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

Perfect. Good afternoon. We are very happy to have $4 billion market cap Synovus Financial join us this year at the conference. Synovus traces its roots back to 1888 in the textile industry and is headquartered 100 miles south of Atlanta with market presence throughout the Southeast. Synovus' stock currently trades at just tangible book value and just 7x '24 earnings. Importantly, Synovus of today is drastically different than the Synovus heading into the GFC. Today, being the Day of the Dead, I believe that you will all agree that Synovus will be planting flowers at the banks that recently failed rather than being the recipient itself of such floral arrangements. Representing the company are CEO, Kevin Blair; and CFO, Jamie Gregory. Kevin joined Synovus in August 2016, and became President and CEO in April of 2021. Jamie joined Synovus in June of 2019, previously spent a decade at Regions Financial. Thanks again for coming. And we're going to -- the format will be a presentation and then Q&A halfway through.

Well, thank you, John, I think I'm glad we'll be planting flowers instead of being the floral arrangement at the graveside service. But I do -- I'll tag on to John's comments. It's great to be with you today. I'm going to tell a story, I think, one that amplifies what John was talking about, which is the changes that we've made as an organization. The resiliency and agility that I think we've been able to show as uncertain times has come upon this industry and ultimately, the decisions and actions that we're taking to allow us to not only weather the storm but come out of the other side as a stronger organization. I will make some forward-looking statements today. Obviously, it's contained in this deck. And as you know, they may materially differ from what we would say, but you guys know that drill. Look, I'll start with -- I always think it's important, as John said, to say where we've come from. We are a $60 billion institution in the Southeast. But I would submit to you that with a 135-year heritage, I say this to our leadership team all the time, we are the youngest 135-year-old bank in the United States. And why is that? If you look at this time line, you go back to just 2018 when we unified our brand and became Synovus. Before that, we operated as 29 individually branded institutions. Back in 2011 and '12, we collapsed the 29 charters, but we maintained those individual brands up until 2018. From that point, the Synovus name, which I always like to put on here is 1 plus 1 equals 3. The aggregate always is greater than the sum of the parts. Synergy, obviously is the first part of the name. And Novus, the Latin for new is the second part of the name, and it's just to be able to explain how we, as an organization, believe that we can deliver seamlessly to our clients and in a way that as large as we get, we maintain personal service, and that's what we stand for. And you may not believe. My words are rhetoric, but if you look at the slide and see how we've been recognized not only by our team members, we just finished our Voice of the Team Member survey. 91% of our team members are engaged and passionate in the company, which ranks us in the top 5% of all companies that fill out that survey. We also were recognized with Greenwich, the Commercial and Small Business awards with 20 total awards puts us in the top 5% of all banks. And we were recognized by J.D. Power as being the #1 bank in the Southeast for not only service but also Trust. And so it's empty rhetoric when I get up and tell you, it's less empty when our team members and our clients are saying that what we're trying to deliver, they feel in the way in which we provide financial services. Now look, a lot of companies say they're purpose-driven. And I think we not only say it, but we live it and breathe it every day. It's not lost on me that to be a purpose-driven company, you have to have meaning and purpose, but you have to have pride in delivering that. And I would tell you that this industry is largely commoditized in the products and solutions that we provide. So the differentiators are our people. And our people, I think, wake up every morning trying to help our clients reach their full potential. And that sounds like a tagline, but when you think about being proactive at providing financial service and advice, this industry for many years, was built on a model of fulfillment. People would come into the branch or they would come to the relationship manager and ask for a product. We pride ourselves on being active -- proactive at identifying opportunities for our clients and delivering those solutions which allow our clients to achieve their financial objectives. And we do it through what we call inspired banking. Now on this slide, you'll note that we have our segments around the end and our products and solutions in the middle. One of the things as a $60 billion bank is we recognize we can't be everything to all, but we can be everything to some. And we've decided that for our institution, we're going to play in the spaces where we have the right to win. And where we don't have the right to win, we may partner white label solutions or actually have a referral model that allows us to continue to provide financial solutions but in a way that's much more scalable and profitable for our company. I believe relationships, if you look up the business definition, everybody says they're in relationship banking. It's the connectivity between partners or between parties in a transaction. And what builds that relationship is trust. And for us, as I said, with J.D. Power being recognized as being the #1 bank in the Southeast of Trust, it's trust is built by doing what you say you're going to do. And for our clients to realize that we put their interest at the center of the room in every decision we make. And as you look at how we deliver that solution today, you look around all of our segments, we try to make sure that those solutions are delivered seamlessly not through silos as some of the larger institutions. And what I would tell you, what that enables us to do is to have a competitive value proposition that we provide all of the high-touch feel of the smallest institutions, but we have all the capabilities and functionalities of the largest institutions, and that puts us in a competitive advantage. The smaller institutions don't have the capabilities, the large banks sometimes lose that personal touch and feel. Now one of the things that we hear most is that we're in a great footprint. In the Southeast, it's hard to argue that. When you look at the population growth over the next 5 years, the population growth in our 5-state footprint is 2x the national average. And a little fact that maybe hasn't been as disseminated is that 2/3 of all job creation that's happened since 2020 has occurred in the Southeast. So not only is it population growth, it's creating new jobs and having a presence in this marketplace. Obviously, rising tide raises all boats, but you have to continue to differentiate yourself. We're not the only bank that's figured out those demographic inflows. And when you look at the top 5 markets, we've been repositioning our bank to take advantage of some of the faster growth markets. You can see 13 and 14 percentage points increases in both loans and deposits in the faster growth markets, moving from some slower-growth rural markets that provide great deposits, but our assets and our liabilities are moving towards those larger markets. And you can see all the markets that we have top 5 market share in across Georgia, Florida, South Carolina, and Alabama. So we're well-positioned to take advantage of that demographic growth. Mentioned that today is about what we're doing going forward but I think one of the great predictors of the future is your behaviors in the past. And this is a slide that shows the last 10 years. And you can see over that 10-year period, we've had a 17% CAGR in PPNR growth, 18% CAGR in EPS. We've seen a 7% growth in our core deposits per share, and we've been able to increase our dividend to our shareholders at a clip of 18% each year. So when you're looking at increasing your EPS 5x over the last 10 years, I would submit, as John said, that the current valuation of our stock is not indicative of the success that we've had. And ultimately, we'll be able to continue the success forward with some of the actions that we're taking. Now one of the things that we talked about internally when March occurred and we saw a different liquidity environment, also higher interest rates for longer. I think a lot of folks have the -- they're afraid to make tough decisions, sometimes putting their head in the sand like an ostrich. We, on the other hand, felt like it was important to take immediate action that would allow us to improve our risk profile in the short run but to do it in a way that is still accretive to our PPNR and ultimately build scalability to allow us to continue to grow the organization in the future. So we took the opportunity to sell a couple of loan portfolios to the best of a business unit, and we offset the short-term impact of those by cutting our expenses, which created a net positive PPNR impact. But if you look at what that allowed us to do, to pay down wholesale funding, to reduce our concentration in office and CRE, and ultimately, to continue to increase our capital ratios, which are at the highest level since 2015. All of those actions allowed us to derisk the balance sheet but allowed us to keep ourselves in a strong position to remain scalable, to provide capital and to grow the company for the foreseeable future. And although this slide looks simple, I would tell you, execution is key. When we talk about being able to enhance our profitability, it really comes down to business mix and pricing our solutions for the value that we're providing. When we talk about deepening relationships, which I'll dig into here in just another second, it's about going to your clients today and ensuring that you have a maximum share of wallet and not allowing yourself to get caught up with providing single-service financial services. We've got to be able to deliver enough value that warrants a higher share of wallet. And lastly, I think those banks that tap the brakes too much during this sort of environment are going to come out of the other side lacking the fuel that they need to continue to grow their bottom line. So for 2024, as we think about the year, you'll see us continue to grow in areas that we're growing today, predominantly C&I & specialty lending on the loan side. And you'll see core deposits continue to be a focus. What we've seen in the last several quarters is the level of diminishment happening on the deposit side, i.e., the average balance per account declining has slowly abated, as our production has remained 70% higher than it was the previous year. We expect this to continue and if diminishment continues to be lower, we expect deposit growth to be even higher in the coming year. On rationalization, although you won't see us go out and sell loan portfolios in the future, what you will see is us being very smart at allowing loans that aren't meeting our minimum hurdles or don't have the right level of client profitability to attract from the balance sheet when they mature. At the same time, we'll continue to pay down higher-cost wholesale funding when those loans leave us. So 2024 on the balance sheet will be a year of optimization but growth within the areas that we think would be prudent. In order to tamp down some of the impact that we've had with margin compression, one of the things that we were quick to do, as I mentioned 2 slides earlier, is to start to address expenses. Synovus has a history of managing their expenses and a discipline around that, given that our efficiency ratio is in the top quartile of our peers. But we went into our boardroom and said we've got to be even better in the coming year based on the margin contraction. And so when you think about our $1.2 billion expense base, if you just think about a 4% inflation every year, that means that you're going to see about $50 million of expense growth. What we committed to during our earnings call last month was to have relatively flat expenses year-over-year. So that in and of itself carves out that $50 million of inflationary pressures. And we're going to continue to invest in other initiatives and businesses that would warrant it. So we're actually having to cut a little more just to keep our expenses relatively flat. And you can see the categories here. It's across the board, things that we've done in the past, headcount rationalization, third-party spend, real estate, discretionary expenses. And ultimately, we'll continue to look at businesses that don't meet minimum hurdle rates. Relationship banking to me is about not just pushing product but it's about ensuring that those solutions that your clients need, you're the provider of those solutions. If you look at the left-hand side of the slide, on our commercial segment, we have 2 key areas of fee income that we've been extremely successful over the last 5 years. We've doubled the amount of capital markets fees that we've achieved over that time frame, and we've almost doubled the amount of treasury & payment solution fees that we've had over that time frame. It's incredibly important to ensure that not just making loans and deposits to commercial clients, but meeting their full needs through the capital markets provisions as well as providing the treasury & payment solutions, cash management solutions that they need to run their business. The way to do that is to continue to add new solutions and better sales force to be able to deliver. And on the right-hand side, on the consumer side of this, we've doubled down on wealth management. We're up about 70% over the last 5 years in the fee income categories through our wealth services through things like family office, trust, and brokerage. And we've just rolled out a new strategy to ensure that we're getting the personal business of our business owners. And if you look on more of the retail consumer side, we've doubled down on the mass affluent client segment. And you can see that we've had roughly a 60% increase in the last 2 years in the profitability per household of what we call our inspired checking relationships, which are our mass affluent bundled solutions. And so as we bring them into the program, we're able to not only capture the relationship but continue to grow it. In addition to our core businesses where we have to cross-sell and ensure that we get the full share of wallet, we have to make sure that there are new sources of revenue growth. Just 2 years ago, we started our Corporate & Investment Banking unit, 3 industry verticals that are operating today with roughly 30 FTEs. We expect 2024 to have roughly $20 million of PPNR from those businesses from $0 million to $20 million in a little over a year. Secondarily, middle market is an area that we've invested in across all of our major metro segments. We've increased the number of bankers since 2019 by roughly 25%, and that's been translating into double-digit growth each year. And next year, in 2024, we would expect loans and deposits to continue to grow at double digits. And then lastly, we've talked a lot about banking as a service, not only our new platform money as a service, which is known as Maast. We're up to 9 ISVs that are on the platform today, 41 in the pipeline. As I mentioned on our earnings call, one of the things we want to do here is take this slow. We want to get the providers that are on the system with a full set of capabilities and products. We want to make sure that it's meeting all of their needs. And then we'll start to add on new software vendors as we develop a full suite of solutions. But we've proven out one thing. There's a high demand for solutions like Maast with these software vendors. Now we have to prove out the fact that we not only have the products that their end users will use, but we'll get a high utilization rate, which will drive the revenue. We also said on our third quarter earnings call that we're in the process of negotiating an extension and expansion of our Banking as a Service sponsorship program with GreenSky. Over the next couple of months, we'll be able to share with you the finality of those negotiations and what the financial impact will be from that relationship. So 2024, I think, is a year where we'll take uncertainty and replace it with more certainty. We expect deposit costs to actually hit their maximum early in the year in 2024. We expect margin contraction to end, and we start with the fixed rate repricing that we have on our balance sheet, we expect margin expansion to take over. We expect to continue to grow core deposits. On the fee income side, we rolled out our new checking suite in July of this year that eliminated NSF income for us. And so that's a headwind of about $10 million. Fortunately, we have strong business growth in both treasury, wealth as well as in our capital markets area that we'll be able to offset that. And then with our new GreenSky partnership, it will add additional revenues there. And we'll keep expenses flat. That will allow us, as we go throughout the year, when you look at fourth quarter 2023 versus fourth quarter of 2024, we think we'll start to show positive operating leverage as a result of that. And then that translates into a great springboard into 2025, where you'll see things look more like they have prior to what we just went through this last year with margin contraction, where we'll return to a normal level of loan growth above the underlying market, continuing to see core deposit growth, single-digit, mid-single-digit fee income growth and we'll continue to manage expenses pretty tight, which will allow us to create some alpha in 2025. All of these things, when you think about them in concert, come down to execution. We think we have the right strategy. We think we have the right people, functionalities, capabilities. It comes down to delivery. We've remained extremely agile on the business mix front. We'll continue to optimize our business mix that will allow us to enhance profitability as the cost of capital remains high today. We'll focus on our go-to-market strategy to truly deliver on relationship banking. That will allow us to not only grow but we'll continue to reduce our risk profile with lower wholesale funding, higher capital ratios. And we believe that the credit environment will continue to be very, very solid for us given all of the changes that we made over the last 15 years. We'll have disciplined expense management and the underlying growth that the Southeast will provide us will give us some insulation from some of the downturn or economic slowdown that we're seeing across the country. So with that, John, I think I'll just stop and we'll sit down with you and we'll go through some Q&A.

Sounds good. I guess the first question I have is, in your meetings with investors and analysts in recent months, what do you think is most misunderstood about Synovus right now?

Well, I think there's a lot of uncertainty around the credit environment, right? If you go back to the global financial crisis and you stated this in your intro, that our losses were a little higher than the industry. And I remind you that back in that time, the company had about 50% of its assets in commercial real estate. Since that time, we've been able to divest or divest to diversify out of some of these higher-risk speculative real estate. And today, our balance sheet is only roughly 30% real estate, and it's an income-producing real estate. So folks look back at historical losses, and they think is this Synovus going to perform similarly when there's an economic downturn because we really haven't had a true recession since that time that's allowed us to prove the point that we've diversified, we've changed our underwriting standards. We've improved our credit monitoring across the board. So I would say credit is one thing. The other is just when we talk about risk, one of the things that we've heard loud and clear is that having higher capital levels today are important to investors. When we do our own internal stress test, when we see 10% CET1, that's more than enough to withstand any sort of economic downturn that we would see in the stress test. Having said that, if we're low relative to our competition, we're going to carry higher capital levels in the short term just to ensure to take that risk off the table. So we think it's a risk play today. And a little bit of this is a show me story where we've got to get through this environment and show that not only do we perform well, but that we can outperform some of our peers.

Can you discuss Synovus' competitive advantages in terms of organizational structure, geography, market share, et cetera? And I guess in our -- and also tied into that, are you still benefiting from merger disruption and also just some of the publicized large-cap bank issues in the Southeast?

Our competitive advantage, obviously, is our model. As I said, when you get the awards from Greenwich and you get the awards from J.D. Power, our clients are saying that we're delivering on that value proposition to provide great service, to provide proactive advice, and ultimately, they're rewarding us with their loyalty. So I think we have top-notch talent. We continue to deliver with personalized service. And that doesn't mean that we don't have technology. We've said time in and time out, you've got to be high tech and high touch. I think at our level, at our size bank, if you're trying to replace a human being with technology, you lose that relationship. So we've continued to invest in new solutions, new technology, but we haven't removed the human interaction from the process. We're in a great footprint. I think that we have some of the best solutions from a treasury standpoint. We have great technology on both the consumer and commercial side in terms of digital offerings. And so when you combine all that, I think it's our go-to-market strategy where it's personal attention delivered in a great footprint with great talent, but we also have the great capabilities. On the M&A front, John, I would tell you that I think we're still the beneficiary of those things. We continue to add talent from some of the larger banks that are going through transition. We continue to win business. But at the end of the day, as much as you like to win that, I don't want to win because somebody else is weakened. I'd like to win because we're the best. And so we focus a little less on what's happening at other institutions. And if we continue to provide the great solutions, have the best talent, we're going to win whether somebody is going through a migration or transition or a merger or not. So we focus on ourselves, it doesn't matter what's happening around us.

You touched on this question a little bit in the remarks. But how are you going to manage the bank differently in the post-March environment? More balance sheet, light fee income strategies or the like?

Yes. One of the things that we've been talking about improving our funding for 4 years. We invested in treasury 4 years ago. We brought on 85 to 100 new people in that area. We've added 32 new solutions in the last 2 years. And so it wasn't like March 10 or 11, we said, gosh, deposits are important. So we've known that we needed to improve our funding cost and the diversity of our funding. Going forward, I think what's changed, as you guys know, when you're in a 0 interest rate environment, it's a whole lot easier to go out and take a chance on a loan-only relationship or to price something a little more aggressively when you're trying to win new business because wholesale funding is pretty cheap. If rates are going to stay higher for longer, one of the things we have to be better at is ensuring that when we're deploying capital, if we're exerting effort, that we're doing it with clients that are going to hurdle with our minimum returns on capital, that they're going to give us a full share of wallet. And you'll see us chase these loan-only or product -- one product only relationships a lot less. And we'll do that not only through business mix, we'll look at our products and businesses where we are exceptional and those that we're not, but we'll also incent our bankers to ensure that they're focused on building real true relationships, and not just product level relationships.

What -- I guess, what do you think are the best revenue growth opportunities over the next few years? And in what segments or geographies are you punching above or below your weight?

Well, look, our -- the places that we think there's outsized growth are some of our newer businesses. We've talked about CIB and Maast, and we talk about some of our banking as a service. But I would just point you to the areas that we're focused on today are those core businesses like middle market that have been growing double digits for the last several years in both loans and deposits. We're focused on wealth where we have this business owner wealth partnership, where today, we have less than 10% of our business owners have a private wealth relationship with us. Now that's a low percentage and maybe that's a negative, but you think about the opportunities where we're exceeding their expectations on the business side, why can't we do the same thing on the private wealth side? So I think it's our core businesses like wealth, commercial, some of our specialty areas, that's going to translate into growth. And to your point, we are looking for ways to be smarter around balance sheet usage. And so we, 2 years ago, developed a syndication agent bank platform that allows us to originate and distribute. For many years, we would have originated and held all of those loans, and that's creating fee income for us. We have other avenues like our Family Office where we're adding 10 to 12 new families every year, creating fee income growth there. So we've invested in areas that not only we have the right to win, but also from a return on capital standpoint are accretive to our overall returns.

I think I'll open it up for questions, and then I'll throw some in as well. Any questions from the audience?

Just want to make sure this is on. Okay. Kevin, one of the areas -- I'm going back to Investor Day, the middle market and the specialty businesses both had what I thought were pretty high self-funding kind of mixes, right? I think it was like 80%, 90% kind of self-funded, which is pretty high for a C&I-type relationship. And so you have the slides up there. Obviously, middle market is going to be an area of focus, but can you speak to the specialty and kind of how those clients have kind of -- how those client conversations have evolved since March? You already had strong self-funding. Have you been able to even push that mix even higher since then?

Yes. It's -- so I think with the 80% to 90% was in total commercial. And so when you look at total commercial, C&I lending, that's generally the type of self-funding we get, middle-market being higher. The specialty businesses, we have a restaurant services business that we have today that focuses mainly on QSRs. And so we've gone out and invested in treasury solutions like cash vault and other solutions that will allow us to get a larger share of their deposits. So to me, what's really important is, #1, we have to be the lead bank on some of those specialty deals. If you're participating in deals, you're not going to get the other economics. So we try to focus our teams every once in a while, you'll buy into a transaction because you want to get into a relationship, but we want to be the lead on those specialty transactions. Two, we hired a liquidity product specialist. He's an individual that just focuses on looking at the capital that these businesses hold to ensure that we're getting our fair share and some of that may be off-balance sheet. But we have to have expertise that allows us to go in and counsel those businesses. So middle market is going to continue to bring in 50% to 70% self-funding. Specialty businesses will be a little less. It's on the business banking and core commercial, kind of our geographic banking that sometimes it's going to be over 100%. So for us, it really gets down to business mix. We can't take a business that generally funds at 30% and make it 100%, you can't. So the way that we've tried to manage that is within the business mix of core commercial. We're investing just as much in that core commercial growth, where sometimes you'll get 125% core funding and knowing that some of those specialty businesses will only be at 30%, 35%. CIB is going to be in the 30% range for funding. So it's more about managing business mix, but having the right technology, capabilities and resources to go and get your fair share of those deposits.

And then just a follow-up would be, I know that the goal has been top quartile levels of profitability. I'm assuming that continues to be the goal going forward. A lot's changed over the last year, 1.5 years. So what do you think that, that looks like for the industry moving forward?

Jamie and I were just sitting down yesterday with our finance team going through our 3-year forecast. And what we're doing is to understand first what we can do. Probably, let's look and see what we can control and the type of growth that we can put up there, then let's go look and see what industry benchmarks look like in terms of what's top quartile. What we said at Investor Day was it would be impossible for me to get in front of a room and say that we don't want to be the best. Nobody strives to be average. No one wants to get up here and say, "Your model is so great that we want to be pure median." So our goal is still we want to be top quartile. I don't know what that number is today for ROTCE or for efficiency ratio or ROA, but we want to understand that. And then our goal is to use that as the Mendoza line for how we're striving to grow our business and improve profitability. It gives us something to shoot for versus as I always say, just being better than you were last year comparing yourself to yourself, does doesn't feel like a very good measurement. So we'll figure out what those absolute numbers are, and that's what guides our goals. It's what guides our actions so that we can get to a point where we can say we're top quartile in those key financial measurements.

I think Timur right here had a question.

Timur Braziler with Wells Fargo. The point you made on rationalizing low-return credit-only loans. Can you help quantify maybe how much of that exists on the balance sheet today? And how much of an impediment that's going to be in your near-term balance sheet growth?

We've used the number 10% in the past. We think there's about 10% of the loans that are loan only, and that number has come down. We're talking about the commercial side; I'm not talking about consumer at this point. I think there's an opportunity -- I always believe you don't throw the baby out with the bathwater. You book the loan, let's understand that there's a way in which we can cross-sell those loans to bring in deposits, to bring in treasury. So that's why you'll see that our goal is as it comes up for renewal, that the first thing is to say, look, if you want to renew this loan, this is the business we're going to have to have or this is how we're going to have to price it to make it worth our while. So we're going to get that opportunity. But what I've told the bankers, it's okay to let a piece of business leave, if you can't get that. And in many situations, you won't be able to because their deposits are pledged someplace else because we're not the only bank asking these questions. We know that other banks are asking for their deposits. So I think it will slow our loan growth in the coming year as a result of that. I think one of the bigger headwinds we have for loan growth this year will be CRE. We haven't seen any payoff or paydown activity for some time. And as the markets become more constructive, as transactions occur, if rates start to decline, you'll see some of the payoff and paydown activity pick up, where we haven't seen that for about 12 months. But I don't know that the loan-only relationships in and of itself will be a big headline decline in loan growth or decline in loan outstandings but it's something that will challenge our bankers to say the first thing is let's try to make this a more robust relationship with Synovus.

And then a follow-up for me. Synovus has been, I would say, one of the leaders in using technology or introducing technology more recently. I guess, as you look at some of the recent initiatives, when do you think we'd reach critical mass? What does that look like from a revenue side? And then we've been doing more work as a firm on AI, and I'm just wondering how AI, if at all, is being utilized to help optimize the business.

Yes. In terms of critical mass on technology, I don't think we ever get there because I think as soon as you develop all of your new solutions and capabilities, there's a new version or a better version that will be down the road. I appreciate you recognizing our focus on technology because, as I said earlier, we believe it takes high-tech plus high-touch to win in this environment. And so we've rolled out in the last 5 years, a new digital platform on both the consumer and commercial side. We're in the process, obviously, with our banking-as-a-service platform to provide a digital offering through software vendors. We just believe that you have to partner with the best fintechs out there. We're not developing a lot of this ourselves. And so we have an innovation team that's constantly looking at ways to improve the client experience, to generate new revenue growth, to reduce fraud losses. And if you have that sort of ongoing continuous improvement mindset, technology is going to continue to change and expand. And given the software-as-a-service model today, it's not that expensive to go out and engage with some of the new technology and vendors. And I think that's just the way of the future. So I don't know that we'll ever get to where we want to go. For AI, about 8 months ago, we formed an AI team that was built to begin testing some of the use cases that were out there. I mean, we're all excited about AI and everyone's seeing the power of it. But just like when we saw blockchain and crypto, it's cool stuff, but how can you make it a value prop for your client or how can you improve your efficiency or effectiveness in your operations? And so to this point, we have our own internal AI platform that allows us to use a GPT type product and keep it within our firewalls. We've engaged with 2 firms already with AI technology. Personetics is the main tool that we use on our digital My Synovus platform that creates insights not only for the client but for our bankers to identify opportunities for cross-sell. We use another solution on the front end of our online account origination to root out identity fraud on the front end. It's using AI to do that. And we're investigating a new tool that will go in our loan origination system that will basically pre-populate and make the loan origination cycle times much shorter. So we've focused on building use cases where there are very tangible results instead of trying to boil the ocean. And I think through time, we'll be able to better leverage AI in a bunch of different areas. And maybe it's not a big bang. As I say, in the South, there's no silver bullet, only silver buckshot, lots of little things that add up that would make a difference. That's how we're looking at AI.

Can I ask a question? A lot -- right now, growth in the banking industry is not being rewarded. It's other things like building capital and other kind of balance sheet measures. So people are focused on expenses near term to deal with revenue challenges. I mean how do you or other banks not cut so much that it affects your ability to grow in the future when if you don't grow over time, then you'll end up dying on the vine, I guess?

It's the toughest thing that we have to do is allocate out scarce resources. And so I give a lot of credit to Jamie Gregory, our CFO, and their team. When you start this process, you've got to establish certain things that your ring fence, things that you're just unwilling to touch because you're -- you believe that those returns, the payback period are so strong that you don't want to cut off the blood supply that will allow them to continue to grow. And so once you do that, as I mentioned earlier, so if you're solving for $50 million cost cuts, you actually have to solve for much more than that because you want to continue to fund certain areas. So our leadership team, we started the process about 5 months ago, 4 months ago where I asked everybody to come back with their cost savings initiatives and I challenged them to say what were those that they could do with high risk, low risk and moderate risk. And I give them a lot of credit because I can't, sitting from my seat or Jamie sitting in his seat, know where the real risk lies when you're cutting heads or cutting back third-party spend. So you've really got to trust your leadership team and you've got to have a leadership team that's engaged and wants to come to the table with real ideas that will result in savings. And so I give our executive leadership team all the credit because what we were able to do in a very really short period of time was identify a path for '24 that creates stable expenses, but doesn't cut off some of our bigger initiatives and allows us to continue to invest. So when we get out of the other side of '24, as I was saying earlier, that we're a stronger company and that we're built for growth.

Any questions in the audience? So I met a bank last week, and they thought that investors are too focused on office and commercial real estate only because, obviously, it's a problem category and that they should be more focused on what is not known. And I guess what should we be worried about for Synovus? And what's going to be the potential credit quality challenges in the next couple of years?

John, I would answer this not for Synovus, but I would say for the banking industry, if you've seen what's happened to this point, it's the subprime, near prime consumer has starting to see cracks. Fortunately for us, we just don't have a lot of exposure to that. 2, I would look at things like leverage loans, where when you ask the question, what do interest rates do to the underlying borrower, well, if you're already levered, higher interest rates are going to make it even harder to cover that debt service coverage. And so again, less than 4% of our portfolio is in levered loans. So not concerned about that. When we've been asked this question in the past, what we've said is the place that we're closely monitoring, and we haven't seen an uptick in NPAs or delinquencies, it's just in the small business side. Because when you think about a prolonged higher interest rate environment, slower economic growth, small businesses don't have the cushions and protection of larger companies. They don't have big balance sheets. They don't have multiple -- if one client leaves them or one vendor, they don't have the ability to replace it. So we're monitoring that. Again, we have a very small unsecured small business portfolio. Most of our stuff is secured by real estate or equipment. So that provides a mitigant. But that's where we've watched. I know there have been questions around bankruptcies this year. I mean, bankruptcies are up about 23% this year in the United States. But I always tell folks, I mean, there's obviously always going to be bankruptcy. The key is making sure that you have collateral and that you're dealing with a client that you can ultimately have a low loss given default. So probability defaults may go up. But if you have good collateral, the loss given default is going to be much lower.

All right. I think we are out of time, and we really appreciate you and Jamie coming to Boston this year, and thanks again.

Thank you, John.