Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BOK Financial Corp (BOKF, Financial) reported strong earnings of $163.7 million for Q2 2024, with an EPS of $2.54 per diluted share.
- The company has a well-diversified loan portfolio with one of the lowest levels of commercial real estate concentration among peers at 21% of total loans.
- Net charge-offs remain very low, and non-performing loans have decreased, indicating strong credit quality.
- Fee income businesses are robust, contributing 40% of total revenue, which is a peer-leading contribution.
- The company successfully monetized 50% of its Visa stock, generating a $54 million pretax gain.
Negative Points
- Commercial real estate (CRE) loans decreased by 2.9% quarter over quarter, reflecting some challenges in this segment.
- The trading fees decreased by 26.1% to $27.7 million, consistent with broader industry trends.
- Net interest margin was sequentially lower by 5 basis points, driven by higher average balances for the trading portfolio and the AFS securities portfolio.
- There is uncertainty regarding the pace of CRE paydowns, which could impact future loan growth.
- Personnel expenses increased by $11.6 million, driven by various factors including incentive compensation and payroll taxes.
Q & A Highlights
Q: Can you discuss the outlook for your fee businesses, particularly in light of potential rate cuts?
A: Scott Grauer, EVP of Wealth Management, noted that the fee businesses, especially mortgage-related activities, have likely bottomed out. He expects that potential Fed rate cuts would stimulate greater mortgage production, which would, in turn, increase trading volumes and hedging activities, providing a tailwind for these businesses.
Q: How do you reconcile strong C&I loan growth with the general trend of companies deleveraging?
A: Marc Maun, EVP of Regional Banking, explained that BOK Financial has been actively pursuing new C&I customers for some time, which has led to broader growth. He expects this growth to continue, albeit at a potentially slower pace, and noted that CRE payoffs are expected to slow, allowing for new deals in the construction phase.
Q: What are the drivers behind your deposit growth, and how do you view your low loan-to-deposit ratio?
A: Stacy Kymes, CEO, highlighted that the bank's strong geographic footprint and market position have enabled deposit growth. He mentioned that while the bank typically uses deposits to fund loans and the securities portfolio, they are also taking advantage of opportunities to grow deposits that are incrementally better than wholesale funding.
Q: Can you provide more details on the elevated CRE paydowns and the outlook for this segment?
A: Stacy Kymes explained that the elevated CRE paydowns are a result of the bank's portfolio lifecycle, where construction loans are refinanced into permanent nonrecourse financing. He noted that while this is a healthy and typical process, the rebuild behind these paydowns is slower due to cautious borrower behavior.
Q: What is your outlook for net interest income (NII) and net interest margin (NIM) for the rest of the year?
A: Martin Grunst, CFO, stated that the NII guidance assumes one rate cut in November and reflects the impact of CRE payoffs. He expects the NIM to remain stable or modestly increase, driven by loan growth and the repricing of the fixed-rate portion of the balance sheet.
Q: How do you view your capital position and the potential for further share buybacks?
A: Martin Grunst noted that the bank's strong capital position has enabled opportunistic share buybacks. However, with the stock price moving up, the bank will be more price-sensitive and may scale back buybacks to ensure they remain accretive to shareholder value.
Q: Can you elaborate on the deposit beta outlook in a down-rate environment?
A: Stacy Kymes indicated that the deposit beta, which has been high due to the bank's commercial deposit mix, is expected to be in the mid-50s in a down-rate scenario. This would provide a beneficial impact once rate cuts occur.
Q: What is your approach to M&A, and are there any opportunities you are currently considering?
A: Stacy Kymes reiterated that while BOK Financial is open to M&A, any potential acquisition must fit their profile, including cultural alignment and strong core deposits. He noted that finding such opportunities is challenging, making it unlikely that the bank will pursue M&A in the near term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
