Greetings, and welcome to the BOK Financial Second Quarter 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Crivelli, Senior Vice President of Investor Relations. Thank you, sir, you may begin.

Good morning, and thanks for joining us. Today, we’ll hear remarks about the quarter from Steve Bradshaw, CEO; Steven Nell, CFO; Stacy Kymes, EVP, Corporate Banking. PDFs of the slide presentation and second quarter press release are available on our website at www.bokf.com. We refer you to the disclaimers on Slide 2 as it pertains to any forward-looking statements we make during this call. I’ll now turn the call over to Steve Bradshaw.

Good morning. Today we announced very strong results for the second quarter of 2017. As noted on Slide 4, net income was $88.1 million or a $1.35 per share, up 34% compared to last year’s second quarter. For the first six months of the year, net income was $176.5 million, that’s up 63% compared to first half of 2016. This continued strong financial performance was driven by a number of factors. Our balance sheet continued to have more assets thus far in the current rate cycle, resulting in a strong growth in net interest margin and net interest income. Fee revenue was up 8% from the first quarter on strength in fiduciary and asset management, transaction card and mortgage. Expenses remained well controlled and were essentially flat compared to the first quarter and first half of 2016. This included a $5.1 million rebate from prior period’s FDIC expense, which Steven will discuss in the financial section here in a moment. We realized a $5.7 million gain on the sale of a merchant banking investment and we did not book a provision for loan loss for the third consecutive quarter as we believe we are adequately reserved for any potential losses. And our MSR hedging strategy continues to deliver good result in 2017, with much lower volatility of earnings, despite a continued volatile rate environment. As shown on Slide 5, period-end loans were up 1.1% for the quarter and average loans were flat. Energy lending and private banking were growth drivers, while commercial real estate was down in line with our expectations. We continue to forecast mid-single-digit loan growth for the full year and assets under management were up slightly largely due to market performance. I’ll make some additional remarks later in the call, but Steven Nell will now cover the financial results in more detail. Steven?

Thanks, Steve. As noted on Slide 7, we saw healthy growth in net interest revenue and net interest margin in the quarter. Net interest margin was 2.89%, up 8 basis points sequentially due to a full quarter’s impact of the March Fed hike on loan and securities yield, combined with the modest increase in cost of interest-bearing liabilities. We’re still seeing very little deposit pricing pressure. After adding back diluted impact of our Federal Home Loan Bank FED trade normalized net interest margin is over 3% this quarter for the first time in over five years. On Slide 8, fees and commissions were $177.5 million, up 8% on sequential basis and down 1.5% compared to the last year’s second quarter. On a trailing 12-month basis, growth was 3.8% in line with our low-single-digit forecast. Brokerage and trading fees were down largely due to lower trading volume with core institutional clients. The investment banking business also is running lower than last year. It appears that many of our education clients funded up last year when rates were at historic lows, and have fewer needs this year. Finally, the retail brokerage business was down in June due to the implementation of the fiduciary rule, which slowed sales efforts and caused the transition from transactional to advisory revenues. This is good for long-term recurring revenue that had a negative impact in the second quarter. Transaction card regained momentum due to the sales activity we referenced in last quarter’s call. TransFund has a backlog of new clients going through the conversion process, and we are optimistic about growth in this business for the second half of the year. Fiduciary and asset management continues to execute well with very healthy growth on a sequential year-over-year and trailing 12-month basis. Money market fee waivers were zero…

Thanks Steven. Slide 13 shows our loan portfolio by type and by market. The 1.1% sequential growth was largely driven by energy, which you’ll just see in a moment, was up nicely during the quarter. Commercial real estate was down due to repayment activity combined with our efforts to manage concentration levels. Personal lending was driven by strong growth in our private banking business through the Wealth division. From a geographic standpoint, Oklahoma, Texas and Colorado all posted healthy growth. The decrease in Kansas City was largely result of the criticized loan that refinanced out of the bank in the quarter. The decrease in Arizona was due to repayments in the commercial real estate portfolio. On Slide 14, C&I loans were up 3%, but this is almost exclusively due to energy growth. As we’ve noted several times over the past few calls, we remain consistently active in the industry and we’ve clearly turned the corner on energy loan growth. Healthcare was down 1.9% sequentially. The uncertain political environment had an impact on the healthcare business and slowed new deals. But when thing gets to a steady-state on issues like changes to the Affordable Care Act and Medicare and Medicaid funding, we believe that there is demand that will re-energize growth. Outside of energy and healthcare, general C&I was essentially flat. We believe that the uncertain environment in Washington relative to tax policy is stalling growth and that some uncertainty around the administration and Congress future direction with create new deals that are waiting on the sidelines. Commercial real estate was down in the second quarter, but this provides capacity for our team to selectively pursue opportunities with the existing clients. Slide 15 shows key credit quality metrics. There was a modest increase in non-accruals in both the energy and non-energy…

Thanks, Stacy. As mentioned at the top of the call, it was another very good quarter for BOK Financial. We’re doing the right things to drive operating leverage and ensure that the revenue momentum we are experiencing is translated into earnings momentum as well. Our expense management initiatives continue to hold. And earlier this quarter, Steven and I had a special meeting with each member of our leadership team to ensure that we don’t lose focus here. It’s tempting to do so when business is good and you’re ahead of plan to reinforce that in 2017, we remain 100% focused on delivering total expenses at or below 2016 levels. A good performance in the first half of the year has not changed that goal. While commercial loan growth was slow in the first half, we were encouraged that energy is picking up as we expected. The CRE paydowns in the second quarter provide a bit of capacity for our team to book selected high-quality credits with our existing clients. We are encouraged that net interest margins are migrating back to pre-recession levels. As an industry, we still have a lot of ground to make up after a decade of near zero interest rates. Today, we are seeing competitors behave rationally. We are hopeful that this behavior regarding deposit pricing will continue. We expected mortgage revenues to dip this year due to the rate environment, but our mortgage team is doing a good job managing the transition to the purchase market as purchase originations grew and margin improved as well. Finally, I’m encouraged to see the results of our new hedging discipline for the MSR asset is delivering and has been a much quieter year on that front. As mentioned in the press release, we are all very happy that BOK Financial was recognized as one of the most respected banks in America in a third-party national survey. The areas we scored highly in the survey, corporate citizenship, governance, workplace, ethical behavior and fairness in the way we conduct business should resonate with investors and be a reminder of the quality of our company. We will take your questions now. Operator?

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your question.

Hi. Good morning.

Good morning.

Good morning.

Just, I guess, first starting on the asset quality with the growth in some of the non-performing loans on the energy side. Were most of those from credits that were established were pre-pricing crisis or has that been a reflection of some of the growth that you had in the last few years?

The increase in non-accruals in the energy side is really related to one credit that had been criticized or more recently classified for several quarters now. And it’s not in anyway related to any of the new growth that has happened over the last year or so. On the – holistically on the energy side as you’ll see in our Q subsequent to this are actual potential problem loans and special mention loans inside of energy actually continued the trend of declining this quarter. So the overall asset quality metrics inside of the energy portfolio continued to improve.

Okay. Thanks. And as we look out over maybe the next four quarters from here, I certainly heard your guidance on the provision of $0 million to $10 million. Is it really more once you see those legacy or older energy loans as a percentage of the total portfolio declining where we start to see the provision start to kick up with the rest of the growth? Or is it, what else should we be looking for to see actual growth in provision?

Well, I think there is a number of factors that would impact our decision to provide, I think, clearly loan growth would be one of the major factors there. Any deterioration that we were to see in terms of asset quality would have a bearing there. But if you look at our allowance for loan losses really across the industry, I think you’ll see we are probably in the top decile, really, in terms of our allowance particularly when you look at in the context of historical charge-offs or even most recent 12 months of charge-offs. So we have a very appropriate allowance, but certainly as we look to add to that, it would take a number of factors for us to look at how we would add to that.

Okay. Thanks. Finally from me just on the margin as we are seeing good margin expansion in the last two quarters. Can you give us on update on your thoughts on overall asset sensitivity? And would you start reducing some of that hedging position on the overall balance sheet and let some of that asset sensitivity start to flow-through more going forward? Or should we expect to see more modest impact on margin from higher rates?

Yes. This is Steven. We – you will see in the 10-Q that we’re really right on neutral in an up 200 rate environment, but I really think we are asset sensitive as you’re seeing in the last several quarters in the first 50 basis points or 100 basis points of that 200 basis points. I think we’ll continue to be some asset sensitive. So we’re going to keep the security portfolio flat, which should add to net interest income. We still think loans will continue to grow in that kind of mid-single-digit. We’re not seeing any real deposit pricing increase at this point. So my expectation is the margin will continue to improve slightly and then we’ll generate decent to modest kind of net interest income growth in the next several quarters.

Great. Thanks very much.

Our next question comes from the line of Brett Rabatin with Piper Jaffray. Please proceed with your question.

Hey, guys. Good morning.

Good morning.

Good morning, Brett.

I wanted to first ask on mortgage banking. Could you break out for us maybe on the increased link quarter on the gain on sale margins? How much of that was related to the change in purchase versus refi versus the hedging? And then just, maybe, your outlook for gain on sale margins as you see at the back half of the year?

The margin improved nicely in the second quarter as you noted. I think 12 basis points to 15 basis point of that is related to our real retail pricing. The other component of it was really some hedge ineffectiveness in the first quarter with left over positive effectiveness in the second quarter. So I would say real pricing kind of increase in the retail side predominantly was about 12 basis point to 15 basis point of that resell and roughly increase.

Okay. And then Steven, your outlook for the back half of the year, is it similar?

Yes, I mean, the mortgage industry is really put out kind of a 20% drop, if you will, in origination activity. And quite frankly, we’re tracking pretty close to that. We expected – we built in our budget coming in to 2017 about 13% decline. We’re actually declining closer to 20%. So we’re really tracking the industry pretty well, I think, and the outlook is continuing to be down relative to last year, and we think we’ll probably follow that trend line.

Okay. And then the other thing I was curious about the realized problem loans are down, but can you talk about the healthcare increase and MPAs and what that was a function of and just kind of what you see in that portfolio?

Sure. Obviously with all of the noise in Washington around healthcare and Medicaid, Medicare reimbursement changes that has gone a lot of attention, but barely this represents two deals, they are not representative of any systemic trends in the portfolio, each kind of have their own story, but they’re not anything that is indicative of broader trend inside of the healthcare portfolio. As I mentioned in the call, we evaluated both of those loans as of the end of the quarter for any specific impairment in healthcare, these were both secured. In the first quarter, there was some noise in other companies around healthcare, those were primarily unsecured. These are both secured borrowings that are just part of portfolio management, frankly, as this portfolio continues to grow.

Okay, I appreciate the color.

Thank you.

Our next question comes from the line of Peter Winter with Wedbush. Proceed with your question.

Good morning

Good morning.

Good morning.

I’m just curious what you’re seeing in deposit betas from first to second quarter? And what’s the outlook going forward?

We really didn’t see much change, Peter, I mean compared to the last couple of quarters experience, we saw overall interest-bearing deposits go up I think five basis points. The total is now 40 basis points. The betas are still really, really benign at this point. And again, I think you see around the hedges a few clients that we have and some special pricing for, but the mainstream core consumer deposits and commercial clients we’re just not seeing. And I think, if you see another rate increase towards the end of the year, perhaps, September, December time frame, I really think we’ll act rationally. And I don’t think we’ll have to increase pricing that much. I really think this can continue for the next price – or the next rate increase or two in my opinion.

And the reason I ask, the margin has been so strong in the last two quarters. I’m just wondering why would the June rate hike even get more of a benefit than kind of…

I think you’re going to get a benefit there, I really do now. We’re going to hold our securities portfolio flat so that will mitigate that delta a little bit. But I do think, we’ll get some benefit from the full quarters of the June increase.

Okay. And then, I just missed the comments a little bit from Stacy, just what the outlook for loan growth in the second half of the year, especially the general middle market. Why you expect that to pick up and just overall loan growth to pick up in the second half of the year?

What we’re maintaining is kind of our year-over-year mid-single-digit guidance that we previously provided and I think we feel very good about that. And clearly, you see, energy is growing at a tremendous pace. We are very proud of the team. We stayed committed to that through the downturn and we’re seeing the benefit of that today. Commercial real estate will balance around a little bit. I’m very optimistic about in the later half of the year in healthcare, particularly once we get through and can define some certainty or more certainty around changes that could come about in healthcare. But the core middle market C&I, I think, is going to grow – if the national GDP is 1.5%, you’re going to get some 2 times to 3 times multiple that generally speaking and I think, we feel pretty good about that. But it’s hard to grow significantly faster than that in a safe and secure way if the broader economy isn’t growing faster.

Peter, Steve and I both have talked to a number of our market leaders down in our other markets outside of Oklahoma, particularly in Texas and Colorado and other places. And you know the pipelines are – they’re not robust, but they’re pretty decent in terms of the C&I opportunities and perhaps improving a little bit. So I don’t know if that’s – some optimism on their clients doing the next project at this stage, but fully supportive I think of that mid-single-digit kind of growth rate that we see if they were giving guidance for the next several quarters.

Okay, thank you.

[Operator Instructions] Our next question comes from the line of Jennifer Demba with SunTrust. Please proceed with your question.

Good morning. How much of your growth in loans over the next, let’s say, 6 months to 12 months, do you think is going to come from the energy portfolio?

I think the crystal ball looks pretty good for about a quarter and then it starts to get off a bit fuzzy, but I think energy is going to be a driver for corporate growth, it has been, energy abstaining declined pretty significantly over the last 18 months. You see that bounce back now. We’ve historically run energy as a percent of the portfolio at 20% to 22%, we’re I think at 17% now. So clearly even just getting back to the normal mix, we have room there. But obviously, we’re proud of our performance through the downturn in segment that we think has really strong risk reward parameters for us, and we’ll continue to be very aggressive in pursuing from a business development perspective. But energy is going to be a big part of that growth, certainly in the near term.

Are the competitive dynamics in that sector still favorable for you or have all of your competitors really returned to energy lending full force?

I would say certainly from our perspective, both structurally and pricing-wise, the dynamics are very good for us. We like how the market is situated. The deals that are coming to market, seemed to be squarely in our fairway. Banks are returning to this segment, but we never left this segment and I think borrowers are appreciating that and that has really helped us as we’ve grown. We’ve grown our energy commitments in the last 12 months, almost to $1.3 billion. And you see that beginning to show up now in outstands as that flows through and so I think this is something that we spent a lot of time discussing and strategizing around. Felt that it was important to stay in this space active from business development perspective, and we are recognized leader in this space, and we’re very proud of our team for doing that.

Thanks, Stacy.

Mr. Crivelli, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

All right. Well, thanks, everybody, for joining us. If you have any questions, I will be around today. Please give me a call at 918-595-3027. Have a great rest of your day.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have wonderful day.