BOK Financial Corporation - Q1 2009 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2009. 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, and other regional markets. The Company elected not to participate in the U.S. Treasury's Troubled Asset Relief Program (TARP).
Key Financial Metrics
- Net Income: $55.0 million ($0.81 per diluted share), up 55% from Q4 2008 but down 12% from Q1 2008 (which included one-time Visa gains).
- Net Interest Revenue: $169.8 million; Net Interest Margin (NIM) was 3.47%.
- Non-Interest Revenue: $125.1 million, driven by a $10.9 million gain on mortgage loans sold and $20.1 million in net securities gains.
- Provision for Credit Losses: $45.0 million (down from $73.0 million in Q4 2008).
- Net Charge-offs: $31.9 million (1.00% annualized to average loans).
- Non-Performing Assets (NPA): $414 million (3.26% of outstanding loans and repossessed assets), up from $342 million in Q4 2008.
- Capital Ratios: Tier 1 Capital Ratio of 9.76%; Tangible Common Equity Ratio of 6.84%.
- Liquidity: Total deposits were $15.3 billion at period end. Average deposits increased $756 million from the prior quarter.
Material Changes vs. Prior Periods
- Revenue Mix: Net interest revenue decreased $6.6 million from Q4 2008 due to a narrowing LIBOR/federal funds spread, though it increased 15% year-over-year. Fee income rose significantly, with mortgage banking revenue up 156% quarter-over-quarter due to refinancing volume.
- Asset Quality Deterioration: Non-performing assets increased $72 million quarter-over-quarter, driven by growth in non-accruing loans in the Arizona and Colorado markets. Commercial real estate non-accruals rose to $175 million.
- Impairment Charges: The Company recognized $15.0 million in other-than-temporary impairment (OTTI) charges on preferred stocks and privately issued mortgage-backed securities in Q1 2009, compared to $5.3 million in Q1 2008 and none in Q4 2008.
- Expense Management: Total operating expenses decreased $19.6 million from Q4 2008, largely due to a $28.4 million favorable change in the fair value of mortgage servicing rights.
Outlook, Risks, and Management Commentary
- Interest Rate Outlook: Management expects net interest revenue to decrease slightly over the next year due to the current low-rate environment and loan spread compression. The balance sheet is managed to be relatively neutral to interest rate changes.
- Credit Risks: Significant concentrations exist in energy loans ($2.3 billion) and commercial real estate ($2.7 billion). Management notes that the energy sector faces challenges if commodity prices remain low. Non-accruing loans in Arizona reached 20% of the market's loan portfolio.
- Dividends: The Board declared an increase in the quarterly cash dividend to $0.24 per share, payable in May 2009.
- Legal Contingencies: The Company is subject to a Wells notice from the SEC regarding marketing assistance agreements with mutual funds (AXIA/BISYS matter) and maintains a $2.5 million contingent liability for Visa litigation.
Investor Verification Checklist
- Verify the sustainability of the $10.9 million gain on mortgage loans sold, which was driven by government refinancing initiatives.
- Monitor the trajectory of non-performing assets in the Arizona and Colorado markets, where charge-offs were significant.
- Assess the impact of the $15.0 million OTTI charge on future earnings and the potential for further impairments on the $1.6 billion portfolio of privately issued mortgage-backed securities.
- Review the exposure to the energy sector ($2.3 billion) given the volatility in commodity prices.
- Confirm the status of the SEC Wells notice regarding AXIA and the potential for future litigation costs.