BOK Financial Reports Quarterly Earnings of $75 Million

BOK Financial Corporation reported net income of $74.8 million or $1.08 per diluted share for the first quarter of 2015. Net income was $64.3 million or $0.93 per diluted share for the fourth quarter of 2014 and $76.6 million or $1.11 per diluted share for the first quarter of 2014. Net income for the first quarter of 2014 included a $10.2 million or $0.15 per diluted share benefit from the reversal of accrued executive compensation costs.

Steven G. Bradshaw, president and chief executive officer, stated, "The year is off to an excellent start, with continued double-digit annualized loan growth and a record quarter from our fee-generating businesses, combined with careful expense controls. Our mortgage business posted its best quarter in two years with revenue up 31 percent sequentially, driven by increased refinancing activity in the current low-rate environment. Brokerage and trading and fiduciary and asset management were also up nicely on a sequential basis, and transaction processing posted a strong year-over-year revenue increase.

"We continue to see robust economic activity across our footprint despite the recent decrease in energy prices and reduction of drilling activity in Texas and Oklahoma. The Arizona market reached a new milestone with $1 billion in loans outstanding, and nearly all of our markets posted strong sequential growth. In addition, credit quality is holding up extremely well and our capital base is sound. We believe we are well-positioned to deliver a strong year in 2015, and reflecting this belief, during the first quarter we bought back more than 500,000 shares of our publicly-traded stock in the open market."

Highlights of first quarter of 2015 included:

• Net interest revenue totaled $167.7 million for the first quarter of 2015, compared to $169.7 million the fourth quarter of 2014. Net interest margin was 2.55 percent for the first quarter of 2015 and 2.61 percent for the fourth quarter of 2014. Average earning assets increased $782 million during the first quarter of 2015, primarily related to a $673 million increase in average loan balances.
• Fees and commissions revenue totaled $166.0 million for the first quarter of 2015, an increase of $8.1 million over the prior quarter, primarily due to a $9.2 million increase in mortgage banking revenue.
• Changes in fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income by $5.0 million in the first quarter of 2015 and $6.1 million in the fourth quarter of 2014.
• Operating expense was $220.3 million for the first quarter, a decrease of $5.6 million compared to the previous quarter. The fourth quarter of 2014 included $4.9 million of branch closure costs.
• No provision for credit losses was recorded in the first quarter of 2015 or fourth quarter of 2014. Net recoveries totaled $8.4 million in the first quarter of 2015 compared to net loans charged off of $2.2 million in the previous quarter.
• The combined allowance for credit losses totaled $199 million or 1.35 percent of outstanding loans at March 31, 2015 compared to $190 million or 1.34 percent of outstanding loans at December 31, 2014. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.85 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2015 and $129 million or 0.92 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2014.
• Average loans increased by $673 million over the previous quarter due primarily to growth in commercial and commercial real estate loans. Average commercial loans were up $421 million and average commercial real estate loans increased $244 million. Period-end outstanding loan balances were $14.7 billion at March 31, 2015, a $476 million increase over December 31, 2014. Commercial loan balances increased $295 million and commercial real estate loans increased $207 million.
• Average deposits increased $551 million over the previous quarter, primarily due to an increase in interest-bearing transaction accounts. Average demand deposit and time deposit balances were largely unchanged compared to the prior quarter. Period-end deposits were $21.2 billion at March 31, 2015, largely unchanged compared to December 31, 2014.
• The company and its subsidiary bank exceeded the regulatory definitions of well capitalized at March 31, 2015. New regulatory capital rules, which were effective for BOK Financial on January 1, 2015, establish a 7 percent threshold for the common equity Tier 1 ratio. The common equity Tier 1 ratio at March 31 was 13.07 percent. Other ratios measured under now current regulatory capital rules were Tier 1 capital ratio, 13.07 percent, total capital ratio, 14.39 percent and leverage ratio, 9.74 percent. Under then current regulatory capital rules, the Tier 1 capital ratio was 13.33 percent, total capital ratio was 14.66 percent, and leverage ratio was 9.96 percent at December 31, 2014.
• The company paid a regular quarterly cash dividend of $29 million or $0.42 per common share during the first quarter of 2015. On April 28, 2015, the board of directors approved a quarterly cash dividend of $0.42 per common share payable on or about May 29, 2015 to shareholders of record as of May 15, 2015.
• The company repurchased 502,156 common shares at an average price of $58.71 per share during the first quarter of 2015 and repurchased 200,000 common shares at an average price of $61.68 per share during the fourth quarter of 2014.

Net Interest Revenue

Net interest revenue was $167.7 million for the first quarter of 2015, compared to $169.7 million for the fourth quarter of 2014. The first quarter of 2015 had two less days than the fourth quarter of 2014. In addition, the fourth quarter of 2014 included $2.4 million of interest recoveries, whereas there were no interest recoveries in the first quarter of 2015.

Net interest margin was 2.55 percent for the first quarter of 2015, a decrease of 6 basis points compared to the fourth quarter of 2014. The yield on average earning assets was 2.80 percent, a decrease of 6 basis points compared to the prior quarter. The loan portfolio yield decreased 14 basis points from the previous quarter to 3.59 percent primarily due to continued competitive loan pricing and low interest rates. The yield on the available for sale securities portfolio decreased 1 basis point to 1.98 percent. Excess cash flows continue to be reinvested in short-duration securities that are yielding 1.50 percent to 2.00 percent. Funding costs were 0.38 percent, down 1 basis point compared to the prior quarter.

Average earning assets increased $782 million during the first quarter of 2015, primarily related to a $673 million increase in average loan balances. The average balance of fair value option securities and residential mortgage loans held for sale also increased over the prior quarter. The available for sale securities portfolio decreased $60 million. Average deposits increased $551 million over the fourth quarter of 2014. The average balance of borrowed funds increased $66 million.

Fees and Commissions Revenue

Fees and commissions revenue totaled $166.0 million for the first quarter of 2015, an increase of $8.1 million over the fourth quarter of 2014, primarily due to growth in mortgage banking revenue. Brokerage and trading revenue and fiduciary and asset management revenue were both up over the prior quarter, offset by lower deposit service charge revenue, transaction card revenue and other revenue.

Mortgage banking revenue totaled $39.3 million for the first quarter of 2015, an increase of $9.2 million over the fourth quarter of 2014. Mortgage production activity increased in the first quarter due largely to a 24 basis point decrease in average primary mortgage loan interest rates. Revenue from mortgage loan production increased $8.9 million. Total mortgage loans originated during the first quarter increased $301 million or 24 percent over the previous quarter and outstanding mortgage loan commitments at March 31 increased $130 million or 25 percent over December 31. In addition to increases in loan production volume, the percentage of refinanced mortgage loans, which generally are more profitable, increased to 56 percent of first quarter loan production from 37 percent of fourth quarter loan production. Revenue from mortgage loan servicing grew by $364 thousand due to an increase in the volume of loans serviced.

Brokerage and trading revenue totaled $31.7 million, an increase of $1.1 million over the prior quarter. The fourth quarter included a $562 thousand recovery received from the Lehman Brothers bankruptcy. Excluding the impact of this recovery, customer hedging revenue increased by $1.1 million, primarily related to increased hedging activity by our mortgage banking customers. Securities trading revenue increased $654 thousand and retail brokerage fees were up $1.0 million. Revenue growth was mostly offset by a decrease in investment banking revenue.

Fiduciary and asset management revenue continued to grow, up $820 thousand to $31.5 million for the first quarter. Deposit service charges and fees decreased $897 thousand, primarily due to lower overdraft fees. Transaction card revenues were $457 thousand lower than the prior quarter, primarily due to a seasonal decrease in transaction volumes.

Operating Expense

Total operating expense was $220.3 million for the first quarter of 2015, a decrease of $5.6 million compared to the fourth quarter of 2014. The fourth quarter of 2014 included $4.9 million of facilities and personnel costs related to the previously announced closure of 29 grocery store branches.

Personnel costs increased by $2.8 million over the fourth quarter of 2014, primarily due to a $4.2 million seasonal increase in payroll taxes. Incentive compensation expense decreased $3.1 million. In addition, the fourth quarter of 2014 included $800 thousand in costs related to the branch closures.

Non-personnel expense decreased $8.4 million compared to the fourth quarter of 2014. Net occupancy and equipment expense decreased $3.6 million. Approximately $4.1 million was expensed in the fourth quarter related to branch closure costs. Business promotion expense decreased $1.8 million, mortgage banking expense decreased $1.2 million and professional fees and services decreased $1.0 million. The company also made a $1.8 million contribution of developed commercial real estate to the BOKF Foundation during the fourth quarter of 2014. Net losses and operating expenses of repossessed assets were $613 thousand for the first quarter of 2015, compared to a net gain of $1.5 million in the fourth quarter.

Loans, Deposits and Capital

Loans

Outstanding loans were $14.7 billion at March 31, 2015, an increase of $476 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 and consumer loan balances.

Outstanding commercial loan balances increased $295 million or 3 percent over December 31, 2014, growing in almost every sector of our commercial loan portfolio. Service sector loans grew by $210 million over the prior quarter. Healthcare sector loans increased $56 million and energy loans grew by $43 million. Manufacturing sector loans increased $28 million over the fourth quarter. This growth was partially offset by a $43 million decrease in wholesale/retail sector loans compared to the prior quarter. Unfunded energy loan commitments decreased by $117 million during the first quarter to $2.7 billion. All other unfunded commercial loan commitments totaled $4.1 billion at March 31, 2015, a decrease of $123 million compared to December 31, 2014.

Commercial real estate loans grew by $207 million or 8 percent over December 31, 2014. Loans secured by office buildings increased $98 million. Loans secured by industrial facilities grew by $50 million and loans secured by multifamily residential properties were up $46 million. Other commercial real estate loan balances increased $26 million. These increases were partially offset by a decrease in retail sector and residential construction and land development loan balances compared to December 31, 2014. Unfunded commercial real estate loan commitments totaled $754 million at March 31, 2015, largely unchanged compared to December 31, 2014.

Norm Bagwell, executive vice president, Regional Banks, stated, "We delivered another quarter of solid loan growth, as total loans were up 3.2 percent in the first quarter and 12.3 percent year-over-year, led by our Texas, Arizona, and Colorado markets. Loan activity remains robust. Accordingly, we continue to forecast low double-digit loan growth in 2015."

Stacy Kymes, executive vice president, Corporate Banking, added, "We continue to believe that our loan portfolio is well-positioned in light of the current commodities downturn. If commodity prices take less than a year to return to a normalized level, we will see some credits migrate to problem loans, but few, if any, material losses in the portfolio. In addition, any spillover impact on the economy in our footprint will be manageable. If the downturn extends beyond one year, there is a greater possibility of loss content in the portfolio and reduced loan demand. However, as of today, our portfolio is strong, we are doing business with high-quality borrowers, and we believe oil and gas industry fundamentals point to a price recovery late this year."

Deposits

Deposits totaled $21.2 billion at March 31, 2015, largely unchanged compared to December 31, 2014. Demand deposit balances decreased by $57 million. Time deposits increased $43 million and savings account balances were up $32 million over December 31, 2014. Among the lines of business, Consumer deposits increased $238 million over December 31. Commercial deposits decreased $75 million and Wealth Management deposits decreased $39 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 ratio was 13.07 percent at March 31, 2015. In addition, the Company's Tier 1 capital ratio was 13.07 percent, total capital ratio was 14.39 percent and leverage ratio was 9.74 percent at March 31, 2015. The impact of the new regulatory capital rules reduced regulatory capital and increased risk weighted assets. However, this impact was partially offset by the effect of improved data granularity in the determination of risk weighted assets.

Under then current regulatory capital rules, at December 31, 2014 the Company's Tier 1 capital ratio was 13.33 percent, total capital ratio was 14.66 percent, and leverage ratio was 9.96 percent.

In addition, the Company's tangible common equity ratio, a non-GAAP measure, was 9.86 percent at March 31, 2015 and 10.08 percent at December 31, 2014. 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 $207 million or 1.40 percent of outstanding loans and repossessed assets at March 31, 2015 compared to $257 million or 1.79 percent at December 31, 2014. This decrease was primarily due to the transfer of repossessed assets guaranteed by U.S. government agencies to receivables in accordance with a newly required accounting standard. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.85 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2015 and $129 million or 0.92 percent at December 31, 2014, a decrease of $6.0 million.

Nonaccruing loans totaled $81 million or 0.55 percent of outstanding loans at March 31, 2015, compared to $81 million or 0.57 percent of outstanding loans at December 31, 2014. New nonaccruing loans identified in the first quarter totaled $14 million, offset by $7.8 million in payments received, $2.8 million in foreclosures and repossessions and $2.2 million in charge-offs. At March 31, 2015, nonaccruing commercial loans totaled $14 million or 0.15 percent of outstanding commercial loans, nonaccruing commercial real estate loans totaled $20 million or 0.68 percent of outstanding commercial real estate loans and nonaccruing residential mortgage loans totaled $46 million or 2.41 percent of outstanding residential mortgage loans.

BOK Financial had net recoveries of $8.4 million for the first quarter of 2015, compared to net loans charged off of $2.2 million for the fourth quarter of 2014. Gross charge-offs totaled $2.2 million for the first quarter, compared to $7.2 million for the previous quarter. Recoveries totaled $10.5 million for the first quarter of 2015 and $5.0 million for the fourth quarter of 2014.

After evaluating all credit factors, the Company determined that no provision for credit losses was necessary during the first quarter of 2015. The combined allowance for credit losses totaled $199 million or 1.35 percent of outstanding loans and 246 percent of nonaccruing loans at March 31, 2015. The allowance for loan losses was $198 million and the accrual for off-balance sheet credit losses was $954 thousand.

Real estate and other repossessed assets totaled $46 million at March 31, 2015, primarily consisting of $19 million of one-to-four family residential properties, $17 million of developed commercial real estate properties, $6.1 million of undeveloped land and $3.2 million of residential land and land development properties.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $9.2 billion at March 31, 2015, an increase of $179 million over December 31, 2014. At March 31, 2015, the available for sale portfolio consisted primarily of $6.7 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $2.2 billion of commercial mortgage-backed securities fully backed by U.S. government agencies.

At March 31, 2015 the available for sale securities portfolio had a net unrealized gain of $152 million compared to a net unrealized gain of $97 million at December 31, 2014. Net unrealized gains on residential mortgage-backed securities issued by U.S. government agencies at March 31, 2015 increased $32 million during the first quarter to $130 million primarily due to changes in interest rates during the quarter. Commercial mortgage-backed securities had a net unrealized gain of $6.9 million at March 31, 2015, compared to a net unrealized loss of $15 million at December 31, 2014.

In the first quarter of 2015, the Company recognized $4.3 million of net gains from sales of $335 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 $149 thousand of net gains from sales of $772 million of available for sale securities in the fourth quarter of 2014.

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 decreased by $8.5 million due primarily to a 24 basis point decrease in the average primary residential mortgage rate during the first quarter of 2015. The value of securities and interest rate derivative contracts held as an economic hedge increased by $3.6 million during the quarter. Mortgage interest rate changes decreased the fair value of mortgage servicing rights, net of economic hedges by $6.1 million in the fourth quarter of 2014.

Conference Call and Webcast

The Company will hold a conference call at 9 a.m. central time on Wednesday, April 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 # 10063919.

About BOK Financial Corporation

BOK Financial Corporation is a $30 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 March 31, 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.

Loans attributed to a geographical region may not always represent the location of the borrower or the collateral.