Synovus Financial Corp (SNV) 2003 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus second quarter earnings call.

At this time all participants have been placed on a listen only mode and we'll open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Jim Blanchard, Chairman of the Board and Chief Executive Officer of Synovus.

Sir, please begin when ready.

Thank you very much.

Good afternoon, everybody.

We appreciate you tuning in.

I have my normal group of executives in our conference room and we're excited about talking to you about our second quarter as well as fielding whatever questions that you have about the results of the quarter and what you expect going forward.

I think a good place to start is that we're pleased to report a 32 cent per share quarter.

And we, in addition to that, the expensed $5 million in the incentive plans by employees.

That's compared to none – no incentive pay expensed in the first quarter.

So it was a surprisingly good quarter in many, many ways.

And we'll hit all details.

A good place to start, really, on the details, though, is to say that we got very good results in all of the key areas where we and probably most of you have been most concerned over the last quarter or two or three.

For example, in the margin, we saw six basis points compression.

That was really better than the lower part of the range that we had expected, and it certainly represents good results from a lot of effort that was expended on behalf of the margin by the bankers out in the field.

The second area where we got good results was credit quality.

We've increased the non-performers one basis points.

Actually, had only 0.32 ratio charge-off, that was somewhat below our expectations because of some recoveries that came in.

And the past dues are just at historically low levels.

We'll give you details on that in a minute but credit quality has been an area on everybody's mind.

And it was another area of real strength in the second quarter.

That was not surprising, by the way, but it was very, very satisfactory.

And then the other is the area that has concerned people for over a year and probably has subsided down to almost a whisper is the TSYS ability to grow long term.

Of course, the Bank One contract that we announced at the end of last quarter has now kind of settled in and, in spite of some uncertainty and misconceptions early in the announcement, I think it's generally understood now that, in fact, this is a landscape changing event.

This is the biggest single win in the history of TSYS.

And we've announced what the net income per share implications for the Bank One deal are.

I think by now, people are really realizing that this is a major win for TSYS and gives us and everybody a lot of confidence about their ability to grow going forward.

So we got 32 cents for the quarter.

Great results on the margin.

The credit quality and on the TSYS side as well as the good quarter, strong quarter that they announced yesterday.

So I'll be making some forward-looking statements today that, obviously, are subject to risk and uncertainties.

There are factors that could cause our results to differ materially from the forward-looking statements.

And those are set forth in our public reports that are filed with the SEC.

And I'm sure you've seen them and digested them along the way.

I'll start with net income for the quarter.

It was $96.4 million.

That's up 12.2%.

While diluted EPS was 32 cents, up 10.5% for the second quarter -- over the second quarter of last year.

For the first half, now, net income was $186 million.

That's up 10.5% and diluted EPS was 61 cents.

That's up 8.1% compared to the same period a year ago.

Return on assets was 1.88% for the second quarter and 1.89% for the year-to-date.

That's compared to 2.05% and 2.04% respectively for the same periods a year ago.

Like many comments that we'll make, that's impacted more by the margin compression that we've experienced over the last year than any other single factor.

Return on equity was 17.81% for the quarter, 17.54% for the year-to-date.

And that's compared to 19.4% and 19.46% respectively for the same periods.

Our shareholders' equity ended at $2.1 billion.

And that's very strong 10.16% of assets, in total assets grew 21.6% from a year ago and ended at $21.1 billion.

Now, you have to keep in mind that both years reflect acquisitions and divestitures, which impact the year over year comparisons.

For example, we've added four banks in the last 11 months.

GLOBALT was acquired in May of 2002.

So last year's results only included GLOBALT’s P&L for one month.

On the TSYS side, we’ve completed acquisition of Enhancement Services Corporation during the second quarter of this year.

And we'll address the impact of these acquisitions and divestitures as we walk through the financial statements with you on the call this afternoon.

Let me say that there's noise in these numbers because of those acquisitions and divestures.

There is really no noise whatsoever, though, from the standpoint of any real extraordinary items that came along in the second quarter.

All in all, I want to emphasize that the quarter, again, was even more positive than we anticipated and the key drivers, again, being the margin, the credit quality, the fee income and the good results at TSYS.

I want to talk about the margin next.

At 425 compared to 431 and then compared to 471 in the second quarter of 2002.

If you'll recall, we took a significant drop in compression in the margin last quarter, 22 basis points.

I know there was a lot of concern about whether we could stem the tide, and we did.

We believed that we would.

But it's been like guerrilla warfare, quite frankly.

It's been on the street, thousands of our people out there individually doing their part.

And it's really gratifying to see how we mobilized our forces, really, to make sure that the margin compression was minimal.

It really boiled down to adhering to price and discipline on both sides of the balance sheet, deposits and loans.

And I've said this, and many of you have heard me -- really, in all of our careers and I'd say in the careers of everybody in the banking business today, none of us really have had any experience with rates at this level.

And pricing, quite frankly, in this environment, has to be administered by a whole different set of rules.

For example, we put a loan on the books today at half under prime.

We can't make any money on it.

Now, there may be some people out there that can, but we can't.

And so the model that we followed our whole careers, it just doesn't work in 2003.

And so we've had to remodel.

We've had to rethink.

We've had to, again, mobilize forces to go out and make things different than they would have been otherwise.

As a matter of fact, our margin increased each month within this quarter.

It was better in May than it was in April.

And it was better in June than it was in May.

Customer retention has been tremendous during this process.

I think we've validated the relationship banking model that we have.

We've talked candidly with borrowers and, on the loan side, a realistic pricing stance, has had at this point very little impact on loan growth.

We'll talk about loan growth.

And it is slowing.

But you've heard us now for several quarters talk about our desire to see it slow somewhat at this point on the cycle.

In fact, again, if a loan depends on the current rates, in its underwriting, it's probably not a good venture for either us or our customer.

Loan growth on a reported basis was 19.9%.

Again, you have to kind of peel back the onion to understand what that really means.

If you exclude acquisitions and divestitures, fundamental year over year loan growth was 12.5%, but on an annualized basis, linked quarter growth was 7.2% growth, and at the same time, fundamental year-to-year or year-to-date growth was 9.9%.

Now, what that says is that the loan growth was slower in the first quarter than it had been in the last half of last year.

And the loan growth in the second quarter was even slower than the first quarter.

So we've expected this.

We're excited, frankly, about it and we think it's a very positive development for the entire situation that we look at on the loan side.

I mention that we had expected loan growth to subside somewhat.

And it's certainly appropriate that at this point in the cycle that that occurs.

A focus on credit, the margin, lower provision levels, and then cross-selling the other products that we offer to existing loan relationships, we believe will more than offset this moderation in loan growth.

And then, as the economy improves -- which we believe it's doing and will continue to do as this year finishes -- we'll be poised to get back out there and lead the way in generating earning asset growth, given the strength of our decentralized network of banks.

Our net interest margin also benefited from core deposit growth, existing acquisitions -- if you exclude acquisitions and divestitures then core deposit growth was 13.3%.

Again, we think that's a testament to our decentralized banking approach.

The growth in core deposits was led by N.O.W. accounts, which increased 28.9% and demand deposits accounts, which increased 24.2%.

So, again, another boost to the pressure we're feeling on the margin side.

I mentioned the confidence that we feel about credit quality.

NPA ratio was 73, compared to 72.

While the charge-off ratio for the quarter decreased to .32 from .37, and that's on a length quarter basis.

For the year-to-date charge-off ratio is .34 and that's down from .37 in the first half of 2002.

And then, again, maybe the best indicator of all on loan quality our past due levels are at historical favorable levels with total past dues at .92 and our greater than 90 days past dues at .20 of total loans.

Those are great numbers.

They're in the ranges of the best numbers any of us have ever seen.

And it is just a significant part, I think, of the confidence we have and the assurance we continue to give you not to look for us to surprise you on the negative side as far as credit quality.

In that environment, the loan loss provision decreased to $16.6 million in the second quarter from $20.3 million in the first quarter and $20 million in the second quarter of last year.

And that's due, obviously, to lower charge-offs and slower loan growth.

And I don't have to tell you what that combination means as far as the provision expense.

On a year-to-date basis, provision expense is $36.9 million, compared to $33.1 million.

And our coverage in the quarter was 1.32 and it's 1.40 for the year-to-date.

As the loan growth slows and the charge-offs go lower, obviously that number goes lower as well.

Let me turn to fee income growth because we're right amazed that it continues on a very good track.

It's a part of our strategy.

You know we ended the quarter at 29.5% fee income to total revenues.

Our goal is to get 35%.

We think that's kind of a minimum for a high performing banking company.

That's excluding TSYS.

When you throw that in, it gets up to .60 for the quarter.

But the financial services side of our business had non-interest income growth of 42.4% for the quarter and 33% for the year.

Now, let's core out and take out the acquisitions, the divestiture, and you'll recall the impairment loss that we recorded in the second quarter last year, which significantly impacts these numbers.

So if you exclude those items and securities gains, the non-interest income is up 18.7% for the quarter and 20.2% for the year.

There are -- well, there is one major key driver of that number, although all of the components, we feel pretty good about.

The key driver is obviously mortgage revenues bear up 116.2% for the quarter, 97.6% for the year.

And ourselves charges on deposits are up 8.4% for the quarter and 8% for the year.

Just very briefly on financial management services.

Revenues there, we report a 9.5% year over year gain.

And they are basically flat compared to last year, excluding acquisitions, which, again, we feel is really good during this environment where asset bases are diminished and fee income off the money management piece is lower.

We made that up and I'll go into some detail on this in a minute by adding a net – net adds that have been in excess of our targets for this year and for last year.

Our financial management services unit added $1.1 billion in new assets under management during the first half of 2003.

And that's against a goal of $1.5 billion for the entire year of 2003.

We ended the quarter with assets under management now just right over $13 billion.

Now, about the financial services on the expense side.

Again, this is consolidated performance less TSYS.

The expenses on the reported basis are up 27.5% for the quarter, and 17.8% for the year.

Again, take out the acquisitions and the divestures and you have -- and it's a significant difference.

In fact, let me mention the efficiency ratio for the year-to-year or year-to-date is 53.55.

That's up for the first time in a number of years from the 51.82 for the same period last year.

But, again, you can chalk that up to the margin compression over the past year.

In fact, our net overhead ratio, which is more keyed to the expense base of the company has improved against the second quarter of last year.

To really get down the core fundamental growth, though, in expenses, exclude acquisitions, exclude divestitures, exclude mortgage banking G&A for a minute, because it's so unusually large.

And exclude time and differences on incentive pay expense and exclude the merchant loss that you remember from last year.

On that basis, just the fundamental expense growth to support our financial services business is right at 6.8%, ahead of last year.

And then it's important, I think, to know that total headcount has increased only 2.8%, compared to a year ago.

And then another very important statistic is that our core infrastructure expenses for our support companies are up only 4% against a budget of 4%.

And the remainder of the growth and expenses in financial services is predominantly in the front line, where our growth is the greatest, in our highest growth banking markets.

We expect to continue to maintain G & A expenses at these levels.

And that's in spite of some significant investments that we're making in our -- in the development of our new banking platform, in our expanded training network, and in a beefed up, enhanced sales and marketing infrastructure that's really bearing some great fruit as well.

Let me quickly turn to TSYS.

Yesterday they announced their results for the first half.

Net income was up 14.8% for the first six months, compared to -- well, that's $66 million, compared to $57.5 million for the same period a year ago.

Diluted earnings per share for the first six months was 33 cents, compared to 29 cents.

And total revenues for the first six months, when you exclude the reimbursable items, increased 12.4% over the same period a year ago.

The major growth contributors at TSYS were strong growth from existing customers.

That was up 11% for the quarter. 39% revenue growth from international clients.

And cross-selling activity that was up 15% for our value-added services.

You've got to appreciate the tremendous pipeline of accounts to be converted at TSYS.

That's anchored, of course, by the Bank One conversion during the latter half of 2004.

I've mentioned the earnings impact that that has for this year, which is slightly positive for next year and the year beyond, and then for the license period.

And it's -- I think the way to put it is, the best deal we ever made.

We're excited about it.

We look forward to the conversion.

It's going well at this point, and it's a great breakthrough for TSYS.

And, again, it's that validation that exceeds anything else ever that TS2 is literally the gold standard in this business.

TS -- Total Systems on track to finish the second half of this year and should be within their net income guidance of the 12% to 15%.

Let me mention Sears very briefly in the context of TSYS.

The announcement was made I guess yesterday that Sears' portfolio will be sold to CitiGroup.

I know there was some anxiety in the market today over TSYS.

Most of that subsided by the end of the day.

But let me tell you how we're looking at it at TSYS and how we're looking at it at Synovus.

One, Sears is one of the best customers we've got.

Two, Citicorp is another one of the best customers we got.

As you know, they're our biggest commercial card customer.

We're in constant dialogue with them all the time.

We have had no formal conversations with them about the Sears account, but, informally, we've had conversations before and since the announcement.

We did not know who the winner would be until it was announced.

But the way we're looking at it is, we've got a seven-year contract.

We have a significant pre-payment penalty involved.

Citi has a habit of not pre-paying, but of working through contracts on portfolios that they acquire.

We expect they will either do that.

Were they to make a pre-payment, our pre-payment represents approximately the cash flow of the revenue for the remainder of the seven years, the present value of it.

But I think you've heard us say this before.

Every time something like this happens, it opens up an opportunity for us to sit down, have dialogue, negotiate.

And the potential for further enhancing our posture and potential with CitiGroup is exciting to us.

And I notice they made some -- in fact, they've made a lot of news in the last two or three days with their dividend, their purchase of Sears, their succession announcement this morning.

They're a leader in the business.

And, as far as we're concerned, it -- at worst, it represents great opportunity for us to have further dialogue.

And at best, it certainly opens up further potential for us with the biggest player in the business.

I'm going out on a limb.

Anybody that would panic over the announcement on Sears doesn't really understand the situation at all.

And we're just looking forward to opening up formal conversations with them going forward.

On the share repurchase plan, I wanted to update you, too, for those of you that may not know, that as of June 30, 2003, we acquired approximately 5 million shares at a total cost of $100.8 million.

We had announced in the beginning that we would rapidly execute the first half of this share repurchase plan that was authorized at $200 million.

Frankly, the pace of future repurchases will depend on all the various factors that you're familiar with -- price, market conditions, acquisitions, the general financial position of Synovus's capital planning, dividend policy, all of the things that will be a factor.

And we're frankly very excited.

It's a good financial transaction to have done what we did.

We will just play it by ear on the second half.

On our earnings guidance for the year, we remained confident that our 2003 earnings per share growth will be in the range that we've discussed previously at 4% to 8%.

Frankly, our confidence about our performance in the second half of the year is buoyed somewhat by our belief that we've taken significant steps to mitigate the further deterioration of the margin.

And in particular, the most recent 25 basis point reduction, as well as what remains in this company, just a very high degree of confidence about our credit quality indicators and the fact that we believe we'll be looking at .65-ish non-performers by year end and in the .33-ish net charge-offs for 2003.

And we're also encouraged, quite frankly, by the resiliency of our team members and their ability to get out and respond to the challenges that this current environment gives us, as well as the challenges that we issued from headquarters here to react to the market conditions that exist.

Jimmy Yancey in our board meeting today told the board that he really thought in his entire career -- which, as all you know, dates back to 1959 -- that it's the best performance by Synovus's team in his career.

We really think that that's indicative of the kind of job that's been done.

And in every category, we feel like that we're positioned to do well.

You know, we're reading all the other guys' releases.

We think we stack up there with any of them.

And at .88% and .89% return on assets, we're not coming off a low base.

We're coming off 2.05% return on assets last year, which is, I think, the second highest return on assets in the sector, in the top 100.

And we think we'll be right up there in the best one or two or three or four again this year, given all the conditions that we faced.

So that pretty much wraps up how we feel about the quarter.

And we'd love to field your questions and drill down to wherever you'd like to go.

Thank you, Mr. Blanchard.

Ladies and gentlemen, the floor is open for questions.

If you have any questions or comments, press the numbers one followed by four on your touchtone phone at this time.

Pressing 14 a second time will remove you from the queue should your question be answered.

Lastly we do ask that while posing our question, you pick up your handset if listening on speakerphone for optimal sound quality.

Please hold one moment while we poll for questions.

The first question is coming from Todd Hagerman of Fox-Pitt Kelton.

Sir, your line is now live.

Good afternoon, everyone.

Good afternoon, Todd.

A couple of things for you, Jim.

One, if you could, just briefly comment in terms of the feedback that you're receiving from some of your customers as you go out and visit with clients and accounts and so forth, what the folks are telling you in terms of their outlook and whether or not they're feeling any better in the current climate.

And I'll go with a follow-up after that.

Yeah.

I think for several weeks now -- and if you want to put a pin in the map, maybe the -- kind of the victory declaration in Baghdad -- although, obviously, we're in a messy situation over there getting the governance in place.

But the pin in the map would be about, then, that confidence began to arise on the polls and the indicators, that the stock market started telling us that things were better.

And anecdotally and really beyond anecdotally, we're getting the sense that people feel like the worse is over.

I don't think too many people are as rattled by Mr. Greenspan's concern about deflation as sometimes the market appears to be.

And, then, probably the greatest evidence is the fact that on the TSYS side of the house we're seeing real active conversations taking place with big issuers, who represent big companies who have been in a bunker as far as investment risk taking, changing major systems or what-have-you.

And I can testify to you that people are starting to think about the future, plan ahead, prepare themselves to be ready for the next iteration.

And, so, all of that combined, Ted, tell us -- tells us that we are looking for better – more improvement in the economy the rest of this year and beyond.

Now, you know, the question I get so long is, what about loan demand?

Well, you know, you can't gauge totally any change in loan demand here based on the economy.

Because we've been trying to slow ours down for a year and a half and now we're seeing it.

And we're just as confident that when it's time to start back up again, we'll be able to get our share and more.

So if you wanted to look at loan demand, that would be another indicator that we think is positive.

But we can't see anything other than a rearview mirror look at where we've been that is causing people to still have that level of anxiety, say, that we've had for the last year or year and a half.

Great.

That's helpful.

And then if I could, just in terms of, if you could provide a little bit more color, just in terms of your pricing strategy, particularly on the asset side of the balance sheet.

You really were able -- you did a terrific job this quarter in terms of really holding up the yield on your assets relative the last couple of quarters.

I'm just wondering how you feel, kind of given the loan pipeline and your margin guidance from last quarter, just in terms of the sustainability and kind of what strategies you're working with over the -- for the next quarter or two in that regard.

Well, just very briefly, one -- and this is not on the loan side, but let me hit it.

We're pounding on deposit rates again.

We've said three times now you can't go any lower and we keep going lower because we have to.

But on the pricing side, we've got $400 to $500 million worth of loans coming due every month and that's where we're getting some of our lift.

And we still have -- even though our loan growth has slowed, we're putting new loans on the books faster than a lot of people.

And that's where we're getting other parts of our lift.

And then, frankly, in some cases we're just one-on-one talking to our customers about the relationship and pricing model and the unfairness of the current rate environment.

We're reminding a lot of our customers back in the early '80s when the prime was 21%, we were charging them 12% and 13% and 14% and 15%.

We were doing that out of fairness and we're having that conversation with customers as well, about fairness.

And particularly on the commercial real estate side, there's a lot of developers that know this is the best deal they ever had.

And we're not getting a lot of pushback.

And I've had people express skepticism about that.

But I'm just telling you as best I can -- and I hope it's believable -- that you can count on one hand the pushback we've gotten that's resulted in the loss of a customer to a competitor over a lower rate when we were trying to add a few bases points to it.

So that gives us a high level of confidence.

Now, we believe that if the fed lowers the rates 25 more basis points, it will make it even harder for us, but it won't make it impossible for us to hold our own even there.

It will be a plus for us if they don't go any lower.

So we are all praying they don't.

If you all want to join us, we'll welcome your support.

All right.

Thanks very much.

Appreciate it.

Thank you.

And thank you.

The next question is coming from David George of A.G. Edwards.

Mr. George, your line is now live, sir.

Good afternoon.

A quick question on credit quality.

I know charge-offs were obviously down in the quarter.

There was a small increase in NPA and over-90.

Can you provide any color as to what portfolio in particular that came from, was that CNI, CRE or consumer?

I'm going to let Mark handle that question, if you will.

Mark Holladay is our Chief Credit Officer.

Yeah, the NPA was in the hotel sector.

We had a loan in Florida, one of our Florida banks, Hampton Inn, that we put on non-accrual.

That loan we did have in our forecast for the quarter.

We were anticipating that we would have an issue with it.

We had -- we've had two offers on the properties that would take us out without a loss.

But we -- the customer is in Chapter 11, so it's going to take us a little time to work through that.

In terms of NPAs overall, if you look at our commercial real estate, non-performing assets, about 38% of our loans are in the CRE sector.

About 52% are in the C&I sector.

Then about 10% are in the consumer sector.

So it's not been a lot of variance.

And if you look at our past dues and the past due ratios, pretty much the same thing.

About a third of our past dues are 28 basis points are in the CRE sector and about 28 are in the consumer sector.

The rest is in the CNI sector, so there has been no real variance there in terms of percentage changes in the past dues.

Okay.

That's helpful.

And, Jim, did you say you had expect -- you for the year were expecting MKs to be around 65?

I apologize if you have to repeat that.

Yes.

That's fine.

We'll repeat that as often as anyone wants to point it out, because, really, at .73, we think we compare very well.

We are still talking about onesies and twosies kind of stuff, and at .65 we'll look about as good as anybody, particularly if we see what we expect on the charge-off side at about .33.

Appreciate it.

Thank you.

And thank you.

The next question is coming from Jeff Davis of FTN Midwest Research.

Mr. Davis, please go ahead with your questions.

Thanks.

Good afternoon.

How are y’all?

Fine, Jeff.

Strategic question, Jimmy.

On the second half of this year, are we likely to see any bank acquisitions from Synovus?

And secondly, are see seeing any more books from banks looking to sell?

Along the same lines, over at TSYS, since we still have the minority interest out there, your current thoughts on that, whether you bring the minority interest in or expand it through using TSYS as a currency.

I don't think we will see a bank acquisition between now and year end.

If we do, it might be one.

There's nothing imminent.

We don't anticipate at this point that we would have any divestitures either, as we have over the last three years had a number of branches and banks.

At TSYS, I don't anticipate any additional acquisitions during this year.

And I don't really anticipate, Jeff, that we do anything with respect to the 80% ownership of TSYS.

As you know -- and I've said it over and over again.

I would love to own 100% of it.

But that's not in the cards probably at this point.

It's certainly my preference, longer term.

It's always possible that given an environment that's different than we see now, that spinning that company out and letting it go on its own is a strategy we -- that's why we think maintaining 80% is important.

But I think expect a status quo for now and the foreseeable future.

It's not representing any significant impediment to either them or us.

And there's a lot of synergy that goes with the two being together like they are.

Okay.

And could I get you to comment on loan demand by region?

Specifically, maybe Atlanta and then also Florida?

Yes.

I'm going to let Mark tackle that one as well.

Okay.

First of all, in terms of loan growth, our CRE is still the fastest growing sector.

It grew at about 12.5% annual pace.

Then our CNI sector grew at 1.5%.

And our consumer sector grew at about 1%.

But if you look at the breakdown of region, if you look at our coastal regions and Atlanta, the Atlanta region and our other areas, they are very, very comparable.

There's not a lot of differential in the growth rates.

Atlanta is growing at just a couple of points faster than the rest of the portfolio.

But overall, the whole portfolio is growing fairly well.

On a quarter-to-quarter basis, our fastest growing banks actually -- one in Atlanta.

The rest were outside of the Atlanta sector in terms of the pace of growth they had.

We had about 10 banks that grew at a 20% pace or better.

And all of those, with the exception of one, was outside of the Atlanta sector.

Okay.

Very good.

Thank you.

Thank you.

Thank you.

And the next question is coming from Christopher Marinac of FIG Partners.

Sir, your line is now live.

Thank you very much and good afternoon.

Hi, Chris.

How is everything at FIG Partners?

Great.

I want to ask about the share repurchase initiative over the last quarter.

Will we see more in the second half of the year and to what extent is the tangible capital probably going to continue to fall slightly on a near-term basis?

I'm going to let Tommy Prescott field that one, if he would.

Chris, it's good to hear from you at your new firm there.

We had mentioned a while ago that the plan on the share repurchase plan would be to undertake the second half of authorization in a real deliberate fashion, just being in the market from time to time, based on all the normal considerations.

Obviously, we just have to watch those play out to know exactly when and how that will happen.

But we are -- we will be in constant consideration of that.

The -- what you saw in the capital ratio is just kind of benchmarking against year end is the total risk/base capital ratio actually grew a little bit.

That's largely due to the subordinated debt that went on in the first quarter.

While the tier one capital ratio backed up some.

And that was modestly impacted by the share buyback.

The majority of that impact had to do with the acquisitions and the fact that cash was used in some of the acquisitions and that there were intangibles in them.

That 10% ratio, of course, is still 400 basis points over the required minimum.

So we've still got plenty of room there, Chris.

Sure.

Tommy, would you expect to permit the leverage ratio to fall further from where it is now?

The leverage ratio at 9.62 has a little bit of room also.

And we don't have a plan to take it down, but would be willing to do so for the right cause.

Okay.

That's all.

Thanks.

Chris, I might just add this.

That we're not making any declarations.

But we're very aware of the comments that have been made recently about dividends and their attractiveness, say, relative to stock repurchase.

And we're having conversations about that to try to sort out our thinking on that.

But that's another factor that is pretty interesting, really, when you think about the new tax law.

So, Jim, is that a topic for the next board meeting?

Or will you make a decision later for that?

I just really can't say that it's a topic for the board meeting.

But it's certainly a topic – it ultimately will be a topic for the board meeting, particularly if we have any kind of revelation around here around the executive table.

Very well, Jim.

Thanks.

Thank you.

And thank you.

The next question is coming from John Pandtle of Raymond James & Associates.

Sir, your line is live.

Thank you.

Good afternoon, everyone.

Jim, I have a question.

I notice in the press release you mention that you -- the issue of achieving historical levels of earnings growth.

I was wondering if you could perhaps quantify what your recent thinking is on that issue and how that is comprised between the bank and Total System.

Yeah, super question.

John, the -- as you know, if you go back to 1983 with TSYS, we got a historical EPS growth rate of 24.4% since that company started.

That's 20 years.

This company -- this company this year is in the 12 to 15 range and I think you and probably everybody else on the call is very familiar with the background of all of that.

You've got a tremendous growth company here that in normal circumstances, we think, has the kind of potential to grow at historical levels, even though on absolute terms, the percentage increase gets harder and harder the bigger they get.

And then from a banking standpoint, you've got a bank that has proven it can grow – well, EPA’s grown 15.5% for the last ten years on average.

Our decentralized system and our ability to win in the marketplace, look at the loan growth, look at the deposit growth on the banking side of the house.

There's no reason that in more normal times, this isn't a growth bank, like it's always been.

And then you add to that the fact that we're three years into our financial management services business as a line of business.

We hit it about at the worst markets since the Great Depression.

But we'll move the fee income indicator from just under 30 to over 35, we think, pretty quickly in normal markets.

And we don't think we would stop at 35.

So that gives you additional drive power for growth as well.

So, now, the question is what's normal times?

And I don't know.

And you don't know.

And it may be that where we are right now is normal for a while.

And if it is, then our historical growth of 15% certainly isn't realistic.

And we won't try to squeeze it out at a rate that's unrealistic.

But given a return to -- and I don't mean the boom years of the last -- of the late '90s.

I'm talking about the last three decades.

Given a more normal environment as we are used to, assuming that we'll get back to that, there's no reason this company can't continue to be the growth company that it has been.

Okay.

And, John -- and, John, this is -- I'm like the trial lawyer, now, that made one comment too many to the jury.

Uh-huh.

But we're not really feeling like we've got to apologize for four to eight this year either.

We're feeling pretty good about it from the base that we're operating off of under the current environment.

Okay.

Then if I could, just a quick follow-up.

You know, the 15% growth at the bank, you know, I'm not trying to peg you down or hold you down to a number but, you know, just hypothetically, if it's 12% to 15%, how much of that would you expect over the next few years would be driven by acquisition growth?

Typically, if you average it out over the last five, six, seven years -- which is kind of the current iteration of our acquisition strategy, it would average 1.5% to 2% of the total.

So it's a minimum amount, but it's something.

I mean, it's a line of business as such.

But the fundamental growth of the banking side of this house, particularly when you add what we expect on financial management services, is – you know, that's pretty attractive in and of itself, standing alone from whatever acquisition impact we get.

Hey, thank you, Jim.

Thank you.

Thank you.

The next question is coming from Nancy Bush of NAB L.L.C.

Ma’am, your line is now live.

Good afternoon, gentlemen.

How are you?

Congratulations on a good quarter.

Thank you.

I appreciate you saying it.

In the first quarter when there was -- when we were talking about the commercial real estate portfolio, et cetera I think there was some talk about sort of an ongoing process there of looking at the whole topic of risk management and how you know, that might lead to some changes.

Is that process still ongoing?

And if so, when do you expect to be able to share something with us about, you know, how processes or whatever may change?

Yeah.

Thank you for asking that.

And we did have -- we've had that conversation for the last couple of calls.

One, commercial real estate is the best thing we've got in the portfolio.

It always has been.

I'm not going to say it always will be.

But if it isn't, it will be something dramatically different from what our experience is.

Two, we've been criticized for a, quote, concentration, unquote, which we take an exception to in some ways because our owner-occupied is usually lumped in.

We think you have to take that out, because we're not looking to the real estate there.

We just happen to have real estate as collateral.

And if you look at our concentration or our loan by purpose percentage, that would be in the -- closer to 33%.

And that matches up pretty good with the $1 billion to $5 billion banks around the country.

It would be a little higher than the bigger banks.

But the community banks – and we basically run our 40 as community banks – it’s pretty close.

But having said all that, we're sensitive to the criticism and we're certainly aware -- if we know anything about commercial real estate, we know that we're in the tenth year of a real estate boom and that ain't going to last forever.

So for a year and a half now, we've been braking the pedal somewhat.

We're slowing down our builders.

We're slowing down development, slowing down this.

At this point, we're not taking on new commercial real estate customers, all with an idea of moderating our growth there and addressing this issue of concentration.

And in addition to that, we're working diligently on the consumer side to try to be a lot bigger factor in our markets with private banking, with home equity loans and our credit card portfolio is really an underachiever.

So we've got a lot of things going on that will have the impact, I think, of ameliorating some of the focus that's been on commercial real estate.

I don't see us abandoning that sector, but I do see it becoming less and less of a focus.

And then, of course, as you know Nancy, once the crisis or the concern is past, everybody will be hollering at us about how come our loan growth isn't higher.

But we're not there yet.

And so I think that's how we're addressing that issue that you raised.

Jim, if I could also ask on this -- the control in the margin for the quarter was quite remarkable.

I think the compression in the margin was a lot less than certainly I had expected and probably you had expected.

What do you -- are you going to be able to maintain this discipline in the margin going forward?

You know, how do you see it playing out from here?

Yeah.

I think we are as encouraged about that as anything.

We are -- we're not gloating over the success we had.

It was a more successful attack on the margin compression than we had expected in the second quarter.

But we've got a real high level of confidence that we're not going to lose energy on that subject.

We're not going to lose focus.

And that we're going to continue to do the things that we've been doing that have been effective.

And that's why we're pretty confident about the rest of this year and beyond.

And then eventually, and, you know, how long is eventually, we'll see a turn in the rate environment and we're very well positioned for that.

Thank you very much.

Thank you.

And thank you.

Your next question is a follow-up from Jeff Davis of FTN Midwest Research.

Sir, please go ahead.

Jim, I think TSYS repurchased, what, 500,000 shares last quarter of the 2 million authorization?

That's right.

What are the plans for TSYS's repurchase activity for the balance of the year?

I think their plans are identical to ours.

They're just watching it every day, looking at it.

They feel no urgency to run out there and do anything with the remainder of their authorization.

But depending on all those factors that I mentioned, they'll act accordingly.

Okay.

And were y'all more active in the first half of the quarter versus, say, the month of June?

Yes.

With both companies?

Yes.

All right.

Thank you.

Thank you.

And thank you.

If there will be any final questions or comments, please indicate so now by pressing one, then four on your touchtone telephone.

Mr. Blanchard, no one has entered the queue.

Do you have any closing comments you would like to finish this great quarter off with sir?

Thanks.

I would like to thank everybody for attending.

That's I think a record attendance for us.

We appreciate your interest.

The encouragement we get along the way, the friendships.

And we're hustling hard to figure out what to do next and are optimistic that what we're doing now is working well.

Can't wait for the next quarter and the last quarter of this year and, obviously, for that day where these clouds that are clearing at this point get totally cleared out.

And we don't think that's all that far away.

So we thank you for attending and we'll be in touch.

Thank you, ladies and gentlemen.

That does include the Synovus second quarter earnings call.

Please disconnect your phone lines at this time and have a great day.

Thank you for your participation.