Synovus Financial (SNV) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - GAAP earnings per share (EPS) for Q3 2024 was $1.18, including an$ 8.7 million Visa valuation adjustment Adjusted diluted EPS was $1.23, up 6% sequentially, driven by stronger net interest income, lower provision for credit losses, and stable adjusted noninterest expense [4] - Net interest margin (NIM) expanded by 2 basis points to 3.22% in Q3 2024, with net interest income increasing by 1% sequentially [6] - Net charge-offs improved to 25 basis points in Q3 2024, down from 32 basis points in Q2 2024 [5] - Common equity Tier 1 (CET1) ratio reached 10.65%, the highest in nine years, and total risk-based capital stood at 13.62% [12] - Adjusted return on average assets (ROAA) was 1.3%, and adjusted return on tangible common equity (ROTCE) was 17.1% [7] Business Line Data and Key Metrics - Loan production increased by 8% sequentially and 6% year-over-year, with growth in middle market, Corporate and Investment Banking (CIB), and specialty lending lines [8] - Core deposit balances rose by$ 295 million (1%) sequentially, with growth in money market and operating accounts partially offset by declines in noninterest-bearing deposits [9] - Adjusted noninterest revenue declined by 4% sequentially but increased by 15% year-over-year, driven by growth in commercial sponsorship income, capital markets, and treasury and payment solutions [10] - Noninterest expense was relatively flat quarter-over-quarter and down 1% year-over-year, reflecting cost discipline and strategic investments [11] Market Data and Key Metrics - The company expects period-end loans to remain relatively flat in Q4 2024, with growth driven by middle market, CIB, and specialty lending lines, offset by CRE and senior housing payoffs [13] - Core deposit growth is expected to be within the 1% to 3% range in Q4 2024, aided by seasonal public funds tailwinds [13] - Deposit costs rose by 4 basis points to 2.72% in Q3 2024, with expectations for deposit costs to follow a 40% to 45% beta in Q4 2024 [9] Company Strategy and Industry Competition - The company is focused on strengthening its balance sheet and positioning for growth in 2025, with strategic investments in technology and infrastructure to drive long-term shareholder value [7] - Synovus is reducing nonrelationship lending and focusing on core client growth, particularly in middle market, CIB, and specialty lending lines [8] - The company is leveraging partnerships, such as with GreenSky, to drive growth in commercial sponsorship income and expand its card sponsorship business [6] Management Commentary on Operating Environment and Future Outlook - Management highlighted the impact of Hurricanes Helene and Milton on the community but expressed confidence in the resilience and recovery efforts [4] - The company expects a more constructive growth environment in 2025, with loan growth returning to normalized levels as strategic runoff and payoff activities abate [22] - Management anticipates margin expansion in 2025 as fixed-rate asset repricing tailwinds come into play, particularly after the easing cycle ends [16] Other Important Information - The company completed approximately $100 million in opportunistic share repurchases in Q3 2024, with$ 80 million remaining in the share repurchase authorization for 2024 [12] - Synovus received national recognition for its corporate culture, innovation, and client service, including being named number six in American Banker's top 20 banks on reputation [69] Q&A Session Summary Question: Margin expectations beyond Q4 2024 - Management expects the margin to remain relatively stable in Q4 2024 and early 2025, with potential expansion later in 2025 as fixed-rate asset repricing tailwinds unlock value [16][18] Question: Loan growth and production outlook for 2025 - Loan production has increased by 70% since Q1 2024, and management is optimistic about growth in 2025, driven by reduced uncertainty post-election and lower rates [21][22] Question: Impact of hedge maturities on hedge costs - $750 million in loan hedges will mature in Q4 2024, with an average rate of 95 basis points The hedge portfolio's effective rate is expected to increase to around 3% by Q2 2025 [24] Question: Capital markets income outlook - Capital markets revenue is expected to remain stable in Q4 2024, with a baseline of$ 10 million per quarter, driven by derivatives, syndications, and debt capital markets [27][28] Question: Deposit pricing and growth expectations - Deposit betas are expected to follow a 40% to 45% range, with core deposit growth anticipated to continue into 2025, supported by client growth and reduced headwinds [32][34] Question: Credit quality and nonperforming loans - Net charge-offs are expected to remain stable at 25 to 35 basis points in Q4 2024, with management confident in the strength and quality of the loan portfolio [19][30] Question: M&A strategy and industry consolidation - Synovus remains focused on organic growth, adding talent, and investing in technology rather than pursuing acquisitions, with a strong emphasis on market share gains in the Southeast [57] Question: Fixed-rate loan repricing impact in 2025 - Fixed-rate repricing is expected to contribute approximately 15 basis points to the margin in 2025, with the fixed-rate commercial loan book yielding 2% below current market rates [64][65]