ITEM 2. – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Report, the words “Synovus,” “the Company,” “we,” “us,” and “our” refer to Synovus Financial Corp. together with Synovus Bank and Synovus' other wholly-owned subsidiaries, except where the context requires otherwise.
FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this Report which are not statements of historical fact, including those under “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Report, constitute forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include statements with respect to Synovus' beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, many of which are beyond Synovus' control and which may cause Synovus' actual results, performance or achievements or the financial services industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through Synovus' use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “predicts,” “could,” “should,” “would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar words and expressions of the future or otherwise regarding the outlook for Synovus' future business and financial performance and/or the performance of the financial services industry and economy in general. Forward-looking statements are based on the current beliefs and expectations of Synovus' management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this document. Many of these factors are beyond Synovus' ability to control or predict. These factors include, but are not limited to:
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(1)
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the risk that we may not realize the expected benefits from our efficiency and growth initiatives or that we may not be able to realize such cost savings or revenue benefits in the time period expected, which could negatively affect our future profitability;
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(2)
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the risk that competition in the financial services industry may adversely affect our future earnings and growth;
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(3)
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our ability to attract and retain employees and the impact of senior leadership transitions that are key to our growth and efficiency strategies;
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(4)
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the risks and uncertainties related to the impact of the COVID-19 pandemic, and its variants, on our assets, business, capital and liquidity, financial condition, prospects and results of operations;
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(5)
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the risk that an economic downturn and contraction could have a material adverse effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk that the strength of the current economic recovery could be weakened by the impact of COVID-19 and its variants and by current supply chain challenges;
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(6)
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the impact of recent and proposed changes in governmental policy, laws and regulations, including recently enacted laws, regulations and guidance related to government stimulus programs related to the COVID-19 pandemic, proposed and recently enacted changes in monetary policy and in the regulation and taxation of banks and financial institutions, or the interpretation or application thereof and the uncertainty of future implementation and enforcement of these regulations, including the risk of inflationary pressure and interest rate increases;
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(7)
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the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the financial services market;
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(8)
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risks related to our implementation of core and transformational initiatives, including new lines of business, new products and services, and new technologies and an expansion of our existing business opportunities with a renewed focus on innovation;
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(9)
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risks that our asset quality may deteriorate, our allowance for credit losses may prove to be inadequate or may be negatively affected by credit risk exposures, and the risk that we may be unable to obtain full payment in respect of any loan or other receivables;
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(10)
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changes in the interest rate environment, including changes to the federal funds rate to include a negative interest rate environment, and competition in our primary market area may result in increased funding costs or reduced earning assets yields, thus reducing margins and net interest income;
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(11)
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the risk that our current and future information technology system enhancements and operational initiatives may not be successfully implemented, which could negatively impact our operations;
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(12)
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risks related to our business relationships with, and reliance upon, third parties that have strategic partnerships with us or that provide key components of our business infrastructure, including the costs of services and products provided to us by third parties, and risks related to disruptions in service or financial difficulties with a third-party vendor or business relationship;
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(13)
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the risk that our enterprise risk management framework, our compliance program, or our corporate governance and supervisory oversight functions may not identify or address risks adequately, which may result in unexpected losses;
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(14)
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changes in the cost and availability of funding due to changes in the deposit market and credit market;
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(15)
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risks related to the ability of our operational framework to identify and manage risks associated with our business such as credit risk, compliance risk, reputational risk, and operational risk, including by virtue of our relationships with third-party business partners, as well as our relationship with third-party vendors and other service providers;
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(16)
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our ability to identify and address cyber-security risks such as data security breaches, malware, "denial of service" attacks, "hacking" and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage of our systems, increased costs, significant losses, or adverse effects to our reputation;
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(17)
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the risk that we may be exposed to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to us under that relationship or under any arrangement that we enter into with them;
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(18)
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the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations or other supervisory actions or directives and any necessary capital initiatives;
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(19)
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the risks that if economic conditions worsen further or regulatory capital rules are modified, we may be required to undertake initiatives to improve or conserve our capital position;
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(20)
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risks related to the continued use, availability and reliability of LIBOR and the risks related to the transition from LIBOR to any alternate reference rate we may use;
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(21)
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restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect our overall liquidity, which could restrict our ability to make payments on our obligations and our ability to support asset growth and sustain our operations and the operations of Synovus Bank;
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(22)
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our ability to receive dividends from our subsidiaries could affect our liquidity, including our ability to pay dividends or take other capital actions;
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(23)
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the risk that we may not be able to identify suitable bank and non-bank acquisition opportunities as part of our growth strategy and even if we are able to identify attractive acquisition opportunities, we may not be able to complete such transactions on favorable terms or realize the anticipated benefits from such acquisitions;
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(24)
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the risk that we could realize losses if we sell non-performing assets and the proceeds we receive are lower than the carrying value of such assets;
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(25)
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risks related to regulatory approval to take certain actions, including any dividends on our common stock or preferred stock, any repurchases of common stock or any other issuance or redemption of any other regulatory capital instruments;
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(26)
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the risk that our concentrated operations in the Southeastern U.S. make us vulnerable to local economic conditions, local weather catastrophes, public health issues, and other external events;
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(27)
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the costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto;
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(28)
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risks related to the fluctuation in our stock price and general volatility in the stock market;
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(29)
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the effects of any damages to our reputation resulting from developments related to any of the items identified above; and
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(30)
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other factors and other information contained in this Report and in other reports and filings that we make with the SEC under the Exchange Act, including, without limitation, those found in "Part II - Item 1A. Risk Factors" of this Report.
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For a discussion of these and other risks that may cause actual results to differ from expectations, refer to “Part I - Item 1A. Risk Factors” and other information contained in Synovus' 2020 Form 10-K and our other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that we file from time to time with the SEC. All written or oral forward-looking statements that are made by or are attributable to Synovus are expressly qualified by this cautionary notice. You should not place undue reliance on any forward-looking statements since those statements speak only as of the date on which the statements are made. Synovus undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.
INTRODUCTION AND CORPORATE PROFILE
Synovus Financial Corp. is a financial services company and a registered bank holding company headquartered in Columbus, Georgia. Through its wholly-owned subsidiary, Synovus Bank, a Georgia state-chartered bank that is a member of the Federal Reserve System, the Company provides commercial and retail banking in addition to a full suite of specialized products and services including private banking, treasury management, wealth management, mortgage services, premium
finance, asset-based lending, structured lending, and international banking. Synovus also provides financial planning and investment advisory services through its wholly-owned subsidiaries, Synovus Trust and Synovus Securities, as well as its GLOBALT and Creative Financial Group divisions.
Synovus Bank is positioned in some of the highest growth markets in the Southeast, with 285 branches in Alabama, Florida, Georgia, South Carolina, and Tennessee.
The following financial review summarizes the significant trends, changes in our business, transactions, and other matters affecting Synovus’ results of operations for the three and nine months ended September 30, 2021 and financial condition as of September 30, 2021 and December 31, 2020. This discussion supplements, and should be read in conjunction with, the unaudited interim consolidated financial statements and notes thereto contained elsewhere in this Report and the consolidated financial statements of Synovus, the notes thereto, and management’s discussion and analysis contained in Synovus' 2020 Form 10-K.
Management's Discussion and Analysis of Financial Condition and Results of Operations consists of:
•Discussion of Results of Operations - Reviews Synovus' financial performance, as well as selected balance sheet items, items from the statements of income, significant transactions, and certain key ratios that illustrate Synovus' performance.
•Credit Quality, Capital Resources and Liquidity - Discusses credit quality, market risk, capital resources, and liquidity, as well as performance trends. It also includes a discussion of liquidity policies, how Synovus obtains funding, and related performance.
•Additional Disclosures - Discusses additional important matters including critical accounting policies and non-GAAP financial measures used within this Report.
A reading of each section is important to understand fully our financial performance.
DISCUSSION OF RESULTS OF OPERATIONS
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Table 1 - Consolidated Financial Highlights
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Three Months Ended September 30,
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Nine Months Ended September 30,
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(dollars in thousands, except per share data)
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2021
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2020
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Change
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2021
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2020
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Change
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Net interest income
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$
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384,917
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$
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376,990
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2
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%
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$
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1,140,634
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$
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1,126,816
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1
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%
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(Reversal of) provision for credit losses
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(7,868)
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43,383
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(118)
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(51,041)
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343,956
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(115)
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Non-interest revenue
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114,955
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114,411
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—
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332,997
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391,752
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(15)
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Adjusted non-interest revenue(1)
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114,090
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114,905
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(1)
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332,204
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309,907
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7
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Total TE revenue
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500,608
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492,357
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2
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1,475,932
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1,521,171
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(3)
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Adjusted total revenue(1)
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499,743
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492,851
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1
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1,475,139
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1,439,326
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2
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Non-interest expense
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267,032
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316,655
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(16)
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804,697
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877,076
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(8)
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Adjusted non-interest expense(1)
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267,053
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267,946
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—
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801,104
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815,771
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(2)
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Income before income taxes
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240,708
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131,363
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83
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719,975
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297,536
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142
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Net income
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186,773
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91,574
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104
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560,065
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223,286
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151
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Net income available to common shareholders
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178,482
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83,283
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114
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535,193
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198,414
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170
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Net income per common share, basic
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1.22
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0.57
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114
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3.63
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1.35
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169
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Net income per common share, diluted
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1.21
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0.56
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116
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3.59
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1.34
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168
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Adjusted net income per common share, diluted(1)
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1.20
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0.89
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35
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3.61
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1.32
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173
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Net interest margin(2)
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3.01
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%
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3.10
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%
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(9)
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bps
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3.02
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%
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3.20
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%
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(18)
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bps
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Net charge-off ratio(2)
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0.22
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0.29
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(7)
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0.24
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0.25
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(1)
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Return on average assets(2)
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1.34
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0.69
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65
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1.37
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0.58
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79
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Adjusted return on average assets(1)(2)
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1.33
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1.05
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28
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1.37
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0.57
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80
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Efficiency ratio-TE
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53.34
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64.31
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(1,097)
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54.52
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57.66
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(314)
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Adjusted tangible efficiency ratio(1)
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52.96
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53.83
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(87)
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53.82
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56.13
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(231)
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(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
(2) Annualized
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September 30, 2021
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June 30, 2021
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Sequential Quarter Change
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September 30, 2020
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Year-Over-Year Change
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(dollars in thousands)
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Loans, net of deferred fees and costs
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$
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38,341,030
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$
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38,236,018
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$
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105,012
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$
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39,549,847
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$
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(1,208,817)
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Total average loans
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37,534,133
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38,496,477
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(962,344)
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39,762,572
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(2,228,439)
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Total deposits
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47,688,419
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47,171,962
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516,457
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44,665,904
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3,022,515
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Core deposits (excludes brokered deposits)
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44,907,718
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44,203,000
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704,718
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40,756,645
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4,151,073
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Core transaction deposits (excludes brokered and public fund deposits)
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36,536,788
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35,506,980
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1,029,808
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30,988,237
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5,548,551
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Total average deposits
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47,477,217
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47,349,646
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127,571
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44,339,497
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3,137,720
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Non-performing assets ratio
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0.45
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%
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0.46
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%
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(1)
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bps
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0.49
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%
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(4)
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bps
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Non-performing loans ratio
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0.41
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0.42
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(1)
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0.43
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(2)
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Past due loans over 90 days
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0.02
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0.01
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1
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0.02
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—
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CET1 capital
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$
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4,276,765
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$
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4,214,720
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$
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62,045
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$
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3,913,402
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$
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363,363
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Tier 1 capital
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4,813,910
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4,751,865
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62,045
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4,450,547
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363,363
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Total risk-based capital
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5,765,528
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5,725,176
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40,352
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5,536,918
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|
228,610
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CET1 capital ratio
|
9.58
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%
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9.75
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%
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(17)
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bps
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|
9.30
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%
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28
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bps
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Tier 1 capital ratio
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10.79
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11.00
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(21)
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10.57
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22
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Total risk-based capital ratio
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12.92
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13.25
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(33)
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13.16
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(24)
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Total shareholders’ equity to total assets ratio
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9.46
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|
9.53
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(7)
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|
9.55
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(9)
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Tangible common equity ratio(1)
|
7.68
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|
|
7.73
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(5)
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|
|
7.67
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|
|
1
|
|
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Return on average common equity(2)
|
14.96
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|
|
15.40
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(44)
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|
|
7.28
|
|
|
768
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|
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Adjusted return on average common equity(1)(2)
|
14.90
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|
|
15.50
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(60)
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|
|
11.48
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|
|
342
|
|
|
Adjusted return on average tangible common equity(1)(2)
|
16.79
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|
|
17.52
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(73)
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|
|
13.24
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
(2) Quarter annualized
Executive Summary
Net income available to common shareholders for the third quarter of 2021 was $178.5 million, or $1.21 per diluted common share ($1.20 on an adjusted basis(1)), compared to $83.3 million, or $0.56 per diluted common share ($0.89 adjusted(1)), for the third quarter of 2020. Net income available to common shareholders for the first nine months of 2021 was $535.2 million, or $3.59 per diluted common share ($3.61 adjusted(1)), compared to $198.4 million, or $1.34 per diluted common share ($1.32 adjusted(1)), for the first nine months of 2020. The year-over-year increases for all time periods were impacted by significant improvement in the economic outlook impacting expected credit losses compared to 2020.
Net interest income for the nine months ended September 30, 2021 was $1.14 billion, up $13.8 million compared to the same period in 2020, including $66.5 million in PPP fees during 2021 and $21.1 million in 2020. Net interest margin was down 18 bps over the comparable nine-month period to 3.02%, due primarily to the decline in market interest rates and average growth in investment securities available for sale and interest-bearing funds held at the Federal Reserve Bank. Net interest margin for the third quarter was stable at 3.01%, down 1 bp compared to the second quarter of 2021 with continued pressure from the liquidity environment. We expect that net interest income excluding PPP fees will increase in the remainder of the year, driven by loan growth and deployment of liquidity, which are expected to offset headwinds from continued fixed-rate repricing and the slight reduction in LIBOR.
Non-interest revenue for the third quarter of 2021 was $115.0 million, up $544 thousand, and year-to-date was $333.0 million, down $58.8 million, or 15%, compared to the same periods in 2020. Gains on sales of investment securities of $76.6 million impacted the nine months ended September 30, 2020. Adjusted non-interest revenue(1) for the third quarter of 2021 was down 1% from the third quarter of 2020, primarily due to lower mortgage banking income partially offset by higher core banking fees, brokerage revenue, fiduciary and asset management fees, and capital markets income. Year-to-date adjusted non-interest revenue(1) was up 7% compared to the same period in 2020, largely due to higher core banking fees, fiduciary and asset management fees, and brokerage revenue partially offset by lower mortgage banking income and capital markets income. In the fourth quarter of 2021, we expect adjusted non-interest revenue to decline as broad-based growth is more than offset by continued normalization of mortgage banking income, seasonality of our brokerage business, and third quarter 2021 gains that are not expected to repeat.
Non-interest expense for the third quarter of 2021 was $267.0 million, down $49.6 million, or 16%, and year-to-date was down $72.4 million, or 8%, compared to the same periods in 2020. Goodwill impairment expense of $44.9 million impacted the three and nine months ended September 30, 2020. Adjusted non-interest expense(1) declined in 2021 primarily due to 2020 being impacted by higher expense associated with Synovus Forward as well as a 5% reduction in headcount year-over-year, which primarily came from back-office support functions and offset other personnel expense increases. The efficiency ratio-TE for the first nine months of 2021 was 54.52%, compared to 57.66% for the first nine months of 2020. We remain committed to prudent expense management, enabling us to continue investing in areas that position us for greater success, deliver a superior client experience, and promote profitable growth.
At September 30, 2021, loans, net of deferred fees and costs, of $38.34 billion, increased $88.0 million from December 31, 2020. C&I loans declined $585.4 million, with net growth offsetting a $1.41 billion decline in PPP loans, CRE loans increased $214.6 million, and consumer loans increased $458.9 million, led by purchases of $1.49 billion in third-party lending loans, offset by declines in consumer mortgages and HELOCs. While payoff activity remains a significant headwind, recent production, client conversations, and our loan pipeline lead us to expect loan growth to be in the lower half of our initial 2021 guidance of 2%-4%, which excludes PPP and third-party lending loans.
Credit metrics remained stable and near historical lows as of September 30, 2021 with NPAs at 45 bps, NPLs at 41 bps, and total past dues at 16 bps, as a percentage of total loans, and YTD net charge-offs at 24 bps annualized. We expect net charge-offs to remain relatively stable and criticized and classified loans to continue to decline in the fourth quarter of 2021, assuming no material change in the economic environment. The ACL at September 30, 2021 totaled $535.2 million, a decrease of $118.3 million from December 31, 2020, resulting from an improving overall economic outlook. The ACL to loans coverage ratio at September 30, 2021 was 1.40%.
Total period-end deposits at September 30, 2021 increased $996.8 million, or 2%, compared to December 31, 2020. Core transaction deposits increased $3.78 billion, or 12%, compared to December 31, 2020, largely due to government stimulus programs including deposits associated with PPP loans. Total deposit costs continued their downward trend to 13 bps during the third quarter of 2021, due to repricing and intentional, strategic remixing to reduce higher cost deposits.
At September 30, 2021, Synovus' CET1 ratio was 9.58%, well in excess of regulatory requirements. Synovus announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $200 million in 2021. Through September 30, 2021, Synovus has repurchased $167.1 million, or 3.7 million shares of its common stock, at an average price of $44.88 per share. Based on current conditions and economic outlook, we expect to complete the full authorization in the fourth quarter of 2021.
More detail on Synovus' financial results for the three and nine months ended September 30, 2021 may be found in subsequent sections of "Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report. See also "Item 1A. – Risk Factors" of this Report.
(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to the most comparable GAAP measure.
Changes in Financial Condition
During the nine months ended September 30, 2021, total assets increased $1.11 billion to $55.51 billion. We deployed excess liquidity as cash and cash equivalents decreased $1.57 billion, investment securities available for sale increased $2.52 billion, and total loans increased $88.0 million with C&I growth offset by PPP loan forgiveness, and elevated pay-offs in consumer mortgages and HELOCs were more than offset by purchases of $1.49 billion in third-party lending loans. The loan to deposit ratio was 80.4% at September 30, 2021, lower as compared to 81.9% at December 31, 2020, and 88.6% at September 30, 2020, primarily due to excess liquidity from various government stimulus efforts that have supported deposit growth while somewhat muting the demand for credit.
Total shareholders' equity at September 30, 2021 increased $91.5 million compared to December 31, 2020 and included net income of $560.1 million, partially offset by dividends declared on common and preferred stock of $145.8 million and $24.9 million, respectively, net changes in unrealized losses in investment securities available for sale and cash flow hedges of $128.5 million and $35.6 million, respectively, and share repurchases of $167.1 million.
Loans
The following table compares the composition of the loan portfolio at September 30, 2021, December 31, 2020, and September 30, 2020.
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Table 2 - Loans by Portfolio Class
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September 30, 2021 vs. December 31, 2020 Change
|
|
|
|
|
|
September 30, 2021 vs. September 30, 2020 Change
|
(dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Commercial, financial and agricultural
|
$
|
11,771,037
|
|
|
30.7
|
%
|
|
$
|
12,410,152
|
|
|
32.4
|
%
|
|
$
|
(639,115)
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|
|
(5)
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%
|
|
$
|
12,931,095
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|
|
32.7
|
%
|
|
$
|
(1,160,058)
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(9)
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%
|
Owner-occupied
|
7,163,751
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|
|
18.7
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|
|
7,110,016
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|
|
18.6
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|
|
53,735
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|
|
1
|
|
|
7,192,543
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|
|
18.2
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|
|
(28,792)
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|
|
—
|
|
Total commercial and industrial
|
18,934,788
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|
|
49.4
|
|
|
19,520,168
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|
|
51.0
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|
|
(585,380)
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|
|
(3)
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|
|
20,123,638
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|
|
50.9
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|
|
(1,188,850)
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|
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(6)
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Investment properties
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9,448,463
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|
|
24.7
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|
|
9,103,379
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|
|
23.8
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|
|
345,084
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|
|
4
|
|
|
9,434,208
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|
|
23.8
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|
|
14,255
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|
|
—
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1-4 family properties
|
613,874
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|
|
1.6
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|
|
628,695
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|
|
1.6
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|
|
(14,821)
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|
|
(2)
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|
|
654,750
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|
|
1.7
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|
|
(40,876)
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(6)
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Land and development
|
477,923
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|
|
1.2
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|
|
593,633
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|
|
1.6
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|
|
(115,710)
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|
|
(19)
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|
|
647,105
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|
|
1.6
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|
|
(169,182)
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|
|
(26)
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|
Total commercial real estate
|
10,540,260
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|
|
27.5
|
|
|
10,325,707
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|
|
27.0
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|
|
214,553
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|
|
2
|
|
|
10,736,063
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|
|
27.1
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|
|
(195,803)
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(2)
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Consumer mortgages
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5,108,499
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|
|
13.3
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|
|
5,513,491
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|
|
14.4
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|
|
(404,992)
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|
|
(7)
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|
|
5,664,686
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|
|
14.3
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|
|
(556,187)
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(10)
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Home equity lines
|
1,308,254
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|
|
3.4
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|
|
1,537,726
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|
|
4.0
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|
|
(229,472)
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|
|
(15)
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|
|
1,629,482
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|
|
4.1
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|
|
(321,228)
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(20)
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Credit cards
|
293,026
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|
|
0.8
|
|
|
281,018
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|
|
0.7
|
|
|
12,008
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|
|
4
|
|
|
264,829
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|
|
0.7
|
|
|
28,197
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|
|
11
|
|
Other consumer loans
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2,156,203
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|
|
5.6
|
|
|
1,074,874
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|
|
2.9
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|
|
1,081,329
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|
|
101
|
|
|
1,131,149
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|
|
2.9
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|
|
1,025,054
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|
|
91
|
|
Total consumer
|
8,865,982
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|
|
23.1
|
|
|
8,407,109
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|
|
22.0
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|
|
458,873
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|
|
5
|
|
|
8,690,146
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|
|
22.0
|
|
|
175,836
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|
|
2
|
|
Loans, net of deferred fees and costs
|
$
|
38,341,030
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|
|
100.0
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%
|
|
$
|
38,252,984
|
|
|
100.0
|
%
|
|
$
|
88,046
|
|
|
—
|
%
|
|
$
|
39,549,847
|
|
|
100.0
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%
|
|
$
|
(1,208,817)
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|
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(3)
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%
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At September 30, 2021, loans, net of deferred fees and costs, of $38.34 billion, increased from December 31, 2020. C&I loans declined but included a $1.41 billion decline in PPP loans primarily from forgiveness, CRE increased, and consumer loans increased as well, led by other consumer growth primarily from purchases of third-party lending loans. Declines in consumer mortgages and HELOCs, which were primarily the continued result of excess consumer liquidity and accelerated prepayment activity, partially offset the growth in other consumer loans. While payoff activity remains a significant headwind, recent production, client conversations, and our loan pipeline lead us to expect loan growth to be in the lower half of our initial 2021 guidance of 2%-4%, which excludes PPP and third-party lending loans.
C&I loans remain the largest component of our loan portfolio, representing 49.4% of total loans, while CRE and consumer loans represent 27.5% and 23.1%, respectively. Our portfolio composition is established through a comprehensive concentration management policy which sets limits for C&I, CRE, and consumer loan levels as well as for sub-categories therein.
U.S. Small Business Administration Paycheck Protection Program (PPP)
Synovus is participating in the PPP, which is a loan program that originated from the CARES Act and was subsequently expanded by the Paycheck Protection Program and Health Care Enhancement Act, which was signed into law on April 24, 2020. The total balance of all PPP loans was $782.2 million as of September 30, 2021, compared to $2.19 billion as of December 31, 2020. The table below provides additional information on PPP loans.
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|
September 30, 2021
|
|
Applications
|
|
Loan Balances
|
(in millions, except count data )
|
Approximate Count
|
|
Balance
|
|
Fundings
|
|
3Q21 Forgiveness
|
|
Total Life-to-Date Forgiveness
|
|
End of Period, Net of Unearned Fees and Costs(1)
|
Phase 1- 2020 Originations
|
19,000
|
|
|
$
|
2,958
|
|
|
$
|
2,886
|
|
|
$
|
544
|
|
|
$
|
2,676
|
|
|
$
|
105
|
|
Phase 2- 2021 Originations
|
11,000
|
|
|
1,135
|
|
|
1,047
|
|
|
295
|
|
|
341
|
|
|
677
|
Total
|
30,000
|
|
|
$
|
4,093
|
|
|
$
|
3,933
|
|
|
$
|
839
|
|
|
$
|
3,017
|
|
|
$
|
782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equals fundings less forgiveness, pay-downs/pay-offs, and unearned net fees.
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|
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|
|
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|
|
|
|
|
|
(dollars in millions)
|
|
Total Net Fees
|
|
Percent of Fundings
|
|
3Q21 Recognized Net Fees
|
|
Total Recognized Net Fees
|
|
Total Unrecognized or Remaining Net Fees
|
|
Contractual Maturity
|
Phase 1- 2020 Originations
|
|
$
|
94.9
|
|
|
3.3
|
%
|
|
$
|
7.9
|
|
|
$
|
94.3
|
|
|
$
|
0.6
|
|
|
2 years
|
Phase 2- 2021 Originations
|
|
43.6
|
|
|
4.2
|
|
|
13.4
|
|
|
18.2
|
|
|
25.4
|
|
|
5 years
|
Total
|
|
$
|
138.5
|
|
|
3.5
|
%
|
|
$
|
21.3
|
|
|
$
|
112.5
|
|
|
$
|
26.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
Total commercial loans (which are comprised of C&I and CRE loans) at September 30, 2021 were $29.48 billion, or 76.9%, of the total loan portfolio, compared to $29.85 billion, or 78.0%, at December 31, 2020.
Commercial and Industrial Loans
The C&I loan portfolio represents the largest category of Synovus' loan portfolio and is primarily comprised of general middle market and commercial banking clients across a wide range of industries. The following table shows the composition of the C&I loan portfolio aggregated by NAICS code. In accordance with Synovus' lending policy, each loan undergoes a detailed underwriting process which incorporates uniform underwriting standards and oversight in proportion to the size and complexity of the lending relationship. As of September 30, 2021, 90.7% (94.6% excluding PPP loans) of Synovus' C&I loans are secured by real estate, business equipment, inventory, and other types of collateral compared to 83.2% (93.8% excluding PPP loans) as of December 31, 2020. C&I loans at September 30, 2021 decreased from December 31, 2020, primarily due to PPP forgiveness. Excluding PPP loans, C&I loans grew $825.6 million, propelled by increased funded commercial loan production, particularly in the finance and insurance and health care and social assistance industries.
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|
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|
|
|
|
Table 3 - Commercial and Industrial Loans by Industry
|
|
September 30, 2021
|
|
December 31, 2020
|
(dollars in thousands)
|
Amount
|
|
%(1)
|
|
Amount
|
|
%(1)
|
Health care and social assistance
|
$
|
3,960,864
|
|
|
20.9
|
%
|
|
$
|
3,878,450
|
|
|
19.9
|
%
|
Finance and insurance
|
2,174,226
|
|
|
11.5
|
|
|
1,680,094
|
|
|
8.6
|
|
Retail trade
|
1,207,224
|
|
|
6.4
|
|
|
1,279,813
|
|
|
6.6
|
|
Accommodation and food services
|
1,182,462
|
|
|
6.2
|
|
|
1,213,524
|
|
|
6.2
|
|
Manufacturing
|
1,170,113
|
|
|
6.2
|
|
|
1,243,290
|
|
|
6.4
|
|
Wholesale trade
|
1,153,011
|
|
|
6.1
|
|
|
1,236,137
|
|
|
6.3
|
|
Real estate and rental and leasing
|
1,108,166
|
|
|
5.9
|
|
|
1,134,023
|
|
|
5.8
|
|
Other services
|
1,014,838
|
|
|
5.4
|
|
|
1,144,023
|
|
|
5.9
|
|
Construction
|
1,000,458
|
|
|
5.3
|
|
|
1,065,633
|
|
|
5.5
|
|
Professional, scientific, and technical services
|
953,872
|
|
|
5.0
|
|
|
1,144,939
|
|
|
5.9
|
|
Transportation and warehousing
|
838,127
|
|
|
4.4
|
|
|
843,294
|
|
|
4.3
|
|
Real estate other
|
714,158
|
|
|
3.8
|
|
|
723,241
|
|
|
3.7
|
|
Arts, entertainment, and recreation
|
564,276
|
|
|
3.0
|
|
|
779,282
|
|
|
4.0
|
|
Educational services
|
430,652
|
|
|
2.3
|
|
|
398,949
|
|
|
2.0
|
|
Public Administration
|
406,093
|
|
|
2.1
|
|
|
432,519
|
|
|
2.2
|
|
Agriculture, forestry, fishing, and hunting
|
306,096
|
|
|
1.6
|
|
|
385,337
|
|
|
2.0
|
|
Administration, support, waste management, and remediation
|
257,444
|
|
|
1.4
|
|
|
352,812
|
|
|
1.8
|
|
Other industries
|
251,938
|
|
|
1.2
|
|
|
296,487
|
|
|
1.4
|
|
Information
|
240,770
|
|
|
1.3
|
|
|
288,321
|
|
|
1.5
|
|
Total commercial and industrial loans
|
$
|
18,934,788
|
|
|
100.0
|
%
|
|
$
|
19,520,168
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
(1) Loan balance in each category expressed as a percentage of total C&I loans.
At September 30, 2021, $11.77 billion of C&I loans, or 30.7% of the total loan portfolio, represented loans originated for the purpose of financing commercial, financial and agricultural business activities. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization. The secondary source of repayment is the collateral, which consists primarily of equipment, inventory, accounts receivable, time deposits, cash surrender value of life insurance, and other business assets.
At September 30, 2021, $7.16 billion of C&I loans, or 18.7% of the total loan portfolio, represented loans originated for the purpose of financing owner-occupied properties. The financing of owner-occupied facilities is considered a C&I loan even though there is improved real estate as collateral. This treatment is a result of the credit decision process, which focuses on cash flow from operations of the business to repay the debt. The secondary source of repayment on these loans is the underlying real estate. These loans are predominately secured by owner-occupied and other real estate, and to a lesser extent, other types of collateral.
Commercial Real Estate Loans
CRE loans consist primarily of income-producing investment properties loans. Additionally, CRE loans include 1-4 family properties loans as well as land and development loans. Total CRE loans of $10.54 billion increased from December 31, 2020 as higher funded loan production drove the growth but was partially offset by elevated pay-off activity.
Investment properties loans consist of construction and mortgage loans for income-producing properties and are primarily made to finance multi-family properties, hotels, office buildings, shopping centers, warehouses and other commercial development properties. Total investment properties loans as of September 30, 2021 were $9.45 billion, or 89.6% of the CRE loan portfolio, and increased from December 31, 2020, with increases in the other investment property and office buildings sub-categories, partially offset by a decline in shopping centers and warehouses.
1-4 Family Properties Loans
1-4 family properties loans include construction loans to home builders and commercial mortgage loans related to 1-4 family rental properties and are almost always secured by the underlying property being financed by such loans. These properties are primarily located in the markets served by Synovus. At September 30, 2021, 1-4 family properties loans totaled $613.9 million, or 5.8% of the CRE loan portfolio, and decreased slightly from December 31, 2020.
Land and Development Loans
Land and development loans include commercial and residential development as well as land acquisition loans and are secured by land held for future development, typically in excess of one year. Properties securing these loans are substantially within markets served by Synovus, and loan terms generally include personal guarantees from the principals. Loans in this portfolio are underwritten based on the LTV of the collateral and the capacity of the guarantor(s). Land and development loans of $477.9 million at September 30, 2021 continued to decline from December 31, 2020.
Consumer Loans
The consumer loan portfolio consists of a wide variety of loan products offered through Synovus' banking network including first and second residential mortgages, HELOCs, and credit card loans, as well as both secured and unsecured loans from third-party lending. As of September 30, 2021, weighted-average FICO scores within the residential real estate portfolio based on committed balances were 776 for consumer mortgages and 791 for HELOCs.
Consumer loans at September 30, 2021 of $8.87 billion increased compared to December 31, 2020. Consumer mortgages and HELOCs both decreased from December 31, 2020 as these reductions continue to result primarily from accelerated prepayment activity and excess consumer liquidity. Credit card loans of $293.0 million at September 30, 2021 increased slightly from $281.0 million at December 31, 2020. Other consumer loans, which primarily includes third-party lending, increased from December 31, 2020, and as of September 30, 2021, third-party lending balances totaled $1.72 billion, or 4.5%, of the total loan portfolio, and increased $1.04 billion, or 154%, compared to December 31, 2020, led by purchases of $1.49 billion of third-party lending loans, partially offset by payment activity. Growth in this portfolio is predicated on overall balance sheet dynamics including capital, liquidity, and client loan growth.
Deposits
Deposits provide the most significant funding source for interest earning assets. The following table shows the composition of period-end deposits as of the dates indicated. See Table 11 - Average Balances and Yields/Rates in this Report for information on average deposits including average rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 - Composition of Period-end Deposits
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
September 30, 2021
|
|
%(1)
|
|
|
December 31, 2020
|
|
%(1)
|
|
September 30, 2020
|
|
%(1)
|
Non-interest-bearing demand deposits(2)
|
$
|
14,832,942
|
|
|
31.1
|
%
|
|
|
$
|
12,382,708
|
|
|
26.5
|
%
|
|
$
|
12,129,777
|
|
|
27.2
|
%
|
Interest-bearing demand deposits(2)
|
6,055,984
|
|
|
12.7
|
|
|
|
5,674,416
|
|
|
12.2
|
|
|
5,291,135
|
|
|
11.8
|
|
Money market accounts(2)
|
14,267,443
|
|
|
29.9
|
|
|
|
13,541,236
|
|
|
29.0
|
|
|
12,441,340
|
|
|
27.8
|
|
Savings deposits(2)
|
1,380,419
|
|
|
2.9
|
|
|
|
1,156,249
|
|
|
2.5
|
|
|
1,125,985
|
|
|
2.5
|
|
Public funds
|
5,791,586
|
|
|
12.2
|
|
|
|
6,760,628
|
|
|
14.5
|
|
|
5,791,944
|
|
|
13.0
|
|
Time deposits(2)
|
2,579,344
|
|
|
5.4
|
|
|
|
3,605,928
|
|
|
7.7
|
|
|
3,976,464
|
|
|
8.9
|
|
Brokered deposits
|
2,780,701
|
|
|
5.8
|
|
|
|
3,570,406
|
|
|
7.6
|
|
|
3,909,259
|
|
|
8.8
|
|
Total deposits
|
$
|
47,688,419
|
|
|
100.0
|
%
|
|
|
$
|
46,691,571
|
|
|
100.0
|
%
|
|
$
|
44,665,904
|
|
|
100.0
|
%
|
Core deposits(3)
|
$
|
44,907,718
|
|
|
94.2
|
%
|
|
|
$
|
43,121,165
|
|
|
92.4
|
%
|
|
$
|
40,756,645
|
|
|
91.2
|
%
|
Core transaction deposits(4)
|
$
|
36,536,788
|
|
|
76.6
|
%
|
|
|
$
|
32,754,609
|
|
|
70.2
|
%
|
|
$
|
30,988,237
|
|
|
69.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits greater than $100,000, including brokered and public funds
|
$
|
3,252,537
|
|
|
6.8
|
%
|
|
|
$
|
4,748,029
|
|
|
10.2
|
%
|
|
$
|
5,478,221
|
|
|
12.3
|
%
|
Brokered time deposits
|
$
|
951,868
|
|
|
2.0
|
%
|
|
|
$
|
1,590,096
|
|
|
3.4
|
%
|
|
$
|
1,996,133
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Deposits balance in each category expressed as percentage of total deposits.
(2) Excluding any public funds or brokered deposits.
(3) Core deposits exclude brokered deposits.
(4) Core transaction deposits consist of non-interest-bearing demand deposits, interest-bearing demand deposits, money market accounts, and savings deposits excluding public funds and brokered deposits.
Total period-end deposits at September 30, 2021 increased $996.8 million, or 2%, compared to December 31, 2020. Core transaction deposits increased $3.78 billion, or 12%, compared to December 31, 2020. On a year-to-date average basis, the increase in total deposits was $4.06 billion, or 9%, compared to December 31, 2020. The increases in deposit balances on both a period-end and average basis compared to December 31, 2020 are due largely to government stimulus programs including deposits associated with the second phase of PPP loans. Total deposit costs of 13 bps during the third quarter of 2021 declined 3 bps on a linked quarter basis and have steadily declined over the past 5 quarters as shown in Table 11 - Average Balances and Yields/Rates in this Report due to repricing and intentional, strategic remixing to reduce higher cost deposits.
Non-interest Revenue
Non-interest revenue for the third quarter of 2021 was $115.0 million, up $544 thousand, and year-to-date was $333.0 million, down $58.8 million, or 15%, compared to the same periods in 2020. Gains on sales of investment securities of $76.6 million impacted the nine months ended September 30, 2020. Adjusted non-interest revenue(1) for the third quarter of 2021 was $114.1 million, down $815 thousand, or 1%, from the third quarter of 2020 primarily due to lower mortgage banking income partially offset by higher core banking fees, brokerage revenue, fiduciary and asset management fees, and capital markets income. Year-to-date adjusted non-interest revenue(1) was $332.2 million, up $22.3 million, or 7%, compared to the same period in 2020 largely due to higher core banking fees, fiduciary and asset management fees, and brokerage revenue partially offset by lower mortgage banking income and capital markets income. In the fourth quarter of 2021, we expect adjusted non-interest revenue to decline as broad-based growth is more than offset by continued normalization of mortgage banking income, seasonality of our brokerage business, and third quarter 2021 gains that are not expected to repeat.
(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to GAAP measures.
The following table shows the principal components of non-interest revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5 - Non-interest Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(dollars in thousands)
|
2021
|
|
2020
|
|
$ Change
|
|
% Change
|
|
2021
|
|
2020
|
|
$ Change
|
|
% Change
|
Service charges on deposit accounts (1)
|
$
|
22,641
|
|
|
$
|
17,813
|
|
|
$
|
4,828
|
|
|
27
|
%
|
|
$
|
64,089
|
|
|
$
|
54,069
|
|
|
$
|
10,020
|
|
|
19
|
%
|
Fiduciary and asset management fees
|
19,786
|
|
|
15,885
|
|
|
3,901
|
|
|
25
|
|
|
56,545
|
|
|
46,009
|
|
|
10,536
|
|
|
23
|
|
Card fees (1)
|
13,238
|
|
|
10,823
|
|
|
2,415
|
|
|
22
|
|
|
38,538
|
|
|
30,959
|
|
|
7,579
|
|
|
24
|
|
Brokerage revenue
|
14,745
|
|
|
10,604
|
|
|
4,141
|
|
|
39
|
|
|
41,644
|
|
|
32,987
|
|
|
8,657
|
|
|
26
|
|
Mortgage banking income
|
11,155
|
|
|
31,229
|
|
|
(20,074)
|
|
|
(64)
|
|
|
47,312
|
|
|
66,987
|
|
|
(19,675)
|
|
|
(29)
|
|
Capital markets income
|
8,089
|
|
|
5,690
|
|
|
2,399
|
|
|
42
|
|
|
18,929
|
|
|
22,984
|
|
|
(4,055)
|
|
|
(18)
|
|
Income from bank-owned life insurance
|
6,820
|
|
|
7,778
|
|
|
(958)
|
|
|
(12)
|
|
|
22,851
|
|
|
21,572
|
|
|
1,279
|
|
|
6
|
|
Investment securities gains (losses), net
|
962
|
|
|
(1,550)
|
|
|
2,512
|
|
|
nm
|
|
(1,028)
|
|
|
76,594
|
|
|
(77,622)
|
|
|
nm
|
Other non-interest revenue(1)
|
17,519
|
|
|
16,139
|
|
|
1,380
|
|
|
9
|
|
|
44,117
|
|
|
39,591
|
|
|
4,526
|
|
|
11
|
|
Total non-interest revenue
|
$
|
114,955
|
|
|
$
|
114,411
|
|
|
$
|
544
|
|
|
—
|
%
|
|
$
|
332,997
|
|
|
$
|
391,752
|
|
|
$
|
(58,755)
|
|
|
(15)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core banking fees (1)
|
$
|
44,345
|
|
|
$
|
34,338
|
|
|
$
|
10,007
|
|
|
29
|
%
|
|
$
|
123,964
|
|
|
$
|
100,917
|
|
|
$
|
23,047
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Service charges on deposit accounts, card fees, and other non-interest revenue components including letter of credit fees, ATM fees income, line of credit non-usage fees, gains from sales of government guaranteed loans, and miscellaneous other service charges.
Three and Nine Months Ended September 30, 2021 compared to September 30, 2020
Service charges on deposit accounts, consisting of NSF fees, account analysis fees, and all other service charges, for the three and nine months ended September 30, 2021 were up due largely to higher account analysis fees, which were up $2.6 million, or 35%, and $8.0 million, or 38%, respectively, following our pricing for value Synovus Forward initiative implemented during the first quarter of 2021. NSF fees for the nine months ended September 30, 2021 and 2020 comprised 30% and 36%, respectively, of service charges on deposit accounts and 6% and 5%, respectively, of total non-interest revenue. All other service charges on deposit accounts, which consist primarily of monthly fees on retail demand deposits, saving accounts, and small business accounts, for the three and nine months ended September 30, 2021, were up $1.0 million, or 22%, and $2.2 million, or 16%, respectively.
Fiduciary and asset management fees are derived from providing estate administration, personal trust, corporate trust, corporate bond, investment management, financial planning, and family office services. The increase in fiduciary and asset management fees for the three and nine months ended September 30, 2021 was driven by growth in total assets under management which increased by 21% from September 30, 2020 to $21.23 billion at September 30, 2021.
Card fees consist primarily of credit card interchange fees, debit card interchange fees, and merchant discounts. Card fees are reported net of certain associated expense items including client loyalty program expenses and network expenses. Card fees for the three and nine months ended September 30, 2021 were up with increased transaction volume in all card fee categories.
Brokerage revenue consists primarily of brokerage commissions as well as advisory fees earned from the management of client assets. Brokerage revenue for the three and nine months ended September 30, 2021 increased over the prior year comparable periods and was driven by growth in assets under management and higher transaction revenue from favorable market conditions.
Mortgage banking income was significantly lower for the third quarter of 2021 compared to the three months ended September 30, 2020 with the decline driven by lower gains on sale and lower secondary production. The year-to-date decline was largely a result of lower secondary revenue in addition to lower secondary production. Total secondary market mortgage loan production was $343.0 million, down $310.8 million, or 48%, and $1.34 billion, down $205.4 million, or 13%, for the three and nine months ended September 30, 2021, respectively.
Capital markets income primarily includes fee income from client derivative transactions. Additionally, capital markets income includes fee income from capital raising investment banking transactions and foreign exchange as well as other miscellaneous income from capital market transactions. The increase for the three months ended September 30, 2021 primarily resulted from $1.4 million higher loan syndication arranger fees and $0.9 million higher fees on client derivative transactions. The decrease for the nine months ended September 30, 2021 was primarily a result of a $6.1 million decrease in fees on client derivative transactions as commercial client activity to lock in lower rates was elevated in 2020, partially offset by a $1.6 million increase in loan syndication arranger fees.
Income from BOLI includes increases in the cash surrender value of policies and proceeds from insurance benefits. The decrease for the three months ended September 30, 2021 primarily related to $557 thousand in proceeds from insurance benefits in the third quarter of 2020 while the year-to-date increase was driven by a $1.3 million increase in proceeds from insurance benefits.
Investment securities losses, net, of $1.0 million for the nine months ended September 30, 2021 reflected strategic sales of mortgage-backed securities. Investment securities gains, net, of $76.6 million for the nine months ended September 30, 2020 reflected strategic repositioning of the portfolio primarily during the latter part of the second quarter of 2020 to respond to the impact of market rate declines.
The main components of other non-interest revenue are fees for letters of credit and unused lines of credit, safe deposit box fees, access fees for ATM use, other service charges and loan servicing fees, income from insurance commissions, gains from sales of GGL/SBA loans, and other miscellaneous items. The nine months ended September 30, 2021 included increases in income related to investments in LIHTC and solar energy tax credit partnerships of $2.7 million and $2.0 million, respectively, a $2.5 million increase in other service charges primarily from higher unused line of credit fees, and a $2.0 million increase in insurance revenue as compared to 2020. The nine months ended September 30, 2020 included $4.5 million in realized gains from the sale of positions in two publicly-traded equity investments, a sale-leaseback gain of $2.4 million, and a gain of $2.5 million from the sale of non-relationship mortgage loans.
Non-interest Expense
Non-interest expense for the third quarter of 2021 was $267.0 million, down $49.6 million, or 16%, and year-to-date was down $72.4 million, or 8%, compared to the same periods in 2020. Goodwill impairment expense of $44.9 million impacted the three and nine months ended September 30, 2020. Adjusted non-interest expense of $267.1 million was down $893 thousand, and year-to-date was down $14.7 million, or 2%. The decline in adjusted non-interest expense during 2021 was primarily due to 2020 being impacted by higher expense associated with Synovus Forward as well as a 5% reduction in headcount year-over-year, which primarily came from back-office support functions and offset other personnel expense increases. The adjusted tangible efficiency ratio for the first nine months of 2021 was 53.82%, down 231 bps compared to the same period a year ago. We remain committed to prudent expense management, enabling us to continue investing in areas that position us for greater success, deliver a superior client experience, and promote profitable growth. See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to GAAP measures.
The following table summarizes the components of non-interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6 - Non-interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(dollars in thousands)
|
2021
|
|
2020
|
|
$ Change
|
|
% Change
|
|
2021
|
|
2020
|
|
$ Change
|
|
% Change
|
Salaries and other personnel expense
|
$
|
160,364
|
|
|
$
|
154,994
|
|
|
$
|
5,370
|
|
|
3
|
%
|
|
$
|
482,408
|
|
|
$
|
464,268
|
|
|
$
|
18,140
|
|
|
4
|
%
|
Net occupancy, equipment, and software expense
|
43,483
|
|
|
41,554
|
|
|
1,929
|
|
|
5
|
|
|
126,442
|
|
|
125,475
|
|
|
967
|
|
|
1
|
|
Third-party processing and other services
|
19,446
|
|
|
21,827
|
|
|
(2,381)
|
|
|
(11)
|
|
|
63,897
|
|
|
67,193
|
|
|
(3,296)
|
|
|
(5)
|
|
Professional fees
|
6,739
|
|
|
13,377
|
|
|
(6,638)
|
|
|
(50)
|
|
|
23,771
|
|
|
39,358
|
|
|
(15,587)
|
|
|
(40)
|
|
FDIC insurance and other regulatory fees
|
5,212
|
|
|
6,793
|
|
|
(1,581)
|
|
|
(23)
|
|
|
16,338
|
|
|
18,922
|
|
|
(2,584)
|
|
|
(14)
|
|
Goodwill impairment
|
—
|
|
|
44,877
|
|
|
(44,877)
|
|
|
nm
|
|
—
|
|
|
44,877
|
|
|
(44,877)
|
|
|
nm
|
Earnout liability adjustments
|
(243)
|
|
|
—
|
|
|
(243)
|
|
|
nm
|
|
507
|
|
|
4,908
|
|
|
(4,401)
|
|
|
nm
|
Amortization of intangibles
|
2,379
|
|
|
2,640
|
|
|
(261)
|
|
|
(10)
|
|
|
7,137
|
|
|
7,920
|
|
|
(783)
|
|
|
(10)
|
|
Restructuring charges
|
319
|
|
|
2,882
|
|
|
(2,563)
|
|
|
nm
|
|
1,265
|
|
|
8,924
|
|
|
(7,659)
|
|
|
nm
|
Loss on early extinguishment of debt
|
—
|
|
|
154
|
|
|
(154)
|
|
|
nm
|
|
—
|
|
|
2,057
|
|
|
(2,057)
|
|
|
nm
|
Other operating expenses
|
29,333
|
|
|
27,557
|
|
|
1,776
|
|
|
6
|
|
|
82,932
|
|
|
93,174
|
|
|
(10,242)
|
|
|
(11)
|
|
Total non-interest expense
|
$
|
267,032
|
|
|
$
|
316,655
|
|
|
$
|
(49,623)
|
|
|
(16)
|
%
|
|
$
|
804,697
|
|
|
$
|
877,076
|
|
|
$
|
(72,379)
|
|
|
(8)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, 2021 compared to September 30, 2020
Salaries and other personnel expense increased for the three and nine months ended September 30, 2021 with the increase for the three months ended September 30, 2021 being mostly due to an increase in incentive compensation and bonus accruals due to higher than expected performance, higher employee insurance from increased claims, and higher temporary help, partially offset by lower salary expense. The increase for the nine months ended September 30, 2021 was due primarily to higher share-based compensation expense largely due to timing with a higher level of retirement eligible expense acceleration, an increase in bonus accruals due to higher than expected performance, higher employee insurance from increased claims, and higher temporary help, partially offset by lower salary expense. Total headcount of 5,059 declined 288, or 5%, from September 30, 2020, led by Synovus' voluntary early retirement program offered during the fourth quarter of 2020 and branch closures.
Net occupancy, equipment, and software expense increased on a quarter-over-quarter basis and comparatively year-to-date due primarily to continued investments in technology partially offset by savings from branch closures.
Third-party processing and other services include all third-party core operating system and processing charges as well as third-party loan servicing charges. Third-party processing expense decreased for the three and nine months ended September 30, 2021. The quarter-over-quarter decrease was largely a result of lower information-technology related expense and Synovus' restructure of certain of its third-party consumer-based lending partnership arrangements during the second quarter of 2020 with a shift of new originations to held for sale. The decline for the nine months ended September 30, 2021 was primarily associated with the aforementioned restructure of certain of its third-party consumer-based lending partnership arrangements and lower information-technology related expense partially offset by expenses associated with PPP loan forgiveness.
Professional fees decreased for the three and nine months ended September 30, 2021 from decreases in consulting fees related to Synovus Forward.
FDIC insurance and other regulatory fees decreased for the three and nine months ended September 30, 2021, reflecting lower assessment rate primarily due to overall elevated liquidity and subordinated debt issued by Synovus Bank in the fourth quarter of 2020.
During the three months ended September 30, 2020, Synovus recognized a $44.9 million non-cash goodwill impairment charge representing the goodwill allocated to the Consumer Mortgage reporting unit resulting from a combination of factors, including the extended duration of lower market valuations, high volumes in refinance activity that have reduced mortgage yields, and the clarity around longer term policy actions designed to keep interest rates low.
Earnout liability fair value adjustments in 2020 associated with the Global One acquisition were the result of higher than projected earnings and higher earnings estimates over the remaining contractual earnout period, reflecting the continued success of the Global One enterprise. The earnout period ended on June 30, 2021, and the final earnout payment occurred during the three months ended September 30, 2021.
During the three and nine months ended September 30, 2021 and 2020, Synovus recorded restructuring charges related to branch closures and restructuring of corporate real estate as part of the Synovus Forward initiative. Twelve branches were closed in 2020, and four branches have been closed year-to-date in 2021, in addition to 4 additional branches expected to close during the fourth quarter of 2021.
Other operating expenses includes advertising, travel, insurance, network and communication, other taxes, subscriptions and dues, other loan and ORE expense, postage and freight, training, business development, supplies, donations, and other miscellaneous expenses. Other operating expenses were up for the three months ended September 30, 2021 and were down for the nine months ended September 30, 2021. Period over period fluctuations are primarily related to certain expenses or losses not expected to recur rather than changes in trends. Other operating expenses for the nine months ended September 30, 2020 also included a $2.7 million valuation adjustment on a MPS receivable and a $2.5 million charge from termination of client swaps.
Income Tax Expense
Income tax expense was $159.9 million for the nine months ended September 30, 2021, representing an effective tax rate of 22.2%, compared to income tax expense of $74.3 million for the nine months ended September 30, 2020, representing an effective tax rate of 25.0%. The effective tax rate for the nine months ended September 30, 2021 includes discrete benefits of $3.3 million related to changes in amounts taxable by jurisdictions and $2.6 million related to share-based compensation, partially offset by discrete expense of $3.8 million related to other accrual adjustments. The effective tax rate for the nine months ended September 30, 2020 reflected the impact of a non-deductible goodwill impairment charge recognized during the third quarter of 2020, partially offset by discrete benefits of $2.7 million for the carryback of net operating loss deductions as permitted by the CARES Act, and $2.3 million of other discrete benefit items, including items related to prior periods.
Synovus’ effective tax rate considers many factors including, but not limited to, the level of pre-tax income, BOLI, tax-exempt interest, certain income tax credits, and nondeductible expenses. In addition, the effective tax rate is affected by items that may occur in any given period but are not consistent from period-to-period, such as tax benefits related to share-based compensation, jurisdiction statutory tax rate changes, valuation allowance changes, and changes to unrecognized tax benefits. Accordingly, the comparability of the effective tax rate between periods may be impacted.
Over the course of the past year, the Biden Administration has publicly discussed numerous potential changes to the tax code to fund its Build Back Better agenda, including changes in corporate taxation. We continue to monitor the legislative process and the potential impact to the Company and its clients.
CREDIT QUALITY, CAPITAL RESOURCES AND LIQUIDITY
Credit Quality
Synovus continuously monitors the quality of its loan portfolio by industry, property type, geography, as well as credit quality metrics. At September 30, 2021, credit metrics remained stable and near historical lows with NPAs at 45 bps, NPLs at 41 bps, and total past dues at 16 bps, as a percentage of total loans. Net charge-offs remained low at $20.5 million, or 22 bps annualized, and $67.3 million, or 24 bps annualized, for the three and nine months ended September 30, 2021, respectively. We expect net charge-offs to remain relatively stable in the fourth quarter of 2021, assuming no material change in the economic environment.
The table below includes selected credit quality metrics.
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Table 7 - Credit Quality Metrics
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(dollars in thousands)
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September 30, 2021
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December 31, 2020
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September 30, 2020
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Non-performing loans
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$
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155,465
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$
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151,079
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$
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168,837
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Impaired loans held for sale
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—
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23,590
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—
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ORE and other assets
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16,883
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17,394
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23,280
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Non-performing assets
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$
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172,348
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$
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192,063
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$
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192,117
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Total loans
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$
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38,341,030
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$
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38,252,984
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$
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39,549,847
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Non-performing loans as a % of total loans
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0.41
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%
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0.39
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%
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0.43
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%
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Non-performing assets as a % of total loans, ORE, and specific other assets
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0.45
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0.50
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0.49
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Loans 90 days past due and still accruing
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$
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5,960
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$
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4,117
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$
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7,512
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As a % of total loans
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0.02
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%
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0.01
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%
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0.02
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%
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Total past due loans and still accruing
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$
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60,817
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$
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47,349
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$
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57,316
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As a % of total loans
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0.16
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%
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0.12
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%
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0.14
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%
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Net charge-offs, quarter
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$
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20,516
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$
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22,139
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$
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28,466
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Net charge-offs/average loans, quarter
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0.22
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%
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0.23
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%
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0.29
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%
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Net charge-offs, year-to-date
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$
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67,266
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$
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94,712
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$
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72,573
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Net charge-offs/average loans, year-to-date
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0.24
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%
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0.24
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%
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0.25
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%
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(Reversal of) provision for loan losses, quarter
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$
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(3,949)
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$
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24,075
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$
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43,618
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(Reversal of) provision for unfunded commitments, quarter
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(3,919)
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(13,009)
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(235)
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(Reversal of) provision for credit losses, quarter
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$
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(7,868)
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$
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11,066
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$
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43,383
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(Reversal of) provision for loan losses, year-to-date
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(46,227)
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336,052
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311,977
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(Reversal of) provision for unfunded commitments, year-to-date
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(4,814)
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18,970
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31,979
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(Reversal of) provision for credit losses, year-to-date
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(51,041)
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355,022
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343,956
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Allowance for loan losses
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$
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492,243
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$
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605,736
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$
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603,800
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Reserve for unfunded commitments
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42,971
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47,785
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60,794
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Allowance for credit losses
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$
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535,214
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$
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653,521
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$
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664,594
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ACL to loans coverage ratio
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1.40
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%
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1.71
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%
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1.68
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%
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ALL to loans coverage ratio
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1.28
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1.58
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1.53
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ACL/NPLs
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344.27
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432.57
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393.63
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ALL/NPLs
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316.63
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400.94
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357.62
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Criticized and Classified Loans
Our loan ratings are aligned to federal banking regulators' definitions of pass and criticized categories, which include special mention, substandard, doubtful, and loss. Substandard accruing and non-accruing loans, doubtful, and loss loans are often collectively referred to as classified. Special mention, substandard, doubtful, and loss loans are often collectively referred to as criticized and classified loans. The following table presents a summary of criticized and classified loans. Criticized and classified loans at September 30, 2021 declined $345.2 million, or 22%, as compared to December 31, 2020 primarily as a result of upgrades in the hotel industry. Further reductions are anticipated as we progress through the remainder of 2021 as we expect continued improvement in financial performance in the hotel industry and other industries negatively impacted by COVID-19.
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Table 8 - Criticized and Classified Loans
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(dollars in thousands)
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September 30, 2021
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December 31, 2020
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Special mention
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$
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616,911
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$
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977,028
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Substandard
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580,444
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553,720
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Doubtful
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22,283
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33,204
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Loss
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2,186
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3,032
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Criticized and Classified loans
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$
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1,221,824
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$
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1,566,984
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As a % of total loans
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3.2
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%
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4.1
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%
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Reversal of Provision for Credit Losses and Allowance for Credit Losses
Reversal of provision for credit losses of $7.9 million and $51.0 million for the three and nine months ended September 30, 2021, respectively, primarily resulted from the continued improvement in the credit outlook for the portfolio. This was partially offset by $10.0 million and $35.8 million in reserves added as a result of purchases of $453.3 million and $1.49 billion of third-party lending loans, including $271.6 million and $1.05 billion in prime auto purchases for the three and nine months ended September 30, 2021, respectively, as well as net growth in loans.
The ACL, consisting of an ALL of $492.2 million and reserve for unfunded commitments of $43.0 million, totaled $535.2 million at September 30, 2021 and declined $118.3 million from December 31, 2020, resulting in an ACL to loans coverage ratio of 1.40% and an ACL to NPLs ratio of 344%. Excluding PPP loans, the ACL to loans coverage ratio was 1.42%. The ACL at September 30, 2021 incorporates an outlook of continuation of the recovery including the unemployment rate at 4.6% by the end of 2021, compared to 4.5% used in the second quarter of 2021’s ACL estimate.
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Table 9 - Accruing TDRs by Risk Grade
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September 30, 2021
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December 31, 2020
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September 30, 2020
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(dollars in thousands)
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Amount
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%
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Amount
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%
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Amount
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%
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Pass
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$
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61,604
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48.8
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%
|
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$
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72,463
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53.7
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%
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$
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69,433
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42.5
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%
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Special mention
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12,310
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|
|
9.8
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|
8,935
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6.6
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13,303
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8.1
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Substandard accruing
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52,141
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41.4
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|
53,574
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|
|
39.7
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|
|
80,775
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|
|
49.4
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Total accruing TDRs
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$
|
126,055
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|
|
100.0
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%
|
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$
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134,972
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|
|
100.0
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%
|
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$
|
163,511
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|
|
100.0
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%
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|
|
|
|
|
|
|
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Troubled Debt Restructurings
Accruing TDRs were $126.1 million at September 30, 2021, compared to $135.0 million at December 31, 2020. Non-accruing TDRs were $21.9 million at September 30, 2021, compared to $39.0 million at December 31, 2020.
Accruing TDRs are considered performing because they are performing in accordance with the restructured terms. At September 30, 2021 and December 31, 2020, approximately 98% and 99%, respectively, of accruing TDRs were current. In addition, subsequent defaults on accruing TDRs (defaults defined as the earlier of the TDR being placed on non-accrual status or reaching 90 days past due with respect to principal and/or interest payments within twelve months of the TDR designation) have continued to remain at low levels.
Non-TDR Modifications due to COVID-19
Regulatory agencies have encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of COVID-19. In the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (initially issued on March 22, 2020 and revised on April 7, 2020), for example, the regulatory agencies expressed their view of loan modification programs as positive actions that may mitigate adverse effects on borrowers due to COVID-19 and their unwillingness to criticize institutions for working with borrowers in a safe and sound manner. Moreover, the Interagency Statement provided that eligible loan modifications related to COVID-19 may be accounted for under section 4013 of the CARES Act or in accordance with ASC 310-40. On December 27, 2020, the Consolidated Appropriations Act, 2021 extended the applicable period of Section 4013 of the CARES Act. This allows banks to elect to not consider loan modifications related to COVID-19 that are made between March 1, 2020 and the earlier of January 1, 2022, or 60 days after the national emergency ends to borrowers that are current (i.e., less than 30 days past due as of December 31, 2019) as TDRs. The regulatory agencies further stated that performing loans granted payment deferrals due to COVID-19 are not considered past due or non-accrual. FASB confirmed the foregoing regulatory agencies' view that such short-term modifications (e.g., six months) made on a good-faith basis in response to COVID-19 for borrowers who are current are not TDRs.
During 2020, Synovus provided relief programs consisting primarily of 90-day payment deferral relief to borrowers negatively impacted by COVID-19, and as of September 30, 2021, no loans were in a P&I deferral status as compared to 0.3% of the total loan portfolio at December 31, 2020. In addition to our P&I deferment program, under the CARES Act, we have also provided borrowers who have been impacted by COVID-19 with other modifications such as interest-only relief or amortization extensions on approximately 2% of total loans, at both September 30, 2021 and December 31, 2020.
Capital Resources
Synovus and Synovus Bank are required to comply with capital adequacy standards established by our primary federal regulator, the Federal Reserve. Synovus and Synovus Bank measure capital adequacy using the standardized approach under Basel III. At September 30, 2021, Synovus and Synovus Bank's capital levels remained strong and exceeded well-capitalized requirements currently in effect. The following table presents certain ratios used to measure Synovus and Synovus Bank's capitalization.
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Table 10 - Capital Ratios
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|
|
|
(dollars in thousands)
|
September 30, 2021
|
|
December 31, 2020
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CET1 capital
|
|
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|
Synovus Financial Corp.
|
$
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4,276,765
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$
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4,034,865
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Synovus Bank
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4,905,396
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|
4,641,711
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Tier 1 risk-based capital
|
|
|
|
Synovus Financial Corp.
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4,813,910
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|
4,572,010
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Synovus Bank
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4,905,396
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4,641,711
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Total risk-based capital
|
|
|
|
Synovus Financial Corp.
|
5,765,528
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|
5,604,230
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Synovus Bank
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5,544,573
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|
|
5,361,611
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CET1 capital ratio
|
|
|
|
Synovus Financial Corp.
|
9.58
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%
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|
9.66
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%
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Synovus Bank
|
11.01
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|
|
11.11
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Tier 1 risk-based capital ratio
|
|
|
|
Synovus Financial Corp.
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10.79
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|
|
10.95
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Synovus Bank
|
11.01
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|
11.11
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Total risk-based capital to risk-weighted assets ratio
|
|
|
|
Synovus Financial Corp.
|
12.92
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|
|
13.42
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Synovus Bank
|
12.44
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|
|
12.83
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Leverage ratio
|
|
|
|
Synovus Financial Corp.
|
8.78
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|
|
8.50
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|
Synovus Bank
|
8.95
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|
|
8.73
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|
Tangible common equity ratio(1)
|
|
|
|
Synovus Financial Corp.
|
7.68
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|
|
7.66
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|
|
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(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for the applicable reconciliation to the most comparable GAAP measure.
At September 30, 2021, Synovus' CET1 ratio was 9.58%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%. The September 30, 2021 CET1 ratio declined 8 bps compared to December 31, 2020, driven by growth in risk-weighted assets and return of capital through share repurchases and common stock shareholder dividends, which was a result of strong financial performance. For additional information on regulatory capital requirements, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 12 - Regulatory Capital" to the consolidated financial statements of Synovus' 2020 Form 10-K. Management reviews the Company's capital position on an on-going basis and believes, based on internal capital analyses and earnings projections, that Synovus is well positioned to meet relevant regulatory capital standards.
Synovus announced on January 26, 2021 that its Board of Directors authorized share repurchases of up to $200 million in 2021. During the nine months ended September 30, 2021, Synovus repurchased a total of $167.1 million, or 3.7 million shares of its common stock, at an average price of $44.88 per share.
As of October 31, 2021, the remaining authorization under this program was $31.8 million. Based on current conditions and economic outlook, we expect to complete the full authorization in the fourth quarter of 2021.
On August 26, 2020, the federal banking regulators issued a final rule (following an interim final rule issued on March 27, 2020) that allowed electing banking organizations that adopt CECL during 2020 to mitigate the estimated effects of CECL on regulatory capital for two years, followed by a three-year phase-in transition period. Synovus adopted CECL on January 1, 2020 and the September 30, 2021 regulatory capital ratios reflect Synovus' election of the five-year transition provision. At September 30, 2021, $69.9 million, or a cumulative 16 bps benefit to CET1, was deferred.
Dividends
Synovus has historically paid a quarterly cash dividend to the holders of its common stock. Management and the Board of Directors closely monitor current and projected capital levels, liquidity (including dividends from subsidiaries), financial markets and other economic trends, as well as regulatory requirements regarding the payment of dividends.
Synovus' ability to pay dividends on its common stock and preferred stock is primarily dependent upon dividends and distributions that it receives from its bank and non-banking subsidiaries, which are restricted by various regulations administered by federal and state bank regulatory authorities.
Synovus declared common stock dividends of $145.8 million, or $0.99 per common share, during the nine months ended September 30, 2021 and 2020. In addition, Synovus declared dividends on its preferred stock of $24.9 million during the nine months ended September 30, 2021 and 2020.
Liquidity
Liquidity represents the extent to which Synovus has readily available sources of funding to meet the needs of depositors, borrowers and creditors, to support asset growth, and to otherwise sustain operations of Synovus and its subsidiaries, at a reasonable cost, on a timely basis, and without adverse consequences. ALCO monitors Synovus' economic, competitive, and regulatory environment and is responsible for measuring, monitoring, and reporting on liquidity and funding risk as well as market risk.
In accordance with Synovus policies and regulatory guidance, ALCO evaluates contractual and anticipated cash flows under normal and stressed conditions to properly manage the Company’s liquidity profile. Synovus places an emphasis on maintaining numerous sources of current and contingent liquidity to meet its obligations to depositors, borrowers, and creditors on a timely basis. Liquidity is generated through various sources, including, but not limited to, maturities and repayments of loans by clients, maturities and sales of investment securities, and growth in core or wholesale deposits. Management continuously monitors and maintains appropriate levels of liquidity so as to provide adequate funding sources to manage client deposit withdrawals, loan requests, and other funding demands.
Synovus Bank also generates liquidity through the issuance of brokered certificates of deposit and money market accounts. Synovus Bank accesses these funds from a broad geographic base to diversify its sources of funding and liquidity. Synovus Bank also has the capacity to access funding through its membership in the FHLB system and through the Federal Reserve discount window. At September 30, 2021, based on currently pledged collateral, Synovus Bank had access to incremental FHLB funding of $6.20 billion, subject to FHLB credit policies.
In addition to bank level liquidity management, Synovus must manage liquidity at the parent company level for various operating needs including the servicing of debt, the payment of dividends on our common stock and preferred stock, share repurchases, payment of general corporate expenses and potential capital infusions into subsidiaries. The primary source of liquidity for Synovus consists of dividends from Synovus Bank, which is governed by certain rules and regulations of the GA DBF and the Federal Reserve Bank. Synovus' ability to receive dividends from Synovus Bank in future periods will depend on a number of factors, including, but not limited to, Synovus Bank's future profits, asset quality, liquidity, and overall condition. In addition, both the GA DBF and Federal Reserve Bank may require approval to pay dividends, based on certain regulatory statutes and limitations.
Synovus presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs. However, if economic conditions were to significantly deteriorate, regulatory capital requirements for Synovus or Synovus Bank were to increase as the result of regulatory directives or otherwise, or Synovus believes it is prudent to enhance current liquidity levels, then Synovus may seek additional liquidity from external sources. See "Part I – Item 1A. Risk Factors - Changes in the cost and availability of funding due to changes in the deposit market and credit market may adversely affect our capital resources, liquidity and financial results" of Synovus' 2020 Form 10-K. Furthermore, Synovus may, from time to time, take advantage of attractive market opportunities to refinance its existing debt, redeem its preferred stock, or strengthen its liquidity or capital position.
Earning Assets and Sources of Funds
Average total assets for the nine months ended September 30, 2021 increased $3.28 billion, or 6%, to $54.85 billion as compared to $51.57 billion for the first nine months of 2020. Average earning assets increased $3.28 billion, or 7%, in the first
nine months of 2021 compared to the same period in 2020. The increase in average earning assets primarily resulted from a $2.33 billion, or 34%, increase in average investment securities available for sale, a $1.75 billion, or 163%, increase in average interest-bearing funds held at the Federal Reserve Bank, and a $472.6 million increase in loans held for sale, partially offset by a $1.09 billion, or 3%, decrease in average total loans, net of unearned.
Average interest-bearing liabilities decreased $493.8 million, or 1%, to $33.62 billion for the first nine months of 2021 compared to the same period in 2020. The decrease in average interest-bearing liabilities resulted from a $3.38 billion, or 40%, decrease in average time deposits, a $1.38 billion, or 53%, decrease in average long-term debt, and a $658.1 million decrease in other short-term borrowings. These decreases were mostly offset by a $3.26 billion, or 23%, increase in average money market deposits and a $1.38 billion, or 19%, increase in average interest-bearing demand deposits. Average non-interest-bearing deposits increased $3.51 billion, or 31%, to $14.89 billion for the first nine months of 2021 compared to the same period in 2020, due largely to liquidity associated with various government stimulus efforts.
Net interest income for the nine months ended September 30, 2021 was $1.14 billion, up $13.8 million compared to the same period in 2020, including $66.5 million in PPP fees during 2021 and $21.1 million in 2020. Net interest margin was down 18 bps over the comparable nine-month period to 3.02%, due primarily to the decline in market interest rates and average growth in investment securities available for sale and interest-bearing funds held at the Federal Reserve Bank. For the nine months ended September 30, 2021, the yield on earning assets was 3.27%, a decrease of 61 bps compared to the nine months ended September 30, 2020, while the effective cost of funds decreased 43 bps to 0.25%. The yield on loans decreased 23 bps to 3.97%, due primarily to the decline in market interest rates, while the yield on investment securities decreased 129 bps to 1.43%, due primarily to an acceleration in prepayments and increase in premium amortization, compared to the nine months ended September 30, 2020.
On a sequential quarter basis, net interest income was up $3.1 million, or 1%, primarily due to continued asset growth, further declines in deposit costs, and a higher day count. Net interest margin for the third quarter was stable at 3.01%, which was down 1 bp compared to the second quarter of 2021 with continued pressure from the liquidity environment. The third quarter of 2021 included $21.3 million recognized for associated PPP fees versus $20.4 million in the second quarter of 2021 and average PPP loan balances of $1.19 billion versus $2.14 billion in the second quarter of 2021. For the third quarter of 2021, the yield on earning assets decreased 4 bps, while the effective cost of funds decreased 3 bps compared to the second quarter of 2021.
We continue to expect that net interest income excluding PPP fees will increase in the remainder of the year, driven by loan growth and deployment of liquidity, which are expected to offset headwinds from continued fixed-rate repricing and the slight reduction in LIBOR. PPP fees are also expected to decline.
Quarterly yields earned on average interest-earning assets and rates paid on average interest-bearing liabilities for the five most recent quarters are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 11 - Average Balances and Yields/Rates
|
2021
|
|
2020
|
(dollars in thousands) (yields and rates annualized)
|
Third Quarter
|
|
Second Quarter
|
|
First Quarter
|
|
Fourth Quarter
|
|
Third Quarter
|
Interest Earning Assets:
|
|
|
|
|
|
|
|
|
|
Investment securities(1)(2)
|
$
|
9,876,651
|
|
|
9,184,691
|
|
|
8,437,563
|
|
|
7,493,822
|
|
|
7,227,400
|
|
Yield
|
1.45
|
%
|
|
1.45
|
|
|
1.40
|
|
|
2.07
|
|
|
2.39
|
|
Trading account assets(3)
|
$
|
5,192
|
|
|
2,831
|
|
|
3,063
|
|
|
8,496
|
|
|
5,391
|
|
Yield
|
1.15
|
%
|
|
1.15
|
|
|
2.81
|
|
|
1.03
|
|
|
1.69
|
|
Commercial loans(2)(4)
|
$
|
28,891,164
|
|
|
29,849,029
|
|
|
29,844,491
|
|
|
30,363,102
|
|
|
30,730,135
|
|
Yield
|
3.91
|
%
|
|
3.86
|
|
|
3.95
|
|
|
3.96
|
|
|
3.80
|
|
Consumer loans(4)
|
$
|
8,642,969
|
|
|
8,647,448
|
|
|
8,367,776
|
|
|
8,521,449
|
|
|
9,032,437
|
|
Yield
|
3.93
|
%
|
|
3.94
|
|
|
3.98
|
|
|
4.00
|
|
|
4.08
|
|
Allowance for loan losses
|
$
|
(514,828)
|
|
|
(561,242)
|
|
|
(599,872)
|
|
|
(595,547)
|
|
|
(591,098)
|
|
Loans, net(4)
|
$
|
37,019,305
|
|
|
37,935,235
|
|
|
37,612,395
|
|
|
38,289,004
|
|
|
39,171,474
|
|
Yield
|
3.97
|
%
|
|
3.93
|
|
|
4.02
|
|
|
4.03
|
|
|
3.92
|
|
Mortgage loans held for sale
|
$
|
196,032
|
|
|
242,940
|
|
|
246,962
|
|
|
309,278
|
|
|
244,952
|
|
Yield
|
2.88
|
%
|
|
3.06
|
|
|
2.68
|
|
|
2.74
|
|
|
2.92
|
|
Other loans held for sale
|
$
|
527,736
|
|
|
615,301
|
|
|
660,753
|
|
|
544,301
|
|
|
493,940
|
|
Yield
|
3.06
|
%
|
|
3.05
|
|
|
2.91
|
|
|
2.81
|
|
|
3.61
|
|
Other earning assets(5)
|
$
|
3,271,501
|
|
|
2,705,819
|
|
|
2,838,063
|
|
|
2,716,645
|
|
|
1,265,880
|
|
Yield
|
0.15
|
%
|
|
0.11
|
|
|
0.10
|
|
|
0.10
|
|
|
0.11
|
|
Federal Home Loan Bank and Federal Reserve Bank Stock(3)
|
$
|
159,741
|
|
|
159,340
|
|
|
157,657
|
|
|
162,537
|
|
|
200,923
|
|
Yield
|
1.26
|
%
|
|
2.01
|
|
|
1.69
|
|
|
2.64
|
|
|
2.73
|
|
Total interest earning assets
|
$
|
51,056,158
|
|
|
50,846,157
|
|
|
49,956,456
|
|
|
49,524,083
|
|
|
48,609,960
|
|
Yield
|
3.22
|
%
|
|
3.26
|
|
|
3.32
|
|
|
3.49
|
|
|
3.58
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
$
|
8,463,325
|
|
|
8,601,262
|
|
|
8,570,753
|
|
|
8,531,415
|
|
|
7,789,095
|
|
Rate
|
0.10
|
%
|
|
0.11
|
|
|
0.14
|
|
|
0.16
|
|
|
0.19
|
|
Money market accounts, excluding brokered deposits
|
$
|
15,597,723
|
|
|
15,476,262
|
|
|
15,348,916
|
|
|
14,411,860
|
|
|
13,272,972
|
|
Rate
|
0.15
|
%
|
|
0.19
|
|
|
0.23
|
|
|
0.26
|
|
|
0.36
|
|
Savings deposits
|
$
|
1,377,089
|
|
|
1,333,297
|
|
|
1,219,288
|
|
|
1,147,667
|
|
|
1,114,956
|
|
Rate
|
0.02
|
%
|
|
0.02
|
|
|
0.02
|
|
|
0.01
|
|
|
0.02
|
|
Time deposits under $100,000
|
$
|
993,284
|
|
|
1,077,931
|
|
|
1,161,306
|
|
|
1,239,592
|
|
|
1,379,923
|
|
Rate
|
0.33
|
%
|
|
0.41
|
|
|
0.56
|
|
|
0.74
|
|
|
1.03
|
|
Time deposits over $100,000
|
$
|
2,430,744
|
|
|
2,714,451
|
|
|
2,993,996
|
|
|
3,302,959
|
|
|
3,863,821
|
|
Rate
|
0.45
|
%
|
|
0.56
|
|
|
0.74
|
|
|
1.03
|
|
|
1.44
|
|
Other brokered deposits
|
$
|
1,862,346
|
|
|
1,901,097
|
|
|
1,950,582
|
|
|
1,978,393
|
|
|
1,912,114
|
|
Rate
|
0.21
|
%
|
|
0.19
|
|
|
0.20
|
|
|
0.23
|
|
|
0.23
|
|
Brokered time deposits
|
$
|
996,777
|
|
|
1,156,510
|
|
|
1,418,751
|
|
|
1,795,982
|
|
|
2,232,940
|
|
Rate
|
1.27
|
%
|
|
1.35
|
|
|
1.50
|
|
|
1.60
|
|
|
1.59
|
|
Total interest-bearing deposits
|
$
|
31,721,288
|
|
|
32,260,810
|
|
|
32,663,592
|
|
|
32,407,868
|
|
|
31,565,821
|
|
Rate
|
0.20
|
%
|
|
0.24
|
|
|
0.31
|
|
|
0.39
|
|
|
0.54
|
|
Federal funds purchased and securities sold under repurchase agreements
|
$
|
202,525
|
|
|
204,053
|
|
|
209,448
|
|
|
174,316
|
|
|
180,342
|
|
Rate
|
0.07
|
%
|
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
|
0.09
|
|
Other short-term borrowings
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,739
|
|
Rate
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.12
|
|
Long-term debt
|
$
|
1,203,500
|
|
|
1,203,038
|
|
|
1,202,613
|
|
|
1,552,791
|
|
|
2,234,665
|
|
Rate
|
3.81
|
%
|
|
3.82
|
|
|
3.63
|
|
|
3.96
|
|
|
2.71
|
|
Total interest-bearing liabilities
|
$
|
33,127,313
|
|
|
33,667,901
|
|
|
34,075,653
|
|
|
34,134,975
|
|
|
34,027,567
|
|
Rate
|
0.33
|
%
|
|
0.36
|
|
|
0.42
|
|
|
0.55
|
|
|
0.68
|
|
Non-interest-bearing demand deposits
|
$
|
15,755,929
|
|
|
15,088,836
|
|
|
13,791,286
|
|
|
13,566,112
|
|
|
12,773,676
|
|
Cost of funds
|
0.22
|
%
|
|
0.25
|
|
|
0.30
|
|
|
0.40
|
|
|
0.50
|
|
Effective cost of funds(6)
|
0.21
|
%
|
|
0.24
|
|
|
0.28
|
|
|
0.37
|
|
|
0.48
|
|
Net interest margin
|
3.01
|
%
|
|
3.02
|
|
|
3.04
|
|
|
3.12
|
|
|
3.10
|
|
Taxable equivalent adjustment(2)
|
$
|
736
|
|
|
791
|
|
|
774
|
|
|
821
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
`(1) Excludes net unrealized gains (losses).
(2) Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis.
(3) Included as a component of other assets on the consolidated balance sheets.
(4) Average loans are shown net of deferred fees and costs. NPLs are included.
(5) Includes interest-bearing funds with Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements.
(6) Includes the impact of non-interest-bearing capital funding sources.
Net Interest Income and Rate/Volume Analysis
The following table sets forth the major components of net interest income and the related annualized yields and rates for the nine months ended September 30, 2021 and 2020, as well as the variances between the periods caused by changes in interest rates versus changes in volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 12 - Net Interest Income and Rate/Volume Analysis
|
|
Nine Months Ended September 30,
|
|
2021 Compared to 2020
|
|
Average Balances
|
|
Interest
|
|
Annualized Yield/Rate
|
|
Change due to
|
|
Increase (Decrease)
|
(dollars in thousands)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Volume
|
|
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
$
|
9,171,573
|
|
|
$
|
6,843,400
|
|
|
$
|
98,631
|
|
|
$
|
139,791
|
|
|
1.43
|
%
|
|
2.72
|
%
|
|
$
|
47,364
|
|
|
$
|
(88,524)
|
|
|
$
|
(41,160)
|
|
Trading account assets
|
3,703
|
|
|
5,955
|
|
|
44
|
|
|
99
|
|
|
1.60
|
|
|
2.22
|
|
|
(37)
|
|
|
(18)
|
|
|
(55)
|
|
Taxable loans, net(1)
|
37,584,500
|
|
|
38,671,202
|
|
|
1,104,446
|
|
|
1,203,839
|
|
|
3.94
|
|
|
4.16
|
|
|
(33,812)
|
|
|
(65,581)
|
|
|
(99,393)
|
|
Tax-exempt loans, net(1)(2)
|
493,975
|
|
|
494,885
|
|
|
10,957
|
|
|
12,366
|
|
|
2.97
|
|
|
3.34
|
|
|
(22)
|
|
|
(1,387)
|
|
|
(1,409)
|
|
Allowance for loan losses
|
(558,336)
|
|
|
(486,276)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
37,520,139
|
|
|
38,679,811
|
|
|
1,115,403
|
|
|
1,216,205
|
|
|
3.97
|
|
|
4.20
|
|
|
(33,834)
|
|
|
(66,968)
|
|
|
(100,802)
|
|
Mortgage loans held for sale
|
228,458
|
|
|
184,396
|
|
|
4,926
|
|
|
4,291
|
|
|
2.87
|
|
|
3.10
|
|
|
1,022
|
|
|
(387)
|
|
|
635
|
|
Other loans held for sale
|
600,776
|
|
|
172,241
|
|
|
13,685
|
|
|
4,756
|
|
|
3.00
|
|
|
3.63
|
|
|
11,635
|
|
|
(2,706)
|
|
|
8,929
|
|
Other earning assets(3)
|
2,940,049
|
|
|
1,209,239
|
|
|
2,705
|
|
|
2,477
|
|
|
0.12
|
|
|
0.27
|
|
|
3,366
|
|
|
(3,138)
|
|
|
228
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
158,921
|
|
|
244,111
|
|
|
1,971
|
|
|
6,000
|
|
|
1.65
|
|
|
3.28
|
|
|
(2,090)
|
|
|
(1,939)
|
|
|
(4,029)
|
|
Total interest earning assets
|
50,623,619
|
|
|
47,339,153
|
|
|
1,237,365
|
|
|
1,373,619
|
|
|
3.27
|
|
|
3.88
|
|
|
27,426
|
|
|
(163,680)
|
|
|
(136,254)
|
|
Cash and due from banks
|
567,702
|
|
|
532,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net
|
453,339
|
|
|
485,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate
|
1,579
|
|
|
11,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash surrender value of bank-owned life insurance
|
1,056,257
|
|
|
989,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets(4)
|
2,145,850
|
|
|
2,209,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
54,848,346
|
|
|
$
|
51,568,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits
|
$
|
8,544,720
|
|
|
$
|
7,167,617
|
|
|
$
|
7,606
|
|
|
$
|
15,561
|
|
|
0.12
|
%
|
|
0.29
|
%
|
|
$
|
2,987
|
|
|
$
|
(10,942)
|
|
|
$
|
(7,955)
|
|
Money market accounts
|
17,379,564
|
|
|
14,119,510
|
|
|
24,868
|
|
|
61,799
|
|
|
0.19
|
|
|
0.58
|
|
|
14,142
|
|
|
(51,073)
|
|
|
(36,931)
|
|
Savings deposits
|
1,310,470
|
|
|
1,026,259
|
|
|
164
|
|
|
204
|
|
|
0.02
|
|
|
0.03
|
|
|
64
|
|
|
(104)
|
|
|
(40)
|
|
Time deposits
|
4,977,025
|
|
|
8,361,942
|
|
|
27,837
|
|
|
108,106
|
|
|
0.75
|
|
|
1.73
|
|
|
(43,799)
|
|
|
(36,470)
|
|
|
(80,269)
|
|
Federal funds purchased and securities sold under repurchase agreements
|
205,316
|
|
|
199,230
|
|
|
104
|
|
|
242
|
|
|
0.07
|
|
|
0.16
|
|
|
7
|
|
|
(145)
|
|
|
(138)
|
|
Other short-term borrowings
|
—
|
|
|
658,128
|
|
|
—
|
|
|
7,643
|
|
|
—
|
|
|
1.53
|
|
|
(7,531)
|
|
|
(112)
|
|
|
(7,643)
|
|
Long-term debt
|
1,203,054
|
|
|
2,581,232
|
|
|
33,851
|
|
|
50,645
|
|
|
3.75
|
|
|
2.54
|
|
|
(26,183)
|
|
|
9,389
|
|
|
(16,794)
|
|
Total interest-bearing liabilities
|
33,620,149
|
|
|
34,113,918
|
|
|
94,430
|
|
|
244,200
|
|
|
0.37
|
|
|
0.94
|
|
|
(60,313)
|
|
|
(89,457)
|
|
|
(149,770)
|
|
Non-interest-bearing deposits
|
14,885,880
|
|
|
11,374,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
1,149,209
|
|
|
1,028,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
5,193,108
|
|
|
5,052,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
$
|
54,848,346
|
|
|
$
|
51,568,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread:
|
|
|
|
|
|
|
|
|
2.90
|
%
|
|
2.94
|
%
|
|
|
|
|
|
|
Net interest income - TE/margin(5)
|
|
|
|
|
$
|
1,142,935
|
|
|
$
|
1,129,419
|
|
|
3.02
|
%
|
|
3.20
|
%
|
|
$
|
87,739
|
|
|
$
|
(74,223)
|
|
|
$
|
13,516
|
|
Taxable equivalent adjustment
|
|
|
|
|
2,301
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, actual
|
|
|
|
|
$
|
1,140,634
|
|
|
$
|
1,126,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Average loans are shown net of unearned income. NPLs are included. Interest income includes fees as follows: 2021 - $90.8 million, 2020 - $42.8 million.
(2) Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt loans to a taxable-equivalent basis.
(3) Includes interest-bearing funds with Federal Reserve Bank, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements.
(4) Includes average net unrealized gains (losses) on investment securities available for sale of $73.1 million and $212.9 million for the nine months ended September 30, 2021 and 2020, respectively.
(5) The net interest margin is calculated by dividing annualized net interest income - TE by average total interest earnings assets.
Market Risk Analysis
Interest rate risk is the primary market risk to which Synovus is potentially exposed. Synovus measures its sensitivity to changes in market interest rates through the use of a simulation model which incorporates all of Synovus’ earning assets and liabilities. These simulations are used to determine a baseline net interest income projection and the sensitivity of the income profile based on changes in interest rates. These simulations incorporate assumptions and factors, including, but not limited to, changes in market rates, in the size or composition of the balance sheet, and in repricing characteristics as well as client behaviors. This process is reviewed and updated on an on-going basis in a manner consistent with Synovus’ ALCO governance framework.
Synovus has modeled its baseline net interest income projection assuming a flat interest rate environment with the federal funds rate at the Federal Reserve’s current targeted range of 0% to 0.25% and the current prime rate of 3.25%. Synovus has modeled the impact of a gradual increase in market interest rates across the yield curve of 100 and 200 bps and a gradual decline of 25 bps to determine the sensitivity of net interest income for the next twelve months. The lesser decline of the downrate scenario presented was selected in light of the low absolute level of monetary policy rates and generally incorporates an assumption that rates are floored at the zero-lower-bound. Synovus' current rate risk position is considered asset-sensitive and would be expected to benefit net interest income in a rising interest rate environment and reduce net interest income in a declining interest rate environment. A modest decline in sensitivity relative to the prior period-end is the result of a host of factors, including increased securities portfolio and the higher absolute level of long-term interest rates. The following table represents the estimated sensitivity of net interest income at September 30, 2021, with comparable information for December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13 - Twelve Month Net Interest Income Sensitivity
|
|
|
Estimated % Change in Net Interest Income as Compared to Unchanged Rates (for the next twelve months)
|
|
Change in Short-term Interest Rates (in bps)
|
|
September 30, 2021
|
|
December 31, 2020
|
+200
|
|
5.4%
|
|
6.8%
|
+100
|
|
2.5%
|
|
3.5%
|
-25
|
|
(0.2)%
|
|
(0.5)%
|
|
|
|
|
|
The net interest income simulation model is the primary tool utilized to evaluate potential interest rate risks over a shorter-term time horizon. Synovus also evaluates potential longer-term interest rate risk through modeling and evaluation of the sensitivity of the Company's EVE. The EVE measurement process estimates the net fair value of assets, liabilities, and off-balance sheet financial instruments under various interest rate scenarios. Management uses EVE sensitivity analyses as an additional means of measuring interest rate risk and incorporates this form of analysis within its governance and limits framework.
LIBOR Transition
In July 2017, the FCA, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR at the end of 2021. On March 5, 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 for the 1-week and 2-month US dollar settings and immediately after June 30, 2023 for all remaining US dollar settings.
The ARRC has proposed SOFR as its preferred rate as an alternative to LIBOR and has proposed a paced market transition plan to SOFR from LIBOR. Organizations are currently working on industry-wide and company-specific transition plans related to derivatives and cash markets exposed to LIBOR. As noted within "Part I - Item 1A. Risk Factors" of Synovus' 2020 Form 10-K, Synovus holds instruments that may be impacted by the discontinuance of LIBOR, which include floating rate obligations, loans, deposits, derivatives and hedges, and other financial instruments. Synovus has established a cross-functional LIBOR transition working group with representation from all business lines, support and control functions, and legal counsel that has 1) assessed the Company's current exposure to LIBOR indexed instruments and the data, systems and processes that will be impacted; 2) established a detailed implementation plan; 3) formulated communications and learning activities to support clients and colleagues; and 4) developed a formal governance structure for the transition. Loan agreement provisions for new and renewed loans include LIBOR fallback language to ensure transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts that mature after 2021 have been inventoried and are monitored on an ongoing basis. Based on regulatory guidance, the Company currently expects to cease originating loans indexed to LIBOR no later than December 31, 2021. Synovus has expanded its product offerings and currently offers multiple alternative reference rates including SOFR and BSBY indices. Other viable alternative reference rates are also
being evaluated for use as potential replacements of LIBOR. We do not currently expect there to be a material financial impact to the Company or our clients regardless of which index or indices the Company offers as alternatives to LIBOR.
Critical Accounting Policies
The accounting and financial reporting policies of Synovus are in accordance with GAAP and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. Synovus has identified certain of its accounting policies as “critical accounting policies,” consisting of those related to the allowance for credit losses and income taxes. In determining which accounting policies are critical in nature, Synovus has identified the policies that require significant judgment or involve complex estimates. It is management's practice to discuss critical accounting policies with the Board of Directors' Audit Committee on a periodic basis, including the development, selection, implementation and disclosure of the critical accounting policies. The application of these policies has a significant impact on Synovus’ unaudited interim consolidated financial statements. Synovus’ financial results could differ significantly if different judgments or estimates are used in the application of these policies. All accounting policies described in "Part II - Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" in Synovus' 2020 Form 10-K should be reviewed for a greater understanding of how we record and report our financial performance. There have been no significant changes to the accounting policies, estimates and assumptions, or the judgments affecting the application of these estimates and assumptions from those disclosed in Synovus' 2020 Form 10-K other than the exclusion of goodwill impairment as a critical accounting estimate due to lack of impairment indicators.
Non-GAAP Financial Measures
The measures entitled adjusted non-interest revenue; adjusted non-interest expense; adjusted total revenue; adjusted tangible efficiency ratio; adjusted net income per common share, diluted; adjusted return on average assets; adjusted return on average common equity; adjusted return on average tangible common equity; and tangible common equity ratio are not measures recognized under GAAP and therefore are considered non-GAAP financial measures. The most comparable GAAP measures to these measures are total non-interest revenue; total non-interest expense; total TE revenue; efficiency ratio-TE; net income per common share, diluted; return on average assets; return on average common equity; and the ratio of total shareholders' equity to total assets, respectively.
Management believes that these non-GAAP financial measures provide meaningful additional information about Synovus to assist management and investors in evaluating Synovus’ operating results, financial strength, the performance of its business, and the strength of its capital position. However, these non-GAAP financial measures have inherent limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of operating results or capital position as reported under GAAP. The non-GAAP financial measures should be considered as additional views of the way our financial measures are affected by significant items and other factors, and since they are not required to be uniformly applied, they may not be comparable to other similarly titled measures at other companies. Adjusted total revenue and adjusted non-interest revenue are measures used by management to evaluate total TE revenue and non-interest revenue exclusive of net investment securities gains (losses), changes in fair value of private equity investments, net, and fair value adjustment on non-qualified deferred compensation. Adjusted non-interest expense and the adjusted tangible efficiency ratio are measures utilized by management to measure the success of expense management initiatives focused on reducing recurring controllable operating costs. Adjusted net income per common share, diluted, adjusted return on average assets, and adjusted return on average common equity are measurements used by management to evaluate operating results exclusive of items that management believes are not indicative of ongoing operations and impact period-to-period comparisons. Adjusted return on average tangible common equity is a measure used by management to compare Synovus' performance with other financial institutions because it calculates the return available to common shareholders without the impact of intangible assets and their related amortization, thereby allowing management to evaluate the performance of the business consistently. The tangible common equity ratio is used by management to assess the strength of our capital position. The computations of these measures are set forth in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 14 - Reconciliation of Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Adjusted non-interest revenue
|
|
|
|
|
|
|
|
Total non-interest revenue
|
$
|
114,955
|
|
|
$
|
114,411
|
|
|
$
|
332,997
|
|
|
$
|
391,752
|
|
Subtract/add: Investment securities (gains) losses, net
|
(962)
|
|
|
1,550
|
|
|
1,028
|
|
|
(76,594)
|
|
Subtract: Gain on sale and increase in fair value of private equity investments, net
|
—
|
|
|
(260)
|
|
|
—
|
|
|
(4,712)
|
|
Add/subtract: Fair value adjustment on non-qualified deferred compensation
|
97
|
|
|
(796)
|
|
|
(1,821)
|
|
|
(539)
|
|
Adjusted non-interest revenue
|
$
|
114,090
|
|
|
$
|
114,905
|
|
|
$
|
332,204
|
|
|
$
|
309,907
|
|
|
|
|
|
|
|
|
|
Adjusted non-interest expense
|
|
|
|
|
|
|
|
Total non-interest expense
|
$
|
267,032
|
|
|
$
|
316,655
|
|
|
$
|
804,697
|
|
|
$
|
877,076
|
|
Add/subtract: Earnout liability adjustments
|
243
|
|
|
—
|
|
|
(507)
|
|
|
(4,908)
|
|
Subtract: Goodwill impairment
|
—
|
|
|
(44,877)
|
|
|
—
|
|
|
(44,877)
|
|
Subtract: Restructuring charges
|
(319)
|
|
|
(2,882)
|
|
|
(1,265)
|
|
|
(8,924)
|
|
Subtract: Loss on early extinguishment of debt
|
—
|
|
|
(154)
|
|
|
—
|
|
|
(2,057)
|
|
Add/subtract: Fair value adjustment on non-qualified deferred compensation
|
97
|
|
|
(796)
|
|
|
(1,821)
|
|
|
(539)
|
|
Adjusted non-interest expense
|
$
|
267,053
|
|
|
$
|
267,946
|
|
|
$
|
801,104
|
|
|
$
|
815,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands, except per share data)
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Adjusted total revenue and adjusted tangible efficiency ratio
|
|
|
|
|
|
|
|
Adjusted non-interest expense
|
$
|
267,053
|
|
|
$
|
267,946
|
|
|
$
|
801,104
|
|
|
$
|
815,771
|
|
Subtract: Amortization of intangibles
|
(2,379)
|
|
|
(2,640)
|
|
|
(7,137)
|
|
|
(7,920)
|
|
Adjusted tangible non-interest expense
|
$
|
264,674
|
|
|
$
|
265,306
|
|
|
$
|
793,967
|
|
|
$
|
807,851
|
|
|
|
|
|
|
|
|
|
Net interest income
|
$
|
384,917
|
|
|
$
|
376,990
|
|
|
$
|
1,140,634
|
|
|
$
|
1,126,816
|
|
Add: Tax equivalent adjustment
|
736
|
|
|
956
|
|
|
2,301
|
|
|
2,603
|
|
Add: Total non-interest revenue
|
114,955
|
|
|
114,411
|
|
|
332,997
|
|
|
391,752
|
|
Total TE revenue
|
$
|
500,608
|
|
|
$
|
492,357
|
|
|
$
|
1,475,932
|
|
|
$
|
1,521,171
|
|
Subtract/add: Investment securities (gains) losses, net
|
(962)
|
|
|
1,550
|
|
|
1,028
|
|
|
(76,594)
|
|
Subtract: Gain on sale and increase in fair value of private equity investments, net
|
—
|
|
|
(260)
|
|
|
—
|
|
|
(4,712)
|
|
Add/subtract: Fair value adjustment on non-qualified deferred compensation
|
97
|
|
|
(796)
|
|
|
(1,821)
|
|
|
(539)
|
|
Adjusted total revenue
|
$
|
499,743
|
|
|
$
|
492,851
|
|
|
$
|
1,475,139
|
|
|
$
|
1,439,326
|
|
Efficiency ratio-TE
|
53.34
|
%
|
|
64.31
|
%
|
|
54.52
|
%
|
|
57.66
|
%
|
Adjusted tangible efficiency ratio
|
52.96
|
|
|
53.83
|
|
|
53.82
|
|
|
56.13
|
|
|
|
|
|
|
|
|
|
Adjusted net income per common share, diluted
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
$
|
178,482
|
|
|
$
|
83,283
|
|
|
$
|
535,193
|
|
|
$
|
198,414
|
|
Subtract/add: Earnout liability adjustments
|
(243)
|
|
|
—
|
|
|
507
|
|
|
4,908
|
|
Add: Goodwill impairment
|
—
|
|
|
44,877
|
|
|
—
|
|
|
44,877
|
|
Add: Restructuring charges
|
319
|
|
|
2,882
|
|
|
1,265
|
|
|
8,924
|
|
Add: Loss on early extinguishment of debt
|
—
|
|
|
154
|
|
|
—
|
|
|
2,057
|
|
Subtract/add: Investment securities (gains) losses, net
|
(962)
|
|
|
1,550
|
|
|
1,028
|
|
|
(76,594)
|
|
Subtract: Gain on sale and increase in fair value of private equity investments, net
|
—
|
|
|
(260)
|
|
|
—
|
|
|
(4,712)
|
|
Add/subtract: Tax effect of adjustments (1)
|
164
|
|
|
(1,122)
|
|
|
(579)
|
|
|
18,214
|
|
Adjusted net income available to common shareholders
|
$
|
177,760
|
|
|
$
|
131,364
|
|
|
$
|
537,414
|
|
|
$
|
196,088
|
|
Weighted average common shares outstanding, diluted
|
147,701
|
|
|
147,976
|
|
|
149,069
|
|
|
148,037
|
|
Adjusted net income per common share, diluted
|
$
|
1.20
|
|
|
$
|
0.89
|
|
|
$
|
3.61
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 14 - Reconciliation of Non-GAAP Financial Measures, continued
|
|
Three Months Ended
|
|
Nine Months Ended
|
(dollars in thousands)
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
Adjusted return on average assets (annualized)
|
|
|
|
|
|
|
|
Net income
|
$
|
186,773
|
|
|
$
|
91,574
|
|
|
$
|
560,065
|
|
|
$
|
223,286
|
|
Subtract/add: Earnout liability adjustments
|
(243)
|
|
|
—
|
|
|
507
|
|
|
4,908
|
|
Add: Goodwill impairment
|
—
|
|
|
44,877
|
|
|
—
|
|
|
44,877
|
|
Add: Restructuring charges
|
319
|
|
|
2,882
|
|
|
1,265
|
|
|
8,924
|
|
Add: Loss on early extinguishment of debt
|
—
|
|
|
154
|
|
|
—
|
|
|
2,057
|
|
Subtract/add: Investment securities (gains) losses, net
|
(962)
|
|
|
1,550
|
|
|
1,028
|
|
|
(76,594)
|
|
Subtract: Gain on sale and increase in fair value of private equity investments, net
|
—
|
|
|
(260)
|
|
|
—
|
|
|
(4,712)
|
|
Add/subtract: Tax effect of adjustments (1)
|
164
|
|
|
(1,122)
|
|
|
(579)
|
|
|
18,214
|
|
Adjusted net income
|
$
|
186,051
|
|
|
$
|
139,655
|
|
|
$
|
562,286
|
|
|
$
|
220,960
|
|
Net income annualized
|
741,002
|
|
|
364,305
|
|
|
748,805
|
|
|
298,258
|
|
Adjusted net income annualized
|
738,137
|
|
|
555,584
|
|
|
751,774
|
|
|
295,151
|
|
Total average assets
|
55,326,260
|
|
|
53,138,334
|
|
|
54,848,346
|
|
|
51,568,621
|
|
Return on average assets (annualized)
|
1.34
|
%
|
|
0.69
|
%
|
|
1.37
|
%
|
|
0.58
|
%
|
Adjusted return on average assets (annualized)
|
1.33
|
|
|
1.05
|
|
|
1.37
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(dollars in thousands)
|
September 30, 2021
|
|
June 30, 2021
|
|
September 30, 2020
|
Adjusted return on average common equity and adjusted return on average tangible common equity (annualized)
|
|
|
|
|
|
Net income available to common shareholders
|
$
|
178,482
|
|
|
$
|
177,909
|
|
|
$
|
83,283
|
|
Subtract/add: Earnout liability adjustments
|
(243)
|
|
|
750
|
|
|
—
|
|
Add: Goodwill impairment
|
—
|
|
|
—
|
|
|
44,877
|
|
Add: Restructuring charges
|
319
|
|
|
415
|
|
|
2,882
|
|
Add: Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
154
|
|
Subtract/add: Investment securities (gains) losses, net
|
(962)
|
|
|
—
|
|
|
1,550
|
|
Subtract: Increase in fair value of private equity investments
|
—
|
|
|
—
|
|
|
(260)
|
|
Add/subtract: Tax effect of adjustments (1)
|
164
|
|
|
(105)
|
|
|
(1,122)
|
|
Adjusted net income available to common shareholders
|
$
|
177,760
|
|
|
$
|
178,969
|
|
|
$
|
131,364
|
|
|
|
|
|
|
|
Adjusted net income available to common shareholders' annualized
|
$
|
705,243
|
|
|
$
|
717,843
|
|
|
$
|
522,600
|
|
Add: Amortization of intangibles, annualized net of tax
|
7,050
|
|
|
7,128
|
|
|
7,782
|
|
Adjusted net income available to common shareholders excluding amortization of intangibles annualized
|
$
|
712,293
|
|
|
$
|
724,971
|
|
|
$
|
530,382
|
|
|
|
|
|
|
|
Net income available to common shareholders annualized
|
$
|
708,108
|
|
|
$
|
713,591
|
|
|
$
|
331,322
|
|
|
|
|
|
|
|
Total average shareholders' equity less preferred stock
|
$
|
4,734,754
|
|
|
$
|
4,632,568
|
|
|
$
|
4,553,159
|
|
Subtract: Goodwill
|
(452,390)
|
|
|
(452,390)
|
|
|
(497,267)
|
|
Subtract: Other intangible assets, net
|
(39,109)
|
|
|
(41,399)
|
|
|
(49,075)
|
|
Total average tangible shareholders' equity less preferred stock
|
$
|
4,243,255
|
|
|
$
|
4,138,779
|
|
|
$
|
4,006,817
|
|
Return on average common equity (annualized)
|
14.96
|
%
|
|
15.40
|
%
|
|
7.28
|
%
|
Adjusted return on average common equity (annualized)
|
14.90
|
|
|
15.50
|
|
|
11.48
|
|
Adjusted return on average tangible common equity (annualized)
|
16.79
|
|
|
17.52
|
|
|
13.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 14 - Reconciliation of Non-GAAP Financial Measures, continued
|
|
|
|
|
(dollars in thousands)
|
September 30, 2021
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
September 30, 2020
|
Tangible common equity ratio
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
55,509,129
|
|
|
$
|
54,938,659
|
|
|
$
|
54,394,159
|
|
|
|
|
$
|
53,040,538
|
|
Subtract: Goodwill
|
(452,390)
|
|
|
(452,390)
|
|
|
(452,390)
|
|
|
|
|
(452,390)
|
|
Subtract: Other intangible assets, net
|
(37,975)
|
|
|
(40,354)
|
|
|
(45,112)
|
|
|
|
|
(47,752)
|
|
Tangible assets
|
$
|
55,018,764
|
|
|
$
|
54,445,915
|
|
|
$
|
53,896,657
|
|
|
|
|
$
|
52,540,396
|
|
Total shareholders' equity
|
$
|
5,252,802
|
|
|
$
|
5,237,714
|
|
|
$
|
5,161,334
|
|
|
|
|
$
|
5,064,542
|
|
Subtract: Goodwill
|
(452,390)
|
|
|
(452,390)
|
|
|
(452,390)
|
|
|
|
|
(452,390)
|
|
Subtract: Other intangible assets, net
|
(37,975)
|
|
|
(40,354)
|
|
|
(45,112)
|
|
|
|
|
(47,752)
|
|
Subtract: Preferred stock, no par value
|
(537,145)
|
|
|
(537,145)
|
|
|
(537,145)
|
|
|
|
|
(537,145)
|
|
Tangible common equity
|
$
|
4,225,292
|
|
|
$
|
4,207,825
|
|
|
$
|
4,126,687
|
|
|
|
|
$
|
4,027,255
|
|
Total shareholders' equity to total assets ratio
|
9.46
|
%
|
|
9.53
|
%
|
|
9.49
|
%
|
|
|
|
9.55
|
%
|
Tangible common equity ratio
|
7.68
|
|
|
7.73
|
|
|
7.66
|
|
|
|
|
7.67
|
|
|
|
|
|
|
|
|
|
|
|
(1) An assumed marginal tax rate of 25.3% for 2021 and 25.9% for 2020 was applied.
|