Tulsa-based BOK Financial earnings drop nearly 19% for second

Journal Record, The (Oklahoma City), Jul 16, 2008 by Kirby Lee Davis

Rising credit costs and investment losses contributed to an 18.9- percent drop in BOK Financial earnings in the second quarter, missing analyst estimates.

"It could be a lot worse," said market analyst M. Jake Dollarhide, attributing the problems to existing financial market conditions. "That's not to say that it won't. But I think that BOK is a little more diversified than many regional banks because of its contiguous expansion program. Who's not to say that flush with cash, that they might double the number of states that they're in over the next five to 10 years?"

BOK Financial posted a net income of $43.7 million, or 65 cents per diluted share, down from $53.9 million, or 80 cents, the prior year.

Analyst surveys by Thomson Financial and Zack's Investment Research had projected earnings of 69 cents per diluted share.

Earnings for the Tulsa-based multi-state lender balanced out for the six months ended June 30, with 2008 year-to-date profits of $105.9 million, or $1.57 per diluted share, down 0.7 percent from $106.7 million, or $1.58, the prior year.

Wall Street appeared to take the slip in stride. After rising as high as $43.79, BOKF's New York Stock Exchange listing closed Tuesday down 36 cents at $42.84, its trading volume 140 percent above its daily average to 439.8 million shares.

"This is no Bear Stearns," said Dollarhide. "This is no Countrywide. This is not one of those companies. This is a regional bank that is maybe, possibly flying a little bit under the radar screen. Last year I think BOK was performing below average and this year, although it's down, I think it's doing better than some of the regional bank players. If it can hold up well, BOKF shareholders can be rewarded well financially because BOKF has shorter to climb from where they were. There are some companies that are down 89 percent for the year.

"It's a bloodbath out there," Dollarhide said. "Financials are about as welcome as coal in a stocking at Christmas. It's an unprecedented time of bearishness in the banking and mortgage industry. I think BOK Financial, despite the rising credit costs and the increasing lack of consumer confidence, has held up rather well."

The parent company of Bank of Oklahoma continued to show strong net interest revenue in the second quarter, rising 18 percent over year-ago results to $159.1 million. Net interest margin rose to 3.45 percent from 3.31 percent the prior year. Revenue from fees and commissions added 17-percent growth to total $113.6 million in the latest period.

"Net interest revenue showed solid growth due to both earning assets and rising net interest margin," said BOKF President and Chief Executive Stan Lybarger. "Non-interest revenue was 42 percent of our total revenue for the second quarter - a level that sets us apart from most regional banks. We also have one of the stronger capital positions among the top 50 U.S. banks."

But net loans charged off more than doubled in the latest quarter to $13 million, while BOKF's provision for loan losses jumped 391 percent from a year ago to $38.8 million.

Net losses on securities, derivatives and mortgage servicing rights increased 542.8 percent to $9 million.

In a U.S. Securities and Exchange filing earlier this month, BOKF forewarned investors of the fourfold loan-loss preserves hike. That took some of the sting off of Tuesday's earnings announcement.

"That's in line with what's going on," Dollarhide said of today's banking market. "I'd be surprised if it hadn't happened. This won't be the last quarter of this type of negative comments or black eyes in the quarterly report. We're going to see this well into 2009."

Non-performing assets totaled $158 million at June 30, just 1.26 percent of outstanding loans.

BOKF said U.S. government agencies guarantee $8.6 million of its non-performing residential mortgage loans. The company also will be reimbursed by up to $8 million for the $14 million in nonperforming assets acquired with BOKF's First United Bank acquisition in Colorado last year.

About $30 million of BOKF's non-accruing commercial real estate loans, half of its total, originate in its Arizona market, which Lybarger said was the biggest driver of deterioration. Non- performing assets there totaled $35 million on June 30, almost double the tally at March 31.

"This market is a relatively small percentage of our company's balance sheet," said Lybarger. "Credit cycles are a normal part of the banking environment and we will be impacted. However, we have long maintained commercial real estate below 25 percent of total loans, which should help as we work through this cycle."

About $30 million of non-performing commercial loans are in the services sector of the portfolio, BOKF reported. The distribution of non-performing loans to the services sector among our various markets included $18 million in Oklahoma, $5 million in Texas and $4 million in Colorado.

Pointing to the run on IndyMac Bancorp Inc. of Pasadena, Calif., Dollarhide pointed out that BOK has escaped the depression-like returns posted by some national and regional banks.