Q2 2019 Earnings Call
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Welcome to chorus call. Please NTT or at least 10, three number followed by the pound key.
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Hi. This is the conference operator, we're seeking population of your name please.
Evan Laflam.
And your company.
Era.
Era.
I touch on your right Bakken already and our specialty lending areas as well as community banking.
And mortgage we expect to continue funding our growth organically with low cost core deposits coming for up from our existing relationship banking model and our ability to enhance the snow was retail franchise throughout the footprint with an outsize opportunity in Florida specifically.
Of course, there will always be factors outside of our control whether it be the interest rate environment political uncertainty over the timing of the next recession.
But as we consider the market opportunities in front of us the health and diversification of our current portfolio and the growth trajectory of the company.
We feel confident the synovus is well positioned to continue generating favorable returns for our investors.
Now beginning on slide three I will cover our financial highlights.
Diluted EPS was 96 cents for the quarter on an adjusted basis diluted EPS was one dollar.
Two cents or 1.5% from the previous quarter and up eight cents or 8.4% from the same period a year ago.
Adjusted EPS excludes 7.4 billion in merger related expenses associated with the FCB acquisition, a $1.8 million loss on the sale of investment securities and a gain on private equity investments of 1.5 million.
Loan growth continues to meet our expectations with period end loan growth of $504 million or 5.7% sequentially.
Period end deposits declined slightly during the quarter due to our pricing strategy and remix effort, which result in run off of higher cost Cds and public funds. This quarter's results also reflected an increase in our effective tax rate at 25.9% compared to 25.2% last quarter.
From a credit perspective, our key metrics continue to show improving trends as the MPL ratio declined five basis points to 30 basis points, while charge offs for the quarter were a very modest 13 basis points.
Benefits associated with the FCB merger have grown more apparent with each completed step in our integration.
Not only our cost savings well ahead of original estimates, but we continue to be pleased with the quality of production and the overall momentum in our expanded Florida marketplace.
Our profitability metrics also remained very strong the adjusted tangible efficiency ratio was 52.08% compared to 50.24% in the first quarter and 56.41% a year ago, an improvement of 433 basis points year over year.
We adjusted our LAE was 1.40%.
Down five basis points from last quarter, and three basis points year over year, while while our adjusted Aro a TCV was 17.29% down 23 basis points from the prior quarter and up 132 basis points from the same quarter.
Year ago.
Moving to slide four and loans total loans increased $504 million or 5.7% sequentially and was broad based across all categories senior loans continue to show steady growth up $120 million. This quarter driven by continued strong contributions across a number of our markets and teams.
We continue to see positive trends in the consumer segment, which increased $304 million in the quarter. Other consumer which includes our lending partnerships grew 212 million this quarter lending partnership balances currently represent 5.3% of our total loan portfolio.
We were also pleased to see growth across the rest of our primary product categories, including mortgage keylock and credit card.
CRT loans increased $80 million in the second quarter with the growth driven primarily by investment properties, including multifamily and hotel in shopping centers, which grew a combined $121 million, while office and warehouse loans declined a combined $38 billion.
Our income producing properties continue to perform very well a reflection of our underwriting standards, which includes strong debt service coverage loan to value requirements and guarantees. These properties are primarily positioned and southeastern urban markets, which have continued to outperform national trends and job growth.
Population growth and income growth.
Turning to slide five and deposits.
Total period end deposits decreased $108.5 million or 1.1% annualized compared to the first quarter.
This quarterly decline resulted from a combination of growth in core transaction deposits, which actually increased $100.8 million during the quarter, while public funds and Cds, both declined by $279 million and $225 million respectively.
As we have indicated previously having closed the FCB merger and conversion behind US we are keenly focused on managing our overall deposit cost and mix.
Decline in these deposits was offset partially by growth in broker deposits of $295 million, which largely replaced maturing Cds at a shorter duration and lower right.
We were very pleased to see continued growth in non interest bearing deposits. This quarter on an average basis non interest bearing DTA, excluding public bonds was up $312 million or 15.1% sequentially.
Our retail community in private wealth bankers continue to have great success building core relationships and growing households across our markets. In fact in the second quarter, we saw consumer checking account growth of 5.1% across the company.
Overall, we remain well positioned from a liquidity standpoint, as evidenced by our loan to deposit ratio of 95%, which is well within our targeted range.
Moving to slide six net interest income was 397 million essentially flat compared to the first quarter and up $112.7 million or 40% year over year due largely to the FCB merger.
The net interest margin for the quarter, including the impact of purchase accounting accretion was 3.69% down nine basis points from the previous quarter.
Net interest income and margin were favorably impacted by $9.8 million of loan accretion and $11 million of deposit premium amortization.
Excluding the impact of purchase accounting adjustments the core net interest margin was 3.48% down 11 basis points from the first quarter.
The net interest margin declined for the quarter, excluding the impact of PAA was driven by a three basis point decrease in both loan yields and total earning asset yields and an eight basis point increase in the effective cost of funds.
The increase in funding costs included a 10 basis point increase in the cost of time deposits from the repricing of maturing Cds as well as a full quarter impact from our sub sub debt issuance in the first quarter.
These specific drivers on the liability side were largely in line with expectations and consistent with what we communicated last quarter regarding our NIM outlook.
However, the market decline in treasuries and 30 day LIBOR during the quarter drove compression in both loan and securities yields and led to a larger than expected overall decline in the core NIM. This quarter, Kevin is going to provide further guidance regarding our expectations for the full year during our Q and a session.
Turning to slide seven and fee income.
Total noninterest income was $89.8 million up $10.4 million or 13.1% compared to the prior quarter and $16.4 million or 22.4% versus the same period a year ago.
Noninterest income in the second quarter included a favorable fair value Mark to private equity investments of $1.5 million compared to 858000 last quarter as well as a $1.8 million securities loss.
Adjusted non interest income of $90.2 million increased $11.8 million or 15% compared to the first quarter and 15.5 million or 20.7%.
Year over year.
Core banking fees of $38.2 million increased $1.4 million or 3.9% sequentially.
The increase resulted from higher service charges due to seasonality and three additional business days in the quarter.
Fiduciary asset management brokerage and insurance revenues of $25.8 million increased $1.4 million or 5.7% sequentially and $1.2 million or 5.1% over the same period last year.
Total assets under management of 15.82 billion was up 10% year over year, reflecting the continued success and the client acquisition efforts of our financial advisory team.
As you can see capital markets income of 8.4 million in the quarter demonstrated substantial growth on both a sequential and year over year basis. This income is predominantly tied to customer derivative transactions.
It was driven by significant contributions from our wholesale bankers in South Florida.
Second quarter also included very strong results for our mortgage company voyage revenues of $7.9 million were up $2.8 million or 56% sequentially and $3.1 million or 63% year over year.
Mortgage revenue during the quarter was driven by higher overall production and while the favorable rate environment certainly helped our production numbers. This quarter. We would also point to the extensive effort we placed on hiring talented experienced producers in the last several years.
Turning to slide eight.
Total non interest expense was $264.1 million and as I mentioned earlier there were some continued merger related expenses this quarter of $7.4 million much lower than the $49.7 million reported last quarter.
On an adjusted basis, non interest expense of $256.7 million increased $14 million or 5.8% versus the prior quarter.
The increase in expenses in the second quarter resulted from a number of factors employment expenses were higher by $3.6 million, which in large part resulted from $2.9 million and additional commission compensation expense due to higher levels of production and higher salary expense due to one additional day this quarter.
Growth in these employment related expense items was partially offset by seasonally lower employment taxes, which declined $3.3 million during the second quarter.
We also had increases in third party processing expense of $1.4 million, primarily from servicing fees are lending partnership portfolio as well as a $2.1 million increase in consulting fees associated with planned strategic and technology initiatives.
Turning to slide nine the graphs illustrate continued improvement in our credit metrics, the NPK and NPL ratios, both improved declined to 39 basis points and 34 basis points respectively.
Past dues greater than 30 days improved slightly to 22 basis points, while past dues greater than 90 days or two basis points.
Net charge offs ended the quarter at 13 basis points and year to date net charge offs.
Or 16 basis points.
Provision expense for the quarter was $12.1 million down from $23.6 million in the first quarter.
The allowance for loan losses increased $340000 from the previous quarter ending at $257.4 million with the ratio declined one basis point to 0.71%.
The coverage ratios of reserved Npls, excluding acquired Npls remain strong at 219% or 283%, excluding impaired loans for which the expected loss has been charged off.
Moving to capital on Slide 10, our capital ratios remained strong in all increased slightly during the quarter with a CPT one ratio increasing nine basis points to 9.61% and total risk based capital ratio, increasing five basis points.
12.1%.
During the quarter.
We completed an additional $25 million of share repurchases, and we announced an increase in our authorization from $400 million to $725 million.
Shortly thereafter, we announced and priced a new series D preferred equity offering which raised $350 million in tier one qualifying capital 5.875%.
Which we intend to use for general corporate purposes, including the potential for additional share repurchase under the new authorization.
It's important to note. This transaction closed on July Onest. Thus it is not included in our second quarter financial results.
The extent and timing of additional repurchase activity throughout 2019 will be a bunch of loan growth the economic environment and general market conditions.
That said as it stands today, we do expect to largely utilize the current share repurchase authorization during 2019.
Given our current risk profile, we're comfortable operating towards the lower end of our stated operating range of 9% to 10% proceed T. One.
Moving to slide 11, as we reached the midpoint of 2019, it's appropriate that we review our progress towards a full year guidance and provide an update for the remainder of the year when considering the rate environment and other macroeconomic factors.
From a balance sheet and credit standpoint, we continue to feel confident and the opportunity to reach our loan growth objectives for the year and as it stands today the credit environment remains favorable.
However, as we efficiently manage cost of funds and liquidity levels, it's likely that we'll see deposit growth in the range of 3% to 5%.
We also expect that our cost savings associated with FCB will largely offset any incremental investments we choose to make in key talent or new markets. Thus our guidance regarding expense growth remains unchanged.
From a revenue perspective, our original guidance was based on the assumption of a flat interest rate environment throughout 2019.
Given our full year growth expectations, along with the current forward curve, we would estimate revenue growth to be at the lower end of our 5.5% to 7.5% range.
We previously estimated that our effective tax rate will be 23% to 24% for the full year, assuming completion of certain tax credit related initiatives. We intend to complete these initiatives in the second half of the year, but the resulting benefits in 2019 will likely be of a lesser magnitude than originally projected we're updating our tax rate guidance accordingly to 24% to 25% for the year.
And as we just highlighted over capital slide in light of our increased authorization for share repurchase in 2019.
We have updated our guidance accordingly.
I want to share a few closing thoughts before we open the line for questions.
When we announced the FCB transaction. This time last year, we said the acquisition would elevate our growth profile through a larger and stronger Florida presence.
And the addition of complimentary products and capabilities, we said it would enhance profitability and returns reduce our risk profile by diversifying our geographic footprint and have a neutral impact on our capital position and future capital distribution plans.
We're making steady progress in achieving those key objectives and we're excited about the early wins that provide more evidence of the growth potential as we extend our broad capabilities to customers and prospects in that region.
This past quarter, the FCB wholesale banking team generated most of what was a substantial increase in customer derivative income and they led our wholesale banking group in non interest bearing deposit growth.
And within a little under two months since conversion nine of our top 25 branches for credit card production or legacy FCB branches generating over 400, new accounts in that period alone.
But our optimism extends beyond our Florida footprint.
Our newly aligned wholesale banking team continues to build momentum and is on track for significant loan growth in the second half of 2019.
Diversified across middle market, CRH senior housing and specialty finance teams.
We also continue to further solidify our community and retail banking presence in the southeast and over the next year, we expect to open six to eight new branches in high opportunity markets like Atlanta and Orlando.
Since relaunching, our consumer and small business credit card products in October of 2017, we've seen almost a 300% increase in the rate of new account openings, which will support continued growth in card fee income going forward.
We have renewed energy and focus in our treasury and payment solution team as Weve installed new leadership to drive growth in this high potential line of business. We're also poised to launch our new mass a fluid offering by year end better promoting our wealth capabilities to clients with varying financial needs and we're adding new fee income producers across our mortgage brokerage trust and advisory businesses at an accelerated pace. The results were evident in our fee income this quarter and we expect that trend to continue.
Through the rest of the year.
I could go on and on but the most important driver of optimism around our ability to win in the second half of 2019 and beyond.
Is the strength of our entire team.
Made up of truly incredible talent that is deeply committed to our customers our communities and each other and crowd bring our brand relationships entered banking solutions and financial advice to our customers.
With that operator, we'll now open the floor for questions.
Thank you we will now begin the question and answer session.
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Our first question today comes from Ebrahim Poonawala of Bank of America Merrill Lynch. Please go ahead.
Good morning, guys.
Good morning.
I guess, just first wanted to focus on the revenue growth outlooks I heard you guess sort of talking about it being at the lower end I'm surprised you didn't lower the guidance.
Given what's happened to the rate environment for long pellets, one not only when we look at and I.
In going into Fourq, you all could for the core margin going forward for the back half of the.
And secondarily the sustainability of the fee revenue that you saw in the second quarter and what we should expect in the back half.
Yes, Hey, redeemed actually a great question and why don't I cannot tag team that so no we did lower our guidance we.
Again guided to the lower end, which.
Again, we were pleased to stay in that in that band of five and a half seven have any a lot of as to do with.
Both our confidence in the growth on the loan side and the performance of our fee areas.
And you will see it throughout our results not just legacy synovus the production, but great.
The production from.
Some of the legacy FCB.
Teams, we highlighted derivatives, but but I could give you a lot more examples of.
Of of performance in the areas that we do believe our sustainable in fact, I just met with bark single to this morning about the quality and depth of the talent that he is added so far this year that you see the results again this quarter and he and I are both confident that you will see more of the same.
In the back half Kevin why don't you go a little deeper into Eni and thoughts there even as we look out at the forward curve, which we noted in the in the presentation, we do expect to rate cuts.
In one of the third quarter, one in the fourth quarter and that could contribute to continued margin compression of five to eight basis points and the way to think about that is when you think about our asset data as we currently are what Weve historically run is right around 50% to 51% on the earning asset side, where interest bearing deposits typically are in the 45% range in a down rate environment. So what that could create with two rate cards is pressure on earning assets of roughly 15 basis points and then we would see a corresponding decline in interest bearing deposits of seven and 10 basis points in what will determine where we end up in that range. Obviously is a function of the pricing competition.
For both promotional standard rates to the continued re mixing of our deposit portfolio Kessel mentioned that in his prepared remarks, but we're taking the opportunity as you've seen to reduce our guidance for the year on deposits that strategic it's not a function of where we are not producing we continue to have very good production on the noninterest bearing side were up a 100.
And to target of $312 million on average balances for the quarter, there and we continue to expect to see that where we're not going to grow or in some of these categories that are currently high cost categories, such as public funds in some of the CD book World, where we'll let that run off.
So net net we think five to eight basis points on the margin and then to just follow up on councils point on fee income, we feel very comfortable at that 87 to 90 million dollar run rate for fee income. The reason I gave you. The ranges. We did have a 2 million dollar benefit this quarter associated with the deferred compensation plan that is not recurring but outside of that we feel that the revenue that kessel mentioned with the new hires is very sustainable.
Understood and then distribute sensitive of time moving to expense growth.
Is it fair to assume that if revenues guy trending towards the lower end expenses should know tend towards the lower end of that guide maybe closer to 2% and if you can talk about incremental expense levers. If you get a July the God and the revenue picture turns out to be less than expected.
Hey, This is Jamie let me jump in on this one Kessel mentioned on the call adjusted Eni you have $257 million for the quarter. When you look at tangible and.
$254 million, so thats, a little bit higher than the guidance. We gave you in the in the first quarter, we guided to 40 cents to 50.
The variance to that guidance largely driven by expenses associated with growth initiatives.
We had commissions.
Largely in the mortgage area up $3 million quarter on quarter other loan expenses up a little under $1 million associated with growth in the home equity product.
And then outside of that 4 million, we had increased expenses.
Resulting from Mark to market on deferred compensation plan now the $2 million increase in that directly offset in IR. So that's a net neutral however, when you take that $6 million.
Unexpected expense increases and you back at all if the 250 for the year to the lower end of our guidance that we gave last quarter, the 247% to 50 and so so we feel pretty good about that when you look forward in 2019.
We expect tangible NIH to decline sequentially third quarter, and fourth quarter and average approximately $250 million likely we discussed last quarter and I just want to be clear that included in that is the July merit increase but its also includes.
Over 100 hires of revenue producers. So we feel good about where our expenses are higher than forecast is and our ability to toggle as we need to depending on how revenue moves.
Thanks for taking my questions.
Thank you.
Our next question comes from Brad Milsaps with Sandler O'neill. Please go ahead.
Hey, good morning, guys.
One bright.
Just to follow up on those questions.
You know as you look out.
You know in maybe into 20 Kevin.
You know if the fed continues to cut rates what's.
What if any other levers that you guys are thinking about it or the real estate piece of it is something you're always looking at.
Just kind of curious you know can you generate positive operating leverage you know in the face of.
Maybe what's an even tougher interest rate environment as you look out over the next 12 months.
Yes, Brad it's something we've talked about for years of maintaining positive operating leverage if you exclude the benefit that we've had from FDA. We believe that we will continue to generate positive operating leverage into 2020.
And that comes from many different areas, it's an ongoing expense discipline. They won't come from a a onetime initiative, but it's it gets rationalization of our ft ease. Its continued focus on vendor and third party expenses and quite frankly looking at our facilities to make sure that we continue to to right size our.
Physical presence through the reduction in branch transactions and our continued.
Development of digital technology, So we're going to be very keenly focused on managing the expenses that we think that we'll be able to generate positive operating leverage excluding the V.A.
Great and that's kind of a good entre to my next question any change in debt to the guidance around how the PPA Hayes will will flow through.
In 19 versus 20 as you talked about on the last call and then there is a big swing in AOCI I was all of that related to rates.
Or is anything else in there that drove that increase in capital. Thank you.
Yes, so rental the PPA no changes for 2020 Youll note for the quarter, we were up about two and a half million dollars. We picked up two basis points on the the loan accretion and Thats just the positive migration of the FCB portfolio, which when we do the re estimation every quarter produce better cash flows, which I think speaks to the quality of that book, but it will not affect the 2020 numbers and we'll still see a decline predominantly because of the seasonal impact, but also because of the 12 month.
Amortization of the liabilities.
And then the second question was on.
You just had a big swing in AOCI out see rates down.
Yes, well that's all right.
It's all rate driven okay, great. Thank you very much.
Thanks, Brad.
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, guys.
Automotive vertical.
Just wanted to get some color on the Greens guys. So five loan growth. This quarter. I think you guys are kind of backing away from that or at least feel feeling kind of full can you just give a update our outlook for how you view that products going into Cecil. Thanks.
Yes, so Michael if you look for the quarter.
Loan growth was primarily on the third party was out of the so five portfolio.
We had about $212 million, where the growth and if you think about what we said back in fourth quarter as we would leverage the first and second quarter to increase our participation in both so fine Greens guide to make the new pro forma balance sheet of the combined synovus and FCB portfolio right back at that 5% of total outstanding So as we sit here today at roughly $1.9 billion were right at that 5%. So going forward you would see us grow that portfolio at a similar rate to the overall loan growth. So no no change in future perspective, and quite frankly this quarter. The portfolio that we brought on was yielding right around 550, which was accretive to our overarching yield to the portfolio as we look at sea. So going forward. It does impact our our thinking a little bit on green Sky, because we will have to start reserving some for the.
With that portfolio, but it does not materially change our viewpoint on the asset class and we continue to expect to have a partnership with those so fine Greens guy into the future.
Okay. That's helpful and then as a follow up just switching gears a little bit can you talk about.
Now the conversion of FCB is done kind of the trajectory of.
Deposit pricing.
At both legacy Synovus and FCB does seem if I recall from the merger announcement that theres. Some some opportunities to kind of right size their their funding costs, which could help out the NIM given the rate backdrop. Thanks.
Yes, So look Michael it's we said that would be a revenue synergy that would be.
Achieved over time, we wouldn't be able to do it right away, but theres theres. Two notable areas. One was on the on the public funds portfolio excuse me about $2 billion in the legacy FCB portfolio that yields or has a rate about 240.
So as we look into the future rate environment and think about alternative sources of funding. That's an area, where we are where we can opportunistically runoff certain high cost public funds deposits that are also collateralized and replace it with a lower funding source whether that be.
Other SCM deposits or whether that be alternative liabilities. Conversely, we also have the CD portfolio. If you recall that in the South Florida market place that the promotional rate, they're typically run 20% to 25 basis points higher than where they run through the rest of our footprint. So going forward, we will look at our production and make sure that our promotional rates are there to attract the overall lowest cost of of new CD and we'll also as we did this quarter make decisions not to renew certain high cost Cds and we can replace that as we did this quarter was actually lower wholesale funding that is of shorter duration and also a lower rate.
Okay. That's great color thanks for taking my questions.
Thanks, Michael.
Our next question comes from John .
Inquiry with Evercore. Please go ahead.
Good morning, guys.
Good morning, John on the expense front I mean, it's good to hear that you.
Do you expect that you could see positive operating leverage going into 2020 ex the purchase accounting can you give us a little bit more color on or around that possibly the magnitude of positive operating leverage that you could see and maybe put another way the.
Where do you think you can operate on a longer term basis on the efficiency ratio basis. Thanks.
So John in the interest rate environment is so fluid that is changing every day. So to give you an actual ratio is probably a little premature, but we do believe it can be positive.
And.
We said in the past in a rising rate environment. We felt like two times was the right number in a declining rate environment. We felt like it was 125 to 150.
In terms of the.
Operating leverage ratio. So we'll have to monitor that it really comes down to the interest rate environment. We do think that there's lots of initiatives as you've heard kessel talk about the growth that we have on the fee income side, obviously provides us with a tailwind there and in our ability to remix the liabilities will help us on the revenue side.
As it relates to the overall efficiency ratio, we still believe somewhere around 50% is a long term goal for us and we look at that over a long period of time, we were there in the first quarter little bit of an uptick this quarter, but over the long haul we think a 50% efficiency ratio is the right level for our business mix.
Got it alright, Kevin Thanks, Dan.
On the balance sheet side.
Just given the downward revision to your deposit growth expectations can you talk about plans for the Securities book are you planning to reinvest some of the cash flows coming off the book until into the loan portfolio. Thanks.
Yes, so we have about $200 million to $250 million worth of cash flow every quarter today, the reinvestment rate there somewhere between 285 to 95, depending on duration. So we will continue to reinvest in the securities portfolio given that the yield on the MBS book today is right around 285, so we'll get a little bit of accretion with the cash flows but to your point, John we will manage the size of the overall book as it relates to the cost of wholesale funding relative to the yield that we're able to bring along with cash flow but.
Our loan growth is going to continue to be as Kessel mentioned in that 5.5% to 7.5% and we feel like the investment securities portfolio would grow at a slightly slower pace than that.
Got it all right. Thanks, Ken.
Our next question comes from Ken Zerbe with Morgan Stanley . Please go ahead.
Good morning.
Morning, Ken went down.
Just had a question on the buyback. If obviously you have the 325 outstanding are remaining by year end I know you said, you're going to do that by year end.
If I put that into my model actually get your tier one ratio falling below 9%.
I just want to make sure is that the right way to think about it are you comfortable being below 9% or are there other equity adjustments that.
Thinking about thanks.
I think you're thinking about the right way, Ken I mean it.
We've said that it could push us to the lower end of our range and.
For for some time period could dipped slightly below that long term, we think that 9% to 10% range is.
Is a good one but given our current risk profile we're comfortable.
Pushing that that lower end, so, yes, I think you're you're.
Sounds like you're modeling it correctly.
Alright, Thank you very much.
The next question comes from Jennifer Demba with Suntrust. Please go ahead.
Thank you good morning.
Good morning, Jennifer.
Two questions first on expenses your consulting fees were higher could you give us some details on what you're doing in terms of strategic and technology initiatives right now and are those consulting fees expected to continue to be.
At that rate and secondly, can you give us an idea of when you'll be giving cecil guidance.
Thanks.
As a general take those so we were slightly elevated in consulting this quarter associated with.
Continued investment in our mind Synovus digital platform as well as our conversion to our new.
Credit card platform.
As well as a lot of little projects that are continuing with our infrastructure spend and just general strategic.
Investments in various technology initiatives. So it will go down a little bit in the second half of the year. So it was elevated but theres no big one line item there that's driving that expense as it relates to see so we thought we believe that we will give a range of where they could impact does at the third quarter earnings call in the fourth quarter. So that will give the street.
A little bit of transparency into where were seeing the numbers play out and that's because we're running parallel runs today, but as you know we're still in the early stages. So numbers are moving around.
Our the parallel.
Given the results.
That were in line with your expectations.
They are Jennifer.
Okay. Thanks.
Thank you.
The next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning.
Good morning Jared.
Just looking at the on the funding side the broker deposits that you added this quarter with the duration on those and then is that becoming a more attractive alternative for you I guess in light of that pricing differential down in Florida.
Yes, so some of it was money market. So obviously that that's short duration, but on the CD side nothing more than six months and to your point the rate on brokered funds dropped precipitously during the quarter. It started above 250 and by the end of the quarter. It was closer to 2% so.
Our growth would have been closer to 50 as we added it earlier in the quarter, but at this point some of the broker deposits are still providing a favorable pricing relative to some of the core deposits that you would have to.
Price from a promotional standpoint, so we look at that trade off everyday we have over $1 billion of brokered capacity. So we'll continue to leverage that as a funding vehicle, where it makes sense from a cost perspective.
Okay, and then you had mentioned that the the branches that you're looking to expand in Atlanta, and Orlando outside of Orlando and their deep.
Theres still opportunities for growth in Florida or is it more developing.
The footprint that you have.
Now there are definitely opportunities in Florida, and this and the branch.
Expansion process is ongoing we're continually looking at ways to.
Build smaller more efficient more technology, driven locations and make sure we are retiring.
Some of the larger legacy offices, but Florida is certainly.
An opportunity we'll continue to look at markets throughout that state for additional efficient locations.
Great. Thanks.
Thank you.
The next question comes from Stephen Kim with RBC capital markets. Please go ahead.
Hey, good morning, guys.
Hey, just wanted to get.
Just confirmation I heard it right is it five to eight basis points on than core NIM compression for two rate cuts is that right.
Thats correct Stephen.
Okay great.
So just digging a little further.
So LIBOR has gone down considerably considerably since the beginning of the year and it looks like your rates climbed up to 1.3% from one to four in the prior quarter should we take this to be the peak in deposit rates or do you think you'll still trickle up in the next quarter.
No I think we've achieved the peak in deposit rates that they were obviously estimating a rate cut in July . So we think that will put some betas as I mentioned earlier about a 45 beta over a 90 day period on those deposits. So we'll see deposit rates start to come down and that's what I mentioned on the 5% a that includes two rate hikes. This year, it would mean or Tom sorry to re cut this year and that would mean that we would see roughly 15 basis points of erosion on the earning asset side, but we would see a corresponding reduction on funding of seven to 10 basis points, which is as you noted it's kind of coming off the peak in second quarter.
Got it appreciate it. Thank you and then just a follow up on your share repurchase this quarter.
It was 25 million, it's it was considerably lower than the last quarter can you just give us a sense of what was the thought process in this quarter and also in 2020.
How should we think about repurchases should we is there any reason why we win.
I think that you guys would do a repurchase that would keep you are see two one around the 9% level.
Yes, Hi, this is Jamie I'll jump in.
We received our authorization for the further share repurchases late in the second quarter and since then we've been talking about our strategy around the next wave of resources and we look to complete those no. We're constantly monitoring the risk profile. The environment. We look to complete a lot of those are the majority of those in the third quarter.
When you look forward longer term and we thinking about capital deployment, we would like to think about deploying in 16 is that 60% to 80%.
Our earnings net income into dividends and share repurchases and then they'll have the rascoe to growth obviously, our priority is organic growth and Thats, where we won't put our capital to go but.
We will.
Toggle the share repurchases accordingly.
Great appreciate it thanks guys.
Thank you.
The next question comes from Brady Gailey with KBW. Please go ahead.
Good morning, guys.
Got it.
So just to close the loop on the expense side I heard your guidance of roughly 250 million a quarter of expenses, excluding intangible amortization, what's the update on expected.
Intangible amortization for the rest of this year and into 2020.
About 3 million a quarter.
Okay.
Alright.
Solve this past quarters, we had a slightly lower number. So we have about we revised our estimate for the year. So it should come down to be right around $2.9 million in the in the next few quarters.
Okay, and then the increase in the tax rate guidance sounds like it's mostly timing related.
So as we look forward to 2020 and is it safe to assume that once all these initiatives are Don you could potentially see a modestly lower tax rate in 2020 versus 2019.
That's correct right.
Okay, great. Thanks, guys.
Thanks Brady.
The next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead.
Hey, good morning, everyone just wanted to follow up on loan Paydowns.
Kevin Kessel do these accelerate with a lower rate environment or with the pace be kind of similar to what you just saw on Q2.
I mean, obviously you know the CPR is pick up a little bit with rates declining.
You think about our portfolio, it's primarily on the fixed rate mortgage side, where you'll see some pickups in CPR ours.
But in general at this level of rate, we really never got to a.
A high level rate, where the reductions will cause a major pickup in CPR is until we get.
The fed funds rate back down into the low 1% range. So yes, it will pick up a little bit, but we don't anticipate anything that is.
Are they large magnitude in the coming quarters or a year.
Okay. That's helpful. And then just a quick follow up on capacity to do additional sub debt. If you wanted to kind of looking out into 2020.
Yes, we have some capacity.
But at this point, we feel like we've optimized the capital stack with the first quarter sub debt issuance and now with the closing of the preferred issuance in July .
On July Onest. So I think at this point, we feel like we've optimized the capital stack pretty well as we continue to grow our assets, we would look to optimize but at this point, we feel like we've done we need to do.
Very well thanks, guys appreciate it.
Thanks, Chris.
The next question comes from Nancy Bush with any be research. Please go ahead.
Good morning, gentlemen.
I guess when I have a question for you and what are the concerns about.
The FCB deal was.
Yes, you were diversifying into new geography, but that new geography has historically been a riskier one.
And then when you were coming out of.
So would you just speak to sort of structural changes that you've seen in Florida that maybe makes that not as true as it used to be.
Well, yes, let me speak to the the FCB book, which has got a lot of attention on these calls and as you were very clear our diligence effort over.
That book was very.
Extensive and this quarter, even though we really haven't talked about it. The reason we haven't talked about it is it performed exactly as we expected.
As measured by NPD Asian, Pcls past dues charge offs risk grade migration and even some dispositions that Bob Jerre could give some color on maybe in a minute, but so that that book is strong and underwritten the way. We believe it was in performing the way we thought it was and again Nancy as you note I know you've you've followed US we have been in Florida for over 30 years.
And I think I think every market hopefully.
Yes, a little better and bankers understand a little better.
What went wrong the last time actually if you look at.
The mix of our Synovus book franchise wide or even the FCB book, you'll just see this not in those higher risk categories that in a typical downturn.
Give me the biggest loss very little company wide or in Florida in the land less than 2% of our book.
Any of the speculative high rise stuff coastal Florida that we do that we don't have any of that so again I think one of our lessons learned is one asset class to stay away from and then from an underwriting standpoint make sure that we are doing it with.
Good hard equity and good sponsorship and good guarantees and I think again.
One of the many things I like about our floor team is they're they're all experienced more bankers they've been through a downturn or two and no bank no who not to bank and again, no what asset classes and how to structure those glasses.
To survive the downturn, so upset off I don't know when it's going to.
We were actually looking last night and today just at the make up.
Of our entire real estate book relative to.
The last crisis, when we peaked at give or take 45 or 46% commercial real estate going into the crisis, 25% of that our whole book was in the land category yet today.
No were 28% ish and.
Less than 2% in that high risk category. So I think that you take that across the state of Florida that that you could say the same thing and I think we're well positioned there and again evidenced by.
Really now a full year of watching that.
Portfolio perform.
Just as an addendum to that question can you just give us some additional color on.
The sort of product diversification that you've done in Florida, and sort of exporting the synovus mix I guess to the Florida.
Operation.
Yes, I'd be happy to you know we highlighted in the call some of the early and from that team the derivatives a credit card.
Non interest bearing deposit growth for the wholesale team.
But that said and again.
Bart Singleton has done a great job in building out those teams that we believe would be very complimentary. So there were existing.
Mortgage.
Producers there Weve added producers in Orlando, and Fort Myers, and in Fort Lauderdale and seeing.
Great results there.
As we try and transition of the branches from more of a CV generating capability to a full service we mentioned the credit card.
In the branches we've added.
We opened five brokerage offices in southwest, Florida, Weve added several trust.
Operations people so from a ER trust sales teams. So from a you know from our results in the branches just don't forget we converted to may the sixth alright, but there's a lot of energy. This light duty as have there been a lot of training and early results are good and again the investment.
On the fee side that we've made the the mortgage the brokerage.
Trust.
Those are already paying dividends and we think that will only yet.
Only get better.
Could you just speak just one additional thing could you speak to deposit growth.
And the Florida franchise as opposed to sort of deposit growth in the legacy franchise, well, we think that outsize opportunity that probably left out.
One of the things we're most excited about which is our treasury sales team we have.
New energetic leadership, we've hired great treasury professionals across our footprint, including Florida, and we will make that more of an offensive tool. We opened a retail treasury desk, just yesterday and solid results from the first day I think 14 referrals 12 closed pieces of business. So we certainly think that opportunity is there. That's why we're excited about some of the.
The branch locations, we're having customer.
End market celebrations that all of US are very involved and Kevin Howard just returned from a week there where he has been very involved with the team.
The update with 10 over the weekend about about getting more of our leadership be included.
Into Florida to see some of their greater customer. So we think it's a great opportunity.
We think the branch effort is going well the overlaying the treasury piece on top of that with our Treasury product Treasury services and Treasury team retail does we think gives us again on an outsized opportunity.
Florida.
All right. Thank you.
Thanks Nancy.
The next question comes from Garrett Holland with Baird. Please go ahead.
Good morning, and thanks for taking the questions.
Business confidence is clearly taken some hits in recent months I just wanted to get your latest thoughts on the commercial pipeline and your outlook for commercial loan growth across the footprint.
Yeah, maybe we should tag team that again. This is this is kessel I would just say because I know I'm very close to our markets our bankers.
Our leaders in those markets and I think in general.
Confidence is pretty good now that's that's muted on a daily basis by I'd say at the tweeted today or whatever.
Other macro economic or political events that might be causing people to pause running in general we'd say across the board our pipelines are.
Strong.
Competition is strong.
For that business, but.
So I would just say cautiously optimistic about pipelines and we're very.
Barry.
Rigorously looking at asset classes and markets and Submarkets for for any signs of.
Overheating, what we might want to pull back but.
To date again, I think our business owners are any quietly confident is the is the right word and pipelines.
Seem to be in good shape.
No that's great I, just switching gears quickly I appreciate the color on the solid FCB execution and sorry, if I missed this but do you formally expect to update the FCB cost savings target or could you size the offsetting franchise investments you're making this year.
So what we've said here is that we expected to get 35 million plus than saving this year.
And then the long term goal of getting to 40 wouldn't be achieved and quite frankly, we would get more than 40, but the incremental expense savings that we would achieve would be reinvested back into the the south Florida.
Model in terms of as Kessel mentioned, adding our private wealth, our community banking organization and Jamie mentioned it earlier, but in the second half of this year, we plan to add 100 revenue producing fts and we're able to do that and keep our run rate at that to 50.
$250 million number so a lot of the savings that we are achieving we're reinvesting in revenue producing positions, which will obviously provide a bit of a tailwind in revenue this year, but more importantly into 2020.
Thank you and then last one just quickly a lot of moving parts with the industry outlook, but are you still confident you can reach your sustain that one for five are away or reached 17% ROTC targets.
Over the intermediate term, if we have a break lower in fed funds.
Well we.
As we said, we do our long term targets and since we submitted those back in first quarter. Obviously, there has been a tremendous change in the underlying environment, especially the interest rate environment. So what we're committed to doing as every year, we'll update our long term targets. So you should expect to see those again in 2020, but what I want to say in say clearly is that the things that we were going to do under those long term targets, we're continuing to execute on those strategies and those initiatives. So.
Organic loan growth is something that we'll continue to focus on improvements in profitability.
And deployment of capital as well as maintaining positive operating leverage all of those are key tenants into how we execute how the interest rate environment affects our overarching numbers is something that we can't control, but we will give you an update for those on an annual basis, but just know that we're still executing on the original premise.
Much appreciated thanks for taking the questions.
Thank you.
Again, it is star one to ask a question. Our next question comes from Tyler Stafford with Stephens. Please go ahead.
Hey, good morning, guys.
Kevin I appreciate that the margin components around the earning asset yield expectation and then the funding.
Offset expectation I'm, just trying to square to seven to 10 Bips.
Improvement in the cost of funds you expect to see over the next two quarters.
Can you I guess help me think about what's going to drive that deposit growth because when I look at the brokered on into period basis. Those are up call. It 300 million in you gave the cost of those that you put on around 250 and then the other short term borrowings were also up around 300 million on into period basis, that's a headwind.
What's what's going to drive the offset from a repricing lower in kind of where do you see that the core I guess deposit growth coming from Thats going to help get that seven attendance decline.
So look on the on the deposit growth, we're going to see it across the board. When you look at all of our lines of business. The second half of the year, we'll get growth in non interest bearing deposits will get growth in money markets will get a little bit of growth and interest bearing checking that some of that comes from public funds. Some of its non public funds. So we will get it across the board across our lines of business, where we see the opportunities for repricing or the two as I mentioned earlier, if you look at our wholesale.
Public funds portfolio, it's yielding today at 240, and so as we look to the next two quarters, especially around public fund Cds, we would look to.
Allow some of those to mature and hopefully reprice them at a much lower rate or actually replaced them with a different.
Deposit class Similarly on the CD book, our portfolio today is to 11 and if you look at what we what the new and renewed rate for this past quarter was we were at 195, so going forward as we expect to see some of the maturities come into place the the maturities for third quarter average right around to 10, so as those mature we can if we can replace those with the 195 that we had this quarter and I think we would expect to see that rate continue to normalize over time.
It would bring the CD portfolio rate down as well. So we'll look at the high cost section high cost categories like public funds and Cds and then we'll continue to get good growth in our relation ship based deposit categories, which are typically lower costs.
Got it okay. Thanks for that.
And then just lastly for me is just around provisioning expectations.
You've obviously got the 15 to 20 basis points charge off outlook from the main are unchanged just how we should think about the provisioning going forward from here.
Yeah, Hey, Tyler this is Bob and I know provision was down significantly from previous quarters.
Sort of on average it's still in the high teens and I think that that guidance that weve given earlier of around 20 20 million or so per quarter.
It's still the right number.
Obviously can move back up but we'll stay around charge offs plus some provision for growth and then depending on what happens in terms of portfolio factors quantitative and qualitative that could move it a little bit, but depending on payoffs of what category you payoffs that coming from versus your growth, but we're still comfortable in that 20 million per quarter range on progress.
Could that carry into 2020.
I would say okay.
Looking forward that number begins to increase obviously as we exited as we begin to move in a seasonal environment, but again, we're modeling that now.
Thought I'd try at least thanks guys.
Hi, Thanks style.
This concludes our question and answer session I would now like to turn the conference back over to Kessel Stelling for any closing remarks.
Well, thank you very much and really thanks to all of you who.
Who dialed in today.
To follow our call and as always please call last year for the questions I do want to thank and I think really might be lost in all of the numbers. This quarter is the magnitude of just what a may six conversion really meant.
Two our teams and to see these types of this kind of financial performance and.
The face of a massive conversion, which again go back to January one legal close may six conversion and you saw.
Our first two our Florida teams.
Again, there were lots of training lots of time in Atlanta, Columbus lots of products.
Sales training lots of everything that would distract from their everyday work yet.
They deliver day in and day out on the fee side on the production side and so my hats off to.
Our new Synovus team members from floor, but also and I often say banking is a team sport to the to the entire five state footprint.
Teammates, who both assisted with that.
Conversion interview also on their own for debt produced results that I think.
We're all very proud and most importantly took care of.
Our customers throughout our footprint, so big banks too.
Our team I think we've got the best talent from any bank out there I am admittedly a little prejudice, but very proud of what our team did in the second quarter and confident that those efforts will continue into the third and fourth quarter. So stay tuned I look forward to me with all of you on the next call and in the meantime, please let us know.
If we can provide any more clarity. So thanks to all of you and have a great day.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.