DBRS Comments on Q2 2009 Results of BOK Financial Corporation – Senior at A (low)

DBRS has today commented on the Q2 2009 results of BOK Financial Corporation (BOK or the Company). Although the recession continues to pressure the Company’s asset quality and profitability, its credit fundamentals continue to support the current rating levels – A (low) for senior obligations – and Stable trend.

BOK reported earnings of $52.1 million for Q2 2009, down from $55.0 million for the prior quarter, yet up from the $1.1 million loss reported during Q2 2008. On a sequential quarter basis, net income was negatively impacted by a 4.6% increase in provisions for credit losses and a 6.0% increase in non-interest expense, mostly driven by an $11.8 million (pre-tax) FDIC special assessment fee and higher personnel costs. Partially offsetting these headwinds, was an 8 basis points (bps) widening of net interest margin (NIM) to 3.55%, spurred by higher loan yields and lower funding costs, and $13.5 million of additional net impairment losses recognized during Q1 2009. Compared with a year ago, quarterly net income benefited from a 20% decrease in provisions for loan loss reserves, a 93% increase in non-interest income, due to a $35.4 million loss in brokerage and trading revenues during Q2 2008, and an 11 bps widening of NIM. DBRS comments that the significant decrease in brokerage and trading revenue was related to a $61 million charge to adjust SemGroup LP derivative contracts to fair value.

Given the recession and higher unemployment, BOK’s asset quality eroded during Q2 2009. At June 30, 2009, the Company’s non-performing assets (NPAs) rose to 3.67% of total loans, from 3.26% at March 31, 2009 and 1.45% at June 30, 2008. Meanwhile, net charge-offs edged up to 1.13% of average loans, versus 1.00% for the prior quarter, yet were down from 1.26% for Q2 2008. The increase in NPAs reflected higher levels of retail and office commercial real estate, and energy related nonaccruals. At the end of Q2 2009, BOK’s loan loss reserves to NPAs were moderate at 60%.

The Company’s liquidity remains acceptable, as core deposits accounted for approximately 87% of net loans (at March 31, 2009), while wholesale funding reliance was relatively high at 47%. BOK’s securities portfolio, which represents 34% 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 (amortized cost) of privately issued mortgage-backed securities, $506 million (amortized cost) of which were rated below investment grade. Given the high level of unemployment, DBRS anticipates increased pressure on these securities, which may lead to future markdowns and charges. During Q2 2009, the Company recognized a relatively modest $279,000 in OTTI charges, related to certain mortgage backed securities.

Unlike most banks, BOK did not seek funds from the U.S. Treasury’s Capital Purchase Program. At June 30, 2009, the Company’s capital position was solid, as exhibited by its Tier 1 risk based capital, Total risk based capital and Tangible common equity ratios of 9.86%, 13.34% and 7.55%, 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.