Synovus Financial Corp (SNV) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus-sponsored second quarter earnings 2006 conference call. [OPERATOR INSTRUCTIONS]

It is now my pleasure to turn the floor over to your host, Richard Anthony.

Sir, the floor is yours.

Thank you very much.

Good afternoon to everyone on the call.

We appreciate your continued interest in Synovus and welcome you to our second quarter conference call.

We are sitting here around the table reviewing the equity markets today, and it's a good day for Synovus after a number of consecutive quarters of, in our opinion, posting very solid fundamental results.

To have received the recognition today is most assuring to us, because we have felt for quite sometime that the outstanding results that we have been able to achieve have sort of gone unrecognized.

You noticed in our press release a 15% earnings per share increase, a 2.07% return on assets.

Everything within these sets of numbers is basically fundamental.

We feel that we will stand out again in our industry, and we're extremely proud of the quarter.

The drivers included continued strong loan growth.

The margin met or exceeded our expectations, and we have continued with good deposit growth -- good core deposit growth.

The environment here in the southeast is continuing to be favorable for us.

The interest rate situation has worked in our favor, really for the last year plus, and we have continued to enjoy the repricing benefits that we've received on the asset side of the balance sheet.

In a few minutes you're going to hear Tommy Prescott, our CFO, dig a little bit deeper into the numbers and share some information with you, but we do want to point out that, as rates move towards what we think are a peak, that we have needed and continued to make changes in our asset liability position.

We'll talk a little about that, but we are preparing for the day when the economy is somewhat weaker and interest rates do begin to decline.

Our strategic plan that has been developed over the past year also addresses needs that we see in the future to position ourselves for changes that will take place in our environment.

We have a 5-point strategic plan.

I won't go over all the elements again in this particular meeting, but I do want to point out developments that continue on the commercial strategy within our Company.

Chuck Garnett, who is our National Bank of South Carolina CEO, is heading a team that is in the final stages of developing what we think will be a very strong commercial strategy to enable us to capitalize on the business model that really is so appealing in all of our markets through the middle markets, to the business owners.

The responsiveness that we can deliver, the hands-on personalized service is very attractive to the small to medium-size businesses, and we fully expect to become -- to use our term -- the premiere commercial bank in the southeast.

I will point out as a part of this emphasis that we have begun to see improvement in C&I loan growth. 13.2% increase in that loan category for the quarter is certainly an improvement over the middle to low-single digit increases we've seen in some of the recent quarters.

So we were encouraged by this particular aspect of our plan to diversify the Financial Services side of of our Company.

I also want to give you a few indicators on the retail strategy that now is in the second full year of implementation.

We continue to have a more proactive expansion plan in retail banking.

Our new branch activity is more closely managed than ever before, is more aggressive than ever before.

We opened eight new branches in the first six months of the year.

We have as many as 13 that could be opened as new branches during the last two quarters of the year.

I anticipate somewhere in the range of ten of those actually coming on string, giving us 18 for the year.

Retail core deposits were a success story, 13.3% increase year-over-year.

Our goal for the year is 10%, and within retail core deposits we had nearly a 20% increase in demand deposits -- retail demand deposits; actually 19.2 specifically, 19.2%.

We have a tracking mechanism that keeps up with our net checking account growth, the unit volume.

We had a couple of years in '03 and '04 when we closed about as many checking accounts as we opened.

In '05 we achieved a 3% net increase, which was a big step forward, and for the first six months of the year we have achieved an 8.4% net increase in retail checking accounts.

Our goal for the year is 5%.

On the asset side of retail, our HELOC program is important because that is the primary loan product that we offer.

The growth there has slowed somewhat in this higher mortgage rate environment.

Net outstandings year-over-year are up 7%.

Our goal there is 15%.

In recent years we've achieved growth approximating 25% to 30% in that range for a couple of the last three years.

So a little bit of a slow down there.

We expect to accelerate our efforts through some promotions in the last half of the year.

And then finally services per household, the growth there is accelerating a bit.

It's a needle that doesn't move as much as you want, but six basis point improvement in the first half of the year. 3.10 services per household has moved to 3.16.

We had a gain of six basis points for all of 2005, so we feel good about that particular indicator.

What we intend to do for the remainder of this call is first turn the program over to Tommy Prescott.

He will come back to me for a couple of comments that I want to make on two different subjects, and then we will turn to Phil Tomlinson for a TSYS report, and we'll conclude with a question and answer session.

So, Tommy?

Thank you Richard.

Good afternoon to everyone.

Just a reminder that we'll be making forward-looking statements today that are subject to risks and uncertainties.

Factors that could cause our results to differ materially from these forward-looking statements are set forth in our public reports that are filed with the SEC.

Richard mentioned some of the key drivers for the quarter; the great growth story, the quality of the credit portfolio, the TSYS results and so forth.

And I want to remind you that as you look at the consolidated highlights, and as you look through all parts of the Company and even our $0.47 for the first quarter and our $0.90 for the first half of the year, up 14.8%, that these results include the impact of the incremental stock-based compensation expense that wasn't in '05, and it represents about a 3% reduction in our -- for example, our year-over-year EPS growth, so just keep that in mind as you look at it.

I'm going to go ahead and talk in some more detail about the Financial Services segment.

The Financial Services segment reported income of $106.4 million, up 21.7% over the same period a year ago.

For the first six months of this year, net income in the Financial Services segment of just over $200 million is up 20% and, again, excluding the stock-based compensation, that year-over-year six month increase would be about 23%.

Return on assets in the Financial Services segment was 147, growing from last year.

It was 137 and return on equity was 17.38%, also up some from last year.

Loan growth was just a key factor during the quarter in the first half of the year.

Loans ended the quarter at 27 -- I'm sorry, $23.7 billion, up 15.5% from a year ago.

When you exclude the acquisitions Of Riverside Bank, which was closed at the end of the first quarter, then the First Florida acquisition, which was closed at the very beginning of the second quarter, the year-over-year growth is 11.5%.

The great growth that we've had this year, particularly capped off with great second quarter growth, really keeps us on track with our year-to-date loan growth plan.

Credit quality continues to be at excellent levels.

The non-performing asset ratio did take an up particular of three basis points during the quarter, and that's really related to a single $7.6 million C&I credit that was put on non-accrual status.

That loan has been specifically reserved for, and otherwise the NPA portfolio ending total would have remained static.

We had the normal ins and outs that you do in any quarter, but the one that really stood out was this C&I loan that I mentioned.

Net charge-offs for the first half of the year were $23.9 million, representing 21% of average loans.

The quarterly charge-off ratio was 17 basis points.

The allowance for loan losses ended the quarter at 133, supported by very strong coverage ratios.

The past due numbers remained excellent at the end of the quarter, 47 basis points.

Loans on total past dues and 90-day past dues at .08%.

I want to move into the deposit story.

We continue to be very focused on growing core deposits.

The reported core deposit number of growth year-over-year was 14.3%.

When you eliminate the acquisitions that have occurred in the last year that number was 9.9%.

When you break that out into the retail and commercial categories, the retail was up 13% while commercial was up 6%.

Core deposit growth continues to be concentrated in money market accounts and CDs, as customers are really just paying more attention to rates than they have during the recent history of extremely low-rate environments.

This shift in preferences has resulted in more moderate growth rates in demand deposits and interest-bearing checking accounts. even.

And while these marketing competitive forces are a real industry issue that also face us, we remain committed and confident in our ability to generate strong core deposit growth.

We believe that our model and our local pricing and decision making and local customer cuts give us a real edge on that.

The most significant factor in the year-over-year income performance is the great growth we've had in our net interest income.

That's up 18.1%.

That's driven by the great growth in the balance sheet with a $2.7 billion increase in average earning assets.

And that -- when then you apply to that the 23 basis point expansion in the margin for the first six months of this year, then you get that very powerful equation in growth and net interest income.

We had some growth in the margin during the quarter.

On a sequential-quarter basis, the margin increased seven basis points to 439, earning asset yields increased 35 basis points, and the effective cost of funds increased 28 basis points.

For the remainder of the year we expect the margin to remain at or near its current level and we -- we've identified the issue that the competition in the core deposit environment is tougher.

We factored that into our belief on where the margin will head.

We also believe that the fed is, based on today's comments, pretty clear that at or near the end of the tightening cycle.

And additionally we've been somewhat reducing our asset sensitivity in anticipation of the end of this cycle.

Non-interest income was up 10.9% for the quarter and 11.1% for the first six months of the year.

That's really driven by service charges being a main component, the single largest component of that category, and they were up 5% for the quarter, 2% for the year.

Just kind of breaking that into the three components, NSF fees, which account for two-thirds of that, are showing positive trends with increase of 8.6% for the first six months of the year.

The other service charges categories, which represent the other type of service charges, exclusive of corporate analysis fees, represent about one-fifth of the total, and they are down one -- I'm sorry 8.2% or $1 million for the six -- first six months of the year.

And that really has a lot to do with the continued growth of the checking accounts that have no monthly service charges.

And we believe we're getting the other good relationship pieces that come with that, but it doesn't show up in the service charge line.

And then the other component is the analysis fees, which represent about 13% of the total, and those fees are up -- I'm sorry, are down 10% from a year ago, and that'll just remain that way as long as rates remain high, and will improve as rates lower in the future.

On a sequential-quarter basis, service charges on deposits are up 10% or $2.7 million over the first quarter of this year, primarily due to higher NSF fees.

We also got some good movement year-over-year and quarter-over-quarter on the bank card fees, up 16.2% for the quarter and almost 22% for the year.

Financial management services revenues are up 15.6% for the quarter, 15.4% for the year.

The biggest single driver in that is the very successful capital markets offerings that we now have in our financial management services area, primarily matchbook customer swaps.

The mortgage area continues to do better.

The mortgage revenue is up 9.1% for the quarter, 4.9% for the year, so far.

The increase was driven by year-to-date mortgage production of $769 million.

It's, up 11.8% from a year ago.

And on a sequential quarter basis, the mortgage revenues are up $2.2 million, partly based on the expectation -- expected seasonality.

But also, even in this rate environment, we feel like we're getting some traction in our mortgage company just from better collaboration with the bankers.

And also some expansion in staffing we've done in some of the higher potential markets that we had identified.

During the quarter we also recognize $2.5 million pretax gain from the redemption of [inaudible] MasterCard common stock.

This gain was reported in the non-interest income line.

Additionally, during the quarter we undertook some security sales representing a $1.1 million loss, and this was a part of our ongoing efforts to gradually reduce the asset sensitivity.

Expenses up 21% for the quarter, 17.2% for the year.

Excluding the impact of acquisitions and stock-based compensation, increase is up 15.5% or 12.8% for the year.

We've gone a while, really throughout most of 2004 and the beginning of 2005 at a time when we added many billions of dollars of assets without growing our head count.

We've become more active in expansion and really have needed to properly add some people.

We've added approximately 350 people over the last year.

We've also done that during a time when we have added 12 branches in the last 18 months.

We've got more in the pipeline, and the G&A increase that you're looking at in '06 is primarily driven by this investment in people.

Compared to a year ago, I mentioned we got 5% more or 350 more people, and that's at a time when growth rate of the balance sheet, revenue and earnings have exceeded that growth rate by at least double.

Two-thirds of increase of this head count is in the front line, including approximately 60 lenders, 20 mortgage loan originators and 160 branch team members, including tellers, CSR's and private bankers.

So, a very minimal impact in the back room.

In fact, we continue to make some progress in the back room.

Just a quick update on our quality and efficiency initiative that we announced a year ago.

As a part of that initiative, we were going to redo the way that we look at the back room in terms of the HR area, the deposit operations, the finance area and loan operations.

The original cost estimate reduction would be about $10 million, and basically we were either going to operate these models in a more centralized or better coordinated or regionalized model.

The process is well underway.

So far, finance and operations are fully implemented.

The human resources area's in transition and loan operations is being tested on a regional basis.

We believe that the '06 benefit, net of severance pay, will represent about a $2 million cost take-out.

Again that's net of some of the up-front and severance costs.

And we believe that the $10 million take-out is still obtainable no later than 2008, as these models are fully phased in.

The key benefits of risk management, crisper execution, better communications, and scalability are already well in place.

I'm going to close with just a reminder of our earnings guidance.

We -- you've seen in our release that we believe that our '06 earnings per share growth will be at the high end of our previously announced guidance of 12% to 14%.

I'm going to stop there and turn it back to Richard.

Thank you.

Tommy, thank you for that good report.

I do want to take this opportunity to mention a couple of items, the first of which has to do with information that is in the 8-K, which was filed today, concerning our relationship with CompuCredit, a customer for the last ten years, both a customer of TSYS and Synovus through CB&T.

Columbus Bank and Trust issues CompuCredit's Aspire cards, credit cards, and then the cards are owned and serviced by CompuCredit.

The New York attorney general's office, as we disclosed and was publicized, in fact, recently had conducted over several months an investigation of these marketing and servicing practices.

We, as a Company, fully cooperated with the inquiry and ended up settling the matter.

CompuCredit has agreed under the terms of their indemnity agreement with us to pay all amounts that are due under this settlement, so that is mentioned in the 8-K, and I refer you to that for additional details.

In addition, the FDIC is reviewing policies and procedures used by CB&T in connection with the credit card program that it handles for CompuCredit.

Again, we are fully working with the FDIC and CompuCredit to resolve this matter, but we felt like a disclosure of this ongoing work was necessary, and I just wanted to point that out to you, since it is new information that you'll see in the 8-K.

Secondly, before Phil speaks about TSYS and their performance, I want to mention a subject that has come up frequently in recent months in many of our visits with those in the investment community.

It has to do with the ownership structure of TSYS.

Of course TSYS, since 1983, has been an 81% owned subsidiary company of Synovus, has been an incredible story of growth, continues to be a performer.

But, many feel and have asked us that opportunities are there perhaps to unlock value by changing the ownership structure.

Traditionally we have said that there're three reasons that we would consider a change.

One would have to do with any concerns that might come from our customers about Synovus banking competing with them in certain markets.

We've also been very sensitive to any potential regulatory concerns or challenges that might emerge.

And then thirdly, and the most important, would have historically been the need to use the TSYS currency or the consolidated companies debt capacity in order for TSYS to make acquisitions.

All of these issues are currently on the table for review and analysis, and I guess it's pretty obvious, and I want to go ahead and say that we are actively looking at this structure and these issues more than we have historically.

We don't have any timetable established.

We'll continue to do this work over the next several months at the board level and at the management level, and we'll continue to keep the investment community advised of our thinking.

But that is a subject that is always on the table for discussion, and I wanted to just go ahead and give the current status of our work to you at this time.

Having said that I want to now look to Phil to take over the program and report on TSYS.

Excuse me -- thank you Richard.

TSYS felt like we had a -- excuse me -- we felt like we had a good quarter.

The second quarter earnings per share increased 13.3%, up to $0.29 a share.

Our core organic revenue increased to 9% for the quarter, which is back to historic highs, and total revenues increased 4.6% to $429 million.

For the first six months, earnings per share increased 11.4%, up to $0.55 and the core organic revenues increased 8%.

Total revenues increased 10.7% to $841.5 million.

We had a good earnings call this morning, and I'm sure that's still [inaudible] be available out there for awhile.

We thought a lot of the key drivers for the second quarter were the fact that JPMorgan Chase was not with us during the second quarter of '05 and that's certainly reflected in this quarter.

We had run out of the discount period for the city Sear's business in the second quarter, and those discounts were not given during that quarter and they had a positive impact on the financials.

Sears also was a little late getting out of TSYS with their conversion.

They wound up staying about an extra month, which was also a plus for us.

Total accounts after Sears has left is -- they're down 16% as compared to year-end 2005, but we had $38 million in internal accounts that were grown.

So we -- I'm sorry, not 38, but $36.5 million.

Moving on to TSYS Acquiring Solutions, transaction volume at TSYS Acquiring Solutions were up 14% during the second quarter.

And over the course of the last two quarters, they have renewed long-term agreements with four of of their top 15 clients, including Heartland Payment Systems.

We have also continued to execute a number of contract addendums with existing clients for additional products and services, such as gift card, enhanced statements and eCommerce.

We -- I want to just kind of go over the recent highlights with you, and the latest one that we announced last week was the acquisition of a London-based company known as Card Tech, Ltd, which has since been rebranded to TSYS Card Tech.

We are incredibly excited about where we are with this.

We -- we're now serving clients in 76 countries worldwide.

This acquisition enables us to support financial institutions of all sizes and all complexities.

It is really a neat product that I'll talk about just a little bit more.

We also signed a long-term agreement with Wachovia Corporation, which. as you know. is the number four bank holding company to provide core processing.

We signed an agreement with MoneyGram Payment Systems for realtime loading of TSYS's processed -- for realtime loading of TSYS processed prepaid Visa and MasterCards at MoneyGram's 26,000 money transfer locations in the U.S.

And we also sign agreements with Delta Payment Solutions in Texan and the New England Bankcard Association.

The -- I wanted to go back to Card Tech for just a minute.

We really believe that -- believe that that gives us a much, much larger global footprint, and it helps us overcome a lot of the language barriers and entry problems that we have going into multiple countries.

It gives us another arrow in our quiver of tools that we can use.

We have never really had a software system for sale.

We have sold TS2 on a couple of occasions.

To date nobody has ever taken it in house.

So, when we start thinking about the fact that we have 190 new clients that we have, that we have relationships with, that we will have the opportunity to possibly upsell or sell processing services to, we get pretty excited about that.

It also gives us great entree into all these emerging and high-growth countries around the world, so we're very excited about it.

And as we have dug into it deeper, we're very pleasantly surprised at some of the things that are happening on their -- on their prospect list today.

We -- as you know, we have been trying to deal with the loss of Sears and Bank of America.

I think we're doing a good job of that.

Bank of America is still scheduled to leave around the first of October.

October 6 I think is the exact day, and certainly we are planning on that.

We have been working very diligently and have renegotiated all of our major vendor contracts, and I think everyone came to the table and we feel good about that.

Our expense control efforts are right on track.

As a matter of fact, they're really a little bit better than what we had expected.

We are in the process, really, of changing some mind sets around this Company.

We still have over 75 million accounts in the pipeline that are signed to be converted and, of course, we've talked about those earlier, in earlier meetings, but [Cap One], Toronto-Dominion, a large retailer, we're still sitting on $300 million in cash that we'd really like to do something with.

And I think that you can expect us to be at least at the high end of our earnings guidance for 2006.

We're feeling good about 2006 and where we're headed in 2007.

That's sort of a brief recap of what we went over this morning.

Richard, I'll turn it back to you.

Thank you.

Phil, thank you.

I would like now to open the floor for questions from the audience.

Thank you very much. [OPERATOR INSTRUCTIONS] And we'll take the first question from Kevin Fitzsimmons, Sir, your line is live.

Good afternoon, everyone.

Hey, Kevin.

Richard, I was wondering -- and I apologize if I missed this, but you gave a lot of information about loan growth year-over-year, and I was just wondering if you can give it in kind of a linked-quarter fashion, excluding the effect of the acquisitions that have closed, either in March or -- you know, between the two quarters, just to get organic loan growth?

And then, also, deposit growth and core deposit growth, however you look at it?

Alright, we'll do that.

I'll just make a general statement and say that loan growth was really significantly stronger in the second quarter than the first.

It was good in the first quarter, but it was better in the second.

And really, the reverse was true, Tommy, I think on the deposit growth side.

So I'm going to ask Mark Holladay if he would -- or Tommy would -- who's better prepared, you or Mark?

I'll make a comment on both, and then --

Okay.

-- and then if Mark needs to fill in.

Okay, we'll do that.

The linked-quarter loan growth, loans grew during the quarter, excluding the acquisitions, $897 million, up 16%.

One of the things that really stood out in there this time was really pretty good numbers in the C&I category; up 13% and in the consumer category up 12%.

So it wasn't just the total CRE growth driving those great numbers.

The deposit side, as Richard said and mentioned a -- we mentioned a little bit earlier was a little bit tougher.

The linked-quarter deposit rate fundamental was about 5.5% on average.

Linked-quarter about 7.3%.

When you look at the way we balance those things out, the -- we try to really shoot for keeping this core deposit rate at a pace that's -- a growth that's on kind of a one-year look back that's equal to or greater than loans.

We've been at that level for the last four quarters, I believe, and in this particular quarter, the one-year look back fundamental loan growth rate is 11.5%, and it's right at 10% on core deposits.

So we're close.

Got a little bit of catchup to do, but we believe we'll get there.

Can you say was that slow down in deposit growth, was that a timing issue?

Was that the issue in really every other bank is dealing with this mix shift or, you know, is it -- and then if it is, how do you expect to catch up in a quarter or two?

Thanks.

Yes, and it's really all of what you said, Kevin.

We are not immune to what the rest of the industry is facing.

We do think our model allows us to be pretty agile in terms of pricing and local customer care.

The object of our exercise isn't necessarily to try to balance the loan and deposit growth in any given quarter, but it's over a little longer period of time.

We're also trying to manage a margin in that midst, and we were able to expand the margin some this time.

So we believe, you know, we'll keep our focus and our energy applied to this and we will keep moving forward on the core deposits.

I think I will ask Fred Green to add a comment or two to this, because Fred's leadership has been very strong in this balance sheet growth, particularly on the core deposit side over the last couple of years.

He works directly with all of of our CEOs, Fred, what would you have to say about your outlook for the rest of the year?

Richard, I would say a little bit to what Tommy said.

Kevin, as you know, we have 40 separate charters operating in different communities.

The CEOs that lead those banks have outstanding knowledge of their opportunities, their customers and their competitors.

And the mix of all of that allows us to, in some markets, price lower and get good growth.

In other markets, maybe we have to pay a little more, but still get good growth, and we do balance it over time.

Our goal this year is to grow year-over-year core deposits at a rate equal to or greater than loan growth.

We had that same goal last year and achieved it, and I'm very comfortable that we will be able to achieve it this year.

Okay, thank you.

Thank you.

Thank you.

Our next question is coming from Nancy Bush.

Ma'am, your line is live.

Good afternoon, guys.

Hey, Nancy.

Just to talk a little bit about commercial real estate growth, loan growth, I mean you guys have said very forthrightly that you really want to restrict that a bit as we go into a softer environment and the regulators are making noises about it, et cetera, et cetera.

Have you started to put the breaks on there, and are you seeing sort of an appreciable slowing and how does that kind of factor into the loan growth overall?

Nancy, I think Mark Holladay does have the best grasp of this.

Nancy, we -- I think we all have a consensus.

We've met with our regional CEOs, and our CEOs and talked about really balance growth for our Company.

And we do -- you know, our growth is still strong in the real estate are sector, still focused in the one to four family.

If you look at our other commercial real estate, the growth was really relatively slow.

We actually had some decreases in some of that -- in those other investment properties.

We do expect, as our strategic plan has been laid out for our real estate growth to go down from these high teens to 20% kind of growth levels down into the 10% or 11% level.

That's really where we are.

Our underwriting, we've really insisted on discipline in our underwriting in terms of equity requirements, net worth, liquidity, those kind of things with our customers.

We're not taking on a lot of new real estate customers, especially if they're focused in the housing sector of the economy.

And we'll --, we'll have a quarter or two more of what I would consider above that 10% to 12% growth.

It's a function of commitments.

It's a function of, you know, drawing up on development, those types of things.

But I would say by the end of the year what you will see is growth in the double-digits, but in the low double-digits.

We have a balanced view on commercial real estate right now.

We're not overly optimistic, but we're not pessimistic.

And our goal is to maintain about a maximum of around 45% in our investment property sector, and that's where we think we'll wind up at the end of the year.

Mark, are your clients or your -- your sort of longstanding real estate clients, do they sort of understand this, or are they themselves drawing back and facilitating this slowing?

Well, it's a little of both.

Our bankers are out there talking to our customers.

I mean, we've always felt like that, you know, the best thing we can do for our customers is to -- is be more than a transaction type of bank, that we're counselors to them.

We have strong relationships.

We meet together in meetings where we're looking together at absorption rates and inventory turnovers, things like that.

And beyond that, we have avenues to exit, you know, some of this real estate, if our customers demand exceeds our appetite.

So we think we have got a strategy.

We think our customers understand that, for instance, housing is having some moderation.

That it's going to slow in the 8% kind of -- with an 8% kind of factor this year.

And we just believe that we'll work in unison together to get the results we want

All right, good.

Richard, if you could just -- this thing about the CompuCredit card, and I saw the release this morning, that the FDIC is investigating the policies and procedures used by CB&T, is that because the FDIC is your primary regulator or -- I just was a little surprised by that.

You don't often see an FDIC exam like this.

Well, that's true.

In -- is Sanders with us?

Sanders, do you want to say anything about that particular issue?

I'll give Sanders credit for being, not just currently but in recent years right on top of this CompuCredit relationship.

It is complex, because we're the -- we're the issuer, but the ownership certainly resides and the indemnity goes back to CompuCredit, but Sanders comment on that.

Nancy your question I believe was FDIC involvement because they're the primary regulator?

Yes, are they you're primary regulator, that's why they're involved?

That is exactly right.

They're the primary regulator of Columbus Bank and Trust, and that's the reason of author involvement.

I know you're constrained to what you can say, but do you have any idea sort of the timeframe that they're looking at here?

Is this bigger than a bread box and it's going to take a long time, or is this something they can do fairly quickly?

We don't have any idea about the timeframe, Nancy.

I mean it -- I don't think it will be over tomorrow.

Well, just give them a tiny little office without air conditioning. [LAUGHTER]

Okay.

Thanks.

Thank you.

Thank you.

Our next question is coming from Todd Hagerman.

Sir, your line is live.

Evening, everybody.

Hey, Todd.

Richard, I'm going to go ahead and put you on the spot and going back to your earlier comments on the ownership structure.

A couple things.

One, as you mentioned, the ownership situation on the table for review with the board and so forth, but given the -- given that position, I guess what I'm wondering is kind of what's different today in the sense that does the board -- do you have a more definitive timeframe that you're putting around this analysis and review?

And then, secondly, in terms of the acquisition criteria that you've long talked about, what is the thinking now in terms of whether or not you -- does the Company feel as if you necessarily have to have a deal in place today, or is that something that you're a little bit more flexible about in today's day and age in terms of pursuing a different structure?

I would say probably this, the notion of an a transformational event accompanying the spin is not quite as strong a sentiment as it once was.

I think we've begun to focus more on the capacity, whether it be the issuance of TSYS stock or issuing debt at the level of either company has become more significant, and we have to decide on exactly the best way to allocate capital and capacity between banking expansion and payments expansion.

So, the more we study the situation, the more we learn about the issues that need to be thoroughly reviewed.

As far as what's different, I guess just the level of activity and the energy that we're putting into studying this has been ramped up.

But we're reluctant to put any timetable on it.

There's no pressure necessarily, but it's, on the other hand, not anything that we need to just stop and resume down the road.

So we will continue working on it over the next several months.

Okay.

That's fair.

And then just second -- second to that, just in terms of circling back to the commercial loan growth in the quarter, very strong.

Just kind of curious.

That seems to be a segment that's been a challenge for many institutions in terms of a desire to grow the C&I book, and you guys had double digit growth this quarter.

Can you give a little bit more color in terms of where the growth is coming from?

Just a few thoughts, then if Mark or Fred wants to add to it, that would be good.

But first of all, a quarter doesn't -- doesn't indicate necessarily a long-term trend.

We all have to be cognizant of that.

And I would say that the plan that's being developed by our commercial team really has not been finalized or implemented, so the potential lies more in the future than in the immediate situation.

However, when you start working on a plan like this and begin to communicate the way we're communicating and begin to target through your business development practices, C&I customers in a more thorough fashion, you start to get some results, and that's what has happened.

We do have an asset-based lending group that's new and they're gaining momentum.

I think they've got $60-plus million in outstandings and another -- you know, a number of of millions in the pipeline, so that is a tangible example of where some of this growth has come from.

Specifically within our footprint, I believe that Birmingham had some good C&I growth and Columbus actually had some good C&I growth.

The industries that Mark has reported to me that stand out where the levels of activity were higher include construction-related businesses, some in health care, and then some in the wholesale trade area and in manufacturing.

Sort of evenly split, but more activity in construction-related businesses.

So is there anything else you two guys would want to say about that subject?

Well, I guess I would just comment that our -- the thing we like is our growth is -- a lot of our growth took place outside of our coastal areas and outside of Atlanta.

We really have good focus on our banks, especially our largest banks on C&I.

We've got good expertise in South Carolina and Birmingham and Columbus, and Atlanta has tremendous opportunity, and we are working very hard to put that process in place.

And the other thing, as Richard said, I think we've not fully implemented our C&I strategy, but in terms of communication of what our strategy, we want it to be, of what our focus needs to be, of all of our people out in the field, you know, making calls to the right customers, all that is beginning to take place and we are seeing results.

We've got over $1 billion of C&I in our pipeline right now.

We feel good about those opportunities and, you know, as we implement more and more of this strategy, you know, small business credit scoring, middle market focus, you know, using our products, as Richard said, our asset-based loaning is growing very well.

We started with basically zero.

We went to $30 million in the fourth -- first quarter.

It's over $60 million in the second quarter.

Our projection is we'll be at $115 million in the third quarter.

So a lot of of good calling efforts.

You know, the relationship banking strategies that we have with other parts for our business are in place, and we feel like we can make some things happen.

Great, that's helpful.

Thank you.

Thank you.

We'll take next question from [Bob Bretshow].

Sir, your line is live.

Good afternoon.

Good afternoon Bob.

I believe I heard you say that you had a gain on the MasterCard IPO this quarter.

Is that correct?

That's correct.

Can you tell us how much that was?

Tommy?

That was $2.5 million, pretax.

Okay.

And I guess, you spent a little time talking about NSF fees, I'm just wondering if that's seasonal or if you're seeing -- is that a result of the changes in deposit preference?

Are you seeing any deterioration in the depositor base?

I believe on the NSF fees -- I mean we started having the issue with the rest of the industry, you know, really back in -- in 2005, when the rest of the industry did.

And what we think we've seen over the last couple of quarters is some -- I guess some stability and even a little forward progress in NSF fees.

I won't think anybody in the industry, including us, ever totally got to the bottom of the phenomena that was causing the contraction of NSF fees, but we believe that we're back on the track with them and have really positive movement from the same quarter of a year ago, over the first half of last year and even on a linked-quarter basis.

And I think this new account growth that has accelerated is helping, producing greater levels of service charge income.

Okay.

And one last question, I guess for Phil.

The TSYS guidance is still for 395 to 405 million accounts on file by the end of the year.

Can you just kind of of walk us through how you get there?

I don't have that exactly in front of me, but basically, I mean it -- excuse me -- you know, we got to 438 at year-end '05, then we lost about 75, 80 million accounts -- here we go.

Well, let's start in June of last year.

We got to 388 million.

We had internal growth of 36.5 million.

We added 40 million in new clients.

We lost 12 million in purges, and then we had the deconversion of the Sears business, which was 86 million accounts, which took us to 366 million accounts that we have today.

We've got about 75 million plus accounts in the pipeline, plus internal growth, and we will lose about 45 million accounts in October with the Bank of America deconversion.

Okay.

And when, when would you expect the timing of the 75 million in the pipeline?

I think it will happen early in the fourth quarter.

Okay, thank you.

Thank you.

Thank you very much, ladies and gentlemen, and that was actually the last question we had in queue.

Was there any closing comments you would like to finish with?

Well, thanks again to everybody for participating in our call.

We will continue to celebrate here for the next few hours, and then we'll return to work tomorrow and be working on the loan mix.

We have some work to do for the last half of the year in building core deposits, and we'll continue to have special emphasis on our specialty product unit that we think can really help in diversifying this Company's income sources.

Again, thanks for being with us, and we'll stay in touch.

Thank you very much ladies and gentlemen.

This does conclude your conference call.

You may disconnect your lines and have a wonderful day.