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Text: 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.
During the call, we will reference non-GAAP financial measures related to the company's performance.
And now here's Kessel Stelling.
This past year was one that none of us will ever forget and certainly challenging for the industry and for our company.
From the pandemic to social and political unrest, the year presented more intensive challenges in a more concentrated period than any single time in my 40-plus-year banking career, including the financial crisis just over a decade ago.
Slide 3 includes some notable achievements from 2020, starting with the Paycheck Protection Program, through which we extended approximately 19,000 loans totaling $2.9 billion to customers across the Southeast.
P3 represented a truly herculean effort by our team to quickly deliver critical aid to customers and communities in need.
We're also off to a very strong start with the newest round of P3 with approximately 5,000 loan applications submitted totaling $700 million in new requests.
We operate in one of the best geographic footprints in banking.
And last year, we continued to improve our competitive positioning for 2021 and beyond.
This past January, we announced our transformational Synovus Forward initiative.
And we made significant progress throughout the year, executing on our Phase 1 revenue and efficiency efforts.
As previously stated, we expect to achieve $100 million in pre-tax run rate benefits by the end of this year.
And Kevin will provide more detail later on plans for an additional $75 million in benefits by the end of 2022.
We made additional investments in talent and solutions to support growth and to enhance technology that further improves the customer experience.
Last year, we made upgrades to our mobile and online banking portal, online account origination capabilities and other digital touch points.
And we continued to invest in and grow our existing businesses while also building out new offerings.
During the year, we onboarded new affordable housing and agribusiness expertise, significantly expanded our merchant services business and further matured our structured lending and treasury and payment solutions capabilities.
Also during the year, given the dramatic change in the underlying economic environment, we moved quickly to further strengthen our balance sheet and capital position.
Our CET1 ratio increased over 70 basis points, ending the year at 9.7%.
In addition, our ACL ratio increased 75 basis points from day one CECL implementation.
And our total risk-based capital ended the year at 13.4%, the highest level since 2014.
As a result, we enter this year very well positioned to facilitate additional growth while also effectively managing balance sheet risk.
I'm also proud of our work last year in important areas that are not directly disclosed in financial statements but are important sources of value, such as ESG reporting, financial literacy outreach and financial support of nonprofits and community agencies, including the establishment of a substantial scholarship endowment for African American students through the UNCF in honor of our former colleague and longtime Georgia State representative, Calvin Smyre.
Finally, we announced last month that I'll be transitioning from chairman and CEO to executive chairman of our board in April following our Annual Shareholders Meeting.
I'll serve in that role until January 1st, 2023.
To be clear, this is not my final earnings call so no farewells or goodbyes just yet.
I'll participate in our first-quarter call in April and then will hand the reins over to Kevin and team to take it from there.
With that, I'll turn to Jamie to share fourth-quarter financial highlights beginning on Slide 4.
We ended the year strong with diluted earnings per share of $0.96 per share compared to $0.56 last quarter and $0.97 a year ago.
Adjusted diluted earnings per share was up $1.08 per share compared to $0.89 last quarter and $0.94 a year ago.
Total adjusted revenues of $499 million were up $5 million from last quarter, led by broad-based increases in fee revenue, continued reductions in deposit costs and accelerated P3 loan forgiveness income.
Adjusted noninterest expense of $275 million was up $6 million from last quarter, which was impacted by a $5 million increase in Synovus Forward, P3 and COVID-related expenses.
Moving to Slide 5.
Total loans declined $1.3 billion in the fourth quarter, including accelerated P3 loan forgiveness that resulted in balance declines of $516 million.
Total lending partnership loans held for investment declined $81 million, while loans held for sale from this category increased $81 million.
Excluding reductions in P3 and lending partnership balances, total loans declined $700 million or 2% from the third quarter.
Total C&I loans declined $640 million in the fourth quarter, including the $516 million coming from accelerated P3 forgiveness.
Line utilization continued to decline in the quarter, down an additional $57 million.
C&I line utilization of 40% was 6% lower than it was the same quarter last year and remain near historic lows.
Total CRE loans declined $395 million as payoff and paydown activity increased significantly in the fourth quarter as transactions that were delayed during the height of the pandemic were completed.
Total consumer loans declined $282 million.
This included lending partnership reductions, as well as paydowns within our mortgage and HELOC portfolios.
As shown on Slide 6, we had total deposit growth of $2 billion.
Fourth-quarter increases were led by core transaction deposit growth of $1.8 billion and $1 billion in seasonal public funds.
Offsetting this growth were expected declines in time and brokered deposits.
The cost of deposits fell by 11 basis points from the previous quarter to 28 basis points due to a combination of rates paid and deposit remixing.
In the fourth quarter, we were able to reduce the cost of time deposits by 28 basis points and the cost of money market deposits by 9 basis points.
In this lower-for-longer rate environment, we believe there are additional opportunities to reduce deposit costs through CD turnover, ongoing repricing, as well as the ability to continue to remix the deposit composition.
Slide 7 shows net interest income of $386 million in the fourth quarter, an increase of $9 million from the third quarter that was primarily due to the impact of increased P3 forgiveness.
Net interest income was further supported by deposit cost efforts previously mentioned and was offset by modest headwinds from lower loan balances and continued pressure from fixed rate asset repricing.
Exclusive of P3 fee accretion, NII in the fourth quarter was $361 million as compared to $365 million the prior quarter.
We are pleased with continued progress on deposit repricing and positive remixing trends on the liability side of the balance sheet.
The current environment is enabling us to grow our core relationships and further improve our overall liability profile, which is serving to offset a portion of the headwind we are experiencing from repricing within our fixed rate asset portfolios.
The net interest margin was 3.12%, up 2 basis points from the previous quarter.
The additional P3 fee accretion of $13 million to a total of $25 million was a meaningful contributor to that increase.
Conversely, considerable deposit inflows, coupled with the timing of our subordinated debt transaction, led to an elevated level of one balance sheet liquidity within the fourth quarter with average excess cash balances increasing $1.4 billion.
This dynamic can have a notable impact on the margin with every $1 billion of extra cash on balance sheet diluting the margin by approximately 6 basis points.
In the coming quarters, we expect the elevated cash position to decline as we experience seasonal deposit outflows and as we manage our balance sheet and overall liquidity position.
This will include further growth within our securities portfolio, as well as declines in noncore funding sources, such as brokered deposits.
As of year-end, there were $49 million of Phase 1 P3 processing fees remaining with approximately $20 million associated with loans that had initiated the forgiveness process.
Excluding the impact from P3, we expect modest downward pressure in NII and NIM in the first quarter from the rate environment as asset growth and further reductions in cost of funds partially offset continued fixed rate asset repricing.
Slide 8 shows noninterest revenue, which was $115 million, flat to the prior quarter.
After adjusting for security gains, adjusted noninterest revenue was $112 million, down $3 million from the prior quarter.
The fourth quarter included notable increases in service charges, fiduciary and asset management, card fees and brokerage income.
Core banking revenue improved by $3 million to $37 million primarily due to increased activity as we continue the gradual return to pre-COVID levels.
Service charges on deposits, SBA gains and card fees each increased about $1 million from the previous quarter.
$2 million in revenue growth from fiduciary and asset management, brokerage and insurance helped offset the $1 million decline in capital markets revenue resulting from lower loan activity.
Net mortgage revenue of $24 million, down $7 million from the prior quarter, remained elevated.
Secondary mortgage production increased 4%, which directly impacted commissions.
Despite a quarter-over-quarter increase in secondary production, fee income declined due to lower margin and pipeline.
Total noninterest expenses were $302 million, down $14 million.
On an adjusted basis, NIE was $275 million, up $6 million from the prior quarter.
Adjustments include $14 million related to the voluntary early retirement program we announced in October, $8 million in loss on early extinguishment of debt and $4 million in branch optimization real estate writedowns.
Payback on all of these strategic initiatives are 2.5 years or less.
The quarter-over-quarter increase in adjusted NIE includes $5 million related to Synovus Forward, P3 and COVID.
The Synovus Forward expenses are upfront third-party expenses associated with the design and build of these strategic initiatives.
This quarter's expenses are largely tied to the pricing for value in commercial analytics programs.
Most of the $3 million increase in P3 and COVID-related expenses are upfront consulting and technology fees to streamline the forgiveness process.
We are encouraged by the forward impact of efforts we've taken and investments we've made throughout the year, including the fourth quarter.
During the quarter, we realized an additional $2.5 million in savings from Synovus Forward that offset investments in digital and technology.
These include the first phase rollout of our new commercial digital platform Synovus Gateway, continued migration of systems to a cloud environment and enhancements to our BSA/AML technology.
These investments will provide future revenue, scale, risk and expenses benefits in 2021 and beyond.
In the fourth quarter, headcount declined by 100, most of which occurred in December as part of the voluntary early retirement plan.
Savings from this initiative largely began January 1.
So these salary reductions will help offset the seasonal first-quarter increases in employment taxes.
Kevin will speak to our full-year guidance shortly.
Before providing some comments related to key credit metrics on Slide 10, I'd like to provide a brief update on our COVID-related deferral program, which provided for up to 180 days of deferred payments of principal and interest.
Loans in this program with a full P&I deferral declined to 34 basis points at the end of the fourth quarter.
Performance for borrowers that completed a deferral period has been strong, with approximately 99% paying as agreed.
As we've shared in the past, we've conducted enhanced monitoring on industries that were likely to experience the most pressure from the pandemic.
Elevated risks remain and are largely concentrated in hospitality-related segments, including hotels and full-service restaurants.
More information on those portfolios is available in the appendix.
As evidenced by key credit metrics, we're not seeing widespread credit deterioration.
Credit measures of NPLs, NPAs, criticized and classified assets all remained relatively stable for the quarter.
Past dues and net charge-offs declined modestly.
Cash inflow updates, which are also in the appendix, generally showed continued improvement through November, although we do expect some pressure to these inflows from recent surges in COVID cases.
This pressure will likely be more impactful in the same hospitality segments I mentioned and were the main driver of increase in criticized and classified loans in the third quarter.
Provision for credit losses of $11 million include net charge-offs of $22 million or 23 basis points.
Provision for credit losses other than net charge-offs reflect lower loan balances and a more favorable economic outlook.
The allowance for credit losses ended the fourth quarter at $654 million.
And the ACL ratio increased 1 basis point to 1.81%, excluding P3 loans.
The year-end allowance includes a multi-scenario framework with a base economic outlook which incorporates the most recent stimulus with modest economic growth and declines in unemployment rate throughout '21 and '22.
We returned to a two-year reasonable and supportable period this quarter as economic uncertainty is moderated.
Another noteworthy change included use of a third-party provider's economic projections as a starting point for our economic outlook rather than a benchmark or challenger as it was used earlier in the year.
Changing to a third-party provider did not have a material impact on the economic inputs or resulting allowance.
There is more detail included in the appendix.
Preliminary capital ratios on Slide 11 show continued improvement as CET1 increased 37 basis points to 9.7% this quarter.
We ended the year above the higher end of our operating range of 9 to 9.5%, which positions us well as we move into the new year.
The total risk-based capital ratio of 13.4% was up 25 basis points.
It includes subordinated debt optimization efforts completed in the fourth quarter that aligns with our ongoing efforts to diligently manage our capital position and weighted average cost of capital.
Our 2021 capital plan maintains the current common shareholder dividend of $0.33 per quarter and includes authorization for share repurchases of up to $200 million.
We will be opportunistic with repurchase activity throughout the year as we prioritize organic growth first and balanced capital deployment with factors such as uncertainty in the economic outlook.
Based on the current outlook, we will continue to target a CET1 ratio at the higher end of the 9 to 9.5% range with more opportunity to deploy capital as we gain greater clarity around effectiveness of the vaccine, as well as confidence in the broader economic recovery.
Let me take a few minutes to provide a brief update on our Synovus Forward progress.
Having initiated the program back in the second half of 2019, 2020 was a year of execution and expansion.
As we have shared, the initial focus was on funding our journey through various efficiency initiatives.
I am pleased with our progress in the delivery surrounding these first-round programs.
The third-party spend program will fully deliver $25 million run rate savings in 2021.
We also consolidated 13 branch locations this past year, which will result in approximately $5 million in run rate savings on a go-forward basis.
And as we close out 2020, we completed two components of organizational efficiency work stream with a voluntary early retirement program and a back-office staffing optimization, which will produce $13 million in run rate benefit in 2021.
As 2020 progressed, we expanded our efforts within Synovus Forward by embarking on several revenue-based initiatives.
Starting with our pricing for value program, we have begun the market-based repricing of our treasury and payment solutions offerings and are pleased with the progress to date with an anticipated run rate benefit of approximately $9 million in the first half of 2021.
As Jamie has also noted, we've been able to more aggressively reprice our deposit throughout 2020 with the month of December coming in below our previous cycle lows.
We also kicked off our commercial analytics program.
Utilizing transaction-level data, we have built a tool known as smart that will allow our commercial bankers to better identify opportunities to expand relationships, reduce attrition, as well as better manage changes in underlying risk profiles.
As we begin to pilot the smart tool, we are convinced we will see incremental revenue benefits from its full deployment.
We have also prioritized resources, capital expenditures and business activities to ensure that we have continued to invest prudently during the year.
As Kessel referenced during the 2020 highlights, we made significant improvements in our consumer and business digital capabilities during the year.
Enhancements made improved the customer experience, expanded new account origination availability and built a more scalable platform for future functionality deployment.
As a result of our progress and the plans for additional Phase 1 initiatives, we remain committed to deliver the $100 million run rate pre-tax benefits by the end of 2021.
We have also increased our objective by an additional $75 million run rate benefit to be achieved by the year-end 2022.
The additional benefits will come from both revenue and expense initiatives with a heavier weight toward revenues.
Much of the additional benefit will come from expanding the breadth and depth of the programs already launched, as well as leveraging new processes, technology, products and solutions and talent to generate the incremental benefits.
We will provide more detail throughout the year as we set more specific execution plans for the next phase of Synovus Forward.
Turning to Slide 13.
This slide provides an overview of our 2021 outlook, which incorporates Synovus Forward initiatives and other strategic objectives and is predicated on our current view of the economic stability and growth in our footprint for the year.
Before I share more details around the individual categories, let me first touch on a few things that gives me confidence as we enter 2021.
First, the talent we have added in recent years continues to provide outsized opportunities for growth as they continue to build their portfolios to more seasoned levels.
Secondly, investments we are making in products and capabilities continue to pay dividends.
For example, treasury and payment solutions' new revenue in 2020 was up 160% over 2019 and 450% over two years ago.
And lastly, our teams are better prepared for the operating environment in 2021.
And we'll be able to avoid many of the distractions and challenges that we encountered in 2020.
With our enhanced online account origination capabilities and remote sales approaches, our sales effectiveness for the year will improve.
So let's start with the asset side of the balance sheet.
We expect an additional 65 to 70% of the P3 loans funded in 2020 to be forgiven by mid-2021, leaving around $500 million on the books for an extended period.
As Kessel mentioned earlier, we are participating in the second round of the P3 program.
And since opening our portal on January 19, we have received strong application volumes and are working diligently to efficiently process the request to support our eligible customers and prospects' needs.
Based upon our results to date, as well as our preliminary analysis of eligibility, we believe the number of applicants will range from 5,000 to 7,500, which compares to just over 19,000 last year.
We expect the average loan size to be less than the round one average of approximately $150,000, which would result in a higher percentage of fee revenue.
Excluding all P3 balance changes, we expect loan growth of approximately 2 to 4% in 2021.
Given the current environment, we do forecast this growth to accelerate in the back half of the year and will be well diversified across business units, asset classes and geography.
Despite continued uncertainty in the markets, we have reasons to be optimistic about our expectations for loan growth.
Our expectations are that we will see a steady increase in production throughout 2021 in our commercial book as economic activity improves.
From our discussions with our customers, we also know there is a pent-up demand for capital that has been delayed due to the overarching uncertainties.
Synovus is well positioned for growth given our marketplace and business model.
Entering 2020, our teams were achieving record levels of production and we expect to return to similar levels post pandemic.
We love our footprint and the outsized growth expectations for the Southeast.
The demographics of our market continue to be very constructive for growth.
In addition, our model is very attractive to both prospective customers and banking talent and we've seen this over the recent years.
As such, we expect to continue to see organic growth arising from the execution of our go-to-market strategy, as well as any fallout that may occur as industry consolidation continues.
We've also added and expanded to our new specialty verticals in 2020, including structured lending, affordable housing and agribusiness.
These teams will provide accelerated growth in 2021 and beyond as we continue to evaluate the expansion into new industry and asset class specialty areas that will expand our offerings and provide new sources of growth in the future.
A return to a more normalized C&I line utilization would increase funded loan balances by $650 million as compared to year-end balances.
Although there's obviously some uncertainty related to how quickly this will take place especially with the possibility of additional stimulus and elevated liquidity, we do expect the normalization to occur over time.
Lastly, we have the capacity to increase our lending partnership portfolios, which can serve as an effective and profitable use of excess liquidity and capital.
As Jamie mentioned earlier, given the current liquidity environment and the recent increase in interest rates, we are likely to increase the size of the securities portfolio in the near term.
Now let's move to revenue.
Net interest income will remain under pressure from fixed rate asset repricing.
We will actively work to reduce the impact of rates through balance sheet management, loan growth, future reductions and cost of deposits, as well as the potential deployment of excess liquidity in the investment portfolio or higher returning asset classes such as third-party lending.
There's a similar story with fee revenue, which faces the headwind of normalized secondary mortgage revenue.
The expected decline in mortgage activity will be largely offset by increases in most other categories, including core banking fees, as well as fiduciary and asset management fees.
Our investment in treasury and payment solutions, the recently launched merchant program and various wealth management businesses will provide added momentum throughout 2021.
One business that we are especially excited about is the Synovus Family Office.
Despite a challenging year, the Family Office grew assets under management by 23% and new business revenue booked for the year increased 66%.
This unique value and service provided by businesses like Synovus Family Office will provide continuous growth opportunities.
In aggregate, we expect total adjusted revenues to decline 1 to 4% in 2021.
Some opportunities to perform at the higher end of the range include more favorable deposit pricing, further steepening in the yield curve, higher-than-expected economic activity, increased participation in Phase 2 of the P3 program and acceleration of the benefits from enhanced analytics and other revenue-centric Synovus Forward initiatives.
In the fourth quarter, we continued to make progress on our efficiency initiatives with branch and headcount reductions.
As we assess the current environment and the resulting pressures on revenue, we are proactively adjusting our expense base to promote a return to positive operating leverage.
Despite our overall actions to reduce expenses, it is not inhibiting our ability to continue to invest in areas of focus with approximately $20 million in strategic investments in technology and digital planned for 2021.
In aggregate, we expect adjusted expenses to decline between 2 and 5% for the year.
We continue to assess, challenge and target all expense categories as we look to further improve our efficiency and effectiveness and remain committed to positive operating leverage over the long term.
A large portion of the annual decrease will be realized in the second half of 2021 as seasonal increases in employment tax and the previously mentioned investments in digital and technology will be more front loaded.
Our CET1 ratio of 9.7% is above our stated operating range of 9 to 9.5%.
Existing capital levels, as well as the inflow from 2021 core earnings will support our anticipated balance sheet growth and strategic objectives.
Jamie mentioned some components of the 2021 capital plan.
So I'll simply reiterate that we are a growth company and that's our first priority for deploying capital.
Other priorities include maintaining a competitive dividend, capital optimization and other deployment opportunities, including share repurchases.
The CET1 target of 9.5% in the 2021 outlook is at the higher end of our 9 to 9.5% operating range, which we believe is prudent while greater levels of uncertainty exist.
Given our current CET1 ratio and our economic outlook, it is likely we will remain above our targeted range in the near term.
As clarity around the economic outlook increases, we will look to further deploy capital through balance sheet growth and/or share repurchases.
Lastly, assuming no significant change in the current tax environment, we expect an effective tax rate of 23 to 25%.
We've increased our focus and execution around various tax strategies, some of which were executed in 2020 and others that will be established over time that will provide opportunities to further reduce the effective tax rate from current levels.
For sensitivity purposes, a federal tax rate change from 21 to 28% would result in an increase of our long-term effective tax rate of 6.5%.
That would follow a one-time adjustment to the DTA that would mitigate a portion of the impact in the first year.
Now before we move to Q&A, let me close with a couple of comments.
I am humbled and honored to be presented with the opportunity to transition into the CEO role in April.
Kessel has led this company with such a steady hand over the last 10 years and has returned the company to a position of strength.
With this handoff, working with Kessel in his role as executive chairman of the board, we will continue our unwavering path forward.
And on the second point, as we evaluate our path forward, I am convinced our purpose-driven, advice-based relationship approach, complemented with innovative digital capabilities and functionality will provide a compelling, differentiated value proposition in the crowded and competitive landscape we operate within.
We will continue to use Synovus Forward to set our vision and agenda for the transformational imperatives that are required to ensure we execute and deliver on our short- and long-term business and financial objectives.
2021, despite the uncertainties, will serve as our next step forward in achieving these goals.

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q4 adjusted earnings per share $1.08.
q4 earnings per share $0.96.
qtrly net interest income of $385.9 million increased $8.9 million or 2% sequentially.

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