BOK FINANCIAL CORP Q3 FY2024 earnings call

• Stacy Kymes noted earnings of $140 million or EPS of $2.18, net interest income and margin stabilizing, credit performance excellent, fee income segments strong, assets under management over $110B.
• Marc Maun discussed loan portfolio details, credit quality, energy and other loan segments, noting loan commitments stable, credit performance exceptional.
• Scott Grauer talked about fee income segments, including trading, mortgage banking, asset management, and transaction card revenue, highlighting strong performance in some areas despite headwinds.
• Marty Grunst covered net interest income, margin, expenses, noting net interest income up $12.1M, margin up 12bps, expenses discussed, and guidance on 2024 and 2025.

Loans:

• Period-end loans decreased 2.3% linked quarter, with commercial loans down 4.8% and CRE up 2.1%. Average loan balances contracted $80 million or 0.3%. Core C&I outstandings increased 6.4% year-over-year, total commitments grew 5.7% y/y.
• Energy loans decreased 9.4% linked quarter due to public debt market trends and M&A activity. General business and service loans fell 4.3% linked quarter but were up 6.4% y/y. Health care loans down 1.9% linked quarter. CRE up 2.1% q/q, concentration limit at 157% of Tier 1 capital.

Fee Income:

• Total fee income grew $2.5 million to $202.5 million, 40% of total revenue. Trading fees down 14.6% due to lower MBS volumes, but municipal sector strong. Mortgage banking revenue $18.4 million, unchanged for 3 quarters. Investment banking fees record $10.8 million. Asset Management revenue $57.4 million, assets under management/administration surpassed $110 billion. Transaction card revenue up 4.6% to $28.5 million.

• Loan growth expectations revised. Net interest income expected slightly higher than $1.2 billion. Fees and commissions adjusted. Provision expense adjusted due to strong credit quality. 2025 guidance to be provided in January.

• Uncertainty around election and tax policy impacting borrowing decisions.
• Potential headwinds in mortgage banking and MBS trading.
• Market volatility affecting trading volumes.
• Competition in certain markets.

Q: Maybe I could just start on some of the loan payoff commentary, certainly understand some of the specialized segments in energy. But when I look at the kind of the market breakdown, it looks like you experienced declines in even some of the smaller markets that you guys are in. So I know you talked positively about future loan growth, pipelines being full, can you just give us some color there as to maybe what pipelines look like now versus a quarter, a couple of quarters ago? And do you think some of the headwinds around the election will actually cause people to actually borrow?

A: Well, I'll tell you that last part first, this is Marc. I'll just say that, obviously, uncertainty will cause people to delay decisions. So it's likely that some of the decisions will be resolved by the election or views on tax policy going forward in the short term. But we do expect that, that will have an impact later this year. But we're looking at our pipelines overall, we are -- we feel pretty strongly that in the C&I world that our pipelines are in good shape. Fundamentally, we're looking at the C&I portfolio that, as we said in the second quarter, we were at a seasonal high during that quarter. And then we have seen that come down in the third quarter, in line with what our pattern has been in the past. This is not an unusual development. But if we look at the -- that's why we concentrate on year-over-year growth. And so -- we had 6.4% in year-over-year growth in C&I and 5.7% growth in commitments, and utilization is only down from 57% to 56%. So we've -- the pattern has existed, but we actually have raised the overall level of our commercial and industrial loans throughout the year, not just looking at third quarter to second quarter. So I would say, when we then look at our experience in the smaller markets or all the different markets, we've been very actively acquiring talent in those markets, and we've been actively increasing our calling and pursuing business because we are in good position from a capital standpoint, from a credit standpoint to pursue business. And we feel comfortable that barring any significant change in the economy, that we're going to be able to generate future loan growth, and we're in a good position going forward with that over the next 12 months or plus.

Q: Maybe just one for Scott. Certainly I understand some of the near-term headwinds as it relates to maybe mortgage banking and some of the brokerage trading softness, at least sequentially this quarter. But it sounds like the outlook and what you guys are trying to put forward is relatively positive. What do you see as kind of the greatest opportunities among fees as we think about the next couple of quarters? And where could there still be some headwinds? And maybe how would the impact of lower rates, meaning if we get more cuts in the forward curve or maybe less than the forward curve, how would that, in your view, impact some of the fee lines of business?

A: Right. So great question. I think that when you look in detail at the trading line item, it is entirely limited to the mortgage-backed securities sector where we saw -- we've seen significant headwinds. And so when you parse that out and eliminate the MBS, we actually saw increases in all of our other product sets. So municipals, corporates, treasuries, all of our fixed income activity was actually up, absent the MBS. So we did and have seen, beginning in mid-September with the Fed move, we have seen an uptick in the activity on the MBS side. The question that remains is the degree to which we'll see continued momentum and activity, but we have seen an inflection point in terms of the activity and the volumes there on even the MBS side. But we continue to have constructive belief about our positioning inside of the municipal bond space, both from an underwriting and a trading perspective. On the asset management side, we've got consistent sources of inflows to offset our general churn in our assets with disbursements, et cetera. So we like our allocation of our assets, in terms of our AUMA with 13% in cash, 40% fixed income, 39% equities and 8% alternatives. So we're well balanced and I think poised to continue to benefit in asset growth from the market perspective, but probably more significantly more importantly, on our flows in on our asset management side. So we're constructive on all of those and continue to see positive trends develop really across the board on those spaces. And then I think, Marty, you want to comment a little bit on mortgage production.

Q: For expense growth. It's kind of been running high the last 2 years, even excluding FDIC and share contributions. Are there opportunities to lower that expense growth? And what do you think of more normalized growth rate is for the company?

A: Yes, Peter, I'd say a couple of things. So efficiency is super important to us. We're always looking to manage to appropriate efficiency ratios at each line. And it's more important at the line of business level than all rolled up actually as we think about it. And those numbers will move around just as margin moves around. But you're right, expense growth is something that we pay attention to and want to make sure that every line of business is doing so in a prudent way. However, we are also very focused on investing in our business and growing our business. And so that takes the form of adding producers and adding technological capability to serve customers. And so you'll see that a couple of line items. So we feel good about what we've delivered this year, but I'll just note that data processing and communications, we've got investments that are really good investments for long-term growth in the company. And so what you saw, just looking at this quarter, for example, that's a couple of important projects, including off line of business that have gone in really well, and we're very excited about what that means for the company. But you'll see that step up, and that's not going to come back down to be sure. And then as we add people, you'll see occupancy, a step function for growth in people, and so you'll see that come up over time, if that's part of what your question was.