BOK Financial Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Comparisons below are to Q1 2022 unless otherwise stated; quarter-over-quarter comparisons are to Q4 2022. BOK Financial operates Commercial Banking, Consumer Banking and Wealth Management businesses.
Financial performance
| Metric | Q1 2023 | Comparison / context |
|---|---|---|
| Net income attributable to shareholders | $162.4 million; diluted EPS $2.43 | Up from $62.5 million and $0.91 in Q1 2022; down from $168.4 million and $2.51 in Q4 2022. |
| Net interest revenue (GAAP) | $352.3 million | Up from $268.4 million in Q1 2022; essentially flat versus Q4 2022. |
| Net interest margin | 3.45% | Up from 2.44% in Q1 2022, but down from 3.54% in Q4 2022 as funding costs rose. |
| Fees and commissions | $186.0 million | Up $88.3 million year over year, notably reflecting the unusually weak Q1 2022 brokerage and trading result; down $7.6 million sequentially. |
| Total other operating revenue | $177.9 million | Up from $87.9 million in Q1 2022; down $19.2 million sequentially, including a higher net cost from MSR-related fair-value changes and hedges. |
| Operating expense | $305.8 million | Up $28.2 million, or 10%, year over year; down $12.6 million sequentially. |
| Provision for credit losses | $16.0 million | Versus none in Q1 2022 and $15.0 million in Q4 2022. |
| Pre-provision net revenue (non-GAAP) | $224.3 million | Down $7.0 million from Q4 2022; up substantially from Q1 2022. |
| Cash flows | $2.465 billion operating inflow; $313 million investing outflow; $2.189 billion financing outflow | Cash and cash equivalents decreased $37.7 million to $1.364 billion. Operating inflow included a large reduction in trading and fair-value-option securities, so it should not be read as recurring operating cash generation. |
Balance sheet, funding and capital
- Total assets were $45.5 billion at March 31, down from $47.8 billion at year-end. Loans were $22.75 billion, up $193 million sequentially; growth was concentrated in multifamily and industrial commercial real estate.
- Period-end deposits were $32.58 billion, down $1.90 billion from year-end. Average deposits fell $2.0 billion sequentially, including a $1.8 billion decline in demand deposits, as customers sought alternatives to deposits.
- Estimated uninsured deposits were $18.7 billion, or 57% of deposits. After $4.5 billion of collateralized deposits, uninsured and uncollateralized deposits were $14.2 billion, or 44% of deposits.
- Other borrowings were $4.74 billion at period-end; average FHLB advances rose to $4.48 billion from $2.49 billion in Q4. Management estimated approximately $12.7 billion of potential secured borrowing capacity.
- Common equity Tier 1 was 12.19%; total capital was 13.21%; leverage was 9.94%. The tangible common equity ratio was 8.46%, versus 7.63% at year-end; adjusted for securities portfolio losses, it was 8.22%.
- Available-for-sale securities had a $11.94 billion fair value against $12.68 billion amortized cost; accumulated other comprehensive loss was $728.6 million. Management said it did not expect to need to sell impaired AFS securities before recovery, which may occur at maturity.
Credit quality and material changes
- The combined allowance for loan losses and unfunded loan commitments was $312 million, or 1.37% of loans, up from $297 million and 1.31% at year-end. The $16 million provision reflected less favorable base-case assumptions, including projected WTI oil prices and CRE vacancy rates.
- Net charge-offs were $769,000, or 0.01% of average loans on an annualized basis, compared with $15.5 million and 0.28% in Q4. Nonaccruing loans were $120.3 million, down $1.5 million sequentially; potential problem loans and loans especially mentioned increased $44 million and $65 million, respectively.
- Total nonperforming assets fell to $132.9 million from $299.6 million at year-end. Much of the decline reflects adoption of an accounting standard that eliminated the TDR designation, removing $163.5 million of previously reported accruing renegotiated government-guaranteed loans; it is not solely an improvement in underlying credit performance.
- Commercial real estate loans totaled $4.82 billion, or 21% of loans. Unfunded CRE commitments were $2.7 billion; management said commitments were at the upper concentration limit and expected continued funding and growth, primarily in multifamily and industrial lending.
- About 79% of commercial and CRE loans were variable-rate or fixed-rate loans due to reprice within one year. Loan yields rose, but funding costs increased faster sequentially, compressing margin.
Outlook, risks and unusual items
- The filing gives no formal company earnings or revenue guidance. Its credit-loss base case assumed 0.7% GDP growth over 12 months, unemployment rising to 4.1% by Q1 2024 and average WTI of $69.18 per barrel; these are allowance assumptions, not corporate guidance. A fully downside-weighted allowance scenario would add $129 million to the quantitative reserve versus the fully base-weighted scenario.
- At March 31, the modeled 12-month net interest revenue impact of an immediate 200-basis-point rate increase was negative $26.9 million, or 1.93%; results depend on uncertain deposit behavior and other model assumptions.
- Higher market volatility reduced sequential brokerage and trading revenue. The net economic cost of MSR fair-value changes and related hedges was $10.5 million, versus $1.2 million in Q4. Mortgage production volume was $165 million, while mortgage production revenue was negative $0.6 million.
- Management identified industry-wide bank volatility, competition for deposits, possible additional regulatory scrutiny and potential further FDIC premium increases or special assessments as risks. Other stated sensitivities include interest rates, commodity prices, inflation, competition, regulation and borrowers’ ability to repay.
- A municipal bondholder lawsuit remains pending. Management, based on counsel’s advice, said a loss was not probable and could not be reasonably estimated; no provision was recorded. The filing says a loss could be material if it later becomes probable.
- The company repurchased 447,071 shares at an average $98.64 per share and paid a $0.54 quarterly dividend. The board approved another $0.54 dividend on May 2, 2023. Management stated buybacks are opportunistic and subject to maintaining capital strength.
Key facts for investors to verify
- Deposit outflows, uninsured and uncollateralized deposit levels, and use and availability of secured borrowing capacity.
- Margin sensitivity as deposit costs reprice, including actual results versus the filing’s interest-rate simulations.
- CRE concentration and funding of commitments, as well as changes in criticized, potential problem and nonaccrual loans.
- Whether allowance assumptions and reserves remain appropriate as economic, oil-price and CRE vacancy forecasts change.
- Realized securities losses and the effect of AOCI and securities marks on tangible equity and regulatory capital.
- Recurring earnings quality relative to trading volatility, MSR fair-value movements, and the unusually favorable comparison with Q1 2022 brokerage results.