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BOK Financial Posts Earnings As Expected

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BOK Financial Corporation’s (BOKF) fourth-quarter 2013 earnings of $1.06 per share were in line with the Zacks Consensus Estimate. However, results compared unfavorably with the prior-year quarter earnings of $1.21.

Lower net interest revenues and reduced fees and commissions negatively impacted the results. However, reduced operating expenses reflected disciplined expense management. Further, improved credit quality and increased loans were the tailwinds.

Net income attributable to the shareholders of BOK Financial in the reported quarter was $73 million, compared with $83 million in the prior-year quarter.

For full-year 2013, net income was $317 million or $4.59 per share, down from $351 million or $5.13 per share in the prior year. Results also lagged the Zacks Consensus Estimate by 3 cents per share.

Performance in Detail

BOK Financial’s net interest revenues totaled $166 million in the reported quarter, down 4.6% year over year. Net interest margin fell 21 basis points from 2.95% in the prior-year quarter to 2.74% in the reported period.

Yield on average earning assets also declined 28 basis points year over year. Moreover, loan yields decreased 35 basis points, partially mitigated by lower funding costs.

BOK Financial’s fees and commissions revenue amounted to $142 million, down 13.9% on a year-over-year basis. Reduced mortgage banking and brokerage and trading revenues along with lower deposit service charges and fees were partially offset by elevated transaction card revenues.

Total operating expenses at BOK Financial were $215 million, down 5.3% year over year. The company experienced a fall in personnel costs in the reported quarter compared with the prior-year quarter.

Notably, in Dec 2013, federal banking agencies issued final rules implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Act, commonly known as the Volcker Rule. Section 619 is effective Apr 1, 2014. During the final quarter of 2013, BOK Financial recognized a $1.4 million impairment charge as the company might require depriving a portion of its ownership interests in private equity funds by Jul 21, 2015.

Credit Quality

The credit metrics of BOK Financial’s loan portfolio improved in the reported quarter. Net recoveries amounted to $3.0 million in the reported quarter compared with net charge-offs of $4.3 million in the prior-year quarter.

Further, the combined allowance for credit losses was 1.47% of outstanding loans as of Dec 31, 2013, declining from 1.77% as of Dec 31, 2012. As a result, BOK Financial recorded negative provision for credit losses of $11.4 million as against negative $14.0 million in the prior-year quarter.

Moreover, nonperforming assets totaled $247.7 million or 1.92% of outstanding loans and repossessed assets as of Dec 31, 2013, down from $276.7 million or 2.23% of outstanding loans and repossessed assets as of Dec 31, 2012.

Capital Position

As of Dec 31, 2013, armed with strong capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory definition of well capitalized. As of the same date, Tier 1 and total capital ratios were 13.73% and 15.52%, respectively, compared with 12.78% and 15.13%, respectively as of Dec 31, 2012. Leverage ratio was 10.05%, up from 9.01% as of Dec 31, 2012.

BOK Financial's Tier 1 common equity ratio under existing Basel I standards was 13.55% compared with 12.59% in the prior-year quarter.

Notably in Jul 2013, the final revision of regulatory capital rules for substantially all U.S. banking organizations were released, effective from Jan 1, 2015. Therefore, based on the new capital rule, the company’s estimated Tier 1 common equity ratio stood at 12.60%, up 560 basis points from the 7% regulatory requirement.

Outstanding loans at BOK Financial as of Dec 31, 2013 were $12.8 billion, up 4.1% year over year, mainly due to a rise in commercial loans. Further, commercial real estate loans and residential mortgage loans increased. As of Dec 31, 2013, period end deposits amounted to $20.3 billion, down from $21.2 billion as of Dec 31, 2012.

Our Viewpoint

The strategic expansions and local-leadership based business model of BOK Financial, with peers such as Texas Capital Bancshares Inc. (TCBI), BancFirst Corporation (BANF) and First Financial Bankshares Inc. (FFIN), helped it transform into a leading financial service provider from a small bank in Oklahoma. Going forward, we believe BOK Financial’s diverse revenue mix and favorable geographic footprint would support its growth.

Though regulatory issues and lower fee growth remain concerns, we believe that its sturdy financial position and expense control initiatives and efficiency will help it navigate through the current cycle.

BOK Financial currently carries a Zacks Rank #3 (Hold).

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