BOK Financial Gains 23.3% in 6 Months: How to Play the Stock?

Core Viewpoint - BOK Financial Corporation (BOKF) has shown strong stock performance, gaining 23.3% over the past six months, significantly outperforming the industry and its close peers [1][3]. Financial Performance - BOKF's current stock price is 2.8% below its 52-week high of $107.98, reached on July 23 [3]. - The company's net interest income (NII) has experienced a compound annual growth rate (CAGR) of 4.7% over the three years ending in 2023, although the net interest margin (NIM) decreased to 2.93% in 2023 from 2.98% in 2022 [6]. - NII and NIM have declined in the first half of 2024 due to rising funding costs [6]. Market Conditions - The Federal Reserve is expected to cut interest rates, which will stabilize funding costs and potentially improve BOKF's NII and NIM as loan demand increases [4][7]. - Current interest rates are at a 23-year high of 5.25-5.5%, impacting banks by increasing funding costs while driving NII growth [5]. Asset Quality - BOK Financial has shown improved asset quality, with a negative CAGR of 32.2% in non-performing assets over four years ending in 2023 [8]. - Net charge-offs (NCOs) also experienced a negative CAGR of 26.9% during the same period, although they increased in the first half of 2024 [9]. Strategic Initiatives - BOK Financial has expanded its footprint by entering new markets, including Memphis, TN, and San Antonio, TX, enhancing its market presence [11][12]. - The company maintains a strong capital position, with a Common Equity Tier 1 ratio of 12.1% and a total capital ratio of 13.25% as of June 30, 2024 [13]. Shareholder Returns - BOKF increased its dividend by 1.9% to 55 cents per share in October 2023, marking the fifth increase in five years, with a five-year annualized dividend growth of 1.93% [14]. Concerns - Rising operating expenses have been noted, with a CAGR of 5.3% over the last five years, driven by employee compensation and business expansion [15]. - The bank's loan portfolio is heavily concentrated in commercial loans, which make up 63.6% of total loans as of June 30, 2024, posing risks if economic conditions worsen [17]. Earnings Outlook - Analysts have maintained a neutral stance on BOKF's earnings estimates, with a projected decline of 8.9% in 2024, followed by a rebound of 6.8% in 2025 [18]. Conclusion - Despite concerns regarding rising expenses and lack of loan diversification, BOKF's strong asset quality and potential benefits from upcoming interest rate cuts suggest decent long-term growth prospects [20].