Executive Summary / Key Takeaways

• Synovus Financial is executing a strategic transformation, focusing on higher-growth commercial segments and specialized services to drive revenue and balance sheet expansion beyond market averages.
• Strong first quarter 2025 results demonstrated improving profitability, with net interest margin expansion driven by effective deposit pricing and balance sheet actions, alongside disciplined expense control.
• Credit quality metrics showed broad-based improvement in Q1 2025, with lower net charge-offs and non-performing loans, contributing to a reduced provision for credit losses despite increased economic uncertainty factored into the allowance.
• Strategic investments in technology and talent, particularly in areas like payments, wealth, and targeted commercial lending, are enhancing client relationships, driving fee income growth, and improving operational efficiency, providing a competitive edge.
• Management's 2025 guidance anticipates continued growth in loans and core deposits, stable credit performance, and expense growth managed within a range that supports strategic initiatives, positioning Synovus for sustained performance improvement.

Synovus Financial Corp., a long-standing financial institution founded in 1888 and rooted in the vibrant Southeastern United States, is currently undergoing a strategic evolution. Operating primarily through Synovus Bank, the company has expanded its traditional banking footprint across Alabama, Florida, Georgia, South Carolina, and Tennessee, evolving into a provider of a full suite of specialized financial services. This includes wealth management, treasury solutions, mortgage services, and a growing presence in capital markets and specialty lending. In an industry marked by intense competition from both large national players like Truist Financial (TFC), Regions Financial (RF), Fifth Third Bancorp (FITB), and PNC Financial Services (PNC), as well as agile fintech firms, Synovus is strategically positioning itself to capture growth opportunities, particularly within its attractive geographic footprint which is noted for outperforming the broader U.S. economy.

The company's strategy centers on accelerating growth in targeted, higher-return areas while optimizing its balance sheet and enhancing operational efficiency. This involves a focused expansion of its Wholesale Banking segment, emphasizing middle market, corporate and investment banking (CIB), and various specialty lending verticals. Complementing this is a renewed focus on deepening relationships within Community Banking, particularly with small and medium-sized businesses, and refining delivery models in Consumer Banking and Financial Management Services. A critical component of this strategy is investment in technology and talent, aimed at differentiating Synovus's offerings and improving client experience.

Synovus has been leveraging technology to enhance its capabilities and efficiency. While specific, quantifiable advantages over all competitors are not always detailed, the company's investments are yielding tangible benefits. Initiatives like the retail analytics platform are translating into a 60% increase in new revenue from generated leads, and the Business Owner Wealth Strategy is seeing a 52% conversion rate on qualified referrals. Efforts to reduce fraud and operating losses have resulted in an 11% year-to-date reduction in related expenses. In the payments space, building on its historical connection to TSYS, Synovus is enhancing its commercial sponsorship business, a segment currently generating $25 million in revenue with potential to double the number of clients served. The Maast embedded finance initiative is being refined to offer a stronger value proposition, focusing on larger clients and independent software vendors (ISVs) or independent sales organizations (ISOs). These targeted technological advancements contribute to Synovus's competitive moat by improving operational efficiency, driving fee income growth, and enabling deeper client relationships, helping to counter the scale advantages held by larger competitors like TFC and RF.

Recent Performance Reflecting Strategic Execution

The first quarter of 2025 provided a clear illustration of Synovus's strategic execution translating into improved financial performance. Net interest income rose by a robust 8% year-over-year, reaching $454.4 million. This was a direct result of a significant 31 basis point expansion in the net interest margin to 3.35%, driven primarily by lower funding costs. Management highlighted positive deposit remixing and diligent deposit pricing as key factors, alongside the beneficial impact of the investment securities repositioning completed in the second quarter of 2024 and maturing hedges. Sequentially, the net interest margin also saw a 7 basis point increase, largely attributed to effective deposit repricing and a stable funding environment.

Non-interest revenue, while down slightly by 2% year-over-year to $116.5 million, showed strength in core banking fees. Service charges on deposit accounts increased, with account analysis fees up 10%. Card fees also saw a notable rise, primarily linked to higher merchant fees stemming from the Qualpay investment. Capital markets income increased year-over-year, benefiting from higher debt capital market transaction fees and gains on SBA loan sales, although partially offset by lower client derivative fees. The slight overall decline was mainly due to lower commercial sponsorship income and brokerage revenue, impacted by specific client activity and market conditions.

Disciplined expense management remained a focus, with non-interest expense decreasing by 5% year-over-year to $308.0 million. This reduction was significantly influenced by a $12.2 million decrease in the accrual for the FDIC special assessment. Excluding this, expenses were relatively stable, reflecting ongoing cost control efforts offset by strategic investments. Salaries and personnel expenses saw a decrease due to lower incentives and a favorable change in deferred compensation plan assets, partially offset by merit increases and increased employment taxes. Investments in technology and operations infrastructure led to an increase in related expenses, while professional fees also rose due to higher consulting costs.

Credit Quality and Risk Management

Synovus demonstrated broad-based improvement in credit quality during the first quarter of 2025. Net charge-offs declined significantly to an annualized 20 basis points, down from 41 basis points in the prior year period. Non-performing assets and non-performing loans both stood at 67 basis points of total loans, showing improvement from the previous quarter and year-end 2024. The provision for credit losses decreased substantially year-over-year, reflecting this improved performance and lower defaults.

The allowance for credit losses (ACL) to loans coverage ratio stood at 1.24% at March 31, 2025, a slight decrease from 1.27% at year-end 2024. Management attributed this change to improved credit performance within the loan portfolio, partially offset by increased economic uncertainty reflected in a more heavily-weighted downside scenario in their economic forecast models. The weighted average unemployment rate used in the ACL estimate increased to 4.9% for the forecasted period, up from 4.6% at the end of 2024. The ACL to non-performing loans coverage ratio increased to 185%, up from 174% sequentially, indicating stronger coverage of problem assets.

While credit metrics improved overall, management acknowledged ongoing pressure in certain portfolios, particularly commercial real estate (CRE) office loans. They are actively working through a large non-performing office relationship. However, they noted positive trends in other areas, such as the Senior Housing portfolio, which saw material upgrades and transaction activity, and the CRE Multi-family book, which continues to perform well with minimal non-performing assets. Synovus employs a robust credit risk management framework, including detailed portfolio reviews, stress testing, and monitoring tools like daily line utilization and trade trackers, to identify and mitigate risks early. Management believes the portfolio is significantly different and more resilient today compared to prior economic downturns.

Capital Strength and Liquidity

Synovus maintains a strong capital position, exceeding well-capitalized requirements. The Common Equity Tier 1 (CET1) ratio was 10.77% at March 31, 2025, slightly down by 7 basis points from year-end 2024, as strong organic earnings supporting capital accretion were offset by share repurchases. The Total Risk-Based Capital ratio stood at 13.67%. Management targets a relatively stable CET1 ratio around 10.75%, prioritizing capital deployment for client loan growth while using share repurchases opportunistically to manage within this framework. During the first quarter, Synovus repurchased 2.4 million shares at an average price of $49.41. The Board authorized a $400 million common share repurchase program for 2025, providing flexibility.

Liquidity remains a key focus. Total period-end deposits decreased slightly by $252.3 million from year-end 2024, primarily due to a decline in time deposits and seasonal commercial deposit outflows, partially offset by growth in public funds and non-interest-bearing demand deposits. Core deposits saw a modest sequential decline. However, average deposit costs continued to decrease, reflecting successful remixing into lower-cost accounts and pricing discipline. The total deposit beta through the recent easing cycle is estimated at approximately 48%. Synovus holds substantial contingent liquidity, totaling approximately $26.3 billion at quarter-end, including access to $7.4 billion in FHLB funding. While approximately $26.2 billion of deposits were uninsured, management noted that most are either insured, collateralized, or could be insured through existing programs.

Outlook and Competitive Positioning

Synovus's updated fundamental guidance for 2025 reflects confidence in its strategic direction and improving momentum, albeit with an acknowledgment of ongoing economic uncertainty, particularly related to recent policy changes like tariffs. The outlook assumes more moderate growth conditions and incorporates the possibility of four Fed funds rate cuts throughout the remainder of 2025.

Management expects period-end loan growth of 3% to 5% in 2025, with the majority driven by the high-growth middle market, CIB, and specialty lending segments. This confidence is supported by strong pipelines, recent talent additions (including 11 new middle market bankers in 2024), and the anticipated abatement of headwinds from strategic portfolio rationalization and market-driven payoffs. Core deposit growth is also projected at 3% to 5%, fueled by a focus on core production across business lines and investments in deposit specialties.

Adjusted revenue growth is guided to be between 3% and 6% for 2025. The net interest margin is expected to be relatively stable sequentially in the second quarter, with potential for lead-lag pressure if rate cuts occur, but the overall outlook with four cuts embedded suggests stability in the mid-3.30s through the year. Beyond the easing cycle, fixed-rate asset repricing is expected to provide a tailwind. Adjusted non-interest expense is projected to grow 2% to 4%, a reduced range reflecting positive trends in certain cost categories while still funding strategic investments in talent and infrastructure. Net charge-offs are anticipated to remain relatively stable sequentially in the second quarter, below the prior guidance range of 25-35 basis points, reflecting continued confidence in credit performance. The effective income tax rate is expected to be approximately 22%.

In the competitive landscape, Synovus positions itself as a relationship-focused regional bank leveraging targeted investments to compete effectively against larger, more diversified institutions and smaller community banks. While lacking the national scale of players like PNC or the asset size of TFC and RF, Synovus aims to out-capability smaller competitors and out-service larger peers. Its focus on specific high-growth commercial verticals and specialized services allows it to target market share gains. The company's investments in digital efficiency and payments technology are crucial in this environment, providing operational advantages that help offset scale disadvantages and compete with the digital offerings of larger banks and fintechs. Synovus's community-focused brand and service culture are key differentiators, fostering loyalty and supporting core deposit generation. However, the company remains vulnerable to competitive pricing pressures from larger rivals and potential market share erosion from faster-innovating competitors if it cannot maintain the pace of technological advancement and operational efficiency.

Conclusion

Synovus Financial is executing a deliberate strategy to enhance its profitability and resilience in a dynamic market. The strong first quarter 2025 results, marked by expanding net interest income, disciplined expense control, and improving credit quality, underscore the progress made through strategic investments and balance sheet optimization. While macroeconomic uncertainty, particularly concerning tariffs and potential economic slowdowns, remains a factor influencing the outlook and credit allowance, management's guidance reflects confidence in the company's ability to deliver growth in loans and core deposits and maintain stable credit performance. Synovus's competitive position is being strengthened by targeted investments in talent and technology, enabling it to deepen client relationships and capture market share in key areas. For investors, the story is one of a regional bank leveraging its core strengths and strategic initiatives to drive improved financial performance and shareholder value, navigating competitive pressures and external uncertainties from a position of increasing capital and liquidity strength.