Q4 2019 Earnings Call
Hello, and welcome to Synovus Financial Corps fourth quarter 2019 results conference call.
All participants will be in listen only mode.
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After today's presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
Now I turn the conference over your house today, Kevin Brown. Please go ahead.
Thank you and good morning during the call today will be referencing slides and press release that are available within the <unk> Investor Relations section of our websites and that was dot com Kessel Stelling Chairman Chief Executive Officer will begin the call all by Jamie Gregory Chief Financial Officer, we brought in more detail comments.
Fourth quarter.
President Chief operating Officer, Kevin Blair, who will talk about a 2020 outlook and long term goals.
Our executive management team is available to answer your questions at the call due to the number of callers, we ask that you limit yourself to questions.
Before we get started let me remind you that our comments may include forward looking statements statements are subject to risks and uncertainties actual results could vary materially. We look these factors that might cause results to differ materially in our press release and that our FCC filings, which are available on our website.
We do not assume any obligation to update any forward looking statements as a result, new information early developments or otherwise except as may be required by law. During the call. We were reference non-GAAP financial measures relate to the company's performance. They see the reconciliation of these measures in the appendix to our presentation and now here's Kessel stelling.
Thank you, Kevin and good morning, everyone and welcome to our fourth quarter at year end 2019 earnings call.
Well for a few additional comments on the year and the core I want to take a moment congratulate Kevin Blair, who was recently named President of Synovus, adding to his responsibilities as COO that he took on just a year ago.
I also want to thank our entire leadership team for the work. They have done in will continue to do in the year ahead, as we call them new paths for growth and efficiency work that will be both rewarding and challenging for our team.
In that regard we have recently partnered with a third party to assist us in identifying new revenue efficiency opportunities designed to improve ongoing performance as well as the customer experience I.
Let me ask Kevin deserves executive sponsor this initiative and he'll provide more comments on this important work later in the presentation.
Before I turn the call over to Jamie I'll briefly walk us through the highlights of the fourth quarter noted on slide three.
Diluted earnings per share were 97 cents or 94 cents adjusted.
Adjusted EPS was down 3% sequentially and up 3.1% year over year.
Great and loan growth was $745 billion or 8.1% annualize, resulting from total funded loan production of $3.6 billion.
During the end deposit growth was $972 million or 10.3% annualized.
We're transaction deposits increased $373 million and total deposit costs declined 13 basis points from the prior quarter.
Net interest margin was 3.65% a decline of four basis points from the prior quarter.
Excluding the impact of purchase accounting adjustments the net interest margin was 3.40% down two basis points from the prior quarter.
Noninterest income was $98 million, the fourth quarter, an increase of $9.2 billion from the prior quarter and $30 million from the prior year quarter led by capital markets and fiduciary activities.
And credit quality metrics remained solid with the nonperforming loan ratio and the nonperforming asset ratio declining by five basis points from the prior quarter to 0.27% and 0.37% respectively.
The net charge off ratio was 0.10 reset.
We repurchased $36.5 million in common stock or 1.1 billion shares during the quarter, which completed our 2019 share repurchase authorization of $725 million.
Outstanding shares were reduced 11% from beginning of the year.
Our 2020 share repurchase authorization should allow us to continue operating with a CPT one ratio around 9%.
I'm also pleased to report that our board approved a 10% increase in the quarterly dividend 33 cents per share a common stock effective with the April one dividend.
I'll now turn the call over to Jamie for more detailed look at 2019.
Thank you castle.
Let's begin on slide fourth loans, we had another strong quarter of loan growth with a net increase in nearly $750 million on production of $3.6 billion.
The growth was broad based with CRT growing in seven of 10 asset classes.
Cnine lending, increasing our cost of footprint and the consumer book experiencing growth in all product types.
The credit profile. This growth was consistent with prior quarters, and we remain confident and the quality of our loan book.
We have a robust loan pipeline across industries and the footprint.
And we're starting to benefit more directly from changes in the competitive marketplace. Following recent M&A activity and industry consolidation.
On slide five deposit highlights include a continued increase in core transaction deposits.
This is a direct reflection of our team members performance growing quality relationships across our footprint.
And the fourth quarter, we continued our efforts to remix the deposit book by allowing higher cost deposits to run off.
We all set that run off with growth in noninterest bearing deposits money markets and the seasonal inflows for more reasonable price public fund deposits.
This strategic focus supported continued reductions in the total cost of deposits, which fell 18 basis points from the peak in July and 13 basis points from the previous quarter.
As you can see on slide six the core net interest margin decreased two basis points to 3.4%.
Excluding purchase accounting accretion lower interest rates resulted in a 18 basis point reduction in loan yield and a 13 basis point reduction in the cost of deposits.
As a reminder, GOP margin at 3.65% benefited from purchase accounting accretion, which was $26 million in the fourth quarter.
The benefit to Eni from purchase accounting will decline substantially in 2022, a full year total of approximately $8 million.
Strong balance sheet pipelines and the timing of loan growth, which was weighted towards the end of the quarter provide tailwinds going into 2020.
On slide seven you'll see we have had continued success in fee revenue growth, which increased to $98 million or $92 million adjusted.
Included in our GAAP noninterest income is an 8 million dollar increase and the fair value of certain equity investments.
And the fourth quarter fee revenue growth was led by capital markets and fiduciary activities of $2 million and $1 million, respectively, which more than offset reductions in areas such as mortgage banking income.
Noninterest income as a percentage of average assets continues to improve as we successfully execute on this key strategic objective.
An example of this excess includes a 29% year over year inquiries and implementations by Treasury and payment solutions.
Slide eight shows adjusted expenses of $265 million, which is an increase of $6 million from the previous quarter.
And that's going to increase as noted on the slide or like a 3 million dollar increase and FDIC expense associated with the reclassification of certain loan categories over the past four years.
Expenses also increased with opportunistic revenue producing hires and additional non interest income.
There was also a $2 million increase in servicing expense there was more than offset with higher revenue resulted from a renegotiation of a third party consumer lending partnership.
As we execute strategies from our new operating model, we continue to recalibrate our expense base to emphasize the importance of customer facing talent and technology.
These investments have short term paybacks that will serve the company well by improving efficiency and profitability long term.
Key credit quality metrics on slide nine remain favorable.
Including NPL and NPL ratios at each declined by five basis points.
These reductions were achieved with a net charge off ratio of 10 basis points for the quarter.
Net charge off rate was 16 basis points for the year.
Provision expense a $24.5 million included the costs associated with.
$466 million increase and net loan growth from the prior period.
Provision expense remains elevated compared to net charge offs due to the impact of purchase accounting.
Under our acquired loan accounting selection the credit Mark flows through Eni, rather than provision as loans payoff for revenue.
As we think about the overall allowance our coverage ratios remained favorable as credit quality continues to look healthy.
I wanted to slide Tim.
We remain confident in our overall capital position.
And are pleased to report that we completed the $725 million share repurchase authorization and 2019.
This included fourth quarter repurchase activity of $37 million, which reflected a reduction of an additional 1.1 million shares.
Total shares were reduced 11% from the beginning of year.
Ongoing analysis continues to provide support for operating at our current capital and liquidity ratios.
And now Kevin will discuss our outlook.
Thanks, Jamie before I talk about what we expect in 2020, let me take a minute to reflect on 2019.
I'm very pleased with our progress and success achieved during the year as we rolled out a new operating model in the beginning of year, our objectives were to better align our organization to further enhance the customer experience as well as expand and diversify our sources of growth in 2019, we added 58 net.
New revenue producing team members across our footprint in many of the fastest growing markets in which we serve.
Various business units contributed to our growth, including mortgage brokerage trust private wealth management wholesale banking and treasury and payment solutions. The attraction of this talent help move the needle in 2019, and we'll have an even bigger impact on 2020.
We also experienced strong growth in banker productivity during the year with funded loan production of $11.1 billion up $3 billion or 37% from 2018. Moreover, the increase in production led to a 5.5% pro forma outstandings growth in total.
Owns with Sienna by CRT and consumer asset classes all increasing.
In 2019, we also delivered 10.6% fee income growth versus 2018 on a pro forma synovus FCB basis strong growth was delivered across multiple businesses, including mortgage capital markets card and our fiduciary and asset management businesses, which.
Assets under management grow 21% as we continue to expand our capabilities and presence across the footprint.
As a result of the growth in these categories. We saw the percentage of our revenue derived from fee income increase throughout the year now totaling 19% in the fourth quarter.
As we previously discussed we completed integration of the Florida community Bank during the year and we're pleased with the contributions of our newest team members. The legacy FCB wholesale team continued on a path of growth with loans, increasing $350 million during the year deposit accounts growing by 8% and record levels of capital Mark.
Net income of $18 million up 38% year over year credits in the acquired FCB book also performed as we expected during the year with credit metrics in internal reviews supporting the overall quality of the portfolio. The legacy FCB branch network also saw performance gains.
In 2019 with branch unit sales per month of 51 slightly higher than the legacy synovus branches.
We also invested in new technology, and new business units to generate growth. We released my synovus, our consumer digital portal in 2019 and are preparing for the release of our commercial digital platform in 2020.
In the middle of 2019, the Synovus structured lending division was formed in a very short period of time has already generated $150 million in loan commitments.
We also spent the year building out in piloting a much stronger value proposition for the massive fluent customer segment and we'll release this program and the associated solutions across our franchise this quarter.
So as we enter 2020, our roadmap will follow a similar course, it calls for opportunistic expansion and growth simplification and process enhancements that will make us even easier to do business with an additional efficiency efforts that will fund new investments, while helping to mitigate the headwinds.
From the margin.
In building the strategic roadmap, we engaged a third party back in September of 2019, the work over the last four months has informed our 2020 guidance, but more importantly, our long term goals. We have reviewed over 20 initiatives that provide opportunities for incremental growth from the revenue.
New side as well as additional efficiencies we're in the final stages of prioritizing the eight to 10 initiatives that will be delivered during 2020, but generally the revenue opportunities have a longer term horizon, while efficiency opportunities will begin to be realized in 2020.
Our efficiency opportunities will center around the categories that have been constructive for us in the past third party spend real estate and staffing rationalization as we move forward with this engagement, we will continue to provide updates and greater transparency around the opportunities as well as the progress.
Now moving to our 2020 guidance and long term targets. These are based on a lower for longer rate environment and modest economic growth. We believe that the economic tailwinds that have resulted in above average economic growth in the southeast we'll continue our clients maintain a favorable outlook on the business and.
Permit and we are focused on supporting their growth.
We're pleased with a positive momentum and the balance sheet growth, which has been driven by new talent the enhancement of capabilities in sales tools as well as stronger growth and our larger tier one markets. Our approach in the momentum is expected to continue to support asset growth of 4% to 7% in 2020.
Yeah.
Funded loan production increase throughout 2019 and ended the year with a robust pipeline funded by remix deposit base for 2020, we expect loan growth to exceed market economic growth as we further deepen existing relationships grow new relationships and continue hiring a front.
Line bankers, we expect this to result in broad based loan growth across markets and industries. We will fund this growth with a continued focus on growing core transaction deposits our efforts to reduce high cost deposits will continue in 2020, as we selectively reduce higher cost save.
We will service deposits.
One of the most significant headwinds to the 2020 income statement is purchase accounting adjustments, which are expected to reduce revenues by approximately $90 million from 2019, excluding PA adjusted net interest income should increase zero to 3% as we continue to actively manage our balance sheet to optimize.
The margin as well as returns we do expect the net interest margin to be down slightly assuming flat interest rates and similar balance sheet mix. Adjusted noninterest income is expected to increase 3% to 6% with broad based growth continued growth in fee income is a function of hiring efforts and higher efforts.
Unity markets product areas, such as Treasury payment solutions as well as an expansion of the share of wallet with existing relationships.
Adjusted noninterest expense is expected to increase 3% to 5%. The primary drivers include continue investments in people processes and technology that will have relative short term paybacks. These investments will be partially offset by savings realized during the execution of our strategic efficiency initiatives.
Yes.
The 2019 tax rate of 26% was negatively impacted by significant nondeductible merger related expenses that are not expected in 2020 as well as certain discrete items that were also negative.
The elimination of these after mentioned expenses as well as additional strategic tax initiatives.
And the realignment of certain subsidiaries will reduce the future effective tax rate substantially.
We expect a net charge off ratio of 15 to 25 basis points as the credit cycle matures and recovery subside. There are no indications of any widespread credit deterioration. However, net charge offs will be impacted by changes, resulting from purchase accounting of the acquired portfolio as the credit Mark.
Because unwound at seasonal adoption.
As we look forward to 2020, the largest change to financial statements involve Cecil implementation provision expense will be elevated going forward as we provide for life of loan losses and will be highly dependent on the projected economic environment, the credit profile and tenor of loans the impact of unfunded reserves as well.
It was expectations about net loan growth and a continuation of the current elevated levels of payables.
Given our current profile of loan growth and expectations for the economy, we anticipate adding up to 10 basis points to the allowance for credit losses ratio throughout 2020 to account for the change in provisioning for the life of loans are estimated day, one seasonal impact which remains unchanged from the previous quarter.
Can be found in the appendix this incremental forecasted provision expenses not related to any changes in the underlying credit fundamentals of our loan book.
Moving on to capital in 2019, we completed subordinated debt and preferred stock issuances and purchased 20 million shares, which effectively optimize the capital stack given the current balance sheet size and risk profile, we reiterated our comfort with a CPT one ratio of 9%.
Under the current conditions and are committed to first funding organic growth second maintaining a competitive dividend and third effective capital deployment as such we will be increasing the common dividend by 10% in 2020 targeting a payout ratio of 35% to 40%. Moreover, we will match.
Winter capital consumption through or organic loan growth and tailor our share repurchases accordingly, as we continuously manage our capital and liquidity positions.
Our long term goals reflect a successful execution of our strategic roadmap, we are committed to aggressively identify and implement implement new avenues for growth and efficiencies throughout our organization I'm confident in our path forward and the passion and commitment of our entire team and clarity of our vision to be the bank we've always.
Ben but better we've moved we're moving forward fully aligned with a keen eye on delivering on our goals the positive operating leverage diversified balance sheet growth and top quartile profitability metrics Kessel I will turn it back over to you for closing remarks.
Thank you, Kevin and before we move if USA.
I again want to thank our synovus team for their contributions to another successful year for our company.
Our results reflect continued momentum across our footprint with greater organic growth in an improving ability to execute well as a fully unified team I'm always so proud of the way our team supports each other serves our customers and gets back to our communities.
Operator, we're now available for questions.
Thank you.
Now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using speakerphone. Please pick up your handset before pressing the case to your question. Please press Star then to.
At this time, we'll pause momentarily to assemble the roster.
And the first question comes from your him going along with Bank of America Securities.
Good morning.
Morning.
I guess just first question wanted to looking at the expense guidance.
Thank you five to seven how should we think about expense growth for the.
Is there a lot in kind of tied to it but having new asset growth is that the lower than we should expect expenses to be at the lower end and is that did I agree to think about mid expenses could shake out or is it more incumbent on just investment decisions that you're making would love to get your thoughts.
In terms of just how we think about operating leverage for the right and also in terms of do we expect to get an update on the efficiency plan by the first quarter earnings or do you expect an update to live in that.
So everyone Hey, this Jamie thanks for the question.
We expect as we say, 3% to 5% expense growth for 2020, and a lot of that has to do with things that happened in 2019. So we about 1% expense growth associated with the third party servicing and so that's that's just growth and above that some renegotiation that also negatively impacted expenses.
This quarter.
The other thing and other impacted our hires were made in the second half of 19, and so we've been really.
Growing our personal line out there in the field and and that's going to be a negative impact to expenses as we head into 2020.
Youre right the growth will definitely impact that you saw that in the second half of 19 win.
With the commission expense being higher just because of the strong performance and fee revenue businesses.
And so you're right. It is somewhat dependent on that aware were.
Side about the opportunity to improve this and we have many initiatives in flight as Kevin mentioned on the on the script.
Speaking about our opportunities for 2020 with our transformation efforts.
And in neighboring this is Kevin I'll I'll answer the question as it relates to additional transparency around the initiatives I think it the first quarter earnings call will provide a little more clarity as to the initiatives themselves. Obviously, when we are giving guidance on the full year, we want to understand what the third party spend will be in order to generate the savings but.
As Jamie mentioned I think what you will see with our quarterly expenses is that we'll hit a high watermark in first quarter, and then expenses will trail off as the year continues and so we'll be able to generate positive operating leverage as we get towards the second half of the year in most certainly as we look at 2021.
That's helpful. Then just.
Moving quickly to capital.
If you wanted to aid 95 identical to the 9% target and you obviously, there's a dividend. This morning is it safe to assume that we should we may not be any buybacks can you tell any part of the yard and he will sort of gauge asset growth given you guidance and let capital build like let's say likely to think about buybacks for me at all.
Yes, Abraham we expect to maintain C.T. want around the 9% level, where we are currently and we feel confident.
And that level and so you're right, we'll be looking at how we grow our balance sheet and how that plays into capital ratios, but I wouldn't assume that that means there will be holding off on share repurchases.
So we could see or we should expect shady, but given the first quarter.
We're not giving guidance to the timing of share repurchases, but.
But.
We're going to stay at a 9% level as you look at that you know I would say with our forecast of loan growth in the guidance we're giving.
We may repurchase two to 3 million shares in 2020, and that'll probably be over the course of the year.
Got it thanks for taking my question.
Thanks. Good evening. Thank you and then next question comes from Tyler Stafford with Stephens.
Hi, good morning, guys.
No.
Hey, I guess, Jamie I'm trying to just triangulate on expenses here, there's a comment from last quarter's call.
About looking at opportunities not just in the fourth quarter, but in the 2021 and 2020 and 2021 to take out significant adjustments to the expense run rate relative to the fourth quarter expenses that we saw that stepped up fairly meaningfully and then I think the guide of 3% to 5% that was above.
The expectations.
Just I guess simply what happened to the outlook that I thought you guys or.
Looking about on the third quarter call relative to what happened in the fourth quarter and the outlook here of 35% expense growth.
Yes.
Well I'd say a few things first we did have a lot of strong growth in the in the fourth quarter you saw the balance sheet growth fee revenue growth.
So that that contributed to our expenses. We also had the renegotiation of the third party.
Relationship that added $2 million to fourth quarter expenses and lab as I mentioned a minute ago bream. It will add another another 10 million or so to 2020 expenses as well, but just as a reminder, that's offset by a bigger impact in NII in so it's accretive to the shareholder.
Also in the in the fourth quarter, we had FDIC expense and that was related to the reclassification of certain loan categories over the past four years.
And when we went in and looked at that we also engage a third party to identify opportunities to reduce the assessment rate going forward and so.
That will actually be a net positive to 2020.
But then we also had higher compensation expense.
There are some ebbs and flows in compensation expense, but we did have 2 million higher due to certain legacy defined benefit plans that hit us in the fourth quarter. We do feel confident by the efforts were making to reduce efficiency rate going forward as Kevin mentioned, we expect the first quarter actually below.
The higher due to seasonal impact of personnel expense that price $5 million to $6 million.
But we're excited about the work streams, we have in play to help us.
Improve our run rate going forward and help get back to positive operating leverage and we're targeting.
Turning to year on year positive operating leverage in late 2020.
Okay, but.
To be clear the efficiency opportunities that you're speaking to that is already reflective in the 3% to 5% expense growth outlook is that right.
So the three or 5% outlook.
Things with that one that doesn't include any expenses associated with the transformation effort.
I will be clear on that.
The benefit to calendar year 2020 is not nearly as much as the benefit to run rate at the end of the year, we expect to complete.
Many of these initiatives.
That will improve both revenue and expense going forward.
But the impact that 2020 is not significant.
Okay. So the exit expense base.
Being I think what you're implying at the low point for the year that lower expense exit base should continue into 2021, providing greater efficiencies really in turn that around in a lower expense growth rate.
That's right.
In Tyler. This is this is just to let me just kind of.
Maybe summarize what both Jamie and Kevin said to the question what happened because.
One of the on the call I'm already seeing that question and email this morning early.
Nothing really happened what would in effect has happened is that the investments we made in.
2019 throughout the year, but a lot in the middle and back into your have really paid off but those salaries and other investments didn't go away as we entered 2020, but but in the midst of all that we've been very.
Thoughtful and quite frankly aggressive in taking out costs.
In the back half during the fourth quarter with some.
Reductions in staff throughout our company. So I don't want to leave you with depression that we're we've forgotten about our commitment to expense control is just on this call today.
You know this about us or be I don't like to guide to things that I don't see and so we are working very aggressively with a third party. So that we can give you more color as to the amount of revenue opportunity and the amount of expense run rate short term and long term in so.
I just want to make sure.
That you understand the commitment.
To executing on that is as strong as ever.
Okay. Thank you guys.
Thanks Tyler.
Thank you and the next question custom Brady Gailey with KBW.
Hey, Thanks, good morning, guys.
Right.
So I think I heard something earlier in the call about the loan loss reserve ratio being built 10 basis points I wasn't sure.
Is that somehow related to seasonal or are you referring to after Cecil you expect to build the reserve by 10 basis points throughout the rest of 2020.
Hi, Brady this Jamie.
That we are referring to see so and we're referring to the day to impact on the allowance for credit losses.
As we look at 2020 and they give guidance there.
Thesis was impacted by multiple factors right like Theres the impact of loan growth, there's an impact of the credit components of loan mix.
There's an impact of prepayments if you have accelerated prepayments the average duration of the of your book extend and a negatively impacts your provision expense due to seasonal.
There is the impact of unfunded commitments as.
As well as the big impact of the general economic environment in your assumptions that you put in there and so when we look forward on day to impact of seasonal we expect our allowance for credit losses.
To to marginally increase as we go through the year.
Clearly, there's a lot of uncertainty we're not forecasting any deterioration in the economy.
We think that using a flat kind of economic assumptions.
We still may see a slight increase and the allowance percentage as a percent alone just due to the fact that the average duration of the book extends a little bit Theres no change in the credit performance Wi.
Forward looking credit indicators are all looking very good and strong right now it's really just an impact.
Just forecasting slightly longer duration within the different portfolios.
All right. That's helpful. And then Kessel you know it's been a years since you close FCB.
Your currency.
Back a little bit at least relative to where it was at some points back in 2019 any update on how you're thinking about M&A in the next year too.
Well you are two might be two different things right. Even currently has come back some but not enough.
I think position us to participate.
In a transaction right now is as I think you probably know there is a lot of chatter out there there are lot of smaller banks looking for exit partners. I think we would all agree that a lot more sellers and there are buyers right now, but we're very very very focused on our internal operations or organic.
Gross on improving our returns on controlling the expense growth that Tyler and Ebrahim both Jewish.
Spoke too so I think short term the answer what is hedged day on internal focus.
Keep building on the reputation that I think we've established keep proving the investment thesis on FCB.
As that team has really become fully integrated.
Into our team and performing well throughout the entire state of Florida. So late late this year 2000.
21, I would just say that that regardless of currency, we will be very disciplined and.
Again, the thought being that if there was a light opportunity, where we had the right currency I think we would have to.
Certainly look at something but I wouldn't anticipate that being a 2020 event and we'll just see to 22021 I believe to leave plenty sellers in 2021 as well.
Got it thanks guys.
Thanks, Greg.
Thank you and the next question comes from Jennifer Demba with Suntrust.
Thank you good morning.
Good morning, Jennifer.
That to the extensive topic.
Jamie I think you said.
That you expect they expect rationalization efforts to take.
To be more weighted towards the back into the year.
Does that Brian your guidance.
Where expenses core expenses of 3% to 5%.
5% growth does that biased towards the low end.
That guidance.
Jennifer I think that our guidance is I mean, there scenarios they can get within.
It gets to the low end or the high end.
But you know we find that Thats the right range, we think our base cases as right right in the middle of the range.
They are definitely opportunities to be in the low end and you know as Kessel mentioned earlier.
We're going be looking at a lot of things they can move the lever a faster.
Kevin mentioned on the call we've looked at over 20 initiatives there things that are teed up to go and process right now.
And so.
I guess that guidance is the best I can give you right now but we.
We feel good about it.
Okay and.
Question on hires how offensive will you be in 2000 corny on high area.
If the person base last year, while Jennifer bat really.
Colors that expense number as well because we have not backed all of a on the hiring fraud and again I believe.
Selfishly, we've got a pretty attractive platform to higher too and we continue to add up throughout our footprint.
And really all of our.
Higher growth markets. It will continue to be I actually.
Spoke early this morning too.
Alan Barker Who's our Atlanta market President.
About a number of people that.
The annual run leaders there continue to talk to him is.
As you said it may we have the opportunity to be to be very selective all in we hire because of the number of people who are interested in joining.
Our team. So I think we will continue to be aggressive that pushed puts pressure on that revenue number but while there is some disruption while there are good bankers in the market, we certainly want to make sure that we're.
Front and center in that in that decision.
And with.
Kevin Howard in Atlanta, just a couple of weeks ago.
And I spoke with a couple of people these recruiting and again just seeing what attracts them to our company.
Made me feel really good so, we'll we'll be aggressive, but again discipline them in hiring comes with the cost because especially in the middle market space. It takes for takes a while to generate revenue cover that.
So we'll make sure we balance to hiring in terms of what can give us shorter term payback.
Versus longer term payback, but I would say again, the it will get the last quarter growth in loans in the push in fee revenue. It really does reflect the success of our hiring decisions throughout 2019.
Okay. Thank you.
Thank you Jennifer.
Thank you and the next question comes on Kevin Fitzsimmons with D.A. Davidson.
Hey, good morning, everyone.
One Kevin.
Just just taking a step back a bit on the you said you engaged third party back in September I'm, just curious what but the thought process was was it that you knew you had all these investments being made and you needed away or wanted away, we're going to look at away to offset that or was it more about looking versus peers.
Where you stood on certain ratios Im just curious the thought process before stepping in.
Yes, it will all take some of that Kevin.
Stake a fresh look is always good you know us as well as anybody on this call and in the past we've engaged with third party for major initiatives.
Remember like yesterday 2011, when it was $100 million than we did a 35 to 25.
And as we have grown as we have integrated another organization as we have made major investments.
No one of the.
Not give credit to our James who has been very diligent in looking at ways. We can take cost out we thought it was a good good had been a while since we had a really.
Third party fresh look at everything we're doing how we're pricing or products.
What products were offering.
Procure mentioned, Jamie as Kevin a bit Didnt work stream. So it was a combination of is just time in a fresh look gives you ideas that maybe.
You didn't recognize or at least.
Raises the opportunity that and we've been very.
Pleased so far we've got a little more work to do.
And Kevin let me add to that Gesell's point, we were not looking at our current efficiency ratio, which as you look out for 2019 at 52% and felt that we were an outlier quite frankly, I think we still show very well relative to our peers as it relates to efficiency ratio, but the castles point, we're on Opex and we're trying to grow the bank and we knew that if we.
We needed to find capacity to continue to invest in new talent and technology that we had to be more efficient, but in addition to the efficiency initiatives. We have a lot of revenue initiatives, we're talking about and most importantly, we're also looking at process reengineering and automation, that's going to not only make our team members lives better but also.
Make us easier do business with with our customers so for us where it's not particularly focused on just efficiency, where we're looking at growth. We're looking at generating revenue, we're looking at becoming a better institution as we serve our customers and as Kessel mentioned earlier were great platform for teammates or team members to come through today, and we want to continue to get better there as.
Well.
Okay great.
One quick follow up just on the margin on a core excluding purchase accounting over the course of the year I know you mentioned, what it would be roughly but overall when we're looking.
In.
Forward quarters would you expect it to to see some more compression, but then stabilization at some point mid year, how how should we expected the flow.
Kevin Kevin you you nailed it.
I think thats exactly what we would expect I'll just say the fourth quarter.
Looking at the core margin that 340, we feel really good about that and benefited from a couple of things. One is the investment portfolio repositioning and so that will continue to benefit us and second is our third party relationships as well as the renegotiation of those.
That will also benefit us as we head into 2020, so we have.
That tailwind that got us to the 340, but how do we look at 2020 I would say that.
I would expect.
We guide for the full year slightly down I would just say expect most of that in the first quarter three things driving that one is we add just such strong loan growth in the fourth quarter.
The second thing is the first quarter as strong loan growth already quarter day, and a third thing is just that the fed move was at the end October and so we didn't get a full quarter of that rate reduction and so you know I would say slightly down for the year bias towards the first quarter.
Great. Thanks, guys.
Thank you thanks.
Thank you next we have John Pancari with Evercore ISI.
Good morning.
And John John .
On the.
Expense topic again, just given the initiative and the longer term expected benefits and everything where do you see.
Sure the impact being to your efficiency ratio longer term, what do you think is the appropriate.
Long term level for your efficiency ratio once you dial.
These efforts in thanks.
John Yes, Great question, we we're striving for an efficiency ratio in the low Fiftys I mean, we've talked before about the added the 50 area, but we're really shouldn't to locate these given the change in kind of the underlying interest rate environment.
But what we think we can improve we think with our business mix or we have opportunities to be better and be more efficient of how we go to market.
As Kevin mentioned, we think thats going to improve the experience for our associates and our customers and so we're excited about that and we believe that these initiatives.
To help us get there.
Okay got it thanks, and then separately on your guidance on the 4% to 7% asset growth.
How does that breakdown by the components in terms of loan growth. So securities and then maybe give some color on the other side on deposits.
Yeah, we as we as we look at 2020 or not really forecasting any material change in the investment portfolio. You mentioned security. So if you look at our loan to deposit ratio.
We're comfortable where we are liquidity profile and so I wouldnt expect that the change and just I mean, so I was expecting balanced growth from us on both loans and deposits.
Okay got it got it thanks, and then lastly on the credit side.
The pure delinquencies look like they jumped about 40% linked quarter can you give us some color on what drove that and then separately do you have criticizing classified assets for the quarter and how that changed.
Hey, John This is Bob I'll try to provide you with a little color on that we did have one.
Large see in our credit that carried at quarter end, it's in our normal collection process. So given the fact that as past due levels are so low when you have one it can move the needle off from a percentage standpoint, if you call out.
From an ongoing basis, we still see.
Risk grade inflow excuse me risk, great news, new and renewed origination to being at or better than our current levels. We still got inflows that are minimal relatively speaking and our past dues, while there will be some fluctuation obviously quarter to quarter when you get to these low levels.
There are still showing no real signs of overall credit deterioration your comment about the rated book.
John If you will have some credits move within sub standard of special mention here or there throughout the quarter, but again, there's no real new names comment on that list. So it's just normal course of business there and John This is Kevin I'll, just add to the Bob's comments as.
Kessel mentioned, we had roughly $3.6 billion in production during the fourth quarter that was up 20% over the third quarter and you heard Bob mentioned the average risk weighting when we look at not only the book and you look at the low levels of NPL days and delinquencies that we had in our portfolio. We have a keen eye on making sure that the new production that's coming.
And on it's consistent with that prudent growth strategy and to see that each quarter, we have an improving risk profile as it relates that weighted average risk rating gives us great confidence that we expect to see similar credit.
Quality into the coming quarters, and as Bob mentioned, you're going to have some episodic ebbs and flows in those numbers just because there are so small, but there's nothing that concerns us either from a portfolio from what we're seeing on the productions on.
Okay got it and then sorry did you imply that the would you stated the criticized or classified assets were stable in the quarter.
Yes, Okay got it alright, thank you.
Thank you and the next question comes from Michael Rose with Raymond James.
Hey, guys. So it sounds like mid saying, Hey, how are it sounds like mid single digit loan growth is kind of what you guys are targeting you guys had really strong seen I loan growth this quarter.
Especially relative to the industry you can you talk about just some of the growth drivers as we think about growth into 2020 is it are you guys moving upstream it'll or the new hires we've made which I think are more weighted towards wealth management in 2018, but is it some of the new hires as it markets. Your takeaway just just give us some color I wish.
Think about growth next year, Thanks, No Michaels great question.
Fourth quarter was a strong seasonal quarter, but I look at the year and I look at almost $800 million worth seeing our growth and ironically it was not in the owner occupied real estate category, we see a tremendous amount of competition from some of our competitors that are offering long term fixed rate owner occupied mortgages and quite frankly based on our.
Profitability requirements, we've let some of that leave us so where we're seeing growth on the CNR front is really in our wholesale bank and and we have added individuals. They were up 10 revenue producers in the wholesale bank. This year the growth is coming from across our footprint in Florida in Alabama, and Georgia, South Carolina I think.
Got you as you recall, we move Kevin Howard took to lead that group and it's been a.
The change that has continued to build momentum as the year has progressed and they put on a really strong fourth quarter and it's not in any one industry. It's across many different industries. We're seeing it both on a line of credit side and unfunded commitments. There was a growing at a commensurate rate, but also on the on the funded debt thats coming on so we're optimistic that that will come.
Can you not just from taking share from competitors, but from the continued.
Growth that we have from the bankers that Kessel mentioned, we brought on in the second half a year and we've also brought on be structured lending division, which is a new business for us Thats all growth in the third and fourth quarter and we're very optimistic that that will continue into 2020 and into 2021. The good news is when you look at what we're doing we're getting a tremendous amount.
The growth not only on the loan side, but the really nice.
Data point is that we're getting treasury and operating accounts with a lot of those customers and we.
We've talked a lot about our upgrade and treasury payment solutions, but when you look at the number of implementations that we had 2019 versus 2018 were up 30%. So that means we're putting 30% more solutions in the hands of our customer so we're very optimistic.
I see that growth continue but we're most excited about the new relationships that were able to garner.
Okay, so that kind of dovetails with the comments around kind of balanced deposit growth as well it seems like you'll be getting some some traction on the DTA side, which would you got this quarter, but seems like that will continue into into next year correct.
Yes, So average average DTA was up for the quarter. When you look at number of accounts. We grew on the consumer checking account front as well so that was exciting to see and we're starting to get greater traction as it relates to operating accounts for some of these commercial relationships and thats going to be a big area of focus for us in 2020 to make sure that we get commercial deposit growth obviously death of.
Very sticky deposit and it's one that comes on the lower end of the call spectrum as well so that will be something that we're very focused on and we're adding new treasury resources everyday to make sure that we cover that market.
Hi, very helpful. Maybe maybe just one follow up question.
I'm going to go back to expenses can you just give a little bit more color on the third party that you engaged maybe who it is and then that line item as it's been around 20 million Bucks should we should we expect that to kind of grow as we move into next year as you as you kind of work through some of these efforts. Thanks.
Yes this Jamie.
We have them working with Boston consulting group and they've been diving into many of our businesses and our products and you're right. We will we will see expenses associated with those as we go through 2020.
We will be clear.
About the impact those two two and I'd.
As we go forward.
Right. Thanks for taking my questions.
Thank you and the next question comes from Ken Zerbe with Morgan Stanley .
Great. Thanks.
I'm trying not to ask another question of expenses, if you're hearing.
South after the Rice, Canada.
So let's talk about the payback I guess from those expenses. So like we think about like I get the hired a bunch people and I see where you're growing assets this quarter or sorry. The in 2020 to 47, you've got three 6% fee growth. My question is like once those people in all these initiatives are done and up and running.
Does that imply the asset growth should be higher than the four to seven and fee growth should be higher than the three to six like not this year, but but into 2021.
Yes, I'll take that Ken so it's obviously each position that we hire we have a calculated ROI NPV and payback period. So Kessel mentioned earlier, we know that our middle market bankers typically are less than eight months in terms of a payback and when you go to some of the wealth positions. It takes a year so for those those.
Earn backs, but yes, we look at those trailing revenue.
Benefits and over time and over time, you'll you'll pick up some of the operating leverage for these new positions because the expense will stay flat revenue continues to grow so all else held constant on those positions, yes. The revenue increases while the expense expenses stay flat when you think about the 2020 guidance for next year.
And what we did this year, we were up 10.6% in fee income. This year that was aided by our new hires if you look at some of those businesses that we added resources. This year, you'll see another 10% growth next year in those same businesses. We just have some anchors as it relates to fee income on a year over year basis. That's why you see a mid single digit number.
For businesses like mortgage were seasonally it will be a little lower based on where we see interest rates capital markets, where this year, we had a record year. So it's hard to continue to grow that a 10%, but those businesses that we've invested and we will continue to grow at a double digit pace and overtime will become more efficient.
Got it okay that helps.
And then I guess there question just in terms of provision expense I completely understand cecil's going to drive greater volatility in your provision expense that you didnt mention it was going to be elevated is it right to think about if you are adding say 10 basis points for about 15% to your reserve ratio your allowance that youre provision expense should all.
Also be call, a roughly 15% higher all things equal of course, so instead of the 24 you did this quarter be something like 28, I mean is at the right logic to think about going forward.
I think the right way to think about going forward would be just to put an expansion of the allowance.
For credit losses.
Through the year, ending loan balance and see what the provision build would be required to get there probably allowance build.
[laughter].
As a little bit different answer than what you're saying.
It is okay, I guess I'll have to think about that little bit more but okay. Okay. I'm. Good. Thank you very much.
Thanks, Dan Yes.
Thank you and now online we have a Brad milsaps with Piper Sandler.
Hey, good morning.
Good morning breath.
Just wanted to follow up on can see so question. If my math right. It looks like you might be targeting a reserve around 120 by the end of the but into the year.
If if that's in fact correct is that also account for any payoffs you get on the on the acquired book you know some of that.
Discount accretion back through the provision does that also take into account for that or is that pretty much where you think you'll end up no matter what.
We still feel confident the day, one impact of the 40% to 60%.
And then we expect some slight expansion and the allowance over the course of the year, Yeah as you as you're well aware the purchase accounting.
Impact gets gets wrapped up into the C into seasonal in 2020.
Okay, and then secondly, just sticking with accretion income on the deposit side I think you had the 11 million Mark come through again this quarter. My understanding is that obviously goes away. This year. How quickly do you think you could sort of are now back so to speak through.
Reductions in funding costs, you had a nice reduction this quarter and interest bearing deposit costs around 15 basis points or so.
Do you think it takes you a couple of quarters are sort of recapture that 11 million so to speak or is it longer than that.
Yes, Ken you're right the benefit of PPA on deposits goes away.
A year end.
And we expect some opportunity and deposit repricing in the first quarter and so we expect to see some decline there.
But the benefit of Remixing.
Is largely complete for us.
Okay, great. Thank you.
Yes.
Thank you and your next question kind of Steven Alexopoulos with JP Morgan.
Hey, good morning, everybody.
Morning, once they wouldn't first go back through response, a Abrahams question do you plan to manage full your expenses to the revenue outcome and deliver positive operating leverage in 2020 on a full year basis.
No we have revenue.
Revenue headwinds include the P.A. impact that Kevin mentioned $90 million.
So we expect anti.
Just to be marginally.
On the year, we have zero zero to 3% and then we have strong growth and fee revenue.
And you see our guidance and so that does not lead to positive operating leverage for the full year. Okay. That's clear. Thank you and then in the loan growth just when I look at Florida community. They were routinely doing four to 500 million per quarter growth before the sale I think you said two to 350 million loan growth in total from them in 2019.
Why did they are low growth fall by so much.
It's a great question Stephen So it was less about production when you go back and look at what they would have produced in 2018, you compared to their funded production in 2019. It was only off by a couple of hundred million dollar. So what we were pleased to see is that.
The level of production continued what change was the level of payoffs and Paydowns and it had very little to do with customer attrition and had to do with the maturation of the portfolio and the fact that they actually are seen the type of churn that you would see in a portfolio as it matures as you recall they were producing somewhere around four to 500 million.
Dollars' worth of funding growth every quarter and they were growing 350 to 400 million. So there wasn't a lot of payoffs and paydowns as their mature maturity of their book has continued to increase they are starting to see some of that churn. So that's really the difference.
Okay. So you're saying the originations have remained consistent very consistent in a very strong if you look at what they did in the fourth quarter. It was a very high watermark for them. It was a very very strong quarter for the legacy FCB team.
Okay. Thanks for all the color.
Yes.
Thank you and Nexgen Shah with Wells Fargo Securities.
Hi, there and I think there.
Just circling back on the on the provision I guess can you give a little color on what drove the I'm sorry, the allowance the allowance build this quarter, given the sort of backdrop of stable credit quality.
Yeah, you know we've spoken about this a little bit before but it's really has to do a two things first is just how loan growth in aggregate and second is the high level of Paydowns, Kevin mentioned, the strong production in the in the fourth quarter, but we also still see elevated pay down and when we have paydowns and the.
Book and the FCB book, we don't get the benefit of a provision release and so even though we had loan growth of 800 million. If you were to say what was the net loan growth of loans that we had provisioning antebi much higher or we did not have provisioning EPS and so.
That's what leads to that increase so basically.
We have normal loan growth and then we have the growth or the payoffs of ones, where we did not have a provision against them and then the offsetting or.
Renewed and new new loans.
Okay.
That's helpful. Thanks, and then just looking at the and I I heard you know obviously here your comments on the margin, but when you look at Eni and the strongly mentioned, we said going into first quarter as well as the.
Incremental benefit from that third party servicing renegotiation should we expect actually.
Quarterly to see and I may be stronger in first quarter, and then trickling down.
Or I guess, how should we be looking I threw the through the year.
Yeah.
Let me just stick to it in rate terms, you know we expect in the first quarter to see more of the impact of the negative more of the negative impact going on loan yields and so we'll see.
We're expecting a decline in 2020 of somewhere between 10, and 15 basis points on loan yields on the year, but most of that will happen in the and the first quarter.
Our.
A decent decent percentage rather than the first quarter and again at that same impact that I talked about about both the recent loan growth as well as the October rate move into the fourth quarter impact of that.
Okay. Thank you.
Thank you and then next question comes from Christopher Marinac with Janney Montgomery Scott.
Hey, Thanks, just a quick one on the fee income guidance for the year, what does it take to get to the upper end of the range and other scenarios that that could actually be greater.
So look good for us it's some of it will do have to do with the external market in terms of interest rates and what happens with the equity markets. Those are the variables that we look at we've obviously had a lot of resources on the fiduciary and brokerage side. So as the market flows will be able to ebb and flow within within that range.
Also with mortgage.
If you look at most of our business as I mentioned, we expect to see strong growth and service charges year over year based on our investments in Treasury, we expect to see double digit growth in our fiduciary business again, the two businesses that represent a bit of a headwind for us as I mentioned were mortgage and capital markets for different reasons mortgage because of interest rates and capital markets.
Just because of the elevated levels that we had this year. So our success in moving to the high end of the range. We'll have some of those external factors, but quite frankly, it will deal with our productivity internally and how we can continue to generate higher levels of production within those businesses.
Got it thanks very much Kevin it thanks for all the discussion on the expenses. This morning appreciate it.
Thanks, Chris Chris.
Thank you next in line and scare Holland with Baird.
Thanks. Good morning, just had a quick follow up for you I heard you on the efficiency ratio targeting low fiftys, but could you provide some more detail on the updated top quartile profitability metrics, you're targeting this type of interest rate environment and whats a realistic timeframe forget either.
Yes, we.
We look at Ro?ia ROTC efficiency ratio as we think about how do we performed versus peers.
And you know.
We believe that our strategies, we believe in the work we're doing this year.
These transformation efforts to get to get back to the to the top quartile and so we think that we have a lot of momentum going a lot of eyes.
Opportunity here to improve that performance, we're not ready to give guidance on you really our forecast longer term, where where we shake out on that but we will have more on that in the future, but the good I'll just in terms of timeframe. We look at long term targets as two to three years I think you go out past that it's harder to forecast and to to Jamie's point the variable.
They are that has made the industry change their expectations is just what interest rates are going to do and it's hard to forecast that out two to three years, but our commitment is just to be in the high in the top cortile amongst our peer set.
That's helpful. Appreciate the detail.
Thank you and next we have Stephen Dong with RBC capital.
Hey, good morning, guys.
Accordingly.
On a you mentioned the competition the owner occupied portfolio was that does the same tail on the multifamily side and what other segments are you seeing a high level of competition.
Well look there's not a single asset class that we serve that doesn't have competition Stephen so.
It's across the board now the owner occupied there are a lot of smaller banks doing.
Great promotions, where they're offering longer tenor lower fixed rate loans and again within our.
Our business model, we're not going to chase business that doesn't make sense for us financially. So we're going to let some of that business leave us if it doesn't have the minimum profitability hurdles. So I think thats, what youre seeing in some of the owner occupied side on the multifamily I think thats much more of just the stabilization of properties that are moving off balance sheet, there's a higher level of kunst.
Trucks in there and so as those reach maturity and moved to the permanent market. They are leaving our balance sheet, but we're still producing on multifamily and like all the other asset classes were winning our fair share. It's just it's going to ebb and flow based on some of them. The maturation that are in our book.
Yes, I appreciate the color on that and then just last one can you just remind us.
You know how much in your CD book that you're expecting to have reprice.
For the quarter and what's the rate on that.
So.
Right now we would look at the maturities in the first quarter of the year somewhere around $800 million in Cds. The current portfolio with a little over 2% you go back and look at this quarter all of the maturities were at two of six and we repriced at 198, So I think based on a flat rate environment you'd see a similar.
Movement in the first quarter with met with the maturities being a little over 2% and where we're renewing and where we're booking them in the high one nineties.
Got it appreciate thank you.
Thank you and that does conclude the question and answers it sounds so I would like to return to the Florida, so selling for any closing remarks.
I will thank you operator and first thank you to all of you participated on the call today. We appreciate your interest.
In our company certainly some of the questions today might require follow up and as.
Usual our team is available throughout the day and certainly next week to give you any follow up data points that we weren't clear.
Today for those of you to our shareholders on the call. Thanks for your continued to.
Investment in our company, but I really want to conclude by thanking our synovus team for the great year in 2019 for the way they really did finish the year.
So strong and for the energy there already pouring into.
2020 to find ways to generate new revenue additional efficiency and really deliver.
The differentiated customer experience all the island, creating long term shareholder value. So big Thank you to the James.
The executive team looks forward to giving you more color and more updates on our transformation efforts no later than the next earnings call, but if possible towards the end of the quarter and the appropriate public Forum, we would do that as well. So thank you so much war.
Your attention today hope you all have a great weekend and we look forward to talking with you soon.
Thank you see conference has now concluded. Thank you for attending today's presentation may now disconnect your lines.