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| 8-K - 8-K - BOK FINANCIAL CORP | a20170331bokfconferencecal.htm |
1
First Quarter 2017
Earnings Conference Call
April 26, 2017
2
Forward-Looking Statements: This presentation contains statements that are based on management’s
beliefs, assumptions, current expectations, estimates, and projections about BOK Financial Corporation, the
financial services industry, and the economy generally. These remarks constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. 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 BOKF 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 expressed, implied or forecasted in such forward-looking
statements. Internal and external factors that might cause such a difference include, but are not limited to,
changes in interest rates and interest rate relationships, demand for products and services, the degree of
competition by traditional and non-traditional competitors, changes in banking regulations, tax laws, prices,
levies, and assessments, the impact of technological advances, and trends in customer behavior as well as
their ability to repay loans. For a discussion of risk factors that may cause actual results to differ from
expectations, please refer to BOK Financial Corporation’s most recent annual and quarterly reports. BOK
Financial Corporation 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.
Non-GAAP Financial Measures: This presentation may refer to non-GAAP financial measures. Additional
information on these financial measures is available in BOK Financial’s 10-Q and 10-K filings with the
Securities and Exchange Commission which can be accessed at www.BOKF.com.
All data is presented as of March 31, 2017 unless otherwise noted.
3
Steven G. Bradshaw
Chief Executive Officer
4
First Quarter Summary:
• Noteworthy items impacting Q1 profitability:
• Improved interest rate environment. BOKF balance sheet behaving more asset sensitive in the
early part of the current interest rate cycle.
• Continued healthy fee and commission income, driven by wealth management.
• Much better expense management: total expenses down $21 million despite full quarter of Mobank-
related operating expenses.
• Significant improvement in MSR hedging outcomes.
• Benign credit environment – no provision for loan losses in the quarter.
Q1 2017 Q4 2016 Q1 2016
Diluted EPS $1.35 $0.76 $0.64
Net income before
taxes ($M)
$126.8 $72.4 $62.4
Net income
attributable to BOKF
shareholders ($M)
$88.4 $50.0 $42.6
$42.6
$65.8
$74.3
$50.0
$88.4
$0.64
$1.00
$1.13
$0.76
$1.35
1Q16 2Q16 3Q16 4Q16 1Q17
Net Income
Net income attributable to shareholders
Net income per share - diluted
5
Additional Details
($B)
Q1 2017
Quarterly
Growth
Annualized
Quarterly
Growth
Year over Year
Growth
Period-End Loans $17.0 --% 0.1% 6.0%
Average Loans $17.1 2.5% *10.0% 7.2%
Fiduciary Assets $44.3 6.1% 24.4% 13.3%
Assets Under Management
or in Custody
$77.4 2.6% 10.4% 7.6%
• Loans flat in Q1 but still expecting mid-single-digit loan growth in 2017
• Strong growth in fiduciary assets and assets under management or custody
• New and expanded customer relationships
• Growth continues to exceed market rates
* Due to full quarter impact of Mobank acquisition
6
Steven Nell
Chief Financial Officer
Financial Overview
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Net Interest Revenue
Net Interest Margin
($mil)
Q1
2017
Q4
2016
Q3
2016
Q2
2016
Q1
2016
Net Interest Revenue $201.2 $194.2 $187.8 $182.6 $182.6
Provision For Credit Losses $ -- $ -- $ 10.0 $ 20.0 $ 35.0
Net Interest Revenue After Provision $201.2 $194.2 $177.8 $162.6 $147.6
Net Interest Margin * 2.81% 2.69% 2.64% 2.63% 2.65%
• Improved yield on AFS securities: up 5 basis points sequentially
• Loan yields were 3.88%, up 21 basis points compared to the fourth quarter of 2016 and up 31 basis points
compared to the first quarter of 2016 due to recent interest rate increases
• Approximately 70% of loan portfolio reprices within one year.
• Cost of interest-bearing liabilities up only 8 basis points sequentially and 12 basis points year-over-year.
* Note: ~12 basis points of NIM dilution due to FHLB/Fed trade
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Fees and Commissions
Revenue, $mil Change:
Q1 17
Quarterly,
Sequential
Quarterly,
Year over Year
Trailing 12
Months
Brokerage and Trading $33.6 18.0% 4.0% 7.3%
Transaction Card 32.1 (6.9)% (0.7)% 4.3%
Fiduciary and Asset Management 38.6 11.9% 20.5% 12.1%
Deposit Service Charges and Fees 23.0 (1.4)% 2.2% 1.5%
Mortgage Banking 25.2 (11.3)% (21.5)% 4.9%
Other Revenue 11.9 (7.4)% (1.3)% (0.2%)
Total Fees and Commissions $164.4 1.4% (0.6)% 5.8%
Fee and commission revenue drivers:
• Brokerage and trading: Securities trading up 32% in Q1; nonrecurrence of $5 million trading portfolio mark to
market that impacted Q4 results; 17% increase in retail brokerage fees.
• Transaction card: Sluggish start to year but very strong sales activity and sales pipeline should put this
business on track for mid-single-digit growth in 2017.
• Fiduciary and asset management: Strong revenue growth in all lines of business. Money market fee waivers
down to $445,000 in Q1, from $1.4 million in Q4 ’16 and $2.1 million in Q1 ’16.
• Mortgage banking: Revenue down in line with expectations due to lower refinancing volume / higher interest
rates.
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Expenses
($mil)
Q1 2017
Q4 2016
Q1 2016
%Incr.
Seq.
%Incr.
YOY
Personnel Expense $136.4 $141.1 $133.6 (3.3)% 2.1%
Other Operating Expense $108.3 $124.4 $109.0 (13.0)% (0.7)%
Total Operating Expense $244.7 $265.5 $242.6 (7.8)% 0.9%
Mobank acquisition:
• One time integration expenses totaled $2.0 million
• First full quarter of Mobank personnel and operating expenses in Q1: total $2.9 million compared to $1.2 million in Q4
Personnel Expense:
• Q4 2016 included $5.0 million severance expense – payroll expense flat sequentially excluding this item.
• Regular compensation down $4 million sequentially and incentive compensation down $5.3 million sequentially
• Offset by merit increases, higher payroll taxes due to seasonality, and full quarter of Mobank personnel
Other Operating Expense:
• Professional fees down $4.4 million due to lower Mobank and Mortgage related outsourcing expenses
• Deposit insurance expense down $2.4 million due to improvements in credit quality and other risk factors
• Mortgage banking costs down due to $4.3 million decrease in MSR prepayments (lower refi rates in Q1) and $900,000
decrease in provision for recourse losses
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Other Balance Sheet Statistics
Mar 31
2017
Dec 31
2016
Mar 31
2016
Period End AFS Securities $8.4 billion $8.7 billion $8.9 billion
Average AFS securities $8.6 billion $8.8 billion $9.0 billion
Period End Deposits $22.6 billion $22.7 billion $20.4 billion
Average Deposits $22.4 billion $21.7 billion $20.6 billion
Common Equity Tier 1 11.6% 11.2% 12.0%
Tier 1 11.6% 11.2% 12.0%
Total Capital Ratio 13.3% 12.8% 13.2%
Leverage Ratio 8.9% 8.7% 9.1%
Tangible Common Equity Ratio 8.9% 8.6% 9.3%
Tangible Book Value per Share $43.63 $42.53 $43.73
• AFS securities down due to continued repositioning of balance sheet in light of rising rate environment
• Deposits stable from Q4 2017
• BOK Financial remains well capitalized at quarter end; all capital ratios increased sequentially in Q1
• Year over year decrease in capital ratios due to Mobank acquisition and share repurchases
11
2017 Assumptions
Mid-single-digit loan growth for the full year
$700 million reduction in available for sale securities portfolio for the full year
Stable to increasing net interest margin
Low-single-digit net interest revenue growth (linked quarter annualized)
Loan loss provision of $15 - $20 million for the year
Low-single-digit revenue growth from fee-generating businesses on a trailing twelve month basis
Expenses flat to slightly down compared to 2016
Capital deployment through organic growth, acquisitions, dividends, and limited stock buybacks
12
Stacy Kymes
EVP-Corporate Banking
13
($mil)
Mar 31
2017
Dec 31
2016
Seq.
Loan
Growth
Commercial and
Industrial
$10,327.1 $10,390.8 (0.6)%
Commercial
Real Estate
3,871.1 3,809.0 1.6%
Residential
Mortgage
1,946.3 1,949.8 (0.2)%
Personal 847.5 840.0 0.9%
Total $16,991.9 16,989.7 0.0%
Loan Portfolio by Type:
($mil)
Mar 31
2017
Dec 31
2016
Seq.
Loan
Growth
OK $5,595.3 $5,765.7 (3.0)%
TX 6,145.0 5,978.2 2.8%
NM 833.1 803.4 3.7%
AR 175.6 173.7 1.1%
CO 1,376.3 1,393.5 (1.2)%
AZ 1,468.4 1,522.5 (3.5)%
KC 1,398.2 1,352.7 3.4%
Total $16,991.9 $16,989.7 0.0%
Loan Portfolio by Market:
Flat loan growth in Q1 due to heavy paydown activity in March
Pipelines support mid-single-digit loan growth forecast for 2017
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($mil)
Mar 31
2017
Dec 31
2016
Seq.
Loan
Growth
Energy $2,537.1 $2,497.9 1.6%
Services 3,013.4 3,109.0 (3.1)%
Healthcare 2,265.6 2,201.9 2.9%
Wholesale/retail 1,506.2 1,576.8 (4.5)%
Manufacturing 543.4 515.0 5.5%
Other 461.3 490.2 (5.9)%
Total C&I $10,327.1 $10,390.8 (0.6)%
($mil)
Mar 31
2017
Dec 31
2016
Seq.
Loan
Growth
Retail $745.0 $761.9 (2.2)%
Multifamily 923.0 903.3 2.2%
Office 860.9 798.9 7.8%
Industrial 871.5 871.7 0.0%
Residential Const.
and Land Dev.
136.0 135.5 0.3%
Other CRE 334.7 337.7 (0.9)%
Total CRE $3,871.1 $3,809.0 1.6%
Commercial & Industrial: Commercial Real Estate
First quarter of energy loan outstandings growth since Q4 2015; expect continued growth
in energy portfolio through balance of 2017
Expect limited growth in CRE portfolio in 1H 2017, then flat to down for balance of the
year due to internal concentration limits
15
Oil & Gas
Producers
78%
Midstream
& Other
15%
Energy
Services
7%
Energy Lending Update
At 3/31/17:
$2.8 billion unfunded commitments and
$2.5 billion O/S
E&P line utilization 51%
Q1 energy net chargeoffs $309,000
Fourth consecutive quarterly reduction in
criticized/classified/nonaccrual energy
loan outstandings
17% quarterly decrease in energy
nonaccrual loans
20 year average gross loss rate on E&P loans
(gross chargeoffs as a percent of period
average loans) is 14.3 bps
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Total outstandings of $745 million at 3/31/17
Criticized/classified Retail CRE loans totaled $6MM at 3/31/17 – less than
1% of the portfolio
$4MM paid off in April
No exposure to traditional enclosed malls
Very limited exposure to high-profile troubled retailers
Well-diversified by product type and geography
Retail CRE portfolio down 8.1% over past 12 months
Portfolio is focused on best-in-class retail developers with multiple
sources of repayment
Each new loan is stress tested at origination to ensure no dependencies
on any single tenant
Retail CRE Update
17
Key Credit Quality Metrics
$82.2 $79.1
$94.0 $98.5 $97.2
$159.6 $168.1 $143.0 $132.5
$110.4
$241.8
$247.2
$237.0
$231.0
$207.6
$-
$50.0
$100.0
$150.0
$200.0
$250.0
1Q16 2Q16 3Q16 4Q16 1Q17
Other Non-Accruals Energy Non-Accruals
1.50%
1.54%
1.56%
1.52%
1.52%
1.40%
1.42%
1.44%
1.46%
1.48%
1.50%
1.52%
1.54%
1.56%
1.58%
1Q16 2Q16 3Q16 4Q16 1Q17
Combined Allowance for Credit Losses
to Period End Loans
0.56%
0.18%
0.15%
-0.03%
-0.02%
-0.50%
0.00%
0.50%
1.00%
1.50%
1Q16 2Q16 3Q16 4Q16 1Q17
Net charge offs (annualized)
to average loans
Stable credit environment in Q1
Energy portfolio continues to improve; no
material signs of stress in any other portfolio
Nonaccrual loans down 10%
Second consecutive quarter of net
recoveries
Well reserved for any potential issues with a
combined allowance of 1.52%, which is at
or near the top of the peer group
18
Steven G. Bradshaw
Chief Executive Officer
Closing Remarks
19
Question and Answer Session