Synovus Financial Corp (SNV) 2013 Q1 法說會逐字稿

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

At this time all lines have been placed on a listen-only mode and we will open the floor for your question and comments following the presentation.

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

Sir, the floor is yours.

Thank you, Katie, and thank all of you for joining us today for our call.

During this call will be referencing the slides and press release that are available within the Investor Relations section of our website at Synovus.com.

Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today with our executive management team available to answer all of your questions.

Before I 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 our website.

We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise except as may be required by law.

During the call we will discuss non-GAAP financial measures in reference to the Company's performance and you can see the reconciliation of these measures to our GAAP financial measures in the appendix to our 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 do respect the time available this morning and desire to answer everyone's questions.

We ask that initially you 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.

Now I will turn it over to Kessel Stelling.

Thank you, Pat, and good morning to all of you.

By now hopefully you have had a chance to review our press release, our earnings deck and 8-K filing earlier this morning; I will talk about all of those decks in our time today.

So again thank you for joining us.

I guess the story of the quarter -- pre-tax income increased about $47 million for the first quarter of 2013.

That was the highest level of pre-tax income for our Company in about five years, up almost 30% from $35.9 million in the first quarter of 2012.

Net income available to common shareholders was $14.8 million or $0.02 per diluted share.

The first-quarter results include $4.9 million in restructuring charges and income tax expense of approximately $17 million as our earnings are now fully taxed at 36.5% after the fourth-quarter DTA recapture.

A couple of clarifications about the comparative quarters just as a reminder -- fourth-quarter 2012 results included investment securities gains of $8.2 million; approximately $157 million in pre-tax charges from distressed asset dispositions; and an income tax benefit of approximately $796 million primarily from deferred tax asset recapture.

The first quarter of 2012 results included securities gains of $20.1 million and an income tax benefit of about $77,000.

So just trying to give you a little comparative data there on those quarters we just referenced.

Again, the big story, performance was driven by continued improvement in credit quality and further expense reductions and I will take you to page 5 and talk a little bit more about that.

Again, you will see graphically there indicated the tremendous improvement in credit cost over the five-year horizon and also the decline in core expenses.

In fact, credit costs also fell to the lowest level in over five years to $49.3 million for the first quarter 2013 compared to $185.8 million for the fourth quarter of 2012 and $90.9 million for the first quarter of 2012.

That number is down $41.6 million compared to the first quarter a year ago, about 45.8%.

A little breakdown on the first-quarter credit cost -- provision expense was about $36 million; ORE expense about $11 million; other credit cost $2.7 million.

In addition to an improvement in credit cost we also saw continued improvement in core expenses as our efforts to drive those down continue to produce positive results.

Core expenses excluding restructuring charges, other credit costs and Visa identification charges were down -- were $163.8 million, down $7.6 million from $171.4 million in the fourth quarter of 2012, down $10.6 million from $170.4 million for the first quarter of 2012.

We realized across-the-board reductions in our initiatives to reduce our previously announced $30 million target in 2013 are well on track and we will talk about that later in the slide deck.

On page 6 you will see net interest margin declined modestly, close to stability there, 3.43% compared to 3.45% a quarter ago.

Our yield on earning assets was down 4 basis points; our effective cost of funds down 2 basis points.

Page 7 will talk about our loan balances, certainly impacted by borrowing patterns, our own pricing discipline and CRE paydowns; I'll talk a little bit about that.

I will call your attention to the bottom and just walk through the numbers with you.

On a net basis we had a net decline of $51.6 million compared to growth of $345 million a quarter of ago and a decline of about $25 million a year ago.

On a reported basis loans declined approximately $174 million compared to $190 million a year ago -- a quarter of ago, $236 million a year ago.

As I said previously, we continue to assert discipline in pricing and structure.

Certainly we saw lots of opportunities in the markets at rates and terms that we were not inclined to try and match.

So again, I believe we are very disciplined and it was the right strategy for our Company this quarter and we will continue to stay disciplined and look for opportunities for growth that meet our profitability targets.

We did have growth in of the large corporate area, total loan growth of about $158 million there, about 60% of that is from large corporate, 40% from senior housing.

And it's a pretty good mix, almost 50% each in latest indications and direct originations, so still really good activity there.

We saw some CRE paydowns as the permanent market became more attractive to some of our commercial real estate customers and they availed themselves of some refinance opportunities.

But that is part of a healthy cycle and, again, we are okay with that; we see opportunities now in our pipeline that beat our targets in terms of profitability and feel good about what those indicators tell us about future loan balances, again both in the pipeline and commitments increased activity there.

And we do expect net loan growth in the second quarter of 2013.

So again, down for the quarter.

We do expect to rebound and grow net loans in the second quarter.

On page 8, talking about deposits -- deposits ended the quarter at $20.6 billion, down about $500 million from the previous quarter primarily due to decreases in non-interest-bearing demand deposits and NOW account balances.

Our core deposits ended the quarter at $19.2 billion, down $735.7 million compared to the fourth quarter 2012, core deposits excluding time deposits were down $634.6 million compared to the previous quarter.

And it was due -- primarily due to the expected reductions in clearing and SCM temporary accounts, which were all at elevated levels at year end, that was a primary driver of the core decline.

We saw minimal impact from the expiration of the TAGP program and do think that this quarter's deposit base is more indicative of our core base.

On the broker deposit side, just a fact I think you'll find interesting -- our peak balance was $6.34 billion at December 31, 2008, about 22% of total deposits.

That number today is $1.33 billion or 6.5% of total deposits at March 31, 2013.

So the point being I guess a much healthier deposit mix as we have focused on growth and relationship based non-collateralized core deposits and our team is doing an excellent job there.

On pages 9 you will see the cost of core deposits, stable versus fourth quarter at 30 basis points, continuing for the fourth quarter to the first quarter of 2013.

On page 10, non-interest income, we had a decrease there driven by declines in securities gains which I mentioned in the previous quarters, mortgage banking income down from elevated levels of fourth quarter and some seasonality there.

We did have increases over the first-quarter 2012 and service charges on deposit accounts and other fee income.

That was driven by previously implemented fee income initiatives.

Our aggressive pursuit of cross-selling strategies reflected in linked-quarter and year-over-year growth in brokerage and fiduciary and asset management fees, so good performance there.

We have sequential quarter decline in bank card fees due to a one-time benefit in the fourth quarter and some seasonality there as well.

And then Mortgage Banking, as I said previously, declined $2.1 million from the elevated levels we saw in the fourth quarter of 2012.

We expect the remainder of 2013 to be at similar levels to the first quarter.

But again, the mortgage company has been a strong source of earnings and fee income for our Company; they continue to do a great job for us.

On page 11, again further declines in non-interest expense and core expenses, both graphically illustrated there.

Non-interest expense declined by $31.1 million or 14.6% versus the fourth quarter of 2012.

And again, as previously stated, the first quarter of 2013 included about $5 million of restructuring charges compared to $2 million in the fourth quarter of 2012.

Core expenses decreased by $7.6 million or 4.4% versus the fourth quarter despite $3 million of seasonal increase in payroll taxes.

Again, as previously stated, we realized across the board expense reductions.

We saw headcount continue to trend down, down another 169 positions from the fourth quarter of 2012 to right at 4,800 employees, down from 5,163 a year ago.

And again, our initiatives to reduce expenses by $30 million are well on track.

As I have said and Tommy has said on numerous calls, you won't see those reductions dollar for dollar as we continue to make what we consider to be very smart investments with the right people, the right talent come along and can help us grow and diversify our revenue stream.

So we will continue to take cost out, continue to invest in talent and technology, is it way of how we run our business and I think you will see the results of those efforts throughout the remainder of the year.

On page 12 I will go to the credit story, I think once again significantly improved this quarter led by a 46% reduction in credit cost year over year, $49 million.

Credit costs were down 73% compared to the fourth quarter on a reported basis and also experienced a decrease fundamentally when you exclude the fourth-quarter 2012 [call it] sale component.

But again, $49 million versus $186 million a quarter ago, $86 million in the third quarter.

Again, you can see that trend line, it is in line with guidance, in line with our story of continued progress and continued healing in our portfolio there.

On page 13, again, I think this is a very important slide for us given the -- maybe the bumpiness in the fourth quarter.

Our NPL inflows did decrease 40% from a year ago.

For those of you that were on the call last quarter, we did talk about a spike in inflows related to a large credit relationship and I think went to great lengths to discuss why we believe that was not a circumstance that will repeat itself and that in fact inflows would return to levels at 3Q 2012 or below.

And in fact they did, again $84 million below what Kevin had guided versus the $115 million in the third quarter and versus the $140 million first quarter a year ago.

So a good trend there and again, as we stated last quarter in terms of the overall quality of the loan portfolio and the tremendous effort the Company has made to reduce large borrower concentrations, I'll just call your attention again to the fact that we currently have two substandard accruing credits and six special mention credits greater than $20 million none of which are over $40 million.

So again, much smaller concentration of loans from which our defaults normally flow.

So Kevin will talk more about the credit in a little bit, but I believe we think this trend -- he'll get into that -- will continue throughout the year.

On page 14, again improvement both in NPLs and classified assets.

I will walk through some of those numbers with you.

You will see from the chart NPLs are now $513 million or 2.65%, down a 39% from a year ago.

We expect to see these steady declines throughout the year as we continue to experience lower levels of inflows as well as executing on a disposition strategy.

So again I think a strong improvement there.

And then on classified assets you will see we declined 35% versus a year ago to $1.3 billion, now stands at 36.7% of our Tier 1 capital and allowance for loan-loss reserve.

Consolidated ratio is 43.5%, we continue, again, to expect to see both of those levels trend downward throughout the year.

And again we talked last quarter, again we'll mention this quarter that that ratio and that ratio continuing to trend down is key to our proposal to have dividends upstream from the Bank to the parent.

On page 15 just continued evidence of credit healing.

I will call your attention to the charge-off slide first, again well within our guidance.

I think Kevin had guided 1% to 1.5%, last quarter our net charge-off ratio was 1.18%, certainly the lowest in sometime, some $57 million.

And again, in line or better than guidance and Kevin can talk more about that later in the call.

And then our past dues again remain at low levels and that is, again, I think a sign of the overall strength and health of our loan portfolio and certainly the efforts of our bankers to keep those credits properly structured and performing.

Page 16, I'll talk a little bit about TDRs.

I know some of the investment community lumps these in with our NPLs and we like to point out the different characteristics and suggest that maybe you shouldn't do that.

So this is a look at our performing TDRs and, again, you will see performing TDRs are down 7.5% this quarter, ended the quarter at $624 million.

And just a little bit -- the pie chart, we'll tell you the composition, but a little bit of color on those performing TDRs.

Over 99% of those are paid current; there are no 90-day past dues in that portfolio.

58% of the performing TDRs are rated better than substandard, said a different way they are [pass] or special mention.

Most of them are designated that way due to interest-rate concessions, 71% of the performing TDRs are not residential or land related.

So again, we want to see that number continue to come down, but that is certainly I think a better reflection of the strength of that book by the bullets we just went through there.

Page 17 I want to take you through our capital ratios.

Certainly key to the Company at any time, but over the next several quarters I know you will all be looking at these, so we will go through those again.

Tier 1 capital ended the quarter at 13.5%, up from 13.24% in the fourth quarter, up from 13.19% a year ago.

Tier 1 Common equity 8.93% from 8.72% a quarter ago and 8.67% a year ago.

Our total risk-based capital of 16.45%, up from 16.18% a quarter ago.

Leverage ratio 11.27%, up from 11% last quarter, 10.41% a year ago.

And again, the biggest I guess beneficiary of the DTA is the tangible common equity ratio of 9.89% compared to the 9.66% in the fourth quarter, but 6.81% a year ago where the DTA was not reflected there.

And again a reminder that $687 million of the net deferred tax assets are excluded from Tier 1 capital at March 31, that compares to $710 million at December 31.

That will continue to accrete to capital as the Company continues to earn money over time.

On page 18 a little different look, but again on the bank capital ratio, certainly key to our long-term plans here, you will see that the Tier 1 capital ratio at the Bank level is 15.33% compared to 14.88% a year ago(sic-see presentation slide "Q412").

Total risk-based capital at the Bank 16.58% compared to 16.14% a quarter ago and 15.55% a year ago.

Leverage ratio 12.80% versus 12.41% a quarter ago, 11.27% a year ago.

And at the bank level a little over $500 million of net deferred tax assets are excluded from Tier 1 capital at quarter end.

Before I talk about recent developments I want to share with you excerpts from a slide that I think for those of you that have followed our Company for a long time or those of you that may be new that tells a pretty dramatic story of the Company that many of you followed in 2009 versus the Company we are today.

In fact this slide was a centerpiece of conversations we had with our ratings agencies earlier in the first quarter and it told a story of again dramatic improvement in our Company.

And I just want to walk through that again.

There are times we don't want to go back to 2009, but I think it gives you a pretty good flavor of the strength of the Company today.

I'm not going to go through every one of them, but just -- if you will just bear with me starting with inflows in 2009, we're over $3 billion compared to $641 million in 2012 and now just $84 million in the first quarter of 2013.

Our NPL ratio in 2009, 6.13%, 2.65% today, again dramatic improvement.

Charge-off ratio 5.37% in 2009, now this quarter at 1.18%.

Total credit cost about $2.2 billion, $433 billion this past year, $49 million for the first quarter.

Great improvement in our classified asset ratios both at Synovus Financial and Synovus Bank.

Again, we have been through those numbers already, but a very vivid picture here.

Same thing time and broker deposits cut in half 46%, then 23%.

And Tier 1 Common in 2009 6.66% and 8.93% today and, again, other ratios are very obvious.

And then the highlight at the bottom, $1.6 billion in losses in 2009 and that is a pre-tax and number for comparative purposes compared to $31 million pre-tax in 2012 and that $47 million in the first quarter of 2013.

I share that with you because the point that we made to the regulatory -- to the ratings agency then was that for balance sheet purposes and for comparative purposes we are really not the same Company we were, but for a lot of reasons we are.

The strength of our franchise and the marketshare in the Southeast, the loyalty of our customers, the attitude of our employees -- we are the same very customer focused company.

So I share that with you because of the way we use it with the rating agencies and wanted to certainly share it with you today.

But let's talk about some recent developments in our Company.

In February 2013 we mentioned meetings with the agency.

In February 2013 Fitch changed the outlook on Synovus to positive.

Also in February S&P changed the outlook on Synovus to positive and upgraded our long-term counterparty credit rating by one level.

And then hopefully you saw earlier today in an 8-K filing that effective yesterday the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance lifted the Synovus memorandum of understanding and replaced that memorandum of understanding with a resolution adopted by our Board relating to, among other things, continued emphasis on improving asset quality and maintaining strong levels of capital and liquidity.

At the bank level, Synovus Bank continues to be subject to MOU with the FDIC and the Georgia Department of Banking and Finance.

And we expect that MOU to also be lifted in the near term and replaced with a resolution to be adopted by our Board of Directors.

And again that was -- the details of that are in the 8-K filing today if you have not seen that.

I will now move on slide 21; before we get into Q&A I want to walk you through our TARP repayment expectations.

We continue to model internally the [corporate] levels of capital both now and through the cycle in a stressed environment and we share those models continually with all of our regulatory agencies.

We believe that TARP repayment will likely occur during the third quarter of 2013.

Again, we had previously stated no sooner than the second quarter and no later than the fourth and our belief is it will occur during the third quarter of 2013 and we will continue to update as that timeline gets clearer.

As to the sources of repayment, again, I think this is hopefully in-line with what you have heard before, but certainly in line with what we have said before.

The largest single component will come from existing cash primarily upstream dividend from the Bank subsidiary to the parent company.

Additionally, we do believe a Tier 1 capital component will be a piece of the exit, that will be a combination of common and/or preferred stock and the balance will likely be a debt issuance.

I know many of you who are following our Company give us routine advice on how we ought to exit and I will just say again that as we move through the second quarter and get clearer on what we believe are the right capital levels for our Company and get further in our discussions with regulators as to appropriate levels and stacks we will certainly update the market as we are able to do so.

So with that I think this would be a good time to pause and open the floor for questions.

We have our entire executive team here in the room, we will be happy to take questions on anything that we covered or any topics that we didn't cover that are on your mind.

So, Operator, I will now open the floor up for questions.

(Operator Instructions).

Kevin Fitzsimmons, please announce your affiliation then post your question.

Sandler O'Neill.

Good morning, everyone.

Just a few questions.

I appreciate the outlook given on net loan growth, positive growth coming in the second quarter.

Kessel, can you talk about total loan growth, when you may imagine that stabilizes and starts shifting to positive?

And then maybe we can just talk more broadly about spread revenues and what you see the margin doing.

Because I think that's -- if we look back several quarters there's been a decline in spread revenues, your main revenue source.

So just looking at how you attack it if it is a matter of being able to stabilize the margin and/or shifting total net to growth to positive to at least try to stabilize that revenue source?

Thanks.

Yes, Kevin, I will be happy to.

I will let Tommy talk a little bit about the margin, but we have spent a lot of time looking at results of the quarter from a loan standpoint, so I anticipated your question.

We did talk about net loan growth in the second quarter.

I think our balance sheet is at or near the trough.

We think there is the opportunity for reported growth in the second quarter and certainly feel like there is the opportunity for reported growth through the remainder of the year.

So we believe on a reported basis from now through the end of the year we will have modest growth in the reported number.

In the second quarter, again, confident about net growth and feel pretty good about reported growth in the second quarter as well.

But through the back half of the year we do believe that we hit that trough and we will see reported a loan growth to hopefully offset some of the margin pressure that we didn't see too much of this quarter -- certainly there was pressure, not as much reflected in the results.

But I think we will feel more of that on the next quarter.

Tommy, you want to talk a little bit about the margin question with Kevin?

Yes, sure, I will be glad to.

Kevin, in the first quarter we did see very modest margin pressure as a function of the 4 basis point decline on the earning asset side and that was some on the loan side and some on the investment securities side.

That was offset by a 2 basis point reduction in funding cost really all outside of core funding.

It was really the wholesale funding cost being less in the first quarter than in the fourth.

As we move into the second quarter I think it's important to remember in the first quarter we had a very low level of interest rate reversals, which was -- at an elevated level in the fourth quarter, so that kind of gave us a little bit of buffer.

So in the first quarter very low level of interest rate reversals related to NPLs and we would expect that to be similar in the second quarter.

So we won't have that buffer coming in until the second quarter.

We would expect to see likely some margin pressure in the second quarter that's moderately higher than what we saw in the first quarter.

And we've got to strike a balance every day on price of loans and pricing funding and trading a little bit of margin here and there for some loan growth.

So that is kind of an ongoing process, but we do expect to see a little bit of pressure in the second.

Okay, thank you.

And one quick follow-up.

Just with the announcements on the MOUs, I am just curious, is that something that is very important in your process of requesting to dividend up from the Bank or is that really something separate?

Is that timing just very fortunate for you all that it is coming when it is and how to put that into context?

Thanks.

Kevin, let me try it out.

I don't want to tie it to any thing or any event.

I will just say it is just a sign of continued progress for our Company.

And I will probably leave it at that.

Again we would rather not have it then have it.

And we are pleased to announce that it's terminated, but I wouldn't necessarily tie it to any future events.

Okay, thank you very much.

John Pancari.

Please announce your affiliation then pose your question.

Good morning, guys, it is Steve Moss on behalf of John Pancari with Evercore.

Just want to start off -- I noticed the loan loss reserve ratio decline moderated this quarter.

I'm just wondering what your thoughts are there.

Hey, Steve, this is Kevin.

Our thoughts, we did have a little bit of -- went down a little bit, but down we think we think we'll watch trends and economic conditions and, as we've stated before, reserve reductions will follow improved credit quality and we expect continued improved credit quality throughout the year.

And in my opinion we still have room for some meaningful reduction there.

I don't want to put a number on that right now, but I can see a loan loss reserve having reductions through the year continue.

We've still got room for that at a 180-ish type loan loss reserve as it is today.

Okay, and then the second thing -- I missed part of your commentary earlier, Kessel, regarding loan pricing pressure.

Just wondering if you'd give a little color as to kind of when you saw that and then where are you seeing the greatest pricing pressure.

Yes, I said we would see additional pressure certainly in the second quarter on the margin.

I will let D. Copeland talk about specific areas of loan pricing and where we saw the pressure there.

So, D., I will turn it to you.

Yes, a couple of things.

I would say the biggest piece from the pressure would be on longer-term fixed probably tied mostly to the owner occupied section that we have been focused on.

I think one thing that would be a good point to put out though is just Kessel made a comment early just trying to make sure we maintain the proper discipline moving forward.

And in the first quarter, if you actually look at our new and renewed rates for the first quarter versus the fourth quarter they were constant.

And so, we tried to hold [onto] this one as much as we could to not drop those rates.

And so, we are seeing it more on the long-term rates.

We also are seeing some contraction in the large corporate market as well.

Hopefully that stabilized a little bit as we are moving into the second quarter, but we did see some contraction there as well.

Okay, thank you very much.

Craig Siegenthaler.

Please announce your affiliation then pose your question.

Good morning, this is actually Nick Karzon standing in for Craig this morning from Credit Suisse.

I guess first I wanted to dig a little deeper into the MOUs.

I was wondering if that impacts your ability to consider potential acquisitions now that we have TARP repayment coming up in the third quarter.

Kind of post that how you are thinking about the M&A environment?

Again, I wouldn't want to tie the MOU to any specific action or approval.

It is just -- it's a sign of continued improvement in our Company and I wouldn't want to speak for our regulatory agencies and what that might allow us to do or not to do.

But again, as I said earlier, I think the removal from a Company standpoint is certainly a very positive event as we move -- continue to move through with this cycle.

And then second, I think you had about $11 million on OREO expense in the quarter and I was wondering if part of that was driven by the $61 million in distressed assets dispositions and kind of what a good core run rate is for that going forward.

You are right, we had $60 million in dispositions, we think adding $50 million to $75 million, we think that will be where we will guide throughout the year.

Our ORE I think we guided $10 million to $15 million on ORE expenses for the first half of the year.

I think we landed in the middle there and I think it would be closer toward the lower part of that guidance next quarter.

And I'm not going to guide a whole lot further than that, but I can see it getting below that guidance in the second half of the year as our ORE works down and our NPA and our problem loans work down, that expense should naturally work down as well.

Thanks for taking my questions this morning.

Ken Zerbe.

Please announce your affiliation then pose your question.

Ken Zerbe from Morgan Stanley.

The first question I had just in terms of TARP repayment, your Tier 1 capital ratio at 13.5% is very strong, but I guess we mostly look at the Tier 1 Common of 8.9%.

Is that how you guys look at it or how regulars look at it?

When you are deciding what composition of the equity or capital raise to use to repay TARP do you guys focus more on Tier 1 Common or regular capital?

And, Ken, I will let Tommy help me here as well, but I guess the issue for us is -- and we look at all of them and certainly Tier 1 Common of 8.93%.

But if you take the TARP component out of Tier 1 capital and don't replace it with some other Tier 1 component, then your Tier 1 capital ratio and your Tier 1 Common are going to be largely the same because that buffer goes away.

So that is why we believe there will be a Tier 1 capital component to replace, again, the TARP instrument which is included today in the Tier 1 capital.

Tommy, do you have any color on that or anything else to add?

Kessel, you said it well and I think there is an expectation that there probably should over time at least be a difference between Tier 1 and Tier 1 Common.

So that is taken into consideration as we look at the mix, but still under development.

Understood.

I guess I was just thinking do regulators -- or would regulators allow you to repay TARP and maintain an 8.9% Tier 1 Common, or if it needs to be a little bit higher, that is kind of the gist of the question.

Yes, and again, I don't think the answer to that is that clear, it is not that prescriptive.

We will at the end of the day, after a lot of discussion modeling, try and land on what we think is a right amount of Tier 1 common, what is the appropriate ratio, what is the appropriate Tier 1 capital and submit that for approval.

And to be more specific than that today I think would not be fair to the process in terms of how the Tier 1 capital component might play out.

We certainly believe it is there and, again, it is going to be a combination of common and/or preferred.

Understood, okay, and then just the second question.

In terms of your loan growth outlook that you would have positive net growth in second quarter, where does that growth come from?

Because we did see the comment in the press release that it is a challenging lending environment.

So I'm just wondering what drives the improvement versus kind of where we were at this quarter.

Thanks.

Yes, Ken, this is D. I will take that.

Really if we go there and look at where does it come from, I'll go a little bit in geography and then maybe talk about a couple of other things.

We have had -- and to give you one point is our pipeline really continues to move forward.

We see positive results in the first-quarter pipeline, but also what we have seen quarter to date in the pipeline as well.

Specifically, I think it will continue to come.

We will have growth in the large corporate area, but then from a geography standpoint we see strength in the pipeline.

For portions of Atlanta and Florida, I think you will have Jacksonville and Tampa has good opportunities as well.

We've seen strength in parts of South Carolina as well from a Charleston and Greenville standpoint.

We have had some stabilization in Myrtle Beach.

I don't know that we will have a ton of growth there, but we have had stabilization there.

And also opportunity in Nashville to grow.

So we feel like from what we've seen in the pipeline, we will have opportunities in those difference areas.

One other comment I would like to make would be from a first-quarter standpoint we do feel like we had some seasonal paydowns which we will not have in the second quarter to help offset that as well, on the consumer book as well as paydowns on lines of credit that we have that we do not think will repeat themselves in the second quarter.

Great, that's helpful.

Thank you.

Steven Alexopoulos.

Please announce your affiliation then pose your question.

JPMorgan.

Good morning, everyone.

I just wanted to follow up on the question on TARP, just looking at slide 21 where you say the largest single component will be cash.

Tommy, can you give us maybe a ballpark of how much cash you expect to have on hand at the holding company level when we come to the third quarter?

Yes, Steven, the cash that we are referring to is primarily and really mostly a dividend from the Bank.

And we believe that we have the appropriate level of cash in the parent company, but really wouldn't want to, at this point, consider a meaningful piece of that as being a part of the TARP repayment.

It is more from the dividend from the Bank.

So, Tommy, what's the cash on hand today and what was the dividend say in 1Q that you are able to pay up?

Well, we've got $1.4 billion-ish setting at the Fed, we've got plenty of opportunities -- we have been adding some liquidity, we've got lots of room on the wholesale side, we have got lots of room to be more aggressive on deposits that we need.

But we have been positioning to repay TARP and really don't feel like that the liquidity and even the capital will be an impediment, it will just be whatever is agreed upon with us and our regulators.

Okay.

And then just as a follow up, I guess I didn't understand your answer to the question on M&A.

Do you think you are in a position today to pursue an acquisition and is this even something on your radar?

I would say today, no.

I think we said in [order], we needed certain things to happen, DTA, we needed that to happen.

I think we have not discussed again publicly the MOUs much, but I think that is certainly another step in our recovery.

I think the TARP repayment is another step.

And I think post that certainly is something that we believe will be a part of our strategy.

It is not the driver of our growth opportunities, but I do believe that historically Synovus has been a great acquirer of companies.

I think there are a lot of banks in our footprint in the Southeast that for whatever reason will be looking for exit strategies, many of them we know today, over the next year or so.

So I think today is a little premature, but let us get out a couple more quarters.

We have said all along we need to take care of our own problems first.

And I think this quarter is another step in showing that we are taking care of our own problems first.

And then I do believe there will be opportunities for Synovus, whether that's later this year or early next year unfortunately for our industry I think those opportunities will be with us for some time.

So, yes, I do think that is a part of our future.

I wouldn't want to be too time period specific other than to say we are a lot closer today after another quarter of again solid performance.

Okay, I appreciate that color, thanks.

Erika Penala.

Please announce your affiliation then pose your question.

Bank of America.

Could I -- my first question at the Bank level, given that the MOU had required an 8% Tier 1 leverage ratio, is that a more normal floor going forward?

Or as we think about how much excess cash there could be at the Bank to dividend up to the hold co we should think about the Tier 1 leverage floor to be higher from that 8%?

Erika, this is Tommy.

We don't think that the capital ratios including the leverage ratio at the Bank level will be an impediment.

We think there is a big runway between -- certainly between that 8% and where we are today and we certainly wouldn't even approach the 8%.

But we can't be more specific at this point on the exact mix.

But we think we can get a meaningful piece of cash dividend from the Bank sub and we can do it without impairing liquidity or capital.

Okay.

And I guess as a follow-up to that, I know that you are restricted in what you have to say, but as investors think about what the replacement capital will be to redeem TARP, should we think about the hold co level Tier 1 capital exit ratio as the benchmark upon which we will do our analysis?

And then perhaps the Tier 1 leverage at the Bank as a component that would suggest how much debt you would have to raise as it implies how much cash you could have on hand?

Erika, we kind of listed the stack in order in Kessel's presentation in a talk about the dividend from the Bank and then the Tier 1 add and then the rest being debt.

But we really aren't prepared today to be more specific than that.

We would be mindful of all of those hurdles that you have to cross; we don't see any of them as impediments, but at the end of the day the actual mix will be forthcoming a little ways out.

Okay, I tried.

Thank you for taking my questions.

Jennifer Demba.

Please announce your affiliation then pose your question.

SunTrust Robinson Humphrey, good morning.

A question -- two questions, first I think for Kevin.

Kevin, I guess your loan loss reserve is now around 1.80%.

How much more loan loss provision improvement could you see in the first quarter run rate given your NPAs are still in the -- above 3%?

And then I have a question about M&A.

Kessel, you said that it is something that could be a possibility later this year or early next year.

Geographically or size wise what's your interest there?

Thanks.

Jen, this is Kevin; I will go first.

As I mentioned, I think again good credit quality improvement will see some reserve go down.

We're not going to put a number on that right now.

I just think at our level there is opportunity; we are in the 2's on the NPLs.

We think the NPLs will have a 1 in front of it by the end of the year and the NPAs a 2 in front of it.

So is there room to move that reserve down?

I think so with the level of problem assets continuing to work down as well as TDRs.

And so, I do think there is some room there.

I think it is fairly meaningful, but obviously we've got to watch other factors.

I think about formula is going to take us there.

But one thing we are always conscious of is what is going on with the economy.

There is always some look into it other than just the factors, but the factors favor more reserve reductions throughout the rest of the year.

We're just not ready quite yet to put a number on it.

Okay, thank you.

Jennifer, let me take your second part.

I want to be really clear here to everyone, this discussion of M&A, because I know it concerns some, is no diversions of strategy here for us.

We have said throughout the cycle that when we yield and as we yield we felt like we could return to more normal banking activities which would include filling in around our footprint.

And so, I don't want a listener to think that anything today means we are going on a different path.

But as I have said before, as we heal, as we get our own house in order and if that is later this year or if it is early next year or the second half of next year, I think there are opportunities throughout the Southeast.

I don't criticize any of the deals that have taken place before us, but I think we would be a better acquirer than some who have whether it is been loss share or just other M&A activity.

I think it would largely be in our footprint, it would be smaller transactions, it would be opportunities where there have been many just like this where our Company probably could have absorbed the institution with no disruption in service to the community and could increase scale so that our existing infrastructure could work through those problems.

And I think longer term we will have to make that case to regulators and others that we would be a good vehicle to help the consolidation process.

So I think it would be in market, it would be certainly smaller size and we'd want to move slowly there.

But again, if you look at -- just look at the -- as you do, I know, as you look at the condition of banks throughout the Southeast and certainly Georgia still has a ways to go and look at the markets in which we operate.

I think our Company could help the consolidation process, add scale to our infrastructure and serve communities and very well in the process.

So I hope that answers your question.

Thanks.

Rick Kraemer, please note your affiliation then pose your question.

Weiss Multi Strategy Advisors; thanks for taking my call, guys.

Can you guys -- I mean we are talking -- we are putting the circumstances, you guys being a potential acquirer.

But the way I see it, at the end of the day you still have a real earnings power problem.

Can you -- and without earnings power you won't have a multiple, without a multiple you can't do M&A.

So before we jump that far ahead, can you maybe lay out a clearer plan of how you dramatically improve the earnings outlook?

And with all that being said, at what point do you think shareholders may be better served by you exploring other options such as a sale of the Company?

Well, we have said throughout the cycle that all of the actions we were taking were to just make this Company stronger.

And that I think makes all of your options better longer-term, whether you operate independently, whether you partner with someone else, whether you are an acquirer or whether you are an acquiree.

I think everything we have done today I has been consistent with that approach.

I think we get earnings power through continued reduction in credit cost which we have outlined today.

We have a very focused effort on expense management.

I think our entire industry is facing a revenue problem.

But I think we've taken out $120 million in cost over the last two years.

I think that is reflective of a very disciplined expense management program and we will continue to do that until the revenue line heals.

And quite frankly when that heals we will still be very disciplined on the expense side.

And then I think today we talked about how we believe the balance sheet is at or near a trough and we will see reported loan growth in the back half of the year.

And so, you will have credit costs coming down, you will have expenses going down, you will have a revenue going up and I believe that is what leads you to the kind of multiple that allows you to just buy your independence.

We never said this was a quick process for our Company.

I think I laid out a slide that took you from 2009 to 2012 and it has been slow but steady and I think everything we have done has been consistent with that approach and we're just making this Company stronger which will make all of our options stronger.

But we understand the issue of earnings and we understand the issue of multiples.

And again, we believe that the path we have laid out gets us there and if it doesn't get us there then we deal with that.

I guess the question really is can you lay out a much more specific plan of attack?

Because I can -- the provision for loan losses is $36 million for the quarter.

I mean even if we go to zero every quarter on $900 million of shares plus dilution from the TARP you are looking at maybe $0.10.

I don't -- I guess it doesn't seem that the earnings power on the current balance sheet, without expanding it dramatically, is going to be enough to justify a significantly higher stock price.

And I am looking -- I am hoping you can prove me wrong, but I'm looking for evidence of that.

Yes, well, and again, I think we will just have to prove you wrong because we are not -- we haven't given forward earnings color.

We have said we will take more credit cost out; we will take more expense out.

We have said that.

And we will grow the balance sheet to increase scale and that is where that growth in earnings will come from.

We believe a lot of our fee areas are doing well, we have talked about brokerage, we've talked about our FMS companies, we have talked about other lines of business there, our mortgage company has been strong.

But to lay out specific pieces of the income statement today or give forward earnings guidance today, we are not prepared to do that.

But I think we -- just as we weren't prepared to do that through the cycle, but yet we have executed in-line with expectations.

So I know I am falling short of what you want today, but we just aren't in a position to give specific forward earnings guidance other than to say you are right, it has got to come in credit, it has got to come in expense, it has got -- we have got to then increase the size of the balance sheet to allow more revenue lift there.

We believe that is the recipe and the formula that gets us there.

All right, thank you.

Emlen Harmon, please announce your affiliation and pose your question.

Good morning, Jefferies.

Specifically on the expenses I was hoping you could just kind of give us maybe a little bit of color on what the progress was there.

We obviously saw the headcount reduction from the fourth quarter, but it seemed like a lot of the expense improvement this quarter came in the kind of professional services line.

So was that professional services decline kind of built into your $30 million expense saves program?

And just kind of -- should we expect some further legs down as we get out into second, third, fourth quarter here?

Yes, this is Tommy.

I will be glad to take that question.

What you saw in the first quarter really is -- it's a big reduction from the fourth quarter, $8 million, it's $11 million below same quarter a year ago.

And so what you are really saying is a mix of strategic, tactical and maybe even a little bit of timing.

I think maybe a good way to get to the bottom of your question would be the -- we see the level we have hit to be fairly indicative of the run rate this year.

It will be in this neighborhood with maybe an opportunity to take it down a little more.

We are probably two-thirds of the way through installing our $30 million of -- got a little bit of that started last year, a big piece of it installed in the first quarter but not all showing up in the income statement yet because some of it was late first quarter.

But what you will see going forward is some of that continuing to blossom but also you will see some -- as we have said before, we continue to invest in (inaudible) technology, whatever it takes to strengthen the Company.

So really require these remaining completion of the mission on the $30 million to keep this at this new low level.

So I hope that answers your question.

That does, thank you.

And then one other area you noted in your prepared remarks was just making progress on the consumer fee income.

Could you give us a sense of I guess where you are finding some of those revenues and just kind of if there is more to come there as well?

Yes, this is D., I will take that on.

One of the comments that we made is positive improvement on fee income on a year-over-year basis.

I will say that the positive for that came in as we did away with the free checking accounts that we had.

Our collection rate with our bankers has been strong there, we are collecting those fees.

There is pressure, as you can imagine, on the NSF side as well as there will be pressure on card as well and those are really on volume and activity that has happened.

We look at really on a daily and weekly basis opportunities to make sure we are appropriately charging for the fees and services that we have and we will continue to look at each of those as we move forward.

Okay, thanks.

Mike Turner, please announce your affiliation and pose your question.

Compass Point.

Just if you could comment -- I don't know if you have it -- what your weighted average origination yield was or yield on new loans in the first quarter.

Yes, it was in the low fours would be the average and it would have been consistent with the fourth quarter as well.

Okay, thanks.

And given your sort of outlook for a turn in loan growth later this year, is it possible for NII to grow given the low rate environment and really just the yield dilution of new loans coming on the books?

Is it possible for net interest income --?

Well, I guess it is about $200 million or so this quarter -- do you see NII actually growing later this year or is the kind of going to be stable given loan growth will offset some of the NIM compression?

It is really all of -- the biggest driver is the loan book; the margin is really important but it's second tier in the (technical difficulty) to create growth in net interest income.

But we think an appropriate mix of a little bit of compromise on the margin to grow the balance sheet will enable an NII growth scenario.

Okay, thank you.

Christopher Marinac.

Please announce your affiliation and pose your question.

FIG Partners in Atlanta.

Kessel, you mentioned M&A activity earlier and possibility.

Have you thought through kind of what tolerance you have for tangible book dilution at this point and sort of I guess what is the frame of kind of boundary you want to stick to there?

Yes, well, Chris, I appreciate your question and I will remind everybody again that I didn't bring up M&A acquisition, I think someone else did.

But again, it's not a big part of our core growth opportunity.

We are not going to do something we believe that is dilutive to earnings.

We would do transactions that were accretive to our earnings that we felt would be very similar to the culture of our Company where we could absorb business, absorb customers into an existing footprint that we could serve those well.

And so I just want to create the impression that we are changing paths and going to go on an aggressive M&A binge.

I think if you -- and you know our Company so well; historically we have done transactions in markets similar to those in which we were already operating in, in our footprint where we could do exactly what I just talked about.

And so, we are not looking to do transactions that are dilutive to our current shareholder, we want to do things that would allow us to take advantage of this infrastructure that we've built up.

I will remind the group, we have cut $120 million in expense, but while we have done that we've built up a lot of infrastructure and risk and compliance and quite frankly in the workout in management of problem loans.

So taking on a couple hundred million dollars in problem loans would be a good weekend's work for some of our teams in terms of their ability to absorb and assimilate those portfolios.

So again, I don't want to think in terms of dilution, but I would like to think we would only do those that, A, fit in with our system, fit in with our culture that were clearly also transactions that our regulators thought were healthy for our Company.

And that is just down the road.

So we will -- as we will get that first opportunity we will be sure to talk more about it and what we looked at to do that deal.

I think, again, as I said, unfortunately for our industry those opportunities aren't going to go away anytime soon.

As we talk to lots of our friends in the community banking industry who in some cases need capital and other cases just want liquidity or want a way out.

And hopefully we will be there to provide that for them at a benefit to Synovus shareholders.

Okay, great, that's helpful.

Then just a quick follow-up on the change in debit card fees this quarter.

Is there any future change on how those play out other than seasonality?

I know you had some legal matters that are still evolving for future discussion, but just curious if we should expect some of those fees to have some further change in the future?

I think it would just be volume and seasonality would be the forward look.

Okay, very well.

Thanks, guys, appreciate the feedback.

Thanks, Chris.

Thank you.

We have no further questions in the queue.

All right, thank you, Katie.

And I want to again thank all of you for joining our call today.

Again, as I said to our team yesterday when we prepared for this call, it was just another quarter of steady progress for our Company.

Certainly as evidenced by ratings agency upgrades, certainly by improvement in credit, by improvement in expense, by level of pre-tax income it's the highest in five years.

And then again we were also very pleased today to announce in our filings the MOU between the Federal Reserve Bank of Atlanta and state banking department and our holding company had been lifted.

None of those actions change a thing we are doing.

Our team is extremely focused on execution of our strategies for short- and long-term growth, very motivated to show the kind of growth that we know we are capable of.

And very focused on our customers to have been so loyal to this Company through the cycle and who continue to stick with our Company.

So this Company has long been known for its customer focus and it will continue to be and our team is anxious to get out there in the second quarter and third quarter and fourth quarter and show the results of the efforts that we have all spent so much time over the last four years -- see those efforts come to fruition.

So I thank you for joining us again.

I look forward to further updates later this year on earnings, on execution, on TARP repayment.

And again appreciate the support and interest of the investment community.

So thank you very much.

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.