Q1 2024 BOK Financial Corp Earnings Call

Operator: Greetings. Welcome to BOK Financial Corporation's first quarter 2024 earnings conference call. As a reminder, this call is being recorded, and I would now like to turn the presentation over to Heather Worley, Director of Investor Relations for BOK Financial Corporation. Please proceed.

Greetings welcome to be OK financial Corporation's first quarter 'twenty 'twenty four earnings conference call. As a reminder, this call is being recorded and I would now like to turn the presentation over to Heather Worley director of Investor Relations for Bill pay Financial Corporation. Please proceed.

Heather L. Worley: Good morning, and thank you for joining us to discuss BOK Financial's first quarter 2024 financial results. Our CEO, Stacy Kymes, will provide opening comments. Marc Maun, Executive Vice President of Regional Banking, will cover our loan portfolio and related credit metrics, and Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results. Our CFO, Marty Grunst, will then discuss financial performance for the quarter and our forward guidance. The slide presentation and press release are available on our website at BOKF.com. We refer you to the disclaimers on slide 2 regarding any forward-looking statements made during this call. I will now turn the call over to Stacy Kymes, who will begin on slide 4. Thank you.

Heather Worley: Good morning, and thank you for joining us to discuss would be okay. If any until first quarter 'twenty 'twenty four financial results, our CEO Stacy Ken who will provide opening comments, Marc Maun executive Vice President for regional banking will cover our land portfolio and related credit metrics and Scott Grauer Executive Vice President of wealth management.

Heather Worley: Our fee based results are.

Heather Worley: Our CFO Marty Grant will then discuss financial performance for the quarter and our forward guidance. The slide presentation and press release are available on our website I'd be okay. At dotcom, we refer you to the disclaimers on slide two regarding any forward looking statements made during this call I will now turn the call over to Stacy Ken If you will.

Stacy C. Kymes: Good old blackboard.

Stacy C. Kymes: Thank you, Heather. We're excited to welcome Heather to our team. We are pleased to report earnings in the first quarter of $83.7 million, or EPS of $1.29 per diluted share. Adjusting for notable items such as AFS repositioning and the FDIC special assessment, net income would have been $123.2 million, and EPS would have been $1.91 per share.

Stacy C. Kymes: Thank you Heather we're excited to welcome Heather to our team.

Martin E. Grunst: We're pleased to report earnings in the first quarter of $83 7 million or EPS of $1 29 per diluted share.

Martin E. Grunst: Adjusting for notable items, such as Iff's repositioning and FDIC Special assessment net income would've been $123 2 million.

Martin E. Grunst: <unk> would have been $1 91 per share.

Stacy C. Kymes: Before I discuss the highlights from the first quarter, I would like to talk about our strategy. At BOKF, our approach is based on the long term. We are focused on driving profitability and performance that creates sustainable value for our shareholders. BOK Financial is a full-service financial services company with a diversified loan portfolio, unwavering discipline and credit quality, top-tier fee income businesses that produce attractive returns, and a solid core deposit franchise.

Martin E. Grunst: Before I discuss the highlights from the first quarter I would like to talk about our strategy at.

Martin E. Grunst: Our approach is based on the long term, we are focused on driving profitability and performance that create sustainable value for our shareholders.

Martin E. Grunst: <unk> financial is a full service financial services company with a diversified loan portfolio.

Martin E. Grunst: Wavering discipline in credit quality top tier fee income businesses that produce attractive returns and a solid core deposit franchise.

Stacy C. Kymes: Our footprint is located in dynamic, high-growth markets, and our strong risk management culture allows us to remain open for business, actively growing our portfolio during times when others are pulling back. We have a seasoned management team with deep bench strength. Our executive leadership team has an average of 34 years of industry experience and 24 years at this organization.

Martin E. Grunst: Our footprint is located in dynamic high growth markets and our strong risk management culture allows us to remain open for business actively growing our portfolio during times when others are pulling back.

Martin E. Grunst: We have a seasoned management team with deep bench strength.

Martin E. Grunst: Our executive leadership team has an average of 34 years of industry experience in 24 years at this organization.

Stacy C. Kymes: Through market cycles, we consistently invest in our company's growth. Our ample levels of capital and liquidity allow us to expand client relationships and take market share when others pull back. A clear example of this is our investment in the San Antonio market, which is progressing more favorably than anticipated. We've now added 13 employees in that market and are already seeing meaningful new business generation. As a further part of our expansion in Central Texas, we also have 12 wealth employees and seven mortgage employees in the Austin market. We have also added 13 team members to our institutional sales team with our Memphis expansion, which will complement our existing fixed income trading activities.

Martin E. Grunst: Through market cycles, we consistently invest in our company's growth.

Our ample levels of capital and liquidity allow us to expand client relationships and take market share when others pull back.

Martin E. Grunst: A clear example of this is our investment in the San Antonio market, which is progressing more favorably than anticipated.

Martin E. Grunst: We've now added 13 employees in that market and are already seeing meaningful new business generation.

Martin E. Grunst: As a further part of our expansion in Central Texas. We also have 12 wealth employees and seven mortgage employees in the Austin market.

Martin E. Grunst: Also added 13 team members of our institutional sales team with our Memphis expansion, which will complement our existing fixed back on trading activities.

Stacy C. Kymes: Talent acquisition is a fundamental part of our strategy. We proactively recruit for our future, knowing that our greatest asset is our people. I'm thrilled to announce that we were recognized as one of only 60 organizations to receive the 2024 Gallup Exceptional Workplace Award.

Martin E. Grunst: <unk> acquisition is a fundamental part of our strategy, we proactively recruit for our future knowing that our greatest asset is our people.

Martin E. Grunst: I'm thrilled to announce that we were recognized as one of only 60 organizations to receive the 2020 for Gallup exceptional workplace Award.

Stacy C. Kymes: This is independent validation of our culture of inspiration, ambition, collaboration, and tenacity. Discipline is key to generating value, and one differentiator I wanted to highlight for us is our credit culture. If you look back to the Great Financial Crisis, while our credit costs were well above our own average, we materially outperformed our peers. This and our holistic risk management focus contributed to us being the largest traditional bank not to participate in TARP. Industry-wide credit costs have been very low for the last several years.

Martin E. Grunst: This is independent validation of our culture of inspiration ambition collaboration and tenacity.

Martin E. Grunst: Discipline is key to generating value and one differentiator I wanted to highlight for US is our credit culture.

Martin E. Grunst: If you look back to the great financial crisis, while our credit costs were well above our own average we materially outperformed our peers.

Martin E. Grunst: And our holistic risk management focus contributed to us being the largest traditional bank not to participate in TARP.

Martin E. Grunst: Industry wide credit costs have been very low over the last several years, but with a growing concerns in the regional banking space. There is a renewed focus on credit and particularly commercial real estate.

Stacy C. Kymes: But with growing concerns in the regional banking space, there is renewed focus on credit and, particularly, commercial real estate. We have never lost sight of managing credit prudently and believe this is an area where we will continue to outperform on a relative basis. We have maintained the same credit standards with a consistent credit management team that led to better credit losses versus peers historically. We've added a slide to our presentation that shows our historical credit performance by line of business to highlight our impressive long-term performance.

Martin E. Grunst: We never lost sight of managing credit prudently and believe this is an area, where we will continue to outperform on a relative basis.

Martin E. Grunst: We have maintained the same credit standards with a consistent credit management team that led to better credit losses versus peers historically.

We've added a slide to our presentation that shows our historical credit performance by line of business to highlight our impressive long term performance.

Stacy C. Kymes: Combining strong historical credit performance with an ongoing commitment to concentration limits should give investors further confidence in our ability to perform well in this area moving forward. We have a commercial real estate concentration limit of 185% of total commitments versus Tier 1 capital and reserves.

Combining strong historical credit performance with an ongoing commitment around concentration limits should give investors further confidence in our ability to perform well in this area moving forward.

Martin E. Grunst: We have a commercial real estate concentration limit of 185% of total commitments versus tier one capital and reserves.

Stacy C. Kymes: And today, we have approximately 22% of outstanding balances in commercial real estate. Over the years, we have focused on growing our specialty lines of business, like energy and healthcare, which has increased our core commercial and industrial relationships. We've made investments in our core commercial businesses over the last several years, and we see those returns evident in the first quarter with 9% annualized growth in commercial loans. Another way you see us taking the long view is in the retention of our Visa Class B Star.

Martin E. Grunst: And today, we have approximately 22% of outstanding balances in commercial real estate.

Martin E. Grunst: Over the years, we are focused on growing our specialty lines of business like energy and health care, which has increased our core commercial and industrial relationships.

Martin E. Grunst: We've made investments in our core commercial businesses over the last several years and we see those returns as evident in the first quarter with 9% annualized growth in commercial loans.

Martin E. Grunst: And another way you see us taking the long view as in the retention of our visa class B stock may.

Stacy C. Kymes: Many have fully monetized their shares since 2008 at a considerable discount. We hold on to this position and now expect to receive full value for the shares we hold. Moving to slide five.

Martin E. Grunst: Many have fully monetize their shares since 2008 at a considerable discount.

Martin E. Grunst: We held on to this position and now expect to receive full value for the shares we hold.

Martin E. Grunst: Moving to slide five.

Stacy C. Kymes: Period end loan balances increased $268 million, or 1% in late quarter, with growth driven by commercial loans, and our teams remain confident in our pipelines as we move forward. Both period end and average deposits continue to grow this quarter. Our loan and deposit ratio declined slightly to 68%, remaining well below our peers and providing significant unbalancing liquidity to meet future loan or other liquidity demands. We have now seen two consecutive quarters with a slowing pace of net interest margin declines, and we believe we are at the trough.

Martin E. Grunst: Period end loan balances increased $268 million or 1% linked quarter with growth driven by commercial loans and our teams remain confident in our pipelines as we move forward.

Martin E. Grunst: Both period end and average deposits continue to grow this quarter.

Martin E. Grunst: Loan and deposit ratio declined slightly to 68% remaining well below our peers in providing significant on balance sheet liquidity to meet future loan or other liquidity demands.

Martin E. Grunst: We have now seen two consecutive quarters with a slowing pace of net interest margin declined and we believe we are at the trough.

Stacy C. Kymes: Our credit remains very strong, and we have a combined reserve of $329 million, or 1.36% of outstanding loans at quarter end, which is above the median of our peer group. Finally... We repurchased over 616,000 shares this quarter to reflect our long-term confidence in the company and to take advantage of attractive repurchase valuations. I'm proud of the quarter that this team put together and appreciate the time to review it with you this morning. With that, I'll turn the call over to Marc.

Martin E. Grunst: Our credit remains very strong and we have a combined reserve of $329 million or 136% of outstanding loans at quarter end, which is above the median of our peer group.

Martin E. Grunst: Finally.

Martin E. Grunst: We repurchased over 616000 shares this quarter to reflect our long term confidence in the company and to take advantage of attractive repurchase valuations.

Martin E. Grunst: I'm proud of the quarter that this team has put together and I. Appreciate the time to review it with you. This morning with that I'll turn the call over to Mark.

Marc C. Maun: Stacy, I wanted to take a moment to reference slide 7 and reinforce Stacy's comments regarding credit. Our credit culture is fundamental to the way we do business. We have strong underwriting standards that are calibrated to our experience in each of our lines of business, which involves not only a base evaluation of credit but also stress testing during the underwriting process, including all loans being subjected to interest rate shocks. Our process is a consistent, disciplined approach designed to avoid fluctuating standards based on economic conditions.

Mark: Thanks Stacy.

Mark: I wanted to take a moment to reference slide seven and reinforced Acs comments regarding credit.

Mark: Our credit culture is fundamental to the way we do business. We have strong underwriting standards that are calibrated to our experience in each of our lines of business.

Mark: <unk> involves not only a based evaluation of credit, but also stress testing during the underwriting process, including all loans being subjected to interest rate shocks.

Mark: Our processes are consistent disciplined approach designed to avoid fluctuating standards based on economic conditions.

Marc C. Maun: Approximately 81% of our commercial and CRE loans are floating rate or repriced in the next year, so this variable has always been a principal factor for us. The current credit performance you're seeing in our loan book is already reflective of higher borrowing rates. We don't have a significant concern over a payment shock.

Mark: Approximately 81% of our commercial and CRE loans are floating rate or reprice over the next year. So this variable has always been a principal factor for us.

Mark: Credit performance Youre seeing in our loan book is already reflective of higher borrowing rates, we don't have a significant concern of our payment shocks.

Marc C. Maun: As we actively manage the book, we monitor credit to identify issues. We are quick to downgrade any loans that we are concerned with, which can, on occasion, make our criticized ratios look higher than peers. We believe this proactive management results in better long-term outcomes.

Mark: As we actively manage the book, we monitor credit to identify issues. We are quick to downgrade any loans that we are concerned with which can on occasion make our criticized ratios look higher than peers. We believe this proactive management results and better long term outcomes, if an issue with credit arises we collaborate.

Marc C. Maun: If an issue with credit arises, we collaborate with clients to rehabilitate, exit with full repayment, or minimize loss via a cooperative effort with management, line bankers, and our special assets team. Combining our prudent standards on the front end during the underwriting process and active management throughout the life of the loan has historically resulted in very modest credit, which is illustrated on slide 7. Turning to slide 8, overall loans increased 1.1% late in the quarter, with commercial loans up 2.2% and CRE down 1.9%. Portfolio yields increased four basis points during the quarter.

Mark: With clients to rehabilitate exit with full repayment or minimize loss via a cooperative effort with management line bankers and our special assets team.

Mark: Combining our prudent standards on the front end during the underwriting process and active management throughout the life of the loan has historically resulted in very modest credit losses, which is illustrated on slide seven.

Mark: Turning to slide eight overall loans increased one 1% linked quarter with commercial loans up two 2% and CRE down one 9% portfolio yields increased four basis points during the quarter.

Marc C. Maun: Loan balances in the energy business increased 0.2% linked quarters. As a reminder, our energy book is composed of approximately 70% oil-weighted borrowers and 30% natural gas-weighted borrowers. Ninety-two percent of the book is first-lane, senior-secured production, with lending evaluated and stress-tested by our in-house engineering staff of 17 full-time employees. Our energy customers are very well-hedged for at least the next year, which meaningfully lowers our commodity pricing risk on the cloud.

Mark: Loan balances in the energy business increased 2% linked quarter.

Mark: As a reminder, our energy book is composed of approximately 70% oil weighted borrowers and 30% natural gas weighted borrowers 92% of the book is first lien senior secured production with lending evaluated and stress tested by our in House Engineering staff of 17 full time employees.

Mark: Our energy customers are very well hedged for at least the next year, which meaningfully lowers our commodity pricing risk on the collateral.

Marc C. Maun: Combined Services and General Business Loans, our core C&I loans, grew 3% late quarter. Our focus in this market is on developing full banking relationships through cash flow lending, while structuring our credits with adequate secondary sources of repayment to minimize our risk. Our health care business loans increased 2.5% late quarter. Roughly two-thirds of the portfolio is in senior housing, combining a diversified mix of skilled nursing facilities that are Medicare and Medicaid-based, Stabilized Private Pay Senior Living, Integrated Health Systems Predominantly with Investment Grade Equivalent Ratings, and Other Specialized Providers. The healthcare line of business has a national footprint, but it is focused on regional operators with multiple locations for diversity and deep knowledge of their market.

Mark: Combined services and general business loans, our core C&I loans grew 3% linked quarter. Our focus in this market is on developing full banking relationships through cash flow lending, while structuring our credits with adequate secondary sources of repayment to minimize our risk.

Mark: Our healthcare business loans increased two 5% linked quarter roughly.

Mark: Roughly two thirds of the portfolio is in senior housing combining a diversified mix of skilled nursing facilities that are Medicare Medicaid based <unk>.

Mark: Stabilized private pay senior living integrated health systems, predominantly with investment grade equivalent ratings and other specialized providers the.

Mark: The healthcare line of business has a national footprint, but it is focused on regional operators with multiple locations for diversity and deep knowledge of their markets.

Marc C. Maun: We have a long history of strong underwriting in this space. Our CRE business decreased 1.9% quarter over quarter. As Stacy mentioned, we managed a strict concentration.

Mark: We have a long history of strong underwriting in this space, our CRE business decreased one 9% quarter over quarter as Stacy mentioned, we managed the strict concentration.

Marc C. Maun: Loans are subjected to multiple stress tests in the underwriting process, including those that stress interest rate and payment shock. Setting aside our disciplined underwriting standards, we believe that there are two key factors that will differentiate our credit performance in this cycle. First, guarantor support. We have meaningful support in over 90% of our CRE loans with counterparties that we have known for a long time and have demonstrated a commitment to supporting their transactions. Second, is geographic location.

Mark: Loans are subjected to multiple stress tests in the underwriting process, including those that stress interest rate and payment shocks setting aside our disciplined underwriting standards. We believe that there are two key factors that will differentiate our credit performance in this cycle.

Mark: First as guarantor support we have meaningful support and over 90% of our CRE loans with Counterparties that we have known for a long time and have demonstrated commitment to supporting their transactions.

Mark: As geographic location. This portfolio is geographically diverse, but importantly, with most exposure within strong economies in our footprint and very little exposure in the areas of the country that have seen the largest pullback in prices such as New York City in Los Angeles, which is shown on the following slide.

Marc C. Maun: This portfolio is geographically diverse, but importantly, with most exposure within strong economies in our footprint and very little exposure in the areas of the country that have seen the largest pullback in prices, such as New York City and Los Angeles, as shown on the following slide. On slide 9, you will notice credit quality remains exceptional across the loan portfolio and well below historical norms and pre-pandemic levels. Non-performing assets, excluding those guaranteed by U.S. government agencies, decreased $25 million this quarter.

Mark: On slide nine Youll notice credit quality remains exceptional across the loan portfolio and well below historical norms and pre pandemic levels nonperforming assets, excluding those guaranteed by U S government agencies decreased $25 million this quarter.

Marc C. Maun: The resulting non-performing assets, the period end loans, and repossessed assets decreased 11 basis points to 51 basis points. Non-accruing loans decreased $26 million. Committed and criticized assets continue to remain well below pre-pandemic levels as a percentage of capital.

Mark: The resulting nonperforming assets to period end loans, and repossessed assets decreased 11 basis points to 51 basis points.

Mark: Non accruing loans decreased 26 million linked quarter.

Mark: Committed criticized assets continue to remain well below pre pandemic levels as a percentage of capital.

Marc C. Maun: Net charge-offs were 5.5 million, or 9 basis points annualized, for the first quarter and have averaged 10 basis points over the last 12 months, extending the trend of performance far beyond our historic loss range of 30 to 40 basis points. Looking forward, we expect net charge-offs to remain below historical norms. We remain well-reserved with a combined allowance for credit losses of $329 million, or 1.36 percent of outstanding loans at quarter end, with the $8 million provision reflecting a stable operating environment and loan growth expectation.

Mark: Net charge offs were $5 5 million or nine basis points annualized for the first quarter and have averaged 10 basis points over the last 12 months extending the trend of performance far beyond our historic loss range of 30 to 40 basis points looks.

Mark: Looking forward, we expect net charge offs to remain below historical norms.

Mark: We remain well reserved with a combined allowance for credit losses of $329 million or 136% of outstanding loans at quarter end with the $8 million provision, reflecting a stable operating environment and loan growth expectations.

Marc C. Maun: The reserve is sufficient to cover our non-performing assets by three times. We believe the combined reserve is the most appropriate metric to consider if you want a holistic view of comparative credit reserve levels. We expect to continue to maintain an appropriate reserve, supporting loan growth and reflective of economic conditions. As I mentioned in my opening comments, we have traditionally outperformed during challenging credit cycles and are well-positioned should an economic slowdown materialize. And now, I'll turn this call over to Scott.

Mark: Reserve is sufficient to cover our nonperforming assets by three times, we believe the combined reserve is the most appropriate metric to consider if you want a holistic view comparative credit reserve levels.

Mark: We expect to continue to maintain an appropriate reserve supporting loan growth and reflective of economic conditions.

Mark: As I mentioned in my opening comments, we are traditionally outperformed during challenging credit cycles and are well positioned should an economic slowdown materializes and now I'll turn the call over to Scott.

Scott Bradley Grauer: Turning to slide 11, I'm excited to speak about our Wealth Management, Mortgage, and Transfund business. These are businesses that we have been committed to for a long time and run as deep as our roots. In 1918, we launched the first trust company in Oklahoma and added asset management in 1949, demonstrating our commitment to innovative financial services for our clients. Today, BOKF provides a rock-solid foundation of stability, knowledge, and experience that individuals, families, and institutions can rely on.

Scott Bradley Grauer: Thank you Mark turning to slide 11, I am excited to speak to our wealth management mortgage and transform businesses.

These are businesses that we have been committed to for a long time and run as deepens. Our roots in 19 2018, we launched the first Trust company in Oklahoma and added asset management $19 49, demonstrating our commitment to innovative financial services for our clients.

Scott Bradley Grauer: Today <unk> provides a rock solid foundation of stability knowledge and experience that individuals families institutions can rely on.

Scott Bradley Grauer: We operate these fee income businesses at scale, which gives us strong operational leverage and the ability to compete well with larger organizations. We made the strategic decision to invest in these and other high ROE fee income businesses that provide revenue diversity, which has played out well for us. 41% of BOKF's revenue comes from fee-income businesses, which is a peer-leading contribution to earnings and provides stability, especially when net interest income exhibits volatility.

We operate these fee income businesses at scale, which gives us strong operational leverage and the ability to compete well with larger organizations.

Scott Bradley Grauer: We made the strategic decision to invest in these and other high ROE fee income businesses that provide revenue diversity, which has played out well for US 41% of BLK apps revenue comes from fee income businesses, which is a peer leading contribution to earnings and provide stability.

Scott Bradley Grauer: Especially when net interest income exhibits volatility.

Scott Bradley Grauer: To mention a few stats that demonstrate the scale and strength of these businesses: we are a top 10 dealer of agency mortgage-backed security. The number one underwriter and financial advisor of Texas Independent School District bonds for 2023, the eighth largest corporate trustee bank ranked by number of trusteeships. A top 10 electronic funds transfer processor in the United States through our TransFund business, which provides debit and credit issuing processing, or EFT, for almost 500 banks and credit unions throughout the U.S., representing close to 1 billion transactions last year alone.

Scott Bradley Grauer: Mentioned, a few stats that demonstrate the scale and strength of these businesses. We are a top 10 dealer of agency mortgage backed securities.

Scott Bradley Grauer: The number one underwriter in financial adviser of Texas Independent School District bonds for 2023 the.

Scott Bradley Grauer: The eighth largest corporate trustee bank ranked by number of trustees ships.

Scott Bradley Grauer: Top 10 electronic funds transfer processor in the United States through our transponder business, which provides debit and credit issuing processing <unk> ft for almost 500 banks and credit unions throughout the U S representing close to 1 billion transactions last year alone.

Scott Bradley Grauer: And finally, we're a top 50 U.S. mortgage originator and service over $21 billion in mortgage loans, representing more than 122,000 accounts. Turning to this quarter, total fee income contributed $200.6 million in revenue, representing 41% of total revenue. I'll first cover the detail of our markets and securities businesses, again on slide 11. Our trading fees, which are constituted primarily of fixed income trading, increased by 5.4% to $37.5 million during the quarter, driven by slightly higher trading volumes and spreads versus the prior quarter.

Scott Bradley Grauer: And finally, we are a top 50 U S mortgage originator and servicer over $21 billion in mortgage loans, representing more than 122000 accounts.

Scott Bradley Grauer: Turning to this quarter's total fee income contributed $200 6 million of revenue representing 41% of total revenue.

Scott Bradley Grauer: First cover the detail of our markets and securities businesses again on slide 11, our trading fees, which are constituted primarily in fixed income trading increased by five 4% to $37 $5 million during the quarter, driven by slightly higher trading volumes and spreads versus the prior quarter.

Scott Bradley Grauer: Mortgage banking revenue increased 48% to $19 million. This was driven by improvement in the mortgage origination market and positive seasonal trends resulting in increased volume. Margins have also increased as the pooling of COVID-19 forbearance loans we previously repurchased continues to migrate lower, now reaching some of their lowest historical levels. As a reminder, brokerage and insurance were down 24% to $4.7 million. This was due to the exit of BOK Financial Insurance in the fourth quarter last year.

Scott Bradley Grauer: Mortgage banking revenue increased 48% to $19 million. This was driven by improvement in the mortgage origination market and positive seasonal trends, resulting in increased volume.

Scott Bradley Grauer: Margins have also increased as the pooling as COVID-19, forbearance loans, we previously repurchased continues to migrate lower now reaching some of their lowest historical levels.

Scott Bradley Grauer: As a reminder, brokerage and insurance was down 24% to $4 7 million. This was due to the exit of BLK financial insurance in the fourth quarter last year, turning to slide 12 to cover our asset management and transaction businesses.

Scott Bradley Grauer: Turning to slide 12, which covers our asset management and transaction business, asset management revenue has also increased 8% to $55.3 million, driven by an increase in AUMA of just under $800 million, with spreads increasing slightly. Transaction card revenue decreased by 11.6% to $25.5 million driven by normalized activity following elevated levels experienced in Q4. Fee-based businesses tend to have a higher return on capital versus traditional net interest income-related businesses, but also a higher efficiency ratio as you must build scale and cost structure to operate them effectively.

Scott Bradley Grauer: Asset management revenue has also increased 8% to $55 $3 million driven by an increase in <unk> of just under $800 million with spreads increasing slightly.

Scott Bradley Grauer: Transaction card revenue decreased by 11, 6% to $25 $5 million driven by normalized activity following elevated levels experienced in Q4.

Scott Bradley Grauer: Sure.

Scott Bradley Grauer: Fee based businesses tend to have a higher return on capital versus traditional net interest income related businesses, but also a higher efficiency ratio as you must build scale and cost structure to operate them effectively therefore as you see with the percentage of fee income increase you should.

Scott Bradley Grauer: Therefore, as you see with the percentage of fee income increase, you should expect to see a higher efficiency ratio and a higher return on capital. Now, I'll hand the call over to Marty to cover the financials.

Scott Bradley Grauer: We expect to see a higher efficiency ratio and a higher return on capital.

Scott Bradley Grauer: And now I'll hand, the call over to Marty to cover the financials.

Martin E. Grunst: Thank you Scott. Let me start by covering two items in the quarter. First, we accrued $6.5 million as an estimate of the additional special assessment we expect from the FDIC in June of this year. Second, as previously disclosed, we repositioned a portion of our securities portfolio in March, taking a $45 million pre-tax charge for the quarter, which will improve net interest income going forward. We hold Visa B shares that are currently equivalent to 400,420 common shares. Visa's exchange program was initiated on April 8th and should allow us to monetize 50% of our B shares in the second quarter.

Martin E. Grunst: Thank you Scott, let me start by covering two items in the quarter first we accrued $6 5 million at an estimate of the additional special assessment, we expect from the FDIC in June of this year.

Martin E. Grunst: As previously disclosed we repositioned a portion of our securities portfolio in March taking a $45 million pre tax charge for the quarter, which will improve net interest income going forward.

Martin E. Grunst: We hold visa B shares that are currently equivalent to 400420 common shares visa exchange program was initiated on April eight and should allow us to monetize 50% of our b shares in the second quarter.

Martin E. Grunst: The anticipated gain from this exchange in Q2 should more than offset the $45 million securities loss we took in Q1, leaving a residual amount that we expect to contribute to our charitable foundation in Q2. And one observation on this topic: when it comes to portfolio restructuring, our focus is on generating incremental economic value, and we look for the earn-back period to be shorter than the weighted average life of the securities involved.

Martin E. Grunst: The anticipated gain from this exchange in Q2 should more than offset the $45 million Securities loss. We took in Q1, leaving a residual amount that we expect to contribute to our charitable foundation in Q2.

Martin E. Grunst: And one last observation on this topic when it comes to portfolio restructuring our focus is on generating incremental economic value and we look forward. The earn back period would be shorter than the weighted average life of the securities involved.

Martin E. Grunst: For the Q1 transaction, the payback period was roughly two years versus a weighted average life of 3.4 years for the securities sold, indicating a very good economic pickup. Turning to slide 14, capital and liquidity continue to be robust, driven by our risk management framework, which recognizes that capital, liquidity, and interest rate risk management are all interconnected disciplines. Our Adjusted Tangible Common Equity Ratio, inclusive of all securities portfolio losses, stands at 7.92%. When comparing this capital metric to that of the 20 largest banks in the U.S. as of Q4'23, ours is the third highest. Additionally, we have strong capital ratios across each of the regulatory capital metrics.

Martin E. Grunst: For the Q1 transaction the payback period was roughly two years versus a weighted average life of three four years for the securities sold indicating a very good economic pickup.

Martin E. Grunst: Turning to slide 14 capital and liquidity continue to be robust driven by our risk management framework, which recognizes that capital liquidity and interest rate risk management are all interconnected disciplines.

Martin E. Grunst: Our adjusted tangible common equity ratio inclusive of all securities portfolio losses stands at 792% when comparing this capital metric to that of the 20 largest banks in the U S. As of Q4 dollars 23 hours is the third highest.

Martin E. Grunst: Additionally, we have strong capital ratios across each of the regulatory capital metrics. Our current loan to deposit ratio stands at 68% and our coverage of uninsured and non collateralized deposits has remained robust at 179% with this quarter's deposit growth of $1 4 billion.

Martin E. Grunst: Our current loan-to-deposit ratio stands at 68 percent, and our coverage of uninsured and non-collateralized deposits has remained robust at 179 percent, with this quarter's deposit growth of $1.4 billion. Being very well positioned in capital and liquidity has enabled us to actively pursue organic growth opportunities as well as share buybacks. During the first quarter, we repurchased just over 616,000 shares of common stock at an average price of $83.89 per share. We will continue to be opportunistic about share repurchases over the coming quarters.

Martin E. Grunst: Being very well positioned in capital and liquidity has enabled us to actively pursue organic growth opportunities as well as share buybacks.

Martin E. Grunst: During the first quarter, we repurchased just over 616000 shares of common stock at an average price of $83 89 per share.

Martin E. Grunst: We will continue to be opportunistic about share repurchase over the coming quarters.

Martin E. Grunst: During slide 15, first quarter net interest income was $293.6 million, and the pace of decline continued to subside as expected. The link quarter decrease was $3.1 million, with $1 million of that due to day counts. The interest margin was 2.61%, a 3 basis point decrease compared to Q4, primarily driven by DDA migration and to a lesser extent by deposit repricing. At the end of the first quarter, our through-the-cycle deposit beta was 68%, and DDA was 24% of total deposit.

Martin E. Grunst: Turning to slide 15 first quarter net interest income was $293 6 million and the pace of decline continued to subside as expected the.

The linked quarter decrease was $3 1 million with $1 million of that due to day count.

Martin E. Grunst: Net interest margin was 261% at three basis point decrease compared to Q4, primarily driven by DDA migration and to a lesser extent by deposit repricing.

Martin E. Grunst: At the end of the first quarter, our through the cycle deposit beta was 68% and DDA was 24% of total deposits.

Martin E. Grunst: Turning to slide 16, linked quarter total expenses decreased 43.7 million, or 11.4 percent, mostly attributable to the FDIC special assessment in the prior quarter. We recognize the initial assessment of $43.8 million in the fourth quarter and another $6.5 million in the first quarter. This results in a linked quarter decline of $37.3 million and explains most of the total expense decline in the quarter. However, all remaining expenses were largely consistent with prior quarter activity.

Turning to slide 16 linked quarter total expenses decreased $43 7 million or 11, 4%, mostly attributable to the FDIC special assessment in the prior quarter we.

Martin E. Grunst: We recognize the initial assessment of $43 8 million in the fourth quarter and another $6 5 million in the first quarter.

Martin E. Grunst: This results in a linked quarter decline of $37 3 million and explains most of the total expense declined in the quarter.

Martin E. Grunst: The remaining expenses were largely consistent with prior quarter activity.

Martin E. Grunst: Turning to slide 17. This provides our outlook for 2024, we have good momentum in commercial loan growth and expect total loan growth on a period end basis to be 5% to 7%.

Martin E. Grunst: Turning to slide 17, this provides our outlook for 2024. We have good momentum in commercial loan growth and expect total loan growth on a period end basis to be 5 to 7 percent. We've provided a numeric range on this item, but our outlook is basically the same as it was last quarter. We believe net interest margin has reached a trough, and total net interest income for 2024 will be just over $1.2 billion.

Martin E. Grunst: We provided a numeric range on this item, but our outlook is basically the same as it was last quarter.

Martin E. Grunst: We believe net interest margin has reached the trough in total net interest income for 2024 will be just over $1 2 billion.

Martin E. Grunst: We did some two rate cuts by the federal reserve in 2024, consistent with the forward curve as of a couple of weeks ago.

Martin E. Grunst: We expect 2020 for provision expense to be similar to 2023 levels and the combined reserves to total loans ratio to remain steady as we grow outstandings and economic conditions persist.

Martin E. Grunst: We expect two rate cuts by the Federal Reserve in 2024, consistent with the forward curve as of a couple of weeks ago. We expect 2024 provision expense to be similar to 2023 levels and the combined reserves to total loans ratio to remain steady as we grow outstandings and economic conditions persist. With that, I would like to hand the call back to the operator for Q&A, which will be followed by closing remarks from Stacy. Thank you.

Speaker Change: With that I would like to hand, the call back to the operator for Q&A, which will be followed by closing remarks from Stacy.

Speaker Change: Yeah.

Speaker Change: Thank you if you would like to ask a question on the phone lines today. Please press star one on your telephone keypad. If you find your question has been answered or you wish to remove yourself from the queue. You can press star one again we.

We will take our first question is from John Armstrong from RBC capital markets.

Operator: Thank you. If you would like to ask a question on the phone lines today, please press star 1 on your telephone keypad. If you find your question has been answered or you wish to remove yourself from the queue, you can press star 1 again. We'll take our first question from John Arfstrom from RBC Capital Markets.

Speaker Change: Yes.

You hear me alright.

John Armstrong: We can now John.

John Armstrong: Premium okay.

John Armstrong: On slide eight I don't know if it's for you.

John Armstrong: Stacy earmarked, but can you touch a little bit on the general business trends you're seeing.

John Armstrong: In terms of the pipelines I know Mark you combined services and general business, but I'm just curious.

Jon Arfstrom: We can now, John. Good to hear from you. Okay, good. On slide eight, I don't know if it's for you, Stacy, or Marc, but can you touch a little bit on the general business trends you're seeing? In terms of the pipelines, I know, Marc, you combine services and general business, but I'm just curious, you know, what you're seeing in terms of the pipelines and if they're changing at all.

John Armstrong: What youre seeing in terms of the pipelines.

John Armstrong: If there if they're changing at all.

Speaker Change: Yeah. So.

Speaker Change: So far.

Mark: When we're looking at our C&I pipelines, we still see pretty good strength I mean, our effort has been out to take advantage of opportunities.

Mark: Given our lip.

Mark: Our liquidity position and our credit metrics, so far to be open for business and active calling efforts and when some of our competitors have pulled back a little we've been able to build the pipeline pretty well.

Marc C. Maun: Yeah, so far, you know, when we're looking at our C&I pipelines, we still see pretty good strength. I mean, our effort has been to take advantage of opportunities, given our liquidity position, our credit metrics, and so forth, to be open to business and to make active calling efforts. And when some of our competitors have pulled back a little, we've been able to build a pipeline pretty well. And when you're looking at health care, it's been growing pretty well also.

Mark: When youre looking at healthcare, it's been growing.

Mark: Pretty well is also energy is just more reflective of just some of the things that are going on in the economy right. Now. So overall, we expect to continue to see the kind of growth on the commercial side that we experienced in the first quarter.

Mark: John This is Stacy I mean, I think if you think about kind of how we think about it I mean commercial growth broadly.

Stacy C. Kymes: Given our footprint given kind of our liquidity and capital position, we're really optimistic about that I mean, the business lines are very excited about kind of their pipelines and what they see coming.

Marc C. Maun: Energy is just more reflective of just some of the things that are going on in the economy right now. So overall, we expect to continue to see the kind of growth on the commercial side that we experienced in the first quarter.

Speaker Change: Over time, I think that the only real headwind that we don't know how to forecast, particularly well is how commercial real estate will behave whether we get paydowns. There. If we do it takes time to kind of replace those overtime. We're we have plenty of headroom in commercial real estate to make loans today, but it takes a little while there and so.

Stacy C. Kymes: John, this is Stacy. I mean, I think if you think about how we think about it, I mean, commercial growth, broadly, given our footprint, given kind of our liquidity and capital position, we're really optimistic about that. I mean, the business lines are very excited about the kind of their pipelines and what they see coming over time. I think the only real headwind that we don't know how to forecast particularly well is how commercial real estate will behave, whether we get paydowns there.

Speaker Change: <unk>.

Speaker Change: I think I mentioned on the call last quarter that was really the only wildcard we had I think from our guidance.

Speaker Change: I think thats true today, I think we're very optimistic about commercial I think commercial real estate, we are optimistic about our ability to grow the commitments there, but the timing of windows will find will be the wildcard relative to payoffs there.

Speaker Change: Okay. That's helpful.

Speaker Change: And then just one for you Marty.

Martin E. Grunst: Not a lot to pick on here, but.

Martin E. Grunst: You talked about DDA migration.

Martin E. Grunst: Im curious, how youre feeling about that and.

Stacy C. Kymes: If we do, it takes a little bit of time to get there, but I think we're optimistic about that. If we do, it takes time to kind of replace those over time. We have plenty of headroom in commercial real estate to make loans today, but it takes a little while there. And so that, I think I mentioned on the call last quarter, that was really the only wild card we had, I think, from our guidance.

Is the pressure burning out there are there any any seems you'd like to call out on the on the DDA migration.

Martin E. Grunst: Sure, Yes, and we do think that the pressure is burning out as you say so if you look just within the quarter. The declines we saw were pretty much all in January So February and March were pretty much leveled out and then even as you look into April we saw a little bit of build in April pre tax season, and then April 16th that came out.

Stacy C. Kymes: And I still think that's true today. I think we're very optimistic about commercial real estate. We are optimistic about our ability to grow the commitments there, but the timing of when those will fund will be the wild card relative to payoffs there.

Martin E. Grunst: That will get us where that all landed we're still consistent with where we were in February and March so.

Martin E. Grunst: So that gives us pretty good confidence that that is reaching a burn at point there.

Martin E. Grunst: Okay, that's helpful. And then just one for you, Marty, not a lot to pick on here, but you talked about DDA migration. I'm curious how you're feeling about that, and is the pressure burning out there? Are there any themes you'd like to call out about DDA migration?

Martin E. Grunst: I do think there is still just a little bit more to go so don't think that its absolutely done but.

Martin E. Grunst: We feel pretty good about the outlook.

Speaker Change: Okay. Thank you I'll step back thanks.

Speaker Change: Yes.

Speaker Change: We will take our next question is from Peter Winter with D. A Davidson.

Martin E. Grunst: Sure, yes, and we do think that the pressure is burning out, as you say, so if you look just within the quarter, the declines we saw were pretty much all in January, so February and March were pretty much leveled out, and then even as you look into April, you know, we saw a little bit of build in April pre-tax season, and then on April 16th, that came out, and just where that all landed was still I do think there is still just a little bit more to go, so I don't think that it's absolutely done, but we feel pretty good about the outlook.

Peter J. Winter: Good morning.

Peter J. Winter: Peter.

Peter J. Winter: Credit credit trends have been outstanding I think you guys are one of the few banks to see a decline in nonperforming assets.

Peter J. Winter: Could you just provide a little bit more color on the criticized and problem loans and then secondly, I discuss based on the provision expense guidance youre still expecting that higher net charge offs in the second half of the year.

Speaker Change: Well I'll take the second part of that first with regards to provision.

Speaker Change: Don't really anticipate higher net charge offs for the balance of the year. Our indications are based on criticized classified levels nonperforming improvement that we will see something more consistent with what we have experienced in the last few quarters.

unknown: Okay, thank you. I'll step back. Thanks.

Operator: We'll take our next question from Peter Winter with D.A. Davidson.

Peter J. Winter: Peter, your credit trends have been outstanding. I think you guys are one of the few banks to see a decline in non-performing assets. Could you just provide a little bit more color on the criticized and problem loans? And then, secondly, I just guess, based on the provision expense guidance, you're still expecting higher net charge-offs in the second half of the year.

Speaker Change: The higher provision would come about through loan growth and that would be the driver for it and the desire to keep our percentage reserve relatively flat to the the overall loan portfolio.

Speaker Change: With regards to the individual criticized assets and.

Speaker Change: And so forth.

Marc C. Maun: Well, I'll take the second part of that first. With regard to provision, we don't really anticipate higher net charge-offs for the balance of the year. Our indications are, based on the criticized classified level non-performing improvement, that we'll see something more consistent with what we have experienced in the last few quarters. The higher provision would come about through loan growth, and that would be the driver for it and the desire to keep our percentage reserve relatively flat to the overall loan portfolio.

Speaker Change: But we don't see anything that is systemic in any particular portfolio in the back.

Our some of our CRE has come down and we've been able to exit a number of our nonperforming loans, which was one of the results of why we had a reduction last quarter as opposed to charge offs. So we've been able to manage our criticized and classified effectively.

Speaker Change: And we just think that is going to be continue to be reflected in the future based on what we're seeing today.

Marc C. Maun: With regard to the individual criticized assets and so forth, we don't see anything that is systemic in any particular portfolio. In fact, some of our CRE has come down, and we've been able to exit a number of our non-performing loans, which was one of the results of why we had a reduction last quarter as opposed to charge-offs. So we've been able to manage our criticism and classification effectively, and we just think that is going to continue to be reflected in the future based on what we're seeing today.

Speaker Change: Peter we're roughly kind of feel good I forget about the credit quality here I think you rightfully point out that's a big part of our story this quarter I think that.

Speaker Change: We've differentiated ourselves here in terms of how we underwrite and how we think about that we can have strong asset quality and good growth and I think we're doing both of those here.

Speaker Change: Our kind of forecasting in asset quality and good for about six months and then it gets real heavy and so.

Speaker Change: The reason, we've kind of talked about maybe in the back half of the year is mostly just the yes.

Speaker Change: Expectation at some point that there'll be a reversion to the mean and things will start to look like they did pre COVID-19. We thought maybe we were heading that direction in the fourth quarter, we had modest deterioration in criticized and classified.

Stacy C. Kymes: Peter, I feel awfully good about the credit quality here, and I think that you rightfully pointed out that it's a big part of our story this quarter. I think that we've differentiated ourselves here in terms of how we underwrite and how we think about that.

Speaker Change: Currently we're starting to begin that migration, but that did not play out in the first quarter and our outlook here is very positive based on what we know about the book and how we see the current criticized classified nonperforming.

Stacy C. Kymes: We can have strong asset quality and good growth, and I think we're doing both of those here. But this is a kind of forecasting, and asset quality is good for about six months, and then it gets real hazy. And so the reason we've kind of talked about maybe in the back half of the year is mostly just the expectation that, at some point, there'll be a reversion to the mean, and things will start to look, you know, like they did pre-COVID.

Speaker Change: Behaving today, and so we feel really good.

Speaker Change: Understand at some point.

Speaker Change: I've been teasing a lot internally about key I keep saying it's unsustainably good.

Speaker Change: But it is but it feels like it's going to stay that way for at least the next six months or so.

Speaker Change: Got it that's really helpful and then.

Speaker Change: On a separate question.

Stacy C. Kymes: We thought maybe we were heading that direction in the fourth quarter. We had modest deterioration in criticized and classified and thought kind of we were starting to begin that migration, but that did not play out in the first quarter. And our outlook here is very positive based on, you know, what we know about the book and how we see the current criticized, classified, and non-performing assets behaving today. And so we feel really good.

You did maintain the fee income guidance.

Speaker Change: Despite the updated outlook for two rate cuts.

Speaker Change: The previous guidance was no rate cuts and you had mentioned like lower rates would actually benefit fee income so would.

Speaker Change: Would you lean more towards maybe the upper end of the range now that you've got some rate cuts built into your forecast.

Stacy C. Kymes: Understand at some point, you know, I've been teased a lot internally about saying it's unsustainably good, but it is, but it feels like it's going to stay that way for at least the next six months or so.

Speaker Change: Yes, Peter I would say that we do feel good about the trajectory within that business mortgages, certainly and even saw a lift in mortgage and that that will be sustainable at that certainly helped by that.

Scott Bradley Grauer: And that's really helpful. On a separate question, you did maintain the fee income guidance despite the updated outlook for two rate cuts. You know, the previous guidance was no rate cuts, and you had mentioned that lower rates would actually benefit fee income. So would you lean more towards maybe the upper end of the range now that you've got some rate cuts built into your forecast? Yeah.

Speaker Change: The trading businesses are supported.

Speaker Change: By that kind of environment and.

Speaker Change: And then the fiduciary businesses are also supported by that environment, just given the asset that the impact on asset valuations. So yes, we feel great about.

Speaker Change: That line item.

Scott Bradley Grauer: Yeah, Peter, I'd say that, you know, we do feel good about the trajectory within that business. You know, mortgages are certainly, you even saw a lift in mortgages, and that will be sustainable. That's certainly helped by that. Trading businesses are supported by that kind of an environment. And then the fiduciary businesses are also supported by that environment, just given the impact on asset valuation. So, yeah, we feel great about that line item.

Peter J. Winter: And any sense on maybe if it comes in towards the upper end of the range just given now some of the benefits with rate cuts.

Speaker Change: Yeah, I don't know that I want to put it.

Speaker Change: Pinpoint on any particular part of the range, but.

Speaker Change: We certainly got good momentum in those businesses and we expect that to carry forward through the year.

Speaker Change: The only thing I would add this is Scott is that on the trading front. We've we've settled into kind of an uncertainty period, whether we're going to be looking at rate cuts or not and as you can see from the first quarter the business levels and the activities continue to be slightly elevated.

Scott Bradley Grauer: And any sense on maybe if it comes in towards the upper end of the range, just given some of the benefits of rate cuts?

Scott Bradley Grauer: We can't pinpoint any particular part of the range, but we've certainly got good momentum in those businesses, and we expect that to carry forward through the year. You know, the only thing I would add to this, Scott, is that

Speaker Change: <unk>, even with without the cat. So we feel good about where we're positioned.

Scott Bradley Grauer: The only thing I would add to this, Scott, is that on the trading front, you know, we've settled into kind of an uncertainty period, whether we're going to be looking at rate cuts or not. And, you know, as you can see from the first quarter, business levels and activities continue to be slightly elevated, even without the cuts. So we feel good about where we're positioned, really regardless of the direction that the Fed might take there.

Speaker Change: Regardless of the direction that the.

Speaker Change: The fed might take there.

Speaker Change: Got it.

Speaker Change: Thanks Scott.

Speaker Change: We'll take our next question from Ben Garlinger with Citi.

Benjamin Tyson Gerlinger: Hi, good morning.

Benjamin Tyson Gerlinger: Good morning, Ben.

Benjamin Tyson Gerlinger: I was just curious in terms of just I get the growth kind of numerical fine tuning. Some of your competitors have kind of indicated the back half of the year, whereas others in the same footprint involves instead kind of more linearity.

Operator: We'll take our next question from Ben Gerlinger with Citi.

Benjamin Tyson Gerlinger: I was just curious, in terms of just the growth, kind of numerical fine-tuning. Some of your competitors have kind of indicated growth in the back half of the year, whereas others in the same footprint have also said growth is kind of more linear. If you exclude the CRE kind of noise and paydown potential, like, should we expect growth to be fairly linear from here through the end of the year, or is it a little bit more weighted towards the back half?

Benjamin Tyson Gerlinger: If you exclude the CRE kind of noise and paydown potential like should we expect growth to be fairly linear from here on through the year.

Benjamin Tyson Gerlinger: A bit more weighted towards the back half.

Okay.

Speaker Change: Thats a tough question to answer I think generally speaking, it's going to be linear or more weighted in the back half I think.

Stacy C. Kymes: You know, that's a tough question to answer. I think, generally speaking, it's going to be linear more so than weighted in the back half. I think, you know, that's my expectation. But, as you know, loan growth is lumpy. You have a month where it's flat, and you have a month where it's bigger. But over time, that trajectory should be pretty steady and more linear from my perspective than backloaded.

Speaker Change: That's my expectation.

Speaker Change: But as you know loan growth is lumpy.

Speaker Change: Do you have in mind, where it's flat and you havent went towards bigger but over over time.

Speaker Change: Trajectory should should be pretty steady and more linear from my perspective in back loaded.

Speaker Change: Got you that's helpful. And then I know that you now have two cuts in guidance.

Speaker Change: At the beginning of the year, we talked about how this.

Martin E. Grunst: Gotcha, that's helpful. And then I know that you now have two cuts in guidance. At the beginning of the year, we talked about how this quarter is probably the margin trough, and it seems like it should be, but you kind of look at a little bit of a mosaic here in terms of rate cut potential. If there are no rate cuts, do you have any sense of where the margin might be at the end of the year, assuming your normal mix shift or flows that you're anticipating?

Speaker Change: This quarter is probably the margin trough and it seems like it should be but you can.

Speaker Change: Kind of looking at a little bit of a mosaic here in terms of rate of returns.

Speaker Change: If there are no rate cuts do you have any sense of where the margin might be at the end of the year, assuming your normal mix shift in flows that you're anticipating.

Speaker Change: Yes, Ben so whether we do get those two rate cuts or not.

Martin E. Grunst: Yeah, Ben, so whether we do get those two rate cuts or not, you know, we still think that our margin troughs here is some stability here in the middle of the year. And then you get an uptick later in the year. You know, the our benefit that we get out of rate cuts is more from the fact that you get a steeper curve. And that's something that builds over time. You don't get a, you know, a gigantic benefit in one quarter from that. So so either way, you know, we see the margin coming up towards the end of the year. You may not think that.

Speaker Change: We still think that our margin troughs here.

Speaker Change: Some stability here in the middle of the year and then you get an uptick later in the year.

Speaker Change: Our benefit that we get out of rate cuts is more from the fact that you get a steeper curve and thats something that builds over time, you don't get it.

Speaker Change: Gigantic benefit in one quarter from that so.

Speaker Change: So either way, we see the margin.

Speaker Change: Coming up towards the end of the year.

Speaker Change: And I think that's the important point as you think about us on a go forward basis think less about.

Stacy C. Kymes: I mean, I think that's the important point, that as you think about us on a go-forward basis, think less about, you know, rate movements impacting net interest revenue or margin, absolutely. Because we tend to be pretty neutral from a rate risk perspective. But think more about a steepening of the yield curve. To the extent that there's a steepening, we're going to materially benefit from that over time. And so the steepening effect has a much bigger impact on us than the absolute, whether rates go up or down on the short end.

Speaker Change: Rate movements impacting net interest revenue and margin absolutely because we tend to be pretty neutral from a rate risk perspective.

But think more about a steepening of the yield curve to the extent that there is a steep mean, we're going to materially benefit from that over time and so the steepening effect has a much bigger impact to us than the absolute whether rates go up or down on the short end.

Gotcha that's helpful. I appreciate it thanks for your time today.

Speaker Change: We will take our next question from will Jones with K B W.

William Bradford Jones: Hey, great good morning.

William Bradford Jones: Good morning will.

William Bradford Jones: Hey, guys. So I wanted to touch on the deposit growth you guys saw this quarter I mean, it was obviously a fairly notable.

unknown: So that's helpful. I appreciate it. Thanks for your time, guys.

William Bradford Jones: I was just hoping you could maybe just touch on what went right for you guys in the quarter.

Operator: We'll take our next question from Will Jones with KBW.

William Bradford Jones: I know you call out as well.

William Bradford Jones: Hey guys, I wanted to touch on the deposit growth you guys saw this quarter. I mean, it was obviously fairly notable.

William Bradford Jones: Yes.

William Bradford Jones: Maybe swaps on borrowings and replace with the deposits.

William Bradford Jones: Could you just talk us through some of the dynamics that you saw in the quarter and maybe what drove that nice growth.

Martin E. Grunst: I was just hoping you could, you know, maybe just touch on what went right for you guys in the quarter. I know you call out as well, trying to, you know, maybe swap some borrowings and then replace them with deposits. Could you just talk us through some of the dynamics that you saw in the quarter and maybe what drove that nice growth?

Speaker Change: Yes, so will that was us.

Speaker Change: Making.

Speaker Change: Offers to our existing customer base and as we've talked about before we have a large portion of our customer base that has both money held on balance sheet of their liquid asset. Some of it's held on balance sheet and some of that is held in our broker dealer or the wealth business and that we're able to toggle that back and forth.

Martin E. Grunst: Yeah, so, Will, that was us making offers to our existing customer base, and as we've talked about before, we have a large portion of our customer base that has both money held on the balance sheet and liquid assets. Some of it's held on the balance sheet, and some of that's held in our broker-dealer or the wealth business, and we're able to toggle that back and forth with calling efforts. And so, we just did some of that, and that was very fruitful, and that just worked out exactly as planned for us.

Speaker Change: With with calling efforts and so we just did some of that and that was very fruitful and.

Speaker Change: And that just worked out exactly as designed for us.

Speaker Change: Okay, and then just just with respect to the deposit growth guidance. It feels like maybe a lot of that growth was just pulled pulled forward in the first part of the year here.

Speaker Change: And is the thought that deposit balances, maybe just kind of level out and flat line for the remainder of the year.

Martin E. Grunst: Okay, and then just with respect to the deposit growth guidance, it feels like maybe a lot of that growth was just pulled forward in the first part of the year here, and is the thought that deposit balances may maybe just kind of level out in a flat line for the remainder of the year? Yeah, in general.

Speaker Change: Yes, as a general rule, we want to keep deposit growth and loan growth more or less lined up who we're very comfortable with that 70% loan to deposit ratio area defining that as a broader area and so yes.

Speaker Change: Yes, it's reasonable to think that those are going to be kind of in line the rest of the year.

Martin E. Grunst: Yeah, as a general rule, we want deposit growth and loan growth more or less lined up. We're very comfortable with that 70% loan to deposit ratio area, defining that as a broader area. And so, yeah, it's reasonable to think that those are going to be kind of in line the rest of the year.

Speaker Change: Yes, yes.

Speaker Change: Okay, Great and then back to the margin discussion here. So maybe margin trough. This quarter, we see stability and then up margin at the end of the year does that kind of imply that.

Speaker Change: Deposit costs will peak, maybe in the third quarter or late late in the second quarter.

Martin E. Grunst: Okay, great. And then, you know, back to the margin discussion. I hear, you know, maybe margin through this quarter, we see stability, and then, you know, higher margin at the end of the year. Does that kind of imply that, you know, deposit costs will peak, you know, maybe in the third quarter or late, late in the second quarter?

Speaker Change: Yes, so I don't know that I'd say deposit costs peak in particular, but.

Speaker Change: A couple of drivers that are positive for margin or the fixed rate securities portfolio each quarter.

Speaker Change: $500 million are a little more we'll reprice from the lower existing right to reprice up to current rates. The same dynamic happens in the loan book.

Martin E. Grunst: Yeah, so I don't know that I'd say deposit costs peak in particular, but the couple of drivers that are positive for margin are the fixed rate securities portfolio; each quarter, 500 million or a little more will reprice from the lower existing rate to reprice up to current rates. The same dynamic happens in the loan book, a little smaller dollar amount, but the same dynamic of pricing up that fixed rate portion of the loan book.

Speaker Change: A little smaller dollar amount, but the same dynamic pricing up that fixed rate portion of the loan book.

Speaker Change: And those continue.

Speaker Change: For a while and multiple quarters and then on the deposit side Youre just seeing each quarter.

Speaker Change: Deposit.

Speaker Change: Pressure, just gets less and less and so that gets much smaller it might not go to actual zero, but but the lines cross here, we believe this quarter.

Martin E. Grunst: And those continue for a while, multiple quarters. And then on the deposit side, you're just seeing each quarter the deposit pressure just gets less and less. And so that gets much smaller. It might not go to actual zero, but the lines cross here, we believe, this quarter. Yeah, OK.

Speaker Change: Okay. That's helpful. Thanks, Thanks, guys.

Speaker Change: We will take our next question from Tahira Brasilia with Wells Fargo.

Tahira Brasilia: Hi, good morning.

unknown: Okay, that's helpful. Thanks, guys.

Tahira Brasilia: Good morning Timur.

Operator: We'll take our next question from Timur Braziler with Wells Fargo.

Tahira Brasilia: Following up on that last line of commentary just looking at time deposits.

Timur Braziler: Following up on that last line of commentary, just looking at time deposits of $4.54, the average rate for the quarter. What's the kind of terminal rate there, and what is the offer that's currently being promoted in your markets?

Tahira Brasilia: For our.

Tahira Brasilia: <unk> was the average rate for the quarter, what's kind of the terminal rate there and what is the offer that's currently being promoted in your markets.

Martin E. Grunst: Yeah, so if you just look at our highest offer, let's see, depending on term, it's kind of 485 to 510 would be the highest particular offer, and that's, you know, not every market has the same offer, but that's the high point. And we actually brought those down versus a quarter ago by five or ten basis points. And so that gives you a sense of, you know, a little bit of the easing pressure that we're seeing.

Yes. So if you just look at our our highest offer.

Tahira Brasilia: <unk>.

Tahira Brasilia: Let's see depending on term, it's kind of 485 to $5 10 will be the highest particular offer and thats.

Tahira Brasilia: Yes.

Not every market is the same offer but that's the high point and we actually brought those down versus a quarter ago by five or 10 basis points and so that gives you a sense for a little bit of easing pressure that we're seeing.

Martin E. Grunst: It's hard to, you know, say exactly what the end point is because it's not everything goes to that high offer because that's particular terms with particular specials. So it's, you know, the terminal point is certainly lower than that, and it'll just kind of depend on the mix within that portfolio. But you're right, that does kind of, asymptotically slow down, if you will, over time.

Tahira Brasilia: It's hard to say exactly what the endpoint is because it's not everything goes to that high offering because that particular terms with particular spec.

Tahira Brasilia: Specials.

Tahira Brasilia: So to.

Tahira Brasilia: The terminal point is certainly lower than that.

Tahira Brasilia: And it will just kind of depend on the mix within that portfolio, but.

Tahira Brasilia: But youre right that does kind of.

Tahira Brasilia: Asymptote of Glee slow down if you will over time.

Tahira Brasilia: Okay.

Martin E. Grunst: OK, and then maybe just your broader appetite for time deposits here. So the loan to deposit ratio is now below 70 percent. You have plenty of balance sheet liquidity. Is your appetite for time deposits still the same, or can we actually see some of those maturities maybe roll off during the course of the year?

Okay, and then maybe just your broader appetite for time deposits here, so loan to deposit ratio now below 70% you have plenty of balance sheet liquidity.

Tahira Brasilia: Has your appetite still the same for time deposits or could we actually see some of those.

Tahira Brasilia: Maturities, maybe roll off during the course of the year.

Martin E. Grunst: You know, those are all core customers. I mean, none of that is anything that's like brokered or any of that. So it's not like there's a piece that. You know, it's just going to roll off and go away.

Tahira Brasilia: Those are our core customers I mean, none of that is anything that's like brokered or any of that so it's not like there is a piece that.

Tahira Brasilia: It's just going to roll off and go away and we're going to serve what customers are after at a fair amount of that in the consumer book and so that's just kind of natural how a consumer book.

Martin E. Grunst: We're going to serve what customers are after, and so a fair amount of that's in the consumer book. And so that's just kind of natural how a consumer book matures over a rate cycle, this part of the rate cycle. So we would expect that, you know, to continue to grow slowly as that consumer book just naturally follows that trend.

<unk> over our rate this part of the rate cycle. So we would expect that to continue to grow slowly as that consumer both just naturally makes that trend.

Martin E. Grunst: And if you're concerned that, you know, we're adding to CDs at the time when the market's beginning to see rate declines, and so, you know, does that lock you into some higher cost of funds because of the growth there, you know, we're set up, we can swap those back to floating through our treasury function as we begin to have a view around that so that, you know, we're not necessarily locked into that from a fixed rate perspective. We think that's a core deposit gathering operation that we need to have consistently going on, and so how we think about that will toggle with whether we swap it back to floating or not, really around our interest rate risk profile and how we think about that, but you have to think about it more holistically than just that particular line item. And those maturities are...

Tahira Brasilia: If you're concerned that we're adding to Cds at the time when the markets beginning to see rate declines and so.

Tahira Brasilia: Does that lock you into some higher cost of funds because of the growth. There. We're set up we can swap those back to floating.

Tahira Brasilia: Through our treasury function as.

Tahira Brasilia: As we begin to have a view around that so that we're not necessarily locked into that from a fixed rate perspective.

Tahira Brasilia: We think thats a core deposit gathering operation that we need to have consistently going on and so how we think about that we will toggle with whether we swap it back to floating are really around our interest rate risk profile and how we think about that but.

Tahira Brasilia: You have to think about it more holistically than just that particular line item and.

Tahira Brasilia: And those maturities are.

Martin E. Grunst: And those maturities are within a year, and some go a little bit longer than a year, but those line up well with the fixed-rate portion of the loan book, and like Stacy said, to the extent that they don't line up well, we can very easily swap those. That'll work out well.

Tahira Brasilia: Within a year and some go a little bit longer than a year, but those line up well with the fixed rate portion of the loan book in late stage said to the extent that they don't line up well very easily swap those so.

Tahira Brasilia: That will work out well.

unknown: Great. That's a good color.

Speaker Change: Great. That's good color and then maybe just a couple around the the credit side.

Timur Braziler: And then maybe just a couple around the credit side. So, looking at health care specifically, and I'm referring to the slide. You know, we're seeing broader issues kind of pop up across the industry within that sector. And then you look at your health care portfolio pre-pandemic and post-pandemic, and the results are pretty stark. I guess what changed in your maybe underwriting or anything else that's driving such outperformance post-pandemic in that portfolio versus higher levels of charge-up activities in 17, 18 and 19?

Speaker Change: So looking at healthcare, specifically I'm, referring to slide eight.

Speaker Change: We're seeing broader issues kind of pop up across the industry within that sector. And then you look at your healthcare portfolio pre pandemic and post pandemic and the results are pretty stark I guess, what changed in your maybe underwriting or anything else, that's driving such outperformance.

Speaker Change: Post pandemic in that portfolio versus.

Speaker Change: Higher levels of charge off activities in 17, 18 and 19.

Stacy C. Kymes: Yeah, I don't, I don't know that our, I don't see our performances are materially different here. I mean, healthcare over a broad range of time has been a very strong asset quality portfolio for us. It's always had more volatility around the critical classified level because the risk in that portfolio that we see is typically classification risk, not loss risk. And so our historical performance from a loss perspective in the health care book has been very strong.

Speaker Change: Yes.

Speaker Change: I don't know that our I don't see our performances is materially different here I mean health care.

Speaker Change: A broad range of time has been a very strong asset quality portfolio for us has always had.

Speaker Change: More volatility around criticized and classified level because the risk in that portfolio that we see is typically classification risks not loss risk.

Speaker Change: And so our historical performance from a from a loss perspective in the health care book has been very strong.

Stacy C. Kymes: We had a couple of, you know, non-core type health care loans, you know, several years ago that we had some losses around, but the portfolio is structured today around senior housing and health care systems and doctor practice groups and things like that. That portfolio has been around for a long time and has been a very strong credit performer for us, and how we underwrite it, it's consistent, and we feel really good about that.

Speaker Change: We had a couple of.

Speaker Change: Non core type health care loans, seven or eight years ago that we had some losses around but the portfolio is structured today.

Speaker Change: Round senior housing and health care systems, and Dr practice groups and things like that that portfolio has been around for a long time and it's been a very strong credit performer for us and how we underwrite it's consistent and we feel really good about that I don't think youre always vulnerable to having some classification risk in the health care book, just because of the.

Stacy C. Kymes: I think you're always vulnerable to having some classification risk in the health care book just because of the nature of it, but the loss history, which is really what we focus on, has been very stable in the core businesses that we're in today.

Speaker Change: The nature of it.

Speaker Change: But the loss history, which is really what we focus on has been very stable in the core businesses that we're in today.

Unknown Executive: And the only thing I'll add is there was just a segment of healthcare that we were in early or mid-2010s that we exited, like in 17, 18, is no longer part of the portfolio. The core portfolio has always been senior housing, which has been the stable portfolio.

Speaker Change: Yeah, and the only thing I'll add is there was just a segment of health care that we were in.

Speaker Change: Early or mid 2010 that we exited.

Like in 2017, and 18 that debt.

Speaker Change: There is no longer part of the portfolio. The core portfolio has always been the senior housing which has been the stable portfolio.

unknown: And just last for me, and I know it's a small component, but maybe the NPL inflows from commercial real estate. What asset classes were those in, and was there any kind of underlying thread between some of those migrations?

Speaker Change: And just last from me and I know, it's a small cohort.

Speaker Change: NPL inflows from commercial real estate.

Speaker Change: What asset classes or those in any kind of underlying thread between some of those migrations.

unknown: Could you ask that again? You cut out for us for just a second.

Speaker Change: Could you ask that again, you cut out for us just a second.

unknown: Sure, so the NPL migration this quarter for commercial real estate, what sectors those were in, and if there's any kind of underlying thread that tied those loans? Yeah, we do.

Speaker Change: Sure so.

Speaker Change: The NPL migration this quarter for our commercial real estate what sectors those were in and if there's any kind of underlying thread that tied those loans.

Marc C. Maun: Yeah, I mean, if you look at non-performing loans for commercial real estate, it's really a modest increase, but it's mostly attributable to a single office facility. We took a modest charge off on it this quarter, and we expect it to be sold for no additional lost content by the end of the quarter. So we don't have any specific concerns around lost content today. It was a single, largely comprised of a single loan there, which is the increase there.

Speaker Change: I mean, if you look at non performing loans for commercial real estate really modest increase.

Speaker Change: Mostly attributable to a single single office facility.

Speaker Change: We took a modest charge off on it this quarter and we expect it to be sold for no additional loss content by the end of the quarter.

Speaker Change: So we don't we don't have any specific concerns around loss content today.

Speaker Change: Really was a single largely comprised of a single single loan there, which is the increase there.

unknown: Great. Thanks for the questions.

Speaker Change: Great. Thanks for the questions.

Operator: We'll take our next question from Matt Olney with Stevens.

Speaker Change: We will take our next question from Matt Olney with Stephens.

Matthew Covington Olney: Hey, thanks. Good morning, everybody. Morning Matt.

Matthew Covington Olney: Hey, Thanks, good morning, everybody.

Matthew Covington Olney: Good morning, Matt.

unknown: Just a general question. I want to ask about the overall level of competition within your core lending businesses. I think over the last few quarters, we've talked about competitors pulling back and providing some opportunities for the bank to add new customers. I'm just curious, is there any change here? Are these competitors kind of still on their back feet? And then, just kind of any update on loan spreads. Thanks.

Matthew Covington Olney: Just a general question wanted to ask about the overall level of competition within your core lending businesses I think over the last few quarters, we've talked about competitors pulling back.

Matthew Covington Olney: And providing some opportunities for the bank to add new customers I'm just curious if there's any any change here.

Matthew Covington Olney: Are these competitors kind of still on their back seat and then just kind of any update on loan spreads.

Stacy C. Kymes: I think what you saw was some of the regional banks and the larger regional banks trying to manage their capital levels and liquidity levels, and so we're less aggressive, particularly on the larger end of the corporate side, and we've seen some benefit from that. I would say, generally speaking, they're starting to put their toe back in the water a little bit, not maybe like they were before last spring, but starting to come back into the market a little bit.

Matthew Covington Olney: Sure.

Speaker Change: You May I think.

Speaker Change: You saw really was some of the regional banks and the larger regional banks trying to manage their capital levels and liquidity levels and so.

Speaker Change: We're less aggressive, particularly in the larger end of the corporate side and we've seen some benefit from that I would say generally speaking.

Speaker Change: They're starting to put their toe back in the water a little bit not maybe like they were.

Speaker Change: Before last spring, but.

Speaker Change: Starting starting to come back into the market a little bit there.

Speaker Change: I think that that.

Stacy C. Kymes: I think spreads generally on the larger end of the corporate side are going to be stable. I think until we get more clarity around Basel III's endgame, and then maybe they will widen a little bit there as folks figure out what the capital structure has to be, but generally speaking, I would say corporate spreads have remained relatively flat, and that's the expectation that we see today, even with some being less aggressive, perhaps, than they've been in the past.

Speaker Change: I think spreads generally on the larger and the corporate side, we're going to be stable.

Speaker Change: Think until we get more clarity around Basel, III and game and then maybe they widen a little bit there as folks figure out what the capital structure has to be but generally speaking I would say corporate spreads have remained relatively flat and thats, our expectation that we see today, even with some being less aggressive perhaps than they have been in the past.

Martin E. Grunst: Okay. Appreciate that, Stacy. And then on the expense side, I appreciate the guidance here that you gave, no real change, but just remind me of the variability of that expense base. And if we were to assume the higher end of fees for the year, is it also reasonable that we should be assuming the higher end of the expense guidance? Yeah, so on two businesses in particular.

Speaker Change: Okay I appreciate that Stacy and then on the expense side.

Speaker Change: I appreciate the guidance here.

Speaker Change: Gabe no real change, but just remind me of the variability of that expense base and if we were to assume the higher end of fees for the year is it also reasonable that we should be assuming the higher end of the expense guidance.

Gabe: Yeah. So on on two businesses in particular mortgage and brokerage and trading those have.

Martin E. Grunst: Yeah, so on two businesses in particular, mortgage and brokerage, and trading, you know, those have a pretty direct link to the expense base. But those are really the two that you see that tight connectivity. And then just generally on expenses, you know, we'll continue to make investments in the IT space. And so the fees, the third-party fees, and the data processing costs, you might see some variability there. And then, as you kind of know, mortgage expenses are seasonally low in the first quarter, and those are predictably a little higher in the other three quarters.

Gabe: Pretty direct link into.

Gabe: Into the expense base.

Gabe: But those are really the two that you see that tight connectivity.

And then just generally on expenses.

Gabe: We will continue to make investments in the.

Speaker Change: Yes, it space into the season.

The third party fees and data processing costs, you might see some variability there and then as you kind of know that mortgage expenses now those are seasonally low in the first quarter and those are predictably, a little higher than the other three quarters, but those are the only things I'd point out.

unknown: But those are the only things I'd point out. OK. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Thanks, Matt.

Operator: As a reminder, everyone, that's star number one to ask a question, and we'll take our next question from Brandon King with Truist Securities.

Speaker Change: As a reminder, everyone that star one to ask a question we will take our next question is from Brandon <unk> with <unk> Securities.

Brandon: Hey, good morning.

Brandon: Good morning, Jordan.

Brandon King: The only thing we've really seen is that we've been able to generate new business, and a lot of it is not being actively used yet. There's a construction piece of it that has to be funded over time. And on the commercial side, we've just seen utilization stay flat while we've added new customers. So the unfunded commitment is a reflection of just increased commitments overall and stable utilization rates, other than the commercial real estate where they're using theirs over time. And so that's where you see one of the decline factors. Okay, that's helpful.

Brandon: So I noticed that unfunded commitments ticked down in the quarter. So I was wondering if you could provide us any context behind that.

The only thing we've really seen is we've been able to generate new business and a lot of it is is not being actively used yet construction piece of it has.

Brandon: It has to fund up over time and on the commercial side.

Brandon: We've just seen Utah.

Brandon: Utilization stayed flat, while we've added new customers. So the unfunded commitments as a reflection of just increased commitments overall.

unknown: Other than commercial real estate where they're using theirs over time, and so that's where you see one of the decline factors.

And stable utilization rates.

Brandon: Other than the commercial real estate, where theyre not using there is over time and so that's where you see one of the decline factors.

unknown: Yeah, I think, you know, it's kind of business as usual for the most part. I think that as loans mature or come close to maturity, we work through that just like we do in any typical cycle. I think that, at least thus far, it just doesn't appear a whole lot different from any kind of normal course of business. You know, borrowers have the option for us to do some kind of mini-perm financing, so where you would put it on an amortization schedule if it's through the construction phase.

Speaker Change: Okay. That's helpful. And then lastly from me just in regards to commercial real estate could you give us an update on what you're seeing in regards to extensions for those that come up for maturity I mean, just where customers are as far as their request.

Speaker Change: Yes.

Speaker Change: It's kind of business as usual for the most part I mean, I think that as as loans mature or kind of close to maturity.

We worked through that just like we have in any any typical cycle I think that.

Thus far this doesn't appear a whole lot different than any any kind of normal course of business.

unknown: And if the permanent market isn't accepting at that particular point in time, they can do what we call a mini-perm with us, the loan amortizes, and typically, a three-year term. And then they can kind of wait for the capital markets or the permanent financing markets to get in a better place. But really, what we've seen, I mean, we have had a very healthy portfolio. In the first quarter, we had really good payoffs in the commercial real estate book, which we really attribute to kind of having a healthy portfolio. And so it doesn't, we're not seeing anything that's kind of out of the ordinary there. Yeah, the payoff levels that we saw this quarter were much higher...

Speaker Change: Borrowers have the option for us to do some kind of mini Perm financing, so where you would put it on an amortization schedule through.

Speaker Change: Through the construction phase and if the permanent market is in accepting at that particular point in time. They can they can do what we call a mini perm with us.

Speaker Change: The loan to amortize it in.

Speaker Change: Typically a three year type.

Speaker Change: Term and then they can wait for the.

Speaker Change: Capital markets or the permanent financing markets to get in a better place, but really what we've seen I mean, we've got a very healthy portfolio in the first quarter we had.

Speaker Change: Really good payoffs in the commercial real estate book, which we really attribute to kind of having a healthy portfolio.

Speaker Change: So it doesn't we're not seeing anything thats kind of out of the out of the ordinary there you have a payoff levels that we saw this quarter were much higher than the last couple of quarters. It almost felt like just normal course of business prepayment rates in that portfolio.

Stacy C. Kymes: Yeah, the payoff levels that we saw this quarter were much higher than the last couple quarters. It almost felt like just normal course of business repayment rates in that portfolio. It's, like Stacy said, indicates just a pretty healthy underlying portfolio. Very helpful. Thank you for taking my question.

Speaker Change: So like Stacy said indicates just a pretty healthy underlying portfolio.

Speaker Change: Yes, yes, that's very helpful. Thank you for taking my questions.

unknown: We said from the very beginning in commercial real estate that there are two things that matter, you know, geography and recourse. And I think that that's really bearing out. And so the fact that we have, you know, 90 percent of our commercial real estate loans have some form of guarantor support and recourse is a differentiator here, and we're really seeing that show up in our portfolio.

Speaker Change: We said from the very beginning and commercial real estate Theres two things that matter.

Speaker Change: <unk> geography, and recourse and I think that's really bearing out and so the fact that we have 90% of our commercial real estate loans have some form of guarantor support and recourse is a differentiator here and we're really seeing that show up in our portfolio.

Operator: And we have a follow-up question from Timur Braziler with Wells Fargo.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Speaker Change: And we have a follow up question from Tomorrow Brasilia with Wells Fargo.

Timur Braziler: Thanks for that. Just a quick one on that line of comments.

Tomorrow Brasilia: Hi, Thanks for that just a quick one on that line of comments, who is taking you guys out on the payoff activity was that other banks insurance companies I guess, where we're wherever those.

unknown: Who was taking you guys out on the payoff activity? Was it other banks, insurance companies? I guess where were those paydowns going to? largely permanent financing sources, so LiveCo's.

Tomorrow Brasilia: <unk> going to yes.

Wells Fargo: Yes, largely permanent financing sources so <unk>.

unknown: Largely permanent financing sources, so LIFECOs, you know, anywhere that you typically see a longer-term, non-recourse financing in commercial real estate is kind of where those takeouts are coming from. It's not coming from other banks.

Wells Fargo: <unk>.

Wells Fargo: Anywhere that you typically see.

Wells Fargo: Longer term nonrecourse financing and commercial real estate is kind of where those takeouts are coming from it's not coming from other banks.

Stacy C. Kymes: Thank you. And that does conclude the question and answer session. I'd like to turn the call back over to Stacy Kymes for any additional or closing remarks.

Speaker Change: Great. Thanks.

Speaker Change: Thank you and that does conclude the question and answer session I would like to turn the call back over to Stacy claims for any additional or closing remarks.

Stacy C. Kymes: Thank you to everyone for the questions and discussion and spending time hearing about the unique story we believe we have to tell this morning. We've always predicated our decisions on generating long-term value for our shareholders while effectively managing our risk, and I think that was on full display this quarter. We remain focused on these core values and are excited about the opportunities ahead of us. We appreciate your interest in BOK Financial. We encourage you to reach out to Heather if you have any questions at agewhirley at bokf.com.

Stacy C. Kymes: Thank you to everyone for the questions and discussion and spending time hearing about the unique story. We believe we have detailed this morning, we've always predicated our decisions on generating long term value for our shareholders.

Stacy C. Kymes: While effectively managing our risk and I think that was on full display. This quarter. We remain focused on these core values and are excited about the opportunities ahead of US. We appreciate your interest in <unk> financial I would encourage you to reach out to Heather if you have any questions at <unk> at <unk> Dot com.

Operator: Thank you. And that does conclude today's presentation. Thank you for your participation today, and you may now disconnect.

Speaker Change: Thank you and that does concludes today's presentation. Thank you for your participation today and you may now disconnect.

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