Regions Financial Corporation (RF) Q1 2015 Earnings Report, Transcript and Summary

Good morning. And welcome to the Regions Financial Corporation's Quarterly Earnings Call. My name is Paula, and I'll be your operator for today's call. I would like to remind everyone that all participant phone lines have been placed on listen-only. At the end of the call, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. List Underwood to begin.

Thank you, Operator, and good morning, everyone. We appreciate your participation on our call today. Our presenters include, Grayson Hall, our Chief Executive Officer; and David Turner, our Chief Financial Officer. Other members of our management team are present as well and available to answer questions as appropriate. Also, as part of our call -- earnings call, we will be referencing a slide presentation that is available under the Investor Relations section of regions.com. Let me remind you that in this call and potentially in the Q&A that follows, we may make forward-looking statements, which reflect our current views with respect to future events and financial performance. For further details, please reference our forward-looking statement that is located in the Appendix section of the presentation. Grayson?

Thank you, List, and good morning, everyone. We're pleased you could join us as we review our first quarter results. First quarter results reflect a solid start to 2015, as we reported our earnings of $218 million or $0.16 per diluted share, which included $0.02 per share of significant items that negatively impacted EPS. These results illustrate that we are successfully executing our strategic priorities, which include diversifying revenue, generating positive operating leverage and effectively deploying capital. As notably, we achieved these results even with severe weather conditions in our markets during the first quarter. During the quarter, we grew loans and deposits, we grew checking accounts in all of our markets, we generated positive operating leverage, while prudently managing expenses and receiving no objection to our CCAR submission. Our loan growth in the first quarter was 1% with most loan categories experiencing growth. Deposit growth exceeded our expectations this quarter with balance still growing 3% from the end of last year. As continued evidence of our Regions360 approach to relationship banking, we grew checking accounts in all of our market and accordingly also increased our number of households. Total revenue remained relatively steady from the fourth quarter, despite seasonal declines in both net interest income and non-interest income. However, our efforts around diversifying our revenue streams helped to offset these declines. Wealth Management delivered strong results, growing revenue 8% and increasing assets under administration by 5%. While all segments within Wealth Management grew revenue, insurance was particularly noteworthy, as revenue increased 13% linked quarter. Going forward, along the organic growth, we will continue to target lift-out and acquisition opportunities in the support of business. This will also allow us to round down our product offerings and geographic coverage, and will drive incremental revenue growth. Adjusted expenses declined 2% from the fourth quarter as many of our expense categories declined. We continue to prudently manage expenses, while focusing on expenses we can control, while appropriately investing for future growth. Total expense during the first quarter was impacted by few planned actions, where we incur additional charges, but our future run rate should benefit. Let me spend a few moments and provide you with an update on energy lending portfolio. We continue to use our corporate governance process to monitor oil price declines for direct and indirect impact to our overall loan portfolio. While we have seen some downward risk breeding migration in our oil field services portfolio, we are not seeing widespread financial stress within our customers in the portfolio. Obviously, if oil prices remained at low levels for the extended period of time additional migration is likely. However, we are staying engaged with our customers and we will take necessary actions as we deem appropriate. Conversely, we believe consumers are beginning to experience benefits from lower oil prices, with consumer loan categories, net charge-offs, delinquencies and non-performing loans, all declined during the quarter. In fact, total net charge-offs to average loans is 28 basis points in the quarter, our lowest level in over seven years. Also during the first quarter, we received no objections to our planned capital action from the Federal Reserve related to our CCAR submission. We believe our plan reaffirms our commitment to effectively managing our capital is for long-term growth objectives, while also increasing returns to shareholders. It also highlights our continued long-term approach to capital allocation and distribution. As returning excess capital to shareholders remains a priority. Our capital plan included increase in the quarterly $0.01 per share to $0.06. Additionally, we plan to repurchase $875 million of outstanding shares over the next five quarters subject to Board approval. From an economic perspective, we anticipate a growth should pick up over the remainder of the year, and we expect continued improvement in housing prices across our markets. However, we do not expect an increase in short-term rates until the later part of 2015. We will continue to leverage our Regions360 approach to relationship banking to grow and expand our customer base. In fact, during the first quarter, Regions was again recognized by leading customer experience research firms the Temkin Group and Greenwich Associates for providing industry-leading service to both consumers and businesses in 2014. We are pleased to once again be recognized for providing an exceptional customer experience. With that, I will turn it over to David. He will cover details for the first quarter. David?

Thank you, and good morning, everyone. I'll take you through the first quarter details and then wrap up with our expectations for the remainder of 2015. Loan balances totaled $78 billion at the end of the first quarter, up $936 million or 1%. Business lending achieved solid growth that was balanced across industry segments and geographic locations. Balances in this portfolio totaled $49 billion at the end of the quarter, an increase of $867 million or 2%. Investor real estate lending balances totaled $7 billion, an increase of $108 million or 2%. And commercial and industrial loans grew $949 million or 3%, and this growth was driven by our market-based corporate and commercial bankers serving small corporate and middle market clients. In addition, Regions’ business capital, our asset-based lending group and corporate real estate exhibited growth during the quarter. Line utilization increased 10 basis points, commitments for new loans increased 4% and our pipelines remained strong. Moving to consumer lending, loans in this portfolio totaled $29 billion, as production increased 9% linked quarter. Mortgage loan balances increased $103 million and production increased 9% linked quarter. In addition, indirect auto lending balances increased $59 million or 2% as this portfolio continues to expand. New and enhanced consumer lending product offerings led the growth in our other consumer loan category, loan balances increased $28 million and the portfolio totaled $1.2 billion at the end of the quarter, while production also increased 58%. As expected, credit card balance declined following a seasonally high fourth quarter, balances declined $43 million or 4% from the previous quarter. However, production increased 20%. And finally, total home equity balances declined $78 million or 1%, while production also decreased 1%. Let’s take a look at deposit. Supported by our multichannel platform, total deposits growth was strong, increasing $3 billion during the first quarter. Two-thirds of this growth was driven by consumer deposits, which were broad base across the majority of our markets. Deposits costs remained near historically low levels and totaled 12 basis points, while total funding costs were 29 basis points in the quarter. Let's look how this impacted our results. Net interest income on a fully taxable basis was $832 million, a decline of $5 million or 1% from the previous quarter. The low rate environment and fewer days in the quarter were the principal drivers of the decrease, but were partially offset by increases in average loans and reductions of higher costs borrowings. Net interest margin increased slightly from the previous quarter to 3.18%, reflecting the benefits of reduced borrowing costs, offset by higher levels of cash due to deposit growth. Total non-interest income declined $4 million or 1% in the first quarter. Mortgage income increased $13 million or 48% as loan production increased along with improvement in the market valuation of mortgage servicing rights. As Grayson noted, our Wealth Management Group delivered strong results for the quarter, revenue increased 8% led by higher insurance commissions, higher investment services fees and increases in investment management and trust income. Service charges declined $6 million from the previous quarter, which was due to a $3 million decline in fees resulting from a product discontinuation in the fourth quarter and seasonally lower non-sufficient fund fees. Card and ATM fees decreased slightly as a result of lower spending and transaction volumes that are typically experienced in the first quarter. However, the number of active accounts continued to increase. Let's move on to expenses. Total reported expenses in the first quarter were $905 million, a decline of 7%, while adjusted expenses declined 2%. During the first quarter, we redeemed $250 million of higher cost debt, incurring $43 million extinguishment charges, but earnings will benefit from a lower run rate going forward. As previously noted, in the fourth quarter 2014, we announced plans to consolidate 50 branches throughout 2015 as part of an ongoing evaluation of the branch network. We recorded $13 million of expense related to the consolidation in the first quarter of 2015. In addition, we have a space planning initiative underway which will reduce occupancy expense going forward. This initiative results in an incremental charge of $9 million. Salaries and benefits remained relatively flat from the previous quarter despite a seasonal increase in payroll taxes of $11 million, which was offset by decline of $15 million in incentives that is not expected to repeat next quarter. Pension expenses increased $2 billion lower than our original estimate for the quarter and should remain at this level for the remainder of 2015. In the second quarter, we expect an increase of salaries and benefits commensurate with annual merit increases. Occupancy and furniture fixtures declined a total of $5 million and outside services declined $6 million. Professional, legal and regulatory expenses excluding the previous quarters of $100 million legal and regulatory accrual declined $15 million to $19 million for the quarter. Although there are opportunities for expense reductions, we expect expenses in this category to increase somewhat and some amount of volatility should be expected. Our adjusted efficiency ratio was 64.9% in the quarter, an improvement of 120 basis points from the prior period. Prudent expense management remains a top priority as we remain committed for generating positive operating leverage over time. Our effective tax rate for the first quarter was 28.7%. This rate reflects the impact of the adoption of new guidance related to the accounting for investments in qualified affordable housing projects, which increased income tax expense and non-interest income. All prior periods have been restated to conform in this new presentation. In addition, the first quarter’s tax expense includes a one-time benefit related to an improved methodology to determine state deferred taxes of approximately $10 million which reduced our effective tax rate by approximately 300 basis points. Moving to asset quality, total commercial and investor real estate criticized and classified loans increased $125 million or 5% from the prior quarter as the company experienced some weakening in large dollar commercial and industrial loans within the energy, healthcare and other portfolios. However, we do not believe this weakening is systemic in nature. As Grayson noted, we are closely monitoring the energy portfolio and have experienced some risk-rating downgrades this quarter. However, because the number of our energy clients are limited, we are in a position to maintain frequent contact and will continue to be diligent through our normal processes of credit servicing these loans. Compared to the prior quarter, total delinquencies declined 12% and troubled debt restructurings or TDRs declined 5%. Our non-performing loans, excluding loans held for sale, decreased 3% linked quarter and at quarter end, our loan loss allowance to non-performing loans or coverage ratio was 137%. Again as Grayson mentioned total net charge-offs declined $29 million and represented 28 basis points of average loans. The provision for loan losses was $49 million or $5 million less than net charge-offs. Given where we are in the credit cycle in the large dollar commercial credits in our portfolio along with fluctuating oil prices, volatility in certain credit metrics can be expected. Let’s talk about capital and liquidity. During the quarter, we repurchased $102 million of shares of common stock which completes the $350 million program that was part of our 2014 CCAR submission. Additionally, during the first quarter, we began the transition period for the Basel III capital rules. As such, we will report Basel III capital ratios under the phase-in provisions for regulatory reporting purposes. But we will also continue to report ratios as if fully implemented. Under these new provisions, we maintained industry-leading capital levels as a tier 1 ratio was estimated at 12% and the common equity tier 1 was estimated at 11.2%. In addition, the common equity tier 1 was estimated at 10.9% on a fully phase-in basis. Liquidity at both the bank and holding company remains solid with a loan-to-deposit ratio of 80%. And regarding the liquidity coverage ratio rule, Regions remains well positioned to be fully compliant with the January 2016 implementation deadline. Throughout 2015, we will update customer agreements to include LCR friendly language. We will modify our existing deposit products and we also plan to create new products and services to complement our strong position of high-quality liquid assets. It is important to note that no major balance sheet initiatives are expected in order for us to be compliant. Let’s take a few minutes and touch on our expectations for the remainder of 2015. With respect to loans, we continue to expect total loan growth in the 4% to 6% range on a point-to-point basis. Commercial and industrial loans are expected to drive loan growth within the business lending portfolio. And while owner-occupied commercial real estate is not expected to provide meaningful growth, the pace of runoff is expected to slow. Looking at the consumer lending book, we expect continued growth from indirect auto lending. We will continue to focus on driving better pull-through rates, increasing margins and improving overall credit profiles. We also expect to augment growth through new partnerships later in the year. Additionally, continued growth in other consumer loans is expected. We are focused on expanding lending through online and point-of-sale financing alternatives. And as a result, we expect growth in this category to accelerate in 2015. Moving to credit card, as we remain focused on increasing our penetration rates, this should drive balance growth in the near term. And finally, we expect the pace of home equity runoff to moderate throughout the year. Regarding deposits, while we had a better-than-anticipated first quarter, we expect full year average deposit growth in the 1% to 2% range. As a reminder, a significant portion of our deposits are made up of consumer deposits, which tend to be more granular and smaller in size, which based on our research should be more stable and less rate sensitive in a rising rate environment. With respect to margin, our expectations for the year have not changed materially. We expect to drive net interest income and margin growth over the balance of the year under our baseline expectations for loan growth and an increase in interest rates late in the year. Further, we expect to benefit from revenue initiatives within mortgage, capital markets and wealth management while at the same time diligently managing expenses. That being said, we are committed to generating positive operating leverage. We believe that the first quarter was a solid start for 2015 and we will continue to execute on our strategic priorities of diversifying revenue, generating positive operating leverage and effectively deploying our capital. With that, we thank you for your time and attention this morning. And I’ll now turn it back over to List for instructions on the Q&A portion of the call.

Thank you, David. We are now ready to begin the Q&A -- excuse me-- the Q&A session of our call. In order to accommodate as many participants as possible this morning and there are number of you in the queue, I would ask each caller to please limit yourself to one primary question and one related follow-up. Now let's open up the line for your questions.

[Operator Instructions] Your first question comes from the line of Erika Najarian of Bank of America.

Good morning Erika.

Good morning. My first question is on the $949 million in C&I loan growth in the quarter. How much of that $949 million was related to your oil and gas sector?

Erika, during the quarter, we really had kind of moved sideways in terms of our oil and gas. That was really a far broader base expansion of the loan portfolio outside of the energy sector.

Great. And my follow-up question is, in terms of your guidance for positive operating leverage, it sounds like you're still accounting for some rate increases in the back half of the year, which many investors are sort of stripping out of their model. Could you still hit positive operating leverage if the Fed doesn't raise rates this year?

Erika, it would be very difficult if rates stayed in the $1.75 to $2 range. To do that, we can get close but it would be difficult. As I mentioned in the prepared comments, we do expect -- we have baked in little bit of an increase in September and a little one in December. But really loan growth for us is important when we saw loan growth this quarter and deposit growth and earning asset growth. That’s a pretty big positive for us going into this whole concept of generating positive operating leverage. So it’s not out of the question. It does make it more difficult.

Got it. Thank you.

Your next question comes from Michael Rose of Raymond James.

Good morning Michael.

Hey, good morning. Just wanted to follow up on the energy topic. Can you disclose how much of this quarter's provision related to the review of the energy book? And then, where do reserves stand? And if you can’t give a specific number, maybe you can give us some context as where they stand now versus maybe where they stood in ‘09 when we had a similar price decline?

Yeah. So Michael, we won’t disclose the specific dollar amount attributable to this but clearly we have a process, I’ve talked in the prepared comments about our servicing that we are going through. We have relatively small number of customers in this sector whether it’d be our E&P customer base or oilfield services customer. So we’re spending a lot of time with them and we understand where those credits are. We had some migration down. The migration you saw that was not just in the energy sector, it was other sectors. Healthcare and even some other industries that really contributed to that. But we have a very disciplined process from a lending standpoint. We do have amounts in our calculation attributable to energy. That allocation has increased as our credits continues to migrate down this past quarter. So, we feel like we have those credits appropriately reserved right now.

Yeah, Mike. We’ve got a very rigorous disciplined process for credit servicing and risk ratings. And obviously we saw a number of risk rating downgrades in the energy portfolio and particular in the oilfield services part of that portfolio. That being said, we’ve got a lot of confidence in our customer selection and in our risk rating process and feel very good about where we are at today. That being said, I had asked John Turner, if he would. John runs our Corporate Banking Group here at Regions and all of our energy lending reports up to John, asking if he would make a few comments for oilfield services in particular.

Happy to. Thanks, Grayson. Just commenting from a risk mitigation standpoint with respect to oilfield services, we have been through the process of reviewing about 80% of our outstanding. We did that about 45 days ago and we do that on a quarterly basis. As a result of that review, what we observed was that about 25% of the book had previously been downgraded. Virtually all those downgrades were well within the past categories. And as a result of that quarterly review because our bankers have previously downgraded credit really didn’t downgrade any additional credit. We do anticipate given what has clearly been some reduction in capital spending that in the latter part of the second quarter, the third quarter and fourth quarter, as we begin to get year end results for some of these companies, we should see some additional downward migration. But as David pointed out, we have a small group of customers that represent our exposure here. We are closer to those customers and we think they are doing the right things to manage their business in a difficult environment. Separately, we think about our reserve based lending portfolio. We have now been through the borrowing base redeterminations for 25% of our book and what we have observed is about a 20% reduction in borrowing base availability, customers still have about 40% of availability on average under the lines of credit. Half of the credits we’ve reviewed have remained at their current risk rating. The other half has seen again some downward migration in risk rating but virtually all of that has been within the past category. And so we remain cautiously, comfortable with the credit exposure we have in both the reserve based lending and the oilfield services books.

Okay. That’s great color. And then maybe as a follow-up to Eric’s question who asked in a different way. If rates do stay lower for longer, what areas in the expense side would you look to maybe trim a little bit or take some more actions to maybe meet that positive operating leverage goal? Thanks.

Yeah. Mike, I would tell you, we are not waiting to see what happens with the rate environment. I think being disciplined around expense management is just part of who we are. We’ve talked about that for a number of years. Cleary, the big drivers for us are our three largest categories of expense -- salaries and benefits, occupancy, furniture and fixtures are the areas that you have to move the needle on to get any meaningful change. We have deployed a lot of six sigma initiatives throughout our company to improve the processes. Those process improvements are -- some of those were actually revenue enhancement opportunities but some of those are -- from a cost standpoint to control costs. We are down in headcount, a 122, from the end of the year to the end of the first quarter. And so you should see us look at those three categories and really every other one. You saw legal and professional down as we continue to watch really third-party spend. That’s probably the fourth biggest one, making sure that we are -- we need a third-party that we hold them accountable. And in the good old days when we were kind of going through all the changes in the industry, we had to go hire our consultant and throw a lot of labor hours and expense to solve whatever problem we have. Today, we are little more disciplined and in terms of meeting to go out for third-parties, so that’s why that cost is down. And we will continue to look at that category and outside services being quite a fit. Those were five years that we target.

Great. Thank you for taking my questions.

Your next question comes from John McDonald of Sanford Bernstein.

Good morning, John.

Hi. Good morning, guys. David, I wanted to ask about the deposit service charge line. Just in terms of the first quarter number, if you look at the 161, is that really advanced or fully out of that and should we see some -- separately some pickup seasonally from the first quarter level?

That’s right. So it was embedded in that decline from the fourth quarter to the first. Half of that was already advanced, rolling out finally. We should not have anything going forward on that in the second quarter. And as you mentioned, the first quarter is a seasonal low for NSF. And so based on those, we will see what customer behavior does going forward. The good thing is we are growing accounts. So if we continue to grow accounts, service charges will be expected to grow commensurate with that.

And then in the second half of this year, do we still expect some incremental pressure from changes in posting order and do you have any update in terms of your plans on rolling that out and timing?

We’ve gone through a mile or so and our expectation is that update is still in the $10 million to $15 million per quarter range. When we implement, which we expect right now to be in the back half of the year. We have not been as definitive on that date yet, but we are continuing to go through pilots and learning. And as we get closer, we will give you more specific guidance.

Okay. Thank you.

Your next question comes from Bill Carcache of Nomura Securities.

Good morning.

Thank you. Good morning. On credit, this quarter we saw the smallest release since 2011 and given your comments on what’s happening with energy, is it reasonable to expect that the provisions going to start to exceed charge-offs as we look ahead to the rest of the year?

Bill, I think that at this juncture what we saw this quarter is that the vast majority of our credit metrics all improved. And so we are still feeling very comfortable about the direction that our asset quality is moving. That being said, we did have pretty solid loan growth this quarter, as well as we’ve discussed some risk rating downward migration of somewhat credits then I would tell you it is fairly broadened. Certainly, there were two or three credits in energy, two or three credits in healthcare and some general industries that drove that migration. But that being said, sticking to our process, sticking to our methodology, making sure we are going through that with a lot of rigor, a lot of discipline. And so when you look at the quarters going forward, we still believe that the general direction holds true that we should continue to see improvements in asset quality. That being said, you can always have, given where we are at in the cycle and given the level that our loan -- problem loans were at today, you can always have just a handful of credits spend to create some level of volatility for quarter. But we are still confident in the direction of the portfolio.

To the extent you see, we continue to see net charge-offs coming down and non-performing loans coming down. Our release was only $5 million, which dropped our coverage of loans from 143 to 140. But you could see if that continues charge-offs down and NPLs down, you could see that ratio continue to migrate down as credit continues to improve, notwithstanding Grayson’s point that you can have volatility in some of this from time to time.

Well, we hope that loan growth continues on a prudent and modes rate and that’s going to again have to be calculated into our division expense.

Understood. Thank you. The other question that I had is on the consumer side. We are seeing growth as you discussed but it looks like it’s a pretty steady deceleration in credit card and indirect auto loans for the last few quarters. So it’s certainly growth but decelerating year-over-year. I was hoping that you could maybe go a little deeper into both of those businesses. Should we expect that rate of growth to continue to decelerate there?

Well, I think -- and I will speak and David can add to this. I think when you look at the consumer, what we’ve seen is that consumer appears to be paying down debt and servicing debt at a faster rate than they were and holding more liquidity in their depository accounts. And so we are seeing a generally healthier consumer from a credit and deposit perspective. As long as the prices of the old pump stay where they are at, the gas pump stay where they are at, I think the customer has a lot more liquidity, disposable income than it previously has and they appear to be very conservative in the way they are using that. I do think when you look at the two sectors you mentioned, the credit card. We are seeing -- we are still seeing very strong production. In our credit card portfolio, we think that production does translate into an increased and outstanding balances as we go forward. But there is a lot of seasonality to credit card and we think we are seeing some of that this quarter. But we still think that we’ve got -- given the growth rate of new credit cards, which is growing at about 10,000 cards this quarter, we think we’ve got -- we think we’ve got an opportunity there to continue to grow that portfolio. The auto sector is a little bit different question and that auto sales are still very strong, but there is more competition in that marketplace today. And we are more disciplined each and everyday in that space. And I think that our pace of growth of that portfolio has moderated, but we are still growing. And we still are active in that marketplace, which you should expect us to retain our discipline and how we lend into that space. And so we still feel good about it, but I do think the pace of growth will moderate.

Yes. I would add credit card, it’s a seasonal low. If you go back and look at the trend, we are down in the first quarter historically. But, I mean, the growth over last year at the same time is 5% of credit card. And you heard the growth that we’re getting on production. From an indirect standpoint, I would add a couple of things. One, we’re up almost 14% if you look year-on-year. Linked quarter, it was only 1.6%. What we’ve done over the past is we’ve really weeded out some of the dealers we are doing business with as we believe we’re getting adversely selected. Our loss rates were higher. And so we actually are down several hundred dealers. And we are looking at getting with the larger dealer groups. We worked on some Six Sigma initiatives to help us from full through rates to expand production there in the industry. The automobile industry had been in the 16 million units going to -- we’ve seen estimates as high as 17 million units for this year. So we think we will get our fair share of that and look to grow indirect in '15.

That’s very helpful. Thank you for taking my questions.

Your next question comes from Stephen Scouten of Sandler O'Neill.

Good morning, Stephen.

Good morning, guys. Question on kind of asset sensitivity and NIM. I mean, I know you said you’re forecasting a rate increase, maybe in September and December, but would you guys foresee any changes in the way you look at your portfolio, whether it would be adding on swaps or other kind of [indiscernible] if that rate hike doesn’t play out as you expect currently?

Well, we ask ourselves everyday what we ought to do to manage our interest risk. And given where rates are, we believe have been and continued to believe be an asset sensitive is the right thing to do. If perhaps we got a quick rise in rates, we might want to lock in a little bit of advice to downside protection from there. That might be a time to put some interest swaps. But right now we are looking at the 10-year where it is and expecting a rate increase to come, because we do know but they are on the short rates, we are just at a kind of a false bottom. We know that has to increase and whether or not we get the long end to steep or where we have a flat yield, we don’t yet know. But there will be a time when we consider that stronger than we are right this minute. We think there is more biased to up rate than there is to the down rates.

Okay. That makes sense. And then just as it pertains to kind of the balance between the loan growth that you expect to see and deposit growth, I know you said for the year maybe deposit growth should be 1% to 2%. But if you had another quarter like the strong deposit growth you saw this quarter, what would your expectation be there increased security investments or kind of how would you manage that loan to deposit ratio, where would you want that to pan out? Thank you.

I mean, clearly, we look to -- we are encouraged to see deposit grow as strong as it was in this quarter. It exceeded our internal expectations but was very promising news. And with one quarter it doesn’t necessarily make a trend and we are still projecting for the full year sort of a 1%, 2% deposit growth. We would love to be wrong on that and deposits exceed that, but I think we’ve got to have another quarter or so before we’re convinced that that is true. I do think from a loan to deposit standpoint, we certainly would like to see loan growth more robust that it is to allow us to get a better balance and come closer to peers on our loan deposit ratio. But given the growth and deposits we saw this quarter, well we backed up a 1% or so in that regard. So we are seeing strong lending pipelines and hopefully we will have -- we will see continued strength in loan demand. But I don’t -- at this don’t see a strong amount to offset the growth in deposits that we are seeing.

Yes. I think as a result of that, you’re seeing us, our securities books still pretty high percentage of our earning asset base, little higher than we would like, but we are not going to manufacture loan growth. The loan growth is there and is prudently underwritten that we will deploy that cash there, but if not within the securities book. We have been relatively short on securities and we paid a price for that in terms of the lower NIM, but we think that’s the right call. And to the extent we had deposit growth outside in that 1 to 2, that’s what we would absent the loan growth.

Thanks so much, guys.

Your next question comes from Ryan Nash of Goldman Sachs.

Hey, good morning, guys.

Good morning.

David, I was trying to get some clarity on the outlook for the net interest margin. Clearly, you are saying that there is increase for rates in your budget. But how do we think about the trajectory of the NIM before we actually get interest rates rising? And I just wanted to make sure that your guidance you gave us last quarter was still applicable. So after 10 years stays at around the current level the downside case could be 10 to 12 basis points.

Yes. Ryan, you’re right, it’s got a little better. We think to the extent we stay in. Again last quarter we said the 1.75% to 2% 10-year. If we took that today, that probably would be in the 9 to 10 basis point range. So that tie better than what we disclosed to you last quarter.

And just the trajectory of it?

Yes. I think we would continue to have pressure leading into '16 with this low rate environment.

Excuse me, this is, Operator, can you hear me?

Maintaining this low rate environment.

Got it. And then just on expenses, you’re obviously down year-over-year in the first quarter and you are talking about being -- remaining committed to prudent expense management. But I was just wondering given what you’re doing on the branch side, you talked about reducing professional fees and you’re referring something about pacing. Should we see the absolute level of expenses declined for the remainder of this year relative to 2014?

We gave you a little bit into prepared comments. We had a couple of things, so we had some benefits from -- $15 million benefit in the first quarter that offset the payroll tax increases that won’t repeat. We also will have the impact of our merit increases that we gave our folks. We will have a full quarter of that. And then we had our legal and professional fees were down quite a bit from historical quarters. We think that there is some volatility there. I don’t think it will be back where it was a quarter before. But I am not as confident that they could repeat at the level that we had this past quarter. So you might see a little bit of a tick up from that. But that being said, we are looking at every expense category everyday to control those going forward to '15 into '16.

And David just one quick follow-up on that. When I look back on past years there is not much seasonality heading into 2Q on the comp line. I am just wondering if you maybe size for us how big of an increase we should expect for things like merit increases?

Well, if you -- we have increases been in that 2.5% range on salaries for merit and then I told you about the '15 that won’t repeat. So you can do some and we had 11 million that was in there already for payroll taxes. So if you take those three things, you will get pretty close.

Thanks for taking my question.

Your next question comes from Eric Wasserstrom of Guggenheim Securities.

Hi, Eric.

Hi. Thanks very much for taking my question. I just wanted to circle back on the credit quality issue. The information that you’ve given about the energy portfolio is perhaps better than what we might have expected, but it sounds like maybe some of the other stuff is a little bit worse -- considering that there isn’t necessarily evident pressure on other sectors of the economy. So I am wondering if you could just maybe us some insight about what’s causing the negative reading of migration in areas outside of the energy portfolio.

Yes. I think one things we wanted to communicate to you is that migration was really was handful of large credits and there are some in energy, some in healthcare and other industries. And really if you look behind that, it’s idiosyncratic issues with each of those. There is nothing systemic with them that caused that rating downgrade. There were downgrades within the past category. You saw downgrades into classified, but there is really nothing again systemic there that causes us concern with overall portfolio.

Okay. So just in terms -- I mean you have been very clear about your overall expectations for NPL. But I guess my -- is that just a function then of the expectation that these idiosyncratic issues have not been sort of addressed and there is nothing similar on the horizon about basically the interpretation?

That’s right. We feel live we’ve recognized what the issues are. Clearly each of these has their own story and defending on where that story goes, you can have further downgrades through the deterioration. We are just trying to send the messages that there is nothing systemic that these are handful of credits that really caused us this issue. So hopefully, we believe we recognized the issues that are there today and where they go from here, they can get better, they might get worse and we will take up that real time and there are provisioning. But we think we’ve gotten our arms around it.

Thanks very much.

Barb Godin, our Chief Credit Officer, if would like few comments.

Yeah. I just going to jump in and say, I am looking at list, what did migrate? And firstly, the majority of them are paying as agreed. We are very close to our customers in terms of the credit servicing and making sure that if we see anything at all that we will move that into a non-pass rated category until things cure themselves. But as I’m looking at the reasons, they have to renew a largest contract, another was the systems issue, delay, another was billing and order processing issue, et cetera. So there is nothing that I saw in there as we -- and we do go through each and everyone of this credit prior to this call. That said, there is the warning signal or there’s some emerging risk that we have to recognize. I also would anticipate that the majority of these credits will move back to a pass category in the next few quarters.

Thanks very much.

Your next question comes from Ken Usdin of Jefferies.

Good morning, Ken.

Hi. Good morning. Just a question on the securities portfolio, it’s been about the same size and your yields actually went up a little bit sequentially. And I just wanted to understand, as you’re trying to manage the rate environment, LCR, et cetera? Are your investment yields coming in higher or was there a delta in premium amortization that you could, perhaps, explain as well? Thanks.

Yeah. Ken, it’s a couple of things. One the day count does impact that, so we moved, I think, it was what 244 to 251 and premium amortization for us was down a little bit about $3 million, so it didn’t take a whole lot to move that around a little bit. We -- I think your basis -- your question is, are we doing anything structurally different, the answer is, no.

Okay. And then second question is just given -- you’ve talked about this in the past as your relatively strong positioning from a capital perspective and you did do a good job in terms of raising your CCAR asked relative to prior years? But you’re still sitting on a tremendous bed of excess capital? So with regards to opportunities like you did this quarter to take down the long-term debt? Can you just give us any updated thoughts on whether it’s the outstanding commercial portfolios that are out there potentially or acquisition appetite? Any updated thoughts on your incremental uses of excess capital? Thanks.

Yeah. So one of our three strategic pillars is really effectively deploying our capital, we did that through our 2015 CCAR as you mentioned. We do realized we have excess still and but the things we want to deploy it in, the way we think about it is, we want to deploy it in our loan growth and when we have excess after that we look to have acquisitions with this banks or non-banks. We’re doing a lot of work around that. To use the excess capital I want to be real clear that we think about acquisition is more about using the excess capital, paying cash versus using our shares where they are priced today and so we’re looking at that to the extent. We can do some transactions and still have some excess capital, perhaps, we will return that to the shareholders, because we don’t want that denominator of the return on tangible common equity to continue to grow and accrete. We need to get that more optimize, so that we can get our return metrics where we wanted to be. It just takes time and we will get there.

Thank you, Grayson.

Your next question comes from John Pancari of Evercore ISI.

Good morning, John.

Good morning. I want to see if you can give a little more color on loan yields in the first quarter. We saw -- heard a few increases in select portfolios, including commercial real estate, owner occupied, investor mortgage, all up -- selectively. I just want to get the drivers of that and if we should expect that such yields can remain stable or even move higher from here?

John, you mentioned, so overall loan yields, you can see we’re down 1 point. Some of that can be driven my mix. We’re trying to stay pretty discipline with our pricing. If you look at our loan growth relative to peer all through 2014, we grew nicely at 3.6% for that year, so we’re below our peers. Part of that’s being disciplined in terms of what we want to put on our books and making sure we’ll get paid to the risks that take. As we think about expectations for increasing or improving, the easiest portfolio for that to happen is really in our home equity portfolio, because we have -- still have a portion of our home equity portfolio that was priced at prime minus -- a half of prime minus 1 and as refinance activity takes that out, we get a little bit of an increase in home equity. You can see it was up just 1 point this past quarter. So we’re really trying. I guess the main thing is we’re trying to be discipline with regard to pricing, but I would not expect any major increase in loan yields over the near-term.

And John, I just think you have to -- we’re trying to remain very discipline around loan pricing and I think we’ve done a pretty good job there. That being said, it’s a very competitive marketplace today and you are trying to book the prudent loans that you have the opportunity too. But with the level of competition in the market it’s hard to move those rates up, absence some kind of interest rate increase.

Right. But, I guess, what I was getting and also is that, if you look at the linked quarter change in the portfolio yield for your commercial real estate, mortgage, owner occupied, as well as the non-owner occupied portfolios. They actually saw an increase linked quarter in the average yield and just wondering how you accomplish that?

They also do it and predominantly there’s some mix of loans in those categories as we got new and renewed production.

And if you look at the pure dollars they’re in our supplement, you’ll see that the interest income from those portfolios remained relatively the same. And in the case of investor real estate mortgage we had some properties that rolled out the portfolio that we’re at lower rates than what we are going on. So it just looks a lot, we increased, not sure, a 10 basis points, but look at the income is really only a $1 million difference, so it get a little bit of an anomaly when you look at it just quarter-to-quarter.

Okay. And then my second topic was just around the credit deterioration again in the healthcare and other portfolios. And all -- were they share national credits at all? And then separately, what was the average size of those credits that moved on the classified status?

Yes. So, handful of them were shared national credits. In fact, the majority of them were shared national credits that did move, wherein we don’t leas any of those shared national credits. And in terms of the average size, it would be approximately $30 million each.

Okay. Thank you.

Your next question comes from Betsy Graseck of Morgan Stanley.

Hi. Good morning.

Good morning.

I just had a question around the debt refinancing. You have a stack of -- high cost debt behind what you just refi and I’m wondering what your though are on continuing that process?

Betsy, so, we -- the remaining debt that we have is really tied to capital instrument. So anything that’s a capital instrument has to be subject to the CCAR process. As we think about -- have thought about that, we want to be careful in terms of just getting high cost debt, it’s uneconomical. In other words, the payback period advance so excessively long would make sense to us. If you recalculate the payback period on what we did take out between two, three years, so that works for us, when you start going out, six and seven, eight, nine years, is just doesn’t make it worth our while. Notwithstanding the fact, we know we have excess capital, but we just don’t think that’s the right things for us to do. Go ahead.

I was just going to say, if the rate environment continues to stay lower for longer or tougher for longer, doesn’t the math start to work in your favor to take down some more of this debt?

If it’s lower, it actually -- it still works against us because we maybe able to get an issue out there that’s fairly cheap relative to what we have. The premium that you have to pay to take it out is just enormous and that’s really where we get stripped up. If we get the holders to take it without a premium it would be good.

Yeah. Unlikely to happen. Thank you.

Thank you.

Your next question comes from Matt Burnell of Wells Fargo Securities.

Good morning, Matt.

Good morning, folks. Just I have a question on the deposit growth, which you’ve mentioned a couple of times. And perhaps this is specific to David’s comments about retail deposits. But it look like the non-interest bearing deposits balances were up about $1.8 billion on an end of period basis, which has been up only about $300 million on an average basis. What’s going on there and does that have any implication for your outlook for deposit growth in the next couple of quarters?

Yeah. I mean, we spend a lot of time. You are obviously analyzing the deposit growth. And I think the good news is what we’ve found is that the growth has been broad across our markets. It was not isolated to a particular market or a group of markets but was fairly broad based and across markets that we serve. To David’s point a moment ago, we are growing accounts and growing households that are banking with us. And so we’re obviously starting to see the benefit of that. But most of our growth, as you’ve seen was in the low cost deposit or non-interest bearing deposit categories, which is some of the more favorable deposit mix that we could have hoped for. We do know that there is some seasonality to these deposits. There is tax reforms that are occurring for consumers today. We also know that the consumer is having a fairly substantial benefit and reduction in gasoline prices that they are having to pay. When you aggregate all that, consumers, as we mentioned are really servicing and paying down consumer debt in a much more productive manner this quarter than we’ve seen last quarter. And we also are seeing much more liquidity on the part of those consumers. So it’s a behavioral change at least for this quarter that we’ve seen in our consumer base. I think we’ve got to have a little more time before we absolutely agree that, that’s a behavioral change with some link to it. But so far it’s a very promising start in 2015. In that regard, we’ve just got to see how well it holds up.

Okay. And David, a quick administrative questions for you. In terms of the branch consolidation charge this quarter, you mentioned that was related to your plans to reduce branches by about 50 this year. Should we expect future charges along those lines, or is that it for this year related to the 50 you’ve mentioned?

We don't have any current plans for further consolidation at this time. That being said, we constantly look at our network, including where we might want to consolidate, where we might want to build new branches. We still believe that is a very important channel for our customer base. And so while we don't have plans today, we will continue to look at refining and to the extent we see opportunities to consolidate, we’ll do so.

Okay. Thank you for the color.

Your next question comes from Paul Miller of FBR Capital Markets.

Good morning, Paul.

Yeah. Thank you very much. Most of the questions have been already asked. But I want to ask a little bit about the mortgage side of business. One of your competitors in your region was seeing very strong purchase production of growth over the last couple of months, especially out of State of Florida. Can you add any color around that, have you seen the same thing?

We have. If we look at our production, you can see it in our supplement. But our production from a purchase standpoint was 60% of our volume and refi 40. So, we're seeing a strong purchase. It was down a little bit for us in the first quarter relative to the fourth. Refis really picked up, given the rate environment that we saw and we like that volume that we are seeing going into the quarters. So, we are looking for a continuation of improvement throughout the year in particular next quarter, but it’s fairly consistent with what you're describing.

I mean all of the -- all the metrics that we are following in the mortgage business were positive at the moment. We like most people anticipate a very strong second and third quarter. The mix shift in the purchase versus refinance moved around a little bit on this quarter because of the rate flow but overall much better picture in the mortgage business.

Okay. Hey guys. Thank you very much.

Okay.

Your next question comes from Geoffrey Elliott of Autonomous Research.

Hello there. You’ve talked a couple of times this year about the opportunity to acquire some servicing assets on the mortgage side. Could you just give an update on your appetite there and how that fits into your broader thoughts on deployment of capital?

Yeah. So the three pillars to our strategy as we mentioned, one of them is diversifying revenue and the other one is deploying capital. Positive operating leverage is third one in the middle. So if you think about diversifying revenue for us, we believe we have a competitive advantage in servicing. We are very good at it. It’s a low cost operation for us and we have room to put that on our books even though capital charge coming through in Basel III is a little more onerous. We believe that’s a good use of our capital and have been looking for portfolios to purchase. But we aren’t going to buy descending portfolio. We want to buy portfolios in our market and we want a portfolio where there just can be our customers. We did do one deal of $406 million, but we are out there looking. There are a lot of -- there are people shopping some today that we’ve taken a look at. But we are pretty strict in terms of what we are willing to take on.

And then in terms of the size of portfolios that you are looking at, can you give us a sense on that?

Yeah, the sense of the portfolios that we are looking at?

Yeah.

Well, we want them to be on our footprint.

The size -- sorry, the size of the portfolios?

Yeah. Somewhere in the $500 million to a $1 billion dollar range is what we’ll be looking at.

Great. Thank you very much.

Your next question comes from Marty Mosby of Vining Sparks.

Good morning Marty.

Good morning. Thanks for taking the question. David, I had a very technical kind of accounting. When you talk about the affordable housing, you talked about the increase in the tax rate and then you talked about an increase in fee income I think. Was there just a compression of fee income from the affordable housing because I’ve seen it in expenses and not income? So, I just wanted to make sure that was the right geography?

Yeah. It’s an income for us, Marty. It’s an offset. It had been an offset to income historically for us when we adopted the accounting literature. We took that offset which was a debit and we moved that down to the tax line. So it actually improved our NIR and it -- our tax expense also went higher about that 300 basis I’ve mentioned. So it’s just geography.

Okay. And then the other thing that I was looking at was, we’ve kind of head up what you might call a stall point here with a couple of issues creating some headwinds, one of them the catalysts that you are really looking for besides rates that could create the next earnings momentum for you over the next year or two. Thanks.

Well, I think that deploying our capital is important too. There is no single one thing that we knock it out in the park. It’s doing a lot of things well. It’s executing our business plans. It’s containing to grow loans and deposits. It’s continuing to deploy our capital, looking at acquisitions from banks and non-banks, making the investments in people. You can look at wealth management as a prime example of. We’ve taken the medicine and making investments in people knowing that it’s going to take to generate revenue. We believe further investment in those people in wealth management as a example. It is the right thing to do. There are other businesses we are looking at doing the same thing too. Capital markets is an area where we’d like to expand and be larger in as we differentiate or diversify away from spread. And so we are like you, we are not sitting here waiting for rates to bail us out. We are making -- we are making a difference by growing these revenue sources, watching our expenses as we go, but needing to make the investments of dollars to generate revenue growth.

Yes. But Marty I think it’s a great question and a very relevant question where the industry is right now. And quite honestly, we don’t see some one thing that we could do that would alter our power momentum. What we are committed to is very steady and consistent progress in strengthening our balance sheet, strengthening our business. And we had over the last couple of years really trying to put in a whole new set of strategies for how we grow our core business and we are starting to see the fruits of that labor and that we are seeing growth more broadening across our markets and more broadly across our product lines. We obviously are augmenting our product lines and we are augmenting number of people we are partnering with to grow our business. But I think to David’s point the biggest thing that would help from earnings standpoint is the rate environment, but we can’t wait on that, we can’t depend on that. And plus our core business is really the long-term sustainable help for the company. And so I think you are going to continue to see us very broadly in a diversified way continue to try to grow all aspects of our business. And if we can do that in a very steady and consistent manner, I think we’ve got a very sustainable business model and one where shareholders benefit long-term.

Thanks.

Your next question comes from Gerard Cassidy of RBC.

Good morning, Gerard.

Good morning, Grayson. Question David, you were talking about using the excess capital to potentially buy portfolios or even obviously give it back to shareholders. But you did also mention that your primary purpose is to grow the loan portfolio of course. If we put aside your excess capital that you have today and we just look at your ongoing earnings, how much loan growth do you need every year to optimize the excess capital you create every year so you don't need to go out and buy a portfolio or buy another bank?

Yes. That's a great a question. I think if you looked at our generation, you could almost have a third of that be used, 30%, 40% of that be used up for loan growth, you are going to have 30% of 35%, maybe 40% in dividends over time. And then the other would be return to the shareholders. That’s kind of what the math would lead you to. But we want to grow we have -- we do have the excess and we have to put that to work. But outside of excess, I think it’s almost third to third to third.

And when you look at the third for a loan growth, what kind of loan growth would you need to use that third of the capital, is it 8% or 9% per annum or 3% or 4%?

Yes. It’s in that 4%, 5% range.

Good. And then circling back to your syndicated loans, of the oil presence or energy presence that you have with that portfolio of over $2 billion if I recall, how much of that is in syndicated loans? And second as part of that, is your approach -- when one moves into a classified category, is your approach to a syndicated loan where you are a participant different than your approach when it's not a syndicated loan and you are the lead and you are working with the customer?

Firstly, the majority of our product in energy is syndicated loan, I believe that roughly 86% are syndicated. Secondly, we are the lead versus the participant irrespective. We are still required even at the participant to make sure we have all of the appropriate information about that customer. We work with the agents and we make our own determination as to what that risk rating should be. And it can be different from the agent. Often, it is not different from the agent however and they are think that once a year typically during the Shared National Credit exam.

Thank you.

Your next question comes from Sameer Gokhale of Janney Montgomery Scott.

Good morning.

Hi. Thank you. Good morning or afternoon here. I had a question about the pull-through rates on any or indirect auto business again, just so we visit that. I think you had mentioned that you’re doing some Six Sigma initiatives there and that’s led to some improvement in pull-through rates. But I was curious if those -- that improvement was related to maybe any sort of bottlenecks in terms of your ability to underwrite those loans, have you automated the underwriting? Or can you just tell us specifically what you may have changed there that’s helped improve pull-through rates?

Yes. That’s a great question. So I had mentioned earlier we deployed our Six Sigma teams throughout the banks. Some of them are revenue producers and some of them are expense management. This particularly one was revenue producing and what we have found is that they analyzed our process and noted that in some cases when an application would come through our sender that it would get kicked out for certain underwriting exceptions that would then force a human being to look at the underwriting and force that person to make a decision whether or not they are going to approve it. And by the time that happens that deals already being done with the dealer, because the dealer requires speed of execution. So what we did is we found that those cases where an underwriter is approving the deal, we changed our algorithm to build into that, the acceptance so that it wouldn’t kick out. And that improved -- that one change improved our pull-through rate quite substantially. And that was a big driver of our increase in revenue over the past couple of quarters.

We really try to focus our teams on the larger dealer groups. And if you look at this business, obviously quality of answer is important, quality of answer is important both to the customer, to the dealer, and to us. But the speed of answer is also very critical. And so we’ve worked on both. We’ve greatly improved our quality of answer and we’ve greatly improved our speed of answer, all through automation and also in terms of bargaining, who we want to do business with. And from a dealer standpoint -- and so that rationalization of how we do business and who we do it with has made a tremendous difference in our pull-through rates.

That’s very interesting. Thank you. And then just another question, in terms of the consolidation of your bank branches, I think, it sounded like more or less done based on your guidance 50 branches, but could look at ongoing opportunities. But are you using any sort of Six Sigma initiatives there also to rationalize these branches? And as you think about consolidating these branches or the process that you follow, to what extend do you look at just a kind of the marginal profitability, so marginal revenue minus marginal cost, because it seems like you probably have a lot of centralized technology and IT cost that is spread across the branches. And to the extent, you shut down these branches, if they’re marginally profitable then you don’t get to leverage those technology costs. So are the efficiency items more important, do you look at marginal revenue, marginal costs and how do you think about that?

Yeah. I mean -- first of all our branch rationalization process is the continuous process. And we’re constantly looking at transaction activities, marginal cost, marginal profitability, and trying to figure out what the -- our branches deliver in terms of direct contributions, making sure that all of our branches are profitable on direct basis. And -- but when you look at the analytics of the branch system and where we consolidate and where we expand, that process is very comprehensive. And you have to factor in the relevance of branch, because still 80% of our new account sales come from the branch offices. And so we are very careful to determine if we consolidate the branch, how many of those customers do we lose that has a lot to do with where they’re being consolidated into, how far away that receiving branch is from the consolidated branch. We also have to factor in the community impact of that even though lot of our customers bank with us over digital channels. That bank branches is still a community asset and it’s still an asset that that community values and we have to think through all of those issues before we consolidate. We have tried to really still be engaged in all of our communities and deliver service in all our communities. We try to do that the most efficient way we can. So those analytics are comprehensive and they have done on ongoing basis. And we think that while we’ll continue to see consolidation opportunities, we also see the need where some communities need more branches. And so on a net-net basis when we think about it, we are not sure that our number of branches over time diminishes that much. In fact, we think over the next few years we’ll be relatively stable. Well, we don’t let the analytics drive that. And so we let the analytics tell us whether we ought to expand and whether we ought to contract.

Great. Thank you very much. I appreciate the explanation.

Your next question comes from David Eads of UBS.

Hi, guys. Thanks for taking the question. You have given some pretty good color on various kind of line items in loans. But I was wondering if you talk a little about what you are seeing in the real estate constructing portfolio, you’ve guys have had some pretty strong growth there recently. Just curious, how big that can get and how kind of what trends you are seeing there?

Yeah. This is John Turner. When you speak about construction, I guess, you mean overall just generally in the portfolio, I would say.

In the -- in the investor real estate construction line?

Yeah. So we very focused on managing that exposure fairly tightly as high resource across all the markets that we do business in. Majority of the exposure would break down between homebuilder finance, which is $700 million plus portfolio and there are multi-family business. And I think what you are saying is that portfolio grows, it’s funding under previously approved construction facilities really have not been originating a lot of additional multi-family credit over the last six plus months. And so primarily the growth is fundings under a portfolio that currently has duration of about 23 plus or minus months. So fairly short duration, a lot of turnover and again we’re managing as a very finite resource given what we believe is some softness in a few of the markets that we operate in.

All right. So we sort of expect that growth to taper off here pretty quickly?

I would say, yes, expected to moderate.

Great. Thank you.

Your final question comes from the line of Vivek Juneja of J.P. Morgan.

Good afternoon.

Good afternoon, John and Grayson. So look at your efficient ratio. Perhaps back the $50 million your core efficiency ratio 66%, was it similar to last quarter and a year ago? And we factor in the deposit advance -- sorry, not the deposit but NSF fee decline that you’re already seeing in the second half. It seems to me, is going to be tough to go much below this, even though you’re working on cost cuts and just continued improvement. Can you walk through what else you need to do to try and get the efficiency ratio really down materially?

Well, we have focused on our efficiency ratio, the big driver there is revenue generation. And we made the investments we talk about the growth that we seen in NIR. We’ve seen the loan grows as our revenue grows and it takes a little bit of pressure of the expense side, but we’re working on that, too. If we take all three -- two revenue improvements in NII and NIR, and work it on expense, we do expect the efficiency ratio to drift down but our goals is to get down into lower 60s. We really want to be in the 55 to 59 range but we’ll have to have a rate increase to get there. So absent that we would be in the -- we expect to be in lower 60s. So it’s a focus every day.

Lower 60s even post the NSF reduction, David?

With a rate increase, yes.

With the rate increase. Okay. Got it. Okay. Great. Thank you.

Thank you. I believe that is the last question. We appreciate everyone’s time and attention today. Thank you very much.

This concludes today’s conference call. You may now disconnect.