BOK Financial Corporation Q2 FY2025 earnings call

• Earnings of $140 million or EPS of $2.19 per diluted share for Q2. Loan growth reaccelerated with CRE book fund up, core C&I strength, and tapering of abnormal payoff activity. - Fee income up 7.2% sequentially, trading activity normalized, broad-based growth in fee income businesses. - Net interest income grew for fifth consecutive quarter with margin expansion. Capital levels robust with TCE at 9.6% and CET1 at 13.6%. Credit quality strong with combined allowance at 1.36% of outstanding loans. - Total expenses increased $7M, with personnel expenses relatively consistent and non-personnel expenses up due to technology project costs and operational losses.

Total outstanding loans grew 2.5% this quarter, over 10% annualized led by CRE, core C&I, and loans to individuals. Core C&I loan portfolio grew 1.1%. Specialty lending portfolio decreased 1.6% (energy down 4.4%, healthcare up 0.5%). CRE business increased 6.9% QoQ. Total fees and commissions up 7.2% sequentially. Trading revenue was $30.5M, up 31% QoQ. Fiduciary and asset management, transaction card, and deposit service charges had record quarterly results. AUMA increased to $117.9B. Net interest income was up $11.9M, net interest margin expanded 2 basis points, core net interest income up $11M with core margin up 7 basis points.

• Confident in full year loan growth projections due to Q2 growth, early Q3 momentum, and strong pipelines, supported by launch of mortgage finance business. - Net interest income expectations unchanged assuming 225 basis point rate cuts in September and December. - Fees and commissions guidance unchanged reflecting momentum in fee businesses. - Nonperforming assets very low and portfolio credit quality strong supports low charge-offs and provision expense below 2024 levels.

• Economic policy uncertainty is a risk factor for loan growth guidance, though less important than 90 days ago.

Q: Maybe just when you look at NII, what's some of the expectations for margin trajectory behind that? Is there anything in particular we should be paying attention to for that?

A: Yes. Good question. So margin, we're really happy with how margin behaved in the second quarter. We got really good lift out of the fixed asset repricing, cross bonds and loans and then some additional lift across deposit pricing broadly, including even the changes in DDA. So that gave us, basically between those 2 items, almost 7 basis points of expansion. And those have been the drivers we've been talking about for the last few quarters. And so we see that again replaying in the next quarters where fixed asset repricing will still be supportive of margin. You've got both the securities book and the fixed rate loan book that continue to reprice up to current market rates. There's still a little bit of room for deposit pricing to be supportive. And then obviously, loan growth, that will be supportive going forward. And it's really nice to see this quarter's level. And our outlook, as you know, is constructive there.

Q: Can you talk a little bit more about the pace of loan growth through the quarter? I know there's some nuances to average versus period end, but it looks like period ends up a little bit higher. And Stacy, you used the term accelerating. So talk a little bit about what you saw throughout the quarter and how you feel exiting the quarter.

A: Yes. It really built throughout the quarter. And I think part of that was we talked about -- we've had good underlying loan growth for the last really 3 years now. Our C&I loan growth CAGR is 5%, 6% over the last 3 years, excluding the specialty businesses. It's really the headwind that we've had from healthcare, energy and real estate. And so that slowdown, obviously, real estate is a tailwind now, not a headwind. And healthcare seems very stable to growing modestly. Energy now stable. So if you look at, for us, April, we had energy payoffs, less payoffs in May and June. And so that feels like -- you hate to call the bottom there, but it feels like we're pretty close to stable and close to the bottom. And so that's really going to allow the underlying loan growth, it's always been there to kind of come to the surface without being masked by the payoffs in those areas. And so we feel really good about that. We've always pointed to the second half of the year is when that point-to-point loan growth that we have in our guidance would really show up. And so having the level of loan growth that we had in the second quarter has only encouraged our outlook as we think about now going into the second half of the year. We're going to have mortgage warehouse come online. We think you could have $500 million in commitments there by the end of the year, assume half of that is outstanding. You're going to have growth in your traditional C&I businesses where we've been investing. I think real estate will continue to be a tailwind. Healthcare will get some momentum here in the second half of the year. So we're excited about where we are and where we're positioned from a loan growth perspective, both this year and frankly, how we're positioned thinking about '26 as well.

Q: I wanted to ask about fee income and just thinking about the guidance for the full year and what might take you to the lower versus the higher end of that range. And then just within the guidance, I assume that the pickup from here or additional improvement in fee income trends would be mostly related to brokerage trading and card. So I was just hoping for some additional color around that.

A: Yes. Brett, why don't you let me talk a little bit about that, and Scott can add some color if that's useful. So if you look at the fiduciary and asset management, transaction card, deposit service charge line items and look at the growth rates that we've seen year-over-year, those are 11%, 6% and 8%. I mean those are very strong growth rates, and those are long run, strong growth rates driven both by, in the cases of new share and asset management, a combination of both the markets being up and our ability to win and deliver new business. So we expect continued growth in those businesses, and those are just doing really well. When you look at some of the transactional businesses on trading, so we do expect trading to be positive as we go through the next couple of quarters. But we're realistic to have a growth rate that is certainly attainable in our -- the way we think about that. When you look at syndications, that will benefit from the better loan origination environment that we find ourselves in for Q2 and Q3 and Q4 going forward. And then when you look at the investment banking business, we've got a really strong track record in that business and year-over-year, really good momentum. There was some activity in Q2 in the municipal space that was kind of slowed down just by conditions of Q2 that is teed up in our pipeline that we feel really good about coming through in the back half of the year. So I mean, our confidence in the fee businesses goes across multiple lines. Anything you want to add to that, Scott?

A: Yes. I think Marty summed it up well. I think that the diversity of both asset classes that we have bodes well from the market growth standpoint. So we got that component. But as Marty mentioned, we've also had net positive inflows in our AUM, which gives us good tailwind. And then on the trading side, absent the February, March environment of dislocation to chaos in the fixed income markets. Post that, we've normalized and feel like we've got good positioning in the MBS space as we move forward. And then on the investment banking side that he mentioned, we feel like we -- our pipelines and our docket on the investment banking business, specifically in the municipal space is very strong. So we don't feel like we've -- we're going to miss that. We think it's been delayed a bit and is pushed out toward the second half of the year.

Q: I wanted to ask about fee income and just thinking about the guidance for the full year and what might take you to the lower versus the higher end of that range. And then just within the guidance, I assume that the pickup from here or additional improvement in fee income trends would be mostly related to brokerage trading and card. So I was just hoping for some additional color around that.

A: Yes. Brett, why don't you let me talk a little bit about that, and Scott can add some color if that's useful. So if you look at the fiduciary and asset management, transaction card, deposit service charge line items and look at the growth rates that we've seen year-over-year, those are 11%, 6% and 8%. I mean those are very strong growth rates, and those are long run, strong growth rates driven both by, in the cases of new share and asset management, a combination of both the markets being up and our ability to win and deliver new business. So we expect continued growth in those businesses, and those are just doing really well. When you look at some of the transactional businesses on trading, so we do expect trading to be positive as we go through the next couple of quarters. But we're realistic to have a growth rate that is certainly attainable in our -- the way we think about that. When you look at syndications, that will benefit from the better loan origination environment that we find ourselves in for Q2 and Q3 and Q4 going forward. And then when you look at the investment banking business, we've got a really strong track record in that business and year-over-year, really good momentum. There was some activity in Q2 in the municipal space that was kind of slowed down just by conditions of Q2 that is teed up in our pipeline that we feel really good about coming through in the back half of the year. So I mean, our confidence in the fee businesses goes across multiple lines. Anything you want to add to that, Scott?

A: Yes. I think Marty summed it up well. I think that the diversity of both asset classes that we have bodes well from the market growth standpoint. So we got that component. But as Marty mentioned, we've also had net positive inflows in our AUM, which gives us good tailwind. And then on the trading side, absent the February, March environment of dislocation to chaos in the fixed income markets. Post that, we've normalized and feel like we've got good positioning in the MBS space as we move forward. And then on the investment banking side that he mentioned, we feel like we -- our pipelines and our docket on the investment banking business, specifically in the municipal space is very strong. So we don't feel like we've -- we're going to miss that. We think it's been delayed a bit and is pushed out toward the second half of the year.

Q: You had made a comment that the mortgage warehouse build-out has now been fully incorporated in the expense base. I'm just wondering what portion of the 2Q expense growth came from mortgage warehouse build out?

A: Well, we've been building it out over the last 12 months really, slowly until we're kind of approaching fully staffed. We've got 11 FTE in that business today, not $1 revenue and 11 FTE are in our third quarter -- our second quarter run rate. So that gives you an idea a little bit about kind of where we are from an opportunity perspective, and we talk about continuing to create positive operating leverage from here forward. That's one example of that. And so I think you'll see those expenses related to that business certainly stabilize in future periods as we bring on the revenue.

A: Yes. So all the staffing was fully in Q2, and the loan system, that will go kick on here in 3Q and the amortization for that is the one last piece that will come into the run rate in 3Q.