Q1 2020 Earnings Call
[music].
Good morning, and welcome to the Synovus financial Corp. first quarter 2020 earnings conference call.
Participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to Kevin Brown with the company.
Please go ahead.
Hi, good morning during the call today I'll be referencing the slots.
I mean investor Relations section of our website, so navistar call.
Like Chairman and Chief Executive Officer will begin the call you'll be followed by Jamie Gregory Chief Financial Officer, and Kevan Blair President Chief operating officer for more detailed information.
Executive management team is today I want to answer your questions. It's again a call we ask that you limit yourselves to two questions.
Mortgage Star, let me remind you that our comments may include forward looking statements. These statements are subject to risks and uncertainty in the actual results could vary materially, but these factors that might cause results to differ materially in our press release, and our assay SEC filings, which are available on our website.
We do not assume any obligation to update any forward looking statements resolve new information early developments or otherwise, except as may be required by law. During the call. We will reference non-GAAP financial matters related to the company's performance you may see the reconciliation of these measures in the appendix Tar presentation and now here's Kessel stelling.
[noise] well, thank you, Kevin and good morning, everyone and welcome to our first quarter earnings call.
I'd like to begin by thanking our extraordinary team members, who continue to go above and beyond to support our customers. During this difficult time.
We have two main storage today and probably many more one is up our strong.
Core operating performance for the first core.
Pre and post Corona virus rival the other equally important story is that the strength and resilience of our company, which is again proven our ability to innovate to execute quickly and effectively managed day to day operations, while also shifting priorities and resources to meet emerging needs.
From the very beginning of this code 19 healthcare crisis, the decisions and actions taken by our team have been guided by two principles.
Doing what's best for the fiscal and financial well being of our team members and doing what's best for our customers.
With those principles in mind in March our branches were converted to drive through an appointment on Lee and we implemented aggressive cleaning <unk> sanitizing hygiene protocols and all of our company facilities.
More than 80% of our 5400 team members are now working.
From home an hour I T team did a fabulous job quickly repositioning our workforce.
We've offered additional paid time off to team members, who were sick, who are quarantining are dealing with childcare or other kobin related family hardships and we're offering bonus payments to hourly team members required to work on site to serve our customers.
To help our customers, whose period of financial distress, we're waiting NSF and monthly service fees in offering payment from it and other loan relief as appropriate.
Although social distancing has more or less eliminated the in person hands on approach, we usually take toward community service.
We're doing everything we can to support needs across our footprint, including matching contributions to the American Red Cross providing financial support for feeding America and funding meals for first responders and front line health care providers.
Hi, I'm, especially proud of the effort our team has made to deliver paycheck protection program loans to our customers.
Since the launch of P. three on April the third our team has processed approved and funded more than $2 billion in loans for 8300 customers.
We're continuing to process submissions in our pipeline preparing to fund as many as possible with the additional appropriations made available. This week, Kevin Blair, we'll talk more about the key aspects of October 19 response later in his remarks.
Before I cover highlights for the first quarter I want to talk about our confidence in our ability to manage through this current crisis into emerged from it in an even stronger position.
Since the last crisis, our company has continually taken steps to prepare for an adverse economic environment, including efforts to strengthen management into key risk areas of capital.
Credit.
And liquidity.
We routinely deploy stress testing and sensitivity analyses to inform business decisions.
We believe we're well positioned to stay in an economic downturns, such as we're facing today.
As we've discussed during this morning's call.
We've enhanced our portfolio monitoring and our credit profile include improved mix metrics and outlook.
And our allowance build under Cecil guidelines provides further protection against credit losses.
On capital our internal stress testing process gives us confidence in our ability to maintain strong capital ratios and stressed economic environments and our liquidity position remained strong.
We're also assessing and reprioritizing strategic initiatives under our Synovus for program.
Kevin Blair is going to share more details later in the call on steps, we're taking to ensure we are addressing the short term imperatives, while also focusing on the right initiatives for strengthening our company long term.
So before I turn the call over to Jamie I'll briefly walk through highlights of the quarter on slide four.
Adjusted diluted EPS was 21 cents compared to 98 cents a year ago.
This year over year decline was driven by a 225 basis point reduction in the fed funds rate.
The schedule loss of loan accretion from acquired loans and a significant increase to the allowance that accounts for the anticipated impact of cobot 19 under the Cecil framework.
We were very pleased with the fundamentals of our core performance, including period end loan growth of 1.1 billion deposit growth of 1.4 billion and core transaction deposit growth of more than $600 million.
Core net interest income, which excludes purchase accounting adjustments was flat for the quarter. However, the core net interest margin declined five basis points from the prior quarter slightly more than our original expectations due to the more significant reduction in interest rates.
Adjusted noninterest revenue of 99 million grew 7 million from a banner fourth quarter benefiting from significant activity in mortgage capital markets and fiduciary businesses. This was despite lower seasonal core banking fees and increased fee waivers as part of our effort to serve clients. During this code 19 disruption.
Adjusted noninterest expense totaled 271 million for the quarter up 6 million versus the previous quarter largely due to the 5 million dollar increase in seasonal payroll taxes that were reference during our fourth quarter earnings call.
We also had an incremental $1 billion and expenses associated with coven related bonus payments for certain front line team members.
Provision for credit losses was $159 million and resulted in an allowance for credit losses ratio of 1.39%. These metrics incorporate the impact from coated and the first quarter of Cecil.
I'll now turn the call over to Jamie for more detailed look at the first quarter beginning on slide five and I'll rejoin with a few more comments and question answer after Jamie and Kevin Blair have given their report.
Thank you castle.
Before I get started walking through the quarterly performance I'd like to highlight the we have withdrawn our 2020 guidance, we won't get some near term indications of financial performance on key metrics throughout my commentary and we're committed to reestablishing longer term targets when the economy stabilizes.
We discussed our increased productivity a bid on the fourth quarter call and a continued on into for first quarter with $3.1 billion and total loan production.
Our wholesale banking team on boarded 155, new customers during the quarter, which represented $1 billion in new loans.
In March we thought 300 million dollar increase in line utilization.
And I line utilization plateaued at 50% in March as some customers increased draw that have an abundance of caution related to the economic situation.
We are confident and the credit quality of our growth this quarter as we remain disciplined in our underwriting.
In the second quarter.
We expect loans from the Paycheck protection program to serve as a primary engine for loan Astra additional pipeline have declined.
Right got at March lending loan yields a 4.6% excluding purchase accounting decline of 15 basis points from the prior quarter.
A full quarter impact of these March costs will have a greater impact on average loan yields in the second quarter.
Adjusted for hedge is approximately 50% of our loans have a floating rate.
As previously discussed we have a hedging program in place to help mitigate the impact of changes in short term rates on our floating rate loan portfolio.
At quarter end, we had $2.8 billion and received fixed swap associated with these hedges with an average rate of 1.4% first one month life.
Slide six shows deposit growth of $1.4 billion, which included continued increases in core transaction deposits of $623 million.
And the first quarter, we took advantage of reduced pricing on wholesale broker deposits to increase balances in a place higher call single service deposits.
We'll continue to monitor these markets for opportunities and what remains a dynamic deposit environment and remain focused on growing our core deposit base and maintaining a prudent liquidity profile.
In terms of overall deposit pricing, we've certainly seen our response to the recent FOMC actions and as you can see our total interest bearing cost in March with approximately 30 basis points and lower than the average from the prior core.
And that's eating cycle.
On the cut their target rate by 225 basis points in our general expectation is recycle betas to end in the low to mid Thirtys as deposits reprice throughout the year.
As you can see on slide seven net interest income up $373 million declined $26 million from the prior quarter. The majority of that decline or $25 million, whether attributable to the expected decline in purchase accounting adjustments the core net interest margin, which again.
Clues P.A. decreased five basis points from the prior quarter to 3.35%.
As we look into the second quarter, we expect net interest income to remain relatively flat as a result of significant loan growth associated with P. three.
However, this growth along with a depressed rate environment and an elevated cash position.
Expected to weigh on our net interest margin.
Excluding those impacts we reiterate that we expect margins declined four to five basis point her 25 basis point decrease.
We expect the majority of the impact from March wage rate cuts to be realized in the second quarter.
On slide eight you'll see that we have had continued success in fee revenue generation, which increased to $99 million adjusted.
An increase of $7 million from the prior quarter and up $21 million were 27% versus the prior year.
In the first quarter, we continue to have diversified strengthen our fee revenue businesses.
Mortgage revenue driven by high production levels and elevated secondary gain on sale margins increased $3 million.
Capital markets volumes were higher by $2 million as our commercial client locked in lower rates on their borrowings and income from brokerage grew $1 million driven by increasing contributions of new hires.
In 2019, and higher transaction revenue from elevated market volatility.
These increases more than offset reductions in areas such as service charges on deposit account.
Merely due to a decline in retail NSF fees.
However, cove is already impacting customer behavior, including significant nefkens declines in capital markets activity, lower debit and credit card transaction volume and overall business disruption for commercial clients.
Disruption will likely result in fee revenue declined 15% to 25% and the second quarter from our recent run rate of approximately $90 million.
We would expect an increase in noninterest revenues as the economy stabilized.
Moving to slide nine in the first quarter noninterest expense was $276 million or $271 million adjusted.
Adjusted expenses increased $6 million from the prior quarter generally in line with our prior guidance.
With the increased levels of covert related expenses, which we currently estimate at $5 million to $6 million in the second quarter.
We expect adjusted expenses to remain relatively stable quarter on quarter before declining in the second half of the year.
Yes, Ken will discuss in a moment, we may remain confident that our efforts over the past six months to identify ways to improve our operating efficiency will result in positive operating leverage over the long term.
We are tailoring the timing of our synovus Ford initiatives to ensure they do not distract from our focus on team members customers and communities.
It doesn't change our commitments or strategy.
Simply a job the timing.
Slide 10 shows our credit quality metrics as well the summary of our provision for credit losses and allowance.
Net charge off at 21 basis points remain with them prior guidance.
The NPL ratio didn't increase from the prior quarter to 41 basis points and this is up one basis point from the prior year.
Additionally, past dues returned to the low end at the recent range at 22 basis points.
While we expect to experience stress in the portfolio as we progressed through the current economic environment.
An important to note that we are entering this downturn well position from a credit quality standpoint.
In the a NPL past dues and charge off at or near lows for this economic cycle.
Provision for credit losses, and allowance for the quarter were impacted by the adoption of Cecil on January 1st.
Generally result in higher provision for credit losses, compared to the incurred loss Matt.
This is amplified by the forward looking aspects of seasonal and how it impacted by the heightened economic stress from the healthcare crisis, and resulting economic slowdown.
As you can see on slide 11, the day, one reserve increase with $110 million were 39%.
We did elect the five year transition period for regulatory capital treatment.
Our 10-K referenced a two year, a reasonable unsupportable period use and diesel estimates.
But it was a more appropriate to reduce that for one year horizon. During this period of heightened economic uncertainty a one year reversion to the mean follows the reasonable unsupportable period.
The deterioration in the economic environment since January 1st due to current healthcare crisis resulted in a higher allowance for credit losses ratio as of March 31st Dan with modeled in the day, one diesel implementation and is currently at 1.39%.
Our model modeling process incorporates quantitative and qualitative consideration that are used to inform seasonal lessons.
The internally developed economic forecasts used to determine the allowance for credit losses as of March 30, Onest was approved on March 20 it.
The time the approved forecasts in line with rating agency and Wall Street economic forecast.
Between that approval date in quarter end, we saw further deterioration in the economic outlook, which resulted in the need for a qualitative overlay to our allowance for credit losses.
The qualitative overlay a $37 million at 10 basis points, the allowance for credit losses, and better aligns the total allowance with the economic indicators and forecast at the end of the first quarter.
Significant economic uncertainty remains as a result of the continuing healthcare crisis, and the ultimate impact or government stimulus efforts, if our economic outlook on June Thirtyth resemble these more recent forecast we would expect to see further increase and the allowance for credible.
Capital ratios on slide 12 include the impact of seasonal and incorporate applicable regulatory transition period.
As we've shared in the past our target capital ratios were determined through our routine internal capital adequacy assessment process and include the capital optimization efforts completed in 2019.
These capital ratios give us comfort that even in a severely adverse scenario, we have a sufficient buffer to withstand the losses and remain well capitalized.
In the first quarter, our C.T., one ratio declined 8.72% largely due to the increase in risk weighted assets, which accounted for a reduction of 25 basis points.
Our continued strength in PPNR generated 39 basis points, the capital, which more than offset the 21 basis point impact of seasonal related allowance build.
As a result of fee. So we anticipate capital ratio degradation earlier in a recessionary environment then under prior accounting guidance.
However is that allowance, which will provide a significant buffer to absorb any realized losses later in the cycle and affords us the ability to return to our capital targets overtime.
Currently the allowance build was reflected in the total risk based capital ratio, which increased six basis points from the prior quarter to 12.31%.
Based on the same framework there was established and utilized for stress testing under the Dodd Frank Act.
We continue to leverage our internal capital management processes. These processes, coupled with our risk appetite framework provide a roadmap and outlined capital preservation strategies in the event, we see a more protracted period of economic weakness.
As we navigate through this reset recession, we will be very diligent and how we deploy our balance sheet with a clear prioritization towards core customer relationships.
These processes also govern how we consider share repurchases in our common equity dividends.
Through this process, we determined to suspend our previously approved share repurchase program.
We continually evaluate our approach to common equity dividends in our capital planning process, which had guided by our assessment of capital adequacy as well as our projection of sustainable long term earnings.
We believe a change to the common dividends not warranted at this time.
As discussed we remain confident our capital adequacy and we continuously assess our long term earnings outlook.
Liquidity management has always been a priority is novus and we continue to improve our liquidity profile and the first quarter, we issued $400 million a bank debt at very attractive levels.
And we increased our collateral at the federal home loan bank by approximately $2 billion.
As shown on slide 13, you can see that we have approximately $14 billion and readily available balance sheet liquidity.
Well, we expect loan balances, excluding p. three loans to remain fairly flat over the near term, we do anticipate considerable second quarter growth associated with our P. three lending effort.
The vast manage our risk into maintain our existing funding sources for other customer needs. We anticipate using the federal reserve speed three lending facility to support funding for at least a portion of these loans.
We believe that this is the most effective way to manage our overall liquidity position and to mitigate the associated associated impact on our capital ratios.
Kevin will now share a deeper dive on on credit portfolios most impacted by coded some details about our responses to this crisis and provide an update on moving forward.
Thank you, Jamie and turning to slide 14, before I go into deeper detail on several industries, where the coded 19 crisis is currently having a greater impact on business operations. This seems like an appropriate time to take a deeper dive into the composition and the quality of our loan portfolio by category as well.
So as the significance of the diversification and de risking benefit that had been realized in the last financial crisis. The charter. This slide shows the key components of each of our three portfolio categories with the table on the bottom right showing the shift in the composition from 2000 and Uh Huh.
And I, both totaled $17.7 billion and is primarily comprised of general middle market and commercial banking clients across a diverse set of industries within see unite the specialty division such as senior housing and premium finance comprise about 14% of total loans and had been a significant contributor to our goal.
So story, while also possessing some of the best credit metrics over the last several years. The overall portfolio is well diversified by industry and geography and is extremely granular with almost 35000 loans with an average original loan balance of approximately $770000. The theory portfolio is 10.
Point $7 billion and 86% of the book is comprised of income producing properties with multifamily office shopping center and hotel being the largest property types within the portfolio. We do adhere to a disciplined concentration management philosophy, thus our largest CRT loan is less than $50 million within.
Average loan size of approximately $13 million. This portfolio is diverse both from a geographic and property types standpoint, with strong loan to value and debt service coverage levels. As a result. This portfolio has continued to perform well and as it relates to net charge offs. The CR E book is in a net recovery position over the last five key.
Orders the consumer book is $10 billion, almost three quarters of the consumer portfolio is in mortgage and he lot categories with the remainder in lending partnerships credit cards and other consumer you can see by the credit score and loan to value statistics that this portfolio is super Prime and remains very healthy under the existing.
Economic conditions, we expect our consumer portfolio the decline in the near term as we decreased our appetite for unsecured lending and third party partnership purchases.
Point I want to cover on this slide is the substantial improvement that we've made to the diversification and de risking of the entire loan portfolio from 2009 until first quarter of 2020, we have significantly reduced our exposure to one to four family residential land and investment properties as well as CRT.
In aggregate by simply utilizing historical loss rates. The remix of our portfolio alone would result in a 50% reduction in losses combined with the improvements an underwriting and portfolio management, we would expect losses to decline even further when evaluating the impact of the severely adverse scenario.
Moving to slide 15, well entire loan portfolio is continuously assess we have introduced enhanced monitoring for the segments noted on slide 15. These segments totaling $4.6 billion had been identified as having a more direct an immediate impact from the cobot 19 crisis. We are continue.
Actually working with our customers to evaluate how the current economic conditions are impacting their business operations and ultimately their cash burn rate, we're leveraging payment departments as well as the cares act stimulus programs to help whether short term financial effects.
That underwriting and strong credit performance, coupled with stronger balance sheet that had been built during our extended expansionary period give us confidence that these portfolios enter this downturn in the best possible position in the appendix on slides 27 through 29, you will find more detail around each of these portfolios, but I will.
Such on a few of them now.
Hotel book is over 85% franchise and primarily contains non resort properties more than 90% of our hotels are rated upper mid scale or above.
This portfolio has strong credit metrics with an average loan to value of 54% and debt service coverage ratios of 1.9 times.
We have about $1 billion of shopping center exposure to centers that aren't grocery pharmacy or discount store anchored based on our southeastern footprint. These locations are situated in markets that have continued to see good population and health <unk> household income growth, which has created growth instability for these businesses.
As such these portfolios continue to perform well from a credit quality standpoint, the restaurant book at $800 million with 56% of the book and limited service restaurants, and 42% in full service over 60% of our restaurants are franchises and have an average loan size at origination of roughly.
The $1.5 million.
The next two industries are non essential retail trade and Arts entertainment and recreation combining for $1.2 billion in Outstandings. Both of these portfolios have performed well pre crisis and are also very granular with average loan sizes at origination of 1.8 million and $1.2 million, respectively. Lastly.
I will mention a relatively small exposure to oil related industries at less than 1% of total loans given our five state footprint oil is not a prevalent industry, particularly as it relates to exploration and production most of our exposures and transportation operations and support related to the industry. This portfolio has exists.
It is strong credit performance, but given the current state of the oil industry. We are more closely monitoring our exposure.
Our bankers and credit team members continue to work with and provide financial advice and consultation to our customers and ensure we are providing the necessary support to mitigate the short term disruption in cash flows.
As with our entire credit portfolio. Each of these portfolios has exhibited strong performance over the trailing quarters and years and was as well positioned as could be expected coming into the current environment. The duration of the downturn will obviously determined the impact on these businesses and how quickly. These industries will return to more normalized cash flow.
Oh levels, Bob Derek our Chief Credit Officer is with US This morning, and can answer additional questions. During the human a portion of today's call.
As we turn to slide 16, and I address the Nova Sport I think it's important to reinforce the message that Kessel led off with in today's meeting despite rolling out our synovus forward playbook in March we quickly reconfigured our efforts to focus on our cobot response, starting with the safety and well being of our team members who are by.
Italy important support our customers as well as the communities. We serve we effectively exercised our business continuity plan, which enabled our employees to work remotely while continuing to provide customer facing roles at our branches in call centers to meet the needs of our customers and quite frankly that was our other primary focus.
The safety and continued service of our customers. Although we continue to practice social distant seen we are here to serve our customers and continue to provide advice and new solutions to help them navigate the changing business climate and support their business operation.
In fact during the first quarter, we implemented over 6000, new services, and our Treasury and payment solutions area, which represented a 320% increase over the first quarter of 2019. This is another proof point of our continued commitment to serve our customers and our ability to do so in a difficult climate and.
Despite the crisis, our bankers continue to call on and onboard new prospects as our relationship based approach is serving as a key differentiator in this trying environment, we're going to deploy our capital in areas, where we receive optimal returns and while this business approach may produce lower loan growth in aggregate.
We will continue to focus on acquiring new full service relationships and deepening our current relationships with new opportunities.
As we have mentioned, we've also taken a proactive approach to providing relief to our customers when needed from waiving fees, the increasing ATM and mobile deposit limits to granting deferments alone payments our loan to permit program is constructed to allow smaller loans upon request to receive a short term 90 day deferral.
Of interest in principle to the maturity date of alone.
Or larger loans, we have initiated a credit credit driven approach to review the specific circumstances of each request analyze cash burn and obtain updated financial information, while determining the need for the different today, our percentage of total deferrals is around 13% of the overall portfolio with those industries mortgage.
Only impacted by covert 19 carrying higher percentages.
We also have closely monitor all of the stimulus actions and programs made available by the cares that obviously the paycheck protection program has had the greatest impact on our customers to this point, we began the p. through process on March 28, with an online expression of interest portal, we began taking applications on April 30.
For the day the program went live as Kessel mentioned earlier as of today, we have secured funding for over 8000 customers or approximately $2 billion as I close let me transition to the future and synovus forward as we shared during Investor Conference in March the notice for is our newly formed program.
That was built to generate an incremental $100 million of pre tax income in the coming years and delete the top quartile performance amongst midcap banks in terms of profitability and efficiency. During the development of this program, we evaluated over 20 unique and distinct initiatives that included a combination of expense and red.
The new opportunities during our presentation in March we shared at a high level, we expect to realize expense benefits up between 45 and $65 million and revenue benefits of between 35 and $55 million. We're confirming today that the incremental opportunity is still very achievable. However.
Many of the benefits have been delayed due to the focus on the current crisis. Many of the expense and revenue initiatives that were planned for the first half of 2020 will be recast into the second half of the year or in early 2021, while we have had to delay. Some initiatives. We are also accelerating actions and others. This includes increasing the official.
These gain from the third party spend initiative accelerating the development of digital and analytical capabilities to drive growth and manage risk and leveraging our remote environment to aggressively thing about our physical distribution and locations.
We have also continue to invest in technology and more specifically my synovus, our consumer digital portal in March we deployed major updates to enhance the bill pay and transfer experiences of our customers and as we made improvements we've seen higher levels of enrollment and utilization while seen our overall operating increase.
And it's important to note that the current crisis is creating opportunities to add new initiatives to the portfolio and re size current initiatives that we had planned.
Synovus forward portfolio is not rigid and we'll continue to evolve we are committed to delivering and growing the value as we address new economic and customer behavior realities. There was much work ahead of us and we understand the need to balance both short term and long term priorities. They end state benefits their time.
Mean, and sizing may continue to evolve in is fluid environment, but our synovus forward goals and objectives remain intact Kessel, let me turn it back over to you to close out our call.
Thank you, Kevin and before I move Accuen A. I want to again, thank our team our customers and our shareholders.
And for a brief update on the weeks activities.
Just wanted to share that on Wednesday.
We hosted our first online only virtual shareholder meeting.
Among other actions our shareholders overwhelmingly approved the elimination of our general one voting structure and Super majority voting requirements.
These changes reflect our board's continuing commitment to best in class corporate governance.
Operator, we're now available for questions.
We will now begin the question answer session.
You asked a question in the press Star then one on the telephone keypad.
If you are using speakerphone, please pick up your handset before pressing the keys if at any time. Your question. That's been addressed and you would like to withdraw your question. Please press Star then too.
Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Ebrahim Poonawala of Bank of America Securities. Please go ahead.
Good morning.
Good morning, good morning.
So if we can you start we've.
Capital.
So when new but then you can look at me.
Oh Vicki are the most Kevin if somebody to keep perspective, but when I look and see if you wanted it shouldn't be too.
Talk to US you know you mean, Kevin canceling don't know how important is it sort of the capital C. do you want yes.
To be over 9% to us is where it is and what are your expectation that goes up when you look at any given could you maybe split a secure short for one keel. They do we expect that to lead you back to or 9%. What are your expectation done on growth and other risk weighted assets given BPP should not really impact that just if you can do.
Well if that would be helpful.
Oh, Yeah Ibrahim limit, let me start and then I'll turn the Jamie I think your first question was how is how important is it we've said that that believed a target of 9% was and appropriate target leading into this and so we dipped slightly below that quite frankly, there was a big.
Hi, there was the growth in risk weighted assets.
This quarter and you know driven by great production barge eight as you saw non PPP loan growth over a billion dollars. So certainly it is now dipped below we don't expect that level of risk weighted asset growth that will.
Diminish we believe in the second quarter <unk> and again, you will see the PBP loan growth, but that will not have effect on the capital ratios you had mobile parse the questions I'm a flip to Jamie to go a little further things he bream and guest will you know just a tag along with that you know you're right.
Turning to ask the question, we feel really good about 9% seeds you want as a starting point, we do a lot of stress testing in our capital adequacy a process that we refresh you know with many different scenarios and when we look at severe adverse scenarios.
If you went back to our de fast from a couple of years ago few years ago, you would see that we had about 2% capital degradation.
Today, when we run our stress test in severe adverse scenarios is a shade more than 2% or right. There again.
We feel really good and we expect capital ratios to decline when you head into an adverse scenario. However, you're right. We have PPNR as the first line a defense against that capital degradation you can see in the first quarter, even though we had a large build in our allowance PPNR was more than that allowance build and as Kessel said it was the 1.1 billion dollar.
Loan growth really depleted C.T. one so you know as we look forward.
As you know there's a there's definitely some uncertainty in this environment. We don't know how everything will play out and we feel good about a ratios where they are I did give some guidance you will exceed PPNR decline a little bit in the second quarter.
Due to due to declines in and I are predominantly.
I should be fairly flat and so that you know as we think about it we feel good about where we are we think that PPNR. The first line defense really covers also want to on our need for allowance at this point. However, we would acknowledge the uncertainty in this environment.
Got it that's helpful and just.
On the margin. So the comments you made XP P. P. Essentially we should assume like five basis points claim 630 basis points of their condition summit are known to treat then margin would be kind of rate you wouldn't ended the condensate back up and can you talk about just how people be this oh look to the system.
If you go for given should we see a spike at some point in Threeq Youre in the United States. These looks.
You would a brain I guess castle because obviously you know this there were were in theory able to fund them at 35 basis points. If we were to match fund through the.
Facility and would put him on the books at at at 1% and then.
There'll be some fee associated based on the average loan which will flow in through the loan yields and then when they are forgive and that will come back out a through the through the Eni line. So you would see a an increase in margin. There. That's just a lot of uncertainty there.
To date, we've seen those bond, we've seen kind of corresponding.
Growth in D.A. deposits, but we know that behavior won't continue hopefully those customers or are using the funds to pay employs you'll see that come down and will begin accessing that PPP liquidity facility, but I think you're right you're thinking there about.
What how that will play out.
Let me just add one thing to that when you look at our margin forecast you're spot on with 45 basis points per 25 in the impact of 150 basis points in March.
And then there's two out of thinking on top of that you talk about P. three we would say that Pete three at about two to three basis points of NIM impact per billion dollars just.
Just to kind of give you a way to toggle that in the other thing the other consideration that would not be in our typical sensitivity is holding elevated cash and so we're holding more cash from the balance sheet today than we would in normal times and so that'll be a little bit alluded to the mark Mark.
Thanks for taking my questions [laughter]. Thank you.
The next question comes from Jennifer Demba of Suntrust. Please go ahead.
Good morning, and wanting to Jennifer.
Yeah, well long term, how do you think about some of the.
Oh, yes that are kind of more pandemic sensitive.
Over the near term or the.
Loan portfolio as you think yield.
Hi continued to be active in over the long term and and specifically how do you guys feel about senior housing credit and the future demand for senior housing depending on how this pandemic plays out.
Yeah, well, let me start universes, you addressed the debate and then I'll ask Kevin Blair to jump in as well I'm going to reverse order on senior housing we were very confident in that in that part of our book, There's a slot in the appendix slide 30 on senior housing that's about $2.1 billion and again.
That's a vertical that has performed well since we onboarded that team in 2011, no credit losses in that book, it's a diverse book spread across 33 states not much on the West coast.
Large majority, 77% of that private pay and again there may be some short term impact related to new admissions.
If there were in theory of facility that had had an outbreak reports I've had our our facilities are in good shape, but you have to be careful about what information.
You know, but to the best far knowledge I was really are in good shape. So long term it'll be a lot of demand there.
You know again short term if you had a facility who do it was.
That was slowing admissions that can be Oh short term, but we again, we think that part of our.
Business is certainly a strength and I would put the team up against any in the industry you know as to some of the other books and then I'm going to turn it turn it may be to Kevin.
Yeah, I mean, if in hindsight if you if you do there won't be a pandemic.
That would shut down the hotel business, you probably wouldn't make hotel loans, we like that part of our book, It's you know 50% to 54% loan to value. It's got good operators mostly franchise.
I'm not really focused on resort type.
Properties a lot of operators that have a lot of experienced a lot of equity a lot of external sponsorship and so short term, that's certainly going to be a stress book.
But one that we think over the long term will rebound, we think hours are really well underwritten and so again I'll just touch on a couple of the others as the shopping center, you've got the anchored the grocery store the.
Discounts the pharmacy those are in in good shape with pretty good cash flow and then you've got the non anchored where we've got a lot of lot of attention. So I mean this is a chance for us to look at everything we're doing third party sponsorships everything that is consuming capital on our books today, we're looking at.
That as we go through this crisis, making sure that capital isn't consumed long term by a business that we think doesn't give us the appropriate returns so again.
We feel good about the book, we feel really good about the senior housing book.
And those stressed areas. We've got we refer to it is enhanced monitoring I can assure you there's enhanced monitoring of everything in our book, we want to highlight those that that you all with bite of interest Kevan Blair. Let me kick to you for any LG, you'd like or Bob Derek would like to say about that book.
I'll start and I'll get Bob a chance to mention some of the the actual statistics, but I think Jennifer to your question. If you think about all of these industries, we believe that they're going to return to some level of normalcy at some point I mean these are needed services in so many different ways and the way that we thought about them as weve underwritten them as we brought them on the books for the years they've been here is there.
We are lower LTV higher debt service coverage borrowers that generally have recourse.
And so.
We believe that the short term nature of this crisis will have an impact but the long term viability of made these industries that are going to return to normal and in many situations you're going to see revenues pick up because people have been social Byzantine and they're going to be more.
Prone to go and use the services so.
I don't think Theres any second guessing mckesson's point I mean, you knew there was going be a global pandemic you might think about so many different industries differently, Bob Yes, Hi, Jennifer This is Bob I, just a quick follow up I will elaborate capsules exactly right and so as Kevin If you go back and look at our as these portfolio specifically the CRT portfolio as.
And what it looked like in the previous crisis in terms of percentage of income producing properties that amount is way up. So we now have a more cash flow centric book of real estate.
The underwriting is obviously comparatively speaking.
A lot stronger than it was from an equity coverage perspective in that book into see enough space.
In terms of strategic industries that we want to evaluate a play in probably nothing materially changes, we we like the spaces, we're in and the customers we're in and they generally support our communities, where we serve but so I don't think strategically it's going to changes in an industry has kessel mentioned, our our largest vertical is a senior housing border.
And we still think that has merit long term.
Thank you for the next question.
Keep the next question comes from Brad Milsaps of Piper Sandler. Please go ahead.
Hey, good morning, guys.
Right.
I appreciate all that detail in the color in the in the slide deck that was great. Just wanted to kind of a follow up on the on the margin discussion Jamie I think I heard you say that you maybe expected total maybe deposit betas in that Thirtys, if I heard that correctly, if I look back I think synovus interest bearing deposit costs were around.
40 basis points in 15, 16 know that you have Florida community now with with you know that a little bit higher deposit cost relative to legacy synovus, but just looking at a few of the categories Jumbo time retail time somebody others and money market accounts.
Do you feel like you've got an opportunity here to really kind of rightsized their book with kind of legacy Sonobi can get back to that level I'm, just kind of kind of curious how you're thinking about you know the deposit side of things in any opportunity just might present.
Yeah. That's a great question I mean, as we look forward and in 2020, we really we see opportunities to continue growing core deposits. We have a steady trend there great performance and we expect that to continue in 2020, and when you marry that with flat loan growth due to what we've talked about women are shrinking in.
Third party it really does position you well on the deposit side and so you know as we look into the second half of this year in into early 21. We wrote we do we agree with your premise there that there are opportunities for us to do further reduce deposit costs and we will be looking to that.
Okay, and then just as my follow up I'm, sorry, if I Miss it but just kind of curious you know any early indication on the degree and Scott portfolio.
You know kind of what you guys are monitoring there just kind of any update that you can give on on that relationship and how you're thinking about it.
Your bread Hey, this is Kevin I'll take that so look one of the things we haven't monitoring as their level of deferment. There there are a little lower than than.
Most of our consumer categories are about 5%. So it's holding up well I know that team has been modifying their underwriting criteria on new flow.
To make sure that they're bringing in the right type of customer but for us as we've shared in the past. This is really for us to return a discussion and today with the waterfall arrangement that we have there we still feel very good about that relationship and about those asset classes.
But over time as we as James mentioned in terms of capital Conservation and making sure. We're getting proper returns I think you'll see us.
Reduce our appetite in general for third party purchases and flow arrangements. Just so that we can use our capital for full relationship based.
Opportunities and so it will overtime become a lot more in the near term will become a lower percentage of our balance sheet.
Great and Kevin It sounds like your approach to deferrals is a little more strategic rather than wholesale have you seen the pace of those request remain pretty steady or are they started to tail off at all just kind of curious on what your thoughts are kind of where that yet that the number of deferrals go ahead.
It's a great question, because we did see an inflow of deferments request for deferments very early on and I give credit to our line of business leaders, Kevin Howard and Wayne and bark Singleton working with our credit team because any loan greater than a million dollars how to go through a credit driven process. So think about it is like a credit card.
City, where theyre going through each individual request looking at the underlying aspects of that bar.
Gaining new information on the financial statements trying to analyze cash burn so it's really serve to two functions number one.
Helping our customers when they are in need but to giving us up to date view on the underlying financial stability of that customer. So yes. It. It was I think a well well run process in terms of the timing as I said they have a lot came in in the first week or two we've seen it trail off considerably to the point now what we're really.
Not adding many deferments to that book and just want to make sure that we're clear on it it's really just a 90 day program.
Got it thank you guys.
Thank you my last question.
The next question comes from Brady Gailey of KBW. Please go ahead.
Hey, Thanks, good morning, guys.
The going rate <unk> when you look at Synovus, Florida, I know near term of things are kind of moving around but I think you had targeted at the hundred million a pre pre improvement but to be realized by by year end 2022.
That timing still on track or has that been pushed out.
You know our commitment remains to the $100 million, but you're right at the timing has been adjusted the beauty of this strategy is that we started and we did a lot of diagnostic work a lot of work in 2090 to determine what were effective possible initiatives to help us get better and we have list.
About 25 different initiatives that we looked at and then we prioritize a subset of those we've talked about in the path in the past we've talked about eight to 10 initiative, we actually have about 16 in flight right now and so but as we look at those we have shifted we have some initiatives that are that are full steam ahead still the same pace.
As we originally thought we had some that we said you know what we need to hit all we need it we need to step back in this crisis and then it's not the best times, both Paul's on those and then there are other ones that we've accelerated but the net impact of that to us into the financial is that the benefit will be delayed and so sort of the benefits that we expected to stores.
You can come in at the end of 2020, well be in 2021, and so you're right. We will see a little bit of a delay in the impact of those on the one expenses. The only thing I would add to that Fourk panel, Kevin to give more insight into noticeboard is.
In our forecast for expenses in 2020 is the same as it was in January it's just we're getting there in a different way. So in January when we talked about it we have that benefit us Nova sport coming in in the second half the year, reducing expenses improving efficiency, but now the reduction in expenses is more due to declines.
And business activity in this environment, we haven't does have natural operating leverage that allows us to reduce expenses and so you know our expense outlook is the same but to your point the impact of snow. This four is delayed Kevin.
Yeah, I did Brady I think Jamie covered it well just I highlight one activity that Jamie mentioned just in terms of one of our bigger initially it was on the third party.
Services and we've continued to work that initiative through out the crisis and I'm pleased I mentioned that in my prepared remarks that we're actually increasing the expected to benefit from that program. So although were delaying some things. There are other projects that have been accelerating they are actually bearing better fruit and we had expected.
So the Jamie's point, we're going to get there just gonna be on a slightly delayed basis.
All right that's that's helpful.
If you look at your stock trades at almost 8% dividend yield right, Jamie I heard your comments the.
Yeah. The there's no expected change in the dividend at this time, but let me just expand further on the safety in the stability of the common dividend here.
Yeah. You know is we think about our dividend policy and how we how we think about its really a function at two things first and foremost capital adequacy right and as we said we remain very confident our capital adequacy, we were well positioned we run a myriad of stress tests, we feel very good there. The second thing is fourq.
Yes, and long term earnings we believed that our payout ratio target to long term forecasted earnings of 35% to 40% is appropriate.
And that's an economic environment, it's really difficult for any company to forecast long term earnings and so we continuously evaluate our dividend and our long term aren't earnings forecast to ensure that our payout ratio remains aligned with our objectives and so based on those factors and how we see everything today.
We believe our dividends appropriate, but as we go through the crisis will continually evaluate.
Great. Thanks, guys.
Thanks Randy.
The next question comes from Kevin Fitzsimmons of D.A. Davidson. Please go ahead.
Hey, good morning, everyone.
Morning, Kevin Kevin.
Just a quick question on I know the obvious focus here is on reserve building and you guys took an aggressive steps this quarter and you implied that it's possible there may be more reserve building to come.
Next quarter, but as we would probably suspect that as we get later in the year, maybe that's when losses started emerging and when you think about the reserves. Your establishing now do you think in terms of utilizing those in other words.
I'd say, there's going to be some point of letting that.
Reserved bleed down interim as opposed to matching those net charge offs when they come and is that just how you're thinking about it going forward.
Yes, I mean, as we thing about our allowance for credit losses, I mean, it is our.
Best Best estimate at life of loan losses of our loan portfolio and so Oh, we had that build this quarter.
That we believe positions us well at 1.39% allowance to loan ratio I see our loan ratio. We feel is strong in it and it reflects a pretty pretty severe environment.
As I said on the call. We do think that some of the forecasts you've seen in April our more severe and so there might you know there maybe further build from here, but you're right that as you go through this basically Cecil forces you to front load those losses, and so you take that expense earlier in the cycle and that's exactly what we're seeing right now.
Okay. Thank you into just a quick follow up I know there were couple of questions before on PPP and ER.
You know the in terms of the impact of that over the next few quarters that we would see balances go up in second quarter, or maybe presumably come down in third quarter, and there's a dilutive impact to the margin that you referred to in second quarter, maybe that comes off in third quarter.
The origination fees should we expect that to come in theoretically through the margin as a benefit in third quarter and then you I believe you referred to one dollar amount of expenses on an up it was related to PPP or just generally but are there going to be expenses related to this program in second and or third quarter.
And just trying to gauge about origination fee when it flows through how much would conceivably falls the bottom line versus bonuses for your for your employees and such Yeah, you know.
We did we mentioned co bid related expenses, so we kind of groups more things in it than just be three and that was five to 6 million into second quarter, you're spot on with the accounting treatment as we see it for for the fees in that it flows through interest income and you are right when forgiveness happens that and we will realize.
The fee and so there would likely be a spike.
To us it's uncertain, how that forgiveness process will play out so you're right. It could it could be the third quarter. It could be later it could come in over time.
But that is exactly how it works you know you're right we have expenses with the P. three program we have.
An army of volunteers that are working all hours a day you know there used to be a saying about bankers hours being nine to three I'm convinced right now the bankers hours or 24 seven.
Folks are working around the clock to deliver a p. threed is notice customers and so we're we're pretty excited about that but I would say the expenses associated with the three are fairly minimal.
Great. Thank you.
Next question comes from Tyler Stafford of Stephens. Please go ahead.
Hey, good morning, guys and thanks for taking the questions.
Good morning.
Hi, good morning, I hopped on a pretty late so I apologize. If you guys have already covered this but I had a question about the uptick in the non accruals those were up I think around a little over 50% quarter over quarter, how how much of that was to the the reclass from PCR to BCD and can you talk about Canada, the underlying I guess.
For trends, excluding that noise, if they're running.
Hi, Tom This is Bob I'll try to give you will flavor for that it was it was slightly related to the backing out of are moving away from the acquired purchase accounting on the gross up of non accruals. We also had a specific credit that we had previously identified that didnt moved to non accrual.
And the credit secured and it has an impairment reserve, but that's that's in that number as well.
To your question more strategically about these levels as Jamie mentioned I mean, the broader credit metrics, we still feel really good about the level of of Nonaccruals and the other credit metrics in that book credit cost for the quarter than we did have were not systemic that were not.
In any specific market research to decline a business. So the answer to your more overall question is the levels are just pretty low 41 bets on NPL compares favorably to a year ago basically about the same number. So we feel good about these levels and where they are we look as we look a step back and analyze our past due ratios another earlier.
Warning indicators that we have and all those numbers seem to be favorable as well so kind of going into the crisis.
It was consistent with a lot of others credit was enough was really pretty good shape.
Okay. Thank you for that I appreciate it and then I know you touched on some some near term fee income guidance.
I think for that for the second quarter.
And again apologize finished this but what's the fee waivers that you'd expect to see in twoq provide in twoq given that the converted related.
Yes, what we'd go Tyler this is Kevin So we've had less than a million dollars a fee waivers to date and so it's going to be in that range, it's not a material amount.
We're doing it on an as requested basis. So we're not just providing fee waivers across the board. So at this point, it's minimal we'll continue to monitor that but it's less than a million dollars.
Alright, Thanks, Kevin I appreciate it that's it for me.
The next question comes from Jared Shaw of Wells Fargo Securities. Please go ahead.
Hi, good morning, I dared morning.
Just circling back on the expenses I guess.
The five to 6 million that's incremental expenses. That's it just made to come in second quarter or that is in the first quarter numbers. So I guess, how did but looking at that.
Sorry.
Yeah, that's a second quarter number so.
Our guidance on expenses, we will be flat quarter on quarter, and you know first quarter to the second quarter and that's inclusive of the $5 million to $6 million Kobin related expenses.
Okay, and then and then assuming sort of everything starts opening up again those aren't necessarily repeated in third quarter come out and then are you seeing additional expense cuts beyond that or is that really driving the the backend to lower on a lower expenses.
No it's not driving the backend those are.
The largest mine in that cobot related expense is a $50 a day bonus were given to our frontline associates and so yes, you're right that will go away at some point will have lower expenses in the second half the year really really due to the changing kind of economic activity.
Okay.
And then just looking at the at the allowance in the qualitative or growth you saw this quarter you know if we if we serve end of quarter, where we are today should we expect to see.
Similarly sized a qualitative growth in second quarter, just with the deterioration since since March there yes.
Yeah, Yeah. Good question, the qualitative I should be should be a little bit unique if you recall as we as at the end of March every week major the Washington economists rating agency economists they were updating their forecasts really on a weekly basis and you're seeing a tremendous change in every week the outlook for the ICANN.
To me and what happened is we had approved our economic forecast on March 20th and by the time, we Gotta March 31st we offer the outlook it significantly changed and so we went back and layered in that qualitative overlay really for the delta between.
More 20 at March 31st and so.
That should not be a continuous adjustment the only thing I would add though is that model in this environment model efficacy is difficult because of the stimulus programs. It's hard to say what the impact of spike in unemployment really will be with the.
Stimulus programs and so you know I would say to the first quarter qualitative is unique.
You know however, we will always look at the outputs of our models and make sure they are appropriate.
Thank you.
The next question comes from John Pancari of Evercore ISI. Please go ahead.
[noise] warning.
Hey, John just just a clarification on that last question. The qualitative we see that that's <unk>.
Are you implying that it's not like we see as large or just not must be to occur at all because you've already adjusted for the change in the macro backdrop in April versus versus what we saw at the end March.
I think I think I understand your question you're asking so at the end of March we had our economic forecasts and so if you want to thank you just to put kind of round numbers on that you would have unemployment the scenarios, 1.39% allows spread losses represents a scenario where unemployment would go higher than nine stores.
Now big declines in GDP. However, since then I you know if you look at most of these economic output are our forecast they they're more severe than that and so should you know when we do this in the end of June.
If you know our base case is what you see from some of the Wall Street shops today, it's likely we will have a further build in the second quarter.
Right, Okay, Alright, and then to frame that longer term I guess.
Once you can help us think about how you look at through cycle loss content for your portfolio given a crisis like this.
If you go last time, you had disclosed deep that data it was before Florida community understandably, but maybe you're looking at about 830 million to recycle losses at that point.
So I don't think about it now can you give us some idea when you run these analyses what you're coming up with in terms of through cycle loss content. Yeah. So the de fast results that you're referring to had a 3.6% also.
And if we looked at it if we were you know when we run our severe adverse stress losses right now for eight quarter losses, 3.6% still holds.
And that's another thing that we've looked at and we look at our allowance for credit losses at 1.39%.
We're right around 40% those eight quarter severe adverse losses, and we think that that makes sense and it's in line with what we're seeing from other peers or another larger banks and so no we do that comparison as well.
Okay alright. Thanks. So that's that's helpful will be the one other follow up on the reserve.
For the at risk portfolio that you plan you have the amount of allocated reserve to those portfolios.
John we don't disclose we haven't disclosed that.
Okay. Thank you.
Hi, John.
The next question comes from Ken Zerbe of Morgan Stanley. Please go ahead.
Great. Thanks morning, Tom again, I guess, just wanted to ask about the sort of how you're thinking about the C series or specifically in terms of a two year versus the one year reasonable supportable period, and I guess, specifically by moving to a one year.
Forecast period, and then kind of assuming everything goes back to normal after that or reverse back to normal does that reduce your c. So reserve versus if you had taken a two year forward look using some of economic data that you're talking about.
You know again, we made that decision when you look at that economic forecasts that are out there and we look look to pretty much all of them.
You see a large decline here in the near term and the in the second quarter third quarter. Then you see a bounce back and really when you look at the two year cumulative GDP you and all these scenarios you get too you know.
Down down, 2% down 5% and so.
We thought as we've looked at this first there was extreme uncertainty the the forecasts. We're all over the plays and we are that our ability to forecast for two years a it would just it's not there it just seed outdoor for and so we adjusted went to one year you know it it's something that we have planned for a.
In an adverse environment.
But but that's that's why we did it if you look at the impact of going from two years to one year, it's really hard to quantify because of the adjustment we deal with the qualitative factor and that really you know that gets us back to where we likely would have been otherwise.
Got it okay.
And then just as a follow up really quick one in terms of the tier one ratio is there a level that you just absolutely don't want to drop below or maybe the same level, where regulators by started asking pointed questions. Thanks.
Well, we can't comment on on regulatory.
Aspects of that you know I mean look we and our capital adequacy effort and our work we do we have scenarios, where we see capital I try in severe adverse scenarios I'm, obviously, we haven't going now.
Approximately 2% and severe adverse but we feel good about where we are today.
When you look at that.
We believe we're constantly looking into us and looking at you know the scenarios in light of the balance sheet in the risk in the balance sheet and credit credit metrics and so I would say there is no there's no hard and fast number I mean, we obviously have a risk appetite, we obviously have ranges.
That push us to different decisions, but.
But those aren't those on all public.
Okay, great. Thanks.
And just a reminder to kindly limit yourself to one question and one follow the next question comes from Eric Holland Baird. Please go ahead.
Good morning, Thanks for taking the questions appreciate the detail in the appendix or that going all the different coded portfolios.
Just wanted to follow up and how you're thinking about the potential loss severities for these portfolios.
And the cloud our protection that limits the downtime.
Okay. So.
First of all back in the earlier comment on just trying to put a separate reserve in for these it we don't talk about that because the models largely of formulate a view on the severity based on the underlying economics and obviously the models are going to project some sort of lost on that as it relates to the portfolios themselves, obviously, what sort of walk.
Content will be determined as we said earlier in terms of the severity in the length of the.
Revenue shortfalls, and so we model those and we look at those that's part of the reason we've been doing the individual deferment assessment. So we look at cash burns for each of these affected customers and try to make an assessment world for what the duration and how long they have in terms of cushions protection. So it's very difficult to say within any of those.
Industries, what the loss content will be a there's a lot of uncertainty a lot of factors that drive that Bob I don't know if you'd add anything to it yeah. Eric just a quick follow this is Bob I would just say it as we go through on our evaluation process of deferment exits as.
As these credits begin to come out of our deferment.
Portfolios. Certainly then we would get we'll get to evaluate kind of where where the revenue.
Accretion they can get back I have make an assessment of how quickly but generally speaking, we're we're staying with sort of the risk rating as they go through the deferment process and then as we begin to graduate credits out Ah well make further assessments and begin to build our models on loss content I know that's the question everybody wants to knows the loss content.
These identified portfolios, but we're modeling that it will begin to do that as we bring these loans out of the from.
Thanks, Kevin Thanks, and just a follow up on asset quality I guess, what do you stayed in the legacy FCB portfolio at this point.
Got it and what if any is remaining unamortized loan market, what does that mean from a poor pro forma reserve coverage.
Yeah, Hey, I guess, Bob again, I'll, just start and see if anybody else wants to jump in just a couple of quick comments, maybe back and take a step back. We we started due diligence on in that as legacy FCB book almost two years ago. This summer.
A lot of those going as you recall that was a wholesale type a book with not a lot of what we would call legacy smaller business credits in there. So it's been almost two years since the sort of synovus team has been in there we've.
Golf through a number of renewals that there's been external and internal exams. Her. So my point, telling you all that is I do believe we've kind of graduated this portfolio into the synovus portfolio and.
We feel pretty good about where we are in terms of the market itself and Jamie before Kevin could probably speak to the accounting but.
The Mark was more than adequate we didn't get the the losses that you know it was more than adequate to cover. So we've kinda graduated beyond that sort of legacy FCB legacy synovus approach and we'd like to think of it is as one market and we feel really good about the credit metrics that we're seeing relatively speaking out of that.
Out of our Florida portfolio recall Air Kit is about a third of our book of business. When you look at it from a statewide basis. So.
That's kind of some general comments about how we look at that that portfolio, Kevin on whether you want I just want to business perspective, and we continue to grow in that South Florida market place. It represents a big.
Percentage of our growth in those loans are similar loans than what they've been doing in the past than we as we've said and other calls in general the portfolio that we acquired from FCB and what was there today performs at a better level than the aggregate cash credit metrics of synovus in total so we continue to be very pleased with the credit quality there.
Thanks for taking the questions.
Thanks next question. The next question comes from Stephen Dong RBC capital markets. Please go ahead.
Hey, good morning, guys. Thanks for taking my question.
Just first question on your EUR 2 billion PPP was that all with your clients and do you have an industry break out of that.
Steve It was it was a mix it was primarily clients but.
Gosh, if it early on out I really want maybe talk about other banks, but but let's just say our teams stood up our portal quickly.
Very efficient process. The large majority of applicants were customers because of a lot of reasons, obviously no your customer and other policies that you are really good process them more quickly however, and a lot of our markets given.
Ill, just say frustration with maybe a customer's other banking partner, we did see great opportunity and in fact, I think our AR.
Small business, new deposit accounts and the first couple of weeks in April.
Hit record levels, I don't have that detail and probably but at record levels as customers of other banks established banking relationships in order to then apply as a customer. So can you may want to say more but I'd say, yeah large majority customer, but a lot of new custom.
Mers that just felt like and I've been.
Really dilute with letters of banks from from New and Oh, I will say this though on the PPD program.
We're not celebrating or high filing the fact that we've put $2 billion out is I've said do our team and Kevin in the great people that are working 24, seven really there's no cause for celebration until the last application in our cheese gets processed we can't guarantee.
Funding, we don't know how long. This next appropriation will last but for every one who's really happy we know there are others that are.
Our waiting so again, we'll hopefully I mean, I've heard depressed indicators today of when the B Tran portal. They open back up things like most people are pointing towards Monday, we were we were hopeful.
Then it would happen before the end because we're ready and again, we'll celebrate probably not the night right word because in this environment, we're not celebrating but I can tell you arching is.
Passionate and determined to get that last one through our acute care than you may have some more of the customer new customer a breakout.
Okay. So you nailed it it's about a it is 95% existing customers. We did bring in some non customers who came in and just from an industry standpoint is just as you would expect it's going to follow some of those other industries are top of our top.
Industry is only accommodation in foodservice side, the Arts and entertainment Recreation physician services are higher as well as retail trade. So.
Ironically it follow some of those industries, we mentioned earlier in terms of the enhanced monitoring.
Well, that's really great to hear and then just a follow up on Sunday, the loan deferrals or I don't have I missed it it's a number and amount of the loan deferrals.
Yes, so if we said it's about 13% of our entire books. So it's less than $5 billion and it's about 11000 will lessen 11000 notes and I think what's important to note. There is of those 11000 notes 93% of them are on the on the under a million side. So as we talking.
Not our process under a million work more of an automated process over a million went through our credit driven process. So 93% of the deferments run the under a million index.
7% over a million and that was really spread out amongst CRT and see and I, alright, and some of our private wealth loans.
Got it and that's it typically a three month deferrals that right.
That's right very it would be very rare for anything to be more than 90 days.
Got it alright appreciate thank you.
And due to time constraints will last questions. They will come from Steven Alexopoulos of JP Morgan. Please go ahead.
Hi, everybody.
Morning, David.
Just first in terms of the $5 billion on the loan deferrals could you just break that down and to see an eye cream consumer.
Yeah. So when you look at the deferrals in total.
If you break it down in those categories, we have about.
17% of our C or E book is deferred at about 13% of RC and I book and 6% of our consumer book.
Okay, Perfect and then one final one for council so would branches now operating with only a drive through.
How is that going and based on what you're seeing could you see a future where are you only need to drive through thanks, Oh, Hey, Steven that's a great question in the answer is maybe yes, now just to be clear all of our branches or are are also operating as a point my only we just need to.
No who were admitting control how many come in.
And make sure that they are properly just us, but I'm not not just of the branches to our whole way of doing business yeah absolutely.
I think we could look at because you know what are our team has responded remarkably but so have our customers.
And other than maybe some complaints about longer weights and call centers, which we don't like as it relates to our branch service our customers.
Have adapted well and got lots of notes about.
The use of the drive through and the appointment only had gone to special treatment they get that way so as we.
Go further and I've got a segue into Synovus Board and look at branch rationalization, I think Wayne Akins and his team are looking at how we have served customers, what's the white staffing model going forward.
And what's the right physical capacity going forward and just on such synovus boards actually want to.
Come back one thing Kevin commented on that I Brady you asked about the timing of the expense and revenue and I want to take full blame for any delay in timing as we went into this crisis I said to our team one day I want to see anymore consultants in the building and Columbus in Atlanta.
Distracting our came from what needs to happen and then weekly.
We realized that our effort really needed to be focused on again, what we said our two guiding principles war.
The physical and financial security of our team and again, the same thing for our customers and their safety. So.
We paused it but I can tell you to Stephen's question and others.
I believe it's been an eye opener to our team about how we can do business differently.
And so while synovus forward paused, Kevin mentioned procurement. We're also again I'm betting all of our initial thoughts and throwing new ones onto the table because of again the way we change so Steven that was a law.
To answer, but the branch system has worked very well with drive thru and.
Appointment and it certainly is allowing us to think about again number of physical locations.
And the levels of staffing to support what we've been supporting.
Great. Thanks for all the color.
Thanks, David.
This concludes our question and answer session I would like to turn the conference back over to Kessel, Stelling, Chairman and Chief Executive Officer for any closing remarks.
Well, thank you and as we close the call I just want to once again, thank our team members for all they continue to do for our company and our customers.
They're facing new challenges and opportunities almost daily in this unusual environment. It truly amazing watch them successfully in gracefully handle each one I'm only doing what's best for each other for our customers in our communities I know, Kevin Fitzsimmons asks about the costs related to PPP.
And there will be cost related to overtime related to all that we're doing with with bonus but it's also probably a cost weariness and working 24 seven I've seen team members holding babies are three I am as they input PPP loans with one hand.
So you know the dollar cost maybe one thing the cost the physical cost in our team is probably a little more severe but I can tell you.
Every hour I get multiple emails from team members.
Telling me how incredibly proud they are to be part of the company. So thanks for the team and to our customers, but again who've been incredibly patient flexible we modified the way we serve them just know that we're committed to doing all we can do to.
To minimize your inconvenience and just we want to thank you for allowed us to be your banking partner and apologize for any inconveniences you faced an end to our shareholders.
Both those new and those that have been with us long term through other economic ebb and flows we thank you for your continued.
Trust in us so with that operator.
We'll close the call we want to thank everybody for their participation and interest in our company I'm pleased they say than we look forward to talking to you in the very near future. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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