Building a Powerhouse at Synovus

Banks and cars may make for a funny comparison at first glance, but it makes sense when Kevin Blair talks about Synovus Financial Corp.’s evolution.

Kessel Stelling, who ran the bank from 2012 to 2021, likened the bank to an old, reliable Buick that he was charged with turning into a Toyota Camry by modernizing the company and upgrading it in terms of speed and sophistication. Now, Blair says it’s his job as CEO to turn that Camry into a Ferrari, adding new features to appeal to larger and high-end clients. If Stelling was focused on cleaning up the balance sheet and creating a stronger bank in the years following the financial crisis, then Blair wants to turn Synovus into a mid-sized regional powerhouse.

“Our corporate strategy for many years was survival, coming out of the crisis, and then Kessel turned it into a M&A discussion,” Blair says. “We have scale now. We’ve gotten through these crises, and I think we’ve earned our way to independence.”

The Synovus of today is a dramatically different bank than the one that emerged from the global financial crisis over a decade ago. Though it sacrificed years of profits during the recession, its willingness to work with borrowers bolstered its reputation in the years since. The $57 billion company has also diversified its business, and its loan portfolio today relies much less heavily on real estate. And it’s gotten more efficient, pruning its branch network and trimming overall headcount while continuing to add key talent that it’s picked up as a result of market disruption.

Having done all of that while also integrating its first strategic merger in years and onboarding a new CEO in Blair, it’s probably safe to say that few banks have a transformation story like Synovus. Analysts praise the company’s turnaround and its overall performance. They note its relatively younger management team with serious banking bona fides and connections throughout the Southeast, as well as a recent merger that gave it more momentum in the fast-growing Florida market.

“The bank we want to be is the bank we’ve always been — only better,” Blair says. “We want to build on our strengths.”

Based in Columbus, Georgia, Synovus ranks fourth among banks over $50 billion in assets in this year’s RankingBanking study, sponsored by Crowe LLP. In the previous two editions of Bank Director’s Bank Performance Scorecard, it ranked 13th for its 2020 performance and 63rd for 2019. The Bank Performance Scorecard was renamed RankingBanking for the 2021 calendar year ranking, where the company earned high marks for profitability, with a core return on average assets of 1.39% and a core return on average equity of 14.76%. It also maintained strong credit quality.

These results have been years in the making. Synovus has achieved this by diversifying its business, particularly in commercial banking and wealth management, focusing on credit quality and underwriting, and selectively cutting expenses.

Synovus had a rough go of it during the last recession. Its portfolio was heavily concentrated in real estate, and it suffered heavy losses after the 2008 financial crisis. It had to raise capital twice and was one of the last regional banks to repay funds from the Troubled Asset Relief Program; it also owed more than any other bank. But Synovus ultimately came out of that time period a stronger bank, with a more diverse balance sheet and a reputation for working with its borrowers through tough times.

“Kessel Stelling did a great job navigating the company through those times and really left it in a position of strength,” says Brady Gailey, a managing director at Keefe, Bruyette and Woods. Under Stelling’s leadership, Synovus also consolidated its 30 separate banking charters into one in 2010, and rebranded all of its community banks under the Synovus name in 2017 and 2018.

Over the past decade or so since the financial crisis, Synovus has diversified its commercial banking operations, adding new industry verticals such as restaurant lending and specialty asset-based lending. It also added fee-generating products and services, such as private wealth advisory services. And it recently announced the creation of a corporate and investment bank to serve much larger commercial clients.

“The No. 1 reason we lose a client is not because they go to another bank. They get bought by private equity companies,” Blair says while discussing the new corporate and investment bank. “I wanted to make sure that we had capabilities and skill sets here to not only bank companies that are growing and need capital markets, but I also wanted to partner more with some of these private equity firms to ensure that we continue to get the bank some of those portfolio companies.”

Synovus recruited Tom Dierdorff from Birmingham, Alabama-based Regions Financial Corp. to head the new corporate and investment bank. Dierdorff started and managed financial institutions corporate investment banking coverage at Regions Securities; before that he worked for SunTrust Robinson Humphrey — now Truist Securities following SunTrust Banks’ merger with BB&T Corp. — leading the insurance, corporate and investment banking practice.

“Every time he was hired in those banks, they were basically building out their [corporate and investment banking] platform. And he was one of the managing directors that did it,” Blair says. “I knew if we could go out and hire someone that has built up [a] practice at multiple regional banks that are larger than us, they could replicate it here. And they’ll bring talent with them.”

Diversifying its lines of business has helped Synovus maintain and improve its profitability as it grows into a mid-sized regional bank, analysts say.

“They’re not a huge mortgage bank, but they have mortgages. They’re not a huge wealth management company, but it’s becoming a bigger part of the story, and it’s growing. They’re just doing a lot of things to capture a bigger share of wallet,” says Brad Milsaps, a managing director at Piper Sandler & Co. “Historically, Synovus was very much a decentralized, state-focused bank, and they certainly still have a lot of local decision makers in all their markets, but they’ve reined in a lot of that decentralized structure.”

One significant addition that’s served the company well has been that of treasury management products, says D. Wayne Akins, chief community banking officer at Synovus. Those have been particularly helpful for clients that found themselves with excess liquidity on hand after the Paycheck Protection Program.

“We’ve spent a lot of time over the last five years trying to hone our segmentation strategies. We rolled out some new products to be able to take advantage of the mass affluent market. We’ve created commercial specialties,” Blair says. “And we’ve now started a corporate and investment bank as well.”

At its investor day in February, Dierdorff outlined expectations for the corporate and investment bank: $1.5 billion in loans and $15 million of pre-provision net revenue by the end of 2024, and $3.5 billion in loans and $60 million in pre-provision net revenue by the end of 2026. He anticipates the corporate and investment bank will drive more fee income for Synovus, with 20% of the company’s overall fee income by year-end 2024 and 25% by 2026.

Synovus has also made its first foray into the banking as a service space with a new initiative dubbed money as a service, or Maast. Housed within the third party payments division of the Community Bank, that product will offer payment and banking software for clients that want to provide point-of-sale capabilities. The product was borne out of conversations with software vendors that told Synovus they needed a tool that combined banking as a service with payments as a service. Maast will allow those businesses, whose own clients are often merchants, a single platform with a variety of payment and banking capabilities that they can rebrand as their own, rather than having to cobble together a solution using various fintech providers.

Akins said at the company’s February investor day that Synovus should also be able to convert some of those software providers’ end users into clients of its own, by using information gleaned from Maast to offer tailored loan products, for example. When the service was announced in late 2021, executives expected Maast to generate roughly $100 million in revenue in its first five years. Synovus piloted Maast during the second quarter of 2022, and it’s expected to launch more broadly in first quarter 2023.

The company is investing prudently in other technologies, as well. It’s incorporated artificial intelligence and virtual callbacks into its call center, for example. It’s migrating its servers and data to the cloud, and moving to a modern core platform. It’s launched a new accelerated accounts receivable service to complement its suite of treasury and payments services, and it’s gathered those treasury management solutions into one new platform, dubbed Synovus Gateway.

“The areas that we’ve spent the most time on technology are to make our bankers better,” Blair says.

Synovus is focused largely on organic growth going forward, although nonbank acquisitions could be part of its strategy if the right opportunity presents itself, Chief Financial Officer Jamie Gregory said at the February investor day.

Under Stelling’s leadership, the company acquired FCB Financial Holdings, giving it a toehold into the rapidly growing Florida market. Synovus paid $2.9 billion for the holding company of Florida Community Bank. The deal added roughly $9 billion in loans, $10 billion in deposits and $12 billion in assets to Synovus’s balance sheet, as well as 50 branches throughout Florida in markets including Miami and Daytona Beach.

Some analysts suggest that Synovus’s stock could be somewhat undervalued, given its recent growth in Florida, the fastest-growing market in its footprint.

“Synovus, quite frankly, had maybe some takeover speculation, that they were going to sell maybe at some point, and so I think the announcement of that deal surprised the market,” Milsaps says. “Then there were concerns that FCB was going to create more credit problems, and Synovus had done all this work to fix its credit issues over the last six or seven years.”

But even if it made investors nervous at the time, the purchase of FCB ultimately proved to be a good deal for the Georgia bank. The price tag was financially compelling for Synovus, and the deal raised the company’s profile in some high-growth markets. The company also realized the cost savings that it set out to achieve when it announced the deal, says Gailey.

“The market was nervous about it because it was a relatively new bank and a high-growth bank in a state like Florida, which tends to be known as a boom-bust state,” Gailey says. But “the Florida market has been so strong, especially through the pandemic, with so many people and businesses relocating there.”

Stelling retired as CEO in the spring of 2021. It’s now Blair’s turn to carry Synovus through the next phase of its evolution.

Blair joined Synovus as its chief financial officer in 2016 from SunTrust, where he worked as a corporate treasurer. In late 2020, he was named as Stelling’s successor.

“We didn’t recruit him as the next CEO, but we recruited him as someone that might be a candidate to become CEO,” says Tim Bentsen, lead independent director of the board at Synovus. As Stelling began to plan his retirement, the board was increasingly impressed with the way Blair described his vision and strategy for the bank, particularly once he was elevated to chief operating officer in 2018.

“Kevin’s energy, his innovation, his ability to see things coming around the corner of this new environment, are just tremendous,” Bentsen says.

Stelling still serves as executive chairman of the board, which used to meet 6 to 7 times a year. Now, the board meets monthly; Synovus has a lot of different moving parts and strategic initiatives now, and Blair wants to be sure the board is kept in the loop, he says.

Blair kicks off each meeting with a half-hour to hour-long strategic update. His office also communicates with the board every two weeks, sending out a dense, one-page update about what’s happened at the bank, so directors don’t have to waste precious time getting up to speed.

“The selection of the right CEO to succeed Kessel is probably the most important thing I think that we’ve done over the last several years,” says Bentsen, who has served on the board since 2014. “I can’t imagine the process having gone any better.”

Another key driver of Synovus’s performance in recent years has been its improved efficiency.

“Synovus has done a great job in creating new business lines and new things that are additive to revenue while cutting expenses,” says KBW’s Gailey. “They’ve done a great job on both sides of the efficiency ratio by adding revenue and taking out expenses.”

As a recent example, Gailey points to Synovus Forward, a plan launched early in 2020 that was initially slated to produce $100 million in additional earnings. Later that year, executives expanded that plan to $175 million, as the company aggressively repriced deposits throughout 2020 and made some additional tweaks to boost revenue, like repricing treasury management products. The initiative, which is set to be finished by the end of the year, also contained expense improvements, including some branch closures and investment in new technologies, like a new digital commercial banking platform.

Synovus has also focused much of its energy on recruiting and developing talent. It’s building out its middle market banking teams, particularly in Florida, and it’s also launched two new development tracks for emerging and senior leaders.

Synovus could also be in a good position to benefit from disruption caused by in-market deals, including the pending sale of Memphis, Tennessee-based First Horizon Corp. to the Canadian giant TD Bank. “[Synovus] competed a lot with First Horizon,” Gailey says. “There’s always a little bit of fallout when big mergers like that happen.”

Synovus executives have been pretty clear about their intention to capitalize on disruption from mergers in its markets. “We put a pretty intense focus on identifying talent largely from larger institutions,” says Blair. “It hasn’t hurt that many of them are going through mergers. That disruption creates an opportunity for us.”

Today’s Synovus is a far cry from the bank that lost over $2 billion while it worked through problem loans in the aftermath of the financial crisis. Still, it’s hard to outrun your past. With broad speculation about another recession around the corner, some wonder how Synovus will fare through it. It’s something that the bank’s executives spend a lot of time thinking about, too.

“We do see troubling signs,” Akins says. “The supply chain issues are still there. Inflation is rising, credit costs will rise as rates rise, and we still see some of our customers struggling to find the sufficient labor to run their businesses at optimal levels.”

Still, Akins points to improvements that he believes will put the bank in a better position when another downturn does happen. Chiefly, Synovus has strengthened its underwriting criteria since the last crisis. It also launched an analytical risk-monitoring tool in its commercial portfolio that helps its bankers to not only identify new credit needs but also keep an eye on clients’ financial health.

Analysts tend to agree with Akins’ assessment.

“I think investors think of Synovus as a credit-sensitive name because of what happened 10 to 15 years ago. But it’s a very different company today. It’s a lot more diversified. Their credit underwriting is completely different,” says KBW’s Gailey. “If we are headed into an economic recession, I think Synovus is going to do just fine.”

Laura Alix is director of research at Bank Director.