News Details

Double Digit Loan Growth, Record Fee and Commission Revenue Drive 4.6 percent EPS Growth

TULSA, Okla.--(BUSINESS WIRE)-- BOK Financial Corporation reported net income of $79.2 million or $1.15 per diluted share for the second quarter of 2015. Net income was $74.8 million or $1.08 per diluted share for the first quarter of 2015 and $75.9 million or $1.10 per diluted share for the second quarter of 2014.

Steven G. Bradshaw, president and chief executive officer, stated, “The second quarter of 2015 was exceptionally strong for BOK Financial, with continued double-digit loan growth and net interest margin expansion. In addition, we realized record quarterly fees and commissions revenue for the second consecutive quarter, with strong performance from all of our fee-generating businesses. We are executing well all across the business, controlling expense growth, and benefiting from a continued strong economic environment throughout our footprint.

“We have not seen a noticeable impact from the downturn in energy prices,” Bradshaw continued. “Our largest markets of Oklahoma and Texas continue to have unemployment rates well below the national average, as jobs lost in the oil and gas industry are being replaced by job growth in other industries. Credit quality in our loan portfolio remains solid, and we continue to gain market share and win new business with customers and prospects. We remain optimistic about our growth opportunities through the balance of 2015 and beyond.”

Highlights of second quarter of 2015 included:

• Net interest revenue totaled $175.7 million for the second quarter of 2015, up $8.0 million over the first quarter of 2015. Net interest margin was 2.61 percent for the second quarter of 2015 and 2.55 percent for the first quarter of 2015. Average earning assets increased $383 million during the second quarter of 2015, primarily related to a $351 million increase in average loan balances.
• Fees and commissions revenue totaled $172.5 million for the second quarter of 2015, an increase of $6.6 million over the prior quarter. Brokerage and trading revenue grew $4.3 million. A $2.5 million decrease in mortgage banking revenue was offset by growth in all other fee-based business lines.
• Changes in fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income by $1.1 million in the second quarter of 2015 and $5.0 million in the first quarter of 2015.
• Operating expense was $227.1 million for the second quarter, an increase of $6.8 million over the previous quarter, primarily due to increased incentive compensation expense.
• A $4.0 million provision for credit losses was recorded in the second quarter of 2015. No provision was recorded in the first quarter of 2015. The additional provision was primarily due to loan portfolio growth. Net loans charged off totaled $671 thousand in the second quarter of 2015, compared to net recoveries of $8.4 million in the previous quarter.
• The combined allowance for credit losses totaled $202 million or 1.34 percent of outstanding loans at June 30, 2015 compared to $199 million or 1.35 percent of outstanding loans at March 31, 2015. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.82 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at June 30, 2015 and $123 million or 0.85 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2015.
• Average loans increased by $351 million over the previous quarter, primarily due to growth in commercial loans. Period-end outstanding loan balances also increased $440 million to $15.1 billion at June 30, 2015.
• Average deposits decreased $155 million compared to the previous quarter, primarily due to a decrease in interest-bearing transaction accounts, partially offset by an increase in average demand deposit balances. Period-end deposits were $21.1 billion at June 30, 2015, largely unchanged compared to March 31, 2015.
• New regulatory capital rules were effective for BOK Financial on January 1, 2015 and components of these rules will phase in through January 1, 2019. The new capital rules establish a 7 percent threshold for the common equity Tier 1 ratio. The common equity Tier 1 capital ratio at June 30 was 13.01 percent. Other ratios measured under the new regulatory capital rules were Tier 1 capital ratio, 13.01 percent; total capital ratio, 14.11 percent; and leverage ratio, 9.75 percent. At March 31, 2015, the common equity Tier 1 capital ratio was 13.07 percent, the Tier 1 capital ratio was 13.07 percent, total capital ratio was 14.39 percent, and leverage ratio was 9.74 percent.
• The company paid a regular quarterly cash dividend of $29 million or $0.42 per common share during the second quarter of 2015. On July 28, 2015, the board of directors approved a quarterly cash dividend of $0.42 per common share payable on or about August 28, 2015 to shareholders of record as of August 14, 2015.

Net Interest Revenue

Net interest revenue was $175.7 million for the second quarter of 2015, up $8.0 million over the first quarter of 2015.

Net interest margin was 2.61 percent for the second quarter of 2015, an increase of 6 basis points over the first quarter of 2015. The yield on average earning assets was 2.84 percent, an increase of 4 basis points over the prior quarter. The loan portfolio yield increased 6 basis points over the previous quarter to 3.65 percent, primarily due to $2.3 million of non-accrual interest recoveries during the quarter and increased loan fees. Competitive loan pricing and low interest rates continue to impact loan yields. The yield on the available for sale securities portfolio decreased 4 basis points to 1.94 percent. Excess cash flows continue to be reinvested in short-duration securities that are yielding near 2.00 percent. Funding costs were 0.35 percent, down 3 basis points compared to the prior quarter.

Average earning assets increased $383 million during the second quarter of 2015, primarily related to a $351 million increase in average loan portfolio balances. Residential mortgage loans held for sale, restricted equity securities and fair value option securities also increased over the prior quarter. These increases were partially offset by an $87 million decrease in interest-bearing cash and cash equivalent balances and a $38 million decrease in the average balance of the available for sale securities portfolio. Average deposit balances decreased $155 million compared to the first quarter of 2015. The average balance of borrowed funds increased $684 million. The average balance of subordinated debentures decreased $40 million as $122 million of fixed rate subordinated debt matured on June 1, 2015.

Fees and Commissions Revenue

Fees and commissions revenue totaled $172.5 million for the second quarter of 2015, an increase of $6.6 million over the first quarter of 2015, with growth in nearly all fee categories.

Brokerage and trading revenue totaled $36.0 million, an increase of $4.3 million over the prior quarter. Investment banking revenue increased $2.4 million over the prior quarter due primarily to growth in loan syndication and underwriting fees related to the timing and volume of transactions completed. Securities trading revenue increased $1.4 million. Customer hedging revenue increased $1.3 million. Retail brokerage fees were down $880 thousand.

Mortgage banking revenue totaled $36.8 million for the second quarter of 2015, a decrease of $2.5 million compared to the first quarter of 2015. Revenue from mortgage loan production decreased $2.9 million. While loan production activity increased over the previous quarter, margin compression reduced mortgage production revenue. Total mortgage loans originated during the second quarter increased $263 million or 17 percent over the previous quarter and outstanding mortgage loan commitments at June 30 increased $26 million or 3 percent over March 31. However, mortgage interest rates increased during the second quarter which reduced higher-margin refinance activity.

Transaction card revenues grew by $1.8 million to $32.8 million due to increased transaction volumes during the second quarter. Fiduciary and asset management revenue continued to grow, up $1.2 million to $32.7 million for the second quarter. Deposit service charges and fees increased $644 thousand to $22.3 million for the second quarter, primarily due to increased overdraft fees.

Operating Expense

Total operating expense was $227.1 million for the second quarter of 2015, an increase of $6.8 million over the first quarter of 2015.

Personnel costs increased by $4.1 million over the first quarter of 2015, primarily due to a $6.3 million increase in incentive compensation expense, partially offset by a $2.5 million decrease in employee benefit expense due to decreased employee health insurance costs and payroll taxes.

Non-personnel expense increased $2.7 million compared to the first quarter of 2015. Other expense increased $2.5 million primarily due to increased recruiting expense. Business promotion expense increased $2.0 million, offset by a $1.9 million decrease in mortgage banking expense.

Loans, Deposits and Capital

Loans

Outstanding loans were $15.1 billion at June 30, 2015, an increase of $440 million over the previous quarter. Commercial and commercial real estate balances both grew over the prior quarter, partially offset by a decrease in residential mortgage loan balances.

Outstanding commercial loan balances increased $385 million or 4 percent over March 31, 2015, growing in almost every sector of our commercial loan portfolio. Healthcare sector loans grew by $135 million. Service sector loans grew by $109 million over the prior quarter. Wholesale/retail sector loans increased $107 million. Energy loan balances were largely unchanged compared to March 31, 2015. Unfunded energy loan commitments decreased by $177 million during the second quarter to $2.6 billion. All other unfunded commercial loan commitments totaled $4.2 billion at June 30, 2015, an increase of $49 million over March 31, 2015.

Commercial real estate loans grew by $98 million or 3 percent over March 31, 2015. Loans secured by office buildings increased $49 million. Other commercial real estate loan balances increased $39 million. Retail sector loan balances increased $30 million. This growth was partially offset by a $39 million decrease in multifamily residential loans. Industrial and residential construction and land development loan balances also increased over March 31, 2015. Unfunded commercial real estate loan commitments totaled $813 million at June 30, 2015, an increase of $59 million over March 31, 2015.

Norm Bagwell, EVP-Regional Banks, stated, “We saw continued robust loan growth across our footprint and in substantially all of our end markets in the second quarter. The loan production environment and our pipelines remain strong, fueled by the diverse economies of the states in our footprint, as well as our continued efforts to grow our business with new and existing customers. Accordingly, we are forecasting mid- to high-single-digit loan growth for the second half of 2015, and expect double-digit loan growth for the full year.”

Stacy Kymes, EVP-Corporate Banking, added, “In late July we updated our quarterly energy portfolio stress test and we continue to believe our portfolio is well-positioned with high quality borrowers. Potential problem energy loans increased this quarter as part of the anticipated credit migration in this environment. We do not expect significant losses if the current downturn behaves like others we have experienced over the past 20 years. In addition, the most recent decline in oil prices may ultimately be a positive for the industry’s long-term health as it will likely serve to suppress renewed drilling until prices stabilize at a new equilibrium.”

Deposits

Deposits totaled $21.1 billion at June 30, 2015, largely unchanged compared to March 31, 2015. Demand deposit balances increased $147 million, offset by a $208 million decrease in interest-bearing transaction deposits and a $27 million decrease in time deposits. Among the lines of business, Wealth Management deposits increased $127 million over March 31. Consumer Banking deposits decreased $159 million and Commercial Banking deposits decreased $139 million.

Capital

New regulatory capital rules were effective for BOK Financial on January 1, 2015 and established a 7 percent threshold for the common equity Tier 1 ratio. The Company's common equity Tier 1 capital ratio was 13.01 percent at June 30, 2015. In addition, the Company's Tier 1 capital ratio was 13.01 percent, total capital ratio was 14.11 percent and leverage ratio was 9.75 percent at June 30, 2015. At March 31, 2015, the Company's common equity Tier 1 capital ratio was 13.07 percent, Tier 1 capital ratio was 13.07 percent, total capital ratio was 14.39 percent, and leverage ratio was 9.74 percent.

In addition, the Company's tangible common equity ratio, a non-GAAP measure, was 9.72 percent at June 30, 2015 and 9.86 percent at March 31, 2015. The tangible common equity ratio is primarily based on total shareholders' equity which includes unrealized gains and losses on available for sale securities. The Company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital for regulatory capital purposes, consistent with the treatment under the previous capital rules.

Credit Quality

Nonperforming assets totaled $209 million or 1.38 percent of outstanding loans and repossessed assets at June 30, 2015 compared to $207 million or 1.40 percent at March 31, 2015. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.82 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at June 30, 2015 and $123 million or 0.85 percent at March 31, 2015, a decrease of $355 thousand.

Nonaccruing loans totaled $91 million or 0.60 percent of outstanding loans at June 30, 2015, compared to $81 million or 0.55 percent of outstanding loans at March 31, 2015. New nonaccruing loans identified in the second quarter totaled $20 million, offset by $5.0 million in payments received, $2.9 million in charge-offs and $1.4 million in foreclosures and repossessions.At June 30, 2015, nonaccruing commercial loans totaled $24 million or 0.25 percent of outstanding commercial loans, nonaccruing commercial real estate loans totaled $20 million or 0.66 percent of outstanding commercial real estate loans and nonaccruing residential mortgage loans totaled $46 million or 2.44 percent of outstanding residential mortgage loans.

Net loans charged off totaled $671 thousand for the second quarter of 2015, compared to net recoveries of $8.4 million for the first quarter of 2015. Gross charge-offs totaled $2.9 million for the second quarter, compared to $2.2 million for the previous quarter. Recoveries totaled $2.2 million for the second quarter of 2015 and $10.5 million for the first quarter of 2015.

After evaluating all credit factors, the Company recorded a $4.0 million provision for credit losses during the second quarter of 2015, primarily due to continued growth in the loan portfolio. The combined allowance for credit losses totaled $202 million or 1.34 percent of outstanding loans and 222 percent of nonaccruing loans at June 30, 2015. The allowance for loan losses was $201 million and the accrual for off-balance sheet credit losses was $882 thousand.

Real estate and other repossessed assets totaled $35 million at June 30, 2015, primarily consisting of $16 million of one-to-four family residential properties, $9.8 million of developed commercial real estate properties, $6.1 million of undeveloped land and $2.7 million of residential land and land development properties.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $9.0 billion at June 30, 2015, a decrease of $158 million over March 31, 2015. At June 30, 2015, the available for sale portfolio consisted primarily of $6.3 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $2.4 billion of commercial mortgage-backed securities fully backed by U.S. government agencies.

At June 30, 2015 the available for sale securities portfolio had a net unrealized gain of $89 million compared to a net unrealized gain of $152 million at March 31, 2015 primarily due to changes in interest rates during the quarter. Net unrealized gains on residential mortgage-backed securities issued by U.S. government agencies at June 30, 2015 decreased $51 million during the second quarter to $79 million. Commercial mortgage-backed securities had a net unrealized loss of $4.1 million at June 30, 2015, compared to a net unrealized gain of $6.9 million at March 31, 2015.

In the second quarter of 2015, the Company recognized a $3.4 million net gain from the sale of $379 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential return or to move into securities that will perform better in a rising rate environment. The Company recognized $4.3 million of net gains from sales of $335 million of available for sale securities in the first quarter of 2015.

The Company also maintains a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts designated as an economic hedge of the changes in the fair value of our mortgage servicing rights. The fair value of mortgage servicing rights increased by $8.0 million, primarily due to an increase in mortgage interest rates during the second quarter of 2015, partially offset by increased mortgage servicing costs. The value of securities and interest rate derivative contracts held as an economic hedge decreased by $9.1 million during the quarter. The fair value of mortgage servicing rights, net of economic hedges, decreased $5.0 million in the first quarter of 2015, primarily due to changes in interest rates.

Conference Call and Webcast

The Company will hold a conference call at 9 a.m. Central time on Wednesday, July 29, 2015 to discuss the financial results with investors. The live audio webcast and presentation slides will be available on the company’s website at www.bokf.com. The conference call can also be accessed by dialing 1-412-902-6611. A conference call and webcast replay will also be available shortly after conclusion of the live call at www.bokf.com or by dialing 1-412-317-0088 and referencing conference ID # 10069201.

About BOK Financial Corporation

BOK Financial Corporation is a $31 billion regional financial services company based in Tulsa, Oklahoma. The Company's stock is publicly traded on NASDAQ under the Global Select market listings (symbol: BOKF). BOK Financial's holdings include BOKF, NA, BOSC, Inc. and The Milestone Group, Inc.BOKF, NA operates TransFund, Cavanal Hill Investment Management, MBM Advisors and seven banking divisions: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. Through its subsidiaries, the Company provides commercial and consumer banking, investment and trust services, mortgage origination and servicing, and an electronic funds transfer network. For more information, visit www.bokf.com.

The Company will continue to evaluate critical assumptions and estimates, such as the appropriateness of the allowance for credit losses and asset impairment as of June 30, 2015 through the date its financial statements are filed with the Securities and Exchange Commission and will adjust amounts reported if necessary.

This news release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial, the financial services industry and the economy generally. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses involve judgments as to future events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies and assessments, (7) the impact of technological advances and (8) trends in consumer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.