BOK Financial Reports Record Earnings for Second Straight Quarter

$142 million or $2.00 Per Share in the Third Quarter

TULSA, Okla., Oct. 23, 2019 (GLOBE NEWSWIRE) -- BOK Financial (NASDAQ: BOKF) today reported net earnings applicable to common shareholders for the third quarter of 2019 of $142.2 million, or $2.00 per diluted common share.

CEO Commentary

“The third quarter was the second-consecutive record quarter for BOK Financial,” said Steven G. Bradshaw, president and chief executive officer. “It was a quarter that really illustrated the value of having an optimum balance between our banking and fee service businesses. This balance benefits our clients in a meaningful way as we are able to serve a broader spectrum of their needs, while reducing earnings volatility for shareholders. Our results suggest that our entire team is executing at a very high level.” Bradshaw continued, “This counter-cyclical strength, combined with continued expense management and sound credit underwriting discipline, positions us well for the remainder of 2019 and into 2020.”

Third Quarter 2019 Financial Highlights

• Net income was $142.2 million or $2.00 per diluted share for the third quarter of 2019 and $137.6 million or $1.93 per diluted share for the second quarter of 2019.
• Net interest revenue totaled $279.1 million, a decrease of $6.3 million. Net interest margin was 3.01 percent compared to 3.30 percent in the second quarter of 2019. Falling interest rates compressed the net interest margin by 9 basis points.
• Fees and commissions revenue totaled $186.1 million, an increase of $10.0 million. Falling interest rates led to growth in brokerage and trading revenue and mortgage banking revenue.
• Operating expense increased $2.2 million to $279.3 million. Personnel expense increased $2.2 million while non-personnel expense was consistent with the second quarter of 2019.
• A $12.0 million provision for credit losses was recorded in the third quarter of 2019. The combined allowance for credit losses totaled $206 million or 0.92 percent of outstanding loans compared to $204 million or 0.92 percent in the previous quarter.
• Average loans increased $409 million to $22.4 billion. Period-end loans increased $30 million to $22.3 billion. Average deposits increased $538 million to $25.7 billion. Period-end deposits increased $862 million.
• Income tax expense decreased $5.2 million during the third quarter primarily due to completion of 2018 tax filings and tax credit projects.

Third Quarter 2019 Business Segment Highlights

Commercial Banking

• Contributed $101.6 million to net income, a decrease of $5.4 million compared to the prior quarter. Net interest revenue decreased by $5.5 million. Fee revenue increased $5.1 million, offset by an increase in operating expense of $5.7 million.
• Average loans grew by $414 million and average deposits increased $109 million.

Consumer Banking

• Contributed $16.6 million to net income, consistent with the second quarter. Net interest revenue decreased $4.3 million, fee revenue increased $2.6 million and operating expense increased $2.0 million.
• The recent decrease in mortgage interest rates continues to drive mortgage origination activity. Mortgage production volume increased $102 million to $913 million and gain on sale margin increased 5 basis points to 1.51 percent.

Wealth Management

• Contributed $23.2 million to net income, a decrease of $2.3 million compared to the prior quarter. Net interest revenue decreased $3.9 million, fees and commissions revenue increased $3.5 million and operating expense increased $2.2 million.
• Assets under management or administration were $80.8 billion at September 30, 2019 compared to $81.8 billion at June 30, 2019. Fiduciary assets totaled $49.3 billion at September 30, 2019 and $49.3 billion at June 30, 2019.

Net Interest Revenue

Net interest revenue was $279.1 million for the third quarter of 2019, a $6.3 million decrease compared to the second quarter of 2019. Discount accretion on acquired loans totaled $10.9 million for the third quarter and $13.4 million for the second quarter. Recoveries of foregone interest on nonaccruing loans added $3.4 million to the second quarter of 2019.

Average earning assets increased $2.3 billion compared to the second quarter of 2019. Available for sale securities increased $1.3 billion during the third quarter as the balance sheet was repositioned to reduce the Company's exposure to further interest rate decreases. Fair value option securities balances, which we use as an economic hedge against changes in the fair value of mortgage servicing rights, increased $655 million. Average loan balances were up $409 million. Growth in average earning assets was largely funded by a $2.0 billion increase in borrowed funds and a $662 million increase in interest-bearing deposits.

Net interest margin was 3.01 percent compared to 3.30 percent in the previous quarter. Net interest margin was reduced 9 basis points due to available for sale securities expansion and 4 basis points due to the increase in the fair value hedge portfolio. In addition, lower foregone interest recoveries and discount accretion reduced net interest margin by 7 basis points. Falling interest rates compressed the net interest margin by an additional 9 basis points.

Excluding interest recoveries, the yield on average earning assets was 4.25 percent, a 22 basis point decrease from the second quarter. The loan portfolio yield was 5.12 percent, down 21 basis points. The yield on the available for sale securities portfolio decreased 3 basis points to 2.60 percent.

Funding costs were 1.68 percent, down 2 basis points. The cost of interest-bearing deposits increased 4 basis points to 1.17 percent. The cost of other borrowed funds was down 22 basis points to 2.31 percent. The benefit to net interest margin from assets funded by non-interest liabilities decreased 5 basis points to 44 basis points.

Fees and Commissions Revenue

Fees and commissions revenue totaled $186.1 million for the third quarter of 2019, an increase of $10.0 million over the second quarter of 2019.

Brokerage and trading revenue increased $3.3 million primarily due to higher trading volume and loan syndication activity. Mortgage banking revenue increased $2.0 million. A continued decline in primary mortgage interest rates increased mortgage loan production. Mortgage production volume increased $102 million and the gain on sale margin increased 5 basis points over the second quarter of 2019.Fees and commissions revenue totaled $186.1 million for the third quarter of 2019, an increase of $10.0 million over the second quarter of 2019.

Other revenue increased $5.2 million. This increase is largely due to the combination of an increase in repossessed asset revenue from a certain set of oil and gas properties, which is offset by an increase in related operating expenses, a business insurance credit, and other timing variances.

Fiduciary and asset management revenue decreased $1.4 million compared to the second quarter of 2019, primarily due to seasonal tax fees earned in the second quarter.

Operating Expense

Total operating expense was $279.3 million for the third quarter of 2019, an increase of $2.2 million over the second quarter of 2019.

Personnel expense increased $2.2 million. Incentive compensation increased $5.5 million led by an increase in cash based incentive compensation primarily due to increased sales activities in wealth management and commercial banking. Increased incentive compensation was partially offset by a decrease in regular compensation of $1.2 million and employee benefits of $2.0 million. Employee benefits expense was down largely due to a seasonal decrease in payroll taxes.

Non-personnel expense was largely unchanged in total compared to the second quarter of 2019. Mortgage banking costs increased $3.4 million primarily due to an increase in amortization of mortgage servicing rights as lower interest rates drive an increase in prepayment speeds. In addition, data processing and communications expense increased $2.2 million. Net losses and expenses of repossessed assets increased $1.1 million.

Insurance expense decreased $2.2 million, other expense decreased $1.9 million, and business promotion expense decreased $1.3 million, all following higher activity in the second quarter of 2019 largely related to the CoBiz acquisition.

Income Taxes

The effective tax rate was 18.6 percent for the third quarter of 2019, down from 21.4 percent for the second quarter of 2019.  Tax expense for the third quarter of 2019 included $5.2 million of benefits related to completion of 2018 tax returns for the Company and CoBiz, and the finalization of tax credit projects.

Loans, Deposits and Capital

Loans

Outstanding loans were $22.3 billion at September 30, 2019, up $30 million over June 30, 2019. Growth in commercial and personal loans was partially offset by a decrease in commercial real estate and residential mortgage loans.

Outstanding commercial loan balances grew by $88 million or 1 percent over June 30, 2019. Energy loan balances were up $193 million. Healthcare loans increased $106 million and wholesale/retail sector loans increased $55 million. Other commercial and industrial loans decreased $110 million, manufacturing loans decreased $63 million and public finance loans decreased by $51 million.

Commercial real estate loan balances decreased $84 million or 2 percent compared to June 30, 2019. Loans secured by industrial properties increased $45 million. Loans secured by multifamily residential properties increased $24 million. Other real estate loans decreased $79 million. Loans secured by office buildings decreased $42 million and loans secured by retail properties decreased $26 million.

Deposits

Period-end deposits totaled $26.2 billion at September 30, 2019, an $862 million increase over June 30, 2019. Interest-bearing transaction account balances grew by $670 million and demand deposit balances increased $177 million. Average deposits were $25.7 billion at September 30, 2019, an increase of $538 million compared to June 30, 2019. Total interest-bearing transaction deposits increased $619 million, partially offset by a decrease in demand deposits of $124 million.

Capital

The company's common equity Tier 1 capital ratio was 11.06 percent at September 30, 2019. In addition, the company's Tier 1 capital ratio was 11.06 percent, total capital ratio was 12.56 percent, and leverage ratio was 8.41 percent at September 30, 2019. At June 30, 2019, the company's common equity Tier 1 capital ratio was 10.84 percent, Tier 1 capital ratio was 10.84 percent, total capital ratio was 12.34 percent, and leverage ratio was 8.75 percent.

The company's tangible common equity ratio, a non-GAAP measure, was 8.72 percent at September 30, 2019 and 8.69 percent at June 30, 2019. 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.

The company repurchased 336,713 shares at an average price of $77.03 per share in the third quarter of 2019 and 250,000 shares at an average price of $80.50 in the second quarter of 2019.

Credit Quality

Nonperforming assets totaled $286 million or 1.28 percent of outstanding loans and repossessed assets at September 30, 2019, compared to $297 million or 1.33 percent at June 30, 2019. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $187 million or 0.85 percent of outstanding loans and repossessed assets at September 30, 2019, compared to $194 million or 0.88 percent at June 30, 2019.

Nonaccruing loans were $172 million or 0.77 percent of outstanding loans at September 30, 2019. Nonaccruing commercial loans totaled $112 million or 0.77 percent of outstanding commercial loans. Nonaccruing commercial real estate loans totaled $23 million or 0.50 percent of outstanding commercial real estate loans. Nonaccruing residential mortgage loans totaled $37 million or 1.76 percent of outstanding residential mortgage loans.

Nonaccruing loans decreased $11 million from June 30, 2019, primarily due to a $15 million decrease in other commercial and industrial loans and a $10 million decrease in healthcare sector loans. Nonaccruing energy loans increased $17 million. New nonaccruing loans identified in the third quarter totaled $36 million, offset by $28 million in payments received and $12 million in charge-offs.

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 $143 million at September 30, compared to $161 million at June 30. The decrease largely resulted from energy, wholesale/retail sector and other commercial and industrial loans, partially offset by an increase in services and healthcare sector loans.

Net charge-offs were $10.6 million or 0.19 percent of average loans on an annualized basis for the third quarter of 2019, compared to $7.7 million or 0.14 percent of average loans on an annualized basis for the second quarter of 2019. Net charge-offs were 0.21 percent of average loans over the last four quarters. Gross charge-offs were $11.7 million for the third quarter compared to $13.2 million for the previous quarter. Recoveries totaled $1.1 million for the third quarter of 2019 and $5.5 million for the second quarter of 2019.

Based on an evaluation of all credit factors, including growth in the originated loan portfolio, changes in nonaccruing and potential problem loans and net charge-offs, the company determined that a $12.0 million provision for credit losses was appropriate for the third quarter of 2019. The company recorded a $5.0 million provision for credit losses in the second quarter of 2019.

The combined allowance for credit losses totaled $206 million or 0.92 percent of outstanding loans and 124 percent of nonaccruing loans at September 30, 2019, excluding residential mortgage loans guaranteed by U.S. government agencies. Excluding loans acquired in the CoBiz acquisition, which are measured at acquisition-date fair value, the combined allowance for loan losses was 1.02 percent of outstanding loans and 130 percent of nonaccruing loans at September 30, 2019 compared to 1.03 percent of outstanding loans and 126 percent of nonaccruing loans at June 30, 2019. The allowance for loan losses was $204 million and the accrual for off-balance sheet credit losses was $1.4 million. At June 30, 2019, the combined allowance for credit losses was $204 million or 0.92 percent of outstanding loans and 115 percent of nonaccruing loans, excluding loans guaranteed by U.S. government agencies. The allowance for loan losses was $203 million and the accrual for off-balance sheet credit losses was $1.9 million.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $11.0 billion at September 30, 2019, a $510 million increase compared to June 30, 2019. At September 30, 2019, the available for sale securities portfolio consisted primarily of $7.7 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $3.2 billion of commercial mortgage-backed securities fully backed by U.S. government agencies. At September 30, 2019, the available for sale securities portfolio had a net unrealized gain of $178 million compared to $132 million at June 30, 2019.

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. This portfolio of fair value option securities increased $678 million to $1.8 billion at September 30, 2019.

The net economic cost of the changes in fair value of mortgage servicing rights and related economic hedges was $3.0 million during the third quarter of 2019, including a $12.6 million decrease in the fair value of mortgage servicing rights, an $8.3 million increase in the fair value of securities and derivative contracts held as an economic hedge, and $1.2 million of related net interest revenue.

Commercial Banking

Net income for Commercial Banking was $101.6 million for the third quarter of 2019, a decrease of $5.4 million compared to the second quarter of 2019.

Net interest revenue decreased $5.5 million largely as a result of a decrease in interest recoveries on loans paired with a change in the mix of deposits from non-interest bearing to interest bearing. Average loans increased $414 million or 2 percent while average customer deposits increased $109 million or 1 percent.

Fees and commissions revenue increased $5.1 million over the second quarter of 2019. Loan syndication revenue increased $1.9 million based on the timing of completed transactions. Operating expense increased $5.7 million. Personnel expense increased $1.4 million primarily due to incentive compensation related to syndication activity.  Non-personnel expense increased $4.3 million. Other revenue increased $3.3 million, offset by an increase in repossession expense of $2.4 million, largely due to expenses related to repossessed assets on certain oil and gas properties.

Consumer Banking

Net income from Consumer Banking was $16.6 million in the third quarter of 2019, consistent with the second quarter of 2019.

Net interest revenue from Consumer Banking activities decreased $4.3 million largely due to decrease in the yield on deposits sold to our Funds Management unit. Average loans decreased $23 million or 1 percent and average deposits were relatively consistent with the previous quarter.

Revenues from mortgage banking activities increased $2.0 million over the prior quarter due to lower interest rates which have led to an increase in mortgage production and improved gain on sale margin.

Operating expenses increased $2.0 million. Mortgage banking costs increased $3.4 million related to increased payoffs as mortgage interest rates declined during the quarter. This increase was partially offset by a decrease in business promotion expense and personnel expense

Wealth Management

Net income for Wealth Management decreased $2.3 million to $23.2 million during the third quarter of 2019.

Net interest revenue decreased $3.9 million primarily due to a change in deposit mix to interest bearing deposits along with an increase in unsettled securities receivables. Brokerage and trading revenue increased $3.0 million due to higher trading activity and volumes as a result of interest rate changes. Operating expenses increased $2.2 million, largely related to an increase in incentive compensation.

Average loans increased $23 million to $1.7 billion. Average deposits increased $369 million to $6.6 billion, primarily due to an increase in interest-bearing transaction account balances. Assets under management or administration were $80.8 billion at September 30, 2019 compared to $81.8 billion at June 30, 2019. Fiduciary assets totaled $49.3 billion at September 30, 2019 and $49.3 billion at June 30, 2019.

Conference Call and Webcast

The company will hold a conference call at 9 a.m. Central time on Wednesday, October 23, 2019 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 # 13695151.

About BOK Financial Corporation

BOK Financial Corporation is a $43 billion regional financial services company headquartered in Tulsa, Oklahoma with $81 billion in assets under management and administration. The company's stock is publicly traded on NASDAQ under the Global Select market listings (BOKF). BOK Financial Corporation's holdings include BOKF, NA; BOK Financial Securities, Inc., BOK Financial Private Wealth, Inc. and BOK Financial Insurance, Inc. BOKF, NA operates TransFund, Cavanal Hill Investment Management and BOK Financial Asset Management, Inc. BOKF, NA operates banking divisions across eight states as: Bank of Albuquerque; Bank of Arkansas; Bank of Oklahoma; Bank of Texas; BOK Financial in Colorado and Arizona; and Mobank in Kansas and Missouri; as well as having limited purpose offices in Nebraska, Milwaukee and Connecticut. Through its subsidiaries, BOK Financial Corporation provides commercial and consumer banking, brokerage trading, investment, trust and insurance 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 September 30, 2019 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, including its latest acquisition of CoBiz Financial, Inc., 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, inflation, 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. There may also be difficulties and delays in integrating CoBiz Financial Inc.'s business or fully realizing cost savings and other benefits including, but not limited to, business disruption and customer acceptance of BOK Financial Corporation's products and services. 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.

Contact:Cody McAlesterPhone Number: +1 918-295-0486Email: [email protected]

2  Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

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.

Acquired assets and liabilities were allocated to segments in the second quarter of 2019.