Credit Quality and Nonperformers
Q: What's causing increases in nonperformers and how are reserves?
A: Management noted that increases in nonaccrual loans and classified loans are consistent with stress in specific industries like office, senior housing, transportation, healthcare, and technology. " They anticipated this deterioration and have returned to pre-pandemic credit metrics, with nonaccruals at 105 basis points and average charge-offs at 46 basis points. " With high visibility into problematic credits—where 21 credits make up 72% of nonaccruals, and 18 of those 21 credits are in the stressed sectors—they feel confident about their reserve position. "

NII and NIM Outlook
Q: How does slower loan growth affect NII guidance?
A: Management maintained their NII guidance, despite expecting lower loan growth, because loan growth was anticipated in the back half and wasn't factored into NII projections. " They feel good about their position with neutral to short-term rates and are reinvesting their securities book, picking up over 200 basis points. " They also expect deposit costs to stabilize, supporting NII. " "

Deposit Costs and Noninterest-Bearing Deposits
Q: Are deposit costs stabilizing and how are NIB deposits trending?
A: Deposit costs have stabilized from February to March, giving management confidence in their cumulative beta in the mid-40s. " Promotional rates are coming down, and they are adjusting pricing accordingly. " They expect noninterest-bearing deposits to decline slightly but remain in the low 30% range, as shifts from NIB have mostly occurred. " "

Expense Management and Operational Losses
Q: Will expenses decrease after the high Q1 levels?
A: The first quarter represents the high watermark on expenses, with approximately $75 million in non-recurring items like operational losses, payroll taxes, and severance costs. " " Management expects these won't repeat and has taken actions to reduce expenses. " They are confident in their expense guidance. " "

Capital Deployment and Securities Repositioning
Q: Any plans for more securities repositioning?
A: Management is considering opportunities for securities repositioning if paybacks are less than three years, ideally closer to 2.5 years. " " They added some duration with negligible extension—only about 12 basis points per year—and see it as a good use of capital, especially if rates are expected to remain low. " While not committing, they'll look for advantageous opportunities. " " "

Regulatory Proposals and Capital Impact
Q: What's the update on long-term debt proposals?
A: The Basel III and long-term debt proposals are on hold but expected to resume this year. " The initial proposal requires 6% of RWA, equating to raising about $5 billion after existing debt. " Management hopes the requirement may be reduced to 2–3%, which would lessen the impact. " The potential drag on NII is less than 1% if fully implemented. "

Fee Income and Capital Markets
Q: How are fee income and capital markets performing?
A: Treasury management fees are up 7% year-over-year, reflecting fee increases and relationship growth. " Wealth management revenue is up over 6%, with increases in assets under management. " Mortgage activity increased and is expected to continue. " Capital markets activity remains strong, with pipelines full and M&A activity picking up, supporting fee income in the $60–$80 million range per quarter. "

Loan Mix and Higher-Yield Portfolios
Q: How has loan mix shift impacted charge-offs?
A: The shift in loan mix, notably with portfolios like Interbank and Ascentium, which are higher-yield and higher-loss content, has influenced comparisons to pre-pandemic charge-offs. " These portfolios are performing in line with expectations, with loss rates around 2–2.5%. " The CECL reserve adjusted for current portfolio mix implies a reserve of 1.62%, indicating strong coverage. "

Inflation Impact on Deposits
Q: Has inflation changed corporate deposit behavior?
A: Management hasn't observed significant changes in corporate deposit behavior due to inflation expectations. " Most shifts from noninterest-bearing deposits have already occurred, and they expect NIB deposits to remain in the low 30% range. " Customers are maintaining liquidity amid uncertainty. "

Core Systems Conversion Progress
Q: Is the core systems conversion on track?
A: The core systems conversion project is progressing as expected, staying on budget and on time. " Management feels good about the project's status and continued progress. "