Timur Braziler: Great. Thank you.
Operator: Thank you. We have the next question from the line of Russell Gunther with Stephens.
Russell Gunther: Hey, good morning, guys.
Kevin Blair: Good morning.
Russell Gunther: Just wanted to — good morning. Just a couple of quick follow-ups. The first on growth. Just wanted to get a sense for what inning you’d say we were in terms of the strategic decline in non-relationship loans. I understand this is included in the guide, but it would be helpful to get a sense of the magnitude of the impact and timeline for that headwind to abate and kind of get back to that growth year outlook you were discussing earlier.
Kevin Blair: Well, look, when you look at the quarter, we had about $77 million of declines in the [SNIC] (ph) portfolio, another $50 million in third-party, those will continue for the foreseeable future. Number one, remember that both of these were surrogates for the securities portfolio when we had excess liquidity. And so in this environment, unless we are seeing better economics, we would expect that sort of run rate to continue. So expect somewhere around $100 million to $120 million of runoff each quarter. So that would not change. Now, the good news is that could be more than offset as we get to some of these market-related declines. So once senior housing gets to kind of their final portfolio size and the real estate portfolio builds back their pipeline to offset some of the paydown activities, I think that those market-related declines will more than offset the growth.
They will more than offset these strategic declines, which would put more of the growth back towards that mid-single-digit level.
Russell Gunther: That’s great. Okay. I appreciate that there. And then just switching gears on to the fee guide. Could you guys just remind us the outlook for GreenSky to contribute this year? And then the capital markets expectation as well, just confidence in that year-over-year growth rate and drivers there.
Jamie Gregory: If you look at the first quarter on GreenSky, it played out as expected. We had a strong quarter, little less than $8 million of revenue associated with that. And going forward, the reason for the revenue will change. So if you think about it, that deal closed in the first quarter, so we had a pass-through of the loan book. But going forward, it’s the flow arrangement. And in the flow arrangement, we actually expect revenues to be in a similar area, slightly below the first quarter, but in a similar area per quarter as we go through 2024. With regards to capital markets, we feel really good about 2024. We think it’s going to be a strong year for capital markets coming off of the first quarter and increasing as we go through the year.
And the components of capital markets, we have client swaps, which are relatively low at the moment, but we expect to see growth in leader [indiscernible] fees, agency fees, and we expect to see those as we go through 2024. And we think that’s going to be one of the good drivers. When we said overall NIR growth in the low-to-mid single-digits and that — a lot of that is capital markets. We think that the strength there will continue as we go through this year.
Kevin Blair: And to your point, to Jamie’s conviction, those are in our pipeline today and our pipeline in CIB and wholesale are the largest they’ve been in some time. And so it’s not just forecasting, we actually see the transactions that we’ll be able to execute on.
Russell Gunther: I appreciate it, guys. Thank you, both.
Operator: Thank you. We have the next question from the line of Chris Marinac with Janney Montgomery Scott.
Christopher Marinac: Hey, thanks. Just a quick question for Bob, as it pertains to the office maturities. Are any of those tied back to medical office? Is that blended in with the number?
Robert Derrick: Chris, just blended in. That’s the total office book. And then [Multiple Speakers] excuse me, yes, the medical component is about $400 million give or take $1 million of our total office book.
Christopher Marinac: So we can proportionately adjust the maturities by that, it was all I was saying on that.
Robert Derrick: No, I’m sorry, Chris, you know that there is about $400 million of medical office loans in our current office portfolio. That does not include the asset sale we did on the institutional medical office building. So we still have about $400 million of — mainly speaking, community banking, medical offices that are in our office portfolio today.
Christopher Marinac: Great. And Bob, are you seeing any further stress on debt service coverage ratios as it pertains to office, or is that largely been reflected in the criticized component?
Robert Derrick: It’s largely been reflected, Chris. I mean, we certainly — it is still migrating and there is certainly still a slight negative bias to office. Obviously, you’ve got valuation changes and we certainly feel good about the markets we’re in, but some of them are more stressed than others. But from a debt service coverage perspective, it would be reflected in our current rated status of around 10% rather on the rated book. So obviously, lease expirations and lease rollovers and those types of things are what we’re doing every day and analyzing those, looking out to our maturities and when these leases roll over or the sublease activities, et cetera. So a lot of variables in our office analysis, which is kind of built into our sort of normal portfolio management business-as-usual activities today, and is reflected in our current risk ratings and we feel good about the accuracy of those right now.
Christopher Marinac: Great. Thanks for all the disclosure on this. We appreciate it.
Robert Derrick: Thanks, Chris.
Operator: Thank you. The next question is from the line of Brandon King with Truist Securities.
Brandon King: Hey, a two-part question on the net interest margin expansion, the 10 basis points to 15 basis points in the second half of this year. How much of that are you expecting to occur in the fourth quarter versus third quarter? And then the second part of that question is looking beyond that, is that a certain pace that we are going to expect going forward, or could even be more just looking at your fixed-rate loan repricing schedule for 2025?
Jamie Gregory: Yes. Brandon, it’s a great question. We do expect to see that expansion largely in the second half of the year. And late in the year is an important time for that expansion largely due to some hedge maturities in the fourth quarter. We have $750 million of hedge — from edge maturities in the fourth quarter at pretty low rates, and those will be impactful to both the fourth quarter and then incrementally again to the first quarter in 2025. I think when you think longer-term about our margin, what I would say is, first, think about the headwinds on the liability side. We clearly saw those in the first quarter. We expect those to be mitigated in the second quarter as we see stabilization in both rate and mix. And so then you look at the margin and you think about the benefit of the fixed-rate asset repricing.
And so that really becomes powerful and it’s a multiyear benefit. And so we’ve talked about that in the past, but that benefit will flow through 2025 if you’re assuming rates stay relatively stable, and we’ll continue to see that benefit. And so when I look longer-term and I look at the fourth quarter of this year and I compare it to the fourth quarter of 2025, there is about a 20 basis point benefit due to fixed-rate asset repricing. And there are a lot of variables that can impact that outside of those fixed-rate repricing benefits. But that’s a pretty important [Technical Difficulty] tailwind to the margin. And so yes, we expect the margin expansion to continue as we get into next year. But just to that fixed-rate asset repricing, but just wanted to be really clear on that one.
Brandon King: Okay, very helpful. And lastly, on the RWA optimization, once that’s complete, how you thinking about basically deploying that capital generating into securities repositioning versus potentially buying back more shares?
Kevin Blair: Yes, that’s a great question. And it’s something that we’re currently working through. And we’ll make the decisions on that once the analysis and documentation is complete, because it’s a pretty, pretty hefty lift, to get to where we want to be and make sure that we’ve done everything right. But the way we’re thinking about that is looking at our capital ratios, and we also look at our capital ratios inclusive of AOCI, because we think that CAT4 banks in the way the regulators are looking at it, we think that’s — that matters as well. And so, we want to be balanced in how we deploy it. But, you know, assuming things play out, like we expect, we would expect to deploy, a large portion of it to securities repositioning, deploy some of it to share repurchases, but really just try to stay at the high end of our target range of CET1 10% to 10.5%.
And so, more to come on that, you can be sure that as soon as we have everything locked down, which we expect in the near term, we will let everybody know.
Brandon King: Great. Thanks for taking my questions.
Operator: Thank you. This concludes our question-and-answer section. I would like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.
Kevin Blair: Thank you, Angela, and appreciate everyone being in attendance today and your continued interest in Synovus. I’d also like to thank and recognize all of our team members who are listening in today. Our financial results are as we presented them this morning are a direct result of what you do daily to serve our clients and to differentiate us from our competitors. Of course, our first quarter results reflect a contraction in the margin. And we believe that this will reverse and into expansion for the year to come. Our fee income expectations have risen, our expenses are being well managed. On the credit front as we’ve shared today, lots of metrics. But the summary is the outlook for charge-offs is stable to lower even as we build our allowance higher.
And from an overall business activity standpoint we’re seeing some green shoots. Our loan pipelines are starting to increase a bit and sales activities across our client segments are picking up. As we’ve shared in recent quarters, our strategic focus is on leveraging our trusted and valued approach to serving and advising our clients to deepen relationships and deliver prudent and profitable growth. As we navigate an uncertain economic and interest rate environment, we are equally focused on strengthening our returns as well as our balance sheet, which in turn translates into a more risk resilient profile. I truly believe that we have progress throughout the remainder of this year and even into 2025. And we will continue to build upon our momentum and return the bank to a more diversified and consistent growth orientation.
For our investors, we look forward to seeing many of you in the upcoming conferences in May and June. And we stand ready to address any of your questions. Thanks to all. And now operator, that concludes our first quarter 2024 earnings call.
Operator: Thank you, Kevin. This concludes today’s call. Thank you for joining, you may now disconnect your lines.
