BOK Financial Corp. executives on the bank's third-quarter earnings call detailed the pressure that Federal Reserve interest rate cuts have placed on the bank's net interest margins.
CFO Steven Nell said during the call that the Fed's recent interest rate cuts have strained the bank, causing London interbank offered rate loans to decline at a faster clip than deposit pricing. NIM will decline in the fourth quarter, Nell said, though he declined to estimate the size of the decrease.
"The last rate cut we saw in September has clearly placed a negative pressure on net interest income and net interest margin," Nell said. "We also expect another rate cut before year-end, so additional pressure on NII and NIM will depend on the timing of that cut."
Nell said that while the bank has been planning for a fourth-quarter rate cut, for either October or later, he expects rate-setting activity to flatten in 2020.
"If [a flat interest rate] holds in 2020 and we continue to grow loans, certainly we're going to grow NII, but I feel pressure there in the fourth quarter with another rate decline," Nell said.
The CFO also said on the call that the bank estimates the current expected credit loss accounting standard, known as CECL, will increase reserves by 25% to 30%, representing about $50 million to $75 million on a pretax basis.
CECL's effective date for the bank is Jan. 1, 2020.