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BOK Financial Corporation BOKF is well-poised to grow organically, given its steady loan demand. Robust deposit balance and solid credit quality will continue to support its financials. However, the rise in expenses remains a concern for the company.
Factors Aiding BOKF
Loan & Deposits Growth: BOK Financial has been witnessing continuous loan growth on a diverse business model and an increase in loans to individuals. It has been focused on diversifying its loan portfolio to energy, healthcare and service lending. Though loans declined in 2021, the metric witnessed a compound annual growth rate (CAGR) of 2% in the last six years (2018-2024). Deposits have showcased a rising trend, at a six-year CAGR of 7.1% through 2018-2024. Given the strong loan pipeline and deposit balance, the company will be well-poised for organic growth.
Improving Asset Quality: Improved asset quality trends at BOKF 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 five-year (ended 2024) negative CAGR of 24.6%. Likewise, net charge-offs (NCOs) also witnessed a negative CAGR of 40.9% during the same period. With a history of outperformance during credit cycles, BOK Financial is believed to be well-positioned amid expectations of an economic slowdown.
Steady Capital Distribution: BOK Financial has a steady capital distribution plan in place. The company has been hiking dividends every year. It hiked its dividend by 3.6% to 57 cents per share in October 2024. Also, the company has a repurchase authorization of 5 million shares (announced in November 2022). As of Dec. 31, 2024, 1.54 million shares remain available under the authorization. Management plans to execute the remaining share buyback opportunistically while maintaining its strong capital position. Given the favorable payout ratio and earnings strength, such capital distribution activities seem sustainable.
What’s Hurting BOK Financial
Escalating Expenses: BOK Financial has been witnessing a steady rise in expenses. Operating expenses witnessed a CAGR of 3.4% over the last six years (2018-2024). The expense base is expected to remain elevated due to its ongoing investments in technological advancements and an increase in employee-based compensation.
Loan Concentration: The majority of BOKF’s loan portfolio comprises total commercial loans (62.3% of the total loans as of Dec. 31, 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.