BOK Financial Corporation — FY2015 Form 10-K
Business context and reporting period. This is BOK Financial Corporation’s annual report for the year ended December 31, 2015; it also reports fourth-quarter results. The company provides banking, mortgage, fiduciary, brokerage and related services across Oklahoma, Texas, New Mexico, Arkansas, Colorado, Arizona and Kansas/Missouri. Year-end consolidated assets were $31.5 billion.
Financial performance and condition
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net interest revenue | $703.4 million | $665.2 million |
| Fees and commissions | $659.0 million | $621.3 million |
| Net income attributable to BOK Financial shareholders | $288.6 million | $292.4 million |
| Diluted earnings per share | $4.21 | $4.22 |
| Operating expenses | $904.6 million | $847.5 million |
| Net interest margin | 2.60% | 2.68% |
| Net cash from operating activities | $295.0 million | $(36.6) million |
- Fourth-quarter shareholder-attributable net income was $59.6 million, or $0.89 diluted EPS, versus $64.3 million, or $0.93, in fourth-quarter 2014.
- Year-end loans were $15.9 billion, up 12% year over year; deposits were $21.1 billion, broadly unchanged. Assets increased to $31.5 billion from $29.1 billion.
- The combined allowance for credit losses was $227 million, or 1.43% of loans, versus $190 million, or 1.34%, a year earlier. Nonperforming assets were $251.9 million; excluding U.S.-government-guaranteed assets, they rose to $156.0 million from $129.0 million.
- Year-end equity was $3.23 billion. Regulatory capital ratios were 12.13% common equity Tier 1, 13.30% total capital and 9.25% leverage. The Bank was considered well capitalized.
- Borrowings outside deposits totaled approximately $6.28 billion, including $4.80 billion of Federal Home Loan Bank advances and $226.4 million of subordinated debentures. The company reported about $5.1 billion of estimated unused collateralized borrowing capacity. Cash and cash equivalents ended the year at $2.64 billion.
- Cash flows included $2.00 billion used in investing activities and $1.87 billion provided by financing activities. The year’s operating cash flow benefited from working-capital and other cash-flow movements; it should not be read as a substitute for earnings.
Changes versus prior year
- Shareholder-attributable net income declined 1.3%, while diluted EPS slipped from $4.22 to $4.21. Higher net interest revenue and fee income were offset by a $34.0 million credit-loss provision, higher operating costs and lower net interest margin.
- Fees and commissions rose 6%, led by mortgage banking revenue, up 23% to $134.4 million, and fiduciary and asset management revenue, up 9% to $126.2 million. Mortgage loans funded for sale reached a record $6.4 billion.
- Operating expenses rose 7%, including higher personnel, mortgage banking and data-processing costs. The 2014 comparison included a $12.6 million reduction in deferred-compensation accruals under the 2011 True-Up Plan.
- Commercial loans grew $1.2 billion and commercial real estate loans grew $531 million. Energy loans were $3.1 billion, or 19% of total loans. Nonaccruing commercial loans increased, mainly reflecting energy credits.
- Common stock repurchases totaled $229.5 million; capital ratios declined year over year, which management attributed primarily to repurchases. Dividends declared were $1.69 per share versus $1.62.
Outlook, risks and unusual items
- Management expected mid- to high-single-digit annualized loan growth in 2016, a smaller securities portfolio, and stable-to-rising net interest margin and increasing net interest revenue.
- Management estimated a 2016 loan-loss provision of $60 million to $80 million, citing energy-sector stress and loan growth. Energy credit migration, lower oil and gas prices, and regulatory reviews could cause provision needs to exceed that range. Energy nonaccruals and criticized credits had risen sharply by year-end.
- Key exposures include regional economic conditions—particularly Texas and Oklahoma—energy-sector concentration, interest-rate and mortgage-servicing valuation sensitivity, competition, regulatory costs, cybersecurity and reliance on third-party technology providers.
- The company agreed to acquire MBT Bancshares for $102.5 million in cash, subject to regulatory approval and other conditions, with closing expected in third-quarter 2016. It also announced a wealth-management team and client acquisition and signed an asset purchase agreement with energy investment-banking firm E-Spectrum Advisors.
- Legal matters included a consumer and small-business deposit-posting class action for which a loss estimate could not be made, and a New Mexico municipal-bond dispute involving a $5.6 million arbitration claim. Management stated that other proceedings were not expected to materially affect the company; outcomes remain uncertain.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The filing disclosed no material weakness.
Important facts for investors to verify
- Whether energy borrower performance, spring collateral revaluations and regulatory reviews keep 2016 credit costs within management’s $60–$80 million estimate.
- Whether loan growth and funding costs support the projected stable-to-rising net interest margin, given the 2015 margin decline and increased wholesale borrowing.
- Trends in commercial nonaccrual loans, potential problem loans, criticized energy exposures and reserve coverage.
- Completion terms and integration effects of the announced acquisitions, including the MBT transaction and its regulatory approval.
- Developments in the disclosed litigation and mortgage repurchase/recourse obligations, as well as the effect of share repurchases on capital and liquidity.