Greetings, and welcome to the BOK Financial Corporation First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. It is now my pleasure to introduce your host, Steven Nell, Chief Financial Officer. Thank you. You may begin.

Good morning. Thanks for joining us. Today, you'll hear from Steve Bradshaw, our CEO; Stacy Kymes, Executive Vice President of Corporate Banking; and Marc Maun, Executive Vice President and Chief Credit Officer. And I'll also provide some remarks about the quarter. PDFs of the slide presentation and first 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 the call. I'll now turn the call over to Steve Bradshaw.

Good morning. Thanks for joining us to discuss the first quarter 2019 financial results. As shown on Slide 4, the first quarter was a great start to 2019 for BOK Financial. For the quarter, net income was $110.6 million or $1.54 per diluted share, up 2% from the previous quarter and up 4.8% from the same quarter a year ago. The quarter-over-quarter growth was driven by a number of key factors. We continue to see loan growth as we build off of an outstanding year in 2018. We remain optimistic about achieving our loan growth targets as long as the broader economy continues to remain strong. We did experience lower net interest income and net interest margin this quarter, largely due to a change in deposit mix and increased levels in our trading activities. We will cover this in more detail momentarily. Feeding commission revenue picked up this quarter and our brokerage and trading and mortgage banking segment, as they both reacted positively to forward guidance by the Federal Reserve. While on the surface, overall fees were relatively flat quarter-to-quarter. The increased activity in these business lines was welcome and should help bolster our fee revenues this year. Expense management remains a focus and continues to drive earnings leverage within the organization. We successfully completed the CoBiz Systems integration last month. So this quarter will be the last with incremental expense related to the CoBiz acquisition. CoBiz's integration expenses totaled $12.7 million in the quarter and $26.6 billion of total operating expenses are CoBiz related. Steven will speak more in detail about the what to expect on expenses going forward. The credit environment continues to be stable, consistent with our results in 2018. Our continued loan growth was related to primary of our $8 million loan loss provision this quarter. Turning to Slide 5, period-end loans were $21.8 billion, an increase of $102 million for the quarter, led significantly by our energy and healthcare channels, we continue to grow loans even with a wave of the anticipated paydowns we experienced in our commercial real estate portfolio this quarter. Stacy will provide more details on the CRE portfolio a bit later. Assets under management or administration were $78.9 billion. That was up $2.6 billion from last quarter as a recovery and equity markets supplement our strong asset gathering activities during the quarter. All told, we feel very positive about the quarter and our trajectory for 2019. In fact, in this quarter we bought back over 705,000 BOKF shares at an average price of $85.85 per share in the open market, staying consistent with our opportunistic capital deployment strategy. I'll provide some additional perspective on the results at the conclusion of these remarks, but now I'll turn the call back over to Steven Nell to cover the financial results in more detail. Steven?

Thanks, Steve. As noted on Slide 7, net interest revenue for the quarter was $278.1 million, a decrease of $7.6 million from the previous quarter. Net interest margin was 3.30%, down 10 basis points from the previous quarter. These decreases were driven primarily by the combination of lower average non-interest-bearing demand deposits and higher average trading activity versus the prior quarter. Each factor represented approximately 5 basis points of net interest margin decrease. While some of the decrease in non-interest-bearing demand deposits were seasonal, some appears to be commercial customers putting their cash to use. This decline in non-interest-bearing balances resulted in slightly lower net interest revenue margin. Based on activity late in the quarter, we see some recovery of these balances, so hopefully we'll see a better impact to net interest revenue margin in the second quarter. Much of the revenue associated with the higher trading activity is recorded in brokerage and trading fees rather than interest income, while all of the related funding cost remain in interest expense leading to slightly lower net interest revenue and margin. The yield on average earning assets was 4.46%, a 13-basis point increase and the yield on the loan portfolio was 5.26%, up 17 basis points due to a carryover from the December 2018 rate hike. The yield on the available for sale of securities portfolio increased 6 basis points to 2.57%, while the yield on the trading securities portfolio was down 22 basis points. The overall cost of interest-bearing liabilities increased 24 basis points to 1.66%, including a 17-basis point increase in interest-bearing deposits to 1.04%. On Slide 8, fees and commissions were $160.6 million, relatively flat on a sequential basis, though there were some bright spots that we think bodes well for fee revenues in 2019. Lower mortgage interest rates…

Thank you, Steven. As you can see on Slide 12, total loans were $21.8 billion, up $102.3 million for the quarter. Normalizing for the CoBiz portfolio for the annual comparison, total loans were up nearly 9% year-over-year. Total C&I was up 2.4% for the quarter. Our portfolio diversification and specialty lines of business-like energy and healthcare is a key differentiator for us and were responsible for the bulk of C&I growth this quarter. Energy was up 3.2% for the quarter. Our prominence in this pace aided by our 100-year track record continues to pay dividends for us compared to our competitors. We continue to benefit from lower-than-normal churn in the energy portfolio as well, as companies were slower to divest assets or sell outright in the current market environment. Our healthcare channel was up 4.2% sequentially for the quarter. This channel remains a growth engine for BOK Financial and is expected to continue to be a leader for us. Many large national players in senior housing struggled in 2018, adding some tailwinds in 2019 for regional players, which constitutes our primary customers and prospects. Paydowns in the commercial real estate portfolio left a segment down 3.4% for the quarter, but year-over-year growth is still up over 4%. I'll add that our commitment volume is still very strong in this space, so I expect this quarterly decline to be a temporary setback. More broadly, we remain optimistic about core loan growth as we begin 2019 as long as the larger economy continues to show strength. That said, we will continue to manage our portfolio concentrations in a prudent manner to ensure that we do not become overexposed in any one area. Marc Maun will now review asset quality in more detail.

Thanks, Stacy. On Slide 14, you can see that credit quality remained strong as it did throughout 2018. Our credit metrics in particular, associated with our healthcare and energy portfolios are favorable when compared to peers. With regards to leverage lending, there are a lot of definitions. We are not active in the equity sponsored collateral right enterprise value market, which we consider the most risky and have very limited exposure. We continue to follow our playbook, loan growth without underwriting compromised, and this strategy continues to pay dividends for us as others in the industry of started to see credit challenges. Non-accruals were down $11 million during the quarter, largely in the energy portfolio. Net charge-offs moved to 19 basis points, down from 23 basis points last quarter. Net charge-offs for the first quarter were primarily related to a single energy production borrower and a single healthcare borrower, both of which have been previously identified as impaired and appropriately reserved. Potential problem loans, which are defined as performing loans that based on known information cost management concern as to the borrower's ability to continue to perform totaled $169 million at March 31st compared to $215 million at December 31st. Based on the evaluation of all credit factors, including overall portfolio growth, changes in non-accruing and potential problem loans and net charge-offs, the company determined that $8 million provision for credit losses was appropriate for the first quarter of 2019. We remain appropriately reserved for the combined loans of 0.95% of period-end loans and leases. And lastly, a word on Cecil. Our credit and finance teams continue to develop our models with our first parallel run this quarter. We'll continue to fine-tune the models and the process during the next 2 quarters to determine what our expectations are for implementation. I would note that our portfolio is relatively short-term due to our commercial orientation, largely precluding us from large impact overhauls to our existing process. I'll now turn the call back over to Steve Bradshaw for closing commentary.

Thanks, Marc. Again, with a solid start to the year for BOK Financial, I'm optimistic about the outlook for continued loan and fee growth this year, and I'm very pleased with what we've been able to achieve on the expense side. We will continue to focus on deposit gathering across all lines of business. And as Steve noted, we see some improvement already in that regard here in the second quarter. We also came in below our guidance on expenses related to the CoBiz integration and now our full focus is on customer experience and growth strategies within our Colorado and Arizona markets. We expect run rate efficiencies to be fully realized for the rest of the year. And although, we did not assume revenue synergies and our acquisition analysis, we expect to gain from our added scale and the capabilities we bring as we welcome former customers of CoBiz to BOK Financial. We continue to carefully monitor credit quality. And we remain comfortable that our portfolio is well positioned in the current environment. I believe the credit metrics that Mark discovered and our credit results, in particular, associated with our healthcare and energy portfolios are very strong when compared to peers, which is a result of our intentional focus on our time-testing conservative underwriting culture, one as serve the company and shareholder as well across a number of credit cycles in the past 27 years. With that, we will take your questions. Operator?

Thank you. [Operator Instructions] Our first question is coming from Ken Zerbe of Morgan Stanley. Please go ahead with your question.

Good morning.

Good morning, Ken.

I guess, starting off in terms the margin, obviously it did quite a bit this quarter 3.30. If you -- I think, it was Steve; you mentioned that you were expecting some of the non-interest-bearing deposits to come back. Can you just give us or help us quantify, if you do get whatever you expect in terms of non-interest-bearing coming back, how much does that actually benefit your NIM in second quarter because -- and I'm comparing it your guidance where you say, I'm on Slide 10 where basically there is a little opportunity to improve NIM?

Okay. Well, the NIM was impacted this quarter about 5 basis points from $660 million of DDA on average runoff. So, so far kind of this through the end of the quarter and then on into the second quarter, we've seen some improvement. So I think if you just extrapolate the kind of detriment that it had on this quarter's NIM to some recovery of those balances going forward, you can kind of come up with the amount of NIM impact it would have in the second quarter.

Got you. Okay. So if they all came back, then you get roughly the 5 basis points of benefit?

That's correct.

It’s Stacy. There is a lot of moving parts embedded in that. I think there is aspect of our liability structure that are more volatile. So for example, on the analogy side, we saw declines in our energy balances during the first quarter and we would expect some of that to come back. So for example, when we look at the reason those demand balances decline in energy specifically, those guys are getting checks from their oil and gas revenue roughly 90 days in arrears of wins when the price occurs. So if you think back 90 days previous to that, you had a lower price. And so they're using more free cash flow in their operation of their business. As we began to look forward into Stevens point about having a reasonable expectation that some of those demand deposits may come back, we see with the recent run-up in particularly oil prices, we would have an expectation that if we look forward 90 days that we'll see some recovery there as they get higher revenue from oil and gas production. Just as one example of the many moving parts inside of our balance sheet.

Okay. Got you. That does help. And then, I guess, sort of on the same topic. In the press release, you did talk about your trading activity. So I'm trying to make sure I get all the pieces here. So brokerage and trading was higher from fee perspective.

Correct.

You mentioned that the asset or the liabilities are included in interest expense. And it sounded like that was another reason for the NIM and NII being lower. But can you just help us; can you just explain the process to us a little bit?

Yes. So if you look at our balance sheet, you'll see the receivable on our unsettled security sales line item go up on average $425 million for effectively carrying that non-earning asset, waiting for that to settle. But we're picking up the revenue associated with that trading activity that trade down into brokerage and trading line item. So we're effectively providing liquidity for our client a little bit longer and carrying that through interest expense, but earning that back or a portion of that back through the actual brokerage and trading revenue. So it has a negative impact on NIM but when you put the pieces together, we're still profitable with that trade.

And so if we saw brokerage and trading continuing to be strong or increasing from here on out, does that create a permanent downward pressure on your margin? Or is that more temporary in nature?

Well, it could. I mean, it just depends on the nature of those traits and how long the client wants to wait to settle that trade out, and for us to deliver that transaction. So I mean, it could.

This is Steve Bradshaw. We actually made the -- we made the decision going into '19 that we would expand our trading efforts. We've also been opportunistic in terms of bringing some additional resources on. It's kind of our classic based out of our playbook that when we see a business a little bit out of favor we have opportunity to pick up some talent and commit to it. So we expect it to increase our trading limits during the first quarter we did, Steven is right, it can be -- it kind of depends on what that volume is every quarter, although we're reaching some of those limits that were comfortable with today. So steady-state basis it wouldn't have a continuingly -- very continuous negative impact on the NIM going forward.

Okay, perfect. Thank you very much.

Thank you. Our next question is coming from Brady Gailey of KBW. Please go ahead.

Hey, good morning, guys.

Good morning.

When I look at the guidance, the 60% efficiency ratio by the back half of this year, as you look to 2020, do you think there is opportunity for that efficiency ratio to go lower like into the high-50% range? Or do you think that 60% is just a good longer-term run rate for you guys?

Well, actually I think we'll pass through 60% sometime in the second half of the year. So I don't expect us to stop at 60, to answer your question. I really think we reached that mark and pass through it. And you will see what kind of budgets and activity we can put together for 2020. But I would expect us with the level of fee revenue that we have now to operate somewhere in that high 50 marks. We're never going to be a bank that gets to straight up 50%. And we have way more free revenues that drives that efficiency ratio up. But we have operated this company the past in the high 50s. And so that's kind of where we are hopefully headed.

Okay. And then on the buyback, you repurchased roughly 1% of the company this quarter, close to what you did last quarter and the fourth quarter. And your key seeking is now 8.6%. I mean the stock is cheaper than where you've repurchased last couple of quarter. Can you just talk about how you think about buybacks as it relates to TCE? And if you think buybacks are likely going forward?

I think buybacks are likely going forward. I mean, I think at this level of the stock price with outlook for the success of the company going forward, you'll see us utilize some of our excess capital in this fashion. Maybe that's a little different in the past. But we feel this pretty good opportunity to be in the market. And we have in the last couple of quarters as you noted. 8.6% TCEs, I mean, that's a healthy TCE. We had no problem moving that down. There is not a target level that I would say we would go to necessarily. I know the rating agencies look at that pretty closely. We could evaluate that, but we have room to buyback.

Alright. Thanks guys.

Thank you. Our next question is coming from Peter Winter of Wedbush. Please go ahead.

Good morning.

Good morning, Peter.

There was a big increase this quarter on the interest-bearing deposit cost. And I'm just wondering what the outlook is for interest-bearing deposit costs for kind of the remainder of the year?

Yes, if you look at the first quarter, we did have more exception pricing in our, particularly our commercial book and some in well compared to the fourth quarter. So you saw that 17 basis point increase in interest-bearing deposit, that's up in the 60%-or-so kind of beta area. With now the outlook of rates flat, you probably don't see that kind of an increase going forward. You may see a little bit of additional exception pricing. But I wouldn't expect it to elevate to that level. Part of the depends on how much the loan growth we get in the second -- in the last three quarters of the year. How much of that we want to fund with deposit growth, what happens on the DDA side. I mean, there's lot of moving parts as Stacy mentioned earlier. But I wouldn't expect the betas to be -- versus not going to be a rate move. We don't think now. But I wouldn't expect there to be as much pressure on the deposit pricing as we saw in the first quarter, would be my estimation.

Okay. And then just on the -- if I look at securities to assets, it's always high. I know you use it to help manage the asset sensitivity of the balance sheet. But I'm just wondering any thoughts on letting securities maybe runoff to find loan growth and take some pressure off deposit costs?

We would look at that, but I probably not. I mean, I think we like the level of securities that we have. It's all in the context of where we want to position the net interest -- the right risk of the company. It is the primary item we use on the balance sheet to monitor and maintain that, around that kind of neutral support. I don't know that we have philosophical a change in that approach at this point.

And Peter, you recall, a lot of that -- this is Stacy. A lot of that, it's a very high-quality securities portfolio. So most of that is really self-funded. It's not necessarily funded through deposits.

And then just my last question, just on operating expenses. Given the integration, the cost sales with CoBiz, would this quarter be the high-water mark for expenses? And we would expect to kind of trend lower for the remainder of the year?

Yes. I think so. I mean, I think if you take out the integration cost, if you saw $12.7 million and then if you continue to pick up in your numbers the synergies that we expect, we really already gotten, both on the personal side and non-personal side, you should see a lower expense base in the second quarter and going further. We're going to spend a little bit more money I think in the second, third quarter on kind of business promotion. We're doing some branding initiatives with our new BOK Financial brand out west. You'll see a little bit of that. And then we will continue to gain some synergy in our occupancy space as we continue to consolidate buildings and sublease on the buildings and get everyone moved over to one spot in Denver. So I think this is on our watermark.

Great. Thanks very much.

[Operator Instructions] Our next question is coming from Gary Tenner of D.A. Davidson.

Thanks. Good morning. I wanted to ask about the mortgage strategy, just in terms of continuing the lead buying business. Can you talk, Steve, just about what the -- what amount of volume came through that channel same the first quarter? And then just maybe quantify the difference between the margins and that versus your retail origination?

Yeah. This is Steve Bradshaw. I can speak to that. I think the high watermark in terms of the percentage of production coming from HomeDirect were somewhere in the 30%, 35% of the total production. And that was at a point where the margins were strong enough to really justify that effort and because it was in the heavy refi market where the direct channel really kind of flourishes. As we move to really strong purchase market, really north of 70%, that lead cost have grown pretty substantially, while the margins have come down. It's not a model that we think is particularly sustainable for us and in the elongated purchase market, which is where we think where we are today. So from our perspective, we are reducing our reliance on external leads in the cost there And we're refocusing that group on internal lead generation inside the organization, so opportunities to create a really great experience for mortgage lead to come to the branch network, come through our wealth management group, other types of channel. So the expertise that's there, we see as a real advantage. But we're going to focus on internally. And that obviously gives us the best opportunity to expand the relationship beyond just a mortgage loan. So there's a little change in philosophy there for us. And it is absolutely an expense play. We actually saw margins expand in the first quarter, I think 18 basis points and a lot of that is reflects the fact that we're getting out of that external lead buying and we're ramping up our purchase business out of our retail network. So those combined I think gives us a better operating model for mortgage in today's world going forward. And we've been also achieving some cost efficiencies in other areas in that organization. We'll continue to make sure that we got the right expense base to support it. So back to the earlier question, Steven, about the efficiency, I think that will be a contributing factor to us moving down below 60% of efficiency. It's just gaining a little more operating leverage inside mortgage going forward.

Thank you. And just again to clarify. So you were at high watermark, you said of 30% to 35% in total production from that channel. What was it in the first quarter?

I don't recall at the top of my head. But ...

It was less than that. But I don't know exactly.

I want to say it's less than 20, but we'll get that information for you.

Okay. I'm just curious what the impact might be on a sequential basis. So will we be completely exited from that business for the second quarter? There will be -- or is there a wind down?

No, we won't be. We'll be continuing to wind down kind of the external element, the lead buying and kind of national scope there that will continue to wind that down over the course of the year. But we are substituting the lead generation from all those internal sources we've been doing some things to increase awareness in referral business inside of our kind of core network. So in terms of the team that remains in HomeDirect, they've got an awful lot of activity going on and we refocused on higher-margin business for us, within our footprint.

Okay. Great. Thank you for the color.

Thank you.

Thank you. Our next question is coming from Jon Arfstrom of RBC Capital Markets. Please go ahead.

Thanks, good morning.

Good morning.

I had some other questions. Just a quick follow-up on Gary's question. Do you expect a step down in mortgage revenue in Q2? Or your pipeline such that you might see a typical lift a Q2, Q3 lift?

This is Steve. I don't believe that. We're actually kind of in the peak season. And our application volume is -- has been strengthening kind of throughout the year. And with the higher margin we get from retail, I don't think we would expect to see a significant step back just because we're reducing our reliance on external leads. It will show up in top line mortgage production, but not in the top line revenue number, in my opinion.

Okay. Stacy, on energy lending, do you think any different when prices are rising? I mean, we've been through all the ups and downs with your company. And I'm just curious if you change your approach at all if particularly crude prices rise?

No, we don't. We expect kind of the beauty of good times and bad times we're looking at it the same way. We -- if you think about how we value that, we're still working on kind of the end of March forward price back as we had nice run up here in April. But we are underwriting 2019 at $59 oil, 2020 at $58 oil, 2021 at $56 oil, obviously the curve is back related. So when you look at that effect, the near-term spot price or prompt price has run up more significantly than the overall strip has. But we don't change that in terms of how we look at it. We may be at more aggressive with hedging and asking our customers to hedge and understanding their risk management strategies. Prices begin to move up like this because we see that as an opportunistic way to lock in good margin for customers. But in terms of underwriting, our standards don't change.

Okay. Good. And then I don't know if this is for Steve or Steven, but in your guidance, you talk about on the revenue from fee-generating businesses and you have a common as we begin to sell on the CoBiz customer base. Can you talk a little bit about what you expect that magnitude to that to be and how it is gone so far with generating fees out of the new customer base?

Yes, this is Steve Bradshaw. I don't know that I would offer out what we think the magnitude will be. But we're encouraged even throughout the entire integration process, which is by its nature kind of inward focused. You're focused on training and on-boarding new employees, you're focused on making sure that customers understand what will change after the data integration. And we're still working through some of that as you would expect. But we've been encouraged because of the desire that we've seen from our relationship managers that join us from CoBiz to go out, especially with things like our wealth management business, which is obviously, a big strength to the company. We're seeing some traction in our treasury group. We have some capabilities that were stronger in some business segments than what CoBiz had, et cetera. So that sales effort and that kind of go-in on often, if you will, is already underway. So I'm optimistic about it. I don't know that I would describe a dollar amount to it. But it will certainly be something that we'll see growth, I think, throughout the remainder of the year.

Okay. Thank you for that. And then just the last one in terms of increasing the limits on the training desk. Not being critical of that, but I'm just curious by increasing your limits, what are the risks that you're accepting by doing that? How should we think about maybe the pros and cons of a decision to increase limits?

Yes, I mean, I will think it's a concern. I think we're just allocating, if you will, a little bit more of the balance sheet towards that business to take advantage of it as Steve mentioned. So -- of course, we've got a risk management team that monitors all of that activity daily. We have daily limits. We see all of that in our asset liability committee meetings. We're not biting off imprudent amount of additional risk by allocating a little bit more of the balance sheet towards that business. I think it's the right thing to do.

Okay. Alright. Thanks for the help.

Thank you. At this time, I'd like to turn the floor back over to management for closing comments.

Well, we appreciate everyone's questions. Thanks, again, for joining us this morning. And if you have any additional questions, feel free to call me at 918-59-53030, or you can e-mail us at ir@bokf.com. Everyone, have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.