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BOK Financial (BOKF) Q2 Earnings Miss on High Provisions
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BOK Financial Corporation (BOKF - Free Report) reported second-quarter 2016 earnings per share of $1.00, missing the Zacks Consensus Estimate by a penny. Further, the reported figure compared unfavorably with the prior-year quarter earnings of $1.15 per share.
Energy headwinds eased during the quarter compared to the first quarter, however, results were impacted by significant increase in provisions on a year-over-year basis. Also, the quarter recorded higher expenses. However, revenues improved, driven by higher net interest income.
Net income attributable to common shareholders was $65.8 million, down nearly 16.9% year over year.
BOK Financial reported revenues of $371.5 million in the quarter, up 5.5% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $364.7 million.
Net interest revenues came in at $182.6 million in the quarter, up 3.9% year over year. Net interest margin (NIM) also increased 2 basis points (bps) year over year to 2.63%.
Yield on average earnings assets increased 7 bps year over year to 2.92%, while loan yields decreased 7 bps to 3.57%.
BOK Financial’s fees and commissions revenues amounted to $183.5 million, up 6.3% on a year-over-year basis. The quarter witnessed increases in several income categories including brokerage and trading revenue, transaction card revenues, fiduciary & asset management and mortgage banking revenues.
Total other operating expenses were $254.7 million, up 12.2% year over year. The rise was mainly driven by expenses including personnel, professional fees and services, along with data processing and communications and mortgage banking costs.
Total loans at BOK Financial as of Jun 30, 2016 were $16.26 billion, up 8.5% year over year, mainly due to an increase in commercial loans, commercial real estate loans and consumer loans. As of the same date, deposits amounted to $20.47 billion, down 3.0% from the year-ago period.
Weak Credit Quality
BOK Financial’s asset quality deteriorated during the quarter. The company recorded provisions of $20 million, significantly up from $4.0 million in the prior-year quarter.
Also, net charge-offs were $7.5 million, up from $0.6 million in the prior-year period.
Further, the combined allowance for credit losses was 1.54% of outstanding loans as of Jun 30, 2016, up from 1.34% as of Jun 30, 2015.
Additionally, nonperforming assets totaled $350.0 million or 2.13% of outstanding loans and repossessed assets as of Jun 30, 2016, up from $208.8 million or 1.38% as of Jun 30, 2015.
Strong Capital Position
Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. The company became subject to new regulatory rules on Jan 1, 2015. As of Jun 30, 2016, the common equity Tier 1 ratio was 11.86%.
Tier 1 and total capital ratios were 11.86% and 13.51%, compared with 13.01% and 14.11%, respectively, as of Jun 30, 2015. Leverage ratio was 9.06% as against 9.75% as of Jun 30, 2015.
Share Repurchase
During the second quarter, the company repurchased 305,169 common shares at an average price of $58.23 per share.
Outlook
Loan loss provision is expected in the range of $8–$12 million per quarter for the remainder of 2016. Total net charge-offs in 2016 is expected to be ‘comfortably below’ the full year loan loss provision amount.
Management noted that the energy credit environment has stabilized along with commodity prices which led to a sequential decrease in loan loss provision in the second quarter. It anticipates further decline in provisions in the remaining quarters of the year assuming relative stability in commodities market.
For full-year 2016, the company expects mid single-digit loan growth. Previously, the company expected a decrease of about $200–$250 million per quarter in fixed income portfolio. However, the company has currently no plans to materially reduce securities portfolio as it achieved a neutral balance sheet
Net interest income is likely to increase while NIM is expected to trend stable. Also, income from fees and commissions are anticipated to record mid single-digit growth. However, overall revenue growth is likely to outpace the expense growth.
Regarding the acquisition of MBT Bancshares, the parent company of Missouri Bank and Trust of Kansas City (“mobank”), BOK Financial is likely to incur $6–$8 million of pretax consolidation-related charges, post closing. The deal is expected to be closed before year end.
Our Viewpoint
BOK Financial’s results do not reflect a decent performance in the quarter. However, continued revenue growth keeps us optimistic about the stock. Also, continued growth in loan balances support the company’s organic growth strategy. Notably, energy loans which forms a major part of the Oklahoma-based company’s lending portfolio declined during the quarter, easing the pressure on asset quality to some extent.
The strategic expansions and local-leadership based business model of BOK Financial helped it transform into a leading financial service provider from a small bank in Oklahoma. Further, last December the company announced an agreement to acquire MBT Bancshares, which will enhance BOK Financial's foothold in Kansas City. The company’s diverse revenue mix and favorable geographic footprint should support growth in the upcoming quarters.
However, several issues including the stringent regulatory landscape and rising expenses remain concerns.
BOK Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Southwest Banks
Prosperity Bancshares Inc.’s (PB - Free Report) second-quarter 2016 earnings of 98 cents per share lagged the Zacks Consensus Estimate by a penny. Further, the bottom line declined 4.9% from the year-ago quarter. Earnings included purchase accounting adjustments for both periods. Lower-than-expected results were primarily due to a decline in revenues and escalated provisions, partially offset by lower expenses.
Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive surprise of 2.6% in the second-quarter 2016 on higher revenues. Earnings per share of 78 cents outpaced the Zacks Consensus Estimate as well as the prior-year quarter figure of 76 cents. Organic growth was driven by higher revenues along with strong loans and deposit balances. However, elevated expenses and deteriorating credit quality remained headwinds.
Cullen/Frost Bankers, Inc. (CFR - Free Report) posted second-quarter 2016 earnings per share of $1.11, beating the Zacks Consensus Estimate of $1.04. However, the figure was in line with the prior-year quarter. Organic growth was driven by higher revenues. The company registered growth in loan and deposit balances. However, elevated provisions and non-interest expenses were a hindrance.
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BOK Financial (BOKF) Q2 Earnings Miss on High Provisions
BOK Financial Corporation (BOKF - Free Report) reported second-quarter 2016 earnings per share of $1.00, missing the Zacks Consensus Estimate by a penny. Further, the reported figure compared unfavorably with the prior-year quarter earnings of $1.15 per share.
Energy headwinds eased during the quarter compared to the first quarter, however, results were impacted by significant increase in provisions on a year-over-year basis. Also, the quarter recorded higher expenses. However, revenues improved, driven by higher net interest income.
Net income attributable to common shareholders was $65.8 million, down nearly 16.9% year over year.
Revenues Rise, Expenses Up
BOK Financial reported revenues of $371.5 million in the quarter, up 5.5% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $364.7 million.
Net interest revenues came in at $182.6 million in the quarter, up 3.9% year over year. Net interest margin (NIM) also increased 2 basis points (bps) year over year to 2.63%.
Yield on average earnings assets increased 7 bps year over year to 2.92%, while loan yields decreased 7 bps to 3.57%.
BOK Financial’s fees and commissions revenues amounted to $183.5 million, up 6.3% on a year-over-year basis. The quarter witnessed increases in several income categories including brokerage and trading revenue, transaction card revenues, fiduciary & asset management and mortgage banking revenues.
Total other operating expenses were $254.7 million, up 12.2% year over year. The rise was mainly driven by expenses including personnel, professional fees and services, along with data processing and communications and mortgage banking costs.
Total loans at BOK Financial as of Jun 30, 2016 were $16.26 billion, up 8.5% year over year, mainly due to an increase in commercial loans, commercial real estate loans and consumer loans. As of the same date, deposits amounted to $20.47 billion, down 3.0% from the year-ago period.
Weak Credit Quality
BOK Financial’s asset quality deteriorated during the quarter. The company recorded provisions of $20 million, significantly up from $4.0 million in the prior-year quarter.
Also, net charge-offs were $7.5 million, up from $0.6 million in the prior-year period.
Further, the combined allowance for credit losses was 1.54% of outstanding loans as of Jun 30, 2016, up from 1.34% as of Jun 30, 2015.
Additionally, nonperforming assets totaled $350.0 million or 2.13% of outstanding loans and repossessed assets as of Jun 30, 2016, up from $208.8 million or 1.38% as of Jun 30, 2015.
Strong Capital Position
Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. The company became subject to new regulatory rules on Jan 1, 2015. As of Jun 30, 2016, the common equity Tier 1 ratio was 11.86%.
Tier 1 and total capital ratios were 11.86% and 13.51%, compared with 13.01% and 14.11%, respectively, as of Jun 30, 2015. Leverage ratio was 9.06% as against 9.75% as of Jun 30, 2015.
Share Repurchase
During the second quarter, the company repurchased 305,169 common shares at an average price of $58.23 per share.
Outlook
Loan loss provision is expected in the range of $8–$12 million per quarter for the remainder of 2016. Total net charge-offs in 2016 is expected to be ‘comfortably below’ the full year loan loss provision amount.
Management noted that the energy credit environment has stabilized along with commodity prices which led to a sequential decrease in loan loss provision in the second quarter. It anticipates further decline in provisions in the remaining quarters of the year assuming relative stability in commodities market.
For full-year 2016, the company expects mid single-digit loan growth. Previously, the company expected a decrease of about $200–$250 million per quarter in fixed income portfolio. However, the company has currently no plans to materially reduce securities portfolio as it achieved a neutral balance sheet
Net interest income is likely to increase while NIM is expected to trend stable. Also, income from fees and commissions are anticipated to record mid single-digit growth.
However, overall revenue growth is likely to outpace the expense growth.
Regarding the acquisition of MBT Bancshares, the parent company of Missouri Bank and Trust of Kansas City (“mobank”), BOK Financial is likely to incur $6–$8 million of pretax consolidation-related charges, post closing. The deal is expected to be closed before year end.
Our Viewpoint
BOK Financial’s results do not reflect a decent performance in the quarter. However, continued revenue growth keeps us optimistic about the stock. Also, continued growth in loan balances support the company’s organic growth strategy. Notably, energy loans which forms a major part of the Oklahoma-based company’s lending portfolio declined during the quarter, easing the pressure on asset quality to some extent.
The strategic expansions and local-leadership based business model of BOK Financial helped it transform into a leading financial service provider from a small bank in Oklahoma. Further, last December the company announced an agreement to acquire MBT Bancshares, which will enhance BOK Financial's foothold in Kansas City. The company’s diverse revenue mix and favorable geographic footprint should support growth in the upcoming quarters.
However, several issues including the stringent regulatory landscape and rising expenses remain concerns.
BOK FINL CORP Price, Consensus and EPS Surprise
BOK FINL CORP Price, Consensus and EPS Surprise | BOK FINL CORP Quote
BOK Financial currently carries a Zacks Rank #3 (Hold).
Performance of Other Southwest Banks
Prosperity Bancshares Inc.’s (PB - Free Report) second-quarter 2016 earnings of 98 cents per share lagged the Zacks Consensus Estimate by a penny. Further, the bottom line declined 4.9% from the year-ago quarter. Earnings included purchase accounting adjustments for both periods.
Lower-than-expected results were primarily due to a decline in revenues and escalated provisions, partially offset by lower expenses.
Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive surprise of 2.6% in the second-quarter 2016 on higher revenues. Earnings per share of 78 cents outpaced the Zacks Consensus Estimate as well as the prior-year quarter figure of 76 cents. Organic growth was driven by higher revenues along with strong loans and deposit balances. However, elevated expenses and deteriorating credit quality remained headwinds.
Cullen/Frost Bankers, Inc. (CFR - Free Report) posted second-quarter 2016 earnings per share of $1.11, beating the Zacks Consensus Estimate of $1.04. However, the figure was in line with the prior-year quarter. Organic growth was driven by higher revenues. The company registered growth in loan and deposit balances. However, elevated provisions and non-interest expenses were a hindrance.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>