TULSA, Okla., April 25, 2018 (GLOBE NEWSWIRE) -- BOK Financial Corporation (Nasdaq:BOKF) reported net income of $105.6 million or $1.61 per diluted share for the first quarter of 2018. Net income was $72.5 million or $1.11 per diluted share for the fourth quarter of 2017 and $88.4 million or $1.35 per diluted share for the first quarter of 2017. Lower federal corporate income tax rates decreased income tax expense for the first quarter of 2018 by approximately $13.8 million. Accounting for the Tax Cuts and Jobs Act increased income tax expense for the fourth quarter of 2017 by $11.7 million.

Steven G. Bradshaw, president and chief executive officer, stated, “The entire company executed extremely well in the first quarter, resulting in one of the strongest quarters in company history. Loan growth accelerated, driven by growth in key lending businesses including energy, healthcare, commercial and industrial, and commercial real estate. We continued to benefit from the current interest rate environment and saw an additional uptick in net interest margin, which in conjunction with higher earning assets led to a significant increase in net interest revenue. Our fee–generating businesses benefited from higher gain–on–sale margins in the mortgage business, and our robust wealth management business surpassed $100 million in total revenue for the first time in company history. Finally, we continue to maintain expense discipline across the company, which has resulted in material earnings leverage and growth in pretax income.”

Bradshaw added, “The economy across the BOK Financial footprint is strong, the financial markets are healthy, and the credit environment remains benign with no trouble spots on the horizon. Accordingly, we are optimistic about prospects for continued earnings growth through the remainder of 2018.”

 First Quarter 2018 Highlights

• Net interest revenue totaled $219.7 million for the first quarter of 2018, an increase of $2.9 million over the fourth quarter of 2017. Net interest margin increased to 2.99 percent for the first quarter of 2018 from 2.97 percent for the fourth quarter of 2017. Average earning assets grew by $120 million over the prior quarter.
• Fees and commissions revenue totaled $159.0 million for the first quarter of 2018, largely unchanged compared to the fourth quarter of 2017 on a comparable presentation basis. Adoption of the new revenue recognition accounting standard in the first quarter of 2018 resulted in $9.5 million of interchange fees we pay to issuing banks being netted against transaction card revenue. Previously these costs were included in data processing and communications expense. Increased mortgage banking and transaction card revenue were offset by decreased brokerage and trading revenue.
• Operating expense was $244.4 million for the first quarter of 2018, a $10.1 million decrease compared to the fourth quarter of 2017 on a comparable presentation basis. Personnel expense decreased $5.4 million, primarily due to decreased incentive compensation expense. Non-personnel expense decreased $4.7 million. Lower professional fees and services expense and mortgage banking expense were partially offset by a write-down of certain repossessed oil and gas properties.
• Income tax expense was $30.9 million or 22.7 percent of net income before taxes for the first quarter of 2018 compared to $54.3 million or 42.9 percent for the fourth quarter of 2017. Beginning January 1, 2018, the Tax Cuts and Jobs Act decreased the corporate income tax rate from 35% to 21%. Accounting for the Act required us to revalue our deferred tax assets and liabilities in 2017. We anticipate our effective tax rate to be between 22 percent and 23 percent for 2018.
• The Company recorded a $5.0 million negative provision for credit losses in the first quarter of 2018, due to improved credit metric trends. A $7.0 million negative provision for credit losses was recorded in the fourth quarter of 2017. The company had net charge-offs of $1.3 million or 0.03 percent of average loans on an annualized basis in the first quarter of 2018, compared to net charge-offs of $11.7 million or 0.27 percent of average loans on an annualized basis for the fourth quarter of 2017.
• The combined allowance for credit losses totaled $228 million or 1.32 percent of outstanding loans at March 31, 2018, compared to $234 million or 1.37 percent of outstanding loans at December 31, 2017.
• Nonperforming assets that are not guaranteed by U.S. government agencies totaled $195 million or 1.13 percent of outstanding loans and repossessed assets at March 31, 2018 and $207 million or 1.22 percent of outstanding loans and repossessed assets at December 31, 2017. In addition, potential problem loans decreased $19 million to $222 million at March 31, 2018.
• Average loan balances grew by $80 million over the previous quarter, primarily due to growth in commercial loan balances. Period-end outstanding loan balances totaled $17.3 billion at March 31, 2018, a $184 million increase over December 31, 2017.
• Average deposits were largely unchanged compared to the previous quarter. Average demand deposit balances decreased by $266 million, largely offset by a $202 million increase in interest-bearing transaction deposit balances. Period-end deposits were $22.2 billion at March 31, 2018, a $144 million increase over December 31, 2017. 
• The common equity Tier 1 capital ratio at March 31, 2018 was 12.06 percent. Other regulatory capital ratios were Tier 1 capital ratio, 12.06 percent, total capital ratio, 13.49 percent, and leverage ratio, 9.40 percent. At December 31, 2017, the common equity Tier 1 capital ratio was 12.05 percent, the Tier 1 capital ratio was 12.05 percent, total capital ratio was 13.54 percent, and leverage ratio was 9.31 percent.
• The company paid a regular cash dividend of $29.3 million or $0.45 per common share during the first quarter of 2018. On April 24, 2018, the board of directors approved a quarterly cash dividend of $0.45 per common share payable on or about May 25, 2018 to shareholders of record as of May 11, 2018.
• The company repurchased 82,583 common shares at an average price of $91.83 per share during the first quarter of 2018. The company repurchased 80,000 common shares at an average price of $92.54 per share during the fourth quarter of 2017.

Net Interest Revenue

Net interest revenue was $219.7 million for the first quarter of 2018, a $2.9 million increase over the fourth quarter of 2017.

Net interest margin was 2.99 percent for the first quarter of 2018, an increase of 2 basis points over the fourth quarter of 2017. Lower federal income tax rates which became effective on January 1, 2018 decreased net interest margin by approximately 3 basis points. The yield on average earning assets was 3.61 percent, an increase of 12 basis points over the prior quarter. The loan portfolio yield was 4.45 percent, up 16 basis points. The yield on the available for sale securities portfolio increased 2 basis points to 2.23 percent. The yield on interest-bearing cash and cash equivalents increased 30 basis points. Funding costs were 0.93 percent, up 14 basis points. The cost of interest-bearing deposits increased 9 basis points to 0.57 percent. The cost of other borrowed funds was up 22 basis points to 1.50 percent. The benefit to net interest margin from assets funded by non-interest liabilities increased to 31 basis points from 27 basis points in the fourth quarter of 2017.

Average earning assets increased $120 million over the first quarter of 2018. Trading securities balances increased $373 million. Average interest-bearing cash and cash equivalents balances were up $83 million. Average loan balances grew by $80 million. Available for sale securities decreased $199 million and fair value option securities held as an economic hedge of our mortgage servicing rights decreased $166 million. Average interest-bearing deposit balances increased $232 million over the fourth quarter of 2017. The average balance of borrowed funds increased $161 million.

Fees and Commissions Revenue

Fees and commissions revenue totaled $159.0 million for the first quarter of 2018. Excluding the netting impact from the implementation of the revenue recognition accounting standard, this is consistent with results from the fourth quarter of 2017.

Brokerage and trading revenue decreased $2.4 million compared to the fourth quarter of 2017 due primarily to the timing and volume of completed investment banking transactions. Many municipal and public school district customers completed offerings in the previous quarter in advance of tax law changes.

Mortgage banking revenue totaled $26.0 million for the first quarter of 2018, a $1.7 million increase compared to the fourth quarter of 2017. Revenue from mortgage loan production increased $1.7 million.  Internal changes to better manage our loan production pipeline, improved values of originated servicing rights and an increase in delivery through the retail channel resulted in a 21 basis point increase in gain on sale margin. Loan production volume increased $12 million.

Operating Expense

Total operating expense was $244.4 million for the first quarter of 2018, a $10.0 million decrease compared to the fourth quarter of 2017 on a comparable presentation basis. 

Personnel expense decreased $5.4 million. Incentive compensation expense decreased $10.6 million primarily due to changes in assumptions for performance compensation awards. The predominant factor used to measure performance for certain share-based and executive cash-based incentives, our earnings per share compared to peers, was impacted by tax reform. Our relative EPS growth was lower than anticipated once all peer data for 2017 became available. Employee benefits expense increased $3.0 million primarily due to a seasonal increase in payroll taxes partially offset by an overall decrease in employee healthcare costs. Regular compensation increased $2.2 million as merit increases were effective for most employees during the first quarter of 2018.

Non-personnel expense decreased $4.7 million. Professional fees and services expense decreased $5.1 million mainly due to expenses related to projects completed in the fourth quarter of 2017. Mortgage banking costs decreased $4.2 million primarily due to a $3.5 million decrease in accruals related to default servicing and loss mitigation costs on loans serviced for others. The fourth quarter also included a $2.0 million contribution to the BOKF Foundation.

Net losses and operating expenses of repossessed assets increased $7.4 million, primarily due to a $5.0 million write-down on a set of repossessed oil and gas properties based on an updated analysis of production data.

Loans, Deposits and Capital

Loans

Outstanding loans were $17.3 billion at March 31, 2018, up $184 million or 4% on an annualized basis over December 31, 2017, primarily due to growth in commercial loan balances during the quarter. Increased commercial real estate loan balances were offset by lower residential mortgage loan balances.

Outstanding commercial loan balances grew by $186 million or 7% on an annualized basis. Manufacturing sector loan balances were up $63 million. Wholesale/retail sector loan balances grew by $60 million. Healthcare sector loan balances increased $45 million. Energy loan balances grew by $39 million. Unfunded energy loan commitments increased $97 million over December 31, 2017 to $3.0 billion at March 31, 2018. Other commercial and industrial loans increased by $36 million. This growth was partially offset by a $59 million decrease in service sector loan balances.

Commercial real estate loan balances increased $27 million or 3% on an annualized basis. Loans secured by retail facilities were up $59 million. Loans secured by industrial properties grew by $41 million. Multifamily residential loans increased $29 million. This growth was partially offset by a $95 million decrease in loans secured by office buildings.

Deposits

Period-end deposits totaled $22.2 billion at March 31, 2018, a $144 million increase over December 31, 2017. Time deposit balances grew by $68 million and demand deposit balances increased $63 million. This growth was partially offset by a $23 million decrease in interest-bearing transaction account balances. Consumer Banking deposits were up $151 million and Wealth Management deposits grew by $149 million. Commercial Banking deposits decreased $49 million.

Capital

The company's common equity Tier 1 capital ratio was 12.06 percent at March 31, 2018. In addition, the company's Tier 1 capital ratio was 12.06 percent, total capital ratio was 13.49 percent and leverage ratio was 9.40 percent at March 31, 2018. At December 31, 2017, the company's common equity Tier 1 capital ratio was 12.05 percent, Tier 1 capital ratio was 12.05 percent, total capital ratio was 13.54 percent, and leverage ratio was 9.31 percent.

The company's tangible common equity ratio, a non-GAAP measure, was 9.18 percent at March 31, 2018 and 9.50 percent at December 31, 2017. 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 $278 million or 1.60 percent of outstanding loans and repossessed assets at March 31, 2018, down from $290 million or 1.69 percent at December 31, 2017. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $195 million or 1.13 percent of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2018, compared to $207 million or 1.22 percent at December 31, 2017. 

Nonaccruing loans totaled $180 million or 1.04 percent of outstanding loans at March 31, 2018, compared to $188 million or 1.10 percent of outstanding loans at December 31, 2017. The decrease in nonaccruing loans was primarily due to a $3.0 million decrease in manufacturing sector loans and a $2.3 million decrease in energy loans. New nonaccruing loans identified in the first quarter totaled $10 million, offset by $12 million in payments received, $2.9 million in charge-offs and $3.7 million in foreclosures and repossessions. At March 31, 2018, nonaccruing commercial loans totaled $131 million or 1.20 percent of outstanding commercial loans, nonaccruing commercial real estate loans totaled $2.5 million or 0.07 percent of outstanding commercial real estate loans and nonaccruing residential mortgage loans totaled $46 million or 2.35 percent of outstanding residential mortgage loans. 

Potential problem loans, which are defined as performing loans that, based on known information, cause management concern as to the borrowers' ability to continue to perform, totaled $222 million at March 31, down from $241 million at December 31. The decrease largely resulted from energy and healthcare sector loans, partially offset by an increase in wholesale/retail sector loans.

The company had net charge-offs of $1.3 million or 0.03 percent of average loans on an annualized basis for the first quarter of 2018, compared to net charge-offs of $11.7 million or 0.27 percent of average loans on an annualized basis for the fourth quarter of 2017. Gross charge-offs were $2.9 million for the first quarter, compared to $14.7 million for the previous quarter. Recoveries totaled $1.6 million for the first quarter of 2018 and $3.1 million for the fourth quarter of 2017.

Based on an evaluation of all credit factors, including changes in nonaccruing and potential problem loans, overall loan portfolio growth and net charge-offs, the company determined that a $5.0 million negative provision for credit losses was appropriate for the first quarter of 2018. The company had a $7.0 million negative provision for credit losses in the fourth quarter of 2017.

The combined allowance for credit losses totaled $228 million or 1.32 percent of outstanding loans and 133 percent of nonaccruing loans at March 31, 2018, excluding residential mortgage loans guaranteed by U.S. government agencies. The allowance for loan losses was $224 million and the accrual for off-balance sheet credit losses was $4.1 million. At December 31, 2017, the combined allowance for credit losses was $234 million or 1.37 percent of outstanding loans and 131 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $231 million and the accrual for off-balance sheet credit losses was $3.7 million.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $8.2 billion at March 31, 2018, a $72 million decrease compared to December 31, 2017. At March 31, 2018, the available for sale portfolio consisted primarily of $5.4 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $2.7 billion of commercial mortgage-backed securities fully backed by U.S. government agencies. At March 31, 2018, the available for sale securities portfolio had a net unrealized loss of $148 million compared to a $47 million net unrealized loss at December 31, 2017.

Trading securities increased $830 million to $1.3 billion during the first quarter of 2018 as a result of expanded relationships with mortgage loan originator clients. The company holds an inventory of trading securities in support of sales to a variety of customers, including banks, corporations, insurance companies, money managers, and others.

The company also maintains a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts as an economic hedge of the changes in the fair value of our mortgage servicing rights.

The net economic cost of the changes in fair value of mortgage servicing rights and related economic hedges was $256 thousand during the first quarter of 2018, including a $21.2 million increase in the fair value of mortgage servicing rights, a $23.3 million decrease in the fair value of securities and derivative contracts held as an economic hedge and $1.8 million of related net interest revenue.

The fair value of mortgage servicing rights increased by $5.9 million during the fourth quarter of 2017.  The fair value of securities and interest rate derivative contracts held as an economic hedge of mortgage servicing rights decreased by $7.3 million. Related net interest revenue was $2.7 million during the fourth quarter of 2017.

Conference Call and Webcast

The company will hold a conference call at 9 a.m. Central time on Wednesday, April 25, 2018 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 1-201-689-8471. A conference call and webcast replay will also be available shortly after conclusion of the live call at www.bokf.com or by dialing 1-412-317-6671 and referencing conference ID # 13678702.

About BOK Financial Corporation

BOK Financial Corporation is a $33 billion regional financial services company based in Tulsa, Oklahoma. The company's stock is publicly traded on NASDAQ under the Global Select market listings (Nasdaq:BOKF). BOK Financial's holdings include BOKF, NA, BOK Financial Securities, Inc. and The Milestone Group, Inc. BOKF, NA operates TransFund, Cavanal Hill Investment Management, BOK Financial Asset Management, Inc. and seven banking divisions: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Mobank, 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, 2018 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,” “will,”  “intends,” 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, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected 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 changes in commodity prices, interest rates and interest rate relationships, demand for products and services, the degree of competition by traditional and nontraditional 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. 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.

¹ Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

²    Actual interest earned on fair value option securities less internal transfer-priced cost of funds.
³    Prior periods shown on a comparable basis to net interchange charges between transaction card revenue and data processing and communications expense.

¹    Non-GAAP measure to net interchange charges from prior quarters between transaction card revenue and data processing and communications expense. This measure has no effect on net income or earnings per share.

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

Yield calculations are shown on a tax equivalent basis at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield/rate calculations are generally based on the conventions that determine how interest income and expense is accrued.

¹   Excludes residential mortgage loans guaranteed by agencies of the U.S. government.

For Further Information Contact:
Joseph Crivelli
Investor Relations
(918) 595-3027