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Banks have gone from this year’s best-performing stock to suddenly out of favor. In that kind of environment, it pays to find under-the-radar bank stocks with characteristics that make them solid long-term plays and dividend yields to help smooth the ride—a stock like

BancFirst Corporation.

Oklahoma City-based BancFirst (BANF) has dropped 18% during the past three months, but it’s still a favorite of Abbott Cooper of Driver Management. While Driver Management tends to take activist positions in banks, Cooper also maintains a portfolio of longer-term plays. He’s a fan of banks that provide “decent, consistent yields,” and that includes BancFirst, which currently yields 2.45%.

But there’s more to the bank than its relatively attractive yield in Cooper’s view. BancFirst primarily operates in Oklahoma but it recently entered Texas through its acquisition of Dallas-based Pegasus Bank, which was a privately held bank known for its affluent clientele. The move into Texas could provide the blueprint for BancFirst’s expansion into other regions, allowing it to grow scale when smaller banks feel particularly vulnerable against larger banks with more robust digital offerings.

Even before the Pegasus deal, BancFirst had long been a serial acquirer of smaller local banks, meaning that they have the experience to make those transactions work. Right now it’s the second-largest bank in Oklahoma behind

BOK Financial Corporation

(BOKF) based on deposits. 

“They can do two deals a year with no problem,” Cooper said, noting the bank’s strong cash position, which allows them to do deals without risking dilution to existing shareholders.

Analysts are cautiously optimistic on the stock, with the four surveyed by FactSet rating it a Hold with an average price target of $63.50—roughly 10% above recent trading levels. Earnings are expected to total $5.04 per share this year—a 68% jump from 2020—helped by releases of reserves set aside last year for potential credit losses. Next year’s earnings are forecast at $3.42 per share. The drop in earnings is attributed both to the absence of reserve releases and lower debit card swipe fees the bank will be able to collect under the Durbin amendment of the Dodd-Frank Act, which imposes restrictions on banks when their assets cross $10 billion.

Still, Cooper is bullish on the bank’s long-term prospects, arguing that the lower swipe fees can be offset by deploying excess liquidity into loans and additional M&A. Cooper also likes the bank’s durability. BancFirst was founded in 1966 and weathered the tough economic cycles of the 1970s and 1980s during which dozens of Oklahoma-based banks suffered. About a third of shares are held by the Rainbolt family, which founded the bank, and have a long-term approach to risk, according to Cooper.

“They have the luxury of having a long-term view,” Cooper said.

Write to carleton.english@dowjones.com

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