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) | | the risk that competition in the financial services industry, including competition from nontraditional banking institutions such as Fintechs, may adversely affect our future earnings and growth; |
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| (2) | | the risk that we may not realize the expected benefits from our strategic initiatives or that we may not be able to realize growth and efficiency gains in the time period expected, which could regularly affect our future profitability; |
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| (3) | | our ability to attract and retain employees and the impact of senior leadership transitions that are key to our strategic initiatives; |
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| (4) | | the risk that an economic downturn and contraction, including a recession, 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 environment could be weakened by the continued impact of COVID-19 and by current supply chain challenges and inflation; |
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| (5) | | risks related to our strategic implementation of 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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| (6) | | 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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| (7) | | the risk that prolonged periods of inflation could have on our business, profitability and our stock price; |
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| (8) | | changes in the interest rate environment, including changes to the federal funds rate, 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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| (9) | | the impact of recent and proposed changes in governmental policy, laws and regulations, 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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| (10) | | 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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| (11) | | 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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| (12) | | 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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| (13) | | risks that our asset quality may deteriorate or that our allowance for credit losses may prove to be inadequate or may be negatively affected by credit risk exposures; |
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| (14) | | 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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| (15) | | 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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| (16) | | 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) | | the risks and uncertainties related to the impact of the continuing COVID-19 pandemic on our assets, business, capital and liquidity, financial condition, prospects and results of operations; |
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| (18) | | changes in the cost and availability of funding due to changes in the deposit market and credit market; |
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| (19) | | 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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| (20) | | 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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| (21) | | 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) | | 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) | | risks related to our ESG strategies and initiatives, the scope and pace of which could alter our reputation and shareholder, employee, client and third-party relationships; |
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| (24) | | 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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| (25) | | 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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| (26) | | 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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| (27) | | 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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| (28) | | 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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| (29) | | the costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto; |
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| (30) | | risks related to the fluctuation in our stock price and general volatility in the stock market; |
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| (31) | | the effects of any damages to our reputation resulting from developments related to any of the items identified above; and |
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| (32) | | 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. |
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' 2021 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 consumer 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 261 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 six months ended June 30, 2022 and financial condition as of June 30, 2022 and December 31, 2021. 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' 2021 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.
A reading of each section is important to understand fully our financial performance.
DISCUSSION OF RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Table 1 - Consolidated Financial Highlights | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands, except per share data) | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
Net interest income | $ | 425,388 | | | $ | 381,860 | | | 11 | % | | $ | 817,635 | | | $ | 755,716 | | | 8 | % |
Provision for (reversal of) credit losses | 12,688 | | | (24,598) | | | nm | | 24,088 | | | (43,173) | | | nm |
Non-interest revenue | 97,266 | | | 107,087 | | | (9) | | | 202,600 | | | 218,043 | | | (7) | |
Total TE revenue | 523,614 | | | 489,738 | | | 7 | | | 1,022,059 | | | 975,324 | | | 5 | |
Non-interest expense | 282,051 | | | 270,531 | | | 4 | | | 554,501 | | | 537,665 | | | 3 | |
Income before income taxes | 227,915 | | | 243,014 | | | (6) | | | 441,646 | | | 479,267 | | | (8) | |
Net income | 178,052 | | | 186,200 | | | (4) | | | 349,088 | | | 373,292 | | | (6) | |
Net income available to common shareholders | 169,761 | | | 177,909 | | | (5) | | | 332,507 | | | 356,711 | | | (7) | |
Net income per common share, basic | 1.17 | | | 1.20 | | | (3) | | | 2.29 | | | 2.41 | | | (5) | |
Net income per common share, diluted | 1.16 | | | 1.19 | | | (3) | | | 2.27 | | | 2.38 | | | (5) | |
Net interest margin(1) | 3.22 | % | | 3.02 | % | | 20 | bps | | 3.11 | % | | 3.03 | % | | 8 | bps |
Net charge-off ratio(1) | 0.16 | | | 0.28 | | | (12) | | | 0.18 | | | 0.24 | | | (6) | |
Return on average assets(1) | 1.26 | | | 1.36 | | | (10) | | | 1.24 | | | 1.38 | | | (14) | |
Efficiency ratio-TE | 53.87 | | | 55.24 | | | (137) | | | 54.25 | | | 55.13 | | | (88) | |
(1) Annualized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 | | March 31, 2022 | | Sequential Quarter Change | | June 30, 2021 | | Year-Over-Year Change |
| (dollars in thousands) |
| Loans, net of deferred fees and costs | $ | 41,204,780 | | | $ | 40,169,150 | | | $ | 1,035,630 | | | $ | 38,236,018 | | | $ | 2,968,762 | | |
| Total average loans | 40,590,875 | | | 39,350,761 | | | 1,240,114 | | | 38,496,477 | | | 2,094,398 | | |
| Total deposits | 49,034,700 | | | 48,656,244 | | | 378,456 | | | 47,171,962 | | | 1,862,738 | | |
Core deposits (excludes brokered deposits) | 45,411,583 | | | 46,618,560 | | | (1,206,977) | | | 44,203,000 | | | 1,208,583 | | |
Core transaction deposits (excludes brokered and public fund deposits) | 37,399,915 | | | 38,285,649 | | | (885,734) | | | 35,506,980 | | | 1,892,935 | | |
Total average deposits | 49,015,994 | | | 49,345,364 | | | (329,370) | | | 47,349,646 | | | 1,666,348 | | |
| Non-performing assets ratio | 0.33 | % | | 0.40 | % | | (7) | bps | | 0.46 | % | | (13) | | bps |
| Non-performing loans ratio | 0.26 | | | 0.33 | | | (7) | | | 0.42 | | | (16) | | |
| Past due loans over 90 days | 0.01 | | | 0.01 | | | — | | | 0.01 | | | — | | |
| CET1 capital | $ | 4,612,070 | | | $ | 4,485,661 | | | $ | 126,409 | | | $ | 4,214,720 | | | $ | 397,350 | | |
| Tier 1 capital | 5,149,215 | | | 5,022,806 | | | 126,409 | | | 4,751,865 | | | 397,350 | | |
| Total risk-based capital | 6,059,074 | | | 5,936,543 | | | 122,531 | | | 5,725,176 | | | 333,898 | | |
| CET1 capital ratio | 9.46 | % | | 9.49 | % | | (3) | bps | | 9.75 | % | | (29) | | bps |
| Tier 1 capital ratio | 10.56 | | | 10.63 | | | (7) | | | 11.00 | | | (44) | | |
| Total risk-based capital ratio | 12.43 | | | 12.56 | | | (13) | | | 13.25 | | | (82) | | |
Total shareholders’ equity to total assets ratio | 7.99 | | | 8.55 | | | (56) | | | 9.53 | | | (154) | | |
Return on average common equity(1) | 16.48 | | | 14.20 | | | 228 | | | 15.40 | | | 108 | | |
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(1) Quarter annualized
Executive Summary
Net income available to common shareholders for the second quarter of 2022 was $169.8 million, or $1.16 per diluted common share, compared to $177.9 million, or $1.19 per diluted common share for the second quarter of 2021. Net income available to common shareholders for the first six months of 2022 was $332.5 million, or $2.27 per diluted common share, compared to $356.7 million, or $2.38 per diluted common share for the first six months of 2021. The year-over-year decreases for all time periods were impacted by a slowing of allowance releases due primarily to the increased economic uncertainty present from inflation concerns and geopolitical tensions, resulting in provision for credit losses of $12.7 million and $24.1 million, respectively, for the three and six months ended June 30, 2022, and reversals of $24.6 million and $43.2 million for the three and six months ended June 30, 2021, respectively.
Net interest income for the six months ended June 30, 2022 was $817.6 million, up $61.9 million, or 8%, compared to the same period in 2021, including $10.5 million in PPP fees during 2022 and $45.2 million in 2021. Net interest margin was up 8
bps over the comparable six-month period to 3.11% due primarily to positive re-mixing within earning assets and our asset-sensitive rate risk position, partially offset by a $34.7 million decline in PPP fees. Net interest margin for the second quarter was up 22 bps sequentially, aided by higher interest rates, lower cash balances, and managed deposit repricing.
Non-interest revenue for the second quarter of 2022 was $97.3 million, down $9.8 million, or 9%, compared to the second quarter of 2021, and year-to-date was $202.6 million, down $15.4 million, or 7%, from the first half of 2021, primarily due to lower mortgage banking income and a $7.0 million write-down on a minority fintech investment partially offset by higher core banking fees(1) and higher wealth revenue(2).
Non-interest expense for the second quarter of 2022 was $282.1 million, up $11.5 million, or 4%, while year-to-date non-interest expense of $554.5 million was up $16.8 million, or 3%, compared to the same periods in 2021. The increase in non-interest expense during 2022 was primarily due to an increase in expense associated with merit and elevated performance incentives, resumption of normal business activities post COVID-19, and investments in new growth initiatives.
At June 30, 2022, loans, net of deferred fees and costs, of $41.20 billion, increased $1.89 billion, or 5%, from December 31, 2021. Excluding a $312.9 million decline in PPP loans, primarily from forgiveness, loans increased $2.21 billion, or 6%, led by growth in C&I and CRE loans as commercial production and line utilization continue to drive growth.
At June 30, 2022, credit metrics remained stable and near historically low levels with NPAs at 33 bps, NPLs at 26 bps, and total past dues at 14 bps, as a percentage of total loans. Net charge-offs remained low at $16.6 million, or 16 bps annualized, and $35.2 million, or 18 bps annualized, for the three and six months ended June 30, 2022. The ACL at June 30, 2022 totaled $458.4 million, a decrease of $11.1 million from December 31, 2021, and resulted primarily from continued positive trends in our credit performance, including reduction of NPLs, and quality and mix of new loan originations, mostly offset by an uncertain and generally negative economic outlook. The ACL to loans coverage ratio at June 30, 2022 was 1.11%, 8 bps lower compared to December 31, 2021.
Total period-end deposits at June 30, 2022 decreased $392.6 million compared to December 31, 2021 as lower money market, public funds, and time deposits impacted by rate-driven outflows and normal client liquidity deployment were mostly offset by increases in brokered deposits and higher non-interest-bearing demand deposits. Total deposit costs were 15 bps during the second quarter of 2022 and decreased 1 bp from the prior year comparable period, primarily due to an increase in non-interest-bearing deposits. Total deposit costs increased 4 bps compared to the sequential quarter due to deposit repricing associated with recent rate hikes.
At June 30, 2022, Synovus' CET1 ratio of 9.46%, well in excess of regulatory requirements, declined 4 bps compared to December 31, 2021, driven by significant growth in risk-weighted assets, largely from loan growth, and return of capital primarily through common stock shareholder dividends, mostly offset by strong capital generation from earnings. Our commitment remains to allocate internally generated capital toward our strategic priorities of client loan growth and a stable dividend while also maintaining a strong and efficient capital position.
More detail on Synovus' financial results for the three and six months ended June 30, 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.
(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.
Changes in Financial Condition
During the six months ended June 30, 2022, total assets increased $65.5 million to $57.38 billion. We deployed liquidity as cash and cash equivalents decreased $1.34 billion, and total loans increased $1.89 billion, with commercial production and line utilization continuing to drive growth. Investment securities available for sale decreased $1.03 billion, driven by net unrealized losses from increases in market interest rates in the first half of 2022. The loan to deposit ratio was 84.0% at June 30, 2022, higher as compared to 79.5% at December 31, 2021, and 81.1% at June 30, 2021.
Total shareholders' equity at June 30, 2022 decreased $712.4 million compared to December 31, 2021 and included net income of $349.1 million, offset by dividends declared on common and preferred stock of $98.9 million and $16.6 million, respectively, changes in after-tax net unrealized losses on investment securities available for sale and cash flow hedges of $801.5 million and $142.8 million, respectively, and share repurchases of $13.0 million.
Loans
The following table compares the composition of the loan portfolio at June 30, 2022, December 31, 2021, and June 30, 2021.
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| Table 2 - Loans by Portfolio Class | | | | | | | | | | | | | | | | | | |
| | | | | | | | | June 31, 2022 vs. December 31, 2021 Change | | | | | | June 31, 2022 vs. June 31, 2021 Change |
| (dollars in thousands) | June 30, 2022 | | December 31, 2021 | | | June 30, 2021 | |
| Commercial, financial and agricultural | $ | 13,018,089 | | | 31.6 | % | | $ | 12,147,858 | | | 30.9 | % | | $ | 870,231 | | | 7 | % | | $ | 12,174,835 | | | 31.8 | % | | $ | 843,254 | | | 7 | % |
| Owner-occupied | 7,760,236 | | | 18.8 | | | 7,475,066 | | | 19.0 | | | 285,170 | | | 4 | | | 7,064,599 | | | 18.5 | | | 695,637 | | | 10 | |
| Total commercial and industrial | 20,778,325 | | | 50.4 | | | 19,622,924 | | | 49.9 | | | 1,155,401 | | | 6 | | | 19,239,434 | | | 50.3 | | | 1,538,891 | | | 8 | |
| Investment properties | 10,408,048 | | | 25.3 | | | 9,902,776 | | | 25.2 | | | 505,272 | | | 5 | | | 9,218,013 | | | 24.1 | | | 1,190,035 | | | 13 | |
| 1-4 family properties | 641,855 | | | 1.6 | | | 645,469 | | | 1.6 | | | (3,614) | | | (1) | | | 636,344 | | | 1.7 | | | 5,511 | | | 1 | |
| Land and development | 453,514 | | | 1.0 | | | 466,866 | | | 1.2 | | | (13,352) | | | (3) | | | 506,694 | | | 1.3 | | | (53,180) | | | (10) | |
| Total commercial real estate | 11,503,417 | | | 27.9 | | | 11,015,111 | | | 28.0 | | | 488,306 | | | 4 | | | 10,361,051 | | | 27.1 | | | 1,142,366 | | | 11 | |
| Consumer mortgages | 5,124,523 | | | 12.4 | | | 5,068,998 | | | 12.9 | | | 55,525 | | | 1 | | | 5,200,718 | | | 13.6 | | | (76,195) | | | (1) | |
| Home equity | 1,579,218 | | | 3.9 | | | 1,361,419 | | | 3.5 | | | 217,799 | | | 16 | | | 1,395,717 | | | 3.7 | | | 183,501 | | | 13 | |
| Credit cards | 194,290 | | | 0.5 | | | 204,172 | | | 0.5 | | | (9,882) | | | (5) | | | 196,207 | | | 0.5 | | | (1,917) | | | (1) | |
| Other consumer loans | 2,025,007 | | | 4.9 | | | 2,039,334 | | | 5.2 | | | (14,327) | | | (1) | | | 1,842,891 | | | 4.8 | | | 182,116 | | | 10 | |
| Total consumer | 8,923,038 | | | 21.7 | | | 8,673,923 | | | 22.1 | | | 249,115 | | | 3 | | | 8,635,533 | | | 22.6 | | | 287,505 | | | 3 | |
| Loans, net of deferred fees and costs | $ | 41,204,780 | | | 100.0 | % | | $ | 39,311,958 | | | 100.0 | % | | $ | 1,892,822 | | | 5 | % | | $ | 38,236,018 | | | 100.0 | % | | $ | 2,968,762 | | | 8 | % |
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At June 30, 2022, loans, net of deferred fees and costs, of $41.20 billion, increased $1.89 billion, or 5%, from December 31, 2021. This included a $312.9 million decline in PPP loans, primarily from forgiveness, and growth primarily in C&I and CRE loans, as commercial production and line utilization continue to drive growth. As a result of our strong year-to-date loan growth of 6% excluding PPP loans, we expect to be at or above the upper end of our previous guidance of 6% to 8% for 2022.
C&I loans remain the largest component of our loan portfolio, representing 50.4% of total loans, while CRE and consumer loans represent 27.9% and 21.7%, respectively. Our portfolio composition is guided by our strategic growth plan, in conjunction with 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 $86.7 million as of June 30, 2022, down $312.9 million, or 78%, compared to $399.6 million as of December 31, 2021, primarily due to $316 million in forgiveness. The table below provides additional information on PPP loans.
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| Table 3 - PPP loans | | | | | | | | | |
| | June 30, 2022 |
| | PPP Loan Balances |
| (in millions, except count data ) | | Fundings | | 2Q22 Forgiveness | | 2022 Forgiveness | | Total Life-to-Date Forgiveness | | End of Period, Net of Unearned Fees and Costs(1) |
| Phase 1- 2020 Originations | | $ | 2,886 | | | $ | 11 | | | $ | 26 | | | $ | 2,750 | | | $ | 14 | |
| Phase 2- 2021 Originations | | 1,047 | | | 108 | | | 290 | | | 971 | | | 73 |
| Total | | $ | 3,933 | | | $ | 119 | | | $ | 316 | | | $ | 3,721 | | | $ | 87 | |
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(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 | | 2Q22 Recognized Net Fees | | 2022 Recognized Net Fees | | Total Recognized Net Fees | | Total Unrecognized or Remaining Net Fees | | Contractual Maturity |
| Phase 1- 2020 Originations | | $ | 94.9 | | | 3.3 | % | | $ | 0.1 | | | $ | 0.3 | | | $ | 94.9 | | | $ | — | | | 2 years |
| Phase 2- 2021 Originations | | 43.6 | | | 4.2 | | | 3.6 | | | 10.3 | | | 40.9 | | | 2.8 | | | 5 years |
| Total | | $ | 138.5 | | | 3.5 | % | | $ | 3.7 | | | $ | 10.5 | | | $ | 135.8 | | | $ | 2.8 | | | |
| Amounts may not total due to rounding. | | | | | | | | |
Commercial Loans
Total commercial loans (which are comprised of C&I and CRE loans) at June 30, 2022 were $32.28 billion, or 78.3%, 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 June 30, 2022, 93.4% (93.8% 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 June 30, 2022 grew $1.16 billion, or 6%, from December 31, 2021, as diverse growth from many of our Wholesale Banking sub-businesses was partially offset by a $312.9 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, wholesale trade, and accommodation and food services industries.
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| Table 4 - Commercial and Industrial Loans by Industry |
| | | June 30, 2022 | | December 31, 2021 |
| (dollars in thousands) | NAICS Code | | Amount | | %(1) | | Amount | | %(1) |
| Health care and social assistance | 62 | | | $ | 4,489,914 | | | 21.6 | % | | $ | 4,220,579 | | | 21.5 | % |
| Finance and insurance | 52 | | | 3,112,695 | | | 15.0 | | | 2,520,480 | | | 12.8 | |
| Manufacturing | 31-33 | | 1,377,435 | | | 6.6 | | | 1,314,212 | | | 6.7 | |
| Accommodation and food services | 72 | | | 1,338,556 | | | 6.4 | | | 1,231,801 | | | 6.3 | |
| Wholesale trade | 42 | | | 1,268,075 | | | 6.1 | | | 1,146,505 | | | 5.8 | |
| Retail trade | 44-45 | | 1,184,962 | | | 5.7 | | | 1,195,456 | | | 6.1 | |
| Real estate and rental and leasing | 5311 | | | 1,086,787 | | | 5.2 | | | 1,061,921 | | | 5.4 | |
| Construction | 23 | | | 1,063,753 | | | 5.1 | | | 1,023,540 | | | 5.2 | |
| Professional, scientific, and technical services | 54 | | | 951,794 | | | 4.6 | | | 928,436 | | | 4.7 | |
| Other services | 81 | | | 946,549 | | | 4.6 | | | 1,004,448 | | | 5.1 | |
| Transportation and warehousing | 48-49 | | 843,764 | | | 4.1 | | | 852,969 | | | 4.3 | |
| Real estate other | 53 | | | 778,636 | | | 3.7 | | | 752,997 | | | 3.8 | |
| Arts, entertainment, and recreation | 71 | | | 469,665 | | | 2.3 | | | 534,597 | | | 2.7 | |
| Educational services | 61 | | | 422,306 | | | 2.0 | | | 427,456 | | | 2.2 | |
| Public administration | 92 | | | 417,871 | | | 2.0 | | | 407,451 | | | 2.1 | |
| Administration, support, waste management, and remediation | 56 | | | 263,754 | | | 1.3 | | | 246,638 | | | 1.3 | |
| Agriculture, forestry, fishing, and hunting | 11 | | | 261,234 | | | 1.3 | | | 285,372 | | | 1.5 | |
| Information | 51 | | | 211,917 | | | 1.0 | | | 189,306 | | | 1.0 | |
| Other industries | (2) | | 288,658 | | | 1.4 | | | 278,760 | | | 1.5 | |
| Total commercial and industrial loans | | | $ | 20,778,325 | | | 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 June 30, 2022, $13.02 billion of C&I loans, or 31.6% of the total loan portfolio (including PPP loans of $86.7 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 June 30, 2022, $7.76 billion of C&I loans, or 18.8% 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 $11.50 billion increased $488.3 million or 4%, from December 31, 2021 as growth primarily in the multi-family and medical office sectors from funded loan production continued to outpace 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 June 30, 2022 were $10.41 billion, or 90.5% of the CRE loan portfolio, and increased $505.3 million, or 5%, from December 31, 2021 primarily due to growth in all sub-categories with the exception of shopping centers, which were down $196.6 million, or 12%, 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 June 30, 2022, 1-4 family properties loans totaled $641.9 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 $453.5 million at June 30, 2022 decreased slightly 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 June 30, 2022, weighted-average FICO scores within the residential real estate portfolio based on committed balances were 777 for consumer mortgages and 788 for home equity, consistent with year-end 2021 scores.
Consumer loans at June 30, 2022 of $8.92 billion increased $249.1 million, or 3%, compared to December 31, 2021. Home equity grew $217.8 million from December 31, 2021 largely due to increased demand for home equity products as property values have increased, and interest rates for home equity products have remained relatively low. Other consumer loans decreased $14.3 million from December 31, 2021 primarily resulting from $43.0 million lower third-party loan balances as payment activity more than offset purchases of $361.6 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 - Quarter-to-Date Net Interest Income and Rate/Volume Analysis and Table 13 - Year-to-Date 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) | June 30, 2022 | | %(1) | | December 31, 2021 | | %(1) | | June 30, 2021 | | %(1) |
Non-interest-bearing demand deposits(2) | $ | 15,781,109 | | | 32.2 | % | | $ | 15,242,839 | | | 30.9 | % | | $ | 14,342,601 | | | 30.4 | % |
Interest-bearing demand deposits(2) | 6,327,055 | | | 12.9 | | | 6,346,959 | | | 12.9 | | | 5,839,814 | | | 12.4 | |
Money market accounts(2) | 13,793,024 | | | 28.1 | | | 14,886,424 | | | 30.1 | | | 13,983,112 | | | 29.7 | |
Savings deposits(2) | 1,498,727 | | | 3.0 | | | 1,404,428 | | | 2.8 | | | 1,341,453 | | | 2.8 | |
| Public funds | 5,863,899 | | | 12.0 | | | 6,284,553 | | | 12.7 | | | 5,804,905 | | | 12.3 | |
Time deposits(2) | 2,147,769 | | | 4.4 | | | 2,427,073 | | | 4.9 | | | 2,891,115 | | | 6.1 | |
| Brokered deposits | 3,623,117 | | | 7.4 | | | 2,835,000 | | | 5.7 | | | 2,968,962 | | | 6.3 | |
| Total deposits | $ | 49,034,700 | | | 100.0 | % | | $ | 49,427,276 | | | 100.0 | % | | $ | 47,171,962 | | | 100.0 | % |
Core deposits(3) | $ | 45,411,583 | | | 92.6 | % | | $ | 46,592,276 | | | 94.3 | % | | $ | 44,203,000 | | | 93.7 | % |
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| Brokered time deposits | $ | 2,314,488 | | | 4.7 | % | | $ | 1,024,448 | | | 2.1 | % | | $ | 1,063,947 | | | 2.3 | % |
| Public funds time deposits | $ | 611,070 | | | 1.2 | % | | $ | 665,954 | | | 1.3 | % | | $ | 689,478 | | | 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.
Total period-end deposits at June 30, 2022 decreased $392.6 million compared to December 31, 2021 as lower money market, public funds, and time deposits, impacted by rate-driven outflows and normal client liquidity deployment, were mostly offset by increases in brokered deposits and higher non-interest-bearing demand deposits. On a year-to-date average basis, the increase in total deposits was $1.57 billion, or 3%, driven by $1.33 billion in growth from non-interest-bearing demand deposits as this meaningful component of our overall funding strategy continues to help manage our total funding costs in the rising rate environment. Total deposit costs of 15 bps for the second quarter of 2022 decreased 1 bp from the prior year comparable period, primarily due to an increase in non-interest-bearing deposits. Total deposit costs increased 4 bps compared to the first quarter of 2022 as the Federal Open Market Committee's recent rate hikes have begun to modestly impact our deposit costs. Given the 75 bps rate hike in June 2022, as well as the recently announced 75 bps hike in July 2022, we have begun to see and
expect a continuation of upward pressure on deposits costs, as would be reasonably expected for this phase of the tightening cycle.
Non-interest Revenue
Non-interest revenue for the second quarter of 2022 was $97.3 million, down $9.8 million, or 9%, and year-to-date was $202.6 million, down $15.4 million, or 7%, compared to the same periods in 2021. The primary drivers were lower mortgage banking income and a $7.0 million write-down on a minority fintech investment partially offset by higher core banking fees(1) and higher wealth revenue(2).
The following table shows the principal components of non-interest revenue.
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| Table 6 - Non-interest Revenue | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change |
| Service charges on deposit accounts | $ | 23,491 | | | $ | 21,414 | | | $ | 2,077 | | | 10 | % | | $ | 46,030 | | | $ | 41,448 | | | $ | 4,582 | | | 11 | % |
| Fiduciary and asset management fees | 20,100 | | | 18,805 | | | 1,295 | | | 7 | | | 40,377 | | | 36,759 | | | 3,618 | | | 10 | |
| Card fees | 16,089 | | | 13,304 | | | 2,785 | | | 21 | | | 30,846 | | | 25,300 | | | 5,546 | | | 22 | |
| Brokerage revenue | 15,243 | | | 13,926 | | | 1,317 | | | 9 | | | 29,898 | | | 26,899 | | | 2,999 | | | 11 | |
| Mortgage banking income | 3,904 | | | 13,842 | | | (9,938) | | | (72) | | | 9,857 | | | 36,157 | | | (26,300) | | | (73) | |
| Capital markets income | 7,393 | | | 3,335 | | | 4,058 | | | 122 | | | 12,864 | | | 10,840 | | | 2,024 | | | 19 | |
| Income from bank-owned life insurance | 9,165 | | | 7,188 | | | 1,977 | | | 28 | | | 15,722 | | | 16,031 | | | (309) | | | (2) | |
| Insurance revenue | 2,564 | | | 3,383 | | | (819) | | | (24) | | | 3,983 | | | 5,079 | | | (1,096) | | | (22) | |
| Investment securities gains (losses), net | — | | | — | | | — | | | nm | | — | | | (1,990) | | | 1,990 | | | nm |
| Other non-interest revenue | (683) | | | 11,890 | | | (12,573) | | | (106) | | | 13,023 | | | 21,520 | | | (8,497) | | | (39) | |
| Total non-interest revenue | $ | 97,266 | | | $ | 107,087 | | | $ | (9,821) | | | (9) | % | | $ | 202,600 | | | $ | 218,043 | | | $ | (15,443) | | | (7) | % |
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Core banking fees (1) | $ | 45,483 | | | $ | 41,464 | | | $ | 4,019 | | | 10 | % | | $ | 90,887 | | | $ | 79,620 | | | $ | 11,267 | | | 14 | % |
Wealth revenue (2) | $ | 37,907 | | | $ | 36,114 | | | $ | 1,793 | | | 5 | % | | $ | 74,258 | | | $ | 68,737 | | | $ | 5,521 | | | 8 | % |
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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 and Six Months Ended June 30, 2022 compared to June 30, 2021
Service charges on deposit accounts, consisting of account analysis fees, NSF fees, and all other service charges, for the three and six months ended June 30, 2022 were up compared to the same periods in 2021. The largest category of service charges, account analysis fees, were flat compared to the second quarter of 2021, and up 3% on a year-to-date comparable basis. NSF fees for the six months ended June 30, 2022 and 2021 comprised 32% and 29%, respectively, of service charges on deposit accounts and 7% and 6%, respectively, of total non-interest revenue. NSF fees for the three and six months ended June 30, 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 and six months ended June 30, 2022 were up $740 thousand, or 14%, and $1.4 million, or 14%, 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 six months ended June 30, 2022 was driven by strong client acquisition despite headwinds from a decline in the equity markets.
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 six months ended June 30, 2022 were up primarily due to higher transaction volumes from both consumer and commercial spend activity and account growth 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 and six months ended June 30, 2022 increased over the prior year comparable periods, benefiting from client activity in the face of challenging equity markets.
Mortgage banking income was significantly lower for the three and six months ended June 30, 2022, compared to the same periods in 2021, largely due to the economic environment with substantial increases in mortgage rates reducing refinancing and
new-purchase volumes and compressing secondary margins. On a year-to-date basis, gains on sale declined $18.5 million as a result of a $550.9 million, or 55%, decrease in loan sales and a $574.1 million, or 58%, decline in secondary market mortgage production compared to the prior year.
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 increase for the three months ended June 30, 2022 compared to the same period in 2021 primarily resulted from a higher volume of client derivative transactions and a $1.3 million increase in loan syndication arranger fees. The increase for the six months ended June 30, 2022 was primarily due to higher loan syndication arranger fees.
Income from BOLI includes increases in the cash surrender value of policies and proceeds from insurance contracts. The increase for the three months ended June 30, 2022 primarily related to $2.5 million in proceeds from insurance benefits.
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, gains from sales of GGL/SBA loans, and other miscellaneous items. The six months ended June 30, 2022 primarily included a $7.0 million write-down on a minority fintech investment and a reduction in the fair value of non-qualified deferred compensation plan assets of $6.5 million (offset in non-interest expense), partially offset by a gain of $3.5 million related to the sale of a certain real estate partnership, as compared to 2021.
Non-interest Expense
Non-interest expense for the second quarter of 2022 was $282.1 million, up $11.5 million, or 4%, and year-to-date was $554.5 million, up $16.8 million, or 3%, compared to the same periods in 2021. The increase in non-interest expense during 2022 was primarily due to an increase in expense associated with merit and elevated performance incentives, resumption of normal business activities post COVID-19, and investments in new growth initiatives. We expect total investments in new growth initiatives to be in the $30 million to $35 million range in 2022.
The following table summarizes the components of non-interest expense.
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| Table 7 - Non-interest Expense | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (dollars in thousands) | 2022 | | 2021 | | $ Change | | % Change | | 2022 | | 2021 | | $ Change | | % Change |
| Salaries and other personnel expense | $ | 161,063 | | | $ | 160,567 | | | $ | 496 | | | — | % | | $ | 325,747 | | | $ | 322,044 | | | $ | 3,703 | | | 1 | % |
| Net occupancy, equipment, and software expense | 43,199 | | | 41,825 | | | 1,374 | | | 3 | | | 86,076 | | | 82,959 | | | 3,117 | | | 4 | |
| Third-party processing and other services | 21,952 | | | 24,419 | | | (2,467) | | | (10) | | | 42,947 | | | 44,451 | | | (1,504) | | | (3) | |
| Professional fees | 10,865 | | | 7,947 | | | 2,918 | | | 37 | | | 19,338 | | | 17,031 | | | 2,307 | | | 14 | |
| FDIC insurance and other regulatory fees | 6,894 | | | 5,547 | | | 1,347 | | | 24 | | | 13,144 | | | 11,127 | | | 2,017 | | | 18 | |
| Amortization of intangibles | 2,118 | | | 2,379 | | | (261) | | | (11) | | | 4,236 | | | 4,758 | | | (522) | | | (11) | |
| Restructuring charges | (1,850) | | | 415 | | | (2,265) | | | nm | | (8,274) | | | 946 | | | (9,220) | | | nm |
| Valuation adjustment to Visa derivative | 3,500 | | | — | | | 3,500 | | | nm | | 3,500 | | | — | | | 3,500 | | | nm |
| Loss on early extinguishment of debt | — | | | — | | | — | | | nm | | 677 | | | — | | | 677 | | | nm |
| Earnout liability adjustments | — | | | 750 | | | (750) | | | nm | | — | | | 750 | | | (750) | | | nm |
| Other operating expense | 34,310 | | | 26,682 | | | 7,628 | | | 29 | | | 67,110 | | | 53,599 | | | 13,511 | | | 25 | |
| Total non-interest expense | $ | 282,051 | | | $ | 270,531 | | | $ | 11,520 | | | 4 | % | | $ | 554,501 | | | $ | 537,665 | | | $ | 16,836 | | | 3 | % |
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Three and Six Months Ended June 30, 2022 compared to June 30, 2021
Salaries and other personnel expense increased for the three and six months ended June 30, 2022 primarily due to the impacts of elevated performance incentives and merit partially offset by a reduction in the fair value of the non-qualified deferred compensation liability (offset in non-interest revenue) and lower mortgage production-based commissions. Total headcount of 5,091 was flat compared to June 30, 2021 as a result of Synovus Forward initiatives while adding headcount in areas associated with strategic revenue growth.
Net occupancy, equipment, and software expense increased for the three and six months ended June 30, 2022 due primarily to continued investments in technology and initiatives partially offset by savings from branch closures. Synovus Bank operated 261 branches at June 30, 2022 compared to 285 branches at June 30, 2021 with twenty branch closures during the first half of 2022. We expect to close a similar amount in the second half of 2022 to complete our large-scale branch optimization program.
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 six months ended June 30, 2022, largely a result of higher 2021 expense associated with PPP loan forgiveness partially offset by enhancements associated with technology and initiatives.
Professional fees increased for the three and six months ended June 30, 2022 primarily from higher consulting fees largely related to new initiatives, technology, and sustainability strategies and increased legal fees from various matters, including new initiatives and credit-related items.
FDIC insurance and other regulatory fees increased for the three and six months ended June 30, 2022 largely due to a higher assessment rate primarily driven by partial normalization of liquidity levels and redemption of Synovus Bank senior notes.
During the three months ended June 30, 2022, Synovus recorded $3.0 million in gains on sales of five closed branches partially offset by restructuring charges associated with additional branch closures. During the six months ended June 30, 2022, Synovus recorded $12.1 million in gains largely relating to the sale of real estate facilities in Columbus, Georgia in addition to gains on sales of closed branches, partially offset by restructuring charges associated with additional branch closures. During the three and six months ended June 30, 2021, Synovus recorded restructuring charges primarily related to branch closures and restructuring of corporate real estate as part of the Synovus Forward initiative.
During the second quarter of 2022, Synovus recorded a $3.5 million valuation adjustment to the Visa derivative following Visa's announcement to fund $600 million to its litigation escrow account.
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.
Earnout liability fair value adjustments 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 third quarter of 2021.
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 and six months ended June 30, 2022. The increases over prior year were primarily related to an increase in loan expense due to elevated production, managing fraud protection for clients, resumption of normal business activities post COVID-19, and increased 2022 advertising expense resulting from the launch of our newly developed brand positioning and campaign.
Income Tax Expense
Income tax expense was $49.9 million for the three months ended June 30, 2022, representing an effective tax rate of 21.9%, compared to income tax expense of $56.8 million for the three months ended June 30, 2021, representing an effective tax rate of 23.4%. Income tax expense was $92.6 million for the six months ended June 30, 2022, representing an effective tax rate of 21.0%, compared to income tax expense of $106.0 million for the six months ended June 30, 2021, representing an effective tax rate of 22.1%. The effective tax rate is lower for both the three and six month periods ended June 30, 2022, primarily due to an increase in net discrete tax benefits recognized during the current period, including share-based compensation, changes in amounts taxable by jurisdictions, and other accrual adjustments, compared to the respective prior periods.
CREDIT QUALITY, CAPITAL RESOURCES AND LIQUIDITY
Credit Quality
Synovus diligently monitors the quality of its loan portfolio by industry, property type, and geography through a thorough portfolio review process and our analytical risk management tools. At June 30, 2022, credit metrics remained stable and near historical lows with NPAs at 33 bps, NPLs at 26 bps, and total past dues at 14 bps, as a percentage of total loans. Net charge-offs remained low at $16.6 million, or 16 bps annualized, and $35.2 million, or 18 bps annualized, respectively, for the three and six months ended June 30, 2022. We expect net charge-offs to remain relatively stable in the second half 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) | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Non-performing loans | $ | 109,024 | | | $ | 131,042 | | | $ | 161,028 | |
ORE and other assets | 26,759 | | | 27,137 | | | 16,806 | |
Non-performing assets | $ | 135,783 | | | $ | 158,179 | | | $ | 177,834 | |
Total loans | $ | 41,204,780 | | | $ | 39,311,958 | | | $ | 38,236,018 | |
Non-performing loans as a % of total loans | 0.26 | % | | 0.33 | % | | 0.42 | % |
Non-performing assets as a % of total loans, ORE, and specific other assets | 0.33 | | | 0.40 | | | 0.46 | |
Loans 90 days past due and still accruing | $ | 2,251 | | | $ | 6,770 | | | $ | 4,415 | |
As a % of total loans | 0.01 | % | | 0.02 | % | | 0.01 | % |
Total past due loans and still accruing | $ | 56,160 | | | $ | 57,565 | | | $ | 49,321 | |
As a % of total loans | 0.14 | % | | 0.15 | % | | 0.13 | % |
| Net charge-offs, quarter | $ | 16,565 | | | $ | 10.522 | | | $ | 26,546 | |
| Net charge-offs/average loans, quarter | 0.16 | % | | 0.11 | % | | 0.28 | % |
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| Net charge-offs, year-to-date | $ | 35,174 | | | $ | 77,788 | | | $ | 46,750 | |
| Net charge-offs/average loans, year-to-date | 0.18 | % | | 0.20 | % | | 0.24 | % |
| Provision for (reversal of) loan losses, quarter | $ | 9,446 | | | $ | (54,124) | | | $ | (19,960) | |
| Provision for (reversal of) unfunded commitments, quarter | 3,242 | | | (1,086) | | | (4,638) | |
| Provision for (reversal of) credit losses, quarter | $ | 12,688 | | | $ | (55,210) | | | $ | (24,598) | |
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| Provision for (reversal of) loan losses, year-to-date | $ | 15,414 | | | $ | (100,351) | | | $ | (42,278) | |
| Provision for (reversal of) unfunded commitments, year-to-date | $ | 8,674 | | | $ | (5,900) | | | $ | (895) | |
| Provision for (reversal of) credit losses, year-to-date | $ | 24,088 | | | $ | (106,251) | | | $ | (43.173) | |
| Allowance for loan losses | $ | 407,837 | | | $ | 427,597 | | | $ | 516,708 | |
| Reserve for unfunded commitments | 50,559 | | | 41,885 | | | 46,890 | |
| Allowance for credit losses | $ | 458,396 | | | $ | 469,482 | | | $ | 563,598 | |
ACL to loans coverage ratio | 1.11 | % | | 1.19 | % | | 1.47 | % |
ALL to loans coverage ratio | 0.99 | | | 1.09 | | | 1.35 | |
| ACL/NPLs | 420.45 | | | 358.27 | | | 350.00 | |
| ALL/NPLs | 374.08 | | | 326.31 | | | 320.88 | |
| | | | | |
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 June 30, 2022 were 2.2% of total loans, or $914.0 million, down $113.9 million as compared to 2.6% of total loans, or $1.03 billion, at December 31, 2021.
| | | | | | | | | | | |
| Table 9 - Criticized and Classified Loans | |
| (dollars in thousands) | June 30, 2022 | | December 31, 2021 |
| Special mention | $ | 391,596 | | | $ | 489,150 | |
| Substandard | 516,412 | | | 526,117 | |
| Doubtful | 3,520 | | | 10,630 | |
| Loss | 2,500 | | | 2,058 | |
| Criticized and Classified loans | $ | 914,028 | | | $ | 1,027,955 | |
As a % of total loans | 2.2 | % | | 2.6 | % |
| | | |
Provision for (Reversal of) Credit Losses and Allowance for Credit Losses
The provision for credit losses of $12.7 million and $24.1 million for the three and six months ended June 30, 2022 included net charge-offs of $16.6 million and $35.2 million, respectively, and also represented a slower pace of allowance decline for the first half of the year. $3.7 million and $7.5 million in reserves were also added as a result of purchases of $180.2 million and $361.6 million of third-party lending loans for the three and six months ended June 30, 2022.
The ALL of $407.8 million and the reserve for unfunded commitments of $50.6 million, which is recorded in other liabilities, comprise the total ACL of $458.4 million at June 30, 2022. The ACL decreased $11.1 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 1.11% at June 30, 2022 was 8 bps lower compared to December 31, 2021. The reduction in the ACL resulted primarily from continued positive trends in our credit performance, including reduction of NPLs, and quality and mix of new loan originations, mostly offset by an uncertain and generally negative economic outlook.
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| Table 10 - Accruing TDRs by Risk Grade | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
| (dollars in thousands) | Amount | | % | | Amount | | % | | Amount | | % |
| Pass | $ | 59,865 | | | 36.5 | % | | $ | 56,479 | | | 47.1 | % | | $ | 62,686 | | | 50.3 | % |
| Special mention | 31,492 | | | 19.2 | | | 11,387 | | | 9.5 | | | 8,600 | | | 6.9 | |
| Substandard accruing | 72,744 | | | 44.3 | | | 51,938 | | | 43.4 | | | 53,242 | | | 42.8 | |
| Total accruing TDRs | $ | 164,101 | | | 100.0 | % | | $ | 119,804 | | | 100.0 | % | | $ | 124,528 | | | 100.0 | % |
| | | | | | | | | | | |
Troubled Debt Restructurings
Accruing TDRs were $164.1 million at June 30, 2022, up $44.3 million compared to December 31, 2021 primarily due to interest rate modifications granted that were previously accounted for under the CARES Act. Non-accruing TDRs were $18.3 million at June 30, 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 June 30, 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.
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 June 30, 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) | June 30, 2022 | | December 31, 2021 |
| CET1 capital | | | |
| Synovus Financial Corp. | $ | 4,612,070 | | | $ | 4,388,618 | |
| Synovus Bank | 5,158,225 | | | 4,998,698 | |
| Tier 1 risk-based capital | | | |
| Synovus Financial Corp. | 5,149,215 | | | 4,925,763 | |
| Synovus Bank | 5,158,225 | | | 4,998,698 | |
| Total risk-based capital | | | |
| Synovus Financial Corp. | 6,059,074 | | | 5,827,196 | |
| Synovus Bank | 5,754,389 | | | 5,587,757 | |
| CET1 capital ratio | | | |
| Synovus Financial Corp. | 9.46 | % | | 9.50 | % |
| Synovus Bank | 10.59 | | | 10.83 | |
| Tier 1 risk-based capital ratio | | | |
| Synovus Financial Corp. | 10.56 | | | 10.66 | |
| Synovus Bank | 10.59 | | | 10.83 | |
| Total risk-based capital to risk-weighted assets ratio | | | |
| Synovus Financial Corp. | 12.43 | | | 12.61 | |
| Synovus Bank | 11.82 | | | 12.11 | |
| Leverage ratio | | | |
| Synovus Financial Corp. | 9.03 | | | 8.72 | |
| Synovus Bank | 9.06 | | | 8.86 | |
| | | |
At June 30, 2022, Synovus' CET1 ratio was 9.46%, well in excess of regulatory requirements including the capital conservation buffer of 2.5%. The June 30, 2022 CET1 ratio declined 4 bps compared to December 31, 2021, driven by significant growth in risk-weighted assets, largely from loan growth, and return of capital primarily through common stock shareholder dividends, mostly offset by strong capital generation from earnings. Our commitment remains to allocate internally generated capital toward our strategic priorities of client loan growth and a stable dividend while also maintaining a strong and efficient capital position. 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 six months ended June 30, 2022, Synovus repurchased a total of $13.0 million, or 281 thousand shares of its common stock, at an average price of $46.17 per share. Based on our current forecast for loan growth and given the uncertain economic environment, we expect to retain the majority of capital generated through earnings to support core balance sheet growth through the remainder of 2022.
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 June 30, 2022 regulatory capital ratios reflect Synovus' election of the five-year transition provision. At June 30, 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 $98.9 million, or $0.68 per common share, for the six months ended June 30, 2022, compared to $97.7 million, or $0.66 per common share, for the six months ended June 30, 2021. In addition, Synovus declared dividends on its preferred stock of $16.6 million during both the six months ended June 30, 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 June 30, 2022, based on currently pledged collateral, Synovus Bank had access to FHLB funding of $4.73 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 six months ended June 30, 2022 increased $2.09 billion, or 4%, as compared to the first six months of 2021. Average earning assets increased $2.66 billion, or 5%, in the first six months of 2022 compared to the same period in 2021. The increase in average earning assets primarily resulted from a $2.39 billion, or 27%, increase in average investment securities available for sale and a $1.62 billion, or 4%, increase in average total loans, net of unearned income, which included a decrease of $1.98 billion in PPP loans. The increase in average loans was primarily attributable to growth in commercial production and line utilization. These increases were partially offset by a $1.36 billion, or 51%, decrease in average interest-bearing funds held at the Federal Reserve Bank.
Average interest-bearing liabilities decreased $24.2 million for the first six months of 2022 compared to the same period in 2021. The decrease in average interest-bearing liabilities largely resulted from a $1.05 billion, or 27%, decrease in average time deposits, as a result of continued focus on remixing the deposit base, mostly offset by a $945.2 million, or 11%, increase in average interest-bearing demand deposits. Average non-interest-bearing deposits also increased $2.28 billion, or 16%, for the first six months of 2022 compared to the same period in 2021 as these deposits continue to be a meaningful component of our funding strategy and will help manage total funding costs in the rising rate environment.
Net interest income for the six months ended June 30, 2022 was $817.6 million, up $61.9 million, or 8% compared to the same period in 2021, including $10.5 million in PPP fees during 2022 and $45.2 million in 2021. Net interest margin was up 8 bps over the comparable six-month period to 3.11% due primarily to positive re-mixing within earning assets and our asset-
sensitive rate risk position, partially offset by a $34.7 million decline in PPP fees. For the six months ended June 30, 2022, the yield on earning assets was 3.31%, an increase of 2 bps compared to the six months ended June 30, 2021, while the effective cost of funds decreased 6 bps to 0.20%. Compared to the same period in 2021, the yield on loans decreased 13 bps due primarily to the decline in PPP fees, while the yield on investment securities increased 32 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 up $33.1 million, or 8%, driven by loan growth and higher rates. Net interest margin for the second quarter was 3.22%, which was up 22 bps compared to the first quarter of 2022 aided by higher interest rates, lower cash balances, and managed deposit repricing. The second quarter of 2022 included $3.7 million recognized for associated PPP fees versus $6.9 million in the first quarter of 2022 and average PPP loan balances of $147.9 million versus $282.4 million in the first quarter of 2022. For the second quarter of 2022, the yield on earning assets increased 25 bps, while the effective cost of funds increased 3 bps compared to the first quarter of 2022. We continue to expect that net interest income and net interest margin will increase from second quarter 2022 levels as the benefits of higher short-term and long-term market interest rates are realized.
Net Interest Income and Rate/Volume Analysis
The following tables set forth the major components of net interest income and the related annualized yields and rates for the three and six months ended June 30, 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 - Quarter-to-Date Net Interest Income and Rate/Volume Analysis | | | | | | |
| Three Months Ended June 30, | | 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 | $ | 11,153,091 | | | $ | 9,184,691 | | | $ | 50,312 | | | $ | 33,298 | | | 1.81 | % | | 1.45 | % | | $ | 7,116 | | | $ | 9,898 | | | $ | 17,014 | |
| Trading account assets | 11,987 | | | 2,831 | | | 73 | | | 8 | | | 2.44 | | | 1.15 | | | 26 | | | 39 | | | 65 | |
Commercial loans (1) (2) | 31,870,387 | | | 29,936,751 | | | 308,442 | | | 287,677 | | | 3.88 | | | 3.85 | | | 18,560 | | | 2,205 | | | 20,765 | |
Consumer loans (1) | 8,720,488 | | | 8,559,726 | | | 83,826 | | | 84,402 | | | 3.86 | | | 3.94 | | | 1,579 | | | (2,155) | | | (576) | |
| Allowance for loan losses | (415,372) | | | (561,242) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Loans, net | 40,175,503 | | | 37,935,235 | | | 392,268 | | | 372,079 | | | 3.92 | | | 3.93 | | | 20,139 | | | 50 | | | 20,189 | |
| Mortgage loans held for sale | 85,299 | | | 242,940 | | | 921 | | | 1,859 | | | 4.32 | | | 3.06 | | | (1,203) | | | 265 | | | (938) | |
| Other loans held for sale | 725,762 | | | 615,301 | | | 7,678 | | | 4,750 | | | 4.19 | | | 3.05 | | | 840 | | | 2,088 | | | 2,928 | |
Other earning assets(3) | 813,028 | | | 2,705,819 | | | 1,660 | | | 740 | | | 0.81 | | | 0.11 | | | (472) | | | 1,392 | | | 920 | |
| Federal Home Loan Bank and Federal Reserve Bank stock | 179,837 | | | 159,340 | | | 1,820 | | | 800 | | | 4.05 | | | 2.01 | | | 103 | | | 917 | | | 1,020 | |
| Total interest earning assets | 53,144,507 | | | 50,846,157 | | | $ | 454,732 | | | $ | 413,534 | | | 3.43 | % | | 3.26 | % | | 26,549 | | | 14,649 | | | 41,198 | |
| Cash and due from banks | 538,647 | | | 571,561 | | | | | | | | | | | | | | | |
| Premises, equipment, and software, net | 385,457 | | | 452,652 | | | | | | | | | | | | | | | |
| Other real estate | 11,439 | | | 1,406 | | | | | | | | | | | | | | | |
| Cash surrender value of bank-owned life insurance | 1,077,231 | | | 1,055,663 | | | | | | | | | | | | | | | |
Other assets(4) | 1,379,659 | | | 2,090,332 | | | | | | | | | | | | | | | |
| Total assets | $ | 56,536,940 | | | $ | 55,017,771 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest-bearing demand deposits | $ | 9,513,334 | | | $ | 8,601,262 | | | $ | 3,598 | | | $ | 2,441 | | | 0.15 | % | | 0.11 | % | | 250 | | | 907 | | | 1,157 | |
| Money market accounts | 15,328,395 | | | 15,476,262 | | | 6,850 | | | 7,181 | | | 0.18 | | | 0.19 | | | (70) | | | (261) | | | (331) | |
| Savings deposits | 1,506,195 | | | 1,333,297 | | | 72 | | | 55 | | | 0.02 | | | 0.02 | | | 9 | | | 8 | | | 17 | |
| Time deposits | 2,829,684 | | | 3,792,382 | | | 1,688 | | | 4,894 | | | 0.24 | | | 0.52 | | | (1,248) | | | (1,958) | | | (3,206) | |
| Brokered deposits | 2,878,536 | | | 3,057,607 | | | 6,293 | | | 4,799 | | | 0.88 | | | 0.63 | | | (281) | | | 1,775 | | | 1,494 | |
| Federal funds purchased and securities sold under repurchase agreements | 246,737 | | | 204,053 | | | 219 | | | 35 | | | 0.35 | | | 0.07 | | | 7 | | | 177 | | | 184 | |
| Other short-term borrowings | 478,469 | | | — | | | 896 | | | — | | | 0.74 | | | — | | | 896 | | | — | | | 896 | |
| Long-term debt | 878,413 | | | 1,203,038 | | | 8,768 | | | 11,478 | | | 3.99 | | | 3.82 | | | (3,092) | | | 382 | | | (2,710) | |
| Total interest-bearing liabilities | 33,659,763 | | | 33,667,901 | | | $ | 28,384 | | | $ | 30,883 | | | 0.33 | % | | 0.36 | % | | (3,529) | | | 1,030 | | | (2,499) | |
| Non-interest-bearing deposits | 16,959,850 | | | 15,088,836 | | | | | | | | | | | | | | | |
| Other liabilities | 1,247,646 | | | 1,091,321 | | | | | | | | | | | | | | | |
| Shareholders' equity | 4,669,681 | | | 5,169,713 | | | | | | | | | | | | | | | |
| Total liabilities and equity | $ | 56,536,940 | | | $ | 55,017,771 | | | | | | | | | | | | | | | |
| Interest rate spread: | | | | | | | | | 3.10 | | | 2.90 | | | | | | | |
Net interest income - TE/margin(5) | | | | | $ | 426,348 | | | $ | 382,651 | | | 3.22 | % | | 3.02 | % | | $ | 30,078 | | | $ | 13,619 | | | $ | 43,697 | |
| Taxable equivalent adjustment | | | | | 960 | | | 791 | | | | | | | | | | | |
| Net interest income, actual | | | | | $ | 425,388 | | | $ | 381,860 | | | | | | | | | | | |
(1) Average loans are shown net of unearned income. NPLs are included. Interest income includes fees as follows: 2022 - $13.0 million, 2021 - $28.5 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 $(923.1) million and $37.0 million for the three months ended June 30, 2022 and 2021, respectively.
(5) The net interest margin is calculated by dividing annualized net interest income - TE by average total interest earnings assets.
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| Table 13 - Year-to-Date Net Interest Income and Rate/Volume Analysis |
| Six Months Ended June 30, | | 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 | $ | 11,206,150 | | | $ | 8,813,191 | | | $ | 97,562 | | | $ | 62,755 | | | 1.74 | % | | 1.42 | % | | $ | 16,850 | | | $ | 17,957 | | | $ | 34,807 | |
| Trading account assets | 10,540 | | | 2,947 | | | 112 | | | 30 | | | 2.13 | | | 2.01 | | | 76 | | | 6 | | | 82 | |
Commercial loans (1) (2) | 31,316,646 | | | 29,930,734 | | | 589,029 | | | 578,877 | | | 3.79 | | | 3.90 | | | 26,803 | | | (16,651) | | | 10,152 | |
Consumer loans (1) | 8,657,598 | | | 8,424,423 | | | 165,194 | | | 166,466 | | | 3.83 | | | 3.97 | | | 4,590 | | | (5,862) | | | (1,272) | |
| Allowance for loan losses | (419,639) | | | (580,450) | | | | | | | | | | | | | | | |
| Loans, net | 39,554,605 | | | 37,774,707 | | | 754,223 | | | 745,343 | | | 3.84 | | | 3.97 | | | 31,393 | | | (22,513) | | | 8,880 | |
| Mortgage loans held for sale | 94,542 | | | 244,940 | | | 1,803 | | | 3,516 | | | 3.81 | | | 2.87 | | | (2,140) | | | 427 | | | (1,713) | |
| Other loans held for sale | 661,768 | | | 637,901 | | | 12,978 | | | 9,555 | | | 3.90 | | | 2.98 | | | 353 | | | 3,070 | | | 3,423 | |
Other earning assets(3) | 1,363,223 | | | 2,771,576 | | | 2,475 | | | 1,458 | | | 0.36 | | | 0.10 | | | (629) | | | 1,646 | | | 1,017 | |
| Federal Home Loan Bank and Federal Reserve Bank stock | 170,006 | | | 158,503 | | | 2,505 | | | 1,468 | | | 2.95 | | | 1.85 | | | 106 | | | 931 | | | 1,037 | |
| Total interest earning assets | 53,060,834 | | | 50,403,765 | | | 871,658 | | | 824,125 | | | 3.31 | | | 3.29 | | | 46,009 | | | 1,524 | | | 47,533 | |
| Cash and due from banks | 543,638 | | | 545,295 | | | | | | | | | | | | | | | |
| Premises, equipment, and software, net | 392,079 | | | 456,537 | | | | | | | | | | | | | | | |
| Other real estate | 11,598 | | | 1,613 | | | | | | | | | | | | | | | |
| Cash surrender value of bank-owned life insurance | 1,074,076 | | | 1,053,603 | | | | | | | | | | | | | | | |
Other assets(4) | 1,613,313 | | | 2,144,615 | | | | | | | | | | | | | | | |
| Total assets | $ | 56,695,538 | | | $ | 54,605,428 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
| Interest-bearing demand deposits | $ | 9,531,330 | | | $ | 8,586,092 | | | 5,970 | | | 5,414 | | | 0.13 | | | 0.13 | | | 609 | | | (53) | | | 556 | |
| Money market accounts | 15,685,030 | | | 15,412,941 | | | 12,199 | | | 15,911 | | | 0.16 | | | 0.21 | | | 283 | | | (3,995) | | | (3,712) | |
| Savings deposits | 1,483,547 | | | 1,276,608 | | | 139 | | | 105 | | | 0.02 | | | 0.02 | | | 20 | | | 14 | | | 34 | |
| Time deposits | 2,919,242 | | | 3,972,840 | | | 3,826 | | | 11,936 | | | 0.26 | | | 0.61 | | | (3,187) | | | (4,923) | | | (8,110) | |
| Brokered deposits | 2,833,580 | | | 3,212,608 | | | 10,026 | | | 11,023 | | | 0.71 | | | 0.69 | | | (1,297) | | | 300 | | | (997) | |
| Federal funds purchased and securities sold under repurchase agreements | 220,689 | | | 206,735 | | | 230 | | | 69 | | | 0.21 | | | 0.07 | | | 5 | | | 156 | | | 161 | |
| Other short-term borrowings | 242,870 | | | — | | | 896 | | | — | | | 0.73 | | | — | | | 896 | | | — | | | 896 | |
| Long-term debt | 930,131 | | | 1,202,827 | | | 18,913 | | | 22,386 | | | 4.07 | | | 3.73 | | | (5,044) | | | 1,571 | | | (3,473) | |
| Total interest-bearing liabilities | 33,846,419 | | | 33,870,651 | | | 52,199 | | | 66,844 | | | 0.31 | | | 0.39 | | | (7,715) | | | (6,930) | | | (14,645) | |
| Non-interest-bearing deposits | 16,727,040 | | | 14,443,645 | | | | | | | | | | | | | | | |
| Other liabilities | 1,196,375 | | | 1,138,073 | | | | | | | | | | | | | | | |
| Shareholders' equity | 4,925,704 | | | 5,153,059 | | | | | | | | | | | | | | | |
| Total liabilities and equity | $ | 56,695,538 | | | $ | 54,605,428 | | | | | | | | | | | | | | | |
| Interest rate spread: | | | | | | | | | 3.00 | % | | 2.90 | % | | | | | | |
Net interest income - TE/margin(5) | | | | | $ | 819,459 | | | $ | 757,281 | | | 3.11 | % | | 3.03 | % | | $ | 53,724 | | | $ | 8,454 | | | $ | 62,178 | |
| Taxable equivalent adjustment | | | | | 1,824 | | | 1,565 | | | | | | | | | | | |
| Net interest income, actual | | | | | $ | 817,635 | | | $ | 755,716 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(1) Average loans are shown net of unearned income. NPLs are included. Interest income includes fees as follows: 2022 - $33.7 million, 2021 - $60.4 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 $(587.1) million and $76.3 million for the six months ended June 30, 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 targeted range of 1.50% to 1.75% as of June 30, 2022 and the prime rate of 4.75% as of June 30, 2022. 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 June 30, 2022, with comparable information for December 31, 2021.
| | | | | | | | | | | | | | |
| Table 14 - 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) | | June 30, 2022 | | December 31, 2021 |
| +200 | | 11.0% | | 14.5% |
| +100 | | 5.5% | | 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 I - Item 1A. Risk Factors" of Synovus' 2021 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 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 June 30, 2022, the Company had approximately $13 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 available to common shareholders; adjusted net income per common share, diluted; adjusted return on average assets; adjusted return on average common equity; return on average tangible 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 available to common shareholders; 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 adjustments 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 available to common shareholders, 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. Return on average tangible common equity and 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 15 - Reconciliation of Non-GAAP Financial Measures |
| Three Months Ended | | Six Months Ended |
| (in thousands, except per share data) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Adjusted non-interest revenue | | | | | | | |
| Total non-interest revenue | $ | 97,266 | | | $ | 107,087 | | | $ | 202,600 | | | $ | 218,043 | |
| Subtract/add: Investment securities (gains) losses, net | — | | | — | | | — | | | 1,990 | |
| Subtract/add: Fair value adjustment on non-qualified deferred compensation | 3,240 | | | (1,126) | | | 4,535 | | | (1,918) | |
| Adjusted non-interest revenue | $ | 100,506 | | | $ | 105,961 | | | $ | 207,135 | | | $ | 218,115 | |
| | | | | | | |
| Adjusted non-interest expense | | | | | | | |
| Total non-interest expense | $ | 282,051 | | | $ | 270,531 | | | $ | 554,501 | | | $ | 537,665 | |
| Subtract: Earnout liability adjustments | — | | | (750) | | | — | | | (750) | |
| Subtract/add: Restructuring charges | 1,850 | | | (415) | | | 8,274 | | | (946) | |
| Subtract: Valuation adjustment to Visa derivative | (3,500) | | | — | | | (3,500) | | | — | |
| Subtract: Loss on early extinguishment of debt | — | | | — | | | (677) | | | — | |
| Subtract/add: Fair value adjustment on non-qualified deferred compensation | 3,240 | | | (1,126) | | | 4,535 | | | (1,918) | |
| Adjusted non-interest expense | $ | 283,641 | | | $ | 268,240 | | | $ | 563,133 | | | $ | 534,051 | |
| | | | | | | |
| Adjusted total revenue and adjusted tangible efficiency ratio | | | | | | | |
| Adjusted non-interest expense | $ | 283,641 | | | $ | 268,240 | | | $ | 563,133 | | | $ | 534,051 | |
| Subtract: Amortization of intangibles | (2,118) | | | (2,379) | | | (4,236) | | | (4,758) | |
| Adjusted tangible non-interest expense | $ | 281,523 | | | $ | 265,861 | | | $ | 558,897 | | | $ | 529,293 | |
| | | | | | | |
| Net interest income | $ | 425,388 | | | $ | 381,860 | | | $ | 817,635 | | | $ | 755,716 | |
| Add: Tax equivalent adjustment | 960 | | | 791 | | | 1,824 | | | 1,565 | |
| Add: Total non-interest revenue | 97,266 | | | 107,087 | | | 202,600 | | | 218,043 | |
| Total TE revenue | $ | 523,614 | | | $ | 489,738 | | | $ | 1,022,059 | | | $ | 975,324 | |
| Subtract/add: Investment securities (gains) losses, net | — | | | — | | | — | | | 1,990 | |
| Subtract/add: Fair value adjustment on non-qualified deferred compensation | 3,240 | | | (1,126) | | | 4,535 | | | (1,918) | |
| Adjusted total revenue | $ | 526,854 | | | $ | 488,612 | | | $ | 1,026,594 | | | $ | 975,396 | |
| Efficiency ratio-TE | 53.87 | % | | 55.24 | % | | 54.25 | % | | 55.13 | % |
| Adjusted tangible efficiency ratio | 53.43 | | | 54.41 | | | 54.44 | | | 54.26 | |
| | | | | | | |
| Adjusted net income available to common shareholders and adjusted diluted earnings per share | | | | | | | |
| Net income available to common shareholders | $ | 169,761 | | | $ | 177,909 | | | $ | 332,507 | | | $ | 356,711 | |
| Add: Earnout liability adjustments | — | | | 750 | | | — | | | 750 | |
| Add/subtract: Restructuring charges | (1,850) | | | 415 | | | (8,274) | | | 946 | |
| Add: Valuation adjustment to Visa derivative | 3,500 | | | — | | | 3,500 | | | — | |
| Add: Loss on early extinguishment of debt | — | | | — | | | 677 | | | — | |
| Subtract/add: Investment securities (gains) losses, net | — | | | — | | | — | | | 1,990 | |
Add/subtract: Tax effect of adjustments (1) | (393) | | | (105) | | | 976 | | | (743) | |
| Adjusted net income available to common shareholders | $ | 171,018 | | | $ | 178,969 | | | $ | 329,386 | | | $ | 359,654 | |
| Weighted average common shares outstanding, diluted | 146,315 | | | 149,747 | | | 146,489 | | | 149,764 | |
| Net income per common share, diluted | $ | 1.16 | | | $ | 1.19 | | | $ | 2.27 | | | $ | 2.38 | |
| Adjusted net income per common share, diluted | 1.17 | | | 1.20 | | | 2.25 | | | 2.40 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| Table 15 - Reconciliation of Non-GAAP Financial Measures, continued |
| Three Months Ended | | Six Months Ended |
| (dollars in thousands) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Adjusted return on average assets (annualized) | | | | | | | |
| Net income | $ | 178,052 | | | $ | 186,200 | | | $ | 349,088 | | | $ | 373,292 | |
| Add: Earnout liability adjustments | — | | | 750 | | | — | | | 750 | |
| Add/subtract: Restructuring charges | (1,850) | | | 415 | | | (8,274) | | | 946 | |
| Add: Valuation adjustment to Visa derivative | 3,500 | | | — | | | 3,500 | | | — | |
| Add: Loss on early extinguishment of debt | — | | | — | | | 677 | | | — | |
| Subtract/add: Investment securities (gains) losses, net | — | | | — | | | — | | | 1,990 | |
Add/subtract: Tax effect of adjustments (1) | (393) | | | (105) | | | 976 | | | (743) | |
| Adjusted net income | $ | 179,309 | | | $ | 187,260 | | | $ | 345,967 | | | $ | 376,235 | |
| Net income annualized | 714,165 | | | 746,846 | | | 703,962 | | | 752,771 | |
| Adjusted net income annualized | 719,206 | | | 751,098 | | | 697,668 | | | 758,706 | |
| Total average assets | 56,536,940 | | | 55,017,771 | | | 56,695,538 | | | 54,605,428 | |
| Return on average assets (annualized) | 1.26 | % | | 1.36 | % | | 1.24 | % | | 1.38 | % |
| Adjusted return on average assets (annualized) | 1.27 | | | 1.37 | | | 1.23 | | | 1.39 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| (dollars in thousands) | June 30, 2022 | | March 31, 2022 | | June 30, 2021 |
| Adjusted return on average common equity, return on average tangible common equity, and adjusted return on average tangible common equity (annualized) | | | | | |
| Net income available to common shareholders | $ | 169,761 | | | $ | 162,746 | | | $ | 177,909 | |
| Add: Earnout liability adjustments | — | | | — | | | 750 | |
| Add/subtract: Restructuring charges | (1,850) | | | (6,424) | | | 415 | |
| Add: Valuation adjustment to Visa derivative | 3,500 | | | — | | | — | |
| Add: Loss on early extinguishment of debt | — | | | 677 | | | — | |
| | | | | |
Add/subtract: Tax effect of adjustments (1) | (393) | | | 1,369 | | | (105) | |
| Adjusted net income available to common shareholders | $ | 171,018 | | | $ | 158,368 | | | $ | 178,969 | |
| | | | | |
| Adjusted net income available to common shareholders annualized | $ | 685,951 | | | $ | 642,270 | | | $ | 717,843 | |
| Add: Amortization of intangibles, annualized net of tax | 6,471 | | | 6,543 | | | 7,128 | |
| Adjusted net income available to common shareholders excluding amortization of intangibles annualized | $ | 692,422 | | | $ | 648,813 | | | $ | 724,971 | |
| | | | | |
| Net income available to common shareholders annualized | $ | 680,910 | | | $ | 660,025 | | | $ | 713,591 | |
| Add: Amortization of intangibles, annualized net of tax | 6,471 | | | 6,543 | | | 7,128 | |
| Net income available to common shareholders excluding amortization of intangibles | $ | 687,381 | | | $ | 666,568 | | | $ | 720,719 | |
| | | | | |
| Total average shareholders' equity less preferred stock | $ | 4,132,536 | | | $ | 4,647,426 | | | $ | 4,632,568 | |
| Subtract: Goodwill | (452,390) | | | (452,390) | | | (452,390) | |
| Subtract: Other intangible assets, net | (32,387) | | | (34,576) | | | (41,399) | |
| Total average tangible shareholders' equity less preferred stock | $ | 3,647,759 | | | $ | 4,160,460 | | | $ | 4,138,779 | |
| Return on average common equity (annualized) | 16.48 | % | | 14.20 | % | | 15.40 | % |
| Adjusted return on average common equity (annualized) | 16.60 | | | 13.82 | | | 15.50 | |
| Return on average tangible common equity (annualized) | 18.84 | | | 16.02 | | | 17.41 | |
| Adjusted return on average tangible common equity (annualized) | 18.98 | | | 15.59 | | | 17.52 | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Table 15 - Reconciliation of Non-GAAP Financial Measures, continued | | | | | | |
| (dollars in thousands) | June 30, 2022 | | March 31, 2022 | | | | | | December 31, 2021 | | June 30, 2021 |
| Tangible common equity ratio | | | | | | | | | | | |
| Total assets | $ | 57,382,745 | | | $ | 56,419,549 | | | | | | | $ | 57,317,226 | | | $ | 54,938,659 | |
| Subtract: Goodwill | (452,390) | | | (452,390) | | | | | | | (452,390) | | | (452,390) | |
| Subtract: Other intangible assets, net | (31,360) | | | (33,478) | | | | | | | (35,596) | | | (40,354) | |
| Tangible assets | $ | 56,898,995 | | | $ | 55,933,681 | | | | | | | $ | 56,829,240 | | | $ | 54,445,915 | |
| Total shareholders' equity | $ | 4,584,438 | | | $ | 4,824,635 | | | | | | | $ | 5,296,800 | | | $ | 5,237,714 | |
| Subtract: Goodwill | (452,390) | | | (452,390) | | | | | | | (452,390) | | | (452,390) | |
| Subtract: Other intangible assets, net | (31,360) | | | (33,478) | | | | | | | (35,596) | | | (40,354) | |
| Subtract: Preferred stock, no par value | (537,145) | | | (537,145) | | | | | | | (537,145) | | | (537,145) | |
| Tangible common equity | $ | 3,563,543 | | | $ | 3,801,622 | | | | | | | $ | 4,271,669 | | | $ | 4,207,825 | |
| Total shareholders' equity to total assets ratio | 7.99 | % | | 8.55 | % | | | | | | 9.24 | % | | 9.53 | % |
| Tangible common equity ratio | 6.26 | | | 6.80 | | | | | | | 7.52 | | | 7.73 | |
| | | | | | | | | | | |
(1) An assumed marginal tax rate of 23.8% for 2022 and 25.3% for 2021 was applied. |