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We are reiterating our Neutral recommendation on BOK Financial Corp. (BOKF - Analyst Report) following a detailed analysis of the company’s third-quarter 2011 earnings results.

BOK Financial’s third-quarter 2011 earnings came in at $1.24 per share, beating the Zacks Consensus Estimate by 19 cents and significantly outpacing  its closest competitor- International Bancshares Corporation (IBOC) by 84 cents per share. The results also compared favorably with the prior-quarter earnings of $1.00 per share and prior-year quarter’s earnings of 94 cents per share.

The results primarily reflected an increase in net interest revenue and no loan loss provisions were recorded. Increase in fees and commissions revenue also supported its top-line growth, partially offset by increased operating expenses.

BOK Financial is focused on expanding into new markets through acquisitions and de novo banking operations. The company’s acquisition strategy focuses on the introduction of its complete line of products and services, while maintaining local leadership. By combining the company’s cash management, loan and investment products with local relationship managers, BOK Financial has been able to provide a superior customer experience, while centralizing non-customer contact.

BOK Financial chose not to participate in the Treasury's Capital Purchase Program, as its own capital levels were adequate for its operations and expansion. Even without the bailout or any dividend cut, capital ratios are solid and exhibited an increasing trend. Moreover, concurrent with the third quarter of 2011 earnings results, the company announced a 20% dividend hike. The new dividend will be paid in November. Such a shareholder-friendly approach is encouraging.

However, the regulatory issues would also remain a headwind for the company. The trend toward increasingly extensive regulation is likely to continue and become more costly in the future. BOK Financial currently expects a decline of $20 million to $25 million in its transaction card revenue annually due to the new debit card, which is effective from October 1, 2011.

The current low interest rates have increased cash flows on mortgage-backed securities as they are being sold off in the market. These cash flows are reinvested at lower yields. With expectations for continued low interest rate environment in the upcoming quarters, we believe that the pressure on margin would persist owing to an increase in liquidity and a soft loan demand.

Nevertheless, with a protracted economic recovery, we expect revenue growth to be restricted. Furthermore, we remain concerned about the regulatory issues and the margin pressure resulting from a highly liquid balance sheet.

However, BOK Financial currently retains its Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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