BOK Financial Corporation Reports Quarterly Earnings of $134 million or $2.04 Per Share in the Third Quarter

•Net income was $134.5 million or $2.04 per diluted share for the third quarter of 2023 compared to $151.3 million or $2.27 per diluted share for the second quarter of 2023.

•Net interest revenue totaled $300.9 million, a decrease of $21.4 million compared to the prior quarter. Net interest margin was 2.69 percent compared to 3.00 percent. Growth in low-spread U.S. government agency residential mortgage-backed trading assets drove an 8 basis point decline in net interest margin with deposit repricing activity primarily driving the remaining 23 basis point reduction. For the third quarter of 2023, our core net interest margin excluding trading activities, a non-GAAP measure, was 3.14 percent compared to 3.36 percent in the prior quarter.

•Fees and commissions revenue decreased $2.6 million to $197.9 million. Decreased brokerage and trading revenue and mortgage banking revenue were partially offset by increased other revenue.

•Operating expense increased $5.6 million to $324.3 million. Personnel expense was relatively unchanged, while non-personnel expense increased $5.5 million, primarily due to higher occupancy and equipment costs and other expenses.

•Other gains and losses, net decreased $11.1 million to $1.5 million. The prior quarter included gains on alternative investments, primarily attributable to merchant banking activity.

•Period-end loans grew by $486 million to $23.7 billion at September 30, 2023, mostly driven by growth in commercial loans and commercial real estate loans secured by multifamily properties. Average outstanding loan balances were $23.4 billion, a $525 million increase.

•The provision for credit losses of $7.0 million in the third quarter of 2023 reflects our continued loan growth and changes in our economic forecast. Net charge-offs were $6.5 million or 0.11 percent of average loans on an annualized basis in the third quarter. The resulting combined allowance for credit losses totaled $325 million or 1.37 percent of outstanding loans at September 30, 2023 compared to $323 million or 1.39 percent of outstanding loans at June 30, 2023.

•Period-end deposits increased $358 million to $33.7 billion while average deposits increased $918 million to $33.3 billion. Average interest-bearing deposits increased $1.8 billion while average demand deposits declined by $840 million. The loan to deposit ratio was 70 percent at September 30, 2023, consistent with June 30, 2023.

•The company's tangible common equity ratio, a non-GAAP measure, was 7.74 percent at September 30, 2023 and 7.79 percent at June 30, 2023. The tangible common equity ratio is primarily based on total shareholders' equity, which includes unrealized gains and losses on available for sale securities. Adjusted for all unrealized securities portfolio gains and losses, including those in the investment portfolio, the tangible common equity ratio would be 7.35 percent.

•The company's common equity Tier 1 capital ratio was 12.06 percent at September 30, 2023. In addition, the company's Tier 1 capital ratio was 12.07 percent, total capital ratio was 13.16 percent, and leverage ratio was 9.52 percent at September 30, 2023. At June 30, 2023, the company's common equity Tier 1 capital ratio was 12.13 percent, Tier 1 capital ratio was 12.13 percent, total capital ratio was 13.24 percent, and leverage ratio was 9.75 percent.

•The company repurchased 700,500 shares of common stock at an average price paid of $84.17 a share in the third quarter of 2023.

•Commercial Banking contributed $157.9 million to net income in the third quarter of 2023, a decrease of $12.2 million compared to the second quarter of 2023. Combined net interest revenue and fee revenue decreased $7.5 million due to a shift in deposit balances from demand to interest-bearing transaction accounts combined with a decline in customer hedging revenue, primarily related to our energy customers. Net loans charged-off decreased $1.1 million to $4.9 million in the third quarter of 2023. Personnel expense increased $2.8 million, driven primarily by incentive compensation costs and market expansion. Non-personnel expense increased $1.5 million, led by the retirement of certain ATMs as we upgrade our network. The prior quarter included a gain on alternative investments of $8.1 million resulting from merchant banking activities. Average loans increased $486 million or 3 percent to $19.6 billion. Average deposits increased $276 million or 2 percent to $15.1 billion.

•Consumer Banking contributed $58.0 million to net income in the third quarter of 2023, a decrease of $2.3 million compared the prior quarter. Combined net interest revenue and fee revenue decreased $2.4 million, largely due to a decrease in mortgage banking revenue from lower production volumes combined with narrowing margins and spread compression on residential mortgage loans. Operating expense increased $2.2 million. Average loans increased $50 million or 3 percent to $1.8 billion. Average deposits were mostly unchanged from the previous quarter.

•Wealth Management contributed $43.0 million to net income in the third quarter of 2023, a decrease of $14.3 million compared to the second quarter of 2023. Combined net interest and fee revenue decreased $12.4 million, primarily due to declining spreads on loans and deposits. Total revenue from institutional trading activities decreased $4.4 million, largely related to our municipal bond trading activity. Investment banking revenue increased $4.7 million resulting from increased underwriting fees and financial advisory fees. Personnel expense increased $1.4 million due to growth in regular compensation from business expansion. Non-personnel expense increased $3.1 million, primarily due to ongoing technology project costs. Average loans were consistent with the prior quarter at $2.2 billion. Average deposits increased $343 million or 5 percent to $7.9 billion. Assets under management or administration were $99.0 billion, a decrease of $4.6 billion.

Net interest revenue was $300.9 million for the third quarter of 2023 compared to $322.3 million for the prior quarter. Net interest margin was 2.69 percent compared to 3.00 percent. Growth in low-spread trading assets drove an 8 basis point decline in net interest margin while deposit price competition and liability mix shift are the primary drivers of the the remaining 23 basis point decline. For the third quarter of 2023, our core net interest margin excluding trading activities, a non-GAAP measure, was 3.14 percent compared to 3.36 percent in the prior quarter.

Average earning assets increased $1.3 billion. Average trading securities grew $1.2 billion, spurred by favorable market opportunities for U.S. government agency residential mortgage-backed securities observed primarily throughout the second quarter and extending into the early part of the third quarter. Average loan balances increased $525 million, largely due to growth in commercial and commercial real estate loans. Average fair value option securities, held as an economic hedge of the changes in fair value of our mortgage servicing rights, decreased $204 million. Average available for sale securities decreased $108 million and average interest-bearing cash and cash equivalents decreased $110 million. Average interest-bearing deposits increased $1.8 billion. Average other borrowings increased $1.7 billion while funds purchased and repurchase agreements declined $972 million.

The yield on average earning assets was 5.49 percent, up 20 basis points. The loan portfolio yield increased 22 basis points to 7.25 percent while the yield on the available for sale securities portfolio increased 11 basis points to 3.11 percent. The yield on trading securities grew 26 basis points to 4.76 percent.

Funding costs were 3.81 percent, up 54 basis points. The cost of interest-bearing deposits increased 61 basis points to 3.17 percent. The cost of other borrowings was up 36 basis points to 5.48 percent while the cost of funds purchased and repurchase agreements increased 23 basis points to 4.81 percent. The benefit to net interest margin from assets funded by non-interest liabilities was 101 basis points, an increase of 3 basis points.

Fees and commissions revenue totaled $197.9 million for the third quarter of 2023, a decrease of $2.6 million compared to the prior quarter.

Brokerage and trading revenue decreased $2.7 million, with a $2.5 million reduction in trading revenue, primarily related to our municipal bond trading activity, which was influenced by the rising interest rate environment and evolving market expectations during the third quarter. Customer hedging revenue decreased $6.8 million following a record high in the second quarter. Investment banking revenue grew $5.7 million, primarily related to underwriting fees and financial advisory fees produced by our Public and Corporate Finance group, which underwrites municipal bonds such as independent school districts.

Mortgage banking revenue decreased $1.8 million, largely due lower mortgage production and qualifying residential mortgage loans guaranteed by U.S. government agencies previously in forbearance that have been resold into GNMA pools following the applicable performance period specified by the programs. Mortgage production volume was down $30.1 million reflecting the rise in mortgage interest rates and continued low inventory in the housing market.

Other revenue increased $1.6 million, largely due to increased margin interest fees and letter of credit fees.

Total operating expense was $324.3 million for the third quarter of 2023, an increase of $5.6 million compared to the second quarter of 2023.

Personnel expense was $190.8 million, consistent with the prior quarter. A $2.0 million increase in regular compensation due to business expansion was mostly offset by a decrease in employee benefits expense driven by seasonal declines in payroll taxes.

Non-personnel expense was $133.5 million, an increase of $5.5 million. Occupancy and equipment costs grew $2.5 million driven by the retirement of certain ATMs as we upgrade our network. Other expense increased $2.9 million, primarily due to an accrual for certain disputed matters. FDIC insurance expense also increased $1.0 million.

Outstanding loans were $23.7 billion at September 30, 2023, growing $486 million over June 30, 2023, largely due to growth in commercial and commercial real estate loans. Unfunded loan commitments decreased $575 million compared to the second quarter of 2023 due primarily to the funding of existing commercial real estate loan commitments.

Outstanding commercial loan balances, which includes healthcare, services, energy and general business loans, increased $185 million over the prior quarter.

Healthcare sector loan balances increased $92 million, totaling $4.1 billion or 17 percent of total loans. Our healthcare sector loans primarily consist of $3.4 billion of senior housing and care facilities, including independent living, assisted living and skilled nursing. Generally, we loan to borrowers with a portfolio of multiple facilities, which serves to help diversify risks specific to a single facility.

General business loans increased $131 million to $3.6 billion or 15 percent of total loans. General business loans include $2.2 billion of wholesale/retail loans and $1.4 billion of loans from other commercial industries.

Services sector loan balances decreased $19 million to $3.6 billion or 15 percent of total loans. Services loans consist of a large number of loans to a variety of businesses, including Native American tribal and state and local municipal government entities, Native American tribal casino operations, foundations and not-for-profit organizations, educational services and specialty trade contractors.

Energy loan balances decreased $18 million to $3.5 billion or 15 percent of total loans. The majority of this portfolio is first lien, senior secured, reserve-based lending to oil and gas producers, which we believe is the lowest risk form of energy lending. Approximately 69 percent of committed production loans are secured by properties primarily producing oil. The remaining 31 percent is secured by properties primarily producing natural gas. Unfunded energy loan commitments were $4.1 billion at September 30, 2023, a $219 million decrease compared June 30, 2023.

Commercial real estate loan balances grew $270 million and represent 22 percent of total loans. Loans secured by multifamily properties increased $232 million to $1.7 billion. Loans secured by industrial facilities increased $83 million to $1.4 billion. This growth was partially offset by a $24 million decrease in loans secured by office facilities. Unfunded commercial real estate loan commitments were $2.0 billion at September 30, 2023, a decrease of $411 million compared to June 30, 2023. We take a disciplined approach to managing our concentration of commercial real estate loan commitments as a percentage of Tier 1 Capital. While loan commitments are presently near the upper internal concentration limit, we expect continued modest growth in our commercial real estate balances as loans fund, primarily in the multifamily and industrial loan portfolios.

Loans to individuals increased $31 million and represent 16 percent of total loans. Residential mortgage loans increased $72 million while personal loans decreased $42 million.

Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks, provide adequate liquidity to meet our needs. The loan to deposit ratio was 70 percent at September 30, 2023, consistent with the prior quarter, providing significant on-balance sheet liquidity to meet future loan demand and contractual obligations.

Period-end deposits totaled $33.7 billion at September 30, 2023, a $358 million increase. Interest-bearing transaction account balances increased $989 million while time deposits increased $221 million. Demand deposits decreased $808 million. We do not rely on brokered certificates of deposit as a significant source of funding. Time deposits included $688 million of brokered certificates of deposit, a $72 million decrease compared to June 30, 2023.

Average deposits were $33.3 billion at September 30, 2023, a $918 million increase. Average interest-bearing transaction account balances increased $1.0 billion and average time deposits increased $764 million. Average demand deposit account balances decreased $840 million. Average Commercial Banking deposits increased $276 million to $15.1 billion or 45 percent of total deposits. Our commercial deposit portfolio is highly diversified across industries and customers. The highest concentration by industry within our commercial deposit portfolio is with our energy customers representing 6 percent of our total deposits. Wealth Management deposits increased $343 million to $7.9 billion or 24 percent of total deposits. Consumer Banking deposits decreased $50 million to $7.9 billion or 24 percent of total deposits.

The company's common equity Tier 1 capital ratio was 12.06 percent at September 30, 2023. In addition, the company's Tier 1 capital ratio was 12.07 percent, total capital ratio was 13.16 percent, and leverage ratio was 9.52 percent at September 30, 2023. At the beginning of 2020, we elected to delay the regulatory capital impact of the transition of the allowance for credit losses from the incurred loss methodology to CECL for two years, followed by a three-year transition period. This election added 6 basis points to the company's common equity tier 1 capital ratio at September 30, 2023. At June 30, 2023, the company's common equity Tier 1 capital ratio was 12.13 percent, Tier 1 capital ratio was 12.13 percent, total capital ratio was 13.24 percent, and leverage ratio was 9.75 percent.

The company's tangible common equity ratio, a non-GAAP measure, was 7.74 percent at September 30, 2023 and 7.79 percent at June 30, 2023. The tangible common equity ratio is primarily based on total shareholders' equity, which includes unrealized gains and losses on available for sale securities. Adjusted for all unrealized securities portfolio gains and losses, including those in the investment portfolio, the tangible common equity ratio would be 7.35 percent. The company has elected to exclude unrealized gains and losses from available for sale securities from its calculation of Tier 1 capital for regulatory capital purposes, consistent with the treatment under the previous capital rules.

The company repurchased 700,500 shares of common stock at an average price paid of $84.17 a share in the third quarter of 2023. We view share buybacks opportunistically, but within the context of maintaining our strong capital position.

Nonperforming assets totaled $123 million or 0.52 percent of outstanding loans and repossessed assets at September 30, 2023, compared to $136 million or 0.59 percent at June 30, 2023. Excluding loans guaranteed by U.S. government agencies, nonperforming assets totaled $113 million or 0.48 percent of outstanding loans and repossessed assets at September 30, 2023, compared to $125 million or 0.54 percent at June 30, 2023.

Nonaccruing loans decreased $13 million compared to June 30, 2023. New nonaccruing loans identified in the third quarter totaled $11 million, offset by $12 million in payments received and $11 million of charge-offs. Nonaccruing commercial real estate loans decreased $10 million and nonaccruing general business loans decreased $5.5 million, partially offset by a $5.1 million increase in nonaccruing healthcare loans.

Net charge-offs were $6.5 million or 0.11 percent of average loans on an annualized basis in the third quarter. Charge-offs for the third quarter were primarily composed of a $4.6 million general business loan, a $2.2 million commercial real estate loan and a $1.5 million services loan.

The provision for credit losses of $7.0 million in the third quarter of 2023 reflects continued loan growth and changes in our economic forecast. The provision for credit losses was $17.0 million in the second quarter of 2023.

At September 30, 2023, the combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $325 million or 1.37 percent of outstanding loans and 298 percent of nonaccruing loans.

The fair value of the available for sale securities portfolio totaled $11.9 billion at September 30, 2023, largely unchanged compared to June 30, 2023. At September 30, 2023, the available for sale securities portfolio consisted primarily of $6.2 billion of residential mortgage-backed securities fully backed by U.S. government agencies and $4.5 billion of commercial mortgage-backed securities fully backed by U.S. government agencies. At September 30, 2023, the available for sale securities portfolio had a net unrealized loss of $1.0 billion compared to $899 million at June 30, 2023.

We hold an inventory of trading securities in support of sales to a variety of customers. At September 30, 2023, the trading securities portfolio totaled $4.7 billion compared to $5.4 billion at June 30, 2023.

The company also maintains a portfolio of residential mortgage-backed securities issued by U.S. government agencies and interest rate derivative contracts as an economic hedge of the changes in the fair value of our mortgage servicing rights. This portfolio of fair value option securities decreased $192 million to $20 million at September 30, 2023.

Derivative contracts are carried at fair value. At September 30, 2023, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under our customer derivative programs totaled $594 million compared to $538 million at June 30, 2023. The aggregate net fair value of derivative contracts, before consideration of cash margin, held under these programs reported as liabilities totaled $582 million at September 30, 2023 and $526 million at June 30, 2023.

The net cost of the changes in the fair value of mortgage servicing rights and related economic hedges was $1.3 million during the third quarter of 2023, including a $9.2 million decrease in the fair value of securities and derivative contracts held as an economic hedge, an $8.0 million increase in the fair value of mortgage servicing rights and $112 thousand of related net interest expense.

The company will hold a conference call at 9 a.m. Central time on Wednesday, October 25, 2023 to discuss the financial results with investors. The live audio webcast and presentation slides will be available on the company’s website at www.bokf.com. The conference call can also be accessed by dialing 1-201-689-8471. A conference call and webcast replay will also be available shortly after conclusion of the live call at www.bokf.com or by dialing 1-844-512-2921 and referencing conference ID # 13741617.

BOK Financial Corporation is a $49 billion regional financial services company headquartered in Tulsa, Oklahoma with $99 billion in assets under management or administration. The company's stock is publicly traded on NASDAQ under the Global Select market listings (BOKF). BOK Financial Corporation's holdings include BOKF, NA; BOK Financial Securities, Inc., BOK Financial Private Wealth, Inc. and BOK Financial Insurance, Inc. BOKF, NA's holdings include TransFund, Cavanal Hill Investment Management, Inc. and BOK Financial Asset Management, Inc. BOKF, NA operates banking divisions across eight states as: Bank of Albuquerque; Bank of Oklahoma; Bank of Texas; and BOK Financial in Arizona, Arkansas, Colorado, Kansas and Missouri; as well as having limited purpose offices in Nebraska, Wisconsin, Connecticut and Tennessee. Through its subsidiaries, BOK Financial Corporation provides commercial and consumer banking, brokerage trading, investment, trust and insurance services, mortgage origination and servicing, and an electronic funds transfer network. For more information, visit www.bokf.com.

The company will continue to evaluate critical assumptions and estimates, such as the appropriateness of the allowance for credit losses and asset impairment as of September 30, 2023 through the date its financial statements are filed with the Securities and Exchange Commission and will adjust amounts reported if necessary.

This news release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial Corporation, the financial services industry and the economy generally. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” “will,” “intends,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that acquisitions and growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These various forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in government, changes in commodity prices, interest rates and interest rate relationships, inflation, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. BOK Financial Corporation and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

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(in thousands, except per share data)

QUARTERLY EARNINGS TREND – UNAUDITED

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FINANCIAL HIGHLIGHTS – UNAUDITED

1    See Reconciliation of Non-GAAP Measures following.

2    Excludes 1 percent excise tax on corporate stock repurchases.

3 Prior period ratios have been adjusted to be consistent with the current period presentation.

4     Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

The tangible common equity ratio and return on average tangible common equity are primarily based on total shareholders' equity, which includes unrealized gains and losses on available for sale securities, less intangible assets and equity that does not benefit common shareholders. The adjusted tangible common equity ratio also includes unrealized gains and losses on the investment portfolio. These measures are valuable indicators of a financial institution's capital strength since they eliminate intangible assets from shareholders' equity and retain the effect of unrealized losses on securities and other components of accumulated other comprehensive income in shareholders' equity.

Pre-provision net revenue is a measure of revenue less expenses, and is calculated before provision for credit losses and income tax expense. This financial measure is frequently used by investors and analysts and enables them to assess a company's ability to generate earnings to cover credit losses through a credit cycle. It also provides an additional basis for comparing the results of operations between periods by isolating the impact of the provision for credit losses, which can vary significantly between periods.

The efficiency ratio measures the Company's ability to use its assets and manage its liabilities effectively in the current period. Prior to the second quarter of 2023, the efficiency ratio did not exclude amortization of intangible assets and only included tax-equivalent net interest revenue and fees and commissions as part of total revenue. All prior periods were adjusted to conform with the current methodology.

Net interest revenue and net interest margin excluding trading activities removes the effect of trading activities on these metrics allowing management and investors to assess the performance of the Company's core lending and deposit activities without the associated volatility from trading activities.

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Loans attributed to a principal market may not always represent the location of the borrower or the collateral.

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