BOK Financial (BOKF) Beats Q2 Earnings Estimates, Down Y/Y

BOK Financial Corporation’s (BOKF) second-quarter 2014 earnings of $1.10 per share surpassed the Zacks Consensus Estimate of $1.04, marking its second consecutive quarter of earnings beats. However, the results compared unfavorably with the prior-year quarter earnings of $1.16 per share.

Better-than-expected results reflect increased revenues from fees and commissions. Further, a strong capital position, improved credit quality and increased loans and deposits were the tailwinds. However, lower net interest revenues and higher expenses impacted the results.

Net income attributable to common shareholders was $75.9 million compared with $79.9 million in the prior-year quarter.

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Quarter in Detail

BOK Financial’s net interest revenues totaled $166.1 million in the quarter, down 1.7% year over year. Net interest margin fell 5 basis points (bps) year over year to 2.75%.

Yield on average earning assets declined 8 bps year over year to 3.02%. Also, loan yields decreased 27 bps year over year to 3.85%.

BOK Financial’s fees and commissions revenue amounted to $164.1 million, up 3.1% on a year-over-year basis. The rise was primarily attributable to higher brokerage and trading revenues, transaction card revenues and fiduciary and asset management revenues, partially offset by reduced mortgage banking revenues and lower deposit service charges and fees.

Total operating expenses were $214.7 million, up 14.8% year over year. Elevated costs related to professional fees and services, net occupancy and equipment and data processing and communications led to the rise in costs, partially offset by lower personnel expenses.

Outstanding loans at BOK Financial as of Jun 30, 2014 were $13.4 billion, up 7.9% year over year, mainly due to a rise in commercial loans, commercial real estate loans and consumer loans. As of Jun 30, 2014, period end deposits amounted to $20.6 billion, up 5.5% year over year.

Credit Quality

The credit metrics of BOK Financial’s loan portfolio improved during the quarter. Net recoveries amounted to $2.0 million compared with net charge-offs of $2.3 million in the prior-year quarter.

Further, the combined allowance for credit losses was 1.43% of outstanding loans as of Jun 30, 2014, declining from 1.65% as of Jun 30, 2013. There was no provision for credit losses in the quarter as well as in the prior-year quarter.

Moreover, nonperforming assets totaled $254.6 million or 1.88% of outstanding loans and repossessed assets as of Jun 30, 2014, down from $281.0 million or 2.24% as of Jun 30, 2013.

Capital Position

Armed with strong capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. As of Jun 30, 2014, Tier 1 and total capital ratios were 13.63% and 15.38%, respectively, compared with 13.37% and 15.28%, respectively as of Jun 30, 2013. Leverage ratio was 10.26%, up from 9.43% as of Jun 30, 2013.

BOK Financial's Tier 1 common equity ratio under existing Basel I standards was 13.46% compared with 13.19% in the prior-year quarter.

Notably, in Jul 2013, the final revision of regulatory capital rules for substantially all U.S. banking organizations was released, which is 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 12.35%, up 535 bps from the regulatory requirement of 7%.

Our Viewpoint

The strategic expansions and local-leadership based business model of BOK Financial helped it transform into a leading financial service provider from merely a small bank in Oklahoma.

Though not impressive, results of BOK Financial reflect a decent performance in the quarter. While regulatory issues and compressed margin remain concerns, we believe that the company’s diverse revenue mix, recent acquisitions and favorable geographic footprint would support its growth in the upcoming quarters.

BOK Financial currently carries a Zacks Rank #3 (Hold).

Among other South-west banks, Prosperity Bancshares Inc.’s (PB) second-quarter earnings per share of $1.08 outpaced the Zacks Consensus Estimate of $1.02, while First Financial Bankshares Inc.’s (FFIN) earnings per share of 33 cents missed the Zacks Consensus Estimate by 2 cents. Cullen/Frost Bankers, Inc.’s (CFR) second-quarter earnings per share of $1.02 came a penny above the Zacks Consensus Estimate.

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