How are you doing that?Clark Khayat So I think we’ve shared before, but I’m happy to talk about it. So if you think about 2023, we had — at the beginning of the year, about $6.2 billion of received fixed swaps rolling off, $1.7 billion in the first quarter at a rate of 2.62. So that was sort of the highest of the two-year rate.The rest will roll off through the year, so another $4.5 billion. We’re not replacing those. So we’re going to allow on that portion, the natural asset sensitivity of that loan book to come through. Next year, another $7.5 billion of swaps mature. And we’ve essentially replaced those with a combination of forward starters at an average rate of 3.4%. So there’s some negative carry in that.But in the forward rate, they actually are a bit in the money by the end of the year.
And then the other half with floor spreads that kick in at $3.40. And the value of that, as you can imagine, is we get all of the floating rate value above 340 until the forward curve comes down. And if we were in a higher rate environment, we would benefit from actually not hitting that floor.So we think we’ve managed the downside risk there quite well and preserve some of the upside. The reason we wouldn’t do or haven’t done more or all floors or floor spreads at this point is just the cost of volatility is pretty high. So we’re trying to balance the kind of the risk reward on that trade.Ebrahim Poonawala Thanks for taking my questions.Clark Khayat Sure.Operator Next, we go to the line of Scott Siefers with Piper Sandler. Please, go ahead.Scott Siefers Good morning, guys.
Thank you for taking the question. Mark, as we look sort of from the margin at 247 now and then that kind of, I guess, aspirational margin near the 320 ex-treasury and some swaps. I guess one of the big things has been sort of what happens between here and there.Do you have a sense for when — based on what you see now, when the margin would bottom where that might be? And then, kind of, more specifically when it would start to inflect upward to. I know the treasury start to — the treasury and swaps, that’s more of an end of 2023 and into 2024. But will we get a margin inflection this year, or is that something that do we continue to bleed out a bit through the remainder of the year before it inflect back up? How do you think about that dynamic?Chris Gorman Yes.
Good question, Scott. So we would have originally thought Q1 was the low point. We think that’s now Q2, and then we’ll start to see some stabilization and uptick in the back half of the year. And again, part of that is the — really, the swap book starts to roll off. We begin to see some treasuries, although, they’re fairly light in 2023 and yes.Scott Siefers Okay. That’s perfect. Thank you. And then, Chris, maybe just a thought on the investment banking rebound in the second half. I mean what does that kind of look like in your mind, how powerful could it be?It’s been such an odd environment. You got the VIX at a level where historically, there’d be a lot of activity now. But it certainly feels very uncertain, and I think we’ve all been sort of surprised by overall lack of activity.
So when you sort of look out over the remaining several months of the year, what’s sort of your best guess as to how a rebound might play out?Chris Gorman I think you have to go through sort of the price discovery. And I think there’s a bid and ask basically on equities. As you can see, there’s some deals getting priced. You can see there’s some high yield that’s getting done. But I think, Scott, what it’s going to take is for kind of buyers and sellers to readjust their expectations. And I think my experience is that process takes a while. But eventually, people adapt to kind of what the new normal is. And as I said in my comments, I actually think it will come back sometime in the second half.Our pipelines are down about 10% from last year which in the grand scheme of things, if you think about this time last year is not bad.
So the pipelines are good. We actually had a nice quarter in terms of advisory — but a lot of our clients, frankly, are sitting on the sidelines. There are deals to be done. And frankly, we’re advising many of our clients that now is not the perfect time either to enter into the financing market or to complete a transaction. But it will come back and the pipeline is building. Some deals will just go away, but it will come back.Scott Siefers Yeah. Okay. Perfect. Thank you all very much.Chris Gorman Thank you, Scott.Operator Our next question is from John Pancari with Evercore. Please go ahead.John Pancari Good morning.Chris Gorman Good morning, John.Clark Khayat Good morning.John Pancari Just a couple of questions regarding the NII outlook for the year.
Can you just share with us your thought of the noninterest-bearing deposit mix shift? How you view that progressing and then — and then also on the progression for the second quarter, just regarding Scott’s question on the margin, you mentioned that you see a pullback again in the second quarter and then inflection. Can you maybe help us size up that amount of margin compression incrementally in the second quarter? Thanks.Clark Khayat Sure. From noninterest-bearing, we’ve seen that come down 29% to 26, 27, we would think that, that would make its way to the mid-20s. But I will say there’s one caveat in there, and that is we have been using the I believe we’ve talked about this, but we’ve been using what we refer to as a hybrid account with many of our commercial clients where we’re taking noninterest-bearing deposits and some of their excess balances and keeping them together in one interest-bearing account.So we’ve moved balances out of noninterest-bearing into those accounts.
They would reflect on the balance sheet as a decline in noninterest-bearing, but it allows us to maintain those balances in a technically interest-bearing account, but at very attractive rates. So again, we can break that out over time. But I would say the noninterest-bearing decline probably isn’t quite as stark as it would appear on its face.As it relates to net interest income, second quarter, we’d expect that to be down kind of 4% to 5% in Q2 with NIM, NIM coming down in part because we’re carrying a little bit excess liquidity post the early March period, and we would see that come down we think maybe another 6 to 8 basis points. And then as I responded to and Scott’s question, kind of stabilize and start to come back up in the second half of the year.John Pancari Got it.
Okay. All right. That’s helpful. And you care to venture a projection in terms of the magnitude of the inflection in the back half of the next?Clark Khayat Not at the moment. We just — we haven’t provided that yet, but you did — you would see our — obviously, our guide for the year on NIM being down a little, but that’s obviously going to require us to be stronger in the second half than we expect toJohn Pancari Got you. Okay. Thank you. And then just separately on regulation. I want to see if you can maybe provide some comments around how you’re thinking about the most likely areas of regulation where you expect some measures out of the regulators or around inclusion of AOCI, potentially TLAC, FDIC, stress capital buffer risk. Maybe if you could just comment on that Chris, I’m interested in your comments on that as well.Chris Gorman I’d be happy to comment on that.
To the premise of your question, there’s no question that we’ll be experiencing. We’re going to have to carry more capital and there’ll be more regulation.I personally think TLAC is going to be part of that or some debt security that looks like TLAC I also think that we’ll probably have to carry more capital. We, as you can imagine, have run all kinds of scenarios. We feel comfortable that based on the burn down of our based on the earnings power of the company.And based on timing, i.e., there would be some comment period and some phase-in period. We feel like no matter under all the scenarios that we’ve looked at we feel confident that Key can be in a position to meet both the regulatory and the capital requirements going forward.John Pancari Great.
