Synovus Financial Corp (SNV) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus first-quarter 2004 earnings release conference call.

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

It is now my pleasure to turn the floor over to your host, Jim Blanchard, CEO.

Sir, the floor is yours.

Thank you very much and good afternoon, everybody.

We're here in our conference room.

I have a full contingent, including Richard Anthony, our President, who will cover the issues of credit quality and fee income this afternoon.

I also have the normal group from Synovus that typically will be involved in answering our questions, like Mark Holladay and Sonny Deriso and others -- Tommy Prescott.

I have also invited Phil Tomlinson, our newly-elected CEO at TSYS, along with Troy Woods, our newly-elected President, and then Jimmy Lipham, the CFO at TSYS, who are here are also.

And I really wanted to start by making a comment or two about our succession planning.

It is really old news to you by now.

Quite frankly, it has been kind of a ho-hum in the marketplace, which is I think just exactly what we had hoped for.

But I just can't say enough about Jimmy Yancey in his new role as Chairman, Richard Anthony in his new role as President, and then Phil Tomlinson and Troy Woods in their new roles at TSYS, ably supported by Rick Ussery, our former Chairman and CEO, who now is Chairman of the Board.

It is a first step of many that will take place, I'm sure, over the next 5, 6, 7, 8 years here.

There are no definitive timetables on the next moves.

But this team is in-place.

The other key members of the team have rallied to them beautifully, and I am telling you, I feel like a proud father watching his sons and daughters in action here take the reins and really do the kind of work that we fully expected them to do.

So it is an important aspect of any company.

It is an aside, I guess, from a quarterly report, but you can take comfort, I think, and feel good about the team that we have in place and the people on our bench and the long-term leadership strength of Synovus.

Today, I hope you have received our earnings release.

I hope you have had a chance to look at it.

I will be making forward-looking statements today that are subject to risk and uncertainties.

There are factors that, of course, could cause our results to differ materially from these forward-looking statements, and they are set forth in our public reports filed with the SEC.

Last January in our conference call, we told you that we were starting 2004 with extremely bright and optimistic possibilities for our financial services business.

And our actual results in the first quarter turned out even better than we had expected.

And of course, the key drivers are improving credit quality, a stable margin, continued strong loan growth, fee income growth and continuing expense control.

Additionally, TSYS's financial performance was slightly ahead of our expectations in the first quarter and gave us reason for optimism that they are on track for their guidance for 2004.

On a consolidated basis for the quarter, net income was $104.2 million.

That is up 15.8 percent over 2003 first quarter.

And diluted EPS was 34 cents, up 14.7 percent over 2003.

Return on assets for the quarter was 191, compared to 189.

And return on equity was 18 percent for the quarter, compared to 17.26 for the first quarter a year ago.

Shareholders' equity again was a strong to $2.4 billion, and that is 10.6 percent of assets.

We continued in our first quarter our strategic market repositioning that you are familiar with, that we have discussed over the past three or four years.

During the quarter, we completed the acquisition of Peoples Bank in Palm Harbor, Florida.

We also entered the Savannah, Georgia market, and we have obtained now regulatory approval to open our first de novo bank, Synovus Bank of Jacksonville, in the second quarter.

Additionally during the first quarter, we exited one market with the sale of our bank in Quincy, Florida, and that transaction resulted in a $9.7 million after-tax gain.

I want to summarize for you the branch activity over the last five years -- that is the year 1999 through 2003.

We have acquired 46 new branches and opened 35 new branches.

And we have sold 20 branches and closed 19 branches.

I think you'll recall from our previous discussions that net-net of all of this is that we are basically improving our growth rates.

We are selling or closing what are slow-growing operations and buying or opening faster-growing operations, and through the five-year period have literally changed the demographics of the Company down to something that would be less than 10 percent of slow-growth markets, where in the past, by some accounts, we had as much as 60 percent slow-growth markets.

So we have dramatically improved the demographics of the Company through the last five years with this strategy.

I want to move to the margin.

We are in, obviously, the lowest rate environment in 46 years.

It is the biggest story, quite frankly, of last year in '03 and as we started '04.

Obviously, our situation is stabilizing, but we are a high margin bank historically that has been affected probably more than the norm because of the low rate environment; and obviously, we are anxiously anticipating a return to a more normal rate environment.

I will address that in some detail as far as our assumptions for 2004.

Net interest income for the quarter, however, was $202.7 million.

That is up 11.7 percent over the first quarter of '03, and it is a $5.3 million increase from the fourth quarter and in line with our expectations.

The growth in net interest income was positively impacted by a continued strong annualized loan growth of 10.95 percent on a linked-quarter basis.

That is fundamental growth.

The first quarter net interest margin was 4.24 (ph), essentially stable when compared to the fourth quarter margin of 4.26.

We saw a continued improvement in the cost of funds, and that served to offset a modest decline in our earning asset yields.

Now for the remainder of 2004, we expect continued stability in the margin, and this assumption is based on a continuation of the current low interest rate environment, with an expectation of no short-term rate increases in calendar year 2004.

As you know, and follow probably at least as close as we do, there are many analysts now that are beginning to predict that the Fed will increase short-term rates later during this year.

We have not built this expectation into our model.

However, as we have indicated before, we are very well-positioned for a rate increase, and we have hedged any rate sensitivity at about 65 percent.

We will be happy to fill any further detail that you would like to ask with respect to the margin.

I think as a broad characterization, it certainly represents stability in '04 compared to the extreme pressures that we felt in '03.

From a deposit standpoint, we reported total deposits up 6.6 percent over last year.

If you exclude the impact of acquisitions and divestitures, our core deposits grew at 7.6 percent over the prior year.

And this growth was led by strong increases in both demand deposit and money market accounts, with increases of 16.1 percent and 15.4 percent, respectively.

Average core deposits -- not period-to-period, but on average -- if you exclude acquisitions and divestitures, increased 10.5 percent for the first quarter of '04 compared to the first quarter last year.

Total loans increased by 9.4 percent compared to the prior year.

Again, if you exclude acquisitions and divestitures, the year-over-year loan growth was 8.8 percent, while the sequential quarter growth was $451 million, or 10.95 percent annualized.

This growth is right in line with our expectations that we have disclosed to you that we expect our loans to grow by 10 to 12 percent for the year.

We are always asked how do we grow loans when others are having more difficulty, and frankly, it just is proven quarter after quarter, year after year that our decentralized structure gives us a real edge in continuing to grow our loans and our deposits robustly.

We also are sensing and seeing, in fact, that that decentralized structure is advantageous for us on the fee income side as well.

That is something we could not totally prove to you in the past because, frankly, of an emphasis deficiency on the banking side on fee income.

But obviously in the last three or four years, that focus has been there through some pretty rough markets, and now we're really beginning to see the fruits of our seeds that we planted in preparation for the better markets that are now emerging.

At this point, on credit quality and on fee income, I am going to ask Richard if he would take those topics.

Jimmy, thank you.

Credit quality certainly was a real strength in the Synovus first-quarter story.

We ended the quarter with very strong credit quality indicators.

The nonperforming assets ratio, for example, declined for the second quarter in a row, and we ended the quarter at 0.56 percent, which is our lowest level in seven quarters.

A year ago, the NPA ratio was 0.72 percent.

And our expectations for the year 2004 are to end in a range of 0.45 to 0.55.

Past due levels remained extremely favorable and are at record lows for us, with total past dues at only 0.76 percent at the end of the quarter.

And for our 90-day plus past due ratio, we were at 0.14 percent.

Incidentally, a year ago, at March 31 of 2003, past dues were at 1.03 percent overall, so you can see the improvement there.

The net charge-off ratio for the quarter was better than we expected.

In fact, it was the best in recent memory at 0.16 percent.

Gross charge-offs were lower than expected at $10 million, and recoveries were higher than we expected at $3.3 million.

That recovery number was impacted by a favorable development in one of our old loans that had been charged off prior to 2003, on which we recovered $1 million as an insurance policy paid off there.

Net charge-offs were lower than 2003 levels, when the ratio was 0.36 percent.

So you can see the dramatic improvement in that comparison.

Our guidance for the year assumes that the net charge-off ratio for this year will be at better than 0.30 percent, something below 0.30.

So we do remain confident about our credit outlook.

This translated into a provision for loan offices for the quarter at $15.7 million, which would compare to $20.3 million for the first quarter of 2003.

And this decrease was obviously due to the lower charge-off experience that we had.

The reserve, the allowance for loan losses ended the quarter at 1.39 percent of total loans, and this compares to 1.37 percent at the end of last year, December of '03.

Our coverage ratio, which is the allowance to nonperforming loans coverage, was 337 percent at quarter end, up somewhat, just slightly, from the 335 percent coverage at the end of last year.

Now moving into fee income, I would say first that our total non-interest income for the financial services segment -- this is excluding TSYS -- was $90.5 million, which is up 22.2 percent over the first quarter of 2003.

However, to clarify that and to look at it in a slightly different manner, if you subtract from that number the Quincy gain and if you exclude mortgage, which is still highly cyclical, and then take out the impact of acquisitions and divestitures, the increase was 11 percent, which we think is still a good fundamentally sound performance.

Within that number, service charges on deposits were up 15.2 percent, and I would say that fundamentally, that percentage was 10.3 percent.

And financial management services revenues, which is a key component that we look at closely every month and every quarter, increased 12.1 percent over the first quarter of 2003.

We are very optimistic, given that healthy increase, about the momentum in our financial services business.

During the quarter, we signed new customers, which resulted in a total of $325 million in new assets under management added to the books.

We now have 15.3 billion in assets under management.

As you know, if you follow our Company closely, our family asset management group is very important to us.

We feel like it is a significant strength for the FMS line of business, and that team reported several significant wins during the first quarter, and in addition, have a very promising pipeline for new business for the remainder of the year.

On the mortgage side, mortgage revenues for the quarter were down 56 percent.

Mortgage production was $318 million compared to $671 million for the first quarter of 2003.

So we have been covering that gap, which was expected by all who are in the mortgage business.

The mix of refinance to purchase volume for the first quarter was 53 percent refi's and 47 percent purchased money, compared to 72 percent refi's and 28 percent purchased money for all of 2003.

Richard, thank you.

I'm going to move to G&A expenses.

Our reported G&A expenses for financial services were up $20 million, or 14.8 percent over the first quarter of '03.

The increase is primarily due to the impact of acquisitions and higher levels of incentive pay in 2004.

Acquisitions accounted for $5.6 million of the increase, and in addition, the current quarter reflects incentive pay that is $7 million higher than in the first quarter of '03.

Our goal for the year is to achieve our financial targets, and as you know, our guidance is 8 to 10 percent, but internal goal is 10 percent, with full payment of incentives.

And for the last three years, we have not been able to accomplish that internal goal of full incentives.

But that is how we keep score around here, and the fact that we have funded our incentives in the first quarter, to assume that we will pay the full incentive for the year, on an annualized basis, we are expecting to pay the full incentive for the year should be a source of pretty good optimism for you, as it is for us.

Excluding the impact of acquisitions and incentive pay, the G&A expense, which we look at as the core expense growth, increased 5.3 percent during the quarter.

And that growth that we are experiencing continues to be primarily in the sales and production areas of the highest growth banking markets.

Our goal this year on the G&A side is to grow the expenses of the financial services segment without any expansion of total headcount, and we are on track to attain that goal.

Total FTEs for our financial services group at quarter end were approximately 6,000 people.

If you exclude the impact of acquisitions and divestitures, our total FTEs were actually down by 24 people since year-end.

So growing this Company at double-digit levels requires active sales and development, and that generally implies more people.

However, we believe that we can continue to improve our processes and reallocate our resources and that we can successfully achieve our growth targets with our existing or even less headcount during the year.

Now last week, TSYS announced its first quarter financial results.

Net income for the quarter was $32.6 million.

That is up 2.6 percent from the first quarter of '03.

Diluted EPS was 17 cents, up 2.6 percent over '03.

Total revenues for the quarter, excluding the amounts for reimbursable charges, were up 16.4 percent for the first quarter of '03.

The results for the quarter were slightly ahead of our expectations.

We had forecasted TSYS net income for the first quarter to be flat or even possibly slightly down for the quarter versus the first quarter of '03.

This was expected, as Phil and Jimmy Lipham explained in their call last week, due to revenue loss from some significant clients in Mexico that resulted from industry consolidation and increased expenses due to the building of our new data center in the UK.

The actual results were driven by better-than-expected performance from Vital Processing Services, our joint venture on the merchant side with Visa, and also by very strong growth from overall transaction volumes.

I might also mention that included in that better-than-expected results was a onetime severance charge for the cutback that we had, a reduction of our employees, and also a debt extinguishment step that we took, which basically resulted in some onetime charges that we will more than make up for during the rest of this year.

The highlights at TSYS that they reported in their call included our agreement with FleetBoston Financial Corporation to continue processing the Circuit City accounts that they had purchased.

Our processing services with FleetBoston also included back office and call center activities, which were a nice welcome increase.

The extension of our processing agreement also was announced with BB&T Corporation and with First Hawaiian Bank in Honolulu during the quarter.

Then our client, the Royal Bank of Scotland Group, recently announced that they had the acquired the Peoples Bank of Bridgeport, Connecticut, and we have been advised that TSYS will be converting this portfolio in the second half of the year.

Accounts on file for the quarter at TSYS increased up to $280.4 million.

That is a 10.3 percent increase from a year ago.

And as we previously announced, TSYS '04 earnings guidance calls for revenue growth of 11 to 13 percent and EPS growth of 5 to 7 percent.

The primary drivers here, as you recall, are the revenue loss in Mexico and the costs related to build out infrastructure.

As we have said in the past, 2004 is a transitional year for TSYS, and for 2005, we expect them to achieve EPS growth of 10 to 15 percent.

Other issues that they discussed in their call are certainly not ripe for announcement or speculation, but they include the J.P.

Morgan Chase-Bank One issues, the Citicorp-Sears issue, and also the Bank of America acquisition of Fleet and the accounts that the Fleet Corporation has on their books as well.

I must say that they and we are very optimistic about all of these, but it is still too early to call in some cases, and we will keep you posted as we are able to make any announcements about those very important industry events that are pending.

Just one final reflection on the TSYS annual meeting that was held also last week.

The long-term outlook there is bright by all accounts.

This trend from paper to plastic continues, and we are well-positioned to be the dominant processor of cards, we think, around the world.

The TSYS technology capabilities provide us all kinds of opportunities for expansion into new markets, and there are also numerous acquisition opportunities that we see, especially in the area of value-added and prepaid and stored value.

I might say that we were very, very pleased with the results of the first quarter.

In practically every category, we either met or exceeded our expectations.

If you look at our credit quality, we have probably achieved the long aspiration that we have had of pristine credit quality.

We certainly have stabilized our margin, and we think we are well poised for the next move in rates, which we assume will be up, but we're not assuming, in spite of some conjecture, that that will occur for guidance purposes in '04.

We continue to be able to grow the earning assets of this Company with the strength of generating new loans in all of our markets.

Our fee income growth is robust and moving rapidly towards achieving our target of moving to just below 30 percent toward the 35 percent target that we've established for ourselves.

And we are continuing, I think, with a hand on our cost structure that is probably as good and firm and professional and effective as it has ever been in the history of our Company.

And then in spite of what is a transitional year at TSYS, it looks like the world offers opportunity galore for them in their core competencies, and that is the moving and the storing and the transmitting and the billing and the displaying of data on a scale that is beyond almost anything that we could imagine in our formative years at TSYS.

I'm going to stop there.

We are prepared to answer your questions, and I hope you will give us some good ones to bring some more color to the first quarter's results.

Thank you. (OPERATOR INSTRUCTIONS) Christopher Marinac with FIG Partners.

Good afternoon.

Can you give us more details on the commercial loan growth and perhaps delve in between (indiscernible) versus commercial real estate?

I am going to let Mark do that, as he typically does.

And he has got the data at his fingertips.

Yes, Chris, our overall growth in our portfolio, if you break it tier investment-related CRE, we (indiscernible) about a 20 percent (indiscernible) the first quarter.

We were up about $291 million.

And the bulk of the growth is still in our one to four family, single-family housing.

Our absorption rates remained stable -- they are running about 6 percent a month.

That was up $153 (ph) million, and we continue to have excellent results there.

Two other areas that we grew in our real estate are two other sectors that we still have a lot of confidence in in certain markets, and that was the multi-family sector.

We are up about $47 million there.

And then in the retail shopping center sector, we were up about $25 million.

So those were the three areas for our commercial real estate, where if you look at our C&I growth, it was up about 8 percent, around 7.8 (ph) percent.

And the real estate pieces of the C&I sector are what we call owner-occupies properties, which are like doctors' offices, accountants, lawyers, and other folks who own and occupy property, was up 10 percent (indiscernible) about 47.8 million.

And then we have another category called other property, which could be a retail store owned by a retail party (indiscernible) manufacturing facility and wholesale facility, or anything other than owner-occupied that is related to C&I business.

And that was up 21 at 73.3 million.

So overall, we do continue to have good growth and we hope that growth remains strong.

But our nonperforming asset ratio has also remained superb in those categories.

Great, that's helpful, Mark.

Thank you.

As a separate follow-up, do you have any color on the (indiscernible) group in terms of its size right now and perhaps what the net new assets added in the quarter?

Sonny, why don't you field that one?

This is Sonny.

The (indiscernible) size is about $3.5 billion.

The relationship that Richard was referring to that were signed during the quarter are not reflected in these quarter numbers.

They will actually begin to be reflected in the second quarter and on to the third quarter.

As you know, it sometimes takes a little while for those assets to get booked and to be producing revenue, but there were some very significant additions, and those will be reflected in future quarter numbers in terms of assets under management.

I might just add hear that it is definitely one of the what I would call chandelier services of our entire Company.

It is among the highest quality of anything we do.

We have basically been able to attract among the wealthiest families in the region.

We think it is, in a lot of ways, the heart and soul of what we're trying to do in financial management services with the standard of care and conduct and relationship that we demand out of them with respect to their clients.

And so not only is it doing well and growing and adding to our success at FMS, it is very important from a strategic standpoint and from an impact that it has on the rest of our operation as well.

Sounds great.

Thank you.

John Pandtle with Raymond James.

Good afternoon, everyone.

Jim, I had first a big picture question.

You noted the change in the growth profile of the franchise over the past few years.

Obviously, we have been in a unique margin environment the past two years, as you've noted.

How has it changed your outlook on what is a normalized margin level for the Company as you've gotten into more competitive, non-rural type markets?

That has certainly changed that to some extent.

As you know, John, we are a historical 5 percent margin.

If you -- now with 4 percent prime on a 1 percent deposit cost, 4 minus 1 is 3 -- and 3 dilutes 5 every time.

You have heard me say that before.

What do we expect?

We expect a return to more like normal margins for Synovus; probably not all the way back to 5 because of some of the changing markets demographics that we've seen.

But we believe that with our loan mix, our decentralized system and the professionals we've got on the ground out there, that we will always -- and always is a long time -- but be a high margin bank relative to our peers.

And I think as difficult as this 46 year low period has been for us, at 4.24 percent, we still stack up pretty darn good.

But there is just no way that we can have the robust net interest income growth in this environment that we are historically used to.

So I would say better than we are now, probably somewhat south of 5 percent, but frankly, in a more normal interest rate environment, we are expecting some really significant improvement.

Then just a housekeeping follow-up question, if I could.

I'm looking at the other non-interest expense line.

It was $39.3 million in the first quarter -- and this is in financial services -- and $44.1 million in the fourth quarter.

I am just kind of wondering if there's anything unusual in either of the quarters.

John, this is Tommy Prescott.

Primary factor in the decrease there is the ORE expenses were less in the first quarter of this year than in the fourth of last year.

Okay.

Can you share the magnitude of the decrease?

The biggest factor of that line is about $3 million.

Okay, thanks again.

Tony Davis with Ryan Beck & Co.

Good afternoon.

I wonder, Jim, if you could touch on two things.

One, just give us a little more color on where you are in the gear-up on the consumer banking initiative.

And then secondly, maybe you or Richard could address the behind-the-desk opportunities that you still see throughout your organization, as you recently demonstrated in the North Georgia franchise?

Just as a broad brush on the consumer side, we really are excited about the progress we made.

We had about a 20 percent growth in the home equity loan area, and yet we didn't show much growth in the category because of what we think is seasonal paydowns on the credit card portfolio.

But the initiative is alive and well.

It represents a real area of focus for our Company and a great opportunity, we think, to fill in a void that, as I see it, has probably been neglected over the past decade or two, but represents some real potential for Synovus.

Richard, do you want to handle the second?

I would be glad to.

On the remaining opportunities, John, to become more efficient behind the desk, we have a couple of initiatives underway.

Tommy Prescott started really a benchmarking exercise several months ago, just looking at the functional areas that could perhaps be served in a manner that might be more centralized or regionalized.

And we are gathering data and we are going to really make some decisions, so long as the customer is not affected with any change that we might decide to make.

And then we decided concurrent with that to look at really every idea that can be generated by our senior management team to change processes and operate in a more efficient manner, whether it be in deposit or loan operations, or any of these functions that are touched by the benchmarking exercise.

We don't see any huge savings opportunity in any single area, but we do think there still is some remaining low-hanging fruit.

Maybe it doesn't hang as low as some of the ones we have already picked, but over the next two to three months, I would say, we will be bringing that work to a conclusion and hopefully we will see some change.

Now you threw in as a part of your question the possibility of consolidating or collapsing charters.

I think that's what you were referring to, like we did with the three banks in North Atlanta.

On that particular question, the way I answer it is that we are not going to merge any charters involving markets that are not overlapping each other.

And we felt that in the North Atlanta Metro area, we were really dealing with three banks operating in a single market.

Now, where could a similar example of this occur again?

Perhaps in the Tampa Bay market.

We plan to consolidate three charters down there around the first of 2005, and that work is already being planned.

It is not necessarily being done for efficiency reasons.

It is really being done for leadership and customer convenience reasons, but we will do that in that particular market.

But throughout the rest of our franchise at this point in time, we don't see the overlaps like that.

I suppose you could say that around Atlanta, that situation would deserve future review.

It will get future review, but we don't have any plans to do anything different there, and we will just have to evaluate the success of this consolidation that is happening with the Bank of North Georgia, Mountain and Charter.

Thank you, Richard.

Kevin Fitzsimmons with Sandler O'Neill.

Good afternoon.

Just maybe you can refresh us.

I know you addressed in the press release and I know on TSYS's call they really expressed it that in terms of the ongoing discussions with Banc America on the Fleet merger and Citigroup on the Sears portfolio and Banc One.

I guess I am finding myself being -- every day that goes by with the Banc One and the Sears situation being a little more optimistic and more hopeful that you've don't hear anything.

But on the other side of that, I'm finding myself a little surprised that it is taking this long for the Banc America-Fleet situation, because I thought that that was more of a -- the odds were even greater in TSYS's corner for that situation, because Banc America has historically always taken acquisitions and put them over into the TSYS camp.

Am I looking at this too simplistic, or is the timescale -- is it just a matter of each situation has its own unique timescale?

Thanks.

I think your instincts are good, and I would just encourage you to be patient on all of them.

I think it is a fair assessment that time is in our favor on a couple of these situations, and I think it is fair that the optimism about the latter is stronger, and based on the track record that we have experienced in their acquisitions every time up to now.

So, look, if you are sitting on pins and needles about all this, think about how we are.

So it's our area of intense focus every day.

In the next so many weeks, you're going to have as big a landscape change in the whole credit card processing world as has ever occurred, and we are just hoping that we're going to be the beneficiary in every case.

Is that when we expect to hear, over the next several weeks?

Every time I think something is going to happen in a month, it takes two or three.

I would say 60 to 90 days is basically the timeframe that would be reasonable to be looking for.

Okay, great.

Thank you.

Todd Hagerman with Fox-Pitt.

Good afternoon, everyone.

Jim, if you could, just to clarify on your comment with respect to the SG&A line.

The increase that you mentioned, adjusting for the deals and the incentive comp accrual, what was that figure again?

And was that the Q4 to Q1 or is that year-over-year?

I think you may have said about 5 percent was the adjusted growth rate.

Tommy and I are signaling each other.

I will let him try to answer it and I will come back in and give you my views.

And then the other question I have is -- perhaps also for Tommy -- is maybe if you can just update us in terms of the balance sheet sensitivity at this stage of the game.

I noticed that you added a little bit to your bond portfolio in the quarter; the yields actually picked up linked-quarter.

You have also experienced some good core deposit growth.

Where are you sitting right now with respect to your asset-sensitive position, if you will?

Todd, the number that Jimmy referred to, if I understand your question, was 5.3 percent fundamental G&A expense growth.

And that is year-over-year, excluding acquisitions and the disposition of our Quincy location, and the difference in the way we are expensing the incentive pay this year compared to a year ago.

So that was year-over-year.

With regard to the balance sheet sensitivity, we have really remained the asset sensitivity of our loans at about the same place that it was, just maybe one point higher than a quarter ago -- not enough to really require us to do anything differently in terms of hedging.

If you look at our loan portfolio, it's about 67 percent floating as a percentage of the total.

If you look on how much of that would really move after you consider floors with 100 basis point uptick in rates over a little bit of time, that number is really about a 57 percent number.

So we have maintained the asset sensitivity about like it was a quarter ago, and that has really been our intention, to not let it grow or shrink.

From a bond standpoint, we have grown the portfolio slightly, not really much.

We have a relatively small bond portfolio.

We have had about a $60 million increase in the bond portfolio.

About $15 million of that was short-term agency notes to cover some pledging requirements on some municipal deposits.

The rest of it was short duration mortgage pass-throughs and some callable agency securities.

Do you have the average duration of the portfolio now?

The average duration of the portfolio -- the effective duration is about 2.04 years.

Let me add this color.

I really think this would be good information for everybody.

On the incentive specifically, it was $7 million higher in the first quarter.

And that is basically an expense against very little, if any, in the first quarter of last year.

Assuming that we are successful in our goal of achieving a 10 percent -- this is our internal goal, the high end of our guidance -- 10 percent, then that number will grow to $20 million incentive pay expensed in '04 versus the amount of incentive pay expensed in '03.

So I think, one, that tells you that that that's what we are intending to do.

But two, I think it tells you that to fund that level of incentive pay, which is again very important to us in this Company, that represents a pretty robust environment of growth compared to the results of '03.

So I hope that gives you some color and some kind of indication of what our thinking is with respect to the quality of the earnings for the entire year.

Thanks, Jim.

And Tommy, as you mentioned the floating rate loans, if you will, how much have floors against them?

Do you have that figure?

Yes.

Of the $11 billion in floating rate loans, about four of them-- 4 billion are currently at the floor rate.

And of those, about 1.5 billion would not experience a rate increase assuming a 100 basis point rise in rate environment.

So that is how you back into that thinking -- you're 67 percent down to 57 percent.

Great, thanks very much.

I wanted to add one other idea to that thought as well.

And that is that Tommy and Jodi and really our entire senior executive team here at Synovus have spent a considerable amount of time wargaming, if you will, the scenarios that could occur with a rate increase.

We don't want to have to try to figure out what to do when it happens, but we are anticipating it happening.

We are anticipating all the different moving parts.

We're trying to think through exactly what we do and how we do it to maximize and optimize the potential that a rate increase would offer us in our current sensitivity that Tommy just outlined.

And frankly, I feel very good about our understanding of the different moves that would have to be made.

I guess the thing that we are most anxious to have happen is that having struggled through the pressure of the margin compression, we don't want to miss a lick of the opportunity on the uptick.

And so we are thinking that through in every possible scenario.

Thank you for that, and we will field the next question.

Nancy Bush with NAB Research.

Two questions.

Number one, Tommy, if I could just get the book value from you and avoid making a phone call?

The book value of the bond portfolio?

No, the book value of the Company -- book value per share.

Hang on one second, Nancy.

We didn't anticipate that one, but I can get it to you in short order.

How about 7.75 (ph).

Great, thanks.

Mark, given that a lot of the growth has been in the one-to-four-family residential, and even though I know that Northern Atlanta never stops growing, what is leadtime on these things, and if we do get into a dramatically different situation as mortgage rates go up here and demand starts to fall off, are you confident that you're not -- some of your guys are not going to end up with a lot of unsold inventory?

Nancy, we believe we can control that.

Basically, what we've said as a parameter to slow down (ph) is if our lot inventory gets close to nine months, that is acceptable level.

But if we start seeing absorption (indiscernible) go above where they are today -- and in Atlanta it is averaging about seven months -- and obviously, we have a lot of (indiscernible) in Atlanta.

But we will slow it down.

If you look at our one-to-four-family lending outside of Atlanta, we are not very speculative.

We have a lot of contract work.

Our builders have not really had to go out and do a lot of speculative, advance (ph) homes -- build homes, waiting on buyers.

And that's been our experience everywhere but Atlanta, in the past as well.

So, again, our focus is on Atlanta.

We will ride (ph) through these other markets, I think, without any issue, and if we see the absorption rates of houses or lots change in any way, we will be right on it.

We will slow it down and we will keep those, we believe, those absorption rates at appropriate levels.

And the whole market is really looking at that very closely.

There's a lot of data out there.

We look at it by subdivision, not only by market, but by each subdivision we're in.

We think we are on top of it.

Do you think the developers are ready for this slowdown?

My concern is that these guys tend to extrapolate growth forever and --

We have never had a developer that wasn't optimistic, so it's our job to keep them levelheaded and that's what the relationship (indiscernible) is all about.

That's what we've, I think, done a good job with over a long period of time, and I think we will be able to do it again.

Thank you.

A follow-up from Jefferson Howsam (ph) with KBW.

I wanted to ask about the run rate of operating earnings.

If you figure that the gain pretext of the Quincy State Bank might have been $14 million or $15 million and if you figure maybe if the incentive comp this quarter was $7 million, if you hit your 10 percent or over number then it is going to be $20 million for the year.

That would save you maybe $4 million prospectively per quarter.

Is there any other things here that might offset that $14 million or $15 million gain to make the operating number higher?

You could probably look at it half a dozen different ways.

And the whole notion of offsets in our view probably doesn't really tell the proper story here.

And yet I think your first point is worth revisiting a minute.

We were up 16 percent in the first quarter and we are telling you that our internal goal is 10 percent for the year.

And we are still comfortable with our range and obviously there are some things that could enhance our ability to perform.

There's some that could change it maybe a little bit on the negative side.

The incentive I think is certainly a proper way of looking at a portion of it, and then really the strategic redeployment is probably in our view the best way of looking at it.

The Jacksonville operation, the Savannah operation, other startup operations that we have on the boards that have not really been announced yet, other capital expenditures that are growth-initiative related and even systems -- if you wanted to offset that gain dollar-for-dollar you could do that, but that's not information that we're going to put on the table, quite frankly, primarily for competitive purposes.

And I really think another way of thinking in terms of this first quarter is to realize that TSYS, in spite of the fact that they had a little bit better performance than was anticipated, it is still expected to be the weakest quarter of the year, which from a comparative purpose gives us a little lift opportunity going forward.

Then on the banking side, we're comparing against the strongest net interest margin -- as much as it went down and was compressed in the first quarter of last year, it ended up being the strongest of the year.

So from a comparative standpoint, we are comparing against the strongest that we will see for the rest of the year.

So I don't really know how to give you much more of an answer than that, but I hope all of those different aspects will give you the flavor of how we are viewing the quarter.

Thanks, that's helpful.

If I could ask a quick follow-up.

On the Peoples Bank of Connecticut (indiscernible), how many accounts on file (indiscernible) and when do we start booking revenue for that?

It has about 2 million accounts and it's second half of the year, probably toward the end of the third or the beginning of the fourth quarter.

Thanks a lot.

By the way, that's a real happy event for us.

Peoples was a former customer of ours.

We lost them in the process because we didn't have a European capability.

We feel like they are coming home.

Thank you.

Sir, there appear to be no questions in queue.

Do you have any final comments you would like to finish with?

We thank you, as usual, for your interest and your enthusiasm that you have for us all the time.

I won't be repetitive about the strength of the first quarter, but if you look at it slice by slice, category by category, segment by segment, we are really excited about '04 and beyond.

We believe the next move in interest rates is up.

We would love for it to happen sooner rather than later; but we see a pretty bright year ahead, even with no interest rate increase.

I want to be clear, though, that we yearn for the day to return to a more normal interest rate environment, just like we are enthusiastic and excited about what appears to be a return to a more normal market environment, which is obviously benefiting us on the fee income side.

We will be happy to field further questions one-on-one by phone.

Pat and Leo and company are happy to talk with you at anytime, and we look forward and hopefully we will be seeing you during the coming quarter.

Thanks again for attending our call, and we stand adjourned.

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.

Thank you for your participation.