Good morning, everyone, and welcome to the BOK Financial Corporation's First Quarter 2014 Financial Results Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Joe Crivelli, Investor Relations for BOK Financial Corporation. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss BOK Financial Corporation's first quarter 2014 financial results. Today, we'll hear remarks about the quarter and outlook from Steve Bradshaw, CEO; Dan Ellinor, COO; and Steven Nell, CFO. Before we begin, I'd like to remind everyone that during this conference call, management will make certain forward-looking statements about the outlook for 2014 and beyond that involve risks and uncertainties. Forward-looking statements are generally preceded by words such as believes, plan, intends, expects, anticipates or similar expressions. Forward-looking statements are projected 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 SEC. BOK Financial is making these statements as of April 30, 2014, 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. Steve?

Thanks, Joe. Good morning, everyone, and thanks for joining us on our first-ever quarterly earnings conference call. I trust everyone has seen our earnings release for the first quarter, which was issued earlier this morning. As I've outlined in my letter to shareholders, we launched a 5 point strategic plan to deliver shareholder value. This includes: One, exceed customer expectations; two, actively manage risk; three, accelerate revenue growth; four, control internal expense growth; and five, enhance the employee experience. Our first quarter results represents a solid first step towards these objectives as financial results were quite good. We earned $76.6 million or $1.11 per share. That's up 5% from $73 million and $1.06 per share in the fourth quarter of 2013. While there were some puts and takes in each of these 2 quarters, which Steven Nell will discuss in a moment, business trends are very good. We saw very strong loan growth, delivered revenue growth from key lines of business, including brokerage and trading, asset management and mortgage, and we carefully controlled expenses while making a significant investment in our risk and compliance infrastructure. At the same time, we closed on 2 important acquisitions in the wealth management space. Net-net, we are very pleased with the first quarter results. The strong loan growth we saw late in quarter 4 has been sustainable thus far in 2014. Dan Ellinor will provide more details, but we are seeing strong demand from borrowers across substantially all of our lines of business and markets. First quarter loan growth was just under 9% annualized, within the mid- to high-single-digit range we forecasted. And average loan growth was an even more robust 3.9% in the quarter or 15.6% annualized. Most importantly, despite the strong loan growth, the credit quality of our lending portfolio continues to…

Thanks, Steve, and hello everybody. I'd like to shed some additional light on the strong loan growth we are generating. As Steve noted, the total loan book increased 2.2% on a point-to-point basis and average loans grew 3.9% over the fourth quarter. This was good strong loan growth in a very tough competitive environment and represents the hard work of our commercial and consumer lending teams and the strong reputation our bank enjoys as a reliable source of credit throughout our footprint. I'll go through the loan portfolio business by business, which is represented on Page 16 of our earnings press release and Slide 9 of the presentation accompanying the earnings conference call. The energy lending business was flat quarter-on-quarter and represented 18% of our portfolio. While at face value, this continues a trend we saw throughout 2013, I can tell you that there's powerful, palpable sense that the market is changing. Our exploration and production portfolio was up $46.3 million sequentially, offset by decreases in the select energy service companies we do business with. In addition, we are very encouraged by our loan pipelines, which are the strongest we've seen in quite a while. The market feels like it's turning and, obviously, this bodes well for the future because our energy lending has historically been one of our strongest growth contributors. The health care lending business, which specializes in skilled nursing facilities, senior care and memory care and specialty hospitals among others, continues to be at the top of its game. Loan growth was nearly 10% Q1 and deal flow continues to be robust and usage of construction lines approved in 2013 should continue to fuel growth throughout 2014. Manufacturing was very strong in Q1 with 13% loan growth, as the economy within our footprint continues to perform well.…

Thanks, Dan. I'll highlight a few items from the first quarter '14 financial results, then I'll describe how we see the reminder of the year. Steve noted, we earned $76.6 million in the quarter, $1.11 per share, up from $73 million and $1.06 per share in the fourth quarter of 2013. For the first quarter of 2013, net income was $88 million or $1.28 per share. During the quarter, there were a couple of unusual items to talk about. Most notably, the reversal of $15.5 million of accruals under the True-Up executive compensation plan. This positively impacted EPS by $0.15. We also made a contribution to the BOKF Foundation of $2.4 million, which negatively impacted EPS by $0.02. Net interest revenue was $162.6 million in the quarter, compared to the $166.2 million in the fourth quarter. As Dan noted, we saw lower margins on loans in the quarter. In addition, approximately $2 million or $0.02 per share of this delta was due to there being 2 fewer days in the first quarter compared to the fourth quarter. Other operating revenue was at $140.9 million in the quarter compared to the $142.4 million in the fourth quarter. As Steve noted, our key fee generating lines of business all had good quarters from a growth standpoint. And the sequential decrease was largely attributable to $3.2 million decrease in the other line item, where we had a $2 million onetime lawsuit settlement in the fourth quarter of 2013. Personnel expense was down $21.2 million in the first quarter to $104.4 million. In addition to the $15.5 million true-up adjustment, we revised our 2013 bonus accrual downward by $1.6 million after amounts were paid in March. We also reported a $1.7 million reduction in executive deferred compensation to coincide with the loss in value…

[Operator Instructions] And our first question comes from Brady Gailey from KBW.

I guess I'll start with the $1 billion shrinkage in the bond portfolio. Do you think that, that decline will be done at year end or would you expect this trend to continue into 2015?

Probably continues into 2015. Certainly, the $1 billion, we're confident we'll get down that level during 2014, but we likely will continue to move a little bit lower through '15. Right now, we are just slightly liability sensitive. In fact, it's 1.66% liability sensitive. So we want to move towards that neutral position by mid-2015.

Okay. And you think 2015 will be the same magnitude, maybe $1 billion less? Or do you think it will be something a little more scaled back from that?

I haven't fully made that determination, but likely scaled back a little.

Okay. And the balance of your shared national credit portfolio, I think at year end it was around $2.4 billion. Did that change much in the first quarter?

Brady, this is Dan. It actually didn't. In fact, the SNC portfolio has been around 19% of our total loan portfolio for many years. It grew $67 million on a linked-quarter basis, was around 23% of the total loan growth.

Okay. And then lastly, TCE is now a little over 10%, you all still have excess capital in the bank. Maybe give us an update on the acquisition outlook? Do you all remain active in trying to acquire? I know you have acquired some wealth management companies, but something more meaningful like a larger nice-sized bank?

Yes, Brady, this is Steve Bradshaw. I'll take that one. You're right. We did have 2 acquisitions in the quarter, GTRUST and MBM in Houston. They both kind of fit our profile for acquisitions in that they brought in additional assets under management in 2 markets that we really do want to grow our overall business in Houston and the Kansas City market. But they also provided some strategic benefit. GTRUST actually brought in a fee-based planning platform that we see benefit across all of wealth management. And then MBM brings us some expertise in the 401(k) plan administration and consulting business that we think will benefit as well. So I can see us continuing to look for opportunities like that. On the bank front, we're absolutely engaged. Our target really hasn't changed over time. We'd love to see opportunities both within the footprint and perhaps in some select areas adjacent to the footprint. It's really about looking for banks that have weathered the storm well. That would be accretive from a management perspective. That would add to us in terms of market presence. Bring us asset generation capabilities, which is a big priority for us today. And we're actively engaged in that kind of dialogue and that kind of a view. It's not an easy game, as you well know. We -- prices are still somewhat disconnected in that market, but we're interested in that, and we have an active group internally that's identifying opportunities, kind of, as we speak. So that -- we remain very interested in acquisitions. Obviously, at the right price and with the right kind of organization that we think adds to us culturally.

Our next question comes from Michael Rose from Raymond James.

Just wanted to get a sense on the loan growth front. Obviously, a good quarter. You're about 9% annualized. What are kind of the puts and takes going forward as it relates to the complexion of the loan growth that goes into your mid- to high-single-digit outlook?

Thanks for the question, Michael. This is Dan. Yes, we're really excited about completing 2 very strong quarters of accelerated loan growth, which is, if you look back on a linked-quarter basis for the first 3 quarters of '13 is pretty impressive. And what's more impressive is, it's really diversified. As you know from our earnings release, we had decent growth on the C&I book over the last 2 quarters, as well as commercial real estate. Candidly, we're disappointed that the energy book has gone flat on us, but we are optimistic on the pipelines across all asset classes for the rest of the year. We still feel like mid to single -- excuse me, single -- mid- to single-high-digit growth will still play out for 2014. We've got good diversification across all the geographies. Particularly pleased with our small business lending growth, which is low double-digit in the first quarter on an annualized basis. So it feels like we've got all the different asset classes growing in the right way, and we are looking for some help on the energy side.

Any commentary on the sequential quarter growth in Colorado?

Colorado has been a great market for us. We've been there for a number of years. And we've got a phenomenal commercial banking team, as well as all of our fee-based businesses. We've got a nice niche in Colorado around public finance, which had some nice year-end closings towards the end of Q4 '13, and also good C&I growth in 2014 Q1.

Okay. And then, just one question on expenses. How much is the expected regulatory build or compliance cost that you talked about is kind of in the first quarter run rate?

Well, as I mentioned, I think -- this is Steven. I think we're close to being fully staffed in the BSA area, in our compliance and risk management groups. We continue to add a few people on our audit front. But for the most part, our personnel costs were there in the first quarter. I do think there'll be some systems-type expense that will come on board as we continue to stand up and build some infrastructure around technology. And of course, there's space and other things that comes along with the personnel that will ultimately be an increase in the next few quarters. So there'll be some expense that will come on, but personnel side of it, which is the most costly, is generally there in the first quarter.

And our next question comes from Jon Arfstrom from RBC Capital Markets.

Dan, maybe just a question for you. You talked a little bit about pricing pressure and competition. Just curious, how much more you think there is, just gut feel? And maybe an idea of new loan yields versus what's running off as a way to gauge that as well?

Okay. Thanks, John. It's a good question. And certainly, there's continued pricing pressure on high-quality credit, which is really our main target. If you kind of look at the growth over Q4 and Q1 sequentially, you see that we were overweighted in commercial real estate versus our historical trend. We have purposely high graded that portfolio over the last several years. We're essentially done repositioning at this point. And yields have come down in the commercial real estate side. They've also come down in the health care portfolio, both year-over-year and linked-quarter basis. And between those two, that was bulk of our book growth. We have seen some abatement in spread declines in some of the other areas. And then actually on a per market basis, we've seen some flattening, but our sense is that we're not done yet. And you're going to see continued pressure on net interest margin and yield in the loan portfolio for the reminder of '14.

Okay. And then anything you're seeing on erosion in structure that bothers you. Is that persistent yet or is it still not part of the theme?

Well, we certainly saw the start of erosion in the structuring around credit early last year. I would kind of identify 2 primary areas that seemed overweighted, with both ABL, asset-based lending, and highly levered transactions, neither of which we really participate in, frankly. But there is still some degradation in the structure. I would say that it slowed. The pressure for us remains on pricing, not so much on structure. But the fact is, we've got a lot of leverage we can pull to generate revenue versus trying to go down that path, most of us on the senior management team have been in the business for 30-plus years. And we kind of know how that film ends. And we're not going to go down the path of weakening our structure. It's really part of our core DNA, and we kind of look back at historical charge-offs and let that tell the story.

Okay. And then, Steven, maybe a question for you. Just back on capital and balance sheet growth. With securities portfolio runoff of $1 billion as the goal and some loan growth, maybe you get a little bit of balance sheet growth, but you're still going to build some capital. Can you just refresh us on your -- I know you don't necessary like buybacks, but maybe the priorities for utilizing some of the excess capital. I know you touched on acquisitions, but what else can you do?

Well, in terms of dividends, we continue to pay a nice regular dividend. We kicked off the dividend in 2005 and have increased it every year annually since that time. We haven't made a decision. You notice that we announced $0.40 a share, again, this quarter. We'll look at that towards the end of the year and see if there's an opportunity to elevate that a bit. But yes, you're right. Stock buybacks is not high on our list. We've worked real hard over the past decade on getting float out there for you guys to participate in and for minority shareholders to benefit, and we want to make sure that we maintain that. And of course, organic growth is the primary usage right now, and then as Steve talked about, M&A and our potential there.

Our next question comes from Brett Rabatin from Sterne Agee.

Wanted to, I guess, first, talk about the guidance around fee income and just thinking about the low-single-digit increase. Can you maybe talk a little bit about the 2 acquisitions and how that factors into that guidance? And then, just thinking about where you are on a year-over-year basis, you've obviously got some catching up to do to your mortgage banking income last year, maybe you could give some additional color just around the components that add up to that single-digit number this year.

Yes, this is Steve Bradshaw. I think on the GTRUST side, it was somewhat additive to our first quarter results, since we closed that transaction in February. So that's part of the increase and what you would see under trust fees for the quarter. MBM will close in the second quarter, that will be additive as well. So that will contribute to some of the fee income growth going through the year. I think the bigger component is, obviously, is mortgage for us. It's a little bit of a tough comp relative to last year -- in the first half of last year anyway, when we were still kind of engaged in the refi business. But I think, what we see is that our efforts to build the correspondent network and now our new home direct channel are working as we had envisioned, which was to help mitigate the volatility that you get in the retail origination side of that business. We also migrated, I think, a little earlier than maybe what you might see nationally to purchase market. We were -- last year in '13, we were at about 60% in the purchase market. I think, nationally the average was something less than 40%. And that was a concerted effort on our part to make sure that we were hiring originators that were connected to that purchase market, and also reflective of our geography. We had better equity throughout most of our footprint, so a lot of the refi business that already occurred, it wasn't dependent upon a recovery of housing prices for people to be able to qualify. So you kind of had both of those things working. I think, for us, we're -- if you look at first quarter of '14 versus first quarter of '13, retail…

Okay. That's a good color. And the other thing I wanted to ask about, if you gave any color around it, and I missed it, I apologize. But just thinking about this decline in the securities portfolio, can you maybe walk through your thought on the duration that you're trying to achieve or what basically from an improvement in sensitivity to interest rates analysis, what kind of goes into that $1 billion decline?

Yes, sure. Well, the duration of the portfolio today is about 3.2 years. If you look back a year ago, it was under 2 years. So it's already extended some to the 3.2-year category. If you shock the portfolio a couple of hundred basis points up, it doesn't extend very much, a quarter or 2 is all it takes to extend [ph] . So we've already bought securities and structures that really behave better in a rising rate environment with the securities that we have on the books. So part of what we've been doing is, you saw us sell a few securities in the first quarter for a small gain, is really repositioning some of those securities to securities that don't extend as much as the ones we sold. So we've been managing that for well over a year.

Our next question comes from Jennifer Demba from SunTrust Robinson Humphrey.

I was wondering if you could quantify the revenue and expense impact in the first quarter from the GTRUST deal that closed, I guess, at the end of February?

Yes. This is Steven. The -- it had, of course, 1 month in there. We booked $371,000 of revenue on GTRUST in the first quarter. So if you could take that and kind of extrapolate that out for the remainder of the year. And then, of course, we expect some growth there, too, and come up with a pretty good revenue number for -- that's additive from GTRUST. Of course, expenses for that, for the GTRUST will be scattered across all categories. And you can kind of calculate what you feel is appropriate margin for that business.

Also, Steven, are there any loan categories where you guys feel like things are getting overheated and maybe you want to back off a little bit? Can you talk about that?

Sure, Jennifer, this is Dan. We're very granular on how we take a look at all the asset classes, both by product type and by geography. Here's the one that probably has my antenna up a little bit that we actually participate in is the multifamily market. We take a look at very specific demographics, and we kind of roll forward multiple years based on job growth and other factors that go into potential new renters. And so there are some markets that appear to me to be a little bit overheated when you look at the required rent to produce a decent return. Having said that, our real estate book is now about 20% of the total portfolio. That's probably about as high as it's been in a long time. I think we bottomed out close to 15%. So we take a look at that multiple times during the year and make sure that we're not building something that we're not going to be really proud of for multiple years in advance. I mentioned earlier, I think it was Brady's question or maybe was Michael's around asset-based lending and highly leveraged transactions. I think there's definitely worries out there, but we don't really participate in any of those markets. The rest of the book and you look at our credit quality, it's as clean as it's been in many, many years, and it feels like we've got a very high quality grade book right now.

Our next question comes from Gary Tenner from D.A. Davidson.

Got a couple of questions. I guess, just first on the mortgage business. It looks like the gain on sale there, if I'm looking at it right, has sort of stabilized the last couple of quarters. Can you give any sense of kind of what your outlook is for that for the remainder of the year?

Yes. This is Steve Bradshaw. You're right. It has stabilized. I think we're concerned that there's going to be some incremental pressure there. There's still, in our view, capacity out there in the marketplace, especially from the larger lenders and there's still a significant number of independent players as well. I think that the Mortgage Bankers Association is positioning a change in their forecast for new purchase sales in the second half of this year. They're revising it down, I think, rather substantially. So in our view, that excess capacity could translate into pricing pressure. So we would expect margins to be somewhat less in the second half of the year because of that. But you're right, they have stabilized near term.

Great. And then, just regarding the construction portfolio, and I may have missed this as Dan was running through the overview of the loan portfolio. But just the $20 million sequential decline in that book of business, just kind of thoughts around that. And how was the secondary or the permanent financing market impacting kind of the transition of the construction book to the term [indiscernible]?

Okay. Sure. Let me give you some color on that. And the way we classify construction in our earnings release is primarily single-family residential. There are certainly other construction categories in multifamily, industrial and retail, but the decline you're seeing is in the single-family residential market, as well as A&D, where you're going to make land loans for future lot development. That's an asset class that we've been backing out of for almost 5 years now. And it's down multiple $100 million. Not necessarily an asset class that we saw perform very well in the last cycle, so it's not one that we're focused on at all. We're down to just a handful of clients in that base. We're almost exclusively focused on income-producing properties, both large retail, office, industrial and multifamily. And so that is really where we're trying to grow the business, and where you've seen the growth over the last several quarters. The permanent market is pretty strong. We're not lulled to sleep by the aggressive cap rates that the permanent market is underwriting to right now. We're well above that. But so far, both on the agency side and Life Co side, the permanent markets are very, very strong.

And our next question comes from Matt Olney from Stephens.

I want to go back to the discussion on expenses. It seemed that the last few years, you guys have been investing pretty heavily on some fee income businesses, brokerage and trading, mortgage comes to mind. Can you update us where you are on the incremental investments within these businesses going forward?

Yes, you're right. We have -- we spent a good amount on mortgage originators over the past 18 months, in fact, or a couple of years, really. And we're seeing the benefit of that certainly. I think if you looked at all of the industry statistics for 2013, you'll see that our origination activity was about 57% versus the average was about 40%. So we focused our spending on mortgage originators that had a real purchase book. And I think, we do have in our budget, some additional spend there that we could perhaps do in the third and fourth quarter of this year. I think on the brokerage and trading side, our institutional activities, we're pretty much fully staffed in that area. Steve talked a little bit about some of the trust and the assets under management focus. We have hired in that space a little bit, but I think that's pretty much on board.

Yes, this is Bradshaw. Let me tag on to that. On the mortgage side, we would certainly be interested in adding additional originators and be opportunistic about that. But we've also been realistic about our outlook on what the retail purchase market will look like. As I think I mentioned earlier, we're down about 30% in that channel versus the same quarter a year ago, probably have a pretty similar comp versus second quarter of last year in the second quarter this year. So what we've done is we've taken out service and support-related expense, recognizing that downturn in volume. I think the run rate of what's coming out of that is somewhere around $1 million a month. So we have reduced that. And obviously, we would scale that if we see an increase in production or we see an opportunity to add originators. But that's -- obviously, we've had to recognize the decrease in production on the retail side. That's not dissimilar to what you see in the broker-dealer. Where we've been adding there, really, has been at the client-advisor level. These are people that are embedded in the private bank and provide advice and access to investments across both the broker-dealer platform, as well as our investment management group. And we continue to look for opportunities to add there. On the institutional trading side, where volumes are down, we've been working through kind of a similar process that we have with mortgage, where we've reset some of the gearing ratio, if you will, between trading resources and the brokers, the producers in that space, to try to make sure that we keep the right kind of alignment in terms of expenses versus revenue. So those are both very fluid businesses, and we're trying to manage in that way.

[Operator Instructions] Our next question comes from Peter Winter, BMO Capital Markets.

Steve, big-picture question. Historically, BOK has liked to keep a neutral balance sheet, doesn't like to take bets on interest rates. And I'm just wondering with rates so low today, is there more of a willingness to maybe make the balance sheet a little bit more asset sensitive going forward?

Yes, this is, I think, you meant that for me, Peter, Steve Bradshaw. Steven may want to join in as well. Our desire is to -- really is to remain neutral. I mean, we let ourselves get a little bit liability sensitive because we just didn't see a compelling case to be made that near-term rates would be rising. And so we felt like, from a shareholder perspective, it was better to generate that current income than to reposition. Now we feel differently about that. We can see what we think would be some good indicators that you might see shorter-term rates moving up in the second half of '15, certainly into '16. So that's why we made the decision to begin remixing the balance sheet and pulling back on that securities portfolio. But our goal would not to be -- to position ourselves significantly on the asset sensitive side, it would really be able to bring it back to neutral. And obviously, we're -- we want to see loan growth that helps us accomplish that remix.

And is there any thoughts about the use of swaps versus such a big securities portfolio?

We thought about it. But we've always felt like its most efficient just to hold a cash position in the actual securities. Government agency guaranteed very liquid market for that, and you get better execution long term just with cash position securities.

Okay. And just one housekeeping question. With the guidance on net interest income, where you say flat to slightly down balance of the year, that's relative to the first quarter. Is that right?

That's correct.

And everyone, at this time, showing no further questions, I'd like to turn the conference call back over to management for any closing remarks.

All right. Thanks, everyone, for joining us. If you have any further questions, you can feel free to call me today at (918) 595-3027 or you can send an e-mail to ir@bokf.com, and we'll get back to you very quickly. Have a great day, and we'll talk to you soon.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.