Synovus Financial Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 17, 2025

Key Takeaways

  • Positive Sentiment: Strong Q2 results with adjusted EPS of $1.48, up 14% sequentially and 28% year over year, driven by margin expansion, lower credit provisions, and expense discipline.
  • Positive Sentiment: Net interest margin rose to 3.37% as deposit costs fell to 2.22%, underpinning 6% annual growth in net interest income.
  • Positive Sentiment: Loan balances grew 2% sequentially with a 60% year-over-year surge in funded production—the highest since Q3 2022—led by specialty lending and commercial banking segments.
  • Positive Sentiment: Credit quality strengthened as net charge-offs declined to 17 basis points, nonperforming loans dropped to 0.59% of total loans, and the allowance for credit losses eased to 1.18%.
  • Positive Sentiment: Raised full-year 2025 guidance to 5–7% revenue growth, 4–6% loan growth, 1–3% core deposit growth, 2–4% expense growth, and stable credit costs and capital ratios.
AI Generated. May Contain Errors.
Earnings Conference Call
Synovus Financial Q2 2025
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good morning, and welcome to the Cenovus Second Quarter twenty twenty five Earnings Call. All participants will be in listen only mode. The call today will be limited to approximately one hour. Please note this event is being recorded. I'll now turn the call over to Jennifer Demba, Senior Director, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and good morning. During today's call, we will reference the slides and press release that are available within the Investor Relations section of our website, synovus.com. Chairman, President and CEO, Kevin Blair, will 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. Last night, we were pleased to release strong second quarter twenty twenty five results. Synovus reported GAAP and adjusted earnings per share of $1.48 Adjusted earnings per share increased 14% from the first quarter and jumped 28% year over year, while adjusted pre provision net revenue rose 5% sequentially and grew 7% from second quarter twenty twenty four. Our year over year earnings growth was primarily attributable to healthy net interest margin expansion, lower provision for credit losses and continued operating expense discipline. On a linked quarter basis, loan growth was strong and broad based, while loan production was the highest it's been since the third quarter of twenty twenty two.

Speaker 2

Also, net interest margin expanded modestly and capital market fees rebounded. While expense growth was well controlled, net charge offs declined and capital ratios moved higher. Importantly, we continue to execute well on our 2025 strategic initiatives, which includes our accelerated hiring of relationship managers. Through the second quarter, we are on track with this program, adding 12 new commercial bankers. During June, we issued press releases which highlighted our new hires across the footprint, and we continue to have a robust pipeline of talent slated for expansion in the third and fourth quarters.

Speaker 2

Moreover, Synovus continues to provide exceptional client service as evidenced by our performance in the most recent J. D. Power survey. We had the sixth highest Net Promoter Score amongst the largest 50 banks by asset size, with Synovus posting the largest year over year increase amongst the same group of 50 institutions. Our second quarter client survey conducted over the last month continues to show general optimism for future business growth despite concerns regarding government fiscal and trade policy actions.

Speaker 2

We continue to maintain close communication and dialogue clients as they navigate the more uncertain tariff environment and geopolitical backdrop. Moreover, we have augmented our survey and client contact efforts over the second quarter to yield a more effective industry intelligence. In summary, I'm incredibly pleased with our performance this quarter and the strong trajectory we're on. We saw a 60% year over year increase in total funded loan production in the second quarter, coupled with a continued decline in net charge offs and broad based expansion across our fee income categories, all of which underscores the momentum we built and reflects the strength and the diversity of our growth. And we have achieved these results while setting new high watermarks for our capital ratios demonstrating both the resilience and the discipline of our strategy.

Speaker 2

Now Jamie will review our second quarter results in greater detail. Jamie?

Speaker 3

Thank you, Kevin. Synovus generated positive operating leverage in second quarter twenty twenty five. Adjusted revenue increased 3% from the first quarter while adjusted non interest expense grew just 1%. On a year over year basis, adjusted revenue increased 5% while adjusted non interest expense rose 3%. Net interest margin expansion drove 6% year over year net interest income growth in the second quarter.

Speaker 3

On a sequential basis, the NIM expanded two basis points to 3.37% benefiting from a decline in our cost of deposits, fixed rate asset repricing, hedge maturities, lower cash balances and a stable Fed funds environment. Period end loan balances were up $888,000,000 or 2% from the first quarter. Loan growth continues to be led by our high growth verticals which increased $5.00 $2,000,000 in the second quarter. Specialty lending rose $353,000,000 sequentially driven by growth in structured lending and restaurant services lending, further supported by corporate and investment banking loans which were up $159,000,000 Also of note, our commercial bank line of business within the Community Bank grew loans by $111,000,000 Total loan production trends remained healthy as funded production increased 34% quarter over quarter and 60% year over year. In fact, as Kevin mentioned, our loan production was the highest it's been since the third quarter of twenty twenty two.

Speaker 3

Core deposits declined $788,000,000 or 2% from the first quarter, which included a $4.00 $5,000,000 drop in public funds. Time deposits and interest bearing demand deposits declined partially offset by $115,000,000 of growth in non interest bearing deposits. Also broker deposits were down $130,000,000 Turning to funding costs, our average cost of deposits declined four basis points to 2.22% in the second quarter. This deposit cost improvement represents a total deposit beta of 50% through the recent easing cycle compared to our guidance of 40% to 45%. Adjusted non interest revenue was $131,000,000 which increased 12% sequentially and grew 3% year over year.

Speaker 3

Linked quarter growth was primarily attributable to a sharp rebound in capital markets fees, a 2% increase in wealth management income, seasonally higher commercial sponsorship revenue and a $2,000,000 BOLI gain. On a year over year basis, we generated 9% growth in core banking fees partially offset by lower capital markets revenue. We remain very disciplined with non interest expense control. Adjusted non interest expense rose just 1% on a linked quarter basis and increased 3% year over year. Excluding FDIC special assessment reversals in the 2024 and 2025, adjusted non interest expense increased just 2% year over year.

Speaker 3

Sequential growth was driven by higher employment expenses partially from a full quarter impact of our 2025 merit increases as well as the initiation of new projects and a $1,000,000 contribution to the donor advised fund. This growth was partially offset by lower FDIC premiums, consulting fees and operational losses. Year over year non interest expense growth was primarily attributable to higher employment expense partially offset by lower credit related legal costs and operational losses. Our results demonstrated continued strength in credit performance with a net charge offs of $18,000,000 or 17 basis points better than our previously communicated guidance of around 20 basis points. Non performing loans improved to 0.59% of total loans, down from 0.67% in the first quarter.

Speaker 3

The allowance for credit losses ended the quarter at 1.18% compared to 1.24% in March. The allowance for credit losses declined due to positive credit trends within our loan portfolio partially offset by a more adverse economic outlook. We continue to be diligent and proactive with credit risk management and remain engaged in multiple efforts to identify risks associated with recent policy changes. Finally, our capital position remains strong in the second quarter with the preliminary common equity Tier one ratio at 10.91% and preliminary total risk based capital now at 13.74%. This is the highest CET1 ratio in our company's history.

Speaker 3

Our healthy earnings profile continues to support our capital position leading to slightly higher capital ratios inclusive of about $21,000,000 of share repurchases completed in the second quarter. I'll now turn it back to Kevin to discuss our 2025 guidance.

Speaker 2

Thank you, Jamie. Looking at 2025 guidance, our outlook has been revised expectations for increased revenue growth supported by strong year to date performance that we expect to continue in the third and fourth quarters. Our guidance incorporates two Fed fund cuts in the second half of the year in September and December and a relatively stable ten year treasury yield. Period end loan growth is expected to be 4% to 6% in 2025 compared to 8% annualized growth in the second quarter. The vast majority of the growth is expected to come from our high growth verticals, which include middle market, specialty and corporate and investment banking lending.

Speaker 2

Our confidence in this outlook is based upon current lending pipelines, our 2024 and early twenty twenty five talent additions, as well as business line expansions. On the deposit front, we now expect core deposit growth of 1% to 3%. Strong second half twenty twenty five growth should be led by continued focus on core deposit production across our business lines, normal seasonal benefits and investments in deposit specialties. Our adjusted revenue growth outlook has increased to 5% to 7% as a result of loan growth momentum, net interest margin strength and our expectations for fewer twenty twenty five rate cuts. Our interest rate sensitivity profile continues to be relatively neutral to the front end of the curve and we remain slightly asset sensitive to long term rates.

Speaker 2

However, during an easing cycle, the margin should still exhibit short term pressure due to the timing lag between loan and deposit repricing. We now anticipate adjusted noninterest revenue of $495,000,000 to $515,000,000 this year. We believe continued core execution in areas such as treasury and payment solutions and capital markets as well as refinement of our delivery models in consumer banking, wealth services and third party payments will support the bank's fee income momentum. Adjusted noninterest expense growth should remain in the range of 2% to 4% in 2025. We will continue to be balanced and very disciplined in expense management while investing in areas that deliver long term shareholder value.

Speaker 2

In the third quarter, we estimate that noninterest expense should be around $320,000,000 primarily as a result of a higher day count, ongoing expansion and addition of technology projects and continued team member hiring. Moving to credit quality, we believe that the credit loss environment should be relatively stable over the near term. As a result, we estimate that net charge offs should be relatively stable in the 2025 compared to the 19 basis points experienced in the first half of this year. Moving to capital, we will target a relatively stable CET1 ratio with the priority on capital deployment continuing to be loan growth rather than share repurchases. We believe current capital levels are more than adequate in a range of more challenging economic outcomes.

Speaker 2

Our tax rate was approximately 21% in the second quarter and compared to over 22% in the prior period. We now anticipate the tax rate should be between 2122% for the full year 2025. In summary, our team demonstrated solid performance in the first half of the year and we feel confident that this momentum should continue in the third and fourth quarters. As a result, we have raised our 2025 net interest income and noninterest revenue outlook while maintaining our noninterest expense guidance. We also expect our net charge offs and capital ratios to remain relatively stable throughout the second half of the year.

Speaker 2

Collectively, these results set the stage for a strong 2025, building on the momentum and the achievements we've delivered year to date. With strong fundamentals and a clear strategic path, we are well positioned to deliver sustained value and strong financial performance this year and beyond. But now, operator, let's open the call for questions.

Operator

Thank you. We now begin at the question and answer session. Our first question for today comes from Jon Arfstrom of RBC. Your line is now open. Please go ahead.

Speaker 4

Thank you. Good morning, everyone. Kevin?

Speaker 1

Are you there?

Speaker 4

Yes, I'm here. Can you hear me?

Speaker 5

Yes. We can hear you.

Speaker 4

Okay. Good. Good. Kevin, can you just I want to talk about loan growth a little bit. Can you talk about the change in sentiment that you saw from borrowers and how that really progressed during the quarter?

Speaker 4

We talked a little bit about it last quarter. There's a lot of uncertainty. But now you're talking about 60% year over year funded production. Your high growth segment annualized growth doubled, production is highest since 2022. So something clearly changed.

Speaker 4

And I'm just curious if you feel like loan growth is accelerating from here and kind of how it progressed during the quarter?

Speaker 2

John, you hit a lot of the statistics and I wish there were some secret sauce to it. It really comes down to hard work. We have a great team that's been calling on both clients and prospects and I think being in the Southeast has been helpful. We entered the second quarter, expecting loan growth to pick up. We saw production and pipelines up about 10%.

Speaker 2

That's what we were forecasting. As you referenced in your numbers, it came in much higher. I think it's a function of some of the talent that we hired back in 2024 and even some of the new talent we've added in 2025. And we provide some of the breakout by segmentation. You referenced it as well.

Speaker 2

When you look at the fast growing segment 17% annualized growth this past quarter brings it to 12.5% year to date which puts us right in the middle of that range. Our moderate growth category that we thought would be zero percent to five is now up to 6% year to date. And so when you think about it's not one area. It's multiple areas that are producing. It's a function of talent.

Speaker 2

It's a function of the activity picking up. And what's really great is as we look into the third quarter pipelines are about 14% higher than where they were entering the second quarter. So yes, we think loan growth could continue. A couple of things we're watching line utilization. We did see about $150,000,000 of improvement on same line utilization this quarter.

Speaker 2

So it ticked up about 90 basis points. That's obviously a driver of growth. We also are monitoring the payoff activity. We've talked about that for some time. We've seen some elevated payoff activity this quarter.

Speaker 2

It was up about $80,000,000 off of first quarter, so leveling off and most of that was in CRE. So if these production levels continue to increase, we don't see a significant change in payoff activities or we see some improvement there along with some line utilization, which is generally correlated to interest rates. We do believe that the second half could continue to pick up and that's why we've increased our loan guidance for the year.

Speaker 4

Okay. Good. Very helpful. And then just Jamie for you on the deposit outlook. I get it being a little bit slower, but you're also flagging faster commercial deposit growth.

Speaker 4

Can you talk a little bit about your expectations there? And then how you expect the deposit mix to change if this type of loan growth continues? Thank you.

Speaker 3

Yes. John, first let me talk about the second quarter a little bit. When you look at the decline in deposits, it was really led by public funds, broker deposits as well as CDs. And as you're well aware, these are all products where growth is largely a function of price. And so those were strategic decisions that we made in the second quarter.

Speaker 3

It led to the decline in total deposit cost and positioned us for margin expansion. But without those declines deposits were roughly flat. And so now when we look forward to the second half of the year, you have a combination of a couple of things. One you have what Kevin is describing which is core client growth, new accounts, new hires bringing in deposits. You have our specialty deposit verticals, but then you also have the seasonals.

Speaker 3

And so if you look at history and look at core deposits in the second half of the year, well, even if you exclude public funds, that typically contributes 1% to 2% to total deposit growth in the second half of the year. Public funds themselves are an incremental 1% to 2% add in the second half of the year. And then the last thing I would say is we made a strategic decision to be really aggressive in reducing our time deposit rates during the easing cycle. And as you know, our pricing beta on production there was over 100%. Well, we've kind of pulled back more towards median in our CD pricing in the month of June and that led to stability.

Speaker 3

And so we had relative stability in CDs in the month of June and our average production rate was right around three fifty two. And so we feel that with the stability and time potentially inflecting the growth as well as seasonals and then core client growth in specialty verticals, we're really well positioned for growth in the second half of the year.

Speaker 6

Okay. Thank you.

Operator

Thank you. Our next question comes from Ebrahim Poonawala of Bank of America. Your line is now open. Please go ahead.

Speaker 7

Good morning. I guess maybe just following up on the lending momentum and growth. Talk to us, maybe Jamie, Kevin, around the competitive landscape that you're seeing and impact on pricing on when you think about C and I growth, the sort of especially in some of your higher growth areas, both from competitive banks, out of state banks and then even non banks such as are you even seeing private credit at all when you're out there in the market? Thanks.

Speaker 2

Eby, I say this all the time, but I've never been in a single quarter in my thirty year banking history where there's not a competitive quarter. So, it remains competitive on the deposit side, the lending side, on winning new business, on providing great service to our clients. So I don't think I'll ever answer it where it's not competitive. But I think to your point what people are seeing people feel very good about their capital positions. They feel very good about their liquidity positions that we've all built as an industry over the last couple of years.

Speaker 2

You look at the supplementary leverage ratio from the big banks and it frees up capital for them to deploy back in organic growth. So all of those things would point to the fact that we should expect to see ongoing competition for loans. As it relates to pricing, we've talked about there being some competitive tension. When you look at it on a SOFR spread basis, we saw about five basis points of decline quarter on quarter, so fairly modest. And when you look at overall production loan yields, we came in about 6.78% for the quarter, which was off about 12 basis points from the previous quarter.

Speaker 2

Some of that relates to mix, but it is showing up with more pricing competition as our bankers are out there trying to win business. The great news is when we look at the other side of the equation and you look at the deposit production pricing that was at about 2.49%. So we're still earning about a 4.3% spread on loan production minus deposit production. That's something we look at internally because I think you don't want to look at just one side of the balance sheet. So it is going to be competitive both for loans, for talent.

Speaker 2

Pricing is going to be a key component for how people compete. But I think we're able to manage through that and you do that by trying to provide more relationship value. It can't be just based on price alone. So we've got to make sure that we continue to add value for our clients. We've to provide those cash management services.

Speaker 2

We've got to provide exceptional advice and service. And then price becomes less of a factor.

Speaker 7

That's good color. Thank you for that. And I guess maybe just a separate follow-up. So I heard your comments on expenses and the outlook. But if growth momentum does pick up over the coming months, would that change in terms of, like, just tactically ratcheting up investments tied to growth, be it banker hiring or infrastructure around that?

Speaker 7

Just talk to us in terms of how you're thinking about sort of dynamically changing things depending on just how the revenue backdrop evolves.

Speaker 3

Ebrahim, as you look at the expense outlook, there is some variable cost associated with incentives. If we out form that you'll see that inflect a little bit higher. But our strategic initiatives, we believe that they stand on their own on the IRR profile of the initiative. And if you're focusing in on the hiring that's something that we when we identify the right team members, future team members, we're going to make that move and we're going to make those hires. And that's less dependent on our revenue outlook.

Speaker 3

I mean, can recall back in the fourth quarter when we first laid out our guidance for 2025, we had revenue and expenses in line with each other. And I think that shows that we want to make the right long term decisions for this company and we're okay if expense growth and revenue growth are in line so long as that improves profitability for the future. Now look that's clearly not what we're saying today because you can see the strong operating leverage in our revenue and expense guides today. But I would just say that our strategic growth initiatives stand on their own more than as a reaction to increased or decreased revenue growth.

Speaker 7

Got it. Thank you both.

Operator

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

Speaker 8

Hi, everyone. Kevin, just a follow-up on the new hires in the prepared remarks you made. So you announced a few weeks ago plans to hire plans to make new hires in the Carolinas, Florida and other markets as part of the 2030% increase over the next three years. It seems like you've had a lot of momentum in the past couple of quarters. So should we think of many of these hires as being made this year or it's still spread out over the next few years?

Speaker 2

Yes, Anthony. We talked about on the prepared remarks about 12 FTE. We had slated 25 commercial relationship managers across middle market, core commercial and business banking this year. So we're about 50% there. And you look at our pipeline, we think we'll add the other 12% to 13% in the second half of the year.

Speaker 2

So that will be on pace for what we had planned for 2025. And 2026, you'll see another 30 commercial hires. And then the third year, you'll see probably 30 to 40 in the last year. So what we're trying to do as we said in the beginning is we're trying to choose the right talent. We're being picky.

Speaker 2

We're bringing in folks as you've seen from our press release primarily this first tranche in Florida, Atlanta and across South Carolina. And as we go into the future years, we'll expand to the other four markets that we've talked about across the footprint. What's also important is that not only are we adding commercial bankers, we're also adding private wealth resources to support our business owner wealth strategy where we're targeting wealth opportunities amongst those commercial owners and CEOs. And so yes, you'll see us play out this year. But really over the next three years, it's going to be fairly measured where each year we'll have a commiserate level of additions.

Speaker 2

And part of that is just because we want the 25 additions to really pay for the 26 additions and then we'll pay that forward into 2027 where the two years we'll largely be paying for it. And as I've mentioned most of these positions have less than a two year earn back as we evaluate them on a P and L basis. So it's going to be measured. We've been very excited about the talent we brought in to date. And yes, I think we're going be able to continue to do that for the foreseeable future.

Speaker 8

Thank you. And then my follow-up Jamie on fee income, you had a good quarter in capital markets, but the second half fee income guide implies a bit of a step down. I'm just curious what's driving that or is there a level of conservatism baked into that? Thank you.

Speaker 3

Yes. Tony, as we look at the second half of the year in Capital Markets, we're actually expecting relative stability to the second quarter. I mean, as you're aware, we viewed the first quarter more as an anomaly and the second quarter as a return to normalcy. And so when you think about fee revenue for the second half of the year, we really expect it to be relatively flat to the first half of twenty twenty five, similar level as the second quarter. Kind of we were pretty much back to our original guide that we had for full year NIR.

Speaker 9

Thank you.

Operator

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

Speaker 10

Yes. Hi, guys. Good morning. Just on the NIM, the increase sequentially, you know, one of the factors you highlighted, in addition to lower funding costs with lower cash balances. You know, when you mentioned normalized cash balances, can you remind us what level should we be thinking of?

Speaker 10

And now that we have two assumed rate cuts versus four, can you maybe share some thoughts or color on the glide path NIM in the second half of the year, and as we exit 2025?

Speaker 3

Yes. As we think about cash balances, we expect to be relatively stable where we are now as we look into the second half of the year. We can bounce around. I mean we could be at $2,000,000,000 but we're kind of hanging out in this general area. When you look at the margin for the second half of the year, first I would anchor you to the flat rate scenario just because I think it's an easier way to think about it.

Speaker 3

We still expect in flat rate environment for the margin to accrete to low 340s at the end of the year and that's largely going to be fourth quarter. It will be more of a fourth quarter event than a third quarter event due to fixed rate asset repricing. And so in that scenario, we are expecting the funding calls and deposit calls to be relatively stable and to see a little bit of increases in our asset yields as we go through the year. With regards to cuts, again, it's the same thing we've said before. We believe that each cut is about a 5,000,000 to $7,000,000 impact to NII.

Speaker 3

And so you can depending on when the cut is, depending on how much one month SOFR leads the actual cut itself, you kind of get somewhere in that range. And so it's kind of hard to say the impact per quarter because it really depends on the month of the quarter of the ease. But I continue to use that 5,000,000 to $7,000,000 per ease impact NII. But we remain neutral to the curve. And so once we get through that lead lag impact, we don't believe that the Fed easing will have a long term impact to the margin.

Speaker 10

Okay. And just on a follow-up on fee income. Just you had efforts obviously investments in treasury and payment solutions and that's aided core banking fees in the first half of the year thus far. I think one of the initiatives you point to is on pricing. I was just wondering if you could break down the drivers of growth here.

Speaker 10

And then I know service charges came in a bit higher in the quarter. Just wondering if there's anything lumpy in that line item to call out. Thank you.

Speaker 2

No. It really gets back to we had a repricing initiative at the beginning of the year, that now has been implemented across our treasury products. And so it's really just charging a fair price for what we're providing. And so that has now been implemented. And to your point when you look at just the account analysis line of service charges for the quarter it was up about 12% versus the prior quarter and up 15% year over year.

Speaker 2

So some of that is a function of the repricing. And the other part of that is just as we continue to expand our relationships by selling more cash management treasury solutions into our clients' wallet, it's driving growth there as well. As you think about the rest of the year, there's really nothing lumpy in the service charge line. We've actually held serve with NSF fees, so that's there. We've had some, on the Capital Markets side, there's been some lumpiness there.

Speaker 2

We saw this quarter we had a 6,000,000 increase in Capital markets largely a function of arranger fees, syndication fees and derivatives. And so that will continue to kind of move around a little bit along with the loan production. But everything else is as we think about the rest of the year it's running at a run rate that should continue at the levels you've seen in the second quarter.

Speaker 10

Great. Thanks for taking my question.

Operator

Thank you. Our next question comes from Manan Ghisalia from Morgan Stanley. Your line is now open. Please go ahead.

Speaker 9

Hey, good morning all. Good morning. I wanted to ask on Slide 22. Can you talk a little bit more about the decision to add a little bit to reserves from the economic uncertainty element of the macro component of the reserves. It feels like things are going the right way from a macro perspective as well as from your own portfolio perspective with NCOs, NPLs and criticized everything improving.

Speaker 9

So just wanted to get a little bit more color on that increase. Was it just driven by Moody's or was there anything else in there?

Speaker 3

Yes. The short answer to whether driven by Moody's is yes. I mean we do use their scenarios and then we apply our own internal weightings. We have a group of economists that opines on the probability and we adjust accordingly. And so and that's the four scenarios you see on that slide on slide 22.

Speaker 3

The change from the prior quarter really the indicator that we use the most that drives the model the most is unemployment and the change in unemployment rate. And when you look at the weighted scenarios that we used this quarter versus last quarter, the early changes in unemployment rates are what's driving that economic uncertainty increase. And then clearly, the performance of the loan portfolio is that offset that more than offset and led to reduction in the allowance to loan ratio.

Speaker 9

Got it. And then as a follow-up just on capital, I think you noted a preference for allocating capital towards loan growth rather than buybacks. And I think you slowed buybacks a little bit this quarter. But CD1 is still fairly strong at 10.9%. So can you help us with how you're thinking about buybacks in the back half of the year?

Speaker 3

We continue to target relative stability in our capital ratios. And so if you look at year end, we were at 10.84% and then we saw a decline in the first quarter and now we've built back up a little bit in the second quarter. The build in the second quarter largely had to do with how we saw loan growth coming in. And when you look at as Kevin mentioned earlier, when you look at the pipelines that we are seeing in March and April, which are leading to loan growth in May, we just decided to hold off on incremental share repurchases and just wait till we see how it plays out. Because you're right, our priority is client loan growth and that's what that capital is there for.

Speaker 3

And so we just wanted to hold off and watch what happened with loan growth. And so we're pleased to be at $10.91 here at June 30 and we will try to maintain relative stability as we go through the second half of the year.

Speaker 9

Great. Thank you.

Operator

Thank you. Our next question comes from Catherine Beller of KBW. Your line is now open. Please go ahead.

Speaker 5

Thanks. Good morning.

Speaker 2

Morning, Catherine.

Speaker 5

Noticed that you added borrowings into the kind of the back half of the quarter. Can you talk to us just give us some insight into the cost of those kind of more end of period balances and maybe the duration of it? Should we expect as deposit growth improves in the back half of the year, those borrowings will come down? Or is it more just kind of growth from these levels? Thanks.

Speaker 3

Yes. Those borrowings are all Home Loan Bank borrowings. And so that's where you see that increase in that piece of wholesale funding. You can think of those as being right near SOFR rates. And so those are collateralized very liquid borrowings.

Speaker 3

When we look forward into the second half of the year, we do expect that core client deposit growth to offset the loan growth we expect in the second half of the year. So the growth I was describing earlier in non maturity and sparing deposits as well as public funds, we think that that will be the offset to the strong growth we're expecting in the second half of the year.

Speaker 5

Okay, great. Thank you. And then one more in the margin is, can you give us any insight into your fixed rate book kind of is on average day in terms of yields and then where your floating rate book is on average today? Just trying to think about the balance between those two in a stable rate environment and the upside from the fixed rate book and then maybe once we start to see cuts also how the floating rate coming down may be offset by that fixed rate book repricing?

Speaker 3

Yes. With the floating rate book, typically the spreads are around two fifty on the floating rate book. And as of now, our floating rate loan portfolio is 64% of total loans. And the index that's most common on our floating rate loan book is one month SOFR. And so I would expect to see that reprice fairly swiftly in an easing environment.

Speaker 3

And then on the fixed rate side, on the commercial loans, I would assume kind of a three year duration on those and then of course the mortgages are fairly long, a five or six year duration.

Speaker 5

Is it fair to say that book is still kind of in the mid-5s today?

Speaker 3

The fixed rate book?

Speaker 7

When

Speaker 3

you look at our total loan book right now gosh, I don't have that yield in front of me about well, it's about 6.25 is the loan is the overall yield on the loan book. But mortgages, the average kind of book yield on our mortgage portfolio is in the mid-4s.

Speaker 5

Okay. That's helpful. Okay, great. Thank you.

Operator

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

Operator

Please go ahead.

Speaker 11

Thanks. Good morning. Wanted to ask a bigger picture question in terms of the recruiting. It seems like every mid sized bank in the Southeast that we've talked to is very focused on recruiting and talent acquisition. So could you talk about kind of the competitive dynamics around that strategy right now and maybe the value prop that you're kind of offering to folks that you think differentiates you?

Speaker 2

Hey, Gary. Look, you're right. I think the way to grow is to continue to add quality talent. And we all say this is a talent industry because we're highly commoditized. So I don't think that our strategy is that differentiated.

Speaker 2

But the strategy is differentiated in your ability to hire better talent. And I think it starts with being able to attract individuals based on the culture of your company. When I look at Synovus, we just finished our voice of team member survey which looks at engagement and we finished at 89% which puts us in the upper echelon of any company in The United States. And I think that's important. People want to join a company that is fun to work for, that celebrates one another and is very family oriented.

Speaker 2

I think we provide that. Two, these bankers want to come to a place where they can fully serve their clients. That starts with products and capabilities. And we've said this time in and time out, we're trying to be a bank that has all the capabilities and functionalities of the larger institutions, but we continue to deliver on a very personalized level like the smaller banks. And that puts us in that Goldilocks like principle where we think we can out competition or out capability of the smaller banks and out service the larger institutions.

Speaker 2

Well, that's how we attract talent. We show them that we have the technology and the capabilities and the treasury solutions to be able to meet their clients' needs, but we also show them that we really try to limit the administrative burdens that prevent them and keep them from doing what they love doing best, which is serving their clients and growing their book. And so it's not again, not rocket science, but I think it's a model that works for us. And then when you get folks over from those institutions that feel it and experience it, they become our biggest recruiters because then they're calling people from their previous institution, and they're saying this company really is what they say they are. So I should say, because Anne's in the room, credit is also very important to relationship managers.

Speaker 2

They need to make sure that our credit box and the way in which we adjudicate credit meet their needs. And we're very local, and we're also very attentive with our credit officers making sure that they're with the frontline team members as a part of the solution not as a back office function. So again nothing really secret but it's something that's a recipe for success that we've been able to enjoy and we think it will allow us to continue to recruit talent for the foreseeable future.

Speaker 11

Thanks. Appreciate the thoughts there. And then just kind of quick bookkeeping on the buyback. I know it was approximately $21,000,000 Could you give the kind of shares repurchased or average price?

Speaker 3

Yes. We repurchased a weighted average price of $44.64 now 500,000 shares.

Operator

Thank you. Our next question comes from Chris Marinac with Janney Montgomery Scott. Your line is now open. Please go ahead.

Speaker 12

Thanks. Good morning, Jamie and Kevin. Just want to follow back up on deposits. A, is the public funds sort of focus going to change at all? Or is this change just seasonal?

Speaker 12

And I'm also curious about incentives and how you think through those as you continue to pursue growth?

Speaker 3

The public funds growth that we're describing is purely seasonal. I mean, I'm sure that there will be incremental clients that gained in the second half of the year, but what I'm describing here is purely seasonal. And what was the question on incentives alignment with growth?

Speaker 12

Yes. I'm just curious if you're doing anything new on incentives or is it still the same plan that you've had in prior quarters?

Speaker 2

Yes. Same plans. What's great about the Frontline is their incentive to grow revenue. All of our commercial bankers have a quarterly plan that talks about producing more revenue for the company and they get paid on that. And their annual plan is based on what their year over year portfolio revenue does.

Speaker 2

So the great thing about that is it's not the bucket mentality where we say, hey, go focus more on deposits or go focus more on fee income. They're incented to serve the needs of our clients and provide the solutions without being a product pushing incentive plan. At the top of the house, we have the same incentive plans that we have for our leadership team. It's about driving EPS growth and it's about maintaining an ROA that supports it. So it really reinforces prudent growth and nothing's changed on that front Chris.

Speaker 12

Great, Kevin. Thank you for the color. I appreciate it.

Speaker 2

Yes. Thank you.

Operator

Thank you. Our next question comes from John MacDonald of Truist Securities. Your line is now open. Please go ahead.

Speaker 13

Hey, good morning guys. On terms of credit quality, could you talk about what's coming in better than expected for the net charge offs and the other credit metrics? You've beaten your guidance from the beginning of the year and things seem to be improving and stable there. So just looking for a little color on the credit.

Speaker 14

Yeah. This is Ann. Thank you. So as far as our credit quality goes it coming in better than expected, we are seeing the continued resolution of our larger office relationships, so that was part of the equation. And we also had a a c and I charge off that was that was about 5,000,000.

Speaker 14

But then beyond that, it really dropped off as far as size all the way down to $1,500,000 So we're continuing to see just some more granularity in our charge off, haven't seen continued growth in large individual charge offs, but that's been favorable to us. And as far as our NPAs, some of that is attributable to continuing to resolve this one office credit. But also, we just haven't had, you know, any increases in NPL inflows. And so at 25,000,000 for this quarter, that's a a three year low for our for our NPL inflows. So that's really how it's kind of shaping up as far as our those couple of credit metrics go.

Speaker 13

Got it. Great. And then just a bigger picture question on the regulatory environment. What are some of the things being discussed or happening already on the regulatory front that could be helpful to Synovus?

Speaker 2

So John that's a question that when you look into the crystal ball I think that we all expect there to be a favorable regulatory environment. I always start this answer with saying we have a great partnership with our regulators today. So we're not sitting here hoping that something changes because we think we have a really strong relationship. But as I noted earlier, we do expect the larger banks to have more flexibility with capital. As their capital levels decline obviously that will trickle down into regional banks.

Speaker 2

And I think it will give us more flexibility around relative and absolute capital levels. And so we're excited about that because it gives us more growth potential. Number two, in the overall regulatory environment what we've noted is that there's process and a lot of examinations that have been going on over the last several years whether you go back to the Silicon Valley failure through some of the questions around CRE. Those have intensified. I'd love to be able to have our team members spend more time on generating revenue versus having to do examination.

Speaker 2

So I think the time allocation could shift a little bit. And then the question that everybody asks is on M and A. And I think we all expect the regulatory environment there to be easier to be able to get approvals on M and A. And so I think in many ways that will drive activity. We all expect it to increase not just because of the regulatory environment, but because of some of the succession management issues that exist across our industry.

Speaker 2

And in that environment, we have the opportunity to be able to take advantage of any disruption that would happen as a result of the M and A. So we're not counting on anything changing in the regulatory environment. We welcome a very friendly environment, but we don't expect a lot of changes. The real question around tailoring at $100,000,000,000 obviously, we're at 60,000,000,000 today, so it doesn't impact us. I think there have been a lot of folks that have speculated that that could increase.

Speaker 2

We'll wait and see. We're going to continue to invest in our LFI capabilities as we go from $60,000,000,000 to $70,000,000,000 to $80,000,000,000 just because we think it is prudent risk management to continue to invest in the areas that will over time improve your overall risk profile.

Speaker 13

Thanks Kevin. That's really helpful. And just to clarify on M and A, you mentioned taking advantage potentially of other banks M and A disruption. Your focus seems to be primarily on Synovus and your internal opportunities in growth. Is fair?

Speaker 2

Yes. I run the risk of sounding like a broken record John because I've said this really over the last three years and maybe even since our Investor Day. But yes, our primary focus has been on driving organic growth and executing with consistency and discipline. And we've said that because we believe that that will earn us the right to get a higher valuation which has always been our focus. We feel like our valuation does not truly reflect, the value of our franchise.

Speaker 2

And if that valuation were to move up, it gives you better optionality to pursue M and A. And so our singular focus organic growth to improve valuation which then adds optionality in the long run.

Speaker 3

Got it. Thank you.

Operator

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

Speaker 6

Hi. This is John Rao on for Jared. I guess on on credit, could you just remind us what that that one larger office NPL is and kind of what the what the expectations are for that?

Speaker 14

Yes. So the current NPL for that one office relationship, it comprises two different ones, but it's one relationship. It's two different properties and two different locations. And so the charge off that we took this quarter is is on just one of the properties. We also took a charge off last quarter on the same property.

Speaker 14

So with this with this one property, we are just taking another step towards, you know, a resolution with that one particular location. The other property, we have not taken any charges against. We have raised the reserve, and we do feel like we're in a good place relative to our reserves on that property.

Speaker 6

Okay. Thanks. That's helpful. And then I guess just a modeling question. Do you have what the cost of the hedges were this quarter?

Speaker 6

I think it was like $18,500,000 ish last quarter.

Speaker 3

Let me me get back to you on that one.

Speaker 6

Okay. Okay. Thanks. And then Hey, John. I guess just back on the and then back on the the hiring process about being able to offer all of the tools that a large bank would offer.

Speaker 6

Could you just talk about what some of the recent investments in, I guess, tech and tools for the bankers have done? Anything to note there?

Speaker 2

Yes. John, I could probably take up the rest of the call to talk about all the investments, but I'll just kind of rattle some of them off. We've just implemented a new loan origination system with nCino. We've implemented a new syndication platform that allows us to lead transactions. We've invested a lot in our treasury area, whether that's simple things as an improved onboarding experience for our clients, but we also have added products like foreign exchange hedging.

Speaker 2

We've added products that we call Accelerate AP, which provides new tools for managing people's payables. We have a receivables platform. We've worked on the additional solutions that we provide through things like Lockbox. I mean the list goes on and on. It's one of those things as we talk about internally you never get to the finish line.

Speaker 2

The world is becoming more and more digital and we are constantly investing in tools, products, capabilities that allow our clients to operate really 20 fourseven. And that's something that as we look into the future we'll continue to spend. Our next projects are on ERP integration into our clients' ERPs with our treasury platform, a fully integrated payment portal that will allow our clients to use a multitude of rails to make payments. And so it really involves both the treasury and deposit side as well as the lending side. And then I would add, we've also added capabilities in terms of just resources.

Speaker 2

We've added two liquidity product specialists that work side by side with our bankers to help the treasurers and controllers of these companies better manage their capital and liquidity. And so it's investments in technology. It's also investments in talent and capabilities.

Speaker 6

Okay. Perfect. That's really helpful. And then just, I guess, on the hiring, is if, I guess, if it's a little bit more front loaded into 2025 or if you see the opportunities come up, would you be open to, I guess, either increasing like the total amount of hires or pushing some of the planned hires into 2025 versus 2026 or 2027?

Speaker 2

No. One of the things we've been clear about, John, is it somewhat you say it's front loaded. It's probably more front loaded because you get folks around incentive time where they're getting paid their incentive and their equity and that's a time to generally attract talent. But with our pipelines, we're not going to let that timing stand in the way. So, we'll continue to lean in the second half of year.

Speaker 2

And we've told our leaders, if we get the right team or the right talent, your number is just there for planning purposes. We want to lean in and add additional folks. Obviously, when Jamie gives you updated guidance for expense, we've considered that. So we think in some areas they'll come in above where they originally planned. In others, it may be a position or two light.

Speaker 2

And again, as I said earlier, we're being very picky about the talent we're bringing in.

Speaker 6

Okay. Great. Thank you. That's it for me.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from Nick Balochow of UBS. Your line is now open. Please go ahead.

Speaker 9

Hi, good morning. I

Speaker 3

think it's been

Speaker 15

a while since you've spoken about it, just given the developments of the past few months and your involvement in this space on the fringes in the past. Do you have any thoughts or ambition in the stablecoin business? And is that an area where you could see any opportunities over the next couple of years?

Speaker 6

I missed that. Can you say that again?

Speaker 2

Stablecoin interest. Stablecoin. Yes. Look, we've evaluated a partnership on Stablecoin. As I just mentioned on our payment portal, we believe that Stablecoin will become one means from which to make payments.

Speaker 2

And I think as we've all seen to this point, it's generally been international payments. And so we will look to that as adding that as an additional payment capability for our clients. But for us, I think there are a lot of alternatives to that whether that's a real time payment same day ACH Fed now. So it'll just be one of many capabilities that we want to offer. So we're not doing anything outsized there.

Speaker 9

Okay. Thank you. And then

Speaker 15

maybe just one on credit. Good to see the good to hear all the color that you've given so far and the performance in the quarter. Just as it relates to the reserving process, if you do see charge offs more stable as you're sort of forecasting here, would you expect that performance component of the allowance to drive the overall ratio down in the future? Do you think that should stabilize outside of any changes in the macro environment? Thank you.

Speaker 3

Yes. If we see improvement in the loan portfolio, for sure, that would drive a reduction in the allowance, a continued trend there. That'd be a positive. When you think about the allowance, you have the loan portfolio, then you also have the economic scenarios. If you were to use a little bit more like you just use the consensus baseline scenario, you would also see a reduction in the allowance by a handful of basis points.

Speaker 3

That's something that I think is important to consider as we look at this economic uncertainty. And as we look forward, we've seen a strong trend in credit improvement as we've gone through the last few quarters. We feel confident in the second half of the year. But it's also something where if we saw increased certainty in the economic outlook that could be a positive as well. Thank you.

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 close today's call, I want to reemphasize something fundamental to how we operate here at Synovus. We listen. We're listening to our clients and refining our service and advice and that's reflected in our performance in the latest J. D.

Speaker 2

Power survey where we posted the largest year over year increase in Net Promoter Score amongst the 50 largest banks by asset size. We're listening to our investors. We shortened our prepared remarks today. We also beat expectations and we're raising our guidance as we execute. We're also listening to our team members.

Speaker 2

As I mentioned earlier, our most recent Voice of Team member survey showed 89% engagement levels placing us in the upper echelon of the industry. But we know there's more to do and we will be relentless in delivering enhancements across all these fronts. This quarter's achievements are a direct reflection of the dedication, the resilience and the innovation of our people. From operations to strategy, from client facing execution to corporate service support, every individual has played a role in driving our success. I want to extend my deepest thanks to our entire team for your commitment and your excellence.

Speaker 2

Your efforts are not only seen, they are deeply appreciated. We've been making meaningful progress on our strategic priorities, strengthening our financial position and we've laid the groundwork for long term growth. Whether it's through disciplined execution, smart investments or relentless focus on customer value, we're building a stronger more agile organization. The momentum we've created is real and it's energizing to me to see how far we've come. As we look ahead, we're not just growing, we're scaling with purpose.

Speaker 2

By expanding our presence in key markets and investing in capabilities that matter most to our clients, we're positioning Synovus to compete and win at

Speaker 4

the highest level.

Speaker 2

The foundation we built is strong. The opportunities ahead are even stronger. Thank you for joining us today and thank you for being part of this journey. With that Alex, we now conclude today's call.

Operator

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

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