Q2 2021 Synovus Financial Corp Earnings Call
In the call, we will reference non-GAAP financial measures related to the company's performance you may see the reconciliation of these measures.
<unk> in the appendix to our presentation and now Kevin Blair will provide an overview of the quarter.
Thank you Kevin Good morning, everyone and thank you for joining our second quarter earnings call. Our team delivered another solid quarter with growth in revenue and earning assets, while maintaining an expense discipline that resulted in year over year quarterly expenses declining 5%. Additionally, we continue to see an improving credit outlook.
That produced the releasing of allowance finally, we continue to successfully deliver on our synovus forward initiatives and investments with the $75 million in pre tax run rate benefit achieved through the second quarter and an additional $100 million in pre tax run rate benefits to come by year end 2022.
2.
Before I proceed let me take a second to remind you of our performance to date as compared to our expectations at the beginning of the year.
We shared with you that we would deliver loan growth, excluding PPP and ramp it up in the second half of the year. We also said we would improve the deposit mix and lower our cost of funds to stabilize the margin also we would drive efficiency initiatives that will assist in returning to positive operating leverage while continuing to manage effectively.
For the uncertain credit environment and produce the planned benefits from synovus forward I am pleased to share with you today that we are delivering on those objectives and we concluded the first half of 2021 with considerable momentum and are optimistic about the prospects for growth and expansion moving forward our commercial loan pipelines are back the pre pandemic.
Levels with continued growth in C&I, outstandings and commitments and line utilization actually increased slightly during the quarter.
Client liquidity remained strong which has allowed us to further optimize our deposit mix and reduce our cost of funds again. This quarter. We expect this trend to continue in this low rate environment, our wealth and treasury and payment solutions businesses are performing at a high level continued growth and operating margin expansion in these fee income generating <unk>.
Units will help to offset the industry wide reduction in mortgage activity.
Size and classified loans declined for the quarter. Another proof point that the elevated credit concerns raised by the pandemic continue to abate and signal of the opportunity to continue to move the allowance overtime back down towards day, 1 seasonal levels.
And during the first half of the year, we continue to invest in the future of synovus key priorities to enhance the customer experience and deliver new sources of growth. A couple of examples of this include our treasury and payment solutions business launched a new suite of integrated receivable solutions called Synovus accelerate this.
The solution has been well received in the sales pipeline has already begun to fill which will create a new source of revenue while significantly benefiting our customers by saving them time and money. We also have migrated approximately 25000 business clients to synovus gateway, our new digital platform for business and commercial banking.
With the expanded with the expanded functionality and capabilities, we are making it easier for our customers to do business and promoting higher levels of business retention.
Lastly, our smart analytics tool, which we've shared previously has been further rolled out across our bankers in our markets and at the beginning to have an impact on increasing pipelines and opportunities to expand the share of wallet from our customers.
We are also reminded during the second quarter that our focus on delivering a personalized and value added customer experience matters and will continue to provide a foundation for future growth industrywide consumer satisfaction surveys again show that our clients are more satisfied and loyal than those of our competitors and we also.
<unk> received 2 awards of excellence for our family office during the quarter the scores and accolades are not success in and of themselves, but rather affirmation that our efforts in our approaches are having meaningful impacts for our customers for.
For all of these reasons as well as the vibrant economic expansion that we expect to continue in the southeast we remain confident in our path forward.
Moving to slide 3 which includes our financial highlights for the quarter total adjusted revenue of $489 million adjusted expenses of $268 million and the $25 million reversal of provision for credit losses resulted in an adjusted net income of 179 million.
Or $1.20 diluted earnings per share without adjustments net income was $178 million or $1.19 per diluted earnings per share pre tax run rate benefits from synovus forward of $75 million have increased by $25 million from the first quarter results.
Our work on completed and future initiatives continues to give us confidence in our ability to achieve an aggregate pre tax run rate benefit of $100 million by year end 2021, and $175 million by the end of 'twenty 2.
Total loans, excluding 3 loans were up $194 million in the second quarter growth in the quarter was delivered in our core C&I portfolio as well as third party consumer lending given the continued high liquidity environment. Despite solid production levels elevated prepayment activity remains a headwind.
<unk> and our commercial and consumer real estate portfolios.
Core transaction deposits increased $702 million or 2% led by core non interest bearing deposits growth of $601 million or 4% with the current loan to deposit ratio. We continue to remix of the deposit base strategically reducing higher cost categories, including Cds and brokered deposits.
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Key credit metrics were stable with the NPA ratio declining by 4 basis points to 46 basis points in the ACL coverage remains strong.
More favorable economic outlook and a 14% reduction in criticized and classified loans supported further allowance releases the ACL ratio. Excluding P..3 loans declined 15 basis points to 1.54%.
We remain well capitalized with the CET, 1 ratio increasing to 9.8%, while completing nearly half of our $200 million share authorization in the quarter. We also executed on additional earning asset growth activities to monetize excess liquidity, while keeping capital above our operating target.
With that serving as an overview for the quarter I will now turn it over to Jamie for a more detailed financial update and I'll rejoin you later for an update on synovus forward and our guidance Jamie.
Thank you Kevin.
As shown on slide 4 we ended the quarter with earning assets of $51 billion total loans declined $569 million led by P..3 balanced declines of $763 million.
While gross production levels continue to improve the liquidity environment continues to result in downward pressure on loan demand, while our customers are utilizing less of the airlines limits. We are continuing to grow overall commitments of new client relationships and deeper existing relationships the.
The annualized growth rate and total commitments over the past 2 years is more than 3% compared to an annualized increase in funded loan balances of approximately 1%.
A material portion of that growth will translate in the funded balances once C&I line utilization against the normalize closer to the long term average of 46% to 47%.
Based on market intelligence and conversations with our clients. We believe increases in line utilization will occur later in the cycle as client liquidity subsides. Our base assumption included in our loan growth guidance is that line utilization will remain near current levels through year end.
While commitment growth will support longer term loan growth our confidence in the forecast for the near term is based on continued strong production growth in the commercial loan pipeline and our expectation that the elevated level of payoffs and Paydowns will abate.
Another factor that gives us confidence in loan growth is more recent monthly data in June total loans, excluding changes in the 3 balances grew by approximately $200 million.
In the second quarter further declines in consumer mortgage and HELOC portfolios of $98 million and $74 million, respectively continued to be impacted by accelerated prepayment activity and excess liquidity.
The loan declines of $173 million this quarter largely resulted from accelerated pay offs as many owners are selling with the expectation the capital gains taxes will increase in 2022.
C&I balances excluding changes in P..3 increased $220 million with $469 million net growth while C&I line utilization remained near historic lows as a reminder of normalization in C&I line utilization would result in more than 7.
$100 million in funded balances.
We had approximately $150 million in fundings of around 2 P..3 loans net of unearned fees, which partially offset forgiveness of $927 million.
Total PE 3 balances ended the quarter at $1.6 billion.
Theres more detail related to pay 3 loan activity in the appendix.
Lastly, as a function of this liquidity environment, we increased the securities portfolio about $616 million and third party consumer portfolio about $273 million.
The risk profile of asset acquisitions was largely consistent with those completed in the first quarter with emphasis in mortgage backed securities and secured third party consumer loans.
Investment Securities accounted for 17% of total assets at the end of the quarter and could increase further as we look for opportunistic deployment of liquidity in the second half of 2021.
Okay.
As shown on slide 5 we continue to grow core transaction deposits, which increased $702 million or 2% from the prior quarter.
This was led by core noninterest bearing deposit growth of $601 million or 4%.
Which offset strategic declines in higher cost deposits.
We continued to have success, reducing our total deposit costs in the second quarter with the reduction of 6 basis points from 22 basis points to 16 basis points.
This was driven by a combination of deposit mix optimization with the continued focus on strategic reductions in the high cost time deposits as well as the reduction in the expense associated with interest bearing deposits.
While the pace of CD maturities will slow significantly there are opportunities to further improve the deposit mix and reduced rates paid on the other interest bearing deposits as we progressed through the second half of 2021.
For the month of June total deposit costs were 15 basis points and we expect further reductions in total deposit cost this year.
Slide 6 shows net interest income of $382 million.
An increase of $8 million from the prior quarter.
NII increased as benefits from asset growth reduce deposit costs and day count more than offset the reduction in <unk> fee income.
The net interest margin of 3.2% of decline of 2 basis points was primarily impacted by Petrie forgiveness as P..3 fee accretion decreased $5 million from the prior quarter.
Other dynamics are similar to recent quarters as the headwind from asset repricing is being offset by further reductions in liability cost.
As expected slower prepayment activity in the latter part of the quarter helped to improve the yield on the securities portfolio supporting both margin and the NII.
Based on current mortgage trends, we would expect modest further improvement in net yield in the third quarter as the impact of a full quarter of more normalized prepay activity has realized the deceleration of prepayment activity resulted in a $3 million reduction of premium amortization in the second quarter down from 20 million.
In the first quarter.
In terms of asset sensitivity, we remain positively exposed to potential increases in interest rates that.
That dynamic continues to be supported by the aforementioned shifts in our balance sheet, including funding mix with the estimated exposure being split between both short term and long term rates.
As of June 30 of our loan portfolio is 54% variable and approximately 30% of those variable rate loans have floors at or above short term index rates of 25 basis points.
Based on current market conditions, and our expectations for loan growth.
We reiterate our expectation that quarterly net interest income excluding <unk> fee accretion should increase in the second half of the year driven by loan growth deployment of liquidity of deceleration of prepayments and further deposit cost reductions.
Using the quarter end forward curve absent in Reagan and absent rate hikes, we expect the NIM of approximately 3% excluding the impact of <unk> 3 with headwinds from the lapse of P..3 fee accretion being offset by the continued deployment of excess liquidity.
And with notable upside coming from increases in either of short term or long term interest rates.
As we've shared previously we estimate NIM dilution of approximately 6 basis points per $1 billion of excess cash on the deposit at the federal reserve.
Slide 7 shows the total adjusted non interest revenue of $106 million down $6 million from the previous quarter embedded in the continued strength in fee revenue is diversified growth across our fee revenue sources, partially offsetting the continued normalization of the <unk>.
Mortgage business from all time high levels of production.
Core banking fees were $41 million up $3 million.
<unk> were broad based led by $1 million of increases in the account analysis fees that benefit from our treasury and payment solutions team and our recently in sourced merchant business.
NSF overdraft fees, which have received a lot of attention throughout the industry were flat at $6 million.
<unk> for less than 6% of noninterest revenue and 1.3% of total revenues.
Net mortgage revenue declined $8 million from the second quarter, 2 of $14 million due to reductions in secondary production and gain on sale.
This remains above pre pandemic levels and we expect continued normalization in the second half of 2021.
Increases in fiduciary revenues of $3 million helped offset decreases in other areas, including capital markets income.
Assets under management grew 3% in the quarter and 28% from the previous.
Previous year.
The build out of wealth management and other fiduciary services, particularly in South, Florida, We will continue to provide meaningful growth opportunities.
Total noninterest expense of $271 million is highlighted on slide 8.
Adjusted noninterest expense was $268 million up $2 million from the prior quarter and down $6 million from the prior year.
Adjusted items include the impact of an earn out liability nonqualified deferred compensation and restructuring fees primarily related to branch closures.
Employment expense of $159 million was down $1 million from the prior quarter as seasonal decreases in payroll taxes was partially offset by an increase in pay days as well as commissions and other variable compensation.
The expenses of $42 million associated with the occupancy equipment and software increased $1 million from the previous quarter.
Largely due to an increase in the repairs and maintenance.
As Kevin will touch on later, we continue to evaluate and optimize our branch and non branch real estate for additional efficiency opportunities.
Other expenses of $67 million were up $3 million per.
Primarily due to the $4 million of increase in third party processing fees associated with the expenses from additional phase III forgiveness, and third party consumer loans.
Our commitment to prudent expense management and profitable growth allows us to continue to invest and strategically compelling high return growth vectors we.
We have reduced our head count 6% year over year, approximately 85% of which was 1 of the support side.
This reduction in head count as a key priority in our expense management efforts. However, there are some offsetting costs as we promote team members who are taking on more responsibility and continue the higher customer facing team members.
Our expectations for expenses and benefits from Synovus forward remain unchanged.
Slide 9 highlights stable credit metrics, which remain near historical lows.
We continue to see improvement in the overall economic outlook, which is reflected in the reversal of provision for credit losses of $25 million and of 14% reduction in criticized and classified loans.
The port for the ratings improvements comes from client conversations and cash inflows.
As shown in the appendix cash inflows from March to May are each up more than 10% compared to the same periods from 2019, which we use as a pre pandemic baseline.
The annualized net charge off ratio for the quarter was 2.8%.
We expect net charge offs to remain relatively stable in the second half of the 2021, assuming no material change in the economic outlook.
During the second quarter, the NPA ratio declined 4 basis points to 46 basis points.
Criticized and classified loans fell 14% and we expect further reductions as we progress through the rest of the year.
The ACL ratio of 154%.
Excluding the 3 loans was down 15 basis points from the prior quarter and 27 basis points from the end of the year.
We continue to use the multi scenario framework and our seasonal modeling and a sign of 40% weighting to adverse scenarios, 55% weighting to the base scenario and 5% weighting to an upside scenario.
As noted on slide 10, the CET 1 ratio increased 1 basis point to 975% as a result of strong performance.
The building capital was deployed via risk weighted asset growth share repurchases and our common equity dividend.
In the second quarter, we repurchased $92 million of the $200 million share repurchase authorization in place for 2021.
Which resulted in a 1.3% reduction of average diluted outstanding shares.
We have completed approximately $15 million of additional repurchase activity in July.
Based on current conditions and economic outlook, we expect to complete the full authorization in the second half of the year.
We will continue to opportunistically deploy capital on our balance sheet and to our shareholders as we remain above our 9.5% operating target for CET 1 we.
We remain well positioned to complete our key strategic objectives, including profitable growth with the highest priority being multi solution relationships with that I'll turn it back to Kevin.
Thanks, Jamie.
At the beginning of 2020, we laid out our synovus forward plan to deliver significant upside in earnings power through a set of strategic actions to enhance our efficiency and accelerate top line growth. The synovus forward initiatives are aligned with our strategy of building a high growth low risk nimble bank that can continue.
To take market share in our attractive southeastern markets as the.
Highlighted earlier throughout the second quarter, we have continued to add to our synovus forward pre tax run rate benefits now totaling approximately $75 million as you can see on slide 11, we have delivered these results through a combination of expense and revenue initiatives based upon our progress to date as well as the ongoing plan in <unk>.
<unk>, we remain confident in achieving the 2021 and 2022 milestones of $100 million and $175 million respectively success. The date on the expense front has largely come from 3 primary areas of reduction in third party spend of decrease in head count as well as branch and corporate real estate.
State consolidation approximately $50 million of the $75 million pre tax run rate benefit we have achieved by the end of the quarter relates to the specific efficiency initiatives.
We have plans to increase the savings in each of these categories, but also are adding new initiatives and areas of focus to achieve an incremental $30 million to $40 million in pre tax benefits by the end of 2022 additional third party savings workforce optimization, a reduction in branch and non branch square.
Footage process automation and additional tax strategies will all contribute to drive future efficiencies.
We have also had success to date on the revenue side of Synovus forward with $25 million in pre tax run rate benefits the.
The treasury and payment solutions pricing for value initiative has resulted in annualized pre tax run rate benefits of approximately $12 million in the second quarter.
The realization of a broad based increase in pricing has been supported by the competitive landscape enhancements to our products and services and a commitment to providing proactive needs based advice. In addition, with the deployment of a new pricing tool and the continued low rate environment. We have also been able to reduce our cost of funds to levels lower.
Than was originally expected and we now have a more robust capability and tool to better manage customer rate of elasticity as we move into a higher rate environment in the future.
Additional areas, where we have seen incremental revenue include the in sourcing of our merchant business and expansion of our merchant sponsorship business and expanded solutions, such as trade finance and international payment and currency capabilities.
As we turned the future plans and initiatives the $60 million to $70 million in expected pre tax revenue benefits will largely be accomplished through analytics, new products and solutions balance sheet management strategies as well as ongoing talent and specialty team expansion.
As it relates to analytics, we continue to make progress on our aforementioned commercial analytics pilot, which we refer to as the smart tool the feedback and utilization. Thus far are encouraging as our bankers are working the actionable leads and insights that are now translating into new sales and overall expansion of the share of wallet of our existing.
<unk> clients, we will continue to pilot in the third quarter with the company wide rollout in the fourth. In addition, we have begun to develop our retail analytics program, which will also have a meaningful impact in our ability to deepen the share of wallet of our consumer and wealth customers, while reducing the overall levels of attrition.
We are expanding our premium finance and specialty lending businesses, adding strong new teams in highly attractive specialized verticals as well as launching targeted innovative products and capabilities to serve as new sources of revenue growth as I have noted in the past synovus forward is a constant improvement mindset not just the collection.
[noise] of initiatives I am pleased with our team members focus on the art of possible as we continue to innovate and find new ways to become more efficient and drive new sources of revenue.
And I would be remiss, if I didn't in the slide with an update on technology in general we clearly feel that our competitive advantage will come from our high touch approach complementing our high tech investments and partnerships, we continue to make progress in enhancing both the consumer and the commercial client digital experience, we are partnering with the right.
Fintech to build and deliver new products and solutions and we have a roadmap to move to a modern core over time and of segmented and controlled fashion. We will continue to focus on ways to increase online origination capabilities and evaluate new technological opportunities, especially in the payment and banking as the.
Service areas.
Moving to slide 12. This includes our 2021 outlook, which have a few key changes with the first half of the year behind us and greater certainty in the economic outlook, we'd like to provide some updates and additional clarity I'll begin with loan growth, we still expect to be within our 2% to 4% loan growth guidance excluding.
P 3 loans and third party consumer loans. However, we think it's likely that we're at the low end of this range due primarily to the elevated prepayment activity that we've seen to date that was not anticipated at the beginning of the year. This assumes line utilization remains at current low levels and prepayment activity.
Returns to a more normalized level as a reminder, we do not include third party consumer loans in this guidance. This asset class represents $1.5 billion in period end balances up $776 million in 2021 pre pandemic. This portfolio was approximately $2 million in held for investment.
Outstandings.
Over the past 5 plus years, we've had a successful track record with the originating and managing these credits providing incremental revenue and solid returns. We will continue to employ the strategy as long as the excess liquidity environment persists as well as the relative returns of future purchases are constructive.
We're raising our expectation for total adjusted revenue and total adjusted expense as a reminder, it's appropriate to consider these together because areas that are providing additional revenue, including mortgage production and higher third party consumer balances have associated expenses related to them and these examples commission in server.
The expense.
While we remain committed to taking advantage of growth opportunities in the southeast. We also remain committed to achieving positive operating leverage and that is 1 of our top priorities for 2021, we are not incorporating any significant change in interest rates as part of the updated guidance. Although it's important to note the increased ASP.
Net sensitivity Jamie referenced earlier as any increase in rate will provide a meaningful tailwind to NII or capital management target now includes the CET, 1 ratio of greater or equal to our 9.5% target a continuation of strong operating performance in the stable economic outlook is likely.
The result in our CET, 1 ratio above 9.5%, even after completing the entire $200 million share repurchase authorization for the current year additional focus and execution related to various tax strategies are expected to result in an effective tax rate of 22% to 24% year to day.
For the ETR is 22% or 23% before discrete items the.
The actions we've mentioned throughout today's call further position us for success in the second half of the year, but also long term success. It's important to note that the efforts and continued investment in synovus strengthens our currency and provides opportunities for strategic growth, both organic and inorganic.
We're looking forward to the second half of 2021, and I feel an increased level of excitement from our entire team as we rollout our future of work operating environment. This quarter, our balance sheet is well positioned for growth with strong capital and liquidity. Our team members are delivering and they're very passionate about winning and our pipeline showed that.
<unk> are poised to grow their business with synovus as their partner.
With that I'll turn the call over to our operator for the Q&A portion of today's call.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
In the interest of time, please limit yourselves to 1 question and 1 follow up.
At this time, we will pause momentarily to assemble our roster.
The first question comes from the line of Michael Rose with Raymond James. Please go ahead.
Hey, good morning, everyone. How are you.
Good morning, Michael how are you.
Good Hey, just wanted to start on the loan growth outlook.
It looks like if I exclude.
Triple P. And then the third party loans, which were up this quarter you guys were down.
A little bit in both the first and the second quarter from doing the math right. It looks like on a core basis ex those those 2 lines that the guidance would imply some positive growth in the back half of the year. So can you just kind of reconcile the comments around line utilization remaining low.
Paydowns still remaining high and what what would appear to be.
The positive inflection point in those kind of core loan balances.
Yeah, Michael it's of Great question, I think before I talk about the the rest of the year I think it's important.
Sure of that we're all clear on what happened this past quarter. When you exclude PPP as you mentioned, we actually grew $195 million for the quarter.
The large piece of that was on the C&I side, we grew $220 million this quarter and that was on the backs of very strong production, we were actually up 10% versus the first quarter and 19% versus the second quarter of last year.
We also grew the third party portfolio roughly $273 million and as we've shared in the past that's really a surrogate to the securities book and we felt with the excess liquidity in capital. We had we would continue to make those purchases as long as the returns made sense I think on the CRE side, 1 thing Thats loss from this quarters that we are also saw.
Good increases in funded production, there up 35% versus the first quarter, but unfortunately, we saw unprecedented levels of of payoffs.
As we saw borrowers start to take some chips off the table.
Leading up to what they perceive to be an increase in the capital gains tax.
So we saw runoff there of about $173 million so.
Inside of the quarterly growth there are some underlying stories, we seen our pipelines returned to pre pandemic levels up 22% versus the previous quarter and in line as I said with with previous year pipelines as I mentioned production is increasing across our franchise primarily on the commercial side.
But production in total was up 12% from the first quarter. When you look at our commercial lines of business, we actually had in our sub lines of business. We have 12.11 of the 12 actually grew during the quarter only our CRE.
Business declined because of those payoffs and Paydowns. We also saw tremendous momentum going into June.
C&I loan growth in June was $160 million of CRE actually grew in June $10 million and to your point of line utilization, it's not a herculean task, but it's up 1% from 39, 1% to 41, so we're starting to see a little bit of activity there.
And we saw broad based industry growth, whether it was in the finance insurance area transportation warehousing healthcare across several of our industry. So in general what gets US excited about the second half of the year is that we're starting to see some momentum build through pipelines and production, we're starting to hear from our customers. The demand is picking up.
We think theres been kind of of secular moves across the industry to hold more liquidity on their balance sheet, which means that they'll start to borrow again, but for the balances completely run off from from having the excess cash. So so we're we're optimistic and we're planning for the second half of the year to deliver that growth to be able to.
To achieve that 2% to 4%, but as we said we think it will be towards the low low half of that range.
Okay.
Great color, Kevin I really appreciate it and maybe just as my follow up if we can hit on expenses you gave a lot of color on the synovus forward and the progress that is continuing there, but I assume like everybody else you are continuing to invest in the franchise. It looks like if I take kind of the midpoint of the guidance it would imply that expenses on our adjusted.
Basis would remain relatively flat at these levels in the next couple of quarters is that the way we should think about it and then maybe if you could just kind of outlined some of the the the reinvestment initiatives and what the priorities are.
Yeah, Michael this is Jamie.
Youre right on the on the second half of the year in expenses.
Our expected to be.
Flat due to increases in a few different things we of third party services since our portfolio of there is larger than.
And then we had originally.
Guided towards at the beginning of this year. We also have increased third party processing expense associated with <unk> for giving us and lastly, we have variable compensation expectations.
We do continue to invest in the franchise specifically you see it in multiple areas first I would point to technology advancements to help us deliver our business is better of good example of that is we recently launched the accelerate program, which is in the accounts receivables.
Solution for our Treasury customers, that's the only 6 weeks old and we're now on track of received about $2.5 million annualized revenue from that just 6 weeks in.
We're also looking at our verticals, we're looking at our customer facing team members and growing frontline associates, where appropriate and all of that spend is embedded in our full year guidance for 2021.
Very helpful. Thanks for taking my questions.
Thank you Michael.
Yeah.
The next question comes from Jennifer Denver of true of Securities. Please go ahead.
From cool can you hear me Okay, yes, good morning, Jim Good morning, Jennifer.
Good morning.
Kevin you mentioned.
We anticipate no risk well migrate to a modern core of return can you give us some details on that combo.
Yes, Jennifer.
It's a part of our infrastructure investments that we believe we have to make over time now what you won't see that synovus will do a rip and replace and move off of our mainframe core today over into a cloud based core tomorrow. What we'll do is we'll start by and of segmented fashion start to move over of certain products in certain cases.
Abilities potentially create new.
<unk> that we could add onto the the modern core of our digital platform and then over time as it makes sense. We would then move the core businesses over there. We think that's the prudent approach versus doing it all in a kind of net rip and replace.
Methodology and it allows us to expand our capabilities and new functionality and that agile platform with that API connection, where we really need it and thats the real value of moving to the modern quarters. We've shared is it allows you to be much more agile in adding new solutions, adding new applications and new.
Services for our customers. So that's how we would view the ability to move things over and we'll do that over several years, where we have the opportunity to do that.
Thank you and just see will fall of that kind of pattern as well, Kevin Yes, I think so Jennifer just because no 1 wants to hear that there is a massive increase in expense in order to do that so the way that you do it in a more efficient fashion is to be able to go out and do it over time.
Components, where you move parts of your business and ultimately then it allows you to have a pathway to get to get all of your business over to the modern platform.
Okay also you mentioned, you're rolling out the pizza of work operating environment.
Third quarter can you just go for them.
The play there.
Yeah, So for US we call. It are here together program Jennifer.
I think it's important to note for Synovus, we've already brought back roughly 60% of our team members in the office. So we have about 40% of our team members that continue to work remotely today and so we've really spent the summer of evaluating job family by job family to determine which 1 of those positions we felt like needed to be in the office.
100% of the time in which team members needed to have more of a flex work schedule and then that left the third set of team members that would be 100% remote and so as we're rolling this out our next level of return to work will be in the middle of August where we will have those team members that now will come back to work full time.
That represents about 400 additional team members.
And then at the end of August we'll rollout our flexible work schedule, which is about another 500 team members that will begin to come in the office 3 days of week and then 2 days off site and that leaves us with around 1200 team members that will continue to work remotely of 100 per cent of the time.
We feel that it's important.
Today's environment for talent to assess which positions needed to work remote number 1 we want to make sure we're testing and monitoring of the productivity, which we can for those positions number 2 I think for the competition of team members. It was important for the 200 that we identified we felt like this was a work environment perk that was necessary to be able to <unk>.
Pain and attract the right level of talent, but with all of that we look at this as the next normal it's not permanent we will continue to evaluate the effectiveness of our work force and make any adjustments that we need to make going forward.
If I could just ask 1 more thing how much wage pressure you're seeing right now.
Yeah.
Jennifer we're starting to see some increases in attrition in some of our entry level positions.
And we've seen some some positions where individuals can work remotely for.
Their job and that job could be in Texas, or California, or New York and so we're starting to see a little bit of that so you'll see and we've addressed that with our internal teams. We made an adjustment of salary adjustment for all of our team members below kind of of our median salary level and we also provide our leaders with.
The additional pools of funds to make sure that we're continuing to match or our combat what what's becoming a fairly competitive landscape as it relates to the salary and compensation, but it's really started the hit us in the last couple of months of.
Especially as it relates to those entry level positions.
Thank you.
The next question comes from Ebrahim <unk> with Bank of America Securities. Please go ahead.
Hey, good morning.
Okay.
I guess just wanted to follow up on.
The agenda first question around the modern core conversion Kevin.
Talk to us I mean, I understand youre doing it and the segmented the 1 what's the timeline of that is at 23 is it beyond that and in the meantime does it.
Does it not allows you to do certain things that are full conversion would just give us a sense of how important that conversion will be but 1 in terms of the timing and the additional capability that synovus could have in order to compete with banks or nonbanks.
So ebrahim, it's a great question.
Haven't set of timeframe and I think that's important as part of the story because to me what will determine the ultimate conversion will be the success of some of these fragmented pilots that will run so.
If we set up of digital bank or move some of our products over onto the to the new core we may test 1 vendor to vendors. It really is the pilot for us to figure out what's the most scalable way to do that but we will learn from those those pilots and ultimately that will determine what the what the ultimate <unk>.
I'm frame is now to your question as to limitations by doing this in a fragmented approach. We don't believe so I think today, we feel like we can continue to add new products and solutions that are necessary. It just takes a little more time, we can work with our core provider and make sure that we schedule out the timeframe that's required a great.
The example of that is the example that Jamie mentioned earlier on the accelerate <unk>, we were able to from contract to open it up for folks to apply that was 171 days and we did that with the mainframe core platform that needed to connect so that system. So it doesn't prohibit us from doing things. We're just excited about the.
The speed at what of modern core would bring to the table, where you can do things, even more efficiently and more less costly in the future, but it's not it's not something that will inhibit our abilities in the short term.
And just tied to that wood and many make it easier to accelerate that in terms of undertaking the investment what is it easier for you to do that and then think about M&A of any large scale.
You know I think you can look at that either way ebrahim.
M&A, if you can cut costs someplace else. It allows you to reinvest that we've seen that with the.
The messaging coming out of a lot of the recent mergers, but we believe that we can do it within our existing budget today I mean, when I look at our technology spend this year as we shared on the call were down and expenses on a year to date basis, 3%, yet we've increased our technology spend by 8%.
The large majority of that increase comes in our special projects, where we're able to add additional spend to drive revenue growth and new client acquisition. So I don't think that non.
Not having a merger of take place is a limiting factor either quite frankly, we will continue to utilize synovus forward to find efficiencies in other areas. So that we can redeploy that into the areas that we want to invest like talent and technology.
Got it thank you.
The next question comes from Brady Gailey with <unk>. Please go ahead.
Yes, thanks, good morning, guys.
Good morning Brady.
I wanted to start with the buyback it's great to see you all reengage. There. If you include what you've repurchased in July I think youre about halfway there.
To your $200 million Mark.
But you know the stock is cheaper now I think youll repurchase around 165 of the tangible last quarter. Its now at 140 of <unk>.
Tangible and to me it seems like you could go a little beyond the 200 million. So maybe just talk about you know.
The pullback in the stock here and if it's possible that we could see buybacks actually exceed that $200 million kind of threshold that you all talked about.
Yeah. Thanks, Randy as we progress through 2021, we've been proactive managing our balance sheet, you've seen that both in growth in our lending partnership portfolio as well as through share repurchases as you mentioned in the second quarter.
As we look forward into the second half of the year I expect those same themes will apply along with our expectation for the gradual pickup in core loan growth our core customer loan growth.
And that's where our priority.
Ensuring that our balance sheet.
<unk>, so that we can serve our customers best.
And we expect that materialized in the second half of the year non.
9.5% for US is not a point in time of objective that we manage to truly just a target that we use for our medium term objectives.
And we're comfortable operating above or below the target in the short run as you've seen in the second quarter. We are actively purchasing shares we have.
Been actively purchasing shares quarter to date, we believe the they are attractively valued and we will continue that plan as long as it's prudent but as we look forward. We do believe that core earnings will provide enough capital to cover our core customer loan growth and we should remain above target assuming no change materially.
Changes of the and the operating outlook.
To facilitate the full 200 million of share repurchase as you mentioned.
Okay.
And then my second question's for Jamie you talked about getting the bond book up the <unk>.
The 16% to 17% of average earning assets you are there and now you are talking about maybe going a little higher what's the Max that you think we could see as far as how much of the bond book could continue to grow here.
Yes, it's a great question and typically when we think about the securities portfolio, you're thinking about it as traditional balance sheet management and this is a unique environment.
Right now we are managing the time, where our.
Our customer liquidity.
Is it levels unforeseen.
Unexpected in.
And we're managing in that dynamic we do believe that this liquidity environment will remain for the foreseeable future and we're managing our balance sheet accordingly.
And we are growing the securities portfolio and of prudent manner at 17% of assets for growing our third party lending, but its hard for me to give you an absolute level because it really depends on what the opportunities are we are being very specific and what we're targeting and if you look at the third party <unk>.
Loan purchases in the first half of the year. The are great. Examples they are strong credit assets in asset classes that we're very familiar with with shorter duration and that aligns with our liquidity views and as we look forward into the second half of the year, if we see opportunities that fit that profile and we will.
To pursue them, but it's hard for me to give you.
Targets.
Jamie what was the yield on the third party consumer purchases this quarter.
The the third party purchases this quarter the largest portfolio purchase there were multiple purchases in the in the second quarter, but the largest purchase was a little more than $300 million and auto loans with the with a gross yield a little more than 5%.
Alright, alright, thanks, guys.
Thank you Brady.
The next question comes from Steven Alexopoulos with Jpmorgan. Please go ahead.
Hey, good morning, everybody.
Good morning, David.
Kevin for you I know there are quite of few initiatives already underway, but with the.
This being our first call with you as the CEO could you give us a bit of a deeper look into what you see as your long term vision for the company.
It's a great question, Steven and look I'll start by saying my goal for our company as to when and I know our team members feel the same way.
And similar to my comments earlier in the call I feel like it's our job to build significant upside in our earnings power through a set of strategic actions that will allow us to improve efficiency and accelerate our top line growth and I know with you. We've had discussions in the past of what that growth looks like I think that's directly aligned with what our opportunity.
And that we feel like we can build of high growth low risk bank that can continue to take market share and in a very attractive southeastern market and so we're building the.
So I use the word transformation because our bank is extremely well positioned and I feel like we said and of great footprint, we have a 133 year history of performing.
As I look into the future I think there are for areas, we have to focus on to be able to be a bank that truly stands out number 1 is an ease of doing business is it's not rocket science, what we do every day, it's important for us to recognize that our customers want a bank that is easy to do business with our team members want to come here every day and have a work of place that it's.
Easy for them to get their job done and so we're investing time and energy and improving.
How we do business with our customers through process automation.
Through our client journeys, where we're going to shorten cycle times and improve the overall customer experience that's important because it leads to great referrals.
2 our prospects, which generate growth the second area of focus is around being able to seamlessly deliver all of our products and solutions across all of our segments as it relationship Bank. We believe that we've earned the right to have a deeper share of wallet with our customers and that means that we can't deliver in silos, we have to deliver the team.
And we feel that we do that today, but we can do a better job of delivering across our products and solutions and ultimately increase the type of solutions that we bring to our customers that will also serve as the source of revenue the third area as we talked about in the past is we will take our high touch approach I think which shows loudon.
Clear with some of our loyalty scores and will apply of high tech approach to match that and complement it. So we will bring new technology and new solutions to the table along with analytics that will allow us to deepen the share of wallet again and expand our customer base and then lastly, we will focus on our team members. This is of <unk>.
Place to work and we know that but theres opportunities to continue to improve that through professional development and compensation and other perks of our team members, but also continuing to attract the top talent in the industry. So we believe that ultimately when you when you bring on those 4 areas of transformation along with the the strong foundation we.
Have we think it puts us in a position to stand out in the industry and deliver growth that exceeds that of our peers and that of our marketplace.
I appreciate that color, Kevin that's terrific.
Could you realize that vision based on the current technology offering or do you need the modern core to get you where you ultimately want to be.
Yeah, Steven I think over time, I think to be able to compete in the very competitive.
<unk> of landscape, we need to make sure that our technology is at par with our competitors and so do I think of modern core is important yes, we've done 2 proof of concepts.
2019, so I think we're well on the way of testing that out.
The goal.
With the modern core as I said earlier is just to make us more agile and bring more services to our customer.
Customers I think the great equalizer in our industry today is centex, we believe that partnering with Fintech allows us through the software is the service model to bring new solutions to our customers and we can do that without having to have an R&D shop inside of our bank and we can do it in a way that is extremely scalable and custom.
<unk> so for US it's about things like the modern core but then it's also about having partners that can continue to add new services and better solutions for our customers like our synovus gateway product or the accelerate solution that Jamie mentioned earlier, so I think its modern core but it's also about having the right fintech.
Partners to complement that.
Okay. Thanks for all of that color.
Thank you.
The next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hey, good morning, everybody.
Are there.
Right now the the third party consumer loans of around 5% of the total I guess looking at that dynamic of deploying the cash and with the 10 year down further could we expect to see that as a percentage of the loan book maybe accelerate over the next few quarters.
Versus putting incremental dollars into instead of the security book down here and if so how big would you be comfortable with that portfolio of getting.
Yes Jared.
As we think about that portfolio.
Bifurcate it into <unk> and HFF.
Referring to is the total combined portfolio, but of the risk profile of the held for sale portfolio is very different from the health of our investment portfolio. So I'm going to focus in on the <unk> portfolio.
As we sit here today, we believe the.
We have the ability as far as our knowledge our experience.
To grow the portfolio further and get back to that $2 billion pre pandemic level on held for investment loans on balance sheet.
You should expect to see from us versus this 1 we're not going to go out there and chase. These assets just just to grow the portfolio.
But we have found strong risk adjusted return.
In the portfolio purchases and.
And we believe that we are.
Taking the appropriate amount of risk, which is actually fairly low on the portfolio.
And delivering incremental spread.
The the securities portfolio, where you get that spread and duration and so we would much rather take it in prime credit by the Prime auto of Securities I mean, prime auto loans with the 2 year duration.
Extending out on the duration curve in the Securities book, and so we feel comfortable of $2 billion were not there today, we're not going to chase that number but that is something that we have our eye too and this liquidity environment theres plenty of liquidity.
The support that.
Okay. Thanks, and then.
Circling back on to the capital management side.
<unk> here and it sounds like you know, maybe a little bit of of reluctance to extend that that buyback, what's the thoughts on M&A and what are you seeing I guess sort of out there in the market of there are opportunities to potentially.
Reengage or engage in a.
And an acquisition strategy to to help accelerate some of those growth goals.
Jared This is Kevin I'll take that so as we've said on previous calls we remain focused on investing in synovus and I think the next $100 million in synovus forward will be our top of mind activity at this point and we need to be able to deliver those incremental benefits as I've shared in the past I think bank M&A often looks great on paper.
When you look at the pro forma financial metrics, but I think there are challenges that are present with system and cultural integration as well as just creating growth off of the acquired company's base.
All of those challenges or underestimate. It. So we believe that we can focus on improvements here at synovus and with those improvements.
Our currency will improve and then that will allow us over time to consider alternatives and options in that bank M&A space.
But for now I think the only M&A that we've evaluated or would would evaluate would be smaller companies that provide solutions or capabilities that would be additive to our existing customer base and those those sort of business would have to provide elevated returns and a growth profile that align with our overarching strategies as it relates to what we are.
<unk> seen as you know there is still a very active M&A environment I know with the executive order that came out recently I think theres been some questions as to how that will impact that.
Activity I believe that it is not intended to truly impact the mid cap space in terms of mergers and acquisition of anything I think it will just hinder banks the ability to close branches and may increase the the amount of investment that's required for community development, but I don't think it's going to slow it down obviously.
In this low rate environment for many banks are challenge and they look at their 2 and 3 year forecast.
The resulting in them reaching out to our partner.
And Thats why the transactions are happening we are very confident in our forward strategy and our ability to grow the bank and therefore, we don't feel like we have to go in that route go go that route today.
Great. Thank you.
The next question comes from Brad Millsaps with Piper Sandler. Please go ahead.
Hey, good morning, good morning.
Hey, Brad.
Jamie just curious.
Anything more of you on the right side of the balance sheet in terms of.
You mentioned, you know continuing to optimize the deposit base, but just curious if there's anything on the horizon that might accelerate there on the on the brokerage side of things with.
Those time deposits maturing or in the other brokerage accounts that you might be able to.
On the right side of the balance sheet.
Yeah first off we're very pleased the progress we've made to date and closing the gap versus peer median of 6 basis points of quarter for each of the last 2 quarters.
As strong and total deposit cost improvement.
We do expect to be able to continue to reduce total deposit goals, albeit not quite at the pace you've seen in the last couple of quarters, obviously as you get closer.
Zero gets more difficult, but we do think there are opportunities and to your point the opportunities in broker deposits. We do have some of those.
The maturing in the second half of this year, even though the larger wave is in 2022 early 2022.
We have about $1 billion of $1.1 billion of Cds maturing this quarter, the third quarter net average rate of around 70 basis points and so that's an opportunity for us to reduce deposit costs. As we mentioned in the prepared remarks total deposit costs were at 15 basis points for the month of June.
Relative to the 16 basis points for the quarter.
So we think that we can continue to reduce them we.
We have opportunities on money market and non maturity.
Deposits and so we do see opportunities to continue.
Our work in closing the gap to peer median and Thats just 1 of our key strategic priorities.
Head into the second half of this year.
Great. That's helpful and then as my follow up.
Just the was going to see if you could just add a little more color to some of the fee income lines this quarter.
The mortgage is pretty self explanatory, but maybe down a little bit more than I thought and then I know of capital markets is an area that you guys have invested a lot in in the bullish on that business, maybe a little weaker than I thought, but there may be some seasonality some of the things that you could add some color there as well.
Yeah.
What I would say is if you look at the revenue. It's a great success story of broad based growth, which is offset by secular trends and mortgage as well as NSF and so when we look at the growth in well which is.
It's not just due to equity market increases this is due to customer growth deepening relationships.
We're seeing growth in account analysis, and we've spoken in the past about the work being done in treasury on pricing per value. It's just extremely valuable to our company both as far as just the pure revenue, but as far as also acknowledging the value add of our expertise in that area, we're seeing growth in card and.
In other core banking fees. So what we are pleased with the we can't we.
Can't fight the longer term industry trends.
In mortgage or in NSF fees due to liquidity out there.
But we are delivering in all of our businesses beyond those with those more more secular headwinds. So we're pleased with the growth we're expecting that to continue in those areas. We do expect continued normalization of mortgage.
So we would expect mortgage revenue to decline in the second half of the year.
Versus the first.
But we are pleased in the broad base growth and you Brad the only thing I'd add on of the mortgage front.
When you look at the quarter over quarter results. Although production was down slightly there was a fairly sizable shift in the mix over to the portfolio side. So in first quarter about 70% of our production was in secondary this past quarter. It was only about 53%. So as you see our our production moves.
To more purchase money, which it will over time, I think youll see more move over into the portfolio, which as of.
Just to provide the background as our private wealth in our physician mortgage product and less will go into the secondary the other thing this quarter that impacted mortgage revenue as the cash gain on sale in the secondary market was down.
In total from around 3% down to $2.40, which is where we had guide it but it's the very competitive marketplace, obviously with the pricing of mortgages and that's an area that we expect to continue to see some pressure on that cash gain on sale.
Great. Thank you guys.
The next question comes from Brody Preston with Stephens, Inc. Please go ahead.
Hey, good morning, everyone.
Good morning Brody.
Hey, Jamie I, just wanted to circle back on the third party loan purchases so.
The.
I think the guidance that you all provided.
Around the noninterest expense indicated that it doesn't it doesn't include any of any significant changes from from non core balance sheet.
Activity in so I'm, assuming that those third party loan purchases kind of.
<unk> fit into that bucket.
And so I guess just help me.
Help me understand how these loans are yielding about 5% and the step up that you've seen in the third party expense the run rate on that kind of indicates that you're bringing these loans on at about a 50% efficiency ratio or so and so just just given how yields have trended over the last 2 months I'm, assuming that it's going to get.
More competitive for these type of loans, which might actually push the incremental efficiency ratio back to neutral as to where you guys are running right now so.
I guess help me understand your thought process the process around the tradeoffs between.
Deploying liquidity and of these loans, but also potentially kind of modeling the expense run rate from here relative to the guidance.
Yeah, Brian Let me just a few viewpoints on that our expense guidance for 2021, the down 1 to down 2% includes the associated expenses with the portfolio as it is today and so our point there is increases from here because we have not forecasted those increases that would that's why.
That's what we're referring to.
When you look at the second quarter growth in third party processing expenses of its actually a combination of 2 things. We did have an increase in the paycheck protection program forgiveness fees as well as the process our servicing expense associated with third party loans and so when you look at when you look at these.
Portfolio of the servicing expense varies.
But generally it's less than 1% on these loan portfolios you are exactly right that it's a very competitive market and I very.
Very much agree with you that it will only get more competitive as more people look to deploy liquidity.
And so we're very mindful of spread compression, we expect to see spread compression and we will just remain diligent to make sure of that these purchases actually add shareholder value.
Obviously with this liquidity environment, we're leveraging the benefits of it on the right side of the balance sheet just in line with the prior conversation to reduce deposit cost to optimize the mix there and so we're not compelled to grow assets, but we do believe that if we can continue to find assets like we found in the past.
That we will pursue that because we believe it's the right thing for the shareholder we believe thats of prudent way to deploy the liquidity.
Got it so perhaps 1 of the P. P. P is out of the equation that that 1% kind of servicing of the third party portfolio of become a little bit clearer I guess, that's how I should think about it okay got it.
And then I guess.
My follow up would just be on the on the the core banking fees. So this is I guess, there's a little bit of of a loaded question because there's questions within the question, but I just wanted to.
Asking of you could talk to us a little bit more about it you know what goes into the the account analysis. The nice step up you saw there and what are the specific use cases, that's driving that growth maybe from the new products that you've rolled out and then on NSF you mentioned that it's become a little bit of of a focal point for the industry other banks.
Or are getting rid of it the CFPB seems to be willing to take a harder look here just just given how low it is as a percent of your revenues have you given any thought to maybe just getting rid of it especially given the the nice traction you've seen in other areas.
Yes. The Brady this is Kevin I'll take the on the core banking fees. When you look at it on a.
Quarter over quarter basis were up 9% up 41% year over year.
You noted 1 of the categories of the account analysis is largely a function of those treasury services that we're offering our customers some of that a large percentage of the increase comes from the repricing that Jamie mentioned that was pricing for value and the good news. There is that it was well received by our customers anytime you're in.
<unk> fees you have to question, whether it's going to lead to increase.
Turnover are caused the problem, we saw a fairly favorable response and that we had very few customers tried to negotiate that increase in fee and that tells us that what we're doing from a.
Now you added advice perspective is meaningful and so they are willing to pay for those services. The other part of that is just the increase in the the amount of activity and the number of new solutions and they are in whether it's a new solution of our existing product that we're providing to our customers. That's also the sales are up 40% year over year, So our customers.
Our continuing to request and we are offering additional solutions to be able to deepen that relationship and so that is the success story in and outside of the pricing increase we expect that line to continue to grow just based on our smart analytics tool, which about 80% of those insights of our leads our treasury opportunities and so.
Our bankers are starting to work those the other area in core banking fees that was up this quarter was card fees and Thats just an increased spend we were up about 11% versus first quarter and 45% versus last year, but inside of that is we've also made some investments in our commercial card and purchasing card and that starting to show up in that we're able to get more cards and <unk>.
Commercial customers hands and so that's the success story as it relates to overdraft you mentioned it we're only about 6% of our fee income.
That is derived from NSF and Thats down about 36% from where we were in 2019 and so we've embarked on our own overdraft of assistance optimization strategy, where we're evaluating the solutions we provide our customers today, we feel that we provide a variety of banking options.
For example, we today offer of free checking account and a prepaid card that allows our customers to access their funds without allowing any overdrafts, but we are considering some options that will add some new functionality and more specifically as it relates to the bank on standard that I think many of our competitors.
<unk> are talking about and that will involve some product changes and some new digital tools and most importantly, some some education.
But we will do that and we feel like there is an opportunity to do that in the fourth quarter of this year or early first quarter of next year, but to your point the.
Fact that it represented about 24% to $25 million of income, where we're looking to offset any losses that we have there. It's in some of the businesses. The Jamie mentioned earlier, where you see our fiduciary business, which is growing our <unk>.
Our brokerage and our securities area as well as our treasury and payment solutions. So over time, we think the growth in those other larger categories will be able to offset any reductions we have from of new product suite.
Got it. Thank you very much for taking my questions I appreciate it thank.
Thank you.
And the last question will come from Steven Duong with.
RBC capital. Please go ahead.
Hi, good morning, everyone.
Morning.
Hi.
Yes.
Question on the C&I growth in the quarter can you give us some color on what industries or areas, where youre seeing net growth and do you expect the acceleration to continue for the end of the year.
So you Stephen as I mentioned earlier the areas that we've seen some growth from an industry standpoint, as the financial services and insurance area, we've seen growth in health care transportation and logistics.
Retail trade and some construction growth, we do expect that to continue for the rest of the year based on our pipelines and based on the discussions we're having with our customers ultimately most of the growth that we're getting is coming out of our metro markets and I think thats, where youre seeing the lion's share of activity, but.
We're well positioned and looked at this last quarter. If you look at just our tier 1 markets our largest markets represented about 50% of our production our tier 2 markets, which are still large msas, where about 40% and we only had about 10% of our production from a rural smaller market. So from those industries I've mentioned as well as our markets like south.
Florida, and Atlanta, and some some some medium tier markets like Charleston, and Columbia, South Carolina Greenville, We think there is a tremendous opportunity and we think we'll grow C&I.
<unk>.
Strongly in the in the second half of the year.
Great I appreciate the color on that Kevin.
And then just a follow up.
Just the commercial loan yields they came in at 383 hundred 86.
I guess, if you were to strip out the impact of the PPP, where would that day and if you were to look at 1 year and the rate environment remains where it is do you expect that the trickle of little lower.
So yes.
What I the way I look at that Steven if I look at our loans on the books, excluding all fees the coupon rate in our portfolio of today is about $3.63, and if you look at our production that we brought on in the second quarter. It came on around $3.30 to $3.50, so you're putting it on let's say mid point of that $3.40, So there will be.
The continued pressure based on repricing on the new loan origination side as well as renewals that will continue to put pressure on the overall portfolio now the good news is in the second quarter. Those those coupons were flat with first quarter. So we feel like the price competition that we've been seeing from both large and small banks as <unk>.
<unk> to normalize and we actually are widening our spread when you look at the credit spread in our cost of funds. When we when we look at that new coupons. So it is going to provide pressure and thats, where as Jamie mentioned earlier, we will continue to leverage the liability side to continue to cut our costs there to help to mitigate any impact and keep our margin.
Babelized.
Great I appreciate the color on that guys.
This concludes our question and answer session I would like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.
Thank you operator, and I want to thank everybody for your participation today your questions and your ongoing interest in Synovus. Although this is my first earnings call as CEO of Synovus. This month will represent our this next month will represent my fifth year of the company and participating in these calls.
I'm humbled to lead such a great organization with passionate and driven team members, who are working every day to help our clients achieve their financial goals and aspirations. We have a lot of things to be proud of with our performance. This year. So I'd like to thank our team members who are on this call for your efforts and your contributions as.
As you've heard in todays report, we are effectively managing the headwinds that have arisen through the pandemic and as we get to the other side. While we have also continued to invest in our business and to generate new sources of growth and profitability, we're big believers in our strategy and our ability to win by expanding existing relationships.
<unk> chips and continuing to take share from our competitors, we are extremely well positioned for future opportunities.
But we also know that actions speak louder than words, and I believe that we have completed another quarter of delivering on our commitments and plan to leverage our momentum to continue to deliver and we're eager to share our successes and report on our progress in the weeks and quarters ahead.
Again, thank you for your attendance today and I Hope you have a great day.
Okay.
Thank you. The conference has concluded you may now disconnect your lines.
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