DBRS: BOK Financial’s 4Q13 Earnings Down QoQ On Higher Expenses; Sustained Avg. Loan Growth

Summary:
•Solid 4Q13 earnings, despite higher QoQ expenses
•Sound and improving asset quality, reflecting lower levels of non-performing assets and net recoveries for the quarter, driving a negative provision for loan loss reserves
•DBRS rates BOKF’s Issuer & Senior debt at A (low) with a Positive trend

Despite the difficult business environment, DBRS, Inc. (DBRS) considers BOK Financial Corporation’s (BOKF or the Company) 4Q13 earnings to be solid. For the quarter, the Company reported net income attributable to common shareholders of $73.0 million, down from $75.7 million for 3Q13, mostly due to higher expenses. Overall, DBRS considers BOKF’s solid earnings generation, along with its solid balance sheet fundamentals, including sustained average loan growth, sound and improving credit quality and strong funding and capital profiles, as supportive of its rating level.

During the quarter, expenses were up 2.4% sequentially, reflecting increases in non-personnel related expenses, including data processing, net occupancy and professional fees. Total revenues were up modestly QoQ reflecting higher total other operating revenues, partially offset by lower spread income. BOKF’s bottom line continues to benefit from a sizable fee income component, which on an adjusted basis (excluding gains/losses on securities and impairment charges), represented a high 47% of total revenues for 4Q13, providing stability to earnings.

Spread income declined by 1%, reflecting very modest margin compression and lower average earning assets. DBRS notes that the lower average earning assets reflected lower available for sale securities, as the Company has begun proactively reducing the size of its securities portfolio in expectation of a longer term rising rate environment. As a result, average earning assets declined despite sustained average loan growth mostly reflecting higher levels of commercial loans.

The Company’s asset quality remains sound and continues to stabilize, reflecting lower sequential levels of non-performing assets, and net recoveries for the quarter, resulting in a negative provision for loan loss reserves. DBRS notes that BOKF’s loan loss reserves remain adequate at 1.4% of total loans. BOKF’s funding and capital profiles remain strong. A sizeable core deposit base more than fully funds net loans. Meanwhile, capital improved during the quarter and provides sound loss absorption capacity, and the potential for future balance sheet growth, either organically or through acquisition.

DBRS rates BOK Financial Corporation Issuer & Senior debt at A (low) with a Positive trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]