Synovus Financial Corp (SNV) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the third quarter earnings conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the call over to your host.

Richard Anthony, CEO.

Sir, the floor is yours.

Thank you very much.

Good afternoon.

Welcome each of you to our third quarter conference call.

Our executive team is here sort of celebrating, really, what we consider to be a -- a quarter that represents a number of really good things going on in our Company.

This, incidently, in terms of percentage increase is the best quarter we've had since 1996.

As you see, our earnings per share growth in the quarter was 29 -- 21.9%.

We're up over 17% for the first nine months of this year, and our return on assets in the quarter was a little over 2%, 2.01%.

We break our Company, as you know, down into two distinct lines of business.

The financial services side will be discussed in a minute, but it had a bottom line increase in profits of 23.2%, and TSYS, which is having a remarkable year, is up 31% year-to-date.

Actually I believe that's 30 -- 34% year-to-date.

So what I'd like to do now is to take the fize -- Financial Services component of our Company and break it down for you.

We have evaluated ourselves in a number of areas.

The key drivers would be indicated as follows, first loan growth.

As you see there, our loans grew 10.8% over last year.

Year-over-year, on a linked-quarter basis, loans were up 8.2%.

I might add that as we started the year, I liked to talk in the early months about the momentum that we had, and loan growth, really, which was strong last year at 15% in 2004, gave us good earning asset momentum.

We felt, also, like the margin opportunity was great, given the high percentage of floating rate assets we have in our loan mix at 65%, and credit quality in terms of momentum was a factor, as well.

So those drivers have carried us into the year, resulting in the numbers that I indicated above.

Now taking loan growth down a little bit deeper, to help you understand where our growth originated, commercial real estate in the quarter grew at 14.8%.

This would be really divided into two major areas.

Investment real estate was up 11.2% and owner occupied increased at a little over 18%.

So you can see that within our footprint here down in the southeast, that real estate is still strong and active.

We, of course manage and underwrite that component of our portfolio very carefully, but we do feel like we have core strength in that element of our business.

So, commercial real estate continued to a contributor in a very significant way.

The CNI piece of our portfolio was basically flat in the quarter.

We do see some strengthening in the pipeline.

We do have an interest in expanding that component of the loan portfolio, but in the third quarter of this year, commercial and industrial loan activity was modest.

Within the consumer portfolio, home equity growth continues to be substantial.

It is down some from the past couple of years, but within the quarter, our home equity outstandings did grow by 11%.

As we look forward to the remainder of the year and look at our pipeline, the inventory building signs are there within commercial and industrial, so moderate growth is expected in that segment.

CRE is bound to cool down here before long.

It really has not started to show up yet on our books.

In fact, we have several developments that will continue to fund up in the fourth quarter, so expect CRE to remain relatively strong and active for the remainder of this year.

As we look to the overall trends that we would project for the full calendar year 2005, low double-digit loan growth is what we had anticipated as we began the year.

We continue to believe that the final numbers will come in within that range.

I'd like to shift over now to the liabilities side of the balance sheet and point out to the group that our total deposits grew on a year-over-year basis at 14.1%.

If you take out the brokered time deposits, we still were up 12.2% year-over-year.

Breaking those numbers down on a linked-quarter basis, we did have some money part at the end of the second quarter, so our linked-quarter expansion was a little less.

Total deposits grew 3.4% and if you take out the broker's time deposits, 7.4% was the growth.

The established as a goal early in the year to increase on a percentage basis core deposits, at least as fast as loans.

This finally has been achieved.

If you look back now over the preceding 12 months, the numbers that I gave you of 12.2% compared to loan growth of 10.8% indicate that we have achieved this particular objective.

The leading deposit products in growth would be our money market accounts and our time deposits.

Next, as a driver, the margin.

We are fortunate in this Company to have a very low percentage of investment securities as a percentage of total assets.

That is about 11%, so the flat yield curve does not create as much of a problem for us as others.

In addition, you know that we have, as I mentioned earlier, a high percentage of floating rate loans.

Therefore, in the quarter, our margin increased by 3-basis points from 415 to 418.

Looking back over each of the first three quarters of the year, we had a flat margin in the first quarter.

In the second quarter we had a 4-basis point improvement.

And now this 3-basis point improvement heads us in a direction of achieving the estimate we gave you back in the spring of increasing our margin by 10-basis points for the -- the full year.

The drivers in the margin would be the -- the loan yield increases, which have occurred through the repricing opportunities in those that are indexed to prime and LIBOR, so we had a 30-basis point increase in earning asset yields.

Compare this to a 27-basis point increase in our effective cost-of-funds.

We've had some reprice -- some pricing pressure in our money market deposits and CDs, but over all did achieve the lift of 3-basis points.

Moving to credit quality, another good set of indicators, the net charge-off ratio for the quarter 26-basis points.

This is an improvement of 11-basis points from the prior quarter.

Non-performing asset ratio also improved by 2-basis points, remaining or actually ending at 49-basis points at the end of September.

Our past dues over 90 days remained at the same level at the end of the quarter, which is 8-basis points.

Total past dues are down 10-basis points from the prior quarter at 49-basis points.

We had one larger development loan that moved into non-performing loans.

This is an Atlanta borrower and project.

Other real estate is down by $7.4 million.

We had two moves that affected that.

One is the sale of a golf course, and the other is a hotel sale for $1.2 million.

So, we do remain confident that we will see our charge-offs for the full year at or below 30-basis points, and we are confident our NPA ratio will be at or below 50-basis points.

The non-interest income category can be described as follows: Non-interest income for the quarter was up 8.2% over the prior quarter and was up 13.7% over the third quarter of last year.

We saw some bit of a reversal in service charge revenues.

The NSF fees, which had been trending down, were up slightly 5.2% over the prior quarter.

Our account analysis fees moved down slightly, 2.1%, as interest rates have affected the earnings credit that is used to -- to offset hard dollar charges.

And then other services -- other service charges are down a little over 4%, primarily due to a -- a free checking product that is now being offered in most of our banks.

Financial management services, which is our wealth management line of business, is under review now.

I'll come back to that subject in just a minute, but if you look at the numbers, that part of our Company generated 2.2% more in fee income than the prior quarter.

This would be driven by, I guess, our financial planning and asset management fees, which was up 4.3% over the prior quarter.

We have invested in capital markets.

We recruited a team of 35 or 36 people earlier this year.

They're building momentum.

They do have now a revenue stream.

They are a little behind projections that were made earlier this year but we'll continue to report to you the progress that we think, over time, can be significant from the capital markets group.

Mortgage banking is stabilized now and is profitable.

We did not make money in our mortgage banking unit last year.

We now are profitable each quarter and, in fact, in the third quarter we were up 11.4% in revenues over the prior quarter, and up 20.6% over the same period last year.

Our cards business is important to us.

With our TSYS connections, we have opportunities, knowledge and experience in the cards business, including the merchant side, certainly the credit card issuance side, and also the facilities management opportunities that come to us because of our TSYS partners.

Overall, the card fees in the Company were up, excluding TSYS of course, on the Financial Services side 2.9%.

On a linked-quarter basis, we were up 19.3% over the same period last year.

We continue to improve our penetration rates on debit card issuance, and our debit interchange is up 43% over the third quarter of last year.

We did have in our non-interest income numbers, a private equity investment gain.

We sponsored, several years ago, a technology company in the venture capital field.

We're starting to see some profit realization in that unit, and we had a $4 million gain that was taken in the quarter from that particular investment.

On the expense side, on the surface you see that our non-interest expense was up 2.2% compared to the prior quarter and 2.3% over the same quarter last year.

However, we must consider acquisition and also the change in accounting methodology, which affected loan origination costs now that are spread over future periods.

So, our fundamental increase was 9% year-to-date, '05 compared to '04.

We -- we would describe our expense management as being controlled.

We have made investments in certain areas of the retail initiative that we talk about frequently.

Our branch expansion and de novo expansion into new markets have been drivers of expense growth.

And also, thank goodness we're able this year to -- to accrue our incentive compensation at full levels.

That too has been a factor, along with just the annual merit increases and sal -- companywide salary adjustments, some of which were done in a special manner to take those team members who were behind in their salary grades up to the midpoint.

And then, finally, we have invested in new technology.

Our S-Link platform is now up and running and well accepted.

The amortization of those costs have hit the books this year and have affected our year-to-date non-interest in -- non-interest expense increase.

Overall, the efficiency ratio for the quarter was 48.4%, and that's a number that we're proud of and many, in fact, did not expect us to attain.

But if you look at a 10-year trend in our efficiency ratio, we have steadily worked it down and, as I say, now we're below 50% here recently.

The retail initiative continues to move forward in a very successful manner.

I just will hit a few of the highlights.

There's more activity enhancement work going on than I will mention, but I'm proud of the fact that 50% of our retail work force has now this year received special and -- and really newly developed training.

So, that is something that we think will benefit our Company moving forward, and this training will continue on a regular basis in the future.

We have completed facilities upgrades in 200-plus of our 281 total branches.

I think that would be 204 of the branches have now been upgraded to include new merchandising systems, both paper and digital.

The signage at each branch has been modernized and changed, as well as at our ATM locations, and we're testing new technology in 40 branches, and that technology will be taken out after the testing period is completed.

Specific sales and product accomplishments would include a small business banking campaign that was done this summer, and it really exceeded my expectations.

We opened in the campaign 8,212 new business -- small business checking accounts, and generated $214 million in new deposits.

We have seen, due to another 17,000 credit card accounts, generated a 47.7% in retail credit card fees.

And then the -- the retail debit card fee increase, to date, is over 19%.

The core deposit growth on the retail side this year compared to the prior year is 10.2%.

That's the increase.

And when we were evaluating our performance in retail about 18 months ago, and looked back over the recent period, we had found ourselves growing retail deposits at about a 4% to 5% rate.

So we have more than doubled our core deposit growth on the retail side of the Company.

I said that I would come back to Financial Management Services.

I want to mention that since our last conference call, we have appointed a new executive to head up this area of responsibility.

Drew Klepchick is the new President and CEO of the Financial Management Services division.

He came into our Company five-years ago when we acquired an investment management and financial planning firm, Creative Financial Group, which he had co-founded some 17 years ago.

And his focus right now and -- and as I like to say, his mantra, is to simplify, specialize, and capitalize.

He is taking a look at every moving part of Financial Management Services.

The goal that we have is to -- to really work on margins and profitability after this recent five to six-year building period.

We will consolidate some of what we do, and I'm sure that Drew will have a plan by the end of the year that we can share with others that will give us a -- really, a good road map looking out over the next two to three years.

Our acquisition and de novo expansion continues.

Within the last month or so, we announced in Atlanta another acquisition of a great team and a wonderful franchise, the Riverside Bank, which was founded by Kessel Stelling, who will become an executive of our Company.

This $650 million bank in Atlanta that has an outstanding track record will become a part of the Bank of North Georgia when the transaction is consummated.

And then, just recently, we decided to move into one of the few remaining Georgia markets where we did not complete and really have wanted to have a presence, and that would be Augusta, Georgia.

Our Athens team, through their connections, has partnered with a couple of bankers that will head up this entry into Augusta, and we're excited because we think the growth prospects are solid, and the performance will be good as we capitalize on their following in that business and professional community.

As we look now out into the next year, we have, I guess, from a macro standpoint just a few thoughts to share with you.

These points would represent our current outlook that will be refined over the next 60 days, as we work on our guidance and complete our budgeting process for next year.

But right, our examinations would be for loan growth continuing over all in the low double-digit range.

All the credit quality indicators continue to look good and stable, so we -- we would estimate stability there in credit quality.

The margin, given a flat rate environment, or perhaps we would expect a slightly increasing rate environment should improve.

The margins should improve slightly, based upon our model.

And any rate increase's beyond the minimal estimates that are out on the street today would have a positive impact on the margin, given our asset sensitivity.

I've already commented on the flat yield curve not being as much of a headwind for us as for others, and that thought would continue in -- in making our '06 estimates.

And then we think the retail initiative, as it moves beyond a bit of a transition year this year, will show even more meaningful and -- and positive results for the Company over the next 12 months.

So that -- that completes our description, analysis and breakdown of the Financial Services side of our Company.

For the first nine months of this year, 69% of our bottom line came from Financial Services, 31% came from TSYS.

Phil Tomlinson, the CEO of TSYS is here in the room.

You know that we had an outstanding quarter there.

I want him to take time to share with us his thoughts on financial performance and any other topics related to his Company at this time.

Thank you, Richard.

We had our earnings call this morning, and I hope you've all had chance to see our press release.

Richard mentioned a couple of these, but I'll go back over one or two of them.

Our revenues were up, before reimbursables, were up 37.7%.

Operating income for the quarter was up 39.1%, and net income and earnings per share was up over 22%, with net income for the year up 34.6%.

We had a couple of really big events that happened in the quarter that -- that I hope you're aware of.

One, we signed a definitive agreement to take on all of the processing -- all of the card processing for Capital One, and we successfully converted the remaining J.P.

Morgan Chase portfolio in -- in July.

We -- we -- we also -- we also resigned five really great customers that we're really proud of that.

I think the reason Richard really wanted me to come over here is because, in our press release, we put a paragraph in there about Bank of America, and our stock has been hammered a little bit today, I think because of that.

We -- there's been a lot of speculation about Bank of America buying MBNA, and we just felt like in the spirit of full disclosure, we needed to say something.

And we just wanted to make sure everyone was on equal footing, and we wanted the market to hear it from us.

We certainly are in the midst of discussing with Bank of America our long-term role and what it might be in providing services as a result of their acquisition.

We have a -- we have a good relationship with both Bank of America and MBNA.

MBNA is a -- is a large commercial card customer for us.

They're both long-term clients and we want to help them make the -- the decision, and we want to be part of it.

But, as I said this morning, we really don't have a lot of color we could add to that beyond what we have already said.

If I could take just a minute to kind of look back where we started the year at, because it has been such a great year.

We -- we started off with EPS guidance in the 19% to 22% range, and then we -- we -- in the first quarter we took -- we raised it to 22% to 25%, and then as you know, we raised it up to 25% to 28%, and we believe we'll be in the high end of that guidance.

There's four key drivers to that upside.

One is, as you know, we acquired the other half of Vital from Visa USA.

They've done a fabulous job for us.

They've had good expense control, 16% revenue growth, 11% expense growth.

Transaction growth is at 16%, which falls in line, really, with what Visa and MasterCard are seeing also.

We've also had good growth out of our value-added products and those, I'm sure you have heard me say before, those are a little higher margin.

But the revenue growth in value-added is up 24% year-to-date.

And it's really led by our fraud products, some analytic products, and -- and just some other services that we offer, transaction scoring products, et cetera.

And then one thing that's been rather interesting this year is our customers have really started using the system a lot more.

Our projects -- our special project revenue is way up, the -- it's a big system.

It has a lot of capabilities and they're -- they're using a lot of the data retention models there.

They are storing a lot more data and as that happens, it helps us.

I think, obviously, that the real big deal is the fact that we've had some massive growth in accounts over the past 12 months.

And when you add it up, we've added -- we've converted over 80 million accounts in -- in the past 12 months.

We -- we have -- we have added 44 million accounts organically with current customers.

We have converted People's Bank of Bridgeport, Bank One, Fifth Third, ABN AMRO, Fleet, and Chase.

And our core business, on top of that, continues to perform well as -- as evidenced by our 9.7% growth in just the core organic revenue.

We -- we -- we're moving forward in good shape with the -- with the Cap One conversion, and I'm happy to report that we have over 70 million accounts in the conversion pipeline.

So we're looking to close out 2005 in great shape, and we're looking forward to another good year in 2006.

With that, Richard, I'll turn it back to you.

Okay.

Thank you, Phil.

I think at this time we would just like to open up the call for questions and we would be happy to entertain any of those from you.

Thank you. [OPERATOR INSTRUCTIONS] First question is coming from John Pandtle.

Please state your affiliation and pose your question.

Good afternoon.

Raymond James.

Hey, John.

Hi.

Richard, I was wondering if Phil could maybe elaborate a little bit on what the catalyst was for that paragraph, you know, in the press release?

You know, is something -- has something changed in the discussions with BAC?

I mean, they obviously went ahead and converted the Fleet portfolio, although that was a smaller portfolio.

I was just wondering if there's any more color you can add just on why you felt compelled to make that sort of statement, and is there -- is the market reading too much negative into it?

Well, I -- I -- you know, I can't add a lot to it, but I think the real reason we made it -- I don't think, I know, is the fact that there was a lot of speculation out there.

We had a lot of people that really thought it was a slam drunk for TSYS and we didn't have anything at risk, but I think in these merger and acquisition situations you always have to go resell yourself.

So, we just really wanted to make sure the general public out there knew that there was risk with this and I think we've -- you know, we may have done too good of job today of getting the word out, but -- but I think we feel good about that and -- and feel good about the disclosure.

Okay.

And then if I could, quickly on the -- on the bank side, if you look at, you know, your acquisition plans for 2006, you know, how does the current pricing environment affect your -- your outlook there?

John, the -- the pricing environment has caused us to even be more selective.

The -- of course, the days of pooling are behind us.

We do analyze each opportunity on a -- on a cash accounting basis.

We still would not want to do any transaction that has delusion associated with it, but the current environment has placed even greater importance on the strength of the management team that we acquire, and the growth opportunities that the market provides.

We -- we really look hard and, of course, see a lot more opportunities than those that we select, so we -- we -- on the other hand feel that making acquisitions has, for a long time, been a strength of our Company.

I think the fact that we don't make disruptive changes.

We don't drive our -- our deals on -- on a cost savings basis.

We look at them on a revenue basis.

We -- we keep the names intact.

We have our dual branding approach.

So we want to continue to make acquisitions, but still would be most comfortable with these size ranges that you are seeing from us, the $500 and $600 million range would be our sweet spot.

The integration risks are less, the cultural fit can take place more easily.

So that's my current thinking on -- on acquisitions.

Okay.

Thank you.

Next question is coming from Nancy Bush.

Please state your affiliation and pose your question.

Yes, hi.

NAB Research.

Good afternoon, guys.

How are you?

Hey, Nancy.

Couple of questions.

Number one, if you look at the year-over-year growth in loans and deposits versus the sequential growth rates, it looks like there has been a slowing, and I just wanted to get some guidance about whether you see some seasonal issues here or whether you see some issues in the economy?

Whether you expect this -- you know, the growth rates to converge?

If you could give me insight into that?

Well, on the loan growth side we -- we did see a slight slowing, I guess.

And as you heard us speak earlier in the year, we -- we really wanted a little breathing room.

We felt like 15% that we saw last year was not necessarily a healthy, sustainable rate forever.

And we wanted to work on our wholesale funding position and bring it down and the growth rates into better ranges there, so -- so some of what we saw in the quarter was by design.

Now, our pipelines indicate that the fourth quarter will be a little stronger on the loan side.

On the deposit side, the way we -- the linked-quarter was a little misleading because of some money that was parked, large deposits at the end of June, that made the quarterly comparison a little bit misleading.

So we really feel like our deposit growth rate is -- is standing out as being a strength in our performance right now, and we like the fact that -- that currently those two growth percen -- those -- those growth rates are coming more in line with each other.

But the economy overall, I would say that we're concerned like everybody else about the impact on the consumer with -- with energy costs, with oil and gasoline prices up, and so we -- we wouldn't be surprised to see the economy slow some next year.

The last comment would be on the deposit pricing side.

We -- we have spent some of the margin expansion opportunity on our customers, as I pointed out about the -- the deposit cost, and that has driven us on a comparative bases up in the above-average category for regional banks on deposit pricing.

But this has been really done with that -- with an objective in mind.

We still allow each of our CEOs in each of our banks to maintain cer -- certain level of autonomy on deposit pricing.

Now, we watch everything that goes on and we certainly want to talk about any major discrepancies.

But when we move into a new market or when we compete in a growth market, we're willing to establish a premium money market account and do some things that would provide incentive for customers to -- to come over to our bank.

A second question for Phil, and I hate to keep poking the subject, but I guess you have to do it.

If, indeed, Bank of America decides to process the retail accounts with MBNA and -- and decides to, you know, exit a long-standing relationship there, Phil, do you feel that there would be any kind of extraordinary measures that would be called for on the expense side or whatever?

I mean, would you just kind of manage through it or what would the response be?

What is plan B?

Well, I think if you -- if you look back to 1998 when we lost Universal Card Services, the AT&T portfolio, I mean, we managed through that without a down year.

It was about -- I think it was over 20% of our business, as I recall.

I think if -- you know, if -- if they were to make that decision, that it would take -- if they made that decision today, I would think it would take 12 to 24 months to execute it, which would give us some time to get our house in order.

And certainly we -- we feel good about where we're at with our -- with our pipeline.

We've got -- we've got the big pipeline, but I mean, there's no question it would be a huge loss, and it would be a -- it would be a loss for couple of reasons.

One, the revenues and the income, and then it would be a bit of a reputational loss.

So, you know, we're -- I can assure you that we're doing everything we can to -- to make sure that -- that -- or at least to try to encourage them to -- to stay with us.

If you -- if you look at the past history, you know, we -- we -- you would think we're in good shape, but this is a -- this is a -- this is a different animal to some degree.

They are both about the same size, and so we -- we're not really -- I mean, we're -- we're not -- I can't say that we're totally confident or that we -- I mean, there's always a chance that we're going to lose and -- and we hate to put out releases like we did today, but I think you have to take that into consideration.

Okay.

Thank you.

Next question is coming from Todd Hagerman.

Please state your affiliation and pose your question.

Good afternoon, everyone, Fox-Pitt.

Hey, Todd.

Hey, Richard.

I don't know if Mark Holladay's in the room, but I was wondering if maybe Mark could just kind of give us an update on the in-flow, out-flow on the non-performers.

I noticed that on the schedule in the release that most of your real estate categories were up again linked-quarter.

I was wondering if you, kind of maybe, tie that together with kind of the economic conditions of some of your primary markets, including Atlanta and some of the coastal markets and so forth?

Yes, I think I can.

You know, our real estate non-performing loans, as Richard said, were up about $6 million.

It's primarily due to a residential development, and we had one office product that went on non-performing.

We don't really see those as totally economic.

We feel like that we might have had some appraisal fraud in one of the credits.

We don't see a lot of exposure in it, but we chose to put it on non-performing just to deal with it and get it out of the bank.

In terms of inventory turnover, the studies I'm showing are showing lot inventories in terms of residential creeping up slightly, but still well within the -- the turnover that's acceptable to us.

They're -- they're running around 8.5 months in Atlanta.

We do -- we are seeing some inflation in terms of housing costs.

We're seeing -- if you look at some oil related products, asphalt, shingles, things like that are increasing.

Our cement -- builders cement costs are going up.

That's got to do, I think, a lot with China demand, and we've seen, you know, drywall prices go up.

Some of that was due to the hurricane and some temporary supply issues, those kind of things.

But, basically, what we've seen is a lot of builders moved to cost plus with a maximum price versus a fixed cost contracts.

So, you know, we do expect housing to slow a little bit next year.

I -- you know, our current forecast for the country, I think, or -- we were looking at about 8.3 million sales this year, and about 7.8 next year, and we think Atlanta will slow some.

But it'll still be a really good year in 2006, and we don't really see any issues in terms of credit issues.

And if you look at our losses in real estate, our investment properties, where, I guess your concerns are, our losses are 2-basis points for the year.

That's tracking similar to prior years, and that's kind of what we expect in 2006.

That -- that's helpful, and if I could, maybe, you know, get your perspective on kind of the -- the Gulf Coast region.

You know, if you take a step back and not, you know, -- kind of -- let's call it hypothetically speaking, you know from the perspective of a chief credit officer, when you -- when you survey the potential impact from the recent hurricanes that have come through the Gulf Coast, what worries you most from your perspective as you look at, you know, credit exposure and the like, whether it's on the commercial side or the consumer side?

And, you know, where do you -- where would you be most concerned in terms of, you know, your at-risk collateral exposure, if you will, you know from -- just from a -- kind of a generic perspective?

Well, you know, our -- our biggest concern was in the condominium sector and we basically curtailed that.

We were seeing too much speculation, too much flipping, pricing was going up.

We are seeing -- so we basically have slowed -- slowed that down to a basic crawl.

We have -- I have checked into some of our markets.

If you go into the Panama City area, for instance, with some of these pricing cost increases that we're seeing, we are seeing some of the condominiums, none that we are financing, repricing their product.

Some of the buyers, the presales, they are refunding money and going to look for new buyers, those are -- those are areas we want to -- we don't want to get into right now.

We think they are a little too speculative, and some of the Florida markets, I guess, my other concern is investor speculation in housing.

That doesn't really -- we don't see that in Atlanta.

We do, you know, certainly see it in some Florida markets.

And you know, when you see speculators, there -- there will come a time when they'll pull out of the market, housing will slow down.

And so we watch carefully what's going on in the market, and -- and try and stay out of trouble in those -- those particular areas, and I think we're doing a pretty good job of it.

That -- that's helpful.

But at this point in time, I guess, you're not, you know, necessarily seeing anything creep in to -- in terms of migrating into the past due or non-accrual numbers in any of these -- whether it's from some of these particular geographies or say in the condo sector of anything like that?

No, I -- no, I'm really not.

If you look at our past dues, and -- and look at -- at the ratios, our ratios are still very similar. 50 -- probably 54% of our past dues are in the consumer category, about 20% of a -- of a -- of -- of our portfolio past dues are in investment properties and another 20% in the owner occupied and CNI kind of real estate.

And the bulk of our past dues are still in the CNI sector, that's where they've been with this last recessionary period.

Really not seeing a big change in that.

Feel real good.

In fact, our -- our past dues are -- I think right now at a probably -- it's probably our second best month that we've had over our best quarter over the last several years.

Great.

Thank you very much.

Next question is coming from Dave George.

Please announce your affiliation and --

Good afternoon, A.G. Edwards.

How are you.

Hey, Dave.

Question on the other fee income line jumped up about five, six million on a quarter-to quart -- linked-quarter basis.

Can you talk about what's in there?

I think there may be a gain of some kind in there.

Just want to get a sense as to what drove the sequential quarter improvement there.

Dave, I mentioned the venture capital gain, and I'm going to let Tommy add a little to that.

Yes, Dave, the increase on that line is primarily the $4 million -- I think about a $4.1 million gain, actually, on a liquidity event that occurred in a property of -- that's contained in our joi -- in our venture capital technology outfit called Total Technology Ventures.

They had a company that had developed a securities trading platform that sold that company, and our share of that gain was 4.1 million and that's the main stand out for the quarter.

How big is that -- is the venture capital portfolio today?

We have about $23 million invested in it.

Okay.

That helpful.

Thanks, guys.

Next question is coming from Kevin Fitzsimmons.

Please announce your affiliation and pose your question.

Sandler O'Neill.

My questions have been answered.

Thank you.

Okay, Kevin.

[OPERATOR INSTRUCTIONS] Next question is coming from Jefferson Harrelson.

Please announce your affiliation and pose your question.

Hi, KBW.

Could you guys comment on typically how -- how you set a termi --

Could you repeat that, Jefferson?

Could you guys comment on how you set your termination fees or how you typically calculate what an a termination fee is?

And I know you have 8.5 years left on your contract.

What can we expect there?

Jefferson, we -- we really don't go into the details of our contracts with our clients, I'm sorry.

How about, can you talk about a typical termination fee?

Is it usually some kind of present value mechanism or is it just --

It's usually -- it's a preset method that declines over the years as the contract is being used -- I mean as the -- as the term expires.

Obviously, it would be higher in early years and lower in the latter years.

Thanks a lot.

Okay.

[OPERATOR INSTRUCTIONS] There appear to be no further que -- oh, we do have a question from Tony Davis.

Please announce your affiliation and pose your question.

Yes, Ryan Beck.

Richard, you mentioned the nonrecurring gain.

Were there any offsets on the expense side?

Maybe Tommy should answer this.

And, also, just a -- some -- some color on the amount of expense related to the -- to the reshale -- retail initiative year-to-date.

Okay.

Tommy, you want to comment of the first --

I'll be glad to do that.

The -- Tony, we continue to invest in the Company there -- you know, I can't pick out a specific one-time on the Financial Services side that matches up one-for-one with that, but keep in mind, that particular line of business is one we've been -- been investing in.

We've had a few gains, a few losses, but this is just how you get your money back in the venture capital business and -- and life-to-date on that, we're still not ahead, when you look at the cost to carry, so we just consider really part of operations.

We have continued to invest in the Company and getting our people paid right.

We continue to invest in -- in, you know, things for the future, but no -- no one-for-one offsets.

Understood.

Thanks.

Okay, Tony.

The retail initiatives so far during the quarter is about 1.5 million for the year, up -- it's 3.5 million.

Keep in mind, that was coming off of a targeted base of about $7 million at -- of course the amount for this year wouldn't be that because this is a phase-in year.

We now believe that seven million could exceed eight, maybe 8.5 for next year.

In addition to that is a lot of capitalize expense that's going on as we reconfigure our branches and build new branches in a retail environment.

Okay.

That's helpful.

Thank you.

[OPERATOR INSTRUCTIONS] Sir, there appear to be no further questions in cue.

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

Thank you.

I would like to just offer these comments concerning the quarter and the future.

I want to remind the audience of what we consider to be our four significant differentiators in de novo's.

We always, in recent times at least, like to talk about our footprint that continues to be get better and more impressive each year.

We feel like that is a significant strength of our Company on the Financial Services side.

We continue, secondly, to believe in decentralization.

If you look at the results that are fundamental in nature, and really tied more to -- to our core banking and the spread side of our business than anything else, we think a lot of that success is given the fact that we create ownership with our CEOs out in the markets.

We believe in running this Company through geography rather than lines of business, even though lines of business are certainly emerging as a factor in leadership.

Thirdly, the passion we have for the people side of the Company is something that we'll never get away from.

We think it serves us well, and enables us to -- to be different and better than our competition.

And then finally, TSYS.

As you can see from the results from the 430 million co -- accounts that we now have under contract, this -- this Company continues to be a great American success story, and I'm personally very proud of it.

So, we thank you for your interest in Synovus.

We thank you for following our Company, and we appreciate you joining us this afternoon for the call.

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.