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Text: So it was.com Kessel Stelling, Chairman and Chief Executive Officer will begin the call.
He will be followed by Jamie Gregory, Chief Financial Officer and Kevin Blair, President and Chief Operating Officer for more detailed information.
We ask that you limit yourselves to two questions.
During the call, we will reference non-GAAP financial measures related to the company's performance.
And now here's Kessel Stelling.
We have two main stories today and probably many more.
One is of our strong core operating performance for the first quarter pre and post coronavirus arrival.
The other equally important story is the strength and resilience of our company, which is again proven our ability to innovate to execute quickly and effectively manage day-to-day operations while also shifting priorities and resources to meet the emerging needs.
From the very beginning of this COVID-19 healthcare crisis, the decisions and actions taken by our team have been guided by two principles, doing what's best for the physical and financial well-being of our team members and doing what's best for our customers.
With those principles in mind, in March, our branches were converted to drive through and appointment only and we implemented aggressive cleaning, sanitizing, hygiene protocols at all of our company facilities.
More than 80% of 5,400 team members are now working from home and our IT team did a fabulous job quickly repositioning our workforce.
We've offered additional paid-time off the team members who are sick, who are quarantining or dealing with child care or other related family hardships and we're offering bonus payments to our hourly team members required to work on site to serve our customers.
To help our customers through this period of financial stress, we're waiting NSF and monthly service fees and offering payment the permit and other loan relief as appropriate.
Although social distancing is more or less eliminated the in-person hands on approach we usually take toward community service, we're doing everything we can to support needs across our footprint, including matching contributions to the American Red Cross, providing financial support for feeding America and funding meals for first responders and front-line healthcare providers.
I am especially proud of the effort our team has made to deliver paycheck protection program loans to our customers.
Since the launch of P3 on April 3, our team has processed, approved and funded more than $2 billion in loans for 8,300 customers.
We're continuing to process submissions in our pipeline, preparing to find as many as possible with the additional appropriations made available this week.
Kevin Blair will talk more about the key aspects of our COVID-19 response later in his remarks.
Before I cover highlights for the first quarter, I want to talk about our confidence in our ability to manage through this current crisis and to emerge from it in even stronger position.
Since the last crisis, our company has continually taken steps to prepare for an adverse economic environment including efforts to strengthen management in the key risk areas of capital credit and liquidity.
We routinely deploy stress testing and sensitivity analyzes to inform business decisions and we believe we're well positioned to sustain an economic downturn such as we're facing today.
On capital, our internal stress testing process gives us confidence in our ability to maintain strong capital ratios and stressed economic environments and our liquidity position remains strong.
We're also assessing and reprioritizing strategic initiatives under our Synovus forward program Kevin Blair is going to share more details later in the call on steps we're taking to ensure we're addressing the shorter term imperatives while also focusing on the right initiatives for strengthening our company long-term.
I'll briefly walk through highlights of the quarter on slide four.
Adjusted diluted earnings per share was $0.21 compared to $0.98 a year ago.
This year-over-year decline was driven by a 225 basis point reduction in the Fed funds rate, the schedule loss of loan accretion from acquired loans and a significant increase to the allowance that accounts for the anticipated impact of COVID-19 under the CECL framework.
We were very pleased with the fundamentals of our core performance including period end loan growth of $1.1 billion, deposit growth of $1.4 billion and core transaction deposit growth of more than $600 million.
Core net interest income, which excludes purchase accounting adjustments was flat for the quarter.
However, the core net interest margin declined 5 basis points from the prior quarter, slightly more than our original expectations due to the more significant reduction in interest rates.
Adjusted non-interest revenue of $99 million grew $7 million from fourth quarter benefiting from significant activity in mortgage, capital markets and fiduciary businesses.
This was despite lower seasonal core banking fees and increased fee waivers as part of our effort to serve clients during this COVID-19 disruption.
Adjusted non-interest expense totaled $271 million for the quarter, up $6 million versus the previous quarter, largely due to the $5 million increase in seasonal payroll taxes that were referenced during our fourth quarter earnings call.
We also had an incremental $1 million in expenses associated with COVID related bonus payments for certain front line team members.
Provision for credit losses was $159 million and resulted in an allowance for credit losses ratio of 1.39%.
These metrics incorporate the impact from COVID and the first quarter of CECL.
Before I get started walking through the quarterly performance.
I'd like to highlight that we have withdrawn our 2020 guidance.
We will give some near term indications of financial performance on key metrics throughout my commentary and we are committed to reestablishing longer-term targets when the economy stabilizes.
We discussed our increased productivity a bit on the fourth quarter call and it continue on to the first quarter with $3.1 billion in total loan production.
Our Wholesale Banking team one boarded 155 new customers during the quarter, which represented $1 billion in new loans.
In March, we saw $300 million increase in line utilization.
C&I line utilization plateaued at 50% in March as some customers increased draw-out of an abundance of caution related to the economic situation.
We are confident in the credit quality of our growth this quarter as we remain disciplined in our underwriting.
In the second quarter, we expect loans from the paycheck protection program to serve as the primary engine for loan growth as additional pipelines have declined.
Rate cuts in March led to loan yields of 4.6% excluding purchase accounting a decline of 15 basis points from the prior quarter.
The full quarter impact of these March costs will have a greater impact on the average loan yields in the second quarter.
On adjusted for hedges, approximately 50% of our loans have a floating rate.
As previously discussed, we have a hedging program in place to help mitigate the impact of changes in short-term rates on our floating rate loan portfolio.
At quarter end, we had $2.8 billion in receipt fixed swaps associated with these hedges with an average rate of 1.4% versus one month LIBOR.
Slide six shows deposit growth of $1.4 billion, which included a continue to increases in core transaction deposits of $623 million.
In the first quarter, we took advantage of reduced pricing on wholesale broker deposits to increased balances and replace higher call single service deposits.
We will continue to monitor these markets for opportunities and while it remains a dynamic deposit environment and remain focused on growing our core deposit base and maintaining a prudent liquidity profile.
In terms of overall deposit pricing, we've certainly seen a response to the recent FOMC actions.
And as you can see our total interest-bearing cost in March were approximately 30 basis points lower than the average from the prior quarter.
In this easing cycle, the FOMC cut their target rate by 225 basis points and our general expectation is for cycle betas to end in the low to mid 30s as deposits repriced throughout the year.
As you can see on slide seven, net interest income of $373 million declined $26 million from the prior quarter.
The majority of that decline or $25 million was attributable to the expected decline in purchase accounting adjustments.
The core net interest margin, which excludes PAA decreased 5 basis points from the prior quarter to 3.35%.
As we look into the second quarter, we expect net interest income to remain relatively flat as a result of significant loan growth associated with P3.
However, this growth along with the depressed rate environment and an elevated cash position is expected to weigh on our net interest margin.
Excluding those impacts, we reiterate that we expect the margin to decline 4 basis points to 5 basis points per 25 basis point decrease.
We expect the majority of the impact from March rate cuts to be realized in the second quarter.
On slide eight, you will see that we have had continued success in fee revenue generation, which increased to $99 million adjusted.
That's an increase of $7 million from the prior quarter and up $21 million or 27% versus the prior year.
In the first quarter, we continue to have diversified strength in our fee revenue business.
Mortgage revenue driven by high production levels and elevated secondary gain on sale margins increased $3 million.
Capital markets volumes were higher by $2 million as our commercial clients locked in lower rates on their borrowings and income from brokerage grew $1 million, driven by increase in contributions of new hires in 2019 and higher transaction revenue from elevated market volatility.
These increases more than offset reductions in areas such as service charges on deposit accounts, primarily due to a decline in retail NSF fees.
However, COVID is already impacting customer behavior including significant declines in capital markets activity, lower debit and credit card transaction volumes and overall business disruption for commercial clients.
This disruption will likely result in fee revenue declining 15% to 25% in the second quarter from our recent run rate of approximately $90 million.
We would expect an increase in non-interest revenues as the economy stabilizes.
Moving to slide nine.
In the first quarter, non-interest expense was $276 million for $271 million adjusted.
Adjusted expenses increased $6 million from the prior quarter, generally in line with our prior guidance.
With the increased level of COVID related expenses, which we currently estimate of $5 million to $6 million in the second quarter we expect adjusted expenses to remain relatively stable quarter-on-quarter before declining in the second half of the year.
As Kevin will discuss in a moment, we remain confident that our efforts over the past six months to identify ways to improve our operating efficiency will result in positive operating leverage over the long-term.
We are tailoring the timing of our Synovus forward initiatives to ensure they do not distract from our focus on team members customers and communities.
This doesn't change our commitment to our strategy, it simply adjust the timing.
Slide 10 shows our credit quality metrics as well as the summary of our provision for credit losses and allowance.
Net charge-offs at 21 basis points remain within prior guidance.
The NPL ratio did increase from the prior quarter to 41 basis points and this is up 1 basis point from the prior year.
Additionally, past-dues return to the low end of the recent range at 22 basis points.
While we expect to experience stress in the portfolio as we progressed in the current economic environment, it is important to note that we are entering this downturn well positioned from a credit quality standpoint with NPAs, NPLs, past dues and charge-offs at or near lows for this economic cycle.
Provision for credit losses and allowance for the quarter were impacted by the adoption of CECL on January 1 which generally results in higher provision for credit losses compared to the incurred loss.
As you can see on slide 11, the day one reserve increase was $110 million or 39%.
We did a lag the five-year transition period for regulatory capital treatment.
Our 10-K reference the two-year reasonable and supportable period used in CECL estimate, but it was a more appropriate to reduce that for one-year horizon during this period of heightened economic uncertainty, a one-year reversion to the mean follows the reasonable and formal period.
The deterioration in the economic environment since January 1 due to the current healthcare crisis resulted in a higher allowance for credit losses ratio as of March 31st, then was modeled in the day one seasonal implementation and is currently at 1.39%.
Our modeling process incorporates quantitative and qualitative considerations that are used to inform CECL estimates.
The internally developed economic forecasts used to determine the allowance for credit losses as of March 31 was approved on March 20.
At the time, the approved forecast line with rating agency and Wall Street economic forecast between that approval date and quarter-end, we saw further deterioration in the economic outlook, which resulted in the need for a qualitative overlay to our allowance for credit losses.
The qualitative overlay of $37 million at 10 basis points to the allowance for credit losses and better aligns the total allowance with the economic indicators and forecast at the end of the first quarter.
Significant economic uncertainty remains as a result of the continuing healthcare crisis and the ultimate impact of government stimulus efforts.
If our economic outlook on June 30 resembles these more recent forecast, we would expect to see further increase in the allowance for credit losses.
Capital ratios on slide 12 include the impact of CECL and incorporate applicable regulatory transition period.
As we've shared in the past, our target capital ratios were determined through our routine internal capital adequacy assessment process and include the capital optimization efforts completed in 2019.
These capital ratios give us comfort that even in a severely adverse scenario we have a sufficient buffer to withstand the losses and our main well capital.
In the first quarter, our CET1 ratio declined 8.72% largely due to the increase in risk-weighted assets, which accounted for a reduction of 25 basis points.
Our continued strength and PPNR generated 39 basis points of capital, which more than offset the 21 basis point impact of CECL related allowance build.
As a result of CECL, we anticipate capital ratio degradation earlier in a recessionary environment than under prior accounting guidance.
However, it is that allowance, which will provide a significant buffer to absorb any realized losses later in the cycle and affords us the ability to return to our capital targets over-time.
Currently, the allowance bill was reflected in the total risk-based capital ratio, which increased 6 basis points from the prior quarter to 12.31%.
Based on the same framework that was established and utilized for stress testing under the Dodd-Frank Act, we continue to leverage our internal capital management processes.
These processes coupled with our risk appetite framework provide a road map and outlines capital preservation strategies in the event we see a more protracted period of economic weakness.
As we navigate through this recession, we will be very diligent in how we deploy our balance sheet with a clear prioritization toward core customer relationships.
These processes also govern how we consider share repurchases in our common equity dividend.
Through this process, we determined to suspend our previously approved share repurchase program.
We continually evaluate our approach to common equity dividends in our capital planning process, which is guided by our assessment of capital adequacy as well as our projection of sustainable long-term earnings.
We believe a change in the common dividend is not warranted at this time.
As discussed, we remain confident in our capital adequacy and we continuously assess our long-term earnings outlook.
Liquidity management has always been a priority at Synovus and we continue to improve our liquidity profile.
In the first quarter, we issued $400 million of bank debt at very attractive levels and we increased our collateral of the Federal Home Loan Bank by approximately $2 billion.
As shown on slide 13, you can see that we have approximately $14 billion in readily available balance sheet liquidity.
While we expect loan balances excluding P3 loans to remain fairly flat over the near term, we do anticipate considerable second quarter growth associated with our P3 lending effort.
To best manage our risk and to maintain our existing funding sources for other customer need.
we anticipate using the Federal Reserve's P3 lending facility to support funding for at least a portion of these loans.
We believe that this is the most effective way to manage our overall liquidity position and to mitigate the associated impact on our capital ratios.
Kevin will now share a deeper dive on credit portfolios most impacted by COVID, some details about our responses to this crisis and provide an update on Synovus forward.
Before I go into deeper detail on several industries where the COVID-19 crisis is currently having a greater impact on business operations, this seems like an appropriate time to take a deeper dive into the composition and the quality of our loan portfolio by category as well as the significance of the diversification and derisking benefits that have been realized since the last financial crisis.
The chart on the slide shows the key components of each of our three portfolio categories with the table on the bottom right showing the shift in the composition from 2009.
Our C&I book totaled $17.7 billion and is primarily comprised of general middle market and commercial banking clients across a diverse set of industries.
Within C&I, the specialty divisions such as senior housing and premium finance comprised about 14% of total loans and have been a significant contributor to our growth story while also possessing some of the best credit metrics over the last several years.
The overall portfolio is well diversified by industry and geography and is extremely granular with almost 35,000 loans with an average original loan balance of approximately $770,000.
The CRE portfolio is $10.7 billion and 86% of the book is comprised of income producing properties with multifamily office, shopping center and hotel being the largest property types within the portfolio.
We do adhere to a disciplined concentration management philosophy thus our largest CRE loan is less than $50 million with an average loan size of approximately $13 million.
This portfolio is diverse both from a geographic and property type standpoint with strong loan to value and debt service coverage levels.
As a result, this portfolio has continued to perform well and as it relates to net charge-offs, the CRE book is in a net recovery position over the last five quarters.
The consumer book is $10 billion, almost three quarters of the consumer portfolio is in mortgage and HELOC categories with the remainder in lending partnerships, credit cards and other consumer.
You can see by the credit score and loan to value statistics that this portfolio is super-prime and remains very healthy.
Under the existing economic conditions, we expect our consumer portfolio to decline in the near term as we decreased our appetite for unsecured lending and third party partnership purchases.
The last point I want to cover on this slide is the substantial improvement that we've made to the diversification and derisking of the entire loan portfolio.
From 2009 until first quarter of 2020 we have significantly reduced our exposure to one-to-four family residential land and investment properties as well as CRE in aggregate.
By simply utilizing historical loss rates, the remix of our portfolio alone would result in a 50% reduction in losses.
Combined with the improvements in underwriting and portfolio management, we would expect losses to decline even further when evaluating the impact of the severely adverse scenario.
Moving to slide 15.
While our entire loan portfolio is continuously assessed, we have introduced enhanced monitoring for the segments noted on slide 15.
These segments totaling $4.6 billion had been identified as having a more direct and immediate impact from the COVID-19 crisis.
We are continuously working with our customers to evaluate how the current economic conditions are impacting their business operations and ultimately their cash burn rate.
We are leveraging payment deferments as well as the CARES Act stimulus programs to help weather short-term financial effects.
Solid underwriting and strong credit performance coupled with stronger balance sheets that have been built during our extended expansionary period give us confidence that these portfolios enter this downturn in the best possible position.
In the appendix on slides 27 through 29 you will find more detail around each of these portfolios, but I will touch on a few of them now.
Our hotel book is over 85% franchised and primarily contains non-resort properties, more than 90% of our hotels are rated upper mid scale or above.
This portfolio has strong credit metrics with an average loan to value of 54% and debt service coverage ratios of 1.9 times.
We have about $1 billion of shopping center exposure to centers that aren't grocery pharmacy or discount store-anchored.
Based on our southeastern footprint, these locations are situated markets that have continue to see good population and household income growth, which has created growth and stability for these businesses.
As such, these portfolios continue to perform well from a credit quality standpoint.
The restaurant book is $800 million with 56% of the book in limited service restaurants and 40% in full service.
Over 60% of our restaurants are franchises and have an average loan size at origination of roughly $1.5 million.
The next 2 industries are non-essential retail trade and arts entertainment and recreation, combining for $1.2 billion in outstandings.
Both of these portfolios have performed well pre-crisis and are also very granular with average loan sizes at origination of $1.8 million and $1.2 million respectively.
Lastly, I will mention are relatively small exposure to oil-related industries at less than 1% of total loans.
Given our five state footprint, oil is not a prevalent industry, particularly as it relates to exploration and production.
Most of our exposures and transportation operations and support related to the industry.
This portfolio has exhibited strong credit performance, but given the current state of the oil industry, we are more closely monitoring our exposure.
Our bankers and credit team members continue to work with and provide financial advice and consultation to our customers and ensure we are providing the necessary support to mitigate the short-term disruption and cash flows.
As with our entire credit portfolio, each of these portfolios has exhibited strong performance over the trailing quarters and years and was as well positioned as could be expected coming into the current environment.
The duration of the downturn will obviously determine the impact on these businesses and how quickly these industries will return to more normalized cash flow levels.
Despite rolling out our Synovus forward playbook in March, we quickly reconfigured our efforts to focus on our COVID response starting with the safety and well-being of our team members who are vitally important to support our customers as well as the communities we serve.
We effectively exercised our business continuity plan, which enables our employees to work remotely while continuing to provide customer facing roles in our branches and call centers to meet the needs of our customers.
And quite frankly, that was our other primary focus, the safety and continued service of our customers.
Although we continue to practice social distancing, we are here to serve our customers and continue to provide advice and new solutions to help them navigate the changing business climate and support their business operations.
In fact, during the first quarter, we implemented over 6,000 new services in our Treasury & Payment Solutions area, which represented a 320% increase over the first quarter of 2019.
This is another proof point of our continued commitment to serve our customers and our ability to do so in a difficult climate.
And despite the crisis, our bankers continue to call on and on-board new prospects as our relationship-based approach is serving as a key differentiator in this trying environment.
We are going to deploy our capital in areas where we receive optimal returns and while this business approach may produce lower loan growth in aggregate, we will continue to focus on acquiring new full service relationships and deepening our current relationships with new opportunities.
As we have mentioned, we've also taken a proactive approach to providing relief to our customers when needed from waving fees to increasing ATM and mobile deposit limits to granting deferments on loan payments.
Our loan deferment program is constructed to allow smaller loans upon request to receive a short-term 90-day deferral of interest and principal to the maturity date of the loan.
For larger loans, we have initiated a credit driven approach to review the specific circumstances of each request, annualized cash burn and obtain updated financial information while determining the need for the deferment.
To-date, our percentage of total deferrals is around 13% of the overall portfolio with those industries more directly impacted by COVID-19 carrying higher percentages.
We also have closely monitored all of the stimulus actions and programs made available by the CARES Act.
Obviously the paycheck protection program has had the greatest impact on our customers to this point.
We began the P3 process on March 28 with an online expression of interest portal.
We began taking applications on April 3rd, the day the program went live.
As Kessel mentioned earlier, as of today, we have secured funding for over 8,000 customers for approximately $2 billion.
As I close, let me transition to the future at Synovus Forward.
As we shared during an investor conference in March, Synovus Forward is our newly formed program that was built to generate an incremental $100 million of pre-tax income in the coming years and to lead to top quartile performance among mid cap banks in terms of profitability and efficiency.
During the development of this program, we evaluated over 20 unique and distinct initiatives that included a combination of expense and revenue opportunities.
We are confirming today that the incremental opportunity is still very achievable.
However, many of the benefits have been delayed due to the focus on the current crisis.
Many of the expense and revenue initiatives that were planned for the first half of 2020 will be recast into the second half of the year or in early 2021.
While we have had to delay some initiatives, we are also accelerating actions in others.
This includes increasing the efficiencies gained from the third-party spend initiatives, accelerating the development of digital and analytical capabilities to drive growth and manage risk and leveraging our remote environment to aggressively think about our physical distribution and locations.
We have also continue to invest in technology and more specifically, My Synovus, our consumer digital portal.
In March, we deployed major updates to enhance the bill-pay and transfer experiences of our customers.
And as we made improvements, we've seen higher levels of enrollment and utilization while seeing our overall operating increase and it's important to note that the current crisis is creating opportunities to add new initiatives to the portfolio and resize current initiatives that we had planned.
The Synovus Forward portfolio is not rigid it and will continue to evolve we are committed to delivering and growing the value as we address new economic and customer behavior realities.
There is much work ahead of us and we understand the need to balance both short term and long-term priorities.
The end state benefits, their timing and sizing may continue to evolve in this fluid environment.
And for a brief update on the weeks activities just wanted to share that on Wednesday, we hosted our first online only virtual shareholder meeting.
Among other actions our shareholders overwhelmingly approved the elimination of our 10 -1 voting structure and super majority voting requirements.
These changes reflect our Board's continuing commitment to best-in-class corporate governance.

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q1 adjusted earnings per share $0.21.
withdrew 2020 guidance and long-term goals announced with 4q19 earnings call.

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