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BOK Financial Gains 23.3% in 6 Months: How to Play the Stock?
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BOK Financial Corporation (BOKF - Free Report) shares have gained 23.3% in the past six months, outperforming the industry’s growth of 15%. BOKF has also outperformed its close peers like Cullen/Frost Bankers, Inc. (CFR - Free Report) and First Horizon Corporation’s (FHN - Free Report) rise of 2.3% and 15.8%, respectively.
BOKF is currently trading just 2.8% below its 52-week high of $107.98 hit on July 23.
Image Source: Zacks Investment Research
However, after such a significant rally, the question on every investor's mind is whether they should buy BOKF stock now or wait for a better entry point. Let’s find out.
Factors Likely to Drive BOKF Stock
Fed’s Rate Cut to Aid BOK Financial’s Net Interest Income (NII): On Aug. 23, the Federal Reserve’s chairman, Jerome Powell, in his speech at the Jackson Hole Economic Symposium gave clear signals that the Fed will cut interest rates beginning this month. This set the stage for the first interest rate cut since March 2020. The rate cut will strengthen BOKF’s NII and margins as the funding costs will stabilize.
The Current interest rates, which are at a 23-year high of 5.25-5.5%, have several impacts on banks. While these elevated rates have driven significant growth in NII, the increasing funding costs are putting pressure on both NII and the net interest margin (NIM).
BOK Financial’s NII witnessed a compound annual growth rate (CAGR) of 4.7% over the three years ended 2023 on the back of higher rates. However, NIM decreased to 2.93% in 2023 from 2.98% in 2022 while rising from 2.60% in 2021 and 2.83% in 2020. Both NII and NIM declined in the first half of 2024 due to rising funding costs.
The interest rate cuts will lead to the stabilization of the deposit costs for BOKF. Also, as rates come down, the demand for loans will improve. This, in turn, will lead to an improvement in NII and NIM. Also, reduced interest rates are expected to encourage individual consumers and businesses to borrow, resulting in greater profitability for BOK Financial as it can earn more interest on these loans.
BOK Financial’s Strong Asset Quality: Improved asset quality trends at BOK Financial seem to be encouraging as its credit quality metrics have been better than the pre-pandemic levels.
The company has been witnessing a sharp decline in its non-performing assets, with a four-year (ended 2023) negative CAGR of 32.2%. This trend persisted into the first half of 2024.
Likewise, net charge-offs (NCOs) also witnessed a negative CAGR of 26.9% during the same period. Although NCOs increased in the first half of 2024, it is expected to remain below the historical levels of 2021 and 2020. With a history of outperformance during credit cycles, BOK Financial is believed to be well-positioned in the current environment.
Management expects quarterly provisions to be near recent levels (i.e. around $8 million) and gradually move toward normalized credit costs in the second half of 2024.
BOK Financial’s Footprint Expansion Efforts: Over the past several years, BOK Financial has transformed from merely being a bank in Oklahoma to a chief financial service provider by carefully expanding into selected markets in neighboring states. In July 2023, the company expanded its operations in the southeastern United States by opening an office in Memphis, TN, through its wholly-owned subsidiary, BOK Financial Securities. In June 2023, its banking division, Bank of Texas, set foot in the San Antonio market, thereby expanding its presence in Texas.
Also, the merger with Denver-based CoBiz Financial (completed in 2018) significantly bolstered BOKF’s presence in Colorado and Arizona.
These strategic moves highlight the company's commitment to broadening its footprint and strengthening its market presence in key regions, boosting the company’s growth prospects.
BOK Financial’s Strong Capital Position: The company’s focus on maintaining a strong capital position will support its capital distribution activities. As of June 30, 2024, the company’s capital ratios were well above the regulatory requirements, with a Common Equity Tier 1 ratio and a total capital ratio of 12.1% and 13.25%, respectively.
The company also rewards its shareholders handsomely. It hiked its dividend by 1.9% to 55 cents per share in October 2023. The company has increased its dividend five times in the past five years, with a five-year annualized dividend growth of 1.93%. Currently, BOKF has a 28% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
BOK Financial’s Rising Expenses: The bank has been witnessing a steady rise in expenses. Operating expenses witnessed a CAGR of 5.3% over the last five years (2018-2023). The uptrend persisted into the first half of 2024 due to a rise in employee-based compensation, along with business expansion efforts taken in 2023.
The expense base is expected to remain elevated due to its ongoing investments in technological advancements and an increase in employee-based compensation.
Its close competitors, FHN and CFR, have also been witnessing a rising expense base over the past few years, driven by increased investment in technological developments.
BOK Financial’s Lack of Loan Portfolio Diversification: The majority of BOK Financial’s loan portfolio comprises total commercial loans (63.6% of the total loans as of June 30, 2024). The current rapidly changing macroeconomic backdrop is affecting commercial lending activity and the asset quality of the loan category. Thus, the lack of loan portfolio diversification is likely to hurt its financials if the economic situation worsens.
BOKF Estimate Revision
Analysts seem to be neutral about the company’s prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has remained unchanged.
Though BOKF’s earnings are expected to decline 8.9% in 2024, it is expected to rebound and increase 6.8% in 2025.
Image Source: Zacks Investment Research
Final Words on BOKF Stock
Though the rising expense base and lack of diversification in its loan portfolio remain significant concerns for BOK Financial, its increasing loan and deposit balances, coupled with strong asset quality, are likely to aid growth in the upcoming period. Moreover, the Fed’s decision to implement rate cuts will reduce funding cost pressure and improve NIM. Hence, BOKF stock has decent growth prospects for the long term.
Image: Bigstock
BOK Financial Gains 23.3% in 6 Months: How to Play the Stock?
BOK Financial Corporation (BOKF - Free Report) shares have gained 23.3% in the past six months, outperforming the industry’s growth of 15%. BOKF has also outperformed its close peers like Cullen/Frost Bankers, Inc. (CFR - Free Report) and First Horizon Corporation’s (FHN - Free Report) rise of 2.3% and 15.8%, respectively.
BOKF is currently trading just 2.8% below its 52-week high of $107.98 hit on July 23.
Image Source: Zacks Investment Research
However, after such a significant rally, the question on every investor's mind is whether they should buy BOKF stock now or wait for a better entry point. Let’s find out.
Factors Likely to Drive BOKF Stock
Fed’s Rate Cut to Aid BOK Financial’s Net Interest Income (NII): On Aug. 23, the Federal Reserve’s chairman, Jerome Powell, in his speech at the Jackson Hole Economic Symposium gave clear signals that the Fed will cut interest rates beginning this month. This set the stage for the first interest rate cut since March 2020. The rate cut will strengthen BOKF’s NII and margins as the funding costs will stabilize.
The Current interest rates, which are at a 23-year high of 5.25-5.5%, have several impacts on banks. While these elevated rates have driven significant growth in NII, the increasing funding costs are putting pressure on both NII and the net interest margin (NIM).
BOK Financial’s NII witnessed a compound annual growth rate (CAGR) of 4.7% over the three years ended 2023 on the back of higher rates. However, NIM decreased to 2.93% in 2023 from 2.98% in 2022 while rising from 2.60% in 2021 and 2.83% in 2020. Both NII and NIM declined in the first half of 2024 due to rising funding costs.
The interest rate cuts will lead to the stabilization of the deposit costs for BOKF. Also, as rates come down, the demand for loans will improve. This, in turn, will lead to an improvement in NII and NIM. Also, reduced interest rates are expected to encourage individual consumers and businesses to borrow, resulting in greater profitability for BOK Financial as it can earn more interest on these loans.
BOK Financial’s Strong Asset Quality: Improved asset quality trends at BOK Financial seem to be encouraging as its credit quality metrics have been better than the pre-pandemic levels.
The company has been witnessing a sharp decline in its non-performing assets, with a four-year (ended 2023) negative CAGR of 32.2%. This trend persisted into the first half of 2024.
Likewise, net charge-offs (NCOs) also witnessed a negative CAGR of 26.9% during the same period. Although NCOs increased in the first half of 2024, it is expected to remain below the historical levels of 2021 and 2020. With a history of outperformance during credit cycles, BOK Financial is believed to be well-positioned in the current environment.
Management expects quarterly provisions to be near recent levels (i.e. around $8 million) and gradually move toward normalized credit costs in the second half of 2024.
BOK Financial’s Footprint Expansion Efforts: Over the past several years, BOK Financial has transformed from merely being a bank in Oklahoma to a chief financial service provider by carefully expanding into selected markets in neighboring states. In July 2023, the company expanded its operations in the southeastern United States by opening an office in Memphis, TN, through its wholly-owned subsidiary, BOK Financial Securities. In June 2023, its banking division, Bank of Texas, set foot in the San Antonio market, thereby expanding its presence in Texas.
Also, the merger with Denver-based CoBiz Financial (completed in 2018) significantly bolstered BOKF’s presence in Colorado and Arizona.
These strategic moves highlight the company's commitment to broadening its footprint and strengthening its market presence in key regions, boosting the company’s growth prospects.
BOK Financial’s Strong Capital Position: The company’s focus on maintaining a strong capital position will support its capital distribution activities. As of June 30, 2024, the company’s capital ratios were well above the regulatory requirements, with a Common Equity Tier 1 ratio and a total capital ratio of 12.1% and 13.25%, respectively.
The company also rewards its shareholders handsomely. It hiked its dividend by 1.9% to 55 cents per share in October 2023. The company has increased its dividend five times in the past five years, with a five-year annualized dividend growth of 1.93%. Currently, BOKF has a 28% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
BOK Financial Corporation Dividend Yield (TTM)
BOK Financial Corporation dividend-yield-ttm | BOK Financial Corporation Quote
Few Concerns Prevail for BOK Financial
BOK Financial’s Rising Expenses: The bank has been witnessing a steady rise in expenses. Operating expenses witnessed a CAGR of 5.3% over the last five years (2018-2023). The uptrend persisted into the first half of 2024 due to a rise in employee-based compensation, along with business expansion efforts taken in 2023.
The expense base is expected to remain elevated due to its ongoing investments in technological advancements and an increase in employee-based compensation.
Its close competitors, FHN and CFR, have also been witnessing a rising expense base over the past few years, driven by increased investment in technological developments.
BOK Financial’s Lack of Loan Portfolio Diversification: The majority of BOK Financial’s loan portfolio comprises total commercial loans (63.6% of the total loans as of June 30, 2024). The current rapidly changing macroeconomic backdrop is affecting commercial lending activity and the asset quality of the loan category. Thus, the lack of loan portfolio diversification is likely to hurt its financials if the economic situation worsens.
BOKF Estimate Revision
Analysts seem to be neutral about the company’s prospects. In the past seven days, the Zacks Consensus Estimate for 2024 and 2025 earnings has remained unchanged.
Though BOKF’s earnings are expected to decline 8.9% in 2024, it is expected to rebound and increase 6.8% in 2025.
Image Source: Zacks Investment Research
Final Words on BOKF Stock
Though the rising expense base and lack of diversification in its loan portfolio remain significant concerns for BOK Financial, its increasing loan and deposit balances, coupled with strong asset quality, are likely to aid growth in the upcoming period. Moreover, the Fed’s decision to implement rate cuts will reduce funding cost pressure and improve NIM. Hence, BOKF stock has decent growth prospects for the long term.
Investors must keep this Zacks Rank #3 (Hold) stock on their radar and wait for an attractive entry point. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.