Synovus Financial Corp Q3 2024 Earnings Call Transcript

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

Question: Brandon King - Truist Securities - Analyst : Jamie, could you expand on your margin expectations beyond the fourth quarter, particularly if we get a more protracted easing cycle? It seems like with the lag nature of deposits, with that being less of a headwind, we could see some margin expansion as we get into next year. So just wanted to get your (inaudible)

Question: Brandon King - Truist Securities - Analyst : Okay. Got it. So I guess, in other words, in order to see any expansion you need said to remain on hold. Is that a fair assumption?

Question: Brandon King - Truist Securities - Analyst : Okay. Okay. Got it. And then lastly for me on credit, encouraging to see net charge-offs trend lower, just wanted to get an overall sense of the confidence in that net targets can remain sort of in this range for the foreseeable future? And if there are any concerns as far as tail-risk out there within your portfolio?

Question: Jared Shaw - Barclays - Analyst : I guess maybe the first one, just looking at loan growth and production. As we go into '25, is this level of production sort of a good baseline to use? And can you refresh our memory on sort of what is the balance of of those noncore -- I'm sorry, noncore loans that are still out there in terms of sort of nonrelationship CRE, the shared national credits, the third-party consumer that you're talking about, what's the aggregate headwind that, that could be producing?

Question: Jared Shaw - Barclays - Analyst : Okay. That's great color. I really appreciate the details on that. And then just as a follow-up for me. What's the -- maybe for Jamie, what's the impact of those hedge maturities on the hedge costs? You called out the $750 million hedges maturing in the 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?

Question: Timur Braziler - Wells Fargo - Analyst : First question is around the capital markets 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 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? Would just love to get an expectation of what we should see there for the remainder of the year.

Question: Timur Braziler - Wells Fargo - Analyst : 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. 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?

Question: Timur Braziler - Wells Fargo - Analyst : Okay. And if I could just squeeze one more on credit. Again, encouraged by the loss content. But just looking at the trend in nonperforming loans and the classified criticized, how close are we in topping out, especially in the classified criticized categories, 4%? Is that kind of the top here? I guess, any kind of color as to what your internal expectations are for were classified criticized loans can top out?

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : I just wanted to follow up in terms of deposit pricing and just how you're thinking about deposit growth going forward. So one, if you could comment on what's the pricing environment? How do you expect deposit betas to behave, assuming the Fed is able to cut a few times before the end of the year, and then just talk to us about new deposit acquisition, where are they coming from? And how do you see the mix shift in NIB, IB evolving from here?

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : That's very comprehensive. And just wanted to follow up on our embedded payments business, Maast. You spent a lot of time on the Investor Day a couple of years ago on this. Just remind us where things stand. It does feel like when you look at top down from the likes of JPMorgan partnering with Oracle, there is a lot of push towards embedded banking. I think that was something differentiated that Synovus has started. I'm just wondering how that's gone. Are you as bullish, less bullish relative to when you first launched this initiative?

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : And you don't think scale is a disadvantage relative to the larger regionals or the big money center banks relative to what you're trying to do?

Question: Christopher Marinac - Janney Montgomery Scott - Analyst : Bob, I had a credit question for you. Thank you for the detail on the multifamily book and 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 in the next few quarters?

Question: Christopher Marinac - Janney Montgomery Scott - Analyst : Great. And then just a general question on overall. The credit migration we saw in our performing are there typically already criticized in prior quarters, and so it's just kind of moving through the pipeline?

Question: Christopher Marinac - Janney Montgomery Scott - Analyst : Got it. And generally speaking, the lower rate environment that we now have is going to make it easier and more flexible for you to work through credits as time passes.

Question: Christopher Marinac - Janney Montgomery Scott - Analyst : Great point, Kevin. Thank you both. I appreciate the information this morning.

Question: Anthony Elian - JP Morgan - Analyst : On slide 6, the good growth in C&I balances you saw during the quarter, but why 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 your thoughts there.

Question: Anthony Elian - JP Morgan - Analyst : And then my follow-up, noninterest-bearing balances were relatively stable on a period-end basis, but declined at a faster pace on average given the number of rate cuts projected by the forward curve into next year, do you see those balances growing at some point in 2025?

Question: Samuel Varga - UBS - Analyst : Jamie, I wanted to ask about the particular part of the long gross middle market, CIB and specialty lending. Can you give us a sense for where those yields are relative to the book just in terms of the commercial yields? Like are these -- is this mix of growth naturally benefiting your commercial loan yields?

Question: Samuel Varga - UBS - Analyst : Got it. That's very helpful. And then just on the next slide on deposits and sort of 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 capped because you need to bring the volume and for the deposit base to support the loan growth on the other side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, SNV.N - Q3 2024 Synovus Financial Corp Earnings Call

Question: Stephen Scouten - Piper Sandler & Co. - Analyst : I'm curious kind of around the potential operating leverage in '25. Do you think that is a plausible target? Or do you really need to see maybe the ability for fixed rate loan repricing to create that inflection point in the NIM to drive that? Or what might be the catalyst if you think it is plausible?

Question: Stephen Scouten - Piper Sandler & Co. - Analyst : Okay. Extremely helpful. And I know you also said the path of noninterest-bearing deposits remain 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 basis, 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 give you some hope of near-term stability there on those noninterest-bearing deposits? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, SNV.N - Q3 2024 Synovus Financial Corp Earnings Call

Question: Michael Rose - Raymond James & Assoc., Inc. - Analyst : Most have been asked and answered, but just wondering if you got any sort of updates on the thought process around M&A. Last month, we saw the OCC, FDIC, and DOJ kind of update their merger review process. And as I step back and I think about the way the industry could consolidate over the intermediate to longer term. 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 at least in the Southeast a little bit more aggressively. You have some of the mega banks building branches seemingly on every corner in every one of your markets. Is there more risk of not doing something versus doing something over the intermediate to longer term, do you think, as it relates to kind of longer-term financial targets or not? Just wanted to see if as we think about consolidation and what's going to happen with the industry over the intermediate to longer term, what role does that mean for Synovus?

Question: Michael Rose - Raymond James & Assoc., Inc. - Analyst : Okay. And maybe it's just one follow-up just as it relates to the organic opportunity. I know you talked about -- and I know it's early for next year, but you talked about more of a normal year of loan growth, but you do have some self maybe imposed headwinds that are abating in terms of third-party, healthcare, things like that. Line utilization, as I think you mentioned, could begin to pick up once you get through the election and some of these other things. What is a normal year kind of mean for Synovus? Historically, it has been kind of a few percentage points above GDP growth that correlation is kind of broken down here in recent years for, I think, obvious reasons. But kind of what does that mean for Synovus maybe not just for next year, but as we think about the next couple of years?

Question: Michael Rose - Raymond James & Assoc., Inc. - Analyst : Very helpful.

Question: Gary Tenner - D.A. Davidson - Analyst : I had a follow-up on the deposit side, Jamie, I appreciate the commentary about 2/3 of the core CD book maturing in the 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 of deposits pretty short and kind of be able to come back again, second, third quarter of next year to reprice them again? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, SNV.N - Q3 2024 Synovus Financial Corp Earnings Call

Question: Gary Tenner - D.A. Davidson - Analyst : Okay. 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?

Question: Catherine Mealor - Keefe, Bruyette & Woods - Analyst : I wanted to follow up on the margin and just think about -- dig into loan yields a little bit. Can we first start with the fixed rate book, and is there any way to quantify the amount of fixed rate repricing that we may see in 2025? And that's impacting margins.

Question: Catherine Mealor - Keefe, Bruyette & Woods - Analyst : Okay. Great. And then just as a follow-up, do you have where the fixed rate book where that current portfolio rate is today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2024 / 12:30PM, SNV.N - Q3 2024 Synovus Financial Corp Earnings Call

Question: Catherine Mealor - Keefe, Bruyette & Woods - Analyst : Okay. Okay. Great. And then on the variable rate piece, you had a really good slide in your last deck that just broke down the kind of components of your variable rate loan portfolio. Can you talk a little bit about maybe the kind of the cadence 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 loan yields as we go into the fourth quarter?

Question: Russell Gunther - Stephens - Analyst : You guys just tackled my remaining question. Apologies I will try to remove myself from the queue. No.