BOK Financial Corporation (BOKF) reported fourth-quarter 2014 earnings per share of 93 cents, down from $1.06 reported in the prior-year quarter. Excluding branch closure costs accrued in the quarter and net changes in the fair value of mortgage servicing rights of 16 cents, adjusted net income was $1.09 per share. Notably, the Zacks Consensus Estimate stood at $1.07.
Higher expenses and increase in nonperforming assets were the headwinds for the quarter. However, organic growth aided by rise in revenues and increased loans and deposits were the tailwinds.
Despite lower earnings as compared with the prior-year quarter, the share price of BOK Financial gained 1.92% in a day’s trading following the earnings release on Jan 28, before the market opened. This was probably owing to higher revenues as well as no provision for credit losses.
Net income attributable to common shareholders was $64.3 million compared with $73 million in the prior-year quarter.
For full-year 2014, net income attributable to shareholders was $292.4 million or $4.22 per share, down from $316.6 million or $4.59 per share in the prior year. Results also lagged the Zacks Consensus Estimate of $4.38.
Performance in Detail
For full-year 2014, BOK Financial’s revenues totaled $1.29 billion, up around 1% year over year. However, the revenue figure came in line with the Zacks Consensus Estimate.
The company reported revenues of $327.6 million in the quarter, up 6.2% year over year. However, the revenue figure lagged the Zacks Consensus Estimate of $329 million.
Net interest revenues summed to $169.7 million in the quarter, down 2.1% year over year. Net interest margin fell 13 basis points year over year to 2.61%.
Yield on average earning assets declined 16 basis points year over year to 2.86%. Also, loan yields decreased 28 basis points year over year to 3.73%.
BOK Financial’s fees and commissions revenue amounted to $157.9 million, up 10.9% on a year-over-year basis. The increase was primarily attributable to higher mortgage banking revenue and fiduciary and asset management revenue.
Total other operating expenses were $225.9 million, up 4.9% year over year. Elevated costs related to business promotion, professional fees and services, net occupancy and equipment along with net losses and operating expenses of repossessed assets mainly led to the rise in costs. This was, however, partially offset by lower other expenses.
Total loans at BOK Financial as of Dec 31, 2014 were $14.2 billion, up 10.9% year over year, mainly due to a rise in commercial loans, commercial real estate loans and consumer loans. As of Dec 31, 2014, period end deposits amounted to $21.1 billion, up 3.9% year over year.
Credit Quality
The credit metrics of BOK Financial’s loan portfolio was a mixed bag during the quarter. There was no provision for credit losses in the quarter, as against $11.4 million in the prior-year quarter. The combined allowance for credit losses was 1.34% of outstanding loans as of Dec 31, 2014, declining from 1.47% as of Dec 31, 2013.
Nonperforming assets totaled $256.6 million or 1.79% of outstanding loans and repossessed assets as of Dec 31, 2014, down from $247.7 million or 1.92% as of Dec 31, 2013. Net charge-offs were $2.2 million as against recoveries of $3 million in the prior-year quarter.
Capital Position
Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. As of Dec 31, 2014, Tier 1 and total capital ratios were 13.29% and 14.61% compared with 13.77% and 15.56%, respectively, as of Dec 31, 2013. Leverage ratio was 9.96% compared with 10.05% as of Dec 31, 2013.
BOK Financial's Tier 1 common equity ratio under existing Basel I standards was estimated at 13.13% compared with 13.59% 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 became 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 12.25%, up 525 basis points 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.
Though the company’s diverse revenue mix, recent acquisitions and favorable geographic footprint would support its growth in the upcoming quarters, regulatory issues, rising expenses and compressed margin continue to pose concerns.
BOK Financial currently carries a Zacks Rank #4 (Sell).
Performance of other Southwest banks
Driven by strong top-line growth, Cullen/Frost Bankers, Inc. (CFR) reported earnings of $1.11 per share, significantly above the prior-year quarter figure of 99 cents. However, results were in line with the Zacks Consensus Estimate.
Texas Capital Bancshares Inc. (TCBI) reported fourth-quarter 2014 earnings per share of 78 cents, surpassing the prior-year quarter earnings of 67 cents. However, results were in line with the Zacks Consensus Estimate. Higher revenues along with loans and deposits were positives for the quarter. However, elevated expenses and higher provision for credit losses remain concerns.
Prosperity Bancshares Inc. (PB) delivered yet another positive earnings surprise, with fourth-quarter 2014 earnings per share of $1.12 outpacing the Zacks Consensus Estimate of $1.08. Moreover, earnings per share escalated 14.3% from the year-ago quarter.
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