Greetings. Welcome to the BOK Financial Corporation conference call to discuss the acquisition of CoBiz. At this time, all participants will be in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to turn the presentation over to Joe Crivelli, Investor Relations for BOK Financial Corporation. Please proceed, Joe.
Good morning. Thanks for joining us. Today we're joined by Steven Bradshaw, CEO, and Steven Nell, CFO of BOK Financial, and Steven Bangert, CEO of CoBiz Financial, also joins us from Denver. PDFs of the slide presentation and press release with more details about this morning's announcement are available on our website at www.bokf.com. We refer you to the disclaimers on slides two and three as it pertains to any forward-looking statements we make during this call. I'll now turn the call over to Steven Bradshaw.
Thanks, Joe. Good morning, everyone. We are thrilled to announce the combination with CoBiz. CoBiz has been a bank we've held in very high regard and known very well as a competitor for the past two decades. As we've thought about potential combinations, CoBiz has always been on the top of our list of partners as their business and culture are highly aligned with those of BOK Financial. We see CoBiz as a best-in-class performer. As we turn the deck, beginning on slide four, we believe this is a terrific combination that offers significant benefits on the strategic side, as well as a compelling financial impact while minimizing execution risk. On the strategic side, I've already mentioned the business model and cultural alignment. It bears repeating. CoBiz is just a very good fit for BOK Financial as a merger partner.
The combination enables us to accelerate our expansion in two attractive markets, Colorado and Arizona. The growth profile of CoBiz, paired with the excess funding capacity of BOK Financial, will enhance our growth opportunities going forward while providing incremental lending capabilities in middle market and small business. Finally, we see the opportunity to drive further operating leverage through investments we've already made in the BOKF operating platform. In addition, the financial metrics of this transaction are compelling. It generates an internal rate of return in excess of 20%, well exceeding our cost of capital. EPS accretion is meaningful in 2019 and accelerates to the high single-digit level in 2020. The transaction enhances our return on assets and return on tangible common equity, as well as efficiency ratio and net interest margin. It represents an attractive use of excess capital as we remain extremely well-capitalized post-closing.
While not a primary metric for us, book value dilution and associated earnback are manageable. As it relates to execution risk, we believe this is a lower-risk transaction for a number of reasons. First, CoBiz is a best-in-class performer with a very strong credit profile. We've done very comprehensive and thorough due diligence, and we've known Steven Bangert and his team for many years. We have management continuity alignment. Steven Bangert will be joining our board of directors and will serve as vice chairman of our Denver and Phoenix markets as well. He and other key employees at CoBiz are under contract. In addition, Denver and Phoenix are markets that we already know well and customers that we're very familiar with. In summary, this checks all the boxes as we think about our stated acquisition criteria. Turning to slide five, we outline the transaction.
We are acquiring CoBiz shares in exchange for 0.17 shares of BOKF common stock and $5.70 in cash. This implies approximately a 75%-25% mix of stock and cash. In terms of value to CoBiz shareholders, they receive $23.02 per share, or around $1 billion in the aggregate. We're also pleased to invite CoBiz's CEO, Steven Bangert, to join the BOK Financial board of directors, and again, serve as our vice chairman in Denver and Phoenix. We expect the transaction to close in the fourth quarter of this year. On slide six, just a quick overview of CoBiz for those of you that might be less familiar with the franchise, which again, we believe is a best-in-class performer across all metrics. The company is headquartered in Denver with nearly $4 billion in assets, and CoBiz has posted peer-leading credit metrics, financial returns, and growth.
Their loan mix is commercial focused and aligns very nicely with ours. In addition, CoBiz has good presence in the attractive Colorado and Arizona markets, and their mix and cost of deposits are very attractive, with really no noticeable deposit betas thus far in this interest rate cycle. With that, let me pause a moment, and I'll ask Steven Bangert to add any remarks he'd like to make. Steven?
Okay. Well, thank you, Steven. It's great to know that my team and I will soon be part of the BOK Financial family. We've long admired your company. We know BOK Financial well. Our two financial institutions have partnered on several transactions, and members of our respective management teams have engaged in best practice conversations over the years. In addition, BOK Financial's philanthropic spirit and commitment to the community it serves really mirrors the values that I've worked hard to instill at CoBiz. When it came time for us to consider our path forward, a partnership with BOK Financial was a next logical step. My team and I look forward to rolling up our sleeves and working alongside you and your team to make this a successful transaction for our companies, our clients, our employees, the communities we serve, and of course, our shareholders.
Thanks, Steve. We look forward to having you as an active and engaged director and our vice chairman in Colorado and Arizona. Turning to slide seven, BOK Financial and CoBiz are both largely commercial-focused banks and have shown over a long period of time to have disciplined credit management with net charge-offs among the best of our respective peer groups. We each have specialized lending businesses that we believe differentiate us from peers. On slide 8, with this transaction, we are adding over $2 billion of deposits in Colorado, primarily in the Denver area, and about $800 million in Phoenix. As you know, these are very attractive growth markets with significant business upside.
Additionally, we further diversify the geography of our loan portfolio as shown on the slide. Turning to slide 9, one of the many strengths of CoBiz is their deposit franchise. They have a 12 basis point cost of deposits in the first quarter, and nearly half of their deposits are non-interest bearing. Additionally, on a standalone basis, our loan-to-deposit ratio is 78%, whereas CoBiz is 97%. On a combined basis, that ratio goes to 81%, providing ample incremental funding to support continued growth in our combined markets. On slide 10, we have made meaningful investments in infrastructure over the course of the past several years. This will allow us to move CoBiz onto our system and technology in an efficient manner and eliminate redundant expenses.
As we think about the trajectory of our efficiency ratio and the target that we've previously shared of achieving 60%, this transaction will enhance and potentially accelerate that target. Let me now turn it over to Steven Nell to take you through the financial metrics and impact. Steven?
Thanks, Steve. On slide 11, we lay out the transaction multiples and key assumptions. Based on our closing price on Friday, the transaction represents a 4% premium to CoBiz shares, which is 18.6 times 2018 earnings per share estimates, or 10.7 times 2019 estimated earnings per share when including cost synergies fully phased in, and a 2.9 times tangible book value. We have identified cost savings equal to 40% of CoBiz non-interest expense base and expect to realize 75% of those in 2019 and full realization thereafter. While we have not included them in the financial model, we believe that with our robust portfolio of fee-generating businesses, especially wealth management and treasury management, we'll have ample opportunity to cross-sell new products and services to CoBiz customers. Currently, CoBiz generates about 20% of its revenue from fees versus 43% for BOK Financial.
We have completed comprehensive loan file review and credit due diligence and believe there is a credit mark-to-market of 1.2% of their loan portfolio. We have also identified an additional $27 million of balance sheet net fair value marks to be taken at closing and accreted in earnings over time. You can see the other assumptions on the page, and I would just point out that the merger and integration costs are fully included in our financial impact at transaction close, even though those will be incurred over time. Turning to Slide 12, we lay out the financial impact of the transaction. Our primary metric, cash-on-cash return, results in an internal rate of return in excess of 20%, well beyond our cost of capital of around 9%.
We enhance our return profile by providing meaningful lifts in both return on average assets and return on tangible common equity, and the transaction will result in meaningful GAAP earnings per share accretion in 2019, accelerating to the high single digits in 2020. While we use some of our excess capital for the transaction, we remain significantly above well-capitalized guidelines post-closing. On Slide 13, we address tangible book value dilution and earn back. While we have shared in the past this is not a primary metric for us, we acknowledge the market focus on it and want to provide our views around it. As shown on the top section of this slide, in the actual deal scenario using 75% stock and 25% cash to fund the transaction, tangible book value per share dilution is 8.7%.
Earn back using the crossover method is 5.75 years, and EPS accretion is 9% in 2020. We have overlaid a scenario assuming 100% stock to fund the transaction, and in this scenario, dilution falls to 5.1% and earn back falls to 4.75 years. However, EPS accretion also falls to 6%. As you know, we have more capital than we need for current expected organic growth. As always, we want to deploy our capital in the most effective way possible. We believe this opportunity is the most effective use of our excess capital. For comparison, as you can see on the bottom chart, although repurchasing shares does result in a lower tangible book value per share dilution of 5.3%, the earn back extends to seven and a half years, and EPS accretion is less than half that of the combination with CoBiz.
Taking everything into consideration, we believe all the significant benefits we've already discussed are well worth the anticipated tangible book value dilution and earn back period. Finally, I know people think about earn back in different ways and methodologies. We provided detail for each scenario on the page for tangible book value per share dilution and EPS accretion. As you do the math, you'll see other methods' results are consistent with the crossover method we present here. Slide 14 shows some detail around our due diligence. I'll highlight that in addition to active dialogue and information sharing across all lines of business at the highest levels of our respective organizations, we reviewed 53% of the CoBiz loan portfolio. What we found was consistent with our expectations, that the CoBiz credit culture is closely aligned with ours. It should be a seamless transition for CoBiz's commercial lending team.
With that, I'd like to turn it back to Steve Bradshaw.
Thanks, Steven. We are extremely excited about this acquisition and believe the combined organization will be the premier commercial bank, both in Colorado and Arizona. On slide 15, the left column shows the acquisition criteria we shared with you at our last Investor Day back in June of 2017. In fact, I'm sure anyone who was in the audience that day and thought about banks that might meet those criteria surely had CoBiz in mind. As you can see on the right-hand side of the chart, the acquisition of CoBiz checks all the boxes as an in-market, commercially focused bank with a strong growth profile, a strong customer base that we can provide life cycle solutions to, and with an employee base that can deliver.
The financial metrics of the deal are highly compelling as it is accretive to earnings per share, return on average assets, return on tangible common equity, net interest margin, and efficiency ratio, and delivers a manageable earn back on tangible book value dilution. One other note, we've often heard from analysts and investors that our loan trading volume could potentially deter some investors from buying our stock. With the use of equity as consideration in this transaction, we expect to increase tradable float by about 30%, which we believe will enhance trading liquidity and potentially remove this deterrent. In short, this transaction is a win for BOK Financial shareholders, CoBiz shareholders, and our respective customers, employees, and the communities that we serve. With that, we'll now take your questions.
Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants who are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question today comes from the line of Brady Gailey with KBW. Please proceed with your question.
Hey, good morning, guys.
Morning.
Morning, Brady.
I know CoBiz was guiding to kind of near term loan growth, I think around 6% or so. In your accretion math, what's the assumed loan growth going forward for CoBiz?
Brady, this is Steven. Our projections for CoBiz are really broadly consistent with the Street estimates. We've got healthy loan growth built in, as you just mentioned there. We've got healthy deposit growth built in. We do have some continued net interest margin expansion. We feel like over time, they have the ability to create operating leverage themselves. We do, longer term, believe there'll be some sort of migration back towards more normal credit costs, as would be the same with BOK as well. Those are some general assumptions that we're using in building out our model, and it's, again, very broadly consistent with the Street estimates.
All right. I know there's a lot of overlap between their franchise and y'all's. The 40% cost saves, maybe just give us a little color on some of the larger components that make up that cost save number.
Yeah, I'm happy to do that. Steven again. What I think makes this possible is we've spent a lot of money here at BOK ourselves, really upgrading our infrastructure, working through some technology platform areas, and really strengthening our back office. When you take CoBiz and overlay with us, we feel like we've got a really good platform to absorb that activity in a big way. Where we see the cost synergies arriving out of this transaction is largely from systems integration, technology platform that we've got, back office personnel, and of course, management. Those are the key areas. Of course, additionally, we'll rationalize the kind of real estate that we need to support the positions going forward. That's the broad categories that we feel like we can get the 40% cost synergies.
All right. Just to be clear on the fee income side, I know CoBiz is running at about half of the level that y'all are. Their fee income's around 20%, y'all I think is in the mid-40s. Getting CoBiz from 20% up towards the BOKF level, that transition was not included in the EPS accretion?
That's correct. We know we have significant opportunity there. When you look back at some of our previous acquisitions, we bought a lot of banks over the years that had a much lower fee revenue percentage than what BOK has, and we've been able to migrate that higher over time. We just felt like we didn't need or want to build that in in our pro forma model at this point. Clearly, there's exceptional opportunity there going forward. With our broad-based product set in wealth management, treasury management, mortgage, all of those areas, we feel like there's good opportunity there for us to sell those services into CoBiz customers.
Lastly for me, just on the capital front, this deal helps deploy some of your excess capital. How do you think about the capital base going forward? You guys will still have excess capital, but is there a ratio that you focus on, and is there a level that longer term you'd like to get capital down to?
We operate in a kind of a range of capital. There's not one specific ratio that we say we're going to always try to take our capital down to. As I'd mentioned in past calls, we had $several hundred million of available capital to deploy that I believe is excess. This is an outstanding opportunity to use part of that cash that we have on the balance sheet and that cash capital. Even after post this transaction, we'll still have pretty good capital levels and I would say some excess to perhaps look at other non-bank type deals. Of course, we want to get this one closed and integrated, but we'll still have enough capital available in the post that activity to look for opportunities. We always build in enough capital for organic growth because that's key for us.
No specific percentage that we're driving towards, but just staying very opportunistic about how we use that excess.
Got it. Thanks for the color, guys.
Thank you.
The next question is from the line of Michael Rose with Raymond James. Please proceed with your question.
Hey, good morning, guys. How are you?
Morning.
Morning.
I think previously you guys had talked about the cost of going over $50 billion at around $50 million. Obviously, this is a step to get you closer. You still have some room, but you had previously talked about doing some potentially larger deals. With this one, obviously, it is going to take some time to integrate. How should we think about future deals for BOK going forward? Could we expect to see potentially George Kaiser's ownership drop below 50% if given the right circumstances? Thanks.
Michael, this is Steve Bradshaw. We've been working on this deal with CoBiz prior to that reform of Dodd-Frank being passed. We didn't view that as a barrier or restriction. This is obviously a significant deal for us and very much attractive or large enough to make it worthwhile and attractive to us. That said, that threshold moving, I think, really does allow us to look at potentially larger partners going forward. It would have to check all the same boxes that CoBiz does in terms of really looking at infill for the most part and being a significant alignment, especially from a credit perspective for us to find it attractive. Yes, I think it's reasonable to assume that we'll be looking at potential opportunities that might even be larger than this transaction.
As far as Mr. Kaiser, he'll see his ownership position drop to about 54% here. George has been steadily diluting himself since he bought the bank in 1991 when he had 99%. He's always been consistent in saying if it has the right cash-on-cash return metrics and the right EPS accretion opportunity, then he's certainly supportive of capital deployment up to and including taking himself below 50% for that right opportunity. George is always active in our capital deployment decisions, and he was in this case, and he would be going forward.
That's helpful. You talked about some of the fee income opportunities. We did see another acquisition in Colorado. Did that play into this in terms of the timing at all around this deal? Maybe can you talk about on the corporate commercial side, they had a higher loan deposit ratio, obviously, but what type of business change would you expect from the combination of the two, i.e., would you be going after larger loan opportunities given the combined franchises?
This is Steve Bradshaw again. The other transaction in the market really didn't impact this at all. We have great respect for that organization as well. We've always thought that the alignment with CoBiz was ideal for us and for customers of both entities. We've known Steve Bangert and his team for the better part of 15 to 20 years. This is something that we've always had a high degree of interest in. I think the opportunity is as you describe. I think we'll see an opportunity to expand lending relationships with existing CoBiz customers using our larger balance sheet to be able to do that.
As Steven noted, we have a significant almost outsized wealth management effort for the organization, and Denver is actually one of the largest markets for us, and Phoenix is one that we've poured a lot of growth resources into. We would expect good opportunities there, both on the institutional side as well as the consumer/private bank opportunities there. Treasury services is an area that we think we can bring some additional product capabilities to the table as well. I think all of those are things that we'll work on to make sure that we well integrate the CoBiz Financial organization and arm the many strong relationship management staff of CoBiz Financial, arm them with the expanded products that BOK Financial brings to the table. We're excited to do that, and I think they'll be excited to have that expanded capability as well.
Okay. That's great, color. Maybe just one last quick one from me. You guys have previously talked about a sub 60% efficiency ratio. I haven't run the math yet, but how much more quickly with this deal, once fully phased, do you think it helps you get there?
This is Steven Nell, it does help us. Mr. Bradshaw set a goal for us to, within 3 years, move ourself to 60% or below. If you do the math behind this, I think it does accelerate that. I don't know what quarter or what exact point it crosses, but it certainly contributes towards achieving that goal and accelerates, we think, the timeline to achieve the goal a bit.
Okay. Thanks for taking my questions, guys.
Got it. Thank you.
The next question is from the line of Kenneth Zerbe with Morgan Stanley. Please proceed with your question.
Great. Thanks. First question is just a really easy one. Bottom of slide 11, I want to make sure I didn't misunderstand how you say this, but when you say you had the $61 million of merger and integration costs, it's fully accounted for in the transaction, I just want to be clear. Whatever is at the close is in the transaction, it sounds like the $61 million, at least in theory, should be after that, so it's not included, it's not, quote, "fully accounted for." Am I thinking about that right?
Well, what we said is that we took those costs immediately at close. Now there are some of those that will spill out a little bit into 2019. Just as an example, there are certainly some employee retention type dollars that we would expect to spend out into 2019 as we continue to move towards integration and systems conversion. We took them all up front on the model, but we do think there'll be some that spread out. What we're trying to do is get this thing approved and closed in the fourth quarter, well before the end of the year. Then we'll cross year-end and try to integrate this in the early part or mid part of the first quarter.
We think we can begin to get all the synergy benefits of this in place in 2019, and that's why we picked up 75% of the synergies in 2019. Of course, full synergies on a run rate basis in 2020. Hopefully that helps with what you're asking there.
Maybe I'll ask it a little more directly. How much is going to hit the income statement after deal close in terms of the total $61 million?
From a financial modeling standpoint, we took it all in.
Correct.
From a GAAP perspective, again, of the cost synergies that we feel will come about, some of this $61 million will occur before year-end, and there'll be some that spills over in the first quarter. I can't tell you the exact dollar amount that will fall in the fourth quarter of 2018 and the first quarter of 2019, but you've got the total amount there.
Got it. Okay. Understood. I think it's just how we think about the accretion. Okay, I got you there. Sorry, second question, just going back to the expense thing, the 60% or lower efficiency ratio. You say it's the target. I just want to be really clear. Is that officially your guidance, or is that something you would really like to do? I just want to end up.
No, I don't think we've ever.
clear.
This is the first time we've said, look, in three years, we really want to strive towards achieving a 60% efficiency ratio in our company. What we're saying here is, we think this adding on of CoBiz will allow us to accelerate that or will help us contribute towards reaching that goal in that three-year period. We feel like it will accelerate that a bit. It's not going to be a year or something like that. It may accelerate.
Of course.
A quarter or two, we'll work through those numbers as time goes by and give you more guidance around that as we move across the three-year period.
Got you. Okay, just last question. Can you just detail a little more of your assumptions around the 20+% IRR? The reason I ask that, I think there's sort of an unusually large difference between the return on investment that you're getting using even the 9% EPS accretion versus the 20+% IRR. I think I'm missing something. I'm just hoping you can clarify that. Thanks.
Well, one thing we do a little different than what I've seen in some acquisition IRR calculations is we're only using a 14 times terminal multiple, and I've seen many deals out in the market that are much higher than that, but we use a 14 times terminal multiple. We're assuming Common Equity Tier 1 target of 9.5%, and we're using a long-term growth rate for CoBiz that's very much in alignment with the market of about 8%. That's how we're kind of calculating that IRR over time. I think the important point there is the 14 times multiple.
Versus the 10.7 2019 EPS on a fully phased in basis.
Right.
Okay. Got it. I understand that. Okay, great. Thank you very much.
Thank you.
The next question comes from the line of Jennifer Demba with SunTrust. Please proceed with your questions.
Thank you. Good morning.
Good morning.
Congratulations on the deal. Will you be exiting any meaningful amount of CoBiz credits that may not fit your long-term profile? Will that change your loan growth outlook at all going forward? Thanks.
You know, it does not, Jennifer. This is Steven. We spent a significant amount of time on CoBiz loan portfolios, specifically credit quality, and a high percentage of their credits fit in the kind of line of business in the buckets in which we do business currently. If you look at the similarities of our companies in terms of underwriting standards, they're very close to each other. The credit monitoring that they provide on their credits is very much like what we do. Their asset quality performance over time has been very close to ours. There is not a specific large portfolio inside what they do that we feel like has got to be some sort of exit. Now, I'm sure there'll be some changes here and there among certain categories.
We feel like we should be able to maintain this kind of growth rate across the future without having to step back, as sometimes you see in acquisitions.
Jennifer, this is Steven Bradshaw. One thing I'd add to that is one of our senior credit people, 35-year-plus veteran of BOKF, who's been involved in due diligence on every bank we've either purchased or decided not to purchase over the years, his comment after reviewing CoBiz was that this was the highest quality portfolio that he'd ever been asked to look at. To Steven's point, that's where we see the alignment.
Thanks very much.
The next question is from the line of Peter Winter with Wedbush Securities. Please proceed with your questions.
Good morning.
Good morning, Peter.
I was just wondering, Steve, you've mentioned over the years that certain banks that you are in favor of, that you'd like to merge with, and CoBiz is one of them, and you did it. I'm just curious, why now? How did it come about doing it now?
Well, I think you're right. We've been very selective from an M&A perspective and set our criteria going back to, I guess, June of last year at our investor meeting, where you could overlay CoBiz pretty easily on top of that. That tells you that we've been an admirer of what Steve Bangert and his team have created over a lot of years. In terms of timing, we've really been prepared for quite some time to pursue a transaction here that makes sense. When this opportunity presented itself, we were extremely eager to take a look and obviously excited that we arrived at today, where we could announce it.
From our perspective, our due diligence and getting to know CoBiz and frankly, on the other side, and Steve Bangert doing due diligence on us and getting to know us, that's been going for a number of years, and I think that gives us all a high degree of comfort that this is going to be a strong alignment.
I was wondering if Steven Bangert could add to that as well.
I'll jump in briefly. As Steve mentioned, we've known each other for a long period of time, and during that period of time, I've kind of grown to really admire this franchise and that. I love their long-term approach to planning. That lines up with the way I've managed CoBiz for the last 24 years. A lot of the businesses that we're in overlap each other. Really just the quality of people from the very top, starting with George Kaiser, to Steve and Steven, and throughout the company, I have great admiration for the management team and that. I always thought if we did something, BOK would be the perfect partner for us. I'm delighted that we're here today.
Great. Thanks. Steve, can I just ask one additional question? You guys are very disciplined in terms of having a self-imposed cap on the commercial real estate exposure. I'm just wondering, with the combination of the two, if that would impact the growth outlook on commercial real estate.
That's a really good question, Peter, it does not. The pro forma we put together allows us ample opportunity to continue to grow the commercial real estate portfolio over time, it doesn't impose any additional hindrance and ability to grow that portfolio. We're excited about that.
Okay. My final question, I was just wondering, you've talked a couple of times about the revenue synergies and the opportunities, and I know it's not part of the guidance, but is there any way you can give any type of potential range of revenue synergies in terms of dollars?
Well, not in terms of dollars. As I kind of mentioned earlier, we've had experience driving those products and fee services to other acquisitions that we've had over time. I recall a couple of banks in Texas that we bought
that were below 20% fee revenue. Today, if you were to look at that regional performance of our Texas banks, they're way up in the 30% range of fee revenue. I can't give you a dollar amount, but I know the opportunity is there. We just didn't pinpoint it for this particular transaction. We only really looked at the cost synergies. The opportunity is there, and we, quite frankly, are pretty excited about being able to roll out those fee services, fee products, to the CoBiz customers and to their relationship managers who can sell it, because that's a great opportunity for us.
Thanks, and congratulations on the deal.
Thank you.
Thank you.
Our next question is from the line of Gary Tenner with D.A. Davidson. Please proceed with your questions.
Thanks. Good morning. I apologize if you touched on this, but I jumped on the call a few minutes late. In terms of the specialty lending business lines, particularly healthcare and public finance, can you talk about, I guess, in the healthcare lines of business, how those are similar or different in any ways? On public finance, that CoBiz started a few years ago, maybe any thoughts about expanding that across the BOKF platform?
When we looked at the healthcare book, it aligns very well with the kind of things that we do in our healthcare book. They've got some senior housing type activities, which is pretty core to our healthcare platform. I think the opportunity there is really good, particularly from the fact that we'll bring a bigger balance sheet. I think there's some deals that they do that they probably max out on in terms of their hold levels, and we'll be able to do larger pieces of those deals going forward. The alignment there is very good. Public finance, there's nothing really unusual in that relative to other things that we do. There's some school districts and other things that are inside that portfolio, similar to what we have.
I think they've got a couple of things that they have that we can leverage, I believe, going forward. They got a really good SBA lending activity, which we can leverage. We're excited about their asset-based lending group. It's not a huge amount of dollars today, but it's something we don't really do. We think there's an opportunity to take that platform and really take a look at it and perhaps grow it at a faster pace given our balance sheet. There's some added elements that CoBiz bring that we don't even have at this point that we think provide opportunity for us as well.
Great. Thank you.
As a reminder, to ask a question, you may press star one. Our next question is from the line of Jared Shaw with Wells Fargo. Please proceed with your questions.
Hi, good morning. This is actually Timur Braziler filling in for Jared. I guess my first question, maybe to phrase it a little different to Steven Bangert. Looking from a strategic standpoint, I guess, why now from the timing? We have regulatory easing, we have higher interest rates. What was it about the timing now that made it the right time to partner with a larger institution?
Well, we've thought long and hard about it. It certainly wasn't an easy decision for us. We have a number of challenges in front of us, including some technology spends that historically we haven't had running through our numbers and that. We certainly want to do a transaction when we're performing extremely well, and CoBiz is performing at an extremely high level today in that. It was going to take some significant investments in technology and product development, as well as a couple holes in the management team. We thought that this would be a good time to at least look at a potential partner, and I'm just delighted that we ended up with BOK because as I mentioned before, I've just greatly admired this franchise for many years now.
Okay, great. Just last one for me. Looking at the acquired deposit book, pretty impressive with the overall quality and the ability to keep overall costs low. Anything specific on product set or I guess any kind of additional color that you can provide as to how you've been able to maintain such a low funding cost through this rising rate environment?
Well, I can take that from our end, looking at that deposit base. They have a tremendous client base on the deposit side. Very strong commercial, smaller business deposits that are very sticky. Yeah, they've been industry leading in terms of their performance on deposit betas. That won't last forever, we don't think. We certainly think they'll continue to outperform the broader industry over the near term in terms of their deposits and deposit betas. Longer term in our modeling, we assume that they migrate towards levels that are a little more consistent with the broader industry over the longer term. We don't include that zero beta across our time horizon. We do have it migrating to more industry kind of levels, consistent levels that we think we'll all see as rates continue to rise eventually.
You can't take away the real strength of that deposit book. Quite frankly, we love their lending activity, but the deposit book was something that really attracted us to their franchise over the years as well.
Excellent. Thank you.
Thank you. At this time, I'll turn the floor back to our management teams for closing remarks.
Thank you everybody for joining us today. I'm sure you'll have follow-up questions, please feel free to reach out at 918-588-6898 or send me an email at jkrivelli@bokf.com. Thanks for joining us, and take care.
This concludes today's conference. Thank you for your participation. You may now disconnect your line.