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Text: Kevin Blair, president and chief executive officer, will begin the call.
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.
All four were killed in a plane crash on October 8, shortly after takeoff from a private airport in Atlanta.
Many of you have likely heard us mentioned Jonathan's name or may have even met him, and you've certainly heard us talk about the extensive impact he has made on our company since we acquired his life insurance premium finance company, Entaire and Global One, in 2016.
In addition to exceeding expectations in growing his premium finance division, he also oversaw our asset-based lending team and built out a world-class structured lending business.
But as successful as he was in his work, he was even more passionate about his family and helping others, especially evident through his Rosen Family Foundation that promotes financial empowerment across the socioeconomic spectrum.
His assistant, Lauren, was equally dedicated to her work and to impacting others.
As you can imagine, our entire work family is dealing with tremendous shock and sadness over this unimaginable loss, but Jonathan built an amazingly talented team that is doing a remarkable job of carrying on under difficult circumstances.
I am not sure I agree, but I am confident in the team he has built to carry his vision forward.
Please join us in keeping the families, friends, and colleagues have all lost in your thoughts and prayers.
Now let's shift to our third-quarter results.
We are delivering on our growth objectives, as evidenced by the period-end loans, core operating deposits, and broad-based fee income growth.
At the same time, we have maintained good expense discipline, while continuing to invest in longer-term initiatives and have managed through the challenging interest rate environment by strategically investing excess liquidity, while continuing to lower the overall cost of deposits.
Loan growth was extremely strong for the quarter as funded commercial loan production increased almost 70% versus the previous quarter, which more than offset the ongoing elevated levels of payoffs and pay downs.
Fee income was up $8 million or 8% versus the second quarter, with wealth and capital markets income posting strong growth, as well as core banking fees returning to more normalized levels post COVID.
Our treasury and payments team set a new high bar in terms of new production at $10.6 million year to date, surpassing its full-year 2020 totals during the month of September.
We also continued to deliver on our Synovus Forward initiatives, which reached a pre-tax run-rate benefit of approximately $100 million by quarter-end.
And we're making great progress in planning for the additional $75 million worth of benefits to be delivered by the end of 2022.
Synovus Forward represents our ongoing innovation and profitable growth mindset, but it will also drive our efficiency efforts in order to ensure we deliver on our sustainable top quartile financial performance objectives.
On the efficiency front.
Additional branch consolidation is underway with four additional branches scheduled for closure by year-end, and we will continue to rationalize the branch network as we reinvent the retail delivery model.
The efficiency efforts will enhance returns but also allow us to further our investment and specialized talent to build out new businesses and product lines.
Through strategic hires this quarter, we have expanded our specialty lending coverage to restaurant services, strengthened our middle-market Florida presence, and announced our expansion into the corporate and investment banking segment.
We continue to make progress on our efforts to digitize our business.
Through the third quarter, we have migrated 90% of our clients on to Synovus Gateway, our commercial portal, and usage of My Synovus, our consumer platform, indicates that digital usage continues to expand with an additional 10% increase in enrollment in active users.
Moreover, a concerted effort has led to a 43% increase in paperless enrollment in 2021.
We recognized that many of these advancements are table stakes in our industry and, therefore, we are focusing additional resources on more transformational opportunities.
Efforts are underway to expand our digital engagement through insights.
We are also expanding the solutions we offer our ISO and ISV clients and are working on the next generation of fully integrated treasury solutions.
These and other initiatives are all focused on delivering new sources of revenue in the coming quarters and years ahead.
Our strategic plan forward balances our investments in both core and transformational initiatives in order to generate both short- and long-term returns, while building on our core differentiation principles.
Now, let's take a look at the financials for the quarter.
On Slide 3, we've included some key financial highlights for the quarter.
I'd like to begin with loan growth, which increased $923 million, excluding changes in P3 balances.
As mentioned previously, record levels of funded commercial production drove the growth for the quarter.
We expect this momentum to carry into the fourth quarter as commercial pipelines remain robust.
Quality deposit growth continued in the third quarter, including an increase in core transaction deposits of $1 billion.
We continue to take advantage of this liquidity environment to focus on remixing our deposit base and along with strategic repricing, this has helped lower the overall cost of deposits by an additional 3 basis points to 0.13%.
We continue to experience balanced augmentation, but a core focus on operating accounts has led to DDA and now production to increase 34% versus the prior quarter.
Jamie will provide additional details regarding the balance sheet, but our goal remains consistent in this environment, attracting, and deepening core relationships.
Total adjusted revenue of $500 million increased 2% from the prior quarter while adjusted expenses declined $1 million to $267 million.
This resulted in a 6% increase in adjusted preprovision net revenue quarter on quarter.
An $8 million reversal of provision for credit losses resulted from the provision expense associated with strong loan growth being more than offset by a reduction in life of loan loss estimates.
Adjusted net income was $178 million or $1.20 diluted earnings per share.
As we have returned to a position of growth, we have done so with strong credit, liquidity, and capital metrics.
The net charge-off ratio declined 6 basis points this quarter to 0.22%, while the NPL and NPA ratios each fell 1 basis point.
The ACL ratio was down 12 basis points, excluding P3 loans, ending the quarter at 1.42%.
And the CET1 ratio declined 12 basis points to 9.63% and remained slightly above our stated range.
Starting with Slide 4.
We ended the quarter with total assets of $55.5 billion and loans of $38.3 billion.
Total loans, excluding P3 balances, grew $923 million, up 3% from the prior quarter, led by growth in C&I and third-party consumer loans.
P3 balances declined $818 million.
In the third quarter, we had record commercial loan production.
However, transaction activity remained elevated, which led to a $500 million increase in payoffs, primarily in the CRE portfolio.
Regional economic data, as well as client conversations, continue to give us a cautiously optimistic outlook on the pace of economic recovery in our footprint.
We continue to see growth in commitments and are well-positioned to increase funded loan balances as market uncertainty and liquidity subsides.
C&I line utilization declined approximately 70 basis points to 39%.
A return to normalized levels of C&I line utilization would result in over $750 million in funded balances.
The liquidity environment continues to be a headwind to consumer loan demand and resulted in declines in our HELOC portfolio of $50 million.
Our third-party lending strategy is one means of responding to this liquidity and capital environment, providing attractive risk-adjusted returns, while diversifying the loan portfolio.
We continue to leverage third-party consumer lending to offset consumer loan declines as evidenced by the $267 million increase in third-party consumer loans for the third quarter.
In order to offset continued increase in liquidity, we grew the securities portfolio by $1 billion to 19% of total assets at the end of the quarter.
As evidenced in the appendix, a significant portion of the growth was in short-dated securities, which mature in less than one year.
We intend to continue rebuilding the third-party consumer loan portfolio to prepandemic levels as long as we secure more assets with attractive risk-adjusted returns.
At the end of the third quarter, third-party held for investment balances were $1.7 billion or 3% of total assets.
Growth in this portfolio is predicated on overall balance sheet dynamics, including capital, liquidity, and client loan growth.
As you can see on Slide 5, core transaction deposits increased $1 billion or 3% from the prior quarter.
Core noninterest-bearing deposit growth of $490 million or 3% was offset by strategic declines in time and brokered deposit portfolios.
Total deposit costs continued to decline with a reduction of 3 basis points to 13 basis points.
This was primarily driven by deposit mix optimization and strategic reductions in high-cost transactional deposits.
Time deposits declined 35% from the prior year, accounting for 5% of total deposits, compared to 9% a year ago.
This was led by the reduction in higher-cost CDs.
While we believe there are additional opportunities for improvement through ongoing product repricing and the continued disciplined balance sheet management, it is likely that deposit costs remain relatively stable over the next two quarters.
As shown on Slide 6, net interest income was $385 million, an increase of $3 million from the prior quarter.
The net interest margin was stable with a decline of 1 basis point to 3.01%.
We are focused on profitable growth over the long term, which includes further optimization of the balance sheet through strategies I just outlined on the previous slides.
Our top priority remains multisolution client growth.
However, we believe there are further opportunities to balance credit, duration, and liquidity risks.
We believe this longer-term view, in conjunction with strong commercial loan production in our high-growth Southeast footprint, can provide outsized NII increases.
We reiterate our previous guidance that NII, excluding P3, will increase in the second half of the year.
Loan growth and the deployment of excess liquidity are expected to offset headwinds from continued fixed-rate repricing and a slight reduction in LIBOR.
We expect P3 revenue to decline between $8 million and $12 million in the fourth quarter.
The net interest margin continues to be pressured by the liquidity environment.
While liquidity is generally accretive to NII, the impact of cash on the balance sheet and securities portfolio growth are likely to continue to be a NIM headwind for the foreseeable future.
Slide 7 shows total adjusted noninterest revenue of $114 million, up $8 million from the previous quarter.
The increase was led by growth of $5 million in capital markets, which resulted from swap income and $2 million in loan syndication fees.
The growth in syndication fees is evidence of why we believe we have opportunities to go upmarket and compete.
Kevin will speak more to this shortly.
Broad-based growth across other NIR categories was evidenced by our performance in our treasury group and core banking fees and highlighted by our wealth areas that are up more than 25% year over year.
In the third quarter, we had approximately $4 million in revenue associated with SBA loan sales and low-income housing transactions.
In the fourth quarter, we expect adjusted NIR to decline as broad-based growth is more than offset by the continued normalization of mortgage revenues, seasonality of our brokerage business, and third-quarter gains that are not expected to repeat.
Slide 8 highlights total adjusted noninterest expense of $267 million, down $1 million from the prior quarter.
A $5 million reduction in third-party processing fees was offset by a $4 million increase in production incentives and additional project spend of $2 million.
We expect a similar level of adjusted noninterest expense in the fourth quarter, with some increases in areas related to increased branch staffing expense, as well as revenue and customer-facing projects as we invest for future top-line growth.
Key credit metrics on Slide 9 remain stable, near historical lows.
The net charge-off ratio fell 6 basis points to 0.22%, while criticized and classified loans declined 22%.
The NPA and NPL ratios were each down 1 basis point.
Past dues were flat at 0.13%, excluding the increase from P3 loans.
We expect net charge-offs in the fourth quarter to remain relatively stable.
And assuming a similar trend in economic improvement, a further reduction in the ACL ratio, which ended the quarter down 12 basis points excluding P3 loans, to 1.42%.
This quarter, the baseline economic outlook improved.
However, due to economic uncertainty, our multi-scenario framework included a 45% bias to downside scenarios.
As noted on Slide 10, the CET1 ratio declined 12 basis points to 9.63% due primarily to capital deployment for growth in our loan and securities portfolios as we continue to actively manage excess liquidity.
Strong financial performance allowed us to return capital to shareholders through share repurchases and common shareholder notes.
Through the end of the third quarter, we have completed approximately $167 million of the $200 million share repurchase authorization for the year.
And we expect to repurchase the remaining $33 million in the fourth quarter.
We will continue deploying capital to support client growth and facilitate opportunistic inorganic opportunities like third-party consumer purchases while returning capital to our shareholders.
Our capital position remains strong, and we are well-positioned to complete key strategic objectives focused on profitable growth, prioritizing mutisolution client relationships.
On March 3, 2020, the Federal Reserve announced an emergency rate cut of 50 basis points.
That same day, we unveiled details of Synovus Forward, a plan we created in 2019, that would deliver an incremental pre-tax run-rate benefit of $100 million by the end of 2021.
We're excited today to share that our efforts to date have yielded approximately $100 million in pre-tax benefits.
Half of the benefit to date comes from expenses, which were front-loaded in the plan to better fund the journey forward.
As a reminder, the most significant items to date have come from organizational efficiencies and headcount reductions, a reduction in third-party spend, as well as branch and nonbranch real estate consolidation.
As a result of these actions, as well as demand management, our adjusted expenses are down $15 million year to date or 2%.
Although expense reductions will become a lower percentage of the Synovus Forward benefits in 2022, we will continue to manage with discipline as we expect inflationary pressures, especially around wages, will impact our overall expense base over the near term.
One of our ongoing initiatives is branch rationalization.
We are scheduled to close an additional four branches in the fourth quarter, bringing our total consolidation to 20 locations since January 2020.
We have additional closures planned in 2022, as we continue to see the opportunity to optimize the network and do so without having outsized attrition.
While we rank favorably in key metrics, such as deposits per branch and branch proximity, we believe our digital efforts, as well as the shifting behaviors of our clients, provide an opportunity to further streamline our delivery through our bricks-and-mortar channel.
And these changes are not limited to branches.
Last month, we announced the strategy to optimize our real estate here at our headquarters by selling our own real estate and consolidating our nine corporate and retail locations in Uptown Columbus into three and allows us to evolve our workplace for the future of work, while reducing our overall square footage by over 60%, leading to a lower run rate expense and greater flexibility for potential future optimization opportunities.
As we move forward, a key focus on expenses will be on optimizing how and where we invest.
By delivering ongoing efficiencies in this quickly changing landscape, we have and will continue to reallocate resources from infrastructure to innovation and support functions to revenue-producing talent.
Our investments will be governed and prioritized by the objective of maintaining long-term positive operating leverage, which leads to our discussion regarding revenue enhancement within Synovus Forward.
Much of the future benefits are predicated on the use of analytics to drive a deeper share of wallet.
Enhanced analytics are now firmly in place for our commercial line of business, and we have begun development for our consumer LOB to comment the high-touch approach that our team members deliver today.
These more timely and actionable insights promote our ability to offer more meaningful advisory capabilities and solutions and better meet the needs of our clients.
A significant portion of the incremental revenue benefit in the third quarter relates to our profitability enhancements, as well as our balance sheet management efforts.
Similar to our pricing for value initiative within treasury management, beginning in the fourth quarter of 2020, we began utilizing various analytical tools and capabilities to actively drive deposit costs lower.
Of the 26-basis-point decline in deposit pricing that occurred over that time frame, our Synovus Forward initiatives drove additional product and customer level repricing, which represented 3 basis points of that decline, contributing $15 million in incremental pre-tax run-rate benefit by the end of the quarter.
Additional balance sheet management efforts have largely been centered around increasing the risk-adjusted yield of the loan portfolio.
Targeted remixing of a subset of consumer loans throughout 2021 has translated into relative higher yields, resulting in an incremental pre-tax run-rate benefit of $16 million.
We remain committed and on track to achieve the cumulative pre-tax run-rate benefit of $175 million by the end of 2022 and are confident about the opportunities ahead to achieve those benefits.
Consistent with our reporting today, we will provide more detail on each initiative as they are sized and realized.
Some of the future initiatives are a function of our renewed focus on innovation.
I'm excited to provide more details regarding new products and solutions later in the year as we work toward their respective rollout.
Our 2021 outlook on Slide 12 remains unchanged from the prior quarter.
However, I'd like to share some additional updates on how we expect to end the year.
In July, we mentioned that we expected 2021 loan growth, excluding balance change from P3 and third-party consumer loans, to be at the low end of the 2% to 4% guidance.
While payoff activity remains a significant headwind, recent productions, client conversations, and our loan pipeline leads us to expect loan growth to be in the lower half of our guidance.
Although excluded from the guidance, it's important to note that we've increased third-party consumer loans more than $1 billion year to date, and our total loans at the end of the third quarter were up 4%, excluding changes in P3 balances.
Total adjusted revenues are expected at the higher end of the negative 1% to 1% guidance, as the balance sheet management efforts we've taken throughout the year to monetize excess liquidity and reduce the cost of funds are being complemented by broad-based fee revenue growth outside of the normalization of mortgage revenues.
Similarly, total adjusted expenses are expected to end the year within the existing guidance of negative 1% to negative 2%, thus providing the opportunity to achieve positive operating leverage.
We expect to achieve this reduction while making longer-term investments in talent and technology that support accelerated top-line growth.
We also reiterate our capital and tax guidance.
The capital guidance assumes we complete the full $200 million share repurchase authorization this year and achieve our loan growth targets.
We're also trending toward the lower half of the effective tax rate guidance of 22% to 24%.
I also want to reiterate my excitement for our new team members we have onboarded this past quarter and for those that are scheduled to join us in the fourth quarter.
As I announced in the beginning of the call, we will be building out a corporate and investment banking team, which will allow us to move upmarket a bit into a segment that I believe we have the capabilities and talent to win in.
The team will be built around specific industry specialties to allow for customized and expert advice in providing credit and depository products, as well as traditional capital market solutions.
We'll share more about the progress in this area, as well as other build-outs, including our restaurant services division and our expanded Florida commercial strategy over the coming quarters.
Lastly, I'm pleased to share that we will be hosting an Investor Day in early February 2022, our first in many years.
During this event, we'll provide clearer, long-term guidance with supporting information from our various business units to show where we're focused on in driving profitable growth.
You'll hear from more of our leadership team, and I believe you'll share the confidence that I have that we will be successfully delivering on our key strategic and financial objectives.

user
compname reports q3 adjusted earnings per share of $1.20.
q3 adjusted earnings per share $1.20.
on track to achieve aggregate $175 million pre-tax run rate benefit by end of 2022.
compname posts q3 adjusted earnings per share $1.20.

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