We have reiterated our long term Neutral recommendation on
BOK Financial Corporation
(
BOKF
) based on its solid fundamentals and recent acquisition in the
midst of the current economic environment.
Aided by growth in mortgage banking revenue as well as expansion in
all other categories of non-interest revenues, BOK Financial posted
second-quarter 2012 earnings of $1.43 per share, well above the
Zacks Consensus Estimate of $1.13. The company also reported
improvements in credit quality, which in turn, had a positive
impact of 21 cents per share on net income in the reported quarter.
Moreover, in August, BOK Financial announced the acquisition of
Denver-based The Milestone Group Inc., a wealth management firm.
Financial terms of the deal were not disclosed. The acquisition by
BOK Financial demonstrates its aim of diversifying its revenue
opportunities by augmenting its fee-based business. Previously, the
company purchased United Banks of Colorado in 2007 and Colorado
State Bank and Trust in 2003.
Having strengthened its foothold over the years through its local
bank brand, Colorado State Bank and Trust, BOK Financial has a
robust presence in Denver. Therefore, with the acquisition of
Milestone Group, the company will expand further in Denver with the
help of the acquired firm's wealth management brand and
proficiency. Furthermore, assets under management and
administration for BOK Financial will sum up to about $50 billion.
There has been a positive development on BOK Financial's ratings
front as well. The long-term Issuer Default Ratings (IDR) of BOK
Financial and its lead bank subsidiary, BOKF, NA, have been
upwardly revised to 'A' from 'A-' by Fitch Ratings. The outlook
assigned is Stable.
A diverse earnings base, solid capital position and its healthy
liquid profile are the positives behind the ratings upgrade of BOK
Financial. According to Fitch, BOK Financial's solid fundamentals
are a consequence of its ownership as well as structure of
governance.
Our Viewpoint
We believe BOK Financial's diverse revenue mix and favorable
geographic footprint would back its growth. In fact, strategic
expansions and its local-leadership based business model aided it
to expand into a leading financial service provider from a bank in
Oklahoma.
Solid capital position and impressive capital deployment measures
instill investors' confidence in the stock. Notably, in May 2012,
BOK Financial increased its quarterly cash dividend by a nickel to
38 cents per share, which marked the seventh consecutive annual
increase since the company paid its first cash dividend in 2005.
However, the persistent low interest environment remains a matter
of concern. Though there has been a slight uptick in the second
quarter of 2012 (3.30%), we believe that with expectations of a
continual low interest rate environment in the upcoming quarters,
the pressure on the margin would persist owing to an increase in
liquidity. Moreover, the company is subject to risks emanating from
its private label mortgage backed securities portfolio.
In addition, with BOK Financial having substantial business
concentration in the Oklahoma market and the energy sector, the
company's earnings are susceptible to any downturn in the region or
in that particular sector. Hence, with such concentration risk, we
remain cautious.
Also, the regulatory issues and stricter capital norms remain a
headwind for the company and might limit the company's top line
growth, increase compliance cost and curtail flexibility with
respect to business investments.
Hence, the risk-reward profile seems balanced for BOK Financial and
therefore our long-term Neutral recommendation is reaffirmed.
However, BOK Financial currently retains its Zacks #2 Rank, which
translates into a short-term Buy rating. One of its closest peers,
Texas Capital Bancshares Inc.
(
TCBI
) also has a Zacks #2 Rank.
BOK FINL CORP (BOKF): Free Stock Analysis
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TEXAS CAP BCSHS (TCBI): Free Stock Analysis
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