Synovus Financial Corp (SNV) 2004 Q3 法說會逐字稿

(Audio joined in progress) There were businesses lost, particularly in the Pensacola, Florida area. Our team members have been incredible throughout this entire unfortunate string of circumstances. They're a really resilient group and they'll recover quickly, and our entire team has rallied to their support. We've raised more than double our target goal to send direct cash support to the people that were most adversely affected in the communities that we serve. And we all have pitched in to, quite frankly, help them put their lives back in order.

The financial impact -- I know you'd be interested in these numbers related to the events of the series of hurricanes resulted in a decrease in our net income of approximately 1.4 million, about a half a penny a share. They consist primarily of a $1 million after-tax loss and an insurance company investment that we obtained with our bank acquisition in St. Pete.

The remaining amount of the impact was related to business interruption costs, loss service charges, lost fees, supplies, damages to facilities. We would expect a modest amount to occur in the fourth quarter, but we believe that we have gotten our arms around substantially the amount that will be impacted.

Let me shift over to loan growth, because it's also quite a major part of the story for the quarter. It was strong during the quarter, it was stronger than we anticipated. Total loans increased 18.5 percent over last year. If you exclude the acquisitions and divestitures, our loan growth year-over-year was 15.7 percent. From a very positive standpoint, it's a great strength of our company to be able to generate earning assets, and these loans that grew beyond our expectations in the quarter were broad-based across the markets, with really two-thirds of our banks increasing at a double-digit rate.

And the other good news is we are beginning to see good growth momentum in the categories other than commercial real estate, and particularly the consumer and the C&I sectors. On a linked-quarter annualized basis, consumer loans grew 14.7 percent, and C&I growth was 9 percent. Both consumer and C&I loans grew at a higher rate than in the second quarter, where the growth rates were 12 percent and 7.2 percent, respectively. Many of you obviously will relate to our desire to see a greater diversification in the categories of our loan portfolio, and this is a good indication of that happening.

Credit quality continued to be exceptional. We had a bank examiner that told us the other day that the Bank Secrecy Act was more important than credit quality. I'd love to see the expression on the faces of those of you listening on the call. Quite frankly, we take extremely seriously the Bank Secrecy Act. And I might add we take extremely seriously the entire heightened regulatory environment, the scrutiny, the indications that we are receiving from the whole range of regulators, not to mention the whole Sarbanes-Oxley world, the 404 compliance and testing, the certification to come.

But when it comes right down to it, there is nothing during any time of the year, during any part of the cycle that is more serious to us than credit quality. And our credit quality is very good and improving in almost every respect. The nonperforming asset ratio ended the quarter at 0.56, as compared to 0.73 one year ago. The NPA ratio is only slightly higher than last quarter. A little bit of a timing issue, but we are extremely optimistic about the remainder of the year, and the number should finish the year at a lower number than at the end of the third quarter by year end.

Our past dues continue to be at among the lowest levels in our history. Total past dues were only 0.63 percent of total loans, and greater than 90-day past dues were at only 0.12 percent, just an incredible indication of the quality of the assets in the portfolio. The net charge-off ratio for the third quarter was 0.26, and for the first nine months of the year, that net charge-off ratio was 0.22 compared to 0.34 for the first nine months of last year.

It's very interesting, but the provision for loan losses was 21.2 million in the quarter compared to 15.1 million for the third quarter last year. For the first nine months, now, that provision is 54 million compared to 52. And lower charge-off levels have literally had a lowering effect on the current year provision, but particularly in the third quarter, loan growth has required additional provision levels. That allowance for loan losses ended the quarter at 1.37 percent, as compared to 1.4 percent last year and 1.38 last quarter. And all of the coverage ratios, as you will see from the materials, remain very, very strong.

The provision to net charge-offs ratio, which we think is a critical indicator of really what the real essence of your coverage is, was 1.75 times for the quarter, and that's compared to 1.2 times for the third quarter of last year. And year-to-date, that ratio is 1.91 compared to 1.34 a year ago.

On the deposit side, total deposits grew 14.5 percent over last year. Our core deposits, which are total deposits less CDs over 100,000, grew 8.9 percent over last year, excluding the impact of acquisitions and divestitures. And on a linked-quarter basis, the average core deposits grew 11.6 percent annualized. And the growth rate was led by strong increases in demand deposits and money market accounts.

The margin is obviously big news and a very interesting situation for us. Our total net interest income for the quarter was 223 million; that's up 15.7 percent from a year ago. And it's up 13 million from the second quarter of this year. And the growth in net interest income was positively impacted by stronger-than-expected loan growth. The net interest margin was 4.25 for the quarter as compared to 4.24 for the second quarter and 4.22 in the third quarter of last year. The year-to-date margin is 4.25, and that's compared to 4.26; we have almost pulled back even for the same period last year.

Now, the growth in the third quarter margin was really less than we expected, and of course it was due to the higher-than-expected loan growth. And that, as you know, dilutes the base margin, even though it increases net interest income. And it is also due to slightly higher-than-expected funding costs. But the bottom line of the margin question is the loan growth, because it was, again, in excess of plan. I'll tell you that it's primarily a timing issue, but in fact, it did occur in the third quarter. And in excess of plan, the loan growth is really important to us in managing our relationships, and it will benefit us in the long-term; but it's dilutive to third-quarter net income, as that provision expense related to those loans exceeded the corresponding net interest income by an amount that represents approximately another half penny per share.

We are encouraged by the expectation of additional increases in short-term rates, and we continue to maintain approximately the same asset sensitivity on the balance sheet that you've grown accustomed to over the last several quarters.

On the fee income side, another interesting phenomenon for the quarter. Non-interest income for the financial services segment was 76 million; that's down 5.4 percent compared to a year ago. And this 246 million for the first nine months, that's up a modest 4.9 percent over last year. Of course, these comparisons are significantly impacted by acquisitions and divestitures, but mostly by the fact that mortgage revenue is down 62 percent for the quarter. And year-to-date, it amounts to a decline of 11 million for the quarter and 32 million for the year so far.

And let me just kind of pro forma these for you a minute. Obviously, we are in the mortgage business, and we benefited from it nicely over the last several years. But if you normalize the mortgage, take it out of last year and this year, our non-interest income is up 12 percent fundamentally for the quarter and 16 percent for the year. Those are really solid inherent fundamental strengths, we think, going forward.

By the way, service charges on deposits have been strong, with increases of 17 percent for the quarter and 16.7 percent year-to-date. Credit card fees, another good example, up 13.9 percent for the quarter and 13.2 for the year. Other examples, fees for financial planning and asset management, up 14 percent; trust services grew 11 percent over the third quarter of last year. We've also added 1.4 billion in new assets under management during the first nine months against a goal for the year of 2 billion, and we are up slightly over 15 billion in assets under management.

Financial services G&A. Let's move to the expense side a minute. They increased on a reported basis 6.8 percent for the quarter, 8.4 percent for the year. We've really done a great job managing headcount. Our total headcount has decreased by 115, if you exclude new markets and divestitures since the beginning of the year. We are also experiencing better-than-expected results in our self-funded health plan.

Also, I think it's important to note that our year-to-date performance-based incentive pay expense for the financial services segment is $12 million higher than a year ago. I don't, frankly, get a lot of enthusiasm out of most of my audiences, other than our own team and our own directors, about paying incentives, but you'll recall that for three years now on the financial services side we paid less than full incentives. And that's '01, '02 and '03. And those are the first three years since 1976 that we have not paid full incentives for high performance or hitting the financial targets.

I told you earlier in the year, and I want you to know how committed we are to this, that our goal this year is to meet our earnings expectation and to pay our team members. We don't need to go another year without our employees feeling like they are being rewarded appropriately for their hard work and their success. And we are on target to do that. In fact, I might add here that our expectation and our guidance for the year is the 8 to 10 cent range. I'm happy to declare today that we expect that to hit the 10 percent level, and we expect to pay full incentives to our people. We will believe that that's a victory and a win for all of the constituencies that we serve in the year 2004.

Back to expenses, linked-quarter expenses are up 2.6 percent, and that's primarily due to mid-year salary adjustments.

Yesterday, TSYS announced its third-quarter financial results. Net income for the third quarter was 39.1 million, up 10.2 percent. Diluted EPS was 20 cents, up 10.3 percent. Total revenues for the quarter, excluding amounts for the reimbursables, was 248 million; that's up 18.1 percent compared to the third quarter of last year.

If you look at the first nine months of '04, net income is 107.6 million; that's up 5.9 percent. And diluted EPS was 55 cents; that's up 6 percent. Revenues before reimbursable items were 706 million for the nine months; that's up 16.6 percent over the corresponding year-to-date last year.

The third quarter was as exciting a quarter as we've had at TSYS maybe ever, certainly in the last several years. The announcement of the definitive agreement with JPMorgan Chase, the service, the combined portfolios of Chase Card Services was obviously the highlight. The first phase of that conversion was successfully executed during the third quarter, and that was the first part of the Banc One accounts, and those remaining accounts are expected to be converted in the fourth quarter of '04 -- in fact, in just a couple or three weeks. JPMorgan Chase is expected to convert its consumer and commercial cards to TS2 early in the second half of 2005.

With the strength of TSYS's core business, there over 85 million accounts remaining in the conversion pipeline, the opportunities internationally that exist, we believe that TSYS is very well positioned for sustained and long-term growth.

I mentioned that we are on track to achieve our EPS growth target. We believe we will hit the 10 percent for '04, and it's an exciting momentum, frankly, that's developing in just about every category that will give us a lot of optimism about the year ahead.

We intend to see the moving parts take shape at TSYS as they finalize their calculations for 2005. They announced yesterday that they will discuss again guidance, which was not changed any yesterday, in the January call, and we would intend to do the same.

I think it would be instructive, before we ask for questions, to kind of go back to the theme that fundamentally, from a fee income standpoint, from a credit quality standpoint, from a growth and earning asset standpoint, from momentum at TSYS standpoint, from the -- really every category but for a couple or three categories, it's a magnificent quarter that gives us a lot of confidence in the underlying strength of our ability to hit the high range of our targets for this year and improve even beyond that in the year ahead.

Again, if you take the mortgage profits from last year and this year out, you got a substantial change in the look of the quarter. Now, we don't want to take them out, but it's instructive to understand that the serious decline this year compared to last year is a major factor in all the numbers for the third quarter for Synovus.

Again, the hurricane loss is about a half a penny. The higher-than-expected loan growth, about a half a penny. The losses in Florida are certainly, we believe, non-recurring; the loan growth is a timing issue. And then if add on top of that the fact that we are fully funded for incentive pay and believe that that will be the result at year end, you can see why the optimism is very high here within Synovus.

I might just mention one thing on incentives. If we did not believes that we would attain our 10 percent and pay full incentives, we could have cut back on the incentive accrual for the third quarter. And yet, proper accounting and, we think, the right course of action is to fully fund it in the third quarter because we believe we will fully fund it in actuality for the entire year. And so that also is a factor that I think is important to consider when you consider the underlying strength that we sense and feel from the third-quarter results, and why that optimism carries over to the fourth quarter and beyond.

So that's the presentation that we have available to you. It's quick and dirty and it's covering an awful lot of ground. But all of us are here assembled to attempt to field your questions, and I think we have the right folks here to be able to answer anything you might want to ask about the third quarter, about 2004, and about any of the strategies that are well underway toward execution within the Synovus and the TSYS families.

(OPERATOR INSTRUCTIONS) John Pandtle from Raymond James & Associates.

Good afternoon. A couple of questions. First, the insurance company in St. Pete. You mentioned that those were non-recurring losses. Does that imply that everything has been resolved in terms of claims and we've seen it in the third quarter?

Yes, it does imply that. And I guess longer-term, you have the potential for reoccurrence of those events, but we have a limited amount of investment. This took care of a little over half of it, and so there is limitation that certainly exists and we think anything ongoing would be immaterial. That's why we have characterized it as non-recurring.

Fair enough. Then as a follow-up separately, you mentioned that the higher-than-expected loan growth in the quarter was somewhat timing related. Could you please expand on that and tell us what that implies for fourth-quarter growth and your outlook for '05?

I think the one implication that I can, I think, be definitive about is our high confidence in that our fourth quarter will produce for us a year that hits the guidance that we've issued. As you know, we only guide on the year, we don't guide on the quarter. But the quarter should be very, I think, adequately get us to the top of the 8 to 10 percent range. And the timing issue, specifically, is that while within the quarter those loans are made, you basically have to provide for them and it offsets the net interest income for that particular short-term period. That net interest income kicks in from this point forward. We don't have to fund them in the loan loss reserve provision again. And that is the timing that I was referring to.

In other words, John, one of the great strength of this company has been the ability to generate earning assets. Well, really going a little bit beyond plan, it cost us in the short run; it will be very, very beneficial to us over the life of the loans.

My question was less related to net income in fact, but just really getting at the sustainability growth -- of loan growth that you saw in the quarter.

We are not aspiring to sustain that level of loan growth, Mark, I think has been very, very plain in previous calls. And yet as you well know, the pipeline doesn't totally respond to your own whims and wishes. And certainly, we've got a great history of, I think, adding earning assets, loans in particular, that have high quality. I mean, that is the business we are in, and when they are available and when they come along, you certainly are tempted to want to accommodate your customers.

But going forward, a moderation of that level of growth we think will occur. We think a lot of that will occur naturally as interest rates pick up a little bit. But we also intend to do whatever it takes from a discipline standpoint to see to it that the loan growth moderates. I might just say this -- one good gauge is that one of our goals for next year is going to see to it that is specifically focused on our core deposit growth exceeding our loan growth for the entire year.

Very good. Thanks.

Thank you.

Kevin Fitzsimmons from Sandler O'Neill.

Good afternoon, Jim. Can you just -- kind of a follow-on question to the first one -- can you give a little more detail on why -- I understand the timing issue that you had to provide for the net interest income really kicked in. But can you give a little more color on why the loan growth, why the demand, why the production was so robust this quarter. Was it just the rate environment, was it in particular markets? If you can give a little more color on that? Thanks.

I tell you want I'm going to do. I'm going to ask Mark to give you kind of a global look at the whole question you asked. But let me say this, that the environment is more robust. We continue to believe there's a confirmation of a continuing improvement in the economy. And as I mentioned, we were thrilled to see some life in the consumer and in the C&I categories, and also the broad-based growth in almost a majority of our banks. But let's let Mark be specific so you'll have the whole picture as far as the loan growth and how we are seeing it, and how we believe we will see it going forward in the coming year.

I will try and break it down to you from a regional aspect. If you look across our footprints, the Atlanta region was really our strongest growth sector. We grew loans on an annualized basis about a 29 plus percent. And honestly, the housing sector is still extremely strong in the Atlanta region. Absorption rates are still -- inventory is still turning over about every eight months. So the opportunities there are extremely strong.

The same thing with our coastal sector. All of our coastal banks grew on an annualized basis of about 19 percent. And if you take all the other banks across the footprint, they grew at about a 14.5 percent. We've acquired some new banks over time; I think that's one area that has really helped our growth. As you know, we've positioned ourselves to have banks in higher growth markets and less banks in slow growth markets. If you look at some of the significant growth factors, Jacksonville, a new startup, had pretty explosive growth. It's a low base, but a very high annualized rate of growth because of the management team and the opportunities that we have there.

Alpharetta, we've merged three banks. I think we've gotten the strength of management hitting that market and had about a 40 percent annualized growth in that sector. Our Memphis bank, a new bank that we had, with the power of Synovus adding to the capabilities of Memphis, we've increased our low growth at about a 38 percent. And I could kind of go on and on. We go (technical difficulty) to our Statesboro bank. We've expanded into Savannah there. The growth has picked up to about a 42 percent rate there. So expansion as well into other markets. So there's a lot of reasons for the growth.

Our thought process on the growth is that with the increasing rate environment that we've got, the margin expansion that we anticipate and the loans, we don't need to grow it at 17 percent. We feel like we can grow at a low double-digit rate and grow deposits at that pace and make as much if not more money going forward in the future.

Again, Jimmy mentioned we've been underway with our consumer strategy for some time. We have a very comprehensive consumer strategy. That has now kicked in. But the pieces that we put in place have had a very sound effect on the growth in our consumer categories. Our key lock (ph) loans are growing at about a 43 percent annualized pace. We put in some tools and technology to really allow us to be more efficient in how we generate those loans. We are working well with our mortgage company. They're doing additional work for us when they do mortgages to make sure (ph) that product goes to our banks as well.

And then in addition to that, C&I is rebounding. There are indications based on our own portfolio that we are getting increased opportunities out there in the C&I sector, and I think Jimmy mentioned to you that in the second quarter we grew at about a 7 percent pace, and this quarter we are growing at about a 9 percent pace. And I am seeing opportunities out there in the marketplace with some pretty high-quality C&I customers.

So I think you add all that together, you add a strong sales management plan and banks being incentived (ph) to grow, and that's what we have.

Great. Thank you.

Todd Hagerman from Fox-Pitt.

Good evening, everybody. A couple questions for you, Jim. First off, since you feel inclined to talk about bank secrecy, let me ask you how you would characterize your compliance with bank secrecy and whether or not we need to be concerned with your expansion plans going forward?

Well, one, I would say you should not be overly concerned about us as far as compliance, because we think we're on top of the issue. We think we have in place the systems that are needed. We are frankly beefing them up even more to make sure that we don't get the same sort of treatment that we've seen occur in the marketplace just in recent days. And yet, I think it would be foolish for anybody that follows banks or is in the business not to have a real heightened level of concern and interest about the whole area generally, because it's a hot potato, it's a political issue. The regulators are under the gun, and we've seen what can happen.

And so I certainly don't expect anything unfortunate to happen at Synovus, but I can tell you we are working at every minute of every day.

Okay, thank you. And then just a follow-up, unrelated. I was wondering if Mark could just comment about some of the inflows/outflows on the nonaccrual side. It looks like there were several moving parts in the quarter. You mentioned the timing issues. And in particular, the C&I and consumer mortgage seemed to pick up quite a bit.

Yes, I can. In terms of nonperforming assets -- or I want to be sure I got the --

Yes, nonperforming assets.

Yes, we did have several loans going on nonaccrual this quarter. They are in different areas. We had an automobile business in Alpharetta that we had to secure with (indiscernible). They went on nonaccrual. We had a telecom company in Columbus, Georgia that although it's current, we felt like had an impairment and we chose to get that on nonaccrual and also write that credit down. We had a charitable organization in Memphis that went on nonaccrual

But at the same time, we had some credits move off (ph) in our largest credit -- the largest single credit moved out this quarter, Vilano Beach, but there is no specific industry issues out there. We did have a few loans come on. I can tell you we gave you a range of nonperforming assets at year end that would be between 45 and 55 on any (indiscernible). Charge-offs would be less than 30, and we have very intention of being there at year-end. So we don't see any kind of issues out there that are going to prevent that.

Was there anything just related to the storms that may have pushed some of these things in past due status?

Not really. We've looked at the impact on the businesses, those businesses that have business interruption insurance, those industries that have (technical difficulty) in the Pensacola area, and we really don't see any major impact to our credit quality coming out of that area. In fact, what we expect to see long-term is really a boom coming out of that area. We think we've done a good job on making sure that we are insured through those folks that got hurt and have the appropriate insurance. And if we do have some impact, it won't be major.

Great. Thanks very much, Mark.

Todd, I want to add this. This is a phrase we don't use lightly or to be trite. And you've heard us say this over the last couple of years, but we're really dealing here with onesies and twosies. These are not systemic, they are not mounting issues. They are not the kind of situations that should cause you any undue concern. And quite frankly, if we get to where that is not the case, it would be our intention to make sure you understand that that situation has changed. We're not expecting that to occur.

I appreciate that. That's helpful. And it was nice to see that at least commercial real estate does appeared to have trended lower in the quarter.

And I would like to go back to Kevin's question too, about the loan growth, just one follow-on comment. I mean, the truth is you better be careful what you ask for, because with our bank repositioning strategy that you have followed over the last three or four years, where we sell low-growth banks and we buy high-growth banks, we are getting what we asked for. And the good news is we can put earning assets on the books that we can get paid back. And I think the good news is that we can be even more selective as far as quality as we began to moderate that growth rate, and that's exactly our intention.

Excuse me for interjecting those two comments, and we will take the next question.

Brett Valome (ph) from FIG Partners.

My question is regarding the wealth management front and the various affiliates, considering you saw 14 and 11 percent growth there. I was wondering if you had any additional talent hired in the trust services and wealth management area.

We sure have, and why don't I ask Sonny if he would to just kind of respond generally and maybe even specifically to that question.

Thank you, Jimmy. Brett, we have recently made (indiscernible) in the Atlanta area with a portfolio manager. We will not be seeing any results from that in these numbers, but that (technical difficulty) will be making a difference. Also, when we have moved into some of our new markets where we are expanding from a banking standpoint, we've had some good opportunities to add talent there. We are adding talent in Jacksonville. We're very fortunate with the team that we had in Savannah to be able to get some folks who have some talent, and we're looking at other talent there. We have added some other talent in the Nashville area. And so we continue to add talent across the board.

As you know, we have some strong folks in the Atlanta area already in our particular companies there that are managing assets. And then in our Synovus Investment Advisers, we also are adding talent. We brought from Birmingham a few months ago Charles Moore (ph), who is our chief investment strategist, who has been with our Canterbury Trust subsidiary and has recently moved to Columbus and is a part of our team here now. He's helping to provide strategy throughout the organization and is a great addition.

So we continue to add talent and we are in constant review of what our needs are. We are trying to not grow at too fast a pace, but we are trying to bring on those folks we need. Each time we expand into a new market, we are paying for that out of current revenues. So it impacts the (indiscernible) that we get, the net income that we get from an FNS standpoint, but we do have additional needs and we will continue to add more talent.

Thank you.

Nancy Bush of NAB Research.

A couple of questions for you. Could you elaborate a little bit on the margin trends? Given that you are asset sensitive and given that we have had a couple of rate hikes now, when do we start to see the traction in margin really kind of step up -- and that's my first question.

Well, that is a great question. Really, as I indicated, the loan growth this quarter had a negative impact on that margin, as it was diluted by the growth. And yet, we are obviously for the first time in three years now on the right side of this curve. We are working very hard through Tommy and Jody Lowery (ph), who handles our asset liability management, to dissect to the nth degree all of the nuances of the margin so that we will in fact capture that potential and optimize really the movement up as they occur. We are fully expecting next meeting November 10th, I believe it is, to produce another quarter.

And then, Nancy, I think the other nuance of this thing is that the phenomenon of floors that we had in place have moderated somewhat the impact of these first three. Every day that goes by we will get more benefit from the first three and the fourth one that we believe will come. And while we're not building into our models the rapid acceleration of the Fed funds rate, I do think that what is going to occur -- we think what's going to occur is that the Fed is committed to moving back to a neutral monetary position, and that would imply something in the 4.5 to 5 percent Fed funds rate. That bodes well for us, as you know, being a student of our balance sheet like you are.

When do you expect -- will it be sort of early next year that we start seeing these rate increases really grab?

I think we will see some improvement in the fourth quarter. We definitely expect that it will benefit us in the year ahead. And Nancy, what we will intend to do is really dissect that for you on a quarterly basis to make sure you know exactly what kind of impact we are getting and understand our numbers.

My second question is a TSYS question, and it's probably one more directed to Phil, but certainly I know that you are intimately familiar with it, and the TSYS stock really got creamed today. I'm not sure for the reason behind the downgrade that impacted it. But I was on the call yesterday, and you gave this tremendous growth with Banc One and JPMorgan Chase and Bank of America-Fleet and all this stuff going on, but the sense certainly was less yesterday that the pricing is not following that. I guess I would ask sort of a philosophical question, Jim. I know you're the biggest credit card processor now. What is the pricing implication of that and when do you start to see some better pricing on these things?

Phil is here, and I will certainly let him handle that. But I think the bottom line -- I share your kind of dismay over what happened today. I think we are trying to really put our arms around exactly what it was. But we did get downgraded by one follower, and there was five times the average daily volume, which implies that the short sellers were very active. I don't know who it is, but I assume it was the person that put out the report or the firm.

But we think that they certainly misread the current situation. They overlooked the momentum. And the best guess that I have is that they took Phil's reluctance to address the guidance yesterday as some sort of less than positive sign. And yet, I think Phil made it very, very plain that there are a lot of moving parts, that none of this business that we are announcing has hit the books yet except the first tranche of Banc One; the second tranche to come in, what, two or three weeks. And all of that was anticipated in the guidance that was given for '05 when we originally gave it.

And you remember also that the guidance that we gave in '05 was -- I mean, we don't normally reach out that far in advance, but because of all of the Perfect Storm, you remember all those moving parts, that we wanted to establish that '05 would be more like your normal year rather than this year, which we think is an aberration. I'm frankly rethinking this whole guidance thing. I think we've been punished for trying to be forthright about it, and, frankly, I think the people that acted today made a terrible mistake. We are very optimistic about TSYS, about signing these. We don't start getting revenue until we start processing, and they're long leadtimes and we got a pretty good string working.

To imply that the pricing has collapsed would be a horrible mistake. The pricing is always under pressure. The bigger the client gets, the more discount they need or deserve or certainly expect. But if you follow our margins over the last ten years, they are pretty remarkably consistent. But for minor blips here there and yonder, we are expecting that to continue. Phil, would you like to add any more to that?

I think you answered the question very well, Jimmy. We were very disappointed in what happened to the stock today. We are very excited about where we are at and we are winning in the marketplace. In the last 18 months, we have signed Banc One, we signed People's Bank of Bridgeport, the Bank of Ireland, Fleet through Bank of America, and most recently JPMorgan Chase. We've got a pipeline still left of 85 million accounts in that pipeline, and we have what I believe is the biggest and the best list of prospects we've ever had in the history of this company.

It does take a long time to put these banks on, it's very expensive to do it. And as we get into the sweet spot of these contracts, the pricing gets better. But I think one of the things that was probably maybe a little bit of the problem was the question what about how I felt about the Citi/Sears thing. I mean, as you know, Citi has bought Sears, and that process has continued on much longer than what I had anticipated. It is a huge moving part through the entire total systems scheme of things, if you will. And while we feel great about our relationship with Citi, we think we've got a great chance at keeping the business and really doubling the business, we don't know where it is headed.

I thought we explained that very clearly yesterday, but that was one of the issues that the analysts brought up, that we seemed to be less confident about that. I think we were talking about why we weren't raising the guidance, and we had already said we weren't going to raise the guidance. We had too many balls in the air, good and bad. And so we felt very comfortable staying with the 10 to 15 percent, and still feel very comfortable.

Phil, I guess my question would be whether you feel that this dominance that you are increasingly assuming in the industry will, in future years, mean that there is more pricing power on your part? Or is the pricing situation pretty much going to stay this way no matter how big you are?

One, I believe the dominance, as it continues, will give us a stronger hand. I think we have a strong hand now. We are certainly not being jerked around by the big guys on pricing or terms or conditions. We haven't given our power of attorney to anybody; we still decide which lines we'll sign ourselves based on whether it satisfies us or not.

I think the answer to your question is that the pricing power that we enjoy is always under pressure. We have a competitor who seems to always want to put even more pressure on us; the big guys want better prices and bigger discounts. But if you look at our margins, Nancy, what you see is that the cost of doing this business goes down also. And so we maintain very, very effective margins -- that's part of why they bang us down on price, is because they know that our cost to do it, our cost of storage, our cost of CPU, just about every cost we have goes down except software and people.

It's a great business to be in. It's better today than it has ever been. And I'm going to tell you it's going to get better and better and better. And we will be handsomely rewarded for the wins that we are seeing and there are more to come. I'm not trying to be coy about that, but I think that every win we announce establishes us as the gold standard in the software and the card processing business. We are ebullient about the future of Total Systems.

Thanks.

Jennifer Demba from SunTrust Robinson Humphrey.

This is actually Lauren Johnson (ph) for Jennifer. It's a follow-up on the compliance costs. Living in a new world, is there any additional pressure to collapse additional charters after the Bank of North Georgia collapse -- with the additional compliance costs?

Right. We had a board meeting today. It was a strategic planning session. We heard about the pressures that we're under for compliance and regulatory cost. I would say that if the regulators had their way or if the more bureaucratic executives in Synovus had their way, they would collapse the charters tomorrow for their own convenience. They are going to do it over my dead body, because it's the greatest secret weapon we have, it's a magnificent strength to serve customers and to grow and to win in the marketplace.

The convenience of our own bureaucrats within the company is not the primary force that exists within this company. The primary force that exists is serving customers and growing and succeeding and executing crisply in the marketplace. So the answer to your question is no, there is no additional force that is pushing us toward collapsing the charters.

Is there additional compliance concerns and pressures and expense? Absolutely yes. But we can certainly do it within the approach that we take to doing business with our separate charters.

Now, you mentioned Atlanta. That was not done for that reason, obviously; that was done because it gives us a better opportunity within the marketplace. And there will be other situations that could occur that would be similar motivation to that. But not for the reasons that your question implies.

Great. Thanks so much.

There appear to be no further questions in queue. Do you have any closing comments you would like to finish with?

I just thank you for your questions, I thank you for your attendance. I look forward to our next call. Obviously, we told you what we thought we'll announce by year end. We will be looking forward to at that point in time giving you our best guidance on 2005.

I know that Phil, particularly after today, is looking forward to having that same opportunity in mid-January. Again, thank you for your enthusiasm and your support and your encouragement. We are working really hard around here to make ourselves feel good about our ability to make this company approach its optimum performance, and we believe that we will have a lot at satisfied constituents at the end of this quarter, next year and beyond.

So thank you and we will be talking to you. Please call Pat or myself or Richard or Tommy or Mark or any of us if you have any follow-ons to today's call. Thanks a lot.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your phone lines at this time and have a wonderful day.