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

Good afternoon. I wanted to acknowledge Gerard Cassidy and the awesome work that he puts in to make this conference a success. Thank you, Gerard. I am here to introduce Synovus Financial, an $8 billion market cap, $60 billion asset bank that is headquartered in Columbus, Georgia and operates in 5 states in the Southeast: Georgia, Florida, Alabama, South Carolina, and Tennessee. Synovus traces its roots to 1888 when a cotton mill began safeguarding workers' money and paying interest on the savings. You may have noticed that Synovus' stock was up 17.5% yesterday, which was the 15th largest 1-day move in the stock over the past 30 years and the largest move in what I will describe as non-panic rallies. So of the 15 other than yesterday, 11 were during the GFC, 2 were during COVID March '20, and the other 1 was during the Asian meltdown in November of '97. Since presenting at our conference last year on November 2, Synovus' stock has outperformed the KRE by around 33% and the S&P 500 Equal Weighted Index by more than 60%. Why? I think the reasons include: number one, relative earnings revision. So the '25 consensus EPS number for Synovus is up a little bit more than 10% over the past year while EPS forecast for the 2 benchmarks I just named were down 4% to 5%. And two, there is increasing confidence in this management team and the quality of its business activities today. Importantly, the consensus number for '25 equates to just a 1.06% ROA so one can make the case that the Synovus self-help improvement story is not in the final chapters. Fun fact, there are 144 banks in the S&P Regional Bank Index, the KRE, and Synovus is the only bank whose CEO and CFO both have 2 first names. Here with us this morning are CEO, Kevin Blair; and CFO, Jamie Gregory. Thank you for coming back to the conference. The floor is yours.

Thank you, John. I'll go by Kevin or Blair. It doesn't matter. Thank you, John. I have the unenviable task to try to go through 40 slides in 20 minutes, and then I'll sit back down and let John ask some questions and let you guys ask some questions. Obviously, when we put together this presentation, we didn't anticipate being up 17% yesterday. And I think, John, our market cap is now $9 billion so it shows you how fast it changes. But I want to talk about the summary slide here is called "The Need for Scale - Fact or Fiction?" And I think if you take away one point from today's presentation, that the size of your balance sheet or P&L is not a determining factor for primacy for our clients. And I think the last 1.5 years has proven that when we went through a bit of a liquidity question. I don't call it a crisis but a question, and we've proven out, along with many other regional banks, that primacy is built on being able to provide exceptional service, having the capabilities and functionality to help them achieve their financial goals. And it's not predicated on the size of the balance sheet or your ability to spend on technology. But what I wanted to cover, first, I won't get up here and tell you who we are because John said that. But when you look at the Southeast, one of the amazing things that we are blessed with is a population inflow that I think is second to none. When you look at the next 5 years, these 5 states that we serve in many of the markets that we list here are going to be growing at the national average of 2x. And there's some new data that we put in our appendix that when you look at the adjusted gross income of that population inflow, all 5 of our states rank in the top 15 in that AGI increase. And it will bring a total of $50 billion of new income into our marketplace over that time frame. So our market is one of our great assets but we also recognize that others know that, and that means that competition is going to be great, which just forces us to get better at our game every day. Over the last really 10 years, John said that it's a self-help story. It really has been. We have gone through a major transformation from collapsing our charters, unifying our brand, to adding capabilities and functionalities and business segments that we didn't have before. And we've done that for one primary reason is to create that Goldilocks principle. We made the decision several years ago to focus on the things that we can win at, the places where we have the right to win. A $60 billion bank, $9 billion market cap can't win in every area. But if you look at this chart is we've invested in areas where we have the right to win, the commercial business, the private wealth business. And now as we sit here today at $60 billion, I think we can compete with the largest institutions out there as it relates to functionality and capabilities and talent. And we can stay as local and as personal as some of the smallest institutions, and that's what allows us to win. And you can believe me or you can believe some of the awards that we've received over the last couple of years. Number one, J.D. Power. We were the #1 bank in the Southeast in 2023, not only in service but also in trust. So that tells us our consumer clients are seeing the value that we're adding. On Greenwich, we won 25 Greenwich Awards in 2024. So for commercial and small business, that puts us as the fourth highest bank in the United States. So it tells us our clients believe in what we're delivering. And it's a very simple model, engaged team members plus loyal clients equals profitable growth. Not lost to me in this slide is that 91% of our team members are actively engaged in the top 5% of all companies in the United States as it relates to team member engagement. So with that model, if we can continue to add more talent, expand our geographic footprint through density in the markets that we serve, and three, we continue to have raving fans for clients, it's going to generate the same type of growth that John talked about over the last year. And when we look at ourselves today, we are a very diversified business model. We look like a regional bank. We have all the capabilities on the commercial side from large corporate down into the small business sector. On the consumer side, we have 246 branches that serve those 55 markets that we're in. And we have a wealth platform that allows us to serve high net worth individuals as well as commercial owners. And what's important about this is 2 things: number one, we've greatly diversified our revenue and our business mix over the last 10 years; and number two, I think we deliver more seamlessly across these business units than many of our large bank competitors. Now if you look at the history, and this is where I'll get a little faster so we can get to questions. Number one, the question is, can we grow deposits? We've grown deposits 29% since 2019. And what I would tell you is that over 70% of that, 75% has come from our commercial segment. So where we feel like we have the right to win is in small business, business banking, middle-market banking, and corporate banking. We put more resources there. It doesn't mean that we don't love consumer. We love consumer. And we think that we have competitive advantages in many of our markets, but we're not going to take on a lot of the bulge bracket firms and try to out-national them in the retail sector. So we're winning by winning client deposits. When we talk about loans, and I know there's probably a lot of questions worth coming from John and maybe from the audience on what's loan growth look like in the future given this administration? What I would tell you, the last 2 years, we've had lower loan growth because we have strategically run off certain asset classes that either have lower returns or lower value to the shareholder. And as a result, the places that we've invested that had really healthy growth, we've missed or you haven't seen because there is not that level of transparency. So when we look at things like middle market, specialty C&I as well as CRE, when you add those up, we've been growing about 14% a year in that commercial space. And it shows you by our model of providing that sort of expertise and advice as well as adding new talent, that we're able to generate growth that far exceeds that of the underlying market. More importantly, it's not just loans. We're able to couple that over into the fee income side of the P&L. 16% CAGR growth in these 4 categories over the last 3 years. And it starts with treasury and payment solutions. Five years ago, we made a major investment with Katherine Weislogel taking over our treasury team. We've added capabilities, functionalities, a bunch of talent. And that business, as you'll see in a second, is growing 18% a year as a result of that. And that's a journey that we've been on but I think the opportunities in front of us are just as great. Capital markets, we've continued to expand our capabilities there, adding to what we had before with derivatives by adding debt capital markets opportunities, syndication opportunities, FX, the list goes on and on. Record levels in the second quarter of this year, and we think that, that's just in the beginning phases of what it could be going forward. Wealth management, I'll talk a lot today about our business owner wealth strategy. Today, we have about 8% of our commercial clients, business owners that have a private wealth relationship with us. We think we have an opportunity to greatly grow that percentage in penetration, which will generate a tremendous amount of growth. And then on the commercial sponsorship side, whether it's access to the Mastercard and Visa rails for the merchant acquirers or whether it's our partnership with GreenSky, that revenue stream has continued to grow, and we think it has opportunities for expansion in the future. I mentioned treasury, 18%. We have about 12,000 lead relationships out of our 14,500 commercial clients. So we have a great penetration into the client base. What I would submit to you that 80% of our sales in 2024 came with existing clients. Why can we do that? Because we're continuing to add new capabilities and solutions that allow us to sell deeper into the wallet of those clients. We also have 20% of the growth that's being driven off new relationships. So in the future, as we continue to reprice our treasury solutions, we have an opportunity to out-price there as well as adding new solutions and selling deeper into the existing book as well as bringing new clients. We think this double-digit growth rate will continue. We've also -- these next 2 slides really speaks to the fact that under some fairly unprecedented interest rate times, we've been able to manage our revenue stream very, very well, meaning that as margin's gone from 3.70% to 3.20%, we've been able to increase our overall revenue. Number one, Jamie can talk about this, we've positioned our balance sheet to be fairly neutral to the front end of the curve. We are asset-sensitive to the long end of the curve. But if you're trying to invest in Synovus based on rates, that's the wrong investment thesis. We're trying to neutralize the rate side of the equation where you're investing in Synovus because of the high returns and the growth that we're able to generate. One of the reasons that we've had great ROAs, and we've had great returns is because we've been very efficient and very disciplined at managing expense growth. If you look at the slide, headcount reductions of 11% since 2019. We've been able to do that while still growing the top line and adding sales resources. We've also cut back on real estate and other discretionary expenses that allows us, when you look at the bottom of the slide, we're at about 55% efficiency ratio, which puts us in the top quartile relative to our peers. And that's something that, regardless of what the future holds, we've got to continue to remain disciplined so that as we want to spend more money and invest, we can offset it with some of the expense reductions. We've also optimized our balance sheet. We took the last year to sell a loan portfolio, a couple to get rid of low-returning asset classes. We've sold a business. We've optimized our balance sheet by doing a risk-weighted optimization, risk-weighted asset optimization, which allowed us to restructure the bond portfolio. And so that's behind us. We're doing that to set up the balance sheet to allow us to grow in the future. And what's been clear to us is that we have to maintain that growth orientation and that returns focus while continuing to create a more risk-resilient balance sheet. So our CET1 levels are the highest they've been in 9 years. Our wholesale funding is off 36% from its peak levels. And when you look at things like our risk area, we've continued to invest greatly by bringing in talent from Category 4 institutions. We've been building out our analytics. We've increased our investment in some of the early warning mechanisms for credit and, quite frankly, across all of our operational risk categories. And we believe it's not because we're getting closer and closer to $100 billion but we think it's the right thing to do. As we grow and mature as an organization, we want to get even better at managing and mitigating our risk. And from a net charge-off perspective, if you look at it over this long period of time, since 2019, we've averaged about 22 basis points of charge-offs. And now yes, we had a couple larger loans over the last year that had our losses increase. But we think those have moderated and it shows that they were more idiosyncratic in nature. And as we look to the future, we would expect our losses to be more in this range. So from a history standpoint, I think we're winning in the Southeast. I think we are demonstrating how you can do that and still have top quartile profitability. And ultimately, you have to do that and create sustainable returns that are very risk resilient. So as we go forward, a couple of things I'll hit on, and we'll share more about these strategies in the coming weeks and months. But we wanted to be very clear that we think now is an opportunity to put the pedal to the metal and start to add more resources in our core businesses. So what we're saying here today is over the next 3 years, we will increase our headcount in middle market banking by 50%. We will increase our headcount in community banking by 20% and almost 20% in wealth management in key strategic areas. We think that the market is ripe to be able to attract talent faster, and we believe that the payback period will be less because of the talent that we can attract. So I'll share more in weeks to come but part of our investment for 2025 will be leaning in on new hires, and that will allow us to accelerate our growth even faster. We've also recognized, to do that, you've got to fund that growth. And our team has done a great job, as I said earlier, growing deposits 30% since '19. But we recognize that if we're going to start growing loans at a faster pace, we need to make sure we're keeping pace with core deposits. So we rolled out some specialty verticals from the legal side. We have some additional opportunities with money service businesses and ISOs as well as a new liquidity product specialist team that we've added in the last 1.5 years. All of those factors will allow us to grow the core deposit base from our existing businesses, along with some of these verticals that will keep pace with loans. And then our Corporate and Investment Bank. At the end of the third quarter, they were $800 million in loans, and they had an annual PPNR of roughly $20 million, and that's up 600% over 2023. It's in an infancy stage, and these 3 verticals that we've added continue to build up to scale. And we think it's going to be a growth opportunity that will continue for the foreseeable future. We also need to make sure that we're deepening client relationships. One of the things we do at Synovus is we track the revenue per relationship. And in order to increase the revenue per relationship, we need to sell smartly and prudently, not product push but to make sure that we have fuller share of wallet, whether that's treasury, whether it's capital markets, or making sure that we take our commercial business clients and sell them private wealth services, that's very important to us. As I said earlier, I think we do it more seamlessly than the larger institutions, and we have more functionality and capabilities in the smaller competitors. We also need to make sure that we invest in treasury and payment solutions. We've made a tremendous amount of progress, but it can't -- there's no finish line there. We're still investing in new products and solutions. We're trying to make the client experience better. And we're trying to ensure that we create a sticky relationship that's harder for any bank to take but ultimately continues to provide a tailwind for future fee income growth. We've also overhauled our third-party platform. So in many ways, this is a business that sponsors merchant acquiring companies, giving them access to the Mastercard and Visa rails. We're expanding that business. We think there's market disruption that will allow us to do it. And we're adding new capabilities to our own internal merchant offering that we offer our clients, all of which will drive greater fee income growth out of this commercial sponsorship group. On the consumer side, as I said earlier, we are harvesting our success here. We are getting better at digital. We're making sure that we provide analytics and insights to our clients, which they tell us they need. We're trying to modernize our branch experience with new technology investments. And ultimately, through our new product set, we'll be able to generate fee income growth, not just deposit growth. And then it's important, as I mentioned earlier, that through this environment, we need to maintain this existing level of net charge-offs, which we feel confident in being able to deliver. And that comes from enhancing our governance framework. We've continuously updated and improved our overall framework as it relates to concentration management, our analytics. And so going forward, our risk management area will continue to make us a better organization as it relates to reducing and mitigating risk. The efficiency ratio, as I said earlier, we're in top quartile today. We got to maintain that. That means that we're going to be investing, as you heard earlier, in new resources. That means we have to continue to find savings elsewhere that will minimize the overall growth in expenses. And you can see that part of that is focused on reducing things like operational losses, fraud losses. We're spending money to keep the bad guys from getting their hands into our cookie jar, because I hate spending $20 million a year to the bad guys. I'd rather spend that $20 million a year investing in client activities or more team members to support our clients. And maybe the bigger point on scale, everybody thinks you have to spend $14 billion a year to be competitive. And I would submit to you, you don't. The great equalizer are fintechs and partners. We continue to leverage that. And if you look at some of the key investments that we have here just for 2025 and 2026, we feel like we're touching the areas that are important to our clients, developing new treasury solutions, improving our loan origination process, cutting cycle times, making sure that our wealth management organization is well integrated across the trust, the brokerage, and private wealth side. So I would tell you that there's $1 million that we'd love to spend on some other project, but we've really prioritized the things that we think make a difference not only to our team members but also our clients and ultimately, to our shareholders. And so at the end of the day, we think we can continue to win in the Southeast, taking market share and adding talent at a faster pace. We think we can maintain our top quartile performance by expanding margins and delivering operating leverage that's positive over time. And we'll be able to sustain our returns by managing the credit profile and reducing our overall risk and having a more resilient balance sheet. So with that, I'm going to stop, John, and I think I'll rejoin you for questions.

Thanks, Kevin. So I should have mentioned it before but the presentation was filed last night. Jennifer Demba, thank you for coming. She can answer any questions on that afterwards. I'll ask a few questions and then open it up so please get some questions in mind. I guess this question maybe, I don't know if it's changed at all in the last 24 hours, but what do you think the most challenging aspect of execution will be in 2025?

I'll start and Jamie can add. When you look at the drivers behind executing in 2025, it starts with the rate environment. We talked about this last year. If we're in a declining rate environment, we need to deliver the deposit betas that we have to have in order to manage the margin. And Jamie and the team at the end of the third quarter, we only had 8 days left in the quarter when we started to cut rates from the Fed decision of 50 basis points but to deliver 40 to 45 deposit beta is important to us. And we showed through the end of the third quarter, we were already at 30. So I think operationally, that's important because that drives the margin, which is such a big part of the revenue forecast. What I would tell you and maybe more of a strategic element is it's continuing to differentiate ourselves with our clients. And John, what I look as the biggest opportunity is to be more proactive and advice-oriented in how we sell. The banking world for so many years was a fulfillment channel. People came to the branch or to the commercial relationship manager that says, "I need this product. I need that." What we've learned with analytics and client insights is we have to do a better job of taking those opportunities to our clients, not waiting for them to address those opportunities with us. And if you think about our deepening wallet share and our ability to create real fulsome relationships, the more proactive we can be at identifying those needs and taking them to our clients, the more profitable our institution is going to be, and quite frankly, the more differentiated it will be versus the other banks we compete with.

Just sticking on this conference theme of scale. Can you just talk a little bit about the importance of scale to succeed on some of the strategic initiatives that you talked about? And also, how should we measure whether you have scale in certain businesses?

John, scale is something that I wouldn't tell you that if you think about our annual process for determining where we invest dollars, I think we have somewhere between $30 million and $40 million a year of incremental spend, where we're looking to invest in new initiatives. So for giggles, if we were $120 billion, would that number be $60 million to $80 million? Maybe. If we had $60 million instead of $30 million, would it significantly change our go-to-market strategy? It really wouldn't. And the reason I say that is we have to make tough decisions all the time, but it starts with knowing where you have the right to win. Banks our size fail when they try to be everything to all. We've determined that we can't be everything to all but we can be everything to some. So that allows us to focus our investment on those client segments and those businesses where we can differentiate ourselves. So if you start peanut buttering your spend across all client segments and all geographies, you start losing because you just water down your competitive advantage. And so yes, scale matters in that the bigger you get, the more money that you can spend from a discretionary standpoint, the greater latitude you have to add more resources because it represents a smaller percentage of your expense base. But I would tell you today, at $60 billion, I don't feel like we're at a tremendous disadvantage both from a technology standpoint or just from an expense standpoint and being able to serve clients. Two, it used to be hold limits. Clients would say they've outgrown Synovus. They've gotten too big. They need to go to a bigger institution because we've gone out and added things like syndicated finance, where we can agent that loan to other institutions, really it's hard to outgrow Synovus. We've added corporate and investment banking technology because we don't want people to outgrow Synovus. So look, do we want to get bigger? Yes, we want to get bigger because we want it to be proven that we're delivering value. Our clients choose us, which makes us grow, but I don't think we're at a significant disadvantage today at $60 billion that inhibits our ability to win. And I say that because you look at things like J.D. Power and Greenwich. Our clients are seeing we're winning today, and we're already at a disadvantage on scale to some of those larger institutions. In many ways, those awards are indirectly correlated to size of balance sheet. The larger banks sometimes get so focused on lines of business and products and spend that they forget what really matters, which is client service.

We could open it up here to the audience with questions. I think we have a mic coming right over to your left.

Manan Gosalia, Morgan Stanley. Kevin, you spoke about increasing headcount pretty meaningfully 20% to 50% in key strategic areas. Can you talk about how you think about the return on that and how quickly you expect the revenues to come through?

Yes, it's a great question, and we've been asked the question earlier, how fast will you do this? That was a 3-year target that I gave you on the 50%, 20%, 20%. Each position is a little different in terms of what the earn-back period is. And I'll just -- for example, if you look at a middle-market banker, the average revenue per client of the middle-market banker is about $250,000. Compare that to a community banker where it's about $30,000. So if you bring over 5 clients in both, you're obviously going to have a quicker payback period from that middle-market banker just based on the size of the client. So middle-market pays back faster than community and then private wealth because the revenue on a private wealth relationship is a little less than community. So the way that we've staggered this and the way that we're building it is such that we'll build over the 3 years. Some will pay back very quickly. Some will take about 2 years to pay back. But we'll stagger it to where when we get to year 2, we're hopeful that year 2 expenses are being funded by the revenue generated from year 1. And so that's why we're doing it over 3 years. And ultimately, you'll start to see the full benefit kind of the terminal value after 3 years because we feel like some of the long poles in the tent are about 2 years to break even. So it's not that long. But like we've said, other institutions have used other business units to fund that. Part of the reason that we've invested in commercial sponsorships like the GreenSky relationship that makes us about $30 million a year, we can use some of the capital created from businesses like that, that we consider noncore to help to fund some of these growth engines.

And Manan, we're very focused on the network effect with these hires. So we're being very -- as Kevin mentioned, we can't kind of peanut butter spread any of those so it's very targeted end markets. So the network of where we already are, we know we can be deeper but then also the network effect between businesses. So we have targeted kind of pods of middle-market banking, commercial banking, private wealth advisers, treasury, like making sure that they all go together. Because Kevin is talking about the profitability of any of those incremental bankers but it gets a lot better when you start adding in the full team because there's a lot of residual revenue, residual business you can get from that.

Yesterday, I was talking with the senior adviser to Tim Scott and asking about the priorities now that he's the new Senate banking chairman. And they said it was to roll back all the things that have been added to the regulatory handbook. So the question is, what priorities would you like to see rolled back? And how big are they relative to your expense structure? Will they move the needle if we get a significant rollback of -- I mean, over the decades, everything has just been added, added, added and if things start coming off. So that's question number 1. Question number 2 is there's some concern in the investment community that this AML/BSA investigation is going to spread throughout the regional banks. Have you been through that process already?

Well, look, it's a great question. On your first question, it's hard for me to pinpoint an expense number that says if we just removed everything that's happened over the last 4 years, let's say, what does that mean to the bank? The one place I could probably pinpoint that is on the resolution planning because it's due in 2026, and Jamie and his team are looking to build it. And I think I would tell you it's a couple of million dollars a year to do that. So if they roll that back, we could save an immaterial amount of expense. I think when we sit down and think about our regulatory environment, I think the biggest change that is projected is on the $100 billion threshold, the tailoring. And it doesn't have an impact on us today because we -- as we've grown from [ 50 to 60 ], as I shared in the presentation, we're continuing to enhance our risk management practices, procedures and investment in resources because we think it's the right thing to do. As you get bigger and more complex, your risk management organization has to stay aligned and continue to grow. But I think many -- as investors, you guys see, when you get to [ 60 or 80 ], people start seeing you're in no man's land because you're about to cross over a line that could cost you $60 million. So removing that could remove a lot of concerns it has for investors about the incremental expense that it takes to build to have enhanced prudential standards. Three, Jamie and I have talked about things like the shared national credit review. It seems like in this environment, some of those reviews have gotten more detailed and considerably punitive. I would argue that the way -- the place you see that is if you see downgrades from that, it ends up showing up in the allowance because you're having to downgrade a credit which you're having to reserve for. So you could see that potentially lower allowance. But I would answer it in total of saying that I don't know for Synovus there's a big expense save. There's not a big a-ha for us that says, "Gosh, we would change our strategy if you rolled that back." We believe that having good regulatory relations and partnering with our regulators is important because a lot of the things that we've seen in our environment like stress testing, we find that to be beneficial. We don't have to do a CCAR every year. We do a modified CCAR analysis every year because we think that informs us on what our capital strategy should be. But look, I think it's more relevant for the larger institutions because when you think about Basel III Endgame, when you think about how tangible capital has been viewed at the larger institutions with AOCI, I think those are -- can be very punitive. As I said earlier, we have the highest capital level we've had in 9 years, not because we feel like we need it from a stress test. But when we look around our peer set, others are carrying 10.5%, 11% capital. So we built it. So maybe the answer is, if that's not as important, we could return our capital levels back down to target levels that we had prior to this cycle. And that could be very lucrative for shareholders as well as we manage it lower. On the AML/BSA side, I mean, we go through this process just because we're a $60 billion bank, we have a standard AML/BSA review cycle. We believe we hired a person from a Cat 4 bank that leads that area. We have a great system in Verafin and it's something you can never rest on your laurels, but we feel very good about our practices and procedures. And when you see some of these other banks who have consent orders and haven't followed the rules, that is #1 most important for us. And that's not just on our core business, but when we have these commercial sponsorship businesses like GreenSky, the first people at the table are AML/BSA to make sure that we can monitor, measure, and mitigate any risk associated with it. So we feel like we're in great shape there.

We've got Timur at the back.

Timur Braziler with Wells Fargo. You had mentioned the 14% commercial growth over the last 3 years on a CAGR basis. Is that how we should be thinking about the aspirational type of loan growth once we're through some of these noncore items rolling off and some of these new hires coming on? Or maybe is there some mitigating factor to that? Just what your thoughts are on longer-term loan growth with some of these initiatives being put into place.

Well, we believe that in the Southeast, we have the right to grow 1% to 2% faster than the market economies, just as a starting point. And then you would layer on the growth. I mean, we are very pleased with the historical growth you've seen in those middle-market businesses, specialty businesses. That's a significant rate of growth. And when you look at where we are, I would expect that kind of GDP plus 1 or 2 and then the benefits from this aggressive hiring strategy. But that will come in over time, as Kevin walked through earlier, but that's generally how we're thinking about loan growth.

And I think it's important when you look at -- we showed commercial and we didn't show total loans because we've also been very strategic. And as I said on the one slide, we've optimized the balance sheet. We basically reduced our exposure in shared national credits. We've reduced our exposure in third-party consumer. We've reduced our exposure in things like medical office by selling a portfolio. And now the next headwind will be the payoff and paydown activity that we're seeing on the CRE front. And we've talked about that for several quarters that as the market continues to equalize, as cap rates move to more normal levels, we would expect there to be more refinance activity and more transactions that would move some of those loans off our balance sheet. And we expect that in the fourth quarter and first quarter. And so once you get through that, then it feels like all of those headwinds that we had abate, and now we see the loan growth more aligned with what we would expect to see in a normalized environment.

Jon Arfstrom, RBC. Can you give us an update on credit, what you're seeing from a credit point of view? And then second question, Jamie, if you get a lower tax rate, would you do anything different, accelerate anything or change your approach?

I'll start with credit. So nothing's changed since the end of the third quarter. As we're looking at the environment, we said 25 to 35 basis points in charge-offs, Jon. And we really believe that when we look at the nonperforming loans, we've talked about this a lot. 80% of the nonperforming loans that we have in the bank are 8 to 10 credits. And we continue to monitor those credits. They obviously have strategies for their own success, and our ability to evaluate what the loss given default would be on those, we feel really good about that. We haven't seen any sort of inflows that were not expected. We had NPLs increase this last quarter with one commercial relationship that was office, we've been expecting for some time. So all of the measurements that we look at that are early warning mechanisms continue to point towards kind of a stabilized credit environment. And then as I've shared in some of the one-on-one meetings, when you really look at what drove our losses higher, it was 3 idiosyncratic credits that, for me, I just don't see other credits like that on our balance sheet today. So what gives me comfort is not only the metrics but also knowing that when we look at some of these others, we're not going to have the loss given default that we had with those.

And Jon, on the tax rate, we've looked at the Trump plan, looked at what he's put out there. If that were to come to fruition, we think it's about 7% accretive to net income. We'll see what happens. That -- I think there would be some downstream effects of that. I mean, it could lead to more activity with our clients, client activity, which will be a positive. But then we also -- it would reduce our dividend payout ratio so you may see a reaction a little bit on the dividend side. But I think that, that increase in net income, we would then just flow through to the shareholders largely.

I was thinking back, Jon, when Jamie and I had this question back in 2016 and we were talking about how do you spend that? How do you -- the lower tax rate? And I remember everybody was saying 1/3 goes to the shareholder, 1/3 gets reinvested, and 1/3 gets spent. And I don't know if that's the same with the 7%. But to Jamie's point, I mean, I don't know if all 7% just drops to the bottom line and we'd have to evaluate that. And I think it's so early and premature to even guess when if that goes into effect. But it's something that, as you can tell, Jamie and his team have already looked at.

Tony Elian, JPMorgan. Can you give us an update on MAAST? It seems like we used to hear a lot more about it in recent years but not so much in the past few quarters. Where are you on that? How many ISVs do you have and has the long-term thinking changed on it?

Tony, I think I said this on the third quarter earnings call. We basically put MAAST on the back burner. And why is that? So the product is up and operational. We onboarded some folks. We were piloting the MAAST product. We didn't feel like our value proposition, the products that we offered on that solution were valuable enough to entice ISVs and ISOs to put accounts on the platform. If you think about what MAAST was, MAAST was a payment facilitation platform that helped ISOs and independent software vendors offer payment solutions. So in essence, they serve as merchant acquirers. We then would have individual accounts with their commercial users that would allow them to move money, keep deposits on the platform. The process that we built our platform made it very hard to scalably add new accounts under each user. So we back-burnered it. And we said, "Look, let's put it on ice for a little bit." Let's work on our payment facilitation. We're working on a couple of new things there. Let's build our ISO portfolio, as I mentioned earlier, commercial sponsorship. We're going to go out and add more there. And once we make the revenue from those commercial sponsorship initiatives, we'll use some of the revenue to go back and tune up MAAST to be a more effective product that can be utilized for the payment facilitation and banking-as-a-service platform. So it's not fully decommissioned. It's not there. But back to the tough decisions we have to make, we made a decision to invest more in commercial sponsorships then MAAST for this strategic cycle, and we'll come back to it in the future.

Kevin. It's Jared Shaw from Barclays. Going back to the growth of RMs, how does that pace compare to what you've been doing recently? And are there any specific geographies you're targeting? And what's the competitive landscape with other banks looking to hire?

Jared, it's -- for middle market, we've increased our size about 30% over the last several years. So to Jamie's point, middle-market has been an area that we've really invested. This just puts it on steroids. Now we're going to grow it by 50% over the next 3 years. So the pace of growth is inflecting up. For private wealth and for community bank, it's a different story. The community bank, we've actually been shrinking the number of RMs for the last 8 years. And why is that? Well, if you go back to the history of Synovus, community bank was the only LOB we had. As we built out these specialty units, CRE, middle market, corporate banking, guess what happens? The relationships that sat in the community bank that need to be served out of these specialty units have moved over there. So as their footings have declined, we let -- we invested in those other areas, we let the relationship manager count in the community bank go down. And we've reached a point now where that headcount has reached, I think, a low watermark that now we want to start adding back. Same thing on the private wealth side. Our private wealth adviser strategy was largely in Florida when we bought Florida Community Bank, so we used all of our resources there. So now we're going to pull that back and say, now it needs to be more global across some of our larger metro markets across all 5 states. Same thing for brokerage and trust. We'll add people there as we add new private wealth advisers. And in the deck, you'll see it's the markets that you would expect. We're in Atlanta, Tampa, Central Florida, South Florida, but you'll also see some secondary markets as it relates to national MSAs, like Birmingham, Charleston. We say the Carolinas in general because Colombia is a good market for us, Greenville. So of those increases, Jamie's point earlier, we have targeted. We don't want to be so specific so that we know that the banks that sit in those markets will say like here comes Kevin and Jamie, they're trying to hire bankers. But we've chosen it, and as Jamie mentioned, it's very intentional, where we want to add 1 middle-market banker in this market, we'll add 2 community banking resources and 1 private wealth adviser or 2 private wealth advisers. So it's a very structured approach that we want to build the density by going at it as a team versus doing one-offs, 1 here, 1 there. So it will be very structured.

We are out of time. Thanks again for coming to the conference and hope you make it back next year with a higher stock price.

Higher stock. Thank you, John.