BOK Financial Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Comparisons below are to Q4 2023 or Q1 2023 as indicated. Amounts are in U.S. dollars.
Business context and performance
BOK Financial is a regional financial services company with Commercial Banking, Consumer Banking and Wealth Management businesses. It reported net income attributable to shareholders of $83.7 million, or $1.29 per diluted share, compared with $82.6 million, or $1.26, in Q4 2023 and $162.4 million, or $2.43, in Q1 2023.
Management reported non-GAAP adjusted net income of $123.2 million, or $1.91 per share, excluding the after-tax FDIC special assessment and the loss from repositioning available-for-sale securities. PPNR, another non-GAAP measure, was $114.9 million, down $2.6 million sequentially.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparison or context |
|---|---|---|
| Net interest revenue | $293.6 million | Down $3.1 million from Q4 2023; down $58.8 million year over year |
| Net interest margin | 2.61% | 2.64% in Q4 2023 and 3.45% in Q1 2023; core margin excluding trading was 2.97% |
| Fees and commissions | $200.6 million | Up $3.8 million sequentially and $14.6 million year over year |
| Other operating revenue | $161.7 million | Includes $45.2 million loss on AFS securities; Q4 included a $31.0 million gain on sale of BOKFI |
| Operating expense | $340.4 million | Down $43.7 million sequentially, mainly because Q4 included a $43.8 million FDIC special assessment; up $34.6 million year over year |
| Credit provision and charge-offs | $8.0 million provision; $5.5 million net charge-offs | Charge-offs were 0.09% of average loans, annualized |
| Loans and deposits | $24.2 billion loans; $35.4 billion deposits | Loans up $268 million and deposits up $1.4 billion from year-end; loan-to-deposit ratio 68% |
| Credit quality | $329 million combined allowance; 1.36% of loans | Nonperforming assets were $122.4 million, or $113.2 million excluding government-guaranteed assets, down from $138.6 million on that basis at year-end |
| Capital | CET1 11.99%; total capital 13.15%; leverage 9.42% | Tangible common equity ratio 8.21%; adjusted for securities portfolio losses, 7.92% |
| Cash and borrowings | $1.16 billion cash and cash equivalents; $8.12 billion borrowed funds and subordinated debentures | Includes $6.72 billion other borrowings and $1.26 billion funds purchased and repurchase agreements |
| Cash flow | $179.2 million operating cash provided | Compared with $2.46 billion in Q1 2023; prior-year cash flow was affected by a large change in trading and fair-value-option securities |
Material changes versus comparable periods
- Year over year: Net interest revenue fell as funding costs rose faster than loan yields. Loan yields increased 73 basis points, while funding costs increased 165 basis points; deposit repricing and migration from noninterest-bearing accounts added pressure.
- Year over year: Interest expense rose to $351.6 million from $164.4 million, while interest revenue increased to $645.2 million from $516.7 million. Net interest margin contracted 84 basis points.
- Year over year: Operating expense increased 11%, including higher personnel costs and a $6.5 million FDIC special assessment recognized in Q1 2024. The provision for credit losses declined to $8.0 million from $16.0 million.
- Sequentially: Fees increased, including stronger mortgage banking and fiduciary and asset management revenue. Non-personnel expense declined substantially from Q4 due to the timing of the FDIC assessment.
- Loans grew mainly in commercial lending, especially general business and healthcare, while commercial real estate balances declined. Deposits increased, but average demand deposits continued to shift toward interest-bearing accounts.
Outlook, risks and unusual items
- The filing gives no formal earnings or financial guidance. Its credit-loss forecast uses weighted economic scenarios, not company guidance: the base case assumes 1.6% GDP growth over the next 12 months, while the downside case assumes a 1.8% contraction and unemployment rising to 6.2% by Q1 2025.
- The company sold approximately $783 million of lower-yielding AFS securities, recording a $45.2 million loss. It expects proceeds or gains related to the Visa exchange offer to offset the realized repositioning losses, but the ultimate gain is uncertain. BOK Financial tendered its Visa Class B-1 shares and expects to monetize up to 50%; the offer opened April 8 and was scheduled to expire May 3, 2024.
- Estimated uninsured deposits were $18.2 billion, or 51% of deposits; excluding collateralized and certain subsidiary-related deposits, uninsured and uncollateralized deposits were $13.2 billion, or 37%. Management estimated $20.0 billion of currently available secured borrowing capacity and another $3.7 billion from other potential sources.
- Credit risks include commercial real estate and office exposure, energy-sector exposure, and possible deterioration under a weaker economy. Nonperforming CRE loans increased $14.8 million during the quarter, primarily due to one office loan. The downside credit scenario would require a materially higher modeled reserve than the base case.
- Off-balance-sheet commitments included $14.4 billion of loan commitments and $734 million of standby letters of credit; amounts do not necessarily represent future cash needs because some commitments may expire undrawn.
- The company disclosed ongoing litigation connected with Visa and municipal bond matters. Management said losses in the cited bond cases were not probable; damages in one class action could not be reasonably estimated. No material changes to previously disclosed risk factors were reported.
- The board approved a $0.55-per-share quarterly dividend payable in May 2024. The company repurchased 616,630 shares during Q1 for approximately $52 million, excluding excise tax.
Important facts for investors to verify
- Whether deposit pricing and migration stabilize, and how they affect net interest margin and earnings.
- Whether the Visa exchange offer produces proceeds or a gain sufficient to offset securities repositioning losses, considering related litigation and conversion restrictions.
- Trends in nonperforming loans, especially healthcare and commercial real estate/office, and whether the allowance remains adequate under changing economic conditions.
- Deposit mix, uninsured and uncollateralized balances, wholesale funding reliance, and the availability of stated secured borrowing capacity.
- The sustainability of earnings after excluding the FDIC assessment and securities repositioning loss; adjusted results are non-GAAP measures and are not substitutes for GAAP results.
- Capital ratios and the pace of share repurchases and dividends relative to balance-sheet risks and regulatory requirements.