BOK Financial(BOKF) - 2021 Q2 - Quarterly Report

Part I. Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations Q2 2021 net income rose significantly due to a negative credit provision, though pre-provision net revenue declined | Metric | Q2 2021 | Q1 2021 | Q2 2020 | | :--- | :--- | :--- | :--- | | Net Income | $166.4 million | $146.1 million | $64.7 million | | Diluted EPS | $2.40 | $2.10 | $0.92 | - The company recorded a negative provision for expected credit losses of $35.0 million in Q2 2021, compared to a $135.3 million provision in Q2 2020, due to improving macroeconomic forecasts[6] - Pre-provision net revenue (PPNR), a non-GAAP measure, decreased to $179.9 million from $215.8 million in Q2 2020, attributed to lower loan balances and compressed margins[7] Performance Summary - Net interest revenue was stable at $280.3 million, as asset growth was offset by a 23 basis point compression in net interest margin to 2.60% YoY[8] - Fees and commissions revenue fell by $44.3 million YoY to $169.4 million, largely due to lower mortgage banking and brokerage revenue[9] - Period-end loan balances decreased by $1.1 billion QoQ to $21.4 billion, primarily due to a $727 million reduction in Paycheck Protection Program (PPP) loans[11] - The combined allowance for credit losses stood at $336 million, or 1.66% of outstanding loans (excluding PPP loans), down from 1.86% in the prior quarter[12] - The company maintained strong capital ratios, with a Common Equity Tier 1 capital ratio of 11.95% at June 30, 2021[16] - During Q2 2021, the company repurchased 492,994 shares of common stock at an average price of $88.84 per share[17] Results of Operations Tax-equivalent Net Interest Revenue | Metric | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Tax-equivalent Net Interest Revenue | $282.6M | $280.7M | +$1.9M | | Net Interest Margin | 2.60% | 2.83% | -23 bps | | Average Earning Assets | $43.9B | $40.3B | +$3.6B | - Other operating revenue decreased by $41.8 million YoY to $191.4 million, primarily due to a $32.7 million decline in mortgage banking revenue[9][35] - Other operating expense decreased by $4.8 million YoY to $291.2 million, driven by a $4.2 million reduction in personnel expense[10][62] Lines of Business - The company operates three principal lines of business: Commercial Banking, Consumer Banking, and Wealth Management[70][71] Net Income by Business Line | Line of Business | Net Income Q2 2021 | Net Income Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Commercial Banking | $72.6M | $81.0M | (10)% | | Consumer Banking | $1.7M | $32.5M | (95)% | | Wealth Management | $31.1M | $33.4M | (7)% | | Subtotal | $105.4M | $146.9M | (28)% | - The significant drop in net income from the business lines was primarily driven by Consumer Banking, where lower mortgage banking revenue and compressed deposit spreads negatively impacted results[77][96] Financial Condition - Total loans decreased by $1.1 billion from March 31, 2021, to $21.4 billion, mainly due to a decrease in PPP loan balances and paydowns in energy and commercial real estate[118] - Trading securities increased by $613 million during Q2 2021 to $5.7 billion, held in support of sales to various customers[113] - The available for sale securities portfolio had an amortized cost of $13.0 billion at quarter-end, primarily consisting of U.S. government agency mortgage-backed securities[115] Summary of Credit Loss Experience - A negative provision for credit losses of $35.0 million was recorded in Q2 2021, a significant reversal from the $135.2 million provision in Q2 2020, driven by an improved economic outlook[166][169] Allowance for Credit Losses | Metric | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Allowance for Loan Losses | $311.9M | $352.4M | | Allowance for Loan Losses to Loans (ex-PPP) | 1.54% | 1.70% | | Net Charge-offs (annualized, ex-PPP) | 0.30% | 0.28% | - Nonperforming assets decreased by $51 million from March 31, 2021, primarily due to a $31 million decrease in nonaccruing energy loans[183] Liquidity and Capital - The company's funding is primarily provided by deposit accounts (75%), with average deposits increasing by $968 million over Q1 2021 to $37.5 billion[193][195] Capital Ratios | Capital Ratio | June 30, 2021 | Minimum Requirement (incl. buffer) | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.95% | 7.00% | | Tier 1 Capital | 12.01% | 8.50% | | Total Capital | 13.61% | 10.50% | | Leverage Ratio | 8.58% | 4.00% | - The company repurchased 492,994 shares of common stock for $44 million in Q2 2021, with 2,726,807 shares repurchased under the current authorization as of June 30, 2021[213][214] Market Risk The company's primary market risk stems from interest rate changes, which management aims to keep rate-neutral while actively transitioning away from LIBOR - Management's strategy is to maintain a relatively neutral balance sheet to limit exposure to interest rate fluctuations over a twelve-month period[226][230] Interest Rate Sensitivity | Sensitivity Scenario | Anticipated Impact on Net Interest Revenue (Next 12 Months) | | :--- | :--- | | +200 bps Increase | +$57.1 million (+5.15%) | - The company is actively managing the transition away from LIBOR and plans to cease originating LIBOR-indexed loans by the end of 2021[247][248] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal controls during the quarter - Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[245] - Management's evaluation confirmed no changes during the quarter materially affected the company's internal controls over financial reporting[245] Consolidated Financial Statements – Unaudited This section presents the unaudited consolidated financial statements for periods ended June 30, 2021 and 2020 Consolidated Statements of Earnings | (In thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net Interest Revenue | $280,309 | $278,104 | | Provision for Credit Losses | ($35,000) | $135,321 | | Total Other Operating Revenue | $191,446 | $233,272 | | Total Other Operating Expense | $291,152 | $295,966 | | Net Income Attributable to BOK | $166,421 | $64,693 | Notes to Consolidated Financial Statements (Unaudited) Quarterly Financial Summary – Unaudited This section provides a detailed summary of consolidated average balances, revenues, and yields for recent quarters Quarterly Performance Metrics | Metric | Q2 2021 | Q1 2021 | | :--- | :--- | :--- | | Average Earning Assets | $43.87B | $44.22B | | Tax-equivalent Net Interest Revenue | $282.6M | $282.7M | | Tax-equivalent NIM | 2.60% | 2.62% | | Net Income | $166.4M | $146.1M | Quarterly Earnings Trend – Unaudited This section presents a trend of key earnings statement line items over the past five quarters from Q2 2020 to Q2 2021 Five-Quarter Earnings Trend | (In thousands) | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | Q2 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Revenue | $280,309 | $280,420 | $297,230 | $271,750 | $278,104 | | Provision for Credit Losses | ($35,000) | ($25,000) | ($6,500) | $0 | $135,321 | | Net Income Attributable to BOK | $166,421 | $146,060 | $154,224 | $154,034 | $64,693 | | Diluted EPS | $2.40 | $2.10 | $2.21 | $2.19 | $0.92 | Part II. Other Information Legal Proceedings The company is involved in several legal proceedings for which management believes a loss is not probable - The company is a defendant in class action lawsuits related to its role as a trustee for municipal bonds, but believes it has valid defenses and no loss is probable[389][391] - Class actions alleging an extended overdraft fee constitutes excessive interest were dismissed at the district court level and are under appeal[393] - A class action by former employees alleging breach of fiduciary duties related to the company's 401k plan is pending a motion to dismiss[395] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 492,994 shares of its common stock during Q2 2021 as part of its authorized plan Share Repurchases in Q2 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2021 | 170,000 | $88.70 | | May 2021 | 227,994 | $88.82 | | June 2021 | 95,000 | $89.14 | | Total Q2 2021 | 492,994 | $88.84 | - As of June 30, 2021, a maximum of 2,273,193 shares may yet be purchased under the company's current share repurchase authorization[479] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Interactive Data Files Signatures