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Analyst Blog

BOK Financial Corporation’s (BOKF - Analyst Report) first-quarter 2014 earnings of $1.11 per share surpassed the Zacks Consensus Estimate by 11 cents. However, results compared unfavorably with the prior-year quarter earnings of $1.28.

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

Net income attributable to the shareholders of BOK Financial in the reported quarter was $76.6 million, compared with $88.0 million in the prior-year quarter.

Performance in Detail

BOK Financial’s net interest revenues totaled $162.6 million in the reported quarter, down 9.4% year over year. Net interest margin fell 19 basis points from 2.90% in the prior-year quarter to 2.71% in the reported period.

Yield on average earning assets also declined 22 basis points year over year. Moreover, loan yields decreased 31 basis points, partially mitigated by lower funding costs.

BOK Financial’s fees and commissions revenue amounted to $140.9 million, down 10.3% 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 $185.1 million, down 9.3% year over year. The company experienced a fall in personnel costs in the reported quarter compared with the prior-year quarter.

Credit Quality

The credit metrics of BOK Financial’s loan portfolio improved in the reported quarter. Net recoveries amounted to $2.5 million in the reported quarter compared with net charge-offs of $2.4 million in the prior-year quarter.

Further, the combined allowance for credit losses was 1.45% of outstanding loans as of Mar 31, 2014, declining from 1.71% as of Mar 31, 2013. As a result, BOK Financial recorded no provision for credit losses as against negative $8.0 million in the prior-year quarter.

Moreover, nonperforming assets totaled $255.7 million or 1.94% of outstanding loans and repossessed assets as of Mar 31, 2014, down from $283.3 million or 2.32% of outstanding loans and repossessed assets as of Mar 31, 2013.

Capital Position

As of Mar 31, 2014, 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 13.77% and 15.55%, respectively, compared with 13.35% and 15.68%, respectively as of Mar 31, 2013. Leverage ratio was 10.17%, up from 9.28% as of Mar 31, 2013.

BOK Financial's Tier 1 common equity ratio under existing Basel I standards was 13.59% compared with 13.16% 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 on a fully phased-in basis stood at 12.60%, up 560 basis points from the 7% regulatory requirement.

Outstanding loans at BOK Financial as of Mar 31, 2014 were $13.1 billion, up 8.3% year over year, mainly due to a rise in commercial loans. Further, commercial real estate loans and residential mortgage loans increased. As of Mar 31, 2014, period end deposits amounted to $20.4 billion, up from $19.9 billion as of Mar 31, 2013.

Our Viewpoint

The strategic expansions and local-leadership based business model of BOK Financial, with peers such as Texas Capital Bancshares Inc. (TCBI - Analyst Report), BancFirst Corporation (BANF - Snapshot Report) and First Financial Bankshares Inc. (FFIN - Snapshot Report), 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, recent acquisitions 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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