BOK Financial Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2025

Key Takeaways

  • Positive Sentiment: Reported 2.5% quarter-over-quarter loan growth (over 10% annualized), driven by reaccelerating CRE, core C&I, and stabilizing specialized lending, with a new mortgage finance business launch to boost future growth.
  • Positive Sentiment: Total fees and commissions rose 7.2% sequentially, with broad-based growth and record results in trading, fiduciary & asset management, transaction card, and deposit service charges.
  • Positive Sentiment: Net interest income expanded for the fifth consecutive quarter and margins improved, supported by a 64% loan-to-deposit ratio and further opportunities to optimize deposit pricing.
  • Positive Sentiment: Credit quality remains strong with nonperforming assets at 0.31% of loans, a 1.36% allowance coverage, and minimal net charge-offs, underpinning a conservative reserve posture.
  • Negative Sentiment: Expenses increased by $7 million as the company invests in mortgage finance and technology projects, raising near-term costs to build long-term operating leverage.
AI Generated. May Contain Errors.
Earnings Conference Call
BOK Financial Q2 2025
00:00 / 00:00

There are 8 speakers on the call.

Speaker 4

Greetings.

Speaker 3

Welcome to BOK Financial Corporation second quarter 2025 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 one again. 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.

Speaker 4

Good afternoon and thank you for joining our discussion of BOK Financial second quarter 2025 financial results. Our CEO Stacy Kymes will provide opening comments and cover our loan portfolio and related credit metrics. 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 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 four.

Speaker 5

Thank you, Heather. We appreciate you joining the call this afternoon. We're pleased to report earnings of $140 million or EPS of $2.19 per diluted share for the second quarter. The word that comes to mind for this quarter is momentum. During the quarter, we saw a re-acceleration of loan growth with the anticipated fund up of our CRE book, continued strength in the core C&I portfolio, and a tapering of the abnormal payoff activity that has recently impacted outstandings in our specialized businesses. Looking ahead, we will launch our new mortgage finance and warehouse lending business, which should further support future loan growth. This was made possible by consistently investing in the right talent and systems to enable the future growth of our business. We realize this does increase expenses in the current period, but it enhances our long-term sustainable growth and positive operating leverage for years to come.

Speaker 5

Fee income was another bright spot for the quarter, with total fees and commissions up 7.2% sequentially. Trading activity normalized this quarter as the macro environment uncertainty abated, and we saw more typical levels of customer engagement. Not only was our trading business up this quarter, we saw broad-based growth across our fee income businesses, with several lines producing record quarterly results. Net interest income grew for the fifth consecutive quarter, and we continue to experience margin expansion as well. With a loan deposit ratio of 64%, we are well positioned to continue optimizing pricing of the deposit book. Even in our current levels of liability betas, we've exceeded our most recent hiking cycle beta and see further opportunities to the upside. Our capital levels remain robust and strengthened once again this quarter, with TCE reaching 9.6% and CET1 reaching 13.6%.

Speaker 5

This growth occurred even though we took several capital actions to create value for our shareholders, including repurchasing over 660,000 shares below $94 per share and redeeming all $131 million of our Tier 2 capital instruments. Credit has long been a strength for us, and we continue to be well reserved with a combined allowance at a healthy 1.3% of outstanding loans. Criticized and classified levels remain well below their pre-pandemic levels. Turning to Slide six, I wanted to spend a little time highlighting the segments of our loan book. Total outstanding loans grew 2.5% this quarter, which is over 10% on an annualized basis, led by growth in commercial real estate, our core C&I portfolio, and loans to individuals. Our core C&I loan portfolio, which represents our combined services and general business portfolios, grew 1.1%, led by Native American lending and general business loans.

Speaker 5

Our specialty lending portfolio decreased 1.6% with contraction in our energy portfolio of 4.4%. This was partially offset by expansion in our healthcare portfolio of 0.5%, which had a strong quarter of new originations. These portfolios have experienced elevated levels of payoff activity over the past couple of quarters, and while that activity is still present, it has abated from abnormally high levels. In fact, when we look specifically at the energy book, most of the payoff activity for the quarter was in April, while the months of May and June were very stable. We are confident in our ability to grow these businesses over time and pipelines remain healthy. Our CRE business increased 6.9% quarter over quarter, with the majority of the growth coming from multifamily housing, retail, and industrial projects. As we mentioned previously, we anticipated a fund up of our CRE portfolio.

Speaker 5

This portfolio recently came under its internal concentration limits. We have focused on building commitments over the past few quarters, but it takes time for this portfolio, which is largely construction, to begin funding up and showing increases in outstanding balances. We expect growth in outstanding balances to continue. Our expansion into the mortgage finance and warehouse lending business is on track. We've approved four credit relationships as of this call and the pipeline is strong. In fact, we expect to fund our first loan in the next couple of weeks as our system implementation is nearly complete. We've hired a talented and experienced team to build this business and the related expense is embedded in the run rate you see today. All of this combined gives us confidence in our ability to achieve the outlook that we set at the beginning of the year.

Speaker 5

Transitioning to Slide 7, credit quality remains excellent across the loan portfolio, so I will keep my commentary brief. NPAs not guaranteed by the U.S. government decreased $4 million to $74 million. The resulting nonperforming assets to period loans and repossessed assets decreased 2 basis points to 31 basis points. Committed Criticized Assets ticked up slightly this quarter but remain very low relative to historical standards. We had minimal net charge offs of $561,000 during the quarter, with net charge offs averaging 1 basis point over the last 12 months. We expect net charge offs to remain below historical norms in the future. Our combined allowance for credit losses is $330 million, or 1.36% of outstanding loans, which is a healthy reserve level. Our track record speaks for itself as we've demonstrated consistency in the credit space time and time again. I'll turn the call over to Scott.

Speaker 6

Thank you Stacy. Turning to our operating results for the quarter on slides 9 and 10, total fee income increased $13.2 million on a linked quarter basis, contributing $197.3 million to revenue. Total trading revenue, which includes trading related net interest income, was $30.5 million, representing growth of 31% from the prior quarter and a return to a more normal operating environment. Trading fees grew $6.3 million linked quarter, driven by higher mortgage origination volumes from seasonal production and steady demand as customer engagement has rebounded following the significant market uncertainty in the first quarter. Syndication fees were another standout, growing $1.9 million linked quarter to $5.1 million, the highest quarter we've seen since 2022. Now turning to slide 10.

Speaker 6

Before talking about the numbers, I wanted to highlight that 3 of the business activities shown on this page posted record revenue during the quarter, including our fiduciary and asset management, transaction card, and deposit service charges. Fiduciary and asset management revenue grew $3 million, reflecting higher trust and mutual fund fees along with seasonal increases in tax preparation fees. I think it's also worth emphasizing the stable stream of earnings you get from this business. Over the last 10 years, the wealth management business has achieved a compounded annual growth rate for revenue of approximately 8%. AUMA increased $3.9 billion linked quarter to $117.9 billion, reflecting increased market valuations and continued new business growth. This is another record quarter for AUMA. Transaction card revenue increased $2.5 million from first quarter.

Speaker 6

Excellent performance this quarter was supported by disciplined pricing strategies, targeted customer acquisition efforts, and a seasonal uplift in transaction activity. Deposit service charges grew $1 million linked quarter. This line has shown sustained growth over the past two years driven by our commercial treasury services and now I'll hand the call over to Marty to cover the financials.

Operator

Thank you, Scott. Turning to slide 12, net interest income was up $11.9 million and reported net interest margin expanded 2 basis points. Core net interest income excluding trading increased $11 million and core margin excluding trading grew by 7 basis points. Driven by several factors, the securities and fixed rate loan portfolios continued to reinvest cash flows at higher current market yields. Our ongoing efforts to optimize deposit pricing resulted in lower rates for non-maturity deposits, and that was without the support of any Fed rate cuts in the quarter. Deposit repricing was also a benefit driven by the natural repricing of higher rate vintages in that relatively short-dated book. This was partially offset by slightly lower average balances in the non-interest bearing DDA, driven by seasonally higher balances in January of this year affecting the Q1 overall average balance.

Operator

Both the average DDA balance and trends within the second quarter were aligned with our expectations. We expect net interest income and margin growth will be supported by continued fixed asset repricing and continued loan growth. We will pursue further deposit pricing optimization efforts where available, and the DDA stability we've seen in the past couple quarters indicates that typical seasonality and new business activity should be expected to drive balanced behavior going forward. Turning to slide 13, total expenses increased $7 million. Personnel expenses were relatively consistent with the prior quarter. Within personnel expenses, we saw a slight increase in compensation, which was largely offset by a seasonal decrease in payroll taxes. Non-personnel expense increased $6.4 million, driven primarily by increased technology, project costs, and operational losses.

Operator

While slide 14 provides an update on our outlook for full year 2025, we remain confident in our full year loan growth projections due to the robust growth seen in Q2, continued momentum in early Q3, and strong pipelines across both C&I and CRE. This will be further supported by the launch of our mortgage finance and warehouse lending business this quarter. We acknowledge that economic policy uncertainty is still somewhat of a risk factor for our loan growth guidance. However, it seems much less important than it did 90 days ago. Our net interest income expectations remain unchanged. This assumes two 25 basis point rate cuts in September and December, consistent with the market's forward rate expectations. However, given our relatively neutral interest rate risk position, changes there would not alter our guidance.

Speaker 6

Our fees and commissions guidance is also.

Operator

Reflecting the momentum we have in that set of businesses. As a reminder, I will note that interest rate levels and curve steepness can affect the geography of total trading revenue between NII and fees, but that would be neutral to total revenue. Lastly, on credit, nonperforming assets are very low and portfolio credit quality continues to be very strong, which supports our expectation that charge offs will remain low in the near term and provision expense will be below 2024 levels. With that, I would like to hand the call back to the operator for Q&A, which will be followed by closing remarks from Stacy.

Speaker 3

At this time I would like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jared Shaw with Barclays. You may go ahead.

Speaker 3

Hey, good afternoon, everybody.

Speaker 5

Hi, Jared.

Operator

Maybe just, you know, when we look at NII, what's some of the expectations for margin trajectory behind that?

Speaker 6

Is there.

Operator

Anything in particular we should be paying attention to for that? Yeah, good question. Margin, we're really happy with how margin behaved in the second quarter. We got really good lift out of the fixed asset repricing across bonds and loans, and then some additional lift across deposit pricing broadly, including even the changes in DDA. That gave us, basically between those two items, almost seven basis points of expansion. Those have been the drivers we've been talking about for the last few quarters. We see that again replaying in the next quarters where fixed asset repricing will still be supportive of margin. You've got both the securities book and the fixed rate loan book that continue to reprice up to current market rates. There's still a little bit of room for deposit pricing to be supportive, and obviously loan growth that will be supportive going forward.

Operator

It's really nice to see this quarter's level, and our outlook, as you know, is constructive there.

Speaker 5

Okay, thanks.

Operator

When we look at things like the guide for securities, does that imply a slight decline? Should we think of the securities portfolio going down for the rest of the year? If you look at FHLB borrowings, average was higher than end of period. Is that going to continue to trend down as well in the backdrop? On the securities portfolio, the difference quarter to quarter on a portfolio that big is really sort of noise. Just think about that as kind of steady from here for the rest of the year. On the FHLB borrowing, that ticked up, but that was solely because in the trading account, we just held a higher level on average for the quarter. That's what drove the FHLB borrowings up a little bit.

Operator

You could see that trading potentially stay the same or come down a little bit, and you'd see that offset in FHLB most likely. Great. Thanks very much.

Speaker 3

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

Speaker 5

Thank you. Good afternoon. Hey, Jon. Hey. Can you talk a little bit more about the pace of loan growth through the quarter? I know there's some nuances to average versus period end, but it looks like period end is up a little bit higher. Stacy, you used the term accelerating. Talk a little bit about what you saw throughout the quarter and how you feel exiting the quarter. Yeah, it really built throughout the quarter. I think part of that was we talked about we've had good underlying loan growth for the last really three years now. Our C&I loan growth CAGRs, you know, 5%, 6% over the last three years, excluding the specialty businesses. It's really the headwind that we've had from health care, energy, and real estate. That slowed down. Obviously, real estate's a tailwind now, not a headwind. Health care seems very stable to growing modestly.

Speaker 5

Energy now stable. If you look at for us, April, we had energy payoffs, less payoffs in May and June. That feels like, you know, you hate to call the bottom there, but feels like we're pretty close to stable and close to the bottom. That's really going to allow the underlying loan growth, it's always been there, to kind of come to the surface without being masked by the payoffs in those areas. We feel really good about that. We've always pointed to the second half of the year as when that point-to-point loan growth that we have in our guidance would really show up. Having the level of loan growth that we had in the second quarter has only encouraged our outlook. As we think about now going into the second half of the year, we're going to have mortgage finance and warehouse lending business come online.

Speaker 5

We think you could have $500 million in commitments there by the end of the year. Assume half of that's outstanding. You're going to have growth in your traditional C&I businesses. Where we've been investing, I think real estate will continue to be a tailwind. Health care will get some momentum here in the second half of the year. We're excited about where we are, where we're positioned from a loan growth perspective both this year and frankly how we're positioned thinking about 2026 as well. Okay, good. Very helpful on that. Maybe Stacy or Marty, just competition. It looks like loan yields were stable. I know there's a lot of things that go into that. How are you feeling about the competitive environment? Is it any tougher than maybe it has been historically? You know, in the markets that we're in, it is always hyper competitive.

Speaker 5

That's what you hear consistently from all of our teams there is that, you know, competition is very strong. We're in great markets. Part of the other side of the coin of being in great markets like Dallas and Fort Worth and Houston and Phoenix and Denver, San Antonio is you're going to have a lot of competition. I would say there's some spread compression on the C&I side that we're seeing a little bit there as we move forward as people think about diversification and either get pressure around real estate or decide they've got too much internally and try to focus on other lines of business. You see more competition on the C&I side, mostly around the rate. You see a little bit of spread compression there on the C&I side, the core, what we call core C&I. Otherwise, spreads are holding in pretty well.

Operator

Sometimes that's more visible on the very high credit quality borrowers that are close to the level where they can access capital markets especially.

Speaker 5

Yep. Okay. All right, I'll step back. Thank you. Thank you, John.

Speaker 3

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

Speaker 3

Hey guys, good afternoon.

Speaker 5

Hey Brad, how are you?

Speaker 5

Wanted to ask about fee income and just thinking about the guidance for the full year and what might take you to the lower versus the higher end of that range. Within the guidance, I assume that the pick up from here or additional improvement in fee income trends would be mostly related to brokerage trading and card. I was just hoping for some additional color around that.

Operator

Yeah, Brett, why don't you let me talk a little bit about that and Scott can add some color if that's useful. If you look at the fiduciary and asset management, transaction card, deposit service charge line items and look at the growth rates that we've seen year over year, those are 11%, 6% and 8%. I mean those are very strong growth rates and those are long run strong growth rates. Driven both by, in cases of new sharing, asset management, a combination of both the markets being up and our ability to win and deliver new business. We expect continued growth in those businesses and those are just doing really well when you look at some of the transactional businesses on trading. We do expect trading to be positive as we go through the next couple quarters.

Operator

We're realistic to have a growth rate that is certainly attainable in the way we think about that. When you look at syndications that will benefit from the.

Operator

Better.

Operator

Loan origination environment that we find ourselves in for Q2, Q3, and Q4 going forward.

Operator

When you look at.

Operator

The investment banking business, you know, we've got a really strong track record in that business and year over year, really good momentum. There was some activity in Q2 in the municipal space that was kind of slowed down just by conditions of Q2 that is teed up in our pipeline that we feel really good about coming through in the back half of the year. Our confidence in the fee businesses goes across multiple lines. Anything you want to add to that, Scott?

Speaker 6

Yeah, I think Marty summed it up well. I think that the diversity of both asset classes that we have bodes well from the market growth standpoint. We got that component. As Marty mentioned, we've also had net positive inflows in our AUMA, which gives us good tailwind. On the trading side, absent the February-March environment of dislocation to chaos in the fixed income markets, post that we've normalized and feel like we've got good positioning in the MBS space as we move forward. On the investment banking side that he mentioned, we feel like our pipelines and our docket on the investment banking business, specifically in the municipal space, is very strong. We don't feel like we're going to miss that. We think it's been delayed a bit and is pushed out toward the second.

Operator

Half of the year.

Operator

Okay, that's all really helpful. Maybe Stacy, you know, we've seen a pickup in M&A and there's quite a few regionals that, you know, are espousing their intent or their willingness to do acquisitions. You guys have always been a more selective, so to speak, buyer, franchises that you view as, you know, as ones that you've got a small list that you're interested in and wouldn't just do any deal, obviously. What are you seeing, if anything, in terms of the ones that are on your list? Is there an increase in receptivity and what do you think the potential of you guys doing a deal might be in the back half of this year in 2026?

Speaker 5

I think you kind of described how we approach M&A very well. I think our core strategy has always been we have to be an organic grower. M&A is not our strategy. It's got to be the icing on the cake, but it's not the key to driving our growth. It's so difficult to be successful no matter what the environment is. Strong franchises typically have a lot of folks who are interested, and it's very difficult to win those. We do have folks that we're interested in over time, and we stay in touch with them. I think the regulatory environment, frankly, is more favorable to M&A, but that's not our core strategy. Our core strategy is to acquire talent to grow in these great markets that we're in.

Speaker 5

If we're fortunate to find something along the way that fits our profile and has a willing seller at the time, it fits for us, then that's extra for us. It's not our core strategy.

Speaker 5

Okay, and then on the organic side.

Speaker 5

Just last quick follow up.

Speaker 5

What are you seeing in terms of net adds of people or producers, maybe relative to last year?

Speaker 5

If you look at where we are relative to last year, I would, on the production side, we're probably up in excess of 30 people across our footprint. We've added talent in all of our markets. We're proud of the markets that we're in. We think it gives us a differentiated opportunity to grow, allows us to maintain our strong asset quality because we don't have to reach for growth. We can do it in the constraints of our credit appetite. We've added some extraordinarily talented people in Dallas and Fort Worth and Houston, obviously talked a lot about San Antonio. Proud of the work those guys are doing there. Phoenix, we are really, really hitting our stride in Phoenix, excited about where we're headed there. Denver's got good momentum and our core markets have been strong for us.

Speaker 5

People kind of, I think, underplay the strength of Tulsa, Oklahoma City, Kansas City. We're doing very well in these markets. Talent acquisition is key to us. It continues to be almost a line of business for us in terms of how we think about it. That's going to be key to our growth and our outsized growth as we move forward.

Speaker 6

Okay, great.

Speaker 6

Appreciate all the color, guys.

Speaker 3

Your next question comes from the line of Michael Rose with Raymond James. You may go ahead.

Speaker 3

Hey, good afternoon everyone.

Speaker 5

Michael.

Operator

Hey, maybe just following up on John's question. I think what I heard, C&I, CRE, pipeline, strong, the energy decline that we've seen in balances kind of year over year maybe sounds like it's coming to an end, maybe with healthcare too. I know you talked about momentum into next year. I'm not trying to ask for the outlook for next year today, but is there any reason to think that just given the momentum that you guys have and kind of the declining headwinds from some of those specialty businesses that we shouldn't at least expect a similar pace of loan growth as you think, as we begin to contemplate next year?

Speaker 5

I think that's a reasonable expectation. I think you know what our guide was, mid to upper single digits, and as we think about our strategic planning process and kind of a three and five year forecast, we use those kinds of numbers because that's the rate of growth that we expect to achieve over time. Understanding it'll be more in some periods and less in some periods, but kind of on a sustainable average over time, that's a good number for us.

Operator

Okay, great. Maybe just pivoting to credit, obviously no provision again this quarter. Credit trends are excellent. I know I've talked with Marty about this separately, but obviously we're adding with the big bill a fair amount to the debt deficit. Credit trends generally look pretty good for you guys in the industry. Is there anything that we should consider in the near to intermediate term as puts and takes to the current credit quality outlook and how it could change as we move forward?

Operator

Thanks.

Speaker 5

You're asking the question that we've all been asking ourselves. What could be around the corner? How do we anticipate that? I think that the good thing about our company is we don't widen or contract the fairway based on the economic circumstances. We keep the fairway the same. We don't like leverage lending, we don't like collateral light, we like having a strong secondary source of repayment. All those factors are why even when we do have criticized, classified, nonperforming assets, and they will increase, they will kind of revert to the median over time, but our losses should still be well below the peers because of our lending style and focus on a secondary source of repayment. Our loss given default historically has been much lower than our peers and I would expect that to continue. We don't see kind of the boogeyman around the corner right now.

Speaker 5

It appears there's a lot of tailwind economically, not just in our footprint, but just the proverbial animal spirits are very strong right now and borrowers are more confident. It's amazing what 90 days have been. I mean, we sat here 90 days ago, not confident in how the noise around tax policy or the tariffs would impact borrower behavior. I think folks have kind of absorbed that, understood that the tariffs will be there, it will be at a level that they can manage, and have moved on about their business. That's really healthy for us and I think we're going to benefit from that. Very helpful.

Operator

Maybe just one last one for me, Stacy. There has been a lot of talk around stable coins this quarter. BNC just signed a deal with Coinbase earlier today. On the crypto front, can you talk about third party lending, whether leverage lending, all the above, just from a technology standpoint? I would love your outlook and what you guys plan to do on multiple fronts, technology wise.

Operator

Thanks.

Speaker 5

Yeah, you know, I'll address stablecoin. I think that domestically there's a lot of smoke there. I think that where stablecoin makes a lot of sense is in uncertain economies or where you have a central bank that's not grounded like it is in most stable economies where inflation is a bigger deal. Cross border payments is another strong application for stablecoin. We don't have a huge population of clients that has applicability for some, but not a lot. On the domestic payment side, I see very little use case today around stablecoin. Although we're watching it, we have a large, as you know, commercial treasury services platform. Payments is really critical to our success, and we're watching these types of developments and we'll stay close to it. I think we've made enormous investments in our technology base.

Speaker 5

Whether it was the wealth system, our treasury system, our lending platform, our what we call our exchange where we have single sign on and all of our users can access their commercial users and institutional users can access their information in a single place. We've made a lot of investments there and we'll continue to do that. From a lending perspective, that has been a bit of an Achilles heel for us is kind of lending into the technology space. It is such a binary outcome where it either works or it doesn't work. That's been a difficult place for us to find our footing and we haven't done much there. We don't have a lot of vulnerability if some of these things don't play out as perhaps expected. We're not lending into private credit.

Speaker 5

We're not lending to those who lend money to people we wouldn't lend money to. That tends to help us in good times or when it's important to make good decisions. All decisions look good right now. When the tide goes out is when we'll figure out who made good decisions and who focused on growth at all costs. We feel good about how we maintained our discipline here and how we think about long term lending.

Operator

Appreciate it. Thank you so much.

Speaker 3

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

Speaker 3

Hey, good afternoon.

Operator

Wanted to start on mortgage, wanted to start on mortgage finance and the launch there. Was just wondering if you could sort of frame the opportunity and sort of how fast you expect balances to come on over the back half of the year. Yeah, Woody, this is Marty. We're pretty excited about being able to get to launch that here just in the next couple weeks. You know, we'll be able to get, like Stacy mentioned, probably $500 million of commitments by the end of the year. We'll be booking clients in August and September and making good headway there. You probably have a 25% utilization there, 50% utilization kind of by the end of the year is kind of a good way to think about that. We feel really good about all the groundwork that's been laid.

Operator

The fact that we've got both the lending capability, the deposit capability, and the treasury management, treasury services capability. Probably the best part about this is how well that business ties in with the institutional fixed income trading because the overlap there between those two client bases is super high. That's a client base that we've got decades of history with, and the tie in there is fantastic.

Speaker 5

We're not ready to talk about 2026 yet. I think as you think about that business going out through 2026, we're really spending 2025 focusing on making sure all the operational potential speed bumps are resolved well and that we feel good about the operational risks associated with this business because if done correctly, there's little credit risk but more operational risk. We're going to spend 2025 making sure that new people and new systems are operating as intended, and then I think you'll see us ramp up or accelerate the growth there as we move into 2026 and 2027.

Operator

That's really helpful color. Maybe last for me, shifting over to deposit costs. As you sort of mentioned in your opening comments, the beta's outperformed so far through the seizing cycle. How do you think about the incremental beta if we get additional rate cuts over the back half of the year? You've seen us get to interest bearing liability beta of 76% cumulative for the cutting cycle here, and that's actually just a little bit above the cumulative similar beta on the upside that was 75%. Same thing on deposits. We've gotten to a 66%. We think that those betas pretty well hold as rates continue to fall, that you'd be able to see kind of that level, perhaps even a little better as rates decline further. All right, thanks for taking my question.

Speaker 3

Again, if you would like to ask a question, please press Star, then the number one on your telephone keypad. Your next question comes from the line of Matt Olney with Stevens Inc. You may go ahead.

Speaker 5

Yeah.

Speaker 5

Hey guys, good afternoon. Thanks for taking the question. Just want to follow up on the loan yield commentary. Marty, I think you mentioned that the new loan growth would be accretive to the overall net interest margin. I think I heard Stacy mention maybe.

Speaker 5

Some.

Speaker 5

Pressure on the C&I spreads. Just help me reconcile these comments. Is the commentary about improving loan yields, is that more a matter of.

Operator

The loan mix you expect the back half of the year.

Speaker 5

Thanks. Yeah.

Operator

Right. Certainly, loan growth is going to help you with just NII dollars. To the extent that that changes your overall mix between loans and securities, that's going to help margin a little bit. We would expect to see that loan growth come on at, you know, more or less similar spreads to the existing book, just, you know, based on what that mix would look like.

Operator

Okay, thanks for that, Marty. Lastly, I think there was a comment in the prepared remarks about the trading securities portfolio. I think that ballooned up during the course of the quarter but then moved lower towards the end of the quarter. Any color on the volatility behind that and the outlook for the size of this?

Operator

Thanks. Yeah, that's simply the traders, the desks, as they see opportunities, they can move that overall balance up or down just based on market opportunities. That's really just them being tactical throughout the quarter and doing what's smart. That was a little higher during the quarter. That could be down a little bit. There isn't a particular strategic bent one way or the other.

Speaker 6

This is Scott, and I think that when you think back to not the beginning of the year, but February and March, there's no question that during that period of uncertainty and volatility, we were not as long with balances at that time period as we, as the first quarter came to an end and as more predictable normalcy returned to the fixed income markets, we are obviously more comfortable with larger balance there.

Speaker 5

We remain in all of our risk limits. We're not compromising any of our risk structures or anything like that to try to achieve any revenue growth or revenue targets there. We're well within all of our internal risk limits and have continued to be really throughout this period of time. I think our performance there, particularly in the first quarter, despite the revenue lag, really was a tribute to our risk management in a very difficult time that could have gone a different direction. We continue to be very disciplined about that, as you would expect us to be.

Operator

Yeah, it's all fully hedged. It's really just a kind of a denominator of the margin question and, you know, kind of where it's been last quarter, the quarter before. Those average balances are a reasonable range to think about.

Operator

Okay, thanks for clarifying.

Speaker 3

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

Speaker 3

Hi, good afternoon, everyone. Timor, you had made a comment that the mortgage warehouse build out has now been fully incorporated in the expense base. I'm just wondering what portion of the 2Q expense growth came from the mortgage warehouse build out.

Speaker 5

We've been building it out over the last 12 months, really slowly until we were kind of approaching fully staffed. We've got 11 FTE in that business today, not a dollar revenue, and 11 FTE are in our third quarter, our second quarter run rate. It gives you an idea a little bit about kind of where we are from an opportunity perspective. We talk about continuing to create positive operating leverage from here forward. That's one example of that. I think you'll see those expenses related to that business certainly stabilize in future periods as we bring on the revenue.

Operator

Yeah, all the staffing was fully in Q2, and the loan system that will go, you know, kick on here in 3Q, and the amortization for that is the one last piece that will come into the run rate in 3Q.

Operator

Okay, great.

Operator

As you're more optimistic about the loan pipeline, loan growth into the back end of the year, can you just give us some color on how you're expecting to fund that? Is that going to be primarily out of the bond book as some of those cash flow, and then just maybe some color as to what your expectation is for deposit growth in the back.

Speaker 5

End of the year?

Operator

Yeah. Timur, just as a starting place, we have a very strong loan to deposit ratio below 65%, and that could certainly creep up and that would be perfectly fine if that's how it plays out. Our base case scenario, though, is that we do expect to continue to grow deposits over the coming quarters. Any mix within there would be a perfectly fine outcome. Okay, and can you just remind us.

Operator

What the next 12 month cash flows are out of the bond book.

Speaker 5

Out of the loan book?

Operator

Yeah, so it's basically $650 million per quarter of cash flows come out of the securities portfolio and reprice, and then just on the fixed rate portion of the loan book, that's more like $200 to $250 million per quarter of cash flows come out of that fixed rate loan book and reprice per quarter.

Operator

Perfect.

Operator

Great.

Operator

Thank you so much.

Speaker 3

This concludes today's question and answer session. I would now like to turn the call back over to Stacy Kymes for closing remarks.

Speaker 5

Before we wrap up the call today, I wanted to take a moment to share our company support for those affected by the flooding in the Texas Hill Country. As someone who grew up in Texas, I know the strength and resilience of that community and what a special place it is. We stand with our team members and customers in Texas and across our footprint in offering our support now and throughout what will be a long recovery. I'm proud of the results this quarter. These results reflect the strength of our team, the effectiveness of our long term strategy, and the resilience of our diverse business model. The momentum we gained across the board reinforces our optimism about the future. We appreciate your interest in BOK Financial and your willingness to spend time with us this afternoon.

Speaker 5

Please reach out to Heather King if you have any questions at h.King@bokf.com.

Speaker 3

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

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