Synovus Financial Corp. (NYSE:SNV) Q3 2023 Earnings Call Transcript

Synovus Financial Corp. (NYSE:SNV) Q3 2023 Earnings Call Transcript October 19, 2023

Operator: Good morning and welcome to the Synovus third quarter 2023 earnings call. All participants will be in a listen-only mode, and should you need assistance, please signal a conference specialist by pressing star, zero. After today’s presentation, there will be an opportunity to ask questions. If you would like to do so, please press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded, and I will now turn the call over to Jennifer Demba, Head of Investor Relations. Please go ahead.

Jennifer Demba: 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, CEO and President, Kevin Blair will begin the call. He will be followed by Jamie Gregory, Chief Financial Officer, and they will be available to answer your questions at the end of the call. Our comments include forward-looking statements. 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 for our presentation. Now Kevin Blair will provide an overview of the quarter.

Kevin Blair: Thank you Jennifer. Good morning everyone and thank you for joining us for our third quarter 2023 earnings call. Over the past three months, Synovus has taken several actions to better position the bank for a more challenging, higher-for-longer interest rate environment, while continuing to build and expand our diversified business model in order to deliver long term sustainable growth. As previously announced, we completed two loan-sale transactions during the third quarter which strengthened the balance sheet and freed up capital for the bank to make more profitable relationship-oriented loans. The proceeds from the third party indirect auto and medical office building loan sales allowed us to reduce our level of wholesale funding while accelerating the path to our greater than 10% CET-1 target.

Also, on September 30 we further simplified our business mix by selling our asset management firm, Globalt, to its management team. The divestiture will be immaterial to earnings and allow the bank to reallocate capital to higher returning fee income lines of business while continuing to meet our wealth clients’ needs. We believe Globalt has a bright future as an independent investment advisor enabled to explore a wide range of additional partners and potential client relationships. To that end, we are in discussions to continue and expand our longstanding held-for-sale partnership with GreenSky. Given our ongoing discussions, any potential revenue benefits are not currently included in our 2023 guidance. There will be more details forthcoming over the next two to three months.

We are navigating the short term headwinds presented by higher interest rates by making the tough decisions around business mix, balance sheet optimization, and operating expenses, all of which will generate better financial performance in the quarters and years to come. Now let’s move to Slide 3 for the quarterly financial highlights. Synovus reported third quarter diluted EPS of $0.60 and adjusted EPS of $0.84. There were year-over-year and linked quarter revenue and PP&R headwinds as a result of continued higher deposit costs, leading to further but more moderate net interest margin contraction. As expected, loan growth outside the medical office building sale was less than 1% in the third quarter. This core loan growth was primarily attributable to multi-family construction draws while middle market commercial, corporate and investment banking, and specialty lines activity contributed to C&I loan growth.

There continues to be an increased emphasis on stronger returns and more deposit relationship-based lending, which has translated into higher yields on new production. Core deposits increased 1% or $432 million from the second quarter. Importantly, the shift from consumer money market accounts to higher rate time deposits slowed during the third quarter. Non-interest bearing deposits declined less than in the first and second quarter, but clients continued to use their excess operating and personal funds. Net interest margin contraction was not as significant as expected due to modestly better asset yields and funding costs; also, our deposit generation strategies are demonstrating continued success as production remains strong with third quarter levels approximately 70% higher compared to the same period in 2022.

Given the pressures on the margin, our operating expense discipline was quite evident as adjusted non-interest expense increased 2% from the second quarter and rose just 4% from the prior year. Cost containment remains a very high priority; in fact, we expect adjusted non-interest expense should be relatively flat year-over-year in 2024 as we implement more cost reduction initiatives in a variety of areas. As expected, credit costs increased as we continue to move off historically low levels; however, excluding the third quarter loan sales, net charge-offs remain manageable at 40 basis points, which includes a 21 basis point impact from a commercial industrial credit discussed in our recent 8-K filing. Along with other banks in the syndicate, we are in the process of evaluating and assessing all avenues of recovery to include legal recourse related to that specific transaction.

Finally, we continue to focus on maintaining a strong capital position as we navigate through a more volatile economic environment. With our CET-1 position ending the quarter at 10.13%, we are now slightly above our targeted capital levels. Over the near term, we expect to continue to preserve capital in excess of our target levels, given the continued amount of economic uncertainty. Now I’ll turn it over to Jamie to cover the third quarter results in greater detail. Jamie?

Jamie Gregory: Thank you Kevin. As you can see on Slide 4, total loan balances ended the third quarter at $44 billion, reflecting a sequential decline of $674 million or 2%. This includes the impact of the sale of the $1.2 billion medical office loan portfolio. Similar to recent quarters, CRE growth was a function of draws related to existing multi-family commitments and low levels of pay-offs. On the C&I side, middle market commercial lending and corporate investment banking contributed to growth. Our new loan fundings remain focused on customers with more broad-based deposit and fee income relationships. At the same time, we are rationalizing growth in credit-only lending areas that have a lower return profile or don’t meet our strategic relationship objectives.

Our balance sheet optimization efforts should continue over the near term and loan and core deposit growth should be relatively balanced. No further meaningful loan portfolio sales are being contemplated over the foreseeable future. Turning to Slide 5, core deposit balances grew $432 million or 1% sequentially during the third quarter, driven by a 23% increase in time deposits which was partially offset by a 4% decline in non-interest bearing deposits. Importantly, we leveraged our improved liquidity position to reduce wholesale funding by $1.6 billion, which improved our wholesale funding ratio by 240 basis points, while public funds declined $146 million or 2%. The non-interest bearing deposit decline is a by-product of deployment of excess funds and continued pressures from the higher rate environment.

This is a slower decline than we experienced during the first and second quarters. There was also a moderation in the decline in money market accounts during the quarter as the shift from money market accounts to CDs slowed. We expect to experience some core deposit growth during the remainder of the year. Supporting this growth are seasonal tailwinds along with our targeted deposit gathering efforts. As we look to deposit rates, our average cost of deposits increased 36 basis points in the third quarter to 2.31%, which was a slower rate of increase than in the second quarter and equates to a cycle-to-date total deposit beta of 42% through the third quarter. From the month of June to the month of September, total deposit costs were up 29 basis points.

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Our deposit costs and betas were impacted by the pricing lags on core interest-bearing deposits as well as the decline in non-interest bearing deposits. Our expectations for through-the-cycle total deposit betas are now slightly reduced to 46% to 47% at year end. Now moving to Slides 6 and 7, net interest income was $443 million in the third quarter, down 7% versus a year ago and a decline of 3% from the second quarter, which was slightly better than our previously disclosed expectations. NIM compression moderated during the third quarter, down 9 basis points from the prior quarter versus a 23 basis point sequential decline in the second quarter. The asset side of our balance sheet continued to benefit from higher rates, though higher deposit pricing and further remixing within our NIB deposit portfolio offset those gains.

As we look forward, we expect the fourth quarter NIM to decline in a similar amount as the third quarter, followed by a relatively stable margin in the first quarter. That is expected to be followed by expansion as fixed rate asset re-pricing is more than enough to overcome the gradually reducing headwinds of deposit re-pricing and negative deposit mix shift. The graph on Slide 7 outlines the estimated marginal benefit to our NIM relative to our 3.11% NIM in the third quarter of 2023, attributable to fixed rate re-pricing for the asset and liability categories listed there. This assumes rates remain constant with the September 30 levels at a 5.5% Fed fund and around 4.5% on the 10-year. Slide 8 shows total reported non-interest revenue of $107 million.

Adjusted non-interest revenue was $106 million, down $4 million from the previous quarter and up $1 million year-over-year. The variance in quarter-on-quarter fee income was due to a combination of factors. There was a change to the NSF/OD program in July which impacted non-interest income by approximately $1.5 million and is now almost fully reflected in fee income as of quarter end. Core fee income has also been impacted by a soft mortgage lending market and more muted capital markets activity; however, the relative stability of fee income over time highlights the diversity of our revenue streams, many of which are insulated from the impacts of the volatile rate environment. We continue to invest in core non-interest revenue streams that deepen client relationships, such as treasury and payment solutions, capital markets and wealth management, which have demonstrated healthy growth over the past few years.

We also continued to simplify and optimize our business during the third quarter. The sale of asset management firm, Globalt to its management team on September 30 led to a $1.9 million non-recurring gain during the third quarter and should result in an approximately $10 million reduction in fee income and $8 million reduction in non-interest expense. Moving to expenses, Slide 9 highlights our operating cost discipline. Reported non-interest expense was $354 million. Adjusted non-interest expense of $306 million was up $5 million or 2% from the prior quarter and $12 million from the previous year, representing a 4% increase. Personnel expenses were flat sequentially, benefited by our headcount reductions during the second and third quarters.

Reported non-interest expenses were impacted by an $18 million voluntary early retirement charge and a $31 million loss from loan sales during the quarter. A $47 million special FDIC assessment should be incurred in the fourth quarter. Importantly, we will remain quite proactive with disciplined expense management in this revenue-challenged environment. We implemented reductions and a voluntary early retirement program in the second and third quarters which supported a nearly 4% company-wide reduction in headcount. In addition, as Kevin mentioned, we have several expense rationalization initiatives in various areas underway, which should keep our adjusted non-interest expenses relatively flat year-over-year in 2024. There will be more underlying details of these initiatives discussed at forthcoming industry conferences during the fourth quarter.

Moving to Slides 11 and 12 on credit quality, as expected, credit losses have risen over the past two quarters, primarily from idiosyncratic charge-offs. The 3 basis point increase and $6 million growth in our allowance for credit losses primarily reflects loan migration trends and an uncertain economic environment. Excluding the medical office building loan sale, net charge-offs were 40 basis points compared to our 30 to 40 basis point guidance for the second half of this year. Approximately 50% of third quarter charge-offs, excluding the medical office building loan sale, were attributable to a previously disclosed shared national C&I credit totaling $23 million. Non-performing loans increased modestly to 0.64% as credit metrics migrate from historically low levels.

Total criticized and classified credits rose slightly but are still a manageable 3.4% of total loans. We expect net charge-offs to average loans to be 30 to 40 basis points in the fourth quarter. We continue to have a high degree of confidence in the strength and quality of our loan portfolio. We will continue to apply our conservative underwriting practices and advanced marketing analytics to new loan originations and portfolio monitoring and management. As seen on Slide 13, our capital position continued to increase in the third quarter with the common equity Tier 1 ratio reaching 10.13% and with total risk-based capital now at 13.12%. Retained earnings and strategic transactions supported 27 basis points of capital accretion in the third quarter.

In addition, the proceeds from the third quarter third party and direct auto and medical office building loan sale allowed us to reduce our level of wholesale funding and total commercial real estate exposure. Even though Synovus has achieved its greater than 10% CET-1 target, we will continue to preserve our capital over the near term given there is still a fair amount of macroeconomic uncertainty. Moreover, there should be more limited capital accretion in the fourth quarter as a result of the expected $47 million FDIC special assessment. Of course, we will regularly re-assess the economic environment and consider if any opportunistic capital management may be appropriate in the future. I’ll now turn it back to Kevin to discuss our guidance.

Kevin Blair: Thank you Jamie. I’ll now continue with our updated fundamental guidance for the remainder of 2023. Loan growth is still expected to be zero to 2% for the 2023 year. We expect fourth quarter loan production to be at similar levels to third quarter, which remains muted versus 2022. Growth in the current quarter should be fueled by continued success in middle market and corporate and investment banking, as well as draws on construction lines. We maintain our expectations for core deposit growth of 1% to 3% as the company strives to balance loan and core deposit growth and will be aided by the previously mentioned seasonal tailwinds and new funding growth initiatives. The revenue growth outlook for 2023 is 1% to 2%, which assumes a Fed funds rate of 5.5% that holds through the end of the year.

Deposit betas are now expected to reach 46% to 47% by year end versus 42% in the third quarter. We have lowered our adjusted expense growth expectations to approximately 4% to 5% in 2023 versus previous expectations of 4% to 6%. Please note that the non-interest expense guidance does not reflect the impact of the upcoming $47 million FDIC special assessment expected to be incurred in the fourth quarter. While the environment has resulted in strategic shifts in priorities, we remain confident in our growth strategies and we continue to remain diligent in expense management. Over the course of the year, we have reduced our guidance range as we have implemented various expense initiatives. Moving to capital, we are now at our target CET-1 level.

At this time, we think it is prudent to maintain that target and continue to build capital over the near term, given there is still a fair amount of uncertainty in the macroeconomic environment. We still anticipate the tax rate should approximate 22% in 2023, supported by recent federal tax investments. At Synovus, we are focused on execution and closing out 2023 in a strong fashion. We remain optimistic that through the actions we have taken, we are better positioned to overcome the short term headwinds and to strengthen the bank’s foundation for a return to growth as we proceed through 2024. Now Operator, let’s open the call for Q&A.

Operator: Thank you. We will now begin the question and answer session. [Operator instructions] The first question we have comes from Ebrahim Poonawala of Bank of America.

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Q&A Session

Ebrahim Poonawala: Good morning.

Kevin Blair: Good morning Ebrahim.

Ebrahim Poonawala: Maybe a question, Kevin, on credit quality. Appreciate that there is a hit from one credit in the third quarter, but just looking at criticized loans and the 3.4 – I’m not sure if that’s impacted by that or not, but just talk to us around your sense of where credit is headed. You’ve spent a decade talking about just the clean-up has happened under [indiscernible] and then under you on the credit quality side post-GFC. Give us a sense of one day you think credit is headed from a macro perspective over the next 12 months, and then within your loan book, where are you seeing stress, like what should we expect from the outside in terms of potential [indiscernible] on credit costs over the coming quarters? Thank you.

Kevin Blair: Ebrahim, there’s a lot of questions in that one question, but let me take it from the start, and I’ll let Bob add in some comments around credit. You know, we’ve been talking for some time about normalization and moderation of credit cost, and that comes off, as you know, some of the lowest levels of credit cost and metrics that we’ve seen in many, many years. What you’re seeing this quarter was we’d talk a lot about and publicly disclosed is one large credit that charged off, which was a syndicated credit, and even with that credit, we’re still within the guidance that we provided during the second quarter, where we noted 30 to 40 basis points in the second half of the year. So although credit is moderating, we believe that it’s still very manageable.

It’s within the ranges that we had anticipated, and I’ll be honest with you, that large transaction, the loss content in that was not fully considered when we gave that guidance, so that tells you that in general, our credit costs came in a little less than what we would have anticipated, so it’s manageable. We still believe that the second half of the year will be 30 to 40 basis points, excluding the loan sales. Yes, there has been some increases in NPLs and criticized and classified, but I think that comes with the territory. As you see in this environment, many of our clients are having their margins compressed by the recessionary and inflationary efforts or numbers that are happening, and that results in things being downgraded; but again, it’s all within a manageable range, and when you look at it for the full year, we still think we’re going to come in between that 25 and 30 basis points, so for all the discussions that we’re talking about net charge-offs, there is really just a modest increase over what we’ve seen in previous years.

Bob, what would you add to that?

Bob Derrick: Yes Ebrahim, it’s Bob. I wouldn’t add much, other than to say it’s just general normalization, particularly in our corporate businesses that recall that we have about 60% of our balance sheet is made up of wholesale corporate businesses. For years, those numbers were extremely low, so as they move back into sort of normal territory as it relates to credit costs, you kind of–it kind of pushes your number in that 30 to 40 point range, as Kevin said. I think that’s a reasonable expectation for us. Overall, stress is in some of these portfolios, but nothing that we don’t feel like is manageable.

Ebrahim Poonawala: Noted, and I guess maybe one for you, Jamie, around give us a sense of deposit pricing as we move into next year, just competitively. What are you seeing in the market, are things getting easier or are they as competitive as they were earlier in the summer? Maybe if you can talk to just the appetite of the balance sheet around potential offsets with some of the fixed rate assets re-pricing. Thank you.

Jamie Gregory: Ebrahim, I think you’re the champion of multiple questions in one! Let me make sure–I hope I’ll answer them all, but I’ll start with deposit production and what are we seeing there. If you look at the rate of deposits, the ongoing–the going on production quarter-on-quarter, we were up 12 basis points quarter-on-quarter, right around 370 was the cost of deposit production in third quarter. What’s included in that is a little more than 20 basis points increase in the cost of CD production, so that’s around 4.7%. But the rate pressure on CDs has been a little bit reduced recently in the month of September, so we feel good about that, and then on other interest-bearing deposits, we saw MMA production come down about 11 basis points quarter-on-quarter, we saw now production down almost approximately 75 basis points quarter-on-quarter, so we feel good about the trends of deposit production within our interest-bearing products.

Mix will be an impact going forward, so all-in, I would say that deposit production cost increases in the fourth quarter will probably be similar to what we saw in the third quarter, but for overall deposit cost, you know we gave our guidance of 46% to 47% through-the-cycle beta, so we expect continued increases in the fourth quarter, and that actually has a little bit less to do with production than it has to do with re-pricing in the existing book. I would point to the table we put on Page 7 of the earnings deck with the fixed re-pricing. What you see below the line there is the impact of CD re-pricing, and the fourth quarter has a decent sized impact of CD maturities, so we have a little more than $2 billion in CDs that mature in the fourth quarter.

The rate on those today is about 3.75, and so we will have a headwind to deposit costs in the fourth quarter as those re-price to kind of the normal going-on production rate. We do expect further declines in non-interest bearing deposits in the fourth quarter, and so we think that the net result of all that is you get to that 46% to 47% through-the-cycle beta for the month of December, and deposit costs end the year in the mid to upper 2.50s. You asked about the asset side of the balance sheet. Will you remind me – was that the rate on the asset side?

Ebrahim Poonawala: Yes, I was just wondering in terms of the churn, the re-pricing that we’re going to see and the magnitude of that next year. That could be [indiscernible] growth.

Jamie Gregory: Yes, so as we look at–looking forward next year, so we’ll have a few things happen. First, going back to the liability side, we think that deposit costs, total deposit costs will peak or flat line starting in early 2024, but then you start to see the benefit of the fixed rate asset re-pricing, and you can see that on that same chart with the fixed rate assets, and you see how that impact just grows as you go through the year. We expect the margin to decline in the fourth quarter, be relatively stable in the first quarter, and then because the impact of CD re-pricing is a couple million dollars incrementally each quarter when you go through 2024, that will be easily overwhelmed by the benefits of the commercial–fixed rate commercial loan re-pricing, securities portfolio hedge run-off, and residential mortgage re-pricing, and you can see that in the chart that it’s pretty powerful as you go through 2024.

It’s a nice tailwind to both NII and the margins.

Ebrahim Poonawala: Thank you so much.

Operator: Thank you. We now have Steven Alexopoulos. You may proceed with your question when you’re ready.

Steven Alexopoulos: Hey, good morning everybody.

Kevin Blair: Good morning.

Steven Alexopoulos: I want to start on the ability to generate positive operating leverage in 2024. On the expense side, Kevin, you said you plan to hold adjusted expenses pretty flat in 2024, so I’m hoping first you’d give a little color on that; and then I also want to talk about the revenue opportunity. At this juncture, do you see 2024 as an opportunity to show very modest operating leverage? Do you think it could be more substantial? Maybe we’ll start there.

Jamie Gregory: Yes Steve, let me kick this off. As we look longer term–well first, I’ll speak to our communication strategy for the fourth quarter. The next six weeks, we’ll be out with a couple different presentations. We have today’s, where we’re speaking to the third quarter and the fourth quarter, and then we’ll be presenting at [indiscernible] where we’ll give more of a strategic update, including some of the details of our expense initiatives, and then we have the Goldman Sachs conference in early December, where we will give more details of our financial outlook longer term. But when you look at where we are right now on expenses, so in the very near term, we expect expenses to be down in the fourth quarter versus the third quarter.

We had a range of 302 to 306 on adjusted expenses, and then as we said, we expect adjusted expenses to be relatively stable in 2024. Of course, we’re excluding the FDIC one-time assessment that we expect to come in the fourth quarter. We have a lot of different initiatives behind that flat expense guidance, and really what’s exciting to us a lot of it just improves how we go to market. Embedded in that expense outlook is still spending for growth to grow our core client base, so what you’ll see from us is you’ll see in our businesses that drive core relationship growth, you’ll still see spending to grow, so that’s embedded in that strategy and we’ll speak more to that in a couple weeks up in Boston. We feel good about that outlook, but when you think about positive operating leverage for the calendar year 2024, it’s challenging because the first half of 2023 had such strong revenue growth, that the exit run rate on revenue is just simply lower than it was at the entry to 2023.

But when you look at quarterly increases, and it goes back to Ebrahim’s question just a minute ago, the NII tailwinds, because of fixed rate re-pricing and where yields are today, is very powerful, and so while we may not have positive operating leverage for calendar year 2024, if you’re comparing quarter-on-quarter, year-over-year, it gets pretty powerful as you go through calendar year 2024. The issue is simply just looking at calendar year ’24 versus calendar year ’23.

Steven Alexopoulos: Got it, that’s helpful, then maybe just one other one. On the non-interest bearing deposits, they’re down fairly sharply again. Peers are seeing the pace of outflows abate fairly materially. How close are you to seeing [indiscernible]? When you talk about your expectation for NIM to stabilize in 1Q and then expand, what’s the underlying assumption of where non-interest bearing deposits are? Thanks.

Jamie Gregory: Our outlook for NIB to total remains the same as we said in July, and so we expect to end the year at around 25% non-interest bearing to total deposits. Embedded in that would be a decline in the fourth quarter somewhere around $400 million in NIB deposits. We do believe that that rate of decline will slow significantly as we look out into 2024, and again we’ll give more details on the longer term outlook in early December, but we do believe that that will slow and that’s due to both environmental impacts as well as strategic impacts with our businesses that we’re continuing to grow, like treasury and payment solutions.

Steven Alexopoulos: Okay, perfect. Thanks for taking my questions.

Kevin Blair: Thanks.

Operator: Your next question comes from Michael Rose from Raymond James. You may proceed.

Michael Rose: Hey, good morning guys. Thanks for taking my questions. Maybe just a broader step back question for you, Kevin. Obviously a lot has happened since the investor day earlier last year. Can you just give us an update on some of your initiatives, whether it be Maast or the commercial real estate initiative, and just broadly where you think you stand in some of those efforts, and maybe some of the areas that might require some additional kind of investment from here? Obviously the targets that you laid out back then, I think are going to be tough to achieve in this interest rate environment, but just wanted to get a sense for where you think you are and what the opportunities are as we move forward. Thanks.

Kevin Blair: Yes Michael, it’s a great question, and I think part of the answer is that with this sort of environment, where you’re seeing margin contraction, you’re seeing questions around credit, it kind of masks some of the success that we’ve had in some of the underlying initiatives, and that’s not just with our new initiatives, it also stands to talk about some of our core businesses that continue to see improvements in productivity, deepening of wallet share, things like that. But as it relates to our targets, I would just tell you, as we’ve said in the past, when we did that forecast for our three-year top quartile performance, obviously we did it under a different interest rate environment. Our goal is to continue to focus on generating top quartile performance, and those numbers may be different, but relatively speaking, outperforming that of our competitors.

But when it gets into some of the initiatives, something like a Maast, when we talk about our banking as a service platform, one of the things that we set out from the beginning was we wanted to prove a hypothesis that this was a solution that would be well received by independent software vendors and partners. As I said on the last call, I think we’re proving that hypothesis pretty clearly in that we’ve already on-boarded nine ISVs and payment partners onto the platform. Today, the spend off the payment facilitation portion of that is approaching $500 million, and we have an additional 45 partners in the pipeline evaluating the software and going through the contractual phase. Those 45 partners would represent about $13 billion in payment volume, so it shows that there’s a great deal of interest in the Maast solution.

The second part of that objective was ensuring that we had the right type of products to be able to fully offer the capabilities that the end users would desire. Today, we have payment facilitation and a banking suite of products that includes checking and a debit card, but we just announced this week we signed a strategic partnership with Fintainium, which will provide additional AP/AR capabilities to the end users, so as we entered this, we have just the minimum viable product and we’re expanding that into additional solutions. The third leg of the stool is we have to assess whether the utilization and the adoption by the end users will generate a great deal of revenue, and that’s the part of this equation that it’s still too early to tell, but based on the demand that we have from the software providers, we remain very optimistic as the viability of this solution, and we’re actually expanding it into a banking-only solution, where some folks actually don’t need the payment facilitation, they just want the banking services, and that’s about 40% of the pipeline we have today.

I think it’s also important to note, we’re not betting the bank on this initiative. We’ve spent about $9 million in expenses year-to-date, and so it’s a measured investment for us. CIB, corporate investment banking, we have about 27 FTEs, we’re up to 20 clients that we’ve been able to on-board. We have almost $500 million in outstandings and $3 million in revenue year-to-date from a capital markets standpoint, so that is progressing. We continue to get traction, and that’s just going to take time to continue to build, but it is exceeding our expectations from a P&L impact at this point. Again, we have spent about $8 million year-to-date, so we’re not betting the farm on any one of these initiatives, it’s really the combination of many.

The third one I’ll just mention is analytics. We talked a lot about analytics and the importance in providing proactive advice to our clients, both on the commercial and consumer side. We’re fully up and operational with our consumer platform, and year-to-date we’ve booked about $10 million in incremental revenue just from some of the leads and insights that that solution has provided us, and that’s just starting to scratch the surface. So some of the big initiatives that we rolled out in February at investor day are ahead of schedule – again, a small number in the grand scheme of things, but as I said then and I’ll say again today, it’s really not about the P&L impact today, it’s about the impact two and three years down the road, where it’s going to create new sources of revenue that we haven’t had.

Let me just–I’m answering this longwinded, but let me add in one new one. I referenced this in the prepared remarks, but we’re currently in discussions with GreenSky and the private equity firms that are acquiring the GreenSky platform from Goldman. Our discussions around a sponsorship program that would allow us to continue to support their origination and distribution of production with a balance sheet-lite, liquidity neutral solution, and as a reminder, I know you know this, Michael, we’ve been in business with GreenSky on a held-for-sale arrangement since 2020, that continued with Goldman after the acquisition, but it was only on a small portion of their originations, which this quarter created only about $1 million in revenue. The new program that we’re contemplating is not built into our ’23 guidance and would have a much broader program across all of the production, and we’ll be very excited about sharing specifics about that banking as a service program and the financial benefits in the coming months.

Michael Rose: Kevin, that’s great color. Maybe just to kind of follow up to that, Jamie, I understand that the positive operating leverage is going to be pretty challenged next year, but just given this forthcoming arrangement with GreenSky, I think third party loans are down to about 1.8% of total. Should we expect a higher level of balance sheet growth as we think about next year, obviously zero to 2%, given this quarter’s production seems a little bit light? It seems like you have some momentum, just wanted to get a sense–I know it’s early, if we could expect more robust balance sheet growth as you move into next year. Thanks.

Jamie Gregory: Yes, Michael, as we look further out – and again, we’ll give a more detailed outlook here in about six weeks, but as we look further out, we do expect balanced loan and deposit growth, and what you’ll see there is you’ll see that our core client businesses will continue to grow and our objectives there are to grow faster than the market. We believe that we have a right to win, we believe we can take share, and so that’s our objective in our core client businesses. But you may see some other businesses that remain flat or even decline on the margin, that are non-core and non–you know, non-core multi-product clients, and so you’ll see a little bit of a mix there over the next few quarters as we go forward.

Michael Rose: Great, thanks for taking my questions.

Kevin Blair: Thank you Michael.

Operator: We now have Brady Gailey from KBW. You may proceed.

Brady Gailey: Hey thanks, good morning guys.

Kevin Blair: Good morning Brady.

Brady Gailey: You have common equity Tier 1 of over 10% now, and as I think about the future, you know, there’s probably not going to be a lot of growth, you’re still making good money, so that ratio is still going to creep higher. The stock is sitting here barely on top of tangible book value. Do you think that sometime in 2024, it makes sense to consider re-engaging in the share repurchase program?

Jamie Gregory: Brady, first as you’re well aware, we’ve been in capital accumulation mode now for about six quarters, and we’ve achieved those objectives that we raised a while back to get above 10%, to your point. Now, we are in capital management mode, so our priority in that is just what it’s always been in the past, is deploying that capital to clients. But beyond that, we will manage our capital ratios as appropriate, including the use of share repurchases. Right now, we believe two things are important for that discussion: first, in the fourth quarter, if you assume that we have that FDIC fee, we do not expect to accrete a lot of capital in the fourth quarter. Second, we believe there’s still a lot of economic uncertainty, so where we are right now, we’re going to sit on the sideline likely here in the fourth quarter, but in 2024 we’ll be balanced, like you’ve seen with us in the past when we’ve been in capital management mode, prioritizing clients, and then secondarily you’d like see us with share repurchases.

Brady Gailey: All right, that’s helpful. Then my second question is just on the path of the NIM – like, I understand it’s down a little bit more in 4Q and then stable, and then you’re starting to see some expansion especially in the back half of the year. If I look at that Slide 7, where you suggest 23 basis points of NIM expansion, I know that’s only looking at the fixed rate piece of it, so is there any way to look at the entire company and gauge what the possible NIM expansion could be after we reach this 3% bottom?

Jamie Gregory: Well, for today’s purposes, let’s go through what is not on that fixed rate chart. First, what that does not include would be any mix shifts in deposits between non-interest bearing and interest-bearing, or even within products that are within interest bearing. It doesn’t include the headwind of deposit production cost, and as I mentioned, production for us was around 3.70 in the third quarter, which is clearly higher than our total deposit cost. It would not include any deposit product rate increases, and so all of our guidance is a flat rate forward look, and so we’re not really expecting any material product rate increases, but if they were to happen, it would not include that. Then it also doesn’t include the impact of loan spreads, and I want to point to something there because loan spreads have been a really good story for us.

We’ve had six consecutive quarters where floating rate loan spreads to index have widened, and so we believe that we’re getting paid for the risk that we’re putting on the balance sheet. We believe it’s accretive to capital, and so that’s a good trend there. Those four things are not included in that. Now, because the first three were negatives, it’s likely that those are a little bit more headwinds than they are tailwinds to what you see on the fixed rate re-pricing, but the trend should have a similar shape as what you see on that chart.

Brady Gailey: All right, that’s helpful. Thanks Jamie.

Operator: We now have Christopher Marinac of Janney Montgomery Scott.

Christopher Marinac: Thanks, good morning. I had a question for Bob on the kind of combined SNIC [ph] portfolio in club and purchased business. Where do you want that to go as next year comes into focus? It’s more about kind of where you think that will land in the future.

Bob Derrick: Yes, hey Chris, thanks for the question. Right now, we’re at around 10% of our total loans is our SNIC book, and that’s what would be defined as sort of the official SNIC definition. We also have another 2% to 3%, a little over a billion dollars in what I would call sort of club syndicated deals, more of a regional level, so you kind of take those two together, we’re sitting around 13%, 10% of that being sort of true SNICs. Of that number, we’re agenting around $500 million of that, so for what that’s worth, we think that’s good fee business for us, etc. I think we’re comfortable in this range in terms of percentage relative to concentration limits. We kind of like that 10% to 12% range. We’re sort of there.

I think that’s our expectation, is we kind of manage the business going forward. We’ve been in this space a long time. Obviously it can bite you occasionally, as you saw, but nonetheless, we think we’ve got a really good group of bankers running that business, very focused on opportunities that that book can present us, and there are some, and we feel like we’ll just be more strategic there. But in terms of balances, I think we’re kind of where we need to be and we’ll stay in that range as we look ahead, it not slightly decline, but certainly in that range.

Christopher Marinac: Great, that’s helpful, thank you for that. Then Kevin, just a quick question about DDA flows from Maast. Are you seeing any of those now, or is that still going to be fourth quarter and 2024?

Kevin Blair: We’re starting to see some deposit flows. They’re still immaterial at this point because with the $500 million of payment transactions I referenced, that money moves pretty quickly, so the deposit story and the revenue that will come with it, we’ll make about $3 million in revenue in Maast this year, so it’s still in the infancy stage, Chris.

Christopher Marinac: Great, but a year from now, we can probably talk more definitively about progress there, just thinking about–

Kevin Blair: Yes, I think as you see the payment facilitation business pick up, and I think it’s important to note with that business, we’ve been intentional about slowly on-boarding clients. That’s why we talk about only having nine on the platform and 40-plus in the waiting room, just because we want to make sure that we get the product right. To your point, once we start on-boarding some of these new relationships, we’ve talked about getting half a billion to a billion dollars in deposits just from the payment facilitation business, and if we expand it into the banking-only side, there’s obviously a lot more in deposits that are at play there as well.

Christopher Marinac: Great, thank you very much for all the information today, and last night too.

Kevin Blair: Thank you.

Operator: Thank you. We now have Brandon King of Truist Securities. Please go ahead when you’re ready.

Brandon King: Hey, good morning.

Kevin Blair: Morning Brandon.

Brandon King: Jamie, I wanted to take another angle at expectations for NIM expansion in the back half of next year. You already laid out your assumptions, but could you just–you know, how are you thinking about it, just lay out what you think the biggest risk is to that potentially being pushed out or maybe not being realized according to your current expectations?

Jamie Gregory: I think the biggest risk when you think about the margin out there, I would say first is Fed policy. If you have big moves on either side of Fed policy with their balance sheet, if they were to draw down the RRP significantly and take a lot of liquidity out of the system, I think that could be challenging for the banking industry. But then also, if they were to start easing in the second half of next year, the same lag that benefited the industry on the way up would be a headwind, so if you’re just simply looking at the margin at the end of next year, if you assume that the Fed starts easing in the second half or third quarter of next year, then that will be a headwind. Now, I would argue it’s a temporary headwind because it’s the lag, and as we’ve said before, we believe that our sensitivity to the front end of the curve in an easing cycle is relatively flat, so we would not expect that in itself to be–to contract the margin.

But the lag would definitely be impactful whenever that happens, so Fed policy is a risk, and then I would say just general deposit mix shifts are a risk. We’re pleased with the trend of the slowing decline in NIB in the third quarter. We expect the decline to slow again in the fourth quarter and then slow again end of 2024, but that’s–I would point to those as some of the risks to that outlook.

Brandon King: Okay, very helpful. Then a follow-up to your commentary on the loan spreads and how that could impact the loan growth of the bank. You also mentioned that you expect to grow faster than the market, and you would think, I guess with higher loan spreads, maybe that would slow down growth theoretically, but could you just help us square those items?

Kevin Blair: Brandon, I’ll take that. I think those two are not necessarily correlated in that what we’re doing today in the marketplace is we’re just being more selective at where we want to lend capital, and that allows us–with the competition pulling back a little bit, it allows us to pull up our pricing, and as Jamie mentioned, when you look at the variable rate spread over index, we’re up 80 basis points year-over-year. When we look into the future, and a lot of the loan growth will be based on where demand goes, we’ve talked a lot about production was off about 9% this quarter over last quarter, pipelines are relatively flat right now. The economic impact to demand will determine kind of how fast we grow loans, and as Jamie mentioned earlier, we also want to correlate that back to the similar level of growth we’ll see on deposits.

But what we’re optimistic about is our ability to continue to grow C&I loans through our CIB organization, through middle market and through some of our speciality areas. Maybe the one question mark and wildcard for 2024 will be what happens with the pay-off/pay-down activity in CRE. As you know, we haven’t seen a very constructive marketplace there, given where cap rates and interest rates have moved, and so we haven’t had a lot of pay-offs and pay-downs, so our production next year in CRE, it may be hard to keep up with some of the pay-offs and pay-downs that have been delayed through this cycle. But we’re just as bullish on the areas that we can grow, and as you noted, our goal is to continue to exceed the rate of growth of the underlying economy.

Brandon King: That is very helpful color. Thanks for taking my questions.

Kevin Blair: Thank you.

Operator: Thank you. We now have Kevin Fitzsimmons with DA Davidson. Your line is open.

Kevin Fitzsimmons: Hey, good morning everyone. Just a quick question on the bond portfolio. Some banks have pulled the trigger on restructuring. Is that something that is on the table, or would you focus more on just doing what you’ve been doing, using the cash flows to help fund loan growth or perhaps pay down wholesale borrowings? Thanks.

Jamie Gregory: You know, Kevin, as we look at the bond portfolio, we would consider restructuring. I don’t think it would be incredibly significant. I mean, you think about the capital we have, that we call excess capital, being at 10.13, there’s limitations to how we would use that capital and how much we would use on something like a bond restructuring. But I think similar to what you’ve heard from others in the industry, if there is a restructuring that makes sense and you get a two-year payback, two and a half year payback or something like that, it could be something that we entertain. But at this point today, we don’t have any intention to do that, but it’s something that we do look at from time to time.

Kevin Fitzsimmons: Okay, great. Thanks. One quick follow-up. On the sale–on the Globalt, you mentioned that–about streamlining your–I forget the exact wording you used, but about streamlining, so I’m just wondering if you can add a little more color on was it competing with some other–you know, the bank’s larger wealth management platform, or what was it about it that made you want to streamline with that sale? Thanks.

Kevin Blair: Kevin, I think we said simplification of our business model, and really it’s a money management firm that we’ve owned for some time and so it didn’t really compete. It actually served as an investment vehicle for our financial advisors to place money. They largely do ETF funds, and as you know, in that sort of business, we’ll continue to use them and partner with them as we look to move our clients’ assets under management into the best products for optimizing their returns, but it’s a high efficiency business and we believe that we can take the operating expense from that and put it back into either the front end of the wealth originations, so the financial advisors or the private wealth advisors, or we can put it into other businesses and earn more from an efficiency standpoint. It’s really about taking operating expenses and re-deploying those into businesses that have higher returns.

Kevin Fitzsimmons: Great, makes perfect sense. Thank you. Thanks Kevin, thanks Jamie.

Operator: We have the next question from Timur Braziler of Wells Fargo.

Timur Braziler: Hi, good morning. I wanted to circle back to your commentary about NII and NIM and an easing Fed cycle. Appreciate the color on a lagging deposit base. I’m just wondering, given the fixed rate re-pricing schedule versus variable rate loans that would go down a little bit more quickly, is than an offsetting element or could we actually see some NIM compression over the first couple of quarters following a Fed easing?

Jamie Gregory: In that scenario, it depends on the timing. I would have to think through, but if you think about the immediacy of loan re-pricing, we have a little more than 60% of our loans are floating rate that would re-price immediately, and then the deposits would lag, so–you know, about 20% of our deposits would also re-price immediately. I mean, you could think of them as index-based, even if they’re not all directly index-based. It would likely lead to a decline in the margin for those periods, for those early Fed ease time periods. Now that being said, this fixed rate re-pricing, this chart doesn’t just–it wouldn’t just end in the fourth quarter of ’24, like we displayed here. That continues for multiple years because you think about those exposures, especially when you look at residential mortgages, you look at the securities portfolio, we continue to benefit incrementally way beyond this–this time period, so this benefit will be–will overcome the headwinds of that lag headwind when the Fed does start to ease.

That will be a temporary issue, so we have a long term benefit from fixed rate re-pricing, and at some point if you do assume the Fed’s next move is an ease, there will be a headwind for a couple quarters.

Timur Braziler: Okay, that makes sense. Then just looking at the timing of some of the loan sales and the other PP&R activities over the last couple of quarters, maybe just talk through the cadence on NII over the next quarter or two. Does that cadence follow margin, or is there something within the timing of recent sales that maybe we see NII performance a little bit better than what the expected margin performance would be, at least in the next quarter?

Jamie Gregory: It will trend along with the margin, so you’ll see a decline in the fourth quarter and then flat in the first quarter, and then you’ll see NII growing with the combination of loan growth, as well as margin expansion as you go through ’24.

Timur Braziler: Great, thanks for the color.

Operator: We now have Brody Preston of UBS.

Brody Preston: Hey, good morning everyone.

Kevin Blair: Morning Brody.

Brody Preston: Jamie, I think I’ve got it, but I just wanted to put a finer point on the guidance with the revenues. The guide kind of implies that we step down a bit more than I would have expected in the fourth quarter, just with the NIM commentary and some of the fees. Is there something that I’m missing, because I think it implies about a $25 million step down in operating revenues.

Jamie Gregory: Brody, I think that what you’re looking at there is really in fee revenue, and so we have fee revenue of $106 million in the third quarter and that included $2.5 million of Globalt revenue, so when you adjust for that, our fee revenue in the third quarter was around 103 to 104. Looking forward to the fourth quarter, there will be an incremental headwind in NIR from–on the retail side because of deposit fees, but we expect to overcome that headwind and we expect to be flat to slightly up from the 103 to 104 in the fourth quarter. Then on NII, as we mentioned, we expect the margin to decline in a similar amount as what you saw in the third quarter, but then you also have the impact, the full quarter impact of the sale of the medical office portfolio.

Brody Preston: Got it, okay. Just to clarify on the revenue component, Jamie, I think if I was reading the slide correctly, that the expectation around the beta is more of like a spot in December kind of expectation for the beta, and not the average for the quarter, correct?

Jamie Gregory: That’s correct. It’s the month of December.

Brody Preston: Okay, cool. Could I follow up on what Bob said in this next, real quick? Bob, did you happen to have what percent of that SNIC portfolio you guys are the lead underwriter on?

Bob Derrick: Yes Brody, on the SNIC portfolio, it’s about $500 million, so of that $4.3 billion, we’re the agent on about $500 million.

Brody Preston: Okay, thank you for that, and then I did just have a couple last quick ones. Bob, do you happen to have the ACL on the office portfolio?

Bob Derrick: We don’t–I’ll let Jamie follow up with you, Brody, but from an allowance perspective, we don’t disclose by asset class. Just generally speaking, our CRE allowance in the 1.5% range in general, but then within that, obviously the asset classes are broken down. But our office portfolio today, criticized and classified is less than 10%, NPLs are 1.5, so in the context of the size of that portfolio, it’s relatively stable. Now, we obviously see–we have a watch list there, we’ve been working that. We’ve talked about that before. But right now, the performance is relatively stable and the allocation just follows the CRE allocation.

Jamie Gregory: And Brody, one thing about that portfolio is, as Bob mentioned, we’ve seen no new net negative migration in the office portfolio in the third quarter. It continues to perform, and the watch list remains the same as we discussed in July and before. That portfolio continues to kind of perform as we expected. When you think about the allowance and the categories, any sort of migration obviously impacts the life of loan loss estimate for the portfolio, but what we saw in the third quarter when we ran the allowance was the allowance to loan ratio within CRE was relatively stable for the quarter. Where we saw the increases was in C&I and small business, and so we feel good about what we can see in front of us. We believe it aligns with that 30 to 40 basis point charge-off guide for the fourth quarter, and we’ll continue to give updates as we see a more clear outlook.

Brody Preston: Got it, and then just one last one, Bob, just on the senior housing portfolio. You guys have built that into a pretty good business line for yourselves, and I think if I’m remembering correctly, it’s performed extremely well for you from a credit perspective versus some other banks that have maybe struggled a little bit, just with that generic kind of category of senior housing. Could you maybe help us better understand the puts and takes around that portfolio and why yours kind of outperforms relative to some other banks that also have senior housing exposure?

Bob Derrick: Yes, sure Brody, thanks for the question. Just a couple of comments on it. We’ve been in this business a long time. We have a very experienced team that manages this book. You’re right – it’s around $4 billion. We think about it today, it is certainly feeling some stress, and there’s no question about that, as it relates to increased labor costs, certainly the interest rates staying higher here in the last six months or so continue to put some stress on it. But the positives here are, as an industry, this industry’s continuing to see increased occupancy rates, most of our operators have implemented increased rental rates, so the revenue top line improvement is there, it’s just not–it’s going to take some time for it to overcome the rapid increase in cost.

As it specifically relates to our credit performance in this portfolio, we’re sitting today at a criticized classified ratio around 10%, 10% to 15%. That number could drift a little higher, but overall we put a couple loans on non-accrual this quarter, that was the increase in our non-accrual rate to 64 BPs from 59, but again that was within our expectations. We think the loss content here in those few credits is very manageable, very low, and is certainly within our guidance. Overall, I think it’s just client selection long term in this business, Brody, and the way the portfolio is performing, the way we underwrite, again there’s some stress but overall, it’s performing within our expectations.

Kevin Blair: And Brody, I’d just add that when you look at this asset class, everybody assumes all senior housing looks the same, some more in memory care, skilled nursing, some are more private pay. I think to Bob’s point, client selection here, dealing with long term operators, more private pay, less skilled nursing has resulted in better overall performance, so I think that’s a big driver of that.

Brody Preston: Awesome, I appreciate the color, guys. Thanks, have a good day.

Kevin Blair: Thank you.

Operator: We now have Stephen Scouten of Piper Sandler. You may proceed with your question.

Stephen Scouten: Hey guys, thanks for the time. I guess I wanted to think about maybe loss given default rates around credit and kind of how you think about the different buckets. I think with that SNIC credit, a lot of people were surprised just at the ability for that to have such severity, so I’m just kind of wondering how you think about that within the SNIC book and maybe within other categories as you look at credit overall.

Jamie Gregory: Yes Stephen, I’ll make a couple of comments there. Obviously loss given default in that particular case was way outside of the norm. We do consider that to be an idiosyncratic event. Obviously we spend a lot of time and have spent a lot of time dissecting that specific credit and going back and looking at our processes and procedures, etc. Our conclusion from all of that work is that we still have good processes, our underwriting was sound, just a number of events that took place in that credit that, quite frankly, all went the wrong way and all happened over a period of time that just led to a very outsized and loss given default that would certainly not be normal for us. From my perspective generally speaking, though, we look at leveraged loans, we look at enterprise value-based loans, we underwrite those generally speaking to get inside of the assets, the hard assets within a couple of years.

Those are the kind of–you know, when you think about loss given default on those loans, that’s where your risk is. Our general underwriting guideline is to get the cash into pay the loan as quickly as we can, not rely on that enterprise value for any period of time. Generally, we have third party valuations, etc., but to stay short with exposure to enterprise value. Leveraged loans for us around $2 billion, we certainly manage it very closely and stay spot on with our reporting, so. That’s a little bit of rambling, Stephen, but does that help on how we look at those types of credits?

Stephen Scouten: Yes, I think that helps, but I guess generally, you don’t really view that segment, or maybe C&I more broadly as having any terrible risk from a severity perspective at this point, relative to CRE? Is that fair to say?

Jamie Gregory: I think that’s fair to say, yes. We certainly could ignore that business and not do it, but we’ve chosen to do it over time, we think selectively. We can make good returns there and manage the credit risk appropriately.

Kevin Blair: And I’d just add to Bob’s comments, Steve, when you think about where there’s a higher loss given default in C&I, it’s generally if you’re doing small business unsecured, where we don’t have a lot of exposure there. Then when we think about our C&I, we’re doing investment grade credits, and to Bob’s point, this credit that we’re referencing here is an anomaly. We generally have primary sources of repayment, secondary sources of repayment. Many of these loans are recourse, and so when you think about loss given default in the C&I business, they’re generally low just based on the way that we underwrite those. When we talk about CRE and we’re talking about having 50% LTVs or LTCs, similar scenario there where you feel like you have enough equity and cushions of protection that would keep the loss given defaults lower over there, so I think it would be erroneous to assume that all SNICs have much higher loss given defaults based on this one credit.

Stephen Scouten: Great, very helpful. Then just my other question is, you know, you guys have talked about seeking out higher risk-adjusted returns, you’ve talked a bit about these spreads widening on floating rate credit. As you pursue those endeavors, where do you think that leads you from a segment perspective to be more active as we move into ’24?

Kevin Blair: I missed that again, Steve, what was that?

Stephen Scouten: Yes, just kind of as you seek out higher risk-adjusted returns, where does that lead you segment-wise? Where do you think much of your growth will come from as a result? I guess where are those returns hiding, if you will?

Kevin Blair: It’s a great question, and it starts with if you’re doing a loan-only relationship, I would argue that it’s hard to say that you’re getting great returns unless you’re taking a lot of risk, so we’re not suggesting that. We’re suggesting that where we’re focused is on the businesses where we have the opportunity and the right to win by providing a full set of solutions, not just the lending piece, so we’re getting cross-sell on the depository, treasury side, we’re getting personal relationships from the business owners, and so where you see that, our middle market commercial today, we’re doing very, very well with that. Our core commercial, kind of our community commercial, our small business areas, and even in our corporate and investment banking unit, where we’re going to market in industry verticals, we’re able to bring capital markets and additional fee income and treasury and deposits, where it makes those returns much higher.

We’ve talked in the past that we’ve kind of doubled down in the commercial space, that’s where we’re winning market share, but when you go to the consumer side, we’re focused on the mass affluent and affluent segments where we believe that not only advice matters, but we have a personal touch that allows us to get a greater share of wallet, so that’s where we’re focused. It’s relationship banking 101, so it doesn’t sound real sexy but it comes down to delivery and how we do that, and that’s why we win things like JD Power and Greenwich, because we do it really, really well.

Jamie Gregory: Let me follow up on the JD Power and Greenwich, because a lot of this has to do with how do we fund that growth and our success with our retail network, our success with our commercial banking. Deposit production, when you look at the third quarter deposit production, we’re up about 70% year-over-year, and then when you decompose that, because clearly a lot of that comes from time deposits, from CD production, but even when you back that out and when you look at interest-bearing non-maturity deposit production, so now in MMA deposit production, those together are up over 10% year-over-year, so that’s a positive production trend that’s sustained. Then in the third quarter, we saw a reduction in account diminishment, so on the consumer side, the diminishment we saw in the third quarter relative to the second quarter down almost 60%.

On the commercial side, the same thing – down approximately 55%, and this has been the big headwind year-to-date, so it’s good to see the pressure reducing on this.

Stephen Scouten: Got it, that’s great color. Thanks a lot for the time, guys.

Kevin Blair: Thank you Steve.

Operator: Thank you Stephen. This concludes our question and answer session, and I would like to turn the conference back over to you, Mr. Kevin Blair, for any closing remarks. Thank you.

Kevin Blair: Thank you. As we close out today’s call, I want to thank everyone for their attendance and their interest in Synovus. Despite a more challenging operating environment, Synovus continues to demonstrate strength, resilience and flexibility. We’ve been proactive in executing on various initiatives to navigate the risks associated with the recent interest rate and economic environment. Through our completed balance sheet optimization and business simplification strategies, we’ve freed up capital, liquidity and operating expenses to pursue higher returning opportunities. With rates expected to stay higher for longer, fixed asset rate re-pricing should support a NIM trough in the fourth quarter and create a path to expansion in the second half of ’24.

Somewhat masked by the margin contraction, we are experiencing healthy steady growth in areas like CIB, middle market, wealth management and treasury and payment solutions. Continued growth in our core businesses coupled with traction on new sources of revenue, in 2024 we look forward to transitioning from a more defensive posture into one of growth. Most importantly, we continue to believe that our strong underwriting, monitoring and client selection, as well as actions taken through the years to generate diversification in an economically vibrant southeastern footprint will result in manageable levels of credit losses over this economic cycle. Lastly, the company will continue to maintain a very strong liquidity and capital position to allow for flexibility in ongoing uncertainty.

Thank you to our team members for your dedication and hard work each day. Synovus and our talented team members continue to be recognized nationally. We were recently ranked fifth in Bank Director’s Magazine’s Best U.S. Banks Over $50 Billion in Assets analysis. I have a lot of optimism. As certainty replaces uncertainty and we control what we can control, the outlook for NII is clearing up and we see a path to sustained repeatable balance sheet and revenue growth; but I want to conclude today’s session with a message of hope – hope for resolution, healing, and peace in the Middle East. This situation is deeply concerning for many reasons, including the effect is has on the lives of many across our region, many of whom are close friends and valued clients.

My thoughts and prayers are firmly with our Jewish community and others who are in peril, and in my hope, I hope to see signs of resolution that will lead to true healing and long term peace. With that, Operator, that concludes our third quarter 2023 earnings call.

Operator: Thank you all for joining. This does conclude our conference call. Please have a lovely rest of your day, and you may now disconnect your line.