Business Context and Reporting Period
BOK Financial Corporation (BOK Financial) filed its Form 10-Q for the quarterly period ended September 30, 2009. The Company is a large accelerated filer headquartered in Tulsa, Oklahoma, operating primarily through its subsidiary, Bank of Oklahoma, N.A. BOK Financial provides commercial banking, consumer banking, and wealth management services across Oklahoma, Texas, New Mexico, Arkansas, Colorado, Arizona, and Kansas/Missouri. The Company elected not to participate in the U.S. Treasury's Troubled Asset Relief Program (TARP).
Key Financial Metrics
| Metric | Q3 2009 | Q3 2008 | 9 Months 2009 | 9 Months 2008 |
|---|---|---|---|---|
| Net Income (Attributable to BOK) | $50.7 million | $56.7 million | $157.8 million | $117.8 million |
| Earnings Per Share (Diluted) | $0.75 | $0.84 | $2.33 | $1.74 |
| Net Interest Revenue | $180.5 million | $164.3 million | $525.9 million | $470.4 million |
| Net Interest Margin | 3.63% | 3.48% | 3.55% | 3.41% |
| Provision for Credit Losses | $55.1 million | $52.7 million | $147.3 million | $129.6 million |
| Net Loans Charged Off | $36.0 million | $20.2 million | $102.7 million | $86.5 million |
| Total Assets | $23.9 billion | $22.4 billion | - | - |
| Total Loans | $11.6 billion | $12.7 billion | - | - |
| Total Deposits | $15.1 billion | $14.6 billion | - | - |
| Non-Performing Assets | $490 million (4.19% of loans) | $252 million | - | - |
| Allowance for Loan Losses | $281 million (2.42% of loans) | $187 million | - | - |
| Tangible Common Equity Ratio | 7.78% | 7.16% | - | - |
| Tier 1 Capital Ratio | 10.56% | 9.31% | - | - |
Material Changes vs. Prior Period
- Profitability: Net income for the nine months ended September 30, 2009, increased 34% compared to the same period in 2008, driven by higher net interest revenue and lower tax rates, despite increased provisions for credit losses. Q3 2009 net income decreased 11% year-over-year.
- Net Interest Revenue: Increased $16.1 million (10%) in Q3 2009 compared to Q3 2008, primarily due to a 15 basis point improvement in net interest margin and growth in average earning assets (specifically securities). The margin improvement was driven by lower funding costs and improved loan yields.
- Asset Quality: Non-performing assets increased significantly to $490 million (4.19% of loans) from $252 million in Q3 2008. Net charge-offs rose to $36.0 million in Q3 2009 from $20.2 million in Q3 2008. The allowance for loan losses increased to 2.42% of total loans.
- Loan Portfolio: Total loans decreased $458 million from the previous quarter to $11.6 billion, reflecting reduced customer demand and management decisions to exit certain loan types. Commercial and commercial real estate loans saw the largest declines.
- Securities Portfolio: Available-for-sale securities increased to $8.4 billion, up $1.1 billion from the prior quarter, as the Company purchased U.S. government agency mortgage-backed securities to supplement earnings during declining loan demand.
Guidance, Outlook, and Risks
- Outlook: Management expects net interest revenue to increase slightly over a one-year forward-looking period based on modeling. The Company aims to maintain a balance sheet relatively neutral to interest rate changes, utilizing fixed-rate mortgage-backed securities to offset the asset-sensitive nature of its loan portfolio.
- Capital Strategy: The Company maintains a capital policy more restrictive than regulatory standards. It declined participation in TARP, citing sufficient capital for organic growth and potential acquisitions. The Board declared a quarterly dividend of $0.24 per share.
- Key Risks:
- Credit Risk: Continued deterioration in the commercial real estate sector, particularly in the Arizona and Colorado markets, and the energy sector in Oklahoma. Non-accruing loans in Arizona and Colorado remain elevated.
- Securities Risk: Exposure to privately issued mortgage-backed securities (Alt-A and Jumbo-A) with unrealized losses. The Company recognized $3.4 million in other-than-temporary impairment (OTTI) charges in Q3 2009.
- Derivative Risk: Significant exposure to customer derivative programs (energy, interest rate, foreign exchange). While hedged, counterparty credit risk remains a factor.
- Regulatory/Legal: Potential impact of federal legislation on overdraft fee revenue and ongoing litigation related to Visa retrospective responsibility and SemGroup Energy Partners.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of non-performing assets, specifically the concentration of non-accruing commercial real estate loans in Arizona and Colorado, and energy loans in Oklahoma.
- Securities Valuation: Review the composition of the $1.3 billion privately issued mortgage-backed securities portfolio and the assumptions used for OTTI evaluations (unemployment rates, housing price depreciation).
- Derivative Exposure: Assess the net fair value of derivative contracts ($412 million assets vs. $417 million liabilities) and the credit quality of counterparties, particularly energy companies.
- Capital Adequacy: Confirm the sustainability of the 7.78% tangible common equity ratio and 10.56% Tier 1 capital ratio in the event of further loan charge-offs.
- Revenue Concentration: Evaluate the reliance on net interest revenue versus fee income, noting the decline in brokerage and trading revenue due to lower commodity prices and market volatility.