BOK Financial Corp
NASDAQ:BOKF
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BOK Financial Corp
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Greetings and welcome to BOK Financial Corporation Fourth Quarter 2020 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]
I would now like to turn the presentation over to Steven Nell, Chief Financial Officer for BOK Financial Corporation. Please proceed.
Good morning, and thanks for joining us. Today our CEO, Steve Bradshaw, will provide opening comments, and Stacy Kymes, Executive Vice President of Corporate Banking, will cover our loan portfolio and credit metrics. Lastly, I'll provide details regarding net interest income, net interest margin, fee revenues, expenses and our overall balance sheet position from a liquidity and capital standpoint.
Joining us for the question-and-answer session are Marc Maun, our Chief Credit Officer, who can answer detailed questions regarding credit metrics and also Scott Grauer, Executive Vice President of Wealth Management, who can expand on our wealth management capabilities, which have led to another fantastic quarter for the company.
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 two pertaining to any forward-looking statements we make during the call.
I'll now turn the call over to Steve Bradshaw.
Good morning, and thanks for joining us to discuss the fourth quarter and full year 2020 financial results. In summary, despite a year punctuated with hurdles, it would be difficult to overstate the flexibility and persistence our organization demonstrated this past year. A record $786.4 million in pretax pre-provision revenue for 2020 proved once again the strength of our diversified revenue strategy and the stability it provides during times of economic stress. More importantly, it underscores the breadth of our service capabilities and the value that we provide our customers.
Start on slide four, full year net income was $435 million or $6.19 per diluted share. Looking specifically at the fourth quarter, net income was a record $154.2 million or $2.21 per diluted share, represented EPS growth of 1% in a linked quarter basis and that more than 40% from the same quarter a year ago.
The key items that drove our success this quarter were starting another outstanding broad-based earnings quarter from our wealth management business, continued elevated production from our mortgage team, though at a decreased level from the last two quarters as seasonality and modest margin compression materialized following the summer's mortgage boom, but mortgage margins remain strong relevant to the first half of 2020.
No credit loss provision was needed this quarter. And in fact, the improving economic outlook combined with improving credit trends allowed us to release $6.5 million of our reserve. And lastly, the proactive measures we took to control expense levels at the outset of the pandemic in March served as well in the fourth quarter as it did for all of 2020.
Turning to slide five, loan growth remains a challenge this quarter as our borrowers understandably reduce leverage in the challenging economic environment. Stacy will cover this in more detail momentarily, but we do believe growth opportunities will resume in 2021 as the economy continues to rebound.
Deposit growth remains excellent up over 3% linked quarter and up over 30% from the same quarter a year ago. Those figures do not include the second wave of stimulus enacted late in 2020, so we anticipate this trend to continue in the near-term.
Assets under management or in custody were up over 11% for the quarter, topping $90 billion for the first time in our company's history on very strong new client sales and favorable market impact. We'll dive a little deeper in the record year our wealth management team produced in 2020, as well as a shift of some brokerage and trading fee revenue to net interest revenue due to an increase in trading securities balances and settlement timing in the fourth quarter. Needless to say we are incredibly proud of our wealth management division.
I'll provide additional perspective on the results before starting the Q&A session, but now Stacy Kymes will review the loan portfolio and our credit metrics in more detail. I'll turn the call over to Stacy.
Thanks, Steve. Turning to slide seven, period end loans in our core loan portfolio were $21.3 billion, down 1.8% for the quarter. As Steve mentioned, quality borrowers reduced leverage in times of economic uncertainty, which has been the case with our borrowers again this quarter. Looking at the energy portfolio, balances contract to 6.7% for the quarter and 12.7% for the year. While commodity prices have improved considerably over the last few months, sourcing new deals sufficient to offset paydowns in the current environment remains a challenge as the existing borrowers continue to paydown debt to reduce leverage.
Despite these factors, we remain optimistic for lending and energy related revenue growth heading into the New Year as we continue to support our customers in this space. Remember our diversified revenue strategy allows us to look at clients holistically. And the energy business is far more than just lending as witnessed by the record level of energy hedging revenue this year. Treasury, retirement plan services and personal wealth management are all businesses that continue to grow and serve our energy client base.
Healthcare balances were down slightly this quarter as growth in senior housing loans was offset by a decrease in hospital system loans. For the year, though, healthcare loans were up 9% year-over-year, primarily due to growth imbalances from our hospital systems clients who demonstrate a strong credit profile.
Looking forward, we remain confident in our healthcare portfolio's long-term growth and credit outlook and expect it to be a growth leader once again after the health and economic conditions migrate to a more normal state. In the near-term, it should be pointed out that the second stimulus bill passed last month, like the original CARES Act has multiple revenue enhancement measures for both hospitals and skilled nursing facilities as they manage through the current environment.
Paycheck Protection Program or PPP balances declined nearly 20% as just over $470 million of balances were forgiven in the quarter. The forgiveness process initially was more complex than we believed it would be at the beginning of PPP in April of 2020. However, additional guidance from the small business administration or SBA clarifying our requirements and continue refinement of our processes has significantly reduced the time required per application. The largest hurdle in recent months has been client's reluctance to apply for forgiveness, as they were hopeful of legislative action, that would relax the requirements.
The recent Economic Aid Act will provide substantial forgiveness process relief, especially for those clients with existing PPP loans of less than 150,000, which represents more than 70% of our total PPP volume. We will participate in the newest round of PPP with largely the same strategy of focusing on our existing client base. This will allow us to leverage additional resource capacity to meet our existing clients' needs in an extremely timely manner, thereby increasing client engagement, loyalty and retention.
Looking ahead, we are optimistic in our outlook for loan growth for 2021. The speed and shape of the broader economic recovery will be the determining factor in restarting loan growth. However, we are well-positioned to serve clients and believe confidence and resulting capital investment will return in 2021.
Turning to slide eight, you'll see an updated view of the loan deferral status across the BOKF port. As you can see, just 0.6% of total loans remain in a deferral status of any type, down from 1.2% last quarter. Of the loans that remain in deferral status, very few 12 loans totaling $24 million are in extended deferral. This increasingly small portfolio of loans is closely monitored, but short-term the credit quality has continued to migrate positively. Long-term outcomes will be dependent on the pace of economic recovery and the impact of additional fiscal stimulus.
Also on slide eight, we've again compiled the list of loan segments the markets originally considered more exposed to ongoing economic headwinds due to the pandemic. This group of loans is highly diversified with over 550 loans for an average loan size of less than $3 million. The $574 million retail portion of this portfolio remains the most vulnerable today, and we'll continue monitoring these exposures closely.
That said the retail portion of our loan portfolio has held up better than expectations, as our borrowers have proved resilient. Significant portions of this list were originally considered more vulnerable are performing very well, including gaming, convenience stores, religious organizations, and colleges.
Turning to slide nine, you can see that credit quality has improved significantly since the first half of 2020. Not only were we able to release a portion of the loan loss reserve, but we also saw significant credit quality improvement in our energy portfolio as we completed our borrowing base re-determination process in the quarter. The rebound and near term stability in commodity prices resulted in reduced criticized and potential problem loan numbers, along with our needed reserve allocations to energy loans.
Net charge-offs were down from $22.4 million or 37 basis points annualized in the third quarter to $16.7 million or 28 basis points annualized this quarter. 2020 net charge-offs totaled 32 basis points, well within our company's historical loss experience. The combined allowance for loan losses totaled $389 million or 2% of outstanding loans at quarter-end, excluding PPP loans. The combined allowance for loan losses attributed to energy was 3.61% of outstanding energy loans on December 31.
Non-accruing loans increased slightly by $14 million this quarter, primarily due to an increase in non- accruing commercial real estate loans. Potential problem loans totaled $478 million at quarter-end, down significantly from $623 million on September the 30th.
Looking ahead from a credit perspective, there's still a lot of uncertainty in the current environment, still remain difficult to predict too far out. That said, based on what we know today and assuming our economic forecast is in line as we advance, we believe 2021 net charge-offs will remain on the lower end of the range of our historical average of 30 to 50 basis points. We will continue to set our reserve at the appropriate level as we always have.
We're generally positive about the credit outlook in 2021, allowing us to begin a reserve release this quarter. Once we have more clarity around the speed of COVID-19 case count reductions, vaccine distribution, and a broad resumption of regular economic activity in 2021, we could potentially see additional opportunity for reserve release this year.
I'll now I'll turn the call over to Steven to highlight our NIM dynamics, fee revenues and the important balance sheet items for the quarter. Steven?
Thanks, Stacy. With a second consecutive record net income quarter, our diversified revenue strategy is clearly providing a differentiated outcome in this low rate environment. Outsize contributions for our wealth management team, coupled with diligent expense management contributed to our success this quarter, mitigating the impact of the current low rate environment.
Turning to slide 11, fourth quarter net interest revenue was $297 million, up more than $25 million from last quarter. The increase relates largely to net interest revenue earned on a $5.1 billion increase in trading securities from our brokerage and trading customer transactions. I'll describe in a moment the shift in net interest revenue from fee revenue, from our brokerage and trading business this quarter.
Net interest margin was 2.72%, down 9 basis points from the previous quarter. I provided on the slide a roll-forward of net interest margin and net interest revenue from the third quarter to the fourth quarter, highlighting more significant items.
PPP fees were higher in the fourth quarter as more loans were forgiven and CoBiz discount accretion was lower this quarter from an elevated level in the third quarter. The shift in brokerage and trading customer transaction revenue from fees to net interest revenue this quarter had a diluted impact to net interest margin, but increase the dollars recorded in net interest revenue. Other infrequently occurring loan fees and interest recoveries are also noted in the slide to emphasize a core net interest margin of 2.67%.
Reinvestment at cash flows from our available for sale securities portfolio continues with the portfolio yield declining 13 basis points to 1.98%. Additionally, we continue to have success driving interest bearing deposit costs down from 26 basis points last quarter to 19 basis points this quarter.
While there are many moving parts to consider, including the continued recognition of PPP interest and fees, the combination of continued re-pricing of the AFS portfolio and the limited room to move interest bearing deposit costs down further, we'll apply pressure to net margin in future quarters.
Turning to slide 12, you can see the impact of the shift of brokerage and trading fee revenues to net interest revenue that I mentioned earlier. This is largely from the record volume and timing of settlement our mortgage-backed trading securities, which resulted in the customer transaction revenue being earned and accounted for its interest versus fees.
Additionally, energy hedging fees, while a record for the year, were down $5 million linked quarter from third quarter's record level. When viewed holistically, our wealth management team put together another outstanding quarter, with total revenue of $131.5 million, off slightly from the third quarter, but still represents the third highest quarter on record, and for the full year surpassed $500 million in total revenue for the first time.
Transaction card revenue was down 6.7% this quarter, primarily due to the lower transaction volumes driven by slowing consumer spending. That said our TransFund team had a banner year for new financial institution customer contracts in 2020, which should help mitigate the decline we saw this quarter. While conversion times are lengthily, we expect to see a rebound in 2021 consistent with improvement in economic activity.
Fiduciary and asset management revenue increased $1.9 million this quarter, primarily driven by the increase in fair value of assets under management related to both sales activity and favorable markets. Deposit service charges were flat for the quarter though, down $15.7 million for the year as we waive certain fees in the midst of the pandemic.
Mortgage banking revenue decreased $12.7 million linked quarter due to a combination of fourth quarter seasonality and some margin compression, following elevated margins due to industry capacity constraints the past few quarters. That said, this was still a top 10 quarter of all time for our mortgage business, which is significant given the typical seasonal declines in the last quarter of the year.
In total, 2020 mortgage banking revenue was a record for the company, increasing $74.8 million from last year and acting as a significant offset to margin pressure as a protracted low rate environment. Although, not included on slide 12, I will note that the net economic changes in fair value of mortgage servicing rights and related economic hedges was positive $6.5 million for the quarter.
Though fees and commissions were down this quarter, partially due to the shift in revenue geography on the income statement, it is important to remember the unprecedented production levels from our fee businesses the past few quarters. These businesses operating at record levels has clearly been fundamental in the success we've had this year. We will continue to allocate capital and re-skilled employee resources to key fee areas to maximize our revenue opportunities.
Turning to slide 13, expense management remains prudent, with total expenses mostly flat linked quarter. While total expenses were up 4% year-over-year, should be noted that the increased incentive compensation related to record annual production in our wealth management and mortgage businesses, more than accounts for the total increase in expense this year.
Personnel expense was down linked quarter by just over 2%. Incentive compensation decreased $2.1 million as a $5.3 million increase in combined cash based and deferred compensation was more than offset by a $7.4 million decrease in stock-based incentive compensation from last quarter's elevated level. Additionally, there was a $1.4 million decrease in employee benefit expense due to the typical seasonal decline in retirement costs and payroll taxes.
Non-personnel expense was up 2.5% from the third quarter. We made a $6 million charitable contribution to the BOKF Foundation in the quarter, as we continue to focus on the communities we serve and the extreme needs created by the pandemic.
Business promotion expense increased by just over $1 million largely due to increased advertising expense, while other expense increased $3.3 million due to loss contingencies and recruiting expenses.
Net losses and expenses on repossess assets decreased $5.1 million largely due to the write-downs on a set of oil and gas properties and retail commercial real estate properties in the third quarter. Insurance expense also decreased $1.8 million, while mortgage banking costs dropped $1 million.
On slide 14, our liquidity position remains very strong, given the continued inflow of deposit balances. Our loan to deposit ratio is now 64% compared to 68% at the end of last quarter, providing significant on balance sheet liquidity to meet future customer needs. We expect to see a continued inflow of customer deposits in the near term as the end of year stimulus measures were not reflected in December 31 deposit figures.
Our capital levels remain healthy as well with a common equity Tier 1 ratio of 12%, well ahead of our internal operating range. With such strong capital levels we, once again, were active with share repurchase, optimistically buying back 665,000 shares an average price of $63.82 per share in the open market. Additionally, we authorize an increase in our quarterly cash dividend in the fourth quarter to $0.52. This is the 15th consecutive year of dividend increases for the company as we continue to reward our shareholders through varying types of economic environments.
On slide 15, I'll leave you with a general outlook for the near and mid-term as we look into 2021. We believe loan growth will slowly accelerate in tandem with the broader economic recovery this year. While mainly weighted towards third quarter and fourth quarter, we think we can grow loans in the low single digit range for the full year of 2021 excluding the impact of any PPP activity.
Our available for sale securities portfolio, which is largely agency mortgage-backed securities yielded 1.98% during the fourth quarter. Given the sustained low rate environment prepayments could reach approximately $800 million per quarter. We can currently reinvest those cash flows at rates around 75 to 85 basis points.
As we noted, we had success during the quarter driving deposit costs further and are well below the low point REITs during the last near zero rate environment. We believe there could be room to push deposit costs a bit lower, but we feel we are nearing bottom. The combination of securities reinvestment at lower rates and minimal room to further lower deposit costs will pressure net interest margin in coming quarters.
Our diverse portfolio of fee revenue stream should continue to provide some mitigating impact to overall revenue pressures being felt in our spread businesses. We expect most fee revenue categories to grow modestly in 2021, with the exception of brokerage and trading and mortgage businesses as the 2020 record year in those areas will be difficult to replicate.
We will continue our discipline approach to controlling personnel and non-personnel costs with growth budgeted at low single digits in 2021. Our focus will be holding the line on manageable expenses without sacrificing multiyear technology commitments to improve customer service and our competitive position.
If the economy continues to improve and we get further oil price stability in 2021, additional loan loss reserve release is possible. As I mentioned a moment ago we feel good about our capital strength. We will continue looking for share buyback opportunities and we'll maintain our current quarterly cash dividend level.
I'll now turn the call back over to Steve Bradshaw for closing commentary.
Thank you, Steven. We often share that we have intentionally built BOK Financial to mitigate downside risk and earnings volatility in times of economic uncertainty. Discipline credit underwriting throughout the cycle and investing in growth for fee-based businesses has been a lasting point of pride for our company for many years. 2020 was the ultimate test of that strategy.
The pressures of such a challenging year should be detrimental to the area's potential of most regional financial institutions, but I'm very proud to say that we delivered a differentiated outcome for our customers, our communities, our employees, and our shareholders.
Looking ahead to 2021, we expect that strategy to continue to deliver solid results. We see an opportunity to further our market share will select fee business segments along with a return of lending opportunities as our clients confidence rebounds with the economy, motivate them to resume capital investments.
While 2020 proved that early year economic forecast can change abruptly, it also showcase the value of our diversified revenue model along with the experience and leadership of our management team, as we worked through the challenges brought by the pandemic.
With that, we were pleased to take your questions. Operator?
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]
Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.
All right. Great. Thanks. Good morning guys.
Good morning.
Good morning.
Just wanted to make sure I fully understood what was happening with the additional trading securities in the NII line. I mean, is this something that you guys initiated? And is it something that is going -- like should we -- is this sort of the right level for both brokerage and for NII? Like, I'm just trying to think about how to -- how this all comes together. Thanks.
Yeah. Ken, this is Steven. I think it was market dynamics. There was a record trading in Ginnie Mae securities from all of the summertime activity. And we facilitated those trades with our clients and those securities settled on our balance sheet more so than some of the previous securities that we traded with our clients. And so, we earned that transaction revenue through net interest income versus the fee revenue. So, it was a market dynamic shift for the most part, with our trading securities up over $5 billion on average in our earning assets for the quarter.
So, I don't know, Scott may know what in the future may occur. But I would suspect that a lot of those trading securities will be maintained in that kind of fashion at least going into the first part of this year.
Gotcha. Okay. So -- and by -- I guess by definition, should we all -- so if that keeps your NII elevated, does that mean that we should also assume brokerage and trading revenues stay at this much more depressed level in the first quarter? And then it sounds like you said since it's the only going into first quarter, then maybe things go back to normal in second and third. I mean, is that just the right way of thinking about the dynamics?
Well, I really think the fee revenues -- excuse me -- will stay down at this level. I really think the trading activity with our clients will show up more in -- at least in this -- like this quarter in NII. But what we do in the brokerage and trading is look at the entire revenue stream together. We don't really care if the transaction is recorded as net interest income or fees. And in this particular quarter, it's shifted more to the NII side. And that may be what occurs I would suspect at least the first part of the year maybe on into 2021, we just follow kind of how it settles with our clients and how we record it in which bucket.
Got it. Okay. I think that makes sense. And then just one last question for me. Excluding all the trading securities, right? Obviously, your guidance for the net interest margin is lower. Sounds like you expect very modest loan growth, maybe picking up in the back half of the year. On average, it sounds like NII, X the trading, should sort of be under the fairly sizable amount of pressure. I was wondering if you can kind of quantify the impact on NII based on those factors. Thanks.
Well, I tried to give you a little bit more of a core kind of NIM number to start off with in the year. We put that on the chart at about 2.67%. Again, it's hard to say worth how much that will migrate down. I do think it will because of the re-pricing of our available for sale securities portfolio. I mean, if you look at the charts in -- that we provide, you can see a pretty natural decline in AFS securities yields. I think it was 18 basis points a couple of quarters ago, 13 basis points this quarter. It's going to continue to roll down.
Now, we've been very successful in pushing down our interest bearing deposit costs. And again this quarter. In fact, it was 19 basis points average for this quarter. And I think the month of December was down to about 17 basis points. Can we continue pushing that downward? Perhaps we can. But I don't think there's significant room to offset some of the AFS securities re-pricing.
So, I just think there's a natural kind of migration downward of net interest margin. Of course, we focus more on net interest revenue than anything else. And to your point, loans beginning to grow we hope sometime in 2021, particularly the second half of the year is going to certainly help stabilize the margin and bring it back forward.
All right. Thank you very much.
Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.
Hey, thanks. Good morning guys.
Good morning.
I thought to follow-up on the inventory of trading securities. So, I mean, we're up at $7 billion now that. Looking back over the last couple of years, that's range in between $1.5 billion to $2 billion, and we're now at $7 billion. So, it sounds like it's going to stay around $7 billion in the near term, but longer term, does that normalize back to that $2 billion-ish level? Or is this here to stay?
Hi, this is Scott. So, I would -- when you look at the trend throughout 2020 that built from $4.6 billion in the Q1 to $6.2 billion to $6.2 billion at the end of Q3, and then the $7 billion, a little bit over $7 billion in the fourth quarter. So, we look for that to remain at a higher level that will obviously depend upon the total volume and flow inside of the mortgage markets themselves. But we don't look at that reverting back as you indicated to those low levels that you're referencing.
Okay. All right. That's helpful. And then if you look at loan balances ex PPP, it seems like for the last three quarters or so, those kind of core loan balances have been down in between kind of 5% to 8% annualized. I think this quarter was down 8% linked quarter annualized. What gives you the confidence that you can see a reversal away from the shrinkage and towards seeing some modest loan growth here?
Well, I think the biggest piece of that is you look annualized energy loans, which are one of our largest segments of lending is down almost 13% year-over-year and linked quarter annualized, it was down six points -- 6.7%. So, not annualized, just linked quarter. So, if you get stability with those energy balances, which we think we're close to, you're going to get some paydowns. I think, it maybe -- we may see a little bit more runoff in the first quarter then hopefully we began to plateau and grow from there.
We are seeing new deals there. But it's just not outpacing the level of deleveraging or paydowns that are happening within that book. But a lot of good activity that we've gotten out of the work that we did around the PPP program, we think we're well positioned there. But I think you see -- you need economic growth. And I think you also need some of this liquidity to work its way off the balance sheet before you really get to core long growth. But I think the numbers that we gave you in terms of low single digit loan growth for the year back weighted to the second out of the year, I think we feel very competent about, assuming we get stability and then growth in the energy book.
All right. That's helpful. And then finally for me. A lot of people are expecting 2021 to be a fairly active year relating to bank M&A. I know BOKF has been selectively active in acquiring banks and fee income businesses over the years. How do you think -- do you think BOKF will be active in M&A this year?
Well, this is Steve. I think your assumption is accurate that we're going to see more M&A opportunities. If you go back in time when you see low rate environment and revenue headwinds, that obviously leads to a desire among some sellers to be open to conversation. So, that's an opportunity that we see coming as well. And we'll continue to look at selective opportunities that maybe present themselves throughout the 2021, primarily prioritizing those things that would be within deferral [ph].
All right. Great. Thanks guys.
Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.
Good morning.
Good morning.
So, obviously, you guys are doing really well on the credit front and with the outlook, the economy improving. Do you see that the reserve to loan ratio could get back to the January 1 level, which was about 1.2%. Do you see it heading that way towards the end of this year?
Peter, this is Marc Maun. If I'm looking at that, what I'm seeing is if you see continued improvement and you see the economic outlook improve, you see pandemic cases drop dramatically and the vaccine results be achieved along with the energy prices continuing to be stable, like we've seen in the recent months. And essentially you recover back to January 2020 outlook, that was our day one adjustment amount is 1.2%. And that would seem likely if all those things occur. Of course, there's still a lot of ifs in that forecast.
Okay. And then, Steven, if you get that loan growth in the second half of the year, would that help -- do you think lead to more of a stable margin closer in the second half of this year?
Yeah. I mean, it would. Certainly when you remix your earnings assets away from securities or more into the loan balances, certainly it's going to help support NIM going forward.
Okay. If I can just sneak in one more question. Mortgage banking had a record year this year. It's expected to decline a little, but mortgage will still be strong. As we look out into the outer years, have you seen that this business has -- you've taken market share, and so therefore, you should still see growth above like a 2019 level, even with the mortgage banking business slowly?
Yeah. Peter, this is Steve. I think our outlook in 2021 is a mortgage kind of in a steady state fourth quarter, probably pretty good proxy. Although, we'll see some -- probably an increase in refi activity in quarter one as we typically do, and purchase market kind of kicks in a little stronger after that.
I do think that there's been market share gain for us, because we've invested more outside of Oklahoma. We've got a much stronger group of producers in Colorado and Texas and Arizona, New Mexico, et cetera, that -- and Kansas City that have really paid off for us. So, that's where our expansion has been. And I think it's kind of a mirror in my mind to the company in that we have relatively small market share with a good upside in all of those markets. And I think mortgage better reflects that today than it probably did three to five years ago.
Okay. Thanks for taking my questions.
Thanks Peter.
Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your questions.
Hi. Good morning, everybody.
Good morning.
I guess, sticking with the provision reserve level, what type of qualitative overlays did you use this quarter on the energy book or on the overall book? And did that really help, I guess, slow reserve releases and as we go through the year, we should just expect that that qualitative overlay reduces to get back to that lower allowance level?
Yeah. Again, this is Marc Maun. Yes, we took a hard look at the qualitative overlays with regard to our reserves. We certainly -- and did look at more reallocation than we did reduction in certain areas, energy obviously improved. And we did reduce that reserve down to 3.4% from the 4.2% was last quarter. But we still have concerns in certain other areas where stimulus has been a key factor in a number of areas, particularly in CRE and smaller businesses that may or may not have mass some issues that could occur. And so, we want to make sure we're thoughtful about how we're looking at the performance of the credits in the short term, and then evaluate them on a quarter-by-quarter basis, depending on how economic activity evolves.
But your general thesis is on point. And I think our view is that given where we are in the cycle, it was premature to do much more than what we did, but certainly as we get more visibility into the economic recovery, the pace of vaccinations and see declines in case counts and improvement in economic activity that that could change.
Okay. That's a good color. Thanks. And then, looking at the energy book, do you really -- do you think that energy prices need to go higher from here to drive additional growth? Or is it really just absorbing that existing liquidity that's out there and once that's absorbed that can start driving organic growth?
We're -- I mean, we're in a decent spot here. I mean, if you think about oil particularly that kind of between 50, 55 is not a bad spot to be in, in terms of kind of being stable and certainly in the Permian, that's an area that people continue to grow and do that profitably. But from our perspective, this is a price area where we -- once we can find kind of a stable spot, then I think we can grow from here. There are new deals being done. We're doing those deals. We're leading many of those deals. So, we see good opportunity there. It's just -- at some point the pace of deleveraging from energy borrowers will slow and we'll really see all the hard work that our energy team is doing to grow that really come to the surface.
And I think we're going to see that. I don't know if that's first quarter or second quarter, but I think that we are going to see that in 2020 -- 2021.
Okay. And then just finally for me. The second round of PPP has started. How should we think about the potential size of that for you as well as the potential maybe average loan size compared to what we saw in the first round?
Well, just by nature of it, it's going to be lower. I mean, I think the maximum loan size generally speaking is about $2 million or caveats around revenue declines and things like that. So, it won't be to the size that the original PPP program was. We certainly are going to be active, participating, working very hard to help our customers who can avail themselves of that to participate in that. But we don't foresee that it will be the size of the original program as much because of the constraints around loan size as other factors.
I mean, should we be thinking if you were just over $2 billion the first time around $1 billion or too early to say?
It's too early to say. I mean, we're -- even just yesterday, there's new rules coming out that are governing the program from the SBA. So, I think it's awfully hard to prognosticate with any level of clarity at this point.
Okay. Great. Thank you.
Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.
Thanks. Good morning guys.
Good morning, Jon.
Question for you, Stacy, on slide seven. You touched on loan growth, maybe picking up later in the year, and it sounds like a big factor in that is energy. But can you touch a little bit more on if we roll this thing forward 12 months, what you think the biggest contributors to growth might be in terms of the other loan categories?
Well, I think, all of the loan categories. I mean, I think if you get -- if you roll this thing forward 12 months, you've got stable commodity prices. You're going to be growing energy mid single digits, maybe a little bit better. Our healthcare book is really doing well, really proud of that team. You saw -- as backup just a hair there this quarter, but that was really from some large paydowns in health systems loans, which -- given their liquidity situation that was there really masked some really good growth that we have there in senior housing.
And our C&I businesses, I think, are poised to do very well. I think one of the real benefits that we got from the original PPP is how strongly we executed. And so, we've really been able to turn that into new treasury relationships. And we believe that once the market kind of looks normal again, that's going to really create some opportunities for us on the C&I side, because of the level that, which we executed and the ability to call a banker and have a relationship in times of need and have somebody you can call and help you out.
And so, we're optimistic that once we get to normal that growing at a pace, that's kind of two to three times GDP, if you will, which is kind of how we kind of benchmark it over a long time, horizon is very reasonable for us with the mix of business that we have.
We also have a great footprint. I mean, we're not -- we're in some footprint states that are going to grow faster than the rest of the United States. So, if you think about Texas and Arizona and Colorado, we're well-positioned from a geographic perspective to disproportionately benefit from growth as those core state's economies are likely to grow faster than the national economy.
I'll add one thing to that. It's just from the C&I perspective is that you did see reduced utilization as a big part of the decline in economic activity. And we would expect that improves, that we'll see increased utilization on the lines of credit, et cetera, which will contribute to that.
All right. Good. You knocked up a couple of my questions there. But I guess the -- which is good. But just in general, aside from energy, are you seeing signs of life in the footprint? I would guess it is happening, particularly in some of those better markets, but are you seeing the early signs of optimism and pipelines building?
I think it's -- I think -- I mean, I think until we begin to work some of this liquidity off, I don't think you're going to see huge C&I loan growth. We're seeing some in healthcare around senior housing. But really until you began to work off some of the core liquidity that's really built up among our borrowers, you're going to struggle to see that in the near-term. So, I think it's premature from our perspective. We have not yet seen kind of a bubbling up of economic activity that would lead us to believe in the near-term. There are core C&I loan growth imminent from our perspective.
And then just one quick one on credit. At the energy NPLs that you show on slide nine, what is the path to resolution with some of those credits and particularly against the lower end of the charge offerings that you're expecting for the full year?
We'll work through those as each one will work themselves out. I think that -- what I would tell you is a couple things. Number one, I think we're very comfortable with the net charge-off guidance we've provided, which kind of the low end of that historical range. They get look at what we charged often in 2020, that would be a decent benchmark to try be in 2021.
I think the difference too is we've got a rising commodity price on those energy loans. And so trying to resolve and work out energy loan in a stable and rising price environment is a totally different story then when prices continue to fall. And so, I think we're relatively optimistic that as we work through those that the guidance that we provided you will be one that we can certainly achieve.
And certainly our hope is to outperform that, because I think the environment is providing us a bit of an opportunity to work some of those outs in a way that's to our benefit. There will be losses that come from those non-performing loans. But the question is, will the environment stable and even slightly rising price environment really helps mitigate those. And I think we're optimistic about that.
Got it. Okay. Thank you.
Our next question comes from the line of Matt Olney with Stephens. Please proceed with your question.
Yeah. Good morning. And thanks for taking the question. I want to ask about operating expenses and the guidance that you guys put out there. Sounds really good. Trying to keep that to the low single digit growth in 2021. Any more details on how you expect to achieve that. And I want to make sure we're apples-to-apples in the right starting point. I'm looking at $1.166 billion of operating expenses in 2020. Is that right?
Yeah. So, this is Steven. We just worked hard, I think, in our budgeting efforts over the fall and mainly in November, working with each line of business and trying to determine what is the right level of expense and how can we maintain control over that in the face of a little bit more difficult revenue environment. And it comes all across the board. It's -- it addresses personnel and addresses business promotion, spending on IT, we want to maintain because we want to maintain our competitiveness with our products and services that we provide to our clients. But it's just a lot of detailed work to try to maintain that expense discipline.
Okay. And then on the buyback, I'm curious what the appetite is for the buyback now that the stock prices well above levels were you executed in the third quarter -- or fourth quarter, excuse me?
Yeah. I mean, we were happy though of our execution in the fourth quarter. I mean, we bought the shares at about a 25% discount to today's market. We'll look at it closely. And I'm not going to put a price out there that says we'll buy at this level and then we won't buy it below that or above that. So, I think we look at it relative to our capital levels, relative to opportunities for capital and -- but I still think we have an appetite and we have the capital wherewithal to take advantage across the market when we see there is a good opportunity.
Okay. And then, on the PPP, you may have disclosed it, I just missed it. What was the amount that you recognize of the PPP fees in the fourth quarter and with the remaining -- and the level of fees to recognize from here?
Yeah. So, we recognized in the fourth quarter $3.3 million in net revenue from PPP and $13.5 million in fees. So, a total of $16.8 million in the -- on the fee side. And we have about $25 million roughly remaining on the fee side.
Got it. Okay. Thank you, guys.
Thank you.
Thank you, Matt.
Our next question comes from the line of Gary Tenner with D.A. Davidson. Please proceed with your question.
Hi. Good morning. The questions largely were answered, but just as it relates again to the loan growth side of things, I understand obviously a stabilization in energy book would certainly be a positive for loan growth next year or this year. In terms of the general business -- and I think this was asked for answered to some degree, but are you seeing any increase in pipelines there? Are there any pockets geographically where you're seeing activity pick up more than others?
Not particularly, not at this point. I think that the point that Marc made earlier, which I think is the best one on the C&I portfolio is. Keep in mind most of our C&I portfolio is borrowing based driven. So, it's accounts receivable, inventory, those types of things. So our utilization is really pretty low in that, particularly on a relative basis to where we were pre-pandemic.
So, there's an opportunity for growth there organically just from higher utilization as those receivable and inventory balances began to come back up as people grow again, then that's an opportunity for growth organically. But also think, as I've mentioned earlier that the work that we've done with our borrowers and with others who may have multiple banking relationships around the PPP has opened a really opportunistic pipeline for us to grow broadly as well. And so, I think that we're well-positioned once the economy begins to turn around to grow that core C&I portfolio.
Okay. And just briefly on the energy book. You talked about, there are new deals out there, they are participating in or leading. Can you give us a sense for the quarter of originations in that segment versus paydowns?
I don't have that today. Certainly the paydowns far exceeded the new originations, but we've done more than a handful of deals in the fourth quarter that were new deals in the marketplace. And many of those we lead and receive fee revenue associated with that. So, we're optimistic.
I think really question is when do we get to the bottom of the deleveraging? And I think we're close. I just don't know if that's the first quarter or second quarter. But I think we can see it from here.
All right. Thanks for taking my questions.
Thank you.
There are no further questions in the queue. I'd like to hand the call back over to Mr. Nell for closing remarks.
Okay. Thanks everyone again for joining us this morning. We appreciate your interest in BOK Financial. If you have any further questions, please call us at (918) 595-3030. Or you can email us at ir@bokf.com. Have a great day. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.