Synovus Financial Corp. (NYSE:SNV) Q1 2024 Earnings Call Transcript April 18, 2024 8:30 AM ET

Company Participants

Jennifer Demba - Head of Investor Relations
Kevin Blair - Chairman, President and CEO
Jamie Gregory - CFO
Robert Derrick - Chief Credit Officer

Conference Call Participants

Jon Arfstrom - RBC Capital Markets
Ebrahim Poonawala - Bank of America
Steven Alexopoulos - JP Morgan
Catherine Mealor - KBW
Gary Tenner - D.A. Davidson
Jared Shaw - Wells Fargo
Michael Rose - Raymond James
Stephen Scouten - Piper Sandler
Brian Wilczynski - Morgan Stanley
Timur Braziler - Wells Fargo
Russell Gunther - Stephens
Christopher Marinac - Janney Montgomery Scott
Brandon King - Truist Securities

Operator

Good morning, and welcome to the Synovus First Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I will now turn the call over to Jennifer Demba, Head of Investor Relations. Please go ahead.

Jennifer Demba

Thank you, and good morning. During today's call, we will reference the slides and press release that are available within the Investor Relations section of our website, synovus.com.

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 maybe 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, everyone, and thank you for joining us for our first quarter 2024 earnings call. Our first quarter results demonstrate tangible progress on the strategic priorities that we have outlined for you over the last several quarters. Synovus produced steady loan growth in key commercial categories such as middle-market, corporate and investment banking, and specialty C&I, as well as continued rationalization in loan portfolios where we have less meaningful deposit or fee relationships.

We generated core deposit growth in a seasonally weaker quarter and are seeing improving trends in non-interest-bearing deposit diminishment, as well as continued contraction in higher-cost broker deposits. Core non-interest revenue categories continue to grow on a year-over-year basis, while operating expense control remains disciplined with investments in key areas continuing, while keeping total expenses roughly flat.

Our quarterly loan losses remain stable and our balance sheet continues to strengthen with further improvement in key safety and soundness metrics, highlighted by lower wholesale funding and higher capital ratios. Our financial success is a direct result of how well we are meeting the needs and expectations of our clients through trusted advice and valued service. In that regard, Synovus and our talented team members continue to be nationally recognized for service excellence.

We are extremely proud to report that Synovus recently received 25 Greenwich awards for our 2023 performance, serving small businesses and middle-market clients. We earned the fourth-highest number of total awards among the over 500 banks that were evaluated. We also continue to perform very well against our Southeastern peers and the recently released J.D. Power Survey for consumer client satisfaction and trust.

Our Grow the Bank initiative continued to gain traction in the first quarter, as we finalized our new GreenSky program, expanded our middle-market banker team, built our largest CIB pipeline to date, generated over 50 new relationships from our business owner wealth strategy, grew wealth AUM by 12% year-over-year, added a new commodities hedging capability and expanded existing relationships with approximately 75% of our treasury sales to existing clients.

Speaking of our Treasury and Payment Solutions team, we are excited to introduce a differentiated new solution called Accelerate Pay, which alleviates administrative burdens faced by accounts payable staff and seamlessly integrates into existing workflows, providing an immediate return on investment for our clients. We launched this new capability earlier this month and the pipeline has been building steadily since the announcement.

Lastly, we have a long successful track record in community banking. This quarter, our community bank generated core deposit growth of almost $350 million and our consumer bank produced growth of approximately $300 million. Our longstanding well-positioned core businesses continue to drive growth through a value relationship approach, allowing us to invest in new sources of revenue and future growth.

Now let's move to Slide 3 for the quarterly financial highlights. Synovus reported first quarter 2024 diluted EPS of $0.78, and adjusted EPS of $0.79. However, a $13 million incremental FDIC special assessment reduced our reported and adjusted first quarter EPS by $0.07, following a $51 million or $0.26 EPS impact from the initial special assessment in the prior quarter.

As previously mentioned, we generated healthy and consistent loan growth in our high-priority commercial business lines, including middle-market, corporate and investment banking, and specialty lending, with these categories up 11% annualized. However, period-end loan growth was flat in the first quarter due to flat line utilization, commercial real estate, and senior housing paydowns and payoffs, and strategic loan portfolio rationalization efforts.

Despite seasonal headwinds, our core deposits grew modestly in the first quarter. The team remains highly focused on accelerating core funding generation through sales activities and product expansion, which led to an increase in deposit production of roughly $300 million versus the fourth quarter and at a rate that was approximately 8 basis points lower. January's non-interest-bearing deposit decline was impacted by seasonality, but deposit flows improved throughout the course of the quarter with a $299 million increase in the month of March. Given the strength of our core deposit growth, we reduced broker deposits for the third consecutive quarter.

Looking at non-interest revenue, we experienced year-over-year growth in key categories, including treasury and payment solutions and our commercial sponsorship lines of business. However, total adjusted non-interest revenue declined modestly from a year ago, primarily driven by lower service charges and wealth management income as a result of the 2023 consumer checking modifications and third-quarter 2023 GLOBALT divestiture. Also, capital markets income was lower relative to more elevated levels experienced in the first quarter of 2023, given the strong correlation to loan production.

2023 cost initiatives, as well as ongoing diligence, has led to flattish overall core expense growth year-over-year, while maintaining 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, credit losses were stable with previous quarters.

Lastly, given continued economic uncertainty, we further bolstered our common equity Tier 1 ratio in the first quarter through solid earnings accretion and balance sheet management, while completing a measured amount of opportunistic share repurchases. Common equity Tier 1 levels are the highest in over eight years and currently sits in the upper half of our stated range of 10% to 10.5%.

Now, I'll turn it over to Jamie to cover the first quarter results in greater detail. Jamie?

Jamie Gregory

Thank you, Kevin. As you can see on Slide 4, total loan balances were essentially stable on a linked-quarter basis. As expected, our loan growth was muted as key strategic business lines saw growth, which was offset by balance sheet optimization efforts and transaction-related declines. Consistent with our focus on core client relationships, growth in middle-market commercial, CIB, and specialty lines was $287 million during the first quarter.

There is increased strength in the commercial real estate and senior housing markets, as evidenced by higher levels of transaction activity over the last two quarters due to property sales and refinancings. We expect this increased transaction activity to result in declines in these portfolios throughout 2024. We also continue to strategically reduce our non-relationship syndicated lending and third-party consumer loan portfolios in the first quarter, further positioning our balance sheet for core client growth.

Consistent with our overall balance sheet strategy, we continue to prioritize clients with meaningful deposit and non-interest revenue relationships, while rationalizing growth in credit only lending areas, such as syndicated lending and third-party consumer lending, that have a lower return profile or don't meet our strategic relationship objectives. Our organic balance sheet optimization efforts will continue as we focus on balanced loan and core deposit growth.

Turning to Slide 5, core deposit balances grew $165 million sequentially during the first quarter. The community bank and the consumer bank saw strong growth, while seasonality contributed to a decline in deposits in the wholesale bank. As we look to the remainder of the year, growth from the wholesale bank and continued execution within our consumer and community segments should support core deposit growth within our previously stated guidance range.

Client demand for time deposits remained elevated during the first quarter. This growth, combined with their continued remixing of non-interest-bearing deposits, pushed total deposit costs higher during the quarter. We are encouraged by trends in non-interest-bearing deposits as the $601 million decline in January was followed by significantly less contraction in February and $299 million of growth in March.

Brokered deposits declined $324 million or 5% from the fourth quarter, which was the third consecutive quarter of contraction. We expect further declines in broker deposits in the coming quarters. As we look at funding costs, the aforementioned trends resulted in our total cost of deposits increasing by 17 basis points to 2.67% in the first quarter. For the month of March, total deposit cost was 2.67% versus 2.53% in December. Our cycle-to-date total deposit beta in March was 49% versus 46% in December.

Moving to Slide 6, net interest income was $419 million in the first quarter, which represented a decline of 4% from the fourth quarter. The primary factors contributing to this decline included a lower day count, which impacted spread revenue by approximately $4 million, a modest decline in loan balances and earning assets, and further cost increases within our core interest-bearing deposit portfolio.

Deposit mix also impacted our margin for the quarter. Though as we mentioned, trends later in the first quarter were somewhat more constructive than the averages for the quarter. Net interest margin ended the quarter at 3.04%, a sequential decline of 7 basis points as the benefits of higher rates on newer production, fixed-rate asset repricing and the partial securities repositioning in the fourth quarter were more than offset by the core deposit mix trends and deposit cost increase. As we look forward to the second quarter, we expect relative stability in the net interest margin.

Slide 7 shows total reported non-interest revenue of $119 million in the first quarter. Adjusted non-interest revenue was $117 million and declined $10 million or 8% from the previous quarter and was down $1 million or 1% year-over-year. On a sequential basis, commercial sponsorship income declined by $5 million, primarily related to a decline in back book related GreenSky fees. We expect relatively stable quarterly commercial sponsorship fees for the remainder of the year.

BOLI revenue was also elevated in the fourth quarter impacting the quarter-over-quarter comparison. These declines were partially offset by higher mortgage, wealth management, and capital markets fees. When looking at the year-ago quarter, core banking fees increased 5% driven by Treasury and Payment Solutions fee growth of approximately 8%, as well as the impact of our second-quarter 2023 Qualpay investment.

Also, other non-interest revenue increased sharply year-over-year, primarily from the expanded GreenSky relationship. These tailwinds were offset as a result of the consumer checking modifications implemented last year. Also, wealth management income was down year-over-year due to the GLOBALT divestiture in the third quarter of 2023. Despite a slower first quarter for capital markets-related income, we expect capital markets growth in 2024 led by our middle-market and CIB business lines. We continue to invest in core non-interest revenue streams that deepen client relationships such as Treasury and Payment solutions, Capital Markets, and Wealth Management, which have demonstrated healthy growth over the past few years.

Moving to expense. Slide 8 highlights our operating cost discipline. Reported and adjusted non-interest expense was impacted by a $13 million incremental FDIC special assessment. The total impact of the two special assessments was $64 million, including the initial $51 million recognized in the fourth quarter. Reported non-interest expense was $323 million and adjusted non-interest expense of $319 million was down $34 million or 10% from the prior quarter.

Adjusted non-interest expense increased $14 million or 5% year-over-year, which was almost entirely driven by the $13 million incremental FDIC special assessment incurred in the first quarter. Employment expense was down 1% year-over-year, benefited by our headcount reductions made over the past three quarters. Seasonally higher employment expense inflated non-interest expense by approximately $11 million in the first quarter, which impacted earnings by an estimated $0.06.

Importantly, we will remain proactive with disciplined expense management in this revenue-challenged environment. As a result, adjusted non-interest expense should be relatively flat in 2024, excluding the FDIC special assessments imposed in the fourth quarter of 2023 and the first quarter of 2024.

Moving to Slides 9 and 10 on credit quality. Our allowance for credit losses ended the first quarter at $546 million or 1.26%, up from $537 million or 1.24% in the fourth quarter. Consistent with the prior quarters, we continued to raise the allowance to reflect asset valuations, credit migration trends, and a heavier weighting toward downside economic scenario.

Net charge-offs in the first quarter were $44 million or 41 basis points compared to 38 basis points in the fourth quarter and 40 basis points in the third quarter, which excluded the loan sales. The non-performing loan ratio increased to 0.81% of loans as credit metrics migrate from historically low levels.

Total criticized and classified credits rose slightly, but remain at very manageable levels. First-quarter net charge-offs and credit metrics were impacted by one particular commercial and industrial credit, which accounted for 17 basis points of net charge-offs and is expected to be resolved later this month. We have a higher degree of confidence in the strength and quality of our loan portfolio, and we will continue to reduce our non-relationship credits and manage the portfolio with a heightened level of diligence in this more uncertain macroeconomic environment.

As seen on Slide 11, our capital position continued to increase in the first quarter, with the preliminary common equity Tier 1 ratio reaching 10.38% and with total risk-based capital now at 13.31%. Retained earnings supported capital accretion in the first quarter. Additionally, our efforts to rationalize growth within certain segments resulted in a modest decline in risk-weighted assets, which further supported the increase in our capital ratios.

Against this backdrop, we executed about $30 million of common stock repurchases in the first quarter, which equates to approximately 6 basis points of capital. We will continue to target a CET1 ratio within a range of 10.0% and 10.5%, and aim to maintain a robust capital position against what remains an uncertain macroeconomic environment.

Looking into the second quarter, we would note that our risk-weighted asset optimization is currently underway, that is expected to result in a subset of our loan portfolio being eligible for a reduced risk weighting. When completed, this should support our capital ratios and provide flexibility for incremental capital deployment. This incremental capital deployment is contingent upon the analysis and documentation of the eligibility of certain loan portfolios for reduced risk weightings. We will share further details on the results of this exercise over the near term.

Finally, on April 1st, we reclassified $3.4 billion of our securities portfolio from available-for-sale to held-to-maturity. This reclassification will reduce the interest rate sensitivity within AOCI and thus the variability of our tangible common equity ratio.

I'll now turn it back to Kevin to discuss our 2024 guidance.

Kevin Blair

Thank you, Jamie. I'll now continue with our updated fundamental guidance for the remainder of 2024. Based on first-quarter experience in our existing pipelines, period-end loan growth is still expected to be 0% to 3% in 2024. Growth should be supported by the continued success in middle market, corporate and investment banking, and specialty lines offset by rationalization in non-relationship credits and commercial real estate and senior housing payoff and paydown activity.

Our current forecast for core deposits indicates growth within a 2% to 6% range for the year, aided by seasonal tailwinds as the year progresses and new core funding growth initiatives. With the last FOMC rate increase now having occurred roughly nine months ago, we believe deposit costs are in the process of stabilizing, and with some residual upward pressure remaining into the second quarter should result in a peak total deposit beta for the cycle between 49% and 50%.

Under this forecast for deposit cost, our current outlook points to the revenue growth at the low end of our negative 3% to 1% range, largely impacted by the continued deposit remixing that we and the industry are experiencing. Our forecast is based upon a stable interest rate environment and does not include any potential benefits from the ongoing risk-weighted asset optimization exercise.

Net interest income should improve in the second half of this year as fixed-rate asset repricing overcomes deposit repricing and remixing. Non-interest revenue should experience growth this year as pipelines for capital markets-related fees remain strong. We continue to execute on our core growth in treasury and payment solutions and the new GreenSky forward flow program continues to build.

Our adjusted non-interest expense growth guidance is unchanged after adjusting for the impact of the first quarter FDIC special assessment. Excluding the special assessments in the fourth quarter of 2023 and first quarter of 2024, we anticipate our adjusted non-interest expense will be relatively stable this year.

We continue to closely monitor and manage our loan portfolio to uncover any credit deterioration or systemic themes across industry and geography. We expect the first half of the year net charge-offs to continue to be relatively stable at approximately 40 basis points. Given current credit migration trends, assuming a relatively stable economic environment and considering the impact of certain large individual losses, we expect net charge-offs to be flat-to-down in the second half of the year.

Moving to the tax rate, our current forecast points to the upper half of our 21% to 22% range. Finally, our common equity Tier 1 ratio is at the high end of our targeted range of 10% to 10.5%. And we will remain opportunistic with measured amounts of share repurchases to manage capital levels. Prudent capital management remains our top priority to ensure we have strong and liquid balance sheet for all economic environments.

Through the actions we have taken over the past several quarters, Synovus is well-positioned to meet the needs of our clients while operating from a position of strength amid this evolving economic landscape. We are focused on growing the bank through the expansion of relationships and the delivery of new sources of revenue, all while improving returns and building an even more risk-resilient bank.

And now, operator, this concludes our prepared remarks. Let's open the call for questions.

Question-and-Answer Session

Operator

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jon Arfstrom from RBC Capital Markets.

Jon Arfstrom

Hi. Good morning.

Jamie Gregory

Good morning, Jon.

Kevin Blair

Good morning, Jon.

Jon Arfstrom

Hey. Kevin, if I can try to get you off script a little bit if I can. Stocks off a little bit this morning, I would say it's been a battleground in terms of feedback. And I think the core looks okay to me, maybe soft in a couple of areas, fine in others, some positive trends also emerging. But curious how you see it, maybe a chance to defend your stock a little bit. How do you see the puts and takes of the quarter? Where do you think you need to do better? What do you think is going well? Just curious on your thoughts to start the call.

Kevin Blair

Yes. Jon, look, I love the question, because I think that's what's on my mind. If you look at a lot of the information we provided today, it really comes down to two areas, margin, and credit. Because when you look at our expenses and when you look at fee income, I think we continue to meet and exceed our expectations there. So let's dig in a little bit first on margin. We're off 7 basis points this quarter and that is largely a function of deposits and that was higher than what we had modeled. So when you look at what caused it, it was fairly evenly split between our non-interest-bearing declines, our interest-bearing non-maturity deposit cost increases, and a little more CD remixing.

And I don't want to get into the weeds around each of those because we could spend the rest of the call, but I expect those trends to improve. And as we look at some of the things that we've already done, as well as some of the trends that we've seen this quarter, which would include some positive trends around DDA, I think those headwinds on the margins will abate. And as Jamie said in the prepared remarks, we would expect this quarter to be flat. And then as you'll hear later, there are some things that we have in place, both from the fixed asset repricing, but also some of these trends changing that will allow us to expand our margin by 10 basis points to 15 basis points by year-end, getting us right back to the 3.20% that we shared back in January. And that obviously assumes flat rates.

That does not include any impact of any of the potential use of any capital that we would realize as part of this risk-weighted asset optimization exercise. So, quarter was down more contraction than we thought. I think we have a path to expansion and one that's very similar to what we talked about back in January.

Now on to the credit front. We had stable net charge-offs this quarter, including one very large credit that has since been resolved. And that credit really impacted our credit metrics this quarter, 17 basis points of our charge-offs and it also represented 18 basis points of our increase in NPLs. Having resolved this credit this month, that will ultimately result in a commiserate decline in NPLs, meaning, that without that credit NPLs would have actually declined this quarter.

And maybe what's most important is what I just said there at the end, which was, we expect our net charge-offs to be flat-to-down in the second half of the year based upon our portfolio metrics and trends. Now some had probably questioned how can that be given some of the metrics? Well, one of the things that we did this quarter, we initiated a deep-dive through our entire multifamily portfolio, very similar to what we did last year in office and similar to what we did with the hospitality industry back in COVID. And that led to a downgrade of four credits, which totaled right around $96 million. So that deep dive represented 22 basis points of the 25 basis points increase in our criticized and classified ratio.

Also on the provision front, given what we've seen on valuation and across all asset classes, this quarter we added a qualitative adjustment to the allowance of just under $30 million to account for higher loss given default, if we were to see any sort of defaults on the CRE side. Without that adjustment, our allowance would have actually declined quarter-on-quarter. And I'll just remind you that our CRE portfolio continues to perform very well. We have a NPL ratio of 13 basis points and we only had $2 million of NPL inflows this quarter.

So when I look at everything in totality and I think about the two areas that probably had some softness to your point, I look at the stability and improvement in those areas. And when I couple that with our expense discipline and our increased forecast for fee income. And then you add on top of that, the potential to have incremental capital from our risk-weighted asset optimization, I feel like our opportunities in the forecast outweigh those of the risk.

Jon Arfstrom

Okay, good. Yeah, those are the issues, it's credit margin. So I appreciate that, Kevin. And then just a follow-up quickly, Jamie, for you. Kevin just mentioned it, but what do you need to do for the RWA optimization efforts? Who needs to bless it? When could it happen? And how much capital do you think it could free up? Thank you.

Jamie Gregory

Yes. Jon, thanks for the question. Hey, look, you're aware, we've been working on improving our ROE for multiple years. And recently, we put a lot of effort into review of what is consuming our risk-weighted assets. We've been looking at real estate lines, C&I unfunded commitments, and general kind of return for every dollar of risk-weighted assets that we put on the books.

Some of these strategies affect our go-to-market strategy, some of them affect what we do as far as our inorganic strategies like the sale of business lines that we did in 2023. But the effort we're talking about today is around certain loan categories that could be eligible to have reduced risk weightings, including mortgage, government lending, securitization exposures, and multifamily term loans. The largest impact of this effort is coming from loans that qualify for reduced RWA treatment within our lender finance portfolio. But in order to achieve that risk-weighting, down to 20% in many cases relative to the 100% risk-weighting we have today. We have to perform proper analysis of documentation in light of the regulatory capital requirements under the simplified supervisory formula approach.

And unfortunately, we haven't completed that effort. So we cannot give specific details on the impact of capital ratios. But as we said in the prepared remarks, as we show in the deck, we believe it could be meaningful. Given what we've completed to date, we think the impact could be $1 billion or more reduction in risk-weighted assets and the impact of capital ratios could be greater than 20 basis points.

So if we successfully complete this work and given where we are with capital, we're already at the higher end of our range. And that's our intent is to stay at the higher end of our target range. And so, we'll likely deploy this capital, any capital generated from this when it's completed to either securities repositioning or share repurchases and kind of try to maintain our capital ratios at the given levels. We say -- you ask about what could this be and we feel confident about the $1 billion or more comment. The upside is probably around $2 billion. And so, we have work to do, but we do expect to complete it in the near-term and we'll report back once we get further along.

Jon Arfstrom

Okay. Very good. Thank you very much.

Jamie Gregory

Thanks, Jon.

Operator

The next question is from the line of Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala

Hey, good morning.

Kevin Blair

Good morning, Ebrahim.

Ebrahim Poonawala

Yes. So, I guess, just following up on NII and the NIM outlook. So you always had this expectation around no rate cuts in your guidance. So I'm trying to think through around what's changed versus what's not changed. Can you talk about the pricing competition in your markets like we had one of your peers reported yesterday talked about a significant pickup in pricing competition on deposits in the Southeast markets? Are you seeing the same thing? And just the level of visibility around NIB mix and the peak deposit beta that you call out in the slide deck? Thanks.

Kevin Blair

Ebrahim, as we've talked about in the past, I don't think the pricing competition is going to abate. I mean, everyone's in the market for liquidity. And as an industry, we traditionally use price to attract new deposits. And so, we haven't seen a big change there. We also haven't seen any of the competitive data suggest that rates are going higher. Matter of fact, when we look at our production this quarter for new deposits, we actually declined about 8 basis points. And so, we've kept our rates roughly the same and that has left us in a competitive position roughly in the same place.

Our production was up about 12% quarter-on-quarter. So I wouldn't suggest to you that there is a big change in the competitive landscape. I think it's always very competitive and we're looking for ways to position ourselves not just with rate, but other ways to win new deposits. But I haven't really seen a big change in the pricing backdrop.

Jamie, do you want to talk a little about NIB and how we think about that?

Jamie Gregory

Yes. Ebrahim, let me just speak to the first quarter going to the second quarter, because this is the inflection point, right? We had 17 basis points of deposit cost increase in the first quarter. And obviously, given our margin outlook, we expect that to abate in the second quarter. So let's kind of go through the components. And in the first quarter, the driver of margin compression on the liability side was NIB declines and then increased interest-bearing costs.

And when you think about those individually, for non-interest-bearing deposits, as we showed on Slide 5, the trends there are positive and we had a January where we saw a large amount of attrition in that portfolio, but then we saw stabilization in February, and growth in March. And we expect the stabilization to continue in NIB given the change in trends.

Now to be clear, we expect NIB as a percent of total deposits to decline as we head through year-end. But we think that pressure will be much more moderate than what we saw early in the year. When you think about interest-bearing deposits, the pressure on the first-quarter cost was driven by increases in each category of now money market and CDs. When you look at the non-maturity deposits on money market deposits, the average rate of money markets for us has been flat since December. When you look at the [NAV] (ph) accounts, the average rate of NAV accounts has been flat since January. So we're seeing stability in these portfolios.

Now, time deposits do continue to creep up due to production being higher than the rolling-off rate of time deposits and the growth in the portfolio. But what I'd say about that is, when you look at the second quarter, we had $2.4 billion of maturities in time deposits. And our new and renewed rate on time deposits in the first quarter was right at 2.5% -- I mean, 4.5%. So we have $2.4 billion maturing at 4.4% and our going on new production in the first quarter for new and renewed is 4.5%. So very similar. So that's just going to -- we expect that to be reduced pressure going forward to the cost of interest-bearing deposits.

And so, combination of all of those things on the liability side, along with the normalization of loan fees, less interest reversals, and the residual benefit of the first-quarter hedge maturities give us confidence in the second quarter margin, which is the launching point for margin expansion in the second half of the year.

Ebrahim Poonawala

That's a great color. So thank you for walking through all of that. And just separately on credit also, so we built reserves. Has your macro view changed in terms of what you're seeing in the markets today for the economy, for your credit book today versus back in Jan? Or is this reserve bill essentially just putting aside some money, being conservative? I'm trying to get a sense of, are you seeing signs within the portfolio that imply a little bit more worsening than you expected a few months ago.

Jamie Gregory

Ebrahim, no, we are not. As a matter of fact, when you think about the general macro-economy, we're actually seeing general improvement in the outlook there and you can see that in our waterfall and the change in the allowance, you can see that that pushed towards a reduction in the allowance this quarter. And as Kevin mentioned earlier, the performance was really the deep-dive we did on multifamily.

Now just to be clear, as he mentioned, we haven't seen a degradation in the quality of that portfolio. But what we have done is just increase the allowance based on what we're seeing out there with valuations, with office occupancy, just out of prudence. And so, the allowance increase you see is based on that. You'll see an increase in the allowance associated with CRE due to that move. We've increased the allowance-to-loan ratio in CRE about 14 basis points in this quarter. And so -- but again, that's indicative of the environment more than the performance of the portfolio.

Ebrahim Poonawala

Got it. And just on that multifamily deep dive, we downgraded four loans, anything else? I mean, there is obviously a lot of chatter about supply coming on over the next year or two. So I'm assuming you kind of worked through that and the four loans that you downgraded is all you kind of identified as having any signs of weakness?

Robert Derrick

Yes. Hey, Ebrahim, it's Bob. Thanks for the question. Just as Kevin mentioned, those four credits were downgraded to what we would classify as a special mention status, just based on interest rate stress as it relates to coverage. We have great sponsors there. We don't see really any significant loss content, more just making sure we had the classification right. And again, it was just four multifamily loans that move to special mention, but nothing changed in terms of our outlook for any kind of loss content relative to multifamily. We still feel like, yes, there is some supply issues in pockets in certain markets. But again from our perspective, there's a lot of equity in these projects. Rent increases have been going strong for a few years. They're settling now and actually we're retracting a little bit. But there is a fair amount of cushion in these projects and certainly the demand is still there relative to housing or single-family housing constraints.

Jamie Gregory

And Ebrahim, I'll just reference Slide 23 in the appendix, where we give you a little more detail on the entire multifamily portfolio, including the fact that 11% of it is student housing, again very low LTV, performing at a very high level, NPL ratios of only 5 basis points. So the deep-dive is, as Bob said, we have done in other asset classes just to get that look. And your question was, did you find anything else? Obviously, if we had found anything else, we would have seen greater risk migration.

Ebrahim Poonawala

Got it. Thank you for taking my questions.

Kevin Blair

Thank you, Ebrahim.

Operator

Thank you. The next question is from the line of Steven Alexopoulos with J.P. Morgan.

Steven Alexopoulos

Hey, good morning, everybody.

Kevin Blair

Good morning.

Jamie Gregory

Good morning, Steve.

Steven Alexopoulos

I wanted to start. So looking at the 2024 outlook slide, it’s based on flat rates from current levels. And I'm curious, I know the forward curve is changing by the minute, but assuming the current one does play out and we did get two cuts or something in that range. Do you still think we would see this NIM expansion 10 bps to 15 bps in the second half of the year? And are you still in this adjusted revenue growth range if we do get those cuts?

Jamie Gregory

Yes. I mean, the simple answer to that is, and to your point, the forward curve changes all the time, which is why we gave our guidance to flat rates what we did in January as well. But when we look out there, what we would say is, during an easing cycle, we do expect to see margin pressure. We remain relatively neutral to the front of the curve. So we do expect once deposit costs stabilize to be at a similar spot when we come out of the easing cycle as we were going in. But during the cycle, we would expect somewhere between 6 basis points and 12 basis points impact to the margin.

But with the forward curve, to your question on the full year revenue, we think that the forward curve, given where it is today, would be less than 1% impact on revenue for 2024.

Steven Alexopoulos

Okay. Got it. So you wouldn't see that NIM expansion and you'd be below the low end of the range if we did get cuts. That's what you're saying. Not materially.

Robert Derrick

It would be less than 1% impact. It just depends -- yes. We gave guidance to the low end of the range, but it'd be less than a 1%.

Kevin Blair

And again, Steve, that's before we would do anything with the risk-weighted asset. That's just based on the current baseline forecast.

Steven Alexopoulos

Yes. Got it. Yes. Okay. And then on this large C&I credit that you guys called out, I thought you said a couple of times it will resolve. Now, does that mean that NPAs associated with this just go away in 2Q or does it also mean that maybe you're getting recovery on that loan? What does resolved mean?

Robert Derrick

Yes. Hey, Steve, it's Bob. It's -- it was [indiscernible]bankruptcy. We took the charge-off this quarter. The NPL obviously stayed into the second quarter, but it's been refinanced, and resolved. So yes, that NPL should go away.

Steven Alexopoulos

That won't come out. Got it. Okay. Thanks. And then, Kevin, I had a big-picture question. So I love reading your Annual Report where you talked about this Grow the Bank mantra, right, the shareholder letter. And when I look at this year, I get why expenses are flat because the revenue environment is pretty tough. But when I look in your markets, right, I mean, most banks would be very envious of your markets. How do we think about this balance of investing enough to really take advantage of the growth potential in your markets? And as the environment improves, do we expect this a pace of investments to improve? Because honestly, your loan growth is not much different than banks that really have a much worst footprint than you have. Just wondering, when do we start to see Synovus deliver growth that's really commiserate with the great market that you're in? Thanks.

Kevin Blair

Look, Steven, it's a question that we wrestle with every day in terms of investments, how much do you spend today for long-term shareholder value. And we are leaning in. Behind the scenes, we're at zero for this year, but we're still adding team members in our commercial area, our private wealth area. We're investing in technology, and you never spend enough. You always want to spend a little more. We take a very financial approach to how we look at investments in terms of earnback period. And whether that's adding a new resource or adding a technology, we look at how long it takes for that investment to pay back.

And we continue to keep a very regimen approach to doing that. But as revenue grows, we're going to increase the level of spend. We want to make sure positive operating leverage for us is less about something we're trying to do. I just think it's good stewardship of -- for shareholders. We want to invest as much as we can as presented by the revenue growth that we have.

So yes, as revenue improves in 2025 and 2026, you'll see us invest more. And I couldn't agree with you more. We have a real opportunity in the Southeast, not just because of the demographic shifts. But as we've said, you look at our J.D. Power survey, you look at [indiscernible] survey. Our clients tell us that we serve them better than our competitors. And in that case, we should not only get the benefit of the growth of the Southeast, but we should get higher market share growth by taking clients from our competitors. So yes, we want to continue to invest prudently. We do use revenue growth as a calibrator on how much we're willing to spend as margin starts to expand, as the economy provides us more growth, we'll spend more money.

And lastly, just on the loan growth side, I think in our loan slide, you'll see that the areas that we continue to invest in, we are growing. We are up 11% annualized in middle-market, CIB, and specialty. But because we've been rightsizing the balance sheet, we've been downplaying our shared national credits, as well as senior housing, which has had a fairly big headwind on loan growth. And we've seen some more constructive activity on CRE that allows us to see some payoff activities that we haven't seen for some time.

So, as we get to a more normalized level on shared national credits and senior housing, and we get our pipeline start to build again on CRE. When you add in the strategic growth, you're going to see that loan growth go back to levels that are far higher than they are today and ones that I think you would point to as being higher growth.

Steven Alexopoulos

Okay. Perfect. Thanks for taking my questions.

Kevin Blair

Thank you, Steve.

Operator

Thank you. The next question is from the line of Catherine Mealor with KBW.

Catherine Mealor

Thanks. Good morning.

Kevin Blair

Good morning.

Jamie Gregory

Good morning, Catherine.

Catherine Mealor

Kevin, you talked last quarter about a PPNR growth rate from fourth quarter 2023 to fourth quarter 2024 of being about 8% to 10%. And as we think about your revised guidance kind of at the lower end of the revenue range, feels like your NII is inflecting, but a little softer. Is there enough in what you're seeing in fees and expenses to still get to that 8% to 10% PPNR rate or is the NIM and rate environment eating into that a little bit to where that high-single-digit growth rate is really going to be more of a 2025 event?

Kevin Blair

This decline in margin this quarter kind of delays that sort of high single-digit PPNR growth maybe into 2025 a little bit based on this forecast. But as Jamie said, we have a lot of levers we're working on right now that would allow us to potentially increase our forecast on the revenue front. And we're going to keep the expenses where they -- where they were forecasted originally.

So give us some more time as we work through this year, but to your point, based on this 7 basis point decline this quarter in margin, it would delay that sort of quarter-over-quarter increase in fourth-quarter. And to your point, maybe into 2025. But we'll continue to update this forecast as we get to the conclusion of the risk-weighted asset optimization program.

Catherine Mealor

Yes, that's helpful. It makes sense. And then as we think about weighing you in a higher for longer environment, you've given great disclosure and discussions, Jamie, about the difference in the margin. Once we start to see rate cuts, that 6 basis points to 12 basis points that you talk about, how do you think about what growth -- how growth changes when we start to get cut? Your guide is 0% to 3% without cuts. But is it fair to say that when we start to get cuts, that growth could actually start to accelerate? And then if we're kind of higher for longer, would we stay at the low end of that growth range? Just kind of curious about the dynamic between growth and margin in the rate environment. Thanks.

Jamie Gregory

We do believe that easing would be stimulative to growth on the loan book. We also believe -- I mean, when we look at our client profiles, a marginal rate cut or a marginal rate hike does not have -- it does not have a tremendous impact on the credit outlook of our clients. Like when we look at the credit impact of easing and tightening, we think that our kind of our FDM disclosures are a good indication of the rate impact there and only 30% of those have any sort of rate component to the modification. And so, we don't think there is a big credit impact. But there's also in an easing environment, there are positives that are to fee revenue.

And so, we believe that it will be a net positive to your point on the loan side to loan production, but also to capital markets fees, to mortgage fees, core banking fees. And so, there -- when you look across the income statement, we think it will be positive to loan growth. We think it could ease deposit mix pressures and we think it will be positive to fee revenue.

Catherine Mealor

That makes sense. So, I think we focus so much on just the margin, right, in the higher for longer versus environment where we see rate cuts, but it feels like there is enough with all that you lay out. And that's really why you're kind of thinking about only a less than 1% change in NII if we start to get cuts in the back half of the year along the forward curve.

Jamie Gregory

That's right.

Catherine Mealor

Yes. Makes sense. All right. Great. Very helpful. Thank you.

Operator

Thank you. The next question is from the line of Gary Tenner with D.A. Davidson.

Gary Tenner

Thanks. Good morning.

Kevin Blair

Good morning.

Gary Tenner

A couple of questions on credit, just that -- good morning. Just that large C&I credit that you called out a few times. Can you be a little anymore specific in terms of kind of industry and maybe the issues surrounding that particular credit? Was this a longer-term struggling company or maybe just some color behind that?

Robert Derrick

Yes. Hey, Gary, it's Bob. Thanks for the question. It's an aviation credit to South Florida, it's a bankruptcy working through. We were a senior lender with another lender involved in subordinated debt behind us, worked through the bankruptcy as a going concern sale that option didn't materialize as well as we thought it would. We increased reserves on the credit. We actually had the credit fairly well reserved. And when we took the charge-off, it was pretty much equal to the reserve amount.

So we think we managed it the right way. It was from our perspective, it had good equity in it, but for a number of specific factors that I really won't get into in the bankruptcy, but nonetheless the best option was to get it refinanced and sold through an asset sale, that's exactly what happened. And we ended up taking a charge and getting it resolved. So, does that help?

Gary Tenner

Yes, it does. Appreciate that. And then just in terms of the expectation, Jamie, for a flat NIM in the second quarter, given the commentary about the trends in the first quarter, I think the cost of total deposits in March was essentially flat to the quarter. And you flagged pricing on NAV accounts and money market has been pretty flat. So other than some additional mix potentially and a small amount of upward push on CD based on the kind of repricing of those, it feels like the flat NIM even is a little bit conservative. Am I missing something, as I'm interpreting your comments on the NIM?

Jamie Gregory

Your comments on the deposit side and the funding costs are spot on. And that's what we see as we see a little bit of pressure due to NIB declines ongoing. Now -- we haven't seen anything in April that would turn us from that impact. April has been constructive to date. We would expect to see a little bit of pressure on time deposits. But as I mentioned, the maturities are at a similar rate as our new and renewed production rate. So those -- that's where we are on the deposit side, and we do expect to see stability, as I said, on the non-maturity interest-bearing deposits.

And then when you look at the first-quarter margin, it was also impacted by loan fees being lower than typical is impacted by interest reversals. And we think that those are more of a first-quarter event and will not be continued. And so there are tailwinds there to the margin. But for now, our guidance is for flat in the second quarter, but those are the individual components as we see them.

Gary Tenner

Thank you.

Operator

Thank you. The next question is from the line of Jared Shaw with Barclays.

Jared Shaw

Hey, good morning, everybody.

Kevin Blair

Good morning.

Jamie Gregory

Good morning.

Jared Shaw

Maybe just following up on the question, Steve was asking about the market. When you strip out some of the noise from portfolios that you're exiting, would you say you're being successful in attracting new to the bank customers right now? Or is most of that core growth coming from existing customers? And can you comment, I guess, a little bit on the competitive market with maybe some of the bigger peers? Are they -- are they still losing customers overall? Or do you feel like they're maybe doing a little better job more recently retaining those commercial customers?

Kevin Blair

Yes, absolutely. Not only winning customers, we start with winning talent. And so, you look at those areas that we highlighted strategic growth initiatives, middle-market over the last three years, we've increased our bankers by roughly 50% and those bankers are continuing to win new business, business from the institutions they've come from as well as just prospecting efforts. And so, the growth in middle-market, both on the loan and deposit side is coming from that new talent and from new clients.

On the CIB front, we have 24 FTEs. We're up to right around $725 million in loan outstandings, another $50 million of growth this quarter, six new clients we've onboarded this year. And so that's coming from brand-new relationships and expanding existing relationships.

Our specialty lending area, both for our lender finance as well as our restaurant services, again, new clients, expanding existing relationships. So in every situation, not only are we winning talent, we are winning the competitive war of taking clients from other folks. So that's the game. As I said earlier, we have a great marketplace, but if you think rising tides raise all boats, then you're missing an opportunity. We want to get more than our fair share of growth and we're doing that in those areas.

Offsetting that are areas that we're running down credit. And that doesn't mean that we're losing clients in many situations. We're just deemphasizing growth in those areas and letting certain loans to pay off and pay down. So, we are super excited. The competitive landscape with the big banks, to your point, there is always opportunities. Anytime there is a merger, there continue to be some personnel changes that occur, which allow us to go out and get more talent in these marketplaces. We've been adding it in all of our metro markets and really across all of our footprint.

And look, you go back to the FDIC data last year to talk about this, we grew market share in the state of Georgia by 100 basis points. And the MSA of Atlanta 150 basis points. And so for me, that's the real message is we've got to get talent, we've got to grow at a pace that meets our shareholders' expectations. But most importantly, we've got to take share from our competitors.

Jared Shaw

Okay. That's a great color. Thanks. And then maybe shifting just a little bit. I'm looking at Slides 22 and 23 and looking at the maturity schedules of office and multifamily over the next two years. What's the expectation with those maturities? Is your appetite to try to retain those, if possible, or what's the, I guess, health of those loans being able to be taken out somewhere else away from the bank?

Robert Derrick

Yes. Hey, Jared, it's Bob. Just to start on that and Jamie can touch on it as well. But certainly, our first and foremost priority is to work with our clients. And again to Kevin's point, if it is a relationship client, somebody that we're doing business with and the loan matures and we're going to work to retain that client and that's our first priority. Now, if it's a non-relationship transactional piece of business and we don't have that much of that, but we do have some, as Kevin mentioned in his comments around remixing the balance sheet a little bit. We may choose to exit or get that refinance. But it really comes down to client selection. We think we've got good clients that can move through these maturities. We've certainly done a lot of analysis on what does rate environment look like and what the capital markets look like relative to maturities, stress testing, cap rates, et cetera. So we feel okay about our ability to move through our maturity schedule, without what I would consider to be significant credit events.

Now there'll always be some stress there, but we feel good about it, particularly as it relates to multifamily office. Maybe to your point, will be a little more stressed relative to valuations because that's kind of where we are in the cycle. But from our perspective, we have a little over 10% of our office book is currently rated and that book has been analyzed enormously. And we're sitting at around 10% and that's relatively stable to last quarter and six loans in there make up a majority of that number. So assuming that we can kind of work through those six and we don't backfill, we can kind of get through the office maturity wall as well. So we're feeling pretty confident about our ability to manage through it.

Jamie Gregory

And Bob, the only thing I'd add to that is that, when you think about each asset class, they're a little different, but almost 35% of our multifamily is in construction. So when those are completed, they'll go on to permanent financing. We're not generally a long-term permanent financer for those. And so there'll be a kind of a natural churn. And what we've seen in the last two quarters is a fairly healthy level of payoff and paydown activities, both from sales as well as just refinancing through some of the agencies.

And so, I think the important part is, to Bob's point, we're going to keep the clients we want to keep and those asset classes that we want to continue to lend into. Those that will go into more permanent financing, the markets are opening up and it's going to be a much more constructive environment. And then we'll be able to backfill those with new construction projects and new CRE developments behind that.

Jared Shaw

Great. Thanks a lot.

Operator

Thank you. The next question is from the line of Michael Rose with Raymond James.

Michael Rose

Hey, good morning, everyone. Thanks for taking my questions. Jamie, I was just hopeful that on Slide 16, you can give us some color around your beta assumptions on the way down and maybe how you arrived at some of those. That'd be helpful. Thanks.

Jamie Gregory

Yes, Michael. As we think about betas, it's actually pretty similar to what we discussed a few months ago is when you look at our portfolio and this is why we included that slide, really gives some clarity at a high level of how do we think about repricing deposits in an easing environment. And so, you have -- obviously, you have a portion of the portfolio that's non-interest bearing. Then you have a portion of the portfolio that's really high beta and it's a little more systematic.

And those are time and brokered and we do expect to see those -- brokered deposits will reprice at a very high beta, same with time. Time will just be dependent on the maturities. But then you get into the half of the portfolio, half the deposit book that is either standard and low beta or high beta. And so, the standard and lower beta is around 30% of the portfolio. Those are easier to reprice because they're largely standard rates, but their rates didn't go up as much in a tightening cycle. So we don't expect them to go down as much in the easing cycle. That's why we have the lower beta there. And then on the exception from the higher beta, 20% of the deposit book, those we do expect to see a decline at a higher beta, you can see our assumptions on this slide, but those will take -- those take conversations in some part, that will likely be a little bit slower to reprice.

Now, we have plans for all of this. So you know the timing is really up to us, it depends on the environment, it depends on the competitive landscape. There are a lot of different factors that will go into it, but that's how we have it set up. We're ready to go, even though it looks like the timing of it continues to get delayed.

Michael Rose

Very helpful. And then maybe just as a follow-up from a kind of a regulatory aspect, I think there is some fear that some of the bigger bank rules after what happened with NYCB could get pushed down to bank sub $100 million. Can you just kind of talk about kind of what the CET1 ratio kind of looks like when including kind of the AOCI impact similar to what some of the larger banks are kind of contemplating at this point? Thanks.

Jamie Gregory

Yes. On the capital side, when we look at that, our CET1 inclusive of AOCI is 8.2%. And we feel fine about that. As we look at our capital ratios, including AOCI, we think that they're manageable. We think the AOCI accretion will happen over time. We believe about 30% of the AOCI will accrete back in over -- by the end of next year. And so that's where we currently stand. And you know, on capital ratios, we mentioned this risk-weighted asset work, that is expected to improve capital ratios, but it's interesting. We haven't determined exactly what we would do when we get to the finish line on this, but it's an interesting question when you take it in the context of CET1 inclusive of AOCI like the [CAT4] (ph) banks because securities repositioning would not necessarily impact that because it's already in your capital ratios.

And so that's one of the considerations we think about, when we get to the finish line, what does it look like, where are we within our target or above our target range and what do we do about it? That is one of the considerations.

Michael Rose

Thanks for taking my questions. I appreciate it.

Kevin Blair

Thanks, Michael.

Operator

Thank you. The next question is from the line of Stephen Scouten from Piper Sandler.

Stephen Scouten

Good morning, everyone. Thanks for the time. I guess, I was curious, Kevin, you mentioned deposits probably were pressured a little bit more than you had expected. Can you talk about was that certain segments, certain geographies, rural versus maybe wholesale or like kind of what the moving parts of that incremental pressure was? Or is it more about that mix away from non-interest bearing still? Thanks.

Kevin Blair

Well, it's both. I mean, the mix away from non-interest bearing is the first thing. But then when you look at the primary reason that we're seeing increased expenses or increased rates, it's on the CD front. And so part of it has been just as more balances move into CDs, the actual remixing, the impact that rate on that portfolio has on the overall portfolio is the bigger issue. As Jamie mentioned, when we look at the individual categories like money market and now, those rates have actually peaked.

And in some cases, ticked down 1 basis point or two. So it has really more to do with just the remixing in the CDs. And those rates, as the question earlier, have stayed very high in the competitive landscape. So we've had to keep our rates higher as well. We have tried to shorten the duration there. Our odd terms rate is five months. So we're going to have the opportunity if rates were to decline to reprice those deposits much more quickly than if they were 13 months, but it's really more due to the remixing that's happening there.

Jamie Gregory

And Stephen, let me give you one more data point. As you look kind of one layer deeper, a lot of the deposit outflows that we saw in the first quarter were with our larger clients. But when you look within the community bank, which you can think about those being our core clients, we saw significant growth in transactional deposits. And so on NAV [01:08:46] accounts and the community bank, they were up 11% quarter-on-quarter. If you look at money market accounts, they were up 3% quarter-on-quarter. So that's strong growth with our core clients. And that's -- those are the type trends that we want to lean into and help feed as we go through 2024.

Stephen Scouten

Yeah. That's an important distinction. Appreciate that. And then just one clarifying question on the, talked about like a $30 million move in the reserve from a qualitative basis. Is that kind of encapsulating what you show on Slide 18 with the change in your weightings towards the various economic scenarios?

Jamie Gregory

No, that's separate. That would be in the portfolio component of that and that's separate the economic outlook.

Stephen Scouten

Okay. Perfect. Very helpful. Thanks guys. Appreciate the time.

Kevin Blair

Thanks, Steve.

Operator

Thank you. The next question is from the line of Manan Gosalia with Morgan Stanley.

Brian Wilczynski

Hi, good morning. This is Brian Wilczynski showing in for Manan. I was wondering if you could talk about going back to credit, the breakdown of your non-performing loan balances with C&I aside from that one credit that you charged off this quarter. I ask because a few of your peers have cited weaker C&I this quarter. And I'm wondering if there are any broad themes you're seeing from an industry perspective.

Robert Derrick

Yes. Hey, Brian, it's Bob. I would say no broad themes. Certainly, if you look at our non-accrual ratio, and I'll set the one credit aside just for this discussion. So it would drop us down to around $280 million give or take $1 million of non-accruals. About 70% of that is C&I. So, but no specific industries in there.

Most of those C&I credits have either specific reserves on them or we've already marked those credits to where we think is appropriate in the exit, is in process. So yes, the non-accrual portfolio would be more heavily weighted to C&I today. But from our perspective, it's a manageable number of credits. We have 13 credits above $5 million and we can put a pretty good [indiscernible] on a number of those as it relates to resolution plan. So when you start willing it down, it is C&I heavy, but we think we've got a very quantifiable number. And more importantly, what we see in terms of new inflows is very light.

So we think the C&I piece is going to be continued to be a little more idiosyncratic. There's going to be some, but that's the way we think about the corporate space. And then when you look at sort of the other components of our overall rated portfolio, we've got a senior housing component in there because it's been through the pandemic and the labor cost increases, it's beginning to stabilize. So that would be more of a positive.

And then finally, it would be CRE would be the third piece. And that's specifically related to office. And as I mentioned earlier, I think we're around 10% of our office portfolio is rated. And when we drill into those numbers, as Kevin mentioned, the deep dives there that we've done on office and multifamily don't give us any significant concern about just a backlog of new potential problems.

So as we work through those office loans, that will take time and that framework of those kind of categories is what's kind of guiding our charge-off guide as Kevin mentioned earlier. That we think we can begin to see improved charge-off numbers toward the back half of the year, certainly into 2025, assuming that we kind of remain in a rate environment and economic environment that we're in and that we don't see really any surprises, but our analysis doesn't reveal that today.

Brian Wilczynski

I appreciate the color. Thank you. And then just as a follow-up, I was wondering if you could unpack your rate sensitivity to the long end of the curve. Do you get a material benefit from the increase in the 10-year yield that we've seen over the past few weeks? And if so, how do you see that playing out through the end of 2024? Thanks.

Kevin Blair

We continue to be asset-sensitive to the long end of the curve. So the increase in rates is beneficial to us. It's a similar conversation we've had before where when you rolled forward from the December conference to the January earnings announcement, we spoke to a 5 basis point difference in the margin expectation in the fourth quarter due to the change in rates. That's a good indication of that asset sensitivity to the long end of the curve, and it's approximately 2%.

Brian Wilczynski

Okay. And is that primarily from -- I would imagine that's primarily from fixed-rate repricing? Do you have any color on how much is coming due over the next three quarters?

Jamie Gregory

So on the securities portfolio, we have about $60 million a month in paydowns. And so, that's just steady flow, steady repricing. You see our book yield on the securities portfolio. It's -- that's part of that accretion. And then we have about a $5 billion mortgage portfolio that is paying down at about 10% a year.

Brian Wilczynski

Great. Thank you for taking my questions.

Kevin Blair

Thank you, Brian.

Operator

Thank you. We have the next question from the line of Timur Braziler from Wells Fargo.

Timur Braziler

Hi, good morning.

Kevin Blair

Good morning.

Timur Braziler

Maybe, can we get an update on what you expect the cadence of broker deposits declines to look like throughout the course of the year. And then as we look at broader time deposit growth, just your appetite there, it seems like there is some ability for the balance sheet maybe to use some balance sheet liquidity and maybe not grow time deposits as fast as they've been growing. Maybe just give us your thoughts about just the 85% loan-to-deposit or the cadence of broker deposit paydowns and then your appetite for time deposits?

Kevin Blair

Yes. Timur, great questions. On broker, we do expect to see those continue to decline as we go through the year. It's safe to use $250 million to $500 million per quarter for that. On-time deposits, you're exactly right. First, if you look at wholesale funding, we're down over 30% in wholesale funding year-over-year. And so that gives a lot of flexibility on the liquidity side to choose the most economical way to fund the bank.

Now with regards to time deposits, part of that is client demand. And so we have to react to where clients are on what they're looking for on their deposits. And there is a lot of attraction to time deposits. And so we need to be there for them with a competitive rate. But you're right, the pressure to get incremental liquidity is simply not there given all the avenues we have for liquidity. And we can -- we could slow down the decline in brokered, we could use home loan bank or we could grow time deposits. We do expect core deposits to be relatively stable in the first half of the year and then we expect to see growth in the second half of the year. And so we will continue to analyze and be balanced on the profitability and the client demand piece of that. But that's how we're looking at it today.

Timur Braziler

Okay. And then within the loan book, just in the C&I portfolio, 8% of C&I loans that are the finance and insurance companies. Can you give us an update as to what that entails? And then more specifically, what component of those loans are to borrowers that are using that as leverage to make other commercial loans?

Kevin Blair

Look, that's -- the portfolio is our lender finance business. And as Jamie talked about earlier, maybe to give you some comfort around the asset quality, those are the portfolios we're looking at to get the reduced risk-weighted asset treatment. So as Jamie mentioned, 100% risk-weighting down to potentially a 20% risk-weighted treatment, which means that there is good sponsorship, there is good coverage on the assets. And to your point, these are not levered assets. These are asset based structures that provide repayment within the ability to liquidate those assets. So it's not a levered portfolio per se. It's well-structured, it's asset-based and ultimately may qualify for an actual lower risk-weighted asset treatment.

Timur Braziler

Great. Thank you.

Operator

Thank you. We have the next question from the line of Russell Gunther with Stephens.

Russell Gunther

Hey, good morning, guys.

Kevin Blair

Good morning.

Russell Gunther

Just wanted to -- good morning. Just a couple of quick follow-ups. The first on growth. Just wanted to get a sense for what inning you'd say we were in terms of the strategic decline in non-relationship loans. I understand this is included in the guide, but it would be helpful to get a sense of the magnitude of the impact and timeline for that headwind to abate and kind of get back to that growth year outlook you were discussing earlier.

Kevin Blair

Well, look, when you look at the quarter, we had about $77 million of declines in the [SNIC] (ph) portfolio, another $50 million in third-party, those will continue for the foreseeable future. Number one, remember that both of these were surrogates for the securities portfolio when we had excess liquidity. And so in this environment, unless we are seeing better economics, we would expect that sort of run rate to continue. So expect somewhere around $100 million to $120 million of runoff each quarter. So that would not change.

Now, the good news is that could be more than offset as we get to some of these market-related declines. So once senior housing gets to kind of their final portfolio size and the real estate portfolio builds back their pipeline to offset some of the paydown activities, I think that those market-related declines will more than offset the growth. They will more than offset these strategic declines, which would put more of the growth back towards that mid-single-digit level.

Russell Gunther

That's great. Okay. I appreciate that there. And then just switching gears on to the fee guide. Could you guys just remind us the outlook for GreenSky to contribute this year? And then the capital markets expectation as well, just confidence in that year-over-year growth rate and drivers there.

Jamie Gregory

If you look at the first quarter on GreenSky, it played out as expected. We had a strong quarter, little less than $8 million of revenue associated with that. And going forward, the reason for the revenue will change. So if you think about it, that deal closed in the first quarter, so we had a pass-through of the loan book. But going forward, it's the flow arrangement. And in the flow arrangement, we actually expect revenues to be in a similar area, slightly below the first quarter, but in a similar area per quarter as we go through 2024.

With regards to capital markets, we feel really good about 2024. We think it's going to be a strong year for capital markets coming off of the first quarter and increasing as we go through the year. And the components of capital markets, we have client swaps, which are relatively low at the moment, but we expect to see growth in leader [indiscernible] fees, agency fees, and we expect to see those as we go through 2024. And we think that's going to be one of the good drivers. When we said overall NIR growth in the low-to-mid single-digits and that -- a lot of that is capital markets. We think that the strength there will continue as we go through this year.

Kevin Blair

And to your point, to Jamie's conviction, those are in our pipeline today and our pipeline in CIB and wholesale are the largest they've been in some time. And so it's not just forecasting, we actually see the transactions that we'll be able to execute on.

Russell Gunther

I appreciate it, guys. Thank you, both.

Operator

Thank you. We have the next question from the line of Chris Marinac with Janney Montgomery Scott.

Christopher Marinac

Hey, thanks. Just a quick question for Bob, as it pertains to the office maturities. Are any of those tied back to medical office? Is that blended in with the number?

Robert Derrick

Chris, just blended in. That's the total office book. And then [Multiple Speakers] excuse me, yes, the medical component is about $400 million give or take $1 million of our total office book.

Christopher Marinac

So we can proportionately adjust the maturities by that, it was all I was saying on that.

Robert Derrick

No, I'm sorry, Chris, you know that there is about $400 million of medical office loans in our current office portfolio. That does not include the asset sale we did on the institutional medical office building. So we still have about $400 million of -- mainly speaking, community banking, medical offices that are in our office portfolio today.

Christopher Marinac

Great. And Bob, are you seeing any further stress on debt service coverage ratios as it pertains to office, or is that largely been reflected in the criticized component?

Robert Derrick

It's largely been reflected, Chris. I mean, we certainly -- it is still migrating and there is certainly still a slight negative bias to office. Obviously, you've got valuation changes and we certainly feel good about the markets we're in, but some of them are more stressed than others. But from a debt service coverage perspective, it would be reflected in our current rated status of around 10% rather on the rated book.

So obviously, lease expirations and lease rollovers and those types of things are what we're doing every day and analyzing those, looking out to our maturities and when these leases roll over or the sublease activities, et cetera. So a lot of variables in our office analysis, which is kind of built into our sort of normal portfolio management business-as-usual activities today, and is reflected in our current risk ratings and we feel good about the accuracy of those right now.

Christopher Marinac

Great. Thanks for all the disclosure on this. We appreciate it.

Robert Derrick

Thanks, Chris.

Operator

Thank you. The next question is from the line of Brandon King with Truist Securities.

Brandon King

Hey, a two-part question on the net interest margin expansion, the 10 basis points to 15 basis points in the second half of this year. How much of that are you expecting to occur in the fourth quarter versus third quarter?

And then the second part of that question is looking beyond that, is that a certain pace that we are going to expect going forward, or could even be more just looking at your fixed-rate loan repricing schedule for 2025?

Jamie Gregory

Yes. Brandon, it's a great question. We do expect to see that expansion largely in the second half of the year. And late in the year is an important time for that expansion largely due to some hedge maturities in the fourth quarter. We have $750 million of hedge -- from edge maturities in the fourth quarter at pretty low rates, and those will be impactful to both the fourth quarter and then incrementally again to the first quarter in 2025.

I think when you think longer-term about our margin, what I would say is, first, think about the headwinds on the liability side. We clearly saw those in the first quarter. We expect those to be mitigated in the second quarter as we see stabilization in both rate and mix. And so then you look at the margin and you think about the benefit of the fixed-rate asset repricing. And so that really becomes powerful and it's a multiyear benefit. And so we've talked about that in the past, but that benefit will flow through 2025 if you're assuming rates stay relatively stable, and we'll continue to see that benefit. And so when I look longer-term and I look at the fourth quarter of this year and I compare it to the fourth quarter of 2025, there is about a 20 basis point benefit due to fixed-rate asset repricing.

And there are a lot of variables that can impact that outside of those fixed-rate repricing benefits. But that's a pretty important [Technical Difficulty] tailwind to the margin. And so yes, we expect the margin expansion to continue as we get into next year. But just to that fixed-rate asset repricing, but just wanted to be really clear on that one.

Brandon King

Okay, very helpful. And lastly, on the RWA optimization, once that's complete, how you thinking about basically deploying that capital generating into securities repositioning versus potentially buying back more shares?

Kevin Blair

Yes, that's a great question. And it's something that we're currently working through. And we'll make the decisions on that once the analysis and documentation is complete, because it's a pretty, pretty hefty lift, to get to where we want to be and make sure that we've done everything right.

But the way we're thinking about that is looking at our capital ratios, and we also look at our capital ratios inclusive of AOCI, because we think that CAT4 banks in the way the regulators are looking at it, we think that's -- that matters as well. And so, we want to be balanced in how we deploy it. But, you know, assuming things play out, like we expect, we would expect to deploy, a large portion of it to securities repositioning, deploy some of it to share repurchases, but really just try to stay at the high end of our target range of CET1 10% to 10.5%. And so, more to come on that, you can be sure that as soon as we have everything locked down, which we expect in the near term, we will let everybody know.

Brandon King

Great. Thanks for taking my questions.

Operator

Thank you. This concludes our question-and-answer section. I would like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.

Kevin Blair

Thank you, Angela, and appreciate everyone being in attendance today and your continued interest in Synovus. I'd also like to thank and recognize all of our team members who are listening in today. Our financial results are as we presented them this morning are a direct result of what you do daily to serve our clients and to differentiate us from our competitors. Of course, our first quarter results reflect a contraction in the margin. And we believe that this will reverse and into expansion for the year to come. Our fee income expectations have risen, our expenses are being well managed. On the credit front as we've shared today, lots of metrics. But the summary is the outlook for charge-offs is stable to lower even as we build our allowance higher.

And from an overall business activity standpoint we're seeing some green shoots. Our loan pipelines are starting to increase a bit and sales activities across our client segments are picking up. As we've shared in recent quarters, our strategic focus is on leveraging our trusted and valued approach to serving and advising our clients to deepen relationships and deliver prudent and profitable growth.

As we navigate an uncertain economic and interest rate environment, we are equally focused on strengthening our returns as well as our balance sheet, which in turn translates into a more risk resilient profile. I truly believe that we have progress throughout the remainder of this year and even into 2025. And we will continue to build upon our momentum and return the bank to a more diversified and consistent growth orientation. For our investors, we look forward to seeing many of you in the upcoming conferences in May and June. And we stand ready to address any of your questions. Thanks to all.

And now operator, that concludes our first quarter 2024 earnings call.

Operator

Thank you, Kevin. This concludes today's call. Thank you for joining, you may now disconnect your lines.