Q4 2023 Synovus Financial Corp Earnings Call
Thank you for your patience, everyone. The Synovus 2023 fourth quarter earnings Conference call will begin shortly to ask a question throughout the call. Please press star followed by one on your telephone keypad excuse me Joe. Your question. Please press star followed by Chase.
[music].
Joe: Good morning, and welcome to the Synovus fourth quarter 2023 on East Coast, All participants will be in less than 90 minute should you need assistance. Please take note of a conference specialist by pressing the star key followed by the day right. After today's presentation, there will be an opportunity to ask questions.
Joe: You ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press star followed by two things.
Speaker Change: Please note. This event is being recorded and I will now turn the cool life out to Jennifer Jennifer Dunbar Director of Investor Relations. Please go ahead.
Thank you and good morning during today's call, we will reference the slides and press release that are available within the Investor Relations section of our web site Synovus Dotcom, Kevin Blair Chairman, President and Chief Executive Officer will begin the call. He will be followed by Jamie Gregory Chief Financial Officer, and we will be available to answer your questions at the end of the call.
Jamie Gregory: Our comments include forward looking statements. These statements are subject to risks and uncertainties and actual results could vary materially. We list. These factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website, we do not assume any obligation to update any forward looking statements because of new informed.
Jamie Gregory: <unk> early developments or otherwise, except as may be required by law.
Jamie Gregory: During the call we will reference non-GAAP financial measures related to the company's performance you may see the reconciliation of these measures in the appendix to our presentation and now Kevin Blair will provide an overview of the quarter.
Kevin Blair: Thank you Jennifer.
Kevin Blair: During 2023, our primary corporate goal was summarized as focused execution.
Kevin Blair: <unk> was rooted in delivering productivity gains within our core businesses, allowing us to deepen relationships grow our client base and enhance financial performance.
Kevin Blair: Secondarily, continuing to accelerate the contributions generated through our new growth initiatives and adding talent in key businesses and markets to expand our presence and profitability.
Kevin Blair: We made steady progress in these areas, which led to solid growth and built on our foundation to deliver healthy and consistent earnings and tangible book value growth over time.
Kevin Blair: In the midst of executing on our plan, we were presented with unforeseen challenges and our synovus team acted quickly and decisively in order to mitigate risk and better position the bank for a more challenging liquidity and economic environment.
Kevin Blair: Despite a more challenging environment, we produced healthy and consistent loan growth in key commercial business lines, including middle market, corporate and investment banking and specialty lending.
Kevin Blair: Corporate and investment banking, which was officially launched in mid 2022 continues to prudently grow and execute with over $650 million in loans outstanding and became <unk> positive in the middle of last year.
Kevin Blair: Also our team was laser focused on accelerating our core funding generation through sales activities product expansion in specialty businesses. As a result, we delivered an 83% increase in total deposit production in 2023.
Kevin Blair: We delivered strong double digit growth in adjusted fee income in 'twenty, three as our treasury and payment solutions capital markets and wealth management teams continue to expand their contributions supported by new solutions analytics and an intense focus on building full relationships.
Kevin Blair: We further augmented and diversified our noninterest revenue stream with an expanded balance sheet light relationship with Green Sky.
Kevin Blair: We maintained top quartile efficiency through proactive expense rationalization and disciplined cost management, while continuing to make the investments in areas that will drive long term shareholder value.
Kevin Blair: On the asset quality front, we continue to experience very manageable levels of credit losses, and see no systemic deterioration across our asset classes and footprint.
Kevin Blair: Finally, the balance sheet was strengthened in 2023 from solid core deposit growth and a reduction of office commercial real estate loans and higher cost wholesale funding.
Kevin Blair: We also increased our common equity tier one ratio to over 10% through solid earnings accretion and prudent balance sheet optimization. Moreover, the business mix was streamlined with the sale of our asset management firm global which enables us to reallocate investment into higher returning business lines.
Now, let's move to slides three and four for an overview of the fourth quarter and full year 2023 financial highlights Synovus reported 2023 fourth quarter diluted earnings per share of <unk> 41, and.
And adjusted earnings per share of <unk> 80.
Kevin Blair: For 2023, we reported $3 46 in diluted earnings per share and $4 12, and adjusted EPS.
Kevin Blair: However, the $51 million FDIC special assessment reduced fourth quarter reported and adjusted earnings per share of about 26.
Kevin Blair: Therefore, excluding the FDIC assessment fourth quarter reported EPS would have been 67.
Kevin Blair: And adjusted EPS would have been $1 <unk>.
Higher funding costs and loan losses were headwinds for the banking industry in 2023, but in this challenging environment Synovus was able to grow core deposits core noninterest revenue and maintained disciplined expense control, even with the challenges and excluding the FDIC special assessment adjusted pre provision net revenue increased about two.
Kevin Blair: 2% last year.
Kevin Blair: Net interest income grew $20 million for the year of roughly 1%. Despite an 11 basis point margin contraction excluding.
Kevin Blair: Strategic loan sales of $1 6 billion in 2023 period end loans increased about 3% led by C&I business lines, including middle market CIB and specialty lending. Despite muted activity CRE also experienced year over year growth driven by increased utilization on previously committed construction facility.
Kevin Blair: <unk>.
Kevin Blair: There continues to be an increased emphasis on stronger returns and more deposit relationship based lending and we are pleased with the increased margin and relationship profitability profile of the 2023 originations.
Kevin Blair: On the funding side total core deposits increased 3% and total borrowings declined 57% in 2023 or.
Kevin Blair: Our fourth quarter net interest margin of 311% was stable quarter over quarter and better than our prior guidance as a result of modestly lower than expected core interest bearing deposit costs.
Kevin Blair: Also we were able to reduce higher cost funding and broker deposits and <unk> borrowings due to the continued success of our deposit production activities.
Kevin Blair: We remain confident that our net interest margin has reached a positive inflection point and should be relatively stable in the first quarter, a more stable monetary policy environment, coupled with fixed rate asset repricing should support the NIM as we progress throughout 2024 and provide a multiyear tailwind for net interest income.
Kevin Blair: Despite continued headwinds from a soft mortgage environment and intentional reductions in checking program fees adjusted noninterest revenue increased 11% in 2023 supported by increases in Treasury and payment solution fees capital market fees and wealth management fees as well as higher Green Sky income.
Kevin Blair: Noninterest expense remained well contained our proactive cost rationalization and management initiatives have placed synovus in a strong position as we start 2024.
Kevin Blair: In this uncertain environment asset quality remains healthy excluding our loan sales net charge offs were a manageable 38 basis points in the fourth quarter and 28 basis points for the full year nonperforming assets increased at a slower pace over the last three months and we further built the allowance for credit losses.
Kevin Blair: Finally, we continue to focus on maintaining a strong capital position as we navigate through a more uncertain economic environment.
Kevin Blair: And with our CET, one position ending the quarter at 10, 2% up from the 963% a year ago, we remain confident in our capital profile and well within our targeted capital levels of 10 to 10, 5%.
Kevin Blair: We continue to make consistent progress in diversifying and optimizing our business mix with growth in several key areas, including middle market commercial banking CIB Treasury and payment solutions capital markets banking as a service and wealth management.
These are the core businesses, where we have shown the right to win and through execution and expansion will deliver solid revenue growth well into the future.
Kevin Blair: Our talent is what truly differentiates synovus.
Kevin Blair: Our key objectives for the team in 2024 are one prudently growing the bank to winning full relationships and three enhancing profit we are committed to delivering on these objectives, while preserving and even improving key elements of our safety and soundness profile.
Kevin Blair: Great confidence in our ability to not only meet our goals, but also to outpace our competition now.
Kevin Blair: Now I'll turn it over to Jamie to cover the quarterly results in greater detail.
Jamie Gregory: Thank you Kevin.
Jamie Gregory: As you can see on slide five total loan balances ended the fourth quarter down $275 million sequentially or about 1%.
Jamie Gregory: While loans declined modestly overall trends were positive as key strategic business line saw growth and transaction related declines signal a return to more normal commercial real estate market activity.
Jamie Gregory: There were three primary drivers of the modest sequential decline in loans <unk> loan production has been softer over the past few quarters.
Jamie Gregory: Also CRE in senior housing market transaction activity increased significantly over the last three months due to property sales and refinancings, which we believe shows more strength in those markets.
Jamie Gregory: Finally strategic declines in non relationship syndicated lending and third party consumer loans continued in the fourth quarter further positioning our balance sheet for core client growth.
Jamie Gregory: While C&I loans declined $182 million sequentially during the fourth quarter, there were strategic growth in middle market loans, CIB and specialty lines.
Jamie Gregory: These commercial loan categories also saw growth for the full year.
Jamie Gregory: With regard to commercial real estate.
Jamie Gregory: <unk>, the $1 $2 billion of medical office building sale last quarter.
Jamie Gregory: We generated approximately 7% loan growth last year, primarily from fund ups of existing commitments.
Jamie Gregory: We continue to prioritize clients, both new and existing with broad based deposit and fee income relationships.
Jamie Gregory: At the same time, we are rationalizing growth in credit only lending areas such as shared national credits and third party consumer lending that have a lower return profile or don't meet our strategic relationship objectives.
Jamie Gregory: As a result of higher loan pay down activity and muted production, we expect to see a reduction in senior housing and institutional commercial real estate this year.
Jamie Gregory: Our organic balance sheet optimization efforts will continue in 2024, as we focus on balanced loan and core deposit growth.
Jamie Gregory: Turning to slide six.
Jamie Gregory: Core deposit balances grew $714 million or 2% sequentially during the fourth quarter.
Jamie Gregory: Driven by a 9% increase in time deposits and a 4% increase in interest bearing demand deposits.
Jamie Gregory: Which was partially offset by a 5% decline in noninterest bearing deposits.
Jamie Gregory: Seasonality contributed to public funds growth of $464 million or.
Jamie Gregory: Or 7% on a sequential basis.
Jamie Gregory: And the pace of noninterest bearing declines remains below the level experienced during the peak in early 2023.
Jamie Gregory: Our strong fourth quarter core deposit growth allowed us to reduce broker deposits by $179 million and overall borrowings by about $670 million, resulting in continued improvement in our wholesale funding ratio to 13, 5% from 15, 1% in the third quarter.
Jamie Gregory: As we look at funding costs, our average cost of deposits increased 19 basis points in the fourth quarter to two 5%.
Jamie Gregory: As a result, our cycle today total deposit beta was 45%, which was just below the range, we communicated at an industry conference last month.
Jamie Gregory: From October to December total deposit costs were up six basis points. We continue to expect that deposit costs will peak sometime during the first quarter.
Jamie Gregory: Now moving to slide seven.
Jamie Gregory: Net interest income was $437 million in the fourth quarter of <unk>.
Jamie Gregory: Klein of 1% from the third quarter, which is slightly better than our previously disclosed expectations.
Jamie Gregory: Our net interest margin was stable during the fourth quarter versus a nine basis point sequential decline in the third quarter.
Jamie Gregory: Better than expected core interest bearing deposit costs reduce borrowings and increasing earning asset yields supported the margin.
Jamie Gregory: The partial securities repositioning, which was completed in December.
Jamie Gregory: We made a one to two basis point impact in the fourth quarter with an incremental three to four basis points benefit expected in the first quarter.
Jamie Gregory: As we look forward, assuming a stable rate environment. We continue to expect the first quarter net interest margin to be relatively stable followed by expansion in the second half of the year.
Jamie Gregory: Longer term the benefits of fixed asset repricing remain a significant tailwind to the margin.
Jamie Gregory: Our sensitivity profile remains relatively neutral to the front end of the curve and we remain slightly asset sensitive to longer term rates. However, during an easing cycle. The margin will exhibit short term pressure due to the timing lag between loan and deposit repricing.
Jamie Gregory: Slide eight shows total reported noninterest revenue of $51 million <unk>.
Jamie Gregory: Adjusted noninterest revenue was $126 million up $20 million or 19% from the previous quarter.
Jamie Gregory: The sequential variance in fee income was due to a onetime green sky fee of $12 million related to its legacy loan portfolio as.
Jamie Gregory: As well as stronger treasury and payment solutions and non global related wealthy.
Jamie Gregory: With the expansion of our relationship with Green Sky, We anticipate one time related fees of about $5 million in the first quarter and approximately $5 million in ongoing quarterly non risk revenue thereafter, which is currently reflected in our fundamental guidance.
Jamie Gregory: There were $78 million in security losses during the fourth quarter, which we had previously announced in December.
Jamie Gregory: Also the global sale at the end of the third quarter reduced noninterest revenue by approximately $2 4 million.
We continue to invest in core non interest revenue streams that deepen our client relationships and have all demonstrated healthy growth this year.
Treasury and payment solutions fees were up 11%, while wealth management fees increased 11% in capital markets fees grew 21%.
Jamie Gregory: Fact, syndicated finance and debt capital markets fees jumped to over 100% in 2023.
Jamie Gregory: Noninterest revenue has also been impacted by a soft mortgage lending market as well as recent changes to our checking program. However, the banks relative stability of core client fee income over time highlights the diversity of our revenue streams, many of which are insulated from the impacts of the volatile rate environment.
Jamie Gregory: Moving to expense slide 10 highlights our ongoing operating cost.
Jamie Gregory: Reported and adjusted non interest expense was $353 million in the fourth quarter.
Jamie Gregory: The $51 million FDIC special assessment inflated fourth quarter reported and adjusted noninterest expense.
Jamie Gregory: Without that expense adjusted noninterest expense would have declined 1% from the third quarter.
Jamie Gregory: In September we took prudent expense rationalization actions that will still allow synovus to appropriately invest for infrastructure needs and future growth.
Jamie Gregory: Adjusted employment expense was down 4% sequentially and year over year benefited by head count reductions during the fourth quarter as well as lower performance incentives.
Jamie Gregory: Finally, the recent global sale reduced expense by about $2 million in the fourth quarter.
Jamie Gregory: As you can see on slide 11, total head count is down 9% from 2019.
Over that same period revenue has increased 14%.
Jamie Gregory: <unk> and an increase in revenue per FTE of 25% and a top quartile efficiency ratio.
Jamie Gregory: Our sharp focus on operating expense discipline and prudent discretionary spend will continue throughout 2024, as we manage through headwinds that pressure industry earnings.
Jamie Gregory: Moving to slides 12, and 13 on credit quality.
Jamie Gregory: Credit metrics were relatively stable from the previous quarter adjusted for the third quarter loan sales with a net charge off ratio of <unk>, 38% and NPL ratio of <unk>, 66%.
Jamie Gregory: The total criticized and classified loan ratio of 345%.
Jamie Gregory: The allowance for credit losses increased by $4 million to $537 million or one 4% of total loans up two basis points from the third quarter.
Jamie Gregory: We continue to expect Ncos to average loans to be 30 to 40 basis points in the first half of 2024, and we have a high degree of confidence in the strength and quality of our loan portfolio.
Jamie Gregory: Moreover, we will continue to apply conservative underwriting practices and advanced marketing analytics to new loan originations and portfolio monitoring and management.
Jamie Gregory: As seen on slide 14, our capital position improved during the fourth quarter with a common equity tier one ratio, reaching 10, 2% and total risk based capital now at 13 point over 7%.
Jamie Gregory: Capital accretion was impacted by the FDIC special assessment and the securities losses during the fourth quarter.
Jamie Gregory: But as was the case throughout 2023, our core earnings profile continues to support our capital position.
Jamie Gregory: <unk> ahead, our 2024 capital plan includes a stable common dividend and prioritizing prudent capital management within our targeted range of 10 to 10, 5%.
Jamie Gregory: Similar to 2022 and 2023, we have authorization for up to $300 million in share repurchases in 2024.
Jamie Gregory: I'll now turn it back to Kevin to discuss our 2020 for guidance.
Kevin Blair: Thank you Jamie I'll now continue with our updated financial guidance for 2024, which is unchanged from the expectations. We outlined in early December.
Kevin Blair: Loan growth is expected to be between zero and 3% in 2024 growth should be driven by continued success in middle market corporate and investment banking and specialty lending business lines. This growth should be partially offset by market related loan paydowns, which are expected to return to more normalized levels and rationalization.
Kevin Blair: <unk> of credit only loan relationships.
Kevin Blair: We maintain our expectations for core deposit growth of 2% to 6%, despite a challenging and uncertain industry wide growth environment. We are confident that our focus on core deposit production and expansion of relationships will continue to bear fruit in 2024.
The adjusted revenue growth outlook continues to be in a range of negative 3% to 1%, which assumes a flat interest rate environment. The recent volatility in interest rates has shown the uncertainty in the outlook for rates and the reduction in long rates to the 4% area. If maintained would impact our revenue outlook for 2020.
Kevin Blair: For negatively by approximately 1% however.
Kevin Blair: However, considering this impact our outlook remains within the current revenue guidance. It is uncertain. How 2024 will play out with regards to fed interest rate policy, but we expect two things to be true.
Kevin Blair: It's a short term negative for net interest income and margin during the easing cycle as deposits reprice slower and loans and second over the longer term, we are relatively neutral to the short term interest rates. So the margin is expected to revert back to the starting point and likely higher once the easing cycle is completed.
Kevin Blair: Adjusted noninterest expense, which includes the fourth quarter FDIC Special assessment is expected to decline between 1% and 5% in 2024 from a combination of several initiatives, including personnel and business optimization back office, and corporate real estate rationalization and less discretionary and third.
Kevin Blair: Party spend we will continue to be very disciplined in expense management, while investing in areas that deliver long term shareholder value.
Kevin Blair: The result of expanding NIM and controlled expenses as forecasted acceleration of core <unk> growth throughout the year.
Kevin Blair: Assuming a stable economic environment, we expect to end 2024, with strong growth and financial performance and an eye towards our longer term operating metric targets.
Kevin Blair: Moving to capital we are within our CET one range of 10 to 10, 5% and will Opportunistically manage our capital levels within this target range dependent on forecasted economic conditions, we anticipate the tax rate should approximate 21% to 22% primarily supported by additional tax credit investments and further.
Kevin Blair: Our suffocation of our revenue sources.
Kevin Blair: <unk> strategic actions in 2023, as well as the strength of the business model and the relative growth of our footprint have positioned the company for strong long term revenue earnings and tangible book value growth and now operator, let's open the call for Q&A.
Speaker Change: Thank you we will now begin the question and answer session to ask a question. Please press one followed.
Speaker Change: Followed by one on your telephone keypad, if you speak Simon please pickup your handset before pressing the keys to withdraw your question. Please press Star then Keith in the interest of time, please limit yourself to one question and one follow up.
Speaker Change: Our first question today comes from John Armstrong from RBC Capital markets. Your line is now open.
Speaker Change: Thanks, Good morning, everyone.
John Armstrong: Good morning, good morning, Jonathan.
John Armstrong: Just wanted to go back Kevin you touched on it and Jamie as well, but on the revenue growth guide.
John Armstrong: And your interest rate assumptions, when I look at that guidance range.
John Armstrong: Takes you to the lower end of that range.
John Armstrong: The higher end of that range is this mostly interest rate driven.
John Armstrong: And what does it kind of built into that guidance in terms of the short term rate variance.
John Armstrong: Yes, John this is Jamie thanks for the question as we think about volatility and revenue in 2024.
Jamie Gregory: Risks and opportunities are actually fairly similar to each other it comes from things like deposit mix economic activity.
Jamie Gregory: And the fed interest rate policy. So you know that our guidance is.
Jamie Gregory: Basically a flat rate scenario. So we have no fed easing and the guidance we have.
Jamie Gregory: Long and staying stable at 4%.
Jamie Gregory: But within that using those assumptions, we would tell you that the biggest risks and opportunities come from deposit mix economic growth loan growth.
Jamie Gregory: Business growth, we would take those kind of presents both risks and opportunities for 2024.
Jamie Gregory: Okay.
Jamie Gregory: And at this point.
Jamie Gregory: If you think about the forward curve.
Jamie Gregory: In terms of your net interest income outlook.
Speaker Change: How much of a headwind is that Jamie how difficult does that environment.
Speaker Change: Yes.
Jamie Gregory: We debated a good bet how to best give insight into our performance in 2024, given the volatility of interest rates and we decided to keep the front end stable, but then speak to the impact based on the easing cycle. Just so people can use whatever raise scenario they deem most appropriate because the assumptions.
Jamie Gregory: <unk> weekly if you compare where we were even a couple of weeks ago. The assumptions for fed easing are very different than where they are today.
Speaker Change: But for US as Kevin mentioned in his guidance comments, just a minute ago.
Speaker Change: Longer term we.
Speaker Change: Our neutral to the front end of the curve and what we mean by that is that when we come out of the easing cycle and deposits normalized to the lower levels. We expect our margin to be relatively similar to where it was when we entered the cycle, but during the cycle.
Speaker Change: A lag on deposit costs relative to loan yield declines will reduce the margin and that's dependent on a few things the impact to 2020 forward is dependent on the timing of easing windows. When does the fed begin the easing cycle the speed of the easing.
Speaker Change: And how far does it go.
Speaker Change: But when we think about the impact to our.
Speaker Change: Margin, we think that that impact during the easing cycle could be anywhere between 2% and 4% reduction in the margin.
Speaker Change: And then again, we would revert back to the starting point once those deposit costs stabilize at the end of the easing cycle. So the timing is very important the speed is important the depth is important but those are that's generally how we see that impact with regards to our full year 2024 revenue guide it could be anywhere up to two 5% a full year.
Speaker Change: Revenue given the scenarios, we've seen from economist markets fed dot plot et cetera.
Speaker Change: But there are other things that are not included in that guide one is in an easing cycle, it's likely that that will be a positive impact to deposit mix shift.
Speaker Change: And Thats not included in my comments here and our expectation.
Speaker Change: It also doesn't count take into account the associated positives to economic growth fee revenue as well as credit.
Speaker Change: Okay. That's all very helpful. Thank you very much all of you.
Speaker Change: John.
Our next question today comes from Michael Rose from Raymond James Your line is now.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions wanted to go to good morning wanted to go to slide eight.
Speaker Change: Maybe if you can just Kevin expand on the tailwind and headwinds that are on the chart and then how we should frame up expectations for the Green Sky expanded.
Kevin Blair: Partnership as we move forward as it relates to the outlook for the year. Thanks.
Kevin Blair: Yes, Michael.
Speaker Change: When we look at the slide I think it speaks to the diversity of our revenue and how we've continued to try to add new sources of growth that allows us to take on some of the headwinds and so whether it's the sale of a business or just reducing our NSF income are seeing a movement on products like repo.
Speaker Change: So we're we've been very successful at this last year. If you look at the left hand side of that chart banking as a service is green Sky, which we're continuing to work through the contractual.
Speaker Change: Finalizing the contract there and we still expect that to represent.
Speaker Change: The sizable increase in income in 2024.
Speaker Change: But also within banking as a service, we're expanding our offerings within our merchant acquiring company, where we own a majority interest all pay we've expanded our sponsorship of third party isos and so all of those banking as a service programs will contribute growth year over year Treasury and payment solutions.
Speaker Change: If you look at the last three years, we've grown at 20%, we expect that to continue to increase in 2024 with some repricing opportunities as well as continued expansion of our sales practices wealth was up 11%. This past year, we expect with AUM growing 8%, we expect that to continue to grow based on the talent.
Speaker Change: And the success of our business model capital markets as we've expanded CIB and our wholesale bank. We've continued to grow that's up 20% and 23 and that will continue to grow in 'twenty four and then we've seen some traction on some of the government guaranteed gains, whether that's USDA or SBA loans and so when you look at all of them.
Speaker Change: That will help to offset those headwinds and we think we'll get a little bit of growth in NII or this coming year as a result of that.
Speaker Change: That's great color and maybe just as my follow up.
Speaker Change: Appreciate all the color related to John's questions, but just wanted to dig into.
Speaker Change: Some of the mix shifts the comments that you mentioned, Jamie and then how quickly do you guys think you would be able to kind of pull down.
Speaker Change: Some of the interest bearing deposit costs, assuming we do get a couple rate cuts. This year I think thats, a pretty big outstanding question for you and a lot of banks.
Speaker Change: Yes, it's one of the bigger questions for the industry for 2024 for sure.
Speaker Change: When you first in our assumptions, we assume that niv declines further in 2024 to somewhere between 23 and 24% of total deposits.
Speaker Change: But to your question on interest bearing cost, we really break it up into four buckets and so.
Speaker Change: Or three buckets, excluding b, we have what we call the kind of high beta systematic repricing, which would include broker deposits in our core CD portfolio those reductions the broker deposits or near near 100 beta in time deposits reprice pretty pretty systemically.
Speaker Change: Systematically given maturities schedule, so that's pretty pretty simple, but then you have the interest bearing non maturity deposits and what we have is for us about 30% of total deposits our standard rates and those reprice.
Speaker Change: Through decisions, we make centrally.
Speaker Change: The rates on those deposits are lower.
Speaker Change: Within our interest bearing deposits and so the beta will be a little lower but the repricing is simpler.
Speaker Change: Then the exception price deposits exception around 20% in total.
Speaker Change: Those are higher cost and so we do expect the beta to be lower but they involve a conversation and so we're already focused on strategies of how do we address that sub component of that portfolio, but we're ready to go in.
Speaker Change: We're prepared for the easing cycle.
Speaker Change: I appreciate all the color guys. Thanks for taking my questions.
Speaker Change: Our next question comes from Steven Steven Alexopoulos from Jpmorgan. Your line is <unk>. Please go ahead.
Steven A. Alexopoulos: Hey, good morning, everyone.
Steven A. Alexopoulos: Good morning, good morning.
Steven A. Alexopoulos: Sorry to answer your third question in a row, but I think clarity would be important here.
No Jamie there's scenarios that are changing every day, but if you just look at the current forward curves a six cuts you guys are guiding under flat rates to get to a $3 20 NIM in <unk> 24.
Speaker Change: How does that change if the forward curve plays out.
Speaker Change: I think you need to look to the prior comment around 2% to 4% compression of the margin during the cycle, depending on how fast is going but if you assume a steady 25 cuts per meeting.
Just assume that the margin contracts somewhere between two and 4% in the fourth quarter.
Speaker Change: 2% to 4% down got it.
Speaker Change: Your commentary was interesting about eventually returning to where the NIM you used to be in your NIM used to be $3 60 to 380.
Speaker Change: Normally sloped yield curve I know, it's been 20 years since we've had one at normal rates.
Speaker Change: Get back into that range.
Speaker Change: So when we look further out.
Speaker Change: When we didn't include it in this deck we have included it in our two prior investor decks.
Speaker Change: The fixed rate asset repricing.
Speaker Change: The benefit due to fixed rate asset repricing in 2024 is approximately 20 basis points and you could run that forward for 2025 2006. It doesn't go forever, but it does go for the next few years.
Speaker Change: And so we think that that.
Speaker Change: That is a really strong tailwind now there are headwinds that are not included in that and one would be.
Speaker Change: Deposit mix and other would be business mix as far as loan spreads and where you're originating loans, but that tailwind is there and so we do believe that when we get through whatever this easing cycle is however, it plays out.
Speaker Change: We continue to have a strong tailwind to the margin for multiple years, and we expect to see that play out and that would get us in the context.
Speaker Change: Of what Youre, describing with higher what kind of historically more normalized margins.
Speaker Change: Got it okay.
Speaker Change: Thanks, if I could ask one other question. So you guys had 3% core revenue growth 2023, really strong fee income growth.
Speaker Change: If I look at the guide you're down 3% to plus one when I think about the company your markets your position I think back to the Investor day, all the initiatives.
Speaker Change: Look at this really few Kevin are you pleased with that level of growth.
Speaker Change: I perceive to be more of a strong organic growth company, but youre more about improving efficiency. If you will just curious your take on the revenue.
Speaker Change: The capabilities of the company here this year.
Speaker Change: Yes, I think the percent growth in revenue is much more of a function of the decline in the NIM from first quarter to fourth quarter and so when you look at our full year over year.
Speaker Change: Increase in revenue it shows that negative number but when you look at it more on an inflection point and you go back to fourth quarter earnings from <unk> 23 versus fourth quarter of 2004, what Youll see is that there is an 8% to 10% growth in <unk> and I think Thats, what does get me excited and it really does show the strength of our model.
So Steve in our footprint and our ability to grow but what youre seeing when you look at year over year is much more of the financial metrics declining in margin during 'twenty, three which makes that year over year comparison look muted, but when you look at it on a more apples to apples basis fourth quarter versus fourth quarter Youre looking at an eight.
Speaker Change: 10% growth in bottom line, which I think again is much more.
Speaker Change: <unk> and supporting of our growth story.
Speaker Change: Got it.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Our next question today comes from Brady Gailey from <unk>. Please go ahead.
Brady Gailey: Hey, Thank you good morning, guys.
Speaker Change: Good morning Brady.
Brady Gailey: But I guess my first question is on Green Sky understand the somewhat one time in nature.
Brady Gailey: Income that happened in <unk> and that will happen in <unk>.
Brady Gailey: As you look longer term what is the.
Brady Gailey: Earnings impact the Green Sky could add the synovus and I think all of that is realized in fee income correct.
It is Brady and look I've said this on our previous call the number could be between 20 and $30 million in revenue for the go forward program and it's really a function more so of what the underlying production is of the new entity and so we'll continue to.
Brady Gailey: Generate revenue based on that production and we will get a maintenance administration fee on anything Thats still sits on the books. So our revenue will be much more tied to the production volumes that theyre doing but again I think a good rule of thumb for this coming year is 20% to $30 million.
Speaker Change: Alright, that's helpful and then.
Speaker Change: Kevin as you look bigger picture.
Kevin Blair: So much change at Synovus over recent years I know just in 2023 as you exited medical office and order you did the bond restructuring.
Kevin Blair: You're happy with.
Where the business sits right now or are there other big strategic moves that we should be expecting going forward.
Speaker Change: Look I'm happy with where our business mix sits today I think there are opportunities to continue to overinvest in certain businesses, whether thats, our middle market platform, our private wealth platform, our banking as a service and so youll see us continue to make strategic investments in areas, but as it relates to things like loans.
Sales or exiting businesses.
Speaker Change: I think those you will not see a lot of that going forward and.
Speaker Change: When you look at our loan slide we provided this quarter.
Speaker Change: Look at where we grew some of those strategic growth engines like middle market specialty community Bank are growing where you see strategic declines in things like our third party consumer which will continue to decline for the foreseeable future as well as national accounts, those won't be sales, but there'll be slow drawdowns of those balances because theyre not.
Speaker Change: Relationship focused but the wildcard on growth really comes in those market activity declines that we saw this past quarter, where you see institutional CRE payoffs are increasing because they've been a historically low levels. Our senior housing same thing, we're seeing a more constructive marketplace for sales in refinance activity with some of the agents.
And so as I look at the business and just put loans on that as an example, I feel really good about where we are it will be growing some faster than others will be strategically shrinking some portfolios, but you won't see the dramatic balance sheet, our business mix optimization like we've seen in 2003.
Okay got it thanks, Kevin.
Speaker Change: Our next question comes from Bryan King.
Bryan King: King from curious Securities. Please go ahead.
Bryan King: Hey, good morning.
Speaker Change: Good morning, Brandon.
Brandon: So so previously CD repricing was thought to be a headwind.
Brandon: And the margin I guess, that's still the case in short term, but could you give us an update on your CD strategy going forward.
Brandon: It takes me into an easing cycle.
Speaker Change: Well look you Brandon.
Speaker Change: CE strategy, we still have a lot of renewed renewing Cds that will that will come forward in the coming quarters and so we're going to continue to be very aggressive at pricing those Cds at market rates to keep them on the books, obviously the marginal rate of our new CD. When you look at this past quarter. It was $4 40, when you can be.
Speaker Change: <unk> production in renewables, which was actually down about 20 basis points versus the previous quarter and so it shows you that there's been a little bit of a rationalization in the marketplace from a competitive perspective, but our portfolio is at about $4 16 today. So as we continue to produce new Cds, which again appear.
Speaker Change: To be the decision of the consumer people are still moving money from money market accounts into time deposits and so we want to make sure that we pay attention to the consumer preference. So we will continue to produce that but at some point that portfolio will largely equal where the production is so it will be less of a headwind as it relates to deposit pricing and as.
Speaker Change: Jamie as mentioned in the past the real benefit that we will have to to reach maximum deposit pricing will be deposit mix. So as we continue to bring down brokered.
Speaker Change: And we can replace that with core deposits the negative impact that headwind you faced with CD production will be offset by a positive shift in mix and so that's why we think in the first quarter will largely see the peak for deposit pricing and Brandon just to add a little more to that answer.
Speaker Change: And the first quarter the core Cds that are maturing the average rate is just over 4% Thats about 405.
Speaker Change: And so the marginal impact of that to the margin is much less than it was in the fourth quarter as Kevin mentioned and then as we look forward in 2024 hour core deposit growth will be led by money market in 2024, which will be a little bit of a change from 2023 and so we believe that that will also be a positive.
Speaker Change: When you think about total deposit costs going forward.
Speaker Change: Very helpful very helpful.
Speaker Change: And then Jamie just give us an update on how you're thinking about managing the balance sheet. This year.
Jamie Gregory: In regards to your liquidity position.
Jamie Gregory: Maybe the participant pay down more debt.
As we look at the balance sheet, our liquidity position is very strong the efforts we made in 2023.
Jamie Gregory: <unk> us really well for 2024, so we can go out there and do what we do best which is serve our clients and so that.
Jamie Gregory: That's how we feel heading into this year.
Jamie Gregory: What you should expect to see from US is the continued paydown, our attrition of our broker deposit portfolio potentially $250 to $500 million here in the first quarter.
Jamie Gregory: We are very low on home loan bank advances at the moment, a little less than a $1 billion at year end. So as we look forward. We think that we are positioned to optimize the liabilities had a balance sheet, we don't have any imminent needs for unsecured debt.
Jamie Gregory: And we think that we will continue to try to be balanced on core deposit growth, which will be more backend loaded this year and core loan growth, which could be more balanced growth throughout the year. So we may have a little bit of a funding gap between loans and deposits early in the year, but that's not unexpected.
Speaker Change: Thanks for taking my questions.
Speaker Change: Thank you Brandon.
Speaker Change: Our next question comes from Ken <unk> from Wells Fargo. Please go ahead.
Ken: Hi, good morning.
Ken: Maybe more than Brandon's question.
Ken: Maybe asking Brian's question, a little differently. So wholesale funding went from 15% to 13, 5% you continue to work that down I guess ultimately as you continue working.
Ken: Liability side of the balance sheet, where where is the target there.
Ken: Or could that wholesale funding ratio will continue to migrate towards.
Ken: We're very comfortable with where it is right now we're comfortable with our liquidity altogether and so it's really just a balancing thats not a ratio that we manage to and so we look at all of our higher cost sources of funding, including the marginal public funds and we think about how do we optimize our liability mix to fund the <unk>.
Ken: Once sheet, but we have a lot of sources of liquidity. We have a lot of sources of liquidity that are that are that are higher cost.
Ken: And right now given our liquidity position, we have the luxury of being able to.
Ken: To run those down, but as we look forward into 2024 and beyond.
Ken: Our intent to go out and take advantage of the opportunity in the southeast and as Kevin mentioned in response to Steven's question.
Ken: Go out and grow and deliver synovus to more and more clients and so we believe that we are well positioned for that and whether or not we fund that with priority one being core deposit growth, but beyond that we have a lot of availability either in wholesale funding, which would include our broker deposits are.
Ken: Or a home loan bank advances or even go out and grow grow some of those.
Ken: Easier marginal are a source of liquidity like public funds.
Speaker Change: Okay got it and then switching to the loan side. So you had the medical office sale earlier in the year Youre working down balances in senior housing I guess.
Speaker Change: One what's your remaining exposure or what is your exposure to kind of the health care Medical field and then two as you look at it from a credit standpoint.
Where are you guys at as far as credit quality and things to look for primarily within that senior housing portfolio.
Speaker Change: Well look from a healthcare perspective, you have to look at it really across two different areas on C&I, it's about 7% of our balances.
Speaker Change: And a lot of that is on the senior housing side, we talked about managing down our exposure. There. It was really more around the fact that we've seen more payoff activities and so we feel really good about where we are in senior housing. When you look at some of the losses that we incurred this quarter there were a handful of losses.
Speaker Change: And Bob can touch on that.
Speaker Change: We feel very good about the overall exposure and so we're not trying to manage down our exposure in healthcare. Some of it has been just the fact that we start to see a more constructive market in terms of pay off activity and put that in broader perspective, when we talk about that we had about 1 billion to pay off this past quarter we've been.
Speaker Change: Running about 7% to $800 million a quarter in our loan book, So about $500 million more in payoffs. If you look at a three year average, we generally run about $1 three and payoff activity. So we're back to a more normalized level. So you could continue to see things like senior housing and some other CRE portfolios decline just given the fact that.
Speaker Change: <unk> has slowed and payoff activity has picked up Bob if you want to touch on some of the credit metrics Oh sure Yeah, specifically to the senior housing metrics.
Bob: 90% of our portfolio in that space is still.
Bob: Past rated credits so we have a fairly low ratio of rated loans their charge offs have been small and manageable.
Bob: Non accrual loans also are also small specifically the shrinkage there to Kevin's point of really a market payoffs beginning to pick up.
Bob: And the net effect of that would just be a reduction in that specific portfolio overall, though we're pretty comfortable with health care as an industry. We have a specialty vertical in our corporate and investment banking business that specializes in healthcare is just the senior housing portfolio itself. It's a lot of real estate characteristics is probably see.
Bob: Some reduction relative to the increase in pay offs, but the credit quality certainly we're still remains manner.
Bob: Okay.
Speaker Change: Great. Thank you for the color.
Speaker Change: Our next question comes from Christopher Margaret Murdock from Janney Montgomery Scott. Please go ahead.
Speaker Change: Thanks, Good morning, I wanted to dive in into the deposit growth and the success, you're having there Kevin and Jamie could you give us additional background in terms of where that growth is focused are you looking at the sort of standard customer using Jamie.
Speaker Change: Explanation, a few calls ago or even would you take on new exception customer if it's sort of fit your objectives.
Speaker Change: You got it.
Speaker Change: Sure.
Speaker Change: As we think about deposit growth.
Speaker Change: A very important component to our outlook for 2024, but before speaking to this year I'd like to speak to 2023, because we had 3% core deposit growth in 2023 with significant headwinds in the first half of the year, including the $2 billion decline in noninterest bearing deposits and I think that that shows the straw.
Speaker Change: <unk> of our production production was up 83% year.
Speaker Change: Year over year and that strong production.
Speaker Change: As basically result of renewed.
Speaker Change: Renewed focus driving deposit growth incentive realignment and we think that that will continue and we think that that's what is the underpinnings of our core deposit growth forecast for 2024, and so we have our incentives or pushing it we havent intentional build out of our business is aligned around bringing in the.
Speaker Change: Full client.
Speaker Change: Which will include increased deposit growth, we have a new leader in private wealth focused on full relationships.
Speaker Change: CIB is growing and they've hired a liquidity specialist who is partnering with new and existing clients to help bring liquidity solutions to our commercial client and our commercial lines of business continue to target clients with full balance relationships and one data point on that is in our middle market business, we had 8%.
Speaker Change: Core deposit growth in 2023, and so we believe that fundamentally we are well positioned to grow deposits this year and we.
Speaker Change: We think that that should see continued success.
Speaker Change: Great do you think that lower rates could actually trigger more C&I related movement in your business.
Speaker Change: Well number one it could trigger line utilization, increasing just as rates come down we did see a modest increase and just same line balances this past quarter, but as you know Chris for the last several quarters, we've seen folks using their cash to pay down lines. So I think lower rates will drive up some line.
Speaker Change: <unk> one.
Speaker Change: Short term if rates are going lower it tells us that the economy's slowing so there may be a late and impact of that but longer term or more moderate term, yes, I think it could drive up C&I as people are looking at projects again, and starting to expand their facilities or AD inventory as prices come down and the economic underlying economic conditions.
Speaker Change: <unk> remained constructive yes. It would it would result in having stronger loan growth and that kind of the out quarters.
Great. Thank you both for the background we appreciate it.
Speaker Change: Thank you Chris.
Speaker Change: We will now take a question from Russell Gunther from Stephens. Your line is now open. Please go ahead.
Russell Gunther: Hey, good morning, guys I just have a couple of points of clarification on the margin commentary. So first the <unk> 24 outlook of around $3 20, that's down from the 325 expectation earlier in the month despite the.
Russell Gunther: The better results in <unk> 23, so could you just walk us through what's changed.
Russell Gunther: That is simply the reduction in the long end of the curve. So that's the move from four 5% 10 year, two 4% and year that drove the decline from $3 25 to $3 20.
Russell Gunther: Okay.
Russell Gunther: And then just a follow up again on the 2% to 4% decline using the forward curve. So.
Russell Gunther: Are you guys talking relative to the margin.
Russell Gunther: <unk> basis or is that NII dollars and then are you guys thinking of the starting point is for 2023 result or relative to your <unk>.
Russell Gunther: <unk> 24 expectation.
Russell Gunther: My point on the 2% to 4% and Thats, a 2% to 4% reduction in the margin so six months to 12 basis points.
Russell Gunther: Is if you assume if you want to assume that the fed begins easing in may.
Russell Gunther: I would assume that the Q3, whatever you had in there for your Q3 margin.
Russell Gunther: Would be 2% to 4% lower and so thats kind of how we're thinking about it just because the assumptions continue to change around windows. Its easing cycle start and how aggressive is it. We just wanted to give you something so that you could plug in whatever your expectation is and then just noted once we're in that cycle that is what we expect the impact to them.
Russell Gunther: Margin debate.
Speaker Change: Alright, that's very helpful. I appreciate the clarification. Thank you guys.
Speaker Change: Yes.
Speaker Change: Our final question comes from Brady Preston from UBS. Please go ahead.
Brady Gailey: Good morning, everyone.
Brady Gailey: Good morning.
Brady Gailey: Jamie.
Brady Gailey: Just wanted to again just to clarify that was that was a six to 12 basis points is that per cut.
Brady Gailey: We're kind of saying on a static balance sheet.
Speaker Change: No no that's not per cut that's just during the cycle, that's our expectation of where the margin will be as we progress through the cycle.
Speaker Change: Okay. Okay. So it would be if the forward curve comes to pass it's six to 12 basis points off of the $3 20 that youre kind of outlining the ending point for the NIM by the fourth quarter.
Speaker Change: Yeah and within that range, you could say that the more aggressive the fed is healthcare going faster than it's going to be at the higher end of the range that larger negative impact.
Speaker Change: That's a slow methodical it could be the lower end of the range.
Speaker Change: Got it okay and within your within the guidance kind of setting the forward curve aside what are you including for brokered deposit runoff.
Speaker Change: We are assuming I mentioned, the $2 50 to 500 this quarter and then.
You would assume less.
Speaker Change: Not the high end of that range each quarter going forward, but maybe maybe $2 million to $400 million Q2 to Q4 decline in broker deposits.
Okay Cool and then.
Speaker Change: Sky the $12 million was in there, but setting the green sky aside it looks like it was still a D.
Speaker Change: Decent quarter for the other income line item and so I just wanted to ask.
Speaker Change: What drove that and is it sustainable.
Speaker Change: And for the guidance for low single digit growth in fee income could you just remind us what base.
Speaker Change: It is growing off of.
Speaker Change: In other income there is a little bit of that that is.
Not not necessarily.
Necessarily repeatable, we had about $3 million increase in Bali revenue.
Speaker Change: The fourth quarter versus prior quarters, and so that's something as we think about fee revenue in the first quarter. There are two headwinds you have that $3 million than you have.
Speaker Change: The impact of the Green Sky fourth quarter transaction.
Speaker Change: It will not.
Speaker Change: Reoccur in the first quarter what was the second part of your question Brody.
Brody: Just the low single digit growth in fee income that I think you called out on the slide just remind me what the base that you are growing that off of us.
Brody: We had.
Adjusted fee.
Brody: <unk> revenue.
Brody: For this year.
Brody: Was that for right at right at $4 60 is.
Speaker Change: Yes right.
Speaker Change: <unk> hundred $64 61.
Speaker Change: Awesome, Great guys I appreciate you taking my questions. Thanks.
Speaker Change: Thanks Bruce.
Speaker Change: This concludes our question and answer session I would like to turn the conference back to Mr. Kevin <unk> for any closing remarks. Thank you.
Kevin Blair: Thank you drew and thank each of you for your attendance. This morning as well as your questions and continued interest and synovus.
Kevin Blair: I also want to once again, thank all of our team members for your contributions in 2023 for meaningful progress on important priorities and strategic investments to the solutions delivered an exceptional client experiences.
Kevin Blair: You make it happen on a daily basis.
We received the 2023 number one ranking in customer satisfaction and trust in the southeast from J D. Power. Our goal is to raise our client service levels, even higher in 2024 and beyond.
Kevin Blair: And as we cast our eyes towards 2024, we're embracing a new mantra grow the bank.
<unk> signifies our shift back to a growth mindset after a year, where external challenges necessitated a more defensive stance. However, our pursuit of growth will be marked by prudence and will be fully aligned with our strategic goals and objectives.
Kevin Blair: We will cultivate growth by amplifying the client experience streamlining touch points and continuing to be more proactive and providing valuable advice to our clients. In addition, our model facilitates delivering seamlessly across our lines of business and products and solutions, which will allow us to further deepen our relationships and.
Kevin Blair: Increase our share of wallet.
Kevin Blair: At the same time, we are committed to preserving and even improving key elements of our safety and soundness profile here at synovus, starting with improving our core deposit base to retaining levels of capital that put us in a strong position relative to our peers and lastly, delivering credit metrics that prove the efforts taken over the <unk>.
Kevin Blair: Last several years to diversify and fortify the balance sheet, especially during periods of economic stress.
Kevin Blair: We recommit to this growth journey, we will continue our efforts to de risk and enhance our profile admits continued market uncertainties. Therefore grow the bank in 2024 signifies our intent to build an even stronger more client focused and risk resilient bank well equipped to navigate the complexities.
Kevin Blair: That will continue to present themselves this year and in the years to come as always we look forward and appreciate your continued partnerships and we look forward to meeting with many of you this quarter at upcoming industry conferences.
Speaker Change: With that operator, we will now conclude our earnings call.
Speaker Change: Thank you okay today <unk> two.
Speaker Change: 2023 fourth quarter earnings Conference call you May now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: Yeah.
Okay.
Speaker Change: Okay.