BOK Financial Corporation’s (NASDAQ:BOKF) second quarter earnings of $63.5 million or 93 cents per share were well above the Zacks Consensus Estimate of 83 cents. The results also compared favorably with prior quarter earnings of $60.1 million or 88 cents (78 cents excluding a one-time gain from the purchase of the rights to service residential mortgage loans on favorable terms), and prior-year quarter earnings of $52.1 million or 77 cents per shar.

Results reflected a higher-than-expected decrease in provision for credit losses and an increase in fee income. However, a rise in expenses and a drop in average earnings assets were on the downside.

BOK Financial’s net interest revenue totaled $182.1 million, staying relatively flat sequentially. However, net interest margin decreased 5 basis points (bps) from the prior quarter to 3.63% along with a drop in average earning assets. Average earning assets decreased $40 million from the previous quarter.

Outstanding loan balances at BOK Financial were $10.9 billion as of June 30, 2010, down $89 million from the prior quarter end, reflecting a decrease in commercial real estate loans. Total period-end deposits increased $560 million to $16.1 billion as a result of a growth in interest-bearing transaction and demand deposits.

Fees and commissions revenue totaled $128.2 million, up 11% sequentially. The increase was driven by a growth in brokerage and trading revenues, mortgage banking revenue and transaction card revenues. Additionally, the company experienced growth in deposit service charges and trust fees and commissions in the quarter.

BOK Financial expects the changes in the recently effective federal banking regulations to reduce overdraft fee revenues by $10 million to $15 million in the second half of the year.

The deterioration in credit quality of BOK Financial’s loan portfolio has somewhat moderated. Nonperforming assets to period-end loans and repossessed assets equaled 4.19%, down 17 bps sequentially. While the company experienced a 5% drop in gross charge-offs to $38.2 million from $40.3 million, a decrease in recoveries led to a 3% rise in net charge-offs to $35.6 million from $34.5 million. Provision for credit losses decreased 14% to $36.0 million from $42.1 million in the prior quarter.

BOK Financial’s operating expenses (excluding the impact of the change in the fair value of the mortgage servicing rights) were $186.5 million, up $8.8 million or 5% over the prior quarter, reflecting an increase in personnel expenses, increased expenses incurred on repossessed assets and data processing costs.

Tangible common equity ratio increased to 8.88% as of June 30, 2010 from 8.46% as of March 31, 2010, primarily driven by an increase in the fair value of the securities portfolio and growth in retained earnings. The Tier 1 capital ratio was 11.90% as of June 30, 2010, up from 11.45% as of March 31, 2010.

BOK Financial’s strategic expansions and local-leadership based business model have aided it to expand into a leading financial service provider from a leading bank in Oklahoma. The company’s diverse revenue stream, sturdy capital position and expense control initiatives augur well for investors.

However, as the economic conditions and unemployment status are expected to remain weak, we expect any significant growth in BOK Financial’s revenue to be restricted and nonperforming assets and net charge-offs to remain elevated at least in the next couple of quarters.