Shares of BOK Financial Corporation (BOKF) gained more than 1% in a day’s trading following the third-quarter 2014 earnings release on Oct 29, before the market opened. The company reported earnings per share of $1.09, which missed the Zacks Consensus Estimate of $1.12. Further, the bottom line came in lower by a penny from that of the prior-year quarter.
Results were impacted by lower net interest revenues and higher expenses, which were, however, partly offset by increased revenues from fees and commissions. Further, improved credit quality, increased loans and deposits and healthy capital position were the tailwinds.
Net income attributable to common shareholders was $75.6 million compared with $75.7 million in the prior-year quarter.
Quarter in Detail
BOK Financial’s revenues totaled $325.3 million in the quarter, up 3.9% year over year. However, the revenue figure came in lower than the Zacks Consensus Estimate of $332 million.
Net interest revenues summed to $166.8 million in the quarter, down 0.7% year over year. Net interest margin fell 8 basis points (bps) year over year to 2.67%.
Yield on average earning assets declined 10 bps year over year to 2.93%. Also, loan yields decreased 28 bps year over year to 3.78%.
BOK Financial’s fees and commissions revenue amounted to $158.5 million, up 9.2% on a year-over-year basis. The increase was primarily attributable to higher fair value in mortgage servicing rights and nil other-than temporary impairment losses, partly offset by higher net loss on other assets and rise in net derivative loss.
Total other operating expenses were $221.8 million, up 5.5% year over year. Elevated costs related to business promotion, professional fees and services, net occupancy and equipment, insurance, data processing and communications, higher net losses and operating expenses of repossessed assets and amortization of intangible assets led to the rise in costs. This was, however, partially offset by lower personnel expenses, nil expenses incurred on charitable contributions to BOKF Foundation, lower printing, postage and supplies expenses, fall in mortgage banking costs and other expenses.
Outstanding loans at BOK Financial as of Sep 30, 2014 were $13.7 billion, up 10.8% year over year, mainly due to a rise in commercial loans, commercial real estate loans and consumer loans. As of Sep 30, 2014, period end deposits amounted to $20.3 billion, up 4.1% year over year.
Credit Quality
The credit metrics of BOK Financial’s loan portfolio improved during the quarter. Net recoveries amounted to $0.5 million compared with net charge-offs of $0.3 million in the prior-year quarter.
Further, the combined allowance for credit losses was 1.41% of outstanding loans as of Sep 30, 2014, declining from 1.59% as of Sep 30, 2013. There was no provision for credit losses in the quarter, as against a provision of $8.5 million in the prior-year quarter.
Moreover, nonperforming assets totaled $264.9 million or 1.92% of outstanding loans and repossessed assets as of Sep 30, 2014, down from $271.1 million or 2.18% as of Sep 30, 2013.
Capital Position
Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. As of Sep 30, 2014, Tier 1 and total capital ratios were 13.71% and 15.09% compared with 13.51% and 15.35%, respectively, as of Sep 30, 2013. Leverage ratio was 10.22%, up from 9.80% as of Sep 30, 2013.
BOK Financial's Tier 1 common equity ratio under existing Basel I standards was 13.54% compared with 13.33% in the prior-year quarter.
Notably, in Jul 2013, the final revision of regulatory capital rules for all U.S. banking organizations was released, which will be 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 would be 12.60%, up 560 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.
While regulatory issues, rising expenses and compressed margin continue to pose 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).
Performance of Other Banks
Texas Capital Bancshares Inc. (TCBI) reported third-quarter earnings per share of 78 cents, beating the Zacks Consensus Estimate of 75 cents.
Commerce Bancshares, Inc. (CBSH) reported third-quarter earnings per share of 72 cents, surpassing the Zacks Consensus Estimate by a penny.
Zions Bancorporation’s (ZION) third-quarter adjusted earnings came in at 38 cents per share, which missed the Zacks Consensus Estimate of 45 cents.
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