It has been about a month since the last earnings report for BOK Financial (BOKF Quick QuoteBOKF - Free Report) . Shares have lost about 2.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

BOK Financial Lags Q2 Earnings Estimates on High Provisions

BOK Financial reported a negative earnings surprise of 21.4% for second-quarter 2020. Earnings per share of 92 cents lagged the Zacks Consensus Estimate of $1.17. Further, the bottom line compares unfavorably with the prior-year quarter’s $1.93.

Expenses and provisions escalated in the reported quarter. Moreover, pressure on margin was visible. Yet, top-line strength on fee income growth, and rise in loans and deposits were driving factors.

Net income attributable to shareholders came in at $65 million compared with the $137.6 million recorded in the year-ago quarter.

Revenues Climb, Costs Up, Loans Increase

Revenues in the second quarter came in at $510.8 million, up 12.9% year over year. The revenue figure also handily outpaced the Zacks Consensus Estimate of $449.3 million.   

Net interest revenues totaled $278.1 million, down 2.6% year over year. Further, net interest margin (NIM) shrunk 47 basis points year over year to 2.83%.

BOK Financial’s fees and commissions revenues amounted to $213.7 million, up 21.4% on a year-over-year basis. Higher brokerage and trading revenues, transaction card revenues, along with elevated mortgage banking revenues, primarily led to this upswing. This was partly offset by lower deposit service charges and fees, fiduciary and asset management revenues, along with reduced other revenues.

Total other operating expenses were $295.4 million, up 6.6% year over year. This uptick mainly stemmed from higher personnel expenses and mortgage banking costs.

Efficiency ratio increased to 59.57% from the prior years’ 59.51%. Generally, a higher ratio indicates decline in profitability.

Total loans as of Jun 30, 2020, were $24.2 billion, up 7.6% sequentially. As of the same date, total deposits amounted to $33.9 billion, up 16.1% sequentially.

Credit Quality: A Concern

During the June-end quarter, credit metrics deteriorated. Provisions for credit losses of $135.3 million came in significantly higher than the prior-year quarter. The combined allowance for credit losses was 1.80% of outstanding loans as of Jun 30, 2020, up from the year-ago period’s 0.91%.

Additionally, non-performing assets totaled $405.3 million or 1.68% of outstanding loans and repossessed assets as of Jun 30, 2020, up from the $296.7 million or 1.33% recorded in the prior-year period. Net charge-offs were $14.1 million, up 83.1% year over year.

Capital Position

Armed with healthy capital ratios, BOK Financial and its subsidiary banks exceeded the regulatory well-capitalized level. As of Jun 30, 2020, the common equity Tier 1 capital ratio was 11.41% as compared with 10.84% as of Jun 30, 2019.

Tier 1 and total capital ratios on Jun 30, 2020, were 11.41% and 13.40%, respectively, compared with 10.84% and 12.34% as of Jun 30, 2019. Leverage ratio was 7.74% compared with 8.75% as of Jun 30, 2019.

Return on average equity was 5.14% compared with the year-earlier quarter’s 12.02%. Return on average assets was 0.52% compared with the 1.35% witnessed in the year-ago quarter.

Outlook

Management expects loan growth to remain soft in the foreseeable future. Given the sustained low rate environment, prepayments could reach more than $700 million per quarter. It expects to reinvest those cash flows at current rates around 90-100 basis points.

Per management, the pressure of asset yields and little scope to lower deposit costs will put some pressure on net interest margin in the next quarter. Management expects fee revenues likely to continue to show strength, though seasonality in the mortgage industry might impact current levels of production.

Notably, mortgage origination and servicing business is likely to remain solid, but might slow some as refinance opportunities abate and seasonality trends slow as the year progresses. Further, brokerage and trading activity are expected to continue at elevated levels, given products and capabilities in the mortgage-backed trading space.

Operating expenses are likely to remain at relatively same levels of the past few quarters.

Reduction in significant loan loss reserve building based on assumed economic conditions.

Quarterly cash dividend is to be maintained.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.85% due to these changes.

VGM Scores

Currently, BOK Financial has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, BOK Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.