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spk14: Greetings and welcome to the BLK Financial Corporation first quarter 2021 earnings 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 the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. Stephen Nell, Chief Financial Officer of BLK Financial Corporation. Thank you. You may begin.
spk09: Good morning, and thanks for joining us. Today, our CEO, Steve Bradshaw, will provide opening comments, and Stacey Kynes, our Chief Operating Officer, will cover our loan portfolio, credit metrics, and fee income businesses. Lastly, I'll provide details regarding net interest income, net interest margin, 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 activities. PDF of the slide presentation and first quarter press release are available on our website at BOKF.com. We refer you to the disclaimers on slide two as it pertains to any forward-looking statements we make during this call. I'll now turn the call over to Steve Bradshaw.
spk08: Good morning. Thanks for joining us to discuss the first quarter 2021 financial results. But before we get started, I'll offer a few thoughts regarding the announcement earlier this month about my plans to retire March 31st of next year. You know, after three decades with BOK Financial and more than seven years as president and CEO, this certainly wasn't an easy decision. I take a tremendous amount of pride in leading what I believe to be the best regional financial institution in the country. one with a very clear focus on long-term shareholder value. However, I'm confident BOKF has never been better positioned for this change. Our performance through the pandemic and my leadership team's resiliency and cohesiveness throughout 2020 demonstrated expertise and synergy that stems from the true hallmarks of our organization, experience, and collaboration. Over the next year, I'll be focusing on ensuring a smooth transition for my successor when that individual is formally named by the board in the coming months. Those familiar with our company know that leadership decisions are very intentional at BOKF. We run the company with a long-term perspective, which includes significant work on developing internal talent, and I fully expect the board to name an internal successor for CEO at the appropriate time. We are well-positioned to choose a successor soon, and I can reassure you that the next leader will continue the same intentional, long-term shareholder focus we are known for. In the meantime, I'll be focused on the slate of goals and objectives we develop for 2021, which will continue to improve our competitive position and our growth prospects into 2022 and beyond. With that, let's look at the most recent quarterly results. Shown on slide four, first quarter net income was $146.1 million, or $2.10 per diluted share. While that's down modestly from the record earnings performance last quarter, the difference between the first quarter of 2021 and that of 2020 could not be more stark. The key items that drove the quarter were... Another outstanding earnings result for our mortgage business as activity remained elevated this quarter despite rising rates. The contribution from our wealth management team continues to be a differentiator for us, though results were off from the consecutive record quarters in late 2020 as we had expected. The improving economic outlook combined with improving credit trends allowed us to release $25 million of our loan loss reserve. And lastly, expense management remains excellent as it has really throughout the past year. Turning to slide five, loan growth continues to be a challenge this quarter as our commercial and commercial real estate customers continue to pay down debt. While all borrowers continue to understandably reduce leverage in the challenging economic environment, we believe we are poised for growth opportunities in the latter half of 2021 as the economy continues to rebound. Deposit growth remains excellent, up nearly 3% link quarter and up nearly 30% from the same quarter a year ago, as we began to see the most recent wave of stimulus late in the quarter. Assets under management or in custody in our wealth management business continue to grow as the protracted low-rate environment encourages market investment for yield-seeking clients. Investments in equities is now 40% of our total assets under management or in custody, and that's up approximately $2 billion from year-end, which positions us to materially grow fees in our fiduciary and asset management business. I'll provide additional perspective on the results before the start of the Q&A session, but now Stacey Kynes will review the loan portfolio, our credit metrics, and our key businesses in more detail. I'll turn the call over to Stacey.
spk06: Thanks, Steve. Turning to slide seven, period-end loans in our core loan portfolio were $20.7 billion, down 3% for the quarter, as we continue to see borrowers reduce leverage as expected in early 2021. Line utilization in the overall portfolio has dropped from 68% pre-COVID to 62% at the end of the first quarter this year, with the largest declines occurring in the energy, healthcare, and general CNI portfolios, where cumulative line utilization is down from 65% pre-COVID to 58% today. As the economy continues to reopen, we feel confident that line utilizations will normalize and our positive outlook for loan growth will materialize later this year. Over the long term, we've always grown our loans at two to three times the normal rate of GDP growth, and we believe our competitive position will continue to serve us well once macroeconomic factors stabilize. Looking at the energy portfolio, balance has contracted 7.7% for the quarter. While commodity prices have continued to improve and stabilize, Sourcing new deals sufficient to offset paydowns in the current environment remains a challenge as existing borrowers continue to reduce leverage. Despite these factors, we remain optimistic for lending and energy-related revenue opportunities as we continue to support our customers in this space. This industry vertical provides a great example of how we manage the bank to long-term economic outcomes as opposed to short-term optics. During the first quarter, we recognized a $14 million gain on energy property sales from an equity interest we received as part of a workout in this most recent downturn. We have consistently indicated a willingness to own foreclosed assets. While the short-term impact of this was higher non-performing levels, we held the assets until such time the market had improved and thus were in a position to provide a full economic recovery on this loan. Healthcare balances were largely unchanged this quarter as a pocket of growth in senior housing loans was offset by a decrease in hospital system loans. Looking forward, we remain confident in our healthcare portfolio's long-term growth and credit outlook and expect it to return to its status as a growth leader for us as health and economic conditions migrate to a more normal state later this year. Triple P loan balances increased $166 million or nearly 10% and represent 8% of total loans. We originated $544 million of new Triple P loans this quarter, maintaining our strategy of focusing on our existing client base to ensure timely support of our existing client needs. Growth from new originations this quarter was partially offset by paydowns of the first round of loans. Forgiveness activity from previous rounds of Triple P were slower in the first quarter than our expectations. The net interest revenue impact was about $10 million less than we anticipated. This should just move into future periods when the forgiveness occurs. Looking ahead, we remain optimistic in our outlook for loan growth in the latter half of this year once these unprecedented levels of liquidity normalize. The speed of vaccine distributions and the resulting broader economic recovery today leads us to believe confidence and resulting capital investment will return to the U.S. economy later this year. Turning to slide 8, you can see that credit quality continues to be a clear differentiator for BOKF. We saw meaningful credit quality improvement across the broader loan portfolio with below expectation charge-offs and criticized asset levels this quarter. This, coupled with the near-term stability in commodity prices and dramatically improving economic metrics, led us to release $25 million in reserves this quarter. Net charge-offs were down from $16.7 million, or 31 basis points annualized net of Triple P loans in the fourth quarter, to $14.5 million, or 28 basis points annualized net of Triple P loans this quarter. Net charge-offs totaled 31 basis points net of Triple P loans over the last four quarters, at the lower end of our historic loss range. The combined allowance for loan losses totaled $385 million, or 1.86% of outstanding loans at quarter end, excluding Triple P loans. The combined allowance for credit losses attributed to energy was 3.29% of outstanding energy loans on March 31st. Non-accruing loans decreased significantly, down 19 million from last quarter, primarily due to a reduction in non-accruing energy loans. Potential problem loans totaled 422 million at quarter end, down significantly from 478 million on December the 31st. Almost all potential problem loan classes were down compared to the prior quarter, led by potential problem energy and general business loans. Looking ahead from a credit perspective, there is still a degree of uncertainty in the current environment, so it remains difficult to predict. 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 consistent with our experience over the last 12 months. We will continue to set our reserve at the appropriate level as we always have. We are generally positive about the credit outlook for the remainder of the year, allowing us to continue to release this quarter. Once we have more clarity around the spread 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. Turning to slide nine, you can see that brokerage and trading fee revenues are down this quarter. When looking at fee income and net interest income generated from our brokerage and trading business comprehensively, the business is down about 15 million link quarter. This is largely due to some reversion from record volumes in the third and fourth quarters and compressing margins in the mortgage industry that impacted trading margins by about 70 basis points compared to the last quarter. In addition, customer hedging revenue decreased $2.1 million, primarily due to a modest decrease in energy customer hedging activities from the record fourth quarter. Investment banking revenue decreased $2.1 million, mainly due to timing of loan syndication activity. While the net interest revenue and trading revenue related to our enhanced mortgage trading desk experienced a slowdown from the record levels in 2020, as expected, it is still a major contributor to the overall success of the company and is still up over 15% from the same quarter a year ago. Mortgage banking revenue decreased roughly 2.2 million link quarter, but remains strong despite a national lack of housing inventory and rising interest rates. While margins have thinned relative to historic levels in the summer of 2020, they remain roughly 45% above where they were in March of 2020. Total production volume this quarter remained consistent with prior quarters, and looking ahead, inventory constraints could continue to build a case for these elevated production levels to be sustainable, as it will take a while before inventory is materially improved. Other revenue increased $2.1 million this quarter due to higher revenue from repossessed oil and gas properties. Although not included on slide nine, I will also note that net economic changes in the fair value of mortgage serving rights and related economic hedges were positive 4.7 million during the quarter. I'll now turn the call over to Stephen to highlight our NIM dynamics and the important balance sheet items for the quarter. Stephen?
spk09: Thanks, Stacy. Turning to slide 11, first quarter net interest revenue was 280 million, down about 17 million from last quarter. While the core yields in our loan portfolio were relatively stable, a reduction in average loan volumes and the timing of loan fees, including a $2 million decline in Triple P fees linked quarter, was a drag on net interest revenue this quarter. Net interest margin was 2.62%, down 10 basis points from the previous quarter. Lower average outstanding loan balances coupled with the reinvestment of cash flows from our available per sale securities portfolio continued to impact net interest margin, with the portfolio yield declining 14 basis points to 1.84%. Additionally, while we did have success driving interest-bearing deposit costs down slightly to 17 basis points, this was at a decreased pace from previous quarters. 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 continue to impact net interest margin in the coming quarters. Turning to slide 12, expense management remains prudent, with total expenses down 6% linked quarter. Personnel expense was down 3.2 million, or nearly 2% this quarter. Cash-based incentive compensation decreased 8.2 million, primarily due to decreased brokerage activity mentioned earlier. Deferred compensation, which is largely offset by a decrease in the value of related investments included in other gains and losses, decreased $3.4 million. Employee benefits increased $6.4 million, primarily due to a seasonal increase in payroll taxes and retirement plan expenses. All told, we're very happy with our ability to hold the personnel cost efficiencies earned through the pandemic. even with medical expenses increasing $1.7 million year-over-year as employees now seek wellness and other treatments deferred in 2020. Non-personnel expense was down nearly $15 million, or 12% from the fourth quarter. Half of this decrease was due to a $14.1 million gain on the sale of equity interest received as part of the workout of a defaulted energy loan, partially offset by additional expense and write-down of a set of oil and gas properties in the first quarter. The remaining decrease in non-personnel expense was due to a decrease in business promotion expense of 1.6 million, a decrease of 2.3 million in professional fees and services, a decrease of 1.6 million in recruiting expense, and a decrease in occupancy and equipment of 1.2 million, partially offset by an increase in 2.4 million spent on ongoing technology projects. Additionally, we made a $4 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. On slide 13, our liquidity position remains very strong given the continued inflow of deposit balances. Our loan-to-deposit ratio is now below 60%. compared to nearly 64% at year end, providing significant on-balance sheet liquidity to meet future customer needs. Our capital levels remain strong as well, with a common equity tier one ratio of 12.1%, well ahead of our internal operating range minimum. With such a strong capital level, We once again were active with share repurchase, opportunistically repurchasing 260,000 shares at an average price of $77.20 per share in the open market. On slide 14, I'll leave you with a general outlook for the near and mid-term. We believe net activity and loan growth will slowly accelerate in tandem with the broader economic recovery this year, excluding the impact of Triple P. Our available for sale securities portfolio, which is largely agency mortgage-backed securities, yielded 1.84% during the first quarter. Given the sustained low rate environment, prepayments could reach approximately $700 million per quarter. We can currently reinvest those cash flows at rates around 95 to 105 basis points. At 17 basis points, we believe we are close to the bottom in deposit pricing. The combination of securities reinvestment at lower rates and minimal room to further lower deposit costs will push net interest margin lower in the coming quarters. Our diverse portfolio of fee revenue streams should continue to provide some mitigating impact to overall revenue pressure 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, as we mentioned late last year. 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 in our competitive position. If the economy continues to improve and we get further oil price stability this year, 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. We intend to bring all our employees back to the office by the end of the second quarter, given improving health metrics and the wide vaccine availability. I'll now turn the call back over to Steve Bradshaw for closing commentary.
spk08: Thank you, Steven. All told, it was a solid quarter for BOK Financial. Our mortgage and wealth management businesses, while down on a quarterly comparison, continue to offer a significant offset to the depressed loan demand that plagues the industry in presenting a differentiated shareholder value for our company. Credit quality outcomes this quarter are a testament to not only how well we've managed the ongoing crisis, but more importantly, our ability to remain disciplined with credit decisions in more favorable parts of the cycle. We agree with most forecasts that we are on the cusp of a period of rapid economic growth heading into the latter half of this year, and we believe that will translate to loan growth, an area BOKF has never been better positioned to take advantage of than it is today. In the near term, as Stephen mentioned in his outlook, we intend to bring all employees back to the office, By the end of the second quarter, given improving health metrics and the wide vaccine availability, we know that we're better together and believe this will act as yet another positive catalyst to our efforts to grow relationships and add new ones in the second half of this year. With that, we're pleased to take your questions. Operator?
spk14: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 Peter Winter with Wedbush Securities. Please proceed with your question.
spk13: Good morning. Good morning. I wanted to ask about the loan pipeline. Can you just give a little bit more color on the tailwind that you're expecting just based on the discussions you're having with clients? And then also just the extent of this excess liquidity on our balance sheets and how it's impacting their ability to, appetite to borrow.
spk06: Sure, I'll talk about the loan pipeline and then turn it over to Steven to talk about the excess liquidity. I think we are seeing opportunities. Pipelines are growing really across the lending segment. But the level of liquidity that exists in our clients' balance sheets is still very high. But if you look at our lack of loan growth, if you will, this quarter, you really see two segments that traditionally lead for us. Both energy and commercial real estate were down larger than normal. And I think you heard me talk about in the fourth quarter, call that we really thought energy would probably kind of bottom out or reach an inflection point. We were hopeful in the first quarter, but thought it was more likely in the second quarter. I feel more confident today that we'll hit that inflection point in the second quarter for energy as we begin to work through the payoffs. Energy prices were very good in the first quarter. Most of those borrowers used that extra cash flow to pay down debt. We had some anomalies in commercial real estate where we had a higher level of paydowns in the first quarter. That area is going to grow just fine. So I think once those stabilize and can begin to show growth again, I think that's really masking some good activity that we hope to see. And we're still hopeful in the second half of the year. We're very optimistic that you'll begin to see some core loan growth that will come out of that portfolio, which is why we highlighted the utilization in our commentary. We've got a lot of organic growth that will happen just by higher line utilization in our CNI book in particular. And so once there's core economic activity that returns, I think there's going to be some really good line utilization increases that will, beyond new customer acquisition, will help us grow our loans in the second half of the year. So we feel good about that. Clearly, it's hard to predict. You've got high liquidity on your customer's balance sheets. But there's a lot of stimulus, and there's more stimulus proposed, and we think that that's going to lead to higher economic activity that will organically increase loan activity. But we feel good about it. And we feel good about the quality of loans that we're adding to. We're focused on segments that are sustainable and meet our credit fairway over a long period of time, and so we're not going to chase loan growth to meet a market expectation, but we'll stick to the core loan growth that has served us very well for a very long period of time. I'll turn it over to Stephen to talk about the excess liquidity.
spk09: Yeah, so Peter, I was looking at our average deposits just from a year ago, and they're up $8.3 billion, 29%, and 4.2 of that is in our commercial portfolios or our commercial clients, 35% increase. So clearly, as you pointed out, I mean, there's significant liquidity on balance sheets. And how that plays into, you know, when will that get used? And if some of that will get used prior to the loan growth that Stacy's pretty confident about, you know, could be. And we don't know the answer to that. So, yeah, significant liquidity and certainly may play into usage of some of that before we, you know, get some of the line utilization. We just don't know how much.
spk06: But I think if you really go back to that liquidity, part of that is just the core quality of our franchise. We continue to attract high-quality customers and deposits. even though you've seen our cost of interest-bearing deposits continue to decline quarterly, quarter over quarter, the movement that we've made there over the last 12 months is really very strong. In spite of the fact that we're really not paying at a high level for those deposits, we're continuing to attract those, really speaks to the core franchise value of BOK Financial.
spk13: Can I just ask a follow-up just on this line utilization? You mentioned, Stacey, that The core portfolio's line utilization went from 65% to 58% today. How much for every one percentage point increase in line utilization, does that impact commercial loans? And where do you think it could go to by year end?
spk06: In general, 1% is about $150 million. So plus or minus from there, you can kind of do the math from there and see what you think. We use pre-COVID as kind of a standard, we felt like that was a representative period for line utilization. If you get higher economic activity than what we had pre-COVID, which is probably likely, then you'll get higher line utilization that will exceed what we were pre-COVID.
spk02: Okay. Thanks for taking my questions. Thank you, Peter.
spk14: Thank you. Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.
spk03: Hey, good morning. This is Will Jones on Brady Gailey. How are you guys? Good. Good. Hey, good. So just piggybacking off of loan growth for just one sec, you know, just thinking about loans as a whole, I know energy has really kind of been a lot of the burden here lately. Do you feel like balances today are kind of at a low watermark on the total portfolio? Or do you feel like there could be more shrinkage to come?
spk06: Well, I think if you look at what we're calling the core loan portfolio, so if you look on slide seven where we break out the Paycheck Protection Program, I think that those loans will run their course. And so if you see that, that can provide some headwind in the future as those get forgiven and will roll off. But in the core portfolio, clearly energy has been the headwind. This quarter, real estate was also a headwind, which traditionally is an area we've seen grown pretty radibly over time. The inflection point, I believe, is in the second quarter. Whether that's April, May, or June, I don't know, but I do think that we'll reach the inflection point where we do kind of bottom out in the second quarter at some point, and then that's the level that we begin to grow back from. We're seeing opportunities in energy. I think that even at The rising commodity prices in my view in the first quarter had a higher level, resulted in a higher level of pay down activity than even what we were anticipating and forecasting because those borrowers weren't using that cash flow for CapEx. They were using that to continue to pay down revolvers. I think that we're within a quarter here of reaching that inflection point, and then you'll begin to see loans begin to grow back. As we've pointed to now for two quarters, second half of 21 is really when we're expecting the core loan growth to return.
spk03: Great. That's great color, and it's really good to hear the optimism on energy. I hope that plays out. Honestly, for me, I just wanted to move over to just thinking about M&A. I know BOKF has historically been pretty selective, and it's deal pricing and deal choosing, but we've seen a great deal of activity already this year, including Cadence and Bancor South. That was I mean, really kind of right in BOK's backyard. Just curious on your thoughts on a transaction of that magnitude, if BOK would ever be interested in that. And just more broadly speaking, how active do you think BOK could be in M&A this year?
spk08: Yeah, this is Steve Bradshaw. I'll take that one. you know, we certainly acknowledge what's kind of going on in the financial sector from a consolidation perspective. In fact, it seems even a little bit more acute in similar size banks to BOKF, including those two that you just mentioned. And I think, you know, to me, there's two major drivers for that. One is the opportunity or desire to spread the expense-based more broadly. And we have an interest in that, and in our most recent transactions, that's been a key element for us as well. The second driver really is investment in technology, and you see that kind of mentioned time after time. I'll tell you that we don't feel the same level of competitive urgency because we've not taken any time off. We've continued to invest in technology as an increasing percentage of our revenues, really for the last five or six years plus, and like our competitive position and feel like we are on track and are able to compete upmarket with large investment firms as well as national banks. So that's not as big a motivation for us. So we kind of come back to our core belief on M&A. We really want to see banks largely within footprint that are high quality, have great employees and management teams, and have a broad business base. Now, we don't expect them to have the same base as us because we're unique even among our peers. But we want to see something more than a large real estate portfolio, frankly, because we're going to have to, after we realize those energy, or not energy, but expense synergies, we have to grow it going forward. And so our mindset is really, we use revenue as the guidepost for our acquisitions. Can we add an acquisition that we think would be additive to revenue going forward? The other second part of your question was really size. Yes, if the size that we're at today, it would have to be a more meaningful transaction for us than what we've done in the past. The most recent acquisition we did was about $4 billion in assets, and it would need to be north of that in order to really move the needle in terms of expense saves and revenue growth, and also be worth the kind of inherent distraction that you introduce inside your culture when you're assimilating one organization into another. So long answer to a short question, but I know it's on everybody's mind as we've seen so much activity and some deals announced just really even as recently as this week. But that's how we're thinking about it. We would expect to have an opportunity to participate in acquisitions going forward. But I think the bank that I described for you is probably not a seller in today's economic environment. I think we're going to have to see some economic expansion and sustainability before the banks that are really in our sweet spot think it's a good opportunity to merge.
spk03: Got it. Yeah, it makes total sense. Thanks for taking my question.
spk00: Sure.
spk14: Thank you. Our next question comes from the line of Brett Rabitin with Hubby Group. Please proceed with your question.
spk15: Hey, guys. Good morning.
spk02: Good morning.
spk15: Congratulations, Steve, on your planned retirement.
spk08: Thank you. I appreciate that.
spk10: I wanted to ask, I guess, first about the reserve, you know, and just thinking about reserve release from here. You know, you had a reserve that got below 1%, you know, pre-CECL. And I'm just curious, you know, how do you guys think about where the reserve might be able to get to, you know, in this new CECL world, you know, assuming the economy gets to kind of a roaring 20s scenario where things are pretty good? You know, how do you view the potential for the reserve to go down from here?
spk05: Yeah, this is Mark Mon. First of all, just as a reminder, when CECL was implemented, there's a day one reserve adjustment that had to be made. So before the impact of the pandemic and so forth on our reserve, we had added a reserve that took it more to 1.2%. So it came above the below 1% level. And then we added on additional reserve bills related to the economic downturn and the pandemic. And so as we evaluate the future of the reserve, we'll be taking into account the economic conditions. We'll be taking into account our credit quality metrics, both of which we think will continue to improve throughout this year. And then the other factor will be loan growth. And as that impacts it, we want to make sure we're managing it at the appropriate level to to address that. So the combination of that, we hope that it'll come down to that 1.2% level, but it'll be a combination of supporting loan growth as well as looking at potential reserve releases associated with credit quality and economic outlook.
spk10: Okay, fair enough. And then on fee income, the guidance, I guess if you want to call it that, is for the categories to grow modestly with the exception of brokerage and trading and mortgage. Can you give us any thoughts around one mortgage from here? Do you think gain on sale margins are going to continue atrophying or do you think 1Q sort of encapsulated the pressure that you get from where we were previously with volumes? And then just secondly on brokerage and trading, Obviously, volatility here the past two quarters. Can you give us maybe some thoughts around how things play out there as volatility in that business flows as well?
spk06: Sure. This is Stacy. And we've got Scott Grower here as well who can chime in on the wealth side as well. But I think as it relates to mortgage, I think we feel good about going into the second quarter. You know, you've got some seasonality in the mortgage business where your second and third quarters tend to be pretty good quarters from an activity perspective. That's going to help us a little bit. You have seen some thinning of the gain on sale margins there, but they're still really good on a relative basis to kind of what normal is for that business. And so that's still a really good place to be. Even though they've fallen, they're still really strong. There could be some pressure there, but it doesn't feel like a return to pre-COVID levels, if you will, in terms of where that is, at least from what we're seeing today. So I feel good about kind of the next couple of quarters as it relates to mortgage. I feel really good about our growth in our wealth business, the brokerage and trading revenue broadly, but all that's happening there. We really feel like what you saw in the first quarter is a number that we can do really well with and maybe hopefully outperform into the second quarter particularly. That is a sustainable number and one we think we can actually grow from a little bit, as Stephen alluded to in his prepared comments. So we feel good about where we're positioned in both of those businesses. They are volatile. If you look at the overall wealth business, brokerage and trading, both the NIR and the brokerage and trading fee revenue component, so total revenue for that business, it's up 15% first quarter over first quarter. So you've got that tough comp with the fourth quarter where it was just a record. And I don't want to lose sight of the fact that that core business has grown substantially. And we continue to commit capital to that. So our capital commitment to the wealth business is up over 50%. from this time a year ago, and we'll continue to support that because we really like that business.
spk02: Okay. Appreciate the cover. Thanks, guys.
spk14: Thank you. Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your question.
spk02: Hi, this is John Rowan for Jared. Good morning. Good morning.
spk04: I guess just sticking on the Wells side, looking at the, as it's under management and administration, kind of flattish quarter over quarter. And you also mentioned the $2 billion increase in equity balances. Can you give any color on, I guess, what the differential between inflows or outflows and changes in market value were driving that balance?
spk01: Sure. So this is Scott Grauer. And when you look at our total AUMA, we're We were actually really pleased with net inflows in the first quarter. We have, during the course of the first quarter, very high planned distributions of assets, a lot of it in our corporate trust group. So we had total disbursements in the first quarter of over 11 billion, and so we saw net sales new sales of over 10 billion, so there was really kind of a moderate market increase of those total AUMA.
spk02: Okay, great, that's helpful.
spk06: The first quarter seems to be a seasonal high for that, distributions from that, so that's a big factor there.
spk04: Okay, great, that's helpful. And then I guess just talking about the building equities in that business, is that kind of a longer-term focus? Or I guess would you like to have it be more weighted towards equities to maybe protect the margin a little bit more, I guess just higher level? What are your plans on that?
spk01: Yeah. And so actually we like our allocation and our distribution amongst the asset classes. You know, we have continued – to see as have the broader markets. With fixed income at these nominal yields and real yields, equities obviously have just a better momentum in terms of asset flows. When you look at end of first quarter, we were, just to give you an allocation, we were 12% cash, 42% fixed income, 38% equities, and about 8% in alternatives. And that's a consistent mix. We're getting a mix reflected of the assets that is on track with our target allocations. So we feel good about that distribution to weather and grow regardless of rate and equity market performance. So we feel good about it. We're always gonna see efforts to try to grow Our equity inflows because that's where flows in general are netting out positive in the overall market Okay, thanks for the good Thank you our next question comes from line of Matt only with Stevens, please proceed with your question
spk11: Great. Thank you. I want to circle back on the loan growth discussion, and you covered the energy topic pretty well. I wanted to ask about commercial real estate. It's not particularly large at the bank, but we did see a pretty decent-sized decline in the first quarter. Any color on what drove that decline, and what's the outlook on commercial real estate?
spk06: No, we feel good about the portfolio. I mean, at least for us, you want a commercial real estate portfolio that has some level of churn in it that indicates the deals are performing well and can be refinanced long-term in the permanent financing market, whether that's LifeCo or CMBS or whatever. We saw in 2020, because of the pandemic, the lowest level of payoffs as a result of movement to the permanent financing market that we've seen in the last 10 years, for sure. And so what you saw in the first quarter was really more a return to normalcy of kind of normal paydowns where things are moving. You had maybe a little higher level of it because you had some pent-up opportunity there. Commercial real estate, both the growth and the paydowns, tend to be lumpy and best to look at over a 12-month horizon as opposed to kind of linked quarter annualized. We'll be fine there. We'll have good growth in commercial real estate. We think this year you're just going to have some lumpiness from quarter to quarter as those advances and then the refis into the permanent financing market, non-recourse, you know, long-term, LIFCO type stuff will move out of the portfolio. And that, from our view, is the sign of a healthy portfolio. And that's our view about that.
spk11: Okay. Thanks, Stacey. And then on the health care side, I think overall balances were relatively stable in the first quarter, but kind of a mixed shift. Growth in senior housing, paydowns in hospital. Any more details you can provide? And is that any kind of inflection that we saw in the first quarter?
spk06: Yeah, I think that is the inflection. You know, we had some hospital systems advance up in preparation for COVID and the expense associated with that. I think we've seen kind of the tail of that in the first quarter where those have paid back down and then you saw that senior housing core growth begin to come back. We're really seeing really good metrics coming out of our portfolios inside of senior housing. We can monitor it on a weekly basis. We're watching occupancy come back up almost about 1% a month in our core senior housing portfolio. So once that portfolio really begins to stabilize, we do think there's some pent up acquisition activity that can happen there that will spur loan growth on the healthcare side. We've got a great team. We're well positioned for that. And I think that will continue to be a growth driver for BOK Financial.
spk15: Okay. Thank you.
spk14: Thank you. Our next question comes from the line of Gary Turner with DA Davidson. Please proceed with your question.
spk12: Thanks. Good morning, everybody. Good morning. Hey, I wanted to ask about how you're thinking about overall balance sheet management over the course of this year. You are pretty fully invested, it seems like, in the securities portfolio. You do have some kind of excess balances, but not nearly to the maybe extreme that some other banks do, several billion in cash. And I'm just wondering how you're thinking about the potential for some shift in deposit flows over the course of this year as your customers use their liquidity. and put that to work, and given particularly the low rates that you were talking about in terms of reinvestment?
spk09: Yeah, so this is Steven. I mean, if you look over the course of the year, we actually increased our available for sale securities portfolio $1.8 billion, so that's like 15%. So we did kind of put to work, if you will, over the course of the year some of the liquidity that was flowing our direction. We, in fact, added $400 million this particular quarter, first quarter. You know, we'll reinvest cash flows, I think, going forward, but given the little bit steeper yield curve, I doubt if you'll see us leverage up, if you will, that security portfolio much more. I kind of like where the balance sheet is. We don't venture out. We haven't historically ventured out too asset-sensitive in previous periods. I think if you look at a parallel shock of 100 basis points, we're about 2.5% asset sensitive going forward, and that's a pretty good level for us. We're comfortable with that. So that's really, I think, what we're thinking about in terms of the securities portfolio, which is our primary lever for managing interest rate risk here at the bank, and leaving that relatively stable by reinvesting cash flows, which actually are a little bit better than they were in the previous quarter. I think our cash flow has slowed down a bit and the reinvestment rates are a little bit stronger than they were last quarter, so that's helpful as well.
spk06: The other thing, this is Stacy, I might speak to is, particularly as people think about and start to project more asset sensitivity, When you look at various disclosures around that, there are just a host of assumptions that go into that sensitivity analysis. And it's very hard to get apples to apples comparisons across the regional bank spectrum in terms of exactly how folks are looking at that. But I would encourage the analyst community to go look at actual results the last time rates went up. I mean, if you think about, you know, we've had a recent cycle pre-COVID where rates were rising and you could really see the performance of folks' balance sheet as a result of that. I think that's a better indicator in many respects than what folks are going to project through their Q and K around asset sensitivity as we think about this going forward.
spk12: Thanks for that. Stephen, going back to my initial question, I apologize if I didn't ask it clearly. I guess what I was really asking is, given that you don't have as much excess liquidity on the balance sheet, do you Do you not have any major concerns about outflow of customer deposits as some of the stimulus burns off, whereas other banks are holding a lot more excess liquidity? So I was really asking how you think about that.
spk09: I don't think we do. I mean, I kind of described earlier the increase in those balances. I mean, Scott's world in wealth has increased a couple of billion. There could be some outflows of that in the future if they find other places to invest, but I don't think we're too concerned about all that flowing away anytime soon.
spk12: Okay, that's great. And then kind of following up on Stacy's comments, Stephen, if you could maybe give us just a quick overview of kind of where BOKF is positioned in a loan portfolio from variable versus fixed rate loans and kind of the impact of floors potentially as we do get towards higher rates.
spk09: So about 70% of our loans are either variable or they're going to reprice within a year. So that gives you an idea there. We have, of the $22 billion loan portfolio, about $3.8 billion, maybe it's $3.4 billion has floors embedded in it. We're getting a benefit of about $18 to $20 million annualized on those floors, and they're supporting them about four basis points.
spk12: And then just last one, if I could squeeze one more question in here. In terms of PPP, with the addition of the second round here, can you just tell us what the total remaining fees are yet to be recognized through that line?
spk09: Yes, I can do that. So the original 2020 fundings of $2.3 billion on PPP, we had fees associated with that of about $59 million. And the first quarter of 2021 fundings this last round. There's fees about 23 million associated with that. So a total of about 82 million. And we recognize 36 million in 2020. We kind of expect to recognize around 30 million in 2021. And then, you know, we'll see how the rest flows out. But, you know, likely most of it in 2022 for the remainder of that balance.
spk12: Okay, and of the $30 million to expect in 2021, how much was recognized in the first quarter?
spk09: About $11 million of just the fees. Now, you know, you've got the interest and, of course, the cost of funds against the 1%. So the total PPP NIR benefit in the first quarter was about $14 million, which is down a little bit from the fourth quarter. That's one of the reasons... that our NIM declined a little bit more than what we expected just because of that PPP activity. But that's probably just a push in the future quarters.
spk12: Great. Thanks for taking my questions.
spk02: Sure.
spk14: Thank you. Our next question comes from the line of Jennifer Demba with Truist Securities. Please proceed with your question.
spk07: Thank you. Good morning.
spk00: Hi. Good morning.
spk07: I'm curious. How are you thinking about energy loan competition over the next few years? We've seen some of your competitors kind of back away from the space and say they maybe have a little bit less appetite there, at least over the near term. How do you think that's going to play out?
spk06: Well, we think it plays out to our benefit. I mean, I think if you think about, you know, we're about 13%, I guess, of our portfolio's energy loans today. We've been as high as 22%. We have lots of capital that we're willing to commit to this space. I think that as we look forward, I think that creates opportunity for us. We've often talked about, you know, what we like about energy is a full share of customers' wallets. So we do derivatives trading. We have the private bank business with the executive team. We have their 401k. We have their deposit business. And we have really good risk-adjusted spreads in that business as well. And so we like, as we look forward over the next two, three, four, five years, we really like the profile of this business and the opportunity to grow it because, as you've mentioned, You know, you are having some smaller competitors who are walking away from it. Now, what will be interesting to see is it's easy to walk away from that business when, you know, commodity prices are a struggle and executives have to talk about asset quality on an earnings call. You know, as you build some good results in this business going forward, you may have some folks who step back into the business, particularly in our footprint. We are really excited about where we're positioned here. I mean, if you think about our place in the league tables relative to production in this business, we are competitive with the very large national banks here. And so as this area begins to return, seeing some information just over the last week that talks about storage levels globally are at pre-COVID levels today. But demand levels are not at pre-COVID levels. So if you just kind of see that through, I think there could be some more tailwind for some prices in the short term, which would be positive. But I think we really like the business. We like where we're positioned in the business. I don't think there's a better energy team in the country than at BOK Financial. So we're excited to grow the business.
spk07: Thanks so much, Jason.
spk14: Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Nell for any final comments.
spk09: Okay. Thanks again, everyone, for joining us today. We appreciate your interest in BOK Financial. If you have any further questions, please call me at 918-595-3030, or you can email us at ir at bokf.com. Have a great day. Thank you.
spk14: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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