Synovus Financial Corp. (SYU1.DU) Earnings Call Transcript & Summary

Great. Well, joining us today, we are very pleased to have Synovus. All the banks we cover, I don't think any has undergone such a significant shift in its risk profile as Synovus did, moving away from CRE and becoming more -- well, much more diversified, building out new specialty industries to drive growth. In addition, while the backdrop has been challenging through its Synovus forward has taken steps to position itself as a top-performing regional bank. Here to tell us more about how they're going to do it is Chairman and CEO, Kessel Stelling. Kessel is going to take us through a handful of slides, and then we're going to open it up for Q&A. And during Q&A, he is going to be joined by President and COO, Kevin Blair; Chief Financial Officer; Jamie Gregory; and Chief Credit Officer, Bob Derrick. So with that, I'm going to turn it over to Kessel.

Thanks, Ryan, and good morning, and thank you for having us, Ryan, and thanks for that intro. I'll just let you keep going, and I can maybe stay quiet. I am joined today by Kevin Blair, Bob Derrick and Jamie Gregory, and we will talk through a number of initiatives. I'm probably not going to reference the slides because I know some of you may not have those in front of you. So let me just maybe tell a little bit of a story that Ryan just shared. First, I mean, this year has been, as you all know, has been challenging and unique for us and for everybody on this call. And so I'm really pleased and proud with the performance of the team and the company in the face of adversity. It's hard to be pleased with much about 2020. But relative to where we thought we would find ourselves maybe in March, I think the team has executed on so many fronts throughout the year. So let me just kind of take you back, we all -- we entered the year with 1 set of expectations. In March, they came to a screeching halt with the pandemic, where we moved 89% of our workforce to home, processed $3 billion in PPP loans and really kind of sheltered in place in more ways than one in terms of getting our arms around credit as deferrals reached up to 15%, 16% of the book. And our stock and others reacted very negatively to that. I think since that initial shock, things have continued to improve, as evidenced by the last quarter update as it relates to deferrals, as it relates to our at-risk industries, as it relates to NPAs, NPLs, all the measures. And I think that didn't come as a surprise to us, maybe to some. But Ryan, you said it well, we've been asked a lot, how are we different going into this crisis than the last. And I've said over and over, we're just a different company. We're a different company organizationally when we went from 30 charters to 1. We're a different company from an enterprise risk standpoint. We're a different company from a credit standpoint, and we're a much different company from a balance sheet standpoint, where we did, as you mentioned, peak at 46% CRE. We now find ourselves 27%, 28%. Land was a big concentration, 27% of our book, land and development, and that's around 3% today. So we have a very diverse balance sheet. We've spread our revenue stream. We were heavily concentrated in Georgia now, so 1/3 Georgia, a 1/3 Florida and then a 1/3 in the other 3 states. And we'd a great footprint. So it really didn't come as a supplies to us, but I'm very pleased with the way, again, our team and our company has performed in really difficult times. There's not a lot of new update today in the deck. We did file a deck last night. I think the points we were trying to make is that we were well-positioned going in. We're in great markets. The economies are performing as well as could be expected. Credit continues to really outperform, certainly the expectations we had in March, April, May. And Bob and Kevin can talk a little bit about deferrals, which are now full P&I deferrals, less than 1%. We still have our eyes on the at-risk industries for sure. And I do think there's going to be a tough 60-ish days, as we just kind of hope and pray for the spread and the vaccine lines to intersect. And so we know we're in for a tough December, tough January. We're not declaring victory. In fact, our last call of the evening last night was on credit to make sure that it performs as we expect. But again, relatively speaking, our team is healthy. Our customer base is healthy. Our economies are, I believe, as healthy as they can be as businesses still find ways to generate revenue and cut expense. And we believe we're very well-positioned for the long-term. We have seen a softening in the pipeline this quarter, and I think consistent with the industry. We expect overall loans to be down quarter-over-quarter. I think total loans, we think, will end the quarter down 2.5%, give or take. Core loans down less than that, maybe 2%, maybe slightly less than that. Kevin can help dissect that. But again, credit is performing well, no new surprises there in the book, and our team continues to do a great job as we move forward. And I'll just -- before we go to Q&A, Ryan, again, we are bullish on the long-term, not only are we in great markets. We've continued through this pandemic to attract and retain great talent as there's been disruption in some of our markets due to M&A. We -- again, we think we've upgraded talent in so many markets, and we've got a very core loyal team that has been through a crisis before. So our team is energized. They are focused very hard on Synovus Forward. Kevin will update you on that. We announced $100 million in revenue and expense synergies there. And every day, our team stays focused on there. So our story going forward is one of execution, certainly caution over the next 60 to, hopefully, 90 days, but then execution day in and day out on all of the initiatives we've discussed and then more to come. So I think that would maybe really be a good segue. I know you've got a lot of questions. You have callers that may have some as well. So I'd like to maybe put it back to you and questions about anything I've covered or not covered for myself or any of the team.

Thanks, Kessel. And as I'd mentioned earlier, the rest of the team in terms of Kevin, Jamie and Bob were on the line, and they're going to be joining us for questions, too. Maybe, Kessel, I'll just start with the update that you gave on loan growth. I think prior, we had been talking about closer to flatter, but that's excluding ex-PPP. But obviously, the updates as that loans are going to be down. Can you maybe just -- maybe Kevin could jump into, I think there's been a view that the Southeast has been outperforming other parts of the country? And can you maybe just talk about what industries as well as what drivers, and what are the drivers behind the decline? And then second, as you look out, I think one of the themes that we've heard over the course of the conference has just been you shouldn't be expecting much in terms of growth until pretty much the country is vaccinated. So how are you guys thinking about it? And how are you positioned to capitalize on that?

Yes. So Ryan, great question. Well, I'll let Kevin dissect that. I will say this, we do believe the Southeast has and will continue to outperform. We're in high-growth markets. We're in some of the top MSAs Southeast in the country, quite frankly. And we still feel good about 2021. We'll feel a lot better, as you said, though, when everyone is vaccinated. But I'll let Kevin kind of dissect what has been the core growth, what's been maybe accelerated pay down, where we see the opportunities. So Kevin, why don't you walk -- go through that?

Yes. So Ryan, look, I'll just start with this quick comment on the market. So as Kessel mentioned, we're in -- I think we're in the best footprint in banking. When you look at the demographics, the population growth that's happened over the last 5 years. But quite frankly, what's going to happen over the next 5 years, we're optimistic that we're going to continue to see positive trends as it relates to the demographics in the Southeast. But as it relates to this COVID environment, obviously, each municipality has been different based on the health requirements that they've established. But what we've seen in general is that our businesses have opened more quickly. I think that's been adjudicated by some of the global data that we've evaluated in terms of consumer spend, where you've seen states like Georgia and Florida and South Carolina open up more quickly and see spend levels that were commensurate with what they were in 2019 in the summer and now going into the fall. So obviously, that's something that we would expect to see. To Kessel's point in terms of the areas that are being impacted, it's largely those things that we've talked about on our credit calls. The hospitality industry has been impacted. So anything associated with hospitality or travel, that's being hit hard. But also full-service restaurants and entertainment venues. And I would suggest to you that whether that's in Florida or whether it's in the Midwest, those industries are being hit hardest. But the ability that we've had to be able to contrast that are all the other businesses that are doing very well. And we've seen manufacturing pick back up. We've seen other retail that's non-apparel pick back up. We've seen educational services pick back up in the third and fourth quarter. So those businesses, and something we've shared on our quarterly earnings calls, is this cash inflow data that we're monitoring on a year-over-year basis. And so what we're seeing across the Board is from all of our industries that we continue to see an improvement in cash inflows. There are some that are still being hit harder than others. But ultimately, in our footprint, based on the overarching demographics, we've been pleased that the stability and the resiliency of our customers. And I'll just touch on 1 last thing. Kessel mentioned upfront, we've diversified from a geographic standpoint. And when I look at the revenue growth for our company year-over-year, I would suggest to you that our Tier 1 markets, our large metropolitan markets are driving the lending growth. Miami, Central Florida, Tampa, Atlanta, those are the predominant growth, but we're also seeing good growth out of secondary markets like Birmingham, Charleston, Greenville, Athens, Georgia. But then when you contrast that to some of our tertiary markets, which are smaller rural markets, those are the markets that are giving us the best deposit growth. So when you look at it from a revenue standpoint, we're very diversified from those large Tier 1 markets all the way down to these Tier 3 markets, where one is providing more depository support and the larger markets are providing more lending support. It gives us a little bit of a natural hedge in the environment that we're seeing today.

Maybe just as a follow-up, either Kessel or Kevin, you touched upon some industries that are showing strength, and you talked about rural markets, some of your smaller markets showing strong deposit growth. Can you maybe just speak to the appetite of corporates, Kessel or Kevin, as you're speaking with them, like is there pent-up demand such that even though we're going to go through fourth quarter and likely first half of the year, we're going to probably see muted loan growth? But because this is a health care crisis, not a financial crisis, that there's a lot of pent-up demand on the other side such that we could see accelerating loan growth even in an environment if -- while the GDP will be strong just as the comps are much easier. But what's the dialogue like you're hearing from your clients right now?

So, well -- you go ahead Kessel.

I will hit that. I hope there's pent-up demand. I think there is. I mean, line utilization is at historical lows. And so you've got to think that comes back. I think people I've been talking to just want clarity and stability to make decisions and clarity about COVID, clarity about vaccine, clarity about politics, clarity about tax policy. I think we're getting close to that clarity. And so I do think -- I mean our economies were -- our markets were strong going into this. As you said, it was a health care crisis, not a financial crisis. They were strong going in. A lot of things have caused people to just pause. And I think I hit on several of them. So yes, I do think -- and that's why we think the second half of '21 will give us that growth opportunity that we're talking about. I'm not as -- I'm not as certain about the next 30 to 60 days, for sure, but Kevin, you might have additional color there.

I mean, I was just going to add, Kessel, that pipelines are still depressed today, Ryan, to your point and to supplement what Kessel said. But similar to some of the surveys that you've seen from corporate borrowers, that there's a general optimism that capital expenditures will pick up in 2021. And that's the same rhetoric that we're hearing. But to Kessel's point, it's not a matter of if it's going to happen, I think it's a matter of when it's going to happen because I think everybody believes that there is pent-up demand and there's going to be an opportunity to expand inventories to generate additional sales, but it's really a demand-side discussion at this point. I don't think they're going to push the supply side to push it. They're waiting for some of this uncertainty, as Kessel mentioned, to clear up for them to begin some of those projects.

Yes. I could tell that we're in a pandemic as there's no traffic in Atlanta behind you, which is a shocker. But there's obviously been -- if I think about across the footprint, there's been a handful of major deals in the Southeast. And we all know that inevitably leads to some dislocation across the footprint, maybe not specific to any 1 organization. But can you just talk about what opportunities you're seeing to add talent to the bank right now and maybe highlight some areas where you're picking up incremental growth?

Yes. And that's been a great story, and I'm not picking on anybody because I think there have been some very interesting deals, and I think a lot of the CEOs that are involved in them. But with that disruption comes really a couple of opportunities. One is talent, the other is customers. And we've, I think, capitalized on both. We've had great additions to our CRE teams in Florida and Atlanta and throughout the footprint. We've had a great additions to our private wealth teams. We've had great additions to our middle market teams. I think talent that can work at any bank they wanted to, which I think is really, again, a change in our profiling. 2011 and 2012, when I was recruiting talent, and I had a $1.50 stock price and owed $1 billion in TARP, it was really hard to share that vision. And now I just feel like, Kevin and his team, they do a great job of getting us in front of great candidates, and we land a lot of them. So I think our model sells well to really high-performing talent. So great opportunity there. And then with customers, and sometimes, it's not even dissatisfaction with their bank. Maybe their primary relationships were with the 2 banks that merge. And so now they've got to replace. So we've had some great success there. We've had some great success, Kevin, with our -- some of our governmental banking efforts recently, where we've landed major relationships that were with longtime incumbent. So it's been refreshing in that, I think, we still have some team members, not only met virtually, but that are out there busting it. And again, they weren't dislocated by a merger. They just felt like it was maybe time to do something different. So very exciting. Again, I'm sure everybody gets their deals figured out. But in the meantime, I think we're very consistent about how we go to market, what we offer to customers, what we offer to talent, and it's been a good story to tell. And again, I want to see that result in more balance sheet growth and more earnings next year, but excited about the horsepower we've added.

Maybe before we get into some of the banks' bigger initiatives, whether Kessel or Jamie, I know you provided a lot of guidance on the fourth quarter. You gave us an update on loans, and we'll come to credit. I know there was a mention of it outperforming expectations. Any other broad strokes, updates on how the quarter is progressing before we get into some of the initiatives that the bank has going on?

Ryan, I think it's...

Go ahead, Jamie.

I'm sorry, we're stepping on each other. I want to make sure, Ryan, because you'd asked this question before, and I'll turn it back over to Kessel. On the loan growth story, the reality is, as Kessel mentioned, 2.5% decline in loans for the quarter. And he mentioned the organic portion of that. The reality is that when you look at our decline this quarter, we think that of that 2.5% you've got to break it down into the subcomponents. So on the commercial side, we think that we'll see on the organic side 2% or less in declines, which I think we'll compare favorably with some of the HA data. It's important to note we had a sizable, as Kessel mentioned in his opening remarks, balance in the P3 balances. And so we're seeing about 8% to 10% runoff this quarter on those balances, as they're being forgiven. So that's helping to exacerbate the runoff. And then when you look at our consumer portfolio, which has a very consistent decline for the quarter, about 2.5%, it's also important to note here that core would be less -- well below 2%, but we are continuing with our strategy with our third-party lending partnership to take an originate-and-hold strategy moving to an originate-and-sell. So we're moving a lot of balances that were held for investment into the held-for-sell category, which is further reducing balances. So for us, as you think about the quarter, we thought loans may come in flattish outside of all those other elements. We're just seeing some increased payoffs and paydowns that we believe were not happening in the second and third quarter because the markets weren't as constructive. And people were keeping their loans on the balance sheet. They're starting to move a little more. But we are seeing depressed production volumes in CRE and C&I in general. And as we've stated earlier, that's where we want to see that that fall out of it as we move forward. And Jamie got lot of things to add.

Ryan, let me jump in as well. In the fourth quarter, just one thing I would highlight is NII. We get a lot of questions on interest income and the margin. There are a lot of moving parts here in the fourth quarter. First, when we think about NII, we think about the margin, we think about it more on a core basis. But outside of the core metrics, you have P3 forgiveness and how that plays out. And that's going to be an impact here in the fourth quarter. The timing of forgiveness is uncertain from the SBA, but our best estimate to date on fee recognition from P3 in the fourth quarter is approximately $25 million to $30 million. But outside of that, we reiterate our guidance that we gave back in October in the fourth quarter NII that we expect there to be slight downward pressure. We speak more to NII than the margin because there's other material components that are playing into the margin these days, and specifically, that's liquidity. For every $1 billion of extra liquidity cash on balance sheet, that's about a 6 basis point impact to us on the margin. And our current expectation is that we're running about $1.5 billion higher in cash balances here in the fourth quarter. So no material impact to NII of that, but it does impact the margin.

Got it. So I appreciate all the color. Kevin, there's a slide in the deck that was put in reposition regarding Synovus forward. Can you just give us an update on the -- how you've now structured the initiatives? It looks like we're now in 3 more cohesive phases. If you talk about what's kind of in the books already that you've already taken care of versus what's still on the come? And can you maybe just talk about your degree of confidence? I know you're reiterating the $100 million, but one of the themes that we've heard is, as people have gone through the pandemic, they found greater outlets for cost savings, efficiencies due to things like digital. Can you maybe talk about could there be sources of upside to Synovus Forward?

Yes, Ryan, I'll be as brief as I can be on this one because I think we could probably spend the rest of the call on it. But I think it's important to note that we started this initiative back in the third quarter of 2019, well before we knew there was going to be a pandemic. And the thought process was we need to create a portfolio of ideas and initiatives that are living and breathing that we can continue to scale and change and adjust that will allow us to be successful in achieving our long-term aspirations of being a top 4 top-performer. And so we started in Phase I with a lot of what we call fund-the-journey initiatives. So these were efficiency initiatives. We talked about the third-party spend initiative, which we're estimating can save us $25 million. We think many of those will hit the run rate by the second quarter of 2021. It really has to do with when contracts mature and when we can achieve the full run rate savings in those. We also have been rationalizing our real estate. We talked about the 13 branch closures in 2020. We're evaluating additional real estate consolidation opportunities, less on the branch front because we've done a great job over the last 10 years. We're down for legacy Synovus down over 25% in our branch count versus where we were in 2010. We're also looking at back office space where we can condense there. And to your point, that's where the COVID environment, remote workforce, you get a different criteria that you're looking at going forward. And now we've entered into the organizational design and effectiveness categories, which largely result in headcount reduction, but we started off with a very structured, prudent approach, where we had an early retirement program, which we announced on the third quarter earnings call would result in a roughly $14 million onetime charge, but would give us a $7 million to $8 million run rate benefit starting next year. And so those initiatives on the expense front, we feel very good about. We are now starting a second round of efficiency initiatives to the point that you've mentioned. What has the environment shown us from a top line perspective and what can we do additionally, and that's going through executive by executive looking at pieces to automate, back office, and opportunity to centralize and through demand management to continue to reduce our expenses, but equally as important as focusing on those. And to your point, those will scale up and will provide greater clarity to timing and size in the fourth quarter. We're focusing now on the revenue unit. And we shared that in the third quarter where we have wholesale analytics projects that are kicked off and moving towards like we believe has a material -- will have a material impact on top line revenue in the near future as well as some pricing for value initiatives, which is where we're looking at current pricing levels, and we're increasing them relative to the market levels because we were underpriced relative to market, our services and solutions, and that will also begin in first quarter. So I would just tell you that the original $100 million, we feel good about, the timing of that will differ based on what project we're talking, whether it's revenue or expense, and you'll see additional initiatives that continue to get layered in there that will allow us to continue to focus on what it takes to be top 4.

Got it. I've got a lot of questions, but I wanted to make sure we had a chance to address a little bit on credit, given that I know Bob is on the line. Bob, can you maybe just give us an update on how things are progressing on the deferral side? I think when you gave us an updated earnings, they were down materially, less than 2% on the commercial side and about 50 -- sorry, less than 2% on the consumer side and about 50 basis points on the commercial side, of which the lion's share were hotels. Can you maybe just talk about what you're seeing, where we go from here? And just how -- as Kessel talked about earlier, how important is further stimulus to a lot of these customers?

Yes, sure, Ryan. Thanks for the question. On deferral specifically, I would say they continue to migrate downward. Certainly, we're seeing that this quarter, no uptick, and a continued decrease in the number of deferrals, quite honestly, from a very low level that you referenced. Specifically to hotels, we worked, I would say, through that portfolio. And by that, I mean, we've gone through, looked at restructures, modifications, et cetera. And we feel like our borrowers have a good plan there. Obviously, that portfolio migrated in terms of risk ratings, as you saw last quarter and certainly feel like that's relatively stable today and would not anticipate significant migration there as we look ahead. Now we're in portfolio monitoring mode there. We meet almost weekly with our borrowers. We're looking at forecast, and we're tracking their plans. But by and large, our hotel operators have a plan in place that they feel like they can execute on. Our loan structure kind of mirrors those plans. And as we see a vaccine and as we see spring break and the seasonality in our portfolio begin to kick in as we get into 2021, that time line begins to narrow. And if we can just bridge that gap, we think we might be okay in a lot of that portfolio. Now I'm not naive to believe that all of them will make it through there. But certainly, when you begin to think about it in those big chunks, and hospitality is the industry that's not all created equal. There's certainly very different -- a lot of differences in these properties. So -- but we feel like that gap is narrowing. Our customers have a good plan. And as we get into 2021, certainly, it should begin to get even more clarity around potential upgrades out of that rated book. Some of them will go, obviously, the other way. I know that. But I think we're in a good spot right now as we come towards the spring of next year.

You and Jamie and the team have expressed confidence in the $665 million of allowance that you built with pretty conservative expectations. I think the expectation is that reserve should cover the COVID losses. Then there was a comment early about credits outperforming expectations. Can you maybe just talk about whether you and maybe Jamie could back you up? And just how we should be thinking about reserving from here? And Kessel mentioned the next 30 to 60 days, we're on a bit of thin ice, but if we do get further stimulus, what do you think that means for the ultimate outcome of losses in terms of when they peak and the ultimate amount we end up getting?

Yes. I'll just make a couple of comments on credit, and Jamie can cover the account and probably better than that, certainly better than I can. But I think there's still a lot of uncertainty, Ryan. So as we -- I talked a lot about hotels, but there are other portfolios as well. So there's a lot of small business borrowers that have been hanging on the stimulus and P3 money. So once all of those lifelines kind of fall away, assuming no additional stimulus, you'll see some downward pressure on -- or certainly some increased credit cost as it relates to some of those borrowers. So we understand that. I think stimulus would be very helpful there, no question. But again, it's not just hotels, it's a small business. I don't think the portfolio in general is rapidly migrating. I think there is some stability today, and we'll just have to wait and see how that plays out in the accounting. I think we're adequately reserved. We've got the losses, lifetime losses projected, and we feel pretty good about where we are from a migration standpoint, at least with some degree of clarity right now, Jamie?

Yes. And all I would add to that is, as we think about the allowance calculation, there's 2 components in it. And 1 is the loan portfolio itself and where does it stand and loan growth and how all of that plays out. And as Bob mentioned, we feel good about where we are with regards to that. The second is the outlook. And as you're aware, our base case outlook on September 30 had an 8% end-of-the-year unemployment, declining in '21, and today, we're at 6.7%. And so the base case has improved if you look at unemployment as the indicator. However, I would say there's still a significant amount of uncertainty in the outlook. We see -- we are paying attention to case counts and how we're seeing economies and local markets that are potentially considering slowing down a little bit. Thankfully, there's not a lot of that in our footprint to date. But we pay attention to it, and that will enter into the calculation as we think about it at year-end. And so in September 30, we had approximate 40% weighting to adverse scenarios. We had 15% weighting to more optimistic scenarios. I would argue that having a 55% weighting to alternative scenarios is high. But I don't see that declining for year-end. It's a very uncertain outlook today. And we'll see how it plays out over the next few weeks as we close the quarter.

I got 2 more questions that I want to ensure that we hit on. And Kessel, you've talked about with using things like Synovus forward, have the goal of being a top quartile bank. And we've seen a handful of other banks getting there by doing large MOEs to cut costs and improve profits. And I think you've indicated you're going to give us some -- potentially some targets at fourth quarter earnings. Without giving us some of the numbers, can you maybe just give us a framework of how you're approaching the targets, whether it's going to be efficiency, ROA, return on tangible? And how do we think about ensuring that these stay in place through the cycle, not just at a given point in time?

Yes. Maybe let Jamie hit a little bit, but -- and we will talk about that in January. So I don't want to go too far now. But yes, I mean I agree, they've got to stay in place through the cycle and always challenging ourselves on what is that appropriate target because the expectation this past January and the expectation this January are clearly different. We know we've got to return our cost of capital. We know we've got to perform. You mentioned large-scale MOE. We're always looking at -- and I've been very clear that our focus is internal to get our valuation back, to get a currency, to get a strength back in our company that we've enjoyed and that's our goal every day. And we're looking at every measure, just in terms of -- even in terms of what we did to flex our capital going back to June when we were, what 8.73% from a CET1. And now we're in this deck, you'll see we're projecting to end the year at 9.6%, I think, CET1. So a lot of work to do there. We're looking at everything you talked about, and certainly, efficiency is a part of it. But we're also, again, always evaluating the market. Our Board stays very well informed. I don't believe in scale at any cost, but certainly we've done some -- we've done whole bank, which everyone is aware. We've done some really unique bolt-ons, Global One that continues to outperform all expectations. So Jamie and team are looking for ways, again, to make sure we get the appropriate returns. I'd rather maybe hold further comment on that until January.

Maybe, Jamie, I'll just throw the last question out there because Kessel started to hit on it, and we're under a minute here. So maybe you could both address this. You mentioned, Kessel, in the slides, the 4Q '20 estimate of 9.6%, which is above the high end of the target. Maybe just talk about capital priority. And I know that the focus is on internal and improving the returns, but given the elevated bar for midsized banks to need to invest in technology, need to invest in digital, like how are you at least thinking about approaching an organic strategy versus partnering with smaller banks versus partnering with larger institutions?

Well, let me take the partnering, and Jamie could take another piece of that. We're always -- I mean, we've done that since, gosh, I became CEO in 2010. Some of those looks were painful looks when you're trading at $1. But we've always continually looked at what are the best alternatives to get the appropriate returns. And there is going to be -- there's a lot of chatter in the industry right now. There are a lot of smaller banks that are looking for partners. We look at -- when I say look at, I just look at. We look at banks smaller. We look at peers that we think culturally could be good bits. And you always look at, if you chose to go larger, who are the actionable ones that where would you most create the value for our shareholders. So it's a -- it's not forced by anything this quarter. It's something we do as part of our everyday business. Jamie has a corporate development team, and we won't get into the days. We continually look at who are the players? Why would they be players? And what would it do for Synovus and our shareholder base? So from a cap -- we're pleased that we now project to be at the high or really beyond the higher end of our operating range, which gives us more flexibility when, gosh, 3 or 4 months ago, we would have said, share buybacks are off the table, and they're not in the near-term future, but at least it shows now that we're creating potentially. And again, I think the next 60 days is quite critical, but potentially a more flexibility with our capital actions based on more recent performance.

Ryan, let me jump in a little bit. I mean, look, balance sheet management and strategic coordination with capital and liquidity is just the key priority for us. And the key focus, I mean, just on the liquidity side, we talked about deposits earlier, we're leveraging that liquidity to reduce our funding costs, our liability costs. We talk about getting to the lows of deposit costs from prior cycle lows. We think when we look at monthly data, we think it will be at or maybe just slightly above this month. And so we're making a lot of progress on the liquidity side, and we're also working on that on the capital side. And as Kessel mentioned, being above our range or expected to be above our range this quarter is a big advancement. We were down at 8.7% at the end of the first quarter due to customer growth heading into the crisis. And that positions us well for 2021. It positions us for the growth that we believe is out there for us. We believe we have a plan that we'll lay out to you in January to achieve. And being above our target, it doesn't necessarily mean that we have to immediately find a way to get it back to the shareholder. Because as we mentioned earlier on the allowance, there's so much uncertainty that we're going to be prudent, and we're going to be very thoughtful in how we deploy that. Priority one is delivering it to our customers so that we can grow customers, deepen relationships. Beyond that, it's a risk-adjusted return conversation between third-party lending, other non-relationship lending, like structured lending or securities lending, all -- everything that we do outside of our core customers, and then -- or share repurchases. And so that's how we look at it and more to come on that in January.

Well, unfortunately, we are out of time, but Kessel, Kevin, Jamie and Bob, I just want to say on behalf of myself and investors, thank you very much for participating this year. It was great to have you. We look forward to hopefully having you guys in future years, hopefully, in person next year. And look forward to engaging on the 4Q earnings call, and have a happy holiday season.

Thanks. Thank you, Ryan. Thank you very much.

Thank you, Ryan.

Thanks, guys.