BOK Financial(BOKF) - 2021 Q3 - Quarterly Report

Part I. Financial Information This section provides a comprehensive overview of the company's financial performance, condition, and operational results for the period Management's Discussion and Analysis of Financial Condition and Results of Operations BOK Financial Corporation reported strong Q3 2021 results with net income of $188.3 million, driven by a negative provision for credit losses and growth in fee-based businesses, while maintaining a strong capital position Performance Summary The company reported net income of $188.3 million for Q3 2021, supported by a negative provision for credit losses and a gain on an alternative investment, despite a decline in mortgage banking revenue Q3 2021 Key Financial Highlights | Metric | Q3 2021 | Q2 2021 | Q3 2020 | | :--- | :--- | :--- | :--- | | Net Income | $188.3M | $166.4M | $154.0M | | Diluted EPS | $2.74 | $2.40 | $2.19 | | Provision for Credit Losses | ($23.0M) | ($35.0M) | $0M | | Pre-Provision Net Revenue (PPNR) | $219.4M | $179.9M | $204.6M | - Net interest revenue increased by $8.5 million year-over-year to $280.2 million, driven by growth in average earning assets, although the net interest margin declined to 2.66% from 2.81% due to a shift in asset mix[8] - Fees and commissions revenue decreased by $32.4 million year-over-year to $190.4 million, primarily due to a $25.7 million drop in mortgage banking revenue and a $21.6 million decrease in brokerage and trading revenue[9] - Total outstanding loans decreased by $1.1 billion from the prior quarter to $20.3 billion, largely due to a $586 million reduction in Paycheck Protection Program (PPP) loans[11] - The combined allowance for credit losses stood at $306 million, or 1.54% of outstanding loans (excluding PPP loans), down from $336 million (1.66%) at the end of Q2 2021[12] - The company maintained strong capital ratios, with the Common Equity Tier 1 capital ratio increasing to 12.26% from 11.95% in the prior quarter[16] Results of Operations The company's results were shaped by stable net interest revenue, consistent other operating revenue offsetting a decline in mortgage banking, and slightly decreased operating expenses Lines of Business Commercial Banking and Wealth Management saw significant net income growth in Q3 2021, while Consumer Banking experienced a notable decline due to lower mortgage activity Net Income by Line of Business (in thousands) | Line of Business | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Commercial Banking | $102,694 | $75,097 | 37% | | Consumer Banking | $12,432 | $26,855 | (54)% | | Wealth Management | $41,406 | $31,212 | 33% | | Subtotal | $156,532 | $133,164 | 18% | Financial Condition As of September 30, 2021, the company's financial condition remained solid with stable securities, decreased loans due to PPP forgiveness, increased deposits, and strong capital ratios Market Risk The company manages market risk, primarily from interest rate fluctuations, through its Asset/Liability Committee and hedging strategies, while actively transitioning away from LIBOR Interest Rate Sensitivity on Net Interest Revenue (Next 12 Months) | Rate Shock Scenario | Estimated Impact ($ thousands) | Estimated Impact (%) | | :--- | :--- | :--- | | +200 bps | $74,998 | 6.67% | | +100 bps | $47,528 | 4.23% | - The company actively manages the earnings volatility from its Mortgage Servicing Rights (MSRs) using economic hedges. A stress test for a 50 basis point upward shock in rates estimates a net exposure loss of $7.4 million, while a 50 basis point downward shock estimates a net loss of $1.9 million[227][229][230] - A LIBOR Transition Working Group has been established to manage the phase-out of LIBOR. The company plans to cease originating new LIBOR-indexed loans by December 31, 2021, and expects its primary replacement index to be the Secured Overnight Financing Rate (SOFR)[239][240] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2021[241] - No changes during the third quarter were identified that materially affected or are likely to materially affect the company's internal controls over financial reporting[243] Consolidated Financial Statements – Unaudited This section presents the unaudited consolidated financial statements for BOK Financial Corporation as of and for the periods ended September 30, 2021, including statements of earnings, balance sheets, and cash flows, along with detailed notes Consolidated Statements of Earnings This statement summarizes the company's revenues, expenses, and net income for the three months ended September 30, 2021 and 2020 Consolidated Earnings Summary (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Interest Revenue | $280,227 | $271,750 | | Provision for Credit Losses | ($23,000) | $0 | | Total Other Operating Revenue | $229,832 | $229,938 | | Total Other Operating Expense | $291,277 | $297,044 | | Net Income | $187,721 | $154,092 | | Net Income Attributable to BOK | $188,322 | $154,034 | | Diluted EPS | $2.74 | $2.19 | Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021 and December 31, 2020 Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $46,923,409 | $46,671,088 | | Loans, net of allowance | $20,071,256 | $22,618,880 | | Total Deposits | $38,524,551 | $36,143,880 | | Total Liabilities | $41,526,961 | $41,379,527 | | Total Shareholders' Equity | $5,388,973 | $5,266,266 | Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash (Used in) Operating Activities | ($83,326) | $360,527 | | Net Cash Provided by (Used in) Investing Activities | $2,147,445 | ($2,874,564) | | Net Cash (Used in) Financing Activities | ($1,352,714) | $2,261,587 | | Net Increase (Decrease) in Cash | $711,405 | ($252,450) | Quarterly Financial Summary – Unaudited This section provides a detailed summary of consolidated daily average balances, yields, and rates for various asset and liability categories over nine-month and quarterly periods Nine-Month Average Balances & Yields (2021 vs 2020) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Average Earning Assets | $43.7B | $39.5B | | Tax-equivalent Net Interest Revenue | $847.8M | $819.0M | | Tax-equivalent Net Interest Margin | 2.56% | 2.67% | | Average Total Equity | $5.35B | $5.05B | Quarterly Average Balances & Yields (Q3 2021 vs Q2 2021) | Metric | Q3 2021 | Q2 2021 | | :--- | :--- | :--- | | Average Earning Assets | $43.0B | $43.9B | | Tax-equivalent Net Interest Revenue | $282.4M | $282.6M | | Tax-equivalent Net Interest Margin | 2.66% | 2.60% | | Average Total Equity | $5.44B | $5.33B | Quarterly Earnings Trend – Unaudited This section presents a trend of key income statement items over the last five quarters, highlighting the recovery in net income and shifts in revenue and provision for credit losses Quarterly Earnings Per Share (Diluted) | Quarter | Diluted EPS | | :--- | :--- | | Q3 2021 | $2.74 | | Q2 2021 | $2.40 | | Q1 2021 | $2.10 | | Q4 2020 | $2.21 | | Q3 2020 | $2.19 | Part II. Other Information This section covers additional disclosures including legal proceedings, equity security sales, and required exhibits Legal Proceedings The company is involved in several legal proceedings, including class actions related to trustee duties, overdraft fees, and 401k plan offerings, with management believing no material adverse outcomes are probable - The company is a defendant in a putative class action related to its role as trustee for municipal bonds where an employee violated company policies. The action is currently stayed, and management believes a loss is not probable[385][386][387] - A putative class action alleging that an extended overdraft fee constituted interest was dismissed but remains on appeal. Management believes a loss is not probable[388] - A putative class action was filed by former employees alleging breaches of fiduciary duty related to the company's 401k plan offerings. The case is pending on a motion to dismiss, and management does not consider a loss probable[389] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 478,141 shares of its common stock at an average price of approximately $84.99 per share as part of its publicly announced program Share Repurchases in Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 125,000 | $83.45 | | August 2021 | 195,141 | $86.13 | | September 2021 | 158,000 | $84.84 | | Total | 478,141 | - | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files - Exhibits filed include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[475] - The filing includes Interactive Data Files (Inline XBRL) as required by Rule 405 of Regulation S-T[474]