High interest rates and elevated funding costs were among the factors that dented BOK Financial's fourth-quarter profits. But the regional bank
"It was a noisy but very good quarter overall," Stacy Kymes, BOK's president and CEO, said in an interview Wednesday after the company reported its earnings.
Kymes said that
The $49.8 billion-asset bank reported that its loans at the end of the fourth quarter of 2023 were up
While quarterly loan growth was down modestly from more than 6% for all of 2023, some loans that could have closed in the fourth quarter are instead being finalized early this year, Kymes said.
He noted that the timing of commercial loan closings can make quarterly numbers "lumpy." This year, BOK is looking for loan growth of about 6-7%, he said, with commercial demand steady across a footprint that spans Texas, Oklahoma, Colorado and neighboring states that are all growing economically and in terms of population.
Credit costs at BOK ticked up in the fourth quarter, but Kymes said that credit quality remained strong. Fourth-quarter nonperforming assets totaled $148 million, or 0.62% of the overall portfolio, compared with $123 million, or 0.52%, the prior quarter. Staying below the 1% level is broadly viewed as exceptional by historical standards, Kymes said.
He also emphasized the company's growth in wealth management, including a recent push in the Texas cities of Austin and San Antonio. Earlier in 2023, BOK also expanded full-service banking to the latter market.
BOK's wealth management division contributed $62.7 million to net income in the fourth quarter, which was up $19.7 million from the prior quarter and set a quarterly record for the company. The boost from wealth management offset declines in trading, investment banking and mortgage fee income that were linked in part to high interest rates.
Higher funding costs, primarily due to an ongoing shift from non-interest-bearing accounts to interest-bearing ones, offset increases in interest income from loans and contributed to pressure on BOK's net interest margin and profits.
The company's net interest margin contracted by five basis points during the quarter to 2.64%. Net interest revenue totaled $296.7 million, a decrease of $4.2 million from the prior quarter.
BOK's fourth-quarter deposits increased $367 million from the previous quarter to $34 billion, and its loan-to-deposit ratio was 70%, consistent with the third quarter. Kymes expects the ratio to hover between 70% and 73% in coming quarters.
BOK reported fourth-quarter net income of $82.5 million, or $1.26 per share. That compared with $134.5 million, or $2.04, for the prior quarter and $168.4 million, or $2.51, a year earlier.
The company's fourth-quarter results included a 52-cent per share reduction in net income as a result of a Federal Deposit Insurance Corp. special assessment. The FDIC assessed BOK and its peers to replenish an industry insurance fund following the failures of several regional banks in 2023.
With short-term interest rates holding steady, Kymes said that BOK's net interest margin and net interest income could both hit troughs early in 2024. He predicted that "we'll build back up in the latter half" of the year.
Should the Federal Reserve cut rates multiple times this year, as futures markets anticipate, the improvements could develop sooner and prove more pronounced, Kymes said.
Residential mortgages and other business lines that have been hampered by high rates are poised to rebound when rates decline, Kymes said. Trading operations tied to mortgages could also improve notably.
During an earnings call with analysts, Kymes did not rule out BOK taking an interest in bank M&A. But he said no deals are likely in the near term, explaining that the bank will instead focus on organic growth and its ongoing efforts to recruit talented employees. He also mentioned the possibility of product acquisitions.
"I think for us, broadly, the large bank acquisition is going to be difficult for us to do. There's just not a lot that would fit the profile that we're looking for," he said during the earnings call. "We would want to stay largely in the geographic footprint that we're in today. We really like that. We want to continue to grow, particularly in these fast-growing markets like Texas.
"It's got to be of sufficient size to move the needle for us, but there's just not a lot to fit that," he added. "We're more interested in technology or product acquisitions that could add on and be incremental" to earnings much more quickly "and not distract the whole company from a regulatory approval and conversion process."
