DBRS Comments on Q1 2009 Earnings of BOK Financial Corporation – Senior at A (low)

DBRS has today commented on the Q1 2009 earnings of BOK Financial Corporation (BOK or the Company). Notwithstanding the rapidly deteriorating economy, BOK reported earnings of $55.0 million for the quarter, up from $35.4 million for the prior quarter, yet down from $62.3 million for Q1 2008. On a sequential quarter basis, net income was positively impacted by a 56.5% decrease in provisions for credit losses and a 10.6% increase in total fees and commissions, most of which was related to higher mortgage banking revenue. Partially offsetting, was a $15 million other than temporary impairment (OTTI) charge and a 10 basis points (bps) narrowing of net interest margin (NIM) to 3.47%. Compared with a year ago, quarterly net income was negatively impacted by a 1.6 times increase in provisions for credit losses and an 8% increase in non-interest expenses, somewhat offset by a 16 bps widening of NIM and a 1.3 times increase in mortgage banking revenue. BOK’s credit fundamentals continue to support the current rating levels – A (low) for senior obligations – and Stable trend.

With the rapidly declining economy, BOK exhibited steepening asset quality erosion, which is a rating concern. At March 31, 2009, the Company’s non-performing assets (NPAs) rose to 3.26% of total loans, up from 2.65% at December 31, 2008 and 1.02% at March 31, 2008. Meanwhile, net charge-offs (NCOs) were moderate at 1.00% of average loans, down slightly from 1.05% for the prior quarter, yet up from 0.29% for Q1 2008. The bulk of the increase in non-accruals was related to commercial real estate exposures, most of which was land development and construction related. At the end of Q1 2009, BOK’s loan loss reserves to NPA ratio was moderate at 62%.

On a linked quarter basis, BOK’s NIM narrowed 10 bps to 3.47%, due to the rapid decline in interest rates during December 2008 and the lower spread between LIBOR and federal funds. Positively and providing some earnings stability, BOK’s fee income represented a high 42% of total operating income.

The Company’s liquidity remains solid as core deposits account for approximately 95% of net loans (at December 31, 2008). BOK’s securities portfolio, which represents 33% of total assets, and access to the Federal Home Loan Bank and the Federal Reserve discount window round out its liquidity profile. DBRS notes that BOK holds approximately $1.5 billion of privately issued mortgage-backed securities and to a far lesser extent, preferred stock. Both of these portfolios took OTTI related charges during Q1 2009. Given the deteriorating economy, DBRS anticipates increased pressure on these securities, which may lead to future markdowns and charges.

Unlike most banks, BOK did not seek funds from the U.S. Treasury’s Capital Purchase Program. At March 31, 2009, the Company’s capital position was solid, as exhibited by its Tier 1, total capital and tangible common equity ratios of 9.76%, 13.20% and 6.84%, respectively.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies Operating in the United States, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.