BOK Financial (BOKF) Q2 Earnings Miss, Provisions Escalate

BOK Financial BOKF 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 leading to investors’ optimism which led shares to appreciate 1.52%, following the release.

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.

Our Viewpoint

BOK Financial’s continued fee income growth keeps us optimistic about the stock. Furthermore, growth in loan and deposit balances highlights an efficient organic-growth strategy. The company’s diverse revenue mix and favorable geographic footprint are likely to keep supporting its performance in the upcoming quarters. Nevertheless, escalating expenses and provisions are concerns.

BOK Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Comerica CMA recorded second-quarter 2020 earnings per share of 80 cents, significantly surpassing the Zacks Consensus Estimate of 21 cents. Earnings, however, came in lower than the prior-year quarter figure of $1.94. Lower revenues, aided by reduction in net interest as well as non-interest income, were recorded. Moreover, rise in expenses and provisions were major drags. Nevertheless, rise in loans and deposits acted as tailwinds.

Regions Financial RF reported second-quarter 2020 adjusted loss of 23 cents per share, as against the earnings of 39 cents per share recorded in the prior-year period. The Zacks Consensus Estimate was pegged at 7 cents. Results were hurt by higher provisions for credit losses on increasing economic uncertainty due to coronavirus woes. Moreover, rise in expenses is a major drag. However, higher revenues aided by rising loans and deposit balances provided some respite.

First Horizon (NYSE:FHN) National Corporation FHN delivered second-quarter 2020 adjusted earnings per share of 20 cents, missing the Zacks Consensus Estimate of 21 cents. Further, the bottom line came in 52.4% lower than the year-ago figure. Results notably reflect First Horizon’s improved deposit balance and higher revenues. In addition, efficiency ratio contracted during the quarter, indicating increased profitability. However, rising expenses and provisions were major drags.

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