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BOK Financial 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
BOKF-2015.06.30-10Q


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One) 
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____________ to ______________                 

Commission File No. 0-19341

BOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
 
Oklahoma
 
73-1373454
(State or other jurisdiction
of Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
Bank of Oklahoma Tower
 
 
Boston Avenue at Second Street
 
 
Tulsa, Oklahoma
 
74192
(Address of Principal Executive Offices)
 
(Zip Code)
 
(918) 588-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  ý  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes  ý  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  ý                               Accelerated filer  ¨                                   Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  ¨  No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 68,945,139 shares of common stock ($.00006 par value) as of June 30, 2015.
 





BOK Financial Corporation
Form 10-Q
Quarter Ended June 30, 2015

Index

Part I.  Financial Information
 
Management’s Discussion and Analysis (Item 2)        
Market Risk (Item 3)                                                                                              
Controls and Procedures (Item 4)
Consolidated Financial Statements – Unaudited (Item 1)
Six Month Financial Summary – Unaudited (Item 2)
Quarterly Financial Summary – Unaudited (Item 2)
Quarterly Earnings Trend – Unaudited
 
 
Part II.  Other Information
 
Item 1.  Legal Proceedings
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.  Exhibits
Signatures




Management’s Discussion and Analysis of Financial Condition and Results of Operations
Performance Summary

BOK Financial Corporation (“the Company”) reported net income of $79.2 million or $1.15 per diluted share for the second quarter of 2015, compared to $75.9 million or $1.10 per diluted share for the second quarter of 2014 and $74.8 million or $1.08 per diluted share for the first quarter of 2015

Highlights of the second quarter of 2015 included:
Net interest revenue totaled $175.7 million for the second quarter of 2015, compared to $166.1 million for the second quarter of 2014 and $167.7 million for the first quarter of 2015. Net interest margin decreased to 2.61% for the second quarter of 2015, primarily due to increased deposits at the Federal Reserve Bank funded by Federal Home Loan Bank borrowings and continued competitive loan pricing and low interest rates. Net interest margin was 2.75% for the second quarter of 2014 and 2.55% for the first quarter of 2015
Fees and commissions revenue totaled $172.5 million for the second quarter of 2015, an $8.5 million or 5% increase over the second quarter of 2014. Mortgage banking revenue increased $7.5 million based on higher loan production volume. Increased fiduciary and asset management fees were offset by lower brokerage and trading revenue. Fees and commissions revenue increased $6.6 million over the first quarter of 2015, with solid performance in all fee generating lines of business.
Changes in the fair value of mortgage servicing rights, net of economic hedges, decreased pre-tax net income in the second quarter of 2015 by $1.1 million, decreased pre-tax net income in the second quarter of 2014 by $1.5 million and decreased pre-tax net income by $5.0 million in the first quarter of 2015. Net changes in the fair value of mortgage servicing rights for the second quarter of 2015 were largely driven by an increase in servicing costs.
Operating expenses totaled $227.1 million for the second quarter of 2015, an increase of $12.4 million over the second quarter of 2014. Personnel expense increased $9.0 million and non-personnel expense increased $3.4 million. Operating expenses increased $6.8 million over the previous quarter.
The Company recorded a $4.0 million provision for credit losses in the second quarter of 2015 primarily due to growth in the loan portfolio. No provision for credit losses was recorded in the first quarter of 2015 or the second quarter of 2014. Gross charge-offs were $2.9 million in the second quarter of 2015, $3.5 million in the second quarter of 2014 and $2.2 million in the first quarter of 2015. Recoveries were $2.2 million in the second quarter of 2015, compared to $5.5 million in the second quarter of 2014 and $10.5 million in the first quarter of 2015.
The combined allowance for credit losses totaled $202 million or 1.34% of outstanding loans at June 30, 2015, compared to $199 million or 1.35% of outstanding loans at March 31, 2015. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $123 million or 0.82% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at June 30, 2015 and $123 million or 0.85% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2015.
Average loans increased by $351 million over the previous quarter due primarily to growth in commercial and commercial real estate loans. Average commercial loans were up $326 million and average commercial real estate loans increased $80 million. Period-end outstanding loan balances were $15.1 billion at June 30, 2015, a $440 million increase over March 31, 2015. Commercial loan balances increased $385 million and commercial real estate loans increased $98 million.
Average deposits decreased $155 million over the previous quarter, primarily due to a decrease in interest-bearing transaction accounts, partially offset by growth in average demand deposit balances. Period-end deposits were $21.1 billion at June 30, 2015, largely unchanged compared to March 31, 2015.
New regulatory capital rules were effective for BOK Financial on January 1, 2015 and established a 7% threshold for the common equity Tier 1 ratio. The Company's common equity Tier 1 ratio was 13.01% at June 30, 2015. In addition, the Company's Tier 1 capital ratio was 13.01%, total capital ratio was 14.11% and leverage ratio was 9.75% at June 30, 2015. The Company's common equity Tier 1 ratio was 13.07% at March 31, 2015. In addition, the Company's Tier 1 capital ratio was 13.07%, total capital ratio was 14.39% and leverage ratio was 9.74% at March 31, 2015.

- 1 -



The Company paid a regular quarterly cash dividend of $29 million or $0.42 per common share during the second quarter of 2015. On July 28, 2015, the board of directors approved a regular quarterly cash dividend of $0.42 per common share payable on or about August 28, 2015 to shareholders of record as of August 14, 2015.
Results of Operations
Net Interest Revenue and Net Interest Margin

Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.

Net interest revenue totaled $175.7 million for the second quarter of 2015 compared to $166.1 million for the second quarter of 2014 and $167.7 million for the first quarter of 2015. Net interest margin was 2.61% for the second quarter of 2015, 2.75% for the second quarter of 2014 and 2.55% for the first quarter of 2015.

Net interest revenue increased $9.6 million over the second quarter of 2014. Net interest revenue increased $15.8 million primarily due to the growth in average loan balances. Net interest revenue decreased $5.9 million primarily due to lower loan yields, partially offset by lower funding costs.

The tax-equivalent yield on earning assets was 2.84% for the second quarter of 2015, down 18 basis points from the second quarter of 2014. Loan yields decreased 20 basis points primarily due to continued market pricing pressure and lower interest rates. The available for sale securities portfolio yield decreased 2 basis points to 1.94%. Excess cash flows are currently being reinvested in short-duration securities that are yielding nearly 2.00%. Funding costs were down 7 basis points compared to the second quarter of 2014. The cost of interest-bearing deposits decreased 5 basis points and the cost of other borrowed funds increased 3 basis points largely due to the mix of funding sources. The cost of subordinated debentures decreased 31 basis points as $122 million of fixed-rate subordinated debt matured on June 1, 2015. The cost of this subordinated debt, including issuance discounts and hedge loss was 5.56%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 12 basis points for the second quarter of 2015 and 15 basis points for the second quarter of 2014.

Average earning assets for the second quarter of 2015 increased $2.9 billion or 12% over the second quarter of 2014. Average loans, net of allowance for loan losses, increased $1.6 billion due primarily to growth in average commercial and commercial real estate loans. The average balance of interest-bearing cash and cash equivalents was up $1.4 billion over the second quarter of 2014 as borrowings from the Federal Home Loan Banks were deposited in the Federal Reserve to earn a spread of approximately $842 thousand. The average balance of available for sale securities decreased $738 million as we reduced the size of our bond portfolio during 2014 through normal monthly runoff to better position the balance sheet for a longer-term rising rate environment. The average balances of fair value option securities held as an economic hedge of our mortgage servicing rights, residential mortgage loans held for sale, restricted equity securities, and trading securities were all up over the prior year.

Average deposits increased $597 million over the second quarter of 2014, including a $342 million increase in average demand deposit balances and a $213 million increase in average interest-bearing transaction accounts. Average savings account balances and average time deposits both increased over the prior year. Average borrowed funds increased $2.1 billion over the second quarter of 2014, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $40 million.

Net interest margin increased 6 basis points over the first quarter of 2015. The yield on average earning assets increased 4 basis points. The loan portfolio yield increased 6 basis points to 3.65%, primarily due to $2.3 million of nonaccrual interest recoveries during the quarter and increased loan fees compared to the first quarter. Competitive loan pricing and low interest rates continue to impact loan yields. The yield on the available for sale securities portfolio decreased 4 basis points to 1.94%. Funding costs were down 3 basis points to 0.35%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities decreased by a basis point.

- 2 -



Average earning assets increased $383 million during the second quarter of 2015, primarily due to growth in average outstanding loans of $351 million over the previous quarter. Average commercial loan balances were up $326 million and average commercial real estate loan balances increased $80 million. Residential mortgage loans held for sale increased $116 million. The average balance of restricted equity securities increased $43 million and the average balance of fair value option securities held as an economic hedge of our mortgage servicing rights increased $31 million. This growth was partially offset by a $38 million decrease in the average balance of the available for sale securities portfolio, a $14 million decrease in average investment securities balances and a $14 million decrease in average trading securities balances.
Average deposits decreased $155 million over the previous quarter. Interest-bearing transaction account balances decreased $275 million, partially offset by a $111 million increase in average demand deposit balances. The average balance of borrowed funds increased $684 million over the first quarter of 2015, primarily due to increased borrowings from the Federal Home Loan Banks. The average balance of subordinated debentures decreased $40 million.

Our overall objective is to manage the Company’s balance sheet to be relatively neutral to changes in interest rates as is further described in the Market Risk section of this report. More than three-fourths of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will re-price within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that re-price more slowly than the loans. The result is a balance sheet that would be asset sensitive, which means that assets generally re-price more quickly than liabilities. Among the strategies that we use to manage toward a relatively rate-neutral position, we purchase fixed rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market rate sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk. 

The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 1 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

- 3 -



Table 1 -- Volume/Rate Analysis
(In thousands)
 
 
Three Months Ended
June 30, 2015 / 2014
 
Six Months Ended
June 30, 2015 / 2014
 
 
 
 
Change Due To1
 
 
 
Change Due To1
 
 
Change
 
Volume
 
Yield /
Rate
 
Change
 
Volume
 
Yield
/Rate
Tax-equivalent interest revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing cash and cash equivalents
 
$
867

 
$
835

 
$
32

 
$
2,024

 
$
1,746

 
$
278

Trading securities
 
58

 
204

 
(146
)
 
213

 
423

 
(210
)
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
56

 
144

 
(88
)
 
100

 
264

 
(164
)
Tax-exempt securities
 
(238
)
 
(166
)
 
(72
)
 
(505
)
 
(318
)
 
(187
)
Total investment securities
 
(182
)
 
(22
)
 
(160
)
 
(405
)
 
(54
)
 
(351
)
Available for sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
Taxable securities
 
(4,103
)
 
(3,715
)
 
(388
)
 
(8,253
)
 
(9,174
)
 
921

Tax-exempt securities
 
(169
)
 
(120
)
 
(49
)
 
17

 
(220
)
 
237

Total available for sale securities
 
(4,272
)
 
(3,835
)
 
(437
)
 
(8,236
)
 
(9,394
)
 
1,158

Fair value option securities
 
1,526

 
1,355

 
171

 
2,678

 
2,313

 
365

Restricted equity securities
 
1,953

 
1,643

 
310

 
3,553

 
2,722

 
831

Residential mortgage loans held for sale
 
1,369

 
2,438

 
(1,069
)
 
2,728

 
3,793

 
(1,065
)
Loans
 
8,095

 
15,230

 
(7,135
)
 
12,712

 
30,062

 
(17,350
)
Total tax-equivalent interest revenue
 
9,414

 
17,848

 
(8,434
)
 
15,267

 
31,611

 
(16,344
)
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Transaction deposits
 
(292
)
 
3

 
(295
)
 
(386
)
 
132

 
(518
)
Savings deposits
 
(3
)
 
7

 
(10
)
 
(7
)
 
13

 
(20
)
Time deposits
 
(1,216
)
 
46

 
(1,262
)
 
(1,999
)
 
(97
)
 
(1,902
)
Funds purchased
 
(94
)
 
(99
)
 
5

 
(239
)
 
(286
)
 
47

Repurchase agreements
 
(121
)
 
(18
)
 
(103
)
 
(168
)
 
8

 
(176
)
Other borrowings
 
1,768

 
2,379

 
(611
)
 
3,199

 
4,218

 
(1,019
)
Subordinated debentures
 
(494
)
 
(238
)
 
(256
)
 
(487
)
 
(239
)
 
(248
)
Total interest expense
 
(452
)
 
2,080

 
(2,532
)
 
(87
)
 
3,749

 
(3,836
)
Tax-equivalent net interest revenue
 
9,866

 
15,768

 
(5,902
)
 
15,354

 
27,862

 
(12,508
)
Change in tax-equivalent adjustment
 
232

 
 
 
 
 
636

 
 
 
 
Net interest revenue
 
$
9,634

 
 
 
 
 
$
14,718

 
 
 
 
1 
Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

- 4 -



Other Operating Revenue

Other operating revenue was $176.3 million for the second quarter of 2015, a $10.1 million increase over the second quarter of 2014 and a $10.3 million increase over the first quarter of 2015. Fees and commissions revenue increased $8.5 million over the second quarter of 2014 and increased $6.6 million over the prior quarter. The change in the fair value of mortgage servicing rights, net of economic hedges, decreased other operating revenue by $1.1 million in the second quarter of 2015, $5.0 million in the first quarter of 2015 and $1.5 million in the second quarter of 2014.

Table 2Other Operating Revenue 
(In thousands)
 
 
Three Months Ended
June 30,
 
 
 
 
 
Three Months Ended
Mar. 31, 2015
 
 
 
 
 
 
2015
 
2014
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
Increase (Decrease)
 
% Increase (Decrease)
Brokerage and trading revenue
 
$
36,012

 
$
39,056

 
$
(3,044
)
 
(8
)%
 
$
31,707

 
$
4,305

 
14
 %
Transaction card revenue
 
32,778

 
31,510

 
1,268

 
4
 %
 
31,010

 
1,768

 
6
 %
Fiduciary and asset management revenue
 
32,712

 
29,543

 
3,169

 
11
 %
 
31,469

 
1,243

 
4
 %
Deposit service charges and fees
 
22,328

 
23,133

 
(805
)
 
(3
)%
 
21,684

 
644

 
3
 %
Mortgage banking revenue
 
36,846

 
29,330

 
7,516

 
26
 %
 
39,320

 
(2,474
)
 
(6
)%
Bank-owned life insurance
 
2,398

 
2,274

 
124

 
5
 %
 
2,198

 
200

 
9
 %
Other revenue
 
9,473

 
9,208

 
265

 
3
 %
 
8,603

 
870

 
10
 %
Total fees and commissions revenue
 
172,547

 
164,054

 
8,493

 
5
 %
 
165,991

 
6,556

 
4
 %
Gain on other assets, net
 
1,457

 
3,521

 
(2,064
)
 
N/A

 
755

 
702

 
N/A

Gain (loss) on derivatives, net
 
(1,032
)
 
831

 
(1,863
)
 
N/A

 
911

 
(1,943
)
 
N/A

Gain (loss) on fair value option securities, net
 
(8,130
)
 
4,176

 
(12,306
)
 
N/A

 
2,647

 
(10,777
)
 
N/A

Change in fair value of mortgage servicing rights
 
8,010

 
(6,444
)
 
14,454

 
N/A

 
(8,522
)
 
16,532

 
N/A

Gain on available for sale securities, net
 
3,433

 
4

 
3,429

 
N/A

 
4,327

 
(894
)
 
N/A

Total other-than-temporary impairment
 

 

 

 
N/A

 
(781
)
 
781

 
N/A

Portion of loss recognized in (reclassified from) other comprehensive income
 

 

 

 
N/A

 
689

 
(689
)
 
N/A

Net impairment losses recognized in earnings
 

 

 

 
N/A

 
(92
)
 
92

 
N/A

Total other operating revenue
 
$
176,285

 
$
166,142

 
$
10,143

 
6
 %
 
$
166,017

 
$
10,268

 
6
 %
Certain percentage increases (decreases) in non-fees and commissions revenue are not meaningful for comparison purposes based on the nature of the item.

Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 50% of total revenue for the second quarter of 2015, excluding provision for credit losses and gains and losses on other assets, securities and derivatives and the change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provides an offset to changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. As an example of this strength, many of the economic factors that cause net interest revenue compression such as falling interest rates may also drive growth in our mortgage banking revenue. We expect growth in other operating revenue to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and trading revenue includes revenues from securities trading, customer hedging, retail brokerage and investment banking. Brokerage and trading revenue decreased $3.0 million compared to the second quarter of 2014


- 5 -



Securities trading revenue was $11.4 million for the second quarter of 2015, a decrease of $1.0 million compared to the second quarter of 2014. Securities trading revenue includes net realized and unrealized gains primarily related to sales of U.S. government securities, residential mortgage-backed securities guaranteed by U.S. government agencies and municipal securities to institutional customers. 

Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $11.7 million for the second quarter of 2015. Combined recoveries from the Lehman Brothers and MF Global bankruptcies totaled $382 thousand in the second quarter of 2015 and $1.6 million in the second quarter of 2014. Excluding the impact of these recoveries, customer hedging revenue increased $3.0 million over the prior year primarily due to higher volumes of derivative contracts executed by our mortgage banking customers.

Revenue earned from retail brokerage transactions decreased $4.4 million or 43% compared to the second quarter of 2014 to $5.9 million. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities, annuities and mutual funds to retail customers. Revenue is primarily based on the volume of customer transactions during the quarter. While sales volume increased over 2014, customers moved toward lower margin products.

Investment banking revenue, which includes fees earned upon completion of underwriting and financial advisory services and loan syndication fees, totaled $7.1 million for the second quarter of 2015, a $617 thousand or 10% increase over the second quarter of 2014 primarily related to financial advisory, underwriting and loan syndication fees.

Brokerage and trading revenue increased $4.3 million over the first quarter of 2015. Investment banking fees were up $2.4 million over the prior quarter primarily due to growth in loan syndication and underwriting fees. Securities trading revenue increased $1.4 million. Customer hedging revenue increased $963 thousand, excluding the impact of a recovery from the Lehman Brothers bankruptcy in the second quarter of 2015. Retail brokerage fees decreased $880 thousand compared to the prior quarter.

Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller machine (“ATM”) locations and the number of merchants served. Transaction card revenue for the second quarter of 2015 increased $1.3 million or 4% over the second quarter of 2014. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $16.6 million, a $605 thousand or 4% increase over the prior year, due to increased transaction volumes and increased dollar amounts per transaction. Merchant services fees totaled $11.3 million, an increase of $623 thousand or 6% based on increased transaction activity. Revenue from interchange fees paid by merchants for transactions processed from debit cards issued by the Company totaled $4.8 million, an increase of $40 thousand or 1% over the second quarter of 2014.

Transaction card revenue increased $1.8 million over the first quarter of 2015. Merchant services fees, EFT network revenues and interchange fee revenue from debit cards issued by the Company all grew over the prior quarter due to increased transaction activity.

Fiduciary and asset management revenue grew by $3.2 million or 11% over the second quarter of 2014. MBM Advisors was acquired during the the second quarter of 2014. The partial quarter of earnings in the second quarter of 2014 related to MBM Advisors totaled $947 thousand, compared to a full quarter of earnings in the second quarter of 2015 of $1.8 million. The remaining increase was primarily due to the growth in the fair value of fiduciary assets administered by the Company. Fiduciary assets are assets for which the Company possesses investment discretion on behalf of another or any other similar capacity. The fair value of fiduciary assets administered by the Company totaled $38.8 billion at June 30, 2015, $32.7 billion at June 30, 2014 and $37.5 billion at March 31, 2015.

Fiduciary and asset management revenue increased $1.2 million over the first quarter of 2015 primarily due to the growth in the fair value of fiduciary assets administered by the Company.

We also earn fees as administrator to and investment adviser for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the Investment Company Act of 1940. The Bank is custodian and BOSC, Inc. is distributor for the Cavanal Hill Funds. Products of the Cavanal Hill Funds are offered to customers, employee benefit plans, trusts and the general public in the ordinary course of business. We have voluntarily waived administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the current low short-term interest rate environment. Waived fees totaled $2.9 million for the second quarter of 2015 compared to $2.4 million for the second quarter of 2014 and $2.7 million for the first quarter of 2015.

- 6 -




Deposit service charges and fees were $22.3 million for the second quarter of 2015, compared to $23.1 million for the second quarter of 2014. Overdraft fees were $10.1 million for the second quarter of 2015, a decrease of $1.8 million or 15% compared to the second quarter of 2014. Commercial account service charge revenue totaled $10.4 million, an increase of $1.1 million or 12% over the prior year. Service charges on deposit accounts with a standard monthly fee were $1.8 million, a decrease of $54 thousand or 3% compared to the second quarter of 2014. Deposit service charges and fees increased $644 thousand compared to the prior quarter primarily due to an increase in overdraft fee volumes.

Mortgage banking revenue increased $7.5 million over the second quarter of 2014. Mortgage production revenue increased $5.4 million largely due to increased production activity. Lower average primary mortgage interest rates as well as improved consumer confidence in the mortgage market and expansion of our correspondent and Home Direct lending channels increased loans closed during the quarter and outstanding loan commitments. The decrease in average interest rates also increased the percentage of refinanced mortgage loans to 40% in the second quarter of 2015 compared to 25% in the second quarter of 2014. Growth in our correspondent and Home Direct lending channels caused margins to compress compared to the second quarter of 2014. Mortgage servicing revenue grew by $2.1 million or 18% over the second quarter of 2014. The outstanding principal balance of mortgage loans serviced for others totaled $18.0 billion, an increase of $3.4 billion or 23%.
Mortgage banking revenue decreased $2.5 million compared to the first quarter of 2015. Mortgage production revenue decreased $2.9 million. While production volume increased over the previous quarter, margin compression reduced production revenue. Total mortgage loans originated during the second quarter increased $263 million over the previous quarter and outstanding mortgage loan commitments at June 30 increased $26 million. However, mortgage interest rates increased during the second quarter which reduced higher-margin refinance activity. Revenue from mortgage loan servicing grew by $453 thousand due to an increase in the volume of loans serviced. The outstanding balance of mortgage loans serviced for others increased $1.0 billion over March 31, 2015.

Table 3Mortgage Banking Revenue 
(In thousands)
 
 
Three Months Ended
June 30,
 
Increase (Decrease)
 
% Increase (Decrease)
 
Three Months Ended
Mar. 31, 2015
 
Increase (Decrease)
 
% Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
Net realized gains on mortgage loans sold
 
$
23,856

 
$
12,745

 
$
11,111

 
87
 %
 
$
17,251

 
$
6,605

 
38
 %
Change in net unrealized gains (losses) on mortgage loans held for sale
 
(743
)
 
4,982

 
(5,725
)
 
(115
)%
 
8,789

 
(9,532
)
 
(108
)%
Total mortgage production revenue
 
23,113

 
17,727

 
5,386

 
30
 %
 
26,040

 
(2,927
)
 
(11
)%
Servicing revenue
 
13,733

 
11,603

 
2,130

 
18
 %
 
13,280

 
453

 
3
 %
Total mortgage revenue
 
$
36,846

 
$
29,330

 
$
7,516

 
26
 %
 
$
39,320

 
$
(2,474
)
 
(6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage loans funded for sale
 
$
1,828,230

 
$
1,090,629

 
$
737,601

 
68
 %
 
$
1,565,016

 
$
263,214

 
17
 %
Mortgage loans sold
 
1,861,968

 
1,008,993

 
852,975

 
85
 %
 
1,382,042

 
479,926

 
35
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Period end outstanding mortgage commitments, net
 
849,619

 
546,864

 
302,755

 
55
 %
 
824,036

 
25,583

 
3
 %
Outstanding principal balance of mortgage loans serviced for others
 
17,979,623

 
14,626,291

 
3,353,332

 
23
 %
 
16,937,128

 
1,042,495

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary residential mortgage interest rate – period end
 
4.02
%
 
4.14
%
 
(12
) bps
 
 
 
3.69
%
 
33
 bps
 
 
Primary residential mortgage interest rate – average
 
3.82
%
 
4.23
%
 
(41
) bps
 
 
 
3.73
%
 
9
 bps
 
 
Secondary residential mortgage interest rate – period end
 
3.13
%
 
3.17
%
 
(4
) bps
 
 
 
2.75
%
 
38
 bps
 
 
Secondary residential mortgage interest rate – average
 
2.85
%
 
3.28
%
 
(43
) bps
 
 
 
2.69
%
 
16
 bps
 
 

- 7 -



Net gains on securities, derivatives and other assets

In the second quarter of 2015, we recognized a $3.4 million net gain from sales of $379 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential return or to move into securities that will perform better in a rising rate environment. In the second quarter of 2014, we recognized a $4 thousand net gain from sales of $800 million of available for sale securities and in the first quarter of 2015, we recognized a $4.3 million net gain on sales of $335 million of available for sale securities.

We also maintain a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts designated as an economic hedge of the changes in the fair value of our mortgage servicing rights. The fair value of our mortgage servicing rights fluctuates due to changes in prepayment speeds and other assumptions as more fully described in Note 6 to the Consolidated Financial Statements. As benchmark mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As benchmark mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.

Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates, rates offered to borrowers, and assumptions about servicing revenues, servicing costs and discount rates. Changes in the fair value of residential mortgage-backed securities and interest rate derivative contracts are highly dependent on changes in secondary mortgage rates, or rates required by investors. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in the spread between the primary and secondary rates can cause significant earnings volatility. Additionally, the fair value of mortgage servicing rights is dependent on short-term interest rates that affect the value of custodial funds, changes in the spread between short-term and long-term interest rates, and other assumptions such as estimated loan servicing costs. An increase in estimated servicing costs reduced the fair value of mortgage servicing rights by $2.4 million in the second quarter of 2015.

Table 4 following shows the relationship between changes in the fair value of mortgage servicing rights and the fair value of fair value option residential mortgage-backed securities and interest rate derivative contracts designated as an economic hedge.

Table 4 - Gain (Loss) on Mortgage Servicing Rights
(In thousands)
 
 
Three Months Ended
 
 
June 30,
2015
 
Mar. 31,
2015
 
June 30,
2014
Gain (loss) on mortgage hedge derivative contracts, net
 
$
(1,005
)
 
$
911

 
$
831

Gain (loss) on fair value option securities, net
 
(8,130
)
 
2,647

 
4,074

Gain (loss) on economic hedge of mortgage servicing rights, net
 
(9,135
)
 
3,558

 
4,905

Gain (loss) on change in fair value of mortgage servicing rights
 
8,010

 
(8,522
)
 
(6,444
)
Loss on changes in fair value of mortgage servicing rights, net of economic hedges
 
$
(1,125
)
 
$
(4,964
)
 
$
(1,539
)
 
 
 
 
 
 
 
Net interest revenue on fair value option securities
 
$
1,985

 
$
1,739

 
$
721


Primary rates disclosed in Table 3 above represent rates generally available to borrowers on 30 year conforming mortgage loans and affect the value of our mortgage servicing rights. Secondary rates represent rates generally paid on 30 year residential mortgage-backed securities guaranteed by U.S. government agencies and affect the value of securities and derivative contracts used as an economic hedge of our mortgage servicing rights.




- 8 -



Other Operating Expense

Other operating expense for the second quarter of 2015 totaled $227.1 million, a $12.4 million or 6% increase over the second quarter of 2014. Personnel expenses increased $9.0 million or 7%. Non-personnel expenses increased $3.4 million or 4% over the prior year.

Operating expenses increased $6.8 million over the previous quarter. Personnel expense increased $4.1 million. Non-personnel expense increased $2.7 million.

Table 5 -- Other Operating Expense
(In thousands)
 
 
Three Months Ended
June 30,
 
Increase (Decrease)
 
%
Increase (Decrease)
 
Three Months Ended
Mar. 31, 2015
 
Increase (Decrease)
 
%
Increase (Decrease)
 
 
2015
 
2014
 
 
 
 
 
Regular compensation
 
$
78,105

 
$
73,064

 
$
5,041

 
7
 %
 
$
77,762

 
$
343

 
 %
Incentive compensation:
 
 
 
 
 


 


 
 
 
 
 
 
Cash-based
 
32,347

 
29,030

 
3,317

 
11
 %
 
26,941

 
5,406

 
20
 %
Share-based
 
3,057

 
3,675

 
(618
)
 
(17
)%
 
2,140

 
917

 
43
 %
Deferred compensation
 
118

 
(136
)
 
254

 
(187
)%
 
130

 
(12
)
 
(9
)%
Total incentive compensation
 
35,522

 
32,569

 
2,953

 
9
 %
 
29,211

 
6,311

 
22
 %
Employee benefits
 
19,068

 
18,081

 
987

 
5
 %
 
21,575

 
(2,507
)
 
(12
)%
Total personnel expense
 
132,695

 
123,714

 
8,981

 
7
 %
 
128,548

 
4,147

 
3
 %
Business promotion
 
7,765

 
7,150

 
615

 
9
 %
 
5,748

 
2,017

 
35
 %
Professional fees and services
 
9,560

 
11,054

 
(1,494
)
 
(14
)%
 
10,059

 
(499
)
 
(5
)%
Net occupancy and equipment
 
18,927

 
18,789

 
138

 
1
 %
 
19,044

 
(117
)
 
(1
)%
Insurance
 
5,116

 
4,467

 
649

 
15
 %
 
4,980

 
136

 
3
 %
Data processing and communications
 
31,463

 
29,071

 
2,392

 
8
 %
 
30,620

 
843

 
3
 %
Printing, postage and supplies
 
3,553

 
3,429

 
124

 
4
 %
 
3,461

 
92

 
3
 %
Net losses and operating expenses of repossessed assets
 
223

 
1,118

 
(895
)
 
(80
)%
 
613

 
(390
)
 
(64
)%
Amortization of intangible assets
 
1,090

 
949

 
141

 
15
 %
 
1,090

 

 
 %
Mortgage banking costs
 
7,419

 
7,960

 
(541
)
 
(7
)%
 
9,319

 
(1,900
)
 
(20
)%
Other expense
 
9,302

 
7,006

 
2,296

 
33
 %
 
6,783

 
2,519

 
37
 %
Total other operating expense
 
$
227,113

 
$
214,707

 
$
12,406

 
6
 %
 
$
220,265

 
$
6,848

 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of employees (full-time equivalent)
 
4,776

 
4,657

 
119

 
3
 %
 
4,741

 
35

 
1
 %
Certain percentage increases (decreases) are not meaningful for comparison purposes.

Personnel expense

Regular compensation, which consists of salaries and wages, overtime pay and temporary personnel costs, increased $5.0 million or 7% over the second quarter of 2014. Although the average number of employees was largely unchanged compared to the prior year, recent additions have been higher-costing positions in compliance and risk management, technology and wealth management. In addition, standard annual merit increases in regular compensation were effective for the majority of our staff on March 1.

Incentive compensation increased $3.0 million over the second quarter of 2014. Cash-based incentive compensation plans are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions. Total cash-based incentive compensation increased $3.3 million or 11% over the second quarter of 2014


- 9 -



Share-based compensation expense represents expense for equity awards based on grant-date fair value and is largely unaffected by subsequent changes in fair value. Non-vested shares awarded prior to 2013 generally cliff vest in 5 years. Non-vested shares awarded since January 1, 2013 generally cliff vest in 3 years and are subject to a two year holding period after vesting.

Employee benefit expense increased $987 thousand or 5% over the second quarter of 2014 primarily due to an increase in employee medical costs. The Company self-insures a portion of its employee healthcare coverage and these costs may be volatile.
Personnel costs increased by $4.1 million over the first quarter of 2015. Incentive compensation expense increased $6.3 million, partially offset by a $1.4 million decrease in employee medical costs and a $1.4 million decrease in payroll taxes.

Non-personnel operating expenses

Non-personnel operating expenses increased $3.4 million or 4% over the second quarter of 2014. Data processing and communications expense increased $2.4 million primarily due to increased transaction activity. All other non-personnel expense increased $1.0 million.
Non-personnel expense increased $2.7 million compared to the first quarter of 2015. Other expense increased $2.5 million primarily due to increased recruiting expense. Business promotion expense increased $2.0 million, offset by a $1.9 million decrease in mortgage banking expense.
Income Taxes

Income tax expense was $40.6 million or 33.6% of book taxable income for the second quarter of 2015 compared to $40.8 million or 34.7% of book taxable income for the second quarter of 2014 and $38.4 million or 33.8% of book taxable income for the first quarter of 2015.

The Company adopted FASB Accounting Standards Update No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, on January 1, 2015. This standard was retrospectively applied to all periods presented.Approximately $3.6 million was reclassified from pre-tax earnings to income tax expense in the second quarter of 2014 and approximately $5.5 million was reclassified from pre-tax earnings to income tax expense for the six months ended June 30, 2014. This reclassification increased the effective tax rate by 200 basis points in the second quarter of 2014 and 150 basis points for the six months ended June 30, 2014. Adoption of this standard did not affect net income.

BOK Financial operates in numerous jurisdictions, which requires judgment regarding the allocation of income, expense and earnings under various laws and regulations of each of these taxing jurisdictions. Each jurisdiction may audit our tax returns and may take different positions with respect to these allocations. The reserve for uncertain tax positions was $14 million at both June 30, 2015 and at March 31, 2015 and $12 million at June 30, 2014.

- 10 -



Lines of Business

We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through our consumer branch network and all mortgage banking activities. Wealth Management provides fiduciary services, private banking services and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of interest rate risk positions and risk management activities, securities gains and losses including impairment charges, the provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs that are not attributed to the lines of business.

We allocate resources and evaluate the performance of our lines of business using the net direct contribution which includes the allocation of funds, actual net credit losses and capital costs. In addition, we measure the performance of our business lines after allocation of certain indirect expenses and taxes based on statutory rates.

The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that approximate market rates for funds with similar duration. Market rates are generally based on the applicable LIBOR or interest rate swap rates, adjusted for prepayment risk. This method of transfer-pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk.

The value of funds provided by the operating lines of business to the Funds Management unit is also based on rates which approximate wholesale market rates for funds with similar duration and re-pricing characteristics. Market rates are generally based on LIBOR or interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their re-pricing characteristics reflected in a combination of the short-term LIBOR rate and a moving average of an intermediate term swap rate, with an appropriate spread applied to both. Shorter duration products are weighted towards the short term LIBOR rate and longer duration products are weighted towards the intermediate swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years.

Economic capital is assigned to the business units by a capital allocation model that reflects management’s assessment of risk. This model assigns capital based upon credit, operating, interest rate and other market risk inherent in our business lines and recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Average invested capital includes economic capital and amounts we have invested in the lines of business.

As shown in Table 6, net income attributable to our lines of business increased $5.8 million or 11% over the second quarter of 2014. Growth in both net interest revenue and fees and commissions revenue was partially offset by increased operating expenses. The second quarter of 2015 had $1.3 million of net charge-offs compared to net recoveries of $1.7 million in the second quarter of 2014.

Table 6 -- Net Income by Line of Business
(In thousands)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Commercial Banking
 
$
45,643

 
$
39,251

 
$
91,464

 
$
74,343

Consumer Banking
 
7,480

 
7,395

 
12,338

 
15,823

Wealth Management
 
4,190

 
4,882

 
8,924

 
7,422

Subtotal
 
57,313

 
51,528

 
112,726

 
97,588

Funds Management and other
 
21,917

 
24,367

 
41,347

 
54,897

Total
 
$
79,230

 
$
75,895

 
$
154,073

 
$
152,485


- 11 -



Commercial Banking

Commercial Banking contributed $45.6 million to consolidated net income in the second quarter of 2015, up $6.4 million or 16% over the second quarter of 2014. Increased net interest revenue, net recoveries of loans previously charged off and fees and commissions revenue was partially offset by increased operating expenses. Commercial Banking had $401 thousand of net recoveries in the second quarter of 2015 compared $3.7 million of net recoveries in the second quarter of 2014.

Table 7 -- Commercial Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Six Months Ended
 
Increase (Decrease)
 
 
 
June 30,
 
 
June 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
108,616

 
$
94,810

 
$
13,806

 
$
209,784

 
$
185,641

 
$
24,143

 
Net interest expense from internal sources
 
(12,642
)
 
(11,349
)
 
(1,293
)
 
(25,198
)
 
(23,624
)
 
(1,574
)
 
Total net interest revenue
 
95,974

 
83,461

 
12,513

 
184,586

 
162,017

 
22,569

 
Net loans charged off (recovered)
 
(401
)
 
(3,728
)
 
3,327

 
(9,303
)
 
(7,192
)
 
(2,111
)
 
Net interest revenue after net loans charged off (recovered)
 
96,375

 
87,189

 
9,186

 
193,889

 
169,209

 
24,680

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
45,389

 
42,541

 
2,848

 
88,211

 
82,511

 
5,700

 
Gain (loss) on financial instruments and other assets, net
 
191

 
179

 
12

 
253

 
(1,105
)
 
1,358

 
Other operating revenue
 
45,580

 
42,720

 
2,860

 
88,464

 
81,406

 
7,058

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personnel expense
 
28,506

 
27,451

 
1,055

 
55,819

 
54,321

 
1,498

 
Non-personnel expense
 
24,270

 
23,256

 
1,014

 
47,537

 
45,676

 
1,861

 
Other operating expense
 
52,776

 
50,707

 
2,069

 
103,356

 
99,997

 
3,359

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net direct contribution
 
89,179

 
79,202

 
9,977

 
178,997

 
150,618

 
28,379

 
Corporate expense allocations
 
14,477

 
14,961

 
(484
)
 
29,302

 
28,943

 
359

 
Income before taxes
 
74,702

 
64,241

 
10,461

 
149,695

 
121,675

 
28,020

 
Federal and state income tax
 
29,059

 
24,990

 
4,069

 
58,231

 
47,332

 
10,899

 
Net income
 
$
45,643

 
$
39,251

 
$
6,392

 
$
91,464

 
$
74,343

 
$
17,121

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average assets
 
$
13,136,059

 
$
11,220,361

 
$
1,915,698

 
$
12,896,460

 
$
11,077,572

 
$
1,818,888

 
Average loans
 
12,260,003

 
10,554,470

 
1,705,533

 
12,077,367

 
10,406,825

 
1,670,542

 
Average deposits
 
8,930,168

 
8,998,408

 
(68,240
)
 
8,963,385

 
8,871,870

 
91,515

 
Average invested capital
 
1,028,989

 
937,085

 
91,904

 
1,013,116

 
934,768

 
78,348

 
Return on average assets
 
1.40
 %
 
1.40
 %
 

bp
1.43
 %
 
1.36
 %
 
7

bp
Return on invested capital
 
17.82
 %
 
16.81
 %
 
101

bp
18.23
 %
 
16.09
 %
 
214

bp
Efficiency ratio
 
37.28
 %
 
40.18
 %
 
(290
)
bp
37.83
 %
 
40.83
 %
 
(300
)
bp
Net recoveries (annualized) to average loans
 
(0.01
)%
 
(0.14
)%
 
13

bp
(0.16
)%
 
(0.14
)%
 
(2
)
bp

Net interest revenue increased $12.5 million or 15% over the prior year. Growth in net interest revenue was primarily due to a $1.7 billion or 16% increase in average loan balances, partially offset by reduced yields on loans.

Fees and commissions revenue increased $2.8 million or 7% over the second quarter of 2014. Transaction card revenues from our TransFund electronic funds transfer network were up $1.3 million. Commercial deposit service charge revenue increased $945 thousand and brokerage and trading revenue related to our commercial banking customers increased $746 thousand.


- 12 -



Operating expenses increased $2.1 million or 4% over the second quarter of 2014. Personnel costs increased $1.1 million or 4% primarily due to increased incentive compensation expense and standard annual merit increases. Non-personnel expenses increased $1.0 million or 4%. Data processing and communication expense increased $1.1 million related to growth in transaction activity. Other expense increased $1.2 million primarily due to merchant banking investment activity. These increases were partially offset by a $796 thousand decrease in net losses and operating expenses of repossessed assets and a $354 thousand decrease in professional fees and services expense. Corporate expense allocations decreased $484 thousand compared to the prior year.

The average outstanding balance of loans attributed to Commercial Banking grew by $1.7 billion over the second quarter of 2014 to $12.3 billion. See the Loans section of Management’s Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans which are primarily attributed to the Commercial Banking segment. 
 
Average deposits attributed to Commercial Banking were $8.9 billion for the second quarter of 2015, largely unchanged compared to the second quarter of 2014. Commercial customers continue to maintain high account balances due to continued economic uncertainty and persistently low yields available on high quality investments.


Consumer Banking

Consumer Banking provides retail banking services through four primary distribution channels:  traditional branches, the 24-hour ExpressBank call center, Internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside of our consumer banking markets, through correspondent loan originators and through Home Direct Mortgage, an on-line origination channel.

Consumer Banking contributed $7.5 million to consolidated net income for the second quarter of 2015, largely unchanged compared to the second quarter of 2014.

Growth in mortgage banking banking revenue was partially offset by decreased net interest revenue and lower deposit service charges and fees. Changes in the fair value of our mortgage servicing rights, net of economic hedge, resulted in a $687 thousand decrease in Consumer Banking net income in the second quarter of 2015 and a $940 thousand decrease in Consumer Banking net income in the second quarter of 2014.


- 13 -



Table 8 -- Consumer Banking
(Dollars in thousands)
 
 
Three Months Ended
 
Increase (Decrease)
 
Six Months Ended
 
Increase (Decrease)
 
 
 
June 30,
 
 
June 30,
 
 
 
 
2015
 
2014
 
 
2015
 
2014
 
 
Net interest revenue from external sources
 
$
21,728

 
$
20,947

 
$
781

 
$
42,453

 
$
41,930

 
$
523

 
Net interest revenue from internal sources
 
7,624

 
9,609

 
(1,985
)
 
15,538

 
18,838

 
(3,300
)
 
Total net interest revenue
 
29,352

 
30,556

 
(1,204
)
 
57,991

 
60,768

 
(2,777
)
 
Net loans charged off
 
1,674

 
1,576

 
98

 
1,674

 
1,576

 
98

 
Net interest revenue after net loans charged off
 
27,678

 
28,980

 
(1,302
)
 
56,317

 
59,192

 
(2,875
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fees and commissions revenue
 
57,616

 
52,243

 
5,373

 
116,643

 
96,510

 
20,133

 
Gain (loss) on financial instruments and other assets, net
 
(7,062
)
 
7,574

 
(14,636
)
 
(1,336
)
 
13,182

 
(14,518
)
 
Change in fair value of mortgage servicing rights
 
8,010

 
(6,444
)
 
14,454

 
(512
)
 
(10,905
)
 
10,393

 
Other operating revenue
 
58,564

 
53,373

 
5,191

 
114,795

 
98,787

 
16,008