Participants

Jennifer Demba; Investor Relations; Synovus Financial Corp.

Kevin Blair; Chairman of the Board, President, Chief Executive Officer; Synovus Financial Corp.

Andrew Gregory, Jr.; Chief Financial Officer, Executive Vice President; Synovus Financial Corp.

Jon Arfstrom; Analyst; RBC Capital Markets

Anthony Elian; Analyst; JPMorgan

Jared Shaw; Analyst; Barclays

Gary Tenner; Analyst; D.A. Davidson & Company

Bernard von-Gizycki; Analyst; Deutsche Bank

Casey Haire; Analyst; Autonomous Research

Nicholas Holowko; Analyst; UBS Financial Services Inc.

Catherine Mealor; Analyst; Keefe, Bruyette & Woods North America

Ebrahim Poonawala; Analyst; BofA Global Research

Presentation

Operator

Good morning and welcome to the Synovus first-quarter 2025 earnings call. (Operator Instructions) 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

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 the call.
Our comments include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause these 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. And you may see the reconciliation of these measures in the Appendix to our presentation.
And now, Kevin Blair will provide an overview of the quarter.

Kevin Blair

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 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 reveal 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 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 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?

Andrew Gregory, Jr.

Thank you, Kevin. Synovus has generated a 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 lag 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 remain 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 costs 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% to 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 market fees as well as lower seasonal and transaction-related wealth management income.
Moving to expense. We remain 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 expanded range of 25 to 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 in the specific forward-looking 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 selective loans in 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

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 fund 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 certain economic environment.
Period end loan growth is expected to be 3% to 5% in 2025. The vast majority of the loan growth should continue to come from our middle market, corporate and investment banking, and specialty lending loans. 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 fundings which was 35% higher than the prior four quarter average. There is now a $1 billion-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 additional structured lending team onboarded during the first quarter of 2025.
On the deposit front, we expect core deposit growth of 3% to 5%. This will be led by 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 verticals.
The adjusted revenue growth outlook is at the range of 3% to 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 to $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 valuations. 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% to 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 to 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%?
And now, operator, let's open the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Jon Arfstrom, RBC Capital Markets.

Jon Arfstrom

Good morning, everyone. 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? And just also curious what you think takes you to the lower end of the loan growth guidance range and the higher end? And kind of curious what's happened in the last several weeks as well?

Kevin Blair

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. And we tried to monitor the situation every which way we can including talking to clients doing client surveys, conducted a deep dive of analysis into our specific industries to understand that. But what really comes loud and clear is that when we talk to our clients today, there is a level of uncertainty that exists. Having to that one of our survey points that I think it's prudent to evaluate is 41%. Our clients believe that business activity will increase over the next 12 months. And that survey was conducted over the last month, including some of the noise around tariffs. So there's still a constructive business environment out there in which we can continue to grow loans.
And I think this quarter and the production we had about 1.5 and funded production, it was up about 10%, 15% over where we were in Q4. So it continues to build. When we look at our pipelines that we exited the first quarter with, they are high higher than what our production was for the quarter. So that would point to the fact that we should expect to continue to see the production grow again in the second quarter.

Jon Arfstrom

And why is that you've seen in our disclosure segment segment is our fast-growing segment, which includes Middle Market, structured lending, CIB. and other specialty groups.

Kevin Blair

That group grew 8% in the first quarter. We think that will continue to grow it even at a faster pace, 10% to 15% for the rest of the year. And they have a proven track record in doing that. We are middle market team over the last four years has kind of a core growth rate of 10%. So they've proven at same thing with our structured lending area and CIB., so new that they've been growing at a very fast pace so that those fast-growing segments, we have a lot of confidence in being able to grow at. I mentioned in the prepared remarks, we've also added 11 new middle market bankers in the past year, which is a 30% increase into the staffing. So that was 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, a payoff activity subsided a little bit in the first quarter, but they're still elevated about $150 million over kind of long-term averages. And so that will continue to abate, and that will provide tailwinds as well.
And then lastly, we look at line utilization. When we look at our forecast, we kind of looking at the midpoint, we assume line utilization stays roughly flat at 47%. But we've seen that utilization correlates very well with interest rates. So as interest rates were to decline that we think utilization could pick up.
So you asked a question, we're 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 nation that we haven't accounted for.

Jon Arfstrom

Okay, helpful. Yes, it sounds like market share gain is a pretty big piece of this as well. Sure. Well here with the new talent, absolutely. I don't think you're just relying on getting more business from your existing clients. I don't know that you can have outsized growth.

Kevin Blair

What we want to do and we've said this in the past, we think that our growth rate should be one or 200 basis points above the underlying market, just so that we're getting our fair share play. Thus we're showing that we're taking share from our competitors.

Jon Arfstrom

Okay, perfect. Thank you. Jamie, it surprised me on the margin that was a little better than I thought. And when I look at slide 14, there are obviously two big movements in terms of loan repricing and deposit cost coming down. How are you feeling about the margin from here in terms of some of the near term puts and takes?

Andrew Gregory, Jr.

We're pleased with the trajectory of the margin and Houston trending. 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, but it really depends on Fed policy. So the core, our underlying asset yields and deposit cost, we think will be about a push next quarter. But if we did have easing in the second quarter, which is embedded in our forecast, we have a June cut than we would expect to see that lead lag impact from put a little bit of pressure on the margin in the second quarter.
As you go through the rest of the year, our guidance includes four cuts total three in the second half of the year. So you have June through October rate cuts that basically has the temporary impact of the lead lag headwind offsetting the permanent benefit of risk-weighted asset repricing.
So our view is that we will likely lead to a stable margin heading through the year in that scenario in the mid 30s, Tom, but that's basically what you're seeing that is that temporary headwind of lead lag impact offsetting something that will be with us forever as the balance sheet reprices to market rate.
So I don't think that as a true reflection of the core margin, I mean, if you look at flat rate, can you just see margin expansion basically through the second half of this year? But that lead lag impact definitely is impactful this year.

Jon Arfstrom

Okay. All right. Thank you very much. Appreciate it.

Operator

Anthony Elian, J.P. Morgan.

Anthony Elian

Hi everyone. Just a 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 bars getting ahead of our stock piling inventories prior to the tariffs?

Kevin Blair

Certainly not not really. We have a managing monitoring tool that we look at daily line utilization and usually that's where you would see people getting into their borrowing base to take out additional inventory. We had a couple 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 team, CIB. specialty lending. So isn't really a pull forward of future demand.

Anthony Elian

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. And Kevin, I think in your prepared remarks, you mentioned you made 20% of the planned hires through April. I just wanted to confirm if there are any changes at all to the amount for the timing of the 20% and 30% more RMZ plan to hire over the next three years?

Kevin Blair

Yes. So from a commercial on 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. On the one area that we may slow as part of our wealth expansion with markets being as volatile as they are. It's generally a more challenging to trying to get a brokerage or wealth adviser to move during the time.
But look, we it's too early to make that statement today because the markets have moved so much. But there really is no overarching change to the strategy. We think that our right to win our ability to attract that talent remains the same that we've been working on for some time building the pipeline of that talent. We've had discussions and we're starting to own more talent. And more of that is in the pipeline today to be on board at. So really, there is no no change to the expectations there. And quite frankly, the balance sheet impact and P&L impact over the next couple of years.
And one more thing I would add to that, as you look at our expense guide, the change there are other benefits in there that are not part of that spend on our EM growth. And so we have a project called spending in 2025 where we have projects coming in a little less costs this year than what we expected. We have facilities costs a little lower and then you know, in line with the improved credit performance, strong credit performance, we have reduced credit related calls. We have reduced fraud experience. And so there are a lot of tailwinds that go into that expense guide reduction this quarter.

Anthony Elian

Thank you.

Operator

Jared Shaw, Barclays.

Jared Shaw

Good morning, guys. Is there some maybe looking at it credit and sort of the the improvements on us there? First, when you when you look at the charge-offs, you think you called out a an opposite who had previously been in non-performing or is that is cleaned up enough?

Kevin Blair

That's correct. That's related to the office, not performing relationship and model that has not been fully resolved. That's a step in that direction, and we have to have escalation to that either at the end of this quarter than that.

Jared Shaw

Okay. And then when you when you look at the overall some sort of increased weighting to an adverse scenario, was that as of March 31st? Or does that sort of reflect on where we are today? And should we expect that that maybe continues to have a heavier weighting towards adverse since REO and in the second quarter?

Kevin Blair

As we look at the outset, I mean, this is as of March 31st, and there was already some disruption in the economy than pre liberation day. But um, and that impacted our our weightings. I think it's interesting to note that first day 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 pretty negative scenario to have that as your baseline. And so we we ended does acknowledge the uncertainty.
We will continue to watch the outlook from Moody's released their scenarios this week after the month of April, and they did deteriorate a little bit there. Their downside scenario did not really changed, but the other scenarios kind of went a little more negative than we saw in the March scenarios. But both that doesn't necessarily mean a thing for us because what we do is at the end of the quarter, we will look at all of their scenarios and we'll come up with what we weightings we think is kind of most appropriate for us with the allowance in the first quarter.
First thing I would note is the loan portfolio performance drove significant improvement in the model, the output of the allowance to loan ratio. So if that if that was the only thing that happened in the first quarter, we would have seen a reduction in the allowance to loan ratio and getting it to the one 20 or even lower area.
And then you see an offsetting increase based on the economic uncertainty in the economic outlook. We've seen a lot of articles out there that they get into sensitivity, beta assumptions around what happens if the economy deteriorates and only comment I'd make on that as our portfolio, it is very different than it was in the GFC.
And our outlook right now is very different than it was in 2020 with the pandemic. And I don't think those are the most reflective analogs of where things could go if they were to deteriorate from here. But when you look at the adverse scenario, using the Moody's downside scenario, we have at it is 20% weight. Unemployment gets up to full year full year 20 26.2%, peak unemployment, 8.3%. If we were to only use that scenario and weighted at 100%, you would see about a 20 to 25 basis point increase in the allowance to loan ratio.
So I think that that's a better analog for where things could go if they really deteriorate from here. But clearly as nothing that we expect just nothing that we see both whatever the reason I bring that up is because the sensitivity is just very different today than it has been in the past.

Jared Shaw

Okay. That's great color. Thanks. And then just finally for me, just on on capital, how should we be thinking about, I guess, the remaining buyback here, given the the discussion around CT., think stable and using that to fund growth, should we think that you're out of the market for the time being?

Kevin Blair

Well, when you look at the capital, we generate every quarter through earnings, and that gives us a lot of flexibility to go out there and grow client loans, which is our core priority. And so as we look at the three quarters remaining this year, first, RBS active is to maintain stability in capital ratios. But the beauty of having strong earnings like that is that that gives you the ability you do not need to necessarily stockpile capital for future growth.
And so if you look at our loan growth forecast and I think about the risk-weighted asset impact that we could grow our objective at the high end of the range and fee and fuel that with capital generated in two quarters of earnings. And so philosophically, as we think about how we go through this year, we will look to buy shares and look in the near term at loan growth prospects and really where the near term growth and offset it with share purchases. And so if we're seeing growth come in as fast and are having success growing client loans, then we will dial back share repurchases. But things look relatively stable in the loan front, you should expect to see us in the market.

Jared Shaw

Thank you.

Operator

Gary Tenner, D.A. Davidson.

Gary Tenner

Good morning. So that's really their inventory really kind of. Regarding your chart, I bridge to the commentary regarding your focus on getting your arms around these policy changes that you highlighted on slide 9 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 this fall into that kind of primary target group? And any other color you could provide there?

Kevin Blair

Gary, I said earlier, it's so hard. We know that it is going to have a significant impact across the entire business community, but it's hard to isolate what that impact is and how meaningful it will be to each client. So we engage you saw in that slide 9 and a couple of different things.
The first thing is yes, we will looked at the same industry classifications that you would expect to have a larger impact. Things like manufacturing transportation, government contracting, discount retail, and we've evaluated that within our portfolio and the diversification within our portfolio. We have fairly limited exposure. When you look at the full size of the outside, that means they're Secondly, we felt like we need to reach out and talk directly to those clients with the great exposure.
When we had those discussions kind of the top 100 borrowers, what we heard is that at a 15% felt like it would have a meaningful direct impact to their business. And when we talk about meaningful direct impact, it doesn't I mean credit situation. It just means that they're going to have increases in their input costs.
And the question there will be how much of that can be passed on to their end user versus being absorbed through lower margins. So that for us was somewhat ring fencing or understanding who they are and will work more closely with those claims handset stated that they would be largely impacted. We then conduct a quarterly survey, as mentioned earlier. And 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 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. But as I mentioned earlier, we still have 41% of our client base who feels like business activity could pick up signed to go to an earlier, looking at data line utilization, looking at a trade tracker tool that we have built internally and all that stuff just makes us better prepared to have conversations with our clients. But I think it comes down to the health of the consumer and their ability to be able to absorb increased costs.
And 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. And most recently, as Jamie talked about, we've increased our capital levels to the highest they've been in over 10 years. And the same thing for balance sheet liquidity.
So we are having discussions. We want to make sure that we're staying close to our clients. We think that it's it's not something that concerns us at this point, as you can see from our ACL. But we also note it's a very volatile time and we need to stay on top of it.

Gary Tenner

Thanks. I appreciate the thoughts and commentary there. And just a quick kind of bookkeeping question, if you will. In terms of the buyback given quarter, can you give us the the average price that you bought back shares?

Kevin Blair

The average price in the U.S. 40 and 41 49 for 49 and 41.

Gary Tenner

Thank you.

Operator

Bernard von-Gizycki, Deutsche Bank.

Bernard von-Gizycki

Good morning. I think, previous time and have guided to about from about 20 basis points benefit from fixed asset repricing of for 25 to 26. And you mentioned the four rate cut stable, 10-year assumption of is there any thought to what you might be expecting lump sum fixed asset repricing?

Kevin Blair

I'll give an update on that. No, the rate difference the ratings, but on the fixed rate asset repricing is the belly of the curve in the long end, which has been highly volatile over the last month. And so it is little little difficult to keep keep track of all that outcome. But for us, as we look at the fixed rate asset repricing for this year, it remains extremely similar as what we said in the past and that that statement really holds for this year.
And next and maybe a little lower in 2026 because because rates have declined. But the core for us, if you were to look at the margin and a flat rate scenario, we would expect the margin to get into the low three 40s by the end of this year. And clearly that's not the market expectation, but I think that's a little bit indicative of the balance sheet benefit on the income tax benefit of the fixed rate asset repricing for this year. But yes, that should continue into next year.

Bernard von-Gizycki

Just as we've said in the past, I appreciate I can I can appreciate how difficult it can be in this environment, still a forecast. But maybe just my follow-up on capital markets. Maybe another question on forecasting. I know that I know the revenues were a bit weaker than expected and you noted it was due to loan production mix. Can you just expand on this and expectations for this mix and yield trend for the rest of the year? I believe you noted on the call core execution here still expected, and I believe you point us to double digit growth in customer 15 previously. So any update?

Kevin Blair

Yes. I mean on and so this is Kevin. So when you look at it for the quarter, we were down about $5 million from the fourth quarter. 5 million of that were just derivative swap fees and another 1.5 were on the lead syndication arranger fees. We actually increased debt capital markets, increased FXNRSB., a government guarantee sales. And so so when we talk about mix, number one, we just had fewer large loans that would have qualified our brand through or run through our syndication platform.
Number two, you were talking about this with interest rates being where they are today with the expectations that potentially there could be greater because I think our clients are less inclined to go ahead and swap to fix at this point out that a lot of bankers who said they wanted to remain our clients want to remain floating, but it will give us the opportunity down the road to come back in and put a swap on top of that loan.
So as loan production continues to increase in the areas I mentioned earlier, I think we'll see more syndication fees, joint arranger fees. And as the interest rate environment kind of plays out, I think you'll see more swap income. So that's why we feel that we're it's not predicated on 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 market, we are actually performing at a very high level.

Bernard von-Gizycki

Okay. Great. Thanks for taking my questions.

Operator

(Operator Instructions)
Casey Haire, Autonomous.

Casey Haire

Morning, guys. A follow-up on the origin, specifically deposit costs. So as you guys pointed out, your beta is kind of a 46 is coming at a lot stronger than what you guys laid out. What are what are some updated thoughts on where that can go from here? And it also that the revenue guidance based on the deposit composition holding stable, but you have a nice positive mix shift was lower cities. Wondering if that can continue.

Kevin Blair

So a couple a couple of things there. The deposit beta, I would actually argue that we are at 48% and in this cycle we put 46 in the deck to use quarterly numbers. But if you use month of March were actually at a 48% beta in this down cycle when we're pretty pleased with that. I mean, part of that's mix, but a lot of it is price within products. And so we've had a lot of success there with our teams and our and our clients.
When we look forward, our assumption is for the for the beta in the next part of this easing cycle to be about a 45% beta. So fairly similar, a little less home. But your point there is some some uncertainties in that as we go through the year. The first quarter was a little bit unique in the decline in time deposits. And 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, and that gave us the flexibility to allow those time deposits to decline. And we think that's a real positive for mix going forward in that segment. And so I wouldn't expect to see the MAG magnitude continue when you look at CDs and in the trajectory from here.
But we do expect that the core deposit growth as we go through the rest of this year will be led by non-maturity interest-bearing deposits, money market and Okay counts. And so Tom, that's where we expect to see a lot of the growth that's embedded in our and our outlook. We expect an IV to be relatively stable nhe rest of the year. And that's all that all comes together in our margin outlook.

Casey Haire

Okay. Great. And then on the expense front, you guys have done a good job of balancing some of your strategic investments in the guide here. Does there are some some healthy encouraging signs, but it does assume some pretty aggressive steps up step-ups and loan growth in fees. Is those fall short? Is there more room to push the expenses lower or is this is this before guide the low end of that as I think that kind of the end?

Kevin Blair

So we are pretty convicted and the strategic initiatives that underlie that 2% to 4% growth and some of that's already baked. And if you think about merit, that's already happened for this year as far as the increase in spend. But on the strategic initiatives side, we're pretty convicted. And what we have laid out with the RM hiring, you think about our it was initiative structured lending growth, build out of the financial institutions group and then some of the projects we have with our with different our core systems from fraud, et cetera, syndication system. I mean, all these all these projects we believe are pretty important.
But that being said, if the economy economic outlook materially deteriorated, if we are 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. And 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 24.
Now that would have to happen quick, and it's unlikely that we would choose to do that, but it's a possibility. And that's one thing you should see with us as we maintain 18 expense flexibility and we're always looking at ways to cut calls now is not our intent to do it. We believe the shareholder value is embedded in all of the initiatives that we are greenlighting for 2025.

Casey Haire

But you should know that if the world changes were rated change with it?

Kevin Blair

Yes.

Casey Haire

Thank you.

Operator

Nick Holowko, UBS.

Nicholas Holowko

Good morning. Maybe just one follow-up on your Slide 9. In highlighting the proactive response to DC policy changes from, 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 a more dynamic times like we're in today? And if so, how does that help inform you about some of the investments are continuing to make here on the strategic side?

Kevin Blair

Look at technology, if you think back to COVID, we began something where we start 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 we're seeing abnormal inflows or outflows of cash into there deposit relationships, which was an early warning mechanism into any sort of credit deterioration. We're able to use that in this sort of environment 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 and daily line utilization so that we would have, again, early warning mechanisms to evaluate any sort of credit deterioration. I think you have not only have we improve the technology. We've also improved our overall procedures and processes related to risk management. The device notification of the balance sheet. I think that's a big factor.
We were looking back at our balance sheet post the GFC and we look at it today. We looked like a completely different institutions as it relates to the asset classes that we're in. But yes, I I truly believe that the investments in technology, the team members that we have decentralized risk management function and that we've built allow us not only to better monitor, but more importantly, we've been able to diversify and get out of some concentrations on the balance sheet that we would have had in the past.

Nicholas Holowko

Thank you. And then maybe just one more follow-up on the allowance. You highlighted performance on on the credit front coming in a little better than expected. Anywhere decline in particular were credit performance is improving.

Kevin Blair

You know, as we look at the allowance calculation and and can talk in more specifics. But when we look at that will allowance calculation, we are seeing a little bit of an uptick in the life of loan loss estimate on the retail side from. And but then and CRE. is going the other direction. It looks a little light. Life-of-loan loss estimates are a little bit lower.

Nicholas Holowko

So how come that's what the models tell us, but anything you would want to add to that?

Kevin Blair

Yes. I would say from a credit perspective, when when we look at the favorable impact from the results that we posted this quarter, what we've experienced status and some improvement and our seniors housing portfolio, we've had a feed material and upgrade their we've also had and engage in M&A activity. It fell in that space has been a strong contributing factor to the favorable results in all, say, from a CR any perspective, our multi-family as that continues to hold, that can perform quite well. And we have had to date net charge off virtually no NPLs and substandard crane line set for continuing to fill favorable about that large estate exposure that we have in CRE. And as I mentioned earlier, we are working through a large and non-performing relationship and office. And so we've taken a step in the right direction to reach a resolution on one of those sales. And overall, we feel like office portfolio and it's continuing to be pressured, right, but we are seeing some some glimmers of hope out there relative to valuations. And so we feel generally good about where our office portfolio assets today.

Nicholas Holowko

Thank you very much.

Operator

Catherine Mealor, KBW.

Catherine Mealor

Good morning. And we talked a lot about how great of loan origination volume has densify this quarter. I'm assuming this year, can you talk about what you're seeing on the paydown side? I guess that's the big risks to the new to the 10 year, depending what happens there if we see in Florida paydowns and maybe what you're seeing in your client base, particularly towards the bottom half of the quarter categories.

Kevin Blair

I said earlier, it's still elevated. When you look at the payoff activity and the commercial space number, I'm talking specifically about commercial here, it's about 150 million higher than kind of our long-term average. So that had to be as much as three or $400 million in previous quarters, may have Q4 being a great example. So it is starting to abate a little bit. And I think it's what and 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 from paydowns, but generally can happen as well with higher interest rates. And I think that will abate as we start to see lower interest rates. So we're getting back to normalized levels today. So I wouldn't consider the payoff activity has been the biggest headwind going forward.
Now as it relates to mortgage Arctic, our consumer mortgage book, we could see payoff activity pickup, obviously, depending on what happens with the 10 year treasury. And that's something that we could get some churn there, but we could also increase our production to replace that. But I wouldn't consider the payoff activity as one of the bigger headwinds as we think about the loan growth guidance for this year.

Catherine Mealor

Great. That's helpful. And then on what pricing does hopefully heard anecdotally, but one of the conversations actually hike in study, where was that growth looks good, but the pricing is getting more competitive and of course, kind of oral change a month later on. But just some sort of curious about on what you're seeing on loan on the loan pricing side and how you think that plays out over the next Actemra books?

Kevin Blair

Yes, Kevin, it's a great question. And I compliment our finance team and all of our line of business leaders who are using tools on the frontline to evaluate what the right prices based on our return hurdles and based on what competitive benchmarking is now, to your point, everything is relative to 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 and just as we had forecasted them, whether it's a floating rate or fixed rate loan. And so our guidance hasn't changed from an NOI standpoint based on that new production.
And just to put that in perspective, the first quarter, our yield on new production was six, 90 previous quarter was about seven 19. But 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 to 58. So we're still getting a for 32 spread on new loans over new deposits. And so I think you have to look at those in combination.
We have internally do manage what the government on production yield is and we monitor it. And we have benchmarking, as I mentioned, to be able to determine whether we end market or not. So it is a competitive market. As I say, all the time, whether it's loans or deposits, we have yet my 30 years found a market that's not competitive. So 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

Thanks very helpful. Thank you.

Operator

Ebrahim Poonawala, Bank of America.

Ebrahim Poonawala

Good morning. Everyone knows AeroFONE through even the most of mine have been answered. But just wanted to follow-up, have you know that you guys are Nucynta short-term rates a little bit asset sensitive longer term? Any thoughts on kind of neutralizing or changing anything around the rate sensitivity at this point in the cycle?

Andrew Gregory, Jr.

Yes, this is Jamie. I'll jump in on that one. We tried to maintain neutrality to the front end of the curve. We won't investors who invest in us for our growth profile, prudence and how we can go to market more than a rate play. And so we tried to maintain that stability. And to give a concrete example of how we do that in the first quarter, we were looking out two years Ford and you can see our hedge notional declines.
When you look that far out as high, it is mature and we put more on. And so we had an opportunity. Rates were higher, much higher and they are now about 4%. And we receive fixed for a couple of years out there on $500 million, a 4%. And 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 don't know where the finally Carl will be. And so right now, neutrality for us, ARM is Canada with the hedge profile we have now because if you look at our loans were 63% floating rate loans, if you look at our asset beta counter, including securities portfolio, you get to some kind of a low 50s on the asset beta of for hedges and a mid 40s when you include the hedges. So you have a mid 40s asset beta with hedges and you have the 45 ish percent beta that we described on deposits on the other side. And so that works out.
But if rates are at the front of the house at 2.5% in two years or three years than the data that we be modeling would be much lower and own a down scenario and you would need more hedges or if the rates were much higher, you would probably need less hedges.
And so we Tropicana keep keep a reasonable amount of hedges out there so that we have long-term neutrality just generally how we think about it. And so we've you own the asset side, a mid 40s beta. We view on the liability side and mid 40s beta given the current framework we have right now.

Ebrahim Poonawala

Thank you.

Operator

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

Thanks, 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 a differentiated level. And you've held proactive discussions to assist our clients to better prepare and take actions 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 entered 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 of '22, a loan-to-deposit ratio of 84%, and ROA of 132 and a return on tangible capital of 17.6% and was posted a quarter with a 22% increase in PPNR and a 67% increase in EPS versus the same quarter last year.
Our strategic approach and financial strength enables 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 true just 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 our 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 risks while continuing to invest prudently in our future. Our commitment to our clients and our communities 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 team. 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.
And with that, Alex, that concludes our first quarter earnings call.

Operator

Thank you all for joining today's call. You may now disconnect your lines.