BOK Financial Corp
NASDAQ:BOKF
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BOK Financial Corp
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I would now like to 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; 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'll provide details regarding key financial metrics. PDFs of the slide presentation and third quarter press release are available on our Web site at bokf.com. We refer you to the disclaimers on Slide 2 regarding any forward-looking statements we make during the call. I'll now turn the call over to Stacy Kymes.
Thank you, Steven. Good morning. And thanks for joining us to discuss BOK Financial's third quarter financial results. Starting on Slide 4, third quarter net income was $156 million or $2.32 per diluted share. Results reflected another very strong quarter that demonstrates our diverse earnings mix. The third quarter ranks as the third highest in the Bank's earnings history trailing only the second and third quarters of 2021, both of which had negative loan loss provisions. Pre-provision net revenue increased $42 million linked quarter as we grew core loans, experienced significant margin expansion and benefited from our diverse fee income base. Short term interest rates continue to rise during the quarter and our asset sensitive balance sheet responded accordingly. Our net interest margin increased 48 basis points linked quarter due to loan portfolio that is heavily weighted to variable rate loans. Fee income increased linked quarter as institutional trading took advantage of favorable market conditions, and investment banking set a quarterly record for fee income, primarily in municipals. Our asset quality credit trends remain unsustainably good but we did add to our credit loss reserve this quarter in recognition of the loan growth and less certainty in the economic outlook.
Turning to Slide 5, period end core loan balances increased $522 million or 2.5% linked quarter with commercial real estate, the primary driver. Overall, unfunded loan commitments continue to grow up $1.1 billion linked quarter, with utilization rates still low. While average deposits continued to remain high compared to pre-pandemic levels, we saw a decrease of $1.5 billion or 4% this quarter with virtually all of that in interest bearing balances. These declines were consistent or even better than our expectations given the rapid actions of the Federal Reserve to move short term rates higher. The third quarter loan to deposit ratio increased to 59.8% from 55.1% last quarter. Assets under management or administration were relatively flat linked quarter at $95.4 billion and are down 3.5% compared to last year, driven by market impact on equities, which comprise approximately a third of the total. I'll provide additional perspective on the 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 $21.8 billion, up 2.5% linked quarter. Year over year, core loans have now grown $2 billion or 9.9%. Total C&I loans were relatively flat linked quarter with growth in healthcare and general business, offset by declines in energy and services. Growth trends in commercial real estate loans are traditionally lumpy as evidenced by this quarter's strong results. Linked quarter balances increased $368 million or 9% with $248 million of the increase from loan secured by multifamily residential properties and $150 million increase in loan secured by industrial facilities. Unfunded commercial real estate commitments increased 18% linked quarter. So year over year commercial real estate balances increased 8.7% consistent with the rest of our lending businesses. Healthcare balances increased to $130 million or 3.5% linked quarter, primarily driven by our senior housing and hospital acute care sectors. Healthcare unfunded commitments increased 14% linked quarter, which we expect will drive additional balance growth.
Energy balances decline $21 million this quarter, but have increased $558 million or 20% year over year. Unfunded commitments increased just over 3% linked quarter, resulting in an average utilization rate of approximately 50%, creating more capacity for continued balance sheet growth. Services and general business loans did decline 1.2% linked quarter, but have increased $396 million or 6.6% compared to September 30, 2021. Unfunded commitments in the combined services and general business categories increased 6.6% linked quarter, slightly lowering utilization rates. Utilization rates continue to run below pre-COVID levels, so we still have significant capacity to increase the outstanding loan balances without it being predicated on any new customer acquisition. Over the last 12 months, core loans have grown $2 billion or just under 10% with annualized year-to-date growth of just over 12% for 2022. Although, we don't expect loan growth to continue at this pace, we believe that the momentum we've experienced up to this point will continue as we close out the year and roll into 2023.
Now turning to Slide 8. You can see that credit quality continues to be exceptionally good across the loan portfolio. Non-accrual loans increased $17 million in the third quarter, primarily due to two loans, one in healthcare and another in services. Our criticized assets continue to decline and as a percentage of tangible equity and loan loss preserves remain at levels not seen in the last 10 years. We took a $15 million provision for expected credit losses this quarter, considering continued strong loan growth and changes in our reasonable and supportable economic forecasts, which were primarily related to a more challenging economic outlook from the Federal Reserve's continued actions to control inflation. Given our solid credit position today, a ratio of capital allocated to commercial real estate that's substantially less than our peers and a history of outperformance during past credit cycles, we believe we are well positioned should another economic slowdown materialize in the quarters ahead.
We realized net charge offs of only $457,000 during the third quarter. Net charge offs have dropped to an average of 2 basis points over the past four trailing quarters, which is far below our historic loss range of 30 to 40 basis points. Looking forward, we expect net charge offs to continue to be low. The combined allowance for credit losses was $298 million or 1.37% of outstanding loans at quarter end. We expect to maintain this ratio or to migrate slightly upward as we expect strong loan growth to continue, as well as continued economic uncertainty due to market conditions as the Fed pursues their goal of reigning in inflation. Both of these conditions support credit provisions going forward. Now, I'll turn the call over to Scott.
Thanks, Marc. Turning to Slide 10. Total fees and commissions were $193 million for the third quarter, a $19 million linked quarter increase. Trading fees increased $15 million linked quarter as we took advantage of favorable market conditions and increased market volatility. Our commodity and hedging activities were flat linked quarter at $13 million, but actually set a new quarterly record, slightly topping last quarter's record. Our bank wide investment banking activities also established a new record quarter with fees increasing $2.4 million to $14 million, led by record results from our municipal investment banking segment. While lumpy in their timing, the combination of our investment banking activities from our Wealth and Commercial segments provide another solid source of diversified revenues. Fiduciary and Asset Management fees were relatively flat linked quarter with a $352,000 increase. The second quarter included seasonal tax preparation fees, creating a linked quarter decline that was offset by reduced fee waivers in our Cavanal Hill funds, driven by the increase in short term interest rates.
We have now eliminated all of our fee waivers. Our assets under management or administration were virtually flat linked quarter at $95 billion, despite a 5% linked quarter decline in equities. Our current mix of assets under management are 45% fixed income, 32% equities, 14% cash and 9% alternatives. Our relationship centric model and product offering continues to serve our clients' needs today as we help them manage market volatility. Deposit service charges increased slightly this quarter with growth driven primarily from our Consumer segment. Year-to-date, approximately 24% of deposit service charge fees were consumer related overdraft program fees. We are implementing changes to our overdraft program in the fourth quarter that will reduce those consumer fees by approximately $2.5 million per quarter. Mortgage banking revenue was flat linked quarter with production revenues down $1.9 million due to a $76 million decline in production volumes combined with narrowing margins. Mortgage servicing fees increased $1.8 million this quarter and are 26% higher than third quarter last year. During the last 12 months, we've strategically acquired servicing of approximately $6 billion of unpaid principle balances that will add $15 million of annual servicing revenue. I'll now turn over 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. Third quarter net interest revenue was $316 million, a $42 million increase from last quarter. Interest and fees on loans increased $60 million largely due to a 97 basis point increase in loan yields. Loan yields increased as our variable rate loans repriced in response to the recent increase in short term interest rates. Our balance sheet is asset sensitive with the majority of our commercial and commercial real estate loans repricing in a year or less. Interest income on securities increased $7 million linked order as average yields increased $29 basis points, primarily due to higher yields on the trading portfolio and higher reinvestment rates on our available for sale portfolio. Total interest expense increased $27 million linked quarter, primarily due to a 45 basis point increase in the average rate of interest bearing liabilities. While those related average balances fell $1.6 billion. The average effective rate on interest bearing deposits increased 39 basis points this quarter.
Average earning assets decrease $534 million compared to the last quarter. Average loans increased $542 million, offset by a $989 million decline in the trading securities portfolio. Average total deposits declined $1.5 billion with materially all of that from interest bearing balances, which was consistent with our expectations given the upward trend in term rates. Net interest margin was 3.24%, a 48 basis point increase linked quarter with the increase driven by 30 basis point increase in net interest revenue spread and the 18 basis point increase in the benefit from non-interest bearing funding sources. With our current asset sensitive position and given expectations for further increases in short term rates, we expect to capture significant benefit in the fourth quarter and into 2023.
Turning to Slide 13. We highlight further our asset sensitive balance sheet position, and expect our performance in a arising rate environment to be similar to that experienced during the last rate hiking cycle from 2015 to 2019. Using our standard modeling, assuming a parallel shift up 200 basis points gradually over 12 months relative to rates as of the end of third quarter, net interest revenue would increase 1.65% or approximately $24 million. Over the following 12 months, the total benefit increases 4.15% or $67 million. Asset sensitivity for the first 12 months would be reduced too an approximately neutral position in a flattening scenario where short term rates increase 200 basis points while long end rates increase 100 basis points. I'll provide more color in a moment when I talk about our specific forward guidance for net interest margin.
On Slide 14, you can see that our liquidity position remains very strong. Our loan to deposit ratio increased to 59.8% this quarter from 55.1% at June 30th, due to the combined impact of a $2.2 billion decrease in total deposits and a $499 million increase in loan balances this quarter. Our sufficient on balance sheet liquidity has us well positioned to meet future increasing customer loan demand. Our capital position remains strong as well with a common equity Tier 1 ratio of 11.8%, well above regulatory threshold. With such strong capital levels we once again were active with share repurchases, optimistically repurchasing 548,000 shares at an average price of $91.20 per share in the open market. We expect to be active in repurchasing shares during the fourth quarter.
Turning to Slide 15. Year-over-year total expenses increased only 1.2% with a 3.1% decline in personnel expense and a 7.8% increase in non-personnel. Linked quarter total expenses increased $21 million. $15 million of the linked quarter increase comes from personnel expense with $10 million of that increase related to deferred and share based compensation. These categories are influenced by market valuations and forecasted annual results compared to peer group and can move around quarter-to-quarter. Linked quarter cash based incentives also grew $4.9 million due to strong sales results in our Commercial and Wealth segments. Non-personnel expense increased $6 million linked quarter with professional fees and occupancy the primary drivers. Project related [spend] drives the professional fee increase while the increase in occupancy is seasonal related to annual common area maintenance charges combined with increased utility costs. Given that we have met or exceeded the guidance for key balance sheet and earnings drivers that we identified for 2022, the forecast and assumptions we’ll focus on the next 15 months. We are not ready to provide more formal assumptions for 2023 as that remains a work in progress for us. But I do think the following key assumptions may be helpful, given our level of earnings outperformance over the last couple of quarters. We currently expect mid to upper single digit annualized loan growth. Our geographic footprint remains very strong and may outperform in this cycle given the high level of business migration from other markets and the role energy plays in our footprint. We have a strong base of core deposits and expect demand deposits to remain relatively stable, while our loan to deposit ratio moderates up overtime.
We follow the forward curve when modeling our rate outlook. Currently, we are assuming a 75 basis point increase in November and December and a 25 basis point increase in February of 2023, before the Federal Reserve pauses. We believe the margin could migrate to 3.50% or modestly higher in the first half of 2023 before stabilizing and declining modestly due to the lag effect of deposit betas. The September net interest margin was 3.35%. Operating revenue is very diverse and some components are market dependent and even countercyclical, but we expect total operating revenue should be in a range between the second quarter '22 and the third quarter '22 reported amounts. We expect expenses to rise over the next five quarters but not at the level of revenue growth. This will allow the efficiency ratio to stay below 60% with changes driven up or down by the revenue mix in each period. Our allowance level is above the medium of our peers and we expect to maintain a strong credit reserve with a less certain economy. Current asset quality is very strong and does not foreshadow material deterioration, but this could change as the economic outlook becomes more clear. We expect to continue our quarterly share repurchases. I'll now turn the call back to Stacy Kymes for closing commentary.
Thanks, Steven. Third quarter results are very exciting and an excellent example of how the Bank's operating model is positioned for earnings growth in this environment. We are experiencing benefit from our asset sensitive balance sheet position, consistent quarterly loan growth across our geographic footprint and across business line sectors, as well as our diverse fee base. We are positioned to benefit from various market conditions. Rising short term interest rates had a negative impact on our mortgage related business, but have significantly benefited our lending areas and related margin. Markets have negatively impacted our assets under management but volatility has benefited our trading and commodities businesses. Offering a broad selection of products to our client base is producing the top line revenue growth we set our focus on at the beginning of the year. We expect the Federal Reserve to continue their aggressive inflation fighting strategy with further increases to short term interest rates, which will drive further margin expansion and revenue for the Bank.
Credit quality continues to be very stable and better than pre-pandemic levels, though it is likely unsustainable. We continue to maintain a combined allowance above the median of our peers as we institutionally believe in strong credit reserves in less certain times. We are in a stage where the outcome of investing in strong banks versus trading the sector are expected to matter. Banks with thoughtful growth, a diverse business mix, meaningful core deposits and proven credit discipline should outperform. We are well positioned, however, the economy should shift, favorable or negatively, in the coming year. With that, we are pleased to take your questions. Operator?
[Operator Instructions] Our first question comes from Jared Shaw with Wells Fargo Securities.
Maybe starting with the loan growth outlook. Can you share some of the, I guess, assumptions for what you think utilization rates do with that and then maybe more broadly, what you're hearing from your customers in terms of sentiment and desire to, I guess, invest new money in this environment, and whether that's more broadly across the whole group or even more specifically on the energy side?
Let me try to address both of those, and if I miss something, just feel free to follow up. But first of all, as we look at utilization, that really didn't factor significantly into how we were thinking about the next 15 months in terms of the loan guidance. Clearly, from my perspective, enhancement in utilizations would accelerate the loan growth. We're not seeing really material changes in utilization at all. We're still well below where we were broadly pre-pandemic. So there's material opportunity for moving loan growth even higher than what we estimated if utilization rates begin to move up meaningfully.
As it relates to customer and borrower sentiment, I would tell you in my career, I can't remember a different time in terms of what you saw and heard on the financial media versus what we're talking about with our customers. Our customers are as optimistic about their business that I've heard them talk about in many, many years. I don't know if it's our footprint. We have a really fantastic growth footprint with Texas and Phoenix and Denver as kind of core growth markets for us. I don't know if it's the energy piece where I think we are benefiting from a bit higher energy, sustained higher energy prices in our core markets of Colorado, Texas, Oklahoma and even in Mexico. But borrower sentiment is very, very positive. They are clearly dealing with labor and supply chain issues. But those seem to be getting better and they are able to price and have margins in their business that help them accommodate those higher labor costs or supply chain challenges. So there is a real shifting sentiment I think between what we hear from people on a ground who are running their businesses every day in our markets versus perhaps what the financial press would have us believe is a near recession or recessionary environment.
And then maybe shifting to the outlook on margin. What are some of the assumptions around beta through the cycle now that you have seen sort of a good quarter of real life example. And as we look at DDA, when you say that's stable, are you saying stable as dollars or stable as a percentage of the mix, I guess, and how does that factor into the beta outlook?
The latter part of your question there about deposits and demand deposits, I think we are talking about as a percentage. I mean, we may expect a little bit of deposit attrition in the fourth quarter just like we did in the third. DDAs have been very stable. They are staying around 41% of our entire deposit base. I think that we feel like that will be the -- what will play out in the fourth quarter. Deposit betas for the third quarter were around 26%. They'll probably migrate a little higher in the fourth quarter, maybe towards 40% or will range somewhere through the cycle at the end of the year, maybe between 30% and 40%. So you put this in context, we have got 60% to slightly below 60% loan-to-deposit ratios. So we've got room here to be opportunistic if we want to be. Our funding levels are great. But certainly we will need to migrate, I would say, betas a little bit higher with the market.
I think there is all this focus on deposit betas and understandably so in this cycle, but our loan betas have been pretty strong given the variable nature of our loan portfolio. And so we are really benefiting from that as well as controlled deposit costs as we move forward, which is why we were able to guide related to our margin to a much higher level than we are today. We ended September higher than we did for the quarter and we are optimistic about the margin as we move into 2023.
Our next question is from Brady Gailey with KBW.
I just wanted to start with some average earning asset balances. I mean, if you look the bond book and the trading security portfolio, but those have been trending down year-to-date. Do you expect those to be close to stable or do you think those balances will continue to somewhat trend down as loans grow?
Well, the AFS portfolio is down, but part of that is because we shifted some to held to maturity last quarter. So that maybe part of what you're seeing there. I really don't expect AFS securities to go down. In fact, I think we've got pretty decent opportunity with mortgage spreads moving into the fourth quarter and part of next year. We may actually grow that portfolio a bit, which I think would serve two purposes. I think we'd get some good spread on that portfolio, but we would also use that to migrate back a little bit more towards neutral as we get towards perhaps the end of the rate hike cycle. On the trading portfolio, Scott can talk a little bit about that. But it was down on average but the margin's really good in that business. So Scott can talk a little bit about the outlook for balances and the outlook for that business.
I think that Steven summarized it well. I think that in terms of our trading balances, I think they've stabilized and we were able -- really our team has done a great job on the desk, particularly in the mortgage space, of maximizing the opportunities as day to day volatility has widened bid ask spreads. So we've been able to produce results with lower balances there as kind of the institutional market is waiting for the settling period where rates have kind of set, begin to settle in. So to the extent that we get a little bit more predictability in the outlook for rates and the Fed moves, I think what we'll see is we'll settle into maybe a little bit higher balances on that as the market settles out a bit. But right now with the volatility that's there, we think that it's advantageous for us to be a little bit more opportunistic and take advantage of that volatility on various days.
Scott, you might also comment, I mean, the diversity of that trading revenue has changed a bit over the last 12 months.
So when you look at the total revenues generated from our securities portfolio on our institutional desks, clearly, mortgage backed securities continue to command about a 20% of our total revenue mix on the trade desk side. But we've seen our municipal activity consistently inching up to where it's now edging in at roughly 16% of that revenue mix. So we've seen increase there. And we've seen, for obvious reasons, the emergence of treasury volumes and treasury activity as all investors across the size scale are taking advantage of the rates and the yields available in the treasury market itself. So that mix has continued to evolve and change. And as Stacy mentioned, we've dominated that mix in the mortgage back security side for years. But as that sector has experienced challenge and lower volumes and flows, we've been able to pivot and take advantage of other spaces and other sectors in the fixed income market.
And then my second question was just on capital. Your common equity tier one is almost 12%. So you guys purely have excess capital. Is there a target in mind that you would like to get that common equity tier one down to? I'm just trying to figure out -- you're pointing us to more buybacks in the fourth quarter. But could buybacks continue at a material pace for the next few years?
I think they could. We don't really have a target that we're shooting for necessarily. There is a lot of factors that go into that. But I was really happy to grow capital this quarter. I mean, we had the earnings of course, but we bought back $50 million of stock, paid a $35 million dividend and supported all of the loan growth, which was around 10% and still grew capital levels. So I'm very happy with that. I'm happy with the levels. It gives us a lot of room, if we want to use some of that capital for buyback in the future, which we will do. So we are staged pretty well from a capital perspective.
And then finally for me just on the reserve ratio, it was up a little bit linked quarter up about 4 basis points. As the economy potentially continues to weaken here, do you expect that ratio to kind of continue to trend higher?
I would say that we will monitor what we think is going on in the economy and make our economic set forecast accordingly. And if it creates more uncertainty or the downside case becomes more viable then it might have an effect on that ratio. But loan growth was the primary driver for it and certainly some on uncertainty, but the asset quality continues to be exceptionally good. And while it maybe unsustainable in a more difficult economy, it's at a level that we feel very comfortable given the size of the reserve that we are well positioned to deal with any issues that might arise from that. So I wouldn't see -- it will depend a little bit on what we see in the economic outlook.
Our next question is from Brett Rabatin with Hovde Group.
I wanted to go back to fee income for a second and just talk about in particular the brokerage and trading, and just thinking about like the -- obviously a really strong quarter in 3Q. Can you just talk about like how you think a sustainable level of that business might be? And maybe how to think about the related compensation that obviously dropped through to personnel?
Certainly, Steven and Scott can discuss any specifics if you have. But I think broadly what we were trying to do with the guidance we provided would indicate that there is lots of categories inside of our non-interest revenue and they move around from quarter-to-quarter. And so providing guidance on specific categories is difficult. But when you start to look at it in total, it's a little easier to guide to. And so we had a strong second quarter. We had a great third quarter on non-interest revenue. And so if you look at the guidance that Steven discussed in his comments, I think that that gives you a really good band of where we think non-interest revenue could be in the coming quarters.
And then wanted to go back you talked about the unsustainable quote level of asset quality, and obviously things are really pristine. I was curious if you had any comments, I noticed there is a straight situation with the West Texas gas -- natural gas situation where it's actually trading at a negative level with some pipeline issues that happen. Does that impact do you think energy in West Texas for you at all?
No. I mean, we certainly have our customers that have -- we have always had good hedge program with them and those temporary market moves do not really impact us at all.
And then lastly for me, I wanted to make sure I understood the commentary around, you're expecting deposit levels to basically be kind of stable from here. But it also sounds like you're expecting to do some securities purchases and fund loan growth. Does the balance sheet, I'm just trying to understand the dynamic of the balance sheet and the margin from here. You had balance sheets shrinkage in the third quarter, but it sounds like you are expecting the balance sheet to grow from here. Is that a fair assessment?
I think that's a fair assessment. I want to go back to your deposit comment. We're not going to keep deposits level. I mean, I do think there will be some attrition of deposits in the fourth quarter, maybe similar to what happened in the third. So that part of the balance sheet will shrink. We'll make that up through some wholesale borrowing source, which we have tremendous liquidity there. And so I think we can continue to grow loans. I think there's an opportunity to grow the AFS portfolio a little bit. I'm not prepared to give guidance on that yet until we put our budget together. But I do think we're migrating towards that decision where we could add some AFS mortgage back securities and gain some spread there. So I would say yes, the balance sheet probably does grow with continued loan growth. Adding to AFS, to Scott's point, maybe there's an opportunity on the trading portfolio side to move that a little bit higher over time. So we will be able to fund that very effectively with other borrowing sources other than deposit growth.
It certainly seems like your balance sheet's better positioned than most in this environment. So congrats on the quarter.
Our next question comes from Jennifer Demba with Truist Securities.
The asset quality looks terrific. I'm wondering if you're seeing anything within the portfolio, any negative migration trends in any segments that are worth noting? I mean, I think the only thing we've seen at all in the last quarter or two is maybe charge offs with some companies who've had supply chain issues. Just wondering what you're seeing in your portfolio?
We really are seeing nothing systemic. We've had a one off here, one off there in the third quarter, but we still reduced our overall problem loans in the quarter. And the outlook for the fourth quarter isn't much different in terms of that migration. So we're going to -- we'll continue to monitor it. We think our credit culture has been highly disciplined for quite some time. So that as we go into one of a potential recession, our customers are better situated to withstand it and not see material losses. So we're very comfortable with it right now. But we're certainly watching it to see if we see anything occur that's more systemic.
Our next question comes [Technical Difficulty]
Hey, Rob. We got to cut-off that. Matt, are you there, Matt Olney? I think he was reaching out to you for a question and we have got a cut-off here from the operator.
Ladies and gentlemen, we apologize for the technical difficulty. We do have an additional question coming line of Matt Olney with Stephens. Please proceed with your question.
Just want to circle back on a few topics. And just to clarify the slide you have on the forecasts and the assumptions. When you mentioned the operating revenues should be in the range between 2Q and 3Q, I think you are talking about on the fee side, the commissions and fees. Am I interpreting that right?
That's correct. Yes, fees and commissions.
And I think that slide more or less says not just fourth quarter, but kind of the next five quarters, so fees and commissions in that range the next five quarters. Is that right?
Yes, I mean, it's a little harder to go out that far. But certainly, we are comfortable with that second quarter result, third quarter result somewhere in that range. If you look at composition of all of our fee businesses, we feel like we can achieve somewhere in that neighborhood. So that's what we are trying to say there.
I get it, it's tough to forecast some of those lines. And specifically one of those lines has been doing very strong more recently. The syndication fees have been running pretty hot the last few quarters. Any change of strategy or any big driver of why that's been so strong over the last few quarters?
No, I don't think it's really a change of strategy. It's somewhat a maturing of the effort that we have undertaken for the last several years. And it's a top of mind effort across all our business lines and the increased focus has given us the opportunity to build that business and we expect to continue to do so.
Yes, it's a very strong team. And I think Marc is right. It's how we have matured this business. Clearly, our energy presence and our ability to lead larger deals and how we are viewed in the marketplace as an energy lender has helped us, but really the growth there has been widespread.
And then changing gears on the securities portfolio on the AFS. Steven Nell, last quarter you pointed us towards those yields could be moving quite a bit higher and we definitely saw that in the third quarter. It sounds like spreads remain favorable. Could we see even more improvement as we look towards the fourth quarter there?
We could, yes. We are getting $150 million or so a month, $450 million to $500 million of cash flow a month. Currently, we are reinvesting some of those dollars at 5%. So you could definitely see that portfolio yield migrate higher in the fourth quarter.
And then going back to the funding side, I think what I heard you say was deposit balances were down in the third quarter, but you think that could level out in the fourth quarter. And so the incremental funding here, I guess, would be more on the wholesale brokerage side. Is that right?
Well, I still believe deposits will move down in the deposit balances in the fourth quarter. I just think that will happen. 50% of our deposits are on the commercial side. The other 50% are split pretty evenly between consumer and wealth. And there will be -- with higher rates coming, there will be more opportunity for some of those clients, I'm sure to move to something off our balance sheet. So we'll turn towards with balance sheet growth on both loan and the security side, we’ll turn towards other sources of funding, which we have an abundance of that capacity on as a company.
We’ve reached the end of the question and answer session. I'd now like to turn the call back over to Steven Nell for closing comments.
Well, thanks again everyone for joining us. If you have any further questions, you can call me at (918) 595-3030 or email at ir@bokf.com. Everyone have a great day. Thank you.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.