Q1 2021 Synovus Financial Corp Earnings Call

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Good morning, and welcome to the Synovus first quarter 2021 earnings call. All participants will be in listen only mode should you need assistance. Please signal of a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one one of your Touchtone 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 conference over to Kevin Brown Senior director of Investor Relations. Please go ahead.

Thank you and good morning during today's call, we will be referencing the slides and press release that are available within the Investor Relations section of our web site Synovus Dot com.

Kessel Stelling, Chairman and Chief Executive Officer will begin the call. It 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 yourself to one question and one follow up.

Let me remind you that our comments may include forward looking statements. These statements are subject to risks 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 on our SEC filings, which are available on our website we.

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.

During the call, we will reference non-GAAP financial measures related to the company's performance.

The reconciliation of these measures in the appendix to our presentation and now here's Kessel stelling.

Thank you Kevin.

Good morning, everyone and thanks for joining our first quarter of 2021 earnings call in May.

The last call as CEO.

This is the 45th quarterly earnings call off participated in with this great company about 44th as CEO and I can tell you with great certainty that despite the lingering challenges for our company and the industry. These calls of ending for me one of them much more positive note.

Then when they started.

My very first call was in April 2010, 11 years ago to the day as Chief operating officer.

We we're weeks away from completing the consolidation of 30 bank charters into one and still very much in the early stages of recovering from the financial crisis.

I won't take you back through every high and low over the last 10 plus years.

But before we move into today's update I want to take a moment to thank our shareholders for their trust and support.

I'm also grateful to those of you on this call many of whom have followed our company as long as I've been around some even longer.

Our team looks forward to these calls every quarter in part because of the relationships we built with you.

While we don't always agree we appreciate your commitment to and usually your delivery of fair assessments of our opportunities and our strengths.

I also want to thank our executive team with whom I've had the privilege of leading this company through the good times, and they're really tough ones as well.

Above all I want to thank our team members many of whom are listening in today.

This team has a passion of drive.

Incredible depth of talent.

They simply won't take no for an answer.

There are time tested and battle Warner they dig deep and always find new ways to win.

I truly believe I work alongside the best team in the industry and I'm regularly and all of their dedication to each other.

Our customers communities and shareholders.

On Thursday.

Confidently past the CEO of Baton to Kevin Blair.

Who I strongly believe is more than capable and ready to take the helm.

I am so proud of all we've done and beyond excited about what's still ahead, and that's where I'd like to focus the remainder of my comments.

And the presentation last month.

Kevin identified three tenants that are core to our delivering sustainable top quartile performance.

The first is being positioned for success, which includes capturing the growth in our southeastern footprint and capitalizing on our strong reputation with customers and communities.

Second is providing an exceptional customer experience and which we continue to invest aggressively through efficiencies generated by synovus forward.

And third is delivering core organic growth, which remains our top priority for capital deployment with expectations for core customer loan growth this year consistent with our guidance of 2% to 4%.

Excluding P three loans.

Our results in the first quarter demonstrated our ability to deliver in these areas.

Adjusted diluted earnings per share were $1 21, compared to $1 eight last quarter and 21 cents a year ago.

Total adjusted revenue of $488 million adjust.

The adjusted expenses of $267 million.

In the $19 million reversal of provision for credit losses led to strong earnings debt further increased capital levels.

Core transaction deposits grew 2 billion, helping reduce the total cost of deposits by six basis points.

Two 2%.

Commercial loans, excluding those under the Paycheck protection program increased $212 million or 1% from the end of the year.

Through mid April we processed 10000, new phase two applications for $1 $1 billion and have funded approximately $950 million for our customers.

Net charge offs remained low at 21 basis points.

NPL and past due ratios all remain near historical lows and.

We remain confident in the credit performance of our portfolio.

We continue to be pleased with the progress in our synovus forward initiatives by the.

The end of the quarter, we've achieved a pre tax run rate benefit of approximately $50 million of the $175 million expected by the end of 2022.

Kevin will provide more detail later on the call.

Again, our team did an outstanding job delivering strong results for the quarter and I look forward to continued progress throughout the year.

And with that overview I'll now turn the call over to Jamie for the more detailed financial update beginning with loans on slide four.

Thank you Kessel total loans increased $552 million in the first quarter highlighted by $894 million in fundings from the second phase of <unk>, three as well as the $476 million of indirect auto portfolio of purchased in March with backend loaded growth.

Period end loan balances were $593 million higher than average balances.

Loan growth of approximately $212 million in commercial loans, excluding the three was led by our specialty verticals, while we saw declines in balances associated with our smaller commercial customers.

Total C&I loans, excluding P. Three balances increased $4 million in the first quarter.

Despite total commitment growth of $93 million line utilization declined $43 million in the ratio remained stable at 40 per cent.

With the recent two nine trillion dollars of stimulus plan, we expect C&I line utilization to remain at or near the historically low levels for longer as customers prioritize use of their own excess liquidity before making meaningful growth returning to a more normalized average of 46% would add of.

Approximately $650 million in funded balances.

Total CRE loans increased $208 million since the recovery of commercial real estate markets continues.

Total consumer loans, excluding lending partnerships declined $333 million.

The reductions are a continuation of the post COVID-19 trends witnessed across the industry as consumers use government stimulus to reduce revolving credit balances and deleverage.

This trend was particularly apparent within our consumer mortgage and HELOC portfolios, which declined $214 million and $105 million respectively.

We continue to deliver on the <unk> program for our customers, we have processed $1 $1 billion of P. Three loans and funded approximately $950 million to date as part of the second phase of the program.

We also continue to work through the forgiveness process on phase one loans in the first quarter, we had $711 million of loans complete the forgiveness process.

Total <unk> loans ended the quarter at $2 4 billion.

More details related to these loans are available in the appendix.

Total lending partnership loans held for investment increased $503 million led by the purchase of Prime auto loans. We will continue to use lending partnerships is the strategy to manage the balance sheet, which I will discuss further in the capital and liquidity sections.

As shown on slide five we had total deposit growth of $677 million.

The main drivers of the change include the deposits associated with phase two of P. Three declines in public funds and continued remixing of our deposit base.

Deposit growth was led by an increase in core non interest bearing deposits of $1 $4 billion, allowing the continued strategic run off of higher cost deposits.

The more favorable mix supports further declines in the total cost of deposits, which declined another six basis points in the quarter to two 2% and.

At the end of the quarter total noninterest bearing deposits accounted for 31% of total deposits, which improves our cost of deposits and NII sensitivity.

The cost of money market deposits fell by three basis points and we will continue to manage these costs down in this low rate environment.

In the first quarter, we were able to reduce the cost of time deposits by 24 basis points to eight 9%.

The reduction then included a 19% decline in brokered Cds, which included $309 million at an average rate of approximately $1 85%.

Further reductions in deposit costs will come from time deposit maturities as well as further price reductions in non maturity deposits.

Slide six shows net interest income of $374 million.

$349 million, excluding P three fee accretion.

Of this figures represent of $12 million decrease from the fourth quarter, largely due to lower day, count and the continuation of low rate pressure.

This includes of greater than expected increase in refinance activity and higher premium amortization within the securities portfolio.

These headwinds were partially offset by lower deposit costs and the continued deployment of excess liquidity and.

In addition to the increase in lending partnerships of $503 million I referenced earlier, we increased the size of the securities book by $1 billion.

In the first quarter, we realized $25 million mp3 fees.

At quarter end, the net unrealized fees were $25 million for phase, one and $36 million for phase two.

We expect most of the remaining phase one fee accretion will occur in the second quarter and phase two of the accretion will pick up in the second half of the year.

As a reminder, most phase one loans have a two year term and it's a five year term for phase two loans.

Securities accounted for approximately 16% of total assets at the end of the quarter and we continue to expect further growth within that portfolio for the foreseeable future to deploy excess liquidity.

Based on current market conditions.

And our loan growth expectations, we reiterate our expectation that our core NII should trough in the first quarter exclusive of accelerated P. Three fee accretion.

As we progress through the year, we expect to see increases in NII driven by loan growth deployment of liquidity of deceleration of prepayments and further deposit cost reductions.

The net interest margin was three 4% down.

Down eight basis points from the previous quarter.

We will continuously monitor our forecast of liquidity position as we consider the appropriate size and composition of our securities and lending partnership portfolios.

Slide seven shows noninterest revenue of $111 million.

After adjusting for security losses, adjusted non interest revenue was $113 million up $1 million from the prior quarter and $14 million from the prior year.

Core banking revenues increased $1 million as of $2 million increase in account analysis fees. Following the first wave of our pricing for value initiative offset declines in NSF fees of $1 million.

Increased customer derivative activity and interest rate movement contributed to our capital markets improvement of $3 million.

We saw continued growth in assets under management, which were up 2% quarter over quarter and 35% year over year.

Net mortgage revenue of $22 million remained strong although we're seeing some normalization of activity from the extended low rate environment.

While first quarter mortgage production levels remained elevated the recent increase in interest rates of <unk> likely to reduce production levels going forward.

Moving on to noninterest expense on slide eight.

Total in adjusted noninterest expenses were $267 million.

Adjusted NII was down $9 million from the prior quarter and $5 million from the prior year.

The employment expense increase of $8 million from the prior quarter include seasonal first quarter increases in unemployment taxes and other related employment expenses that were partially offset by the benefit of synovus forward initiatives, including a full quarter benefit of the voluntary early retirement program last quarter.

<unk>.

Professional fees declined $8 million from the prior quarter, primarily from lower expenses associated with Synovus forward <unk> and cares act related initiatives.

Kevin will share an update on our synovus forward progress shortly.

We remain committed to prudent expense management, enabling us to continue investing in areas that position us for greater success deliver a superior customer experience.

And promote profitable growth.

We remain confident in the credit performance of our loan portfolio.

As you can see on slide nine key credit metrics remained stable with NPA NPL and past dues, all remaining near historical lows.

Further note that our allowance estimates should reduce the life of loan losses versus the prior quarter.

Net charge offs declined $2 million to $20 million or 21 basis points.

Given the elevated levels of liquidity and continued economic recovery, particularly in the southeast we are not expecting a significant change in net charge offs in the near term.

The $19 million reversal of provision for credit losses resulted from the improved economic outlook and stable loan portfolio of metrics. They were partially offset by the increased size of the loan portfolio.

As expected we saw an increase in criticized and classified loans that reflects the timing from our grading process, which uses trailing quarterly financial statements and reflects the lower levels of revenue experienced during the pandemic.

Approximately 60% of the $263 million increase is hospitality related including hotels and full service restaurants.

The most recent cash inflow data, which is located in the appendix shows positive momentum and year over year activity.

We expect to see a significant reduction in criticized and classified levels as the real time improvements, we're seeing in cash inflows, which serve as a proxy for revenues.

<unk> tend to improved quarterly financial statements for borrowers.

This more positive outlook is reflected in the ending ACL ratio of 169% excluding <unk> loans.

It is the first quarterly decline since implementing the fees or over a year ago.

The decrease of aligns with the more positive economic outlook and reduced uncertainty.

The allowance at the end of the quarter incorporates an outlook with moderate economic expansion and benefits from the recently approved stimulus.

Theres more detail included in the appendix.

As noted on slide 10, the CET, one ratio increased eight basis points to 974% from strong core earnings despite the risk weighted asset increase of $1 2 billion.

The <unk> increase is primarily from balance sheet management efforts I referenced earlier as well of the $234 million increase in loans held for sale.

The CET one ratio of grew more than 100 basis points over the past year and we remain above the top end of our 9% to 95% operating range for CET one.

We are well positioned the complete our key strategic objectives, including our commitment to profitable growth.

Our top priority is to deploy our balance sheet the core multi solution relationships.

We also believe it's important to return a portion of current earnings through dividends targeting of long term payout ratio of 30% to 40%.

When we are comfortable that our capital is sufficient to cover our primary objectives, we consider secondary priorities like share repurchases and non core growth.

Before handing over it over to Kevin I'd like to highlight the active balance sheet management efforts, we've taken shown on slide 11.

Because of that goes hand in hand, with our ability to deploy excess liquidity as well as capital above the top end of our operating range.

The first graph is the historical view of our cash position to give a sense for where normalized operating levels for our pre COVID-19.

We've talked about the impact on NIM for there.

There's also the opportunity cost of not deploying that liquidity.

Current interest bearing funds with the federal reserve of $2 7 billion.

Or about three five times higher than normalized levels and we've actively managed our balance sheet in the past few quarters to monetize that excess liquidity.

One way, we were able to accomplish the with our lending partnership portfolio, which a year ago had approximately $2 billion in held for investment loans.

With our actions and restructuring the green Sky relationship and active management of the other lending partnership portfolios. Our total lending partnership exposure at quarter end was $1 9 billion.

With approximately $1 $2 billion in held for investment loans and approximately $700 million in held for sale of loans.

We will continue to manage this portfolio as we navigate the current capital and liquidity environment.

In the first quarter, we purchased auto loans, because we believe that the risk return profile two year average life and the auto loan market liquidity was a good fit under current market conditions.

As you can see in the third graph. We also increased our securities as a percentage of total assets.

The yield on first quarter purchases was about one 4%.

The last graph is the historical view of the loan to deposit ratio, which currently stands at 82%.

This provides significant longer term opportunities highlighted by the ability to be more selective and efficient with our funding, which you've seen us actively manage over the past year. This includes deposits and other liabilities.

With the excess liquidity in capital above the high end of our targeted operating range, we can increase the assets, including securities and loans.

Which results in much higher yields than the overnight rate with the federal reserve.

We can accomplish this without sacrificing core organic loan growth, our highest priority for capital and liquidity deployment.

I'll now turn it over to Kevin who will provide some comments about our strategies and provide an update on synovus forward.

Thank you Jamie I'd like to begin by thanking Kessel for all of his contributions that have helped transform synovus and position us very well for the future the entire synovus leadership team and I sincerely appreciate the unwavering support and especially skillful and influential leadership Kessel has provided of CEO and we're grateful Hill.

The main and the mix in his role as the executive Chairman of the Board Kessel and I have worked very closely together since I joined the company in 2016. He has taught me and our entire team a lot as we've watched and listened to him steer us through challenges no one ever dreamed, we'd face it certainly an honor to take the helm of this incredible company.

As we continue to build on the strong foundation that is part of his legacy as Kessel stated during his introduction, we had been working intently not only to perform in the present, but also building upon our core foundations and further transforming the company to be in a position to deliver sustainable top quartile growth.

Slide 12 provides the basis for which we believe can create the compelling formula for our ability to achieve and sustain our top quartile of objectives. It begins with being positioned for success, which is the combination of the longevity and resulting value of a strong core franchise as well as the more recent transformation of the company and the <unk>.

Appendix we've included a timeline with the series of highlights under Kessel. His tenure as CEO. We certainly don't have time today to discuss all of the accomplishments and transformation over the last 11 years spanning the for phases of stabilize rebuild invest and accelerate.

However, I want to highlight a couple of imperatives that had been instrumental in better positioning synovus for scalable growth and winning in the marketplace.

During the time frame, we moved to a more centralized banking model without impacting our agility and customer connectivity that has long been a staple of synovus, we built out robust and comprehensive risk management procedures and practices, while strengthening and diversifying the balance sheet to better withstand periods of stress and.

And lastly, we have enhanced our products and solutions as well as expanded our coverage through the addition of talent and through the global one in Florida community Bank acquisitions, as we evaluate our performance over the prior 12 months. These previous initiatives and efforts have been essential in helping the weather and overcome the challenges of the X.

<unk> downturn, while continuing to strengthen the bank for the future.

Synovus is well positioned competitively within our industry, we are large enough and aligned with the right Fintech and partners to deliver the capabilities and functionality of our largest bank competitors. We have also doubled down on the remaining local and focusing on delivering a personalized approach to banking, which competes well with the smaller institution.

Lastly, we have solid coverage across our markets customer segments and industries, but we continue to have opportunities to expand our asset classes products and solutions and talent base. We also believe we are in the best footprint of banking. This belief is strongly supported by the demographic and economic data as we evaluate.

<unk> comparisons of metrics, such as GDP employment rates home prices and many others. Our five state footprint is performing at levels far better than the national averages and we believe this trend will continue and will likely become more pronounced with population and business flows into our markets.

In addition, our capital levels have increased significantly throughout 2020 and end of 2021, and we have demonstrated prudence given the unprecedented changes in the underlying economic environment and we are now in a position to fully utilize our capital to support the organic growth as our current capital levels are in excess of our stated target.

Get levels.

In addition to being well positioned we fully understand the importance of and are committed to delivering a superior customer experience. The industry attempts to make this more complex than it really is it is all about making it easier to do business with us and through our actions over time building a strong level of trust with our customers.

We accomplish this by putting their interest first and partnering with them as advisors, we have a long and successful track record with the high levels of customer loyalty as evidenced by our net promoter scores, but we know there is an opportunity to continue to improve.

We are redesigning customer processes, and leveraging technology to further strengthen relationships with our model of high Tech meeting high touch with our highly engaged and experienced team members serving as a key point of differentiation. It is not about addition by subtraction, but rather building synergies.

From the combination of both aspects.

The line between service and sales is also becoming blurred customers want advice and guidance and they expect their financial partners to provide it and the proactive manner in order to support their financial objectives. We are prioritizing investment in data and analytics as well as the channels that support customer interactions and.

In order to be more proactive and timely in providing insights and advice not only is it leading to creating longer term sticky relationships, but it is also generating new sources of revenue, which brings me to our third area of focus profitable growth, Jamie summarized our capital priorities as well as we will.

To prioritize core organic growth is our primary objective given the strength of the economic activity in our footprint and our calling activities. We are starting to see pipelines and production levels return to pre pandemic levels. We continue to expect the second half of 2021 to be the strongest in terms of growth.

We have also had a concerted strategy to accelerate the growth in our fee income generation businesses, including wealth management Treasury and payment solutions and capital markets. The first quarter results continue to show good momentum in these areas with increases in wealth management revenues up $2 million of 5% from the fourth quarter as well.

<unk> continuing to grow as Jamie referenced earlier Treasury and payment solutions overall production and Onboarding efforts continued to hit record levels combined with the repricing efforts produced the $2 million or 23% increase in service charges versus the fourth quarter despite increases in customer liquidity.

And lastly, the addition of key talent will serve as a catalyst for growth Synovus continues to be a model that is attracting top talent. We continue to double down on businesses, where we have the right to win and present the opportunity for profitable growth. We have increased the producing team members in our wholesale and specialty banking units treasury and payment solutions.

<unk> as well as wealth management ongoing disruption in the industry as well as a targeted approach for expansion will allow us to opportunistically add top talent in areas, where we continue to see relatively short payback periods and sources of long term growth.

Moving to slide 13, this outlines our synovus forward initiatives, which we've shared previously we are confident these initiatives will help us achieve our stated objectives and align with the three tenants that kessel outlined earlier as a reminder, we expect to achieve a pre tax run rate benefit of $175 million.

By the end of 2022, we prioritized the efficiency initiatives as we kicked off the program in late 2019 in order to fund our journey forward and these initiatives will result in approximately half of the $175 million anticipated pre tax benefit.

At the end of the first quarter, we have achieved a pre tax run rate benefit of approximately $50 million with about $40 million in cost reductions and $10 million in incremental revenues. We are in the process of realizing the additional phase one efficiency initiatives announced in January that we expect to generate an additional 25 million.

In phase two we have initiated the phase II program and over the next two quarters, we will begin to make decisions that will lead to the incremental savings with the goal to have all of the efficiency programs executed by the fourth quarter of 2022, as we continue executing the synovus forward plan the mix of benefits will shift towards revenues.

As such we are very pleased with the progress we've made in both of our commercial analytics and pricing for value revenue initiatives. We are currently in the pilot phase of our commercial analytics enhancements, which include the smart tool that I detailed on our previous earnings call. Our team is now receiving in closing actionable leads from this tool and Youll begin.

To see the benefits in both net interest and noninterest revenue lines going forward. The smart tool will be fully adopted and in production by the third quarter of this year, we remain confident in our ability to generate of pretax run rate benefit of over $20 million by the end of the year.

We're also in the initial phases of developing of similar tool to be leveraged by our retail and wealth management bankers and expect to have the program in place by year end.

Our pricing for value initiative in Treasury and payment solutions began in the fourth quarter and will continue through the second quarter of 2021 results to date have exceeded our expectations with fees, increasing $2 million quarter over quarter, and we expect to maintain and even increase profitability in these products as we continue to increase.

Our value proposition in treasury and payment solutions, including our new Synovus Gateway platform priority service and enhanced solutions Dell.

Moving deeper into our focus on expanding our products and solutions sales and our new merchant solution continued to outpace our expectations and we are turning our attention to rolling out additional functionality and capabilities in 2021, including international export financing integrated payables and receivables and of <unk>.

One card digital wallet solution to achieve sustainable top quartile growth, we understand that continued investments in technology and talent are paramount as we evaluate the need to balance short term headwinds from interest rates or economic activity. We have emphasized not making short term decisions that impact our long term valuation or growth.

Opportunities as such it requires more rigorous prioritization and focusing more intently on businesses, where we have the right and proven track record of winning Synovus forward is predicated on supporting our aspirations of growth bank and not simply cutting our way to prosperity now before I turn it back over to Q&A I want to make a couple of <unk>.

Final comments regarding the CEO transition since our announcement in December we've been asked a lot about how the strategies will be changing under new leadership, while there'll be some changes over time like Kessel I will continue to execute the synovus forward plan, we have both been aligned with the company's direction and areas of emphasis.

Outlined in synovus forward and our other strategic initiatives.

We are both clear on our strength as well as our opportunities for improvement also we both have a lot of confidence in the synovus team and our ability to win versus the largest and smallest competitors and lastly, we are both committed to lead our company forward to deliver on both our short and long term objectives, while not losing sight of what makes sense.

<unk> is a great company its team members its customers and the communities, we serve with that I'll turn the call over to our operator for Q&A.

Thank you we will now begin the question and answer session.

Just a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two in the interest of time. Please limit yourself to one question and one follow up at this time of a pause momentarily to assemble our roster.

Our first question is from Ebrahim, Pune Wala from Bank of America. Please go ahead.

Good morning, guys.

Good morning point of view.

I guess first of almost.

Patients on pulling off of what does it mean one of the most of the market. We've done 1000 banks post financial crisis, so job the head on.

And I guess in terms of the question I'm, just saying that he can say what Jamie talked about in terms of your own code and the impact from stimulus and savings both on the commercial and consumer side and I think Kevin you mentioned about like pipeline and production levels back to pre pandemic levels, just talk to us when they think that the fed him.

All of the of debate at all whether or not the banks will see a pickup in loan growth give us the sense of.

Given that a lot.

A wide swath of the economy Neil footprint is already open are you seeing a pickup in loan demand and I guess I understand the second half weighted loan growth, but should we start expecting better sort of color from you in terms of loan growth picking up over the next few months just give us the puts and takes on debt.

Ebrahim it's.

The interesting when you think about the puts and takes as you as you state when you look at the liquidity that exists in the marketplace. Today, we are talking about this yesterday of the average balance per checking account and commercial is up 40% year over year end of the consumer side, it's up 25% year over year. So when you think about the headwinds that.

Exist that are leading to lower loan growth its really the amount of liquidity that's sitting on the customers' balance sheet now.

We know that over time that will abate a bit but the things that we're seeing that give us confidence first and foremost as I mentioned, our pipelines are increasing they were up 20% in the first quarter versus the fourth quarter of last year, we know that our bankers are becoming more active they're going on prospect calls they're having.

<unk> with customers, who are starting to plan capital expenditures for the second half of the year. We also know that there is a tremendous amount of opportunity with some of the new tools that we're rolling out through our smart toward it does give us insights into the opportunities, where we have lending opportunities where in the past we may not have known that with the existing.

Customers and then when you think about our footprint and you look at some of the data.

Unemployment in our five state footprint is all below five 2% every state is below five 2% with the National average of 6.2, you look at the net population inflows all five states are in the top 15 in the in the country. So when you take into consideration that there could be some demand.

Coming from infrastructure coming from second half of the year economic activity combine that with where we see our footprint growing and then you add in the add into that the the increases in talent and the productivity gains, we're making we feel like the second half of the year is going to be constructive, but again the biggest wildcard there will be the liquid.

City that sits on the balance sheet and how long that sticks around.

Hey, Ebrahim. This is Jamie let me add one thing and we reiterated our guidance for 2% to 4% loan growth in 2021, and as Youre aware of we had an auto loan purchase in the in the first quarter.

Our guidance remains the same on the 2% to 4% loan growth, excluding any sort of third party lending portfolio purchases like what we saw in the in the first quarter. So as Kevin mentioned, we feel good about our pipeline and we believe it's weighted to the back half of the year.

And we are excluding in that guidance any sort of portfolio purchases. The like you saw the of this quarter.

That's good to know so thanks for clarifying that Jamie and I guess, just as a follow up to that on slide 11 day, you have the liquidity and you talked about debt is the message then that you would know pick.

Pick up steam in terms of bringing down those cash balances.

Historically, you used to be I think the $800 million for $1 billion to bring them down the ASIC.

Non purchases or investment securities of deployment over the next few quarters, just give us a little more color around the talk to us ourselves when liquidity levels could get back to normalized levels.

Ebrahim that as our intent of our priority is to deploy that liquidity and excess capital to customer loan growth.

However, this is the unprecedented environment.

And government stimulus programs remain including the quantitative easing and so we expect our core transaction deposit growth to continue and we believe that of the liquidity situation may stay at a similarly elevated level through 2021, and so we are prepared for that we will consider you.

<unk> strategies like what you saw in the first quarter be it with the securities portfolio growth or third party assets, we're going to be very prudent in how we deploy that liquidity in the capital, but you may see continuations of those strategies in January when we gave guidance of the securities portfolio grow into.

<unk>, 16% to 17% of.

Total assets in the first quarter you saw the we have increased.

The increase at the 16% and I would say that it's likely that that trend to the top end of that range. As we proceed through 2021.

Got it thanks for taking my questions.

The next question is from Brad Millsaps from Piper Sandler. Please go ahead.

Good morning, Brian Hey, good morning.

Morning.

Hey, Kessel congrats on a great tenure and Ron as CEO of you'll you'll certainly be missed on these calls but congratulations.

Thanks, Brad game, Yes, Jamie I wanted to start maybe with the follow up maybe on the revenue guidance of.

Down 1% to 4% in 2021, it seems youre off to a little bit of a faster start in some of your fee.

The revenue categories.

For this time of year and then also the last quarter you talked about you know steepness of the curve better performance with TPP. Obviously, you guys have talked a lot about your thoughts around loan growth in the back half of the year as possibly being able to perform at the high end of that range. It would seem kind of given you started the year you could do that but just kind of wanted to see if you could.

Maybe frame that up a little bit more kind of why you stuck with that guidance is it just really kind of more of the uncertainty that's out there, but it seems like there are several things going your way at this point.

Brad Thanks for the question.

Youre right that the first quarter was strong, especially in our fee revenue businesses mortgages mortgage continues.

To perform well in this environment and I believe that's just a testament to the mortgage team in delivering for our customers.

And in an environment of low rate environment, where there is so much mortgage activity.

<unk> was strong in the first quarter, we expect it to continue to be strong as the normalization continues through 2021. So we expect mortgage revenues to decline the pre pandemic levels over the next.

A few quarters.

But we expected those revenue declines will be offset by broad based growth in our other fee revenue businesses and products such as credit card true.

And the fiduciary.

Deposit service charges and capital markets and so we do expect to see those trends generally in BRAF anew and then with regards to interest income we expect the first quarter to be the low point for the full year and we expect to see growth as we proceed through 2000.

<unk> 21 in NII and to your point in your question. That's due to two things one is the balance sheet and we just discussed that with the brains question.

Do expect growth the 2% to 4% growth we are reiterating that but we're also seeing growth in asset based on strategic decisions, we're making in treasury and Thats the third party lending that the.

The securities portfolio growth and.

And we also.

I expect to see a tailwind to your point on interest rate the.

The steepening of the curve and long long rates, increasing are a positive to us and if rates stabilize or even increase from here. The pressure we've been experiencing on loan origination and mortgage prepayments will abate.

And we they may become supportive of.

Future future interest income it also reduced the premium amortization that we saw in the first quarter on the securities portfolio, which led to the lower book yield on the Securities book.

Okay. That's helpful. And then just as my follow up adjusted expenses were down maybe a little less than $5 million.

Year over year, I think you talk about $40 million being in the run rate at this point, it's sort of the delta there mortgage commissions or other commission that you might see.

Reverse out or do we need to think about maybe you spent some of those savings in other areas. He is trying to kind of bridge the gap in expenses with the.

You know the number youre talking about the synovus forward.

Yes, you are exactly right as mortgage revenues remain elevated you will see elevated commission expenses associated with that but I'll also just point to the seasonal impact of normal personnel expenses in the first quarter.

The remained elevated that was also a component of the first quarter.

Great. Thank you guys.

Thanks, Brad.

The next question is from Brad Gailey from <unk>. Please go ahead.

Thanks, Good morning, guys.

Right.

So I wanted to start just with the third party lending partnerships, where you're at.

Think about 2 billion as of.

Of the end of the quarter, that's about 5% of non PPP loans whats the appetite to continue to grow that.

Brady that's a portfolio that we look at and multi facets specifically when you look at the held for sale portfolio. That's a different risk profile than a typical of help for investment loan portfolio and that's why we segregated it on our slide in the earnings presentation. So we view that risk.

Definitely.

It's lower risk because of.

The amendment of purchase component of it but then when you look at the health of our investment portfolio, we feel confident in our ability to manage that portfolio and to grow it from where we are today.

If you look at the assets that we're purchasing we believe that the liquidity and marketability and credit risk.

We're taking by investing in those assets relative to the securities portfolio.

Is where we are paid for that risk. We believe we can manage that risk and we have experienced.

Managing that portfolio in all environments. If you consider the actions we took in 2020 as well and so we feel confident in.

And that portfolio, we feel confident and leveraging it.

As a way to deploy capital and liquidity.

And I'll, specifically point to the auto purchase in the in the first quarter because the way we look at that is we look at it as a prime auto portfolio with about a little more than a 2.2 year average life and that profile fits really well with how we view capital.

And liquidity and so that's that's the type asset we're looking for something that fits well with our longer term view, but also in an asset class thats very marketable and very liquid.

Alright Thats helpful.

The follow up I wanted to ask you of the stock has done well.

All bank stocks of Domino, originally but synovus is now at one seven times tangible. So you know maybe that makes the share buybacks a little less attractive Budd.

But on the flip side you now have of currency that you haven't had in a while so maybe.

The bank M&A is a little more realistic for you guys, but how do you think about what the stock price has done and what impact that could have on buybacks versus bank M&A.

Well look Brady this is Kevin.

In the capital priorities, we've said number one way to invest capital is back in organic growth with excess capital. We would look at share repurchase we would look at non bank M&A and we would look at alternative use of capital as Jamie mentioned with third party purchases. So we evaluate all of those on a return basis, but.

As you think about M&A, we talked about having our right to win I would just reiterate that we think are best investment today, as an investment and synovus and we.

We believe that because as Jamie mentioned earlier, we love our footprint, we think it provides us with outsized opportunities for growth.

We also feel that we've been very capable in attracting talent.

Adding new products and solutions too.

Our.

Another arrow in our quiver to be able to promote growth. We also feel like a lot of the reasons that people are doing M&A as to just generate efficiency and we've been doing that internally Jamie touched on the efficiency.

Initiatives, but I think it's important to note that we reduced the 180 FTE in the last two quarters of roughly 3% of our workforce.

We're doing that through Synovus board and so we're generating efficiencies internally and we like the size of our company I think theres a lot of conversations that go into scale and having to invest to be more relevant on the technology front, we feel that we're relevant today, we have the right partners and the right Fintech solutions that we feel like we can.

Compete with anyone and then.

You have to integrate cultures and Theres a mismatch there and then you have to look at what potentially could be the lost revenues that are a function of team member attrition as well as customer attrition. So when you take.

All of that into consideration, we still feel but we still believe that the best investment is in synovus and that's what we're doing going forward now from an M&A perspective, if we were to do anything we've said very clearly it would be up functionality or capability or technology that would be additive to our portfolio of solutions and would be additive to our existing.

Customer base and any of those would be relatively small.

Okay, Great and then Kessel.

Using what you've done with this company and the transition over the last decade, congrats on a job well done and good luck with the transition.

Hey, Thanks, a lot ready.

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

Hi, Good morning. This is actually a team of our Brazil or filling in for Jared.

Maybe first just drilling into the expense picture again on the fourth quarter call I think the guidance for 'twenty, one was the reduction of 2% to 5%.

That was pretty much covered here in the first quarter I guess as we look ahead.

Maybe help quantify what else is going to drop to the bottom line.

If that 2% to 5% reduction.

Since the last quarter or if that's still a good rate that we should be expecting for the year.

Yeah. This is Jamie great question.

We do reiterate the guidance of down 2% of 5% and as we were discussing earlier.

Higher revenues and some of our fee businesses may impact commissions, but we still feel confident in our guidance of.

The decline of 2% to 5% as we look forward in 2021, obviously, we have announced today that we as of 331, we have $40 million and run rate benefit.

The synovus forward initiatives and as we mentioned from the outset, we expect approximately two thirds of the <unk> hundred million to be expense initiatives. So we still have a ways to go in 2021 on the expense side through synovus forward initiatives and that will come through.

Later in the year, you'll see that in the second half of the year and so we believe that that's going to be a tailwind to the second half we would reiterate that we expect second half expenses to be lower than first half.

And we'll see those flow through in the second half of the year, we announced.

Today that we are.

We're closing for branches in the second quarter that'll be a piece of it and then we continue to have benefits on some of our other work streams that have been in progress like third party spend.

Corporate real estate as well as personnel initiatives.

Okay. Thank you and then as a follow up just looking at the securities purchases made during the quarter. It looks like the duration of the Securities book increased a couple of years, maybe just talk about the.

The utilizing some of the excess liquidity, whether it's through securities of third party purchases.

Willingness to take on duration, and how you balance that with balance sheet positioning for potentially a steeper yield curve and are of higher rates down the road.

Yeah, that's a good question and you're right the duration debt extend in the in the first quarter.

And that was largely due to the increase in interest rates is the convexity profile of that portfolio.

If you were to see interest rates continue to increase one of the long end, we would expect to see further extension, even though I would say that.

At some point you get to of terminal duration on some of the debt mortgage mortgage assets.

We have remained diligent with the assets, we're putting on the books.

We have been buying mortgages at a premium.

And it's fairly fairly well split between 30 year mortgages, 15 year, and 20 year mortgages and somewhat structure.

Protect against the extension.

And so we haven't changed our investment profile of the duration extension really is due to interest rates alone.

But youre right. We did have a significant amount of investments in the first quarter of approximately $1 billion the going on yield of those investments was around $1 40 to $1 60.

Depending on the asset and we will look to grow that portfolio of this year approached.

Approach the top end of our guidance of that 16% to 17% of total assets.

As we go through the year.

Okay great.

Mike Congratulations for your kind of firm. Thank you for the question.

Yes, thanks, so much.

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

Hey, good morning, Thanks for taking my questions Kessel, Congrats again on a great.

Job as the CEO as everyone else the stated my.

Question is around credit.

Noticed that criticized and classified were up a little bit obviously, the credit picture continues to improve I guess, what drove that and then just from a provision standpoint.

I think you've talked about getting the <unk>.

Loan loss reserve back to kind of day, one post <unk> day, one levels at some point down the road as the outlook improve where we could see very low levels of provision as we move forward for at least the next couple of quarters. Thanks.

Michael This is Kevin I'll take that and this may be a bit of a link the answer just because I want to be comprehensive, but I think it's important when you look at the credit metrics. This quarter to look at the entire body of work as Jamie mentioned were relatively stable with NBA of Npls charge offs and.

Our provision is showing an improving environment, but as you asked looking specifically at criticizing classified I think it's important to note that our grading process is largely a function of historical financial statements. So the movement. You saw this quarter was more of a result of the headwinds that we saw back in 2020 and those revenue.

Headwinds being incorporated into their respective financial statements for this year as we've been doing are our grading process. Most of the increase was related to our COVID-19 impacted industries hospitality and restaurants.

Related to some consumer mortgages that remained on the permit under the standard GSE standard guidance.

And I'll remind you that with most of those COVID-19 related industries. Despite the revenue challenges as we said back in 2020, we felt strong ltvs and sponsorships would mitigate much of the risk that we saw there. So I would tell you that the criticized and classified ratios of really a rearview mirror perspective on credit and I think it's important.

The note even with the increases are absolute levels for criticized and classified are below that of our peers now I think the truly reflect and assess what the credit environment of the expectations are going forward. I think you have to look at more of the real time data.

Looking measurement so in our appendix, we did provide the updated cash inflow data from January and February and I think when you look at that Michael Youll see that in aggregate our businesses of returned to pre pandemic levels in terms of cash inflow. We also know through our second round of P. Three that we had another 1 billion won.

And application volume. So we know many of those Covid impacted industries are being supported through economic stimulus and then when you look at some of the underlying data and things like hospitality Youll see that ADR in the hotel industry of returning to normalized levels, we've seen occupancy pick up significantly in Florida with all of.

Of the market's there with the exception of Orlando.

Months, having over 70% occupancy and we expect that to continue into the summer is used for medical applications and people starting to go out and travel into the footprint in these drivable destinations and then the same on the on the same front. When you look at restaurants, <unk> are performing at or above where they were pre pandemic.

And you're starting to see pull in limited service restaurants back to 90% of the levels that they had so very very strong improvement there and then lastly, I would tell you to look at as you go forward and have an outlook the.

As Jamie mentioned on the call the seasonal life of loan estimates continue to decline with this reversal of provision this quarter and based upon our economic forecast. We would expect this to continue and we would also expect to see a significant level of upgrades in the coming quarters, while our charge offs are going to remain fairly low in the near term so.

Hopefully that addresses the credit question, Jamie I'll, let you cover the the provision thanks, Kevin as Kevin mentioned the.

The allowance for loan ratio declined quarter on quarter, we believe thats indicative of the environment.

Would say that.

There's a significant amount of uncertainty in the outlook, we still have a large waiting to adverse scenarios and our seasonal modeling.

But we also I would point to the fact that we've made adjustments to model inputs.

Our quantitative portion of our allowance calculation at a high level and.

These adjustments are due to our expectation that the stimulus will serve to delay charge offs rather than share them in our outlooks change.

If our outlook changes to the expectation of stimulus of the cure than our life of loss estimates with decrease fairly significantly.

Good point of that is one impact and we will see how this plays out as we get further along but that is the key assumption in our allowance calculation.

It's a very comprehensive answers I appreciate it just one quick follow up so the last quarter, you talked about mortgage revenues being down 40% to 50% of it seems like it's kind of be.

Better than that just based on your pipeline the.

The hirings that you've made and kind of the strength of your markets any sort of gauge for what you would expect that to be down this year. Thanks.

Michael This is Jamie.

I would adjust that range to down 10% to 30% I would acknowledge that that's a broad range.

And hopefully we end up at the high end of that range, but I would I would definitely expect to see it higher than what we were expecting in January.

Very helpful. Thanks for the.

Taking all my questions.

Thanks, Michael.

The next question is from John <unk> from Evercore ISI. Please go ahead.

Good morning.

Good morning, John.

Kessel just want to say best of luck hope you make the most of the retirement and the certainly well deserved.

So just just wanted to start on the on the on the NII outlook. I know you had indicated you see the first quarter as the trough and you expect upside from here what can.

Could you just maybe talk about what margin assumption behind that.

How you think about the progression of the of the margin from here given the shape of the curve, excluding the impact of PPP.

Yes, John when you back out the impact of the Paycheck protection program.

Actually would expect to see margin improvement.

As we had through the year.

Depending on how you would calculate the impact of PPP.

It's we would state of the Paycheck protection program the impact in the first quarter was more somewhere along the lines of 12% to 15 basis points, which is less than the.

Straight fee income impact, but also including the 1% rate on those loans, which is NIM dilutive and so we expect just like we expect NII, we would expect the margin to increase as we go through the year due to the benefit.

Interest rates long term interest rate and higher interest rates then.

Then where we are now in the improved going on yields and so we think thats, a tailwind, but I would give it a big caveat debt that we're not it's uncertain how much liquidity will be on the balance sheet and so the cash impact is significant and you're well aware that the impact is approximately six basis points per billion.

And so that is uncertain and that could be very dilutive to the margin but.

But not impactful the NII as we go through the rest of this year.

Got it okay. Thanks, Jamie.

And then in terms of the loan growth.

It's more about timing is kind of what im interested in terms of how are you thinking about it internally in terms of the timing of the return of your line utilization of that 40% level to that no.

<unk>, 46% and I guess the same goes for the production levels reached in the pre pandemic.

0.2, how do you think about the timing given how things sort of trajectory are we looking at if not through the back half of this year is it in the first half of next year I just wanted to get an idea of how you expect that progression.

John It's of Great question, Theres, a lot of assumptions and uncertainties that go into that to your point, we're pointing towards the second half of the year and Thats just based upon our trended data that shows as I said earlier pipelines are up 20% in the first quarter and production is only now of about 11% down versus the first quarter.

Of 2020, so we're continuing to see improvement in his pipelines improve at bankers become more active we're optimistic that we'll start to see loan growth pick up now as Jamie mentioned this quarter, a big reason for our core growth being down was because of the consumer book. So we saw.

More churn on the consumer mortgage portfolio and that led to about $100 million reduction in HELOC, but I think it's important to note that we did see.

In both C&I, although with modest and CRE. So we expect that trend to continue and as we said at the beginning of the year, we expected mid single digit growth in CRE and C&I and consumer was going to be of challenge now Jamie also mentioned earlier, how we were able to offset some of the runoff and mortgage and home equity with the purchase.

Book, but we remain optimistic on the commercial side.

Got it alright, thanks, so much Kevin.

The next question is from David Bishop from Seaport Global Securities. Please go ahead.

Yes. Thank you good morning, gentlemen, I'd like to reiterate my congratulations kessel for them.

Stellar career there of testing levels.

Thank you.

Hey, a quick question sort of drilling down maybe on the margin of more on the maybe the taken a look at the deposit sides. Here. Obviously you guys are bumping along the near historic lows. There just curious where if you think you could take them, even lower here and maybe where you see the.

The bottom for deposit costs year over the over the near term.

Yeah, David it's Jamie Thanks for the question.

We do believe we have opportunities to further reduce deposit costs as we go through 2021.

For multiple reasons first as time deposits.

We have $1 1 billion maturing in the ear and the second quarter.

At approximately just a little bit more than a 1% rate and we believe that the.

It will likely continue to run those off as we go through the year the higher cost time deposits and we believe we also have opportunities to further reduce non maturity deposits. While we've had success working with our customers on non maturity deposits over the past few quarters and we expect that the continued.

So if the rate and liquidity environment remained similar to the current expectation we're targeting of total deposit costs in the mid teens.

This will rely on future efforts to further reduce all of these deposit cost, but we feel confident in the team's ability to achieve growth.

Got it that's good color then maybe you kind of Conversely.

All of the loan yield side of it looks like those are stabilizing just curious what youre seeing across the various markets and the products they're just.

With the the economy.

Opening up.

As your footprint in the across the country there.

Are you seeing sort.

So the risk premiums being washed away somewhat or are you able to the better price for risk here just curious what youre seeing just in terms of the loan yield spreads and just loan yields in general across the market.

Yes, Dave It's great question I think if you look at our entire book ex fees our portfolio is about three.

367, and productions coming in a little below that in the $3 $43 50 range on the yield side and I think it goes back to Jamie's point with the excess liquidity that exists not only in banking but across.

The entire spectrum that we haven't seen people changing structures or changing their risk profile, but we have seen people competing on price and obviously the easier to do when youre carrying the cash balances that most commercial banks for carrying so it's becoming look over my career has never been.

The call, where I've said that it's not competitive on price, but now it's just as competitive as ever but on the high credit.

Quality type loans not on chasing risk in trying to price for it it's everyone's trying to stay down in the middle of the fairway, but the price appropriately to win business, which means that we have some pressure on the margin there.

Got it thank you for the color.

The next question is from Steven Duong from RBC capital markets. Please go ahead.

Hi, good morning, guys good.

The morning.

So just first I just noticed.

The Aoc.

They had a good drop this quarter can you just speak to what were the drivers.

Yeah.

Bringing down the OCI account.

Yeah, Steve that that really has to do with the <unk>.

Unrealized gain on the securities portfolio and interest rates increasing.

Okay. So that was just simply okay.

And.

Kevin you had mentioned that the synovus for you guys.

Start shifting more towards.

The revenue side with some of that coming from net interest income so is that essentially.

Yeah.

Meaning that it's coming from increased loan growth.

Looking forward.

It's really it's really all of the above Steve when we look at our revenue initiatives, we talked about the $10 million that we had accomplished in the quarter about $6 million of that came from our treasury repricing and another $3 million from deposit repricing, we had $1 million and some of our ancillary fee income.

As we look to the future revenue initiatives there'll be an expansion through our analytics program, where if you just break it down and analytics is providing insights to our frontline bankers, who then are able to go out and proactively sell new solutions. Some of those solutions are going to be lending some of them are going to be money market and savings accounts, which obviously.

Have an impact on the margin others are going to be related to treasury and payment solutions and so that will show up more on the fee income line. So we havent given a specific mix and where those are coming in because part of it is as we execute on those leads will have a better recognition of where the revenues coming from but what we have seen from the.

Pilot phases of the smart tool the majority of the leads in this first round are coming on the fee income side. So we're seeing it more on the Treasury side now as we go forward and some of the revenue initiatives that we have in play into 2022, it will be bringing on new specialty lending teams that will be adding new products and.

In solutions to the lending.

The platform. So there will be additional NII that comes from that so as we execute on those revenue initiatives will provide a better delineation of the geography of where it's hitting the P&L.

Got it I really appreciate the color on that and Kessel, just echoing everybody sentiment.

Best wishes on the next stage.

Thank you very much.

The next question is from Christopher <unk> from Janney Montgomery Scott. Please go ahead.

Thanks, Good morning wanted to ask about the comments Kevin made earlier in the call about the ability.

The ability to price for advice and I was curious of any of the revenue gains. Thus far I know it's early on synovus forward Hasnt reflected that or is there some price increases that you're getting or would we think about this is just net new business.

Yeah, Chris it's of Great question I think it's both so when we see today the.

You just mentioned the $6 million quarterly run rate impact that we've gotten from what we call pricing for value comes out of our treasury and payment solutions area. So we have increased pricing there, but those are increasing to market levels and I think not only is important to reference their market levels. I think it's important to be able to maintain that pricing you have to provide.

Value and so for us it's about increasing the amount of advice and consultation we're providing to our commercial customers as it relates to cash management services and what we can do for them to save them time and money.

As it relates to new products.

A lot of the advice from a revenue standpoint will be about how do we execute it's bringing over assets under management by being a financial advisor, it's doing financial plans and our branches to be able to unearth some of the opportunities that our branches are getting with our consumer customers and on the commercial side.

We're running things like it's called client planning, where we are sitting down and understanding all of the opportunities that we have with the with the client based on what they are using today. So then it results in having to go out and sell those products. So advice to me is something that you can get paid for you just have the deliberate in a timely manner.

And it has to be something where the customer finds a benefit in the solution.

Got it that's helpful. Kevin and real quick you are getting new business out of the Florida FCB franchise I know it's.

Holding but I just wanted to confirm that.

Yes, we're getting we're getting growth out of Florida, I mean look that's the one of the reasons that we liked the Florida.

Acquisition was that that marketplace is growing now in general I was kind of mentioned earlier that when you look at just account growth. This quarter. We had 8000 consumer net new accounts. This quarter, we had 2000 net new commercial.

Checking accounts this quarter net debt came from all over our five state footprint, but both of those numbers are high watermarks for new accounts net net new so we're seeing account growth across the franchise and I think south, Florida, and Central Florida had been big contributors to the growth.

Great. Thanks again for all the information this morning, and Kessel best wishes on your next chapter.

Chris.

The next question is from Steven Alexopoulos from Jpmorgan. Please go ahead.

Hi, Good morning. This is Anthony Elian on for Steve.

A follow up on the revenue outlook, Kevin you identified on slide 12 of the three areas that should help the company deliver sustainable top quartile performance, but you maintain the guidance of adjusted revenue to decline, 1% to 4%. This year I know you said, you're starting to see strength in some fee income products, but when can we.

We expect to start seeing a more material pickup in total revenue growth is this more of a second half of 'twenty, one event or more of 'twenty two.

Anthony it's of Great question, because I think to your point when you are when you're evaluating growth on topline revenue.

One thing it's important to note as we enter 2021 and as we move throughout the years debt, we've been hindered a bit by our asset sensitivity. So the reduction in rate is putting some headwinds on top line I don't think that takes away from the fact that we still feel very confident at some of the underlying levers of growth as I mentioned earlier we're.

<unk> to see opportunities, where the loan growth is starting to play out in the second half of the year, we had CRE growth in the in the first quarter, and we're expecting C&I to pick up with or without utilization.

Talked about our ability to generate growth and fee income were up 18% and fiduciary and asset management up 10% year over year in card fees up 5% in brokerage. So the fee income businesses are continuing to contribute we've also talked previously about investing in specialization and specialty lending within our wholesale bank.

If you look at where we've grown there year over year, we're up $500 million in loan growth in our specialty finance area of public finance was up 31% senior housing 25, and specialty health care of 26, I give you all of those because we believe that there are core pockets of growth that are going to start to.

<unk> seen once the overhang of the reduction in interest rate.

Kind of falls out so latter half of 2021 end of 2022, we think the story is going to be more compelling.

Okay, and then my follow up.

How much of the $2 billion of core transaction deposit growth you saw this quarter would you say is sticky versus temporary due to things like stimulus payments.

Well I think you can look at the amount of funding that we said we had on <unk> and that was about $900 million. So lets just say you subtract that out it would still suggest that more than half of the balances came on as sticky deposits now when we say sticky deposits as Jamie mentioned earlier is it sticky for the next 10 years or so.

For the next two years, but we do believe there was high quality growth outside of the P. Three balances that we were able to fund this quarter.

Okay, great. Thank you and echoing everyone Kessel, congratulations on everything and best of luck going forward.

Thank you.

The next question is from Brody Preston from Stephens, Inc. Please go ahead.

Hi, good morning, everyone and thanks for all the time this morning, I'll try to be brief here.

Jamie I was hoping maybe you could just help us ring fence, the dollar amount around and the salaries and personnel expense how much was seasonal and sort of where you would expect that to go in the second quarter.

Yes, Brody in the first quarter, we had approximately $6 million to $7 million that was seasonal.

Annual increases in expenses and personnel, let's now and so that that's what will go away as we go through this year.

Okay in the the four branches that you outlined I think the previous benefit from the last from the last closures was about 925 K per branch is that a similar kind of benefit in this type of business.

Go round.

I assume 500 K per branch.

Okay, Great and then just one on the loan portfolio.

You know I noticed that the senior housing ticked up quite a bit this quarter just wanted to ask how much of that was PPP.

The related and how much was non PPP related and then just more broadly on the entire loan portfolio Jamie here.

Kevin maybe you could just give us a sense for what percent of the portfolio is floating rate at this point.

Yes.

I'll take the first one senior housing Brody none of the growth in senior housing was related to the P. Three it was all organic growth, we actually brought in seven new relationships of the bank. This quarter in senior housing. They continue to do very well we have none of those loans that are in the permit we have none that are past due so that portfolio has held up extremely well.

There's opportunities for expansion as you know that team has been doing this for quite some time they follow operators around the country and so theres going to be continued new opportunities. There we have taken the opportunity to grow that book, but none of it is related to the <unk>. When you look at the growth this quarter in general health care continues to be.

The good area of growth for us in general not just senior housing. We've also seen growth in the construction industry as Bob has mentioned in the past. We also saw growth this quarter and professional services financial.

Insurance as well and a little bit of growth in manufacturing. So we're starting to see it broad based across several industries, which is good but senior housing is just one of those areas Jamie I'll, let you answer the variable rate.

52% variable rate.

Okay.

I guess what percent of that would you consider of floating.

All of that is floating rate and all of that.

8% of loans are prime based and you have around.

Around 44% that are that are based off of LIBOR.

Okay, great. Thank you for taking my questions I appreciate it guys.

Thanks Brody.

The next question is from Jennifer damper from true of Securities. Please go ahead.

Thank you good morning.

Good morning Julien.

Kessel congratulations on an amazing tenure, what kind of Miss working with you.

Thanks, Jennifer.

Two questions really quick.

Kevin You mentioned, you you'd likely be hiring some specialty teams over the next one or two years can you give us some more color on that and my second question is if you look at the sub markets across the synovus footprint, which one seem particularly ripe for more market share gains for you right now.

Yeah. Thanks, Jennifer look as you think about specialty it really come out of two forms one would be industry tight specialties.

Focusing on specific industries, and I throw things out there like <unk>.

<unk> transportation logistics things that fit within our footprint, where today, we're covering them and not always covering them with specialists, but we're generally looking to build out our capability that we've proven that when you bring in specialty teams.

It provides the value to our customers and it generates growth. So we're looking at industry and then the second would be on product as you think about the products that we all for today, we don't have a full set of asset classes. So we may look to expand into leasing of our equipment finance or accelerate some of our specialty lending areas into new forms.

Of asset based lending so those of the two areas. We would look and then in terms of of growth I mean look I would start with the market that we're already strong and you look at markets like Atlanta, where we have a strong market share. When you have that sort of density. It provide you with an opportunity to continue to grow we think the underlying market is growing.

And as you know there is some disruption in that market, but I would also look at the.

Florida market I mentioned earlier, South, Florida, Central Florida tremendous opportunity when you see the number of businesses in the amount of population growth Thats happened in Florida, we need to make sure that we continue to exercise our right to win in that footprint and then I wouldn't leave out some of the secondary market that we often talk about Greenville, Charleston Augusta, Georgia.

Places, where we feel like we have the opportunity to win and we're picking up market share.

And it's probably not on the on the radar of some of the large bulge bracket firms.

Thank you.

The next question is from Kevin Fitzsimmons from D. A Davidson. Please go ahead.

Hey, good morning, everyone.

Good morning, Kevin.

First real quick can I ask about the reserve ratio that I recognize the change in expectations and that led to the negative provision.

Assuming.

There is no material change in where expectations growth from here would we expect.

<unk>.

You know of positive provision as as you have better loan growth, but for that ratio to come down more gradually than what we saw this quarter I know thats tough without you put the different inputs in the model, but assuming what you see looking out from here. Thanks.

Kevin as you know what.

What I would say the way I would answer that is <unk>.

Similar to what we said in January.

There is uncertainty we believe that our allowance is adequate given our outlook and the uncertainty in the outlook but.

But we do see scenarios, where credit costs remain low and charge offs remain low like what we're our guidance right now is where charge offs to remain low in the near term we feel like we have line of sight into that and then we'll see where it goes from there and as I mentioned earlier.

At some point you will come to a resolution around the question of did stimulus delay charge offs or did it sure charge offs and for US. That's the important question with regards to our allowance and I believe that thats more of a function of time, because we need to get past the incremental <unk>.

<unk> efforts to really know how the store.

Date of all of our creditors all of our borrowers and so.

That's what we're looking for but we feel good about where we are right now as you see our allowance to loan ratio declined 12 basis points in the quarter adjusted for P. Three if you look at our guidance on charge offs is for stable at a very low level, we feel good with what we what we see in the loan book today.

And Thats something that we will constantly reassess as we go through 2021, we do remain of the belief that in a more normalized environment, assuming no material changes to loan mix that we will approach a day one allowance level for us that was one 6%.

But we're uncertain of the timing of debt.

That's great. Thank you and.

Last but certainly not least I'd just wants the congrats to kessel.

It's been a privilege and honor for me for several years to cover synovus of they get to know you and to be of witness to your tenure as CEO I think I think in several notes ago Kessel I titled the improvise adapt and overcome related to synovus and I really.

I really feel that that's that's kind of a good generalization of how I viewed the journey here.

And so maybe I might just throw this back to you Kessel.

Beyond quarterly earnings if you could take a minute and talk about what.

Aspects, you're most proud of or you've improved in the operating model as you're handing over to Kevin here at this point. Thanks.

While Kevin.

Loaded question and thanks for those comments you might make it tough for me to close.

You know I don't know that I have a proud moment.

Proud of this team and I'm proud of the tenacity of the team back to.

30 charters consolidated when when people thought that that could never change I think of the cash.

The the recapture of the DTA the repayment of TARP and of weight. It was much more efficient I think in the market.

The expected the gosh the.

The creativity of the Cabela's transaction, which was kind of loss, where we received.

So the $75 million.

For facilitating the transaction that quite frankly, just call, where our regulatory standing and our knowledge of that industry and then.

I think great acquisitions global one FCB, but the glue the help that altogether was the tenacity of the team the.

The the.

United Nature of our board, which never wavered throughout my tenure when there were some tough days Kevin as you.

Remember.

And then again our customers never left as we add sticky customers through the crisis, we are sticky customers today.

And again I'm.

I'm proud of relationships, we formed with those of you on this call of received.

So many notes not just nice things said today, but notes as we've been on this call for many of you travel with many of you. While the argued with many of you, but I have deep respect for.

What you will do for our industry and you really do help make our company.

Better I will just.

And one last thing many of you have <unk>.

Congratulate congratulated me on retirement I don't consider this.

<unk> is the new phase I'm moving to executive Chair I am all in and helping the team. This company succeed as a matter of fact at 630 of this morning.

We gathered in Jamie's Apis in a very serious way ask Jamie and Kevin to think about.

And I was pretty serious they want to think about what role. They wanted me to play and preparing them for the next quarter earnings call and I've got kind of of blank looks I think more to come on that but.

I'm all in for this company. So I guess, Kevin I always said I wanted to leave this company better than when I found that there were some great leaders for me I Hope I've done that again for.

Out of the relationships I'm proud of our hope the reputation we have for transparency.

You guys transparency with our regulators and again the support that I've enjoyed from boards the executive change of the to the Teller line in the most remote branch. It's just been an honor to serve this company and I appreciate your comments and.

And thank you for that question.

Yeah.

Congrats again, thanks Kessel.

<unk>.

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 I think I just think of this gave them, but let me just thank everyone again for joining and for your continued interest in and support of our company I think as you've heard throughout the update today challenges persist for our team remains determined our first quarter results.

Certainly reflect our ability to deliver despite the environment.

Our focus is right our priority to write our investments are in the right places and customer experience digital advisory capabilities.

And this team fully understands that we must continue to execute and deliver on the expectations.

We've set so again as I, just said as I move into my new role of executive Chairman and Kevin Blair steps in as CEO I, just want to make sure everyone understands that the energy and the optimism.

Among our team our high and I've just never been more confident in the future of this great company. So thank you all again on this call and hope you have a great rest of the day. Thank you.

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

Okay.

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Yeah.

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Okay.