Synovus Financial Corp (SNV) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus-sponsored fourth quarter earnings 2007 conference call.

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

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

Sir, the floor is yours.

Thank you very much, and welcome to each participant to our fourth quarter conference call.

We appreciate your joining us.

Earlier today, we distributed our press release, which apparently is the last set of numbers that you'll receive in the marketplace.

It has TSYS as a part of Synovus.

As everyone knows, the spin was completed at the end of the year.

I feel extremely good about the impact of that spin on both companies.

We have certainly a lot of focus in each line of business.

We have the strategic flexibility that was really the targeted outcome of this transaction.

And on the banking side, we are in good shape with quite a bit of excess capital as cushion in these challenging times.

I wish I could find words to describe the environment that have not been used before, but all the bankers are talking about this difficult credit environment and the challenges that we face as an industry.

I certainly have been paying attention to our peer reports, and we're trying to organize our call this afternoon in a manner that will help you understand our currently situation and prospects for the future as well as possible.

We had a lengthy board meeting today.

I came away from that, as did our board, feeling that the management team has its arms around all the issues that we need to be contending with.

You'll hear more about that during the call.

The way we've organized the presentations is to start with Tommy Prescott, our CFO, who will work through the financial results.

Then, we'll turn to Fred Green, our President and Chief Operating Officer, and Mark Holladay who will talk about credit-related issues.

Without a doubt, credit is the [dominant] theme, so we'll try to spend as much time as helping you to understand the picture there.

At this time, I'd like to turn to Tommy Prescott and ask him to cover the financials.

Thank you, Richard, and good afternoon to all.

I remind the you 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 as filed with the SEC.

Our fourth quarter earnings were $81.9 million compared to $175.5 million in the fourth quarter of '06.

Per share basis, this represents a reported $0.25 per share in the fourth quarter compared to $0.54 in the fourth quarter of 2006.

Please keep in mind that in the 2007 fourth quarter numbers include spinoff-related costs.

These are litigation charges, both of which combine reduced the EPS 12.2% -- I'm sorry, $12.2.

And also I remember that the fourth quarter of 2006 included a one-time early termination fee.

This is related to the Bank of America deconversion.

Excluding these items, earnings per share was $0.37 for the fourth quarter, down 14.6% from the same period a year ago.

For the year, we reported earnings $526 million, down 14.7% from '06, with earnings per share of $1.60 compared to $1.90 in '06.

Excluding the annual impact of the Visa litigation, the spin-off cost and the Bank of America deconversion fee last year, earnings per share of '07 was $1.76, down 2.4% from a year ago.

Credit costs remain the key driver for the fourth quarter with a loan loss provision of $71 million -- $71 million pressure in our fourth quarter performance.

The provision was fueled by higher charge offs and reserves due to the negative migration of credits within the risk grades.

The net charge-off ratio for the quarter was 0.91 and was 0.46 for all of 2007.

The increase in credit cost is primarily related to residential construction and development loans in our west Florida and Atlanta area markets.

The nonperformance asset ratio grew to 1.67% during the fourth quarter, with one to four family construction and development loans representing most of the growth in nonperformance assets.

Our net interest income for the fourth quarter was $286.7 million, and that was $4.2 million below the third quarter net interest income and $2.2 million below the fourth quarter of 2006.

The margin for the fourth quarter was 386, down 11 basis points from the third quarter primarily due to higher level of carry on nonperforming loans and interest charge offs.

Actually, the 11 basis points pointed out of that 7 basis points, so it was related to credit.

Net interest income for the year was $1.1 billion, 2.1% over 2006.

The margin for all of 2007 was 397 compared to an annual margin in '06 of 4.27.

Keep in mind that the margin for all periods has been changed to conform with the presentation required by the completion of a spinoff of TSYS.

The previous reported net interest margin included the benefit of TSYS deposits with Synovus' banking affiliate since the interest paid to TSYS was eliminated in consolidation.

Additionally, that interest income as previously reported included income earned by TSYS on deposits and investments with third parties.

This change in presentation has reduced the reported net interest margin for 2007 by 5 basis points, and it's about 5 basis points in all of the periods that are presented.

The $484 million special dividend that Synovus received in connection with the spinoff will have a favorable impact to the Synovus margin prospectively in '08 as the dividend will result in a corresponding decrease in interest-bearing liabilities.

Loans ended the year at 26.5 billion, up 7.5% over last year.

Linked-quarter growth was $724 million, representing 11.1% annualized growth rate.

The year-over-year total loan growth of 1.8 million was diverged with commercial real estate reflecting a growth rate of 6.9%, commercial and industrial loans up 7.4% and retail up 9.3%.

Core deposits ended the year at 21.7 billion, up 154 million or 0.7% over 2006.

Core deposit growth for the year was primarily and now in money market accounts compared to the third quarter core deposits were down $91 million.

Both comparisons are impacted by the runoff of higher priced CDs as well as the decline in TSYS deposits.

TSYS deposits declined by 107 million and 184 million for the year and quarter respectively.

And this decline was primarily due to the payment of the special dividends.

So, some amount of these deposits have been reclassed into our capital and basically reduction of our overnight funding.

Non-interest income was $99 million for the quarter, up 1.4% over the fourth quarter of 2006, and down 7.2% from the third quarter of '07 primarily due to private equity investment gains recognized in the third quarter.

The year-to-date non-interest income was 389 million up 29.6 million or 8.2% over 2006.

Service charges remained flat year over year while financial planning investment banking and brokerage revenue provided solid growth here in '07.

Private equity investment gains and gains on the sale of MasterCard stock holdings also provided a boost during 2007.

Expenses, excluding Visa litigation charges, have grown modestly over last year.

Core deposit expenses are up 3.5% over last year for the quarter and up 5% for the full year.

Included in '07 were the costs related to 19 new branches that we put online which have added expenses.

However, we've largely offset these costs by managing headcount, otherwise, and by lower performance-based pay.

There was a small spike you might have seen in the fourth quarter, G&A expense, and that was primarily ORE-related.

We will -- you'll see TSYS that's presented in discontinued operations line, and we'll certainly discontinue talking about TSYS going forward, but just one more time I got to say that our great subsidiary has now been spun and has left us in great order, and had a great year in 2007, and a great finish to that.

I'm going to stop here and turn it over to Fred Green.

Thank you, Tom, and good afternoon, everyone.

Credit issues continue to dominate the headlines lately, so I'll just jump right in on ours.

I suspect that most of you on the call are very familiar with our company.

So this might be a little redundant to begin with.

But as we said last quarter, we do not have any subprime exposure.

We do not have any [seaves] and we do not have any CDOs.

Recently, there's been concern about consumer debt, and some of our peers have reported deterioration there.

So, again, it's important for you to know that we do not have any indirect automobile loans.

We do have a credit card portfolio, but it's relatively small at 290 million or 1% of our portfolio.

It's a very mature portfolio.

It's grown at modest levels through cross-selling efforts to existing customers.

And incidentally, our losses, there are about one-half of industry averages.

Our HELOC portfolio is around 1.5 billion or 5.8% of our portfolio.

It's a prime portfolio.

It's underwritten with high credit scores, conservative debt, income ratios and proper loan values.

Again, like the credit cards, they're sold to existing customers in market to round out our relationships, and they are not involved through brokers.

Our consumer mortgage portfolio is around 1.7 billion or 6.3% of our total portfolio, and it's primarily made up of short-term loans to our very best private banking customers.

So on the consumer side, we're very comfortable with where our portfolio is now, and heading into the rest of the year.

Let me shift now to what we do have.

What's created are credit issues and what we're doing to work our way through them.

Seventy-five percent of our nonperforming assets are housing-related, broken out at 65% in residential construction and development loans and 10% in land loans.

These NPAs are concentrated in west Florida and Atlanta with 70% of our NPAs in these markets.

It's close to a 50/50 split between the two markets.

And incidentally, these markets comprise 31% of our total loan portfolio for Synovus.

Credit losses for 2007 are very similar.

Forty percent of our total losses were in west Florida and 20% in Atlanta.

And then, the residential construction and development category, 88% of the losses in that segment came again from these two markets.

In 2008, we expect to continue to have some pressure in this sector and in these markets.

We've been aggressive in our approach of recognizing problems and reserving appropriately.

This past quarter, we've reviewed our entire portfolio with a fine-tooth comb.

The purpose was to recognize all of our problems as quickly as possible, and to make sure that we're not inadvertently dragging current problems into future periods.

So at this point, our credit issues have been contained both geographically and by product type.

We'll be in a continuous review process throughout the year, looking for signs of creepage.

But at this point, we don't see any signs that it exists today.

On the problems that we do have, we beefed up our special assets, resources so that we can work our way through our nonperforming loans and our other real estate quicker and at a better resolution.

There still is a price discovery process taking place in Florida, and although we have not built this into the plan, we do hope that the recent fed rate cut and any future fiscal or monetary stimulus will help establish values in those markets quicker.

I also want to point out a little bit about how aggressively -- or how I guess, I should say conservatively, we're looking at loans and reserving appropriately.

And we've never shared this with you, but our methodology for these type of loans that I just discussed, we would allocate 22.7% reserves on all loans that migrate to substandard, but are still accruing.

So at the point in which we're concerned about their ability to continue to pay us, but they haven't hit that point.

They're still accruing the interest.

We reserve 22.7% of the value of that loan.

If these loans continue to deteriorate and we recognize that they can no longer perform, we'll run an impairment test that calls for us to get a currently fair value appraisal, discounted about 10% for selling costs.

We can work through the [math], but generally, a $4 million loan that might have had an original appraisal of 5 to 8% after we reserve -- again, still accruing.

That loan is around 60% of the original amount.

If we look at the loans that this quarter have moved into our MPA category compare the charge offs that were result of this going through this impairment test that I just mentioned, the charge offs have actually been less in the aggregate than the 22.7% reserve.

We previously established -- we continue to establish as these type loans migrate toward that substandard category.

So again, we are attacking the problem as quickly as possible.

We're aggressively working through it.

And our desire is as this credit cycle turns, we'll be the one of the first to come out of it.

With that, Richard, let me turn it back over to you.

Fred, thank you.

And thank you, Tommy, for those reports.

I'm going to repeat just quickly two or three things that Fred mentioned, because I guess it's important for everybody to understand this about our approach to credit in the company.

As he said, in our portfolio, the credit weakness is largely contained to and confined to the Atlanta and west Florida markets.

These weaknesses are still concentrated heavily in construction and development.

You can tell by Fred's description that we as a company are proactive and aggressive in managing these problems, and we are very sensitive to any potential weakness in other products and in other markets.

So, we will watch that carefully.

But at this point, we have not seen any further deterioration

As we look to the future, these credit challenges will continue to evolve.

There is obviously in our industry and in our economy a high level of uncertainty about the -- I guess the depth of this cycle, but we will give you and I will give you now just a few thoughts concerning some of the drivers that will affect our financial results in 2008.

We believe that our charge-off ratio this year will be somewhat higher than the 2007 annual charge-off ratio of 46 basis points.

We believe that our NPAs and nonperforming assets could increase during the first half of this year.

And we think there's a possibility -- a good possibility that some improvement will be seen in the second half.

We believe that additional margin pressure will be felt in our results due to these recent rate cuts and an extremely competitive marketplace for deposits.

So, what we're doing in communicating about the future is giving our directional thoughts.

We will continue to update the investment community when appropriate, and we will add facts and color when those thoughts are more clearly developed as we experience results moving through the first half of 2008.

And let me conclude before we get to the Q&A session by talking about our more focused company, our new Synovus, if that is a term that you like.

The key strategy -- and this goes back three years -- is our emphasis on the middle market, our commercial strategy, our aspiration and belief that we can become the premier commercial bank in the southeast.

This will help us be a more diversified company, and it will help us, we think, be more balanced in our risk management of the loan portfolio.

We believe that a strength in our company continues to be the markets that we have placed ourselves in the major southeastern markets.

So we have made a number of strategic moves over the last five or six years that should serve us well over the next 10 years.

Our capital position, as I mentioned earlier, is strong, stronger than most.

We have a tier one capital ratio of between 9.3% and 9.4%.

Our equity-to-asset ratio is 10.4%.

These are the measures at the end of the year.

We believe that it is essential that we take a more intense approach than ever in managing our infrastructure, our expense base down to the optimal level.

We will be looking at processes throughout the company.

We will have an internal focus.

And if needed, we will use external resources as we determine the right size of our cost structure in Synovus.

Our risk management is stronger than it ever has been.

It's been changed somewhat with the recent mobilization of our credit function.

We believe that the team now available to Mark Holladay, our Chief Credit Officer, in working with the chief credit officers of each regional CEO's management team give us a good combination and blend of line support and staff support and management of the credit function.

We will continue as we have for years to lead with people that will be our differentiator, our model.

We'll continue to be an attraction, we think, for talent.

Our decentralized approach will be balanced with a proper level of consistent processes, and we have moved toward this more efficient approach very strongly in recent years that will continue throughout 2008.

So we are excited about the prospects.

We are excited to show what we can do in this difficult period.

We look forward to reporting these activities and results to you regularly.

And at this time, I want to pause and open up the floor for questions that we'll be happy to answer.

Thank you very much, ladies and gentlemen.

The floor is now open for questions.

(OPERATOR INSTRUCTIONS) We'll take the first question from Nancy Bush.

Good afternoon, guys.

Hello, Nancy.

I guess my major question would be the increase in NPAs sequentially from third quarter to fourth quarter was something on the order of 50% which was a little bit more than I had expected.

Is there some acceleration here?

Was there a review during the quarter perhaps that, you know, resulted in this large increase in NPAs?

If you could just put some color around that increase, I'd very much appreciate it.

Okay.

We'll do that.

And we'll start with Mark and others will pitch in as necessary.

The answer to your first question about the review, yes.

There's been an ongoing review, Nancy.

But I guess if I were to describe it in terms of the dollar increase, we had a group of larger loans this quarter than what we would typically look at in terms of average size.

We really had, you know, three credits on the coast of -- west coast of Florida, one in Tampa that was about 17 million.

One in -- actually two in Valparaiso, one for 14 million and one for 12 million.

And that alone with a few others in the 8 or 9 million range that drove the percentage increase.

Typically what we've seen in prior quarters are loans in the two -- $3 million, $5million range.

So it wasn't so much a function of just a massive amount of loans that were coming in, but there were -- there were some.

And that also, you know, created the magnitude of the loss for us.

The West Coast loans, you know, our charge offs there were pretty high for the quarter.

The biggest three loans that we had we charged off a million, 750, $6.5 million, and $6.5 million on those three loans.

So that also created the dollar sign.

Mark, are these continuing to come from the bank that was acquired in west Florida, or are these still -- because my impression had been in the third quarter that you had kind of gotten your hands around that portfolio.

Yeah.

Now, we don't -- we haven't had a lot coming out of Naples.

In fact, you know, I'm feeling -- I hate to say this, but I'm feeling a little better about the west coast of Florida, because we've tackled it.

We've tackled, you know, all of the coastal banks.

We've been very aggressive.

If you just look at the past views in that sector, west Florida, it's 10.8% of our total portfolio.

Our past dues now are less than that the size of the portfolio.

They're running, I think, about 9 -- they're 9.9% of our past dues and 10.8% of our portfolio, and we -- and the severity of loss that we've had this year, if you really look at loss severity, it's been in Florida.

And I'm beginning to feel a little better.

Some of the things we're seeing.

Some of the wealthy clients that we have are going in and buying high-end condos.

There is some prices being set there.

I think our CEOs are on top of their credits.

And I'm feeling a little better.

And really if you look at what happened to us this year, Florida , the charge-off ratio for Florida has been -- is very high.

Georgia was, I think, 67 basis points in the fourth quarter.

Hang on and I'll get

Nancy, I would say, on Naples, the only meaningful charge we had there during the quarter was a subcontractor.

We had a low 7 figure charge off there, but the real estate portfolio in the Naples bank was not a drain on the company during that period.

Let me just add for numbers.

At the end of the year, we had 34 million in the spread over 240 loans in this construction portfolio we talked last quarter.

Okay.

And if i could just ask Tommy, going -- are you, guys, still asset-sensitive and going into a 75 basis point cut this week and maybe a 75 basis point cut next week or whenever the next meeting is?

I mean, you know, is the damage to the margin going to be sort of proportion to that?

Or how do you stand in sort of asset liability management position right now?

Nancy, we are asset-sensitive and as Richard mentioned we do expect some pressure on the margin next year, and it will come from a couple of areas.

We'll have the continuation of the credit cost built into the margin.

We are in a superheated competitive deposit market place, one like I think most of us have never seen.

And it seems like, you know, bill pointed out that the banking systems bled into the national markets and now local markets and certainly the brokerage CDs, and that will pressure us.

In addition to that, we are all asset-sensitive.

In 2007, you'll see that when you isolate the credit cost and you look at our margins for the first quarter of 2007, we really went down only 7 basis points that wasn't credit-related.

So we did, and we're certainly in a period there where you did have some cuts, and one of them was 50 basis points.

It gets tougher as you get further down, you know, the rate cycle to move deposit rates.

I know the industry overall is facing that, but we -- and quite frankly, dealing with smaller bites out of the rate cuts is better than the big bites, but we'll [weather] through the 75, and honestly would expect some more on top of that between now and mid year.

So I should expect sort of the bulk of the margin damage both from fed cuts and deposit pricing and credit in the first half of the year.

Yeah.

Most of the -- if you're working off of the quarter margin, most of the credit impact is in there.

If you just focus in on the 75 basis point cut, then you can model out 6 or 7 basis points a little bit more in the real short-term, but settling out in the midterm to 6, and then that settling out and hopefully recovering some of that later in the year, but that's about as specific as I can be on the margin.

Thanks very much.

Thank you.

Thank you.

The next question is coming from Tony Davis.

Your line is live.

Good afternoon, Richard.

Hi, Tony.

Everybody, Fred.

Hi, Tony.

Tampa Bay seems like a new name here.

I'm going to say my stand point.

And I guess what I'd like to get you to do if you would, would be to specify the dollar amount of construction development exposure, if you've gotten the big three today, Mark.

Tampa, the panhandle and Atlanta, and also the amount of loans there that are either non-accrual or OREO.

Can you do that?

I think I can do that.

Let me start with Atlanta.

Atlanta, 1 to 4 construction and residential development.

It makes up -- Atlanta is --

This is something we need to come back to offline.

Yeah.

Give me a minute to find that section.

Okay.

We'll probably waiting on that.

You've got this third-party relationship that you've set up here, I guess too, in terms of workouts.

I wonder if you could give us any color on that.

Are they looking only at Atlanta, or is this a system-wide effort?

And I also wanted to follow up on your comment about buyers' interest in the stress properties, kind of what you've seen there in the last couple of weeks, but the first thing is the third-party help-out.

Yeah, the third party assistance is devoted to Atlanta, not to the west coast of Florida.

They've gone through pretty much every -- every property that Atlanta's got is giving Atlanta advice on -- on the strategies of exiting those properties, and it's really being looked at by County, in each one of the counties based on absorption rates.

They're giving them advice on whether they should go through realtors, through auctions or through other parties for the sale.

We have not -- we have not seen that kind of thing before.

It is a February initiative for us to get that done.

We've also added some additional special assets capability there as well.

In Florida, we've hired really two strong -- two very strong high-end talent, special assets, folks to help us with that strategy, and again, that is a February initiative as well.

So hopefully at our next report, we can give you some good information on that.

Tony, I'll say it's been hard to move property in Atlanta.

We conducted -- it was not an absolute auction, but it was the wrong time of the year, and it might have been the wrong type of auction, but we had very, very limited interest in a number of lots and a couple of houses at that time, so.

That was last quarter?

That was in December.

And we tested the water, and I think we'll learn from that, but it didn't turn out in a very robust fashion to say the least.

Well, Mark, I will -- I'll circle back to you on that other question about the distribution of those loans by market.

Okay.

Thank you.

We'll take the next question from [James Allman].

Your line is live.

Thank you.

It seems that when we take a look at the provision expense that was taken for the fourth quarter, it seemed to be higher than what would have been expected from the release you put out in mid-December.

Could you comment on if anything changed and to what extent was the final provision expense you took for the quarter in an attempt to try to get ahead of problems in the even more conservative to the extent that you might be able to see the provision expense come down at some point in the first half of 2008?

Thank you.

I'm going to say a couple of things and then ask Tommy to fill in, but I think -- I think there was a modest increase over the level of guidance that we gave in our pre-announcement back in -- I guess that was December.

But the -- let's see.

I've forgotten the other part of your question.

I have one more.

I'll be glad to --

It's all right.

Go ahead, Tommy.

-- to offer my view on the guidance that we put out in mid-December.

We basically realized that, you know, we knew something that we needed to share with the market, and that was it our low-loss provision in the fourth quarter would not subside back to a normal level, and that it would be higher than normal times.

We looked for some sort of guiding tone without being too precise because we still had a couple of weeks to go, and a lot of scrubs to go, and so we chose to say that the fourth quarter provision would approximate the level of the third quarter.

The third quarter was 60 million in the final stages of closing out '07.

And being as aggressive as we can in looking, we found other issues that added that 10 million to it, but, you know, felt internally like we're still in the spirit of this closure of mid-December.

The thought that escaped me has to do with the notion of getting out ahead and being a little more conservative, and really, we have a pretty -- we have a very clear defined methodology that has to do with long grades and reserves, a lot of which Fred was talking about through his example.

So, there's limited ability in the accounting world today to go out and take charges that are deemed to be abnormally conservative.

We certainly are realistic and conservative in the way that we grade our loans, but all of our provisioning is tied to either actual charge offs or losses or migration into loan grades, either positive or negative.

Very good.

And could you quickly excellent on whether or not you've seen weakness in any other markets, any significant manner besides Atlanta and the west coast of Florida?

No.

No, we have not.

Any metrics on that, I think we've given them really.

So, what was it specifically about those two markets which are very different markets from each other that led to significant weakening that you have not seen elsewhere in contiguous geographies?

Here's my take on -- and I think we all share this.

In Florida, the problem is that there were certain markets in the West Coast, in the panhandle are those where in recent years, you had rapid increases in housing and condominium prices.

So there has been, just like in Nevada and California and some other markets around the country a severe correction as the bubble has burst in those markets.

The situation in Atlanta is not that.

Atlanta, you have not seen the rapid increase in housing prices, but there is a tendency in Atlanta for developers and builders to get out ahead of the growth since there is steady population and job growth.

So in Atlanta, we're dealing more with excess inventory levels that were exacerbated in the southern [crescent] by the subprime fallout.

Because that market in south Atlanta is more dependent upon first-time home buyers.

And since financing programs were limited as the subprime crisis unfolded, those inventory levels built up, and we had some problems with developers in that regard.

Very good.

Last quick question would be your comments you just made on Florida.

Would you believe that pertains to most of Florida or just to Tampa and northwest up to the panhandle?

Well, we don't compete all over Florida.

But certainly, as you go south and in parts of the East Coast, south, we don't have banks there.

There are even more greater problems in severity.

As you move up the East Coast where we do have banks over, in our case Jacksonville and Fernandina Beach, there's a lot more stability, and not nearly the problems that the West Coast and further south have experienced.

As you get into the interior, we have limited exposure in Orlando, but I think Orlando has had some weakness.

We're just not directly involved there.

Very good.

Thank you very much for the time.

Thank you.

Thank you very much.

We'll take the next question from Kevin St.

Pierre.

Your line is live.

Good afternoon, gentlemen.

Just two quick questions on capital and charge offs.

I'll touch charge offs first.

Richard, you mentioned that in '08 you expect charge offs could be somewhat higher than the 46 basis points.

Assuming that doubling wouldn't be considered somewhat, that would imply that sequentially charge offs should be down from the 91 basis points in the fourth quarter.

I was wondering if you could -- either you or Mark could give us some insight into what gives you confidence that the charge-off ratio will come down sequentially?

Well, first of all, I like the way you said it.

And I accept your interpretation of what I said.

And Mark Holladay and his team go at this from several different angles on a regular basis.

But the level of confidence that we have in a quantitative analysis and projection is not great enough for us to start putting specific numbers out there.

But based upon the fact that our credit issues, as we have said earlier are contained in the manner that we have described, we feel confident in the what higher level description of projected charge offs compared to the 46 basis points for last year.

As I say, we are -- and as I said earlier, we will continue to have a firmer grip on this as we gain some experience in the first half of the year.

And we do have these different approaches that are quantitative in nature, but the level of confidence is not that great in any one of them.

Okay.

And then, on the capital as you mentioned, you're dealing from one of the strongest capital positions among your peer group.

I was wondering if you could review what the prioritization of capital deployment will be.

We hear a lot of other banks saying that share repurchase is on hold for the first half of the year until capital ratios build.

I was wondering if you could give us what your plans for capital are.

We're in that category.

If you had asked me this question back in November, I would have said that -- in fact, did say that we were working on a share repurchase program that perhaps might be implemented in the first quarter.

But as the industry events unfolded, as capital has become king in our industry, we felt like having this capital on the balance sheet at this time was a great source of strength that we felt good about, and we wanted to use it to our advantage.

It gives us flexibility in the long term to do more than just have it there as this source of strength, and certainly our dividend payment is a consideration in that -- we right now, given the level of earnings reported for the full year '07 have a higher than desired payout ratio.

Of course, we certainly expect for our earnings to get back soon into more normal levels.

But for now, this excess capital helps us protect the dividend.

Thank you very much.

Thank you.

We'll take the next question from Rob Patten.

Your line is live.

Good morning, guys.

Or good afternoon.

Hi, Bob.

I just want to talk on the income statement, a couple of run rates for expenses.

The personnel expense number for the bank only looked like it dropped down.

I was just wondering if there's anything in there, any deferred cost to the 115 to 109.

And also I believe in the other non-interest.

We should be pulling out like about 13 or 14 million of the bank-only spin costs.

Bob, the personnel expense line -- and I guess you're looking at the fourth quarter back to the third quarter.

Yeah.

Page 6 of 10.

Okay.

You're really looking at $6.5 million reduction and [incentive], and also performance-based retirement benefits being lower in line with the finish of the year and the performance.

That's the primary item in the personnel line.

I said there's no catch up on that later on?

That was an '07 -- an adjustment intruing it up to based on our performance on what our formulas demanded.

Okay.

And you asked about the spin cost.

Yeah, the other non-interest expense that looks a little elevated.

I think we are going to pull out probably 14 million of the pre-tax bank portion of the cost to get to a run rate on the other --

The other non-interest expense is primarily repo and recovery expense, ORE-related costs.

The spend costs are shown in discontinued operations, shown in discontinued operations.

Okay.

Down below.

All right.

That's it.

So then, what is the normalized run rate for that 70.9 million?

How much was the ORE?

It was about $11 million increase.

Okay.

Over the normal rate.

Okay.

And, I guess, if I could ask Mark.

Mark, just for color, if you lose those Tampa and those Valparaiso, the three loans, the 17, the 14 and the 12.

Yeah.

And you gave us the charge-off amounts.

Can you just tell us what the loan originally was?

What it's secured by?

What it was charged down to?

Just to get an idea of what the collateral values that you have on the NPA portfolio are?

Yeah, we can do that.

The first one, the largest one, 16.8 million, was originally to purchase a land to build 9 buildings for condominium units on really a golf course community located in Pinellas County that the origination which I believe was in 2004.

We basically went into the property with a 50% pre-sold.

At the time, we did -- had a $12 million revolver for the buildings one and two, and then we had built out, three, four, and five.

And they represent 11.4 million.

There's 39 of those 90 units sold, 51 are unsold.

Also have loans for four of the pads that are built on, that represent $3 million of debt, and the land loan project has about, I believe, $4.1 million.

So, the three loans add up to that $18.5 million.

We wrote down 1.7 million against that loan based on, you know, the most up to date currently valuation of the property, lowered our loan down to 16.8 million.

The condos we have at a price of about $240,000 a unit.

We believe we can move these.

We have contracts on properties in those condos now that are in excess of that amount.

So, we feel pretty darn good about it.

I guess the other large one is development into a residential subdivision at Cape San Blas with something that we did around three years ago.

This is a customer who at the time had a lot of liquidity.

Certainly he has depleted his reserves and has the possibility of coming up with some more cash through his other company outside of real estate.

But there's some golf frontage.

In Saint Joe Bay frontage down there, we have -- had 59 lots.

Eight had been sold.

Again, the customer was out of money.

In addition, we have 15 acres in Atlanta with value -- commercial property with a current value of $2 million.

The two combined appraisals are [12.8] -- $3 million.

We charged off $2 million.

Let me make sure I got that number right.

$4 million on that credit.

And, you know, these are depressed prices right now.

We -- you know, we do believe that we've written them down to what we can get back out of them.

We do believe the prices will come back, but at this point in time, if we chose to sale this property, that's what we think we've got in it.

The last one is -- I guess the last big one was.

Thirty.

Seagrove -- I'm sorry.

A property at Seagrove.

This one is 8.93 million.

Originally, this was property on the beach that are purchased for $21 million.

We had a $6 million cash injection from the customer.

We made, I think, a $15.7 million loan at the time.

These customers who had been known to us had very strong liquidity in the $10 to $12 million range.

This property was intended to build a clubhouse for a subdivision -- adjacent subdivision as well as build 22 units, pretty upscale condo units.

The condo -- obviously, the condo market has receded, and the actual subdivision that was being developed, which we didn't do, had public -- a public company taking down the lines.

They walked from there.

They did substitute -- get substituted for another property, but we believe in today's value, we valued that property at 10 point -- $10 million roughly.

And we wrote down $6.5 million dollars.

Again, we had guarantors that were good.

But at this point in time, that's kind of what we got.

Well, thank you very much.

Appreciate the [color].

Thank you.

Also, Tony, I believe it was you that asked me the question about the concentrations in Tampa, Atlanta and the panhandle for residential A and D.

Okay.

I did want to answer that.

Atlanta, 32% of our 1 to 4 construction and residential development is in Atlanta.

Tampa Bay makes up 2.5% of the 1 to 4 in residential development, and the panhandle is about 5.5% of that.

Thank you, Mark.

Thank you very much.

We'll take the next question from Steven Alexopoulos.

Your line is live.

Hi, everyone.

Hi, Steve.

I just wanted to first follow up on Tommy's margin comments.

If you're saying the net interest margin could compress 6 or 7 basis points from the 75 basis point cut, that would imply that you have considerable room in the deposit pricing to reduce rate.

I'm curious.

Where's the flexibility coming from, though, given the environment for deposits today?

Steven, you're absolutely right.

We've got a portion of our loans that are swapped, and those get taken care of.

We've got an amount of variable rate funding that will help cover the gap.

And then, there is some serious heavy lifting on the pricing side out in our local markets to -- deposit prices are down.

We got to, you know, track record of being able to do that, and, you know, in addition to that, we've got, you know, the Federal Home Loan Bank advances that are at variable rates, and of course, you know, the fed funds accounts that reprice overnight.

But the biggest opportunity for a quick repricing is in the money market accounts, and -- but it's a tough environment.

You've got to push hard to do it.

But you're confident there's enough room in the pricing when you ended the quarter to pull that off.

Yeah, that's our belief.

There's also -- as Fred mentioned earlier, some good things that will come from this repricing that aren't totally built into our credit model, and one of those things -- one mentioned was the benefits that will come in our corporate analysis charges.

That's one of the hedges that doesn't show up in the margin, but it certainly is a positive that we've seen occur through previous cycles.

Just one other question.

Do you guys sell any non-performing loans during the quarter, or is the plan to just hold on to what you have and work the credits?

We didn't sell anything, although that is always on the list of possibilities, and Mark and his team and really these banks that represent the concentration of these credit weak -- credit weaknesses are looking at that as a possibility.

So we're usually pretty guarded on that, though, because there's a profit margin that hires certainly on the demand.

Okay.

Thanks, guys.

Thank you.

Thank you.

The next question is coming from Christopher Marinac.

Your line is live.

Thanks.

I want to ask a little bit about interest reserves as well as Atlanta and just get a sense of some of the changes this quarter on the charge offs related to getting rid of loans and head interest reserves and also just want some more color on Atlanta in terms of where you see that evolving through the next 36 months.

You know, Atlanta is -- and what we've seen there or the dynamics of the market are good.

The population, the income levels of Atlanta and just the characteristics of the market all would say that the valuations in houses there are not overpriced.

So that's one dynamic that really makes us feel good that we're not going to have severity of losses like we have in Florida, which the dynamics there tell you, you know, just the opposite.

The issues in Atlanta are lot inventory turnover because of sales.

Sales are down.

Lot inventory continues to climb.

The absorption period there is over 50 months now for lots.

You know, the housing absorption is running 10 or 11 months in Atlanta.

And until we see, you know, a rebound in sales, you know, that dynamic is going to remain the same, so your -- you know, your default rates are going to be higher there than they would be anywhere else, any other surrounding areas of the other states, and that's just a fact of life.

We do think that we've, you know, got our hands on who that is and who they are and what the risks are.

You know, we are migrating the loans that need to be migrated from a risk rate standpoint, and again looking at the proper execution on the turnover of those assets.

And then, Mark, on the interest reserve part, is that a driver of some of the charge offs this quarter?

I don't really think it's interest reserves.

You know, I think, you know, those reserves probably have been for, at least for our portfolio, probably have been depleted for, you know, sometime, because we're really not -- we're not bringing on a lot of new loans online in terms of the development of properties there.

Our construction loans, you know, the age of those is based on the absorption.

It has depleted reserves, and I don't really think that's it.

I think it's a function of the borrowers liquidity.

Our borrows, one of the tests we put on those borrowers up there was the ability to carry property for -- normally, it would be an 18-month period.

And they're struggling with liquidity, you know, where we can support those customers and we will, where we feel like we cannot, we won't, so.

Okay.

And then, the last question has to do with new loan demand on your pipelines.

Outside of construction, where would these pockets of restraints for the new loan pipeline that you see across the --

Yeah.

We feel like we'll get the growth in our -- in the income properties, the multifamily, office, hotel, in some resales in [fourth quarter], really a function of the change and the spreads in the CMBS market.

Number one, the duration of our portfolio is going to increase some, and then opportunities for acquisitions, things like that, which we used to do more of, went directly to the CMBS markets.

Yeah, the spreads have gone up to 250 to 350 over the comparable treasuries, and, you know, the underwriting has tightened which the interest-only loans are gone, and, you know, the cash flows are appropriate, and we think we'll have opportunities there, and that's showing up in our portfolio right now.

Also in the C&I sector, you know, the segments that are healthy, we've put a lot of focus on that.

We spent all year long making sure we had the right talent embedded in the banks.

We've given our bankers the tools that they told us they needed to be able to succeed in that area, and we feel pretty good that we can do well there as well.

And then -- you know, from a consumer standpoint, we'll continue to focus on our private banging customers and where appropriate, the other areas of retail.

Great, Mark.

Thank you for all the color.

I appreciate it.

Thanks, Chris.

Thank you.

We'll take the next question from [Ken Houston].

Your line is live.

Thanks a lot.

Just two quick followups on some prior questions.

You know, just taking your points about expecting higher charge offs but then looking at the fact that you really only built the reserve by about 11 million.

You're expecting higher NPAs and decent loan growth but your coverage of entails is only about one times.

Should we also expect that you'll have to continue overprovide by a decent amount too for the course of '08?

Let me -- I guess let me answer that.

If you look at the fourth quarter, our provision was -- you make up the provision expense at $70 million.

49 million of that was charge offs, 6 million was growth, another 9 million was the migration of risk in the portfolio which we embedded in the portfolio, and the [impairment] on loans was about $6 million.

That made up the $70 million.

You're seeing with Synovus, I think because we put in heavy allocations for concentrations and for credit trends in this residential sector really what you're seeing is our losses flow through the P&L rather than beefing up the provision, and I think that's what you'll continue to see.

I'm not -- unless we had, you know, some massive migration in the portfolio, I don't -- you know, I would not expect those provision expenses to be as heavy as of charge offs come down, say, in Florida where we've seen some changes in the portfolio, past dues, things like that.

This is Fred green.

I'll add a little color to that.

I mentioned in my remarks earlier how we reserved 22.7% of the base amount of the loan once it becomes substandard, even still accruing.

A review of all of our impaired loans, we had reserved on all of our impaired loans $58.5 million, and after we had impairment testing with currently appraisals, discounting to include selling costs, the charge offs related to those were only 38 million.

So I think that the issue is less reserves tied to NPAs, more of reserves tied to migration.

And once that migration stops going down or deteriorating is when we'll obviously have improvement in the amount of reserves we're taking.

Yeah.

One more issue is we impair every non-accrual over $1 million.

And that covers roughly 70% of our nonperforming assets.

So we've already -- you know, our practice has been the quarter goes on loan approval.

We immediately impair it.

We immediately update appraisals and take the charge off in that quarter.

So, you know, our coverage ratio I feel very good about, and the terms of the coverage, the NPAs, because 70% of those NPAs have already been addressed.

Great.

That's great color.

My second question relates to, you talked about, you know, how this quarter on an operating basis, you backed out the Visa charge covered the dividend around $0.21 and you mentioned over time.

You expect the payouts a kind of normalizing, and given that, this is again "new Synovus." I wondered if you could give us color on where you expect the payout ratio to normalize over time?

Where do you expect to be paying out?

Ken, this is Tommy.

I'll take a shot at that.

Obviously based on the '07 results and the stated run rate of the dividend, we've got, you know, a fairly high dividend payout ratio.

We've got to work through the credit cycle.

That's taken a very big bite out of earnings, and when you normalize things for that, it rationalizes the payout ratio, and it's our intention, you know, to watch this cycle through, to see it through, and, you know, get to some equilibrium there and then to plot our course from there.

Okay.

So you don't intend to be, like, within the peers or I mean, no commentary on generally expected range of payout that you expect over time?

Over longer period of time, we certainly have to be like our peers, but we have the capital and the staying power to see our way through that, and obviously, the depth and the duration of the credit cycle will determine the final answer there.

I'd say, at this point and out into the future, we -- with the excess capital, we could live with a 50% or even higher payout ratio for some period of time, but over time it's going to get back into the 45% range.

Mid 40s would be a reasonable target over time.

Over time, right.

That's not necessarily saying '08, you're over time.

That's correct, over time.

Plan to get on the earning side of moving.

Right.

I understand we shouldn't necessarily imply dividend growth but more so that earnings power growing into it over some whatever time out there in the future.

That's correct.

Okay.

Thanks a lot.

Thank you.

Thank you.

We'll take the next question from Rob Rutschow.

Your line is live.

Hi, good evening.

Hello, Rob.

If I can revisit Atlanta I guess for one more time, you gave symmetrics last quarter about month of inventory, I think 10 months of housing and 44 months of developed lot.

Is that still pretty close to those numbers?

Rob, it changed a little bit.

I just recently got there the data, and I'll look it up for you real quick.

In rough numbers, the south -- the north Atlantic market has three months supply on houses.

That increased from 9.3 months of supply in the third quarter of '06.

And then the portion of total inventory that is finished vacant increased to 6.7 months of supply during the fourth quarter of '07, and that's up from 4.4 months of supply, from this time last year.

So we have, you know, continued to see some increase in supply.

And the vacant develop lot inventory for north Atlanta is running 50.2 months.

I don't remember third quarter, but it was not that high.

And south Atlanta, single family inventory is at 9.7 months of supply.

That includes vacant, under construction, and that's up from 9.1 month supply in the fourth quarter of last year, and then the vacant developed lot inventory is at 66.2 there.

You know, job growth is really the key factor towards the recovery -- job growth in Atlanta is still good.

It's increased at a solid rate during the fourth quarter of '07.

You know, the labor figures show that Atlanta through December of '07, the rate of job growth was 52,600.

The economic forecasting center at Georgia state is still projecting that Atlanta will add 59,100 jobs in '08 and another 62,000 in '09.

You know, we'll get there with Atlanta, but we're going to have to work through some of that inventory that's out there before that happens.

Is the issue new builders putting up houses or are you getting an influx of foreclosures as well?

Atlanta is a twofold issue.

There has been developments still coming online in Atlanta.

Obviously with more absorption.

That's pushed up lots.

You know, I do think you look at future lot inventory, and I have those statistics for the third quarter.

I don't have them in for fourth quarter, but future lot inventory is projecting to move down.

So we can, you know, help you with that data as well once but get it in, which will be there the next, you know, hopefully the next week.

But we are expecting inventories forward coming down.

That's a function of new developments coming online and the other is just starts, and starts are down because sales are down.

Okay.

That's helpful.

If I can switch gears a little bit, can you give us any sort of guidance for the efficiency ratio going forward and how that might be impacted by a lower margin, and then also what your expectations for tax rate are for 2008?

I'm going to let Tommy tackle that.

I'll say just in looking at the efficiency ratio, it's starting to bounce around, given really the numerator side.

The revenue -- I mean, I guess that would be the denominator side.

And so it's gone up, and we -- therefore, my point is we're targeting year-over-year expense growth more right now than efficiency rates because of the volatility of that measure, but I'll let Tommy add to that.

I'll be glad to do that.

First of all, the tax rate question, just assume for 2008 just slightly over 35% combined tax rate, and that should get you there.

As far as efficiency ratio, it has slipped some due to the deterioration primarily on the revenue side, and we'd still like to target being back in the 50 range, and even getting it below that.

But obviously you have to press on both sides of the equation, get revenue back to a normalized level, and then work as hard as you can and use every tool you can on the expense side and there's our intention.

Can you share with us the target for expense?

That's still under construction, but it will be very low.

I'll be glad to share that with you.

Okay.

I think that's all my questions for now.

Thanks a lot.

Thank you.

Thank you very much.

The next question is coming from Adam Barkstrom.

Your line is live.

Hey, gentlemen.

Good afternoon.

Hey Mark, to make sure I understand it, did you say lot inventory in south Atlanta was 66.2 months?

Yes, I believe I did.

Okay.

All right.

Because I was thinking the overall Atlanta number was somewhere around 53, 54 months something like that.

Does it sound right on the blended basis?

Let me shake.

I'm pretty sure.

And then maybe while you're looking at that, you also mentioned that there was some data you were looking at that indicated you, anticipated future lot inventories to start coming down.

I was just curious if you could maybe give us -- this is the first I've heard of that at least in the near term, kind of what you're looking at to make that conclusion.

It's actually -- it's a function of starts, sales and residential developments coming online, and just to give you, you know, some of -- some of the areas are not coming down, but, you know, Carroll County, for instance, has a very high level of lot supply, one quarter to 85.3 months.

The future project lot inventory based on that data is 48.7 months, and I can't remember if that's 24 months out or 36 months out, but there is a time projection based on what's going on with the market developments coming online, those kind of things, so I think overall for Atlanta, I think that - if they can develop lot inventory for the fourth quarter is 55.3 months, north Atlanta is 50 months and south Atlanta is 56 months.

Okay.

Great.

And then if I could circle back, kind of in the middle of Q&A, Mark you were talking about three credits, specifically Florida credits, one 16.8, one 14, and one 12.

And I think later you said the charge offs associated with the credit, you went in some detail with the 16.8, and you said you charged off a million 7 but I thought I heard you charged off 6 million each on the other two, and obviously the magnitude of the charge off on those two versus the first are significantly different.

First of all, I want to know if I heard the right number, and then if I did could you sort of reconcile that a little bit for us?

Yeah, I think I can, and I may ask Kevin Howard in here, my chief underwriter, who's also familiar with these properties.

You know, the one loan we talked about -- let me see if I can find it.

Let me get back to my data.

Really a function of the appraised value at the time the property was made and the appraised value today on the property .

The one loan we talked about, I think, is I believe there was $6 million capital infusion in that property.

The original cost of that loan was roughly $21

Was that the $16 million credit you're talking about?

The balance on that credit right now is 8.9 million, so that's one we took.

We had a $15 million roughly, I think, balance and charged it down to 9 million, and that's based on a current hard, down and dirty look at the property today, less the selling cost.

Adam, it's Fred Green again.

The other difference between the one that has less charge off versus the two that had more was a property type.

The two that had the greater charge offs were land for future development.

And obviously at this point, there's less demand for that, less demand for development and therefore greater charge off.

The one that had the lower charge-off level was the -- it was associated with projects where there were actually units already completed.

So, again, all three of them were appraised at currently market values less selling cost, and there's just the difference between them.

Okay.

And then, I'm just curious if you could quantify this for me.

In your residential construction portfolio, how prevalent would you say personal guarantees are used?

Very.

How prevalently are they enforced?

Practically all.

You know, unless it's an ongoing revenue stream, an income property would have some kind of limited guarantee, but our practice is not -- and has been as long as I'm the Chief Credit Officer will continue to be.

Those loans will be guaranteed.

One of the issues for Atlanta and we talked about this before is it's a high -- it is more of a speculative market than some of our markets to be in there.

There are more builders than have done spec.

It typically runs 60% spec, 40% contract, and when you look at the other markets it's kind of reversed, and then they have gone out and leverage with some other backs, and created some liquidity issues for themselves.

And Adam, let me add to that, we will very aggressively pursue recovery opportunities through the guarantors that we do have on those loans that we've now seeing charge offs.

Just -- not to beat a dead horse, but just to flesh it out, do you guys go to the level that you have a developer, he's got a personal guarantee, and you're going to foreclose on his personal residence?

Yeah.

You work your way through the court system.

Ultimately you work through a judgment, and sometimes through judgment, there's forced asset sales.

But yes, we'll actively and aggressively pursue collection of, you know, charge offs in our credit area.

Got you.

Last question, I want to make sure I clarify one more thing with you, guys.

I thought I heard early on in the call someone asked about reserve levels, provision levels, charge-off levels, et cetera, and it sounded like you were going forward, that your currently reserve levels, given you don't see another huge migration to MBAs that you feel relatively comfortable where the reserve level is here?

Is it -- did I hear that correctly?

You did.

Got you.

All right.

Thank you, guys.

Thank you.

Thank you, ladies and gentlemen.

We have one final question.

A followup coming from Rob Patten.

Your line is live.

Guys, just a theoretical question.

You know, the last cycle, there was a gradual reserve plead over several years from the banks.

Obviously the FCC has taken a much different approach this time around.

If we come out of this cycle and sort of as you're viewing the second half sort of recovery or starts to get better, we can account -- we'll have a better improving economic cycle, so we won't be able to account for that in the reserve anymore.

We're going to have improving loan.

Are we going to have to let the reserve out over a much quicker, maybe a couple of quarters versus over several quarters?

Yeah.

Rob, this is Fred Green.

We adopted a formulaic reserve methodology that I mentioned and gave several examples of the high levels we're reserving as loans deteriorate.

If that seven loan that I mentioned, that substandard loan improves, right now we've got 22.7%.

That drops down to 6 with just 1 notch.

And so if we see the overall portfolio improving, there will be very rapid reductions in reserves.

It is a formulaic approach.

We can't use judgment.

We do have a 10% unallocated associated with it, but you're right.

There will be much more rapid reductions upon improvement of the portfolio and economy in general.

Okay.

And just another dumb question.

How are the banks marketing these properties?

I've talked to a number of banks, and you would think you'd just want to put a tab on your website and start listening to the properties up because you have a lot of them.

But how are you marketing them this time around?

Well, just first off, because, you know, our system -- we've got 37 separate charge, different communities and you know, those folks are running the bank.

You know, there's Mark, he said he have a better feel for what.

You know, what selling in these communities and how to sell and list them with.

We coordinate all of those activities with Mark and his staff to make sure that we are, you know, aggressively trying to liquidate those.

If current market values are not quite trying to recover everything, we may have lost.

We've got the beat up group working at home.

The charge-off loans for recoveries, the OREO, and all other NPAs, so it's a pretty intense program to work through and liquidate them at their current value, not to just foresee get through to them.

You know, take you to losses associated, but at the current values that we think they're, you know, we are seeing them at.

Okay, thanks.

Thank you, ladies and gentlemen.

There appeared to be no further questions.

Do you have any closing comments you'd like to finish with?

I just want to thank, everybody, for your questions and for participating in the predictively.

The questions were primarily about credit but i believe firmly that our team has an approach that will enable us to manage through this part of this cycle extremely well.

It's also important for most us in leadership, not let this credit weakness that we're working through become a destruction for our banks and their growth in business development efforts.

We're seeing to it through the way we organize responsibilities for that destruction will not occur.

We look forward to continuing to update investment community.

And thank you for joining us today.

Thank you very much, ladies and gentlemen.

This does conclude today's teleconference.

You may disconnect your phones at this time, and have a wonderful day.