BOK Financial Corporation (BOKF) Q4 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to BOK Financial Corporation Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Steven Nell, Chief Financial Officer for BOK Financial Corporation. Please proceed.

Good morning, and thanks for joining us. Today, our CEO, Stacy Kymes will provide opening comments and Marc Maun, Executive Vice President for Regional Banking, will cover our loan portfolio and related credit metrics. Scott Grauer, Executive Vice President of Wealth Management, will cover our fee-based results. And then, I will provide details regarding net interest income, net interest margin, expenses, and our overall balance sheet position from a liquidity and capital standpoint. PDFs of the slide presentation and fourth quarter press release are available on our website at bokf.com. We refer you to the disclaimers on Slide 2, regarding any forward-looking statements we make during this call. I'll now turn the call over to Stacy Kymes.

Good morning. And thanks for joining us to discuss BOK Financial's fourth quarter and full year 2021 financial results. I'm proud of our record year of earnings in a period with tremendous volatility. As we continue to reiterate, our strong earnings are really due to our diversified business model, which has long been core to our strategic identity. It also reflects extraordinary dedication by our employees who were serving our customers in all aspects of our business in a very difficult environment. While there were aspects to our financial performance in 2021 that will not recur in 2022, the business that created these opportunistic gains is core to our franchise. Starting on Slide 4, full-year net income was $618 million, or $8.95 per diluted share, an increase of $183 million, or $2.76 per diluted share. Shown on Slide 4, fourth quarter net income was $117.3 million, or $1.71 per diluted share. That represents a $71 million decline in net income from last quarter's all-time quarterly high, which benefited from a non-recurring gain on sale of an alternative investment, as well as market conditions that were favorable to our mortgage-backed securities activities within our institutional trading business. The key items that drove our decline in linked quarter net income were our fee-based business units continue to perform well, recognizing the fourth quarter is historically lower than the third quarter. Linked quarter fee income was down $44 million with a $33 million decline in trading and brokerage fees, all driven by unfavorable market volatility in our MBS institutional trading activities. Mortgage fees decreased $5 million as production activity slowed and margins compressed. Other revenue decreased $7.3 million as a result of lower operating revenue from repossessed oil and gas assets due to the sale of a property. All other operating revenue was down $28.3 million linked quarter, primarily related to a $31 million gain realized in the third quarter from the sale of an alternative investment. Net interest revenue declined $3.2 million on a linked quarter basis, largely driven by a $5 million decline in PPP fees. This was partially offset by an increase in non-used fees from low utilization levels, and a 1 basis point decline in our interest-bearing cost of funds this quarter. We continue to experience some compression in yields on our available-for-sale portfolio. However, that impact was materially offset by increased balances in our trading portfolio. Market conditions and credit trends continue to improve, allowing us to release an additional $17 million of our loan loss reserve this quarter, which was $6 million less than the third quarter reserve release. We have released $100 million in loan loss reserves for the full-year. Expense management remains quite strong, although linked quarter direct expenses increased $8.2 million this quarter, $5 million of which was a contribution made to our foundation that serves our communities. The remaining increase in expenses is generally related to technology spend, a slight increase in business promotion and some operational losses. I'm very proud of our expense management this past year, as total direct expenses increased only $13.4 million or 1.2%. With 10.8 million of that increase from increased employee medical spend coming up on unusually low 2020, as medical procedures were deferred from 2020 into 2021. These results reflect our disciplined approach to expenses, despite significant technology and cyber-related investments. Turning to Slide 5, total loans were down a $142 million for the quarter. But PPP loans forgiveness, accounts for $260 million of that contraction. We believe core loan growth turned a corner this quarter, with an increase of a $117 million or 2.4% annualized. The good news here is, that the growth is being driven by our C&I book, both in our specialized lending and regional and corporate banking areas. Core C&I, excluding Energy, grew 6% annualized, and 11% including Energy. C&I commitments grew as well with relatively no change in the core utilization rate, which positions us well with plenty of growth capacity as the economy continues to rebound. The net linked quarter growth was muted by continued pay-offs in our Commercial Real Estate group. However, we expect growth to resume there after the first quarter. Loans attributed to our Wealth segment grew a $133 million this quarter, or 29% annualized. Average deposits increased another $2 billion this quarter and are at $4.3 billion or 12% higher than the same quarter a year ago. Assets under management or in custody and our Wealth Management business grew 6% linked quarter to $104.9 billion, surpassing the $100 billion milestone, largely due to sales activity and favorable markets. Compared to December 31, 2020, assets under management or in custody are up $13.3 billion or 14.5%. I'll provide additional perspective on our results before starting the Q&A session. But now Marc Maun will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to Marc.

Thanks, Stacy. Turning to Slide 7, period end loans in our core loan portfolio were $19.9 billion, a linked quarter increase of a $117 million. As Stacy noted, we're optimistic we've reached a turning point in our loan trends. Total C&I loans grew $331 million or 2.7% linked quarter, with growth in all category. Commercial Real Estate was down $286 million for the quarter, but we expect that pay off trend to reverse after the first quarter. Loans to individuals grew $72 million linked quarter, personal loans driven by our private wealth team increased $120 million, while residential mortgage loans decreased $48 million. This was largely due to the resale of loans previously sold into Ginnie Mae mortgage pools that the Company repurchased when certain delinquency criteria were met. Many loans purchased during the pandemic have since been cured and meet the resale qualifications. Energy balances rebounded nicely in the fourth quarter, an increase of $193 million, or 6.9% linked quarter. Commitments grew faster than outstanding this quarter so utilization levels remain low, providing ample capacity for continued growth simply from current customer base. We expect to have growth in 2022 primarily from M&A activity in this space with minimal growth from drilling activity. Given our long-term expertise and continuing strong commitment to the energy sector, we are recognized as a leader in this space, and we are well-positioned for strong growth in the coming year. Ancillary business from customer hedging, investment banking, and treasury for this segment set another new record for fee revenue this quarter, topping last quarter's previous high with linked quarter growth just under 8%. Healthcare balances also increased, up $67 million or 2% linked quarter, primarily driven by our senior housing assisted living sector. Looking forward, we remain very confident in our ability to perform from both a growth and a credit standpoint in this portfolio, as it remains a leader for us. Core Middle Market C&I realized positive growth this quarter, with linked-quarter growth of $72 million or 1.2%. C&I utilization levels have been running at historic lows, but ticked up slightly this quarter. Given such low utilization levels, we still have significant capacity to increase outstanding loans, as demand continues to come back online without it being predicated on any new customer acquisition. A return to more normal utilization levels organically adds about $600 million of Core C&I loans outside the anticipated growth in the specialty area. Although only one quarter, given the broad-based growth this period, we're optimistic to C&I portfolio is beginning to stabilize. And with key indicators pointing toward an improving economy, we're anticipating solid growth throughout this year. Commercial Real Estate payoffs continued this quarter with balances down another $286 million. We continue to see borrowers use this low rate environment to refinance to the long-term, fixed rate, non-recourse market. 2020 was one of Real Estate's lowest years for portfolio turnover, as many of the permanent markets were cautious. As those have opened up, we see some catch-up activity that is inherently a sign of a healthy portfolio. We expect these balances to grow in 2022, after the first quarter where we will still expect some level of pay off. We have plenty of capital allocated for this space to grow in 2022 and beyond. PPP loan balance forgiveness was $260 million this quarter, reducing outstandings to only $276 million. Of the remaining PPP balances, less than $40 million are of the 2020 vintage. We continue to work with our clients through the forgiveness process and expect any future remaining balances to be minimal. We believe the fourth quarter was the inflection point we have been looking for, and are confident we are well-positioned to build off that momentum and return to a normal loan growth cycle as we move into the first quarter of 2022. As supply chain constraints ease and the economy benefits from the full impact of this fiscal stimulus, BOKF will be well-positioned for accelerated loan growth. Turning to Slide 8, you can see that credit quality continues to improve significantly as we move further out from the pandemic. We continue to experience meaningful credit quality improvement across the broader loan portfolio. Excluding loans guaranteed by U.S. government agencies, non-performing assets fell 17 billion linked quarter to 145 million. Over the last 12 months, non-performing assets are down 173 million or 54%. Overall asset quality is better than pre -pandemic levels. These and other credit quality metrics combined with continued strength in the commodity prices and outlook for moderate growth in GDP and labor markets resulted in a $17 million release in reserves this quarter. We realized net recoveries of $714,000 for the fourth quarter, an improvement compared to $7.8 million in net charge-offs for the third quarter. Net charge-offs have dropped to an average of 18 basis points over the past 4 trading quarters, which is at the lower end of our historical loss range. As we look forward to the next quarter, we expect net charge-offs will continue to be at the lower end of our historical range. The combined allowance for loan losses totaled $289 million or 1.45% of outstanding loans and unfunded commitments at quarter end, excluding PPP Loans. Non-accruing loans decreased $8 million from last quarter, primarily due to a reduction in non-occurring energy and Commercial Real Estate loans, partially offset by an increase in non-occurring healthcare loan. Potential problem loans totaled $222 million at quarter end, down from $333 million on September 30th. Potential problem energy, healthcare services, and general business loans all decreased compared to the prior quarter. With that, I will turn the call over to Scott.

Thanks, Marc. Turning to Slide 10. Total fees and commissions were a $146 million for the fourth quarter, a $44 million decline from third quarter. The third quarter saw record setting revenues from our Wealth Management group, largely driven by increased institutional trading in sales related to mortgage-backed securities activities, with higher trading volumes and spreads, which were heightened by intentional moves to shorter duration paper. Fourth quarter trading volume declined as many investors moved to the sidelines on the news of the upcoming taper by the Fed, year-end balance sheet management and concerns over yield steepening in the curve. The result was a $39 million linked quarter decline in trading revenues. This was partially offset by increased commercial syndication fees and derivatives, resulting in a net linked quarter decline in Brokerage & Trading of $33 million, or 69%. Regarding our NBS trading activities, we expect the balance sheet usage to remain fairly consistent through the next several quarters and trading volumes to increase, as investors get more active post year-end. We're expecting continued compression in the margin, primarily due to increasing interest rates. Banking products and services for private wealth clients, continue to be a particular area to highlight. The total loan portfolio increased to a $133 million or 6.6% linked quarter and has increased $250 million or just over 13% since December 31st of 2020. The deposit portfolio ending the quarter at $4.3 billion grew 11% linked quarter and was up 11% compared to the same quarter a year ago. Also in the wealth management space, fiduciary and asset management fees were up almost 4% linked quarter and 12% compared to the same quarter a year ago. The fourth quarter saw assets under management surpassed $100 billion with linked quarter growth of 6.1% taking those balances to $104.9 billion. Compared to this time last year assets under management have grown $13.3 billion or 14.5%. While we have seen the benefit of favorable equity markets increasing customer account balances, sales activity remains strong in this space as well. Our current mix of assets under management is 41% fixed income, 38% equities, 14% cash, and 7% alternatives. Our relationship driven business model is perfectly in touch with client's needs today as we continue to see institutions and individuals retain the increased appreciation for financial advice gained through the past 18 months. Transaction card revenue increased 1.5% linked quarter, as activity volumes increased. For the full-year, card revenues are up 7.5% compared to 2021. This is largely due to stimulus measures and the broader reopening of the U.S. economy. Deposit service charges were down $711,000 this quarter, primarily centered in our consumer segment. On a total year basis, deposit service charges have increased $7.4 million from commercial activity. Mortgage banking revenue decreased $5 million or 19% linked quarter, primarily due to lower production volumes combined with narrowing margins. In addition to normal seasonal declines, industry-wide housing inventory constraints continue to impact the market. Our revenue declined $7.3 million, or 39% linked quarter, as a result of lower operating revenue from repossessed oil and gas assets due to the sale of a property. Although not included on Slide 10, I will also note that the net income benefit in the fair value of mortgage servicing rights and related economic hedges was $4.7 million in the fourth quarter, down $2.6 million linked quarter. Also included in our total other operating revenue, but not reflected on Slide 10, is a $25 million linked quarter decline in gains and losses on other assets. This is due to the $31 million net gain we realized in the third quarter from activity in our alternative investment group. As we noted last quarter, this area focuses on providing equity and debt capital to growing businesses, many of whom have been strong customers of BOK Financial. We expect this area to continue to provide earnings in the future, with timing difficult to predict. I'll now turn the call to Steven to highlight our net interest margin dynamics, and the important balance sheet items for the quarter. Steven?

Thank you, Scott. Turning to Slide 12, fourth-quarter net interest revenue was $277 million, a $3.2 million decline from last quarter. That was primarily due to a $5 million linked-quarter decline in PPP fees. Average earning assets increased $1.2 billion to $44 billion compared to last quarter, primarily due to a growth in our average trading securities portfolio to support our brokerage and trading business. Interest-bearing cash increased $526 million. Average total deposits grew 2 billion with non-interest deposits up 1.1 billion this quarter, allowing us to reduce average other borrowings, 1.7 billion linked-quarter. Net interest margin was 2.52% down 14 basis points from the previous quarter with the decrease primarily driven by the continued PPP forgiveness activity, diluted impact of a larger trading portfolio, and linked quarter declines in core average loan balances. PPP loans supported Net interest margin by 7 basis points in the third quarter and 5 basis points in the fourth quarter. Excluding all PPP impact to both quarters, margins, both quarter's Net interest margin, would be approximately 2.47%, down 11 basis points from last quarter. The reinvestment of cash flows from our available-for-sale securities portfolio resulted in an 8 basis point linked quarter decline in average yields, and the yield on our trading portfolio declined over 30 basis points. Additionally, we had continued success driving net interest deposit cost down 1 additional basis points to 12 basis points on average for the quarter. We believe the core margin is at a low point, however, we do not expect any meaningful upward migration in net interest margin until rates begin to rise again. Turning to Slide 13, with anticipated rate hikes on the near-term horizon, it is important to highlight our current asset sensitive balance sheet positioning, as well as to recall how well we performed during the last rate hike cycle from 2015 to 2019. While we can't be assured to repeat the top quartile performance among regional banks that we experienced last time, we don't see much that would lead us to believe the experience will be immaterially different this time around. As you can see from our current interest rate risk estimate, we anticipate that if rates increased 100 basis points gradually over 12 months, net interest revenue would increase over $50 million. We've provided some additional context on expectations and assumptions affecting this projection, including our view that will continue to hold the available-for - sale securities portfolio flat, keeping our asset sensitivity near current levels. Additionally, the majority of our loan book is variable rate or re-prices within a year, with most of those re-pricing in 3 months or less. As we've touched on during previous quarters, some of those variable rate loans are impacted by rate floors, the impact of which will diminish as rates begin to rise. Lastly, I'll highlight our expectation for our deposit betas, or the rate at which we expect our deposit rates to increase relative to market rates. While individual deposit betas will vary by type. We expect total deposit betas to be approximately 17% in our 100 basis point gradual increase scenario, similar to those experienced coming out of the last near 0 rate environment. In fact, there's even more liquidity in the system today than before the last rate increase cycle, which should diminish the need for the market to move rates up quickly. On Slide 14, you can see that our liquidity position remains very strong. Our loan to deposit ratio declined from 53% last quarter to just 49% at December 31, largely due to the $2.7 billion increase in total deposits this quarter. This significant on balance sheet liquidity leaves us well positioned to meet future increasing customer loan demand. Our capital position remains strong as well, with the common equity tier-1 ratio at 12.2%. Well ahead of our internal operating range minimum, with such strong capital levels, we once again we're active with share repurchase, opportunistically repurchasing 129,000 shares at an average price of 104.46 per share in the open market. Turning to Slide 15, our expense management efforts were very successful this year with total year-over-year expense growth of only $13.4 million or 1.2% with $10.8 million of that increase related to a return-to-normal and employee medical expenses. Linked quarter total expenses increased $8.2 million. However, $5 million of that increase, was related to a contribution to our foundation for the communities we serve. Personnel expense decreased $1.4 million linked-quarter with cash-based incentive compensation down, due to reduced trading activity. This was primarily offset by an increase in share-based compensation resulting from improved performance versus our peer group. Regular compensation expense continues to run fairly flat as it has all year. For the year, total personnel expenses increased $6.9 million, or 1%, including the increase in medical spend mentioned earlier. We expect to continue to manage personnel cost effectively going forward, but realize there is risk here related inflation that is beginning to show in the current labor market. Non-personnel expense increased $9.6 million this quarter. As already noted, $5 million of increase is Foundation contribution. Additionally, professional fees, data processing, and communications expense combined increased $2.7 million as a result of various project investments. On Slide 16, I'll provide guidance in a few key areas as we begin 2022. We expect loan growth to accelerate as we move through the year, with period end point-to-point growth for the year in the 6% to 7% range. Line utilization in our C&I portfolios is expected to increase in 2022, particularly in energy, but likely not completely back to pre -pandemic levels during 2022. We expect growth in all of our regional markets and continued growth in our wealth division. Deposits are expected to decline less than 2% point-to-point during 2022, with no significant change in deposit composition or mix. We will maintain the available for sale securities portfolio flat during the year by reinvesting cash flows at current rates. By keeping the securities portfolio level we'll be able to maintain our asset sensitivity to up 100 basis points spread across the first year at between 4.5% to 5% as it relates to net interest income. Full second year impact up 100 basis points is expected to be above 11%. Our deposit betas, a key assumption in determining rate sensitivity, will vary by tide. But averaged 17% for the first 100 basis point move, very similar to the experience coming out of the last near-zero rate environment a few years ago. For Net interest income, excluding the impact of PPP between the years, is expected to grow 3.5% driven higher as loan growth picks up. Core Net interest margin seems to have bottom, and we expect to see improvement as the Federal Reserve starts hiking rates and loans begin to grow. Total fee revenues will not repeat historically high levels of 2021. Trading and brokerage and mortgage revenue will decline mid-to-upper single-digits compared to last year. All other fee categories are expected to post mid-single-digit growth. Total fee revenues as a percentage of total revenues, as expected to stay at or near 40%. Our goal is to maintain operating expense growth at or below 2% for 2022. This will support operating leverage and an improving efficiency ratio in concert with revenue growth from higher loan balances. Certainly, one risk in this environment is labor inflation, which we'll watch closely and attempt to manage appropriately. We expect the overall loan loss reserve as a percentage of loan balances to migrate towards 1.20% by the end of 2022, very close to the Day 1 CECL levels. We expect to continue opportunistic quarterly share repurchase within the total dollar ranges spent over the past several quarters. I'll now turn the call back over to Stacy Kymes for closing commentary.

Thanks, Steven, as I mentioned at the top of the call, I'm very proud of our record year of earnings during another period of tremendous volatility. Although our lending businesses were challenged with significant deleveraging by our clients, we continue to partner with our customer and strategies for their borrowing and expansion needs going forward have been successful in growing our customer base, positioning us well for growth in the near future. Based on what we experienced this past quarter with growth in our fore loan commitment and balance levels, we're optimistic about growth in this area in the coming year. This past year has served as an excellent example of the success of our diversified business model as we've seen our fee-based businesses and our alternative investment strategy generate earnings, while our lending outcomes were slowed by impact of the pandemic. Credit quality has improved to the point that we are now better than pre -pandemic levels. Over the long term, regardless of the cycle, our credit outcomes have long been a differentiator for us. While this quarter's earnings were down from our third quarter record, we believe we are well-positioned across the Company for growth in 2022, we expect external forces such as supply chain and labor disruptions will continue to improve, as well as other economic indicators that continue to show positive trends all providing opportunities for growth. Market expectations for a rising rate environment further enhance our potential outcomes as we are well-positioned for a rising rate. We operate in a fast-growing regional footprint that we expect to provide stronger growth in the national economy over time. I'm excited about the future of BOK Financial. With that, we are pleased to take your questions. Operator?

Thank you. [Operator Instructions] Our first question is from Jared Shaw with Wells Fargo. Please proceed.

Hi, this is Jon Rau on for Jared.

Hey, Jon.

Good morning.

Good morning.

Just starting out with expenses. Steven, earlier you commented on the weaker trading results that’s driving the personnel costs a little bit lower this quarter, but we're surprised and not seeing more of an offset there. Can we expect a catch-up on that in 2022 or I guess, can you just comment a little bit more on how those two are linked?

No, I think the biggest offset to that, we did see a decline in the commission-based expenses that hits personnel costs this quarter, but we also offset that going the other direction with some stock-based compensation accruals based on our estimation of our performance relative to our peer group, which you'll find in the proxy. We take a look at that each quarter, we determine how we're going to perform relative to that peer group for a long-term incentive. And we had an offsetting -- that number offsets some of the decline that you saw on the commission side for this quarter's personnel expense. That helpful?

Yes, that's helpful. And then I guess just turning to the balance sheet. You've said really been optimistic on the energy lending and energy vertical and healthcare. Could we expect that those to grow a little bit faster than the 6% to 7% growth rate that you put out there? And within that guidance, is there any improvement in the utilization rate that you're baking into that?

Yes. This is Marc Maun, as far as the energy market goes, we do expect to increase outstandings in that as we'll see more M&A activity, potentially more drilling activity with prices as high as they are. We did do $1.4 billion in new commitments during 2021, so the capacity not only increased as a result of oil prices and gas prices, but also because of new customer capacity under the energy portfolio. On C&I, we do expect utilization to recover. It hasn't -- it stabilized to date, but hasn't fully recovered to a higher level. But the key is, our commitments have remained steady. So we really haven't lost any capacity in the C&I market, so as the economy continues to perform, we expect utilization to improve. Another key area of growth that’s going to be our CRE group. We did over $3 billion in new commitment approvals in 2021, the majority of which were construction loans. So as we expect -- in their guiding that we expect payments to be reduced following the first quarter, we will expect a natural funding of our CRE portfolio throughout 2022. So all of those things combined, give us a lot of comfort in our guidance on the loan growth.

Then on the commercial real estate side, that 3 billion I think is a record for new commitments than any single year. So strong production there, you just have the permanent markets that are creating a -- just a little bit of a headwind. But we're optimistic that as we get into the second quarter and beyond that you're going to see that our - that hard work that created a strong growth and commitments really show up in CRE.

I guess specifically within that is hard to tell with the payoffs and paydowns in there, but are you seeing -- has the growth been multi-family? Can you give a little bit more color around those specific areas?

Sure. Our focus has been in all four areas, but we are seeing more of the activity in our multi-family and our industrial areas as a strong growth. And another component of our CRE group is our Senior Health group that focuses on construction of new senior housing. It has a great quality track record and that we've had no issues with it for the past 10 years, and we see opportunities for growth in that area, as well.

Okay, great. Thanks. That's all for me. Thanks for answering my questions.

Our next question is from Brady Gailey with KBW. Please proceed.

Thanks. Good morning, guys.

Good morning.

I know you're expecting available for-sale balances to remain roughly flat from here. But what about the outlook for trading securities? I know they've seen a lot of growth this year, especially in the fourth quarter. They're now over $9 billion. What do you expect from that line going forward?

Yeah. Hi, Brady. This is Scott Grauer. We expect it to be consistent with where we're at right now. We look for that to really be fairly flat. And as we work throughout the course of the year, we think we've got it at a level that we're comfortable with. We think it sustains the activity flow that we're seeing, which obviously was challenged in late October on into November, but we did see a pickup in December and we've seen a trend continue to improve as we've operated thus far in January. We think -- we look to hold that steady at this point throughout the quarter -- as far as we can see.

All right, that's helpful. And then, Steven, when you talk about the guidance of the reserve down to 120 basis points by the end of the year, I just wanted to clarify, are you talking just about the allowance for loan losses or the allowance for loan losses plus the reserve for off-balance sheet? Like the 129 or the 145 is what you're pointing to?

We are talking about the 145. So the combined reserve, including unfunded commitments.

Got it.

Towards the 120 level.

All right. And then finally for me, it's nice to see you guys buy back stock almost every quarter last year in 2021, I think you repurchased it around $85 or $90 and the stock is now north of $110. So how do you think about the buyback going forward. And on the flip side with the stronger currency, that can potentially lead to a better bank M&A deal, maybe just the balance of how you look at buybacks versus using your currency to acquire.

Yeah. Let me take the buyback, and let Stacy comment a little bit on M&A. But I think that buybacks will be an ongoing part of how we utilize some of our capital build and excess capital. You saw us buy back a little bit of shares, not as much as we did certainly in the third quarter at the $85 mark, but we did buy some back in the 100s range, not as many. I think going forward, you'll see us opportunistically pick our spot, but utilize some cash, and I think I guided to a similar level across multiple quarters, a similar level of total dollars that we'll spend to buy back shares. I think it's a normal part of what we do going forward.

This is Stacy, and on the M&A front, I think clearly our currency is better, but the sector has seen improvement there as well. Any target that we might have probably has seen improvement in their stock price as well. Really from my perspective, M&A is important, but not something that we're focused on. And I think it's got to be opportunistic. It's got to be the exact right fit. From my perspective, I'm more interested in product niches, technology investments, things that we can do that aren't necessarily disruptive to the whole Company to integrate and to socially and culturally integrate. There could be that perfect opportunity, CoBiz was just a perfect fit for us. And everything that has gone over time just continues to demonstrate what a great fit that was for our culture and our Company and really accelerating our growth in Denver, in Phoenix particularly. So it would have to be something bigger than that, it would have to be something that, similarly, would fit our culture, that would be something that we could readily assimilate. But we're more interested in product lines or other niches inside of our revenue streams that would be an add-on and not necessarily a completely impact the Company.

All right, got it. Thanks, guys.

Thank you.

Our next question is from Matt Olney with Stephens Incorporated. Please proceed.

Thanks guys. Appreciate the disclosure around the loan floors on Slide 13, and it looks like you gave us at 76% at the commercial portfolios were re-priced and one year, I'm curious if you have the dollar amount of loans that will re-price immediately with liable or Fed funds more of a -- more than near-term disclosure. Thanks.

I don't know if I can answer that specifically. I know that inside that 76%, I think 80% or more of that reprices in less than three months. You could say it's very short.

Most of our LIBOR loans are in the one month category. We don't do a lot of longer-term tranches under the LIBOR scenario.

It's going to be -- the vast majority of that's going to be really quick.

Okay. And then I guess the guidance does assume that the Fed starts to hike in middle part of the year. Can you be more specific about what the assumptions are around rates, not just for Fed funds, but also on the long-end of the curve, which is relevant obviously given the size of your securities portfolio?

Yes. We gave disclosure of what would happen, we believe, if rates go up 100 basis points. But what we've really -- frankly, what we built in our budget is a couple of rate increases beginning mid-year, starting, whatever the time frame, May or June and then another one out towards the end of the year. That's what we built in when I guided to that 3.5% growth in net interest income on a core basis. And that excludes any kind of differential on PPP. Hopefully, that helps a bit in knowing how we're thinking about it. Certainly, there's lots of predictions out in the market with 4 increases, some may be even more. We chose not to build that that much into our budget. We're a little bit more conservative, perhaps, and others, but that's how we calculated the guidance on the growth of 3.5% Core Net Interest Income for 2022.

We think, obviously the market's moving around quite a bit here towards the beginning of the year, in terms of what they think the Fed is going to do, as we built our thinking. And as Steven put together the guidance that we disclosed today around Net Interest Income, we thought that the Fed would move likely slower -- a bit slower than the market anticipated. However, if someone has a different view, we provided the level of disclosure there so that you could bake that in and get an understanding of that. Matt, you've done some of the best work I've seen in the analyst community on looking at the last time rates went up. A few actually was the most asset-sensitive and I think we all disclosed all these different things and everybody has got a different assumption around deposit betas, and when the Fed moves and all that kind of stuff. But I think the core is, we outperformed in the regional baked space. The last time, there was a rising rate cycle, and I think there's nothing inherent are intrinsic in our balance sheet or how we operate the Bank today that would lead us to believe that there will be a different outcome this time. In fact, the system overall and certainly us, we've got more liquidity than we've ever had. And so if anything, I think banks will be more likely to move slower than they did last time. So we've tried to provide kind of the fairway or the boundaries so that folks have different views about that they can interpolate. But certainly I think the last rate cycle, if you look across the spectrum, is going to be one of the best ways to try to compare banks.

Yeah. Okay. Thanks for that, Stacy. And I agree that the bank is in a relatively really good spot for higher rates, and also appreciate that the macro assumptions in the market seem to change week-to-week. Definitely appreciate you guys just disclosing what you did that will allow us to work backwards there. Switching gears over to the operating expense guidance for 2022, I think you're saying you want to maintain this run rate -- quarterly run rate, around that $300 million per quarter we saw in the fourth quarter. That'd be pretty impressive given the wage inflation that we're hearing from other banks and just the general tech spends. What else should we be mindful of that would allow the bank to have more moderate expense growth in 2022 versus many of your peers?

Your first assumption of the quarterly progression around that $300 million, that's pretty close. I mean, frankly, we put all our budgets together in a real detailed fashion. We think we can control personnel costs; I did caution in our guidance that certainly wage inflation is there. It hasn't been -- you see it showing up in some spots in our Company, but it hasn't been across the board an issue for us at this point. And now, will it become that? We don't know, we said we'll watch it closely and manage that expense appropriately. We do think we can maintain pretty good control of expenses. We're allowing some growth, I think in business promotion to help support our businesses. We're certainly allowing continued growth in some of our tech spend and some of the projects that we have going to support those customer facing type systems. So there are some growth characteristics around the expense base in certain categories, but we still feel like we can maintain the kind of control that we did in 2021 as we move through this current year.

Matt, this is Stacy. Just to add on there. I think if you look at our turnover, our turnover for year-end 2021, was actually a little bit better than it was in the last kind of pre - Covid year 2019. And so while Steven alluded to pockets, there are some pockets that we're watching a little more carefully. As the Company overall, our turnover levels are actually very good. And so it's a risk factor when we're not, we certainly see what others are saying in the market. Those appear to be kind of different types of banks, different types of positions and maybe a Core Regional Bank would be here located in the middle of the country. But certainly we feel good about our ability to control expenses next year.

Okay, great. That's all from me. Thanks, guys.

Thank you.

[Operator instruction] Our next question is from Gary Tenner with D.A. Davidson. Please proceed.

Good morning. This is Clark Wright speaking on behalf Gary Tenner. Most of my questions are already answered, just maybe a clarification on one. I was just wondering, when you tackled your outgoing operating expenses and the 2% that you're guiding to, is there any offsetting savings that are factored into that?

Not really. I mean -- I think the previous analyst question kind of the level that we see going forward. But total operating expenses is somewhere around that $300 million mark. We're just shy of that this quarter, although we did include $5 million contribution to our foundation, so would have been lower. But that's not a bad place to start from a quarter-on-quarter basis.

Got it. Thank you very much.

That concludes our question and answer session. I would like to turn the conference back over to Management for closing comments.

Okay. Well, thanks again, everyone for joining us if you have additional questions please call me at 918-595-3030, or you can email us at ir@bokf.com. Have a great day. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation