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BOK Financial Corporation’s (BOKF">BOKF) second quarter 2011 earnings came in at $69.0 million or $1.00 per share, which were above the Zacks Consensus Estimate of 98 cents. The results also compare favorably with the prior-quarter earnings of $64.8 million or 94 cents per share and prior-year earnings of $63.5 million or 93 cents per share.

Results primarily reflect a decrease in loan loss provisions and improved credit quality. Increase in fees and commissions revenue also supported top-line growth.

BOK Financial’s net interest revenue totaled $174.0 million in the reported quarter, up 2% sequentially. While net interest margin decreased 7 basis points (bps) from the prior quarter to 3.40%, average earning assets grew $354 million.

Outstanding loan balances at BOK Financial were $10.7 billion as of June 30, 2011, up from $10.6 billion as of March 31, 2011. Growth in commercial loan and residential mortgage loan balances was partially offset by lower commercial real estate loans and consumer loans. However, period-end deposits totaled $17.6 billion as of June 30, 2011, down from $17.9 billion as of March 31, 2011.

Fees and commissions revenue totaled $127.8 million, up 4% sequentially. The growth was fueled by higher transaction card revenue, mortgage banking revenue and deposit service charges, partially offset by lower brokerage and trading revenue.

BOK Financial’s total operating expenses were $203.2 million, up 14% sequentially. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $189.7 million, up $8.1 million from the prior quarter. The company experienced an increase in both personnel expenses and non-personnel expenses.

The increase in personnel expenses was primarily due to increased incentive compensation expense while the advancement in non-personnel expenses was largely brought about by increased mortgage banking expenses.

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

Nonperforming assets totaled $351 million or 3.23% of outstanding loans and repossessed assets as of March 31, 2011 compared with $379 million or 3.54%, respectively, as of the same date.

Net loans charged off dropped 17% to $8.5 million from $10.3 million in the prior quarter. Provision for credit losses decreased 57% to $2.7 million from $6.3 million in the prior quarter.

BOK Financial’s capital ratios remained strong. The company and its subsidiary bank exceeded the regulatory definition of well capitalized at June 30, 2011. Tier 1 and total capital ratios were 13.30% and 16.80%, respectively, as of June 30, 2011 compared with 12.97% and 16.48%, as of March 31, 2011. Moreover, its tangible common equity ratio advanced to 9.71% as of June 30, 2011 from 9.54% as of March 31, 2011.

Dividend Update

BOK Financial announced an increase in the quarterly cash dividend to 27.5 cents per share from 25 cents paid in the first quarter of 2011. The increased dividend was paid during the second quarter of 2011.

On July 26, 2011, the board of directors of BOK Financial approved a quarterly cash dividend of 27.5 cents per share payable on or about August 26, 2011, to shareholders of record as of August 12, 2011.

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), 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.

However, with a sluggish recovery of the economy, a significant turnaround in revenue would remain elusive. 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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