Synovus Financial Corp (SNV) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus' fourth-quarter 2011 earnings conference call.

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

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

Sir, the floor is yours.

Thanks, Holly.

I just got a promotion.

(laughter).

I thank all of you for joining us today on the call.

And during this call, we will be referencing the slides and the press release that are available within the Investor Relations section of our website at www.synovus.com.

Our presenters today will be Kessel Stelling, Chairman and Chief Executive Officer; Tommy Prescott, Chief Financial Officer; and Kevin Howard, Chief Credit Officer.

Before we begin, I need to remind you that 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 in our SEC filings, which are available on the website.

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

We disclaim any responsibility to do so.

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

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

The only authorized webcast is located on our website.

We respect the time available this morning, and desire to answer everyone's questions.

We ask you to initially limit your time to two questions.

If we have more time available after everyone's initial two questions, we will reopen the queue for follow-up questions.

And now, I will turn it over to Kessel.

Thank you, Pat, and I also want to congratulate you for your quick rise up the corporate ladder this morning.

(laughter) I want to thank all of you for joining us on our call this morning.

As always, I will go through a high level of performance, and then turn it over to Tommy Prescott and Kevin Howard who will get in more detail into both financial and credit performance.

So I will begin on page 4 of our deck.

And again, you will see from our press release and deck and headline that we, again, reported profitability for the quarter, our second consecutive quarter of profitability.

We are delighted to do that.

The highlights of the quarter -- net income available to common shareholders was $12.8 million, compared to net income of $15.7 million in the third quarter, and a net loss of $180 million in the fourth quarter of 2010.

Our net income per diluted share, per diluted common share was $0.014, compared to $0.017 in the third quarter, and a net loss of $0.229 in the fourth quarter of 2010.

Credit, a big part of the story again this quarter, total credit costs were $90.5 million, down $52 million or 36.5% from the third quarter of 2011, and down $191 million, or almost 68% from the fourth quarter of 2010.

We are also pleased to report expansion in our margin this quarter.

The fourth quarter net interest margin was 3.52%, up 5 basis points from the third quarter of 2011, and up 15 basis points from the fourth quarter of 2010.

As I said earlier, Tommy will go into more detail, but I want to point out, in our fourth-quarter numbers, included in that were net investment securities gains of $10.3 million, compared to approximately $63 million in the third quarter, as well as a $5.9 million charge related to our Company's indemnification obligation as a member of the Visa USA Network.

If you will follow to page 5 in the deck, again, graphically illustrating what we talked about on the page before, the story of the quarter is credit costs.

Credit costs declined for the 10th consecutive quarter.

I call your attention to the graph on the left there, where you will see the 36.5% decline from the third quarter, and again, almost 68% decline from the fourth quarter of 2010.

A very nice trend line continuing to develop, in terms of overall credit costs there.

Our net charge-offs, again, you will see graphically illustrated, declined from $138 million to $113.5 million.

The $113.5 million in charge-offs represents 2.26% annualized, compared to $138 million or 2.72% annualized in the third quarter of 2011, and $385 million or almost 7% annualized in the fourth quarter of 2010.

Again, you will see fairly dramatic improvement there, and I think in line with guidance previously provided by Kevin Howard.

On page 6, a little color on the inflows.

Again, you saw the fairly substantial decline in inflows in the back half of last year.

And again, pleased to see in the fourth quarter, further decline from $222 million in the third quarter to $189.2 million in the fourth quarter.

That's a 15% decrease from the third quarter, and almost 36% decrease from the fourth quarter of 2010.

NPAs ended the quarter at $1.12 billion, a $47 million decrease from the third quarter, and again, a $163 million decrease from the fourth quarter of 2010.

We are also pleased to report on our total delinquencies.

They ended the quarter at 0.74%, really a good number in normal times, down from 0.99% the previous quarter.

Our past dues over 90 days ended the quarter at 0.07%, down from 0.13% the previous quarter.

Also I would like to point out, again, in the graph at the bottom left, the fairly substantial decline in potential problem commercial loans defined at the bottom.

But you will see the decline from $942 million in the third quarter of '11, to approximately $780 million in the fourth quarter.

Again, we are very pleased to see the decline in that category of problems.

Another highlight of the quarter is certainly the stabilization of our loan balances, and we will talk a little more about that later.

We had net sequential quarter loan growth.

And that excludes the impact of loan sales, transfers to loans held for sale, charge-offs and foreclosures, but that was approximately $167 million during the fourth quarter of '11.

So net sequential quarter loan growth of $167 million, compared to a net sequential quarter decline of approximately $132 million in the third quarter of 2011.

That's about a $300 million swing.

Our new loan fundings were up approximately $70 million, and that's across our footprint; it's 9% annualized from the third quarter of 2011.

Our total loans ended the quarter at $20.08 billion, again, stable but actually a slight decline, $22.3 million from the third quarter, as compared to a $402.7 million decline in the previous quarter.

So, very pleased there.

We continue to see positive momentum in the loan pipeline.

And that has certainly contributed to the stabilization of our loan balances.

We do still expect challenges in 2012, as this economy slowly recovers, and we could still see some modest decline in loan balances during the year.

But we were very encouraged and pleased with the performance, not just of our portfolio, but of our bankers and business units across the footprint during the fourth quarter.

We also saw continued improvement in the deposit mix.

Core deposits decreased $323 million or 6.1% annualized for the quarter, reflecting the impact of planned reductions in time deposits.

Again, our non-interest-bearing deposits grew $117.5 million, or almost 9% annualized linked quarter.

And point out again that we grew $1.07 billion or 25% from a year ago.

Again, not just in dollars, but in number of accounts.

The number of accounts grew by 1,458, 1.7% annualized for the fourth quarter, up 7,240 accounts or 2.1% in 2011.

On page 8, talk a little bit about expense management.

It continues to remain a primary focus of ours.

And again, the team here remains focused both on the implementation and execution of previously announced initiatives, as well as just an ongoing effort to look for ways to operate our Company more efficiently.

I think the numbers speak for themselves.

We had previously announced and identified $75 million in reductions for 2010.

We realized $95.3 million, or 11.7% reduction in core expenses for the year.

Our headcount decreased 885 or 14.5% since December of last year.

And again, we achieved substantial progress in aligning our cost structure of this smaller bank, again, with the operating realities of today.

We will continue to look for efforts to identify additional efficiencies.

Those efforts are ongoing.

We'll make sure that we maintain a structure that supports growth, and absolutely allows for our passionate commitment to excellence in customer service.

But again, at the graph at the bottom, you will see the reduction in core expenses, $812.7 million 2010, $717.4 million in 2011.

That is a brief summary of our results.

I would now like to turn it over to Tommy.

He will be followed by Kevin Howard.

And then we will do a brief transition, and open it up for questions.

So, Tommy?

All right.

Thank you, Kessel.

And I am going to walk you through the financial results, starting on slide 10.

Slide 10 illustrates the fourth quarter key income statement drivers against the third quarter.

And I'm just going to walk you through the line items, and give you the highlights pretty quickly.

The net interest income for the quarter, $227 million, down a little bit, $1.4 million from the third quarter.

And that is basically a decline in average earning assets during the quarter.

Even though we had growth at the end of the quarter, the averages that drive the net interest income were lower during the quarter.

Non-interest income, $63 million, down $7.3 million from a quarter ago.

The two biggest drivers were the Durbin kick-in on October 1, $4.5 million takeaway from fee income.

And then SBA gains of $3 million in the third quarter that were nonrecurring in the fourth.

Investment securities gains, $10 million in the quarter, compared to $63 million a quarter ago when we took the significant repositioning of the portfolio.

Non-interest expense, $176.5 million, down $3.2 million from one quarter ago.

And the biggest driver in the expense reduction that stands out is the FDIC insurance decline that occurred there in the quarter.

We had modest restructuring charges in the fourth quarter, as we completed the wrap-up of installing all the restructuring that was announced earlier in the year, and successfully completed, as Kessel mentioned a moment ago.

Kevin Howard will give you the explanation of the big reduction in credit costs in just a little while.

Kessel mentioned the -- just under $6 million Visa indemnification charge.

Taxes really weren't an issue in the fourth quarter.

And all that drove us down to a net income before the TARP costs of $27.3 million, or bottom line of $12.8 million.

I will take you to the loan picture on slide 11.

Kessel mentioned the growth that occurred in loans, which was quite a story for the Company.

You can see the trend line.

We ended the quarter at $20.08 billion in loans, reported number, down actually $22 million.

We're going to call that stable, when you compare against the hundreds of millions of dollars of declines that have occurred in previous quarters.

And then also, when you isolate the activity of core lending from -- take out the loan sales, charge-offs and so forth, the core activity up to $167 million.

You have to look back to the first quarter of 2009 to find reported loan growth at Synovus.

So we are very encouraged to see the direction of loan balances.

We know that sustaining that in the current competitive loan environment is tough, but we are taking that head-on in 2011.

The deposit story is on slide 12.

We've continued to improve the mix by taking down the higher cost categories, with the core time deposits going down $323 million.

Brokered deposits, we have not rolled a brokered account in at least six months, as we have continued to improve the mix.

And certainly hadn't had the funding pressure, and have had the ability to bring brokered down, improve the mix, and bring time deposits from the core category down to improve the cost of funding.

Brokered deposits now represent about 8% of funding, or of deposits.

So we have taken that down from north of 20%, and feel like we are at a very healthy place with brokered CDs.

Non-interest-bearing deposits, as Kessel mentioned, grew over $1 billion in 2011, and grew nicely, $117 million in the fourth quarter.

We also had growth in NOW accounts during the quarter.

The deposit mix continues to push down the cost of core funding, down to 53 basis points, a 9 basis point reduction over the third quarter.

The margin slide is on -- is number 14.

The net interest margin of 3.52% was up 5 basis points.

And it is really a function of getting -- having some pressure on earning asset yields from the repositioning of the securities portfolio, and from pressure on loan pricing.

But that was more than offset, that 5 basis point decline was more than offset on the funding side, with a 10 basis point decline in the effective cost of funds from improvements in the deposit mix, and the downward repricing on maturing core CDs, and also reductions in money market rates.

Core expenses continue to move down, $176.5 million in the quarter.

Again, you can see the stair-step move down.

The biggest driver in the fourth quarter, as I've mentioned, was the FDIC insurance.

You have to go back to slide 8 to get the real picture on what is going on with expenses.

And it graphically shows and illustrates the big reduction, the $95 million reduction in 2011 compared to 2010; a huge driver in the Company.

Pre-tax, pre-credit cost income ended the quarter at $114 million.

The down-tick was driven by a little bit of pressure on net interest income, as I mentioned earlier, fee income being down $7.4 million, with Durbin being the main impacter there.

And those things were partially offset by the core expense reduction of $3.2 million.

The capital ratios illustrated on slide 17 remain at a good level, basically moved a little bit sideways during the quarter.

The first three ratios down just ever so slightly, as we've had profitability, but we also had an increase in risk weighted assets.

The last two ratios up slightly, as the denominators of those equations worked a little bit differently than the risk weighted asset ones.

So basically capital in a good place, but just moving sideways for the quarter.

I am going to stop there, and turn it over to Kevin Howard, our Chief Credit Officer.

Thank you, Tommy.

If you will go to slide 19, I will review our credit trends for the fourth quarter.

As Kessel mentioned, we are pleased with the continued improvement in our overall credit quality.

We continue to diligently work down our problem assets, and barring a negative turn in the economy, we expect further improved credit trends going forward.

The upper-left corner on slide 19 shows our credit cost improved by $52 million or 36% on a linked-quarter basis.

The overall improvement in credit quality allowed for further reductions in provision expense during the quarter, with the primary drivers being declines in disposition costs, mark-to-market expenses, and lower NPL inflow costs led by lower defaults.

Our ORE expense was down as well, with the primary drivers being there, lower disposition costs despite more ORE sales volume during the quarter versus last quarter, and lower mark-to-market costs as well in our ORE.

Charge-offs were down 18%, or $25 million from the third quarter, to 2.26%, which is consistent with our guidance.

Our expectations for charge-off trends going forward are continued improvement, eventually moving below 2% during the year.

And that is based on our confidence of a better positioned balance sheet, as we move through 2012.

And also, due to our overall improved credit performance, our loan loss reserve decreased 29 basis points to 2.67%.

This decrease was due to a number of factors, primarily loans sold with reserves attached, changes in the expected loss factors as a result of improved credit quality, and the positive shift in the quality of the balance sheet, meaning less potential problem loans and watch-list credits that carry high reserves, and an increase in past rated credits that carry less reserves.

So we were pleased with the quality of the shift of the balance sheet during the quarter.

As shown in the bottom-right corner, past dues, 0.74%.

That is the lowest level in this credit cycle.

Slide 20 reflects an overall view of our non-performing assets in the fourth quarter.

Our total non-performing assets were down $47 million during the quarter, which is the 7th consecutive quarter of declines.

NPA's are now down 39% from the peak, and down 13% year-over-year during 2011.

Our fourth quarter non-performing inflows were $189 million, down 15% from the third quarter inflow number.

A little color -- in the bottom-right graph, shows the mix of the new inflows.

As you can see, our inflows in investment real estate were at the lowest levels in this cycle, down to just $19 million.

And we continue to show significant improvement in our residential and land-related inflows, which have been the primary driver of our NPA.

C&I retail loans were flat compared to the last quarter.

As noted on this slide, our NPAs now have a carrying value of approximately 57%, which reflects our continuing effort to aggressively mark troubled assets.

Slide 21 shows our disposition of problem assets.

We sold $147 million this past quarter, with a realization rate of 39% on unpaid balances.

The make-up of these dispositions were -- we sold 35% of the dispositions were NPLs, 39% ORE, loans held for sale about 9%, and performing loans 17%, is that make-up.

The mix by asset type were -- 32% land acquisition residential related, 30% investment real estate, and 33% C&I, and 5% retail.

Our disposition strategy may be adjusted due to changes in market conditions as we go through 2012, but at this point we continue to target sales of $100 million to $150 million in dispositions a quarter.

We are confident this is the right pace for both capital efficiency and a steady reduction in overall NPAs throughout the year.

Slide 22, probably our best chart that demonstrates our improving credit quality trends -- shows our potential problem commercial loans, which are substandard accruing loans, not included TDRs and 90-day past dues, which are reported separately.

As shown, our potential problem loans down 17% linked quarter, and down over a $1 billion, just five quarters.

So we are happy with the effort there, and moving our potential problems down significantly.

By the way, our special mention balance, as shown in the appendix, also decreased during the quarter, and are now down 17% year-over-year, which was encouraging considering the upgrade flow from substandard loans to special mentions we've had in the past couple of quarters.

Slide 23 takes a look at our TDRs and their mix.

Overall, there was a slight increase in accruing TDRs.

I will point out a couple things -- there were less than 2% of our accruing TDRs are past due, and 46%, almost half of these accruing TDRs, are in past or special-mention grades.

And that's an improvement from just last quarter at 39%.

More importantly, our substandard accruing TDRs decreased during this past quarter.

I'll go -- if you will go to slide 24, I will give you a brief overview of our loan portfolios.

Slide 24, again, shows the details of our investment and property portfolio.

Once again, as I mentioned, we've seen improvement here in all credit metrics in this portfolio, led by nonperforming loan inflows, again, down 41% from the third quarter.

Charge-off ratio here was just 1.19%, as compared to almost 3.9% the quarter before.

Past dues almost nonexistent at 0.24% in this investment real estate portfolio.

And again, we continue to monitor this portfolio closely, with quarterly reviews on our loans greater than $1 million, which represents about 83% of the performing loans, and it continues through that review to reflect positive trends in both debt service coverage ratios, and loans with debt service coverages less than 1 to 1.

Slide 25 takes a look at our residential C&D and land portfolio.

As we've mentioned many times before, these three troubled categories make up 46% of our total NPA.

Now only represents 7% of our performing loans, and once represented close to 22% of our performing loans.

So again, we reposition in the balance sheet there.

And we are confident that these weaker segments, and this is definitely the weaker segments of the balance sheet, will continue to have less impact on credit costs going forward, as evidenced by the fact that they're only 28% of substandard loans, represent only 12% of our special mention loans.

Slide 26 details our C&I loan portfolio.

NPL inflows remained flat this quarter.

The inflows we did have, do come from the construction real estate related loans, and continue to be the main driver of the defaults there.

We saw an improvement in the past dues, 0.61%, from last quarter's 1%.

And as I mentioned, or has been mentioned already, it's great to see the solid net C&I loan growth.

Charge-offs were up this quarter to 2%, and that is mainly due to, we sold a higher mix of C&I loans in our dispositions.

Again, a well-diversified portfolio, well positioned for growth, showing stable credit fundamentals.

Our last credit side, slide 27, which reflects our retail loan portfolio.

Charge-offs declined again for the 8th consecutive quarters to 1.6%, while other credit metrics remain stable.

This portfolio has performed relatively well during the credit cycle, due to the fact that it is almost exclusively credit scored, and in-market lending.

And that concludes my comments, and I will turn it back over to our CEO, Kessel Stelling.

Thank you, Kevin and Tommy for those presentations.

Before we take questions, I just want to again reiterate that we are very pleased to report our second consecutive quarter of profitability.

And really pleased to see positive traction in almost all key areas necessary to sustain long-term profitability and growth.

A couple of topics that I know are on your mind, which I usually try and address now, is both the DTA and TARP.

The DTA, there is a slide on page 29 that speaks to that.

Certainly, the timing of our DTA recovery is important to us, and it is important to you as shareholders and analysts.

It could be a 2012 event, but the timing is uncertain.

Our focus remains on those activities that will affect the timing, sustainable return to profitability.

Again, now we are two quarters into an improved credit quality, and a forecast of sufficient continuing profitability.

So again, we will continue to update you on that during the year as events get more clear.

The same with TARP.

As we've said before, it should likely follow the recovery of our deferred tax asset.

Doesn't have to, but certainly the events that lead to one, might lead to the other.

Repayment of TARP is not a near-term event, but it's certainly part of our everyday thinking and planning as we model our earnings and capital structure going forward.

And again, we will update you throughout the year as plans develop.

Our goal is to exit TARP as prudently and efficiently as possible for all of our constituency.

So again, we will update you during the year as those events become more clear.

At this time, operator, I would now like to open it up to questions from our callers.

Thank you.

(Operator Instructions).

The first question of the day is coming from John Pancari.

Please announce your affiliation, then pose your question.

Good morning, Evercore Partners.

Can you talk a little bit more about the pricing you are seeing from loan sales in the secondary market?

And if that is benefited at all, from the some stabilization you're seeing in the southeast real estate markets?

Yes, John, this is D.

Copeland.

I will take that.

And I think the question was on the secondary markets.

The question, and I guess I would say, one is in a lot of the real estate types, in the secondary markets, is still tight.

I would say, it has been positive on the multi-family, but I guess the rest of them are still tight in the southeast.

As far as our overall yield loan rates, there has been some pressure.

That has been a part of it, but we generally are not doing secondary market financing inside of our portfolios.

So I would say, it's had a little bit of an effect, but most of that would be driven more by the increased fundings that we have had in the C&I book of business.

I guess I was asking a little bit more about the pricing you've seen, in some of your the distressed asset sales, the loan sales?

I got you.

Okay.

I'm sorry.

On the pricing, it is a little bit better than it was, I guess in the previous quarter.

I will say a lot of that is, the -- is based on mix of assets that are in the sales.

And also basically, the vehicle used with, which we sell those assets.

And so, the first book of those businesses, was heavy in ORE, as Kevin said, which had better returns.

And then we did have some of those bulk sales, that would have a little bit lower realization rate on those as well.

But the activity is still there.

There are still buyers there, but it's -- it continues to be -- it continues to be a tough market, the higher the volume sales are.

Okay.

And then secondly, can you talk a little bit about the outlook around the OREO expense?

You saw pretty good decline in this quarter, although still elevated.

And just talk to us, how we should think about the trend there?

Hi.

This is Kevin.

I think you will see some -- it will work it's way down probably, my guess, the next couple of quarters, in the [$25 million]to [$35 million] range.

We will continue to sell assets out of OREO.

We probably sold a little more over the last couple quarters, than we normally do.

And we think we are pretty well marked there, but it will directionally continue to work down, over the next couple of quarters.

All right.

Thank you.

The next question is coming from Jefferson Harralson.

Please announce your affiliation, and then pose your question.

All right, thanks.

KBW.

I was going to ask you about the -- how the potential problem loans and the accruing TDRs work in combination.

If I look at the PPLs, they are down by, call it [$770 million] over the last year, while the accruing TDRs are up by [$200 million].

Should I just see -- look into that, that some of these potential problem loans are being restructured, and there is a less inflow in that category?

But I am not sure I'm reading correctly into the changes of those two numbers, as they relate to each other.

Well the -- this is Kevin, again.

The potential -- we expect to see potential problem loans continue to work down.

There will certainly be some converted to TDRs, as they come up and get renewed and restructured.

We are continuing to work with our customers.

My thoughts are, that you will probably see TDRs level off here in the next couple quarters.

We are going to continue to work with those customers.

The healthy part of, what I think of the TDRs, despite the accruing TDRs moving up, we are seeing more past and special mention credits as the makeup.

We saw -- both buckets of substandard loans went down.

Substandard loans that were TDRs went down this quarter, and potential problem loans, which are our substandard loans excluding TDRs also went down.

There is some of flow into both, but the encouraging thing is, both buckets moved down during the quarter.

All right.

And is there anything seasonal, about the accruing TDR number?

I seem to remember something -- from a year-to-year, sometimes there is a pickup in Q1?

Yes, there could be.

And there is certainly, as the calendar year expires, TDRs that, our TDRs during the year typically could expire at the end of the year, if some of their status has been lifted, say, if we have actually taken it out of the restructured status.

We normally keep those on as, labeled as a TDRs through the calendar year.

And then we do a re-look in the first quarter.

So there is some -- we could get some drop off there, from some of those expiring during the calendar year.

But we do expect, not to be too significant there, a drop off, just maybe slightly.

Thanks.

The next question is coming from Craig Siegenthaler.

Please announce your affiliation, then pose your question.

Thanks.

Craig Siegenthaler, Credit Suisse.

Just a two-part question here on capital management.

The first part is, why not really kind of shrink loan balances here, and risk weighted assets in the balance sheet a little quicker, in preparation for TARP repayment?

And the second part is, now that you have two quarters of profitability, what is the timeline, in terms of a GAAP DTA recovery in your conversations with the auditors?

Craig, this is Tommy.

I will take that question.

We have had a long run with shrinking loans.

And it was good for a while, but we feel like it is appropriate to turn the corner on the loan book, and begin to think about normalized earnings.

And we will be very careful about the way we deploy risk weighted, and thoughtful about the categories and so forth, as we see that growth.

But we do think that recovery of the revenue stream, has to strike a balance with capital management.

And the loan book has shrunk the many billions of dollars over the last 2.5 years.

We just feel like we need to turn that around, and all the while being cognizant of the capital management.

The question on the DTA, there is no magic formula book on the number of quarters and so forth to recover the DTA.

It is certainly good facts, to have a history of profitability.

It is good facts, to have forecast that are -- and actual results that align with one another.

Those are good facts, as you reach a subjective judgmental point, that some point in the future, as Kessel mentioned.

And we believe in the way that it is disclosed in the DTA slide in the book, is really the story that there is not magic number of quarters.

But it's facts and circumstances, based on the quality of profitability, the -- some historical pattern of profitability, what does your forward forecast look like, and what's going on in the economy, and those types of things.

And it will be a -- not something that is cranked out with the formula, but will be something in (inaudible) judgement, discussion with experts, with our auditors and so forth.

And we will keep posting updates on that, as things evolve.

Craig, and I hope that answers your question.

That's perfect Tommy.

If I could just ask one more, just a simple one.

What percentage of the TDR portfolio is land?

I knew you disclosed both land and residential, but what is just land?

We got about 12% of TDRs, of the accruing TDRs are in the land portfolio.

All right.

Great.

Thanks for taking my questions.

Thanks Craig.

The next question is coming from Ken Zerbe.

Please announce your affiliation, then pose your question.

Great.

Yes, Ken Zerbe, Morgan Stanley.

Tommy, just give me your comments about being cautious about putting on risk weighted assets.

Are you turning down business right now, that you might normally have otherwise taken on, if you weren't subject to this -- sort of current level of capital and credit scrutiny?

No, we're -- the simple answer to that is no.

We are -- as I mentioned a while ago, the ride down in risk weighted assets was a good ride for a while.

It needs to turn.

And so we're, as I mentioned, we are being thoughtful about the categories.

I am really talking about is, we're buying bonds and that type of thing.

We are carefully managing the asset side of the balance sheet, but loans are welcome at Synovus.

Got you.

Okay, thanks.

All right, Ken.

The next question is coming from Jennifer Demba.

Please announce your affiliation, then pose your question.

Thank you, good morning.

SunTrust Robinson Humphrey.

Question for you, Tommy, on the net interest margin, and what your outlook is for the next few quarters?

And then I also have a question about Durbin, how you guys intended to offset your revenue loss of there from Durbin?

All right, I am going to do the margin question and D.

will do the Durbin question.

But the margin, 3.52% for the quarter.

We believe it will stay in that range, probably has a slight downside risk, that may be a little stronger than the upside opportunity.

The same of forces, Jennifer, will continue to impact it.

We will continue to have pressure on the earning asset side, both in loans and security book, And we will also think that there's a good bit of opportunity still in the effective cost of funds.

Those two will play off of each other.

Ironically, one of the things that might put some downward pressure on the margin, would be the velocity of loan growth.

There could be a modest trade in margin for loan growth, as you think about what you have to spend to fund the Company, and also willingness to put quality loans on at fair rates, but may be slightly margin dilutive, that is where we are with the margin.

And I'm going to turn the Durbin question to D.

Thanks, Tommy.

Really from the Durbin standpoint, I guess we would look at -- there were multiple regulatory changes that reduced the fee income this year.

I think one point to make, is I think they would of all been fully impacted in the fourth quarter.

So as we look forward into 2012 we spent a lot of time, really looking, mainly at retail, but also looking at commercial as well, and what are the overall fee opportunities, to make sure we are aligned with competition.

But also to make sure we are charging appropriately for the services that we offer.

To give you a little bit of a feel, we have identified an additional roughly $12 million, that we will be able to implement during 2012.

And it would have a roughly a $20 million annual run rate on a go-forward basis, that we will be implementing through the first half of the year.

It is really broad-based, across a lot of the different areas, and increments as we looked at the overall strategy of how we'd go forward.

Thanks, D.

The next question is coming from Kevin Fitzsimmons.

Please announce your affiliation, then pose your question.

Sandler O'Neill.

Good morning.

Good morning, Kevin.

Kevin, this question is probably for you.

And I know you went through some of the us.

But can you go through and help us feel a little more comfortable on why, it was appropriate to release reserves.

The thing that struck me, was the that non-accruals loans actually ticked up this quarter.

And I don't know -- was the reason behind that maybe, was there was a slower migration into OREO this quarter?

It just -- I am looking back, like I think non-accruals loans have contracted seven out of the past eight quarters, and they increased this quarter.

So I know there are some a leading indicators that gave you confidence in doing that.

But just us feel little better about the future direction of non-accrual loans.

Thanks.

I will try to answer that, but we don't just release reserve.

There is a pretty strict accounting methodology that we follow.

And certainly, positive credit trends, credit quality such as lower mark-to-market costs, lower NPLs inflows, and other charge-offs, and other good positive trends certainly attribute some of the downward pressure on the reserve methodology.

We certainly, as far as non-performing assets, we have seen decreases several quarters here in a row.

And we think, within those non-performing assets, it is not just dispositions that will lower that.

We had 21 basis points, we did lower, this past quarter, linked quarter.

But we do expect there will be some upgrades in there.

There will be some pay downs there, and also the disposition.

As our inflows continue to work their way down, and we are down in the 180 range, and that's down from 200, 300 to 400.

We should be able to work that book down pretty good during 2012, and we expect to do so.

But just directly, I think also you mentioned credit cost -- about 50% of that, by the way, was of the reserves of the credit cost decline, the $52 million, about 50% of that was attributed to the downward pressure on the reserve methodology.

And we expect in the future with -- assuming continued credit positive trends, that will -- there will be more of that coming.

But we are pretty confident in the direction of the potential problem loans.

All of our credit quality indicators pointed toward us, improving the quality of the balance sheet during the year.

Okay.

And if you could just repeat, I know you gave the planned disposition pace throughout the year.

If you could just give that again?

Thanks.

It was between -- we are guiding $100 million to $150 million a quarter.

We were $149 million, I think this quarter.

We -- that's a -- we make those decisions during the quarter, but we will stay somewhere in that guidance throughout the year.

That is our expectation.

Certainly, things can change.

That's -- we feel like that is a pretty healthy pace to be able to move down our non-performers during the year.

Okay.

Thank you.

The next question is coming from Nancy Bush.

Please announce your affiliation, then pose your question.

Good morning.

NAB research.

Tommy, a question for you.

The net interest -- pardon me, the non-interest.

deposits growth during the year, could you just give us sort of the commercial versus the retail numbers in that or the rates or whatever?

On the -- and this is D.

I may take that.

And you said the non-interest bearing DDA -- and I thought I heard you say rate on the end?

No, I mean, the rate of growth of commercial, versus the rate of growth of retail?

Okay.

If you go in we had -- and let me pull the exact percentages.

I am trying to look at what the differences in the two of those were.

There were growth in both areas.

As you would expect, we have larger chunks in non-interesting DDA on the commercial side.

But I would say, that's going to be the majority of the growth.

But there was also growth in the consumer side as well.

On the commercial DDA growth, is this coming about as a result of some sort of a change in product mix, or relationship requirements?

Or is this just the liquidity that is out there, and it was seeping into Synovus?

I think a big -- I think as you -- as Tommy mentioned earlier, we did have account growth in the areas.

But I would say there is a big piece of it that is tied to liquidity that is out there, as well as the fact that they are insured.

Okay.

And secondly, D., you may speak to this as well.

Could you just speak to the growth in the Atlanta bank?

We are reading a lot of sort negative stuff, about continuing problems in the Atlanta market.

And how is growth there, versus some other pieces of the Company?

If you take the Atlanta bank for the fourth quarter, it actually showed a net growth in Atlanta.

The majority of that was in the C&I portfolio.

Actually it was all in the C&I portfolio, there actually was a reduction in the real estate side, for the overall Atlanta market.

So it was positive.

And our folks out there have refocused.

We've brought on additional talent in the Atlanta market as well, and it brought on C&I growth there as well.

And Nancy, let me go back and give you the exact numbers.

I said the majority of the growth on the DDA commercial was commercial.

That was about a little over $800 million of the number.

And then, it was a little over $300 million is in the retail side.

So I just wanted to give you the specifics

Thank you.

The next question of the day is coming from Christopher Marinac.

Please announce your affiliation, then pose your question.

Thanks.

Good morning.

Good morning, Chris.

I wanted to ask about the drop in the excess liquidity with the Fed, the $1.2 billion or $1.1 billion, that change.

Will that be continually declining this year, or will that be big move (inaudible) for now?

Chris, this is Tommy.

I will take that on.

We have been trying for four or five quarters to meaningfully drop the balance.

So we made a little bit of progress along the way.

We've basically, added to the securities portfolio.

We are making some loans, we've pushed out some of the higher cost funding, and the less desirable funding like brokered CDs.

And we've done all of that, really over a number of quarters.

But we've had things happen like in the third quarter, where $0.75 billion of core deposits came into the Company, and offset it.

So, this time we were able to successfully push it down.

Your question is, will it keep going?

And the answer would be, modestly.

There is a limit, that isn't a hard limit, that we have internally, and -- but we believe that there is room to pull it down some more.

But we made huge progress in the fourth quarter, and are very comfortable with the position we're in.

Great.

And I guess, my follow-up just goes back to credit, for either D.

or whomever, is how important, with either internally or with your regulatory relationships, is the classified and criticized ratios to capital and reserves?

And just thinking about the drop of reserves this last quarter, I mean that your ratios are modestly improved, but they haven't improved as much as the dollar amount of the actual classifieds and criticized--

Chris, this is Kessel.

Maybe I can take that for Kevin and for D.

Certainly the overall level of classified assets is important, not just the regulators, but as important to management and Board, and really a part of a continuing trend.

So we've continue to work overall levels of classified assets down.

Kevin went into I think a lot of detail about some of the categories.

But again, going back over the last year, 1.5 years, tremendous improvement.

Certainly, without getting into specific discussions with regulators, something we talk to them about frequently, and I cannot speak for them.

They are probably on this call.

But I think they too, would suggest that, that certainly pleased to see those levels of classified assets as a percentage of capital going down.

Okay.

Do you have any goal internally, that you would like to be at -- I mean, not to announce it but just --

Yes.

sort of gauging your --

Yes, we do.

D.

held up a zero sign.

(Laughter).

And that's not realistic, but we do have targets that carry us throughout this year and beyond.

And again, have certainly share those with our regulatory partners, but hope to see continued significant declines there.

I like the thought of zero, probably not realistic, but certainly, a fairly substantial drop in 2012.

Great.

Thank you.

Appreciate it.

The next question is coming from Michael Rose.

Please announce your affiliation, then pose your question.

Yes, hi.

Raymond James.

Just a question on loan yield and what you're booking new credits at.

I think you said last quarter, yields on new loan production was a little under 5%.

Has that changed?

It would have been down just slightly.

It's -- it would be between 4.5% and 5% for the quarter.

We did have a couple of decent sized draws with some very strong customers, that have lower rates, over a year in.

But overall, it is down slightly, but not significantly.

Okay.

And then just a question on expenses if I could.

Obviously, you have gone through an expense program.

Is there any additional kind of low-hanging fruit, or any other areas that you are targeting at this point, headcount, et cetera?

Thanks.

Yes, Michael, I don't know that I would call it low-hanging fruit, but it is just a way of life around here now.

We have an expense opportunity group that is co-chaired by Tommy and Al Gula, our Chief Operations Officer, that are continuing to identify and drive costs out.

And that is just an ongoing part of our business.

I think you will see that reflected in the 2012 results.

We have not disclosed any exact targets, but again, you will see that occurred during the year.

It is ongoing.

Great.

Thanks.

There is a follow-up question coming from Craig Siegenthaler.

Your line is live.

Thanks.

Just on special mention loan improvement here, on slide 32.

Can you talk about what geographies and loan classes are keeping this balance quite elevated?

I know it improved a little bit, but I just want to kind of determine if there is underlying mix shift going on here?

Yes.

This is Kevin.

Special interest is kind of the cross roads of the flow of the credit quality.

It didn't decrease much, although it is showing very good trends over the last three or four quarters.

We are -- you're going to get some loans -- go from substandard to special mention, so had we not -- and we -- and that's improved performance.

But you talked about the mix.

The mix of the special mention loans, it's not -- I think we've mentioned earlier, as I was going through the portfolios, I think we're talking maybe 12% to 15% of it is in land and residential.

So it is not as much there, it's more -- it is heavily weighted -- I think, I don't have the exact number -- it may be more, let me look -- closer to about 25% investment properties, and closer to 50% C&I.

So, and then some more retail in there as well, some other categories, but it's probably close to 50% in the C&I category, which is encouraging.

Those are attached to cash flow.

Those are loans that have suffered a little bit of weakness during this cycle, three or four years.

And we expect, really, a lot of the special mention credits to work back to pass.

We just recently did about a month ago, a review of the top 100 special mention credits in our portfolio.

And we were very encouraged that the majority, if not most of those, we expect to be improved during 2012 and upgraded.

Got it.

So it sounds like a little bit of a mix shift towards C&I, and away from land, just modest.

Yes.

It's probably 75% to 80% are investment real estate, and C&I, which has tax flow attached to that.

Okay.

Got it.

Thanks for taking my questions.

Thank you, Craig.

There is another follow-up question coming from Nancy Bush.

Your line is live.

Forgive me for asking this question, but I've asked it for so many years, I have to ask it for one more.

Is there any ongoing exposure to C&I loans, and or any of these ancillary properties around there?

No, Nancy, not that credit.

That was really dealt with, really, the year before last.

Of course, we do have a bank, a bank division in that market, very successful bank, coastal bank.

So it is natural that, that bank would have customers who are residents of Sea Island, who have some sort of ancillary business related to that.

But in terms of any major exposure, no.

Okay.

Thank you.

There is another follow-up question coming from Jennifer Demba.

Your line is live.

Thank you.

Follow-up question for Kevin.

Kevin, can you just give us a sense of what the granularity of the NPLs is at this point, average size, or the largest ones, what they might look like, in terms of --

Yes, we only have -- we were looking at that this morning, as a matter of fact.

We have a three loans that are somewhere between $25 million and $30 million that are in nonperforming, and so averages $60 million or so.

After that, the next, they are all below $20 million.

We were kind of looking at the mean of those, and they are typically somewhere between $1 million and $4 million.

That is where 80% or so of those loans are.

So we don't have a lot of large NPLs, only three over $20 million,

Okay.

Thanks, Kevin.

There appear to be no further questions in the queue.

Do you have any closing comments you would like to finish with?

Yes, just very briefly.

Again, I want to thank all of you for listening today.

I'm sure today, like those days, we have analysts, members of the investment community, team members, customers, shareholders, and we really appreciate all of you showing your interest in our Company by participating today.

Again, I think the story of the quarter, again, two consecutive quarters of profitability.

Someone who follows our Company very closely, had seen our early release this morning, and sent me an e-mail that says focus, determination and execution are paying dividends.

And I don't think I can say it any better, so I will just steal that e-mail, and call the author later today, to thank them for that comment.

I think it is a reflection on our team.

I know a lot has been written about fatigue in companies such as Synovus, management fatigue, and general team fatigue.

But I will just tell you that the team is energized, from the moment we announced profitability last quarter, as I've described the team here, there's an extra spring in their step.

They're energized and excited about, again, closing out 2011, and certainly excited about the opportunities in 2012.

So I look forward to continuing to update all of you about our Company's continued progress.

And again, thank you for participating, and I hope you all have a good day.

Thank you.

Thank you, ladies and gentlemen, this does conclude today's conference call.

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

Thank you for your participation.