Synovus Financial Corp (SNV) 2003 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to Synovus' third quarter earnings conference call. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to your host, the Chief Executive Officer, Mr. Jim Blanchard.

Sir, the floor is yours.

Thank you.

Good afternoon to all the listeners who have dialed in to listen to the results of our quarter and to get some updates on some other pretty exciting events that have taken place around here today.

I want to just make a broad characterization of the quarter, if you will allow me, before I talk about the activities of the Board today.

But I think that our sense here is that this is probably the strongest just most fundamental basic nuts and bolts, blocking and tackling kind of quarter we have had since this interest rate environment has really bottomed out.

In every respect, without any real significant moving of parts I think we really hit the center cut of the target in the quarter.

And I am really very proud of our team for producing the results that were produced.

We will go into those details later.

I want to tell you that the Board made significant changes in our leadership group today at the recommendation of our management team.

I hope you have received that press release as well.

And I have with me a room full of people here, including Jimmy Yancey and Richard Anthony, who were involved in the significant changes that were made this afternoon.

In the press release you'll notice that Jimmy Yancey was named Chairman of the Board of Synovus today.

Richard Anthony was named President and Chief Operating Officer.

And I was designated as the Chief Executive Officer where, as all of you know, my previous title had been Chairman of the Board and Chief Executive Officer.

This is the results of a couple of forces at work.

One of which you have heard discussed in this conference call for going on three years now.

Actually for three and a half years our Succession Committee has been meeting and discussing the succession of the Presidency and Chief Operating Officer and the Chief Executive Officer positions.

We, as you have heard me say, have a group of highly qualified senior executives in this Company that have been a part of that conversation.

Today we took the first step towards succession.

And I am sure your question will be, what is the next step and when?

And there are no next steps planned, and there is no timetable.

So we will make the next step just like I think we have made the first step, in a very measured, orderly, evolutionary sort of way.

And I believe over the next few years as we evolve into a new senior executive leadership team in this Company, it will be done in kind of a normal, without a lot of fanfare and without a lot of trauma kind of a way.

I would like to think that all constituencies that we serve will feel like that we can handled succession hopefully like we handle most everything else, and that is in a very professional and thoughtful sort of way.

Jimmy Yancey, in his role as Chairman of the Board will be a key part of our management team, as he has for the last 44 years.

He won't be the Chief Operating Officer anymore.

And he will be the Chairman of the Board.

He will be involved in the Board activities that go with that position.

And he will primarily be focused on what he is so great at and that is customer relationships; customer development; the customer covenant, which is such a key part of our growth strategy.

And he will still have a very key role in our growth initiatives.

And as you know, Synovus is a growth Company.

We feel like we can grow on the banking side, on the fee income side, and on the TSYS side with the best of them in the sector.

We have done that for three decades.

We expect to do that going forward.

And Jimmy Yancey is going to be a key part of that growth going forward in his new role.

Richard Anthony will serve frown the day forward as President and Chief Operating Officer.

He will be now responsible for the day-to-day operations of this Company.

He will be the one that the rest of us will look to to be driving the agenda.

Both these guys, as you know, are just tremendously important to our team.

They give us a life and a vitality and a leadership that is exceptional.

Jimmy is really a part of the heart and soul of this Company.

Richard has brought a level of professionalism and expertise to our Company that really has our banking operation in the best shape it has ever been in in our history.

I don't expect my role to change that dramatically, but really look forward to working with Jimmy and Richard and our entire senior team in this new lineup.

Obviously there will be future moves to come.

I am not going to predict what they will be or when they will be.

But I believe that we have made a first step here that will give us kind of a posture and a position and a standing that is going to help us optimize our potential and our performance going forward.

And that is really where I want to start our discussion about the quarter.

If you look at our quarter, we've got one story here basically.

And that is margin compression that we have experienced in this period of very, very low interest rates.

As you know, we lost 22 basis points in the first quarter.

We declared victory in the second quarter with only a minimum continued loss of margin.

And we are declaring a double victory in the third quarter with only a 3 basis point drop, even though the average prime rate was 25 basis points lower.

I don't know that we have ever done a better job with anything than we did managing both the loan pricing side of the balance sheet, as well as the deposit cost side of the balance sheet, with this last drop that was in the middle of the summer.

And to manage that to almost flat a margin in the third quarter was just exemplary.

And I think we got even better news coming on the margin for the remainder of this year and beyond.

Let's look at the quarter a little more broadly; however, I'm not trying to limit you and your outlook, but for us margin stability is the big part of the story.

Another big part, which is on everybody's mind is credit quality.

And that is an equally big part of this story.

Certainly an exemplary part of the Synovus story that we have maintained the kind of credit quality that we have throughout the past two and a half years.

And as we have told you in the past, we expect nonperformers to be below 70, in the high 60s by year-end.

And all of the predictions that we have made over the past year on nonperformers have been on an annual basis.

We had an outstanding mortgage quarter, but we don't expect that to continue.

Frankly, for every dollar we give back on the mortgage revenue side, we will make up 5 or $6 on the margin side.

So we're looking forward to the day when we can look for rates to turn back up.

And then, of course, solid performance at TSYS.

If you listened to their call yesterday, they expected their third quarter to be one of their -- to be the weakest for the year.

As it turned out, it was stronger than expected.

Those guys do a great job of managing their costs.

They have an underlying growth rate that is inherent to our Company that is a real source of strength to the entire Synovus consolidated performance.

So net income then for the quarter was 100 million.

That is up 8.4.

Diluted EPS was 33 cents.

That is up 7.5 over the third quarter of 2002.

For the nine months net income is up 9.7%, while diluted EPS at 94 cents is up 8.4% compared to the same period last year.

Our return on assets was 1.91% for the third quarter and 1.89% for year to date.

That is compared to 2.06% and 2.05% respectively last year.

And that basically margin compression again, more than any other factors.

Return on equity is 18.32% for the quarter, 17.80% for the year.

That is down as well compared to 19.12% and 19.34% margin compression.

Again, the reason of course, a growing capital base with shareholders' equity of 2.2 billion at quarter end at 10.35 percent of assets.

And then total assets in the quarter end were 21 billion.

That is up 13.6 percent from a year ago.

As I said, margin is the big story.

It was 422 for the quarter.

That is compared to 425 in the second quarter and compared to 464 in the third quarter 2002.

Our year-to-date margin of 426 is compared to 470 a year ago.

If you take the GAAP, and this is kind of a but for, it may be kind of like a quarterback that said but for those three interceptions.

We are not saying that this is normalized, but it does broaden and stretch your mind, I think, to the extent that we are able to see some gaps.

And our big gap in the year so far is margin compression.

It amounts to about $72 million.

I would invite you to overlay $72 million on top of our earnings performance and see what that gets you.

The second gap that you have heard us talk about consistently is the gap in fee income.

Four years ago when we started talking about that gap, our fee income as a percentage of total revenue was 22 percent.

At the end of this quarter it is 29 percent, and we see that gap as the difference between 29 percent and 35 percent.

That is another $35 million.

And let's just say for the sake of argument, we didn't lose any margin, but we give back, let's say we calculate 12 million in revenue on the mortgage, which was over and above the norm, but because of the low interest rate environment.

You're talking about a $58 million net income gap.

And if you just for the sake of argument overlay that on top of our performance for this year, you will have about a 23.5 percent increase.

And he will have about 2.24% return on assets.

I don't want you to get me wrong, where I am coming from.

But I want you to know that that is how we're thinking about our optimum capabilities.

And that is where we think we're heading.

As rates have leveled, they ought to be heading up at least when the next move comes.

And when that comes, your guess it as good as ours at this point.

But there is no question, we will move from 22 as we had to 29.

And we will move on the 35 on fee income.

And we will fill that gap.

And that is pretty exciting when we see the kind of potential that we think we have for continued improvement on our performance.

The margin for this quarter was only a modest 3 basis point decline from the previous quarter.

Stability was due primarily to strong pricing discipline on both loans and deposits.

Our bankers literally, at the direction of our senior leadership, have moved quickly to adjust where they can deposit rates, and really overcome the drop that occurred on June 25th in the prime and by the Fed action.

We continue to emphasize daily, hourly if you will, our loan pricing.

And that is also having a very positive impact on the margin.

Let me talk about the outlook for the margin.

And that is a dangerous occupation.

I almost want to say it is an endangered species to be making outlook comments on the margin.

But assuming no change in interest rates, we expect that our margin is going to show some modest improvement going forward, between now and year end and as we head into next year.

A key component of that is the ability we have shown in the last several months to affect loan pricing and deposit pricing positively.

We believe a further downward repricing of fixed-rate liabilities is going to help somewhat going forward increase the margin.

And any increase in short-term interest rates is going to significantly improve our margin, because we continue to maintain a very asset sensitive balance sheet position.

I think you have heard us say that we estimate that about 66 percent of our loans are priced to float at some factor of the prime.

Turning to loans, they increased 13.2 percent compared to the prior year.

If you take out acquisitions and divestitures, our fundamental year to year loan growth was 9.3 percent.

Loan growth did slow during the quarter as we have predicted to you.

And as we have said now for a year and a half, we basically have been exercising prudence.

Particularly on the commercial real estate side, we have slowed our builders down.

We slowed our developers down.

We're discouraging certainly in some categories new startups.

We have been encouraging some of our VARS to sell some of their real estate at the kind of prices that exists today, or even seek out long-term fixed-rate loans from the traditional long-term providers.

Our link quarter growth on an annualized basis was $87 million, or 2.2 percent for the quarter.

I think you ought to look at that as a little bit of an aberration.

It is basically kind of fell out that way.

I think in the last month of this quarter the loans grew about 11 percent.

We would expect somewhere may be around 7.5 percent for the rest of this year in the fourth quarter.

But it is a moderation of that loan growth that we basically have been calling for now.

And as you know, you don't get it the minute you call for it.

But this quarter we saw a manifestation of what we have been expecting.

Beyond a little bit what we expected, but it should normalize really in the fourth quarter and beyond.

I want you to know that we have a very high degree of confidence in our ability to grow earning assets.

We're seeing a pickup in the C&I activity.

We're emphasizing, as you know, our consumer portfolio.

We saw some real progress in that in the third quarter.

And so our ability to grow earning assets remains one of the real strengths of Synovus.

We believe that what we have done is focused on the credit, focused on the margin, lowered provision levels as a result, and cross selling our other products to existing loan relationships.

And that is more than offset this short term moderation in loan growth.

And again, as the economy improves, we will be poised to lead the way in generating earning assets, given the strength of our decentralized system, our charters, our Presidents and our Board of Directors.

On the deposit side, if you, on a year-to-year basis exclude acquisitions and divestitures our core deposits grew 11.6 percent.

Again, that is a reflection of the strength of our decentralized approach, and our ability to grow core deposits commensurate with our asset growth.

The growth this quarter was led by 22 percent growth in demand deposits, and 18 percent growth in NOW accounts, and a 16 percent growth in money market accounts.

On the credit quality side, again, our indicators were again strong and remained consistent with the previous quarter.

The NPA ratio was 0.73, identical to the NPA ratio at the end of the second quarter.

The charge-off ratio was 0.32 for the quarter, again identical to the previous quarter.

And it is 0.34 for the year to date.

Past due levels, however, were extremely favorable with total past due loans at only 0.70 percent of loans.

And our greater than ninety-day past dues are 0.15 percent of loans.

Again, we said this a couple of quarters ago, but those numbers represent the best past dues that any of us around here ever remember in our history.

And both were down from the second quarter.

I said this, let me say it again.

We expect our nonperformers to be in the high 60s by year-end.

And our charge-off ratio to be right where it is through the third quarter.

The provision for loan losses was 15.1 million in the third quarter.

That is compared with 16.6 in the second quarter, and 16.4 in the third quarter of last year.

And that is pretty obvious that it is due to stable credit quality and lower loan growth levels.

On a year-to-date basis, the provision expense is 52 million.

That is up from 49.5 million a year ago.

On the fee income side, our growth in financial services continues on a pretty impressive track during this type of environment.

Fee income was 29 percent of total revenues; that is when you exclude TSYS.

If you put TSYS back in, it was over 60 percent for the quarter, but we think taking TSYS out is appropriate.

You know, as I have said, we have gone from 22% now to 29%.

Our target is 35%, but 29% compares to 26 percent fee income as a percentage of total revenue over the same period a year ago.

Reported non-interest income growth was 18.7 for the quarter, and is 27.8 for year-to-date.

Obviously again, acquisitions and divestitures and the impairment loss recorded in the prior year have impacted these numbers.

If you normalize it, you exclude all those extraordinary items and security gains, non-interest income was up 14.8 percent for the quarter, 18.8 percent for the year.

And mortgage revenues were the key driver.

They are up 67 percent for the quarter and 85.8 for the year-to-date.

Mortgage revenues at these levels aren't necessarily sustainable.

I think everybody knows that.

We're beginning to see that slow down.

But remember the leverage we get, as they decrease and rates increase, we get a 5 or 6 to 1 on the margin improved.

Financial Management Services, by the way, for the year-to-date have increased 8 percent compared to the first nine months of last year.

If you exclude acquisitions, it increases 2.1.

Despite the increase in the general stock market indices, a majority of our Financial Management Services fee income base has been impacted by lower market values of equity securities for the year-to-date compared to a year ago.

We expect that to improve as the markets appear to be continuing to improve.

And we have been able to offset our current situation somewhat by the addition of 1.4 billion in new assets under management.

We had a goal this year of 1.5.

We're have already added 1.4m through the first nine months of the year.

Assets under management at this point are now $14 billion.

On an expense standpoint, G&A expenses increased on a reported basis 10.9 for the quarter, 15.3 for the year.

And again, taking out acquisitions and divestitures, you have an expense increase fundamentally of about 7.4 percent year-over-year.

The margin, again, on our efficiency ratio, slightly going up is the biggest contributor.

And I think the best evidence of that is that the net overhead ratio improved to 136 for the year-to-date compared to 157 for the same period last year.

We're making good progress on our expenses.

I think the expense control in the Company is the best it has ever been.

And another indicator of that is our headcount through this year is up only 2.3 percent.

And that is compared to assets that have grown at 8 percent.

And then one final indicator on expenses, our core infrastructure expenses is tracking identical to our 4 percent budgeted increase for the year.

The rest of our growth has been in the highest growth banking markets.

And we really are able to contain the G&A expenses at these levels in spite of investments that we continue to make in the development of our new banking platform, our expanded training network, and an enhanced sales and marketing infrastructure.

On TSYS, you heard the call yesterday.

We were very proud of their quarter.

The net income for the nine months increased 12.4 percent.

Diluted EPS was up 12.6 percent.

Total revenues for the nine months were up 13.2 percent over the same quarter a year ago.

Net income for the quarter, again, kind of the billed as the weakest of the four, increased 8.2 percent over the same period a year ago.

Total revenues for the third quarter were up 8.2 percent.

Excluding reimbursables, they were up 14.9 percent with the third quarter.

That is good fundamental growth at TSYS.

The major factors in those growth as reported yesterday were a 11.3 increase in the existing customer accounts on file, growth in revenues from international of 39 percent, and cross selling activities of our value-added services of 22.6 percent.

Also, they reported that the Banc One conversion project is going well.

We're in constant contact with them.

They are real happy.

We are real happy.

The project is on time, on schedule and, I understand, on budget.

The share repurchase plan that we announced recently, I want to bring you up-to-date on that.

As of September 30th, we have acquired 5.4 million shares at a cost of $111.5 million.

That includes 450,000 shares purchased in the third quarter at a total cost of $10.7 million.

You'll recall that our expectation was to repurchase one half of the total authorization in the first 90 days.

That was accomplished.

And from this point forward, the repurchase plan is going to be influenced by the same factors price, market conditions, acquisitions, capital planning, dividend policy, and just a general financial position of Synovus.

The guidance that we've issued for the year of 4 to 8 percent, we're still confident about achieving that in 2003.

Frankly, that confidence is buoyed by our performance in the last quarter, and significantly by the ability to maintain a stable margin in spite of a 25 basis point rate reduction, as well as the confidence we have in our credit quality indicators improving by year-end.

We got a resilient team.

They respond to the challenges.

And it is just clear to us that the worst of this part of the cycle is, I would say in large measure, percentagewise chances of this thing turning a negative from an economy standpoint again, or diminishing daily, the indicators are good.

And we don't expect to a further rate decrease.

We wish you could tell us when the rates are going to go up.

But when they do, we're capitalized.

We're positioned to really capitalize on that rate increase.

I will just lastly mention the People's Florida acquisition that we announced last week, a 250 million asset bank in Tampa, Florida.

It gives us a great footing in Tampa to go with our St. Petersburg acquisition during the past year.

And it really is another addition in a high-growth market to add to our affiliate network.

I started by saying this is probably as sound and solid a quarter as we have produced in this real low-interest rate environment from every aspect, credit quality, fee income growth, the TSYS contribution, the average loan growth through the nine months, and what we expect over the next three months and into 2004.

So we will stop there.

Hopefully, you will have some questions you can ask us about the quarter.

And we will do our best to respond to them and give you the answers.

(OPERATOR INSTRUCTIONS) Christopher Marinac, FIG Partners.

I wanted to ask you about acquisitions, and particularly on pricing.

What is your vantage point in terms of how pricing is going in the marketplace in terms of things that are causing your desk?

And at what point is there a threshold where you are going to walk away and not pay what is being asked for?

Well, we have reached that threshold more often than we don't, as you know.

We are, I think, pretty disciplined in our pricing.

And as you also know, I'm sure most everybody on this call knows, we model our acquisitions, excluding the TSYS impact to our price, so we will get a true understanding of what the real impact of the bank acquisition is to us, or any acquisition is to us.

The incidences of us actually making an acquisition are very rare compared to the looks we give.

Nevertheless, the banks we've bought in the last five or six years have been in the best markets.

They have been the best banks.

They've had clean portfolios.

They have had good management teams.

They've been the most desirable banks.

And so if you just look at our average price earnings ratio, or price as a percentage of assets, or price times book, or any of the 4 or 5 real key indicators that we use in our model, they generally look like they may be right high priced.

We don't like to bottom fish, and we don't like to buy turnaround situations.

So I can't give you an absolute guideline, but something in the 18 to 25 percent of assets would be typical of what we do.

And when we are on the high end of that, you know we bought one we think is a real jewel to add to our network.

I will say this, the prices of the best banks certainly don't seem to go down.

The smaller the banks, the higher the premium typically.

We typically buy small ones, but as you know, they are all accretive.

And we don't set them back with our assimilation styles to where we have to earn it back to where we came in.

We usually hit the ground running and grow them from where we are get them.

And usually over of a period a year or two or three, you see excellent growth rates in earning assets.

You see an improvements in return on assets and equity.

And you see improvement in the quality of the loan portfolio.

So I think if you looked at all of our bank acquisitions over the last 10 years on a return on investment, it would be pretty impressive.

Jim, on a standpoint of GAAP dilution upfront, that is again not something you're willing to tolerate?

We don't like GAAP dilution, don't like cash dilution.

We don't have much dilution when you look at the type of premium that Synovus has historically sold for.

I haven't looked in the last day or two but I think our fee is 70 percent below our five-year or ten-year average PE, so hadn't had the punch that we typically have had.

But still compared to the peer group, dilution really isn't a factor for us.

It is a question of what they can produce and how fast we can grow them when we get them.

Nancy Bush, NAB Research, LLC.

I thought you would get a kick out of the fact that apparently in the market today there was a rumor prior to your putting out your announcement of your management changes that you're going to retire.

And that you were going to become the President of Augusta National.

Oh, really?

I want to know if you're going to let women in, Jim?

Nancy, the Chairman speaks for the club over there.

I hadn't heard that rumor.

But that is not -- that won't be accurate.

As long as the Board will let me stay around here a little while longer, I want to us fill all those gaps I talked about, and get our return on assets up around 240.

And you remember my price model;

I'm going to retire when the stock gets to 60.

Well, that could be the end of next year, the way it has been going.

Well, I hope so.

That would be wonderful.

Two questions for you.

Number one, if you could just give us a little bit of color on how you maintained the margin in the quarter in spite of the fact that it should have compressed, given the way it has performed in the past.

And two, I'm sure you have been watching some of your southeastern brethren who have been releasing loan loss reserves with the basis for doing that being the fact that the regulators apparently are going to mandate that reserves be "trued up" at some point in the future.

So if you or Tommy could just comment on your reserve levels, and whether you're going to have to take them down?

We're going to take them down over my dead body.

And basically, the old notion that in a credit environment anything with within reason, and certainly at 140, I would think even the sternest regulator would not be demanding that we take it down.

But you know, it reminds me of when we always -- we go through these periods where they make you take down the assets in your pension plan.

And then two or three years later, you have got to build it back up again.

I hope that the economy, what we have been through in the last two, three or four years would really bring some reason to people to realize that a loan loss reserve is there for a purpose.

And I know our attitude is, we want to hold onto everything we've got it.

And of course where appropriate, we want to build them.

I don't think -- you won't be seeing us taking ours down.

But even though I think as our asset quality improves and our nonperformancers go down, and our past dues remain real good, we might could justify that.

But, gosh, our attitude is we want a substantial loan loss reserve, and we want a substantial capital account.

And of course, we've got both.

And I hope we can keep them that way.

On the question of pricing discipline, I know you have heard this before, and I won't give you the shaggy dog version, but we have really been out on the street working hard with our customers on the loan pricing side.

We have increased some rates that should have been increased.

We have added some floors where there should've been on renewals and new loans.

We priced them at higher levels than we found ourselves in in late last year and early this year.

And the bottom line of this is, as I mentioned a couple of quarters ago, that we realize that the prime rate at this level, our whole pricing experience of our careers just doesn't work like it used to.

And so we have done a lot on the pricing side.

And we have been very successful with our retention, and our competitors have not benefited from our discipline.

On the deposit side, we have said that we have gone as low as we can go three times, but we keep going lower.

After, or really kind of in anticipation, and after the 25 basis point cut in June this summer, we went down on deposit costs again.

So I don't want to stir up our affiliate Presidents, but I will tell you that the involvement and the hands-on activity of the holding company executives in our decentralized world out there in the banks, hasn't looked very decentralized over the last three, or four or five months.

Our bankers hadn't resisted that.

They have been magnificent and resilient.

And the bottom line is, after a real blood letting in the first quarter, we have been holding it stable in the second and the third.

And now I'm telling you that in the fourth and beyond we will see some improvement.

That is the bottom line.

And the improvement will be more a function of just your natural sort of asset sensitivity?

I'm saying if rates don't even go up, we will get some improvement as some of the longer term liabilities are repriced.

And as we continue to put new loans on the books and renewal loans on the books at better spreads and better margins than we would do it in, say, 6 to 9 months ago.

Tony Davis, Ryan Beck.

Just some more color here on the loan side.

You have seen rather sharp deceleration here in the quarter.

And I'm wondering, number one, has this more aggressive pricing played a role in that?

But secondly, just can you give us some color on what is going on in terms of C&I commitments?

Has there been any strengthening on that front?

And finally, what does your draw rate look like now?

And maybe how draws look today versus six months ago?

And just a little bit more color, if you will, on all of that?

Mark, do you want to deal with that?

Yes.

Let me talk about the deceleration.

Primarily that was a function of paydowns.

It occurred in two sectors.

Our real estate loans, we have been encouraging some of our customers to lock in on permanent commitments, and we did have some of that activity in the quarter.

And then in the C&I sector, we had some lines of credit paydowns.

And those were primarily from the warehouse lines that we had with some mortgage companies.

As refinancing has slowed, that is a natural process for those lines to be paid down.

And we had one large insurance company paid down on their line.

And that activity reoccurred, but at this point the line is paid down.

So really it was a function of permanent loans going into the marketplace, which we encourage, and then just normal lifecycle activities of some C&I credit.

Looking ahead, I have met with our seven largest banks.

And we are looking at net growth for the quarter for those seven banks between 220 to $260 million.

Our forecast is that we will grow at an average rate of about 100 million a month for the next three months.

So an unusual quarter.

And I think just like Jimmy said, we're anticipating about a 7.5 percent growth rate for the fourth quarter, which would put us in the high single digits for the remainder of the year.

In the C&I sector we are not seeing robust activity at this point.

What we are seeing, and we have several pipeline prospects that -- there was some acquisition activity.

And as we see some growth, it will be through some mergers and acquisitions.

And at this point, the inventories are still thin, and people are not moving inventories up.

And there's not the kind of C&I growth that we were hoping for at this point.

As the economy continues to improve, we would expect to see that happen, but not at this point.

In terms of drawing on the line, the levels, I don't have that data with me today.

If you will call me back, we will take a look that it, and I'll give you an outlook on that.

But I don't have that with me.

I can tell you on like on the consumer portfolios like elock (ph) our customers have about 37 percent availability on their line.

But I don't have the commercial numbers for you.

And just finally, Mark, any color at all to add about the metro Atlanta market from a quality perspective?

If you look at our Atlanta market, it fares very, very favorably to our portfolio as a whole.

If you look at our real estate in that sector, we've got 66 percent of the portfolio is in the real estate sector.

A very small amount of that is in the investment sector, investment property, like multi-family hotels, office, shopping centers.

Where we have the biggest concentration is in the one to four family sector.

But our nonconforming loans actually in the real estate sector up there have outperformed the rest of our bank, if you separate them.

I think Atlanta, 37.2 percent of their nonconforming loans are in the real estate sector.

And they have 66 percent of their loans in the real estate sector.

So you can see that they are performing very well.

And if you look at the Atlanta market in terms of commercial real estate, we're not aggressively pursuing them, say, right now in terms of hotels.

The hotel sector is not performing real well, and neither is the office sector.

And multi-family vacancies are running about 9.6 percent in that sector.

So primarily what we have seen are absorptions are still very good in the one to four family sector.

We're not really seeing any slowdown.

I looked at the quarterly market study for Atlanta, and it still looks strong.

We are seeing a little increase, and a lot of inventories.

They went up from about 15.6 months of absorption to about 15.9 months of absorption.

So we're watching that.

But overall, still very healthy one to four family market.

In the CRE sector Atlanta is probably an area where you don't want to invest heavily right now in the investment type properties.

So we will continue to watch that.

There has been some improvement in a couple of those property types, but not significant enough for us to go want to make a lot of loans there right now.

Tommy, let me just add this, that again I think looking at loan growth over the average of the nine months, and the antidote that I gave you about the last month of the third quarter and what we expect in the fourth quarter, you'll see a loan growth number that will certainly look a little different than what it has been.

But it will also look a lot different then a 2.2 percent annualized.

So it would be probably an mistake to try to extrapolate that out as a new norm.

Thank you.

Todd Hagerman, Fox-Pitt, Kelton.

This is for Mark, if I could address credit again a little bit.

Mark, I was wondering if you could just talk a little bit, one, about the non-performing loan inflows and outflows in the quarter?

And if you could, gives us a sense of you have been talking now for a couple of quarters about the expectations for some improvement.

I know you guys have had trouble with a few credits coming off, and then unfortunately they are replaced with a couple of new credits.

But yet at the same time, your past due numbers continue to trend down.

Yes, Todd, and basically all these were timing events.

I am still extremely optimistic that we will hit those targets that Jimmy talked about at the end of the fourth quarter, which is the high 60 basis points.

If you look at the quarter, we did have an increase in NPL, so we had a corresponding decrease in ORE.

Our ORE reactivity has been extremely good, and we would expect it to remain very good for the fourth quarter.

The other thing is we've got two large high-end impact credits in the fourth quarter that we are anticipating a very high likelihood that those will go away.

We have got a $4 million loan in one of our new acquisitions that is being optioned in November with agreement with our customer to go ahead to auction that.

And we expect that to be done by the end of the year.

And then another loan in our Florida market, a $5.2 million loan, which at this point they are in negotiations to either have customers acquire that property or inject a considerable amount of capital into that project, and then finance the loan as it goes forward.

Even if one of those doesn't occur, we still believe that we can remove NPA to that high 60's ratio range.

Just an example of this month, we had nine of our banks move to 16 pieces of our ORE, and that activity we would expect to continue into the fourth quarter.

As I basically have told you earlier, we're having some seasoning of these non-performing assets.

And it has allowed us to really start beginning to move those properties.

And we expect that to continue to throughout the fourth quarter.

I'm sorry.

The 4 million credit that you mentioned, what sector was in?

It is a multi-family credit.

It is the only real multi-family project we've got on a nonconforming loan.

Do you think that we may start to see a turn, just in terms of trend in terms of the dollars of non-performing loans versus more the ratio in the loan growth?

Not really.

Our fiscal -- we've got four or five -- I guess we've got six loans that are over $3 million in size and are nonconforming loan sector.

And we've got another 13 loans that are between 1 and 3 million.

And I think three of those are above 2 million and the rest is below 2 million.

And that is -- our normal size loan value is going to be from about 250 up to 5 or $6 million.

And I don't expect the number or the mix of those kinds of loans to really change a lot.

I do really do believe this economy is improving.

We are seeing some indicators of that.

And I am sure you guys are reading some of that as well.

Even in the real estate sector, I will exclude Atlanta.

But Atlanta right now is the number one, or has the number one employment growth rate in the country.

It is ranked number one.

And although it is not significant growth, it is still a sign to me that Atlanta is evening out on the rebound.

And that, along with just the focus and the activity, we see the improvement occur.

David George, A.G. Edwards.

Just a quick question again on the margin.

Can you tell us what the margin was for the month of September?

Or at least, trying to get a sense of what the margin did throughout the quarter from July to August, and August to September?

Yes, I've got the number here but, David, I'm scratching my head about the disclosure here is on a quarterly basis.

And I don't know that we have made any disclosure on a month by month.

I don't think it is significant as far as the changes.

But, Tommy, help me with that.

I'm not trying to be coy with you, David, I just concerned about --.

No, that's fine.

That's fine.

If you don't want to disclose it, that's fine.

My man, Mr. Prescott, says it's okay, so we will come up with it.

I will be glad to do that, David.

The margin in the month of July was 423, and August was 421, and September was 423.

There are a few unusual things that took it down a little bit in August.

So we really felt like we had declared a stable bottom there, and had really a foundation to work on.

We continued to reprice these loans and do as good a job as we can on the liability side, and move it a little bit northward from there.

John Pandtle, Raymond James & Associates

My question relates to a comment you made in a press release about returning to your historical pace of EPS growth.

And I was wondering if you could quantify that for us?

And then maybe talk about how it breaks down between expected growth at the bank (indiscernible) total?

At a 60,000 foot level, John, we're saying that it would be a terrible mistake with Synovus, or probably most anybody else, to take the last twenty-four months interest rate environment and economic conditions and extrapolate that out going forward as some kind of a new norm.

And so what we're saying is that with our decentralized approach, that it has given us a real growth side on the earning assets, and we think fee income, since our emphasis over the last four years.

And with our ability to have this growth engine that TSYS has been, that given a more normal rate environment that we don't see any reason why Synovus can't perform at the same kind of levels that we have always performed at.

And we're not expecting life to be like like it has been for the last couple of years over the next 10 years.

We expect it to be more like it has been prior to the last couple of years.

And I think the proof of that, what gives us the kind of confidence to be able to say that is this gap that I mentioned on margin compression.

We now we're going to get benefit on the upswing.

We think we will get the bulk of what we lost.

And we know we've gone from 22 percent fee income to total revenue to 29.

And we can see ourselves getting easily to 35.

Frankly, we will set us a new target, probably 40, once we get to 35.

And the gap there is $58 million.

And you overlay that on top of the 193 or 4 or 5 on assets, which we will do this year, and you're in the 225 ROA category, which is higher than we have ever been.

And that the TSYS growth is encouraging to us.

The Bank One deal is, I think, kind of diminished people's concern that maybe TSYS couldn't keep up its historical growth rate.

So you know, we're looking at opportunity going forward that is going to be a heck of a lot more robust and exciting than the kind of period we have gone through in the last couple of years.

And maybe just to follow-up.

Have you all talked internally about re-establishing a quantitative growth target?

We were at 15 to 18 percent coming into this year when the wheels kind of came off a little bit.

And I am just trying to get a sense on sustainability.

Is that recovery a range back to historical growth, or can you do it on a sustained basis?

No.

We're talking about a sustained basis, not a recovery.

And I just think it is important for us to revisit the fact that we established those growth targets in the year 2000 for the years 2001, 2 and 3.

We accomplished those growth targets in the year 1 and 2.

We obviously fell short in 3.

But as you know, John, every assumption we made in 2000 was different by the time we got to 2003.

It may take another generation of leaders around here to give another three-year growth target.

I don't believe I'm going to be doing it again.

In fact, I'm sure you're sitting here thinking about guidance for 2004, and we're not sure how to do that even.

At this point we are saying we're not giving it.

But we are pretty confident that we can encourage you and everybody that we see our growth potential as more near our historical norm, And you know that is 15 plus percent EPS growth over the last 10 years.

That is kind of the way we're thinking about Synovus going forward.

We won't accomplish that this year with this rate environment.

And we don't know how long we going to have to go into next year with this same rate environment.

That is why it is very difficult at this point to really start doing guidance, because there is so many moving parts, it is just very difficult.

That was your final question.

Sir, do you have any closing comments you would like to finish with?

No, I really appreciate the great questions.

They focused on the issues that I think are the most relevant.

Again, I started with the proposition that our story is one of margin.

We're certainly poised to benefit dramatically on the upswing, and we're hoping that will come sooner rather than later.

It was a first-class quarter for us by every measure.

We're optimistic about where we go from here.

And I am really excited about the changes that we made with Jimmy Yancey and Richard Anthony and myself.

At we've got a great team that is ready to go get it.

And we're probably as encouraged about our ability to perform at the highest levels of this industry, certainly, as any time we have been in the last year and a half or two.

We thank you for your interest.

Stay tuned.

And hope you'll keep your high level of interest in Synovus and TSYS.

And we're going to try to make you proud.

Thanks.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may disconnect your phone lines at this time, and have a wonderful day.