BOK Financial (BOKF) Aided by Loan Growth Despite Higher Costs

BOK Financial Corporation BOKF continues to benefit from higher interest rates and growth in loan demand, which are expected to result in solid top-line improvement. However, any increase in costs is likely to hinder bottom-line growth in the near term.

BOK Financial has been reporting decent loan growth over the past few years despite the competitive banking environment. The company has witnessed a compound annual growth rate (CAGR) of 1% in the last five years (2018-2022), and the rising trend continued in the first quarter of 2023. Moreover, deposits escalated at a five-year CAGR of 8.1% through 2018-2022. Hence, with a strong loan pipeline, BOKF is well-poised for organic growth.

Also, the company is expected to experience strong growth in its net interest income (NII) and yield on interest-earning assets due to the Federal Reserve’s inclination to maintain high interest rates in the near future. While BOKF’s NII and margins were hurt when the central bank lowered the interest rates to near zero in March 2020 to mitigate the coronavirus-induced mayhem, management expects higher NII in 2023 compared to 2022 supported by hawkish monetary policy stance and decent loan demand.

Further, improved asset quality trends at BOK Financial are encouraging. Although the company recorded provisions of $16 million in the first quarter of 2023, its credit quality has improved from the pre-pandemic levels. The trailing 12-months net charge-off ratio stood at 7 basis points as of the first-quarter 2023 end, below historical low levels. With a history of outperformance during credit cycles, BOK Financial is believed to be well-positioned amid expectations of an economic slowdown.

However, the company had total debt (comprising of funds purchased and repurchase agreements as well as other borrowings) of $6.3 billion as of Mar 31, 2023, whereas liquidity (comprising of cash and due from banks and interest-bearing cash and cash equivalents) amounted to $1.4 billion. Hence, its debt level seems unmanageable, given a comparatively low cash balance.

BOK Financial’s escalating operating expenses are a cause for concern. It witnessed a 0.9% increase in CAGR over the last four years (2019-2022) due to a rise in personnel, data processing, net occupancy and equipment costs. Any further escalation in costs is expected to cause operational inefficiency and might hinder bottom-line expansion in the near term.

The company’s brokerage and trading revenues constitute a major source of other operating revenues and are dependent on the volume of transactions. Therefore, any potential reduction or normalization in transaction volumes imposes risk and might negatively affect earnings in the coming quarters.

Currently, BOK Financial carries a Zacks Rank #3 (Hold). Shares of the company have declined 22.5% over the past six months compared with the 34.6% fall recorded by the industry.

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Bank Stocks Worth Considering

A couple of better-ranked bank stocks that investors can consider are Pathward Financial, Inc. CASH and JPMorgan JPM.

Earnings estimates for Pathward Financial have been revised 1.8% upward over the past 30 days. In the past six months, CASH’s shares have gained 10.9%. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Earnings estimates for JPMorgan have been revised 6.6% upward for 2023 over the past 30 days. Shares of JPM have gained 3.4% over the past six months. Currently, the company carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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