Q1 2025 Regions Financial Corp Earnings Call
Chris: Good morning and welcome to the Regions Financial Corporation's quarterly earnings call. My name is Chris and I will be your operator for today's call.
Chris: I would like to remind everyone that all participant phone lines have been placed on listen only. At the end of the call, there will be a question and answer session. If you wish to ask a question, please press star one on your telephone keypad. A confirmation toll will indicate your line is in the question queue.
Speaker Change: I will now turn the call over to Dana Nolan to begin.
Dana Nolan: Thank you, Chris. Welcome to Regions' first quarter earnings call. John and David will provide high-level comments here regarding more results.
Dana Nolan: Earnings, Documents, which include our forward-looking statement disclaimer and non-GAAP reconciliation.
Speaker Change: are available in the Investor Relations section of our website. These disclosures cover our presentation materials, today's prepared remarks and Q&A. I will now turn the call over to John .
John: Thank you, Dana, and good morning, everyone. We appreciate you joining our call today.
John: Earlier this morning, we reported strong corely earnings of $465 million, resulting in earnings per share of 51 cents and adjusted earnings of $487 million and adjusted earnings per share of 54 cents.
John: We delivered pre-tax, pre-provisioned income of $745 million, a 21% increase here every year and we generated a return on tangible common equity of 18%
John: We're pleased with our performance and believe we are well prepared to face the current market uncertainty.
John: At Regions, we remain committed to our long-standing strategic priorities of soundness, profitability and growth. These priorities support our ability to generate consistent, sustainable long-term performance.
John: You're also the foundation underpending our decade-long plus journey to transform our bank.
John: Over the last 10-plus years, we have strengthened our soundness through enhancements to our interest rate risk, credit risk, and chapel and liquidity management frameworks, while fortifying our operational and compliance practices to support growth.
We, meaningfully, improved our profitability through diversifying our revenue streams.
John: focusing on appropriate risk-adjusted returns and discipline expense management and over the last five years we have generated top Courtaugh, organic loan and deposit growth.
John: while continuing to make investments in talent, technology, products and services to further grow our business.
John: These efforts have contributed to significant improvement in our return on tangible common equity.
In 2015, our return was in the bottom quartile.
John: In each of the last four years, we delivered the highest return on tangible common equity among our peers Additionally, we've generated top quartile earnings for share growth and over both a 5 and 10 year period Thank you.
John: R.D. Risking Efforts and Busting Class Heading Program have contributed to a strong capital position.
John: This is evident in the most recent C-Car stress test results, as our projected post-stress couple degradation was well below the peer median.
and our pre-tax, pre-provision income coverage of projected stress losses.
was the highest among our peers. [inaudible]
John: We believe our robust capital balances and strong organic capital generation position us well to perform across an array of potential economic conditions. [inaudible]
John: Our enviable footprint provides us with both a low-cost and granular core-to-bosit base, as well as favorable growth opportunities from our high-growth priority markets.
John: This benefit, coupled with our proven strategic plan, and experienced team with a record of successful execution, leads us to feel good about our positioning for 2025 and beyond.
With respect to 2025, our outlook for unemployment has increased.
John: and there is an expectation for pronounced slowdown in GDP growth, but at present our base case does not include a recession.
Our clients remain optimistic that the economy will improve [inaudible]
John: The current conditions have created uncertainty which has caused many of our clients to delay investments.
John: Importantly, we remain well positioned to generate consistent results and support our clients regardless of the market backdrop and economic conditions.
John: With that, I'll hand it over to David to provide some highlights regarding the court.
David: Thank you, John . Let's start with the balance sheet. Average loans remain relatively stable quarter quarter, while ending loans to climb 1%.
Speaker Change: Within the business portfolio, average loans remain stable as customers continue to carry excess liquidity and utilization rates remain below historical levels.
Speaker Change: Although pipelines and commitments continue to trend higher versus this time last year, it is too early to assess the full impact tariffs will ultimately have on loan demand. However, as John indicated, customers are delaying investment decisions pending further clarity.
Speaker Change: Average consumer loans decreased approximately 1% in the first quarter, as lower seasonal production contributed to declines in home improvement finance and residential mortgage.
Speaker Change: Given the near-term economic uncertainty, we now expect 4-year 2025 average loans to be relatively stable versus 2024.
from a deposit standpoint.
Speaker Change: Average deposit balances grew 1% length quarter, and ending balances increased 3%. The growth is consistent with normal seasonal tax trends, and is also reflective of customer preference for liquidity amid the uncertain environment.
Speaker Change: We've experienced favorable performance in both core and priority markets, with good participation in our money market offers, which boosted interest-sparing deposits.
Speaker Change: Despite this, we remain at our expected mix in the low 30s as a percent of non-interest bearing to total deposits and believe this profile will remain relatively stable in the coming quarters
Speaker Change: In the second quarter, we expect average deposit balances to be roughly flat, reflecting tax outflows in April , offset by existing relationship deepening and new customer acquisition particularly in our priority markets.
Speaker Change: Should costlessness persist among clients? We could experience somewhat higher commercial balances in the near term.
Speaker Change: But under our current baseline for the four year 2025, we expect average deposits to be stable to modestly hire when compared to 2024.
Speaker Change: This reflects modest growth in consumer deposits partially offset by some incremental deployment of excess liquidity by corporate clients later in the year. Let's shift to that interest and come.
Speaker Change: Net interest income declined 3% length quarter but declined less than 1% excluding the impact of non-recurring items in day count.
Speaker Change: Excluding these factors, the decline in net interest income is mostly driven by lower loan balances and less origination fee activity as customers wait for more clarity in the operating environment.
Additionally, a tight lending spread environment created a modest headwind.
Speaker Change: The benefits from lower deposit cost and hedging have protected the margin during the falling rate cycle. Our ability to manage funding costs lower, while also growing deposit balances in the quarter further highlights the strength of Regions deposit advantage.
Speaker Change: Link Quarter, Intersparing Deposit Costs, Fail by 11 Basis Points, Representing a Full Falling Rate, Intersparing Deposit Beta of 32% .
which imply a mid-30% deposit data.
Speaker Change: Finally, we took advantage of your curve and spread dynamics that provided for a less than three year payback on an additional security portfolio repositioning.
Speaker Change: Currently, we have limited remaining repositioning opportunities that meet our interest rate risk and capital management objectives. However, we will continue to evaluate as conditions and explore it.
Speaker Change: After declining in the first quarter, net interest income has expected to grow approximately 3% in the second quarter as the overhang from day count and other non-recurring items
Speaker Change: Additionally, we believe that fixed rate, loaned and securities turnover in the prevailing rate environment and improving deposit cost trends will drive net interest income higher over the remainder of the year.
Speaker Change: Full Year 2025 net interest income is now projected to grow between 1 and 4 percent with a reduction in the range driven by the evolving macroeconomic and interest rate environment.
Speaker Change: While only a small amount of loan growth from here is necessary to support the midpoint of our guidance, the potential for accelerating growth later in the year provides opportunity to achieve the higher end of the range.
Speaker Change: Ellis, take a look at FIRO have a new performance during the quarter.
Speaker Change: Adjusted non-interest income remains stable in quarter, as growth in most categories, including new records in both Treasury and wealth management revenue was offset by lower capital markets.
Speaker Change: The declining capital markets was driven primarily by Lower M&A, Real Estate Capital Markets.
Speaker Change: and Loan's Indication Activity. We continue to believe that over time in a more favorable environment our capital markets business can consistently generate quarterly revenue of approximately $100 million, benefiting from investments we have made in capabilities and talent.
Speaker Change: However, we expect it will continue to run around 80 to $90 million in the near term.
Speaker Change: Due to heightened uncertainty and market volatility, we currently expect 4 year 2025 adjusted not interest income to grow between 1 and 3% versus 2024.
Let's move on to nine interesting events.
Speaker Change: Adjusted non-interest expense increased approximately 1% compared to the prior quarter
Speaker Change: which included one month of merit as well as the reset of payroll taxes and 401k matching.
Speaker Change: The seasonal increase in salaries and benefits came in lower than originally anticipated, attributable to lower headcount and incentive-based compensation.
Speaker Change: The company's planned investments in talent from early in our priority markets remains underway.
Speaker Change: We expect second quarter showers and benefits expense to be modestly compared to the first quarter.
Speaker Change: We have a well established history of prudently managing expenses across various economic conditions.
Speaker Change: As our outlook for revenue in 2025 has come down, we now expect full-year 2025 adjusted non-interest expense who also come down to be flat to up approximately 2%
Speaker Change: Despite these revisions, we remain committed to generating four-year positive operating leverage in the 50 to 150 basis point range.
Speaker Change: Regarding asset quality, provision expense was approximately equal to net charge drops at $124 million.
Speaker Change: The resulting allowance for credit losses ratio increased two basis points to 1.81% based on conditions at quarter end.
Speaker Change: Declines related to specific reserves and portfolio changes were offset by increases associated with economic deterioration and qualitative adjustments reflecting more uncertainty in the economic environment.
Speaker Change: Annualized net charge-offs as a percentage of average lows increase three basis points to 52 basis points driven primarily by previously identified portfolios of interest.
Speaker Change: Non-performing loans as a percent of total loans decreased 8 basis points to 88 basis points mostly below our historical range.
While Business Services' Criticized Loans Increased by 4%
Speaker Change: Our through the cycle net charge off expectations are unchanged and remain between 40 and 50 basis points.
Speaker Change: We continue to expect full-year net charge-offs to be towards the higher end of the range, attributable primarily to loans within our previously identified portfolios of interest.
Speaker Change: We do expect losses to be elevated in the first half of the year, but importantly, we have reserved for losses associated with these portfolios.
Let's turn to capital and liquidating.
Speaker Change: We ended the quarter with an estimated common equity tier one ratio of 10.8 percent while executing $242 million in share repurchases and paying $226 million in common dividends during the quarter.
when adjusted to include AOCI. [inaudible]
Speaker Change: Common Equity Tier 1 increased from 8.8% to an estimated 9.1% from the 4th to the 1st quarter, attributable to strong capital generation and a reduction in long-term interest rates.
We continue to execute transactions to better manage this volatility.
Speaker Change: Towards the end of the first quarter we transferred an additional $1 billion of available for cell securities to help to maturity.
Speaker Change: and in the early April , we transferred another $1 billion, increasing our current mix of H.T.M. to total securities to approximately 20 percent.
Speaker Change: In the near term, we expect to manage Common Equity Tier 1, Inclusive of AOCI, closer to the lower end of our 9.25 to 9.75% operating range.
Speaker Change: This should provide meaningful capital flexibility to meet proposed and evolving regulatory changes while supporting strategic growth objectives and allowing us to continue to increase the dividend and repurchase shares commensurate with earnings.
Speaker Change: This covers our prepared remarks. We'll now move to the Q and A portion of the call.
For more information visit www.FEMA.gov
Speaker Change: Thank you. We will now be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line in the question queue. You may press star two if you would like to remove your question from the queue. Please hold while we compile the Q&A roster. Thank you.
Speaker Change: Thank you. Our first question comes from the line of Scott Siefers with Piper Samler. Please receive with your questions.
Thank you, everybody. Thanks for taking the question.
Speaker Change: down with something maybe you could sort of give us your sense for the degree to which things, at least your perception regarding the degree to which things will need settle down before customers are willing to reengage with things like investments or other strategic decisions. And if there's any difference in how you would look at it for, you know, traditional commercial lending versus your capital markets businesses, etc. [inaudible]
I don't know that I can put a degree of...
Speaker Change: Settling down, so to speak, but clearly the volatility uncertainty has customers in sort of a weight and sea mode. I do think as it becomes more clear.
Speaker Change: What the nature of the terrorists will be, what products there will be applied to, what countries and what degree.
Speaker Change: The customers can be more certain about the potential impacts. We're also following and talk a lot about this. We're also following the changes in immigration policy and changes in regulation and the impact on businesses. [inaudible]
Speaker Change: We've had the opportunity over the last six weeks to visit with more than 60% of our corporate banking group customers, non-real estate related, and have a pretty good sense of their frame of mind, I would say customers are still optimistic.
But very much in a wait and see mode [inaudible]
Speaker Change: It's kind of a dad to the kind of, yes, the second part of that question on capital markets. We had a little bit of activity that picked up when...
Speaker Change: The tenure came to the lower 4% actually dipped, I think we're at 388 for a short period of time. And you know those lower rates is really what you need to help drive a little bit more activity in that space.
Perfect.
Speaker Change: Okay, thank you, and then maybe David, when you think about the lower expenses growth rate for the year, can you maybe put a little more context or in how much of that is just sort of naturally lower costs due to less revenue-driven activity and versus how much might be actual costs or delays to investments things like that, just trying to get a sense for the balance in there?
Speaker Change: Yeah, so, you know, we had the seasonal increase, we were able to offset that a bit because of it.
Speaker Change: Lower Headcount, we also had some retirements that happened in the end of the fourth quarter of the very beginning in the first quarter that we benefited from that we'll be ongoing.
Speaker Change: That's helping us offset the investments. We have already made and will continue to make.
Speaker Change: in terms of the additional hires that we had mentioned for our growth markets. So we have a schedule in the back. I think it's on page 19 in the deck that shows the investors we want to make in all three of our segments to grow in particular in our priority markets. Let's go to the next section.
Speaker Change: So our whole point has been we're going to control costs but we need to make investments to grow but we have to find those savings somewhere else. We've been able to do that by controlling hit count in other areas. We've led leverage technology incrementally better. We still have a ways to go there.
Speaker Change: So it's really not, it's not holding off on investments, it's finding the cost elsewhere in the business.
Yeah.
Okay, perfect. Thank you both very much.
Good to see you. Thank you. Good to see you.
Speaker Change: Our next question comes to a line of John Pancari with Evercore. Please continue with your question.
Poor God.
Morning, guys.
Good morning.
Speaker Change: To the loam side, I know you bumped your guidance lower and you just gave a little bit of color just around.
Speaker Change: The, you know, the customers are in kind of a wait and see mode. Can you give us a little bit more detail there? What are you seeing in terms of line utilization?
Speaker Change: You know, was there any pre-carrier of drawdown that you saw that could be more of a pull forward and then separately, are there any areas of growth that you've seen that could be the non-drive or such? [inaudible]
of Mogo here amidst uncertainty.
Speaker Change: Yeah, so John , we did see during the quarter, I guess our pipelines are, I'll call them a bit mixed, I think the activity and sort of the upper end of the middle market and smaller corporate customer space.
It's pretty soft. Customers were able to access
Speaker Change: The Secretary Market. During the first quarter we had almost 800 million dollars in paydowns from customers.
Speaker Change: who went to the bond market, raised capital and reduced their outstanding with the bank.
Speaker Change: So that sector has been, and the opportunity there is fairly soft within the middle market customer space and
Speaker Change: In real estate, we're beginning to see pipeline expanding a bit, and so those customers [inaudible]
Speaker Change: are more interested in making investments we think, and that likely will continue.
Speaker Change: The issue is primarily an understanding of what the impact of Terrace will be on cost of projects and other things but we'll follow that more closely. Line utilization is still flat, we're not seeing any borrowings to...
Speaker Change: Facilitate Increasing Inventories, and in fact, the customers are still carrying a tremendous amount of liquidity on their balance sheets. We've seen a significant growth in-
Speaker Change: and what I'll call wholesale deposits, both on-balance sheet and off-balance sheet. And I think until customers begin using that liquidity, it's not likely we see any real increase in borrowings under the lines of credit.
and Dana Nolan. Thank you. Thank you.
Alright, thanks, John , and then...
and I guess just separately on the Capitol Front.
Speaker Change: You know, your G-T1 is a solid that had 10.8 and 9.1 including A-S-C-I, you bought back about 242 million.
Speaker Change: this quarter. Can you just help us think about the pace of buyback as we look out through the rest of the year? Do you think that as growth remains muted, that actually facilitate the higher pace of buybacks or could the...
Speaker Change: Pressure to Growth mean a still weaker economic outlook, and therefore you could be more cautious in terms of buybacks, longer terms. So just want to get that, how you're thinking about that trade-off.
Speaker Change: Yeah, John , I think it's along the lines of the first thing you've mentioned. You know, we have our capital where we need to be right at it. We said, even...
Speaker Change: After AOCI impact, we would be at the lower end of our range. We're generating 40 basis points of capital every quarter.
Speaker Change: We want to continue to pay our dividend even.
I'll be able to increase that appropriately.
Speaker Change: and then we really use our capital to support our business, support our customers and make loans. And if there's not a lot of demand for loans, then the expectation is we use that capital and buy back. And so we leaned into that a little bit with the 242 in the quarter.
Speaker Change: To the extent we continue to earn, what we think we can earn, you should expect us to lead into buybacks
and until we start to see lung growth.
Speaker Change: We're confident in the amount of capital that we have to support our business under any economic scenario, so there's no need to be ultra conservative with regards to that, so I think my backs would be in order for us.
Great, all right David, thank you for that [inaudible]
Speaker Change: Our next question comes from a line of Ebrahim Poonawala with Bank of America. Please proceed with your question.
Good morning.
Ibrahim Khunawala: I guess maybe David is sticking with the Capitol, so we did some, I think, one book re-sructuring this quarter came back to 0.70. Is this given a sense? Is there more juice to go there in terms of re-sructuring more bonds? And like, how are you thinking about that today versus by Max? [inaudible]
Ibrahim Khunawala: Yes, so we have mentioned now for two quarters that we thought we were kind of at the end of the line in terms of being able to do that and we really have targeted
Ibrahim Khunawala: Venice Harbour Trade, but we've targeted a payback of three years or less. We really didn't think we had much left to do going into the quarter. The rate environment changed pretty abruptly for us and gave us an opportunity to do another small, fairly small slug of that.
Ibrahim Khunawala: And so we're again going to reiterate, we think we're kind of at the end of the line, but if the market gives us the opportunity to do that, again we go through the math of looking at what's better for you to do a securities reposition and take the loss.
Ibrahim Khunawala: or buy your shares back. And that's really the calculus. If we continue to see opportunities to do repositioning this better than buy back, we will do so. I think that's going to be a harder calculation to come back.
We have a little bit left, but just not much.
Thank you. Thank you.
Understood. It may be John just back to...
Speaker Change: We feel a dramatic change in customer sentiment today was a January year.
Speaker Change: As we think about customers are on pause right now, we are going to figure out whether the next move is higher or into a recession.
Speaker Change: How quickly do you think activity could pick up? What are you hearing from the customers around tariff clarity that they need where you could actually see? Is it realistic that 30, 60, 90 days from now?
Speaker Change: Growth could be much better than expected, or is this going to take a lot longer given what we've been through over the last 30 or 60 days?
Speaker Change: Well, I think some stability, more likely 90 days than 30, would be important for customers to act, is it?
Speaker Change: Maybe 90 more days in that, so 90 days to six months is probably more likely but I do think people are looking for a period of some stability and that probably is a minimum of 90 days.
Speaker Change: And just following up on that, you have markets where you have pretty significant manufacturing plants, sky to the auto sector. Any impact you've seen right now, is there good or bad because of the auto tariffs?
Not yet, not yet.
Speaker Change: We really have not seen any significant impact associated with the tariffs to date nor immigration policy changes but we are monitoring all those things, obviously.
Good. Thank you. Yep.
Speaker Change: Our next question comes from a line of Matt O'Connor with Deutsche Bank. Please proceed with your question.
Speaker Change: Morning Matt. Good morning. The service charge line grew nicely.
Speaker Change: You're a year. I'm also a link hoarder. We're in a room where there's some even old pressure. So just talk about that. I think there's like treasure management and a consumer overdraft for some of the big drivers. So you can touch on that. Thanks.
on TV.
Speaker Change: Yeah, I mean, we continue to grow customer accounts, cross customer checking accounts, and more accounts are going to have more service charges. We do have a little bit of seasonality that comes in the service charge line item on the corporate side.
and that's always a bit helpful in the first quarter. But...
Speaker Change: You know, all of our income lines and the non-interest revenue were very—
Speaker Change: We're all increasing with exception of capital markets which is where we had the biggest challenge and we expect that not to ensure revenue sources to be fairly stable to growing throughout 2025. X the capital markets challenges.
Yeah, I'm just sad about it. Really, David's point
Speaker Change: Growth and Consumer Checking Accounts Growth and Small Business Checking Accounts or Driver [inaudible]
Speaker Change: of Service Charge Income. We grew treasury management relationships by 9% last year, and you're seeing the benefits of that manifested in increased treasury management revenue. And we would expect to continue to have that sort of success.
Speaker Change: Growing trade management relationships as we expand our commercial and corporate banking businesses across our growing footprint.
Speaker Change: Okay, that's helpful. And then just on the consumer overdraft fees, there's obviously been some relief over what could have happened in terms of caps, and just thoughts on that going forward. Obviously it's been a drag for kind of multiple years for your guys, but opportunities for that to...
Speaker Change: Will maybe be on the count growth from here? Well, you know, we've made a lot of changes in our overdraft practices and services that we offer customers including early pay a 24 hour grace period
Established Dementimous Levels for Overdrafts [inaudible]
Speaker Change: Max from number of transactions. All those things have had an impact on overdraft revenue and that's a positive from our perspective. We want to provide that service to customers but we prefer they not use it. [inaudible]
Speaker Change: To the extent they do, then we are generating some revenue associated with it, grew modestly, quarter over quarter, we're still seeing about the same percentage of customers [inaudible]
Access Overdrafts, so it's not a...
Speaker Change: We're not saying a growing number of customers, I guess, would be the point using overdress. It really is more a reflection, I think of the overall number of accounts.
Speaker Change: that we are opening and as a result, some additional revenue is being generated.
Okay, thank you. That's helpful.
and Dana Nolan. Thank you.
Speaker Change: Our next question comes in line of Erika Najarian with UBS. Please receive your question.
Erica Najarian: Hi. My first question as we think about what the reserve is capturing in terms of unemployment rate. David, could you give us a sense on what the current baseline is and what the weighted average maybe?
Speaker Change: Yeah, so we do our calculation a little differently, if you go look at it and get paid to start to page 29.
Erica Najarian: I will show you what our unemployment expectations are for the next.
about 4.2, 4.3 percent. We also have a qualitative component.
Erica Najarian: and embedded in that qualitative component is trying to think what that piece of that is, what the unemployment rate could go to. When you weight all that down, we're in the high 4% range as far as the unemployment that's embedded in our current allowance that we have at the end of the quarter.
Speaker Change: As we think about the allowance going forward, given how you've told us your charge-offs will trend over this year, they're clearly some already identified.
Issues that you're working through. Thank you.
Speaker Change: which would imply a release of those associated reserves, but clearly the macro outlook has...
Speaker Change: is murkier given the terror policy. So how should we think about? How it's...
You know, the potential of modest loan grows coming back.
Speaker Change: You know, the resolution of those previously identified problem credits and then just like a who knows environment as we think about your ACL going forward.
Speaker Change: Yeah, I think so if you look on page 31 where we show our allowance relative to our kind of day one seesaw back to the
Speaker Change: 4th quarter of 2019, 1st opening quarter of 2020. We show you.
Speaker Change: kind of with those reserves. That's in a benign environment. We clearly have more reserves today because we have to take care of some of our...
Problem Assets, and those...
Speaker Change: with our current portfolio is if it were adopted on the first day of season, it's a 162. So what you ought to see is that 181 that we have today, drift down more towards that in a normal environment, the pace of which we can't tell you because we don't know what the economic environment is going to be. [inaudible]
Speaker Change: But those hired chargeoffs coming through this year, just directly, you should expect the 181 to be lower as time goes by unless the economy falls apart.
It's got it. Very helpful. Thank you
Mm-hmm.
Speaker Change: Our next question comes from line of Gerard Cassidy with RBC. Please keep it your question.
Hi John, how are you doing? Hi.
Speaker Change: David can't just want to clarify the answer in that last question on slide 30 or economic outlook with the unemployment rate. That's if I recall, those are the economics statistics for your region, your footprint rather than the country. Am I correct in remembering that? That's correct.
Speaker Change: Okay, I just because your numbers are going to be different than what we're hearing from others I want to make sure people knew that I'm coming back to your Cecil comment with the reserves [inaudible]
Speaker Change: How challenging do you think it's going to be convincing the regulators and the rating agencies of what you pointed out, the way the math works and the seesaw how those reserves should come down? Any thoughts there?
Well, I mean, we...
Speaker Change: We think we're pretty expert at knowing what allowance we need to have. Obviously we get challenged by...
Speaker Change: Rating H.C.'s regulators and dependent auditors. But we have a pretty good process in place, it's consistently applied.
Speaker Change: and just directly what I said has to happen over time. I think what's embedded in your question, Gerard, is a pace.
Speaker Change: The pace of that improvement in coming down, and I don't think we're going to get to 162 until we see...
Speaker Change: Things really settled down and we have clarity and the economy is kind of moving along like it's like it's capable of
Speaker Change: So I don't want to assert that we're going to 162 next quarter or even this year. I'm just saying that you know with a higher charge loss with an equal 181 allowance, if you're fully reserved for the charge off, that number mathematically has to come down all other things being equal. [inaudible]
Speaker Change: I certainly got it. And then one other follow-up just on credit, you guys, you know, coming out of the pandemic identified some of the ongoing portfolio surveillance portfolios like transportation, trucking. As we move forward in a slower growth environment, have you identified any other portfolios that you're keeping extra attention to outside of what you've already identified from the pandemic area? Are there any portfolios in particular?
that you look at.
Speaker Change: Yeah, I would say retail trade, manufacturing particularly that related to consumer
Speaker Change: I think we'll have to watch the consumer and where they're spending or not. And those will be areas that we follow with some interest construction.
Very good. Thank you, John
Speaker Change: Our next question comes from a line of Christopher Spahr with Wells Fargo. Please receive your question.
Good morning.
Christopher Sparr: Hi, good morning. How are y'all doing? So my question is just to follow up on the P-rivers.
Speaker Change: and your lower guide, but yet you had like record wealth management and Treasury management? Thank you very much. Thank you.
Speaker Change: going into the quarter. So, is it all you're going to be at the low end of the capital markets kind of 80 to 90 million, or are there some other things that kind of that led to you to kind of lower your guidance for fees for the year. Thanks.
Speaker Change: Chris, the main driver is exactly what you said is capital markets. All the other categories seem to be doing pretty well. We could have a bit of a challenge in the wealth area just because of the market. We'll see.
They're continuing to grow assets in the wealth management area.
Speaker Change: which would be nice, but there's also a market component of C-Revenue there too, so the market now makes out a bit more challenging.
Speaker Change: But the biggest single driver is what is count for markets going to be. [inaudible]
and that is driven by more specifically, M&A Activity. Thank you.
Speaker Change: Real Estate Capital Markets, and Loan's Indications, and all three of those were down this quarter.
Speaker Change: and hopefully over time we can get those rebound, which is why we've given you that that business is set up to generate a hundred million dollars or quarter, but it's just not going to happen with uncertainty that's created the right environment. Those are two big drivers of that of that revenue string.
Okay, okay, and then as a follow-up, just-
Speaker Change: You've talked in the past about kind of targeting some core markets in your footprint and just can you just expand on what you what actions you might be doing, especially if you're not really expanding new new branches in those markets. Thank you.
Speaker Change: Skill to take advantage of the unique opportunities it might exist around the market. Small business as an example. We operate 1,250 branches. The opportunity to bank small businesses isn't equal across those 1,250 branches.
Speaker Change: In fact, there are some locations where there's real opportunity and so placing bankers in those markets specifically to focus on the opportunities there is a is a important investment similarly we're making investments in commercial bankers [inaudible]
Speaker Change: and Wealth Bankers, and our approach to business is a team-based approach. So we're focusing on using all the assets that we have in some of these markets.
Speaker Change: to work together to grow our business, and we're excited about the opportunities that that presents.
Thank you.
Yep.
Speaker Change: Thank you. Your final question comes to line of Betsy Graseck with Morgan Stanley . Please continue with your question.
Oh, hi. Thank you.
Betsy Gracic: I just want to understand the comment you made earlier around town, that charge-offs are expected to be, did I get it right front-end loaded and like how should I be thinking about the pace of what we're going to be seeing in the beginning of the year versus the end of the year and how much differential is there there and then...
Speaker Change: Separately, you've reserved all for this, so the provision is neutral, is that a fair read or what did I miss, thanks. Yeah, I think the way to think about Betsy is we identify a couple of credits and
Speaker Change: The portfolio is of interest that we've previously talked about, office specifically [inaudible]
Speaker Change: Senior Housing Transportation, where we're in a workout mode, we don't know exactly the timing of those resolutions.
Speaker Change: But we believe that it would likely be in the first or second quarter, and as a consequence, we've signaled charge-offs could be higher in the first and second quarter, or the first half of the year, than in the latter part of the year. Having said that, we're still committed to a range of 40 to 50 basis points. So,
Speaker Change: You can draw your conclusions. We recorded 52 basis points of charge-offs in this quarter.
Speaker Change: If we're still going to be within that range of 40 to 50 basis points, you can sort of assume the trajectory from here. We still believe...
Speaker Change: The second quarter will be higher than the third and fourth.
Speaker Change: So again based on things that we think we're going to get, we're going to resolve to resolve.
Speaker Change: And from a provisioning standpoint, again, all things being equal, you should [inaudible]
Speaker Change: You should expect the provision to be right there with charge-offs. Now if we get some lung growth or we get economic deterioration, both of those can drive an increase in the provision over charge-offs, but we just have to wait until we get to the end of the quarter to see to see the end of the quarter
Speaker Change: I'm just wondering since you reserved for these, you know, workouts you're doing . . .
Speaker Change: You know, you write it off and the reserve goes to down, right? He released the reserve against it. So that's why I was wondering what would be the control impact. Yeah, and you would have seen that in this quarter, but for the fact that we had some economic deterioration, so we did increase our reserves for. Yeah.
General Imprecision as a result of
Speaker Change: Just observations about the market. And you're, you're comment about seeing the reserve come down. That was my whole point talking to
Speaker Change: Who was now? Erika maybe in Gerard that the 181 that we have ought to come down as you see those are charred Oscar. Right. Right.
Understood. Thanks so much. Appreciate it. Hi, Betsy. Thank you.
Speaker Change: Okay, well, that concludes the thank all the questions we had today, so thank you for participating in a call. Thanks for an interest in our company. Have a great weekend.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time.