Q1 2025 Synovus Financial Corp Earnings Call
Speaker Change: Good morning and welcome to the Synovus Best Culture 2025 Fanning School.
All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 10-1 on your catch time fine. To withdraw your question, please press star 10-2.
Speaker Change: The call today will be limited to approximately one hour. Please note this event is being recorded. I'll now turn the call over to Jennifer Demba, Senior Director, Investor Relations. Please go ahead.
Speaker Change: Thank you and good morning. During today's call we will reference the slides and press release that are available within the Investor Relations section of our website, synovus.com
Speaker Change: Chairman, President, and CEO Kevin Blair will begin the call. He will be followed by Jamie Gregory, Executive Vice President and Chief Financial Officer [inaudible]
Speaker Change: and they will be available to answer questions at the end of the call.
Our comments include forward-looking statements.
Speaker Change: These statements are subject to risk and uncertainties and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website.
Speaker Change: We do not assume any obligation to update any forward-looking statements because of new information, early developments, or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures and the appendix to our presentation.
Speaker Change: and now Kevin Blair will provide an overview of the quarter. [inaudible]
Kevin Blair: Thank you, Jennifer. Last night we were pleased to release strong first quarter 2025 results. Synovus reported gap and adjusted earnings per share of $1.30.
Kevin Blair: Adjusted earnings per share increased 4% from the fourth quarter and jumped 65% year over year, excluding the FDIC special assessment adjusted earnings per share rose 53%.
Kevin Blair: Year by year growth was driven primarily by necessary margin expansion, lower provision for credit losses, and disciplined expense management.
Kevin Blair: Also, funded loan production was the highest since fourth quarter 2022 leading to loan growth of $40 million in the quarter.
Kevin Blair: Net charge also declined to 20 basis points along with broad base credit metric improvement, while our adjusted return on tangible equity increased to 17.6%.
Kevin Blair: Our first quarter commercial client survey conducted over the last month revealed that there was an increase in negative sentiment with 17% of our clients expecting business activity to decline over the next 12 months up from 10% last quarter.
Kevin Blair: This correlates with the response in which 20% of our clients felt increased tariffs would have a meaningful impact on the respective businesses.
Kevin Blair: However, 41% of our clients who responded, noted that they believe business activity will increase over the next 12 months which was unchanged from our survey last quarter [inaudible]
Kevin Blair: While the impacts of these events on the economic and interest rate environment remain uncertain, we have strong confidence in our path forward and in the health and resilience of our balance sheet.
Kevin Blair: In recent years, Synovus has diversified its business mix and client base, increased capital levels, and balance sheet liquidity, and enhanced our enterprise and credit risk management resources and practices.
Kevin Blair: We are maintaining close communication and dialogue with our clients and are well positioned to provide support and advice as they potentially face a more challenging economic environment.
Kevin Blair: Our proactive balance sheet management and business model actions over the past two years coupled with our Growth Oriented Initiatives, Physician Sonobus Well for strong long-term revenue, earnings, and tangible book value growth, as well as top portal operating metrics.
Kevin Blair: In the short term, we are focused on mitigating risks that come from an economic slowdown while continuing to seize the opportunities where we have the greatest right to win. We are committed to ensuring clarity and confidence in the actions we take in winning as a collective team.
Speaker Change: Before I turn it over to Jamie, I want to welcome our chief credit officer and Fortner to her first earnings call.
Speaker Change: In Anne's 17 years with Synovus, she has served in various roles, including Executive Director of Credit Risk Management and leading credit for the whole sell back, and has significant credit industry experience that has excelled in roles of increasing responsibility, position her well to assume this critical leadership position.
Speaker Change: Now, Janie will review our first quarter results in greater detail. Jamie?
Thank you, Captain.
Jamie Gregory: Excluding the FDIC Special Assessment, adjusted non-interest expense was relatively flat.
Jamie Gregory: Net interest margin expansion drove revenue growth in the first quarter. Net interest income was $454 million in the first quarter, up 8% from the year-go period, and flaps sequentially as a result of the lower day count.
Jamie Gregory: Our net interest margin was 3.35% in the first quarter, up seven basis points from the previous quarter.
Jamie Gregory: The link quarter increase was largely attributable to effective deposit repricing and further supported by hedge maturities, lower cash balances, and a stable Fed funds environment.
Jamie Gregory: These benefits were partially all set by the full quarter impact of our $500 million debt-ish ones in the fourth quarter [inaudible]
Jamie Gregory: The lack of an FOMC ease in the first quarter and the lag benefits of continued reductions in our deposit pricing resulted in net interest margin out performance compared to our guidance in January .
Period in loan balances were up 40 million dollars.
Jamie Gregory: Despite relatively muted loan growth, our lending momentum accelerated throughout the quarter. This resulted in 8% annualized growth in our high growth lines of business, including middle market, specialty, and corporate and investment banking lending.
Jamie Gregory: Total loan production trends remained healthy as funded production increased 16% quarter over quarter and 89% year every year.
Jamie Gregory: The loan production in our wholesale bank was the strongest we had seen in two years.
Jamie Gregory: Our core commercial momentum has resulted in strong pipelines that we believe will result in steady lung growth as the year progresses.
Jamie Gregory: Core deposits increase 3% year-to-year, while seasonality in middle market deposits impacted
Jamie Gregory: However, we experienced positive trends in the overall deposit mix as growth in money market, interest-bearing demand and saving accounts was offset by a decline in time deposits.
Non-issues bearing deposits were relatively stable, quarter over quarter. [inaudible]
Turning to Funding Calls
Jamie Gregory: Our average cost of the pauses decline 20 basis points in the first quarter to 2.26% [inaudible]
Jamie Gregory: Our deposit cost improvement represents a total deposit beta of 46% through the recent
Jamie Gregory: which is above the top end of our previous guidance of 40 to 45 percent.
Jamie Gregory: I just didn't manage to strap a new, it was $117 million, which declined 6% sequentially and increase 1% year-of-year.
Jamie Gregory: We generated 6% year-of-year growth in core banking fees, driven primarily by higher treasury and payment solutions income and card fees, while capital market revenue increased 5%.
This road was partially all set by lower commercial sponsorship income.
Jamie Gregory: which was higher in the prior year as a result of one time income from the expanded relationship
Jamie Gregory: Link-quarter declines were a result of loan production mix which impacted capital markets fees as well as lower seasonal and transaction-related wealth management income.
Jamie Gregory: Moving to expense, we remain very disciplined with non-interest expense control.
Jamie Gregory: Adjusted non-inter-six months, let's flat on a link quarter basis and down 3% year-to-year [inaudible]
Jamie Gregory: Our strong first quarter performance was largely driven by controlled employment and project related cost, as well as positive trends in credit related legal cost and fraud related expense.
Jamie Gregory: Excluding the FDIC Special Assessment, Non-intersex expense was relatively stable year-to-year.
Jamie Gregory: As Kevin mentioned, the first quarter showed strength and credit performance with first quarter net charge loss of $21 million or 20 basis points.
Jamie Gregory: below our previously communicated expectant range of 25 to 35 basis points.
Jamie Gregory: Non-forming loans improved to .67% of total loans, down from .73% in the fourth quarter. [inaudible]
Jamie Gregory: The allowance for credit losses ended the quarter at 1.24%, compared to 1.27% at 2024 year end.
Jamie Gregory: The allowance for credit loss is decline due to positive credit trends within the loan portfolio, partially offset by a more adverse economic outlook.
Jamie Gregory: We continue to be diligent and proactive with credit risk management.
Jamie Gregory: We are engaged in multiple efforts to identify risks associated with recent policy changes.
Jamie Gregory: These efforts include the identification of commercial clients with potential exposure to increasing tariffs and heavier alliance on government contracts.
Jamie Gregory: Client surveys to gain more insight in the specific forward looking industry sentiment and engagement of experts to produce thought leadership. They can help guide decision making.
Jamie Gregory: This information, combined with other internal tools like our trade tracker, daily line utilization monitoring tool, and client cache inflow outflow data,
Jamie Gregory: Finally, our capital position remains strong in the first quarter, with the preliminary common equity tier 1 ratio at 10.75% and preliminary total risk-based capital now at 13.65%.
Our Healthy Arnings Profile continues to support our capital position.
Jamie Gregory: leading to relatively stable cap ratios, inclusive of $120 million of Sherry purchases completed in the first quarter.
Kevin Blair: I'll now turn it back to Kevin to discuss our strategic initiatives in 2025 guidance.
Kevin Blair: Thank you, Jamie. We made steady progress on various strategic initiatives during the first quarter. Importantly, our relationship manager hiring is on track with 20% of planned 2025 editions occurring through mid-April.
Kevin Blair: We expanded our structured lending team during the first quarter, and also deepened our Financial Institution's Industry Coverage and the Corporate Investment Bank.
Kevin Blair: Our legal industry deposit vertical has been officially launched with the deposit pipeline building.
Kevin Blair: Just as we have delivered positive operating leverage in the first quarter, we will continue to invest in a prudent fashion which should optimize long-term growth while managing overall expense growth within a range that highly correlates to short-term revenue growth
Kevin Blair: Given recent policy changes, our outlook assumes more moderate growth conditions, along with four fed funds cut throughout the rest of the year, and a 10-year treasury around current levels.
Kevin Blair: We are making some modest adjustments to our 2025 guidance based on recent trends and client feedback given what remains a highly uncertain economic environment. [inaudible]
Kevin Blair: period and loan growth is expected to be 3 to 5% in 2025. The vast majority of the loan growth should continue to come from our middle market, corporate and investment banking and specialty lending loans. [inaudible]
Kevin Blair: Our confidence in loan growth is based upon current pipelines, talent additions as well as business line expansions.
Kevin Blair: We are encouraged by the team's momentum in the first quarter, wholesale banking produced $900 million of new loan fundings, which was 35% higher than the prior four quarter average. There is now a billion dollar plus loan pipeline in this segment, which is up over 100% from the same period last year.
Kevin Blair: 2nd, our loan growth will be supported by 11 new middle market bankers hired in 2024 as well as an additional structured lending team on board it during the first quarter of 2025 .
Kevin Blair: On the deposit front, we expect cord deposit growth of 3 to 5%. This growth will be led by a continued focus on cord deposit production across all of our business lines.
Kevin Blair: These efforts are further supported by forecasted growth from investments in deposit specialties such as our liquidity product specialty team and legal industry deposit vertical.
Kevin Blair: The adjusted revenue growth outlook is a range of three to six percent. Our interest rate sensitivity profile remains relatively neutral to the front end of the curve and we remain slightly asset sensitive to longer term rates. [inaudible]
Kevin Blair: However, during an easing cycle, the margin will exhibit short-term pressure due to the timing lag between loan and deposit repricing [inaudible]
Kevin Blair: We anticipate a just-at-noninterest revenue of $485,000,000 to $505,000,000 this year which includes the first quarter impact of softer capital market fees as well as lower wealth management fees as a result of equity market valuation.
Kevin Blair: We believe continued core execution in areas such as Treasury and payment solutions in capital markets as well as the refinement of our delivery models in consumer banking, wealth services and third party payments will support our sustained fee income momentum even in uncertain times.
Kevin Blair: We have produced healthy, non-interest revenue growth over the past few years.
Kevin Blair: Excluding mortgage lending revenue from 2020 to 2024, we generated 11% compound annual growth in core client fees. We will continue to invest in core donators revenue streams that deepen our client relationships.
Kevin Blair: Adjusted not interest expenses expected to grow 2 to 4%. The reduced range is a result of positive trends in multiple areas including employment cost, project related spend and credit related legal cost and fraud related expenses.
Kevin Blair: We will continue to be balanced and very disciplined in expense management while investing in the areas that deliver long-term shareholder value.
Kevin Blair: On the credit front given current credit metrics, we anticipate that net charge all should be relatively stable sequentially in the second quarter, which is below our prior guidance of 25 to 35 basis points.
Kevin Blair: Our net charge-alls have averaged 26 basis points over the past 4 quarters.
Kevin Blair: Moving to capital, we will target a relatively stable CET-1 ratio around 10.75% with the priority on capital deployment continuing to be loan growth.
Kevin Blair: We believe current capital levels are more than adequate in a range of more challenging economic outcomes.
Kevin Blair: Finally, we anticipate the tax rate should be relatively stable at 22% [inaudible]
and now operator, let's open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-time phone. If you're using a speaker phone, please pick up your hands up before pressing the keys.
Kevin Blair: to withdraw your question, please press star, then two. In the interest of time, please submit yourselves to one question and one follow up. Thank you.
Thanks. Good morning, everyone.
Good morning, John.
Jamie Gregory: Kevin, maybe for you, just to start this off, can you talk a little bit more about the lending environment and maybe some? [inaudible]
Speaker Change: and some more qualitative commentary. And just also curious what you think takes you to the lower end of the long growth guidance range in the higher end. And kind of curious what's happened in the last several weeks as well.
Speaker Change: What really comes loud and clear is that when we talk to our clients today, there is a level of uncertainty that exists.
Speaker Change: Having said that, in one of our survey points that I think has proved it to evaluate, is 41% of our clients believe that business activity will increase over the next 12 months [inaudible]
Speaker Change: and that survey was conducted over the last month including some of the noise around tariffs. So, there's still a constructive business environment out there in which we can continue to grow loans. And I think
Speaker Change: This quarter, and the production we had, about a billion five and funded production, it was up about 10%, 15% over where we were in the fourth quarter, so it continues to build.
Speaker Change: When we look at our pipelines that we exited the first quarter with, they are higher than what our production was for the quarter. So that would point to the fact that we should expect to continue to see production grow again in the second quarter.
Speaker Change: and why is that? You've seen in our disclosures we've tried to break it down into four segments. The first segment is our fast growth segment which includes middle market, structured lending, C.I.B. and other specialty groups. That group grew 8% in the first quarter. [inaudible]
Speaker Change: We think that will continue to grow, even out of faster pace, 10 to 15% for the rest of the year.
Speaker Change: and they have a proven track record in doing that. We, our middle market team over the last four years has kind of a core growth rate of 10%. So they've proven it. Same thing with our structured lending area and CIB so new that they've been growing at a very fast pace. Okay, so.
Speaker Change: Those fast growth segments, we have a lot of confidence in being able to grow it. I mentioned in the prepared remarks, we've also added 11 new middle market bankers in the past year, which is a 30% increase into the staffing. So those individuals will start to really build the balance sheet by bringing over their clients.
Speaker Change: I think it's also we talked a lot about payoff and paydown activities [inaudible]
Speaker Change: Pay-off activity subsided a little bit in the first quarter, but they're still elevated, about $150 million over kind of long-term averages. And so that will continue to abate, and that will provide tailwinds as well. And then lastly, we look at line utilization. When we look at our forecast, we kind of looking at the midpoint. We assume line utilization stays roughly flat at 47%. [inaudible]
Speaker Change: But we've seen that utilization correlates very well with interest rates. So if interest rates were to decline, we think utilization could pick up. So when you ask the question, we're confident about our loan growth guidance.
Speaker Change: What would push us to the high end of the range would be stronger production than maybe what we had thought and maybe a little extra line utilization that we haven't counted for.
Speaker Change: Okay, helpful. Yeah, it sounds like market share gain is a...
Pretty big piece of this as well. Is that fair? Well, it was a new talent. Absolutely. I don't, you know, there's there's you if you're
Speaker Change: Just relying on getting more business from your existing clients. I don't know that you can have outside's growth what we want to do and we've said this in the past We think that our growth rate should be one or two hundred basis points above the underlying market just so that we're getting our fair share plus we're showing that we're taking share from our competitors
Speaker Change: Thank you. Jamie, you surprised me on the margin, it was a little better than I thought, and when I look at slide 14, there are obviously two big movements in terms of loan repricing and deposit cost coming down. How are you feeling about the margin from here in terms of some of the near term puts and takes?
Speaker Change: Yeah, you know, we're pleased with the trajectory of the margin, how it's been trending, we look at...
2025 for the rest of this year.
We think that...
Speaker Change: The margin, the trend is for it to be relatively stable. [inaudible]
Speaker Change: in the second quarter, but it really depends on Fed policy. So the core underlying asset yields and deposit cost, we think we'll be about a push next quarter, but if we do have easing in the second quarter, which is embedded in our forecast, we have a June cut. Bye.
Speaker Change: then we would expect to see that lead lag impact, you know, put a little bit of pressure on the margin in the second quarter. As you go through the rest of the year, our guidance includes four cuts total, three in the second half of the year, so you have June through October rate cuts.
Speaker Change: That basically has the temporary impact of the lead lag headwind.
Offsetting the permanent benefit of risk-weighted act at repricing so...
Speaker Change: Our view is that we will likely lead to a stable margin heading through the year in that scenario in the mid-30s.
Speaker Change: But that's basically what you're seeing there is that temporary headwind of lead lag impact offsetting something that will be with us forever as the balance sheet reprises to market rate. So,
Speaker Change: You know, I don't think that that's a true reflection of the core margin. You know, if you look at flat rates, you would just see margin expansion basically through the second half of this year, but that lead lag impact definitely is impactful this year. [inaudible]
Thank you.
Okay, all right. Thank you very much. Appreciate it.
Good Jam.
Speaker Change: Thank you. Our next question comes from Anthony Elian of JP Morgan. Your lines are open. Please go ahead.
Thank you.
Anthony Elian: Hi, everyone. Just to follow up on Jon's previous question on loan growth, was the strong loan production you saw during the previous quarter at all due to borrowers getting ahead of or stockpiling inventories prior to tariffs?
Anthony Elian: Tony, not really. We have a monitoring tool that we look at, daily line utilization, and usually that's where you would see people getting into their borrowing base to take out additional inventory. We had a couple industries that saw an uptick, but in...
Anthony Elian: and Aggregate. We didn't see much of a movement at all in line utilization. The production we have really was broad based across our commercial real estate, our CNI teams, CIB specialty lending so it wasn't really a poll forward a future demand.
Speaker Change: Thank you, and then my follow-up on the reduction to the expense guidance. I know on the guidance
Kevin Blair: Indicating no change in strategic growth objectives, and Kevin, I think, and you prepared remarks, you mentioned, you made 20% of the plan . . . .
Speaker Change: Highers through mid-April. But I just want to confirm if there are any changes at all to the amount or the timing of the 20-30% more RMZ plant to hire over the next three years.
Thank you.
Speaker Change: Yeah, so from a commercial R.M. perspective, we really have not changed our expectations there. We've added as I said 20% it's probably even a little higher than that as we sit here today.
Speaker Change: The one area that we may slow is part of our wealth expansion with markets being as volatile as they are. It's generally more challenging to try to get a brokerage or wealth advisor to move during that time. But look, it's too early to make that statement today because the markets have moved so much. But there really is no overarching change to the strategy. We think that our right to win, our ability to attract that talent remains the same. We've been working on for some time.
in the room?
Speaker Change: and one more thing I would add to that is, as you look at our expense guide to change, there are other benefits in there that are not part of that spin on RM growth and so
Speaker Change: We have project cost benefits in 2025 where we have projects coming in a little less cost this year than what we expected. We have facilities cost a little lower. And then, you know, in line with the improved credit performance, strong credit performance, we have reduced credit-related costs, we have reduced fraud expense.
Speaker Change: and so there are a lot of tailwinds that go into that expense guide reduction this quarter.
[inaudible]
Thank you.
Thank you. Bye.
Speaker Change: Thank you. Our next question comes from Jared Shaw of Barclays. The line is now open. Please go ahead.
Hey, good morning, guys.
Good morning, Care.
Speaker Change: Maybe looking at credit and sort of the improvements there, when you look at the charge-offs, I think you called out a...
Speaker Change: and office charge-off. Is that the office loan that had previously been in non-performing or is that clean-debting out?
Thank you.
Speaker Change: That's correct. That's related to the office, not performing relationship. And while that has not been fully resolved, that's a step in that direction. And we hope to have a solution to that, either at the end of this quarter or the next.
Speaker Change: Okay, okay. And then when you look at the overall sort of increased weighting to an adverse scenario, was that as of March 31st or does that sort of reflect where we are today? And should we expect that that maybe continues to have a heavier weighting towards adverse scenario in the second quarter? Sure.
Speaker Change: as we look at the aloe, I mean this is as of March 31st and there was already some
Disruption in the Economy, then Pre-Liberation Day.
Speaker Change: and that impacted our waiting. I think it's interesting to note that…
Speaker Change: First, these weightings, if you look at the back of the deck on 522, you'll see that the weighted average unemployment rate for full year 2026 is 5.2% peak unemployment, about 5.3% [inaudible]
Speaker Change: That's a pretty negative scenario to have that as your baseline. And so we think that that does acknowledge the uncertainty. We will continue to watch the outlook.
Speaker Change: Moody's release their scenarios this week, for the month of April , and they did deteriorate a little bit. Their downside scenario did not really change, but the other scenarios kind of went a little more negative than what we saw in the March scenarios. So, we're going to start the next video.
Speaker Change: But that doesn't necessarily mean anything for us because what we do is at the end of the quarter we will look at all their scenarios and we'll come up with what we weightings we think is kind of most appropriate for us. With the allowance in the first quarter.
The first thing I would note is [inaudible]
The lone portfolio performance drove... [inaudible]
Speaker Change: Significant Improvement in the Modeled Output of the Allowance D'Alone Ratio.
Speaker Change: If that was the only thing that happened in the first quarter we would have seen a reduction in the allowance of loan ratio
Speaker Change: getting it to the 120 or even lower area, and then you see an offsetting increase.
Speaker Change: based on the economic uncertainty in the economic outlook. We've seen a lot of articles out there that they get into sensitivity betas and assumptions around what happens at the economy deteriorates.
Speaker Change: And the only comment I'd make on that is, our portfolio is, you know, very different than it was, you know, in the GFC, and our outlook right now is very different than it was in 2020 with the pandemic. And so I don't think that those are the most reflective analogs of where things could go if they were to deteriorate from here.
Speaker Change: But when you look at the adverse scenario, using the Moody's downside scenario, we have it as 20% weight. Unemployment gets up to full year, full year, 2026, 8.2% peak unemployment, 8.3%
Speaker Change: If we were to only use that scenario and weighted it 100%, you would see about a 20 to 25 basis point increase in the allowance to loan ratio. So I think that that's a better...
Speaker Change: Analog for where things could go if they really deteriorate from here, but clearly that's nothing that we expect. It's nothing that we see. But the reason I bring that up is because the sensitivity is just very different today than it has been in the past. [inaudible]
Speaker Change: Okay, that's a great color, thanks. And then just finally for me, just on Capitol, how should we be thinking about, I guess, the remaining buyback here, given the...
Speaker Change: The discussion around CT, St. Stable, and using that to fundraise should we think that you're out of the market for the time being?
Speaker Change: Well, when you look at the capital, we generate every quarter through earnings. That gives us a lot of flexibility.
Speaker Change: to go out there and grow client loans, which is our core priority. And so as we look at the three quarters remaining in this year, first our objective is to maintain stability in capital issues.
Speaker Change: But the beauty of having strong earnings like that is that that gives you the ability that you do not need to necessarily stockpile capital for future growth.
Speaker Change: We could grow our objective at the high end of the range and fuel that with capital generated in two quarters of earnings.
and so...
Speaker Change: Philosophically, as we think about how we go through this year, we will look to buy shares and look in the near term at Lone Growth Prospects.
Speaker Change: and really weigh the near-term growth and offset it with sherry purchases. And so if we're seeing growth come in fast and we're having success growing client loans, then we will dial back sherry purchases. But if things look relatively stable in the loan front, you should expect to see us in the market. [inaudible]
Thank you.
Speaker Change: Thank you. Our next question comes from Gary Tenner of D.A. Davidson. The line is now open. Please go ahead.
Thank you very much.
Thanks, good morning.
Speaker Change: So, I think I'm in Terry, you know, kind of regarding your hate.
Speaker Change: Sorry, I recently come to you regarding your focus on getting your arms around the DC policy changes that you highlighted on slide nine and in the deck kind of sounds like you're working to
Speaker Change: Kind of ring fence, if you will, some exposure there. Can you provide any more specificity around kind of magnitude or proportion of your customer base? That you think of as falling into that kind of primary target group and any other color you could provide there?
Speaker Change: Gary, as I said earlier, it's so hard. We know that it is going to have a significant impact across the entire business community, but it's hard to isolate what that impact is and how meaningful it will be to each client, so we engage as you saw in that slide 9 and a couple different things. The first thing is...
Speaker Change: Yeah, we looked at the same industry classifications that you would expect to have a larger impact, things like manufacturing, transportation, government contracting, discount retail. And we've evaluated that within our portfolio and the diversification within our portfolio. We have fairly limited exposure when you look at the full size of the outstanding there.
Speaker Change: Secondly, we felt like we needed to reach out and talk directly to those clients with the greatest exposure. When we had those discussions kind of the top 100 borrowers.
Speaker Change: What we heard is that about 15 percent felt like it would have a meaningful direct impact to their business and when we talk about
Mean Full Direct Impact, it doesn't mean... [inaudible]
Speaker Change: Credit situation. It just means that they're going to have increases in their input costs.
That for us was somewhat...
Speaker Change: Ring, Fencing, or Understanding who they are. And we'll work more closely with those clients that stated that they would be largely impacted.
Speaker Change: We then conduct a quarterly survey, as I mentioned earlier, and ironically that survey came out with a similar response, which is...
Speaker Change: about 20% of our clients felt like they were going to be directly impacted by the tariffs. Now, I mentioned earlier in that survey we did see some deterioration in negative sentiment. It went from 10%
Speaker Change: to 17% of clients who felt like their business activity would decline over the next 12 months. But as I mentioned earlier, we still have 41% of our client base who feels like business activity could pick up.
Speaker Change: So, the last piece is trying to go through, as I mentioned earlier, looking at daily line utilization, looking at a trade tracker tool that we have built internally.
Speaker Change: All that stuff just makes us better prepared to have conversations with our clients, but I think it comes down to the health of the consumer and their ability to be able to absorb increased cost.
Speaker Change: and I would point to you that the best mitigate we can have in this situation is what we've been doing over the last ten years.
Speaker Change: We have derisked the balance sheet, we've diversified our revenue stream, and most recently, as Jamie talked about, we've increased our capital levels to the highest they've been in over 10 years, and the same thing for balance sheet liquidity.
Speaker Change: So we're having discussions. We want to make sure that we're staying close to our clients. We think that it's not something that concerns us at this point, as you can see from our ACL, but we also know that it's a very volatile time and we need to stay on top of it.
Speaker Change: Thanks, I appreciate the thoughts and commentary there, and just a quick kind of equipment question, if you will, in terms of the buyback in the quarter, could you give us the average price that you bought back shares of? [inaudible]
The average price, it was $49.41. The average price, the average price, the average price,
Thank you.
Speaker Change: Thank you. Our next question comes from Bernard von Gizycki of Deutsche Bank. Your lines are open, please go ahead.
Speaker Change: Hey guys, good morning. I think previously guided to about 20 basic points benefit from six asset repricing for 25 and 26.
Speaker Change: and you know you mentioned the four rate cuts, table ten year assumption. Is there any update to what you might be expecting from fixed at repricing given the patent rate?
you know
The rate difference.
Speaker Change: The rate exposure on the fixed rate asset repricing is the belly of the curve in the long end, which has been highly volatile over the last month and so it is.
Little difficult to keep track of all that. Um, but
Speaker Change: For us, as we look at the fixed-grade asset repricing for this year, it remains extremely similar as what we've said in the past. And that statement really holds for this year and next. I mean, it's a little lower in 2026 because the rates have declined. [inaudible]
by the...
Speaker Change: Corp for us, if you were to look at the margin in a flat-rate scenario, we would expect the margin to get into the low 340s by the end of this year.
Speaker Change: Clearly, that's not the market expectation, but I think that's a little bit indicative of, you know, the balance sheet benefit or the income state benefit of the six straight asset repricing for this year. But yes, that should continue into next year, just as we've said in the past.
Speaker Change: Gary, I appreciate it. I can appreciate how difficult it can be in this environment to forecast that.
Speaker Change: Maybe just on my follow-up on capital markets, maybe another difficult question on forecasting.
Speaker Change: I know that I know the revenues were a bit weaker than expected and you noted that it was due to one production mix. Can you just expand on this and expectations for this mix and see if the trend for the rest of the year? I believe you noted on the call, course, tuition, you know, here's still expected. Okay, then.
Speaker Change: I believe you, you know, point at the double-digit growth in cap markets being previously, so any update?
Yeah, Manan, Joseph Kevin. Um, um,
Speaker Change: When you look at it for the quarter, we were down about $5 million from the fourth quarter.
Speaker Change: Five million of that were just derivatives, swap fees and another million and a half were on the lead syndication arranger fees.
Speaker Change: We actually increased debt capital markets, increased FX and our SBA government guarantee sales, and so when we talk about MIX number one
Speaker Change: We just had fewer large loans that would have qualified or run through our syndication platform and number two, I...
Speaker Change: We're talking about this with interest rates being where they are today with the expectations that potentially there could be greater cuts.
Speaker Change: I think our clients were less inclined to go ahead and swap to fix at this point. They have talked a lot of anchors who said they want to remain, or clients want to remain floating, but it will give us the opportunity down the road to come back and...
Speaker Change: and as the interest rate environment kind of plays out, I think you'll see more swap income. So that's why we feel that it's not predicated on leading a bunch of debt deals, it's really more so the swap side of it and how many syndications we're going to lead as a result of it, the other businesses within capital markets are actually performing at a very high level. [inaudible]
and David. Thank you. Thank you.
Okay, great. Thanks for taking my questions. Thank you.
Speaker Change: Thank you. As a reminder, if you'd like to ask a question, please press the button on our first by one on the telephone keypad.
Speaker Change: My next question comes from my casey hair of autonomous. Don't learn to sound open, please go ahead.
Casey Hare: Yes, thanks so much, guys. Another follow-up on the origins specifically to pass across.
So, as you guys point out, your beta is...
Casey Hare: 46 is coming in a lot stronger than what you guys laid out. I was just wondering what some updated thoughts on where that can go from here. And then also that the revenue guide is based on the positive composition holding stable, but you have nice positive mix shift with lower CDs when they're getting back and continue.
Thank you.
So...
Casey Hare: A couple of things there. The deposit beta, I would actually argue that we're at 48% in this cycle. We put 46 in the deck to use quarterly numbers, but if you use month of March, we're actually at a 48% beta in this down cycle. And we're pretty pleased with that. I mean, part of that's mixed, but a lot of it is...
Casey Hare: Pricing Within Products, and so we've had a lot of success there with our teams and our clients.
Casey Hare: Eric, when we look forward, our assumption is for the beta in the next part of this easing cycle to be about a 45% beta. So fairly similar, a little less.
Casey Hare: The reason for that was, on the consumer side, we had a lot of success.
and moving our clients into money market accounts. [inaudible]
at Gray Raid
Casey Hare: and that gave us the flexibility to allow those time deposits to decline. And we think that's a real positive for Mexico and Ford in that segment.
Casey Hare: I wouldn't expect to see that magnitude continue when you look at CDs and the trajectory from here, but we do expect that the core deposit growth as we go through the rest of this year will be led by
Non-matured, Entry Baron Pazis, Money Market, and now accounts. And so,
Casey Hare: That's where we expect to see a lot of the growth. That's embedded. Good.
and our Outlook respect. [inaudible]
Casey Hare: NIB to be relatively stable the rest of the year, and that's all that all comes together in our margin outlook.
Speaker Change: Okay, great. And then, on the expense fund, you know, you guys have done a good job of balancing, you know, operating leverage dynamics with some of your strategic investments. The, you know, the guide here does.
Speaker Change: You know, there are some some healthy encouraging signs, but it does assume some pretty [inaudible]
Speaker Change: Aggressive staffs, staff office and long growth and fees. If those falls short, is there more to push the expenses lower, or is this two to four guy the low end of that? That's the death count of the end.
Speaker Change: So we're pretty convicted and the strategic initiatives that underlie that two to four percent growth.
Speaker Change: and some of that's already baked in, if you think about merit that's already happened for this year, as far as the increase in spend, but on the strategic initiative side.
Speaker Change: We're pretty convicted and in what we have laid out with the arm hiring [inaudible]
You think about our lives initiative, structure of lending growth? [inaudible]
Bill out of the Financial Institutions Group.
Speaker Change: and then some of the projects we have with our, with different core systems, fraud, etc., syndication system, I mean all these projects we believe are pretty important.
Speaker Change: But that being said, if the economic outlook materially deteriorated, if we were in a scenario where economic growth looked really negative, maybe like it did in early April for a day or two.
Speaker Change: We could stop those initiatives, we could hit Paul's on the hiring, we could hit Paul's on a lot of those initiatives.
Speaker Change: You know, if that were to happen in the near term, I believe we could actually get back to a spot where we did not have expense growth in 2025.
relative to 2024.
Speaker Change: Now, that would have to happen quick, and it's unlikely that we would choose to do that!
Speaker Change: But it's a possibility and that's one of the things you should see with us is we maintain expense flexibility and we're always looking at ways to cut calls. Now it's not our intent to do it. We believe the shareholder value is embedded in all of the initiatives that we are green lighting for 2025.
Speaker Change: But you should know that if the world changes, we're ready to change with it.
Gotcha. Thank you.
Speaker Change: Thank you. Our next question comes from Nick Holowko of UBS. Your line is now open. Please go ahead.
Hi, good morning.
maybe just one follow-up on your slide 9-in. [inaudible]
Speaker Change: highlighting the proactive response to DC policy changes. Do you feel like the technology investments that you've made over the past handful of years and those that you're continuing to invest in today have helped you in any way prepare for more dynamic times like we're in today? And if so, how does that help inform you about some of the investments you're continuing to make here on the strategic side?
Speaker Change: Deposit Relationships, which was an early warning mechanism into any sort of credit deterioration. We're able to use that in this sort of environment too.
have access to more real-time information, number 1. [inaudible]
Speaker Change: Number two, just like I mentioned earlier, we have tools that are available to our risk teams and our line of business leaders that would identify changes in daily line utilization. So that we would have again early warning mechanisms to evaluate any sort of credit deterioration.
Speaker Change: I think, not only have we improved the technology, we've also improved our overall procedures and processes related to risk management, the diversification of the balance sheet. I think that's a big factor.
Speaker Change: We were looking back at our balance sheet post the GFC and we look at it today we look like a completely different institution as it relates to the asset classes that we're in but yes I truly believe that the investments in technology. Thank you very much.
Speaker Change: The team members that we have, the centralized risk management functions that we've built allow us not only to better monitor but more importantly we've been able to diversify and get out of some concentrations on the balance sheet that we would have had in the past.
Speaker Change: God, thank you. And then maybe just one more follow up on the allowance, you know, you talk highlighted performance on the credit front coming in a little better than expected. Anywhere to call in particular, where credit performance is improving?
Speaker Change: You know, as we look at the allowance calculation and end can talk in more specifics, but we look at the actual allowance calculation.
Speaker Change: You know, we are seeing a little bit of an uptick in the life alone law assessment on the retail side, but then, and CRE is going the other direction, looks a little like life alone law assessments are a little bit lower, so...
Speaker Change: that we posted this quarter. You know, what we've experienced is some improvement in our senior's housing portfolio. We've had a few material upgrades there. We've also had...
Speaker Change: and good M&A activity as well on that space. So that's been a strong contributing factor.
Speaker Change: to the favorable results, and also from a CRE perspective, our multi-family.
Speaker Change: Book continues to hold up and perform quite well. We have to date no charge off, virtually no MPLs,
Speaker Change: and Substandard Crune One. So we're continuing to feel favorable about that largest exposure that we have in CRE. As I mentioned earlier, we are working through a large...
Speaker Change: Non-performing relationship in office, and so we've taken a step in the right direction.
Speaker Change: to reach a resolution on one of those deals. Overall, we feel like the office portfolio is continuing to be pressured, right? But we are seeing some glimmers of hope out there relative to valuations.
Speaker Change: So we feel, you know, generally, you know, good about where our office portfolio is today.
Got it, thank you very much.
Thank you.
Speaker Change: Thank you. Our next question comes from Catherine Mealor of KPW. The lines are open, please go ahead.
Speaker Change: Thanks, good morning. We talked a lot about how great low origination volume has been so far this quarter, or some of this year. Can you talk about what you're seeing on the paydown side? I guess that's the big risk to the move in the 10 year depending what happens there. If we see exposure to paydowns and maybe what you're seeing in your client base, particularly towards the back half of the quarter. Thanks. Thank you very much.
Speaker Change: Catherine Mealor, it's still elevated when you look at the payoff activity in the commercial space. I'm talking specifically about commercial here. It's about $150 million higher than kind of our long-term average.
Speaker Change: Now that had spiked to be as much as three or four hundred million dollars in previous quarters, you know, fourth quarter being a great example. So it is starting to abate a little bit and I think it's what Anne said earlier. We've seen transactions occurring in the book which is healthy. We like M&A activity. We like pay off activities because people are going to permanent financing on the CRE side. On the CNI front we saw some line utilization or some line pay downs. So we're going to have a little bit more. We're going to have a little bit more. We're going to have a little bit more.
Speaker Change: that generally can happen as well with higher interest rates and I think that will abate as we start to see lower interest rates.
So we're getting back to normalize levels today so I wouldn't...
Speaker Change: consider the payoff activity as being the biggest headwind going forward.
Speaker Change: Now as it relates to mortgage, our consumer mortgage book, we could see pay-off activity pick-up obviously depending on what happens with the ten year treasury and that's something that happens.
Speaker Change: You know, we could get some churn there, but we could also increase our production to replace that. But I wouldn't consider the payoff activity as one of the bigger headwinds as we think about the loan growth guidance for this year.
Speaker Change: Okay, great, that's helpful. And then on work pricing, I felt like we heard anecdotally a lot of the conversations I feel like in February was that growth was good but the pricing was getting more competitive. Of course, the world changed a month later, but just a little bit of curious about what you're seeing on the loan pricing side and how you think. [inaudible]
that plays out over the next few months.
Speaker Change: Yeah, Catherine, it's a great question and I compliment our finance team and all of our line of business leaders who are using tools on the front line to evaluate
Speaker Change: What's the right price is based on our return hurdles and based on what competitive benchmarking [inaudible]
is now. [inaudible]
Thank you.
Speaker Change: to your point, everything is relative. So our spreads and our yields are coming down.
Speaker Change: Number one, I think the marketplace is a little more competitive. That's kind of the fact. The good news is that the spreads are coming in just as we had forecasted them. Whether it's a floating rate or fixed rate loan, and so our guidance hasn't changed from an NII standpoint based on that new production. And just to put that in perspective, the first quarter yield on new production was 690.
previous quarter was about $7.19.
Speaker Change: but we also like to think about that in context of what we're bringing on in terms of new deposit production. [inaudible]
Speaker Change: New Deposit Production, this past quarter was 258, so we're still getting...
Speaker Change: 432 spread on new loans over new deposits and so I think you have to look at those in combination. We internally do manage what the going on production yield is and we monitor it.
Speaker Change: and we have benchmarking as I mentioned to be able to determine whether we're in market or not. So it is a competitive market, is that say all the time, whether it's loans or deposits? I've yet in my 30 years found a market that's not competitive. [inaudible]
Speaker Change: So it's going to remain competitive but I think we're pricing where we want a price and we think it can be a creative to the name going forward.
Great, very helpful. Thank you .
Speaker Change: Thank you. Our next question comes from Ebrahim Poonawala from Bank of America. The lines are open, please go ahead.
Speaker Change: Hi, good morning, everyone. This is Eric, I'm through EV. Most of mine have been answered, but just wanted to follow up, Kevin, you know that you guys are neutral to short-term rates, a little bit of assets since this longer term. Any thoughts on kind of neutralizing or changing anything around that rate from the pivot at this point in the cycle? Thank you.
Thank you.
Jamie Gregory: Yeah, this is Jamie, I'll jump in on that one.
Speaker Change: We try to maintain neutrality to the front end of the curve. We won't invest to invest in us for our growth profile, our prudence, and how we go to market more than a rate play. And so we try to maintain that stability and
Speaker Change: to give a concrete example of how we do that in the first quarter.
Speaker Change: We were looking out two years forward and you know you can see our hedge notional declines when you look that far out as hedges mature and we put more on and so
Speaker Change: We had an opportunity, rates were higher, much higher than they are now, about 4%.
Speaker Change: and we received thanks for a couple of years out there on 500 million, it's 4%
Speaker Change: and that was a positive because we wanted to maintain neutrality.
Speaker Change: even out there. Now it gets difficult to model what is neutrality out there because you don't know where the final car will be, and so...
Right now, neutrality for us.
Speaker Change: is kind of the hedge profile we have now because if you look at our loans, we're 63% floating rate loans.
Speaker Change: If you look at our asset beta, kind of including series before you get to…
Speaker Change: kind of a low 50s on the asset beta before hedges and amid 40s when you include that.
So you have a mid 40s.
Speaker Change: Asset Beta with Hedges, and you have the 45-ish percent beta that we described on the podcast on the other side, and so that works out.
Speaker Change: But if rates are at the front of the curve that 2.5% in two years or three years. [inaudible]
Speaker Change: then the the beta that we'd be modeling would be much lower and on a down scenario and you would need more hedges or if the rates were much higher you would probably need less hedges and so we try to count on
Speaker Change: Keep a reasonable amount of hedges out there so that we have a long-term neutrality, but that's generally how we think about it. And so we view on the asset side amid 40s beta, we view on the liabilities side amid 40s beta, given the current framework we have right now. And so we view on the asset side amid 40s beta, given the current framework we have right now.
Thank you.
Speaker Change: This concludes our question and answer session. I'd like to turn the conference back over to Mr Kevin Blair for any closing remarks.
Kevin Blair: Thank you, Alex. As we conclude our discussion today, I want to take a moment to express my gratitude and pride in our team members.
Kevin Blair: Despite the increasingly volatile and uncertain environment around us, you have continued to deliver on a differentiated level, and you've held proactive discussions to assist our clients to better repair and take actions.
Kevin Blair: that truly sets us apart and your dedication and hard work are the backbone of our success.
Kevin Blair: I would also like to emphasize the resilience we discussed during today's call. From our optimized balance sheet to our diversified revenue mix and our proven ability to manage expense levels, we thrive in uncertain times.
Kevin Blair: We enter this environment in a position of strength, the highest level of capital in over ten years, the lowest level of chargeoffs in over three years, and an NPL inflow dollar amount, which was the lowest since second quarter, 22 three years ago.
Kevin Blair: Aloned Deposit Ratio of 84%, an ROA of 132 and a Return on Tangible Capital of 17.6%.
Kevin Blair: and we just posted a quarter with a 22% increase in PP&R and a 67% increase in EPS versus the same quarter last year. Our strategic approach and financial strength enable us to navigate the challenges and seize the opportunities.
Kevin Blair: Culture Matters, which is why we have seen low levels of team member turnover and are attracting top talent from other organizations.
Kevin Blair: Client primacy is built through exceptional service and advice and a foundation of trust, not based on your asset size or how big your technology budget is.
Kevin Blair: Based on our relationship-based approach, we continue to out-capability our smaller competitors and out-service our larger peers allowing us to expand relationships and market share and build an even stronger base of raving fans.
Kevin Blair: Looking ahead, we remain hyper focused on our clients, diligently managing and mitigating short-term risks while continuing to invest prudently in our future. Our commitment to our clients and our communities is foundational, and we are confident in our ability to drive sustained growth and value.
Kevin Blair: Lastly, I would like to extend my deepest thanks to our board member, Jon Stallworth. For his incredible support and guidance as a director since 2017, Jon will be retiring from the board in April and his contributions have been invaluable. We wish him well in his future endeavors and we will miss his presence on the board.
Kevin Blair: Thank you all for your continued support and for joining us today. We look forward to updating you on our progress in the coming months and quarters ahead. And with that Alex, that concludes our first quarter earnings call.
Kevin Blair: Thank you all for joining us today at school. You may now disconnect your lines.
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