Synovus Financial Corp Q2 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Thank you. Good morning. Good morning. I guess I just had owned the comments on net interest margin expansion in the back half. If you could unpack that in terms of the drivers of margin expansion, obviously, the full-quarter impact of the bond book restructuring should have. But beyond that, just remind us in terms of the back book repricing and how and I evolves in the face of potential for rate cuts starting in September. Maybe if you could start there. Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President Thanks. Ebrahim. When you look at the margin trajectory in the second half of the year, there are a few different moving parts. First, as you mentioned, the securities repositioning we experienced about half of that benefit in the second quarter and will experience another the other half in the year in the third quarter. And so that's a tailwind to the margin in this quarter. And I'm there is, as you know, a little bit of fixed rate asset repricing as well in the third quarter, the positive. But then there is a headwind due to average DDA balances. You can see that in the appendix we put average balances and end-of-period balances and there will be a decline in average balances just given the second quarter where that landed. And so that will be a headwind to the margin in Q3. But we expect margin expansion in the third quarter. We expect margin expansion again in the fourth quarter and we expect to end the year at or approaching three 30 margin given with the assumption and of a rate cut in December.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : That's extremely helpful. And just the only other follow-up, Jimmy, you mentioned stable deposit cost, second half of one, if you don't mind, give us an update on the pricing sort of competition in your markets. We had a period, of course, talk about intensity is picking up. So would love any color there.

Question: Ebrahim Poonawala - BofA Global Research - Analyst : Extremely helpful. Thank you for taking my questions.

Question: Steven Alexopoulos - JPMorgan - Analyst : Good morning, everyone. Good morning. Steven, do you want to start? I would just start on the loan growth headwind. Is that maybe could you could you help us better understand what's left in terms of the remaining headwind for rationalization efforts. And Kevin, without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call I thought you said that the creep payoffs would increase the back half of the year. Maybe you could quantify that for us? And h ow far away do you think we are towards these cumulative headwinds are really behind the company that, you know, strategic growth in other areas of growth? Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President We're seeing it start becoming the total loan growth? Yes, Steven, it's a great question because I think there to your to your point, when you assess the growth of loan outstandings, there's multiple components. And we've talked a lot about our ability to grow predicated on increasing production. But as you mentioned, there's a couple of things that are driving outstanding is lower in the current environment. But first and foremost, we've been rationalizing some of our portfolios that either we think have lower returns or have a lower funding profile. And that's specifically it is senior housing, third-party consumer, o ur national account. Thank you. And when you look at those portfolios and we've run off about $2.3 billion in the last 12 months in those portfolios, that reduce their total percentage of outstandings from 18% to 13%. And that's largely been accomplished. And so as we look forward for senior housing national accounts, those balances will stay roughly flat. And when you look at third party consumer, those are going to continue to decline just because we're not putting a lot of new production. So I would say that the headwinds around rationalization and any loan sales, which as you recall, we did the MOB sale of the medical office sale last year. That's largely done. So as you look into the future, our production levels are actually increasing. When you look at this quarter alone, we were at $1.3 billion and funded production. That was up 37% quarter on quarter and almost back to the levels we saw back in 2023. So production is picking up. Our pipelines are up 8% quarter on quarter. So then the other question, Mark, is the payoff and paydown activity this quarter. As Jamie referenced, the payoff activity occurred more on the C&I side. It was the national accounts and senior housing, and we saw about $250 million of lower utilization on C&I from a CRE perspective, we don't expect the payoffs to really pick up this quarter, but rather in the fourth quarter. And that's just based on some of the maturities that we have. And to put it in context, we had about $570 million of payoff and paydown activity this quarter, that number could get as high as $800 million to 900 million. So we're talking about $400 million-ish increase and payoff activity, and those are the headwinds. Now, again, that's that's predicated on some of the renewals. As we look into 2025, as we've shared in the past, we think a lot of those headwinds are completely abated, and we returned to more of a normalized growth rate pending what the underlying economic environment looks like.

Question: Steven Alexopoulos - JPMorgan - Analyst : Got it. Terrific. Thanks for taking my questions.

Question: Jared Shaw - Barclays - Analyst : Good morning, everybody. More. And maybe just a quick one, just following up on the margin discussion. You mentioned that we have half the benefit of the securities repositioning. What was the with the smart yields on securities book at the end of the quarter going into on a going into Q3?

Question: Jared Shaw - Barclays - Analyst : Okay. Okay. That's fine. And then looking at at credit, if you could give us a little more discussion around that. It's great seeing I'm sorry, the competence there in the longer the bigger trends. When you look at the driver of the lower ACL, does that really loan level performance that you're feeling more comfortable with? Or was there some change to the to the broader macro model assumptions driving that? And then should we should we assume that we're sort of stable here at these levels, given the broader economic outlook? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call

Question: Jared Shaw - Barclays - Analyst : Great. Thanks very much for the color.

Question: Manan Gosalia - Morgan Stanley - Analyst : Hi, good morning. And I wanted to ask on the expenses front. Can you expand a little bit on the drivers as the higher expense guide? And the number implies, I think about it, $315 million or so of expenses a quarter in the back half. So how do you think about that as a jumping off point into 2025?

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. And that's a good run rate for for 2025.

Question: Manan Gosalia - Morgan Stanley - Analyst : Got it. I appreciate the color at that have maybe separately on capital on your target CET1 is stand at 10.5% or slightly above that that I think you're saying you had managed to the higher end. What keeps you at the higher end of that at the data 0.5% target? Is it has to be at the current uncertainty in the economy? Is it credit? What would drive you to move to the lower end or even below that 10% number?

Question: Manan Gosalia - Morgan Stanley - Analyst : Great. Thank you.

Question: Brandon King - Truist Securities - Analyst : Hey, good morning. Good morning. So capital markets is pretty strong in the quarter, as Jamie mentioned, how you expected to see elevated going forward, I guess the rest of the year. So does that mean we'll still see it gets closer to $2 million were great back half of the year.

Question: Brandon King - Truist Securities - Analyst : Okay. focus. Now is actually my follow-up question is if you thought this was kind of a base to grow flow pace 2025 and beyond. Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President Yeah. I think as and think about this, when we start to see loan production pickup, again, the derivative income will pick up with it. So I think there is not only a run rate here, but there's a lot of growth that could come off this base. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call

Question: Brandon King - Truist Securities - Analyst : Okay. Thanks for taking my questions.

Question: Timur Braziler - Wells Fargo Securities, LLC - Analyst : Hi, good morning. I guess I was a little bit surprised that on that the revenue guide, the top end of the revenue gap I had was on maybe guided down a little bit following the strong NI quarter and the momentum you're seeing a nd the fee side. I guess maybe just talk us through some of the dynamics that could still net of that kind of low end that that negative 3%. Or maybe you have greater confidence given some of the results and expectations for the second half of the year that revenue is going to be more or less flat for the year?

Question: Timur Braziler - Wells Fargo Securities, LLC - Analyst : Okay, great. And as a follow-up, maybe can you just talk us through the strategy of reclassify any available for sale, low bonds into held to maturity during the quarter, especially the being longer duration, Sharon bonds that were moved to HTN kind of locking in that AOCIK. Can you just maybe talk through the rationale and that change at this point in the rate cycle?

Question: Timur Braziler - Wells Fargo Securities, LLC - Analyst : Great. Thanks for that color.

Question: Michael Rose - Raymond James - Analyst : Thanks for taking my questions. Just a few quick.

Question: Catherine Mealor - Keefe, Bruyette & Woods North America - Analyst : Thanks. I will follow that up on the fee income discussion and from kind of help us broadly not just capital markets that broadly think about maybe the run rate that you're expecting in fees in the back half of the year. If we are candidates for challenging look around without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call your mid single-digit growth range than it would imply that you're kind of course, a run rate is going back to around the first quarter level, which is a big pullback from what we saw this past quarter. And so just trying to think about how are you being conservative there? Or is there actually a case to be made that we could see question at a high single-digit from here?

Question: Catherine Mealor - Keefe, Bruyette & Woods North America - Analyst : Okay. I think that that is a significant that that does make the case that fee income growth will be much higher than your guidance, how much it's going. Okay. And then are you thinking about next year on what kind of longer term growth rate in the game units that just given some of the momentum you're seeing and talking to market?

Question: Catherine Mealor - Keefe, Bruyette & Woods North America - Analyst : Great. That's super helpful. And if I just can't feed for one more follow up. Just the other line from it's been about $18 million in the past couple of quarters. Is there anything kind of one-time you see in that, or do you think that's a good run rate for the back half of the year? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call

Question: Catherine Mealor - Keefe, Bruyette & Woods North America - Analyst : Great. Thank you for all the color.

Question: Michael Rose - Raymond James - Analyst : Okay. Can you guys hear me now? Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President Yes, Michael.

Question: Michael Rose - Raymond James - Analyst : That's great color, Bob. And maybe just to follow-up and then your last point kind of leads into it. If we do get a couple of rate cuts, I would assume that probably too early to call it kind of a peak in criticized classified MPAs, things like that, but you can definitely make the case. I would think, right? That we would have peaked with a few rate cuts, barring the economy are not getting really any worse. Is that fair?

Question: Michael Rose - Raymond James - Analyst : Perfect. I appreciate the color. Thanks.

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : Thanks very much. Bob, just to continue your on your answer from the last question, do you see restructurings and CRE as possible solutions or is it a little early for those of this? Curious about our ways to see further progress on the criticized number. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 18, 2024 / 12:30PM, SNV.N - Q2 2024 Synovus Financial Corp Earnings Call

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : Okay, great. Thank you for that. And then the charge-off guidance has been very consistent for quite a while. And just curious if you see any risk to that as we head into the next few quarters next year, et cetera?

Question: Christopher Marinac - Janney Montgomery Scott LLC - Analyst : Great. Bob. Thank you again for the background. Much appreciated.

Question: Samuel Varga - UBS - Analyst : Are you able to hear me now? Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President Yes, I can hear you.

Question: Samuel Varga - UBS - Analyst : I think that that. And then just a quick follow-up on capital. I guess you'd mentioned that obviously buybacks are firmly on the table as they were this past quarter. Could you just share your thought process around the trade-off between doing more by for on the bond portfolio? Kevin Blair - Synovus Bank - Chairman, Chief Executive Officer, Chief Financial Officer, Executive Vice President, Member of the Board, Member of the Leadership Team, President When you look at further restructuring of the bond portfolio, the payback just gets longer and longer? We did the first one we did with about a three year payback in the second one was about a five year payback, and it's just not that attractive to us at that duration w hen you get beyond there. The one we just did was attractive just because of the capital generated from the risk-weighted asset optimization efforts. And so it's unlikely that we will do another repositioning of the securities portfolio. And we're very comfortable with capital ratios where they are up there. They're near our target of the high end of the range of 10% to 10.5%. But you should expect to see us continue to only down the path, which is prioritized client growth, be ready for client growth when it comes and grow the balance sheet. And you know, if we're sitting here with excess capital, how you should see us use share repurchases to balance it out?