Q2 2020 Synovus Financial Corp Earnings Call

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Good morning, welcome to the Snow this second quarter 2020 earnings call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

That's a question do you mean press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then too. Please note. This event is being recorded I would I like to turn the call over to Kevin Brown Senior director of Investor Relations. Please go ahead.

Thank you and good morning during the call today will be referencing the slides and press release that are available within the Investor Relations section of our web site, so notice dot com.

<unk> Castle, selling chairman and Chief Executive Officer will begin the call you'll be followed by Jamie Gregory Chief Financial Officer, and Kevin Blair, President and Chief Operating Officer, Our Executive management team is available to answer your questions at the end of the call. We ask that you limit yourselves to two questions.

Let me remind you that our comments may include forward looking statements. These statements are subject to risks and uncertainties in the actual results could vary materially we lift these factors that might cause results to differ materially in our press release, and then our FCC filings, which are available on our website.

We do not assume any obligation to update any forward looking statements as a result of new information early developments or otherwise, except as may be required by law.

During the call we will reference non-GAAP financial measures related to the company's performance you may 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 second quarter earnings call before I moved to the financials I just wanted to share up you comments and reflections on our industry.

And our company.

The defining characteristic of our industry's change and I've certainly seen last year of change them afford a half decades of this business, including this unprecedented pandemic in period of social unrest.

And although dangers relentless I've never been more can best of the ability and responsibility of our industry to be a trusted resource for our customers and for the communities we serve.

Synovus in particular is built for times like these embedded in our markets close to our customers and able to quickly assess and anticipate needs and that continues to ring true as challenges linger.

Even as we see glimpses of a slow and steady recovery.

The story will tell today is largely shaped by our model that has allowed us to respond to plan for and do our best to control the things we can control.

So before I turn the call over to Jamie I'll share highlights of the second quarter beginning on slide three.

Adjusted diluted EPS was 23 cents compared to 21 cents last quarter and one dollar a year ago.

Loan balances increased 1.7 billion or 4.3% compare to the prior quarter.

Growth in Paycheck protection program loans of 2.7 billion was offset by a reduction in C.I. line utilization of 775 million.

In the consumer book loans were down approximately 700 million as reductions in lending partnership balances were partially offset by mortgage balance increases a $200 billion.

Total deposits grew 4.4 billion or 11% from the prior quarter.

Growth was largely split between DTA and interest bearing core deposits, which grew 2.9 billion and 1.2 billion respectively.

We continued the strategy, allowing higher price Cds, the run off which led to a decline of 655 million in time deposits.

Net interest income was up $3 billion for the quarter. This included a full quarter of the 150 basis point reduction in short term rates from March along with offsets, including over 9 million in fee recognition associated with T. Three loans.

The net interest margin declined 24 basis points to 3.13%.

Adjusted non interest revenue of 95 million was greater than expected largely due to outperformance in mortgage net mortgage revenue was 24 million up 11 million from the prior quarter led by secondary mortgage production up 635 million up $380 million from the prior quarter.

Adjusted non interest expense totaled 276 million up 5 billion from the previous quarter.

This included $7 million of Kobin related expenses, and 7 million fees associated with the implementation of certain synovus forward initiatives Commission expense was 7 million higher than the prior quarter, largely resulting from record mortgage production.

These increases were offset by reductions in other areas, including seasonal employment fees and travel.

[noise] provision for credit losses was 142 billion and resulted in an allowance for credit losses ratio of 1.74%, excluding the Pete Rebalances.

That's an increase of 35 basis points from the previous quarter and incorporates a more stressed economic outlook.

Credit quality metrics remained stable with the nonperforming loan ratio and net charge off ratio of 37 basis points in 24 basis points respectively.

Capital ratios improve based on strong operating performance and balance sheet optimization, which Jamie will detail later in the presentation.

Our C.G., one ratio increased 20 basis points to 8.90% and our total risk based capital ratio increased 41 basis points to end at 12.70% a two year high.

The 90 day deferral program, we outlined on the last call has done exactly what it was intended to do by providing much needed support and assistance for our customers.

While it's too early to know exactly how deferrals will play out in the second half a 2020 reviews of customer cash flows client surveys in conversations and interactions with customers to date lead us to believe is somewhere between 3% to 5% of total loans will have a round two deferral granted for a 90 day deferment of principal and then.

Jamie will now share more detail about the quarter.

Thank you Castle have castle noted this is a very eventful quarter for our company with considerable progress on a number of fronds despite headwinds, resulting impact on our balance sheet has been significant starting with loans on slide four.

As we shared in May we funded $2.9 billion in P. three loans for approximately 19000 customers quite an undertaking which required a coordinated effort across our bank.

The average P. three loan was approximately $150000 and the customers that receive those loans employee over 335000 employees.

And offset to the see an eye growth from P., three loans, which ended the quarter with the balance of $2.7 billion.

What's the decrease in loan balances from see an eye line utilization.

We ended the second quarter at a record low a 41% that resulted in balance sheet declines of $775 million.

We expect C N I line utilization to normalize in the mid to upper 40% range as the economy improves.

Highlights in the consumer portfolio include mortgage loan balance increases of over $200 million on a production of our record $800 million.

As long as disclosed during the quarter, we restructured our green sky relationship in a way that is mutually beneficial.

Our total exposure limit remains $1 billion for the relationship, but you'll see a shift of loan balances from held for investment to held for sale.

In the second quarter.

We moved $266 million and loans to held for sale under this new arrangement.

Going forward, you'll see a shift in geography on the income statement from our Green Sky loans as we realize more non interest revenue from transactions and servicing fees as well as a reduction in net interest income and non interest expense.

The other meaningful item to highlight within partnership lending isn't disposition of approximately $535 million in student loans.

In June we moved those loans to held for sale, which contributed to the decline in consumer balances and resulted in an allowance release of approximately $12 million.

We have close that transaction since quarter end, realizing a modest gain which will be recorded in the third quarter.

We believe that the strength of the market for these loans is a testament to the quality of these loan portfolios and we remain committed to those relationships. While also acknowledging that our core customer base takes priority as we focus on managing our balance sheet in these uncertain times.

We continue to expect loans to be flat for the remainder of the year, excluding the impact of P. three forgiveness.

On slide five you can see that we had unprecedented growth and deposits with D.A. balances up $2.9 billion and total deposits up $4.4 billion into second quarter.

Much of this growth occurred in conjunction with our Petri lending effort. However, we also saw broad based growth across interest bearing transaction balances with money market and now up 11% quarter over quarter, while savings balances increased by 14% quarter over quarter.

While lower cost transactional deposit growth has accelerated since late in the first quarter. We have continued to experience strategic declines within our core time deposit portfolio.

As you are aware much of these declines have been intentional over the last several quarters as we've reduced exposure to higher call Cds and public funds in certain markets.

One of the benefits of having a sizable time deposit portfolio is the ability to reprice as rates decline and that portfolio turns over.

Our transactional interest bearing accounts approaching the lowest rates experienced since the great financial crisis. We expect further declines in rate paid on deposits to be led by strategic turnover within our core and brokered time deposit portfolios.

As a simple means of comparison to the prior cycle.

Synovus achieved its lowest deposit costs in the third quarter of 2014.

At that time total interest bearing deposit costs were roughly 35 basis points.

While our our deposit mix has evolved from that time, we believe a return to comparable levels is achievable in the coming quarters with continued pricing and balance sheet discipline.

We expect deposits to decline in the second half of 2020 as excess liquidity is deployed.

Slide six shows net interest income of $377 million, an increase of $3 million from the previous quarter.

This benefited from $9 million in FY accretion from our P. three loan portfolio.

In the coming quarters P. three forgiveness may have a meaningful impact on our net interest income has unearned fees associated with that program are recognized in the interest income.

The three processing fees totaled $95 million.

In terms of net interest margin, we ended the quarter at 3.13% down 24 basis points from the first quarter beyond the anticipated impact associated with the lower rate environment. The significant inflow of deposits throughout the quarter resulted in an excess cash cash position, which while not impactful to net interest income.

Diluted the margin by approximately eight basis points as compared to the prior quarter.

Although we expect to maintain an elevated level of <unk> liquidity within the current economic environment. We also anticipate some reversal and that elevated position in the second half a year, which should support the margin.

Balance sheet management activities in the second quarter, including Securities portfolio sales the student loan sale and the Greens Guy strategy change will serve as a headwind to net interest income beginning in the third quarter and will put some additional downward pressure on the margin.

The impact of these recent transactions is approximately nine basis points to the margin.

After adjusting for these impacts and excluding the impact of P. three loans, we expect the margin to remain relatively stable in the second half of 2020.

We were pleased with non interest revenue of $173 million or $95 million adjusted shown on slide seven.

Transaction activities, including capital markets activities mortgage originations and credit card transactions exceeded our expectations and we had one of our strongest quarters in fee revenue.

We realized investment gains of $78 million, which include $70 million from repositioning the securities portfolio.

While these transactions, we're primarily focused on agency mortgage backed securities part of the repositioning included the disposition of our remaining a $150 million and collateralized loan obligations in the investment portfolio.

Total net mortgage revenue was $24 million, which was $11 million more than the previous quarter.

This is the result of an all time high of $635 million in secondary mortgage production and an elevated gain on sale.

Looking forward to the third quarter, we do not expect net mortgage revenue just stay at the record level of the second quarter.

Led by normalization of mortgage revenue, we believe a reduction of adjusted noninterest revenue in a third quarter is likely before we see a return to consistent growth in fee revenue.

Non interest expense of $284 million for $276 million adjusted is shown on slide eight.

As expected, we had approximately $7 million in covered related expenses in the second quarter.

It included bonuses the certain frontline team team members as well as efforts to improve the safety of our team members and customers.

Adjustments for the quarter of $8 million included expenses of $3 million related to branch closures.

And restructuring of corporate real estate as well as $5 million in expenses related to the global one earn out liability.

Adjusted expenses included the $7 million encoder related expenses as well as an increase in commission expense of $7 million higher than the prior quarter due to elevated mortgage production.

The second quarter also had $7 million, an upfront expenses related to efforts, we've made to implement and execute certain synovus Ford initiatives. These efforts will help us achieve sustainable top quartile performance that Kevin will provide an update for shortly.

Consistent with prior guidance, we expect expenses to decline in the second half a year.

And credit ratios shown at the top of slide nine which include N P. H npls and past dues remained stable.

We generally expect some pressure on these credit metrics over the next few quarters, which aligns with the reserve builds in the first half the year under the pro cyclical nature of diesel.

Although loan deferrals have an impact on these metrics. It's important to note that we're not seeing any widespread deterioration in the portfolio and these ratios remain at or near lows for this credit cycle.

The net charge off ratio was 24 basis points up four basis points from the prior quarter net charge also $24 million largely resulted from a single credit there was moved to non accrual last quarter.

Provision for credit losses of $142 million resulted in an allowance build of nearly $120 million from the current expectation for longer term economic headwinds.

After adjusting for P. three loans, the AC our ratio increased 35 basis points to 1.74%.

The economic assumptions for the current quarter include the estimated impact of stimulus and an unemployment rate declining to around 10% by the ended the year and remaining elevated throughout 2021.

We anticipate and moderate economic expansion following the dramatic spikes in real GDP expected in the second and third quarter is probably a year.

Economic uncertainty remains great due in part to the direct impact of coated the AC our ratio could remain elevated due to this economic uncertainty and credit migration, which could result in today's allowance for credit losses, not fully funding future charge offs.

Slide 10 includes a review of our capital position as we ended the second quarter.

Our focus remains on diligently managing our balance sheet and capital in alignment with our risk appetite and capital adequacy process.

And you can see the result of that effort and our capital ratios.

Do you want improved 20 basis points to 8.9% and total risk based capital Rose 41 basis points to 12.7% the highest level in two years.

Actions included student loan sales and the settlement of security trades in July will further reduce risk weighted assets and will benefit C.G. won by approximately 20 basis points in the third quarter.

As it relates specifically to account common shareholder dividends, we continue to be guided by two considerations capital adequacy and long term earnings we remain confident in our current capital levels, which is supported by stress testing and sensitivity analysis.

We believe it's important for shareholders to receive current income on their investment and also for us to retain enough capital for our strategic growth objectives to achieve those objectives.

Total long term payout ratio of 70% to 80% as appropriate with approximately half of that coming from common shareholder dividends.

Before handing off to Kevin I'd like to summarize our falls on the balance sheet.

We remain confident in our capital position and the second quarter is showing we have the means to further support capital when needed.

On December 31st to June Thirtyth, we increased our allowance by approximately $400 million, while maintaining a stable C.G. one ratio.

Given the elevated uncertainty, we're not planning to repurchase shares and 2020, and we'll use future earnings to build capital and grow our businesses.

We expect our primary means of capital return to be through dividends and accretion of our tangible book value with that I'll turn it over to Kevin to speak further on our efforts to assist customers through this environment.

Given the hands detail within our credit portfolio and an update on our progress within Synovus Ford.

Thank you Jamie I'll begin on slide 11, with an update to the segments. We highlighted on the last call that we defined as particularly sensitive to covert 19 balances totaled $4.7 billion and these industries, which is stable with the prior quarter.

When we implemented a 90 day deferral program in late March we utilize a review process, particularly on our larger customers to assess the impact of the economic conditions that warranted a deferment to help address short term changes in cash flow as these deferrals and we have once again, taking a proactive approach and conducted.

Thorough cash burn analyses on our customers to determine who will continue to see reduced levels of cash flows over the next 90 and 180 days.

What we found is that a large percentage of the company's experiencing a longer term impact. The cash flows are encompassed in five at the segments identified on the slide let me touch on each industry briefly I'll start with the hotel industry, which continues to see a 40% to 60% decrease in occupancy and revenue per available room, given the reopenings in the south.

East and the increase in occupancy in various drivable vacation destinations, we expect cash flows to increase somewhat in the coming months and as a result, the overall deferral rate of the hotel hotel portfolio to range between 30 and 40% in the next 90 days as we shared last quarter. This portfolio maintains a strong.

On loan to value slightly over 50% and it entered the downturn with almost two times debt service coverage.

For non grocery anchored shopping centers, we expect to see difference in the range of 20% to 30% as certain types of retail are performing well such as home improvement in electronics, while other retail reopens and resumes their sources of revenue.

Moving to restaurants. This industry benefited greatly from the P. three program and we're seeing more significant improvements in the quick serve and fast casual businesses, which will lead to a reduction in second round deferrals. However, we continue to see a lag in rabun revenue recapture and full service and drinking establishment.

Similar to shopping centers the impact on the retail trade industry is largely a function of the type of goods sold but we are seeing improvement here as well with overall cash flows increasing in June versus the previous year with solid growth in beer and wine furniture and grocery related trade and therefore, we expect tend to 20% of the portfolio.

To pursue a second round the principal and interest deferments fitness recreation and entertainment centers are among the industry's hardest hit by the shutdown, but golf courses in country clubs are faring better despite the softness in some of the entertainment industries. We do expect this industry to have low percentage of second round deferments.

Our oil related segment totaling approximately $300 million and Outstandings was initially of greater concern.

To the negative oil futures and the impact of less travel. Despite those concerns we saw a lower percentage of first round deferments and expect this portfolio to continue to perform well with minimal second round deferments in aggregate, while deferral trends are positive to this point, we're keenly aware that any additional mandate at closings from that Covitz.

As in our markets would have the potential of impacting cash flows and therefore, increasing the need for additional deferments.

At this point I would like to draw your attention to slide 25 in the appendix. Another notable segment that is often discussed as a co bit impacted industry that is not on this list is our senior housing portfolio, which is over $2 billion. An outstanding we have not included senior housing on this slide based on the solid performance of this.

Portfolio and our outlook on future performance. The reason for exclusion is supported by the fact that we've only seen 4% of the outstanding balances deferred and round, one which was comprised of five loans and the expectation at this time is that we will have no further deferments in the portfolio during round two and a.

Second we continue to work closely with our customers and the industry associations as well as actively monitor cash flows which have turned it down only modestly to date, our senior housing portfolio, primarily includes private pay facilities that have better access to resources, including staffing and equipment. This portfolio is led by.

Very seasoned team with a stellar track record dealing with long time operators the portfolio carry strong ltvs and debt service coverage metrics and it strategically aligned with sponsors who have access to liquidity and have demonstrated commitment to the space over several decades.

In terms of overall portfolio deferments, a significant percentage of our first 90 days referrals have expired and at this point, we're seeing a relatively low level of additional request, which is partially due to the timing of payment due dates.

As of July 14th 2.3% of the total loan portfolio was in a 90 day deferrals status. We will continue to gain additional insights in the coming weeks, but based upon current conditions activity to date and ongoing discussions with our customers as Kessel mentioned earlier, we believe this percentage could increase.

Into the range of 3% to 5% this quarter the process for granting a second deferral takes into consideration the borrowers current financial condition and liquidity the impact to the bars industry from cobot 19, and the performance history of the bar pre kind of it.

The strength of our portfolio coming into the crisis combined with the assistance from deferrals and government stimulus programs should help many customers whether this storm and helped to mitigate minimize defaults combining these actions with strong loan to values and good sponsorship should help to mitigate and limit future losses moving this.

Slide 12. This is an example of the analyses we've conducted to identify NSS the financial strength of our borrowers. This work is supported by our commercial portfolio transaction data, where we have the primary operating accounts approximately two thirds of our commercial loan exposures have an operating account opened with us and we have been can.

Hearing their cash inflows, which can serve as a proxy for revenues on a year over year basis to assess and predict their ability to repay debt. During this crisis using this data we have validated the impact the cash inflows between our customers who received a deferral and those who have not as well as the pace of improvement our customers.

Overall have experience improved cash flows since the trough in April with the month of June exhibiting only 6% reduction in cash inflows relative to the same month last year.

This analysis is constructive in evaluating current conditions, but more importantly, it enables a more real time analysis versus traditional underwriting criteria and provides a prediction of cash flows throughout the current economic cycle. The predictive analytics allows us to determine which customers require intervention and whether for example, a deferral or.

Bridge facility could provide the support needed to supplement short term cash flow disruption. It also provides early identification of customers, where the outlook is less optimistic, thereby allowing us to take earlier action to reduce and mitigate losses.

As we turned from credit to slide 13, before I talk about the future. Let me briefly touch on the president despite the challenging environment. Our businesses continued to perform well you've heard from cast one Jamie on the financial results this quarter and those results reflect the ongoing success, we have across our geography and our business units.

I want to highlight several areas that continue to perform at a high level in this difficult economy.

First as we have mentioned several times on todays call our mortgage business produced $1.4 billion and the second quarter, which was up $900 million or 164% over the first quarter. This year, yes, the low rate environment helped drive volume, but it's important to also note that mortgage loan originators were.

Recruited since January 2018, Hebrides, 42% of the year to date volume successful recruiting in the past two years has also proven to be a key factor in our mortgage growth.

Second we continue to bolster our balance sheet and TNL through productivity gains with mortgage and wholesale banking, leading the way second quarter fun funded loan production was up 43% versus the same quarter last year and deposit production with increases in all of our lines of business was up 37% versus second.

Quarter 2019, the deposit growth is a great example of how our relationship based model continues to deliver results. This quarter's results reflect the growth in both balances and accounts. It is a function of new customers being gained through the p. three process, new talent that we've added as well as thorough.

Consistent prospecting efforts, while continuing to see a existing customers augment their balances.

Next as Weve also shared in the past, we had been aggressively adding talent and new services in our Treasury and payment solutions area. As a result production revenue up $2.9 million in the quarter was up 210% versus the second quarter of 2019.

Lastly, our global one premium finance business unit continues to generate strong growth, while improving returns and the overall efficiency of operations.

As a result of this continued success and the successful integration within Synovus, we've expanded the responsibility of the executive leadership to now lead our specialty Finance division, which includes structured lending and asset based lending.

Underlying all of these results we have seen more significant year to date growth in markets, where we have made substantial investments in talent in marketing and distribution channels markets, such as it Atlanta, Tampa, Miami, Birmingham, and Greenville, South Carolina drive a large portion of our overall growth.

Speaking of talent, we have continued to selectively attract top talent in growth markets throughout this quarter across all of our businesses.

We have achieved these results, while our customer satisfaction scores and our branches and our contact centers remain quite high and they've actually increased versus historical levels. All of these areas as well as well as others have not mentioned gives me great confidence in our ability to win and when we return to a state of normalcy, we will be even better position.

To do so.

As I close let me transition to our Synovus forward initiative, which we've highlighted on slide 13, we remain focused on the execution of this program to drive incremental efficiencies and sources of new revenue in 2020 and beyond our financial objective of an incremental $100 million and pre tax income remains intact.

But the efficiency benefits being realized early in 2021, while the revenue benefits will continue to build throughout next year.

Our work on one of our largest expense initiatives. Our third party spend concluded last week. This work stream was accelerated and has proven to be quite fruitful with the identified savings from the renegotiation and demand management efforts, yielding savings of around $25 million. These benefits will be fully realized in our run rate expenses.

In 2021, we've also completed phase one of our branch consolidation in corporate real estate optimization efforts and our diligently working on subsequent opportunities that will result in additional savings in 2021, we remain confident in our ability to generate $45 million to $65 million an expense savings through.

This program.

Well, we have focused more intently on the efficiency initiatives out of the gate. We have also turned our attention to the revenue opportunities that were identified during the diagnostic phase with the total potential pre tax income up between 35 and $55 million analytics enhancement is at the center of many of these opportunities as I mentioned.

Previously during the second quarter, we utilize the resources on this work stream to build out our credit analytics and predictive modeling capabilities to create early warning mechanisms that will allow us to take actions to mitigate and reduced credit losses, we will benefit from this work in the coming quarters, but this work will also serve.

As the baseline analytic framework to generate and advancements in our sales and our service activities as well as improvements in our overall relationship profitability.

Moreover, as we enter 2021, we will be in a better positioned to optimize the pricing of our depository and treasury products and solutions through the deployment of new tools and processes.

We will maintain a dedicated team to continue to lead this work and will also remain flexible to adjustments and additions to the overall program. This work serves as our norstar as we prioritize future investments and determine needs to continue to differentiate synovus and what is becoming an increasingly competitive landscape.

We also recognize the uncertainty in the environment and the subsequent impact the financial results, which may lead to a change in the scope in the sizing of the program and the management team is fully committed the execution and the delivery of the results with those comments now let me turn it back over to Kessel to begin the Q in a portion of our program.

Thank you, Kevin and before I go to Q and I just want to.

Close by thanking our team I had the privilege last week participating in our mortgage company Town Hall meeting.

Well they were celebrating a quarter of.

Not only record production, but significant increases in customer satisfaction surveys and I've said to them, what I'll say to our entire team today I've never been more proud to be associated with the synovus team and I continue to be inspired by not only what they do.

But how they do it putting our customers first and all that they do.

Each and every day.

And in spite of all the challenges and uncertainties facing our industry.

We continue to attract and retain the very best talent in the industry.

And now operator, I'd like to open the floor for questions.

We will now begin to question and answer session to ask a question you May Press Star then one on your Touchtone phone.

We are using the speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too and the interest of time. Please limit your questions to a question Andy follow up question at this time, we'll pause momentarily to assemble a roster.

Our first question comes from.

Bradley bat and Brady Gailey from KBW. Please go ahead.

Thanks, Good morning, guys.

Good morning.

So I wanted to start with the expense based on an adjusted <unk> point of view it was 276 million this quarter.

Talk about expenses going down in the back half of the year.

Maybe just talk about the magnitude of how much of a decline we could see there and then you that that's good news on the third party spend 25 million. It seems like that was a little more than than you all were anticipating.

Now you're looking at the branch side it feels like.

You know with the new backdrop of coal, but you can maybe find a little bit more than you were expecting there too, but maybe just talk about the a possible upside on finding more expensive than initially expected under this and I was forward.

Yeah Reddy ice Jamie Good morning, Oh, you know as we look at expenses in the second half of this year. There there are a lot it ebbs and flows.

We do it back expenses to be lower.

I would be a predominantly led by personnel expense declines.

That's also assuming that mortgage revenues donuts stay at the high last week.

Or Oh, we expect that normalize as well.

Well, Yeah, you mentioned, we continue to focus on real estate, we closed six branches in the first half a year and were for Robert I can close another seven in the second half a year.

Our active there and we're also reviewing our non real estate as your as you're aware.

We're all learning a lot about how to use non brands real estate and the environment and so we are reassessing everything.

And we believe there are opportunities there you're right on the third party Spanish.

Has performed better than expected.

I always pleased when when we can find additional cost savings.

Good morning spend and we've done that those days will come in over the next few quarters, they're not immediate just because some of the contract you know there they don't renew immediately and so we'll see that come in over the next few quarters Oh, we're very pleased with that we still you know we still believe that expense save range of 45 65 million makes.

First notice for I will say that we're constantly reassessing. This is an evolving environment.

We're looking at your longer term under 2021.

Formats, the performance outlook in our strategies will evolve as the environment.

Just to remind you that Lee I came up with synovus forward and launched it in a very different operating environment. We had Oh, you know growing economy and the outlook is changed significantly and so as Albert changes our strategy changes. So you should expect to see that.

Okay and then my second last question, it's just on the dividend here with the stock trade with the seven and a half a cent dividend yield. It just continues to be a big investor focus. If you look good reported earnings of 57 cents this quarter.

You know just a great quarter. It feels like you should be more comfortable with the dividend. After two weeks ago is at a fair assumption.

Yeah ready, we are comfortable with our dividend I'm you know, but we as you know we look at it in two different things working capital adequacy and we look at.

Long term earnings in the payout ratio and so with capital adequacy, you know I as I look at where we are today.

And we were right at or 9% C.T. one target on that target is informed by stress testing and if you look at severe adverse scenarios over a nine quarter period, we expect capital degradation of around 2.3%.

We also took a look at the losses and the most recent the fast resolved and those in our portfolio the top level and you confidence or a capital degradation. When you when you look at that kind of external view.

So we feel good about 9% FY 18, one what I'll say is that we ran our stress does not count degradation, we didnt have near the allowance than we have today and so we've built the allowance while maintaining capital and we ended the quarter at eight nine but as I mentioned and are prepared remark.

The transaction that closed and settle since quarter end well at approximately another 20 basis points to common equity tier one and so we feel really good about where we are a with regards to capital at this stage.

And then with regards to earnings in a payout ratio, we believe that it's appropriate have 70% to 80% total payout ratio, we want to retain capital for growth, we believe very strongly and the opportunity for snow this in the southeast.

And we organic capital generation is the best way they have capital to go out there and grow customers and grow the bank. So we wont to retain capital.

Generated through earnings for growth.

Well, we also believe that investors have the right desire a car or earning call and so we weigh both of those we look at our forecast and and we look at our you know total payout ratio under dividend payout ratio dividend payout ratio.

Is elevated averse our targets over the foreseeable future, but if I did not restricted our strategic plan. So we feel good about where we are.

Great. Thanks for the color guys.

Yeah.

The next question comes from Ken Zerbe from Morgan Stanley. Please go ahead.

Great. Thanks, I guess it really quick question in terms of slide 11.

Obviously, the the amount of deferrals that you expected around two are significantly less than what they are in round one but can you talk about the loss content. When we think about those round two deferrals. Obviously they are the weaker credits that are asking for more time.

There's a loss content, presumably go up dramatically on those or how are you thinking about that thanks.

Yeah again this is Bob I'll try to answer that on on these strategic industries or code intensive industries that Kevin pointed out, but when you start thinking about loss cod. Yeah. I mean, clearly we are modeling various scenarios, there, but back to cabins pointing back cash flows in his comments.

Early indications are that are.

The book has moved back closer to the breakeven cash flow line. So you again, you start thinking about you know how do you model and run various scenarios, so clearly hotels and shopping center from a CRT perspective, Oh, we believe what would be.

Most impacted or when you think about looking at third and fourth quarter looking second referrals from a local content, specifically, obviously I don't.

Can't give me a complete estimate when modeling various scenarios and feel good about where we are today.

As it relates those portfolios.

And Ken I'll, just add you know Bob mentioned some of the analysis, we're doing when you when you look at it at a bed abroad level, we only have a very small percentage of our customers, 1% to 3% that would have a patch financing need in the next 90 to 180 days and that's where we're evaluating whether it'd be additional stimulus.

That would come from the government or whether it be existing plans remain street lending or other bridge facilities that would bridge that gap so to bobs point, it's a very small percentage and when you look at the cash inflows and how they come back in June gets really going to be a wait and see if we look into the future and see what.

July August and September hole for many of these industries and what would happen if theres a surgeon cases, and there would be a a return to lower levels of cash inflow. So I said it well we it's a unknown at this point, but we do feel like we ring fence the risk and we have a good estimate of where the risk is coming from him. We're doing everything we can now to mid.

Okay.

Got it Okay, and then I just my follow up question staying with with credit I think Jamie mentioned.

A sentence in his prepared remarks, essentially said the hcl could remain elevated and essentially might not fully offset future charge offs I get it if the economy deteriorate from here that totally makes sense, but given cecil like your charge off should more than cover vigor all your anticipated charge offs.

Sorry, Your reserve should cover all your anticipated charge offs.

You do expect given todays expectation and we certainly heard from other banks.

One in particular said that they think the second quarters the peak in their reserve ratio and it should start to decline.

Given what they're expecting is there anything different with your portfolio that or is that sort of a throwaway comment that that provisions and their reserves aren't going to fully cover charge offs I'm just want make sure I don't Miss read that in any way next Gen. Genis, Jamie you know you're thinking about it exactly right that comment it just really.

Is around the uncertainty in this environment, obviously, we believe that our allowance today covers us for the charge offs embedded in our book like loan losses, and so we feel good about that however, it's just highly uncertain and we will be constantly reassessing that as we go through the next few quarters.

I'm looking at both economic outlook and risk rating migration.

Alright, great. Thank you.

The next question comes from Jared Shaw from Wells Fargo. Please go ahead.

Hi, good morning.

Merger.

Just sticking with <unk> and the deferral renewals.

We able to get any type of concessions or or enhancements more broadly from the from the loans that are going to be going into the second round of deferrals. I guess how are you. How are you looking at I'm actually approaching the renewals whether it's in the covert century sensitive industries or whether it's just more broadly.

Yeah, Hey here. This is Bob just a quick comment on the deferral process nothing happened problems that for you.

That process, you know obviously doesn't tail us.

Pressing the credit on the loan by loan basis, certainly on the larger wholesale account in that process that we clearly are looking at modifications to the no changes to the collateral changes to recourse et cetera. So you get you know sort of a read a re underwriting to some.

Degree effect on that credit. It also gets a refreshed risk rating et cetera, and kinda Jamie's point earlier, there's migration involved there too. So it's a pretty detailed look at a specific credit in order to grant second referral enough. Some of the smaller credits to Kevin Blair point earlier, we're using a lot of.

Data analytics, a this that is helping us drive those decisions for second deferral says a lot harder to do the jobs on the smaller portfolios.

But we're also not just granting them without looking at some data as well and I just.

To your point, you were getting guarantees where it makes sense, we're taking extra collateral or JV. So not only are we protecting ourselves myrisk standpoint, we're trying to benefit the personnel at the same huh.

And then on that risk migration that you mentioned so on some of those we could potentially see you know some incremental level charge off or at the at the renewal of the deferral if it if the.

If that underwriting or those values and hold up.

Yeah, Jared I guess as Bob again, I think theoretically you could but but recall remember we're still early in the process and I think we did see some migration in our in our rated book as you saw but.

With the amount of liquidity out there and what we're seeing talk specifically with our customers, particularly our larger accounts.

Is that that'll probably be a few quarters down the road before we begin to see what what level charge will begin to materialize.

Thanks, and then I guess my second question can you give a little more detail on the securities repositioning you know, where you're seeing a where where you're reinvesting cash flows. This one.

Yeah, there's just Jamie.

With the securities portfolio, and we looking I came into the second quarter interest rates, obviously decline if you looked at the mortgage refinancing index. It was spiking, we had our own production was increasing.

And we looked at the portfolio and we have significant amount of securities portfolio. So we saw elevated prepayment risk and we had a gain on a unrealized gain in the securities and we decided that.

It was better to take those gains realized them move that income for it and reduced pre pay risk and so.

We did that in the securities portfolio. If you look at portfolio at quarter end out the book yield.

Approximately 2.4%.

<unk> one yield for new investments. These days is approximately 1.5%.

And so that's that's the rationale behind the transaction.

You know, we will continuously evaluate that portfolio and look at market dynamics as we think about how to manage it going forward.

[laughter] background.

Okay, and then but the duration of new purchases is [laughter], you're not you're not changing I guess the the.

Tenor of new purchases.

If you're not not significantly we did extend duration a little bit on new first.

Great. Thank you.

The next question comes from Brad Milsaps from Piper Sandler. Please go ahead.

Hey, good morning.

Good morning.

Kevin I just wanted to do you maybe talk a little bit more about slide 12, I thought that was in rushing just want to make sure I clearly understand.

This covers about 65% of your alone for color and it's really based on.

Changes in for you know kind of kind of what you're looking at in terms of operating deposit accounts are you actually looking at real time.

Cash flow statements from from customers to drive a that's a data that's on slide 12, just wanted to kind of understand that a little more clearly.

Yes, you Brad.

Former so we're looking at their operating accounts to evaluate what the cash inflows are and quite frankly, the outflows in those accounts and so we use that information its transaction level data. The reason is 65% is that's where we felt comfortable with having the full relationship to be able to look at all the inflows and outflows and.

As you stated it gives us an opportunity to look at static environment. So we saw in June that there was only a 6% reduction in inflows across the entire book and I think it shows you that we've done a good job identifying those loans they needed from anything that they were still down 12% and those that didnt need a department or the inflows.

We're down only 5% no. There's this is one side of the equation obviously each of these businesses can be a constraining their outflows. So it doesn't mean that necessarily that it's a it's a drop at the bottom line is Jamie talked about in his prepared remarks, we've actually seen an augmentation of deposit balances over this timeframe roughly 10% on average.

Balances. So it shows you, even though inflows are slowing.

During the crisis people are able to slow their outflows as well what's most important about this data and Bob mentioned it earlier is with the thousands of accounts that we had that we can't go do what you're suggesting the cash burn analysis, which we are doing on the larger credits. This allows us to look at the static position, but then most importantly.

Predict into the future knowing what the recovery rate per industry is gonna be and so we can know 180 days or longer a 12 months out where there has got any a shortfall in the cash flow and we can take action today. So it's good information. This is static just know that that the most important part of it is the predictive ability to having all that.

Transactional data to be able to take early ash.

This is this something relatively new personnel this or Isaac you know things the cat you, but maybe rely on the past it or maybe you know from your experience at Suntrust or Jamie coming from regions.

It's it's new we leveraged is as I mentioned on synovus for it we had an analytical work stream that we were starting that was largely focused on sales and service tight.

Initiatives and we read diverted those resources to take all of our analytical resources internally and a third party to develop out this predictive model during the second quarter, so its new and and the good news as Brad it's going to not only serve as a great platform for credit analytics that same transactional data will allow us to do so.

Service and sales leads and other types of relationship building, a predictive modeling that will be coming in the latter half of the year.

Great and then just one final follow up a related to the margin. Jamie mentioned you know over the next several quarters getting a interest bearing deposit cost down to the third quarter 14 levels you feel like this environment you kind of where you are with the Florida franchise will you know kind of allied to sort of you know equate those two deposit bases to one another.

In other words, bringing that mix more in line with legacy Synovus terms of cost or is it is Florida market. We still active you know pay up to some degree to continue to get funding.

Yeah.

First as you look at Mic Oh, we have achieved largely achieved returning to the pre fcbs noticed.

So we're pretty pretty pleased with that we included a chart showing the relative cost to our third quarter 2014 lows really didn't show where the opportunity lies in its in our time deposit.

And when we look at our core.

Time deposits, we have 2.8 billion that mature in the second half of this year, how the average rate on the maturities is somewhere around 1.75 personnel are going on right on on time deposits is over 100 basis points lower and so we do have line of sight into how we're going to attack that.

I'll call it largely in the timed out about Oh, you know I mentioned core time deposits, we all topped off duty and public bonds. We also have the opportunity brokered time, and there's still some opportunity lap in interest bearing transaction deposits, but the larger opportunities in time deposits.

Great. Thank you.

Yeah.

The next question comes from Jennifer Demba from Suntrust. Please go ahead.

Thank you the money.

[laughter].

You mentioned your net charge offs. This quarter were driven by largely about one credit when industry was that in and what was the severity of loss on that I'm not loan and then my second question is can you share with us.

Your criticized loan levels in in your more pandemic instead of loans that you outlined in the debt. Thanks.

Yes, Hi, Jennifers, Bob as Jamie mentioned, there was one credit it was in aviation.

That we've been working through that credit is now for a few quarters, we think we.

I recognize the loss content goes to our normal inherent process et cetera. So we don't like to talk about specific credits, but that means flowing through the normal process as it relates to your question about migration into sensitivity or the sensitive industries.

Within that migration, obviously, that's a there is some correlation there are two our increase in criticized classified would correlate somewhat back to mainly the hotel in shopping center portfolio as I mentioned earlier, specifically in terms of what percentage I couldn't tell you but.

It is a little bit correlated there, we expect that to continue but as Kevin.

Blair mentioned you know, we think we've got to a pretty good ring fence around.

Those aggregate dollars and we'll go through our modeling to kind of predict that out as it flows forward, but Ah you know, we're taking the charge the through the Seattle as you know today with the seasonal reserve.

Thanks, so much.

The next question comes from John Pancari from Evercore ISI. Please go ahead.

Oh, Yes. This is it all who's been too on behalf of John I'm just had a question on the reserve how much of that it's $50 million there.

Is allocated to the C.L. equal Claudio and how much of the reserve was released.

Tied to you know the student and degrees kind alone was moved to held for sale.

Yeah, Oh, we as you look at that.

There's a student loan transaction that was approximately 13 million and allowance release associated with that portfolio and so you know when you think about our total provision or total you know basic cost in the core we would've assumed you.

Hi, the incremental $13 million build on that.

Oh.

Well as the or the other part of your question Yeah, how much you listen to sort of.

Allocated do you have equal yeah.

We have not disclose that.

Okay.

And then just one question on the on expenses are just thinking about a little differently or so the adjusted efficiency ratio.

Has hovered around 57% to 58% in the first half of this year a in the past you know you've talked about in longer term efficiency target off.

No the mid 50% range, Oh, obviously have to even though the revenue and expense initiatives ongoing.

When you expect to reach that level in terms of efficiency ratio or do you have like an updated target for us.

Yeah, Let me just run through the different components of that the gift, giving idea of how we're looking at it because it's a highly uncertain environment and so we have not updated or or put targets out there updated targets for this environment. So when you look at revenue I'll just start with interest income.

You know we're forecasting the margin when you when you incorporate the nine basis point impact to the transactions. We've got a and then you exclude the impact of Pete three we expect the margin to be flat Ah, but when you think about interest income over the second half a year and it will likely be up due to.

The forgiveness Athree losses, so I would expect interest income in the second half the year to be higher or we would expect a fee revenue and I are to be to be down and we would expect that they just because the first half the year was so strong specifically a in mortgage and so when you look at total revenue I would say flat.

Slightly up after the second half the year and then as we've discussed we expect expenses to be down.

As we get to go longer term you know we're committed to a top were tower formats to delivering a strong return for our shareholders, but we're not a spot that to say what our target is where we expect to be longer term.

Alright, thank you.

The next question comes from care Holland from Baird. Please go ahead.

Good morning, Thanks for taking the questions I appreciate all the detail. This morning, just a follow up on that last why Jamie there's clearly never moving pieces with.

Oh, yes, three fees excess liquidity and the deposit repricing opportunity how do you expect eni excluding T. Three the could trend over the back half the year and where do you think it stabilizes.

Yeah, My expectation for the second half of the years. It Eni is higher inclusive of P. three feet. When you back those out. However, you know I would go back to to the margin guide and basically say they when you exclude Peter easy well have a nine basis point headwind due to the transaction.

As we discussed and then we have offsetting you know that headwinds from fixed rate asset repricing.

And the tailwind of deposit repricing, we think those are going on net to a push there'll also be a benefit we had an average of approximately one half billion of catching the fashion in the second quarter, a we expect that to be lower that that's not a certain but what we would expect that to be a tailwind to two.

The margin wont impact and I, but those are the moving pieces as we think about.

And I and the second half the year.

That's helpful. Thank you and then just quickly it's what pressure does that have a pandemic operated backdrop put on the timing for since it was board benefits clearly, there's better visibility for third party excess real estate saving.

Feel good about your flexibility to increase the expense synergy.

If the revenue benefit don't materialize.

Yes, I'll take that they're just this is Kevin look we said, it's a very flexible and scalable program, where where we evaluated over 20 different initiatives. During the diagnostic phase we decided to move forward with several expense reduction initiatives that we call funding the journey.

Obviously, we believe in the second half of this year in early next year, we believe there's opportunities to generate incremental revenues, we talked about $35 million to $55 million range. We remain confident in that nets those those initiatives really.

Revolve around analytics and pricing for value, but as you know we need the top line of the initiatives are to generate $100 million in pre tax income so as certain initiatives ads and we'll have in htwo, we're going to be able to adjust on both sides of the ledger, whether its revenue or expense and I'm equally.

And because we have announced on this first initiative on the third party spend that the rest of our efficiency initiatives will be successful and I'm optimistic that many of the revenue initiatives will also be successful, but as Jamie mentioned earlier based based on the environment. Overall, we may have to scale up the program in general, but we'll continue to keep a dedicated.

Team focused on it and we'll have a focus not only towards the financial objectives, but also the prioritization of future investments and making sure that we're continuing to enhance the team member and the customer experience.

Thanks, Kevin.

The next question comes from Steven Alexopoulos from JP Morgan. Please go ahead.

Hi, good morning buses anything going on on for Steve.

One other question on good morning, I had a question on credit a couple of your southeast peers in recent days I've called out one off charge offs in restaurant in energy I, just wanted to get a sense.

Have you know anything of note you guys are seeing in either of these portfolios I'm understanding theres small composition of your overall loan portfolio, but just wanted to see if there's anything of note that you're seeing.

Yes, I just as Bob again on its own specifically on energy that portfolios relatively small oh, we disclose it no less than $300 million range, we havent.

Seen any specific.

Credit degradation there most of our exposure is not related to.

You know exploration and production is more related to transportation and support industries and then specifically I think on the rest on the restaurants that you called out a lot of our portfolio is drop through you know quick serve type restaurants. Most of those are smaller ones, we probably we'll see.

See you know some credit migration in that portfolio, but that's a book bids primarily built around our community bankers is built around customers that we've known for a long time.

In our markets and we feel like we're really close and talking to those customers on a routine basis.

And feel okay about where we are but certainly in that portfolio you could see the credit migrate over a period of time and I just draw your attention to slide 27 in 28 in the appendix, where we give you the quarter to date metrics both in restaurants any oil industry. So you can reference that.

Okay, and one follow up for me I'm of the four and a half billion of core transaction deposit growth you saw in the quarter how much of this came from non PPP activity and.

Can you estimate what percentage of these balances are sticky nature. Thank you.

Yeah, it's difficult to attribute.

The deposit growth exactly.

But we would say that you know I mean, we can tie about 2.2 2.3 billion to BBB or borrowing and that we would you know as we as we look at it you know and this is.

Not comprehensive, but we would say that somewhere between 10 and 20% up the cash from BBB had been utilized so it's it's it's less than we would've originally imagined the beginning of the program, but but that's where that's where it currently stands.

The the sticking on the deposits for the second half of the this year is difficult.

Difficult to model just because this is a pretty pretty unprecedented and new new environment and so we're remaining conservative on how we manage the balance sheet, how we look at cash on the balance sheet unexpected outflows.

But it's our expectation.

Balances do remain on the balance sheet Oh for the next couple of course, Jamie if I could add one more point to that PBB and obviously, we're going to get some balances that leave us but the other important part we had this also in the appendix we were able to generate 1900 new relationships.

On the page reprogram and although it originated only $229 million and he's rebalances, we've been able to garner a full relationship from those new.

Customers and so there will be balances that come to us that will not lead so not only what we'd be able to take advantage of the p. three program in the fees from that but we now generated almost 2000 new relationships as a result.

Great. Thank you.

The next question comes from Stephens wrong from RBC capital markets. Please go ahead.

Hey, good morning, guys.

I just thought that the of the capital degradation under your stress tested the 2.3% on so that was to occur that would take your seat. He wants to say the the low to mid 7%. If you were to assume that your to build the C. One next few quarters is that a range that you guys would be you know.

Willing you want is still keep the dividend it got to say around at 7.5% level.

Yes, David as we as we think about capital and how do we manage in that adverse environment, I mean, I pathetically scenario that.

You know if we had perfect foresight, our dividend generate about 40 basis point common dividends is about 40 basis points a capital per year and so that's about the impact of if you were to pivot.

33 cents, a quarter down to a penny or to zero and so it's not tremendously material, obviously, a severe adverse scenario, where you're taking your hands off that we all like these stress test assume Oh, you know you a goal every piece of capital by but 40 basis.

It's points per year is not tremendous got perfect for side you saw a scenario like that happening where earnings were routes for an extended period of time, obviously, we would consider.

Our dividend policy, but as we've shown in the first half this year.

The stress tests assumption, Oh total hands off the wheel around managing your own balance sheet are not accurate with what we would do you can see by our actions in the second quarter ever want to actively manage our balance sheet, we have that means and the ability to improve capital and managed capital through adverse environments and you see that.

Student loan sale.

Generating capital and building reserves at the same time, so we feel good about that.

I think that now that that how we would look at the severe adverse scenario, which is.

No it's not too dissimilar from how we look at the balance sheet today, where we're focused on creating capital today.

Now that was good I mean, it's really great to see that's a this quarter that the the amount of capital you guys were able to generate and then just a follow up to that you know.

After we get through this credit cycle.

We are in a really first of a time and interest rate environment. I guess, how does how are you guys thinking about the future margin and your PPNR and able to maintain your your dividend based on that.

Yeah, you know as we look at longer term.

We've given guidance up the margin being flat you know once you adjust for that nine basis points for the transaction.

Excluding people sorry, and we believe that we have opportunities on the liability side offset the kinda persistent pressure, we will get due to fixed rate assets, both mortgage loans and were securities repricing overtime, and so we think about our margin or we see.

He is fairly stable given given those inputs in assumptions.

And you know we look at the balance sheet, we expect loans to be fairly flat over the second out here and so they you know those are our core assumptions for and I. We believe that IR, we still have the teams under the customer base to have stronger up there and so we think about PPNR or just total revenue we feel.

You know, it's either strength in and I are Eni, we expect well have a combination of a fairly flat margin and you know truthfully fairly flat loans for second half here and Jamie I'll. Jamie gave you some of the financial response, but I'll just add from a business standpoint, we feel.

Like we're well situated in the southeast to continue to grow once we get to your point on the other side of this environment. We think that we've been able to add talent in the last several years that was proving out into first quarter before we hit the pandemic that we were seeing elevated levels of growth and so I'm I'm very confident and.

Our banks ability to continue to take share and win business and that's gonna be differentiator in this world that we live in if it's a flat rate environment everyone's going to be sitting there with lower margins and so those banks that can generate.

Growth through acquisition and customers and expansion are going to be the ones that outperforming and we're confident we'll be able to do that.

Alright, great to hear and thanks again for a for everything for all the information.

The next question comes from Ebrahim Poonawala from Bank of America. Please go ahead.

Hey, good morning, guys.

I guess a question activities or cancel Oh, you mentioned the L. kept will you be into a lot I didn't get or doesn't do much at all this in the last decade have been fluid log onto the recovery comes out of Las Christ is.

Not to get your thoughts of the chairman of the board it on the dividend.

The dividend balcony, she'll and targeting 30% to 40% it could be a chance you didn't mean at a much higher level for the foreseeable future lucky to get a little bit of the company excuse I give a lot of judgment close that'd be involved and they'd love to get your thoughts that against the macro gets much was for the entire Dusty I get that.

Well I just did not then it seems like your messaging is creating a lot more idiosyncratic risk I don't know this is good but didn't know.

No well you'd look yes.

Yeah. He ran I think I I got most of that question and happy to do that and and thanks for calling only because our team was starting to think I was not a participant the types of thank you for that look you know chairman of board I'm I'm totally in zinc in connected.

With the message that Jamie just delivered as matter of fact, I think Sunday morning, seven I am Jamie debt or not it's Jamie Kevin and I want to call looking at not just this year next year looking at some of the same test that.

The ban has laid out for larger banks in terms of a rolling four quarter average drafting the sensitivity around that hey out both as again as it affects capital ratios and as it reflects on a percentage of again long term earnings. So you mentioned, yeah. If the industry went into a severe depression.

They all best would be off war for all of US release for most of us, but today I mean, we present that same analysis to our board I've noticed several of our peers talk about the board is expected to approve our board is very well informed and as chairman my obligation is to make sure that.

We present, not only Jamie base case, but Brazil, the scenarios that could call that into question over the long term. So I mean, I would love to be able to get total clarity.

Over the next three or four years I think today I think we've laid out well based on conditions today based on the quality of our credit the build of our reserve the capital levels, our ability to flex this quarter and quite frankly beyond to make sure that capital ratios.

Stay at well capitalized levels, Jamie mentioned, you know another 20 basis points already this quarter and C.G. one based on actions taken to date so.

Again totally in in Lockstep, we don't have the management you in aboard view, but I again as chairman make sure. Our board sees on not just our analysis, but the board is very well informed by third party investment banks that run their own models their own stress test their own own scenario.

So so today.

Again, we feel confident in the level of the dividend, but as again I think all of my peers have said on every call. There is a lot of uncertainty.

In the market over the long term. So we'll continue to update investors every quarter on our view and certainly if it were to change we would Oh and forum I'm not only on this call, but every opportunity we get transparency has always been very key to us and I hope from Jamie.

As exploration mine I mean, you feel that way, we'd be happy to ER to follow up but but totally in sync with Jamie Kevins comments again on credit on capital and dividends.

Yes, I think that's it. Thank you and just lake makes a lot of Jamie that defeat. The one 9.1, it's not the highest plays a pretty healthy level. What do you expect so to speak you want to can they do tend to be coupled with higher from here and I didn't hear that actually that he could do well just filling out the capitalization was if you need it though.

Yes, Ebrahim I see T. One could could go higher from here, we would expect it to just through core earnings that's our number one source of capital.

As we look forward. It you know we assumed in our allowance today is appropriate and when you think about you know if your allowance if you're not having a significant allowance build.

It's really through PPNR and I've, given kind of the break down how you'd be in our in the second half a year. So yes. We would both you know we are not repurchasing shares for the rest of the year or we are forecasting a earning positive earnings and growth there and so.

We feel good about organic capital generating a generation in the second half a year.

I would also went to you know while it is not our plan, we do still have $200 million, an unrealized gains and the securities portfolio. So we're not intending to to transact there, but as I mentioned, that's something that we continuously evaluate and you know theres or you know a rationale strong rationale to two or repositioned the portfolio.

It may real out you know, we may end up with more games I realize gains and so I would say those are the larger considerations there.

Well I know, it's been an uncle thanks for taking my question.

Thanks.

The next question comes from Christopher Marinac from Janney Montgomery Scott. Please go ahead.

Good morning, just a quick question on the mortgage business and that sort of infrastructure spending you've done already I know that this quarter was it was great and may not be sustainable, but I feel like you'd make us a lot of investments they kind of position yourself well in a long time. So just wanted to go through that real quick.

So if you think about mortgage obviously about 66% of the volume this quarter was refinances Chris.

So.

That will abate somewhat going forward, we knew that there was an increase when we think about what we've been able to invest in over the last several years as I said prepared remarks, we've been able to add mortgage loan originators over the last two years that we think are critical for future success, we have another 146.

Quarter end, and so that do the math that they did about $10 million per perello last quarter. So that will come back a little bit. The other just based on the volume from a refinance perspective, but the other wildcard is just understanding what the secondary gains are going to be in the market in the third quarter, we had about 3.3%.

In margin this quarter or that was a bit elevated from what we had expected. So I think when you go to third quarter, we'll still see a very strong production corridor, we'll have to watch margins.

That will ultimately determine what the secondary gains will be it in the third quarter, but I don't come down from the elevated levels I think Jamie said it means the second quarter was really a record level and it's something that we don't expect to see for the latter part of the this year.

Great Kevin Thanks for that and Jamie just a quick one on the on the deposit mix as you cited that back on slide five does that does that change and that CD mix kind of take a couple more quarters to get where you want to go or how what's the proper timeframe to expect there.

Yeah, you know it'll take a few quarters I would extended a little more than a couple but I'll just point you back to the 2.8 billion that we do have maturing here in the second half a year, that's a significant piece of it but but you're right. They they do extend into 22.

Okay very good thanks again for all the information this morning.

Thanks, Chris.

The next question comes from Michael Rose from Raymond James. Please go ahead.

Hey, I'm, just say Oh, my follow up on on total adjusted fee income.

I understand the moving parts and I appreciate the answer to it took ross's question as I look at somebody other line item. So like service charges and bank card fees I would expect those to continue to normalize from fee waivers and card activity stuff like that Jamie should we think about.

Fee income on or adjusted basis actually being relatively flattish as you move into the third quarter would that be your expectation. Thanks.

My expectation is actually that declines in the in the third quarter and that's really really based on mortgage a dip this quarter in mortgage at just under 24 million in revenue was unprecedented and just a just to put a box around that at the mortgage team produced.

1.4 billion in mortgage total when you include Ah you want we sold secondary want to go on the portfolio that 1.4 billion was larger that individual quarter was larger than 14 of last 22 years. So this is a really good and unprecedented a quarter for further.

Team there.

And we don't expect that to continue and so I you know as I look forward. It total fee revenue I my expectation today is that mortgage revenue.

Trends back towards towards a longer term me, which is actually up somewhat material reduction and so that's that's a large I agree with your other comments I would say that you know we would expect a card activity to increase if you look at just kind of core bank fees and Ines out that's challenging in this.

Environment, because there's so much liquidity and so we're not seeing a lot of.

A lot.

Fees.

And capital markets in common and in the rest we would expect too.

To be fairly stable to growing but the third quarter, we'll see a reset from the SEC [noise].

Okay very helpful. And then maybe a broader question for capsules is as we do get to side of this credit cycle and there is a kind of a re intermediation of loans and other banking system from from non bank lenders given the struggles there how do you make sure that synovus gets its fair share while at the same time, keeping Ryan on costs and reducing branch blip.

Great and overhead employees stuff like that kind of what how do you see kind of the this synovus story evolving and making sure that you have a growing placed in this world. Thanks.

Yeah, Michael I, Great question and again, we question.

Ourselves on that every day, let me start by saying is we believe our business model.

Works, well and as evidenced by the results not just this quarter, but the entire year and it's not just evidenced by results, which I think speak for themselves, but our ability to attract and retain talent, whether you've been with our company 40 years or four days in some cases involving someone I was involved in recruiting.

Last week, we continue in my opinion with all due respect to our peers to attract some of the best talent in our major metro markets here in Atlanta.

Jacksonville, South, Florida, and really threw out so the model our go to market strategy is working well.

Our talent I think is.

The best in the industry I mean, they want to work for our company and I think is evidenced the Pete the PPP process again, everybody try their best So there's no judgment on who did better than others, but I do think Kevin mentioned 1900, new relationship.

So that was evidence of.

Although sometimes in our industry people think of us as a commodity.

I think when times are really gets up and you get into a petri type process I relationship based model in way of doing business really stood out as.

Customers didn't want to feel like they had gone.

Into never Neverland, They wanted a banker who could talk to them about process, where are you why are you. There what can you expect so whether it's through increasing digital channels were making sure. Our branch network is optimized with the right talent.

Or again, our middle market teams. Our wholesale teams are our specialty lending teams again, great talent led by the original leadership team from global won eight expanded their leadership in our company and again, adding I think true expertise in areas that stand out in the day customer.

20 bank by someone who knows their business very well and I think our model allows us to get the right banker in front of the.

Like customer prospect and overtime add value and quite frankly get paid for that value. So we're confident in to go were model, we want to get through this cycle. We want to continue to focus on credit on efficiency on revenue opportunities, but we're excited about 2021 and beyond you know recognizing the challenges only loan.

Hello for long interest rate environment, we think we have a competitive edge and we just got to build on that maximize.

I appreciate all the color thanks, guys.

Thanks, Michael It's Michael.

This concludes our question and answer session I would like to turn the conference back over to Mr. Kessel Stelling for any closing remarks. Thank you.

Well. Thank you it's been a long call, but a few comments to closed propaganda.

Paul today, I'm, referencing pandemic and social unrest and it's hard to believe it was almost two months ago. When all of US witness the senseless murder of George Boyd and in our own state. We saw video the tragic killing of Amod Arberry.

Since then I've had countless conversations with community leaders mentors of mine Board members Advisory Board members.

And so now with leaders from the executive leadership team to the Chello line.

While many of those calls were filled with very wall emotion, all we're still with home and encouragement for what.

We could do on a go forward basis to make a difference our company is fully committed to do our part and more to address issues of racial inequality in social injustice, both internally within synovus had been exist and in the communities.

That we store.

And we're excited to soon announce a major investment in education and targeted to minority students attending college.

And today is the largest bank.

Headquartered in the state of Georgia, I, just want to acknowledge the passing of one of Georgia's own Congressman John Lewis He's one of the.

Nicest kind this man I've ever met in politics or quite frankly in life.

He was a giant of a man he was a true civil rights icon in a euro to our state.

And to our nation, our thoughts and prayers are certainly with his family if you'll be missed in ways that are just truly.

Indescribable, So let me close again by thanking our team members were extraordinary efforts. The past few weeks. It's been a 130 days just the declaration of the National Emergency on March 30.

And the consequences continue to weigh heavily on individuals families businesses.

Certainly our economy overall, no one knows when normal will return or what it will look like when it finally does but as we speak our team is.

Executing on a well plan measure safe approach to a gradual reentry to on site locations, while we monitor conditions across our footprint and continue to be guided first and foremost by doing what's best for the well being of our team members and our customers. So just rest assured we're.

To be aware of the times, we're in and of the added responsibility we have as a financial partner to help those.

We serve both recover and prosper. So we're fully onboard we're actively engaged with our customers in communities and we're prepared not only to see this crisis, but also to execute on our growth initiatives modified is needed to emerge with strength in a clear competitive.

Passport. So thank you all again for your interest in our company and thank you upper joining the call today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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