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BOK Financial Corp (BOKF) Q1 2021 Earnings Call Transcript

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BOK Financial Corp (NASDAQ: BOKF)
Q1 2021 Earnings Call
Apr 21, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the BOK Financial Corporation First Quarter 2021 Earnings Call. [Operator Instructions] A question-and-answer session will follow the formal presentation.

[Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host Mr. Steven Nell, Chief Financial Officer of BOK Financial Corporation. Thank you. You may begin.

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

Good morning, and thanks for joining us. Today, our CEO, Steve Bradshaw will provide opening comments; and Stacy Kymes, our Chief Operating Officer will cover our loan portfolio, credit metrics and fee income businesses. Lastly, I'll provide details regarding net interest income, net interest margin, 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 activities. 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 2, as it pertains to any forward-looking statements we make during this 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 first quarter 2021 financial results. But, before we get started, I'll offer a few thoughts regarding the announcement earlier this month, about my plans to retire March 31 of next year. After three decades with BOK Financial and more than seven years as President and CEO, that's certainly wasn't an easy decision. I take a tremendous amount of pride in leading, what I believe to be the best regional financial institution in the country, along with a very clear focus on long-term shareholder value.

However, I'm confident, BOKF has never been better positioned for this change. Our performance through the pandemic and my leadership team's resiliency and cohesiveness throughout 2020, demonstrated expertise and synergies that stems from the two hallmarks of our organization; experience and collaboration.

Over the next year, I'll be focusing on ensuring a smooth transition for my successor, when that individual is formally named by the Board in the coming months. Those who are familiar with our company know that leadership decisions are very intentional of BOKF, and we run the company with a long-term perspective, which includes significant work on developing the internal talent. And I fully expect the Board to name an internal successor for CEO at the appropriate time.

We're well positioned to choose a successor soon and I can reassure you that the next leader will continue to same intentional long-term shareholder focus we are known for. In the meantime, I'll be focused on the slate of goals and objectives we developed for 2021, which will continue to improve our competitive position and our growth prospects into 2022 and beyond.

With that, let's look at the most recent quarterly results. As shown on Slide 4, first quarter net income was $146.1 million or $2.10 per diluted share, while that's down modestly from the record earnings performance last quarter. The difference between the first quarter of 2021 and that of 2020 could not be more start.

The key items that drove the quarter were another outstanding earnings result from our mortgage business as activity remained elevated this quarter despite rising rates, the contribution from our wealth management team continues to be a differentiator for us, the results were off for the consecutive record quarters in late 2020 as we had expected. The improving economic outlook combined with improving credit trends allowed us to release $25 million of our loan loss reserve. And lastly, expense management remains excellent, as they has really throughout the past year.

Turning to Slide 5, loan growth continues to be a challenge this quarter, as our commercial and commercial real estate customers continue to pay down debt. While, our borrowers continue to understandably reduce leverage in the challenging economic environment, we believe we're poised for growth opportunities in the latter half of 2021, as the economy continues to rebound. Deposit growth remains excellent, up nearly 3% linked quarter and up nearly 30% from the same quarter a year ago, as we began to see the most recent wave of stimulus late in the quarter.

Assets under management or in custody in our Wealth Management business continue to grow, as the protracted low rate environment encourages market investment for yield seeking clients. Investments in equities is now 40% of our total assets under management or in custody and that's up approximately $2 billion from year-end, which positions us to materially grow fee than our Fiduciary and Asset Management business. I'll provide additional perspective on the results before the start of the Q&A session.

But now Stacy Kymes will review the loan portfolio, our credit metrics and our key businesses in more detail. I'll turn the call over to Stacy.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Thanks, Steve. Turning to Slide 7. Period end loans in our core loan portfolio were $20.7 billion down 3% for the quarter, as we continue to see borrowers reduce leverage as expected in early 2021. Line utilization in the overall portfolio has dropped from 68% pre-COVID, to 62% at the end of the first quarter of this year, with the largest declines occurring in the energy, healthcare, and general C&I portfolios where cumulative line utilization is down from 65% pre-COVID to 58% today.

As the economy continues to reopen, we feel confident that line utilizations will normalize and our positive outlook for loan growth will materialize later this year. Over the long-term, we've always grown our loans at 2 times to 3 times the normal rate of GDP growth. And we believe our competitive position will continue to serve us well, once macro-economic factors stabilize. Looking at the energy portfolio, balances contracted 7.7% for the quarter.

While commodity prices have continued to improve and stabilize, sourcing new deal sufficient to offset pay downs in the current environment remains a challenge, as existing borrowers continue to reduce leverage. Despite these factors, we remain optimistic for lending and energy related revenue opportunities, as we continue to support our customers in this space.

This industry vertical provides a great example of how we manage the Bank to the long-term economic outcomes, as opposed to short-term optics. During the first quarter, we recognized a $14 million gain on energy property sales from an equity interest, we received as part of a workout in this most recent downturn.

We have consistently indicated a willingness to own foreclosed assets. One of the short-term impact of this was higher non-performing levels, we held the assets until such time the market had improved and thus we're in a position to provide a full economic recovery on this loan. Healthcare balances were largely unchanged this quarter, as a pocket of growth in senior housing loans was offset by a decrease in hospital system loans.

Looking forward, we remain confident in our healthcare portfolio of long-term growth and credit outlook and expect it to return to its status, as a growth leader for us, as health and economic conditions migrate into a more normal state later this year. PPP loan balances increased to $166 million or nearly 10% and represent 8% of total loans. We originated $544 million of new PPP loans this quarter, maintaining our strategy of focusing on our existing client base, to ensure timely support of our existing client needs.

Growth from new originations this quarter was partially offset by pay downs of the first round of loans. Forgiveness activity from previous rounds of PPP were slower in the first quarter than our expectations. The net interest revenue impact was about $10 million less than we anticipated. This should just move into future periods when the forgiveness occurs. Looking ahead, we remain optimistic in our outlook for loan growth in the latter half of this year, once these unprecedented levels of liquidity normalize. The speed of vaccine distributions and the resulting broader economic recovery today leads us to believe confidence and resulting capital investment will return to the US economy later this year.

Turning to Slide 8, you can see that credit quality continues to be a clear differentiator for BOKF. We saw meaningful credit quality improvement across the broader loan portfolio with below expectation charge-offs and criticized asset levels this quarter. This coupled with the near-term stability in commodity prices and dramatically improving economic metrics, lead us to release $25 million in reserves this quarter.

Net charge-offs were down from $16.7 million or 31 basis points annualized, net of PPP loans in the fourth quarter to $14.5 million or 28 basis points annualized net of PPP loans this quarter. Net charge-offs totaled 31 basis points, net of PPP loans over the last four quarters, at the lower end of our historic loss range. The combined allowance for loan losses totaled $385 million or 1.86% of outstanding loans at quarter end, excluding PPP loans. The combined allowance for credit losses attributed to energy was 3.29% of outstanding energy loans on March 31.

Non-accruing loans decreased significantly, down $19 million from last quarter, primarily due to a reduction in non-accruing energy loans. Potential problem loans totaled $422 million at quarter end, down significantly from $478 million on December 31. Almost all potential problem loan classes were down compared to the prior quarter, led by potential problem, energy and general business loans.

Looking ahead, from a credit perspective, there is still a degree of uncertainty in the current environment. So it remains difficult to predict. 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 consistent with our experience over the last 12 months. We'll continue to set our reserve with the appropriate level, as we always have. We are generally positive about the credit outlook for the remainder of the year, allowing us to continue to release this quarter.

Once we have more clarity around the spread 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. Turning to Slide 9. You can see the brokerage and trading fee revenues are down this quarter. When looking at fee income and net interest income generated from our brokerage and trading business comprehensively, the business is down about $15 million linked quarter. This is largely due to some reversion from record volumes in the third and fourth quarters and compressing margins in the mortgage industry that impacted trading margins by about 70 basis points compared to the last quarter.

In addition, customer hedging revenue decreased $2.1 million, primarily due to a modest decrease in energy customer hedging activities from the record fourth quarter. Investment banking revenue decreased $2.1 million, mainly due to timing of loan syndication activity. While the net interest revenue and trading revenue related to our enhanced mortgage trading desk experienced a slowdown from the record levels in 2020, as expected it is still a major contributor to the overall success of the company and it's still up over 15% from the same quarter a year-ago.

Mortgage banking revenue decreased roughly $2.2 million linked quarter, but remained strong despite a national lack of housing inventory and rising interest rates. While margins have been relative to historic levels in the summer of 2020, they remain roughly 45% above where they were in March of 2020. Total production volume this quarter remained consistent with prior quarters and looking ahead, inventory constraints could continue to build a case for these elevated production levels to be sustainable, as it will take a while, before inventory has materially improved.

Other revenue increased $2.1 million this quarter, due to higher revenue from repossessed oil and gas properties. Although not included on Slide 9, I'll also note that net economic changes in the fair value of mortgage servicing rights and related economic hedges are positive $4.7 million during the quarter.

I'll now turn the call over to Steven to highlight our NIM dynamics, and the important balance sheet items for the quarter. Steven?

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

Thanks, Stacy. Turning to Slide 11. First quarter net interest revenue was $280 million, down about $17 million from last quarter. While the core yields in our loan portfolio were relatively stable, a reduction in average loan volumes and the timing of loan fees, including a $2 million decline in PPPs linked quarter was a drag on net interest revenues this quarter.

Net interest margin was 2.62%, down 10 basis points from the previous quarter. Lower average outstanding loan balances, coupled with the reinvestment of cash flow from our available for sale securities portfolio continued to impact net interest margin with the portfolio yield declining 14 basis points to 1.84%.

Additionally, while we did have success driving interest bearing deposit costs down slightly to 17 basis points this was at a decrease pace from previous quarters. 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, we'll continue to impact net interest margin in the coming quarters.

Turning to Slide 12. Expense management remains prudent with total expenses down 6% linked quarter. Personnel expense was down $3.2 million or nearly 2% this quarter. Cash-based incentive compensation decreased $8.2 million, primarily due to decreased brokerage activity mentioned earlier. Deferred compensation, which is largely offset by a decrease in the value-related investments included in other gains and losses, decreased $3.4 million. Employee benefits increased $6.4 million, primarily due to a seasonal increase in payroll taxes and retirement plan expenses.

All told, we're very happy with our ability to hold the personnel cost, efficiencies earned through the pandemic, even with medical expenses increasing $1.7 million year-over-year, as employees now seek wellness and other treatments deferred in 2020.

Non-personnel expense was down nearly $15 million or 12% from the fourth quarter, half of this decrease was due to a $14.1 million gain on the sale of equity interest received as part of the work out of a defaulted energy loan. Partially offset by additional expense and writedown of a set of oil and gas properties in the first quarter. The remaining decrease in non-personnel expense was due to a decrease in business promotion expense of $1.6 million, a decrease of $2.3 million in professional fees and services, a decrease of $1.6 million in recruiting expense, and a decrease in occupancy and equipment of $1.2 million, partially offset by an increase in $2.4 million spent on ongoing technology projects.

Additionally, we made a $4 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. On Slide 13, our liquidity position remains very strong, given the continued inflow of deposit balances. Our loan to deposit ratio is now below 60% compared to nearly 64% at year-end, providing significant on balance sheet liquidity to meet future customer needs.

Our capital levels remain strong as well, with a common equity Tier 1 ratio of 12.1%, well ahead of our internal operating range minimum. With such a strong capital level, we once again were active with share repurchase, opportunistically repurchasing 260,000 shares at an average price of $77.20 per share in the open market.

On Slide 14, I'll leave you with a general outlook for the near and mid-term. We believe net activity and loan growth will slowly accelerate in tandem with the broader economic recovery this year, excluding the impact of PPP. Our available for sale securities portfolio, which is largely agency mortgage backed securities yielded 1.84% during the first quarter. Given the sustained low rate environment, prepayments could reach approximately $700 million per quarter.

We can currently reinvest those cash flows at rates around 95 basis points to 105 basis points. At 17 basis points, we believe we're close to the bottom in deposit pricing, the combination of securities reinvestment at lower rates and minimal room to further lower deposit costs will push net interest margin lower in the coming quarters.

Our diverse portfolio of fee revenue stream should continue to provide some mitigating impact to overall revenue pressure being felt in our spread businesses. We expect most of the 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 as we've mentioned, late last year. We'll 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 multiyear technology commitments to improve customer service and our competitive position. If the economy continues to improve and we get further oil price stability this year, additional loan loss reserve release is possible. As I mentioned a moment ago, we feel good about our capital strength, we'll continue looking for share buyback opportunities and we'll maintain our current quarterly cash dividend level. We intend to bring all our employees back to the office by the end of the second quarter given improving health metrics and the wide vaccine availability.

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. All told, it was a solid quarter for BOK Financial. Our mortgage and wealth management businesses, while down on a quarterly comparison, continue to offer a significant offset to the depressed loan demand that plagued the industry and presenting a differentiated shareholder value for our company.

Credit quality outcomes this quarter are a testament to not only how well we manage the ongoing crisis, but more importantly, our ability to remain disciplined with credit decisions in more favorable parts of the cycle. We agree with most forecasts that we are on the cusp of a period of rapid economic growth, heading into the latter half of this year and we believe that will translate to loan growth, an area of BOKF has never been better positioned to take advantage of than it is today.

In the near-term as Steven mentioned in his outlook, we intend to bring all employees back to the office by the end of the second quarter, given improving health metrics and the wide vaccine availability. We know that we're better together and believe this will act as yet another positive catalyst to our efforts to grow relationships and add new ones in the second half of this year.

With that, we're pleased to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Peter Winter with Wedbush Securities. Please proceed with your question.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

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

Good morning.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

Peter Winter -- Wedbush Securities -- Analyst

I wanted to ask about the loan pipeline. Can you just give a little bit more color on the tailwind that you're expecting just based on the discussions you're having with clients? And then also just the extent of this excess liquidity on their balance sheets and how it's impacting their ability to -- appetite to borrow?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Sure, I'll talk about the loan pipeline and then turn it over to Steven to talk about the excess liquidity. Yes, I think we are seeing opportunities -- pipelines are growing really across the lending segment, but level of liquidity that exists in our clients' balance sheet is still very high. But if you look at our lack of loan growth, if you will, this quarter, you really see two segments that traditionally lead for us both energy and commercial real estate were down larger than normal.

And I think you heard me talk about in the fourth quarter call that we really thought energy would probably kind of bottom out or reach an inflection point. We were hopeful in the first quarter but we thought it was more likely in the second quarter. I feel more confident today that we'll hit that inflection point in the second quarter for energy as we began to work through the payoffs.

Energy prices were very good in the first quarter, most of those borrowers use that extra cash flow to pay down debt. We had some anomalies in commercial real estate where we had a higher level of pay-downs in the first quarter that area is going to grow just fine. So I think once those stabilize and can began to show growth again, I think that's really masking some good activity that we hope to see. And we're still hopeful in the second half of the year, we're very optimistic that you'll begin to see some core loan growth that will come out of that portfolio, which is why we highlighted the utilization in our commentary.

We've got a lot of organic growth that will happen just by higher line utilization in our C&I book in particular. And so once there is core economic activity that returns, I think there's going to be some really good line utilization increases that will -- beyond new customer acquisition will help us grow our loans in the second half of the year. So we feel good about that. Clearly, it's hard to predict. You've got high liquidity on your customers' balance sheets, but there's a lot of stimulus, when there is more stimulus proposed, and we think that that's going to lead to higher economic activity that will organically increase loan activity, but we feel good about it and we feel good about the quality of loans that we're adding too.

We're focused on segments that are sustainable and meet our credit fairway over a long period of time. And so we're not going to chase loan growth to meet the market expectation, but we'll stick to the core loan growth that has served us very well for a very long period of time. I'll turn it over to Steven to talk about the excess liquidity.

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

Yes. So Peter, I was looking at our average deposits just from a year ago and they were up $8.3 billion, 29% and $4.2 billion of that is in our commercial portfolios, our commercial clients, 35% increase. So clearly, as you pointed out, I mean there is significant liquidity on balance sheets. And how that plays into -- when will they get used, and if some of that will gets used prior to loan growth that Stacy is pretty confident about, it could be and we don't know the answer to that. So yes, significant liquidity and certainly may play into usage of some of that before we get some of the line utilization. We just don't know how much.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

But I think if you really go back to that liquidity, part of that is, this is the core quality of our franchise, we continue to attract high quality customers in deposits even though you've seen our cost of interest bearing deposits continue to decline quarterly -- quarter-over-quarter. The movement that we've made there over the last 12 months is really very strong in spite of the fact that we're really not paying at a high level for those deposits, we continue to track those, really speaks to the core franchise value of BOK Financial.

Peter Winter -- Wedbush Securities -- Analyst

Can I just ask a follow-up just on this line utilization, you mentioned Stacy that the core portfolio's line utilization went from 55% to 58% today? How much for every 1 percentage point increase in line utilization does that impact commercial loans and where do you think it could go to by year-end?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

In general, 1% about $150 million. So plus or minus from there. You can kind of do the math from there and see what you think. We use pre-COVID as kind of a standard. We felt like that was a representative lock period for line utilization. If you get higher economic activity than what we had pre-COVID, which is probably likely then you'll get higher line utilization that will exceed what we were pre-COVID.

Peter Winter -- Wedbush Securities -- Analyst

Okay. Thanks for taking my questions.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Thank you, Peter.

Operator

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

Will Jones -- KBW -- Analyst

Hi, good morning, this is Will Jones on for Brady Gailey. How are you guys?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Good.

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

Good.

Will Jones -- KBW -- Analyst

Hi, good. So just piggybacking off of loan growth for just one sec, just thinking about loans as a whole, I know energy is really kind have been a lot of the burden here lately. Do you feel like balances today are kind of at a low watermark on the total portfolio or do you feel like there could be more shrinkage to come?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Well, I think if you look at what we're calling the core loan portfolio. So if you look on Slide 7, where we break out the Paycheck Protection Program, I think that those loans will run their course. And so if you see that that can provide some headwind in the future if those get forgiven and will roll off. But in the core portfolio, clearly energy has been the headwind this quarter, real estate was also a headwind, which is traditionally is an area we've grown pretty ratably over time.

The inflection point, I believe is in the second quarter, whether that's April, May or June, I don't know. But I do think that will reach the inflection point where we do kind of bottom out in the second quarter at some point and then that's the level that we begin to grow back from. We're seeing opportunities in energy. Yeah, I think that even the rising commodity prices in my view in the first quarter had a higher level -- resulted in a higher level of paydown activity than even what we were anticipating and forecasting, because those borrowers weren't using that cash flow for capex, they were using that to continue to pay down revolver.

So I think that we're within a quarter here of reaching that inflection point and then you'll begin to see loans begin to grow back. As we pointed to now for two quarters, second half of '21 is really when we're expecting the core loan growth to return.

Will Jones -- KBW -- Analyst

Great, no. That's great color and it's really good to hear the optimism on energy, hope that plays well. And just lastly from me, just wanted to move over to just thinking on M&A, I know BOKF has historically been pretty selective in its deal pricing and deal choosing, but we've seen a great deal of activity already this year including cadence in BancorpSouth, I mean I really kind of ranked BOKF's backyard. Just curious on your thoughts on a transaction of that magnitude, BOK would ever be interested in that and just some more broadly speaking, how active do you think BOK could be in M&A this year?

Steven G. Bradshaw -- President and Chief Executive Officer

Yeah. This is Steve Bradshaw, I'll take that one. We certainly acknowledge what's kind of going on in the financial sector from a consolidation perspective. In fact, it seems even a little bit more acute in similar size banks to BOKF including those two that you just mentioned. And I think to me there's two major drivers for that, one, is the opportunity or desire to spread the expense base more broadly and we have an interest in that and our most recent transactions that's been a key element for us as well.

The second driver really is, investment in technology and you see that kind of mentioned time after time. I'll tell you that we don't feel the same level of competitive urgency because we've not taken any time off. We've continued to invest in technology as an increasing percentage of our revenues, really for the last five or six years plus. And like our competitive position and feel like we are on track and are able to compete up market with large investment firms as well as national banks. So that's not as big a motivation for us. So we kind of come back to our core belief on M&A, we really want to see banks largely within footprint that are high-quality, have great employees and management teams and have a broad business base.

And we don't expect them to have the same base as us, because we're unique even among our peers. But, we want to see something more than a large real estate portfolio, frankly. And -- because, we're going to have -- after we realize those energy or -- not energy but expense synergies, we've to grow it going forward. And so, our mindset is really, we use revenue as the guide post for our acquisitions.

Can we add an acquisition that we think would be additive to revenue going forward. Your -- the other second part of your question was really size. Yes, the size that we're at today, it would have to be a more meaningful transaction for us than what we've done in the past, the most recent acquisition we did was about $4 billion in assets, and it would need to be north of that, as in order to really move the needle in terms of expense saves and revenue growth, and also be worthy inherent distraction that you introduce inside your culture, when you were simulating one organization into another.

So, long answer to a short question, but I know, what is on everybody's mind as we've seen so much activity and some deals announced just really even as recently as this week. But that's how we're thinking about it, we would expect to have an opportunity to participate in acquisitions going forward. But, I think the bank that I described for you is probably not a seller in today's economic environment, I think we're going to have to see some economic expansion and sustainability, before the banks that are really in our sweet spot. I think, it's a good opportunity to merge.

Will Jones -- KBW -- Analyst

Got it. Yes, that makes total sense. Thanks for taking my questions.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Sure.

Operator

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

Brett Rabatin -- Hovde Group -- Analyst

Hi guys, good morning.

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

Good morning.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

Brett Rabatin -- Hovde Group -- Analyst

Congratulations, Steve, on your planned retirement.

Steven G. Bradshaw -- President and Chief Executive Officer

Thank you. I appreciate that.

Brett Rabatin -- Hovde Group -- Analyst

Wanted to ask, I guess, first about the reserve, and just thinking about the reserve release from here. You had a reserve that got below 1% pre-CECL and I'm just curious -- how do you guys think about, where the reserves might be able to get to in this new CECL world, assuming the economy gets to kind of a roaring '20s, scenario where things are pretty good. How do you view the potential for the reserve to go down from here?

Marc C. Maun -- Chief Credit Officer

Yeah. This is Marc Maun. First of all, just as a reminder, when CECL was implemented, there is a day one reserve adjustments that had to be made. So, before the impact of the pandemic and so forth on our reserve we had added reserve that took it more to 1.2%, so it came above the -- below 1% level. And then, we added on additional reserve build, related to the economic downturn in the pandemic. And so, while we evaluate the future of the reserve, we will be taking into account the economic conditions, we will be taking into account our credit quality metrics, both of which we think will continue to improve throughout this year.

And then, the other factor will be loan growth and as that impacted, we want to make sure we're managing it at the appropriate level to address that. So the combination of that, we hope that it will come down to that 1.2% level, but it will be a combination of supporting loan growth as well as -- as looking at potential reserve releases associated with credit quality and economic outlook.

Brett Rabatin -- Hovde Group -- Analyst

Okay, fair enough. And then on fee income, the guidance, I guess if you want to call it that is for the categories to grow modestly, with the exception of brokerage and trading in mortgage, can you give us any thoughts around one mortgage from here. Do you think, gain on sale margins are going to continue atrophy and/or do you think 1Q sort of encapsulated the pressure that you get from where we were previously our volumes. And then the secondly on brokerage and trading, obviously, volatility here in the past two quarters. Can you give us maybe some thoughts around how things play out there as volatility in that business flows as well?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Sure, this is Stacy. And we've got Scott Grauer here as well who can chime in on the wealth side as well. But, I think as it relates to mortgage, I think we feel good about going into the second quarter. You've got some seasonality in the mortgage business where your second and third quarters tend to be pretty good quarters from an activity perspective. That's going to help us a little bit. You've seen some thinning of the gain on sale margins there, but there is still really good on a relative basis to kind of what normal is for that business. And so, that's still a really good place to be, even though they fall and there is still really strong.

There could be some pressure there. But it doesn't feel like a return to pre-COVID levels, if you will in terms of where that is at least from what we're seeing today. So we feel good about kind of the next couple of quarters as it relates to mortgage. I feel really good about our growth in our Wealth business, the brokerage and trading revenue broadly, but all that's happening there. We really feel like what you saw in the first quarter is a number that we can do really well with and maybe hopefully outperform into the second quarter, particularly, that is a sustainable number and one we think we can actually grow from a little bit, as Steven, alluded to in his prepared comments.

So, we feel good about where we're positioned in both of those businesses, they are volatile. If you look at the overall Wealth business, brokerage and trading both the NIR and the brokerage and trading fee revenue component. So total revenue for that business, it's up 15% first quarter-over-first quarter. So you've got that tough comp with the fourth quarter where it was just a record. And I don't want to lose sight of the fact that that core business has grown substantially. And we continued to commit capital to that. So our capital commitment to the Wealth business is up over 50% from this time a year ago, and we will continue to support that, because we really like that business.

Brett Rabatin -- Hovde Group -- Analyst

Okay. Appreciate the color. Thanks guys.

Operator

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

John Roland -- Wells Fargo -- Analyst

Hi. This is John Roland [Phonetic] for Jared. Good morning.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Good morning.

Steven G. Bradshaw -- President and Chief Executive Officer

Good morning.

John Roland -- Wells Fargo -- Analyst

I guess just sticking on the wealth side, looking at assets under management and administration kind of flattish quarter-over-quarter. And you also mentioned the $2 billion increase in equity balances. Can you give any color on, I guess what the differential between inflows or outflows and changes in market value were driving that balance?

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

Sure. So, this is Scott Grauer. And when you look at our total AUMA, we were actually really pleased with net inflows in the first quarter. We have during the course of the first quarter, very high planned distributions of assets, a lot of it in our corporate trust Group. So, we had total disbursements in the first quarter of over $11 billion. And so, we saw net sales, new sales of over $10 billion. So there is really kind of a moderate market increase of those total AUMA.

John Roland -- Wells Fargo -- Analyst

Okay, great. That's helpful.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

For the first quarter sales are yet seasonal high, for that distributions from that. So that's a big factor there.

John Roland -- Wells Fargo -- Analyst

Okay, great. That's helpful. And then I guess just talking about the build in equities in that business, is that kind of a longer-term focus or I guess would you like to have it be more weighted toward equities to maybe protect the margin a little bit more I guess just a higher level, what are your plans on that?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Yeah. And so, actually where we like our allocation in our distribution among the asset classes. We have continued to see as -- have the broader markets, with fixed income at these nominal yields and real yields. Equities obviously have just a better momentum in terms of asset flows. When you look at end of first quarter, we were just to give you an allocation, we were 12% cash, 42% fixed income, 38% equities, and about 8% in alternatives.

And that's a consistent mix that we're getting a mix reflected of the assets that is on track with our target allocations. So, we feel good about that distribution to weather and grow regardless of rate and equity market performance. So we feel good about it. We're always going to see efforts to try to grow our equity inflows, because that's where flows in general are netting out positive in the overall market.

John Roland -- Wells Fargo -- Analyst

Okay, great. Thanks for color.

Operator

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

Matt Olney -- Stephens -- Analyst

Great. Thank you. Want to circle back on the loan growth discussion and you covered the energy topic pretty well. I want to ask about commercial real estate, it's not particularly large at the bank, but we did see a pretty decent sized decline in the first quarter. Any color on what drove that decline and what's the outlook on commercial real estate?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

No, we feel good about the portfolio. I mean you want a -- at least for us, you want a commercial real estate portfolio that has some level of churn in it that indicates the deals are performing well and could be refinanced long term in the permanent financing market, whether that's LifeCo or CMBS or whatever. We saw in 2020, because of the pandemic, the lowest level of pay-offs as a result of movement to the permanent financing market that we've seen in the last 10 years for sure. And so what you saw in the first quarter was really more a return to normalcy kind of normal pay-downs that -- where things were moving ahead of -- maybe a little higher level of it because we had some pent-up opportunity there.

Commercial real estate, both the growth and the paydowns tend to be lumpy and best to look out over a 12-month horizon as opposed to kind of linked quarter annualized. We'll be fine there, we'll have good growth in commercial real estate. We think this year, you're just going to have some lumpiness from quarter-to-quarter as those advances end up resized into the permanent financing market, non-recourse long-term LifeCo type stuff will move out of the portfolio, and that from our view, is the sign of a healthy portfolio and that's our view about that.

Matt Olney -- Stephens -- Analyst

Okay. Thanks Stacy. And then on the healthcare side, I think overall balances were relatively stable in the first quarter, but kind of a mix shift growth in senior housing, paydowns in hospital. Any more details you can provide and is that in kind of inflection that we saw in the first quarter?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Yes, I think that is the inflection. We had some hospital systems advance up in preparation for COVID and the expense associated with that. I think we've seen kind of the tail of that in the first quarter where those have paid back down and then you saw that senior housing core growth begin to come back. We're really seeing really good metrics coming out of our portfolios inside of senior housing.

We can monitor on a weekly basis, we're watching occupancy come back up almost about 1% a month in our core senior housing portfolio. So once that portfolio really begins to stabilize, we do think there's some pent-up acquisition activity that can happen there that will spur loan growth on the healthcare side. We got a great team. We're well positioned for that. And I think that will continue to be a growth driver for BOK Financial.

Matt Olney -- Stephens -- Analyst

Okay. Thank you.

Operator

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

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

Thanks. Good morning, everybody.

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

Good morning.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Good morning.

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

I wanted to ask about how you're thinking about overall balance sheet management over the course of this year. You are pretty fully invested, it seems like in the securities portfolio you do have some kind of excess balances, but not nearly to the -- maybe extreme that some other banks do several billion in cash. And I'm just wondering how you're thinking about the potential for some shift in deposit flows over the course of this year as your customers use their liquidity and put that to work and given, particularly the low rates that you were talking about in terms of reinvestment?

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

Yeah. So this is Steven. I mean, if you look over the course of the year, we actually increased our available for sale securities portfolio $1.8 billion, so that's like 15%. So we did kind of put to work, if you will, over the course of the year some of the liquidity that was flowing our direction. We in fact added $400 million this particular quarter, first quarter. We'll reinvest cash flows, I think going forward, but given the steep -- little bit steeper yield curve, I doubt, if you'll see us leverage up, if you will, that securities portfolio much more.

I kind of like where the balance sheet is, we don't venture out, we haven't historically ventured out 2% asset sensitive in previous periods. I think if you look at a parallel shock of 100 basis points, we're about 2.5% asset sensitive going forward, and that's a pretty good level for us, we're comfortable with that. So that's really I think what we're thinking about in terms of the securities portfolio, which is our primary lever for managing interest rate risk here at the bank and leaving that relatively stable by reinvesting cash flows, which actually are a little bit better than they were in the previous quarter.

I think our cash flow has slowed down a bit and the reinvestment rates are a little bit stronger than they were last quarter, so that's helpful as well.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

The other thing, this is Stacy, I might speak to is, particularly as you people think about and talk to -- start to project more asset sensitivity, when you look at various disclosures around that. There are just a host of assumptions that go into that sensitivity analysis and it's very hard to get apples-to-apples comparisons across the regional bank spectrum in terms of exactly how folks are looking at that.

But I would encourage the analyst community to go look at actual results the last time rates went out. I mean, if you think about, we've had a recent cycle pre-COVID where rates were rising and you could really see the performance of folks balance sheet as a result of that. I think that's a better indicator in many respects than what folks are going to project through their Q and K around asset sensitivity as we think about this going forward.

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

Thanks for that. Steven, going back to my initial question, I apologize, if I didn't ask it clearly I guess what I was really asking is, given that you don't have as much excess liquidity on the balance sheet, do you -- you do not have any major concerns about outflow of customer deposits as some of the stimulus burns off whereas other banks are holding a lot more excess liquidity. So I'm really asking how are you thinking about that?

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

I don't think we do, I mean I've kind of described earlier. The increase in those balances, it means Scott's world and wealth has increased a couple of billion. There could be some outflows of that in the future, if they find other places to invest, but I don't think we're too concerned about all that flowing away anytime soon.

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

Okay, that's great. And then kind of following up on Stacy's comments. Steven, if you could maybe give us just a quick overview of kind of where BOKF is positioned in the loan portfolio from variable versus fixed rate loans and kind of the impact of floors potentially as we do...

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

I can do that. So about 70% of our loans are either variable or they're going to reprice within a year. So and that gives you an idea there, we have -- of the $22 billion loan portfolio, about $3.8 billion maybe $3.4 billion has floors embedded in it. We're getting the benefit of about $18 million to $20 million annualized on those floors and their support to NIM about 4 basis points.

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

Okay, great. And then just last one if I could squeeze one more question here. In terms of PPP, with the addition of the second round here, can you just tell us what the total remaining fees are yet to be recognized through that line?

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

Yes, so I can do that. So the original 2020 fundings of $2.3 billion on PPP, we had fees associated with that of about $59 million and the first quarter 2021 fundings this last round, there's fees of about $23 million associated with that. So a total of about $82 million and we've recognized $36 million in 2020. We kind of expect to recognize around $30 million in 2021 and then we'll see how the risk flows out but likely most of it in 2022 for the remainder of that balance.

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

Okay and over the $30 million expected in '21, how much was recognized in the first quarter?

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

About a $11 million, just the fees. Now you've got the interest and of course the cost of funds against that -- against the 1%. So the total PPP NIR benefit in the first quarter was about $14 million, which is down a little bit from the fourth quarter, that's one of the reasons that our NIM declined a little bit more than what we expected just because of that PPP activity. But that's probably just a push in the future quarters.

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

Great. Thanks for taking my questions.

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

Sure.

Operator

Thank you. Our next question comes from the line of Jennifer Demba with Truist Securities. Please proceed with your question.

Jennifer Demba -- Truist Securities -- Analyst

Thank you. Good morning.

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

Hi.

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Good morning.

Jennifer Demba -- Truist Securities -- Analyst

Curious how are you thinking about energy loan competition over the next few years. We've seen some of your competitors kind of back away from the space and say they may be have a little bit less appetite there at least over the near-term. How do you think to play out?

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Well, we think it plays out to our benefit. I mean, I think as you think about where we are about 13%. I guess our portfolios of energy loans today we've been as high as 22%. We have lots of capital that we are willing to commit to this space. I think that as we look forward, I think that creates opportunity for us. We've often talked about what we like about energy is a full share of customers wallet so we do derivatives trading, we have a private bank business with the executive team, we have their 401k, we have the deposit business and we have really good risk adjusted spreads in that business as well.

And so we like as we look forward over the next two, three, four, five years, we really like the profile of this business and the opportunity to grow it because as you've mentioned you are having some smaller competitors who are walking away from it. Now what will be interesting to see is, it's easy to walk away from that business when commodity prices are struggle and executives have to talk about asset quality on an earnings call. As you build some good results in this business going forward, you may have some folks who step back into the business particularly in our footprint, but we are really excited about where we're positioned here. I mean if you think about our place in the league tables relative to production in this business, we are competitive with the very large national banks here.

And so as this area begins to return, seeing some information just over the last week that talked about storage levels globally are at pre-COVID levels today, but demand levels are not at pre-COVID levels, so if you just kind of see that through, I think there could be some more tailwind for some prices in the short term, which would be positive, but I think we really like the business, we like where we're positioned in the business. I don't think there's a better energy team in the country than at BOK Financial. So we are excited to grow the business.

Jennifer Demba -- Truist Securities -- Analyst

Thanks so much, Stacy.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Nell for any final comments.

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

Okay. Thanks again everyone for joining us today. We appreciate your interest in BOK Financial. If you have any further questions, please call me at 918-595-3030 or you can email us at ir@bokf.com. Have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

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

Steven G. Bradshaw -- President and Chief Executive Officer

Stacy C. Kymes -- Executive Vice President and Chief Operating Officer

Marc C. Maun -- Chief Credit Officer

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

Peter Winter -- Wedbush Securities -- Analyst

Will Jones -- KBW -- Analyst

Brett Rabatin -- Hovde Group -- Analyst

John Roland -- Wells Fargo -- Analyst

Matt Olney -- Stephens -- Analyst

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

Jennifer Demba -- Truist Securities -- Analyst

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