BOK Financial Corp (BOKF) 2015 Q1 法說會逐字稿

Good morning, and welcome to the BOK Financial first-quarter 2015 earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the presentation over to Joe Crivelli, Investor Relations for BOK Financial Corporation. Please proceed.

Good morning, everyone, and thank you for joining us to discuss BOK Financial Corporation's first-quarter 2015 financial results. Today we will hear remarks about the financial results and outlook from Steve Bradshaw's CEO; Steven Nell, CFO; and Stacy Kymes, EVP Corporate Banking. In addition, PDS of the slide presentation and press release that accompanies the call are available on our website at www.BOKF.com.

Before we begin, I'd like to remind everyone that during this conference call management will make certain forward-looking statements about its outlook for 2015 and beyond that involves risks and uncertainties. Looking statements are generally preceded by words such as believes, plans, intends, expects, anticipates or similar expressions. Forward-looking statements are protected by the Safe Harbor contained in the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ from expectations include, but are not limited to, those factors set forth in our filings with the Securities and Exchange Commission.

BOK Financial is making these statements as of April 29, 2015 and assumes no obligation to publicly update or revise any of the forward-looking information in this announcement. I'll now turn the call over to Steve Bradshaw.

Thanks, Joe. Good morning, everyone and thanks for joining us. I trust everyone's seen our earnings release for the first quarter which was issued earlier this morning. The first quarter was a great start to 2015. We earned $74.8 million, or $1.08 per share. With strength all across the business.

Loan growth was well into the low double digits on an annualized basis. Our fee businesses, led by mortgage, all performed extremely well, and posted a new quarterly record for fees and commissions, and expenses were held largely in check. Our capital base remains strong and thus far, credit quality is holding up extremely well. All in all, a good solid performance from the entire Company.

Keep in mind when you look at the year-over-year earnings comparison, that Q1 2014 included a reversal of accruals for our long-term executive compensation program that positively impacted pretax earnings by $15.5 million, or $0.15 per share after tax. Normalizing that out, we delivered 12.5% EPS growth year over year.

Turning to slide 5, the strong momentum on loan growth continues. We posted 3.4% sequential growth for the quarter, or 13.4% annualized, and the loan book is up 12.3% compared to the same time a year ago. Stacy will talk more about the loan growth in the moment. But strength was evident on throughout the business.

Unlike the last few quarters where energy was the primary driver of growth, this quarter it was a general [C & I] book and commercial real estate that set the pace. Further evidence that the diversity of our business is a powerful differentiator for us as a Company. Fiduciary assets continue to grow and totaled $38 billion at quarter end, that's up 4% from year end with very little contribution from overall market growth.

Our fiduciary and asset management business continues go grow organically by expanding business with existing customers and bringing in new clients. Again, here the diversity of our business is a significant benefit to customers as we have a full-service wealth management business that can meet the investing needs of anyone from a traditional retail brokerage customer to the most sophisticated high net worth or institutional investor.

I will now turn the call over to Steven Nell who will provide a comprehensive update on financial results for the quarter. Steven?

Thanks, Steve. Let's talk about the first quarter in a little bit more detail. Slide 7 shows net interest revenue and net interest margin for the first five quarters As you can see, net interest revenue for the first quarter was down 1.1% on a sequential basis.

Approximately $2.1 million of the decline was due to 2 fewer days in the quarter. And the fourth quarter of 2014 also included approximately $2.4 million of nonaccrual interest recoveries. On a year-over-year basis, net interest revenue was up $5.1 million, or 3.1%.

Net interest margins decreased 6 basis point sequentially and 16 basis points year over year. The sequential decrease was largely due to larger overall loan yields, which Stacy will discuss in a moment. The year-over-year decrease, as you can see, was largely driven by the Federal Reserve, Federal Home Loan bank trade, which we've discussed on previous earnings calls.

On slide 8, fees and commissions were $166 million for the first quarter, up 5.2% on a sequential basis and 17.8% year over year. As noted earlier, this is a quarterly record, exceeding the previous record set in the third quarter of 2012. Mortgage banking had an exceptionally strong quarter. Refinancing volume rose to 56% of the total volume this quarter from 37% in the fourth order as average primary mortgage rates were down 24 basis points in the first quarter. We also saw continued strong volume growth from our correspondent and home direct sales channels.

In addition, gain on sale margin remained very steady in the first quarter. The second quarter is likewise off to a good start for mortgage with very strong volume thus far in April.

Brokerage and training had a nice quarter, up 3.6% sequentially and 7.4% year over year. As we discussed with investors, this tends to be our most challenging business to forecast. Revenues can be less predictable depending on market factors. But a nice start to the year driven mainly by the fixed income trading and traditional brokerage businesses.

Fiduciary and asset management was up 2.7% sequentially and 22.3% year over year. Keep in mind that the first quarter of last year included only a partial contribution from the G Trust acquisition and no contribution from the MBM Advisors acquisition. These acquisitions added approximately $2.8 million to the year-over-year increase in revenues. Transaction card revenue was likewise strong in the first quarter, posting 6.4% year-over-year growth. This is a seasonal business where the sequential comparison is not as meaningful.

The low interest rate environment which drove higher refinancing volume and revenue for the mortgage business during the quarter also resulted in a negative change in fair value of our mortgage servicing rights. As shown on slide 9, mortgage servicing rights valuation adjustment net of economic hedges reduced pretax earnings by just under $5 million in the first quarter. This compares to a $6.1 million reduction of net income in the fourth quarter and $908,000 in the first quarter of 2014.

Expenses are highlighted on slide 10. On this chart we've normalized out the $15.5 million true-up plan reversal in the first quarter of 2014, as well as the branch closure expenses in the fourth quarter of 2014. Which included $800,000 in personnel expense and $4.1 million within the other operating expense.

Personnel was subsequently, largely due to seasonal increases associated with employment taxes. The higher level of revenue also impacted personnel expense as well as other line items. Highlighting this point, you'll see that total operating expense as a percent of total revenue is down 1.5 percentage points from the fourth quarter. And revenue growth outpaced expense growth and the first quarter, which is an important strategic objective for the Company in 2015.

Turning to the balance sheet, as shown on slide 11, the securities portfolio was up slightly in the first quarter. We pressed the pause button on our efforts to reduce securities as all indications point to the first Fed actions to increase short-term rates later in the year than originally predicted. Combined with growth in deposits during the quarter, liability sensitivity did not change meaningfully from year-to-year and remains less than 1% at a quarter end. Notwithstanding first-quarter actions, we expect to continue to migrate towards interest rate neutral throughout 2015.

Period-end deposits were $21.2 billion at quarter end, largely unchanged from December 31, 2014. And banks in US switched to Basel III regulatory capital standards this quarter, BOK Financial continues to be extremely well capitalized. The Company and its subsidiary bank exceeded the regulatory definition of well capitalized at March 31, 2015 with a tier 1 common equity ratio of 13.1%, total capital ratio of 14.4%, and leverage ratio of 9.7%.

Turning to slide 12, our guidance assumptions for 2015 remain unchanged. Our commercial lending pipeline remain strong, as Stacy will discuss in a moment, and we continue to expect low double-digit loan growth in 2015. Net interest income will continue to increase modestly in 2015 from the remix of earning asset composition and stable to improving net interest margin. We've now gone 13 quarters with either no provision or negative provision. With our continued strong loan growth, we will likely resume loan-loss provisioning in the second quarter and are forecasting $15 million to $20 million of provisioning for the full year.

As we've noted previously, while there may be lumpiness from quarter to quarter in the fee-generating businesses, especially in brokerage and trading and mortgage line items, which are subject to various market forces and are transactional in nature, on a rolling 12 month basis, we continue to expect mid single-digit revenue growth in fees and commissions. We continue to expect expense growth in 2015, mainly due to the full-year impact of 2015 risk and compliance investment.

In addition, as noted in previous calls, we're investing approximately $10 million in strengthening our IT infrastructure in 2015, which will be partially offset by the expected $8 million of savings from the in-store branch closures, which would be recognized beginning in the second quarter. We'll continue to focus on cost reduction and efficiency efforts across the organization to control expense growth as we did in 2014.

Stacy Kymes will now review the loan portfolio in more detail. Stacy?

Thanks, Steven. It was another busy quarter for the commercial lending team, as reflected in the robust loan growth. Let's highlight some of the key areas of strength. Slide 14 shows our portfolio on a geographic market basis. As you can see, the lending environment has been very strong across the footprint in the first quarter and over the last 12 months.

In the first quarter Texas, Arizona and Colorado posted especially strong results while on a year-over-year basis, Arizona, Colorado, Texas and Arkansas all posted double-digit growth. In March 31, Arizona portfolio crossed $1 billion in loan outstandings for the first time in our history. A nice achievement for a market that we worked hard to build and grow since the downturn of 2008 and 2009. We're very pleased with our results there, and we believe we have an nice CNI and CRE portfolio of very high-quality borrowers in that market.

As indicated on slide 15 in the presentation, commercial loans were up 3.2% for the quarter from $9.1 billion to $9.4 billion. There was strength across the portfolio with services leading the charge at 8.3% equity loan growth followed by manufacturing at 5.3% and healthcare at 3.9%. On a year-over-year basis, commercial loans are up a healthy 16.6%. As noted on the slide, every single segment of the CNI portfolio posted strong year-over-year growth led by manufacturing, energy, and services.

Turning to the next slide, the commercial real estate book grew 7.6% in the first quarter and is up 11.6% year over year. You'll see good growth across the portfolio, both in the quarter and in the last 12 months. Keep in mind that most of the loan growth is being driven by deals booked in the prior year that are just now beginning to fund as borrowed equity goes into project before debt.

As mentioned on last quarter's call, we have been stress testing all new commercial real estate loans at loan originations since 2009. The scenario we use includes a 500 basis point increase in interest rates over 24 months. Second, normalized cap rates, and third, normalized occupancy rates despite limited vacancy in the book in our markets. We continue to believe that our real estate loan portfolio is in very good relative to these stress tests.

The next slide shows the overall loan portfolio for the Company. Commercial real estate grew at a 7.6% pace in the first quarter, while CNI, as noted, grew 3.2%. Residential mortgage, which for BOK Financial represents floating rate jumbo mortgages that we choose to retain for our portfolio, continues to decline quarter on quarter as expected. Consumer lending declined modestly in the quarter.

On a year-over-year basis the CNI portfolio was up 16.6% while the CRE portfolio was up 11.6%, consumer lending was up14.5% and residential mortgage was down 4.5%. We are having good success, both in expanding relationships with the existing borrowers, and we believe we are taking share in gaining new customers on the competitive front. The business environment reigns good across the footprint, and as Steven mentioned, we continue to believe we can grow our loan portfolio as double-digit rates for the foreseeable future.

Let's move on to loan yields. Loan yields were down 14 basis points in the quarter. Approximately 7 basis points of the decline was due to the non-recurrence of interest recoveries compared to the fourth quarter. Of the remaining 7 basis point decline, 4 basis points were due to lower loan fees in the quarter, with the remaining 3 basis points representing the actual sequential decline in loan yields. The biggest driver of the decrease is due to payoffs and paydowns of loans from the 2008 to 2012 vintage that had higher spreads and are being refinanced. A competitive environment remains relatively stable across the footprint from a pricing standpoint.

Slide 19 shows our energy portfolio as of 3/31/15. At quarter end, our energy portfolio was $2.9 billion. Of this, 85.6%, or $2.5 [billion] was exploration and production, 7.8%, or $226 million was energy services, 3.7% was midstream in 2.9% was wholesale and retail energy.

The utilization rate on the energy portfolio was 56.4%. Slightly higher than year end, largely driven by borrowing base reductions as we make our way through the redetermination process. It is still early in the spring redetermination cycle, but on average we are seeing borrowing bases come down in a 12% to 15% range for customers who've gone through the process. However, on a borrower by borrower basis, we are seeing a range of outcomes. Some borrowers who are bringing new production on stream are actually seeing a modest increase in their borrowing base.

Oil prices have appeared to stabilize and show improvement over the last few weeks. There may well be more volatility to come, but we continue to believe that the current downturn will behave much like other downturns we have experienced over the last 20 years. We still expect oil prices to stabilize at a new equilibrium late in 2015. To that end, our view on energy has not changed at all since we last spoke. We continue to believe that our energy portfolio is sound from a credit standpoint and this is supported by another update of our stress test at quarter end, which revealed only a handful of customers who would demonstrate weakness in a highly stress environment.

We modified our assumptions slightly with oil starting at $40 a barrel for year one and escalating gradually to $60 per barrel in year five. Our natural gas stress test starts at 250 in year one and escalates gradually to 350 in year five. The main question remains the time element. If oil prices rebound to normalized level in the next 12 months, we expect to see migration of credit with no significant credit losses. It the current pricing environment extends beyond 12 months, we believe we are extremely well positioned to navigate the downturn.

In our fourth-quarter earnings conference call in January, we provided a deep dive in our energy portfolio, an additional perspective on our underwriting methodology, our history in the energy lending business, and our view of the current commodities price downturn compared to others of the last 20 years. If you're interested in reviewing any of that material, the presentation remains on our investor relations website at www.BOKF. com under the presentations tab.

Credit quality remains strong at quarter end. As shown on slide 20, the allowance for loan losses ticked up to 1.35% of period end loans and represented 245% of nonaccrual loans. Both very healthy metrics. Nonperforming assets, excluding those guaranteed by government agencies, were 0.85% of period end loans and repossessed assets. Net annualized recoveries to average loans were 23 basis points this quarter, driven by a significant recovery in the commercial real estate portfolio. This is the fifth time in the last six quarters that we posted net recoveries.

Steve Bradshaw will now make some closing statements before we open the call for Q&A.

Thanks, Stacy. It was a breakthrough quarter for bank in many ways, and I'm pleased to see so many units of the brink growing customers and revenue in tandem. While we are always identifying areas for performance improvement, there were no obvious weak spots in our lines of business or the geography we operate within. Loan growth continued to be at or slightly above our own expectations as we posted our fifth consecutive quarter of double-digit loan growth. We set a record for quarterly fee income, led by mortgage, which is once again benefiting from a refinancing boom, as well as the investments we've previously made to build multiple sales channels over the past several years.

Expense growth was well-controlled and revenue growth outpaced expense growth. This is one of our top objectives for 2015, as Steven previously mentioned. We're carefully monitoring spending, keeping a lid on further increases in looking for opportunities to improve efficiency and reduce costs throughout the organization. It's an organized effort and it includes every aspect of the Company's operations.

Credit quality remains sound, and I believe the metrics Stacy just shared with you, place us near the top of our peer group. The balance sheet remains strong and well capitalized, providing us with the flexibility to fund organic growth, deploy capital and accretive opportunities and return capital to shareholders through dividends and share buybacks.

As you heard from Stacy, we entered the energy downturn with a very high-quality portfolio and we continue to see the benefits of that as companies work through the changes necessary in recognition of lower commodity prices. While we remain cautious and watchful, to date the local economies in Texas and Oklahoma are holding up well.

I'm especially to announce some changes to my executive team during the quarter. I think investors recognize that we have a very deep bench at BOKF, which is evidenced by the fact that we were able to backbill our COO vacancy internally, by providing both Stacy Kymes and Norm Bagwell with additional responsibilities. Many of you've met Stacy and Norm and know that they are experienced and proven in our organization over multiple operating cycles and will fill their new roles capably.

In turn, we were able to promote Mark Maun to fill Stacy's former role as chief credit officer. Mark is a 30 year veteran of BOK Financial and knows our credit culture extremely well. He has been successful everywhere he's been at the bank, most recently in launching our Kansas City operation from a de novo startup to nearly $700 million in assets today, and then reinvigorating Oklahoma City operation for the past 2.5 years. Mark's role in Oklahoma City was then filled by his second-in-command, John Higginbotham, also a long time employee of the bank with a great track record of success.

We have a superb team at this bank with deep experience in all phases of the operation. That's why we've been able to perform for investors across the entire economic cycle and deliver total shareholder return over the long haul in the upper quartile of the peer group. Employees with the first quarter results, and I'm excited that we're off to such a good start in 2015

With that, we'll open the call for your questions. Operator?

(Operator Instructions)

Brady Gailey, KBW.

Good morning, guys. I was just wondering, I know the spring season is when you get into the redeterminations, and it sounds like you all are just beginning on that. What percentage are you through redetermining the base for all your energy?

Brady, this is Stacy. Really as of the end of last week, we were probably around 50% to 55% through the redetermination process with EMP borrowers.

Okay. Then the buybacks, you had a nice quarter of buybacks. When look at the last couple quarters, it looks like you have been repurchasing it in the high 50s to low 60s. The stock's now 65. Do you think that the buyback activity will slow with the stock being where it is?

It may a bit. This is Steven. Certainly we took advantage when the stock crossed down through $60. It had a nice round of buyback in the first quarter. We will run the model and determine what we want to do going forward. But I would suggest as you said, that it was slow down some. At this price.

Okay. And then you all had targeted a bank deal by the end of the year hopefully, maybe an update on how things are progressing there.

Yes Brady, this is Steve Bradshaw. I wouldn't say that the climate from sellers has materially changed at this point. I wouldn't say the activity is higher. I would say the activity on our side is higher. We've been very active, really in the last four to five months in terms of our call effort. And being received pretty well from organizations that we have identified that we think have great customer relationships and great management. Because that's really our focus.

From our standpoint, M&A to us is not necessarily a consolidation or expense take out game plan, it's really about trying to expand, especially in the markets that we're in today that we like, that we have relatively small share. So our activity is higher. I think the market at this point feels about the same as it did maybe six to eight months or so ago.

Okay. And then lastly, any update on the SNIC balances? I think they're around $3.2 billion at the end of the year. Did that change at all? And I noticed a tax rate was up a little bit. Any color on the tax rate.

Well with respect to sheer national credit volume, it is a consistent part of the portfolio. It hasn't moved as a percent of our total loans much. It was about 22% of our outstanding volume at the end of the year and just a little over 22.5% at the end of the first quarter. It's been pretty consistent.

Brady, this is Steven. With regard to the tax rate. There was a change in classification of some of our low income tax credit expenses. They shifted out of gain on sale of other assets down to the tax line item. It's about $2.8 million. We did restate retroactively or reapply that change in accounting across the rest of the periods that you will see in the press release. So the tax rate that we calculate for this quarter should be pretty decent tax rate going forward.

Okay. Great. Thanks for the color.

Brett Rabatin, Piper Jaffray.

Hi. Good morning.

Morning.

I wanted to ask about the loan portfolio. You just mention that you would taking share. Can you talk about maybe your thoughts on hiring efforts this year for new lenders to keep the loan growth going at a double-digit pace. And then just thinking about the existing portfolio. You talked about loans repricing down having a bit of an effect. Have you run any kind of analysis to look at what you have in the portfolio that's at higher spreads than what you're putting on today? How much is above a 4.5% or 5% level?

Yes. I'll start with the loan growth piece first. What I would tell you is substantially all of that is coming from officers who have tenure with the organization. We haven't done any team lift outs or anything like that is creating an abnormal growth rate. These are all core BOKF employees who have been with us and who are operating under our established credit policy and parameters. They're just having that good momentum with the culling effort and increasing borrowings existing customers and adding some new customers to the portfolio, as well.

With respect to the spread -- the loan spread question, there is a lot of moving parts, obviously. It is hard to look at. I think that one of the components really that's driving that too is, earlier in the cycle we were doing a little bit more fixed rate on the lending side. The preponderance of the new origination has migrated toward floating-rate.

And so as that mix shift happens, that also is creating a little bit of pressure on the loan spreads, not significantly, as we look at period end March. It really does appear reasonably stable there. You hate to call a month or two a trend. You'd like to see longer-term. I do feel like loan spreads are reasonably stable at this point.

Look, it's a very competitive environment. One of the ways that everybody competes is on price, so I think there will continue to be some pressure there. But thus far, the migration there, the decline in loan spreads, I wouldn't expect it to be significant as we move forward.

Let me just add excuse me a couple of details. Loan yields were down 14 basis points. 4 basis points was related to loan fees, which can move around from quarter to quarter. 7 basis points were due to interest recoveries from the previous quarter that we didn't have this quarter. And then 3 basis points was really more your regular competitive environment. So just keep that in mind when you look at the 14 basis point drop in loan yields from last quarter to this quarter.

No, I heard some of that earlier. Then the other thing is, I was just curious about thinking about -- thinking and ALCO and being neutral to higher interest rates. Would you guys think about reaccelerating or thinking about securities portfolio maybe later this year in terms of improving -- I know you're not going to necessarily manage higher rates per se, but have you thought about if your loan growth does remain double-digit, essentially trying to move toward small more of an asset sensitive position?

This is Steven, we will continue that process. We've been working the last roughly year or so, moving towards a more asset sensitive position. We stayed roughly the same between the fourth quarter and the first quarter because of the pause that we mentioned on the securities portfolio. But I still think we will migrate our way during 2015 towards that asset neutral position. I don't know that we will get to an asset sensitive position by the end of the year. I doubt it. I think of we just get to a neutral position towards the end of 2015 that that will be probably the point at which we end the year.

Okay, great. Thanks for the color.

Jon Arfstrom RBC Capital Markets.

Good morning. Just a few questions here. Follow-up on pricing. Have you seen any change on pricing in the energy book?

Not specifically for deals that are new to the market. What I will tell you though is I would expect some upward expansion of spreads as we go through the redetermination cycle both now and in the fall. Generally speaking, energy loans are grid priced based on one of two factors, either line utilization or bar or leverage.

Bar or leverage is generally measured off a trailing12-month basis. So to the extent it's based on line utilization, we're going to get some bump within the grid as we go through this spring redetermination cycle; to the extent that it's based on leverage and it's a trailing 12-month leverage, it's more likely that we will see that later in the fall. But I do think you're going to see some opportunity for some improved loan spreads in the energy book, just strictly based on the grid pricing and things that are happening organically with the bar where that will improve that spread on a go forward basis.

Okay, good. Have you seen any retreat in terms of competitors?

Not specifically at this point. I think the retreat would happened from the smaller ends of the credit spectrum. We tend not to be -- not to compete there.

We're in the middle market and higher-end. And so there may be some smaller competitors to reconsider the impact of volatility in their portfolio with respect to energy or how it's perceived. But I haven't seen specifically today anybody exit the business that had previously been in the business.

Okay, good. And then a couple more as long as you have the mic, Stacy.

You use the word normalized level in the release, and then you also talked about the downturn if it extends more than a year. Crude is up about 20% since the last call. And it looks like you've lowered some of your stress test price. So I'm just curious, downturn and normalized level, what do you think is a normalized level?

I wish I had a perfect answer there. Three months ago I would've probably told you $70 is probably normalized. I think it can be less than that now. Maybe in the $65 range.

One of the things that is changed a little bit in the calculus there has been there to be the very significant decrease in costs for the drillers of the services portion of their business. Pretty much across the board we're hearing from the production folks that the service cost to do a well, to drill a well, complete it, et cetera, is about 35% plus or minus less than what it was say 120 days ago. So that math is going to change the breakeven price and where profitability comes into play for the borrowers, which may mean that you get to see a little bit more activity a little bit sooner.

One of the things were watching for a little bit in trying to be reasonably aggressive with our borrowers is around hedging. You can hedge 2016 today at around $63, $64, which isn't a bad price. And that's a price that works for most folks. And so what you have to watch for here a little bit is some at W as opposed to the U or V that's been talked about where you get prices coming back up and then drillers coming back in and drilling their best prospects and then integrating a surge and supply again that then causes another second step in the fall of the commodity price.

We're trying to be aggressive with our borrowing base to say hey, you need to be hedging, layering on hedging, this is a risk. We've had good luck, actually, as prices have come up, borrowers are seeing the benefits of being hedged. They're not hedging 100%, but they're layering on hedges that are prudent.

And obviously, you have seen a good recovery here in the last 30 days in particular. There may well still be some volatility. We're not trying to predict the bottom are where necessarily the end is, but certainly, it has behaved consistent with our expectations and how we've outlined it for the Street.

Good, that helps. And then Steven, just a question for you on sustainability of brokerage and trading in terms of the run rate. Was there anything large or unusual in the number this quarter?

Not really. No, it was fairly steady. Of course, that's one of the more unpredictable line items in our Company. But if you look back over time, we've had really good growth in the brokerage and trading over the past several years.

In fact, were well above last year in that comparison. So there could be some volatility there, but I think the sustainability of their overall position in the market and the ability to generate revenues is good going forward.

Okay thank you.

Jennifer Demba, SunTrust Robinson Humphrey.

Curious about if you could give us some more details on what you're seeing in the economies in the metro markets in Texas and Oklahoma, particularly Houston right now. You said they were holding up, just wanted to get more color there.

Okay. We can probably all chime in a little bit on that. We were looking at some of the last three month unemployment rates, and in fact in Oklahoma, it's 3.9%. There has been a little bit of a drop in terms of nonfarm payroll. But the overall economy is still very good in the Oklahoma market.

And the same goes for Texas. They're still growing jobs, certainly not at the same pace that they were, but their overall unemployment rate is 4.2%. So the economies are diverse. And yes, we've seen a little bit of an impact here from the slowdown in the oil and gas activity. And it is something that we will watch. But it has not been that big of a deal at this point.

At this point I think specifically Houston is probably the one that everyone's focused on. Obviously, there's going to be a lag effect between when -- the timing of when employment reductions are announced and as they occur and roll through and trickle through the economy there. We haven't seen any kind of dramatic pullbacks. Houston for us continues to be strong and have good pipeline for loan growth.

We have seen -- there was a good article in the Houston Chronicle about six weeks ago that outlined 10 reasonably large commercial real estate projects that the developers had either paused or decided otherwise to put on hold to see through this commodity price downturn. I think you see generally folks being very prudent in that market outside of the energy sector as well, just because they've been through cycles. They understand the boom/bust issues associated with the cycle and are behaving extremely prudently at this point.

Thanks a lot.

John Moran, Macquarie.

I missed the percent of the redeterminations that you had gotten through. And then I was wondering, you said that there was a spread on outcomes there. Some folks up, others down; but on average, down 10% to 15%. I'm wondering if you could define the sort of upper and lower limit of that range?

Yes, but we're, as of the end of last week, we were between 50% and 55% of the way through the spring redetermination cycle. I would say it really depends on the borrower. If there have been increases in the borrowing base, they have been very modest. Generally based upon new production that's been added to the borrowing base.

Keep in mind when you go through the redetermination cycle, you're not only readjusting the price back, but you're also adding producing wells that were not previously in the last borrowing base. So generally that provides a natural offset to the decline in the price of the commodity. We've seen some that have come down 25% to 30%. But the bandwidth there, I think on average it's been probably in that 12% to 15% range.

That's helpful, thanks. Maybe a follow-up on the hedging question. How much is hedged through -- if you had to take a stab at it, on 2015 and 2016 production? And I think you alluded to, maybe not folks rushing out to hedge at 65 for 2016, but certainly a desire to layer some in.

Yes. We get that question a lot. I think the answer can be misleading, because borrowers are hedged, it can be a small percentage or it could be for short duration. So when you start looking at percent of the portfolio hedged, it becomes a difficult question to answer.

I prefer to look at it a little bit differently. When we do our stress testing, which we are currently doing quarterly, we assume that there are no hedges in place for the borrowers. And then we look at those that are most vulnerable to a price decline and then go back and layer on the hedges that they may have in place as a mitigant to the weakness from the stress test. From our perspective anyway, we think that's a better way to look at that, because averages can be awfully misleading and don't necessarily tell a complete story about the strength or weakness in a portfolio.

Sure. And presumably that exercise then leads to a better discussion when it comes time to sit down with the borrower.

Absolutely. In fact, we use that list with our hedging folks. Obviously energy hedging or services that we provide. One of our fee service businesses, and we use that list very actively to have discussions with our borrowers about the importance of layer-on hedges to the extent that they're vulnerable in a more steep price decline.

Perfect. So there's cross-sell in it (laughter). I have a ticky-tack one on the OpEx guide. I just want to make sure that I fully understood it. It is inclusive of the branch saves right?

Well, what we said is that -- are you talking about the IT expenses that -- total expenses? The total expenses we accrued for the branch closures in the previous year, but -- and then we have followed through with those closures, I believe in February and March. And all of those are done at this point. And so going forward, you should get the benefit that we mentioned as it relates to the in store branches.

So the personnel related costs would have really just been realized partial in the first quarter because we closed those at the end of February, so March you would of had that. But it will be fully in the run rate for second quarter.

Okay. And then maybe one last one, if I can sneak it in, just on mortgage trends. I think in the prepared remarks you had referenced that April staying real strong. As spring buying season gets underway, is there more purchase in the mix today, or is it still dominated on the we refi side?

It's -- there is some refi in there. It was 56%, I believe, in the first quarter. You might see that slide down a bit. I would expect there to be a shift more towards purchase, as you anticipated.

Perfect. Thanks for taking the questions.

(Operator Instructions)

Gary Tenner, D.A. Davidson.

Good morning. Most of my questions have been answered, but just as it relates to the energy portfolio and outstandings, up a bit on the period end basis, can you talk about whether there was a peak in outstandings during the quarter and a decline as time progressed? And if you suspect that that might continue through at least the second quarter as you get through your redeterminations?

Yes, that wasn't a phenomenon that we experienced. I think that energy balances have held relatively stable. As folks have opportunities or we have added borrowers during the quarter, there are some it opportunities to increase those, as you saw during this quarter.

I do think we see some risk that in the latter half of the year you could see the outstandings begin to come down a bit on the energy side. We think that to the extent that were to happen, it would largely be offset by increases in the spread that we talked about earlier in that book. It has always been a very difficult book to predict behavior in, prices up, prices down, particularly in the short term. But my view is that likely if prices stay around this level and you're likely to have some paydowns.

We saw quite a bit of private equity in capital markets activities related to some of the borrowers during the first quarter. That resulted in some paydowns. We expect -- those markets appear to be very healthy for folks who have access to them. And that could be a little bit of a headwind as we go into the latter half of the year. But thus far, that portfolio has been pretty stable.

Okay. And as you think of your loan growth projections for the full-year, does that assume energy is essentially stable from year-end balances 2014? Or does it assume some modest growth this year?

I think there would be some modest growth there. It's awfully hard to predict. I think I'd rather look at the portfolio and commercial real estate portfolio in total and come back to that double-digit annualized growth rate that we provided guidance to. That's a little bit more comfortable place for me to be. I think that within each of the various segments of the portfolio you can have some movement over time, but I do think in total, I feel very good about the guidance we've provided with respect to total loans overall.

Thanks very much.

Our next question comes from Matt Olney, Stephens Inc.

Thanks, good morning. First question, I think is for Steven, as far as the size of the securities books; looks the end of period balances were up a little bit this quarter. Any change from expectations of running that down about $1 billion this year?

I don't think we will quite make the $1 billion, honestly, since we took a pause in first-quarter. But I do think the second, third and fourth quarter we will get back on pace. Generally back on pace with what we had guided to last quarter. We just took a pause this quarter. So perhaps it does not go down $1 billion, but still along that same path.

As far as the first-quarter action, was it just more of an opportunity you saw? Or any more color on why it ticked up in the first quarter?

I think it was an opportunity. We assess it regularly each month.

We just felt like the market was signaling that rates would rise perhaps further out and so we -- we had indicated last quarter that we would look at it closely and make decisions along the way, and so that's what we decided to do. Just hold the balances a little bit higher in the first quarter.

Okay. And just going back to the outlook on expenses. I'm trying to clarify this still. I believe in the last call we talked about core expense run rate in the $225 million to $230 million quarterly run rate. It was to $220 million this quarter, so what should be the run rate from here?

I still think that's a -- that range that we gave last quarter, I would reiterate that again this quarter, the $225 million to $230 million. I think that's a good spot for our expenses.

And then lastly on the loan growth. There was some pretty strong growth in the CRE office category. And obviously it's a very small percent for you in the overall book, but some of your peers, especially in Texas, are pulling back on that asset class of CRE office. Any strategy behind that?

No, we are --obviously get some lumpiness was CRE because of the timing of when things happen there versus when they were committed. But we don't have any concerns about the borrowers that we have added and who we've going to balance with with respect to that particular segment. We have very defined concentrations that we managed to around retail office, multi family and industrial specifically and aren't shying away from that class for good borrowers.

Okay. That's all for me, thank you.

Thank you.

There are no more questions at this time.

Thanks, everybody, for joining us this morning. If you have any further questions you can feel free to give me a call at 918-595-3027. Or you can email me at ir@BOKF.com. Thanks, and we will talk to you soon.

The conference is now concluded, thank you for attending today's presentation. You may now disconnect.