BOK Financial Corporation Q1 FY2025 earnings call

• Strong capital levels: TCE reached 9.5% and CET1 reached 13.3%, with a low loan-to-deposit ratio of 62%.
• Exceptional credit quality: Low nonperforming assets, minimal net charge-offs ($1.1 million), and combined allowance at 1.4% of outstanding loans.
• Business segment performance: Loan portfolio with solid performance, trading revenue impacted by market volatility, mortgage banking revenue growth, and stable asset management and transactions.
• Strategic initiatives: Expansion into mortgage finance and warehouse lending, expected to launch in September-October, integrating with existing mortgage originators.

BOK Financial reported earnings of $119.8 million or EPS of $1.86 per diluted share for the first quarter. The loan portfolio showed strong performance with a low loan-to-deposit ratio of 62%, strong capital levels (TCE 9.5%, CET1 13.3%), and a combined allowance for credit losses at 1.4% of outstanding loans. Trading revenue was $23.3 million, down from prior quarter, with fee revenue shifting to net interest income due to yield curve steepening. Mortgage banking revenue was $19.8 million, up $1.7 million linked quarter, driven by higher mortgage production. Asset management and transactions contributed $133.2 million, with diversification in fixed income, equities, cash, and alternatives.

• Loan growth: Expect continued fund up activity in CRE, growth in core C&I, and launch of mortgage finance business.
• Net interest income: Expectations unchanged, assuming 225 basis point rate cuts with small upside if additional cuts materialize.
• Fees and commissions: Guidance range widened due to economic and market uncertainty.
• Credit: Charge-offs expected to remain well controlled for the foreseeable future.

• Market volatility: Impact on trading fees and volumes due to U.S. domestic and foreign policy uncertainty.
• Economic uncertainty: Effect on borrower activity and loan growth, with uncertainty around how borrowers will respond to economic conditions.
• Interest rate fluctuations: Impact on net interest margin and the mix of trading revenue between fees and net interest income.

Q: Looking at the dynamic with trading income and the trading fees versus the NII, when you look at total trading revenues still down, is all of that $14 million roughly due to the lower volume, as you said? And at some point, I guess, what's a normalized level would you say for total trading revenue? Is it closer to what we have this quarter? Or should we expect to see that start to trend higher?

A: Yes, Jared. So the short answer to your first question is, yes. That was just all volume driven. There's nothing else within there. And yes, we do expect to see trends come back about -- it's certainly market dependent but our view is that, that trend is back up here over the second quarter in the trading business. As a matter of fact, the first few weeks of the quarter, we've seen some rebound activity there. So that gives us confidence about how that trend is going forward.

Q: Just I wanted to ask a little bit about the loan growth outlook. But can you give us an update as to what you're hearing on pipelines in general? And then, Stacy, maybe give us an update on the expected size of the mortgage finance business, maybe by the end of the year?

A: Yes. So pipelines are good. We actually track our pipeline through sales force. Marty and I review those every month and those are very strong. I think that the color that's hard to weave into that is how will borrower uncertainty play out. Will the deal that they've agreed to, will they go ahead and close that in the face of a less certain economic environment. I think that's the piece that's hard for us to put our finger on exactly. And so I think when Marty alluded to the loan growth guidance, he acknowledged that there's some uncertainty around that. But based on what we know today, that we still feel confident in that. So I'm not worried about the pipeline. I feel really good about where we're at there and how we're building those and how we're growing those. The piece that's the wildcard that we can't really discern well is how will the borrower response be? Will they advance on the line of credit? Will they go ahead with the new piece of equipment or the -- whatever is driving the capital need, I think that's a harder one for us to deal with, with great certainty today because as we've learned what are the conditions today, they could be very different tomorrow. And so we're very hesitant to kind of extrapolate kind of what happens in late first quarter, early second quarter and say, well, that's going to be the conditions for the rest of the year. It's likely to change in some way, shape or form and so we felt more comfortable kind of sticking with what we knew which was the pipelines that we have. On the mortgage warehouse side, I'm not ready to give volume estimates there yet when we haven't even made our first loan. But it did give us confidence to reaffirm the kind of point-to-point loan guidance we provided in our forward-looking guidance. And so we still feel very good about that and frankly, excited about the team that we've put on board as well as their ability to attract business. Like we said, this is -- this fits so well with the rest of our businesses with -- we have the core mortgage business. We've got the mortgage hedging, the pipeline hedging. We've got the structured finance business. And now we're going to have the warehouse business here as well. And so really, integrates well into the 500-plus mortgage finance companies that are already our customers today. And so that's not going to just be about loans. It's also going to be about deposits as well. So we're probably more excited about that than we were even 90 days ago. So it just helps us feel more confident in believing that we'll achieve our point-to-point loan guidance that we provided.