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Text: Kessel Stelling, Chairman and Chief Executive Officer, will begin the call; followed by Jamie Gregory, Chief Financial Officer who'll be providing more detailed comments on the fourth quarter; and then, President, Chief Operating Officer, Kevin Blair, who will talk about our 2020 outlook and long-term goals.
Due to the number of callers, we ask that you limit yourself to two questions.
During the call, we will reference non-GAAP financial measures related to the company's performance.
And now, here is Kessel Stelling.
Before I'll offer a few additional comments on the year and the quarter, I want to take a moment to congratulate Kevin Blair, who was recently named President of Synovus, adding to his responsibilities as COO that he took on just a year ago.
In that regard, we have recently partnered with a third-party to assist us in identifying new revenue and efficiency opportunities designed to improve ongoing performance as well as the customer experience.
Diluted earnings per share were $0.97, or $0.94 adjusted.
Adjusted earnings per share was down 3% sequentially and up 3.1% year-over-year.
Period-end loan growth was $745 million or 8.1% annualized resulting from total funded loan production of $3.6 billion.
Period-end deposit growth was $972 million or 10.3% annualized.
Core transaction deposits increased $373 million and total deposit cost declined 13 basis points from the prior quarter.
Net interest margin was 3.65%, a decline of 4 basis points from the prior quarter.
Excluding the impact of purchase accounting adjustments, the net interest margin was 3.40%, down 2 basis points from the prior quarter.
Non-interest income was $98 million in the fourth quarter, an increase of $9.2 million from the prior quarter and $30 million from the prior year quarter, led by capital markets and fiduciary activities.
And credit quality metrics remain solid with the non-performing loan ratio and the non-performing asset ratio declining by 5 basis points from the prior quarter to 0.27% and 0.37% respectively.
The net charge off ratio was 0.10%.
We repurchased $36.5 million in common stock or 1.1 million shares during the quarter which completed our 2019 share repurchase authorization of $725 million.
Outstanding shares were reduced 11% from the beginning of the year.
Our 2020 share repurchase authorization should allow us to continue operating with the CET1 ratio around 9%.
I'm also pleased to report that our Board approved a 10% increase in the quarterly dividend to $0.33 per share of common stock effective with the April 1 dividend.
Let's begin on Slide 4 with loans.
We had another strong quarter of loan growth with a net increase of nearly $750 million on production of $3.6 billion.
The growth was broad-based with CRE growing in seven of ten asset class.
Direct C&I lending increasing across the footprint and the consumer book experiencing growth in all product types.
The credit profile of this growth was consistent with prior quarters and we remain confident in the quality of our loan book.
We have a robust loan pipeline across industries and the footprint -- and we're starting to benefit more directly from changes in the competitive marketplace following recent M&A activity and industry consolidation.
On Slide 5, deposit highlights include a continued increase in core transaction deposits.
This is a direct reflection of our team member's performance growing quality relationships across our footprint.
In the fourth quarter, we continued our efforts to remix the deposit book by allowing higher cost deposits to run off.
We offset that run off with growth in non-interest bearing deposits, money markets and the seasonal inflows for more reasonable priced public fund deposits.
This strategic focus support continued reductions in the total cost of deposits, which fell 18 basis points from the peak in July and 13 basis points from the previous quarter.
As you can see on Slide 6, the core net interest margin decreased 2 basis points to 3.4%.
Excluding purchase accounting accretion, lower interest rates resulted in an 18 basis point reduction in loan yield and a 13 basis point reduction in the cost of deposits.
As a reminder, GAAP margin at 3.65% benefited from purchase accounting accretion which was $26 million in the fourth quarter.
The benefit to NII from purchase accounting will decline substantially in 2020 to a full-year total of approximately $8 million.
Strong balance sheet pipelines and the timing of loan growth, which was weighted toward the end of the quarter, provide tailwinds going into 2020.
On Slide 7, you will see we have had continued success in fee revenue growth, which increased to $98 million or $92 million adjusted.
Included in our GAAP non-interest income is an $8 million increase in the fair value of certain equity investments.
In the fourth quarter, fee revenue growth was led by capital markets and fiduciary activities of $2 million and $1 million respectively, which more than offset reductions in areas such as mortgage banking income.
Non-interest income as a percentage of average assets continues to improve as we successfully execute on this key strategic objective.
An example of this success includes a 29% year-over-year increase and implementations by Treasury & Payment Solutions.
Slide 8 shows adjusted expenses of $265 million which is an increase of $6 million from the previous quarter.
Significant increases noted on this slide reflect a $3 million increase in FDIC expense associated with the reclassification of certain loan categories over the past four years.
Expenses also increased with opportunistic revenue producing hires and additional non-interest income.
There was also a $2 million increase in servicing expense that was more than offset with higher revenue resulted from a renegotiation of a third-party consumer lending partnerships.
As we execute strategies from our new operating model, we continue to recalibrate our expense base to emphasize the importance of customer-facing talent and technology.
These investments have short-term paybacks that will serve the company well by improving efficiency and profitability long-term.
Key credit quality metrics on Slide 9 remains favorable, including NPL and NPA ratio that each declined by 5 basis points.
These reductions were achieved with a net charge off ratio of 10 basis points for the quarter.
The net charge off rate was 16 basis points for the year.
Provision expense of $24.5 million included the costs associated with a $466 million increase in net loan growth from the prior period.
Provision expense remains elevated compared to net charge-offs due to the impact of purchase accounting.
Under our acquired loan accounting selection, the credit mark flows through NII rather than provision as loans pay off or renew.
As we think about the overall allowance, our coverage ratios remained favorable as credit quality continues to look healthy.
Onto Slide 10, we remain confident in our overall capital position and are pleased to report that we completed the $725 million share repurchase authorization in 2019.
This included fourth quarter repurchase activity of $37 million, which reflected a reduction of an additional 1.1 million shares.
Total shares were reduced 11% from the beginning of the year.
Ongoing analysis continues to provide support for operating at our current capital and liquidity ratios.
And now, Kevin will discuss our outlook.
Before I talk about what we expect in 2020, let me take a minute to reflect on 2019.
I am very pleased with our progress and success achieved during the year.
As we rolled out a new operating model in the beginning of the year our objectives were to better align our organization to further enhance the customer experience as well as expand and diversify our sources of growth.
In 2019, we added 58 net new revenue producing team members across our foot print, in many of the fastest growing markets in which we serve.
Various business units contributed to our growth, including mortgage, brokerage, trust, private wealth management, wholesale banking and Treasury & Payment Solutions.
The attraction of this talent helped move the needle in 2019 and will have an even bigger impact on 2020.
We also experienced strong growth in banker productivity during the year with funded loan production of $11.1 billion, up $3 billion or 37% from 2018.
Moreover, the increase in production led to a 5.5% pro forma outstandings growth in total loans with C&I, CRE and consumer asset classes all increasing.
In 2019, we also delivered 10.6% fee income growth versus 2018 on a pro forma Synovus FCB basis.
Strong growth was delivered across multiple businesses including mortgage, capital markets, card and our fiduciary and asset management businesses which saw assets under management grow 21%, as we continue to expand our capabilities and presence across the footprint.
As a result of the growth in these categories, we saw the percentage of our revenue derived from fee income increase throughout the year, now totaling 19% in the fourth quarter.
As we previously discussed, we completed the integration of the Florida Community Bank during the year and we're pleased with the contributions of our newest team members.
The legacy FCB wholesale team continued on a path of growth with loans increasing $350 million during the year.
Deposit accounts growing by 8% and record levels of capital market income of $18 million, up 38% year-over-year.
Credit in the acquired FCB book also performed as we expected during the year with credit metrics and internal reviews supporting the overall quality of the portfolio.
The legacy FCB branch network also saw performance gains in 2019 with branch unit sales per month of 51, slightly higher than the legacy Synovus branches.
We also invested a new technology and new business units to generate growth.
We released MySynovus, our consumer digital portal in 2019 and are preparing for the release of our commercial digital platform in 2020.
In the middle of 2019, the Synovus structured lending division was formed and in a very short period of time has already generated a $150 million in loan commitments.
We also spent the year building out and piloting a much stronger value proposition for the mass affluent customer segment and we'll release this program and the associated solutions across our franchise this quarter.
So as we enter 2020, our roadmap will follow a similar course.
It calls for opportunistic expansion and growth, simplification and process enhancements that will make us even easier to do business with and additional efficiency efforts that will fund new investments while helping to mitigate the headwinds from the margin.
In building the strategic roadmap, we engaged a third-party back in September of 2019.
The work over the last four months has informed our 2020 guidance, but more importantly, our long-term goals.
We have reviewed over 20 initiatives that provide opportunities for incremental growth from the revenue side as well as additional efficiencies.
We are in the final stages of prioritizing the eight to ten initiatives that will be delivered during 2020.
But generally the revenue opportunities have a longer-term horizon while efficiency opportunities will begin to be realized in 2020.
Our efficiency opportunities will center around the categories that have been constructive for us in the past; third-party spend, real estate and staffing rationalization.
As we move forward with this engagement, we will continue to provide updates and greater transparency around the opportunities as well as the progress.
Now, moving to our 2020 guidance and long-term targets, these are based on a lower for longer rate environment and modest economic growth.
We believe that the economic tailwinds that have resulted in above-average economic growth in the Southeast will continue.
Our clients maintain a favorable outlook on the business environment and we are focused on supporting their growth.
We are pleased with the positive momentum in the balance sheet growth which has been driven by new talent, the enhancement of capabilities and sales tools, as well as stronger growth in our larger Tier 1 markets.
Our approach and the momentum is expected to continue to support asset growth of 4% to 7% in 2020.
Funded loan production increased throughout 2019 and ended the year with a robust pipeline funded by a remix deposit base.
For 2020, we expect loan growth to exceed market economic growth as we further deepen existing relationships, grow new relationships, and continue hiring of frontline bankers.
We expect this to result in broad-based loan growth across markets and industries.
We will fund this growth with a continued focus on growing core transaction deposits.
Our efforts to reduce high cost deposits will continue in 2020 as we selectively reduce higher cost, single service deposits.
One of the most significant headwinds to the 2020 income statement is purchase accounting adjustments, which are expected to reduce revenues by approximately $90 million from 2019.
Excluding PAA, adjusted net interest income should increase 0% to 3% as we continue to actively manage our balance sheet to optimize the margin as well as returns.
We do expect the net interest margin to be down slightly, assuming flat interest rates and similar balance sheet mix.
Adjusted non-interest income is expected to increase 3% to 6% with broad-based growth.
The continued growth in fee income is a function of hiring efforts and higher opportunity markets, product areas such as Treasury & Payment Solutions, as well as an expansion of the share of wallet with existing relationships.
Adjusted non-interest expense is expected to increase 3% to 5%.
The primary drivers include continued investments in people, processes and technology that will have relative short-term paybacks.
These investments will be partially offset by savings realized during the execution of our strategic efficiency initiatives.
The 2019 tax rate of 26% was negatively impacted by significant non-deductible, merger-related expenses that are not expected in 2020 as well as certain discrete items that were also negative.
Elimination of these aforementioned expenses as well as additional strategic tax initiatives and the realignment of certain subsidiaries will reduce the future effective tax rate substantially.
We expect the net charge off ratio of 15 basis points to 25 basis points as the credit cycle matures and recovery subside.
There are no indications of any widespread credit deterioration; however, net charge-offs will be impacted by changes resulting from purchase accounting of the acquired portfolio as the credit mark is unwound at CECL adoption.
As we look forward to 2020, the largest change to financial statements involve CCEL implementation.
Provision expense will be elevated going forward as we provide for life of loan losses and will be highly dependent on the projected economic environment, the credit profile and tenure of loans, the impact of unfunded reserves as well as expectations about net loan growth and a continuation of the current elevated levels of payoffs.
Given our current profile of loan growth and expectations for the economy, we anticipate adding up to 10 basis point to the allowance for credit losses ratio throughout 2020 to account for the change in provisioning to the life of loans.
Our estimated day one CECL impact, which remains unchanged from the previous quarter, can be found in the appendix.
This incremental forecasted provision expense is not related to any changes in the underlying credit fundamentals of our loan book.
Moving on to capital; in 2019, we completed subordinated debt and preferred stock issuances and purchased 20 million shares, which effectively optimized the capital stack, given the current balance sheet size and risk profile.
We reiterated our comfort with a CET1 ratio of 9% under the current conditions and are committed to first funding organic growth; second, maintaining a competitive dividend; and third, effective capital deployment.
As such, we will be increasing the common dividend by 10% in 2020 targeting a payout ratio of 35% to 40%.
Moreover, we will monitor capital consumption through organic loan growth and tailor our share repurchases accordingly, as we continuously manage our capital and liquidity positions.
Our long-term goals reflect the successful execution of our strategic roadmap.
We are committed to aggressively identify and implement new avenues for growth and efficiencies throughout our organization.
I am confident in our path forward, in the passion and the commitment of our entire team and in the clarity of our vision to be the bank we've always been, but better.
And before we move to Q&A.
Our results reflect continued momentum across our footprint with greater organic growth and an improving ability to execute well as a fully unified team.
I'm always so proud of the way our team supports each other, serves our customers and gives back to our communities.

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compname reports q4 adjusted earnings per share of $0.94.
compname announces earnings for the fourth quarter 2019 and a 10% increase in common stock dividend.
q4 adjusted earnings per share $0.94.
q4 earnings per share $0.97.
qtrly net interest margin of 3.65%, a decline of 4 basis points from previous quarter.
synovus financial - board approved a 10% increase in co's quarterly common stock dividend from $0.30 to $0.33 per share.

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