Greetings and welcome to the BOK Financial Corporation's First Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the presentation over to Martin Grunst, Chief Financial Officer for BOK Financial Corporation. Please proceed.

Good morning, and thanks for joining us. Today, our CEO, Stacy Kymes will provide opening comments. I will highlight current capital and liquidity strength. Marc Maun, Executive Vice President for Regional Banking, will cover our loan portfolio and related credit metrics. And Scott Grauer, Executive Vice President of Wealth Management will cover our fee-based results. I will then provide details regarding financial performance metrics for the quarter and comments regarding our forward guidance. PDFs of the slide presentation and first quarter press release are available on our website at bokf.com. We refer you to the disclaimers on slide two regarding any forward-looking statements we make during this call. I will now turn the call over to Stacy Kymes.

Good morning. Thanks for joining us to discuss BOK Financial's first quarter financial results. Starting on slide four. First quarter net income was $162 million or $2.43 per diluted share. The strong results of the first quarter continued the earnings momentum we developed throughout 2022. This quarter was the second highest pre-provision net revenue in our history and would have been the highest absent the extraordinary market volatility impacting the net mortgage servicing results. The strong financial results in the first quarter are a testament to our diverse business model, strong operating geographies, and disciplined approach to risk management that has long been critical to our ability to sustain success. Our peer-leading tangible capital ratio, coupled with our balance sheet liquidity, has served us well over the last 45 days amidst the disruption in our sector. The disruptions and almost unprecedented level of rate volatility in the quarter have demonstrated our ability to both manage critical risks well while also continuing to post strong financial results for our shareholders. The first quarter showed sustained revenue in our noninterest income businesses, continued loan growth, and an efficiency ratio below 57%. While no bank can be totally immune from the macro economy, we believe this is precisely the environment that positively differentiates our diversified business model, robust risk management framework, and strong financial performance. Our interest rate, liquidity, and credit risk management are strong, and we remain focused on increasing top-line revenue in the exceptional growth markets. We had very strong financial results during the first quarter that we're proud to discuss, but today, we'll break our prepared comments into two sections. In the first section, we'll focus on many of the key metrics around capital, liquidity, and deposit diversity that have been in focus for the markets over the last 45 days. In the second section, we will focus on the core results for the quarter, which was the second-best pre-provisioned net revenue quarter in BOKF's history. We want to address the issues that are top of mind early so that the good financial results do not get lost in the noise of the recent market disruptions. Before Marty walks us through the metrics that are top of mind for you, I'd like to make a few broader comments. The failures of Silicon Valley Bank and Signature Bank were idiosyncratic and do not represent broad weakness in the banking sector. Banks are better capitalized than at any time in my banking career. Regional banks specifically play an important role in our communities and in the broader economic activity that cannot be filled by the largest U.S. banks. At BOK Financial, we take managing interest rate, liquidity, and credit risk seriously, and those in risk management roles rightfully create natural tension with those in risk-taking roles to ensure the proper balance exists. We ended the quarter with a neutral interest rate risk posture, a loan-to-deposit ratio of less than 70% compared to a pre-pandemic loan-to-deposit mean in the 80% range, and high capital levels. In fact, as of December 31, our tangible common equity, inclusive of tax-affected unrealized securities net losses, placed us in the top 17% of publicly traded banks with assets greater than $25 billion. By that measure, we ended the first quarter with an adjusted ratio of 8.2% versus 7.4% last quarter. While liquidity and rate risk have come to the forefront, managing credit risk is also a core competency. We are the largest traditional bank that did not participate in TARP during the financial crisis because of our disciplined approach to credit risk management. In good times, we have remained disciplined to the same credit fairway that allowed us to meaningfully outperform the last time there was a credit cycle. We have an internal limit of 185% of Tier 1 capital and reserves for our commercial real estate exposure that we take seriously. While our asset quality levels, including net charge-offs, potential problem loans, and nonperforming loans remain near historic lows, we are building a strong combined reserve for credit losses at 1.37%. Our earnings performance is even more impressive considering our current earnings include meaningful provision expense. Finally, our diverse business model is unique for a bank of our size. While the market focused on net interest revenue and related margins, our operating revenue is very diverse and is a big reason for both the resiliency of our earnings and a key driver of growth for the company. I will now turn the call over to Marty to discuss key aspects of our liquidity and capital before we review the first quarter results.

Thanks, Stacy. Recent events have focused the market on a couple of specific metrics within capital and liquidity, and I will cover our position on each. Within capital, that metric is tangible equity adjusted to include unrealized net losses on held-to-maturity securities. That is in addition to unrealized net losses on available-for-sale securities that are already captured in the TCE ratio. The chart on slide six shows our December '22 adjusted TCE versus that same metric for the top 20 banks in the U.S. At 7.4%, BOKF's level was higher than 18 of those 20 largest banks and notably higher than each of the four largest banks. This level of capital strength, which is easy to see by investors and depositors alike, has made our recent discussions with clients and prospects relatively easy. That same metric for BOKF as of March 31, '23, was 8.2%, which will compare favorably to March 31 levels of peers and very large banks. Our strong TCE levels are the result of our disciplined approach to risk management across the organization, but in particular, within the investment portfolio. We monitor and limit TCE exposure to market rate increases. We maintain a relatively short-duration securities portfolio, which increases flexibility when rates increase. Slide seven shows the duration of both our AFS and HTM securities and the low level of extension risk. In 2020 and 2021, we understood that a portion of COVID era deposit growth was not permanent and reflected that fact in the size of our portfolio. The vast majority of our securities are U.S. government agency mortgage-backed, and 96% can be pledged to secured borrowing sources, which supports liquidity. I will note that we actually have $1.8 billion of securities with an unrealized gain in our AFS portfolio, mostly due to our repositioning of the balance sheet in Q4 of '22. Moving to liquidity, our loan-to-deposit ratio ended the quarter at 69.8%, which is strong relative to peers and our own history. Standing behind the ratio is a diverse deposit franchise as demonstrated on slide eight. Even within our larger industry vertical, the largest single industry concentration is energy at only 7% of total deposits. Corporate Banking represents many industries, all more granular than that. The uninsured deposit metric has received new attention across the industry, and slide eight shows important context for our level. On the surface, our uninsured deposits totaled 57% as of March 31. However, an important adjustment needs to be made to that metric to make it more meaningful. It is appropriate to adjust for collateralized deposits since those are effectively no different than insured deposits. Municipalities, Native American tribes, and certain trust-related deposits are all required to be collateralized. Relative to our asset size, all three of those are large business segments for us and result in aggregate collateralized deposit balances of $4.5 billion or 14% of total deposits. With that adjustment, our effectively uninsured level is $14.2 billion or 44% of total deposits. The next liquidity assessment that is commonly being made is to compare available liquidity sources versus that net effectively uninsured deposit number. Slide nine shows our available liquidity from collateralized sources as a subtotal of $23.7 billion and then a grand total of $27.6 billion, including Fed funds lines. Both those figures exceed the effectively uninsured deposit total of $14.2 billion, which is one more way to conclude that our liquidity position is indeed strong. Three pieces of context on that slide. First, the number we show under the Federal Reserve's new BTFP program represents the incremental secured borrowing capacity we would be able to produce due to the favorable collateral haircuts if we were to move security collateral from FHLB into the BTFP program. Second, the secured borrowing capacity we show for unpledged loans reflects the net borrowing capacity we would get after applying collateral haircuts to those specific loan categories. And third, our Wealth Management business has $17 billion of customer investments held in money market mutual funds, which are not on our balance sheet. We believe a large portion of this could be attracted onto our balance sheet, albeit at a market rate and in some cases, with a form of insurance enhancement. The net result of the disruptive March events to our deposit portfolio was not significant. Total deposit attrition in Q1 of 2023 was the same amount as in Q4 of '22 and generally consistent with our guidance provided in January. For the subset of customers who inquired about how well prepared BOKF is for the present circumstances, the discussions remain very easy due to the strong message we have to share. When I talk about our outlook, you will notice that our forward-looking guidance on late '23 loan-to-deposit ratio has not changed. Lastly, I will note that our wholesale borrowing activity during the quarter was all business-as-usual activity for us. No usage of the Federal Reserve, either the new program or otherwise. We have increased usage of FHLB, although it is still lower than what is historically normal for us. Now let's move to our performance in the quarter. We delivered solid financial results with earnings per share of $2.43 and net income of $162 million. Period-end loan growth was $193 million, and asset quality remains very strong and well positioned for potential headwinds. Now I will turn the call over to Marc to talk more about the loan growth and credit trends.

Thanks, Marty. Turning to slide 11. Period-end loans were $22.8 billion or up 0.9% linked quarter. Total C&I loans were relatively flat with mix shift favoring healthcare and sources. Total C&I loans have increased $1.2 billion or 9.2% year-over-year with growth across all sectors. Commercial real estate loans increased $209 million or 4.5% linked quarter and have increased $714 million or 17% year-over-year. This effectively returns those balances to their 2020 level after experiencing significant paydown activity in 2021. The annual increase was primarily driven by loans secured by multifamily residential properties and industrial facilities. Unfunded commercial real estate commitments decreased 13% linked quarter. We have an internal limit of 185% of Tier 1 capital and reserves to total CRE commitment, more presently at the upper limit of that range. We do expect continued growth in outstanding CRE balances as construction loans fund up. As of March 31, CRE balances represented 21% of total outstanding loan balances, a ratio well below our peers. Healthcare balances increased $54 million or 1.4% linked quarter and have grown $458 million or 13% year-over-year, primarily driven by our senior housing sector. Healthcare sector loans represented 17% of total loans at quarter end. Energy balances decreased $27 million or 0.8% linked quarter and have increased $200 million or 6% year-over-year with period-end balances representing 15% of total period-end loans. Combined services and general business loans, our core C&I loans were relatively flat linked quarter with a year-over-year growth of $539 million or 8.4%. These combined categories represent 30% of our total loan portfolio. Unfunded commitments in these categories fell slightly linked quarter with utilization rates up slightly. And utilization rates continue to run below pre-COVID levels, so we have the capacity to generate balanced growth apart from any new customer acquisition. Year-over-year, loans have grown $2.1 billion or 10%. Excluding PPP loans, Q1 2023 extends the linked quarter loan growth to six consecutive quarters. Although we don't expect loan growth to continue at this pace, we do believe we have the momentum to drive continued growth in the loan portfolio throughout 2023, consistent with our guidance unless the macro economy negatively impacts borrower sentiment. Turning to slide 12, you can see that credit quality continues to be exceptionally good across the loan portfolio and well below historical norms and pre-pandemic levels. Nonperforming assets excluding those guaranteed by U.S. government agencies decreased $2.5 million this quarter, nonaccrual loans decreased $1.5 million, and repossessed assets fell $1.7 million. Now, a level of uncertainty in the economic outlook of our reasonable and supportable forecast remains high and key economic factors were less favorable to economic growth across all scenarios, including WTI oil prices and projected commercial real estate vacancy rates. Those combined economic factors supported the $16 million credit loss provision for the quarter. With the ratio of capital allocated to commercial real estate that's substantially less than our peers and a history of outperformance during past credit cycles, we believe we are well positioned should an economic slowdown materialize in the quarters ahead. The markets are more focused on the office segment of real estate, given the recent trends in workforce preferences, though it remains an open question as to whether that will be sustained as employers continue to require more time in the physical office. Our maturities are generally ratable over the next 3 to 4 years, and we always have a mini-perm option if the markets are not conducive to long-term permanent financing. The average loan-to-value ratios in the office space are sub-65%, along with average cash flow coverage in excess of 1.4 times based on our most recent semi-annual review at the end of 2022. Net charge-offs were less than $1 million for the first quarter and an average of 7 basis points over the last 12 months, far below our historic loss range of 30 to 40 basis points. Looking forward, we expect net charge-offs to continue to be low. The combined allowance for credit losses was $312 million or 1.37% of outstanding loans at quarter end. We have noticed many analysts are not using the combined allowance when evaluating the strength of loan loss reserves. The total combined allowance is available for losses and industry adoption of the unfunded versus funded reserves is mixed. Any apples-to-apples comparison should include the combined reserves. We expect to maintain this ratio or to migrate slightly upwards as we expect loan growth to continue as well as continued economic uncertainty due to current market conditions. Both of these conditions support credit provisions going forward. I'll turn the call now over to Scott.

Thanks, Marc. Turning to slide 14. Total fees and commissions were $186 million for the first quarter, down $7.6 million or 3.9% linked quarter. Trading and syndication fees were the primary drivers of the weak quarter decline, down $8.3 million and $4.7 million, respectively. These are partially offset by a $4.3 million linked quarter increase in mortgage banking fees. The trading fee decline was primarily driven by a $7.4 million reduction in our MBS trading activities as mortgage originations remain at historically low levels, impacting our trading volumes for both originations and sales. Market volatility in response to recent bank failures has also restrained trading activity. Commercial loan syndication fees decreased $4.7 million linked quarter, largely due to significant activity in energy and CRE during the fourth quarter. Fees from our municipal investment banking segment increased $2.1 million linked quarter. The $4.3 million increase in mortgage banking fees is driven by increased servicing revenue and improved mortgage origination pipeline volumes coming off the seasonally low fourth quarter. Fiduciary and asset management fees were $50.7 million for the first quarter, a 1.5% linked quarter increase. Our assets under management or administration were $102.3 billion, an increase of $2.6 billion or 2.6% linked quarter with growth across all categories. Our asset mix of assets under management or administration was relatively unchanged this quarter with 45% fixed income, 32% equities, 14% cash, and 9% alternatives. We believe our diversified mix of fee income is a strategic differentiator for us when compared to our peers, especially during times of economic uncertainty. We consistently rank in the top decile for fee income as a percent of total net interest revenue and noninterest fee income. That revenue mix has averaged just over 36% during the last 12 months, which consistently supports a revenue stream that is sustainable through most economic cycles. I'll now turn over the call to Marty to highlight our net interest margin dynamics and the important balance sheet items for the quarter.

Thanks, Scott. Turning to slide 16. First quarter net interest revenue was $352 million, consistent with the prior quarter despite two fewer days in the quarter. As expected, the net interest margin decreased 9 basis points linked quarter to 3.45% due to modestly higher deposit betas and lower demand deposit levels due to the rate environment. The average effective rate on interest-bearing deposits increased 61 basis points this quarter, bringing our cumulative deposit beta to 39% since the Fed began tightening. Average earning assets increased $1.5 billion compared to the last quarter. The average available-for-sale portfolio increased $785 million this quarter, reflecting the full quarter impact of purchases made during Q4. Average loans increased $500 million with growth in both commercial and commercial real estate loans. Turning to slide 18, we highlight our relatively neutral interest rate risk position. Assuming a gradual increase of 100 basis points over 12 months, net interest revenue would decrease only 0.2% or approximately $2.8 million. Assuming a gradual decrease of 100 basis points over 12 months, net interest revenue would decrease by approximately 1.9%. We expect to maintain a position which is neither materially asset nor liability sensitive for the near term. Turning to slide 19. Linked quarter total expenses decreased to $12.6 million, $4.3 million from personnel and $8.4 million from other operating expenses. The personnel expense decline was driven by a $12.6 million reduction in cash-based compensation, partially offset by a $6.1 million seasonal increase in employee benefits, primarily payroll taxes, and a $2.3 million increase in staffing costs due to annual merit increases. The linked quarter decrease in other operating expense was primarily driven by reduced professional fees and accruals for mortgage loss mitigation costs, as well as a contribution to the BOKF Charitable Foundation made in the fourth quarter. Turning to slide 20, I'll cover our expectations for 2023. We continue to expect mid to upper single-digit annualized loan growth. Economic conditions in our geographic footprint remain very strong and continue to be supported by business migration from other markets. Strong growth in unfunded commitments during 2022 and current low levels of line utilization should be an additional tailwind for loan growth. Evolving borrower sentiment, given the macro economy, could impact our assumption if they pull back expecting a slower economic environment. We expect to continue holding our available-for-sale securities portfolio flat in 2023 and to maintain a neutral interest rate risk position. We have a strong base of core deposits and expect attrition in total deposits to taper off, moving our loan-to-deposit ratio slightly higher while still remaining below historical levels. Currently, we are assuming one additional 25 basis point increase in May before the Federal Reserve pauses. We believe the margin will migrate lower throughout 2023, as interest-bearing deposit betas increase and demand deposit balance attrition runs its course. Net interest income is expected to be in the range of $1.35 billion to $1.4 billion for 2023. In aggregate, we expect total fees and commissions revenue to approach $750 million for 2023. We expect expenses to be near or slightly below Q4 2022 levels and the efficiency ratio near 57% or 58% throughout the remainder of 2023. Our allowance level is slightly above the median of our peers, and we expect to maintain a strong credit reserve. Given our expectations for loan growth and the strength of our credit quality, we expect quarterly prudent provisioning similar to what we experienced in Q1 of 2023. Changes in the economic outlook will impact our provision expense, and we expect to continue our quarterly share repurchases. I'll now turn the call back over to Stacy for closing commentary.

Thanks, Marty. As we have demonstrated this quarter, strong risk management and strong financial results are not mutually exclusive. We expect to do both well. Our talented teams collaborate well to ensure we grow our company the right way, a way that is sustainable through all economic cycles. While the market is more focused on capital and liquidity, strong metrics for us, don't lose sight of the strong earnings performance in the first quarter. For the last two quarters, I've concluded my prepared remarks by saying that we are in a stage where investing in strong banks versus trading the sector is expected to matter. Banks with thoughtful growth, a diverse business mix, meaningful core deposits, and proven credit discipline should outperform. That certainly played out in the first quarter. We are an organic growth company with a fantastic geographic footprint, and we believe we are well-positioned to outperform both in the current environment and in the years to come. With that, we are pleased to take your questions.

Thank you. Our first question comes from Jon Arfstrom with RBC. Please go ahead with your question.

Thanks, good morning.

Good morning, Jon.

You may have touched on some of this and answered it, but just can you talk about deposit flows kind of pre mid-March and post mid-March, if they changed at all for you guys?

Yes, Jon, this is Marty. Yes. We really did not see much of a change at all if you look pre and post. I mean, it's hard to really discern a difference in the trend there. We were able to get talking points out to our customer base really the same day and further information the following day, and the message was compelling. And so you saw certainly a little bit of in and a little bit of out, but there's really no discernible impact for us.

Okay. Fair enough. And you used the term deposit attrition running its course, Marty. And help us understand that. Where do these balances eventually go? And how long does it take to run its course?

Yes. So I think you'll see the demand deposit attrition kind of run its course. And so demand deposit, really, that's a shift between the demand and the interest-bearing. And so you'll see that kind of run its course over the next couple of quarters, I think. But in terms of total deposits, our expectation is that that levels off here in Q2, and we kind of land at a loan-to-deposit ratio in the low 70s.

Okay. Good. And then one for you, Marc. What's the message on the commitment numbers you're giving us? And what are you seeing in your loan pipeline in terms of what is growing and what's maybe contracting or slowing?

We are actively engaging with customers and prospects to generate more loan business. Our credit quality remains strong, and we maintain a consistent credit culture, evaluating each deal on an ongoing basis without loosening or tightening our standards. The economies in our markets are robust, and we are experiencing growth in our pipeline with opportunities that align with our loan growth guidance. While we have slowed our commercial real estate commitments due to nearing our capital limits, we anticipate growth in outstanding loans as our construction loans are funded. Other sectors, particularly general commercial and industrial, are progressing well, and the energy market looks strong. We will remain selective in our C&I investments while continuing to identify new opportunities.

This is Stacy, Jon. I think one of the points that we're making with our teams is that these are the types of environments where we can be most differentiated because of our strong capital and liquidity levels. We don't have to be inwardly focused and concentrate on things that are more optically driven. That allows us to continue to be externally focused and continue to focus on customer acquisition and new business development. And I think the ability to be externally focused at a time like this is to our long-term best interest. And I think part of our history has been this is when we generally can differentiate ourselves the most in the marketplace.

Okay. All right. Thanks, guys. I appreciate it.

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

Thank you. Good morning, guys. So the share buyback has been relatively consistent over time. But you repurchased the stock at about $100 a share in the first quarter. The stock's now at $80, so about one-fourth of tangible book value. So the valuation of your stock is more compelling. Do you think about increasing the size of the buyback, just given where the stock's trading going forward?

Yes. Brady, we see that the same way. And so we are enthusiastic about our share buyback opportunity here in the second quarter.

We are disappointed to get the opportunity, but we see it the same way you do.

Yes, yes. And then maybe just quickly, I mean, two of your lending segments that are pretty notable. Healthcare is 17% of loans, energy is 15% of loans. So those two combined are about a third of your loan portfolio. Maybe just a quick update on what you're seeing quality-wise in both of those segments?

This is Marc. I'll start with energy. The credit quality in the energy sector is excellent. Despite current oil and gas prices, our customers have a strong borrowing base. Additionally, our energy portfolio features robust hedging activity. Most of our gas-weighted customers are hedged through 2024 at $3.50 against the spot rate. Looking ahead, gas can be hedged today for nearly $4.20 into 2025, indicating favorable conditions for gas producers. Oil prices remain steady overall, with a slight decline, but the outlook is positive. We anticipate no credit issues in this portfolio for the foreseeable future. On the healthcare front, our portfolio remains strong. The main challenges in the industry relate to Medicaid reimbursements, which are taking time to resolve. However, we are witnessing some easing of staffing issues and growth opportunities in the Senior Housing segment, which is a key component of our healthcare portfolio, with no significant systemic credit quality concerns.

Brady, this is Stacy. I think on the healthcare side, the market has made the mistake a little bit of looking at the performance of some of these healthcare REITs and things like that and trying to look through to the banks and see how that could impact the banks. I just think that permanent financing market is so different from the bank finance market. Customer selection is so critical, and it's a portfolio for us has performed so well over such a long period of time that we don't have any near-term concerns at all. And over the long term, it's probably been our single best performing asset quality segment that we have in our books today, at least over the last 20 years.

All right. That's helpful. And then finally for me, TLAC becomes partially effective for the banks beginning next year for the banks over $50 billion. I know you guys right now are a little under $50 billion. But as you possibly grow over $50 billion and you begin to become subject to TLAC, will that have any impact? Would you have to raise any debt or any liquidity sources to become TLAC compliant?

Yes, this is Marty. I think we are still uncertain about which aspects of the systemically important bank regulations will apply as we move from the $700 billion threshold down to $250 billion and then to $150 billion. It's still unclear at this point. I would say that TLAC is probably the least likely element to apply to the $50 billion mark. I believe ASCI is more likely to impact those in the $50 to $100 billion range. For us, due to how we currently manage our common equity, the AOCI impact would be minimal. Therefore, we don't anticipate this regulatory change being a significant issue for us at this stage. However, we expect to gain more insight into this in May and a lot more over the next year regarding how it will actually develop.

All right. That's helpful. Thank you, guys.

Our next question comes from the line of Brett Rabatin with Hovde Group. Please proceed with your question.

Hey, guys. This is Brian calling in for Brett. How are you guys?

Good.

All right. Just wanted to go quickly back to deposits. You guys are close to 40% cumulative beta. Just wanted to get your thoughts around the cadence funding costs and where you could see the terminal beta through the cycle or if you see that much higher than 40% from here?

Yes, right. We're right at 39. And we do think that that comes higher through the rest of the year. We're actually reflecting a number that's basically around 50 for the end of the year in our assumption set. So we've already got that baked in. And that covers both the next rate hike in May and then some amount will trickle up after that, which would naturally occur in the portfolio.

All right, great. Thank you. That's it from me. Thanks.

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

Hi, good morning. This is Timur Braziler filling in for Jared. Just again, circling back on deposits. I appreciate the commentary about the expected continued attrition, albeit at a slower pace. Looking specifically at demand deposits, we're starting to approach the pre-pandemic level. I'm just wondering just the magnitude of rate hikes. Can we see that actually going below that 34% pre-pandemic level? Or is there good visibility that's a good floor for demand deposits here?

I actually do think that it will come a little bit below that because you've got just a higher ultimate rate level than we saw pre-pandemic. And so just because of that, I think our central case here and our internally, we're thinking that that does go somewhat below the 34, but remains in the low 30s. That's our base case expectation there.

And all of these assumptions that we've talked about are really reflected in the net interest revenue guidance that we provided this quarter as well.

Okay. And for the deposit outflows that we have been seeing, how much of that is going to that money market account on the mutual funds? And the ability to bring those back online, would there be any reason to kind of proactively bring those back online? Or are you comfortable that much of those funds will kind of trickle lead back to the balance sheet once the environment starts turning in the other direction?

Yes. So I'll start and Scott may add to this. But we have seen a decent percentage of that attrition off the balance sheet go on the balance sheet in our own broker-dealer within the various market-based alternatives that we offer there. And so that's really just been a function of price. And so that's something that can be relatively easily stopped or reversed as we make sure that our price points and our attention to that particular side of the business is focused on retaining that and bringing it back on balance sheet.

Yes, this is Scott. I would like to add that the balances that have shifted within our Wealth Management organization include not only institutional money market funds but also a notable increase in activity related to treasuries, particularly short-term T-bills. We are beginning to observe the effects of the significant movement of liquid dollars that occurred late in the fourth quarter of last year and continued into the first quarter of this year. As a result, we have seen several billion dollars in treasury volumes transition from our balance sheet, managed by our broker-dealer. Additionally, we have substantial balances amounting to $17 billion in various types of money market funds. To echo Marty's point, when we reach a suitable price point for these balances, we are confident in our ability to bring back the values and amounts that we want to add to our balance sheet.

But to your point earlier, the vast preponderance of the liquidity that's left the balance sheet has flowed through our wealth and broker-dealer platform that we manage and that we help our customers manage. And so that's what makes that easier in the event that at the right price point, we could bring it back.

Great. That's good color. And then just one last one for me. Looking at the unfunded commitments, I guess, how much of that is formulaic and what starts to fund up this year? Are you starting to see some of these construction deals push back, just given some of the broader macro uncertainty? And I guess on the other side of that, what is your appetite right now to be legging into funding up some of these construction deals in this environment?

This is Stacy. We've made a commitment to fund the commitments we make, regardless of the environment. Our significant growth over the past several years has primarily focused on multifamily and industrial sectors, both of which are performing well and are expected to continue doing so. We have reduced our investments in retail and office, which is evident in the stagnation of growth in those areas, and they have actually declined in recent periods. There is understandable concern about that. Currently, 21% of our total loans are in commercial real estate. We believe that our conservative approach to this segment, compared to other regional banks, will be beneficial. Additionally, we feel we have managed our underwriting and customer selection effectively. Ultimately, we believe that having a diverse lending portfolio will be advantageous for us in the long run.

Okay. And are you seeing any clients kind of push back that funding schedule? Or is it pretty much in alignment with original plans?

We're not seeing any changes in borrower behavior at this point.

Our next question comes from the line of Thomas Wendler with Stephens. Please proceed with your question.

Hey. Good morning, everyone. I just want to go back to the brokerage and trading fees driven mostly by trading fees last quarter. Can you give us an idea of the moving parts there moving forward? Do you expect some growth and maybe some problems to be moving forward?

Yes, this is Scott. Looking at the trends from the second half of last year, we experienced uncertainty and volatility due to consistent rate increases, which widened spreads in the fixed income markets. Our teams managed risk effectively while remaining active and providing liquidity to our clients. As we entered the first quarter of this year, we began to see a more consistent and sustainable growth trend in our balances and activities in the mortgage-backed space. Although the latter half of March brought some market disruption, we have noted steady results from that activity. There has been an increase in flows and revenues from municipal bond activity, which has, in some areas, outpaced our revenues from mortgage-backed securities. With mortgage rates stabilizing and borrowers adjusting to the current environment without a continuous stream of rate hikes, we anticipate that flows will increase and that activity and volume levels will normalize. Therefore, we are optimistic about the activity in that sector.

And just a reminder, this is Stacy, that segment is very volatile. But if you look at total fees and commissions, and we've got those broken out on Slide 14 of the presentation, over a period of time, it's a very stable source of earnings. So any individual category can move around a bit from quarter to quarter. But the total category is very stable. And in fact, we haven't changed our guidance for this section for the full year.

As Stacy mentioned, if you look at the total revenues for our broker-dealer combined, they increased slightly in the first quarter compared to the fourth quarter. This accounts for the higher revenue streams we are earning from money market funds and other sources as balances have migrated.

All right. I appreciate all the color, guys. Thanks for answering my question.

Our next question comes from Peter Winter with D.A. Davidson. Please go ahead with your question.

Thanks, good morning. I just wanted to ask about your strong balance sheet and credit trends. Are you seeing opportunities to gain market share in your sectors? Also, are you observing any competitors reducing their presence given the current situation?

In the first, I see it's probably a little bit too early to say definitively that we're seeing opportunities to take market share. But certainly, anecdotally, we're hearing opportunities within the market, both in terms of talent and customer opportunities. We can grow both ways, adding talented team members to our core here as well as adding customers and prospects as well. And so I think we see both of those. It's a little early to be definitive about that. But clearly, that's the case anecdotally. As we look forward to kind of see the environment, it really will depend on how long the market's perception of the weakness in the sector continues. I think as long as it persists, I think our strength will continue to allow us to create some disproportionate opportunities that we're working very hard to take advantage of even as we speak.

Got it. And then, Marty, I had a question about the net interest income outlook. The assumption is that the Fed pauses on rates. But if we look at the forward curve, it does assume 2 or 3 rate cuts. And if we get that, is there a pressure on the net interest income range to come in below the low end of that range if we get the rate cuts?

Yes. Peter, we're relatively balanced on our rate risk position. And so the guidance ranges that we gave, even if we saw that, I think we'd still expect to be within that range.

Our internal forecast does not factor in rate cuts, but we have outlined on Slide 18 what could occur in a scenario where rates decrease by 100 basis points. You can observe the impact we anticipate on net interest revenue if that situation unfolds over time, which is not significant on a quarterly or annual basis. Remember that in the fourth quarter we adjusted our strategy to become more rate neutral. Those of you who have followed us for a long time know that we have typically managed interest rate risk with a neutral stance. We did take an asset-sensitive position to take advantage of rising rates, but in the fall, our perspective shifted to recognize that the risks were more balanced between increases and decreases, prompting us to take early action to reduce any interest rate risk. Consequently, we find ourselves much more neutral today, effectively returning to the historical positioning of my career here.

All right. Thanks. Nice quarter, in a tough environment.

Thank you.

Our next question comes from the line of Brandon King with Truist Securities. Please proceed with your question.

Hey, good morning.

Good morning, Brandon.

So could you help us quantify the level of deposit attrition you're expecting this year and kind of give us a sense of the trajectory of the tapering and kind of when you expect deposit balances to stabilize?

Yes, Brandon, our outlook there is that you'll see tapering of the total deposit balances here in Q2, and then we kind of end up with a low 70s loan-to-deposit ratio. And sure, it's hard to put a pin in exactly the decimal point there. But I think that gives you a pretty good outlook for how we see the rest of the year playing out.

Got it. So stabilization in the back half of the year? Correct.

Yes. That's right. Yes.

And a follow-up on your comments on brokerage and trading. Is it fair to assume that the inventory trading securities should kind of rise incrementally throughout the year, just given those trends?

I think that a lot of that depends on mortgage originations. It depends on flows as a whole. And then downstream customer appetite for mortgage-backed securities. But we would expect that as we normalize and the rate outlook and the Fed clarity sets in, we would expect to grow those balances and those levels back to more historic levels.

Got it. That answers my questions. Thank you very much.

Thank you. We have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Well, thanks again, everyone, for joining us. And if you have any further questions, please call or e-mail us at [email protected]. Have a great day, everyone.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.