Q3 2024 Synovus Financial Corp Earnings Call
Good morning, and welcome to the snow vest 3rd quarter, 2024 earnings call. All participants will be in listen early mode. Should you need assistance, please signal a conference specialist by pressing the star key for a by zero.
after the State Presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your telephone keypad. To withdraw your question, please press star and two. Please note this event is being recorded.
Speaker Change: on our time, the call up to Jennifer Demba, Head of Investigation Relations.
Jennifer Demba: 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 relation section of our website, synovus.com. 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.
Jennifer Demba: Our comments include forward-looking statements, these statements are subject to risk and uncertainties and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings which are available on our website.
Jennifer Demba: We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as maybe required by law.
Jennifer Demba: During the call, we will reference non-gap financial measures related to the company's performance.
Jennifer Demba: You may see the reconciliation of these measures in the Appendix Sour presentation. And now Kevin Blair will provide an overview of the quarter.
Kevin Blair: Good morning and welcome to our third quarter 2020 for earnings call. Before I begin our call, I want to take a moment to acknowledge the profound impact of hurricane Celine and Milton on our community.
Kevin Blair: The Devastation has been a mess, affecting countless lives and businesses.
Kevin Blair: However, in the face of such adversity, we have witnessed incredible resilience and solidarity. Our communities are coming together, determined to recover and rebuild stronger than ever.
Kevin Blair: at Sonobus. We are committed to supporting these efforts and playing an active role in the recovery process. Together, we will overcome these challenges and build a brighter future.
Speaker Change: Now let's review third quarter results. So, notice reported Gaffer means per share of $1.18, which included an $8.7 million or the evaluation adjustment.
Speaker Change: We reported a just-it-delusioned PPS of a dollar-23, which increased 6% sequentially, primarily driven by stronger net interest income, coupled with lower provision for credit losses, and stable adjusted non-interest expense.
Speaker Change: The most notable financial headlines for the quarter included a sequentially higher net interest margin. You're over year adjusted revenue growth of over 2% driven by a 15% jump in adjusted non-interest revenue. Coupled with an adjusted non-interest expense decline of 1%.
Speaker Change: Finally, our net charge-alps improved again in third quarter, down to 25 basis points, and our liquidity and capital positions remain quite strong.
Speaker Change: The notice continues to demonstrate progress in various key initiatives. We are steadily attracting talent in various client-facing and corporate services roles.
Speaker Change: Now I'm interested to have a new growth for mainstream and lending pipelines and production are returning to more elevated levels.
Speaker Change: Lastly, I'm extremely pleased with the continued progress we are delivering and strengthening our balance sheet, which positions us well as we close out 2024 and pivot towards a more constructive growth environment in 2025.
Speaker Change: Now let's turn to slide three four and five for some more specifics on the financial highlights for the court.
Speaker Change: Dennis is in common increase 1% from the second quarter as an enters margin expanded 2-based points to 3.22%.
Speaker Change: London loan production rose 8% sequentially and period in loans were up 27 million dollars.
Speaker Change: We continue to generate healthy and consistent loan growth in the middle market, CIB and specialty commercial units, while line utilization was stable.
Speaker Change: However, loan paid out and pay off activity and strategic rationalization and non-relationship credit provided a headwind to third-quarter outstanding growth.
Speaker Change: Court of Positive Growth of 1% was attributable to increases in money market and operating deposits.
Speaker Change: Not intrusmering deposits, the more stable in the third quarter of the decline of 94 million dollars to 21.
Speaker Change: Furthermore, we reduced stroke deposits for the fifth consecutive quarter. Our team remains very focused on accelerating core funding generation through sales activities and product expansion, while continuing to manage through an overall diminishment cycle.
Speaker Change: Adjustment non-interest revenue declined 4% from the prior quarter. Primarily from lower capital markets income.
Speaker Change: When a year of your basis, adjusted non-interest revenue increased significantly. A 15% that was short growth in commercial sponsorship income from expansion of the card's sponsorship business and our partnership with Green Scott.
Speaker Change: Capital Markets and Treasury and Payment Solutions, the also contributed to a strong year of year of growth.
Speaker Change: But just at non-inclusive expense was relatively flat quarter of a quarter and down 1% on a year of your basis.
Speaker Change: are 2023 cost initiatives, as well as ongoing diligence that contained overall expense growth year over year. We have also maintained a level of strategic investment that positions the notice well from a competitive standpoint in order to drive long-term shareholder values.
Speaker Change: When the asset quality front has the expected net targerals for 25 basis points compared to 32 basis points in the second quarter.
Speaker Change: while the allowance per credit law says we're relatively stable at 1.24%.
Speaker Change: Lastly, we further bolstered our common equity tier 1 ratio in the third quarter through solid earnings increase in while still completing about $100 million of opportunistic share purchases.
Speaker Change: Common Equity Tier 1 levels are at their highest in nine years at 10.65% and currently set just above our state at range of 10 to 10 and a half percent.
Speaker Change: are successes are anchored by our team members in their dedication and passion for delivering the synobis purpose on a daily basis.
Speaker Change: Financial League, this was a strong quarter of execution, where we posted an adjusted return on average access of 1.3% and an adjusted return on tangible common equity of 17.1%. While managing down our adjusted tangible efficiency ratio to 53%.
Speaker Change: Moreover, we continue to deliver in areas that have presented broader risk concerns surrounding the industry. By lowering credit costs, limiting fraud losses, reducing wholesale funding, and delivering the positive data during the easing cycle, all while maintaining elevated levels of capital.
Speaker Change: We are demonstrating great progress in momentum that will continue into the fourth quarter in beyond.
Kevin Blair: and now I'll turn it over to Jamie to cover the third quarter result in greater due to Jamie. Thank you, Kevin.
Jamie Gregory: Moving to slide six, period and loans grew $27 million from the prior quarter. Loan production, which was up 8% sequentially in 6% year of a year, has started to show signs of rebound within both our CRA and CNI segments.
Jamie Gregory: Blign utilization was essentially stable.
Jamie Gregory: However, increase commercial loan production was offset by commercial real estate payoffs, consumer softness, and continued non-relationship portfolio rationalization.
Jamie Gregory: Strong year today growth in strategic lending verticals such as middle market, corporate and investment banking, and specialty lines has been essentially all set by pay downs and payoffs and non-relationship loan for fully irrationalization.
Jamie Gregory: We generated $149 million in sequential growth and $604 million or 5% year-to-date growth and middle-market commercial CIB and specialty lines.
Jamie Gregory: This is all set by a $212 million year-to-date decline in institutional theory and senior housing loans from market-related activity.
Jamie Gregory: We continue to strategically reduce our non-relationship lending within our National Accounts portfolio, as well as third party consumer loans.
Jamie Gregory: Further positioning our balance sheet for core client growth.
Jamie Gregory: These balances were down, $78 million in the third quarter, and $427 million here today.
Jamie Gregory: Overall, we estimate loans will remain stable in the fourth quarter, driven by continued growth and our key commercial segments, all set by CRE and senior housing pay off and pay down activity.
Jamie Gregory: As we look into 2025, we expect the market related and strategic declines to obey, positioning us well to return to a growth posture that is core to our value proposition.
Jamie Gregory: Turning to 5.7, period-and-quarter-pause balances rose $290,000,000 or 1% or a link-quarter basis.
Jamie Gregory: Non-inspiring deposit balances fell 94 million dollars from the prior quarter. With balances generally exhibiting more stability throughout the quarter relative to the headwind's experience over the last year.
Jamie Gregory: There was growth in money market and operating accounts, partially all set by a decline in non-experying savings and time deposits.
Jamie Gregory: Meanwhile, Robert deposits declined $297 million or 5% from the second quarter, which was the fifth consecutive quarter of contraction.
Jamie Gregory: The positive call shows four bases points from the prior quarter, the 2.7-2%. Primarily as a result of mixed shift, and the residual impact of higher average non-sparing deposit balances in the second quarter.
Jamie Gregory: As we ended the quarter, we saw the positive rates begin to decline, led by reductions in rates on higher-baited deposits, as well as time deposits.
Jamie Gregory: As we look to the fourth quarter, we expect the policy calls to generally follow the 40 to 45% beta that we have communicated previously.
Jamie Gregory: It is worth highlighting that approximately two thirds of our core time deposit portfolio matures within the next five months.
Jamie Gregory: In terms of deposit balance expectations for the fourth quarter, we expect broad-based deposit growth across our business segment supported by seasonal public funds tailwind.
Jamie Gregory: Moving to Friday, net interest income was $441 million in the third quarter, an increase of 1% quarter of a quarter.
Jamie Gregory: while the netted Schmarchen was two bases points higher at 3.22%.
Jamie Gregory: The third quarter now benefited from various drivers, which included a full quarter impact of the security's repositioning in May and a modest improvement in asset yields, which more than all set the impact of the aforementioned negative deposit makeshifts and other lesser factors.
Jamie Gregory: Net-interacing comb benefited from the slightly wider net-ish margin with lower average loan balances during the quarter serving as a modest headwind.
Jamie Gregory: As we look forward to the fourth quarter, we expect that an isolation continued FOMC easing will serve as a modest headwind to the netted margin. Largely as a result of the repricing lead lag impacts we have outlined previously.
Jamie Gregory: However, opposite that, we expect fixed-rate asset repricing.
Jamie Gregory: including 750 million in loan edges, maturing in the fourth quarter, to help support a relatively stable fourth quarter netters margin.
Speaker Change: Kevin will provide further detail on our updated guidance moment here.
Speaker Change: By nine shows total reported non-ish revenue of $124 million, adjusted non-ish revenue declined 4% from the previous quarter and increased 15% year over year.
Speaker Change: When looking at the year go quarter, core banking fees increase 6% supported by growth and treasury and payment solutions, while capital markets fees increase 29% and commercial sponsorship income rose sharply.
Speaker Change: The sequential decline was primarily attributable to a 32% decline in capital markets fees which were elevated in the second quarter.
Speaker Change: Welped Management and Comeros 1% from the prior quarter, while core banking fees are relatively flat.
Speaker Change: We continue to demonstrate strong non-instravenum momentum relative to peers by investing in solutions that deepen client relationships and provide healthy growth in areas such as treasury and payment solutions, capital markets and wealth management.
Speaker Change: Moving to expense, 5-10 highlights our ongoing operating calls discipline.
Speaker Change: reported non-interest expense was 314 million dollars in the third quarter, which included an 8.7 million dollar visa valuation adjustment.
Speaker Change: Adjusted non-interest expense was relatively stable sequentially and 1% lower from the year ago period.
Speaker Change: Employment Expansion increase 2% from the second quarter, which was all set by a 6% drop and other expense. Primarily attributable to lower legal and other credit-related costs.
Speaker Change: and former an expanse out of modest increase of 1% year over year.
Speaker Change: The increase calls associated with merit and benefit programs were mitigated by our efficiency efforts, leading to a 4% year of a year decline in headcount.
Speaker Change: occupancy and equipment expense increase 3% as a result of ongoing technology and infrastructure investments.
Speaker Change: These items were more than offset by a 9% drop in other expels, as a result of lower FTSC expels and operational losses relative to the same period last year.
Speaker Change: Importantly, we will remain proactive with disciplined expense management and disc growth constrained environment. Moving to slide 11 on credit quality.
Speaker Change: Provision for credit losses declined to 11% from the second quarter to 23 million dollars.
Speaker Change: Hours allowance for credit losses into the third quarter at 535 million dollars, or 1.24%. Which has relatively unchanged from the prior period. Given my improved overall performance, offset by individually analyzed loans.
Speaker Change: Our preliminary analysis of the impact of hurricane healing indicates that a specific provision for credit losses is not necessary this time.
Speaker Change: who will continue to analyze the potential loss impact of both hurricane, saline, and Milton.
Speaker Change: Net chargeals in the third quarter were $27 million or 25 basis points annualized compared to 32 basis points annualized in the second quarter.
Speaker Change: Non-performing loans increase $57 million, and are now 0.73% of loans, up to 0.59% in the second quarter. Primarily from a single-off-of-the-fluent relationship.
Speaker Change: the criticised in class wide ratio rose slightly to 3.9% and remains at a very manageable level.
Speaker Change: We maintain a high degree of confidence in the strength and quality of our loan portfolio and we will continue to reduce our non-relationship credits and manage the portfolio with a heightened level of diligence in this more uncertain macroeconomic environment.
Speaker Change: As seen on slide 12, our capital position was stable in the third quarter. With the preliminary common equity tier 1 ratio reaching 10.65% and total risk-based capital now at 13.62%.
Speaker Change: Another strong quarter for core operating performance serves as a continued tailwind to our capital position, which alongside a relatively stable balance sheet supported us purchasing approximately $100 million in common shares within the quarter while maintaining relatively stable capital ratios.
Speaker Change: As a reminder, our focus remains on prioritizing the deployment of our balance sheet and capital position for core client growth. However, amid the current environment, we have used Sherry Park's as a compliment to effectively manage within our capital management framework.
Speaker Change: As we look to the remainder of the year, we will maintain this discipline approach, which acknowledges uncertainty in the current environment and ensures sufficient capital for expected client growth.
Speaker Change: Our remaining Sherry-Parch Sultanization in 2024 is approximately $80 million, which we expect will be fully utilized by year-end. I'll now turn it back to Kevin to discuss our fourth quarter 2024 guidance.
Kevin Blair: Thank you, Jamie. I'll now continue with our updated guidance for the fourth quarter of 2024.
Kevin Blair: Based on year-to-date results are current pipelines and expected payoff activity, period and loans are forecasted to be relatively flat in the fourth quarter and be down 1% to flat for the full year of 2024.
Kevin Blair: Gross in the fourth order will continue to be driven by middle markets, corporate investment banking and specialty lending lines.
Kevin Blair: Our expectations for court deposit growth remain within the 1-3% range in the fourth quarter and up 2-4% for the full year. Aided by seasonal public funds tailwind and new core funding growth initiatives.
Kevin Blair: are outlook now points to adjust it revenue of $560 to $575 million in the fourth quarter and a range of negative two and a half to negative 2% for the full year.
Kevin Blair: Importantly, are just at revenue guidance now assumes a larger amount of rate cuts than our previous guidance. With 50 basis points of cumulative rate cuts occurring in the fourth quarter.
Kevin Blair: Madingford's margin should be relatively stable in the fourth quarter as a result of lower deposit costs combined with fixed rate as that repricing and our hedge maturity.
Kevin Blair: A just-it-not-interest revenue growth is forecasted in the mid-single-digit percent is range for the year. Our capital market speed pipeline is building, and we continue to execute on core growth and treasury and payment solutions.
Kevin Blair: We remain very focused on additional and expensive roles. We anticipate our just-it-not-interest expense will be between 300 and 5 million and 310 million in the fourth quarter, excluding the FDIC special assessment of approximately 1% for the full year.
Kevin Blair: Given current credit migration trends and assuming a relatively stable economic environment, we expect net charge-offs to remain fairly stable within a 25-35 basis point annualized range in the fourth quarter compared to 33 basis points here today.
Kevin Blair: Moving to the tax rate, our current forecast points to approximately 21 to 22% level in the fourth quarter.
Kevin Blair: We will continue to use Sherry Purchasist to manage overall capital here at current levels.
Kevin Blair: There was approximately $80 million of share-reported authorization remaining, which we expect to fully utilize in the fourth order. We will continue to support its strong and liquid balance sheet, which is prioritized towards serving the growth needs of our clients, regardless of the economic environment.
Kevin Blair: and now operator, this concludes our prepared remarks, let's open the call for questions.
Speaker Change: Thank you, we're now beginning the question and answer session. To ask the question, you may press star, then one on the telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the key.
Speaker Change: to the draw your question, please press star up and two. In the interest of time, please limit yourself to one question and one follow up. Thank you.
Speaker Change: I'll first question for today comes from a brand and king of truce. Your line is now open, please go ahead.
Speaker Change: Hey, good morning, thanks for taking my questions.
Speaker Change: and one more Brandon.
Speaker Change: Jamie, could you expand on your margin expectation beyond the fourth quarter, particularly if we get a more protracted eating cycle, it seems like with the lab nature deposits.
Speaker Change: with that being less of a head when we could see some margin expansion, getting it to next year, such as Mara Gaze, your whole draw, thought something.
Jamie Gregory: Yes, thank you, Brandon. As we look at the margin, you know, in the near term, as we said in our guide, we've had the margin, we relatively stable in the fourth quarter, and that would continue early into 2025, if we expect the easing cycle.
Jamie Gregory: I can continue as we go to the first half of next year.
Jamie Gregory: but when the eating cycle stops, we do expect to see.
Jamie Gregory: Morgan expansion due to the significant amount of fixed rate, asset and NM.
Jamie Gregory: and hedge exposures on the balance sheet that will be unlocked over time. And so, you know, for us, we think that relatively stable margin in the medium term, and then once you get past the easing cycle, we expect to see the margin start to expand as we unlock the value in those fixed trade exposures.
Speaker Change: OK, got it. So in other words, in order to see any expansion you need to set the remaining on hold, is that a fair assumption?
Speaker Change: Well, it depends on how long these in FICO is. As we've said before, we believe that we are relatively neutral to the front end of the curve and so outside of that lead and lag impact, we do believe that we're neutral to the front end of the curve and so at some point.
Speaker Change: The fixed-rate asset repricing tailwind will come in regardless of easing or no easing. That will happen, but you're right, thinking the medium-term relatively stable in the margin, but the fixed-rate asset repricing will start to flow in as we go through 2025 in any scenario.
Speaker Change: Okay, and lastly for me on credit encouraging the net charge-offs.
Speaker Change: Turn lower.
Speaker Change: I just wanted to get an overall sense of the confidence and that net targets can remain so that in this range for the foreseeable future and if there are any concerns far as tell risk out there within your portfolio.
Speaker Change: Yeah, I had Brandon this Bob, I'll take that one
Speaker Change: Yeah, we are pretty confident in that guidance range. I mean, certainly this quarter was at the lower end of our range and we're happy with that, but we're holding on that guidance at 25 to 35, really based on what we've done in terms of individual analysis, etc. We had an NPL increase this quarter that Jamie spoke of that is baked in there as well. All in all, I think the guidance is good, certainly in the short term. And then as we get into 25, we'll think more about our guidance, certainly as we get into the conferences in January .
Speaker Change: Okay, let's take my questions.
Speaker Change: Thank you. Our next question comes from a jarred sure of Barclays. Your line is now open. Please go ahead.
Speaker Change: Hey, good morning everybody. Thanks for the question. I guess maybe the first one, just looking at at the loan growth and production, as we go into 25 is this level of production, serve a good baseline to use, and can you refresh our memory on, so what is the balance of, um,
Speaker Change: of those non-core loan loans that are still out there in terms of certain non-relationships, CR-E, the shared actual credits, third party consumer that you're talking about, what's the aggregate headwind that that could be producing?
Speaker Change: You know, it's a great question and for many reasons I feel like we're following up on a year where we talked so much here about balance sheet optimization. I'm way more optimistic about our prospects to renew our growth orientation as we enter 2025 and it's for a couple reasons.
Speaker Change: To your first point, production has been consistently growing. When you look back at kind of our trough first quarter production that was the low water mark for us as it relates to funded production. We've seen the loan production increase in the second quarter and now again in the third quarter up another 8% and that would put the third quarter 70% higher than where we were in first quarter. Our pipelines are fairly stable and so we would expect to impact.
Speaker Change: to see production levels to exist.
Speaker Change: could continue to increase.
Speaker Change: for a couple of reasons. Number one, we think that there's a tremendous amount of uncertainty associated with the election so once we get the election behind us we think that that could drive some demand and two as rates continue to come lower we think that could also stimulate the production side of the equation.
Speaker Change: to your point on the strategic runoff or strategic optimization. You know, we take in the last year to exit and reduce our exposure in various asset classes that, quite frankly, we just didn't think, had the type of return profile that we want it. That included our medical office sale, which was around a billion-three, we run down our syndicated lending portfolio, as well as our third party.
Speaker Change: Consumer Lending Portfolio. That's about $1.8 billion of year of year runoff for about 4% of our outstandings.
Speaker Change: that's largely completed this point. We'll continue to see some run off in the third party consumer, but this last quarter, that was around $20 million, so not a substantial amount. So that head when has largely been played and going forward, we shouldn't have the same impact.
Speaker Change: 3. Line Utilization. This quarter we're roughly at 47%.
Speaker Change: and that's stabilized. We had seen it decline over the last several quarters. If you go back to the same period last year, we were at roughly 53%.
Speaker Change: So just getting back to a normal utilization rate would provide about a billion dollars of incremental growth and then lastly we continue to add new talent in middle market. We're up almost 10 FTs this year, specialty lending and we're now starting to expand our sales resources in our community bank across many of our higher opportunity markets. So for all of those reasons, I have greater confidence that 2025 will look more like a normal year for loan growth.
Speaker Change: Okay, that's great color, really appreciate the details on that and then this is a fall for me.
Jennifer Demba: What's the, maybe for Jamie, what's the impact of those hedge majorities on the hedge cost? You called up the 750 million hedges maturing in fourth quarter, what's the cost on that? And is there anything as we look at sort of the first half of 25 we should be focused on?
Jamie Gregory: Yeah, those hedges a couple of things on that. The average rate is 95 base points in the fourth quarter. They're 250 million that matured already on October 1st.
Jamie Gregory: and then 500 million the maturers on December 1st. When you look heading into 2025, what you'll see is stability and the balances of the hedge portfolio, but a little bit of remacing as there's a couple of maturities that come through and then you have some forward starting hedges that start. So you'll see the effective rate on the hedges increase as we go through early 2025, getting up to about the 3% area in the second quarter. [inaudible]
Jamie Gregory: and that's the general trend. So the headwind from the head will follow the diminishes really as we go through 2025 and when you get out into the second half of 2025, those rates are not too dissemilar for market rates and so the headwind there is expected to really debate as we go through 2025.
Jamie Gregory: Thank you.
Speaker Change: I'm an expression comes from Hebrew him at Puna Wala from Bank of America You'll like it now open please go ahead
Speaker Change: and I hope you enjoyed this video.
Speaker Change: I'm sorry, you brought him your line, it's not open.
Speaker Change: and Andrew Gregory.
Speaker Change: Alex, let's go to the next caller.
Speaker Change: Of course, our next question for today comes from Christopher Maranak of Johnny Montgomery Scott. Your line is now open, please go ahead.
Speaker Change: Hey, good morning, up.
Speaker Change: [inaudible]
Speaker Change: Morning, Chris.
Speaker Change: Great, Chris, we can hear you.
Speaker Change: Gordon Gordon, 18th house
Speaker Change: Thomas.
Speaker Change: A positive tool still not receiving any audio will move on to now. Our next question comes from that Timmer Brasala and Wells Fargo. Would like to sound open, please go ahead.
Speaker Change: Good morning.
Speaker Change: First question is around the capital market income in the quarter. It sounded a little bit more pessimistic on the latest update and then the numbers still came in pretty good. I guess in an expectation for the rest of the year, is there anything chunky that's still coming through or did some of that chunkiness materialize in 3Q? We just thought to get an expectation of what we could see there in the remainder of the year.
Speaker Change: It's a great point and we are really pleased with the performance of our capital market business.
Speaker Change: You know, you're right, you look at it in this quarter of quarter's down with us from, you know, high water mark in the second quarter. And we are really pleased with kind of where we stand right now. We believe that 10 million of quarter.
Speaker Change: is a good number to use to build off of.
Speaker Change: and I would just say, don't forget that this is an environment of low transaction volume. And so for the team to be out there delivering solutions to our clients.
Speaker Change: is striving this 10 million revenue. That's our real positive. And as we look at the fourth quarter, we're expecting relative stability and capital markets revenue.
Speaker Change: you clearly will see mixes between the line items embedded in that business.
Speaker Change: but we expect stability, but the teams are working on projects that are lumpy and they are our positives, but we're not including any of our guidance today.
Speaker Change: Okay, and then maybe a bigger picture question. Again, the update provided, I guess it's close to a month ago now, relative to the results were pretty meaningfully stronger. I guess what was the biggest surprise in the back end of the year that drove the result relative to the last guide.
Speaker Change: Yeah, you know, as we look at what happened here as we wound down the quarter, there were positive across the board, really in PPRR and in credit. And so, we look at NII, we had outformance of loan yields versus expectation.
Speaker Change: Non-deposit, liability calls to out the form.
Speaker Change: really just strength across the board in NII and that led to that margin expansion you saw for the full quarter.
Speaker Change: with NC revenue. It was our wealth business that drove the out performance in the last month or the quarter. And then on expenses, a couple things happened there. We had a $3 million decline in our FDSC expense and that impacted our expectations. And then we had various other kind of timing related good guys on NIE that just came through in September . There were each positive. And so a lot of good news in the month of September given us a nice tail when heading into the end of the year. Thank you.
Speaker Change: Okay, and if I could just squeeze one more on credit, again, you know, encouraged by the law's content, but just looking at the trends in non-performing loans and the classified criticize, you know, how close are we in topping out, especially in the classified criticized categories, you know, 4% is that kind of the top here, I guess any kind of color as to what your internal expectations are for how we're classified in criticized loans can top out.
Speaker Change: Yeah, Timmer, it's Bob again. I would say we're close. I mean, certainly if you looked at the criticize trend.
Speaker Change: I've already trimmed, we were down last quarter I think from...
Speaker Change: 3a to 3-7, take back up a little bit, this quarter to 3-9.
Speaker Change: So, you know, we're kind of bouncing a little bit here. I think the bias is still, you know, slightly negative, but we've had some upgrades and...
Speaker Change: and certainly we're still having some downgrades, but overall, I think the velocity of that increase is certainly not as strong as it was, and our grading process does have a little bit of a lag, because we're grading on a quarterly basis, looking back.
Speaker Change: for the most part, so even though rates are beginning to help us.
Speaker Change: Great, thanks for the color.
Speaker Change: Thank you.
Speaker Change: Thank you, our next question comes from Abraham at Punewala, or Bank of America. Your line is not open, please go ahead.
Speaker Change: Good morning.
Speaker Change: Good morning, Breonna.
Speaker Change: is just wonderful of in terms of
Speaker Change: Deposit price saying, and how you're thinking about deposit growth going forward, so one if you could comment on
Speaker Change: What's the pricing environment, how do you expect deposit bidders to behave?
Speaker Change: Oh!
Speaker Change: Assuming the Fed is able to cut a few times before the end of the year and then just talk to about new deposit acquisition where are they coming from and how do you see Dembaix shift in NIBE evolving from here.
Speaker Change: So, Ebrahim, let me just dive into the slide or the table we included on the deposit slide in the earnings deck.
Speaker Change: We added a third corner update to the far right and in our tent there was to show what has actually happened since the easing in the middle of September.
Speaker Change: and I think it's highly indicative of what we will see going forward.
Speaker Change: and what you see is the team is out there actively working with our clients and focused on reducing the cost of deposits and you see going on rate in time deposits, 40 basis points lower than June, you know, implying in the 80 beta that will come through over time. However, if you looked at the end of September time deposit calls, we've only realized about 20 basis points of decline.
Speaker Change: Well, New Production would imply an 80 beta, the actual kind of what we've realized to date is around a 40 beta. On brokered, 80% repricing, you know, then the low beta we have a 10% beta and on the higher beta stuff we have a 70%. So if you just kind of use that and use the percent of deposits.
Speaker Change: What you see is...
Speaker Change: with what we realized today on time, the lower number, the 40 beta, you get to about a 35 cumulative total deposit beta realized through September 30th. Now, what we've said is, we expected to be 40 to 45 and so as time deposits flow through and you realize that 80, 80 beta, that brings that number up to about 42%.
Speaker Change: and we don't believe that that's the end of the story. We believe that there's further repricing the go from there. We believe that Broker could easily end up being about a hundred beta.
Speaker Change: We believe that the low beta and the high beta have room for improvement. And so that's what we're looking at on the deposit side for deposit betas in the easing cycle. Clearly it's uncertain how this will go. Our current expectation is to see 25 basis point cuts at sequential meetings but it depends on how we go through that as to how it will all play out.
Speaker Change: with regard to deposit growth.
Speaker Change: We believe, you know, as we said that the policies will grow here in the fourth quarter, a lot of that has to do with seasonals we expect to see growth throughout our wholesale bank predominantly, as you land within the lower cost.
Speaker Change: the Pauzots, and so, for the fourth quarter we would expect to see.
Speaker Change: you know as far as percent of total deposits reduction with...
Speaker Change: High Calls Time Deposit with Broker Deposit.
Speaker Change: and then increased in the percentage weightings of now accounts and money markets. And so that's what we're expecting to see here in the near term. And then as we look into 2024, I would just say that we are expecting to see continuation of court deposit growth. It is a clear priority for us. We've grown court deposits faster than loans for five consecutive quarters. We expect to see that continue as we go through 2025. And that'll be a function of
Speaker Change: General Environmental, where we believe tailwinds, we believe you'll see less headwinds from monetary policy, we believe it will see client growth, and this diminishment headwind that we've seen for multiple years since 2019, we believe that that will, that will slow and stop. And so we think that the headwinds that have been slowing quarter-pods growth will abate, and we'll see what we've seen in the path, which is, you know, strong core core client acquisition, client growth, leading to core positive growth, headwind through 2025.
Speaker Change: Thank you so much, I just wanted to follow up.
Speaker Change: on our embedded teamage business map, Mars.
Speaker Change: We spent a lot of time on the investment a couple of years ago on this. This reminds us where things stand. It does feel like when you look at top down from the lack of JP Morgan partnering with Oracle, there is a lot of push towards embedded banking. I think there is something differentiated that Synovus had started. I'm just wondering how that's gone. Are you as bullish? Less bullish relative to when you first launched this initiative? Yes, I am.
Speaker Change: Well, you bring, I think to your point, I think the marketplace is speaking where there are competitors that are rolling out similar products and as I said last quarter, one of the things that we've recognized is that in order to have a embedded finance solution that stands out in the marketplace, you've got to have solutions and products.
Speaker Change: and capabilities that differentiate yourself. And so we built the beta version that had an MVP product. As you recall, we had various clients on that platform. And what we're doing today is we're looking at the offering that we provide and trying to improve some of the value propositions as it relates to the payment facilitation as well as some of the depository instruments that set on the platform. So like anything else, we went out, we piloted it, we saw, we received the feedback. And now we're working on creating a solution that has a stronger value proposition. And we'll roll that out in the future with some additional bells and whistles.
Speaker Change: but right now we've taken that same set of resources and we focus as much on our commercial sponsorship.
Speaker Change: Smith, where we're looking to increase the...
Speaker Change: the amount of revenue that we earn today, all of sponsoring merchant acquiring companies access to the MasterCard and Visa Rail. That's about a $15-20 million revenue business force today. And that same group that's working on mass is working on.
Speaker Change: in enhancing the population of clients that we use there. And then, once we have that, we can also offer the mass solution to those isos, not just to the software vendors. So, know that we're working on the product and we'll come out in a future quarter and talk about what the enhancements are.
Speaker Change: and you don't think scale is a disadvantage relative to the larger regionals or the big money sender banks relative to what you think you don't.
Speaker Change: Now, you know, scale matters less there. It's about the partnerships and relationships that you're able to create with those independent software vendors or ISOs and you know what we said in the past one of the reasons we felt that we had a right to win in that space.
Speaker Change: is we've been in this payments business for a long time dating back to
Speaker Change: you know, our thesis ownership and so to me it's much more if you have the right product it's about applying the right partnership and being able to add value to that client. I mean that's what embedded finance really is is you're creating a new revenue stream for that ISO or that independent software vendor so I don't think scale matters as much as having partnerships but you got to have a product that's going to generate revenue for that client.
Speaker Change: Loura, thank you.
Speaker Change: Thank you. Our next question comes from Chris Marinac from a Johnny Montagomre Scott. Your lines are open. Please go ahead. Thanks good morning Bob. I've had a critical question for you. Thank you for the detail on the multi-family book in the slides. Can you give us an update on sort of how the criticized ratios look for that or how you would anticipate those play out the next few quarters?
Speaker Change: Yeah, hey Chris, thanks for the question. Yeah, I'm multi-family. You know, if you look at it overall, we have, I don't think they're, they're certainly zero non-acrules in multi-family and very little if any substandard loans. So most of that is what we would classify as a special mention.
Speaker Change: Migration and Multifamily Duke primarily to some over-supply issues that we see in various markets and with construction projects.
Speaker Change: coming online in the face of...
Speaker Change: Some oversupply, however, from the lost content perspective.
Speaker Change: You know, we feel really good about our multifamily book. It's certainly been a business that we've been bullish on for years. We're very good at it. We like where we are, our sponsors in that space really good. So, overall, yeah, a little bit of negative migration there, but from a lost content perspective, we just don't see it. And you know, once we kind of get through a little bit of time and some of the oversupply issues, you know, begin to evade in various markets, I think. We're still long term, you know, feel really good about about multifamily, particularly in light of the housing environment. It's your where.
Speaker Change: Great, and then just in general question on overall, you know, the credit migration we saw in our performance. So there's typically already criticized in prior quarters, and so it's just kind of moving through the pipeline.
Speaker Change: Short answer is yes. In this particular case, we had an office credit, an office relationship that we moved to non-accrual. If you backed that out, I know it's easy for me to do that. But if you backed that out, our non-accruals actually would have decreased slightly. So, it's a one credit story there that we've been working through for some period of time and we obviously have gone through our process as well. Feel good about where we are there and just continuing to work through that credit. Just couldn't hold it from an accrual perspective. Yes, it was rated before.
Speaker Change: Got it, and generally speaking, the lower rate and volume that we now have is going to make it easier more flexible for you to work through credit such as time passes.
Speaker Change: Well, it certainly doesn't hurt, so that's a good point as we mentioned earlier Christians are a little bit of a lag effect on the ratings.
Speaker Change: you know where you're typically looking at the previous quarter and so it'll take some time and the other point I would make on grading is, you know, it's a little bit slower upgrading than it is downgrading so I think as you get into 25.
Speaker Change: a little bit further, you'll start to see some.
Speaker Change: and some benefit there, but generally speaking, the lower race would certainly help.
Speaker Change: and Chris, we've talked about this in your prior quarters and some of the conferences.
Speaker Change: We're going to have some volatility as Bob mentioned on the criticizing class if I'm even in P.L. But you know, the thing that gives us confidence is when we look at those loans that are in non-accruing status.
Speaker Change: They're largely 8 to 10 loans that represent 80% of the balance.
Speaker Change: The Bob's earlier point, we're doing individual loan analysis to understand what the law's content would be and I hope that you get the same confidence and that we get when we give out the 25 to 35 basis point guidance which is largely lower than what we've experienced here today that even with some of these migrations we're not expecting any material increase in law's content and the end of the day, you'll see some movement there, but I think that's the bottom line of the story.
Speaker Change: Good, no, great point, Kevin. Thank you, but if I appreciate the information, this one.
Speaker Change: Thank you. I'm ex-question comes from a pony alien from J.P. Morgan. The lines that open please go ahead.
Speaker Change: Hi, good morning. On slide six, you know, on slide six, you know, the good growth in C&I balances. You saw during the quarter, but line utilization was relatively stable. I guess what will it take to see that utilization rate increase is it more rate cuts getting past the election. I appreciate it.
Speaker Change: I think it's all the above. We do a survey with our commercial clients. It says what concerns you. The number one concern was the election.
Speaker Change: and obviously whether you a Republican or Democrat wins in many ways, it just takes.
Speaker Change: and I'm certainly off the table, so I think getting that behind us the November will be helpful.
Speaker Change: Number 2, the concern that our clients have around the strength of the consumer. And I think that really gets to the underlying strength of the economy, can the consumer continue to spend? And the consumer has been fairly resilient through this entire cycle. And if that continues, I think that will take another concern off the table. The third is just declining margins of our clients. And I think that has to do with...
Speaker Change: and that's the residual impact of just having inflation come down to match what they can pass on to the client. And the fourth is labor availability. So it's amazing to me that at the end of the day one of the things holding back.
Speaker Change: Capital requests are finding the people to be able to work that new business line or support their growth. So I think it's going to take the election getting behind us.
Speaker Change: Lying utilization, as I said earlier, could be as much as a billion dollars of growth just back to a normalized level, but we're already seen production levels increase.
Speaker Change: and the one thing we haven't talked about is just pay off and pay down activities. We've said this year, a 2023 was not a normal year. When you look at our commercial portfolio each quarter, we had about $1.3 billion of pay-offs and pay-downs.
Speaker Change: this year we're averaging closer to 1.6 billion.
Speaker Change: and that's going to remain elevated for several more quarters, especially a CRE, has some more payoff activities. But that also will return to more normalized levels. So when you add in the fact that uncertainty goes away production increases, we add a new talent and the payoff activity slows, I think you'll start to see loan growth return to more normalized levels.
Speaker Change: Thank you, and then my follow up non-preciparing balances were relatively stable in a period and bases, but declined out of faster pace on average. Given the number of ray cuts projected by the four curve into next year, do you see those balances growing at some point in 2025? Thank you.
Speaker Change: We would expect to see some growth in those balances in 2025. I mean, it's highway uncertain. That'd be a change in trend. But we're optimistic that we can do client acquisition and core business that we can get a tail in there, but that's to be determined.
Speaker Change: Thank you. Our next question comes from a Samuel Vagor of UBS. Your line is out open. Please go ahead.
Samuel Vagor: Hey, good morning. Jamie, I wanted to ask about the particular part of the long-growth middle market, see I've been in a special Q&A meeting with the sense for where those yields are, relative to the book just in terms of the commercial yields. Are these, is this mix of growth? Naturally, benefiting your commercial loan yields?
Speaker Change: When you look at those businesses and the spreads and those businesses, C.I.V. would be on the tighter end.
Jamie Gregory: and would actually be kind of tighter than our overall production.
Jamie Gregory: but we are seeing some tailwinds due to
Jamie Gregory: the Spreads and those other businesses on middle market and specialty.
Jamie Gregory: and they change, they haven't flow especially in specialty, but in general it's the CAB, think about larger, you know.
Jamie Gregory: Lower Spread, Origination, Strong Credit.
Jamie Gregory: and then the others, you can generally get a little more spread.
Jamie Gregory: and I had, you know, Jamie in this last quarter. When you look at our total yields on production, we're about 750, 747, and the portfolio is about 647. So everything we're putting on today, although that's 55 basis points lower than what it was in the second quarter, given the rate cut, we're still seeing a going on yield that will be a creed up to the overall portfolio. It's about a 100 basis point tire.
Speaker Change: I'm glad to see you again. Thank you both. It's very helpful. And then just on the next slide on the politics and sort of
Speaker Change: The core CD beta that you've alluded to the 80% that you've realized on the new production. I'm just curious if you can give any color at this time on whether that beta is still supporting the volumes you need or is there any point where the beta gets almost like caps because you need to bring the volume in and for the deposit base to support the long growth on the other side.
Speaker Change: Well, if you look at the production levels, time production was actually higher, quarter on quarter with much lower rates of production. And so we believe that what we're doing is appropriate, we believe that it will be sufficient for what we're looking for on the funding side. But I would just say that we're not beholden to any product for individual liquidity purposes.
Speaker Change: If we think it's a better idea to reduce our time to positive rates and use a broker, or someone bank, or anything like that to all set that funding, that's easy to do because we have.
Speaker Change: and Chris Capacity of wholesale funding, which we continue to draw down. Our funding story is really strong because we're in a spot where we can choose between all the different sources of liquidity and right now we think that it's prudent to...
Speaker Change: The Family Grasses and the Reduction of CD rates, especially the promo rates as we go through the seeding cycle.
Speaker Change: and Mr. Thanks for taking my questions
Speaker Change: Thank you. Our next question comes from Stephen at Scalton of Piper's Anler. You're lying to sound open. Please go ahead.
Stephen Scalton: Thanks for morning everyone. I'm curious kind of around potential operating level in 25. Do you think that is a plausible target or do you really need to see maybe?
Stephen Scalton: and the ability for fixed rate loan replacing to create that inflection point in the name to just drop that or what might be the catalyst if you think it is plausible.
Speaker Change: As we look to 2025 and we will give more guidance on this later in the quarter at an industry conference.
Speaker Change: As we look at 2025, we believe a couple things. We believe that expense growth will be higher than it is right now. Obviously we're not growing expenses. We've done a lot to...
Speaker Change: to drive that performance.
Speaker Change: but we do believe that expensive stroke will be higher in 2025 than what we've seen recently.
Speaker Change: really as we lean into the opportunities here in the southeast. We believe that the growth of these and the southeast.
Speaker Change: are strong, and we believe that we have the right to win, and so we will lean into that, you know, here at the end of this year, and as we head in the 2025, and so.
Speaker Change: Expense Growth will be higher, but we believe that I'll go alongside higher revenue growth. And so what we expect to see on the revenue side is, Kevin walked through in detail why we expect to see loan growth, all those different components, you know, you combine just pure business growth along with line utilization increases along with increased transaction activity. We do expect to see, you know, strong revenue growth that goes with that. And so, [inaudible]
Speaker Change: operating leverage in 2025 is possible, obviously the rate environment is very important, the economic environment is very important, a lot of uncertainties as we look that far forward at the moment, but we do, we do see paths to that as we look in the 2025.
Speaker Change: Okay, extremely helpful. And I know you also said, you know, the path of non-intersparing deposits remains, you know, uncertain as well. But are you seeing any kind of glimpses of things that could create a shift in terms of the pace of decline? Because it looked like that on an end of period-based, that pace of decline actually didn't ramp up even a bit this quarter. So I'm just wondering if there's anything you're seeing that would...
Speaker Change: you know, give you some help of near-terms stability there on this non-inspiring department.
Speaker Change: Thank you. Jamie and his team have been looking at the various segments of where we're seeing DEA demenishment. I think on the positive side, you know, we've seen the consumer average balance per account, fall below $10,000, which is kind of a low watermark. And depending on what happens with consumer, the level of demenishment could greatly decline. We saw a little more of this past quarter in business banking versus commercial commercial demenishment largely has dried up in the third quarter. So I think...
Speaker Change: The way to think about DDA to Jamie's earlier point, we're going to produce some new level of production. Some of that now is finding its way into interest bearing checking, so you're not going to get the non-intersparing, but the biggest driver to your question is the diminishment of average balance per account. And each quarter we are seeing that.
Speaker Change: Continued as a client, when it actually hits its trough, we can't predict that, but it appears based on that trajectory that we're getting closer to that.
Speaker Change: Thank you. Our next question comes from a Michael Rose of Raymond James. The line's out open. Please go ahead.
Michael Rose: Hey, good morning guys. Thanks for taking my questions. Most have been asked and answered, but
Michael Rose: I just want to get any sort of updates on the thought process around M&A in a last month. We saw the OCTFDSC, DOJ.
Speaker Change: I've updated their merger review process and you know the step back and I think about you know the way the industry could consolidate, you know, the intermediate to
Speaker Change: So a longer term, you know, as I think about the southeast and where you guys are from an asset size perspective, you have a couple banks that have come into your markets or release them to southeast a little bit more aggressively, you have some of the mega banks building branches seemingly on every corner and every one of your markets.
Speaker Change: Is there more risk of not doing something?
Speaker Change: versus doing something over the intermediate to a longer term, you think? It relates to kind of longer term financial targets or not. Just wanted to see if, you know, as we think about, you know, consolidation and what's going to happen with the industry over the intermediate to a longer term, what role does does that mean for some of us?
Speaker Change: Thanks.
Speaker Change: Michael, it's a great question, you know, we're hearing more and more discussions around what happens if the administration changes and does that drive more M&A activity?
Speaker Change: You can hear from some of the other earnings calls that others have recognized the Southeast as a pretty great place to do business.
Speaker Change: You know, in many ways, our answers on change. We believe that the greatest investment we can make today is in Sonovus and adding talent, continuing to add new technology, new capabilities and solutions to continue to drive deeper wallets share with our existing clients and attract new clients. In many ways, in the short and medium term,
Speaker Change: that sense of acquisition or the impact that would be associated with any sort of migration or conversion would actually create greater opportunity.
Speaker Change: Greater Opportunities for us to take share. So I don't think anything's changed for us. It's no secret that the Southeast is a great place to do business and to your point, people are adding branches and putting LPOs and adding teams.
Speaker Change: We're continuing to focus on how we win market share and we're doing that without having to buy a bank. We're adding new teams, new talent, adding new technology. So the story really hasn't changed and it just really means that to win in this space you've got to have a real value proposition. And that's why when we look at some of these awards that we win, whether it's JD Power or Greenwich.
Speaker Change: It's important for us to continue to provide a level of service and advice.
Speaker Change: that is second to none, that beats our competition and that's, I think, the most important part rather than trying to do an acquisition that relies on cost reductions and revenue synergies to generate that EPS growth. We're focused on Sonobus and what we can do to take advantage of the organic opportunities.
Speaker Change: Okay, and maybe she's just...
Speaker Change: One follow-up just as you relate to the organic opportunity I know you talked about and I know it's early for next year but you talk about more of a normal year of loan growth but you do have some, you know, so maybe imposed headwinds that are abating in terms of third party, healthcare, things like that. Why utilization, I think you mentioned, you know, could begin to pick up, you know, once you get through the election and some of these other.
Speaker Change: Things, what is a normal year, kind of mean person novice historically has been kind of a few percentage points above GDP growth, that correlation kind of broke down here in recent years for, I think, obvious reasons. But, you know, kind of what does that mean person novice, maybe not just for next year, but you know, as we think about, you know, the next couple years, thanks.
Speaker Change: Michael, you know, you said it. What we've said in the past, it's hard to give someone an absolute range to your point.
Speaker Change: Based on what the underlying growth
Speaker Change: would be given by the economy, so we've always said a hundred to 200 basis points above the underlying growth. And that's just predicated on the fact that we want to provide our fair share of growth plus.
Speaker Change: something in excess to show that we're taking market share from competition. And so if we were to return to a normal 2 to 3%.
Speaker Change: GDP growth, you would expect us to be somewhere around 4% to 5% loan growth.
Speaker Change: and that's, you know, under a kind of normal situation and to your point for a lot of the reasons that you noted and I talked about earlier, the headwinds are largely abating and it's going to turn towards production and line utilization and one of the things that we've been doing over the last several years are continuing to add new errors to our quiver as it relates to new businesses, new specialty finance areas, new teams, we're expanding, as I said in earlier, we're starting to expand our community bank again where we're adding talent in some of our high growth markets. So for all of those reasons, we still feel like we can outpace the market with loan growth exceeding that of the underlying GDP.
Speaker Change: Thank you, our next question comes from Gary Turner of the A. Davidson.
Speaker Change: The line's now open, please go ahead
Gary Turner: Thanks, good morning. I had a follow up on the deposit side. Jamie, I appreciate the commentary about two thirds of this of the core CD book, ensuring next five months. As you think about your posted rates and at least recent customer behavior, is the expectation and strategy that you'll be able to keep that slug deposits pretty short and kind of be able to come back again, you know, second third quarter of next year to reprise and ban
Jamie Gregory: Yes, that's our base case expectation. We will continually look at the forward curve and think about the spreads between longer term CDs and for shorter term. But right now, our focus is ensuring that that book reprises as truly as quickly as possible, but also solves what our clients are looking for. They want some stability, and they go into that because they want multiple months of flat rates on their deposit. So we have to be balanced in what we do, but right now we're leaning into that five months.
Speaker Change: I appreciate that. And then just a quick question on the office loan relationship. I appreciate the fact that NPLs would have been down, excluding that. But any color there in terms of geography, kind of the office product type, just for some background color.
Speaker Change: Yeah, sure not to get too specific on the credit, but it's two different cities, two different suburban offices, one's in the southeast, one is not. So that's kind of the outline. I would about equal dollar amounts quite frankly, but it's separate resolution plans working with those loans. And again to your point, I think if you do take out that office loan, you look at the MPO reduction overall. But if you look specifically at our office portfolio, you'll see that there's a lot of money in the office. So that's what we're talking about. So that's what we're talking about.
Speaker Change: You know, the criticize a rated ratio is less than 10% obviously this one is a non-accrual So if you backed that out you really don't have very much in the way of non-accruals So there is some stability in the office book but we realize that over time I think you're going to continue to have one also on the office we think we've got a good plan on this one actually to work through resolution
Speaker Change: Thank you, and I'll make a question comes from a Katherine Miller of KBW. The line is so open, please go ahead.
Speaker Change: and I wanted to follow up on the margin and just think about the getting to learn the real little bit. First start with the fixed rate book and is there any way to quantify just the amount of fixed rate repricing that we may see in 2025.
Speaker Change: You know, when we look at 2025, our outlook, as far as the impact of fixed-rate repricing has not materially changed, outside of the fact that when we, you know, we used to say 20-based points, but out before the scaredy's repositioning, you know, currently its our expectation is about 15 basis points of margin impact due to fixed-rate repricing in 2025 and it'd be the same number for 20-26.
Speaker Change: So that's consistent really with what we've said before, except in fact we accelerated that process with this curious transition early this year.
Speaker Change: Okay, and then just as a follow up you have where the sixth street book where that current portfolio rate is today.
Speaker Change: The fixed trade book, we do the, there are a couple different components that we'll point to. So if you're, if you're working on the fixed trade repricing impact, here's what I would, how I would break it down.
Speaker Change: Our fixed rate commercial loan book is a little less than 20% of assets, it's about 18% of assets.
Speaker Change: Those rates on the books are about 2% below current origination rates. So you have 18% above 2% below what Howard consider today's market rates due to when they were originated.
Speaker Change: on the mortgage portfolio, that's about 12% of assets, and the book you want on that is around 4% and so you could say that's 2% or below market rates on the residential mortgage portfolio.
Speaker Change: OK, OK.
Speaker Change: and then I'm a variable rate piece. You had a really good glide in your last deck that just broke down that kind of components of your variable rate. One portfolio, you talk a little bit about maybe the kind of cadence of how quickly some of that's repricing what you've seen so far with a 50 basis point cut. And maybe what that means for low meals has to go into the fourth quarter.
Speaker Change: Yes, absolutely. I mean, when you step back for him from a high level,
Speaker Change: The loan beta starts with the 62% of loans that are floating right and then you back out the edges and so on loan, you should assume, you know, low 50s beta, you know, through this easing cycle and that's pretty, you know, it'll, it'll, it'll flow through pretty cleanly.
Speaker Change: for total asset beta when you add in the security portfolio, you get to kind of load a mid-40s on the asset beta of the balance sheet. And so that's at a high level what you'll see through the eating cycle on the asset side of the balance sheet. When you look at the individual components of floating rain loans.
Speaker Change: They're progressing as you would expect with their contractual recess. So we have about 19...
Speaker Change: Billion of loans that are one month so far.
Speaker Change: We have the two billion that are
Speaker Change: are a little less than 2 billion that are one year Treasury Recess now those.
Speaker Change: Those are really the only unique structures we have on the balance sheet. Those are one-year treasury floating rate loans that reset monthly. And so we've been seeing a little bit of margin pressure from those ever since one year started to go down a few months ago. And so that's already been in there and it'll continue depending on where one-year treasuries go from here. And then we have three and a half billion of prime loans. We have overnight sofa loans around a billion dollars. And those all will reset when the Fed actually moves.
Speaker Change: and I will just reiterate the point that on the hedge portfolio those are received fixed hedges pay overnight so far and so those reset actually when the fed moves as well. So that's a lot of detail around how our floating rate exposure will reset as we go to the cycle.
Speaker Change: That's great, very helpful, right? Thank you.
Speaker Change: Thank you, Kevin.
Speaker Change: Thank you. Our next question comes from Russell Gunther of Stevens. Good Please go ahead.
Russell Gunther: Hey, so morning guys, you guys just tackled my remaining question, the apologies to Andrew and move myself from the queue. Thank you. No, thank you, Ross, I have a great day.
Speaker Change #101: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Kevin Blair for any closing remarks.
Kevin Blair: Thank you, Alex. As we wrap up today's call, I want to thank you for your attendance and your continued interest in Sonovas.
Kevin Blair: I also want to recognize and thank all of our team members who are listening in today. Our financial results and our successes are a direct reflection of your commitment and dedication making Sonobas stand out in this crowded banking landscape. We are keeping our team members affected by hurricanes Helene and Milton and our thoughts and prayers. A special thanks to our corporate services team members who went above and beyond traveling to the impacted areas to provide generators and necessary supplies. Your efforts made it significant difference in people's lives. Thank you.
Kevin Blair: and the third quarter we continue to receive national recognition for our corporate culture, innovation and outstanding client service. American banker named Sonobas number six and it's top 20 banks on reputation and we won the 2024 Impact Award and Cash Management and Payments from Datos Insights for our Accelerate Pay Payment Suite.
Kevin Blair: I'm incredibly proud of our team and these accolades which highlight our ability to continue to create a competitive advantage across all of our businesses.
Kevin Blair: Looking ahead into the next quarter and also 2025, I'm confident that our continued execution of our plan will enable us to achieve sustainable growth and even higher levels of profitability. Our team's passion and resilience has consistently driven better financial results and an overall risk profile.
Kevin Blair: The progress we made this quarter along with our collective efforts and commitment gives me even more confidence in our future success.
Kevin Blair: To our investors, thank you for your continued support and interest. We look forward to seeing many of you in upcoming meetings and conferences ahead.
Kevin Blair: Thank you all and now Alex that concludes our third quarter 2024 earnings call.
Speaker Change #102: Thank you all for joining today. You may now disconnect your lines.
Speaker Change #102: Music
Speaker Change #102: I'm Andrew Gregory, Andrew Gregory, and Andrew Gregory, and Andrew Gregory. I'm Andrew Gregory, Andrew Gregory, and Andrew Gregory.