Synovus Financial Corp (SNV) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Synovus second quarter 2010 earnings conference call.

(Operator Instructions)

It is now my pleasure to turn the floor over to your host, Pat Reynolds.

Sir, the floor is yours.

Thank you, Dave.

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

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

Today I'll be followed by Kessel Stelling, our President, Chief Operating Officer and Acting 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 we'll have summary comments by Kessel as a follow-on.

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

These statements are subject to risks 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 our SEC filings, which are available on our websites.

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.

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 earnings teleconference transcript provided by third party.

The only authorized webcast are located on our website.

And now I'll turn it over to Kessel.

Thank you, Pat, and good afternoon to everyone.

I want to begin today's call with something that I know is on all of your mind and that is an update on our Chairman and CEO, Richard Anthony.

I have good news to report.

Richard has returned home to Columbus last week where he is continuing his recovery.

His prognosis is excellent.

His spirits are very high .

We have been in regular contact with Richard.

He has provided ongoing counseling, mentoring, encouragement to me throughout the last couple of weeks, including last night.

I'm hoping that Richard is on the call today.

If he is, Richard, hello and we're glad you're on the call and I'm sure later tonight I'll have a chance to get some gentle critique from Richard, as well.

And Richard we missed you and we're glad you're doing so much better.

Let me talk about some of the highlights for the second quarter and then Tommy and Kevin will go into a little deeper dive.

I think I have to begin with, again, a statement about our capital raise.

I know everyone on this call is probably very familiar with it, but we did in early May 2010 complete a $1.1 billion capital raise which we believe was just truly a transformational event for our Company.

The effect on our capital ratios is obvious.

We'll talk about that later.

But the intangible of that shot of confidence to our banks, our bankers, all of our team members, customers and shareholders about the strength of Synovus was just, again, a transformational event for our Company and one that we're very proud of and proud and thankful for the response that we received from the investment community.

The second big event -- and it was a big event -- was the development of our thirty bank charters.

As you know, we consolidated twenty-eight of our banks into one charter on Memorial Day weekend followed by the consolidation of our Tennessee banks on June 28, 2010.

As we had stated, if the success of that consolidation would be measured by impact on customers, it would be a tremendous success, and indeed it was.

It was accomplished on time, on schedule, without any disruption to our customers.

And, in fact, allows our bankers to go back to the business of taking care of customers instead of dealing with some of the other issues they were facing.

And I want to really thank all of our bank leaders, especially our local bank division CEOs who led us through this consolidation, and, again, made it a non-event for our customers.

Now, let me talk briefly about our financial performance.

We did report today a loss from continuing operations of $229 million.

This represented a 12% improvement from the first quarter of 2010.

As you know, the first quarter 2010 included a $43 million after tax gain from the sale of our merchant portfolio.

The loss represented a per common share loss of $0.36 per share on average shares outstanding of 677 million shares.

Again, Tommy will go over detail there on loss and share count in his presentation.

Our pre-tax pre-credit cost income was $119 million.

That was stable compared to the first quarter of 2010.

And we're very pleased with that given the reduction in our balance sheet and the overall pressures on our industry.

So, again, we look for growth in that number in the future.

But, pleased that it did remain stable in the first quarter.

I want to talk particularly about the improvements in our credit trends as you all know that is the driver of our financial performance right now.

And we had projected some improvement in the second quarter.

We were very pleased with the trends that we disclosed in our release today and that you have in front of you.

And I want to walk through a few of those highlights.

Number one, our non-performing loan inflows, which we believe are the number one predictor of future credit cost they dropped significantly from $530 million in the first quarter of 2010 to $340 million in the second quarter.

This is a decrease of 36% and down 64% from the first quarter '09 peak.

And to remind you, the $530 million in the first quarter represented about a 20% decline from the fourth quarter of '09.

So very pleased by the significant drop in non-performing loan inflows.

This represents the fifth consecutive quarter of decline in that category.

Another pleasing number to us is that our total MPAs declined 15% to $1.57 billion from the first quarter of 2010.

That number is high.

We acknowledge it.

We are going to continue to work that down.

But pleased that it did decline by 15%.

Our overall NPA ratio dropped to 6.7% from 7.5% in the first quarter.

As you know the levels of NPAs ratios are all impacted by lower inflows, asset dispositions and charge-offs and, again, Kevin Howard will get into that presentation later in the afternoon.

Our past dues, total past dues were 1.06% down 15 basis points from the first quarter.

A little commentary about our margin and Tommy will get into that more.

The margin was 3.34%, down five basis points from the first quarter of 2010.

The margin was under extreme pressure from the effect of the excess liquidity.

The capital is good.

Parking (inaudible) doesn't do a lot for your margin, but that reduction in margin was offset by a decline in our credit cost and continued improvement in our loan yields and the declines in our core funding costs.

Our bankers continue doing an excellent job both in the pricing of loans, the establishment of loan floors and the pricing of our core deposits.

And, again, my complements to all of their team members to their efforts which is truly reflected in the number.

And finally, before we go to Tommy's presentation, I just want to restate the capital ratios that are obvious to you but clearly now a strength of our Company following this capital raise in the first quarter.

Our tier one capital ration increased to 13.33% from 9.68% in the first quarter.

Our tangible common equity to tangible ratio increased to 7.58% from 5.08% in the first quarter.

And finally our tier one common equity ratio increased to 9.51% from 6.03% in the first quarter.

Again, the capital raise was a transformational event for our Company, the charter consolidation wen toff without a hitch, and now it's time for us to focus on the efficiency of our Company and returning the Company to a position of growth in our balance sheet, reducing the shrinkage and I'll talk about that a little more in the close.

But before I go any further, I want to turn to Tommy Prescott, who will give an in-depth presentation of our financial

Thank you, Kessel.

And I'm going to point you to slide 7 and go where some of the highlights in the income statement.

We illustrate on slide 7, the second quarter compared to the first quarter and same quarter a year ago.

And, first of all, I'll take you to the bottom line net loss, including the TARP cost $243 million for the quarter.

Higher than the second quarter.

But I want to remind you that we had a $43 million after tax gain on our merchant sale last quarter.

And so that kind of brings you up to the loss from Continuing Operations line, which I think is a better way to look at the core fundamentals of the Company.

And you can see the continuing improvement that is happening on that line.

And if you go up a few more lines, you can see the improvement across those periods that's happening, the provision for loan losses as credit cost begin to work their way down some.

Slide 8 is the picture of our loans for the quarter.

We ended the quarter at $23.4 billion.

The retail category held in its own, but the other category is sliding down.

We were down $1 billion for the quarter.

Almost half of that is charge-offs, and I guess the story there is that as charge-offs go down, that loan shrinkage factor will not be as dramatic as that.

The fundamental loan demand is still weak, and so we'll continue to see some downdraft in loans.

But certainly not at the same level.

Slide 9 gives you a picture of the deposits.

And basically what is going on with the decline in loan balances and pressure off of funding we're able to accomplish another thing -- a number of things in our deposit book.

First of all, we were able to improve -- continue to improve the mix with the four deposit growth happening in the right categories.

We actually had a $436 million decline in core deposits.

But $322 million of that decline was in the shared products.

It's really the -- I guess the first session of the first part of the quarter, the news of the charter consolidation, and then since the end of May, the Memorial Day weekend, the actual post charter consolidation period.

And primarily before the charter consolidation, we had quit marketing that product and had some natural shrinkage there.

And then we had some maturity on some of the deposits that were not tied to relationships like we would like.

And those were not matured.

So we have begun the unwinding of that category.

The rest of the story on the shared products is that since June 1, 2010t we've had -- the money has been very sticky of all of the money that's either been exposed to renewals or closing accounts.

In the case of Money Markets, we've retained 80% of it and only had about -- since June the first through the middle part of July -- had about a little over $50 million leave the Company.

So it's either renewing into -- during the grace period into a shared product, or it's actually moving into another category within the bank.

The averages on core deposits year-over-year growth in BDA 14.7% late quarter growth 2.6%.

And then on non-core CDs the average year-over-year growth 6.2% growth, linked quarter growth 5%.

We also have been able to continue to execute on our strategy to lower dependents on wholesale funding.

We lowered broker deposits by $467 million during the quarter and have those moving in a better direction.

Page 10, slide 10, shows how the loan balance declined and the core funding line combined to really visually show the opportunity to be able to improve the core funding of the Company.

It's gone from 81% a year ago to 95% this June as far as loans that are funded by core deposits.

So we really have an opportunity to shrink wholesale funding, improve the mix of core deposits and lower the cost of core deposits.

Slide 11 is a picture of the net interest margin.

And Kessel gave you a pretty good view of what is going on.

The actual reported margin down five basis points.

The pressure that comes from credit costs abated by about five basis points.

The liquidity cost estimated to be in the seventeen basis point range.

So when you net those two together and then apply it to a five-point reported downdrop in the margin, then you could estimate an approximate seven-basis point fundamental improvement.

And really what that does is reflect off of what Kessel described that the banker is doing a good job on the front line pricing loans and also continuing to improve the mix of core deposits and price them appropriately to get this kind of margin improvement.

The service charges on deposits is illustrated on slide 11, and we really want to just get the Reg E info out on the table and you can see the trend line here on service charges.

And we're going to kind of focus in on the second quarter now.

$16.4 million of the almost $28 million in service charges on a quarterly basis is NSF fees.

About 45% of that line is NSF revenue that is exposed to Reg E.

In other words debit card, or ATM channel transactions.

On an annualized basis, you're looking at about a total of NSF fees in the $65 million range, 45% is $30 million.

So, unprotected, that's the amount at risk.

But we've been vigorously marketing with our customers to help them make the right decision on this.

And so far we have a 38% opt-in rate where we've targeted a 50% rate, believe we'll exceed it.

So what that really means is that if it stopped at 50% then we have an approximate $6.5 million impact between August and December this year and then the annual impact next year could be $15 million.

It's our plan to watch the competition and see what is going on in terms of other fee strategies and the way products might be realigned, and we'll do our best to try to minimize that $15 million and cut into it and reduce that exposure to a lower level.

Slide 13 begins the conversation on efficiency and really -- expenses and to some degree revenue.

Let me remind you that they're project optimist and even before that we had been pushing on expenses.

We've reduced head count significantly over the last couple of years.

We have completed project optimist, though, with not knowing two things.

And one was the fact that the charter consolidation would occur, and the second one was that the balance sheet would drop significantly.

So we know we have to react to that.

On slide 14 we'll kind of give you an idea of the way we're thinking about that.

The consolidation opportunity besides just the shared need to reduce expenses gives us opportunity as we brought the thirty charters together.

Again, it wasn't the reason we did it.

But it's certainly as we merged charters in other situations going from forty-one to thirty, we've seen opportunities every time we've done that.

We realized that we have to be very careful.

We're interested in position of the Company for the future, and interested in balancing risk and retaining talent and absorbing change at the right level.

But we know that we need to attack the expense base and work on the revenue base.

I'll describe it first as kind of a tactical approach where we're just doing what you do when you have financial stress.

And you push on the expense base.

We're going through that on a routine basis as a way of life.

An example of that is over the last thirty days, either through attrition or position elimination, we've -- there's about one hundred seventy positions that are now going away, or already going in the last thirty days and that's about a $9 million annual run rate of savings.

And we will keep looking for opportunities and doing the right thing to move expenses tactically.

From a strategic standpoint, we have a -- we're taking a fresh view of the Company, looking and actually have some third party help helping us assess what should the Company look like going forward.

What should the operating structure look like.

What is the smartest way to deliver to customers and provide the backroom service.

And by the fall we'll learn some from that on where the strategic opportunities are.

We are targeting by the end of next year to be at a 55% efficiency ratio.

We're a long way from that right now.

We're at about 63% efficiency ratio.

If you had to plug that whole gap, from an expense standpoint, it would be almost $100 million.

A very tough target.

About $8 million per percentage point.

And we plan to be on a journey towards that soon.

But, but we'll discover much more about that as we complete the strategic review.

But the rationale of using efficiency ratio is kind of a guiding target here is that some of the problem can be fixed on the revenue side and we'll know exactly how hard to press on expenses as we know how we're going on revenue from when does the balance sheet turn around, and when do the other revenues sources kick in.

So that's the view that we have.

I really can't give you quarterly guidance on these expenses.

It's really directional, and just know that it's something that's very much on our mind and that we will push very hard on.

Slide 15 is pretax, pre-credit cost income trends.

We hung on to the same level as last time at $119 million, even though we had the balance sheet shrinkage.

The extra day certainly helped a bit in the quarter and we can't take credit for that but we're certainly glad it was there.

And also fee income helped plug any gap that might have been there and we were proud to be able to hang on to the same level of pre-tax, pre-credit cost income in a shrinking environment.

And then on Page 16 is the capital trend ratios and you already seen them.

Kessel showed them to you.

But I want to just make sure you saw the trends there and the reflection of how the capital raised the quarter.

And then also in closing wanted to mention that the financial reform legislation, specifically the [Falen's] amendment, has really taken away our ability to execute the TARP to truck transaction.

We've described this all along as a -- would have been a nice accessory to capital.

We said if we didn't get it, though, we would be very, extra glad that we upsized the capital raise and really accomplishes the capital objective that would have been achieved based on the original offering, guidance and with the TARP to truck included in it.

So we got it in another way and we're glad to have it and we're going to move forward with our capital base in good condition.

I'm going to stop there and turn it over to Kevin Howard for a credit update.

Thanks, Tommy.

If you'll go to slide 18, I'll cover our second quarter credit trends.

I want to start by recognizing that our overall credit quality, as Kessel mentioned, continues to improve as highlighted by 15% reduction in our non-performing assets, now 6.7%, and our NPL ratio declined to 5.6% And more importantly our inflow of non-performing loans improved by 36% reduction from last quarter.

As Kessel mentioned, this marks the fifth consecutive quarter of production in inflow non-performing loans.

I'll provide some color on the inflows, geographically and by loan type, later in the presentation.

Charge-offs were up $117 million from last quarter's number due primarily to one large non-performing hotel credit for which we recognized a charge-off during the second quarter.

Excluding this credit, our charge-off ratio would have continued its downward trend from the previous quarter's 5.05%.

And as we enter the second half of 2010, we expect that charge-offs will continue back declining from that first quarter 2010 number of 5%.

Our confidence in these expectations are based, again, on our already marked down NPA portfolio of 49% coupled with a much slower pace of inflows that have occurred over the past two quarters.

Our allowance for loan losses decreased to 3.58% and past dues improved to 1.06% with short-term delinquents 89 days just 0.97 of 1%.

Slide 19 demonstrates our continued effort to aggressively clean up our balance sheet.

Our cumulative write downs coupled with specific reserves on non-performing loans as you can see are now up to right at 46%.

Of course the number along with the ORE mark of 59%, as I mentioned, represents a total of 49%.

That is either specifically reserved for a written down against our total non-performing assets.

Slide 20, probably the big story here is we continue to see significant improvement in Georgia, including Atlanta and the inflow of problem loans.

Despite this as being a -- having been a challenging and still a challenging residential climate, we have worked our loan exposure and residential and land related loans down to around 63% off their peak levels.

South Carolina, though still a fairly elevated numbers, shows a decline in inflows for the fifth consecutive quarter.

Tennessee has significant improvement down to just $9 million of inflow problem loans.

In Florida, as you can see, we had considerable improvement as we expected.

Our land and residential development portfolio down there a big contributor in the past, has reduced to 70% of what it once was which was off peak, which was about three years ago, and now less than $300 million in performing loans left in those portfolios.

Slide 21 demonstrates our run rate by loan type.

We had solid improvement, as you can see, across the board.

We are especially pleased with the very significant decline in inflows and investment properties.

I'll provide a little more details on the portfolios later again in my presentation.

Residential land, as I mentioned, improved significantly with inflows down 25% in those categories.

Again, they contributed a smaller base in Florida and Atlanta that had been such a big number in there.

We continue to see improvement in our C&I portfolio with the inflow of problem loans down 21% from last quarter, and that is down over 50% from two quarters ago.

Consumer loan inflows improved, again, for the second consecutive quarter.

Slide 22, want to give you just a look of our loan portfolio in the area affected by the Gulf oil spill, which includes our Panhandle banks in Mobile and Pensacola.

At this point it is -- we recognize it is far too early to tell the short or long-term impact.

We have been assessing our credits with exposure to the area.

We have not experienced any migration at this point in the loan portfolio as a result of the spill.

The only near term effect so far probably that we had in the second quarter is we had some dispositions delayed.

Dispositions in the area in that particular region are usually about 5% to 10% of our total disposition sales in most given quarters.

On the slide we've broken out for you the real estate segment that we think, although we haven't experience have the potential of being impacted the most.

Just kind of want to point out that in our hotel portfolio we have about -- we have three properties that are more -- that are heavily tourism related located on or near the beach.

We understand that all of them have filed for claims, fully expect to be reimbursed by BP.

We understand two of those three have already received reimbursements.

Slide 23 shows our asset dispositions for the second quarter.

It came in at $206 million of the third quarter which was a little below what we expected going into the second quarter.

But still a solid number as we continue to make significant progress about working down our balance sheet risk.

As the quarter played out, as the quarter played out, our NPL inflows trended favorably and with a significant reduction in NPAs apparent, we did not feel the need to be as aggressive as we have been in previous quarters.

But going forward into the second half of the year, our expectations are that dispositions will continue to trend in the range of the first and second quarter sales.

I do want to point out our percentage of unpaid balances also trended down.

This was heavily skewed by a plan pull of 1500 lots and 1400 acres of raw land that we sold in a pool in the quarter.

This pool was some of the more discounted assets we had which were located in outlying harder hit areas in the southern and western counties around Atlanta.

Excluding this particular sale of this pool, we did receive an average of $0.45 on unpaid balances on all other assets sold in the quarter.

We're confident the percentage received on unpaid balances going forward will significantly improve back to previous quarter results.

Slide 24 we'll take just a quick look at the loan portfolios beginning with investment real estate.

As I mentioned on slide 24 as we mentioned our new non-perform inflows declined about 70% this quarter and it was good to see improvement of inflows across the board in every category investment properties.

Charge-off as we mentioned were elevated at 10.7% but excluding the one large hotel credit mentioned earlier our charge-offs would have actually been around 2% which is more than 50% down from previous quarter.

So we were excluding the one off.

We had a very, very trend -- successful trend there.

Past dues on investment properties were down to just 0.56 of 1%, less than half what they were last quarter.

Our total investment real estate NPAs as a total are down 23% from the previous quarter.

As we mentioned in previous quarters, we do a quarterly review of all of our investment real estate loans above a million dollars which represents about 81% of the portfolio.

From our latest review we did see improvement in both debt service coverage ratio during the quarter from the previous quarter and as well as a decline in the number of properties with that service coverage less than 1:1.

Again, over all we're pleased by the strengthening credit fundamentals across the board during the quarter with the investment real estate loan portfolio.

Slide 25, this is a slide you've seen before, it demonstrates our diminishing exposure in residential portfolio -- in the portfolio on this chart in the upper left corner.

Again, this is a major reason our non-performing loans decreased, assets decreased, 15% overall from last quarter.

These three portfolios by far over the last couple of years, our worst performing, are now 37% of what they once were for [Pete], and last specifically about 23% from what it once was.

Atlanta currently is about 39% of our NPLs in these three categories, but now only account for about 18% of the total performing portfolios in these three categories.

Slide 26 is the quick look at our C&I portfolio.

As previously mentioned, C&I trending well.

Past views at 1%.

Charge-off picked up just light slightly from last quarter from 2.5% to 2.9%.

Again, our inflows on NPLs there just $74 million.

A $10-plus billion portfolio down over 20%.

And our last slide, slide 27, covers our consumer which also is holding up very well.

Inflows, charge-offs, and past dues all improved this quarter.

Charge-offs excluding credit cards were just 2.3%.

And as we mentioned before, this portfolio is 100% credit scored and is almost exclusively in market lending.

And that is the credit report and I'll turn it back over to Kessel.

Thank you, Kevin and Tommy, for your reports.

Before we go to questions, I want to make just a few closing comments as well as a statement.

First I want to share that I have truly been inspired and encouraged over the last few weeks by visits that I have had the opportunity to make with our teams in north and south Georgia, South Carolina, Florida, Alabama and to my Tennessee teammates.

I owe you a visit.

But to visit with our bankers and see their commitment and passion to return to a model of a growth Company and get out there and start making loans again and clearly we're not going to create loan demand where there is none.

But because of disruption in markets we do believe the opportunities are there and our bankers are very, very excited and committed about the flexibility this capital raise gives us to get back into the business of making loans and certainly growing and expanding our customer base.

We also recently announced the appointment of Curtis Perry as our Chief Commercial Officer.

Curtis brings to us here a long, long history of success in commercial and corporate banking strategy, business development and credit, management.

And we have been very, very pleased with the addition to our senior team and also by commentary from the market both within our Company and throughout the industry about the quality of the individual we've named to head that effort.

So very, very excited about that.

Also as I visited with our teams to take a term from Tommy, we've tried to de-villainize the word efficiency and talked to our teams about efficiency as a new way of life within our Company and one that is not just driven by head count.

But really by a way of doing business and taking a look at everything we do, how we do it, the clear efficiencies or layups as Tommy has referred to, that go with charter consolidation, but more importantly how we operate our Company going forward both in management structure, layers, reporting and processes and I want to commend our team for their efforts to date and what I know will be their ongoing efforts going forward.

And finally I want to touch on profitability.

As you all know, we have said previously this year that we see the opportunity to return to profitability in 2010.

We've been very clear that for that to happen we would need a dramatic decline in NPL inflows and we are certainly pleased with the trends there.

We would need a slow down in negative migration of our credits and, in fact, a reversal and upgrade in many of our risk grades and ultimately a reserve take down.

As we said earlier, we are pleased with those trends.

But certainly the economic events of the last several months put pressure on the timing.

I want to make sure everyone understands, though, that this Company and its leadership will not be satisfied until we reach that objective.

And although, again, the trends are positive and we can't control the timing, we can do everything within our power to focus on efficiency, on credit, and on growing our balance sheet, that commitment has been and continues to be first and foremost on the minds of all of our executives throughout this Company.

Before I go to questions, I have a statement I want to read.

And then we will open it up for questions.

This is a question that is on many of your minds.

So let me make a statement about one particular credit.

And that is the Sea Island Company.

We normally do not comment on specific credits, but given the recent publicity around the credit, the level of inquiry that we've received, we just want to clarify a few points.

Our customer is continuing to work with an investment banker in reviewing its strategic alternatives including a possible sale of the company.

This work is being done between our customer and the investment banker.

We direct you to their public statements for information about the status of that process as well as the asset sale transaction announced earlier this week.

We have followed, and will continue to follow, our established policies relating to loan loss reserves in dealing with the Sea Island credit, and we will continue to analyze the information available about the credit as we make decisions regarding the appropriate accounting treatment of that loan.

This includes decisions regarding timing and amount of loan loss reserves and charge-offs, all of which are made in accordance with our well established policies and in compliance with applicable accounting requirements.

During the second quarter, we recorded a charge-off on this credit, which was the primary driver for the increase in charge-offs when compared to the previous quarter.

This charge-off was also the main driver for the decrease in the allowance for loan losses from the previous quarter.

We believe that is all that is appropriate for us to say on this subject at this point and we will not take any questions on the call regarding our customer.

At this time, I would now like to open it up for any questions you might have.

Thank you, ladies and gentlemen.

The floor is now open for questions.

(Operator Instructions) Please hold while I poll for questions.

Our first questions come from Kevin Fitzsimmons.

Your line is live.

Good afternoon, everyone.

Hey, Kevin.

Couple questions on credit.

First, just wondering off the statement you just made, Kessel, I was wondering if that one credit was primary driver of the decrease in the reserve?

How do you feel going forward about net charge-offs versus provisions?

Are you -- do you anticipate matching those or is taking reserves down something that is in the near term time frame excluding what just happened in the second quarter?

And then secondly, if you can comment about accruing TDRs.

I know the non-performing loans are coming down, but the accruing TDRs are going up and just wondering how we should look at that in terms of time frame of how long you expect those to go up?

Thank you.

This is Kevin.

I'll start with the first -- the second question and then I'll come back to the reserve.

The TDRs did increase.

Our overall TDRs are down.

Our non-performing TDRs are down.

Our overall TDRs are down $6 million.

Our accruing TDRs were up $80 million to $350 million.

About half of that came out of the investment real estate portfolio.

I will say, I think we treat our PDFs -- we're pretty strict with managing that.

I think 98% of those are current.

So I guess said another way, less than 2% past due in that portfolio.

So we have -- compared with what I've seen, we dont-- we haven't got a lot of that but it did increase during the quarter.

Part of that reserve, part of the reserve going down, part of that was a large charge-off that was reserved.

So that was part of that decrease in the reserve.

But, Kevin, going forward do you anticipate matching net charge-offs with the provision?

I don't think necessarily we will.

I mean, they'll be some.

Most of our loans that are non-performing I think were 36% written down.

Okay.

So we'll be disposing some of those assets.

So that would be just straight off charging off.

And then some of it, again, not a low percent of our non-performing loans are just -- just have just reserves.

So there will be some reserve take down in there, but I would say more just out of charge-off.

And, Kevin, again, as you know, the reserve is formulaic, not a target weekend set driven primarily obviously by the charge-offs, but migration and it's the slow down, the negative migration and eventual upgrades of credits that will ultimately allow the reserve to be taken down.

Right.

And that's why I'm asking the question.

You have had these consecutive quarters of inflows going down and now absolute non-performers going down and just anticipating your ability to be able to take that down.

Thanks.

Thank you.

Our next question comes from Bob Patten.

Your line is live.

Hey, everybody.

Hey, Bob.

My question is very similar to kevin's.

And I guess I'm just trying to think around the magnitude of -- and I know you don't want to talk about Sea Island, so I'll try to make this so that we don't have to.

But again, if we look at the percent, the written down non-performers and performers to this point, and we look at the charge we just took on Sea Isle, I guess how do we reconcile the comfort that you guys say the portfolios are written down correctly to what we just did with this?

I don't know that we're saying we've got complete -- you know, we've written down our assets pretty aggressive.

I mean, if you take the ORE percentage, the reserves against non-performing, and then the 36% actual charge down, we're about halfway there.

We're at 49% addressed in that.

So we're not quite to liquidation values, but we're somewhat pretty close.

And, Bob, I -- without talking about marks on particular credits because we obviously don't do that, again, our dispositions and absent the three large pools that we actually we didn't disclose but others did for us, our disposition results still continue to reflect the appropriateness of the marks.

Again, not to comment on any particular mark on any particular credit, just in general, we believe our marks are appropriate and conservative.

Okay.

Thanks, guys.

Our next question comes from [Casey Imbert].

Your line is open.

Hi, thanks very much for taking the question.

Two questions for you.

First on the Gulf, how do you guys get comfortable that it's not conservative to take a provision for the Gulf right now?

It looks like your exposure is directed primarily towards tourism.

Some of your regional peers have begun just to throw one out there.

Casey, this is Tommy.

I'll be glad to take that question.

We've -- first of all, we don't know exactly what's going to happen in the Gulf and probably nobody really does.

But we are digging in and talking to the front line and getting the stories on all the credits.

And we believe for right now our proper strategy is to stay very close to the situation and let the potential exposure to credit work through the risk grade channel and make movements there.

It may be quicker and more aggressively than you would otherwise.

But we think that that's the appropriate methodology for us.

We're not in Louisiana, Mississippi and have very limited exposure in Alabama.

A little bit in Mobile which has an economy that isn't dependent totally on the tourist.

So that --

Okay.

That's how we stand on it.

And things will develop later on that.

We'll just have to stay close handle it through the risk grade.

Okay.

And then one follow-up.

Just on the TDRs, I guess you said they went down $60 million.

(Inaudible) performing TDRs went up $80 million.

Right now when I look at a peer group, you guys kind of screen the highest around 3% of your loans outstanding are in some form of TDR.

Where do you generally -- do you put up any reserves against TDRs at all?

Yes.

Yes.

They are reserved according to the grade that they're in and our grading system.

But, yes, they are appropriately reserved with the risk, appropriate risk.

Just like other loans are.

We just have made some concessions in there that we feel like we should identify them as TDR, whether they be -- it may be linked in some terms.

Maybe a short-term.

One in particular I saw the other day was we allowed somebody to go interest only for three months while they had -- they lost a tenant and got a new tenant in there.

So you have to give relief to customers.

That's where we classify that.

Okay.

And then just one last question.

You guys brought it up .

So I just want to clarify.

You said that you hoped to be profitable by the end of the year, but due to recent kind of economic events of the last few months that's looking less

Well, no, what I said, Casey, is that we've consistently said the opportunity was there for profitability in 2010.

If certain events happen, the trends are still occurring.

I think certainly recent economic events including the Gulf oil spill put pressure on the timing.

What we have tried to get our team to focus on is the events they can control and the credit cost associated with inflows, appraisals, marks and the trends are still moving in the right direction, but there is pressure on that.

The opportunity is still there.

Okay.

Thanks very much.

Our next question comes from Christopher Marinac.

Your line is live.

Thanks.

Just to continue on.

I wanted to ask about the inflow of new problems in third and fourth quarter.

Are there anything logistically that is planned that would cause that to be any higher or lower in terms of what you may do in terms of working --

Chris, we can't hear you.

I think I heard it.

Chris, this is Kessel.

I may ask you to repeat it.

If I don't answer the question, you may have to tell me.

I think you said, "Is there anything planned logistically for the inflows." Unfortunately, we can't plan for the inflows of non-performing loans.

The decline in the second quarter was certainly greater than we had anticipated.

There could be some bumps along the road.

We think that the inflows are well in line with our projections and capital plan.

I don't think it's likely that that rate of decrease could follow.

I'm certainly hopeful.

But unfortunately that's not something we can plan for.

The discussions around our potential inflows occur daily, monthly, at every bank, at every bank level, and then reviewed here by senior management.

So we have a pretty good eye on and forecast on -- of those potential loans.

But we can't do anything to accelerate them into one quarter or push them out into another.

We call them like they are.

So, again, we were very encouraged by the drop this quarter.

And also very encouraged by the overall decline.

I don't think it would be prudent for us to predict that rate of decline going forward, but we would certainly be hopeful of that.

Okay, and then second, I guess the same vein, given the consolidation in May of all of the charters, does that create an opportunity for you or an event for you to have another exam with your regulators or with your exams at your stage beyond going anyways?

Well, they're pretty much ongoing.

I think what you'll see, Chris, is less presence of our regulators in our banks in the field and more, more here in Columbus.

But those exams are continuous.

We remain in continuous discussions with our regulators.

They were great supporters of our charter consolidation to help us pull off what was a very, very tight time line.

But their schedule with our Company will - it's just one that they communicate with us and they'll be in different banks at different times throughout the year.

Great, Kessel.

Thanks very much.

Our next question comes from Ken Zerbe.

Your line is live.

Great thanks.

On -- not to touch directly about Sea Island but, (Inaudible) --

Ken?

Lost Ken.

What is the geographic breakout of how much -- where Sea Island was between investment properties and one family to four family, I assume?

Ken, we couldn't comment on that question.

Okay.

All right.

The other question I had, I guess, was now that you've raised the capital, which obviously put you in a much better position to address your credit losses, any chance you could start getting a little more aggressive with either loan sales or asset write downs?

Because it doesn't seem to be a capital problem anymore for you.

Well, we certainly could.

What we said about that, Ken, is that actually the capital gave us the flexibility to look at all of those options.

Whether that be loan sales, pools, any ways to accelerate the cleansing of our balance sheet.

But quite frankly in some cases it might give us the flexibility to hold assets longer in other cases to move on from a problem asset that we just think from an economic standpoint it's just time to move on.

So I think the key of the capital was not dictating or driving any particular strategy but giving us the flexibility to evaluate all of them and execute on any of them.

Okay.

Thank you.

Our next question comes from Erika Penala.

Your line is live.

This is actually Josh on for Erika.

I was hoping you could elaborate on your plans for redeploying excess liquidity per -- currently parked at the fed?

Josh, this is Tommy.

I'll be glad to do that.

We -- I guess at the end of the quarter $3.7 billion sitting at the fed and I think $3.4 million average for the quarter.

Part of that is a plan that's there for really out of prudence in this environment and certainly have encouragement and advice from the regulators on that topic that those should be elevated levels, particularly as we go through the season while we're -- the shared products are exposed to throughout the grace period there.

They will either mature and stay, or some of them will mature and leave.

And I mentioned awhile ago the good experience we were having with retention of those deposits.

But we're going to position ourselves for the midterm till we want to season those shared deposits at an elevated level.

I do expect that we'll see some reduction in wholesale funding during the quarter that will bring that down some during the quarter and possibly some bond portfolio increase that would bring it down.

But do expect it to remain at an elevated levels, just not as actually as high as it is at the moment.

As the dust settles a little bit out in the future and things normalize and so forth, we look forward to bringing that down to a more reasonable level.

But for the next quarter or so, expect it to stay at elevated levels, although below the third -- the second quarter numbers.

And on the deposits, I know you touched on this in your prepared remarks.

But how much room do you think there is left to reprice deposits downward?

We've been through the best part, I guess, of the CD book really in the third quarter -- I mean on the fourth quarter last year and the -- which was kind of the anniversary of when some of the really expensive money had come on.

We continued to have some benefit of that in the first quarter and the second quarter.

There is some left for the rest of the year, but the easiest down pricing is behind us.

Okay.

Thank you very much for taking the questions.

Our next question comes from Jennifer Demba.

Your line is live.

Thank you.

Can you give us some more color on your decision to dispose of less problem assets this quarter than, than typical?

Yes, Jennifer.

And D.

Copeland is here with me so I'm going to let D.

address that as well.

But actually, the market dictates that every quarter based on particular asset.

location, and what we think is the right economic opportunity for the Company and not working towards any, any plugged number.

Certainly the inflows, the declining inflows, gave us some breathing room and flexibility there.

Certainly the Gulf oil spill chilled some potential activity in the Panhandle region.

But D., I'll maybe let you get a little more color to that.

Yes, Kessel, I think that would be the majority of the reasons.

The other thing would be we had a couple of sales at the end of the quarter that had some pricing pressures if we would have closed and we decided to let those carry over into the third quarter as well and have actually closed on several of those.

We would have a lot higher closing percentage at this point in the quarter than we would have had in the second.

And so because of where we were from the capital position, we didn't take the additional hit.

As folks know we would try to close prior to the quarter and executed some sales.

I think the other part that was there is because of the makeup of what we did sell, the pool that -- the three pools Kessel mentioned earlier, based on where we were versus an unpaid principal balance, that was a higher volume in dollar of [assesses] just been written down more significantly.

So it was a, it was a larger beginning dollar, I guess, of assets that were sold.

Okay.

And the second question is about cost savings related to -- or ongoing cost savings kind of goals.

Tommy, how much of your kind of target 55% efficiency ratio, how much of that can you get to from just a better environment, lower professional fees, lower credit costs, stuff like that, versus expense cuts?

Jennifer, we got to do it all and we've got to press on every lever revenue side and on the cost side.

The biggest variable is going to be the size of the balance sheet.

Every billion dollar swing that you have in the bala-- in loan books, conservatively pricing the margin incrementally at 30% is $30 million, that is a huge swing factor in either making that gap bigger, or depending on when we're able to turn around, making it smaller.

So that -- keeping an eye on that and keeping pressure on that and turning that around will be the -- one of the biggest drivers in changing the efficiency ratio.

But the backfill for that has to be on the expense side.

And so we'll just have to press on all of the levers.

Okay.

Thank you.

Our next question comes from Paul Miller.

Your line is live.

Yes, I would like to go back to the excess liquidity issue.

I mean, your name was improving there for especially in the first quarter and then you had to go out and raise that capital and that put some pressure on that NIM.

And I guess you're not going to -- it sounds like you're not going to be able to put that excess liquidity to work as soon as you would like to.

So can we see continued NIM compression, not material, but looking forward for the rest of the year?

We think that the average excess liquidity and actually period end will come down a little bit for the reasons I described awhile ago.

And it would really be in doing so you would be reducing some wholesale funding which is -- will be positive trade to the margin and also be possibly adding some securities which will be a positive trade to the margin.

That, with a little bit of core margin potential upside, I think we're willing to put on the table assuming that we can bring that liquidity down like I suggested.

A little bit of reported margin upside in the third quarter.

Okay.

Thank you very much.

Our next question comes from Todd Hagerman.

Your line is live.

Good afternoon, everybody.

Just have a couple of questions more or less on the reserve issue.

One, I recognize that you guys pretty much follow kind of an impairment approach with the loan portfolio, but I'm just -- if you could remind us where the unallocated portion of the reserve stands today and how you would -- based on your comments before, Kessel, in terms of the environment, how you would kind of factor in or, in other words, are there any indicators internally or any data that you see or anecdotally that suggest that we have, in fact, paused in terms of the economy and so forth?

I'll turn to Mark to the reserve and I'll come back to the overall economy.

Our unallocated reserve is about 9% of our portfolio -- of our loan loss reserve.

It runs about right today $76 million.

That is trended down slightly in dollars but (inaudible) higher in terms of the percentage due to the overall drop in the reserve.

So we have a pretty healthy unallocated portion to our reserve.

I'm sorry, Mark, I couldn't quite get -- you set $76 million?

That's correct.

And where would that -- where did that stand at the beginning of the year?

A couple quarters ago it was around $80 million.

$81 million.

Okay.

And, Todd, let me come back to the, I think, the second part of your question.

If you have a follow-up for Mark.

You talked about anecdotal information.

I think the day after our capital raise is when the problems began to come out of Greece and throughout Europe.

We had the expiration of the home buyer tax credit which I know was extended.

But certainly chilled home buying activity, builder confidence.

Across the board I think just kind of a less robust outlook towards the recovery.

Again, we think the best predictor of our future cost is the NPL inflows and we were very, very encouraged by that.

Again, the oil spill we're not quite smart enough yet to quantify what that means.

We're in daily contact with our bankers down there and they in turn with their customers and that affects a small part of our franchise, but certainly is an event that we're keeping our eyes on.

Again, overall our inflows have trended in the direction we had hoped and we hope the second half of the year gets better.

But, again, we see the same numbers you all do about home starts and sales and overall consumer confidence in the recovery.

That's helpful.

So I guess what I'm hearing, again, internally the data that you look at day-to-day wouldn't suggest that the improvement that you're seeing has been derailed in anyway?

I wouldn't say improvement has been derailed.

The rate of decrease in inflows it would be hard to sustain.

We said all along in our capital raise that we believe that that raise got us through this current cycle and provided for some cushion for a potential double dip which we don't see.

But that was part of the decision for the upsize to make sure.

But no, we don't see data that that would suggest that's where we're headed.

We're actually encouraged by the credit trends we're seeing.

Okay.

If I may, just, Mark or Howard, I think you mentioned in terms of Atlanta it's come down substantially in terms of the overall the exposure level and so forth and the drag on credit.

But I was wondering if you can just give us just a quick update in terms of the geographies where you're seeing kind of that incremental improvement whereas those other markets maybe are slipping a little bit.

Whether it's the coastal Carolinas or other parts of what is the Panhandle or otherwise.

This is Kevin.

We certainly, as far as geography is concerned we said it, you said it, the Atlanta exposure residential certain we're improving across the board in all of our credit fundamentals there as well as the state, the whole state of Georgia.

Florida -- Florida has been in this three years, three and a half years, four years of, of dropping valuations.

And they certainly can drop more but it's 40% to 50% valuation drops.

We've recognized that in Florida.

You can see the last two out of three quarters have been very low NPO inflows.

We had a little bump in the first quarter, but back down though where we expected them to be.

South Carolina probably came in -- probably hit South Carolina a little later.

Hit Florida first through Georgia and South Carolina and we're probably, in the terms of innings we think we're in the latter innings.

Sixth, seventh inning maybe.

But certainly we feel like we're on the better side in all of the other geography.

We probably have a couple more tough quarters.

We have to work through some land.

Residential credit.

Still in South Carolina we believe we'll have them worked through by the end of this year and expect very positive trends to begin there.

Just say little later and a little later coming out of it there.

That's very helpful.

Thank you.

Our next question comes from Nancy Bush.

Your line is live.

Yes.

I have a couple of questions.

I understand that inflows into non-performing loans are important but it looks like to get to profitability you've got to have dispositions go back to where they were in the fourth quarter or first quarter.

I understand the reasons for the chilling activity on dispositions, but the could we just get some outlook?

I mean, are we -- are you getting early indications, or any indications, that dispositions will be up in the third quarter from where they were in the second?

Nancy, hi, this is D.

I'll speak to that.

The early indications I would tell you on a monthly basis second quarter versus third quarter we are ahead of where we would have been at this point in the second quarter.

There are also other activities that we will continue to push through.

There's some -- as always, there are different credits that will drive the timing of when those dispositions would take place.

So we will continue to look at that.

It's one of the reasons why we struggle to say on a quarterly basis what we'll do instead of an outlook for half of the year, or six-month time frame.

We are continuing to be aggressive.

I think Kevin made the comment we would be in the ballpark of somewhere between the first quarter and second quarter is what we would continue to try to do from a disposition standpoint.

And so I think we will continue to stay aggressive.

We are ahead of where we were for the second quarter.

And we're continuing to move forward with that.

And you had mentioned that there were some pricing pressures at the end of the quarter that kind of held you back.

Have those now abated?

I mean, what exactly had happened at quarter end that resulted in the pricing pressures?

Was it just everybody figuring they could get something cheaper?

Well, Nancy, that is actually a phenomena that happens at the end of every quarter.

One of the things that allowed us to do this quarter is to hold off a little bit because they will -- a lot of times you get renegotiations on credits.

Sometimes you'll go ahead and close if you need to.

Others you can hold off because it's not in the best economic interest.

I feel like we made the right decisions on those because they did close after the end of the quarter.

And it was really specific to certain transactions as opposed to an overall price reduction in the market.

Okay.

Great.

Thank you.

Our next question comes from Jefferson Harralson.

Your line is live.

Thanks , guys.

I wanted to ask you, I think you commented a little bit on, but can you quantify your debit interchange fees and then just talk about what types of -- what do you expect from the thin Reg from

The debit revenue is about $28 million annually and we know that there will be some impact but the rules haven't been finalized.

We know there will be some potential changes, retailers are allowed to provide discounts and deny usage in certain situations and all those things will have an impact.

But we really don't know how to quantify that at this point since the rules aren't finalized.

The caps hadn't been determined and we'll stay close to that one and just like Reg E we'll give you the full story as we know it.

All right.

And just from a bookkeeping side of things, can you give me the amount of the DTA evaluation allowance pro forma for this quarter?

The DTA is $640 million right now.

Okay.

And the last one, this might be a Mark question, I'm surprised -- I think I was surprised at the unallocated reserve of $76 million.

If we did our math right it's 33 basis points of the non-impaired portfolio.

I would have expected that I think to be a little higher.

But am I just -- is that peer for the industry or does that seem like a low number?

Unallocated is not apportioned to the specific reserves.

That would be more in the allocated reserves.

These are reserves that are not -- have not been set aside for specific loans but they're for general purposes, economic conditions.

Things like an oil spill, things like that that could occur in your market where they're not -- they're more un-- they're not available in terms of a specific mark or a specific reserve on a graded loan.

The impaired loans with specific reserves we have $65 million against those loans, and that's about a 36% allocation against those loans.

Does that answer your question?

I think so.

But is it fair or am I missing something to compare the $76 million to the non-impaired portfolio, the non-risk rated portfolio?

No.

That's only one component of that portfolio.

The reserve.

The total reserve would include that plus the unallocated reserve.

That amount was $834 million .

So you can back off the $65 million specific reserves against that if you want to do it that

Okay.

Thanks a lot for the background.

Our next question comes from Al Savastano.

Your line is live.

Good afternoon, guys.

How are you?

Good, thank you.

Just on capital, I was wondering if you can give us a sense if you feel you're done on your capital actions?

And where I'm coming from is your TARP conversion was terminated.

I just wanted to know if you'll done or if you'll pursue something else?

Thanks.

Well, yes.

The TARP conversion we always described as a nice accessory to a stack that was originally announced at $600 million.

So even if that had occurred, the amount of the raise that we were able to accomplish in that first week of May exceeded the total stack including the TARP for truck.

I don't know if you ever say you're done.

One unknown for us is the timing and the regulatory environment when we would go -- when we would attempt to repay TARP.

Historically there have been capital back fills of $0.50 on the dollar.

We've already done two capital raises.

The $600 million in September a year ago and then this most recent one.

So I don't think it would be prudent for anyone to ever say we're totally done.

We do believe this raise, even without the TARP for truck, was, was an amount sufficient to get us through this cycle, to get us through a deeper cycle if it were to occur and we'll just have to look at the environment both financial and regulatory at the point in which we think TARP repayment is prudent for us.

Okay.

Thank you.

Our final question comes from Matthew Lindenbaum.

Sir, your line is live.

Hi.

Can you hear me?

Yes, we can.

Great.

Can you just -- when you were doing the capital raise you gave us some guidance on most likely losses for the cycle and stress losses you gave $3.466 billion for most likely, and management stress you said $3.994 billion, which was up from what you had given last year.

And so I'm just wondering, are you backing off of that?

Ar are you willing to sort of willing to reaffirm that guidance?

Are you referring to the cumulative --

Cumulative loss for the cycle?

-- loss number?

Right.

Okay.

Yes.

Certainly the economy itself what has changed the capital raise and as Kessel indicated the timing of when things turn around is different.

But we don't feel like that there is a a material change to the capital adequacy story.

And so, yes, we would stand behind that story.

So you're sticking to those numbers you're likely in stress?

We're sticking to the conclusion of capital adequacy that was described in the capital raise.

Okay.

Thank you.

If there are no other questions, I want to close our call today by first thanking everyone for your participation in the call and for your interest in Synovus and in many cases your investment in Synovus.

I also want to say again our best wishes to Richard and tell many of you on the call who have shared those wishes with me, I passed them along to Richard.

So we continue to hope and pray for a speedy recovery for Richard.

Again, in summary, we are very encouraged by the credit trends that developed during the second quarter.

But at the end of the day, our goal is profitability.

We know it's important to our shareholders.

It's important to all of our team members and certainly to those of us in this room and we will not rest until we have achieved that goal.

And again, the trends are moving us in that direction further along the path to ultimate profitability.

I'll just make a comment about our Company long-term, and I have shared this with our team over and over over the last three weeks.

We do have what we consider to be a great franchise and great markets throughout the southeast.

We see the opportunity to grow in those markets, to take advantage of market disruption through competitors that don't have the capital strength we do.

And, again, we're very enthused and energized by the spirit of our bankers out there who are seeing and seizing on those opportunities as we speak.

So we are looking forward to the rest of this year and getting further down this path to profitability and think that the capital raise, the charter consolidation and our continued work to efficiency will get us closer and closer to that ultimate goal.

So thank you again for your participation.

I hope you all have a good afternoon.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your phone lines at this time and have a wonderful day.

Thank you for your participation.