Q4 2020 Synovus Financial Corp Earnings Call
[music].
Good morning, and welcome to the Synovus fourth quarter and year end 2020 earnings call all participants will be in a listen only mode.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your touch on phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the call over to Kevin Brown Senior director of Investor Relations. Please go ahead.
And good morning during the call today, we'd be referencing the slides and press release that are available within the Investor Relations section for web site <unk> com.
Stelling, Chairman and Chief Executive Officer will begin the call. He will 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 for me remind you that our comments may include forward looking statements. These statements are.
To risk and uncertainties and the actual results could vary materially. We list. These factors that might cause results to differ materially in our press release and in our SEC 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.
Thanks, Kevin and good morning, everyone and thank you for joining our fourth quarter and year end 2020 earnings call.
This past year was one that none of us will ever forget and certainly challenging for the industry and for our company.
From the pandemic for social and political unrest the.
The year presented more intensive challenges in a more concentrated period than any single time in my 40, plus year banking career, including the financial crisis, just over a decade ago.
So I want to start by thanking team members for their dedication and their tireless efforts to get us through another year of uncertainty and by thanking customers and communities for trusting us to play an active role in helping them recover and rebuild.
Slide three includes some notable achievements from 2020, starting with the Paycheck protection program through which we extended approximately 19000 loans totaling $2 $9 billion to customers across the south east.
P. Three represented a truly herculean effort by our team to quickly deliver critical aid customers and communities in need.
We're also off to a very strong start with the newest round of Petrie with approximately 5000 alone application submitted totaling $700 million and new request.
We operate in one of the best geographic footprints in banking and last year, we continued to improve our competitive positioning for 2021 and beyond.
This past January we announced our transformational synovus forward initiative, and we made significant progress throughout the year.
Executing on our phase one revenue and efficiency efforts.
As previously stated we expect to achieve $100 million in pre tax run rate benefits by the end of this year and Kevin will provide more detail later on plans for an additional $75 million in benefits by the end of 2022.
We made additional investments in talent and solutions to support growth.
And to enhance technology that further improves the customer experience last year, we made upgrades to our mobile and online banking portal online account origination capabilities and other digital touch points.
And we continue to invest in and grow our existing businesses. While also building out new offerings. During the year, we on boarded new affordable housing and agribusiness expertise significantly expanded our merchant services business and further matured, our structured lending and treasury and payment solutions capabilities.
Also during the year given the dramatic change in the underlying economic environment, we moved quickly to further strengthen our balance sheet and capital position.
CET one ratio increased over 70 basis points ending the year at nine 7%.
In addition, our ACL ratio increased to 75 basis points from day, one Cecil implementation and our total risk based capital ended the year at 13, 4% the highest level since 2014.
As a result, we enter this year very well positioned to facilitate additional growth while also effectively managing balance sheet risk.
I'm also proud of our work last year in important areas that are not directly disclose in financial statements, but are important sources of value such as ESG reporting.
<unk> literacy outreach and financial support of nonprofits and community agencies, including the establishment of a substantial scholarship endowment for African American students through the UNC F. In honor of our former colleague and longtime Georgia State Representative Calvin Spiry.
Finally, we announced last month that I'll be transitioning from chairman and CEO to executive Chairman of our board in April following our annual shareholders meeting all serve net roll until January one of 2023.
To be clear. This is not my final earnings call. So no fair wells, our goodbyes, just yet all participate in our first quarter call on April.
And then we'll hand, the reins over to Kevin and team to take it from there with that I'll turn to Jamie to share fourth quarter financial highlights beginning on slide four.
Thank you Kessel.
We ended the year strong with diluted EPS of <unk> 96 per share compared to <unk> 56 last quarter and 97 a year ago.
Adjusted diluted EPS was up $1.08 per share compared to 89% last quarter and 94 cents a year ago.
Total adjusted revenues of $499 million were up $5 million from last quarter led by broad based on increases in fee revenue continued reductions in deposit costs and accelerated P. Three loan forgiveness income.
Adjusted noninterest expense of $275 million was up $6 million from last quarter, which was impacted by a $5 million increase in synovus forward P. Three and COVID-19 related expenses.
Moving to slide five total loans declined $1 3 billion in the fourth quarter, including accelerated P. Three loan forgiveness that resulted in balance declines of $516 million.
Total lending partnership loans held for investment declined $81 million, while loans held for sale from this category increased $81 million.
Excluding our reductions in P. Three in lending partnership balances total loans declined $700 million or 2% from the third quarter.
Total C&I loans declined $640 million in the fourth quarter, including the $516 million coming from accelerated <unk> forgiveness.
Line utilization continued to decline in the quarter day.
On an additional $57 million C&I line utilization of 40% was 6% lower than it was the same quarter last year and remained near historic lows.
Total CRE loans declined $395 million as payoff and Paydown activity increased significantly in the fourth quarter transactions that were delayed during the height of the pandemic work completed.
Total consumer loans declined $282 million. This included lending partnership reductions as well as pay downs within our mortgage and HELOC portfolios.
As shown on slide six we had total deposit growth of $2 billion.
Fourth quarter increases were led by core transaction deposit growth of one 8 billion.
And $1 billion and seasonal public funds.
Offsetting this growth were expected declines in time and broker deposits.
The cost of deposits fell by 11 basis points from the previous quarter to 28 basis points due to a combination of rates paid on deposit remixing in the fourth quarter, we were able to reduce the cost of time deposits by 28 basis points and the cost of money market deposits by nine basis points.
In this lower for longer rate environment. We believe there are additional opportunities to reduce deposit costs through CD turnover ongoing repricing as well as the ability to continue to remix the deposit composition.
Slide seven shows net interest income of $386 million in the fourth quarter, an increase of $9 million from the third quarter. There was primarily due to the impact of increased P. Three forgiveness.
Net interest income was further supported by deposit cost efforts previously mentioned and was offset by modest headwinds from lower loan balances and continued pressure from fixed rate asset repricing.
Exclusive of <unk> fee accretion NII in the fourth quarter was $361 million as compared to $365 million in the prior quarter.
We are pleased with continued progress on deposit repricing and positive remixing trends on the liability side of the balance sheet. The current environment is enabling us to grow our core relationships and further improve our overall liability profile, which is serving to offset a portion of the headwind we are experiencing from repricing within our fixed rate asset poor.
Folios.
The net interest margin was three 2% up two basis points from the previous quarter.
The additional P. Three fee accretion of $13 million to a total of $25 million was.
It was a meaningful contributor to that increase.
Conversely, considerable deposit inflows, coupled with the timing of our subordinated debt transaction led to an elevated level of <unk> balance sheet liquidity within the fourth quarter with average excess cash balances increasing $1 4 billion.
This dynamic can have a notable impact on the margin with every $1 billion of extra cash on balance sheet diluting the margin by approximately six basis points.
In the coming quarters, we expect the elevated cash position to decline as we experienced seasonal deposit outflows and as we manage our balance sheet and overall liquidity position.
And this will include further growth within our securities portfolio as well as declines in non core funding sources, such as broker deposits.
As of year end, there were $49 million of phase one P. Three processing fees remaining with approximately $20 million associated with loans that had initiated that forgiveness process.
Excluding the impact from <unk>, we expect modest downward pressure in NII and NIM in the first quarter from the rate environment as asset growth and further reductions in cost of funds, partially offset continued fixed rate asset repricing.
Slide eight shows noninterest revenue, which was $115 million flat to the prior quarter.
After adjusting for security gains adjusted noninterest revenue was $112 million down $3 million from the prior quarter.
The fourth quarter included notable increases in service charges fiduciary and asset management.
Card fees and brokerage income.
Core banking revenue improved by $3 million $237 million.
Primarily due to increased activity as we continue the gradual return to pre COVID-19 levels.
<unk> charges on deposits SBA gains and card fees, each increased about $1 million from the previous quarter.
$2 million on revenue growth from fiduciary and asset management brokerage and insurance helped to offset the $1 million decline in capital markets revenue, resulting from lower loan activity.
Net mortgage revenue of $24 million down $7 million from the prior quarter remained elevated.
Secondary mortgage production increased 4%, which directly impacted commissions, despite a quarter over quarter increase in secondary production fee income declined due to lower margin and pipeline.
Total noninterest expenses were $302 million down $14 million.
On an adjusted basis, NII was $275 million up $6 million from the prior quarter adjust.
Adjustments include $14 million related to the voluntary early retirement program, we announced on October $8 million and loss on early extinguishment of debt and $4 million in branch optimization real estate write downs payback on all of these strategic initiatives are two and a half years or less.
The quarter over quarter increase in adjusted NII includes $5 million related to synovus forward P three and Covid.
This notice forward expenses are upfront third party expenses associated with the design and build on the strategic initiatives. This quarter's expenses are largely tied to the pricing for value and commercial analytics programs.
Most of the $3 million increase in <unk> and Covid related expenses, our upfront consulting and technology fees to streamline that forgiveness process.
We are encouraged by the forward impact of efforts, we've taken and investments we've made throughout the year, including the fourth quarter during the quarter, we realized an additional $2 $5 million in savings from synovus forward that offset investments in digital and technology.
These include the first phase rollout of our new commercial digital platform Synovus Gateway continued migration of systems to a cloud environment and enhancements to our BSA AML technology. These investments will provide future revenue scale risk and expenses benefits in 2021 and beyond.
In the fourth quarter head count declined by 100, most of which occurred in December as part of the voluntary early retirement plan saving.
Savings from this initiative largely began January one so these salary reductions will help offset the seasonal first quarter increases in employment taxes.
Kevin will speak to our full year guidance shortly.
Before providing some comments related to key credit metrics on slide 10, I'd like to provide a brief update on our Covid related deferral program, which provided for up to 180 days of deferred payments of principal and interest.
Loans in this program with a full P&I deferrals declined to 34 basis points at the end of the fourth quarter.
Performance for borrowers that completed deferral period has been strong with approximately 99% paying as agreed.
As we've shared in the past we've conducted enhanced monitoring on industries that we're likely to experience the most pressure from the pandemic Ella's.
Elevated risk remain and are largely concentrated in hospitality related segments, including hotels and full service restaurants.
More information on those portfolios is available in the appendix.
As evidenced by key credit metrics, we're not seeing widespread credit deterioration.
Credit measures of Npls NPA as criticized and classified assets all remained relatively stable for the quarter past dues and net charge offs declined modestly.
Based on our forward looking credit metrics customer cash flow analysis and customer interactions. We expect net charge offs in the first quarter to be at or near the range. We experienced in the back half of 2020.
Cash inflow update which are also in the appendix generally showed continued improvement through November although we do expect some pressure to these inflows from recent surges in Covid cases.
This pressure will likely be more impactful on the same hospitality segments I mentioned and were the main driver of increase in criticized and classified loans in the third quarter.
Provision for credit losses of $11 million include net charge offs of $22 million.
For 23 basis points provision for credit losses, other than net charge offs reflect lower loan balances and a more favorable economic outlook.
The allowance for credit losses ended the fourth quarter at $654 million and the ACL ratio increased one basis point to 1.81% excluding <unk> three loans.
The year end allowance includes a multi scenario framework with our base economic outlook, which incorporates the most recent stimulus with modest economic growth and declines in the unemployment rate throughout 'twenty, one and 'twenty two.
We returned to a two year reasonable and supportable period this quarter as economic uncertainty has moderated.
Another noteworthy change included use of a third party providers economic projections as a starting point for our economic outlook, rather than a benchmark or challenger as it was used earlier in the year change.
Changing to a third party provider did not have a material impact on the economic inputs or resulting allowance. There is more detail included in the appendix.
Preliminary capital ratio is on slide 11 show continued improvement as CET, one increased 37 basis points to nine 7%. This quarter. We ended the year above the higher end of our operating range of nine to nine 5%, which positions us well as we move into the new year.
The total risk based capital ratio of 13, 4% was up 25 basis points.
It includes subordinated debt optimization efforts completed in the fourth quarter that aligns with our ongoing efforts to diligently manage our capital position and weighted average cost of capital.
Our 2021 capital plan maintains the current common shareholder dividend of <unk> 33 per quarter and includes authorization for share repurchases of up to $200 million we.
We will be opportunistic repurchase activity throughout the year as we prioritize organic growth first and balanced capital deployment with factors such as uncertainty in the economic outlook.
Based on the current outlook, we will continue to target a CET one ratio at the higher end of the 9% nine 5% range with more opportunity to deploy capital as we gain greater clarity around the effectiveness of the vaccine as well as confidence in the broader economic recovery.
I'll now turn it over to Kevin who will provide an update on synovus forward and provide our 2021 outlook.
Thanks, Jami, let me take a few minutes to provide a brief update on our synovus forward progress having initiated the program back in the second half of 2019, 2020 was a year of execution and expansion.
As we have shared the initial focus was on funding our journey through various efficiency initiatives I am pleased with our progress in the delivery surrounding these first round programs for third party spend program will fully deliver $25 million run rate savings in 2021, we also consolidated 13 branch.
<unk> this past year, which will result in approximately $5 million and run rate savings on a go forward basis.
And as we close out 2020, we completed two components of organizational efficiency work stream with a voluntary early retirement program and our back office staffing optimization, which will produce $13 million and run rate benefit in 2021.
As 2020 progressed, we expanded our efforts within synovus forward by embarking on several revenue based initiatives starting with our pricing for value program. We have begun to market based repricing of our treasury and payment solutions offerings and are pleased with the progress to date with an anticipated run rate benefit of approximately.
<unk> $9 million in the first half of 2021 as Jamie has also noted we have been able to more aggressively reprice our deposits throughout 2020 with the month of December coming in below our previous cycle lows. We also kicked off our commercial analytics program utilizing transaction level data we have built.
The tool known as smart that will allow our commercial bankers to better identify opportunities to expand relationships reduce attrition as well as better manage changes in underlying risk profiles as we began to pilot. The smart tool. We are convinced we will see incremental revenue benefits from its full deployment.
We have also prioritized resources capital expenditures and business activities to ensure that we have continued to invest prudently during the year.
As Kessel referenced during the 2020 highlights we made significant improvements in our consumer and business digital capabilities. During the year enhancements made improve the customer experience expanded new account origination availability and built a more scalable platform for future functionality deployment.
As a result of our progress and the plans for additional phase one initiatives, we remain committed to deliver the $100 million run rate pre tax benefits by the end of 2021. We have also increased our objective by an additional $75 million run rate benefit to be achieved.
The year end 2022, the additional benefits will come from both revenue and expense initiatives with a heavier weight towards revenues much of the additional benefit will come from expanding the breadth and depth of the programs already launched as well as leveraging new processes technology products and.
<unk> and talent to generate the incremental benefits, we will provide more detail throughout the year as we set more specific execution plans for the next phase of Synovus forward.
Turning to slide 13. This slide provides an overview of our 2021 outlook, which incorporates synovus forward initiatives and other strategic objectives and is predicated on our current view of the economic stability and growth in our footprint for the year.
Before I share more details around the individual categories. Let me first touch on a few things that gives me confidence as we enter 2021 first the talent. We have added in recent years continues to provide outsized opportunities for growth as they continue to build their portfolios to more seasoned levels.
Secondly investments, we are making in products and capabilities continued to pay dividends for example, treasury and payment solutions New revenue in 2020 was up 160% over 2019 and 450% over two years ago.
Lastly, our teams are better prepared for the operating environment in 2021, and we'll be able to avoid many of the distractions and challenges that we encountered in 2020 with our enhanced online account origination capabilities and remote sales approaches our sales effectiveness for the year will improve.
So let's start with the asset side for the balance sheet, we expect an additional 65% to 70% of the P. Three loans funded in 2020 to be forgiven by mid 2021, leaving around $500 million on the books for an extended period.
As Kessel mentioned earlier, we are participating in the second round of the <unk> program and since opening our portal on January 19th we have received strong application volumes and are working diligently to efficiently process the request to support our eligible customers and prospects needs.
Based upon our results to date as well as our preliminary analysis of eligibility. We believe the number of applicants will range from 5000 to 7500, which compares to just over 19000 last year, we expect the average loan size to be less in the round. One average of approximately 150000, which would result.
And a higher percentage of fee revenue.
Excluding all P. Three balance changes, we expect loan growth of approximately 2% to 4% in 2021, given the current environment. We do forecast this growth to accelerate in the back half of the year and will be well diversified across business units asset classes and geography. This.
By continued uncertainty in the markets, we have reasons to be optimistic about our expectations for loan growth. Our expectations are that we will see a steady increase in production throughout 2021, and our commercial book as economic activity improves from our discussions with our customers. We also know there is a pent up demand for capital.
That has been delayed due to the overarching uncertainties.
Synovus is well positioned for growth given our marketplace and business model entering 2020, our teams, we're achieving record levels of production and we expect to return to simple similar levels post pandemic, we love our footprint in the outside outsized growth expectations for the southeast the demographics of our markets continued to be.
Very constructive for growth. In addition, our model is very attractive to both prospective customers and banking talent and we've seen this over the recent years as such we expect to continue to see organic growth arising from the execution of our go to market strategy as well as any fallout that may occur as industry.
<unk> continues we've also added and expanded to our new specialty verticals in 2020, including structured lending of affordable housing in agribusiness. These teams will provide accelerated growth in 2021 and beyond as we continue to evaluate the expansion into new industry and asset class specialty area.
Has that will expand our offerings and provide new sources of growth in the future.
A return to a more normalized C&I line utilization would increase funded loan balances by $650 million as compared to year end balances.
Although there is obviously some uncertainty related to how quickly this will take place, especially with the possibility of additional stimulus and elevated liquidity, we do expect a normalization to occur over time.
Lastly, we have the capacity to increase our lending partnership portfolios, which can serve as an effective and profitable profitable use of excess liquidity and capital as Jamie mentioned earlier, given the current liquidity environment and the recent increase in interest rates, we are likely to increase the size of the securities portfolio.
In the near term.
Now, let's move to revenue net interest income will remain under pressure from fixed rate asset repricing.
We will actively work to reduce the impact of rates through balance sheet management loan growth future reductions in cost of deposits as well as the potential deployment of excess liquidity in the investment portfolio are higher returning asset classes, such as third party lending.
There was a similar story with fee revenue, which faces the headwind of normalized secondary mortgage revenue the expected decline in mortgage activity will be largely offset by increases in most other categories, including core banking fees as well as fiduciary and asset management fees, our investment in treasury and payment <unk>.
<unk>. The recently launched merchant program and various wealth management businesses will provide added momentum throughout 2021, one business that we are especially excited about is the synovus family office. Despite a challenging year. The family office grew assets under management by 23% and new business revenue booked.
For the year increased 66% this.
This unique value and service provided by businesses like Synovus family office will provide continuous growth opportunities.
In aggregate, we expect total adjusted revenues to decline, 1% to 4% in 2021, some opportunities to perform at the higher end of the range include more favorable deposit pricing further steepening in the yield curve higher than expected economic activity increased participation in phase two of the three.
Program and acceleration of the benefits from enhanced analytics and other revenue centric synovus forward initiatives.
Moving to expenses in the fourth quarter, we continued to make progress on our efficiency initiatives with branch and head count reductions as we assess the current environment and the resulting pressures on revenue we are proactively adjusting our expense base to promote a return to positive operating leverage despite our overall actions to reduce expense.
It is not inhibiting our ability to continue to invest in areas of focus with approximately $20 million and strategic investments in technology and digital plan for 2021 in aggregate, we expect adjusted expenses to decline between two and 5% for the year, we continue to assess.
<unk> and target all expense categories as we look to further improve our efficiency and effectiveness and remain committed to positive operating leverage over the long term.
A large portion of the annual decrease will be realized in the second half of 2021 as seasonal increases in employment tax and the previously mentioned investments in digital and technology will be more frontloaded turning to capital our CET one ratio of nine 7% is above our stated operating range of 9% to nine.
5% existing capital levels as well as the inflow from 2021 core earnings will support our anticipated balance sheet growth and strategic objectives. Jamie mentioned some components of the 2021 capital plan. So I will simply reiterate that we are a growth company and that's our first priority for deploying capital.
Other priorities include maintaining a competitive dividend capital optimization, and other deployment opportunities including share repurchases.
E T. One target of nine 5% in the 2021 outlook is at the higher end of our nine to nine 5% operating range, which we believe is prudent while greater levels of uncertainty exists given our current CET one ratio and our economic outlook. It is likely we will remain above our targeted range.
In the near term as clarity around the economic outlook increases, we will look to further deploy capital through balance sheet growth.
Or share repurchases lastly.
Lastly, assuming no significant changes to the current tax environment, we expect an effective tax rate of 23% to 25%. We've increased our focus on execution around various tax strategies, some of which were executed in 2020 and others that will be established over time that will provide opportunities to further reduce.
The effective tax rate from current levels for sensitivity purposes, a federal tax rate change from 21% to 28% would result in an increase of our long term effective tax rate of six 5%.
That would follow a onetime adjustment for the DTA that would mitigate a portion of the impact in the first year.
Now before we move to Q&A, let me close with a couple of comments.
I am humbled and honored to be presented with the opportunity to transition into the CEO role in April Kessel has led this company with such a steady hand over the last 10 years and has return the company to a position of strength.
With this handoff working with Kessel in his role as executive Chairman of the Board. We will continue our unwavering path forward and on the second point as we evaluate our path forward I am convinced our purpose driven advice based relationship approach complemented with innovative digital capabilities and functionality.
We'll provide a compelling differentiated value proposition in the crowded and competitive landscape, we operate with and we will continue to use synovus forward to set our vision and agenda for the transformational imperatives that are required to ensure we execute and deliver on our short and long term business.
And financial objectives.
121, despite the uncertainties will serve as our next step forward in achieving these goals and with that operator, let me turn it over to you for Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on you touched on zone.
You are you need speakerphone, please pick up your handset before pressing.
To withdraw your question please.
Thank you.
In the interest of time. Please limit. Your question Q1 quick and then one follow up at this time, we will pause momentarily to assemble our roster.
The first question today comes from Brady Gailey of <unk>. Please go ahead.
Hey, Thanks, good morning, guys.
Morning Brady.
So it's great to see the additional $75 million from the synovus forward.
I was just wondering.
Roughly speaking how much of that.
Benefit do you think will actually drop to the bottom line I think I heard jayme say that some of the savings in the fourth quarter were reinvested maybe on the technology front.
Should we be thinking about debt additional $75 million is all dropping to the bottom line or will some of that would be reinvested into the franchise.
Yes, Brian This is Jamie I'll kick this off and then hand it over to Kevin.
The first thing I would just say is.
We are a growth bank and our synovus forward efforts are intended to offset strategic spend in digital and technology and other growth initiatives.
To help us deploy kind of brings novus to more customers and so.
With regards to the overall expenses that $175 million all of that.
Topline benefit however, we do have bands and other areas.
On that are that are increasing and so what I hope you see in our 2021 guidance is the commitment.
To react to revenue pressures and as we strive for positive operating leverage and.
In a challenging environment.
And so we think that if you look at 2021, you'll see an approximate.
For 4% or so benefit due to synovus forward initiatives and calendar year 2021 and that helps us.
We have the ability to go out and spend on digital on technology on people.
To get us to where we need to be.
To grow and so let me hand, it to Kevin to give a little more detail on the synovus forward initiatives.
Jamie.
Brady Jayme noted top line initiatives that will generate $175 million, but as we think about this we look at every investment from an ROI perspective, so as we look at new opportunities, whether it be talent or technology, we're going to make those investments if they have the right return on investment.
Important thing as we've talked about in the past as our other calibration factor will be top quartile performance. So as we look at the $1 75, and we look at our capacity to reinvest we're still focused on that top quartile performance, which was based on Aro TCE ROA and efficiency ratio and it's fairly term.
Right now so it's hard to see what that number is but we know with the 175 that we've committed we know we're moving in that direction and Bryan the only other thing I would add is as we look at the benefit of these initiatives and specifically on the expense side.
We obviously get the benefit of fourth quarter activity immediately, but the benefit will flow in over the course of 2021 and we would expect.
The largest impact on the year over year declines to be in the second half of the year.
Alright.
Helpful. And then it was great to see the 2021 outlook on.
On slide 13, the one thing that's missing there is a provision guidance, which I know it can be.
Nowadays Jamie.
Jamie I heard your point, so basically 25 basis points of net charge offs there in the first quarter. So it seems like.
Net charge offs are going to be low so looking at your reserve.
Youre 180 basis points I think your day, one seasonal reserve was around like 100 to 110 basis points. So it feels like we're headed back there, but maybe just talk about how.
We could see a reserve releases and you know this year index.
The 1 million dollar question.
How will this all play out I mean, we obviously see a lot of uncertainty out there and I think youre right to look at day, one so as a potential where we can land in a more normalized environment, assuming no significant changes to loan mix on the loan portfolio. So I think that that is reasonable I would guess.
Just point to the uncertainty on the outlook I mean, when we look at credit.
And we thought about giving guidance typically would give full year guidance, but we only did the first quarter because of the uncertainty in the outlook and so when we look at this year when we look at 2021.
We believe that theyre very possible scenarios, where charge offs remained stable all year long at current levels.
Scenario could like that could include a vaccine effective vaccine rollout phase II <unk> III success future stimulus for strong economic recovery, but then there are also scenarios, where we see charge offs increase throughout the year to more than double today's rate on that.
That could include Covid case increases in effective vaccine.
Stimulus basically a slow or declining economy, and so given how wide. The range is between these hypothetical scenarios. We just didn't think it was prudent to give full year guidance, but we're committed to giving guidance as we go through this year as we gain clarity on the outlook, but obviously, we feel good about where we are we feel.
We are adequately reserved for this uncertainty and.
We'll see how it goes through as we move through the year.
Great. Thanks for the color guys.
Next question comes from Ebrahim <unk>.
Thank you.
All right.
Good morning.
Good morning Ebrahim.
I guess just first on the guidance for the revenue outlook I was wondering if you can.
Break that down a little bit more for us in terms of fees versus NII and what are your expectations on mortgage banking was way based on last year, how youre thinking about it and on the NII side, Jamie like when do you see core NOI.
So definitely I would for US I know this on a quarterly basis.
Yes, Ebrahim, let me start with the revenue and Youre right as we look at industry data on on mortgage revenue in 2021, obviously there'll be a significant decline from 2020.
Everybody is speaking to this and I don't think we're any different and so.
What youll see from us in fee revenue.
For your revenue will be down year over year likely in 2021 versus 2020, driven by an approximate 40% to 50% decline in mortgage revenue and that more than offset this really strong broad based growth in our other fee businesses and so it's unfortunate that it's overshadowed.
Just due to the strength in 2020 of mortgage.
But we are really excited about the broad based growth we have in the core banking fees fiduciary and asset management, including the family office that Kevin mentioned early earlier.
On brokerage and so.
That's what we expect in fee revenue as we as we go through.
2021.
And then with regards to NII I'm glad you mentioned kind of core of stripping out.
The noise of P. Three because that's very important and what I would say there is we look at NII you should see a decline in the first quarter really due to two things first is day count, which you're obviously aware of.
But second is fixed rate asset repricing, including an acceleration of prepayments on the securities book.
And then once we get past the first quarter, we expect NII to be stable to slightly increasing throughout the year.
<unk> benefits from deposit repricing and loan growth.
Outpace the headwinds of that fixed rate asset repricing.
With regard to the deposits on the deposit side.
We're obviously pleased with where we where we landed in the fourth quarter.
If you look at monthly data, we achieved our objective of prior cycle lows.
And then when we look forward, we believe that we can get an incremental seven basis points reduction in total deposit costs on the first half of 'twenty, one off that 28 basis points for the fourth quarter.
Due to the maturities in our time deposit book, obviously, we see benefits as well.
Between price.
And mix and non maturity deposits, but.
We see we see more room to go there and we're excited about those opportunities.
Got it that's helpful. Jamie just one question.
I guess.
We spend a lot of time on technology investments both in terms of back office front office, just talk to us in terms of one.
That this like how would you think synovus ready to do large diesel peers, the big banks in your markets.
Do you feel confident in terms of demand with all of the franchise and <unk>.
All of this made you.
Sort of look for tuck in acquisition opportunities on the fee income on the technology side as we should.
I'd anticipate over the next year or so.
Yes, great.
Great question I think before you start evaluating the functionality and capability you almost have to look first at what your customers are telling you and if you look at synovus customers. They have higher NPS scores are loyalty scores than most of the big Bang peers. So what we're providing them today are making them satisfied with the offerings and making.
Been very loyal to the cut to the company and as we think about going forward. The way that we're able to garner additional growth in relationships as from those referrals. So I think it's first important to look at what our customers are telling us as it relates to investments. We obviously saw the need to continue to improve the capabilities and functionality on the digital front.
We have my synovus on the consumer side, where we continue to provide enhanced customer experiences we've seen that with the scores that we've gotten online.
Also this past year rolled out enhanced online origination capabilities. So now our customers have the ability to originate more products from the comfort of their home, which is obviously with the pandemic something that we saw a shift in activity and we feel like we're on par with being able to do that our focus on first quarter, which Jamie touched on is the expansion.
On the development of a new commercial portal, which is called Synovus gateway and thats going to be we believe.
Best in class as we relate to others in terms of their cash management systems in their digital capabilities for business customers and that's been a big focus for US. We think we can win in that space. We have the right to win and we think our technology. We will continue to be improved over time as we've told you in the past the key here.
<unk> is making sure that you partner with the right Fintech and that you get the right sort of R&D that's happening at the company, which allows you to continue to enhance your offerings and we feel like we're in a good position to do that.
And anything that on M&A on the fee side on Kevin Yes.
We look at all sorts of M&A as it relates to any sort of benefit that we would have from any capability at or.
New products and functionality.
We've been focused on growth and fee income through the treasury and wealth management businesses and we've had good growth there double digit growth.
And so we will continue to leverage the investments we've already made but there is something that we're to make sense from an M&A standpoint, we would look at it but right now we really believe the best investment we have is in synovus and continuing to leverage the talent.
Technology and resources, we have today, we think there's growth that will come from that in our marketplace as well we feel like we're in one of the best footprints in banking so we.
We don't see currently a need to go out and have to use M&A to stimulate growth.
That's great. Thank you.
Okay.
The next question is from Jennifer Dunbar, I'm curious securities.
Hey, Jennifer.
Yes.
Hi, Good morning, I think the key.
Yeah.
Just a question on the second round of PPP.
Borrowers are you seeing requesting applications at this point.
So Jennifer this is Kevin.
We're seeing as Kessel mentioned about 5000 applications for right around $700 million. So the average loan size is a little less than $150000. So similar borrowers to what we saw before.
Obviously to qualify you had to have a 25% reduction in revenue in 2020, and I think what we see with most of our borrowers that occurred early in the pandemic the second quarter.
But.
We've actually.
<unk> been pleased with our process and how we've been able to get the applications on board. It we've leveraged a third party at this time.
Which I think will make us more efficient and effective were not havent used a lot of internal resources to get that completed but theres really been no surprises from a company standpoint, or <unk> code or side, it's really been just a subset of what we had expected from the initial draws on page three.
So as I said right at 5000 today, we had 19000 in the initial phase so.
On a smaller percentage than maybe what you would expect at this point.
Sure.
Okay.
Second question, yes.
Yes, the $75 million additional synovus forward initiatives you mentioned.
Does that.
Contemplate any corporate or other branch rationalization.
Ah Corp.
Let's say I mean, corporate real estate or branch rationalizations for them.
Yes.
Yes.
Absolutely one of the things that we've recognized as you know Jennifer we've been able to right size our branch network over the last 10 years I think for if you look at legacy Synovus branches, we've cut almost 25% on the locations, but what you have to look at today is when you look at our branches and you evaluate what percentage of our branch.
<unk> are within three miles of one another in which per cent of our branches are less than 50.
$50 million on deposits, we have relative to our competition, we have a lower percentage. So as we go forward. We will continue to look for ways to optimize the branch network, but we'll also look at staffing levels will look at size of branch locations. We will look at two for one it will not be traditionally theres just the consolidation of the branch network.
We feel like we've done a good job on that as it relates to corporate real estate that was part of our initial assessment.
It is an opportunity and as we evaluate the remote workforce environment and what the needs are going to be long term there will obviously be opportunities there, but we're not waiting for that we're taking the opportunity now to renegotiate rent and get benefits from that and to just rationalize the space that we're using so yes, both of those will be part of the <unk>.
Short term and longer term initiatives.
Okay.
Our next question is from Brad Milsap with Piper Sandler.
Hey, good morning, guys good.
Good morning, Brad.
Jamie I appreciate your comment about the desire to.
Grow the bond portfolio, a little bit more with some of your excess cash just curious if you could comment on maybe other moves on the other side of the balance sheet, maybe specifically as it relates to the brokered money market and the brokered time it looks like the brokered time.
Yield on our costs were pretty much unchanged linked quarter, just curious kind of when you start to maybe see some movement. There and then anything else you can do on.
It kind of a long term debt side of things that was down on average quite a bit although it looked like the rate and dollar cost was up so just any industrial color. There on maybe other moves on that on the right side of the balance sheet aside from just normal repricing.
Yeah, Great question, and obviously by our actions in 2020, it's tough and you can see we're extremely focused on and when we look at on the brokerage side.
Even in non maturity a lot of those are governed.
By terms and so we don't have the flexibility necessarily to take those off.
When when you would want to immediately but on the CD side, we have approximately $300 million maturing in the first quarter, a little more than $200 million in the second quarter and we will continue just to let those run off.
In the fourth quarter you saw the day.
<unk> expenses that were associated with.
Our debt kind of optimization and that included both.
Sub debt as well as optimization of our home loan bank exposures and so so youll continue to see us look at our at the right side of the balance sheet and digging in on ways, we can optimize our liabilities.
As we go forward in 'twenty one.
Okay, and then maybe a question for Kessel or Kevin.
I appreciate the guidance around loan growth for the year, particularly in the back half is there a way to quantify.
Kind of based on the number of people that <unk> hired.
New vertical as debt.
Brought in sort of what your capacity is kind of based on what these folks had.
Previous institutions, just kind of curious kind of what the what you've got on got use debt is the bigger picture opportunity based on.
All the hiring that you did kind of pre pandemic with those folks may be getting off to a slower start because of the pandemic, what's what's kind of the size of the pie that is out there for for synovus.
Let's maybe try and tactics to I'll, let Kevin give a little more color, but I will say this we have been.
Super excited about the level of talent debt continues to be attracted I think to our operating model into kind of our history.
How we serve.
Customers, Kevin mentioned the relationship centric approach both on the private wealth.
Middle market wholesale bank in the CRE space, we had great talent adds over the last 12 to 18 months and then as we again stood up some of our specialty verticals.
Which Kevin can talk more about.
Additional capacity and certainly think debt.
Loan growth for this year will be back half loaded just for a lot of factors, but certainly pandemic vaccine recovering economy, Kevin maybe you could speak to any of those in particular, where you think we have outsized capacity again, I think I think our specialty.
Lending areas have really proven a source of value not just for us but to the marketplace in terms of how we bought expertise there. So Kevin maybe you could go a little further detail.
It's a great point I'll use some math to talk about I think where the opportunity is and when you think about just loan production.
This is a salient point when you look at commercial loan production in 2020, we had funded production of right at $5 billion and that was down roughly 13% in 2020 versus 2019, largely due to the pandemic.
So if you just return 2021 to production levels that we observed and 19 it would produce about $700 million of incremental production now that sounds large in and of itself, but I think what's more important is to look at where we were producing in the first quarter of 2020 and our commercial production in the first quarter came.
And 60% higher than where it was in first quarter of <unk> 19, So when you start putting a quantification to what these teams can do you look at just returning production back to 19 levels would be $700 million and then if you were to be able to sustain a 50% to 60% growth rate over time, obviously that growth becomes exponential so.
Kessel point structured lending has been up on <unk>.
<unk> addition to our team, but even as we've added talent within established areas like ABL, our CRE or commercial real estate.
Lots of opportunities to grow within mature products. It's just brings on new talent. So across the board. We think that there is opportunity to increase the production and get it at levels much higher than what we would have had back in 2019.
That's helpful and I assume that all that all plays into your the additional $75 million that you are looking for in 'twenty two.
It's part of it.
We've said that new talent and growth on the balance sheet growth in fee income would be a component of that but.
Yes.
But what we're making the $75 million net on it but it's part of that forecast.
Great. That's helpful. Thank you guys.
Thank you.
Our next question on even alexopoulos.
Right.
Hey, good morning, everybody.
Good morning, Good morning, I wanted to start so with all of the initiatives underway you seem to be building a better mousetrap on the digital side to acquire new customers, who are also in great markets. When should we start to see revenue growth trends start to separate from peers on a sustained basis right. When I look at the 2021 guidance for loans of revenue I can't say they are standup.
<unk> expectations.
Yeah, Hey, this is Jamie.
I guess, what I would point to is the growth in the core business our headwind right now on revenue when you look at growth.
Couple of things one is interest rate sensitivity and the impact of rate.
On the book and that that's a headwind on NII and net slight downward pressure and kind of core when you back out.
The impact of <unk>.
<unk> three.
That's a little bit of a headwind and youll start to see.
Loan growth in the deposit cost more than offsetting that as we get into 'twenty one.
And then and then we feel really good about our fee revenue growth.
Doing year over year comparisons.
We have the kind of headwind this year in 2021.
On a really strong mortgage performance in 2020, and so we feel good about the components, we feel good about longer term loan growth. We believe that we can grow.
Fast or faster than the economies in our markets and our five state footprint, which we believe will grow faster than the general U S economy and so we.
We feel good about our revenue growth based on those factors, but we do have that headwind.
NII just due to rate sensitivity.
Okay is it safe to say in terms of timing, which was my question that maybe it's a 2022 event not a 2021 event.
Given the headwinds you outlined.
My question is around when when we will see revenue outpaced peers, everybody is similar pressure right now.
Right that's right.
That seems appropriate.
2022.
Okay.
Then for my second question I wanted to follow up on Brad's question. What is the number of revenue producers at the company today and how has that changed over the past one or two years. Thanks.
Yes, Thats a tough question to answer.
Because you have all the branch team members, but.
And back office.
I would tell you that there are 60% of our team member base and some sort of frontline capacity.
And if you look at over the last several years, where we haven't been adding resources has been on the frontline and we've been.
Taking costs out on the back office through automation and optimization and so the ads that we're making.
Are on the frontline and when we do that we're looking at the return on investment when we make the decision to add so we may choose to.
Leverage adds in middle market commercial banking before we would in our wealth space just because it may have a quicker payback.
Okay. Thanks for all the color.
Next question is from Jared Shaw of Wells Fargo Securities.
Hey, good morning, everybody.
Good morning Jared.
I guess when you look at the expense guidance is the base that we should be using the full year. One point on nine $1 billion adjusted or is that really are for Q annualized $2 $75 million.
Full year adjusted.
Okay, and then and then when we look at that $4 $5 million you called out of Synovus forward PPP on Covid related expenses.
Still on the adjusted I guess, what's the timing for that to roll off is that just really dependent upon.
For back to back to work back to normal economy or was that more of a specific to fourth quarter.
Yes. This notice for upfront third party expenses R. R.
Initiatives specific and so those.
Those are individual and you can think about those per per initiative that we.
<unk> to pursue and so.
Those think about those that way on the Covid related and Pete for your fees. The fees. We had in the fourth quarter are related to the forgiveness process of phase one in 2021.
We'll see some fees associated with both the origination and forgiveness.
The second phase of the Paycheck protection program the upfront origination fees.
We will be embedded in loan yields so they will not show up in expenses, but the forgiveness fees will show up as you see them.
And last quarter.
Okay alright. Thanks.
Just shifting back to the allowance.
I appreciate the comments you made around that I guess, when we look at the ratio its still pretty high compared to peers and it seems like you have some cash.
Rotative overlays in there I guess, what could be the main drivers of lowering that ratio fast or is it just second half GDP accelerating above sort of a consensus estimate or is it just more once you all get comfortable with with that potentially lower.
Loss content, we could see those qualitative overlays reduce.
That's the right way to think about it is that as we as we go and get into this year and as we look at the economic outlook and get more comfort and confidence that the base case scenario is whats going to play out that will reduce the uncertainty that's embedded.
It.
Our allowance and our allowance is 12 31.
It does not have any future stimulus and it does not have a lot of the things that are being discussed today as benefits.
The general economy so.
We.
We will constantly reassess.
Our calculations on our estimates, but but I think youre thinking about it the right way.
Okay I appreciate it thank you.
Yeah.
The next question from John <unk> of Evercore ISI for them.
Good morning, guys.
Good morning.
I know you indicated that the.
When you were discussing the efficient the synovus forward program that a lot of that is revenue.
For the backbone really here is the projection is for positive operating leverage longer term. So could you give us an idea in your in your modeling and your expectations what is the timing.
You see returning to positive operating leverage.
John.
As we've mentioned that's an important priority for us.
And we believe that we have a shot at positive operating leverage in 2021 year over year on adjusted revenue and adjusted expenses.
If not.
Not a lay up there's a lot of effort that will go into that.
Both on the expense and revenue side.
That's our objective and so you see that in our guidance when we say that we expect revenues to be down 1% to 4% and expenses to be down 2% to 5%.
That's what we're shooting for now look it's early early in the year and Theres a lot of work to do to achieve it but that's our objective.
Thanks, and I was just given the the ranges are somewhat wide. So wanted to clarify there then on.
And then on the.
Capital return front.
You indicated that the priority is organic and that youre going to be opportunistic when it comes to share.
Share repurchases. So if you could just maybe help elaborate a little bit around.
The potential timing about when you step back into the market and buy back stock given you have the authorization.
Yes, John.
As we think about our capital management framework and philosophy I'm going to go back and just look back at 2020, we feel really good about our performance in a challenging environment starting the year at 895, CET, one and first quarter dropping down day 70 due to.
Customer loan growth and now being about 100 basis points higher at year end we.
We feel really good about that and we feel good about how we got there through stable PNR stable strong credit performance and.
And active balance sheet management, so we feel really good about our process on our framework.
And how we as management respond to those environments.
But in today's environment, we do believe it's prudent to operate with higher capital.
And we felt a year ago operating at the high end of the range of 90% to 95%.
We also believe that our common equity dividend at 33 cents a quarter is appropriate for 2021.
But.
So we're pleased with where we are we believe that our balance sheet, both capital and liquidity.
Our position for us to achieve success in 'twenty, one and b be ready for customer loan growth and so we feel good about that as well and that's our priority is to deploy that capital to loan growth, but as you're well aware today. We're at 970 <unk> our target is 950.
And we're above it and so we're going to think about how how do we deploy capital above our target.
Again, the priority is customer loan growth, but but if that's not there for us and we will look at share repurchases, but we're going to be.
Patient and opportunistic we do not expect to buy shares in the first quarter.
But we will be looking at that as we proceed through 2021.
Okay got it thanks, and then just lastly, if I could ask I know on slide three.
On a walk through your adjusted Aro TCE and about nine 1% for 2020.
<unk> 19 was clearly in the mid teens to 16% how should we think about your updated thoughts on on your appropriate long term Aro TCE as trends ultimately normalize.
John as Kevin mentioned earlier, we we believe that there is a lot of uncertainty out there, but we also believe that the $175 million we have in personnel. This for.
What will help us get to top quartile and so we don't believe that there is enough clarity on the economic and environmental outlook today to be able to give a good.
Return on tangible Roe.
Estimate over the long run if you look at the rate curve.
It has remained flat for a very extended period of time and so.
As we get more clarity on the outlook.
We'll give more clarity on our longer term return targets on where we expect to be but at the moment. We just think it's more prudent to just be clear that we were targeting top quartile.
And Jonathan.
Pace on which we get there that's our focus maybe not so focused on the destination on what the number is but making sure that we're.
Putting initiatives in place and gained incremental.
<unk> that allows us to grow faster at a relative pace.
Got it alright, thank you.
Thanks, John.
The next question is from Ken Zerbe of Morgan Stanley.
Alright, great. Thanks, good morning good.
Morning, Kevin.
Given your deposit composition and how you see that changing what is it reasonable floor for your deposit costs. If we think out over the next 12 months.
Ken that's a great question.
For the fourth quarter, we're sitting here at 28 basis points.
I mentioned that we can get another seven in the first half of 'twenty. One just due to time deposits alone, obviously will get benefits from non maturity deposits and mix as well.
Which.
It gets you another two or three basis points from there.
So I would I would say that in the next 12 months.
10% 10 basis points is certainly reasonable.
We're trying to China, everything we can to get it get it lower.
Alright, Great and then just one follow up just as a clarification question.
Your comments that you would expect modest downward pressure on NII and NIM in first quarter does that exclude all PPP fees.
Yes, yes, and so it does and can just a little more color on debt.
In our slide deck, we mentioned that we have $20 million in fees in process at year end.
But just just to be clear there's also.
Normal fee amortization that will happen in the first quarter.
There are other loans that could go through the forgiveness process in the middle of the quarter. We would expect in the first quarter to potentially have approximately $30 million in P. Three fee realization.
Perfect that helps thank you.
Yes.
The next question is on Brody Preston with Stephens, Inc.
Good morning, everyone.
Morning.
And I just wanted to go back to the loan growth just wanted to get a sense. I. Appreciate you sort of gave some I guess some numbers around how <unk> stacked up this year and on what it would look like if you got back to last year kind of levels, but just wanted to get a sense for how loan pipeline stack up currently relative to the year ago.
Period, and you know maybe during the middle of the pandemic and then.
The expectation for Paydowns are those to remain elevated in the near term.
Yeah. So this is Kevin So let me first start with the Paydowns and payoffs, although the fourth quarter was elevated from second and third quarter. When you look at 2020 for the year payoffs and Paydowns were in line with previous years on expectations. So what fourth quarter was just maybe some some.
Lower payoffs and Paydown debt would have occurred in the second and third quarter that were just.
Pushed back into the fourth quarter. So as we look into 2021, we don't expect payoffs and paydowns to be at an elevated level as it relates to production I mean, very clearly our growth for 2021 will come from our commercial business. We believe that we can get mid single digit growth in both our core C&I.
High end core CRE growth.
And that comes from as I mentioned earlier, just having increased levels of production. The pipelines to your question are not fully back to where they were free pandemic and in the fourth quarter. Our commercial production was actually down about 30% year over year. So it has trailed off based on the underlying economic environment, but.
All of our line leaders are seeing folks come back into the pipeline with new projects and new opportunities and so we expect for those to continue to build throughout the year as Jamie mentioned, probably more so to the second half of the year and then I also just want to remind you that Jamie touched on the third party retail partnerships.
We currently have right around $675 million on third party partnerships as you know historically, we've operated right around $2 billion. So we have capacity with our liquidity and capital profile to be able to go out and make some purchases from third party if they meet our hurdles from a profitability.
A return perspective, so as you think about loan growth for next year on.
Fairly bullish that we can produce at the higher end of the range just based on the fact that production will return throughout the year if utilization.
Utilization were to normalize as I said in my prepared remarks, just getting back to normal levels, there would be $650 million and we have some dry powder as it relates to third party. So we feel confident that we can deliver on our loan guidance.
Okay. Thank you for that and then just one more on synovus forward.
I appreciate the timeline you put in the deck I just wanted to get some clarification.
$60 million annualized in first half 'twenty, one is that more I guess heavily weighted towards the rest of the expense capture expense saves that you need to do and then as the $100 million in the second half 'twenty. One is that more based on the revenue enhancements and then I guess you gave sort of some.
Some indication that it's going to be more heavily weighted towards revenue on the additional $75 million, but I guess I wanted to better understand how much of that is going to be driven by new hires I guess on the on the fee side or is it more on the loan origination side, that's going to help with those those revenue enhancements in 2022.
I'll jump in on the timing and then hand, the Kevin about the hires.
When we look at the timing what I would say is that first 100 million is kind of about two third one third bullet.
With expenses being two thirds of the first $100 million and then that reverses for the second for the $75 million and so the second $75 million.
For the $75 million.
Approximately two thirds of revenue and one third expense and obviously with all of that is in progress and in process. We have work streams identified but not at all for that and so it could evolve, but that's how we look at it today.
Kevin I'll hand to you for.
The higher side, yes, so look I don't want you, leaving thinking that there is a great deal of expenses for new hires that debt would be required to generate the revenue growth two big components of revenue growth and one that we haven't started yet is on the analytical front as I mentioned, we started the commercial analytics and we believe that's going to give our.
Front line bankers, a tremendous opportunity to cross sell within the existing book, we will in the second quarter rollout. The same project for retail analytics and so that's going to provide our private wealth in our retail bankers the opportunity to do the same and so much of the revenue that we see in the future is just continuing to leverage that analytical.
That for them to be able to sell deeper into the relationships, we already have as well as reduce the level of attrition.
So there's not a tremendous amount of revenue at risk if we do not bring in new team members now within our guidance for this year with the reduction in expenses, we are still planning to add new producers into our high growth areas, whether that be market specific whether it be in our wholesale banking area, whether it be a specialty or just the middle market Bank.
So we are continuing to invest broadly in talent that can give us the profit returns and we'll do that but the $75 million is not predicated on a bunch of new hires to be able to get there.
Okay, great. Thank you for that I. Appreciate you taking my questions on all the time this morning, everyone.
Yes.
Thank you.
Your next question comes from even Joanna on RBC capital markets.
Hi, good morning, guys good.
Good morning.
Just wanted to.
Talking about your excess liquidity I think it's around $3 billion.
Piece that we should expect that to wind down each quarter.
And are you planning just to redeploy that into the Securities book.
So it's a great question and one we debate daily.
As we look at 2021 and think about what to do with excess liquidity first off our base case forecast would have deposits declining we didn't give official guidance on that because it's highly uncertain. If you look at future stimulus possibilities the paycheck protection program round two.
All of those could materially impact.
So it's difficult to know exactly what that.
What that will look like this year.
As we mentioned earlier, we do expect to increase the securities portfolio.
In the fourth quarter.
We're between.
<unk> thousand 14% to 15% on total assets on the securities portfolio and.
In 2021, I would expect to grow that to between 16% to 17% of total assets with the majority of that happening in the first quarter.
And so we will deploy some of that excess liquidity there as Kevin mentioned, we do believe that we have opportunities on our third party lending portfolio that is a portfolio that we view as a surrogate for the investment portfolio and so the way we think about that as we get increased spread.
In exchange for incremental risk in net incremental risk.
Credit liquidity and marketability and with what we experienced in 2020 with the sale of the student loan portfolio realization of a game there with the restructuring of <unk>.
Our largest third party relationship that de risked that.
Portfolio on all of that just tells US that we really think that we have a strong framework in this portfolio and it truly is a surrogate for the investment portfolio as Kevin mentioned, that's an opportunity for us to consume some of this excess liquidity, but that's.
<unk>.
How we're thinking about it obviously the number one priority is customer growth and that's our that's our.
First and foremost objective.
Got it I appreciate that and the third party.
Folio that was around $630 million in the fourth quarter right.
Net.
That could increase going forward, if you want to redeploy the excess liquidity.
That's right that's right as you look at it as Kevin mentioned at 12 31, 2019, we were right at $2 billion in third party loans on balance sheet and right now.
Youre spot on it at over $600 million, just over 600 million.
On loans held for investment on our balance sheet. We also have to held for sale portfolio, but we view that differently that that's a different risk profile.
So we have really reduced the loans on balance sheet and the <unk> portfolio and we believe that airs debt.
The opportunity to grow that portfolio in 'twenty one.
So I guess, maybe just an extension on this by the fourth quarter do you expect your excess liquidity to be around $2 billion.
Okay.
That's it.
It's a challenging.
Challenging thing to forecast just given given all of the different flows and how we see 2021 I believe that liquidity will remain elevated we're going to do everything we can to manage that including reducing broker deposits that we talked about earlier.
But I think.
It would be pretty.
Pretty tough to give a give a good answer for the fourth quarter of 'twenty, one excess liquidity.
For.
I understand that.
And then just the last one just on the 45 million.
On a revenue benefit from synovus forward.
But how much of that is coming from fees for instance, NII.
So so.
First round, we said it would be 45, we have three primary initiatives in there number one.
On pricing for value about as I said on the call about $10 million of the benefit they would come in fee income the repricing to market levels, our treasury and payment solutions solution.
The second is on our new product offerings that we've rolled out in merchant services, we brought it in house and so that will all be fee income related and then the third and the more difficult one to assess this commercial analytics, where we put a $20 million benefit there that comes from cross selling and reducing attrition and so cross.
Selling to our existing book could come from extending additional credit it could come from depository. So there won't be an NII component, but a large.
<unk> of the ability to cross sell will be on that treasury and payment solutions side, I think about 70% of the leads that we get out of the system, our treasury and payment solutions related so I would assume that a large portion of that revenue will also come in through the service charge line or fee income on.
Got it very helpful. Thank you that's it for me.
Yes.
Sure.
The next question comes from Christopher Merrimack of Janney Montgomery Scott. Please go ahead.
Hey, Thanks, just a quick one I know you talked about the M&A environment and not being interested on that I'm, just curious on that perhaps venture capital or just general investment standpoint, there's fintech.
First you at all from that deployment of cash do you have some unique.
Unique history on payments and Fintech just is why I asked.
Yes, Chris.
I'll jump in on that as Jamie.
As we look at those Youre right, we have a very unique history and a unique expertise.
So that definitely plays into it.
But a lot of times when you look at the financial and the valuation.
<unk> to make those work to bring it into a bank because generally and not always but generally.
Their valuations based on their ability to sell to other banks and if you bring it in house, it makes that difficult and the value to the buyer.
<unk> is a fraction of what the value is of that company when they can sell across the country and so that typically what makes the math difficult for that that.
That is the type thing that we look at it as Kevin mentioned earlier, if there is technology that we can deploy to serve our customers better to add a product that has that is definitely something we would consider.
It's just you have to find the right fit to make the valuation work.
Great points I appreciate the color. Thank you all for the information this morning.
Thanks, Chris.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Mr. Stelling for any closing remarks.
Well, thank you very much and thanks for everyone for your questions and for your time today in closing I think 2020 again proved the valuable role banks play in our communities and our economy.
My entire career I'm not sure I've ever been more proud of our profession, and I'm, especially grateful to be part of an organization that was already well positioned with strong talent and long time local relationships to respond on when and where.
Needed throughout the year, it's certainly been a trying season for everyone. While we in no way celebrate the difficulties that are been leypoldt room for so many and it created challenges our team is still working to overcome.
It has been inspiring to again watch our bankers, our advisors and support teams kick into action 24, seven caring for each other and those we serve this might've been our finest hour. So far there is so much more to come.
We're looking confidently towards the future with the right talent in the right growth strategy is leading the way to become an even better.
And we're just so well positioned for 2021 and the years beyond with a strong balance sheet.
With higher levels of capital liquidity and strong credit quality.
With a strong operating model coupled with solid execution on our Synovus board initiatives identified to date and excited about the go forward opportunities yet to come.
And finally strong leadership.
And just strong talent in general not just at the senior level, who you heard fund a day, but really throughout our organization.
Out of our five state footprint.
To attract and retain the best and brightest in.
In our industry, all of whom have a passion for serving our customers each and every day is truly an honor to serve that group.
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So with that again excited about the quarter look forward to being with all of you again.
In April and thanks, again for joining us and for your continued interest and on top.
Have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.