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BOK Financial Corp (NASDAQ:BOKF)
Q1 2020 Earnings Call
Apr 22, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the BOK Financial First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Steven Nell, Chief Financial Officer of BOK Financial. Thank you, sir. You may begin.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Good morning, and thanks for joining us. Today, given the unprecedented environment in which we operate, we wanted you to hear from several leaders across the Company. First, our CEO, Steve Bradshaw will provide opening comments. Next, Marty Grunst, our Chief Risk Officer, will provide an update on our business resiliency operations related to the coronavirus pandemic.

You'll also hear from Norman Bagwell, Executive Vice President of our Regional Banking division, who will discuss our response to customer needs across our region, including the significant efforts to provide loans under the Paycheck Protection Program. Stacy Kymes, Executive Vice President of Corporate Banking, will cover our energy, healthcare and commercial real estate portfolios. And Marc Maun, our Chief Credit Officer, will also join us to discuss other loan portfolios, our credit metrics and the impact of our CECL implementation.

Lastly, I'll provide first quarter details regarding net interest income, net interest margin, fee revenues, expenses, and our overall balance sheet position from a liquidity and capital standpoint.

PDFs of the slide presentation and first quarter press release are available on our website at bokf.com. We refer you to the disclaimers on Slide 2 as it pertains to any forward-looking statements we make during the call.

I'll now turn the call over to Steve Bradshaw.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Good morning. Thanks for joining us to discuss the first quarter 2020 financial results. I want to begin our call this morning by saying that our thoughts go out to all of those impacted by the coronavirus pandemic. This is an event without parallel for our Company, our region and our nation. We recognize that our clients and communities depend on us now more than ever.

As a company that serves a vital role in the economies of our footprint, we see first hand the impact of this crisis has on individuals and companies, and we remain committed to helping our clients through this troubled time. And while our call will detail our first quarter results, we'll spend a significant amount of time today discussing the impact of this new economic environment on our Company. As Steven mentioned, we have a big lineup today that should provide insight into our response and our outlook relative to COVID-19.

With respect to the first quarter, BOK Financial recorded net income of $62.1 million and diluted earnings per share of $0.88. Earnings this quarter were impacted dramatically from a shifting economic outlook and falling oil prices that drove the significant increase in our loan loss provision under the newly adopted CECL accounting standard, which Marc Maun will talk about in detail a bit later.

Not to minimize expected credit losses, but if we focus on pre-provision net revenue in comparison to previous quarters, the results were really solid. Pre-provision net revenue was $173.1 million this quarter versus $160 million last quarter and $148.2 million for the first quarter last year, showcasing the contribution of our diversified mix of business revenues.

Net interest revenue declined $8.9 million to $261.4 million this quarter. Despite multiple rate cuts in the latter half of 2019 and 150 basis points of emergency rate cuts in March of 2020, LIBOR has remained relatively elevated. This, combined with our ability to decrease deposit costs, has preserved a large portion of our margin. Steven will talk later about actions we've taken to position the balance sheet and drive deposit costs further down.

Our brokerage and trading and mortgage banking revenues continued to outperform on strong mortgage-backed securities trading and mortgage loan production volumes. Fees and commissions revenue was up over 7% from last quarter, building on the previous year's momentum, while mortgage banking revenues grew over 46% on a linked-quarter basis. As you can imagine, the growth in this area accelerated in the last month of the first quarter and likely will continue to be a leader in coming quarters.

Expense management was excellent this quarter as well, with expenses down 7% compared to last quarter. While decreased incentive compensation was the main driver this quarter, we also took several steps related to delay in filling of open positions and reducing discretionary spending, detailed later in the call, which should help expense levels for the remainder of this year.

Turning to Slide 5. Period-end loans were $22.5 billion, up over 3% from last quarter. While this was positive for the Company overall, a significant portion of this was due to increased draws, particularly in our commercial and industrial portfolio. Period-end deposits were up nearly 6% linked quarter and up over 15% year-over-year, a continuation of the strength we demonstrated in 2019. Even with the significant growth in deposits, we were able to bring overall interest-bearing deposit costs down from 1.09% in the fourth quarter to 0.98%, this quarter, as we were able to adjust rates paid on exception priced deposits in our commercial portfolio, much more quickly than expected.

Assets under management or in custody were understandably down for the quarter as equity markets weighed on asset prices. That said, prudent diversification of our clients' assets helped us to relatively outperform the broad market sell-off.

In addition, we saw an opportunity to invest further in our Company this quarter as we bought back 442,000 BOKF shares at $75.52 per share in the open market. I'll provide additional perspective on the results after the prepared remarks, but now I will turn it over to Marty Grunst, our Chief Risk Officer, to cover our business resiliency and employee safety response to the coronavirus pandemic. Marty and his team were instrumental in making sure we were able to respond quickly, while also maintaining business continuity throughout our footprint. Marty?

Martin E. Grunst -- Executive Vice President, Chief Risk Officer

Thank you, Steve. I will summarize the steps we have taken since activating our business continuity plan. At the outset, our Chief Human Resources Officer and I established a dual mandate of maximizing employee safety and ensuring continuity of service. We then developed and implemented an array of strategies to accomplish those goals, including work from home for 70% of our employee base, whose jobs can be performed remotely, an array of social-distancing actions for those working in the office, which includes separating work teams among multiple locations, further separation using split shifts, and the assigning dedicated entry and exit doors, break rooms and the like for different teams.

We migrated banking centers to a drive-through and appointment-only format, and subsequently reduced hours a bit and closed some banking centers temporarily to enable more shift rotation. Enhanced cleaning procedures have been implemented in all our locations. To address increased demand on our call center and increased volumes in both mortgage and SBA lendings, we have temporarily repositioned employees from banking centers and other departments all across the firm into those high-demand areas.

And most importantly, we rolled out an array of employee support initiatives in recognition of the changing environment for our staff. These include up to five days of additional paid time-off, incremental financial support for employee child care, waiving co-pays for usage of our telemedicine capability, and premium pay for certain non-exempt employees who need to remain in the office. Our team is ready to support operations in whatever environment we find ourselves in.

Lastly, I would like to offer my thanks to the many employees who have worked tirelessly these past several weeks to ensure we are there for each other, our customers and our communities.

I'll now turn the call over to Norm Bagwell to cover our response to customer needs. Norm?

Norman P. Bagwell -- Executive Vice President, Regional Banks

Thanks, Marty. The impact of COVID-19 on many mid-sized and small businesses across the nation is unprecedented. The necessary distancing efforts will not only impact the businesses with a high reliance on social gatherings, but the spillover effects are being felt throughout our markets. Our clients rely on us now more than ever, so our focus has been on coordinating and building of an effective bridge to clients, as most of our bankers have transitioned to working from home.

We've engaged our clients in deep portfolio management discussions focused on the state of the business, along with managing through their request for payment deferrals and renewals. We are also working with clients to rightsize interest costs by adjusting earning credit rate and interest rates on deposits as the interest rate environment has shifted.

We have reintroduced interest rate floors where appropriate. We're having active discussions on interest rate swaps and also recurring, and some of our clients take advantage of the low rate environment. New business has been booked as we have been able to pull through pipeline items during this time as well. All the while, we are actively risk grading our portfolio through the cycle.

We've also been incredibly proactive with our clients in wealth management space. Active management and high touch client service have been out of favor recently. But times like these allow us to demonstrate why BOK Financial's wealth management expertise is a stand out among peers.

We have employees providing guidance to thousands of clients ranging from and guiding individuals on how to weather trying markets with personal assets. They're helping corporate clients reposition their balance sheets. While our high-touch service has been facilitated primarily by the phone and email, we are also seeing these clients utilize our technology at a higher rate.

Our private wealth and retail brokerage digital logins were up 16% and 6.5% month-over-month, respectively, and we've seen a 32% increase in digital transactions by participants in our institutional wealth offerings. Our digital account performance modern capabilities have seen dramatic increases in usage as well with some areas in wealth management seeing upwards of 65% increases in performance logins from February to March. With all this rapid adoption, continuous digital communication with our clients and other broader economic factors at play has been a real key.

Most recently, our client discussions have been centered on the CARES Act and it's aimed to provide nearly $350 billion of loans to small businesses via the Small Business Administration's Paycheck Protection Program or PPP. As a certified SBA lender, BOKF was open for PPP business the day that program went live on Friday, April 3. Hundreds of our employees were redeployed from their typical roles in commercial banking and consumer banking, working tirelessly to take applications and reserve funding for their clients.

Feedback from our clients as it relates to our ability to respond has been very positive and proven differentiated versus our peers. I'm incredibly proud of our efforts to serve our clients and communities by helping them bridge this time of economic uncertainty. BOK Financial has processed approximately 4,700 completed PPP applications and we received $1.8 billion in SBA approvals.

While we would characterize our quick action for our clients as a success, it was not without its challenges. A short 10-day funding window presented a bit of an operational burden, but we have successfully met that standard. Additionally, the sheer volume of applications for our credit services team in such a short time was challenging to say the least, but the resiliency and flexibility of our credit team has proved out. In fact, enhanced quality control checks were put in place this time to ensure accuracy and viability of the applications.

With that, I'll now turn it over to Stacy to cover our energy, healthcare and commercial real estate portfolios. Stacy?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Thanks, Norm. As you can see on Slide 11, period-end loans were $22.5 billion, up more than 3% for the quarter. Our commercial real estate was largely flat this quarter. C&I expanded over 5% from the previous quarter, primarily in the general business, energy and healthcare portfolios.

In general, the traditional C&I portfolio had a growth that was a combination of both seasonal factors and customer responses to the COVID-19 pandemic. These revolving lines of credit are generally secured and governed by a borrowing base. And in many cases, the customer draws were deposited back into the bank. There were very limited draw requests in the specialized lines of business in response to the current macro environment. Line of credit draws have leveled off and are relatively unchanged since the end of March.

Energy loans outstanding totaled $4.1 billion at the end of the first quarter or 18% of total loans. Our energy exposure has created volatility in our stock price. Supporting the energy industry has been a hallmark of the Company for over a century. On Slide 12, you can see that the majority of this portfolio is first-lien, senior-secured, reserve-based lending to oil and gas producers, which we believe is the lowest risk form of energy lending.

A decline in the demand for energy related to the COVID-19 pandemic, coupled with the OPEC Plus production conflict has led to declines in the current spot and future oil prices. Approximately 62% of our committed production loans are secured by properties primarily producing oil. The remaining 38% are secured by properties primarily producing natural gas, which has not been as significantly impacted by the recent events. Most clients have a production mix of oil and natural gas.

As we have said in the past, we believe the duration of the oil price decline is a more significant factor affecting performance than the level of prices. If drivers of this decline are short term, meaning less than 12 months, then our expected losses in the portfolio will not be overly impactful to the Company. One factor that is much more in our favor during this downturn is customer hedges that are in place. Of all energy customers that we stress test, which makes up 92% of production loans outstanding, 95% of those customers have some level of hedging in the 12-month range and many of them carry into the 24-month range. We believe the combination of our disciplined underwriting approach and customer hedging positions will work to weather this downturn as we have previous downturns.

Our healthcare sector loan balances increased $131 million to $3.2 billion or 14% of total loans. On Slide 13, you can see that our healthcare sector loans primarily consist of $2.4 billion of senior housing and care facilities, including independent living, assisted living and skilled nursing. Generally, we lend to borrowers with a portfolio of multiple facilities that serves to help diversify risks specific to a single facility.

We have had a few instances of COVID-19 among a handful of facilities, but the response of our healthcare operators has mitigated any significant impact up to this point. The remaining balance of our healthcare portfolio is comprised of hospitals and other medical service providers who have also been impacted by a deferral of elective procedures to ensure adequate protective equipment and ventilators for those providing acute care for virus patients.

It should also be pointed out that the CARES Act has multiple revenue enhancement measures for both hospitals and skilled nursing facilities as they manage through the risks of the virus. We remain confident in the long-term outlook in the space and expected to continue to be a growth leader once the health and economic conditions migrate toward a more normal state.

Commercial real estate loan balances were largely unchanged from the last quarter, representing 20% of total loans. Looking a little deeper into this segment on Slide 14, loans secured by office buildings and other properties increased to a total of $141 million this quarter. This increase was largely offset by a decrease of $128 million of loans secured by industrial facilities. Multifamily residential loans are our largest segment on commercial real estate lending, totaling $1.3 billion at quarter-end. Loans secured by retail facilities were $774 million at March 31.

As we think about real estate more broadly, we entered this downturn relatively well-positioned. We have traditionally limited CRE to 175% of Tier 1 capital with supplements by category, construction, tenant and state. At March 31, our legacy commercial real estate portfolio was under all our limits and sub-limits. Clearly, the retail portion of this portfolio is the most vulnerable to sustain stay-at-home and shelter-in-place directives. This portfolio is roughly split between goods and services.

As of the end of 2019, the retail CRE segment had a weighted average regulatory loan-to-value of 58% and our weighted average debt service coverage of almost 1.5 times. As with oil, the loss content in retail will be closely correlated with the duration of the various governmental orders and adjustments in consumer behavior after these orders are lifted.

While office and multifamily will see impacts here, we believe our geographic footprint will help us in these segments in the long term because of the strong in-migration over time. We will not be able to avoid the impacts of all the macroeconomic credit issues impacting financial institutions. We have historically proven to be disciplined underwriters of credit. The last cycle certainly demonstrated that, and we remain confident our standards will perform well in the current cycle.

I'll turn the call over to Marc Maun to discuss other loan portfolios, credit metrics and the impact of CECL implementation. Marc?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Thanks, Stacy. Turning to Slide 16, we've compiled a list of loan segments we consider more exposed to the economic slowdown, driven by the social distancing measures in place to combat the coronavirus.

As you can see, the exposure to entertainment and recreation, retail, hotels, churches, airline travel and higher education that are dependent on large social gatherings to remain profitable is roughly 7.7% of our total portfolio. This group of loans is highly diversified with over 550 loans for an average loan size of less than $3 million. Some of these clients will participate in the Paycheck Protection Program that will provide some measure of relief to stress that they may be feeling. We'll obviously be monitoring these exposures closely in the coming months.

Just a few words from my seat as Chief Credit Officer on the energy portfolio that Stacy described above. On the energy side, the spring borrowing base redetermination season is under way and we will be engineering the value of our customers' reserves during the second quarter. We also conduct a quarterly stress test of our energy borrowers with more than 50% funding on their lines of credit and all criticized loans using a price deck discounted by 20%, which helps us identify potential issues. The most recent stress test, which takes customer hedges into considerations, resulted in no surprises.

On Slide 17, you can see credit quality has remained well intact to this point, but our expectation is to see migration of non-accrual and potential problem loans given the current economic environment. Additionally, we have taken action regarding loan modification requests on a case-by-case basis. Requests have generally been for 90 days of principal and possibly interest with a reevaluation at the end of that period for another 90 days. Based on the recent regulatory guidance, these loans are not considered troubled debt restructures if they are in current status as of March 1, 2020.

Non-accruing loans decreased $17.8 million this quarter, primarily due to a $19 million decrease in non-accruing commercial real estate loans. However, non-accruing energy loans increased $4.7 million in the first quarter. New non-accruing loans identified in the first quarter totaled $30 million, offset by $9 million in payments received and $19 million in charge-offs.

Potential problem loans totaled $293 million at March 31, up from $160 million at December 31. This increase largely comes from the energy portfolio as the recent oil price declines, coupled with the capital markets environment requiring certain customers to work through their liquidity needs weighed on some energy borrowers. This situation may lead to additional non-accruals and some impairments.

As Steve noted in his opening comments, the Company adopted CECL as of January 1, 2020, and we have increased total reserves by $131.5 million since 12/31. Slide 18 shows the drivers of the increase to our allowance for credit losses and provision under CECL. The day one adjustment shows an increase in ACL reserves of $49.4 million. The total day one adjustment includes an additional $12 million for mortgage banking activities and HTM securities for a total of $61.4 million, which is what we disclosed last quarter, and that amount impacted capital, not earnings this quarter.

The day two provision for credit losses under CECL was $93.8 million for the first quarter. A degrading macroeconomic outlook during the first quarter related to the COVID-19 pandemic and oil price declines were the two factors most impacting the CECL calculations. In those calculations, the Company used base case, downside and upside economic scenarios, including key economic indicators such as gross domestic product, unemployment and oil prices.

Assumptions used in the scenarios for the second quarter of 2020 range from negative 10% to negative 30% for GDP, 6% to almost 10% for unemployment, and $19 to $27 for oil prices. A forward view of the economy improves modestly over the remaining quarters of 2020. Other economic factors used in the models include credit spreads, home price indexes and vacancy rates. More detail will be provided in our first quarter 10-Q to support sensitivity analysis of these factors as it relates to our total portfolio. Portfolio changes represent the impact of shifts in loan balances, agent mix, as well as credit quality, adding $16 million to the ACL.

First quarter provision expense also included $17.2 million related to net charge-off activity. Our allowance for loan losses after day one and day two first quarter provision totaled $315 million, plus another $28.5 million recorded in other liabilities to cover unfunded loan commitments. Although the entire reserve for loan losses is available to cover losses in any portfolio, $100 million is attributed to our outstanding energy portfolio.

I'll now turn the call over to Steven Nell. Steven?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Thanks, Marc. As noted on Slide 20, net interest revenue for the quarter was $261 million, down $8.9 million from the fourth quarter. Net interest margin was 2.80%, down only 8 basis points from the previous quarter as LIBOR has remained elevated relative to its historical relationship to other short-term market interest rates. This, coupled with our ability to move interest-bearing deposit costs down 11 basis points, has allowed us to preserve a large portion of our margin.

While the 150 basis points of interest rate cuts by the Fed in March did have an impact on both net interest revenue and net interest margin, the full effect will be realized in the second quarter. The most significant component of net interest revenue and net interest margin that we can most influence is deposit costs. We are working closely with our depositors to secure and maintain balances, but price appropriately given the almost zero rate environment in which we operate. In the month of March, our interest-bearing deposit cost declined to 79 basis points, and we believe we can continue to lower our cost over the coming months.

On Slide 21, fees and commissions were $193 million, an increase of 7.4% from last quarter and 20% quarterly year-over-year, continuing to be primarily fueled by strength in our brokerage and trading and mortgage businesses.

We generated record revenues in our trading and derivative businesses this quarter, with a total brokerage and trading revenues eclipsing $50 million. The majority of this was derived from mortgage-related trading activity with first quarter MBS/TBA trading revenue of $31.7 million, a 40% increase over linked quarter and a 212% increase from the same quarter a year ago.

While the growth rates here are impressive, even more impressive was that this increased revenue from mortgage trading activity was partially muted by a decrease in the fair value of asset-backed and municipal securities due to widening spreads. Given the lower rates and higher volatility in the mortgage markets, our traders have done a phenomenal job supporting our clients' management and repositioning of their investment and hedging portfolios.

Mortgage banking saw a significant surge in production revenue this quarter, growing $11.8 million or over 46% relative to last quarter, and almost 56% from the same quarter a year ago. Total mortgage production volume increased to over $1 billion with refinances representing 57% of that volume. Additionally, we increased our gain on sale margins by 62 basis points compared to last quarter.

Another success story of the quarter relates to the hedging of our mortgage servicing rights. Given the speed and magnitude of the decline in mortgage rates, the fair value of our mortgage servicing rates declined $88.5 million in the first quarter. However, our securities and derivative contracts, held as an economic hedge, offset $86.8 million of that decline. The securities held as hedges also yielded net interest revenue of $4.6 million. So the net MSR activity resulted in a $2.6 million benefit this quarter, an impressive outcome for this environment.

Fiduciary and asset management revenue was down just over 1% this quarter, which might be a surprise to some given the perceived market sensitivity of this segment. In reality, only about a third of these assets are exposed to equities today, which has added resiliency through the cycle. Strong sales efforts, coupled with this prudent diversification, proved out with relative outperformance. Many of our fee businesses are clearly off to a great start this year, and once again highlight the significance of the revenue diversity that our Company has.

Turning to Slide 22. Total operating expenses decreased a little more than $20 million, down 7% from the fourth quarter. Personnel expense decreased $12.2 million this quarter, largely due to the combination of a decrease in both deferred compensation and regular compensation of $2.2 million. Additionally, the fourth quarter included approximately $2 million in severance costs due to realignment of personnel that did not recur.

Employee benefits increased $3.6 million as a seasonal increase in payroll taxes and retirement plan expenses was partially offset by a decrease in employee healthcare costs. Non-personnel expense decreased as well, down $7.9 million compared to the fourth quarter. Mortgage banking costs decreased $3.7 million, largely due to the reduction in MSR amortization expense.

Business promotion expense decreased $2.6 million due to the seasonal decrease in advertising costs, combined with reduced travel costs as a result of the current pandemic. In addition, the fourth quarter included a $2 million charitable contribution to the BOKF Foundation, which did not recur this quarter.

As Steve alluded to earlier, we have taken steps to help maintain lower expense levels for the remainder of 2020. First, we have put a hold on all planned adds to staff and are challenging all positions that become open before we recruit a replacement. Second, we will achieve savings and business promotion, professional consulting fees and occupancy-related expenses in the current work from home environment. And lastly, we decided to delay all non-essential IT and other projects in this less than favorable operating environment.

We'll continue to support client-facing initiatives that enhance our customers' overall experience and other important projects that support our infrastructure. Prioritizing and slowing the pace of less critical projects is prudent until the economic picture becomes clear.

While our liquidity remains strong, given the extraordinary impact of the pandemic on the capital markets, we've taken a number of precautionary measures to ensure it remain so, including enhanced daily monitoring of our liquidity by tracking deposit inflows and outflows by customer, analyzing loan advances by segment, optimizing our borrowing capacity at the Federal Home Loan Bank, and increasing our collateral at the Federal Reserve Discount Window, among other things.

As mentioned earlier, our deposit balances and ability to gather additional deposits have remained strong. As noted on Slide 23, we have over $12 billion of secured borrowing capacity and over $7 billion of unsecured and contingent liquidity capacity to support the liquidity needs of the Company. Additionally, we are in a position to fund PPP loans, now totaling $1.8 billion via the Federal Reserve PPP liquidity facility.

Our capital position also remains strong. In fact, it was a noted reason that BOKF, NA, the primary source of holding company liquidity, had its A rating reaffirmed recently by S&P and Moody's. With a common equity Tier 1 ratio of 10.9%, well ahead of our internal operating range minimum and a full 390 basis points above regulatory minimums, we are in good shape. We will also take advantage of the OCC's capital phase-in plan for CECL implementation.

And lastly, a word on guidance. Due to the uncertainty around the severity and duration of the pandemic and its impact on the broader economy, we will not provide the more formal guidance we've given in the past, but we'll leave you with a few thoughts that might be helpful.

Apart from the loan advances to date of $751 million and the PPP fundings of $1.8 billion, we expect no loan growth for the foreseeable future. Energy deals will likely not be done at current prices, healthcare opportunities are generally on hold due to the pandemic and a little activity will be present in our CRE and C&I portfolios. We will continue to originate mortgage loans with a very limited amount ending up in our permanent portfolio.

We will continue to reduce deposit costs, ensuring our deposits are appropriately priced given the near-zero rate environment, all in the context of overall funding needs. We took advantage of the dramatic widening of mortgage spreads in the first quarter to pre-invest several months of anticipated cash flows from our available-for-sale securities portfolio as significantly advantageous spreads.

After those anticipated cash flows have been realized, we will resume reinvesting in mortgage-backed securities with appropriate spreads and controlled prepayment and extension characteristics. Our diverse fee revenue stream should continue to provide some mitigating impact to overall earnings pressure being felt in the spread businesses. Our disciplined approach to controlling personnel and non-personnel costs will continue. We have no plans to cut existing capabilities or products and although we will slow less critical projects, we'll continue to provide funding for improvements in the client experience and technology infrastructure.

We entered this downturn with a strong capital position and do not see a threat to the dividend we pay. As always, we view stock buybacks opportunistically, but within the context of maintaining our strong capital position.

I'll turn the call back to Steve Bradshaw for closing commentary.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Thanks, Steven. The first quarter, as we described, contains some positive operating results. No doubt that day two CECL provision was meaningful, and we can't predict at this point what subsequent quarters will hold. We've yet to spin the full quarter in a near-zero rate environment this year, so we fully expect that to weigh on our spread businesses going forward. That, coupled with self-induced economic slowdown to combat the spread of the virus, will dampen growth for all financial institutions in 2020. That said, there are several bright spots specifically at BOKF, namely in our wealth management and mortgage businesses that have every opportunity to outperform in 2020.

As always, we are taking a measured approach to all decisions. We are absorbing the impact of much lower asset rates while looking for the best cost alternatives and funding going forward. We have strong liquidity and capital, so we have the luxury of making thoughtful changes that won't inhibit our growth opportunities when this environment corrects as it inevitably will. In the meantime, we will continue to work to manage expenses where possible, putting some projects on hold, and curtailing personnel growth as well as other measures until we see a definite improvement in demand.

I would say that we've added some negative bias since the quarter end, as we seek to understand the long road ahead for the return of meaningful economic activity. We can envision a GDP decline and rate of unemployment in the second quarter that is more severe than what we modeled at quarter-end. But these are uncharted waters for us all, so we will respond on behalf of our customers accordingly to do everything we can to assist them regardless of the near-term future of the economy, and we remain confident that we've built our Company to perform even in times of extreme economic stress.

We have a very experienced leadership team, which gives meaningful confidence in our ability to navigate this challenge as we have countless others. Our time horizon is always a bit longer than most of BOK Financial, and I fully expect us to shine when the history is written on this economic challenge.

With that, we are pleased to take your questions. Operator?

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.

Ken Zerbe -- Morgan Stanley -- Analyst

Great. Thanks. Good morning, everyone.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Good morning, Ken.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Good morning.

Ken Zerbe -- Morgan Stanley -- Analyst

I thought we might start off with energy. I know you said that 95% of your customers have some level of hedging. So hopefully, I would like to know how much of hedging. But the real question is, can you just talk about the credit quality of either -- the energy loans of the borrowers that either don't have any hedging at all or even part of that 95% on that part of their production that's not hedged? Is that much more at risk? Thanks.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

This is Stacy. I'll speak to the customer hedging. Over two -- over three quarters of our current oil weighted commitments are at least 50% hedged in 2020 at an average price in excess of $55. So, we feel very good about the level of hedging that we have within our customer base. And really, that is one of the most extraordinary mitigants of the downside and while we continue to point to the time horizon is being the bigger risk than the absolute price of the commodity.

Clearly, as you go into this cycle, we came into the cycle with a relatively good book. We had some certain customers who had a certain level of weakness, but as we look at that going into this, we feel very good about that. And I think that as we position ourselves for the time horizon, we're going to be in a shape that's very manageable for us.

Just to remind everybody, because we get awfully focused on the spot price and what's happening on the daily ticker, oil prices collapsed in '08-'09 from $141 a barrel to $34 a barrel in a short period of time. In 2014, we saw another oil price collapse from $105 a barrel to $26 a barrel in a relatively short time. During that period of time, natural gas was also under a significant amount of pressure. In the five-year period, ending at the end of 2019, our cumulative losses from the last collapse over a five-year period was $89 million.

We don't know the length of duration of this cycle, but we do know that we've done a good job historically of underwriting energy credits. And so we feel very confident in our ability to work through and manage this. But our focus is not on short-term pricing, but on the long-term curve because we believe that's more indicative of how our customers will perform over time.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it.

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Ken, this is, Marc Maun. I'm just going to add one quick thing to this is that, even today, looking at the forward curve, we need to keep in mind that it's highly contango. It's very steep. So even if customers, even after looking at for the last couple of days, if you look at even later this year and into '21, you're seeing prices that are reaching $30 or over $30 a barrel.

So, there is opportunity on those customers who were not hedged that they have opportunity for us to work with them to identify ways that we can enhance their overall quality of their cash flow by taking a look at hedging opportunities and working with them in that way.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. That's helpful. And then maybe just the second question. Obviously, you mentioned that LIBOR has been a big driver of why your NIMs held up as much as it has. If and when LIBOR does start to normalize relative to fed funds, can you just help us quantify like how meaningful is that to your portfolio, kind of what's it mean for margin, how much is exposed to LIBOR versus prime, for example? Thanks.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Sure, Ken. This is Steven Nell. Yeah, LIBOR has held about a 40 basis point to 45 basis point advantage relative to its historic relationships. It's actually come in about 10 basis point or 15 basis points over the last week. That's somewhat meaningful because, as you know, 75% roughly of our loan book is variable, and I would say the majority of that is LIBOR-based. And so we have gotten some advantage from that spread. We do think it will come in over time. And without giving a specific dollar amount or percentage impact, it will have some narrowing impact on our margin going forward, if it reverts back to a more historical position.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Great. Thank you.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

And this is Stacy. The one thing I might add there is, we certainly have benefited from the slow fall of LIBOR. It's really given us time in our deposit base to focus on higher rate deposits and managing through that. If we look at, we have about $4 billion of what we call exception priced deposit so that we're kind of higher rate than the standard pricing. We've moved that down over 90 basis points since the end of February through the middle of April. So it's not -- there is multiple sides to that equation as we think about the margin going forward. Clearly, we've benefited from LIBOR, but as it's been slowed to fall, it's given us time to kind of rightsize the pricing on our broader deposit base, which we think will help us as a counterbalance there.

Ken Zerbe -- Morgan Stanley -- Analyst

All right. Great. I appreciate it. Thank you.

Operator

Thank you. Our next question comes from the line of Jared Shaw with Wells Fargo Securities. Please proceed with your question.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Good morning.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Good morning.

Jared Shaw -- Wells Fargo Securities -- Analyst

Maybe sticking with credit. First, can you share with us what level of deferral activity you've had in the -- specifically, in the at-risk portfolios, energy, healthcare, CRE that are sort of under the COVID umbrella that are not necessarily classified as TDRs at this point?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Yeah. This is Marc Maun. I can give you that. I mean on the energy side, we've actually had zero deferrals at this point in time. In our overall deferral on the commercial side is around 3.7%, with the higher level of that is in the healthcare space. On the commercial real estate side, it's running about 8.2% of total dollars -- these are dollars outstanding. And as I've looked at surveys of our peer groups, we are running on the lower end of the percentage of dollars being deferred across all those categories today.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Thanks. And then specifically on the energy side, what's your forecast for oil prices as you're determining this current reserve? So when you're looking out at the -- once we get past that 12-month period, where are you looking at oil prices? And I guess just going back to first quarter of 2016, the allowance was 3.1%. I guess, I'm just a little confused on how the allowance could be lower now, given the broader move as well as the impact of CECL.

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Well, a couple of comments on the price forecast. We follow the forward curve on the price deck that is published on a regular basis. We set our price deck at the first day of each month based on the most recent changes in the price deck or the recent price deck for the five days preceding that beginning of that month. And then during the month we will assess whether price declines are sufficient to justify reducing that price deck during the month.

At this point in time, our price deck for April is pretty consistent with the exception of the spot price, which we don't focus on. We focus on, first, we throw out the first month and look at the price deck beyond that. And our price deck for April is consistent with what the price forward curve is as of this morning. So, we're still looking at it in kind of the opening. The first year running around $28. The second -- and then from there, growing to about $40 by 2023.

The second part of your question was more on the reserve size for energy. Our $100 million reserves, as Stacy noted, compares very favorably to our net charge-off performance of the past five years. It's up $52 million from 12/31. It peaked in 2016 at $101 million. And midstream made up -- makes up a little bit bigger piece of that today, which has a little bit lower reserve allocation than it did in 2016.

At the same time, we're -- in April and we were doing this as of March 31, based on the information we knew at that time. I won't say that there won't be opportunities to build reserves as we move forward and watch what happens in our market, what happens with our customers and what happens with energy prices in general. But at the base two or three weeks post the OPEC Plus changes, the reserve made sense based on that. And based on our history, we're comfortable with that as it is today. And we will evaluate it going forward and make the appropriate reserve expectations during the second quarter.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

And a couple of things I might add there. When we peaked in our reserve for energy as a percent, it really peaked because we had pretty dramatic energy paydowns occurring. So, we had over $600 million coming down and we had the allowance we weren't using it to the extent that we had provided for it. So that was really a kind of a denominator effect that rose that percentage up. I think the absolute dollar amount that Marc alluded to is a more fair comparison there from that perspective.

I think Marc touched on this. But clearly trying to peg anticipated future losses around any of the portfolios really, but energy particularly is a very difficult thing to do, and we'll continue to evaluate over time. I think the key for us to understand is we have an extraordinarily strong mix of fee revenue and we have a very high level of pre-tax pre-provision revenue, such that we have the flexibility to continue to add to the reserve at pretty material levels without ever impacting capital. And so we're well-positioned for the future. but we will continue to evaluate as things change to ensure that our provision remains adequate.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. Thanks. And just finally for me on the capital. Last quarter, you had talked about a desire to build capital levels. And obviously, there's been big dramatic changes in first quarter. But I guess, how long do you feel comfortable with the -- with an elevated total capital return ratio at this point before we, I guess, worry about maybe other capital actions to help grow capital?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Yeah. This is Steven Nell. I'm very comfortable with the level of our common equity Tier 1 at that 2.98%. If you compare that to many peers, it's well ahead. So, I think we've got good capital flexibility. As I mentioned in the comments, I don't feel like there is any threat at this point in time on our dividend. And I think we'll stay opportunistic. I don't want to say we'll suspend today any buybacks. I want to stay opportunistic, but all in the context of that strong capital position.

So let's let some time go by here and see what occurs. I agree with Stacy's comments. We've got tremendous pre-provision or net revenue generation. We've got good revenue diversity. So, we've got plenty of strength in terms of earnings power. We've got a very adequate reserve and a very strong capital position. So, I think we've got a good opportunity there to continue paying dividends and be opportunistic as we go forward on buybacks.

Jared Shaw -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Michael Rose with Raymond James. Please proceed with your question.

Michael Rose -- Raymond James -- Analyst

Hey, guys. Thanks for taking my questions. I just wanted to circle back on the energy portfolio. Maybe what I think I'm hearing you say is that based on what we know now. If I look at your downside case, it's actually above the 12-month strip as it stands today. So what I think I hear you saying is that with -- assuming and the quarter near these levels and with borrowing base redetermination is going on and borrowing base is obviously going to come down, and you would expect to have another reserve build for the energy book in the second quarter. Is that the way we should think about it, Marc?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Well, I think, we will -- we have to factor in the hedging component to as part of the borrowing base redetermination season than we have substantial hedge book. But certainly, right now, the forward curve, the price deck that we're using is going to be based on the forward curve, and it likely will bring borrowing bases down. We've about -- completed about 25% to date. So, we'll take a look and see what the appropriate reserve level will be once we get through that spring determination season.

Michael Rose -- Raymond James -- Analyst

And what's the average reduction in the borrowing base of that 25% that you've gotten through?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

At this point in time, I think we are in the 10% to 20% range.

Michael Rose -- Raymond James -- Analyst

Okay. That's helpful. And then maybe just a round out on energy and tied up, what is different this energy downturn versus the '14 to '16 period and the '09 period? It would seem from the outside looking in that E&Ps would be more at risk if this go round just given constraints on liquidity and very little access to capital outside of bank lines. So maybe if you can just give the puts and takes on what's different this time? Thanks.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Well, I think the biggest thing that's different is the level of hedging, it is significant. And as we've looked at, Marc mentioned about a quarter of these, it's been pretty impressive to see the level of hedging and how that has help buoy the borrowing base. And we see customers making decisions that around production, around drilling, much more quickly this time even to shut in wells at some level, much more quickly this time than we've seen historically. And that will have a pretty big supply effect, but it will take some time for that to play through.

Clearly, the demand impact from COVID-19 is the wildcard here. When does the economy began to rebound? When do we get planes in the air, which are large users of oil through jet fuel? When does the demand return? I think, to me at this point, this is really a demand equation less than a supply equation. I think the supply is going to come down and it's going to come down relatively quickly. But the wild card from my perspective is the demand question how quickly that comes back.

You had demand issues as well in the '08, '09 price decline from the broader recession. And so at the end of the day, you have imbalances in supply/demand that has to be worked through. And I think that you'll see the market do that and it has historically done that, but it takes time. Generally 12 to 18 month for it to find some kind of equilibrium, which is why we continue to focus on that time period as opposed to the absolute of what we see today. But we're -- we think that markets have responded appropriately, but we think the primary risk as we look forward here is really around the demand impact and how quickly that can recover once we get a resumption of some kind of business activity.

Michael Rose -- Raymond James -- Analyst

Appreciate all the color, guys. Thank you.

Operator

Thank you. Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your questions.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Good morning.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Good morning.

Peter Winter -- Wedbush Securities -- Analyst

I was wondering, Steven, could you provide some color on the second quarter outlook on some of the fee income businesses? I mean you had great quarter in brokerage and trading and mortgage. And I'm just wondering if that level is going to be sustainable and if you could just talk about some of the other businesses.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Yeah, I can do that Peter. Whether it's sustainable, I mean the environment is really an odd environment. So it's hard to say. I think what I said in kind of limited guidance that we gave is that I do feel like the brokerage and trading and the mortgage business will clearly be supportive and additive to revenue streams to help offset some of the pressure that we'll feel on net interest income and net interest margin. So my expectation is they'll stay strong. The environment is volatile. It does provide us opportunity on the trading side to help our clients position hedges to position their investment portfolios. Certainly, the mortgage activity as of today continues to be very, very strong. We did a really nice job, I think of improving margins in our mortgage business, up 61 basis points, I believe and that will continue. So I think they'll be very supportive in the second quarter as they were in the first quarter. Now to what level, I'm not -- won't go there, but certainly I think they'd be very supportive.

Peter Winter -- Wedbush Securities -- Analyst

And just some of the other, like the payments business and wealth management.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

I'll let Stacy answer on the trends on payment businesses.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Sure. If you think about the payments business, I think as we go into April, we certainly saw a decline in ATM and debit activity related to that business. We also have seen more recently a pickup in activity as those stimulus checks have arrived. I don't think it's a dramatic slowdown, but I think it is a modest slowdown on the payment side of the business as we look forward. That business is awfully stable in good times and bad times. But on a relative basis, I think you'll see the impact of slower consumer spending broadly in the second quarter in our payments business.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Yeah. And Peter, this is Steve Bradshaw. I think on the wealth management side, we would expect to see some improving flow there. There are some of our businesses like corporate trust that we think will grow in this current environment. We also are seeing inflows on the equity side as you're seeing that people feeling that there is a bottom has been reached in many cases. So we're seeing some flow out of cash in the equity and obviously we're seeing a lot of reposition on the fixed income side that was a big driver in the first quarter, don't see anything as we sit here today that would suggest that that has abated any. So I would expect that area to continue, to Steven's point to be strong and to have some opportunities to grow even in this challenging environment.

Peter Winter -- Wedbush Securities -- Analyst

And then just on the credit front on healthcare, particularly the senior housing. I'm just wondering if you could dig down a little bit deeper in terms of what you're seeing with the COVID impact from a credit quality standpoint?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Sure Peter, this is Stacy. I'm glad to handle that. I think there's three sectors that are impacted in the healthcare space. Hospitals, if you are a rural hospital today, this is going to be -- it could be very devastating impact to you. We don't have rural hospitals on our portfolio that has particularly in our footprint where largely most of the space have not opted into the Affordable Care Act. Rural hospitals have already been under significant pressure and that's not been an area of business development focus for us.

The hospital systems that we have, have been impacted by really multiple things, the delay of elective procedures, which is higher margin business for them, as well as frankly people not utilizing the facilities in some cases when they need do, because of fear of people being there who are COVID positive and contracting that. Those are very high-end hospital health systems. They have large endowments and they will be able to weather that. We fully expect to see more liquidity needs from that health systems group as they are unlikely to want to sale out of their endowment in a depressed securities pricing environment. So they're going to -- won't be more likely to use lines of credit and things like that. So we expect some increases from that portfolio but we really don't see material credit risk at all in that health systems group.

We acquired CoBiz, they had a really strong and robust medical and physicians large practice group. And that is the area that we've seen the larger amount of request in healthcare for deferral request. And that's really because these are specialty style practices that have been impacted most by the deferral of elective procedures. And so our view is that we would expect that to be relatively temporary. And generally these guys have doctors, specific doctors who are guaranteeing the facility in addition to the corporate entity. And so maybe some timing or maybe some classification overtime as we get financial statements there. I don't see that as a significant risk of loss today. Although, if we have a long period of time without access to those types of facilities that could certainly change.

In the senior housing space, that's where certainly people have been most focused around credit risk and risk of loss. I think that it's important to understand we have in excess of 350 skilled nursing facilities that are part of our portfolio. We alluded in our earlier comments that we prefer multiple facility operators, because of the diversification. We have around 5% of our skilled nursing facilities have reported at least one case of COVID. So in the broader scale relatively small. But there is a lot of government support that will go into, both the health systems and the skilled nursing in terms of Medicare, Medicaid enhancements, as well as additional funding to help with funding these enhanced control of around inflection and funds for additional purchase of protective equipment etc. That portfolio is holding up well.

It will take time. That's not a portfolio that we're going know today what exactly the impact is. It's going to take some time. We're obviously having conversations with our borrowers, understanding how they're impacted and what they're doing. But like I said, roughly 5% of the facilities in our portfolio have reported a case. So we certainly understand that could change overtime. But as things began to stabilize, I feel pretty confident about the skilled nursing portfolio. It won't be perfect, but I have a lot of concern there.

Peter Winter -- Wedbush Securities -- Analyst

Great. Thanks a lot for the color.

Operator

Thank you. Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.

Brady Gailey -- KBW -- Analyst

Great. Thanks. Good morning, guys.

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Hi, Brady.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Hi, Brady.

Brady Gailey -- KBW -- Analyst

So I had a question on energy hedging. The energy market has acted so squarely this week and you saw the price of the May forward contracts go negative. I was just wondering if that is an impact at all to the hedges that your energy companies have. I'm not sure if they use the forward contracts to hedge and there's basis risk thereof those hedges not work in the way that they're supposed to, or if they hedge via some other means.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

This is, Stacy. I mean, that the -- you know, the best part of the noise that comes around everybody watching the spot price. If we had been able to do that, I think everybody in Texas and Oklahoma would have filled up their swimming pools with oil to be able to get paid to do that. The borrowers, really the hedging works on kind of a daily average basis for the 20 trading days prior to closing the contract. So that anomaly around we saw with the closing of the May contract, it was really not particularly impactful to the hedging, and certainly creates noise and a lot of headlines, but is not meaningful to the actual settlement of these hedges.

Brady Gailey -- KBW -- Analyst

Okay. And then on the expense side, you had a decent step-down and the compensation expenses, I've heard you say, some of that is related to incentive comp. But did -- I mean, your fees did really well and comp went down. Normally, those kinds of move together. But maybe the -- just help size it out, how do you -- as we look to the second quarter, how do you think that compline will trend? Is 1Q a good run rate? Or how much of that was kind of a one-time in nature benefit from the decrease in incentive comp?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Yeah, Brady. This is, Steven. I would say, roughly $8 million of that step down was related to deferred compensation that runs through that line item, and I would not expect that to recur. So that's a reduction this -- in the first quarter that won't recur. But everything else, I think it's pretty good. We look -- we stepped down a little bit on our personnel, our regular and part-time salaries. I think that will continue with some of the efforts that we're taking on as the staff and certainly open positions and replacement of positions is slowing some of our project costs and down a little bit. So I think with regard to looking forward, that one item of about $8 million would be something that I would consider not to recur.

Brady Gailey -- KBW -- Analyst

Okay. And then lastly for me, just on the net interest margin. As Steven, you're saying, we're not going to see the full impact until the second quarter, any idea -- the magnitude of how much the margin could decline in 2Q? I mean, 1Q is down I think 7 basis points or 8 basis points, and how much do you think it could be down in 2Q?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Well, I think there is too many moving parts. I mean you've got significant advances on your loan book, partially related to COVID. You've got PPP loans that are on the balance sheet now. You've got funding costs related to that. You've got significant inflows of deposits. It's impossible to tell you the exact magnitude of what the NIM will look like.

But I'll tell you and I'll reiterate what Stacy said earlier, the biggest thing that we can do is really control our deposit costs. And we are working very, very hard. He gave you an example of about $4 billion of exception priced deposits that we have moved down significantly. I think our March interest-bearing deposit cost was 79 basis points and I expect that to migrate significantly lower over the coming quarters.

So that's going to be a nice benefit to help support net interest margin. But clearly, with the decline and the huge decline in rates that we saw in kind of early to mid-part of March is going to have an impact on NIM. And there's just a lot of moving parts to consider, so I'm not going to step out and say, it's going to be x number of basis points. But it will be lower than the 2.80% that you saw in the first quarter.

Brady Gailey -- KBW -- Analyst

Yeah, that's fair. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Jennifer Demba with SunTrust. Please proceed with your question.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Good morning. Back to the energy loans, could help us frame just one comparison that investors may be looking at in that? Is that yesterday Comerica reported and noted that their energy reserve today is about 10% versus your 2.4%, 2.5%. So can you frame that up for us? And also, could you just talk about how you stress tested the energy book specifically in terms of a longer duration for this lower oil demand? Thanks.

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Jennifer, this is Marc Maun. Let me touch on framing it against Comerica. And to be honest, I don't know their portfolio, so I can't really assess how they're coming up with their particular numbers. But I will say that in the 2015 to '17 downturn, we saw a number of banks that stepped out with significant energy reserves early in the process. We tended to be at the lower end with some other banks that are very active in the energy space.

We base our energy reserve on what we're looking at in terms of our portfolio's characteristics are based on what we can assess from the structure of their engineering. We have 16 engineers and techs on staff, so we feel we are doing a very strong analysis of what the -- not only what the price deck impacts are but understanding exactly how the well production and performance of those wells will be completed as part of that engineering process.

And then we also come back continually to the hedging concept is that, that has -- there is a price protection that helps us, not just look at what the current price deck is. So we think we take all those things together and we evaluate based on our past history too. We've been consistent that we've had sufficient reserves -- more than sufficient reserves throughout cycles in energy to cover our ultimate losses. And we will continue as we've said before to evaluate on an ongoing basis to see that we have the appropriate reserve.

With regards to the stress test, we tend to run it about 20%. As I said earlier, discount to our existing price deck, which in the crude oil side range it from 23% early in 2020 up to kind of topping out around 33% or a little plus on that, and then natural gas at a $1.52, growing to about $1.92 over a five-year period. That stress test has done on -- without a hedging basis. As I said earlier, right now that stress test is still reflective of what the forward curve is. It's well below what it's still at the 20% below roughly at where the forward curve is today.

And so we take a look at that, take a look at the hedging that's associated with the individual customers, determine where our highest risks are. We had a very small number of customers that continue to not have sufficient hedging and those are the ones we've identified. The rest, we had already identified as criticized loans and we're working with. So it wasn't a substantial increase in the number of customers that we think are higher risk. And that's how we looked at the stress test.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

And I won't speak to a specific other entity, but I just broadly speaking, we are in the control C for 69% of our energy relationships whether it's the lead, as the syndicating agent, as the -- I mean, maybe the single bank facility. But I think that really helps us as we work through this to kind of help navigate and work through any issues that may come up in this environment.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thank you. That's all very helpful. When you pointed out, the -- more pandemic sensitive industries, casinos, restaurants, hotels, etc., what kind of deferral rate are you seeing among industries from that slide?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Actually, I don't know that I have a specific for that broken down by industry. I go back to the fact that are -- almost all of those are in our C&I portfolio. We're running about 3.8% total dollars. I would note that we have had some deferral request on the casinos because they are completely shut down. However, those are mostly tribal casinos, almost all of them, which have pretty substantial liquidity reserves. And in a lot of cases are maintaining their employment and that is one of the reasons that they're asking for modification. We really haven't had any to speak of significance in the convenience stores, specialty stores, hotels, the colleges and universities, or airlines yet.

The restaurant side, we have seen some, that is -- a sizable portion of that is franchisee finance. However, we with very large brands, a very well known brands. And so while we're hearing sales are down 20% to 30%, we know that they are still able to do drive-through and curbside and delivery. And the brand names are being supported by the franchise or in a lot of cases to provide longer-term support should this carry out farther.

Speaker C-Stacy C. Kymes

And as you know, Jennifer, these are -- these types of areas are ones that we materially underweighted over a very long period of time at BOK Financial. These types of businesses have a harder time sustaining through a downturn and so we have historically not been a significant lender in this space. The other area that we have been underweighted in significantly is any kind of leverage lending. Marc and his credit team have done a really good job, managing through that, where we have a large level of kind of cash flow only as our source of repayment. So we feel pretty good as it relates to those more high-risk segments of the spectrum.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Okay. Can you talk about just the unique aspects of that casino portfolio, the Indian casino portfolio? And how severe the losses could be and how recourse works for those types of credit?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Well, I'll talk -- I mean, I'll talk about the way they're structured. I mean they are direct there to the casino operations of the individual tribes. We generally, as you know, cannot take mortgages on casinos because of the sovereign nation assesses. But all the nations have ways put immunity on this in a way recourse with work is we take over, the cash flow associated with the casino.

As I said, these casinos are shut down for now. However, they have strong liquidity, they have substantial cash balances, so we don't see a significant risk of loss as we would expect when the economy reopens that these facilities will reopen as well. It's hard to assess depends again how long before they reopen. We're comfortable that they've got cash reserves on the most -- on the large -- vast majority of this portfolio that will support it through a reasonable closure period.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Jennifer, an interesting side note on that is, as the stimulus payments began to rollout, we saw a large uptick in our gaming segment of our debit card as well. So it's hard to assess there's going to be some offsets there. These are very strong gaming operations and tribes that are behind them, so it should be a very good portfolio.

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Thanks so much.

Operator

Thank you. Our next question comes from the line of Matt Olney with Stephens. Please proceed with your question.

Matt Olney -- Stephens -- Analyst

Hey, thanks. Good morning. I just want to go back to the discussion around energy hedges. And once we move beyond that 12-month time frame, can you give us an idea or just some more clarity on how much that hedge production declined?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Yeah. This is, Marc. We have about -- our customer base about a third of our oil-weighted customers have more than 50% of their average price -- their portfolio hedged at an average price of $52 ended through 2021, and the gas is about a little bit larger, more like 36%, hedged at an average price of $2.63 [Phonetic]. What I would note is that we are still seeing people increasing their hedging activity into 2021 based on the current price, especially a couple of weeks ago when you were still looking at $40 plus oil in 2021. So we would anticipate that hedge activity will start increasing over the latter half of this year as well, into that 2021 year.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

And in fact, over the last couple of weeks, we have seen significant hedging that's not reflected in these numbers. You can hedge 2021 at $33 a barrel as of 8 o'clock this morning, 2022 at $36 a barrel. So there is still ample opportunity for hedges to be layered in. A lot of these companies will have maybe 18-month rolling hedge programs and things like that. So I think the 2021 number will continue to improve over the course of the year.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

And I think one thing I should add is that at this kind of price levels, we don't need a return to $50, even $40 level to see improved cash flow significantly for these companies in an environment where they're discontinuing their drilling activity. If they -- if we see a couple of dollar increase because of their operating expense leverage in this kind of environment, they will have a dramatic increase in their overall cash flow and significantly reduce the potential risk of loss associated with these particular loans in this portfolio. That is because they are not having the expense of trying to use existing production to support capex expense. Now that would change if drilling increased. But at this point in time, given the current environment, we don't anticipate any significant drilling activity.

Matt Olney -- Stephens -- Analyst

Okay, that's helpful. And can you talk more about counterparty risk within the hedges? Are these hedges going through BOK or someone else? Just trying to figure out what entity is holding the wrong end of that hedge?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Well, these were done to the -- a lot of them were done through an exchange, so you've got the exchange counterparties in whole post margin and the credit risk on that exchange is really very small. We have some number of hedges that are done with single counterparties who were high investment-grade rated, but with very low credit lines bilaterally. And so there is cash exchanged on a daily basis to settle any differences between the credit line provided and the changes in the price during that period of time. So there is a modest amount of counterparty risk there, but it is very slight at this point, a much, much different than it was in the '08-'09 time period where most of this trading was done with single counterparties at credit limits, much higher than what we used today.

Matt Olney -- Stephens -- Analyst

Okay, that's helpful, Stacy. That's all from me. Thank you, guys.

Operator

Thank you. Our final question this morning comes from the line of Gary Tenner with D.A. Davidson. Please proceed with your question.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks, guys, good morning. I had a couple of questions. First is on the retail commercial real estate portfolio about $775 million [Phonetic], you highlight about $605 million [Phonetic] of that on that COVID-19 impact slide. Can you tell us the areas, maybe that you did not include and that slide?

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Well, I'll let Stacy talk through on the CRE. But I want to be clear that COVID-19 slide, that retail is in our C&I portfolio. That is not part of the CRE retail portfolio.

Gary Tenner -- D.A. Davidson -- Analyst

Is that out of the retail trade portfolio?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

That's correct.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Yes.

Gary Tenner -- D.A. Davidson -- Analyst

Okay.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

And on the retail CRE portfolio is very well-positioned. I alluded to kind of the average debt service coverage we had at the end of '19 for that portfolio. What I failed to mention was that 1.5 times was based on a kind of a stress that we do at this case 6.25 rate on a 25-year AM. So actual debt service will be much lower -- a much better than that, but we look at it on a kind of to try to normalize rates and things like that as we look at that portfolio.

Gary Tenner -- D.A. Davidson -- Analyst

Okay. And so -- since you mentioned that this net retail piece is from the wholesale and retail trade portfolio is the other $1.4 billion of that $2 billion segment, is that all wholesale trade? Or is there other retail segments within it?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

No. $605 million is the full amount of our retail exposure. The rest of it would be in the wholesale side.

Gary Tenner -- D.A. Davidson -- Analyst

Okay, thank you. And then just ask one more question on the energy front. I'm trying to square the dynamics we saw in the E&P space last year where crude was over $50 for the majority of the year and we still had growing levels of bankruptcy. So as we're this year and looking forward, even with a portion of the production hedge is at $52, obviously, the unhedged portion brings down kind of the weighted average price per barrel that the producers would be getting. And then if you hedge going forward in the $30 or low $30s over the next couple of years, that would seem to still generate a lot more vulnerability for the reserve base producers or the borrowers relative to where we saw the commodity price last year. Can you help me square that again?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Yeah. I think the piece that you're missing is total debt. So the common denominator in the increase in bankruptcies is largely unsecured capital markets doubt that, that they can't roll a refinance, not the -- not nearly as much on the senior secured lending related to the revolver. We've got borrowers who are in or contemplating bankruptcy who we would expect to be able to leave on accrual, because the issue is not the bank debt, the issue is the unsecured bond debt or debt outside of the bank facility if they can't refinance or repay. And so you're having a restructure that happens around those bondholders becoming the equity holder and having to go through a bankruptcy process to do that. I think that's the link that in your analysis is not as prevalent as probably it should be.

Gary Tenner -- D.A. Davidson -- Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Nell for any final comments.

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Thank you. Thanks again, everyone for joining us today. If you have any further questions, please call me at 918-595-3030, or you can email us at ir@bokf.com. Have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 85 minutes

Call participants:

Steven E. Nell -- Executive Vice President and Chief Financial Officer

Steven G. Bradshaw -- Director, President and Chief Executive Officer

Martin E. Grunst -- Executive Vice President, Chief Risk Officer

Norman P. Bagwell -- Executive Vice President, Regional Banks

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Michael Rose -- Raymond James -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Brady Gailey -- KBW -- Analyst

Jennifer Demba -- SunTrust Robinson Humphrey -- Analyst

Matt Olney -- Stephens -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

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