Q4 2024 Synovus Financial Corp Earnings Call
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Speaker Change: Good morning, and welcome to the Synovus 4th quarter, 2020 4th Arning School.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I'll now turn the call over to Jennifer Demba, Senior Director, Investor Relations. Please go ahead.
Jennifer Demba: 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 website, denovus.com. Kevin Blair, Chairman, President, and Chief Executive Officer, will begin the call. He will then be followed by Jamie Gregory, Chief Financial Officer.
Jennifer Demba: and we will be available to answer your questions at the end of the call.
Our comments include forward-looking statements.
Jennifer Demba: 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 may be required by law.
Jennifer Demba: During the call, we will reference non-GAAP financial measures related to the company's performance.
Jennifer Demba: He may see the reconciliation of these measures and the appendix to our presentation, and now Kevin Blair will provide an overview of the quarter of the quarter.
Kevin Blair: Thank you, Jennifer. Last night, we were pleased to release strong 2024 fourth quarter and full-year results.
Kevin Blair: Synovus reported fourth quarter EPS of $1.25, which was up 6% from the previous quarter. Excluding the FDIC special assessment, adjusted fourth quarter EPS rose 18% year over year. For 2024, EPS was $3.03, while adjusted EPS was $4.43.
Kevin Blair: 2024 was a year of healthy, focused growth, effective collaboration, and delivery of exceptional value to our clients, team members, and shareholders.
Kevin Blair: Over the past year, Synovus executed well on the strategies we outlined in late 2023 and demonstrated solid momentum which should continue in 2025 and beyond.
Kevin Blair: Last year, we grew balances 4% in our higher growth commercial lending segments, which includes middle market, corporate and investment banking, and specialty lending.
Kevin Blair: While we had strong loan production in these segments, they were impacted by significant payoffs in 2024 due to broad-based market activity. We also grew core deposits by 3% and launched a new legal industry deposit vertical and small business banking product bundle.
Kevin Blair: As a result of our relationship banking approach, we grew treasury management, capital markets, and wealth fees at a healthy and sustainable pace.
Kevin Blair: At the same time, we continue to exercise discipline in operating cost
Kevin Blair: control in 2024 with adjusted non-interest expense declining 3% and an adjusted efficiency ratio of 54.33%. Our loan losses improved year over year and the preliminary common equity tier one ratio increased 62 basis points to 10.84%.
Kevin Blair: Finally, we had strong profitability metrics with adjusted return on average assets of 1.15 percent and adjusted return on tangible common equity of 15.84 percent. Now let's move to the financial highlights for the fourth quarter.
Kevin Blair: The most notable highlights in the fourth quarter included net interest income growth, significant quarter-over-quarter improvement in our cost of deposits, net interest margin expansion, and continued growth in non-interest revenue. Also, net charge-offs were at the lower end of the expected range, while capital ratios continued to move higher.
Adjusted revenue increased 3% on a sequential and year-over-year basis.
Kevin Blair: Lower deposit and funding costs and loan hedge maturities drove 3% quarter-over-quarter growth in net interest income.
Kevin Blair: Funded loan production remains strong, but period end and average loans decline from a drop in commercial line utilization, elevated levels of loan payoffs, and further strategic non-relationship loan rationalization.
Kevin Blair: Healthy core deposit growth was supported by public funds seasonality as well as growth in money market and operating deposits across our core commercial business lines.
Kevin Blair: Our team members remain focused on accelerating core funding generation through sales activity and product expansion, such as the new legal industry deposit vertical.
Kevin Blair: Adjusted non-interest revenue increased 2% from the prior quarter as stronger core banking, capital markets, and wealth management income more than offset lower mortgage lending and commercial sponsorship revenue.
Kevin Blair: Adjusted non-interest expense was up 2% from the third quarter and down 12% year-over-year.
Kevin Blair: Ongoing cost initiatives and continued diligence have contained overall expense growth. At the same time, we have continued making strategic investments that position Synovus to drive long-term shareholder value.
Kevin Blair: Lastly, we further bolstered our common equity tier one ratio in the fourth quarter through solid earnings accretion while executing about $50 million of share repurchases.
Jamie Gregory: Before I turn it over to Jamie, I want to acknowledge Chief Credit Officer Bob Derrick's significant contributions to this company over his more than 20 years at Synovus.
Jamie Gregory: Today's earnings call is his final one before he retires at the end of March. Bob has been a tremendous credit organization leader over the past five years, and we wish him well in his retirement. Now Jamie will review our fourth quarter results in greater detail. Jamie?
Thank you, Kevin.
Jamie Gregory: As you can see on slide 6, period end loan balances ended the fourth quarter down $512 million, or 1% sequentially, and down 2% year-over-year.
Jamie Gregory: The loan growth environment was particularly challenging in the fourth quarter. Lower commercial line utilization, primarily from larger corporate facilities, resulted in a $150 million quarter-over-quarter headwind.
Jamie Gregory: Also, there were robust payoffs of about $1.8 billion over the past three months, which impacted our higher growth CNI lending verticals.
Jamie Gregory: Despite these headwinds, funded loan production remained strong in the fourth quarter, while commitment production rose 8% from the third quarter, which was the strongest period of the year.
Jamie Gregory: The lending environment in 2024 was significantly impacted by market headwinds and balance sheet optimization. However, we are pleased with the progress Cenova has made in repositioning non-core portfolios and expanding strategic verticals to support growth in 2025.
Jamie Gregory: Turning to slide 7, Core Deposit Balances grew $1.1 billion, or 3% sequentially, during the fourth quarter as seasonality contributed to public funds growth of $940 million, up 13% from the third quarter.
Jamie Gregory: Core deposits, excluding public funds, increased $206 million in the quarter and were up 2% year over year.
Jamie Gregory: There was a 6% sequential increase in interest-bearing demand deposits and money market funds, combined which were partially offset by a 5% decline in time deposits.
Jamie Gregory: Importantly, non-interest bearing deposits were stable in the fourth quarter. Our core commercial business lines were the primary drivers of our non-public funds deposit group.
Jamie Gregory: Our strong fourth quarter core deposit growth allowed us to further reduce brokered deposits by 230 million dollars
Jamie Gregory: As a result, our wholesale funding ratio improved further and is now 11% compared to 13.5% in the year-ago period.
Jamie Gregory: As we look at funding costs, our average cost of deposits declined 26 basis points in the fourth quarter to 2.46% from 2.72% in the third quarter.
Jamie Gregory: That reflects an approximate 42% repricing beta, quarter over quarter, and aligns with our intentional efforts to manage our deposit costs amid the changing rate environment.
Jamie Gregory: Now, moving to slide 8. Net interest income was $455 million in the fourth quarter, a 3% increase from the prior quarter.
Jamie Gregory: Our net interest margin came in at 3.28% for the fourth quarter. The six basis point increase was supported by hedge maturities and effective management of our deposit prices.
Jamie Gregory: There was also a non-recurring favorable interest adjustment in the fourth quarter which benefited the noun by four basis points.
Jamie Gregory: Conversely, a higher cash position in our $500 million debt-ish ones earlier in the quarter served as headwind.
Jamie Gregory: As we look to the first half of 2025, we expect the margin to be in the mid 320s, which is relatively stable exclusive of the non-recurring fourth quarter items.
Jamie Gregory: Our guidance assumes a modest but consistent pace of NEM expansions in the second half of 2025 on continued fixed rate asset repricing and a more steady rate environment.
Jamie Gregory: Our sensitivity profile remains relatively neutral to the front end of the curve, and we remain slightly acid sensitive to longer term rates.
Jamie Gregory: However, during an easing cycle, the margin will still exhibit short-term pressure due to the timing lag between loan and deposit repricing.
Jamie Gregory: We continue to produce solid consistent growth and non-interest revenue driven by key areas such as treasury management, capital markets, wealth services, and commercial sponsorship.
Jamie Gregory: Slide 9 shows total reported non-interest revenue of $126 million and adjusted non-interest revenue of $125 million, which was up 2% quarter over quarter.
Jamie Gregory: Sequential growth in core banking, capital markets, and wealth management fees was partially offset by a drop in mortgage banking and seasonally lower commercial sponsorship income.
Jamie Gregory: Adjusted non-interest revenue declined 1% year-over-year as growth in capital markets and wealth services income
Jamie Gregory: was more than offset by the elevated commercial sponsorship fees in the year ago period.
Jamie Gregory: In 2024, Treasury management fees increased 11%, while capital markets fees grew 13%.
Jamie Gregory: Also, commercial sponsorship fees jumped 66% in 2024 as we fully onboarded our new Green Sky relationship and saw healthy increases in other sponsorship revenue.
Jamie Gregory: We will continue to invest in core knowledge revenue streams that deepen our client relationships and have shown steady growth over the past few years.
Moving to expounds.
Slide 10 highlights our continued operating calls discipline.
Jamie Gregory: reported in adjusted non interest expense was $309 million in the fourth quarter, which was down 12% year-of-a-year.
Jamie Gregory: Adjusted non-interest expense increased 2% from the prior quarter, impacted by higher personnel costs, FDIC premiums, and technology initiatives.
Jamie Gregory: Also, charitable contributions as well as an increase in our donor advice fund increased two and a half million dollars from the third quarter.
Jamie Gregory: Excluding the FDIC special assessment, adjusted non-interest expense rose 1% in 2024.
Jamie Gregory: While headcount declined 2% last year, and fraud-related losses improved, growth was primarily due to higher incentive payments, credit-related legal fees, and technology-related infrastructure investments.
Jamie Gregory: Importantly, over the past five years we have realized significant back office efficiencies through an 11% decline in headcount, which have been reinvested into frontline talent and various product enhancements.
As we outlined at an industry conference in December,
Jamie Gregory: Our operating expense growth range should normalize in 2025 driven by strategic investments.
Jamie Gregory: These initiatives include expanding our middle market, commercial and wealth relationship manager teams, and other growth and infrastructure related investments that are critical to long-term sustained performance.
Moving to slide 11 on credit quality.
Jamie Gregory: Our fourth quarter net charge-offs were $28 million, or 26 basis points.
Jamie Gregory: which fell the lower end of our expected range of 25 to 35 basis points.
Non-performing loans are relatively flat at 0.73% of total loans.
The provision for credit losses increased from the third quarter.
Jamie Gregory: The allowance for credit losses rose by approximately $4 million to $539 million, or 1.27% of total loans compared to 1.24% in the third quarter.
Jamie Gregory: The increase was primarily due to strong fourth quarter loan production, partially offset by elevated payoffs, which impacted the duration of the portfolio.
Jamie Gregory: We continue to expect net chargeoffs to be 25 to 35 basis points in the first half of 2025.
Jamie Gregory: As seen on slide 12, our capital position improved 20 basis points during the fourth quarter with the Preliminary Common Equity Tier 1 ratio reaching 10.84% and Preliminary Total Risk-Based Capital now at 13.8%.
Jamie Gregory: Our core earnings profile continues to support our capital position, even with about $50 million of shared purchases completed in the fourth quarter.
Jamie Gregory: and the first time I've seen this video, I've been watching this video for a long time.
Jamie Gregory: In 2024, we increased our preliminary CET1 ratio by 62 basis points, inclusive of $270 million of common stock repurchases.
Jamie Gregory: Healthy earnings accretion was supplemented by a risk-weighted asset optimization exercise in the second quarter which freed up capital for securities repositioning and share buybacks.
Jamie Gregory: I'll now turn it back to Kevin to discuss our 2025 Guidance and Capital Plan.
Kevin Blair: Thank you, Jamie. I'll now continue with our updated financial guidance for 2025, which is unchanged from the expectations we outlined in December. Our goal is to tighten our guidance range as the year progresses, and there is more certainty on the pace of the underlying economic and balance sheet growth, as well as the timing of planned strategic investments.
Kevin Blair: Period-end loan growth is expected to be 3 to 6 percent in 2025. In the prior quarters, we've experienced increases in our pipeline and committed loan production. Also, our fourth quarter survey confirmed that commercial client sentiment continues to improve post-election, which will likely boost loan demand.
Kevin Blair: Growth will be primarily driven by ongoing success in middle market, corporate and investment banking, and specialty lending business lines.
Kevin Blair: with anticipated growth between 10 and 15% this year. This growth should be supported by the success of previous relationship manager hires, as well as plan 2025 additions.
Kevin Blair: Furthermore, we expect that loan payoffs from market-related activity and non-relationship loan rationalization will decline in 2025.
We maintain our expectations for core deposit growth of 3-6%.
Kevin Blair: Despite a competitive landscape and uncertainty around Federal Reserve monetary policy, we have confidence that our focus on core deposit production, a continued slowing in the pace of diminishment, as well as new deposit verticals and expansion of relationships will continue to bear fruit in 2025.
Kevin Blair: The adjusted revenue growth continues to be a range of three to seven percent, which assumes the target Fed funds rate declines to four percent, and the ten-year Treasury yield remains relatively stable to recent levels.
Kevin Blair: We expect the NIM will be in the mid-320 range in early 2025 as the short-term headwind due to lead lag impact is offset by the tailwind of fixed-rate asset repricing.
Kevin Blair: Over the medium term, our balance sheet remains relatively neutral to short-term interest rates, which is expected to lead to solid margin expansion once the easing cycle concludes.
Kevin Blair: We anticipate a adjusted non-interest revenue of $500 to $520 million this year.
Kevin Blair: We believe continued core execution areas such as treasury and payment solutions and capital markets, as well as refinement of our delivery models in consumer banking, wealth services, and third party payments will support our sustained fee income momentum.
Kevin Blair: Adjusted non-interest expense is expected to grow three to seven percent from a combination of several initiatives which include a revenue producer hiring program that should increase our middle market commercial and wealth teams.
Kevin Blair: That said, we will continue to be very disciplined in expense management while investing in areas that deliver long-term shareholder value.
Kevin Blair: On the credit quality front, we anticipate that net charge-offs should remain in the 25 to 35 basis point range in the first half of 2025. As we have stated previously, our loss given default on current problem credits is expected to be lower than it was in several periods over the last two years.
Kevin Blair: Moving to capital, we will target a relatively stable CET1 ratio. Beginning in April, our quarterly common equity dividend will increase to 39 cents.
Kevin Blair: Our priority on capital deployment remains client loan growth. However, we do expect to leverage share repurchases to balance out organic capital generation to achieve our overall capital objectives.
Kevin Blair: For 2025, the Board authorized a $400 million Common Share Repurchase Program that gives us flexibility to manage capital in multiple scenarios.
Kevin Blair: Finally, we anticipate the tax rate should approximate 22% in 2025, largely supported by additional tax credit investments.
Kevin Blair: Synovus' strategic actions over the past two years, as well as the strength of our business model and the relative economic growth of our footprint, have positioned our company for strong long-term revenue, earnings, and tangible bulk value growth and top quartile operating metrics.
Kevin Blair: We are focused on opportunities where we have the greatest right to win, being clear and confident in the actions we take, and winning as a collective team. And now, Operator, let's open the call for questions.
Thank you for watching!
Speaker Change: Thank you. We now begin the question and answer session. To ask a question you may press star then 1 on your touchtone phone. If you are using a speakerphone please pick up your handset before pressing the keys. To withdraw your question please press star then 2. In the interest of time please limit yourselves to one question and one follow-up. Thank you.
Speaker Change: Our first question for today comes from John Armstrong from RBC. Your line is now open, please go ahead.
Thank you. Good morning everyone.
Morning John.
Speaker Change: Kevin, can you talk a little bit more about the loan growth expectations? You flagged some of the headwinds, but it looks like you've seen better production as well.
Speaker Change: curious what you're hearing from the borrowers and then what could keep you at the lower end or the higher end or put you at the higher end of the range it feels like I'd take the over but just curious what your your thoughts are on that
Speaker Change: I appreciate your optimism, John, I really do. Look, I'm very optimistic about our prospects for returning.
Speaker Change: to what we consider to be a more normalized growth environment in 25.
Speaker Change: It starts with client sentiment, and we just completed our fourth quarter commercial client survey.
Speaker Change: And as you would expect, post the election, we saw a fairly sizable increase in expectations for business activity in 2025. Now, we know that that optimism is largely anticipatory, but we're starting to see some green shoots in various areas across our footprint and amongst several industries. And I think you see that.
in our production and pipelines.
Speaker Change: We expect our production to increase roughly 15% in 2025. We saw production trough this past year in the first quarter, and it continued to build.
Speaker Change: So much so that in the fourth quarter, John, our committed production was the highest level that we've seen in both CRE and C&I in eight quarters. So that production momentum is continuing to build.
Speaker Change: Thirdly, we have been adding new resources throughout 2024, and those resources will continue to mature in that they'll bring over more and more relationships.
Speaker Change: and Grow the Balance Sheet. Last year we added 11 middle market bankers, which is a roughly 30% increase in that business line.
Speaker Change: Fourthly, as you know, we've been optimizing our balance sheet over the last two years. In 2023, we sold a portfolio, but in 2024, we proactively reduced
Speaker Change: are exposure to various asset classes, syndicated lending, senior housing, aviation. Those three combined were about a billion dollars in runoff.
Speaker Change: That's largely complete, and so as you look into the future, you're not going to have that headwind.
Speaker Change: The previous year was over 50, so we could get good growth just by seeing utilization return to normalized levels.
Speaker Change: And then I'll just end with the payoff activities. You mentioned that. This past quarter, we had $1.6 billion in commercial payoffs. And if you compare that to the first three quarters, it was roughly a billion dollars. So if that number will return to more normalized levels, which we expect, it will take that headwind off the table. So for all those factors, and that's why I think there's a lot of levers.
Speaker Change: that give us great confidence that we'll be able to produce strong loan growth in 2025.
Kevin Blair: Okay, good. That's very helpful. Jamie, just one for you. You're indicating very slight margin pressure in the first quarter, and that gives us a good starting point, but how do you expect the margin to trend after the first quarter? You need to give us some of the puts and takes around that. Thank you.
Kevin Blair: Yeah, John, you know, if you look at the margin in the first half of the year, as Kevin mentioned in the prepared remarks, we are expecting to be in the mid-320s.
Kevin Blair: We did have about a four basis point impact in the fourth quarter on some non-recurring interest, but once you normalize for that, stability in the first half of the year, and then we expect to see margin expansion as fixed-rate asset repricing starts to flow in in the second half of the year.
Kevin Blair: Given the current outlook we believe that the margin could end the year in the mid 330s with a tailwind heading into 26 from there.
Okay. Thanks, guys. Appreciate it.
Thank you, John.
Speaker Change: Thank you. Our next question comes from Michael Rose of Raymond James. Your line is now open, please go ahead.
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions, maybe just on the buyback and capital return. I know you guys are talking about.
Michael Rose: keeping the CET1 relatively stable, but if we do go into this kind of deregulatory environment, is there more leverage there as we think about kind of the intermediate term for the CET1 ratio? And could we kind of expect even more capital return assuming your growth expectations on the long side hold? Thanks.
Michael Rose: Yeah, Michael. Let me jump in here. As we look at our capital plan, before we get into the deregulation or potential deregulation, our capital plan for 2025 gives us a lot of flexibility. If you look at the authorization for $400 million in share repurchases,
Michael Rose: We believe that gives us flexibility in a wide range of scenarios, if, you know, if loan growth is anywhere in our range.
Michael Rose: of three to three to six percent or if it's above or below that we have flexibility to maintain stable capital ratios you know even beyond that you know growth was as high as 10% we could maintain relatively stable capital and keep CT one ten and a half or higher
Michael Rose: But you're right that we do use the industry and what others are doing as one of the things that influences our capital ratio objectives.
Michael Rose: There's no modeling that would tell us we need to be running as high as we are in CET-1. When we do severe adverse stress testing, we are adequately capitalized, we have plenty of excess.
Michael Rose: And so we will be keeping a close eye on where the industry is, and we'll take that into consideration as we think about our future CT1 targets.
Thank you very much.
Speaker Change: Very helpful. And then maybe just as a follow-up, I just
Speaker Change: Back to John's question on the margin, I think one of the potential levers is just the continued decline in broker deposits.
Speaker Change: I think you guys are about nine and a half percent of total now. Is there a range you'd like to get that down to? And as you think about the margin guide that you just gave for the back half of the year, what does that assume in terms of cash balances, which you called out as being elevated?
Speaker Change: and are there any other levers that could be supportive of a range you know even above what you just got it to? Thanks.
Thank you for watching.
Speaker Change: Cash balances definitely were elevated in the fourth quarter. We do expect some reduction in cash balances which will be margin accretive as we go through 2025.
with regards to broker deposits.
Speaker Change: We do expect to see that continue to decline in 2025. But as you're aware, we use that as basically just a marginal funding vehicle, just like Homeland Bank advances. You can see that those are currently sitting at zero. And so we have a lot of available liquidity available to us.
Speaker Change: But we use broker deposits, Humlun Bank, we can intermix between the two of those. But currently we're not expecting to need to grow those. We expect those to stay low and actually broker to decline.
Speaker Change: We're forecasting core deposit growth and core loan growth to be relatively in line in 2025.
Thank you for watching.
Very helpful. Thanks for taking my question.
Thank you, Michael.
Speaker Change: Thank you. Our next question comes from Anthony Ellion of JP Morgan. Your line is now open, please go ahead.
Speaker Change: Hi everyone. On your 2025 outlook slide, you reiterated pretty much all parts of it, but you still expect the FOMC easing cycle to continue in the first half. I guess if we don't get a rate cut in the first half, can you just talk about the impact to your 3-7% revenue growth guidance you expect?
Speaker Change: Yeah, Tony. It's a great question. You know, we have spent a lot of time talking about the lead lag impact and how that will be a temporary
headwind to NII as we go through the easing cycle.
Speaker Change: But you can rest assured that as much as we've talked about it externally with you and investors
We've talked about a lot more internally in the team
Speaker Change: had a lot of success in the second half of 2024 being prepared for all scenarios, both as far as knowing exactly what we wanted to do, but also how we wanted to communicate it with our clients. And we were really successful in that. And so...
Speaker Change: You know, if you go back in July and October, we were talking about a $4-7 million impact per 25 basis point ease.
Speaker Change: When we executed that in the second half of the year, the realized lead lag impact was more like 2 to 4 million, about half of what we had said before. And that was because we were able to efficiently and effectively
Speaker Change: reprice those deposits lower. So I think you know as we look forward it's hard to know exactly what the industry will do but for us we think that it's likely that reduced impact of two to four million per 25 basis points would be incremental to the guide that we put on on that slide.
Thank you.
Speaker Change: Thank you. And then my follow-up, if your revenue growth guidance comes towards the lower end, so say that 3% range,
Speaker Change: Will expenses follow towards the lower end as well, or do you have less of a lever to pull on expenses given the strategic initiatives, hires, and tech investments you plan to make this year? Thank you.
Speaker Change: Tony, that will result in reduced expenses because they are variable, but you're right to assume that there are some of those expenses.
Speaker Change: that are more fixed because they're part of our strategic goals, our strategic plan of incremental hiring, incremental technology and product solutions. And so that spin we expect to happen, but you're right that some of the expense base is variable and would decline if we were at the lower end of the revenue guide.
Speaker Change: and the first time I've seen this video, I've been watching this video for a long time.
Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Jared Shaw of Barclays. Your line is now open, please go ahead.
Thank you. Thank you. Thank you.
Jared Shaw: Good morning, everybody. Looking at the capital market, any color you can give in terms of trajectory there, as we look through the year, anything specific coming up at the beginning that could drive either upside or downside there?
Jared Shaw: You know, Jared, you know that that business can be lumpy just based on large transactions, but when you look over the last year, we're up about 13% in capital markets. And as we've talked about on previous calls,
Speaker Change: Most exciting about that line item is the level of diversity
Speaker Change: and that exists underneath that roll-up where it used to largely be derivatives sold to clients it's much more diversified into not only derivatives but also getting
Speaker Change: Fee income from syndication and lead arranger fees, debt capital markets, FX, small business sales.
Speaker Change: And so, with that increased diversification, we feel very confident that we should produce yet another year of double-digit growth in capital markets.
Speaker Change: and that's a function of continuing to offer these new solutions and increasing the penetration into our client base. But, as I mentioned earlier, when loan growth returns to more normalized levels,
Jared Shaw: generate the large share of those those fees. So yes, we're very confident in our ability to continue to grow that. And that's across the board, quite frankly, Jared, in fee income, you know, we gave you numbers there, but that's going to be another year of
Jared Shaw: of single-digit, mid-single-digit growth, but when you look over the last four years...
Jared Shaw: are core fees, excluding mortgage, and I only exclude mortgage because of the interest rate environment. We've grown 11% on a CAGR basis over those last four years. So the important part for us is creating a sustainable level of fee income growth. And that means that we'll continue to focus on things like capital markets, but expand our third party payments business. We'll continue to focus on things like treasury and payment solutions and wealth, and all those things combined
really good organic growth.
Speaker Change: Okay, thanks. This is my follow-up, following up, I guess, on Michael's question on capital, you know, with very strong capital here and an administration coming in that's...
Speaker Change: you know, perceived to be more industry-friendly. Does that change your view on M&A at all? Or how should we think of, you know, your appetite on M&A?
Speaker Change: I don't think anything's changed on our side. We've said the best investment we can make is in Synovus.
Speaker Change: and executing on our plan. We feel like the last year we've had a tremendous amount of momentum.
You see it in some of our numbers.
where we believe we're performing in top quartile.
and Kevin Blair. Thank you. Thank you.
Speaker Change: As we look into 2025 and 2026, we think that our organic growth strategy will continue to play out. Now, what I've said on previous calls is...
Speaker Change: The world around us changes, we'll have one of two options, right? We'll either take advantage of all the disruption that occurs if there's more M&A, or we'll have to participate at some point.
Speaker Change: and I believe that right now our best approach going forward is to continue to focus on organic growth, continue to improve our returns and our relative currency, that maybe one day it puts us in a position to talk about M&A, but it's not a front burner part of our strategy today.
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Great, thanks for taking the questions.
Speaker Change: Thank you. Our next question comes from Bernhard von Gizechi of Deutsche Bank. Your line is now open, please go ahead.
Hi guys, good morning.
Speaker Change: So my first question on the 2025 expense growth range of the 3-7%, I think you previously identified 1-2% in efficiencies to help offset some of that expense pressure. Could you just maybe talk through some of the areas you're looking for the efficiencies, whether it's reduction in footprint or headcount or technology efficiencies that you could lean into to possibly get that 1-2%?
and the first one is the first one.
Speaker Change: You know, the story on efficiency remains similar to what we've said in the past.
Speaker Change: and personnel and so we try to get as efficient as we can in how we go to market. And what we believe is that when you look at these improvements, process improvements, typically it's a win for the client, it's a win for the team member, and it's a win for the shareholder. And so we continue to focus our efforts on optimization, automation in the back office. And so that's our number one area of focus and then beyond that is looking at our real estate, ensuring that we're optimized there with our square footage both.
Speaker Change: for Corporate Offices and Branch, and really just looking at how we go to market. So it's the same story as before, it's just a continuous improvement mindset as we look at how we go to market to our clients.
Speaker Change: and the first time I've seen this video, I've seen it in the video.
Speaker Change: Okay, great. And then just, I know you're trying to refine the delivery models for payments, the consumer bank and wealth. Could you just talk to you how far along you are and the benefits you see there?
Speaker Change: Well each one's a little different. Let's start with payments. You know what we're doing on the payment front is we're expanding our third-party ISO sponsorship model. So today
Speaker Change: Let's say we have a little less than 20 clients that we provide sponsorship for. We have a pipeline that could, in essence, double the number of clients that we serve on that sponsorship side. So you could continue to see good growth there. Just to put that in a reference point, we make about $25 million a year off that sponsorship business, so it could be growing at a much faster pace there.
Speaker Change: On the wealth side, we've been under this reimagination strategy for some time. We started with a business owner wealth strategy where we created positions that just focused on advisors.
Speaker Change: who work with our commercial bankers and taking our commercial clients and
Speaker Change: productivity of our branches. So, as you know, the number of transactions that occur within the branch continue to decline.
We continue to create a lot of digital applications that...
Speaker Change: provide self-service capabilities for our clients. And so we're asking our branch team to focus more on the small business client and and that's the client that is much more
Speaker Change: has the needs of a branch and would react positively to having more outreach from our bricks and mortar. So not that we're leaving the consumer business, we're using digital analytics and other things to maximize that business, continue to generate deposit growth, but starting to focus a little more on the small business client around those branch locations. And so that's early on. The other two are further along.
Okay, great. Thanks for taking my question.
Yeah.
Speaker Change: Thank you. Our next question comes from Manan Dasalia from Morgan Stanley. Your line is now open, please go ahead.
Hi, good morning
Speaker Change: I wanted to follow up on the question on expenses. It sounds like you're suggesting there's room for positive operating leverage if you're at the mid to high end of the revenue guide, but it might get a little bit more difficult if you're at the low end of the revenue guide. Is that the right way to think about it? And then just in terms of...
Speaker Change: The buts and dicks there is loan growth and the shape of the yield curve, really, are those the two biggest drivers and whether you can get that positive operating leverage or not?
Speaker Change: You know, you are thinking about it correct. If we're at the high end of the revenue guide, the positive operating leverage is definitely easier.
Speaker Change: You're right that, you know, the higher end makes that easier. As we think about it, operating leverage is, positive operating leverage is an important goal for us, but it's...
Speaker Change: less important to us than winning on our strategic priorities and we believe in these
Speaker Change: hires that we're making, we believe in the technology improvements, and we think that they position us well for 2026 and beyond. And so we're going to lean into those in 2025. And you know, it's our objective to shoot for positive operating leverage as well. But that's secondary to winning on the strategic objectives. And so
Speaker Change: That's generally how we think about it. If you look at the fourth quarter, quarter-on-quarter versus prior year, we do expect to see positive operating leverage starting there and then it gets easier from there. So that's at a high level how we look at it. Jamie, let me just add one thing there.
Speaker Change: Can I just add one point? When I look at our investments and I think about what Jamie's talked about in terms of 25 million dollars roughly in investments, that includes the market expansion that we've talked about, it talks about the wealth optimization, expanding our third-party payments platform,
Speaker Change: our legal entity, deposit strategy, as well as an expansion of our structured lending division. So that's almost $20 million there. All of those initiatives will drive significant revenue and balance sheet growth in the future. So that's one of the things we really don't want to stop. We feel like we have a unique opportunity at this point to lean in on all of those items.
Speaker Change: and we want to do it. To Jamie's point, there's some flexibility in some other things, but that's the fixed expense that, from an investment standpoint, we think pays dividends for many years to come. Eminan, let me continue. I didn't answer your question of what puts us at the high end of the range.
Speaker Change: You are right to think that, you know, loan growth is clearly the biggest driver there. As far as revenue, like what could push us to the high end.
Speaker Change: funding mix is an important component there so there are a lot of different pieces that could come together to push us to the high end or the low end of our revenue guide.
Thank you for watching.
That makes a lot of sense. Thank you.
Speaker Change: On loan growth, part of the weakness that we've seen in loan growth across the banks has been the yield curve has been inverted. It makes more sense for borrowers to term out some of their funding.
Speaker Change: Now that the yield curve is deepening again, are you seeing some more borrowing from the banks essentially at the front end of the curve, borrowers using more of those revolvers? Do you think that that starts to pick up now that the yield curve is deeper?
Speaker Change: I mean, the theory is there in that, to your point, with line utilization down to 43%, we've seen a continuous decline.
in that number.
Speaker Change: We feel like it's kind of hit rock bottom at this point, and you would start to see some sort of increase from here. If you go back to prior to when rates were...
higher and we had more of a
Speaker Change: We were in the low 50% range. 50, 53% today we're at 43%. So if you just extrapolate that, that would give us a billion dollars in balances if we were to return to more of a normalized.
Utilization Level, but we haven't seen that in actuality. [inaudible]
Speaker Change: It's something that we anticipate, and I think your hypothesis is spot on. We'll just have to wait and see if borrowers do that.
Great, thank you.
Speaker Change: Thank you. Our next question comes from Stephen Scouten of Piper Sadler. Your line is now open, please go ahead.
Stephen Scouten: Hey, good morning. Thanks. I guess as I think about some of these strategic initiatives in 25 and the relationship management hiring plan and continued progress in capital markets, can you kind of talk about where you guys think you are kind of in the
Stephen Scouten: I guess the stage of those strategic initiatives, maybe even like what ending in terms of developing out capital markets, and if there's kind of an aspirational goal of, hey, here's where we want to get the size of the bank as we think about maximum scale and efficiency within the sector today.
Speaker Change: You know, Steve, you know, it's a good question. I think each, when you think about capital markets, it's less about some goal to become a global capital market.
Stephen Scouten: It's more so to say we know that the clients we bank today have needs outside of the traditional commercial banking sector, and we want to make sure that we're able to capture the revenue from those solutions, whether that's debt capital markets, whether that's syndicated facilities.
Stephen Scouten: We're building capabilities that we know that our clients will use and so over time you may see us build out New capabilities like securitizations or we may have more equity capabilities But we're not in the mode of build it and hope that they come we believe that you go out you generate new business
Stephen Scouten: The lion's share of our client's need through our own capabilities versus having other banks take that over.
Stephen Scouten: As it relates to just the overall innings that we're in, you know, in terms of adding folks
Stephen Scouten: You know, we've been adding middle market bankers for the last five years. We took that group from having roughly 10 bankers to now we're almost up to 50.
Stephen Scouten: Our CIB unit is fully built out with three industry verticals, so we'll be adding a second vertical or sub-vertical under the FIG.
Stephen Scouten: team this year, so that's just more of an extension. What's different in this expansion is that we're investing more heavily back in our community bank, which we haven't done in quite some time because
Stephen Scouten: Throughout the last 10 years as we've built out some of these industry verticals and we've built out middle market We've been able to optimize our resources on the community bank side as we look around today We believe that there's an opportunity to focus more what we would consider down market clients with revenues between five and fifty million dollars And that's where we're starting to add back again, and that's probably the biggest change from what we've done in the past So I don't think we're in the early innings with that because we've been in that business for 136 years but it's
Stephen Scouten: This is the first time in some time that we've really leaned in and bringing more resources back in that business.
Speaker Change: and the first time I've seen this video, I've been watching this video for a long time.
Thanks for watching!
Speaker Change: Yeah, Steve, it's Bob. I'll start with that. Kevin can chime in as well, but as far as the rate curve goes...
Speaker Change: Clearly, if we get too high up there, it certainly gives me trepidation. But I don't think, from a modeling perspective,
Speaker Change: It's having, you know, where we think we're headed in terms of rates having a negative effect on our credit outlook. I do think we're...
We're kind of at normal and beginning to see some...
Speaker Change: We have five basis points of third-party lending, so our core charge-off ratio is really around 20.
Speaker Change: ish basis points versus the 26 we report given the third party.
Speaker Change: I think that's a fair number in the intermediate term, and as we look forward, the number could actually improve somewhat. NPLs we continue to make progress on.
Thank you.
Speaker Change: Yeah, Bob nailed it. Steve, the only thing I'd add to it is we've kind of...
Speaker Change: gotten away from these disclosures, but based on that question over the last year and a half, we've shown a lot of...
Speaker Change: information that speaks to those renewals or those clients that are up for renewal.
Speaker Change: that have a higher, that would go up 200-plus basis points in interest rate just based on where their current rate is. And it's a very small percentage of the book. I'd remind you that we're almost 60% on the front end of floating-based loans on the commercial side, so it's less of an impact, obviously, for those guys.
Speaker Change: But it's something we watch and our credit team underwrites, assuming different interest rate scenarios, and to stress those debt service coverage levels. So there's not an inflection point to your question that says we're worried about it. We just have to be mindful that that does have some impact to debt service.
Thank you.
Speaker Change: got it that's great color thank you guys for the time
Thank you, Steve.
Speaker Change: Thank you. Our next question comes from Christopher Maranac from Janney, Montgomery, Scott. Your line is now open. Please go ahead.
Speaker Change: Thanks. Good morning. Just to continue with Bob, there was about $110 million, Bob, of office loans that were rolling over in the fourth quarter. Can you just walk us through what happened with those? And did some of those get renewed? Were they paid off? And we see the very good and stable criticized numbers, and just wanted to use that as an illustration for what to expect on the rest of the portfolio.
Speaker Change: Yeah, thanks Chris for the question. Let me start with the overall portfolio and kind of drill into what's happening on maturity. So, as we look at 25, we've got about 23%.
Speaker Change: The answer to your specific question is they got renewed, reworked, regraded.
And we didn't see material overall, you know.
Speaker Change: and Death from Mental Effects to us in terms of credit calls. So we think that's probably a good indication that the 23% that is maturing.
Speaker Change: You know, the rated levels, as you mentioned, are less than 10%.
and, you know, we see some stability there.
Speaker Change: So, you know, we'll manage through these maturities in 2025, and I think the fourth quarter is a good indication. I would view that as a positive.
Speaker Change: and I think 25 should be similar. Now, it doesn't mean we won't have, you know, some office hiccups as we go forward, but.
Speaker Change: You know, quite frankly, I think we're at a stable point and actually beginning to see
Speaker Change: You know, what may be a longer-term improvement as we get more back to office, valuations have stabilized, we think, with cap rates, and, you know, it's really market-specific, as you know, but overall starting to feel, you know, better about, you know, as we manage through this office portfolio.
Thank you for watching!
Speaker Change: Yeah, Chris, it's, you know, when you look at the market expansion program that we have in place...
Speaker Change: It involves about 70 resources to be hired in 2025. But, you know, in order to to lift out those teams, it's only about 35 to 40 production resources, and then we'll have support resources behind it. Our team's gone through and has done the work to identify the talent that we want. I mean, it's
Speaker Change: It's, you know, everyone says that they're out there hiring the best talent, so we ask our teams to identify those individuals, and when timing is right, we'll have the opportunity to hire those individuals and bring them over. So as I said, this is, it's not a strategy that we're the only ones running. So I think what bodes well for us is our culture.
Speaker Change: people that have come here in the past over the last several years they serve as our best best reference point.
Speaker Change: to be able to tell folks that are coming from those same institutions that this is an institution that values client centricity, which is what bankers want, and ultimately that we have the products and capabilities that they had.
Speaker Change: at generally larger institutions. So we built a model that appeals to those individuals, and now it's just dotting the I's and crossing the T's, and come first quarter, early second quarter, we'll make many of those hires.
Great, Kevin. Thank you both very much.
Thank you, Chris.
Thank you.
Speaker Change: Thank you. Our next question comes from Katherine Mueller from KBW. Your line is now open, please go ahead.
Speaker Change: and Kevin Blair, Andrew Gregory, Kevin Blair, Andrew Gregory, Kevin Blair, Andrew Gregory,
Speaker Change: Thanks, good morning. I had one follow-up on just the margin on the deposit side. The reduction in deposit cost was really great to see. Is there any, can you talk to us about the trend throughout the quarter and maybe where deposit costs end of the quarter to give us a sense as to where we'll be starting first quarter?
Andrew Gregory, Kevin Blair
Speaker Change: You know, Kevin, as we went through the quarter in 2020, in the fourth quarter, we saw the production rates decline fairly nicely, fairly significantly. If you look at overall production.
We are down about...
75 basis points.
Speaker Change: from the prior quarter on production, a lot of that reduction came through in money markets. And so, we were pleased to see that. And the good thing was that money market production remained elevated, even with the reduction in rates.
Speaker Change: You know, things are proceeding as we expected. We're seeing the decline in rates. If you look at the portfolios where we broke out the beta by portfolio in the evening cycle, those betas are proceeding kind of as we expected.
Speaker Change: and so things are things are proceeding as we had had as we had laid out in the prior quarter.
www.mytrendyphone.co.uk
Great, that's helpful.
One question or one comment you made, Kevin, about
Speaker Change: the pipeline. You mentioned that both C&I and CRE pipelines were up in the fourth quarter which I thought was interesting on the CRE side and just curious if you could give a little bit of color around that and just for the move in the 10-year how sensitive you think CRE new production is to that level of rates.
Speaker Change: Yeah, Catherine, I answer that and I also just wanted to draw your attention to slide 32 in the deck which will give you the December average rate for total deposits at 239 so that'll it's about you know Seven basis points below the quarter in an average rate, but as it relates to CRE you know, I think part of this is just you know as
Thank you.
Speaker Change: We, as an organization, were still doing deals over the last year, but there weren't a lot of term sheets being issued because there just weren't a lot of transactions. And so as the market...
Speaker Change: activity picks up we're well positioned with our client base to be able to do new deals and our bankers
Speaker Change: Matt, now they're transitioning back into leaning a little more into loan growth. So markets picking up and our bankers are a little more focused on generating that. So as a result, even in fourth quarters I mentioned our committed production. [inaudible]
Speaker Change: was the highest level we've seen since the fourth quarter of 2022. So it is starting to pick back up and we think it will pick up from here.
Speaker Change: Great, helpful, and I see flood 32, so thank you for pointing that out. Appreciate that.
Speaker Change: Thank you. As a reminder, if you'd like to ask a question, that's star 1 on your telephone keypad.
Speaker Change: Our next question comes from Nick Heloco from UBS. Your line is now open, please go ahead.
Hi, good morning. Thank you for taking my question
Speaker Change: Appreciate all the color on the margin trajectory as we're progressing throughout the year. I know in the past, I think you've talked about a 15 basis point benefit or so in 2025 and 2026 from the fixed rate asset repricing opportunity. I'm wondering with the moves in rates over the past couple of weeks and months, is that still a fair way to ballpark the opportunity or could there be some incremental upside from repricing on the yield side?
Kevin
Speaker Change: You know, there could be incremental upside from those numbers as we look at 2025 and 2026.
Speaker Change: We believe that the fixed rate asset repricing benefit could be in the context of around 20 basis points a year.
Speaker Change: But when we look at that, I would just say, you know, a portion of that will drop to the margin. And it's uncertain exactly what that portion is, because that can be impacted by...
loan spreads.
Speaker Change: on the balance sheet, deposit mix, et cetera. And so it's uncertain and we're guiding for 2025.
Speaker Change: to have somewhere in the margin going somewhere between mid-20s to the mid-30s. But when you look beyond that, it's a little more uncertain how those other things will play in. But we do see that as a material tailwind to 2026 margin.
Thank you for joining us.
Perfect, thank you.
Just touching on credit, you know, I know
Speaker Change: Non-performing and criticized loans were pretty stable in the quarter, but a small increase in the reserve ratio despite some improvement in the scenarios, which it looks like was performance-driven, a small component of it. So I was wondering if maybe you could touch on that and then how you're thinking about the direction of the allowance coverage as we're progressing throughout the year.
Thank you
Speaker Change: As we look at the allowance, the $4 million increase in the allowance, there are a lot of small components that led to that. The one that we called out in the preparatory remarks was the extension of the loan portfolio due to production, and that was one of the larger impacts.
Speaker Change: You were right that there was not that material of a change in the economic outload, but I would say that the near-term unemployment rate is a little bit higher in a consensus forecast, and that is a driver of the allowance.
Speaker Change: Calculation. When we look at life and loan losses, the change in unemployment is one of the largest drivers of that calculation.
Speaker Change: You know, as we look forward, we're very comfortable with where the allowance is at $127,000.
you know, and you know, we would expect to see
Speaker Change: Relative stability there, but it is uncertain how the unemployment rate will play out in 2025. You know, we will learn more as we go through the year as far as policies, but the unemployment rate will be a key driver of that life alone loss estimate.
Perfect, thank you for taking my questions.
Thank you
Speaker Change: Thank you. Our next question comes from Teema Brazile from Wells Fargo. Your line is now open, please go ahead.
Hi, good morning.
Looking back on the loan growth...
Speaker Change: Clearly, the entire industry is looking for loans to rebound. I think that statement is even more profound for some of the Southeast banks. I'm just wondering what that portends for the competitive landscape. Are you starting to see greater competition on the lending side? Is that mainly on rates right now, I guess? How are you thinking the competitive landscape progresses as we go through the course of the year here?
Speaker Change: I think you nailed it. People have excess liquidity, they have excess capital, and they want to deploy it. And if you think that the economy is going to grow at an exponential rate, you want to get your share. So...
Speaker Change: that always comes down to price competition. I think what the industry has done over the last...
Speaker Change: 10 years is not use credit as a vehicle to lean in. Everyone's still trying to hit down the middle of the fairway on credit, so then it comes to price.
Speaker Change: The prior quarter it was $7.47. Some of that has to do with just the lower index, but we're starting to see a little bit of compression around the spread over SOFR or relative to our internal funds transfer pricing.
Speaker Change: Having said that, what's been great, and Jamie mentioned this earlier, our going on production for deposits were $278 versus the previous quarter $356. So net-net, if you just look at new production, we're getting a $441 spread off that, where last quarter we're $389.
We've got to continue to be smart in price.
Speaker Change: and David C. We have tools in place with our bankers to evaluate returns on capital and they'll use those tools to make sure that we're making the right strategic decisions. But the other offset to that is we've got to continue to price our deposits appropriately and if we do so, as Jamie just talked about, it gives us the opportunity to not only grow NII but to continue to expand the margin. But we have not gone at this growth strategy without recognizing that there will be some margin compression in the industry and we've built that into our plan.
Thank you.
Speaker Change: Great and then just looking at the other side of the balance sheet just on the wholesale funding you guys did a good job working that down I'm just wondering where that 11% goes throughout the course of 25 how much more room is there to bring that down?
Speaker Change: Yeah you know looking at that 11% first thing you'll notice is you know as we mentioned earlier that the home loan bank advances are at zero so we can't really reduce that any further but you know if we have core deposit growth in line with core loan growth you would expect to see some reduction in that but it's not going to be as material as what you've seen over the last 12 or 24 months.
Thank you.
Thank you for the question.
Thank you.
Speaker Change: and the first time I've seen this video, I've been watching this video for a long time.
Speaker Change: Thank you. Our next question comes from Gary Tanner of DA Davidson. The line is now open, please go ahead.
Gary Tanner: Thanks, good morning. Most of my questions have been answered, but I had a short term kind of lone question.
Gary Tanner: You talk about, and I think we probably expect, the year to start off slowly for loan growth in the group overall. But as you talk about the headwinds versus the kind of fourth quarter production levels and the good pipelines, is there an avenue to stabilize loan balances in the first quarter or is the greater likelihood another quarter of contraction before we maybe pivot the other direction?
Gary Tanner: Gary, I think we expect to see some growth in the first quarter. Obviously, it will not be the level of growth that we would expect to see in the fourth quarter of next year, but based on our production pipelines, based on what we're expecting from a payoff activity standpoint, we would expect modest growth in the first quarter.
Thank you for watching!
Helpful, thank you, that's all I have.
Thank you.
Thank you.
Speaker Change: 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, and thank you all for your questions and your continued interest in Synovus.
Kevin Blair: I want to extend my deepest appreciation to all of our team members for their exceptional contributions and achievements in 2024.
Kevin Blair: Together, we delivered exceptional client service, deepened relationships, and strengthened our value proposition which continues to differentiate Synovus in a competitive and crowded landscape.
Kevin Blair: This year's performance has led to an increase in clients who are raving fans, stronger and more resilient communities, and shareholders who are both delighted and optimistic.
Kevin Blair: Internally, we brand it 2025 as Synovus GO. This signifies our commitment to connect, act, and win with even greater collaboration and boldness. We are leaning in more as we believe we have an opportunity to create sustainable outperformance in 2025 and beyond through core execution as well as accelerating growth through strategic investments and market share gains.
Kevin Blair: With our footprint continuing to expand, an economic and interest rate environment offering new tailwinds, and a competitive marketplace presenting opportunities through consolidation and disruption, we feel confident in our ability to navigate the future successfully.
Speaker Change: Given this is his last earnings call, I want to again offer our heartfelt gratitude to Bob Derrick for his 21 years of dedicated service to Synovus.
Speaker Change: His numerous contributions will leave a lasting impact, and he will be greatly missed. As Bob embarks on this next chapter of his life, we wish him all the best and much happiness, and I'm delighted to have Bob pass the baton to Ann Fortner and want to congratulate her on a well-deserved promotion.
Speaker Change: As always, we value and look forward to our ongoing relationships with each of you. We look forward to meeting many of you at upcoming industry conferences and want to remind you that we are always available if you have questions. Thanks again for your attendance, and with that, Alex, we conclude our call for today.
Thank you.
Speaker Change: Thank you all for joining today's call. You may now disconnect your lines.