Press Release

DBRS Comments on Q4 Results of BOK Financial Corp – Senior at A (low) Unaffected, Trend Still Stable

Banking Organizations
February 04, 2010

DBRS has today commented on the Q4 2009 results of BOK Financial Corporation (BOKF or the Company). BOKF’s ratings, including its Issuer & Senior Debt rating of A (low) were unaffected by Q4 2009 results. The trend on all ratings remains Stable.

Despite the challenging economic environment, BOKF reported net income of $42.8 million for the quarter, down from $50.7 million for the prior quarter, yet up from $35.4 million for Q4 2008. On a sequential quarter basis, net income was negatively impacted by a 17.9% decrease in noninterest income, partially offset by an 11.8% decrease in provisions for credit losses, a 2.2% increase in net interest income and a 1.3% decrease in noninterest expense. Lower noninterest income mostly reflected higher non-recurrent items, including an $11.1 million increase in other than temporary impairment charge and a $4.9 million decrease in gains on securities sales. Within core fee revenues, bank owned life insurance, mortgage banking, transaction card and trust related revenues were higher. The moderate increase in net interest income was driven by 1 basis points (bps) widening of net interest margin (NIM) to 3.64%, spurred by lower funding costs and higher loan yields, and a 2.2% increase in average earning assets, driven by a 10.6% increase in securities. The bulk of the Company’s decrease in noninterest expense reflected a $5.3 million change in fair value of mortgage servicing rights, somewhat offset by materially higher mortgage banking costs and higher net losses and expenses related to repossessed assets. DBRS notes that the Company’s core earnings (income before provisions and taxes) somewhat decreased on a linked-quarter basis, yet still provides solid loss absorption capacity.

Given the macroeconomic headwinds, BOKF’s non-performing assets (NPAs) remain elevated and a challenge. At December 31, 2009, NPAs represented a relatively high 4.24% of loans and OREO, up from 4.19% at September 30, 2009. Meanwhile, net charge-offs (NCOs) remain manageable and edged up slightly to 1.22% of average loans, from 1.21% for the prior quarter. Overall, the bulk of the Company’s nonaccruals consist of commercial real estate exposures, mostly land development and construction credits in Arizona and Colorado, and to a somewhat lesser degree, commercial and industrial loans, predominantly within the service and energy sectors. At December 31, 2009, BOKF’s loan loss reserves to NPA ratio was moderate at 60%. DBRS anticipates that the Company’s asset quality will remain pressured over the intermediate-term, especially given the challenging economic environment.

BOKF’s liquidity position consists of a core deposit base, which represents 106% of net loans (at September 30, 2009), a large securities portfolio (40% of total assets) and access to the FHLB and Federal Reserve. DBRS comments that the securities portfolio consists mostly of high quality government agencies; however within the portfolio is $961 million (amortized cost) of somewhat riskier private label MBS, of which $589 million were rated below investment grade by at least one rating agency. The total unrealized loss on these securities was $129 million. Furthermore, DBRS notes that BOKF’s securities portfolio does contain extension risk, which the Company watches closely. Supporting BOKF’s securities portfolio is a relatively high level of wholesale funding, which exceeds the median for its similarly rated peers. DBRS sees the risk for BOKF’s relatively high dependence on generally costlier, less stable wholesale borrowings could materially raise the Company’s funding costs, compress margins and constrain profitability.

Capital is currently ample, as exhibited by BOKF’s Tier 1 risk based capital, total risk based capital and tangible common equity ratios of 10.86%, 14.43% and 7.99%, respectively. Unlike most banks, BOKF did not seek funds from the U.S. Treasury’s Capital Purchase Program.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, 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.