Synovus Financial Corp (SNV) 2006 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to the Synovus Financial third quarter earnings 2006 conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Mr. Richard Anthony.

Sir, the floor is yours.

Thank you very much.

I want to welcome everybody to our Synovus third quarter conference call.

We are very proud of the results that we posted here in the quarter, and I hope you have each had a chance to review the highlights.

The continued fundamental growth was something that is very evident, the net interest income line item in particular stands out, and the credit quality measures we felt continued to be in very good territory for us, and I'm sure you noticed that TSYS has posted some good results and in fact has expectations that has resulted in a shift in guidance upward both for this year, 2006, and for next year.

Accordingly, our expectations on the Synovus consolidated side for the full year have been elevated to 15% anticipated EPS growth rate for the full year.

In the quarter, our earnings per share was up 10.9%, and notice that for the first nine months of the year we're up 13.5%.

We've continued to earn right at that 2% ROA level, which we think separates us from our peers and we're certainly proud of that particular measure.

We had the Synovus board meeting today, and some very exciting news came from that.

Fred Green, who is here in the room with us this afternoon, was promoted to President and Chief Operating Officer.

So we felt like that was a move that strengthens our management structure and we look forward to Fred assuming new and expanded responsibilities as a result of that promotion.

Jim Blanchard actually retired today as Executive Chairman.

He still will be an active board member with Synovus, as well as TSYS, and he will serve as Chairman of the Executive Committee for TSYS going forward, but we've had a good time celebrating the great leadership that he's given our company here in recent weeks, culminating last night with a big Board dinner that combined TSYS and Synovus boards with spouses here in Columbus.

Our agenda for this call is for me now to turn the meeting over to Tommy Prescott, our CFO.

He will give you a financial report.

And then he will in turn hand off to Phil Tomlinson, our TSYS CEO, who will give you a TSYS report.

And then I will come back with some comments, conclude before we get to the question-and-answer session.

So thank you for being with us and here is Tommy Prescott.

Thank you, Richard.

And good afternoon to all.

I want to remind that you we're going to be making forward-looking statements that are subject to risks and uncertainties and factors that could cause our results to differ materially from those forward-looking statements are set forth in our publicly filed documents with the SEC.

Richard gave a good review of the consolidated highlights.

And I'm going to step straight into the financial services side of the Company before I turn it over to Phil to hear about TSYS.

The financial services segment reported net income for the quarter of $110 million, it is up 15.6 over the third quarter a year ago, and on a year to date basis, net income was $310 million and that's an 18.4% growth rate from a year ago, which excluding the impact of the stock-based compensation, net income growth in the sector was up 21.2%.

The return on assets in the financial services side of the company was 148, up from 141 a year ago, and return on equity was 17.27 compared to 17.33 a year ago.

We've experienced very strong level of loan growth during the year.

Year-over-year loan growth of $3.3 billion, 15.7%.

When you exclude the acquisitions, the year-over-year growth was 11.8%.

On a sequential quarter basis, total loans grew $531 million, for an annualized growth rate of about 9%.

That represents a slight slow-down in the growth rate we have seen, as we anticipated, but overall we're on track with our overall loan growth plan.

I think it is important to note when you look at the mix of growth this time that investment-related CRE grew at a slower rate, 9.9%, compared to the recent history growing from 15 to 20%, and C&I continues to show signs of a beginning of the C&I strategy with a growth rate of 8.2%.

Credit quality remains at very good levels.

Charge-offs during the quarter represented 20 basis points on loans.

On a year to date basis, charge-off ratio at 0.21 compared to 0.29 for the same period a year ago.

The NPA ratio ended the quarter at 0.52.

You will remember, it was 0.48 last quarter, and 0.49 a year ago.

The allowance for loan losses ended the quarter at 132, supported by a very strong coverage ratios.

The level of past dues remains at very favorable levels, with total past dues at 0.58, and past dues over 90 days at 0.07.

The growth in core deposits continues to be an area that we're just steadfast on and focusing on very much.

We were successful at getting those during the quarter.

On a year-over-year basis, core deposits grew 16.9% reported excluding the acquisitions, grew 12.8%.

Core deposit growth continues to be concentrated in money market accounts, time deposit, just like you're seeing with the whole industry.

The competitive deposit marketplace has driven a shift in the mix of deposit accounts towards these higher cost categories.

And also during the quarter, we strategically offered several aggressive premium CD campaigns that were tied to other relationship products.

We were very successful with significant cross-sells on checking accounts and other relationship products to these customers.

And we believe that this -- sticking with this core deposit strategy, even at a competitive rate environment, and continuing to increase the funding of our balance sheet with core funds is going to pay off for us, and now that these premium offerings that are tied to other relationships benefit us in the long run, even though there is some current margin costs.

Overall the quarterly growth in core deposits was$833 million on a linked quarter basis, with the growth rate annualized 16.6%.

The tremendous growth in net interest income continues to be the most significant factor in our quarterly and year-over-year performance.

For the quarter, net interest income grew 19.2%, on a year to date basis, the growth was 18.5% compared to the first nine months of last year.

And year to date margin is 434, which is up 19 basis points over the same period last year.

Sequential quarter basis, the margin did increase 9 basis points to 430.

Earning asset yields increased 23 basis points, really as about as expected but the effective cost of funds increased 32 basis points, which was higher than expected.

And the primary factor on this decline was the intensity of the deposit marketplace and these premium CDs that I mentioned earlier.

For the remainder of the year, we expect further modest margin compression.

Non-interest income was up 2.4% for the quarter, and 8% for the first nine months of '06.

Keep in mind, as you're comparing against last year, the third quarter of '05 included a $4.1 million venture capital gain.

Otherwise, in the non-interest income category, service charges continue to be a key driver.

It's the largest component, and it is up 4.4% for the quarter, 2.9% for the year, and it is led by NSF charges and the other categories being regular service charges and the analysis charges are both down during the periods, but NSF charges are carrying the whole service charge line in a positive direction.

Another key driver is an increase in our financial management services revenues, which are up $2.1 million, or 11% for the quarter, and $7.7 million, or 14.3% for the year so far.

The biggest factor there is the growth in the capital markets area, primarily customer swaps.

Otherwise, within the financial management service area, there has been some good broad-based revenue growth across the other units.

We also continue to have good growth in bank card fees with both debit and credit card fees growing at a blended rate of 20% for the first nine months, compared to a year ago.

Mortgage revenues continue to defy the trends we're seeing in the industry, and some of our competitors, up 2% for the quarter, and revenue, 3.8% for the year, on production of $1.2 million, which is up 1.5% over a year ago, and we will credit that forward progress certainly not to the environment but to the, I guess, the better collaboration of our bankers and our specialty unit areas, and really with the retail strategy being the TSYS that is helping to pull that together.

M&A expenses were up, financial services sector, 18.7% for the quarter, 17.7% for the year.

Excluding stock-based compensation and acquisitions, the increase is 13% fundamentally for both the quarter and the year.

The largest factor in this expense growth is a more active expansion than -- of our footprint.

We've got 14 locations now that we didn't have a year ago.

And we've got a few more in the pipeline.

And we believe that these locations and spreading our field like this will be important to the future, even though there is some current costs as we start them up, but compared to a year ago, that largely driven by the -- by these branches, we have added 366 team members, and that's about a 5.5% increase in our work force, and of course, that growth rate is a lot lower than our overall balance sheet growth, our revenue growth, or any of that, but we believe that this is important as we move into the future, and the majority of the increase in these positions are front line folks, customer-facing folks like lenders, CSR, and other branch personnel.

As Richard mentioned, we did, based on the great silent performance of both sides of the Company, and now because of the TSYS increase, we have taken you through the top end of our guidance at the end of the second quarter, which implied a 14% increase, and we have since -- and in today's release, layered on the carry-through impact of the new guidance for the remainder of '06, and that combined with a good solid performance and the momentum in both companies takes us to the approximate 15% level.

I'm going to stop there and turn it over to Phil Tomlinson for TSYS comments.

Thank you, Tommy.

We did have a good quarter that we are mighty proud of.

I know you have probably seen our press release, but our net income was $54.3 million, and it was up 13% in the third quarter.

And earnings per share was at $0.28 compared to -- I think what you would think the consensus is, $0.26 a share, so we were really proud of that.

And for the nine months, our net profit was $162.1 million, up 12%.

Our previous guidance out there was in the 21 to 23% range, and we have really been working on improving our results at the Company, and some hard decisions that we've made are starting to pay off, and so we have decided to raise the guidance for the rest of the year for -- for the guidance for 2006, to 26 to 28%, up from 21 to 23%.

We also, as you recall, back in May, at our analyst day in New York, in an effort to try to get some commonality to the 2007 guidance, thoughts that the analysts were having, we put out guidance for 2007 in the -- down in a negative guidance in the -- being down 16 to 14%.

We have -- we feel like 2007 is going to be better than we had anticipated, after we've had a chance to digest a lot of numbers and make some changes, and we are improving that guidance to a negative of 9 to 7% for 2007.

We've had a lot of really good things happen this quarter.

We got Toronto Dominion converted, a little over 6 million accounts.

Banco Popular in Puerto Rico is about 800,000 accounts and this past weekend, we converted a big bulk of the Capital One portfolio, approximately 42 million accounts, and if you will recall back in August, we had converted in stage one 4 million accounts, so that takes that up to 46 million accounts.

Now, we still have a couple million accounts out of Canada that will convert in the first quarter of '07.

So we are still are not quite through with the Cap One.

We also converted a large national retailer that had about 12 million accounts.

We are just not into naming them at this point.

As I said earlier, we have been making and executing some hard decisions, the latest one being the closing down of our Jacksonville office.

We will be shutting down Jacksonville in mid-November.

We continue to be optimistic.

Today, we've got over 13 million accounts left in the pipeline, and as you know, that number goes up and down, as these big conversions happen.

We continue to be optimistic about our business in general.

We did go ahead and get the other 11% of CUP data in China.

We made the Card Tech acquisition, which has created a lot of excitement in this business.

And I hope you saw the announcement where we have finally started getting a little traction in Japan, when we announced the Toyota Credit and the Nikko Cordial dual currency card that we already started processing in Japan.

This week, we just announced that we have signed a deal to do a gift card program for United Cinema, which is the largest movie chain in China.

We've got an awful lot of moving parts going on right now, and the business is changing a lot.

I know you've been keeping up with First Data spinning out Western Union this week, and Visa announced that they're looking at going public, so we've got a very dynamic business.

We're optimistic about getting through these difficult times.

One thing I should tell you is Banc of America's deconversion started today, and we assume that they will certainly go forward with that, and that will take us through about Monday afternoon to get all of that done.

And it will be switched over, Visa and Master Card.

At the end of this, I'm happy to answer any questions.

And Richard, I will turn it back over to you.

Thank you.

Phil, thank you.

And Tommy, thanks for those good reports.

We have said, we are on track to exceed the original expectations that frankly we set for ourselves, and that the market set at the beginning of the year.

And I hope you now have a better understanding of why that revision is in order.

We are looking now ahead to next year.

We're in the early to middle stages of our 2007 planning cycle.

I guess the -- one of the objectives we have is greater diversification on both the loan and deposit sides of the balance sheet.

We think we have effective strategies that are being implemented that will help us become more diversified.

We've been talking about this, this past year, and I think we're starting to see some good results.

For example, the increase of activity and the middle market relationships that we're generated in the C&I volumes that are being produced.

But our commercial strategy is going to be at the top of our list of strategic initiatives next year.

We can answer any questions that you might have on it.

We don't really plan this afternoon to go into a point by point discussion of our commercial strategy, but it has been finalized.

It is now in the implementation phase, and we're very pleased with the work that our group did, our group of bankers from throughout the Company, to develop this particular commercial strategy.

The environment is going to be challenging, as always.

We are seeing competition for our deposit dollars, rates are being -- are becoming more important to the banks, as well as to the customers, and you've heard Tommy give some commentary on our positioning there.

I want to just mention one other thing before we get into the Q&A, because I know if I don't, it will be the first question asked and that is what do we have to say about the work we're doing on the TSYS spin possibility.

The work continues.

We don't have anything new to report.

I can tell you that we are really more interested in having the right answer in the end, as opposed to the time frame itself.

We don't feel pressured to commit to a specific time frame, and as we have done in the past, we don't have dates to give you, but we are progressing the way that we think is appropriate, and we will continue to keep you advised should anything change, and result in more specificity coming from our position regarding that possibility.

So I'm going to pause here at this point and just open up the call for any questions that you have on your mind, and we will address those.

Thank you.

Ladies and gentlemen, the floor is now open for questions.

[OPERATOR INSTRUCTIONS].

And we will take the first question from Nancy bush.

Ma'am, your line is live.

Hi, guys.

How are you?

Hey, Nancy.

Congratulations to Fred.

Thank you, Nancy.

A couple of questions here.

Number one, Tommy, if you could just talk a little bit about this packaged product that, you use to raise money in the past quarter.

You said it is a competitive CD that is attached to other products.

Could you just sort of generally describe it and tell us what kind of rates you're paying, et cetera.

Yes, Nancy, I will be glad to.

Good afternoon.

We actually had in three of our markets special events going on, and I will just use an example, like in Atlanta, with the completion of the Riverside and Bank of North Georgia merger, they strategically chose to offer a premium CD in the 7% range, 11 month maturity, and they required with that a checking account be opened, and we were pretty successful in gathering some money there.

We had a couple of other markets that had similar events occurring like grand openings, and grand opening in our new Statesboro market, I'm sorry, Savannah market, and they likewise tied these premium CDs to relationship accounts.

We were very successful in gathering new checking accounts, and cross-selling results indicate 1600 new checking accounts, 217 money market accounts and time will really tell how effective these are as true relationships, but we firmly believe that it is a very good strategy.

These -- the folks in our local markets are viewing this as marketing dollars on a targeted basis, more or less paid directly to customers, rather than broad-based advertising.

And again, insisted on the relationships, and we are very optimistic that will pay off down the road.

Tommy, will there be more of these?

Or is this going to continue to be sort of targeted at special events and specific markets, or is this something that might be rolled out, you know, more broadly across the franchise?

Nancy, I think you've seen the bulk of that activity that occurred in the third quarter.

We did have a, these unique events, with these situations like I described in Atlanta, but I think you've seen the bulk of this type of activity for now.

Okay.

And if Mark is in the room, could he just comment on what he is seeing?

I mean we're beginning to get some signs of stress in residential development.

If you could just comment on particularly the Atlanta market, and what you're seeing there.

Yes, Nancy, I will.

Obviously, there is some slowing in Atlanta.

Our market data indicates if you go back a couple of years ago, the absorption rates were running about 8 months.

And they've moved from 8 months to 9.1 months.

And we don't have the latest data out, it will be out next month, but we're expecting absorption to slow a little bit more.

Atlanta has not really been an issue for us in terms of defaults and things like that.

We do know it's slowing down.

We're obviously being much more careful in that market.

Our growth has slowed, to about a 10% range.

And that is a function of two things.

It is a function of one, our customers, actually making the decision, which we like to see, to slow down their growth, an then as well as our banks, having to focus with their relationships, to ensure that those customers are slowing down, and what we see in Atlanta, our losses are still running 3 to 4 basis points.

We're seeing growth next year in the 8 to 10% range, rather than in the teens.

Something like Tommy has described.

That's what we're expecting.

We're not really expecting a fall-out.

If you look at affordability in the South, it is still as good as anywhere in the country.

Our pipelines still look good.

If you look at our growth, it is about 50/50, C&I, and CRE, and maybe about a 10% kind of percent of that in the consumer sector.

But we are still very comfortable in Atlanta and don't -- the only thing we're watching is I think I've talked to you about before, Atlanta has got a very high foreclosure rate.

If you look at their numbers on cities, they rank number two.

That's really a function of a couple of things.

They're very debtor -- Georgia is very debtor friendly, so it is pretty easy to go against the customer and foreclose.

There have been a lot of variable rate mortgages originated out of Georgia and Atlanta, and that is kind of what we're watching, is how much inventory is going back into the market, and how that may change absorption rates.

But right now, our folks in Atlanta feel good about their portfolios.

Okay.

And if I could just ask one final question, for Phil.

Phil, I'm sorry I missed your call this morning and I will go back and listen to it.

It but the increased guidance or the less negative guidance that you're giving for next year, how much of that, if you could just sort of break that down very roughly between better revenues, and greater expense control?

Oh, Nancy, I'm not sure I can do that off the top of my head.

Tim is here, maybe he can.

What we mentioned this morning, we are looking for increased revenues and double digit growth in the European market, or international market, as well as Vital's got a double digit revenue growth, but the big things came in our cost-cutting efforts that are going on today, carry over into '06, with hopefully our -- what we're planning on is our employment costs being flat to down, as we mentioned this morning, we shut down the Jacksonville office, that's another 74 people, we're about 200 down and our head count through the nine months of this year was another 70 to come in November, so we will have a big pickup there in the employment area and then we talked about 30 to $40 million worth of expense savings that were going to be in the equipment arena and software amortization.

And then our tax rate will be around 35, 35.5% next year.

Is so all of that contributed to that new guidance.

Thank you very much.

Thank you, Nancy.

Thank you.

We will take the next question from Tony Davis.

Your line is live.

Good morning, Richard and everyone.

And Fred, congratulations, too.

Thank you, Tony.

I wondered, if I could get you to elaborate a little bit more on the in house and the market response to this new small business market strategy that you rolled out and I think, the last I heard, the C&I pipeline is actually larger than the CRE pipeline for a long time.

I'm going to ask Fred to answer that.

Tony, thank you for your question.

And just since our last call, the commercial strategy is -- in the implementation stage as Richard mentioned.

Chuck Garnett who is the CEO of our largest bank, National Bank of South Carolina, led the plan in its formation, and then upon completion, turned it over to Kevin Howard, who is with us today.

Where we are at this point, we've already seen some pretty significant movement there.

Mark mentioned earlier, the pipeline is about 50/50 between CRE, and C&I loans, so we're getting balance there.

It is beyond just the loans there.

It goes into the commercial deposits on that front.

We've got significantly greater interest on the cash management side, and are very rapidly deploying the newest technology, which is the remote express deposit devices.

In fact, we can't buy enough machines to fill supply at this point.

We're training our commercial heretofore called commercial lenders to be more commercial bankers, to look at those opportunities, and to expand the sales force on the deposit side.

And finally, on the fee income areas, I think Richard mentioned earlier in his comments, capital markets, and Tommy as well, and some of the specialty areas, like leasing and asset-based lending, all of those are seeing great volume increases and considerable activity.

We still have some training to do, and on January 1, we will implement the new incentives.

But everybody is well aware of where we're headed with it and already on board.

Got you.

Tony, I would add, too, that as a result of pending and recent large merger, transactions here in the southeast, we feel that they continue to be more opportunities there, more doors are opened to us, and we're starting to see some of those close.

Some of these privately-owned businesses perhaps have seen circumstances change with maybe the relationship managers moving out, or a new policy in place, because of an acquisition, so I wouldn't say that the customers are just leaving en masse, but selectively, we feel that the competitive opportunity is greater for us here in the southeast because of two or three of these large mergers that have been going on at least for a couple of years, and really are about to happen.

Follow-up on that, Richard, regarding am south region, you're still interested in that and do you see opportunities falling out of this to pick up more presence in some of these markets?

Am south and regions, first of all, on the divestiture piece, we looked long and hard at that, and submitted a modest bid, and really knew that we wouldn't stay in contention.

We, for various reason, felt that our opportunity was going to be greater, just in competing for the business without paying a premium to acquire branches and deposits.

As far as the program goes, they're just, in our business development efforts, we're really feeling good about, in most cases, becoming the go-to bank in our respective markets.

In our respective markets.

That's our objective in places like Birmingham, and in Nashville, or Tuscaloosa or Pensacola, and certainly, we do take a good hard look at those companies that have been banking with one or the other of these two institutions that are now to be combined, because there is unease that comes from that.

And we want to be right there to be in line if these companies are receptive to a change.

So we keep track of how we're doing.

I don't want to say exactly what those numbers are, but I can tell you, we keep very accurate records so that we know in each market how much business is coming from whom.

Good quarter for both of you.

Thank you.

Thank you.

The next question is coming from Kevin Fitzsimmons.

Your line is live.

Good afternoon, everyone.

Hey, Kevin.

And congratulations to both Richard and Fred.

Thank you, Kevin.

I was wondering, first, and I apologize if you already touched on this, but this -- the environment we're in, and with the -- you're one of several asset sensitive banks that have experienced margin expansion over the last several quarters, and now with this kind of shift and the different kind of head winds we're facing, I just wanted to get your outlook, how you're thinking about the margin, specifically are we -- has a lot of the margin been taken this quarter, and do you feel good about maintaining stability?

Or as long as we're having an environment like we have today, are we looking at, continued compression as we go through the next two to three quarters.

Tommy is going to give you most of this answer.

I will say that managing the margin and in particular managing deposit mix on our balance sheet and deposit pricing are going to be under close scrutiny, and have been for the last several weeks.

We, for all of this year, and in fact last year, have had core deposit growth as an objective which I think was an appropriate objective, but when you do that, obviously there is a tendency at times to certainly match competition or at least to be competitive out there in the marketplace.

Now, whether or not this has gone further than we would like is -- I don't think the question, because I'm personally very pleased with the mix that we've had in both the margin and the growth that we've had in core deposits.

But as we look out to the remainder of this year, we've got to be on top of that particular situation daily.

I'm looking here, Jodi Lowry, for example, our treasurer, stays in regular contact with the banks on their posted rate, their promotions, on the mix of their deposit growth, and we're going to keep a close eye on the liability side of our balance sheet.

Now, having said that, Tommy can give you a a little bit more of a feel for our general expectations moving forward with the margin.

Kevin, we think we've gotten ourselves pretty well positioned to really try to defend which, you know, a very, very good margin, one of the highest in our business, which in some ways makes it maybe a little harder to defend, but we think because our structure, we're positioned to do that.

We think we've positioned the balance sheet in a way that will work very well, whether the rate environment over the next year is flat or has a modest move, you know, downward, or a couple of moves, or who knows, even up ward, or maybe one of ya'll could tell us.

We would love that but we've been managing in that sort of range.

The biggest variable that we will face over the next quarter and over the next year is this funding, the cost of funding, and we basically, in a very competitive environment in the third quarter, we stayed the course on going after core deposits, and we did it thoughtfully and willingly, and we did it broad-based and we did it with these very aggressive campaigns that I described earlier, and yes, that did have some compression.

We don't have to keep hitting it quite that hard if this pressure remains and that in a way is a bit of a safety valve for us to pull back a little bit.

We've increased since the beginning of '05 our core funding to -- as a percentage of core deposits, as a percentage of total funding, from about 73.6% to a little over 77%.

And that's what we've been trying to do.

We don't have to keep moving it like that if this deposit rate environment stays as heady as it is.

But that again can be kind of a [technical issues] for us.

We have begun, as we stated earlier in the year, we did begin to take some asset sensitivity out of our ALCO position.

We've done that in a flat rate environment.

That is neither helping us or hurting us.

If in fact we did somehow have another rate increase, then we would not have the advantage to the same degree we've had historically, but we are positioning for what the curve implies, and that is in the futures market, implies, and that is a, you know, the next move is probably more likely to be down than up.

So we're -- I think with our structure, we're as well positioned to do what it takes in the local markets to price rationally, and to keep pursuing, hanging on to this margin.

And we advertise that we expected some modest compression in the fourth quarter, and just in the way of trying to quantify that, I would like to think that that compression would be less, a little bit less than occurred there in the third quarter of this year.

No worse than that.

That's our intent.

And we will report back to you in January.

Okay.

Great.

That's helpful.

Richard, quick follow-up on your comments about the spinoff.

Looking how the stock has done over the last three or so months, the stock has done very well versus peers, and I don't know whether it is a coincidence or whether it is a driver, but it seems to be there has just been more discussion and there seems to be more acceptance, or call it increasing the odds of such an event happening, and how do you weigh that in your decision process, the fact that, -- do you even interpret it that way, that in a sense the market has essentially spoken and said they would prefer such an event to happen and how do you view that?

Well, I think -- I mean there could be some of that, but I don't want the strong fundamental performance that we've had to get lost, because we feel that our earnings growth, our returns, our general performance warrant for us a premium, both for Synovus consolidated as well as just the calculation for the banking piece taking TSYS out of the valuation.

But there certainly could be some of that in there.

We are very much interested in disciplining ourselves in the decision-making process to look at this long-term strategically, and not a whole lot from the immediate unlocking of value opportunity.

And even today, our bank-only PE is 12.5 times, which is not at a premium, and we think our performance would warrant a premium.

So we would like to focus investor attention on that particular element of valuation, rather than any potential benefits that would come from having two separate independent publicly-traded securities out there.

So the driver for us in the TSYS decision, I mean there are several, but primarily it gets back to TSYS-own diversification strategy and the potential immediate to use their currency and to use their own balance sheet in an expansion and acquisition program.

And so we're looking at every issue related to -- every implication of doing that, before we make a final decision.

I know the investment community becomes highly interested in the unlocking of value, and we're not totally discounting that, but we're looking at it more tragically from the -- strategically from the standpoint of TSYS currency, and TSYS debt capacity.

Great.

Thank you, Richard.

Thank you.

The next question is coming from Jeff Davis.

Your line is live.

Thank you.

But my questions have been covered.

Okay, Jeff, thank you.

And we will take the next question from John Pandtle.

Your line is live.

Thank you.

Good afternoon.

Richard, my question revolved around the tougher outlook in commercial real estate and construction lending, and I'm just wondering, are you all seeing more community banks in Atlanta, and/or Florida start to explore their strategic alternatives, if you will?

And how might that affect the acquisition outlook for Synovus, and what is your current appetite at this time?

John, I don't -- we always have a pipeline of potential acquisitions.

What we like to do, as you probably know, is spend time in a courting process visiting, getting to know bankers, and markets, and we always have an active list, some of which are at the top, and some of which can be locked off at the bottom.

As far as whether or not this particular list or overtures to Synovus would be greater or more active today, I don't really think so.

I mean there is a list out there, I tell you that the pattern that I think we're seeing more of is there is still some pretty good community bank performers in some of these attractive areas, and some of them, many of them have a tendency to outgrow their capital base, and from time to time, they will reach a point in the road where they have to either generate additional equity, or find a partner.

So that seems to be a theme in those banks that are approaching us today, more than liquidity events, or concerns about performance.

So all of this, I think, too, has -- I wish that I could say for us that we saw opportunities out there that were more attractively priced.

But sometimes we cannot get together, because we're determined to be disciplined and to not dilute our shareholders.

We don't usually say no forever.

We just say we're not together at this point in time.

Let's stay in touch.

Because one of the advantages we have occasionally is that our model lends itself to becoming an acquirer of choice.

So we will string out and continue the discussions and the relationships until the time might be right.

But price expectations from some of these community banks that are well located are still up there in a pretty high range, and it makes it harder to get together right now.

Tommy, or Fred, would you want to add anything to that?

The only other thing I would add is sometimes the regulatory burden that the smaller community banks are facing creates another impetus for sale.

Okay.

And just as a follow-up on the same topic, as you look in Florida, you've certainly done more on the West Coast, what is your thought on, you know, expanding more on the East Coast, say maybe Palm Beach north up to Jacksonville?

We are interested and open to that.

And I can fully see that happening.

But right now, we've got a good presence over on the West Coast, but there still are several fill-in opportunities.

Now, we will close some of those opportunities with new branch locations, just de novo entry, so we're more familiar with the West Coast right now, but I can see over the next few years having a greater presence down south of Jacksonville on the East Coast.

We've had some visits and some conversations but not as many as we've seen in these other markets.

Okay.

Thanks for sharing your thoughts.

Thank you very much, gentlemen.

There appear to be no further questions.

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

We thank this group again for your interest in Synovus.

We feel extremely positive about our future and the plan that you've heard us talk about, the strategic plan that was developed over a year ago is still very much a viable plan, we're kind of streamlining it a bit.

We have a session coming up in 30 days that will set priorities and goals for '07.

We know that many of our peers are talking about challenges and head winds.

We might see a few potential obstacles out there, but for the most part, our bankers are very confident still, and we're looking forward to continued high performance that will keep us in a very select peer group.

So count on that being our top objective here in leading the Synovus organization.

Thank you very much, ladies and gentlemen, this does conclude your conference call.

You may disconnect your lines.

And have a wonderful day.