BOK Financial(BOKF) - 2024 Q1 - Quarterly Report

Part I. Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations BOK Financial's Q1 2024 net income slightly increased, impacted by a securities portfolio loss and FDIC assessment, alongside loan and deposit growth Performance Summary BOK Financial's Q1 2024 net income slightly increased to $83.7 million, despite a securities portfolio loss, alongside loan and deposit growth and strong capital Q1 2024 Key Financial Results | Metric | Q1 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Income | $83.7 million | $82.6 million | | Diluted EPS | $1.29 | $1.26 | | Adjusted Net Income (Non-GAAP) | $123.2 million | N/A | | Adjusted EPS (Non-GAAP) | $1.91 | N/A | - The company recorded a $45.2 million loss from repositioning its available for sale securities portfolio by selling approximately $783 million of lower-yielding debt securities[5] - An expected gain from the conversion of Visa Class B shares is anticipated to offset the realized losses from the securities portfolio repositioning[5][43] Balance Sheet and Capital Highlights (as of March 31, 2024) | Metric | Value | Change from Q4 2023 | | :--- | :--- | :--- | | Period End Loans | $24.2 billion | +$268 million | | Period End Deposits | $35.4 billion | +$1.4 billion | | Assets Under Management | $105.5 billion | +$794 million | | Common Equity Tier 1 Capital Ratio | 11.99% | -7 bps | - The company repurchased 616,630 shares of common stock at an average price of $83.89 per share during the first quarter of 2024[44] Results of Operations Operating results showed declining net interest revenue from margin compression, a $45.2 million securities loss impacting other revenue, and lower expenses due to reduced FDIC assessment - Tax-equivalent net interest revenue decreased by $3.1 million quarter-over-quarter to $295.7 million, driven by a 3 basis point decline in net interest margin to 2.61%[5][17] - Other operating revenue decreased by $43.2 million from the prior quarter, mainly due to a $45.2 million loss on repositioning the AFS securities portfolio and the absence of a $31.0 million gain on the sale of BOKFI that was recognized in Q4 2023[19] - Total other operating expense decreased by $43.7 million quarter-over-quarter, largely because Q4 2023 included a $43.8 million FDIC special assessment, while Q1 2024 included a smaller, additional assessment of $6.5 million[5][53] Lines of Business Commercial Banking's net income decreased by 10%, Consumer Banking remained stable, and Wealth Management's net income fell 46% due to a prior quarter gain Net Income by Line of Business (in thousands) | Line of Business | Q1 2024 | Q4 2023 | % Change | | :--- | :--- | :--- | :--- | | Commercial Banking | $153,250 | $171,084 | (10)% | | Consumer Banking | $53,804 | $53,695 | 0% | | Wealth Management | $34,165 | $62,690 | (46)% | | Subtotal | $241,219 | $287,469 | (16)% | - Commercial Banking's net income decreased by $17.8 million, or 10%, compared to Q4 2023[33] - Consumer Banking's net income remained consistent with the prior quarter, with increased mortgage banking revenue offsetting a decline in net interest revenue[36][86] - Wealth Management's net income decreased by $28.5 million, or 46%, largely because Q4 2023 included a $31.0 million pre-tax gain on the sale of BOKFI[37] Financial Condition As of March 31, 2024, the company's financial condition remained solid, with loan growth to $24.2 billion, deposits increasing by $1.4 billion, and strong capital ratios - The loan portfolio grew by $268 million to $24.2 billion at March 31, 2024, driven by growth in commercial loans, partially offset by a reduction in commercial real estate loans[67] - The combined allowance for credit losses was $329 million, or 1.36% of outstanding loans, consistent with the prior quarter-end[15] - Period-end deposits increased by $1.4 billion to $35.4 billion compared to December 31, 2023[15] - The company's capital ratios remain strong, with a Common Equity Tier 1 capital ratio of 11.99% and a total capital ratio of 13.15% at March 31, 2024[44][143] Market Risk The company manages interest rate risk, its primary market risk, with an asset-sensitive balance sheet, and also mitigates MSR and trading risks using VaR and stress testing Interest Rate Sensitivity on Net Interest Revenue (Next 12 Months) | Rate Shock | Estimated Impact on NIR | % Change | | :--- | :--- | :--- | | +200 bp | ($29.9 million) | (2.31)% | | +100 bp | ($4.6 million) | (0.35)% | | -100 bp | ($2.5 million) | (0.20)% | | -200 bp | $0.9 million | 0.07% | - The company manages market risk from changes in the fair value of its Mortgage Servicing Rights (MSRs) through an economic hedge portfolio. A 50 basis point increase in rates is estimated to have a net negative exposure of $291 thousand on the MSR portfolio and its hedge[127][149] - For trading activities, the company uses Value at Risk (VaR) and Stressed VaR (SVaR) to measure potential losses. For Q1 2024, the average 10-day 99% VaR was $5.1 million[127][152] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[130] - No changes during the quarter were identified that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[130] Consolidated Financial Statements – Unaudited This section presents BOK Financial's unaudited consolidated financial statements as of March 31, 2024, including statements of earnings, balance sheets, and cash flows, with detailed notes Consolidated Statement of Earnings Highlights (Three Months Ended Mar 31) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Revenue | $293,572 | $352,348 | | Provision for Credit Losses | $8,000 | $16,000 | | Total Other Operating Revenue | $161,701 | $177,865 | | Total Other Operating Expense | $340,384 | $305,812 | | Net Income | $83,694 | $162,496 | Consolidated Balance Sheet Highlights | (In thousands) | Mar 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $50,160,380 | $49,824,830 | | Loans, net | $23,890,937 | $23,627,845 | | Total Deposits | $35,383,547 | $34,019,701 | | Total Shareholders' Equity | $5,128,751 | $5,142,442 | Part II. Other Information Legal Proceedings The company is involved in litigation as Indenture Trustee for municipal bonds, but management does not expect a material effect on financial condition or results - BOKF, NA is subject to litigation concerning its role as Indenture Trustee for municipal bonds where Christopher Brogdon was the borrower. Claimants allege complicity in fraud[248] - Management is advised that a loss on these claims is not probable and does not expect the final outcomes to have a material effect on the company's financials[248] Risk Factors No material changes were reported from the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2023 - No material changes were reported from the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2023[296] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, the company repurchased 651,850 shares of common stock, with 616,630 shares under its publicly announced repurchase program Share Repurchases in Q1 2024 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | Jan 2024 | 79,534 | $88.22 | 44,630 | | Feb 2024 | 425,000 | $82.73 | 425,000 | | Mar 2024 | 147,316 | $86.50 | 147,000 | | Total | 651,850 | N/A | 616,630 |