News Details

Expense Discipline Supports Strong Results

TULSA, Okla.--(BUSINESS WIRE)-- BOK Financial Corporation reported net income of $88.0 million or $1.28 per diluted share for the first quarter of 2013. Net income was $82.6 million or $1.21 per diluted share for the fourth quarter of 2012 and $83.6 million or $1.22 per diluted share for the first quarter of 2012.

"First quarter results exceeded our expectations," said President and CEO Stan Lybarger. "Mortgage banking revenue continued to be strong and outstanding credit quality required us to again reduce the allowance for loan losses. In the current environment, we anticipate continued pressure on net interest margins and moderate loan growth. We will remain focused on operating expense discipline as we continue to invest in opportunities to grow revenue."

Highlights of first quarter of 2013 included:

• Net interest revenue totaled $170.4 million for the first quarter of 2013 compared to $173.4 million for the fourth quarter of 2012. Net interest margin was 2.92% for the first quarter of 2013 and 2.95% for the fourth quarter of 2012. Loan yields decreased 13 basis points, partially offset by lower funding costs.
• Fees and commissions revenue totaled $158.1 million, compared to $165.8 million for the fourth quarter of 2012. Mortgage banking revenue decreased $6.4 million due to lower volume and narrowed pricing of loans sold.
• Operating expenses, excluding changes in the fair value of mortgage servicing rights, totaled $204.0 million, down $22.8 million compared to the previous quarter. Personnel expense decreased $5.5 million. Non-personnel expense decreased $17.3 million.
• An $8.0 million negative provision for credit losses was recorded in the first quarter of 2013 compared to a $14.0 million negative provision in the previous quarter. The negative provision was largely due to declining gross loss rates and a decrease in outstanding loan balances. In addition, recoveries of loan losses previously charged off increased to $6.6 million in the first quarter of 2013 compared to $3.7 million in the previous quarter.
• The combined allowance for credit losses totaled $207 million or 1.71% of outstanding loans at March 31, 2013 compared to $217 million or 1.77% of outstanding loans at December 31, 2012. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $207 million or 1.73% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2013 and $215 million or 1.76% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2012.
• Average outstanding loan balances for the first quarter totaled $12.2 billion, up $236 million over the fourth quarter of 2012. Average commercial real estate loans grew $139 million and average commercial loans grew $57 million. Period end outstanding loan balances were $12.1 billion at March 31, 2013, a decrease of $218 million from December 31, 2012. Commercial real estate loans increased by $56 million. Commercial loan balances decreased by $224 million, residential mortgage loans decreased by $32 million and consumer loans decreased by $18 million.
• Period end deposits totaled $19.9 billion at March 31, 2013 compared to $21.2 billion at December 31, 2012. As expected, demand deposit account balances decreased $1.1 billion during the first quarter as surge deposits received in the fourth quarter of 2012 were redeployed. Interest-bearing transaction accounts decreased $146 million and time deposits decreased $68 million.
• Tangible common equity ratio was 9.70% at March 31, 2013 and 9.25% at December 31, 2012. The tangible common equity ratio is a non-GAAP measure of capital strength used by the Company and investors based on shareholders' equity minus intangible assets and equity that does not benefit common shareholders. The Company and its subsidiary bank continue to exceed the regulatory definition of well capitalized. The Company's Tier 1 capital ratios, as defined by banking regulations, were 13.35% at March 31, 2013 and 12.78% at December 31, 2012.
• The Company paid a regular quarterly cash dividend of $26 million or $0.38 per common share during the first quarter of 2013. The Company will pay a quarterly cash dividend of $0.38 per common share payable on or about May 31, 2013 to shareholders of record as of May 17, 2013.

Net Interest Revenue

Net interest revenue decreased $3.0 million compared to the fourth quarter of 2012. Net interest margin was 2.92% for the first quarter of 2013 compared to 2.95% for the fourth quarter of 2012.

The yield on average earning assets decreased 6 basis points compared to the prior quarter. The loan portfolio yield decreased to 4.20% from 4.33% in the previous quarter. Loan yields decreased due to a combination of existing loans renewing at lower current market rates and narrowing credit spreads due to market pricing pressure and improved credit quality in our loan portfolio. The yield on the available for sale securities portfolio decreased 1 basis point to 2.09% due to cash flows being reinvested at lower current market rates partially offset by slower prepayment speeds compared to the prior quarter. Cash flows received from payments on residential mortgage-backed securities are currently being reinvested in short-duration securities that yield less than 1.50%.

Funding costs decreased 8 basis points to 0.46% due largely to lower deposit interest rates. Rates paid on interest-bearing transaction accounts and savings accounts each decreased 2 basis points. Rates paid on time deposits decreased 18 basis points, primarily due to additional expense recognized in the fourth quarter on equity-indexed time deposits. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities decreased 5 basis points in the first quarter.

Average earning assets increased $28 million during the first quarter of 2013. Average outstanding loans increased $236 million. Average commercial real estate loan balances increased $139 million, commercial loan balances increased $57 million and residential mortgage loan balances increased $43 million. The average balance of the available for sale securities portfolio decreased $190 million compared to the fourth quarter of 2012.

Average deposits decreased $89 million compared to the previous quarter. Interest-bearing transaction account balances increased $493 million. Demand deposit balances decreased $503 million and time deposit account balances decreased $96 million. The average balance of borrowed funds increased $338 million over the fourth quarter of 2012.

Fees and Commissions Revenue

Fees and commissions revenue totaled $158.1 million for the first quarter of 2013, compared to $165.8 million for the fourth quarter of 2012. Mortgage banking revenue decreased primarily due to lower gains on mortgage loans sold. Deposit service charges and fees decreased primarily due to lower overdraft fees. All other fees and commissions revenue categories were largely unchanged compared to the prior quarter.

Mortgage banking revenue totaled $40.0 million, a decrease of $6.4 million from the prior quarter due to lower volume and narrowed pricing of loans sold. Residential mortgage loans funded for sale totaled $956 million for the first quarter of 2013 compared to $1.1 billion in the previous quarter. The spread between average rates offered on 30-year fixed rate mortgage loans and the average rates paid on 30-year mortgage-backed securities narrowed 21 basis points between the first quarter of 2013 and the fourth quarter of 2012. Refinanced mortgage loans were 62% of loans originated for sale in both the first quarter of 2013 and the fourth quarter of 2012. Outstanding mortgage loan commitments were up $110 million over December 31, 2012. The unpaid principal balance of loans held for sale decreased $5.1 million compared to December 31, 2012.

“Although down from the extraordinarily high levels in the second half of 2012, we expect our mortgage banking revenue to remain strong in 2013,” said Steven Nell, Executive Vice President and Chief Financial Officer, “We are encouraged by a 31% increase in loan commitments over year end. Additionally, first quarter 2013 mortgage originations were up $209 million or 28% over the first quarter of 2012. We have increased the number of mortgage lenders, expanded further into our regional markets and developed our correspondent loan origination channel to position ourselves to assist customers in the purchase or refinance of a home.”

Deposit service charges and fees decreased $1.2 million due to a $1.8 million decrease in overdraft fees, partially offset by a $698 thousand increase in fees assessed on commercial accounts. Consumers are maintaining higher average balances and better managing their accounts to reduce fees.

Operating Expenses

Total operating expenses were $201.3 million for the first quarter of 2013 compared to $222.1 million for the fourth quarter of 2012. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $204.0 million, down $22.8 million compared to the fourth quarter of 2012.

Personnel costs decreased $5.5 million from the fourth quarter of 2012 due largely to incentive compensation. Incentive compensation expense decreased $6.0 million. Cash-based incentive compensation, which rewards employees as they generate business opportunities for the Company by growing loans, deposits, customer relationships or other measurable metrics, decreased $4.7 million. Stock-based incentive compensation expense decreased $1.3 million primarily due to the reversal of costs related to performance shares that did not vest.

Non-personnel expense decreased $17.3 million from the fourth quarter of 2012. Net losses and operating expenses of repossessed assets decreased $5.4 million based on the quarterly review of carrying values. Mortgage banking costs decreased $3.2 million primarily due to decreased provision related to mortgage loans sold subject to repurchase as loss trends related to these loans have stabilized. Professional fees and services were down $3.1 million compared to the prior quarter. During the fourth quarter, the Company made a $2.1 million discretionary contribution to the BOKF Foundation. The BOKF Foundation partners with various charitable organizations to support needs within our communities. All other non-personnel expenses were down $3.5 million compared to the previous quarter.

Loans, Deposits and Capital

Loans

Outstanding loans decreased $218 million from December 31, 2012 to $12.1 billion at March 31, 2013 due primarily to a decrease in outstanding commercial loan balances. Increased commercial real estate loans were offset by a decrease in residential mortgage and consumer loans.

Outstanding commercial loan balances decreased by $224 million from December 31, 2012. Economic uncertainty over healthcare costs and taxes has influenced commercial customers to remain conservative in the expansion of their businesses. Energy sector loans decreased $111 million. In conjunction with a standard evaluation of credit risk and related pricing, certain relationships in our energy portfolio were reduced during the quarter. Across the remaining commercial and industrial loan classes, other commercial loans decreased $76 million, service sector loans decreased $49 million and wholesale/retail sector loans decreased $21 million. Manufacturing sector loans grew by $51 million during the first quarter. Unfunded energy loan commitments of $2.4 billion were largely unchanged in the first quarter. All other unfunded commercial loan commitments totaled $3.4 billion at March 31, 2013, up $177 million over December 31, 2012.

Commercial real estate loans increased $56 million over December 31, 2012. Retail sector loans grew $61 million, primarily in the Texas, Oklahoma and Colorado markets. Loans secured by multifamily residential properties were up $58 million, growing primarily in the Texas and Arizona markets. Other real estate loans decreased $31 million primarily in the Oklahoma and Texas markets. Construction and land development loans decreased $15 million, primarily in the Texas market. Unfunded commercial real estate loan commitments totaled $652 million at March 31, 2013, up $31 million over December 31, 2012.

Residential mortgage loans decreased $32 million from December 31, 2012, due primarily to a decrease in non-guaranteed permanent mortgage loans. Consumer loans decreased $18 million. As BOK Financial focuses on a customer-focused direct approach to consumer lending, the indirect automobile loan portfolio has decreased $10 million to $24 million at March 31, 2013. Other consumer loans decreased $7.5 million compared to December 31, 2012.

Deposits

Deposits totaled $19.9 billion at March 31, 2013 compared to $21.2 billion at December 31, 2012. As expected, significant deposit growth in the fourth quarter primarily due to sales of businesses or assets by customers was redeployed in the first quarter of 2013. To lesser extent, the expiration of unlimited deposit insurance on non-interest bearing accounts on December 31, 2012 also affected demand deposit account balances. Demand deposit balances decreased $1.1 billion. Interest-bearing transaction account balances decreased $146 million and time deposits decreased $68 million. Among the lines of business, commercial deposits decreased $635 million and wealth management deposits decreased $386 million. Consumer deposits increased $29 million over December 31, 2012. Energy, commercial and industrial, commercial real estate, and small business customer account balances all decreased compared to the prior quarter. Treasury services customer account balances increased during the first quarter.

Capital

The Company and its subsidiary bank exceeded the regulatory definition of well capitalized at March 31, 2013. The Company's Tier 1 capital ratio was 13.35% at March 31, 2013 and 12.78% at December 31, 2012. The total capital ratio was 15.68% at March 31, 2013 and 15.13% at December 31, 2012. In addition, the Company's tangible common equity ratio, a non-GAAP measure, was 9.70% at March 31, 2013 and 9.25% at December 31, 2012. Unrealized securities gains added 44 basis points to the tangible common equity ratio at March 31, 2013. The increase in Tier 1, total and tangible common equity ratios was largely due to retained earnings and a decrease in total assets and risk weighted assets during the quarter.

In June 2012, banking regulators issued a Notice of Proposed Rulemaking that will incorporate Basel III capital changes for substantially all U.S. banking organizations. If adopted as proposed, these changes will establish a 7% threshold for the Tier 1 common equity ratio consisting of a minimum level plus a capital conservation buffer. BOK Financial's Tier 1 common equity ratio based on the existing Basel I standards was 13.16% as of March 31, 2013. Our estimated Tier 1 common equity ratio under a fully phased in Basel III framework is approximately 12.70%, nearly 570 basis points above the 7% regulatory threshold. This estimate is subject to interpretation of rules that are not yet final. Additionally, the proposed definition of Tier 1 common equity includes unrealized gains and losses on available for sale securities which will vary based on market conditions.

Credit Quality

Nonperforming assets totaled $283 million or 2.32% of outstanding loans and repossessed assets at March 31, 2013 compared to $277 million or 2.23% of outstanding loans and repossessed assets at December 31, 2012. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $207 million or 1.73% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at March 31, 2013 and $215 million or 1.76% at December 31, 2012, a decrease of $8.1 million.

Nonaccruing loans totaled $133 million or 1.10% of outstanding loans at March 31, 2013 and $134 million or 1.09% of outstanding loans at December 31, 2012. New nonaccruing loans identified in the first quarter totaled $42 million, offset by $22 million in foreclosures and repossessions, $14 million in payments received and $8.9 million in charge-offs.

Nonaccruing commercial loans decreased to $20 million or 0.27% of outstanding commercial loans at March 31, 2013 from $24 million or 0.32% of outstanding commercial loans at December 31, 2012.

Nonaccruing commercial real estate loans increased to $65 million or 2.85% of outstanding commercial real estate loans at March 31, 2013 from $61 million or 2.72% of outstanding commercial real estate loans at December 31, 2012 primarily due to a single nonaccruing relationship secured by an office building. Nonaccruing commercial real estate loans consist primarily of land development and residential construction loans. Nonaccruing land development and residential construction loans totaled $23 million at March 31, 2013, a decrease of $2.7 million during the first quarter.

Nonaccruing residential mortgage loans totaled $45 million or 2.26% of outstanding residential mortgage loans, largely unchanged from the fourth quarter of 2012. Principally all non-guaranteed residential mortgage loans past due 90 days or more are nonaccruing. Residential mortgage loans past due 30 to 89 days and still accruing interest, excluding loans guaranteed by U.S. government agencies, totaled $8.4 million at March 31, 2013 and $11 million at December 31, 2012.

The combined allowance for credit losses totaled $207 million or 1.71% of outstanding loans and 156.12% of nonaccruing loans at March 31, 2013. The allowance for loan losses was $206 million and the accrual for off-balance sheet credit losses was $1.1 million. Gross charge-offs totaled $8.9 million for the first quarter, compared to $8.0 million for the previous quarter. Recoveries totaled $6.6 million for the first quarter of 2013. Net charge-offs were $2.4 million or 0.08% on an annualized basis for the first quarter of 2013 compared with net charge-offs of $4.3 million or 0.14% on an annualized basis for the fourth quarter of 2012.

After evaluating all credit factors, the Company determined that an $8.0 million negative provision for credit losses was necessary during the first quarter of 2013. Declining gross loss rates and a decrease in outstanding loan balances during the quarter resulted in a lower combined allowance for credit losses as of March 31, 2013.

Real estate and other repossessed assets totaled $103 million at March 31, 2013, primarily consisting of $47 million of 1-4 family residential properties (including $28 million guaranteed by U.S. government agencies), $23 million of developed commercial real estate properties, $17 million of undeveloped land and $15 million of residential land and land development properties. The distribution of real estate owned and other repossessed assets among various markets included $27 million attributed to Arizona, $23 million attributed to New Mexico, $16 million attributed to Oklahoma, $14 million attributed to Texas and $10 million attributed to Colorado. Real estate and other repossessed assets decreased $1.1 million during the first quarter of 2013. Additions of $22 million were partially offset by $24 million of sales. Additions included $17 million and sales included $11 million of 1-4 family residential properties guaranteed by U.S. government agencies. Write-downs and net losses on sales of real estate and other repossessed assets totaled $273 thousand.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $11.1 billion at March 31, 2013 and $11.3 billion at December 31, 2012. At March 31, 2013, the available for sale portfolio consisted primarily of $9.2 billion of residential mortgage-backed securities fully backed by U.S. government agencies, $1.4 billion of commercial mortgage-backed securities fully backed by U.S. government agencies and $316 million of residential mortgage-backed securities privately issued by publicly owned financial institutions. Net unamortized premiums are less than 1% of the securities portfolio amortized cost.

Net unrealized gains on available for sale securities totaled $229 million at March 31, 2013 and $255 million at December 31, 2012. Net unrealized gains on residential mortgage-backed securities issued by U.S. government agencies decreased $31 million during the first quarter to $208 million at March 31, 2013.

In the first quarter of 2013, the Company recognized net gains of $4.9 million from sales of $728 million of available for sale securities. These securities were sold either because they had reached their expected maximum potential total return or to mitigate exposure to prepayment risk. Net gains from sales of $84 million of available for sale securities in the fourth quarter of 2012 totaled $1.1 million.

The amortized cost of privately issued residential mortgage-backed securities totaled $307 million at March 31, 2013, down $15 million since December 31, 2012. All of these securities are rated below investment grade. The amortized cost of these securities was reduced during the first quarter of 2013 by $15 million of cash payments received and $247 thousand of credit-related impairment charges during the quarter. The privately issued residential mortgage-backed securities portfolio has a net unrealized gain of $8.8 million at March 31, 2013 compared to a net unrealized gain of $2.3 million at December 31, 2012.

The Company also maintains 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. Due to changes in residential mortgage interest rates during the first quarter of 2013, prepayment speeds decreased and the value of our mortgage servicing rights increased by $2.7 million. This increase was partially offset by a $4.9 million decrease in the value of securities and interest rate derivative contracts held as an economic hedge.

About BOK Financial Corporation

BOK Financial is a $27 billion regional financial services company based in Tulsa, Oklahoma. The Company's stock is publicly traded on NASDAQ under the Global Select market listings (symbol: BOKF). BOK Financial's holdings include BOKF, NA, BOSC, Inc., The Milestone Group, Inc. and Cavanal Hill Investment Management, Inc.BOKF, NA operates the TransFund electronic funds network and seven banking divisions: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. Through its subsidiaries, the Company provides commercial and consumer banking, investment and trust services, mortgage origination and servicing, and an electronic funds transfer network. For more information, visit www.bokf.com.

The Company will continue to evaluate critical assumptions and estimates, such as the adequacy of the allowance for credit losses and asset impairment as of March 31, 2013 through the date its financial statements are filed with the Securities and Exchange Commission and will adjust amounts reported if necessary.

This news release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial, the financial services industry and the economy generally. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses involve judgments as to future events and are inherently forward-looking statements. Assessments that BOK Financial's acquisitions and other growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to (1) the ability to fully realize expected cost savings from mergers within the expected time frames, (2) the ability of other companies on which BOK Financial relies to provide goods and services in a timely and accurate manner, (3) changes in interest rates and interest rate relationships, (4) demand for products and services, (5) the degree of competition by traditional and nontraditional competitors, (6) changes in banking regulations, tax laws, prices, levies and assessments, (7) the impact of technological advances and (8) trends in consumer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.