Synovus Financial Q3 2025 Earnings Call Transcript

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Provided by Quartr
October 16, 2025

Key Takeaways

  • Positive Sentiment: Cenovus delivered strong third quarter results with GAAP EPS of $1.33 and adjusted EPS of $1.46 (up 19% year-over-year), driven by net interest margin expansion, healthy noninterest revenue growth and a lower provision for credit losses.
  • Positive Sentiment: Loan production jumped 43% year-over-year and new pipelines grew 14% sequentially, with specialty lending and institutional commercial real estate leading growth despite elevated payoffs weighing on period-end balances.
  • Positive Sentiment: Capital remains a strength, with a record CET1 ratio of 11.24% in Q3, an expected pro forma CET1 of ~10.1% at merger close and guidance for an ~11.35% ratio at year-end 2025, reflecting robust capital generation.
  • Positive Sentiment: Progress on the proposed Pinnacle Financial Partners merger is on track for a Q1 2026 closing, with finalized leadership, retention packages in place, key technology and process decisions made and synergy assumptions unchanged.
  • Neutral Sentiment: For 2025, Cenovus expects ~4.5% loan growth, 6.5% adjusted revenue growth, 2.5% noninterest expense growth and credit losses of 15–20 bps, while net interest margin may face modest pressure from anticipated rate cuts.
AI Generated. May Contain Errors.
Earnings Conference Call
Synovus Financial Q3 2025
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good morning, and welcome to the Cenovus Third Quarter twenty twenty five Earnings Call. All participants will be in listen only mode. Call. The call today will be limited to approximately one hour. Please note this event is being recorded.

Operator

I will now turn the call over to Jennifer Demba, Senior Director, Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. During today's call, we will reference slides and press release that are available within the Investor Relations section of our website, cenovus.com. Chairman, CEO and President, Kevin Blair, begin the call. He will be followed by Jamie Gregory, Executive Vice President and Chief Financial Officer, and they will be available to answer your questions at the end of the call. Our comments include forward looking statements.

Speaker 1

These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward looking statements because of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendix to our presentation.

Speaker 1

And now Kevin Blair will provide an overview of the quarter.

Speaker 2

Thank you, Jennifer. Synovus reported strong third quarter twenty twenty five GAAP earnings per share of $1.33 and adjusted earnings per share of $1.46 up 19% year over year. Adjusted PPNR growth was also quite healthy, up 5% sequentially and 12% from the third quarter twenty twenty four. Our year over year earnings growth was primarily attributable to net interest margin expansion, healthy non interest revenue growth and lower provision for credit losses. On a linked quarter basis, our net interest margin further expanded, wealth revenue and capital markets income both increased at a strong pace, net charge offs remained low and capital ratios moved higher.

Speaker 2

We also demonstrated continued hiring momentum with 25 new revenue producers added during the third quarter for a total of seventy four year to date. While some anticipated that the merger announcement might distract from our near term performance, our results this quarter tell a different story. We delivered continued strength in loan production, sustained momentum in fee income generation and grew our team member count by 43 this quarter, all clear indicators of our focus, discipline and resilience. We feel highly confident that this momentum should continue in the final quarter of the year as we prepare to close out the merger with Pinnacle Financial Partners. We continue to expect our pending merger with Pinnacle to close in first quarter twenty twenty six.

Speaker 2

This strategically and financially compelling partnership should create the fastest growing, most dynamic regional bank in the country. Since the transaction announcement on July 24, we have engaged extensively with team members and clients in order to ensure a smooth transition and maintain momentum during the integration process. The Pinnacle and Synovus teams have been working diligently over the past few months. As a result, there have been significant tangible progress demonstrated in our merger integration efforts. The entire leadership team has been finalized and communicated and all headcount related decisions and employee communication should be complete in the fourth quarter.

Speaker 2

We have communicated retention packages for key employees at both Pinnacle and Synovus. There have been significant technology and process oriented decisions made as well, which will further reduce uncertainty for our teams as we move forward in the combination. Our integration management offices, which were established in late August, are working together diligently to complete the required work streams that are needed before and after the closing of the transaction, including our LFI readiness. The merger related financial assumptions we communicated in July are unchanged, but we now expect the company's pro form a CET1 ratio to be approximately 10.1% at the closing of the merger as a result of a more favorable rate environment and the strong third quarter capital generation. We plan to issue twenty twenty six pro form a company guidance after the merger closes early next year.

Speaker 2

Now I will turn it over to Jamie, who will review our third quarter results in greater detail. Jamie?

Speaker 3

Thank you, Kevin. Excluding merger related expenses, Cenovus generated positive operating leverage in the third quarter. Adjusted revenue increased 9% year over year, while adjusted non interest expense rose 6%. On a linked quarter basis, adjusted revenue increased 4%, while adjusted non interest expense increased 3%. Net interest margin expansion drove 3% linked quarter and 8% year over year net interest income growth.

Speaker 3

On a sequential basis, the NIM increased four basis points to 3.41% as higher loan yields, hedge maturities and fixed rate asset repricing more than offset higher cash balances. On a linked quarter basis, average loans increased 1%, while period end loans rose 0.5%. Our high growth verticals, particularly specialty lending, continue to drive loan growth, while institutional commercial real estate lending was also a strong contributor. Loan production jumped 43% year over year, but the primary headwinds to our period end loan growth were lower corporate and investment banking utilization and higher payoffs as a result of strong institutional capital markets activity. While lower CIB utilization and payoffs were a headwind to third quarter loan growth, overall CIB loan commitments increased at a healthy pace.

Speaker 3

Period end core deposits declined $231,000,000 or 1% from the second quarter, largely as a result of a strategic $370,000,000 decline in public funds. Growth in time deposits and interest bearing demand deposits was more than offset by a decline in money market and non interest bearing deposits. Our average cost of deposits was relatively flat at 2.23% in the third quarter. Synovus continues to grow noninterest revenue at a healthy pace. Adjusted noninterest revenue was $136,000,000 which increased four percent sequentially and jumped 12% year over year.

Speaker 3

Linked quarter growth was driven by a 4% increase in wealth revenue, largely from brokerage and trust fees and an 8% increase in capital markets income, primarily from client derivative and arranger fees. On a year over year basis, growth was very broad based. We produced 11% growth in core banking fees, 5% growth in wealth revenue and a 36% increase in capital markets income, primarily from client derivative and arranger fees. We remain disciplined with non interest expense control. Adjusted non interest expense rose 3% on a linked quarter basis and increased 6% year over year.

Speaker 3

There is $24,000,000 of non recurring expense related to our pending merger with Pinnacle, mostly for professional fees related to accounting, investment banking, consulting and legal services. Sequential growth was driven by higher employment expenses, primarily as a result of an additional business day, incentive accruals and technology related spend. Year over year non interest expense growth was largely attributable to higher employment expense and technology spend. These expenses were partially offset by lower operational losses as fraud related costs continue to be well managed. Credit trends remained very healthy in the third quarter.

Speaker 3

Net charge offs were $15,000,000 or 14 basis points, while non performing assets improved 0.53% of total loans and real estate owned, down from 0.59% in the second quarter. The allowance for credit losses ended the third quarter at 1.19% compared to 1.18% in June. Finally, the capital position remained strong in the third quarter with the preliminary common equity Tier one ratio at 11.24% and preliminary total risk based capital now at 14.07%. This is the highest CET1 ratio in Synovus' history. I'll now turn it back to Kevin to discuss our 2025 guidance.

Speaker 2

Thank you, Jamie. Period end loan growth for the year is expected to be approximately 4.5 with broad based growth expected in the fourth quarter. The majority of the 2025 loan growth is from our high growth verticals, while we are beginning to see momentum in additional asset classes such as CRE, community banking and senior housing that have been headwinds to growth in recent years. On the deposit front, we project core deposit growth of approximately zero five percentage point for the year. In 2025, we have reduced promotional CD pricing, which has resulted in lower CD retention.

Speaker 2

In addition, we have experienced lower augmentation in public funds balances year to date, which has been offset in the P and L by better than expected deposit betas, which has driven an expanding margin. The fourth quarter is typically our strongest for growth and should be led by continued focus on core deposit production across our business lines, normal seasonal benefits and investments in deposit specialties. Our adjusted 2025 revenue growth outlook is 6.5%. Our interest rate sensitivity profile is now modestly more asset sensitive to the front end of the curve as we prepare our balance sheet for the pending merger. During an easing cycle, the margin should still exhibit short term pressure due to the timing lag between loan and deposit repricing.

Speaker 2

Assuming two twenty five basis point Fed funds cuts in October and December and a relatively stable ten year treasury yield, we believe that the net interest margin should be under some modest pressure in the fourth quarter. We anticipate adjusted non interest revenue of $515,000,000 to $520,000,000 this year. Execution remains solid in our core fee income categories and we expect relative stability in the lines of business in the fourth quarter. Adjusted non interest expense growth should be 2.5% in 2025. We will continue to be very balanced and disciplined in our core expense management.

Speaker 2

And as always, we will continue to invest in areas that support long term growth. The credit loss environment remains favorable. We estimate that net charge offs should be between fifteen and twenty basis points in the fourth quarter compared to 17 basis points in the 2025. On the capital front, we are expecting a CET1 ratio of approximately 11.35% at year end 2025 with the priority on capital deployment continuing to be loan growth and capital needs related to the merger. Finally, the effective tax rate was 20% in the third quarter and should be approximately 21% for the full year 2025.

Speaker 2

In summary, our team delivered strong third quarter financial performance and we are entering the fourth quarter with confidence and momentum. Our leadership team has consistently delivered on the core principles that underpin financial strength, driving ongoing transformation into a high performing client focused and fiercely competitive organization. With our strategic combination with Pinnacle, this momentum will surge. Now that our new leadership team is firmly in place, the acceleration of talent acquisition has commenced, which will drive incremental growth in 2026 and beyond. Moreover, our proactive and detailed merger integration efforts with the Pinnacle team are progressing with precision ensuring we are fully prepared for a successful close in the 2026 and then turn our attention to systems conversion in the 2027.

Speaker 2

We have made great progress in aligning processes, operating models and cultures. With robust fundamentals and a bold clearly defined strategic path, we are exceptionally well positioned to transition to the Pinnacle operating model, one that is designed to drive top quartile growth in revenue, earnings per share and tangible book value. While there is still much work ahead, each day I grow more convinced and convicted of the extraordinary potential and the power of our new franchise. And with that, operator, we'll now open the call for questions. The merger related financial assumptions we communicated in July are unchanged, but we now expect the company's pro form a CET1 ratio to be approximately 10.1% at the closing of the merger as a result of a more favorable rate environment and the strong third quarter capital generation.

Speaker 2

We plan to issue twenty twenty six pro form a company guidance after the merger closes early next year.

Speaker 4

Alex, you can go to questions.

Operator

Thank you. We will now begin the question and answer session. Our first question for today comes from Catherine Mealor of KBW. Your line is now open. Please go ahead.

Speaker 4

Thanks. Good morning.

Speaker 2

Good morning, my friend.

Speaker 4

I want to start maybe with the capital. It was nice to see the capital build and now you're starting capital with a higher level coming into next year post merger. Curious your thoughts on how quickly you think you'll be able to start buying back stock after the merger closes?

Speaker 3

Thanks, Catherine. We haven't given capital targets post close yet, but I'll give you a little bit of context. So we expect to close with 10.1% headline CET1. That's 9.9% including AOCI. When you look at category four banks, 9.9% is right at the second highest of CET1 including AOCI of the Cat four banks.

Speaker 3

And so we think those are pretty strong levels. Now it remains our intent to build capital in the early quarters post close, but we think we're starting from a very strong point. When you look at capital generation through earnings, what I would point to is that the earnings power of this institution is so strong that before you consider risk weighted asset growth, we believe we will generate 35 to 40 basis points of common equity Tier one each quarter. And that strength in capital generation gives us a lot of flexibility in how we deploy it. Obviously, our goal is to deploy it to clients.

Speaker 3

We want to grow this bank. We want to go out there and take market share in the Southeast. If you look at what Pinnacle has done for decades, what we've been doing, we believe we have the right to win and we will do that. And so that's priority one. But there is a lot of capital generated through earnings that we will be balanced.

Speaker 3

And so in the early quarters you should expect to see a little bit of capital accretion but beyond that we'll be looking at the economy, the economic outlook, the loan growth outlook and deciding what to do.

Speaker 4

Okay. That's great. Thank you. And then my follow-up is just on deposits. And I know Kevin you talked a little bit about how fourth quarter is typically your strongest and so we should see better deposit growth into next quarter.

Speaker 4

But I was just curious if could just give us a little bit more color on some of the trends that you saw this quarter. I know public funds drove some of that decline. But what kind of gives you comfort that we'll see better core deposit growth going into the fourth quarter? Maybe what trends you're seeing underneath the surface there? Thanks.

Speaker 2

Yes. Catherine, it's a great question. And to your point when we look at deposits you got to look at all the factors. We produced about $2,600,000,000 in new deposit production this quarter. It was actually up 18% versus the second quarter.

Speaker 2

So we saw good momentum there. As you noted the majority of the declines are just the seasonality around the public funds and we generally see a 20% increase from September to November in that category. So we know that will come back in. But we're pleased with the level of production we saw in CDs. We grew money market and non interest bearing or interest bearing checking this quarter.

Speaker 2

So if we keep the production levels higher what we saw on DDA you saw on a period end basis it was down but on averages it was flat and we think that will continue. I think that's the third quarter in a row that we've seen average balances in DDA roughly flat. So with production staying strong with not seeing a lot of diminishment in average accounts, average balance per account declining plus the seasonality coming in with public funds and some other deposits, we're pretty confident that the fourth quarter is going to be very strong.

Speaker 4

Great. Thank you.

Operator

Thank you. Our next question comes from Jared Shaw of Barclays. Your line is now open. Please go ahead.

Speaker 5

Hey, good morning, everybody. Just maybe looking at the hiring pace, you called out being able to add 43 people this quarter and then talked about accelerating talent acquisition as we go forward. What's sort of been the tone of conversations with people that are looking to come to the bank? And what should we expect sort of from the Sunnova side of a hiring trend maybe beyond after this quarter going into fourth quarter and first quarter?

Speaker 2

Yes, Jared, I would categorize the environment as general excitement. And I would start with our own internal team members because as Pinnacle has shown and I think we've shown as well the ability to hire bankers starts with the people you have inside the four walls of your company. Those that can serve as a testament on this being a great company to work for. And so you can imagine after the announcement in July there were some concerns and some of our team members want to understand the org structure, the new comp and we obviously as we shared gave some retention dollars out to our high performers. But ultimately once we got our team members comfortable with moving forward and actually excited about the combination, it's easier to go and then talk to those individuals who are prospects to join our company.

Speaker 2

When they look at the combined company and see that both companies pride themselves on customer service and making sure that we remove any of the red tape that generally comes into play with folks trying to fully manage their relationships and build positive client relationships. When they see that we're able to do that on a larger scale and have more products and capabilities, I think it leads to people wanting to join the company. Ultimately, I think it comes down to execution, but people are generally buying into the fact that this combined organization will be bigger but also better.

Speaker 5

Okay. And then maybe shifting just a little bit on credit. You had pretty good trends in both reduction of non performers as well as reduction in classified. What's driving that? Is that improvement in the underlying individual credits?

Speaker 5

Or is it more that those weaker credits are being able to be moved off the books? And what should we be thinking about service as credit trends continue to season from here?

Speaker 6

Yes. Hi, Jared. It's Ann. So thinking about our non performing trends, what we saw really the latter point that you made, we did have about $30,000,000 of NPL outflows that were related to our C and I portfolio. And that was a combination of various pay offs as well as pay downs on those loans.

Speaker 6

And so we were encouraged by just the diversity of that activity in the C and I portfolio. And then the other impact came out of the foreclosure of our Atlanta office non performing loans that you've heard us talk about previously. And so that's why you'll see the disparity in NPLs versus NPAs for the first time this quarter that you hadn't seen in a while. So we did take that property into OREO and we're working with the tenants today and coming to a long term resolution.

Speaker 2

And Jared just to put a bow on that to your point, I know there are a lot of credit questions that have made them cropping up in the last week. This is our lowest net charge off quarter in almost three years. Our criticized and classified ratios are the lowest they've been in two years. It was the third successive quarter of only having $25,000,000 of inflows into NPL. So not only is it a positive trend, I think we have some stability in these levels and as we shared in the guidance we expect charge relatively stable.

Speaker 5

Great. Thanks. Appreciate that.

Operator

Thank you. Our next question comes from Jon Arfstrom of RBC Capital Markets. Your line is now open. Please go ahead.

Speaker 7

Hey, thanks. Good morning. Good morning, Jon. Kevin, one for you. Yes, one for you, more, I guess, qualitative.

Speaker 7

What kind of external and internal, I guess call it critical feedback are you receiving today compared to maybe what you were hearing three months ago? I know it was pretty difficult when the deal was announced. But can you talk a little bit about how that's progressed and kind of what you're focused on and what you're hearing internally and externally today that might still a little bit critical of the deal?

Speaker 2

Maybe John the way I'd answer that is, let me give you the maybe the five reasons I made the comment that I'm more convinced and convicted today than I was ninety days ago and this is maybe the questions we're getting and the responses I'm getting back is number one, we've had ninety days to build a deeper familiarity with both sides leadership teams. And as we've gone through the due diligence on this obviously we didn't get to meet the broader teams on both sides. We've had ninety days to do that. We're building strong relationships with both executive teams. We're reinforcing culture alignment and starting to define what our strategic priorities are.

Speaker 2

Secondly, we're making progress on key decisions. We put that in the deck. Whether it's talent, we made another press release last night of our geographic banking and LOB org structures. We're also making decisions around technology. Those decisions are well defined.

Speaker 2

They're coming early in the process so it's removing uncertainty from many of our team members and associates. Number three, you've seen retention and excitement within the key talent as the earlier question was asked. Both organizations have retained their critical talent. We believe engagement levels are very high. Terry shared with me on his side that they did a pulse survey with their VOT and it was actually higher than it was the prior quarter.

Speaker 2

I think both teams are energized about the opportunities ahead. And on our side, our team is excited about the new model, the autonomy, the ability to grow. We've selected the best of best from both sides benefits, both sides products and capabilities. And so there's a general excitement about what's to come. The fourth thing is just revenue growth and synergy cases have been cemented.

Speaker 2

So we've started to dig in more to the revenue synergies. As you know we didn't put anything in the model. There's a lot of opportunity there not just on hold limits but on sharing the specialties that both sides have built with very little overlap. Jamie and his team have worked with Harold to make sure that the cost synergies are aligned with our priorities and realistic and they are. And so that's super important.

Speaker 2

And then the last thing I would tell you is we are continuing to make progress on the regulatory application process that everything is on track. I think the discussions have been very constructive. And I think it just reinforces the confidence that we have in our teams in building out a risk management organization that can fully meet the expectations of a category four institution. And so those are the questions we're getting and that's what gives me a great deal of comfort and excitement as to the future.

Speaker 7

Yes. Okay. That's helpful. I appreciate that. And then Jamie one for you also bigger picture.

Speaker 7

I heard the comments earlier on the accretion math being unchanged other than the capital comment. But as you dig in a little bit more, is there anything that you think could be maybe too conservative or too aggressive in the initial projections? Or is it just too early to tell? Kevin referenced the revenue synergies, but anything where you're leaning one way or the other?

Speaker 3

Well, we do feel good about the opportunity for the revenue synergies. I mean, there are a lot of different areas where Pinnacle complements Synovus, Synovus complements Pinnacle. We're pretty excited about those and obviously they're not in the model. But the other thing I would say is that the model was predicated on consensus in July. It was consensus for Synovus plus consensus for Pinnacle.

Speaker 3

And I think as you know us well, we try to outperform in all scenarios. And I think if you had talked to Terry or Kevin in July excluding this merger conversation both of them would say we see those outlooks two years forward and we expect to outperform. I mean that's just inherent in both of these banks. And so I think what you'll see from us as we move forward is that's what you see these decisions being made so quickly. You see the people decisions, the systems decisions.

Speaker 3

We're leaning in to make sure that we hit the ground running on day one and we feel really good about our position. So we're trying to minimize any uncertainty, any lag and be ready for day one so that we can really hit the ground running here in the Southeast.

Speaker 7

Okay. That's helpful. Thank you very much.

Speaker 2

Thank you, John.

Operator

Thank you. Our next question comes from Bernard Vonneguticke of Deutsche Bank. Your line is now open. Please go ahead.

Speaker 8

Hi, guys. Good morning. Just on hiring. So I think you added low teen hires in the first half of the year and thought you were looking to do similar in the second half. And you noted adding the 25 revenue producers during the quarter.

Speaker 8

So the combined deal is a catalyst for you to add these incremental hires, but it seems like you already started earlier than expected. So could you just provide a bit more color on what areas the hires are in and how we should be viewing the accelerated hiring going into the deal close?

Speaker 2

Yes. So, kind of a new definition Bernie on this quarter. We adopted the revenue producer definition that Pinnacle uses and that's where the 25 comes from. Our initial recommendations where we were talking about adding 45 revenue producers in 2025 were specifically related to commercial middle market specialty and private wealth banking. This new definition is expanded which would include some additional roles.

Speaker 2

So those are kind of apples and oranges. So I would just reference back to the slide that we put out about a month ago that said each year on commercial private wells and our specialty businesses we were targeting adding 45 FTE. Next year we will increase that number by another 35 which will push us up to 80. And then thereafter depending on our success there we put 35,000,000 plus. So just think 80,000,000 plus in 2027.

Speaker 2

That's the goal. As I mentioned our teams are in place and those individuals are already beginning the process and running the process that Pinnacle runs for identifying and starting to attract top talent from around the footprint not only in the geographic banking space but also in specialty. And again I'm quite pleased with the leadership team we have. I'm quite pleased in where we are in the org structures and I think it's going to allow them to begin in fourth quarter starting to make some of those hires.

Speaker 8

Okay. I appreciate that color. And then maybe just staying on this theme, obviously, the pro form a bank, the growth profile, when we think about legacy Pinnacle hiring over 600 of these revenue producers over the past five years, you expect the pro form a bank to hire nearly 500 of these producers over the next two years. So the legacy Pinnacle pipeline for those hires were expected to bring in a total about $19,000,000,000 of assets. And from here, it's probably another $9,000,000,000 or so.

Speaker 8

Just what are your expectations for the ramp up in asset and deposit gathering from your accelerated hiring plans and any timing you can provide on that?

Speaker 2

I mean it's going to ramp up. Mean look if you just go and look at the two consensus numbers and just look at what twenty six percent and twenty seven percent would have meant Pinnacle would be at that high single digit low double digit number and Synovus would have been mid single digit. And so on aggregate it would say that we're about six percentage points in growth in 2026 and 2027. What you'll see 2026 should be higher than that as some of those new hires start to come on board and then compounding that into 2027 it should be higher than that. And then by year three, think we would achieve some level of parity as it relates to growth and our goal would to have that growth be in that high single digit area.

Speaker 8

Great. Thanks for taking my questions.

Speaker 2

Thank you, Burton.

Operator

Thank you. Our next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead.

Speaker 9

Hey, good morning, everyone. Thanks for taking my questions. Hey, maybe for Jamie. Just as we look at the paydowns this quarter, was there any kind of acceleration there? And then assuming we could kind of realize the forward curve this quarter and into 2026, do expect any moderation in that level of pay downs?

Speaker 9

I think we've generally seen pretty good loan production this quarter, but I think the net numbers have disappointed a little bit just given the elevated pay downs. We've had some other banks in the Southeast just comment that they wouldn't expect pay downs to decelerate at all. They, in fact, potentially increase. So you're going to have to run higher a little bit harder. But clearly, you guys are hiring pretty at robust pace that's expected to continue over the next few years as you mentioned in the previous question.

Speaker 9

So just wanted to get a sense for production versus payoff trends as we think about the forward curve and potentially on a standalone basis what growth could look like next year? Thanks.

Speaker 3

Yes. Michael, it's a great question. As we look at payoffs and paydowns, clearly they've been elevated and that's been what's been slowing us down on overall loan growth. It's hard to predict exactly what will happen there. I mean we would expect probably to see a little bit of moderation there but we would have said that before too I believe.

Speaker 3

But I think the real message here for us is the production. I mean you look at the production this quarter and last quarter and a lot of our key businesses and it's a real positive trend. I mean, if you look at the Wholesale Bank, we're really at peak levels, I mean, up 70% from a year ago. Year to date numbers up about 100% from prior year. Commercial banking production year to date is up 19% versus prior year.

Speaker 3

And then when we look forward for the fourth quarter pipelines are up 14% quarter over quarter. So we see a lot of tailwinds and momentum as far as the team which is great to see. I mean Kevin just walked through everything we're going through making these decisions on the merger but the team is focused on our clients and we're delivering and so we expect continued strength in production and hopefully that leads to accelerated growth.

Speaker 9

Very helpful. And then maybe just one more for me, for Kevin. Pretty robust expected hiring numbers, from the combined companies as we move forward, but it seems like every bank, particularly in the Southeast, is trying to hire lenders. Can you just talk about the competitive aspect and hiring that many people over the next couple of years? And what impacts competition could have in kind of meeting those goals?

Speaker 9

I think there's just some concern out there that obviously, the two hiring models are a little bit different. I know you guys are merging. I know there's the base versus bonus consideration there. But as competition kind of heats up for talent, I think there might be a little bit of skepticism that you guys can actually meet those numbers or what the cost would be. Can you just kind of step back and address that more broadly?

Speaker 9

Thanks.

Speaker 2

Michael, it's a fair point. You listen to other banks and there's one strategy. Everybody was going to go out and hire more people. I would just look back at the history of Pinnacle and their ability to continuously do this and their model is one where they hire individuals from organizations and then they ask those individuals to lift up other folks that work there that are of the same quality and they're able to bring over those individuals in teams not in onesie twosie hires and that's the big difference that we'll make as we enter into that hiring strategy is trying to get teams of individuals versus onesie twosies. What gives me great confidence number one is again the track record that Pinnacle has exhibited and that includes the comp structure that you referenced where it's larger base less variable comp and also tied to the top of house.

Speaker 2

Number two, what we know the number one factor that people are moving is generally not compensation. They want a platform where they can fully serve their clients without having a bunch of bureaucracy. What we are both building is a stronger company that offers that to any prospective team member. We'll have bigger balance sheets. We'll have better product capabilities, and we'll still provide them with an environment that tries to remove all the bureaucracy and red tape that will allow them to do what they're doing.

Speaker 2

That's the big difference and that's why the people that both banks have been able to hire are generally coming from the larger banks that are looking for that environment and that will not change. Will there be a greater competition? I'm sure. But as long as we offer those value propositions I think it's going to continue to provide a gateway for people to want to join our company.

Speaker 9

I appreciate all the color. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Gary Tenner of D. A. Davidson. Your line is now open.

Operator

Please go ahead.

Speaker 10

Thanks. Good morning. Jamie, you kind of addressed part of my question with the comment about the pipelines being up 14% quarter over quarter. But just to dig in a little more on the kind of the fourth quarter growth outlook. I mean, get to that kind of 4.5% number for the year, it puts you somewhere around 6.5%, maybe a little better than that in the fourth quarter.

Speaker 10

So how much of that assumes a normalization of payoffs closer to the second quarter level, which I think was $1,000,000,000 versus $1.8 this quarter?

Speaker 3

Gary, it's a good question. And in our model, we have elevated production levels. We have strength in the fourth quarter and we have payoffs remaining elevated but not quite at the level of the third quarter. And we think that will net to 1% to 2% loan growth as you said and we think that that will come through with our core businesses. I mean the trends have kind of bounced around a little bit over the last couple quarters.

Speaker 3

In the third quarter, we saw a lot of strength in our commercial real estate book, diverse kind of term lending, which is a great positive. But then you see the strength in the pipelines in C and I in the fourth quarter. It's a diverse strategy, but we feel good about our expectations for this quarter.

Speaker 10

Okay. And maybe just a follow-up in terms of the pipeline build over the last quarter. Just a sense of how much of that is kind of ongoing increased comfort by your customers as it relates to the economy and tariffs, etcetera, versus other growth dynamics. I get kind of a tough question I guess but how much of it is just increased comfort generally in terms of the underlying economic backdrop?

Speaker 2

I'll take that. I don't know that we can go through our pipeline and designate the purpose or the reasoning behind a new capital opportunity. But I always like to go back to our quarterly client survey. And what was interesting for me this quarter given again another quarter of geopolitical risk and more talks around tariffs generally our clients feel better today than they felt entering the year. And I say that because one of the questions we ask our clients was are your expectations for the next twelve months greater, the same or less than it was as we entered 2025?

Speaker 2

And ironically 20% of our folks said that they expected it to be worse while 40% expected it to be better and 40% thought it would be about the same. So I would submit to you generally people are more optimistic. And that coincides with some of the other data points that we look at. We also ask what your business activity going to look like for the next twelve months. 37% felt it would be the same.

Speaker 2

42% of our clients expected business activity to increase. So maybe that's partly because we're in the Southeast that we're continuing to see a constructive environment. The one caveat that I would say that came out of the survey that was maybe concerning is that many people continue to see the raw input prices increase. We saw 46% of our clients that input prices were increasing but only about 22% could push those increased prices out to their end user. And so I think what we are hearing and seeing is that you'll see some margin compression.

Speaker 2

But I don't think that will take capital demand off the table. I think people generally feel constructive. We also have an environment now where people generally think interest rates will decline and I think that has been correlated to line utilization and a little bit of growth that may stimulate the economy. So I would submit to you this quarter is consistent with last quarter. People are generally optimistic.

Speaker 2

I don't think there's anything in our pipeline that suddenly the dam is broken and people are pulling things out of the pipeline or conversely putting things in. I think it's just normal growth but people are more optimistic than they are pessimistic. Good color. Thank you.

Operator

Thank you. Our next question comes from Casey Haire of Autonomous Research. Your line is now open. Please go ahead.

Speaker 11

Great, thanks. Good morning, everyone. Good morning, Casey. Question

Operator

of the pro form yes, morning. Question

Speaker 11

on on the pro form a balance sheet, you guys obviously have a few months here to look at the combined entity. In prior MOEs, we've seen management teams say, like, maybe we don't need this loan portfolio and sort of make tweaks on the balance sheet. I'm just wondering if you guys have, upon further review, seen some things on the pro form a balance sheet that you might not like or might want to divest or just small tweaks for the overall balance sheet?

Speaker 3

Casey, have not. We continue as we dive into these balance sheets, they really fit well together. We think that the mix of C and I and CRE with a little bit of consumer, we think that it all fits well. There's nothing that we would expect to divest. There's nothing that we at this point think that we will restrain or hold back.

Speaker 3

We think that we're well positioned for the next few years here in the Southeast to drive client growth. The only thing I would

Speaker 2

say is

Speaker 3

our stance still holds that we will like as you head into a crossing $100,000,000,000 there will be liquidity considerations. So we still believe that the debt issuances that we put in our merge model that does make sense. Obviously, we will assess those as we go through the next few years, but that's really the only balance sheet change would be on the liquidity side. It would be kind of measured pace of of debt issuances over time as we kind of look at loan and deposit growth and then potentially a little bit of remixing of the securities portfolio as you think about LCR.

Speaker 11

Okay, great. And then Jamie, just one more follow-up for you on the merger math. So the rate marks within Synovus, you guys have just under $900,000,000 That's amortized across ten years, which seems a little long. I think the average term in the Synovus loan book is three or four years. Just why so conservative?

Speaker 11

And shouldn't that come in shouldn't those rate marks come in a little bit faster?

Speaker 3

Yes. We have different amortization periods for different parts of rate mark. If you look at the AOCI, it's a eight year. If it's held to maturity, it's fifteen year. If it's the loan portfolio, it's ten year.

Speaker 3

So we try to be as appropriate as possible in how we looked at those. And then I guess on the loan portfolio, it's some of the year's digits, so it'll be a little bit front loaded on that. And so we feel like those rate marks remain appropriate. We think that that's a good indication of how they will come through. Yes, I guess that's all I'll say about that.

Speaker 2

Great. Thank you.

Speaker 3

Thank

Operator

you. Our next question comes from Anthony Elian from JPMorgan. Your line is now open. Please go ahead.

Speaker 2

Hi, everyone. On loan growth, you called out production was about $2,000,000,000 for a second straight quarter. And I'm wondering if you can give us more color on any specific areas or drivers of that and that's driven the strong production levels and how sustainable you think that level is? Tony, it's really it's not any specific area that's driving the growth. I mean when I look at our areas and I look at the production by group we saw strong production in middle market banking this quarter.

Speaker 2

We saw strong production in our specialty lending area. CIB stayed on par a little over $100,000,000 Senior housing had a really strong month in production. CRE has picked up. We had about $500,000,000 of production this quarter, a lot of retail. That was up about 40 percent quarter on quarter.

Speaker 2

And so what gives me confidence is that when I look down at all of our sub lines of business I don't see big buckets driving the production. And as Jamie mentioned earlier as we look into the fourth quarter we think a lot of these areas will just continue to produce at similar levels and as he referenced pipelines are up about 14% and that's really across a lot of these businesses. So there's not any one area. We're seeing it in both C and I and CRE. I would mention that CRE even at $500,000,000 is far below where it would have been years ago when rates and cap rates were at a different level.

Speaker 2

I think as rates come down we could see that number build exponentially. But across the board a lot of C and I contributors and I think that will continue for the foreseeable future. Thank you. And then on capital markets income another good quarter in that line item. I'm wondering if you think especially with the outlook for lower rates that that line item can be sustained at the level you saw or if it can even pick up from here?

Speaker 2

Thank you. Absolutely Tony. When you think about $14,000,000 about 40% of that revenue came from derivatives and I think as rates move you're going to still see people wanting to lock in fixed rates especially as rates come lower. So as production remains elevated and continues to grow you'll continue to see the derivative income come in. This quarter we saw about 40% of the revenue from syndication and lead arranger fees.

Speaker 2

That was a record quarter for Cenovus. And I will remind everyone we really only entered this business several years ago where we're leading deals participating out to others. And so I think again as we continue to grow our businesses produce larger loans you're going to see that revenue pick up. About 10% was debt capital markets. That's something that several years ago, we wanted to make sure that if we're providing capital to some of these larger borrowers, we want to make sure that we're getting a piece of some of those debt fees and we continue to get those numbers.

Speaker 2

And again as we go up market, we continue to grow our book, we'll see those come in. The other businesses like FX and small business sales and the small business administration loans, I think those are two businesses we plan to grow as well. So when I look at all the categories, I would not say that this quarter was episodic. I would tell you that the momentum continues to build. And as we join Pinnacle, think there'll be some opportunities to share some of the things we're doing on the Pinnacle side and vice versa.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from Christopher Marinac of Janney Montgomery. Your line is now open. Please go ahead.

Speaker 12

Thanks. Good morning. Kevin and Jamie, can you tell us a little bit more about your loans to private equity funds and other intermediaries? Is there a deposit opportunity that you have with that business that you've been building the last year plus?

Speaker 2

Look I would tell you Chris the deposit opportunity we talked about in the past that if you partner with some of these private credit or private equity funds can you provide ancillary services because we're competing with them today on capital and if you don't want to provide warehouse facilities is there a way to partner provide some capital but get the benefit of deposits. We probably have a couple of relationships like that but I would tell you it's not material. We are not significant lenders into the private credit, private equity markets. I know that NDFIs have picked up a lot of commentary in the last couple of weeks. I'll just remind everyone about 60% of our exposure there is in our structured lending division.

Speaker 2

And that group has a stellar track record for credit performance. We've never had a charge off there. We have no NPLs, no criticizing classified loans and it's 100% senior secured. So it's a business that we continue to grow. It's well structured.

Speaker 2

It's well underwritten. And most importantly, they monitor the collateral. So I'll knock on wood, we won't have events that you've seen happen with others across the industry.

Speaker 12

Great, Kevin. That's helpful. So the growth in NDFI really relates back to sort of the expansion of that structured group and that's much more to do with these balances rising than any other focus.

Speaker 2

Exactly, Chris. And what I would tell you is remember when we did our risk weighted asset optimization exercise, most of those loans, the large majority get preferential risk weighting treatment at 20%, which shows you how well secured they are in the strong legal protections and the collateral management that's behind those assets.

Speaker 12

Great. I appreciate that. And I guess it's safe to presume that your reserves really already kind of capture that growth of that structured business already. Absolutely. Great, Kevin.

Speaker 12

Thank you very much.

Speaker 2

Thank you, Chris.

Operator

Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Kevin Blair for any closing remarks.

Speaker 2

Thank you, Alex. As we wrap up today's call, I want to thank the entire Synovus team for delivering another exceptional quarter. We are successful because of you. We're entering the fourth quarter with strong momentum as evidenced by this quarter's highlights. Third quarter was yet another quarter of exceeding the Street's expectations.

Speaker 2

We increased our revenue guidance to the high end of the range and lowered our expense guidance to the low end of the range for the year. We had the lowest net charge offs in almost three years, the lowest criticized and classified ratio in two years. We also had the highest quarter for core fee income and the highest CET1 levels in our company's history. And add on to that we had profitability that continues to stand out with an ROA at 1.42% and an ROTCE at almost 18%. These accomplishments serve as a strong foundation as we prepare to close our strategic merger with Pinnacle Financial Partners.

Speaker 2

Together, we're creating the nation's most dynamic regional bank, fast growing, service driven, best in class in every way. I also want to recognize the hard work of our merger integration offices both at Synovus and at Pinnacle. Their dedication and collaboration have been instrumental in ensuring we're ready to operate as a larger and more capable financial institution. And let me be clear, this is hard work and is not lost on anyone. Success will be determined by our execution and it will require a compromise based on a set of common goals and ambitions.

Speaker 2

Terry and I recognize that this merger will result in changes to both companies, but we're 100% committed to joining together by adopting the best of each. In that regard, here at Cenovus, we are already transitioning to the Pinnacle operating model, which means we will deliver through a strong geographic model, support local delivery with non siloed expertise and specialty partnerships, add revenue producers at an accelerated pace and have the entire team incentivized and motivated on delivering top of house growth and risk management goals. Things are moving at a very swift pace. I'd also like to use this opportunity to extend my congratulations to Pinnacle on their upcoming twenty fifth anniversary. It's a notable milestone that reflects their decades of success and enduring commitment to service excellence, growth orientation and entrepreneurial spirit, values that will align perfectly with our shared vision.

Speaker 2

I also want to express my gratitude to our Board of Directors for their invaluable advice and counsel through this transaction. Their guidance has been critical in helping us navigate complex decisions and positioning Synovus for long term success. And lastly, I want to thank our clients. Thank you for your continued trust and support. You're the reason we get out of bed every day and you're at the center of every decision we are making as we bring these two high performing organizations together.

Speaker 2

Terry stated that in his career he has never seen a more advantaged competitive position than the one we will enjoy post merger. I echo that sentiment and I'm incredibly confident in the path ahead and I'm completely energized by the opportunity we have to shape the future of Regional Banking. The best is yet to come. And with that Alex, this concludes our third quarter earnings call.

Operator

Thank you all for joining today's call. You may now disconnect your lines.

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