A month has gone by since the last earnings report for BOK Financial (BOKF). Shares have lost about 4.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is BOK Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
BOK Financial Q2 Earnings Beat on Higher Revenues
BOK Financial delivered a positive earnings surprise of 7.2% in second-quarter 2019. Earnings per share of $1.93 outpaced the Zacks Consensus Estimate of $1.80. Also, the bottom line compares favorably with the prior-year quarter’s reported earnings of $1.75.
Top-line strength, aided by rising net interest and fee income, was recorded. Further, loans balance improved. However, rise in expenses and provisions were headwinds.
Net income attributable to shareholders came in at $137.6 million compared with $114.4 million a year ago.
Revenues & Costs Rise, Loans Improve
Revenues in the second quarter were $457.5 million, up 15.8% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $449.6 million.
Net interest revenues totaled $285.4 million, up 19.6% year over year. Net interest margin expanded 13 basis points to 3.30%.
BOK Financial’s fees and commissions revenues amounted to $176.1 million, up 12% on a year-over-year basis. Higher brokerage and trading revenues, fiduciary and asset management revenues, along with deposit service charges and fees, primarily led to the rise.
Total other operating expenses were $277.1 million, up 12.4% year over year. The upswing mainly resulted from rise in almost all components of expenses.
Efficiency ratio improved to 59.51% from 61.77% a year ago. Generally, a lower ratio indicates improved profitability.
Net loans as of Jun 30, 2019, were $22.1 billion, up 2.3% sequentially. As of the same date, total deposits amounted to $25.3 billion, marginally down.
Credit Quality: A Mixed Bag
During the June-ended quarter, provisions for credit losses were $5 million against nil provision in the prior-year quarter. Additionally, non-performing assets totaled $297 million or 1.33% of outstanding loans and repossessed assets compared with $268.9 million or 1.49% at the end of the prior-year quarter.
However, combined allowance for credit losses was 0.92% of outstanding loans as of Jun 30, 2019, down from 1.21% a year ago. Net charge offs were $7.7 million, down 26.6% from $10.5 million.
Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. As of Jun 30, 2019, the common equity Tier 1 capital ratio was 10.84% compared with 11.92% on Jun 30, 2018.
Tier 1 and total capital ratios on Jun 30, 2019, were 10.84% and 12.34%, respectively, compared with 11.92% and 13.26% as of Jun 30, 2018. Leverage ratio was 8.75% compared with 9.57% a year ago.
Share Repurchase Update
During the second quarter, the company repurchased 250,000 million common shares at average price of $80.50 per share.
Management expects mid-single digit loan growth for the consolidated entity with continued strength in Energy, Healthcare and General C&I.
Interest rate decreases forecasted by the market will continue to put downward pressure on net interest margin.
Revenues from fee-generating businesses, particularly Brokerage & Trading and Mortgage, could continue to benefit from lower interest rates.
Though, provision for credit losses are expected to be linked to loan growth, the company still expected to be at a level similar to the past quarters.
Efficiency ratio is expected to be at or below 60%, as long as the environment remains favorable for revenue.
Blended federal and state effective tax rate are anticipated to be 22-23%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, BOK Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, BOK Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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