BOK Financial Tops, Raises Dividend

Aided by growth in net interest revenue as well as fees and commissions revenue, BOK Financial Corporation (BOKF - Analyst Report) posted first-quarter 2012 earnings of $1.22 per share, well above the Zacks Consensus Estimate of $1.03. The company also reported growth in commercial loan balances and announced a nickel’s increase in quarterly cash dividend.

BOK Financial’s results also comfortably outshined prior-quarter earnings of 98 cents per share and year-ago earnings of 94 cents per share.

Net income in the reported quarter was $83.6 million compared with $67.0 million in the prior quarter and $64.8 million in the prior-year quarter.

Performance in Detail

BOK Financial’s net interest revenue totaled $173.6 million in the reported quarter, up 1.2% sequentially. However, net interest margin decreased 1 basis point from the prior quarter to 3.19%. However, the effect of lower interest rates on net interest revenue was partially offset by earnings asset growth, which increased $192 million during the quarter.

BOK Financial’s Fees and commissions revenue totaled $144.3 million, reflecting a sequential upside of 9.5%. The increase was fueled by higher mortgage banking revenue as well as brokerage and trading revenue.

Total operating expenses at BOK Financial were $185.2 million, down 15.5% sequentially. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $192.4 million, down $21.6 million from the prior quarter. The company experienced a decrease in both personnel costs as well as non-personnel expenses in the reported quarter from the prior quarter.

Credit Quality

The credit quality of BOK Financial’s loan portfolio produced improved results. Nonperforming assets totaled $336 million or 2.87% of outstanding loans and repossessed assets as of March 31, 2012, down from $357 million or 3.13%, respectively, as of December 31, 2011.

Net loans charged-off against the allowance for loan loss amounted to $8.5 million or 0.30% on an annualized basis for the reported quarter compared with $9.5 million or 0.34% on an annualized basis for the prior quarter.

BOK Financial also experienced an improvement in other credit factors. Moreover, economic indicators exhibited a stable or improving trend in the company’s primary markets and therefore, after an evaluation of all credit factors, the company came to the conclusion that no provision for credit losses was required in the reported quarter.

Further, the combined allowance for credit losses totaled $254 million or 2.20% of outstanding loans as of March 31, 2012, declining from $263 million or 2.33% of outstanding loans as of December 31, 2011.

Capital Position

As of March 31, 2012, armed with strong capital ratios, BOK Financial and its subsidiary bank exceeded the regulatory definition of well capitalized. As of the same date, Tier 1 and total capital ratios were 13.03% and 16.16%, respectively, compared with 13.27% and 16.49%, respectively as of December 31, 2011. Tangible common equity ratio improved to 9.75% from 9.56% as of December 31, 2011.

Outstanding loans at BOK Financial as of March 31, 2012 were $11.6 billion, up $308 million over December 31, 2011. Growth in commercial loans was partially offset by decreases in commercial real estate, residential mortgage and consumer loans. Period-end deposits totaled $18.5 billion compared with $18.8 billion as of December 31, 2011.

Share Repurchase and Dividend Update

BOK Financial remains committed to boost shareholders’ wealth and has bought back 345,300 common shares at an average price of $53.38 per share during the reported quarter through a previously announced share repurchase program.

During the reported quarter, the company paid a cash dividend of 33 cents per share. With a solid capital position and consistent performance, BOK Financial announced a nickel’s increase in its quarterly cash dividend, which will now stand at 38 cents per share, up from 33 cents per share. This marked the seventh consecutive annual increase since the company paid its first cash dividend in 2005. The increased dividend will be paid on or about May 29, 2012 to shareholders of record as of May 15.

Our Take

The strategic expansions and local-leadership based business model of BOK Financial, which has peers such as Cullen/Frost Bankers Inc. (CFR - Snapshot 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 hike will also bode well and boost investors’ confidence.

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

The shares of BOK Financial currently retain a Zacks #3 Rank, which translates into a short-term Hold’ rating. Considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.