Synovus Financial - Earnings Call - Q1 2025
April 17, 2025
Transcript
Operator (participant)
Good morning and welcome to the Synovus First Quarter 2025 Earnings Call. 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. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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.
Jennifer Demba (Senior Director of Investor Relations)
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. Chairman, President, and CEO Kevin Blair will begin the call. He will be followed by Jamie Gregory, Executive Vice President and Chief Financial Officer, and they will be available to answer your questions at the end of the call. Our comments include forward-looking statements. 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. 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 in the appendix to our presentation. Kevin Blair will provide an overview of the quarter.
Kevin Blair (Chairman, President and CEO)
Thank you, Jennifer. Last night, we were pleased to release strong first quarter 2025 results. Synovus reported GAAP and adjusted earnings per share of $1.30. 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%. Year-over-year growth was driven primarily by net interest margin expansion, lower provision for credit losses, and disciplined expense management. Also, funded loan production was the highest since fourth quarter 2022, leading to loan growth of $40 million in the quarter. Net charge-offs declined to 20 basis points along with broad-based credit metric improvement, while our adjusted return on tangible equity increased to 17.6%.
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. This correlates with the response in which 20% of our clients felt increased tariffs would have a meaningful impact on their respective businesses. 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. As the quarter progressed, borrowers and investors grew more cautious amid concerns surrounding the sustainability of consumer spending and the potential impact of higher tariffs and federal government agency layoffs on economic growth.
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. 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. 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. Our proactive balance sheet management and business model actions over the past two years, coupled with our growth-oriented initiatives, position Synovus well for strong long-term revenue, earnings, and tangible book value growth, as well as top quartile operating metrics.
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 and winning as a collective team. Before I turn it over to Jamie, I want to welcome our Chief Credit Officer, Anne Fortner, to her first earnings call. 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 Wholesale Bank. Anne has significant credit industry experience and has excelled in roles of increasing responsibility, positioning her well to assume this critical leadership position. Now, Jamie will review our first quarter results in greater detail. Jamie?
Jamie Gregory (EVP and CFO)
Thank you, Kevin. Synovus generated positive year-over-year operating leverage in the first quarter 2025 as adjusted revenue increased 7% year-over-year, while adjusted non-interest expense declined 3%. Excluding the FDIC special assessment, adjusted non-interest expense was relatively flat. 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-ago period, and flat sequentially as a result of the lower day count. Our net interest margin was 3.35% in the first quarter, up 7 basis points from the previous quarter. The linked quarter increase was largely attributable to effective deposit repricing and further supported by hedge maturities, lower cash balances, and a stable Fed funds environment. These benefits were partially offset by the full quarter impact of our $500 million debt issuance in the fourth quarter.
The lack of an FOMC ease in the first quarter and the lagged benefits of continued reductions in our deposit pricing resulted in net interest margin outperformance compared to our guidance in January. Period-end loan balances were up $40 million. 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. Total loan production trends remained healthy as funded production increased 16% quarter-over-quarter and 89% year-over-year. The loan production in our Wholesale Bank was the strongest we have seen in two years. Our core commercial momentum has resulted in strong pipelines that we believe will result in steady loan growth as the year progresses. Core deposits increased 3% year-over-year, while seasonality in middle market deposits impacted linked quarter core deposit growth.
However, we experienced positive trends in the overall deposit mix as growth in money market, interest-bearing demand, and savings accounts was offset by a decline in time deposits. Non-interest-bearing deposits were relatively stable quarter-over-quarter. Turning to funding costs, our average cost of deposits declined 20 basis points in the first quarter to 2.26%. Our deposit cost improvement represents a total deposit beta of 46% through the recent easing cycle, which is above the top end of our previous guidance of 40%-45%. Adjusted non-interest revenue was $117 million, which declined 6% sequentially and increased 1% year-over-year. We generated 6% year-over-year growth in core banking fees, driven primarily by higher treasury and payment solutions income and card fees, while capital markets revenue increased 5%.
This growth was partially offset by lower commercial sponsorship income, which was higher in the prior year as a result of one-time income from the expanded relationship with GreenSky. Linked 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. Moving to expense, we remained very disciplined with non-interest expense control. Adjusted non-interest expense was flat on a linked quarter basis and down 3% year-over-year. Our strong first quarter performance was largely driven by controlled employment and project-related costs, as well as positive trends in credit-related legal costs and fraud-related expense. Excluding the FDIC special assessment, non-interest expense was relatively stable year-over-year.
As Kevin mentioned, the first quarter showed strength in credit performance, with first quarter net charge-offs of $21 million, or 20 basis points, below our previously communicated expected range of 25-35 basis points. Non-performing loans improved to 0.67% of total loans, down from 0.73% in the fourth quarter. The allowance for credit losses ended the quarter at 1.24% compared to 1.27% at 2024 year-end. The allowance for credit losses declined due to positive credit trends within the loan portfolio, partially offset by a more adverse economic outlook. We continue to be diligent and proactive with credit risk management. We are engaged in multiple efforts to identify risks associated with recent policy changes.
These efforts include the identification of commercial clients with potential exposure to increasing tariffs and heavy reliance on government contracts, direct outreach and discussions with our largest clients to estimate exposure, client surveys to gain more insight into specific forward-looking industry sentiments, and engagement of experts to produce thought leadership that can help guide decision-making. This information, combined with other internal tools like our trade tracker, daily line utilization monitoring tool, and client cash inflow/outflow data, enables our relationship managers and credit team to place more attention on selected loans and clients. Finally, our capital position remained 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 earnings profile continues to support our capital position, leading to relatively stable cap ratios, inclusive of $120 million of share repurchases completed in the first quarter.
I'll now turn it back to Kevin to discuss our strategic initiatives and 2025 guidance.
Kevin Blair (Chairman, President and CEO)
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 additions occurring through mid-April. We expanded our structured lending team during the first quarter and also deepened our financial institutions industry coverage in the corporate and investment bank. Our legal industry deposit vertical has been officially launched with the deposit pipeline building. 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. Given recent policy changes, our outlook assumes more moderate growth conditions, along with four Fed funds cuts throughout the rest of the year and a 10-year treasury around current levels.
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. Period-end loan growth is expected to be 3%-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. Our confidence in loan growth is based upon current pipelines, talent additions, as well as business line expansions. We are encouraged by the team's momentum in the first quarter. Wholesale banking produced $900 million of new loan funding, 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.
Second, our loan growth will be supported by 11 new middle market bankers hired in 2024, as well as an additional structured lending team onboarded during the first quarter of 2025. On the deposit front, we expect core deposit growth of 3%-5%. This growth will be led by a continued focus on core deposit production across all of our business lines. 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. The adjusted revenue growth outlook is a range of 3%-6%. 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. However, during an easing cycle, the margin will exhibit short-term pressure due to the timing lag between loan and deposit repricing.
We anticipate adjusted non-interest revenue of $485 million-$505 million 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. We believe continued core execution in areas such as treasury and payment solutions and 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. We have produced healthy non-interest revenue growth over the past few years. 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 non-interest revenue streams that deepen our client relationships. Adjusted non-interest expense is expected to grow 2%-4%.
The reduced range is a result of positive trends in multiple areas, including employment costs, project-related spend, and credit-related legal costs and fraud-related expenses. We will continue to be balanced and very disciplined in expense management while investing in the areas that deliver long-term shareholder value. On the credit front, given current credit metrics, we anticipate that net charge-offs should be relatively stable sequentially in the second quarter, which is below our prior guidance of 25-35 basis points. Our net charge-offs have averaged 26 basis points over the past four quarters. Moving to capital, we will target a relatively stable CET1 ratio around 10.75%, with the priority on capital deployment continuing to be loan growth. We believe current capital levels are more than adequate in a range of more challenging economic outcomes. Finally, we anticipate the tax rate should be relatively stable at 22%.
Operator, let's open the call for questions.
Operator (participant)
Thank you. We will now begin the question and answer session. To ask a question, you may press Star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star, then two. In the interest of time, please limit yourselves to one question and one follow-up. Thank you. Our first question for today comes from Jon Arfstrom of RBC Capital Markets. The line is now open. Please go ahead.
Jon Arfstrom (Associate Director of U.S. Research)
Thanks. Good morning, everyone.
Kevin Blair (Chairman, President and CEO)
Good morning.
Jamie Gregory (EVP and CFO)
Good morning, Jon.
Jon Arfstrom (Associate Director of U.S. Research)
Hey, Kevin, maybe for you, just to start this off, can you talk a little bit more about the lending environment and maybe some more qualitative commentary? I am just also curious what you think takes you to the lower end of the loan growth guidance range and the higher end. I am kind of curious what has happened in the last several weeks as well.
Kevin Blair (Chairman, President and CEO)
Yeah, Jon, obviously, as you know, and there's been a lot of calls at this point, the recent tariff policy announcements have introduced a significant amount of uncertainty into the business environment. We've tried to monitor the situation every which way we can, including talking to clients, doing client surveys, conducting deep-dive analysis into our specific industries to understand that. What really comes loud and clear is that when we talk to our clients today, there is a level of uncertainty that exists. Having said that, one of our survey points that I think is prudent to evaluate is 41% of our clients believe that business activity will increase over the next 12 months. That survey was conducted over the last month, including some of the noise around tariffs. There is still a constructive business environment out there in which we can continue to grow loans.
I think this quarter and the production we had, about $1.5 billion in funded production, it was up about 10%-15% over where we were in the fourth quarter. It continues to build. When we look at our pipelines that we exited the first quarter with, they are higher than what our production was for the quarter. That would point to the fact that we should expect to continue to see production grow again in the second quarter. Why is that? You have seen in our disclosures, we have tried to break it down into four segments. The first segment is our fast-growth segment, which includes middle market, structured lending, CIB, and other specialty groups. That group grew 8% in the first quarter. We think that will continue to grow, even at a faster pace, 10%-15% for the rest of the year.
They have a proven track record in doing that. 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. 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. Those individuals will start to really build the balance sheet by bringing over their clients. I think it's also we've talked a lot about payoff and paydown activities. Payoff activities subsided a little bit in the first quarter, but they're still elevated, about $150 million over kind of long-term averages.
That will continue to abate, and that will provide tailwinds as well. Lastly, we look at line utilization. When we look at our forecast, kind of looking at the midpoint, we assume line utilization stays roughly flat at 47%. We have seen that utilization correlates very well with interest rates. If interest rates were to decline, we think utilization could pick up. When you ask the question, we are confident about our loan growth guidance. 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 have not accounted for.
Jon Arfstrom (Associate Director of U.S. Research)
Okay. Helpful. Yeah, and it sounds like market share gain is a pretty big piece of this as well. Is that fair?
Kevin Blair (Chairman, President and CEO)
If you're just relying on getting more business from your existing clients, I don't know that you can have outsized growth. What we want to do, and we've said this in the past, we think that our growth rate should be 100 or 200 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.
Jon Arfstrom (Associate Director of U.S. Research)
Okay. Thank you. Jamie, you surprised me on the margin. It was a little better than I thought. When I look at slide 14, there are obviously two big movements in terms of loan repricing and deposit costs coming down. How are you feeling about the margin from here in terms of some of the near-term puts and takes?
Jamie Gregory (EVP and CFO)
Yeah, we're pleased with the trajectory of the margin, how it's been trending. When we look at 2025 for the rest of this year, we think that the margin, the trend is for it to be relatively stable in the second quarter. It really depends on Fed policy. The core underlying asset yields and deposit costs, we think will be about a push next quarter. If we do have easing in the second quarter, which is embedded in our forecast, we have a June cut, then we would expect to see that lead lag impact 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. You have June through October rate cuts.
That basically has the temporary impact of the lead lag headwind offsetting the permanent benefit of risk-weighted asset repricing. Our view is that will likely lead to a stable margin heading through the year in that scenario in the mid-330s. What you are seeing there is that temporary headwind of lead lag impact offsetting something that will be with us forever as the balance sheet reprices to market rates. I do not think that is a true reflection of the core margin. If you looked at flat rates, you would just see margin expansion basically through the second half of this year. That lead lag impact definitely is impactful this year.
Jon Arfstrom (Associate Director of U.S. Research)
Yeah. Okay. All right. Thank you very much. Appreciate it.
Jamie Gregory (EVP and CFO)
Thank you, Jon.
Operator (participant)
Thank you. Our next question comes from Anthony Elian of JPMorgan. Your lines are open. Please go ahead.
Anthony Elian (Equity Analyst)
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?
Kevin Blair (Chairman, President and CEO)
Tony, not really. We have a monitoring tool that we look at daily line utilization. Usually, that's where you would see people getting into their borrowing base to take out additional inventory. We had a couple of industries that saw an uptick, but in 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 C&I teams, CIB, specialty lending. It wasn't really a pull forward of future demand.
Anthony Elian (Equity Analyst)
Thank you. My follow-up on the reduction to the expense guidance. I know on the guidance slide, you have a bullet indicating no change in strategic growth objectives. Kevin, I think in your prepared remarks, you mentioned you made 20% of the planned hires through mid-April. I just want to confirm if there are any changes at all to the amount or the timing of the 20% or 30% more RMs you plan to hire over the next three years. Thank you.
Kevin Blair (Chairman, President and CEO)
Yeah. From a commercial RM 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. 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. Look, it's too early to make that statement today because the markets have moved so much. 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 building the pipeline of that talent. We've had discussions, and we're starting to onboard talent and more that is in the pipeline today to be onboarded.
There is no change to the expectations there. Quite frankly, the balance sheet impact and P&L impact over the next couple of years.
Jamie Gregory (EVP and CFO)
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 spend on RM growth. We have project cost benefits in 2025 where we have projects coming in at a little less cost this year than what we had expected. We have facilities costs a little lower. In line with the improved credit performance, the strong credit performance, we have reduced credit-related costs. We have reduced fraud expense. There are a lot of tailwinds that go into that expense guide reduction this quarter.
Anthony Elian (Equity Analyst)
Thank you.
Operator (participant)
Thank you. Our next question comes from Jared Shaw of Barclays. The line is now open. Please go ahead.
Jared Shaw (Managing Director)
Hey, good morning, guys.
Jamie Gregory (EVP and CFO)
Good morning, Jared.
Jared Shaw (Managing Director)
Maybe looking at credit and sort of the improvements there. First, when you look at the charge-offs, I think you called out an office charge-off. Is that the office loan that had previously been in non-performing, or is that cleaned up now?
Anne Fortner (Chief Credit Officer)
That's correct. That's related to the office non-performing relationship. While that has not been fully resolved, that's a step in that direction. We hope to have a solution to that either at the end of this quarter or the next.
Jared Shaw (Managing Director)
Okay. Okay. When you look at the overall sort of increased weighting to an adverse scenario, was that as of March 31, or does that sort of reflect where we are today? Should we expect that that maybe continues to have a heavier weighting towards adverse scenario in the second quarter?
Jamie Gregory (EVP and CFO)
As we look at the outlook, I mean, this is as of March 31. There was already some disruption in the economy then pre-liberation day. That impacted our weightings. I think it's interesting to note that first, these weightings, if you look at the back of the deck on slide 22, you'll see that the weighted average unemployment rate for full year 2026 is 5.2%, peak unemployment about 5.3%. That's a pretty negative scenario to have that as your baseline. We think that does acknowledge the uncertainty. We will continue to watch the outlook. Moody's released 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.
That does not 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 will come up with what weightings we think is kind of most appropriate for us. With the allowance in the first quarter, first thing I would note is the loan portfolio performance drove significant improvement in the modeled output of the allowance to loan ratio. If that was the only thing that happened in the first quarter, we would have seen a reduction in the allowance to loan ratio, getting it to the 120 or even lower area. You see an offsetting increase based on the economic uncertainty and the economic outlook. We have seen a lot of articles out there that get into sensitivity betas and assumptions around what happens if the economy deteriorates.
The only comment I'd make on that is our portfolio is very different than it was in the GFC. Our outlook right now is very different than it was in 2020 with the pandemic. I don't think that those are the most reflective analogs of where things could go if they were to deteriorate from here. When you look at the adverse scenario using the Moody's downside scenario, we have it at a 20% weight. Unemployment gets up to full year 2026, 8.2%, peak unemployment 8.3%. If we were to only use that scenario and weighted it 100%, you would see about a 20-25 basis point increase in the allowance to loan ratio. I think that that's a better analog for where things could go if they really deteriorate from here. Clearly, that's nothing that we expect.
It's nothing that we see. The reason I bring that up is because the sensitivity is just very different today than it has been in the past.
Jared Shaw (Managing Director)
Okay. That's great color. Thanks. Finally for me, just on capital, how should we be thinking about, I guess, the remaining buyback here given the discussion around CET1 staying stable and using that to fund growth? Should we think that you're out of the market for the time being?
Jamie Gregory (EVP and CFO)
When you look at the capital we generate every quarter through earnings, that gives us a lot of flexibility to go out there and grow client loans, which is our core priority. As we look at the three quarters remaining in this year, first, our objective is to maintain stability in capital ratios. The beauty of having strong earnings like that is that gives you the ability that you do not need to necessarily stockpile capital for future growth. If you look at our loan growth forecast and I think about the risk-weighted asset impact of that, we could grow our objective at the high end of the range and fuel that with capital generated in two quarters of earnings.
Philosophically, as we think about how do we go through this year, we will look to buy shares and look in the near term at loan growth prospects and really weigh the near-term growth and offset it with share purchases. If we're seeing growth come in fast and we're having success growing client loans, then we will dial back share purchases. If things look relatively stable on the loan front, you should expect to see us in the market.
Jared Shaw (Managing Director)
Thank you.
Operator (participant)
Thank you. Our next question comes from Gary Tenner of D.A. Davidson. The line is now open. Please go ahead.
Gary Tenner (Managing Director and Senior Research Analyst)
Thanks. Good morning. I appreciate the commentary regarding your focus on getting your arms around the DC policy changes that you highlighted on slide nine in the deck. Kind of sounds like you're working to 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?
Kevin Blair (Chairman, President and CEO)
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'll be to each client. We engage, as you saw on that slide nine, in a couple of different things. The first thing is we looked at the same industry classifications that you would expect to have a larger impact, things like manufacturing, transportation, government contracting, discount retail. 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 outstandings there. 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, what we heard is that about 15% felt like it would have a meaningful direct impact to their business. When we talk about meaningful direct impact, it does not mean a credit situation. It just means that they are going to have increases in their input costs. The question there will be how much of that can be passed on to their end user versus being absorbed through lower margins. That for us was somewhat ring-fencing or understanding who they are. We will work more closely with those clients that stated that they would be largely impacted. We then conduct a quarterly survey, as I mentioned earlier. Ironically, that survey came out with a similar response, which is about 20% of our clients felt like they were going to be directly impacted by the tariffs.
Now, as I mentioned earlier, in that survey, we did see some deterioration in negative sentiment. It went from 10% to 17% of clients who felt like their business activity would decline over the next 12 months. As I mentioned earlier, we still have 41% of our client base who feels like business activity could pick up. 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. All that stuff just makes us better prepared to have conversations with our clients. I think it comes down to the health of the consumer and their ability to be able to absorb increased cost. I would point to you that the best mitigant we can have in this situation is what we've been doing over the last 10 years.
We have de-risked the balance sheet. We've diversified our revenue stream. Most recently, as Jamie talked about, we've increased our capital levels to the highest they've been in over 10 years. The same thing for balance sheet liquidity. 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.
Gary Tenner (Managing Director and Senior Research Analyst)
Thanks. I appreciate the thoughts and commentary there. Just a quick kind of keeping question, if you will, in terms of the buyback in the quarter, could you give us the average price that you bought back shares at?
Jamie Gregory (EVP and CFO)
The average price in the—it was 40, 41?
49.
49, 41.
Gary Tenner (Managing Director and Senior Research Analyst)
Thank you.
Jamie Gregory (EVP and CFO)
Thank you. Our next question comes from Bernard Von Gizycki of Deutsche Bank. The line is now open. Please go ahead.
Bernard Von Gizycki (Equity Research Analyst)
Hey, guys. Good morning. I think previously you guided to about 20 basis points benefit from fixed asset repricing for 2025 and 2026. You mentioned the four rate cut stable 10-year assumption. Is there any update to what you might be expecting from fixed asset repricing given the update in rates?
Jamie Gregory (EVP and CFO)
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. It is a little difficult to keep track of all that. For us, as we look at the fixed rate asset repricing for this year, it remains extremely similar as what we've said in the past. That statement really holds for this year and next. I mean, it's a little lower in 2026 because rates have declined. The core 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. Clearly, that's not the market expectation.
I think that's a little bit indicative of the balance sheet benefit or the income statement benefit of the fixed rate asset repricing for this year. Yes, that should continue into next year, just as we've said in the past.
Bernard Von Gizycki (Equity Research Analyst)
Okay, I appreciate it. I can appreciate how difficult it can be in this environment to forecast that. Maybe just on my follow-up on capital markets, maybe another difficult question on forecasting. I know the revenues were a bit weaker than expected, and you noted that it was due to loan production mix. Can you just expand on this and expectations for this mix and the trend for the rest of the year? I believe you noted on the call, core execution here is still expected. I believe you pointed to double-digit growth in cap markets previously. Any update?
Kevin Blair (Chairman, President and CEO)
Yeah. This is Kevin. When you look at it for the quarter, we were down about $5 million from the fourth quarter. $5 million of that were just derivatives, swap fees, and another $1.5 million were on the lead syndication arranger fees. We actually increased debt capital markets, increased FX, and our SBA government guarantee sales. When we talk about mix, number one, we just had fewer large loans that would have qualified or run through our syndication platform. Number two, we were talking about this with interest rates being where they are today, with the expectations that potentially there could be greater cuts. I think our clients were less inclined to go ahead and swap to fix at this point.
They have talked to a lot of bankers 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 put a swap on top of that loan. As loan production continues to increase in the areas I mentioned earlier, I think we'll see more syndication fees join arranger fees. As the interest rate environment kind of plays out, I think you'll see more swap income. That is 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.
Bernard Von Gizycki (Equity Research Analyst)
Okay. Great. Thanks for taking my questions.
Operator (participant)
Thank you. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. Our next question comes from Casey Haire of Autonomous. The line is now open. Please go ahead.
Casey Haire (Managing Director)
Yeah. Thanks. Good morning, guys. I wanted to follow up on margin, specifically deposit costs. As you guys pointed out, your beta is at 46, is coming in a lot stronger than what you guys laid out. Just wondering what some updated thoughts on where that can go from here. Also, the revenue guide is based on the deposit composition holding stable, but you have nice positive makeshift with lower CDs. Wondering if that can continue.
Jamie Gregory (EVP and CFO)
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. We're pretty pleased with that. I mean, part of that's mix, but a lot of it is pricing within products. We've had a lot of success there with our teams and our clients. When we look forward, our assumption is for the beta in the next part of this easing cycle to be about a 45% beta. Fairly similar, a little less. To your point, there is some uncertainty in that as we go through the year. I think the first quarter was a little bit unique in the decline in time deposits.
The reason for that was on the consumer side, we had a lot of success moving our clients into money market accounts at great rates. That gave us the flexibility to allow those time deposits to decline. We think that is a real positive for mix going forward in that segment. I would not expect to see that magnitude continue when you look at CDs and the trajectory from here. We do expect that the core deposit growth, as we go through the rest of this year, will be led by non-maturity interest-bearing deposits, money market now accounts. That is where we expect to see a lot of the growth. That is embedded in our outlook. We expect NIB to be relatively stable the rest of the year. That all comes together in our margin outlook.
Casey Haire (Managing Director)
Okay. Great. On the expense front, you guys have done a good job of balancing operating leverage dynamics with some of your strategic investments. The guide here does—there are some healthy, encouraging signs, but it does assume some pretty aggressive step-ups in loan growth and fees. If those fall short, is there more room to push the expenses lower, or is this two to four guide the low end of that? Is that kind of the end?
Jamie Gregory (EVP and CFO)
We're pretty convicted in the strategic initiatives that underlie that 2-4% growth. 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. On the strategic initiative side, we're pretty convicted in what we have laid out with the RM hiring. You think about our LIDS initiative, structured lending growth, build out of the Financial Institutions Group, and then some of the projects we have with different core systems, fraud, etc., syndication system. I mean, all these projects we believe are pretty important. 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, we could stop those initiatives. We could hit pause on the hiring.
We could hit pause on a lot of those initiatives. 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. That would have to happen quick, and it's unlikely that we would choose to do that, but it's a possibility. One of the things you should see with us is we maintain expense flexibility, and we're always looking at ways to cut costs. It's not our intent to do it. We believe that shareholder value is embedded in all of the initiatives that we are greenlighting for 2025. You should know that if the world changes, we're ready to change with it.
Casey Haire (Managing Director)
Gotcha. Thank you.
Operator (participant)
Thank you. Our next question comes from Nicholas Holowko of UBS. Your line is now open. Please go ahead.
Nicholas Holowko (Director and Equity Research Analyst)
Hi. Good morning. Maybe just one follow-up on your slide nine in highlighting the proactive response to D.C 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? If so, how does that help inform you about some of the investments you're continuing to make here on the strategic side?
Kevin Blair (Chairman, President and CEO)
Look, technology, if you think back to COVID, we began something where we started looking at monthly cash inflows and outflows of our clients. And so we could monitor when we were seeing certain industries or certain geographies that were seeing abnormal inflows or outflows of cash into their deposit relationships, which was an early warning mechanism into any sort of credit deterioration. We are able to use that in this sort of environment to have access to more real-time information, number one. 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.
I think not only have we improved the technology, we have also improved our overall procedures and processes related to risk management, the diversification of the balance sheet. I think that is a big factor. 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 are in. Yes, I truly believe that the investments in technology, the team members that we have, the centralized risk management functions that we have built allow us not only to better monitor, but more importantly, we have been able to diversify and get out of some concentrations on the balance sheet that we would have had in the past.
Nicholas Holowko (Director and Equity Research Analyst)
Got it. Thank you. Maybe just one more follow-up on the allowance. You talked about a highlighted performance on the credit front coming in a little better than expected. Any words of color in particular where credit performance is improving?
Jamie Gregory (EVP and CFO)
As we look at the allowance calculation, and Anne can talk in more specifics, when we look at the actual allowance calculation, we are seeing a little bit of an uptick in the life of loan loss estimate on the retail side. In CRE, it is going the other direction. It looks a little like life of loan loss estimates are a little bit lower. That is what the models tell us. Anne, anything you would want to add to that?
Anne Fortner (Chief Credit Officer)
Yeah. I would say from a credit perspective, when we look at the favorable impacts from the results that we posted this quarter, what we've experienced is some improvement in our seniors' housing portfolio. We've had a few material upgrades there. We've also had some good M&A activity as well in that space. That has been a strong contributing factor to the favorable results. Also from a CRE perspective, our multifamily book continues to hold up and perform quite well. We have to date no charge-offs, virtually no NPLs and substandard accruing loans. We are continuing to feel favorable about that largest exposure that we have in CRE. As I mentioned earlier, we are working through a large non-performing relationship in office. We have taken a step in the right direction to reach a resolution on one of those deals.
Overall, we feel like the office portfolio is continuing to be pressured, right? We are seeing some glimmers of hope out there relative to valuations. We feel generally good about where our office portfolio sits today.
Nicholas Holowko (Director and Equity Research Analyst)
Got it. Thank you very much.
Operator (participant)
Thank you. Our next question comes from Catherine Mealor of KBW. The line's now open. Please go ahead.
Catherine Mealor (Managing Director)
Good morning. We've talked a lot about how great loan origination volume has been so far this quarter or so far this year. Can you talk a little bit about what you're seeing on the paydown side? I guess that's the big risk to the move in the 10-year, depending on what happens there, if we see accelerated paydowns and maybe what you're seeing in your client base, particularly towards the back half of the quarter.
Kevin Blair (Chairman, President and CEO)
Catherine, I said earlier, it's still elevated when you look at the payoff activity in the commercial space. Now, I'm talking specifically about commercial here. It's about $150 million higher than kind of our long-term average. That had spiked to be as much as $300 or $400 million in previous quarters, fourth quarter being a great example. It is starting to abate a little bit. 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 payoff activities because people are going to permanent financing on the CRE side. On the C&I front, we saw some line utilization or some line paydowns that generally can happen as well with higher interest rates. I think that will abate as we start to see lower interest rates. We're getting back to normalized levels today.
I would not consider the payoff activity as being the biggest headwind going forward. Now, as it relates to mortgage, our consumer mortgage book, we could see payoff activity pick up, obviously, depending on what happens with the 10-year treasury. That is something that we could get some churn there, but we could also increase our production to replace that. I would not consider the payoff activity as one of the bigger headwinds as we think about the loan growth guidance for this year.
Catherine Mealor (Managing Director)
Okay. Great. That's helpful. Then on loan pricing, I feel like we heard anecdotally a lot of the conversations, I feel like in February, was that growth looked good, but the pricing was getting more competitive. Of course, the world changed a month later. Just still kind of curious about what you're seeing on the loan pricing side and how you think that plays out over the next few months.
Kevin Blair (Chairman, President and CEO)
Yeah. Yeah, Catherine, that's a great question. I compliment our finance team and all of our line of business leaders who are using tools on the front line to evaluate what the right price is based on our return hurdles and based on what competitive benchmarking is. To your point, everything is relative. Our spreads and our yields are coming down. 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. Our guidance hasn't changed from an NII standpoint based on that new production. Just to put that in perspective, the first quarter yield on new production was 6.90. Previous quarter was about 7.19.
We also like to think about that in context of what we're bringing on in terms of new deposit production. New deposit production this past quarter was 2.58. We're still getting a 4.32 spread on new loans over new deposits. 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. We have benchmarking, as I mentioned, to be able to determine whether we're in market or not. It is a competitive market. As I say all the time, whether it's loans or deposits, I've yet, in my 30 years, found a market that's not competitive. It's going to remain competitive, but I think we're pricing where we want to price, and we think it can be accretive to the NIM going forward.
Catherine Mealor (Managing Director)
Great. Very helpful. Thank you.
Operator (participant)
Thank you. Our next question comes from Ebrahim Punawalla from Bank of America. The line's now open. Please go ahead.
Hi. Good morning, everyone. This is Eric on for EP. Most of mine have been answered, but just wanted to follow up. Kevin, you noted that you guys are neutral to short-term rates, a little bit asset-sensitive, longer-term. Any thoughts on kind of neutralizing or changing anything around that rate sensitivity at this point in the cycle?
Jamie Gregory (EVP and CFO)
Yeah. This is Jamie. I'll jump in on that one. We try to maintain neutrality to the front end of the curve. We want investors to invest in us for our growth profile, our prudence, and how we go to market more than a rate play. We try to maintain that stability. To give a concrete example of how we do that, in the first quarter, we were looking out two years forward, and you can see our hedge notional declines when you look that far out as hedges mature, and we put more on. We had an opportunity. Rates were higher, much higher than they are now, about 4%. We received fixed for a couple of years out there on $500 million at 4%. That was a positive because we wanted to maintain neutrality even out there.
Now, it gets difficult to model what is neutrality out there because you do not know where the front of the curve will be. Right now, neutrality for us is kind of with the hedge profile we have now because if you look at our loans, we are 63% floating-rate loans. If you look at our asset beta, kind of including securities portfolio, you get to kind of a low 50s on the asset beta before hedges and a mid-40s when you include the hedges. You have a mid-40s asset beta with hedges, and you have the 45-ish % beta that we described on deposits on the other side. That works out.
If rates are at the front of the curve at 2.5% in two years or three years, then the beta that we'd be modeling would be much lower on a down scenario, and you would need more hedges. If the rates were much higher, you would probably need less hedges. We try to kind of keep a reasonable amount of hedges out there so that we have long-term neutrality. That's generally how we think about it. We view on the asset side a mid-40s beta. We view on the liability side a mid-40s beta given the current framework we have right now.
Operator (participant)
Thank you. 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 (Chairman, President and CEO)
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. 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 prepare and take action. That truly sets us apart, and your dedication and hard work are the backbone of our success. 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.
We enter this environment in a position of strength: the highest level of capital in over 10 years, the lowest level of charge-offs in over three years, and an NPL inflow dollar amount, which was the lowest since second quarter 2022, a loan-to-deposit ratio of 84%, an ROA of 1.32, and a return on tangible capital of 17.6%. 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. Culture matters, which is why we have seen low levels of team member turnover and are attracting top talent from other organizations. 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.
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. Looking ahead, we remain hyper-focused on our clients, diligently managing and mitigating short-term risk 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. Lastly, I would like to extend my deepest thanks to our board member, John Stallworth, for his incredible support and guidance as a director since 2017. John 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. 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. Alex, that concludes our first quarter earnings call.
Operator (participant)
Thank you all for joining us today's call. You may now disconnect your lines.