We are downgrading our recommendation on BOK Financial Corp. (BOKF) to Neutral from Outperform based on the persistent low interest environment and regulatory pressures. Consequently, the company is experiencing a declining trend in the net interest margin, which fell to 3.34% in 2011 from 3.52% in 2010.
Notably, in the last few quarters net interest margin descended to 3.19% in the first quarter of 2012 from 3.20% in the fourth quarter of 2011 and 3.34% in the third quarter. With expectations of a continual low interest rate environment in the upcoming quarters, we expect the pressure on the margin to persist owing to an increase in liquidity.
However, BOK Financial remains committed to boost shareholders’ wealth. With a solid capital position and consistent performance, BOK Financial hiked its quarterly cash dividend by a nickel in the first quarter of 2012, which currently stands at 38 cents per share. This marked the seventh consecutive annual increase since the company paid its first cash dividend in 2005.
In fact, strategic expansions and the local-leadership based business model of BOK Financial, which has peers such as Cullen/Frost Bankers Inc. (CFR) and First Financial Bankshares Inc. (FFIN), aided it to expand into a leading financial service provider from a bank in Oklahoma.
Owing to growth in net interest revenue as well as fees and commissions revenue, BOK Financial’s first-quarter 2012 earnings came in at $1.22 per share, well above the Zacks Consensus Estimate of $1.03. The company also reported growth in commercial loan balances. Its diverse revenue mix and favorable geographic footprint also backed its growth.
Additionally, its diverse revenue base and sturdy capital position, as well as expense control initiatives augur well for investors. Moreover, BOK Financial’s capital deployment efforts will boost investors’ confidence in the stock.
While a low interest rate environment and regulatory issues are the headwinds for BOK Financial, we believe that its diverse revenue mix and favorable geographic footprint will back its growth.
Shares of BOK Financial currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.
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