the achievement of non-interest expenses at or below the $400 million level. For the quarter, our commitment is to hold that line item adjusted for certain restructuring costs to below $1.6 billion for the year.

We are spending considerable time preparing the Company to continue to realize the remainder of the gross cost savings and to keep non-interest expense below $1.6 billion in 2016 as well. I would direct you to Slide 5. Another key measure of our commitment to shareholders is to reduce the efficiency ratio to 70% or below for the second half of 2015.

And we're encouraged with the achievement of an efficiency ratio of just under 70% in the third quarter. We are reiterating our commitment to achieve an efficiency ratio of 66% or better in 2016, as well as those other targets that we first communicated on June 1st of this year.

On Slide 6, we highlight the progress that we've made and expect to make with regard to our systems upgrade.

I'd invite you to read this in its entirety, but the high-level summary is that we are broadly tracking in line with our schedule, we are making significant investments to provide a very strong technology foundation for our future investments that will simplify our operating environment and give us the ability to be highly competitive in an industry where digital capabilities and technologies generally are going to play an increasingly important role.

There is simply a very substantial amount of work that is taking place to keep all of this on schedule and on budget. On Slide 7 we display some information with respect to our loans and deposits. The loan growth rate is below our targeted objective. We're working to improve in that area.

Some of that is due to the attrition of energy loans, which have historically been a meaningful contributor to growth. However, during the past year, that portfolio has obviously declined substantially due to the decline in commodity prices and the resulting decline in borrowing basis and general activity in that sector.

I mentioned earlier that our risk management practices are curbing our appetite for the incremental higher-risk deal, and we expect that the benefit of this decision will manifest itself with tempered credit quality metrics and credit costs during any period of future stress, and ultimately in the form of a lower cost of capital as a result.

Deposit growth, shown in the chart on the right, has been a strong story for Zions for many years, and the source of that growth has come primarily from the most valuable source, non-interest bearing deposits.

Although the ratio of non-interest bearing deposits to total deposits may certainly be expected to decline somewhat in a rising rate environment, the intrinsic value of those deposits should increase at an even faster rate and thus provide a lift in the economic value of equity and a very substantial increase in earnings, as that happens.

With that brief overview, I'm going to turn the call over to Paul to review the financial results.

Paul?.

Thank you, Harris, and good evening everyone. I'll begin on Slide 8. For the third quarter of 2015, Zions reported earnings of $84 million or $0.71 per share.

Although there was some noise that was detailed in the press release, which I'll point out in the call, the noise largely cancels out and we believe that the third quarter reflects a good platform for growth.

Relative to the prior quarter, after adjusting for the one-time loss related to the sale of collateralized debt obligation securities, earnings per share were unchanged from $0.41 per share. Relative to the second quarter, net interest income was largely stable.

Fee income, after adjusting for items such as securities and asset sale gains, was also generally stable. Non-interest expense declined to less than $400 million and the year-to-date result is tracking to below the $1.6 billion target even before adjusting for items such as severance.

Looking at the provision for loan and lease losses, we had expected a moderate build in the reserve for energy loans, partially offset by continued reserve release in the rest of the portfolio. The elevated provision of the third quarter was affected by elevated net charge-offs.

Although we do not expect the forward one-year net charge-offs for energy loans to remain at the elevated third quarter level throughout the period, we do expect some further charge-offs as the energy industry's financial condition continues to develop, and those charge-offs are likely to be somewhat lumpy due to the larger average size of those loans.

Details of our investment portfolio are shown on Slide 9. We have been adding securities to our investment portfolio for the last year or so, reflecting the need for a permanent high-quality liquid asset position in light of the new liquidity coverage ratio rules, and more broadly, in order to manage balance sheet liquidity more effectively.

Our efforts to build out the investment portfolio are expected to add revenue in the current and downside economic environments. Well, when we began this program, we indicated that we were targeting a portfolio of mortgage-backed securities of about $6 billion to be accumulated over a period of two to three years.

During the third quarter we accelerated the purchases somewhat as we added a net $670 million on average to our available-for-sale investment portfolio when compared to the second quarter.

In light of a general market expectation for rising short-term interest rates, we are exercising caution in how much potential revenue due to asset sensitivity we forgo as we purchase fixed-rate investments and how much duration extension risk we take in the investment portfolio.

The securities we are adding are relatively short in duration, just over three years. The duration of the entire securities portfolio is about 2.6 years to date, and if rates were to rise by 200 basis points across the curve, our model indicates that the duration of the entire portfolio would only modestly increase to 2.7 years.

Importantly, the addition of these fixed-rate investments did not adversely impact the asset sensitivity of the Company, as shown in the table at the bottom-right of that slide. Turning to loan growth on Slide 10.

Net commercial and industrial loan growth is about 4%, excluding the effect of energy loan attrition which we have accomplished without an adverse change in underwriting standards. Meanwhile, construction land development loans have increased about 17%. Most of this growth is attributable to increased line utilization on commitments.

We manage loan concentrations based upon commitment levels relative to capital, both base [ph] and adverse, and as a result, we have limited commitment growth on CMD loans.

We are continually reviewing concentration levels as well as portfolio statistics such as loan-to-value levels and we feel comfortable with the quality of the growth we have experienced. Residential mortgage continues to be a focus, although production in this category is significantly impacted by the shape of the yield curve.

The two portfolios that have been in decline for the past year or more are the national real estate portfolio and the energy portfolio. The national real estate portfolio represents about 6% of loans, and the attrition here resulted in a drag of just over 1 percentage point in the overall growth of loan portfolio during the last year.

We are currently expecting that the national real estate portfolio attrition would remain fairly high, although perhaps somewhat slower over the next year than in the past year. The energy portfolio attrition is well-documented as we have discussed this very regularly during the past year, and our outlook remains consistent.

We expect continued attrition as our clients actively work through the current environment for energy prices. We expect the rate of decline to taper slightly, although possible factors such as resurgence of capital market activity in the space result in a fair amount of variability in the range of our outlook.

To summarize, our outlook and loan growth for the next 12 months is for a slightly to moderately increasing portfolio, which would be in the low to mid single digit rate of growth range. On Slide 12, this provides more detail on loan yields.

Specifically, the coupon on new loan production versus the total portfolio, which we believe is helpful in understanding the risks due to yield on loans in the current interest rate environment. The yellow line reflects the GAAP loan yield on the portfolio.

The primary reason for its decline is the previously mentioned impact related to loans purchased from the FDIC. Importantly, the weighted average coupon of loan portfolio has been stable over the past couple of quarters. The coupon of course excludes the effective amortizing fees, discounts and premiums.

The yield on new production declined 9 basis points from the prior quarter, essentially due a shift mix in production to somewhat larger loans in the third quarter when compared to the second, although not shown in this chart, the coupons in the various loan types and size cohorts were relatively stable with the exception of larger loans which remain under pressure.

Although our loan officers are seeing some pricing pressure in the smaller loans space, our production coupons have been stable. Touching briefly on non-interest income and non-interest expense, our focus on fee income growth is generating good traction.

I'm confident that the increased reporting and accountability that we have added to better track success in problem areas within [ph] fee income will result to materially stronger fee income growth than we have experienced in the past. And Harris has already discussed our non-interest expense and efficiency efforts, so I won't repeat them here.

I will provide our expectations for non-interest income and non-interest expense when we come to our 12-month outlook summary. One more item of note on the income statement. The effective tax rate for the quarter was about 7 points lower -- 7 percentage points lower than our typical effective tax rate.

This is due primarily to investment tax credits realized this quarter related to alternative energy and research and development. And all the effective tax rate was positively impacted by nearly $1 million of these one-time items in the third quarter. We expect our effective tax rate to be closer to a more traditional 35% going forward.

Slide 11 breaks down key components of our net interest margin. The top line is loan yield, which declined 4 basis points from the second quarter to average 4.18%.

Although there were various positives and negatives, the one that stands out as the primary driver of the overall loan yield decline was the decline in interest income related to loans purchased from the FDIC in 2009. That portfolio has substantially outperformed relative to our expectations at that time.

However, in the third quarter, the income was more in line with our modeled expectations, which resulted in a decline of income from those loans from approximately $12 million to $7 million. This adversely impacted loan yields by about 5 basis points and reduced the net interest margin by about 3 basis points when compared to the second quarter.

Our base case scenario for this pool of loans is that annualized earnings that we experienced in the third quarter, that level, will taper slightly as we move forward. The securities portfolio yield declined this quarter due largely to the changing composition of portfolio as we add new bonds within our guidelines for duration and extension risk.

Shown at the bottom of the chart is our cost of funds as a percent of earning assets, which continues to be quite competitive.

In addition to loan portfolio yield -- in addition to portfolio yield dynamics, the net interest margin was also adversely impacted by the shift in the mix of the balance sheet toward greater concentration of cash and securities, which carry a lower yield than the loan portfolio.

Turning to credit quality, on Slide 13, I'll be brief and say that we continued to experience generally strong credit quality performance in most geographies and segments. Within the C&I segment is most of the energy which we have discussed -- as we have discussed, has experienced some stress, and Scott will discuss that next.

Our reserves for credit loss is quite strong at 1.6 times our non-performing assets and nearly five years of debt charge-offs based on the third quarter annualized results. Despite the increase in classified energy loans of just over $110 million from the June 30 level, overall classified loans increased only $30 million in the third quarter.

With that, I'll turn the call over to Scott to discuss energy lending in the Houston market more broadly..

Thank you, Paul. And if you'll turn to Slide 14, you'll see the table that we also show on our earnings release, and let me just take -- let me just make some summary comments. First, you'll note that the decline in energy loan outstandings and commitments and the classifieds have increased by approximately $118 million from June 30th.

Both trends are as we had forecasted earlier in the year. Second thing you'd note is that, we have indicated before that we have a number of methodologies we're using to project potential charge-offs, as noted previously, these various methodologies are still guiding us to an estimated energy losses of $75 million to $125 million for the cycle.

A very manageable number given the overall size of our Company. Although not on this slide, we have previously indicated in this release a continued build of our energy loan loss reserve to a level above 4%, a strong reserve, we believe, by any comparison.

As for charge-offs, we experienced in the third quarter, they're generally related companies that have been troubled since the last downturn and they're not really indicative of the underwriting we've been doing since the last downturn. The next slide, Slide 15, frames the discussion about the Houston economic environment.

The takeaways from this chart would include the fact that Houston has been one of the strongest job growth markets in the United States for years. In 2015, job growth is projected to be flat or possibly up by 10,000 to 20,000 jobs.

You can see that, generally speaking, Houston has been generating anywhere from 80,000 to 110,000 jobs a year for the last four, five years. And that trend will slow to really a level of flat this -- for 2015.

Also while the mood among business owners is conservative today, as noted in the PMI chart, many other indicators such as housing, new car sales, hotel performance, all remain healthy, which may be at least partially attributable to the strong $20 billion plus in capital investment that's going into the petrochemical refining and LNG export sectors of the Texas Gulf Coast economy.

If you turn to Slide 16, drilling down into our commercial real estate -- the commercial real estate trends in, again, Houston. We do see some uptick in vacancy levels in office, both for multi-family and retail, two sectors that we have most of our other exposures and the vacancy levels are holding steady.

Clearly, multi-family vacancies though will increase over time and rental rates will be under pressure.

However, our multi-family projects that had been in lease-up during 2015, and it's approximately two-thirds of our multi-family portfolio in Houston, are experiencing rental rates above the levels estimated in our base case during the underwriting process. Turning to Slide 17.

Slide 17 shows an updated view of our exposure to commercial real estate in Texas.

The darker left-handed side of each bar represents the Houston exposure, which has increased somewhat from the prior quarter due to various factors, including new originations, conversion to term CRE from construction, as the buildings have reached that service level that is consistent with our term commercial real estate underwriting standards, as well as draws on existing construction commitments.

We have a very conservative loan-to-value ratio and debt service coverage on the construction and term commercial real estate portfolios in Houston, and we expect this conservative underwriting to be a strength during this downturn. But obviously this is a situation that bears close monitoring, as we've discussed in the past.

While I'm happy to talk about our exposure to specific product types, there are some keys to our commercial real estate exposure in Texas which are worth mentioning. When comparing our Texas exposure today to the 2008 downturn, there are several important factors that position us more conservatively today.

They include, first, the fact that commercial real estate balances are about $1.2 billion less today than 2008 and our exposure to land is approximately $150 million today compared to approximately $950 million in the previous cycle. And this land exposure is well-seasoned and represents very little underwriting since the previous downturn.

Secondly, we've also trimmed our construction lending exposure and we've emphasized an increase sort of pivoted to term commercial real estate originations. Generally speaking, the amount of equity required in office in multi-family construction financing is significantly greater today as well than in the previous cycle.

We'd be happy to talk about those elements as well. Paul, I'll turn the call back to you..

Thank you, Scott. I'll conclude our prepared remarks on Slide 18. This reflects our outlook for the next 12 months relative to the most recent quarter. On loan balances, we are maintaining our slightly to moderately increasing outlook for loans, due primarily to the factors already discussed today.

On net interest income, we are maintaining our outlook for net interest income at moderately increasing, it does not include the effect of any rate increases by the Federal Reserve, although we expect to benefit -- a benefit to annual net interest income of about $125 million for each 100 basis-point move in short-term rates.

We expect that non-interest income, excluding dividends and securities, gains and losses will increase moderately as we continue to focus heavily on this area.

One note as we consolidate the charters, dividends from federal agencies, namely the Federal Home Loan Banks, will decline, and of course there's a relatively new risk that dividends on our Federal Reserve bank stock would also decline depending upon congressional action.

But even with those headwinds, we are generally comfortable with the level of consensus. As stated previously, we are committed to holding non-interest expenses to less than $1.6 billion for both 2015 and 2016, excluding severance and restructuring expenses.

We remain comfortable with our flat to slightly positive outlook on the provision, assuming energy prices remain relatively stable.

As mentioned after -- as announced after the close of the market today, we expect to deploy up to $180 million of cash to tender for a portion of our preferred -- perpetual preferred stock and depository shares outstanding. This includes the tender premiums and accrued dividends, thus the paramount retired is expected to be less than $180 million.

Ultimately we expect this action to reduce preferred dividend by about $10 million going forward..

Thanks, Paul. And Sabrina [ph], at this point in time, would you open the line for questions. Thank you..

Thank you. [Operator Instructions] And our first question comes from the line of Steven Alexopoulos of JPMorgan. Your line is now open..

Hello everybody..

Hi..

Just maybe one on energy and a follow-up.

Scott, could you just share with us what the criticized [ph] balance was of energy loans in the quarter?.

Yes. Criticized outstandings for the total energy portfolio were about 23%..

Twenty-three percent..

It was -- I would just add --.

It was about 20% last quarter..

Yeah, it was about 20% last quarter, so, about $60 million or $70 million linked-quarter increase..

Okay. Scott, just to follow up on your comments, I found them interesting, the $75 million to $125 million of losses through the cycle. Could you give us a sense of the probability of default and loss given default assumptions or at least maybe ranges? Because your numbers are a little bit lower than what we're thinking.

What's underlying that?.

Well, basically there's four methodologies that we've used, fundamentally. And one was our CCAR [ph] estimates, which basically had oil at about $50.

And then we had a second methodology which was a credit-by-credit analysis, so it was a very bottoms-up review based on the specifics of each credit and their current grade and all the aspects of each one. So it was very much a bottoms-up analysis. And then the two final types of analyses we've done.

The first was taking the worst loss year we had, which was approximately 1% for a 12-month period, and applied it over a nine-quarter period. So we took our worst annual loss and assumed we had that same loss rate for nine quarters. So we're assuming kind of a U type experience here as opposed to the V which we experienced in 2008-2009.

Nine quarter also tracks, obviously, nicely to the CCAR [ph] methodology. And then the final version was we took our worst classified experience ever and we applied an aggressive loan loss rate to that. The four of those really triangulate around $75 million to $125 million..

Okay. Perfect. Thanks for taking my questions..

Thank you. And our next question comes from the line of Marty Mosby of Vining-Sparks. Your line is now open..

Thanks. I was -- one, to focus in on the period-end on the securities versus the average. The average was up about $650 million, but the period-end available for sale was up $1.4 billion. So it seems like there's some pretty significant hangover going into the fourth quarter to get some benefit there..

Yeah, Marty, this is Paul. Thank for your question. That's exactly -- you characterized the numbers correctly, which is that we were growing the portfolio over the course of the quarter. So the ending ended up being about twice the average.

And to your point, I would expect that ending balance to carry into the fourth quarter, with continued growth from here..

The mortgage-backed premium amortization, you highlight that, you didn't really put an impact around net interest margin.

How much of that impact the quarter's margin?.

It wasn't -- the amortization itself was not a big impact, Marty. It was about --.

I think it's about 2 or 4 basis points..

Yeah. I think it's about 3 basis points, Marty..

Okay.

And with the income from the FDIC loans, James, was that also offset in the expenses? So, was it kind of a move from net interest income to favorable expenses?.

It's a good question. The impact on the non-interest expense was fairly insignificant actually. So I think we dropped half-a-million or $1 million in non-interest expense as a result of the reduced income from FDIC-supported loans. But -- and the absolute level of money that we're sharing with the FDIC, I think for the quarter was $1.5 million, Marty.

So it wasn't a very substantial amount, the non-interest expense number..

Okay. And lastly, the $75 million to $125 million, just realm kind of park, how much of that has already been provided for, you know, just in percentages? What do you think you kind of got your hands already in the reserve? And thank you for the time today..

Well, the reserve I mentioned was north of 4% and energy outstandings are about $2.8 billion. So it's -- the reserve is to the high end of that range..

Thanks..

If not above it..

Thank you. And our next question comes from the line of David Darst of Guggenheim Securities. Your line is now open..

Yeah. Hey, good afternoon. Just around your original CCAR [ph] expectations of about $300 million of preferred redemption, you're doing $180 million now.

Would you expect to do some more in the first half of 2016?.

Yeah. We've got -- this is Paul -- we've got through June of 2016 to complete that $300 million. So we're doing the total cash value of $180 million today, and I would expect the balance of that to come in the first half of 2016..

Okay.

And then just as far as the $10 million reduction, how much of that -- is that here in the fourth or is that going to be the -- kind of the full run rate in first quarter 2016?.

Yeah, I wouldn't expect to see that full run rate until the first quarter of 2016..

Okay.

And then just on your provision guidance, for flat to slightly positive, so that's not off of this $18 million this quarter, is it? That's still off zero, right?.

It's off of zero, that's a good clarification. Thank you..

Okay, got it. Okay, thank you..

Thank you..

Our next question comes from the line of Geoffrey Elliott of Autonomous Research. Your line is now open..

Hello. Thank you for taking the question. On the 66%, sub-66% efficiency ratio target for 2016 and the low 60s for 2017, clearly you're sticking with that.

But is there any shift in the makeup between revenues and expenses given that loan growth seems to be coming in a bit lighter than expected but maybe do more on the revenue side, on the expense side, to offset that?.

Yeah, I would tell you that we, you know, I think we still expect to see a little better loan growth as we go into 2016. But the fact of the matter is we're starting with a smaller portfolio than we thought we would have coming in to 2016. So I expect that we're going to have to be working very hard on the cost side..

And then just following up, fees you're now talking about a slight to moderate growth rather than moderate growth previously.

So what's changed in the thinking there?.

Well, I think we've got some headwinds, as I discussed in my prepared remarks. We've got the charter consolidation is going to lead to lower dividends from the Federal Home Loan Banks and then we've got this other potential Federal Reserve Bank dividend headwind to talk about.

So we're just -- we're moderating our outlook in light of some of these other factors..

And Paul, I don't know if you want to go into a little detail on the Federal Home Loan Bank dividends and the fact that we have so many Federal Home Loan Bank memberships and --.

Certainly we can talk about that if there's interest.

We've got -- because we've got several banks under the FHLB rules, you know, a bank belongs to the district that it resides, with the charter consolidation, we're going to have one bank, CBNA [ph], that's going to be based here in Salt Lake City, and as a result, our [inaudible] Federal Home Loan Bank shareholders' relationships and shareholdings will be collapsed into -- or consolidated I should into one Federal Home Loan Bank, and that will be the Federal Home Loan Bank of Des Moines.

And as a result, the way the FHLB system works is there are minimum share ownerships for each bank, and those minimum share ownerships will go to zero among these other banks, and as a result, we're just left with less, fewer shares of FHLB stock, and therefore dividends will be just lower..

Great. Thank you very much..

Thank you. And our next question comes from the line of Ken Zerbe of Morgan Stanley. Your line is now open..

Okay. Thank you. First question.

Scott, if I heard you right, I think you mentioned something about, we were talking about the energy deterioration that -- that the credits [ph] were deteriorating, and I think it was right to say they were bad credits or they were credits that you did last cycle or last downturn, they were not the credits that you would have underwritten since the last cycle.

But I guess my question is, how much of the portfolio that you currently have, the $2.8 billion, actually relates to the last cycle, the borrowers from -- that might be a little more at risk than what you would have done now?.

Ken, thank you. You did hear me correctly, the charge-offs have fundamentally been borrowers that were weak in the last cycle, they've been kind of limping along, and for whatever reason, you know, we have not been able to get totally out, and this recent downturn was just kind of another very difficult blow to them.

But I would say, most of the underwriting, you know, we have sort of adverse selection in there, when you think about those transactions we charged-off, and there are just some you can't get away from, so, no matter how hard you try.

And -- but I would say most of the portfolio is largely based on the underwriting that we've been doing, you know, we -- for the last four or five years..

Got it. Okay. And then the other question, just for Harris. When you think about loan growth, obviously it has come in a little bit weaker.

I know you guys want to improve that, but how much flexibility or how much I guess different initiatives or incremental incentives can you offer to actually better loan growth? Or is it that you are just subject to the environment that you're in?.

Well, it's clearly both. It's -- but there are tangible steps that we're trying to take to, you know, trying [ph] to understate within a very disciplined view about how we manage risk around here.

I think that, you know, I for one have a concern that we may find ourselves set [ph] into another downturn before we see the economy strengthen a great deal again, I mean. So we're trying to be very careful. But we are, for example, we've hired some additional mortgage loan officers.

So we're out there with some additional feet on the street doing that. We are really working hard at kind of looking at the process internally for getting loans turned around, particularly smaller business loans and consumer credits, to get a better pull-through rate.

So there are things of that sort that we are doing that we think don't compromise quality in any meaningful but that can help us amp up growth a little bit. But it is a tough environment. We're also trying to be reasonably disciplined around pricing. I think we've got a really good pricing culture in the Company and discipline around that.

And so we're trying to be careful. I mean, sometimes you have to cede some ground competitively, but that's at play as well in terms of being able to grow your portfolio. So, trying to balance all of those..

Understood. Okay. Thank you very much..

Yeah..

Thank you. And our next question comes from the line of Jennifer Demba of SunTrust Robinson & Humphrey. Your line is now open..

Hello, this is Michael Young in for Jennifer. Just had a question again on loan growth. You know, energy bank was about half of the loan growth sequentially this quarter.

Can you just talk about your outlook, if that's, depending on energy and Texas being a little bit weaker and growing slower there ex the energy component, or do you expect a lift in some of the other areas to pick that up?.

I would expect some lift in some other areas. One thing -- one of the things I would note about Texas is, I mean, the -- outside of Houston, things remain in reasonably strong shape. And so, I think it's, you know, I don't count Texas out as a place that we could see some growth in non-energy related growth.

But the offset to that is going to be what happens in the energy portfolio down there. Elsewhere, I expect that -- we've got some pretty good economies that we're working in. And the, you know, the prospect for growth, we're seeing growth in Colorado, we're seeing it in Utah, we're seeing it in California, and other markets that we're in.

So I remain generally sanguine about what can be done in terms of loan growth..

Just on a linked-quarter basis, I would just -- I'm not sure if this was the question -- part of the question. But of the $89 million worth of loan growth that we had for the quarter, energy actually experienced attrition of about $42 million.

So the pockets of growth for the quarter anyway were Zions Bank, had about $52 million, California had about $117 million. Those were the two standouts on the strength, on the strong side..

The -- one other thing I might mention about loan growth is that, I mean, we've had [inaudible] energy but also out of this national real estate portfolio, kind of low loan-to-value small business credits of commercial mortgages. And we're trying to -- we are looking at how we can slow down sort of the payoffs.

We're seeing a lot of refinancing in the CRE book in the term portfolio. Everyone's trying to lock in long-term fixed-rate money, and so that's another area that we'll be focused on, is, you know, if there are ways that we might be able to slow that down a little bit, that would actually really help on the loan growth side..

Okay, great. Thanks for that. And just one other question on the energy loan portfolio.

Could you provide a breakdown of the classified loan percentages by type of -- like by buckets there I guess?.

Sure. This is Scott. The upstream classifieds are about 22%. Midstream about 5%. Energy services about 18%. Total energy 15 - 16%, sorry..

Okay, great. That's all for me..

Thank you..

Thank you. Our next question comes from the line of Ken Usdin of Jefferies. Your line is now open..

Thanks. Good afternoon.

Paul, first question, on the $6.6 billion of securities portfolio versus your original $6 billion goal, so, are you -- how much more are you now planning to build on top of that? And the premium amortization pickup that you mentioned, that's just related to the portfolio build as opposed to it being a one-time item, correct?.

A lot of the -- I'll start with the last question first -- a lot of the amortization pickup is related to portfolio build, although within the portfolio we've seen some accelerated prepayments in, for example, Ginnie Mae ARMs that were originated before 2015, because of the change in the government fee program that occurred in January.

But by and large, you're right, I mean proportionally, most of the pickup was related to the pickup in the size of the portfolio. As it relates to portfolio size, we're going to continue to monitor that relative to our cash position.

As you've noticed, we've continued to grow the portfolio but our kind of overnight money market position hasn't changed a whole lot, because we've continued to see a lot of demand deposit growth, which has been a very positive story. So we're going to continue, as it makes sense, we're going to continue growth in the AFS portfolio..

Okay. And my second question --.

Sorry, I would remind you that that $6 billion includes a lot more than just mortgage-backed securities, right?.

Absolutely..

Yeah..

You mentioned -- we know about the debt reductions that one you did in mid-September and one that's coming mid-quarter. So I just want to understand, on Slide 18 you talked about the $8.6 million interest expense incurred.

Is that what's going away from here, of it? Or I just want to understand, like what is the go-to long-term debt run rate versus the kind of, it looks like, $18 million, $19 million, you put -- you paid out around this quarter?.

Yeah. The $8.6 million we quote there is the expense we incurred in the third quarter related to the two pieces of debt that are going away. One went away in September 15th and the other goes away November 16th. So, mid-September and mid-November.

And as you know, these had rates on them approaching kind of combined 15%, 16%, and just under $250 million. So that's kind of how that math all comes together..

So, both -- $8.6 million will be gone in the first quarter completely?.

Yes..

Okay, got it. Just wanted to make sure on that. Thanks a lot..

Yup..

Thank you. And our next question comes from the line of Brad Milsaps of Sandler O'Neill. Your line is now open..

Hey, good evening..

Good evening..

You guys have addressed most everything, but did want to follow up just on the credit. I guess this is the -- you had a small amount of recoveries in the quarter, maybe smaller than the previous quarters.

Do you think you've pretty much run your course on kind of elevated recoveries going forward, just kind of curious kind of maybe what offsets you might have against maybe some additional credit costs related to energy?.

I guess I would say that there are still a few rabbits now and then that jumped up and out, from the crisis era, but they will become fewer and farther between. I do -- I mean I'm aware of a couple probably we'll see in the next six months that are meaningful. But overall it's going to be lumpy and it's going to generally be trending down..

Great. Thank you..

Thank you. And our next question comes from the line of John Pancari of Evercore. Your line is now open..

Good afternoon..

Hey, John..

Back to credit, on that 75 to 125 in projected losses. At the high end that implies about a 4-1/2% cum loss through cycle ratio, and that's only modestly higher, if I'm correct, than your 2008 loss experience on a cumulative basis, which was about 3%.

So, is that 3% correct? And then secondly, it's only modestly higher, I'm just thinking this through, it seems like -- I would think that it would be a good amount higher than the 2008 cycle..

Well, the, you know, our -- what we said is that our losses inception to date, so, from 1997 until the beginning of this year, call it 17 years, was $60 million net charge-offs. And so there's about 3% I guess depending on what period you want to measure it over.

But this loss rate -- this loss rate by any measure would be certainly higher than what we experienced. So we really weren't relying on that historical loss experience. We took it into consideration, but we also used a, as I said, a 9-1/4 duration to these loss methodologies.

So I mean, it's probably worthy of a longer answer, but there's -- I guess what I'm saying is that the $75 million to $125 million reflects a greater loss rate than we've experienced historically..

Okay. All right. And then separately on the capital front. Would just want to get your thoughts on how a lot of these actions you're doing on the balance sheet and, you know, are impacting your position for CCAR [ph]. In other words, you're putting the cash to work, you paid down the -- or you punted the CDOs, you're paying down debt.

And then you also have the change going to Basel III under the 2016 CCAR.

So, how does that all position you from your perspective for 2016 CCAR [ph]? And has there been any changes to that estimate of that impact of all that stuff given some of the changes in the economy or in the rate environment and oil?.

Yeah. John, I wouldn't say that our overall outlook has changed. I mean we'll see what the economic scenario looks like when the CCAR [ph] instructions come out. But to your point, we've done -- we've really tried to do a lot of things that we think will set us up well in the CCAR [ph] environment.

You know, the only countervailing influence to all the positive things is energy.

I mean energy is kind of a question-mark with respect to kind of where commodity prices are going to go, but maybe more importantly, how the Federal Reserve is going to be treating that as it relates to their assumptions -- their economic assumptions in the CCAR [ph] scenario.

So it's very, you know, it's very difficult to predict an outcome, as you know, with CCAR [ph]. But to your point, and I think you've made a lot of good points for me, we're doing a lot of things here to really control our own destiny as it relates to CCAR [ph]..

Okay. Thank you..

John, I think I might just chime in a little bit, and maybe ask Scott to talk about some of the differences in the way that we've -- loans that we have on the books today in the energy portfolio versus ones that we had in the 2008/09 timeframe, second lien, the presence of second liens would be one that comes to mind immediately..

Sure. No, James. So we had some second lien financing going into the 2008/09 downturn, we have zero today.

Secondly, there was a trend then going in, in the 2007/08 timeframe, where reserve-based borrowers were accessing the capital markets for really quite significant levels of junior debt -- junior capital, and to $200 million to $500 million, $1 billion tranches of senior unsecured subordinated debt, etcetera. So, total leverage was much higher.

We started to pull away from that just before the downturn in 2008, but we had more of that as did the whole industry in that downturn. And in this cycle, we've stayed away from that phenomenon pretty -- in a pretty diligent, disciplined way.

And I will tell you that that tendency started coming back into the market all throughout 2014, a little bit of the second half of 2013. And so I think it's a good thing that we were able to stay away from transactions like that in this cycle..

Yeah. And I think we've said it publicly before but we'll say it again, we essentially [ph] exited several loans during the 2014 timeframe that had --.

That had that characteristic.

And I would also note that we, in terms of things that we're continuing to do, you know, our fundamental underwriting on oilfield service is -- had proved itself up to that last cycle, we've stayed very true to that discipline, and the private equity firms that we work with that we've commented on before, it's about six to seven private equity firms on the reserve base side, six to seven on the oilfield service side.

They're the same group of private equity firms we've worked with, in some cases for 10 to 15 years. We were -- it's the same group that went through the last cycle that's going through this cycle with us.

And so that is a real positive, because they supported their credits last time, generally speaking, and we've already seen them supporting their credit this time, although every cycle is not the same. But these are people we have strong relationships with..

Got it. Very helpful. Thank you..

Thank you..

Thank you. And our next question comes from the line of Joe Morford of RBC Capital Markets..

Hi, Joe..

Your line is now open..

Great.

Scott, I was just curious if you could give us a little color on how the redetermination process is going so far relative to your expectations, and did that affect your reserving much at all this quarter?.

Joe, thanks for the question. I wish I could give you a real definitive answer, but the process is literally just starting. The deck we'll use this time will be about $45 on the short periods, and then as you know, we follow the curve out. It's a little flatter curve this time than the $50 deck we used in the spring. So that's a fundamental difference.

It'll be late November, early December before we fully captured all that. Our sense is, we saw our borrowing basis decline by about 11%, 10% in the spring redetermination. There's been a lot written about that, actually some of which has been pretty accurate, in terms of the industry, as to what will happen this time.

They -- my sense is we'll see borrowing-based declines in that same range, 10%, probably north of that, for this go-around. And it could be 10 to 20, but my guess is it'll be on the kind of mid-teens declines. And there are reasons for that, but -- anyway, it's all still to come.

But I will tell you that none of, to answer your question, none of the current redetermination had an influence on our additional provisioning in the third quarter; however, we did go back and looked at our spring redetermination where the sensitivity case was $37.50.

So that we had all our borrowing basis measured at 37.50 and we did focus in on that a bit harder. This was when, you know, prices were down around 40. And that guided us a bit on the additional provisioning we did in this quarter. Prices are now back up a bit. So, anyway.

But we did look at 37.50 very carefully, and in this redetermination we'll be using sensitivities that are below 37.50..

Right. Okay, understood. That's helpful. And then, Paul, I guess the other question for you, is just there is some discussion about the FHLB dividends, and I just wondered if you could quantify what those fees that may be lost and what's the timing of when that -- we might see that hit the income statement..

Yeah. Timing is probably we'll see that in the first quarter. And I'll have to think about -- I'll work with James on disclosing on the dollar value..

Okay. Understand. Thank you..

Okay. We have -- Sabrina [ph], I'm going to interrupt you here just a second. We have six questions left and we have five minutes left. So we'll go lightning round, one question per person, and then we'll try to go very quickly at this point..

All right. Our next question comes from the line of David Eads of UBS. Your line is open..

Good afternoon. I will take that message here.

So, can you just give a little color on sort of the lessons learned from the review of the oilfield services portfolio this quarter, and kind of thinking about what that -- what changed in terms of debt to EBITDA ratios or [inaudible] coverage, just kind of what you learned there and whether you think there's going to be more headwinds to that portfolio the next few quarters..

Sure.

And you're saying lessons learned this quarter?.

Because that's what's impacted, you know, that was the bigger issue this quarter, correct?.

Well, yes. But we said since last December that you would see oilfield service classifieds build in principally the third and the fourth quarter. We said you would see a little bit in the second quarter. This was all the way back to last December, we saw very little oilfield service move in the second quarter.

We said back then it would happen in the third and fourth quarter, and so it is. And that's principally just based on the fact of when you receive financial statements, and there was a positive hangover from the end of last year in terms of activity that was going on for oilfield service companies.

So I would say no real lessons learned in this quarter, it's exactly the way we thought it would play out.

I would say though that I'd be really careful, as banks quote debt to EBITDA numbers, you know, EBITDA numbers are going to be going down, those debt to EBITDA numbers are going to become really almost a useless statistic, because they'll be eye-popping. They wouldn't be anything you'd underwrite at.

It was just going to be because of the vanishing EBITDA, so..

And a couple, as we mentioned, David, a couple of the charge-offs were related to companies that were really stale, had been around for a long time and struggled. So it was -- it's -- yeah..

And they were very close to the drillbit on the energy services side..

All right. Thanks. I'll move along..

Thank you. Our next question comes from the line of Paul Miller of FBR. Your line is now open..

Yeah. Thank you very much. On the -- when you guys hand in your CCAR [ph], do you have -- is there higher rates factored into it? And we've heard a couple of companies say that they might have to back off some of their capital management because rates now are -- a lot of people are assuming now rates are not going to rise.

Can you add some color on that?.

Well, I would say that our capital actions were pretty conservative in the last CCAR [ph], and I would not say that they were overly impacted by the prevailing rate environment in the Fed base case, which I think is what you're getting at.

I mean we've got the dividend increase which you've already seen and then we've got the redemption, the tender of the preferred stock, which we're in the process of doing. And I would not expect the prevailing rate environment versus the Fed base case to impact that..

Okay. Thank you very much..

Thank you. And our next question comes from the line of Dave Rochester of Deutsche Bank. Your line is now open..

Hey, good afternoon guys. Just real quick back on the provision guidance. Not to split hairs too much here, but you're saying you're guiding to flat to slightly up from zero, but we're at $18 million this quarter. So it kind of sounds like you guys are effectively guiding for that provision to be lower from here.

Is that right?.

Yeah, David, that's -- it's a good point of clarification. We -- the intention for the provision going forward is flat to slightly positive rather than flat to slightly positive from $18 million. So in other words, zero to $10 million to $15 million per quarter, something in the area of what we're thinking at this point..

Okay, great. Thanks guys..

Thank you. And our next question comes from the line of Chris Spahr of CLSA. Your line is now open..

Thank you. This is related to what Ken asked earlier. The available-for-sale portfolio, the yield is 185.

Given the emphasis on HQLA securities, do you expect that to go down lower or stabilize now?.

Well, that's going to be a function of the yield curve ultimately. But look, we're buying securities that have a yield that is in that kind of 1.50% to 2% range generally, is our either ARM products, like Ginnie Mae ARMs or pass-throughs of -- or 15-year pass-throughs. So it's in that -- it's going to be in the ballpark.

But again it's going to be a function of kind of where rates go from here..

So, all else equal, it might -- so, all else equal, it might be slightly lower but not the 14 bp delta that we saw this past quarter?.

Look, hard to predict, but yeah, I would expect it to start to level out..

Okay. Thank you..

Thank you. And our final question comes from the line of John Moran of Macquarie. Your line is now open..

Hey. Thanks. Just a real quick question on the nature of the energy charge-offs this quarter. Do you have the split for RBL versus OFS? Because if I'm remembering correctly, the $60 million since inception, almost of that was RBL, which was a little bit counterintuitive..

So, acronyms -- we got an acronym problem here. But OFS -- oilfield services and RBL is reserve-based lending for the uninitiated..

Sorry about that..

Yeah. No, that's fine. And I would say, virtually all of this was oilfield services..

Virtually all the 17 this quarter were -- that was services, okay..

Yes..

And then the expectation on the -- I'm sorry, I'm going to sneak a follow-up here -- the 125 being the top end of the range, how much of that do you think comes out of services versus reserve-based?.

You know, John, it's so hard to tell. I mean it was counterintuitive that, of our $60 million inception to date going into this year, $1 million was services, $59 million was reserve-based. If I had to speculate, it's going to be probably 70-30 oilfield service to reserve-based, maybe 60-40. It should tilt more to oilfield service.

The longer this goes, the heavier the tilt and -- to oilfield service. And the lower prices. You know, these estimates are fundamentally for oil in a price range of $50 to kind of high 40s, up to $60, if we see prices dip back down into 40s or the 30s, we could see numbers north of what we've described.

But we currently believe that high 40s to 60s is what we'll -- what we should experience..

Got it. Thanks very much..

And we've got one follow-up from Paul..

Yeah. Sorry, if I could follow up on the question about Federal Home Loan Bank dividends. We reported or recorded a little under $5 million in FHLB dividends in 2014. So that'll give you an idea of the scale of that revenue that would be going away in 2016..

Thanks, Paul. And thank you all for joining. This concludes our call at this point. And we really appreciate you joining the call. I'll be around for a little while this evening if you have follow-up questions. You're welcome to give me a call or an email.

And we look forward to seeing you at a conference in the future or on the next quarterly earnings call. Thank you again for your participation..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day..