BOK Financial(BOKF) - 2024 Q1 - Quarterly Results

Financial Highlights & CEO Commentary Key financial results for Q1 2024 are presented, alongside the CEO's commentary on performance and strategic outlook First Quarter 2024 Financial Highlights BOK Financial reported Q1 2024 net income of $83.7 million ($1.29 EPS), with adjusted figures of $123.2 million ($1.91 EPS) after accounting for special items Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income | $83.7 million | $82.6 million | +$1.1 million | | Diluted EPS | $1.29 | $1.26 | +$0.03 | | Adjusted Net Income (Non-GAAP) | $123.2 million | N/A | N/A | | Adjusted EPS (Non-GAAP) | $1.91 | N/A | N/A | | Net Interest Revenue | $293.6 million | $296.7 million | -$3.1 million | | Net Interest Margin | 2.61% | 2.64% | -3 bps | | Period End Loans | $24.2 billion | $23.9 billion | +$268 million | | Period End Deposits | $35.4 billion | $34.0 billion | +$1.4 billion | | Loan to Deposit Ratio | 68% | 70% | -2% | - CEO commentary highlighted a stabilizing net interest margin, strong asset quality, and continued operating revenue growth[31] - The company repositioned its securities portfolio, realizing a loss in Q1, in anticipation of a gain in Q2 from monetizing VISA B shares, which is expected to improve future net interest margin and revenue[31] Financial Results Analysis Detailed review of the company's net interest revenue, other operating revenue, and operating expenses Net Interest Revenue Net interest revenue decreased slightly to $293.6 million in Q1 2024, with net interest margin compressing to 2.61% due to rising funding costs Net Interest Revenue and Margin (Q1 2024 vs Q4 2023) | Metric | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Revenue | $293.6 million | $296.7 million | -$3.1 million | | Net Interest Margin | 2.61% | 2.64% | -0.03% | | Average Earning Assets | $44.85 billion | $44.33 billion | +$0.52 billion | | Yield on Earning Assets | 5.73% | N/A | +9 bps | | Funding Costs | 4.08% | N/A | +10 bps | - Average loan balances grew by $243 million, and average available for sale securities increased by $475 million[20] - This was funded by a $2.1 billion increase in average interest-bearing deposits, which allowed for a $1.2 billion reduction in higher-cost funds purchased and repurchase agreements[20] Other Operating Revenue Other operating revenue decreased to $161.7 million in Q1 2024, primarily due to a $45.2 million loss on securities repositioning, despite growth in fees and commissions - The company repositioned its available for sale securities portfolio by selling approximately $783 million of lower-yielding debt securities, resulting in a $45.2 million loss[35] - This is expected to be offset by a gain on the conversion of Visa B shares in Q2 2024[35] Fees and Commissions Revenue Breakdown (Q1 2024 vs Q4 2023) | Revenue Source | Q1 2024 | Q4 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Mortgage banking revenue | $19.0M | $12.8M | +$6.1M | +47.8% | | Fiduciary and asset management | $55.3M | $51.4M | +$3.9M | +7.6% | | Brokerage and trading | $59.2M | $60.9M | -$1.7M | -2.8% | | Transaction card revenue | $25.5M | $28.8M | -$3.4M | -11.6% | | Total Fees and Commissions | $200.6M | $196.8M | +$3.8M | +1.9% | Operating Expenses Total operating expenses decreased significantly to $340.4 million in Q1 2024, primarily driven by a $37.3 million reduction in the FDIC special assessment - The primary driver for the decrease in operating expenses was a reduction in non-personnel expense, mainly due to the FDIC special assessment being $43.8 million in Q4 2023 versus an additional $6.5 million recognized in Q1 2024[2] Operating Expense Breakdown (Q1 2024 vs Q4 2023) | Expense Category | Q1 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Personnel | $202.7M | $203.0M | -$0.3M | | FDIC special assessment | $6.5M | $43.8M | -$37.3M | | Professional fees and services | $12.0M | $16.3M | -$4.3M | | Total Operating Expense | $340.4M | $384.1M | -$43.7M | Balance Sheet Analysis Detailed analysis of the company's balance sheet components, including loans, deposits, funding, and securities portfolios Loans Total loans increased by $268 million to $24.2 billion in Q1 2024, driven by commercial loan growth, partially offset by a decline in commercial real estate loans Loan Portfolio Composition (March 31, 2024) | Loan Category | Balance | vs. Q4 2023 Change | % of Total Loans | | :--- | :--- | :--- | :--- | | Commercial | $15.1B | +$329M | 63% | | Commercial Real Estate | $5.2B | -$101M | 22% | | Loans to Individuals | $3.8B | +$39M | 16% | | Total Loans | $24.2B | +$268M | 100% | - Within the commercial portfolio, healthcare loans grew by $103 million and general business loans increased by $267 million[69] - Energy loan balances remained stable at $3.4 billion[69] Deposits and Funding Period-end deposits grew by $1.4 billion to $35.4 billion in Q1 2024, driven by interest-bearing accounts, improving the loan-to-deposit ratio to 68% Deposit Composition (March 31, 2024 vs Dec 31, 2023) | Deposit Type | Q1 2024 Balance | Change from Q4 2023 | | :--- | :--- | :--- | | Demand | $8.4B | -$782M | | Interest-bearing transaction | $22.7B | +$1,784M | | Time | $3.4B | +$355M | | Total Deposits | $35.4B | +$1,364M | - The shift from demand deposits to interest-bearing accounts continued, reflecting the higher interest rate environment[26] - By segment, Wealth Management deposits saw the largest increase, growing by $1.2 billion[26] Securities & Derivatives The AFS securities portfolio increased to $12.7 billion in Q1 2024, with net unrealized losses widening slightly, while the trading securities portfolio grew to $5.4 billion - The AFS portfolio at March 31, 2024 consisted mainly of $7.8 billion in residential mortgage-backed securities and $3.7 billion in commercial mortgage-backed securities, both fully backed by U.S. government agencies[12] - The net benefit from changes in the fair value of mortgage servicing rights and their related economic hedges was $1.2 million during the first quarter[12] Credit Quality Credit quality remained strong in Q1 2024, with nonperforming assets decreasing to $122 million and a low net charge-off rate of 0.09% Key Credit Quality Indicators (Q1 2024 vs Q4 2023) | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Nonperforming Assets | $122 million | $148 million | | NPAs as % of Loans & Repossessed Assets | 0.51% | 0.62% | | Net Charge-offs (annualized) | 0.09% | 0.07% | | Provision for Credit Losses | $8.0 million | $6.0 million | - Nonaccruing loans decreased by $26 million from the previous quarter, driven by a $32 million reduction in nonaccruing healthcare loans[73] - The combined allowance for loan losses and accrual for off-balance sheet credit risk was $329 million, representing 1.36% of outstanding loans and 298% of nonaccruing loans, an improvement in coverage from 240% in the prior quarter[74] Capital Management The company maintained a strong capital position in Q1 2024, with a CET1 ratio of 11.99% and share repurchases totaling 616,630 shares Regulatory Capital Ratios (March 31, 2024 vs Dec 31, 2023) | Ratio | Q1 2024 | Q4 2023 | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 11.99% | 12.06% | 7.00% | | Tier 1 Capital | 12.00% | 12.07% | 8.50% | | Total Capital | 13.15% | 13.16% | 10.50% | | Leverage Ratio | 9.42% | 9.45% | 4.00% | - The company repurchased 616,630 shares for a total of approximately $51.7 million in Q1 2024[42][72] Segment Performance Analysis of financial performance across the company's key business segments, including Commercial, Consumer, and Wealth Management Segment Highlights Commercial Banking remained the largest net income contributor at $153.3 million, while Consumer Banking was stable and Wealth Management's income decreased due to a prior-quarter gain Segment Net Income (Q1 2024 vs Q4 2023) | Segment | Q1 2024 Net Income | Q4 2023 Net Income | Change | | :--- | :--- | :--- | :--- | | Commercial Banking | $153.3M | $171.1M | -$17.8M | | Consumer Banking | $53.8M | $53.7M | +$0.1M | | Wealth Management | $34.2M | $62.7M | -$28.5M | - Commercial Banking's income decline was driven by a deposit mix shift and decreased spreads[45][77] - Consumer Banking's performance was buoyed by a $1.2 million net benefit from MSR hedging, compared to a $5.2 million cost in Q4[45][77] - Wealth Management's results were skewed by a $31.0 million pre-tax gain on the sale of BOKFI in Q4 2023[45][77] Appendix: Financial Statements and Reconciliations Comprehensive appendix providing detailed financial statements, loan and deposit portfolio breakdowns, credit quality indicators, and non-GAAP reconciliations Consolidated Financial Statements Unaudited Consolidated Balance Sheets and Statements of Earnings are presented, including five-quarter trends for key financial performance - Total assets stood at $50.16 billion as of March 31, 2024, a slight increase from $49.82 billion at December 31, 2023[13] - Total liabilities increased to $45.03 billion from $44.68 billion, while total equity slightly decreased to $5.13 billion from $5.14 billion over the same period[13] Loan and Deposit Portfolio Details Detailed breakdowns of loan and deposit portfolios by principal market area are provided, showing geographical business concentration over five quarters - Texas and Oklahoma represent the two largest markets for both loans and deposits[101][93] - As of March 31, 2024, Texas held $10.4 billion in loans and Oklahoma held $18.4 billion in deposits[101][93] Credit Quality Indicators Detailed tables on credit quality trends over five quarters are presented, including nonperforming assets, charge-off data, and allowance ratios - The allowance for loan losses to period-end loans ratio was 1.17% at March 31, 2024, a slight increase from 1.16% in the prior quarter[67] - The coverage ratio of allowance for loan losses to nonaccruing loans improved significantly to 255.33% from 204.13%[67] Explanation of Non-GAAP Measures Definitions and reconciliations for non-GAAP financial measures, including tangible common equity ratio and adjusted net income, are provided for investor insight Reconciliation of Net Income and EPS (Q1 2024) | Metric | As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Net Income | $83.7M | +$39.5M | $123.2M | | Diluted EPS | $1.29 | +$0.62 | $1.91 | - Key non-GAAP adjustments for Q1 2024 included adding back the FDIC special assessment ($4.9M net of tax) and the loss on repositioning of AFS securities ($34.5M net of tax)[57]