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spk06: Greetings and welcome to BOK Financial Corporation fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Stephen Ngo, Chief Financial Officer for BOK Financial Corporation. Please proceed.
spk11: Good morning, and thanks for joining us. Today, our CEO, Steve Bradshaw, will provide opening comments, and Stacey Kimes, Executive Vice President of Corporate Banking, will cover our loan portfolio and credit metrics. Lastly, I'll provide details regarding net interest income, net interest margin, fee revenues, expenses, and our overall balance sheet position from a liquidity and capital standpoint. Joining us for the question and answer session are Mark Maughan, our Chief Credit Officer, who can answer detailed questions regarding credit metrics, and Scott Grauer, Executive Vice President of Wealth Management, who can expand on our wealth management capabilities that have led to another fantastic quarter for the company. PDFs of the slide presentation and fourth quarter press release are available on our website at BOKF.com. We refer you to the disclaimers on slide two pertaining to any forward-looking statements we make during the call. I'll now turn the call over to Steve Bradshaw.
spk14: Good morning and thanks for joining us to discuss the fourth quarter and full year 2020 financial results. In summary, despite a year punctuated with hurdles, it would be difficult to overstate the flexibility and persistence our organization demonstrated this past year. A record $786.4 million in pre-tax, pre-provision revenue for 2020 proved once again the strength of our diversified revenue strategy, and the stability it provides during times of economic stress. More importantly, it underscores the breadth of our service capabilities and the value that we provide our customers. Starting on slide four, full year net income was $435 million or $6.19 per diluted share. Looking specifically at the fourth quarter, net income was a record $154.2 million or $2.21 per diluted share represented EPS growth of 1% in a linked quarter basis and up more than 40% from the same quarter a year ago. The key items that drove our success this quarter were starting another outstanding broad-based earnings quarter from our wealth management business, continued elevated production from our mortgage team, though at a decreased level from the last two quarters as seasonality and modest margin compression materialized following the summer's mortgage boom, But mortgage margins remain strong relative to the first half of 2020. No credit loss provision was needed this quarter, and in fact, the improving economic outlook combined with improving credit trends allowed us to release 6.5 million of our reserves. And lastly, the proactive measures we took to control expense levels at the outset of the pandemic in March served us well in the fourth quarter as it did for all of 2020. Turning to slide five, loan growth remained a challenge this quarter as our borrowers understandably reduced leverage in the challenging economic environment. Stacey will cover this in more detail momentarily, but we do believe growth opportunities will resume in 2021 as the economy continues to rebound. Deposit growth remains excellent, up over 3% linked quarter and up over 30% from the same quarter a year ago. Those figures do not include the second wave of stimulus enacted late in 2020, so we anticipate this trend to continue in the near term. Assets under management or in custody were up over 11% for the quarter, topping $90 billion for the first time in our company's history on very strong new client sales and favorable market impact. We'll dive a little deeper into the record year our wealth management team produced in 2020. as well as a shift of some brokerage and trading fee revenue to net interest revenue due to an increase in trading securities balances and settlement timing in the fourth quarter. Needless to say, we are incredibly proud of our Wealth Management Division. I'll provide additional perspective on the results before starting the Q&A session, but now Stacey Kynes will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to Stacey.
spk07: Thanks, Steve. Turning to slide seven, period end loans in our core loan portfolio were 21.3 billion, down 1.8% for the quarter. As Steve mentioned, quality borrowers reduce leverage in times of economic uncertainty, which has been the case with our borrowers again this quarter. Looking at the energy portfolio, balances contract to 6.7% for the quarter and 12.7% for the year. While commodity prices have improved considerably over the last few months, Sourcing new deals sufficient to offset paydowns in the current environment remains a challenge as existing borrowers continue to pay down debt to reduce leverage. Despite these factors, we remain optimistic for lending and energy-related revenue growth heading into the new year as we continue to support our customers in this space. Remember, our diversified revenue strategy allows us to look at clients holistically. And the energy business is far more than just lending as witnessed by the record level of energy hedging revenue this year. Treasury, retirement plan services, and personal wealth management are all businesses that continue to grow and serve our energy client base. Healthcare balances were down slightly this quarter as growth in senior housing loans was offset by a decrease in hospital system loans. For the year, though, health care loans were up 9% year over year, primarily due to growth imbalances from our hospital system's clients, who demonstrate a strong credit profile. Looking forward, we remain confident in our health care portfolio's long-term growth and credit outlook and expect it to be a growth leader once again after the health and economic conditions migrate to a more normal state. In the near term, it should be pointed out that the second stimulus bill passed last month, like the original CARES Act, has multiple revenue enhancement measures for both hospitals and skilled nursing facilities as they manage through the current environment. Paycheck Protection Program, or Triple P, balances decline nearly 20% as just over 470 million of balances were forgiven in the quarter. The forgiveness process initially was more complex than we believed it would be at the beginning of Triple P in April of 2020. However, additional guidance from the Small Business Administration, or SBA, clarifying our requirements and continued refinement of our processes has significantly reduced the time required per application. The largest hurdle in recent months has been clients' reluctance to apply for forgiveness, as they were hopeful of legislative action that would relax the requirements. The recent Economic Aid Act will provide substantial forgiveness process relief, especially for those clients with existing Triple P loans of less than 150,000, which represents more than 70% of our total Triple P volume. We will participate in the newest round of Triple P, with largely the same strategy of focusing on our existing client base. This will allow us to leverage additional resource capacity to meet our existing clients' needs in an extremely timely manner, thereby increasing client engagement, loyalty, and retention. Looking ahead, we are optimistic in our outlook for loan growth for 2021. The speed and shape of the broader economic recovery will be the determining factor in restarting loan growth. However, we are well positioned to serve clients and believe confidence and resulting capital investment will return in 2021. Turning to slide 8, you'll see an updated view of the loan deferral status across the BOKF portfolio. As you can see, just .6% of total loans remain in a deferral status of any type, down from 1.2% last quarter. Of the loans that remain in deferral status, very few, 12 loans totaling 24 million, are in extended deferral. This increasingly small portfolio of loans is closely monitored, but short-term, the credit quality has continued to migrate positively. Long-term outcomes will be dependent on the pace of economic recovery, and the impact of additional fiscal stimulus. Also on slide eight, we've again compiled a list of loan segments the markets originally considered more exposed to ongoing economic headwinds due to the pandemic. This group of loans is highly diversified, with over 550 loans for an average loan size of less than three million. The 574 million retail portion of this portfolio remains the most vulnerable today, and we'll continue monitoring these exposures closely. That said, the retail portion of our loan portfolio has held up better than expectations, as our borrowers have proved resilient. Significant portions of this list were originally considered more vulnerable are performing very well, including gaming, convenience stores, religious organizations, and colleges. Turning to slide nine, you can see that credit quality has improved significantly since the first half of 2020. Not only were we able to release a portion of the loan loss reserve, but we also saw significant credit quality improvement in our energy portfolio as we completed our borrowing-based redetermination process in the quarter. The rebound in near-term stability in commodity prices resulted in reduced criticized and potential problem loan numbers, along with our needed reserve allocation to energy loans. Net charge-offs were down from $22.4 million or 37 basis points annualized in the third quarter, to 16.7 million, or 28 basis points annualized this quarter. 2020 net charge-offs totaled 32 basis points, well within our company's historical loss experience. The combined allowance for loan losses totaled $389 million, or 2% of outstanding loans at quarter end, excluding Triple P loans. The combined allowance for loan losses attributed to energy, was 3.61% of outstanding energy loans on December 31st. Non-accruing loans increased slightly by $14 million this quarter, primarily due to an increase in non-accruing commercial real estate loans. Potential problem loans totaled $478 million at quarter end, down significantly from $623 million on September 30th. Looking ahead from a credit perspective, there is still a lot of uncertainty in the current environment, so it remains difficult to predict too far out. That said, based on what we know today and assuming our economic forecast is in line as we advance, we believe 2021 net charge-offs will remain on the lower end of the range of our historical average of 30 to 50 basis points. We will continue to set our reserve at the appropriate level as we always have. We are generally positive about the credit outlook in 2021, allowing us to begin a reserve release this quarter. Once we have more clarity around the speed of COVID-19 case count reductions, vaccine distribution, and a broad resumption of regular economic activity in 2021, we could potentially see additional opportunity for reserve release this year. I'll now turn the call over to Stephen to highlight our NIM dynamics, fee revenues, and the important balance sheet items for the quarter. Stephen?
spk11: Thanks, Stacy. With a second consecutive record net income quarter, our diversified revenue strategy is clearly providing a differentiated outcome in this low rate environment. Outsized contributions from our wealth management team, coupled with diligent expense management, contributed to our success this quarter, mitigating the impact of the current low rate environment. Turning to slide 11, fourth quarter net interest revenue was 297 million, up more than 25 million from last quarter. The increase relates largely to net interest revenue earned on a $5.1 billion increase in trading securities from our brokerage and trading customer transactions. I'll describe in a moment the shift in net interest revenue from fee revenue from our brokerage and trading businesses quarter. Net interest margin was 2.72%, down nine basis points from the previous quarter. I provided on the slide a roll forward of net interest margin and a net interest revenue from the third quarter to the fourth quarter, highlighting more significant items. PPP fees were higher in the fourth quarter as more loans were forgiven, and CoBiz discount accretion was lower this quarter from an elevated level in the third quarter. The shift in brokerage and trading customer transaction revenue from fees to net interest revenue this quarter had a dilutive impact in net interest margin, but increased the dollars recorded in net interest revenue. Other infrequently occurring loan fees and interest recoveries are also noted in the slide to emphasize a core net interest margin of 2.67%. Reinvestment of cash flows from our available for sale securities portfolio continued with the portfolio yield declining 13 basis points to 1.98%. Additionally, we continue to have success driving interest-bearing deposit costs down from 26 basis points last quarter to 19 basis points this quarter. While there are many moving parts to consider, including the continued recognition of PPP interest and fees, the combination of continued repricing of the AFS portfolio, and the limited room to move interest-bearing deposit costs down further, will apply pressure to net interest margin in future quarters. Turning to slide 12, you can see the impact of the shift of brokerage and trading fee revenues to net interest revenue that I mentioned earlier. This is largely from the record volume and timing of settlement of mortgage-backed trading securities, which resulted in the customer transaction revenue being earned and accounted for as interest versus fees. Additionally, energy hedging fees, while a record for the year, were down $5 million link quarter from third quarter's record level. When viewed holistically, our wealth management team put together another outstanding quarter with total revenue of $131.5 million, off slightly from the third quarter but still represents the third highest quarter on record, and for the full year surpassed $500 million in total revenue for the first time. Transaction card revenue was down 6.7% this quarter. primarily due to the lower transaction volumes driven by slowing consumer spending. That said, our Transfund team had a banner year for new financial institution customer contracts in 2020, which should help mitigate the decline we saw this quarter. While conversion times are lengthy, we expect to see a rebound in 2021 consistent with improvement in economic activity. Fiduciary and asset management revenue increased 1.9 million this quarter. primarily driven by the increase in fair value of assets under management related to both sales activity and favorable markets. Deposit service charges were flat for the quarter, though down $15.7 million for the year as we waive certain fees in the midst of the pandemic. Mortgage banking revenue decreased $12.7 million linked quarter due to a combination of fourth quarter seasonality and some margin compression following elevated margins due to industry capacity constraints the past few quarters. That said, this was still a top 10 quarter of all time for our mortgage business, which is significant given the typical seasonal declines in the last quarter of the year. In total, 2020 mortgage banking revenue was a record for the company, increasing 74.8 million from last year and acting as a significant offset to margin pressure of the protracted flow rate environment. Although not included on slide 12, I will note that the net economic changes in fair value of mortgage servicing rights and related economic hedges was positive 6.5 million for the quarter. Though fees and commissions were down this quarter, partially due to the shift in revenue geography on the income statement, it is important to remember the unprecedented production levels from our fee businesses the past few quarters. These businesses operating at record levels has clearly been fundamental in the success we've had this year. We will continue to allocate capital and reskilled employee resources to key fee areas to maximize our revenue opportunities. Turning to slide 13, expense management remains prudent, with total expenses mostly flat in quarter. While total expenses were up 4% year over year, should be noted that the increased incentive compensation related to record annual production in our wealth management and mortgage businesses more than accounts for the total increase in expense this year. Personnel expense was down, link quarter, by just over 2%. Incentive compensation decreased 2.1 million as a 5.3 million increase in combined cash-based and deferred compensation was more than offset by a 7.4 million decrease in stock-based incentive compensation from last quarter's elevated level. Additionally, there was a 1.4 million decrease in employee benefit expense due to the typical seasonal decline in retirement costs and payroll taxes. Non-personnel expense was up 2.5% from the third quarter. We made a $6 million charitable contribution to the BOKF Foundation in the quarter as we continue to focus on the communities we serve and the extreme needs created by the pandemic. Business promotion expense increased by just over a million, largely due to increased advertising expense, while other expense increased 3.3 million due to lost contingencies and recruiting expenses. Net losses and expenses on repossessed assets decreased $5.1 million, largely due to the write downs on a set of oil and gas properties and retail commercial real estate properties in the third quarter. Insurance expense also decreased $1.8 million, while mortgage banking costs dropped $1 million. On slide 14, our liquidity position remains very strong, given the continued inflow of deposit balances. Our loan-to-deposit ratio is now 64% compared to 68% at the end of last quarter, providing significant on-balance sheet liquidity to meet future customer needs. We expect to see a continued inflow of customer deposits in the near term, as the end-of-year stimulus measures were not reflected in December 31st deposit figures. Our capital levels remain healthy as well, with a common equity Tier 1 ratio of 12%. well ahead of our internal operating range. With such strong capital levels, we once again were active with share repurchase, opportunistically buying back 665,000 shares, an average price of 63.82 per share in the open market. Additionally, we authorized an increase in our quarterly cash dividend in the fourth quarter to 52 cents. This is the 15th consecutive year of dividend increases for the company as we continue to reward our shareholders through varying types of economic environments. On slide 15, I'll leave you with a general outlook for the near and midterm as we look into 2021. We believe loan growth will slowly accelerate in tandem with the broader economic recovery this year. While mainly weighted towards third quarter and fourth quarter, We think we can grow loans in the low single-digit range for the full year of 2021, excluding the impact of any PPP activity. Our available for sale securities portfolio, which is largely agency mortgage-backed securities, yielded 1.98% during the fourth quarter. Given the sustained low rate environment, prepayments could reach approximately $800 million per quarter. We can currently reinvest those cash flows at rates around 75 to 85 basis points. As we noted, we had success during the quarter driving deposit costs further and are well below the low point reach during the last near zero rate environment. We believe there could be room to push deposit costs a bit lower, but we feel we are nearing bottom. The combination of securities reinvestment at lower rates and minimal room to further lower deposit costs will pressure net interest margin in coming quarters. Our diverse portfolio of fee revenue streams should continue to provide some mitigating impact to overall revenue pressures being felt in our spread businesses. We expect most fee revenue categories to grow modestly in 2021, with the exception of brokerage and trading and mortgage businesses as the 2020 record year in those areas will be difficult to replicate. We will continue our disciplined approach to controlling personnel and non-personnel costs with growth budgeted at low single digits in 2021. Our focus will be holding the line on manageable expenses without sacrificing multi-year technology commitments to improve customer service and our competitive position. If the economy continues to improve and we get further oil price stability in 2021, additional loan loss reserve release is possible. As I mentioned a moment ago, we feel good about our capital strength. We will continue looking for share buyback opportunities and will maintain our current quarterly cash dividend level. I'll now turn the call back over to Steve Bradshaw for closing commentary. Thank you, Stephen.
spk14: We often share that we have intentionally built BOK Financial to mitigate downside risk and earnings volatility in times of economic uncertainty. Discipline credit underwriting throughout the cycle and investing in growth for our fee-based businesses has been a lasting point of pride for our company for many years. 2020 was the ultimate test of that strategy. The pressures of such a challenging year should be detrimental to the earnings potential of most regional financial institutions But I'm very proud to say that we delivered a differentiated outcome for our customers, our communities, our employees, and our shareholders. Looking ahead to 2021, we expect that strategy to continue to deliver solid results. We see an opportunity to further our market share with select B business segments, along with a return of lending opportunities as our clients' confidence rebounds with the economy, motivating them to resume capital investments. While 2020 proved that early year economic forecasts can change abruptly, it also showcased the value of our diversified revenue model, along with the experience and leadership of our management team as we work through the challenges brought by the pandemic. With that, we are pleased to take your questions. Operator?
spk06: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question. All right.
spk01: Great. Thanks. Good morning, guys.
spk06: Good morning.
spk01: Good morning. I just wanted to make sure I fully understood what was happening with the additional trading securities in the NII line. I mean, is this something that you guys initiated, and is this something that is going, like, should we, is this sort of the right level for both brokerage and for NII? Like, I'm just trying to think about how this all comes together. Thanks.
spk11: Yeah, Ken, this is Stephen. I think it was market dynamics. You know, there was record trading in Ginnie Mae securities from all of the summertime activity. And, you know, we facilitated those trades with our clients, and those securities settled on our balance sheet more so than some of the previous securities that we traded with our clients. And so we earned that transaction revenue through net interest income versus the fee revenue. So it was a market dynamic shift for the most part. With our trading securities up, you know over five billion dollars on average in earning assets for the quarter So I don't know Scott may know, you know, what in the future May occur but I would suspect That a lot of those trading securities will be maintained in that kind of fashion, you know, at least going into the first part of this year and
spk05: Gotcha.
spk01: Okay. So, and, and by, I guess by definition, should we also, so if that keeps your NII elevated, does that mean that we should also assume brokerage and trading revenues stay at this much more depressed level in the first quarter? And then it sounds like you said, since it's only going into first quarter, then maybe things go back to normal in second and third. I mean, is that just the right way of thinking about the dynamics?
spk11: Well, um, You know, I really think the fee revenues will stay down at this level. I really think the trading activity with our clients will show up more, at least like this quarter in NII. But what we do in the brokerage and trading is look at the entire revenue stream together. We don't really care if the transaction's recorded as net interest income or fees. And in this particular quarter, it's shifted more to the NII side. And that may be what occurs, I would suspect, at least the first part of the year, maybe on into 2021. We just follow kind of how it settles with our clients and how we record it in which bucket.
spk01: Got it. Okay, I think that makes sense. And then just one last question for me. Excluding all the trading securities, right, obviously your guidance for the net interest margin is lower. Sounds like you expect very modest loan growth, maybe picking up in the back half of the year. On average, it sounds like NII, exit the trading, should sort of be under a fairly sizable amount of pressure. I was wondering if you can kind of quantify the impact on NII based on those factors. Thanks.
spk11: Well, I tried to give you a little bit more of a core kind of NIM number for to start off with in the year, we put that on the chart at about 267. Again, it's hard to say how much that will migrate down. I do think it will because of the repricing of our available for sale securities portfolio. I mean, if you look at the chart that we provide, you can see a pretty natural decline in AFF securities yields. I think it was 18 basis points a couple of quarters ago. 13 basis points this quarter, it's going to continue to roll down. Now, we've been very successful in pushing down our interest-bearing deposit costs, and again this quarter. In fact, it was 19 basis points average for this quarter, and I think the month of December was down to about 17 basis points. Can we continue pushing that downward? Perhaps we can, but I don't think there's significant room to offset some of the AFS securities repricing. I just think there's a natural kind of migration downward of net interest margin. Of course, we focus more on net interest revenue than anything else. And to your point, loans beginning to grow, we hope, sometime in 2021, particularly in the second half of the year, is going to certainly help stabilize the margin and bring it back forward.
spk05: All right. Thank you very much.
spk06: Our next question coming from the line of Brady Galley with KBW. Please proceed with your question.
spk03: Hey, thanks. Good morning, guys.
spk06: Morning.
spk03: I just had a follow-up on the inventory of trading securities. So, I mean, we're up at $7 billion now. Looking back over the last couple of years, that's ranged in between $1.5 to $2 billion, and we're now at $7. So it sounds like it's going to stay around $7 billion in the near term. but longer term, does that normalize back to that $2 billion-ish level, or is this here to stay?
spk12: Hi, this is Scott. So when you look at the trend throughout 2020, that built from $4.6 billion in the Q1 to $6.2 to $6.2 at the end of Q3 and then to $7 billion, little bit over seven billion in the fourth quarter. So, you know, we look for that to remain at a higher level. That will obviously depend upon the total volume and flow inside of the mortgage markets themselves. But we don't look at that reverting back, as you indicated, to those low levels that you were referencing. Okay.
spk03: All right. That's helpful. And then if you look at, you know, loan balances ex-PPP, It seems like for the last three quarters or so, those kind of core loan balances have been down in between kind of 5% to 8% annualized. I think this quarter was down 8% length quarter annualized. What gives you the confidence that you can see a reversal away from the shrinkage and towards seeing some modest loan growth here?
spk07: Well, I think the biggest piece of that is you look, annualized energy loans, which are one of our largest segments of lending, is down almost 13% year over year, and link quarter annualized, it was down 6.7%. So, not annualized, just link quarter. If you get stability with those energy balances, which we think we're close to, you're gonna get some paydowns. I think we may see a little bit more runoff in the first quarter, then hopefully we begin to plateau and grow from there. We are seeing new deals there, but it's just not outpacing the level of deleveraging or paydowns that are happening within that book. But a lot of good activity that we've gotten out of the work that we did around the Triple P program. We think we're well positioned there. But I think you see you need economic growth, and I think you also need some of this liquidity to work its way off the balance sheet before you really get to core loan growth. But I think the numbers that we gave you in terms of low single-digit loan growth for the year, back-weighted to the second half of the year, I think we feel very confident about, assuming we get stability and then growth in the energy book.
spk03: All right, that's helpful. And then finally, for me, a lot of people – are expecting 2021 to be a fairly active year related to bank M&A. I know BOKF has been selectively active in acquiring banks and fee income businesses over the years. How do you think, do you think BOKF will be active in M&A this year?
spk14: Well, this is Steve. I think your assumption is accurate that we're going to see more M&A opportunities if you go back in time When you see low rate environment and revenue headwinds, that obviously leads to a desire among some sellers to be open to conversation. So that's an opportunity that we see coming as well. And we'll continue to look at selective opportunities that maybe present themselves throughout the 21, primarily prioritizing those things that would be within footprint.
spk05: All right, great. Thanks, guys.
spk06: Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.
spk04: Good morning. Good morning. So obviously you guys are doing really well on the credit front and with the outlook, you know, the economy improving. Do you see that the reserve to loan ratio could get back to the January 1 level, which was about 1.2%. Do you see it heading that way towards the end of this year?
spk13: Peter, this is Mark Maughan. If I'm looking at that, what I'm seeing is if you see continued improvement and you see the economic outlook improve, you see pandemic cases drop dramatically in the vaccine, results be achieved, along with the energy prices continuing to be stable like we've seen in the recent months. And essentially, you recover back to a January 2020 outlook. That was our day one adjustment amount at 1.2%, and that would seem likely if all those things occur. Of course, there's still a lot of ifs in that forecast.
spk04: Okay. And then, Stephen, if you get that loan growth in the second half of the year, would that help, do you think, lead to more of a stable margin closer in the second half of this year?
spk11: Yeah, I mean, it would. Certainly, when you remix your earning assets you know, away from securities and more into the loan balances, certainly it's going to help support NIM going forward.
spk04: If I could just sneak in one more question. Mortgage banking had a record year this year. You know, it's expected to decline a little, but mortgage will still be strong. As we look out into the outer years, have you seen that this business you've taken market share and so therefore you should still see growth above like a 2019 level, even with the mortgage banking business slowing?
spk14: Yeah, Peter, this is Steve. I think our outlook in 21 is mortgage kind of in a steady state. Fourth quarter, probably pretty good proxy. Although we'll see some, probably an increase in refi activity in quarter one as we typically do and purchase market kind of kicks in a little stronger after that. I do think that there's been market share gain for us because we've invested more outside of Oklahoma. We've got a much stronger group of producers in Colorado and Texas and Arizona, New Mexico, et cetera in Kansas City that have really paid off for us.
spk00: That's where our expansion has been.
spk14: I think it's kind of a mirror in my mind to the company in that we have
spk13: relatively small market share with good upside in all those markets.
spk14: And I think mortgage better reflects that today than it probably did three to five years ago.
spk04: Okay. Thanks for taking my questions.
spk05: Thanks, Peter.
spk06: Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your questions.
spk08: Good morning, everybody. Good morning. I guess sticking with the provision reserve level, What type of qualitative overlays did you use this quarter on the energy book or on the overall book? And did that really help, I guess, slow reserve releases? And as we go through the year, we should just expect that that qualitative overlay reduces to get back to that lower allowance level?
spk13: Yeah, again, this is Mark Maughan. Yes, we took a hard look at the qualitative overlays with regard to our reserves. We certainly did look at more reallocation than we did reduction in certain areas. Energy obviously improved and we did reduce that reserve down to 3.4% from the 4.2% it was last quarter. But we still have concerns in certain other areas where You know, stimulus has been a key factor in a number of areas, particularly in CRE and in smaller businesses that may or may not have masked some issues that could occur. And so we want to make sure we're thoughtful about how we're looking at the performance of the credits in the short term and then evaluate them on a quarter-by-quarter basis, depending on how economic activity evolves.
spk07: But your general thesis is on point, and I think our view is that given where we are in the cycle, it was premature to do much more than what we did, but certainly as we get more visibility into the economic recovery, the pace of vaccinations, and see declines in case counts and improvement in economic activity, that could change.
spk08: Okay, that's good color, thanks. you know, looking at the energy book, do you think that energy prices need to go higher from here to drive additional growth, or is it really just absorbing that existing liquidity that's out there, and once that's absorbed, that can start driving organic growth?
spk07: I mean, we're in a decent spot here. I mean, if you think about, you know, wool particularly, that kind of between 50, 55 is not a bad spot to be in, in terms of kind of being stable and, you know, certainly That's an area that people can continue to grow and do that profitably. But from our perspective, this is a price area where once we can find kind of a stable spot, then I think we can grow from here. There are new deals being done. We're doing those deals, we're leading many of those deals, so we see good opportunity there. It's just at some point the pace of the leveraging from energy borrowers will slow and we'll really see all the hard work that our energy team is doing to grow that really come to the surface. I think we're going to see that. I don't know if that's first quarter or second quarter, but I think that we are going to see that in 2020, 2021.
spk08: And then just finally for me, the second round of PPP has started. How should we think about the potential size of that for you as well as the potential maybe average loan size compared to what we saw in the first round?
spk07: Well, just by nature of it, it's going to be lower. I mean, I think the maximum loan size, generally speaking, is about $2 million. There are caveats around revenue declines and things like that. So it won't be... to the size that the original Triple P program was. We certainly are gonna be active participating, working very hard to help our customers who can avail themselves of that to participate in that, but we don't foresee that it will be the size of the original program as much because of the constraints around loan size as other factors.
spk08: Should we be thinking if you were just over two billion the first time, around a billion or too early to say?
spk07: It's too early to say. I mean, even just yesterday, there's new rules coming out that are governing the program from the SBA. So I think it's awfully hard to prognosticate with any level of clarity at this point.
spk08: Okay, great. Thank you.
spk06: Our next question comes from the line of John Armstrong with RBC Capital Markets. Please proceed with your question.
spk09: Thanks. Good morning, guys. Good morning, John. Question for you, Stacy, on slide seven. You touched on loan growth maybe picking up later in the year, and it sounds like a big factor in that is energy, but can you touch a little bit more on, you know, if we roll this thing forward 12 months, what you think the biggest contributors to growth might be in terms of the other loan categories?
spk07: I think all of the loan categories. I mean, I think if you roll this thing forward 12 months, you've got stable commodity prices. You're going to be growing energy, you know, mid-single digits, maybe a little bit better. Our health care book is really doing well. Really proud of that team. You know, you saw us back up just a hair there this quarter, but that was really from some large paydowns in health systems loans, which, you know, given their liquidity situation, situation that was there really masked some really good growth that we have there in senior housing. And our CNI businesses, I think, are poised to do very well. I think one of the real benefits that we got from the original Triple P is how strongly we executed. And so we've really been able to turn that into new treasury relationships. And we believe that once the market kind of looks normal again, that that's going to really create some opportunities for us on the CNI side because of the level at which we executed. And the ability to call a banker and have a relationship in times of need and have somebody you can call and help you out. And so we're optimistic that once we get to normal that growing at a pace that's kind of two to three times GDP, if you will, which is kind of how we have benchmarked it over a long time horizon, is very reasonable for us with the mix of business that we have. We also have a great footprint. We're in some footprint states that are gonna grow faster than the rest of the United States. So if you think about Texas and Arizona and Colorado, we're well positioned from a geographic perspective to disproportionately benefit from growth as those core states' economies are likely to grow faster than the national economy.
spk13: I'll add one thing to that. It's just from the CNI perspective, is that you did see reduced utilization as a big part of the decline in economic activity, and we would expect if that improves that we'll see increased utilization on the lines of credit, etc., which will contribute to that.
spk09: You knocked up a couple of my questions there, but I guess, which is good, but just in general, aside from energy, are you seeing signs of life in the footprint? I would guess it is happening particularly in some of those better markets, but Are you seeing the early signs of optimism and pipelines building?
spk07: I think until we begin to work some of this liquidity off, I don't think you're going to see huge C&I loan growth. We're seeing some in health care, around senior housing, but really until you begin to work off some of the core liquidity that's really built up among our borrowers, you're going to struggle to see that in the near term. So I think it's premature from our perspective. We have not yet seen kind of a bubbling up of economic activity that would lead us to believe in the near term there are core CNI loan growth imminent from our perspective.
spk09: Okay. And then just one quick one on credit. The energy NPLs, that you show on slide nine, what is the path to resolution with some of those credits and particularly against the lower end of the charge off range that you're expecting for the full year?
spk07: We'll work through those as each one will work themselves out. I think that what I would tell you is a couple of things. Number one, I think we're very comfortable with the net charge-off guidance we provided, which kind of is the low end of that historical range. If you look at what we charged off in 2020, that would be a decent benchmark to try to beat in 21. I think the difference, too, is we've got a rising commodity price on those energy loans, and so trying to resolve a workout energy loan in a stable and rising price environment is a totally different story than when prices continue to fall. And so I think we're relatively optimistic that as we work through those that the guidance that we've provided you will be one that we can certainly achieve and certainly our hope is to outperform that because I think the environment's providing us a bit of an opportunity to work some of those out in a way that's to our benefit. There will be losses that come from those non-performing loans. But the question is, will the environment, the stable and even slightly rising price environment, really help mitigate those? And I think we're optimistic about that.
spk05: Got it. Okay. Thank you.
spk06: Our next question comes from the line of Matt Olney with Stevens. Please receive your question.
spk10: Yeah, good morning, and thanks for taking the question. I wanted to ask about operating expenses and the guidance that you guys put out there. It sounds really good, trying to keep that to the low single-digit growth in 2021. Any more details on how you expect to achieve that? And I want to make sure we're apples to apples on the right starting point. I'm looking at $1.166 billion of operating expenses in 2020. Is that right?
spk11: Yeah, so this is Steven. You know, we just worked hard, I think, in our budgeting efforts over the fall and, you know, mainly in November, working with each line of business and trying to determine what is the right level of expense and how can we maintain control over that in the face of, you know, a little bit more difficult revenue environment. And, you know, it comes all across the board. You know, it addresses personnel. It addresses business promotion. You know, spending on IT we want to maintain because we want to maintain our competitiveness with our products and services that we provide to our clients. But it's just a lot of detailed work to try to maintain that expense discipline.
spk10: Okay. And then on the buyback, I'm curious what the appetite is for the buyback now that the stock price is, well above levels where you executed in the third quarter, or fourth quarter, excuse me.
spk11: Yeah, I mean, we were happy of our execution in the fourth quarter. I mean, we bought the shares at about a 25% discount to today's market. We'll look at it closely. You know, I'm not going to put a price out there that says we'll buy at this level and we won't buy it, you know, below that or above that. So I think we look at it relative to our capital levels, relative to opportunities for capital. But I still think we have an appetite and we have the capital wherewithal to take advantage across the market when we see there's good opportunity.
spk10: Okay. And then on the PPP, you made discloses. I just missed it. What was the amount that you recognized of the PPP fees in the fourth quarter and what's the remaining level of fees to recognize from here?
spk11: Yeah, so we recognized in the fourth quarter $3.3 million in net interest revenue from PPP and $13.5 million in fees, so a total of $16.8 million on the fee side. And we have about $25 million roughly remaining on the fee side.
spk05: Got it. Okay, thank you, guys. Thank you. Thank you, Matt.
spk06: Our next question comes from the line of Gary Tenner with DA Davidson. Please proceed with your question.
spk02: Good morning. The questions largely were answered, but just as it relates, again, to the loan growth side of things, you know, I understand, obviously, a stabilization and energy book would, you know, certainly be a positive for loan growth next year or this year. In terms of the general business, and I think this was asked or answered to some degree, but are you seeing any increase in pipelines there? Are there any pockets geographically where you're seeing activity perk up more than others?
spk07: Not particularly, not at this point. I think that the point that Mark made earlier, which I think is the best one on the CNI portfolio, is Keep in mind, most of our C&I portfolio is borrowing-based driven. So it's, you know, accounts receivable, inventory, those types of things. So our utilization is really pretty low in that, particularly on a relative basis to where we were pre-pandemic. So there's an opportunity for growth there organically just from higher utilization as those, you know, receivable and inventory balances begin to come back up as people grow again, then that's an opportunity for growth organically. But I also think, as I've mentioned earlier, that The work that we've done with our borrowers and with others who may have multiple banking relationships around the Triple P has opened a really opportunistic pipeline for us to grow broadly as well. And so I think that we're well positioned once the economy begins to turn around to grow that core CNI portfolio.
spk02: Okay, and just briefly on the energy book, you talked about there are new deals out there that you're participating in or leading. Can you give us a sense for the quarter of originations in that segment versus paydowns?
spk07: I don't have that today. Certainly, the paydowns far exceeded the new originations, but we've done more than a handful of deals in the fourth quarter that were new deals. in the marketplace, and many of those we led and received fee revenue associated with that. So we're optimistic. The really question is, when do we get to the bottom of the deleveraging? And I think we're close. I just don't know if that's first quarter or second quarter, but I think we can see it from here.
spk05: All right, thanks for taking my questions. Thank you.
spk06: There are no further questions in the queue. I'd like to hand the call back over to Mr. Nell for closing remarks.
spk11: Okay. Thanks, everyone, again, for joining us this morning. We appreciate your interest in BOK Financial. If you have any further questions, please call us at 918-595-3030, or you can email us at ir at bokf.com. Have a great day. Thank you.
spk06: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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