DISCUSSION OF RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | |
Table 1 - Consolidated Financial Highlights | | | | | | | | | | |
| Three Months Ended March 31, | | |
(dollars in thousands, except per share data) | 2022 | | 2021 | | Change | | | | | | |
Net interest income | $ | 392,248 | | | $ | 373,857 | | | 5 | % | | | | | | |
Provision for (reversal of) credit losses | 11,400 | | | (18,575) | | | nm | | | | | | |
Non-interest revenue | 105,334 | | | 110,956 | | | (5) | | | | | | | |
Adjusted non-interest revenue(1) | 106,629 | | | 112,154 | | | (5) | | | | | | | |
Total TE revenue | 498,447 | | | 485,587 | | | 3 | | | | | | | |
Adjusted total revenue(1) | 499,742 | | | 486,785 | | | 3 | | | | | | | |
Non-interest expense | 272,450 | | | 267,134 | | | 2 | | | | | | | |
Adjusted non-interest expense(1) | 279,492 | | | 265,811 | | | 5 | | | | | | | |
Income before income taxes | 213,732 | | | 236,254 | | | (10) | | | | | | | |
Net income | 171,037 | | | 187,093 | | | (9) | | | | | | | |
Net income available to common shareholders | 162,746 | | | 178,802 | | | (9) | | | | | | | |
Net income per common share, basic | 1.12 | | | 1.20 | | | (7) | | | | | | | |
Net income per common share, diluted | 1.11 | | | 1.19 | | | (7) | | | | | | | |
Adjusted net income per common share, diluted(1) | 1.08 | | | 1.21 | | | (11) | | | | | | | |
Net interest margin(2) | 3.00 | % | | 3.04 | % | | (4) | bps | | | | | | |
Net charge-off ratio(2) | 0.19 | | | 0.21 | | | (2) | | | | | | | |
Return on average assets(2) | 1.22 | | | 1.40 | | | (18) | | | | | | | |
Adjusted return on average assets(1)(2) | 1.19 | | | 1.41 | | | (22) | | | | | | | |
Efficiency ratio-TE | 54.66 | | | 55.01 | | | (35) | | | | | | | |
Adjusted tangible efficiency ratio(1) | 55.50 | | | 54.12 | | | 138 | | | | | | | |
(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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | Sequential Quarter Change | | March 31, 2021 | | Year-Over-Year Change |
(dollars in thousands) |
Loans, net of deferred fees and costs | $ | 40,169,150 | | | $ | 39,311,958 | | | $ | 857,192 | | | $ | 38,805,101 | | | $ | 1,364,049 | | |
Total average loans | 39,350,761 | | | 38,365,598 | | | 985,163 | | | 38,212,267 | | | 1,138,494 | | |
Total deposits | 48,656,244 | | | 49,427,276 | | | (771,032) | | | 47,368,951 | | | 1,287,293 | | |
Core deposits (excludes brokered deposits) | 46,618,560 | | | 46,592,276 | | | 26,284 | | | 44,174,284 | | | 2,444,276 | | |
Core transaction deposits (excludes brokered and public fund deposits) | 38,285,649 | | | 37,880,650 | | | 404,999 | | | 34,804,575 | | | 3,481,074 | | |
Total average deposits | 49,345,364 | | | 49,117,222 | | | 228,142 | | | 46,454,878 | | | 2,890,486 | | |
Non-performing assets ratio | 0.40 | % | | 0.40 | % | | — | bps | | 0.50 | % | | (10) | | bps |
Non-performing loans ratio | 0.33 | | | 0.33 | | | — | | | 0.40 | | | (7) | | |
Past due loans over 90 days | 0.01 | | | 0.02 | | | (1) | | | 0.01 | | | — | | |
CET1 capital | $ | 4,485,661 | | | $ | 4,388,618 | | | $ | 97,043 | | | $ | 4,184,715 | | | $ | 300,946 | | |
Tier 1 capital | 5,022,806 | | | 4,925,763 | | | 97,043 | | | 4,721,860 | | | 300,946 | | |
Total risk-based capital | 5,936,543 | | | 5,827,196 | | | 109,347 | | | 5,733,956 | | | 202,587 | | |
CET1 capital ratio | 9.49 | % | | 9.50 | % | | (1) | bps | | 9.74 | % | | (25) | | bps |
Tier 1 capital ratio | 10.63 | | | 10.66 | | | (3) | | | 10.99 | | | (36) | | |
Total risk-based capital ratio | 12.56 | | | 12.61 | | | (5) | | | 13.34 | | | (78) | | |
Total shareholders’ equity to total assets ratio | 8.55 | | | 9.24 | | | (69) | | | 9.36 | | | (81) | | |
Tangible common equity ratio(1) | 6.80 | | | 7.52 | | | (72) | | | 7.55 | | | (75) | | |
Return on average common equity(2) | 14.20 | | | 16.11 | | | (191) | | | 15.77 | | | (157) | | |
Adjusted return on average common equity(1)(2) | 13.82 | | | 16.64 | | | (282) | | | 15.93 | | | (211) | | |
Adjusted return on average tangible common equity(1)(2) | 15.59 | | | 18.72 | | | (313) | | | 18.04 | | | (245) | | |
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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) Quarter annualized
Executive Summary
Net income available to common shareholders for the first quarter of 2022 was $162.7 million, or $1.11 per diluted common share ($1.08 on an adjusted basis(1)), compared to $178.8 million, or $1.19 per diluted common share ($1.21 adjusted(1)), for the first quarter of 2021. Provision for credit losses was $11.4 million for the first quarter of 2022, included net charge-offs of $18.6 million and also represented a slowing of allowance releases due primarily to the increased economic uncertainty present from inflation concerns and geopolitical tensions, compared to a reversal of $18.6 million for the first quarter of 2021.
Net interest income for the three months ended March 31, 2022 was $392.2 million, up $18.4 million, or 5%, compared to the same period in 2021, including $6.9 million in PPP fees during 2022 and $24.9 million in 2021. Net interest margin was down 4 bps over the comparable three-month period to 3.00%, due primarily to the $18.0 million decline in PPP fees. Net interest margin for the first quarter was up 4 bps compared to the fourth quarter of 2021 with lower cash balances helping support the margin and offset the impact of the continued decline in PPP fees.
Non-interest revenue for the first quarter of 2022 was $105.3 million, down $5.6 million, or 5%, compared to the first quarter of 2021, and on an adjusted basis(1) was $106.6 million, down $5.5 million, or 5%, from the first quarter of 2021, primarily due to lower mortgage banking income partially offset by higher core banking fees and higher wealth revenue(2).
Non-interest expense for the first quarter of 2022 was $272.5 million, up $5.3 million, or 2%, compared to the same period in 2021 while adjusted non-interest expense(1) of $279.5 million was up $13.7 million, or 5%. The increase in adjusted non-interest expense(1) during 2022 was primarily due to an increase in expense associated with incentives and elevated performance, resumption of normal business activities post COVID-19, and investments in new growth initiatives.
At March 31, 2022, loans, net of deferred fees and costs, of $40.17 billion, increased $857.2 million from December 31, 2021. Excluding a $196.7 million decline in PPP loans primarily from forgiveness, loans increased $1.05 billion, or 11% annualized, led by growth in C&I loans as commercial production and line utilization continue to drive growth.
At March 31, 2022, credit metrics remained stable and near historical lows with NPAs at 40 bps, NPLs at 33 bps, and total past dues at 11 bps, as a percentage of total loans. Net charge-offs remained low at $18.6 million, or 19 bps annualized, for the three months ended March 31, 2022. The ACL at March 31, 2022 totaled $462.3 million, a decrease of $7.2 million from December 31, 2021, and resulted primarily from continued positive trends in our credit performance and loan mix mostly offset by economic uncertainty which slowed the pace of the allowance decline this quarter. The ACL to loans coverage ratio at March 31, 2022 was 1.15%, 4 bps lower compared to December 31, 2021.
Total period-end deposits at March 31, 2022 decreased $771.0 million compared to December 31, 2021; however, core transaction deposits increased $405.0 million, or 4% annualized, compared to December 31, 2021 as a result of strong growth in our Consumer Banking segment as well as a focus on remixing the deposit base. Total deposit costs were 11 bps during the first quarter of 2022.
At March 31, 2022, Synovus' CET1 ratio was 9.49%, well in excess of regulatory requirements. Synovus announced on January 20, 2022 that its Board of Directors authorized share repurchases of up to $300 million in 2022 and approved an increase in the current common shareholder dividend by $0.01 to $0.34 per quarter, paid in April 2022. Through March 31, 2022, Synovus has repurchased $9.7 million, or 204 thousand shares of its common stock, at an average price of $47.48 per share.
On April 21, 2022, Synovus Bank announced that it signed a definitive agreement to strategically invest in a provider of a cloud-based platform that combines a payment gateway with robust merchant processing solutions, which allows merchants and independent software vendors (ISVs) to easily integrate payments into their software or websites. This proposed investment, resulting in a 60% ownership interest, will not be material to our consolidated financial statements but will become an integral part of Maast, our new money-as-a-service offering that we expect to launch later this year. The completion of the investment is subject to the satisfaction or waiver of customary closing conditions, including receipt of necessary regulatory approvals.
More detail on Synovus' financial results for the three months ended March 31, 2022 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 "Part 1 – Item 1A. – Risk Factors" of Synovus' 2021 Form 10-K.
2022 Updated Guidance
Updated guidance for the full year 2022, compared to 2021, which incorporates our strategic objectives, and is based on our current view of economic stability and growth in our footprint, includes:
•Period-end loan growth (excluding PPP) of 6% to 8%
•Adjusted total revenue(1) increase of 9% to 11%(3)
•Adjusted non-interest expense(1) increase of 3% to 6%
•Effective income tax rate of 21% to 23%
•CET1 ratio target range of 9.25% to 9.75%
•Synovus Forward on track to achieve $175 million pre-tax run-rate by year-end
(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to the most comparable GAAP measure.
(2) Consists of fiduciary and asset management, brokerage, and insurance revenue.
(3) Uses forward rate curve at March 31, 2022 which assumes Fed Funds end 2022 at approximately 2.5%.
Changes in Financial Condition
During the three months ended March 31, 2022, total assets decreased $897.7 million to $56.42 billion. Liquidity levels declined as cash and cash equivalents decreased $1.46 billion, and total loans increased $857.2 million, led by growth in C&I loans as commercial production and line utilization continue to drive growth. Investment securities available for sale decreased $455.2 million as gross unrealized losses in this portfolio increased, resulting from the increase in market interest rates in the first quarter of 2022. The loan to deposit ratio was 82.6% at March 31, 2022, higher as compared to 79.5% at December 31, 2021, and 81.9% at March 31, 2021.
Total shareholders' equity at March 31, 2022 decreased $472.2 million compared to December 31, 2021 and included net income of $171.0 million, offset by dividends declared on common and preferred stock of $49.4 million and $8.3 million, respectively, net changes in unrealized losses on investment securities available for sale and cash flow hedges of $474.5 million and $105.3 million, respectively, and share repurchases of $9.7 million.
Loans
The following table compares the composition of the loan portfolio at March 31, 2022, December 31, 2021, and March 31, 2021.
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Table 2 - Loans by Portfolio Class | | | | | | | | | | | | | | | | | | |
| | | | | | | | | March 31, 2022 vs. December 31, 2021 Change | | | | | | March 31, 2022 vs. March 31, 2021 Change |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 | | | March 31, 2021 | |
Commercial, financial and agricultural | $ | 12,659,611 | | | 31.5 | % | | $ | 12,147,858 | | | 30.9 | % | | $ | 511,753 | | | 4 | % | | $ | 12,748,106 | | | 32.9 | % | | $ | (88,495) | | | (1) | % |
Owner-occupied | 7,692,714 | | | 19.2 | | | 7,475,066 | | | 19.0 | | | 217,648 | | | 3 | | | 7,031,505 | | | 18.1 | | | 661,209 | | | 9 | |
Total commercial and industrial | 20,352,325 | | | 50.7 | | | 19,622,924 | | | 49.9 | | | 729,401 | | | 4 | | | 19,779,611 | | | 51.0 | | | 572,714 | | | 3 | |
Investment properties | 10,047,145 | | | 25.0 | | | 9,902,776 | | | 25.2 | | | 144,369 | | | 1 | | | 9,335,725 | | | 24.1 | | | 711,420 | | | 8 | |
1-4 family properties | 620,674 | | | 1.5 | | | 645,469 | | | 1.6 | | | (24,795) | | | (4) | | | 638,954 | | | 1.6 | | | (18,280) | | | (3) | |
Land and development | 477,499 | | | 1.2 | | | 466,866 | | | 1.2 | | | 10,633 | | | 2 | | | 559,249 | | | 1.4 | | | (81,750) | | | (15) | |
Total commercial real estate | 11,145,318 | | | 27.7 | | | 11,015,111 | | | 28.0 | | | 130,207 | | | 1 | | | 10,533,928 | | | 27.1 | | | 611,390 | | | 6 | |
Consumer mortgages | 5,052,003 | | | 12.6 | | | 5,068,998 | | | 12.9 | | | (16,995) | | | — | | | 5,299,130 | | | 13.6 | | | (247,127) | | | (5) | |
Home equity | 1,416,341 | | | 3.5 | | | 1,361,419 | | | 3.5 | | | 54,922 | | | 4 | | | 1,460,866 | | | 3.8 | | | (44,525) | | | (3) | |
Credit cards | 188,247 | | | 0.5 | | | 204,172 | | | 0.5 | | | (15,925) | | | (8) | | | 181,594 | | | 0.5 | | | 6,653 | | | 4 | |
Other consumer loans | 2,014,916 | | | 5.0 | | | 2,039,334 | | | 5.2 | | | (24,418) | | | (1) | | | 1,549,972 | | | 4.0 | | | 464,944 | | | 30 | |
Total consumer | 8,671,507 | | | 21.6 | | | 8,673,923 | | | 22.1 | | | (2,416) | | | — | | | 8,491,562 | | | 21.9 | | | 179,945 | | | 2 | |
Loans, net of deferred fees and costs | $ | 40,169,150 | | | 100.0 | % | | $ | 39,311,958 | | | 100.0 | % | | $ | 857,192 | | | 2 | % | | $ | 38,805,101 | | | 100.0 | % | | $ | 1,364,049 | | | 4 | % |
| | | | | | | | | | | | | | | | | | | |
At March 31, 2022, loans, net of deferred fees and costs, of $40.17 billion, increased $857.2 million, or 2%, from December 31, 2021. Excluding a $196.7 million decline in PPP loans primarily from forgiveness, loans increased $1.05 billion, or 11% annualized, led by growth in C&I loans as commercial production and line utilization continue to drive growth. As a result of the strong loan growth and increased utilization we saw this quarter, as well as current pipeline levels, we expect loan growth of 6% to 8% for 2022 compared to December 31, 2021, excluding PPP loans.
C&I loans remain the largest component of our loan portfolio, representing 50.7% of total loans, while CRE and consumer loans represent 27.7% and 21.6%, 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 participated in the PPP, which is a loan program that originated from the CARES Act. The total balance of all PPP loans was $202.9 million as of March 31, 2022, down $196.7 million, or 49%, compared to $399.6 million as of December 31, 2021, primarily due to $197 million in forgiveness. The table below provides additional information on PPP loans.
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Table 3 - PPP loans | | | | | | | |
| | March 31, 2022 |
| | PPP Loan Balances |
(in millions, except count data ) | | Fundings | | 1Q22 Forgiveness | | Total Life-to-Date Forgiveness | | End of Period, Net of Unearned Fees and Costs(1) |
Phase 1- 2020 Originations | | $ | 2,886 | | | $ | 15 | | | $ | 2,739 | | | $ | 26 | |
Phase 2- 2021 Originations | | 1,047 | | | 182 | | | 863 | | | 177 |
Total | | $ | 3,933 | | | $ | 197 | | | $ | 3,602 | | | $ | 203 | |
| | | | | | | | |
(1) Equals fundings less forgiveness, pay-downs/pay-offs, and unearned net fees.
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| |
(dollars in millions) | | Total Net Fees | | Percent of Fundings | | 1Q22 Recognized Net Fees | | Total Recognized Net Fees | | Total Unrecognized or Remaining Net Fees | | Contractual Maturity |
Phase 1- 2020 Originations | | $ | 94.9 | | | 3.3 | % | | $ | 0.2 | | | $ | 94.8 | | | $ | 0.1 | | | 2 years |
Phase 2- 2021 Originations | | 43.6 | | | 4.2 | | | 6.7 | | | 37.3 | | | 6.3 | | | 5 years |
Total | | $ | 138.5 | | | 3.5 | % | | $ | 6.9 | | | $ | 132.1 | | | $ | 6.4 | | | |
| | | | | | | | | | | | |
Commercial Loans
Total commercial loans (which are comprised of C&I and CRE loans) at March 31, 2022 were $31.50 billion, or 78.4%, of the total loan portfolio, compared to $30.64 billion, or 77.9%, at December 31, 2021.
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 March 31, 2022, 92.8% (93.7% excluding PPP loans) of Synovus' C&I loans are secured by real estate, business equipment, inventory, and other types of collateral compared to 92.2% (94.1% excluding PPP loans) as of December 31, 2021. C&I loans at March 31, 2022 grew $729.4 million, or 4%, from December 31, 2021, as broad based growth mostly within the Wholesale Banking segment was partially offset by a $196.7 million decline in PPP loan balances. The growth largely consisted of funded loan production and increased line utilization particularly in the finance and insurance, healthcare and social assistance, and wholesale trade industries.
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Table 4 - Commercial and Industrial Loans by Industry |
| | | March 31, 2022 | | December 31, 2021 |
(dollars in thousands) | NAICS Code | | Amount | | %(1) | | Amount | | %(1) |
Health care and social assistance | 62 | | | $ | 4,358,171 | | | 21.4 | % | | $ | 4,220,579 | | | 21.5 | % |
Finance and insurance | 52 | | | 2,860,331 | | | 14.1 | | | 2,520,480 | | | 12.8 | |
Manufacturing | 31-33 | | 1,325,930 | | | 6.5 | | | 1,314,212 | | | 6.7 | |
Accommodation and food services | 72 | | | 1,281,743 | | | 6.3 | | | 1,231,801 | | | 6.3 | |
Wholesale trade | 42 | | | 1,242,145 | | | 6.1 | | | 1,146,505 | | | 5.8 | |
Retail trade | 44-45 | | 1,198,595 | | | 5.9 | | | 1,195,456 | | | 6.1 | |
Real estate and rental and leasing | 5311 | | | 1,065,085 | | | 5.2 | | | 1,061,921 | | | 5.4 | |
Construction | 23 | | | 1,050,969 | | | 5.2 | | | 1,023,540 | | | 5.2 | |
Professional, scientific, and technical services | 54 | | | 993,246 | | | 4.9 | | | 928,436 | | | 4.7 | |
Other services | 81 | | | 944,285 | | | 4.6 | | | 1,004,448 | | | 5.1 | |
Transportation and warehousing | 48-49 | | 888,468 | | | 4.4 | | | 852,969 | | | 4.3 | |
Real estate other | 53 | | | 731,126 | | | 3.6 | | | 752,997 | | | 3.8 | |
Arts, entertainment, and recreation | 71 | | | 504,751 | | | 2.5 | | | 534,597 | | | 2.7 | |
Educational services | 61 | | | 425,904 | | | 2.1 | | | 427,456 | | | 2.2 | |
Public administration | 92 | | | 424,165 | | | 2.1 | | | 407,451 | | | 2.1 | |
Administration, support, waste management, and remediation | 56 | | | 265,235 | | | 1.3 | | | 246,638 | | | 1.3 | |
Agriculture, forestry, fishing, and hunting | 11 | | | 261,385 | | | 1.3 | | | 285,372 | | | 1.5 | |
Information | 51 | | | 177,903 | | | 0.9 | | | 189,306 | | | 1.0 | |
Other industries | (2) | | 352,889 | | | 1.6 | | | 278,760 | | | 1.5 | |
Total commercial and industrial loans | | | $ | 20,352,326 | | | 100.0 | % | | $ | 19,622,924 | | | 100.0 | % |
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(1) Loan balance in each category expressed as a percentage of total C&I loans.(2) Comprised of NAICS industries that are less than 2% of total C&I loans.
At March 31, 2022, $12.66 billion of C&I loans, or 31.5% of the total loan portfolio (including PPP loans of $202.9 million net of unearned fees and costs), 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 March 31, 2022, $7.69 billion of C&I loans, or 19.2% 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 $11.15 billion increased $130.2 million from December 31, 2021 as growth from funded loan production outpaced payoff 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 March 31, 2022 were $10.05 billion, or 90.1% of the CRE loan portfolio, and increased $144.4 million from December 31, 2021 primarily due to growth in all sub-categories with the exception of shopping centers, which were down $154.7 million, or 9%, from December 31, 2021.
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 March 31, 2022, 1-4 family properties loans totaled $620.7 million, or 5.6% of the CRE loan portfolio, and decreased slightly from December 31, 2021.
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 $477.5 million at March 31, 2022 increased marginally from December 31, 2021.
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, home equity and consumer credit card loans, as well as both secured and unsecured loans from third-party lending. As of March 31, 2022, weighted-average FICO scores within the residential real estate portfolio based on committed balances were 775 for consumer mortgages and 791 for home equity, consistent with year-end 2021 scores.
Consumer loans at March 31, 2022 of $8.67 billion decreased $2.4 million compared to December 31, 2021. Home equity grew $54.9 million largely due to increased demand for home equity products as property values have been increasing, and interest rates for home equity products have remained relatively low. Other consumer loans, which primarily includes third-party lending, decreased $24.4 million from December 31, 2021, driven by third-party lending loans payment activity that more than offset purchases of $181.3 million.
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 12 - Net Interest Income and Rate/Volume Analysis in this Report for information on average deposits including average rates.
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Table 5 - Composition of Period-end Deposits | | | | | | | | |
(dollars in thousands) | March 31, 2022 | | %(1) | | December 31, 2021 | | %(1) | | March 31, 2021 | | %(1) |
Non-interest-bearing demand deposits(2) | $ | 15,526,686 | | | 31.9 | % | | $ | 15,242,839 | | | 30.9 | % | | $ | 13,742,075 | | | 29.0 | % |
Interest-bearing demand deposits(2) | 6,685,366 | | | 13.7 | | | 6,346,959 | | | 12.9 | | | 5,841,749 | | | 12.3 | |
Money market accounts(2) | 14,596,877 | | | 30.0 | | | 14,886,424 | | | 30.1 | | | 13,943,717 | | | 29.5 | |
Savings deposits(2) | 1,476,720 | | | 3.0 | | | 1,404,428 | | | 2.8 | | | 1,277,034 | | | 2.7 | |
Public funds | 6,048,704 | | | 12.5 | | | 6,284,553 | | | 12.7 | | | 6,154,948 | | | 13.0 | |
Time deposits(2) | 2,284,207 | | | 4.7 | | | 2,427,073 | | | 4.9 | | | 3,214,761 | | | 6.8 | |
Brokered deposits | 2,037,684 | | | 4.2 | | | 2,835,000 | | | 5.7 | | | 3,194,667 | | | 6.7 | |
Total deposits | $ | 48,656,244 | | | 100.0 | % | | $ | 49,427,276 | | | 100.0 | % | | $ | 47,368,951 | | | 100.0 | % |
Core deposits(3) | $ | 46,618,560 | | | 95.8 | % | | $ | 46,592,276 | | | 94.3 | % | | $ | 44,174,284 | | | 93.3 | % |
Core transaction deposits(4) | $ | 38,285,649 | | | 78.7 | % | | $ | 37,880,650 | | | 76.6 | % | | $ | 34,804,575 | | | 73.5 | % |
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Brokered time deposits | $ | 1,248,571 | | | 2.6 | % | | $ | 1,024,448 | | | 2.1 | % | | $ | 1,281,027 | | | 2.7 | % |
Public funds time deposits | $ | 635,801 | | | 1.3 | % | | $ | 665,954 | | | 1.3 | % | | $ | 720,711 | | | 1.5 | % |
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(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 March 31, 2022 decreased $771.0 million compared to December 31, 2021; however, core transaction deposits increased $405.0 million, or 4% annualized, compared to December 31, 2021 as a result of strong growth in our Consumer Banking segment as well as a focus on remixing the deposit base. Total deposit costs of 11 bps during the first quarter of 2022 declined 1 bp on a linked quarter basis after declining steadily throughout the past year, primarily as a result of the continued lower rate environment and strategic deposit mix optimization efforts.
Non-interest Revenue
Non-interest revenue for the first quarter of 2022 was $105.3 million, down $5.6 million, or 5%, compared to the first quarter of 2021, and on an adjusted basis(1) was $106.6 million, down $5.5 million, or 5%, from the first quarter of 2021, primarily due to lower mortgage banking income partially offset by higher core banking fees and higher wealth revenue(2).
(1) See "Table 14 - Reconciliation of Non-GAAP Financial Measures” in this Report for applicable reconciliation to GAAP measures.
(2) Consists of fiduciary and asset management, brokerage, and insurance revenue.
The following table shows the principal components of non-interest revenue.
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Table 6 - Non-interest Revenue | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(dollars in thousands) | 2022 | | 2021 | | $ Change | | % Change | | | | | | | | |
Service charges on deposit accounts (1) | $ | 22,539 | | | $ | 20,033 | | | $ | 2,506 | | | 13 | % | | | | | | | | |
Fiduciary and asset management fees (2) | 20,277 | | | 17,954 | | | 2,323 | | | 13 | | | | | | | | | |
Card fees (1) | 14,756 | | | 11,996 | | | 2,760 | | | 23 | | | | | | | | | |
Brokerage revenue (2) | 14,655 | | | 12,974 | | | 1,681 | | | 13 | | | | | | | | | |
Mortgage banking income | 5,953 | | | 22,315 | | | (16,362) | | | (73) | | | | | | | | | |
Capital markets income | 5,472 | | | 7,505 | | | (2,033) | | | (27) | | | | | | | | | |
Income from bank-owned life insurance | 6,556 | | | 8,843 | | | (2,287) | | | (26) | | | | | | | | | |
Insurance revenue (2) | 1,419 | | | 1,697 | | | (278) | | | (16) | | | | | | | | | |
Investment securities gains (losses), net | — | | | (1,990) | | | 1,990 | | | nm | | | | | | | | |
Other non-interest revenue (1) | 13,707 | | | 9,629 | | | 4,078 | | | 42 | | | | | | | | | |
Total non-interest revenue | $ | 105,334 | | | $ | 110,956 | | | $ | (5,622) | | | (5) | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Core banking fees (1) | $ | 45,404 | | | $ | 38,155 | | | $ | 7,249 | | | 19 | % | | | | | | | | |
Wealth revenue (2) | $ | 36,351 | | | $ | 32,625 | | | $ | 3,726 | | | 11 | % | | | | | | | | |
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(1) Core banking fees consist of service charges on deposit accounts, card fees, and several other non-interest revenue components including letter of credit fees, ATM fee income, line of credit non-usage fees, gains (losses) from sales of SBA loans, and miscellaneous other service charges.
(2) Consists of fiduciary and asset management, brokerage, and insurance revenue.
Three Months Ended March 31, 2022 compared to March 31, 2021
Service charges on deposit accounts, consisting of account analysis fees, NSF fees, and all other service charges, for the three months ended March 31, 2022 were up compared to the same period in 2021, with growth in all three service charge categories. The largest category of service charges, account analysis fees, were up $609 thousand, or 7%, reflecting our continued investments in Treasury and Payments solutions. NSF fees for the three months ended March 31, 2022 and 2021 comprised 32% and 29%, respectively, of service charges on deposit accounts and 7% and 5%, respectively, of total non-interest revenue. NSF fees for the three months ended March 31, 2021 were lower primarily due to fiscal stimulus funds. All other service charges on deposit accounts, which consist primarily of monthly fees on consumer demand deposits and small business accounts, for the three months ended March 31, 2022 were up $650 thousand, or 13%.
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 months ended March 31, 2022 was driven by strong client acquisition and growth in total assets under management which increased by 4% from March 31, 2021 to $21.36 billion at March 31, 2022.
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 months ended March 31, 2022 were up primarily from increased transaction volume in all card fee categories as we continue to invest in our Treasury and Payment solutions business.
Brokerage revenue consists primarily of brokerage commissions as well as advisory fees earned from the management of client assets. Brokerage revenue for the three months ended March 31, 2022 increased over the prior year comparable period, driven by growth in assets under management of 19% and strong client acquisition.
Mortgage banking income, consisting of net gains on loan origination/sales activities, was significantly lower for the first quarter of 2022 compared to the three months ended March 31, 2021 with the decline largely driven by $11.3 million lower gains on sale as a result of a $318.8 million, or 60%, decrease in loan sales and lower secondary market mortgage loan
production. Total secondary market mortgage loan production was $221.0 million, down $352.2 million, or 61%, compared to the prior year. Increasing mortgage rates which has resulted in lower refinancing volumes has also contributed to the decline.
Capital markets income primarily includes fee income from client derivative transactions. Additionally, capital markets income includes fee income from debt capital market transactions and foreign exchange as well as other miscellaneous income from capital market transactions. The decline for the three months ended March 31, 2022 primarily resulted from $2.2 million lower fees on client derivative transactions due to decreased volume of activity.
Income from BOLI includes increases in the cash surrender value of policies and proceeds from insurance contracts. The decrease for the three months ended March 31, 2022 primarily related to $2.1 million in proceeds from insurance contracts in the first quarter of 2021.
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 three months ended March 31, 2022 included a gain of $3.5 million related to the sale of a certain real estate partnership, a $1.3 million increase in gains from sales of SBA loans, and a decrease in the fair adjustment on non-qualified deferred compensation of $2.1 million, as compared to 2021.
Non-interest Expense
Non-interest expense for the first quarter of 2022 was $272.5 million, up $5.3 million, or 2%, compared to the same period in 2021 while adjusted non-interest expense(1) of $279.5 million was up $13.7 million, or 5%. The increase in adjusted non-interest expense(1) during 2022 was primarily due to an increase in expense associated with incentives and elevated performance, resumption of normal business activities post COVID-19, and investments in new growth initiatives. The adjusted tangible efficiency ratio(1) for the first three months of 2022 was 55.50%, up 138 bps compared to the same period a year ago. We expect total investments in new growth initiatives to be between $25 million and $30 million in 2022.
(1) 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.
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Table 7 - Non-interest Expense | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(dollars in thousands) | 2022 | | 2021 | | $ Change | | % Change | | | | | | | | |
Salaries and other personnel expense | $ | 164,684 | | | $ | 161,477 | | | $ | 3,207 | | | 2 | % | | | | | | | | |
Net occupancy, equipment, and software expense | 42,877 | | | 41,134 | | | 1,743 | | | 4 | | | | | | | | | |
Third-party processing and other services | 20,996 | | | 20,032 | | | 964 | | | 5 | | | | | | | | | |
Professional fees | 8,474 | | | 9,084 | | | (610) | | | (7) | | | | | | | | | |
FDIC insurance and other regulatory fees | 6,250 | | | 5,579 | | | 671 | | | 12 | | | | | | | | | |
Amortization of intangibles | 2,118 | | | 2,379 | | | (261) | | | (11) | | | | | | | | | |
Restructuring charges | (6,424) | | | 531 | | | (6,955) | | | nm | | | | | | | | |
Loss on early extinguishment of debt | 677 | | | — | | | 677 | | | nm | | | | | | | | |
Other operating expense | 32,798 | | | 26,918 | | | 5,880 | | | 22 | | | | | | | | | |
Total non-interest expense | $ | 272,450 | | | $ | 267,134 | | | $ | 5,316 | | | 2 | % | | | | | | | | |
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Three Months Ended March 31, 2022 compared to March 31, 2021
Salaries and other personnel expense increased for the three months ended March 31, 2022 primarily due to an increase in incentive compensation from elevated performance and higher share-based compensation expense, largely due to timing with a higher level of retirement eligible expense acceleration, partially offset by lower mortgage production-based commissions. Total headcount of 5,002 declined 173, or 3%, from March 31, 2021, led by branch closures.
Net occupancy, equipment, and software expense increased for the three months ended March 31, 2022 due primarily to continued investments in technology partially offset by savings from branch closures. Synovus Bank operated 272 branches at March 31, 2022 compared to 288 branches at March 31, 2021 with nine branch closures during the first quarter of 2022. We forecast that by the end of the year the run-rate pre-tax total non-interest expense benefit from 2022 branch reductions will exceed $15 million, some of which will be reinvested in our digital delivery channel.
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 increased for the three months ended March 31, 2022,
largely a result of digital enhancements as we migrate clients to our Gateway digital commercial platform, which was partially offset by lower expense associated with PPP loan forgiveness.
Professional fees decreased for the three months ended March 31, 2022 primarily from lower consulting fees related to Synovus Forward.
FDIC insurance and other regulatory fees increased for the three months ended March 31, 2022 largely due to a higher assessment rate primarily driven by the redemption of Synovus Bank senior notes.
During the three months ended March 31, 2022, Synovus recorded $9.1 million in gains largely relating to the sale of real estate facilities in Columbus, Georgia, which was partially offset by restructuring charges relating to twelve branches expected to close in the second quarter of 2022. During the three months ended March 31, 2021, Synovus recorded restructuring charges primarily associated with two branch closures.
On February 10, 2022 Synovus Bank redeemed its 2.289% Fixed-to-Floating Rate Senior Bank Notes of $400 million par value and incurred a $677 thousand loss on early extinguishment of debt.
Other operating expense 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 expense. Other operating expense was up for the three months ended March 31, 2022. The increase over prior year was primarily related to an increase in loan expense due to elevated production, managing fraud protection for clients, and resumption of normal business activities post COVID-19.
Income Tax Expense
Income tax expense was $42.7 million for the three months ended March 31, 2022, representing an effective tax rate of 20.0%, compared to income tax expense of $49.2 million for the three months ended March 31, 2021, representing an effective tax rate of 20.8%. The effective tax rate is lower for the three months ended March 31, 2022, due to an increase in net discrete tax benefits recognized during the period, including share-based compensation, changes in amounts taxable by jurisdictions, and other accrual adjustments.
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 March 31, 2022, credit metrics remained stable and near historical lows with NPAs at 40 bps, NPLs at 33 bps, and total past dues at 11 bps, as a percentage of total loans. Net charge-offs remained low at $18.6 million, or 19 bps annualized, for the three months ended March 31, 2022. We expect net charge-offs to remain relatively stable in the second quarter of 2022, assuming no material change in the economic environment.
The table below includes selected credit quality metrics.
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Table 8 - Credit Quality Metrics | |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Non-performing loans | $ | 132,131 | | | $ | 131,042 | | | $ | 155,169 | |
Impaired loans held for sale | — | | | — | | | 23,590 | |
ORE and other assets | 26,759 | | | 27,137 | | | 16,849 | |
Non-performing assets | $ | 158,890 | | | $ | 158,179 | | | $ | 195,608 | |
Total loans | $ | 40,169,150 | | | $ | 39,311,958 | | | $ | 38,805,101 | |
Non-performing loans as a % of total loans | 0.33 | % | | 0.33 | % | | 0.40 | % |
Non-performing assets as a % of total loans, ORE, and specific other assets | 0.40 | | | 0.40 | | | 0.50 | |
Loans 90 days past due and still accruing | $ | 3,067 | | | $ | 6,770 | | | $ | 3,804 | |
As a % of total loans | 0.01 | % | | 0.02 | % | | 0.01 | % |
Total past due loans and still accruing | $ | 45,385 | | | $ | 57,565 | | | $ | 45,693 | |
As a % of total loans | 0.11 | % | | 0.15 | % | | 0.12 | % |
Net charge-offs, quarter | $ | 18,609 | | | $ | 10,522 | | | $ | 20,204 | |
Net charge-offs/average loans, quarter | 0.19 | % | | 0.11 | % | | 0.21 | % |
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Provision for (reversal of) loan losses, quarter | $ | 5,968 | | | $ | (54,124) | | | $ | (22,318) | |
Provision for (reversal of) unfunded commitments, quarter | 5,432 | | | (1,086) | | | 3,743 | |
Provision for (reversal of) credit losses, quarter | $ | 11,400 | | | $ | (55,210) | | | $ | (18,575) | |
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| | | | | |
Allowance for loan losses | $ | 414,956 | | | $ | 427,597 | | | $ | 563,214 | |
Reserve for unfunded commitments | 47,317 | | | 41,885 | | | 51,528 | |
Allowance for credit losses | $ | 462,273 | | | $ | 469,482 | | | $ | 614,742 | |
ACL to loans coverage ratio | 1.15 | % | | 1.19 | % | | 1.58 | % |
ALL to loans coverage ratio | 1.03 | | | 1.09 | | | 1.45 | |
ACL/NPLs | 349.86 | | | 358.27 | | | 396.18 | |
ALL/NPLs | 314.05 | | | 326.31 | | | 362.97 | |
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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 March 31, 2022 remained at 2.6% of total loans, or $1.03 billion, as compared to December 31, 2021.
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Table 9 - Criticized and Classified Loans | |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 |
Special mention | $ | 509,292 | | | $ | 489,150 | |
Substandard | 515,529 | | | 526,117 | |
Doubtful | 4,132 | | | 10,630 | |
Loss | 2,558 | | | 2,058 | |
Criticized and Classified loans | $ | 1,031,511 | | | $ | 1,027,955 | |
As a % of total loans | 2.6 | % | | 2.6 | % |
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Provision for (Reversal of) Credit Losses and Allowance for Credit Losses
The provision for credit losses of $11.4 million for the three months ended March 31, 2022 included net charge-offs of $18.6 million and also represented a slowing of allowance releases due primarily to the increased economic uncertainty from inflation concerns and geopolitical tensions. $3.8 million in reserves were also added as a result of purchases of $181.3 million of third-party lending loans for the three months ended March 31, 2022.
The ALL of $415.0 million and the reserve for unfunded commitments of $47.3 million, which is recorded in other liabilities, comprise the total ACL of $462.3 million at March 31, 2022. The ACL decreased $7.2 million compared to the December 31, 2021 ACL of $469.5 million, which consisted of an ALL of $427.6 million and the reserve for unfunded commitments of $41.9 million. The ACL to loans coverage ratio of 1.15% at March 31, 2022 was 4 bps lower compared to December 31, 2021.
The reduction in the ACL resulted primarily from continued positive trends in our credit performance and loan mix mostly offset by an increase in the downside weighting of the multiple scenario model which reflects the increased economic uncertainty noted above and slowed the pace of the allowance decline this quarter.
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Table 10 - Accruing TDRs by Risk Grade | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
(dollars in thousands) | Amount | | % | | Amount | | % | | Amount | | % |
Pass | $ | 61,298 | | | 42.0 | % | | $ | 56,479 | | | 47.1 | % | | $ | 63,809 | | | 49.2 | % |
Special mention | 6,531 | | | 4.5 | | | 11,387 | | | 9.5 | | | 8,560 | | | 6.6 | |
Substandard accruing | 78,128 | | | 53.5 | | | 51,938 | | | 43.4 | | | 57,407 | | | 44.2 | |
Total accruing TDRs | $ | 145,957 | | | 100.0 | % | | $ | 119,804 | | | 100.0 | % | | $ | 129,776 | | | 100.0 | % |
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Troubled Debt Restructurings
Accruing TDRs were $146.0 million at March 31, 2022, up $26.2 million compared to December 31, 2021 primarily due to modifications granted that were previously accounted for under the CARES Act. Non-accruing TDRs were $21.3 million at March 31, 2022, compared to $22.3 million at December 31, 2021.
Accruing TDRs are considered performing because they are performing in accordance with the restructured terms. At both March 31, 2022 and December 31, 2021, approximately 98% 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
The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus 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. The Consolidated Appropriations Act, 2021 extended the applicable period of Section 4013 of the CARES Act which allowed 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.
The CARES Act election period ended on January 1, 2022, and we have provided borrowers who have been impacted by COVID-19 with modifications such as interest-only relief or amortization extensions on under 2% of total loans, at both March 31, 2022 and December 31, 2021.
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 March 31, 2022, 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 11 - Capital Ratios | | | |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 |
CET1 capital | | | |
Synovus Financial Corp. | $ | 4,485,661 | | | $ | 4,388,618 | |
Synovus Bank | 5,064,643 | | | 4,998,698 | |
Tier 1 risk-based capital | | | |
Synovus Financial Corp. | 5,022,806 | | | 4,925,763 | |
Synovus Bank | 5,064,643 | | | 4,998,698 | |
Total risk-based capital | | | |
Synovus Financial Corp. | 5,936,543 | | | 5,827,196 | |
Synovus Bank | 5,666,073 | | | 5,587,757 | |
CET1 capital ratio | | | |
Synovus Financial Corp. | 9.49 | % | | 9.50 | % |
Synovus Bank | 10.73 | | | 10.83 | |
Tier 1 risk-based capital ratio | | | |
Synovus Financial Corp. | 10.63 | | | 10.66 | |
Synovus Bank | 10.73 | | | 10.83 | |
Total risk-based capital to risk-weighted assets ratio | | | |
Synovus Financial Corp. | 12.56 | | | 12.61 | |
Synovus Bank | 12.00 | | | 12.11 | |
Leverage ratio | | | |
Synovus Financial Corp. | 8.87 | | | 8.72 | |
Synovus Bank | 8.95 | | | 8.86 | |
Tangible common equity ratio(1) | | | |
Synovus Financial Corp. | 6.80 | | | 7.52 | |
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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 March 31, 2022, Synovus' CET1 ratio was 9.49%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%. The March 31, 2022 CET1 ratio declined 1 bp compared to December 31, 2021, driven by significant growth in risk-weighted assets, largely from loan growth, and return of capital through common stock shareholder dividends and share repurchases, mostly offset by strong capital generation from earnings. For additional information on regulatory capital requirements, see "Part II - Item 8. Financial Statements and Supplementary Data - Note 10 - Regulatory Capital" to the consolidated financial statements of Synovus' 2021 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.
On January 20, 2022, Synovus announced that its Board of Directors authorized share repurchases of up to $300 million in 2022. During the three months ended March 31, 2022, Synovus repurchased a total of $9.7 million, or 204 thousand shares of its common stock, at an average price of $47.48 per share.
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 March 31, 2022 regulatory capital ratios reflect Synovus' election of the five-year transition provision. At March 31, 2022, $43.7 million, or a cumulative 9 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 $49.4 million, or $0.34 per common share, for the three months ended March 31, 2022, compared to $49.1 million, or $0.33 per common share, for the three months ended March 31, 2021. In addition, Synovus declared dividends on its preferred stock of $8.3 million during the three months ended March 31, 2022 and 2021.
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 and wholesale deposits.
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 March 31, 2022, based on currently pledged collateral, Synovus Bank had access to FHLB funding of $5.52 billion, subject to FHLB credit policies. 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.
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 expense, 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, without limitation, 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' 2021 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 three months ended March 31, 2022 increased $2.67 billion, or 5%, as compared to the first three months of 2021. Average earning assets increased $3.02 billion, or 6%, in the first three months of 2022 compared to the same period in 2021. The increase in average earning assets primarily resulted from a $2.82 billion, or 33%, increase in average investment securities available for sale and a $1.14 billion, or 3%, increase in average total loans, net of unearned, which included a decrease of $1.96 billion in PPP loans. The increase in average loans was primarily due to growth in commercial production and line utilization. These increases were partially offset by a $868.4 million, or 32%, decrease in average interest-bearing funds held at the Federal Reserve Bank and a $206.8 million decrease in average loans held for sale.
Average interest-bearing liabilities decreased $40.5 million for the first three months of 2022 compared to the same period in 2021. The decrease in average interest-bearing liabilities resulted from a $1.15 billion, or 28%, decrease in average time deposits, as a result of continued focus on remixing the deposit base, a $581.2 million, or 17%, decrease in average brokered deposits, which was driven by Synovus' efforts to efficiently manage its liquidity position, and a $220.2 million, or 18%, decrease in average long-term debt, which includes redemption of $400 million in 2.289% Fixed-to-Floating Rate Senior Bank Notes in the first quarter of 2022. These decreases were mostly offset by a $978.8 million, or 11%, increase in average interest-bearing demand deposits, a $696.7 million, or 5%, increase in average money market deposits, and a $241.4 million, or 20%, increase in average savings deposits. Average non-interest-bearing deposits increased $2.70 billion, or 20%, for the first three
months of 2022 compared to the same period in 2021. The aforementioned deposit increases were largely due to liquidity associated with various stimulus efforts and monetary policy.
Net interest income for the three months ended March 31, 2022 was $392.2 million, up $18.4 million, or 5% compared to the same period in 2021, including $6.9 million in PPP fees during 2022 and $24.9 million in 2021. Net interest margin was down 4 bps over the comparable three-month period to 3.00%, due primarily to the $18.0 million decline in PPP fees. For the three months ended March 31, 2022, the yield on earning assets was 3.18%, a decrease of 14 bps compared to the three months ended March 31, 2021, while the effective cost of funds decreased 10 bps to 0.18%. Compared to the same period in 2021, the yield on loans decreased 26 bps due primarily to the decline in PPP fees, while the yield on investment securities increased 28 bps primarily due to higher reinvestment yield and deceleration in prepayment activity compared to the prior year.
On a sequential quarter basis, net interest income was flat, with the first quarter of 2022 impacted by lower PPP fees and a lower day count. Excluding these impacts, net interest income was up $12.7 million. Net interest margin for the first quarter was 3.00%, which was up 4 bps compared to the fourth quarter of 2021 with lower cash balances helping support the margin and offset the impact of the continued decline in PPP fees. The first quarter of 2022 included $6.9 million recognized for associated PPP fees versus $12.7 million in the fourth quarter of 2021 and average PPP loan balances of $282.4 million versus $578.6 million in the fourth quarter of 2021. For the first quarter of 2022, the yield on earning assets increased 2 bps, while the effective cost of funds decreased 2 bps compared to the fourth quarter of 2021.
We continue to expect that net interest income and net interest margin will increase in the coming quarters as the benefits of higher market interest rates are realized.
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 three months ended March 31, 2022 and 2021, as well as the variances between the periods caused by changes in interest rates versus changes in volume.
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Table 12 - Net Interest Income and Rate/Volume Analysis |
| Three Months Ended March 31, | | 2022 Compared to 2021 |
| Average Balances | | Interest | | Annualized Yield/Rate | | Change due to | | Increase (Decrease) |
(dollars in thousands) | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | Volume | | Rate | |
Assets | | | | | | | | | | | | | | | | | |
Interest earning assets: | | | | | | | | | | | | | | | | | |
Investment securities available for sale | $ | 11,259,800 | | | $ | 8,437,563 | | | $ | 47,250 | | | $ | 29,458 | | | 1.68 | % | | 1.40 | % | | $ | 9,742 | | | $ | 8,050 | | | $ | 17,792 | |
Trading account assets | 9,078 | | | 3,063 | | | 39 | | | 22 | | | 1.73 | | | 2.81 | | | 42 | | | (25) | | | 17 | |
Commercial loans (1) (2) | 30,756,752 | | | 29,924,651 | | | 280,588 | | | 291,200 | | | 3.70 | | | 3.95 | | | 8,104 | | | (18,716) | | | (10,612) | |
Consumer loans (1) | 8,594,009 | | | 8,287,616 | | | 81,368 | | | 82,065 | | | 3.81 | | | 3.83 | | | 2,894 | | | (3,591) | | | (697) | |
Allowance for loan losses | (423,953) | | | (599,872) | | | | | | | | | | | | | | | |
Loans, net | 38,926,808 | | | 37,612,395 | | | 361,956 | | | 373,265 | | | 3.76 | | | 4.02 | | | 10,998 | | | (22,307) | | | (11,309) | |
Mortgage loans held for sale | 103,887 | | | 246,962 | | | 882 | | | 1,657 | | | 3.40 | | | 2.68 | | | (945) | | | 170 | | | (775) | |
Other loans held for sale | 597,062 | | | 660,753 | | | 5,300 | | | 4,805 | | | 3.55 | | | 2.91 | | | (457) | | | 952 | | | 495 | |
Other earning assets(3) | 1,919,531 | | | 2,838,063 | | | 815 | | | 716 | | | 0.17 | | | 0.10 | | | (204) | | | 303 | | | 99 | |
Federal Home Loan Bank and Federal Reserve Bank stock | 160,065 | | | 157,657 | | | 685 | | | 668 | | | 1.71 | | | 1.69 | | | 10 | | | 7 | | | 17 | |
Total interest earning assets | 52,976,231 | | | 49,956,456 | | | 416,927 | | | 410,591 | | | 3.18 | | | 3.32 | | | 19,186 | | | (12,850) | | | 6,336 | |
Cash and due from banks | 548,684 | | | 518,738 | | | | | | | | | | | | | | | |
Premises, equipment, and software, net | 398,774 | | | 460,466 | | | | | | | | | | | | | | | |
Other real estate | 11,759 | | | 1,823 | | | | | | | | | | | | | | | |
Cash surrender value of bank-owned life insurance | 1,070,886 | | | 1,051,520 | | | | | | | | | | | | | | | |
Other assets(4) | 1,849,564 | | | 2,199,501 | | | | | | | | | | | | | | | |
Total assets | $ | 56,855,898 | | | $ | 54,188,504 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
Interest-bearing demand deposits | $ | 9,549,527 | | | $ | 8,570,753 | | | 2,372 | | | 2,973 | | | 0.10 | | | 0.14 | | | 338 | | | (939) | | | (601) | |
Money market accounts | 16,045,627 | | | 15,348,916 | | | 5,349 | | | 8,730 | | | 0.14 | | | 0.23 | | | 395 | | | (3,776) | | | (3,381) | |
Savings deposits | 1,460,648 | | | 1,219,288 | | | 67 | | | 49 | | | 0.02 | | | 0.02 | | | 12 | | | 6 | | | 18 | |
Time deposits | 3,009,795 | | | 4,155,302 | | | 2,138 | | | 7,042 | | | 0.29 | | | 0.69 | | | (1,949) | | | (2,955) | | | (4,904) | |
Brokered deposits | 2,788,124 | | | 3,369,333 | | | 3,733 | | | 6,224 | | | 0.54 | | | 0.75 | | | (1,075) | | | (1,416) | | | (2,491) | |
Federal funds purchased and securities sold under repurchase agreements | 194,352 | | | 209,448 | | | 11 | | | 34 | | | 0.02 | | | 0.07 | | | (3) | | | (20) | | | (23) | |
Other short-term borrowings | 4,653 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Long-term debt | 982,423 | | | 1,202,613 | | | 10,144 | | | 10,908 | | | 4.13 | | | 3.63 | | | (1,971) | | | 1,207 | | | (764) | |
Total interest-bearing liabilities | 34,035,149 | | | 34,075,653 | | | 23,814 | | | 35,960 | | | 0.28 | | | 0.42 | | | (4,253) | | | (7,893) | | | (12,146) | |
Non-interest-bearing deposits | 16,491,643 | | | 13,791,286 | | | | | | | | | | | | | | | |
Other liabilities | 1,144,535 | | | 1,185,344 | | | | | | | | | | | | | | | |
Shareholders' equity | 5,184,571 | | | 5,136,221 | | | | | | | | | | | | | | | |
Total liabilities and equity | $ | 56,855,898 | | | $ | 54,188,504 | | | | | | | | | | | | | | | |
Interest rate spread: | | | | | | | | | 2.90 | % | | 2.90 | % | | | | | | |
Net interest income - TE/margin(5) | | | | | $ | 393,113 | | | $ | 374,631 | | | 3.00 | % | | 3.04 | % | | $ | 23,439 | | | $ | (4,957) | | | $ | 18,482 | |
Taxable equivalent adjustment | | | | | 865 | | | 774 | | | | | | | | | | | |
Net interest income, actual | | | | | $ | 392,248 | | | $ | 373,857 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(1) Average loans are shown net of unearned income. NPLs are included. Interest income includes fees as follows: 2022 - $20.7 million, 2021 - $31.9 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 $(247.4) million and $116.1 million for the three months ended March 31, 2022 and 2021, 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 forecast assuming a relatively flat interest rate environment with the federal funds rate at the Federal Reserve’s current targeted range of 0.25% to 0.50% and the current prime rate of 3.50%. Synovus has modeled the impact of an immediate increase in market interest rates across the yield curve of 100 and 200 bps to determine the sensitivity of net interest income for the next twelve months. Synovus' current rate risk position is considered asset-sensitive and would be expected to benefit net interest income in a rising interest rate environment. The following table represents the estimated sensitivity of net interest income at March 31, 2022, with comparable information for December 31, 2021.
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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 Interest Rates (in bps) | | March 31, 2022 | | December 31, 2021 |
+200 | | 13.5% | | 14.5% |
+100 | | 6.4% | | 6.5% |
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
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 June 30, 2023, for all remaining US dollar settings.
The ARRC proposed SOFR as its preferred rate as an alternative to LIBOR and 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 II - Item 1A. Risk Factors" of this Report, 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 were impacted and have been changed as a result; 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. For the last several years, loan agreement provisions for new and renewed loans included LIBOR fallback language to ensure transition from LIBOR 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. The Company discontinued the use of LIBOR as of December 31, 2021, with limited exceptions as permitted by regulatory guidance or internal policies. Synovus has expanded its product offerings and currently offers multiple alternative reference rates including SOFR, BSBY, and Prime indices. As of March 31, 2022, the Company had approximately $14 billion in loans tied to LIBOR that mature after June 30, 2023. Remediation activities are underway to modify or transition existing exposures to alternate index rates or to convert the rate under existing fallback language, including the use of the Adjustable Interest (LIBOR) Act, enacted in March 2022, and other relevant legislation.
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' 2021 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' 2021 Form 10-K.
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) 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.
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Table 14 - Reconciliation of Non-GAAP Financial Measures |
| Three Months Ended | | |
(in thousands, except per share data) | March 31, 2022 | | March 31, 2021 | | | | |
Adjusted non-interest revenue | | | | | | | |
Total non-interest revenue | $ | 105,334 | | | $ | 110,956 | | | | | |
Subtract/add: Investment securities (gains) losses, net | — | | | 1,990 | | | | | |
Subtract/add: Fair value adjustment on non-qualified deferred compensation | 1,295 | | | (792) | | | | | |
Adjusted non-interest revenue | $ | 106,629 | | | $ | 112,154 | | | | | |
| | | | | | | |
Adjusted non-interest expense | | | | | | | |
Total non-interest expense | $ | 272,450 | | | $ | 267,134 | | | | | |
Subtract/add: Restructuring charges | 6,424 | | | (531) | | | | | |
Subtract: Loss on early extinguishment of debt | (677) | | | — | | | | | |
Subtract/add: Fair value adjustment on non-qualified deferred compensation | 1,295 | | | (792) | | | | | |
Adjusted non-interest expense | $ | 279,492 | | | $ | 265,811 | | | | | |
| | | | | | | |
Adjusted total revenue and adjusted tangible efficiency ratio | | | | | | | |
Adjusted non-interest expense | $ | 279,492 | | | $ | 265,811 | | | | | |
Subtract: Amortization of intangibles | (2,118) | | | (2,379) | | | | | |
Adjusted tangible non-interest expense | $ | 277,374 | | | $ | 263,432 | | | | | |
| | | | | | | |
Net interest income | $ | 392,248 | | | $ | 373,857 | | | | | |
Add: Tax equivalent adjustment | 865 | | | 774 | | | | | |
Add: Total non-interest revenue | 105,334 | | | 110,956 | | | | | |
Total TE revenue | $ | 498,447 | | | $ | 485,587 | | | | | |
Subtract/add: Investment securities (gains) losses, net | — | | | 1,990 | | | | | |
Subtract/add: Fair value adjustment on non-qualified deferred compensation | 1,295 | | | (792) | | | | | |
Adjusted total revenue | $ | 499,742 | | | $ | 486,785 | | | | | |
Efficiency ratio-TE | 54.66 | % | | 55.01 | % | | | | |
Adjusted tangible efficiency ratio | 55.50 | | | 54.12 | | | | | |
| | | | | | | |
Adjusted net income per common share, diluted | | | | | | | |
Net income available to common shareholders | $ | 162,746 | | | $ | 178,802 | | | | | |
Add/subtract: Restructuring charges | (6,424) | | | 531 | | | | | |
Add: Loss on early extinguishment of debt | 677 | | | — | | | | | |
Subtract/add: Investment securities (gains) losses, net | — | | | 1,990 | | | | | |
Add/subtract: Tax effect of adjustments (1) | 1,369 | | | (638) | | | | | |
Adjusted net income available to common shareholders | $ | 158,368 | | | $ | 180,685 | | | | | |
Weighted average common shares outstanding, diluted | 146,665 | | | 149,780 | | | | | |
Adjusted net income per common share, diluted | $ | 1.08 | | | $ | 1.21 | | | | | |
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Table 14 - Reconciliation of Non-GAAP Financial Measures, continued |
| Three Months Ended | | |
(dollars in thousands) | March 31, 2022 | | March 31, 2021 | | | | |
Adjusted return on average assets (annualized) | | | | | | | |
Net income | $ | 171,037 | | | $ | 187,093 | | | | | |
Add/subtract: Restructuring charges | (6,424) | | | 531 | | | | | |
Add: Loss on early extinguishment of debt | 677 | | | — | | | | | |
Subtract/add: Investment securities (gains) losses, net | — | | | 1,990 | | | | | |
Add/subtract: Tax effect of adjustments (1) | 1,369 | | | (638) | | | | | |
Adjusted net income | $ | 166,659 | | | $ | 188,976 | | | | | |
Net income annualized | 693,650 | | | 758,766 | | | | | |
Adjusted net income annualized | 675,895 | | | 766,403 | | | | | |
Total average assets | 56,855,898 | | | 54,188,504 | | | | | |
Return on average assets (annualized) | 1.22 | % | | 1.40 | % | | | | |
Adjusted return on average assets (annualized) | 1.19 | | | 1.41 | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 | | March 31, 2021 |
Adjusted return on average common equity and adjusted return on average tangible common equity (annualized) | | | | | |
Net income available to common shareholders | $ | 162,746 | | | $ | 192,110 | | | $ | 178,802 | |
Add/subtract: Restructuring charges | (6,424) | | | 5,958 | | | 531 | |
Add: Valuation adjustment to Visa derivative | — | | | 2,656 | | | — | |
Add: Loss on early extinguishment of debt | 677 | | | — | | | — | |
Subtract/add: Investment securities (gains) losses, net | — | | | (230) | | | 1,990 | |
Add/subtract: Tax effect of adjustments (1) | 1,369 | | | (2,121) | | | (638) | |
Adjusted net income available to common shareholders | $ | 158,368 | | | $ | 198,373 | | | $ | 180,685 | |
| | | | | |
Adjusted net income available to common shareholders' annualized | $ | 642,270 | | | $ | 787,023 | | | $ | 732,778 | |
Add: Amortization of intangibles, annualized net of tax | 6,543 | | | 7,050 | | | 7,207 | |
Adjusted net income available to common shareholders excluding amortization of intangibles annualized | $ | 648,813 | | | $ | 794,073 | | | $ | 739,985 | |
| | | | | |
Net income available to common shareholders annualized | $ | 660,025 | | | $ | 762,176 | | | $ | 725,141 | |
| | | | | |
Total average shareholders' equity less preferred stock | $ | 4,647,426 | | | $ | 4,730,828 | | | $ | 4,599,076 | |
Subtract: Goodwill | (452,390) | | | (452,390) | | | (452,390) | |
Subtract: Other intangible assets, net | (34,576) | | | (36,805) | | | (44,005) | |
Total average tangible shareholders' equity less preferred stock | $ | 4,160,460 | | | $ | 4,241,633 | | | $ | 4,102,681 | |
Return on average common equity (annualized) | 14.20 | % | | 16.11 | % | | 15.77 | % |
Adjusted return on average common equity (annualized) | 13.82 | | | 16.64 | | | 15.93 | |
Adjusted return on average tangible common equity (annualized) | 15.59 | | | 18.72 | | | 18.04 | |
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Table 14 - Reconciliation of Non-GAAP Financial Measures, continued | | | | |
(dollars in thousands) | March 31, 2022 | | December 31, 2021 | | | | | | March 31, 2021 |
Tangible common equity ratio | | | | | | | | | |
Total assets | $ | 56,419,549 | | | $ | 57,317,226 | | | | | | | $ | 55,159,011 | |
Subtract: Goodwill | (452,390) | | | (452,390) | | | | | | | (452,390) | |
Subtract: Other intangible assets, net | (33,478) | | | (35,596) | | | | | | | (42,733) | |
Tangible assets | $ | 55,933,681 | | | $ | 56,829,240 | | | | | | | $ | 54,663,888 | |
Total shareholders' equity | $ | 4,824,635 | | | $ | 5,296,800 | | | | | | | $ | 5,161,717 | |
Subtract: Goodwill | (452,390) | | | (452,390) | | | | | | | (452,390) | |
Subtract: Other intangible assets, net | (33,478) | | | (35,596) | | | | | | | (42,733) | |
Subtract: Preferred stock, no par value | (537,145) | | | (537,145) | | | | | | | (537,145) | |
Tangible common equity | $ | 3,801,622 | | | $ | 4,271,669 | | | | | | | $ | 4,129,449 | |
Total shareholders' equity to total assets ratio | 8.55 | % | | 9.24 | % | | | | | | 9.36 | % |
Tangible common equity ratio | 6.80 | | | 7.52 | | | | | | | 7.55 | |
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(1) An assumed marginal tax rate of 23.8% for 2022 and 25.3% for 2021 was applied. |