Synovus Financial Corp (SNV) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus third-quarter 2014 earnings conference call.

(Operator Instructions)

Is now my pleasure to turn the floor over to your host, Bob May, of Investor Relations. Sir, the floor is yours.

Thank you. Good morning, everyone.

During the call we'll be referencing the slides and press release that are available within the investor relations section of our website Synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer your questions.

Before we begin, I'll 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, early developments or otherwise, except as may be required by law.

During the call we will reference non-GAAP financial measures related to the Company's performance. You may see the reconciliation of these measures in the appendix of our presentation.

Due to the number of callers, we ask that you initially limit your time to two questions. If we have more time available after everyone's initial questions, we will reopen the queue for follow-ups.

Thank you, and now I'll turn it over to Kessel Stelling.

Thank you, Bob, and good morning, everyone. We appreciate you joining our third-quarter call. We will review the highlights of the third quarter, as well as discuss actions related to capital management, which we also disclose this morning.

First, for the third-quarter highlights. Third-quarter net income available to common shareholders was $44.2 million or $0.32 per diluted common share. Net income available to common shareholders was $51.3 million or $0.37 per diluted common share, after excluding the impact of net litigation related expenses, restructuring charges and Visa indemnification charges.

I'll refer you to page 23 of the appendix, which includes a listing of these components. And I'll talk a little bit more about them as well in just a minute.

Total reported loans grew $133 million sequentially. We were pleased with the FDIC market share data released in the last couple of weeks, which showed we retain top-five market share in markets that represent about 80% of our core deposit franchise.

Also pleased to see continued improvement in credit quality. Our NPL ratio declined to 1.18% from 1.27% in the second quarter of 2014 and 2.29% in the third quarter of 2013. Our net charge-off ratio declined to 24 basis points in the third quarter, up 41 basis points year to date.

Again, we ended the quarter with very strong capital ratios. Tier 1 common equity ratio increased 18 basis points sequentially and ended the quarter at 10.6%. Our third-quarter 2014 Basel III common equity Tier 1 ratio is estimated at 10.5% on a fully phased-in basis.

I mentioned some litigation-related expenses. Let me make a litigation-related statement, which will hopefully provide some clarity on those expenses.

The third-quarter results include $12.3 million in charges related to litigation settlements. You can see this amount as a separate line item in the income statement. Additionally, the quarter's results include a net benefit of $3.6 million from an insurance recovery related to attorney fees incurred in connection with these litigation matters, net of associated attorney fees incurred during the quarter.

This benefit is recorded as a component of professional fees, which are included in the adjusted non-interest expense line. Combined, these items add up to total pretax charges of $8.7 million or $0.04 per share.

While we can't comment further on specific litigation, we believe that we have resolved substantially all of our pending overdraft-related litigation matters, which have been disclosed in our public filings. We continue to work through the resolution of various collection cases and counter claims which arose during the financial crisis.

It's always possible that resolution of these credit-related cases could result in additional litigation-related losses during a particular period. However, we are pleased that, with this quarter's developments, we believe we've now substantially resolved the large exposure related to our pending non-retained litigation, which is clearly in the best interest of our shareholders.

I'll take you to page 4 and talk about loan growth. Third-quarter sequential quarter loan growth was $132.8 million, or 2.6%. Retail increased $86 million or 9.1%, driven by growth in consumer mortgages and HELOCs.

C&I decreased $82.4 million, or 3.2 %, reflecting the impact of a few larger pay-downs, which Kevin and D can talk about later on the call. CRE increased $129 million to 7.7%, driven by growth in the investment property portfolio.

Our year-over-year loan growth, $ 877 million or 4.4%. We expect approximately 4% loan growth for calendar year 2014, as we had previously guided.

We have seen an increase in new loan originations each quarter this year. Our pipeline remains strong for the fourth quarter. And we do usually have a seasonal lift in loans in the fourth quarter. We do projects continued pressure from loan pay-downs.

Page 5. Average core deposits, excluding state, county and municipal deposits, grew $204.5 million, or 4.7%, versus the second quarter of 2014. Our average core deposits decreased $18.6 million or 0.4% versus the second quarter of 2014.

Total average deposits $20.94 billion increased $75 million, or 1.4%, versus the second quarter of 2014. Again, as stated previously, we retain top-five market share in markets that represent approximately 80% of our core deposit franchise and showed deposit share growth in many of our markets throughout the Southeast.

Slide 6. Talk a little bit about the margin. As we had suggested, the margin was under pressure. The net interest margin decreased to 3.37%, down 4 basis points versus the second quarter of 2014.

Our yield on earning assets was 3.81%, down 5 basis points from the second quarter of 2014. Yield on loans decreased 4 basis points to 4.28%.

Our effective cost of funds was 44 basis points, down 1 basis point from the second quarter of 2014. Net interest income increased $1.2 million versus the second quarter, driven primarily by the higher day count in the quarter.

We do expect moderate downward pressure on the NIM in the fourth quarter. And as stated before, we're positioned to benefit from a potential increase in short-term rates. On the right side of that slide you will see the net interest income sensitivity as illustrated by a change in short-term rates of 100 and 200 basis points.

On slide 7, the third-quarter adjusted non-interest income was $64 million, a $598,000 or 0.9% increase from the second quarter of 2014. Core banking fees, $32.8 million, up $125,000 from the second quarter, driven by a $921,000, or almost 5% increase, in service charges on deposits.

Our FMS revenues, $19.4 million, increased $382,000 or 2% sequentially, driven by brokerage revenue growth. Our mortgage banking income decreased $618,000, or 11.7%, versus the second quarter.

Mortgage originations totaled approximately $197 million, up from $188 million in the prior quarter. The decline in revenue was driven by lower gains on mortgage loan sales.

On slide 8, again, a continued focus on expense management. Our adjusted 3Q 2014 non-interest expense was $166.8 million, down $2.7 million or 1.6%, versus the second quarter.

Employment expense, $93.9 million, up $1.3 million versus the second quarter, due to one more pay day in the quarter and merit increases. Actual headcount down 3.4% versus a year ago, reflecting a continued implementation of efficiency initiatives, which I'll comment on in just a minute.

Advertising expense was $7.2 million, up $896,000 versus the second quarter as planned. And hopefully you've seen our branding efforts throughout the footprint as we invest in, again, that campaign to create awareness of our Company.

Professional fees, $2.5 million, down $5.7 million versus the second quarter. That includes a benefit from $3.6 million and a net insurance recovery for incurred legal fees related to litigation.

Then, expense segment initiatives are ongoing. I'll comment a little bit about that. We are making progress across all fronts.

We've continued to rationalize our branch network. Later this month we'll be closing the 13 branches that we announced the previous quarter, bringing the total number of branch reductions this year to 20 by year end.

As previously disclosed, on the last quarter call, we expect to incur in the fourth quarter approximately $6 million of additional restructuring charges related to the 13 branch closings. Again, this relates to estimated lease exit costs.

We're continuing to work to make sure that we have the right number and mix of bankers and support teams matched with the opportunity in each of our markets. We continue to look for ways to lower corporate real estate costs by reducing the number of leases, selling under-utilized facilities and consolidating properties in certain markets. Many of you may have seen an announcement in the Atlanta market last week, as we look to, again, make that market more efficient in terms of our real estate cost.

By year end our total headcount is expected to include a reduction of approximately 300 positions year over year. At year end, we think that number will be 300 eliminated this year, in conjunction with branch closings, further refinement of our branch staffing model, as well as other efficiency initiatives. As we say often, expense management as a way of life and we continue to make progress there.

On slide 9, we'll turn to credit quality. You'll see on the first graph, non-performing loans are $242 million or 1.18%, compared to $260 million or 1.27% in the second quarter. Year-over-year improvement is about 46%.

You may recall our guidance beginning of the year was we would end 2014 with NPAs at or below 1.5% and NPLs at or below 1%. Based on the meaningful reductions we've continued to experience throughout the year, we feel confident that we'll end the year at, or close to, these levels.

The graph to right of that shows credit costs of $16 million, down slightly from the $17 million in the second quarter, representing about a 30% year-over-year improvement. We still expect credit costs to remain within the range of the past two or three quarters, as we continue to resolve the remaining legacy credits and provide for loan growth.

Bottom left graph shows net charge-offs for the third quarter 2014 of $12 million, or 24 basis points for the quarter and 41 basis points year to date. We're pleased to end the third quarter already well below our guidance of 50 basis points for the year, which we set at the beginning of the year. We expect that charge-offs in the fourth quarter will remain at or below the current levels.

Finally, the graph at the bottom right shows our past due greater than 30 days, which is another indicator of the improved quality of our portfolio. You can see on the graph that our past dues remain at low levels, currently 36 basis points. It's also worth noting that our 90-day past dues are only 2 basis points.

Slide 10, we'll talk about capital. Again, ending the quarter with very strong capital ratios. All capital ratios increased versus the prior quarter, primarily due to earnings and DTA accretion, with some offset from loan growth.

I'll walk you through key ratios there. Tier 1 common equity, 10.6%, up 18 basis points from the prior quarter. Tier1 capital, 11.19% versus 11.01% the second quarter.

Total risk-based capital, 13.17% versus 13.03% in the second quarter of 2014. Leverage ratio, 9.85% versus 9.69% in the second quarter of 2014. Our tangible common equity ratio, 11.04% versus 10.91% in the second quarter of 2014.

Again, the third-quarter common equity ratio, Tier 1 under Basel III on a fully phased-in basis, is estimated at 10.5%, well in excess of minimum requirements. Again, to remind you all that we still have a very significant deferred tax asset that will continue to generate regulatory capital in future periods.

On slide 11, just to recap what we issued in the release this morning. As we had said on the last call-in during the quarter, we expected to provide more clarity around our plans for capital efficiency on this call. And we're pleased to do so.

We announced Synovus Board has authorized a share repurchase program for the repurchase of up to $250 million of our common stock over the next 12 months. The Board also approved an increase in the quarterly common dividend from $0.07 to $0.10 per share. That dividend increase will be effective with quarterly dividend payable in January 2015.

We're pleased with the increased dividend share buyback. We think it'll provide increased returns to our broad shareholder base, while also maintaining our flexibility to reinvest in the business and pursue growth opportunities. So, pleased to announce that today, and we'll be happy to take your questions on that in just a minute.

Before we go to the Q&A, just a few comments about our go-forward strategies. Again, we're pleased with another solid quarter of progress. We're pleased with the capital actions announced today.

I want to spend a couple minutes about the activities currently under way to generate growth in coming quarters and over the long term. Our focus, clearly, continues to be on serving our customers better, increasing sales, gaining greater efficiencies, as I alluded to earlier.

Over the last several months, our main activities have resulted in the realignment of retail and commercial talent throughout our Company to bring greater strength and precision to the way we're serving customers and reaching out to prospects. These efforts to fine-tune our approach are ongoing. We've made tremendous progress since late spring, early summer, in shifting talent systems and processes to get customers access to resources that focus day in day out on the kind of banking and financial management services they need, and that they have come to expect from our Company.

To walk you through those business lines, our retail team focuses primarily on the needs of consumers, small business and mass affluent segments. That team is focused 24/7 on serving those retail customers.

In addition to the brick-and-mortar banking, we continue to add improved mobile, online, ATM, telephonic banking channels so that our customers never have to worry about our banking hours. At the same time, we continue to streamline our branch network in response to changing customer preferences and behaviors.

We mentioned earlier that our technology investments are showing measurable returns. We've got increased ATM transactions, decreased branch traffic. We anticipate the launch of our more robust mobile banking product later this year will continue that trend.

So in response to that, we'll continue to reduce the number branches in our network where the volume is trending down or locations overlap. We intend to increase the efficiency of our remaining branches through streamlined floor plans and flow, universal bankers and staff that is better aligned with sales opportunity.

At the end of the day, our goal is to offer our customers an enhanced experience no matter what channel they are using to bank with us. It gives our team more time to focus sales efforts to this targeted customer base.

Also, with our corporate bankers, again, position them to concentrate on specific commercial segments based on geography and expertise. We really believe we have an opportunity in the untapped middle-market segment.

We are currently growing out strong state-based teams with new and existing talent. We're aligning our corporate real estate teams the same way, partnering with existing talent to form geographically-focused teams. We're continuing to increase our presence in the highly specialized banking segments like senior housing, healthcare equipment financing, by bringing in experienced bankers who understand complexities in these kinds of banking relationships.

Our financial management services team focused on selling across all customer segments, leveraging internal partnerships, both receive and send referrals among each of our business lines. We're real proud of the efforts there.

There's a lot of momentum behind our family asset management line, which specializes in managing multi-generational wealth. They have a healthy and active prospect pipeline, a very loyal existing client base, and has been recognized as one of the top 50 family offices in the world.

We've recently put resources on the ground in Birmingham to tap the potential in that region up through North Alabama and into Tennessee. We've already seen significant wins in that space.

Again, to tie it all together, I think a key and a differentiator for Synovus to tie all these segments together, is our community bank team. That team lives and works in our markets.

Those local bankers are the face of our Company. They are the key connectors of both products, services to all of our customers.

Our local leadership, again we believe, has long been a differentiator of our Company, with deep ties in the community. And it gives those bankers a very unique view into the needs of local customers and prospects. It gives our bank greater flexibility and speed in our customers.

Simply put, it's a unique story of Synovus as we continue to share through our branding efforts, how our model has worked and will continue to work. I'll share a very quick story. I was in Huntsville, Alabama, this past week, celebrating the 30th anniversary of our Huntsville bank, and met some of the greatest and most loyal customers I have ever met.

I think one customer summed it up best. He said no matter how big your Company gets, you always act and feel local and that's why I bank with your Company.

I think that is the story of Synovus past, present and future. We are very proud how our team continues to operate that way.

With that, operator, I'd like to open the line up for questions. We have our usual team here, and we'll take your questions as long as time allows.

(Operator Instructions)

John Pancari.

Good morning. On the buyback program, it's good to see this announced. Want to see if you can give us some color on how you determine the size of the program.

Was it governed by a combined payout ratio that you agreed to with the regulators? Also, I want to get some thoughts on where this could ultimately, go.

John, it wasn't any one factor. It was a combination of a lot of internal analysis of, certainly, of consultation with regulators, to make sure we understood their thoughts.

Looking at our own stress test results, looking at our growth and, again, we think there's a very measured approach to, again, returning capital to shareholders. So, we think this is the right start.

Our first priority, obviously, is to fund the organic growth of the business. But we want to make sure we provide shareholders with regular dividends in this payout ratio.

Then, again, we believe this level keeps our Company very well capitalized. And also, keeps the dry powder for additional opportunities to grow our business.

So, I wouldn't say there was any one limiting factor. This is part of an ongoing process that we believe can continue over the longer term. But again, what the Board authorized with this action was $250 million over the next 12 months.

Okay, thanks, Kessel. On the loan growth side, want to see if you can give us a little bit more color on the larger pay-downs in the quarter. I know you also indicated that they should continue. Want to get some color, there.

Then, your thoughts on loan growth as we head through 2015. Could we see it back in that 4% to 6% range? Or is it going to likely hover around the 4% level? Thanks.

Hi, John, This is D. I'll touch on that. Of course, when you start to talk about the pay-downs with us, we continue to reduce assets from a disposition standpoint while that's moderated this year. We also had some pay-downs on the CRE side with a shorter cycle, but we were able to really offset that with the bankers in the market.

I would say the main story on the pay-downs, really is tied to a couple of things on the C&I side. The first would be company acquisitions. We had several companies we were involved with that were sold and so those debts were paid down.

Most of them, were long-term relationships. We maintain relationships with the owners in other capacities and loans.

In addition to that, the long-term financing market continues to be pretty high. They'll go in and we'll take some of our short-term debt on the C&I side and really go longer-term with it.

I think the second part of your question may end up being, what does loan growth look like for the fourth quarter? I think, as you see, we've left it that on an annualized basis, we would be in the ballpark of around 4%. So, we think we should have a little stronger fourth quarter that we had third quarter.

My main reasons for talking about that would be the pipeline at the end of the third quarter was strong. The mix of the pipeline was really good. With both C&I and CRE opportunities in the pipeline.

And also, just to give you a feel on our new fundings from a during-the-year basis, we've increased fundings on our new loans each quarter this year. So, the activity side is good, but we'll continue to watch what's happening in the overall market on the pay-down side.

Okay, thanks. But I actually had asked also about 2015 trends around loan growth. Any color there?

I think we basically said we'll give that guidance maybe at a later date.

Okay, thank you.

Ebrahim Poonawala.

First question, in terms of your margin guidance, expecting some more compression heading into the fourth quarter. I guess, specifically, if you could comment on commercial loan yields. They seem to have stabilized in the last couple of quarters.

I'm wondering, like should we expect the same kind of couple of basis points per quarter contraction in commercial you loan yields? Or is there a higher decline at some point because of rate flows or something else that's going on there?

Hi, this is Tommy. We actually got it for two quarters before this that we have downward pressure because of the reasons you just described. Actually, that seemed to be deferred out to the third quarter this year.

Our new and renewed dropped down below 4. We saw movement on competitive pricing side that we believed would happen even a little bit earlier.

So, really, the main factor in bringing the margin down 4 basis points this quarter was the lower-earning asset yields. That was worth about 5 basis points overall, about 4 basis points of that was from the loan yields.

We did get a little bit of a boost on the funding side. The cost of that went down a basis point. So net, net, we were down 4 basis points.

We don't think that's over. The pressure will still be out there, we believe. We've got it that we would see moderate downward pressure on the margin in the fourth quarter. It would really be -- we believe could be similar to all the drivers that occurred during the third quarter this year.

Good. A second question following up on John's question on share buybacks. It's a pretty substantial amount, about 8% of market cap. As we think about it, how aggressive could you be?

I know you like to be opportunistic, but in terms of, should we think about those buybacks as most likely to be staggered over the next four quarters, over the 12 months? Or could it be a bit more aggressive than that?

Without getting too specific, we'd certainly like to do a meaningful amount sooner rather than later, in the next couple of quarters. Again, we'll be opportunistic. We will disclose the appropriate time, as we have been able to repurchase shares.

I guess you should consider the full amount over the four quarters. But would certainly like to do a meaningful amount over the next couple of quarters.

Understood. Thanks for taking my questions.

Steven Alexopoulos.

Good morning, everyone. I want to start on the expenses. Many banks are guiding up expenses over the next year. They're talking about compliance costs, continued spending for technology. You even cited that, your retail bank.

You guys should have benefits from the cost initiatives. But when you net those together with the required spend, how should we think about a range for expense growth over the next year?

We haven't given expense guidance, so let me talk in more general terms. You're right, we have continued to make significant investments in technology. Which quite frankly, are beginning to produce tangible results.

In the coming quarters, we believe we'll be able to share more data with you there. We've made investments in a lot of different marketing and, really, business channels that are beginning to produce revenue, as well.

On the flip side, on the expense side, we've continued to take costs out through branch closure, branch rationalization. Really, a review of everything we do around here. Certainly, there is pressure on expense because of normal operating opportunities, quite frankly.

We've got a diligent eye on trying to maintain that rate of expense growth over the next 12 months. Tommy, I don't believe we've given any more specific guidance about 2015 expense. I would just say to you, certainly there's pressure and there's intense effort to keep the levels down.

Kessel, maybe let me ask it this way. If we look at the $167 million of adjusted expense, is there still enough wiggle room where you could keep driving that down on a net basis from this point?

Again, I think that would go to the guidance that we haven't given yet. But I would say this, within that number, there are opportunities to drive components of that number down. The real question is, the offset of additional investments that we'll be making.

Our team has, I think, done a great job of taking a lot of costs out and that effort continues today. It will continue through the fourth quarter.

In terms of absolute levels, we're not prepared to guide for 2015, that number yet. I would just say that within that category, there are opportunities for continued reduction.

Okay. Maybe separately, over the past year the loan to deposit ratio has gone from 94% up to around 98% now. Can you talk about the funding strategy for loans? What the impact might be to funding costs or NIM? How high are you comfortable letting the loan to deposit ratio go? Thank you.

Our thoughts on the deposit side are really over the near-term, to have deposits tracking at a similar level to the loan growth. We went through a period where we had loan shrinkage of $8 million. So we were in a mode to not really be aggressive on deposits.

We're turning that around, obviously, on the asset side. So we're likewise turning around the deposit side with incentives, with a focus on our front-line people, and with our products and with our pricing.

You would expect to see some positive movement. We saw some of that in the third quarter when you take out the state, county, municipals, which don't have the same exact value as, certainly, the core.

We're after the core that isn't state, county, municipal. You saw some positive movement there and I think that's a foothold for moving forward that way.

The ratio you described, we're right now keeping it under 100, within 95 to approaching 100. We think that over some time, that we would bring that down modestly.

Okay. Thanks for the color.

Jefferson Harralson.

Question is on the investments for next year. It sounds like the expense guidance you don't want to talk about, which is fine. But are you planning on hiring lenders, drawing corporate offices, expanding in your bigger cities, that kind of thing? What's your general thoughts for next year on expansion plans?

Yes, Jefferson, I'd be happy to take that and answer it. It is really yes to all of those, which is why we know there'll be some pressure on the expense side. Those types of expenses are the ones you want to incur, because they certainly have a revenue lift.

We've been really pleased with the addition of new talent over the last year, two, three, four, five, during the cycle. I believe with our profile today, and with the overall expanding of our Company, it's become much easier to recruit to Synovus and to tell our story.

We talked about adding family office resources in the Birmingham market. We've added specialty healthcare lending talent in the Birmingham market, covering our entire footprint. We've added some in the equipment finance area, corporate banking area, some really great additions to the team.

We will continue to look at that during 2015. We have an active network. I think the best part of that story is that our story is just easier to tell.

Across all business lines, we are in the market for high-performance bankers that share our culture of how we treat and expect others to treat our customers. That will continue into 2015. The goal will be to look for expense cuts in other areas, so that we can invest in those things that test the customer.

Okay, thanks, guys.

Ken Zerbe.

My question, in terms of -- I guess this is a combination of capital ratio and buybacks. Obviously, between the buyback and the dividends, you're paying out well over 100% of your earnings. How long does this continue?

What is your target? Or what is the constraining capital ratio that you're looking at, such that this continues even with modest loan growth? You're eating away at those capital ratios. Where are you ultimately going to end up?

Ken, we've got a $530 million DTA that's providing a lot of support and probably puts us in a unique position to help cover the capital ratios. We believe that we'll keep the capital ratios at a very strong level, Tier 1 common will stay above 10%.

We believe that we are well equipped from an earnings, from a liquidity, from a cash and general, and plus the capacity we have with the DTA, we think we'll stay in line with it and have that capacity to get to $250 million. A year is a pretty long time, so we think we'll have a good field to work on.

Okay. The second question I had, on the expense side, on page 8. The $166.8 million of adjusted.

Does that already back out the benefit from the $3.6 million insurance recovery? Such that your true adjusted expenses are really closer to $170 million? Just trying to make sure I get the ongoing numbers right.

If you backed it out, we'd be, instead of slightly better than before, we'd be $900,000 over the $169.5 million. So a little over $170 million.

Really, the things that drove that were having an extra salary day, the advertising expense going up. Occupancy, equipment, seasonal air conditioning costs, if you will, going up. That was the driver to that. We actually think we've been very careful to lift that out.

It talks a lot of the earnings per share numbers, where we have the non-GAAP disclosure. Certainly want to make sure everybody understands the flow of the core. We basically would be a little bit above the second quarter, if you took that out.

Got you. Okay, thank you.

Emlen Harmon.

Good morning. Could you give us a sense of what your price sensitivity is on the buyback? Obviously down around tangible book side here. It makes a lot of sense to buy back the shares. Just getting to know your philosophy, would like to understand how you think about that.

Yes, we're going to be opportunistic. We're looking at a one-year runway and lots of movement during that time.

But, we don't have that kind of -- we'll not put that kind of guidance out there currently. Because, quite frankly, we'll be watching all the moving parts and we'll better know how to answer that as we go.

Got it, thanks. Quickly, on the pay-downs. Could you actually quantify what those were this period versus what they are in a more typical period?

I don't think we would have disclosed what total pay-downs would end up being. There are a lot of factors that go into that. I think what we would say is, on specific larger customers with transactions, those would have been a little higher than they had been previously.

Okay, got it. Thanks.

Jennifer Demba.

Good morning. On the announcement you made regarding consolidating Atlanta real estate, you have a sense of the timing of those actions? And what the financial impact would be? Are there opportunities like that, that are meaningful in other parts of the footprint?

I think there could be, Jennifer. We actually had done something similar to that already in Columbus, as we exited some buildings and brought our employees closer together.

Quite frankly, there's both an expense saved there and an overall efficiency of getting and leveraging employees in a common space. We've done it here.

In Atlanta, the analysis has already begun. We do have some thoughts on the expense opportunity. We haven't disclosed that yet. I would hate to put that out, because we would be in negotiation with a lot of different properties and/or landlords.

But, we do believe in Atlanta -- and I know you know this -- I'll say this for the benefit of others, our Bank of North Georgia is, ultimately, the roll-up of about nine -- I believe the right number is nine banks. So, with that, you have nine buildings that were at one time headquarters locations for their respective banks.

Then we have pockets of both Synovus and Bank of North Georgia employees really scattered throughout Metro Atlanta. Some in high-rise office buildings, some in former bank headquarter locations, some in excess branch space.

So we think there's tremendous opportunity to really get that footprint right. Ultimately, we could even expand the number of locations in Atlanta.

But, get out of the 10,000 to 15,000 square-foot spaces and get more efficient with our branch delivery. And then from an office utilization, get more of our people in a common location or common locations.

Timing the work has begun. We do believe there is expense opportunity there. We believe there is overall efficiency in space utilization.

Quite frankly, we do think it's an opportunity to better brand our bank, if we could bring more employees in Atlanta together in a common location. The ability to market and brand with some sort of more significant presence in a single location is very attractive to us.

So I would just say, stay tuned on that. Work has begun. As we can give more color, we certainly will.

Okay. Can I ask a follow-up of Kevin? Fastest-growing categories over the last year have been multi-family and office.

Can you give us some color on what the nature of your loans have been there? And how you're feeling about those segments right now? Particularly, multi-family and that supply there?

Yes, Jennifer, this is Kevin. We've had pretty solid growth on multi-family. Our legacy developers held up pretty well and they're back growing again.

We've had a small student housing segment starting to grow a little bit. As well as, the talent we brought in in our large corporate real estate group. They had a lot of good relationships in that segment.

So, we've had pretty good growth there, double-digit year-over-year growth on the multi-family side. A lot of that construction-oriented.

Had a lot of pay-downs. We actually probably had $100 million, $150 million withdrawals this quarter of funded construction loans. And had over $100 million of pay-downs.

That's kind of the natural cycle of multi-family. It's a robust, permanent market out there. It's been no bias in the footprint, pretty spread out.

We've had a little bit more, maybe in Charleston, Orlando, Atlanta, than some of the other places. But it's been spread out among the footprint. That's been a real healthy portfolio for us throughout the year, even through the cycle, a lot of good customers.

Office has been -- it's funny -- we haven't had as much activity, although we've had more net growth there. That's because we're doing, almost exclusively, funded loans where they're either acquisitions or refinance. So, they're funded day one, unlike a construction loan on the apartment side.

And the permanent market in office is not very robust. So we're holding those loans, the life is a lot longer on the balance sheet than the apartments.

It interesting, we're not putting on as much there, but it's more funded loans and they're staying on longer. But I will tell you, there is very little, if any, construction in that. We're not doing spec space; it's more refinancing of really good credit tenants.

So we've been pleased to have growth there. We'll continue to watch the high-growth areas. But considering the make-up of that office portfolio, we like the outstandings that we've had over the last year.

Thanks so much.

Brett Millsap.

Good morning. Just wanted to talk a little bit more about the earning asset mix. You guys have got done a nice job of managing liquidity on the balance sheet down over the last four to six quarters.

Fed funds were up a bit in the third. I know you had some pay-downs. I'm curious what your thoughts there are on low level for liquidity on the balance sheet, in terms of how you think about funding your growth going forward.

A while ago I mentioned the focus on the deposit side of the house. That's a key piece of our go-forward business. We make sure that our front-line people understand a deposit found is as good as, or better, than a loan found.

We're pushing that from a focused product, pricing and incentive. So you'll see positive activity on that. We saw the beginning of it that really popped up in the third quarter in the areas that we were looking at, that we were pushing for.

On the other side of the balance sheet, on the securities side, we actually -- it's kind of hard to get excited with the current rates. In the third quarter you saw, basically, a static level on that.

Some of that capacity can be more or less redeployed to help fund -- to deploy that asset over to the loan side in its current environment. We have to keep a certain amount of it to maintain liquidity.

When you can rarely two in front of the securities addition right now, we've basically kept that at a static load. We want to bring the ratio, the loan deposit ratio, down over some time.

But, actually, when you look at our internal plan, we were really basically right where we want to be on the --. A little bit behind the loans, about at the right spot on the deposit side. So, we feel like we're on the right trajectory.

Okay, great. Second question, switch gears. On the rate of provisioning, one of the lowest levels you guys have had in a while. Obviously you're seeing a lot of improvement in NPLs. Curious your thoughts on reserve levels and how you think about the provisioning over the next several quarters.

This is Kevin. The provision was down significantly this quarter. Some of that was we didn't quite get the loan growth maybe we expected.

Also, the quality shift is the main driver. When you go to less problem loans that carry higher reserves, that certainly gives you a lift there, as well. So we're happy.

That provision may build back up over the next couple of quarters with loan growth. We hope that happens and we're expecting that to happen. So, it is, probably, it could be at a low point, the way I look at that.

As you notice, though, our E expense did go up a little bit. That's attributed more to our disposition effort was almost exclusively ORE. The overall credit costs were, again, where we thought they would be: $15 million to $20 million on the reserve.

We see that as stabilizing around $130 million, $131 million, I think it was this quarter. Probably, over the next few quarters, you could have a slight decrease. We think more the appropriate word there is stabilized, at least for the next couple of quarters. We'll guide further after that.

Okay, great. Thank you, guys.

Kevin Fitzsimmons.

Hey, guys, a quick question on -- there's been a few already -- on the Atlanta announcement. Was that really part of the expense program you already had laid out? The $30 million of savings to offset the $30 million you are spending? Or is that something that's incremental?

Kevin, that would be incremental. Conceptually, we talked about looking at corporate real estate expense. But no, that was not -- if you're asking if that was in the previously identified $30 million, no. Because this would be 2015 and beyond.

We believe the Atlanta opportunity is both expense- and brand awareness-driven. So we're excited about those opportunities to maybe get more of our team together there.

I think maybe Jennifer had asked about additional opportunities. We think there will be. Certainly, Atlanta is our largest market and probably represents the scene of more acquisitions than any other.

There is an intense focus there. But, we've engage professionals and they are constantly looking in other markets for opportunity to reduce costs.

Okay. Great. And, Kessel, I understand you guys aren't ready at this point to lay out guidance for 2015 on expenses or on loan growth. But it's definitely something that's crucial to the story going forward and they're really linked.

Do you think, without holding to a specific time, do think over the next quarter or so, you are going to be in a position to give more of an outlook on expenses? And then in turn, also loan growth? Specifically, I would think in theory, a lot of this spending is not just to offset compliance spend, but it's to drive loan growth going forward and that there'd be some kind of linkage there.

Kevin, as we've really done, and you know us well, we try not to guide on things that we don't have clarity on. So, today, if we were, on the loan growth standpoint, if we were giving thoughts, it's going to be mid-single digit. But I'd hate to get much tighter than that today. Certainly, as we get through year-end, we will do that.

Tommy and Al Gula and team continue to look for ways to drive cost out. So we certainly want to hold expense down.

Again, we do believe that a lot of our investment in infrastructure, as it relates to compliance, AML, BSA, I don't want to ever say that we are caught up. Because you probably can't ever get caught up.

We believe that has certainly been appropriate and we have confidence in the level of that investment. It's much more exciting to look at investment in technology that either increases efficiency or makes that customer experience even better, which is ultimately going to drive revenue. That's where we're investing technology today. Also, as we invest in people.

Both the prior investments, by the way, that we made. Heavy investments in senior housing several years ago. That's now getting much more mature. Big investments in equipment finance a year or so ago. That's starting to get more mature, but in the earlier stages. Investments in the specialty healthcare lending, very recent. That will, then, produce corresponding revenue.

As we get a clearer picture, we'll do our best to put the right color and the right guidance. But certainly want to do it in a way that we can back it up to you guys, and we'll certainly do that.

Okay, great. Thank you.

Nancy Bush.

Two questions, one for Tommy. Tommy, when you look at the professional fees on slide 8 and the decline in fees, which of course needed to be adjusted for some special items. On the whole subject of fees, costs, et cetera, related to, what I would call, the crisis, are there substantial reductions yet to come?

Are these going to be lumpy? Or are they occurring at a predictable pace, et cetera? If you could give us some color there.

If you look at that $5.7 million decline in the third quarter, if you back out the $3.6 million, you're still $2 million to the good, in reduction. I believe when you really think about some of the clearing of the debt we did during this quarter, we should see some continued positive move in our professional fees and certainly in our attorney fees.

I think there is opportunity to carry on into the next year. While we are not guiding specifically to that, directionally, that will be a positive for us.

So, reduction in these costs should continue, at least through 2015?

Yes, when you look at, really, all the sum of it we've been through as a Company, really on a lot of fronts, there's opportunity to continue to redeploy some of the costs that we've had in getting through the cycle to more positive things. And in some cases, actually continuing to eliminate a good bit of the costs.

Secondly, the growth in the residential portfolio. Mortgages and HELOCs continues to be pretty respectable. Do you guys see yourselves making market share gains there? Is it a consequence of your markets, et cetera? If you could give us a little color on that 9% annualized growth.

I think as far as market share, I would say probably what would be the biggest piece in the third quarter growth on the home equity side, would be timing of the way we did promotional home equity lines. We had some positive growth there on the side of the primary mortgages.

Really, that one is taking care of our strongest customer base. And really going in and financing folks that already have primary checking accounts, other relationships with us, and deciding to hold those on the portfolio. To me, it's more of an expansion of the existing customer base and making sure we're wrapping that customer base up well.

The promotional home equity lines, were they across the Company? Or were they just in very specific markets?

It was across the Company.

All right, thank you.

David Bishop.

Good morning. Quick question for you, somewhat technical. In terms of the deferred tax around DTA, it was breathing back into capital at a rate of like $31 million per quarter. Slowed a little bit this quarter to about $18 million.

Anything going on particularly there in terms of forecasting future profitability, tax liability? Just curious what drove that decrease so to speak.

The key driver is the fourth-quarter look. There is other moving parts that go in there. There's really nothing that unusual in the third-quarter yield, though.

On a go forward basis, as you get into Basel III, the methodology will change some. It will actually give us a slight buffer, because you'll move from a four-quarter look to an application of timing differences in the equation, instead of the way it's been done so far.

So, we think we're well set on that. We'll actually see a little bit of benefit as Basel III kicks in.

Great, thank you.

Christopher Marinac.

Thanks, good morning. Kessel, thank you for the color on the guidance-related topics this morning. My follow-up on all of that is just to ask about the ROA, looking up a little bit longer than just 2015.

Is the ROA, which has been around the 70 basis point range, stable the last few quarters. Is that in a position to expand in the next 18 to 24 months? Or are you thinking about managing it to the same stable level we've seen recently?

No, Chris, thank you. We do believe it can expand. Certainly, an increase in short-term interest rates makes it easier to reach our targets in higher level. It's not required for us to get there.

But if rates do stay flat, certainly we'll require accelerated growth in fee income or further G&A reductions. We do believe we have the opportunity to expand there.

We know some of our investors, which is quite frankly, our sentiment as well, that we need to push those returns closer to 1% and have a plan to do that. We have not been time-specific, but rates would help.

I don't think I'm in a better position than anybody else to predict that. Absent rates, increases in fee income, which we made substantial investments in fee-generating producers. And then further G&A cuts would certainly help accelerate that.

Okay, great. That's helpful. As my follow-up, separately, this has to do with your historical relationship with other community banks.

I know on a one-off basis you've been a big brother to other community banks as they've grown. Is there something that Synovus can do more of? Is this an opportunity for more loan growth for you going forward?

I certainly think, and yes, that's a great observation, Chris. Certainly, there could be opportunity there.

Without getting into specifics, I think we assisted two other banks over the last couple of years with actions related to their TARP exits. They publicly disclose that, so I won't name them.

They're a little larger, maybe than historically we would have participated with. Quite frankly, we appreciate that opportunity.

So, if this is a marketing call, then yes, we do think there could be some opportunity there. We think a healthy banking climate is good for all of us.

Even though we compete with a lot of the people you are referring to, there could potentially be opportunity there. We've got great friends out there that historically we've done a lot of good business with. We certainly are watching the activity in the market very closely today.

Great, Kessel. Thank you for the color. Appreciate it.

Thank you. That was our last question for today. I'd like to turn the floor back to management for closing statements.

Okay. Well, just briefly again, I want to thank everyone for joining the call today. I hope our comments have been insightful, as it relates to performance.

Really excited to now bring clarity to our capital actions, which we had been discussing for the past year, post TARP, which seems like a long time ago. I thank you all for being on the call.

I thank our team for what they're doing every day to grow our customer base. I thank the customer base that has stuff and continues to stick with us, and really to all of our shareholders. I assure all of you we'll continue to do what we can to increase shareholder returns. Thank you all for the call today.

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.