managementsaid the company is not looking at any bank M&A but would consider anonbank transaction. On credit quality, executives said performance remainedhistorically strong, including commercial real estate, as the bank has avoidedriskier loans.
Speakingduring the company's July 22 second-quarter earnings call, CEO William Rogers said there was littledesire to engage in whole-bank M&A.
"Onthe nonbank side, we continue to be interested. We continue to think that thereare opportunities there, generally things that would be fee income-oriented,things that would be accretive to our strategies and accretive to our [keyperformance indicators]," Rogers said.
Feeincome is expected to suffer due to a couple headwinds facing the bank over thenext few quarters. FDIC assessment fees are expected to increase by $10 millionper quarter starting in the third quarter, and the bank will, by the fourth quarter,change the order in which it processes transactions, which will reduceoverdrafts and cut fee income by $10 million per quarter, management said.
Oncredit quality, management said the bank's portfolio remains pristine outsideof energy, with net charge-offs at just 19 basis points. Energy charge-offsremained elevated, coming in at $70 million in the third quarter, and thecompany's provision expense increased $45 million from the first quarter. Butmanagement said they expect provisioning to begin to decrease moving forwardalongside lower energy charge-offs.
"Ithink we're about halfway through or perhaps more than halfway through in termsof energy charge-offs," Rogers said.
Muchof the call was spent highlighting the company's strong credit quality outsideof energy, attributed to the bank's focus on prime or better credit. Managementsaid the strong performance held true for a pair of industry sectors that havedrawn a lot of attention lately: automobiles and commercial real estate. Incommercial real estate, executives said the bank's portfolio has zerodelinquencies and criticized loan exposure of just 2%.