BOK Financial Corp (BOKF) Q4 2020 Earnings Call Transcript

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BOK Financial Corp (BOKF 0.35%)
Q4 2020 Earnings Call
Jan 20, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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] As a reminder, this conference is being recorded.

I would now like to turn the presentation over to Steven Nell, Chief Financial Officer for BOK Financial Corporation. Please proceed.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

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 Scott Grauer, Executive Vice President of Wealth Management, who can expand on our wealth management capabilities that have led to another fantastic quarter for the company.

PDFs of the slide presentation and fourth quarter press release are available at our website at bokf.com. We refer you to the disclaimers on Slide 2 pertaining to any forward-looking statements we make during the call.

I'll now turn the call over to Steve Bradshaw.

Steven G. Bradshaw -- President and Chief Executive Officer

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 pre-tax, 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.

Starting on Slide 4, 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, represents an EPS growth of 1% in a linked quarter basis and up 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 summers mortgage boom, but mortgage margins remain strong relative 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 us well in the fourth quarter, as it did for all of 2020.

Turning to Slide 5, loan growth remained a challenge this quarter as our borrowers understandably reduced 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 into 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.

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Thanks, Steve. Turning to Slide 7, period end loans in our core loan portfolio were $21.3 billion, down 1.8% for the quarter. As Steve mentioned, quality borrowers reduce leverage in times of economic uncertainty, which has been the case with our borrowers again this quarter. Looking at the energy portfolio, balances contracting 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 existing borrowers continue to pay down 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 in the energy business as 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 and balances from our hospital systems client, who demonstrate a strong credit profile. Looking forward, we remain confident in our healthcare portfolios 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 continued refinement of our processes has significantly reduced the time required per application. The largest hurdle in recent months has been clients reluctance to apply for forgiveness, as they were hopeful of legislative action that would relax the requirement.

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 client 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 confident and resulting capital investment will return in 2021.

Turning to Slide 8, you'll see an updated view of the loan deferrals status across the BOKF portfolio, 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 have 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 8, 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, convenient stores, religious organizations, and colleges.

Turning to Slide 9, 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 redetermination 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 allocation 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. Nonaccruing loans increased slightly by $14 million this quarter, primarily due to an increase in nonaccruing commercial real estate loans. Potential problem loans totaled $478 million at quarter end, down significantly from $623 million on September 30.

Looking ahead from a credit perspective, there is still lot of uncertainty in the current environment, so it remains 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 basis points to 50 basis points. We will continue to set our reserve at the appropriate level as we always have. We are 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 turn the call over to Steven to highlight our NIM dynamics, fee revenues, and the important balance sheet items for the quarter. Steven?

Steven E. Nell -- Executive Vice President, Chief Financial Officer

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. Outsized contributions from 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 to net interest revenue from fee revenue from our brokerage and trading businesses quarter.

Net interest margin was 2.72%, down 9 basis points from the previous quarter. I provided on the slide a roll-forward 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 dilutive impact to net interest margin, but increased 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 of cash flows from our available for sale securities portfolio continued 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 repricing of the AFS portfolio and the limited room to move interest bearing deposit costs down further will apply pressure to net interest 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 was largely from the record volume and timing of settlement of mortgage-backed trading securities, which resulted in the customer transaction revenue being earned and accounted for as 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 lengthy, 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 waived 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 in 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 of the 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 reskill 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, it should be noted that the increased incentive compensation related to record annual production in our wealth management and mortgage businesses more than account 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 $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 expenses increased $3.3 million due to loss contingencies and recruiting expenses. Net losses and expenses on repossessed assets decreased $5.1 million, largely due to the writedowns 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, opportunistically buying back 665,000 [Phonetic] shares at an average price of $63.82 per share in the open market. Additionally, we authorized 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 environment.

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 toward 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 basis points to 85 basis points.

As we noted, we had success during the quarter, driving deposit costs further, and are well below the low point reach during the last near-zero rate environment. We believe there could be room to push deposit cost a bit lower, but we feel we are nearing bottom. The combination of securities, reinvestment at lower rate 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 disciplined 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 multi-year 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 will maintain our current quarterly cash dividend level.

I'll now turn the call back over to Steve Bradshaw for closing commentary.

Steven G. Bradshaw -- President and Chief Executive Officer

Thank you, Steven. We offered the share that we have intentionally built BOK Financial to mitigate downside risk and earnings volatility in times of economic uncertainty. Disciplined credit underwriting throughout the cycle and investing in growth for our 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 areas 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 with select fee business segments, along with the return of lending opportunities as our clients' confidence rebounds with the economy, motivate and to resume capital investments. While 2020 proved that early year economic forecasts can change abruptly, it also showcased 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 are pleased to take your questions. Operator?

Questions and Answers:

Operator

Thank you. We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your question.

Ken Zerbe -- Morgan Stanley -- Analyst

Hi, thanks. Good morning guys.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Good morning.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning, Ken.

Ken Zerbe -- Morgan Stanley -- Analyst

I 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 this something that is going like, should we -- is this sort of the right level for both brokerage and for NII, like -- I am just trying to think about how to -- how this all comes together? Thanks.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Yeah, Ken, this is Steven. I think it was market dynamics. There was record trading in Ginnie Mae securities from all of the summer time 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 to 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.

Ken Zerbe -- Morgan Stanley -- Analyst

Got you. Okay. So, in -- I guess by definition, should we also -- so if that keeps your NII elevated, does that mean that we should also assume brokerage and trading revenue stay at this much more depressed level in the first quarter? And then, it sounds like you said, since this is only going into the first quarter, then maybe things go back to normal in second and third, is that just the right way of thinking about the dynamics?

Steven E. Nell -- Executive Vice President, Chief Financial Officer

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 recorded as net interest income or fees. And in this particular quarter, it 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 report it, in which bucket.

Ken Zerbe -- Morgan Stanley -- Analyst

Got it, OK. I think that makes sense. And then just one last question for me. Excluding all the trading securities, obviously your guidance for the net interest margin is lower. Sounds like you expect very modest loan growth, may be picking up in the back half of the year. On average it sounds like NII, ex the trading, should sort of be under fairly sizable amount of pressure. I was wondering if you can kind of quantify the impact on NII based on those factors? Thanks.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Well, I'll tried to give you a little bit more of a core kind of NIM number at start off with in the year, would put that on the chart at about 2.67% [Phonetic]. Again, It's hard to say how much that will migrate down, I do think it will, because of the repricing of our available for sale securities portfolio. I mean, if you look at the chart 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, again in 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 is significant room to offset some of the AFS securities repricing. So, I just think there is 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 in the second half of the year is going to certainly help stabilize the margin and bring it back board.

Ken Zerbe -- Morgan Stanley -- Analyst

All right, thank you very much.

Operator

Our next question comes from the line of Brady Gailey with KBW. Please proceed with your question.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Hey, thanks. Good morning, guys.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

I just had a follow-up on the inventory at trading securities. So, I mean, we're up at $7 billion now that -- looking back for 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?

Scott B. Grauer -- Executive Vice President, Wealth Management; Chief Executive Officer BOK Financial Securities, Inc.

Hi, this is Scott. So, I would -- when you look at the trend throughout 2020, that built from $4.6 billion end of Q1 to $6.2 billion [Phonetic] to $6.2 billion [Phonetic] 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.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

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 toward seeing some modest loan growth here?

Scott B. Grauer -- Executive Vice President, Wealth Management; Chief Executive Officer BOK Financial Securities, Inc.

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 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 run-off in the first quarter, then hopefully we begin 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 the core loan 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 half of the year. I think we feel very confident about assuming we get stability and then growth in the energy book.

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

All right, that's helpful. And then finally for me, a lot of people are expecting 2021 to be a fairly active year related 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?

Steven G. Bradshaw -- President and Chief Executive Officer

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 may be present themselves throughout '21, primarily prioritizing those things that would be within the footprint [Phonetic].

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

All right, great. Thanks, guys.

Operator

Our next question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.

Peter J. Winter -- Wedbush Securities -- Analyst

Good morning.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

Peter J. Winter -- Wedbush Securities -- Analyst

So, obviously you guys are doing really well on the credit front and with the outlook -- the economy improving, can 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 toward the end of this year?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Peter, this 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 a January 2020 outlook, that was our day one adjustment amount at 1.2%, and that would seem likely if all those things occur. Of course, there is still a lot if's in that forecast.

Peter J. Winter -- Wedbush Securities -- Analyst

Okay. And then, Steven, if we 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?

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Yeah, I mean, it would. Certainly when you remix you're earning assets away from securities and more into the loan balances, certainly it's going to help support NIM going forward.

Peter J. Winter -- Wedbush Securities -- Analyst

If I could just sneak in one more question. Mortgage banking had a record year this year, its 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 slowing?

Steven G. Bradshaw -- President and Chief Executive Officer

Yeah, Peter. This is Steve. I think our outlook in '21 is 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 when purchase market kind of kicks in a little stronger after that. I do think that there has 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, etc., that in 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 and that we have relatively small market share with good upside in all those markets and I think mortgage better reflects that today than it probably did three years to five years ago.

Peter J. Winter -- Wedbush Securities -- Analyst

Okay. Thanks for taking my questions.

Steven G. Bradshaw -- President and Chief Executive Officer

Thanks, Peter.

Operator

Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your questions.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi, good morning, everybody.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

Jared Shaw -- Wells Fargo Securities -- Analyst

I guess, sticking with the provision reserve level, what type of qualitative overlays did you use this quarter on the energy book or in the overall book? And did that really help, I guess slow the reserve releases? And as we go through the year, we should expected that qualitative overlay reduces to get back to that lower allowance level?

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Yeah. Again, this is Marc Maun. Yes, we took a hard look at the qualitative overlays with regard to our reserves. We certainly 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% it 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 and CRE and in smaller businesses that may or may not have masked 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.

Steven G. Bradshaw -- President and Chief Executive Officer

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 could change.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay. That's great 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?

Steven G. Bradshaw -- President and Chief Executive Officer

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 are doing those deals. We're leading many of those deals. So, we see good opportunity there, its 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.

Jared Shaw -- Wells Fargo Securities -- Analyst

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?

Steven G. Bradshaw -- President and Chief Executive Officer

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.

Jared Shaw -- Wells Fargo Securities -- Analyst

I mean, should we be thinking, if you were just over $2 billion the first time, around $1 billion, or too early to say?

Steven G. Bradshaw -- President and Chief Executive Officer

It's too early to say. I mean, we're -- and even just yesterday there was new rules coming out that are governing the program from the SBA. So I think its awfully hard to prognosticate with any level of clarity at this point.

Jared Shaw -- Wells Fargo Securities -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Okay, thanks. Good morning, guys.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning, Jon.

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Question for you, Stacy, on Slide 7. 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?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

I think all of the loan categories. I mean, I think if you get -- if you roll this thing forward 12-months, you get 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 back up 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 -- they're 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 times to three times GDP, if you will, which is kind of how we have benchmarked it over a longtime 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. 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 states economies are likely to grow faster than the national economy.

Steven G. Bradshaw -- President and Chief Executive Officer

I'll add one thing to that, it is 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 if that improves that we will see increased utilization on the lines of credit etc., which will contribute to that.

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Good. You've knocked out couple of my questions, but I guess, which is get the -- 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 in pipelines building?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

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 begin 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.

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Okay, and then just one quick one on credit, on the energy NPLs that you've shown on Slide 9, what is the path to resolution with some of those credits, and particularly against the lower end of the charge-off range that you're expecting for the full year?

Stacy C. Kymes -- Executive Vice President, Corporate Banking

We'll work through those as each one will work themselves out. I think that what I would tell you is a couple of things. Number one, I think, we're very comfortable with the net charge-off guidance we provided, which kind of is the low end of that historical range. I think, look at what we charged off in 2020, that would be a decent benchmark to try to be in '21. 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 than 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 out 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 de-stable and even slightly rising price environment really help mitigate those. And I think we're optimistic about that.

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Got it, OK. Thank you.

Operator

Our next question comes from the line of Matt Olney with Stephens. Please proceed with your question.

Matt Olney -- Stephens Inc. -- Analyst

Yeah. Good morning, and thanks for taking the question. I wanted 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?

Steven E. Nell -- Executive Vice President, Chief Financial Officer

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 addresses personnel, it 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 certain -- a lot of detailed work to try to maintain that expense discipline.

Matt Olney -- Stephens Inc. -- Analyst

Okay. And then on the buyback. I'm curious what the appetite is for the buyback, now that the stock prices are well above levels where you executed in the third quarter -- or fourth quarter, excuse me.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Yeah, I mean, we were happy 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 will buy at this level and we won't buy it below that or above that. So, I think we look at it relative to our capital levels, relative to the 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 good opportunity.

Matt Olney -- Stephens Inc. -- Analyst

Okay. And then on the PPP, you may disclose if I just missed it. What was the amount that you recognized of the PPP fees in the fourth quarter? And what's the remaining level of fees to recognize from here?

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Yeah. So, we recognized in the fourth quarter $3.3 million in net interest revenue from PPP and $13.5 million in fees, so a total of $16.8 million on the fees side, and we have about $25 million roughly remaining on the fees side.

Matt Olney -- Stephens Inc. -- Analyst

Got it. Okay, thank you guys.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Thank you.

Steven G. Bradshaw -- President and Chief Executive Officer

Thank you, Matt.

Operator

Our next question comes from the line of Gary Tenner with D.A. Davidson. Please proceed with your questions.

Gary Tenner -- D.A. Davidson & Co -- Analyst

Good morning. Questions largely were answered. But just as it relates again to the loan growth side of things, I understand, obviously a stabilization in the energy book with certainly positive for loan growth next year or this year. In terms of the general business and I think this was asked or 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?

Steven G. Bradshaw -- President and Chief Executive Officer

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 portfolios is, keep in mind, most of our C&I portfolio is borrowing base-driven. So, it's account receivable, inventory and 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 is an opportunity for growth there organically just from higher utilization as those receivable and inventory balances begin to come back up as people grow again, then that's an opportunity for growth organically. But I 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.

Gary Tenner -- D.A. Davidson & Co -- Analyst

Okay. And just briefly on the energy book, you talked about, there are new deals out there that are you participating in or leading, can you give us a sense for the quarter of originations in that segment versus pay downs?

Steven G. Bradshaw -- President and Chief Executive Officer

I don't have that today. Certainly, the pay downs 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 led and received fee revenue associated with that. So, we're optimistic, the real 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 first quarter or second quarter, but I think we can see it from here.

Gary Tenner -- D.A. Davidson & Co -- Analyst

All right, thanks for taking my questions.

Steven G. Bradshaw -- President and Chief Executive Officer

Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back over to Mr. Nell for closing remarks.

Steven E. Nell -- Executive Vice President, Chief Financial Officer

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 [email protected]. Have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Steven E. Nell -- Executive Vice President, Chief Financial Officer

Steven G. Bradshaw -- President and Chief Executive Officer

Stacy C. Kymes -- Executive Vice President, Corporate Banking

Scott B. Grauer -- Executive Vice President, Wealth Management; Chief Executive Officer BOK Financial Securities, Inc.

Marc C. Maun -- Executive Vice President, Chief Credit Officer

Ken Zerbe -- Morgan Stanley -- Analyst

Brady Gailey -- Keefe, Bruyette & Woods -- Analyst

Peter J. Winter -- Wedbush Securities -- Analyst

Jared Shaw -- Wells Fargo Securities -- Analyst

Jon Arfstrom -- RBC Capital Markets Corp -- Analyst

Matt Olney -- Stephens Inc. -- Analyst

Gary Tenner -- D.A. Davidson & Co -- Analyst

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