DBRS: BOK Financial’s 1Q14 Earnings Up QoQ On Lower Expenses; Sustained Avg. Loan Growth

Summary:
• 1Q14 earnings available for shareholders of $76.5 million, up from $72.9 million for 4Q13, yet down from $87.9 million for 1Q13.
• Lower QoQ earnings mostly reflected lower expenses, driven by a $15.5 million reversal of accruals for amounts payable to certain executive officers, and a $9.1 million decrease in non-personnel expense.
• DBRS rates BOKF’s Issuer & Senior debt at A (low) with a Positive trend.

DBRS, Inc. (DBRS) considers BOK Financial Corporation’s (BOKF or the Company) 1Q14 earnings to be solid, despite the difficult business environment. Importantly, the Company’s broad-based fee businesses continue to provide diversity and stability to earnings. Indeed, BOKF’s recent announcement to acquire the Houston, Texas-based MGM Advisors, along with the recently closed Kansas City-based GTRUST Financial transaction should benefit future earnings generation. DBRS considers BOKF’s balance sheet fundamentals, including sustained average loan growth, sound and stabilizing credit quality, and strong funding and capital profiles, as supportive of its rating level.

Improved quarter-on-quarter (QoQ) earnings were driven by lower expenses, which declined by 14.1%, mostly reflecting a reversal of accruals for amounts payable to certain executive officers. Meanwhile, total linked-quarter revenues decreased 4.3%, driven by moderately lower levels of spread income, and fees and commissions. Lower spread income reflected a modest 3 bp narrowing of net interest margin, despite sound sustained average loan growth, including commercial real estate and commercial loans. DBRS notes that most of the loan growth was originated from the Company’s Texas, Arizona, and Colorado franchises, evidencing further growth outside of Oklahoma. Finally, lower fee income partially reflected a 4Q13 $2.0 million favorable resolution of a lawsuit, which was mostly offset by higher levels of brokerage and trading revenues, and fiduciary and asset management revenue.

The Company’s asset quality remains sound and continues to stabilize, reflecting lower sequential levels of non-performing assets (excluding those guaranteed by U.S. government agencies) and net recoveries for the quarter, resulting in no provision being taken 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.

Note:
All figures are in U.S. Dollars unless otherwise noted.