BOK Financial Corporation’s (BOKF) third-quarter earnings of 75 cents per share were 7 cents ahead of the Zacks Consensus Estimate of 68 cents. The company had earned 84 cents in the year-ago period. Results reflected an increase in interest revenue and margin, though credit quality continued to deteriorate in the quarter.
Net interest revenue totaled $180.5 million, up 2.8% sequentially and 9.8% year-over-year. Net interest margin was 3.63%, up 8 basis points (bps) sequentially and 15 bps year-over-year. The increase in net interest margin over the previous quarter resulted from improved loan pricing and lower funding costs. 

Outstanding loan balances were $11.6 billion at Sep 30, 2009, down $458 million since Jun 30, 2009. All major loan categories decreased during the quarter largely due to reduced customer demand, normal repayment trends and management decisions to exit certain loan types. Average deposits decreased $202 million from the prior-year quarter to $15.1 billion, due primarily to a $719 million decrease in average time deposits. 

Credit metrics continued to expand negatively overall. Non-performing assets continued to increase across most sectors of the loan portfolio and geographic markets during the quarter. Non-performing assets equaled 4.19% of the loan portfolio plus other real estate owned assets, up 52 bps sequentially and 221 bps year-over-year. Net charge-offs as a percentage of average loans were 121 bps, up 8 bps sequentially and 57 bps year-over-year. Provision for loan losses increased to $55.1 million from $47.1 million in the prior quarter and $52.7 million in the year-ago quarter. 

Fees and commissions revenue totaled $120.0 million, down 2.6% sequentially and 5.3% year-over-year. On a sequential basis, mortgage loan originations was down as the impact of government initiatives to lower national mortgage interest rates began to lessen. The decrease in mortgage-banking revenue was partially offset by growth in brokerage and trading revenue and deposit service charges.
Core expenses (excluding the impact of the change in the fair value of the mortgage servicing rights and the FDIC special assessment) were $175.7 million, up 2.3% sequentially and 10.7% year-over-year. Though personal expenses were up in the quarter, all other operating expenses were down due to company-wide initiatives to control operating expenses.
The increase in tangible common equity  ratio was primarily due to retained earnings growth and reduced net unrealized losses on available- for- sale securities. Tangible common equity ratio and tier 1 common equity ratio increased to 7.78% and 10.45%, respectively, at Sep 30, 2009, from 7.55% and 9.77%, respectively, at Jun 30, 2009, mainly because of lower unrealized losses on securities. Tier 1 capital ratios were 10.56% at Sep 30, 2009, compared to 9.86% at Jun 30, 2009. The company chose not to participate in the Treasury’s Capital Purchase Program, as its own capital levels are adequate for its operations and expansion. 

Though quarterly results reflected growth in interest revenue and margin and the benefits of the cost containment measures, we note that the credit quality continued to deteriorate in the quarter with a significant increase in non-performing assets. Given the current economic environment, we do not expect any significant improvement in the asset quality in the next couple of quarters. Nevertheless, BOK Financial’s diverse revenue stream and operating platform should benefit it going forward.
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