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BOK Financial could pursue more, larger deals after CoBiz buy

Tulsa, Okla.-based BOK Financial Corp. is not necessarily done with M&A deals after announcing an agreement to buy CoBiz Financial Inc. for close to $1 billion.

Executives said on a June 18 deal call that recently passed legislation rolling back several provisions of Dodd-Frank was not a significant factor in the $977 million CoBiz acquisition as management teams were already in talks prior to the bill's passage. However, management did say the new law could enable additional M&A activity after the CoBiz deal closes. The law included a provision that increases the asset threshold for systemically important financial institutions to $250 billion from $50 billion. BOK Financial reported $33.36 billion of assets in the first quarter, and Denver-based CoBiz reported $3.82 billion of assets.

"That threshold moving, I think, really does allow us to look at potentially larger partners going forward," said BOK Financial President and CEO Steven Bradshaw. "It would have to check all the same boxes that CoBiz does in terms of really looking at in-fill, for the most part, and being in significant alignment — especially from a credit perspective for us to find it attractive. But, yes, it's reasonable to assume that we'll be looking at potential opportunities that might even be larger than this transaction."

Bradshaw said BOK Financial Chairman George Kaiser would be willing to allow his ownership stake to dip below 50% for the right deal. After buying CoBiz, Kaiser's stake will drop to 54% of the company.

Executives highlighted both cost and revenue synergies on the deal call, pointing to savings in systems integration, management, technology platform and back-office personnel. There will also be some rationalization of real estate holdings. On the revenue side, executives talked about being able to sell BOK Financial's services to CoBiz customers, particularly BOK Financial's wealth management business.

There is significant overlap in the two banks' lending models. Both focus on commercial credits, which account for 83% of BOK Financial's loans and 88% of CoBiz's loans. BOK Financial executives also noted an opportunity to leverage some of CoBiz's unique businesses across the buyer's footprint, such as Small Business Administration loans and an asset-based lending group.

BOK Financial's stock opened weaker on news of the deal, dropping nearly 5% in initial trading June 18. The price paid in the deal was 2.9x tangible book value per share, and the company said the earnback will be roughly 5.75 years. BOK Financial executives focused on the cash-on-cash return, calculating an internal rate of return of more than 20%. Management said those numbers assumed a multiple of 14x earnings, common equity Tier 1 ratio of 9.5% and long-term growth rate of 8%. Currently, the deal is priced at 10.7x CoBiz's expected earnings for 2019.