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spk05: Greetings. Welcome to BOK Financial Corporation fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 would now like to turn the presentation over to Marty Gruntz, Chief Financial Officer for BOK Financial. Financial Corporation, please proceed.
spk03: Good morning, and thank you for joining us to discuss BOK Financial's fourth quarter financial results. Our CEO, Stacey Kimes, will provide opening comments. Mark Maughan, Executive Vice President for Regional Banking, will cover our loan portfolio and related credit metrics. And Scott Brower, Executive Vice President of Wealth Management, will cover our fee-based results. I will then discuss financial performance for the quarter and our forward guidance. 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 regarding any forward-looking statements we make during this call. I'll now turn the call over to Stacy Kimes.
spk11: Thank you, Marty. Good morning, everyone. Beginning on slide four, we reported net income of $82.6 million, or $1.26 per diluted share for the fourth quarter. which includes a 52 cent per share impact from the FDIC special assessment. I'm exceptionally proud of the BOKF team and our results this year. Our focus at BOKF has always been on providing long-term shareholder value driven by our diverse business model and talented team, both of which empower us to perform well relative to our industry during any economic environment. This was once again proven when the industry faced stress in the first half of the year and our company was well prepared. Our discipline in risk management, which extends beyond the credit risk management that has long been a strength, resulted in strong levels of capital and liquidity at an important time. We took advantage of this position to thoughtfully grow when others are pulling back. We've made real investments in growing our core C&I, while also investing in people and new markets like Central Texas. While the fourth quarter was exceptionally noisy with numerous non-recurring items, Our core results were very strong, resulting in a great starting point for 2024. We continue to make strategic decisions to buoy our capital where growth and returns are highest. This was reflected in our decision to exit our insurance brokerage and consulting business in the fourth quarter. This resulted in a pre-tax gain of $28 million after transaction expense, which we used to opportunistically restructure a small portion of our available for sale securities portfolio which will be accretive to the interest revenue and the margin in the months ahead. Staying on this slide, our efficiency ratio was 72% for the quarter. This falls to 67%, excluding the impact of the FDIC Special Assessment and the activity related to the sale of our insurance brokerage and consulting business, which Marty will highlight later. Let me briefly diverge and comment on the FDIC Special Assessment. which I understand most will see as non-recurring and normalized for the period. The FDIC's methodology was flawed and did not use the root cause of the issues, which was low levels of fully loaded tangible capital caused by poor asset liability risk management decisions. The final rule was disappointing as they ignored many thoughtful comment letters, including our own. They announced the public hearing, subsequently canceled the public hearing, before voted 3-2 along partisan lines to adopt the final rule. This continues a disconcerting trend of increasing partisanship in banking regulation. The U.S. is the only country that has allowed partisanship to invade the banking regulatory process. Banking is a noble profession. We are well aligned with our customers. Collaboration with our industry is necessary and a missing element today. Moving on, we believe the strategic decisions and investments we've made this year have us well-positioned for success in the long term, and our diverse operating model will continue to operate successfully in any market environment going forward. Turning to slide five, period-end loan balances increased $181 million, or approximately 1% in the quarter, with growth in both C&I and commercial real estate. Loan growth did slow in the fourth quarter, but our teams remain confident in our pipelines as we move forward. Both period and average deposits continue to grow this quarter. Our loan-to-deposit ratio was stable at 70.3%, remaining well below our peers and providing significant unbalanced liquidity to meet future loan or other liquidity demands. While our cost of deposits continue to increase this quarter, the pace was less than half the level we've experienced the previous three quarters, allowing our net interest margins to stabilize. Marty will comment more about net interest revenues, but we believe we are very close to the trough. Our credit remains very strong and we have a combined reserve of $326 million, or 1.36% of outstanding loans at quarter end, which is considerably above the median of our peer group. Finally, we repurchased 700,237 shares this quarter to reflect our long-term confidence in the company and to take advantage of attractive repurchase valuations. I'll provide additional perspective on the results before starting the Q&A session, but now Mark Vaughn will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to him.
spk12: Thanks, Stacey. Turning to slide 7, period end loans were $23.9 billion, growing $181 million, or almost 1% in the quarter. Total C&I loans increased $84 million, or 0.6% in the quarter, with year-over-year growth of $591 million, or 4.2%. Commercial real estate loans grew 96 million, or 1.8% length quarter, and have increased 731 million, or 15.9% year-over-year. Compared to December 31, 2020, CRE balances have grown at a modest 4.1% annualized growth rate. Growth this quarter was primarily driven by multifamily properties, with an increase of $138 million, and industrial facility loans, with an increase of $43 million. This growth was partially offset by a decrease in $72 million in office loans, bringing the total office loan portfolio to its lowest point since 2018. The year-over-year CRE growth of $731 million was also driven by multifamily and industrial loans, and again, partially offset by a decline in office loans. We have an internal limit of 185% of Tier 1 capital and reserves to total CRE commitments, and we're presently at 172%. That limit is based on total commitments, so we do have ample room for continued modest growth and outstanding CRE balances as construction loans fund up. As of December 31, CRE balances represented 22% of total loans, consistent with the prior quarter, a ratio well below our peers. Combined services and general business loans, our core C&I loans, increased 77 million or 1.1%, with year-over-year growth of 281 million or 4%. These combined categories are 30% of our total loan portfolio. Healthcare balances increased 60 million or 1.5% in the quarter and have grown 298 million or 7.8% year-over-year, primarily driven by our senior housing sector. Healthcare loans represent 17% in total. Energy loan balances decreased 53.5 million in the quarter and have increased 12 million or 0.4% year-over-year, with period end balances at 14% of total period end loans. Year over year, loans have grown 1.3 billion or 6%. Excluding Triple P loans, Q4 2023 extends the linked quarter loan growth to nine consecutive quarters. Our current pipeline is strong and combined CNI and CRE commitments increase 2% in the quarter. We expect continued strong momentum to drive additional loan growth in 2024. Turning to slide 8, you can see that our credit quality continues to be exceptionally good across the loan portfolio with credit metrics well below historical norms and pre-pandemic levels. Non-performing assets, excluding those guaranteed by U.S. government agencies, increased $26 million this quarter. The resulting non-performing assets to period end loans and repossessed assets did increase 10 basis points, 2.62%. Non-accruing loans increased $26 million late quarter, primarily driven by an increase in health care loans. The increase is consistent with non-accrual fluctuations in a narrow range experienced over the past two years with no indication of systemic issues. Committed criticized assets were 10.2% of Tier 1 capital and reserves at year-end 2023, the second consecutive year below 10.5% and the third below 13% compared to an 18% ratio pre-pandemic. The provision for credit losses of $6 million in the fourth quarter reflects a stable economic forecast and continued loan growth, as well as continued low net charge-offs. Net charge-offs were $4.1 million, or seven basis points annualized for the fourth quarter, and have averaged eight basis points over the last 12 months, continuing the trend of performance far below our historical loss range of 30 to 40 basis points. Looking forward, we expect net charge-offs to remain below historical norms. The markets continue to be focused on the office segment of real estate given the trends in workforce preferences. Our exposure to loans secured by office CRE continues to decline as we intentionally manage that segment down, now representing less than 4% of our total loan portfolio. Our office maturities are generally rateable over the next three to four years, and we have a mini-perm option if the markets are not conducive to long-term permanent financing. The combined allowance for credit losses was $326 million, or 1.36% of outstanding loans at quarter end. The reserve is sufficient to cover our non-performing assets by 2.2 times. The total combined allowance is available for all losses, and any apples-to-apples industry comparison should include the combined reserves. We expect to maintain an appropriate reserve supporting loan growth in reflective economic conditions. Overall, we remain in a solid credit position today with a stable economic outlook. While our current credit metrics may be unsustainable in weaker economic environments, we have a history of outperformance during past credit cycles and are well positioned should an economic slowdown materialize in the quarters ahead. I'll turn the call over to Scott.
spk14: Thanks, Mark. Turning to slide 10, total fees and commissions were $196.8 million. relatively consistent with the previous quarter. However, the previous quarter included record high results for our wealth management segment, with fourth quarter's wealth results still representing their third highest fee income quarter ever. Trading fees increased $1.1 million as sales activities related to our institutional customers continued to improve, with some lift provided by our recent Memphis expansion, partially offset by a linked quarter decline in our MBS trading activities. Our bank-wide investment banking activities fell 2.4 million linked quarter as the third quarter benefited from a record quarter for wealth public and corporate finance group. Although down from their third quarter record high, the public and corporate finance group recorded their largest single transaction in their history during the fourth quarter. Wealth management had a record year in 2023. achieving total revenue of $656 million, which equips the prior record set in 2020 by $140 million, resulting in an annualized three-year growth rate of 8.4%. This was driven by record 2023 revenue in the majority of our business units, including corporate trust, retirement plan and asset services, private wealth, customer hedging, and investment banking. Transaction card revenue increased 2.5 million, and all other fee-generating categories remained relatively unchanged compared to the previous quarter, demonstrating the consistent positive results we see from these business lines. Our assets under management or administration were 104.8 billion at the end of the year, including an asset mix of 43% fixed income, 33% equities, 16% cash, and 8% alternatives. Our diverse mix of fee income continues to be a strategic differentiator for us and allows us to perform well in a variety of economic environments. We consistently rank in the top decile for fee income as a percentage of total net interest revenue and non-interest fee income. Our revenue mix has averaged 38% during the last 12 months. With that, I'll turn the call over to Marty.
spk03: Thank you, Scott. I'd like to start by describing a few of this quarter's unusual items, as some of them impact multiple line items. The sale of our insurance brokerage and consulting business resulted in a one-time pre-tax gain of $31 million, which is included in the Other Gains Net line item and income statement. There were also two components of transaction-related expenses recorded in NIE. $2.5 million reflected in professional fees and services and $925,000 included in personnel expense, which produced a net gain of $28 million. We took advantage of that opportunity to reposition our available for sale portfolio, resulting in pre-tax losses of $28 million, which is reported in the loss on available for sale securities line item. The total $40.5 million reported in the other gains net line item includes the $31 million insurance sale gain, as well as $5.9 million of gain related to market value increases on deferred compensation assets, which is effectively offset with $5.4 million of increased personnel expense this quarter. The fourth quarter also included $3.1 million of accelerated recognition of tax expense as the result of exiting three low-income housing tax credit investments. Without that item, the effective tax rate for the quarter would have been 23.1%. Turning to slide 12, fourth quarter net interest revenue was 296.7 million, a 4.2 million decrease length quarter. Net interest margin was 2.64%, a five basis point decrease compared to Q3. This quarter reflected a significant easing of deposit pricing pressure compared to recent quarters. Interest-bearing deposit costs increased 26 basis points in the current quarter. However, this is the slowest pace we have realized since the Federal Reserve started raising that funds rate in early 23. Our cumulative interest-bearing deposit data increased to 63% for the fourth quarter. DDA as a percent of total deposits came down to 27% as of December 31. This slide shows net interest margin and net interest revenue with and without the impact of the trading business to better highlight trends and comparability. For the fourth quarter, net interest margin excluding the impact of trading assets was 3.03% versus 3.14% in the third quarter. I expect to see a small decline in net interest margin going into Q1, followed by relative stability after that. Growth in earning assets during the quarter was driven primarily by C&I and CRE loans. Turning to slide 13, liquidity and capital continue to be very strong on an absolute basis and versus peers. Total deposits grew $367 million on a period-end basis, and the loan-to-deposit ratio decreased just slightly to 70.3%. This is stronger than our pre-pandemic level, well below the median of our peer banks, and positions us well for future loan growth. Average total deposits increased $388 million linked quarter, with average interest-bearing deposits up $1.2 billion, partially offset by a $779 million decline in demand deposits. Brokered CDs remain an insignificant amount of our funding and decreased slightly in the fourth quarter. Our tangible common equity ratio is 8.29%, up 55 basis points, due in large part to term interest rates falling late in the fourth quarter. Adjusted TCE, including the impact of unrealized losses on health and maturity securities, is 8.02%. CET1 is 12.1%, and if adjusted for AOCI, would be 10.5%. We have sufficient capital to support continued organic growth and opportunistic share buyback with a high degree of certainty, knowing that the recent regulatory capital proposal is primarily focused on banks over $100 billion. Turning to slide 14, linked quarter expenses increased $59.8 million, up 18.4%, driven primarily by the $43.8 million FDIC special assessment. Personnel expense grew $12.2 million due to four primary factors. Regular compensation increased $3.2 million due to salaries related to business expansion and expenses related to the sale of the insurance business. Sales-related activities led to a $4.0 million increase in cash-based incentive compensation. Deferred compensation expense, which is driven by market valuations, increased $5.4 million length quarter. And lastly, employee benefits increased $1.1 million length quarter due to seasonal increases in health insurance costs. Non-personnel operating expenses grew 3.3 million, excluding the increase in FDIC insurance expense, with 2.5 million related to expenses on the sale of our insurance brokerage and consulting business. We also made a 1.5 million contribution to the BOKF Foundation in our continuing efforts to support the communities we serve. Turning to slide 15, I'll cover our expectations for 2024. We expect mid to upper single-digit annualized loan growth. Economic conditions in our geographic footprint remain favorable and continue to be supported by business in migration from other markets. The competitive environment for loans should be a tailwind for us. We expect to continue holding our available-for-sale securities portfolio flat and to maintain a neutral interest rate risk position. We expect total deposits to grow modestly and the loan-to-deposit ratio to remain near 70%. Currently, we are assuming no additional rate changes by the Federal Reserve in 2024. We believe the margin will migrate slightly lower in Q1 of 2024 and expect net interest income to be near $1.2 billion for full-year 2024. In aggregate, we expect total fees and commissions revenue in a range of $825 to $850 million for 2024. Excluding the FDIC special assessment, we expect expenses to increase at a mid single digit growth rate as we continue to invest in strategic growth and technology initiatives with revenue growth following at a slight lag. As revenue growth is realized in 2024, we expect the efficiency ratio to migrate downward to approximately 65%. Our combined allowance level is above the median of our peers and we expect to maintain a strong credit reserve. Given our expectations for loan growth and the strength of our credit quality, we expect near-term provision expense to remain low and trend toward more normal credit costs in the second half of 2024. Changes in the economic outlook will impact our provision expense. Additionally, we expect to continue opportunistic share repurchase activity. I'll now turn the call back over to Stacy Kimes for closing commentary. Thanks, Marty.
spk11: This quarter puts a period on the end of the year with the second highest earnings the OK Financial has ever achieved. As many banks struggled in the turbulent economic environment, we proved once again that our strategically diverse revenue mix is built to withstand any storm. While other banks may be pulling back, we have positioned ourselves to be in a great liquidity and capital position to organically grow our business and perform very well in 2024. We have strong pipelines going into 2024. We've expanded our market reach. Our credit quality remains very strong, and our fee income businesses are positioned for solid growth. I'm very proud of the entire BOK financial team who have worked so hard to deliver these strong results. With that, we are pleased to take your questions. Operator?
spk05: Thank you. If you would 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 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 keys. Our first question is from John Ofstrom with RBC Capital Markets. Please proceed.
spk07: Thanks. Good morning. Good morning, John. A question for you, Marty. This is the question I've had a few times this morning on your numbers. Just some banks are assuming zero rate cuts, others are assuming two to four, others are saying six. what is your net interest income and margin outlook look like with a few cuts and then maybe as much as six cuts? And I want to follow up and ask on fees as well, but maybe just net interest income first.
spk03: Yeah, that's a great question, John. And yeah, our exposure to rates declining is actually very small, essentially de minimis. But more importantly, if you get the forward curve, you know, with four or six or cuts in that range, now that winds up with a steeper curve and that's actually better for us. So in those scenarios where you've got the Fed cutting this year, it'd actually be marginally better for us.
spk07: Okay, and you're referring to the billion two guide, so you're saying if we get more cuts, that could go higher. Okay, good to hear. And then I guess a question for Scott as well. If I'm assuming some of the fee guidance that you're giving us assumes flat rates. What does lower, what would lower short-term rates do to some of your trading businesses and other fee income businesses?
spk14: Right, so the two big beneficiaries of that decline would be in our mortgage entity itself with our mortgage originations in the mortgage group, and then a pretty immediate increase increase in our mortgage trading our MBS activity both as they have historically with lower rates have outperformed significantly in those low lower rate environments. So we'd get significant benefit from both of that market backdrop if rates were to rise. I mean to decrease. I'm sorry.
spk07: You guys would actually welcome some cutting on the short end.
spk11: There's no doubt about that. The mortgage is performing very well for the environment, but it's really at an all-time kind of low in terms of where we're at from a production perspective. And so any kind of movement downward in rates is really going to help that, and then that correspondingly is also going to help create more inventory, if you will, for the mortgage trading aspect of our business as well.
spk14: And so that level of production and activity revenue generation on the institutional trading group has maintained that flattish level with the pickup in other categories. So our municipal trading activity has offset the declines in the MBS. But we would see that pickup in MBS, which we think would give us a lift overall. Okay, good.
spk07: I'll step back, but thank you guys, I appreciate it. Thank you, John.
spk05: Our next question is from Peter Winter with DA Davidson. Please proceed.
spk09: Good morning. Good morning, Stacey. I had a question on the loan side. Can you just talk about borrower sentiment today versus 90 days ago? And then just if you could elaborate on that point that the competitive environment should be actually a tailwind for you guys.
spk12: Yeah, this is Mark. You're absolutely right about it being a tailwind for us. Given our situation with liquidity and capital position and solid credit quality, we feel very comfortable that we are out pursuing loan opportunities across our footprint and across all our lines of business. And we're trying to take advantage of some of the peer banks that are cutting back a little bit or pulling back for their various reasons. So that is the effort. That is the focus of all our sales teams. And I don't think there's any particular area that we're shying away from right now. As far as borrower sentiment goes, we've always been focused on customer selection. So we're going to be focused on ones that are well positioned to grow or to expand during this timeframe. And we'll support those companies as we see appropriately.
spk11: And Peter, the footprint gives us a lot of tailwind, too. I mean, think about just the economic expansion that's happening in Texas broadly, the new market we opened with San Antonio and Austin. Phoenix is doing very, very well. Denver's hanging in there really well. So the footprint's going to give us some tailwind there, too, just by having better economic growth in the footprint states than I think you're going to get nationally as well. I think the only... Real concern I have to the risk to our guidance on loan growth really is commercial real estate. There's some risk that as the year goes along, we get a higher elevated level of payoffs, which could mute the total loan growth a little bit. But overall, we feel very good about the guidance that we've provided given our footprint.
spk09: Got it. Thank you. And then on credit, Mark, you mentioned the health care. Could you just give a little bit more color about the $40 million increase in healthcare non-performing loans?
spk12: Yeah. I mean, you know, healthcare loans now account for 17% of our overall loan portfolio. And, you know, we have an occasional loan here or there that, you know, we've had good management support of. inside it, but things haven't progressed as they expected, and we had to put those into more of a workout situation. One of them is more of an ongoing senior housing. One of them is more of a private pay situation. So they're not even in the same sides of the business. It's just we will have one-off non-performing credits like that. It is not a reflection of anything we see systemic in the healthcare business. And I guess if I'm going to add anything, if you look at our non-performing loans over time, they have operated for the last numerous quarters in a very narrow range. And if we go back and look at some quarters, it's one of our other portfolios that adds to it. Another quarter, it's a different portfolio. And this quarter just happened to be a couple of one-off deals in healthcare. And we'll address those and be able to manage that, we believe, ongoing in a very narrow range with low charge-offs as we've had for a number of years now.
spk11: Peter, just broadly, I mean, credit is a strength. I mean, if you look at where we are compared to pre-pandemic, we're, you know, not quite half in terms of our criticized and classified level. Non-performing levels are strong. I mean, charge-offs this quarter were $4 million. I mean, it's obviously not sustainable, but I think where we're positioned and where we have performed historically, credit is very apparent that it's a strength right now. And I think as we look forward, we still feel, in the guidance that Marty provided, we still feel pretty good that at least over the next couple of quarters, we don't expect charge-offs to be materially elevated.
spk09: Got it.
spk00: Thanks, Stacy.
spk01: Appreciate it.
spk00: Thank you.
spk05: Our next question is from Ben Gerlinger with Citi. Please proceed. Hey, good morning. Morning, Ben.
spk13: I was curious, the growth guide looks pretty good. Are there... A little bit better than I would have guessed, but are you seeing people step back or risk-adjusted spreads being a little bit more appropriate that you're willing to lean into the growth? Just any color on rates you're getting as well?
spk11: No, I'd say generally speaking, I mean, it depends on what segment you're looking at from a spread perspective. I would say on the larger corporate deals, there is some spread enhancement that's coming as a result of maybe a liquidity premium in the marketplace that the larger banks are requiring. From that perspective, on the commercial banking or the lower end, there's probably not a lot of spread enhancement that's happening. There's still more competition there. Part of it is mix. As the mix shifts around over time, that can change our spreads just a little bit because there are higher spreads in especially lines of business than there are in traditional C&I. But I think what we saw is the fact that we're not just open for business, but we're actively prospecting, looking for new customers, trying to use this opportunity to grow very thoughtfully is creating opportunities for us. And really, we had several deals that kind of pushed into the first quarter. We were hopeful it would have closed in the fourth quarter. we're optimistic about our loan pipelines and what we're hearing from our customers and prospects as we think about loan growth in 2024.
spk13: Gotcha. That's helpful, Collar. And then I know the trading business is kind of the front end of the curve. Do you need consistent Fed cuts to really see that start to work, or is it just kind of the implications? Any kind of thoughts on what you might expect in terms of a cadence if, say, the forward curve is correct?
spk03: I think in the trading business, even without changes in rates, that business has momentum given the investments we've made in expanding into Memphis, et cetera. And so it would be incremental on top of what we already expect to be a growth trend if we get forward curve plays out.
spk11: Ben, were you talking about NIR or the fee businesses?
spk00: The fee, the fee business. Yeah, I think Marty answered that as it relates to the fee businesses for sure.
spk01: Yeah, that's helpful. Thank you, guys. Thank you, Ben.
spk05: Our next question is from Matt Olney with Steven Sinks. Please proceed.
spk02: Hey, great. Thanks. Good morning, everybody. Good morning, Matt. Going back to the fee discussion, and I think Scott touched on this briefly with John's question, but just take a step back and help us appreciate the drivers of that 24 guidance for fees and commissions, the various components of that through each one of your fee businesses. I think that guidance implies like a high single-digit growth in 24. What are the major drivers and detractors of that guidance?
spk03: Why don't I start on that, Matt? I think that the businesses that probably have the greatest opportunity are in the brokerage and trading where we've made investments there and we've got great momentum in that business. Fiduciary, asset management, I think You know, we'll have customary growth in that business, plus we think that asset valuations are gonna give us a little bit of wind at our backs from an AUM perspective, and that'll flow through to good growth rates. And then, you know, mortgage actually has opportunity there, both on the production side and on the servicing side. And so, you know, we expect to see good numbers out of that line of business on a percentage growth perspective.
spk14: Matt this Scott I think that you know when you look at that total category as I mentioned earlier in the call the thing that we're pleased about is the fact that we're not seeing any one component carry the load if you look at you know multiple quarters now and the year as a whole we're seeing heightened levels, record levels of revenue generation across all the categories of wealth management, which, as you know, is very well diversified both by product set, customer set, geographically, where we're serving our national market and many of those operating units. So it's broadly across the board where we've seen investment, historical investments in our corporate trust business, in our asset management business, the trading pieces as Marty mentioned, but all of those together and combined are what produces the result that gives us optimism that we're not dependent upon those Fed rate cuts to continue to see momentum and growth in the business lines. No doubt if we see, and it's less about the rate cuts, it's more about some steepness to the curve benefits the trading businesses because we've now been operating on a decade where we didn't have any slope to the curve, which incents no one to go out. So if we do see some steepness in the curve, you know, we'll see. But I think we're extremely well positioned if that were to shape out.
spk02: Okay. Appreciate the thoughts there, Scott. And then I guess shifting back over to the rate sensitivity, you provide some good commentary being relatively neutral as far as on the NII. What are your early thoughts on deposit betas in a falling rate scenario, whether it's back half the year or next year, whatever that would be? And how would those betas, you think, compare on the way down versus what we just saw on the way up at the bank?
spk03: Yeah, so given the fact that over the last couple quarters you've seen betas be higher, you're going to see a mirror image of that more or less as we see rates come down in that kind of environment. As you know, those are nonlinear, and so you're not going to get the same exact beta at each rate hike. But you'll see relatively high betas on the way down, given that you've got a lot of that beta on the driven upside was the larger corporate and wealth balances.
spk02: Yep. Okay. Fingers crossed. And then just lastly, on the expense side, I know those expenses can be Lumpy quarter-to-quarter, I think you mentioned a few things that made it a little higher in the fourth quarter. And I see the full-year guidance, but any color on where we could start off with earlier in the year in the first quarter on the expense side?
spk03: Yeah, if you take the fourth-quarter number, the 384, and then adjust that for the – FDIC special assessment, you get, you know, to a $340 million number. So, coming out of that gate next quarter, we'd expect to be a little below that.
spk11: Yeah, and Marty pointed out, and I think it's important, there's some BOKFI transaction costs that are embedded in some of those line items in the fourth quarter, particularly related to personnel expense and professional fees that you've got to think about, too, is really being part of that sale of that business, not really part of the core run rate of the company.
spk03: Yeah, so if you think through some of those unusual items and filter some of those out, you know, you'll get, you know, taxes on wages coming up in the first quarter, but that'll net down to just a little bit low.
spk02: Okay. Thanks, everybody. Thank you, Matt.
spk05: Our next question is from Will Jones with KBW. Please proceed.
spk10: Hey, great. Good morning, guys. Good morning. Morning, Will. Hey, Marty, I was hoping you could help us unpack the margin story, what it looks like in both this you know, flat rate environment that your guidance is, you know, kind of predicated off of. And then maybe, you know, what the margin does is if we do see, you know, two, three, four, even six rate cuts this coming year. You know, I know you talked about, you know, compression next quarter, but then maybe a stable NIM in this, you know, in a flat rate environment. But can you see expansion in that scenario? And I guess just confirm, you know, y'all will certainly see NIM expansion if we do get rate cuts. Thanks.
spk03: Yeah, so the basic trajectory that we're expecting is margins basically leveled out a little bit down in the first quarter level, and then actually just a little bit up at the end of the year is how we think about it for a flat rate scenario. Of course, plus or minus the usual drivers of noise around that trend. And then if you've got a forward curve kind of scenario playing out, that would be modestly supportive of the margin percentage in those later quarters when that would play out, when the steepness would start to play out. That's helpful.
spk10: And then where do you feel like we are in the non-interest-bearing remix story? I know balances took another step down this quarter, but do you feel like we're getting close to kind of a leveling out there? Or how do you think about non-interest-bearing deposits into this year?
spk03: Yes, the decline we saw in the fourth quarter was largely as we expected. We talked about that on our Q3 call. So, for the first quarter, we do expect another decline that's a little smaller than what we saw in the fourth quarter, but still pretty sizable, pretty close to that size, just as you get a combination of some of the rate driven moves and some seasonal declines that are normal for us as we go into Q1. So you'll see Q1 down another step and then after that our expectation is much smaller amounts of shift from non-interest bearing into interest bearing for the next couple quarters as we just get into the tail phase of that, as that naturally plays out.
spk10: Okay, great. Thanks for that. It feels like it maybe has been a while since we've updated thoughts on bank M&A. It feels like there could be some pushes and pulls on M&A into the coming year. Could you just update us on how you feel or how you generally think about M&A in terms of in-market transactions or out-of-market or size? Just any kind of context you could give would be great.
spk11: Yeah, so two factors. I do think rates are going to have to come down before bank M&A becomes more realistic. You still have purchase accounting issues that are going to happen until some of these securities portfolios and banks that would like to be acquired are better positioned. It's going to create some headwind there until that's resolved. I think for us, broadly, a large bank acquisition is going to be difficult for us to do. There's just not a lot that would fit the profile that we're looking for. We would want to stay largely in the geographic footprint that we're in today. We really like that. We want to continue to grow, particularly in these fast-growing markets like Texas, and continue to invest there. It's got to be of sufficient size to move the needle for us, but there's just not a lot to fit that. We're more interested in you know, technology or product acquisitions that could add on and be incremental much quicker and not distract the whole company from a regulatory approval and conversion process. And so I would put the odds that we find a whole bank acquisition in the next 12 months to be pretty low. We are continuing to look for things on the product or technology set that could be accretive to us and valuable to us long term, although there's nothing on the horizon there either.
spk10: Makes sense. That's it for me. Great year, guys. Thank you.
spk05: Our next question is from Tamir Braziller with Wells Fargo Securities. Please proceed.
spk04: Hi, good morning. Starting on the deposit side, do you have what the deposit spot rate was at the end of the year?
spk03: We don't really have a deposit spot rate per se, but our cumulative beta was 63 for the quarter and for the month of December it was 64, so really not a lot different than the full quarter average.
spk04: Okay, and then looking at expenses and trying to take into consideration some of the comments around what happens on the fee income side if we do get rate cuts, is the expectation that the expenses grow in an environment where you see some higher revenues from fees? And if that is the case, is the 65% efficiency ratio in a down rate environment still a good base or could you actually see some improvement as some of these fee income businesses pick up some more momentum?
spk03: I'd say broadly speaking the 65 is good but you could see some incremental improvement from just a higher revenue lift overall because I would just accelerate that trend.
spk11: If you think about mortgage particularly I mean mortgage is probably running 90% plus efficiency today. So if you've got any lift there, you're going to get a better efficiency ratio out of that line of business. So Marty's right. I think we're very comfortable with the forward guidance we provided there. But any benefit that we get from a lower rate environment should be incrementally positive to our efficiency ratio.
spk00: Got it. Thank you.
spk05: As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, our next question is from Brandon King with Truist Securities. Please proceed.
spk08: Hey, good morning. Thanks for taking my questions. Brandon? Yeah, so I wanted to follow up on trading NIR. And what are you expecting kind of implied in your NIR forecast? And if you can kind of give us the puts and takes on how that could play out, just given, you know, Fed rate cuts potentially occurring.
spk03: in the year yeah so we're in our guide we're just assuming that that remains roughly constant throughout the year to the extent that you get some steepening that could be a positive for that line item for sure okay okay and and then just another follow-up on credit so in your guide as you expect you know
spk08: increase in credit costs more towards the later part of 2024. And then you also mentioned kind of a normalized range, 30 to 40 basis points. So is it fair to assume that maybe back half of 2024 we approach that 30 basis points of net charge-offs? Is that how you're thinking about it?
spk11: No, I think, you know, we were talking about our guidance was really around provision levels, not charge-off levels. I do think you could see, just based on some reversion, you could see charge-off levels come up a little bit in the back half of the year. But, Mark, talk a little bit about our historical charge-offs. We always guide to 30 to 40 basis points, but it's been a long time since we've seen 40 basis points.
spk12: Yeah, I mean, if we've been looking back over our history, We have been at below 30 basis points of net charge off since 2013. It was the last year we hit 30 basis points. So we've operated mainly between, you know, less than 10 to 20 for the last 10 to 11 years. So we, right now, given where our credit is, we don't see the increased level of net charge off coming. But as we grow, And as the economic environment changes, that will have the impact on the provision that we have to have and the reserve we have to have. And we're going to make sure we continue to make that appropriate level of that reserve reflecting those two things. But it's going to be driven by those more than it's going to be driven by net charge-offs.
spk01: Okay. Very helpful. Thanks for the details.
spk05: We have reached the end of our question and answer session. I would like to turn the conference back over to Marty for closing remarks.
spk03: Thanks again, everyone, for joining us this morning. If you have any questions, please email us at ir at bokf.com. Have a great day.
spk05: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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