Synovus Financial Corp (SNV) 2010 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, welcome to the Synovus First Quarter, 2010 earnings conference call.

(Operator Instructions) Now I would like to turn the floor over to your host, Pat Reynolds.

The floor is yours.

Thank you, Dave.

Thank all of you for joining in on the call today for the fourth quarter results.

You can review the slides and also access the press release on our website, www.synovus.com.

Today I will be followed by Richard Anthony, our CEO, who will give you an overview of the quarter and then Tommy Prescott, our CFO, will talk about the financials.

Kevin Howard our Chief Credit Officer, will talk about the credit metrics for the quarter, and then we will have a summary comment by Richard as a follow on.

Before we get started, I need to remind you that our comments may include forward-looking statements.

These statements are subject to risk and uncertainties, and the actual results could vary materially.

We list these factors that might cause results to differ materially in our press release and in the SEC filings, which are available on our website.

Further, we do not intend to update any forward-looking statements to reflect circumstances or events that occur after the date that the statements were made.

We disclaim any responsibility to do so.

During the call we will discuss non-GAAP financial measures in talking about the Company's performance and you can find a reconciliation of these measures to GAAP financial measures in the appendix of the presentation.

Finally, Synovus is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcript provided by third parties.

The only authorized webcasts are located on our website.

And now I'll turn it over to Richard.

Pat, thank you very much.

I want to express my appreciation to each of you for joining us on this call this afternoon.

I'm confident you have seen our press release in recent minutes that has outlined the results for the quarter.

I will share with you some of the highlights, as Pat indicated, then we will have the other participants and I'll conclude before we have our question and answer session.

You have noticed that we reported a net loss of $215 million.

We, on a per share basis, reported a loss of $0.47.

Now what I would have to say about that and the other information and metrics is that the theme that you will find throughout our message is that we continue to see and feel moderation in the trends and improvement in the trends that are driving us down this journey toward a return to profitability.

I will give you three examples of that.

In the credit area, you will notice that our nonperforming loan inflows moderated by some 20%, $531 million versus $660 million in the fourth quarter of 2009.

We had indicated an expectation that the inflows could remain at about the fourth quarter level.

So the improvement that we realized was better than perhaps it could have been, and I would say, better than we expected in the quarter.

Our chargeoff percentage while still elevated was better, a little over 5% compared to 5.58% in the fourth quarter of 2009 and our provision expense was down as well.

I really am confident that you know of our approach to managing the balance sheet and managing the Company but I will repeat what I have said in recent quarters and that is that we are determined to be proactive in recognizing our problems and acting on our problems.

We are aggressive in disposing of problem assets, and we are conservative and realistic in our values that we place on our nonperforming asset portfolio.

So this management approach converts into a discipline process that will serve us well in the long run as we do improve the condition of the Company and return to a position of good health over the next several quarters.

The writedowns that we have taken, the impairments on NPAs continues to be even more conservative than the prior quarter.

We have shown you -- and we will talk about this some more when credit is brought up by Kevin Howard -- that we are at 49% in our aggregate impairments on our unpaid principal balance in this NPA book that we have.

This is a better level, more conservative level than the 45% than we had at the end of the fourth quarter.

Conversely, this means that our carrying value on unpaid legal balance is at $0,51 on the $1.

Asset disposition has been very important for the past year.

We have been aggressive in moving troubled assets off the books.

Our target typically is in the $300 million range per quarter.

We knew that the first quarter seasonally would be a slower period.

We were really surprised with our success in the third month of the quarter in March, which brought the aggregate dispositions for the first quarter up to $271 million.

I expect that to improve over the next couple of quarters.

We will be in a seasonally more attractive and conducive period to making dispositions, but $271 million is a number that we would correlate with success in that measure.

On slide six, page six, we turn now to the core deposit mix.

It continues to improve.

You will note that our non-CD core deposit growth was 7.8% year-over-year, and 9.8% linked quarter annualized.

Our noninterest bearing deposits grew on a linked quarter basis by 17.5%.

We talked about the margin coming in to the quarter.

We had high expectations for an improvement.

We did achieve that.

We had guided toward a 15 basis point margin increase.

The actual improvement was 14 basis points right there in the ball park, a margin now of 339.

Some of this improvement -- actually quite a bit, was driven by a lower average liquidity balance during the period compared to the fourth quarter, but we also had improvement in deposit pricing in the time deposit area, and our loan yields continued to improve through better spreads and the continued introduction of floors on new and renewed loans.

Slide seven, indicates that we continue to concentrate on expense management.

Tommy will show you some of the numbers there as he gets into his portion of the presentation.

During the quarter we had a $70 million pretax gain from the sale of our merchant services business.

This was on a net of tax basis $43 million.

But it is another example of our capital management strategies as we have sold in recent times certain noncore assets.

I'm reminded of the $52 million gain from the Visa stock sale that took place in the previous quarter.

Those are the highlights that we thought were most worthy of comment.

We will get more into the details now as I turn to Tommy Prescott to talk about financial results.

Thank you, Richard, and I'm going to start on page -- on slide nine and walk you through some of the financial details.

Slide nine compares the first quarter income statement to the fourth quarter of last year and then the same quarter a year ago.

I will pick out a few highlights off of this slide that won't be covered elsewhere.

You can see, working down towards the bottom of the page, the net loss after the TARP impact of about $229 million, and you can see the improvement over the $282 million or $283 million a quarter ago.

Kind of working up the page a little bit, another item in here I wanted to point out is the number that Richard mentioned, the $43 million income from discontinued operations, and basically what you got there is a $70 million transaction that has about a $27 million tax applied to it.

And while we are in an approximately zero federal income tax rate because of deferred tax asset methodology, the discontinued operations accounting rules require you to isolate this transaction and record the statutory tax rate against it and then if you look up two lines on the income statement you will see what ultimately is some amortization of that tax expense in the form of a benefit in continuing operations.

The bulk of that $16 million is amortization of that isolated income tax expense that's in the discontinued operations line, along with a little bit of state income tax expense from a few jurisdictions.

But just wanted to point that out.

Then also looking up a couple of lines, you will see the trend in the provision expense with the $36 million decline from the fourth quarter of last year.

Slide 10 takes you in to the balance sheet, with a look at the trends of the loan book back to the first quarter of of 2009, we ended the quarter loans $24.4 billion, that's a $966 million decline during the quarter.

You will see that all the categories diminished some during the quarter.

About a third of that number is from charge offs.

The rest of it is really just what continues to be the lack of any sort of marketplace driven loan demand.

We continue to do the right thing on pricing, and we continue to be open to making loans that are appropriate.

But demand is very low right now, and I think we are seeing this across the footprint.

We don't believe that the $966 million is a run rate for 2010, but we do expect to see some significant decline over the remainder of the year until the demand begins to turn around late and moving into next year.

Slide 11 is a picture of the core deposit trends back to the first quarter of 2009.

Then side by side fourth quarter '09, along with the first quarter 2010, good story on core deposits.

We have got growth in the total core deposits of $144 million.

And of equal and maybe greater importance in growth in the categories that we are favoring being the transaction accounts, the lower cost, typically relationship related categories like money markets and BDA and NOW accounts with actual continued shrinkage in the higher priced CD book with $314 million decline in CD's.

In spite of us not being willing to reup at some of the higher rates that would be required to keep those, we were able to lower that portfolio some but increase the other more targeted categories enough to actually have net growth for the quarter.

We think we got a good story in the quarter on deposits.

Slide 12 shows the trends in loans back to the first quarter '09 against the trend in core deposits.

Really what is going on, the shrinkage in the loan book does have some benefits to it from a capital standpoint, and it also gives us opportunity to kind of selectively improve the quality and the mix of core deposits, and in the meantime, increase the funding of our loan book with core deposits up from 82% a year ago, to 92% currently.

Slide 13 is the net interest income trends and the net interest margin trend.

On the left you can see the trend in net interest income really reflecting two things going on with it.

The support that it got from, as Richard described, a 14-basis-point margin improvement, but a little bit of pressure compared to the fourth quarter because of the shorter quarter, the February phenomenon, along with shrinkage in the balance sheet having some impact there.

As Richard mentioned, we've done a good job on the core margin, a good job on loan pricing on a limited amount of new loans that we have and the renewed loans and also doing a good job in pushing the funding cost down to get this improvement in the margin, and of course the average balance -- the excess liquidity that we kept at the Federal Reserve Bank we left -- dropped some during the quarter.

We drove that number down some, about $0.5 billion, and that helped liberate the impact of this fundamental margin.

And you can see the margin on the right-hand side going from 325 a quarter ago to 339 for the fourth quarter.

We continue to have about a 38 basis point negative carry from the nonperforming assets.

Going forward, we will and have actually, later in the first quarter, and will carry into the second quarter a little bit of a higher balance in the excess liquidity as measured by cash at the Fed as we move in to the second quarter as we move through the charter conversion and what will ultimately be the exodus of the shared products that we have that will play out over a pretty extended period of time.

But we are cushioning the liquidity, assuming that we do have some runoff from that category and want to be well positioned for that.

So I guess going forward with the margin you got a little bit of upside with the core margin, a good bit of opportunity in the CD book has passed.

There is a little bit more left.

We continue to do a good job pricing all the deposits, the marketplace is allowing a little bit of easing on that.

We will continue to price the loan book at an appropriate level.

This excess liquidity will probably mostly offset that in the near term quarters, but at some point during the year we certainly got a chance of bringing that down and improving the -- seeing some improvement in the outer quarters later this year.

Slide 14 is a picture of the G&A expense trends.

Driven largely by the reduction that we've had in head count that's shown on the right-hand side of the slide over the periods that are listed.

You can see a couple of key takeaways here.

If you look at that first quarter, 2010 number, and G&A expenses and the foremen expenses, it's $7.5 million below the first quarter a year ago, so we are seeing the savings that are coming from that category, and then the other categories with the occupancy and other about flat, a little bit of up tick quarter over quarter and employment expenses really has to do with the quarterly impact -- the first quarter impact of front-end loading, the FICA taxes, and also we had a little bit of an uptick in the self-funded insurance cost.

And those really are the things that drove that uptick in the first quarter of this year.

Slide 15 is a picture of the pretax/precredit cost income trends.

$119 million reflects certainly a dip from the previous quarters.

It is actually on our planned trajectory.

It is a function of having the shorter quarter, having some shrinking balance sheet and also some seasonal trends and some of the fee income categories that are lower.

Going forward, we will certainly get the benefit of having longer more normal quarters that will help and provide upward support on that.

The margin over a little bit of time can help this number some.

The expense management initiatives will provide support for the pretax/precredit cost income.

We will have some pressure going forward depending on the level of the balance sheet shrinkage as we move forward and see how that unfolds.

The capital trends are depicted on slide 16.

You can see looking back to one year ago, the trends in capital and the capital ratios do meet the current standards for well capitalized.

And on slide 17 is really an outline of some things that we are undertaking to bolster the capital account, as described in our recent disclosure and certainly clarified even further in the earnings release this time.

We are exploring capital channels of all kinds, including potential capital market transactions, additional liability management initiatives like debt swap or modification, nondilutive alternatives, similar to the merchant transaction that we just undertook would be one example of that.

In addition to that, the TARP for trust preferred is another one that we are exploring.

And then we never forget the backstop that we have that will come back into our capital account at some point with the $550 million deferred tax asset valuation allowance.

Really, the things that we think about as we make decisions on capital has to do with feelings we have about the economy and how that impacts credit.

We keep an eye and an ear close with to regulators as the regulatory bar is certainly moving on capital in an upward direction.

Then also, we do keep consideration of finding of the deferred tax valuation allowance and when that recovery would occur.

So I am going to stop right there and turn it over to Kevin Howard for the (inaudible).

Thank you, Tommy.

If you will go to slide 19, we will take a look at our credit quality trends for the first quarter.

As you can see on the NPA graph, our NPAs were flat with a net increase of less than 1% in dollars of the 32 basis point increase in our NPA ratio, during the quarter.

28 points of that increase was due to our denominator loan balances shrinking during the quarter.

Our reserves increased $25 million to $3.97 billion during the quarter.

We do think we are near the peak on reserve levels and expect this to trend down beginning in the second half of the year.

Chargeoffs continue to decline, as we expected, to 5.05%, again, past dues stated check at 1.21%.

Go to slide 20, as mentioned already, our dispositions came in at $271 million, which is what we expected considering the seasonality of the first quarter.

We are confident that we will hit our $600 million stated disposition goal for the first half of the year.

As Richard mentioned, we sold most of our assets, $200 million of the $271 million, in March, giving us good momentum going into the second quarter We are also confident that the realization rate will improve in the quarters to come.

Our mix sold 44% residential, which was about half houses and half lots, 26% investment real estate, 22% land, and about 8% C&I.

Go to slide 21, again, very important slides to understand and once again demonstrates our continued effort to clean up the balance sheet.

Our cumulative writedowns on existing NPLs are now 29.3%.

And this, coupled with specific reserves for nonperforming loans, improved us up to 44.6%, as you can see on the chart.

This, along with our 61% ORE mark, represents the 49% that Richard was referring to that is either specifically reserved for or written down against NPA, and this improved from our last quarter total mark of 45%.

Slide 22.

This slide reconciles our NPA activity for the first quarter.

The key here is that our additions of NPL declined 20% during the quarter, marking the fourth straight quarter of improvements in the inflows.

We do expect to see a better number in the upgrade column as the year progresses.

And despite our sales volume decreasing some this quarter, our payment proceed number was actually a little bit higher than last quarter due to the fact that that $198 million number included more in-quarter pay downs versus last quarter in-quarter pay downs.

Slide 23, if you go to slide 23, shows our NPL inflows by geography.

We did see a significant improvement in the Georgia not including the Atlanta number as well as Atlanta itself in the inflow of problem loans.

These are trends we expected to see in Atlanta due to our declining balances in residential lending.

In other Georgia cities there are still some tough conditions.

We believe the worst is behind us, and we should continue to see positive trends here.

South Carolina, we have seen the NPL trend slightly positive for several quarters, but we do not expect significant improvement there until late in the year.

Florida was the only negative trend from a geographical perspective but still significantly down from the peak.

We do expect to see more positive trends results in the next few quarters there, especially since we are down to very few land developments left in that Florida portfolio.

The next slide, slide 24, looks at our inflows by property type.

Investment real estate inflows are about where we expected this quarter, similar to last quarter.

I will slip back and give you some color later on the next slide.

Continuing on with this slide.

Residential and land improved significantly and was 20% lower than last quarter if you add up all the residential and land columns.

Again, a big contributor is a smaller base and much less exposure in Atlanta and Florida.

We saw very positive improvement in C&I, with a 40% drop in inflows of nonperforming loans this quarter, another good sign that our C&I portfolio continues to stabilize and even improve.

Retail also showed improvement in NPL inflows.

If you'll go to slide 25.

It covers our investment commercial real estate.

I'm going to give you a deeper dive here.

Overall, the first quarter looks similar to the fourth quarter in investment real estate of an NPL inflow standpoint.

We expect the second quarter to be in line or slightly better than the first quarter as inflows are concerned.

Our charge-off number increased this quarter due to a fairly large credit, which came in new to NPLs within the quarter and was sold during the quarter at a deep discount.

This one credit was approximately 80% of the office and shopping center losses alone.

By category, take you through each category.

The multi family is still our strongest performer.

We had a small past-due number and basically no new nonperforming loan inflows or losses in that category for the quarter.

Hotel, we did see an increase here in inflows of $20 million.

This was primarily due to three properties one in Tennessee, Florida, and coastal Georgia.

Different properties in those areas.

Charge offs for the quarter in hotels were less than $2 million though, and our past-due dollars were primarily one $7 million loan, just about all of the -- we only had one past due, excuse me, that was about $7 million in the hotel category, and it was on the Florida panhandle.

The hotel portfolio is less than 3%, and nonperforming loans when you exclude one large credit.

In the office portfolio inflows were $34 million, up $7 million from last quarter.

Our NPL ratio remained flat, around 1.8%.

Charge offs were $17 million this quarter, as I mentioned most of that charge off was one credit that went to NPL and sold during the quarter.

Past dues were 1.9%.

Shopping center NPL inflows increased $2.5 million during the quarter up to $20 million, charge offs were $13 million, past dues were 2.6%, and NPL ratio was 2.5%.

Our commercial development portfolio, the run rate increased significantly to $60 million, versus $28 million last quarter.

As we stated in the past, this has been our most troubled portfolio in our investment commercial real estate book.

We are aggressively dealing with this category.

There is only $438 million left in performing loans here.

It's our smallest exposure in investment real estate.

I expect to see this number improve from a run rate standpoint over the next few quarters.

Mainly due to declining balances, and we feel we have identified most of the issues in that portfolio.

Charge offs were flat from last quarter, still at about $17 million.

Past dues were only 0.6 of 1%.

Last couple of categories, warehouses and other investment properties.

Those returned to improve numbers as we pointed out they would last quarter.

The warehouse run rate was less than $1 million versus $31 million last quarter.

And other investment property was $11 million in new inflows versus $30 million last quarter.

Other investment property did have -- in the other investment property category, we had $16 millions in charge offs.

Most of that was attributed to the one off marina I mentioned last quarter that went to nonperforming loan.

Finally, let me summarize investment real estate, how we view our investment real estate portfolio based on the results of the quarter and our quarterly review of a million and up credits which represents about 81% of the portfolio.

I believe our investment real estate portfolio will continue to feel some pressure, and inflows will hover around the 125 to 150 range for a couple of quarters and then begin to improve.

I continue to believe that our hotel office and shopping centers portfolios will have higher stress, but our other portfolios should continue to show overall sustainable performance.

We believe our credit losses in investment real estate should actually improve beginning in the second half of the year, as the assets we expect that could go to nonperforming are likely to be better assets, with cash flow attributed, and therefore, more marketable versus what we have experienced with the commercial development and some other weaker property types that did not hold up very long when the economy weakened.

If you will go to slide 26, the Residential C&D portfolio.

You've seen this slide before on our residential portfolio.

The diminishing exposure chart in the upper left corner is a major reason our nonperforming loans have decreased now a little over 20% from last quarter.

These three portfolios, by far, our worst performing are now 40% of what they once were.

Atlanta is still around 36% of these NPLs, within these three categories but now only represents about 17% of the remainder -- excuse me 18% of the remainder of this performing portfolio.

Slide 27, as mentioned already, our C&I portfolio continues to trend very well.

Past dues remain below 1%, charge offs decreased $22 million, from the fourth quarter, and our NPL inflows were down 41% versus last quarter.

Problems we have had in C&I are still mainly contributing to the construction-related and real estate-related C&I

The last credit slide, slide 28, this slide covers -- just a quick look at our consumer portfolio, which, again, is also holding up well.

Past dues and charge offs flat compared to last quarter.

Charge offs, excluding credit cards, were just 2.6% for the quarter.

Beacon scores still not showing any deterioration.

As we have stated before, this portfolio is 100% credit scored and almost exclusively in market lending.

That's what we've got on credit.

Richard, I will turn it back over to you.

Kevin, thank you for that.

On slide 30.

I would like to conclude with several points that give you our view of 2010 and the remaining three quarters in this year.

As we have said in recent months, we fully expect 2010 to reflect significant improvement over last year.

I believe that we are off to a good start in that regard.

I feel that the back half of the year will be even more dramatic as we compare our 2010 results to the prior period.

This will be driven by continued reductions in the NPL inflow category.

That's the most important indicator that we think we have in determining financial performance, and that will result in lower provision expense levels throughout the year.

As we see these credit improvements, we will be able to achieve a reduction in the loan loss reserve.

You've seen from Kevin's report that that reserve is just 3 basis points shy of 4%, and we worked hard in our practices last year to boost this reserve to proper levels.

The emphasis on expense management will continue.

We are fully aware that in an environment like this, with declining loan balances, that we must match up our expense levels, our infrastructure to the size of the Company.

We've done some good work in that regard over the past couple of years, project Optimus has helped us achieve much greater efficiencies, but there is more work to be done.

I will comment a little bit more on that in just a minute.

All of these assumptions, we think allow us an opportunity to return to profitability at some point during 2010.

A lot of things have to come together, but we are on the right track.

We are heading in the right direction on this path to profitability.

I want to conclude by mentioning our Charter Consolidation Project.

This is anticipated to take place on the last day of May, the Memorial Day weekend.

We have several teams working inside the Company to achieve this objective.

I have to compliment our entire leadership group and team members for embracing the need for this move to a single charter.

It will undoubtedly make our capital management practices much more successful and efficient without having to deal with 30 different entities that are regulated from a capital standpoint.

We will also have further opportunities for expense reductions.

And I want to point out as you might know that Kessel Stelling, our President and Chief Operating Officer, is really supervising and overseeing a lot of this work.

He is very much involved and engaged in the process.

Our bank leadership team, obviously, has a tremendous vested interest in the way the Company is managed going forward compared to the past.

We have every reason to believe that we can make this seamless for our customers and achieve, I think, successful outcomes for every constituency in the Company.

All of this, we believe, will enable Synovus to emerge stronger as a Company thatn we have ever been, as we come out of this very difficult and challenging credit cycle.

I will conclude with those statements.

We would like to now open the call for any questions that come from the audience.

Thank you very much, ladies and gentlemen.

The floor is now open for questions.

(Operator Instructions) We will take our first question from Nancy Bush with NAB Research.

Hey, guys how are you?

I think the major question kind of hanging over everybody at this point is, okay, could you just walk us down the path from $0.47 loss, to profitability this year.

Obviously credit costs are a huge part of that, but they can't be the only part of that.

So if you and Tommy could sort of tell us what has to come together to get you to profitability I would appreciate it.

Does that include an end to shrinkage?

What are we looking at for net interest margin, et cetera?

Okay.

Obviously you have touched on several of the key drivers, and I'm looking at Tommy, giving him a chance to think through his answer here, Nancy.

But certainly the credit costs are going to be the biggest driver.

And the success we need to have on expenses is key.

The margin lift that we saw in the first quarter can't really be duplicated but we can stabilize and perhaps improve the margin some out over the next few quarters.

The shrinking balance sheet is a factor.

You've seen in our deck here our pretax precredit cost net income recent history.

So I'm going to say one thing before I turn it over to Tommy.

We have been talking a lot inside the Company about playing offense, really going after this primary target customer less that we have in every market that would be the small to medium size businesses.

This is going to be the top strategic priority, and in order to begin to offset some of the balance sheet declines and loan portfolio declines, we need to be successful in generating new customer relationships.

Tommy can take those concepts and translate them into some numbers, but I will call on him to answer your questions.

Nancy, we've looked back and reminded our self that you can make money, and it's been a while, and we are interested in getting back there quickly.

But it's all about credit really.

When you really look at our credit costs numbers, there, I think for all of 2009, they were at a 22 or 23 times a normal rate, and now you are looking at even quarterly numbers now that are maybe four or five times what a year would have been at more normal time.

So it's all about credit and the way we define the key things that have to happen on credit is the fresh problems have to diminish.

That comes in a couple of forms.

One is the NPL run rate has to diminish, and it has to diminish as we modeled it.

Also, the migration below or the grades that are better than nonperforming loans, that migration has to subside, and at some point there needs to be some turn in that to where you have some actual as we seen some signs of some upgrades and so forth along the way.

Those are the key credit leading indicators that have to happen.

As that happens, it will be-- the phenomena will occur, where you will have some loan loss reserve draw down.

That is a function of the model, a function of the way the formulate loan loss reserve methodology works.

We know that it can't be a freefall.

We know it can't get back to a historical level of a loan loss reserve level any time soon, but directionally it can and should go down as credit improves, and that is a key factor in returning to profitability at some point during 2010.

Otherwise, outside of credit, we know we got to be hitting on all cylinders on pretax precredit cost income.

We got to get all the help we can by pushing the net interest income as hard as we can.

We got to manage the margin properly.

We got to overcome the fact that the balance sheet will shrink some, and while that short-term positive to capital, it does make the profitability journey a little more difficult .Then we got to embrace the idea that our balance sheet is a good bit smaller than it was a year ago, and it's going to be smaller a couple of quarters from now than it is right now.

And through the expense initiatives that Richard mentioned, we have got to embrace and act on that as we have been doing and/or even doing at a greater fashion.

So those are the steps to get there at the end of the day the thing that will be the most transparent will be when you combine the provision expense, and the OR- related cost that's where the big moves got to come, and that's what we expect to happen with the assumptions that we laid out.

The last conference presentation that you guys gave, and I forget which conference there was, there were so many of them right together, you seemed very adamant about seeing a turn in credit in the second quarter.

Have you changed your thinking on that at all?

Nancy, I don't think our views on credit are any different today than they were three or four months ago.

I think the moderating trends that occurred in the first quarter were reassuring to us.

We said coming in to the year that the first half of the year was going to be more difficult than the second half of the year.

I believe, without a doubt, we have gotten better, much better than we were a year ago at assessing the future.

Now it's still difficult out there, and I wouldn't describe the environment as having dramatically improved.

I think we have seen stabilization in real estate.

And as Kevin indicated, a lot of the improvement that we are getting is coming through the finite nature of the most troubled areas.

That would be residential, construction and development, and land acquisition loans.

Kevin pointed out that those exposures are down dramatically from where they were a year or a year and a half ago.

So, yes, I would stand by our opinion on credit.

But there still is work to be done.

We do need some help with the economy.

That will have a difference.

Unemployment is still high, particularly in the five states in which we compete for business.

But I would say, in general, the portfolio outside of those troubled areas that I mentioned are holding up.

There has been some deterioration.

They are not really getting worse.

I think they are stabilizing.

As Kevin said, we can see this the second half of the year just looking at the risk grades, the migration, the big loan analysis, we can definitely see a path towards improvement.

All right.

One final question.

Your stock is down about 9% in the after market was down as much as 10%.

And the headline is "Synovus posts wider Q1 loss, seeks more capital." This is a Reuter's story.

The capital commentary that you gave, is that any different than the capital commentary you have been giving for the past few months?

Is there something different here?

Is there a different message about capital?

I think anybody out there and everybody on the call is in this category knows of the value and the importance of capital.

And what we have been saying all year is that we are looking at every possible and realistic option there to ensure that we have not just adequate capital but a strong capital position when we come out of this cycle.

I'd like to say this about the Synovus position in the world of mid-sized regional banking.

There aren't too many banks, I think there are 19 banks that are US owned that are in excess of $20 billion, and we are one of those.

I think we ranked maybe number 17.

We are in a region in this country that long term is going to be as good a region for economic activity and financial services providers as any in the country.

For us to capitalize on this position and all of the strategic options, including those coming from consolidation, that are available to us, we need to have a strong capital position when we come out of this cycle.

Now we have got some unique advantages that don't show up.

We do have this $550 million deferred tax asset allowance that eventually will flow back into capital.

You can't count it today.

But it's there for consideration.

Having said all of that, no, my answer that I'm giving right now is the same one I've been giving for the past several months.

It is totally incumbent on us to evaluate all possibilities and to pick the ones from a capital enhancement standpoint that fit us the best, knowing, as Tommy pointed out, that the regulatory bar is high.

Sometimes you don't know exactly what it is.

But there are demands for capital, and we fully expect to meet those.

All right.

Thank you.

Thank you.

Thank you.

We will take our next question from Ken Usdin with Bank of America /Merrill Lynch.

Thanks.

Just one more point on the capital.

I know with the bar always moving, I guess the biggest question is where do you think the company needs to live on capital, and how will we get an understanding of how hard that bar is relative to where you do stand today.

Well, it's difficult, Ken, for us to give all the particulars as we -- I mean this is a dynamic process, and we would just say that we are taking it very seriously.

We are looking at all the options.

We are establishing internal triggers where appropriate.

But when there is more specificity that we need to provide, we will.

But just rest assured it's a high priority for us.

My second question, it is regarding your point about credit improving through the year.

You are likely getting to the point of releasing reserves.

You mentioned the point that the reserves now gotten close to 4 -- of loans and obviously charge offs are going to come well down off of the 5% you came through.

As charge off continues to shrink down, do you have any understanding of where you believe the reserves should live in terms of the magnitude of reserve at least you might get towards overtime and kind of a comfortable either ratio or semblance of comfort zone on reserves where you think the Company should live post cycle?

Thanks.

Ken, I know as an a person outside the Company you construct your own models, but we do have a very structured and disciplined process that ties pretty much to the risk grades in our portfolio.

It's a formulate process.

We have talked about it before.

We do adjust the reserve percentages for each risk grade based upon experience over time.

So there will be some constraints on what we are able to do because the final reserve percentages will, in large part, get back to the migration that occurs within these risk grades.

There might be a little flexibility as we change our outlook on dispositions.

We did, in the second quarter of last year, create a reserve for future asset sales.

That is sort of a different treatment there.

There might be -- there is some unallocated portion to the reserve.

But until we know what the reserve -- I mean what the risk grade movements are going to be, we can't make a final declaration.

Now having said all that, just I think what you might be asking for, is 2% going to be a new floor?

I don't know.

We are not going to see regional banks go back to 1%, I would not think, in the foreseeable future.

Maybe not even the 1.5%.

But we can certainly come off of that 4% where we are today at the right time.

Great, thanks.

That should be in the second half of the year.

Right.

So getting to profitability is going to be more so about charge offs coming down than it is about reserves being released.

Is that a fair statement?

Well.

It is both, really.

Okay.

Thanks very much.

Thank you.

Thank you we will take the next question from Steven Alexopoulos with JPMorgan.

Your line is left.

Good afternoon, everyone.

Richard are you able to share with us a range for the amount of capital you're ultimately looking to raise through the various scenarios?

Tommy, I don't think we put public information out there on that.

Yes, I mean, we got multiple strategies but we have not released any information of that nature.

In terms of timing, what you reported this quarter, could capital levels drift lower, or is all this going to happen in the second quarter in terms of what you are looking to do?

I think on going, we wouldn't be limited to any one event or any one single period of time.

But we had not declared on the timing.

We do have some flexibility to work towards the recapture of the DTA and other considerations.

So we are not being specific, just letting you know that the work is active.

Okay.

And I wanted to take a minute and actually follow up on Nancy's first question.

Just looking at some of numbers, if you hold everything else equal, it seems provision would need to drop to less than $70 million or so per quarter to get to break even.

From $340 million this quarter, you are pretty confident you could be down to $70 million or less.

I don't think that number syncs up with ours.

But, Tommy, tackle that, would you.

We can't be too specific.

But what you are really comparing against is the pretax precredit cost number.

You have to be south of that number with the provision on ORE cost.

That number was $119 million in the first quarter just for illustrated example

It's been higher and should be higher than that going forward.

That's correct.

Right.

Even if you went with $119 million, I guess that would imply $240 million or so of inflows.

So it seems to get to profitability you would need inflows to get cut in half from where they are again in a pretty short time frame; right?

Not going to confirm the actual numbers, but directionally, the NPL run rate has to continue to improve.

It doesn't have to be pure to go away, but it has to diminish significantly from where we are right now.

Okay, thanks guys.

Thank you.

We will take the next question from Christopher Marinac with SIG Partners.

Thanks.

Good afternoon.

I wanted to talk about what Kevin was describing about the the large NPL that came in and went during the quarter and was sold at a deep discount.

To what extent was that simply opportunistic scenario, or was that something that was a surprise that was not on a classified list before?

I'm going to start by saying it was not a surprise.

It was an opportunistic sale.

Okay.

Then I guess either Richard or Kevin, to the extent that you can just generally talk about this, are you seeing classified levels kind of at the same level you had been?

Are they coming down at all?

Does that give us comfort about the direction of inflows changing prior to other questions?

They have not come down.

They have still remained elevated and up somewhat in the first quarter.

Okay.

Very good.

Should we expect --

I will say this though.

This work that Kevin made reference to on the CRE book, the investment properties has been a great exercise.

We have had resources dedicated to that for quite sometime, but we have intensified the analysis down into each of those major sectors.

And I would say that the conclusions have been somewhat reassuring, but they have pointed out, in some cases, an opportunity to grade differently.

I don't think we have had any bad negative surprises, but we probably been tough on ourselves here in this environment.

So we did have some downgrades that came from that bit of work that we have been doing here recently.

Rich, just a final point.

The 49% mark that you talked about earlier, should that naturally climb slightly higher in future quarters, or would there be a reason that would stabilize?

What do you guys think?

We are close to stabilization on that number at this point.

It really is pretty close to -- I know our realization rate, as we call it, was down a little in the first quarter, as I think was to be expected.

I believe that it will go up.

We should be down at this $0.51 on the dollar carrying value.

We should be at about a level that matches the realization that we get going forward on the sale of NPA.

That tells me that we in about the right place.

That is a key driver in the provision cost, and we can get that number matched up as one of the reasons we feel our credit cost will move in the right direction.

Chris this is Kessel.

I want to add to your question about, was that credit ate surprise, and Richard said, "No, it wasn't a surprise." And I think that speaks to why we believe our NPL inflows will continue to come down, because we are just not seeing the surprises that we did in our banks, and our bankers are getting better at predicting at the loan level basis where our problems might be.

As Richard and Kevin both spoke to, we were significantly 20% better than we had projected or given guidance to in the first quarter.

And again, our banks and bankers are just getting better and the higher risk pool is getting smaller so that we don't get as many surprises today.

I think, again, that gives us confidence that our NPL inflows are trending in the direction that we had projected.

Great.

Thank you for the color, guys, I appreciate it.

Thanks, Chris.

Thank you very much.

We will take our next question from Erika Penala with UBS.

Good afternoon everybody.

I guess everybody on this call is aware that you have been looking to bolster your capital ratios for some time.

Have there been renewed conversations with the regulators that caused you to point out this quarter and put in the press release?

I would say we have very consistent communications with the regulators.

And we started, I would say, in early December, making sure that we reached out to them to keep them totally informed of not just capital planning strategies but financial results, management changes, everything about our company.

In this banking world today that line of communication going both ways serves you well.

So I would say that we have been in good and sort of healthy regular contact with them for several months now.

Okay.

And I just wanted to clarify something that was said during the prepared remarks.

When you mentioned that the charter consolidation could cause an exodus of shared products, what did you mean?

Did I --

This is Tommy.

Basically the shared product was the result of having 30 charters and the level you can get off of that times $250,000 gets you to $7.5 million insurance coverage.

That offering will go away when the charters are consolidated, but the product or the dollars don't necessarily go away for a variety of reasons.

The majority of those the deposits are CDs that have maturities and will stairstep maturity into the future.

They don't go away just a minute that charter consolidation happens.

In addition to that there is a grace period or an opportunity six months after the charter conversion to have a renewal during that time period.

So the situation has a lot of, I guess, forgiveness to it and structure by allowing these rolls to happen in maturities, and plus we are in close contact with these customers, many of them really good core customers.

And we believe that some of the money will ultimately, even for the long haul, stay in our Company even without the additional insurance coverage at some point.

So really this is not an event that happens all at once.

It is an event that happens really over the next year or two in terms of the maturities rolling off.

You will have some front-end impact of the money market portion of this.

But we are well positioned for that, and we will manage through that nicely.

In terms of you mentioned that cutting continuing to cut operating costs is in your radar screen.

Could you give us a sense on what your bogie is in terms of a quarterly run rate X OREO?

Erika, when Project Optimos was implemented, we went through -- it was an idea driven process rather than dollar driven process but it was before really our balance sheet shrank 15% and headed to even greater shrinkage.

So we have fresh incentive to take a fresh look.

Again, we are not going out with a exact dollar bogie and nor do we think we could shrink the expense base or smart or prudent for the long haul to try to shrink the amount of the balance sheet shrinkage.

But we know we need to take action.

We are in the planning process on that.

We will be pushing hard really on every expense channel that there is to moderate expense base and move it down to charter consolidation.

While that is really not the key driver of the charter consolidation, it does present some natural opportunities as we merged.

Gone from 41 charters to 30 charters, we've seen savings that appear from that each time we merge a charters.

So that is one of the channels that will naturally occur and then will work hard to make the other ones occur also.

Okay.

Thanks for your time.

Thank you.

Thank you.

We will take our next question come Jennifer Demba with SunTrust.

Your line is live.

Thank you.

I have two questions.

Number one, I'm wondering if you have any update on the situation with Sea Island, the Sea Island loan; and secondly, I'm wondering if there is any capital level and tangible capital level you are uncomfortable going below at this point.

Jennifer ,on Sea Island, I would just say that as Sea Island Company has indicated, there is a process involving an investment banker, an active marketing or capital enhancement process underway, and a lot of that work is being done between the Sea Island board and the investment banker.

We get updates, but it's active and moving.

But I don't think there is anything publicly to report there.

We have not, Tommy, released any of our internal capital policies.

The numbers speak for themselves.

The factors are out there that work in our favor or that might even work against us.

We don't have anything specific there to say on your second question.

Thank you.

Thank you.

We will take our next question from [Ken Serbe] with Morgan Stanley.

Great, thanks.

Just in terms of potential capital raised, I guess I was left to understand your thought process a little bit more.

You raised capital awhile back at roughly $4 a share.

Your stock had a phenomenal run.

It is approaching the $4 level.

What's holding you back from raising capital again?

It seems you have a very good opportunity, or you did before the earnings release, to raise capital sort of at a fairly high level.

What's stopping you from doing that?

I guess, Ken, we are like anybody else, there are certainly shareholder considerations and timing considerations and what we do with the proceeds and what views we have of where we are headed in this regulatory environment.

So we just have to pull all of that together.

We can't just open the tent and let everybody see what we are doing.

We are just actively and prudently studying every feasible option, as we should be.

Understood.

I guess in the way you are modeling out provisions and I guess the opportunity to be profitable and clear in 2010, is it your base case assumption that as you continue to work through your credit issues over the course of the year that your stock price actually might be higher than where it is now?

Is that just part of your consideration?

I know another companies -- for example, they've chosen than route to issue capital at higher levels.

I'm curious if that's the way you're thinking about capital ratio or if that's part of your process.

Timing is always important in any financing decision that you make.

And, clearly, in our industry today, the further down this path towards resolution and sort of removing the cloud of uncertainty about inflows and credit quality works in your favor, because uncertainty is the biggest challenge to having a healthy stock price.

So without a doubt the further progress we make through the cycle, as we leave the 7th inning and get in to 8th inning, you are going to see I'm confident more confidence in the company its capital position and its future.

So timing does play a role.

All right.

Well good luck, and thank you for the time.

Thank you.

Thank you.

We will take our next question from Dave Bishop with Stifel Nicolaus.

Good evening gentlemen.

In terms of the restructured loan balances there, as you have sort of worked your way through that process there, and I know it is still early in terms of that process there, but what was seeing in terms of redefault rate relative to expectation?

TDR -- we haven't had a big increase in our TDRs during the quarter.

We were $213.

I think, at the end of December, and $260 at the end of March.

It will be something that, as we look continue to look deep in to the investment real estate some of the weaker credits there during our study of the million and over, we may need to restructure some of those debts.

You may see some increase in the next couple of quarters in TDRs.

We will certainly work with our customers on terms and classify them that way.

So we will approach that.

Great.

In terms of the share deposit product there, I came in late.

Have you seen much run off in terms of that yet, or I caught the latter half where it sounds like most of these are structured in time deposit.

Are there sort of targeted expectations in terms of targeted attrition there?

There has not been run off in that category.

We actually would prefer for it to not grow right now, as it will go away at some point over the next year or two in terms of the balances, but no run off.

Great, thank you.

Thank you.

Thank you.

We will take our next question from Christian Koch with Koch Asset Management.

This question is for Richard.

Are there any potential risks or issues in your mind in terms of the charter conversion, at least that you thought through?

The first analysis that we did, Chris, and we showed it to the regulators first because we knew that they essentially had to bless this idea, which they did, had a list of all the benefits and potential risks.

The shared product question came up and we think we have mitigated it in our planning and in our projections.

The operational conversion risk ultimately is there, and that has been mitigated by a decision to initially retain our individual bank numbers with our processor and move out perhaps 12 months before we consolidate everything from an operational standpoint.

There has been a risk in the company just tied to the length of time and the way that we have used this decentralized multiple bank charter model in acquiring banks and keeping our team members and leadership groups energized.

We covered that with a very extensive communication plan that really took each group a step at the time, allowed them to participate in implementation recommendations and just being aware of the work going on before the final decision to consolidate was made.

So there were a few factors like that.

But there clearly have been far more benefits that emerged than risks, and we are confident we mitigated the risks that are out there.

Great, thank you.

Thank you.

Thank you very much ladies and gentlemen.

The last question in queue we have today will be coming from Jefferson Harralson with KBW.

Your line is live.

Thanks I was going to ask one more capital question.

You talked a few times about the DTA, the size of the DTA and return of DTA has an impact on possibly the timing and definitely the size of your capital raised.

From the outside looking in, it seems as if the DTA comes back too slowly to have a meaningful impact to affect the size of the raise that's probably coming in the next quarter or two.

But am I wrong on that, and how does the impact, how does your thinking on the DTA affect the size of your raise that could be coming?

It does get phased in, Jefferson, from a regulatory standpoint.

You are right about that.

But it certainly is always going to be a consideration that works in our favor.

You have to just use your own judgment on what any particular group would attach in value to that.

But we always like to talk about it, because one of these days it's going be back on the books.

But you are right, it doesn't come back all at once.

Okay.

Thanks, guys.

Thank you.

That was our last question for today.

I'll now turn the floor back to you for closing comments.

Thanks again to everybody for your interest in Synovus.

We feel like we have been able to get our message out to you today.

Thanks for taking the time to listen.

But we continue to believe that these trends that are improving will continue on that path.

We feel that long term, this Company has some very significant advantages and a positioning in the marketplace that will help us stand out here in the southeast as a leader in regional banking.

And we are determined through the engagement of our team and other strategic efforts to capitalize on these attributes that we have.

So stay tuned and we will continue to communicate.

Thank you very much, ladies and gentlemen.

This concludes today's presentation.

You may disconnect your lines and have a wonderful day.