BOK Financial Reports Annual Earnings of $317 Million for 2013

BOK Financial Corporation reported net income of $316.6 million or $4.59 per diluted share for the year ended December 31, 2013. Net income for the year ended December 31, 2012 was $351.2 million or $5.13 per diluted share.

Net income for fourth quarter of 2013 totaled $73.0 million or $1.06 per diluted share compared to net income of $75.7 million or $1.10 per diluted share for the third quarter of 2013.

Steven Bradshaw, President and Chief Executive Officer, stated, “Many of the factors that impacted earnings throughout 2013 persisted into the fourth quarter, including slower mortgage volumes and increased expenses to meet regulatory initiatives. However, loan growth accelerated nicely in the fourth quarter, led by commercial real estate and healthcare lending, and our capital strength and the credit quality of our loan portfolio remain at industry-leading levels.”

Bradshaw continued, “All told, 2013 was a challenging year. While we remained solidly profitable, it was the first year since 2008 that we were unable to grow earnings. Consistent earnings growth is the key to building long term shareholder value, and we don’t make excuses. Accordingly, our newly-constituted executive leadership team is executing on a plan to accelerate revenue growth, enhance our customer experience, and control internal expense growth while meeting heightened regulatory expectations and providing a great place to work for employees. These five key objectives will set the foundation for long-term growth in earnings and shareholder value.”

Highlights of fourth quarter of 2013 included:

• Net interest revenue totaled $166.2 million for the fourth quarter of 2013 compared to $167.9 million for the third quarter of 2013. Net interest margin was 2.74% for the fourth quarter of 2013, and 2.75% for the third quarter of 2013.
• Fees and commissions revenue totaled $142.4 million for the fourth quarter of 2013 compared to $145.2 million for the third quarter of 2013.
• Operating expenses were $215.4 million for the fourth quarter, up $5.1 million over the previous quarter. Personnel expense was largely unchanged compared to the previous quarter. Non-personnel expense increased $5.3 million.
• An $11.4 million negative provision for credit losses was recorded in the fourth quarter of 2013 compared to an $8.5 million negative provision for credit losses in the third quarter. BOK Financial had a net recovery of $3.0 million for the fourth quarter of 2013 compared to net charge-offs of $299 thousand in the third quarter.
• The combined allowance for credit losses totaled $187 million or 1.47% of outstanding loans at December 31, 2013 compared to $196 million or 1.59% of outstanding loans at September 30, 2013. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $155 million or 1.23% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2013 and $183 million or 1.49% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at September 30, 2013.
• Average loans increased $59 million over the previous quarter due primarily to growth in commercial loans. Average commercial loans were up $135 million. Average commercial real estate loans were unchanged. Residential mortgage and consumer loans decreased by a total of $69 million. Period-end outstanding loan balances were $12.8 billion at December 31, 2013, an increase of $442 million over September 30, 2013. Commercial loan balances increased $372 million and commercial real estate loans were up $66 million over the prior quarter. Growth in residential mortgage loans was largely offset by a decrease in consumer loans.
• Average deposits increased $428 million over the previous quarter. Growth in demand deposits and interest-bearing transaction accounts was partially offset by a decrease in time deposit balances. Period end deposits grew by $778 million over September 30, 2013 to $20.3 billion at December 31, 2013. Interest-bearing transaction accounts increased $814 million. Demand deposit account balances were largely unchanged and time deposits decreased $24 million.
• Tangible common equity ratio was 9.90% at December 31, 2013 and 9.73% at September 30, 2013. 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 13.73% at December 31, 2013 and 13.51% at September 30, 2013.
• The Company paid a regular quarterly cash dividend of $28 million or $0.40 per common share during the fourth quarter of 2013. On January 28, 2014, the board of directors approved a quarterly cash dividend of $0.40 per common share payable on or about February 28, 2014 to shareholders of record as of February 14, 2014.

Net Interest Revenue

Net interest revenue decreased $1.6 million compared to the third quarter of 2013. Net interest margin was 2.74% for the fourth quarter of 2013, compared to 2.75% for the third quarter of 2013.

The yield on average earning assets was 3.02%, a decrease of 1 basis point compared to the prior quarter. The yield on the available for sale securities portfolio decreased 4 basis points to 1.89% primarily due to cash flows being reinvested at lower current market rates. Cash flows received from payments on residential mortgage-backed securities are currently being reinvested in short-duration securities that yield nearly 1.75%. The loan portfolio yield decreased 5 basis points from the previous quarter to 4.01% primarily due to continued market pricing pressure. Funding costs were unchanged compared to the prior quarter at 0.42%.

Average earning assets decreased $140 million during the fourth quarter of 2013 primarily due to a $124 million decrease in the available for sale securities portfolio and a $95 million decrease in interest-bearing cash and cash equivalents. Average loan balances were up $59 million over the previous quarter. Average deposits increased $428 million and the average balance of borrowed funds decreased $699 million compared to the third quarter of 2013.

Steven Nell, Chief Financial Officer, commented, "In the fourth quarter, we began to proactively shrink the size of our bond portfolio to better position the balance sheet for a longer-term rising rate environment. Our outlook for earning assets is for continued declines in the securities portfolio to be partially offset by loan growth. The resulting shift in earnings asset mix will be supportive of the net interest margin."

Fees and Commissions Revenue

Fees and commissions revenue totaled $142.4 million for the fourth quarter of 2013, a decrease of $2.9 million compared to the third quarter of 2013.

Brokerage and trading revenue decreased $3.8 million compared to the prior quarter primarily due to a decrease in securities trading revenue and investment banking revenue, partially offset by an increase in customer hedging revenue.

Mortgage banking revenue totaled $21.9 million for the fourth quarter of 2013 compared to $23.5 million for the third quarter of 2013. Residential mortgage loans funded for sale totaled $849 million, a decrease of $231 million compared to the previous quarter. Outstanding commitments to originate mortgage loans also decreased to $259 million at December 31 from $351 million at September 30. Approximately 39% of loans originated in the fourth quarter were through correspondent channels, unchanged from the previous quarter. Refinanced mortgage loans represented 29% of loans originated for sale in the fourth quarter of 2013 compared to 30% in the third quarter of 2013.

Trust fees and commissions grew by $1.2 million over the third quarter of 2013 primarily due to the increase in the fair value of assets managed and seasonal increase in tax fees. Other revenue was up $3.7 million over the prior quarter primarily due to the favorable resolution of a lawsuit. Deposit service charges and fees decreased $1.3 million and transaction card revenue decreased $921 thousand.

On December 10, 2013, federal banking agencies issued final rules implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Act, commonly referred to as the Volcker Rule. Section 619 is effective April 1, 2014. During the fourth quarter, BOK Financial recognized a $1.4 million impairment charge as the Company may be required to divest a portion of its ownership interests in private equity funds by July 21, 2015.

Operating Expenses

Total operating expenses were $215.4 million for the fourth quarter of 2013, up $5.1 million over the third quarter of 2013. Personnel costs were largely unchanged compared to the third quarter of 2013. Non-personnel expense increased $5.3 million over the third quarter of 2013. Professional fees and services expense increased $2.8 million, data processing and communications expense increased $2.5 million and net occupancy expense increased $1.8 million over the third quarter. Operating expenses for the third quarter included a $2.1 million discretionary contribution of appreciated stock to the BOKF Foundation. This contribution also resulted in a $1.1 million reduction in income tax expense.

Loans, Deposits and Capital

Loans

Outstanding loans were $12.8 billion at December 31, 2013, an increase of $442 million over the previous quarter. Commercial, commercial real estate and residential mortgage loan balances all grew over the prior quarter, partially offset by a decrease in consumer loan balances.

Outstanding commercial loan balances increased $372 million over September 30, 2013. All sectors of our commercial loan portfolio grew over the prior quarter. Service sector loans balances grew by $134 million and healthcare sector loans were up $114 million. Other commercial and industrial loans increased $47 million, energy loan balances increased $40 million and wholesale/retail sector loans grew $20 million over September 30, 2013. Unfunded energy loan commitments decreased by $105 million in the fourth quarter to $3 billion. All other unfunded commercial loan commitments totaled $3.6 billion at December 31, 2013, up $49 million over September 30, 2013.

Commercial real estate loans grew by $66 million over September 30, 2013. Loans secured by multifamily residential properties were up $56 million and retail sector loans by $29 million over the prior quarter. Loans secured by office buildings decreased $11 million and construction and land development loan balances decreased $10 million. Unfunded commercial real estate loan commitments totaled $534 million at December 31, 2013, a decrease of $13 million from September 30, 2013.

Residential mortgage loans increased $17 million over September 30, 2013, due primarily to growth in permanent mortgage balances guaranteed by U.S. government agencies. Growth in first lien, fully amortizing home equity loans, was partially offset by a decrease in non-guaranteed permanent mortgage loan balances. Consumer loans decreased $13 million compared to the prior quarter primarily due to a decrease in other consumer loans and continued runoff of the indirect automobile loan portfolio.

"As we moved through the fourth quarter, we saw significant acceleration in key lending segments including commercial real estate and our healthcare lending business," added Dan Ellinor, Chief Operating Officer. "As a result, we posted double-digit annualized loan growth during the quarter and now enter 2014 with strong pipelines and a solid plan for building on our commercial lending success."

"The energy lending business was essentially flat in the fourth quarter, as paydowns due to long term refinancing and asset sales continue to offset new deals," Ellinor continued. "Commercial and industrial lending, while stronger in the fourth quarter than in the third, was flat overall in 2013 as business owners waited for more consistent economic growth before making long-term investments that require additional financing. Net/net, we believe we can deliver loan growth in 2014 in the mid to high single digits."

Deposits

Deposits totaled $20.3 billion at December 31, 2013, an increase of $778 million over September 30, 2013 primarily due to normal seasonality and temporary customer activity. During the first half of January 2014, deposits decreased approximately $300 million. Demand deposit balances were largely unchanged compared to the prior quarter. Interest-bearing transaction account balances grew by $814 million and time deposits decreased $24 million. Among the lines of business, commercial deposits increased $270 million, consumer deposits decreased $23 million and wealth management deposits increased $537 million. Growth in commercial deposit balances was primarily due to growth in balances attributed to treasury service customers. Growth in commercial and industrial, small business and healthcare customer balances were partially offset by a decrease in balances attributed to energy and commercial real estate customers during the fourth quarter.

Capital

The Company and its subsidiary bank exceeded the regulatory definition of well capitalized at December 31, 2013. The Company's Tier 1 capital ratio was 13.73% at December 31, 2013 and 13.51% at September 30, 2013. The total capital ratio was 15.52% at December 31, 2013 and 15.35% at September 30, 2013. In addition, the Company's tangible common equity ratio, a non-GAAP measure, was 9.90% at December 31, 2013 and 9.73% at September 30, 2013.

In July 2013, banking regulators issued the final rule revising regulatory capital rules for substantially all U.S. banking organizations. The new capital rule will be effective for BOK Financial on January 1, 2015. The new capital rule establishes a 7% threshold for the Tier 1 common equity ratio consisting of a minimum level plus a capital conservation buffer. The Company expects to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital, consistent with the treatment under current capital rules. BOK Financial's Tier 1 common equity ratio based on the existing Basel I standards was 13.55% as of December 31, 2013. Based on our interpretation of the new capital rule, our estimated Tier 1 common equity ratio would be approximately 12.60%, nearly 560 basis points above the 7% regulatory threshold.

Credit Quality

Nonperforming assets totaled $248 million or 1.92% of outstanding loans and repossessed assets at December 31, 2013 compared to $271 million or 2.18% of outstanding loans and repossessed assets at September 30, 2013. Nonperforming assets that are not guaranteed by U.S. government agencies totaled $155 million or 1.23% of outstanding loans and repossessed assets (excluding those guaranteed by U.S. government agencies) at December 31, 2013 and $183 million or 1.49% at September 30, 2013, a decrease of $27 million or 15%.

Nonaccruing loans totaled $101 million or 0.79% of outstanding loans at December 31, 2013 compared to $113 million or 0.91% of outstanding loans at September 30, 2013. New nonaccruing loans identified in the fourth quarter totaled $21 million, offset by $16 million in payments received, $14 million in foreclosures and repossessions and $3.1 million in charge-offs.

Nonaccruing commercial loans were $17 million or 0.21% of outstanding commercial loans at December 31, 2013 compared to $20 million or 0.26% of outstanding commercial loans at September 30, 2013.

Nonaccruing commercial real estate loans decreased to $41 million or 1.69% of outstanding commercial real estate loans at December 31, 2013 from $53 million or 2.23% of outstanding commercial real estate loans at September 30, 2013. Nonaccruing commercial real estate loans consist primarily of land development and residential construction loans. Nonaccruing land development and residential construction loans totaled $17 million at December 31, 2013, a decrease of $3.4 million during the fourth quarter.

Nonaccruing residential mortgage loans totaled $42 million or 2.06% of outstanding residential mortgage loans, an increase of $3.1 million over September 30, 2013. 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 $13 million at December 31, 2013 and $8.6 million at September 30, 2013.

After evaluating all credit factors, the Company determined that an $11.4 million negative provision for credit losses was necessary during the fourth quarter of 2013. A major employer in the Tulsa, Ft. Worth and Kansas City markets exited bankruptcy during the fourth quarter. The Company had previously established a non-specific allowance related to the secondary exposure to the employer's bankruptcy by employees, retirees, vendors, suppliers and other business partners. In addition, all credit metrics improved during the quarter and gross loss rates continued to decline. The combined allowance for credit losses totaled $187 million or 1.47% of outstanding loans and 185.35% of nonaccruing loans at December 31, 2013. The allowance for loan losses was $185 million and the accrual for off-balance sheet credit losses was $2.1 million. Gross charge-offs totaled $3.1 million for the fourth quarter, compared to $4.7 million for the previous quarter. Recoveries totaled $6.1 million for the fourth quarter of 2013. BOK Financial had a net recovery of $3.0 million for the fourth quarter of 2013 compared with net charge-offs of $299 thousand or 0.01% of average loans on an annualized basis for the third quarter of 2013.

Real estate and other repossessed assets totaled $92 million at December 31, 2013, primarily consisting of $53 million of 1-4 family residential properties (including $37 million guaranteed by U.S. government agencies), $18 million of developed commercial real estate properties, $14 million of undeveloped land and $7.0 million of residential land and land development properties. The distribution of real estate owned and other repossessed assets among various markets included $19 million attributed to Oklahoma, $17 million attributed to Arizona and $27.8 million attributed to New Mexico. Real estate and other repossessed assets decreased $16 million during the fourth quarter of 2013. Additions of $14 million were offset by $29 million of sales. Additions included $12 million and sales included $12 million of 1-4 family residential properties guaranteed by U.S. government agencies. Net gains on sales and write-downs of real estate and other repossessed assets totaled $211 thousand in the fourth quarter of 2013 compared to $438 thousand in the third quarter.

Securities and Derivatives

The fair value of the available for sale securities portfolio totaled $10.1 billion at December 31, 2013 and $10.4 billion at September 30, 2013. At December 31, 2013, the available for sale portfolio consisted primarily of $7.7 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $2.1 billion of commercial mortgage-backed securities fully backed by U.S. government agencies.

At December 31, 2013 the available for sale securities portfolio had a net unrealized loss of $38 million compared to a net unrealized gain of $7.4 million at September 30, 2013. Substantially all of the change in net unrealized losses and gains resulted from rising interest rates. Net unrealized gains on residential mortgage-backed securities issued by U.S. government agencies at September 30, 2013 decreased $42 million during the fourth quarter to a net unrealized loss of $4.2 million at December 31, 2013. Commercial mortgage-backed securities had a net unrealized loss of $44 million at December 31, 2013, compared to a net unrealized loss of $40 million at September 30, 2013.

In the fourth quarter of 2013, the Company recognized net gains of $1.6 million from sales of $270 million of available for sale securities. Securities were sold either because they had reached their expected maximum potential return or sold to reinvest those proceeds into shorter average life securities. Net gains from sales of $356 million of available for sale securities in the third quarter of 2013 totaled $478 thousand.

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 fluctuations in residential mortgage interest rates during the fourth quarter of 2013, the value of our mortgage servicing rights increased by $6.1 million. The value of securities and interest rate derivative contracts held as an economic hedge decreased by $3.9 million.

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 appropriateness of the allowance for credit losses and asset impairment as of December 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.