Q4 2021 Synovus Financial Corp Earnings Call
Your aspirations Cal has hit the ground running and brings a lot to the table given us credit and market intelligence background. The transition is going well and I know you will enjoy working with and getting to know cow now, let's shift into the overview of <unk> 2021 with the fourth quarter, placing an exclamation point on the year.
2021 was again wrought with challenges and uncertainties, but our teams were able to navigate the difficult environment to support our clients contribute to our communities and deliver for our shareholders.
I want to thank our team for your hard work dedication and commitment as you'll hear today, we accomplished a lot even as the pandemic continues to impact the operations of our clients and of our company are.
Our team is capable and understands the assignment when it comes to meeting the challenge from the unexpected and anticipating opportunities with and for our clients our strong fourth quarter and year end report is an absolute testament to your talents and passions for the inspired and purpose driven work, we do that enables people to achieve.
<unk> their full potential what youll see today is a story of execution and follow through of doing what we said, we could and would do and in many areas doing even more as.
As we began 2021, we focused on five core business objectives number one to regain growth momentum two to enhance the client experience by making it even easier to do business with synovus number three to provide seamless delivery of our solutions across all of our lines of business, leading to a deeper wallet share.
There and client relationships for to better leverage analytics in order to provide more informed and proactive advice and five the development and attraction of talent to support our growth initiatives. We have made significant progress in all five core areas and our success in 2021 was largely driven by our <unk>.
Execution of these business objectives.
Moving to slide three let's review the year our lines of business succeeded in delivering core performance via solid loan deposit and fee income growth while client loan demand was muted in the first half of 2021 and the second half we saw double digit broad based commercial loan growth driven primarily by our wholesale bank.
With all 10 wholesale sub lines of business posting growth for the year.
2021 funded commercial loan production increased 50% versus 2020 and was up 40% versus 2019 with significant productivity gains across our community and wholesale teams. We expect this momentum to continue into 2022, given the pipelines and activities of our bankers as well as the.
Rental growth that will be provided by our key 2021 investments in talent in the middle market restaurant services, and corporate and investment banking teams.
Deposit growth was driven by continued balance augmentation as well as an ongoing sales focus on core operating accounts as a result core transaction balances have increased 57% in the past two years, we have strategically allowed higher cost lower value deposits to attrite with an overall.
Arching goal of Remixing, our funding profile to optimize lower cost deposit composition. During this period of excess liquidity at year end, 77% of total deposits were core transaction deposits versus 70% at year end 2020.
X security gains noninterest revenues grew 5% led by increases in core banking fees and income from various wealth businesses.
This was the seventh consecutive quarter of increases in wealth fees drivers of this growth include a strong equity market as well as net new assets under management from client growth, including the Onboarding of 12, New family office clients during the year.
In 2021, we continue to make significant progress with our synovus forward initiatives as of year end, we have achieved $110 million in pre tax run rate benefit ahead of our original projections evidence of success includes reducing real estate expenses lowering headcount and a reduction of third party spend.
And all of which resulted in adjusted 2021 expenses being flat versus 2020.
The synovus forward savings allowed us to make strategic and impactful investments in every area, while managing overall expenses. This.
This year, we will transition our synovus forward efforts into our overall strategic plan, but remain committed and on pace to achieve the $175 million synovus forward target.
As part of our focus on innovation, we launched several new digital solutions and services, including enhanced deposit online account origination accelerate AAR, our integrated receivable suite and gateway our commercial banking digital platform. These investments have enhanced capabilities and functionality and is leading.
Two a better overall client experience. We also implemented the smart commercial analytics tool that is giving our bankers better insights into solutions, our clients need early warning on client attrition and proactive risk monitoring and.
In 2021, we also invested in people in particular, those who have experience and expertise to expand our advisory services and to build strong relationship value.
We grew our treasury and payments team, which had another record breaking year growing sales by almost 40% and added a specialty banking and our middle market talent in our high growth Central and West Florida regions.
We also continue to emphasize the development of our existing team members through the launch of two new leadership development tracks for emerging and senior leaders. Despite the challenges associated with the pandemic. Our recent voice of the team member survey indicated that 84% of our team members were actively engaged which is top quartile relative to.
The financial services benchmark and we were designated a great place to work by the great place to work Institute.
We also have made measured progress on our diversity equity and inclusion efforts by meeting our short term ethnicity, and gender based goals and the leadership ranks in 2021, so overall, a productive and rewarding year and one that carries a tremendous amount of momentum into 2022.
Now, let me shift to highlights from the fourth quarter.
Let's start on slide four with loan growth, which increased $1 $4 billion or an annualized 14% excluding <unk>. The growth. This quarter resulted from our second consecutive quarter of record funded commercial loan production at $3 2 billion. This represented a 30% increase from the.
Third quarter, the quality of growth as measured by risk ratings and underwriting metrics is consistent with the existing portfolio, which continues to perform well and is supported by a reversal of credit losses of $55 million this quarter.
It's a similar story on the other side of the balance sheet with core transaction deposit growth of one $3 billion or 4% versus the third quarter approximately 30% of this quarters increase came from non interest bearing deposits. The combination of balanced augmentation and new account origination continues to be the driver.
<unk> of growth.
Net interest income growth was also strong this quarter as we delivered $1 $7 billion and earning asset growth.
Net interest income increased $16 million from the third quarter or 4%, excluding the reduction in <unk> fees.
The net interest margin declined five basis points in the quarter largely due to lower <unk> income, but the NIM before PPP fees actually increased one basis point as earning asset yields were fairly stable and we continue to lower deposit rates during the quarter.
From a fee income perspective, we continue to be pleased with overall performance as the fourth quarter totaled $117 million core banking fees have returned and exceed pre pandemic levels in the fourth quarter as card and cash management income have more than offset reductions in NSF income and our core strategic segments such as.
Wealth management continued to generate growth through AUM expansion Duluth.
Diluted earnings per share were $1 31, or $1 35 on an adjusted basis, an increase from 96 or $1 eight adjusted per share from the same period in 2020.
During the fourth quarter, we successfully completed our capital plan with $33 million of share repurchases for the full year, we balanced core client loan growth, our common dividend and $200 million in share repurchases to achieve our target CET one ratio of nine 5% at year end, which.
Since the middle of our operating range target for the upcoming year.
Jamie will now share greater detail on the key initiatives and financial results for the quarter.
Thank you Kevin.
I'll begin on slide five we ended the year with total assets of 57 $3 billion in loans of $39 3 billion.
In the fourth quarter total loans, excluding PPP balances were up $1 4 billion or 4% from the prior quarter.
I'll start by strong commercial loan growth.
The commercial growth was broad based across businesses and asset classes and markets and included robust production in several of our key business lines, such as structured finance senior housing national accounts and commercial banking.
The positive momentum was also evident in CRE driven by healthy industry fundamentals and our footprint. We achieved this growth while adhering to our prudent underwriting standards and discipline approach to portfolio management.
Benefits from our strategic growth initiatives are being realized and we are.
Cited about the potential of the corporate and investment banking team being led by Tom <unk>, an industry veteran who joined the team in November .
Growth momentum in Q4 was also supported by reduced payoffs and increase C&I line utilization, which increased approximately 340 basis points to 43%.
This is the first quarter, where we have seen clear evidence of an inflection towards increased utilization.
We also saw continued growth in commitments up four 4% or $512 million, which position positioning us well for economic expansion, particularly in the southeast where growth is expected to exceed national averages.
A continued normalization of C&I line utilization on today's balance sheet would result in over $350 million in funded balances, which should occur overtime as liquidity subsides.
Within our core consumer portfolio the trend remains somewhat mixed with growth in card and other consumer products being more than offset by continued declines in mortgage and aggregate core consumer balances declined $20 million in the quarter.
Looking outside of our core lending activities, we did see a modest decline in our third party portfolio in Q4 as purchases were more than offset by elevated pay down activity. Additionally, our securities portfolio ended the quarter at $11 billion.
$400 million from the prior quarter does that grow generally track that in the overall balance sheet and remained at 19% of total assets.
These portfolios will remain central to our overall balance sheet management efforts and we will continue to leverage both as a means to manage our capital and our liquidity positions.
Slide six highlights the deposit trends for the fourth quarter as well as for the full year 2021.
As you can see it was another very strong year for growth led by core transaction account balances, which were up $1 3 billion.
Or 4% in the fourth quarter, and $5 1 billion or.
Our 16% for the full year.
Notably the majority of the growth for the year. It wasn't a noninterest bearing deposits, while we've seen continued strategic declines in time deposits.
For Q4, our total cost of deposits continued to decline to 12 basis points, which was down one basis point from the third quarter.
The fourth quarter also experienced seasonal inflows related to public funds, while broker deposits were relatively stable.
Both of these portfolios experienced declines versus one year ago, and we expect further declines in the first quarter as seasonal balances normalized and as we further reduce brokered balances.
In the first quarter, we expect broker deposits declined by approximately one to one $5 billion as we efficiently manage our significant liquidity position.
Slide seven shows total net interest income of $392 million in the fourth quarter or $380 million, excluding the impact of the paycheck protection program.
NII growth largely resulted from strong earning asset growth, which began late in the third quarter and continued through the fourth quarter.
The net interest margin for the fourth quarter ended at 296% a decline of five basis points from the prior quarter.
As expected the wind down of the Paycheck protection program is serving as a notable NII headwind.
Excluding the impact of PPP the margin was stable on the quarter.
Our portfolio remains asset sensitive and stands to benefit from increases in rates across the yield curve to that and I would note that much of the loan production. We saw in the second half of 2021 was variable rate.
The portion of our portfolio that is floating rate now stands at 58%, which helps to support our NII sensitivity.
Tomatoes at an increase of six 5% for a 1% immediate increase in rates.
Adjusted noninterest revenue of $116 million as highlighted on slide eight two.
$2 million from the prior quarter.
This includes a one time $8 million increase a bully income that offset a $4 million reduction in mortgage income.
Wealth management continued to see an increase in fee revenue and assets under management recording their seventh consecutive quarter of growth.
This growth is driven by continued strong client acquisition and asset inflows.
From a capital markets perspective, we recorded another strong quarter, despite overcoming headwinds from a large onetime arranger fee in the third quarter, there was not expected to repeat.
As our commercial segments continue their robust growth, we should expect to see continued strength from our ranger fees and swap income that will drive this line item.
On a full year basis, NII, excluding security gains increased 5% despite headwinds driven by the normalization of mortgage revenues.
Drivers of this growth included wealth management, and core banking fees, which increased 24% and 20% year over year, respectively.
Core banking fees commercial cash management revenue increased $10 million or 34% year over year. This growth represents the momentum within our commercial segment, including the deep depository relationships, we have with our core customers.
Slide nine highlights total adjusted noninterest expense up $286 million.
$19 million from the prior quarter.
This change included both recurring expense increases and other notable expenses that we do not believe will repeat in future quarters.
Recurring expense increases totaled $9 million and were driven by several factors, including growth initiatives related to synovus forward investments in tech and Rick risk infrastructure additional FDIC expense and expenses related to normalized travel and entertainment spend.
Other notable expense increases totaled $10 million and consisted of $4 million of incremental performance based management bonuses.
$4 million seed gift into a newly established donor advised fund and a $2 million increase in health insurance expense driven by seasonal and pandemic related factors.
In spite of an elevated quarter of expenses, we were able to manage to flat year over year adjusted expenses, resulting in positive operating leverage in 2021.
Benefits from the successful implementation of Synovus forward initiatives can be seen in comparisons of key areas from 2020 to 2021, particularly in base salaries third party spend and real estate spin.
These reductions have helped lay the groundwork for future strategic growth initiatives.
The credit metrics on slide 10 show continuing improvement in all key categories.
Net charge off ratio fell 11 basis points to one 1%, while criticized and classified loans declined 16% the.
The NPA ratio declined five basis points to four zero percent and the NPL ratio declined eight basis points to 33%.
<unk> dropped one basis point to one 4%, excluding the increase from Paycheck protection program loans.
There was a reversal of provision for credit losses of $55 million in the fourth quarter as further improvement in the economic outlook was partially offset by significant loan growth.
The ACL ratio, excluding PPP loans declined 21 basis points to 121%.
On slide 11 is a recap of our capital management efforts through 2021.
In the fourth quarter, we executed the remaining $33 million of our 2021 authorization and in doing so we ended the quarter with our CET one ratio at nine 5%.
For the year, we retired $4 4 million shares or approximately 3% of the common shares outstanding from the end of the prior year.
Our ongoing capital management efforts have helped maintain strong and stable capital ratios, which along with core PNR positions us well for continued balance sheet growth in 2022.
For 2022, our capital plan continues the prioritization of capital for client growth.
While returning an appropriate amount to our shareholders in the form of a dividend.
That includes an increase in the quarterly common shareholder dividend by one to 34 zones, which would first be payable in April .
While our 2022 plan also includes authorization for up to $300 million in share repurchases. Our capital priorities are focused on supporting core client growth and managing our CET one ratio around the target level of nine 5%.
As we look ahead, we believe this focus on maintaining a strong capital position and prioritizing core growth is not only in the best interest of our shareholders, but also our clients our communities and our broader set of stakeholders.
Turn it back to Kevin for greater detail that includes our 2022 outlook.
Thanks, Jamie excluding the impact of $400 million in remaining P. Three balances, we expect loan growth of 4% to 7% in 2022. This growth assumes continued strong production in commercial lending some curtailment of prepayment activity, particularly in the CRE portfolio and relatively stable.
Line utilization the adjusted revenue outlook of 4% to 7% largely aligns with the current rate expectations, assuming three F. O M C rate hikes and excludes the impact of <unk> related revenue overall fee income growth will be muted due to the industry wide reduction in secondary mortgage revenue. However, we expect.
Continued growth in strategic fee categories, including core banking fees and wealth management.
Our adjusted expense outlook of 2% to 5% incorporates increases in compensation, a return to pre pandemic travel and business development levels and includes our strategic investments in talent and technology.
<unk>, we expect to continue to generate positive operating leverage in 2022, while building out the bank of the future Benny.
Benefits from Synovus forward initiatives will continue to offset increased inflationary pressures and we will remain disciplined and agile in terms of managing expense growth throughout the year.
One significant efficiency initiative that is underway is the closing of an additional 15% of our branch locations with an estimated run rate savings of approximately $12 million by year end.
Moving to capital as Jamie shared earlier, we extended the upper range of our targeted CET one ratio by 25 basis points, providing a new range of $9 two 5% to 975%.
This range will continue to support our strategic growth objectives, while maintaining more than adequate protection against significant adverse conditions. If they were to arise and in the terms of capital core relationship growth remains our top priority for capital deployment, while whole bank M&A is not a priority.
We believe these expectations for 2020 to support our continued progress towards becoming a sustained top quartile performer.
We have a tremendous amount of momentum in our core businesses and the team is performing at a very high level given the heightened levels of inflation. It appears the interest rate environment will serve as a tailwind in 2022 as we continue to position the balance sheet for asset sensitivity. We also believe that our strategic investments will begin to drive top.
Align growth during the year, we are making good progress on the build out of our banking as a service product called mast and are seeing strong talent pipelines for the corporate and investment banking build out for all of these reasons my confidence in delivering on our 2022 business and financial objectives is very high and I know our team is poor.
<unk> and ready to win.
Operator, we're now ready to begin Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your headset 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, we will pause momentarily to assemble our roster.
Our first question comes from Steven Alexa Kudos from J P. Morgan. Please go ahead.
Hey, good morning, everyone.
Good morning, Steve.
So on slide five the 30% increase in productive production's almost off the charts. When you look at the chart could you give more color on the increase was tied to existing customers getting more active or was this share gains coming through in the quarter.
Yes, Stephen it's a little bit of both and when you look at the 30% you can look at it both.
A significant increase in CRE and when you look at the asset classes that we were able to increase production it led to growth.
Eight sub asset classes. So we saw growth in warehouses, we saw growth in the hospitality shopping senior housing and so it was really across the board now in terms of new clients versus the existing book came from both so we continue to take share from other competitors at the same time, we have seen.
Our existing clients become a little more active from a demand standpoint, similar story on the C&I side strong growth there as well and if you look at it from a <unk> perspective, you would see that five of the <unk> codes that we cover grew greater than $100 million. So very broad based again, new clients as well as <unk>.
<unk> customers line utilization actually increased about $230 million during the quarter and C&I. So it was about two percentage points and obviously that would have largely come from existing clients.
Hey.
That's helpful color and then to follow up so if we looked at the outlook for 4% to 7% loan growth in 2022 without PPP. So youre, calling for line utilization to hold about flat, but prepayment activity to normalize. So help me understand is the improved outlook for 2022 tied to increased expectations for new.
Client Onboarding or is this because youre think prepayment levels are going to decline quite a bit in 2022.
More of the former so as we look out into our forecast and our pipelines. We think production levels will remain elevated as we onboard some of our new team members that will add additional incremental production to what we're already doing so it's much more of a production story I think when you start.
Breaking down the balance sheet next year, just look at the commercial side. We think we can grow mid to high single digit commercial loan growth next year, we're keeping the third party consumer portfolio flat.
And the core.
Tumor portfolio may shrink a little bit just based on some of the churn thats happening there so.
We mentioned.
The payoff activity because the last two quarters, we've seen about $2 billion of pay off activity. We generally have averaged over the last nine quarters about $1. Five so it was elevated by about a half a billion dollars. We think over the year that will continue to decline we saw a lot of activity, especially on the CRE front given.
Lower cap rates. So we think that will subside, but the bigger driver around loan growth in the mid to high single digit commercial loan growth is around production.
Protection.
That's really helpful. Maybe Kevin if I could squeeze one more in so you've covered a lot in terms of what the company accomplished this year and I know the Investor day, actually 2021, but the investor days around the corner from a revenue perspective, maybe give us a bit of a teaser on the investor day like what initiatives are you. Most excited about for 2022 on the revenue.
Syed Thanks.
Look I think obviously the asset sensitivity that we're putting ourselves in a position to be able to drive NII, but from a revenue standpoint, the initiatives I'll start with mast, we've talked a lot about how the industry is changing especially around small business.
Think that math is going to give us a platform to provide the software providers, a very flexible configurable brandell embedded finance platform and as we talk with those software vendors.
They haven't had an offering that combines both our banking as a service platform with a payment as a service platform. So when we look at the uniqueness of what we're providing and the timing to be able to rollout our pilot in the second quarter I think it has a tremendous opportunity to start to drive revenue next year now.
Jamie mentioned in his comments that we are planning to invest in 2022, and that's about $25 million worth of expense, we think even on those initiatives will be able to record revenues that cover almost $20 million of revenue during the year. So we're not looking for large paybacks, but the bell.
<unk> of those new initiatives, we will continue to build through 2022 into 2023. The second I would mentioned is just our corporate and investment bank. We've made great progress in just the short 50 days that Tom Deardorff has been with US. He is building pipelines and already starting to lineup talent, we expect to onboard as many as five.
<unk> team members in the second quarter of this year and those individuals will hit the ground running and also start to provide revenue.
Terrific. Thanks for taking my questions.
Thank you Steven.
Our next question comes from Michael Rose from Raymond James. Please go ahead.
Good morning, Michael Hey, Good morning, guys. How are you good.
Good morning, well.
Good.
Obviously the outlook includes some rate hikes here I just wanted to get a sense for how we should think about further build in the securities portfolio, assuming we do get those those rates and just remind us again.
Where the comfort level is with the size of that portfolio.
Yes, Michael that's a great question you know as we look forward into 2022.
Do expect to.
Build or grow the securities portfolio on the margin, we're at 19% of assets today, and we could see getting up to 20%.
But we're going to be very prudent in that and really it's a reaction to all the other movements on the balance sheet as Kevin Kevin mentioned, we're forecasting strong client loan growth.
We expect that to continue we expect deposit growth to allow us to continue to look at the mix of deposits, but all of those considerations play together, but in our base case forecast, we do expect some marginal growth in the portfolio.
Okay. That's helpful. And then just back to loan. So the range is somewhat wide, which is which is understandable.
Can you just help us appreciate what factors would draw.
Drive you towards the upper end versus lower end I assume it's a combination of payoffs and paydowns.
Utilization assumptions and things like that but if you can put a finer point on it I'd appreciate it. Thanks.
Yes, Michael I think you nailed it I think we feel very confident in the production levels.
And we're going into 2022, assuming it's going to be a very constructive economic environment. Obviously, there are challenges still.
In front of us as it relates to supply chain and potentially we don't know the impact of any other pandemic influences and so we kept the range a little wider I think we were being conservative knowing that there are some things there that continue to present some challenges.
And more importantly, I would tell you that we've kept the third parties at zero and that this year represented significant growth.
We see the same liquidity positioning that we have we had in 2021. We also know that can flex up and we haven't assumed that in the forecast, but it's more so just some of the unknown variables that we kept the range that wide, but we're very confident as I mentioned in the commercial lending side, we saw tremendous momentum in the fourth quarter.
And we think that's going to carryover in the first quarter throughout this year.
Very helpful. If I could just.
Squeeze one last thing you mentioned, the $300 million authorization, but I don't get the sense that you guys are going to be really active with the buyback.
Year, obviously, given some of the investments that you're making is that the right way to think about it.
That is the right way to think about it I think the fourth quarter is a really good example of how we plan to deploy capital if the environment remains as we expect in 2022.
If you look at our capital generation, our capital generation of 46 basis points and then you net out the dividend you have an accretion in the mid thirties.
And Thats exactly what we deployed to risk weighted asset core client loan growth in the fourth quarter now.
Pretty high growth rate, but that's the context of how we will look to manage it is to deploy the capital we generate through earnings.
To our clients.
On balance sheet, and then we will use share repurchases as a toggle on the backend to manage our capital CET one ratios to the target.
Very helpful. Thanks for taking my questions.
Thank you Michael.
Our next question comes from Ebrahim <unk> from Bank of America.
Good morning good.
Good morning, good morning I.
I guess just on loan growth and maybe it's just me but.
In a world where like nominal GDP is going to be maybe 78% in 2022 things that he opening shouldn't be much.
Stronger.
Given all the investments you made given defense exposure to Atlanta, Florida, just talk to us in terms of upside risks and also if you could remind.
Do you mind us what normalization in line utilization implies for loan balances I know, it's not baked into your forecasts, but it'd be a good number to have in terms of what the imbalances could look like if things actually normalize.
Ebrahim I'll start with that I mean, we with the slight increase that we saw in the fourth quarter, if things normalize back into that mid 40% range. We're talking about another 500 million plus in Outstandings.
And we are not including that in our forecast so back to your point in terms of if we saw 7% GDP growth I think you would see line utilization increase and again not included in our assumptions.
Went into our forecasting for next year, assuming GDP in the 3% to 4% range and.
We think that if the economy is stronger than that obviously to your point there could be upside.
Just mentioned that there is upside if we decide to deploy additional capital and liquidity into the third party partnership loans.
Our bankers have continued to produce at a higher level than what we thought so the real driver there is.
The productivity level of our bankers and Youre right. We have markets that are performing very well Atlanta continues to perform very well and we're bringing on new talent, and Florida, and our corporate and investment banking world and so the faster that those individuals' onboard additional talent and we built budget for that the faster the loan.
Growth will come in so there are a lot of variables, we wanted to see and forecast what we see in front of US based on the economic forecast that we have and based on the team members in the.
Expectations for those folks, but obviously there is an opportunity to outperform if we hit on all those cylinders.
That's helpful. Kevin. Thank you and just on a separate question I see adjusted revenue guidance, but if we can.
Just.
On back on the fee revenue outlook, obviously, you're building out the corporate investment bank give us a sense of the puts and takes on the fee revenue.
Is that going to outperform or underperform that adjusted revenue guidance.
What the puts and takes there.
Yeah, Ebrahim as we look forward into 2022 on the on fee revenue.
We do expect fee revenue to be down year over year and the reason for that is there are headwinds in mortgage as you look at the normalization of mortgage and you still have those strong quarters. In early 2021. So we expect mortgage revenue to be down higher interest rates will impact production there.
But then we also had benefits and fee revenue.
And both bully income as well as equity gains in 2021, there were not expecting to recur in 2022. So those are more environmental headwinds, but I wouldnt I don't want that to take away from the broad based growth that we expect to see and really every other line item out.
Side of NSF as we look forward into 2022, I mean, our core core banking fees.
Deposit service charge card fees, we're expecting broad based growth across the board outside of those both unique to 2021 headwind and the mortgage normalization.
Got it and if I can just sneak in one follow up on the investment bank build out.
I'm, assuming you have some will just seems for the Investor day, but just give us a sense of the ramp up in terms of hiring that you're doing right now and are there any certain verticals that you're particularly focused on as you build that out.
Yes, ebrahim. So we are focusing on three initial verticals Tech and media Communications health care and financial institutions group and one of the things that we've asked Tom to do is to time. This such that as you know the time of the year, we're not recruiting people to come in today where weight.
<unk> for them to finish out their year and received their bonus payments from their previous institution and so you would expect to see probably as I said 15 folks join us in the second quarter, maybe even early third quarter from a timing standpoint, and so we're looking for teams of individuals to fit those those specific industry verticals and.
To your point on fee income I think what youre going to see in the beginning is a lot of coverage banking, so youre going to see the traditional lending capabilities with our syndicated finance.
Opportunity to offload some of those outstandings youre going to see the depository and Treasury business first now over time, we will continue to build out some of the capital market solutions that those sized clients need and so it would be an increased debt capital markets capability. It may be things like securitizations, but originally.
These guys are going to focus on just the coverage banking side, so you'll see it more on the NII side and what Youll see on the fee income side to begin with.
And I assume that some of this hiring is baked into your expense guide for the year that you provided.
It all is and so as I mentioned earlier, we have included about $25 million for all of our investments in the 2022 expense.
<unk> and that includes things like CIB. It includes mass, but it also includes building out our middle market teams in Florida. So our guidance that we provided you would be inclusive of all of those investments as I mentioned earlier, we think that $25 million could generate as much as $20 million of revenue.
Next year. So you can see it's a fairly quick payback period, when we make those investments.
Okay. Thank you.
The next question comes from Brad Millsaps from Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Brett.
Thanks for taking my questions.
Jamie I was just curious if you could offer maybe a little more color around.
How asset sensitive you are.
You give the interest rate table in the deck, but I was curious if you could maybe define just maybe in basis points kind of what you feel like each rate increase would have in terms of.
Impacting the NIM and then how much.
How much of rates of part I know you have three in there, but maybe on a percentage basis, what percentage of that of your revenue guidance.
In 2022 that would be related to rates.
Yeah. So.
First off as you can look at our core balance sheet and you look at the ratio of floating rate loans to total loans you can see that increasing over time, so our native asset sensitivity has increased.
And we're pleased with that given our outlook for interest rate.
Further the exposure relative exposure to the front end of the curve.
We will increase as long term rate increase in premium amortization decline. So so youll see that happening.
As we have these increases in longer term interest rates that we're seeing but as of the as of year end and that's what our metrics are in the earnings deck on our relative exposure between the short and long into the curve was relatively balanced when you assume a 35 beta and thats our through the cycle estimate that's embedded in our NII sensitivity.
<unk>.
But we believe it's likely depending on the velocity and the magnitude of rate moves.
The deposit beta is lower in the initial stages of a fed tightening cycle.
And so if you were to isolate that sensitivity.
To the front end of the curve and hold the back end of the curve constant and you use a 20 beta for example.
And that's consistent with our revenue guidance.
We would expect the margin to expand approximately three basis points in the first rate move and four basis points thereafter.
And to your question around the total impact as far as our guidance of 4% to 7% revenue growth.
Our expectations for rate moves are April August December . So obviously the December does not have much of an impact.
For this year, but you can think about that.
The partial year impact of April in August and is less than 1% of that total revenue.
Great. Thank you and then just as my follow up.
Just on the credit side of the equation you guys were around 21 basis points of charge offs for the year, I think thats pretty well in line with your 20% to 25% any.
Any change in the way Youre thinking about that in 2022, and I mean, it looks like you've kind of exhausted most of your ability to take down the reserve, but just any comments around that would be helpful as well.
No changes in our outlook medium term outlook for charge offs youre right the low twenty's area.
As a good baseline as we look forward to 2022 with.
With regards to the allowance in our life of loan estimates and our CTO calculation.
If the if the economic outlook continues to improve and uncertainty declines in the outlook than we do still expect to see the ACL to loan ratio to decline.
Two approximately the day one level.
For us that was one 6%.
Obviously loan makes it a little bit different today than it was back a couple of years ago, but.
We do believe that day, one levels are an appropriate outlook.
Outlook for the medium term.
Great. Thank you.
Thank you.
The next question comes from Jennifer <unk> from <unk> Securities. Please go ahead.
Hey, good morning.
Exactly.
CIB.
Kevin Hammons loan and fee income growth.
With that.
Next few years can you kind of size the opportunity for us.
Yes.
Yes, Jennifer I think what we've said is that we think in the first three years this can contribute.
Upwards of $3 billion of loans from a commitment standpoint, but all of that is predicated on the fact that we recruit the teams that we're that we're targeting and we bring them in within the Timeframes that we've established but this can be a meaningful impact to our overall balance sheet, but based on the size of our balance sheet.
You can see that it's obviously going to be less than 10% of total loans, but from a fee income standpoint, as I mentioned earlier it is going to start off as being a relatively more of a.
NII story, just based on the coverage nature of these bankers, but over time, we will continue to add capabilities and just the size of their business from a treasury standpoint, there will be fee income that's generated there, but we havent shared at this point because it's such a tough number to to be able to provide without knowing.
The timing and the size of the teams that will be able to onboard.
Are you finding the recruiting environment for this effort.
And in.
In today's landscape.
Seeing so much wage inflation right now.
Just just in CIB Jennifer.
Yes, and otherwise if you want.
Yes, well look I think.
The way in which you recruit in environments. Like this number one is you have to offer you have to offer up a platform for which bankers want to come and work at.
One of the reasons that Tom Deardorff came here and he is going to be at our Investor day, So you'll get a chance to meet him was the attraction of being able to come to a bank that is of our size that has the capabilities and functionality that we have but provides an environment that allows those bankers to really serve their clients and so our platform is.
Very attractive to those those bankers, especially from our corporate and investment banking side to Sally.
Salary is obviously important and you'll hear that from us as we look at our expense guidance, we recognize the changing landscape around salary inflation, but I don't think thats. The most important thing we have to provide an incentive plan that is.
That allows individuals to be paid for their success and we were building that as we speak and that will that will attract folks here and then lastly, I would tell you that.
But people like Tom who are well respected leaders in the industry. They attract people because they know that these individuals have Tom has a great track record of success and that they want to come work for folks like him. So you have the right leaders you have the right comp packages and you give them the right platform.
Can attract top talent from around the industry.
Okay.
The next question comes from Brody Preston from Stephens, Inc. Please go ahead.
Hey, good morning, everyone.
Good morning Brody.
Hey, So I wanted to follow up on the fee income comment Jamie you said you expect it to be.
Down this year and I know that includes.
Some some securities gains.
And some one time ish in Bali, but I guess, if we if we strip all of that.
<unk>.
Have you guys at like $109 million in core fee income this quarter and so just because given the pipeline on mass given all the investments you've made investments you've made on the fee income side of the house.
Maybe setting CIB aside because I know, that's a longer a longer tail on that revenue source, but I guess I'm struggling to see why the why the revenue guide would be down from here because it would kind of imply that that 109 is what youre expecting for the run rate for next year at least on a core basis and so maybe just some some grew.
Later clarity there setting aside kind of the onetime items that would be helpful.
Yes.
Good question and to dive into that a little bit.
We still if you look at the growth in wealth management fees I mean, it's a sustained growth rate. If you look at our core banking fees, we feel really good about the sustained growth rate of those businesses.
Even core banking fees that had a really strong 2021, we're expecting those to continue increasing in the high single digits in 2022.
And so we do expect to see this broad based growth continue.
<unk>.
The headwinds, though are fairly significant I mean, you have approximately.
A $10 million year over year change in bowling income.
A little less than $10 million on gains on equity investments.
And then you have normalization of mortgage and in percentage terms. These are large headwinds and they have nothing to do with our core business performance of what we're doing but they are headwinds. When you have when you are comparing year over year and so we believe that initiatives like masks.
We believe that initiatives like CIB when you think about.
The fee revenue in that business, we believe those will all be tailwind to NAR growth, but as Kevin just mentioned, that's likely to be a little delayed than just coming in and having a full year 2022 benefit and so.
We will speak more to the financial statement impact longer term.
In a couple of weeks when we have Investor day, but we believe that we have a platform that's actually proven to have sustainable strong fee revenue growth.
And we're going to augment that with the strategic initiatives.
Unfortunately in 2022, we have this headwind of mortgage normalization and then these other one offs in equity investments in <unk>. So that's kind of a little deeper dive into the full story.
Okay got it and then maybe just on the expense front, so if I if I strip out.
If I strip out all the onetime items, including the donation that you all set up.
Core expenses running about $282 million or so and so looking at the guidance side and looking at fourth quarter results. It kind of implies that you would expect expenses to be flattish from this fourth quarter level on average throughout the rest of the year just taking the midpoint of the guidance is that an accurate assessment.
And I guess is there anything beyond the branch closures and earlier, Kevin that are driving that.
Yes, that's that's a fair assumption and another way to look at that is if you roll forward from the third quarter and then add what we define as recurring expenses of $9 million in our presentation.
You get to the mid Seventy's and what you should expect to see in the first quarter as the normal seasonal employment expenses, approximately $7 million and you add that on and so to your point that gets you into the low to <unk> and we believe that beyond the first quarter, that's when you'll start to see the normal inflationary.
Pressures that come from employment expense merit increases et cetera.
But also I would just included in that guidance as Kevin mentioned is approximately $25 million of spend on these growth initiatives. So.
What you see in there is growth initiatives bend.
Normal personnel expense increases rolling forward from the end of this year.
And I would just add Brody from Synovus forward standpoint, we have in the appendix slide there that you can see we have another $15 million to $20 million of savings that will come in throughout the year, we referenced the $12 million on branch, we have other savings as it relates to third party spend and smaller items that add up to that number but it.
To be very clear as Jamie mentioned, we're going to be.
<unk> the expenses throughout the year I think we've proven this year with being able to go through a year and have our expenses flat and so when you take our guidance for next year and this year over two year period that <unk> seen some of the highest inflation.
That I've seen in my time in banking will be able to keep our total expense growth over that two years into that 2% to 5% growth range. So we will continue to pull the levers we have to pull and we've been very I think forthright and some of the initiatives that we've already executed on Thats delivered $55 million in expense reductions are.
Count's down 5% year over year.
So we know that we have to look at the environment and every dollar that we can generate a new efficiency initiative from it allows us to either drop into the bottom line or invest more in some of these strategic initiatives that we've that we've established.
Got it thank you for that and if I could sneak just a quick one and could you remind me what the effective duration on the securities portfolio and then do you happen to know what percent of that securities portfolio is floating rate.
The duration of the Securities portfolio is just under four years approximately three seven years.
I don't have the percent that's floating rate.
Top of hand, but we will get that to you.
Alright, Thank you very much.
Our next question comes from Jared Shaw from Wells Fargo Securities. Please go ahead.
Hey, good morning.
Good morning hung up on the on the growth targets.
How do you expect what's your view for funding on that in terms of.
The expectation for deposit growth as well as cash deployment into into those loan categories.
Looking at some of those more optional areas you've talked about like the third party.
Originations is that really more going to be dependent upon liquidity than anything else.
As we look at funding the loan growth, where we are in a very strong liquidity position and so.
We do expect there to be a deposit growth tailwind that continues in 2022.
But we believe that even with this growth outlook and how we're thinking about asset growth in 2022, including the securities growth.
That we will still have the opportunity to improve our deposit mix and so what you should expect to see from US is core transaction deposit growth.
Being net with a continued reduction in broker deposits continue reduction in time deposits as we manage that mix and so we believe that we have plenty of flexibility to do that.
That's our outlook for funding for funding the loan growth with regards to the third party portfolio.
We do view that as a surrogate for the investment portfolio.
And we will look to deploy assets into the into third party loans as appropriate, but you can see in the third and the fourth quarter that that portfolio was down quarter on quarter.
But that's largely due to the fact that we didn't feel compelled to invest in and chase.
Chase assets in that portfolio, when we had such strong client loan growth, which is our priority.
Okay. Thanks, and then just.
On the expense.
Savings coming from from the branch optimization should we expect that Thats.
Equally spread throughout the year or is that really more backend loaded.
That's right will be evenly spread throughout the year.
Great. Thank you.
The next question comes from Kevin Fitzsimmons from D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin.
Most of most of my questions have been asked but one thing thats.
Just curious about when thinking about the franchise Kevin looking.
I know this year.
Focus is really on.
Finalized or getting the Finnish savings from Synovus forward and these investments in CIB.
<unk>.
In other areas, but when you.
And I appreciate your comment about M&A, that's really not a focus for you all but when you think about.
The prospect of Boe.
Bolting on certain markets say in North Carolina.
Maybe thats not an opportunity for this year, maybe it's more next year.
If you don't go about it or you want to avoid M&A.
Is it on the radar at all to look to do lift outs of teams in certain metro markets in North Carolina into those.
It does seem like they would be very attractive markets for you to add from a banking perspective, but maybe.
Maybe the investments are really.
Opportunities for investing is spoken for in 'twenty. Two maybe this is more of a 'twenty three or beyond item, but just wondering how you think of that long term prospect, yes, Kevin. It's a great question, because I think that as we transform back into this growth orientation.
A lot of opportunities to expand our talent, we actually do have a small loan production office in Charlotte today.
But it's not a meaningful a portfolio my belief is that I would rather go out and build industry expertise through some of our specialty verticals and have those individuals' not be limited by geography, so that technically they can be national.
<unk>.
Their portfolio versus constraining, a new Lps in a north Carolina market, because I think that it's very difficult I believe to go in with a generalist banker and a marketplace, where you don't have a strong brand and generate the type of value that I.
I think we are generating with some of these specialty industry vertical hires that we've been able to make so.
Although I would never say never it would be low on my priorities I think we have a tremendous opportunity first and foremost to continue to invest in the five state footprint that we serve we continue to be able to pick up great talent from other institutions that are creating growth in our existing markets, we've announced recently to great hires in the middle market.
It's based in Florida, So we're going to focus inside our footprint, we're going to continue to add some specialty skill set around the industry verticals and then down the road never say never but its just not a top priority.
Got it great. Thanks, very much guys.
Thank you.
As a quick reminder, please limit yourself to one question and one follow up on.
Our next question comes from Christopher <unk> from Janney Montgomery Scott. Please go ahead.
All the information this morning.
I just wanted to ask about the pipeline on the wealth management space you mentioned the family office growth in 'twenty, one just curious kind of what the pipeline looks like for the next.
Several quarters.
Yes, I mean phenomenal growth there Chris So when you look at the 12 folks or so.
<unk> was family office has an asset under management portfolio of about $10 billion. So I think that there X X execution that they had this past year is indicative of the type of skill set we have and that team, but it also is a function of the way in which they go to market, they're not just asset managers. These are.
Our offering there is a business that goes out into these generational families and provides full service and I think it is a unique value proposition and we've won a lot of awards for being recognized for being unique. So I think youll continue to see that business grow our leader there Kathryn dunlavy set out of <unk>.
Land several years ago to double the size of her business and she is well on track and being able to deliver on that so we are confident that she will continue to grow that business and it will be something that will continue to provide not only growth on the fee side, but also on the assets under management side.
Great Kevin Thanks for that and my quick follow up just has to do with the Moon.
Favorable business and I guess I'm curious is that something thats digitizing what already exists on synovus always with a brand new product offerings.
I missed the first part.
Chris for the rig.
The new receivable business I know, we're going to get into detail a couple of things I'm, just curious if thats digitizing something that already exists or as a framework.
That's right it's brand new so.
What we're providing is a suite of products for our clients to better manage their receivable process. So imagine today, you have a clerk who's matching invoices with payments and the product that we provide provides artificial intelligence that allows that process to happen behind the scenes. So.
It makes our clients much more efficient and not needing clerks to do that and it makes it obviously a quicker process in general so we built a really strong pipeline with that product and we're out selling it to our clients today. The really exciting part is we will have a similar product for the accounts payable side that will rollout in.
The latter half of 2022 that will provide a similar functionality for <unk>.
Commercial payments platforms.
Great. So over time, that's going to lead to additional loan business application additional fees also gets executed right.
Absolutely I think we said last quarter, our pipeline with the accelerate AAR was right around $6 million in product revenue and so over time those will continue to grow and that's what's going to fuel a lot of our treasury growth going forward to this point Catherine <unk> and her team have done a great job of deepening the wallet share within treasurer.
We now are starting to expand with these new businesses, where she is getting a new sandbox to play in but she is also adding new solutions that will also add to that revenue line. So it's really the three legged stool cross sell into the existing book expand through new segments and industries and three bring on new solutions and products.
<unk>.
Great. Thanks for the background, Kevin I appreciate it.
Great.
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.
Well, thank you and I really thank everyone for your questions and your continued interest in Synovus I'd also want to thank all of our team members who are on the call today, it's an extremely exciting time to be part of this company and it's an honor to lead this passionate and high performing team.
Our recently shared our four strategic pillars of transformation that will build out our bank of the future I think this roadmap is well balanced between continuing to drive productivity and market share gains in our core businesses, while folding in and extending new businesses and solutions to generate new sources of revenue.
As we reposition our businesses for advantaged simplify and streamline leverage our high Tech high touch approach to banking. We will also continue to invest in our team and new talent.
Execution in these areas will continue to enhance our client experience and it is going to generate outsized growth.
We've also received some good media coverage over the past few weeks as we've continued to onboard some expert talent, our new head of analytics joined us, but we've also taken meaningful steps forward in the crypto space, where we joined the USDA consortium, and we announced an investment along with other banks in the jammed in top Fintech fund.
We hope as Jamie mentioned earlier, you'll join US for our 2022 Investor day on February eight to hear more about the work that we're doing and how this work will fuel sustainable growth and allow us to deliver on our purpose. You will also have an opportunity to hear from many of our executive leadership team on how we have coordinated this effort.
And how we are collectively executing on our strategies and we will also share some of our long term financial targets at that event. So as we close again. Thank you for joining today. Thanks for your interest in Synovus and operator with that we will conclude today's call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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