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BOK Financial Corporation’s (BOKF - Analyst Report) first quarter 2011 earnings of $64.8 million or 94 cents per share were above the Zacks Consensus Estimate of 91 cents. The results also compare favorably with the prior quarter’s earnings of $58.8 million or 86 cents per share and prior-year quarter’s earnings of $60.1 million or 88 cents per share.

Results primarily reflect a rise in interest revenue, lower expenses and improvement in credit metrics. However, fees and commissions revenue remained stretched with a drop in mortgage banking income. The company also announced a dividend increase.

BOK Financial’s net interest revenue totaled $170.6million in the reported quarter, up 4% sequentially. While net interest margin increased 27 basis points over the prior quarter to 3.46%, average earning assets decreased by $491 million. Growth in net interest revenue and net interest margin was fuelled by better yield on the securities portfolio. Yield on the securities portfolio improved as actual and expected prepayment speeds slowed in response to an increase in interest rates since the prior quarter.

Outstanding loan balances at BOK Financial were $10.6 billion as of March 31, 2011, down $53 million since December 31, 2010. Total period end deposits increased $694 million during the reported quarter to $17.9 billion, with all categories of deposits experiencing growth.

Fees and commissions revenue totaled $123.3 million, down 9% sequentially. The downfall stemmed from lower mortgage banking revenue due to lower origination volumes and decreased brokerage and trading revenue.

BOK Financial’s total operating expenses were $178.4 million, flat sequentially. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $181.6 million, down $21.9 million from the prior quarter. Results reflect a decline in personnel expenses, professional fees and services and mortgage banking costs.

The credit quality of BOK Financial’s loan portfolio continued to improve.

Nonperforming assets totaled $379 million or 3.54% of outstanding loans and repossessed assets as of March 31, 2011 compared with $394 million or 3.66% of the same as of December 31, 2010.

Net loans charged off dropped 27% to $10.3 million from $14.2 million in the prior quarter. Provision for credit losses decreased 10% to $6.3 million from $7.0 million in the prior quarter.

BOK Financial’s capital ratios remained strong. The company and its subsidiary bank exceeded the regulatory benchmark of well capitalized at March 31, 2011. Tier 1 and total capital ratios were 12.97% and 16.48%, respectively, as of March 31, 2011 compared with 12.69% and 16.20%, respectively, as of December 31, 2010. Moreover, its tangible common equity ratio advanced to 9.54% as of March 31, 2011 from 9.21% as of December 31, 2010.

Dividend Increase

BOK Financial announced an increase the quarterly cash dividend to 27.5 cents per share from 25 cents paid in the first quarter of 2011. The increased dividend is payable on or about May 27, 2011 to shareholders of record as of May 13.

Our Take

The strategic expansions and local-leadership based business model of BOK Financial, which has peers such as Cullen/Frost Bankers Inc. (CFR - Analyst Report) and First Financial Bankshares Inc. (FFIN - Snapshot Report), have aided its expansion into a leading financial service provider from a small bank in Oklahoma. The company’s diverse revenue stream, sturdy capital position and expense control initiatives augur well for investors.

The dividend increase will also bode well and boost investors’ confidence. Incidentally, it represents the sixth consecutive annual increase since BOK Financial paid its first cash dividend in the second quarter of 2005.

However, as economic and employment conditions are likely to remain weak, we expect revenue growth to be restricted. Additionally, we also expect both top and bottom lines to bear the brunt of regulatory issues.

BOK Financial shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation.

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