BOK Financial Corporation (BOKF), a prominent financial services company, reported a profitable third quarter in 2024 with earnings of $140 million, translating to $2.18 per diluted share. The company's CEO Stacy Kymes highlighted the upward trend in net interest income and margin, as well as the credit strength of the loan portfolio. Total assets under management have reached a milestone, surpassing $110 billion.
Key Takeaways
- Earnings of $140 million, or $2.18 EPS, were reported for the third quarter.
- Net interest income and margin are stabilizing and trending upwards.
- Total assets under management exceeded $110 billion, a first for the company.
- Loan portfolio credit performance remains robust, with a strong allowance for credit losses.
- Period-end loans saw a 2.3% decrease, with commercial loans down by 4.8%.
- Total fee income increased by $2.5 million, with investment banking performing notably well.
- Net interest income is projected to surpass $1.2 billion for 2024.
- Management is confident in future loan growth and economic resilience within their market regions.
Company Outlook
- Loan growth expectations for 2024 have been revised downward.
- Net interest income for 2024 is expected to exceed $1.2 billion.
- Guidance for 2025 will be provided in January, following Q4 results.
- The company is focusing on organic growth and remains open to acquisition opportunities, although they are cautious due to current market conditions.
Bearish Highlights
- A decline in commercial loans contributed to a 2.3% decrease in period-end loans.
- Fee income faces challenges, particularly in mortgage-backed securities.
- Despite strong deposit growth, expense growth has been high, driven by personnel costs.
Bullish Highlights
- Core commercial and industrial loan commitments increased by 6.4% year-over-year.
- Investment securities portfolio is expected to continue positive repricing.
- Management is optimistic about future growth across various segments, with a focus on commercial real estate.
Misses
- The company experienced some loan payoffs in specialized sectors like energy.
- There was a notable shift from demand deposit accounts to interest-bearing options, which may impact future deposit pricing.
Q&A Highlights
- CEO Stacy Kymes discussed the slow repricing dynamic of the time deposit portfolio and its minor impact on short-term deposit pricing.
- CFO Marty Grunst reported a significant cash inflow and a decrease in borrowing, driven by deposit growth and trading account fluctuations.
- The management team emphasized their confidence in the company's economic strength and resilience, with no additional questions from participants.
BOK Financial Corporation's third-quarter earnings call painted a picture of a company with a strong financial foundation and clear strategic direction. Despite some challenges in loan payoffs and fee income, the company's executives remain confident in their ability to navigate the current economic landscape and continue delivering value to their stakeholders. With a focus on organic growth, prudent risk management, and an optimistic outlook for net interest income, BOK Financial is poised to maintain its momentum into the future.
InvestingPro Insights
BOK Financial Corporation's (BOKF) recent performance aligns with several key metrics and insights from InvestingPro. The company's reported earnings of $140 million for the third quarter of 2024 reflect its continued profitability, which is supported by an InvestingPro Tip indicating that BOKF has been profitable over the last twelve months. This consistency in earnings is further reinforced by analysts' predictions that the company will remain profitable this year.
The company's dividend policy, highlighted by management's confidence in future growth, is underscored by InvestingPro data. BOKF boasts a dividend yield of 2.04% and has impressively maintained dividend payments for 20 consecutive years. Moreover, an InvestingPro Tip reveals that BOKF has raised its dividend for 10 consecutive years, demonstrating a strong commitment to shareholder returns.
Despite the reported 2.3% decrease in period-end loans, BOKF's financial health appears robust. The company's P/E ratio of 15.16 and Price to Book ratio of 1.23 suggest a reasonable valuation relative to earnings and book value. Additionally, the operating income margin of 35.25% for the last twelve months as of Q3 2024 indicates efficient operations, although an InvestingPro Tip cautions that the company suffers from weak gross profit margins.
The positive outlook presented by management is reflected in BOKF's market performance. InvestingPro data shows a remarkable 52.55% price total return over the past year, with the stock trading at 93.94% of its 52-week high. This strong performance is captured in an InvestingPro Tip noting the high return over the last year.
For investors seeking a deeper understanding of BOKF's financial position and future prospects, InvestingPro offers 7 additional tips, providing a more comprehensive analysis of the company's strengths and potential challenges.
Full transcript - BOK Financial Corporation (BOKF) Q3 2024:
Operator: Greetings. Welcome to BOK Financial Corporation's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] 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: Good afternoon, and thank you for joining our discussion of BOK Financial's Third Quarter 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, Marty Grunst, will then discuss financial performance for the quarter and our forward guidance. The slide presentation and press release are available on our website at bokf.com. We refer you to the disclaimers on Slide 2 regarding any forward-looking statements made during this call. I will now turn the call over to Stacy Kymes, who will begin on Slide 4.
Stacy Kymes: Thank you, Heather. We're pleased to report earnings of $140 million or EPS of $2.18 per diluted share for the third quarter. As we've mentioned previously, we are a strong and growing company that has prioritized generating attractive long-term results, and we have demonstrated that again this quarter. During the quarter, net interest income and net interest margin have stabilized and started an upward trend, consistent with prior expectations. We're also on track to capturing the down rate deposit betas we communicated. The credit performance of our loan portfolio remains excellent. We had net recoveries during the quarter, criticized classified levels remain below normalized pre-pandemic levels and a combined allowance that remains robust at 1.39% of outstanding loans given our strong credit profile and performance. Loan commitments remain stable, although as Marc will cover later, robust capital markets activity during the quarter impacted growth in outstanding loan balances. We are encouraged by current sales activity and the trajectory that sets up going forward. Our fee income segments performed particularly well and contributed significantly to our overall results. Scott will talk more about those details shortly, but I wanted to note that we are proud of surpassing the $110 billion mark for assets under management or administration for the first time in our history. These results were achieved while preserving strong levels of liquidity with continued growth in our deposit portfolio, showcasing the strength of our franchise. We remain well positioned for growth, while maintaining regulatory intangible capital levels that are attractive versus peers. Our performance is reflective of solid operational execution and the strength of the economic conditions in our markets. We remain focused on delivering value to our customers and shareholders. During the quarter, we also saw the first cut in rates from the Federal Reserve, and I'm happy with the proactive steps our team is working through to adapt quickly to this change. Marty will discuss this in more detail later. It's also important to consider that for the first time in more than 2 years, the yield curve is no longer inverted as of the end of the quarter. While we may be neutral to the level of rates, there is certainly upside to our operating model when the yield curve is normal and upward sloping. This bodes well for us moving forward. I'm pleased with the results the BOKF team produced this quarter, and I'm optimistic about the trajectory our team has established. The economic backdrop we're operating in should allow us to continue generating attractive returns moving forward. And with that, I'll turn the call over to Marc.
Marc Maun: Thanks, Stacy. Turning to Slide 7. Overall, period-end loans decreased 2.3% linked quarter, with commercial loans down 4.8% and CRE up 2.1%. However, average loan balances contracted only $80 million or 0.3%. Despite the slight pullback in outstandings this quarter, we continue to grow new commitments and relationships. If you look at core C&I, which is reflective of our general business and services, outstandings in those segments increased 6.4% year-over-year rate and total commitments have grown at a 5.7% year-over-year rate. BOK Financial experienced 11 consecutive quarters of loan growth until the third quarter. While the unique nature of the markets in the specialty lending areas impacted this consistent loan growth this quarter, we remain optimistic about our loan growth for future periods. Portfolio yields increased 6 basis points during the quarter, the majority of that increase was due to growth in loan fees, which I will break down in more detail as we walk through our loan segments. Loan balances in the energy business decreased 9.4% linked quarter. Most of this was driven by broader trends in the public debt market appetite for this sector. In Q3, we saw a more accommodating bond market, with issuance in domestic energy debt transactions increasing significantly on a linked-quarter basis. This activity does reduce outstanding loan balances. However, we have the ability to capture some of the bond economics of these transactions, which are accretive to earnings and led to a quarterly record in our investment banking revenue. We realized additional early payoff fees which contributed to the yield increase I noted previously. Further, energy balances this quarter were affected by M&A activity with the acquisition of several of our customers, resulting in the payoff of their loans. In many cases, we also participate and/or lead the credit facilities of the acquiring institutions, but are seeing lower levels of leverage after the business combination. This has contributed to utilization rates in energy falling from 45% to 42% during the quarter. We've grown energy commitments over the last several years, but temporary factors can moderate growth in outstandings in any given period. Our combined general business and service loans fell 4.3% linked quarter, which has given back some of the seasonal advances that were outlined last quarter. Looking more broadly, these segments are continuing to post strong growth, being up 6.4% on a year-over-year basis, with loan pipelines remaining stable. Our health care business loans decreased 1.9% linked quarter. Payoffs increased as longer-term rates and spreads made it attractive for some borrowers to refinance in the fixed-rate HUD market. Our pipeline remains robust, driven by potential new acquisition activity. Our CRE business increased 2.1% quarter-over-quarter. As we've discussed previously, we were very close to our concentration limit several quarters ago. As paydowns have reduced CRE levels, we are gathering new commitments and rebuilding outstandings as new loans fund up during the construction phase of these projects. We are committed to our strict concentration limit, which is 185% of Tier 1 capital in reserves on a committed basis, but it's currently at 157%, which gives us plenty of room for growth that should continue to build over time. I won't cover Slide 8 in detail, but this remains a good testament to the attractive long-term performance of our credit. Transitioning to Slide 9. 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 $6 million. The resulting nonperforming assets to period end loans and repossessed assets decreased 1 basis point to 34 basis points. Committed criticized assets remain very low relative to historical standards. Further, we had net recoveries of $54,000 during the quarter, and net charge-offs have averaged 7 basis points over the last 12 months. Looking forward, we expect net charge-offs to remain below historical norms. We are well reserved with a combined allowance for credit losses of $332 million or 1.39% of outstanding loans. And now I'll turn the call over to Scott.
Scott Grauer: Thank you, Marc. Turning to our operating results for the quarter. Total fee income grew $2.5 million, contributing $202.5 million of revenue, and representing 40% of total revenue, which continues to differentiate us from our peers, and represents another strong contribution from these lines of business. I'd like to begin by covering our markets and securities businesses on Slide 11. Both our trading and mortgage banking businesses can be volatile, and fluctuate significantly in any given quarter based on current market conditions and expectations from the markets, but have shown very positive risk-adjusted returns. Consistent with the industry trends, our trading fees decreased 14.6% to $23.6 million during the quarter, which was driven by lower MBS volumes, as client demand ahead of anticipated rate cuts was relatively muted. This is partially offset by strong activity in the municipal sector. Our trading volumes and spreads are greatly influenced by the mortgage origination market. While showing improvement compared to 2023, industry mortgage origination volumes remain significantly below historical norms. Given the recent rate cut and anticipated cuts ahead, we expect those volumes to continue to return to more normal levels, which aligns with the current industry viewpoint. On that topic, mortgage banking revenue has remained relatively unchanged for the past 3 quarters, coming in at $18.4 million for the third quarter. The mortgage origination market remains relatively soft. As origination volumes increase and the environment normalizes, both trading revenues and mortgage banking revenues should be positively impacted. While we faced some headwinds in this space over the past 2 years, we believe the outlook has improved from current levels. Our other markets and securities businesses continue to produce solid results. We recognized a record quarter for investment banking fees, coming in at $10.8 million, led by our Texas municipal bond underwriting team and bond economics related to the energy payoffs that Marc noted in his comments. Turning to Slide 12. Asset Management revenue was consistent with the second quarter at $57.4 million. Growth in our trust fee income nearly offset last quarter's seasonal tax preparation fees. Assets under management and administration grew $3.2 billion, with increased market valuations. As Stacy mentioned in his opening commentary, we eclipsed the $110 billion mark for the first time, and we're proud of the decades of work that have contributed to building this platform. Transaction card revenue grew by 4.6% to $28.5 million, driven by a higher volume of transactions processed. These businesses produce attractive peer-leading returns and give us a resilience to market stresses, contributing greatly to the strength of our franchise. They are core to our business model and were built over decades of investment. We are thrilled with the strong financial results these teams are producing and the outlook for growth. And now, I'll hand the call over to Marty to cover financials.
Martin Grunst: Thank you, Scott. Turning to Slide 14. Net interest income was up $12.1 million and net interest margin was up 12 basis points, with core net interest margin, excluding trading, up 8 basis points. Within the 8 basis points, 3 were due to unusually high loan fees in Q3, driven by the increased level of loan payoffs, which is not expected to recur. The remaining 5 basis points are on track with the drivers we have talked about over the last couple of quarters, causing asset repricing to exceed liability repricing, including securities and fixed rate loan repricing and less deposit mix shift out of DDA. The strong interest-bearing deposit growth in Q3 also supported both net interest margin and net interest income. Deposit repricing activity resulting from the 50 basis point Fed rate cut is also on track with our expectations. Both the index deposits and the high beta portions of our commercial and wealth deposit book were repriced lower in conjunction with the Fed rate cut. These actions were largely completed by quarter end and give us a high degree of confidence that we will realize our deposit beta expectations as market rates decline. Overall, deposit bases on the way down should be similar in magnitude to betas on the way up. If we see continued interest-bearing deposit growth in Q4, that may impact the calculated deposit beta a bit, but not the liability beta as that growth would replace wholesale borrowings and be incrementally beneficial to margin and NII. Turning to Slide 15. Linked quarter total expenses increased $4.3 million or 1.3%. Personnel expenses grew $15.7 million, largely driven by incentive compensation expense, which is primarily timing related. Looking at the average of the last 2 quarters, personnel expense may be useful. That increase was offset by lower nonpersonnel expenses, which included the decrease related to the $13.6 million charitable contribution made to the BOKF Foundation in the second quarter. Slide 16 provides our view on full year 2024, and I will note a couple of changes. Loan growth expectations were revised to reflect this quarter's specialized lending payoff activity that Marc covered in his commentary. Deposit growth has remained strong, with new balances being added below the cost of wholesale borrowings. We expect net interest income to be slightly higher than $1.2 billion. Fees and commissions were adjusted to reflect recent and current conditions in MBS trading, and provision expense was also adjusted to reflect the very strong credit quality results we continue to experience. We're in the midst of our budgeting process for next year. So consistent with our normal practice, we will provide 2025 guidance when we announce Q4 results in January. 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: [Operator Instructions] And your first question comes from the line of Michael Rose with Raymond James.
Michael Rose: Maybe I could just start on some of the loan payoff commentary, certainly understand some of the specialized segments in energy. But when I look at the kind of the market breakdown, it looks like you experienced declines in even some of the smaller markets that you guys are in. So I know you talked positively about future loan growth, pipelines being full, can you just give us some color there as to maybe what pipelines look like now versus a quarter, a couple of quarters ago? And do you think some of the headwinds around the election will actually cause people to actually borrow? Just some color there would be great.
Marc Maun: Well, I'll tell you that last part first, this is Marc. I'll just say that, obviously, uncertainty will cause people to delay decisions. So it's likely that some of the decisions will be resolved by the election or views on tax policy going forward in the short term. But we do expect that, that will have an impact later this year. But we're looking at our pipelines overall, we are -- we feel pretty strongly that in the C&I world that our pipelines are in good shape. Fundamentally, we're looking at the C&I portfolio that, as we said in the second quarter, we were at a seasonal high during that quarter. And then we have seen that come down in the third quarter, in line with what our pattern has been in the past. This is not an unusual development. But if we look at the -- that's why we concentrate on year-over-year growth. And so -- we had 6.4% in year-over-year growth in C&I and 5.7% growth in commitments, and utilization is only down from 57% to 56%. So we've -- the pattern has existed, but we actually have raised the overall level of our commercial and industrial loans throughout the year, not just looking at third quarter to second quarter. So I would say, when we then look at our experience in the smaller markets or all the different markets, we've been very actively acquiring talent in those markets, and we've been actively increasing our calling and pursuing business because we are in good position from a capital standpoint, from a credit standpoint to pursue business. And we feel comfortable that barring any significant change in the economy, that we're going to be able to generate future loan growth, and we're in a good position going forward with that over the next 12 months or plus.
Stacy Kymes: Michael, this is Stacy. Just to pile on. I think -- we've had 11 consecutive quarters of loan growth, and so you had a really unique circumstance this quarter around energy and health care that impacted the totals overall. You've got lots of tailwind. I think as we look into the next 18 months around commercial real estate, because we were well below our concentration limits, and so we've got room to fund out there. We feel really good. We track through Salesforce (NYSE:CRM). We track our pipelines monthly, quarterly. Everything we're looking at there still feels very good to us. Marc's right, there can be some uncertainty that happens around election season or next year as you think about tax policy. But if you just look on the surface, those core C&I areas are growing 6% year-over-year. We're really happy with that. We've strung together up until this quarter, 11 consecutive quarters of loan growth. We still feel confident. There's nothing here inherently that's changed our confidence in our ability to grow the portfolio. In fact, we're continuing to add significant talent, some of which we haven't even announced yet in some of our markets. So we're confident that we'll continue to grow loans as we move forward.
Michael Rose: Very helpful. Maybe just one for Scott. Certainly I understand some of the near-term headwinds as it relates to maybe mortgage banking and some of the brokerage trading softness, at least sequentially this quarter. But it sounds like the outlook and what you guys are trying to put forward is relatively positive. What do you see as kind of the greatest opportunities among fees as we think about the next couple of quarters? And where could there still be some headwinds? And maybe how would the impact of lower rates, meaning if we get more cuts in the forward curve or maybe less than the forward curve, how would that, in your view, impact some of the fee lines of business?
Scott Grauer: Right. So great question. I think that when you look in detail at the trading line item, it is entirely limited to the mortgage-backed securities sector where we saw -- we've seen significant headwinds. And so when you parse that out and eliminate the MBS, we actually saw increases in all of our other product sets. So municipals, corporates, treasuries, all of our fixed income activity was actually up, absent the MBS. So we did and have seen, beginning in mid-September with the Fed move, we have seen an uptick in the activity on the MBS side. The question that remains is the degree to which we'll see continued momentum and activity, but we have seen an inflection point in terms of the activity and the volumes there on even the MBS side. But we continue to have constructive belief about our positioning inside of the municipal bond space, both from an underwriting and a trading perspective. On the asset management side, we've got consistent sources of inflows to offset our general churn in our assets with disbursements, et cetera. So we like our allocation of our assets, in terms of our AUMA with 13% in cash, 40% fixed income, 39% equities and 8% alternatives. So we're well balanced and I think poised to continue to benefit in asset growth from the market perspective, but probably more significantly more importantly, on our flows in on our asset management side. So we're constructive on all of those and continue to see positive trends develop really across the board on those spaces. And then I think, Marty, you want to comment a little bit on mortgage production.
Martin Grunst: Yes, Michael. So I'd say mortgage production, we feel like there is a good opportunity in the future there. I mean current period production levels are still a little depressed. But I think as time moves forward and we see the rate declines continue, we'll see both volume come back up and gain on sale production, that percentage is a little bit lower in Q3. I think you go back to more like what you saw in Q2. So I think that there's opportunity in that line item as well.
Stacy Kymes: But there’s no doubt there’s pressure there. I think if you think about other areas we’ve got, like we don’t talk about our ATM business, TransFund [ph]. Our transaction card business up 4% -- 4.6%, very steady. And these guys have really turned the growth corner. I’m excited about kind of where they’re headed over the next 12 to 18 months. From their perspective, they went through a really difficult system conversion a couple of years ago and really kind of got through that mess and have turned the corner in a meaningful way there. Our businesses aren’t all designed to go up and to the right. And so some of these businesses, like the trading that’s impacted by MBS or the mortgage businesses, are going to be softer when others are performing very well. I mean Scott mentioned the fiduciary business. I mean, $110 billion of assets under management, lots of tailwinds from the markets today. We’re awfully excited about the opportunities there over the next year or so. So it’s not all going to go in tandem together as it goes up into the right, but the mix is very good, and we like how it all works together over different cycles.
Operator: Your next question comes from the line of Jon Arfstrom with RBC Capital Markets.
Jon Arfstrom: Yes. Marty, a clarification question for you on expenses. You expect the incentive comp number to come back down in 4Q to kind of a more normalized level, I guess. And I think you said the average of the last 2 quarters is a run rate for comp. Is that Q1 and Q2 or Q2 and Q3?
Martin Grunst: Yes, Jon, if you look at Q2 at $191 million for personnel expense, that's low versus kind of a run rate level in Q3 at $206.8 million. That's high. I mean the easy way to do it is to just average those 2, and that gives you much better sense for kind of what our run rate is for that line item. There's just the way you have to recognize incentive comp that's not always -- sometimes there's a little noise quarter-to-quarter.
Jon Arfstrom: Yes. Okay. Then on deposits, Slide 5 that you guys had, you're talking about almost $1 billion in growth for the quarter. Curious where you're finding the opportunities to grow deposits in general? Is this client movement? Or is it market share gains? Or what's driving that?
Martin Grunst: Yes. It's more commercial and wealth, broadly, but a little bit more skewed towards commercial. And it's a combination of new clients we're bringing to the bank, probably a little bit more of that is existing clients, but it's broad-based across the business.
Marc Maun: Yes. Jon, some of that is mix change. We have customers that are moving from DDA and they're taking advantage opportunity and moving. We're not losing them as deposits. We're just changing the mix from a DDA to more of a interest-bearing option. We have -- I would say we have added a number of new customers over this last 18-month period.
Jon Arfstrom: Yes. Okay. And then just back on the specialty businesses and energy growth or energy pressures in terms of balances, what do you think changes that? Is it just as simple as the bond market is open and there's M&A happening? Or what changes some of those heavy payoffs in those businesses?
Stacy Kymes: This is Stacy. I mean, it could -- there's a lot that could change that. I don't think that what happened in the third quarter, I think, is unique for energy, and we just had a bunch that kind of coincidentally all happened at the same time. It tends to be a little bit more ratable over these types of periods. I think if you if you look just today, which doesn't mean it's the way it will end at the end of the year, but energy is up relatively materially from where it was at the end of September. That could change. But I don't think there's some fundamental shift here that's happened with energy that there's going to continue to be pressure on balances. I think that there may still be some leftover capital markets activity or M&A activity that could impact the balances for a quarter or 2 here. But I think the bulk of that should be behind us. And I would expect those balances to grow as we move forward, particularly over the next -- if you think about -- when I think about things over kind of a -- the 15 months or longer time horizon, I think you'll see those balances grow from the end of the third quarter over the next 12 months, for sure.
Marc Maun: Yes. And I would only add that the – clearly, this is one of the more stable markets we’ve had in a long, long time. I mean it’s been consistently good pricing in the oil market, and customers are going to still have to invest in order to maintain their borrowing bases and continue the production and so forth. So we do expect – and we’ve been in this business a long time, and we’ll get our share of those opportunities as they come about.
Operator: Your next question comes from the line of Peter Winter with D.A. Davidson.
Peter Winter: For expense growth. It's kind of been running high the last 2 years, even excluding FDIC and share contributions. Are there opportunities to lower that expense growth? And what do you think of more normalized growth rate is for the company?
Scott Grauer: Yes, Peter, I'd say a couple of things. So efficiency is super important to us. We're always looking to manage to appropriate efficiency ratios at each line. And it's more important at the line of business level than all rolled up actually as we think about it. And those numbers will move around just as margin moves around. But you're right, expense growth is something that we pay attention to and want to make sure that every line of business is doing so in a prudent way. However, we are also very focused on investing in our business and growing our business. And so that takes the form of adding producers and adding technological capability to serve customers. And so you'll see that a couple of line items. So we feel good about what we've delivered this year, but I'll just note that data processing and communications, we've got investments that are really good investments for long-term growth in the company. And so what you saw, just looking at this quarter, for example, that's a couple of important projects, including off line of business that have gone in really well, and we're very excited about what that means for the company. But you'll see that step up, and that's not going to come back down to be sure. And then as we add people, you'll see occupancy, a step function for growth in people, and so you'll see that come up over time, if that's part of what your question was.
Stacy Kymes: But Peter, if you look at the overall efficiency, I mean, I think to be where we are with the rate environment where it's been, looking at it by line of business, we feel really good about kind of managing from an efficient perspective. I think you'll see us make some investments here, but -- and I think you'll see us work real hard to maintain the efficiency ratio where we're at today. But I also think that you've got a couple of businesses that are not funding -- not operating at a high revenue level, where they've been in the past, that drive that efficiency a little bit. And so we're going to -- we like those businesses. They help us through a long cycle, but they do impact it. And so we're not too worried about that. Like Marty said, it's more important for us to look at it at a line of business level. And we're very comfortable with our efficiency when we look at it through that land.
Peter Winter: Okay. And then if I could ask, the deposit growth, as I think Jon mentioned, was very strong. It's been very strong. It's been outpacing the loan growth. So with the loan-to-deposit ratio just 64%, are there opportunities maybe to push down deposit costs more aggressively than you thought maybe a quarter ago? And is there kind of a certain level, you don't want to see that loan-to-deposit ratio go above?
Scott Grauer: Yes. We're not managing to a loan-to-deposit ratio per se. But you're right, having a loan-to-deposit ratio as we do, does give us the ability to manage deposits very well. And so what we did in the third quarter, we're very happy about the progress we made in being able to bring down deposit rates as a result of the Fed move, and got a good bit of that done before the end of the quarter was still a little bit more left to go. And all of that gives us the confidence that we're going to continue to expand margin as we go from Q3 into Q4, and that's a sustainable trend for us.
Peter Winter: And that expansion on the margin, that's on a core 5 basis points, right? Not the reported?
Scott Grauer: I think you'll see that in both as we go from Q3 to Q4.
Peter Winter: So even above the 2.68 [ph]?
Scott Grauer: That’s right.
Operator: Your next question comes from the line of Brett Rabatin with Hovde Group.
Brett Rabatin: I wanted just to follow up on that 2.68 [ph] and talk about the margin from here. And I know you had -- I believe it was 3 basis points due to payoffs and core expansion of 8 basis points. Can you talk maybe a little bit more about the drivers that you expect in 4Q? And then it sounded like you were pretty comfortable with deposit betas. And just wanted to dive in a little bit more on your lowering deposit rates post that first Fed cut.
Martin Grunst: Sure. Yes. So keep in mind that SOFR -- actually the term SOFR actually had a rate cut in it by September 1. I mean it was 15 basis points down from [indiscernible] early on. So you actually saw some impact in the loan book in September, and then we were able to get both wholesale and deposits down through the end of the quarter, and still ended up with a really good result at the end of the quarter, and so that only gets a little bit better when you get into the fourth quarter. So those repricing dynamics, we understand very well and are very comfortable with how that plays through. There's always some denominator effects that can happen if overall trading moves around, but we feel very confident about how that will play out over the next quarter.
Stacy Kymes: Brett, we talked a lot about the loan and deposit book, but don't forget, we've got a fixed rate security portfolio that's got a 3.5-year plus or minus duration that's funded with floating rate liabilities that's going to move down, commensurate with every Fed step. And so that's part of what behind the confidence of what's going to happen with net interest margin and interest income.
Martin Grunst: Everything I just talked about is still on top of the -- fixed rate securities are still repricing up, a portion of the fixed rate loan book, that's still repricing up. That stuff is still happening as it has for the last couple of quarters. So that will continue to be supportive.
Brett Rabatin: Okay. That's helpful. And then the other thing was just -- I'm curious, I think people kind of you guys as very selective M&A players and maybe there'd be some others that might be more aggressive than you. And I'm just curious to hear your thoughts on what you see playing out in the environment, conversations, what you're seeing activity-wise or maybe chatter wise with some of your potential partners?
Stacy Kymes: Yes. I mean, just broadly, I think that we're interested in the right opportunity. It's just that those have been difficult to find. We're not interested in somebody has got a large concentration in commercial real estate because of our discipline there. We value core deposits. We value deposit franchises. We think those are really key to banking. And there's just not a lot that kind of fits the size profile and exactly what we're looking for. And so that remains a possibility to the extent that there's something available, but that's not how that really -- we always do that as kind of the cherry on top of the sundae. We're not -- our strategy isn't to buy something to achieve the next level of growth. We're so focused on organic growth. We're -- if nothing, we're never successful buying another bank, we still think we're going to perform very well because of our emphasis on organic growth. But we're not out of the market as it relates to things that could happen from an acquisition perspective. They're just low probability events for which there's not a lot that really fits our criteria today.
Operator: Your next question comes from the line of Woody Lay with KBW.
Wood Lay: I wanted to start on the deposit side and more specifically, the time deposit portfolio. Was just curious how much of that portfolio reprices in the fourth quarter, and if you could sort of walk through the repricing dynamics there?
Stacy Kymes: Yes. That's largely a consumer book. And so that's got a tail that goes out well over a year. So it's not a huge amount in any given month because it's so granular. So that in and of itself is not going to have a large impact on the pricing characteristics of the deposit book.
Wood Lay: Got it. And then maybe just one follow-up on CRE. It sounds like CRE activity is picking up a little bit, and you have a clear advantage relative to competitors, just given the concentration levels. Could you give us some color on what you're seeing in terms of the loan competition in the space?
Stacy Kymes: Yes. I mean I think there’s a little less competition, but there’s a lot of – there’s also a few deals. I mean some of those customers that we’ve been with for a long time are moving more cautiously and slowly. So that’s impacting that a little bit. But clearly, there is some advantage that we have by being able to be in the market when others are still trying to manage their concentration levels. But that’s part of why we’re confident that we’ll – we’ve never had trouble fill in that bucket. And so we’ll continue to prospect and to grow existing customers principally with an occasional new customer mix in there. But I’m confident that over the next 12 to 18 months, we’ll refill that bucket. That’s never been an issue that we worried about growing.
Operator: [Operator Instructions] Your next question comes from the line of Matt Olney with Stephens.
Matt Olney: Just wanted to go back on the investments securities portfolio. Marty, I think you mentioned this is still pricing higher in the near term. Any more details there as far as the cash flows in that portfolio? And then what you've been buying more recently? And then just the overall size of that portfolio, any plans to change the size of that?
Martin Grunst: Sure. Yes. We saw about $760 million of cash to come in this quarter and reprice, and so that repriced up about 115 basis points during the quarter. And kind of that level is about where you can expect that over the -- and Q3 is a little bit higher, probably more like $650 million a month -- sorry, a quarter per quarter over the next year is probably a good run rate to think about how much of that happens going forward. And in terms of what we're buying, I mean, it's very similar to what we bought in the past sort of 3-, 4-year duration paper that is kind of at the shorter end of the mortgage security spectrum.
Matt Olney: Okay. Got it. And then I guess I know some of the movements on the balance sheet at quarter end can be a little bit noisy. But I guess the borrowing position came down pretty hard at September 30, below $5 billion. Is that a good assumption for the fourth quarter? Or any color on that line for 4Q?
Martin Grunst: Yes. You got two things going on there that brought that down at the end. So number one, the deposit growth that we had during the quarter, I mean, that was the big driver. And so that should be durable. And then second, just our trading account is always up in the middle of the month and then lower at the end of the month just because that’s how the mortgage-backed security settlements that cycle works. So that will usually be a little bit lower end of month than average. But a big driver there is the deposits. So that may stay – that should grow – you should see loan growth and so that’s in the wholesale up a little bit. Time is a trend. But I’d say that, that’s materially a good starting place.
Operator: There are no further questions at this time. I will now turn the call back to Stacy Kymes for closing remarks.
Stacy Kymes: Thank you, everyone, for joining our discussion today. Again, this quarter, we’ve maintained consistent earnings growth, benefiting from the net interest margin expansion and exceptional asset quality. We’ve proven over long history that we have both strong risk management practices as it relates to credit, interest rate, liquidity and capital, while also demonstrating a higher long-term earnings profile. Our diverse business model has proven resilient through many business cycles. We believe the economic resiliency of our eight-state [ph] footprint, coupled with our high levels of tangible capital and liquidity will be the raw material for our future growth. 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 h.king@bokf.com.
Operator: Thank you. This concludes today's call. You may now disconnect.
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