Synovus Financial Corp. (NYSE:SNV) Q4 2023 Earnings Call Transcript January 18, 2024 8:30 AM ET

Company Participants

Jennifer Demba - Director of IR
Kevin Blair - Chairman, President and CEO
Jamie Gregory - CFO
Bob Derrick - Chief Credit Officer

Conference Call Participants

Jon Arfstrom - RBC Capital Markets
Michael Rose - Raymond James
Steven Alexopoulos - JP Morgan
Brady Gailey - KBW
Brandon King - Truist Securities
Timur Braziler - Wells Fargo
Christopher Marinac - Janney Montgomery Scott
Russell Gunther - Stephens
Brody Preston - UBS

Operator

Good morning, and welcome to the Synovus Fourth Quarter 2023 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. And I will now turn the call over to Jennifer Demba, Director 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. Entering 2023, our primary corporate goal was summarized as focused execution. That objective was rooted in delivering productivity gains within our core businesses, allowing us to deepen relationships, grow our client base, and enhance financial performance. And secondarily, continuing to accelerate the contributions generated through our new growth initiatives and adding talent in key businesses and markets to expand our presence and profitability. We made steady progress in these areas, which led to solid growth and built on our foundation to deliver healthy and consistent earnings and tangible book value growth over time.

In the midst of executing on our plan, we were presented with unforeseen challenges, and our Synovus team acted quickly and decisively in order to mitigate risk and better position the bank for a more challenging liquidity and economic environment. Despite a more challenging environment, we produced healthy and consistent loan growth in key commercial business lines including middle market, corporate and investment banking, and specialty lending. Corporate and investment banking, which was officially launched in mid-2022, continues to prudently grow and execute with over $650 million in loans outstanding and became PPNR positive in the middle of last year. Also, our team was laser-focused on accelerating our core funding generation through sales activities, product expansion, and specialty businesses. As a result, we delivered an 83% increase in total deposit production in 2023.

We delivered strong double-digit growth in adjusted fee income in '23 as our treasury and payment solutions, capital markets and wealth management teams continue to expand their contributions, supported by new solutions, analytics, and an intense focus on building full relationships. Also, we further augmented and diversified our non-interest revenue stream with an expanded balance sheet light relationship with GreenSky. We maintain top-quartile efficiency through proactive expense rationalization and disciplined cost management while continuing to make the investments in areas that will drive long-term shareholder value.

On the asset quality front, we continue to experience very manageable levels of credit losses and see no systemic deterioration across our asset classes and footprint. Finally, the balance sheet was strengthened in 2023 from solid core deposit growth and a reduction of office commercial real-estate loans, and higher-cost wholesale funding. We also increased our common equity Tier-1 ratio to over 10% through solid earnings accretion and prudent balance sheet optimization. Moreover, the business mix was streamlined with the sale of our asset management firm GLOBALT, which enables us to reallocate investment into higher returning business lines.

Now let's move to Slides 3 and 4 for an overview of the fourth quarter and full year 2023 financial highlights. Synovus reported 2023 fourth quarter diluted earnings per share of $0.41 and adjusted earnings per share of $0.80. For 2023, we reported $3.46 in diluted earnings per share and $4.12 in adjusted EPS. However, the $51 million FDIC special assessment reduced fourth quarter reported and adjusted earnings per share by $0.26. Therefore, excluding the FDIC assessment, fourth quarter reported EPS would have been $0.67 and adjusted EPS would have been $1.06.

Higher funding costs and loan losses were headwinds for the banking industry in 2023. But in this challenging environment, Synovus was able to grow core deposits, core non-interest revenue, and maintain disciplined expense control. Even with the challenges and excluding the FDIC special assessment, adjusted pre-provision net revenue increased about 2% last year. Net interest income grew $20 million for the year or roughly 1%, despite an 11 basis point margin contraction. Excluding strategic loan sales of $1.6 billion in 2023, period-end loans increased about 3% led by C&I business lines including middle-market, CIB, and specialty lending. Despite muted activity, CRE also experienced year-over-year growth driven by increased utilization on previously committed construction facilities. There continues to be an increased emphasis on stronger returns and more deposit relationship-based lending and we are pleased with the increased margin and relationship profitability profile of the 2023 originations.

On the funding side, total core deposits increased 3% and total borrowings declined 57% in 2023. Our fourth quarter net interest margin of 3.11% was stable quarter-over-quarter and better than our prior guidance as a result of modestly lower-than-expected core interest-bearing deposit costs. Also, we were able to reduce higher cost funding and broker deposits in FHLB borrowings due to the continued success of our deposit production activities. We remain confident that our net interest margin has reached a positive inflection point and should be relatively stable in the first quarter. A more stable monetary policy environment coupled with fixed-rate asset re-pricing should support the NIM as we progress throughout 2024 and provide a multi-year tailwind for net interest income. Despite continued headwinds from a soft mortgage environment and intentional reductions in checking program fees, adjusted non-interest revenue increased 11% in 2023, supported by increases in treasury and payment solution fees, capital market fees, and wealth management fees, as well as higher GreenSky income. Non-interest expense remains well-contained. Our proactive cost rationalization and management initiatives have placed Synovus in a strong position as we start 2024. In this uncertain environment, asset quality remains healthy. Excluding our loan sales, net charge-offs were a manageable 38 basis points in the fourth quarter and 28 basis points for the full year. Non-performing assets increased at a slower pace over the last three months and we further built the allowance for credit losses.

Finally, we continue to focus on maintaining a strong capital position as we navigate through a more uncertain economic environment. And with our CET1 position ending the quarter at 10.22%, up from the 9.63% a year ago, we remain confident in our capital profile and well within our targeted capital levels of 10% to 10.5%. We continue to make consistent progress in diversifying and optimizing our business mix with growth in several key areas including middle-market, commercial banking, CIB, treasury and payment solutions, capital markets, banking as a service, and wealth management. These are the core businesses where we have shown the right to win and through execution and expansion, we'll deliver solid revenue growth well into the future.

Our talent is what truly differentiates Synovus. Our key objectives for the team in 2024 are, one, prudently growing the bank, two, winning full relationships, and three, enhancing profits. We are committed to delivering on these objectives while preserving and even improving key elements of our safety and soundness profile. I have great confidence in our ability to not only meet our goals but also to outpace our competition.

Now, I will turn it over to Jamie to cover the quarterly results in greater detail.

Jamie Gregory

Thank you, Kevin. As you can see on Slide 5, total loan balances ended the fourth quarter down $275 million sequentially, or about 1%. While loans declined modestly, overall trends were positive as key strategic business lines saw growth and transaction-related declines signal a return to more normal commercial real-estate market activity. There were three primary drivers of the modest sequential decline in loans. First, loan production has been softer over the past few quarters. Also, CRE and senior housing market transaction activity increased significantly over the last three months due to property sales and refinancings, which we believe shows more strength in those markets. Finally, strategic declines in non-relationship syndicated lending and third-party consumer loans continued in the fourth quarter, further positioning our balance sheet for core client growth. While C&I loans declined $182 million sequentially during the fourth quarter, there was strategic growth in middle-market loans, CIB, and specialty lines. These commercial loan categories also saw growth for the full year.

With regards to commercial real estate, excluding the $1.2 billion medical office building sale last quarter, we generated approximately 7% loan growth last year, primarily from fund-ups of existing commitments. We continue to prioritize clients both new and existing with broad-based deposit and fee income relationships. At the same time, we are rationalizing growth in credit-only lending areas such as shared national credits and third-party consumer lending that have a lower return profile or don't meet our strategic relationship objectives. As a result of higher loan pay-down activity and muted production, we expect to see a reduction in senior housing and institutional commercial real estate this year. Our organic balance sheet optimization efforts will continue in 2024 as we focus on balanced loan and core deposit growth.

Turning to Slide 6. Core deposit balances grew $714 million or 2% sequentially during the fourth quarter, driven by a 9% increase in time deposits and a 4% increase in interest-bearing demand deposits, which was partially offset by a 5% decline in non-interest-bearing deposits. Seasonality contributed to public funds growth of $464 million or 7% on a sequential basis. And the pace of non-interest-bearing declines remains below the level experienced during the peak in early 2023. Our strong fourth quarter core deposit growth allowed us to reduce brokered deposits by $179 million and overall borrowings by about $670 million, resulting in continued improvement in our wholesale funding ratio to 13.5% from 15.1% in the third quarter.

As we look at funding costs, our average cost of deposits increased 19 basis points in the fourth quarter to 2.5%. As a result, our cycle to date total deposit beta was 45%, which was just below the range we communicated at an industry conference last month. From October to December, total deposit costs were up 6 basis points. We continue to expect that deposit costs will peak sometime during the first quarter.

Now moving to Slide 7. Net interest income was $437 million in the fourth quarter, a decline of 1% from the third quarter, which is slightly better than our previously disclosed expectations. Our net interest margin was stable during the fourth quarter versus a 9 basis point sequential decline in the third quarter. Better-than-expected core interest-bearing deposit costs reduced borrowings and increasing earning asset yields supported the margin. The partial securities repositioning, which was completed in December, had an estimated 1 basis point to 2 basis point impact in the fourth quarter with an incremental 3 basis point to 4 basis point benefit expected in the first quarter.

As we look forward, assuming a stable rate environment, we continue to expect the first quarter net interest margin to be relatively stable, followed by expansion in the second half of the year. Longer-term, the benefits of fixed asset repricing remain a significant tailwind to the margin. Our sensitivity profile remains relatively neutral to the front-end of the curve and we remain slightly asset-sensitive to longer-term rates. However, during an easing cycle, the margin will exhibit short-term pressure due to the timing lag between loan and deposit repricing.

Slide 8 shows total reported non-interest revenue of $51 million. Adjusted non-interest revenue was $126 million, up $20 million or 19% from the previous quarter. The sequential variance in fee income was due to a one-time GreenSky fee of $12 million related to its legacy loan portfolio, as well as stronger treasury and payment solutions and non-GLOBALT related wealth fees. With the expansion of our relationship with GreenSky, we anticipate one-time related fees of about $5 million in the first quarter and approximately $5 million in ongoing quarterly non-interest revenue thereafter, which is currently reflected in our fundamental guidance. There were $78 million in security losses during the fourth quarter, which we had previously announced in December. Also, the GLOBALT sale at the end of the third quarter reduced non-interest revenue by approximately $2.4 million. We continue to invest in core non-interest revenue streams that deepen our client relationships and have all demonstrated healthy growth this year. Treasury and payment solutions fees were up 11%, while wealth management fees increased 11% and capital markets fees grew 21%. In fact, syndicated finance and debt capital markets fees jumped over 100% in 2023. Non-interest revenue has also been impacted by a soft mortgage-lending market as well as recent changes to our checking program. However, the bank's relative stability of core client fee income over time highlights the diversity of our revenue streams, many of which are insulated from the impacts of the volatile rate environment.

Moving to expense. Slide 10 highlights our ongoing operating cost discipline. Reported and adjusted non-interest expense was $353 million in the fourth quarter. The $51 million FDIC special assessment inflated fourth quarter reported and adjusted non-interest expense. Without that expense, adjusted non-interest expense would have declined 1% from the third quarter. In September, we took prudent expense rationalization actions that will still allow Synovus to appropriately invest for infrastructure needs and future growth. Adjusted employment expense was down 4% sequentially and year-over-year, benefited by headcount reductions during the fourth quarter, as well as lower performance incentives. Finally, the recent GLOBALT sale reduced expense by about $2 million in the fourth quarter. As you can see on Slide 11, total headcount is down 9% from 2019. Over that same period, revenue has increased 14%, resulting in an increase in revenue per FTE of 25% and a top-quartile efficiency ratio. Our sharp focus on operating expense discipline and prudent discretionary spend will continue throughout 2024 as we manage through headwinds that pressure industry earnings.

Moving to Slides 12 and 13 on credit quality. Credit metrics were relatively stable from the previous quarter, adjusted for the third quarter loan sales with a net charge-off ratio of 0.38% and NPL ratio of 0.66% and a total criticized and classified loan ratio of 3.45%. The allowance for credit losses increased by $4 million to $537 million or 1.24% of total loans, up 2 basis points from the third quarter. We continue to expect NCOs to average loans to be 30 basis points to 40 basis points in the first half of 2024, and we have a high degree of confidence in the strength and quality of our loan portfolio. Moreover, we will continue to apply conservative underwriting practices and advanced marketing analytics to new loan originations and portfolio monitoring and management.

As seen on Slide 14, our capital position improved during the fourth quarter, with the common equity Tier-1 ratio reaching 10.22% and total risk-based capital now at 13.07%. Capital accretion was impacted by the FDIC special assessment and the securities losses during the fourth quarter, but as was the case throughout 2023, our core earnings profile continues to support our capital position. Looking ahead, our 2024 capital plan includes a stable common dividend and prioritizing prudent capital management within our targeted range of 10% to 10.5%. Similar to 2022 and 2023, we have authorization for up to $300 million in share repurchases in 2024.

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

Kevin Blair

Thank you, Jamie. I will now continue with our updated financial guidance for 2024, which is unchanged from the expectations we outlined in early December. Loan growth is expected to be between 0% and 3% in 2024. Growth should be driven by continued success in middle-market, corporate and investment banking, and specialty lending business lines. This growth should be partially offset by market-related loan pay-downs, which are expected to return to more normalized levels and rationalization of credit-only loan relationships. We maintain our expectations for core deposit growth of 2% to 6%. Despite a challenging and uncertain industry-wide growth environment, we have confidence that our focus on core deposit production and expansion of relationships will continue to bear fruit in 2024. The adjusted revenue growth outlook continues to be in a range of negative 3% to 1%, which assumes a flat interest-rate environment. The recent volatility in interest rates has shown the uncertainty in the outlook for rates. The reduction in loan rates to the 4% area, if maintained, would impact our revenue outlook for 2024 negatively by approximately 1%. However, considering this impact, our outlook remains within the current revenue guidance. It is uncertain how 2024 will play out with regards to Fed interest-rate policy, but we expect two things to be true. First, it's a short-term negative for net interest income and margin during the easing cycle as deposits reprice slower than loans. And second, over the longer term, we are relatively neutral to the short-term interest rates. So the margin is expected to revert back to the starting point and likely higher once the easing cycle is completed.

Adjusted non-interest expense, which includes the fourth quarter FDIC special assessment, is expected to decline between 1% and 5% in 2024 from a combination of several initiatives, including personnel and business optimization, back-office and corporate real-estate rationalization, and less discretionary and third-party spend. We will continue to be very disciplined in expense management while investing in areas that deliver long-term shareholder value. The result of expanding NIM and controlled expenses is forecasted acceleration of core PPNR growth throughout the year. Assuming a stable economic environment, we expect to end 2024 with strong growth and financial performance and an eye towards our longer-term operating metric targets.

Moving to capital, we are within our CET1 range of 10% to 10.5% and will opportunistically manage our capital levels within this target range, dependent on forecasted economic conditions. We anticipate the tax rate should approximate 21% to 22%, primarily supported by additional tax credit investments and further diversification of our revenue sources. Synovus' strategic actions in 2023 as well as the strength of the business model and the relative growth of our footprint have positioned the company for strong long-term revenue, earnings, and tangible book value growth.

And now, operator, let's open the call for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jon Arfstrom from RBC Capital Markets. Your line is now open.

Jon Arfstrom

Thanks. Good morning, everyone.

Kevin Blair

Good morning, Jon.

Jamie Gregory

Good morning, Jon.

Jon Arfstrom

Just wanted to go back -- Kevin, you touched on it, and Jamie as well. But on the revenue growth guide and your interest rate assumptions, when I look at that guidance range, what takes you to the lower end of that range and the higher end of that range? Is this mostly interest rate driven? And what is kind of built into that guidance in terms of the short-term rate variance?

Jamie Gregory

Yeah. Jon, this is Jamie. Thanks for the question. As we think about volatility in revenue in 2024, the risks and opportunities are actually fairly similar to each other. It comes from things like deposit mix, economic activity, and the Fed interest rate policy. So you know that our guidance is basically a flat rate scenario. So we have no Fed easing in the guidance, we have the long end staying stable at 4%. But within that, using those assumptions, we would say that the biggest risks and opportunities come from deposit mix, economic growth, loan growth, business growth. We would say those kind of present both risks and opportunities to 2024.

Jon Arfstrom

Okay. And at this point, if you think about the forward curve in terms of your net interest income outlook, how much of a headwind is that, Jamie? How difficult is that environment?

Jamie Gregory

Yeah. We debated a good bit how to best give insight into our performance in 2024 given the volatility of interest rates. We decided to keep the front end stable but then speak to the impact based on the easing cycle, just so people could use whatever rate scenario they deem most appropriate because the assumptions change weekly. If you compare where we were, even a couple of weeks ago, the assumptions for Fed easing are very different than where they are today. But for us, as Kevin mentioned in his guidance comments just a minute ago, longer term, we are neutral to the front end of the curve. And what we mean by that is that when we come out of the easing cycle and deposits normalize to the lower levels, we expect our margin to be relatively similar to where it was when we entered the cycle. But during the cycle, that -- the lag on deposit costs relative to loan yield declines will reduce the margin. And that's dependent on a few things. The impact of 2024 is dependent on the timing of easing, when does the Fed begin the easing cycle, the speed of the easing and how far does it go. But when we think about the impact to our margin, we think that that impact during the easing cycle could be anywhere between 2% and 4% reduction in the margin. And then again we would revert back to the starting point once those deposit calls stabilize at the end of the easing cycle. So the timing is very important, the speed is important, the depth is important. But those -- that's generally how we see that impact.

With regards to a full year 2024 revenue guide, it could be anywhere up to 2.5% of full year revenue given the scenarios we've seen from economists, markets, Fed dot plot et cetera. But there are other things that are not included in that guide. One is, in an easing cycle, it's likely that that will be a positive impact to deposit mix shifts and that's not included in my comments here in our expectations. It also doesn't take into account the associated positives to economic growth, fee revenue as well as credit.

Jon Arfstrom

Okay, good. That's all very helpful. Thank you very much, all of you.

Jamie Gregory

Thanks, Jon.

Operator

Our next question today comes from Michael Rose from Raymond James. Your line is now open.

Michael Rose

Hey, good morning, guys. Thanks for taking my questions.

Kevin Blair

Good morning.

Michael Rose

Wanted to go to -- good morning. Wanted to go to Slide 8 and, maybe if you can just, Kevin, expand on the tailwinds and headwinds that are on the chart and then how we should frame up expectations for the GreenSky expanded partnership as we move forward as it relates to the outlook for the year? Thanks.

Kevin Blair

Yeah, Michael. When we look at this slide, I think it speaks to the diversity of our revenue and how we've continued to try to add new sources of growth that allows us to take on some of the headwinds. And so whether it's the sell of a business or just reducing our NSFOD income or seeing a movement on products like repo, where we've been very successful this last year. If you look at the left-hand side of that chart, banking as a service is GreenSky, which we're continuing to work through the contractual -- finalizing the contract there. And we still expect that to represent a sizable increase in income in 2024. But also within banking as a service, we're expanding our offerings within our merchant acquiring company where we own a majority interest in Qualpay. We've expanded our sponsorship of third-party ISOs. And so all of those banking as a service programs will contribute growth year-over-year. Treasury and payment solutions, if you look at the last three years, we've grown at 20%. We expect that to continue to increase in 2024 with some repricing opportunities as well as continued expansion of our sales practices. Wealth was up 11% this past year. We expect -- with AUM growing 8%, we expect that to continue to grow based on the talent and the success of our business model. Capital markets, as we've expanded CIB and our wholesale bank, we've continued to grow, that's up 20% in '23 and that will continue to grow in '24. And then, we've seen some traction on some of the government-guaranteed gains, whether that's USDA or SBA loans. And so when you look at all of those, it will help to offset those headwinds, and we think we'll get a little bit of growth in NIR this coming year as a result of that.

Michael Rose

That's great color. And maybe just as my follow-up, I appreciate all the color related to Jon's questions. But just wanted to dig into some of the mix shift comments that you mentioned, Jamie. And then, how quickly do you guys think you would be able to kind of pull down some of the interest-bearing-deposit costs, assuming we do get a couple rate cuts this year? I think that's a pretty big outstanding question for you and a lot of banks. Thanks.

Jamie Gregory

Yeah. It's one of the bigger questions for the industry for 2024, for sure. When you -- well, first, in our assumptions, we assume that NIB declines further in 2024 to somewhere between 23% and 24% of total deposits. But to your question on interest-bearing cost, we really break it up into four buckets and so -- or three buckets excluding NIB. We have what we call the kind of high beta systematic repricing, which would include broker deposits in our core CD portfolio. Those reductions, the broker deposits are near 100 beta, and time deposits reprice pretty systematically given maturities schedule. So that's pretty simple. But then you have the interest-bearing non-maturity deposits, and what we have is for us, about 30% of total deposits are standard rates and those reprice through decisions we make centrally. And the rates on those deposits are lower within our interest-bearing deposits. And so the beta will be a little lower. But the repricing is simpler than the exception price deposits. Exception around 20% total, those are higher cost, and so we do expect the beta to be lower, but they involve a conversation. And so we're already focused on strategies of how do we address that subcomponent of deposit portfolio. But, we're ready to go and we're prepared for the easing cycle.

Michael Rose

Appreciate all the color, guys. Thanks for taking my questions.

Operator

Our next question comes from Steven Alexopoulos from JP Morgan. Your line is now open. Please go ahead.

Steven Alexopoulos

Hey, good morning, everyone.

Kevin Blair

Good morning.

Jamie Gregory

Good morning.

Steven Alexopoulos

Sorry to ask your third NIM question in a row, but I think clarity would be important here. And I know, Jamie, there's scenarios that are changing every day. But if you just look at the current forward curve, say six cuts, you guys are guiding under flat rates to get to a 3.20% NIM in 4Q '24. How does that change if the forward curve plays out?

Jamie Gregory

I think you need to look to the prior comment around 2% to 4% compression of the margin during the cycle, depending on how fast it's going. But if you assume a steady 25 cuts per meeting, I would just assume that the margin contracts somewhere between 2% and 4% in the fourth quarter.

Steven Alexopoulos

2% to 4%, yeah, got it. And your commentary is interesting about eventually returning to where the NIM used to be and your NIM used to be 3.60% to 3.80%. Do you think with a normally slope yield curve, I know it's been 20 years since we've had one at normal rates, you could get back into that range?

Jamie Gregory

So when we look further out, we didn't include it in this deck, but we've included it in our two prior investor decks, the fixed-rate asset repricing. The benefit due to fixed rate asset repricing in 2024 is approximately 20 basis points. And you could run that forward for 2025, 2026. It doesn't go forever, but it does go for the next few years. And so we think that, that is a really strong tailwind. Now there are headwinds that are not included in that, and one would be deposit mix, another would be business mix as far as loan spreads and where you're originating loans. But that tailwind is there. And so we do believe that when we get through whatever this easing cycle is, however it plays out, that we continue to have a strong tailwind to the margin for multiple years and we expect to see that play out. And that would get us in the context of what you're describing with higher, what's kind of historically more normalized margins.

Steven Alexopoulos

Got it. Okay, thanks. If I could ask one other question. So you guys had 3% core revenue growth in 2023, really strong fee income growth. And if I look at the guide, you're down 3% plus 1%. When I think about the company, your markets, your position, I think back to the Investor Day, all the initiatives, when I look at this really for you, Kevin, are you pleased with that level of growth? And is it that, I perceive you to be more of a strong organic growth company, but you're more about improving efficiency if you will. Just curious, your take on the revenue capabilities of the company here this year. Thanks.

Kevin Blair

Yeah. I think the percent growth in revenue is much more of a function of the decline in the NIM from first quarter to fourth quarter. And so when you look at a full year-over-year increase in revenue, it shows that negative number. But when you look at it more on an inflection point and you go back to fourth quarter earnings from '23 versus fourth quarter of '24, what you'll see is that there's an 8% to 10% growth in PPNR. And I think that's what does get me excited. And it really does show the strength of our model, Steve, and our footprint and our ability to grow. But what you're seeing when you look at year-over-year is much more of the financial metrics declining in margin during '23, which makes that year-over-year comparison look muted. But when you look at it on a more apples-to-apples basis, fourth quarter versus fourth quarter, you're looking at an 8% -- 10% growth in bottom line, which I think, again, is much more constructive and supporting of our growth story.

Steven Alexopoulos

Got it. Okay, thanks for taking my questions.

Operator

Our next question today comes from Brady Gailey from KBW. Please go ahead.

Brady Gailey

Thank you. Good morning, guys.

Kevin Blair

Good morning, Brady.

Brady Gailey

I just -- my first question is on GreenSky. I understand the somewhat one-time in nature income that happened in 4Q, and that will happen in 1Q. But as you look longer term, what is the earnings impact that GreenSky could add to Synovus? And I think all that is realized in fee income, correct?

Kevin Blair

It is, Brady. And look, I said this on a previous call, the number could be between $20 million and $30 million in revenue for the go-forward program. And it's really a function more so of what the underlying production is of the new entity. And so we'll continue to generate revenue based on that production, and we'll get a maintenance administration fee on anything that still sits on the book. So our revenue will be much more tied to the production volumes that they're doing. But again, I think a good rule of thumb for this coming year is $20 million to $30 million.

Brady Gailey

Okay. All right, that's helpful. And then, you know, Kevin, as you look bigger picture, there's been so much change at Synovus over recent years. I know just in 2023, you exited medical office and auto, you did the bond restructuring. Are you happy with where the business sits right now? Or are there other big strategic moves that we should be expecting going forward?

Kevin Blair

Look, I'm happy with where our business mix sits today. I think there are opportunities to continue to over-invest in certain businesses, whether that's our middle market platform, our private wealth platform, our banking as a service. And so you'll see us continue to make strategic investments in those areas. But as it relates to things like loan sales or exiting businesses, I think those -- you will not see a lot of that going forward. And when you look at our loan slide we provided this quarter, and you look at where we grew, some of those strategic growth engines, like middle market, specialty, community bank are growing, where you see strategic declines in things like our third-party consumer, which will continue to decline for the foreseeable future, as well as national accounts. Those won't be sales, but they'll be slow drawdowns of those balances because they're not obviously relationship focused. But the wild card on growth really comes in those market activity declines that we saw this past quarter, where you see institutional CRE, where payoffs are increasing because they've been at historically low levels or senior housing, same thing, we're seeing a more constructive marketplace for sales and refinance activity with some of the agencies. And so, as I look at the business and just put loans on that as an example, I feel really good about where we are. We'll be growing some faster than others. We'll be strategically shrinking some portfolios, but you won't see the dramatic balance sheet or business mix optimization like we've seen in '23.

Brady Gailey

Okay, got it. Thanks, Kevin.

Operator

Our next question comes from Brandon King from Truist Securities. Please go ahead.

Brandon King

Hey, good morning.

Kevin Blair

Good morning, Brandon.

Brandon King

So, previously, CD pricing was thought to be a headwind to NII and the margin, I guess that's still the case short term. But could you give us an update on your CD strategy going forward as we potentially enter an easing cycle?

Jamie Gregory

Well, look, Brandon, on CD strategy, we still have a lot of renewing CDs that will come forward in the coming quarters. And so we're going to continue to be very aggressive at pricing those CDs at market rates to keep them on the books. Obviously, the marginal rate of a new CD, when you look at this past quarter, it was 4.40% when you combine production and renewals, which was actually down about 20 basis points versus the previous quarter. And so it shows you that there's been a little bit of a rationalization in the marketplace from a competitive perspective. But our portfolio is at about 4.16% today. So as we continue to produce new CDs, which again, appears to be the decision of the consumer, people are still moving money from money market accounts into time deposit. And so we want to make sure that we pay attention to the consumer preference, so we'll continue to produce that. But at some point, that portfolio will largely equal where the production is. So it'll be less of a headwind as it relates to deposit pricing. And as Jamie has mentioned in the past, the real benefit that we'll have to reach maximum deposit pricing will be deposit mix. So as we continue to bring down brokered and we can replace that with core deposits, the negative impact that headwind you face with CD production will be offset by a positive shift in mix. And so that's why we think in the first quarter, we'll largely see the peak for deposit pricing.

Kevin Blair

And, Brandon, just to add a little more to that answer. The first quarter, the core CDs that are maturing, the average rate is just over 4%. It's about 4.05%. And so the marginal impact of that to the margin is much less than it was in the fourth quarter, as Kevin mentioned. And then as we look forward in 2024, our core deposit growth will be led by money market in 2024, which will be a little bit of a change from 2023. And so we believe that that will also be a positive when you think about total deposit costs going forward.

Brandon King

Very helpful, very helpful. And then, Jamie, just give us an update on how you're thinking about managing the balance sheet this year in regards to your liquidity position and maybe the potential to pay down more debt.

Jamie Gregory

As we look at the balance sheet, our liquidity position is very strong. The efforts we made in 2023 have positioned us really well for 2024, so we can go out there and do what we do best, which is serve our clients. And so that's how we feel heading into this year. What you should expect to see from us is a continued pay down or attrition of our broker deposit portfolio, potentially $250 million to $500 million here in the first quarter. We are very low on home loan bank advances at the moment, a little less than $1 billion at year-end. So as we look forward, we think that we are positioned to optimize the liability side of the balance sheet. We don't have any imminent needs for unsecured debt, and we think that we'll continue to try to be balanced on core deposit growth, which will be more back-end loaded this year, and core loan growth, which could be more balanced growth throughout the year. So we may have a little bit of a funding gap between loans and deposits early in the year, but that's not unexpected.

Brandon King

Thanks for taking my questions.

Kevin Blair

Thank you, Brandon.

Operator

Our next question comes from Timur Braziler from Wells Fargo. Please go ahead.

Timur Braziler

Hi, good morning. Maybe asking Brandon's question...

Kevin Blair

Good morning.

Timur Braziler

Maybe asking Brandon's question a little differently. So, wholesale funding went from 15% to 13.5%, you continue to work that down. I guess, ultimately, as you continue working on the liability side of the balance sheet, where is the target there? Where could that wholesale funding ratio continue to migrate towards?

Jamie Gregory

We're very comfortable with where it is right now. We're comfortable with our liquidity altogether. And so it's really just a balancing, that's not a ratio that we manage to. And so we look at all of our higher cost sources of funding, including the marginal public funds, and we think about how do we optimize our liability mix to fund the balance sheet. But we have a lot of sources of liquidity. We have a lot of sources of liquidity that are higher cost. And right now, given our liquidity position, we have the luxury of being able to run those down. But, as we look forward into 2024 and beyond, it's our intent to go out and take advantage of the opportunity in the southeast. And as Kevin mentioned in response to Steven's question, go out and grow and deliver Synovus to more and more clients. And so we believe that we are well positioned for that and whether or not we fund that with, priority one being core deposit growth. But beyond that, we have a lot of availability either in wholesale funding, which would include broker deposits or home loan bank advances or even go out and grow some of those easier, marginal sources of liquidity, like public funds.

Timur Braziler

Okay, got it. And then switching to the loan side, so you had the medical office sale earlier in the year, you're working down balances in senior housing. I guess, one, what's your remaining exposure? What is your exposure to kind of the healthcare, medical field? And then two, as you look at it from a credit standpoint, where are you guys at as far as credit quality and things to look for primarily within that senior housing portfolio?

Kevin Blair

Well, look, from a healthcare perspective, you have to look at it really across two different areas. On C&I, it's about 7% of our balances, and a lot of that is on the senior housing side. We talk about managing down our exposure there. It was really more around the fact that we've seen more payoff activities. And so we feel really good about where we are in senior housing. When you look at some of the losses that we incurred this quarter, there were a handful of losses, and Bob can touch on that. But we feel very good about the overall exposure. And so we're not trying to manage down our exposure in healthcare. Some of it has been just the fact that we've started to see a more constructive market in terms of payoff activity. And put that in broader perspective, when we talk about that, we had about a $1.2 billion in payoffs this past quarter. We've been running about $700 million to $800 million a quarter in our loan book, so about $500 million more in payoffs. If you look at a three-year average, we generally run about $1.3 billion in payoff activities. So we're back to a more normalized level. So you could continue to see things like senior housing and some other CRE portfolios decline, just given the fact that production has slowed and payoff activities picked up. Bob, if you want to touch on some of the credit metrics?

Bob Derrick

Sure. Yeah. Specifically, to the senior housing metrics, 90% of our portfolio in that space is still pass-rated credit. So we have a fairly low ratio of rated loans there. Our charge-offs have been small and manageable, and non-accrual loans are also small. Specifically, the shrinkage there, to Kevin's point of really the market -- the payoffs beginning to pick up and the net effect of that would just be a reduction in that specific portfolio. Overall, though, we're pretty comfortable with healthcare as an industry, we have a specialty vertical in our corporate and investment banking business that specializes in healthcare. It's just that the senior housing portfolio itself, it's a lot of real estate characteristics, is probably seeing some reduction relative to the increase in payoffs, but the credit quality certainly still remains managed.

Timur Braziler

Great. Thank you for the color.

Operator

Our next question comes from Christopher Marinac from Janney Montgomery Scott. Please go ahead.

Christopher Marinac

Thanks. Good morning. I wanted to dive into the deposit growth and the success you're having there. Kevin and Jamie, can you give us additional background in terms of where that growth is focused? Are you looking at the sort of standard customer, using Jamie's explanation, a few callers ago, or even would you take on a new exception customer, if it sort of fit your objectives?

Kevin Blair

You go ahead.

Jamie Gregory

As we think about deposit growth, it's a very important component to our outlook for 2024. But before speaking to this year, I'd like to speak to 2023, because we had 3% core deposit growth in 2023 with significant headwinds in the first half of the year, including the $2 billion decline in non-interest-bearing deposits. And I think that that shows the strength of our production. I mean, production was up 83% year-over-year, and that strong production is basically result of renewed focus, driving deposit growth, incentive realignment. And we think that that'll continue, and we think that that's what is the underpinnings of our core deposit growth forecast for 2024. And so we have -- our incentives are pushing it. We have the intentional build-out of our businesses aligned around bringing in the full client, which will include increased deposit growth. We have a new leader in private wealth focused on full relationships. CIB is growing, and they've hired a liquidity specialist who's partnering with new and existing clients to help bring liquidity solutions to our commercial clients. And our commercial lines of business continue to target clients with full-balance relationships. And one data point on that is, in our middle market business, we had 8% core deposit growth in 2023. And so we believe that fundamentally, we're well positioned to grow deposits this year, and we think that that should see continued success.

Christopher Marinac

Great. Do you think that lower rates could actually trigger more C&I related movements in your business?

Kevin Blair

Well, number one, it could trigger line utilization increasing just as rates come down. We did see a modest increase in just same line balances this past quarter. But as, you know, Chris, for the last several quarters, we've seen folks using their cash to pay down lines. So I think lower rates will drive up some line utilization, one. Short term, if rates are going lower, it tells us that the economy is slowing, so there may be a latent impact of that. But longer-term or more moderate term, yes, I think it could drive up C&I as people are looking at projects again and starting to expand their facilities or add inventory as prices come down and the economic -- the underlying economic conditions remain constructive. Yes, it would result in having stronger loan growth in that, kind of the out quarters.

Christopher Marinac

Great. Thank you both for the background. We appreciate it.

Kevin Blair

Thank you, Chris.

Operator

We will now take a question from Russell Gunther from Stephens. Your line is now open. Please go ahead.

Russell Gunther

Hey, good morning, guys. I just have a couple of points of clarification on the margin commentary. So, first the 4Q '24 outlook of around 3.20%, that's down from the 3.25% expectation earlier in the month, despite the better result in 4Q '23. So could you just walk us through what's changed?

Jamie Gregory

That is simply the reduction in the long end of the curve. So that's the move from 4.5% tenure to a 4% tenure. That drove the decline from 3.25% to 3.20%.

Russell Gunther

Okay, excellent. And then just a follow up again then on the 2% to 4% decline using the forward curve. So are you guys talking relative to the margin on a percentage basis or is that NII dollars? And then are you guys thinking of the starting point as the 4Q '23 result or relative to your 4Q '24 expectation?

Jamie Gregory

My point on the 2% to 4% and that's a 2% to 4% reduction in the margin. So 6 basis points to 12 basis points. If you assume -- if you want to assume that the Fed begins easing in May, you could assume that the Q3, whatever you had in there for your Q3 margin would be 2% to 4% lower. And so that's kind of how we're thinking about it. Just because the assumptions continue to change around when does this easing cycle start and how aggressive is it, we just wanted to give you something so that you could plug in whatever your expectation is and then just know that once we're in that cycle that is what we expect the impact to the margin to be.

Russell Gunther

All right. That's very helpful. I appreciate the clarification. Thank you, guys.

Kevin Blair

Yeah.

Operator

Our final question comes from Brody Preston from UBS. Please go ahead.

Brody Preston

Good morning, everyone.

Jamie Gregory

Good morning.

Brody Preston

Jamie, I just wanted to again just clarify, that was a 6 basis points to 12 basis points. Is that per cut that you're kind of saying on a static balance sheet?

Jamie Gregory

No, no, that's not per cut. That's just during the cycle. That's our expectation of where the margin will be as we progress through the cycle.

Brody Preston

Okay, okay. So it would be if the forward curve comes to pass it's 6 basis points to 12 basis points off of the 3.20% that you're kind of outlining as the ending point for the NIM by the fourth quarter?

Jamie Gregory

Yeah. And within that range, you could say that the more aggressive the Fed is, so if they're going faster then it's going to be at the higher end of the range, the larger negative impact. And if it's a slow methodical, it could be the lower end of the range.

Brody Preston

Got it. Okay. And within your -- within the guidance kind of setting the forward curve aside, what are you including for broker deposit runoff?

Jamie Gregory

We are assuming -- I mentioned the $250 million to $500 million this quarter and then, you know, you would assume probably not the high end of that range each quarter going forward, but maybe $200 million to $400 million Q2 to Q4 decline in broker deposits.

Brody Preston

Okay, cool. And then I just want to ask one last one on the other income. I know that GreenSky, the $12 million was in there. But setting the GreenSky aside, it looks like it was still a decent quarter for the other income line item. And so I just wanted to ask what drove that and is it sustainable? And for the guidance for low single-digit growth in fee income, could you just remind us what base that is growing off of?

Jamie Gregory

The -- in other income, there's a little bit of that that is not necessarily repeatable. We had about a $3 million increase in BOLI revenue in the fourth quarter versus prior quarters. And so that's something. As we think about fee revenue in the first quarter, there are two headwinds. You have that $3 million, then you have the impact of the GreenSky fourth quarter transaction that will not reoccur in the first quarter. What was the second part of your question, Brody?

Brody Preston

Just the low single digit growth in fee income that I think you called out on the slide. Just remind me what the base that you're growing that off of is.

Jamie Gregory

We had adjusted fee revenue for this year. What was that, right at $460 million?

Kevin Blair

It is. That’s right.

Jamie Gregory

$460 million or $461 million.

Brody Preston

Awesome. Great, guys. I appreciate you taking my questions. Thanks.

Kevin Blair

Thanks, Brody.

Operator

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

Kevin Blair

Thank you, Drew. And thank each of you for your attendance this morning, as well as your questions and continued interest in Synovus. I also want to once again thank all of our team members for your contributions in 2023. From meaningful progress on important priorities and strategic investments to the solutions delivered and the exceptional client experiences, you make it happen on a daily basis. While we receive the 2023 number one ranking in customer satisfaction and trust in the southeast from JD Power, our goal is to raise our client service levels even higher in 2024 and beyond.

And as we cast our eyes towards 2024, we are embracing a new mantra, grow the bank. This signifies our shift back to a growth mindset after a year where external challenges necessitated a more defensive stance. However, our pursuit of growth will be marked by prudence and will be fully aligned with our strategic goals and objectives. We will cultivate growth by amplifying the client experience, streamlining touch points, and continuing to be more proactive at providing valuable advice to our clients. In addition, our model facilitates delivering seamlessly across our lines of business and products and solutions which will allow us to further deepen our relationships and increase our share of wallet. At the same time, we're committed to preserving and even improving key elements of our safety and soundness profile here at Synovus. Starting with improving our core deposit base to retaining levels of capital that put us in a strong position relative to our peers, and lastly, delivering credit metrics that prove the efforts taken over the last several years to diversify and fortify the balance sheet, especially during periods of economic stress. As we recommit to this growth journey, we will continue our efforts to de-risk and enhance our profile amidst continued market uncertainties. Therefore, grow the bank in 2024 signifies our intent to build an even stronger, more client-focused and risk-resilient bank, well equipped to navigate the complexities that will continue to present themselves this year and in the years to come.

As always, we look forward and appreciate your continued partnerships and we look forward to meeting with many of you this quarter at upcoming industry conferences. With that, operator, we will now conclude our earnings call.

Operator

Thank you. That concludes today's Synovus 2023 fourth quarter earnings conference call. You may now disconnect your lines.