Q4 2023 BOK Financial Corp Earnings Call

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Greetings. Welcome to BOK Financial Corporation fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Marty Gruntz, Chief Financial Officer for BOK Financial Corporation. Please proceed.

Greetings welcome to P O K Financial Corporation fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star two.

Zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn the presentation over to Barney grants Chief Financial officer for be OK Financial Corporation. Please proceed.

Marty Gruntz: Good morning, and thank you for joining us to discuss BOK Financial's fourth quarter financial results. Our CEO, Stacy Kymes, will provide opening comments. Mark Maughan, Executive Vice President for Regional Banking, will cover our loan portfolio and related credit metrics. And Scott Brower, Executive Vice President of Wealth Management, will cover our fee-based results.

Barney Grants: Good morning, and thank you for joining us to discuss P. O K financials fourth quarter financial results, our CEO Stacy kinds will provide opening comments, Marc Maun executive Vice President for regional banking will cover our loan portfolio and the related credit metrics and Scott Grauer Executive Vice President of wealth management will cover all fee based results.

Marty Gruntz: I will then discuss financial performance for the quarter in our forward guide.

Scott Grauer: I will then discuss financial performance for the quarter and our forward guidance PDF.

Marty Gruntz: PDFs of the slide presentation and fourth quarter press release are available on our website at BOKF.com.

Scott Grauer: Pdfs of the slide presentation and fourth quarter press release are available on our website at <unk> Dot com.

Marty Gruntz: We refer you to the disclaimers on slide two regarding any forward-looking statements we make during this call. I'll now turn the call over to Stacy Kymes.

Scott Grauer: We refer you to the disclaimers on slide two regarding any forward looking statements. We make during this call I'll now turn the call over to Stacy Adams.

Stacy C. Kymes: Thank you Marty. Good morning everyone. Beginning on slide four, we reported net income of $82.6 million or $1.26 per diluted share for the fourth quarter, which includes a $0.52 per share impact from the FDIC specialist

Stacy C. Kymes: Thank you Marty and good morning, everyone. Beginning on slide four we reported net income of $82 6 million or $1.26 per diluted share for the fourth quarter, which includes a 52 cents per share impact from the FDIC special assessment.

Stacy C. Kymes: I'm exceptionally proud of the BOKS team and our results this

Stacy C. Kymes: I'm exceptionally proud of the team and our results. This year, our focus and be okay. Ask has always been on providing long term shareholder value driven by our diverse business model and talented team.

Stacy C. Kymes: Our focus at BOKF has always been on providing long-term shareholder value, driven by our diverse business model and talented staff.

Stacy C. Kymes: Both of which empower us to perform well relative to our industry during any economic environment.

Stacy C. Kymes: Both of which empowers performed well relative to our industry during any economic environment.

Stacy C. Kymes: This was once again proven when the industry faced stress in the first half of the year and our company was well prepared.

Stacy C. Kymes: This was once again proven when the industry for a stress in the first half of the year and our company was well prepared.

Stacy C. Kymes: Our discipline in risk management, which extends beyond the credit risk management that has long been a strength, resulted in strong levels of capital and liquidity and an important time.

Stacy C. Kymes: Our disciplined risk management, which extends beyond the credit risk management that has long been a strength resulted in strong levels of capital and liquidity and an important time.

Stacy C. Kymes: We took advantage of this position to thoughtfully grow when others are pulling back.

We took advantage of this position to thoughtfully grow when others are pulling back we've made real investments in growing our core C&I, while also investing in people in new markets like Central Texas.

Stacy C. Kymes: We've made real investments in growing our core CNI, while also investing in people and new markets like Central Texas.

Stacy C. Kymes: While the fourth quarter was exceptionally noisy with numerous non-recurring items, our core results were very strong, resulting in a great starting point for 2024.

Stacy C. Kymes: While the fourth quarter was exceptionally noisy with numerous nonrecurring items. Our core results were very strong resulting in a great starting point for 2024.

Stacy C. Kymes: We continue to make strategic decisions to buoy our capital where growth and returns are high.

Stacy C. Kymes: We continue to make strategic decisions to deploy our capital where growth and returns are higher this was reflected in our decision to exit our insurance brokerage and consulting business in the fourth quarter. This.

Stacy C. Kymes: This was reflected in our decision to exit our insurance brokerage and consulting business in the fourth quarter. This resulted in a pre-tax gain of $28 million after transactions.

Stacy C. Kymes: This resulted in a pretax gain of $28 million after transaction expense.

Stacy C. Kymes: which we use to opportunistically restructure a small portion of our available-for-sale securities portfolio, which will be accretive to the indigenous revenue and the margin in the months ahead.

Stacy C. Kymes: Which we use to opportunistically restructure a small portion of our available for sale securities portfolio, which will be accretive to net interest revenue and the margin in the months ahead.

Stacy C. Kymes: Staying on this slide, our efficiency ratio was 72% for the quarter, but falls to 67%, excluding the impact of the FDIC Special Assessment.

Stacy C. Kymes: Staying on this slide our efficiency ratio was 72% for the quarter installs to 67%, excluding the impact of the FDIC special assessment and the activity related to the sale of our insurance brokerage and consulting business, which Mark will highlight later.

Stacy C. Kymes: and the activity related to the sale of our insurance brokerage and consulting business, which Marty will highlight later.

Stacy C. Kymes: Let me briefly diverge and comment on the FDIC Special Assessment.

Stacy C. Kymes: Let me briefly diverge and comment on the FDIC Special assessment, which I understand most of the sea is nonrecurring and normalize for the period.

Stacy C. Kymes: which I understand most will see as non-recurring and normalized for the period.

Stacy C. Kymes: The FDIC's methodology was flawed and did not use the root cause of the issues, which was low levels of fully loaded, tangible capital caused by poor asset liability risk management decisions.

Stacy C. Kymes: The FDIC methodology was block and did not use the root cause of the issues, which was low levels of fully loaded tangible capital caused by for asset liability risk management decision.

Stacy C. Kymes: The final rule was disappointing as they ignored many thoughtful comment letters, including our own.

Stacy C. Kymes: The final rule was disappointing because they ignored many thoughtful comment letters, including our own.

Stacy C. Kymes: They announced the public hearing, subsequently canceled the public hearing, before voted 3-2 along partisan lines to adopt the final rule.

Stacy C. Kymes: And now the public hearing subsequently canceled the public hearing before voted three two along partisan lines to adopt the final rule is.

Stacy C. Kymes: This continues a disconcerting trend of increasing partisanship in banking regulations.

Stacy C. Kymes: This continues a disconcerting trend of increasing partisanship in banking regulation.

Stacy C. Kymes: The US is the only country that has allowed partisanship to invade the banking regulatory process.

Stacy C. Kymes: The U S is the only country that has allowed partisanship to invade the banking regulatory process banking is a noble profession, we're well aligned with our customers' collaboration with our industry as necessary and I'm missing elements today.

Stacy C. Kymes: banking is a noble profession we're well aligned with our customers

Stacy C. Kymes: Collaboration with our industry is necessary and a missing element today.

Stacy C. Kymes: Moving on, we believe the strategic decisions and investments we've made this year have us well positioned for success in the long term, and our diverse operating model will continue to operate successfully in any market environment going forward.

Stacy C. Kymes: Moving on we believe the strategic decisions and investments. We've made this year have us well positioned for success in the long term and our diverse operating model will continue to operate successfully in any market environment going forward.

Stacy C. Kymes: Turning to slide five, period-end loan balances increased $181 million, or approximately 1% in the quarter, with growth in both C&I and commercial real estate.

Stacy C. Kymes: Turning to slide five period end loan balances increased 181 million or approximately 1% linked quarter with growth in both C&I and commercial real estate.

Stacy C. Kymes: Loan growth did slow in the fourth quarter, but our teams remained confident in our pipelines as we moved forward.

Stacy C. Kymes: Loan growth did slow in the fourth quarter, but our teams remain confident in our pipeline as we move forward.

Stacy C. Kymes: Both period and average deposits continue to grow this quarter. Our loan-to-deposit ratio was stable at 70.3%, remaining well below our peers and providing significant unbalancing liquidity to meet future loan or other liquidity demands.

Stacy C. Kymes: Both period in an average deposits continue to grow this quarter, our loan to deposit ratio was stable at 73%.

Stacy C. Kymes: <unk> well below our peers in providing significant on balance sheet liquidity to meet future loan around liquidity demands.

Stacy C. Kymes: While our cost of deposits continue to increase this quarter, the pace was less than half the level we've experienced the previous three quarters.

Stacy C. Kymes: While our cost of deposits continued to increase this quarter the pace was less than half the level, we experienced the previous three quarters.

Stacy C. Kymes: Allowing our net interest margin to stabilize.

Stacy C. Kymes: Our net interest margin to stabilize.

Stacy C. Kymes: Marty will comment more about net interest revenue, but we believe we are very close to the trough. Our credit remains very strong, and we have a combined reserve of $326 million, or 1.36% of outstanding loans at quarter end, which is considerably above the median of our peer credit.

Stacy C. Kymes: Morning will comment more about net interest revenue, but we believe we are very close to the trough. Our credit remains very strong and we have a combined reserve of $326 million or 136% of outstanding loans at quarter end, which is considerably above the median of our peer group.

Stacy C. Kymes: Finally, we repurchased 700,237 shares this week.

Stacy C. Kymes: Finally, we repurchased 700237 shares this quarter to reflect our long term confidence in the company and to take advantage of attractive repurchase valuations.

Stacy C. Kymes: to reflect our long-term confidence in the company and to take advantage of attractive repurchase valuations.

Stacy C. Kymes: I'll provide additional perspective on the results before starting the Q&A session, but now Mark Vaughn will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to Mark.

Stacy C. Kymes: I'll provide additional perspective on the results before starting the Q&A session, but now Marc Maun will review the loan portfolio and our credit metrics in more detail I'll turn the call over to him.

Mark: Thanks, Stacy. Turning to slide 7, period end loans were $23.9 billion, growing $181 million, or almost 1% in a quarter. Total C&I loans increased $84 million, or 0.6% in a quarter, with year-over-year growth of $591 million, or 4.2%.

Marc Maun: Thanks, Stacy turning to slide seven period end loans were $23 9 billion growing 181 million or almost 1% linked quarter total C&I loans increased 84 million or 6% linked quarter with year over year growth of 591 million or four 2%.

Mark: Commercial real estate loans grew 96 million or 1.8% length quarter and have increased 731 million or 15.9% year over year.

Marc Maun: Commercial real estate loans grew $96 million or one 8% linked quarter and have increased 731 million or 15, 9% year over year.

Mark: Compared to December 31, 2020, CRE balances have grown at a modest 4.1% annualized growth.

Marc Maun: Compared to December 31, 2020, CRE balances have grown at a modest four 1% annualized growth rate.

Mark: Growth this quarter was primarily driven by multifamily properties with an increase of $138 million and industrial facility loans with an increase of $43 million.

Marc Maun: Growth this quarter was primarily driven by multifamily properties with an increase of $138 million and industrial facility loans with an increase of $43 million.

Mark: This growth was partially offset by a decrease in $72 million in office loans, bringing the total office loan portfolio to its lowest point since 2018.

Marc Maun: This growth was partially offset by a decrease of $72 million in office loans, bringing the total office loan portfolio to its lowest point since 2018.

Mark: The year-over-year CRE growth of $731 million was also driven by multifamily and industrial loans, and again, partially offset by a decline in office.

Marc Maun: The year over year CRE growth of $731 million was also driven by multifamily and industrial loans and again, partially offset by a decline in office loans.

Mark: We have an internal limit of 185% of Tier 1 capital and reserves to total CRE commitments, and we're presently at 172%.

We have an internal limit of 185% of tier one capital and reserves to total CRE commitments that were presently at 172%.

Mark: That limit is based on total commitments, so we do have ample room for continued modest growth and outstanding CRE balances as construction loans fund up.

Marc Maun: That limit is based on total commitments. So we do have ample room for continued modest growth and outstanding CRE balances as construction loans fund up.

Mark: As of December 31, CRE balances represented 22% of total loans, consistent with the prior quarter, a ratio well below our peers.

Marc Maun: As of December 31, CRE balances represented 22% of total loans consistent with the prior quarter ratio well below our peers combined services and general business loans, our core C&I loans increased 77 million or one 1% with year over year growth of $281 million or 4%.

Mark: Combined services and general business loans, our core C&I loans, increased 77 million or 1.1% with year-over-year growth of 281 million or 4%.

Mark: These combined categories are 30% of our total loan points.

Marc Maun: These combined categories were 30% of our total loan portfolio.

Mark: Healthcare balances increased $60 million or 1.5% link quarter and have grown $298 million or 7.8% year-over-year, primarily driven by our senior housing

Marc Maun: Health care balances increased $60 million or one 5% linked quarter and have grown 298 million or seven 8% year over year, primarily driven by our senior housing sector.

Mark: healthcare loans represented 17.

Health care loans represented 17% of them.

Mark: Energy loan balances decreased 53.5 million linked quarter and have increased 12 million or 0.4% year-over-year with period end balances at 14% of total period end loan.

Marc Maun: Energy loan balances decreased 53, and a half million linked quarter and have increased $12 million up 4% year over year with period end balances at 14% of total period end loans.

Mark: Year over year, loans have grown 1.3 billion or 6%.

Marc Maun: Year over year loans have grown $1 3 billion or 6%.

Mark: Excluding Triple P loans, Q4 2023 extends the linked quarter loan growth to nine consecutive quarters.

Marc Maun: Excluding triple P loans Q4, 2023 extends the linked quarter loan growth to nine consecutive quarters. Our current pipeline is strong and combines C&I and CRE commitments increased 2% linked quarter. We expect continued strong momentum to drive additional loan growth in 2024.

Mark: Our current pipeline is strong and combined CNI and CRE amendments increase 2% in the court.

Mark: We expect continued strong momentum to drive additional loan growth in 2024.

Mark: Turning to slide eight, you can see that our credit quality continues to be exceptionally good across the loan portfolio with credit metrics well below historical norms and pre-pandemic levels.

Marc Maun: Turning to slide eight you can see that our credit quality continues to be exceptionally good across the loan portfolio with credit metrics, well below historical norms and pre pandemic levels.

Mark: Non-performing assets, excluding those guaranteed by U.S. government agencies.

Marc Maun: Nonperforming assets, excluding those guaranteed by U S government agencies increased 26 million this quarter.

Mark: Increased $26 million this quarter.

Mark: The resulting non-performing assets to period end loans and repossessed assets did increase 10 basis points, 2.62%. Non-occurring loans increased $26 million in the quarter, primarily driven by an increase in healthcare.

Marc Maun: The resulting nonperforming assets to period end loans and repossessed assets did increase 10 basis points to six 2% non accruing loans increased 26 million linked quarter, primarily driven by an increase in health care models the.

Mark: The increase is consistent with non-accrual fluctuations in a narrow range experienced over the past two years with no indication of an increase.

Marc Maun: The increase is consistent with nonaccrual fluctuations in a narrow range experienced over the past two years with no indication of systemic issues.

Mark: and more.

Mark: Committed and Criticized Assets were 10.2% of Tier 1 Capital and Reserves at year-end 2023, the second consecutive year below 10.5% and the third below 13%.

Marc Maun: Committed criticized assets were 10, 2% of tier one capital and reserves at year end 2023, the second consecutive year below 10, 5% in the third below 13% compared to an 18% ratio pre pandemic.

Mark: compared to an 18% ratio pre-pandemic.

Mark: The provision for credit losses of $6 million in the fourth quarter reflects a stable economic forecast and continued loan growth, as well as continued low net charges.

Marc Maun: Provision for credit losses was $6 million in the fourth quarter reflects a stable economic forecasts and continued loan growth as well as continued low net charge offs.

Mark: Net charge-offs were 4.1 million, or seven basis points annualized for the fourth quarter, and have averaged eight basis points over the last 12 months, continuing the trend of performance far below our historical loss range of 30 to 40 basis points.

Marc Maun: Net charge offs were $4 1 million or seven basis points annualized for the fourth quarter and have averaged eight basis points over the last 12 months continuing the trend of performance far below our historical loss range of 30 to 40 basis points looks.

Mark: Looking forward, we expect that charge-off to remain below historical

Marc Maun: Looking forward, we expect net charge offs to remain below historical norms. The markets continue to be focused on the office segment of real estate given the trends in workforce preferences, our exposure to loans secured by office CRE continues to decline as we intentionally manage that segment down now representing less than 4% of our total loan portfolio.

Mark: The markets continue to be focused on the office segment of real estate given the trends in workforce preference.

Mark: Our exposure to loans secured by Office CRE continues to decline as we intentionally manage that segment down, now representing less than 4% of our total loan population.

Mark: Our office maturities are generally rateable over the next three to four years, and we have a mini-perm option if the markets are not conducive to long-term permanent financing.

Marc Maun: Our office maturities are generally ratable over the next three to four years and we have a mini perm option. If the markets are not conducive to long term permanent financing they can.

Mark: The combined allowance for credit losses was $326 million, or 1.36% of outstanding loans at quarter end.

Bind allowance for credit losses was $326 million or 136% of outstanding loans at quarter end.

Mark: The reserve is sufficient to cover our non-performing assets by 2.2 times.

Marc Maun: The reserve is sufficient to cover our nonperforming assets by $2. Two times. The total combined allowance is available for all losses and any apples to apples industry comparison should include the combined reserves, we expect to maintain an appropriate reserves supporting loan growth and reflects conditions.

Mark: The total combined allowance is available for all losses, and any apples-to-apples industry comparison should include the combined reserves.

Mark: We expect to maintain an appropriate reserve supporting loan growth and reflect economic conditions. Overall, we remain in a solid credit position today with a stable economic outlook. While our current credit metrics may be unsustainable in weaker economic environments, we have a history of outperformance during past credit cycles and are well positioned.

Marc Maun: Conditions overall, we remain in a solid credit position today with a stable economic outlook, while our current credit metrics may be unsustainable in weaker economic environments. We have a history of outperformance during past credit cycles and are well positioned should an economic slowdown materialize in the quarters ahead, I'll turn the call over to.

Mark: Economic slowdown materialized in the quarters.

Speaker Change: I'll turn the call over to Scott.

Marc Maun: Scott.

Scott Brower: Thanks, Mark. Turning to slide 10, total fees and commissions were $196.8 million, relatively consistent with the previous quarter. However, the previous quarter included record high results for our wealth management sector.

Scott Grauer: Thanks, Marc turning to slide 10, total fees and commissions were $196 8 million relatively consistent with the previous quarter. However, the previous quarter included record high results for our wealth management segment with fourth quarters wealth results still representing their third highest.

Scott Brower: with fourth quarter's wealth results still representing their third highest fee income quarter ever.

Scott Grauer: Fee income quarter ever trading fees increased $1 1 million as sales activities related to our institutional customers continue to improve with some lift provided by our recent Memphis expansion, partially offset by a linked quarter decline in our MBS trading activities.

Scott Brower: Trading fees increased $1.1 million as sales activities related to our institutional customers continued to improve, with some lift provided by our recent Memphis expansion, partially offset by a linked quarter decline in our MBS trading activity.

Scott Brower: Our bank-wide investment banking activities fell $2.4 million linked quarter as the third quarter benefited from a record quarter for wealth public and corporate finance groups.

Scott Grauer: Our bank wide investment banking activities fell $2 4 million linked quarter as the third quarter benefited from a record quarter for wealth public and corporate Finance group.

Scott Brower: Although down from their third quarter record high, the public and corporate finance group recorded their largest single transaction in their history during the fourth quarter.

Scott Grauer: Although down from their third quarter record high the public and corporate Finance group recorded their largest single transaction in their history during the fourth quarter.

Scott Brower: Wealth Management had a record year in 2023, achieving total revenue of $656 million, which equips the prior record set in 2020 by $140 million, resulting in an annualized three-year growth rate of 8.4%.

Scott Grauer: Wealth management had a record year in 2023, achieving total revenue of $656 million, which eclipsed the prior record set in 2020 by $140 million, resulting in an annualized three year growth rate of eight 4%.

Scott Brower: This was driven by record 2023 revenue in the majority of our business units, including corporate trust, retirement plan and asset services, private wealth, customer hedging, and investment banks.

Scott Grauer: This was driven by record 2023 revenue and the majority of our business units, including corporate Trust retirement plan and asset services private wealth customer hedging and investment banking.

Scott Brower: Transaction card revenue increased $2.5 million and all other fee-generating categories remained relatively unchanged compared to the previous quarter.

Scott Grauer: Transaction card revenue increased $2 5 million in all other fee generating categories remained relatively unchanged compared to the previous quarter demonstrating the consistent positive results. We see from these business lines are.

Scott Brower: demonstrating the consistent positive results we see from these business lines.

Scott Brower: Our assets under management or administration were $104.8 billion at the end of the year, including an asset mix of 43% fixed income, 33% equities,

Scott Grauer: Our assets under management or administration were $104 8 billion at the end of the year, including an asset mix at 43% fixed income, 33% equities, 16% cash and 8% alternatives.

Scott Brower: 16% cash and 8% alternative.

Scott Brower: Our diverse mix of fee income continues to be a strategic differentiator for us and allows us to perform well in a variety of economic environments. We consistently rank in the top decile for fee income as a percentage of total net interest revenue and non-interest fee income.

Scott Grauer: Our diverse mix of fee income continues to be a strategic differentiator for us and allows us to perform well in a variety of economic environments. We consistently rank in the top decile for fee income as a percentage of total net interest revenue and noninterest fee income our revenue mix has averaged.

Scott Brower: Our revenue mix has averaged 38% during the last 12 months.

Scott Grauer: 88% during the last 12 months.

Scott Brower: With that, I'll turn the call over to Marty.

With that I'll turn the call over to Marty.

Marty Gruntz: Thank you, Scott. I'd like to start by describing a few of this quarter's unusual items, as some of them impact multiple lineups.

Marty: Thank you Scott I'd like to start by describing a few of this quarter's unusual items and some of them impact multiple line items, the sale of our insurance brokerage and consulting business resulted in a one time pretax gain of $31 million, which is included in the other gains net line item in the income statement.

Marty Gruntz: The sale of our insurance, brokerage, and consulting business resulted in a one-time pre-tax gain of $31 million, which is included in the other gained net line item in the income statement.

Marty Gruntz: There were also two components of transaction-related expenses recorded in NIE, $2.5 million reflected in professional fees and services and $925,000 included in personnel expense, which produced a net gain of $28.

Marty: There were also two components of transaction related expenses recorded in N E. Two and a half million reflected in professional fees and services and 925000 included in personnel expense, which produced a net gain of $28 million. We took advantage of that opportunity to reposition our available for sale portfolio, resulting in pretax.

Marty Gruntz: We took advantage of that opportunity to reposition our available for sale portfolio, resulting in pre-tax losses of $28 million, which is reported in the loss on available for sale securities line item.

Marty: Losses of $28 million, which is reported in the loss on available for sale Securities line item.

Marty Gruntz: The total of $40.5 million reported in the other gains net line item includes the $31 million insurance sale gain, as well as $5.9 million of gain related to market value increases on deferred compensation assets, which is effectively offset with $5.4 million of increased personnel expense this quarter.

Marty: The total of $40 5 million reported in the other gains net line item includes the $31 million insurance sale gain as well as $5 9 million of gain related to market value increases on deferred compensation assets, which is effectively offset with $5 4 million of increased personnel expense this quarter.

Marty Gruntz: The fourth quarter also included $3.1 million of accelerated recognition of tax expense as the result of exiting three low-income housing tax credit investments.

Marty: The fourth quarter also included $3 1 million of accelerated recognition of tax expense is the result of exiting three low income housing tax credit investments.

Marty Gruntz: Without that item, the effective tax rate for the quarter would have been 23.1%.

Marty: Without that items, the effective tax rate for the quarter would've been 23, 1%.

Marty: Turning to slide 12 fourth quarter net interest revenue was $296 7 million, a $4 $2 million decrease linked quarter.

Marty: Net interest margin was 264% five basis point decrease compared to Q3.

Marty Gruntz: This quarter reflected a significant easing of deposit pricing pressure compared to recent

Marty: This quarter reflected a significant easing of deposit pricing pressure compared to recent quarters interest bearing deposit cost increased 26 basis points in the current quarter. However, this is the slowest pace, we have realized since the federal reserve started raising fed funds rate in early 'twenty three.

Marty Gruntz: Interest-varying deposit costs increased 26 basis points in the current quarter, however, this is the slowest pace we have realized since the Federal Reserve started raising Fed Funds rate in early 2023.

Marty Gruntz: Our cumulative interest-bearing deposit data increased to 63% for the fourth quarter. DDA as a percent of total deposits came down to 27% as of December 31.

Marty: Our cumulative interest bearing deposit beta increased to 63% for the fourth quarter DDA as a percent of total deposits came down to 27% as of December 31.

Marty Gruntz: This slide shows net interest margin and net interest revenue with and without the impact of the trading business to better highlight trends and comparability.

Marty: This slide shows net interest margin and net interest revenue with and without the impact of the trading business to better highlight trends and comparability.

Marty Gruntz: For the fourth quarter, net interest margin excluding the impact of trading assets was 3.03% versus 3.14% in the third quarter.

Marty: For the fourth quarter net interest margin, excluding the impact of trading assets was 3.03% versus 31, 4% in the third quarter I expect to see a small decline in net interest margin going into Q1, followed by relative stability after that.

Marty Gruntz: I expect to see a small decline and then there's margin going into Q1 followed by relative stability after that.

Marty Gruntz: Growth and earning assets during the quarter was driven primarily by CNI and CRE loans.

Marty: Growth in earning assets during the quarter was driven primarily by C&I and CRE loans.

Marty Gruntz: Turning to slide 13, liquidity and capital continue to be very strong on an absolute basis and versus peers.

Marty: Turning to slide 13 liquidity and capital continue to be very strong on an absolute basis and versus peers total deposits grew $367 million on a period end basis and the loan to deposit ratio decreased just slightly to 73%.

Marty Gruntz: Total deposits grew $367 million on a period-end basis, and the loan-to-deposit ratio decreased just slightly to 70.3%.

Marty Gruntz: This is stronger than our pre-pandemic level, well below the median of our peer banks, and positions us well for future loans.

Marty: This is stronger than our pre pandemic level well below the median of our peer banks and positions us well for future loan growth.

Marty Gruntz: Average total deposits increased $388 million linked quarter, with average interest-bearing deposits up $1.2 billion, partially offset by a $779 million decline in demand deposits.

Marty: Average total deposits increased 388 million linked quarter with average interest bearing deposits up $1 2 billion, partially offset by a $779 million decline in demand deposits.

Marty Gruntz: Berkert CDs remain an insignificant amount of our funding and decreased slightly in the fourth quarter.

Marty: Oakridge Cds remain an insignificant amount of our funding and decreased slightly in the fourth quarter.

Marty Gruntz: Our tangible common equity ratio is 8.29%, up 55 basis points, due in large part to term interest rates falling late in the fourth quarter.

Marty: Our tangible common equity ratio was 829% up 55 basis points due in large part determine interest rates falling late in the fourth quarter.

Marty Gruntz: Adjusted TCE, including the impact of unrealized losses on health and maturity securities, is 8.02%.

Marty: Adjusted TCE, including the impact of unrealized losses on held to maturity securities is 8.0% to 2%.

Marty Gruntz: CET1 is 12.1% and if adjusted for AOCI would be 10.5%.

Marty: CET, one is 12, 1% and if adjusted for AFC I would be 10, 5%.

Marty Gruntz: We have sufficient capital to support continued organic growth and opportunistic share buyback with a high degree of certainty, knowing that the recent regulatory capital proposal is primarily focused on banks over $100 billion.

Marty: We have sufficient capital to support continued organic growth and opportunistic share buyback with a high degree of uncertainty knowing that the recent regulatory capital proposal is primarily focused on banks over 100 billion.

Marty Gruntz: Turning to slide 14, linked quarter expenses increased $59.8 million, up 18.4%, driven primarily by the $43.8 million FDIC special assessed

Marty: Turning to slide 14 linked quarter expenses increased $59 8 million up 18, 4% driven primarily by the $43 8 million FDIC special assessment.

Marty Gruntz: The personnel expense grew to $12.2 million due to four primary factors.

Marty: Personnel expense grew to $12 2 million due to four primary factors regular compensation increased $3 2 million due to salaries and related to business expansion and expenses related to the sale of the insurance business.

Marty Gruntz: Regular compensation increased $3.2 million due to salaries related to business expansion and expenses related to the sale of the insurance.

Marty Gruntz: Sales-related activities led to a $4.0 million increase in cash-based incentive compensation.

Marty: Sales related activities led to a 4.0 million increase in cash based incentive compensation.

Marty Gruntz: Deferred compensation expense, which is driven by market valuations, increased $5.4 million link quarter. And lastly, employee benefits increased $1.1 million link quarter due to seasonal increases in health insurance.

Marty: Deferred compensation expense, which is driven by market valuations increased $5 4 million linked quarter, and lastly employee benefits increased $1 $1 million linked quarter due to seasonal increases in health insurance costs.

Marty Gruntz: Non-personnel operating expenses grew $3.3 million, excluding the increase in FDIC insurance expense with $2.5 million related to expenses on the sale of our insurance brokerage and consulting.

Marty: Non personnel operating expenses were $3 3 million, excluding the increase in FDIC insurance expense was 2.5 million related to expenses on the sale of our insurance brokerage and consulting business.

Marty Gruntz: We also made a $1.5 million contribution to the BOKF Foundation in our continuing efforts to support the communities we serve.

Marty: We also made a $1 5 million contribution to V O K I Foundation, and our continuing efforts to support the communities we serve.

Marty Gruntz: Turning to slide 15, I'll cover our expectations for 2024.

Marty: Turning to slide 15, I'll cover our expectations for 2024.

Marty Gruntz: We expect mid to upper single-digit annualized loan growth. Economic conditions in our geographic footprint remain favorable and continue to be supported by business in migration from other markets.

Marty: We expect mid to upper single digit annualized loan growth economic conditions in our geographic footprint remain favorable and continue to be supported by business in migration from other markets the competitive environment for loans should be a tailwind for us.

Marty Gruntz: The competitive environments alone should be a tailwind for us.

Marty Gruntz: We expect to continue holding our available for sale securities portfolio flat and to maintain a neutral interest rate risk position.

Marty: We expect to continue holding our available for sale securities portfolio flat and to maintain a neutral interest rate risk position.

Marty Gruntz: We expect total deposits to grow modestly and the loan-to-deposit ratio to remain near

Marty: We expect total deposits to grow modestly and the loan to deposit ratio to remain near 70%.

Marty Gruntz: Currently, we are assuming no additional rate changes by the Federal Reserve in 2024. We believe the margin will migrate slightly lower in Q1 of 2024 and expect net interest income to be near $1.2 billion for full year 2024.

Marty: Currently we are assuming no additional rate changes by the federal reserve in 2024, we believe the margin will migrate slightly lower in Q1 of 2024 and expect net interest income to be near $1 2 billion for full year 'twenty four.

Operator: Thanks for watching! Greetings. Welcome to BOK Financial Corporation's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Marty Gruntz: In aggregate, we expect total fees and commissions revenue in a range of $825 to $850 million for 2024.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Marty Gruntz, Chief Financial Officer of BOK Financial Corporation. Please proceed.

Marty: In aggregate, we expect total fees and commissions revenue in a range of 825 to 850 million for 2024.

Marty Gruntz: Excluding the FDIC special assessment, we expect expenses to increase at a mid-single-digit growth rate as we continue to invest in strategic growth and technology initiatives, with revenue growth following at a slight lag.

Marty: Excluding the FDIC special assessment, we expect expenses to increase at a mid single digit growth rate as we've continued to invest in strategic growth and technology initiatives with revenue growth. Following at a slight lag as revenue growth is realized in 2024, we expect the efficiency ratio to migrate downward too.

Marty Gruntz: As revenue growth is realized in 2024, we expect the efficiency ratio to migrate downward to approximately 65%.

Good morning, and thank you for joining us to discuss BOK Financial's fourth-quarter financial results. Our CEO, Stacy Kymes, will provide opening comments. Mark Maughan, Executive Vice President of Regional Banking, will cover our loan portfolio and related credit metrics, and Scott Brower, Executive Vice President of Wealth Management, will cover our fee-based results. I will then discuss financial performance for the quarter in our forward guide. PDFs of the slide presentation and fourth quarter press release are available on our website at BOKF.com. We refer you to the disclaimers on slide two regarding any forward-looking statements we make during this call. I'll now turn the call over to Stacy Kymes. Thank you, Marty. Good morning everyone.

Marty: Approximately 65%.

Marty Gruntz: Our combined allowance level is above the median of our peers and we expect to maintain a strong credit

Marty: Our combined allowance level is above the median of our peers and we expect to maintain a strong credit reserve.

Marty Gruntz: Given our expectations for loan growth and the strength of our credit quality, we expect near-term provision expense to remain low and trend toward more normal credit costs in the second half of 2024.

Marty: Given our expectations for loan growth and the strength of our credit quality, we expect near term provision expense to remain low and trend toward our normal credit costs in the second half of 2020 for changes in the economic outlook will impact our provision expense.

Marty Gruntz: changes in the economic outlook will impact our provision expense.

Marty Gruntz: Additionally, we expect to continue opportunistic share repurchase activities.

Marty: Additionally, we expect to continue opportunistic share repurchase activity I'll now turn the call back over to Stacey <unk> for closing commentary.

Marty Gruntz: I'll now turn the call back over to Stacy Kymes for closing comments.

Stacy C. Kymes: Thanks, Marty. This quarter puts a period on the end of the year with the second highest earnings the OK Financial has ever achieved.

Beginning on slide four, we reported net income of $82.6 million, or $1.26 per diluted share for the fourth quarter, which includes a $0.52 per share impact from the FDIC specialist. I'm exceptionally proud of the BOKS team and our results this year. Our focus at BOKF has always been on providing long-term shareholder value, driven by our diverse business model and talented staff. Both of which empower us to perform well relative to our industry in any economic environment. This was once again proven when the industry faced stress in the first half of the year, and our company was well prepared.

Stacey: Thanks, Marni this quarter, but the period on the end of the year with the second highest earnings in the U K financial has ever achieved as.

Stacy C. Kymes: As many banks struggled in the turbulent economic environment, we proved once again that our strategically diverse revenue mix is built to withstand any storm.

Stacey: There's many banks struggled in a turbulent economic environment. We proved once again that our strategically diverse revenue mix is built to withstand any storm.

Stacy C. Kymes: While other banks may be pulling back, we have positioned ourselves to be in a great liquidity and capital position to organically grow our business and perform very well in 2024.

Stacey: While other banks may be pulling back we have positioned ourselves to be in a great liquidity and capital position to organically grow our business and performed very well in 2024.

Stacy C. Kymes: We have strong pipelines going into 2024. We've expanded our market reach.

Stacey: We have strong pipelines going into 'twenty, three or four we've expanded our market reach our credit quality remains very strong and our fee income businesses are positioned for solid growth.

Stacy C. Kymes: Our credit quality remains very strong and our fee income businesses are positioned for solid growth.

Stacy C. Kymes: I'm very proud of the entire VOP

Stacey: I'm very proud of the entire bill pay financial team, who have worked so hard to deliver these strong results.

Stacy C. Kymes: who have worked so hard to deliver these strong results.

Our discipline in risk management, which extends beyond the credit risk management that has long been a strength, resulted in strong levels of capital and liquidity and an important time. We took advantage of this position to thoughtfully grow when others were pulling back. We've made real investments in growing our core CNI while also investing in people and new markets like Central Texas. While the fourth quarter was exceptionally noisy with numerous non-recurring items, our core results were very strong, resulting in a great starting point for 2024. We continue to make strategic decisions to buoy our capital where growth and returns are high. This was reflected in our decision to exit our insurance brokerage and consulting business in the fourth quarter.

Stacy C. Kymes: With that we are pleased to take your questions. Operator?

Speaker Change: With that we are pleased to take your questions operator.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keypad.

Speaker Change: Yeah, if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker Change: Press Star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Our first question is from John Arfstrom with RBC Capital Markets. Please proceed.

Speaker Change: Our first question is from John Armstrong with RBC capital markets. Please proceed.

Jon Arfstrom: Thanks. Good morning.

John Moran: Thanks, Good morning, good morning.

Jon Arfstrom: A question for you, Marty. This is the question I've had a few times this morning on your numbers.

John Moran: John a.

John Moran: Question for you Marty This is the question I've had.

Marty: I had a few times this morning on your numbers just.

This resulted in a pre-tax gain of $28 million after transactions, which we used to opportunistically restructure a small portion of our available-for-sale securities portfolio, which will be accretive to indigenous revenue and the margin in the months ahead. Staying on this slide, our efficiency ratio was 72% for the quarter, but it falls to 67%, excluding the impact of the FDIC Special Assessment and the activity related to the sale of our insurance brokerage and consulting business, which Marty will highlight later. Let me briefly diverge and comment on the FDIC Special Assessment, which I understand most will see as non-recurring and normalized for the period. The FDIC's methodology was flawed and did not use the root cause of the issues, which was low levels of fully loaded, tangible capital caused by poor asset liability risk management decisions. The final rule was disappointing as it ignored many thoughtful comment letters, including our own.

Marty Gruntz: Some banks are assuming zero rate cuts, others are assuming two to four, others are saying six. What does your net interest income and margin outlook look like with a few cuts and then maybe as much as six cuts? And I want to follow up and ask on fees as well, but maybe just net interest income first.

Marty: Some banks are assuming zero rate cuts other assuming two to four others are saying six what is your net interest income and margin outlook look like with a few cuts and then maybe as much as six cuts and I want to follow up and ask on fees as well, but maybe just net interest income first.

Speaker Change: Yeah, no, that's a great question, John, and yeah, our exposure to race declining is actually very small, essentially de minimis, but more importantly, if you get the forward curve, you know, with four or six or cuts in that range, you know, that winds up with a steeper curve, and that's actually better for us, so in those scenarios where you've got the Fed cutting this year, it'd actually be marginally better for us.

Speaker Change: Yeah, Great question Jonathan.

Speaker Change: Yes, we are.

Speaker Change: Our exposure to rates declining is actually very small essentially de minimis, but more importantly, if you get the forward curve.

Speaker Change: With four six or cuts in that range now that winds up with a steeper curve and that's actually better for us so in those scenarios, where you've got the fed cutting this year.

Speaker Change: It actually be marginally better for us.

Speaker Change: Okay, and you're referring to the Billion Two Guide, so you're saying if we get more cuts, that could go higher. Okay, good to hear.

Speaker Change: Okay, so, but and you're you're referring to the 1 billion to guide so you're saying if we get more cuts that could go higher okay. Good good to hear.

Speaker Change: And then I guess a question for Scott as well. If I'm assuming some of the fee guidance that you're giving us.

They announced the public hearing, subsequently canceled the public hearing, and then voted 3-2 along partisan lines to adopt the final rule. This continues a disconcerting trend of increasing partisanship in banking regulations. The US is the only country that has allowed partisanship to invade the banking regulatory process; banking is a noble profession, and we're well aligned with our customers. Collaboration with our industry is necessary and a missing element today. Moving on, we believe the strategic decisions and investments we've made this year have us well positioned for success in the long term, and our diverse operating model will continue to operate successfully in any market environment going forward. Turning to slide five, period-end loan balances increased $181 million, or approximately 1% in the quarter, with growth in both C&I and commercial real estate. Loan growth did slow in the fourth quarter, but our teams remained confident in our pipelines as we moved forward. Both period and average deposits continued to grow this quarter. Our loan-to-deposit ratio was stable at 70.3%, remaining well below our peers and providing significant unbalancing liquidity to meet future loan or other liquidity demands.

Speaker Change: And then I guess a question for Scott as well.

Scott Grauer: I'm, assuming some of the fee guidance that you're giving us assume swap rates what does lower.

Scott Brower: assumes flat rates.

Scott Brower: What does lower...

Scott Brower: What would lower short-term rates do to some of your trading businesses and other fee-income businesses?

Scott Grauer: What would lower short term rates due to some of your trading businesses in other fee income businesses.

Scott Brower: Right, so the two big beneficiaries of that decline would be in our mortgage entity itself with our mortgage originations in the mortgage group and then a pretty immediate

Scott Grauer: So the two big.

Scott Grauer: Beneficiaries of that decline would be in our mortgage entity itself with our mortgage originations in the mortgage group and then.

Scott Grauer: A pretty immediate.

Speaker Change: Thank you for joining us today.

Scott Grauer: Increase in our mortgage trading our MBS activity, both as they have historically with lower rates have.

Speaker Change: outperformed significantly in those lower rate environments. So we'd get significant benefit from both of that market backdrop if rates were to rise. I mean to decrease, I'm sorry. Okay.

Scott Grauer: Outperformed significantly in those low lower rate environments. So we'd get significant benefit from both of that market backdrop, if rates were to rise I mean to decrease I'm sorry, okay.

Speaker Change: You guys would actually...

Scott Grauer: So you guys would actually.

Speaker Change: um

Scott Grauer:

Speaker Change: Welcome. Some cutting on the short end.

Scott Grauer: Welcome.

Scott Grauer: Cutting on the short end.

Speaker Change: There's no doubt about that. Mortgages are performing very well for the environment, but it's really at an all-time kind of low in terms of where we're at from a production perspective. And so any kind of movement downward in rates is really going to help that, and then that correspondingly is also going to help create more inventory, if you will, for the mortgage trading aspect of our business as well. And so that level of production and activity revenue generation on the institutional trading group has maintained that flattish level with the pickup in other categories. So our municipal trading activity has offset the declines in the MBS, but we would see that pickup in MBS, which we think would give us a lift overall.

Scott Grauer: There's no doubt about that Yep Yep, I mean mortgages are performing very well for the environment, but it's really at an all time low in terms of where we're at from a production perspective, and so any kind of movement downward in rates is really going to help that and then that correspondingly. It's also going to help create more.

While our cost of deposits continued to increase this quarter, the pace was less than half the level we've experienced in the previous three quarters, allowing our net interest margin to stabilize. Marty will comment more about net interest revenue, but we believe we are very close to the trough. Our credit remains very strong, and we have a combined reserve of $326 million, or 1.36% of outstanding loans at quarter end, which is considerably above the median of our peer credit. Finally, we repurchased 700,237 shares this week to reflect our long-term confidence in the company and to take advantage of attractive repurchase valuations. I'll provide additional perspective on the results before starting the Q&A session, but now Mark Vaughn will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to Mark.

Scott Grauer: Inventory, if you will for the mortgage trading aspect of our business as well.

Scott Grauer: So that level of production and activity revenue generation on the institutional trading group.

Scott Grauer: Has maintain that flattish level.

Scott Grauer: With the pick up in other.

Scott Grauer: Categories. So our municipal trading activity has offset the declines in the MBS, but.

Scott Grauer: But we would see that pick up in MBS, which we think would give us a lift overall.

Speaker Change: I'll step back, but thank you guys.

Scott Grauer: Good.

Speaker Change: I'll step back, but thank you guys I appreciate it.

Speaker Change: Thank you, John.

Speaker Change: Thank you John.

Speaker Change: Our next question is from Peter Winter with DA Davidson. Please proceed.

Speaker Change: Our next question is from Peter Winter with D. A Davidson. Please proceed.

Peter J. Winter: Good morning. I had a question on the loan side. Can you just talk about, you know, borrower sentiment today versus 90 days ago? And then just if you could elaborate on that point that the competitive environment should be actually a tailwind for you guys.

Peter J. Winter: Hi, good morning.

Thanks, Stacy. Turning to slide 7, period end loans were $23.9 billion, growing $181 million, or almost 1% in a quarter. Total C&I loans increased $84 million, or 0.6% in a quarter, with year-over-year growth of $591 million, or 4.2%. Commercial real estate loans grew 96 million, or 1.8%, in a length quarter and have increased 731 million, or 15.9%, year over year.

Peter J. Winter: I had a question on the morning extension I had a question on the loan side can you just talk about you know.

Peter J. Winter: Borrower sentiment today versus 90 days ago, and then just if you could elaborate on that point that the.

Peter J. Winter: The competitive environment should be actually a tailwind for you guys.

Peter J. Winter: Yeah, this is Mark. You're absolutely right about it being a tailwind for us. Given our situation with liquidity and capital position and solid credit quality, we feel very comfortable that we are out pursuing loan opportunities across our footprint and across all our lines of business. And we're trying to take advantage of some of the peer banks that are cutting back a little bit or pulling back for their various reasons. So that is the effort. That is the focus of all our sales teams. And I don't think there's any particular area that we're shying away from right now. As far as borrower sentiment goes, we've always been focused on customer selection. So we're going to be focused on ones that are well positioned to grow or to expand during this time frame. And we'll support those companies as we see appropriately.

Mark: Yes. This is mark.

Mark: Youre, absolutely right about the being a tailwind for us given our situation with liquidity and capital position.

Compared to December 31, 2020, CRE balances have grown at a modest 4.1% annualized rate. Growth this quarter was primarily driven by multifamily properties with an increase of $138 million and industrial facility loans with an increase of $43 million. This growth was partially offset by a decrease in $72 million in office loans, bringing the total office loan portfolio to its lowest point since 2018. The year-over-year CRE growth of $731 million was also driven by multifamily and industrial loans, and again, partially offset by a decline in office. We have an internal limit of 185% of Tier 1 capital and reserves to total CRE commitments, and we're presently at 172%. That limit is based on total commitments, so we do have ample room for continued modest growth and outstanding CRE balances as construction loans fund up. As of December 31, CRE balances represented 22% of total loans, consistent with the prior quarter, a ratio well below our peers.

Mark: And solid credit quality, we feel very comfortable that we are out pursuing loan opportunities.

Mark: Our footprint and across our all our lines of business.

Mark: And we're trying to take advantage of some of the peer banks that are cutting back a little bit or pulling back.

Mark: What for their various reasons.

Mark: So that is the effort that is the focus of all our sales teams.

Mark: And I don't think there's any particular area that we're shying away from right now as far as borrower sentiment goes.

Mark: We've always been focused on customer selection. So we're going to be focused on ones that are well positioned.

Mark: Two to grow or to expand during this time frame.

Mark: And we will support those companies as we see appropriately.

Speaker Change: and Peter, the footprint gives us a lot of tailwind, too. I mean, think about, you know, just the economic expansion that's happening in, you know, in Texas broadly. The new market we opened with San Antonio and Austin. Phoenix is doing very, very well. Denver's hanging in there really well. So the footprint's going to give us some tailwind there, too, just by having better economic growth in the footprint states than I think you're going to get nationally as well. Well, I think the only real concern I have to the risk to our guidance on loan growth really is commercial real estate. There's some risk that as the year goes along, we get a higher elevated level of payoffs, which could mute the total loan growth a little bit. But overall, we feel very good about the guidance that we've provided given our footprint.

Mark: Peter the footprint gives us a lot of tailwind to I mean, you think about you know just the economic expansion that's happening in you know in Texas broadly a new market, we opened with San Antonio and Austin.

Mark: Phoenix is doing very very well and Denver is hanging in there really well so the footprint is going to give us some tailwind there too just by having a better.

Mark: Economic growth in our footprint states and I think youre going to get a nationally as well I think the only real concern I have the risk to our guidance on loan growth really just commercial real estate.

Combined services and general business loans, our core C&I loans, increased 77 million, or 1.1%, with year-over-year growth of 281 million, or 4%. These combined categories are 30% of our total loan volume. Healthcare balances increased $60 million or 1.5% in the linked quarter and have grown $298 million or 7.8% year-over-year, primarily driven by our senior housing; healthcare loans represented 17. Energy loan balances decreased 53.5 million linked quarter and have increased 12 million or 0.4% year-over-year with period end balances at 14% of total period end loans.

Mark: There is some risk that as the year goes along we get a higher elevated level of payoffs, which could meet the total loan growth a little bit.

Mark: But overall, we feel very good about the guidance that we provided given our footprint.

Speaker Change: Thank you. And then on credit, Mark, you mentioned the health care. Could you just give a little bit more color about the $40 million increase in health care non-performing loans?

Speaker Change: Got it thank you and then.

Speaker Change: I mean credit Mark you mentioned that health care.

Speaker Change: Could you just give a little bit more color about the $40 million increase in health care nonperforming loans.

Mark: Yeah, I mean, you know, health care loans now account for 17% of our overall loan portfolio. And, you know, we have an occasional loan here or there that, you know, we've had good management support of inside it, but things haven't progressed as they expected. And we had to put those into more of a workout situation. One of them is more of an ongoing senior housing. One of them is more of a private pay situation. So they're not even in the same sides of the business. It's just we will have one-off non-performing credits like that. It is not a reflection of anything we see systemic in the health care business.

Speaker Change: Yeah I mean.

Speaker Change: Health care loans now account for 17% of our overall loan portfolio.

Speaker Change: We have on occasion alone here or there.

Speaker Change: Yes.

Speaker Change: We've had good.

Speaker Change: Management support of.

Speaker Change: Inside but things haven't progressed as they expected and we had to put those into more of a workout situation.

Speaker Change: One of them is more of an ongoing senior housing one of them is more of a private pay situations. So they're not even in the same sides of the business. It just we will have one off nonperforming credits like that.

Year over year, loans have grown 1.3 billion or 6%. Excluding Triple P loans, Q4 2023 extends the linked quarter loan growth to nine consecutive quarters. Our current pipeline is strong, and combined CNI and CRE amendments increased 2% in the court.

Speaker Change: Not a reflection of anything we see systemic in the health care business.

Mark: And I guess if I'm going to add anything, if you look at our non-performing loans over time, they have operated for the last numerous quarters in a very narrow range. And if we go back and look at some quarters, it's one of our other portfolios that adds to it. If it's another quarter, it's a different portfolio. And this quarter just happened to be a couple of one-off deals in health care, and we'll address those and be able to manage that, we believe, ongoing in a very narrow range. With low charge-offs, as we've had for a number of years now.

Speaker Change: And I guess, if I'm gonna add anything if you look at our nonperforming loans over time. They have operated for the last numerous quarters and a barrel very narrow range.

We expect continued strong momentum to drive additional loan growth in 2024. Turning to slide eight, you can see that our credit quality continues to be exceptionally good across the loan portfolio, with credit metrics well below historical norms and pre-pandemic levels. Non-performing assets, excluding those guaranteed by U.S. government agencies.

And if we go back and look at some quarters. It's one of our other portfolios that adds to it another quarter. It it's a different portfolio in this this quarter just happened to be a couple of one off deals in health care.

Speaker Change: We will address those and be able to manage that we believe ongoing.

Speaker Change: A very narrow range with low charge offs as we've had.

Speaker Change: Number of years now.

Mark: Just broadly, I mean, credit is a strength. I mean, if you look at where we are compared to pre-pandemic, we're, you know, not quite half in terms of our criticized and classified levels. Non-performing levels are strong. I mean, charge-offs this quarter were $4 million. I mean, it's obviously not sustainable. But I think where we're positioned and where we have performed historically, credit is very apparent that it's a strength right now. And I think as we look forward, we still feel, in the guidance that Marty provided, we still feel pretty good that at least over the next couple of quarters, we don't expect charge-offs to be materially elevated.

Speaker Change: Peter just broadly I mean credit is a strength I mean, if you look at where we are compared to pre pandemic.

Increased $26 million this quarter. The resulting non-performing assets to period end loans and repossessed assets did increase 10 basis points, 2.62%. Non-occurring loans increased $26 million in the quarter, primarily driven by an increase in healthcare.

Speaker Change: It's not quite half in terms of our criticized and classified levels nonperforming levels are strong and charge offs. This quarter were $4 million I mean it.

Speaker Change: Honestly not sustainable but.

Speaker Change: I think where we're positioned and where we have performed historically credit is is very apparent that it's a strength right now and I think as we look forward, we still feel like in the guidance that bid Marty provided we still feel pretty good that at least over the next couple of quarters, we don't expect charge offs.

The increase is consistent with non-accrual fluctuations in a narrow range experienced over the past two years with no indication of an increase, and more. Committed and Criticized Assets were 10.2% of Tier 1 Capital and Reserves at year-end 2023, the second consecutive year below 10.5% and the third below 13%, compared to an 18% ratio pre-pandemic. The provision for credit losses of $6 million in the fourth quarter reflects a stable economic forecast and continued loan growth, as well as continued low net charges. Net charge-offs were 4.1 million, or seven basis points annualized for the fourth quarter, and have averaged eight basis points over the last 12 months, continuing the trend of performance far below our historical loss range of 30 to 40 basis points.

Speaker Change: To be materially elevated.

Speaker Change: Thanks, Stacy. Appreciate it. Thank you.

Got it thanks, Jason appreciate it.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question is from Ben Gerlinger with Citi. Please proceed.

Speaker Change: Our next question is from Ben <unk> with Citi. Please proceed.

Ben Gerlinger: Hey, good morning.

Ben: Hey, good morning.

Ben Gerlinger: Morning, Ben.

Ben: Morning, Ben.

Ben Gerlinger: Excuse me, the growth guide looks pretty good. Are there...

Ben: I was curious if the growth that looks pretty good are there.

Ben Gerlinger: A little bit better than I would have guessed, but are you seeing people step back or risk-adjusted spreads being a little bit more appropriate that you're willing to lean into the growth? Just any color on rates you're getting as well.

Ben: It's a little bit better than I would've guessed, but are you seeing people step back or risk adjusted spreads being a little bit more appropriate than you're willing to lean into the growth.

Ben: <unk>.

Ben: Rates are getting as well.

Speaker Change: Now, I'd say generally speaking, I mean, it depends on what segment you're looking at from a spread perspective. I would say on the larger corporate deals, there is some spread enhancement that's coming as a result of maybe a liquidity premium in the marketplace that the larger banks are requiring. From that perspective, on the commercial banking or the lower end, there's probably not a lot of spread enhancement that's happening. There's still more competition there. Part of it is mix. As the mix shifts around over time, that can change our spreads just a little bit because there are higher spreads in especially lines of business than there are in traditional C&I. But I think what we saw is the fact that we're not just open for business, but we're actively prospecting, looking for new customers, trying to use this opportunity to grow very thoughtfully. It's creating opportunities for us. Really, we had several deals that kind of pushed into the first quarters. We were hopeful it would have closed in the fourth quarter. So we're optimistic about our loan pipelines and what we're hearing from our customers and prospects as we think about loan growth in 2024.

Ben: Now I'd say generally speaking I mean, it depends on what segment, you're looking at from a spread perspective.

Ben: I would say on the larger corporate deals there is some some spread enhancement that's coming as a result of.

Ben: Maybe illiquidity premium in the marketplace that the larger banks are requiring.

Looking forward, we expect that charge-off to remain below historical levels. The markets continue to be focused on the office segment of real estate given the trends in workforce preference. Our exposure to loans secured by Office CRE continues to decline as we intentionally manage that segment down, now representing less than 4% of our total loan population. Our office maturities are generally rateable over the next three to four years, and we have a mini-perm option if the markets are not conducive to long-term permanent financing. The combined allowance for credit losses was $326 million, or 1.36% of outstanding loans at quarter end.

Ben: From that perspective on the commercial banking or the lower end, there's probably not a lot of spread enhancement. That's happening there is still more competition there.

Ben: Part of it is mix you know as the mix shifts around over time that can that can change our spreads just a little bit because they're higher spreads in the specialty lines of business than there are in traditional C&I.

Ben: But I think what we saw is the fact that we are you know we're not just open for business, but we are actively prospecting looking for new customers.

Ben: Trying to use this opportunity to grow very thoughtfully.

Ben: It's creating opportunities for us and really we had several deals that kind of pushed into the first quarter. We were hopeful would have closed in the fourth quarter. So.

Ben: We're optimistic about our loan pipelines and what we're hearing from our customers and prospects as we think about loan growth in 2024.

The reserve is sufficient to cover our non-performing assets by 2.2 times. The total combined allowance is available for all losses, and any apples-to-apples industry comparison should include the combined reserves. We expect to maintain an appropriate reserve to support loan growth and reflect economic conditions. Overall, we remain in a solid credit position today with a stable economic outlook. While our current credit metrics may be unsustainable in weaker economic environments, we have a history of outperformance during past credit cycles and are well positioned. An economic slowdown materialized in the quarters. I'll turn the call over to Scott.

Speaker Change: Gotcha, that's helpful color. And then I know the trading business is kind of the front end of the curve. Do you need consistent Fed cuts to really see that start to work? Or is it just kind of the implications? Any kind of thoughts on what you might expect in terms of a cadence if, say, the forward curve is correct?

Speaker Change: Gotcha. That's helpful color and then another trading businesses kind of the front end of the curve.

Speaker Change: Do you need to really see that and start to work or is it just kind of the implications.

Speaker Change: Any kind of thoughts on what you might expect in terms of the cadence, but I'd say at the forward curve is correct.

Speaker Change: I think in the trading business you know even without changes in rates you know that business has momentum given the investments we've made in expanding into Memphis etc and so you know it would be incremental on top of what we already expect to be a growth trend if we get

Speaker Change: Yeah, I think in the trading business even without.

Speaker Change: Changes in rates, you know that business has momentum given the.

Speaker Change: The investments, we've made in expanding and our methods et cetera.

Speaker Change: And so.

Speaker Change: It would be incremental on top of what we already expect to be a growth trend if we get.

Thanks, Mark. Turning to slide 10, total fees and commissions were $196.8 million, relatively consistent with the previous quarter. However, the previous quarter included record high results for our wealth management sector, with the fourth quarter's wealth results still representing their third highest fee income quarter ever. Trading fees increased $1.1 million as sales activities related to our institutional customers continued to improve, with some lift provided by our recent Memphis expansion, partially offset by a linked quarter decline in our MBS trading activity. Our bank-wide investment banking activities fell $2.4 million linked quarter as the third quarter benefited from a record quarter for wealth, public, and corporate finance groups.

Speaker Change: forward curve plays out. Ben, were you talking about NIR or the fee businesses?

Speaker Change: Forward curve plays out being where you're talking about NAR or the fee businesses.

Speaker Change: The Fee

Speaker Change: Let's see let's see.

Speaker Change: Yeah.

Ben Gerlinger: Yeah, I think Marty answered that as it relates to the feed businesses for sure.

Speaker Change: Yeah, I think Marty answer that as it relates to the fee businesses for sure.

Speaker Change: Yeah, that's helpful. Thank you, guys. Thank you, Ben.

Yeah. That's helpful. Thank you guys. Thank you Ben.

Speaker Change: Our next question is from Matt Olney with Steven Sinks. Please proceed.

Our next question is from Matt Olney with Stephens, Inc. Please proceed hi.

Matt Olney: Hey, great. Thanks. Good morning, everybody.

Matt Olney: Hey, great. Thanks, good morning, everybody.

Matt Olney: Good morning, Matt. Going back to the fee discussion, and I think Scott touched on this briefly with John's question, but just take a step back and help us appreciate the drivers of that 24 guidance for fees and commissions, the various components of that through each one of your fee businesses. I think that guidance implies like a high single-digit growth in 24. What are the major drivers and detractors of that guidance?

Speaker Change: Good morning, Matt.

Matt Olney: Going back to the fee discussion and I think Scott touched on this briefly with John's question.

Matt Olney: But just take a step back and help us appreciate the drivers of that 24 guidance for fees and commissions.

Although down from their third quarter record high, the public and corporate finance group recorded their largest single transaction in their history during the fourth quarter. Wealth Management had a record year in 2023, achieving total revenue of $656 million, which surpassed the prior record set in 2020 by $140 million, resulting in an annualized three-year growth rate of 8.4%. This was driven by record 2023 revenue in the majority of our business units, including corporate trust, retirement plan, and asset services, private wealth, customer hedging, and investment banks. Transaction card revenue increased $2.5 million, and all other fee-generating categories remained relatively unchanged compared to the previous quarter, demonstrating the consistent positive results we see from these business lines. Our assets under management or administration were $104.8 billion at the end of the year, including an asset mix of 43% fixed income, 33% equity, 16% cash, and 8% alternative.

Matt Olney: Various components of that through each one of your your fee businesses I think that guidance implies like a like a high single digit growth in 'twenty four what are the major drivers and detractors of that at that guidance.

Scott Brower: Why don't I start on that, Matt? So I think that the businesses that probably have the greatest opportunity are in the brokerage and trading where we've made investments there and we've got great momentum in that business.

Speaker Change: Yeah, why don't I start.

Speaker Change: On that Matt.

So I think that the businesses that probably have the greatest opportunity are in the brokerage and trading where we've made investments there and we've got great momentum in that business.

Speaker Change: Fiduciary.

Scott Brower: asset management I think you know will have customary growth in that business plus we think that asset valuations are going to give us a little bit of wind at our backs from an AUM perspective and that'll flow through to to do growth rates and then a mortgage actually has opportunity there both on the production side and the servicing side and so you know we expect to see good numbers out of

Speaker Change: Asset management I think.

Speaker Change: We'll have customary growth in that business plus we think that at the valuations are going to give us a little bit of wind at our backs from an AUM perspective and that will flow through.

Speaker Change: Two good growth rates, and then mortgage actually has opportunity there both on the production side and on the servicing side and so we expect to see good numbers out of.

Scott Brower: that line of business on a percentage growth perspective.

Speaker Change: That line of business on a percentage growth perspective.

Scott Brower: Matt, this is Scott. I think that when you look at that total category, as I mentioned earlier in the call, the thing that we're pleased about is the fact that we're not seeing any one component carry the load. If you look at multiple quarters now and the year as a whole, we're seeing heightened levels, record levels of revenue generation across all the categories of wealth management, which, as you know, is very well diversified both by product set, customer set, geographically, where we're serving our national market and many of those operating units. So it's... It's broadly across the board where we've seen investment, historical investments in our corporate trust business, in our asset management business, the trading pieces, as Marty mentioned, but all of those...

Speaker Change: Matt. This is Scott I think that you know when you look at that total category as I mentioned earlier.

Scott Grauer: Earlier in the call. The thing that we're pleased about is the fact that we're not seeing any one component.

Scott Grauer: Terry.

Terry: If you look at <unk>.

Our diverse mix of fee income continues to be a strategic differentiator for us and allows us to perform well in a variety of economic environments. We consistently rank in the top decile for fee income as a percentage of total net interest revenue and non-interest fee income. Our revenue mix has averaged 38% during the last 12 months. With that, I'll turn the call over to Marty. Thank you, Scott. I'd like to start by describing a few of this quarter's unusual items, as some of them impact multiple lineups.

Terry: Multiple quarters now.

Terry: In the year as a whole we're seeing.

Terry: Heightened levels record levels of revenue generation across all the categories of wealth management, which as you know.

Terry: <unk> is very well diversified both by product set customer set geographically.

Terry: We're we're sort of international market and many of those operating units.

Terry: It's broadly across the board, where we've seen.

Terry: Investment historical investments in our corporate trust business and our asset management business.

The sale of our insurance, brokerage, and consulting business resulted in a one-time pre-tax gain of $31 million, which is included in the other gain net line item in the income statement. There were also two components of transaction-related expenses recorded in NIE, $2.5 million reflected in professional fees and services and $925,000 included in personnel expense, which produced a net gain of $28. We took advantage of that opportunity to reposition our available for sale portfolio, resulting in pre-tax losses of $28 million, which is reported in the loss on available for sale securities line item. The total of $40.5 million reported in the other gains net line item includes the $31 million insurance sale gain, as well as $5.9 million of gain related to market value increases on deferred compensation assets, which is effectively offset with $5.4 million of increased personnel expense this quarter The fourth quarter also included $3.1 million of accelerated recognition of tax expense as the result of exiting three low-income housing tax credit investments. Without that item, the effective tax rate for the quarter would have been 23.1%.

Terry: The trading pieces as Marty mentioned, but all of those.

Scott Brower: Together and combined are what produces the result that gives us optimism that we're not dependent upon those Fed rate cuts to continue to see momentum and growth in the business lines.

Terry: Together and combined are what produces the result that gives us optimism that we're not dependent upon those fed rate cuts to continue to see momentum in growth in the business lines.

Scott Brower: No doubt if we see, and it's less about the rate cuts, it's more about some steepness to the curve benefits the trading businesses because we've now been operating on a decade where we didn't have any slope to the curve, which incents no one to go out. So if we do see some steepness in the curve, we'll see, but I think we're extremely well positioned if that were to shape out.

Terry: No doubt if we see it and it's less about the rate as it's more about some steepness to the curve benefits the trading businesses because we've now been operating on a decade, where we didn't have any slope to the curve, which and since no. One to go out. So if we do see some steepness in the curve.

Terry: We'll see but I think we're extremely well positioned if that were to shape out.

Speaker Change: Okay. Appreciate the thoughts there, Scott. And then I guess shifting back over to the rate sensitivity, you provide some good commentary being relatively neutral as far as on the NII. What are your early thoughts on deposit betas in a falling rate scenario, whether it's back half the year or next year, whatever that would be? And how would those betas, you think, compare on the way down versus what we just saw on the way up at the bank?

Speaker Change: Okay I appreciate the thoughts there Scott and then I guess shifting back over to the rate sensitivity you can provide some good commentary being relatively neutral as far as on the the the NII. What are your early thoughts on deposit betas in a falling rate scenario.

Scott Grauer: Whether its back half the year or next year whenever that would be in and how would those betas you think compare on the way down versus what we just saw on the way up at the bank.

Scott Brower: Yeah, so given the fact that over the last couple quarters, you know, you've seen betas be higher, you're going to see a mirror image of that more or less as we see rates come down in that kind of environment. I mean, as you know, those are nonlinear, and so you're not going to get the same, you know, exact beta at each rate hike, but you'll see relatively high betas on the way down, given that you've got a lot of that beta on the driven upside was, you know, the larger corporate and wealth balances.

Speaker Change: Yes, so given the fact that over the last couple of quarters, you've seen betas be higher youre going to see a mirror image of that more or less as we see rates come down in that kind of environment.

This quarter reflected a significant easing of deposit pricing pressure compared to recent. Interest-varying deposit costs increased 26 basis points in the current quarter, but this is the slowest pace we have realized since the Federal Reserve started raising the Fed Funds rate in early 2023. Our cumulative interest-bearing deposit data increased to 63% for the fourth quarter. DDA as a percent of total deposits came down to 27% as of December 31.

Speaker Change: As you know those are not linear and so youre not going to get the same exact beta it had a heavy trade, but youll see youll see relatively high betas on the way down given that you've got.

Speaker Change: A lot of that data.

Speaker Change: <unk> driven upside was.

Speaker Change: The larger.

Speaker Change: <unk> corporate and wealth balances.

Speaker Change: Yep, okay. Fingers crossed. And then just lastly on the expense side, I know those expenses can be lumpy quarter to quarter. I think you mentioned a few things that made it a little higher in the fourth quarter. And I see the full year guidance, but any color on where we could start off with earlier in the year in the first quarter on the expense side?

Yep Okay.

Speaker Change: Woods Cross.

And then just lastly on the expense side I know there was expenses can be lumpy quarter to quarter. I think you mentioned a few things that made it more a little higher in the fourth quarter and I see the full year guidance, but any color on where we could start off with earlier in the year in the first quarter on the expense side.

This slide shows net interest margin and net interest revenue with and without the impact of the trading business to better highlight trends and comparability. For the fourth quarter, net interest margin excluding the impact of trading assets was 3.03% versus 3.14% in the third quarter. I expect to see a small decline and then some margin going into Q1, followed by relative stability after that. Growth and earning assets during the quarter were driven primarily by CNI and CRE loans. Turning to slide 13, liquidity and capital continue to be very strong on an absolute basis and versus peers. Total deposits grew $367 million on a period-end basis, and the loan-to-deposit ratio decreased just slightly to 70.3%. This is stronger than our pre-pandemic level, well below the median of our peer banks, and positions us well for future loans. Average total deposits increased $388 million in the linked quarter, with average interest-bearing deposits up $1.2 billion, partially offset by a $779 million decline in demand deposits. Berkert CDs remain an insignificant amount of our funding and decreased slightly in the fourth quarter.

Speaker Change: Yeah.

Speaker Change: yeah if you if you

Speaker Change: Yes.

Speaker Change: If you <unk>.

Speaker Change: take the

Speaker Change: Take the.

Speaker Change: and the fourth quarter number, the 384, and then adjust that for the...

Speaker Change: Fourth quarter number the 384, and then adjust that for the.

Speaker Change:

Speaker Change: FDIC Special Assessment, you get to a $340 million number.

Speaker Change: FDIC special assessment.

Speaker Change: You get to a $340 million number etsy.

Speaker Change: Coming out of that gate next quarter, we'd expect to be a little below that.

Speaker Change: Coming out of the gate.

Speaker Change: Next quarter, we would expect to be a little below that.

Speaker Change: Yeah, I've already pointed out, and I think it's important, there's some BOKFI transaction costs that are embedded in some of those line items in the fourth quarter, particularly related to personnel expense and professional fees that you've got to think about, too, is really being part of that sale of that business, not really part of the core run rate of the company. Yeah, so if you think through some of those unusual items and filter some of those out, you know, you'll get...

Speaker Change: And I have already pointed out I think it's important there is some <unk>.

Speaker Change: KFI transaction costs that are embedded in some of those line items in the fourth quarter, particularly related to personnel expense and professional fees that you've got to think about too is as really being part of that.

Speaker Change: All of that business not really part of the core run rate of the company. So.

Speaker Change: So if you think through some of those unusual items and filter some of those out you'll get.

Speaker Change: Thank you.

Speaker Change:

Speaker Change: We have taxes on wages coming up in the first quarter, but that will net down to just a little bit.

Speaker Change: Yes taxes on on wages coming up.

Speaker Change: In the first quarter, but that will net down to just a little bit.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Thanks, everybody.

Speaker Change: Thanks, everybody.

Speaker Change: Thank you, Matt.

Speaker Change: Thank you Matt.

Speaker Change: Our next question is from Will Jones with KBW. Please proceed.

Speaker Change: Our next question is from will Jones with <unk>. Please proceed.

Will Jones: Hey, great. Good morning, guys.

Hey, great good morning, guys.

Will Jones: Good morning.

Our tangible common equity ratio is 8.29%, up 55 basis points, due in large part to term interest rates falling late in the fourth quarter. Adjusted TCE, including the impact of unrealized losses on health and maturity securities, is 8.02%. CET1 is 12.1%, and if adjusted for AOCI, it would be 10.5%.

Will Jones: Good morning will.

Will Jones: Hey, Marty, I just hope you could help us unpack, you know, the Mars in the story, what it looks like in both, you know, this.

Will Jones: Hey, Marty just hoping you could help us unpack the margin that's what it looks like in both you know this.

Will Jones: You know, flat rate environment that your guidance is kind of predicated off of. And then maybe, you know, what the margin does is if we do see, you know, two, three, four, even six rate cuts this coming year.

Will Jones: Flat rate environment that your guidance is kind of predicated off of and then maybe what the margin does if we do see you know two or three or even six rate cuts this coming year.

Will Jones: I know you talked about compression next quarter, but then maybe a stable them in this.

Will Jones: I know you've talked about.

Will Jones: Next quarter, but less than maybe a stable NIM in this.

Speaker Change: You know, in a flat rate environment, but can you see expansion in that scenario and I guess just confirm, you know, y'all will certainly see an expansion if we do get rate cuts. Thanks.

Will Jones: In a flat rate environment, but can you see expansion in that scenario and I guess just confirm you will certainly see NIM expansion, if if we do get rate cuts. Thanks.

We have sufficient capital to support continued organic growth and opportunistic share buyback with a high degree of certainty, knowing that the recent regulatory capital proposal is primarily focused on banks over $100 billion. Turning to slide 14, linked quarter expenses increased $59.8 million, up 18.4%, driven primarily by the $43.8 million FDIC special assessment. The personnel expense grew to $12.2 million due to four primary factors. Regular compensation increased $3.2 million due to salaries related to business expansion and expenses related to the sale of the insurance. Sales-related activities led to a $4.0 million increase in cash-based incentive compensation. Deferred compensation expense, which is driven by market valuations, increased $5.4 million in the latest quarter.

Speaker Change: Yeah, so the basic trajectory that we're expecting is, you know, margins basically leveled out a little bit down in the first quarter level, and then actually just a little bit up at the end of the year is how we think about it for a flat rate scenario. Of course, plus or minus the usual drivers of noise around that trend. And then if you've got a forward curve kind of scenario playing out, that would be modestly supportive of the margin percentage, you know, in those later quarters when that would play out, when the steepness would start to play out.

Speaker Change: Yes, so the basic trajectory that that we're expecting as margins basically leveled out a little bit down in the first quarter level, and then actually just a little bit up at the end of the year is how we think about it for a flat rate scenario of course, plus or minus the usual drivers of noise around that trend and then if you've got a forward curve kind of scenario playing out.

Speaker Change: That would be modestly supportive of the margin percentage and those later quarters when that would play out with the steepness would start to play out.

Speaker Change: That's helpful. And then where do you feel like we are in the non-interest-sparing remix story? I know balances took another step down this quarter, but do you feel like we're getting close to kind of a leveling out there? Or how do you think about non-interest-sparing deposits into this year?

Speaker Change: Got you that's helpful and then where do you feel like we are in the noninterest bearing remix story I know thousands took another step down this quarter, but.

Speaker Change: Did you feel like we're getting close to kind of kind of a leveling out there or do you think about noninterest bearing deposits and to this year.

Speaker Change: Yeah, so the decline we saw in the fourth quarter was largely as we expected, and we talked about that on our Q3 call. So for the first quarter, we do expect another decline that's a little smaller than what we saw in the fourth quarter, but still pretty sizable, pretty close to that size, just as you get a combination of some of the rate-driven moves and some seasonal declines that are normal for us as we go into Q1. So you'll see Q1 down another step, and then after that, our expectation is much smaller amounts of shift from non-interest bearing into interest bearing for the next couple quarters as we just get into the tail phase of that, as that naturally plays out.

Speaker Change: Yes. The decline we saw in the fourth quarter was largely as we expected when we talked about that on our Q.

And lastly, employee benefits increased $1.1 million in the last quarter due to seasonal increases in health insurance. Non-personnel operating expenses grew $3.3 million, excluding the increase in FDIC insurance expense with $2.5 million related to expenses on the sale of our insurance brokerage and consulting. We also made a $1.5 million contribution to the BOKF Foundation in our continuing efforts to support the communities we serve. Turning to slide 15, I'll cover our expectations for 2024. We expect mid to upper single-digit annualized loan growth because economic conditions in our geographic footprint remain favorable and continue to be supported by business migration from other markets. The competitive environments alone should be a tailwind for us. We expect to continue holding our available for sale securities portfolio flat and to maintain a neutral interest rate risk position.

Speaker Change: Q3 call.

Speaker Change: So for the first quarter, we do expect another decline that's a little smaller than what we saw in the fourth quarter, but still pretty pretty sizable pretty close to that size just as you get a combination.

Speaker Change: Some of the rate.

Speaker Change: Driven moves and some seasonal declines that are normal for us in as we go into Q1, so you'll see Q1 down another step and then.

Speaker Change: After that our expectation is much smaller amounts of shift from noninterest bearing into interest bearing for the next couple of quarters as we just get into the tail phase of that.

Speaker Change: Naturally plays out.

Speaker Change: Okay, great. Thanks for that. And it feels like it maybe has been a while since we've updated thoughts on bank M&A. You know, it feels like there could be some pushes and pulls on M&A into the coming year. Could you just update us on how you feel?

Speaker Change: Okay, great. Thanks for that.

Speaker Change: It feels like maybe it's been awhile since I'm sort of updated thoughts on bank M&A.

Speaker Change: It feels like there could be some.

Speaker Change: Pushes and pulls on the M&A into the coming year could you just update us on how you feel.

Speaker Change: or how you generally think about M&A in terms of in-market transactions or out-of-market or size, just any kind of context you could give would be great.

Speaker Change: Or how do you generally think about it.

We expect total deposits to grow modestly and the loan-to-deposit ratio to remain near, Currently, we are assuming no additional rate changes by the Federal Reserve in 2024. We believe the margin will migrate slightly lower in Q1 of 2024 and expect net interest income to be near $1.2 billion for full year 2024. In aggregate, we expect total fees and commissions revenue in a range of $825 to $850 million for 2024.

Speaker Change: And in terms of end market transactions are out of market or size or just any kind of context, you could give would be great.

Speaker Change: So two factors. I do think rates are going to have to come down before bank M&A becomes more realistic. You still have purchase accounting issues that are going to happen until some of these securities portfolios and banks that would like to be acquired are better positioned. It's going to create some headwind there until that's resolved. I think for us, broadly, a 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. 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, and continue to invest there. It's got to be of sufficient size to move the needle for us, but there's just not a lot that fit that. We're more interested. We're more interested in technology or product acquisitions that could add on and be incremental much quicker and not distract the whole company from a regulatory approval and conversion process. I would put the odds that we find a whole bank acquisition in the next 12 months to be pretty low. We are continuing to look for things on the product or technology set that could be accretive to us and valuable to us long-term, although there's nothing that we're going to be able to do. We're not on the horizon there either.

Speaker Change: Yeah. So so two factors I think I do think rates are going to have to come down before bank M&A becomes more realistic.

Speaker Change: You still have purchase accounting issues theyre going to happen until some of these securities portfolio than banks that we'd like to be acquired are better positioned.

Speaker Change: Create some headwind there until that's resolved I think for us broadly.

Speaker Change:

Speaker Change: A large bank acquisition is going to be difficult for us to do there is just not a lot that would fit the profile that we're looking for 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 and continuing to invest there it's got to be of sufficient size to move the needle for us.

Excluding the FDIC special assessment, we expect expenses to increase at a mid-single-digit growth rate as we continue to invest in strategic growth and technology initiatives, with revenue growth following at a slight lag. As revenue growth is realized in 2024, we expect the efficiency ratio to migrate downward to approximately 65%. Our combined allowance level is above the median of our peers, and we expect to maintain a strong credit quality. Given our expectations for loan growth and the strength of our credit quality, we expect near-term provision expense to remain low and trend toward more normal credit costs in the second half of 2024. Changes in the economic outlook will impact our provision expense. Additionally, we expect to continue opportunistic share repurchase activities. I'll now turn the call back over to Stacy Kymes for closing comments. Thanks, Marty. This quarter puts a period on the end of the year with the second highest earnings OK Financial has ever achieved.

Speaker Change: But but theres just not a lot to fit that we're more interested in <unk>.

Speaker Change: Technology or product acquisitions that could add on and be incremental much quicker.

Speaker Change: And not distract the whole company from a.

Speaker Change: Regulatory approval and conversion process and so I would put the odds that we find a whole bank acquisition.

Speaker Change: In the next 12 months to be pretty low and we are continuing to look for things on the product or technologies that they could be.

Speaker Change: Creative to us and valuable to us long term, although theres nothing on the horizon there either.

Speaker Change: That's it for me. Great year, guys.

Speaker Change: Okay makes sense.

Speaker Change: That's it for me a great great year guys.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question is from Timur Braziler with Wells Fargo Securities. Please proceed.

Speaker Change: Our next question is a Frenchman Michel there with Wells Fargo Securities. Please proceed.

Timur Braziler: Good morning.

Hi, good morning.

Timur Braziler: Great.

As many banks struggled in the turbulent economic environment, we proved once again that our strategically diverse revenue mix is built to withstand any storm. While other banks may be pulling back, we have positioned ourselves to be in a great liquidity and capital position to organically grow our business and perform very well in 2024. We have strong pipelines going into 2024.

Speaker Change: Right.

Timur Braziler: Starting on the deposit side, do you have what the deposit spot rate was at the end of the year?

Michel: Starting on the deposit side do you have what the deposit spot rate was at the end of the year.

Speaker Change: We don't really have a deposit spot rate per se, but our cumulative beta was 63 for the quarter and for the month of December it was 64, so really not a lot different than the full quarter average.

Speaker Change: Yeah, we don't really have a deposit spot rate per se, but but.

Speaker Change: Our.

Speaker Change: Accumulative beta was 63 for the quarter and for the month of December was 64, so really not a lot different than the full quarter average.

Speaker Change: Okay.

Speaker Change: Okay, and then looking at expenses and trying to take into consideration some of the comments around what happens on the fee income side if we do get rate cuts, is the expectation that the expenses grow in an environment where you see some higher revenues from fees? And if that is the case, is the 65% efficiency ratio in a down rate environment still a good base, or could you actually see some improvement as some of these fee income businesses pick up some more momentum?

Speaker Change: Okay, and then looking at expenses and trying to take into consideration some of the comments around what happens on the fee income side. If we do get rate cuts is the expectation that the expenses grow in an environment, where you see some higher revenues.

We've expanded our market reach. Our credit quality remains very strong, and our fee income businesses are positioned for solid growth. I'm very proud of the entire VOP, who have worked so hard to deliver these strong results. With that, we are pleased to take your questions. Operator?

Speaker Change: From fees and if that is the case.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: Is the 65% efficiency ratio in a down rate environment still a good base or could you actually see some improvement as some of these fee income businesses pick up some more momentum.

Speaker Change: I'd say broadly speaking the 65 is good, but you could see some incremental improvement from just a higher revenue lift overall because I would just accelerate that trend.

Speaker Change: Yeah, I'd say broadly speaking the 65 is good but you could see some incremental improvement from just a higher revenue lift overall.

Operator: For a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keypad. Our first question is from John Arfstrom with RBC Capital Markets. Please proceed. Thanks.

Speaker Change: I would just accelerate that trend.

Speaker Change: If you think about mortgage particularly, I mean, mortgage is probably running 90% plus efficiency today. So if you've got any lift there, you know, you're going to get a better efficiency ratio out of that line of business. So I, you know, Marty's right. I think we're very comfortable with the...

Speaker Change: If you think about mortgage, particularly I mean mortgage is probably running 90% plus efficiency today. So if you get any lift there you're going to get a better efficiency ratio out of that line of business.

Jon Arfstrom: This is the question I've had a few times this morning on your numbers. Some banks are assuming zero rate cuts, others are assuming two to four, others are saying six. What does your net interest income and margin outlook look like with a few cuts and then maybe as much as six cuts? And I want to follow up and ask about fees as well, but maybe just net interest income first.

Speaker Change: So Marty.

Speaker Change: Marty is right I think we're we're very comfortable with that.

Speaker Change: For guidance, we provided there but.

Speaker Change: Any benefit that we get from a lower rate environment should be incrementally positive to our efficiency ratio.

Speaker Change: Got it. Thank you.

Speaker Change: Got it thank you.

Speaker Change: As a reminder to star 1 on your telephone keypad if you would like to ask a question. Our next question is from Brandon King with Truist Securities. Please proceed.

Speaker Change: As a reminder, just star one on your telephone keypad, if he would like to ask a question. Our next question is from Brandon King with truly Securities. Please proceed.

Yeah, no, that's a great question, John, and yeah, our exposure to race declining is actually very small, essentially de minimis, but more importantly, if you get the forward curve, you know, with four or six or cuts in that range, that winds up with a steeper curve, and that's actually better for us, so in those scenarios where you've got the Fed cutting this year, it'd actually be marginally better Okay, and you're referring to the Billion Two Guide, so you're saying if we get more cuts, that could go higher. Okay, good to hear from you. And then I guess a question for Scott as well.

Brandon King: Hey, good morning. Thanks for taking my question.

Hey, good morning, Thanks for taking my questions.

Brandon King: Brandon

Speaker Change: Brandon.

Brandon King: So I wanted to follow up on trading NIR and what are you expecting kind of implied in your NIR forecast? And if you can kind of give us the puts and takes on how that could play out, just given, you know, Fed rate cuts potentially occurring.

Brandon King: Yeah. So I wanted to follow up on trading NAR and what are you expecting kind of implied in your NII forecast and if you can kind of give us the puts and takes on how that could play out just given the fed rate cut potentially occurring in the year.

Speaker Change: Yeah, so we're, in our guide, we're just assuming that that remains roughly constant throughout the year to the extent that you get some steepening that could be a positive for that line item for sure.

Speaker Change: Yes. So we're in our guide we're just assuming that that remains roughly constant throughout the year to the extent that you get some steepening that could be a positive for that line item for sure.

Speaker Change: Okay. Okay. And then just another follow-up on credit. So, and you got, as you expect, you know,

Speaker Change: Okay.

If I'm assuming that some of the fee guidance that you're giving us assumes flat rates, what would lower... What would lower short-term rates do to some of your trading businesses and other fee-income businesses? Right, so the two big beneficiaries of that decline would be in our mortgage entity itself with our mortgage originations in the mortgage group and then a pretty immediate, Thank you for joining us today, outperformed significantly in those lower rate environments. So we'd get significant benefit from both of those market backdrops if rates were to rise. I mean to decrease it, I'm sorry.

Speaker Change: And then just another follow up on credit so in your guidance do you expect you know.

Speaker Change: Increasing credit costs more towards the later part of 2024. And then you also mentioned kind of a normalized range.

Speaker Change: The increase in credit cost more towards the later part of 2024, and then you also mentioned kind of a normalized range.

Speaker Change: 30 to 40 basis points. So is it fair to assume that maybe back half of 2024 we approach that 30 basis points of net charge-offs? Is that how you're thinking about it?

Speaker Change: A 30 to 40 basis points. So so is it fair to assume that maybe the back half of 2024, we approached at 30 basis points of net charge offs is that how you're thinking about it.

Speaker Change: No, I think, you know, we're talking about our guidance was really around provision levels, not charge-off levels. I do think you could see, just based on some reversion, you could see charge-off levels come up a little bit in the back half of the year. But, Mark, talk a little bit about our historical charge-offs. We always guide the 30 to 40 basis points, but it's been a long time since we've seen 40 basis points. Yeah, I mean, if we've been looking back over our history, we have been below 30 basis points at charge-offs since 2013. It was the last year we hit 30 basis points. So, we've operated mainly between, you know, less than 10 to...

Speaker Change: No I think you know.

Speaker Change: We were talking about our guidance is really around provision levels not not charge off levels I do think you could see just based on some reversion.

Okay. You guys would actually... um, welcome. Some cutting on the short end. There's no doubt about that. Mortgages are performing very well for the environment, but they're really at an all-time kind of low in terms of where we're at from a production perspective. And so any kind of movement downward in rates is really going to help that, and then that correspondingly is also going to help create more inventory, if you will, for the mortgage trading aspect of our business as well. And so the level of production and activity revenue generation on the institutional trading group has maintained that flattish level with the pickup in other categories.

Speaker Change: Could see charge off levels come up a little bit in the back half of the year, but.

Speaker Change: Mark talk a little bit about our historical charge offs, we always guide to 30 to 40 basis points, but it's been a long time since we've seen 40 basis point, yes, I mean, we've been looking back over our history.

Mark: We have been below 30 basis points of net charge offs. Since 2013 was the last year, we hit 30 basis points. So.

Mark: We've operated mainly between.

Mark: Less than 10 two.

Mark: for the last 10 to 11 years. So we, right now, given where our credit is, we don't see the increased level of net charge-offs coming. But as we grow and as the economic environment changes, that will have the impact on the provision that we have to have and the reserve we have to have. And we're going to make sure we continue to make that appropriate level of that reserve reflecting those two things. But it's going to be driven by those more than it's going to be driven by net charge-offs.

Mark: 20.

Mark: For the last 10 to 10 to 11 years. So we right now given the where our credit is we don't see the increased level of net charge offs coming but as we grow and as the economic environment changes that will have the impact on the provision that we have to have in the reserve we have to have and we're going to.

Jon Arfstrom: So our municipal trading activity has offset the declines in the MBS, but we would see that pickup in MBS, which we think would give us a lift overall. I'll step back, but thank you guys. Thank you, John.

Mark: Keep make sure we continue to make sure that appropriate level of that reserve, reflecting those two things, but its going to be driven by those more than it's going to be driven by net charge offs.

Speaker Change: Okay, very helpful. Thanks for the details.

Speaker Change: Okay very helpful. Thanks for the details.

Operator: Our next question is from Peter Winter with DA Davidson. Please proceed. Good morning.

Speaker Change: We have reached the end of our question and answer session. I would like to turn the conference back over to Marty for closing remarks.

Speaker Change: We have reached the end of our question and answer session I would like to turn the conference that sounds like a Martin for closing remarks.

Peter J. Winter: I had a question on the loan side. Can you just talk about, you know, borrower sentiment today versus 90 days ago? And then just if you could elaborate on that point that the competitive environment should actually be a tailwind for you guys. Yeah, this is Mark.

Marty Gruntz: Thanks again, everyone, for joining us this morning. If you have any questions, please email us at ir at bokf.com. Have a great day.

Martin: Thanks again, everyone for joining us. This morning, if you have any questions. Please E mail us at IR at <unk> Dot com have a great day.

Speaker Change: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker Change: © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon

Speaker Change: [music].

You're absolutely right about it being a tailwind for us. Given our situation with liquidity and capital position and solid credit quality, we feel very comfortable that we are out pursuing loan opportunities across our footprint and across all our lines of business. And we're trying to take advantage of some of the peer banks that are cutting back a little bit or pulling back for various reasons. So that is the effort.

That is the focus of all our sales teams, and I don't think there's any particular area that we're shying away from right now. As far as borrower sentiment goes, we've always been focused on customer selection.

Speaker Change: Uh huh.

Speaker Change: [music].

So we're going to be focused on ones that are well positioned to grow or to expand during this time frame. And we'll support those companies as we see appropriate, and Peter, the footprint gives us a lot of tailwind, too. I mean, think about just the economic expansion that's happening in, you know, in Texas broadly. The new market we opened with San Antonio and Austin. Phoenix is doing very, very well. Denver's hanging in there really well, too.

So the footprint's going to give us some tailwind there, too, just by having better economic growth in the footprint states than I think you're going to get nationally as well. Well, I think the only real concern I have about the risk to our guidance on loan growth is commercial real estate. There's some risk that as the year goes along, we get a higher level of elevated payoffs, which could mute the total loan growth a little bit. But overall, we feel very good about the guidance that we've provided given our footprint. Thank you.

Peter J. Winter: And then on credit, Mark, you mentioned health care. Could you just give a little bit more color about the $40 million increase in health care non-performing loans? Yeah, I mean, health care loans now account for 17% of our overall loan portfolio. And, you know, we have an occasional loan here or there that, you know, we've had good management support inside it, but things haven't progressed as they expected. And we had to put those into more of a workout situation. One of them is more of an ongoing senior housing situation. One of them is more of a private pay situation, so they're not even on the same side of the business.

It's just we will have one-off non-performing credits like that. It is not a reflection of anything we see systemic in the health care business. And I guess if I'm going to add anything, if you look at our non-performing loans over time, they have operated for the last numerous quarters in a very narrow range. And if we go back and look at some quarters, it's one of our other portfolios that adds to it. If it's another quarter, it's a different portfolio. And this quarter just happened to be a couple of one-off deals in health care, and we'll address those and be able to manage that, we believe, on an ongoing basis in a very narrow range. With low charge-offs, as we've had for a number of years now. Just broadly, I mean, credit is a strength. I mean, if you look at where we are compared to pre-pandemic, we're, you know, not quite half in terms of our criticized and classified levels, but non-performing levels are high. I mean, charge-offs this quarter were $4 million. It's obviously not sustainable.

But I think where we're positioned and where we have performed historically, credit is very apparent that it's a strength right now. And I think as we look forward, we still feel, in the guidance that Marty provided, pretty good that, at least over the next couple of quarters, we don't expect charge-offs to be materially elevated. Thanks, Stacy.

Peter J. Winter: Thank you. Our next question is from Ben Gerlinger with Citi. Please proceed. Hey, good morning.

Ben Gerlinger: Morning, Ben. Excuse me, but the growth guide looks pretty good. Are there... A little bit better than I would have guessed, but are you seeing people step back, or risk-adjusted spreads being a little bit more appropriate that you're willing to lean into the growth? Just any color on rates you're getting as well. Now, I'd say, generally speaking, it depends on what segment you're looking at from a spread perspective. I would say on the larger corporate deals, there is some spread enhancement that's coming as a result of maybe a liquidity premium in the marketplace that the larger banks are requiring. From that perspective, on commercial banking or the lower end, there's probably not a lot of spread enhancement that's happening. There's still more competition there. Part of it is the mix.

As the mix shifts around over time, that can change our spreads just a little bit because there are higher spreads in certain lines of business than there are in traditional C&I. But I think what we saw is the fact that we're not just open for business, but we're actively prospecting, looking for new customers, trying to use this opportunity to grow very thoughtfully. It's creating opportunities for us. Really, we had several deals that were kind of pushed into the first quarters.

We were hopeful it would have closed in the fourth quarter. So we're optimistic about our loan pipelines and what we're hearing from our customers and prospects as we think about loan growth in 2024. Gotcha, that's a helpful color.

Ben Gerlinger: And then I know the trading business is kind of the front end of the curve. Do you need consistent Fed cuts to really see that start to work? Or is it just the implications?

Any kind of thoughts on what you might expect in terms of a cadence if, say, the forward curve is correct? I think in the trading business, even without changes in rates, you know that business has momentum given the investments we've made in expanding into Memphis, etc., and so it would be incremental on top of what we already expect to be a growth trend if we get the forward curve plays out. Ben, were you talking about NIR or the fee businesses? The Fee, Yeah, I think Marty answered that as it relates to the feed businesses for sure. Yeah, that's helpful.

Ben Gerlinger: Thank you, guys. Thank you, Ben. Our next question is from Matt Olney with Steven Sinks. Please proceed. Hey, great. Thanks. Good morning, everybody. Good morning, Matt.

Matt Olney: Going back to the fee discussion, and I think Scott touched on this briefly with John's question, but just take a step back and help us appreciate the drivers of that 24 guidance for fees and commissions, the various components of that through each one of your fee businesses. I think that guidance implies like a high single-digit growth in 24. What are the major drivers and detractors of that guidance? Why don't I start on that, Matt? So I think that the businesses that probably have the greatest opportunity are in the brokerage and trading business, where we've made investments there and we've got great momentum in that business; asset management, I think you know, will have customary growth in that business, plus we think that asset valuations are going to give us a little bit of a wind at our backs from an AUM perspective and that'll flow through to growth rates; and then mortgage actually has opportunities Matt, this is Scott.

I think that when you look at that total category, as I mentioned earlier in the call, the thing that we're pleased about is the fact that we're not seeing any one component carry the load. If you look at multiple quarters now and the year as a whole, we're seeing heightened levels, record levels of revenue generation across all the categories of wealth management, which, as you know, is very well diversified both by product set, customer set, geographically, where we serve our national market and many of those operating units. So it's...

It's broadly across the board where we've seen investment, historical investments in our corporate trust business, in our asset management business, the trading pieces, as Marty mentioned, but all of those... Together and combined, they produce a result that gives us optimism that we're not dependent upon those Fed rate cuts to continue to see momentum and growth in the business lines. No doubt if we see, and it's less about the rate cuts, it's more about some steepness to the curve benefiting the trading businesses because we've now been operating for a decade where we didn't have any slope to the curve, which incents no one to go out. So if we do see some steepness in the curve, we'll see, but I think we're extremely well positioned if that were to shape Okay. I appreciate the thoughts there, Scott.

Matt Olney: And then I guess shifting back over to the rate sensitivity, you provide some good commentary being relatively neutral as far as the NII is concerned. What are your early thoughts on deposit betas in a falling rate scenario, whether it's back half the year or next year, whatever that would be? And how would those betas, you think, compare on the way down versus what we just saw on the way up at the bank? Yeah, so given the fact that over the last couple quarters, you know, you've seen betas be higher, you're going to see a mirror image of that, more or less, as we see rates come down in that kind of environment. I mean, as you know, those are nonlinear, and so you're not going to get the same exact beta at each rate hike, but you'll see relatively high betas on the way down, given that you've got a lot of that beta on the upside, which was, you know, the larger corporate and wealth balances. Fingers crossed.

And then, just lastly, on the expense side, I know those expenses can be lumpy quarter to quarter. I think you mentioned a few things that made them a little higher in the fourth quarter. And I see the full-year guidance, but any color on where we could start off with earlier in the year in the first quarter on the expense side? Yeah, if you take the fourth-quarter number, the 384, and then adjust that for the... FDIC Special Assessment, you get to a $340 million number. Coming out of that gate next quarter, we'd expect to be a little below that. Yeah, I've already pointed out, and I think it's important, there are some BOKFI transaction costs that are embedded in some of those line items in the fourth quarter, particularly related to personnel expense and professional fees that you've got to think about, too, are really being part of that sale of that business, not really part of the core run rate of the company Yeah, so if you think through some of those unusual items and filter some of those out, you'll get...

Unnamed Speaker: We're excited about the additional rate changes by the Federal Reserve in 2024. We believe the margin will migrate slightly lower in Q1 of 2024 and expect net interest income to be near $1.2 billion for full year 2045. In aggregate, we expect total fees and commissions revenue in a range of $825 to $850 million for 2024.

Unnamed Speaker: Excluding the FDIC special assessment, we expect expenses to increase at a mid-single digit growth rate as we continue to invest in strategic growth and technology initiatives, with revenue growth following at a slight lag. As revenue growth is realized in 2024, we expect the efficiency ratio to migrate downward to approximately 65%. Our combined allowance level is above the median of our peers, and we expect to maintain a strong credit quality. Given our expectations for loan growth and the strength of our credit quality, we expect near-term provision expense to remain low and trend toward more normal credit costs in the second half of 2024. Changes in the economic outlook will impact our provision expense. Additionally, we expect to continue opportunistic share repurchase activities. I'll now turn the call back over to Stacy Kymes for closing comments. Thanks, Marty. This quarter puts a period on the end of a year with the second highest earnings OK Financial has ever achieved.

We have taxes on wages coming up in the first quarter, but that will net down to just a little bit. Okay. Thanks, everybody. Thank you, Matt.

Matt Olney: Our next question is from Will Jones with KBW. Please proceed. Hey, great. Good morning, guys. Good morning.

Will Jones: Hey, Marty, I just hope you could help us unpack, you know, the Mars in the story, what it looks like in both, you know, this flat rate environment that your guidance is kind of predicated on. And then maybe, you know, what the margin does if we do see, you know, two, three, four, even six rate cuts this coming year. I know you talked about compression next quarter, but then maybe a stable them in this. You know, in a flat rate environment, but can you see expansion in that scenario, and I guess just confirm, you know, y'all will certainly see an expansion if we do get rate cuts. Thanks.

Stacy C. Kymes: As many banks struggled in a turbulent economic environment, we proved once again that our strategically diverse revenue mix is built to withstand any storm. While other banks may be pulling back, we have positioned ourselves to be in a great liquidity and capital position to organically grow our business and perform very well in 2024. We have strong pipelines going into 2024.

Yeah, so the basic trajectory that we're expecting is, you know, margins basically leveled out a little bit down in the first quarter and then actually just a little bit up at the end of the year. Of course, plus or minus the usual drivers of noise around that trend. And then if you've got a forward curve kind of scenario playing out, that would be modestly supportive of the margin percentage, you know, in those later quarters when that would play out, when the steepness would start to play out. That's helpful.

Unnamed Speaker: We've expanded our market reach. Our credit quality remains very strong, and our fee income business is our position for solid growth. I'm very proud of the entire VOCA team that worked so hard to deliver these strong results.

Operator: With that, we are pleased to take, operator. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Jon Arfstrom: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from John Arfstrom with RBC Capital Markets; please proceed. Thanks. Good morning, John. Good morning, Marty.

Will Jones: And then where do you feel like we are in the non-interest-sparing remix story? I know balances took another step down this quarter, but do you feel like we're getting close to kind of a leveling out there? Or how do you think about non-interest-sparing deposits going forward this year? Yeah, so the decline we saw in the fourth quarter was largely as we expected, and we talked about that on our Q3 call. So for the first quarter, we do expect another decline that's a little smaller than what we saw in the fourth quarter, but still pretty sizable, pretty close to that size, just as you get a combination of some of the rate-driven moves and some seasonal declines that are normal for us as we go into Q1. So you'll see Q1 down another step, and then after that, our expectation is much smaller amounts of shift from non-interest bearing Okay, great. Thanks for that.

Jon Arfstrom: This is a question I've had a few times this morning on your numbers. Some banks are assuming zero rate cuts, others are assuming 2 to 4, and others are saying 6. What does your net interest income and margin outlook look like with a few cuts and then maybe as much as 6 cuts? And I want to follow up and ask about fees as well, but maybe just net interest income first. Yeah, I know. That's a great question, John.

Unnamed Speaker: Yeah, our exposure to rates declining is actually very small, essentially de minimis. But more importantly, if you get the forward curve, you know, with four or six or cuts in that range, now that winds up with a steeper curve. And that's actually better for us. So in those scenarios where you've got the Fed cutting this year, it will actually be marginally better for us. Okay, and you're referring to the billion-two guide, so you're saying if we get more cuts, that could go higher. It's good to hear from you.

Will Jones: And it feels like it maybe has been a while since we've updated thoughts on bank M&A. You know, it feels like there could be some pushes and pulls on M&A into the coming year. Could you just update us on how you feel? Or how you generally think about M&A in terms of in-market transactions or out-of-market or size? Just any kind of context you could give would be great. So, two factors.

Scott: And then I guess a question for Scott as well, if I'm assuming some of the fee guidance that you're giving us assumes flat rates, what would lower... What would lower short-term rates do to some of your trading businesses and other fee-income businesses? Right, so the two big beneficiaries of that decline would be in our mortgage entity itself with our mortgage originations in the mortgage group and then a pretty immediate increase in our mortgage trading, our MBS activity, both of which have historically with lower rates outperformed significantly in those lower rate environments. So we'd get significant benefit from both of those market backdrops if rates were to rise. I mean to decrease, I'm sorry. You guys would actually...

I do think rates are going to have to come down before bank M&A becomes more realistic. You still have purchase accounting issues that are going to happen until some of these securities portfolios and banks that would like to be acquired are better positioned. It's going to create some headwinds there until that's resolved. I think for us, broadly, a 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. 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 fast-growing markets like Texas, and continue to invest there. It's got to be of sufficient size to move the needle for us, but there's just not a lot that fit that.

Unnamed Speaker: Welcome. Some cutting on the short end. There's no doubt about that.

Unnamed Speaker: Mortgage is performing very well for the environment, but it's really at an all-time kind of low in terms of where we're at from a production perspective. And so any kind of movement downward at rates is really gonna help that. And then that correspondingly is also going to help create more inventory, if you will, for the mortgage trading aspect of our business as well. And so the level of production and activity revenue generation on the Institutional Trading Group has maintained that flattish level with the pickup in other categories. So our municipal trading activity has offset the declines in the MBS, but we would see that pickup in MBS, which we think would give us a lift overall. I'll step back, but thank you guys. Thank you, John. Our next question is from Peter Winter with D.A. Davidson

We're more interested in technology or product acquisitions that could add on and be incremental much quicker and not distract the whole company from a regulatory approval and conversion process. I would put the odds that we find a whole bank acquisition in the next 12 months pretty low. We are continuing to look for things in the product or technology set that could be accretive to us and valuable to us long-term, although there's nothing that we're going to be able to do. We're not on the horizon there either. That's it for me.

Will Jones: Great year, guys. Thank you. Our next question is from Timur Braziler with Wells Fargo Securities. Please proceed. Good morning.

Peter J. Winter: Please proceed. Good morning. Can you just talk about borrower sentiment today versus 90 days ago? And then just if you could elaborate on that point that the competitive environment should actually be a tailwind for you guys. Yeah, this is Mark.

Great. Starting on the deposit side, do you have any idea what the deposit spot rate was at the end of the year? We don't really have a deposit spot rate per se, but our cumulative beta was 63 for the quarter, and for the month of December, it was 64, so really not a lot different than the full quarter average.

Mark: You're absolutely right about it being a tailwind for us. Given our situation with liquidity and capital position and solid credit quality, we feel very comfortable that we are out pursuing loan opportunities across our footprint and across all our lines of business. And we're trying to take advantage of some of the peer banks that are cutting back a little bit or pulling back for various reasons. So that is the effort.

Okay, and then looking at expenses and trying to take into consideration some of the comments around what happens on the fee income side if we do get rate cuts, is the expectation that expenses will grow in an environment where you see some higher revenues from fees? And if that is the case, is the 65% efficiency ratio in a down rate environment still a good base, or could you actually see some improvement as some of these fee income businesses pick up some more momentum? I'd say, broadly speaking, the 65 is good, but you could see some incremental improvement from just a higher revenue lift overall because I would just accelerate that trend. If you think about mortgages, particularly, I mean, mortgages are probably running at 90% plus efficiency today. So if you've got any lift there, you know, you're going to get a better efficiency ratio out of that line of business. So I, you know, Marty's right.

Mark: That is the focus of all our sales teams, and I don't think there's any particular area that we're shying away from right now. As far as borrower sentiment goes, we've always been focused on customer selection.

Mark: So we're going to be focused on ones that are well positioned to grow or to expand during this time frame, and we'll support those companies as we see appropriate. And Peter, the footprint gives us a lot of tailwind, too.

I think we're very comfortable with the... Got it. Thank you. As a reminder to press 1 on your telephone keypad if you would like to ask a question. Our next question is from Brandon King with Truist Securities. Please proceed. Hey, good morning.

Stacy C. Kymes: I mean, think about just the economic expansion that's happening in, you know, in Texas, broadly. The new market we opened with San Antonio and Austin, Phoenix is doing very, very well, Denver's hanging in there really well. So the footprint's going to give us some tailwind there, too, just by having better economic growth in the footprint states than I think you're going to get nationally, as well. I think the only real concern I have about the risk to our guidance on loan growth really is commercial real estate. There's some risk that as the year goes along, we get a higher level of elevated payoffs, which could mute the total loan growth a little bit. But overall, we feel very good about the guidance that we've provided given our footprint. Thank you.

Brandon King: Thanks for taking my question. Brandon, I wanted to follow up on trading NIR and what are you expecting to see kind of implied in your NIR forecast? And if you can kind of give us the puts and takes on how that could play out, just given, you know, Fed rate cuts potentially occurring. Yeah, so in our guide, we're just assuming that that remains roughly constant throughout the year. To the extent that you get some steepening, that could be a positive for that line item for sure. Okay. Okay.

And then just another follow-up on credit. So, as you expect, you know, increasing credit costs more towards the later part of 2024. And then you also mentioned kind of a normalized range, 30 to 40 basis points. So is it fair to assume that maybe in the back half of 2024 we approach that 30 basis points of net charge-offs? Is that how you're thinking about it?

Mark: And then on credit, Mark, you mentioned health care. Could you just give a little bit more color about the $40 million increase in health care non-performing loans? Yeah, I mean, Healthcare loans now account for 17% of our overall loan portfolio, and we have an occasional loan here or there that we've had good management support inside it, but things haven't progressed as they expected, and we had to put those into more of a workout situation. One of them is more of an ongoing senior housing. One of them is more of a private pay situation, so they're not even on the same side of the business.

Brandon King: No, I think, you know, we're talking about our guidance was really around provision levels, not charge-off levels. I do think you could see, just based on some reversion, you could see charge-off levels come up a little bit in the back half of the year. But, Mark, talk a little bit about our historical charge-offs. We always guide between 30 and 40 basis points, but it's been a long time since we've seen 40 basis points. Yeah, I mean, if we've been looking back over our history, we have been below 30 basis points on charge-offs since 2013. It was the last year we hit 30 basis points.

Mark: It's just we will have one-off non-performing credits like that. It is not a reflection of anything we see systemic in the health care business. And I guess if I'm to add anything, if you look at our non-performing loans over time, they have operated for the last numerous quarters in a very narrow range. And if we go back and look at, you know, some quarters it's one of our other portfolios that adds to it; another quarter it's a different portfolio. And this quarter just happened to be a couple of one-off deals in healthcare, and we'll address those and be able to manage that, we believe, ongoing in a very narrow range with low charge-offs as we've had for a number of years now. Just broadly, I mean, credit is a strength.

So, we've operated mainly between, you know, less than 10 to... for the last 10 to 11 years. So, right now, given where our credit is, we don't see an increased level of net charge-offs coming. But as we grow and as the economic environment changes, that will have an impact on the provision that we have to have and the reserve we have to have. And we're going to make sure we continue to make that appropriate level of that reserve, reflecting those two things. But it's going to be driven by those more than it is going to be driven by net charge-offs.

Stacy C. Kymes: I mean, if you look at where we are compared to pre-pandemic, we're, you know, not quite half in terms of our criticized and classified levels; non-performing levels are strong. I mean, charge-offs this quarter were $4 million. I mean, it's obviously not sustainable, but I think where we're positioned and how we have performed historically, credit is very apparent that it's a strength right now. And I think as we look forward, we still feel confident in the guidance that Marty provided. We feel pretty good that, at least over the next couple of quarters, we don't expect charge-offs to be materially elevated. Thanks, Stacy.

Brandon King: Okay, very helpful. Thanks for the details. We have reached the end of our question and answer session. I would like to turn the conference back over to Marty for closing remarks. Thanks again, everyone, for joining us this morning. If you have any questions, please email us at ir at bokf.com. Have a great day. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon transcript Emily Beynon

Peter J. Winter: I appreciate it. Thank you. Our next question is from Ben Gerlinger with Citi. Please proceed. Hey. Good morning. Morning, Ben. Uh, excuse me. The growth guide looks pretty good.

Ben Gerlinger: Are there... a little bit better than I would have guessed. But are you seeing people step back, or risk-adjusted spreads being a little bit more appropriate, and you're willing to lean into the growth? Just any call on rates you're getting as well. Now, I'd say, generally speaking, it depends on what segment you're looking at from a spread perspective.

Unnamed Speaker: I would say on the larger corporate deals, there is some spread enhancement that's coming as a result of maybe a liquidity premium in the marketplace that the larger banks are requiring. From that perspective, on commercial banking or the lower end, there's probably not a lot of spread enhancement that's happening. There's still more competition there. Part of it is mixed.

Unnamed Speaker: The mixed shifts around over time can change our spreads just a little bit because there are higher spreads in the specialty lines of business than there are in traditional C&I. But I think what we saw is that the fact that we're not just open for business, but we're actively prospecting, looking for new customers, trying to use this opportunity to grow very thoughtfully is creating opportunities for us. Really, we had several deals that kind of pushed into the first quarter, but we were hopeful they would have closed in the fourth quarter.

Ben Gerlinger: We're optimistic about our loan pipelines and what we're hearing from our customers and prospects as we think about loan growth in 2024. Gotcha, that's helpful, Collar. And then I know the trading business is kind of the front end of the curve. Do you need consistent Fed cuts to really see that start to work? Or is it just kind of an impact?

Unnamed Speaker: Any kind of thoughts on what you might expect in terms of a cadence, if, say, the forward curve is correct? I think in the trading business, you know, even without changes in rates, you know, that business has momentum given the investments we've made in expanding into Memphis, etc. And so... It would be incremental on top of what we already expect to be a growth trend if we get, you know, the forward curve plays out. Ben, were you talking about NIR or the fee businesses? Lefioves.

Scott: Yeah, I think Marty answered that as it relates to the feed businesses, for sure. Yeah, that's helpful. Thank you, guys. Thank you, man.

Matt Olney: Our next question is from Matt Olney with Stephen Sinks. Please proceed. Hey, great. Thanks. Good morning, everybody. Morning Matt.

Scott: Going back to the fee discussion, and I think Scott touched on this briefly with John's question, but just take a step back and help us appreciate the drivers of that 24 guidance for fees and commissions, the various components of that through each one of your fee businesses. I think that guidance implies, like, a high single-digit growth in 24. What are the major drivers and detractors of that guidance?

Scott: Yeah, why don't I start on that, Matt? So I think that, you know, the businesses that probably have the greatest opportunity are in the brokerage and trading business, where we've made investments there, and we've got great momentum in that business. You know, fiduciary, I think we'll have customary growth in that business, plus we think that asset valuations are going to give us a little bit of a wind at our backs from an AUM perspective, and that'll flow through to good growth rates. And then mortgage actually has opportunity there, both on the production side and on the servicing side, and so we expect to see good numbers out of that line of business on a percentage growth Matt, this is Scott.

Scott: I think that when you look at that total category, as I mentioned earlier in the call, the thing that we're pleased about is the fact that we're not seeing any one component carry the load. If you look at multiple quarters now and the year as a whole, we're seeing heightened levels, record levels of revenue generation across all the categories of wealth management, which, as you know, is very well diversified both by product set, customer set, geographically, where we serve our national market, many of those operating units. So it's broadly across the board where we've seen investment, historical investments in our corporate trust business, in our asset management business, the trading pieces, as Marty mentioned, but all of those together and combined are what gives us optimism that we're not dependent upon those Fed rate cuts to continue to see momentum and growth in the business lines.

Scott: No doubt, if we see, and it's less about the rate cuts, it's more about some steepness to the curve benefiting the trading businesses because we've now been operating for a decade where we didn't have any slope to the curve, which incentives no one to go out. So if we do see some steepness in the curve, we'll see, but I think we're extremely well positioned if that were to shape out Okay. I appreciate the thoughts there, Scott.

Matt Olney: I guess shifting back over to the rate sensitivity, you provide some good commentary, being relatively neutral as far as the NII is concerned. What are your early thoughts on deposit betas in a falling rate scenario, whether it's back half the year or next year, whatever that would be, and how would those betas, you think, compare on the way down versus what we just saw on the way up at the bank? Yeah, so given the fact that over the last couple quarters, you know, you've seen betas be higher, you're going to see a mirror image of that, more or less, as we see rates come down in that kind of environment. I mean, as you know, those are non-linear, and so you're not going to get the same exact beta at each rate hike, but you'll see relatively high betas on the way down Yep, it will be okay. Fingers crossed.

Unnamed Speaker: And then just lastly, on the expense side, I know those expenses can be lumpy quarter after quarter. I think you mentioned a few things that made them a little higher in the fourth quarter. And I see the full-year guidance, but any color on where we could start off with earlier in the year in the first quarter on the expense side? Yeah, if you take the fourth-quarter number, the 384 million, and then, you know, adjust that for the, uh, uh, FDIC Special Assessment, you get to a $340 million number. Coming out of the gate next quarter, we'd expect to be a little below that.

Unnamed Speaker: Yeah, I've already pointed out, and I think it's important, there are some BOKFI transaction costs that are embedded in some of those line items in the fourth quarter, particularly related to personnel expense and professional fees that you've got to think about, too, are really part of that sale of that business, not really part of the core run rate of the company. Yeah, so if you think through some of those unusual items and filter some of those out, you'll get... taxes on wages coming up in the first quarter, but that'll net down to just a little bit. Okay. Thanks, everybody. Thank you, Matt.

Will Jones: Our next question is from Will Jones with KBW. Please proceed. Hey, great. Good morning, guys. Good morning, Will.

Marty: Hey, Marty, I hope you could help us unpack, you know, the marginal story, what it looks like in both this, you know, flat rate environment that your guidance is, you know, kind of predicated on, and then maybe, you know, what the margin does if we do see, you know, two, three, four, even six rate cuts this coming year. I know you talked about, you know, compression next quarter, but then maybe a stable M in this, you know, in a flat rate environment, but can you see expansion in that scenario? And I guess just confirm that y'all will certainly see an expansion if we do get rate cuts. Yeah, so the basic trajectory that we're expecting is, you know, margins basically leveled out a little bit down in the first quarter and then actually just a little bit up at the end of the year. Of course, plus or minus the usual drivers of noise around that trend. And then if you've got a forward curve kind of scenario playing out, that'd be modestly supportive of the margin percentage, you know, in those later quarters, and when that would play out, when the steepness would start to play out. Gotcha, that's helpful.

Unnamed Speaker: And then where do you feel like we are in the non-interest bearing remix story? You know, I know balances took another step down this quarter, but do you feel like we're getting close to kind of a leveling out there? Or how do you think about, you know, non-interest-bearing deposits for this year? Yes, the decline we saw in the fourth quarter was largely as we expected, and we talked about that on our Q3 call. So for the first quarter, we do expect another decline that's a little smaller than what we saw in the fourth quarter, but still pretty sizable, pretty close to that size, just as you get a combination of some of the rate-driven moves and some seasonal declines that are normal for us as we go into Q1. So you'll see Q1 down another step, and then after that, our expectation is much smaller amounts of shift from non-interest bearing Okay, great. Thanks for that.

Unnamed Speaker: It feels like maybe it's been a while since we updated our thoughts on bank M&A. It feels like there could be some pushes and pulls on M&A into the coming year. Could you just update us on how you feel, you know, or how you generally think about, you know, M&A in terms of in-market transactions or out-of-market or, you know, size? It's just that any kind of context you can give would be great.

Stacy C. Kymes: Yeah, so there are two factors. I do think rates are going to have to come down before bank M&A becomes more realistic. You still have purchase accounting issues that are going to happen until some of these securities portfolios and banks that would like to be acquired are better positioned. It's going to create some headwinds there until that's resolved. I think for us, broadly, a 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. 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 fast-growing markets like Texas, and continue to invest there. It's got to be of sufficient size to move the needle for us, but there's just not a lot that fit that.

Stacy C. Kymes: We're more interested in technology or product acquisitions that could add on and be incremental much quicker and not distract the whole company from the regulatory approval and conversion process. I would put the odds that we find a whole bank acquisition in the next 12 months to be pretty low. We are continuing to look for things in the product or technology set that could be accretive to us and valuable to us long-term, although there's nothing on the horizon there either. Makes sense. That's it for me.

Timur Braziler: Great year, guys. Thank you. Our next question is from Timur Braziler with Wells Fargo Securities; please proceed. Hi, good morning. Good morning.

Unnamed Speaker: Starting on the deposit side, do you have any idea what the deposit spot rate was at the end of the year? We don't really have a deposit spot rate per se, but our cumulative beta was 63 for the quarter, and for the month of December, it was 64, so really not a lot different than the full quarter average. Okay. And then looking at expenses and trying to take into consideration some of the comments around what happens on the fee income side if we do get rate cuts, is the expectation that expenses will grow in an environment where you see some higher revenues from fees? And if that is the case, is the 65% efficiency ratio in a downrate environment still a good base, or could you actually see some improvement as some of these fee income businesses pick up some more momentum? I'd say, broadly speaking, the 65 is good, but you could see some incremental improvement from just a higher revenue lift overall because I would just accelerate that trend. If you think about mortgages, particularly, I mean, mortgages are probably running at 90% plus efficiency today.

Unnamed Speaker: So if you got any lift there, you know, you're going to get a better efficiency ratio out of that line of business. So I, you know, Marty's right, I think we're, we're, we're very comfortable with the, the, forward guidance we provided there, but any benefit that we get from a lower rate environment should be incrementally positive to our efficiency ratio, have it. Thank you. As a reminder to star 1 on your telephone keypad if you would like to ask a question. Our next question is from Brandon King with Truist Securities. Please proceed. Hey, good morning. Thanks for taking my question. Brandon.

Brandon King: Yeah, so I wanted to follow up on trading NIR and what are you expecting kind of implied in your NII forecast? And if you can kind of give us the push and take on how that could play out, just given, you know, a federal rate cut potentially occurring. Yeah, so in our guide, we're just assuming that that remains roughly constant throughout the year. To the extent that you get some steepening, that could be a positive for that line item, for sure. Okay.

Brandon King: And then just another follow-up on credit. So, you guys should expect, you know, an increase in credit costs more towards the later part of 2024, and then you also mentioned kind of a normalized range, a 30 to 40 basis points. So is it fair to assume that maybe in the back half of 2024, we approach that 30 basis points of net charge-offs? Is that how you're thinking about it?

Unnamed Speaker: No, I think, you know, we were talking about our guidance was really around provision levels, not charge-off levels. I do think you could see, just based on some reversion, you could see charge-off levels come up a little bit in the back half of the year. But, Mark, talk a little bit about our historical charge-offs. We always guide to 30 to 40 basis points, but it's been a long time since we've seen 40 basis points. Yeah, I mean, if we've been looking back over our history, we have been below 30 basis points on charge-offs since 2013. It was the last year we hit 30 basis points.

Mark: So, we've operated mainly between, you know, less than 10 percent for the last 10 to 11 years. So right now, given where our credit is, we don't see an increased level of net charge-off coming. But as we grow and as the economic environment changes, that will have an impact on the provision that we have to have and the reserve we have to have. And we're going to make sure we continue to make that appropriate level of that reserve, reflecting those two things. But it's going to be driven by those more than it's going to be driven by net charge off.

Brandon King: Okay, very helpful. Thanks for the details. We have reached the end of our question and answer session. I would like to turn the conference back over to Marty for closing remarks. Thanks again, everyone, for joining us this morning. If you have any questions, please email us at irbokf.com. Have a great day. Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation. , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,.