BOK Financial - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 EPS was $2.12 on net income of $136.2M; total revenue was approximately $523.1M (net interest income $313.0M plus other operating revenue $210.0M). Net interest margin expanded 7 bps to 2.75%, and core NIM ex-trading also rose 7 bps.
• Fee income contributed $206.9M (40% of revenue), highlighted by a 39.8% rebound in trading fees to $33.1M and solid fiduciary/asset management growth; AUMA reached $114.6B.
• Credit quality remained exceptional: NPAs fell ~47.6% sequentially to the lowest level in 20 years; nonaccruals dropped to $46.7M, and there was no provision in Q4; loan-to-deposit ratio improved to 63% on $964M deposit growth.
• 2025 guidance: NII $1.325–$1.375B, fees $810–$830M, total revenue mid–upper single-digit growth, expenses mid-single-digit, efficiency ~65%; management expects trading revenue to mix-shift toward NII with an assumed two 25 bp Fed cuts (May/Sept).
• Potential stock catalysts: continued margin tailwinds from down-rate deposit betas, steepening yield curve boosting trading NII spread, sustained C&I growth (Texas momentum), and exceptionally low NPAs underpinning benign charge-offs.

What Went Well and What Went Wrong

What Went Well

• Margin expansion and NII growth: headline and core NIM both up 7 bps; NII +$4.9M QoQ, supported by deposit repricing, fixed-rate asset cash-flow reinvestment at higher yields, and DDA growth.
• Diversified fee engine: trading fees rebounded 39.8% to $33.1M, syndication fees rose $1.4M; AUMA up $3.9B QoQ and fiduciary revenue +$3.2M; fee contribution ~40% of revenue.
• Exceptional credit and liquidity: NPAs at 0.20% (lowest in 20 years), net charge-offs only $528K; deposit growth of $964M reduced L/D to 63% and bolstered secured capacity.

Management quotes:

• “Net interest margin expanded 7 basis points… liabilities repriced more quickly than assets in response to rate cuts” – CFO Martin Grunst.
• “Fee income segments have begun to deliver a 40% contribution to revenue… ranked at the top of regional banks” – EVP Scott Grauer.
• “Credit quality remains exceptional… nonperforming assets… lowest levels we've seen in the last 20 years” – EVP Marc Maun.

What Went Wrong

• CRE balances fell 2.5% QoQ with declines across industrial, office, retail; healthcare loans decreased 4.4% QoQ amid refinancing into fixed-rate HUD market.
• Investment banking fees fell $5.5M off a record Q3 quarter; total markets & securities flat YoY.
• Expenses rose $6.6M QoQ (+1.9%) on higher personnel, professional fees, and business promotion; efficiency ratio ticked up to 65.6%.

Analyst concerns discussed:

• NII growth path: need for clarity on launch point and quarterly cadence; management explained trading NII spread expansion from ~36 bps in Q4 toward ~100+ bps in 2025 with assumed rate cuts.
• Yield curve assumptions: guidance assumes flat long rates, lower short rates; curve improves modestly without adding steepness beyond short-end changes.
• Loan growth timing: specialty lines (energy, healthcare, CRE) were headwinds in 2024; expected to normalize in 2025 alongside continued core C&I growth.

Transcript

Martin Grunst (CFO)

Welcome to BOK Financial Corporation's Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star two again. Thank you. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Heather King, Director of Investor Relations for BOK Financial Corporation. Please proceed.

Heather King (Director of Investor Relations)

Good afternoon, and thank you for joining our discussion of BOK Financial's Fourth Quarter and Full Year 2024 financial results. Our CEO, Stacy Kymes, will provide opening comments. Marc Maun, Executive Vice President of Regional Banking, will cover our loan portfolio and related credit metrics, and Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results. Our CFO, Martin 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 (CEO)

Thank you, Heather. We are pleased to report earnings of $136.2 million, or EPS of $2.12 per diluted share for the fourth quarter. This results in earnings of $523.6 million, or EPS of $8.14 for the full year, the second highest full-year EPS in our history. As I reflect on the year, it's impossible to do that without mentioning the outstanding team we have at the bank. We have a unique and entrepreneurial culture that is focused on driving long-term success. Our results this year are representative of hard work by an exceptional team with the underpinning of a strong fundamental base and robust risk management practices. I would like to take a moment to share with you the highlights from the year just ended.

During the year, net interest income was solid, and we delivered on our prior expectations of high deposit betas into the Federal Reserve's most recent cutting cycle. During the fourth quarter, deposit pricing leverage was also evident, giving us continued confidence in being able to capture the down-rate deposit betas we've signaled and a strong outlook for margin. The credit performance of our loan portfolio remains exceptional. Criticized and classified levels remain below normalized pre-pandemic levels, and we've maintained a combined allowance of 1.38% of outstanding loans. During the year, we had an annualized net charge-off rate of just five basis points. The most recent peer data is as of the end of the third quarter, but these results would have placed us near the 90th percentile of KRX regional banks. It takes determination and persistence to generate C&I loan growth.

This has been a long-term focus for us, and in 2024, our core C&I portfolio, which is reflective of services and general business, increased at an 8.1% year-over-year growth rate. We've also focused on growth in the Texas market broadly and expanded specifically into San Antonio. These efforts are bearing fruit, with C&I loan growth in Texas reaching 9.8% year-over-year. While we experienced payoff activity in the second half of the year related to our specialized lines of business and CRE, we are confident in our ability to grow those balances back over time. We've also invested in future growth by welcoming new revenue-generating teammates during the year, which will bolster our loan growth prospects going forward. Our fee-income segments have again delivered a 40% contribution to revenue. This ranks at the top of regional banks. Scott will highlight details of this performance in his commentary.

Taken together, these results have contributed to a total shareholder return in our stock of 27%, which far outpaced the KRX index return of 13%. Our results were achieved while preserving strong levels of liquidity, regulatory, and tangible capital levels. Despite rates moving higher, which would typically result in many banks' TCE ratios declining, our TCE ratio at quarter-end was 9.2%, flat versus last quarter. This placed us in the top third of the KRX index as of the end of the third quarter. Once fourth-quarter results are released, it's not hard to imagine that our relative position could improve.

I'm proud of the results for this quarter and for the full year 2024, and have high expectations about the trajectory of our organization. Our business has strong fundamentals. The economic backdrop is robust. The yield curve is beginning to take a more historically normal shape, and the markets we operate in remain strong and growing, and with that, I'll turn the call over to Marc.

Marc Maun (EVP of Regional Banking)

Thanks, Stacy. Turning to slide seven, period-end loan balances increased 0.5% linked quarter. Commercial loan balances grew 1%, and loans to individuals were up 2.7%, while commercial real estate balances fell 2.5%. We continue to grow new commitments and relationships and believe that economic conditions in our markets are supportive of continued growth. With our balance sheet, capital, and credit quality metrics, we are well-positioned to take advantage of these conditions and are actively pursuing new loan opportunities. Portfolio yields decreased 46 basis points during the quarter as our predominantly floating-rate loan portfolio repriced lower following the recent federal funds rate cuts. Loan balances in the energy business increased 4.1% linked quarter, reflecting fund-ups of existing lines and an increase in new relationships. Our core C&I loans grew 2.7% linked quarter, primarily in Texas, resulting from our increased investment in this market.

These segments continue to produce strong growth, being up 8.1% on a year-over-year basis, with loan pipelines remaining stable. I know Stacy referenced this in his opening remarks, but this story is exciting enough that it bears repeating. Our healthcare business loans decreased 4.4% linked quarter. While new loan production and pipelines remain robust, we have continued to see payoff activity into the fixed-rate HUD market. Our CRE business decreased 2.5% quarter over quarter. CRE loans were down in Q4 as part of the normal cycle of refinancing completed projects on a long-term basis. We continue to add new loans in the early construction phase and will be funding up over time, creating new loan growth. Loans to individuals increased 2.7%, reflecting growth in both personal loans and residential mortgage loans.

Transitioning to slide eight, credit quality remains exceptional across the loan portfolio, extending our trend of outperformance versus peers in this area. NPAs not guaranteed by the U.S. government fell again this quarter, decreasing $38 million to $42 million, the lowest levels we've seen in the last 20 years. The resulting non-performing assets to period-end loans and repossessed assets decreased 16 basis points to 18 basis points. Committed criticized assets remained very low relative to historical standards. In addition, we had minimal net charge-offs of $528,000 during the quarter, and net charge-offs have averaged five basis points over the last 12 months. We expect net charge-offs to remain below historical norms going forward. We are well-reserved with a combined allowance for credit losses of $332 million, or 1.38% of outstanding loans. And now I'll turn the call over to Scott.

Scott Grauer (EVP of Wealth Management)

Thank you, Marc. Turning to our operating results for the quarter, on a linked quarter basis, total fee income grew $4.4 million, contributing $206.9 million to revenue and accounting for 40% of total revenue. This isn't a short-term trend. Our fee income has averaged 39% of total revenue over the past five years, a key differentiator for us from our peers and has been a hallmark to our success in varying economic conditions. I'd like to begin by covering our markets and securities businesses on slide 10. Our trading fees rebounded nicely, increasing 39.8% to $33.1 million during the quarter, driven by higher MBS volumes and widened spreads as client demand following anticipated rate cuts returned to more normal levels than we saw in the prior quarter.

Due to the steepening yield curve environment, I'd like to note that total trading revenue includes two distinct pieces: trading fees and trading-related net interest income. This quarter, trading fees were $33.1 million, while trading-related net interest income was $4.6 million. If the yield curve steepens further and trading portfolio yields move further above their funding cost, we will see additional revenue mix shift, with more of our total trading revenue coming from net interest income as opposed to fee income, as we've seen in recent quarters. We've provided a table on this slide to allow you to see this dynamic historically. Mortgage banking revenue has remained relatively steady for the past four quarters, coming in at $18.1 million for the fourth quarter. Our other markets and securities businesses continue to produce solid results, with syndication fees up $1.4 million over the prior quarter.

Investment banking fees were down $5.5 million. However, this is coming off a record quarter, and the business is still performing exceptionally well. Turning to slide 11, asset management revenue grew $3.2 million, or 5.6% linked quarter, reflecting growth in our trust fee income. AUMA grew $3.9 billion quarter over quarter, eclipsing $114 billion, with increased market valuations and continued growth in client relationships. I know my commentary on this slide is less than usual, but the consistent results these businesses have exhibited over time speak for themselves. And now I'll hand the call over to Martin to cover the financials.

Martin Grunst (CFO)

Thank you, Scott. Turning to slide 13, net interest income was up $4.9 million, supported by growth in both the trading and non-trading components. Headline net interest margin expanded seven basis points, with core net interest margin, excluding trading, also up seven basis points. That seven-basis-point increase in core margin was driven by several factors. The securities portfolio continued to reinvest cash flows at higher current market yields. The fixed-rate portion of the loan portfolio also continued to reprice cash flows at higher current market fixed rates. Non-interest-bearing DDA grew in Q4, driven by normal seasonal balance increases. We saw strong interest-bearing deposit growth, and liabilities repriced more quickly than assets in response to rate cuts by the Federal Reserve.

Both the magnitude and the pace of this quarter's deposit repricing activity aligns with our expectations and gives us great confidence in our ability to realize our previously communicated deposit beta expectations should short-term market rates continue to decline. Last quarter, we noted that if deposit balances increased significantly, it could mute the deposit beta somewhat, but would result in a better liability beta and be accretive to margin and NII. This played out in the fourth quarter as we grew average interest-bearing deposit balances by approximately $1 billion, offsetting a portion of our wholesale funding at below wholesale cost. Turning to slide 14, linked quarter total expenses increased $6.6 million, or 1.9%. Personnel expenses grew $3.9 million as normal levels of trading activity resumed, and we continue to invest in our businesses. Non-personnel expense grew $2.8 million, largely due to project-related professional fees and seasonal business promotion costs.

Slide 15 provides our view on full year 2025, and I will note a couple of items. Loan balance projections reflect our strong track record of growing C&I as well as our specialty lending businesses. We have ample headroom versus our concentration limits due to high levels of paydowns in 2024, which we do not expect to recur this year. For total revenue, we expect growth in the mid to upper single-digit range. That growth rate would be unaffected by the mix shift between trading NII and trading fees that Scott noted earlier. Within total revenue, based on our assumptions for rates, we expect growth in net interest income to be above single digit. However, that growth rate is driven incrementally higher by the mix shift from trading fees to trading NII. We expect growth in core NII ex-trading to be mid to upper single digit.

Fees and commissions growth is expected to be lower single-digit. However, that growth rate is affected the opposite way by the trading revenue mix shift. Excluding trading, fees and commissions would also be in the mid- to upper single-digit range. Lastly, I will note that the remarkably low level of non-performing assets we see today supports our view that charge-offs will remain well-controlled for the foreseeable future. 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)

Thank you. We will now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star two again. We kindly ask everyone to limit themselves to one question and one follow-up only to accommodate all questions. Thank you. Your first question comes from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead.

Jon Arfstrom (Managing Director)

Hey, thanks. Good afternoon.

Stacy Kymes (CEO)

Hey, John.

Jon Arfstrom (Managing Director)

Hey. Can you talk a little bit more about the payoff activity and some of the expected changes you're thinking about in 2025? You used the phrase over time, and I'm just kind of curious when the paydowns could change, or is that already starting to happen?

Stacy Kymes (CEO)

You're talking about with respect to loan growth and our kind of outlook?

Jon Arfstrom (Managing Director)

Yep, exactly.

Stacy Kymes (CEO)

Yeah, I think, you know, we've spent so much time and energy investing in the core C&I areas because that's the longest sales cycle. That's the hardest business to move. And we really saw that play out in our favor in 2024 with core C&I growing 8%, which I think is very, very good. The unexpected headwind really was the core specialty businesses: healthcare, commercial real estate, and energy were a headwind to loan growth. And really, because of some idiosyncratic things related to the timing of the capital markets, whether it's with respect to energy or whether it's the shape of the yield curve, it created some permanent financing opportunities outside the core portfolio for real estate and for healthcare.

And so if you think those return back to kind of more normal growth patterns, and we do, we have plenty of concentration cap room in all of those areas, and you think you can sustain the C&I growth, which we think we can, I think the guidance that we have around loan growth for next year is very achievable.

Scott Grauer (EVP of Wealth Management)

Yeah, John, the one thing I would add on the energy side of this is that in the fourth quarter, we did generate a lot of new relationships at a much faster pace than we did the previous three quarters, which created a lot of loan growth we experienced in energy in the fourth quarter. And we expect that we'll continue to see some of the benefits from that. So that seems to have turned around and is in a growth pattern right now.

Jon Arfstrom (Managing Director)

Good. I did want to ask about that as well, just deeper on energy. What do you think about in terms of the energy lending outlook with the new administration? And feels like maybe prices come down, I don't know, but how do you think about risks to that as well? Just curious on the administration, your thoughts there?

Stacy Kymes (CEO)

Yeah, I think it's too soon to know exactly. I think that certainly we expect that the incoming administration will open up more federal lands for drilling. I think the permitting process will be better. I think that they're going to commit to filling the strategic petroleum reserve, which I think is a positive. But I think you cannot ignore borrower behavior, and those guys are going to do what's in their best interest, and that's being disciplined about how they spend their capital investment and getting a return on that capital investment. And so those energy companies will make discrete decisions at the point in time based on what they can hedge out on the curve and what kind of return they can get for drilling activity. And so I think it's too soon to know how it may spur or not spur actual drilling activity.

But I think we have a lot of confidence in our borrowers that they're going to make the best economic decision at the point in time for them that makes sense for them.

Jon Arfstrom (Managing Director)

Okay. All right. Thank you.

Operator (participant)

Your next question comes from the line of Matt Olney with Stephens Inc. Please go ahead.

Matt Olney (Managing Director)

Hey, thanks. Good afternoon. I want to ask more about the guidance for net interest income in 2025. I think that guidance you guys provided us assumes a low double-digit growth number in 2025 versus 2024, and I'm just struggling to get there. Can you give us any kind of launch point or guidance for the first quarter that can help us appreciate what you guys see on your side with respect to net interest income?

Martin Grunst (CFO)

Yeah, man, I think it's useful to think about our guidance in two pieces, sort of the core margin ex-trading and then the trading piece. And as you think through just the core margin ex-trading, you're going to see kind of the same factors that you've seen the last couple of quarters just play out in first quarter and throughout the year where you've got all the fixed-rate asset repricing that's going to continue to reprice up. That's going to be supportive. Both loan growth and deposit growth are going to be supportive of margin. And it's nice to see the DDA trends be supportive of margin recently. But then when you look at the second half of that, the trading component, here's the way to think about that. So in Q4, just the trading portfolio, so that's $5.6 billion.

That had a yield of 4.9%, which you can see, and a spread of 36 basis points over its funding cost, which you can see on page 17. So that's $4.6 million of net interest income provided in Q4. As you play that over into 2025, the volume of trading is probably still going to be in that $5.5-$6 billion territory. But yields on the trading account should come up. 30-year mortgage yields are mortgage-backed security yields around 5.85%. You've seen short-term rates come down in the fourth quarter, so you'll see a full quarter effect of that in Q1. Then later in the year, we're assuming two more cuts.

And so over the course of 2025, that funding cost comes down, and that spread that was 36 basis points in Q4, that could be easily 100 basis points or a little bit more for 2025 overall. So you can see that that's a pretty big pickup year-over-year in that trading-related margin. And that will grow quarter by quarter as you get that widening playing out by the change more in the short-term funding costs. Now, importantly, that growth gets offset in trading fees with the hedge costs. But I think most importantly to think about our total revenue, we've given a guide of mid to upper single digits for total revenue. That's very attainable for us.

And when you look at the three pieces within that, NII ex-trading, fees ex-trading, and then trading in total, both the NII ex-trading and the fees ex-trading are also mid to upper single digits, very attainable for us. And then the last piece, trading in total, regardless of how much of that is fees versus margin, we feel very good about how that trading revenue is going to go over the course of 2025 versus 2024. And Scott might want to add a little bit to that.

Scott Grauer (EVP of Wealth Management)

Sure. Hey, Matt. So I think that, as Martin indicated, those component pieces kind of get to the forecast going forward. But what we've seen really in the last six weeks or so of 2024 and is carrying on into the beginning of this year, our clients on the institutional side, a fair amount of which are financial institutions, prefer clarity that has emerged. So when you think about the election in the rearview mirror and a little bit better clarity, not certainty, but clarity around potential Fed moves, we're seeing quite a bit of increased appetite and willingness to invest out the curve, which bodes well for demand for our business. So as Martin said, we're optimistic and feel confident about our ability to continue to move forward on the rate that we've established here in the fourth quarter.

Matt Olney (Managing Director)

Okay. I appreciate the commentary on that. Just to follow up on maybe a point that Martin made, I see in the deck the guidance assumes two Fed cuts throughout the year. I think you guys give us the timeframe of those cuts. What does that guidance assume or imply with respect to the shape of the yield curve?

Martin Grunst (CFO)

Yeah. So we're assuming that long-term rates are really about where they are today, give or take, throughout the year. So we're not putting any particular changes in steepness into that curve, other than what's driven by the short term, if that makes sense.

Matt Olney (Managing Director)

Yeah. Okay. So yield curve, I guess, would improve a little bit, but the long-term rates stay flat. Short-term rates come in with those assumptions.

Martin Grunst (CFO)

Exactly. Yes.

Matt Olney (Managing Director)

Got it. Okay. Thank you, guys.

Operator (participant)

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

Peter Winter (Managing Director)

Thanks. I was wondering if I could just dig into Matt's question a little bit more. Just the net interest income outlook, it's a pretty wide range for you guys. Just can you, Martin, maybe talk about some of the drivers to the upper end of the range versus the lower end of the range?

Martin Grunst (CFO)

Yeah. I think we feel very good about all the things that I laid out. We've got that securities repricing, fixed-rate repricing. That's very visible and durable throughout the year. The one thing that's interesting that I'll point out, Peter, is our loan-to-deposit ratio is very low, and that gives us an awful lot of flexibility when you think about how we manage deposit pricing, and that gives us room to be a little bit more aggressive on the yield side if we want to. That's not how we built our plan, but to the extent that we want to push on that, rate cuts certainly make that easier, but are not necessary to be able to take some incremental pricing action if we want to on the deposit side.

Peter Winter (Managing Director)

Okay. And I hear you. I see the guidance on end-of-period loans, but I'm just wondering what average loans would do what you're expecting for that range?

Stacy Kymes (CEO)

Peter, this is Stacy. I mean, I think you should assume the growth is relatively ratable over the period. So we're not assuming any kind of elevated growth in a particular period, but we try to grow it kind of typically a similar amount in every quarter. We understand the actual results will differ from that. But as we plan for 2025, we kind of look at it ratably over the period.

Peter Winter (Managing Director)

Okay, and Stacy, if I could just ask, you talked about it in the opening remarks, but you've had nice success with the team lift-outs, and it's been additive to growth. Do you have a pipeline of additional team lift-outs and looking to continue to do that? Because M&A, my sense is still kind of a low priority.

Stacy Kymes (CEO)

Yeah. I think from our perspective, there's not a team lift-out pipeline per se, but we are constantly pipelining for new talent. So every single market we're in, we have targets for revenue producers that we're trying to add to our company. And it's been a really important strategy for us in 2023 and 2024. We saw the dividends for that, particularly in the latter half of 2024, and that we'll continue to do that. We think that's very positive, very accretive to our earnings, very accretive to our franchise value to do that. And so we continue to be very aggressive in all of our markets in adding talent. And this year will be no different in that regard.

Peter Winter (Managing Director)

Got it. Thanks, Stacy.

Stacy Kymes (CEO)

Thank you, Peter.

Operator (participant)

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

Brett Rabatin (Head of Equity Research Department)

Hey, guys. Good afternoon.

Stacy Kymes (CEO)

Hey, Brett.

Brett Rabatin (Head of Equity Research Department)

Wanted to beat the loan growth horse one more time, so if I understand, it looks to me like the payoffs and reductions in energy have swung the other way with some renewed momentum and energy. I didn't get a clear understanding of if you think the healthcare portfolio was getting to its bottom, and then also just within the commercial real estate bucket, you've obviously had growth in multifamily offsetting other declines, so I just wanted to get a sense of what you think happens with kind of the non-core C&I book, and then also it seems like Oklahoma has been driving the strength in the loan portfolio, and I wanted just to hear if that's a function maybe of Texas being more competitive lending-wise with rates or any other color around geography.

Scott Grauer (EVP of Wealth Management)

Okay, there's several questions in there. So let me start with healthcare. Basically, the interest rate environment generated opportunities for a number of our customers to refinance on a long-term basis into the HUD market. We see that a lot of that activity has taken place, and it's going to start to taper off, and we will see more opportunities for us to begin our growth on the healthcare side. Similarly, the interest rate environment has had an impact on our CRE portfolio because, again, they're taking advantage of the opportunity to do some normal course of business, move things off the short-term maturity to a longer-term maturity with a fixed interest rate. Again, those interest rates aren't moving like they were. We do expect those opportunities to occur.

We're adding new construction opportunities that are going to give us the fund-up opportunity, which is a cycle we have historically gone through in our company. We have a capacity in CRE relative to our concentration limits that's given us a lot of opportunity to grow that particular portfolio. We are going to consistently look for the best deals. We do have different concentration limits for different types of real estate, but we're always looking for deals and have capacity for the various types of opportunities that exist. We will look for the best deals that we can there. We feel like we can generate additional growth in the CRE. On the C&I side, it's more of just a consistent approach that we've taken. The Oklahoma market may have driven a little more.

We've been here longer, and we have a lot more relationships, and some of those are renewing, but we saw a substantial amount of growth in Texas in the C&I in the fourth quarter, which is starting to show that the investment we've made in Texas is starting to pay dividends. It takes time to generate C&I loan growth, and so as we've made those investments, we're not going to get the transactions that we might get in the specialty industries, but we're generating a lot of business now that we've spent and committed the time and investment on the C&I side in Texas,

And we're starting to see that all the other markets generally grew at a double-digit rate on the C&I side as well, so I feel really good about the fact that it's been a consistent performer for the last couple of years. And barring any change in economic factors, we would expect that to continue. And so the combination is why we come up with the kind of guidance we're providing.

Peter Winter (Managing Director)

Okay. That's helpful. And then just back on the trading business again, is there, and I know it's probably tough to come up with an exact number in terms of what you're giving guidance to, but is there a way to extrapolate, or can you give an idea of how much dollar change you expect in the trading to move from fee income to NII?

Martin Grunst (CFO)

Yeah. So, Brett, we're probably not going to give guidance on trading per se. That'd be a tough one to wrap your head around. But certainly, there's a shift that's going to go on between that growth based on our economic assumptions in NII down to fees. But the point is trading in total, total trading revenue, that's going to grow nicely year-over-year. And I think that's really the important point.

Stacy Kymes (CEO)

Brett, I think if you look on slide 10 in the slide deck that we provided to accompany the call, you can see how we've broken out the impact of trading fees and trading NII over time. I think Martin's given you all the component pieces that you need to kind of fill in the blanks from there. We've provided the total revenue line item so that you can kind of see at the end of the day, does it make sense or not? So we're not going to break it down by quarter or discrete line item, but I think the pieces are there for you to put it together.

Peter Winter (Managing Director)

Okay. Great. Fair enough. Appreciate the call, guys.

Martin Grunst (CFO)

Thanks.

Operator (participant)

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

Woody Lay (VP)

Hey, good afternoon.

Stacy Kymes (CEO)

Hi there.

Woody Lay (VP)

Wanted to start on deposits. I mean, the fourth quarter was a really successful quarter, and really that success has been consistent throughout the year. Any color on what drove the deposit growth in the fourth quarter? And does the success impact your deposit strategy throughout 2025?

Martin Grunst (CFO)

Yeah. I'd say that the growth was across all three lines of business. We were happy to see that a little bit more in commercial, as you might expect for us, but it was all three lines of business contributing. And it does not change our strategy. I mean, we are very happy with the growth that we've got, the track record we have. And we expect to continue to grow deposits next year. It may not be at the very high rate that we were able to achieve this year, but we're very happy with the traction that we've got going on in that business. And the level of price competitiveness has settled down from what it was a year ago, and that's been a great factor as well.

Woody Lay (VP)

Got it. That's helpful. And then maybe shifting over to capital, I was just curious, does a more favorable regulatory backdrop sort of impact the way you view your excess capital position and how you might deploy that capital?

Martin Grunst (CFO)

Yeah. I'd say regulatory backdrop, that's certainly helpful, but it doesn't really fundamentally change how we think about capital. We know we've got a strong capital position. We've got a level of excess capital, and that just represents earnings in reserve, and we're going to be very patient and thoughtful about how we deliver that, how we deploy that into whatever avenue is best for long-term shareholder return.

Stacy Kymes (CEO)

But would it given kind of how we risk manage the bank and our outstanding CRA rating and those types of things, the regulatory overlay doesn't really impact how we can do that in any particular environment. We've kind of done things the right way, and so that gives us the latitude regardless of who's in charge to be able to do the right things for shareholders here.

Woody Lay (VP)

Yep. That makes sense. All right. Thanks for taking my questions.

Operator (participant)

Your next question comes from the line of Tim Mitchell with Raymond James. Please go ahead.

Tim Mitchell (Senior Equity Research Associate)

Hey, good afternoon, everyone. Tim Langford, Michael. Just wanted to start out on expenses. I'm currently on a single-digit growth range, obviously probably tied to the fee businesses and upper versus lower end, how they perform. But just want to appreciate if there are any underlying investments, potential team lift-outs that we might kind of contemplate as we think about that range for the year.

Martin Grunst (CFO)

Yeah. There's nothing that would qualify as team lift-out, but like Stacy said earlier, we are constantly looking to grow talent, and that's a driver for year-over-year growth, both improvements in talent-based growth in the talent base and continued IT investments. All those things are propelling long-term growth, and that's really the core drivers there. And as you know, Q1, you'll see payroll taxes. That hits in Q1 like it does every year. But pretty standard revenue growth is going to drive a component of the expense growth as well.

Stacy Kymes (CEO)

We're constantly looking to see where can we make an investment today to add value tomorrow. And one of the things that we've spent a lot of time on recently is how we think about holistically our mortgage businesses. And so you'll see us in the latter half, really probably the fourth quarter, late third quarter, fourth quarter really begin to be fully engaged in the mortgage warehouse lending space. In order to do that, we've had to hire talent. Some of that was onboarded in the fourth quarter, and some of that will be onboarded in future periods. But it's things like that where the call it the San Antonio team broadly or things like mortgage warehouse or individual contributors or individual revenue producers in each of these markets.

We are constantly looking for opportunities where we can spend a dollar today to create a better opportunity for us to grow top-line revenue in the future, and so I think being able to maintain that efficiency ratio while we're making these types of investments is really positive for our franchise, and we're excited about these investments that we're making.

Tim Mitchell (Senior Equity Research Associate)

Awesome. Appreciate the color. And I appreciate the color on mortgage and what you said about trading so far. You just talked about investment banking and brokerage and some of the other kind of fee businesses and what the trends are there. It seems like the outlook for investment banking and whatnot is kind of improving kind of post-election. Just curious what you're seeing on that front.

Scott Grauer (EVP of Wealth Management)

Yeah. So this is Scott. So as you noticed in the slides, if you take the impact on the results, if you take the impact from our sale of the insurance unit out, our retail brokerage business is growing at 13%. So we're confident in the trends there, and we continue to gain momentum with that piece of our business. Our investment banking activity has been exceptionally strong. We saw a decline in the fourth quarter, but that is really more seasonal as the majority of our investment banking activity centers around municipal finance. And in particular, we have a high concentration of that activity in Texas. And so when the elections and predominantly the independent school district debt cycles gear back up here, we feel very good about our positioning there and the demand for that activity because we don't participate in the equity investment banking activity.

Brett Rabatin (Head of Equity Research Department)

Yep. Awesome. Well, thanks for taking my questions.

Stacy Kymes (CEO)

Thank you.

Operator (participant)

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

Timur Braziler (Director)

Hi. Good afternoon. My first question is on the deposit side. It was a pretty impressive result, especially considering that CD rates really didn't move in the quarter. Just wondering if you can remind us what the maturity schedule looks like there, and it looks like balances even declined a little bit in the quarter. Just how much of a head start maybe from a margin standpoint you're getting from time deposits in the first half of 2025?

Martin Grunst (CFO)

Yeah, so time deposits, our mix there isn't terribly huge. We actually let a couple of brokered CDs roll off that we put on a little over a year ago, and so that's part of the drop there. The core portfolio is pretty short. And by the way, our brokered CDs are less than 1% today, so it's not meaningful, but that drove the drop. Our CD portfolio tends to be fairly short. A lot of that's original four-month maturity or eight or 10-month maturity. So it's only a couple of months of maturity. And so you'll see some of that repriced nicely in the first quarter as we see rates being a little bit lower than when those were put on.

Timur Braziler (Director)

Okay. And then just looking at the trading securities, did I hear correct that it's 5/8 is the current kind of ongoing rate versus the 490 rate for the firm?

Martin Grunst (CFO)

Well, so keep in mind, 490 is the weighted average portfolio for the whole trading book. Today's new current coupon MBS is 580 or so. But that portfolio will always have some blend of recently produced mortgages as well as some just secondary trading and older vintages. But just know that it won't be precisely moving towards exactly the current production level.

Timur Braziler (Director)

Yep. Okay. Great. And then just lastly for me, just the commercial real estate payoff activity. You had made a comment that that was some normal course of business just going into year-end. I'm just wondering, with rates backing up, if that drove any of that activity or just kind of the timing there. And I guess as you look at stuff that could still be refi'd away, what component of that has now largely found a new home?

Martin Grunst (CFO)

Hey, Timur, I would just point you to the fact that look at what happened at 10-year rates kind of in September. You had those rates drop a lot. And so that customer base that did payoffs right at the end of Q3 and a bunch of Q4, those guys were taking down takeouts at that low point in rates. And so as rates came back up, that's what's going to slow it going forward.

Timur Braziler (Director)

Got it. Great. Thank you.

Martin Grunst (CFO)

Yep.

Operator (participant)

Your next question comes from the line of Ben Gerlinger with Citi. Please go ahead.

Ben Gerlinger (VP)

Hey. Good afternoon.

Martin Grunst (CFO)

Hey, Ben.

Ben Gerlinger (VP)

Hi there. Just kind of looking at the expenses, guys. It says mid-single digits. I'm assuming that's, let's call it, four to six, and now the pivot from this fee to NII and trading really doesn't drive any expenses. So just kind of 10,000-foot view, what gets us to the high end of the range? What gets us to the low end, and would you kind of manage it towards total revenue if possible, or is it more overall investment? It doesn't matter as much.

Martin Grunst (CFO)

There's a portion of that that's just the investments we're making in the business. A lot of the stuff that Stacy talked about, those are long-term decisions, and we're making those decisions based on their long-term effect to drive shareholder value. There is a piece within the expenses that is really tied to the trading businesses and mortgage production, all the transactional businesses, even loan production to some extent. That component will behave as variable. As revenue comes up, you'll see that would be something that would move us to the higher end of the range, for example.

Ben Gerlinger (VP)

Okay. That is helpful. I know over the past, let's call it a couple of years at a minimum, you've been a bit of a C&I hiring sales cycle, whatever you want to call it, but hiring individual bankers that's across its footprint. And those really funded up and was supportive of this above-peer growth. I know you're not stopping, but if rates stay elevated, does that change your idea of what kind of C&I or potentially what other lending styles that might be more attractive in this, let's call it, higher-for-longer environment?

Scott Grauer (EVP of Wealth Management)

Interest rates really have not had an impact on who we're focused on. We are very much focused on the types of industries that we feel can provide the credit metrics and the credit structure that we are comfortable in lending into, and we focus more on having the ability to have a secondary source of repayment, strong guarantors, ways that we can generate business but prevent us from creating future credit problems, and management teams that can manage through cycles, not startup businesses, ones that fit the ability to manage long-term. We don't focus on interest rates as driving anything associated with our C&I calling efforts.

Stacy Kymes (CEO)

Ben, this is Stacy. I think if you look at interest rates on any kind of historical spectrum, rates aren't high. I think that we all get blended into the last 10 years and rates were zero, and that created its own set of behaviors. But I think if you think about where rates are on a historical basis, rates are kind of in the middle of the fairway. And I think that this is much more likely to be the business environment than having really low rates. I think that was an unusual period of time coming out of the great financial crisis and then the pandemic and those types of things where you had really low rates for an extended period of time.

I just don't think that's normal nor sustainable. And I think borrower behavior will adapt to this more normal. Frankly, we see it as a positive just from the shape of the yield curve. I mean, we're awfully excited to have a yield curve that slopes as opposed to essentially a flat inverted curve over the last decade. We see net-net overall that as a positive for financials overall.

Ben Gerlinger (VP)

Gotcha. That's helpful. I appreciate the time.

Operator (participant)

As there are no further questions at this time, that concludes the Q&A session. I would now like to turn the call over to Stacy Kymes, President and CEO, for closing remarks.

Stacy Kymes (CEO)

Thank you, everyone, for joining us for our discussion today. I'm very pleased with the strong results we've reported this quarter and for the full year. Credit quality is exceptional. Core loans are growing, and the right business activity is happening to continue this trend into the future. Margin's robust and expanding, and our strong fee income businesses continue to post solid results. We spent a long time constructing this foundation, and we're proud of the earnings engine we built. I do want to take a moment to recognize Marc Maun.

Marc has been an integral part of building this business over the last 40 years. We, as an organization, and I personally am thankful for Marc, his determination, grit, and decisive leadership during his career at BOKF. This will be Marc's last conference call with us, and on behalf of the organization, I'd like to say thank you. 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 questions at [email protected].

Operator (participant)

That concludes today's meeting. Thank you for your participation. You may now disconnect.