MCBI Mountain Comm Bancorp Inc (QX)

BOK Financial Corporation’s (BOKF) first-quarter 2013 earnings of $1.28 per share surpassed the Zacks Consensus Estimate by 10 cents. Moreover, results came above the prior-quarter earnings of $1.21.

Better-than-expected results were aided by reduced operating expenses, reflecting disciplined expense management. Moreover, reduced net charge-offs and strong capital ratios were the tailwinds. On the other hand, lower net interest revenues and condensed mortgage banking revenues were the negatives for the quarter.

Net income attributable to the shareholders of BOK Financial in the reported quarter was $88 million, compared with $83 million in the prior quarter.

Quarter in Detail

BOK Financial’s net interest revenues totaled $170.4 million in the reported quarter, down 1.7% sequentially. Net interest margin fell 3 basis points from 2.95% in the prior quarter to 2.92% in the reported period.

With cash flows being reinvested at lower rates, the yield on its securities portfolio continued to decline. Yield on average earning assets also dipped 6 basis points sequentially. Moreover, loan yields decreased 13 basis points, partially mitigated by lower funding costs.

BOK Financial’s fees and commissions revenue amounted to $158.1 million, down 4.6% on a sequential basis. Reduced mortgage banking revenues due to lower volume and lessened pricing of loans sold along with low deposit service charges and fees led to the fall.

Though mortgage banking revenues were down from the high levels in the second half of 2012, management expects revenues to remain strong in 2013. Notably, first quarter 2013 mortgage originations were up $209 million or 28% year over year.

Total operating expenses at BOK Financial were $201.3 million, down 9.4% sequentially. Excluding changes in the fair value of mortgage servicing rights, operating expenses totaled $204.0 million, down 10% sequentially. The company experienced a reduction in both personnel costs and non-personnel expenses in the reported quarter compared with the prior quarter.

Credit Quality

The credit quality of BOK Financial’s loan portfolio produced mixed results. Nonperforming assets totaled $283 million or 2.32% of outstanding loans and repossessed assets as of Mar 31, 2013, up from $277 million or 2.23% of outstanding loans and repossessed assets as of Dec 31, 2012.

Yet, net charge-offs amounted to $2.4 million (or 0.08% of average loans on an annualized basis) in the reported quarter, down from net charge-offs of $4.3 million (or 0.14%) in the prior quarter.

Further, the combined allowance for credit losses amounted to $207 million or 1.71% of outstanding loans as of Mar 31, 2013, declining from $217 million or 1.77% of outstanding loans as of Dec 31, 2012.

As a result, BOK Financial recorded negative provision for credit losses of $8 million in the reported quarter as against negative provision for credit losses of $14 million in the prior quarter.

Capital Position

As of Mar 31, 2013, armed with strong capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory definition of well capitalized. As of the same date, Tier 1 and total capital ratios were 13.35% and 15.68%, respectively, up from 12.78% and 15.13%, respectively as of Dec 31, 2012.

BOK Financial's Tier 1 common equity ratio under existing Basel I standards was 13.16% as of Mar 31, 2013. Further, estimated Tier 1 common equity ratio under a fully phased in Basel III framework is about 12.70%, nearly 570 basis points above the 7% regulatory requirement.

Outstanding loans at BOK Financial as of Mar 31, 2013 were $12.1 billion, down $218 million from the prior quarter, mainly due to a decline in commercial loans. Further, elevated commercial real estate loans were offset by lower residential mortgage and consumer loans.

Period end deposits amounted to $19.9 billion as of Mar 31, 2013, down from $21.2 billion as of Dec 31, 2012. Reduction in interest-bearing transaction accounts and demand deposit accounts along with lower time deposits led to the dip.

Dividend Update

During the reported quarter, the company paid cash dividend of $26 million or 38 cents per share. Concurrent with the press release, BOK Financial’s board of directors approved a quarterly cash dividend of 38 cents per share. The dividend will be paid on or around May 31, 2013 to shareholders of record as of May 17, 2013.

Our Viewpoint

The strategic expansions and local-leadership based business model of BOK Financial, with peers such as Texas Capital Bancshares Inc. (TCBI), Metrocorp Bancshares Inc. (MCBI) and First Financial Bankshares Inc. (FFIN), helped it transform into a leading financial service provider from a small bank in Okla. Going forward, we believe BOK Financial’s diverse revenue mix and favorable geographic footprint would support its growth.

Moreover, in Aug 2012, BOK Financial announced the acquisition of Denver-based The Milestone Group Inc., a wealth management firm. The acquisition by BOK Financial demonstrates its aim of diversifying its revenue opportunities by augmenting its fee-based business.

Having strengthened its foothold over the years through its local bank brand, Colorado State Bank and Trust, BOK Financial enjoys a robust presence in Denver. Therefore, with the acquisition of Milestone Group, the company will further consolidate its foothold in Denver with the help of the acquired firm’s wealth management brand and proficiency.

Though regulatory issues and risks emanating from its private label mortgage backed securities portfolio remain concerns, we believe that its sturdy financial position and expense control initiatives and efficiency will help it navigate through the current cycle.

BOK Financial currently carries a Zacks Rank #2 (Buy).

 
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