Synovus Financial Corp. in Columbus, Georgia, expects continued solid loan growth and interest income in the year ahead, but executives said deposit costs are rising and margin pressure is likely to follow.
The $60 billion-asset company on Thursday estimated loan growth of 5% to 9% in 2023, with commercial and industrial clients continuing to borrow and invest, offsetting some easing of demand in the bank's commercial real estate lending operation amid concerns about a looming recession.
"The real difference will be that C&I will continue to grow in a double-digit fashion," Chairman, President and CEO Kevin Blair said during Synovus' fourth-quarter earnings call.
Synovus said in its earnings report that loans increased $1.14 billion during the final quarter of 2022. That amounted to an expansion rate of 11% annualized, marking the company's sixth-consecutive quarter of double-digit loan growth.
Blair said the rate of growth would likely ease modestly this year, given pullback in CRE demand and heightened underwriting standards. But, despite forecasts for at least a mild recession, he expects continued commercial lending momentum.
Amid growth and higher interest rates that bolstered lending profitability, Synovus said its fourth-quarter net interest income increased 5% from the prior quarter and 28% from a year earlier.
Fourth-quarter credit quality metrics were stable from the previous quarter – and strong – with a non-performing loan to total loans ratio of just 0.29%.
The company said it grew deposits 2% to $1.17 billion during the fourth quarter, while keeping funding costs in check. With yields on loans strong and deposit cost increases relatively modest, Synovus reported a net interest margin of 3.60%. That was up 11 basis points from the prior quarter and ahead 64 basis points from a year earlier. In rising rate environments, adjustable rate loans reset quickly and support banks' margins. Deposit increases tend to lag.
However, in the year ahead, Synovus expects those deposit cost increases to accumulate and impact margins.
"As we look at 2023, we expect the margin to be down marginally from where we ended in the fourth quarter," Chief Financial Officer Andrew Gregory said on the earnings call. "And basically, what will play into that is, in the first half of the year, we do believe that we will see the pressure of deposit lags."
Caution about rising deposit costs and pockets of slower lending is expected to pepper calls throughout earnings season, due to "greater uncertainty, particularly around the health of the economy and the impact on interest rates and asset quality," said Keefe, Bruyette & Woods analyst Christopher McGratty.
Synovus reported net income available to common shareholders of $197.5 million, or $1.35 per diluted share. That was up from $192.1 million, or $1.31, for the fourth quarter of 2021.
