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Why Is BOK Financial (BOKF) Up 5.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for BOK Financial (BOKF - Free Report) . Shares have added about 5.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BOK Financial due for a pullback? 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 drivers.

BOK Financial Beats on Q3 Earnings, Revenues Up Y/Y

BOK Financial delivered a positive earnings surprise of 4.7% in third-quarter 2019. Earnings per share of $2 outpaced the Zacks Consensus Estimate of $1.91. Also, the bottom line comes in 11.7% higher than the year-ago quarter’s reported figure.

Higher revenues, and improved loan and deposit balances were the driving factors. However, mounting expenses and provisions, along with lower margin, were the major headwinds.

Net income attributable to shareholders came in at $142.2 million compared with the prior-year quarter’s $117.3 million

Revenues Up, Costs Rise, Deposits Improve

Revenues in the third quarter were $465.6 million, up 13.9% year over year. Further, the figure surpassed the Zacks Consensus Estimate of $461.9 million.   

Net interest revenues totaled $279.1 million, up 15.9% year over year. However, net interest margin (NIM) contracted 20 basis points to 3.01%.

BOK Financial’s fees and commissions revenues amounted to $186.1 million, up 12% on a year-over-year basis. This upswing mainly resulted from rise in all components except fiduciary and asset management revenues.

Total other operating expenses came in at $279.3 million, flaring up 10.6% year over year. This upside mainly resulted from rise in personnel, business promotion, net occupancy and other expenses.

Efficiency ratio improved to 53.51% from the year-earlier period’s 61.60%. A lower ratio indicates improved profitability.

Net loans as of Sep 30, 2019, were $22.3 billion, slightly up from the prior quarter. As of the same date, total deposits amounted to $26.2 billion, rising 3.4% sequentially.

Credit Quality Deteriorates

During the September-end quarter, provisions for credit losses were $12 million compared with $4 million provision recorded in the prior-year quarter. Additionally, non-performing assets totaled $286.2 million or 1.28% of outstanding loans and repossessed assets compared with $260.9 million or 1.42% at the end of the prior-year quarter. Net charge offs were $10.6 million as of Sep 30, 2019, up 18.5% from Sep 30, 2018.

However, combined allowance for credit losses was 0.92% of outstanding loans as of Sep 30, 2019, down from the prior year’s 1.16%.

Capital Ratios Decline

As of Sep 30, 2019, the common equity Tier 1 capital ratio was 11.06% compared with 12.07% as of Sep 30, 2018.

Tier 1 and total capital ratios on Sep 30, 2019 were 11.06% and 12.56%, respectively, compared with 12.07% and 13.37% as of Sep 30, 2018. Leverage ratio was 8.41% compared with 9.90% a year ago.

Share Repurchase Update

During the third quarter, the company repurchased 0.3 million common shares at an average price of $77.03 per share.

2019 Outlook

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. However, seasonality could influence mortgage activity.

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.

Capital ratios are anticipated to improve slightly over time.

On completion of CECL implementation project, allowance committee expects the pre-tax transition adjustment to be between $50 million and $75 million.

Blended federal and state effective tax rate are anticipated to be 22-23%

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, BOK Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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