Profit Moves Up at BOK Financial
Aided by growth in mortgage banking revenue as well as expansion in all other categories of non-interest revenues, BOK Financial Corporation (BOKF) posted second-quarter 2012 earnings of $1.43 per share, well above the Zacks Consensus Estimate of $1.13.
The company also reported improvements in credit quality, which in turn, had a positive impact of 21 cents per share on net income in the reported quarter.
BOK Financial’s results also comfortably outshined prior-quarter earnings of $1.22 per share and year-ago earnings of $1.00 per share.
Net income attributable to BOK Financial shareholders in the reported quarter was $97.6 million compared with $83.6 million in the prior quarter and $69.0 million in the prior-year quarter. This represents a sequential growth of 17% and a year-over-year growth of 41% in net income.
Quarter in Detail
BOK Financial’s net interest revenue totaled $181.4 million in the reported quarter, up 4% sequentially. Net interest margin advanced 11 basis points (bps) from the prior quarter to 3.30%.
In the reported quarter, net interest revenue included $2.9 million from the complete recovery of a non-accruing commercial loan. Excluding this recovery, net interest margin advanced 6 bps to 3.25% in the quarter. Average earning assets also advanced $163 million during the quarter.
BOK Financial’s fees and commissions revenue amounted to $154.5 million, up 7% sequentially. Results were aided by a 20% increase in mortgage banking revenue. Moreover, all other fee-based revenue sources expanded from the prior quarter.
Total operating expenses at BOK Financial were $223.8 million, up 21% sequentially. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $212.3 million, up $20.0 million from the prior quarter. The company experienced an increase in both personnel costs as well as non-personnel expenses in the reported quarter from the prior quarter.
Personnel expenses moved up, primarily due to incentive compensation, while non-personnel expenses increased mainly due to higher mortgage banking, repossessed assets and data processing expenses.
Credit Quality
The credit quality of BOK Financial’s loan portfolio produced improved results. Net charge-offs continued to decline, while other credit quality indicators continue to recover.
Nonperforming assets totaled $279 million or 2.38% of outstanding loans and repossessed assets as of June 30, 2012, down from $336 million or 2.87% of outstanding loans and repossessed assets as of March 31, 2012.
Net charge-offs amounted to $4.8 million (or 0.17% of average loans on an annualized basis) in the reported quarter, down from $8.5 million (or 0.30%) in the prior quarter. Results reflect a reduction of $2.1 million in net charge-offs from the full recovery of a non-accruing commercial loan.
Further, the combined allowance for credit losses totaled $241 million or 2.09% of outstanding loans as of June 30, 2012, declining from $254 million or 2.20% of outstanding loans as of March 31, 2012.
As a result, BOK Financial recorded a negative provision for credit losses of $8.0 million in the reported quarter while no provisions were made in the prior quarter.
Capital Position
As of June 30, 2012, armed with strong capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory definition of well capitalized. As of the same date, Tier 1 and total capital ratios were 13.62% and 16.19%, respectively, compared with 13.03% and 16.16%, respectively as of March 31, 2012. Tangible common equity ratio improved to 10.07% from 9.75% as of March 31, 2012.
Outstanding loans at BOK Financial as of June 30, 2012 were $11.6 billion, unchanged compared with the prior quarter. Growth in commercial loans and residential mortgage loans were partially offset by decreases in commercial real estate and consumer loans.
Period end deposits amounted to $18.4 billion as of June 30, 2012, slightly down from $18.5 billion as of March 31, 2012. Increase in demand deposits was offset by a decrease in interest-bearing transaction accounts and a fall in time deposits.
Share Repurchase and Dividend Update
BOK Financial remains committed to boosting shareholders’ wealth and has bought back 39,496 common shares at an average price of $53.81 per share during the reported quarter through a previously announced share repurchase program.
During the reported quarter, the company paid a cash dividend of 38 cents per share. Notably, in May 2012, the company increased its quarterly cash dividend by a nickel to 38 cents, which marked the seventh consecutive annual increase since the company paid its first cash dividend in 2005.
On July 31, 2012, BOK Financial’s Board of Directors approved a quarterly cash dividend of 38 cents per share payable on or about August 31, 2012 to shareholders of record as of August 17, 2012.
Our Take
The strategic expansions and local-leadership based business model of BOK Financial, with peers such as Texas Capital Bancshares Inc. (TCBI) and First Financial Bankshares Inc. (FFIN), have aided its expansion into a leading financial service provider from a small bank in Oklahoma.
BOK Financial’s diverse revenue stream, sturdy capital position and expense control initiatives augur well for investors. Capital deployment efforts also bode well and boost investors’ confidence. Nevertheless, a protracted economic recovery, along with regulatory issues and the low interest rate environment remain our concerns.
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.
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