First Oklahoma Bank is Doing Great
Tom Bennett III provides an update on First Oklahoma’s financial health, in response to the second-largest U.S. bank failure in history and the third regional bank to fail since March.
- First Oklahoma Bank is in excellent shape
- Liquidity is strong
- Asset quality is excellent
- Unrealized securities losses are exceptionally low at 0.47% of equity
- Well-managed interest rate risk
- Strong capital ratios
- Experienced Board and Management
May 1, 2023
I hope this letter finds everyone well.
Over the weekend, First Republic Bank in California failed. At its height, First Republic was one of the 20 largest banks in the country. Now it is part of JP Morgan Chase. While there are other banks struggling, First Republic was by far the weakest. All banks in America are required to file quarterly financials with the Federal Reserve. Based on the reporting, it doesn’t look like another major bank failure is imminent. That is great news. Unless interest rates unexpectedly rise more, the worst of the crisis looks to be over.
The economy is not out of the woods yet. The full impact of higher interest rates has not taken effect yet; inflation is still too high, and economic indicators suggest the economy is slowing. Stress indicators for the US economy are growing. A recession – maybe mild, maybe worse – is probably in the cards.
Not everything is doom and gloom. First Oklahoma Bank is doing great! Our quality metrics are excellent, our staffing is strong, our shareholder base is strong, and our future is bright. First Oklahoma Bank was started during the Great Recession. We are uniquely conditioned to not panic during times of stress. Since the founding of our Company in 2008 and the start of First Oklahoma Bank in 2009, we have worked hard to build a solid foundation that will allow us to thrive in both the good and challenging times.
So, what does a solid foundation look like?
- Excellent Liquidity
As of this morning, we have $158 million of cash/cash equivalents on hand – approximately 15% of our balance sheet. When you add our off-balance sheet lines of credit, we have liquidity capacity of over $400 million. To put that into perspective, our liquidity capacity is equivalent to over 40% of our entire deposit portfolio.
- Excellent Asset Quality
Nonaccrual loans as a percentage of total loans is 0.04%. Modified Texas ratio is 0.71%. Both of these metrics are outstanding!
- Extraordinarily Low Unrealized Losses
Banks are required to report unrealized losses to the Federal Reserve quarterly. There are two places where unrealized losses can live – in a bank’s ‘available for sale’ (AFS) securities portfolio and in the ‘held to maturity’ (HTM) securities portfolio. Losses in our AFS portfolio were $453,000 at 3/31/23 – or 0.47% of shareholder equity. Losses in our HTM portfolio were $0.
- Limited and Well Managed Interest Rate Risk
This is the major area where banks are feeling the pressure of rising interest rates. Many banks made interest rate bets back when interest rates were low. They bought long-term securities or made loans with long-term fixed rates. The problem is that many of those banks funded their interest bets with short-term funding (generally deposits). Rapidly rising interest rates have caused those bets to go badly. Interest bets are hard to unwind. And – if you can unwind them – they will be very expensive to absorb. For the most part, American banks are strong enough to keep the bets on and wait until they naturally unwind. They are able to do that because they have strong capital positions and a lot of liquidity. Here is the catch, if you run out of liquidity then you are forced to unwind the bets. That is exactly what happened to SVB, Signature Bank, and First Republic. Customers moved their deposits and the banks were forced to unwind their interest rate bets – sell securities and/or sell loans (if they could). The losses on those bets were so large that there was not enough capital left for the banks to survive.
First Oklahoma Bank’s interest rate risk is limited and controlled. 89.15% of First Oklahoma Bank’s assets reprice in less than five years. 60% reprice in less than three years. 44% in less than one year. All of those metrics are significantly better than industry averages.
- Strong Capital Position
First Oklahoma Bank’s capital position remains strong. Our common equity tier 1 to risk weighted assets ratio (CET1 Ratio) is 10.46%, leverage ratio is 9.17%, and total risk-based capital ratio is 11.71%. The Bank’s loan loss reserve has a balance of over $11.4 million. In addition to the capital in the Bank, our holding company has over $9 million in cash and $9 million in undrawn credit that could be used to support First Oklahoma Bank. There is plenty of capital in the Bank and even more in our parent company.
- Experienced Staff and Board Leadership
Experience counts when it comes to managing through uncertainty. All of First Oklahoma Bank’s management team has over 25 years of banking experience. On average, the management team has over 35 years of banking experience. There is even more experience on the First Oklahoma Bank Board. On average, our Board members have nearly 50 years of business experience and over 20 years of being on bank boards. Our leadership has successfully navigated many economic cycles. It will be no different this time.
First Oklahoma Bank is in great shape. I appreciate everyone being a part of the family!
Thomas Bennett, III
President, CEO and Co-Founder