nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript
Synovus Financial (SNV) Q1 2022 Earnings Call Transcript
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Synovus Financial ( SNV -3.66% )
Q1 2022 Earnings Call
Apr 21, 2022, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Synovus first quarter 2022 earnings call [Operator instructions] Please note this event is being recorded. I will now turn the call over to Cal Evans, head of investor relations. Please go ahead.

Cal EvansHead 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. Kevin Blair, president and chief executive officer, will begin the call. He will be followed by Jamie Gregory, 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 risks and uncertainties, and the actual results could vary materially. We list these factors that may 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. And now Kevin Blair will provide an overview of the quarter.

Kevin BlairPresident and Chief Operating Officer

Thank you, Kyle. Good morning, everyone, and welcome to our first quarter earnings call. The first quarter provides another proof point of our continued focus on growth. I’m extremely proud of the way our team members set and kept the pace and focus as we pursued and won new business, deepened wallet share, enhanced our clients’ experiences and made ongoing progress in several areas of investment, including MAAST, CIB and wholesale banking.

Our relationship banking approach delivered strong growth this quarter in loans, core transaction deposits and core banking fees and are a product of broad-based success across our lines of business and client segments. At the same time, we’ve maintained good expense discipline by leveraging Synovus forward initiatives to partially offset the inflationary expense environment that we have faced while continuing to invest in talent and our longer-term initiatives. The road map that we shared during our investor day back in February strikes the appropriate balance between core and transformational initiatives. You’ll hear during today’s call, the positive impacts from several initiatives and investments we’ve outlined in our strategic plan and progress we are making toward building sustainable top quartile performance.

We continue to make progress on Synovus forward with run rate benefits increasing to $125 million as of March end, and we remain on track to deliver $175 million by year-end. The optimization of our branch network is a significant initiative within the Synovus Forward program, with nine locations closed in the first quarter and approximately 30 planned for the rest of the year. We are also continuing to make some promising hires in revenue producing talent and new leadership in key lines and key markets, increasing our wholesale middle market team by 10% this quarter, while also expanding our specialty lending team and naming new community banking leadership in our Tampa and Chattanooga markets. On the CIB front, our plan to have talent in place by the second quarter remains on track, with 15 to 20 team members expected by year-end.

Additionally, from a digital standpoint, we have continued to successfully migrate to our Synovus Gateway digital commercial banking platform. Later this month, we’ll complete a year long transition of all of our commercial wholesale and small business clients, providing an enhanced and streamlined experience. Also during the first quarter, we launched our mobile virtual commercial card which will make it even easier for our clients to utilize their credit facilities. From a consumer perspective, we heightened engagement across our digital platform, My Synovus and expanded online account opening with increased product availability and expansion of capabilities and channels and launched Phase 1 of consumer analytics, which is focused on the next best action for our clients.

We also continued the measured integration of commercial analytics into how we manage credit events and borrower monitoring, most notably within the community and consumer bank lines of business. Lastly, development of our Banking as a Service platform, MAAST, is progressing on schedule with the second quarter pilot planned. We are finalizing the selection process for the ISV, which we will partner with for this phase. As the platform is being built, we continue to add talent to our team with two new senior leaders added this quarter, who both have vast experience working in tech, integrations and technology solutions.

We also have signed a definitive agreement to acquire a 60% interest in Qualpay, a provider of cloud-based platform that combines a payment gateway with robust merchant processing solutions, which will allow merchants and independent software vendors to easily integrate payments into their software or websites. The completion of this investment is subject to the satisfaction or waiver of customary closing conditions, including receipt of necessary regulatory approvals. Beyond the proposed investment to propel growth in Qualpay’s core business, Synovus has chosen to leverage Qualpay’s payment technology stack as an integral part of MAAST. We believe this investment will help to speed up the delivery of MAAST as well as ongoing enhancements and solution expansion.

Now, let’s look at Slide 3, where we’ve included key financial highlights for the quarter. I’d like to begin with loans, which increased $1.1 billion, excluding PPP or 11% on an annualized basis. Our Wholesale Banking segment had another exceptional quarter and we also posted growth in both community and consumer banking client segments. — evidencing the momentum we have across the franchise.

Commercial line continues to be the driver of overall growth, with first quarter funded production up 43% year over year. What is important is that we’ve achieved this robust growth in a diversified fashion while maintaining our underwriting standards and adhering to our disciplined credit framework. Quality deposit growth continued in the first quarter driven by an increase in non-interest-bearing deposits of $284 million. We continue to see growth in core consumer transaction accounts resulting from both balance augmentation and account growth.

Our multiyear journey focused on remixing our deposit base into lower cost, sticky sources has positioned us well to manage deposit cost in this rising rate environment. PPNR adjusted for onetime items and excluding PPP fees, was $213 million for the first quarter. This represents a $17 million or 9% increase year over year. Revenues increased driven both by balance sheet growth as well as continued growth in multiple fee income businesses.

We would be remiss if we didn’t acknowledge the recent geopolitical risk and inflationary economic environment and their potential impacts to our clients, both from a consumer and commercial perspective. Increased prices and supply chain bottlenecks are putting additional pressure on liquidity and business activity in certain segments and may impact margins moving forward. Despite the challenges our credit outlook remains positive. Overall, our strong quarter led to an adjusted EPS of $1.08 and operating metrics that demonstrate our focus on profitable growth.

Jamie will now share a more detailed update on the results for this quarter.

Jamie GregoryChief Financial Officer

Thank you, Kevin. Starting with Slide 4, I’d like to begin with loan growth. Total loan balances ended the first quarter at $40 billion. Excluding PPP balances, loans grew $1.1 billion, led by growth in C&I.

On an annualized basis, total loans were up 11%, our third consecutive quarter of annualized double-digit loan growth. As you can see on Slide 5, C&I loans were up $926 million quarter over quarter, and CRE loans grew $130 million. Commercial loan growth was broad-based with 10 of 11 wholesale bank businesses growing balances. We also continue to see growth in commercial production and line utilization.

Commercial production increased 43% year over year, driven by a 40% increase in C&I. Line utilization increased to 46.1%, up from 42.8% in Q4. We Higher utilization from lines existing at the end of the fourth quarter contributed approximately $200 million to loan growth in the first quarter. Higher utilization levels are reflective of our clients’ investment spend, inventory level builds and inflationary pressures related to higher input and labor costs, among other factors.

Regional economic data indicates performance which outpaces the nation and showed little effects from the Omicron variant of COVID-19 over the course of the first quarter. Favorable demographic trends continue to give us a cautiously optimistic outlook on the economic health of our footprint in 2022 relative to the rest of the country. This perspective is underscored by conversations with clients and other industry participants within our footprint. As we turn to Slide 6, we continue to see positive trends within our deposit base even as deposit growth has slowed from the record pace we saw in 2020 and 2021.

Our focus remains the same, continuing to deliver Synovus to our clients in a way that leverages our platform to deepen client relationships. What we saw in the first quarter was consistent with that aim, with core non-interest-bearing deposits up $284 million and savings deposits growth of $72 million quarter over quarter. Our consumer banking segment was a notable bright spot in that regard, with core transaction deposits up $701 million attributable to a combination of both account growth and balanced augmentation. Time deposits declined by $143 million as a result of our continued focus on remixing our deposit base.

Public funds decreased $236 million quarter over quarter, mainly a function of seasonality. Beyond our core portfolio, we also continue to leverage our broker deposit book as a means to efficiently manage our balance sheet and liquidity position. As we forecasted on our fourth quarter earnings call, we saw a notable decline in broker deposits, which were down $797 million. That decline was driven by our efforts to efficiently manage our liquidity position.

However, we do expect a return to growth in that portfolio in the coming quarters as we leverage that funding source as a cost-efficient means of complementing our core deposit growth and helping to fund our strong loan growth expectations. Our average cost of deposits declined 1-basis-point in the first quarter to 0.11%. This was driven by deposit mix optimization and strategic reductions in high-cost deposits as previously described. The first rate hike in March had very little impact on deposit costs as we were able to limit rate increases across the majority of our products.

We believe the deposit betas will be modest early in the hiking cycle with an expected beta of approximately 20% for the first 100 basis points of FOMC hikes. As monetary policy continues to tighten and the FOMC reaches a more neutral policy rate, we would expect to see increased betas. And as a result, we’re expecting cumulative betas in the mid-30s through that period. As shown on Slide 7, net interest income was $392 million for the quarter, consistent with the prior quarter.

The first quarter NII was affected by lower PPP fee income as well as the impact of a lower day count. Excluding these impacts, NII was up $13 million quarter over quarter. year over year, NII was up $36 million, excluding PPP fees, this represents an increase of 10% and was driven by the strong organic growth we saw in the latter half of 2021 and which carried over into the first quarter. The net interest margin was 3%, an increase of 4 basis points from the fourth quarter.

As expected, lower cash balances helped to support NIM and offset the impact of continued decline in PPP fees. Looking ahead, we expect to see further NIM expansion in the coming quarters as the benefits of higher rates are realized. To help further contextualize the impact of rates, we included additional detail on our interest rate asset sensitivity on Slide 8. Balance sheet asset sensitivity benefited from the continued growth in our floating rate loan portfolios, which increased to 59% of our total loan portfolio at quarter end, a 7% increase year over year.

This is due to robust origination of variable C&I loans. Asset sensitivity also benefited from recent increases in short-term interest rates, which reduced the number of loans at their floored interest rate. Several factors offset these benefits to asset sensitivity. The increase in expectations for short-term interest rates led to an opportunity to lock in the benefits of a rising rate environment.

Accordingly, during the first quarter, we added $1.4 billion in forward starting hedges. We also made a slight increase to our core deposit beta assumptions in the first quarter, largely driven by changes in the expected pace of Fed tightening, though those were offset somewhat by positive deposit remixing trends. For purposes of our sensitivity disclosures, we continue to assume the static through-the-cycle beta in the mid-30s. Collectively, as shown on Slide 8, the combination of these factors resulted in a fairly stable asset sensitivity position quarter over quarter.

Specifically, as it relates to deposit betas, we believe it is likely that betas will start low and increase as the FOMC progresses through this tightening cycle. Both the amount of tightening and the pace of tightening are expected to impact deposit betas. To illustrate how the realized beta may impact our NII profile, we’ve included a sensitivity table this quarter. As you can see, adjusting the beta 10% results in an approximate 1.6% change in asset sensitivity.

Slide 9 shows total adjusted non-interest revenue of $107 million, down $9 million from the previous quarter and down $6 million year over year. The quarter-over-quarter decline is primarily related to the $8 million BOLI gain in the fourth quarter. On a year-over-year basis, nonmortgage-related fee income increased 12%. Notable items included an increase in core banking fees of 19% and wealth revenue of 11%.

Growth in core banking fees was attributable to numerous categories, including card revenues and cash management fees, both reflecting our investments in treasury and payment solutions. In addition, other core banking fees, such as SBA loans and merchant services improved year over year, a result of strong execution in these business lines. Wealth revenue benefited from strong customer acquisition and growth in assets under management year-over-year across all of our key wealth business lines. Within our retail financial advisory business, managed assets grew 24% year over year, primarily due to strong net inflows.

Synovus Family Office grew their family count by 15 or 21% year over year and continue to see opportunity for growth in the coming quarters. Mortgage revenue of $6 million declined $1 million from the prior quarter and down $16 million from the prior year. As mortgage rates have increased, refinancing volumes have declined, which has resulted in reduced mortgage revenue. Slide 10 highlights total adjusted non-interest expense of $279 million, down $6 million from the prior quarter and up $14 million year over year.

Adjusted items were led by the onetime gain on sale of our Columbus facilities, offset by branch-related restructuring charges. The decline in adjusted non-interest expense quarter over quarter is a result of prudent expense management and the normalization of expenses from an unusually high fourth quarter. Offsetting the expense normalization with seasonally higher employment taxes and employee benefit costs, which in total increased approximately $10 million from the fourth quarter. Year over year, adjusted expenses increased 5%.

Over 50% of the increase is attributable to incentives and costs associated with elevated performance. We continue to benefit from the expense saves and discipline that are part of our culture as a result of our Synovus forward initiative. As previously disclosed, we plan to significantly reduce our branch count in 2022. We forecast that by the end of the year, the run rate expense benefit from 2022 branch reductions will exceed $15 million, some of which will be reinvested in our digital delivery channel.

Despite tight cost controls, we are investing in the growth initiatives covered at our investor day, such as CIB, MAAST and restaurant services, and we are fulfilling our strategic commitment to add frontline bankers. First quarter expenditures on new growth initiatives totaled approximately $3 million, and we are forecasting $25 million to $30 million in spend on new growth initiatives for 2022. Key credit metrics on Slide 11 remain stable overall and at very low levels. The NPA and NPL ratios stayed level at 0.4% and 0.33%, respectively.

Total past dues decreased 4 basis points to 0.11% and the criticized and classified percentage of loans remained at 2.6%. The net charge-off ratio, which was 0.19% for the quarter, continued to remain at historically low levels. This quarter, the economic outlook worsened due to heightened inflation concerns and geopolitical tensions. Because of this, our multi-scenario economic framework assumes a 64% downward bias relative to the third-party baseline scenario, which somewhat lags current conditions.

This increasingly negative economic outlook was more than offset by the strong credit performance of the existing loan portfolio as well as the reduced credit risk profile of recent loan growth. This resulted in an ACL coverage ratio of 1.15%, a decline of 4 basis points from the fourth quarter. While we are excited to deliver strong core loan growth, our credit team remains diligent in monitoring our loan portfolio and being judicious in improving new credit risk we take on our balance sheet. As we grow our business, we remain committed to maintaining a well-diversified balanced loan portfolio across various industries and asset classes and diligently managing credit risk within our risk appetite.

As noted on Slide 12, the common equity Tier 1 ratio remained relatively stable at 9.47%. Strong PPNR continues to support organic capital creation with 35 basis points accruing to common equity Tier 1, inclusive of taxes and the provision. Our focus remains on deploying this capital to our strategic priorities of strong core loan growth and a competitive common dividend, which now stands at $0.34 per share per quarter. Our capital position remains strong, and we continue to actively manage CET1 within our 9.25% to 9.75% target range.

In the first quarter, we repurchased $10 million in as we outlined at investor day in February, our approach to capital management will continue to prioritize capital deployment that is aimed at supporting client growth, paying a stable common dividend and accommodating opportunistic nonbank M&A opportunities. I’ll now turn it back to Kevin.

Kevin BlairPresident and Chief Operating Officer

Thank you, Jamie. I’d now like to share some updates to our guidance for 2022 previously disclosed during fourth quarter earnings. The updated guidance does not include the impacts of the investment in Qualpay, which we currently expect to close in the third quarter and will have an overall immaterial impact on our financial statements. As a result of the strong loan growth and increased utilization we saw in the first quarter as well as current pipeline levels, we are raising our loan growth guidance to 6% to 8% for the year.

While the probability of a slower growth environment has increased, it is important to note at this time, we have not seen a significant negative impact on client loan demand attributable to either geopolitical risk or an increasing inflationary economic environment. Adjusted revenue is now expected to be 9% to 11% for the year, largely a result of the elevated interest rate environment as well as strong first quarter loan growth. Embedded in this updated guidance is the forward rate curve as of March 31, which assumes Fed funds end the year at approximately 2.5%. Adjusted non-interest expense is expected to be up 3% to 6% for the year, while inflationary pressures certainly play a part in expected expense levels, the increase in our expense range is driven primarily by growth in performance-based incentive expectations.

In addition, when looking at expense increases year over year, approximately 50% of the forecasted increase is attributable to investments in growth initiatives, which we expect to drive revenue growth as we look past 2022. We expect to maintain strong positive operating leverage throughout the year. Our CET1 target range of 9.25% to 9.75% remains the same, and we expect the effective tax rate to be lower for the year than was originally anticipated now between 21% and 23%. Lastly, we remain on track to deliver our previously communicated $175 million of pre-tax Synovus forward benefits by the end of this year.

Synovus Forward is a combination of balance sheet, new revenue initiatives and cost savings, and we continue to generate benefits in each of these categories. Before we transition to Q&A, I mentioned our team as I opened the call, but now that we provided details on the financial performance they helped drive during the quarter, I want to once again thank our team members for their incredible efforts and for their ongoing passion for making Synovus truly stand out in this crowded and competitive landscape we operate. And now operator, let’s open the call for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes from the line of Ebrahim Poonawala from Bank of America. Ebrahim, please go ahead with your question.

Ebrahim PoonawalaBank of America Merrill Lynch — Analyst

Hey. Good morning.

Kevin BlairPresident and Chief Operating Officer

Good morning.

Jamie GregoryChief Financial Officer

Good morning, EB.

Ebrahim PoonawalaBank of America Merrill Lynch — Analyst

I guess just wanted to follow up, I think a question that came up during the investor day around MAAST and Banking as a Service. So I heard you, Kevin, the Qualpay acquisition or investment not to have a meaningful impact to results this year. Now that you had some more time, I think, since investor day thinking about the business, can you frame for us what’s the size of this opportunity revenue-wise, earnings-wise, as we think about it, just give us a sense of what the optionality that’s baked into this and how we should think about it in terms of the investment thesis on the stock. Would appreciate any color around that.

Kevin BlairPresident and Chief Operating Officer

Well, EB, it’s a great question. We’ve spent time since February building out the product. And as I shared in my remarks earlier, that work has been built around a front end that is being provided by Qualpay, and we have a back-end processor. Our investment in QualPay, we felt was important.

We think they have a technology stack that is superior to what other payment processors are providing. It allows for more streamlined operations, better reconciliation. And quite frankly, it’s much more scalable as we look to add new capabilities to the platform. So number one, we’re happy with our progress.

We’re still on track to be able to deliver a pilot product in the second quarter. We’re looking at today, three ISVs to be able to conduct that, but we’ll start with 1, and we’ll pilot that product throughout the remainder of ’22, and we’ll have a full rollout in ’23. So I think it’s still premature to give any big revenue guidance in out years because that’s what the pilot program is all about is to be able to garner what sort of transactions we’ll get from a payment platform, the depository impact. And then as you recall, Phase 2 of the program was to add a fully embedded finance program where we would have lending capabilities.

But I would tell you, since that February date, we remain very confident in our ability to develop the product. But more importantly, we continue to receive good feedback from those ISVs that this sort of product would be something that they would want to use. So there’s nothing that’s changed. We do think it can be a meaningful impact.

And although Qualpay is immaterial from a financial standpoint, we think it can be material as it builds as we use that company to build out the MAAST product.

Ebrahim PoonawalaBank of America Merrill Lynch — Analyst

Got it. Thanks, Kevin. I guess maybe later in the year, might be better timing to get more clarity here. And one question for Jamie.

I think looking at Slide 17, where you have your derivative hedging portfolio. Just talk to us around strategy around managing asset sensitivity if we do get all the rate hikes that are baked into the forward curve, how do you think about neutralizing the balance sheet and defending against the risk of lower rates down the road?

Jamie GregoryChief Financial Officer

Yeah, Ebrahim. As we think about our hedging strategy, you can see that we added $1.4 billion in hedges in the first quarter. And the thought process there is basically, we looked at our asset sensitivity. It was increasing.

And it’s increasing for a couple of reasons. First, the percentage of our loans that are floating rate continues to increase due to the growth in commercial C&I lending. And that will continue going forward. So our balance sheet is natively asset sensitive, and it will continue to get even more assets as we move forward.

But then you also had the impact of the first rate hike, moving loans off their floors, which was another incremental increase in asset sensitivity. And so we basically looked at our sensitivity and managed it through receiving fix with forward starting derivatives. And you can think about these as receiving fixed at just a shade more than 2% that we believe that is prudent. If you get eight rate hikes from here or so, you’re fairly close to breakeven on these and it’s good for us to go ahead and lock in that benefit for that higher rate environment.

And so we will continue to manage our asset sensitivity. We believe that the forward curve is actually a fairly likely scenario at this point given Fed rhetoric, but we will continue to manage that going forward and consistent with what you’ve seen in the past.

Ebrahim PoonawalaBank of America Merrill Lynch — Analyst

Right. Thanks for taking my questions.

Operator

Our next question comes from Jennifer Demba from Truist Securities. Jennifer, your line is open.

Jennifer DembaTruist Securities — Analyst

Thank you. Good morning. I noticed you didn’t give any guidance on your future net charge-offs or credit costs. I wonder how you’re thinking about that the next few quarters? And how you’re — what you’re seeing from client sentiment right now?

Bob DerrickChief Credit Officer

Jennifer, it’s Bob. Thank you for the question. And there’s no doubt, the spot metrics continue to be really good in terms of credit and specifically to your point, charge-offs. But I think we’re kind of range bound right now.

If you look at it over the last several quarters, it’s been in that 20, 25-basis-point range. In the intermediate term, I would certainly not — we don’t see anything that’s materially affecting our outlook, at least generally speaking, through the remainder of this year. Longer term, there will be some normalization, and I know that’s a question of how you define that, but our credit costs can’t get much lower. So naturally, there would be some incremental rise over time.

But to Jamie’s point earlier, the way we’re reserving and our incremental allowance build that would begin to associate with a growing loan portfolio downward bias on the economics will keep us a little elevated there. So from a guidance perspective, I feel like we’re kind of in that range at least for the foreseeable future.

Jennifer DembaTruist Securities — Analyst

Thanks, Bob. What buckets of the loan portfolio do you think are most vulnerable in an uprate environment like this?

Bob DerrickChief Credit Officer

Yeah, that too is a great question, Jennifer. And I certainly think about all of them, but let me highlight just a couple. If you think about a weakening consumer as a result of the inflation factors and the rising rates. Certainly, those industries that have dependency on discretionary spending, we’re watching very closely.

I think the way I think about it is I go back to COVID when demand really just fell off the table, and we looked at our hotel portfolio, restaurant portfolio, arcs entertainment, so I think those industries are still relatively the ones you would want to watch during a slowing consumer demand. And I think at least from our perspective, we really got very diligent in those portfolios. We brought in our use of analytics, which is now built into our sort of business as usual platform of underwriting. We look at real-time cash inflows, as we showed you all during the pandemic, I think that continues.

So anything consumer-related certainly is on my radar. On the commercial portfolio side, specifically C&I small businesses would be something we would watch. And for us, that portfolio is $1 billion to $1.5 billion, give or take, depending on how you define it. But those customers to date continue to be able to pass along increasing costs.

I think over time, they don’t have the leverage that their larger counterparts have relative to input costs and supplier negotiations. So we can certainly see some margin squeeze there and certainly top-line decline. So small business is one that is coming out. The good news for our portfolio is over half of that is secured by a by real estate of some type, which gives us a little comfort in the loss given default scenario.

But those would be the ones I would call out.

Jennifer DembaTruist Securities — Analyst

Thanks, Bob.

Operator

Our next question comes from Steven Alexopoulos from J.P. Morgan. Steven, please go ahead.

Steven AlexopoulosJ.P. Morgan — Analyst

Hi. Good morning, everyone. 

Kevin BlairPresident and Chief Operating Officer

Good morning, Steven.

Steven AlexopoulosJ.P. Morgan — Analyst

I wanted to start. How are you guys thinking about deposit growth in 2022? And what’s assumed in the 2022 revenue outlook that you’re providing?

Kevin BlairPresident and Chief Operating Officer

So Steven, I’ll start. It’s Kevin, on the deposit outlook. As you’ve seen in the last year, we’ve taken our strong liquidity position to continuously remix the book, bringing down higher-cost CDs, bringing on some of our brokered funds. And as we sit here today at an 83% loan-to-deposit ratio, we’ll continue to strategically remix where it makes sense, where we can bring in the lower cost, sticky deposits.

We’ve increased the percentage of total deposits being non-interest-bearing up to 34% this past quarter. And so our strategy going forward would be that those categories that fall under our core transaction deposits will be the area that we continue to focus. We think that those categories should grow in line with our client growth, which should be in that 3% to 5% range as we’re thinking about continuing to take the growth that the economy gives us, but also taking share from some of our competitors. And so if you look at year over year, core transaction deposits are actually up 10%.

So looking at the rest of the year, I think you would see that 3% to 5% deposit growth, it would obviously be far less than what we’ve seen in previous years. As it relates to revenue growth for the rest of the year, I’ll let Jamie touch on that.

Jamie GregoryChief Financial Officer

Yeah. And let me jump in a little bit more on the deposit side as well because we will use broker deposits to fund incremental loan growth as we go through the year, Steven. And so you may see some rebuild of that portfolio, which will be incremental to our core transaction deposit growth that Kevin just kind of just walked through. On the revenue guide, we increased our guide to 9% to 11%.

We feel good about the growth outlook. But largely, what you see in that revenue guide increase is, one, an acknowledgment of loan performance on the loan side in the first quarter, but also the change in the interest rate outlook. And so embedded in that is our assumption of deposit betas remaining somewhat lower for the first few hikes. We’re assuming an approximate 20% beta for the first four hikes and then betas increasing as you go beyond that.

But that’s really the source for the revenue guide update, the 9% to 11%.

Steven AlexopoulosJ.P. Morgan — Analyst

OK, that’s helpful. And then the second question on Qualpay, could you go into a bit more detail on the functionality this provides to you? And what was the thought of acquiring, I think it was 60% or somewhere around there. What was the thought of acquiring the stake in the company? What additional benefits will that provide to you? Thanks.

Kevin BlairPresident and Chief Operating Officer

So they’re in ISO, Steven. So they — today, they provide merchant processing for third parties. And so we have been the sponsor bank, the acquiring bank for them for some time. So we’ve known them.

We think that their technology stack differentiates them in the payment space. And so acquiring 60% of the company allows us to help set priorities for their core businesses, which — the core business, which will continue to be merchant acquiring business, but leveraging their development team, their technology stack, to fully embed it into our payments platform that will be MAAST. So they will be the front end to our program. So as we sell merchant processing to these software vendors, they will be using the Qualpay platform that will be brought to them by Synovus.

And so number one, it helps us get the product out there more quickly; and then two, as we’re looking at expanding the MAAST program over time, whether it’s through new reporting, new products. Having that ownership interest allows us to direct investment and capital into the company to allow us to develop new capabilities.

Steven AlexopoulosJ.P. Morgan — Analyst

OK. Very good. Thanks for taking my questions.

Kevin BlairPresident and Chief Operating Officer

Thank you.

Operator

Our next question comes from Brad Milsaps with Piper Sandler. Brad, your line is open.

Brad MilsapsPiper Sandler — Analyst

Hey. Good morning. 

Kevin BlairPresident and Chief Operating Officer

Good morning, Brad.

Brad MilsapsPiper Sandler — Analyst

Jamie or Kevin, maybe I wanted to start with the margin. Just kind of curious if you guys could comment on commercial loan yields. Do you think that you sort of reached the floor there, exclusive of the rate changes we’ve seen and may continue to see? Just kind of curious what our starting point might be in terms of kind of where your commercial book can start to reprice up from? Just want to hear kind of what you’re hearing in terms of if those yields have started to bottom out.

Kevin BlairPresident and Chief Operating Officer

Yeah, Brad, it’s a good question. And we did see the weighted average rate increased quite a bit in first quarter relative to where we were back in fourth quarter, up actually 40 basis points on the rate front. So we do believe it’s still below the portfolio yield. But I do think, to your point, we’ve kind of hit bottom, and we’ll continue to produce new loans at or near where the portfolio rate is, which will allow us to start to expand the margin.

And I don’t think that the price competition is going away. I just think credit spreads widened a bit, and the environment has gotten to a position with the rate increase where we can actually put on loans that will be at or near where the overall portfolio rate is.

Brad MilsapsPiper Sandler — Analyst

Great. Very helpful. And just as my follow-up, Jamie, can you kind of talk about the moving parts in the balance sheet maybe to the size of it? It looked like the bond portfolio, at least on a period-end basis, was down some — obviously, some cash to run off those index or brokered money that you had. Do you still feel good about 3 basis points for each rate hike with kind of all the moving parts.

That seems somewhat conservative, but I just wanted to see if you could add some color.

Jamie GregoryChief Financial Officer

Yeah, we still think that in the early hikes that using 3 to 4 basis points per Fed move is appropriate with the beta assumptions I mentioned earlier. And so — we do feel good about that. As you get further along and maybe pass the first 100 basis points, you could see betas increase, and you could see that, that margin benefit decreased a little bit. A little more color though on that sensitivity is that about 60% of our asset sensitivity is to the front end of the curve.

And so when I — the 3 to 4 basis points is really just that front-end impact. And so — there is a fairly significant impact by the back end of the curve and that commentary of 3 to 4 basis points, I’m not really assuming a change in loan rates.

Brad MilsapsPiper Sandler — Analyst

OK, great. Thank you.

Operator

Our next question comes from Brody Preston from Stephens Inc. Your line is open.

Brody PrestonStephens, Inc. — Analyst

Good morning, everyone.

Kevin BlairPresident and Chief Operating Officer

Good morning, Brody.

Brody PrestonStephens, Inc. — Analyst

I just wanted to ask on the C&I growth. It’s been obviously particularly strong in this quarter. You finally sort of saw a big uptick in your utilization rates. And based on the chart you put in the deck, it looks like we’re back to 4Q ’19 levels.

So understanding that some of the revised guidance is due to this quarter’s strength, but you also mentioned the pipeline, I guess, should we expect this 46% to kind of hold? Or is there room for it to expand? And I guess, if there isn’t room for it to expand, what are kind of some of the key drivers of what you expect to be strong C&I growth going forward?

Kevin BlairPresident and Chief Operating Officer

So Brody, I’ll take that. As you saw, a 300-basis-point increase in utilization this quarter to 46%. So that created about $500 million of growth. But I think it’s important to dissect that $500 million.

When you go back and look at the lines that were on the books, the previous quarter, the increased draws from those existing lines contributed only $200 million or a little less than $200 million of that $500 million. So about $300 million of the growth in line utilization came from new commitments and draws that we put on this past quarter. Now, to the question of where is the line utilization going, although 46% is where we were pre-pandemic, we’ve touch the line of 50% in the past. And when you think about the inflationary environment that we’re under as well as the portfolio mix, we’re growing our wholesale banking lines of credit at a faster pace, which typically carry a higher utilization rate, we believe that we could see utilization in the 50% range.

And so if you took that off of today’s commitments, that could contribute another $500 million worth of growth if that were to play out. Now we haven’t included that in our 6% to 8% loan growth projections, but we think that there’s a likelihood that we could see continued line utilization increases. The other thing I would just point out on C&I, as you noted, of the growth this quarter, $926 million, we had 13 industry classifications show growth and eight sublines of business produced growth. So I think about it, it wasn’t just a utilization story.

It was broad-based. It was very diversified across many of our businesses and across many industries. And that pipeline that you referenced, our pipelines are up about 30% from where they were closing out 2021. So we remain confident that the production engine will continue in the second quarter, and it’s not based on the line utilization continuing to go up.

Brody PrestonStephens, Inc. — Analyst

Got it. OK, thank you for that. And then — the last one was just on the — I appreciate all the interest rate disclosures within the deck. What I wanted to ask, it’s a two-part question, but it’s on the loan yield side.

Jamie, how are you thinking about, I guess, maybe you look at the floating rate portfolio, obviously, it’s got the floors, but how are you guys thinking about maybe any attrition in the benefit that you would see from floating rate loans and your go-forward modeling in terms of floating rate loans converting to fix loans over time, maybe losing some of those from a mix perspective? Is any of that factored into your go-forward NII sensitivity? And then secondly, just — I noticed the big uptick in SOFR-based loans. And I guess I wanted to ask you SOFR is acting much more like the prime rate than it is LIBOR at least in the market. So as you think about kind of floating rate loans going forward, — is there any benefit to pricing on SOFR versus pricing it off of Prime?

Jamie GregoryChief Financial Officer

So Brody, good question. As we think about the loan mix and the impact to the margin, a lot of our — as you’re well aware, when you look at our fee revenue, a lot of our potent loans, our clients choose to swap them and they hedge those hedge those loan exposures and then we kind of pass that through. But we’re not assuming any material mix change around fixed float outside of the growth of floating rate lending just in aggregate just given the areas of our businesses that we’re growing. So we do expect a continued increase as far as the percentage of loans that are floating rate versus fixed, but we’re not assuming any mixes within the portfolio at the moment.

And then on the SOFR, as we think about the spread impact of SOFR versus LIBOR, it is uncertain, but we don’t — we kind of look at that as a push because we think that we’re giving our clients basically that spread difference on the spread. And so it ends up being a net push between where we think it would have been with a more credit-based index like LIBOR like LIBOR was.

Kevin BlairPresident and Chief Operating Officer

And I’d just add, Jamie. We also — you asked versus Prime. We use Prime on small business loans. We’ve kind of followed the industry in terms of what is market and the larger loans, the wholesale banking loans are moving more on the SOFR platform.

So we’re trying to keep consistent with what the industry is providing in terms of pricing terms and indices.

Brody PrestonStephens, Inc. — Analyst

Got it. Thank you very much for taking my questions everyone. I appreciate it.

Kevin BlairPresident and Chief Operating Officer

Thanks, Brody.

Operator

Our next question is from Brady Gailey from KBW. Brady, your line is open.

Brady GaileyKeefe, Bruyette and Woods — Analyst

Hey. Thank you. Good morning, guys. 

Kevin BlairPresident and Chief Operating Officer

Good morning, Brady.

Brady GaileyKeefe, Bruyette and Woods — Analyst

I want to start on the share buyback. There wasn’t a lot of buybacks in the quarter, which makes sense on our loan growth was pretty robust and you had some capital impact from AOCI. But with the growth profile looking better now, should we expect kind of a minimal amount of activity from the buyback this year?

Jamie GregoryChief Financial Officer

I think the first quarter is a good example of our strategy around capital management and leveraging share buybacks as kind of the last in line for capital management. And so when we look at the rest of the year, loan growth clearly was very strong in the first quarter, and we — that’s where we deployed the capital generated through core earnings. As we go through the year, if loan growth were to continue at the same pace, then you would expect to see very minimal share repurchases. But we will use those kind of as the toggle we believe the nine and a half percent common equity Tier 1 is the right place to be in this environment with this uncertainty.

But you’re right to assume that it likely will assume a lower amount of share repurchases than either prior year or what we’re all throws for.

Brady GaileyKeefe, Bruyette and Woods — Analyst

All right. And then intra-quarter, we saw one of your kind of Southeast banking peers in Tennessee sell to out-of-country buyer that’s mostly a consumer bank. Is that — is that an opportunity for Synovus, whether it’s maybe hiring some new talent or taking some customer market share?

Kevin BlairPresident and Chief Operating Officer

Obviously, Brady, any time there’s disruption in the marketplace, we think it presents an opportunity for us. And as you know, that competitor does have overlap with Synovus. I think there were some unique elements to that transaction where there were some incentives paid upfront for retention. And so there may be a different tale as it relates to being able to attract some of the talent.

But broadly, any time that we see anyone going through a major conversion or having a headquarter moved out of the Southeast, we look at that as an opportunity. So I’ve shared with you in the past, you have to take it almost as a process. There are going to be opportunities the day it’s announced. There are going to be opportunities when the management team switches out, and there are going to be opportunities when there’s an actual migration that’s going on.

And so we’ll have to be smart in each of those elements to make sure that Synovus is planting seeds for both talent and clients to be the destination of choice if they decide they want to move banking relationships. And so we’ll go at that process similar to how we’ve done some of the other mergers that have happened in our footprint.

Brady GaileyKeefe, Bruyette and Woods — Analyst

OK, great. Thanks, guys.

Operator

Our next question comes from the line of Jared Shaw from Wells Fargo. Jared, your line is open

Jared ShawWells Fargo Securities — Analyst

Hey. Good morning. 

Kevin BlairPresident and Chief Operating Officer

Good morning, Jared.

Jared ShawWells Fargo Securities — Analyst

Maybe just following up on that. You gave some great long-term goals when we were all down there in February that were based on an unchanged utilization rate. As you look at the strength of customer demand and then also the First Horizon opportunity, how does that impact that long-term goal? Is it — is it a meaningful opportunity to maybe move that higher or you were sort of expecting some of these things in the background?

Jamie GregoryChief Financial Officer

As we think about our multiyear goals, it’s hard to react to just a couple of months of new data. We clearly believe in the Southeast. We believe that the opportunity that’s in front of us is real, and it’s something that we capitalize on every day, every day when we come into the office. And so we are excited about what’s in front of us.

We think that if you look at Q3, Q4, Q1, those are just data points of us capitalizing on the opportunity, and we expect to continue. We don’t have anything new to say about the longer-term outlook and multiyear objectives. But we see what’s in front of us. We believe that we are uniquely positioned to take advantage of it, and that’s what we’re focused on doing.

Jared ShawWells Fargo Securities — Analyst

OK, thanks. And then just a follow-up on the margin benefit from higher rates. You said 60% of that is front-end loaded. Since — I guess, since February, we’ve seen the 10-year up about 100 basis points.

If we keep the 10-year near this level? Could that be an additional, call it, 2, 3 basis points benefit to margin or do you expect it to be higher from here to get that benefit?

Jamie GregoryChief Financial Officer

Well, when you look at the — you think about where that sensitivity lies. It lies in our fixed rate assets on the balance sheet in both the securities portfolio and mortgages and — we did see premium amortization come down in the first quarter, but I do believe that it could come down further even if mortgage rates stay where they are today. And so you could see a little bit of tailwind from the long end with where rates are today, but it’s not as significant as it would be if we had a further rate increase on the long end.

Jared ShawWells Fargo Securities — Analyst

Great. Thank you.

Operator

Our next question is from Christopher Marinac from Janney Montgomery Scott. Christopher, your line is open

Christopher MarinacJanney Montgomery Scott — Analyst

Thanks. Good morning. Jamie, a question for you. I don’t know if you mentioned this earlier, but how have new loan rates changed in the last 30, 45 days? And have you seen any movement? And is the next Fed move really going to be the change to engage those?

Jamie GregoryChief Financial Officer

We have seen an increase, and Kevin did mention this a little bit earlier, but we — first quarter, we did see an increase of about 40 basis points from the prior quarter. And so we are seeing a benefit and it’s coming through in a couple of ways. It’s coming through in new loan origination. But you’re also seeing loans come off of their 4s.

And so that you can see that in our asset sensitivity table, but we’re getting the benefit now of loans that were floored kind of now they’re not floored anymore, and so every rate move impacts them. And so we are benefiting from that. We still have floored loans, but each move reduces that amount. And that’s what you’ve seen kind of come through in the first quarter, and we expect that to continue as we go forward.

Christopher MarinacJanney Montgomery Scott — Analyst

Great. That’s helpful. I just want to reinforce that. Thanks.

And then on the hedge strategy, does that limit the risk on the AOCI side at all? Does I know some of that’s unavoidable. Just curious if the hedging strategy tampers AOCI impact?

Jamie GregoryChief Financial Officer

It does not. And you could argue that it exacerbates the AOCI component of that because that does — the mark-to-market does flow through on that. But I do want to speak to AOCI and the impact of tangible because we intentionally take duration risk in our securities portfolio and our hedge portfolio. And you’re well aware of our strategies there, both the Securities book as well as the hedge portfolio are offsets to our asset sensitivity.

And so we benefit when rates rise, this is a partial offset to that. But when we think about valuation and enterprise value in a higher rate environment, our enterprise value increases. Now when you look solely at AOCI and the valuation securities book and the hedge book, those go down. But that’s just a partial offset to what happens to the company as a whole.

And so — when we think about tangible book value, we think about AOCI is basically a temporary disconnect where you have an immediate reaction to the market value of these assets but that goes away over time as the assets mature. And so we believe in tangible book value growth. We think that, that’s an important shareholder value creator. And so — but when we look at AOCI and that impact, we view that as basically a temporary disconnect.

And so that’s kind of our holistic thought process around the impact of AOCI and how that flows through.

Christopher MarinacJanney Montgomery Scott — Analyst

Great. Thanks for going deeper there. I appreciate it. And clearly, your deposits are more valuable to as rates rise.

So we look forward to that. Thanks, Jamie.

Jamie GregoryChief Financial Officer

Absolutely. Thank you.

Operator

Our next question comes from Kevin Fitzsimmons from D.A. Davidson. Kevin, your line is open.

Kevin FitzsimmonsD.A. Davidson — Analyst

Hey, guys. Good morning. 

Kevin BlairPresident and Chief Operating Officer

Good morning.

Jamie GregoryChief Financial Officer

Good morning.

Kevin FitzsimmonsD.A. Davidson — Analyst

Most of my questions have been asked and answered. Just a few quick ones. Within the revenue guide, can you speak a little bit about how you’re thinking about fee revenue. So if you think about the run rate, what we saw this quarter, and I know we saw capital markets and mortgage declining, just generally how to think about that run rate going forward within that guidance.

Kevin BlairPresident and Chief Operating Officer

Kevin, it’s actually a really good question because there’s lots of assumptions that go into the rest of the year. But — we believe that for the year, NIR could be down around 5%. And so that would mean that for the rest of the year, you would see a fairly flat NIR quarterly number. And there’s, again, some puts and takes.

On the positive side, we feel very good about the ongoing growth of core banking fees, whether it’s on the treasury and payment solutions side, continuing to return to pre-pandemic levels with card spend and service charges. So that should continue to provide a tailwind for us. Maybe the biggest uncertainty going forward is on the wealth side, where we’re putting up a little less than $40 million a quarter depending on what the market does, that will have a big impact on what our fees do. We continue to have the opportunity to grow our assets under management.

As Jamie mentioned, in his remarks, we’ve seen good client acquisition growth. But when you see the type of volatility in the market and just potentially having a bear market, it makes us a little less certain on what those future quarters are going to look like. And then you look at mortgage, we think we’ve kind of hit a stable mortgage number for the quarter, and we think that will continue as we look into the future just based on volumes and margins. And so when you add up the things that we know that are growing along with mortgage, which is fairly stable.

The real wildcard will be what happens with wealth. And if we see a constructive equity market, I think we could have some upside on the fee income component.

Kevin FitzsimmonsD.A. Davidson — Analyst

OK. Thanks, Kevin. And one quick final question for me is on the Qualpay move, and I understand the logic and the rationale for it, but what does that replace? In other words, if you didn’t make the investment in Qualpay, what would have — did you have this functionality that was already going to be in place that this is kind of superseding. I’m just wondering what the plan would have been without Qualpay?

Kevin BlairPresident and Chief Operating Officer

Well, so early on, Kevin, we evaluated lots of vendors to utilize for the build, and we selected Qualpay. So Qualpay was already engaged in building out the MAAST platform. This is nothing more than making an investment in the company to ensure that we can continue to provide the capital that will allow the company to meet today’s needs, but ultimately, the future needs as we grow this product. So they were going to be our partner either way.

This just gives us an ownership interest in the company to be able to help shape and drive capital into the growth of the programs.

Kevin FitzsimmonsD.A. Davidson — Analyst

Great. Great. Very clear. Thanks, Kevin.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.

Kevin BlairPresident and Chief Operating Officer

Thank you, Emily, and thanks, everyone, for attending this morning and your continued interest in Synovus. Just a few things I’ll mention before we close out today’s call. We were proud to recently be chosen again as the top workplace or one of the top workplaces in the Atlanta market by the Atlanta Journal Constitution. The relevance of this sort of recognition in one of our biggest markets, our fastest growth market is truly significant, especially given our efforts to continue to recruit and retain some of the best and brightest talent in the industry.

Also, it seems like it’s been a very long time, but we are transitioning our team member base back to being fully on site in our workplace in the coming weeks. Now, we will remain flexible as COVID trends continue to ebb and flow. And ultimately, we’ll have the majority of our organization back on site, but we have defined roles that we’ll be able to maintain full remote capabilities and also some hybrid-work schedules. I just think that’s the future of work.

We also continue to advance our ESG investments and initiatives, especially as we monitor the progress of the proposed SEC rules for climate disclosures beginning as early as next year. We’ve already completed our Scope 1 and 2 GHG baseline assessments. And we’ll continue to evaluate for future carbon reductions like our branch consolidation efforts. We continue to deliver on the expectations that we set for ourselves.

And I think it’s been a year of acceleration and achievement, although we’re just through one quarter. Our focus is very clear. It’s on execution. And continuing to meet our short-term objectives while expanding and extending our solutions to better meet client needs and to deliver sustainable top quartile performance.

I truly look forward to the next time we’re together to share our progress. But for now, I hope everyone has a wonderful day. And operator, we’ll close out our call.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Cal EvansHead of Investor Relations

Kevin BlairPresident and Chief Operating Officer

Jamie GregoryChief Financial Officer

Ebrahim PoonawalaBank of America Merrill Lynch — Analyst

Jennifer DembaTruist Securities — Analyst

Bob DerrickChief Credit Officer

Steven AlexopoulosJ.P. Morgan — Analyst

Brad MilsapsPiper Sandler — Analyst

Brody PrestonStephens, Inc. — Analyst

Brady GaileyKeefe, Bruyette and Woods — Analyst

Jared ShawWells Fargo Securities — Analyst

Christopher MarinacJanney Montgomery Scott — Analyst

Kevin FitzsimmonsD.A. Davidson — Analyst

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