Q3 2022 BOK Financial Corp Earnings Call
I would now like to turn the presentation over to Steven Nell Chief Financial Officer for B L. K Financial Corporation. Please proceed.
Good morning, and thanks for joining us today, our CEO Stacy kinds, who will provide opening comments.
Marc Maun Executive Vice President for regional banking will cover our loan portfolio related credit metrics Scott.
Scott Grauer Executive Vice President of wealth management will cover our fee based results and I'll provide details regarding key financial metrics.
So the slide presentation and third quarter press release are available on our website at <unk> Dot com.
We refer you to the disclaimers on slide two regarding any forward looking statements. We make during the call I'll now I will turn the call over to Stacy <unk>.
Thank you Steven good morning, and thanks for joining us to discuss <unk> financials third quarter financial results.
Starting on slide four third quarter, net income was $156 million or $2 32 per diluted share.
Results reflected another very strong quarter that demonstrates our diverse earnings mix.
The third quarter ranks as the third highest in the bank's earnings history trailing only the second and third quarters of 2021.
Both of which had negative loan loss provisions.
Pre provision net revenue increased 42 million linked quarter as we grew core loans experienced significant margin expansion embedded benefited from our diverse fee income base.
Short term interest rates continued to rise during the quarter and our asset sensitive balance sheet responded accordingly.
Our net interest margin increased 48 basis points linked quarter due to loan portfolio that is heavily weighted to variable rate loans.
B income increased linked quarter.
Institutional trading took advantage of favorable market conditions and investment banking set a quarterly record for fee income primarily in municipals.
Our asset quality credit trends remained unsustainably, good, but we did add to our credit loss reserve this quarter in recognition of the loan growth and less certainty in the economic outlook.
With the utilization rate is still low.
While average deposits continued Lorraine high compared to pre pandemic levels, we saw a decrease of one and a half billion or 4% this quarter with virtually all of that an interest bearing balances.
These declines were consistent or even better than our expectations given a rapid actions of the federal reserve to move short term rates higher.
The third quarter alone to deposit ratio increased to 59.8% from 55.1% last quarter.
Assets under management or administration were relatively flat linked quarter at 95.4 billion and they're down 3.5% compared to last year driven by market impact on equities, which comprise approximately a third of the total.
I'll provide additional perspective on the results before starting the Q&A session, but now Martin one will review the loan portfolio in our credit metrics in more detail.
Turn the call over to Mark.
Thanks, Stacey turning to slide seven period, and loans and our core loan portfolio or 21.8 billion up 2.5% linked quarter year over year cord loans have now grown $2 billion or 9.9% total CNI loans were relatively flatling quarter with growth in health care.
You're in general business offset by declines in energy and services.
Growth trends in commercial real estate loans are traditionally the lumpy as evidenced by this quarter strong result link.
Link quarter balances increased 368 million or 9% with 248 million of the increase from loans secured by multifamily residential properties and $150 million increase in loans secured by industrial facilities.
Unfunded in commercial real estate commitments increased 18% linked quarter, so year over year commercial real estate balances increased 8.7% consistent with the rest of our lending businesses.
Health care balances increased 130 million or one or 3.5% linked quarter, primarily driven by our senior housing in hospital acute care sectors health.
Health care unfunded commitments increased 14% link quarter, which we expect will drive additional balanced growth.
Energy balances declined 21 billion this quarter, but have increased $558 million or 20% year over year unfunded commitments increase just over three per cent link quarter, resulting in an average utilization rate of approximately 50%, creating more capacity for continued balance sheet growth.
Services and general business loans did declined 1.2 per cent link quarter, but have increased $396 million or $6, 6% compared to September 30th of 2021 unfunded commitments in the combined services in general business categories increased 6.6 per cent link quarter slightly lowering utilization rate.
Utilization rates continued to run below pre COVID-19 levels. So we still have significant capacity to increase your outstanding loan balances without it being predicated on any new customer acquisition.
Over the last 12 months core loans have grown $2 billion or just under 10% with annualized year to date growth of just over 12% for 2022.
Well, we don't expect loan growth to continue at this pace, we believe that the momentum we've experienced up to this point will continue as we close out the year enrolled into 2023.
Now turning to slide eight you can see that credit quality continues to be exceptionally good across the loan portfolio nonaccrual loans increased $17 million in the third quarter, primarily due to two loans one on health care and another in services are criticized assets continued to decline and as a percentage of change.
<unk> equity in loan loss reserves remain at levels not seen in the last 10 years, we took a $15 million provision for expected credit losses. This quarter, considering continued strong loan growth and changes in our reasonable and supportable economic forecast, which were primarily related to a more challenging economic out.
Look from the federal Reserve's continued actions to control inflation.
Given our solid credit position today, a ratio of capital allocated to commercial real estate, that's substantially less than our peers and a history of outperformance during past credit cycle. We believe we are well positioned should another economic slowdown materialized in the quarters ahead.
We realized net charge offs of only $457000 during the third quarter that charge offs have dropped to an average of two basis points over the past four trailing quarters, which is far below our historic loss range of 30 to 40 basis points looking.
Looking forward, we expect that charge offs to continue to be low.
The combined allowance for credit losses was 298 million or 1.37% of outstanding loans, a quarter and we expect to maintain this ratio or to migrate slightly upward as we expect strong loan growth to continue as well as continued economic uncertainty due to market conditions as the fed <unk>.
Pursue their goal of raining in inflation.
Both of these conditions support credit provisions going forward now alternative call over to Scott.
Thanks Mark.
Turning to slide 10, total fees and commissions were 193 million for the third quarter of 19 million dollar linked quarter increase.
Trading fees increased $15 million linked quarter as we took advantage of favourable market conditions and increased market volatility or commodity and hedging activities were flat linked quarter at 13 million, but actually set a new quarterly record slightly topping last quarter's record.
Our bank wide investment banking activities also established a new record quarter with fees, increasing $2.4 million to $14 million led by record results from our municipal investment banking segment.
While lumpy and their timing the combination of our investment banking activities from our wealth and commercial segments provide another solid source of diversified revenues.
Fiduciary an asset management fees were relatively flat linked quarter with a 352000 increase.
The second quarter included seasonal tax preparation fees, creating a linked quarter decline that was offset by reduced fee waivers and our cabin all he'll funds driven by the increase in short term interest rates.
We have now eliminated all of our fee waivers are assets under management or administration, where virtually flat linked quarter at $95 billion. Despite a 5% linked quarter decline in equities.
Our current mix of assets under management, or 45% fixed income, 32% equities, 14% cash and 9% alternatives.
Our relationship centric.
Model and product offering continues to serve our clients needs today as we help them manage market volatility.
Deposit service charges increased slightly this quarter with growth driven primarily from our consumer segment.
Year to date, approximately 24% of deposits service charge fees were consumer related overdraft program fees.
We are implementing changes to our overdraft program in the fourth quarter that will reduce those consumer fees by approximately two and a half million dollars per quarter.
Mortgage banking revenue was flat linked quarter with production revenues down $1.9 million due to a $76 million decline in production volumes combined with narrowing margins.
Mortgage servicing fees increased 1.8 million, this quarter and or 26% higher than third quarter last year.
During the last 12 months, we've strategically acquired servicing of approximately 6 billion of unpaid principal balances that will add $15 million of annual servicing revenue.
I will now turn over the call. The Stephen to highlight are net interest margin dynamics and the important balance sheet items for the quarter Steven.
Thank you Scott.
Turning to slide 12 third quarter net interest revenue was $316 million or $42 million increase from last quarter inch.
Interest and fees on loans increased $60 million largely due to a 97 basis for an increase in loan yields lone yields increased as our variable rate loans repriced in response to the recent increase in short term interest rates.
Our balance sheet is acid sensitive with the majority of our commercial and commercial real estate loans repricing in a year or less <unk>.
Interest income on Securities increased 7 million linked quarter is average yields increased 29 basis points, primarily due to higher yields on the trading portfolio and higher reinvestment rates on are available for sale portfolio.
Total interest expense increased $27 million linked quarter, primarily due to a 45 basis point increase in the average rate of interest bearing liabilities, while those related average balances fell $1.6 billion. The average effective rate an interest bearing deposit increased 39 basis point.
This quarter.
Average, earning assets decrease $534 million compared to the last quarter.
Average loans increased $542 million offset by $989 million decline in the trading securities portfolio.
Average total deposits declined 1.5 billion with materially all of that from interest bearing balances, which was consistent with our expectations given the upward trend in short term rates.
Net interest margin was 3% to 4% a 48 basis point increase linked quarter with the increased driven by 30 basis point increase and then interest reddening spread and the 18 basis point increase in the benefit from non interest bearing funding sources.
With our current asset sensitive position and given expectations for further increases in short term rates, we expect to capture significant benefit in the fourth quarter and into 2023.
Turning to slide 13, we highlight further asset sensitive balance sheet position and expect our performance and a rising rate environment to be similar to that experienced in the last great hiking cycle from 2015 to 2019.
Using our standard modeling, assuming a parallel shift up 200 basis points gradually over 12 months relative to rate as of the end of the third quarter net interest revenue would increase 165% or approximately $24 million.
Over the following 12 months, the total benefit increase is 415% or $67 million.
Assets sensitivity for the first 12 months would be reduced to and approximately neutral position and a flattening scenario, where short term rates increased 200 basis points, while long in rate increased 100 basis points are.
I'll provide more color in a moment when I talk about our specific forward guidance for net interest margin.
On slide 14, you can see that our liquidity position remains very strong or loan to deposit ratio will increase to 59.8%. This quarter from 55.1% at June 30th due to the combined impact of a 2.2 billion decrease in total deposits and a $499 million increase.
Loan balances this quarter.
Are sufficient on balance sheet liquidity has us well positioned to meet future increasing customer loan demand.
R capital position remains strong as well with a common equity tier one ratio of 11.8% well above regulatory threshold.
With such strong capital levels, we once again, we're active with share repurchases Opportunistically repurchasing 548000 shares at an average price of 90 120 per share in the open market, we expect to be active in repurchasing shares during the fourth quarter.
Turning the slide 15 year over year total expenses increased only one 2% with a 3.1% decline in personnel expense and a 7.8% increase in nonpersonnel linked.
Linked quarter total expenses increased $21 million.
$15 million of the linked quarter increase comes from personnel expense with 10 million of that increase related to deferred and share based compensation. These.
These categories are influenced by market valuations and forecasted annual results compared to a peer group.
And can move around quarter to quarter.
Linked quarter cash based incentives also grew $4.9 million due to a strong sales results in a commercial and well segments.
Nonpersonnel expense increased 6 million linked quarter with professional fees and occupancy the primary drivers.
Project related band drives the professional fee increase while the increase in occupancy of seasonal related to annual commentary maintenance charges combined with increased utility costs.
Given that we have met or exceeded the guidance for key balance sheet and earnings drivers that we identified for 2022, the forecast and assumptions will focus on the next 15 months, we're not ready to provide more formal assumptions for 2023 is that remains a work in progress for us, but I do think the following key assumptions.
May be helpful. Given our level of earnings outperformance over the last couple of quarters.
We currently expect mid to upper single digit annualized loan growth or geographic footprint remains very strong and may outperform in this cycle given the high level of business migration from other markets and the role energy plays in our footprint.
We have a strong base of core deposits and expect demand deposits to remain relatively stable, while our loan to deposit ratio migrates overtime.
We follow the forward curve when modeling or re download currently we are assuming a 75 basis point increase in November and December and a 25 basis point increase in February of 2023 before the federal Reserve pauses.
We believe the margin could migrate to 350% are modestly higher in the first half of 2023 before stabilising and declining modestly due to the lag effect of deposit Bettas to September net interest margin was 335%.
Operating revenue is very diverse and some components are market dependent and even counter cyclical, but we expect total operating revenue should be in a range between the second quarter of 2002 in the third quarter of 2002 reported amounts we.
We expect expenses to rise over the next five quarters, but not at the level of revenue growth. This will allow the efficiency ratio to stay below 60% with changes driven up or down by the revenue mix in each period.
Or allow us level is above a medium of our peers and we expect to maintain a strong credit reserve with a less certain economy.
Current asset quality is very strong and does not foreshadow material dear deterioration, but this could change as the economic outlook becomes more clear we.
We expect to continue our quarterly share repurchases.
I will now turn the call back to Stacy times for closing commentary.
Steven.
Third quarter results are very exciting and an excellent example, how the banks operating model is positioned for earnings growth in this environment.
We are experiencing benefit from our ethics has a balance sheet physician consistent quarterly loan growth across our geographic footprint and across business lines sectors as well as our diverse be base.
We are positioned to benefit from various market conditions rather.
Driving short term interest rates had a negative impact on our mortgage related business, but have significantly benefitted are lending areas and related margin.
Markets have negatively impacted our assets under management of volatility benefited our trading in commodities businesses.
Offering a broad selection of products to our client base is producing the top line revenue growth, we'd better focus on at the beginning of the year.
We expect the federal reserve to continue their aggressive inflation fighting strategy with further increases the short term interest rates.
Which will drive further margin expansion and revenue for the bank.
Credit quality continues to be very stable and better than pre pandemic levels, though it is likely unsustainable.
We continue to maintain a combined allowance above the medium of our peers as we institutionally believe in strong credit reserves unless certain times.
We are in a stage, where the outcome of investing in strong bags versus trading the sector are expected to matter.
Banks with thoughtful growth a diverse business mix meaningful core deposits and proven credit discipline should outperform.
We are well positioned however, the economy should shift favorable or negatively in the coming year.
With that we are pleased to take your questions operator.
Thank you.
At this time, we will be conducting a question and answer session if you'd like.
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Our first question comes from Jared Shah with Wells Fargo Securities. Please proceed with your question.
Everybody good morning.
Warning Jared.
Maybe starting with the the loan growth outlook can you share some of the I guess assumptions for what you think utilization rates do with that and then maybe you know more broadly what you're hearing from your customers in terms of sentiment and desire to I guess.
Investing money in this environment and whether that's more broadly across the whole group or even more specifically on the energy side.
Sure <unk>, let me try to address both of those and if I Miss something just feel free to follow up but first of all as we look at utilization that really didn't factor significantly into how we were thinking about the next 15 months in terms of the loan guidance clearly from my perspective enhancement and utilization would accelerate.
The loan growth.
We're not seem really material changes and utilization at all we're still well below where we were broadly.
Pre pandemic so there's there's.
Material opportunity for moving loan growth, even higher than what we estimated utilization rate to begin to move up meaningfully.
As it relates to to customer and borrowers sentiment I would tell you.
In my career I can't remember a different time in terms of what you saw and heard on the financial media versus what we're talking about with our customers.
Customers are.
As optimistic about their business that I've heard them talk about in many many years I don't know if it's our footprint, we haven't really fantastic growth footprint with Texas in Phoenix in Denver.
Kind of core growth markets for us I don't know if it's the energy piece, where I think we are benefiting from a bit higher energy sustained higher energy prices in our core markets of of Colorado, Texas, Oklahoma and even in Mexico.
But but borrowers sentiment is very very positive, they're clearly dealing with labor and supply chain issues, but those are those seem to be getting better.
And they are able to.
Price and have margins in their business that that helped him accommodate those higher.
Labor costs through supply chain challenges. So there's a real shifting sentiment I think between what we hear from people on the ground who are running their businesses everyday in our markets versus perhaps what what the financial press would have us believe is Ah Ah near recession a recessionary.
<unk>.
Okay. That's a great color. Thanks, and then may be shifting to the the outlook on margin.
What are what are some of the assumptions around.
Through this cycle now with you know now that you've seen certain but a good quarter of a real life example, and as we look at D. D. A when you say that stable are you, saying stable is dollars are stable as a percentage of the mix I guess and how does that factor into the debate outlook.
Yeah, Jerry this is Steven.
The latter part of your question there about deposits and demand deposits I think we're talking about as a percentage.
We may expect a little bit of of deposit attrition in the fourth quarter just like we did in the third Dda's had been very stable, they're staying around 41% of our entire deposit base I think.
That we we feel like that'll be the.
What will play out in the fourth quarter.
The beta is for the third quarter were around 26%.
They'll probably migrate a little higher in the fourth quarter, maybe towards 40% or will range somewhere through the cycle.
At the end of the year may be between 30 and 40%. So you put this in context, we've got 60% slightly below 60% loan to deposit ratios, we've got <unk>.
Room here to be opportunistic if we want to be.
Our funding levels are great.
Certainly, we'll we'll we'll need to migrate I would say beta is a little bit higher.
With the market.
And this is Stacey I think there's all this focus on deposit babies and understandably, so and the cycle, but our loan basis have been.
Pretty pretty strong given the variable nature of our loan portfolio.
So we're really benefiting from from that as well as control deposit cost as we move forward, which is why we were able to guide related to our margin too much.
A much higher level than we are today, we ended September higher than we did for the R ended September the higher than we did for the quarter and we are optimistic about the margin as we move into 2023.
Alright, Thanks, a lot.
Our next question is from Brady galley with K B W. Please proceed with your question.
Hey, Thanks, good morning, guys.
I'm ready good morning.
I just wanted to start with some average earning asset balances I mean, if you look at the bond book and the trading security portfolio of both of those at them.
Have been trending down during the day, you expect those to be close to state or do you think those balances will continue those somewhat trimmed down as loans grow up.
Well the <unk> portfolio [noise] excuse me is down but part of that is because we shifted to held to maturity last quarter. So that may be part of what you're seeing there I really don't expect Iff's securities to go down in fact, I think we've got pretty decent opportunity.
With mortgage spreads moving into the fourth quarter and part of next year, we may actually grow that portfolio a bit.
Which I think would would serve two purposes I think we'd get some good spread on that portfolio, but we would also use that to migrate back a little bit more towards neutral as we get towards perhaps the end of the rate hikes cycle.
On the trading portfolio, Scott can talk a little bit about that but.
It was down on the on average, but the margins really good in that business. So Scott can talk a little bit about the outlook for balances and the outlook for that business.
Brady is Scott I think that Steven summarized it well I think that in terms of our trading balances I think they've stabilized and.
We were able are really our team has done a great job on the desk, particularly in the mortgage space of <unk>.
Maximizing the opportunities as the day to day volatility has widened bedash spreads.
So we've been able to produce results with lower balances there as kind of the.
The institutional market is.
Waiting for the settling period where rates have.
Kind of upset begin to settle in so to the extent that we get a little bit more predictability.
And the outlook for rates and the fed moves I think what we'll see is will settle into maybe a little bit higher.
Balances on that as the market settles out of it but right now with the volatility that's there we.
We think that it's.
Vantages for us to be a little bit more opportunistic and.
Take advantage of that volatility.
On various days.
Scott you May also come in I mean, the diversity of bad trading revenue has changed a bit over the last 12 months.
Sure. So when you look at the total revenues generated from our securities portfolio.
Institutional desks.
Clearly mortgage backed securities continued to command about 20% of our total revenue.
Revenue mix on the on the trade desks side, but we've seen our municipal activity consistently inching up toward it's now edging.
Hedging in at roughly 16% of that revenue mix. So we've seen increase there and we've seen for obvious reasons. The emergence of treasury volumes and Treasury activity is all investors across the size scale are taken advantage of of the rates in the <unk>.
<unk> available in the Treasury market itself. So that mix has continued to evolve and change and as Stacy mentioned, we've we've dominated that mix and the mortgage backed securities side for years, but as that sector has.
Experience challenge in lower volumes and flows we've been able to pivot and take advantage of.
Other spaces in other sectors in the fixed income market.
Alright, and then my second question was just saw on Capitol U are common equity tier one is almost 12%. So you guys purely have excess capital.
Is there a target in mind, you would like to get that common equity tier one down to I'm, just trying to figure out you're pointed us to more by back to the fourth quarter, but yeah goodbye back to continue at a material face for the next few years.
I think they could yeah, we don't really have a target that we're shooting for necessarily there's a lot of factors that go into that.
But I was really happy to grow capital this quarter I mean, we had the earnings of course, but we bought back $50 million of stock pay to $35 million dividend and supported all of the Lone Grove.
Which was around 10% and still grew capital levels. So I'm very happy with that I'm happy with the levels that gives us a lot of room, if we want to use some of that capital provide back in the future, which which will do so.
We are staged pretty well from a capital perspective.
Alright, and then finally for me just on the <unk>.
Reserve ratio it was up a little bit linked quarter up about four basis points.
As the economy potentially continues to weaken here do you expect that ratio to kind of continue to <unk>.
Trent higher.
Well. This is mark I would say that will will monitor what we think is going on in the economy and make our economic forecast accordingly, and is it creates more uncertainty or the or the downside case becomes more viable than it might have an effect on that ratio, but loan growth is was the primary dry.
River for it and certainly some on on uncertainty, but the asset quality continues to be exceptionally good.
And while it may be unsustainable in a more difficult economy. It's at a level that we feel very comfortable given the size of the reserve that we are well positioned to to deal with any issues that might arise from that so I wouldn't see it will depend on a little bit on what we see in the in the economic outlook.
Okay, Great nice quarter. Thank you guys.
Thank you.
Our next question is from Brian Robertson with helped a group. Please proceed with your question [noise].
Hey, guys good morning.
Good morning, Brett.
Wanted to go back to fee income for a second and just talk about the in particular that.
Brokerage and trading and just thinking about like the <unk>, obviously, a really strong quarter and three Q.
Can you just talk about like how do you think a sustainable level of that business might be and and you know maybe how to think about the related compensation that obviously drop furniture personnel.
Certainly Steven and Scott can can discussing specifics you have but I think broadly when we were trying to do with the guidance. We provided was indicate that there's lots of categories inside of our non interest revenue and they move around from quarter to quarter into providing.
Guidance on specific category difficult, but when you start to look at it in total it's a little easier to guide to and so we had a strong second quarter, we had a great third quarter or non interest revenue and so if you look at the guidance Steven discussed in his comment.
Comment I think that that gives you a really good band of where we think noninterest revenues can be in the coming quarters.
Okay. Appreciate that color and then wanted to go back to you talked about the unsustainable level Abbas a quality and obviously things are really <unk> was curious if you had any comments I noticed there's a strange situation with the west Texas.
Gas natural gas situation, where it's actually tried to get a negative level with some pipeline issues. They have it does that impact you think energy.
In West, Texas, where are you at all.
No.
No I mean, we certainly have our customers that have.
We've always had good hedge program with them and and those those temporary market moves do not really impact us at all.
Okay.
And then lastly from you wanted to make sure I understood the commentary around you're expecting <unk> deposit levels to basically be kind of stable from here, but it also sounds like.
You're expecting do some securities purchases, you know and fund loan growth just the balance sheet I'm trying to understand the dynamic of the balance sheet in the margin from here and he had balance sheets shrinkage in the third quarter, but it sounds like you're you are expecting the balance sheet to grow from here is that is that a fair assessment.
I think that's a fair assessment I want to go back to your deposit comment we're not gonna keep deposits level I mean, I I do think there'll be some attrition of deposits in the fourth quarter.
<unk> similar to what happened in the third so that part of the balance sheet will shrink, we'll make that up through some wholesale borrowing sores, which we had tremendous liquidity there.
And so I think we can continue to grow loans I think there's an opportunity to grow they at this portfolio a little bit I'm not prepared to give guidance on that yet until we put our budget together, but I do think we're.
Migrating towards that decision, where we could add some <unk>.
Mortgage backed securities and gain some spread there.
So I would say out of the balance sheet, probably does grow with continued lone Grove, adding <unk> to Scott's point, maybe there's an opportunity on the trading portfolio side to move that a little bit higher overtime.
So.
We'll be able to fund that very effectively with with other borrowings sources other than deposit.
Growth.
Okay. It certainly seems like your balance sheets better position than most in this environment. So can congrats on the border.
Thank you. Thank you.
Our next question comes from Jennifer Denver with true was Securities. Please proceed with your question.
Thank you good morning.
Morning.
Hey.
Awesome quality looks terrific I'm wondering if you're seeing anything.
Within the <unk>.
Any negative migration trends in any segment.
Debit worth, noting I mean, I think the only thing we've seen.
At all.
And the last quarter of two is maybe charge offs with some companies who've had supply chain issues, just wondering what you're saying in your <unk>.
We really are seeing nothing systemic.
We have a we had a one off here one off there in the third quarter, but we still reduced our overall <unk>.
Problem loans.
In the third quarter and the outlook for the fourth quarter isn't much different.
In terms of that migration. So we're gonna continue.
Continue to monitor it we think our credit culture has been highly disciplined.
For for.
For quite some time, so that as we go into one of a potential recession you know.
Our customers are better situated to withstand it and not see material losses. So.
Very comfortable with it right now, but we're certainly watching it to see if we see anything occur it's more systemic.
Great. Thank you.
As a reminder, if you like to ask a question. Please press star one on your telephone keypad one moment, please while we polo for questions.
Our next question comes.
Mhm.
What's his name from.
Hey, Rob.
We got cut off for them.
Matt are you there <unk>.
I think he was reaching out to you for a question that we got cut off here from the operator.
Mmm.
Mhm.
Mmm.
Gentlemen, we apologize for protecting the basketball team, we do have an additional question coming from the line of.
Stevens. Please proceed with your question.
Hey, guys good morning, Hey, Matt.
He just wants to come back in a few topics.
And just to clarify the slide you have on the forecast and the assumptions. When you mentioned the operating revenues should be in the range between two and three Q I think you were talking about on the fee side, the commissions and fees in my temporary and that that's correct, yes, they using commissions.
Okay.
And I think that slide more or less says not just fourth quarter, but kind of the next five quarters, so fees and commissions in that range. The next five quarters is that right.
Yeah, that's I mean, that's a little harder to go out that far but certainly.
We're comfortable with that second quarter result, third quarter results somewhere in that range. If you look at the composition of all of our fee businesses.
We feel like we can achieve somewhere in that that neighborhood.
So that's what we're trying to say there.
Okay, well I appreciate that.
It's tough to forecast some of those lines and specifically one of those lines has been doing very strong more recently the syndication feeds had been running pretty hot for the last few quarters in any change of strategy or any big driver of why that's been so strong over the last few quarters.
No I don't think it's really a change of strategy is somewhat a maturing of the effort that we've done undertaken for the last several years.
It's a top of mind effort across all our business lines and the increased focus has given us the opportunity to build that business and we expect to continue to do so.
Very strong team and I think mark right. It's how we've matured this business clearly our energy presence and our ability to lead larger deals and are how we're viewed in the marketplaces and energy lender has helped us.
But really the.
The growth there has been widespread.
Okay. Thanks for that and then changing gears on the securities portfolio on the <unk>.
Steven now last quarter, you pointed towards does.
Does yields can be moving quite a bit higher than we definitely saw that in the third quarter.
It sounds like spreads remain favorable could we see even even more improvement and directed towards the fourth quarter there.
We could yes.
We're getting.
$150 million or so a month 50.
$50 million to $500 million of cash flow of month currently reinvesting some of those dollars or 5%.
So.
You can definitely see.
That portfolio yield migrate higher in the fourth quarter.
Okay and.
I think going back to that the funding side.
When I heard you say was the <unk>.
The balances were down in the third quarter, but you think that kid level out in the fourth quarter and so the incremental funding here I guess it'd be more on the wholesale appropriate side is that right.
Well I still believe deposits will will move down in the deposit balances in the fourth quarter I, just think that will happen.
50% of our deposits are on the commercial side. The other 50% are split pretty evenly between consumer and well.
And they will be with higher rates coming.
There'll be more opportunity for some of those clients I'm sure to move to.
Something off our balance sheet.
So we'll turn towards with balance sheet growth on both loan and the security side will turn towards other sources of funding, which we.
We have an abundance of that <unk>.
Pasty.
As a company.
Yup makes sense to me okay. Thanks, guys.
Thank you.
We've reached the end of the question and answer session I'd now like to turn the call back over to Stephen now for closing comments.
Well, thanks again, everyone for joining us if you have any further questions. You can call me at 9185953030 or E mail at <unk> at <unk> Dot com, everyone have a great day. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
One of them.