Synovus Financial Corp (SNV) 2002 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Synovus third quarter conference call.

A0t this time all participants have been placed on question only mode.

Question and comments will follow the presentation and it is now my pleasure to turn the call over to your host, Chairman and CEO of Synovus, Mr. Jim Blanchard.

Thank you very much ladies and gentlemen.

We are in our conference room and have a number of our executives here as well as some representatives from [inaudible] that are here ask we're looking forward to sharing with you the results of our 3rd quarter and look forward to your questions and your comments as well.

We are very, very excited about the fundamental strength of our 3rd quarter.

The momentum that I think we have built throughout this year, the evidence of that, I think, is clear from a fundamental look at our balance sheet.

Our loans through the first 9 months of the year are up 18.6 percent.

That's a right incredible number during this particular part of cycle.

Our total assets are up 17.3million up to 18.5 billion.

Our total deposits are up 18.4 percent.

That's the highest percentage increase that we have seen in a long, long time and I think all of these asset categories are a result of aggressive prospecting, high level of customer service and as you have drawn accustomed to hearing from me, our ability to win in the marketplace because of our decentralized system, our autonomous customer service capabilities at the bank level.

The fact that they have there over names and CEOs, and boards of directors and have the ability to pull the trigger and effort to better serve our customers.

You obviously want to have questions about the quality of that asset growth and we'll deal with that as well, but the fundamental strength of this growing balance sheet is right impressive.

That's not to the mention the fact that the capital account is now at $2 billion, that's up 21.1 percent and equals over 10.5 percent of total assets.

I want to jump right into the consolidated results.

We'll stalk about the banking side of the house.

We'll talk about TSYS and then as you would expect from our press release from both TSYS and Synovus, we'll talk about our expectations for the year of 2003.

Our net income for the quarter was up 16.9 percent over a year ago.

The diluted EPS was 31 cents for the quarter and that's up 15.1 percent over a year ago.

Return on assets was 2.06 up from 2.02 last year through the first nine months, or in the quarter, and the return on equity was 15.12.

That's compared to 19.93 and that's exact result of the increase in the percentage of the capital-to-asset ratio.

For the year net income was up 15.2 percent and diluted EPS was 87 cents - that's up 13.3 percent over a year ago.

Return on assets was 2.05 return on equity than 19.34 - all those a reflection of the strength of the quarter.

The capital asset ratio again at 10.58, that's up from 10.26 a year ago.

Basically we had solid contributions from the banking side of the house as well as TSYS.

Let's talk a little bit about the banking side of the house and we designate that as Financial Services and it includes banking, financial management services, mortgage insurance and leasing.

Of course, I want to mention also the acquisition during the quarter of Community Financial Group - that's the parent company of right at half billion dollar Bank of Nashville. we really are excite body this new team coming in to our family.

It's a great addition, a wonderful market, great demographics.

And I think prototypical of the kind of acquisition strategy that we have followed for the last several years and that of course you know about the 2 events that have occurred this quarter.

On the banking side of the house, or the financial services side, net income for the quarter was 65.6 million that's up 13.4 percent and ROA was 1.52 compared to 1.54 a year ago.

YTD net income is up 13.7 percent, ROA is 1.53, compared to 1.51 a year ago.

The growth in our net income in financial service is primarily driven by a 15 percent increase in net interest income for the quarter and a 16 percent increase in net interest income year to date.

On the margin side, our margin for the quarter was 464 percent.

That's up from 462 in the 3rd quarter.

The margin improvement that we saw in the 3rd quarter is accomplished primarily through, even though the average prime rate declined 182 basis points from the 3rd quarter of 2001.

That's a right remarkable achievement.

The 3rd quarter margin of 464 however is seven basis points below the secretary quarter of this year when it was 471.

And frankly this is a result of continued strong growth of our prime rate base floating rate loan portfolio.

As we mentioned in the last couple of quarters, that's the propensity in the market place.

This current low interest rate environment and steep yield curve has caused people to desire these rates and that's had the effect of reducing over all margin currently. however, as we have indicated to you, it'll serve us very well when the economy strengthen and short term rates increase from what is basically a historically low level.

On the deposit side, I mentioned the strength that we experienced through the first 9 months.

For the quarter total deposits increased by 703 million reflecting the Bank of Nashville acquisition and solid growth in core deposits.

Compared to a year ago, total deposits increased by 2.1 billion reflecting the Bank of Nashville and the First American (ph) acquisition and a 12.5 percent growth in core deposits.

Core deposits is lead by a 21.1 percent increase in demand deposits and a 25.4 percent in money market balances.

On the loan side, we ended the quarter the 14.1 billion and that's a reported increase of 18.6 percent over the prior year.

If you exclude the impact of the acquisitions, loans increase by 1.6 billion or 13.2 percent over the prior year.

And on a sequential quarter basis, fundamental loans increased by 483 million from annualized growth rate of 14.5 percent.

Now compared to a year ago, 25 of our 39 banks reported loan growth rates over 10 percent.

That is higher than it has been and on a sequential quarter base, 28 of our banks reported that rate of growth over double digits.

We continue to benefit frankly from a very strong real estate sector in our larger markets as well as the coastal regions of Georgia and Florida.

And as has been the case in the past, the loans that we are putting on the book are diversified by geography, industry, and loan type.

From an asset quality standpoint, we continue to be policed with the strength our portfolio.

NPA ratio was .59 at quarter end as compared to .57 the previous quarter and the Bank of Nashville acquisition accounted for 1.5 percent of that total increase.

So, fundamentally flat but for the acquisition of Nashville.

For the quarter, net chargeoffs did as we told us last quarter we expected, they dropped to .32, that's compared to .28 year ago but down from the previous quarter.

The provision expense was 16.4 million, that's up 52 percent from a year ago and that covered net chargeoffs by 1.51 times.

On a YTD basis, net chargeoffs were .35, they are trending down.

We believe the will be below that for the year.

That compared to .27 through the first 9 months of last year.

Provision expense was 49.5 million, that's up 42 percent period of time year to date and that covered net chargeoffs by 1.44 times and the allowance for loan losses remained at 138 at quarter end.

That actually up from 137 the previous quarter and that covers 340 percent of nonperforming loans.

We really, I think, have some good news on past view levels.

Very very positive and near historically low levels.

At quarter end our total past due loans (30 days or more) are .87 of total loans.

And 90 day past dues are only .19 -- .19 of total loans.

So, the indicator for loan quality in ever respect, we think, are looking very stable, not withstanding the storm clouds and the concerns and the issues that we face in this economy.

As far as fee income is concerned that's an important part of our strategy and our non-interest income for the quarter was up 17.4 percent compared to Q3 a year ago.

Mortgage revenues were up 20.8 percent and financial management services and insurance revenues increased by 19.4 percent for the quarter.

Service charges on deposits increased 14.8 percent.

In ever category, a very strong indicator of momentum on the P - income side.

All that was amounted to as a percentage of total revenues, 27.04 percent for the quarter.

And that's a number that we have established as a goal to get up to 30 percent and beyond.

YTD, let's talk about year to date for financial services reported non-interest income.

It's up through the 1st nine months 2 percent as compared to the prior year.

Keep in mind that in the 1st 9 months of last year we had a 10 million pretax gain from sale of our Star system ownership and in the 1st 9 months of this year, you will recall the 8 million pretax impairment cost on a private equity investment.

If you exclude these nonrecurring items, non-interest income is up 13 percent over the prior year and financial management and insurance revenues are up 17.4 percent.

Service charges on deposits are up 11.5, mortgage revenues are basically flat to last year and that's after being up 77 percent in the year 2001.

Obviously the mortgage boom is continuing.

On the expense side of the house, we are continuing to fulfill the commitment that we made to you about our efficiency.

For the quarter G&A expenses were up 14 percent compared to the same period last year.

The fundamental G&A expense growth for the quarter is 6 percent after adjusting for the acquisitions and normalizing our incentive pay expense in each period.

The real progress that we are making resulted in a 52.78 percent efficiency ratio for this quarter compared to 53.29 for the 3rd quarter a year ago.

And if you follow that 10-year trend charge, can you see that it's almost a straight line down from what was over 60 percent about a year ago.

On a year to date basis, G&A expense growth is [7].7 percent.

That's also 6 percent fundamentally compared to a year ago and the efficiency ratio for the year is 52.15 compared to 54.06 for the same period a year ago.

On the TSYS side, they announced yesterday 3rd quarter financial results that were in line with expectations.

TSYS also reaffirmed its 20 percent annual earnings growth estimate for the current year.

They reported net income of 32.3 million for the 3rd quarter.

That's a 27 percent increase over same period last year.

Diluted earnings per share for the quarter was 16 cents up, 26 percent from the 13 cents a year ago.

Revenues excluding reimbursables increased 10.8 percent compared to a year ago.

And operating margin excluding reimbursable items increased to 25.3 percent compared to 23.6 percent a year ago.

For those of you that attended the conference call yesterday, you will know that there was some confusion about the reversal of a reserve.

The implication then that that reserve reversal increased the bottom line and there was a clarification e-mail that was object sent out after the conference call that that corrected that mistake and notion.

And I think the only moving part that really was a part, one of the strongest financial performances fundamentally that we've ever had at TSYS, was a conversion of the currency values, which did add a some minimum amount to net income.

For the first six months of 02, TSYS is up 88.6 million, that's up 20.6 percent from the same period a year ago.

Diluted earnings per share for the 9 months is 45 cents up 19.5 percent and revenues for the 1st 9 months excluding reimbursables increased 10 percent versus a year ago.

They also noted of accomplishments for the quarter that included internal growth in accounts on file of 11.6 percent signing of a 10 year agreement with CIBC to process more than 5 million Visa accounts, the signing ever Canadian Tire retail to a new gift card program.

Signing of 5 year agreement with First Equity Card (ph) to process commercial cards that are specifically designed for businesses with fewer than 10 employs and the renewal of a 5 year agreement with 5 Star bank.

In addition, of course yesterday TYSY looked out to 2003 and revised the financial plan adopted two years ago, which included a goal of 15 to 18 percent EPS growth for Synovus, which involved a 20 to 25 percent target expectation for TSYS.

I want to just mention that in the light of Synovus because as you know, the press release for Synovus yesterday also revised or expectations for 2003.

I think this is the simplest and best way to explain it and then can you ask your questions as you see fit.

But if you take TSYS at 20 to 25, and reduce did to 12 to 15, that is a dollar for dollar reduction on the Synovus side of 11 percent to 13 percent.

What we did is to broaden that range to 10 to 14 percent.

The 10 percent to us is kind of if anything goes wrong.

If margin it is continue to strength (ph), if we experience any continuing decline in the economy, if we experience any greater than expected but not cataclysmic credit issues, 10 percent would be kind a worst case scenario as we see it.

The 14 percent is probably on the other side of the coin, the best case.

We get a strengthening in the economy.

We get a 75 to 100 basis point increase sometime during the calendar year 2003 that the economy becomes more robust, that the credit quality issues go away.

I think our most likely case scenario is somewhere in the middle of those 2 polls.

With a bias on our part of optimism on the higher part of that range.

We are basically continuing to make our effort to perform on the banking side of the house in the same manner that we expected to perform prior to the reduction of the estimates for TSYS.

If you look back, the three year plan for Synovus to perform at 15-18 percent, was a ambitious, aggressive view on our part, on our potential, our abilities.

We fully expected to make those numbers.

We will make them for the first 2 years of that 3 year period.

However, one of the key premises was the expectation that TSYS would sign a major issuer in the card business over that period of time and as of year that has not occurred.

I think that it would be a terrible mistake for to you read our change in expectation for 2003 as any lowering of our confidence in our ability to sign such a major issue.

The fact is that it has not occurred and it does not appear that it will occur in time for any revenue opportunity in the year 2003.

We remain optimistic.

We still have the best pipeline of opportunity we ever had in our history.

I think it's fair for you to grow weary of hearing that from us, but the fact is that's the way we feel and there's nothing we can tell you other than how we feel.

And I believe that the best years of TSYS are still ahead of us.

The fact of the matter also I think is very clear to us and hopefully to you, at the 10 to 14 percent range, for Synovus and at the 12 to 15 percent range for TSYS, if we are able to accomplish those goals, we'll certainly be proud of our performance and we think in the very top tier of companies that are performing in our sector.

So, we are open for questions.

We have the people here that can answer any aspect of concern or question that you have and we would love to hear from you about your ideas and your concerns.

Thank you ladies and gentlemen, the floor is now open for questions.

If you have a question or comment please question the number 1 followed by 4 on your phones.

Thank you your first question comes from Jacky Reeve.

Please announce affiliation and pose question.

Thank you two questions.

One is, Jim, with the adjustment that you made with respect to the overall company goals, how does that effect the compensation structure.

I known in the past when you fell short of internal hurdles there was some adjustments made on the comp side.

Jacky, I think the whole comp target is a fair question and one that we have spent some time considering.

The bottom line is that for next year, we will fall short of our original expectations.

We will not reset or reload our comp targets just like we never have reloaded a stock options.

So, I think at the new targets it's fair for our people to expect less than the full incentive that we have traditionally made available.

Barring some unforeseen opportunity to exceed these goals, I believe that the incentive expense will be less than it would have been otherwise.

Okay.

And then 2ndly, clearly noting that TSYS decided to use cash to buy the Procard, obviously reflecting their dissatisfaction of where the stock is trading.

Have you given this any consideration to buying in the remaining shares of TSYS.

Jacky, you than stock buy back programs are -- there are a number of considerations both legal, business factors and frankly we are evaluating these factors all the time.

If and to the extent that we and the board conclude to implement a stock buy back program, obviously we will immediately announce the program to the public.

It really wouldn't be appropriate for me to speculate beyond that.

I meant with respect to the TSYS that hanging out there rather than a buyback program on Synovus shares.

I think the same consideration would apply there.

Thank you.

Thank you Jacky.

Thank you your next question Chris Marinac.

Questions for you on the margin and the impact if the yield curve were to stay flat or even get worse on the flattening.

What would that impact do for you.

If it stays right where it is we'll fall below the 4.60 that we are targeting for the next year.

Obviously in spite of our efforts to manage that margin, the last 3 quarters have shown a decline.

The reduction of rates from here which we don't expect but certainly could occur in the softening, could exacerbate that some.

I think the general consensus would be that this economy will not warrant any time soon any increases in interest rates.

But we're not ruling that out because can change and change quickly.

I think our general sense is that the economy feels better to us, the economy is we think strengthening and yet the uncertainty over war and terrorism and concern about public safety and uncertainty about political elections until after November, all of that makes this market in our opinion, feel worse than it really is.

And so, it's a moving target and I think I range that we provided allows for either ends of the pole as well as what is probably the most likely.

Great I think as a follow up, can you give some color on the areas of loan growth and where it can been particularly strong in the last quarter.

Yeah, we'll do that.

Why don't I ask Mark to do that, talk about our pipeline, talk about our desire to see the pipeline show down and in fact we believe that is occurring.

Then we asked him also to be prepared to add a little color percent our categories and percentages.

Just quite frankly Chris, I think there is apparently a perception that we are probably at risk more on a commercial real estate sector than we believe we are.

And I think that probably our categorization process has added to that Mark is prepared to add a little color on that as well.

Just briefly from quarter to quarter, our commercial construction area is relatively flat and down a little bit for the quarter.

But, we can did convert construction loans to many firms.

They're up about 619 million in construction loans are down about 183 million.

And then our commercial development loans are up about 139 million for the quarter as well.

Our commercial sector is really relatively flat.

We're up slightly in agriculture and consumer sector, but overall when we look at our portfolio, we looking ahead right now and talking to our customer base, our real estate customers do not have a lot of major plans out there for 2003.

This is about the time we get with our customers and start looking at what they're plans for next year and we do see that we should see loan growth slowing somewhat next year.

Probably looking more in the 10 percent range, 11 percent range versus the range year in right now.

Also think we all recognize that market conditions have weakened some industry-wide.

We believe that most of our individual markets still are relatively healthy and they are positioned to survive this down-cycle that we've been in without any really serious consequences.

Both our customers and us feel like this is a time to be somewhat cautious and probably won't be looking to increase activity until the latter half of 2003.

So we do see some slowing of loan growth in the next year.

Just really talking about our real estate portfolio, when you look at the break-down, we're about 49 half percent as listed at commercial real estate and other 31 percent as C&I and another 20 percent roughly is in consumer sector.

When you really breakdown the components of our portfolio though, it really looks fairly well diversified.

Of that 6.9 billion real, almost 2 billion of that commercial real estate is owner occupied properties and that's used for the purpose of our customers operating of businesses and this is the single largest segment of our commercial real estate portfolio.

It makes up 27 percent of the commercial real estate portfolio, 13.3 percent of our entire portfolio.

And those businesses occupying that real estate are really widely diverse and come from a lot of different sectors.

The second largest component of our portfolio is in the single family, 1-4 family real estate.

It makes up 8.3 percent of our portfolio, about 1.2 billion.

And about half of these loans are under contract basically single family housing permanent mortgages already committed on them.

The other half are in process and we are in a market niche in which the absorption factor on these houses is running about 5-6 months.

We feel very comfortable with our positions there.

When you look at the remainder of the commercial real estate portfolio, there's about another 28 percent of the portfolio that we would consider to be in more investment type properties.

That would be in office, shopping centers, motel, recreational, charitable and other properties like car dealerships, convenience stores.

There's no one segment in our portfolio that exceeds 5 percent.

Also from a performance indicator, our past due over -- past due 30 days to 89 days [inaudible] makes up 28 percent of pat due category.

If you look at it over 90 days its makes up 16 percent of the hundred percent past due category.

And if you look at nonperforming assets to include other real estate, our CRE non-performing assets are about 48 of the entire non-performing asset structure so it's basically mirrored as portfolio.

So January through today that same percentage holds true on nonperforming assets that have gone on the books this year as well.

So, we feel pretty comfortable with why we are, we do think we need a more cautious approach.

Our customers are reacting to that we think we will be able to slow down in that sector.

Great Mark, thank you very much.

Thank you next question from Jason Goldberg, Lehman Brothers.

Hello.

Jim you made the comment that you actually started to see some pick up in your markets.

Could you square that away with you previous commentary that you expect it to be slower next year.

Well, what I'm talking about is a feel that we have that the worse part that was economy is behind us and the feel that business is not as bad as maybe many people are expressing or feeling or predicting.

I'm not trying to quantify that into faster growth rates.

I'm trying to quantify that into less risk for some sort of double dip back into recession that could exacerbate everybody's credit issues.

That was my -- that was the intent on my comment.

Okay fair enough.

If you could I know its a bit way out but as we get beyond 2003, do you think we will to the 15 percent plus type growth rate or is - TSYS has a size now where there is only certain number of contracts they can win to get back to the 20 percent plus growth and more of a low double digit growth rate is what we should expect from you guys?

No, well, let me put it in this context.

When we established 15 to 18 percent for Synovus, over a couple years ago.

We went expanding economy, stable credit quality, strong stock market, stable interest rates.

The prime was 9.5 percent at the time by the way, and a robust business climate.

That was the frame work and the underpinnings of what we considered to be our opportunity.

Now, you add to that, you know probably everybody in here listening knows, that we were uniquely positioned heading into this particular 3-year period because we had gone through the process of converting our data processing.

We had the hard part behind us.

We were on the upswing as far as utilization of our new systems.

We had built or were in the process of building the bulk of the framework for our financial management services and we were anticipating great growth, 25-30 percent.

Well, we're 19 percent up through the first 9 months.

That is incredible growth rate but not up to expectations because all the assumptions we made have changed.

We're in a resection or have been.

The credit concerns are everywhere.

We're in the worst bear market that the USA Today says is the worst bear market since the Great Depression.

Interest rates, unlike our expectations, are at a 40 year low.

We're in this cautious business climate, where business has not been willing to stick their neck out and invest.

Of course that's why the technology sector is dead in the water.

So all of these business expectations have change said.

The one fundamental, and it is effected by this climate change, is that we did not, have not, as of yet, been able to successfully complete a contract with a major issuer to keep TSYS momentum at its historical rates.

I would suggest -- and I told the board this, that I give Synovus end of the year 2002 an A minus grade and there are 2 reasons why it's not an A plus.

One is the TSYS expectation and two is that we got a little slice here of the margin, we got a little slice there on fee income growth, we got a little slice here on asset quality.

We got a little slice there on every -- just about every fundamental aspect in the banking operation.

All of which to date have been offset by what I considered to be our best showing ever on the expense control side.

So, if you look at all of that in the light of the current conditions, we're not blaming anything on anything or anybody.

We got good sound fundamentals not withstanding the trauma in the market place.

And the only thing that you can grade this company down on is that we've had delays in our ability to sign a big TSYS company.

Now are going to do is that?

I believe we are.

I think it would be a mistake from anybody to read into their expectations for 2003 going down that they are less optimistic about their pipeline and growth potential.

That's a long way of getting around to say that the fundamental strength of this company is better than it was when set our expectations and without telling you what they're going to be in 2,004 and beyond.

Because frankly we haven't decided to put a number down.

I believe they're going to be strong, they going to be extraordinary and beyond the norm.

And so, the Synovus machine is running great and the TSYS, with the right break or two will be at its best ever.

I hope that sounds like more than bravado.

I intended that to be substantive.

That of very helpful thanks.

Thank you next question from John Pandtle of Raymond James.

First, the bank acquisition side.

I guess you have two on your plate now.

Can you talk about your on going appetite there and how it factors into the growth expectation of the banking operations and then also on a separate note, in terms of share repurchase of Synovus's stock, can you give us a feel for how the returns and the accretion look relative to other alternative investment avenues for that excess capital.

On the bank acquisition side, I think it's just fortuitous that these two bank ended up a day apart.

It doesn't represent and change of emphasis or a more aggressive peach.

And I think you know these two banks and these two markets.

They would reflect the almost an overlay of the kind of banks, kind of markets we been looking to expand into for the last several years.

And I think more of these would certainly be attractive to us but not at some pace that would tamper with or substantially affect the impact that we look to TSYS to provide and that's ever and every close to that 30 percent contribution to net income.

I think John from an acquisition standpoint, we have equal zeal on the financial management services side and while we're not aggressively out seeking additional acquisitions, more of the creative financial and global heights of additions to our capabilities would be attractive to us.

Then on the TSYS side, we continue to be interested in expanding that business through acquisition.

It's been very difficult.

Pricing is now more realistic but unfortunately growth rates and optics and all the rest aren't nearly as attractive now.

But we are constantly trying to dig down deep to figure out where the growth in the payment system is going to be and position TSYS to be there.

That would be my best take for you on acquisitions.

On the stock repurchase question, I really got to fall back on the comment that I made to Jacky.

But I can say this to you.

That for the last -- as long as I can remember - we have been in the acquisition mode using poolings.

And poolings obviously is a direct prohibition from anything that would approach any kind of a stock buy back.

From the dynamics, from the financials, from the current market place, from everything that is a factor today as we see it, that option would appear far more favorable to us and the opportunity would be more available to us than it's ever been before.

But, really, when a decision is made, if it's made by the board in this management to implement some kind of a buy back, that's the time that we can really talk about it.

Okay fair enough and then one quick point of clarification, your 10 to 14 percent expected net income growth at bank for 03 does not include any growth from acquisition.

Well, it doesn't on our model at this point you're right.

Thank you.

Except it would include the two that are currently on the books to occur.

Thanks.

Next question is Nancy Sexton.

Hi, with Adige Capital.

My question of mostly answered about the commercial real estate loans and I think the additional question I would have would be can be talk about the size of the exposures that you have, where the largest loans are to.

Mark would you deal with that.

Yes, again, I think the largest segment is in owner occupied properties and the commercial real estate pies.

The businesses that need that property to operate their businesses primarily and the 2nd is in 1-to-4 family single family housing it makes up about 8 percent of our total portfolio and then every other -- basically ever other property is below 5 percent of our portfolio and I'll just rattle some off to you and see what they are -office sector, 4.2 percent, our dealerships, convenience stores we put into that category - 4.8 percent; shopping centers are 3.5 percent, hotels/motels 3.3 percent, multifamily is 2.1, commercial and industrial real estate is 1.2 percent; land loans are 2.7; recreationals and charitables are about .5 percent.

I think what I was talking about was average loan size.

I think the 10Q mentioned a certain number of loans over 25 million with no loan exceeding, I forget was it 156 millions?

We have 18 loans that exceed $18 million.

Every one of those loans has been recently reviewed by all of our executives in this room and they're in great shape.

Typically any loan that exceeds that amount has to be approved by all the parties basically in the lending sector in this room.

Would those loans mostly fall in the investment property category?

No, actually half and half.

We have about 15 of those, well about half of those loans are in the real estate and the other half are in other sectors.

We do have one large loan that you mentioned that is in that ballpark that you mentioned.

It is well diversified with loss of different repayment sources.

It is in the real estate, the retail shopping center sector.

And a very significant piece of those properties are under contract.

That's a temporary size issue and about 60 percent that loan will be repaid in short duration.

I believe -- do you have a lease or loan to TSYS for their operation center.

Does that show up under commercial real estate.

We don't.

Okay I thought I heard something about that.

Let me make a comment on this whole question of quality of loans.

You all know I'm not a lender.

But for 32 years I made it my business to understand the lending because that's bulk of what we do.

Jimmy Anthony (ph) has always said the best he ever felt about our loan portfolio was just a little bit bad.

Not that's not calculated to scare you but give you comfort.

But with the non-performers that we continue to see in-spite of deterioration over the last couple of years of the market with the net chargeoffs that we continue to experience, with the past dues at the lowest level that they're almost been in history and with interest rates at the levels we are seeing that are 40 year historically lows, it would be just a terrible mistake of something to extrapolate what they read in our short sellers report or what they perceive to be general conditions into some sort of thesis that we going to get unfavorable surprise out of Synovus on loan quality.

I hope you don't -- I'm talking to everybody on the call and everybody in this room.

I'm thinking that as concerned as we are and as on top it was as we are, that's not something that somebody ought it take off and develop a concern beyond what appears on the surface that we are reporting on a regular basis to you.

Okay about there does seem to be a lot of misinformation in the market place so I appreciate you clearing that up.

I think a part of it is this overblown idea about our concentration in commercial real estate and I hope frankly that Mark has defused that with his deeper explanation of that category and how it really actually shapes out.

Thanks a lot.

Next question is coming from Jes Goldman.

Hi.

I know that the United Financial Holdings is a small acquisition for Synovus and this may be a detailed question but there is some confusion about what's the proper fully diluted shares United Financial that were receive Synovus stock.

Apparently there was 380ish thousand convertible preferred stock that will be entitled to the 2.47 million maximum shares of Synovus being issued.

Can you confirm or clarify that for me.

The fully diluted shares in that acquisition that were stated in the release is proper answer, I do not have the info in the room with me.

I'll be glad to answer that off line.

Thank you.

Thank you.

Next question is from David George.

Hi AG Edwards.

Most of my questions have been answered but I was wondering if you would be able to make a qualitative comment about Financial Management Services and if you have the numbers handy, what's your trust assets as well as AUM in Q3 as well as any fees that you had in the quarter?

Thanks.

I am going to ask Sonny to give you those statistics.

But let me give you a quantitative over view of it.

I could not be happier with the progress that we're making.

As know, we're committed to making financial management services our words a 3rd pillar of strength of the not only does it strengthen the banking side of the house with our traditional customer relationships but it also gives us growth opportunities, opportunities to better serve our custody herself and we spent the last 2 and-a-half years building a team, filling the boxes, creating the capabilities.

We have the team on the field.

There will be no significant further buildup in the expense base.

And all the while, we're bringing in business.

Revenue grew 19 plus percent during what is probably one of the worse markets that we have had and that's with AUM declines which works against our revenues and our growth.

So, we are poised, we're positioned.

We don't have to build it out.

We are reaping the awards and efforts and the investments that we have made and given the turn in conditions and a better environment it ought to be become the substantial contributor to Synovus that we expected all long.

And I'm going to ask Sonny if he would just very briefly give you the statistics that you asked for.

Thank you.

First of all the total AUM at this point, realizing the decline in assets on demand based upon the market conditions is 9.7 billion.

Now of that, trust assets are about 8.4 billion.

We had set a goal this year to increase our assets under management by $1 billion.

As of the end of September, we had increased the new AUM by 933 million dollars.

So we will exceed that goal by year-end.

We have not announced the details of this, but last Friday we learned that we're going to be managing assets for a company totaling $700 million.

So that's $700 million new assets that will start coming home November 1st for us that will be managed primarily in the trust area.

So, the increase.

Can you provide any color on that.

Is it an equity mandate, active dollars, etc.?

It's primarily equity and it is related to an insurance company.

I tell that you that and its an insurance company portfolio so it has some restrictions.

We partnered with a sub-advisor and we are just delighted that we were chosen out of a number of competitors to manage those assets.

Again, they started coming on November 1st.

In this past -- in this quarter, the new assets under management increased by about $200 million.

So those would be reflected in the trust assets under management.

That's primarily where those new assets came.

And David let me add another comment from a quantitative stand point.

We are good at what we do.

And I hope that doesn't sound smug or self serving.

But we have not retread old bankers.

We have not taken old branch managers and turned them into asset managers.

We have brought in talent, we have made acquisitions, we are winning in the market place on the financial management services side as well as on the banking side.

And I really feel like that the opportunity for us to really create a category here that is a contributor is real given better conditions.

So the quality of the professionals that we have put on the ground is the secret to our success.

David I want to add something too.

In terms of new assets that we'll be managing, that $700 million, that will be a fee to us at 350,000, e.g. 50 bps and our sub will be getting the balance of the fee in connection with that.

But going forward that ill be the fees that we will be receiving.

I know you asked specifically about trust.

We established a year ago our Synovus Funds.

If you recall, we neutralized our common trust funds and we just received a stay from SEI and they did a comparison, but they did a comparison of about 40 some odd commercial bank mutual funds and they showed over the last year there has been a outflow of those funds of 297 million dollars and with the Synovus funds there had been an inflow as of the end of August of $58 million.

We were the only one bucking that trend.

We had sets goal of adding 79 million in new assets under management for this year at the end of September, we were at 63 million in new assets for those funds.

So again, we think all those things are going in the right direction in terms of new asset it is under management.

Super, that was very helpful thank you.

If there will be any final questions please indicate now bye by pressing 14.

There appear to be too no further question at that time.

Yes I'd like to close with a thank you again to all that attended this conference call.

We feel like we're not only have professional relationships but appreciate deeply the continuing interest and concern and really support that we feel from this group.

I know you're a disinterested party in one sense, but you're interest in us is most appreciate from a personal sense.

I hope that you can agree with my assessment of an A minus grade.

We're in a about a B plus environment, and an A minus grade but for a couple of short comes here there and yonder, we think reflects the strength and momentum that we have.

We're excited about where we are.

We're not looking around and blaming our dilemmas on anybody or anything.

It's a difficult environment out there, and yet our preparation over the last 5 years to get where we are right now has been a source of great strength in spite of conditions.

Our job is to get better and serve our customers better.

Our job is to be a better place for our team to spend their career.

Our job is to serve our communities better and our job is to produce a return for our shareholder not withstanding the difficulties of the market.

We know our job.

We accept it.

Ever one of us feel 100 percent responsibility for every one of the things that we're talking about so we're eagerly await the next quarter and the next year and the opportunities that lie ahead to try to differentiate ourselves from the pack and try to earn the respect and the appreciation and admiration of all off our audiences including our good friends on this conference call.

Thank you and we'll stay in touch