Participants
Jennifer Demba; Investor Relations; Synovus Financial Corp
Kevin Blair; Chairman of the Board, President, Chief Executive Officer; Synovus Financial Corp
Andrew Gregory; Chief Financial Officer, Executive Vice President; Synovus Financial Corp
Robert Derrick; Executive Vice President and Chief Credit Officer; Synovus Financial Corp
Brandon King; Analyst; Truist Securities
Jared Shaw; Analyst; Barclays
Timur Braziler; Analyst; Wells Fargo
Ebrahim Poonawala; Analyst; Bank of America Merrill Lynch
Christopher Marinac; Analyst; Janney Montgomery Scott
Anthony Elian; Analyst; JP Morgan
Samuel Varga; Analyst; UBS
Stephen Scouten; Analyst; Piper Sandler & Co.
Michael Rose; Analyst; Raymond James & Assoc., Inc.
Gary Tenner; Analyst; D.A. Davidson
Catherine Mealor; Analyst; Keefe, Bruyette & Woods
Russell Gunther; Analyst; Stephens
Presentation
Operator
Good morning, and welcome to the Synovus third-quarter 2024 earnings call. (Operator Instructions) Please note this event is being recorded.
I’ll now turn the call over to Jennifer Demba, Head of Investor Relations. Please go ahead.
Jennifer Demba
Thank you, and good morning. During today’s call, we will reference the slides and press release that are available within the Investor Relations section of our website, synovus.com. Kevin Blair, Chairman, President and Chief Executive Officer, will begin the call. He will be followed by Jamie Gregory, Chief Financial Officer, and we will be available to answer your questions at the end of the call. Our comments include forward-looking statements.
These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements because of new information, early developments or otherwise, except as may be required by law.
During the call, we will reference non-GAAP financial measures related to the company’s performance. You may see the reconciliation of these measures in the appendix to our presentation.
And now Kevin Blair will provide an overview of the quarter.
Kevin Blair
Thank you, Jennifer. Good morning, and welcome to our third-quarter 2024 earnings call. Before I begin our call, I want to take a moment to acknowledge the profound impact of Hurricane Helene and Milton on our community. The devastation has been a mess, affecting countless lives and businesses. However, in the face of such adversity, we have witnessed incredible resilience and solidarity.
Our communities are coming together, determined to recover and rebuild stronger than ever. At Synovus, we are committed to supporting these efforts and playing an active role in the recovery process.
Together, we will overcome these challenges and build a brighter future. Now let’s review third quarter results. Synovus reported GAAP earnings per share of $1.18, which included an $8.7 million Visa valuation adjustment. We reported adjusted diluted EPS of $1.23, which increased 6% sequentially, primarily driven by stronger net interest income, coupled with lower provision for credit losses and stable adjusted noninterest expense.
The most notable financial headlines for the quarter included a sequentially higher net interest margin year-over-year adjusted revenue growth of over 2%, driven by a 15% jump in adjusted noninterest revenue coupled with an adjusted noninterest expense decline of 1%. Finally, our net charge-offs improved again in the third quarter, down to 25 basis points, and our liquidity and capital positions remain quite strong. Synovus continues to demonstrate progress in various key initiatives. We are steadily attracting talent in various client-facing and corporate services roles.
Noninterest revenue growth remained strong, and lending pipelines and production are returning to more elevated levels. Lastly, I’m extremely pleased with the continued progress we are delivering and strengthening our balance sheet which positions us well as we close out 2024 and pivot towards a more constructive growth environment in 2025. Now let’s turn to slides 3, 4 and 5 for some more specifics on the financial highlights for the quarter.
Net interest income increased 1% from the second quarter as the net interest margin expanded 2 basis points to 3.22%. Funded loan production rose 8% sequentially and period-end loans were up $27 million. We continue to generate healthy and consistent loan growth in the middle market, CIB and specialty commercial units while line utilization was stable.
However, loan paydown and payoff activity and strategic rationalization and nonrelationship credit provided a headwind to third quarter outstanding growth. Core deposit growth of 1% was attributable to increases in money market and operating deposits. Noninterest-bearing deposits were more stable in the third quarter with a decline of $94 million sequentially. Furthermore, we reduced broker deposits for the fifth consecutive quarter.
Our team remains very focused on accelerating core funding generation through sales activities and product expansion while continuing to manage through an overall diminishment cycle. Adjusted noninterest revenue declined 4% from the prior quarter, primarily from lower capital markets income.
On a year-over-year basis, adjusted noninterest revenue increased significantly, up 15% as there was sharp growth in commercial sponsorship income from expansion of the card sponsorship business and our partnership with GreenSky. Capital Markets and Treasury and Payment Solutions fees also contributed to a strong year-over-year growth.
Adjusted noninterest expense was relatively flat quarter-over-quarter and down 1% on a year-over-year basis. Our 2023 cost initiatives as well as ongoing diligence have contained overall expense growth year-over-year. We have also maintained a level of strategic investments that position Synovus well from a competitive standpoint in order to drive long-term shareholder value. On the asset quality front, as expected, net charge-offs were 25 basis points compared to 32 basis points in the second quarter, while the allowance for credit losses were relatively stable at 1.24%.
Lastly, we further bolstered our common equity Tier 1 ratio in the third quarter through solid earnings accretion while still completing about $100 million of opportunistic share repurchases. Common equity Tier 1 levels are at their highest in 9 years at 10.65% and currently sit just above our stated range of 10% to 10.5%.
Our successes are anchored by our team members and their dedication and passion for delivering the Synovus purpose on a daily basis. Financially, this was a strong quarter of execution where we posted an adjusted return on average assets of 1.3% and an adjusted return on tangible common equity of 17.1%, while managing down our adjusted tangible efficiency ratio to 53%.
Moreover, we continue to deliver in areas that have presented broader risk concerns surrounding the industry by lowering credit costs, limiting fraud losses reducing wholesale funding and delivering deposit betas during the easing cycle, all while maintaining elevated levels of capital. We are demonstrating great progress and momentum that will continue into the fourth quarter and beyond.
And now I’ll turn it over to Jamie to cover the third quarter results in greater detail. Jamie?
Andrew Gregory
Thank you, Kevin. Moving to slide 6. Period-end loans grew $27 million from the prior quarter. Loan production, which was up 8% sequentially and 6% year-over-year has started to show signs of a rebound within both our CRE and C&I segments. Line utilization was essentially stable. However, increased commercial loan production was offset by commercial real estate payoffs, consumer softness and continued nonrelationship portfolio rationalization.
Strong year-to-date growth in strategic lending verticals such as middle market, Corporate and Investment Banking and Specialty Lines has been essentially offset by paydowns and payoffs and nonrelationship loan portfolio rationalization. We generated $149 million in sequential growth and $604 million or 5% year-to-date growth in middle market commercial, CIB and specialty lines. This was offset by a $212 million year-to-date decline in institutional CRE and senior housing loans from market-related activity.
We continue to strategically reduce our nonrelationship lending within our national accounts portfolio as well as third-party consumer loans, further positioning our balance sheet for core client growth. These balances were down $78 million in the third quarter and $427 million year-to-date. Overall, we estimate loans will remain stable in the fourth quarter, driven by continued growth in our key commercial segments, offset by CRE and senior housing payoff and paydown activity. As we look into 2025, we expect the market related and strategic declines to abate, positioning us well to return to a growth posture that is core to our value proposition.
Turning to slide 7. Period-end core deposit balances rose $295 million or 1% on a linked quarter basis. Noninterest-bearing deposit balances fell $94 million from the prior quarter with balances generally exhibiting more stability throughout the quarter relative to the headwinds experienced over the last year. There was growth in money market and operating accounts partially offset by a decline in noninterest-bearing savings and time deposits.
Meanwhile, broker deposits declined $297 million or 5% from the second quarter which was the fifth consecutive quarter of contraction. Deposit costs rose 4 basis points from the prior quarter to 2.72%, primarily as a result of mix shift and the residual impact of higher average noninterest-bearing deposit balances in the second quarter.
As we ended the quarter, we saw deposit rates begin to decline, led by reductions in rates on higher beta deposits as well as time deposits. As we look to the fourth quarter, we expect deposit costs to generally follow the 40% to 45% beta that we have communicated previously.
It is worth highlighting that approximately 2/3 of our core time deposit portfolio matures within the next 5 months. In terms of deposit balance expectations for the fourth quarter, we expect broad-based deposit growth across our business segments, supported by seasonal public funds tailwind. Moving to slide 8. Net interest income was $441 million in the third quarter, an increase of 1% quarter-over-quarter, while the net interest margin was 2 basis points higher at 3.22%.
The third quarter NIM benefited from various drivers, which included a full quarter impact of the securities repositioning in May and a modest improvement in asset yields which more than offset the impact of the aforementioned negative deposit mix shifts and other lesser factors.
Net interest income benefited from the slightly wider net interest margin with lower average loan balances during the quarter, serving as a modest headwind. As we look forward to the fourth quarter, we expect that in isolation continued FOMC easing will serve as a modest headwind to the net interest margin, largely as a result of the repricing lead lag impacts we have outlined previously.
However, opposite that we expect fixed rate asset repricing, including $750 million in loan hedges maturing in the fourth quarter to help support a relatively stable fourth quarter net interest margin. Kevin will provide further detail on our updated guidance momentary. slide 9 shows total reported noninterest revenue of $124 million. Adjusted noninterest revenue declined 4% from the previous quarter and increased 15% year-over-year.
When looking at the year ago quarter, core banking fees increased 6%, supported by growth in Treasury and Payment Solutions while capital markets fees increased 29%, and commercial sponsorship income rose sharply. The sequential decline was primarily attributable to a 32% decline in capital markets fees which were elevated in the second quarter.
Wealth management income rose 1% from the prior quarter, while core banking fees were relatively flat. We continue to demonstrate strong noninterest revenue momentum relative to peers by investing in solutions that deepen client relationships and provide healthy growth in areas such as treasury and payment solutions Capital Markets and Wealth Management.
Moving to expense. slide 10 highlights our ongoing operating cost discipline. Reported noninterest expense was $314 million in the third quarter which included an $8.7 million Visa valuation adjustment. Adjusted noninterest expense was relatively stable sequentially and 1% lower from the year ago period. Employment expense increased 2% from the second quarter, which was offset by a 6% drop in other expense primarily attributable to lower legal and other credit-related costs. Employment expense had a modest increase of 1% year-over-year. The increased costs associated with merit and benefit programs were mitigated by our efficiency efforts, leading to a 4% year-over-year decline in head count.
Occupancy and equipment expense increased 3% as a result of ongoing technology and infrastructure investments. These items were more than offset by a 9% drop in other expense as a result of lower FDIC expense and operational losses relative to the same period last year. Importantly, we will remain proactive with disciplined expense management in this growth constrained environment.
Moving to slide 11 on credit quality. Provision for credit losses declined 11% from the second quarter to $23 million. Our allowance for credit losses ended the third quarter at $535 million or 1.24%, which is relatively unchanged from the prior period. Driven by improved overall performance, offset by individually analyzed loans.
Our preliminary analysis of the impact of Hurricane Helene indicates that a specific provision for credit losses is not necessary at this time. We will continue to analyze the potential loss impact of both Hurricane Helene and Milton. Net charge-offs in the third quarter were $27 million or 25 basis points annualized compared to 32 basis points annualized in the second quarter.
Nonperforming loans increased $57 million and are now 0.73% of loans, up from 0.59% in the second quarter. Primarily from a single office loan relationship. The criticized and classified ratio rose slightly to 3.9% and remains at a very manageable level. We maintain a high degree of confidence in the strength and quality of our loan portfolio, and we will continue to reduce our nonrelationship credits and manage the portfolio with a heightened level of diligence in this more uncertain macroeconomic environment.
As seen on slide 12, our capital position was stable in the third quarter. With the preliminary common equity Tier 1 ratio reaching 10.65% and total risk-based capital now at 13.62%. Another strong quarter for core operating performance serves as a continued tailwind to our capital position, which alongside a relatively stable balance sheet, supported us purchasing approximately $100 million in common shares within the quarter, while maintaining relatively stable capital ratios.
As a reminder, our focus remains on prioritizing the deployment of our balance sheet and capital position for core client growth. However, amid the current environment, we have used share repurchases as a complement to effectively manage within our capital management framework. As we look to the remainder of the year, we will maintain this disciplined approach, which acknowledges the uncertainty in the current environment and ensure sufficient capital for expected client growth.
Our remaining share repurchase authorization in 2024 is approximately $80 million, which we expect will be fully utilized by year-end.
I’ll now turn it back to Kevin to discuss our fourth quarter 2024 guidance.
Kevin Blair
Thank you, Jamie. I’ll now continue with our updated guidance for the fourth quarter of 2024. Based on year-to-date results, our current pipeline and expected payoff activity, period-end loans are forecasted to be relatively flat in the fourth quarter and be down 1% to flat for the full year of 2024.
Growth in the fourth quarter will continue to be driven by middle market, corporate and investment banking and specialty lending lines. Our expectations for core deposit growth remained within the 1% to 3% range in the fourth quarter and up 2% to 4% for the full year, aided by seasonal public funds tailwinds and new core funding growth initiatives.
Our outlook now points to adjusted revenue of $560 million to $575 million in the fourth quarter and a range of negative 2.5% to negative 2% for the full year. Importantly, our adjusted revenue guidance now assumes a larger amount of rate cuts than our previous guidance with 50 basis points of cumulative rate cuts occurring in the fourth quarter.
Net interest margin should be relatively stable in the fourth quarter as a result of lower deposit costs, combined with fixed rate asset repricing and our hedge maturity. Adjusted noninterest revenue growth is forecasted in the mid-single-digit percentage range for the year. Our capital markets fee pipeline is building, and we continue to execute on core growth in treasury and payment solutions.
We remain very focused on disciplined expense control. We anticipate our adjusted noninterest expense will be between $305 million and $310 million in the fourth quarter, excluding the FDIC special assessment, up approximately 1% for the full year. Given current credit migration trends and assuming a relatively stable economic environment, we expect net charge-offs to remain fairly stable within a 25, 35 basis point annualized range in the fourth quarter compared to 33 basis points year-to-date.
Moving to the tax rate. Our current forecast points to an approximately 21% to 22% level in the fourth quarter. We will continue to use share repurchases to manage overall capital at current levels. There is approximately $80 million of share repurchase authorization remaining, which we expect to fully utilize in the fourth quarter. We will continue to support a strong and liquid balance sheet, which is prioritized towards serving the growth needs of our clients regardless of the economic environment.
And now operator, this concludes our prepared remarks. Let’s open the call for questions.
Question and Answer Session
Operator
(Operator Instructions) Brandon King, Truist.
Brandon King
Jamie, could you expand on your margin expectations beyond the fourth quarter, particularly if we get a more protracted easing cycle? It seems like with the lag nature of deposits, with that being less of a headwind, we could see some margin expansion as we get into next year. So just wanted to get your (inaudible)
Andrew Gregory
Yes. Thanks, Brandon. As we look at the margin, in the near term, as we said in our guide, we expect the margin to be relatively stable in the fourth quarter. And that would continue early into 2025 as we expect the easing cycle to continue as we go through the first half of next year. But when the easing cycle stops, we do expect to see margin expansion due to the significant amount of fixed rate asset and hedge exposures on the balance sheet that will be unlocked over time. And so for us, we think that relatively stable margin in the medium term. And then once you get past the easing cycle, we expect to see the margin it’s hard to expand as we unlock the value in those fixed rate exposures.
Brandon King
Okay. Got it. So I guess, in other words, in order to see any expansion you need said to remain on hold. Is that a fair assumption?
Andrew Gregory
Well, it depends on how long this cycle is. As we’ve said before, we believe that we are relatively neutral to the front end of the curve. And so outside of that lead and lag impact, we do believe that we’re neutral to the front of the curve. And so at some point, the fixed rate asset repricing tailwind will come in regardless of easing or no easing.
And so that will happen but you’re right, I think in the medium term, relatively stable on the margin, but the fixed rate asset repricing will start to flow in as we go through 2025 in any scenario.
Brandon King
Okay. Okay. Got it. And then lastly for me on credit, encouraging to see net charge-offs trend lower, just wanted to get an overall sense of the confidence in that net targets can remain sort of in this range for the foreseeable future? And if there are any concerns as far as tail-risk out there within your portfolio?
Robert Derrick
Brandon, this is Bob. I’ll take that one. Yes, we are pretty confident in that guidance range. I mean, certainly, this quarter was at the lower end of our range, and we’re happy with that. But we’re holding on that guidance at 25 to 35, really based on what we’ve done in terms of individual loan analysis, et cetera.
We had an NPL increase this quarter that Jamie spoke of that is baked in there as well. So yes, all in all, I think the guidance is good certainly in the short term. And then as we get into ’25, we’ll think more about our guidance certainly as we get into the conferences in January.
Operator
Jared Shaw, Barclays.
Jared Shaw
I guess maybe the first one, just looking at loan growth and production. As we go into ’25, is this level of production sort of a good baseline to use? And can you refresh our memory on sort of what is the balance of of those noncore — I’m sorry, noncore loans that are still out there in terms of sort of nonrelationship CRE, the shared national credits, the third-party consumer that you’re talking about, what’s the aggregate headwind that, that could be producing?
Kevin Blair
It’s a great question. And for many reasons, I feel like we’re following up on a year where we talk so much, Jared, about balance sheet optimization. I’m way more optimistic about our prospects to renew our growth orientation as we enter 2025, and it’s for a couple of reasons. To your first point, production has been consistently growing.
When you look back at kind of our trough first quarter production, that was the low watermark for us as it relates to funded production. We’ve seen the loan production increase in the second quarter and now again in the third quarter, up another 8%, and that would put the third quarter 70% higher than where we were in first quarter. Our pipelines are fairly stable. And so we would expect to see production levels to continue to increase for a couple of reasons. Number one, we think that there’s a tremendous amount of uncertainty associated with the election. So once we get the election behind us, we think that that could drive some demand. And two, as rates continue to come lower, we think that could also stimulate the production side of the equation.
To your point on the strategic runoff or strategic optimization. We’ve taken the last year to exit and reduce our exposure in various asset classes that, quite frankly, we just didn’t think had the type of return profile that we wanted. That included our medical office sale, which was around $1.3 billion. We’ve run down our syndicated lending portfolio as well as our third-party consumer lending portfolio.
That’s about $1.8 billion of year-over-year runoff or about 4% of our outstandings. That’s largely complete at this point. We’ll continue to see some runoff in the third-party consumer but this last quarter, that was around $20 million, so not a substantial amount. So that headwind has largely been played. And going forward, we shouldn’t have the same impact.
Number three, line utilization. This quarter, we’re roughly at 47%, and that stabilized. We had seen a decline over the last several quarters. If you go back to the same period last year, we were at roughly 53% so just getting back to a normal utilization rate would provide about $1 billion of incremental growth and then lastly, we continue to add new talent in middle market. We’re up almost 10 FTEs this year, specialty lending. And we’re now starting to expand our sales resources and our community bank across many of our higher opportunity markets. So for all of those reasons, I have greater confidence that 2025 will look more like a normal year for loan growth.
Jared Shaw
Okay. That’s great color. I really appreciate the details on that. And then just as a follow-up for me. What’s the — maybe for Jamie, what’s the impact of those hedge maturities on the hedge costs?
You called out the $750 million hedges maturing in the fourth quarter. What’s the cost on that? And is there anything as we look at sort of the first half of ’25, we should be focused on?
Andrew Gregory
Yes. Those hedges — a couple of things on that. The average rate is 95 basis points in the fourth quarter. There are $250 million that matured already on October 1 and then $500 million that matures on December 1. When you look heading into 2025, what you’ll see is stability in the balances, of the hedge portfolio, but a little bit of remixing is there’s a couple of maturities that come through, and then you have some forward starting hedges that start.
So you’ll see the effective rate on the hedges increase as we go through early 2025, getting up to about the 3% area in the second quarter. And that’s the general trend. So the headwind from the hedge portfolio diminishes really as we go through 2025. And when you get out into the second half of 2025 those rates are not too dissimilar from market rates.
And so the headwind there is expected to really abate as we go through 2025.
Operator
Ebrahim Poonawala, Bank of America. Please go ahead.
Kevin Blair
Alex, let’s go to the next caller.
Operator
Christopher Marinac, Janney Montgomery Scott.
Kevin Blair
Chris, we can’t hear you.
Operator
Sorry, Chris, are you able to just come closer to the microphone for us. Apologies. We’re still not receiving any audio we’ll move on for now. Our next question comes from Timur Braziler from Wells Fargo. The line is now open. Please go ahead.
Timur Braziler
First question is around the capital markets income in the quarter. It sounded a little bit more pessimistic on the latest update and then the numbers still came in pretty good. I guess in expectation for the rest of the year, is there anything chunky that’s still coming through? Or did some of that chunkiness materialize in 3Q? Would just love to get an expectation of what we should see there for the remainder of the year.
Andrew Gregory
Yes, Timur, it’s a great point. And we are really pleased with the performance of our capital markets business. And you’re right, you look at it is quarter-on-quarter is down, but that’s from high watermark in the second quarter, and we are really pleased with kind of where we stand right now. We believe that $10 million a quarter is a good number to use to build off of. And I would just say, don’t forget that this is an environment of low transaction volume.
And so for the team to be out there delivering solutions to our clients that’s driving this $10 million in revenue, that’s a real positive. And as we look at the fourth quarter, we’re expecting relative stability in capital markets revenue. You clearly will see mixes between the line items embedded in that business. But we expect stability but the teams are working on projects that are lumpy and they are positives, but we’re not including that in any of our guidance today.
Kevin Blair
And I think Timur, I’d add, just when you look at this last quarter at the $10.3 million, about 30% came from derivatives, about 25% from syndications and lead arranger fees 15% from debt capital markets, 17% from FX and about 10% on from government guaranteed loan sales. So it shows you the granularity amongst the categories and to Jamie’s point, that kind of serves as the baseline for growth going forward.
Timur Braziler
Okay. And then maybe a bigger picture question. Again, the update provided, I guess, it’s close to a month ago now, relative to the results. The results were pretty meaningfully stronger. I guess what was the biggest surprise in the back end of the year that drove the result relative to the last guide?
Andrew Gregory
Yes. As we look at what happened here as we wound down the quarter, there were positives across the board really in PPNR and in credit. And so if we look at NII we have outperformance of loan yields versus expectation, nondeposit liability costs outperformed really just strength across the board in NII, and that led to that margin expansion you saw for the full quarter.
Within fee revenue, it was our wealth business that drove the outperformance in the last month of the quarter. And then on expenses, a couple of things happened there. We had a $3 million decline in our FDIC expense, and that impacted our expectations. And then we have various other kind of timing related good guys on NIE that just came through in September, they were each positive.
And so a lot of good news in the month of September, giving us a nice tailwind heading into the end of the year.
Timur Braziler
Okay. And if I could just squeeze one more on credit. Again, encouraged by the loss content. But just looking at the trend in nonperforming loans and the classified criticized, how close are we in topping out, especially in the classified criticized categories, 4%? Is that kind of the top here? I guess, any kind of color as to what your internal expectations are for were classified criticized loans can top out?
Robert Derrick
Yes, Timur, it’s Bob again. I would say we’re close. I mean, certainly, if you looked at the criticized trend, the rated trend we were down last quarter, I think from 3.8% to 3.7% tick back up a little bit this quarter to 3.9%. So we kind of bouncing a little bit here. I think the bias is still slightly negative, but we’ve had some upgrades and certainly, we’re still having some downgrades.
But overall, I think the velocity of that increase is certainly not as strong as it was our grading process does have a little bit of a lag because we’re grading on a quarterly basis, looking back for the most part. So even though rates are beginning to help us, you’re still going to have a little bit of lag effect. So you could see a slight increase. But I think you’re close in your comments around 4%. I think that’s a fair number for us.
We have a very strong risk rating team, very well led. We great loan review process internally. So I feel really good about the accuracy. We get a downgrade occasionally, of course, but overall, I think we get really good marks on the accuracy. And your point around beginning to peak is probably pretty good, and we’re pretty close.
Operator
Ebrahim Poonawala, Bank of America.
Ebrahim Poonawala
I just wanted to follow up in terms of deposit pricing and just how you’re thinking about deposit growth going forward. So one, if you could comment on what’s the pricing environment? How do you expect deposit betas to behave, assuming the Fed is able to cut a few times before the end of the year, and then just talk to us about new deposit acquisition, where are they coming from? And how do you see the mix shift in NII evolving from here?
Andrew Gregory
So Ebrahim, let me just — let’s dive into the slide or the table we included on the deposit side in the earnings deck. We added a third quarter update to the far right and there was to show what has actually happened since the easing in the middle of September. And I think it’s highly indicative of what we will see going forward.
And what you see is the team is out there actively working with our clients and focused on reducing the cost of deposits. And you see going on rate and time deposits 40 basis points lower than June, implying an 80 beta that will come through over time. However, if you looked at the end of September time deposit costs, we’ve only realized about 20 basis points of decline. So while new production would imply an 80 beta, the actual kind of what we’ve realized to date is around the 40 beta on brokered, 80% repricing, then the low beta, we have a 10% beta and on the higher beta stuff, we have 70%.
So if you just kind of use that and use the percent of deposits, what you see is with what we realized to date on time, the lower number, the 40 beta, you get to about a 35% cumulative total deposit beta realized through September 30. Now what we’ve said is we expect it to be 40% to 45%. And so as time deposits flow through and you realize that 80 beta, that brings that number up to about 42%.
And we don’t believe that, that’s the end of the story. We believe that there’s further repricing to go from there. We believe that brokered could easily end up being about 100 beta we believe that the low beta and the high beta have room for improvement.
And so that’s what we’re looking at on the deposit side for deposit betas in the easing cycle. Clearly, it’s uncertain how this will go. Our current expectation is to see 25 basis point cuts at sequential meetings. But it depends on how we go through that as to how it will all play out. With regards to deposit growth, we believe, as we said, that deposits will grow here in the fourth quarter, a lot of that has to do with seasonal.
We expect to see growth throughout our wholesale bank predominantly as you land within the lower cost deposits. And so for the fourth quarter, we would expect to see as far as percent of total deposits, a reduction with high cost time deposits with broker deposits and then increase in the percentage weightings of now accounts and money markets.
And so that’s what we’re expecting to see here in the near term. And then as we look into 2024, I would just say that we are expecting to see a continuation of core deposit growth. It is a clear priority for us. We’ve grown core deposits faster than loans for 5 consecutive quarters.
We expect to see that continue as we go through 2025, and that will be a function of general environmental, what we believe tailwinds. We believe you’ll see less headwinds from monetary policy. We believe we’ll see client growth. And this diminishment headwind that we’ve seen for multiple years since 2019, we believe that, that will slow and stop.
And so we think that the headwinds that have been slowing core deposit growth will abate and we’ll see what we’ve seen in the past, which is strong core client acquisition, client growth leading to core deposit growth heading through 2025.
Ebrahim Poonawala
That’s very comprehensive. And just wanted to follow up on our embedded payments business [MAAST] we spent a lot of time on the Investor Day a couple of years ago on this. Just remind us where things stand. It does feel like when you look at top-down from the likes of JPMorgan partnering with [Oracle] there is a lot of push towards embedded banking. I think that was something differentiated that Synovus has started.
I’m just wondering how that’s gone. Are you as bullish less bullish relative to when you first launched this initiative?
Kevin Blair
Ebrahim, I think to your point, I think the marketplace is speaking where there are competitors that are rolling out similar products. And as I said last quarter, one of the things that we’ve recognized is that in order to have an embedded finance solution that stands out in the marketplace, you’ve got to have solutions and products and capabilities that differentiate yourself.
And so we built the beta version that had an MVP product. As you recall, we had various clients on that platform. And what we’re doing today is we’re looking at the offering that we provide and trying to improve some of the value propositions as it relates to the payment facilitation as well as some of the depository instruments that set on the platform. So, like anything else, we went out, we pilot it. We saw — we received the feedback, and now we’re working on creating a solution that has a stronger value proposition, and we’ll roll that out in the future with some additional bells and whistles but right now, we’ve taken that same set of resources and we focus as much on our commercial sponsorship business, where we’re looking to increase the amount of revenue that we earn today off of sponsoring merchant acquiring companies access to the Mastercard and Visa rails.
That’s about a $15 million, $20 million revenue business for us today. And that same group that’s working on [MAAST] is working on enhancing the population of clients that we use there. And then once we have that, we can also offer the [MAAST] solution to those ISOs not just to the software vendors.
So know that we’re working on the product, and we’ll come out in a future quarter and talk about what the enhancements are.
Ebrahim Poonawala
And you don’t think scale is a disadvantage relative to the larger regionals or the big money center banks relative to what you’re trying to do?
Kevin Blair
No. Scale, I think scale matters less there. It’s about the partnerships and relationships that you’re able to create with those independent software vendors or ISOs. And what we’ve said in the past, one of the reasons we felt that we had a right to win in that space is we’ve been in this payments business for a long time, dating back to our TSYS ownership.
And so to me, it’s much more — if you have the right product, it’s about applying the right partnership and being able to add value to that client. I mean that’s what Embedded Finance really is, is you’re creating a new revenue stream for that ISO or that independent software vendor. So I don’t think scale matters as much as having partnerships but you got to have a product that’s going to generate revenue for that client.
Operator
Chris Marinac, Janney Montgomery Scott.
Christopher Marinac
Bob I had a credit question for you. Can you give us an update on sort of how the criticized ratios look for that? Or how you would anticipate those play out in the next few quarters?
Robert Derrick
Yes. Chris, thanks for the question. Yes, multifamily, if you look at it overall, we have — I don’t think there’s certainly 0 nonaccruals in multifamily and very little, if any, substandard loans. So most of that is what we would classify as a special mention migration in multifamily due primarily to some oversupply issues that we see in various markets and with construction projects coming online in the face of some oversupply. However, from a loss content perspective, we feel really good about our multifamily book. It’s certainly been a business that we’ve been bullish on for years. We’re very good at it. We like where we are, our sponsors in that space really good. So overall, yes, a little bit of negative migration there. But from a loss content perspective, we just don’t see it.
And once we kind of get through a little bit of time and some of the oversupply issues begin to abate in various markets. I think we’re still long term, feel really good about multifamily, particularly in light of the housing environment as you’re aware.
Christopher Marinac
Great. And then just a general question on overall. The credit migration we saw in our performing are there typically already criticized in prior quarters, and so it’s just kind of moving through the pipeline?
Robert Derrick
Short answer is yes. And in this particular case, we had an office credit office relationship that we moved to nonaccrual. If you back that out, I know it’s easy for me to do that. But if you back that out, our nonaccruals actually would have decreased slightly. So it’s a one credit story there that we’ve been working through for some period of time. And we obviously have gone through our reserve process as well.
We feel good about where we are there and just continuing to work through that credit. Just couldn’t hold it from an accrual perspective. But yes, it was rated before.
Christopher Marinac
Got it. And generally speaking, the lower rate environment that we now have is going to make it easier and more flexible for you to work through credits as time passes.
Robert Derrick
Well, it certainly doesn’t hurt. So that’s a good point. I do — as we mentioned earlier, Christian, there’s a little bit of a lag effect on the ratings, where you’re typically looking at the previous quarter. And so it will take some time and the other point I would make on grading is that it’s a little bit slower upgrading than just downgrading.
So I think as you get into ’25 a little bit further, you’ll start to see some benefit there. But generally speaking, the lower rates would certainly help.
Kevin Blair
And Chris, we’ve talked about this in prior quarters and some of the conferences, we’re going to have some volatility, as Bob mentioned, on the criticizing classified and even NPL but the thing that gives us confidence is when we look at those loans that are in nonaccruing status, there are largely 8 to 10 loans that represent 80% of the balance.
So to Bob’s earlier point, we’re doing individual loan analysis to understand what the loss content would be. And I hope that you get the same confidence in that we get when we give out the 25 to 35 basis point guidance, which is largely lower than what we’ve experienced year-to-date that even with some of these migrations, we’re not expecting any material increase in loss content.
And at the end of the day, that’s — you’ll see some movement there, but I think that’s the bottom line of the story.
Christopher Marinac
Great point, Kevin. Thank you both. I appreciate the information this morning.
Operator
Tony Elian, JPMorgan.
Anthony Elian
On slide 6, the good growth in C&I balances you saw during the quarter, but why utilization was relatively stable. I guess what will it take to see that utilization rate increase? Is it more rate cuts getting past the election? I appreciate your thoughts there.
Kevin Blair
think it’s all of the above. We do a survey with our commercial clients. It says what concerns you. The number one concern was the election. And obviously, whether you a Republican or Democrat wins in many ways, it just takes some uncertainty off the table. So I think getting that behind us in November will be helpful.
Number two, the concern that our clients have are around the strength of the consumer. And I think that really gets to the underlying strength of the economy can the consumer continue to spend. And the consumer has been fairly resilient through this entire cycle. And if that continues, I think that will take another concern off the table.
The third is just declining margins of our clients, and I think that has to do with inflation, and that’s the residual impact of just having inflation come down to match what they can pass on to the client. And the fourth is labor availability. So it’s amazing to me that at the end of the day, one of the things holding back capital requests are finding the people to be able to work that new business line or support their growth.
So I think it’s going to take the election getting behind us. Line utilization, as I said earlier, could be as much as $1 billion of growth just back to a normalized level but we’re already seeing production levels increase. And the one thing we haven’t talked about is just payoff and pay down activities. We’ve said this year 2023 was not a normal year. When you look at our commercial portfolio, each quarter, we had about $1.3 billion of payoffs and pay downs. This year, we’re averaging closer to $1.6 billion. And that’s going to remain elevated for several more quarters, especially as CRE has some more payoff activities, but that also will return to more normalized levels.
So when you add in the fact that uncertainty goes away, production increases. We added new talent and the payoff activity slows, I think you’ll start to see loan growth return to more normalized levels.
Anthony Elian
And then my follow-up, noninterest-bearing balances were relatively stable on a period-end basis, but declined at a faster pace on average given the number of rate cuts projected by the forward curve into next year, do you see those balances growing at some point in 2025?
Andrew Gregory
Tony, we would expect to see some growth in those balances in 2025. I mean, it’s highly uncertain. That would be a change in trend. But we’re optimistic that we can do client acquisition and core business that we can get a tailwind there, but that’s to be determined.
Operator
Samuel Varga, UBS.
Samuel Varga
Jamie, I wanted to ask about the particular part of the long gross middle market, CIB and specialty lending. Can you give us a sense for where those yields are relative to the book just in terms of the commercial yields? Like are these — is this mix of growth naturally benefiting your commercial loan yields?
Andrew Gregory
When you look at those businesses and the spreads in those businesses, CIB would be on the tighter end and would actually be kind of tighter than our overall production. But we are seeing some tailwinds due to the spreads in those other businesses on middle market and specialty. They changed, the ebb and flow, especially in specialty but in general, it’s the CIB, think about larger lower spread originations, strong credits and then the others, you can generally get a little more spread.
Kevin Blair
And I’d add, Jamie, in this last quarter, when you look at our total yields on production, we’re about 750 747, and the portfolio is about 647. So everything we’re putting on today, although that’s 55 basis points lower than what it was in the second quarter given the rate cut. We’re still seeing a going-on yield that will be accretive to the overall portfolio, it’s about 100 basis points higher.
Samuel Varga
Got it. That’s very helpful. And then just on the next slide on deposits and sort of the core CD beta that you’ve alluded to the 80% that you’ve realized on the new production. I’m just curious if you can give any color at this time on whether that beta is still supporting the volumes you need?
Or is there any point where the beta gets almost like capped because you need to bring the volume and for the deposit base to support the loan growth on the other side?
Andrew Gregory
Well, if you look at the production levels, time production was actually higher quarter-on-quarter with much lower rates of production. And so we believe that what we’re doing is appropriate. We believe that it will be sufficient for what we’re looking for on the funding side. But I would just say that we are not beholden to any product for individual liquidity purposes.
If we think it’s a better idea to reduce our time deposit rates and use brokered or home loan bank or anything like that to offset that funding, that’s easy to do because we have increased capacity of wholesale funding, which we continue to draw down. And so our funding story is really strong because we’re in a spot where we can choose between all the different sources of liquidity. And right now, we think that it’s prudent to be fairly aggressive in the reduction of CD rates, especially the promo rates as we go through the easing cycle.
Operator
Stephen Scouten, Piper Sandler.
Stephen Scouten
I’m curious kind of around the potential operating leverage in ’25. Do you think that is a plausible target? Or do you really need to see maybe the ability for fixed rate loan repricing to create that inflection point in the NIM to drive that? Or what might be the catalyst if you think it is plausible?
Andrew Gregory
As we look to 2025, and we will give more guidance on this later in the quarter at an industry conference. But as we look to 2025, we believe a couple of things. We believe that expense growth will be higher than it is right now. Obviously, we’re not growing expenses. We’ve done a lot to drive that performance.
But we do believe that expense growth will be higher in 2025 than what we’ve seen recently, really, as we lean into the opportunities here in the Southeast. We believe that the growth opportunities in the Southeast are strong, and we believe that we have the right to win. And so we will lean into that here at the end of this year and as we head into 2025.
And so expense growth will be higher but we believe that will go alongside higher revenue growth. And so what we expect to see on the revenue side is Kevin walked through in detail why we expect to see loan growth, all those different components, combine just pure business growth along with line utilization increases along with increased transaction activity, we do expect to see strong revenue growth that goes with that.
And so operating leverage in 2025 is possible. Obviously, the rate environment is very important. The economic environment is very important. A lot of uncertainties as we look that far forward at the moment. But we do see paths to that as we look into 2025.
Stephen Scouten
Okay. Extremely helpful. And I know you also said the path of noninterest-bearing deposits remain uncertain as well. But are you seeing any kind of glimpses of things that could create a shift in terms of the pace of decline? Because it looked like that on an end-of-period basis, that pace of decline actually didn’t ramp up even a bit this quarter.
So I’m just wondering if there’s anything you’re seeing that would give you some hope of near-term stability there on those noninterest-bearing deposits?
Kevin Blair
I think Jamie and his team have been looking at the various segments of where we’re seeing DDA diminishment. I think on the positive side, we’ve seen the consumer average balance per account fall below $10,000, which is kind of a low watermark and depending on what happens with consumer, the level of diminishment could greatly decline.
We saw a little more this past quarter in business banking versus commercial. Commercial diminishment largely has dried up in the third quarter. So I think the way to think about DDA to Jamie’s earlier point, we’re going to produce some new level of production. Some of that now is finding its way into interest-bearing checking. So you’re not going to get the noninterest-bearing.
But the biggest driver to your question is the diminishment of average balance per account. And each quarter, we are seeing that continue to decline. When it actually hits its trough we can’t predict that, but it appears based on that trajectory that we’re getting closer to that.
Operator
Michael Rose, Raymond James.
Michael Rose
Most have been asked and answered, but just wondering if you got any sort of updates on the thought process around M&A. Last month, we saw the OCC, FDIC, and DOJ kind of update their merger review process. And as I step back and I think about the way the industry could consolidate over the intermediate to longer term. As I think about the Southeast and where you guys are from an asset size perspective, you have a couple banks that have come into your markets or at least in the Southeast a little bit more aggressively.
You have some of the mega banks building branches seemingly on every corner in every one of your markets. Is there more risk of not doing something versus doing something over the intermediate to longer term, do you think, as it relates to kind of longer-term financial targets or not? Just wanted to see if as we think about consolidation and what’s going to happen with the industry over the intermediate to longer term, what role does that mean for Synovus?
Kevin Blair
Yes, Michael, it’s a great question. We’re hearing more and more discussions around what happens if the administration changes and does that drive more M&A activity? And you can hear from some of the other earnings calls that others have recognized the Southeast is a pretty great place to do business.
But in many ways, our answer is unchanged. We believe that the greatest investment we can make today is in Synovus and adding talent, continuing to add new technology, new capabilities and solutions to continue to drive deeper wallet share with our existing clients and attract new clients in many ways, in the short and medium term, that sense of acquisition or the impact that would be associated with any sort of migration or conversion would actually create greater opportunities for us to take share.
So I don’t think anything has changed for us. It’s no secret that the Southeast is a great place to do business. And to your point, people are adding branches and putting LPOs and adding teams and we’re continuing to focus on how we win market share. And we’re doing that without having to buy a bank. We’re adding new teams and new talent and adding new technology. So the story really hasn’t changed. And it just really means that to win in this space, you’ve got to have a real value proposition. And that’s why when we look at some of these awards that we win, whether it’s J.D. Power, (inaudible) it’s important for us to continue to provide a level of service and advice that is second to none, that beats our competition.
And that’s, I think, the most important part rather than trying to do an acquisition that relies on cost reductions and revenue synergies to generate that EPS growth. We’re focused on Synovus and what we can do to take advantage of the organic opportunities.
Michael Rose
Okay. And maybe it’s just one follow-up just as it relates to the organic opportunity. I know you talked about — and I know it’s early for next year, but you talked about more of a normal year of loan growth, but you do have some self maybe imposed headwinds that are abating in terms of third-party, health care, things like that.
Line utilization, as I think you mentioned, could begin to pick up once you get through the election and some of these other things. What is a normal year kind of mean for Synovus? Historically, it’s been kind of a few percentage points above GDP growth that correlation is kind of broken down here in recent years for, I think, obvious reasons.
But kind of what does that mean for Sun, maybe not just for next year, but as we think about the next couple of years.
Kevin Blair
So Michael, you said it. What we’ve said in the past, it’s hard to give someone an absolute range, to your point, based on what the underlying growth would be given by the economy. So we’ve always said 100 to 200 basis points above the underlying growth. And that’s just predicated on the fact that we want to provide our fair share of growth plus something in excess to show that we’re taking market share from competition.
And so if we were to return to a normal 2% to 3% GDP growth, you would expect those to be at somewhere around 4% to 5% loan growth and that’s under a kind of normal situation. And to your point, for a lot of the reasons that you noted and I talked about earlier, the headwinds are largely abating, and it’s going to turn towards production and line utilization and one of the things that we’ve been doing over the last several years are continuing to add new errors to our quiver as it relates to new businesses, new specialty finance areas, new teams.
We’re expanding, as I said earlier, we’re starting to expand our Community Bank again. We’re adding talent in some of our high-growth markets. So for all of those reasons, we still feel like we can outpace the market with loan growth exceeding that of the underlying GDP.
Michael Rose
Very helpful.
Operator
Gary Tenner, D.A. Davidson.
Gary Tenner
I had a follow-up on the deposit side, Jamie, I appreciate the commentary about 2/3 of the core CD book maturing in the next 5 months. As you think about your posted rates and at least recent customer behavior, is the expectation and strategy that you’ll be able to keep that slug of deposits pretty short and kind of be able to come back again, second, third quarter of next year to reprice them Dan again?
Andrew Gregory
Yes. That’s our base case expectation. And we will continually look at the forward curve and think about the spreads between longer-term CDs and for shorter term. But right now, our focus is ensuring that, that book reprices as truly as quickly as possible, but also solves what our clients are looking for.
They want some stability and they go into that because they want multiple months of flat rates on their deposits to be able to count on. And so we have to be balanced in what we do. But right now, we’re leaning into that 5 months.
Gary Tenner
Okay. I appreciate that. And then just a quick question on the office loan relationship. I appreciate the fact that NPLs would have been down, excluding that. But any color there in terms of geography, kind of the office product type? Just for some background color?
Robert Derrick
Yes, sure, not to get too specific on the credit, but it’s 2 different cities, 2 different suburban offices, ones in the southeast one is not. So that’s kind of the outline of about equal dollar amounts, quite frankly, but separate resolution plans working with those loans. And again, to your point, I think if you do take out that office loan, you look at the NPL reduction overall.
But if you look specifically at our office portfolio, the criticized rate ratio is less than 10%. Obviously, this one is nonaccruals so if you back that out, you really don’t have very much in the way of nonaccruals. So there is some stability in the office book, but we realize that over time, I think you’re going to continue to have one-offs on office — we think we’ve got a good plan on this 1 actually to work through resolution.
Operator
Catherine Mealor, KBW.
Catherine Mealor
I wanted to follow up on the margin and just think about big into one (inaudible) a little bit. Can we first start with the fixed rate book. And is there any way to quantify just the amount of fixed rate repricing that we may see in 2025? And that’s impacting margins.
Andrew Gregory
When we look at 2025, our outlook as far as the impact of fixed rate repricing has not materially changed outside of the fact that when we used to say 20 basis points, but out before the securities repositioning. Currently, our expectation is about 15 basis points of margin impact due to fixed rate repricing in 2025, and it would be the same number for 2026.
So that’s consistent really with what we’ve said before, except for the fact that we accelerated that process with the securities repositioned earlier this year.
Catherine Mealor
Okay. Great. And then just as a follow-up, do you have where the fixed rate book where that current portfolio rate is today?
Andrew Gregory
The fixed rate book — well, we do — there are a couple of different components that I would point to. So if you’re working on the fixed rate repricing impact, here’s what I would — how I would break it down. Our fixed rate commercial loan book is a little less than 20% of assets. It’s about 18% assets. Those rates on the books are about 2% below current origination rates. So you have 18% of the book, 2% below what I would consider today’s market rates due to when they were originated.
On the mortgage portfolio, that’s about 12% of assets. And the book yield on that is around 4%. And so you could say that’s 2% or so below market rates on the residential mortgage portfolio.
Catherine Mealor
Okay. Okay. Great. And then on the variable rate piece, you had a really good slide in your last deck that just broke down the kind of components of your variable rate loan portfolio. Can you talk a little bit about maybe the kind of the cadence how quickly some of that’s repricing, what you’ve seen so far with a 50 basis point cut and maybe what that means for loan yields as we go into the fourth quarter?
Andrew Gregory
Yes. Yes, absolutely. I mean when you step back from a high level, the loan beta, it starts with the 62% of loans that are floating rate and then you back out the hedges. And so on loans, you should assume low 50s beta through this easing cycle.
And that’s pretty — it will flow through pretty cleanly. For total asset beta, when you add in the securities portfolio, you get to kind of low to mid-40s on the asset beta of the balance sheet. And so that’s at a high level, what you’ll see through the easing cycle on the asset side of the balance sheet. When you look at the individual components of floating rate loans, they’re progressing as you would expect with their contractual resets. So we have about $19 billion of loans that are 1 month SOFR. We have the $2 billion that are a little less than $2 billion that are 1-year treasury resets. Now those are really the only unique structures we have on the balance sheet.
Those are 1-year treasury floating rate loans that reset monthly. And so we’ve been seeing a little bit of margin pressure from those ever since one year started to go down a few months ago. And so that’s already been in there and it will continue depending on where 1-year treasuries go from here.
And then we have $3.5 billion of prime loans, we have overnight SOFR loans around $1 billion, and those all will reset when the Fed that actually moves. And I will just reiterate the point that on the hedge portfolio, those are received fixed hedges pay overnight SOFR. And so those reset actually when the Fed moves as well. So that’s a lot of detail around how our floating rate exposure will reset as we go through the cycle.
Operator
Russell Gunther, Stephens.
Russell Gunther
You guys just tackled my remaining question. Apologies I will try to remove myself from the queue. No.
Kevin Blair
Thank you, Russell. Have a great day.
Operator
Thank you. This concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Kevin Blair for any closing remarks.
Kevin Blair
Thank you, Alex. As we wrap up today’s call, I want to thank you for your attendance and your continued interest in Synovus I also want to recognize and thank all of our team members who are listening in today. Our financial results and our successes are a direct reflection of your commitment and dedication, making Synovus stand out in this crowded banking landscape.
We are keeping our team members affected by Hurricanes Helene and Milton in our thoughts and prayers. A special thanks to our corporate services team members who went above and beyond traveling to the impacted areas to provide generators and necessary supplies. Your efforts made a significant difference in people’s lives. Thank you.
In the third quarter, we continue to receive national recognition for our corporate culture, innovation and outstanding client service. American Banker named Synovus number six in its top 20 banks on reputation, and we won the 2024 Impact Award and cash management and payments from Datos insights for our Accelerate Pay payment suite.
I’m incredibly proud of our team and these accolades, which highlight our ability to continue to create a competitive advantage across all of our businesses. Looking ahead into the next quarter and also 2025, I’m confident that our continued execution of our plan will enable us to achieve sustainable growth and even higher levels of profitability.
Our team’s passion and resilience has consistently driven better financial results and an overall risk profile. The progress we’ve made this quarter along with our collective efforts and commitments gives me even more confidence in our future success. To our investors, thank you for your continued support and interest. We look forward to seeing many of you in upcoming meetings and conferences ahead.
Thank you all. And now, Alex, that concludes our third quarter 2024 earnings call.
Operator
Thank you all for joining today. You may now disconnect your lines.