BOK Financial Corporation 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2010. BOK Financial Corporation is a large accelerated filer headquartered in Tulsa, Oklahoma, operating primarily in commercial banking, consumer banking, and wealth management across Oklahoma, Texas, New Mexico, Arkansas, Colorado, Arizona, and Kansas/Missouri. The Company elected not to participate in the TARP Capital Purchase Program.
Key Financial Metrics
- Net Income: $60.1 million ($0.88 per diluted share), up from $55.0 million ($0.81) in Q1 2009 and $42.8 million in Q4 2009.
- Net Interest Revenue: $182.6 million, up 7% year-over-year.
- Net Interest Margin: 3.68% (up 21 basis points from Q1 2009).
- Provision for Credit Losses: $42.1 million (down from $45.0 million in Q1 2009).
- Net Loans Charged Off: $34.5 million (annualized ratio of 1.23% to average loans).
- Nonperforming Assets: $483 million (4.36% of outstanding loans and repossessed assets).
- Capital Ratios: Tier 1 capital ratio of 11.45%; Tangible common equity ratio of 8.46%.
- Deposits: Total period-end deposits of $15.5 billion.
Material Changes vs. Prior Period
- Income Growth Drivers: Net income increased primarily due to a $6.5 million pre-tax gain from the purchase of mortgage servicing rights (MSR) on favorable terms. Excluding this gain, net income would have been flat compared to Q1 2009.
- Revenue Trends: Net interest revenue increased due to a 21 basis point improvement in margin and growth in average earning assets. Non-interest revenue decreased $11.2 million year-over-year, driven by lower brokerage/trading revenue and reduced mortgage banking origination volumes.
- Expense Trends: Total operating expenses decreased $2.1 million year-over-year. However, net losses and operating expenses on repossessed assets increased significantly ($5.4 million increase vs. prior year).
- Asset Quality: Nonperforming assets remained relatively stable, decreasing slightly from $484 million in Q4 2009. Nonaccruing loans increased $4.2 million, while repossessed assets decreased $7.1 million.
- Loan Portfolio: Total outstanding loans decreased $308 million to $11.0 billion, largely due to reduced customer demand and normal repayments.
Guidance, Outlook, and Risks
- Dividend: The Board increased the quarterly cash dividend to $0.25 per share (from $0.24), payable May 28, 2010.
- Regulatory Impact: New Federal banking regulations effective July 1, 2010, are expected to significantly reduce overdraft fee revenue by $15 million to $20 million in the second half of 2010. Management is exploring mitigation options.
- Market Risk: The Company maintains a relatively rate-neutral balance sheet strategy. A 200 basis point increase in interest rates is projected to decrease net interest revenue by 1.7% over the next 12 months.
- Credit Risks: Significant concentrations of nonperforming assets exist in the Arizona and Colorado markets, particularly in commercial real estate. The Arizona market reported a net loss of $8.3 million, largely due to commercial real estate losses.
- Securities Portfolio: The Company recognized $4.2 million in other-than-temporary impairment (OTTI) charges on privately-issued residential mortgage-backed securities. Approximately $593 million of privately-issued securities are rated below investment grade.
Investor Verification Checklist
- Verify the sustainability of net income growth excluding the one-time $6.5 million gain on mortgage servicing rights.
- Monitor the impact of new federal regulations on overdraft fee revenue in the second half of 2010.
- Assess the trajectory of nonperforming assets in the Arizona and Colorado markets, specifically regarding commercial real estate exposure.
- Review the valuation assumptions and potential for further OTTI charges on the $910 million portfolio of privately-issued residential mortgage-backed securities.
- Confirm the Company's ability to maintain capital ratios above regulatory "well-capitalized" thresholds given the ongoing economic environment.