BOK Financial Corporation

Good afternoon, and thank you for joining our discussion of B&K Financial's second quarter 2024 financial results. Our CEO, Stacey Counts, will provide opening comments. Mark Mollard, Executive Vice President of Regional Banking, will cover our loan portfolio and related credit metrics. And Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results. Our CFO, Marty Gruntz, will then discuss financial performance for the quarter and our forward guidance. Slide presentation and press release are available on our website at BOKF.com. We refer you to the disclaimers on slide two regarding any forward-looking statements made during this call. I'll now turn the call over to Stacey Kimes, who will begin on slide four.

Thank you, Heather. We are pleased to report earnings in the second quarter of $163.7 million, or EPS, of $2.54 per diluted share. Adjusting for notable items such as the Visa gain and related charitable contribution, net income would have been $131.1 million and EPS would have been $2.02 per share. Last quarter, I shared an overview of our strategy, which is based on driving long-term shareholder value by focusing on a well-diversified loan portfolio, including one of the lowest levels of commercial real estate concentration among peers at 21% of total loans, disciplined credit quality, which has produced attractive net charge-offs versus peers for more than 20 years, industry-leading fee-income business mix, top-tier risk management practices with a disciplined focus on capital and liquidity with a loan-to-deposit ratio below 70%, and asset liability management practices that have led to well-controlled levels of tangible common equity, or TCE, all of which together allowed us to welcome new business during periods when others were on hold. all paired with an attractive geographic footprint in dynamic high-growth markets. These core 10 As of our operating philosophy have enabled us to produce attractive returns over time and given us a resilience to market stresses that are unmatched. Every time you've seen a stress event in the market, we outperform. As credit issues surface during the great financial crisis, We performed incredibly well compared to others in our industry, being the largest traditional bank not to participate in TARP. Our loan books performance was also strong when energy prices moved lower in 2014 and 2015, and again during COVID. When interest rate risk management issues arose in March of last year, after an almost 500 basis point increase in rates in one year, we were positioned well with one of the higher levels of TCE and more than ample liquidity. And now again, as the market shows concern over commercial real estate concentrations, BOKF has one of the lowest levels of exposure with less than 21% of total loans, 158% as a percentage of Tier 1 capital and reserves on a committed basis, and 122% of Tier 1 capital and reserves on an outstanding basis. Importantly for our shareholders, we are well positioned for growth and to produce attractive returns. As you see on slide five, we've meaningfully outgrown EPS versus the KRX index over the last 30 years. Over that time, we've had an 8.6% CAGR versus the index only growing at a median rate of 4.3%. In fact, there were only three banks that grew EPS at a faster rate than BOKF. This graph illustrates our ability to profitably grow at an attractive rate while also having a top-flight risk management culture that provides stability during diverse market conditions. It can be tempting to put banks into one of two groupings. Some banks are high growth and higher risk, and others are lower growth and lower risk. We've proven over a long history that we can be both a strong, stable company and produce a higher long-term growth profile. Since I spent some time last quarter talking about our longer-term strategy, this quarter I want to highlight opportunities we see in the market and how we intend to capitalize on them. Moving to slide six, our loan portfolio and credit quality is a good starting point. Looking at the Federal Reserve's H-8 data, you will see that loans for the broader industry were generally flat during the quarter. However, BOKF loans increased $381 million, or 1.6% in the quarter, with growth driven by commercial loans, despite payoff activity in commercial real estate. CRE payoffs, while they may slow loan growth, are nonetheless a part of a healthy portfolio. All of our payoff activity has been in the normal course of that lending activity. The CNI portfolio grew at approximately 13% annualized, or 9.5% annualized, excluding certain seasonal advances. This didn't happen by accident. The CNI sales process is a long one, and our process wasn't created this quarter or last, but is rather a reflection of the fruits of our last few years of concentrated efforts to grow this portfolio. As you'll see from our credit metrics, we haven't done this at the expense of our discipline credit underwriting profile. Net charge-offs are still very low. Non-performing loans have again moved lower, and our criticized classified levels are at 11.2% of Tier 1 and reserves, which is among the lowest of the largest banks and well below pre-pandemic levels. Mark will elaborate on this, but we believe that strong guarantors and geography play a critical role in the performance of our CRE portfolio. As part of our underwriting process, we stress each loan and origination for a rising interest rate environment. We understand the overall credit metrics are below their long-term sustainable levels and will revert toward normal as economic conditions change. Our fee-income businesses remain strong at 40% of total revenue. You cannot find another regional bank that has the same level of fee-income businesses that have been built over many decades and are all operating at scale. These businesses produce attractive returns and offer a diversifying or counter-cyclical benefit to our net interest income streams regardless of challenging market conditions. You also saw us monetize 50% of our Visa stock in their recent exchange program. Many other banks liquidated this asset well before now at deep discounts. However, given our long-term focus, we held on to this investment and achieved full value for these assets. The gain generated offsets the AFS repositioning losses you saw us take in the first quarter, which produced a $22 million a year benefit to NII with less than a two-year payback period. We remain impressed by the progress we are seeing in San Antonio and Central Texas, which are still operating ahead of their performance projections. We continue to look for opportunities to add talent in all of our markets. Finally, we repurchased over 400,000 shares this quarter to reflect our long-term confidence in the company and to take advantage of attractive repurchase valuations. I'm proud of the quarter that the OKF team has put together and appreciate the time to review it with you this afternoon. And with that, I'll turn the call over to Mark.

Thanks, Stacy. Turning to slide 8, overall loans increased 1.6% late quarter, with commercial loans up 3.2% and CRE down by 2.9%. Portfolio yields increased one basis point during the quarter. I wanted to spend just a moment expanding on some of Stacy's opening commentary. C&I loans grew 3.2% over Q1. Even after adjusting for certain seasonal advances, we still experience solid C&I loan growth of 2.4% or 9.5% annually. The sales cycle for C&I is a long one. For many, there is a greater emphasis on growing C&I than there was a few quarters ago, especially with the market's concern about the CRE space. This isn't what you're seeing from us. We've been focused for the last several years on growing the C&I business segment. In our view, this is one of our most profitable businesses. When we think about growing C&I, we know that coming with that credit relationship will be deposits and oftentimes core operational accounts, treasury management revenue, and many other opportunities. The results you see reflect our intentional commitment to this effort. We feel good about our performance to date and our ability to sustain this growth for the remainder of the year. Overall, loan growth was muted slightly by CRE payoffs. This is a good outcome. The normal life cycle of our CRE portfolio involves the bank providing funding while a project is under construction and then a sponsor selling the property once it has been developed. This payoff activity reflects the health of this book of business. Importantly, all of this payoff activity was in the normal course of business. Previous payoff levels were somewhat dampened during the rise in the overall rate environment, as well as the limited activity in the permanent lending space. which is sponsored primarily by agencies, life insurance companies, and the CMBS market. However, recent payoff activity has returned to normal historical levels with elevated activity in the permanent space and stable valuations within the bulk of CRE asset classes. Turning to our different loan segments, loan balances in the energy business increased 0.2% in the quarter. As a reminder, our energy book is composed of approximately 70% oil-weighted borrowers and 30% natural gas-weighted borrowers. Our energy customers are well-heads for at least the next year, which meaningfully lowers our commodity pricing risk on the collateral of these loans. We've continued to grow commitments over the last several years in this business, but are still seeing customers use lower levels of leverage in this space, which has kept outstanding at current levels. Our combined general business and service loans grew 6.7% in quarter and 4.9% adjusted for seasonal advances. This remains a core focus from a loan growth perspective for us. Our healthcare business loans decreased 0.4% in quarter. Credit quality in this portfolio remains strong. As a reminder, roughly two-thirds of the portfolio is in senior housing, combining a diversified mix of skilled nursing facilities that are Medicare and Medicaid-based, stabilized private paid senior living, integrated health systems predominantly with investment grade equivalent ratings, and other specialized providers. The healthcare line of business has a national footprint but is focused on regional operators with multiple locations for diversity and deep knowledge of their markets. We have a long history of strong underwriting in this space. Our CRE business decreased 2.9% quarter to quarter We continue to manage to a strict concentration limit, which is 185% of Tier 1 capital and reserves on a committed basis. We know this ebbs and flows over time, and this quarter we are down to 158%. You have to look back to the fourth quarter of 2021 to find a time with a lower CRE concentration. We do not have the outsized exposure that others do in this space, and while we have capacity and are not afraid to lend in this space, we are not chasing deals but numbers on the board. We believe client selection plays a leading role in the performance of this product. Loans are subjected to multiple stress tests in the underwriting process, including those that stress interest rates and payment shocks. We also believe a few key factors over and above the standard underwriting play a critical role in the performance of this product. First is guarantor support. We have meaningful support in over 90% of all CRE loans. with counterparties that we have known for a long time and have demonstrated commitment to supporting their transactions. Second is geographic location. This portfolio is geographically diverse, but importantly, with most exposure within the strong economies in our footprint and very little exposure in the areas of the country that we have seen the largest pullback in prices. As we discussed last quarter, our credit culture is fundamental to the way that we do business. Our strong underwriting standards are calibrated to our experience in each of our lines of business, and our process is a consistent, disciplined approach designed to avoid fluctuating standards based on economic conditions. Approximately 81% of our commercial and CRE loan portfolios are floating rate or repriced in the next year, so this variable has always been a principal factor for us. On slide 10, you will notice credit quality remains exceptional across the loan portfolio and well below historical norms. Non-performing assets, excluding those guaranteed by U.S. government agencies, decreased $27 million this quarter, an exceptional outcome. The resulting non-performing assets, the period-end loans and repossessed assets, decreased 12 basis points to 0.35%, and non-accruing loans decreased $29 million linked quarters. Committed criticized assets remain well below pre-pandemic levels as a percentage of capital. Net charge-offs were 6.9 million, or 11 basis points annualized for the second quarter, and have averaged 9 basis points over the last 12 months, extending the trend of performance far below our historic loss range of 30 to 40 basis points. Looking forward, we expect net charge-offs to remain below hysterical norms. We remain well-reserved with combined allowance for credit losses of $330 million, or 1.34% of outstanding loans at quarter end, with the $8 million provision reflecting a stable operating environment and loan growth expectations. We believe the combined reserve is the most appropriate metric to consider if you want a holistic view of comparative credit reserve levels. we expect to maintain an appropriate reserve supporting loan growth and reflective of economic conditions. We have traditionally outperformed during challenging credit cycles and are well positioned should an economic slowdown materialize. And now I'll turn the call over to Scott. Thank you, Mark.