Synovus Financial is the latest bank to declare it will rely less on overdraft fees, revealing Tuesday that it expects that revenue to disappear almost entirely as a result of changes now in the works.
The Columbus, Georgia, company is considering changes to its checking accounts that could be made as early as the fourth quarter of this year or early 2022, CEO Kevin Blair said on a call with analysts.
“That will involve some product changes and some new digital tools and most importantly some education,” Blair said. “But we'll do that.”
Only about 6% of Synovus’s fee income, or $6 million, came from overdraft fees in the second quarter, down 36% from the second quarter of 2019. Roughly $24 million to $25 million in overdraft fees will be replaced by revenue from other business lines, like payment services and the company’s brokerage unit, according to Blair.
“Over time we think the growth in those other larger categories will be able to offset any reductions we have,” he said.
The Synovus plan appears to resemble steps that some other banks are taking to retool the debiting of accounts and the controls that customers have over their spending.
Earlier this year, the $554 billion-asset PNC Financial Services Group in Pittsburgh
Since PNC’s announcement,
The overdraft changes at Synovus come early in the tenure of Blair, who took over as president and CEO in April. He has also prioritized advancing the company’s back-end technology, and said Tuesday that the bank is planning to make progress on that front by partnering with outside fintech firms.
“The great equalizer in our industry today is that fintechs allow us through the software-as-a-service model to bring new solutions to our customers, and we can do that without having to have an R&D shop inside of our bank,” Blair said on the call.
Synovus reported $177.9 million in net income during the second quarter, more than doubling the $84.9 million it recorded during the same period last year. The $55 billion-asset company released another $24.6 million in reserves held for potential credit losses after an $18.5 million release in the previous three months.
Expenses declined 5% year over year to $270.5 million. The bank also made progress in reducing its deposit costs, which fell by 6 basis points to 0.16% in the second quarter.
Like many other banks, Synovus has not yet seen a return of loan growth as the economy is still emerging from the COVID-19 pandemic. Total loans at Synovus declined by 4% in comparison with the second quarter of 2020 and dipped by 1% from the previous three months to $38.2 billion, as pay-downs came in higher than expected.
Synovus is now forecasting 2% to 4% loan growth for the entire year, based on the expectations that new lending will pick up in the second half. But Blair indicated that activity would remain subdued.
“It's likely that we're at the low end of this range due primarily to the elevated prepayment activity that we have seen today that was not anticipated at the beginning of the year,” Blair said. “This assumes line utilization remains at current low levels and prepayment activity returns to a more normalized level.”
