Synovus Financial Corp (SNV) 2020 Q1 法說會逐字稿

Good morning, and welcome to the Synovus Financial Corp. First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Kevin Brown with the company. Please go ahead.

Thank you, and good morning. During the call today, we'll be referencing the slides and press release that are available within the Investor Relations section of our website, synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will begin the call. He will be followed by Jamie Gregory, Chief Financial Officer; and Kevin Blair, President and Chief Operating Officer, for more detailed information.

Our executive management team is available to answer your questions at the end of the call. (Operator Instructions)

Before we get started, let me remind you that our comments may include forward-looking statements. These statements are subject to risk and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law.

During the call, we will reference non-GAAP financial measures related to the company's performance. You may see the reconciliation of these measures in the appendix to our presentation.

And now here's Kessel Stelling.

Well, thank you, Kevin. And good morning, everyone, and welcome to our first quarter earnings call. I'd like to begin by thanking our extraordinary team members who continue to go above and beyond to support our customers during this difficult time.

We have 2 main stories today and probably many more. One is of our strong core operating performance for the first quarter pre and post coronavirus arrival. The other equally important story is of the strength and resilience of our company, which has again proven our ability to innovate, to execute quickly and effectively manage day-to-day operations while also shifting priorities and resources to meet emerging needs.

From the very beginning of this COVID-19 health care crisis, the decisions and actions taken by our team have been guided by 2 principles: doing what's best for the physical and financial well-being of our team members and doing what's best for our customers. With those principles in mind, in March, our branches were converted to drive-thru and appointment-only, and we implemented aggressive cleaning, sanitizing and hygiene protocols at all of our company facilities.

More than 80% of our 5,400 team members are now working from home, and our IT team did a fabulous job quickly repositioning our workforce. We've offered additional paid time-off to team members who are sick, who are quarantining or dealing with child care or other COVID-related family hardships, and we're offering bonus payments to hourly team members required to work on site to serve our customers.

To help our customers through this period of financial distress, we're waiving NSF and monthly service fees and offering payment deferment and other loan relief as appropriate. Although social distancing has more or less eliminated the in-person, hands-on approach we usually take toward community service, we're doing everything we can to support needs across our footprint, including matching contributions to the American Red Cross, providing financial support for Feeding America and funding meals for first responders and frontline health care providers.

I am especially proud of the effort our team has made to deliver Paycheck Protection Program loans to our customers. Since the launch of P3 on April 3, our team has processed, approved and funded more than $2 billion in loans for 8,300 customers. We're continuing to process submissions in our pipeline, preparing to fund as many as possible with the additional appropriations made available this week. Kevin Blair will talk more about the key aspects of our COVID-19 response later in his remarks.

Before I cover highlights for the first quarter, I want to talk about our confidence in our ability to manage through this current crisis and to emerge from it in an even stronger position. Since the last crisis, our company has continually taken steps to prepare for an adverse economic environment, including efforts to strengthen management in the key risk areas of capital, credit and liquidity. We routinely deploy stress testing and sensitivity analyses to inform business decisions, and we believe we're well positioned to sustain an economic downturn such as we're facing today.

As we'll discuss during this morning's call, we've enhanced our portfolio monitoring, and our credit profile includes improved mix, metrics and outlook. And our allowance build under CECL guidelines provides further protection against credit losses.

On capital, our internal stress testing process gives us confidence in our ability to maintain strong capital ratios in stressed economic environments, and our liquidity position remains strong. We're also assessing and reprioritizing strategic initiatives under our Synovus Forward program. Kevin Blair is going to share more details later in the call on the steps we're taking to ensure we're addressing the shorter-term imperatives while also focusing on the right initiatives for strengthening our company long term.

So before I turn the call over to Jamie, I'll briefly walk through highlights of the quarter on Slide 4. Adjusted diluted EPS was $0.21 compared to $0.98 a year ago. This year-over-year decline was driven by a 225 basis point reduction in the Fed funds rate, the scheduled loss of loan accretion from acquired loans and a significant increase to the allowance that accounts for the anticipated impact of COVID-19 under the CECL framework.

We were very pleased with the fundamentals of our core performance, including period-end loan growth of $1.1 billion, deposit growth of $1.4 billion and core transaction deposit growth of more than $600 million. Core net interest income, which excludes purchase accounting adjustments, was flat for the quarter. However, the core net interest margin declined 5 basis points from the prior quarter, slightly more than our original expectations due to the more significant reduction in interest rates.

Adjusted noninterest revenue of $99 million grew $7 million from a banner fourth quarter, benefiting from significant activity in mortgage, capital markets and fiduciary businesses. This was despite lower seasonal core banking fees and increased fee waivers as part of our effort to serve clients during this COVID-19 disruption.

Adjusted noninterest expense totaled $271 million for the quarter, up $6 million versus the previous quarter largely due to the $5 million increase in seasonal payroll taxes that were referenced during our fourth quarter earnings call. We also had an incremental $1 million in expenses associated with COVID-related bonus payments for certain frontline team members. Provision for credit losses was $159 million and resulted in an allowance for credit losses ratio of 1.39%. These metrics incorporate the impact from COVID and the first quarter of CECL.

I'll now turn the call over to Jamie for a more detailed look at the first quarter, beginning on Slide 5. And I'll rejoin with a few more comments and question-and-answer after Jamie and Kevin Blair have given their report.

Thank you, Kessel. Before I get started walking through the quarterly performance, I'd like to highlight that we have withdrawn our 2020 guidance. We will give some near-term indications of financial performance on key metrics throughout my commentary, and we are committed to reestablishing longer-term targets when the economy stabilizes.

We discussed our increased productivity a bit on the fourth quarter call, and it continued onto the fourth -- first quarter with $3.1 billion in total loan production. Our wholesale banking team onboarded 155 new customers during the quarter, which represented $1 billion in new loans.

In March, we saw a $300 million increase in line utilization. C&I line utilization plateaued at 50% in March as some customers increased draws out of an abundance of caution related to the economic situation. We are confident in the credit quality of our growth this quarter as we remain disciplined in our underwriting.

In the second quarter, we expect loans from the Paycheck Protection Program to serve as the primary engine for loan growth as traditional pipelines have declined. The rate cuts in March led to loan yields of 4.6% excluding purchase accounting, a decline of 15 basis points from the prior quarter. The full quarter impact of these March cuts will have a greater impact on the average loan yields in the second quarter.

Unadjusted for hedges, approximately 50% of our loans have a floating rate. As previously discussed, we have a hedging program in place to help mitigate the impact of changes in short-term rates on our floating rate loan portfolio. At quarter end, we had $2.8 billion in received fixed swaps associated with these hedges with an average rate of 1.4% versus 1-month LIBOR.

Slide 6 shows deposit growth of $1.4 billion, which included continued increases in core transaction deposits of $623 million. In the first quarter, we took advantage of reduced pricing on wholesale broker deposits to increase balances and replace higher-cost, single-service deposits. We'll continue to monitor these markets for opportunities in what remains a dynamic deposit environment and remain focused on growing our core deposit base and maintaining a prudent liquidity profile.

In terms of overall deposit pricing, we've certainly seen a response to the recent FOMC actions. And as you can see, our total interest-bearing cost in March was approximately 30 basis points lower than the average from the prior quarter. In this easing cycle, the FOMC cut their target rate by 225 basis points, and our general expectation is for cycle betas to end in the low to mid-30s as deposits reprice throughout the year.

As you can see on Slide 7, net interest income of $373 million declined $26 million from the prior quarter. The majority of that decline or $25 million was attributable to the expected decline in purchase accounting adjustments. The core net interest margin, which excludes PAA, decreased 5 basis points from the prior quarter to 3.35%. As we look into the second quarter, we expect net interest income to remain relatively flat as a result of significant loan growth associated with P3.

However, this growth, along with a depressed rate environment and an elevated cash position, is expected to weigh on our net interest margin. Excluding those impacts, we reiterate that we expect the margin to decline 4 to 5 basis points per 25 basis point decrease. We expect the majority of the impact from March rate cuts to be realized in the second quarter.

On Slide 8, you will see that we have had continued success in fee revenue generation, which increased to $99 million adjusted. That's an increase of $7 million from the prior quarter and up $21 million or 27% versus the prior year.

In the first quarter, we continue to have diversified strength in our fee revenue businesses. Mortgage revenue, driven by high production levels and an elevated secondary gain on sale margins, increased $3 million. Capital markets volumes were higher by $2 million as our commercial clients locked in lower rates on their borrowings. And income from brokerage grew $1 million, driven by increasing contributions of new hires in 2019 and higher transaction revenue from elevated market volatility. These increases more than offset reductions in areas such as service charges on deposit accounts primarily due to a decline in retail NSF fees.

However, COVID is already impacting customer behavior, including significant declines in capital markets activity, lower debit and credit card transaction volumes and overall business disruption for commercial clients. This disruption will likely result in fee revenue declining 15% to 25% in the second quarter from our recent run rate of approximately $90 million. We would expect an increase in noninterest revenues as the economy stabilizes.

Moving to Slide 9. In the first quarter, noninterest expense was $276 million or $271 million adjusted. Adjusted expenses increased $6 million from the prior quarter, generally in line with our prior guidance. With the increased levels of COVID-related expenses, which we currently estimate at $5 million to $6 million in the second quarter, we expect adjusted expenses to remain relatively stable quarter-on-quarter before declining in the second half of the year.

As Kevin will discuss in a moment, we remain confident that our efforts over the past 6 months to identify ways to improve our operating efficiency will result in positive operating leverage over the long term. We are tailoring the timing of our Synovus Forward initiatives to ensure they do not distract from our focus on team members, customers and communities. This doesn't change our commitment or strategy, it simply adjusts the timing.

Slide 10 shows our credit quality metrics as well as a summary of our provision for credit losses and allowance. Net charge-offs at 21 basis points remain within prior guidance. The NPL ratio did increase from the prior quarter to 41 basis points, and this is up 1 basis point from the prior year. Additionally, past dues returned to the low end of the recent range at 22 basis points. While we expect to experience stress in the portfolio as we progress through the current economic environment, it is important to note that we are entering this downturn well positioned from a credit quality standpoint with NPAs, NPLs, past dues and charge-offs at or near lows for this economic cycle.

Provision for credit losses and allowance for the quarter were impacted by the adoption of CECL on January 1, which generally results in higher provision for credit losses compared to the incurred loss method. This is amplified by the forward-looking aspects of CECL and how it is impacted by the heightened economic stress from the health care crisis and resulting economic slowdown.

As you can see on Slide 11, the day 1 reserve increase was $110 million or 39%. We did elect the 5-year transition period for regulatory capital treatment. Our 10-K referenced a 2-year reasonable and supportable period used in CECL estimates, but it would seem more appropriate to reduce that for 1-year horizon during this period of heightened economic uncertainty. A 1-year reversion to the mean follows the reasonable and supportable period. The deterioration in the economic environment since January 1 due to the current health care crisis resulted in a higher allowance for credit losses ratio as of March 31 than was modeled in the day 1 CECL implementation and is currently at 1.39%.

Our modeling process incorporates quantitative and qualitative considerations that are used to inform CECL estimates. The internally developed economic forecast used to determine the allowance for credit losses as of March 31 was approved on March 20. At the time, the approved forecast aligned with rating agency and Wall Street economic forecast. Between that approval date and quarter end, we saw further deterioration in the economic outlook, which resulted in the need for a qualitative overlay to our allowance for credit losses.

The qualitative overlay of $37 million adds 10 basis points to the allowance for credit losses and better aligns the total allowance with the economic indicators and forecast at the end of the first quarter. Significant economic uncertainty remains as a result of the continuing health care crisis and the ultimate impact of government stimulus efforts. If our economic outlook on June 30 resembles these more recent forecasts, we would expect to see further increase in the allowance for credit losses.

Capital ratios on Slide 12 include the impact of CECL and incorporate applicable regulatory transition periods. As we've shared in the past, our target capital ratios were determined through our routine internal capital adequacy assessment process and include the capital optimization efforts completed in 2019. These capital ratios give us comfort that even in a severely adverse scenario, we have a sufficient buffer to withstand the losses and remain well capitalized.

In the first quarter, our CET1 ratio declined to 8.72% largely due to the increase in risk-weighted assets, which accounted for a reduction of 25 basis points. Our continued strength in PP&R generated 39 basis points of capital, which more than offset the 21 basis point impact of CECL-related allowance build. As a result of CECL, we anticipate capital ratio degradation earlier in a recessionary environment than under prior accounting guidance. However, it is that allowance which will provide a significant buffer to absorb any realized losses later in the cycle and affords us the ability to return to our capital targets over time. Currently, the allowance build was reflected in the total risk-based capital ratio, which increased 6 basis points from the prior quarter to 12.31%.

Based on the same framework that was established and utilized for stress testing under the Dodd-Frank Act, we continue to leverage our internal capital management processes. These processes, coupled with our risk appetite framework, provide a road map and outlines capital preservation strategies in the event we see a more protracted period of economic weakness. As we navigate through this recession, we will be very diligent in how we deploy our balance sheet with a clear prioritization towards core customer relationships.

These processes also govern how we consider share repurchases and our common equity dividend. Through this process, we determined to suspend our previously approved share repurchase program. We continually evaluate our approach to common equity dividends in our capital planning process, which is guided by our assessment of capital adequacy as well as our projection of sustainable long-term earnings. We believe a change in the common dividend is not warranted at this time. As discussed, we remain confident in our capital adequacy, and we continuously assess our long-term earnings outlook.

Liquidity management has always been a priority at Synovus, and we continue to improve our liquidity profile. In the first quarter, we issued $400 million of bank debt at very attractive levels, and we increased our collateral with the Federal Home Loan Bank by approximately $2 billion.

As shown on Slide 13, you can see that we have approximately $14 billion in readily available balance sheet liquidity. While we expect loan balances, excluding P3 loans, to remain fairly flat over the near term, we do anticipate considerable second quarter growth associated with our P3 lending effort. To best manage our risk and to maintain our existing funding sources for other customer needs, we anticipate using the Federal Reserve's P3 lending facility to support funding for at least a portion of these loans. We believe that this is the most effective way to manage our overall liquidity position and to mitigate the associated impact on our capital ratios.

Kevin will now share a deeper dive on credit portfolios most impacted by COVID, some details about our responses to this crisis and provide an update on Synovus Forward.

Thank you, Jamie, and turning to Slide 14. Before I go into deeper detail on several industries where the COVID-19 crisis is currently having a greater impact on business operations, this seems like an appropriate time to take a deeper dive into the composition and the quality of our loan portfolio by category as well as the significance of the diversification and derisking benefits that have been realized since the last financial crisis.

The chart on this slide shows the key components of each of our 3 portfolio categories, with the table on the bottom right showing the shift in the composition from 2009. Our C&I book totaled $17.7 billion and is primarily comprised of general middle market and commercial banking clients across a diverse set of industries. Within C&I, the specialty divisions such as senior housing and premium finance comprise about 14% of total loans and have been a significant contributor to our growth story while also possessing some of the best credit metrics over the last several years. The overall portfolio is well diversified by industry and geography and is extremely granular with almost 35,000 loans with an average original loan balance of approximately $770,000.

The CRE portfolio is $10.7 billion, and 86% of the book is comprised of income-producing properties with multifamily, office, shopping center and hotel being the largest property types within the portfolio. We do adhere to a disciplined concentration management philosophy. Thus, our largest CRE loan is less than $50 million, with an average loan size of approximately $13 million.

This portfolio is diverse, both from a geographic and property type standpoint, with strong loan-to-value and debt service coverage levels. As a result, this portfolio has continued to perform well. And as it relates to net charge-offs, the CRE book is in a net recovery position over the last 5 quarters.

The consumer book is $10 billion. Almost 3/4 of the consumer portfolio is in mortgage and HELOC categories, with the remainder in lending partnerships, credit cards and other consumer. You can see by the credit score and loan-to-value statistics that this portfolio is super prime and remains very healthy. Under the existing economic conditions, we expect our consumer portfolio to decline in the near term as we decrease our appetite for unsecured lending and third-party partnership purchases.

The last point I want to cover on this slide is the substantial improvement that we've made to the diversification and derisking of the entire loan portfolio. From 2009 until first quarter of 2020, we have significantly reduced our exposure to 1-4 family residential, land and investment properties as well as CRE in aggregate. By simply utilizing historical loss rates, the remix of our portfolio alone would result in a 50% reduction in losses. Combined with the improvements in underwriting and portfolio management, we would expect losses to decline even further when evaluating the impact of the severely adverse scenario.

Moving to Slide 15. While our entire loan portfolio is continuously assessed, we have introduced enhanced monitoring for the segments noted on Slide 15. These segments, totaling $4.6 billion, have been identified as having a more direct and immediate impact from the COVID-19 crisis.

We are continuously working with our customers to evaluate how the current economic conditions are impacting their business operations and, ultimately, their cash burn rate. We are leveraging payment deferments as well as the CARES Act stimulus programs to help weather short-term financial effects. Solid underwriting and strong credit performance, coupled with stronger balance sheets that have been built during our extended expansionary period, give us confidence that these portfolios enter this downturn in the best possible position

In the appendix, on Slides 27 through 29, you will find more detail around each of these portfolios, but I will touch on a few of them now. Our hotel book is over 85% franchised and primarily contains non-resort properties. More than 90% of our hotels are rated upper mid-scale or above. This portfolio has strong credit metrics with an average loan-to-value of 54% and debt service coverage ratios of 1.9x.

We have about $1 billion of shopping center exposure to centers that aren't grocery, pharmacy or discount store anchored. Based on our Southeastern footprint, these locations are situated in markets that have continued to see good population and household income growth, which has created growth and stability for these businesses. As such, these portfolios continue to perform well from a credit quality standpoint.

The restaurant book is $800 million, with 56% of the book in limited-service restaurants and 42% in full service. Over 60% of our restaurants are franchises and have an average loan size at origination of roughly $1.5 million.

The next 2 industries are nonessential retail trade and arts, entertainment and recreation, combining for $1.2 billion in outstandings. Both of these portfolios have performed well pre crisis and are also very granular, with average loan sizes at origination of $1.8 million and $1.2 million, respectively.

Lastly, I will mention our relatively small exposure to oil-related industries at less than 1% of total loans. Given our 5-state footprint, oil is not a prevalent industry, particularly as it relates to exploration and production. Most of our exposure is in transportation, operations and support related to the industry. This portfolio has exhibited strong credit performance, but given the current state of the oil industry, we are more closely monitoring our exposure.

Our bankers and credit team members continue to work with and provide financial advice and consultation to our customers and ensure we are providing the necessary support to mitigate the short-term disruption in cash flows. As with our entire credit portfolio, each of these portfolios has exhibited strong performance over the trailing quarters and years and was as well positioned as could be expected coming into the current environment. The duration of the downturn will obviously determine the impact on these businesses and how quickly these industries will return to more normalized cash flow levels. Bob Derrick, our Chief Credit Officer, is with us this morning and can answer additional questions during the Q&A portion of today's call.

As we turn to Slide 16 and I address Synovus Forward, I think it's important to reinforce the message that Kessel led off with in today's meeting. Despite rolling out our Synovus Forward playbook in March, we quickly reconfigured our efforts to focus on our COVID response, starting with the safety and well-being of our team members who are vitally important to support our customers as well as the communities we serve. We effectively exercised our business continuity plan, which enabled our employees to work remotely while continuing to provide customer-facing roles in our branches and call centers to meet the needs of our customers. And quite frankly, that was our other primary focus: the safety and continued service of our customers.

Although we continue to practice social distancing, we are here to serve our customers and continue to provide advice and new solutions to help them navigate the changing business climate and support their business operations. In fact, during the first quarter, we implemented over 6,000 new services in our treasury and payment solutions area, which represented a 320% increase over the first quarter of 2019. This is another proof point of our continued commitment to serve our customers and our ability to do so in a difficult climate.

And despite the crisis, our bankers continue to call on and onboard new prospects as our relationship-based approach is serving as a key differentiator in this trying environment. We are going to deploy our capital in areas where we receive optimal returns, and while this business approach may produce lower loan growth in aggregate, we will continue to focus on acquiring new full-service relationships and deepening our current relationships with new opportunities.

As we have mentioned, we've also taken a proactive approach to providing relief to our customers when needed, from waiving fees to increasing ATM and mobile deposit limits to granting deferments on loan payments. Our loan deferment program is constructed to allow smaller loans, upon request, to receive a short-term 90-day deferral of interest and principal to the maturity date of the loan. For larger loans, we have initiated a credit-driven approach to review the specific circumstances of each request, analyze cash burn and obtain updated financial information while determining the need for the deferment. To date, our percentage of total deferrals is around 13% of the overall portfolio with those industries more directly impacted by COVID-19 carrying higher percentages.

We also have closely monitored all of the stimulus actions and programs made available by the CARES Act. Obviously, the Paycheck Protection Program has had the greatest impact on our customers to this point. We began the P3 process on March 28 with an online expression-of-interest portal. We began taking applications on April 3, the day the program went live. As Kessel mentioned earlier, as of today, we have secured funding for over 8,000 customers for approximately $2 billion.

As I close, let me transition to the future and Synovus Forward. As we shared during an investor conference in March, Synovus Forward is our newly formed program that was built to generate an incremental $100 million of pretax income in the coming years and to lead the top-quartile performance amongst mid-cap banks in terms of profitability and efficiency.

During the development of this program, we evaluated over 20 unique and distinct initiatives that included a combination of expense and revenue opportunities. During our presentation in March, we've shared, at a high level, we expect to realize expense benefits of between $45 million and $65 million and revenue benefits of between $35 million and $55 million. We are confirming today that the incremental opportunity is still very achievable. However, many of the benefits have been delayed due to the focus on the current crisis.

Many of the expense and revenue initiatives that were planned for the first half of 2020 will be recast into the second half of the year or in early 2021. While we have had to delay some initiatives, we are also accelerating actions in others. This includes increasing the efficiencies gained from the third-party spend initiative, accelerating the development of digital and analytical capabilities to drive growth and manage risk and leveraging our remote environment to aggressively think about our physical distribution and locations.

We have also continued to invest in technology and more specifically, My Synovus, our consumer digital portal. In March, we deployed major updates to enhance the bill pay and transfer experiences of our customers. And as we've made improvements, we've seen higher levels of enrollment and utilization while seeing our overall app rating increase. And it's important to note that the current crisis is creating opportunities to add new initiatives to the portfolio and resize current initiatives that we had planned.

The Synovus Forward portfolio is not rigid and will continue to evolve. We are committed to delivering and growing the value as we address new economic and customer behavior realities. There is much work ahead of us, and we understand the need to balance both short-term and long-term priorities. The end-state benefits, their timing and sizing may continue to evolve in this fluid environment, but our Synovus Forward goals and objectives remain intact.

Kessel, let me turn it back over to you to close out our call.

Thank you, Kevin. And before we move to Q&A, I want to again thank our team, our customers and our shareholders.

And for a brief update on the week's activities, just wanted to share that on Wednesday, we hosted our first online-only virtual shareholder meeting. Among other actions, our shareholders overwhelmingly approved the elimination of our 10-1 voting structure and supermajority voting requirements. These changes reflect our Board's continuing commitment to best-in-class corporate governance.

Operator, we're now available for questions.

(Operator Instructions) The first question comes from Ebrahim Poonawala of Bank of America Securities.

I guess if we can just start with capital. So when we look at this, obviously, you have enough capital from a regulatory perspective. But when I look at the CET1 at 8.72%, just talk to us, Jamie, Kevin, Kessel, in terms of how important is it for the capital -- CET1 just to be over 9% versus where it is.

And what are your expectations in terms of when you look at the PP&R? Given 39 basis points that you showed for 1Q, do you expect that to lead you back to over 9%? What are your expectations around growth in other risk-weighted assets given PPP should not really impact that? Just if you can talk through all of that, that would be helpful.

Yes, Ebrahim. Let me start, and then I'll turn to Jamie. I think your first question was how important is it. We've said that we believe the target of 9% was an appropriate target leading into this. And so we've dipped slightly below that. Quite frankly, there was a -- the big driver was the growth in risk-weighted assets this quarter and driven by great production by our team, as you saw non-PPP loan growth over $1 billion.

So certainly, it has now dipped below. We don't expect that level of risk-weighted asset growth. That will diminish, we believe, in the second quarter. And again, you'll see the PPP loan growth, but that will not have effect on the capital ratios.

You had multiple parts of the questions. I'm going to flip to Jamie to go a little further.

Thanks, Ebrahim, and Kessel, just to tag on with that. You're right, Ebrahim, to ask the question. We feel really good about 9% CET1 as a starting point. We do a lot of stress testing in our capital adequacy process that we refresh with many different scenarios. And when we look at severe adverse scenarios, if you went back to our DFAST from a couple of years ago, a few years ago, you would see that we had about 2% capital degradation. Today, when we run our stress test in severe adverse scenarios, it's a shade more than 2%.

So right there, again, we feel really good, and we expect capital ratios to decline when you head into an adverse scenario. However, you're right, we have PP&R as the first line of defense against that capital degradation. You can see in the first quarter, even though we had a large build in our allowance, PP&R was more than that allowance build. And as Kessel said, it was the $1.1 billion of loan growth that really depleted CET1.

So as we look forward, there's definitely some uncertainty in this environment. We don't know how everything will play out. We feel good about our ratios where they are. I did give some guidance. You will see PP&R decline a little bit in the second quarter due to declines in NIR predominantly. NII should be fairly flat. And so that's -- as we think about it, we feel good about where we are. We think that PP&R as the first line of defense really covers us on our need for allowance at this point. However, we would acknowledge the uncertainty in this environment.

Got it. That's helpful. And just on the margin, so the comments you made ex PPP essentially, we should assume like 5 basis points times 6, 30 basis points of degradation. Somewhere around the 3.10% margin would be kind of where you would land in the current rate backdrop. And can you talk about just how PPP will work through the system? If these are forgiven, should we see a spike at some point in 3Q on the yields tied to these loans?

You would, Ebrahim. Again, this is Kessel. Because -- obviously, you know this, that we're, in theory, able to fund them at 35 basis points if we were to match-fund through the facility and we put them on the books at 1%. And then there'll be some fee associated based on the average loan, which will flow in through the loan yields. And then when they are forgiven, that will come back in, I think, through the NII line so you would see an increase in margin there.

That's just -- a lot of uncertainty there to date. We've seen those funds. We've seen kind of corresponding growth in DDA deposits, but we know that behavior won't continue. Hopefully, those customers are using the funds to pay employees. You'll see that come down, and we'll begin accessing the PPP liquidity facility. But I think you're right in your thinking there about how that will play out.

And Ebrahim, let me just add one thing to that. When you look at our margin forecast, you're spot on with the 4 to 5 basis points per 25 and the impact of 150 basis points in March. And then there's 2 other things on top of that.

You talked about P3. We would say that P3 is about 2 to 3 basis points of NIM impact per $1 billion, just to kind of give you a way to toggle that. Then the other thing -- the other consideration that would not be in our typical sensitivity is holding elevated cash. And so we're holding more cash on the balance sheet today than we would in normal times, and so that will be a little bit dilutive to the margin.

The next question comes from Jennifer Demba of SunTrust.

Kessel, long term, how do you think about some of these portfolios that are kind of more pandemic-sensitive over the near term? Are these loan portfolios you think you'll continue to be active in over the long term? And specifically, how do you guys feel about senior housing credit and the future demand for senior housing, depending on how this pandemic plays out?

Yes. Well, let me start, Jennifer, since you addressed it to me, and then I'll ask Kevin Blair to jump in as well. I'm going to reverse order on senior housing.

We're very confident in that part of our book. There's a slide -- in the appendix, Slide 30, on senior housing. That's about $2.1 billion. And again, that's a vertical that has performed well since we onboarded that team in 2011. No credit losses in that book. It's a diverse book, spread across 33 states, not much on the West Coast. A large majority, 77% of that's private pay.

And again, there may be some short-term impact related to new admissions if there were, in theory, a facility that had, had an outbreak. The reports I've had, our facilities are in good shape, but you have to be careful about what information you know. But to the best of our knowledge, those facilities are in good shape. So long term, there's going to be a lot of demand there. Again, short term, if you had a facility that was slowing admissions, it could be a little short term. But we -- again, we think that part of our business is certainly a strength, and I would put the team up against any in the industry.

As to some of the other books, and then I'm going to turn it maybe to Kevin, yes, I mean, in hindsight, if you knew there was going to be a pandemic that would shut down the hotel business, you probably wouldn't make hotel loans. We like that part of our book. It's 50% to 54% loan to value. It's got good operators, mostly franchise, not really focused on resort-type properties. A lot of operators that have a lot of experience, a lot of equity, a lot of external sponsorship. And so short term, that's certainly going to be a stressed book but one that we think, over the long term, will rebound. We think ours are really well underwritten.

And so again, I'll just touch on a couple of the others. The shopping center, you've got the anchored, the grocery store, the discounts, the pharmacies, those are in good shape with pretty good cash flow. And then you've got the nonanchored where we've got a lot of attention.

So I mean, yes, this is a chance for us to look at everything we're doing, third-party sponsorships. Everything that's consuming capital on our books today, we're looking at that as we go through this crisis, making sure that capital isn't consumed long term by a business that we think doesn't give us the appropriate return. So again, we feel good about the book. We feel really good about the senior housing book. And those stressed areas, we've got -- we refer to it as enhanced monitoring. I can assure you, there's enhanced monitoring of everything in our book. We want to highlight those that you all would find of interest.

Kevin Blair, let me kick to you for anything else you'd like or Bob Derrick would like to say about that book.

Yes, Kessel, I'll start, and I'll give Bob a chance to mention some of the actual statistics. But I think, Jennifer, to your question, if you think about all of these industries, we believe that they're going to return to some level of normalcy at some point. I mean these are needed services in so many different ways. And the way that we've thought about them as we've underwritten them as we brought them on the books for the years they've been here is they are lower LTV, higher debt service coverage, borrowers that generally have recourse. And so we believe that the short-term nature of this crisis will have an impact, but the long-term viability of many of these industries are going to return to normal. And in many situations, you're going to see revenues pick up because people have been social distancing, and they're going to be more prone to go and use these services. So I don't think there's any second-guessing. But to Kessel's point, I mean, if you knew there was going to be a global pandemic, you might think about so many different industries differently.

Bob?

Yes, Jennifer, this is Bob. Just a quick follow-up. I won't belabor it. But Kessel's exactly right and so is Kevin. If you go back and look at our -- at these portfolios, specifically the CRE portfolio is -- and what it looked like in the previous crisis in terms of percentage of income-producing properties, that amount is way up. So we now have a more cash flow-centric book of real estate. The underwriting is obviously, comparatively speaking, a lot stronger than it was from an equity and coverage perspective in that book.

In the C&I space, in terms of strategic industries that we want to evaluate a play in, probably nothing materially changes. We like the spaces we're in and the customers we're in. And they generally support our communities where we serve. But -- so I don't think, strategically, it's going to change us in the industry. And as Kessel mentioned, our largest vertical is the senior housing vertical, and we still think that has merit long term.

The next question comes from Brad Milsaps from Piper Sandler.

I appreciate all the detail and the color in the slide deck. That was great. I just wanted to kind of follow up on the margin discussion. Jamie, I think I heard you say that maybe expected total maybe deposit betas in the 30s, if I heard that correctly. If I look back, I think Synovus interest-bearing deposit costs were around 40 basis points in '15, '16. Know that you have Florida Community now with that a little bit of higher deposit cost relative to legacy Synovus. But just looking at a few of the categories, jumbo time, retail time, some of the others, the money market accounts, do you feel like you've got an opportunity here to really kind of rightsize their book with kind of legacy Synovus and get back to that level? Just kind of curious how you're thinking about the deposit side of things and the opportunities this might present.

Yes, that's a great question. I mean as we look forward in 2020, we really -- we see opportunities to continue growing core deposits. We have a steady trend there, great performance, and we expect that to continue in 2020. And when you marry that with flat loan growth due to what we've talked about a little bit of shrinking in third party, it really does position you well on the deposit side. And so as we look into the second half of this year and into early '21, we do -- we agree with your premise there that there are opportunities for us to further reduce deposit costs, and we will be looking at that.

Okay. And then just as my follow-up, I'm sorry if I missed it, but just kind of curious, any early indication on the GreenSky portfolio, kind of what you guys are monitoring there? And just kind of any update that you can give on that relationship and how you're thinking about it.

Brad, this is Kevin. I'll take that. So look, one of the things we have been monitoring is their level of deferments. They're a little lower than -- most of our consumer categories are about 5%. And so it's holding up well. I know that, that team has been modifying their underwriting criteria on new flow to make sure that they're bringing in the right type of customer. But for us, as we've shared in the past, this is really, for us, a return discussion. And today, with the waterfall arrangement that we have there, we still feel very good about that relationship and about those asset classes.

But over time, as we -- as Jamie has mentioned, in terms of capital conservation and making sure we're getting proper returns, I think you'll see us reduce our appetite in general for third-party purchases and flow arrangements just so that we can use our capital for full relationship-based opportunities. And so it will, over time, become a -- in the near term, will become a lower percentage of our balance sheet.

Great. And Kevin, it sounds like your approach to the deferrals is a little more strategic rather than wholesale. Have you seen the pace of those requests remain pretty steady? Or have they started to tail off at all? Just kind of curious on what your thoughts are kind of where that number of deferrals could head.

It's a great question because we did see an inflow of deferments -- request for deferments very early on. And I give credit to our line of business leaders, Kevin Howard and Wayne and Bart Singleton working with our credit team because any loan greater than $1 million had to go through a credit-driven process. So think about it as like a credit committee where they're going through each individual request, looking at the underlying aspects of that borrower, gaining new information on the financial statements, trying to analyze cash burn. So it really serves 2 functions: number one, helping our customers when they're in need; but two, giving us an up-to-date view on the underlying financial stability of that customer. So yes, it was, I think, a well-run process.

In terms of the timing, as I said, they -- a lot came in, in the first week or 2. We've seen it trail off considerably to the point now where we're really not adding many deferments to that book. And just want to make sure that we're clear on it. It's really just a 90-day program.

The next question comes from Brady Gailey of KBW.

When you look at Synovus Forward, I know near term, things are kind of moving around, but I think you had targeted the $100 million of preimprovement to be realized by year-end 2022. Is that timing still on track? Or has that been pushed out?

Our commitment remains to the $100 million. But you're right that the timing has been adjusted. The beauty of this strategy is that we started, and we did a lot of diagnostic work, a lot of work in 2019 to determine what were effective possible initiatives to help us get better. And we had a list of about 25 different initiatives that we've looked at, and then we prioritized a subset of those. We've talked about in the past -- in the past, we've talked about 8 to 10 initiatives. We actually have about 16 in flight right now. And so -- but as we look at those, we have shifted. We have some initiatives that are full steam ahead, still at the same pace as we originally thought. We have some that we said, you know what, we need to hit a pause on it. We need to step back, and this crisis environment is not the best time. Let's pause on those. And then there are other ones that we have accelerated.

But the net impact of that to us and to the financials is that the benefit will be delayed. And so the benefits that we expected to start seeing come in at the end of 2020 will be in 2021. And so you're right. We will see a little bit of a delay in the impact of those on expenses.

The only thing I would add to that before handing it to Kevin to give more insight into Synovus Forward is that our forecast for expenses in 2020 is the same as it was in January. It's just we're getting there in a different way. So in January, when we talked about it, we had that benefit of Synovus Forward coming in, in the second half of the year, reducing expenses, improving efficiency. But now, the reduction in expenses is more due to declines in business activity in this environment. We have just had natural operating leverage that allows us to reduce expenses. And so our expense outlook is the same. But to your point, the impact of Synovus Forward is delayed.

Kevin?

Yes. Brady, I think Jamie covered it well. Just I'd highlight one activity that Jamie mentioned, just in terms of one of our bigger initiative was on the third-party services. And we've continued to work that initiative throughout the crisis. And I'm pleased. I mentioned in my prepared remarks that we're actually increasing the expected benefit from that program. So although we're delaying some things, there are other projects that have been accelerated, and they're actually bearing better fruit than we had expected. So to Jamie's point, we're going to get there. It's just going to be on a slightly delayed basis.

All right. That's helpful. If you look at your stock, it trades at almost an 8% dividend yield. I mean, Jamie, I heard your comments that there's no expected change in the dividend at this time. But maybe just expand further on the safety and the stability of the common dividend here.

Yes. As we think about our dividend policy and how we think about it, it's really a function of 2 things: first and foremost, capital adequacy, right? And as we've said, we remain very confident in our capital adequacy. We're well positioned. We run a myriad of stress test. We feel very good there. The second thing is forecasted long-term earnings. We believe that our payout ratio target, long-term forecasted earnings of 35% to 40% is appropriate. But in this economic environment, it's really difficult for any company to forecast long-term earnings. And so we continuously evaluate our dividend and our long-term earnings forecast to ensure that our payout ratio remains aligned with our objectives. And so based on those factors and how we see everything today, we believe our dividend is appropriate. But as we go through the crisis, we'll continually to evaluate it.

The next question comes from Kevin Fitzsimmons of D.A. Davidson.

Just a quick question on -- I know the obvious focus here is on reserve building, and you guys took an aggressive step this quarter, and you implied that it's possible there may be more reserve building to come next quarter. But as we would probably suspect that as we get later in the year, maybe that's when losses start emerging. And when you think about the reserves you're establishing now, do you think in terms of utilizing those? In other words, there's going to be some point of letting that reserve bleed down as opposed to matching those net charge-offs when they come. And is that just how you're thinking about it going forward?

Yes. I mean as we think about our allowance for credit losses, I mean, it is our best estimate at life of loan losses of our loan portfolio. And so we had that build this quarter that we believe positions us well. 1.39% allowance to loan ratio -- ACL to loan ratio we feel is strong, and it reflects a pretty severe environment. As I said on the call, we do think that some of the forecasts you've seen in April are more severe. And so there may be further build from here. But you're right that as you go through this, basically, CECL forces you to front load those losses. And so you take that expense earlier in the cycle, and that's exactly what we're seeing right now.

Okay. And just a quick follow-up. I know there were a couple of questions before on PPP. And in terms of the impact of that over the next few quarters that we would see balances go up in second quarter and maybe presumably come down in third quarter. And there's a dilutive impact to the margin that you referred to in second quarter, and maybe that comes off in third quarter. The origination fee, should we expect that to come theoretically through the margin as a benefit in third quarter? And then I believe you referred to a dollar amount of expenses. I don't know if it was related to PPP or just generally. But are there going to be expenses related to this program in second and/or third quarter? And just trying to gauge that origination fee when it flows through, how much would conceivably fall to the bottom line versus bonuses for your employees and such?

Yes. We did -- we mentioned COVID-related expenses. So we kind of grouped more things in it than just P3, and that was $5 million to $6 million in the second quarter. You're spot on with the accounting treatment as we see it for the fees and that it flows through interest income. And you are right, when forgiveness happens, that we will realize the fee. And so there would likely be a spike. To us, it's uncertain how that forgiveness process will play out. And so you're right, it could be the third quarter. It could be later. It could come in over time. But that is exactly how it works.

You're right, we have expenses with the P3 program. We have an army of volunteers that are working all hours of the day. There used to be a saying about bankers hours being 9 to 3. I'm convinced right now that banker's hours are 24/7. Folks are working around the clock to deliver P3 to Synovus customers. And so we're pretty excited about that. But I would say the expenses associated with P3 are fairly minimal.

The next question comes from Tyler Stafford of Stephens.

I hopped on pretty late, so I apologize if you guys have already covered this. But I just had a question about the uptick in the nonaccruals. Those were up, I think, around a little over 50% quarter-over-quarter. How much of that was to the reclass from PCI to PCD? And can you just talk about kind of the underlying, I guess, core trends, excluding that noise, if there were any?

Yes. Tyler, this is Bob. I'll try to give you a flavor for that. It was slightly related to the backing out of -- or moving away from the acquired purchase accounting on the gross-up of nonaccruals. We also had a specific credit that we had previously identified that did move to nonaccrual and the credit’s secured and have an impairment reserve, but that's in that number as well.

To your question more strategically about these levels, as Jamie mentioned, I mean, the broader credit metrics, we still feel really good about the level of nonaccruals and the other credit metrics in that book. The credit costs for the quarter that we did have were not systemic. They were not in any specific market or any specific line of business. So the answer to your more overall question is, the levels were just pretty low, 41 bps on NPL compares favorably to a year ago, basically about the same number.

So we feel good about these levels and where they are. We look a step back and analyze our past due ratios and other early warning indicators that we have, and all of those numbers seem to be favorable as well. So kind of going into the crisis is consistent with a lot of others, credit was in a -- it was in really pretty good shape.

Okay. Appreciate it. And then I know you touched on some near-term fee income guidance, I think, for the second quarter. And again, apologize if I missed it, but what's the fee waivers that you'd expect to see in 2Q or provide in 2Q given the COVID related?

Yes. What we do is -- Tyler, this is Kevin. So we've had less than $1 million of fee waivers to date. And so it's going to be in that range. It's not a material amount. We're doing it on an as-requested basis, so we're not just providing fee waivers across the board. So at this point, it's minimal. We'll continue to monitor that, but it's less than $1 million.

The next question comes from Jared Shaw of Wells Fargo Securities.

Just circling back on the expenses. I guess the $5 million to $6 million that's incremental expenses, that's anticipated to come in the second quarter or that is in the first quarter numbers. So I guess, we'll be looking at that.

Yes, that's a second quarter number. So our guidance on expenses is we will be flat quarter-on-quarter in first quarter to the second quarter. And that's inclusive of the $5 million to $6 million of COVID-related expenses.

Okay. And then assuming sort of everything starts opening up again, those aren't necessarily repeated in third quarter come out. And then are we seeing additional expense cuts beyond that? Or is that really driving the back-end lower expenses?

No, no, no. It's not driving the back end. Those are -- the largest line in that COVID-related expense is the $50 a day bonus we’re giving to our frontline associates. And so yes, you're right. That will go away at some point. We'll have lower expenses in the second half of the year really due to the changing kind of economic activity.

Okay. And then just looking at the allowance and the qualitative growth you saw this quarter, if we sort of end the quarter where we are today, should we expect to see a similarly sized qualitative growth in second quarter just with the deterioration since March 31?

Yes. Yes, good question. The qualitative should be a little bit unique. If you recall, as we -- at the end of March, every week, major -- the Wall Sheet economists, rating agency economists, they were updating their forecast really on a weekly basis, and you're seeing tremendous change in every week, the outlook for the economy. And what happened is we had approved our economic forecast on March 20. And by the time we got to March 31, we realized that the outlook had significantly changed. And so we went back and layered in that qualitative overlay really for the delta between March 20 and March 31. And so that should not be a continuous adjustment.

The only thing I would add though is that model -- in this environment, model efficacy is difficult because of the stimulus programs. It's hard to say what the impact of spike in unemployment really will be with these stimulus programs. And so I would say that the first quarter qualitative is unique. However, we will always look at the outputs of our models and make sure they're appropriate.

The next question comes from John Pancari of Evercore ISI.

Just a clarification on that last question on the qualitative. When you say that that's unique, are you implying that it's not likely to be as large or just not likely to occur at all because you've already adjusted for the change in the macro backdrop in April versus what you saw at the end of March?

I think I understand your question. You're asking -- so at the end of March, we had our economic forecast. And so if you want to think just to put kind of round numbers on that, you have unemployment, the scenario -- 1.39% allowance for credit losses represents a scenario where unemployment would go higher than 9%, big declines in GDP. However, since then, if you look at most of these economic outputs or forecasts, they're more severe than that. And so should -- when we do this in the end of June, if our base case is what you see from some of the Wall Street shops today, it's likely we will have a further build in the second quarter.

Right. Okay. All right. And then to frame that longer term, I guess, I want to see if you can help us think about how you look at through-cycle loss content for your portfolio, given a crisis like this. I think the last time you had disclosed DFAST data, it was before Florida Community, understandably. But maybe you're looking at about $838 million in through-cycle losses at that point. So how do you think about it now? Can you give us some idea of when you run these analyses, what you're coming up with in terms of through-cycle loss content?

Yes. So the DFAST results that you're referring to had us at 3.6% losses. And if we looked at -- if we were -- when we run our severe adverse stress losses, right now, for 8-quarter losses, 3.6% still holds. And that's another thing that we've looked at. When we look at our allowance for credit losses at 1.39%, we're right around 40% of those 8-quarter severe adverse losses. And we think that, that makes sense. It's in line with what we're seeing from other peers and other larger banks. And so we do that comparison as well.

Okay. All right. That's helpful. The -- and then one other follow-up on the reserve. For the at-risk portfolio that you flagged, do you have the amount of allocated reserve to these portfolios?

Yes, and we don't disclose -- we haven't disclosed that.

The next question comes from Ken Zerbe of Morgan Stanley.

Great. I guess just wanted to ask about the sort of how you're thinking about the CECL reserve, specifically in terms of the 2-year versus the 1-year reasonable and supportable period. And I guess, specifically, by moving to a 1-year forecast period and then kind of assuming everything goes back to normal after that or reverse back to normal, does that reduce your CECL reserve versus if you had taken a 2-year forward look using some of the economic data that you're talking about?

Ken, we made that decision. When you look at the economic forecasts that are out there, and we've looked at pretty much all of them, you see a large decline here in the near term in the second quarter, third quarter, and then you see a bounce back. And really, when you look at the 2-year cumulative GDP in all these scenarios, you get to down 2% to down 5%. And so we thought, as we looked at this, first, there is extreme uncertainty. The forecasts were all over the place. And we -- our ability to forecast for 2 years, it would just -- it's not there to see that far forward. And so we adjusted, went to 1 year. It's something that we have planned for in an adverse environment. But that's why we did it. If you look at the impact of going from 2 years to 1 year, it's really hard to quantify because of the adjustment we did with the qualitative factor. That really -- that gets us back to where we likely would have been otherwise.

Got it. Okay. And then just as a follow-up, a really quick one. In terms of the CET1 ratio, is there a level that you just absolutely don't want to drop below or maybe the same level where regulators might start asking pointed questions?

Well, we can't comment on regulatory aspects of that. I mean look, we -- in our capital adequacy effort and our work we do, we have scenarios where we see capital attrite in severe adverse scenarios. Obviously, we have it going down approximately 2% in severe adverse, but we feel good about where we are today. When you look at that -- we're constantly looking at this and looking at the scenarios in light of the balance sheet and the risk in the balance sheet and credit metrics. And so I would say there's no hard and fast number. I mean we obviously have a risk appetite. We obviously have ranges that push us to different decisions. But those aren't all public.

(Operator Instructions) The next question comes from Garrett Holland of Baird.

I appreciate the detail in the appendix of the deck and all the different COVID portfolios. But just wanted to follow up on how you're thinking about the potential loss severities for these portfolios and the collateral protection that limits any downside.

Okay. So first of all, back to the earlier comment on just trying to put a separate reserve in for these, we don't talk about that because the models largely formulate a view on the severity based on the underlying economics. And obviously, the models are going to project some sort of loss on that. As it relates to the portfolios themselves, obviously, what sort of loss content will be determined, as we said earlier, in terms of the severity and the length of the revenue shortfalls. And so we model those, and we look at those. That's part of the reason we've been doing the individual deferment assessments. So we look at cash burns for each of these respective customers and try to make an assessment for what the duration and how long they have in terms of cushions and protection. So it's very difficult to say within any of those industries what the loss content will be. There's a lot of uncertainty, a lot of factors that drive that.

Bob, I don't know if you'd add anything to it.

Yes, Garrett, just a quick follow-up. This is Bob. I would just say that as we go through our evaluation process of deferment exits, as these credits begin to come out of our deferment portfolios, certainly then, we'll get to evaluate kind of where the revenue accretion they can get back, how to make an assessment of how quickly. But generally speaking, we're staying with sort of the risk rating as they go through the deferment process. And then as we begin to graduate credits out, we'll make further assessments and begin to build our models on loss content. I know that's the question everybody wants to know is the loss content in these identified portfolios. But we're modeling that, and we'll begin to do that as we bring these loans out of deferment.

And just had a follow-up on asset quality. I guess what are you seeing in the legacy FCB portfolio at this point? And what, if any, is remaining of the unamortized loan mark? And what does that mean from a pro forma reserve coverage?

Yes. Garrett, this is Bob again. I'll just start and see if anybody else wants to jump in. But just a couple of quick comments, maybe if I could take a step back. We started due diligence in that legacy FCB book almost 2 years ago this summer. A lot of those, as you recall, that was a wholesale type of book with not a lot of what we would call legacy smaller business credits in there. So it's been almost 2 years since the sort of Synovus team has been in there. We've gone through a number of renewals. There's been external and internal exams and so and so. My point in telling you all that is, I do believe we've kind of graduated this portfolio into the Synovus portfolio, and we feel pretty good about where we are in terms of the market itself. And Jamie or Kevin could probably speak to the accounting, but the mark was more than adequate. We didn't get the losses that -- it was more than adequate to cover.

So we've kind of graduated beyond that sort of legacy FCB, legacy Synovus approach, and we like to think of it as one market. And we feel really good about the credit metrics that we're seeing, relatively speaking, out of that -- out of our Florida portfolio. Recall, Garrett, it is about 1/3 of our book of business, when you look at it from a statewide basis. So that's kind of some general comments about how we look at that portfolio.

Kevin, I don't know whether you want to follow up.

I mean just from a business perspective, I mean, we continue to grow in that South Florida marketplace. It represents a big percentage of our growth, and those loans are similar loans to what they've been doing in the past. And as we've said in other calls, in general, the portfolio that we acquired from FCB and what was there today performs at a better level than the aggregate credit metrics of Synovus in total. So we continue to be very pleased with the credit quality there.

The next question comes from Steven Duong of RBC Capital Markets.

Just first question, on your $2 billion PPP, was that all with your clients? And do you have an industry breakout of that?

Steven, it was a mix. It was primarily clients, but gosh, if early on, I really won't maybe talk about other banks. But let's just say, our team stood up our portal quickly, a very efficient process. The large majority of applicants were customers because of a lot of reasons. Obviously, you know your customer and other policies that you really could process them more quickly. However, in a lot of our markets, given I'll just say frustration with maybe a customer's other banking partner, we did see great opportunity. And in fact, I think our small business, new deposit accounts in the first couple of weeks in April hit record levels. I don't have that detail in front of me but hit record levels as customers of other banks established banking relationships in order to then apply as a customer. So Kevin, you may want to say more, but I'd say a large majority customer but a lot of new customers that just felt like, and I've been really deluged with letters of thanks from new and old.

I will say this, though, on the PPP program, we're not celebrating or high-fiving the fact that we've put $2 billion out. As I've said to our team and Kevin and the great people that are working 24/7, really, there's no cause for celebration until the last application in our queue gets processed. We can't guarantee funding. We don't know how long this next appropriation will last. But for everyone who's really happy, we know there are others that are waiting. So again, we'll hopefully -- I mean, I've heard different indicators today of when the E-Tran portal may open back up. It seems like most people are pointing towards Monday. We were hopeful that it would happen before then because we're ready. And again, we'll -- celebrate is probably not the right word because in this environment, we're not celebrating. But I can tell you, our team is passionate and determined to get that last one through our queue.

Kevin, you may have some more on the customer, new customer breakout.

Yes. Kessel, you nailed it. It's about -- it's 95% existing customers. We did bring in some noncustomers who came in. And just as from an industry standpoint, it's just as you would expect. It's going to follow some of those other industries. Our top industry is on the accommodation and food service side, the arts and entertainment, recreation, some physician services are higher as well as retail trade. So ironically, it follows some of those industries we mentioned earlier in terms of the enhanced monitoring.

That's really great to hear. And then just a follow-up. Just on the loan deferrals, I don't know if I missed it. Is there a number, an amount of the loan deferrals?

Yes. So we said it's about 13% of our entire book. So it's less than $5 billion, and it's about -- it's 11,000, a little less than 11,000 notes. And I think what's important to note there is of those 11,000 notes, 93% of them are on the under $1 million side. So as we talk about our process, under $1 million were more of an automated process, over $1 million went through our credit-driven process. So 93% of the deferments were in the under $1 million and then 7% over $1 million. And that was really spread out amongst CRE and C&I in some of our private wealth loans.

Got it. And that's typically a 3-month deferral, is that right?

That's right. It would be very rare for anything to be more than 90 days.

And due to time constraints, the last question today will come from Steven Alexopoulos of JPMorgan.

Just first, in terms of the $5 billion on the loan deferrals, can you just break that down into C&I, CRE and consumer?

Yes. So when you look at the deferrals in total, if you break it down to those categories, we have about 17% of our CRE book is deferred and about 13% of our C&I book and 6% of our consumer book.

Okay. Perfect. And then one final one for Kessel. So with branches now operating with only a drive-through, how is that going? And based on what you're seeing, could you see a future where you only need a drive-through?

Steven, that's a great question. And the answer is maybe yes. Now just to be clear, all of our branches are also operating as appointment-only. We just need to know who we're admitting, control how many come in and make sure that they're properly distanced. But not just to the branches, to our whole way of doing business, yes, absolutely, I think we could look at because, you know what, our team has responded remarkably, but so have our customers and other than maybe some complaints about longer waits in call centers, which we don't like.

As it relates to our branch service, our customers have adapted well. And I've got lots of notes about the use of the drive-through and the appointment-only and kind of the special treatment they get that way. So as we go further, and I'll kind of segue into Synovus Forward and look at branch rationalization, I think Wayne Akins and his team are looking at how we have served customers, what's the right staffing model going forward and what's the right physical capacity going forward.

And just on Synovus Forward because I actually want to come back to one thing Kevin commented on. I think, Brady, you asked about the timing of the expense and revenue, and I want to take full blame for any delay in timing as we went into this crisis. I said to our team 1 day, I don't want to see any more consultants in the building in Columbus and Atlanta, distracting our team from what needs to happen. And then quickly, we realized that our effort really needed to be focused on, again, what we said our 2 guiding principles were: the physical and financial security of our team and again, the same thing for our customers and their safety.

So we paused it, but I can tell you, to Steven's question and others, I believe it's been an eye opener to our team about how we can do business differently. And so while Synovus Forward paused, Kevin mentioned procurement, we're also, again, betting all of our initial thoughts and throwing new ones on to the table because of, again, the way we've changed.

So Steven, that was a long answer, but the branch system has worked very well with drive-through and appointment. And it certainly is allowing us to think about, again, a number of physical locations, and the levels of staffing to support what we've been supporting.

This concludes our question-and-answer session. I would like to turn the conference back over to Kessel Stelling, Chairman and Chief Executive Officer, for any closing remarks.

Well, thank you. And as we close the call, I just want to once again thank our team members for all they continue to do for our company and our customers. They're facing new challenges and opportunities almost daily in this unusual environment. It's truly amazing to watch them successfully and gracefully handle each one, always doing what's best for each other, for our customers and our communities.

I know Kevin Fitzsimmons asked about the costs related to PPP, and there will be costs related to overtime, related to all that we're doing with bonus. But there's also probably a cost of weariness and working 24/7. I've seen team members holding babies at 3 a.m. as they input PPP loans with one hand. So the dollar cost, maybe one thing. The cost -- the physical cost on our team is probably a little more severe. But I can tell you, every hour, I get multiple e-mails from team members telling me how incredibly proud they are to be a part of the company. So thanks to the team.

And to our customers, again, who've been incredibly patient and flexible as we've modified the way we serve them, just know that we're committed to doing all we can do to minimize your inconvenience. And just -- we want to thank you for allowing us to be your banking partner and apologize for any inconveniences you faced.

And then to our shareholders, both those new and those that have been with us long term through other economic ebbs and flows, we thank you for your continued trust in us.

So with that, operator, we'll close the call. We want to thank everybody for their participation and interest in our company. Please stay safe, and we look forward to talking to you in the very near future. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.