Q4 2024 BOK Financial Corp Earnings Call
Speaker Change: Ladies and gentlemen, this is your operator speaking. Today's conference call will begin momentarily. You will be placed back on music hold until then. Thank you for your patience.
Speaker Change: Greetings and welcome to BOK Financial Corporation's fourth quarter and full year 2024 earnings conference call. All lines have been placed in mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Speaker Change: Thank you. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Heather King, Director of Investor Relations for BOK Financial Corporation. Please proceed.
Heather King: Good afternoon, and thank you for joining our discussion of BOK Financial's fourth quarter and full year 2024 financial results.
Speaker Change: 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.
Speaker Change: Our CFO, Marty Grunst, will then discuss financial performance for the quarter and our forward guidance.
Speaker Change: 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.
Speaker Change: This results in earnings of $523.6 million or EPS of $8.14 for the full year, the second highest full year EPS in our history.
Speaker Change: As I reflect on the year, it's impossible to do that without mentioning the outstanding team we have at the bank.
Speaker Change: We have a unique and entrepreneurial culture that is focused on driving long-term success.
Speaker Change: Our results this year are representative of hard work by an exceptional team with the underpinning of a strong fundamental base and robust risk management practices.
Speaker Change: I would like to take a moment to share with you the highlights from the year just ended.
Speaker Change: During the year, net interest income was solid and we delivered on our prior expectations of high deposit betas into the Federal Reserve's most recent cutting cycle.
Speaker Change: During the fourth quarter, deposit pricing leverage was also evidenced, giving us continued confidence in being able to capture the down-rate deposit betas we've signaled and a strong outlook for margin.
Speaker Change: During the year, we had an annualized net charge-up rate of just five basis points.
Speaker Change: The most recent peer data is as of the end of the third quarter, but these results would have placed us near the 90th percentile of KRX regional banks.
Speaker Change: It takes determination and persistence to generate C&I loan growth. This has been a long-term focus for us, and in 2024, our core C&I portfolio, which is reflective of services and general business, increased at an 8.1% year-over-year growth rate.
Speaker Change: We've also focused on growth in the Texas market broadly and expanded specifically into San Antonio. These efforts are bearing fruit with CNILM growth in Texas reaching 9.8% year over year.
Speaker Change: While we experience payoff activity in the second half of the year related to our specialized lines of business and CRE, we are confident in our ability to grow those balances back over time.
Speaker Change: We've also invested in future growth by welcoming new, revenue-generating teammates during the year, which will bolster our loan growth prospects going forward.
Speaker Change: Our fee income segments have again delivered a 40% contribution to revenue. This ranks at the top of regional banks.
Scott will highlight details of this performance in his commentary.
Speaker Change: Taking together, these results have contributed to a total shareholder return in our stock of 27 percent, which far outpaced the KRX index return of 13 percent.
Speaker Change: Our results were achieved while preserving strong levels of liquidity, regulatory and tangible capital levels.
Speaker Change: Despite rates moving higher, which would typically result in many banks' TCE ratios declining, our TCE ratio at quarter end was 9.2 percent, flat versus last quarter. This places us in the top third of the KRX index as of the end of the third quarter.
Speaker Change: Once fourth quarter results are released, it's not hard to imagine that our relative position could improve.
Speaker Change: I'm proud of the results for this quarter and for the full year 2024 and have high expectations about the trajectory of our organization.
Speaker Change: Our business has strong fundamentals, the economic backdrop is robust, the yield curve is beginning to take a more historically normal shape, and the markets we operate in remain strong and growing.
And with that, I'll turn the call over to Marc.
Speaker Change: We continue to grow new commitments and relationships and believe that economic conditions in our markets are supportive of continued growth.
Speaker Change: With our balance sheet, capital, and credit quality metrics, we are well positioned to take advantage of these conditions and are actively pursuing new loan opportunities.
Speaker Change: Portfolio yields decreased 46 basis points during the quarter as our predominantly floating rate loan portfolio repriced lower following the recent federal funds rate cuts.
Speaker Change: Loan balances in the energy business increased 4.1% last quarter, reflecting fund ups of existing lines and an increase in new relationships.
Speaker Change: Our core C&I loans grew 2.7% last quarter, primarily in Texas, resulting from our increased investment in this market.
Speaker Change: These segments continue to produce strong growth, being up 8.1% on a year-over-year basis, with loan pipelines remaining stable. I know Stacy referenced this in his opening remarks, but this story is exciting enough that it bears repeating.
Speaker Change: Our health care business loans decreased 4.4% in the quarter. While new loan production and pipelines remain robust, we have continued to see payoff activity into the fixed-rate HUD market.
Speaker Change: Our CRE business decreased two and a half percent quarter over quarter. CRE loans were down in Q4 as part of the normal cycle of refinancing completed projects on a long-term basis.
Speaker Change: We continue to add new loans in the early construction phase and will be funding up over time, creating new loan growth.
Speaker Change: Loans to individuals increased 2.7%, reflecting growth in both personal loans and residential mortgage loans.
Speaker Change: Transitioning to slide 8, credit quality remains exceptional across the loan portfolio, extending our trend of outperformance versus peers in this area.
Speaker Change: The lowest levels we've seen in the last 20 years. The resulting non-performing assets to period end loans and repossessed assets decreased 16 basis points to 18 basis points.
Speaker Change: Committed, criticized assets remain very low relative to historical standards. In addition, we had minimal net charge-offs of $528,000 during the quarter and net charge-offs have averaged five basis points over the last 12 months. We expect net charge-offs to remain below historical norms going forward.
Speaker Change: We are well-reserved with a combined allowance for credit losses of $332 million or 1.38% of outstanding loans.
And now, I'll turn the call over to Scott.
For more information, visit www.FEMA.gov
Thank you, Marc.
Speaker Change: According to our operating results for the quarter, on a linked quarter basis total fee income grew $4.4 million, contributing $206.9 million to revenue and accounting for 40% of total revenue.
Speaker Change: I'd like to begin by covering our markets and securities businesses on slide 10.
Our trading fees rebounded nicely, increasing 39.8%
Speaker Change: to 33.1 million during the quarter driven by higher MBS volumes and widened spreads.
Speaker Change: Due to the steepening yield curve environment, I'd like to note that total trading revenue includes two distinct pieces, trading fees and trading-related net interest income. This quarter, trading fees were $33.1 million, while trading-related net interest income was $4.6 million.
Speaker Change: If the yield curve steepens further and trading portfolio yields move further above their funding cost, we will see additional revenue mix shift with more of our total trading revenue coming from net interest income as opposed to fee income, as we've seen in recent quarters.
Speaker Change: We've provided a table on this slide to allow you to see this dynamic historically.
Speaker Change: Mortgage banking revenue has remained relatively steady for the past four quarters, coming in at $18.1 million for the fourth quarter.
Speaker Change: Our other markets and securities businesses continue to produce solid results, with syndication fees up $1.4 million over the prior quarter. Investment banking fees were down $5.5 million. However, this is coming off a record quarter, and the business is still performing exceptionally well.
Speaker Change: Turning to slide 11, Asset Management Revenue grew 3.2 million or 5.6% linked quarter reflecting growth in our Trust-V income.
Speaker Change: AUMA grew $3.9 billion quarter over quarter, eclipsing $114 billion with increased market valuations and continued growth in client relationships.
Speaker Change: I know my commentary on this slide is less than usual, but the consistent results these businesses have exhibited over time speak for themselves.
Speaker Change: And now, I'll hand the call over to Marty to cover the financials.
Thank you, Scott.
Marty Grunst: On slide 13, net interest income was up $4.9 million, supported by growth in both the trading and non-trading components. Headline net interest margin expanded 7 basis points, with core net interest margin excluding trading also up 7 basis points.
Marty Grunst: That seven basis point increase in core margin was driven by several factors. The securities portfolio continued to reinvest cash flows at higher current market yields. The fixed rate portion of the loan portfolio also continued to reprice cash flows at higher current market fixed rates.
Marty Grunst: Non-interest bearing DDA grew in Q4, driven by normal seasonal balance increases. We saw strong interest bearing deposit growth, and liabilities were priced more quickly than assets in response to rate cuts by the Federal Reserve.
Marty Grunst: Both the magnitude and the pace of this quarter's deposit repricing activity aligns with our expectations and gives us great confidence in our ability to realize our previously communicated deposit beta expectations should short-term market rates continue to decline.
Marty Grunst: Last quarter, we noted that if deposit balance is increased significantly, it could mute the deposit beta somewhat, but would result in a better liability beta and be accretive to margin and NII.
Marty Grunst: This played out in the fourth quarter as we grew average interest bearing deposit balances by approximately 1 billion, offsetting a portion of our wholesale funding at below wholesale cost.
Marty Grunst: Turning to slide 14, link quarter total expenses increased $6.6 million or 1.9 percent. Personnel expenses grew $3.9 million as normal levels of trading activity resumed and we continue to invest in our businesses.
Marty Grunst: Non-personnel expense grew $2.8 million, largely due to project-related professional fees and seasonal business promotion costs.
Marty Grunst: Slide 15 provides our view on full year 2025 and I will note a couple of items.
Marty Grunst: Loan balance projections reflect our strong track record of growing C&I as well as our specialty lending businesses.
Marty Grunst: We have ample headroom versus our concentration limits due to high levels of paydowns in 2024, which we do not expect to recur this year.
Marty Grunst: For total revenue, we expect growth in the mid to upper single-digit range.
Marty Grunst: Within total revenue, based on our assumptions for rates, we expect growth in net interest income to be above single digit. However, that growth rate is driven incrementally higher by the mixed shift from trading fees to trading NII.
Marty Grunst: We expect growth in core NII X trading to be mid to upper single digit.
Marty Grunst: Fees and commissions growth is expected to be lower single-digit. However, that growth rate is affected the opposite way by the trading revenue mix shift. Excluding trading, fees and commissions would also be in the mid to upper single-digit range.
Marty Grunst: Lastly, I will note that the remarkably low level of non-performing assets we see today supports our view that CHARJOS will remain well controlled for the foreseeable future.
Marty Grunst: 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.
Marty Grunst: Thank you. We will now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, seem to press star one again. We kindly ask everyone to limit themselves to one question and one follow-up only to accommodate all questions. Thank you.
Marty Grunst: Your first question comes from the line of John Armstrong with RBC Capital Markets. Please go ahead.
Thanks. Good afternoon.
Speaker Change: Hey John. Hey, can you talk a little bit more about the payoff activity and some of the expected changes you're thinking about in 25? You used the phrase overtime and I'm just kind of curious when the paydowns could change or is that already starting to happen?
John Armstrong: You're talking about with respect to loan growth and our kind of outlook? Yes, exactly.
John Armstrong: Yeah, I think you look we spent so much time and energy investing in the core CNI areas because that's the longest sales cycle That's the hardest business to move
John Armstrong: And we really saw that play out in our favor in 2024 with Corsi and I growing 8%, which I think is very, very good.
John Armstrong: The unexpected headwind really was the core specialty businesses, healthcare, commercial real estate and energy.
Outside the Core Portfolio for Real Estate and for Healthcare.
John Armstrong: And so if you think those return back to kind of more normal growth patterns, and we do, we have plenty of concentration cap room in all of those areas, and you think you can sustain the C&I growth, which we think we can, I think the guidance that we have around loan growth for next year is very achievable.
John Armstrong: Yeah, John, the one thing I would add on the energy side of this.
John Armstrong: is that in the fourth quarter, we did generate a lot of new relationships.
John Armstrong: At a much faster pace than we did the previous three quarters, which created a lot of long growth we experienced in energy in the fourth quarter, and we expect that we'll continue to see some of the benefits from that. So that seems to have turned around and is in a growth pattern right now.
Speaker Change: Good. I did want to ask about that as well, just deeper on energy. What do you think about
John Armstrong: In terms of the energy lending outlook with the new administration and
John Armstrong: Feels like maybe price has come down. I don't know. But, you know, how do you think about risk to that as well? Just curious on, you know, the administration, your thoughts there.
John Armstrong: Yeah, I think, you know, it's it's too soon to know exactly. I think that that certainly we expect that the incoming administration will open up more federal lands for drilling. I think the permitting process will be better. I think that they're going to commit to filling the Strategic Petroleum Reserve, which I think is a positive.
John Armstrong: But I think you cannot ignore borrower behavior, and those guys are going to do what's in their best interest, and that's being disciplined about how they spend their capital investment.
and getting a return on that capital investment. And so
John Armstrong: Those energy companies will make discrete decisions at the point in time based on what they can hedge out on the curve and what kind of return they can get for drilling activity. And so I think it's too soon to know how it may spur or not spur actual drilling activity.
John Armstrong: But I think, you know, we have a lot of confidence in our borrowers that they're going to make the best economic decision at the point in time for them that makes sense for them.
For more information visit www.FEMA.gov
All right, thank you.
Matt Olney: Your next question comes from the line of Matt Olney with Stevens Inc. Please go ahead.
Matt Olney: Hey, thanks. Good afternoon. I want to ask more about the guidance for net interest income in 2025.
I think that guides you guys provided us.
assumes a low double-digit growth number in 25 versus 24.
Matt Olney: And I'm just struggling to get there. Can you give us any kind of launch point or, or guidance for the for the first quarter that could help us appreciate what what you guys see on your side with respect to net interest income?
[inaudible]
Speaker Change: Yeah, man, I think I think it's it's useful to think about our guidance in two pieces sort of the core margin X trading and then the trading piece
Matt Olney: And as you think through, you know, just the core margin X trading, you're going to see kind of the same factors that you've seen the last couple of quarters just play out, you know, in first quarter and throughout the year where you've got security, you know, all the fixed rate asset repricing that's going to continue to reprice up that's going to be supportive.
Matt Olney: both loan growth and deposit growth are gonna be supportive of margin. And it's nice to see the DDA trends be supportive of margin recently. But then when you look at the second half of that, the trading component.
Matt Olney: Here's the way to think about that. So in Q4, just the trading portfolio, so that's 5.6 billion.
Matt Olney: That had a yield of 4.9%, which you can see, and a spread of 36 basis points over its funding costs, which you can see on page 17. And so that's $4.6 million of net interest income provided in Q4. As you play that over into 2025,
Matt Olney: You know, the volume of trading is probably still going to be in that five and a half to six billion territory.
Matt Olney: But yields on the trading account should come up. 30-year mortgage yields are mortgage-backed security yields around 585.
Matt Olney: And you've seen short-term rates come down in the fourth quarter. So you'll see a full quarter effect of that in Q1. And then later in the year, we're assuming two more cuts.
Matt Olney: And so over the course of 2025, that funding cost comes down and that spread that was 36 basis points in Q4, now that could be easily 100 basis points or a little bit more for 2025 overall.
Matt Olney: So you can see that's a pretty big pickup year over year in that trading related margin and that will grow quarter by quarter as you get that widening playing out by the change more in the short term funding costs.
Now, importantly, you know, that.
Matt Olney: That growth gets offset in trading fees with the hedge costs. But I think most importantly, to think about our trading, you know, our total revenue, you know, we've given a guide of mid to upper single digits for total revenue, that's very attainable for us.
Matt Olney: And when you look at the three pieces within that, NII, X-Trading, Fees X-Trading, and then Trading in Total, both the NII X-Trading and the Fees X-Trading are also mid to upper single digits, very attainable for us.
Matt Olney: And then the last piece, trading in total, you know, regardless of how much of that is fees versus margin, we feel very good about how that trading revenue is going to go over the course of 2025 versus 2024, and Scott might want to add a little bit to that.
Scott Grauer: So I think that, you know, as Marty indicated, those component pieces kind of get to the
Scott Grauer: going forward, but what we've seen really in the last six
Scott Grauer: weeks or so of 2024 and is carrying on into the beginning of this year. Our clients on the institutional side, a fair amount of which are
Financial institutions prefer clarity.
Scott Grauer: opportunities around governor. That has emerged. So when you think about the election in the rear view mirror and little bit better clarity, not certainty but clarity around potential Fed moves we're seeing
Marty Grunst: quite a bit of increased appetite and willingness to invest out the curve, which bodes well for demand for our business. So as Marty said, we're optimistic and feel confident about our ability to continue to
Marty Grunst: to move forward on the rate that we've established here in the fourth quarter.
Matt Olney: Okay, well, I appreciate the commentary on that. And just to follow up on maybe a point that Marty made. I see in the deck you the guidance assumes to Fed cuts throughout the year. I think you guys give us the timeframe of those cuts.
Marty Grunst: What does that guidance assume or imply with respect to the shape of the yield curve?
Marty Grunst: Yeah, so we're assuming that long-term rates are really about where they are today, give or take, throughout the year. So we're not putting any particular changes in steepness into that curve.
Marty Grunst: You know, other than what's driven by the short term, does that make sense?
Marty Grunst: Yeah, okay, so your curve, I guess, would improve a little bit, but the long-term rates stay flat, short-term rates come in with those assumptions.
Exactly, yes.
Oh, got it. Okay. Thank you guys.
Thank you.
Speaker Change: Your next question comes from the line of Peter Winter with BA Davidson.
Please go ahead.
Speaker Change: Thanks. I was wondering if I could just dig into Matt's question a little bit more. Just the net interest income outlook, it's a pretty wide range for you guys. Can you, Marty, maybe talk about some of the drivers to the upper end of the range versus the lower end of the range?
Speaker Change: Martin Grunst, Scott Grauer, Stacy Kymes, Scott Grauer, Stacy Kymes, Scott Grauer, Denise
Martin Grunst: Yeah, I think, you know, one of the, we feel very good about all the things that I laid out. You know, we've got that securities repricing, fixed rate repricing, you know, that's very visible and durable throughout the year.
And that gives us room to, you know,
Okay.
Martin Grunst: And I hear you, I see the guidance on end of period loans, but I'm just wondering what average loans would do, what you're expecting, you know, for that range.
Martin Grunst: I think, you know, we're, you should assume that growth is relatively rideable over the
Martin Grunst: You know, elevated growth in that particular period, but we try to grow it kind of typically a similar amount in every quarter. We understand the actual results will differ from that, but as we plan for 2025, we kind of look at it routably over the period.
Speaker Change: Unknown Speaker 1. Good day to you too. Great to see you. Unknown Speaker 1. You too. Thank you. Unknown Speaker 1. Thank you. Unknown Speaker 2. Appreciate your time. Unknown Speaker 1.
Speaker Change: And Stacy, if I could just ask, you know, you talked about it in the opening remarks, but you've had nice success with the team lift outs, and it's been additive to growth. Do you have a pipeline, you know, of additional team lift outs and looking to continue to do that? Because M&A, you know, my sense is still kind of a low priority.
Speaker Change: Yeah, you know, I think from our perspective, you know, there's not a team lift out pipeline per se, but we are constantly pipelining for new talent. So every single market we're in, we have targets for revenue producers that we're trying to add to our company, and it's been a really important strategy for us.
Speaker Change: In 2023 and 2024, we saw the dividends for that, particularly in the latter half of 2024.
Speaker Change: And we'll continue to do that. We think that's very positive, very accretive to our earnings, very accretive to our franchise value to do that. And so we continue to be very aggressive in all of our markets in adding talent. And this year will be no different in that regard.
Thanks, Stacy.
Thank you, Peter.
Speaker Change: Your next question comes from the line of Brett Rabotin with Hovde Group. Please go ahead.
Hey guys, good afternoon.
Brett Rabotin: I wanted to beat the long-growth horse one more time, so if I understand, it looks to me like...
Brett Rabotin: You know the payoffs and reductions in energy have swung the other way with some renewed momentum and energy I didn't get a clear understanding of if you think the health care portfolio was was getting to its bottom and then also
Brett Rabotin: Just within the commercial real estate bucket, you know, you've obviously had growth and multifamily offsetting other declines so I just wanted to get a one to get a sense of of
Brett Rabotin: What do you think happens with the kind of the non...
Brett Rabotin: CNI book, and then also it seems like Oklahoma has been driving the strength, you know, in the loan portfolio.
Brett Rabotin: Wanted us to hear if that's a function maybe of Texas being more competitive lending wise with rates or any other color around geography.
Brett Rabotin: Well, okay, there's several questions in there. So let me start with health care and you know, basically the interest rate environment generated opportunities for a number of our customers to refinance on a long-term basis into the the HUD market.
Brett Rabotin: and we see that a lot of that activity has taken place and it's going to start to taper off and we will see more opportunities for us to begin our growth on the healthcare side.
Brett Rabotin: So similarly, that event in the interest rate environment has had an impact on our CRE portfolio because again, they're taking advantage of the opportunity to do some normal course of business.
Brett Rabotin: Move things off their short-term maturity to a longer term maturity with a fixed interest rate. And, again, those interest rates aren't moving like they were. So we do expect those opportunities to occur and we're adding...
Brett Rabotin: in CRE relative to our concentration limits that's given us a lot of opportunity to grow that particular portfolio. And we are going to consistently look for the best deals.
Brett Rabotin: We do have different concentration limits for different types of real estate, but we're always looking for deals and have capacity for the various types of opportunities that exist, and we will look for the best deals that we can there, and we feel like we can generate additional.
Growth in the CRE.
Brett Rabotin: On the CNI side, it's more of just a consistent approach that we've taken. The Oklahoma market may have driven a little more. We've been here longer and we have a lot more relationships and some of those are renewing.
Brett Rabotin: But we saw a substantial amount of growth in Texas in the C&I in the fourth quarter, which is starting to show that the investment we've made in Texas is starting to pay dividends. It takes time to generate C&I loan growth. And so as we've made those investments, we're not going to get the transactions that we might get in the specialty industries, but we're generating a lot of business now that we've spent and committed the time and investment.
Brett Rabotin: on the C&I side in Texas, and we're starting to see that.
Brett Rabotin: All the other markets generally grew at a double-digit rate on the C&I side as well. So I feel really good about the fact that it's been a consistent performer for the last couple of years.
Brett Rabotin: And barring any change in economic factors, we would expect that to continue. And so the combination is why we come up with the kind of guidance we're providing.
Okay.
Speaker Change: That's helpful. And then just back on the trading business again, you know, is there...
Speaker Change: You know and I know it's it's probably tough to come up with an exact number in terms of what you're giving guidance to but is there a way to extrapolate or can you give an idea of how much
Speaker Change: Dollar change you expect in the trading to move from fee income to NII?
Speaker Change: Yeah, so Brett, we're probably probably not going to, you know, give guidance on trading and per se, that'd be a tough one to wrap your head around, but but, you know, certainly there's a there's a shift that's going to go on between that that growth, you know, based on our economic assumptions and NII down to fees, but the point is
Speaker Change: Trading in total, total trading revenue, that's going to grow nicely year over year and I think that's really the important point.
Marty Grunst: Brad, I think if you look on slide 10 in the slide deck that we provided to accompany the call, you can see how we've broken out the impact of trading fees and trading NII over time. And I think Marty's given you all the component pieces that you need to kind of fill in the blanks from there.
Marty Grunst: And we've provided the total revenue line item so that you can kind of see at the end of the day, does it make sense or not. And so, you know, we're not going to break it down by quarter or discrete line item, but I think the pieces are there for you to put it together.
Okay.
Thanks.
Speaker Change: Your next question comes from the line of Woodley with KBW. Please go ahead.
Hey, good afternoon.
Speaker Change: Wanted to start on deposits. I mean, the fourth quarter was a really successful quarter and really that success has been consistent throughout the year. Any color on what drove the deposit growth in the fourth quarter and does the success impact your deposit strategy throughout 2025?
Speaker Change: Yeah, I'd say that, you know, the growth was across all three lines of business. We were happy to see that a little bit more in commercial, as you might expect for us, but it was it was all three lines of business contributing.
Speaker Change: And it does not change our strategy. I mean, we're very happy with the growth that we've got.
Speaker Change: You know the track record we have and you know, we expect to continue to grow deposits next year It may not be yet at the very high rates that we were able to achieve this year, but what we're very happy with
Speaker Change: The traction that we've got going on in that business and the level of price competitiveness has settled down from what it was a year ago and that's been a great factor as well.
Speaker Change: Got it, that's helpful. And then maybe shifting over to capital, I was just curious, does a more favorable regulatory backdrop sort of impact the way you view your excess capital position and and how you might deploy that capital?
Speaker Change: Yeah, I'd say regulatory backdrop, you know, that's certainly helpful, but it doesn't really fundamentally change how we think about capital. We know we've got a strong capital position. We've got
Speaker Change: a level of excess capital, and that just represents earnings in reserve, and we're going to be very patient and thoughtful about how we deliver that, how we deploy that into whatever avenue is best for long-term shareholder return.
Speaker Change: But what he's given and kind of how we risk manage the bank and our outstanding CRA rating and those types of things, the regulatory overlay doesn't really impact how we can do that in any particular environment. We've kind of done things the right way and so that gives us the latitude depending, regardless of who's in charge, to be able to do the right things for shareholders here.
Speaker Change: Yes, that makes sense. All right, thanks for taking my questions.
Speaker Change: Your next question comes from the line of Tim Mitchell with Raymond James. Please go ahead.
Hey, good afternoon, everyone. It's Tim Olin from Michael.
I just want to start out on expenses.
Scott Grauer: Scott Grauer, Stacy Kymes, Jennifer Webb, Scott Grauer, General Contracting Technology, Marc Maun, Martin Grunst, Heather Worley, Scott Grauer, Stacy Kymes, Scott Grauer, Stacy Kymes, Scott Grauer, Stacy Kymes, Scott Grauer, Stacy Kymes, Scott Grauer, Scott Grauer, Scott
Scott Grauer: Yeah, there's nothing that would qualify as team lift-out, but like Stacy said earlier, we are constantly looking to grow talent and that's a driver for, you know, year-over-year growth, both improvements in...
TalentBase, growth in the TalentBase and
Continued IT investments, all those things are propelling long-term growth.
Scott Grauer: And that's really the core drivers there. And as you know, Q1, you'll see payroll taxes, that hits in Q1 like it does every year. But pretty standard revenue growth is going to drive a component of the expense growth as well.
Scott Grauer: We're constantly looking to see where can we make an investment today to add value tomorrow, and you know one of the things that we've Spent a lot of time on recently is how we think about holistically our mortgage businesses, and so you'll see us
Scott Grauer: in the latter half, really probably the fourth quarter, late third quarter, fourth quarter, really began to be fully engaged in the mortgage warehouse lending space.
Scott Grauer: In order to do that, we've had to hire talent. Some of that was onboarded in the fourth quarter, and some of that will be onboarded in future periods. But it's things like that where the, you know, call it, you know, the San Antonio team, broadly, or things like mortgage warehouse, or individual contributors, or individual revenue producers in each of these markets.
Scott Grauer: And so, I think being able to maintain that efficiency ratio while we're making these types of investments is really positive for our franchise, and we're excited about these investments that we're making.
Scott Grauer: Awesome. Appreciate the color. And I appreciate the color on mortgage and what you said about trading so far.
Speaker Change: Please talk about investment banking and brokerage and some of the other kind of fee businesses and what the trends are there. It seems like the outlook for investment banking and what not is kind of improving post-election. Just curious what you're seeing on that front.
Speaker Change: Yeah, so this is Scott. So, as you noticed in the slides, if you take the impact of, on the results, if you take the impact from our sale of the insurance unit out, our retail brokerage business is,
Speaker Change: is growing at, you know, 13%. So we're confident in the trends there, and we continue to gain momentum with that piece of our business. Our investment banking activity has been
Speaker Change: Scott Grauer, Stacy Kymes, Martin Grunst, Heather Worley, Scott Grauer, Stacy Kymes,
Speaker Change: predominantly the independent school district debt cycles. Gear back up here, well, you know, we feel very good about our positioning there and the demand for that activity, because we don't, you know, we don't participate in the equity investment banking activity.
Yep.
Awesome. Well, thanks for taking my questions.
Thank you.
Speaker Change: Your next question comes from the line of Timmer Brazelar with Wells Fargo. Please go ahead.
Hi, good afternoon.
Timmer Brazelar: My first question is on the deposit side. It was a pretty impressive result, especially considering that CD rates really didn't move in the quarter. I'm just wondering if you can remind us what the maturation schedule looks like there, and it looks like balance has even declined a little bit in the quarter. Just how much of a head start, maybe from a margin standpoint, you're getting from time deposits in the first half of 25?
Timmer Brazelar: Yeah, so time deposits, you know, our mix there isn't terribly huge. We actually let a couple of brokered CDs roll off that we put on a little over a year ago. And so that's part of the drop there. You know, the core portfolio is pretty short. And by the way, our broker CDs are less than 1% today.
Not meaningful, but that drove a drop.
Timmer Brazelar: RCD portfolio tends to be fairly short. It's it's a lot of that, you know, original four month maturity or 10 month maturity. So, you know, it's only a couple months of maturity. And so you'll see some of that repriced nicely in in the first quarter as we see rates being a little bit lower than when those were put on.
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Speaker Change: Okay and then just looking at the the trading securities did I hear correct it's 5.8 is the current kind of ongoing rate versus the 4.90
Great for 4Q.
Speaker Change: Well, so keep in mind, 490 is the weighted average portfolio for the whole trading book. Today's new current coupon, MBS, is, you know, 580 or so, but that portfolio will always have some blend of recently produced mortgages as well as some secondary trading and older vintages.
Speaker Change: Just know that it won't be precisely moving towards exactly the current production level.
Speaker Change: Unknown Speaker Yeah, okay, great. And then, just lastly, for me just the the commercial real estate payoff activity, you have made a comment that, you know, that was some normal course of business is going to year end. I'm just wondering, with rates backing up if that drove any of that activity, or just kind of the timing there. And I guess as you look at
Speaker Change: and stuff that could still be reified away, you know, what component of that has now largely found a new home.
Speaker Change: Hey, Tim Miller, I would just point you to the fact that if you look at what happened at 10-year rates kind of in September, you know, you had those rates drop a lot and so that customer base that did payoffs right at the end of Q3 and a bunch of Q4, those guys were taking, you know, taking down takeouts at that low point in rates. And so as rates came back up, that's what's going to slow it going forward.
Got it. Great. Thank you.
Yeah.
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Speaker Change: Your next question comes from the line of Ben Gerlinger with Citi. Please go ahead.
Thanks.
Hey, Ben. Hi, Peter.
Thank you.
Speaker Change: Just kind of looking at the expense guide, it says mid-single digits. I'm assuming that's, let's call it four to six. And then I'll pivot from this fee to NII. And trading really doesn't drive any expenses. So it's kind of 10,000 foot view. What gets us to the high end of the range? What gets us to the low end? And would you kind of manage it towards total revenue if possible? Or is it more overall investment? It doesn't matter as much.
Speaker Change: Well, there's a portion of that that's just the investments we're making in the business. A lot of the stuff that Stacy talked about, those are long-term decisions, and we're making those decisions based on their long-term effect to drive shareholder value. There is a piece within the expenses that is really tied to the trading businesses and mortgage production, all the transactional businesses, even loan production to some extent. That component will behave as variable, and so as revenue comes up, you'll see
Speaker Change: be something that would move us to the higher end of the range, for example.
Speaker Change: Okay, that was helpful. And I know over the past, let's call it a couple of years at a minimum, you've been a bit of a
Speaker Change: She and I, hiring, sales cycle, whatever you want to call it, but hiring individual bankers across the footprint, and I was really funded up and was supportive of this above-peer growth.
Speaker Change: I know you're not stopping, but if rates stay elevated, does that change your idea of what kind of CNA or potentially what other lending styles might be more attractive in this higher for longer environment?
Speaker Change: Interest rates really have not had an impact on who we're focused on. We are very much focused on the types of industries that we feel can provide the credit metrics and the credit...
structure that we are comfortable in lending into.
Speaker Change: and we've focused more on having the ability to have a secondary source of repayment, strong guarantors.
Speaker Change: ways that can prevent, that we can generate business but prevent us from uh creating future credit problems in management teams that can manage through, through cycles, uh not startup businesses, ones that, of
Speaker Change: that fit the ability to manage long-term. We don't focus on interest rates as driving anything associated with our C&I calling efforts.
Speaker Change: Ben, this is Stacy. I think if you look at interest rates on any kind of historical spectrum, rates aren't high.
Right, you're kind of in the middle of the fairway.
Speaker Change: I think that this is much more likely to be the business environment than having really low rates. I think that was an unusual period of time coming out of the great financial crisis and then the pandemic and those types of things where you had really low rates for an extended period of time. I just don't think that's normal nor sustainable.
Speaker Change: as opposed to essentially a flat and inverted curve over the last decade. So we see net net overall that as a positive for financials overall.
Gotcha. That's helpful. I appreciate the time.
Speaker Change: As there are no further questions at this time, that concludes the Q&A session. I would now like to turn the call over to Stacy Kymes, President and CEO, for closing remarks.
Stacy Kymes: Thank you everyone for joining us for our discussion today. I'm very pleased with the strong results we've reported this quarter and for the full year.
Stacy Kymes: Credit quality is exceptional. Core loans are growing and the right business activity is happening to continue this trend into the future. Margin is robust and expanding and our strong fee income businesses continue to post solid results. We spent a long time constructing this foundation and we're proud of the earnings engine we built.
Stacy Kymes: I do want to take a moment to recognize Marc Maun. Marc has been an integral part of building this business over the last 40 years. We as an organization, and I personally am thankful for Marc, his determination, grit, and decisive leadership during his career at BOKF.
Stacy Kymes: This will be Marc's last conference call with us, and on behalf of the organization I'd like to say thank you.
Stacy Kymes: We appreciate your interest in BOK Financial and your willingness to spend time with us this afternoon. Please reach out to Heather Keene if you have questions at h.keene at bokf.com.