Regions Financial Corp (RF) — Q4 2020 Earnings Call Transcript

Thank you, Shelby. Welcome to Regions’ fourth quarter 2020 earnings call. John and David will provide some high-level commentary regarding the quarter and full-year results. Earnings documents, including forward-looking statements, are available under the Investor Relations section of our website. These disclosures cover our presentation materials, prepared comments, and the Q&A. I will now turn the call over to John.

Thanks, Dana, and thank you for joining our call today. Let me begin by saying that we are very pleased with our fourth quarter and full-year results. We achieved a great deal despite a challenging interest rate and operating environment. Earlier this morning, we reported full-year earnings of $991 million, reflecting our highest level of adjusted pre-tax pre-provision income in more than a decade, resulting in adjusted positive operating leverage of 2.6%. Over the last 10-plus years, we've made significant strides toward our goal of positioning the company to generate consistent, sustainable long-term performance. We've enhanced our credit, interest rate and operational risk management processes and platforms. We've sharpened our focus on appropriate risk-adjusted returns and capital allocation. These actions position us well to weather the economic downturn caused by the pandemic and to serve as a strong foundation for growth. Despite a year of unprecedented uncertainty, we remain focused on what we can control and our efforts are paying off. During 2020, we grew consumer and small business checking accounts by 1.5%. We increased corporate loan production by 6%. We made investments in talent, target markets, technology, and digital capabilities, and we expanded and enhanced products across the consumer and corporate bank, incorporating changing customer preferences and learnings from the pandemic. In 2021 and beyond, we will continue to focus on growing our business by investing in areas that allow us to make banking easier for our customers while continuing to provide our associates with the tools they need to be competitive. We will make incremental adjustments to our business by leveraging our strengths and investing in areas where we believe we can consistently win over time. We did this by adding mortgage loan originators when rates were still rising, positioning us to better capitalize on mortgage activity. We also expanded our small business platform through the Ascentium acquisition, as well as our enhanced SBA technology platform. In closing, we're very proud of our achievements in 2020, but none of these will be possible without the hard work and dedication of our 20,000 associates. This year has posed a myriad of challenges. However, our associates took action, providing best-in-class customer service, successfully executing on our strategy, and maintaining strong risk management practices in the face of a rapidly evolving operating environment, all of which contributed to our success. Now, Dave will provide you with some details regarding the quarter.

Thank you, John. Let's start with the balance sheet. While adjusted average loans were up for the year, they decreased 2% in the fourth quarter. New and renewed commercial loan production increased 25% compared to the third quarter. However, balances remain negatively impacted by historically low utilization levels. As of year-end, commercial line utilization was just under 40% compared to historical average of 45%. Commercial loan balances were further impacted by the company's active portfolio management efforts during the quarter. Approximately $408 million worth of commercial loans were either sold or transferred to held for sale. Additionally, PPP forgiveness began during the quarter resulting in a $415 million reduction in average loan balances. Consumer loan growth, again, reflected strong mortgage production offset by run-off portfolios. Overall, we expect 2021 adjusted average loan balances to be down by low-single digits compared to 2020. However, after excluding the impact of this quarter's portfolio management efforts, we expect adjusted ending loans to grow by low-single digits. With respect to deposits, balances continue to increase this quarter to new record levels. Full-year average deposits are 17% higher than 2019 with most of the growth coming in noninterest-bearing to core operating accounts across all three business segments. The increase is primarily due to higher balances. However, we are also experiencing new account growth. We expect near-term deposit balances will continue to increase particularly as the second round of stimulus is dispersed. Let's shift to net interest income and margin, which remain a significant source of stability for Regions. Net interest income increased 2% during the quarter, and as expected income increased 2% during the quarter, and as expected, remained relatively stable excluding the benefit from PPP forgiveness. Similar to prior quarters the impact from lower loan balances and low long-term rates was mostly offset by our cash management strategies, lower deposit costs, and higher average notional values of active loan hedges. Net interest margin was stable in link quarter at 3.13%. Deposit growth drove cash we hold at the Federal Reserve to record levels averaging over $13 billion and reducing fourth quarter margin by 34 basis points. PPP benefited net interest income through the realization of approximately $24 million of fees related to forgiveness. In total, the PPP program contributed 7 basis points to the margin. Excluding excess cash and PPP, our normalized net interest margin remained stable at 3.4%, evidencing our proactive balance sheet management despite a near zero short-term rate environment. Loan hedges added $97 million to net interest income and 30 basis points to the margin. Higher average hedged notional values drove a $3 million increase compared to the third quarter. Our last four starting hedges began earlier this month. So going forward, we expect roughly $100 million of hedge-related interest income in each quarter at current rate levels until hedges begin to mature in late 2023. Our hedges have a remaining life of four years and provide protection for 2026. We continue to look for opportunities to deploy excess cash, balancing risk and return. Of note, incremental securities currently come with larger premiums, which increased our quarterly premium amortization run rate, but that is factored into the overall net benefit. Total premium amortization was $51 million this quarter and would be in the low $40 million range excluding booked premium increases and elevated Ginnie Mae buy-out activity. Interest-bearing deposit costs fell 6 basis points in the quarter to 13 basis points, contributing $10 million to net interest income. Looking ahead to the first quarter, PPP-related net interest income is expected to be relatively stable with the fourth quarter. However, the timing of PPP loan forgiveness and participation in the second round of funding remains uncertain. Fewer days will reduce first quarter NII by roughly $12 million. After level setting for days, net interest income is expected to be modestly lower quarter-over-quarter, mostly attributable to lower average loan balances. The impact of lower long-term rates will continue to be offset by the benefits from hedging, cash management strategies, and lower deposit costs. Now let's take a look at fee revenue and expense. Adjusted non-interest income increased 7% quarter-over-quarter. We achieved record capital markets income driven primarily by increased M&A activity. Mortgage delivered another solid quarter and for the full year, generated record production and related revenue. Looking ahead to 2021, we expect mortgage and capital markets to continue to be significant contributors to fee revenue. Excluding the impact of CVA/DVA, we expect capital markets to generate quarterly revenue in the $55 million to $65 million on average. Service charges increased 5% but remain below prior year levels. While improving, we believe changes in customer behavior as well as continued enhancements to our overdraft practices and transaction postings are likely to keep service charges below pre-pandemic levels. Although we expect the impact of these changes will be partially offset by continued account growth, we estimate 2021 service charges will grow but remain approximately 10% to 15% below 2019 levels. Card and ATM fees have recovered compared to the prior year, driven primarily by increased debit card expense. And while credit card spend continues to improve, it remains slightly behind prior year levels. Given the timing of interest rate changes in 2020, combined with exceptionally strong fee income performance, we expect 2021 adjusted total revenue to be down modestly compared to the prior year. But this will be dependent on the timing and amount of PPP forgiveness and loan growth. Let’s move on to non-interest expense. Adjusted non-interest expenses increased 5% in the quarter, driven by higher incentive compensation related primarily to record capital markets activities. Although base salaries were 2% lower compared to the third quarter as we remain focused on our continuous improvement process, associate headcount decreased 2% quarter-over-quarter and 1% year-over-year. And excluding the impact of our Ascentium acquisition, the associate headcount decreased over 3% in 2020. We will continue to prudently manage expenses while investing in technology, products, and people to grow our business. In 2021, we expect adjusted non-interest expenses to remain stable to down modestly compared to 2020. We remain committed to generating positive operating leverage over time but acknowledged 2021 will be challenging without a stronger economy than currently anticipated. From an asset quality perspective, overall credit continues to perform better than expected. Annualized net charge-offs were 43 basis points, a 7-basis point improvement over the prior quarter, reflecting improvement primarily within our commercial portfolios. Non-performing loans, total delinquencies, and business services criticized loans all remained relatively stable. Our allowance for credit losses declined 5 basis points to 2.69% of total loans and 308% of total non-accrual loans. Excluding PPP loans, our allowance for credit losses was 2.81% of total loans. The decline in reserves reflects stabilization in our economic outlook and improved credit performance, charge-offs previously provided for, and the impact of active portfolio management. The allowance reduction resulted in a net $38 million benefit to the provision. Our year-end allowance remains one of the highest in our peer group as measured against a period-in loans or stress losses as modeled by the Federal Reserve. As we look forward, we are mindful of the uncertainty that exists in the economy due to the pandemic. However, we are cautiously optimistic as we move beyond events before the source of uncertainty in prior quarters. Further reductions in the allowance will depend on the timing of charge-offs and greater certainty with respect to the path of the economic recovery. While charge-offs can be volatile quarter-to-quarter, we currently expect full-year 2021 net charge-offs to range from 55 to 65 basis points. Additionally, based on what we know today, we continue to expect charge-offs to peak in mid-2021. With respect to capital, our common equity Tier 1 ratio increased approximately 50 basis points to an estimated 9.8% inside of our current operating range of 9.5% to 10%. In the near term, we intend to operate at the higher end of this range. So, wrapping up, on the next slide are our 2021 expectations which we have already addressed. So, in summary, we are cautiously optimistic about 2021. Pretax pre-provision income remains strong, expenses are well controlled, credit quality is showing resilience, capital and liquidity are solid, and we are optimistic on the prospect for the economic recovery to continue in our markets. With that, we're happy to take your questions.

Good morning. David, my first question is about total adjusted revenue. How should we set our expectations regarding your participation in PPP 2.0 and whether loans originated under PPP 2.0 will be forgiven in 2021? Additionally, you currently have seven times more cash than you did a quarter ago. What are your expectations for where those cash levels will settle in 2021?

Okay. Well, good morning. Let me start with PPP, so we originated about $5 billion for the PPP loans this year. Now, the rules were changing early on as you know and some of our customers actually gave us money back before we really earned much yield on it. So at the end of the year, as you can see on our page 20 in the supplement, PPP loans amount to $3.6 billion at December 31. We forgave approximately $1 billion for the loans in 2020 and that was really in the fourth quarter where we generated from the forgiveness piece alone $24 million that we disclosed to you. As we think about PPP 2.0, we estimate at least at this time, that we'd originate approximately $2 billion in PPP loans. Now, the timing and the ultimate amount of that is uncertain as is the forgiveness with the existing $3.6 billion. So we've given you the pieces that you can do some scenario analysis in terms of how you think that may come into income. Clearly, loans that are forgiven quicker come into 2021 and would help from a revenue standpoint. Your second piece of the question is on cash. So, you're right. We do have quite a bit of cash. Our deposit growth was quite strong during the year both in Consumer and Wealth, and also in the Corporate Banking group. So all three of those had nice growth. We have deployed some of that cash in the securities book as you've seen and we have gotten a little bit of steepening of late. The problem is mortgage spreads is tight another way and therefore, you really don't have a great place to put the cash, and we're reluctant to take on duration risk at this time. And that being said, we are mindful of more stimulus, could steepen out even further, which would give us a better entry point to put that cash. But until we see that, we really are going to have that cash at the Fed earning 10 basis points, which we understand does weigh on our revenue but we think that's the most prudent path.

Got it. And my second question is for John. Kudos to you and your team for trading at 1.5 times tangible book in the middle of a global pandemic. Really fit the balance sheet management and the expense management that your team has executed. I'm wondering as you emerge from this crisis stronger you know what your thoughts are on using that currency for inorganic opportunities.

Our viewpoint hasn't changed. We aim to seek nonbank acquisitions to enhance our capabilities and promote growth and diversification in our revenue. The acquisitions we've made in recent years have proven to be beneficial, as shown by our successful quarter in capital markets, largely due to M&A activity. We also experienced a strong quarter in low-income housing tax credits and syndications. We are optimistic about the potential of Ascentium Capital for the future. This is our main focus. Regarding bank acquisitions, our perspective remains the same. We believe we have a solid plan, and if we continue to execute it effectively, we will build a consistently performing and sustainable business that will yield good returns for our shareholders over time. Our currency will strengthen, and if an opportunity arises in the future, we would consider it, but our current emphasis is on executing our plan.

Great. Thank you, gentlemen.

Hey. Good morning, guys. Just a follow-up on the loan side. You give us that nice adjusted number and reconciliation in the back. Just wondering if you can help us understand also underneath that, the auto book and the runoff that's still happening on the portfolio loan sale that you called out. So it looked like that averaged about $2.7 million, the auto stuff in 2020, and you think that's going to look like as you look forward into 2021.

I think it's important to clarify that if we look at page 20 in the supplement, our main point is that we believe we can grow loans across the board. We've indicated that we expect low single-digit growth, but we will continue to experience the runoff pace indicated in our exit portfolios. In the last quarter, our indirect loans decreased by about $140 million, and our vehicle loans dropped by roughly $200 million. We anticipate this trend will persist in total loans. Our core business is positioned well in strong markets, and while we foresee a potential rebound, it is likely to occur in the latter half of the year, depending on the economic recovery.

Yeah. I understand and that's exactly I was going to follow up David. As you look through the commercial books and like where would you expect that to be seen the most in terms of that economic recovery starting to show up in that regular way loan book? Thanks.

Yeah. I think a big part of that is going to be in things like health care and would be a big one, financial services, elements of manufacturing we think are also capable of growing. Those are, those will be three areas that we would really point to at this time.

Got it. And the second question is about the expenses. You have done a very good job of keeping costs nearly flat. Some of your peers are starting to discuss additional investments and upfront spending that might have been spread out over time. I just wanted to hear how you are strategically approaching that. Are you investing enough to maintain flat costs, and how do you see that strategically moving forward? Thanks.

We've consistently communicated our approach to investments. We've focused on hiring people, such as mortgage loan originators and wealth advisors, as well as relationship managers. It's important for us to continue investing in our workforce. Additionally, we're making investments in technology, cybersecurity, and digital services to better serve our customers. We are also mindful of the revenue challenges and are working to manage our expenses effectively. Our headcount accounts for 55% of our costs, and we are closely monitoring occupancy costs, third-party vendor expenses, and equipment costs. We have been successful in controlling these costs and will maintain our focus on this through our continuous improvement initiatives in 2021.

Understood. Thanks David.

Thank you.

Good morning. Just curious about the loan loss reserve and where you see that going over the course of 2021. Do you think this will go back to your day one people reserve level or do you think that might occur more in 2022?

It's a great question, and there’s a lot of uncertainty surrounding it. You can refer to the slide on page 20 of our presentation, where we break down the components related to the movement of the reserve. There's still uncertainty regarding the economic recovery, as illustrated by the federal government stimulus program. We need more assurance about the potential losses moving forward. We believe there’s a risk that these losses have merely been delayed and are still present. Until we have clarity indicating otherwise, we will maintain the reserves at an appropriate level. We recognize that the timing of charge-offs is significant for the reserves. The macroeconomic factors we assess at each quarter-end are also crucial. Ultimately, we believe we can reach a resolution when conditions improve. However, I'm not optimistic that this will occur in 2021, and the reduction of reserves will depend on the factors I've outlined.

Thanks, Dave.

Good. Maybe we get start off David, you guys had an interesting slide in the deck at the back of the deck on the LIBOR transition. The question I have for you is do you think there's any possibility of that drop dead date being pushed out from the end of the year? And then second when you look at that slide one of the top two or three risks that you're focused on to ensure that there's a smooth transition here?

Well, so answer your first part of that question is there is a chance that this all this gets pushed out a bit. I think what most people are finding is that this is much more difficult than just changing an index. It so, it permeates a lot of our business. I would say our loan book but our derivatives book and how we transition is really important. How we get our systems updated as a risk that we have to be mindful of. From a competitive standpoint what index will our customers prefer to go to and we deal with large customers. And we deal with middle market and small business customers and a lot of our competitors may use a different index. And so we need to transitioning in that front will be important for us. We need to see the term structures continue to develop, so that we can effectively hedge our interest rate risk without having basis risk at same time. So, a lot of contract. It’s just a big body of work, Gerard. And having more time would be helpful.

Very good. John, a broader question for you is that your quarter was quite strong, and your peers are also reporting good numbers. The industry seems to be positioned to take advantage of the economic recovery that many people are predicting, which is linked to the vaccine rollout. Can you tell us what risks you consider as you reflect on the next 12 to 18 months?

Well as I say to our team every day, we can't take anything for granted and we continue to see improvement in our business. We've done a great job I think over the last 10 plus months working through a very challenging environment. The industry has done a great job. We're still confronting a number of crises across the country whether they be health related, the economy, the political environment we're operating in, social unrest all those things potentially impact our business. And so, we can't take anything for granted. We've got to continue to focus on the risks in our business make sure that we are executing well, that we're continuing to recruit our talent internally and externally every day to keep an engaged and active team. And I think we do those things and stay focused we do those things as they focus on things that we can control, which is how we take care of our customers, how we respond to each other. It’s about the investments that we make in technology and in our business. If we do those things, then I think we’re doing a good job of managing the risks that are in our business and we'll deliver that consistent sustainable long-term performance. It's about really focusing on what we can control.

Thank you.

Hi. I just wanted to dig in a little bit on the NCO guide of 55 basis points to 65 basis points for 2021 and just kind of understand how to think about the trajectory among the different asset classes because consumer tends to be fairly mechanistic with the day calendar roll. But C&I and career obviously a little bit more at your discretion. So maybe give a sense as to how we should anticipate the cadence throughout the year goes.

Yeah. So I think, as we've guided to 55 basis points to 65 basis points and that we believe charge-offs will peak in the first half of the year, that's really a reflection of the fact that our view is we've got some corporate bank or commercial wholesale credits whether they’d be a typical C&I or invest real estate to work through in the first half of the year. On the other hand, consumer which has performed exceptionally well we think will continue to exhibit really good credit quality particularly with the additional stimulus pumped into the economy. And so, if charge-offs rise in the consumer sector, that's likely to be in the second half of the year as it’s the way we think about it.

You have already reserved for these charge-offs, so we should expect to manage the charge-offs as they come through.

I think the term release has always troubled me. However, the reserve should decrease due to the charge-offs. The question then is how much reserve is necessary for the remaining portfolio. If your loan portfolio isn’t growing, and the credit quality and macroeconomic conditions remain stable, then you wouldn’t need to set aside more reserves because you’ve already accounted for that. I hope that clarifies things.

Do you like the word match better?

No. But essentially what you're saying is my point is that there are two separate considerations regarding charge-offs. After that, you determine what your reserve should be under CECL. You have to avoid thinking about it in the context of the previous accounting methods. That's the main idea I'm trying to convey.

Are you suggesting though that the economy is getting better, you should have reserve release ahead of the net charge off recognition then that's also another possibility?

That's, that's absolutely right. That's why I would give you the analysis we did on that page 20 to show you what the moving parts are on analyzing the reserve. You got charge offs, you get a change in the outlook and then you have other qualitative factors and model considerations that you have to consider. So you're absolutely right, if the economic outlook continues to get better, then you would expect not to need the reserves that you booked. And that is that's a true release.

Got it. And when are you making those reserve decisions is that at the end of the quarter like December 31 or is that something you're doing earlier in the quarter?

Our teams are focused on their daily tasks, but it is essential for us to evaluate the relevant facts on each balance sheet date and make our final decisions accordingly. Last year, for instance, the first quarter witnessed significant changes in the macroeconomic landscape from one week to the next. Therefore, we cannot make a decision until the end of the quarter.

I understand your question about the CET1 range of 9.5% to 10%. Currently, at 9.8%, how does this influence your timing for share repurchases? Are you planning to wait until you reach 10%, or is there flexibility within that range?

We indicated that in the near term, our target is set. We aim to operate at the upper end of that target due to ongoing uncertainty in the economy. Currently, our number is 10%. If we continue to accumulate above that, we would be able to start repurchasing our shares, pending other regulatory requirements. However, our primary focus is to allocate our capital for organic growth, nonbank transactions, and appropriate dividends. We will utilize share repurchases to maintain our position close to that 10% level, although there may be slight variations based on month-end status. If we determine that we do not need to maintain the 10% threshold and can adjust to a lower figure, we will modify our share buyback strategy accordingly based on our updated capital position.

Okay. All right. Thanks very much.

Yeah.

Good morning, good morning. I appreciate the net interest income details you gave in terms of outlook. I just want to see if you can comment a little bit around the margin and how that could trend for your full year expectation and maybe into next quarter just given the liquidity dynamics as well as obviously the PPP dynamics? Thanks.

Yeah. John, so I think from a margin standpoint, we do have a little bit of an anomaly. This first quarter we have a two-day change, so it'll hurt us by that $12 million on NII but it'll help the margin a little bit. So you could see that go actually up a little bit. And we think though, if you look at it in total for the year, we think our margin will trend down into that 330 range. And then we're talking about our core margin now ex-cash in PPP. We think the full year margin will be down about 4 or 5 basis points from where we are today. And if we look at with cash and PPP, we think we'll be down 3 or 4 basis points if we look at the full year number. Hopefully that helps you.

No, that does, that does. Thank you. And then just want a competitive backdrop, obviously we've seen a lot of activity in terms of recent bank deals in the set that are impacting the Southeast. And can you just talk about are you beginning to see any competitive strain show up either in loan pricing or other areas that were not as obvious even a year ago or so? And then separately, are you seeing opportunities potentially on talent or customer acquisition as a result of those deals, so they’re on your backyard? Thanks.

Yeah. I don’t know that we’re necessarily seeing a change let’s say in competition. There’s a lot of competition because there’s a tremendous amount of liquidity in the market. So whether it’d be bank competitors, non-bank competitors, when we see good opportunities they’re very competitive. And in fact we recently lost a few what we would characterize as good opportunities to pretty aggressive pricing. Having said that, again I wouldn't say that's a change as a result of new announcements in the marketplace, bank combinations or anything of that nature. Just people looking for opportunities to and particularly I'd say community banks in the middle market space looking to acquire assets and get some yield. With regard to just disruption, I'd say we feel like we've been able to recruit some really quality talent in the market and that's something that we stay focused on all the time. So, whether there is an announced bank transaction creating some disruption or a stable market, our challenge to our team is to always be looking for the best talent in the markets that we operate in and we have through the pandemic, I think added a number of bankers and senior leaders that we are excited about both in our customer facing businesses and in our, in our staff functions. And so I'd say talent acquisition has been good and we expect it will continue to be.

Thank you, that's helpful. Could I ask one more question about margins? What would change your perspective on using some of that excess liquidity in the bond portfolio? I understand you mentioned a lack of interest, but would you consider moving funds only if there is a significant change in rates, or are there other factors that could influence your decision? Thank you.

I believe that's the main point. If we notice a steepening effect, we might take on a bit of risk. If deposit growth keeps increasing and we find ourselves with more cash than we currently have, that could present an opportunity. However, we don't want to push things too far. We've increased our securities quite strongly compared to our competitors. Some have more cash than we do, but we're all trying to understand what types of risks to take. For us, it's largely driven by interest rates.

Got it. All right. Thank you, David.

Hey, good morning. So you guys have done a great job reducing higher cost borrowings in the last year, I know there isn't much of that left. I was just wondering if you're assuming any further reduction later this year?

Yeah. So your question is what have we done to reposition the liability management and how much further we…

We’ve successfully reduced higher cost borrowers, but are there any other opportunities we might be overlooking?

Yeah. So we're running a little thinner today in terms of opportunities. What we try to do is things that where we don't have liquidity values that we end up taking that out, call it because we have so much cash on hand. We have some marginal opportunities that we're looking at right now Not as many as we have this past year. We have a lot of calls. We’re out FLHB all together, things over $8 billion, we call it. But there’s some small opportunities still left that we’re going to continue to evaluate including things in the preferred stock arena too.

Okay. And then maybe just one quick bit on the margin. What's the roll on, roll off differential at this point to loan book? And then to the extent that you're buying securities to maybe keep the portfolio stable at this point, I guess where are you guys seeing those yields currently?

Well, let me talk about it in total. So, we have about $12 billion each year of cash flows. We have to put the work and front both back both piece of that is about $115 million today. It's up a little bit than it had been about 1%, it's about $115 million now. And so, we think we've done a pretty good job through our liability management, cash management strategies to neutralize rate even at the long end. But I think of course we have our hedges on the short end. So, we think we've neutralized rates and our ability to really grow NII I and the resulting margin is really going to be predicated on growing our loan book, the size and mix and then the timing of the PPP program as I mentioned earlier.

Hey guys. I just wonder if you could remind us of the strategy in the cap of market business. Obviously it's very strong this quarter but a couple of quarters ago was also very strong. So, remind us target of customer and just how it's integrated with the overall firm.

Yeah. So we’ve been investing in that business since 2014 and made a couple of acquisitions to help build it, been acquiring talent to help build out our capabilities, and we’re really pleased with the progress. That function was established to really help us leverage capital markets capabilities into our existing customer base and through the creation of some industry verticals, also build a portfolio of new customer opportunities by, again, leveraging capital markets as a mechanism for acquiring new customers. We're doing that both in our commercial and corporate banking business in particular and in our real estate business. One of the very first acquisitions we made was of a Fannie DUS license, and that real estate permanent placement business has been really solid. We had another good quarter in the fourth quarter and expect that we will in the future. So our objective is to combine our capital markets bankers working closely with our industry experts and our local bankers to deliver our capital markets capabilities, whether it be debt placement, the capital-raising activities, M&A derivatives, foreign exchange. All those things are accreting very nicely to us and helping us grow the capital markets business, and our expectation is that we'll continue to see that as the business matures.

And I guess the commentary about it being in the $55 million to $65 million range in the near term here, is there just kind of a conservative approach being taken on that, or were there just a couple of lumpy things that really drove the outsized results in the quarter?

The bonus is not consistent; it varies over time. Over the past six years, we've reached a point of balance and have moved to a higher level. About a year to a year and a half ago, we indicated that it was a business generating around $40 million to $50 million per quarter. We are now raising that estimate because we see more stable and recurring revenue, which will be supported by occasional revenue from unexpected events. This was definitely true this quarter, as we had several M&A transactions completed before the year ended because customers wanted to finalize deals in 2020. However, we do not expect this kind of activity in the first quarter, nor do we plan for it in 2021. We have revised our guidance to reflect what we believe will be a more stable performance in that business.

Okay. Well, if there are no further questions, we very much appreciate your interest and participation today. And have a good weekend. Thank you.