DBRS Ratings on BOK Financial Corporation Unchanged at A (low) after 1Q13 Results; Stable Trend

DBRS, Inc. (DBRS) has today commented that its ratings for BOK Financial Corporation (BOKF or the Company), including its A (low) Issuer & Senior Debt rating are unchanged following the release of 1Q13 financial results. The trend on all ratings is Stable. Reflecting lower expenses, BOKF reported net income of $88.0 million for 1Q13, up from $82.6 million for 4Q12. Specifically, higher QoQ net income was attributable to 9.3% decline in non-interest expense, partially offset by a 1.9% decrease in total revenues, and a 42.9% decrease in negative provision for loan loss reserves.

Despite the difficult business environment, BOKF’s fundamentals remained solid in 1Q13, reflecting resilient earnings, sound asset quality, and a strong capital position.

Given the continued pressure on revenue growth, lower expenses drove BOKF’s higher QoQ earnings. Reflecting broad-based declines across most line items, total expenses were $201.3 million for 1Q13, down from $222.1 million for 4Q12. Lower expenses were mostly attributable to a 4.2% decrease in personnel expense, and an 81.3% decrease in net losses and operating expenses of repossessed assets. The decline in personnel cost reflected lower incentive compensation expense.

As with most banks, revenues remain constrained by the low interest rate and slow growth economic environment. Specifically, the Company’s linked-quarter decline in total revenues was driven by a $3.6 million, or 2.2% decrease in non-interest income and a $3.0 million, or 1.7% decrease in net interest income. Excluding net gains on AFS securities, gains on other assets, and net impairment losses, adjusted non-interest income decreased 5.6%, to $153.9 million, QoQ, mostly driven by a 13.9% decline in mortgage banking revenue, and a 5.0% decline in deposit service charges. Lower mortgage banking revenues reflected lower gains on mortgage loans sold, while the decrease in deposit service charges was attributable to lower levels of overdraft fees. Meanwhile, lower spread income was driven by a 3 bps narrowing of net interest margin (NIM) to 2.92% (TE basis), partially offset by a 0.1% increase in average earning assets. Modestly higher average earning assets were driven by a $236 million, or 2.0%, increase in average loans, mostly offset by a $190 million, or a 1.7%, decrease in AFS securities. Higher average loans primarily reflected a 6.4% increase in commercial real estate loans.

Despite the difficult operating environment, BOKF’s asset quality remains sound. Non-performing assets increased modestly to 2.32% of loans and OREO, at March 31, 2013, from 2.23% at December 31, 2012. Meanwhile, net charge-offs (NCOs) were minimal, and represented a very low 0.08% of average loans for 1Q13, down from 0.14% for 4Q12. Continued sound asset quality and low NCOs supported a negative provision for loan loss reserves of $8 million in 1Q13, compared to a negative provision of $14 million in 4Q12. DBRS views BOKF’s allowance for loan losses to be adequate at 155.3% of non-accruing loans and 1.7% of period-end loans.

BOKF’s funding profile is strong, as exhibited by its gross loans to deposit ratio of 60.9%. A large AFS securities portfolio, which represents 40.3% of total assets, along with access to the Federal Home Loan Bank and the Federal Reserve round out the Company’s liquidity profile. The securities portfolio consists mostly of good quality government agencies. However, BOKF does hold $307 million (amortized cost) of somewhat riskier private label RMBS. DBRS notes that the Company has extension risk, given its large residential mortgage backed securities portfolio, which DBRS will continue to monitor.

BOKF’s capital position remains ample and provides significant loss absorption capacity, as well as the potential to support future growth opportunities, both organically and through acquisitions. Specifically, at March 31, 2013, BOKF’s tangible common equity ratio was a high 9.70% (9.25% at December 31, 2012), and its estimated Tier 1 capital ratio was 13.35% (12.78% at December 31, 2012). Finally, DBRS notes that BOKF’s estimated Tier 1 common ratio under the fully phased in Basel III framework was a strong 12.70%, which is well above the 7.0% regulatory threshold.

Notes:
All figures are in U.S. dollars unless otherwise noted.

[Amended on June 25, 2014 to remove unnecessary disclosures.]