Press Release

DBRS Comments on BOK Financial Corp’s 2Q10 Results – Senior Debt at A (low) Unaffected; Trend Stable

Banking Organizations
August 03, 2010

DBRS has today commented on the 2Q10 results of BOK Financial Corporation (BOKF or the Company). BOKF’s ratings, including its Issuer & Senior Debt rating of A (low) were unaffected by 2Q10 results. The trend on all ratings remains Stable.

Reflecting non-core gains/losses and stabilizing credit costs, BOKF reported net income of $64 million for the quarter, up from $60 million for 1Q10. On a linked-quarter basis, higher earnings were attributed to a 38% increase in noninterest income, a 14% decrease in provisions for loan loss reserves, partially offset by a 26% increase in noninterest expense and a slight decline in net interest income. Higher noninterest income reflected a $23.1 million gain on the sale of securities, a $7.3 million gain on derivatives, and solid increases across most core fee revenue sources, partially offset by a $2.6 million net other than temporary impairment (OTTI) securities charge. Higher noninterest expense mostly reflected a $19.4 million decline in fair value of mortgage servicing rights and higher losses related to repossessed assets. The slight decrease in net interest income was attributed to a 0.2% decline in total earning assets and a 5 basis narrowing of net interest margin (NIM) to 3.63%. The narrower NIM reflected lower securities yields, partially offset by slightly higher loan yields and a modest decrease in liability costs.

In light of the prolonged economic challenges, BOKF’s asset quality remains strained. At June 30, 2010, nonperforming assets (NPAs) decreased to a still high 4.19% of loans and OREO, down from 4.36% at March 31, 2010. Meanwhile 2Q10 net charge-offs (NCOs) inched up to a manageable 1.3% of average loans, from 1.23% for 1Q10. At June 30, 2010, the bulk of the Company’s nonaccruals consisted of commercial real estate (CRE) exposures, mostly land development and construction credits. Most of the Company’s NCOs were CRE loans. DBRS notes that the Company’s allowance for loan loss reserves is adequate at 94% of nonaccruing loans. Over the intermediate term, DBRS anticipates that BOKF’s credit quality will remain pressured, especially given the continuing downturn in the economy.

BOKF’s solid liquidity position consists of a strong core deposit base, which represents 119% of net loans (at March 31, 2010), a large securities portfolio (43% of total assets) and access to the FHLB and Federal Reserve. Although BOKF’s securities portfolio consists mostly of high quality government agencies, the Company has $849 million (amortized cost) of somewhat riskier private label MBS, of which $594 million were rated below investment grade by at least one rating agency. DBRS notes that there is the possibility of future OTTI related charges, especially within the private label MBS portfolio. Furthermore, DBRS comments that BOKF’s securities book contains some extension risk, which the Company watches closely.

Capital is currently ample, as exhibited by BOKF’s tangible common equity and estimated Tier 1 and total risk based capital ratios of 8.88%, 11.90% and 15.38%, respectively. Unlike most banks, the Company 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 Organizations, 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.