Against a backdrop of steady oil prices and robust global demand for American natural gas, BOK Financial in said energy lending fueled its fourth-quarter loan growth and uniquely positioned the Tulsa, Oklahoma, bank for 2023.
But the $47.8 billion-asset bank's executives said they are mindful of recessionary headwinds and festering inflation. They noted on an earnings call this week that pockets of health care lending are under added scrutiny and could present a threat to credit quality.
Specifically, elevated labor costs following a 2022 in which inflation peaked above 9% — a four-decade high — are pressuring senior citizen care, BOK Financial's focus area within the health arena. Medicare funding has not increased at a pace sufficient to match inflation, pressuring the margins of senior care borrowers.
However, over the long haul, demand for health care services is engrained in the U.S. economy, and government insurance programs are reliable payers. As such, executives said BOK Financial's health care portfolio is among its best long-term performers.
"If you think about it over a longer period of time, the loss rates in this portfolio are exceptionally low,"
BOK Financial reported fourth-quarter net income of $168.4 million, or $2.51 per share, up from $117.3 million, or $1.71 per share, a year earlier.
Overall, BOK Financial's net charge-offs averaged 10 basis points in 2022, substantially lower than the bank's historic loss range of 30 to 40 basis points. It expects charge-offs to remain low this year, even if a recession develops and some loans sour.
"Credit is hard to forecast. We typically will say the next six months are pretty easy to see," Kymes said. "After about six months, the lens gets really foggy. But as we look forward from here, our classified loans are down, our potential problem loans are down. Our nonaccrual loans are down. We're starting from an incredibly low point."
So any uptick in problem loans "wouldn't necessarily even indicate a deterioration really in long-term credit trends — really just a movement from abnormally low levels," Kymes added.
Meanwhile,
U.S. oil production during the fourth quarter hovered near a 2022 peak of about 12 million barrels per day, according to federal data, while natural gas production reached an all-time high. Europe, in particular, has been a big buyer of U.S. gas exports because Russia, once a steady supplier of the heating fuel, has cut off much of its energy deliveries to the continent. This developed amid European sanctions against Russia to protest its invasion of Ukraine.
BOK Financial said its energy portfolio in the fourth quarter grew about 14% from a year earlier, to $3.4 billion. Total loans in the fourth quarter were up 8.5% from a year earlier, to about $22 billion.
Energy activity bolsters much of BOK Financial's footprint, which spans Texas, Oklahoma, Colorado and neighboring states.
Bankers throughout the current earnings season said they are bracing for at least a
"Federal stimulus payments helped consumers withstand the pandemic-driven recession and build substantial savings. But much of the excess savings has been depleted, especially for lower-income households," said Simona Mocuta, committee chair and chief economist at State Street Global Advisors.
BOK Financial executives, however, expressed confidence that the bank's energy-rich territory will help it navigate any downturn.
"Our footprint is much better than most," Kymes said.
