BOK Financial (BOKF) Aided by Organic Growth Amid High Costs
BOK Financial BOKF remains well poised for growth on decent loan demand and higher rates. Its improving asset quality is another tailwind. However, any increase in costs is likely to hinder bottom-line growth in the near term.
Despite a challenging operating environment, BOK Financial was able to post decent loan growth on a diverse business model. The company's loans have witnessed a compound annual growth rate (CAGR) of 1% in the last four years (2018-2022), and the rising trend continued in the first quarter of 2023. Moreover, its deposits witnessed a four-year CAGR of 8.1% through 2018-2022. The metric, however, declined in the first quarter of 2023.
Management expects loan growth to be in the mid-to-upper single-digit range for 2023, supported by its economic conditions. Hence, with a strong loan pipeline, BOKF is well-poised for organic growth.
BOK Financial is expected to experience strong growth in its net interest income (NII) and yield on interest-earning assets due to the Federal Reserve’s intention to maintain high interest rates in the near future. Management expects NII to be in the range of $1.35-$1.4 billion in 2023, higher than the $1.2 billion reported in 2022.
Also, the improved asset quality trends of BOK Financial seem encouraging. Although the company recorded provisions of $16 million in the first quarter of 2023, its credit quality has improved from 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, mounting expenses are concerning, as the company witnessed a rise in personnel, data processing, as well as net occupancy and equipment costs. Its operating expenses escalated, seeing a CAGR of 0.9% over the last three years (2019-2022), The uptrend persisted in the first quarter of 2023. Any further escalation in costs is expected to cause operational inefficiency and is likely to hinder bottom-line expansion in the near term.
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 cash and due from banks, as well as interest-bearing cash and cash equivalents, amounted to $1.4 billion. Hence, its debt level seems unmanageable, given a comparatively low cash balance.
The company’s brokerage and trading revenues constitute a major source of operating revenues and are dependent on the volume of transactions. Therefore, any potential reduction or normalization in transaction volumes imposes risk and is likely to negatively affect earnings in the coming quarters.
Further, analysts are pessimistic about the stock’s earnings prospects. The Zacks Consensus Estimate for BOKF's 2023 earnings has been revised 1.6% downward in the past seven days. The company currently carries a Zacks Rank #3 (Hold).
In the past three months, shares of BOKF have declined 1.6% compared with the industry's 9.1% fall.
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Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are Coastal Financial CCB and First Citizens BancShares FCNCA.
The Zacks Consensus Estimate for Coastal Financial’s current-year earnings has been revised 4.9% upward over the past 60 days. Its shares have gained 8.5% in the past three months. Currently, CCB carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). The consensus mark for the company's 2023 earnings has been revised 67.2% upward over the past 60 days. In the past six months, FCNCA shares have rallied 60.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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BOK Financial Corporation (BOKF) : Free Stock Analysis Report
First Citizens BancShares, Inc. (FCNCA) : Free Stock Analysis Report
Coastal Financial Corporation (CCB) : Free Stock Analysis Report
