Q3 2023 Synovus Financial Corp Earnings Call

Participants

Andrew Jamie Gregory; Executive VP & CFO; Synovus Financial Corp.

Jennifer Haskew Demba; Director of IR; Synovus Financial Corp.

Kevin S. Blair; CEO, President & Chairman; Synovus Financial Corp.

Robert Warren Derrick; Executive VP & Chief Credit Officer; Synovus Financial Corp.

Brady Matthew Gailey; MD; Keefe, Bruyette, & Woods, Inc., Research Division

Brandon Thomas King; Associate; Truist Securities, Inc., Research Division

Broderick Dyer Preston; Analyst; UBS Investment Bank, Research Division

Christopher William Marinac; Director of Research and Banks & Thrifts Analyst; Janney Montgomery Scott LLC, Research Division

Ebrahim Huseini Poonawala; MD of United States Equity Research & Head of North American Banks Research; BofA Securities, Research Division

Kevin Patrick Fitzsimmons; MD & Senior Research Analyst; D.A. Davidson & Co., Research Division

Michael Edward Rose; MD of Equity Research; Raymond James & Associates, Inc., Research Division

Stephen Kendall Scouten; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Steven A. Alexopoulos; MD and Head of Mid-Cap & Small-Cap Banks; JPMorgan Chase & Co, Research Division

Timur Felixovich Braziler; Associate Analyst; Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good morning, and welcome to Synovus' Third Quarter 2023 Earnings Call.
(Operator Instructions) Please note this event is being recorded.
And I will now turn the call over to Jennifer Demba, Head of Investor Relations. Please go ahead.

Jennifer Haskew Demba

Thank you, and good morning. During today's call, we will reference the slides and press release that are available within the Investor Relations section of our website, synovus.com. Chairman, CEO and President, Kevin Blair will begin the call. He will be followed by Jamie Gregory, Chief Financial Officer, and they will be available to answer your questions at the end of the call.
Our comments 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 because 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 Kevin Blair will provide an overview of the quarter.

Kevin S. Blair

Thank you, Jennifer. Good morning, everyone, and thank you for joining us for our third quarter 2023 earnings call. Over the past 3 months, Synovus has taken several actions to better position the bank for a more challenging higher for longer interest rate environment, while continuing to build and expand our diversified business model in order to deliver long-term sustainable growth.
As previously announced, we completed 2 loan sale transactions during the third quarter, which strengthened the balance sheet and freed up capital for the bank to make more profitable relationship-oriented loans. The proceeds from the third-party indirect auto and medical office building loan sales allowed us to reduce our level of wholesale funding while accelerating the path to our greater than 10% CET1 target.
Also, on September 30, we further simplified our business mix by selling our asset management firm GLOBALT to its management team. The divestiture will be immaterial to earnings and allow the bank to reallocate capital to higher returning fee income lines of business while continuing to meet our wealth client's needs. We believe GLOBALT has a bright future as an independent investment adviser enabled to explore a wide range of additional partners and potential client relationships.
To that end, we are in discussions to continue and expand our long-standing held-for-sale partnership with GreenSky. Given our ongoing discussions, any potential revenue benefits are not currently included in our 2023 guidance. There will be more details forthcoming over the next 2 to 3 months. We are navigating the short-term headwinds presented by higher interest rates by making the tough decisions around business mix, balance sheet optimization and operating expenses, all of which will generate better financial performance in the quarters and years to come.
Now let's move to Slide 3 for the quarterly financial highlights. Synovus reported third quarter diluted EPS of $0.60 and adjusted EPS of $0.84. There were year-over-year and linked quarter revenue and PPNR headwinds as a result of continued higher deposit costs, leading to further but more moderate net interest margin contraction.
As expected, loan growth outside the medical office building sale was less than 1% in the third quarter. This core loan growth was primarily attributable to multifamily construction draws while middle market commercial, corporate and investment banking and specialty lines activity contributed to C&I loan growth. There continues to be an increased emphasis on stronger returns and more deposit relationship-based lending, which has translated into higher yields on new production.
Core deposits increased 1% or $432 million from the second quarter. Importantly, the shift from consumer money market accounts to higher rate time deposits slowed during the third quarter. Noninterest-bearing deposits declined less than in the first and second quarter but clients continue to use their excess, operating and personal funds. Net interest margin contraction was not as significant as expected due to modestly better asset yields and funding costs. Also, our deposit generation strategies are demonstrating continued success as production remains strong with third quarter levels approximately 70% higher compared to the same period in 2022.
Given the pressures on the margin, our operating expense discipline was quite evident as adjusted noninterest expense increased 2% from the second quarter and rose just 4% from the prior year. Cost containment remains a very high priority. In fact, we expect adjusted noninterest expense should be relatively flat year-over-year in 2024 as we implement more cost reduction initiatives in a variety of areas.
As expected, credit costs increased as we continue to move off historically low levels. However, excluding the third quarter loan sales, net charge-offs remained manageable at 40 basis points, which includes a 21-basis point impact from a commercial and industrial credit discussed in our recent 8-K filing. Along with other banks in the syndicate, we are in the process of evaluating and assessing all avenues of recovery to include legal recourse related to that specific transaction.
Finally, we continue to focus on maintaining a strong capital position as we navigate through a more volatile economic environment. And with our CET1 position ending the quarter at 10.13%, we are now slightly above our targeted capital levels. Over the near term, we expect to continue to preserve capital in excess of our target levels given the continued amount of economic uncertainty.
Now I'll turn it over to Jamie to cover the third quarter results in greater detail. Jamie?

Andrew Jamie Gregory

Thank you, Kevin. As you can see on Slide 4, total loan balances ended the third quarter at $44 billion, reflecting a sequential decline of $674 million or 2%. This includes the impact of the sale of the $1.2 billion medical office loan portfolio. Similar to recent quarters, CRE growth was a function of draws related to existing multifamily commitments and low levels of payoffs.
On the C&I side, Middle Market commercial lending and Corporate and Investment Banking contributed to growth. Our new loan fundings remain focused on customers with more broad-based deposit and fee income relationships. At the same time, we are rationalizing growth in credit-only lending areas that have a lower return profile or don't meet our strategic relationship objectives. Our balance sheet optimization efforts should continue over the near term, and loan and core deposit growth should be relatively balanced. No further meaningful loan portfolio sales are being contemplated over the foreseeable future.
Turning to Slide 5, core deposit balances grew $432 million or 1% sequentially during the third quarter, driven by a 23% increase in time deposits, which was partially offset by a 4% decline in noninterest-bearing deposits. Importantly, we leveraged our improved liquidity position to reduce wholesale funding by $1.6 billion, which improved our wholesale funding ratio by 240 basis points, while public funds declined $146 million or 2%.
The noninterest-bearing deposit decline is a byproduct of deployment of excess funds and continued pressures from the higher rate environment. This is a slower decline than we experienced during the first and second quarter. There was also a moderation in the decline in money market accounts during the quarter as the shift from money market accounts to CDs slowed.
We expect to experience some core deposit growth during the remainder of the year. Supporting this growth are seasonal tailwinds along with our targeted deposit gathering efforts. As we look to deposit rates, our average cost of deposits increased 36 basis points in the third quarter to 2.31%, which was a slower rate of increase than in the second quarter and equates to a cycle-to-date total deposit beta of 42% through the third quarter.
From the month of June to the month of September, total deposit costs were up 29 basis points. Our deposit costs and betas were impacted by the pricing lags on core interest-bearing deposits as well as the decline in noninterest-bearing deposits. Our expectations for through-the-cycle total deposit betas are now slightly reduced to 46% to 47% at year-end.
Now moving to Slide 6 and 7. Net interest income was $443 million in the third quarter, down 7% versus a year ago and a decline of 3% from the second quarter, which is slightly better than our previously disclosed expectations. NIM compression moderated during the third quarter down 9 basis points from the prior quarter versus 23 basis point sequential decline in the second quarter. The asset side of our balance sheet continued to benefit from higher rates though higher deposit pricing and further remixing within our NIB deposit portfolio offset those gains.
As we look forward, we expect the fourth quarter NIM to decline in a similar amount as the third quarter, followed by a relatively stable margin in the first quarter. That is expected to be followed by expansion as fixed rate asset repricing is more than enough to overcome the gradually reducing headwinds of deposit repricing and negative deposit mix shift.
The graph on Slide 7 outlines the estimated marginal benefit to our NIM relative to our 3.11% NIM in the third quarter of 2023, attributable to fixed rate repricing for the asset and liability categories listed there. This assumes rates remain constant with the September 30 levels at a 5.5% Fed funds and around 4.5% on the 10-year.
Slide 8 shows total reported noninterest revenue of $107 million. Adjusted noninterest revenue was $106 million, down $4 million from the previous quarter and up $1 million year-over-year. The variance in quarter-on-quarter fee income was due to a combination of factors. There was a change to the NSFOD program in July, which impacted noninterest income by approximately $1.5 million and is now almost fully reflected in fee income as of quarter end.
Core fee income has also been impacted by a soft mortgage lending market and more muted capital markets activity. However, the relative stability of fee income over time highlights the diversity of our revenue streams, many of which are insulated from the impacts of the volatile rate environment. We continue to invest in core noninterest revenue streams that deepen client relationships such as treasury and payment solutions, capital markets and wealth management, which have demonstrated healthy growth over the past few years.
We also continue to simplify and optimize our business mix during the third quarter. The sale of asset management firm GLOBALT to its management team on September 30 led to a $1.9 million nonrecurring gain during the third quarter and should result in approximately $10 million per year reduction in fee income and $8 million reduction in noninterest expense.
Moving to expenses. Slide 9 highlights our operating cost discipline. Reported noninterest expense was $354 million. Adjusted noninterest expense of $306 million was up $5 million or 2% from the prior quarter and $12 million from the previous year, representing a 4% increase. Personnel expenses were flat sequentially, benefited by our headcount reductions during the second and third quarters.
Reported noninterest expenses were impacted by an $18 million voluntary early retirement charge and the $31 million loss from loan sales during the quarter. A $47 million special FDIC assessment should be incurred in the fourth quarter. Importantly, we will remain quite proactive with disciplined expense management in this revenue challenged environment.
We implemented reductions in a voluntary early retirement program in the second and third quarters, which supported a nearly 4% company-wide reduction in headcount. In addition, as Kevin mentioned, we have several expense rationalization initiatives in various areas underway, which should keep our adjusted noninterest expenses relatively flat year-over-year in 2024. There will be more underlying details of these initiatives discussed at forthcoming industry conferences during the fourth quarter.
Moving to Slides 11 and 12 on credit quality. As expected, credit losses have risen over the past 2 quarters, primarily from idiosyncratic charge-offs. The 3-basis point increase and $6 million growth in our allowance for credit losses primarily reflects loan migration trends and an uncertain economic environment. Excluding the medical office building loan sale, net charge-offs were 40 basis points compared to our 30 to 40 basis point guidance for the second half of this year.
Approximately 50% of third quarter charge-offs, excluding the medical office building loan sale, were attributable to a previously disclosed shared national C&I credit totaling $23 million. Nonperforming loans increased modestly to 0.64% as credit metrics migrate from historically low levels. Total criticized and classified credits rose slightly but are still a manageable 3.4% of total loans.
We expect net charge-offs to average loans to be 30 to 40 basis points in the fourth quarter. We continue to have a high degree of confidence in the strength and quality of our loan portfolio. We will continue to apply our conservative underwriting practices and advanced marketing analytics to new loan originations and portfolio monitoring and management.
As seen on Slide 13, our capital position continued to increase in the third quarter, with the common equity Tier 1 ratio reaching 10.13% and with total risk-based capital now at 13.12%. Retained earnings and strategic transactions supported 27 basis points of capital accretion in the third quarter. In addition, the proceeds from the third quarter, third-party indirect auto and medical office building loan sales allowed us to reduce our level of wholesale funding and total commercial real estate exposure.
Even though Synovus has achieved its greater than 10% CET1 target, we will continue to preserve our capital over the near term, given there's still a fair amount of macroeconomic uncertainty. Moreover, there should be more limited capital accretion in the fourth quarter and as a result of the expected $47 million FDIC special assessment. Of course, we will regularly reassess the economic environment and consider if any opportunistic capital management may be appropriate in the future.
I'll now turn it back to Kevin to discuss our guidance.

Kevin S. Blair

Thank you, Jamie. I'll now continue with our updated fundamental guidance for the remainder of 2023. Loan growth is still expected to be 0% to 2% for the 2023 year. We expect fourth quarter loan production to be at similar levels to third quarter, which remains muted versus 2022. Growth in the current quarter should be fueled by continued success in middle market and corporate and investment banking as well as draws on construction lines.
We maintain our expectations for core deposit growth of 1% to 3% as the company strives to balance loan and core deposit growth and will be aided by the previously mentioned seasonal tailwinds and new funding growth initiatives. The revenue growth outlook for 2023 is 1% to 2%, which assumes a Fed funds rate of 5.5% that holds through the end of the year. Deposit betas are now expected to reach 46% to 47% by year-end versus 42% in the third quarter. We have lowered our adjusted expense growth expectations to approximately 4% to 5% in 2023 versus previous expectations of 4% to 6%.
Please note that the noninterest expense guidance does not reflect the impact of the upcoming $47 million FDIC special assessment expected to be incurred in the fourth quarter. While the environment has resulted in strategic shifts and priorities, we remain confident in our growth strategies, and we continue to remain diligent in expense management. Over the course of the year, we have reduced our guidance range as we have implemented various expense initiatives.
Moving to capital. We are now at our target CET1 level. At this time, we think it is prudent to maintain that target and continue to build capital over the near term, given there is still a fair amount of uncertainty in the macroeconomic environment. We still anticipate the tax rate should approximate 22% in 2023, supported by recent federal tax investments.
At Synovus, we are focused on execution and closing out 2023 in a strong fashion. We remain optimistic that through the actions we have taken, we are better positioned to overcome the short-term headwinds and to strengthen the bank's foundation for a return to growth as we proceed through 2024.
And now operator, let's open the call for Q&A.

Question and Answer Session

Operator

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

Ebrahim Huseini Poonawala

Maybe a question to Kevin, on credit quality. So I appreciate that there's a hit from one credit in the third quarter. But just looking at criticized loans and the 3.4%, I'm not sure if that's impacted by that or not. But just talk to us around your sense of where credit is headed. You spent a decade talking about just the cleanup that has happened under Kessel and then under you on the credit quality side post GFC. So give us a sense of one way you think credit is headed from a macro perspective over the next 12 months? And then within your loan book, where are you seeing stress? Like what should we expect from the outside in terms of potential lumpiness on credit costs over the coming quarters?

Kevin S. Blair

So Ebrahim, there's a lot of questions in that one question. But let me take it from the start, and I'll let Bob add in some comments around credit. But -- we've been talking for some time about normalization and moderation of credit cost. And that comes off, as you know, some of the lowest levels of credit cost and metrics that we've seen in many, many years. And what you're seeing this quarter was we've talked a lot about and publicly disclosed as one large credit that charged off, which was a syndicated credit, and even with that credit, we're still within the guidance that we provided during the second quarter where we noted 30 to 40 basis points in the second half of the year.
So, although credit is moderating, we believe that it's still very manageable. It's within the ranges that we had anticipated. And I'll be honest with you that large transaction, the loss content in that was not fully considered when we gave that guidance. So that tells you that, in general, our credit cost came in a little less than what we would have anticipated.
So it's manageable. We still believe that the second half of the year will be 30 to 40 basis points, excluding the loan sales. Yes, there's been some increases in NPLs and criticized and classified but I think that comes with the territory. As you see in this environment, many of our clients are having their margins compressed by the recessionary inflationary efforts that -- or numbers that are happening, and that results in things being downgraded. But it's -- again, it's all within a manageable range.
And when you look at it for the full year, we still think we're going to come in between that 25 and 30 basis points. So for all the discussions that we're talking about net charge-offs, there's really just a modest increase over what we've seen in previous years.
And Bob, what would you add to that?

Robert Warren Derrick

Yes, Ebrahim, it's Bob. I wouldn't add much other than to say we just -- it's just general normalization particularly in our corporate businesses that recall that we have about 60% of our balance sheet is made up of wholesale corporate businesses. For years, those numbers were extremely low. So as they move back into sort of normal territory as it relates to credit costs. You kind of pushes your number in that 30 to 40-point range, as Kevin said. I think that's a reasonable expectation for us. And overall stress is in some of these portfolios but nothing that we don't feel like is [manageable].

Ebrahim Huseini Poonawala

Noted. And I guess maybe one for you, Jamie. Around -- give us a sense of deposit pricing as we move into next year, just competitively what are you seeing in the market? Are things getting easier? Or are they as competitive as they were earlier in the summer? And maybe if you can talk to just the asset side of the balance sheet around potential offsets with some of the fixed rate assets repricing.

Andrew Jamie Gregory

Ebrahim, I think you're the champion of multiple questions in one. Let me make sure -- hopefully, I'll answer them all on this, but I'll start with deposit production and what are we seeing there. If you look at the rate of deposits, the ongoing -- the going on production quarter-on-quarter, we were up 12 basis points, quarter-on-quarter right around 370 was the cost of deposit production in the third quarter. And what's included in that is a little more than 20 basis points increase in the cost of CD production. So that's around 4.7%.
But the rate pressure on CDs has been a little bit reduced recently in the month of September. So we feel good about that. And then on other interest-bearing deposits, we saw MMA production come down about 11 basis points quarter-on-quarter. We saw now production down almost approximately 75 basis points quarter-on-quarter. So we feel good about the trends of deposit production within our interest-bearing products. Mix will be -- impact that going forward.
So all in, I would say the deposit production cost increases in the fourth quarter will probably be similar to what we saw in the third quarter. But for overall deposit cost, we gave our guidance of 46% to 47% through the cycle beta. So we expect continued increases in the fourth quarter, and that actually has a little bit less to do with production than it has to do with repricing in the existing book.
And I would point to the table we put on Page 7 of the earnings deck with the fixed rate repricing. What you see below the line there is the impact of CD repricing. And the fourth quarter has a decent-sized impact of CD maturities. So we have a little more than [$2 billion] in CDs that mature in the fourth quarter. The rate on those today is about [375]. And so we will have a headwind to deposit costs in the fourth quarter as those reprice to kind of the normal going on production rate.
We do expect further declines in noninterest-bearing deposits in the fourth quarter. And so we think that the net result of all that is you get to that 46% to 47% through-the-cycle beta for the month of December, and deposit costs in the year in the mid- to upper 250s. And you asked about the asset side of the balance sheet. Will you remind me, was that the rate on the asset side?

Ebrahim Huseini Poonawala

Yes. I was just wondering in terms of the churn, the repricing that we're going to see and the magnitude of that next year, whether that would be enough (inaudible) growth?

Andrew Jamie Gregory

Yes. So as we look at -- looking forward next year, so we'll have a few things happen. First, going back to the liability side, we think the deposit cost -- total deposit costs will peak in -- or flat line starting in early 2024. But then you start to see the benefit of the fixed rate asset repricing. And you can see that on that same chart with the fixed rate assets and you see how that impact just grows as you go through the year.
So we expect the margin to decline in the fourth quarter, be relatively stable in the first quarter. And then because the impact of CD repricing is a couple of million dollars incrementally each quarter when you go through 2024. That will be easily overwhelmed by the benefits of the commercial -- fixed rate commercial loan repricing, securities portfolio, hedge runoff and residential mortgage repricing. And you can see that in the chart that is pretty powerful as you go through 2024 as a nice tailwind to both NII and the margin.

Operator

We now have Steven Alexopoulos.

Steven A. Alexopoulos

So I want to start on the ability to generate positive operating leverage in 2024. On the expense side, Kevin, you said you plan to hold adjusted expenses pretty flat in 2024. So I'm hoping first you could give a little color on that. And then I also want to talk about the revenue opportunity and at this juncture, do you see 2024 as an opportunity to show very modest operating leverage? Do you think it could be more substantial? Maybe we'll start there.

Andrew Jamie Gregory

Steve, let me kick this off. As we look longer term -- well, first, I'll speak to our communication strategy for the fourth quarter. So the next 6 weeks, we'll be out with a couple of different presentations. We have today's, where we're speaking to the third quarter and the fourth quarter, and then we'll be presenting in [Feb] where we'll give more of a strategic update and including some of the details of our expense initiatives. And then we have the Goldman Sachs conference in early December, where we will give more details of our financial outlook longer term.
But when you look at where we are right now on expenses. So in the very near term, we expect expenses to be down in the fourth quarter versus the third quarter. We had a range $302 million to $306 million on adjusted expenses. And then as we said, we expect -- adjusted expenses will be relatively stable in 2024. Of course, we're excluding the FDIC onetime assessment that we expect to come in the fourth quarter.
We have a lot of different initiatives behind that flat expense guidance. And really, what's exciting to us is a lot of it just improves how we go to market. And embedded in that expense outlook, is still spending for growth to grow our core client base. So what you'll see from us is you'll see in our businesses that drive core relationship growth, you'll still see spending to grow. And so that's embedded in our strategy, and we'll speak more to that in a couple of weeks up in Boston.
And so we feel good about that outlook. But when you think about positive operating leverage for the calendar year 2024, it's challenging because the first half of 2023 had such strong revenue growth that the exit run rate on revenue is just simply lower than it was at the entry to 2023. But when you look at quarterly increases, and it goes back to Ebrahim's question just a minute ago, the NII tailwinds because of fixed rate repricing and where yields are today, is very powerful.
And so while we may not have positive operating leverage for calendar year 2024, if you're comparing quarter-on-quarter, year-over-year, it gets pretty powerful as you go through calendar year 2024. The issue is simply just looking at calendar year '24 versus calendar year '23.

Steven A. Alexopoulos

Got it. That's helpful. And then maybe just one other one. So on the noninterest-bearing deposits, it's down fairly sharply again. Peers are seeing the pace of outflows abate fairly materially. How close are you to seeing a bottom? And when you talk about your expectation for NIM to stabilize in 1Q and then expand, what's the underlying assumption of where noninterest-bearing deposits are?

Andrew Jamie Gregory

Our outlook for NIB to total remains the same as we said in July. And so we expect to end the year around 25%, non-interest-bearing to total deposits. And embedded in that would be a decline in the fourth quarter somewhere around $400 million in NIB deposits. We do believe that, that rate of decline will slow significantly as we look out into 2024. And again, we'll give more details on the longer-term outlook in early December. But we do believe that, that will slow, and that's due to both environmental impacts as well as strategic impacts with our businesses that we're continuing to grow like treasury and payment solutions.

Operator

Your next question comes from Michael Rose from Raymond James.

Michael Edward Rose

Maybe just a broader step-back question for you, Kevin. Obviously, a lot has happened since the Investor Day earlier last year. Can you just give us an update on some of your initiatives, whether it be MAAST or the commercial real estate initiative? And just broadly, where you think you stand in some of those efforts and kind of maybe some of the areas that might require some additional kind of investment from here?
Obviously, the targets that you laid out back then, I think, are going to be tough to achieve in this interest rate environment. But just wanted to get a sense for where you think you are and what the opportunities are as we move forward.

Kevin S. Blair

Yes, Michael, it's a great question. And I think the part of the answer is that with this sort of environment, where you're seeing margin contraction, you're seeing questions around credit. It kind of masks some of the success that we've had in some of the underlying initiatives. And that's not just with our new initiatives, it also stands to talk about some of our core businesses that continue to see improvements in productivity, deepening of wallet share, things like that.
But as it relates to our targets, I would just tell you, as we've said in the past, when we did that forecast for our 3-year top quartile performance, obviously, we did it under a different interest rate environment. Our goal is to continue to focus on generating top quartile performance, and those numbers may be different, but relatively speaking, outperforming that of our competitors. But when it gets into some of the initiatives, something like a MAAST. When we talk about our banking as a service platform, one of the things that we set out from the beginning was we wanted to prove a hypothesis that this was a solution that would be well received by independent software vendors and partners.
As I said on the last call, I think we're proving that hypothesis pretty clearly in that we've already onboarded 9 ISVs and payment partners onto the platform. Today, the spend of the payment facilitation portion of that is approaching $500 million. And we have additional 45 partners in the pipeline, evaluating the software and going through the contractual phase. Those 45 partners would represent about $13 billion in payment volume. So it shows that there's a great deal of interest in the MAAST solution.
The second part of that objective was ensuring that we had the right type of products to be able to fully offer the capabilities that the end users would desire. Today, we have payment facilitation and a banking suite of products that include checking and a debit card. But we just announced this week, we signed a strategic partnership with Fintainium, which will provide additional AP, AR capabilities to the end users. So as we entered this, we have just a minimum viable product. We're expanding that into additional solutions.
The third leg of the stool is we have to assess whether the utilization and the adoption by the end users will generate a great deal of revenue. And that's the part of this equation that it's still too early to tell. But based on the demand that we have from the software providers, we remain very optimistic as to the viability of the solution. And we're actually expanding it into a banking-only solution, where some folks actually don't need the payment facilitation. They just want the banking services, and that's about 40% of the pipeline we have today.
I think it's also important to note, we're not betting the bank on this initiative. We spent about $9 million in expenses year-to-date. And so it's a measured investment for us. CIB, corporate and investment banking, we have about 27 FTEs, we're up to 20 clients that we've been able to onboard. We have almost $500 million in outstandings and $3 million in revenue year-to-date from a capital market standpoint. So that is progressing. We continue to get traction, and that's just going to take time to continue to build, but it is exceeding our expectations from a P&L impact at this point. Again, we've spent about $8 million year-to-date. So we're not betting the farm on any one of these initiatives. It's really the combination of many.
And the third one I'll just mention is analytics. We talked a lot about analytics and the importance at providing proactive advice to our clients, both on the commercial and consumer side. We're fully up and operational with our consumer platform. And year-to-date, we booked about $10 million in incremental revenue just from some of the leads and insights that, that solution has provided us. And that's just starting to scratch the surface.
So some of the big initiatives that we rolled out in February at Investor Day, are ahead of schedule. Again, small numbers in the grand scheme of things. But as I said then, I'll say again today, really not about the P&L impact today. It's about the impact 2 and 3 years down the road where it's going to create new sources of revenue that we haven't had.
And let me just -- I'm answering this long-winded but let me add in one new one, and I referenced this in the prepared remarks, but we're currently in discussions with GreenSky and the private equity firms that are acquiring the GreenSky platform from Goldman. Our discussions around a sponsorship program that would allow us to continue to support their origination and distribution of production with a balance sheet-light liquidity-neutral solution. And as a reminder, I know you know this, Michael, we've been in a business with Greensky on a held-for-sale arrangement since 2020. That continued with Goldman after the acquisition but it was only on a small portion of their originations, which this quarter created only about $1 million in revenue.
The new program that we're contemplating is not built into our '23 guidance and would have a much broader program across all of the production, and we're -- we'll be very excited about sharing specifics about that banking as a service program and the financial benefits in the coming months.

Michael Edward Rose

Kevin, that's great color. And maybe just kind of follow up to that. Jamie, I understand that the positive operating leverage is going to be pretty challenged next year but just given this forthcoming arrangement with GreenSky, I think third-party loans are down to about 1.8% of total. Should we expect a higher level of balance sheet growth as we think about next year, obviously, 0% to 2%. Given this quarter's production seems a little bit light. It seems like they have some momentum. I just wanted to get a sense. I know it's early, if we could expect a more robust balance sheet growth as we move into next year?

Andrew Jamie Gregory

Yes, Michael, as we look further out -- and again, we'll give more detailed outlook here in about 6 weeks. But as we look further out, we do expect balanced loan and deposit growth, and what you'll see there is you'll see that our core client businesses will continue to grow and our objectives there are to grow faster than the market.
We believe that we have a right to win. We believe we can take share and so that's our objective in our core client businesses. But you may see some other businesses that remain flat or even decline on the margin that are noncore and -- noncore multiproduct clients. And so you'll see a little bit of a mix there over the next few quarters as we go forward.

Operator

We now have Brady Gailey of KBW.

Brady Matthew Gailey

So you have common equity Tier 1 of over 10% now. And as I think about the future, it's probably not going to be a lot of growth. You're still making good money. So that ratio is still going to creep higher. The stock is sitting here barely on top of tangible book value. Do you think that sometime in 2024, it makes sense to consider reengaging in the share repurchase program?

Andrew Jamie Gregory

Brady, first, as you're well aware, we've been in capital accumulation mode now for about 6 Quarters, and we've achieved those objectives that we raised a while back to get above 10% to your point. So now we are in capital management mode. So our priority in that is just what has always been in the past is deploying that capital to clients. But beyond that, we will manage our capital ratios as appropriate, including the use of share repurchases. And right now, we believe 2 things are important for that discussion.
First, in the fourth quarter, if you assume that we have that FDIC fee, we do not expect to accrete a lot of capital in the fourth quarter. Second, we believe there's still a lot of economic uncertainty. So where we are right now, we're going to sit on the sideline likely here in the fourth quarter. But in 2024, we'll be balanced like you've seen with us in the past, we've been in capital management mode, prioritizing clients. And then secondarily, you'd likely see us with share repurchases.

Brady Matthew Gailey

All right. That's helpful. And then my second question is just on the path of the NIM, like I understand it's down a little bit more in 4Q and then stable and then you're starting to see some expansion especially in the back half of the year. I mean if I look at that Slide 7, where you suggest 23 basis points of NIM expansion. I know that's only looking at like the fixed rate piece of it. So is there any way to look at the entire company engage what the possible NIM expansion could be after we reach this 3% bottom?

Andrew Jamie Gregory

Well, let me -- for today's purposes, let's go through what is not on that fixed rate chart. And so first, what that does not include would be any mix shifts in deposits between noninterest-bearing and interest-bearing or even within products that are within interest bearing. It doesn't include the headwind of deposit production costs. And as I mentioned, production for us was around 370 in the third quarter, which is clearly higher than our total deposit cost. It would not include any deposit product rate increases. And so all of our guidance is a flat rate forward look. And so we're not really expecting any material product rate increases. But if they were to happen, it would not include that.
And then it also doesn't include the impact of loan spreads. And I want to point to something there because loan spreads have been a really good story for us. We've had 6 consecutive quarters where floating rate loan spreads to index have widened. And so we believe that we're getting paid for the risk we're putting on the balance sheet. We believe it's accretive to capital. And so that's a good trend there.
So those 4 things are not included in that. Now because the first 3 were negative, I mean, it's likely that those are a little bit more headwinds, they are tailwinds to what you see on the fixed rate repricing but the trend should have a similar shape as what you see on that chart.

Operator

We now have Christopher Marinac of Janney Montgomery Scott.

Christopher William Marinac

I had a question for Bob on the kind of combined SNC portfolio and club and purchase business. Where do you want that to go as next year comes into focus? It's more about kind of where you think that will land in the future.

Robert Warren Derrick

Yes, Chris, thanks for the question. Right now, we're at around 10% of our total loans is our SNC book, and that's what would be defined as sort of the official SNC definition. We also have another 2% or 3%, a little over $1 billion in what I would call sort of club syndicated deals, more of a regional level. So if you kind of take those 2 together, we're sitting around 13%, 10% of that being sort of true SNCs.
Of that number, we're agenting around $500 million of that. So for what that's worth, how we think that's good fee business for us, et cetera. I think we're comfortable in this range in terms of percentage and relative to concentration limits. We kind of like that 10% to 12% range. We're sort of there. I think that's our expectation as we kind of manage the business, going forward, we've been in this space a long time. Obviously, it can bite you occasionally as you saw.
But nonetheless, we think we've got a really good group of bankers running that business, very focused on opportunities that, that book can present us and there are some, and we feel like we'll just be more strategic there. But in terms of balances, I think we're kind of where we need to be, and we'll stay in that range as we look ahead if not slightly declined but certainly in that range.

Christopher William Marinac

Great. That's helpful. And then, Kevin, just a quick question about sort of DDA flows from MAAST. Are you seeing any of those now? Or is that still going to be kind of fourth quarter and 2024?

Kevin S. Blair

We're starting to see some deposit flows. They're still immaterial at this point because with the $500 million of payment transactions I referenced that money moves pretty quickly. So the deposit story and the revenue that will come with it. We'll make about $3 million in revenue in MAAST this year. So it's still in the infancy stage, Chris.

Christopher William Marinac

Great. But a year from now, we can probably talk more definitively about progress there, just thinking about...

Kevin S. Blair

Yes. I think as you see the payment facilitation business pick up, and I think it's important to note with that business, we've been intentional about slowly onboarding clients. That's why we talk about only having 9 on the platform and 40-plus in the waiting room just because we want to make sure that we get the product right. And to your point, once we start onboarding some of these new relationships, we've talked about getting $0.5 billion to $1 billion in deposits just from the payment facilitation business. And if we expand it into the banking only side, there's obviously a lot more in deposits that are at play there as well.

Operator

We now have Brandon King of Truist Securities.

Brandon Thomas King

So Jamie, I wanted to take another angle at the expectation for NIM expansion in the back half of next year and you already laid out your assumptions. But could you just know -- how you're thinking about it, just lay out kind of what you think the biggest risk is to that position being pushed out or maybe not being realized according to your current expectations?

Andrew Jamie Gregory

I think the biggest risk when you think about the margin out there. Well, I would say first is Fed policy. And so if you have big moves either -- on either side of Fed policy. With their balance sheet, if they were to drop down the RRP significantly and take a lot of liquidity out of the system. I think that could be challenging for the banking industry. But then also, if they were to start easing in the second half of next year, the same lag that benefited the industry on the way up would be a headwind. And so if you're just simply looking at the margin at the end of next year, if you assume that the Fed starts easing in the second half or third quarter of next year, then that will be a headwind.
Now I would argue it's a temporary headwind because it's the lag. And as we've said before, we believe that our sensitivity to the front end of the curve in an easing cycle is relatively flat. So we would not expect that in itself to be -- to contract the margin but the lag would definitely be impactful whenever that happens.
So Fed policy is a risk. And then I would say just general deposit mix shifts are a risk, and we're pleased with the trend of the slowing decline in NIB in the third quarter. We expect the decline to slow again in the fourth quarter and then slow again end of 2024 but that's -- I would point to those as some of the risks to that outlook.

Brandon Thomas King

Okay. Very helpful. And then a follow-up to your commentary on loan spreads and how that could impact the loan growth profile of the bank? You also mentioned that you expect to grow faster than the market. And you would think, I guess, with higher loan spreads, maybe that would slow down growth theoretically. But could you just help us square away those items?

Kevin S. Blair

Well, Brandon, I'll take that. I think those 2 are not necessarily correlated in that. What we're doing today in the marketplace is we're just being more selective at where we want to lend capital. And that allows us -- with the competition pulling back a little bit, it allows us to pull up our pricing. And as Jamie mentioned, when you look at the variable rate spread over index, we're up 80 basis points year-over-year.
When we look into the future and a lot of the loan growth will be based on where demand goes. We've talked a lot about production was off about 9% this quarter over last quarter. Pipelines are relatively flat right now. The economic impact to demand will determine kind of how fast we grow loans. And as Jamie mentioned earlier, we also want to correlate that back to the level of growth we'll see on deposits. But what we're optimistic about is our ability to continue to grow C&I loans, through our CIB organization, through middle market, and through some of our specialty areas.
Maybe the one question mark and wildcard for 2024 will be what happens with the payoff, paydown activity in CRE. As you know, we haven't seen a very constructive marketplace there given where cap rates and interest rates have moved, and so we haven't had a lot of payoffs and pay downs. So our production next year in CRE, it may be hard to keep up with some of the payoff and paydowns that have been delayed through this cycle. But we're just as bullish on the areas that we can grow. And as you noted, our goal is to continue to exceed the rate of growth of the underlying economy.

Operator

We now have Kevin Fitzsimmons of D.A. Davidson.

Kevin Patrick Fitzsimmons

Just a quick question on the bond portfolio. Some banks have pulled the trigger on restructuring. Is that something that is on the table? Or would you focus more on just doing what you've been doing, using the cash flows to help fund loan growth or perhaps pay down wholesale borrowings?

Andrew Jamie Gregory

Kevin, as we look at the bond portfolio, we would consider restructuring. I don't think it would be incredibly significant. I mean you think about the capital we have, that we call excess capital of being at 10.13%, there's limitations to how we would use that capital and how much we would use on something like a bond restructuring. But I think similar to what you've heard from others in the industry, if there is a restructuring that makes sense and you get a 2-year payback -- 2.5-year payback or something like that, it could be something that we entertain. But at this point today, we don't have any intention to do that but it's something that we do look at from time to time.

Kevin Patrick Fitzsimmons

Okay. Great. And one quick follow-up. On the sale on the GLOBALT that you mentioned about streamlining your -- I forget the exact wording you used but about streamlining. And so I'm just wondering if you can add a little more color on was it competing with some other -- the banks more larger wealth management platform? Or what was it about that made you want to streamline with that sale?

Kevin S. Blair

Kevin, it's -- I think we said simplification of our business model. And it's -- really it's a money management firm that we've owned for some time. And so it didn't really compete. It actually served as an investment vehicle for our financial advisers to place money. They largely do ETF funds. And as you know, in that sort of business, we'll continue to use them and partner with them as we look to move our clients' assets under management into the best products for the optimizing their returns, but it's a high-efficiency business.
And we believe that we can take the operating expense from that and put it back into either the front end of the wealth origination, so the financial advisers or the private wealth advisers or we can put it in other businesses and earn more from an efficiency standpoint. So it's really about taking operating expenses and redeploying those into businesses that have higher returns.

Operator

We now have the next question from Timur Braziler of Wells Fargo.

Timur Felixovich Braziler

I wanted to circle back I wanted to circle back to your commentary about NII and NIM and an easing Fed cycle. I appreciate the color on a lagging deposit base. I'm just wondering, given the fixed rate repricing schedule versus variable rate loans that would go down a little bit more quickly, is that an offsetting element? Or could we actually see some NIM compression over the first couple of quarters following a slight easing?

Andrew Jamie Gregory

In that scenario, it depends on the timing. I would have to think through. But I mean you think about the immediacy of loan repricing, we have a little more than 60% of our loans are floating rate that would reprice immediately. And then the deposits would lag. And so you may -- about 20% of our deposits would also reprice immediately. I mean there -- you could think of them as index-based even if they're not all directly index based. It would likely lead to a decline in the margin for those periods -- for those early Fed ease time periods.
Now that being said, this fixed rate repricing, this chart doesn't just -- it wouldn't just end in the fourth quarter of '24 like we displayed here. That continues for multiple years because you think about those exposures, especially when you look at residential mortgages, you look at the securities portfolio, we continue to benefit incrementally way beyond this and so -- this time period.
So this benefit will be -- will overcome the headwind of that lag headwind when the Fed does start to ease, that will be a temporary issue. And so we have a long-term benefit from fixed rate repricing. And at some point, if you do assume the Fed next move is an ease, there will be a headwind for a couple of quarters.

Timur Felixovich Braziler

Okay. That makes sense. And then just looking at the timing of some of the loan sales and other PPNR activities over the last couple of quarters. Maybe just talk through the cadence on NII over the next quarter or 2? Does that cadence follow margin? Or is there something within the timing of recent sales that maybe we see NII performance a little bit better than what the expected margin performance would be at least in the next quarter?

Andrew Jamie Gregory

It will trend along with the margin. So you'll see a decline in the fourth quarter and then flat in the first quarter. And then you'll see NII growing with the combination of loan growth as well as margin expansion as you go through '24.

Operator

We now have Brody Preston of UBS.

Broderick Dyer Preston

Jamie, I think I've got it but I just wanted to put a finer point on the guidance with the revenues. The guide kind of implies that we stepped down a bit more than I would have expected in the fourth quarter just with the NIM commentary and some of the fees. Is there something that I'm missing because I think it implies like about a $25 million step down in operating revenues?

Andrew Jamie Gregory

So Brody, I think that what you're looking at there is really in fee revenue. And so we had fee revenue of $106 million in the third quarter and that included $2.5 million of GLOBALT revenue. So when you adjust for that, our fee revenue in the third quarter was around $103 million to $104 million. And so looking forward to the fourth quarter, there will be an incremental headwind in NIR from -- on the retail side because of deposit fees but we expect to overcome that headwind, and we expect it to be flat to slightly up from the $103 to $104 million in the fourth quarter.
And then on NII, we -- as we mentioned, we expect the margin to decline in a similar amount as what you saw in the third quarter but then you also have the impact -- the full quarter impact of the sale of the medical office portfolio.

Broderick Dyer Preston

Got it. Okay. And just to clarify on the revenue component, Jamie, I think if I was reading the slide correctly, that the expectation around the beta is like more of like a spot in December kind of expectation for the beta and not the average for the quarter, correct?

Andrew Jamie Gregory

That's correct. It's the month of December.

Broderick Dyer Preston

Okay, cool. Can I just follow up on Bob's -- what Bob said on the SNCs, real quick. Did you have what percent of that SNC portfolio you guys will lead underwriter on?

Robert Warren Derrick

Yes. Brady, on the SNC portfolio, it's about $500 million. So of that $4.3 billion, we're the edge around of about $500 million.

Broderick Dyer Preston

Okay. And then I did just have a couple of last quick ones. Bob, do you have any of the ACL on the office portfolio?

Robert Warren Derrick

Yes, we don't -- I'll let Jamie follow up with me, Brody, but from an allowance perspective, we don't disclose by asset class. We just generally speaking, our CRE allowance in the 1.5% range in general. But then within that, obviously, the asset classes are broken down. But our office portfolio today, we're criticized classifieds less than 10%. NPLs are [1.5]. So in the context of the size of that portfolio, it's relatively stable now. We're not -- we obviously see -- we have a watch list there. We've been working on that. We've talked about that before. But right now, the performance is relatively stable and the allocation just follows the CRE allocation.

Andrew Jamie Gregory

And Brody, one thing about that portfolio, as Bob mentioned, we've seen no new net negative migration in the office portfolio in the third quarter. It continues to perform, and the watch list remains the same as we've discussed in July and before. And so that portfolio continues to kind of perform as we expected.
When you think about the allowance in the categories, any sort of migration obviously impacts the life of loan loss estimate for the portfolio. But what we saw in the third quarter when we ran the allowance was the allowance to loan ratio within CRE was relatively stable for the quarter, where we saw the increases was in C&I and small business. And so we feel good about what we can see in front of us. We believe it aligns with that 30 to 40 basis point charge-off guide for the fourth quarter, and we'll continue to give updates as we see more clear outlook.

Broderick Dyer Preston

Got it. And then just 1 last one. Bob, just on the senior housing portfolio, you guys have built that into a pretty good business line for yourselves. And I think if I'm remembering correctly, it's performed extremely well for you from a credit perspective, versus some other banks that have maybe struggled a little bit, just with that generic kind of category of senior housing. Could you maybe help us better understand the puts and takes around that portfolio? And why yours kind of outperforms relative to some other banks that also have a senior housing exposure?

Robert Warren Derrick

Yes. Sure, Brody. Thanks for the question. Just a couple of comments on it. We've been in this business a long time. We have a very experienced team that manages this book. You're right, it's around $4 billion. We think about it today, it is certainly feeling some stress and there's no question about that as it relates to increased labor cost. Certainly, the interest rates staying higher here in the last 6 months or so, continue to put some stress on it. But the positives here are, as an industry, this industry is continuing to see increased occupancy rates. Most of our operators have implemented increased rental rates.
So the revenue top line improvement is there. It's just not -- it's going to take some time for it to overcome the rapid increase in cost. As it specifically relates to our credit performance in this portfolio, we're sitting today at criticized classified ratio around 10%, that number -- 10% to 15%, that number could drift a little higher. But overall, we put a couple of loans on nonaccrual this quarter. That was the increase in our nonaccrual rate to 64 bps from 59 in -- but again, that was within our expectation. We think the loss content here in those few credits is very manageable, very low and it's certainly within our guidance.
So overall, I think it's just client selection long term in this business, Brody. And the way the portfolio is performing the way we underwrite, again, there's some stress, but overall, it's performing within our expectation.

Kevin S. Blair

And Brody, I'd just add that when you look at this asset class, everybody assumes all senior housing looks the same, some more in memory care, skilled nursing, some are more private pay. I think to Bob's point client selection here, dealing with long-term operators, more private pay, less skilled nursing has resulted in better overall performance. So I think that's a big driver of that.

Operator

We now have Stephen Scouten of Piper Sandler.

Stephen Kendall Scouten

I guess I wanted to think about maybe loss given default rates around credit and kind of how you think about the different buckets. I think with that SNC credit, a lot of people were surprised just that the ability for that to have such severity. So I'm just kind of wondering how you think about that within the SNC book and maybe within other categories as you look at credit overall?

Robert Warren Derrick

Yes, Stephen, I'll make a couple of comments there. Obviously, loss given default in that particular case was way outside of the norm. We do consider that to be an idiosyncratic event. Obviously, we spend a lot of time and have spent a lot of time dissecting that specific credit and going back and looking at our processes and procedures, et cetera.
Our conclusion from all of that work is that we still have good processes. Our underwriting was sound, just a number of events that took place in that credit that quite frankly, all went the wrong way and all happened over a period of time that just led to a very outsized and loss given default that would certainly not be normal for us.
From my perspective, generally speaking, though, we look at leverage loans. We look at enterprise value-based loans. We underwrite those, generally speaking, to get inside of the assets, the hard assets within a couple of years. Those are the kind of -- when you think about loss given default on those loans, that's where your risk is our general underwriting guideline is to get the cash into the -- pay the loan down as quickly as we can, not rely on that enterprise value for any period of time.
Generally, we have third-party valuations, et cetera, but to stay short with exposure to enterprise value. Leverage loans for us around $2 billion. We certainly manage it very closely and stay spot on with our reporting. So that's a little bit of rambling, Stephen, but does that help on how we look at those types of credits?

Stephen Kendall Scouten

Yes, I think that helps. But I mean, I guess, generally, you don't really view that segment or maybe C&I more broadly is having any terrible risk from a severity perspective at this point relative to CRE. Is that fair to say?

Robert Warren Derrick

I think that's fair to say, yes. We certainly could ignore that business and not do it but we've chosen to do it over time. We think selectively we can make good returns there and manage the credit risk appropriately.

Kevin S. Blair

And I think -- I'll just add to Bob's comment, Steve, when you think about where there's a higher loss given default in C&I, it's generally if you're doing small business unsecured where we don't have a lot of exposure there. And then when we think about our C&I, we're doing investment-grade credits. And Bob's point, this credit that we're referencing here is an anomaly.
We generally have primary sources of repayment, secondary sources of repayment, many of these loans are recourse. And so when you think about loss given default in the C&I business, they're generally low just based on the way that we underwrite those, and when we talk about CRE and we're talking about having 50% LTVs or LTCs, similar scenario there where you feel like you have enough equity and cushions of protection that would keep the loss given defaults lower over there. So I think it would be erroneous to assume that all SNCs have much higher loss given defaults based on this 1 credit.

Stephen Kendall Scouten

Great. Very helpful. And then just my other question is, you guys have talked about seeking out higher risk-adjusted returns. You've talked a bit about these spreads widening on floating rate credit, as you pursue those endeavors, where do you think that leads you from a segment perspective to be more active as we move into '24?

Kevin S. Blair

I missed that again, Steve. What was that?

Stephen Kendall Scouten

Yes. Just kind of as you seek out higher risk-adjusted returns, where does that -- where does that lead you segment wise? Where do you think much of your growth will come from as a result? I guess where are those returns widening?

Kevin S. Blair

No, it's a great question. And it starts with -- if you're doing a loan-only relationship, I would argue that it's hard to say that you're getting great returns unless you're taking a lot of risk. So we're not suggesting that. We're suggesting that where we're focused is on the businesses where we have the opportunity and the right to win by providing a full set of solutions, not just the lending piece.
So we're getting cross-sell on the depository, treasury side. We're getting personal relationships from the business owners. And so where you see that, our middle market commercial today, we're doing very, very well with that. Our core commercial, kind of our community commercial, our small business areas and even in our corporate and investment banking unit, where we're going to market and industry verticals, we're able to bring capital markets and additional fee income and treasury and deposits where it makes those returns much higher.
So we talked in the past that we've kind of doubled down in the commercial space. That's where we're winning market share. But when you go to the consumer side, we're focused on the mass affluent and fluid segments where we believe that not only advice matters, but we have a personal touch that allows us to get a greater share of wallet.
So that's where we're focused. It's relationship banking 101. So it doesn't sound real sexy but it comes down to delivery and how we do that. And that's why we win things like J.D. Power and Greenwich because we do it really, really well.

Andrew Jamie Gregory

And let me follow up on the J.D. Power and Greenwich because a lot of this has to do with how do we fund that growth and our success with our retail network, our success with our Commercial Banking, deposit production, when you look at the third quarter deposit production, we're up about 70% year-over-year. And then when you decompose that because clearly, a lot of that comes from time deposits, from CD production. But even when you back that out and when you look at interest-bearing nonmaturity deposit production, so now an MMA deposit production, those together are up over 10% year-over-year. So that's a positive production trend that's sustained.
And then in the third quarter, we saw a reduction in account diminishment. So on the consumer side, the diminishment we saw in the third quarter relative to the second quarter, down almost 60%. On the commercial side, the same thing down almost approximately 55%. And this has been the big headwind year-to-date. So it's good to see the pressure reducing on this.

Operator

Thank you, Stephen. This concludes our question-and-answer session. And I would like to turn the conference back over to Mr. Kevin Blair for any closing remarks. Thank you.

Kevin S. Blair

Thank you. As we close out today's call, I want to thank everyone for their attendance and their interest in Synovus. Despite a more challenging operating environment, Synovus continues to demonstrate strength, resilience and flexibility. We've been proactive in executing on various initiatives to navigate the risk associated with the recent interest rate and economic environment.
Through our completed balance sheet optimization and business simplification strategies, we've freed up capital, liquidity and operating expenses to pursue higher returning opportunities. With rates expected to stay higher for longer, fixed asset repricing should support a NIM trough in the fourth quarter and create a path to expansion in the second half of '24. Somewhat masked by the margin contraction. We're experiencing healthy steady growth in areas like CIB, middle market, wealth management and treasury and payment solutions. Continued growth in our core businesses, coupled with traction on new sources of revenue, 2024, we look forward to transitioning to a more -- from a more defensive posture into one of growth.
Most importantly, we continue to believe that our strong underwriting, monitoring and client selection as well as actions taken through the years to generate diversification and an economically vibrant southeastern footprint will result in manageable levels of credit losses over this economic cycle. Lastly, the company will continue to maintain a very strong liquidity and capital position to allow for flexibility and ongoing uncertainty.
Thank you to our team members for your dedication and hard work each day. Synovus and our talented team members continue to be recognized nationally. We were recently ranked fifth in Bank Director's magazine, Best U.S. Banks over $50 billion in assets analysis. I have a lot of optimism as certainty replaces uncertainty, and we control what we can control. The outlook for NII is clearing up, and we see a path to sustain repeatable balance sheet and revenue growth.
But I want to conclude today's session with a message of hope, hope for resolution, healing and peace in the Middle East. This situation is deeply concerning for many reasons, including the effect it has in the lives of many across our region, many of whom are close friends and valued clients. My thoughts and prayers are firmly with our Jewish community and others who are in peril. And in my hope, I hope to see signs of resolution, and that will lead to true healing and long-term piece.
With that, operator, that concludes our third quarter 2023 earnings call.

Operator

Thank you all for joining. This does conclude our conference call. Please have a lovely rest of your day, and you may now disconnect your lines.