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Text: Kevin Blair, president, and chief executive officer will begin the call.
Except as may be required by law.
During the call, we will reference non-GAAP financial measures related to the company's performance.
And now, Kevin Blair will provide an overview of the quarter.
I want to take a moment to officially recognize Cal Evans and his new role as investor relations and market intelligence senior director.
Cal expanded role in our company became official shortly after last quarter's call when Kevin Brown, who led IR for the past two years, shifted to our corporate treasury team.
Kevin has done a great job interfacing with our analysts and investor community, but his latest move will help with his development and career aspirations.
Cal has hit the ground running and brings a lot to the table given his credit and market intelligence background.
The transition is going well, and I know you will enjoy working with and getting to know Cal.
Now let's shift into the overview of 2021.
With the fourth quarter placing an exclamation point on the year.
2021 was again wrought with challenges and uncertainties.
But our teams were able to navigate the difficult environment to support our clients, contribute to our communities, and deliver for our shareholders.
As you'll hear today, we accomplished a lot, even as the pandemic continued to impact the operations of our clients and of our company.
Our team is capable and understands the assignment when it comes to meeting the challenge from the unexpected and anticipating opportunities with and for our clients.
Our strong fourth quarter and year-end report is an absolute testament to your talents and passions for the inspired and purpose-driven work we do that enables people to achieve their full potential.
What you'll see today is a story of execution and follow-through of doing what we said we could and would do, and in many areas doing even more.
As we began 2021, we focused on five core business objectives.
Number one, to regain growth momentum.
Two, to enhance the client experience by making it even easier to do business with Synovus.
Number three, to provide seamless delivery of our solutions across all of our lines of business, leading to a deeper wallet share and client relationships.
Four, to better leverage analytics in order to provide more informed and proactive advice.
And five, the development and attraction of talent to support our growth initiatives.
We have made significant progress in all five core areas, and our success in 2021 was largely driven by our execution of these business objectives.
Moving to Slide 3, let's review the year.
Our lines of business succeeded in delivering core performance via a solid loan, deposit, and fee income growth, while client loan demand was muted in the first half of 2021, in the second half, we saw double-digit, broad-based commercial loan growth, driven primarily by our wholesale bank.
With all 10 wholesale sub-lines of business posting growth for the year.
2021 funded commercial loan production increased 50% versus 2020 and was up 40% versus 2019.
With significant productivity gains across our community and wholesale teams.
We expect this momentum to continue into 2022 given the pipelines and activities of our bankers, as well as the incremental growth that will be provided by our key 2021 investments and talent in the middle market, restaurant services, and corporate and investment banking teams.
Deposit growth was driven by continued balance augmentation, as well as an ongoing sales focus on core operating accounts.
As a result, core transaction balances have increased 57% in the past two years.
We have strategically allowed higher-cost, lower-value deposits to attrite with an overarching goal of remixing our funding profile to optimize lower-cost deposit composition, during this period of excess liquidity.
At year-end, 77% of total deposits were core transaction deposits versus 70% at year-end 2020.
Ex-security gains non-interest revenues grew 5%, led by increases in core banking fees and income from various wealth businesses.
This was the seventh consecutive quarter of increases in wealth fees.
Drivers of this growth include a strong equity market, as well as net new assets under management from client growth, including the onboarding of 12 new family office clients during the year.
In 2021, we continue to make significant progress with Synovus forward initiatives.
As of year-end, we have achieved $110 million in pre-tax run-rate benefit ahead of our original projections.
Evidence of success includes reducing real estate expenses, lowering headcount, and a reduction of third-party spending, all of which resulted in adjusted 2021 expenses being flat versus 2020.
The Synovus forward savings allowed us to make strategic and impactful investments in every area while managing overall expenses.
This year, we will transition our Synovus forward efforts into our overall strategic plan but remain committed and on pace to achieve the $175 million Synovus forward target.
As part of our focus on innovation, we launched several new digital solutions and services, including enhanced deposit, online account origination, accelerate AR, our integrated receivables suite, and gateway, our commercial banking digital platform.
These investments have enhanced capabilities and functionality and are leading to a better overall client experience.
We also implemented the smart commercial analytics tool that is giving our bankers better insights into solutions, our client's needs, early warning on client attrition, and proactive risk monitoring.
In 2021, we also invested in people.
In particular, those who have experience and expertise to expand our advisory services and to build strong relationship value.
We grew our treasury and payments team, which had another record-breaking year, growing sales by almost 40% and adding to specialty banking our middle market talent, and our high growth central and west Florida regions.
We also continued to emphasize the development of our existing team members through the launch of two new leadership development tracks for emerging and senior leaders.
Despite the challenges associated with the pandemic, our recent voice of the team member survey indicated that 84% of our team members were actively engaged, which is top quartile relative to the financial services benchmark, and we have designated a great place to work by the Great Place to Work Institute.
We also have made measured progress in our diversity, equity, and inclusion efforts by meeting our short-term ethnicity and gender-based goals, and the leadership ranks in 2021.
So overall, a productive and rewarding year and one that carries a tremendous amount of momentum into 2022.
Now let me shift the highlights from the fourth quarter.
Let's start on Slide 4 with loan growth, which increased $1.4 billion or an annualized 14% excluding P3.
The growth this quarter resulted from our second consecutive quarter of record-funded commercial loan production at $3.2 billion.
This represented a 30% increase from the third quarter.
The quality of growth as measured by risk ratings and underwriting metrics is consistent with the existing portfolio, which continues to perform well and is supported by the reversal of credit losses of $55 million this quarter.
It's a similar story on the other side of the balance sheet, with core transaction deposit growth of $1.3 billion or 4% versus the third quarter.
Approximately 30% of this quarter's increase came from non-interest-bearing deposits.
The combination of balance augmentation and new account origination continues to be the drivers of growth.
Net interest income growth was also strong this quarter, as we delivered $1.7 billion in earning asset growth.
Net interest income increased by $16 million from the third quarter or 4%, excluding the reduction in P.3 fees.
The net interest margin declined five basis points in the quarter, largely due to lower P3 income.
But the NIM before PPP fees actually increased one basis point as earning asset yields were fairly stable and we continue to lower deposit rates during the quarter.
From a fee income perspective, we continue to be pleased with overall performance as the fourth quarter totaled $117 million.
Core banking fees have returned and exceeded pre-pandemic levels in the fourth quarter, as card and cash management income have more than offset reductions and NSF income.
And our core strategic segments such as wealth management, continue to generate growth through AUM expansion.
Diluted earnings per share were $1.31 or $1.35 on an adjusted basis and increased from $0.96 or $1.08 adjusted per share from the same period in 2020.
During the fourth quarter, we successfully completed our capital plan with $33 million of share repurchases.
For the full year, we balanced core client loan growth, a common dividend, and $200 million in share repurchases to achieve our target CET1 ratio of 9.5% at year-end, which represents the middle of our operating range target for the upcoming year.
Jamie will now share greater detail on the key initiatives and financial results for the quarter.
I'll begin on Slide 5.
We ended the year with total assets of $57.3 billion and loans of $39.3 billion.
In the fourth quarter, total loans, excluding PPP balances, were up $1.4 billion, or 4% from the prior quarter, bolstered by strong commercial loan growth.
The commercial growth was broad-based across businesses, asset classes, and markets, and included robust production in several of our key business lines, such as structured finance, senior housing, national accounts, and commercial banking.
The positive momentum was also evident in CRE, driven by healthy industry fundamentals in our footprint.
We achieved this growth while adhering to our prudent underwriting standards and disciplined approach to portfolio management.
Benefits from strategic growth initiatives are being realized, and we're excited about the potential of the corporate and investment banking team being led by Tom Deardorf, an industry veteran who joined the team in November growth momentum.
In Q4 was also supported by reduced pay-offs and increased C&I line utilization, which increased approximately 340 basis points to 43%.
This is the first quarter where we have seen clear evidence of inflection toward increased utilization.
We also saw continued growth in commitments up 4.4% or $512 million, which positions us well for economic expansion, particularly in the southeast, where growth is expected to exceed national averages.
A continued normalization of C&I line utilization on today's balance sheet would result in over $350 million in funding balances, which should occur over time as liquidity subsides.
Within our core consumer portfolio, the trend remains somewhat mixed with growth in card and other consumer products is more than offset by continued declines in the mortgage.
In aggregate, core consumer balances declined by $20 million in the quarter.
Looking outside of our core lending activities, we did see a modest decline in our third-party portfolio in Q4, as purchases were more than offset by elevated pay-down activity.
Additionally, our securities portfolio ended the quarter at $11 billion, up $400 million from the prior quarter, though that growth generally dragged out of the overall balance sheet and remained at 19% of total assets.
These portfolios will remain central to our overall balance sheet management efforts, and we'll continue to leverage both as a means to manage our capital and our liquidity positions.
Slide 6 highlights the deposit trends for the fourth quarter, as well as for the full year 2021.
As you can see, it was another very strong year for growth led by core transaction account balances, which were up $1.3 billion or 4% in the fourth quarter and up $5.1 billion or 16% for the full year.
Notably, the majority of the growth for the year was in non-interest-bearing deposits, while we've seen continued strategic declines in time deposits.
For Q4, our total cost of deposits continued to decline to 12 basis points, which was down one basis point from the third quarter.
The fourth quarter also experienced seasonal inflows related to public funds, while broker deposits were relatively stable.
Both of these portfolios experienced declines versus one year ago, and we expect further declines in the first quarter as seasonal balances normalize and as we further reduce broker balances.
In the first quarter, we expect broker deposits to decline by approximately $1 billion to $1.5 billion as we efficiently manage our significant liquidity position.
Slide 7 shows a total net interest income of $392 million in the fourth quarter or $380 million, excluding the impact of the Paycheck Protection Program.
NII growth largely resulted from strong earning asset growth, which began late in the third quarter and continued through the fourth quarter.
The net interest margin for the fourth quarter ended at 2.96%, a decline of five basis points from the prior quarter.
As expected, the wind-down of the Paycheck Protection Program is serving as a notable NII headwind.
Excluding the impact of PPP, the margin was stable in the quarter.
Our portfolio remains asset-sensitive and stands to benefit from increases in rates across the yield curve.
To that end, I would note that much of the loan production we saw in the second half of 2021 was variable rates.
The portion of our portfolio that is floating rate now stands at 58%, which helps to support our NII sensitivity estimated at an increase of 6.5% for a 1% immediate increase in rates.
Adjusted noninterest revenue of $116 million is highlighted on Slide 8, up $2 million from the prior quarter.
This includes a one-time, $8 million increase of BOLI income that offsets a $4 million reduction in mortgage income.
Wealth management continues to see an increase in fee revenue and assets under management, recording its seventh consecutive quarter of growth.
This growth is driven by continued strong client acquisition and asset inflows.
From a capital markets perspective, we recorded another strong quarter despite overcoming headwinds from a large one-time arranger fee.
In the third quarter, that was not expected to repeat.
As our commercial segments continue their robust growth, we should expect to see continued strength from arranger fees and swap income that will drive this line item.
On a full-year basis, NIR excluding security gains increased 5%.
Despite headwinds driven by the normalization of mortgage revenues.
Drivers of this growth included wealth management and core banking fees, which increased 24% and 20% year over year, respectively.
Within core banking fees, commercial cash management revenue increased $10 million, or 34% year over year.
This growth represents the momentum within our commercial segment, including the deep depository relationships we have with our core customers.
Slide 9 highlights a total adjusted non-interest expense of $286 million, up $19 million from the prior quarter.
This change included both recurring expense increases and other notable expenses that we do not believe will repeat in future quarters.
Recurring expense increases totaled $9 million and were driven by several factors, including growth initiatives related to Synovus forward, investments in tech and risk infrastructure, additional FDIC expenses, and expenses related to normalized travel and entertainment spending.
Other notable expense increases total $10 million and consisted of $4 million of incremental performance-based management bonuses, a $4 million seed gift into a newly established donor-advised fund, and a $2 million increase in health insurance expense driven by seasonal and pandemic related factors.
In spite of an elevated quarter of expenses, we were able to manage the flat year-over-year adjusted expenses, resulting in positive operating leverage in 2021.
Benefits from the successful implementation of other foreign initiatives can be seen in comparison to key areas from 2020 to 2021, particularly in base salaries, third-party spending, and real estate spending.
These reductions have helped lay the groundwork for future strategic growth initiatives.
The credit metrics on Slide 10 show continuing improvement in all key categories.
The net charge-off ratio fell 11 basis points to 0.11% while criticizing classified loans declined 16%.
The NPA ratio declined five basis points to 0.4% and the NPL ratio declined eight basis points to 0.33%.
Past dues dropped one basis point to 0.14% excluding the increase from Paycheck Protection Program loans.
There was a reversal of provision for credit losses, a $55 million in the fourth quarter, as further improvement in the economic outlook was partially offset by significant loan growth.
The ACL ratio, excluding PPP loans, declined 21 basis points to 1.21%.
On Slide 11 is a recap of our capital management efforts through 2021.
In the fourth quarter, we executed the remaining $33 million of our 2021 authorization.
And in doing so, we ended the quarter with our CET1 ratio at 9.5%.
For the year, we retired 4.4 million shares or approximately 3% of the common shares outstanding from the end of the prior year.
Our ongoing capital management efforts have helped maintain strong and stable capital ratios, which along with core PPNR, positions us well for continued balance sheet growth in 2022.
For 2022, our capital plan continues the prioritization of capital for client growth while returning an appropriate amount to our shareholders in the form of a dividend.
That includes an increase in the quarterly common shareholder dividend by $0.1 to $0.34, which would first be payable in April.
While our two 2022 plan also includes an authorization for up to $300 million in share repurchases are capital priorities, our focus is on supporting core client growth, and managing our CET1 ratio around the target level of 9.5%.
As we look ahead, we believe this focus on maintaining a strong capital position and prioritizing core growth is not only in the best interest of our shareholders, but also our clients, our communities, and our broader set of stakeholders.
Excluding the impact of $400 million in remaining P3 balances, we expect loan growth of 4% to 7% in 2022.
This growth assumes continued strong production in commercial lending, some curtailment of prepayment activity, particularly in the CRE portfolio, and relatively stable line utilization.
The adjusted revenue outlook of 4% to 7% largely aligns with the current rate expectations, assuming three FOMC rate hikes and excludes the impact of P3-related revenue.
Overall fee income growth will be muted due to the industrywide reduction in secondary mortgage revenue.
However, we expect continued growth in strategic fee categories, including core banking fees and wealth management.
Our adjusted expense outlook of 2% to 5% incorporates increases in compensation, a return to pre-pandemic travel and business development levels, and includes our strategic investments in talent and technology.
XP3, we expect to continue to generate positive operating leverage in 2022 while building out the bank of the future.
Benefits from Synovus forward initiatives will continue to offset increased inflationary pressures and will remain disciplined and agile in terms of managing expense growth throughout the year.
One significant efficiency initiative that is underway is the closing of an additional 15% of our branch locations, with an estimated run-rate savings of approximately $12 million by year-end.
Moving to capital, as Jamie shared earlier, we extended the upper range of our targeted CET1 ratio by 25 basis points, providing a new range of 9.25% to 9.75%.
This range will continue to support our strategic growth objectives while maintaining more than adequate protection against significant adverse conditions if they were to arise.
And in the terms of capital, core relationship growth remains our top priority for capital deployment, while whole bank M&A is not a priority.
We believe these expectations for 2022 support our continued progress toward becoming a sustained top quartile performer.
We have a tremendous amount of momentum in our core businesses, and the team is performing at a very high level.
Given the heightened levels of inflation, it appears the interest rate environment will serve as a tailwind in 2022 as we continue to position the balance sheet for asset sensitivity.
We also believe that our strategic investments will begin to drive top-line growth during the year.
We are making good progress on the build-out of our Banking as a Service product called Mast and are seeing strong talent pipelines for the corporate and investment banking build-out.
For all of these reasons, my confidence in delivering on our 2022 business and financial objectives is very high, and I know our team is poised and ready to win.
Operator, we're now ready to begin Q&A.

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q4 adjusted earnings per share $1.35.
q4 earnings per share $1.31.

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