Synovus Financial Corp
NYSE:SNV
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Synovus Financial Corp
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Good morning and welcome to the Synovus Third Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.
I would now like to turn the conference over to Kevin Brown, Senior Director of Investor Relations. 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'll be followed by Jamie Gregory, Chief Financial Officer; and Kevin Blair, President and Chief Operating Officer. Our executive management team is available to answer your questions at the end of the call. We ask that you limit yourself to two questions.
Let me remind you that our comments may include forward-looking statements. These statements are subject to risks 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.
Thank you, Kevin, and good morning, everyone. And thank you for joining today's call. While I normally close each call with a big thank you to our team, I want to really begin today's call with a thanks to all of our 5,000 plus team members across our five state footprint. Just last month, six months after converting to drive-thru and appointment-only, our retail branch network reopened to walk-in customers. Although things are far from back to normal, we're fundamentally a relationship bank, and I've enjoyed so much hearing from our frontline team members who take such pride and pleasure in serving our customers in-person, even if it's across a plexiglass barrier or from a distance of 6 feet.
Our team’s response to this ongoing pandemic continues to demonstrate what's unique about this company. Our culture of service, our focus on customers and communities, our adaptability in changing circumstances and our ability to execute, all of those along with continued economic recovery, contributed to our strong performance in the third quarter of 2020.
Before I turn the call over to Jamie, I'll share highlights of the third quarter on Slide 3. Diluted EPS was $0.56 per share compared to $0.57 last quarter and $0.83 a year ago. Adjusted diluted EPS was $0.89 per share compared to $0.23 last quarter and $0.97 a year ago. The primary difference between reported and adjusted figures for the quarter was a $0.30 per share impact from a goodwill impairment of our mortgage reporting unit that Jamie will detail shortly.
Period-end loan balances of $39.5 billion were down $364 million from the prior quarter with commercial loan growth partially offsetting declines in the consumer portfolio. 1% of loans had a full principal and interest deferral at the end of the quarter, down from 15% in May. Total deposits of $44.7 billion were up $471 million from the prior quarter. Broad-based core transaction deposit growth of $1.6 billion allowed us to accelerate our deposit pricing and remixing strategy, which led to stable net interest income at $377 million.
The net interest margin declined 3 basis points to 3.10%, slightly better than we expected, as headwinds from student loan sales and bond portfolio repositioning completed in the second quarter were partially offset by the favorable trends in deposit pricing and remixing. Adjusted non-interest revenue of $116 million was strong, up $20 million from the prior quarter. The improvement was led by quarter-over-quarter increases in net mortgage revenues of $8 million and core banking fees of $5 million. Adjusted non-interest expense of $269 million was down $8 million from the prior quarter, led by an improvement of $5 million in employment expenses. Provision for credit losses of $43 million were down $98 million from the prior quarter. The ACL ratio increased 6 basis points to 1.80% excluding P3 balances. Past dues, NPA and net charge-off ratios remained relatively stable.
The CET1 ratio increased 40 basis points to 9.3% following strong core performance and the settlement of transactions we executed in the second quarter. The total risk-based capital ratio increased 46 basis points to 13.16%, the highest level since 2014.
Jamie will now share more detail about the quarter.
Thank you, Kessel. Before moving to Slide 4, I'd like to provide an update on goodwill. We have been conducting evaluations of goodwill in response to market volatility and expectations for a lower-for-longer interest rate environment referenced by the FOMC in August. As a result, there has been a goodwill impairment for our mortgage reporting unit of $45 million. This is a non-cash charge that has no impact to cash, liquidity, tangible book value or regulatory capital ratios.
Beginning on Slide 4, total loans declined $364 million in the third quarter as commercial loan growth helped offset reductions from P3 loan payoffs of $77 million and strategic asset dispositions of single-service loans. Excluding the impact of asset dispositions and P3 payoffs, we had net loan growth of $245 million in the quarter. Commercial loans excluding P3 balances increased $291 million. Although pipelines are lower than they were pre-COVID, we continue to see demand, especially in middle market businesses and our higher growth and higher opportunity markets such as Atlanta, Birmingham and South Florida. Consumer loans declined $578 million, led by the disposition of roughly $185 million of non-relationship mortgages, along with continued declines in our lending partnership portfolios.
Additionally, a portion of the decline can be attributed to the continuation of our GreenSky strategy, which we highlighted last quarter, and which to some degree is offset by an increase in balances within our held-for-sale portfolio.
While we will continue to evaluate opportunities to efficiently manage our balance sheet, there are currently no existing plans for material dispositions, such as those we made the last two quarters. We expect loans, excluding the impact of P3 forgiveness, to be relatively flat in the fourth quarter.
As shown on Slide 5, we had total deposit growth of $471 million. More importantly, we're continuing to strategically reposition the portfolio. Broad-based core transaction deposit growth of $1.6 billion offset the strategic declines in time deposits of $1.2 billion and broker deposits of $381 million. We estimate approximately $2.3 billion, or 80% of deposit balances associated with P3 loans remained on the balance sheet at the end of the quarter.
The cost of deposits fell by 14 basis points from the previous quarter to 39 basis points due to a combination of rates paid and deposit remixing. For context, this compares to a low of 26 basis points in the third quarter of 2014. We continue to believe there are further opportunities to reduce deposit costs through CD turnover, repricing and remixing. These activities in an environment of lower-for-longer interest rates, combined with strong growth in core customer deposits, should allow us to get our total deposit cost to the 26 basis point lows of the prior cycle.
Slide 6 shows net interest income of $377 million, stable from the previous quarter and included $12 million in fee accretion from our P3 loan portfolio. There's $74 million of P3 processing fees remaining. Earlier this month, the SBA announced a streamlined forgiveness process for certain P3 loans of $50,000 or less. Approximately 7% of our P3 balances fall within this threshold. There's approximately $10 million in fees associated with these loans which will be accelerated when we receive the forgiveness proceeds.
Net interest margin was 3.10%, down 3 basis points from the previous quarter. Consistent with our expectations, the current level of interest rates, combined with a 9 basis point headwind from bond repositioning and student loan sales executed in the second quarter, put downward pressure on NII and NIM in the third quarter. However, these headwinds are partially offset by a handful of factors, including further declines in deposit pricing and favorable deposit remixing trends.
Our guidance from the previous quarter largely remains the same and we continue to expect modest downward pressure on NIM as the repricing within our fixed rate asset portfolio is partially offset by continued declines in overall deposit cost and further improvements in managing liquidity cost. Excluding the potential impacts from P3 forgiveness, we expect NII and NIM will decrease slightly in the fourth quarter.
It was another strong quarter for non-interest revenue, which is shown on Slide 7. Core banking revenue improved by $5 million from the second quarter, primarily due to increased transaction activity as most components are gradually returning to pre-COVID levels. Net mortgage revenue of $31 million remained elevated, primarily due to increase in secondary revenues driven by higher loan sales and gain on sale. Secondary mortgage production was $654 million in the third quarter, which is an increase of $19 million or 3% from the second quarter’s record production.
We continue to see positive momentum in other fiduciary service business, including brokerage and trust. Assets under management of $17.5 billion grew 6% from the previous quarter. Other income for the quarter included evaluation adjustment for tax credits, and gains from the previously mentioned mortgage portfolio sales. In the fourth quarter, we expect stable revenues from core banking fees, fiduciary services, and capital markets income. We expect to see declines in mortgage revenue and other income.
Slide 8 includes non-interest expenses, which were $317 million, or $269 million adjusted. Adjustments include $3 million in restructuring charges primarily related to branch optimization, as well as the $45 million goodwill impairment previously discussed. This goodwill impairment is limited to the mortgage reporting unit, and results from a combination of factors including the extended duration of lower market valuations, high volumes in refinancings that have reduced mortgage yields, and the clarity around longer term policy actions designed to keep interest rates low. Total employment expenses were $5 million less than the previous quarter primarily due to lower commissions, lower headcount and reduced COVID-related staffing expenses. Total COVID-related expenses for the quarter were minimal.
We expect further headcount reductions in the fourth quarter, as part of the normal attrition, and a voluntary retirement offer we recently extended. The voluntary retirement offer is expected to result in a one-time fourth quarter expense of approximately $14 million and have a two-year payback. These savings are part of the Synovus Forward initiatives, and will help offset expected increases to other line items such as travel and advertising in 2021 as banking activity returns closer to normal. We continue to focus on what we can control, which includes prudent expense management. Excluding the upfront expenses associated with Synovus Forward initiatives, we expect adjusted NIE in the fourth quarter will be in line with the third quarter.
Key credit metrics on Slide 9. There were slight increases in NPA, NPL and past due ratios from the previous quarter. But we currently do not see widespread deterioration in the portfolio. Our comprehensive reviews have largely isolated elevated risks to certain segments, including hotels and full-service restaurants. And we continue to work with borrowers who have been most negatively impacted by the pandemic. Provision for credit losses of $43 million includes net charge-offs of $28 million or 29 basis points. Downgrades in the hotel portfolio, one of the hardest hit industries, accounted for $603 million of the increase in criticized and classified loans. There were $125 million in hotel loans that had principal and interest deferrals at the end of the quarter, which represents about 8% of the total hotel portfolio.
Our latest economic outlook includes an unemployment rate of about 8% as of year-end, before declining modestly in 2021. This, along with credit migration and other portfolio activity, results in allowance for credit losses of $665 million, up $15 million from the previous quarter. The allowance for credit loss ratio increased 6 basis points to 1.8%, excluding P3 loans. The amount of provision for credit losses going forward will continue to fluctuate based on a number of factors, including economic outlook, loan growth, loan mix, risk rate, and migration, as well as the timing and impact of future government stimulus.
Heightened levels of uncertainty and those factors could result in reductions of allowance less than charge-offs. As the outlook becomes more stable and uncertainty declines, we expect changes in allowance to rely more heavily on the traditional factors previously mentioned.
Preliminary capital ratios, on Slide 10, continued to build from a combination of earnings and balance sheet activities completed over the past several months. These balance sheet activities include the settlement of our second quarter bond repositioning and our ongoing efforts to reduce single-service loan portfolios, as we prioritize our balance sheet for core client relationships. CET1 increased 40 basis points to 9.3% this quarter. That's an increase of 35 basis points from the end of 2019 and was accomplished while increasing the reserve by $382 million.
The total risk-based capital ratio of 13.16%, up 46 basis points from the second quarter, was the highest since 2014. We remain focused on supporting our overall capital position and are targeting the higher end of our CET1 operating range of 9% to 9.5% given the heightened uncertainty in the current economic environment. We expect core earnings will continue to support our capital position and allow us to achieve our strategic objectives with consideration for our anticipated balance sheet growth and the payout objectives we've outlined previously. As a reminder, we do not expect any share purchases for the rest of the year.
I'll now turn it over to Kevin who will provide updates on deferments and some of our strategic objectives, including Synovus Forward.
Thank you, Jamie. I'd like to begin on Slide 11 with an update on deferments. At the end of the third quarter, we had $337 million in loans on a full principal and interest deferral, which was less than 1% of total loans. The aggregate amount in deferment was well below the 3% to 5% range we estimated last quarter and down significantly from the 15% we referenced in our first quarter 10-Q filing. We attribute the lower P&I deferral activity this quarter to the strength of our borrowers and improving economic environment and support provided through various government stimulus programs. Of the $337 million in deferment at the end of the quarter, 50% or $169 million were in the consumer book. These were predominantly consumer mortgage loans, which are largely comprised of physician and private wealth customers. The $169 million in deferments represents approximately 2% of total consumer loans.
Commercial deferments as of 9/30 were $168 million or 54 basis points of the total commercial portfolio. Full P&I deferments were largely concentrated in the hotel, and full-service restaurant segments, which comprised 85% or $143 million of commercial deferments at the end of the quarter. We have not only seen a significant reduction in the level of deferments, we are also seeing strong performance from those that have exited their deferral status. 94% have made a payment while another 5% to 6% have not had a payment due or were in a grace period at the end of the quarter. Only approximately 20 basis points of loans that exited a deferral status were past due or moved to non-accrual status at the end of the third quarter.
In addition to the full P&I deferment program, we have continued to work with other borrowers who have been impacted during the current crisis to provide flexibility in payment terms, which may include modifications such as interest-only or amortization extensions. Inclusive of these modifications, we estimate that total loans with accommodations as of the end of September remained below 3%, which was at the low end of the range we projected last quarter for full P&I deferrals.
Moving to Slide 12 in the COVID sensitive industries. We shared on the second quarter earnings call a second round deferral estimate for each of these industries. Consistent with the loan portfolio in aggregate, these industries also had a lower-than-estimated level of P&I deferments at the end of the third quarter. As we mentioned on the previous slide, the hotel and full-service restaurant segments had a total of $143 million with a full principal and interest deferment as of 9/30, well below the original estimates. The hotel industry continues to be a segment that has been hit the hardest by the change in customer behaviors, which was reflected in the downgrades Jamie mentioned earlier. But the vast majority of our portfolio continues to pay as agreed. Despite the results to-date, we continue to closely manage and monitor this portfolio as we do not see the normalized return of revenues in the near-term.
We have, however, conducted in-depth reviews of the loans in the hotel portfolio. And from a longer term perspective, we feel that we are very well-positioned in several ways. These include low loan-to-value, high quality hotel properties with great brands and sponsorship from guarantors with strong liquidity. As it relates to the restaurant industry, we have seen signs of recovery since the reopening efforts of April and May. Quick service and fast casual restaurants in our portfolio have largely recovered based upon our cash inflow data. And in some cases, are outperforming pre-COVID levels. Synovus has $365 million of full-service restaurants. And using our portfolio cash inflow data, we estimate they are operating at an average of 85% of revenue compared to the prior year. There were $18 million of full-service restaurant deferrals at the end of the third quarter.
It is worth noting that we do not have any shopping center customers in a second round deferral. While we continue to closely monitor this portfolio, our customers have experienced improving rent collections during the last quarter, overall due largely to the strength of the grocery, pharmacy discount and home improvement segments. We are also seeing stronger recovery in inline service provider tenants that alleviate much of the concern from spring and early summer. Retail trade, arts, entertainment and recreation, as well as oil-related industries also had no deferments in the second round, and we continue to be optimistic as to the ability for our customers to weather the short-term cash flow reductions experienced during the economic shutdown.
While the deferral trends are extremely positive to this point, we are keenly aware additionally mandated closings from COVID surges in our markets would have the potential of impacting cash flows and would affect these segments more quickly and severely. Therefore, we will continue to closely monitor and manage our exposure within these industries.
As a reminder, our credit review process that we initiated during this crisis serves as a basis for determining whether a deferment is necessary and includes a thorough analysis of current conditions as well as incorporating forward-looking projections and sensitivities, including cash burn rate analyses.
Moving to Slide 13, it provides an update on our portfolio’s cash inflows, consistent with what we shared on last quarter’s call. The graph shows continued improvement in year-over-year cash inflows, which serve as a proxy for revenues. During the third quarter, we saw the portfolio year-over-year inflows improve from being down 6% in June to being up 3% in July, and then settling in essentially flat with the prior year in August. These results are largely consistent with various industry metrics, as well as the conversations we're having with our customers throughout our footprint.
In addition to cash flow improvements, we have also seen our customers making the necessary adjustments within their expense bases to further reduce the impact the crisis is having on their bottom line. We've included trends for some of the industries that were considered to be more sensitive to COVID, including accommodations, retail trade, food services, and other services. Results in these segments show consistent trending with the portfolio as a whole. But also note, there’s differing impact within industry segment, which has served as a basis for many of the K-shaped recovery scenarios that had been developed and discussed more recently. We continue to use this data to inform our bankers as well as support our COVID specific deferment and portfolio management programs.
As I close out my section, let me transition to a business and Synovus Forward update, which we've highlighted on Slide 14. We have maintained three primary focuses on the business front in 2020.
Number one, proactively manage the credit environment through the current economic downturn. As I've shared on the previous slides, we feel good about our progress and results to-date in this area.
Number two, utilize our relationship banking approach to continue to serve our customers, expand share of wallet and attract new relationships. Despite the challenges presented by the pandemic, we have continued to drive core loan, deposit and assets under management growth, while improving service levels and adding new technology to support our customers’ changing needs.
Throughout 2020, we've accelerate the deployment of new digital tools and capabilities with enhanced servicing and online origination functionality. With the overarching goal of making it easier to do business with us, as well as the changing business dynamics associated with COVID, digital user enrollment is up 10% year-to-date, and we've experienced a 30% increase in the number of deposits being handled outside of our branch network. We have achieved this success as we partnered with existing and new fintechs to efficiently and effectively deliver these enhanced capabilities. We fully recognize and remain committed that when we get to the other side of the current challenges we face, we want to be even better positioned to grow and win in our marketplace.
That brings me to the third area of focus Synovus Forward. We remain focused on the execution of this program to drive incremental efficiencies and sources of new revenue, now and in the years to come. Our original financial objective of an incremental $100 million of pre-tax income remains the baseline for execution. We are beginning to realize the benefit of several of these initiatives while we kick-off additional initiatives that will have 2021 deliverables and run rate benefits. As we progress with these, we will continue to update and fine tune the size and timing of the benefits.
On the expense front, we are executing on the $25 million third-party spend program with work streams continuing to be implemented through the early part of 2021. Our plan for 13 branch closures in 2020 remains on track with additional back office real estate consolidation planned for 2021. We are also in flight with our overall organizational efficiency program. This program is a comprehensive portfolio consisting of many initiatives that will deliver reductions in personnel and other expenses, as well as cost avoidance in additional areas throughout the remainder of 2020 and 2021. Execution on these initiatives are underway, as Jamie noted, the reduction in headcount during the third quarter.
Another example of progress is the voluntary retirement program, which we announced during the third quarter, and will largely be completed in the fourth. As Jamie mentioned, it is expected to have a one-time charge of approximately $14 million and have an earn-back period of less than two-years. We will continue to update and provide further details as we execute on the overall organizational efficiency program. And we remain confident in our ability to generate up to $65 million in savings overall.
As we previously noted, we will continuously evaluate the underlying economic environment to gauge the size and the timing of our overall expense management program. While we've been more focused on the efficiency initiatives out of the gate, we are progressing with revenue opportunities that were identified during the diagnostic phase, with continued confidence in the pre-tax income range of $35 million to $55 million. We have kicked-off our pricing for value and customer analytics work streams. These initiatives have the potential to begin creating revenue enhancement in 2021 through the repricing of solutions and products, as well as enhancing tools and capabilities to improve sales and retention efforts. The dedicated teams leading these efforts are adjusting and enhancing the program on a continuous basis. As we complete the programs in the execution and in flight phases, we have additional initiatives that will commence, which are all part of our longer term strategic roadmap and changed management plans.
With those comments, now let me turn it back over to Kessel.
Thank you, Kevin. Before we move to Q&A, Slide 15 highlights a few accomplishments from the quarter that we believe are just as important as the numbers we've reviewed today. I'll not cover each one in detail. But just to summarize, we expanded the talent and expertise of our already strong and diverse Board. We were named by Forbes as a best employer for women. We celebrated as two of our senior most female leaders at our executive and Board levels were recognized for their contributions to our company and our industry. And we formed a council comprised of some of our most senior African-American leaders to ensure accountability for continued progress in promoting racial equality.
We made significant investments in education, including donating $1 million to the United Negro College Fund to provide scholarships for African-American students who want to attend historically black colleges and universities or other higher learning institutions across our five state footprint. We've continued supporting our communities through increased outreach and financial investments, as organizations, schools, individuals, families and entire communities face unprecedented challenges. And we continue to deliver financial education across our footprint through our now virtual Raise the Banner program.
And finally, we've remained active participants in multiple CARES Act stimulus programs to help our customers recover sooner, rather than later. We're proud of these actions and we believe they reflect our deep sense of responsibility for leading and strengthening the communities we serve.
And with that, operator, let's open the call for questions.
[Operator Instructions]. Our first question comes from Ken Zerbe with Morgan Stanley. Please go ahead.
In terms of the goodwill impairment charge, can you just help us understand what's different about your mortgage business versus other banks that are not taking impairment charges?
Hey, Ken. Good morning. This is Jamie. I’ll just jump right into that. I think that I can't really compare us to other banks. What I'd say is, you look at that reporting unit and it's one of the highlights of 2020. You look at the activity, the fee revenue, the growth you've seen there, the production, it's really been a success story. But the goodwill calculation is based on when you originally make that valuation and what is the current long-term outlook? And what's changed for us is that long-term outlook has really no rate increases. And so, when you have a long duration assets like mortgages on the balance sheet and you don't get any benefit from interest rates for extended multi-year period, it hurts the valuation of that reporting unit. So it has really nothing to do, in my mind, with anything comparing us to others or comparing the performance of the unit. It really has to do with this lower-for-longer interest rate environment and the impact that has to the ROA of a business that has long duration assets on the book. And so that's the story on the goodwill impairment in the mortgage reporting unit.
And then the next question is, well, what's the yield on their new loans that you're putting on in 3Q. And then also, is it fair to assume that your total portfolio loan yields will trend down to that level over time?
Yes, Ken, the yield -- going on yield in the third quarter was in the low to mid 3.50s. And if you think about our book yield on our loan portfolio in the lowest 3.90s, it's hard to say where spreads will go, but it is safe to assume that we will drift towards that lower end over the maturity of our loan portfolio. But I'd tell you that when we look at that and we think about the margin and when you're really looking out to the horizon, we see the headwinds of the loan book are repricing. We see headwinds of the securities book repricing, but we believe that the opportunities and on the deposit side, on the liability side, will be a strong mitigant to those headwinds. And so that's how we're looking at the margin when you think about it over the long-term. Clearly in the third quarter you saw success on the liability side. And we're committed to continuing that.
Got it. Okay. And then great job on improving the CET1 ratio. So that was very helpful. Along those lines, you did mention that you don't expect share buybacks for the rest of this year, but does that imply that you actually might consider buy backs in early 2021?
Well, Ken, when we think about capital in aggregate, first, as you mentioned, we're very pleased with where we are. And when we think about capital adequacy and balance sheet resiliency, we really look back to -- all the way back to the pre-crisis. And so you think about coming into this year to 8.95 CET1, we have increased that 35 basis points to that 30. But we've also at the same time, increased our allowance significantly. And so we feel good about the progress we're making there. We came -- we went out publicly this quarter saying that we are targeting the higher end of the range of 9% to 9.5% CET1. And that's our priority. We just see uncertainty in the environment. And so we're looking to continue building capital and share repurchases just are not at the top of our list.
As you saw in the third quarter, we grew core loans. Core organic loan growth of $245 million, that's our priority. We want to deploy capital to serve our customers. And that's -- when we think about what is front and center in front of us, like that's our focus, is deploying capital for our customers. And share repurchases, that’s just what falls out of these at the end.
Our next question comes from Ebrahim Poonawala with Bank of America. Please go ahead.
So thanks for providing all the color on credit and the deferrals but would love to spend some time on just the interplay as we look forward around credit provisioning cost outside of any growth. Talk to us in terms of given the work you've done, your expectations around migration? And how much of [debt] lost content of expected migration has been reserved for versus what may be -- what may require additional reserve? Just if you could talk through in terms of that and how we should think about provisioning and reserve bid going forward I think that would be helpful.
Yes, Ebrahim. As we look at the allowance and we think about what does it look like going forward, obviously with $665 million in the ACL this quarter, we feel that, that covers our future charge-offs. Now embedded in that is some uncertainty. And so we have increased the weightings to adverse scenarios this quarter. And so that's embedded in our calculations. And as we go through this crisis, as we get more certainty on charge-off and the outlook, we would expect the weightings to alternative scenarios to decline and that could benefit the allowance or not. And so that's an important consideration. The migration that you saw in the third quarter, that impacted the calculation. And we expect -- as we look forward, we do expect to see all of this flow through NPAs, charge-offs as we go through the cycle. And so as we look at the allowance, where we're comfortable with where we are, at $665 million, 1.8% of loans excluding P3 and -- I think that sums it up.
Hey, Ebrahim. This is Bob. If I could just follow-up on the migration piece, Jamie, that you mentioned, just to kind of maybe put a little more color around the increase you saw there in criticized classified, a large portion of that is our hotel book. And while we do expect to see this type of migration, to Jamie's point, a lot of that portfolio Ebrahim was -- as you know was lower loan-to-value, strong debt service coverage, et cetera, had a tremendous drop-off in revenue. So the risk rating process is pretty thorough and has to follow that drop-off in revenue. But we don't expect that entire criticized classified book to migrate all the way through to non-accrual and charge-off. So it's on a case-by-case basis.
And again just switching to Jamie, I think you mentioned a slight decline in NIM, NII. But just talk to us in terms of how we should think about the loan-to-deposit ratio, given the liquidity, the potential runoff in deposits, when PPP is forgiven. Do you expect that loan to deposit ratio to move back closer to the high 90s as it was pre-COVID. And does that means you continue to runoff time deposits, broker deposits for several new quarters to come?
Yes, Ebrahim. Let me decompose that into the two parts. As we look at the loan portfolio, we're expecting loans to be relatively flat in the fourth quarter. And so we're not expecting to see much growth there off the rest of this year. But when we look further out -- and we will give 21’ guidance on the fourth quarter earnings call in January. But when we look further out, we do expect to return to normalcy. And we do expect our customers to be looking for liquidity for themselves and to be borrowing. And so as we look forward, we expect to resume loan growth like you saw pre-crisis. The opportunity in the Southeast is as great as ever and we're ready for that. We're positioned for it. I think it’s why you see some loan growth in the third quarter. And so we believe that loan growth will resume in 2021.
The deposit side is a little murkier given everything that's going on, including the Federal Reserve's balance sheet. And so it's more challenging to forecast on the liability side. But I’d tell you that, if this liquidity environment continues, and if it stays similar to what it is today, then yes, you will see us using this liquidity environment to optimize primarily our liabilities. So what you’ve seen in earlier this year is, we've reduced our borrowings, our wholesale borrowings at Home Loan Bank, we've reduced our broker deposits, we've reduced pricing. And so that's where the largest opportunity is for us with the excess liquidity. And so I think that's what you would continue to see in the near term.
And Jamie, I was just going to add -- Ebrahim, I am sorry, this is Kevin. In terms of the P3 deposits versus the loans, and we have currently $2.8 billion of PPP loans and roughly $2.3 billion in deposits. So as those weave, those will largely offset one another, with just a small gap in terms of what's already been spent from the depository side. So that's not going to create an inflection point that would increase the loan-to-deposit ratio.
And just a follow up to what you responded to Ken's question earlier. So the basic expectation would be that the NIM continues to drift a little lower over the next several quarters, maybe not by much, but the direction is lower?
Ebrahim, we do expect to see slight downward pressure. If you think back to July, we gave guidance of basically flat from a 304 area. Our outlook hasn't changed from that. Look, we're very pleased with the deposit pricing we saw in the third quarter and the effort of the team in that regard. But we do expect to see some slight downward pressure on the margin.
Our next question comes from John Pancari with Evercore ISI. Please go ahead.
Good morning. Regarding the increase in criticized loans I appreciate the color that you gave and that's driven by hotel and restaurant. The increase is definitely larger than what we've seen at others that have hotel and restaurant concentrations. So, I just want to get a little bit better understanding of the drivers. I know your increases in your criticized assets over the past couple of quarters have been less than peers. So, was there a degree of a catch-up here, I mean did you do a thorough review of the portfolio that drove that? And also wanted to get your thoughts on the outlook? Is there -- is it fair to assume that incremental increases here may be less on that side? Thanks.
Hey, John. This is Bob. And I wouldn't call it a catch-up as much as I would call it, to your point, a pretty detailed and thorough analysis with each of our borrowers in our hotel group, and most of the hotels are in our concentrated vertical group, with a real good team of experienced bankers, we wanted to go through each hotel very methodically, very carefully, look at their demand drivers, where those properties were, et cetera. So, I think it was just more of an evidence of our thoroughness and the analysis versus trying to play catch-up there. I certainly wouldn't use that term. I feel like we did that in this quarter. We are kind of at a stable point, maybe to your last point. I would expect to see minimal migration, but I would qualify all that by saying we just don't know, as we go into the fourth quarter, relative to hospitality. So, it is still -- while it's recovered some, it is still operating in a fairly difficult revenue level. So, we'll see how that plays out.
We feel like we're graded appropriately today. We feel like our allowance is reflecting our future expectation of losses in that portfolio. So again, a lot of it's just going to depend on what the environment is as we go forward into the fourth quarter and into 2021.
And then -- and accordingly, given what you just said in terms of the allowance, if you don't see material incremental upside moves in criticized and classified, is it fair to assume that as those charge-offs materialize and rise, that they should go against the reserve, and accordingly, we don't see incremental reserve additions and probably see releases?
That's right. You're thinking about that right.
Okay. Okay, good. Thanks. And then, separately, on the loan side, I know you did flag in your prepared remarks some emerging demand that you've seen on the commercial side. I was just wondering if you can kind of walk through what areas that you're actually seeing a bit of a demand starting to materialize?
So John, this is Kevin. So during the quarter, we actually saw growth in our C&I book, as well as CRE and it's really broad-based across many of our areas. Our middle market banking area continues to grow. And a lot of that's just takeaway business. We talked about in the second quarter, where we were able to garner new relationships through the P3 program. And that program, by providing that initial loan has led to additional business which has been helpful for us. But we have made a major investment in that wholesale middle market space and it continues to pay dividends in the current environment. We also are seeing growth in our specialty lending division, which includes our premium finance group as well as our structured lending as well as asset-based lending. So, we're seeing growth there on the CRE side. Some of that is on drawals on construction versus new originations. In general, total production is down about 20% on linked quarter basis overall. But the runoff and the attrition is down at a higher level. So that's what's generating the growth to the portfolio.
But as Jamie mentioned earlier, part of this is a story of just economic demand. And we believe that will return at some point in the near future. And we feel like we're well situated to be able to take share and continue to grow with our customers as they grow.
[Operator Instructions] Our next question comes from Brad Milsaps with Piper Sandler. Please go ahead.
Just wanted to maybe ask about the Synovus Forward initiatives. Kevin, I appreciate all the color that you gave in your prepared remarks. Just curious how much do you think is maybe currently in the run rate? And as a follow up to that, specifically, maybe around fee income, there's a big bump in kind of that other category this quarter. I know kind of stars can align in any given quarter. But just curious any additional color there and maybe that's -- maybe we stepped up to a new run rate as part of the Synovus Forward initiative, but just any color there would be helpful.
Hey, Brad. One of the things we want to do in subsequent meetings is give a timeline on the realized benefit of Synovus Forward. But we're very pleased with where we are. As you saw in the prepared document that we're starting to execute on the third-party spend, which has a long-term run rate impact of $25 million. By the end of the third quarter, we believe that we've been able to capture roughly $5 million of that, not for the full quarter, but by the end of the quarter. So you'll see that roll into the fourth quarter and that will continue to increase from our branch real estate optimization perspective. As I mentioned, we have closed 8 branches year-to-date and on track to close 13. And so we've got about $2.3 million of savings from those branch closures already in the September run rate number. And it's important there that we're starting to look at other back office opportunities, not just the branch size to be able to generate additional savings. Those will come early in 2021. The bigger item as you can see on our chart is this organizational efficiency initiative. And it's going to represent over $30 million of run rate savings and of cost avoidance.
We -- Jamie said during his remarks, and I mentioned it in mine, we did roll out in the third quarter an early retirement program. That's going to result in a charge in the fourth quarter of roughly $14 million, but have a two-year impact. So we're going to get a $7 million plus savings from that transaction or that initiative. And that will start to show up at the end of the year. So many of these initiatives I would say at this point probably about $7 million of expense to-date, more of them will start to roll-in in the fourth quarter. And the goal is to have all of the savings fully accounted for by the third or fourth quarter of 2021. And you'll know that we put a plus at the end of the organizational efficiency, as I said in my remarks, we're prepared to flex and increase that as the environment warrants.
As it relates to revenue, at this point, we don't have any of the revenue initiatives in the run rate. So those will begin to fold-in in 2021. And I'll turn it over to Jamie for the other expense question -- or other income question.
Yes. As you think about other income, you're right to think. Some of that is more one-time in nature. And I’ll specifically point you to about $5 million, we had about half of that was gain-on-sale, the mortgage loans, which again is similar to the second quarter. The loan sales that we've been executing, the vast majority are at premiums to book price, which is a testament to the quality of these loans. And so that's one. And then we also had a gain on a solar transaction. So those are more one-time in nature and impacted to the good Q3 other NIR.
And just my follow-up Jamie would be, are you pretty much done with building the bond portfolio or do you anticipate continuing to add to it?
We would -- if you look at that in the near term, you should expect to see some increases there. It's hard to give good guidance on as a percentage of loans which is our percent of assets given the impact of P3. But as we think longer term, somewhere in the context of 16%, 15% of total assets, makes sense for the bond portfolio.
Our next question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Maybe just following up a little bit on the Synovus Forward and some of those longer term additional opportunities, I guess maybe in a different way, are you targeting an efficiency ratio outcome from this? Is that maybe an easier way to think of maybe the longer term benefits of future moves on either revenue opportunities or expense efficiencies?
Yes, Jared, this is Jamie. As we think about all of these initiatives and this just permeates into how we run our businesses, as we look at top-quartile performance. And obviously that's a very, very vague concept right now just because it's difficult for outsiders and analysts and to forecast longer term earnings. But as we look at our plan and how we look at one year out, two years out, we believe that we have a strategic plan that will get us to the top-quartile performance. And so our goals and objectives will evolve as the environment evolves. And so we manage it tactically. And so we will look at individual initiatives and how are we performing on that initiative versus what we’ve put on the page internally, and then what we’ve put on the page externally and show you. But just know that our objectives are really guided by looking at top-quartile performance.
And then circling back on the growth that you're seeing, the new growth opportunities on lending, it sounds like that's maybe more taking market share at this point versus broader economic growth. But what are you seeing in terms of pricing? Are you seeing spreads improve? Are you seeing competitors step back and able to pick up some on incrementally better spreads or is it really just taking market share and you're willing to be aggressive on pricing to do that at this point?
So Jared, there's -- it’s really two numbers there that we want to talk about. Jamie talked earlier about just coupons for yields. Obviously the rate environment is putting some headwinds on that. But when we look at the production that we're getting today relative to an FTP spread, we're actually seeing an expansion in our pricing overall. And it's been fairly sizeable in terms of the improvements that we've been able to see. And that's I think a function of our ability to pricing risk in uncertainty. It’s our ability from a relationship banking approach to not focus on being the low cost provider, but rather that we're adding value. And when we add value we can price appropriately for those loans. So we're very optimistic. And I should tell you that, when you're in this sort of environment, our bankers are doing a great job of evaluating the full relationship and making sure that we are looking at relationship profitability hurdles when we're onboarding new clients, because it's important that we're not only growing, but we're growing profitably. So we're pleased with the pricing we're getting. We think there's opportunity to mitigate what Jamie talked about earlier in terms of the repricing of the portfolio just through better spreads on new production.
Our next question comes from Jennifer Demba with Truist Securities. Please go ahead.
Kessel I have my question on the hotel portfolio. You have a slide in the deck on it. But just curious as to what you’re seeing in the book at the higher end price point of the properties in the portfolio versus the lower end price points. And I know you haven't broken down by type of hotel you have, but I'm just kind of curious for more color there?
Jennifer, I'll let Bob go into little more detail. I think, in general, the book is more dependent on geography. Those hotels that cater into the business traveler and the major urban market are certainly struggling a little more. Those that still have some of the vacation traffics on the drive to locations are doing better. In terms of price point, Bob, I don't know if you have that broken out in terms of performance, but I'll defer to you to see if you do.
Yes. Hey, Jennifer. It’s Bob. Just a little bit more on that. Obviously, our book is to Kessel’s point in good geographies. We feel comfortable about how it's spread out around our footprint. Most of our book is leisure and business related. So we've got multiple demand drivers. It's not isolated to one. That's a key point for us. We’ve really zeroed in on that. So when we look at it in markets, like for instance of Charleston, South Carolina, where you've got a high tourism-driven economy as well as business travel. So we try to measure those multiple demand drivers and put weightings on what we think the most impact is by market. But in terms of price point, I mean at the higher end, obviously, that's a lot of group business, a lot of convention business. And we don't have as much of that, that's a small percentage of our portfolio. We're primarily spread out among what I would consider sort of mid to upper scale, fitness and leisure travel combination of demand drivers.
So based on the company's economic recovery assumptions right now, would you expect the bulk of your net charge-offs to be incurred in 2021 or later?
Yes, Jennifer. It’s a little bit hard to tell. But I think you're correct in saying. Probably into the first or second quarter of 2021 is where we would expect to see the increase in charge-offs. However, I would qualify that by saying, a lot of it is going to be stimulus-related, and of course, vaccine-related as it relates to COVID.
Our next question comes from Brady Gailey with KBW. Please go ahead.
I wanted to ask one more on Synovus Forward. If I look at Slide 14 and I add up the benefit that you've already kind of ring fenced on the expense side, you're already a little over the top end of your range. And it feels like you guys can do better than the 100 million benefit. When you officially move that target up?
So, Brady, it's a good point, and you picked up on a line item that we wanted to draw everyone's attention to is that we believe that through the initiatives we have already put in the execution phase and those that are implied, that we're at the high end of the range. And I think as we move into 2021, as Jamie mentioned earlier, part of this is less about trying to figure out what the absolute number is, but rather what it's going to take to be a top-quartile performer. And that's why we put the plus sign there to say that, as we provide 2021 targets, we need to flex this expense number to be correlated from what we expect to see on the revenue side.
So, we're going to continue to have a structured approach to how we do this. This is intentional in how we rolled it out in terms of starting with third-party moving to real estate consolidation, now onto organizational efficiency. And as we shared with you back in the first quarter, the number of initiatives that we evaluated during the diagnostic phase were numerous, and we decided to move ahead with some, and we decided to delay others. And so as we move through this on a quarterly fashion, we'll continue to pick-up new initiatives. And we'll be able to share with you in terms of the overall savings. And quite frankly, how much of that is true run rate saving versus cost avoidance. Because I know your other question is going to be how much of that’s in the run rate versus avoidance of future spend, but we'll share more of that as we give out the 2021 financial targets in January.
And then with Biden, reading the presidential polls, he's talking about increasing the corporate tax rate to 28% from 21%. Any idea if, that were to play out, how much of an impact that would be for Synovus?
Yes, well, first, it would be a one-time impact to the good on DTA upfront, but then it is our estimate. And obviously there are a lot of uncertainties with regards to clarity around the details of the plan. But it's our impression that it would increase our effective tax rate by 6.5%.
Our next question comes from Kevin Fitzsimmons with D. A. Davidson. Please go ahead.
Most of my questions have been asked and answered, just one real quick one on PPP forgiveness. Just curious, based on the timing of how quickly or not quickly the SBA is getting to process the applications and then actually repay the loans. What your sense is? Does that remaining origination fees flow through the margin, whereas maybe a quarter ago we might have thought a lot of it would have count-in in the fourth quarter? Or maybe do we start shifting more of it into first quarter of '21 at this point?
Yes, Kevin, let me just give you a few data points there. So, the 12 million you saw in P3 fee recognition in the third quarter is indicative of what you should expect just without any forgiveness in the fourth quarter. So that's my good run rate, the 9 million you saw in the second quarter was basically because it was a partial quarter and a lot of those originations were midway through the quarter. We have -- so 53% of our P3 loans qualify for the streamline forgiveness, but because they're smaller, it's 7% of the balances. So it's not tremendously significant when you think about it in balance terms and there's about $10 million in fees associated with those loans. So for realization of those fees, we have to receive the proceeds from the SBA. So we're appreciative of the streamline but anything that makes the process easier on just a shade, more than half of our P3 loans, we're very thankful for that. But I would say it's highly uncertain when we will receive those proceeds. And if I was estimating today, I would say it's a first quarter event. There's always a possibility, it could be in the fourth quarter, but I would push it out to the first quarter of ‘21.
Our next question comes from Steven Alexopoulos with JPMorgan. Please go ahead.
Hi, good morning. This is Anthony Elion on for Steve. I wanted to go back to the criticized loan increase from the prior quarter. You called out that there was 600 million sequential increase tied to hotel loans. Do you have a breakout of how much of the 600 million was tied to hotels that are exclusive on business travel and convention center versus vacation and leisure hotels?
Yes. Anthony, hey, this is Bob. No, it’s a mix. We don't have a specific category. I would classify that the hotel portfolio in general saw the downgrade. It was not targeted to one class of hotel. So again, most of our hotel is business and leisure travel. So, you're going to get an equal sort of distribution across that. And the same is true with markets as well. I would continue to emphasize though that these starts were in pretty good shape, we had strong equity levels. We got [debt] services coverages coming in. So, that helps.
And, a follow-up on that. Do you know how occupancy rates have trended over the past quarter, specifically for the 600 million of loans that moved into criticized versus occupancy rates for the overall 1.6 billion hotel exposure you have?
Yes, Anthony, what we're seeing really is a little bit of a separation between secondary markets and tertiary markets and then our primary gateway markets, such as Atlanta and Miami, we’re really seeing -- improvement is not the right word, but stronger ADRs and occupancies in the smaller sort of secondary tertiary markets versus the larger markets. So I call that out to you and we have a number of those in our portfolio. Specifically to the 600 million that kind of migrated overall, all of our portfolio has experienced -- all of the hotel portfolio have experienced some stress, but nonetheless, you did have 600 million or so that moved to rated status. That's sort of an equal distribution. It's not, again, concentrated in one market or the other, or specifically as it relates to ADR and occupancy. Again, it's all relatively the same, just as significant hit to top-line revenue.
And I think it's another data point and the others -- point you back to Slide 13, where we showed within our portfolio, the cash inflows that we're seeing on the accommodation portfolio, where you've seen last quarter, it hit a low watermark, a 50% reduction in inflows. We saw this quarter that it came back into the 21% to 28% range depending on the month. So we are seeing improvement across the board. But as Bob mentioned, there is still a year-over-year decline in terms of occupancy and obviously cash inflows.
And let me just add one other point there, Anthony, as Jennifer asked about hotels as well. So there's certainly a very strong focus here in the past week, everybody on this call, plus maybe a dozen others from our credit and evaluation teams participated in a deep dive call on this entire hotel book. And I think what came out of it for me and we looked at what was in construction, what was seasoned, what came out of it for me was really the diversity of that book and Bob talked about it. But it's diversity of geography, it’s diversity of flag, strong sponsorship, diversity of again very seasoned operators that have been through downturns before certainly not like this. So it in many ways -- although they're certainly concerned about that book, it gave me confidence that our underwriting is good. Flags are good. Sponsors are good. And even from a dollar concentration not to bring up, eventually pass, but again, the company now just doesn't have big single asset real estate concentration. So I think there are a number of factors there that, although we certainly have concern about that book, give us confidence that the book will weather the storm, which there's still enough unknown out there that I think Bob and his team are doing a really good job of evaluating on a property-by-property basis.
And my last question is, what was the driver of the other 300 million sequential increase in criticized and classified loans? Was this mostly full-service restaurants? Or was it pretty fragmented? Thank you.
Yes, Anthony, it was pretty fragmented. There were a couple of larger commercial credits that migrated but all-in-all I would say it was pretty fragmented.
Our next question comes from Brody Preston with Stephens. Please go ahead.
So I guess maybe just to not beat a dead horse, but you did mention you did a full deep dive in the hotel book. And so you had the rating downgrades in the hotel portfolio, but the NPL and past due ratios are still zero. And so I guess when we think about migration from criticized and classified into NPL, I know some of that is going to hinge on borrower specific events. But just given the deep dive you all performed, could you give us a sense for, I guess maybe when you would expect some of that migration to occur and potentially what the size could look like?
Yes, Brody. This is Bob. I’ll have a couple of comments and Jamie can talk about the reserve a little bit more, he can provide. But again, that portfolio doesn't necessarily sit in rated status on its way to the NPL and charge-off. So I just want to make that point. We're going to grade the portfolio based on how those assets are performing at this point in time. And they all had a significant revenue decrease. So when we went in as Kessel mentioned, deep dive into the portfolio, a lot of analytics around recovery rates, expected recovery rates, the velocity of that recovery, et cetera, and make those assessments on a portfolio loan-by-loan basis. So you're going to have them in the rated book, but we do expect the number of those will slide -- will move back to past status. Now, again, as I cautioned earlier, a lot of that depends on where we go over the next quarter or so. So I wouldn't want to put it on a pathway to charge-off or on a pathway to non-accrual. But I would want to tell you that it's in a rated status, primarily because of the decrease we've seen in revenue that most of the hospitality industry is experiencing.
As a side note real quick, our seasonal hotels this summer saw a fairly significant increase. To Kevin Blair's point earlier, we've gotten some of that revenue back. So we're calling our way back out of this revenue hole. But again, it begins to be property-by-property. And we expect some of them will move back to past. And some of them -- I'm not naive enough to think, we will have some problems in that portfolio. But I think over the next quarter or two, we'll begin to be able to ring fence even further where those challenges are.
And Bob, just to add, to call your attention back to Slide 12, we had originally estimated of that book, probably $400 million to $550 million of that book would go into a second round deferral. In fact, only $125 million of that book has gone into a second round of C&I deferrals. And to Bob’s point, the risk rating doesn't have to do with necessarily performance with us, they’re paying as agreed. It has more to do with the outlook on the industry. And certainly the cash flows are depressed. So like Bob said, they're not all on a path to NPL. I hope a majority are actually not on the path to NPL but actually on the path back to higher ratings over time, again, certainly dependent on the pandemic. But I think there was actually -- I know you're focused on the migration, and rightfully so, but from our standpoint, there was almost a positive surprise as it relates to the performance of that hotel book in the third quarter.
Okay. So it sounds like maybe then -- looking at that cash flow slide maybe that could give us some indication as to how you all are thinking about criticize and classifieds moving forward because it sounds like that was a key determinant in some of the downgrades currently. Correct?
Yes, that's correct, Brody. That's just one data point. I mean obviously, we're working with our customers on their own set of performance. And matching it up, quite frankly, with what we're seeing in our credit analytics on cash flows.
And then Jamie, just on the CD book. I am sorry if I missed it earlier. But could you give us a sense for CDs that are repricing I guess in the fourth quarter of this year, and then how many you would expect -- how much you have repricing next year as well?
Yes, in the fourth quarter, we have and we’ve put in the [debt] 1.3 billion of core deposits, core CDs in the fourth quarter. On top of that, there's another 400 million in brokered CDs in the fourth quarter. And just to give context on rates, those are all above -- a little more than 100 basis points above our CD kind of going on yield. Now, as you've seen in the third quarter, in the second quarter, it's not certain that we will replace those with CDs in this environment. That's what you'll see in the near term. And then the maturities of higher cost CDs decline as we get into 2021. And so the opportunity is not as big. But when you look at total CD costs, at -- today our time deposits expenses at 141, we believe we can get back to those prior cycle lows of 63 basis points. We believe we can get there by the middle of next year and so on total deposit costs.
So that's kind of how we think about the timing. When we think about our objective of getting back to the lows on total deposit costs, we think it comes in three different areas. And the first one you're asking about in CDs. The second is just an overall mix. And we've made a lot of progress there. We've gotten a mix back to where it was pre FCB. And that was an early objective for us. But we believe there are further opportunities to reduce cost by mix changes. And lastly, this opportunity is not as big but it's important to us as part of the reduction in the, call it, for money market deposits.
Our next question comes from Steven Duong from RBC Capital Markets. Please go ahead.
And just on your CRE book, just noticed there's an uptick on your office NPLs and charge-offs. Was that just one property or just any color on that?
Yes, Steve just -- that was just a small amount, I mean it was not a specific property on the NPLs. Well, let me back up on the office portfolio, there is a fairly large credit that we moved to non-accrual, one specific credit, and that we would call bulk of it. We had some smaller ones as well. That portfolio, though there's a hole, I think continues to perform for us. I know there's a lot of eyes on office and certainly there's some long-term trends there that we're watching, but the other thing about our office portfolio that we do like is that it's got a lot of medical related MOB type of property in it. And we feel pretty good about that space. So, that's a $400 million to $500 million piece of that book. So, you kind of got to scale down a little bit. But the NPL was worth one larger credit and then just smaller migration in general.
And then just last question on just the Synovus Forward, the 35 million to 55 million revenue initiative, what's the breakout between non-interest income versus say net interest income? And when do you think we should start seeing some that trickle in, would that be the first quarter next year?
Yes, we will start seeing some in the first quarter Steven. It's hard to say right now between non-interest income and net interest income because you think about the two initiatives we've shared today, pricing for value that really comes from two products. It comes from our treasury and payment solutions area, which will come in through our analysis charges, and that will be fee income. But the other part of that is, as Jamie just talked about, the reduction in deposit pricing. And that will come in through NII.
In terms of the commercial analytics work stream that we just kicked-off, that has three main work streams. The first one is in cross-sell and cross-sell comes from the treasury products, it comes from depository relationships, lending relationships. So again, it's going to be mixed across both of the categories. It also will reduce the overall attrition of our portfolio, which again, will come out of both categories. And the third, it's the risk management framework that's going to allow us to be more efficient around renewals and things like that. So, that's going to show up more on the expense side. So, it's really going to be mixed. And as we start to roll out these revenue initiatives, we'll start to fine tune the actual benefits and we’ll provide it to you by both NII and non-interest income.
If I could just squeeze one more in, just curious, your unrealized securities gains, where does it stand today?
Yes, Steven, we're right at about $200 million in unrealized security gains. And at the moment we're pleased with the portfolio. We're not looking to do any future repositioning.
Our next question comes from Michael Rose with Raymond James. Please go ahead.
Just wanted to look at Slide 13, where you have the cash flows by month. This is really helpful. Just as you think about the deep dive that you've done and the migration analysis since it’s been talked about on this call, what are the assumptions as we move into the back half of the year, and into the winter months for those categories? I would think that those cash flows would actually start to move down. I just want to make sure that that's captured kind of in your provision and migration as such? Thanks.
Michael, it's a great point. And it would be easy to answer it at the top of the house, but we -- what we've actually done is gone industry-by-industry and provided future forecast based on what the assumed impact would be from a static environment. But also, as Bob mentioned earlier, if we were to see the virus spread continue, it could have a bigger impact on certain industries. And so the important part for us is to leverage it at this granular level to be able to have forecast by industry level. There are some, as we mentioned in the earlier comments from a K-shaped recovery, there are certain industries that are performing well, and we think we'll continue to perform well. There are others that have rebounded and gotten back to par, but there is a potential that there could be a retracing of inflows reducing in the fall and winter months. So we've evaluated that. So a very long winded answer to say, we're doing it at such a granular level. It happens at a four digit NAICS code to understand what the recovery looks like. And then we do sensitivities around that to understand what the impact would be to the underlying customers’ cash flow.
And hey, Michael, this is Bob. If I could just follow up real quick, it also gives us a good data point to go out and meet with our customer with the banker and say, this is what we're seeing in the industry. How do your numbers match up with that? And I'll sort of have a good discussion with them about their expense cuts or how they make them fit into a more compressed revenue stream. It’s good data point for our bankers.
And maybe just one follow-up. You guys last year had announced a fair amount of hires in the wealth management area. I think a fair amount of those were in Florida. How does that relate into the efforts to drive fee income growth and could we expect some more net adds as we move forward in order to bolster up the income?
Michael, as you know, last year when we closed on the FCB deal in January, we felt there was a opportunity to grow the private wealth management, fiduciary and brokerage business, as well as our treasury business in South Florida. And we took the opportunity to make those investments. And we feel today that we have the requisite scale to be able to compete. We're winning in those areas. We're generating good growth. And in this sort of environment where we see some uncertainty, as it relates to top-line revenue, we've taken a pause in terms of broad-based new talent attraction in some of those areas, if the return on the initial investment is greater than a year. And so what we've done in the short-term is we've limited our talent attraction to positions, where we feel like there's less than a one year earn back. Now that we have many positions, we can continue to invest in there, whether it's our middle market bankers, commercial bankers, treasury. But we may take a pause into next year before we start adding back those longer payback positions. But that shouldn't come at a cost for the top-line numbers because we're still seeing good growth there. And we feel like we have the requisite scale to be meaningful in those markets.
Our next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead.
Kessel, you mentioned the pass on concentrations and I think that's a great point. I was also curious if we just kind of think big picture, the criticized assets we see today with all the disclosure, they still pale in comparison with what happened 12 years ago, which I think is important just because I think you've made so much progress since the last credit cycle, and you're in a much better position today. I mean, it doesn't seem like you're even close to getting back to where it had been in the past.
Chris, thanks for the reminder, but no I couldn't agree with you more. I’ve lived it, you’ve lived it. And we had big chunky assets. We had big chunky concentrations. Even look at the CRE concentration now, that 27% number and like 2% is C&D and Land and in last cycle that was CRE number I guess peaked at 46 and that one particular asset class was 30%. So now you're seeing, again, more diverse again across geography asset class. Again, no big concentrations, I think average real estate loans, 12 million-ish or something like that. So -- and quite frankly, totally different…..
Our next question is a follow-up from Ebrahim Poonawala of Bank of America. Please go ahead.
Thanks for taking the question again. Just really quickly, Jamie, you've guided for expenses -- core expenses stay relatively flat next quarter. Talk to us, means, if we see some seasonal decline in mortgage banking income in the fourth quarter, should we expect some expense offset tied to that? Or do you expect to use that and deploy that elsewhere in the business?
Ebrahim, great question. As we look at the fourth quarter, we do expect the expenses kind of have to be -- to move when you back out any expenses with Synovus Forward to be flat, to be in line with the third quarter. And the reason, we are expecting commissions and salaries and benefits to decline, but we're also spending on some initiatives that we've been working on this year in areas specifically in digital. And so we are rolling out products, we're rolling out advancements that we've been working on. We haven't kind of forgotten our core business and our core evolution in digital. And some of those expenses are coming through in the fourth quarter and a little bit of an offset to that decline you would see in personnel expense.
But what I want your takeaway to be on expenses is, in July, we gave guidance that the second half of 2020 would have lower expenses than the first half. And we were committed to that. We believe in that. What I'm telling you right now is just a continuation of that is what we thought, but we are also committed to continuing that. When we say top-quartile performance, when you have this NII outlook in this environment of lower rates-for-longer, we're fully aware of the needs that need to come out of the NIE line. And as Kevin described with Synovus Forward, that's critical for us.
And so when we look at the first quarter of 2021, we’d give you the same guidance that we gave you for the second half of 2020. And we expect the first half of ‘21 to be lower than the second half of 2020. So I just want your takeaway to be that we are very focused on the expense line, we're disciplined. And you should continue to see a decline in our expenses as we move forward.
Thank you because my follow-up to Kevin was going to be what it means for next year, given the focus on what banks can earn from an ROE perspective. So that was extremely helpful. Thanks, Jamie.
Thanks, Ebrahim.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kessel Stelling for any closing remarks.
Okay, well, thank you. And I want to apologize to Chris Marinac. He's still on the call. I think we lost our audio at the very end. So Chris, if I seem to abruptly cut you off, it was not intentional. So apologies for that. And if there's any follow up, just let us know, we'll be happy to do that. So thank you all. Again, it's been a long call. Quite frankly, it's been a long year. But we appreciate your continued interest in our company and for your time and your patience today.
We're in the homestretch of what's been the longest year I've experienced and this is my 43rd earnings call. So I've experienced some long years. But this has been a challenging one, but I think it’s made us a better partner to our customers and our community, I think it has made us a better employer to our team members. I think it's really demonstrated the strength and resiliency of our company, and our ability to perform in good times and in challenging times. So, again, we thank you for your time today. We begin this quarter with considerable momentum. I'll close again with a thanks to our team. They are energized and exciting about closing this year in a stronger way as we can and look forward to speaking with all of you again in January. So thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.