BOK Financial Corp 2026 Q3 Earnings Call

Greetings. I would now like to turn the presentation over to Heather King, Director of Investor Relations for BOK Financial Corporation. Heather, please proceed. Good afternoon, and thank you for joining us to discuss BOK Financial's third quarter 2026 results.

Our CEO, Stacy Kymes, will provide opening remarks, cover the low portfolio, and related credit metrics. Scott Grauer, Executive Vice President of Wealth Management, will review our fee-based businesses. Our CFO, Marty Grunst, will then walk through our financial performance for the quarter, as well as 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.

Thank you, Heather. We appreciate you joining the call this afternoon. We are pleased to report earnings of $159.9 million, or EPS, of $2.64 per diluted share for the third quarter, reflecting another period of solid performance despite a challenging interest rate environment. Four key factors drove our results: first, quality loan growth. Loan growth remained a standout contributor again this quarter, total loans grew 2.4 percent late quarter, representing annualized growth of 9.5 percent, and grew 11.5 percent year over year. Second, meaningful margin expansion. Net interest margin increased 9 basis points to 3 percent. We continue to benefit from the repricing of fixed-rate assets. Third, disciplined expense management. We continue to invest where we see attractive opportunities for long-term growth, and prudently manage our expense base. We are not managing the company for one quarter; we are focused on producing sustainable growth and profitability over time. And fourth, exceptional credit quality. We continue to see very strong performance across the portfolio, with no meaningful deterioration that would change our view about the underlying credit environment. Together, these strengths demonstrate the durability of our business model. They reflect the benefits of decisions we have made over many years to diversify our business, manage risk prudently, and position the company to perform well across a wide range of economic environments.

I also want to spend a moment on the rate environment. It highlights an important differentiator for BOK Financial. We have not seen a 10-year Treasury yield at these levels since 2007. This rate move also happened very quickly, with similar velocity to what the market experienced in 2023. Our securities portfolio has a relatively short duration of about 3 years, which helps limit our exposure to changes in interest rates. We've managed the balance sheet this way for decades, maintaining risk limits around tangible common equity, and tangible common equity in stress. As part of that discipline, we regularly monitor how our capital would change if interest rates across the yield curve rose by 300 basis points. Our current TCE is 9.2 percent, well above the TCE for the broader KRX index. This is by design and reflects how we have managed the balance sheet over many years. That consistency gives us flexibility to continue serving clients and investing in growth across a range of market conditions. The higher rate environment is a headwind for our more rate-sensitive fee-based businesses, particularly fixed-income trading and mortgage banking. In industry activity levels decline meaningfully during the quarter, and our results reflected that environment, consistent with what other market participants experienced.

We view those businesses through the cycle, where they provide an important source of diversification to our overall earnings profile. And now we'll cover our loan portfolio in more detail, starting on slide 6. Loan growth remains a particular source of strength. We have invested heavily in our people, markets, and capabilities, and those investments are now contributing across the organization. As I mentioned before, total outstanding loans grew 646 million, or 2.4 percent this quarter, and were up 11.5 percent year over year. Importantly, this growth continues to be well-balanced across our businesses and markets. Our core C&I loan portfolio—which represents our combined services and general business portfolios—grew slightly late quarter but is up 10.9 percent over the prior year. Energy lending experienced an outstanding quarter, increasing 264 million, or 8.6 percent, driven by both higher utilization across existing relationships and solid new production. This is a business where we have deep expertise and longstanding client relationships. The elevated payoff activity we experienced last year was largely driven by industry consolidation and an accommodating debt-capital markets environment. As market activity normalized, volumes returned, and we are benefiting from the strength of our relationships and reputation in the sector. Healthcare loans declined 1.4 percent this quarter, but we're still up 3.8 percent year over year, with healthy future pipelines.

Mortgage finance also contributed meaningfully to loan growth during the quarter, with current outstanding balances of $589 million and increase of $137 million. Active warehouse commitments increased more than 500 million during the quarter to 1.4 billion, and loans funded on our warehouse lines grew 23 percent. This is a remarkable result, given the challenging U.S. mortgage origination environment. Our commercial real estate portfolio grew 4.2 percent over the prior quarter, growth in this portfolio was broad-based, spanning industrial, retail, and other real estate loans. We remain well below our internal concentration limits. Moving to slide 7, once again, credit quality remained strong. Non-performing assets not guaranteed by the U.S. government increased 3.3 million to 58 million. The resulting non-performing assets to period and loans and repossessed assets increased 1 basis point to 21 basis points. Committed criticized assets increased this quarter, but remained very low relative to historical standards. We had net charges of $886,000 during the quarter, averaging 2 basis points over the last 12 months. We continue to have only de minimis exposure to private credit facilities, and no direct lending to data centers. Consistent with our prior quarter, no provision was required, improvement in economic forecast assumptions was offset by the impact of loan growth.

Our combined allowance for credit losses is a healthy 322 million, or 1.16 percent of outstanding loans. In all, credit quality remains exceptionally strong, with no meaningful signs of broad-based stress emerging in the portfolio. Over time, we would expect credit performance to normalize, however, normalization should not be confused with deterioration, our underwriting standards portfolio diversification, and risk management approach are designed to perform throughout the credit cycle. And we continue to feel very good about the quality of the book and, with that, I'll turn it over to Scott.

Thank you, Stacy. Turning to our operating results for the quarter on slides 9 and 10, I want to start with the interest rate environment because it had a meaningful impact on several of our market-sensitive businesses this quarter. During the quarter, interest rates moved up significantly, with the 10-year Treasury increasing nearly 80 basis points. The increase in longer-term rates creates a challenging backdrop for both mortgage activity and fixed-income markets. And importantly, this is a theme we have seen across the industry. Higher mortgage rates slow origination activity, which in turn reduces the volumes that support both our mortgage production and fixed-income trading businesses. We take a long-term view of these businesses and recognize that activity levels will fluctuate with market conditions. History has shown that these businesses can provide significant earnings momentum when rates decline and mortgage activity rebounds. That long-term countercyclical benefit is a key component of our diversified business model. It's one of the reasons these businesses remain such an important part of our franchise. Against that backdrop, total fees and commissions were $188 million, declining 14 million, sequentially. The majority of that decline was concentrated in our markets and securities businesses. Where revenue declined 15.2 million, to 36.2 million.

Within trading, the best way to evaluate the business is to look at total trading revenue, which includes both trading fees and trading-related net interest income. We've discussed this distinction over the last several quarters as the shape of the yield curve has shifted revenue between those two categories. Total trading revenue was 15 million this quarter compared to 25 million in the second quarter. Trading fees were negative 6.3 million, while trading-related net interest income was 21.3 million. This quarter you saw a decline in trading fees, reflecting the market dynamics just discussed. Partially offset with a small increase in trading-related net interest income as the steeper curve shifted some revenue into that line item. It was a strong quarter for investment banking revenue, which grew 4.3 million, driven by municipal bond underwriting activity. This was partially offset by a reduction of 3.4 million in syndication fees. Which returned to more normal levels, following a very strong second quarter. Turning to slide 10 to discuss our asset management and transactions businesses, these businesses continue to perform well, generating recurring fee income, broadening our revenue mix, and reinforcing the earnings diversity that distinguishes our franchise. Our fiduciary and asset management business delivered another very strong quarter, contributing 69.9 million to revenue.

While that was down slightly linked quarter, the second quarter benefited from seasonal tax preparation fees. Excluding that seasonal comparison, the third quarter represents our highest revenue quarter on record. AUMA was stable at $129.3 billion. Transaction card contributed 32.2 million to revenue this quarter, representing a new quarterly record. Collectively, these businesses represent an important part of what makes our franchise unique. They are built on long-term relationships, recurring sources of revenue, and specialized expertise that have consistently produced value across market environments. And with that, I'll hand the call over to Marty to cover the financials.

Thank you, Scott. Turning to slide 12, net interest income increased 18.1 million, and net interest margin grew 9 basis points. Excluding trading, core net interest income increased 15.1 million, and core margin increased 8 basis points. Core margin and net interest income continued to benefit from loan growth and fixed-rate asset repricing. Given the short duration of our securities portfolio, we typically have the opportunity to reinvest between 6 to 700 million of quarterly securities cash flows. This provides a durable benefit as lower-yielding assets mature and are reinvested at current market rates. In the third quarter, portfolio runoff was $770 million at an average yield of approximately 3.3 percent. Those cash flows were reinvested at an average yield slightly over 5.1 percent, representing a yield pickup of more than 180 basis points. Third quarter also benefited from loan fees, the portfolio restructure we completed back in the second quarter, and a small improvement in energy derivative margin. Turning to slide 13, total expenses were largely unchanged compared to the prior quarter. Excluding changes in deferred compensation, personnel expense increased 6.5 million. This increase reflects strategic talent investments, including the addition of proven revenue producers as we capitalized on recruiting opportunities from market disruption.

In addition, strong loan production during the quarter resulted in higher incentive compensation and healthcare costs increased. Total non-personnel expense was flat versus the prior quarter. Slide 14 provides our outlook for full year 2026. Our guidance assumes one additional rate hike in the fourth quarter and longer-term rates aligned with the current forward curve. Loan growth and pipelines are tracking well with our expectations and our growth guidance remains over 10 percent. Our outlook for total revenue growth is unchanged at mid-single digits. Net interest income is expected to be 1.43 to 1.44 billion, while fee income is expected to exceed 800 million. As we commonly note, future variability in curve steepness can shift trading revenue between those two categories. On expenses, we have tightened our guidance and anticipate growth to be roughly 1 percent versus the prior year. We continue to expect the full year efficiency ratio to be approximately 62 percent, reflecting the Visa gain we recognized in the second quarter. If adjusted for the Visa gain, our guidance for that ratio would be near 63 percent. Turning to credit, portfolio credit quality remains very strong. We continue to see very low levels of non-performing assets and no tangible evidence of broad-based normalization at this point.

We believe provision expense will be below 10 million for the full year 2026. 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.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Chiaverini. With Jefferies. David, your line is now open.