BOK Financial Corporation’s (BOKF) third quarter earnings of $64.3 million or 94 cents per share were well above the Zacks Consensus Estimate of 85 cents. The results also compared favorably with prior quarter earnings of $63.5 million or 93 cents and prior-year quarter earnings of $50.7 million or 75 cents per share.
Results reflected an increase in fee income and improvement in the credit metrics. However, a drop in net interest revenue and a rise in expenses assets were on the downside.
BOK Financial’s net interest revenue totaled $180.7 million, down 0.8% sequentially. Net interest margin decreased 13 basis points (bps) from the prior quarter to 3.50% as cash flows from its securities portfolio were reinvested at lower rates.Average earning assets, however, increased $507 million or 2.5% to $21.1 billion.
Outstanding loan balances at BOK Financial were $10.8 billion as of September 30, 2010, down $77 million from the prior-quarter end, reflecting a decrease in commercial loans, real estate loans and consumer loans. Total period-end deposits increased $735 million to $16.8 billion, primarily reflecting a growth in interest-bearing transaction and demand deposits.
Fees and commissions revenue totaled $136.9 million, up 6.8% sequentially. The increase was driven by a growth in mortgage banking revenues and brokerage and trading revenues, partially offset by deposit services charges and trust fees and commissions.Deposit service charges decreased $4.5 million in the quarter and were in line with the previously disclosed estimate by BOK Financialthat the change in regulations would reduce fee revenues by $10 million to $15 million over the second half of 2010.
The credit quality of BOK Financial’s loan portfolio continued to improve. Nonperforming assets to period-end loans and repossessed assets equaled 3.85%, down 34 bps sequentially. Net charge-offs dropped 43% to $20.1 million from $35.6 million in the prior quarter. Provision for credit losses decreased 45% to $20.0 million from $36.0 million in the prior quarter.
BOK Financial’s operating expenses (excluding the impact of the change in the fair value of the mortgage servicing rights) were $189.2 million, up $2.8 million or 1.5% over the prior quarter. Results reflectan increase in personnel expenses, professional fees and services and other expenses, partially offset by decreased expenses incurred on repossessed assets.
Tangible common equity ratio increased to 8.96% as of September 30, 2010 from 8.88% as of June 30, 2010, primarily driven by an increase in the fair value of the securities portfolio and growth in retained earnings. Tier 1 capital ratios were 12.30% as of September 30, 2010, up from 11.90% as of June 30, 2010.
Our Take
BOK Financial’s strategic expansions and local-leadership based business model have aided it to expand into a leading financial service provider from a bank in Oklahoma. The company’s diverse revenue stream, sturdy capital position and expense control initiatives augur well for investors. However, as the economic and employment conditions are expected to remain weak, we expect any significant growth in revenue to be restricted. Additionally, given the regulatory issues, we expect both top and bottom lines to bear the brunt.
BOK Financialshares are maintaining a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. We have a long-term “Neutral” recommendation on the stock.
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