Q1 2025 BOK Financial Corp Earnings Call
Michael Rose, John
Speaker Change: Greetings, welcome to BOK Financial Corporation's first quarter, 2025 Ernie Scott-Francole. All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speakers remarks, there will be a question in answer session. If you would like to ask a question this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Speaker Change: As a reminder, this conference is being recorded. I would like to turn the presentation over to Heather King, Director of Investor Relations for BOK Financial Corporation. Please proceed.
Speaker Change: Scott Brown, 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.
Speaker Change: Flag presentation and press release are available on our website at bokf.com. We refer you to the disclaimer stone flag too, regarding any forward-looking statements made during this call. I'll now turn the call over to Stacy Kymes who will begin on slide four.
Stacy Kymes: Thank you, Heather. We appreciate you joining the call this afternoon.
Stacy Kymes: We are pleased to report earnings of 119.8 million or EPS of $1.86 for the alluded share of the first quarter.
Stacy Kymes: At BOK Financial, we worked hard over the years to build a reputation as a strong, stable, and growing financial services provider. In today's following market environment, the stability of our franchise is apparent.
Stacy Kymes: We have a consistent risk management framework built to weather many different economic and market cycles.
Stacy Kymes: For capital levels remains strong and in fact improved yet again this quarter with TCE reaching 9.5% and CUT1 reaching 13.3%.
Stacy Kymes: These strong capital levels not only help insulate us from market disruptions, but also allow us to confidently and strategically plan for future growth.
Another insulator is our liquidity position [inaudible]
Stacy Kymes: At 62% our loaned deposit ratio is one of the lowest in our peer group.
Stacy Kymes: Additionally, part of our stability story is a disciplined approach to credit that doesn't change over cycles. That consistency has driven solid performance in our lone portfolio with low criticize classified levels, and it could buy the allowance at a healthy 1.4% of outstanding loans.
Stacy Kymes: Our long-term credit performance of 26 basis points of charge-offs disappear leading, and we believe in our ability to continue outperforming the market in this area.
Stacy Kymes: Our financial performance as quarter reflects our ability to navigate through times of extraordinary market volatility. Despite recent market disruptions in geopolitical land, our diverse business model has performed well.
Stacy Kymes: Our strategy at BOK Financial is to produce long-term, sustainable value for our shareholders and we base our decisions on that strategy. When we may see fluctuating results in some of our business lines during unstable conditions as we did this quarter, these businesses are built for long-term success.
Stacy Kymes: During the quarter, net interest income was strong and we continue to see net interest margin expansion for the third quarter in a row as we recognize the down rate deposit fatus with continued lower repricing. We are already showing a total liability beta of 74% which is one of the highest in our peer group. We are also showing a total liability for the third quarter in a row as we recognize the down rate deposit
Stacy Kymes: The lack, clarity, and volatility in the financial markets impacted our fee income. Specifically in our trading business.
Stacy Kymes: Training fees in January were in line with our expectations. The trading volumes in spread were compressed during February and March, as uncertainty in the market slowed thick-thin Kym trading.
Stacy Kymes: However, as we mentioned last quarter, we expected a mixed shift in trading revenue to net interest income as the yield curve steepen, and we saw that come to fruition in Q1, with some of our thing income decline recaptured in net interest income growth. Got will talk more about this in his commentary.
Speaker Change: Consistent with the rest of the industry, long growth in the first quarter has been challenging. As you can see on Flood 6, we experienced contraction in our loan portfolio, mainly driven by pullback and our energy boat.
Speaker Change: Excluding Energy, our total loan portfolio was relatively consistent with prior quarter. Loan balances in the Energy Business decreased 12.1% in quarter.
Speaker Change: We expect these balances will rebound over time as the market adjusts.
Speaker Change: Our Corsi and Island Portfolio, which represents our combined services and general business portfolios, was relatively stable in order, contracting only 0.7%.
Speaker Change: On the year-over-year basis, these portfolios are still showing positive results, growing 4.2%.
Speaker Change: Our healthcare business loans decreased 4.5% in quarter. We set a new record for healthcare commitment production in Q1. However, pay-off levels have remained elevated relative to historical standards, and more than offset the increased dot-panies. [inaudible]
Speaker Change: Pay-off activity is a normal component in this business and was driven by increases in asset sales by sponsors and refinancing into non-bank, long-term, non-reforced loan options. We expect pay-off activity, especially related to refinances, to moderate and pipelines to remain robust.
Speaker Change: Our commercial real estate business increased 2.1% quarter over quarter, with the majority of the growth coming from multi-family housing and industrial projects.
Speaker Change: We are starting to see the loans that we originated in 2024 fund up as they move through the construction phase as we signal the past couple of quarters. We expect to see further growth and upstanding in the seven half of the year. We are starting to see further growth and upstanding in the seven half of the year.
Speaker Change: As I mentioned last quarter, we are expanding into the mortgage finance and warehouse lending business.
Speaker Change: This initiative is progressing nicely with the system implementation well underway and the talent already in place. This lays the foundation for a launch of this new lineup business in the September to October timeframe.
Speaker Change: This won't be a monoline offering and we believe that this will unlock value across our existing lines of business and allow us to better support and engage with the more than 500 independent mortgage originators that we do business with today.
Speaker Change: Transisting to slide seven, credit quality remains exceptional across the loan portfolio. This isn't a new story for us. We've consistently shown pure leading credit outcomes over the last 30 years across good and challenging market cycles.
Speaker Change: Non-performing assets, not guaranteed by the US government increased $36 million to $79 million. However, this is coming off the lowest levels in the last 20 years and remains exceptionally low.
Speaker Change: The resulting non-performing assets to period in loans and repossess assets increased 15 basis points to 33 basis points.
Speaker Change: Committed Criticized Assets also remain very low relative historical standards. In addition, we have minimal net charge of 1.1 million during the quarter. And that charge-off had average four basis points over the last 12 months.
Speaker Change: We expect net charge us to remain below historic norm in the future. Our combined allowance to credit losses is 331 million or 1.4% outstanding loans, which is a healthy reserve level.
Speaker Change: Overall, I'm pleased with results this quarter. We are focused on people and process. Our exceptional team demonstrates the grit and determination it takes to succeed in a very dynamic and fast changing market.
Scott Grauer: We continue to add revenue generating team members, and our sales process continues to produce opportunities for us going forward, and now we'll turn the call over to Scott.
contributing $184.1 million to Revenants.
Stacy Kymes: As Stacy mentioned, market volatility resulting from uncertainty surrounding US domestic and foreign policy affected our trading business this quarter, but this business is designed to produce solid long term results.
Stacy Kymes: To give you a sense of the composition of our trading portfolio, more than 97% is residential mortgage-backed securities issued by US government agencies.
Stacy Kymes: This quarter, he started to see the transition from fee income to the trading related net interest income that we discussed in our last call.
Stacy Kymes: During the quarter, total trading revenue was 23.3 million, which was down from 37.7 million the prior quarter. 10.6 million of fee revenue shifted from fees to net interest income as the yield curve steepened.
Stacy Kymes: The remainder of the decline in treading revenue reflects lower MBS treading volumes and tightened spreads as client domain was muted toward the end of the first quarter. We also experience seasonally weaker pipe lines in our municipal desk.
Stacy Kymes: We've provided a table on slide 9 to allow you to see this dynamic.
Stacy Kymes: Importantly, there is diversification within this portfolio, with 43% fixed income, 34% equities, 15% cash, and the remainder in alternatives.
Stacy Kymes: AUMA decreased 659 million linked quarter, reflecting the volatile market conditions during Q1.
Stacy Kymes: And now I'll hand the call over to Marty to cover the financials.
Marty: Turning to side 12, net interest income was up 3.2 million and headline net interest margin expanded three basis points. Reflecting growth and trading related net interest income.
Marty: Coronet Interest Margin, excluding trading, decreased four basis points and was driven by several factors.
Marty: The securities and fixed rate loan portfolios continued to reinvest cash flows at higher current market yields. The upward repricing in the securities portfolio was dampened this quarter from lower accretion of the purchase discount.
Marty: Non-interest-bearing DDA balances declined slightly coming off seasonal highs of Q4. While these balances were sequentially lower, both the average balance and the trends within the quarter were aligned with our expectations.
Marty: Long fees declined during the quarter after being elevated for the prior two quarters.
which negatively impacted effective loan yields.
Marty: Lone Fees are now in line with their typical historical and seasonal patterns.
Marty: Lone spreads were pressured due to a mix shift within the Lone portfolio with higher spread energy loans being replaced with narrower spread course in Iowa. And of course the lower day count impacted Q1 versus Q4.
Marty: Each of these factors vary in terms of their predictability and stability of trends. Fixed straight asset at repricing has clear drivers and an established supportive trend.
Marty: DDA Mix Shift seems to have largely run its course. The normal seasonality and customer use of durability have been more visible lately.
Marty: Non-personal expense decreased $3.6 million led by a reduction in mortgage banking costs.
Marty: Slide 14 provides an update on our outlook for full year 2025.
Marty: Lone Balance Productions reflects continued fund-up activity on construction loans in the CRE portfolio, continued growth in core CNI, and the successful launch of our mortgage finance business later in the year.
Marty: We recognize the economic policy, uncertainty, add some risk to this guidance.
Our net interest income expectations remain unchanged.
Marty: This assumes 225 basis point rate cuts with a small amount of upside should additional cuts materialize. I will note that trading-related net interest income will be impacted by rate levels and curve steepness, which would largely be offset by trading-related fee income.
Marty: We widen the range of our guides for fees and commissions given the impact of economic and market uncertainty on activity within our fixed income trade business.
Marty: 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: We will now begin the question and answer session. In order to ask a question, Timur Braziler followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Jared Shaw with Park Place. Jared, please go ahead.
Thanks a lot. Good afternoon.
Speaker Change: is all of that 14 million roughly due to the lower volume, as you said, and at some point I guess what's a normalized level, would you say, for total trading revenue? Is it closer to what we have this quarter or should we expect to see that start to trend higher?
Dr. J.
Speaker Change: Yeah Jared, so the short answer to your first question is yes, that was just all volume driven, there's nothing else within there and and yes, we do expect to see
Speaker Change: Trends come back, it's certainly market dependent, but our view is that that trends back up here over the second quarter.
Speaker Change: in the trading business as a matter of fact, the first. [inaudible]
Speaker Change: A few weeks of the quarter, we've seen some rebound activity there, so that gives us some confidence about how that trends going forward.
Scott Grauer: And so, Jared, this is Scott. So I would add that, you know, so as Stacy mentioned early in the call, we actually on our trading activities, specifically in the mortgage back securities, we started the year.
Scott Grauer: Very solid out of the gates. Our January was in line and actually growing.
versus our previous results in 2024.
Scott Grauer: and then as the economic and trade uncertainties, I'll call them, we're introduced into the market in both February and kind of climaxed in March, that activity suffered significantly. As you look forward into...
Scott Grauer: April . We believe that where we started the year and where we expected that activity to be absent, that significant uncertainty is reasonable.
Speaker Change: Okay, all right. That's a good color, thanks. And looking at the pressure on balances and energy and health care, is that dynamic continuing through, you know, should we assume that that's just sort of a, you know, in this current environment, that's going to be a consistent pressure and...
Scott Grauer: Going back to the loan yields that we should think that incremental loan yields are under pressure from here.
Scott Grauer: You know, I don't think so. I think, you know, the calling the absolute bottom on the energy loans is difficult, but I think we feel pretty confident that if we're not there, we're close to there. I don't think that's going to be a headwind for us to be extent it has been the last two quarters going forward.
Scott Grauer: Actually, if you look, you know, it's always dangerous to talk about, you know, April's old, but we're up in all categories, really, in April across the board. So early trends there are very positive, but with respect to both healthcare and energy. I don't think you're going to see the headwind there. [inaudible]
Scott Grauer: and the next three quarters, like you saw in the last two quarters. But understand, you know, it's a difficult one for us to forecast with great accuracy as well, just given.
Scott Grauer: The market dynamics and what the shape of the curve is at any point in time and particularly in the M&A space, you know, acquisitions, mergers and acquisitions have played a significant role there. We do see that falling down a bit.
Scott Grauer: which is part of the optimism about the lack of headwind going forward.
Speaker Change: OK, all right, great. And then just finally for me, when we look at the provision guide...
Speaker Change: with sort of the dynamic of the long growth guide. Should we assume that you're going to be growing the ACL as a ratio over the course of the year? And I guess what are some of the dynamics you're using in terms of qualitative overlay and potentially a more risk or a more adverse scenario. Yeah.
Speaker Change: Yes, so Jared, so we would not expect need to grow the coverage ratio over the course of the year.
Speaker Change: Or, you know, if you look at how we closed out the first quarter.
Speaker Change: You have the increase that we saw in credit quality on our portfolio combined with where the actual
Speaker Change: Balance Levels came, so when we ran our reserve calc, it actually suggested that we could do a reserve release.
Speaker Change: However, when we looked at, you know, Kern Circumstance, so that just didn't make any sense to us, so...
So, you know, we obviously provided...
All right, thank you.
[inaudible]
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Unidentified moderator/operator: And your next question comes from the lineup Jon Arfstrom with RBC Capital Markets. Jon, please go ahead.
Thanks, good afternoon.
[inaudible]
Hey.
Speaker Change: Jon, I just wanted to ask a little bit about the long growth outlook, but can you give us an update as to what you're hearing on pipelines in general?
Stacy Kymes: and then Stacy maybe give us an update on the expected size of the mortgage finance business maybe by the end of the year.
Speaker Change: Yeah, so pipelines are good. We actually track our pipelines youth sales force. Morning, I review those every month and
Speaker Change: and those are very strong. I think that the color that's hard to weave into, you know, that is...
How will Barwer and Certainty play out?
Speaker Change: You know, we'll, we'll, you know, the deal that they've agreed to, we'll let go ahead and close that in the face of a less certain economic environment. I think that's the piece that's hard for us to, you know, put our finger on exactly. And so, I think when Marty alluded to the Lungroad guidance, acknowledge that, you know, there's some...
Speaker Change: Uncertainty around that, but based on what we know today, that we still feel confident in that, so I'm not worried about the pipeline, I feel really good about where we're out there and how we're building those and how we're growing those.
The piece that's the wild card that we can't.
Speaker Change: really discerned well is how with a bar or response be will they advance on the line of credit will they go ahead with the new piece of equipment or the you know whatever is driving the capital need. I think that's a harder harder one for us to deal with with great certainty today because. Thank you very much.
Speaker Change: As we've learned, what are the conditions today? They could be very different tomorrow and so we're very hesitant to kind of extrapolate kind of what happened in late first quarter early second quarter and say well that's going to be the conditions for the rest of the year [inaudible]
Speaker Change: You know, it's likely to change in some way shape performance of, you know, we felt more comfortable kind of sticking with what we knew which was the pipeline that we have.
Speaker Change: On the morning to wear outside, I'm not ready to give volume estimates there yet when we haven't even made our first loan.
Speaker Change: But it did give us confidence to reaffirm the point-to-point loan guidance we provided in our forward-looking guidance.
Speaker Change: We still feel very good about that and frankly are excited about the team that we've put on board and as well as their ability to attract business. Like we said, this fits so well with the rest of our businesses.
Speaker Change: You know, we have a core mortgage business. We've got the mortgage hedging, the pipeline hedging. We've got the structured finance business.
Speaker Change: Integrates well into the 500 plus mortgage finance companies that are already our customers today and so that's not going to just be about loans It's also going to be about deposits as well so
Speaker Change: We're probably more excited about that than we were even 90 days ago. So it just helps us feel more confident in believing that we'll achieve our point to point one guidance that we provided.
Speaker Change: Jon, just be clear, we've got leadership in place, we've got operations folks, credit folks, and producers all in place today, so we have everything we need to begin.
Is that?
Speaker Change: Is that unusual? I mean, it looks like it's a big jump.
Speaker Change: But at the same time you guys are flagging maybe a steeper curve [inaudible]
Speaker Change: Yes, and that is the, you know, why that makeshift as we, you know, the curves.
Speaker Change: as opposed to the flat or inverted curve we experienced for 24 or 26 months.
Speaker Change: between fees and an I.I. are more reflective of that business in her normal shaped curve. And Jon, as Marty, I would add, you know, on the bottom of page 9 on the slides, you know, it's to understand the trends in the business, it's better to look at that total trading revenue line at the very bottom.
Speaker Change: and that gives you a much more muted level of change there and that's really the insightful way to think about the trends in that business unit.
and recognizing that our trading business is...
Speaker Change: Largely, MBS, in that category, and then Minnesples. So, you know, there's no equities.
Speaker Change: increased volume due to chaotic markets offset to that so ours is going to reflect that curve and the MBS activity overall most most predominantly. [inaudible]
Thank you.
Speaker Change: Yeah, I was just curious if we get a couple of cuts [inaudible]
Speaker Change: and we have a steeper curve if in aggregate, those numbers can reapply here.
Speaker Change: You can see that shift go even further if what you just described laid out, but the total revenue of the business would bring on effect.
Speaker Change: and historically, when we have that steeper curve, more traditional curve prior to the flattening and inversion, that was the composition of our business, and it was more predominantly NII than fees, than where it is at the end of this quarter.
OK, OK, very helpful. Thanks guys.
[inaudible]
Speaker Change: And your next question comes from the line of Peter Winter with the A. Davidson Peter, please go ahead [inaudible]
Speaker Change: Thanks, Dean Good afternoon. I just had two questions just digging a little bit deeper into the outlook. First,
Speaker Change: You didn't lower the expense forecast given somewhat of a weaker fee income outlook but can you talk about your flexibility to manage expenses if revenues come in weaker?
Speaker Change: Yeah, so with that a little bit of flexibility, you know, kind of a couple of different areas. So number one, as you know, Peter, you've got a couple of lines where the compensation is heavily variable and so both in the...
Speaker Change: Trading and investment banking and mortgage areas, you know, that'll just naturally ebb and flow with the revenue streams.
Speaker Change: and then number two, you know we're always looking for efficiencies throughout our business. That's just a constant look for us.
and so that's something that...
Speaker Change: You know, we can find more things from time to time and then, you know, third, you know, most of our expense growth is really about strategic initiatives and investments in our future where that's technology, et cetera.
Speaker Change: And, you know, by and large, those are those are decisions that we make thinking through through a long term lens and we're convicted about doing it.
Speaker Change: largely make those on their merits. You know, if the world changes and IRRs for those investments change as a result, you know, there's something you might, might delay, just based on the economics of it.
Speaker Change: You know, something might be worth doing later, but largely those are made through the lens of the decision that the long-term returns of that investment. So that kind of gives you a sense for how we think about the expense base.
Speaker Change: Yeah, let me clarify Peter. I think, you know, really two things. One, obviously, on the trading revenue side, there's a lot of variability with that expense to the extent that the revenue is there. The expenses will be there, and to the extent that it's not that associated expense will decline.
Speaker Change: But I think I would be careful to characterize softness and fee revenue. I think softness and trading revenue but if you look at mortgage banking yep year over year 4.5% hedging fees up 33% year over year
Speaker Change: brokerage fees of 6% year over here, producer and asset management fees of 10% year over year, transaction card up over 6% year over year. So the core fee businesses are
Speaker Change: You're really talking about one category, trading fees that were soft this quarter and they were soft because of a really difficult macro environment.
Speaker Change: and, you know, from my perspective in trading the risk of variation metric discord. I'm really proud of the team and how we work through that in the manner that we did with spreads moving wider and then contracting and moving in ways that aren't historical norms with treasuries.
Speaker Change: Our risk management team did a fantastic job keeping that portfolio well-hidged and managing through that in a very positive way. And so, you know, the training room was clearly volatile and underperformed. There's no doubt about that. But the rest of the fee businesses are really performing well.
Speaker Change: and very proud of that. Don't want to get lost in the noise of the trading revenue.
Speaker Change: Can you talk maybe about the outlook for deposit growth and these talk about maybe further opportunities to lower deposit costs and funding costs, if the Fed doesn't cut rates, and how do you think the deposit data trends from here?
Speaker Change: Yeah, so Peter, we're really proud of the activity that we did during the quarter on deposit pricing, so...
Speaker Change: We had a 75% deposit beta for Q1, which is a great result.
Speaker Change: and Kudos to our teams for managing that well. I think when you look at...
Speaker Change: You know, it's probably smarter to look at the cumulative interest bearing liability beta that cumulative are generally more insightful. And our cumulative interest bearing beta is 74, which is right on top of our cycle cumulative up beta, just almost within a percentage point.
Speaker Change: So we're very happy about that, and we do think that given the strong, longer positive ratio we have, just really one of the strongest out there.
Speaker Change: That gives us the ability to continue to work on deposit pricing over time. In fact, we did some of that at the end of the first quarter and then we'll see some benefit rolling into Q2 as a result. Hold the hand.
Speaker Change: We'll continue to work on that throughout, of course, of the year. So yes, you can do some of that without Fed moves. We'll just look at the competitive environment, but certainly makes it easier if you do get some Fed moves.
Speaker Change: And just could you just mention how you're doing out the outlook on deposit growth?
[inaudible]
Speaker Change: Yeah, so we do expect deposits to grow throughout the rest of the year, but given the longer deposit ratio that we have, if we were to
Speaker Change: Turn the dial some on deposit pricing, and we saw a different trend line there, you know, that would ultimately be fine for us because of how luxurious that level of the deposit ratio is, and at the end of the day, doing so would be something that would be net interesting. Thank you very much.
and Kamika Reed.
Thanks, Marty.
Thank you for watching. And we'll see you next time.
Speaker Change: And here next question comes on the line of Michael Rose with Raymond James, Michael, please go ahead.
Michael Rose: Hey, good afternoon. Thanks for taking my questions. Just wanted to start going back to the energy portfolio. Please help us better appreciate. Thank you.
Michael Rose: What's going on with energy prices now, and if they were to continue to fall versus what happened during the energy downturn from late 14 through 17, I know the percentage is lower energy companies are generally operating within cash flows.
Michael Rose: which is a big difference now versus then, but wouldn't there be some further delivering if energy prices remained under pressure if we did move closer to recession? Just try to better appreciate what those balances could look like over time understanding that it is a bigger proportion for you versus versus many others. Thanks.
Speaker Change: Yeah, you know, good question. A lot of, a lot of differences between 2014 and today. I think the biggest one is leverage. I mean, leverage in the, the core portfolio was probably an excess of three times somewhere between three and three and a half times.
Speaker Change: In 2014, today, the leverage in our energy production portfolio is less than one times [inaudible]
Speaker Change: That's part of the problem we have getting outstanding, you know, is we've had great commitment growth. The team has done a great job there. The borrowers are just not using the leverage today. And so that singularly is the biggest difference. The other one is, you know, hedging as a risk management tool is very different today.
Speaker Change: and so, you know, in 2014, borrowers were largely under hedged and that's not an issue today at all. So, I don't know that, you know, lower commodity prices for a short term here are going to have a lot of headwind on energy.
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Speaker Change: We do a lot of stress testing. We've stressed the oil down to $44, which is really the stress point today. Don't see a lot of loss there, and really that's because of the extensive amount of hedging and...
Speaker Change: The very low leverage. So, you know, our average leverage is less than one times on energy production and less than one and a half times on victory. And so those are very low levels of leverage from where we are today.
Speaker Change: Very helpful, Stacy, I appreciate it. And maybe one for Marty, understand that you have two.
Scott Grauer: Cutspaking year into your forecast. I don't think it's the biggest driver but can you just give us a sense for you know if we did assume the forward curve which I think is around four cuts or you know what the impact could on and I could be if we did get no cuts. Thanks.
Marty: Yeah, so either way, it would not make much of a difference and certainly not to make us think about changing your guidance. So basically, an additional cut or two, it would be a little bit helpful in the later part of the year, but
Marty: Nothing Material, and by the same token, if we don't get those rate cuts, that would be virtually no impact to revenue. Now, you'd see a little bit of a different shift between trading fees and trading NII, but total revenue would be basically unchanged.
[inaudible]
Got it. Thanks for taking my questions.
Speaker Change: And your next question comes from the line of Wood Lay with KVW, Woodie, please go ahead.
Woody Lay: Hey, thanks for taking my question. Wanted to start with Kalongra's guide and just to follow up there.
Woody Lay: So it was the addition of the mortgage finance vertical was that embedded in the one-growth guidance the last quarter or or is adding that vertical sort of helping bridge the gap after the one cranked this quarter.
Speaker Change: Yeah, Woody, we did not have that in the guide. We had prior quarter, we just worked far enough along to feel like we wanted to put it in. So we did put it in at this quarter, just given that, you know, we've got all the all the groundwork laid. We feel very confident about where we are. So felt good about putting that in. Thank you very much.
Speaker Change: Got it. And then I know you're not ready to sort of guys wear bounces could be to the end of the year. But I mean longer term, how do you sort of think about the concentration of mortgage warehouse in the one portfolio? Yeah.
Thank you.
Speaker Change: Yeah, I mean, we're not concerned with let it grow. I mean, we're going to, you know, we're going to walk before we run here, but you know, we understand this portfolio can grow and frankly for us it provides a diversification benefit across the broader portfolio. The risk and mortgage finances is less credit risk and more about operating risk. [inaudible]
Stacy Kymes
Speaker Change: All right, got it. And then last for me, Kappa remains strong and, you know, the stock price is seen up pull back here just alongside the broader market. You know, how do you weigh by back in the current tape given all the uncertainty on the macro side?
Speaker Change: Yeah, so as you know, we do have a very strong capital position and are are sitting on some excess capital and as we look at the alternatives available to us we do expect to be active share with our purchasers in the second quarter.
[inaudible]
Alright, thanks for taking my question, thanks [inaudible]
Thank you.
Speaker Change: And our final question comes from the line of Matt Olney with Stephen's, Matt, please go ahead.
Matt Olney: Hey, thanks guys. Just a few cleanups here. Stacy, you mentioned that energy customers already have.
Matt Olney: Lots of hedging on future production, and the past we've seen increased activity, which is volatility to commodity prices, but it sounds like maybe we should not anticipate this given existing customers already are fully hedged.
Thank you.
Matt Olney: That hedge coverage is like an accordion, it grows as the leverage grows and so with leverage less than one times you're gonna have...
Matt Olney: I think 55% of our borrowers are hedged out the next 12 months or so and that may seem a little bit low but because the leverage is so low we're not requiring the hedging when their leverage is that low but that would grow to extent that their leverage profile changed as well.
Stacy Kymes: I guess that's a different way, Stacy, with local commodity prices more recently, that may not represent a catalyst to see increased heterodactivity.
Stacy Kymes: Yeah, that's a fair price. We had a really strong hedging activity in the first quarter, hedging quarter in the first quarter.
Speaker Change: You know, those guys will are opportunistic and they'll dip in and dip out of hedging when they see the opportunities. Obviously.
Speaker Change: Well, is under pressure, and so this may not be the core of the people want to hedge more oil, but there's other ways they can do that, and still have a floor, put a floor in without necessarily having.
[inaudible]
OK, perfect.
Speaker Change: Yeah, so within the guidance, we expect that the spread improves some as you get those re-cuts later in the year. That's the right way to think about.
OK, great. Thank you.
[inaudible]
Stacy Kymes: That concludes our question and answer session. I will now head it over to Stacy for Closing
[inaudible]
Speaker Change: Thank you everyone for joining our discussion today. Our results is quarter a testament to the strength and adaptability of organization and our ability to operate successfully in any market cycle.
Speaker Change: Our exacting focus on our risk management framework and diverse business model work together and our core to our success. Credit quality remains excellent. We've got a strong long pipeline or growing relationships.
Speaker Change: Net Interested Income is expanding and our fee income businesses continue to work as design. We appreciate your interest and be OK financial and your willingness to spend time with us this afternoon. Please reach out to Heather King if you have any questions at h.kingatbokf.com
That includes sorry conference call, you may now disconnect [inaudible]