BOK Financial - Q1 2024
April 24, 2024
Transcript
Operator (participant)
Greetings, welcome to BOK Financial Corporation's first quarter 2024 earnings conference call. As a reminder, this call is being recorded, and I would now like to turn the presentation over to Heather Worley, Director of Investor Relations for BOK Financial Corporation. Please proceed.
Heather Worley (Senior VP and Director of Investor Relations)
Good morning, and thank you for joining us to discuss BOK Financial's first quarter 2024 financial results. Our CEO, Stacy Kymes, will provide opening comments. Marc Maun, Executive Vice President for 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 Grunst, will then discuss financial performance for the quarter and our forward guidance. The 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 will now turn the call over to Stacy Kymes, who will begin on slide four.
Stacy Kymes (President and CEO)
Thank you, Heather. We're excited to welcome Heather to our team. We're pleased to report earnings in the first quarter of $83.7 million, or EPS of $1.29 per diluted share. Adjusting for notable items such as AFS repositioning and FDIC special assessment, net income would have been $123.2 million, and EPS would have been $1.91 per share. Before I discuss the highlights from the first quarter, I would like to talk about our strategy. At BOKF, our approach is based on the long term. We are focused on driving profitability and performance that create sustainable value for our shareholders. BOK Financial is a full-service financial services company with a diversified loan portfolio, unwavering discipline and credit quality, top-tier fee income businesses that produce attractive returns, and a solid core deposit franchise.
Our footprint is located in dynamic, high-growth markets, and our strong risk management culture allows us to remain open for business, actively growing our portfolio during times when others are pulling back. We have a seasoned management team with deep bench strength. Our executive leadership team has an average of 34 years of industry experience and 24 years at this organization. Through market cycles, we consistently invest in our company's growth. Our ample levels of capital and liquidity allow us to expand client relationships and take market share when others pull back. A clear example of this is our investment in the San Antonio market, which is progressing more favorably than anticipated. We've now added 13 employees in that market and are already seeing meaningful new business generation.
As a further part of our expansion in Central Texas, we also have 12 wealth employees and seven mortgage employees in the Austin market. We also added 13 team members for our institutional sales team with our Memphis expansion, which will complement our existing fixed-income trading activities. Talent acquisition is a fundamental part of our strategy. We proactively recruit for our future knowing that our greatest asset is our people. I'm thrilled to announce that we were recognized as one of only 60 organizations to receive the 2024 Gallup Exceptional Workplace Award. This is independent validation of our culture of inspiration, ambition, collaboration, and tenacity. Discipline is key to generating value, and one differentiator I wanted to highlight for us is our credit culture. If you look back to the Great Financial Crisis, while our credit costs were well above our own average, we materially outperformed our peers.
This and our holistic risk management focus contributed to us being the largest traditional bank not to participate in TARP. Industry-wide credit costs have been very low over the last several years, but with growing concerns in the regional banking space, there is renewed focus on credit and particularly commercial real estate. We never lost sight of managing credit prudently and believe this is an area where we will continue to outperform on a relative basis. We have maintained the same credit standards with a consistent credit management team that led to better credit losses versus peers historically. We've added a slide to our presentation that shows our historical credit performance by line of business to highlight our impressive long-term performance. Combining strong historical credit performance with an ongoing commitment around concentration limits should give investors further confidence in our ability to perform well in this area moving forward.
We have a commercial real estate concentration limit of 185% of total commitments versus Tier 1 Capital and reserves, and today we have approximately 22% of outstanding balances in commercial real estate. Over the years, we have focused on growing our specialty lines of business like energy and healthcare, which has increased our core commercial and industrial relationships. We've made investments in our core commercial businesses over the last several years, and we see those returns evident in the first quarter with 9% annualized growth in commercial loans. Another way you see us taking the long view is in the retention of our Visa Class B stock. Many have fully monetized their shares since 2008 at a considerable discount. We held on to this position and now expect to receive full value for the shares we hold.
Moving to slide five, period-end loan balances increased $268 million, or 1% linked quarter, with growth driven by commercial loans, and our teams remain confident in our pipelines as we move forward. Both period-end and average deposits continue to grow this quarter. Our loan-to-deposit ratio declined slightly to 68%, remaining well below our peers and providing significant on-balance sheet liquidity to meet future loan or other liquidity demands. We have now seen two consecutive quarters with a slowing pace of net interest margin declines, and we believe we are at the trough. Our credit remains very strong, and we have a combined reserve of $329 million, or 1.36% of outstanding loans at quarter-end, which is above the median of our peer group. Finally, we repurchased over 616,000 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 this team has put together and appreciate the time to review it with you this morning. With that, I'll turn the call over to Marc.
Marc Maun (EVP of Regional Banking)
Thanks, Stacy. I wanted to take a moment to reference slide seven and reinforce Stacy's comments regarding credit. Our credit culture is fundamental to the way we do business. We have strong underwriting standards that are calibrated to our experience in each of our lines of business, which involves not only a base evaluation of credit but also stress testing during the underwriting process, including all loans being subjected to interest rate shocks. Our process is a consistent, disciplined approach designed to avoid fluctuating standards based on economic conditions. Approximately 81% of our commercial and CRE loans are floating rate or repriced in the next year, so this variable has always been a principal factor for us. The current credit performance you're seeing in our loan book is already reflective of higher borrowing rates. We don't have a significant concern over payment shocks.
As we actively manage the book, we monitor credit to identify issues. We are quick to downgrade any loans that we are concerned with, which can on occasion make our criticized ratios look higher than peers. We believe this proactive management results in better long-term outcomes. If an issue with credit arises, we collaborate with clients to rehabilitate, exit with full repayment, or minimize loss via cooperative effort with management, line bankers, and our special assets team. Combining our prudent standards on the front end during the underwriting process and active management throughout the life of a loan has historically resulted in very modest credit losses, which is illustrated on slide seven. Turning to slide eight, overall loans increased 1.1% linked quarter, with commercial loans up 2.2% and CRE down 1.9%. Portfolio yields increased four basis points during the quarter. Loan balances in the energy business increased 0.2% linked quarter.
As a reminder, our energy book is composed of approximately 70% oil-weighted borrowers and 30% natural gas-weighted borrowers. 92% of the book is first-lien senior-secured production, with lending evaluated and stress-tested by our in-house engineering staff of 17 full-time employees. Our energy customers are very well hedged for at least the next year, which meaningfully lowers our commodity pricing risk on the collateral. Combined services and general business loans, our core C&I loans grew 3% linked-quarter. Our healthcare business loans increased 2.5% linked-quarter.
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-pay 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 1.9% quarter-over-quarter. As Stacy mentioned, we manage to strict concentration limits. Loans are subjected to multiple stress tests in the underwriting process, including those that stress interest rate and payment shocks. Setting aside our disciplined underwriting standards, we believe that there are two key factors that will differentiate our credit performance in this cycle. First is guarantor support.
We have meaningful support in over 90% of our 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 strong economies in our footprint and very little exposure in the areas of the country that have seen the largest pullback in prices, such as New York City and Los Angeles, which is shown on the following slide. On slide nine, you will notice credit quality remains exceptional across the loan portfolio and well below historical norms and pre-pandemic levels. Non-performing assets, excluding those guaranteed by U.S. government agencies, decreased $25 million this quarter. The resulting non-performing assets to period-end loans and repossessed assets decreased 11 basis points to 51 basis points. Non-accruing loans decreased $26 million linked quarter.
Committed criticized assets continue to remain well below pre-pandemic levels as a percentage of capital. Net charge-offs were $5.5 million, or nine basis points annualized for the first quarter, and have averaged 10 basis points over the last 12 months, extending the trend of performance far beyond our historic loss range of 30-40 basis points. Looking forward, we expect net charge-offs to remain below historical norms. We remain well-reserved with a combined allowance for credit losses of $329 million, or 1.36% of outstanding loans at quarter-end, with the $8 million provision reflecting a stable operating environment and loan growth expectations. The reserve is sufficient to cover our non-performing assets by three times. 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 continue to maintain an appropriate reserve supporting loan growth and reflective of economic conditions. As I mentioned in my opening comments, we have traditionally outperformed during challenging credit cycles and are well-positioned should an economic slowdown materialize. Now I'll turn this call over to Scott.
Scott Grauer (EVP of Wealth Management)
Thank you, Marc. Turning to slide 11, I'm excited to speak to our wealth management, mortgage, and TransFund businesses. These are businesses that we have been committed to for a long time and run as deep as our roots. In 1918, we launched the first trust company in Oklahoma and added asset management in 1949, demonstrating our commitment to innovative financial services for our clients. Today, BOKF provides a rock-solid foundation of stability, knowledge, and experience that individuals, families, and institutions can rely on. We operate these fee-income businesses at scale, which gives us strong operational leverage and the ability to compete well with larger organizations. We made the strategic decision to invest in these and other high ROE fee-income businesses that provide revenue diversity, which has played out well for us.
41% of BOKF's revenue comes from fee-income businesses, which is a peer-leading contribution to earnings and provides stability, especially when net interest income exhibits volatility. To mention a few stats that demonstrate the scale and strength of these businesses, we are a top 10 dealer of agency mortgage-backed securities, the number one underwriter and financial advisor of Texas Independent School District Bonds for 2023, the eighth largest corporate trustee bank ranked by number of trusteeships, a top 10 electronic funds transfer processor in the United States through our TransFund business, which provides debit and credit issuing processing, or EFT, for almost 500 banks and credit unions throughout the U.S., representing close to 1 billion transactions last year alone. Finally, we're a top 50 U.S. mortgage originator and service over $21 billion in mortgage loans, representing more than 122,000 accounts.
Turning to this quarter, total fee income contributed $200.6 million of revenue, representing 41% of total revenue. I'll first cover the detail of our markets and securities businesses, again on slide 11. Our trading fees, which are constituted primarily in fixed-income trading, increased by 5.4% to $37.5 million during the quarter, driven by slightly higher trading volumes and spreads versus the prior quarter. Mortgage banking revenue increased 48% to $19 million. This was driven by improvement in the mortgage origination market and positive seasonal trends resulting in increased volume. Margins have also increased as the pooling of COVID-19 forbearance loans we previously repurchased continues to migrate lower, now reaching some of their lowest historical levels. As a reminder, brokerage and insurance was down 24% to $4.7 million. This was due to the exit of BOK Financial Insurance in the fourth quarter last year.
Turning to slide 12 to cover our asset management and transaction businesses, asset management revenue has also increased 8% to $55.3 million, driven by an increase in AUMA of just under $800 million, with spreads increasing slightly. Transaction card revenue decreased by 11.6% to $25.5 million, driven by normalized activity following elevated levels experienced in Q4. Fee-based businesses tend to have a higher return on capital versus traditional net interest income-related businesses, but also a higher efficiency ratio, as you must build scale and cost structure to operate them effectively. Therefore, as you see with the percentage of fee income increase, you should expect to see a higher efficiency ratio and a higher return on capital. Now I'll hand the call over to Marty to cover the financials.
Martin Grunst (CFO)
Thank you, Scott. Let me start by covering two items in the quarter. First, we accrued $6.5 million as an estimate of the additional special assessment we expect from the FDIC in June of this year. Second, as previously disclosed, we've repositioned a portion of our securities portfolio in March, taking a $45 million pretax charge for the quarter, which will improve net interest income going forward. We hold Visa B shares that are currently equivalent to 400,420 common shares. Visa's exchange program was initiated on April 8th and should allow us to monetize 50% of our B shares in the second quarter. The anticipated gain from this exchange in Q2 should more than offset the $45 million securities loss we took in Q1, leaving a residual amount that we expect to contribute to our charitable foundation in Q2. And one last observation on this topic.
When it comes to portfolio restructuring, our focus is on generating incremental economic value, and we look for the earnback period to be shorter than the weighted average life of the securities involved. For the Q1 transaction, the payback period was roughly two years versus a weighted average life of 3.4 years for the securities sold, indicating a very good economic pickup. Turning to slide 14, capital and liquidity continue to be robust, driven by our risk management framework, which recognizes that capital, liquidity, and interest rate risk management are all interconnected disciplines. Our adjusted tangible common equity ratio, inclusive of all securities portfolio losses, stands at 7.92%. When comparing this capital metric to that of the 20 largest banks in the U.S. as of Q4 2023, ours is the third highest. Additionally, we have strong capital ratios across each of the regulatory capital metrics.
Our current loan-to-deposit ratio stands at 68%, and our coverage of uninsured and non-collateralized deposits has remained robust at 179%, with this quarter's deposit growth of $1.4 billion. Being very well-positioned in capital and liquidity has enabled us to actively pursue organic growth opportunities as well as share buybacks. During the first quarter, we repurchased just over 616,000 shares of common stock at an average price of $83.89 per share. We will continue to be opportunistic about share repurchase over the coming quarters. Turning to slide 15, first quarter net interest income was $293.6 million, and the pace of decline continued to subside as expected. The linked quarter decrease was $3.1 million, with $1 million of that due to day count. Net interest margin was 2.61%, a three basis point decrease compared to Q4, primarily driven by DDA migration and, to a lesser extent, by deposit repricing.
At the end of the first quarter, our through-the-cycle deposit beta was 68%, and DDA was 24% of total deposits. Turning to slide 16, linked quarter total expenses decreased $43.7 million, or 11.4%, mostly attributable to the FDIC special assessment in the prior quarter. We recognize the initial assessment of $43.8 million in the fourth quarter and another $6.5 million in the first quarter. This results in a linked quarter decline of $37.3 million and explains most of the total expense decline in the quarter. All remaining expenses were largely consistent with prior quarter activity. Turning to slide 17, this provides our outlook for 2024. We have good momentum in commercial loan growth and expect total loan growth on a period-end basis to be 5%-7%. We've provided a numeric range on this item, but our outlook is basically the same as it was last quarter.
We believe net interest margin has reached a trough, and total net interest income for 2024 will be just over $1.2 billion. We assume 2 rate cuts by the Federal Reserve in 2024, consistent with the forward curve as of a couple of weeks ago. We expect 2024 provision expense to be similar to 2023 levels and the combined reserves to total loans ratio to remain steady as we grow outstandings and economic conditions persist. With that, I would like to hand the call back to the operator for Q&A, which will be followed by closing remarks from Stacy.
Stacy Kymes (President and CEO)
Thank you. If you would like to ask a question on the phone lines today, please press star one on your telephone keypad. If you find your question has been answered or you wish to remove yourself from the queue, you can press star one again. We'll take our first question from Jon Arfstrom from RBC Capital Markets.
Jon Arfstrom (Managing Director of Financial Services Equity Research)
Hear me all right? We can now, John. Good to hear from you.
Stacy Kymes (President and CEO)
Okay. Good. Good. On slide eight, I don't know if it's for you, Stacy or Marc, but can you touch a little bit on the general business trends you're seeing in terms of the pipelines? I know, Marc, you combine services and general business, but I'm just curious what you're seeing in terms of the pipelines and if they're changing at all.
Marc Maun (EVP of Regional Banking)
Yeah. So far, when we're looking at our C&I pipelines, we still see pretty good strength. I mean, our effort has been out to take advantage of opportunities, given our liquidity position, our credit metrics, and so forth, to be open for business and active calling efforts. And when some of our competitors have pulled back a little, we've been able to build a pipeline pretty well. When you're looking at healthcare, it's been growing pretty well also. Energy is just more reflective of just some of the things that are going on in the economy right now. So overall, we expect to continue to see the kind of growth on the commercial side that we experienced in the first quarter.
Stacy Kymes (President and CEO)
John, this is Stacy. I mean, I think if you think about kind of how we think about it, I mean, commercial growth broadly, given our footprint, given kind of our liquidity and capital position, we're really optimistic about that. I mean, the business lines are very excited about kind of their pipelines and what they see coming over time. I think the only real headwind that we don't know how to forecast particularly well is how commercial real estate will behave, whether we get paydowns there. If we do, it takes time to kind of replace those over time. We have plenty of headroom in commercial real estate to make loans today, but it takes a little while there. And so that, I think I mentioned on the call last quarter, that was really the only wild card we had, I think, from our guidance.
I still think that's true today. I think we're very optimistic about commercial. I think commercial real estate, we're optimistic about our ability to grow the commitments there, but the timing of when those will fund will be the wild card relative to payoffs there.
Jon Arfstrom (Managing Director of Financial Services Equity Research)
Okay. Good. That's helpful. Then just one for you, Marty. Not a lot to pick on here, but you talked about DDA migration. Curious how you're feeling about that. Is the pressure burning out there? Are there any themes you'd like to call out on the DDA migration?
Martin Grunst (CFO)
Sure. Yes. And we do think that the pressure is burning out, as you say. So if you look just within the quarter, the declines we saw were pretty much all in January. So February and March were pretty much leveled out. And then even as you look into April, we saw a little bit of build in April pretax season, and then on April 16th, that came out. And just where that all landed was still consistent with where we were in February and March. So that gives us pretty good confidence that that is reaching a burnout point there. I do think there is still just a little bit more to go, so I don't think that it's absolutely done, but we feel pretty good about the outlook.
Jon Arfstrom (Managing Director of Financial Services Equity Research)
Okay. Thank you. I'll step back. Thanks.
Operator (participant)
We'll take our next question from Peter Winter with DA Davidson.
Peter Winter (Managing Director and Senior Research Analyst)
Good morning.
Stacy Kymes (President and CEO)
Hello, Peter.
Peter Winter (Managing Director and Senior Research Analyst)
Your credit trends have been outstanding. I think you guys are one of the few banks to see a decline in non-performing assets. Could you just provide a little bit more color on the criticized and problem loans? And then secondly, I just guess, based on the provision expense guidance, you're still expecting that higher net charge-offs in the second half of the year.
Marc Maun (EVP of Regional Banking)
Well, I'll take the second part of that first. With regards to provision, we don't really anticipate higher net charge-offs for the balance of the year. Our indications are based on criticized classified levels, non-performing improvement, that we'll see something more consistent with what we have experienced in the last few quarters. The higher provision would come about through loan growth, and that would be the driver for it and the desire to keep our percentage reserve relatively flat to the overall loan portfolio. With regards to the individual criticized assets and so forth, we don't see anything that is systemic in any particular portfolio. And in fact, some of our CRE has come down, and we've been able to exit a number of our non-performing loans, which was one of the results of why we had reduction last quarter as opposed to charge-offs.
We've been able to manage our criticized and classified effectively, and we just think that is going to continue to be reflected in the future based on what we're seeing today.
Stacy Kymes (President and CEO)
Peter, we're off lead. I feel good off lead about the credit quality here. I think that you rightfully point out that's a big part of our story this quarter. I think that we've differentiated ourselves here in terms of how we underwrite and how we think about that. We can have strong asset quality and good growth, and I think we're doing both of those here. Our kind of forecasting in asset quality is good for about six months, and then it gets real hazy. So the reason we've kind of talked about maybe in the back half of the year is mostly just the expectation at some point that there'll be a reversion to the mean and things will start to look like they did pre-COVID. We thought maybe we were heading that direction in the fourth quarter.
We had modest deterioration in criticized and classified and thought kind of we were starting to begin that migration, but that did not play out in the first quarter. Our outlook here is very positive based on what we know about the book and how we see the current criticized classified non-performings behaving today. So we feel really good. Understand at some point, I've been teased a lot internally about I keep saying it's unsustainably good, but it is, but it feels like it's going to stay that way for at least the next six months or so.
Peter Winter (Managing Director and Senior Research Analyst)
Got it. That's really helpful. On a separate question, you did maintain the fee income guidance despite the updated outlook for two rate cuts. The previous guidance was no rate cuts, and you had mentioned lower rates would actually benefit fee income. Would you lean more towards maybe the upper end of the range now that you've got some rate cuts built into your forecast?
Martin Grunst (CFO)
Yeah. Peter, I'd say that we do feel good about the trajectory within that business. Mortgage is certainly even saw a lift in mortgage, and that will be sustainable. That's certainly helped by that. The trading businesses are supported by that kind of environment, and then the fiduciary businesses are also supported by that environment just given the impact on asset valuation. So yeah, we feel great about that line item.
Peter Winter (Managing Director and Senior Research Analyst)
Any sense on maybe if it comes in towards the upper end of the range, just given now some of the benefits with rate cuts?
Martin Grunst (CFO)
Yeah. I don't know that I want to put a pinpoint on any particular part of the range, but we've certainly got good momentum in those businesses, and we expect that to carry forward through the year.
Stacy Kymes (President and CEO)
The only thing I would add, this is Scott, is that on the trading front, we've settled into kind of an uncertainty period whether we're going to be looking at rate cuts or not. As you can see from the first quarter, the business levels and the activities continue to be slightly elevated even without the cuts. We feel good about where we're positioned, really regardless of the direction that the Fed might take there.
Peter Winter (Managing Director and Senior Research Analyst)
Got it. Thanks, Scott.
Operator (participant)
We'll take our next question from Ben Gerlinger with Citi.
Ben Gerlinger (Director Equity Research)
Hey. Good morning.
Stacy Kymes (President and CEO)
Morning, Ben.
Ben Gerlinger (Director Equity Research)
I was just curious. In terms of just, I get the growth kind of numerical fine-tuning. Some of your competitors have kind of indicated the back half of the year, whereas others in the same footprint have also said kind of more linear. And just if you exclude the CRE kind of noise and paydowns potential, should we expect growth to be fairly linear from here through the end of the year, or is it a little bit more weighted towards the back half?
Stacy Kymes (President and CEO)
That's a tough question to answer. I think generally speaking, it's going to be linear more so than weighted in the back half. I think that's my expectation. But as you know, loan growth is lumpy. You have a month where it's flat, and you have a month where it's bigger. But over time, that trajectory should be pretty steady and more linear from my perspective than backloaded.
Ben Gerlinger (Director Equity Research)
Gotcha. That's helpful. And then I know that you now have two cuts in guidance. And at the beginning of the year, we talked about how this quarter is probably the margin trough, and it seems like it should be. But if you kind of look at a little bit of a mosaic here in terms of rate cut potential, if there are no rate cuts, do you have any sense of where the margin might be at the end of the year, assuming your normal mix shift or flows that you're anticipating?
Martin Grunst (CFO)
Yeah, Ben. So whether we do get those 2 rate cuts or not, we still think that our margin troughs here, you see some stability here in the middle of the year, and then you get an uptick later in the year. Our benefit that we get out of rate cuts is more from the fact that you get a steeper curve, and that's something that builds over time. You don't get a gigantic benefit in one quarter from that. So either way, we see the margin coming up towards the end of the year.
Stacy Kymes (President and CEO)
Ben, I think that's the important point that as you think about us on a go-forward basis, think less about rate movements impacting net interest revenue or margin, absolutely, because we tend to be pretty neutral from a rate risk perspective. But think more about a steepening of the yield curve. To the extent that there's a steepening, we're going to materially benefit from that over time. And so the steepening effect has a much bigger impact to us than the absolute whether rates go up or down on the short end.
Ben Gerlinger (Director Equity Research)
Gotcha. That's helpful. I ap
preciate it. Thanks for your time, guys.
Operator (participant)
We'll take our next question from Will Jones with KBW.
Will Jones (Associate VP of Equity Research)
Hey. Great. Good morning.
Stacy Kymes (President and CEO)
Good morning.
Martin Grunst (CFO)
Morning, Will.
Will Jones (Associate VP of Equity Research)
Hey, guys. So I wanted to touch on the deposit growth you guys saw this quarter. I mean, it was obviously fairly notable. I was just hoping you could maybe just touch on what went right for you guys in the quarter. I know you call out as well trying to maybe swap some borrowings and then replace with the deposits. Could you just talk us through some of the dynamics that you saw in the quarter and maybe what drove that nice growth?
Martin Grunst (CFO)
Yeah. So Will, that was us making offers to our existing customer base. As we've talked about before, we have a large portion of our customer base that has both money held on balance sheet of their liquid assets, some of it's held on balance sheet, and some of that's held in our broker-dealer or the wealth business, and that we're able to toggle that back and forth with calling efforts. So we just did some of that, and that was very fruitful, and that just worked out exactly as designed for us.
Will Jones (Associate VP of Equity Research)
Okay. And then just with respect to the deposit growth guidance, it feels like maybe a lot of that growth was just pulled forward in the first part of the year here. And is the thought that deposit balances maybe just kind of level out and flatline for the remainder of the year?
Martin Grunst (CFO)
Yeah. As a general rule, we want to keep deposit growth and loan growth more or less lined up. We're very comfortable with that 70% loan-to-deposit ratio area, defining that as a broader area. And so yeah, it's reasonable to think that those are going to be kind of in line the rest of the year.
Will Jones (Associate VP of Equity Research)
Yeah. Okay. Great. And then back to the margin discussion, I hear so maybe margin trough this quarter, we see stability, and then up margin at the end of the year. Does that kind of imply that deposit costs will peak maybe in the third quarter or late in the second quarter?
Martin Grunst (CFO)
Yeah. So I don't know that I'd say deposit costs peak in particular, but the couple of drivers that are positive for margin are the fixed-rate securities portfolio. Each quarter, $500 million or a little more will reprice from the lower existing rate to reprice up to current rates. The same dynamic happens in the loan book, a little smaller dollar amount, but the same dynamic of pricing up that fixed-rate portion of the loan book. And those continue for a while, multiple quarters. And then on the deposit side, you're just seeing each quarter, the deposit pressure just gets less and less, and so that gets much smaller. It might not go to actual zero, but the lines cross here, we believe, this quarter.
Will Jones (Associate VP of Equity Research)
Yeah. Okay. That's helpful. Thanks, guys.
We'll take our next question from Timur Braziler with Wells Fargo.
Timur Braziler (Senior Equity Analyst)
Hi. Good morning.
Martin Grunst (CFO)
Morning, Timur.
Timur Braziler (Senior Equity Analyst)
Following up on that last line of commentary, just looking at time deposits, 4.54 was the average rate for the quarter. What's kind of the terminal rate there, and what is the offer that's currently being promoted in your markets?
Martin Grunst (CFO)
Yeah. So if you just look at our highest offer, let's see. Depending on term, it's kind of 4.85-5.10 would be the highest particular offer, and that's not every market has the same offer, but that's the high point. And we actually brought those down versus a quarter ago by five or 10 basis points. And so that gives you a sense for a little bit of the easing pressure that we're seeing. It's hard to say exactly what the endpoint is because not everything goes to that high offer because that's particular terms with particular specials. So the terminal point is certainly lower than that, and it'll just kind of depend on the mix within that portfolio. But you're right, that does kind of asymptotically slow down, if you will, over time.
Timur Braziler (Senior Equity Analyst)
Okay. And then maybe just your broader appetite for time deposits here. So the loan-to-deposit ratio now below 70%, you have plenty of balance sheet liquidity. Is your appetite still the same for time deposits, or can we actually see some of those maturities maybe roll off during the course of the year?
Martin Grunst (CFO)
Those are all core customers. I mean, none of that is anything that's brokered or any of that. So it's not like there's a piece that is just going to roll off and go away. We're going to serve what customers are after. And so a fair amount of that's in the consumer book, and so that's just kind of natural how a consumer book matures over this part of the rate cycle. So we would expect that to continue to grow slowly as that consumer book just naturally makes that trend.
Stacy Kymes (President and CEO)
If you're concerned that we're adding to CDs at the time when the market's beginning to see rate declines, and so does that lock you into some higher cost of funds because of the growth there? We're set up. We can swap those back to floating through our treasury function as we begin to have a view around that so that we're not necessarily locked into that from a fixed-rate perspective. We think that's a core deposit-gathering operation that we need to have consistently going on. So how we think about that will toggle with whether we swap it back to floating or not really around our interest-rate risk profile and how we think about that. You have to think about it more holistically than just that particular line item.
Martin Grunst (CFO)
Those maturities are within a year, and some go a little bit longer in a year, but those line up well with the fixed-rate portion of the loan book. Like Stacy said, to the extent that they don't line up well, we very easily swap those, and so that'll work out well.
Timur Braziler (Senior Equity Analyst)
Great. That's a good caller. And then maybe just a couple around the credit side. So looking at healthcare specifically, and I'm referring to the slide again, we're seeing broader issues kind of pop up across the industry within that sector. And then you look at your healthcare portfolio pre-pandemic and post-pandemic, and the results are pretty stark. I guess, what changed in your maybe underwriting or anything else that's driving such outperformance post-pandemic in that portfolio versus higher levels of charge-off activities in 2017, 2018, and 2019?
Stacy Kymes (President and CEO)
Yeah. I don't know that. I don't see our performance as materially different here. I mean, healthcare, over a broad range of time, has been a very strong asset-quality portfolio for us. It's always had more volatility around criticized classified level because the risk in that portfolio that we see is typically classification risk, not loss risk. And so our historical performance from a loss perspective in the healthcare book has been very strong. We had a couple of non-core-type healthcare loans seven or eight years ago that we had some losses around. But the portfolio is structured today around senior housing and healthcare systems and doctor practice groups and things like that. That portfolio has been around for a long time, and it's been a very strong credit performer for us. And how we underwrite is consistent, and we feel really good about that.
I think you're always vulnerable to having some classification risk in the healthcare book just because of the nature of it. But the loss history, which is really what we focus on, has been very stable in the core businesses that we're in today.
Martin Grunst (CFO)
Yeah. And the only thing I'll add is there was just a segment of healthcare that we were in early or mid-2010s that we exited in 2017, 2018 that is no longer part of the portfolio. The core portfolio has always been the senior housing, which has been the stable portfolio.
Timur Braziler (Senior Equity Analyst)
Just last for me, and I know it's a small component, but maybe the NPL inflows from commercial real estate, what asset classes were those in and any kind of underlying thread between some of those migrations?
Stacy Kymes (President and CEO)
Could you ask that again? You cut out for us just a second.
Timur Braziler (Senior Equity Analyst)
Sure. So the NPL migration this quarter for commercial real estate, what sectors those were in and if there's any kind of underlying thread that tied those loans?
Stacy Kymes (President and CEO)
Yeah. I mean, if you look at non-performing loans for commercial real estate, really a modest increase. It's mostly attributable to a single office facility. We took a modest charge-off on it this quarter, and we expect it to be sold for no additional loss content by the end of the quarter. So we don't have any specific concerns around loss content today. It really was largely comprised of a single loan there, which is the increase there.
Timur Braziler (Senior Equity Analyst)
Great. Thanks for the questions.
Operator (participant)
We'll take our next question from Matt Olney with Stephens.
Matt Olney (Equity Research Analyst)
Hey. Thanks. Good morning, everybody.
Stacy Kymes (President and CEO)
Morning, Matt.
Marc Maun (EVP of Regional Banking)
Morning, Matt.
Matt Olney (Equity Research Analyst)
Just a general question. I want to ask about the overall level of competition within your core lending businesses. I think over the last few quarters, we've talked about competitors pulling back and providing some opportunities for the bank to add new customers. I'm just curious if there's any change here. Are these competitors kind of still on their back feet? And then just kind of any update on loan spreads. Thanks.
Stacy Kymes (President and CEO)
Yeah. I mean, I think what you saw really was some of the regional banks and the larger regional banks trying to manage their capital levels and liquidity levels. And so we're less aggressive, particularly on the larger end of the corporate side, and we've seen some benefit from that. I would say, generally speaking, they're starting to put their toe back in the water a little bit, not maybe like they were before last spring, but starting to come back into the market a little bit there. I think that I think spreads, generally, on the larger end of corporate side are going to be stable. I think until we get more clarity around Basel III endgame, and then maybe they widen a little bit there as folks figure out what the capital structure has to be.
But generally speaking, I would say corporate spreads have remained relatively flat, and that's our expectation that we see today, even with some being less aggressive, perhaps, than they've been in the past.
Matt Olney (Equity Research Analyst)
Okay. Appreciate that, Stacy. And then on the expense side, I appreciate the guidance here that you gave, no real change. But just remind me of the variability of that expense base. And if we were to assume the higher end of fees for the year, is it also reasonable that we should be assuming the higher end of the expense guidance?
Martin Grunst (CFO)
Yeah. So on two businesses in particular, mortgage and brokerage and trading, those have a pretty direct link into the expense base, but those are really the two that you see that tight connectivity. And then just generally on expenses, we'll continue to make investments in the IT space, and so the fees and the third-party fees and the data processing costs, you might see some variability there. And then as you kind of know, the mortgage expenses, those are seasonally low in the first quarter, and those are predictably a little higher in the other three quarters. But those are the only things I'd point out.
Matt Olney (Equity Research Analyst)
Okay. Thank you.
Stacy Kymes (President and CEO)
Thanks, Matt.
Operator (participant)
As a reminder to everyone, that's star one to ask a question. We'll take our next question from Brandon King with Truist Securities.
Brandon King (Managing Director and Senior Equity Research Analyst)
Hey. Good morning.
Stacy Kymes (President and CEO)
Morning, Brandon.
Brandon King (Managing Director and Senior Equity Research Analyst)
I noticed that unfunded commitments ticked down in the quarter, so I was wondering if you could provide us any context behind that.
Stacy Kymes (President and CEO)
The only thing we've really seen is we've been able to generate new business, and a lot of it is not being actively used yet. There's a construction piece of it that has to fund up over time. On the commercial side, we've just seen utilization stay flat while we've added new customers. The unfunded commitments is a reflection of just increased commitments overall and stable utilization rates.
Other than the commercial real estate where they're using theirs over time, and so that's where you see one of the decline factors.
Brandon King (Managing Director and Senior Equity Research Analyst)
Okay. That's helpful. And then lastly for me, just in regards to commercial real estate, could you give us an update on what you're seeing in regards to extensions for loans that come up for maturity and just where customers are at as far as their requests?
Stacy Kymes (President and CEO)
Yeah. I think it's kind of business as usual for the most part. I mean, I think that as loans mature or come close to maturity, we work through that just like we have in any typical cycle. I think that at least thus far, this doesn't appear a whole lot different than any kind of normal course of business. Borrowers have the option for us to do some kind of mini-perm financing where you would put it on an amortization schedule if it's through the construction phase. And if the permanent market isn't accepting at that particular point in time, they can do what we call a mini-perm with us. The loan amortizes, and typically a 3-year type term. And then they can kind of wait for the capital markets or the permanent financing markets to get in a better place.
But really, what we've seen, I mean, we've had a very healthy portfolio. I mean, the first quarter, we had really good payoffs in the commercial real estate book, which we really attribute to kind of having a healthy portfolio. And so we're not seeing anything that's kind of out of the ordinary there.
Martin Grunst (CFO)
Yeah. The payoff levels that we saw this quarter were much higher than the last couple of quarters and almost felt like just normal course of business repayment rates in that portfolio, which, like Stacy said, indicates just a pretty healthy underlying portfolio.
Brandon King (Managing Director and Senior Equity Research Analyst)
Yeah. Yeah. Very helpful. Thank you for taking my questions.
Stacy Kymes (President and CEO)
We've said from the very beginning in commercial real estate, there's two things that matter: geography and recourse. And I think that that's really bearing out. And so the fact that we have 90% of our commercial real estate loans have some form of guarantor support and recourse is a differentiator here, and we're really seeing that show up in our portfolio.
Brandon King (Managing Director and Senior Equity Research Analyst)
Great. Thank you.
Operator (participant)
Thanks, Brandon. And we have a follow-up question from Timur Braziler with Wells Fargo.
Timur Braziler (Senior Equity Analyst)
Hi. Thanks for the just a quick one on that line of comments. Who was taking you guys out on the payoff activity? Was it other banks, insurance companies? I guess, where were those paydowns going to?
Stacy Kymes (President and CEO)
Yeah. Largely permanent financing sources. So life cos, anywhere that you typically see a longer-term non-recourse financing in commercial real estate is kind of where those takeouts are coming from. It's not coming from other banks.
Timur Braziler (Senior Equity Analyst)
Great. Thanks.
Operator (participant)
Thank you. That does conclude the question-and-answer session. I'd like to turn the call back over to Stacy Kymes for any additional or closing remarks.
Stacy Kymes (President and CEO)
Thank you to everyone for the questions and discussion and spending time hearing about the unique story we believe we had to tell this morning. We've always predicated our decisions on generating long-term value for our shareholders while effectively managing our risk, and I think that was on full display this quarter. We remain focused on these core values and are excited about the opportunities ahead of us. We appreciate your interest in BOK Financial. I would encourage you to reach out to Heather if you have any questions at [email protected].
Operator (participant)
Thank you. That does conclude today's presentation. Thank you for your participation today, and you may now disconnect.