BOK Financial - Earnings Call - Q3 2025

Executive Summary

• BOK Financial delivered solid Q3 2025 results: diluted EPS $2.22 and net income $140.9M, with net interest margin expanding +11 bps to 2.91% and core NIM +4 bps; loan growth was broad-based (+2.4% QoQ) while credit quality remained excellent.
• Results beat Wall Street consensus on both EPS and revenue; EPS $2.22 vs $2.17 and revenue $546.4M vs $540.5M; prior quarter also beat, while Q1 2025 had misses on both lines (see table) [*].
• Guidance was tightened: NII range narrowed ($1.325–$1.35B from $1.325–$1.375B), fees range narrowed ($775–$810M from $775–$825M), efficiency ratio raised to 65–66% (vs ~65%), and provision expected “well below 2024” (vs “below 2024”).
• Catalysts: record investment banking revenue driven by municipal underwriting, rising AUMA to $122.7B, and ongoing deposit beta optimization alongside strong capital ratios (CET1 13.6%, TCE 10.06%); share buybacks (365,547 shares at $111) support capital deployment.

Note: Values retrieved from S&P Global for estimates-marked entries (*).

What Went Well and What Went Wrong

What Went Well

• Net interest margin expanded to 2.91%, with core NIM up 4 bps; NII rose $9.5M QoQ, supported by fixed-rate asset repricing and lower deposit costs. “We expect those drivers to continue to support both margin and NII growth in future quarters.” — CFO Marty Grunst.
• Record investment banking revenue and improved trading fees; total fees and commissions rose $7.1M QoQ to $204.4M, with municipal underwriting strength. “This was a record quarter for Investment banking revenue.” — Wealth EVP Scott Grauer.
• Broad-based loan growth: total loans +$573M QoQ (+2.4%), with growth in core C&I, CRE (+4.2%), and loans to individuals (+4.9%). “We delivered broad-based growth across our loan portfolio.” — CEO Stacy Kymes.

What Went Wrong

• Expenses elevated: total operating expense +$15.3M QoQ to $369.8M, driven by personnel (+$11.6M) and mortgage banking costs (+$4.0M), lifting efficiency ratio to 66.7% (from 65.4%).
• Energy balances declined $53M QoQ (−1.9%) amid consolidation-related payoffs; customer hedging revenue fell $1.8M reflecting lower energy derivative volumes.
• Consumer Banking net income before taxes fell to $14.5M (from $24.7M), as the net cost of MSR hedge changes swung to a −$2.1M cost (vs +$1.6M benefit), and other operating expenses increased.

Transcript

Operator (participant)

Greetings. Welcome to BOK Financial Corporation's Third Quarter 2025 earnings conference call. As a reminder, this conference is being recorded. If you would like to ask a question, please press star one to enter the queue. If you would like to withdraw your question, simply press star one again. I would now like to turn the presentation over to Heather King of Investor Relations for BOK Financial Corporation. Please proceed.

Heather King (SVP and Director of Investor Relations)

Good afternoon, and thank you for joining our discussion of BOK Financial's third quarter 2025 financial results. Our CEO, Stacy Kymes, will provide opening comments and cover the loan portfolio and related credit metrics. Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results, and our CFO, Marty Grunst, will then discuss financial performance for the quarter as well as 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 will now turn the call over to Stacy Kymes, who will begin on slide four.

Stacy Kymes (President and CEO)

Thank you, Heather. We appreciate you joining the call this afternoon. We are pleased to report earnings of $140.9 million or EPS of $2.22 per diluted share for the third quarter. On our last quarterly call, I spent a lot of time talking about momentum. This quarter, we built on that progress and remain confident in the trajectory we're on and the solid foundation we've established for future growth. During the quarter, we delivered broad-based growth across our loan portfolio, with total outstanding balances up 2.4% sequentially, adding almost $1.2 billion in outstanding loan balances over the past two quarters. Our core CNI portfolio posted strong results for the second consecutive quarter, while specialized businesses remain stable. CRE balances expanding meaningfully as commitments from late 2024 and early 2025 have continued to fund up during their construction life cycles.

Importantly, this momentum is independent of our mortgage finance launch, which began generating fundings in the third quarter, with more meaningful outstandings expected during the fourth quarter. Net interest margin continued to expand this quarter, increasing 11 basis points. We believe the key elements are in place to sustain strength in this area, regardless of whether the Fed cuts rates faster or slower than expected. Our strong liquidity profile, with a loan-to-deposit ratio in the mid-60% range, provides strategic flexibility. Going into this interest rate cutting cycle with a strong liquidity profile should enable us to achieve effective pricing outcomes. This positions us well to build upon our already attractive early cycle total liability beta. Our balance sheet remains relatively neutral to interest rate risk, which is consistent with our long-held philosophy of managing rate risk.

This neutral positioning helps protect margin whether cuts are more or less aggressive than anticipated. Importantly, while we are neutral to interest rates, we are not neutral to the shape of the yield curve. Current market implied forwards suggest the yield curve will continue to steepen over the next 12 months. This should provide a further tailwind to margin. Fee income was another solid contributor to overall performance this quarter, growing 3.6% sequentially. We recognized a record quarter for investment banking revenue, bolstered by municipal bond underwriting activity, a key strength in our fee income and advisory business. We also saw significant growth in AUMA this quarter, reaching more than $122 billion. Our capital levels remain peer leading and were further reinforced this quarter as tangible common equity grew to 10.1% and CET1 reached 13.6%.

We repurchased over 365,000 shares at an average price of $111 per share during the quarter. This reflects our continued commitment to providing value to our shareholders. Credit quality continues to be a core strength for us. We remain well-reserved with a combined allowance representing a healthy 1.32% of outstanding loans. Risk size and classified levels remain well below their pre-pandemic levels, reflecting our disciplined approach to risk management. Slide six provides a closer look at our loan portfolio. Total outstanding loans grew 2.4% this quarter, led by growth in our core commercial and industrial (CNI) portfolio, commercial real estate, and loans to individuals. Our core CNI loan portfolio, which represents our combined services and general business portfolios, grew 1.4% quarter over quarter.

Our specialty lending portfolio, consisting of our energy and healthcare books, increased slightly this quarter, with growth in healthcare loans partially offset by contraction in the energy portfolio. Healthcare loans increased 1.8%, driven by strong origination activity, particularly within the senior housing space. Though growth was not limited to outstanding balances, we saw a notable rise in commitments, reinforcing our confidence in long-term sustainable growth in this portfolio. This is despite normal refinancing churn. Both of our specialized lending books continue to demonstrate resilience, supported by healthy pipelines that indicate sustained performance ahead. Our commercial real estate business increased 4.2% quarter over quarter, with growth covering multifamily, industrial, office, retail, and construction. We expect growth in outstanding balances to continue for the remainder of the year as our commitments established in the previous few quarters fund up. We remain well below our internal concentration limits on this portfolio.

Let's move to slide seven. I'll keep this brief. Credit quality continues to be very strong. Non-performing assets not guaranteed by the U.S. government decreased $7 million to $67 million. The resulting non-performing assets to period loans and repossessed assets decreased 4 basis points to 27 basis points. Committed criticized assets increased this quarter but remained very low relative to historical standards. We had net charge-offs of $3.6 million during the quarter, averaging 2 basis points over the last 12 months. Importantly, the limited charge-offs we've seen recently show no patterns or concentrations that raise concerns about specific business lines or geographies. Looking ahead, we expect net charge-offs to remain well below historical norms. We took a provision of $2 million this quarter, primarily reflecting loan growth. Our combined allowance for credit losses is $328 million or 1.32% of outstanding loans, which is a healthy reserve level.

Our exposure to NDFIs is approximately 2% of total loans, with the vast majority in the two highest credit quality subcategories: subscription lines and residential mortgage warehouse lines. Exposure outside of these categories is very granular, with an average loan size of $8 million. We have no credit exposure to companies recently publicized. Our strong performance in the credit space speaks volumes about our disciplined approach. We've built a strong reputation through consistent execution and excellence in credit over time. I'll now turn the call over to Scott.

Scott Grauer (EVP of Wealth Management)

Thank you, Stacy. Turning to our operating results for the quarter on slides nine and ten, total fee income increased $7.1 million on a linked quarter basis, contributing $204.4 million to revenue. Total trading revenue, which includes trading-related net interest income, was $29.8 million, relatively consistent with the prior quarter. Trading fees were up $1.1 million, largely driven by increased municipal bond trading and a more stable market environment. Our trading business is focused on very high-quality fixed-income products, largely agency MBS and municipal bonds. As Stacy mentioned, investment banking revenue, which includes investment banking fees and syndication fees, was a record quarter, coming in at $16.1 million, driven by impressive municipal bond underwriting activity.

Turning to slide ten, our asset management and transaction businesses increased $1.2 million linked quarter. I will keep my commentary brief here because, as you can see, each of these businesses has produced strong and consistent results quarter over quarter. I would like to call out fiduciary and asset management revenue. While third quarter revenue remained relatively flat compared to the prior quarter, it is important to note that second quarter results were elevated by seasonal tax preparation fees. In contrast, the third quarter performance was more reflective of typical run rate, excluding seasonal items, with growth driven by increased trust fees resulting from higher market valuations and continued customer expansion. AUMA grew 4.1% to $122.7 billion in the third quarter, the highest quarter on record. We are very proud of the stable fee engines we have built here over many years.

I will hand the call over to Marty to cover the financials.

Marty Grunst (EVP and CFO)

Thank you, Scott. Turning to slide 12, net interest income increased $9.5 million and reported net interest margin expanded 11 basis points. Excluding trading, core net interest income increased $11.3 million and core margin grew 4 basis points, driven by several factors. First, fixed-rate asset repricing in both the securities portfolio and the fixed-rate portion of the loan portfolio. Second, incremental deposit repricing opportunities in both CDs and interest-bearing core deposit categories. Third, growth in loans and deposits. Since Q2 of 2024, core margin has grown 22 basis points in total, which is an average of 4 basis points - 5 basis points per quarter. We expect those drivers to continue to support both margin and NII growth in future quarters.

Looking at headline net interest margin growth of 11 basis points, and specifically the 7 basis point incremental growth over the 4 basis points we saw in core margin, that was largely driven by the denominator effect of the decline in the average balance of the trading book quarter over quarter. Given the thinner spread on the trading book, the NII impact of the balance decline was very small. We typically expect average trading assets to be near the levels we had in the third quarter, although from time to time, our desk will hold more or less driven by market conditions and expectations of customer demand. Turning to slide 13, total expenses increased $15.3 million. Personnel expenses were up $11.6 million. Regular compensation increased $3.1 million, largely reflecting transitional payments as we realign our workforce to meet the current and future needs of the business.

Incentive compensation costs grew $7.9 million, with $5.4 million related to cash-based incentives, reflecting stronger underwriting and loan origination activity. The remaining $2.5 million increase reflects higher deferred compensation costs, which are offset in other gains and losses. Deferred compensation expense totaled $5.8 million for the quarter. Non-personnel expense rose $3.6 million, mainly due to mortgage banking costs. Last quarter's expenses there were lower than normal seasonal trends due to lower levels of mortgage servicing-related expenses. Slide 14 provides an update on our outlook for full year 2025. We have tightened up our ranges for most categories since we are farther through the year. Loan growth has been robust over the last two quarters, and our pipelines are strong across both CNI and CRE. We feel very good about our full-year loan growth projections of 5% - 7%. For net interest income, we expect $1.325 billion - $1.35 billion.

For fees and commissions, we expect $775 million - $810 million, reflecting good momentum in that set of businesses. Our guide for total revenue is mid-single-digit growth versus prior year. As a reminder, I will note interest rate levels and especially curve steepness can affect the geography of total trading revenue between NII and fees, but that shift would be neutral to total revenue. We expect our full-year efficiency ratio to be in the 65% - 66% range, reflecting the higher quarter-specific actual expenses we saw in Q3. Finally, regarding credit, non-performing assets declined sequentially, and portfolio credit quality is exceptionally strong. This reinforces our expectation that charge-offs will remain low in the near term, and 2025 provision expense will be well below 2024 levels. 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.

Operator (participant)

At this time, I would like to remind everyone, if you have a question, please press star one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michael Rose with Raymond James. You may go ahead.

Michael Rose (Managing Director)

Hey, good morning, everyone. Thanks for taking my questions. Maybe we could just start on, you know, loan growth. You guys have had, you know, pretty high expectations, you know, for the bulk of the year that's largely come through. You've talked about the pipelines being relatively, you know, strong. Can you just talk about some of the competitive forces maybe that you're seeing in BOK Financial's market? We have seen some mergers announced within some of those markets. Can you just discuss maybe some of the opportunities there? Maybe too early, but is there any reason to expect that you shouldn't be able to generate the same level of growth next year as you did this year? If you can just talk about the puts and takes. Thanks.

Stacy Kymes (President and CEO)

Sure. Michael, thank you. I think loan growth has been really a big story for us. I mean, the first quarter we were tracking pretty well, and the noise around the tariffs kind of slowed sentiment a little bit. Second quarter, third quarter, both quarters consistently around 2.5%. So 10% annualized growth without a significant contribution from mortgage finance, which is obviously we hope to see on the outstanding side more so in the fourth quarter. We feel really good about where we're at. We've got room on commercial real estate. Obviously, we limit more so than others our appetite around how much commercial real estate we will do, but we're under our concentration limits there. Energy's been a headwind this year. I don't expect it to be a tailwind next year, but I also don't expect it to be a headwind.

That underlying growth that you see in just core CNI, personal loans on the wealth side has really done very well. We're very well positioned to be able to grow at a very strong level. We're obviously not providing guidance for 2026, but obviously feel good about where we're at and feel good about sustaining that into the fourth quarter. As you think about merger activity in our footprint, that disruption creates opportunity for us. Obviously, we feel very well positioned to take advantage of that. Some of the fastest growing periods of my career have been when there was great disruption in the market from M&A. We're working very hard to position ourselves. I think being a source of strength and stability and growth during a time of disruption should position us well, both with talent and with prospects in the market.

Michael Rose (Managing Director)

Thanks, Stacy. Appreciate the question. Maybe just as a flip side of that, just given where capital levels are, given where the stock is and buybacks, can you just frame kind of capital use? Given that we are seeing pretty quick approval times and a more favorable regulatory backdrop, does M&A enter the equation for you guys again, or is this just too many buyers out there searching for too few deals? Thanks.

Stacy Kymes (President and CEO)

From my perspective, the order of capital allocation remains. Obviously, we want to grow organically. We are, at our core, an organic growth company, and that's our primary use of capital. Secondary, we'll look at share repurchases, the dividend levels, and things like that. Over time, you saw we printed over 10% tangible common equity this quarter. I'm not sure that's a good thing or a bad thing, but obviously proud to have very strong capital. We did that and repurchased a reasonably large amount of shares this quarter. M&A is something that exists for us that we'll look at. We're focused on strong core deposit franchises. We've kind of identified in the past the types of things that would be interesting to us, and if those things become available, then we'll be interested.

We're not interested in doing a deal just for the sake of doing one or because somebody else did it or because the regulatory environment is more conducive to it. They're a lot of work, and they're very disruptive. They need to be worth the effort and really add strategic value long term. We're interested, but I think we're going to be very cautious about how we think about that.

Michael Rose (Managing Director)

I really appreciate it, Stacy. Finally, I just want to wish Heather a happy birthday. Thanks all.

Operator (participant)

Thank you. Your next question comes from the line of Jon Arfstrom with RBC Capital Markets. You may go ahead.

Jon Arfstrom (Managing Director)

Hey, good afternoon.

Stacy Kymes (President and CEO)

Jon?

Jon Arfstrom (Managing Director)

Hey, Marty, maybe for you, you touched on it a little bit in your prepared comments, but on slide 12 in the core margin, how do you feel about that trend in the core margin excluding trading? Is it still that kind of grind higher? Can you just give us some of the puts and takes in terms of what you expect there.

Marty Grunst (EVP and CFO)

Yeah, we do still think that that is a grind higher trend. The repricing of the fixed-rate portion of the loan book and the fixed-rate securities book, those are trends that will continue. We had just over $600 million of securities basically price up around 100 basis points this quarter and around $200 million of fixed-rate loans price up similarly. Those trends don't last forever, but those are durable for a number of quarters over time. On the deposit pricing, we were able to do a little bit more on the repricing around the edges on the core deposit book earlier in the quarter and saw no adverse impact on that from depositors. We still think that those trends have legs.

Jon Arfstrom (Managing Director)

Okay. You're also saying the trading book probably stays relatively flat in the fourth quarter. Is that right?

Marty Grunst (EVP and CFO)

Yeah, I mean, that's our base expectation. We need to have, our desk needs to have a specific reason to want to move higher or lower than that kind of point that they are typically at. That's a reasonable assumption based on what we can see today.

Jon Arfstrom (Managing Director)

Okay, good. Stacy, you mentioned it a couple of times, so I want to give the opportunity to talk about it. You talked about the mortgage finance launch and that business funding up and maybe making contributions, you know, greater contributions in the coming quarters. Can you talk a little bit more about what's possible there in the timeline so we can understand that?

Stacy Kymes (President and CEO)

Sure. I think, you know, we previously talked about having $500 million in commitments by the end of the year. I think that's very doable. I think the utilization there will be, you know, plus or minus 50%. As it matures, we'll kind of get a better feel for that. That's kind of how we're modeling it today. I think we ended the third quarter with about $70± million, in mortgage finance loans outstanding. That kind of gives you a little bit of the runway. Obviously, we intend to grow that. We expect, as we get out into 2026, that the commitment level will increase pretty materially from there. We're very comfortable with that. The recourse there, the nature of the collateral, and how we perfect on the collateral makes it a very safe lending aspect for us that we like.

It fits our profile well, in addition to fitting our kind of mortgage ecosystem here with mortgage trading and mortgage TBA hedging that we do. The core mortgage finance that we're adding here is an important leg of that. We see real growth opportunity here for the foreseeable future here for sure.

Jon Arfstrom (Managing Director)

Okay, good. That's helpful context. Thank you.

Operator (participant)

Your next question comes from the line of Peter Winter with D.A. Davidson. You may go ahead.

Peter Winter (Managing Director and Senior Research Analyst)

Thank you. I wanted to ask about just the fee income range. It's still pretty wide with just one quarter left. Maybe if you could talk about the puts and takes within that range, because you did tighten the range on net interest income.

Marty Grunst (EVP and CFO)

Yeah, Peter, we did tighten the range on fee income as well a bit. As you know, those are just great businesses to be in. They've got really nice growth dynamics over time. It is a little bit more challenging to pinpoint any given quarter in those fee businesses. We think that we've got good activity going across the board, whether that's fiduciary, has good backdrop for both production of new volume, and so far our market's behaving pretty well. Transaction card has a nice growth rate year in and year out. Brokerage and trading, that's the most difficult to really be able to give any solid guidance on. I will say this, with the expectation for some lower rates in the fourth quarter, that at least gives you a constructive backdrop for that line of business.

Peter Winter (Managing Director and Senior Research Analyst)

Okay, thanks. On the updated expense guidance, does it imply you're expecting expenses to be down in the fourth quarter? If you could provide maybe some expense growth color for next year, would you expect expenses to moderate? I guess what's a normal expense growth rate for BOK?

Marty Grunst (EVP and CFO)

Yeah, we'll probably stop short of doing any 2026 guidance, but I think it might be helpful to just talk about Q3 expense levels and especially within the personnel because, you know, that was a little off-trend for us. If you look at that $226 million expense for personnel in Q3, a couple of components in there that I think are just good to understand. $5.8 million was the level of deferred comp in that $226 million. As you know, Peter, deferred comp, some quarters that's positive, some quarters it's negative. The average is small, but it's truly inconsequential to EPS because it is always offset in the other gains and losses. If you're going to, some people adjust out the gains and losses in total, but if you do that, you really have to adjust it out of personnel anyway.

In fact, when we do our guidance, we leave it out of both sides. $5.8 million, that doesn't recur. That's some quarters up, some quarters down. That's one. Deferred comp two, there's a little bit of workforce realignment there. That's nearly $3 million in the current period. You want to be thoughtful about that. Third, the incentive comp, $5.1 million cash incentive comp, higher quarter over quarter. That's production-driven, some iBanking, some loan production. Throughout the wealth business and other businesses, that's kind of spread throughout the company. That'll give you a little bit of sense for how to think about that Q3 number going forward.

Peter Winter (Managing Director and Senior Research Analyst)

Okay. Just one last question, Stacy. I'll give it a shot. I just want to follow up with John's question with the mortgage finance. I'm wondering if you could put some guardrails around, you know, materially higher next year. It just seems with the Fed starting to cut rates, it really could be a significant grower for you next year.

Stacy Kymes (President and CEO)

I agree with that assessment. I think I indicated, you know, $500 million commitments by the end of the year, roughly 50% utilization, and then materially higher in 2026. Obviously, we're going to be very careful here about providing any 2026 guidance because we're not prepared to do that. We'll do that when we get together in January. We'll provide very detailed guidance around that. We're obviously very optimistic. We have a strong appetite to grow it. We believe it's very low credit risk. I think you'll see us be very open about growing that very aggressively in 2026.

Peter Winter (Managing Director and Senior Research Analyst)

Okay, thank you.

Operator (participant)

Your next question comes from the line of David Chiaverini with Jefferies. You may go ahead.

David Chiaverini (Equity Research Analyst)

Hi, thanks. I wanted to follow up on Peter's question there. To ask it a different way, you know, how high as a % of loans could mortgage finance eventually get, say, over two to three years?

Stacy Kymes (President and CEO)

We typically look at, if you look at the areas that we have our concentrations in, you think about things, we think about things in terms of % of capital. Obviously, we have lots of capital and we have lots of capacity to grow that. When we start in any area, we don't start where we want to end up. We learn from it, we get better, we grow, we understand what the client selection opportunities are and what the market gives us. It's hard to look out and say with great certainty, but we have a very long runway here in mortgage finance. We don't see where we're necessarily going to be constrained internally in the next couple of years around this. At some point, we would be. There would be a point in time where we would reach our interim risk appetite, if you will.

We're nowhere close to that today. We're very excited about the possibilities here and see a pretty long runway to grow it.

David Chiaverini (Equity Research Analyst)

In terms of the competitive environment for mortgage finance, are you seeing competitors pull back from that business at all?

Stacy Kymes (President and CEO)

Not particularly. I mean, not today. There have been some who pulled out, you know, over liquidity issues, call it a couple of years ago. If you think about the environment, specifically to today, not necessarily, although it does fall under the non-depository financial institution lending. I think that there will be folks who look at that and think about that maybe a little bit differently because of the scrutiny that's evolved from that. This is one of the most secure areas of lending in our view, no matter how it's classified, that we can do. We feel very, very comfortable with that. We are bringing to market a very experienced team, a very strong leadership group who's well known by the participants in the market. We have synergies with our existing businesses that most do not have.

With our mortgage trading business, with our mortgage TBA hedging business, there's enormous synergy with the same clients that are our mortgage finance prospects. We really think there's enormous opportunity here where one plus one is three. Mortgage finance is going to grow on its own, but we also think it will enhance other businesses as well. Frankly, even on the treasury side, the cash management side, the corporate treasury side, we're seeing opportunities that perhaps we didn't foresee as we entered this business. We have a very strong delivery platform on the treasury side that, as those begin to explore a full relationship, are very impressed with relative to where they are. We're seeing much more traction there than perhaps we anticipated. We talk about the loans, and I understand why. They're a strong driver of earning assets. This is about a complete and full relationship.

That's part of why we've entered this business in the way we have with hiring a very experienced team, investing in the technology tools to be successful. I think you're going to see a lot of success here.

David Chiaverini (Equity Research Analyst)

Thanks very much.

Operator (participant)

Your next question comes from the line of Brett Rabatin with Hovde Group. You may go ahead.

Brett Rabatin (Managing Director)

Hey, good afternoon, everyone. Thanks for the question. I wanted to just go back to loan growth. I noticed that you guys grew quite a bit in office this quarter. I was just curious if you were seeing opportunities where others maybe were trying to reduce exposure relative to certain CRE buckets, given you're a lot lower relative to some peers on concentration. Maybe just any other segments that you're seeing people pull back from, whether it be multifamily or construction, that might also be an opportunity.

Stacy Kymes (President and CEO)

Yeah, I would say office is really consistent with where it was the same quarter a year ago. The balances are going to ebb and flow a little bit from period to period just based on activity. We're not afraid of office. Obviously, it depends upon who the tenants are, what the lease roll looks like, the term of the leases, those types of things. I think, much like there was the demand, everything was going to go away in retail because of Amazon. That didn't prove to be true. I think office is going to prove to be a better class than people originally were concerned about because of changing work preferences. I think people are returning to the office. Workspace is important. We're not leading with office per se.

For the right deal, for the right opportunity, with the right tenant profile, we are in the business of making office loans. You see a little bit of that this quarter. Obviously, our focus is multifamily and industrial primarily. We're seeing good opportunities there. We see kind of a good runway to kind of fill out the bucket, if you will, in commercial real estate and continue to grow the outstandings there.

Brett Rabatin (Managing Director)

Okay. That's helpful, Stacy. The other question I wanted to ask was just around the strong growth this quarter and really the past year in AUMA and just, you know, how much of that might be the market versus new clients, new customers, any fee changes that might drive the revenue relative to flatish going forward in 3Q to 2Q.

Stacy Kymes (President and CEO)

Sure. This quarter specifically, as we have on slide 10, we're getting both. We have a fair amount of planned distributions and natural churn in that business. Our actual new asset attraction is significant. If you look at the net at the end of the quarter, it was half and half. Of the $4.8 billion increase for the quarter, it was increased by both market valuation improvements, which accounted for about half of that, and the other was new business growth, net new business growth. It's a combination of the two. We feel good about it, and it's really across the broad spectrum. It's safekeeping assets. It's fiduciary assets across all the business lines inside of wealth, from retail brokerage to the institutional side.

Brett Rabatin (Managing Director)

Okay, that's helpful. I appreciate all the color, guys.

Stacy Kymes (President and CEO)

Thank you, Brett.

Operator (participant)

Your next question comes from the line of Woody Lay with KBW. You may go ahead.

Woody Lay (VP)

Hey, thanks for taking my question. Just wanted to start on trading income. How do you think about the mix shift of trading income between fees and NII based on the expectation of the steepening yield curve?

Marty Grunst (EVP and CFO)

Yeah. This is Marty. To the extent that you get a little more steepness in the curve, you're going to see a little bit more of that revenue be in the NII category and a little bit less in fees. That's a reasonable thing to assume. The total, we're really paying attention to how the business performs and adding those two together. That's really the right way to think about the trends in the business.

Woody Lay (VP)

Yep. Okay. Maybe shifting over to credit, obviously really clean, but it did look like credit-sized assets picked up just a touch. Do you have the dollar amount that it increased and any color you can give there?

Stacy Kymes (President and CEO)

It increased like $50 million, you know, on almost $25 billion in loans. If you look at, you know, credit-sized levels as a percent of tier one in capital, it crept up a little bit, but it's too small to move. One loan can move the number here a little bit. If you think about we're at 11.3% at the end of the third quarter. We were at 12% at the end of the fourth quarter last year, kind of at a similar level we were at the third quarter. Obviously, you saw improvement in the first half of the year, but these numbers are so small that, you know, one or two loans can move these percentages here a little bit. I guess this is a good segue for me to remind everybody, this is not normal. These are abnormally strong credit numbers.

We include kind of that fourth quarter 2018, fourth quarter 2019. That is the mean, if you will. That is normal, those look good for us. We were happy with those levels. There will be a time where both charge-offs and credit-sized levels and non-performing levels kind of revert to the mean. That doesn't mean credit's deteriorating. It just means that there's been kind of a reversion back to kind of a more normal period of time. These are abnormally good credit periods. We're kind of looking under every rock trying to find where we think the next, you know, risk element can come from. We're not seeing it in a line of business. We're not seeing it in geography. Everybody's kind of jumping on the next credit thing. There will be a reversion to the mean.

We're not seeing any deterioration, really meaningful deterioration at all in asset quality today.

Woody Lay (VP)

Yeah, that was going to go into my next question. I mean, if I just look at the past, you know, on average over the past three years, you're averaging a net charge-off rate of about 6 basis points, which is just pretty remarkable considering, you know, you're a commercially focused business. Do you think, just based on where you see the macroeconomy today, do you think we get a more normalized environment in the year ahead, or is it really just too unpredictable to tell?

Stacy Kymes (President and CEO)

It's really hard to say. I mean, we include in the appendix, I think it's slide 18. I always kind of refer people to that because we get caught up in these, you know, one year to one year, and you don't really pick up a credit cycle when you do that. We've included in our, you know, essentially a 20-year loss history that picks up the worst of the great financial crisis embedded in that history. We've got basically a 26 basis point average charge-off over that period of time, which includes some pretty significant losses if you think about coming out of, through the great financial crisis. I think as we think about through the cycle, we kind of think 20 to 25 basis points is average losses for us. Maybe we do a little bit better.

We think our asset quality has differentiated itself in a very positive way. As you try to look out in the near term, it's hard to see that we revert back to that mean quickly. Just based on what we see today, there's as much positive going on as there is negative. I don't foresee that certainly, but there are so many factors that can predicate that. It's typically something that we didn't expect or that kind of an extragenous shock that creates the stress. It's very difficult with real certainty to predict. As we model, as we think about our business through a cycle, we really focus on that long-term loss rate, which we think is somewhere around 20 - 25 basis points. We're nowhere near that today and don't certainly foresee that in the near term.

Woody Lay (VP)

Got it. That's great color. Thanks for taking all my questions.

Stacy Kymes (President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Timur Braziler with Wells Fargo. You go ahead.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Hi, good afternoon.

Stacy Kymes (President and CEO)

Hi there.

Timur Braziler (Director of Mid Cap Bank Equity Research)

A couple more on the warehouse finance business. I guess, what do the typical line sizes look like today? How does that progression grow potentially as you build out that business?

Stacy Kymes (President and CEO)

I mean, loan sizes are going to be, you know, loan commitments here are going to be larger than maybe a typical CNI loan commitment would be. Let's call it $75 million - $100 million, plus or minus. You know, some are going to be smaller, some are going to be bigger, but, you know, generally speaking, they're going to be a little bit larger there, mostly because the quality of the credit is, in some cases, correlated to the size of the facility. We want to be sensitive about adverse selection. It is less granular than a typical CNI portfolio for sure, but the asset quality is much, much better over a long period of time.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Okay. Marty, I talked to you three months ago, and your comments were a bit prophetic. You had mentioned essentially the risk of double pledging some of this collateral. You'd also said that the mortgage registration systems that are in place today kind of eliminate some of these risks. I guess the events of these last couple of weeks, does that potentially make you reconsider how you think about that statement? Does it get as close as you've been to the ramp, but does it give you even greater conviction around the process?

Marty Grunst (EVP and CFO)

Yeah.

No, that's a great question because there's a distinction between the situations that are in the news. Those are not residential mortgage warehouse lines where those loans are all registered at MERS. That's the beauty of the component of mortgage warehouse that we're doing. All of that collateral, not only do we have a very strong team that's very experienced, but we've got the leading platform to operate that business. That gives us the ability to ensure that all the individual loans, we have clear title to all the loans that are securing our warehouse line through MERS. There are other flavors of warehouse finance that aren't like that. What we're doing is 100% what I just described, where our ability to have clear line of sight on title so that we know we've got those loans as collateral.

Not only that, we've got the ability to deal with them if we ever needed to, just given the talent we've got on board. We are as convicted as ever that the way we're going into this business and the portion of this business that we're doing is the right one that meets our risk appetite.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Great. That's good color. Thank you. Just last for me, just a clarifying question. The comment on trading assets being more or less in line with 3Q, is that an average basis or a period end?

Marty Grunst (EVP and CFO)

Yeah, average. We always talk about average there. You can almost ignore the period end on trading because just one day isn't representative. As you're thinking about that business, it's always the most sensible thing to look at the averages.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Great. Thank you.

Operator (participant)

Our next question comes from the line of Jared Shaw-Barclays. You may go ahead.

Jared Shaw (Managing Director)

Hey, good afternoon.

Stacy Kymes (President and CEO)

Hey, Jared.

Jared Shaw (Managing Director)

Hey, just going back to the overall loan growth, if we look at the high end of that range, it feels like that's just driven by the optionality or the potential of mortgage warehouse. Is that right? What are your assumptions for energy payoff activity or payoff activity, paydown activity? Is that going to slow going into the end of the year, or could we still see pressure on those balances?

Stacy Kymes (President and CEO)

Yeah, I think, you know, we're growing. The last two quarters, we've grown loans at 10% without really any meaningful contribution from mortgage finance. I think that there's, and that's with some headwind in the energy space. I feel very confident about where we are from a loan growth perspective. We've got good momentum. We look at the sales pipeline, obviously, going into it. We look at it more frequently, but particularly coming into the call to be able to feel good about talking about that here. Sales pipelines are very strong right now. We feel good about where we're positioned from that perspective as we think about the future. I mean, energy lending, the commodity prices are low. There's consolidation happening in the space. I do think, plus or minus a little bit, we've kind of hit the bottom in terms of the risk of material payoff activity.

I don't think it's going to grow at 10% either. From our perspective, having stable balances there is a positive. We do expect it to grow a little bit. We're close to bouncing off the bottom here a little bit on the energy balances, which is helpful. Obviously, we like that space. Feel very good about the asset quality there. The growth has been more challenged in the last 12 to 18 months as there's been lower commodity prices and more M&A activity in that space.

Jared Shaw (Managing Director)

All right. Thanks. If we do see the stronger growth in the mortgage side, is that going to be enough to impact sort of the expected growth in loan yields here? I'm guessing that's tighter spreads on that lending, right?

Stacy Kymes (President and CEO)

It is tighter spreads. It's really going to depend on what the mix is at that particular point in time. That's a hard question to answer until we get a little farther along. I mean, just overall, yes. The spreads on mortgage warehouse are tighter than they are on, let's say, a typical CNI deal. The flip side of that, we still got lots of room to grow in commercial real estate. Those spreads tend to be wider than a typical CNI deal. It really just depends on the mix at that particular point in time.

Marty Grunst (EVP and CFO)

Yeah. Jared, one thing to think about is that business also brings deposits. When you think about the combination of the loans, deposits, the treasury management revenue, and incremental trading revenue, broadly speaking, that's bringing a pretty standard margin to the bottom line for us. I think overall, it's not going to be diluted to overall returns if that's sort of the way you're thinking about it.

Jared Shaw (Managing Director)

Okay. All right. Thanks. How should we think about maybe your internal thoughts around loan-to-deposit ratios and funding this growth? Should we assume that you're comfortable with that ratio, which is pretty low, starting to grow back to where we maybe saw in prior years?

Marty Grunst (EVP and CFO)

Yeah, we have, as you know, and as you just said, a very strong loan-to-deposit ratio. That can drift up, and that's fine. That's not our central, you know, our central case is that we'll continue to grow loans. We'll continue to grow deposits. Maybe loans are a little higher than the deposits, and that could drift up, and that'd be fine. We've got a lot of balance sheet flexibility, and that'll put us in very good position for the next couple of years.

Jared Shaw (Managing Director)

Thanks a lot.

Operator (participant)

Your final question comes from the line of Matt Olney-Stephens. Go ahead.

Matt Olney (Equity Research Analyst)

Yeah, thanks for taking the question, guys. I guess sticking with Jared's first question on the loan yields, are there any material loan floors that would become effective as the Fed continues to cut rates?

Marty Grunst (EVP and CFO)

Not really. I mean, certainly, you know, we still have pretty high rates here in the grand scheme of things. Floors are not going to be a factor in the foreseeable future.

Matt Olney (Equity Research Analyst)

Okay. Thanks for that, Marty. I guess going back to the credit discussion, you gave us some great details, and I'm looking at the allowance ratio, call it 1.32%, which I think is the low end of what we've seen since the CECL adoption of the last few years ago. It feels like it's going to be really tough to keep that flat, and we could see that start to or continue to drift lower. Am I interpreting the commentary there right on the allowance ratio?

Stacy Kymes (President and CEO)

I mean, that's really predicated on asset quality at the point in time and loan growth and lots of other factors there. We obviously don't foresee loss content being material, that's going to help. If you look at the reserve relative to criticized levels or relative to non-performing levels or relative to charge-offs, it's very healthy. We've got something that we'll continue to look at there.

Matt Olney (Equity Research Analyst)

Yeah, okay. That's all for me. Thanks, guys.

Stacy Kymes (President and CEO)

Yep. Thanks.

Operator (participant)

Your final question comes from the line of Timur Braziler with Wells Fargo. You may go ahead.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Hi, thanks for the follow-up. Just one more for me. You had called out a couple of times that you're looking to align talent base with future growth initiatives. Can you just maybe put some context around that statement and maybe how far in the process we are there?

Stacy Kymes (President and CEO)

Sure. We're constantly, I mean, you know, part of our corporate DNA is we're always looking to see, you know, where are the growth opportunities, where are the highest returns on our capital, and where are areas that are mature. We've been very focused as we have these expansion areas like San Antonio, like Mortgage Warehouse, where we're making big investments. We have big technology investments in Wells and in the corporate bank. Obviously, as we think about that, we also think about where are some areas that are mature that we need to be more efficient in and focus on that.

As we've worked through that over the course of the year, we've taken actions in both the third quarter and in the fourth quarter that will result in transitional payments that are non-recurring that will impact personnel expenses principally, but create benefit in future periods as we right-size the workforce with the areas that we think provide the most opportunity for us to grow.

Timur Braziler (Director of Mid Cap Bank Equity Research)

Okay, thank you.

Operator (participant)

This concludes today's Q&A session. I would now like to turn the call back over to Stacy. Closing remarks.

Stacy Kymes (President and CEO)

Thank you. This was another strong quarter marked by solid performance across our core businesses. The additional momentum we built this quarter reflects the strength and resilience of our team. We're entering the final quarter of 2025 with a clear focus on sustaining the positive trajectory. We appreciate your interest in BOK Financial and your willingness to spend time with us this afternoon. Please reach out to Heather King if you have any questions at [email protected].

Operator (participant)

This concludes today's conference call. You may disconnect.