Synovus Financial Corp (SNV) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus Fourth Quarter and Year-End 2014 Earnings Conference Call.

(Operator Instructions)

It is now my pleasure to turn the floor over to your host, Bob May, Investor Relations for Synovus. Sir, the floor is yours.

Thank you and good morning, everyone. During the call, we will 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 to 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. I want to thank all of you for joining our call, especially those of you in Boston, New York, and really, throughout the Northeast who have probably gone a little above and beyond today to get onto this call. We hope you're all doing well.

Before we get into the fourth quarter results, I want to call your attention to page 3, which is a slide that really just takes a snapshot at the significant progress in 2014 to strengthen the franchise. Just a few highlights there before I get into the fourth quarter results.

You'll see, from a profitability standpoint, net income available to common shareholders for 2014 was $185 million, about a 56% increase from $118.6 million for 2013. Diluted earnings per share were $1.33 for 2014, up 50.5% from $0.88 in 2013. From a balance sheet standpoint, total loans ended the year at $21.1 billion, growing a little over $1 billion or 5.2% from 2013.

If you exclude the impact from the sale of our Memphis branches, total loans grew $1.13 billion or 5.6%. Low-cost core deposits ended the year at $16.72 billion, up $589 million or 3.7% in 2013. This excludes the impact from the sale of the Memphis branches.

Credit quality continued, really broad-based improvement across all fronts there. I'd just call your attention to a couple of highlights.

Total non-conforming loans have declined a little over 52% from 2013 as the NPL ratio ended the year at 0.94%, down 114 basis points from 2013. The net charge-off ratio for 2014 was 39 basis points, down 30 basis points from 2013 and the allowance to non-conforming loans coverage ratio has increased from 95.43% in 2013 to 197.22% in 2014, so great improvement there.

From a capital standpoint, stronger capital ratios; Tier 1 common equity ratio increased 35 basis points from 2013 to 10.28% and book value per common shares increased 5.4% over last year to $21.42. Just as a reminder, this is after the $88.1 million common stock repurchase during the fourth quarter and a 43% increase in the quarterly common stock dividend that was paid on January 2, 2015, so a really solid year.

I know you want to hear about the fourth quarter, so I'll take you to page 4 and we'll jump right into the fourth quarter highlights. Fourth quarter net income available to common shareholders was $50.6 million or $0.37 per diluted common share. Diluted EPS increased 16% versus the third quarter of 2014.

Net income available to common shareholders was $53.2 million or $0.39 per diluted common share, after excluding the impact of restructuring charges, litigation settlement expenses, and Visa indemnification charges. This compares to $51.3 million or $0.37 per diluted common share, excluding the impact of restructuring net litigation and Visa indemnification charges for the third quarter of 2014. Just as a reminder, the third quarter of 2014 pretax pre-credit lost income included the benefit of $3.6 million net insurance recovery for incurred legal fees related to litigation, which is excluded from non-GAAP EPS of $0.37 for the third quarter.

Another fourth quarter highlight, total reported loans grew $509.1 million or 9.8% sequentially on an annualized basis. Average core deposits, excluding state, county, and municipals, grew $150.7 million or 3.4% annualized versus the third quarter of 2014. Our NBL ratio declined to 0.94% from 1.18% in the third quarter. Total past-dues again performing well; past-dues over 30 days were 0.24% compared to 0.35% in the third quarter of 2014, just another indicator of the overall strong performance in our credit portfolio.

On page 5, a little more detail or color on the loan growth. As I mentioned on the previous page, $509 million, 9.8% sequentially, and a little over $1 billion or 5.2% for the year. It was supported, really, across the footprint, but in particular, by growth in Tampa, Atlanta, Pensacola, Jacksonville, and Charleston.

A breakout of that loan growth, C&I loans increased $275.9 million or 10.9%, CRE increased $155.9 million or 9.2%, and retail increased $79.2 million or 8.2%. So good, balanced loan growth for the quarter and we were pleased with that and again, for the full-year, as I stated, 5.2%. We currently expect loan growth for 2015 in the mid-single digits and we'll be happy to talk a little more about that later on the call.

On page 6, again, a little more about our deposit story. Average core deposits excluding SCM deposits grew $150.7 million or 3.4%. Average core deposits increased $289.7 million or 5.9% versus the third quarter and total average deposits of $21.34 billion increased almost $400 million or 7.5% versus the third quarter of 2014.

On page 7, a little bit about the margin; we had guided some modest pressure there. Net interest income continued to expand; it was up about $1.2 million versus the third quarter, driven by higher loan balances.

Our net interest margin was 3.34%, down 3 basis points from the third quarter of 2014. Yield earning assets was 3.78%, down 3 basis points versus the third quarter. The yield on loans has declined 7 basis points to 4.22% versus the third quarter and our new and renewed yield on [loans] declined about 16 basis points to 3.69% versus 3.85% in the third quarter.

Our effective cost of funds was 44 basis points, unchanged from the third quarter and we'll speak to this later, but we do expect modest downward pressure on the net interest margin during 2015, under our current rate environment. I'll call your attention to the right side of that slide where we try and give you a look at our net interest income sensitivity and again, if short-term rates were to go up 100 basis points, the estimated percentage change as compared to unchanged would be 4.3% increase.

That's a slight increase from the 4% that we reported in the third quarter. The same analysis on 200 basis points, that increase would be 6.7%, an increase from the 6.3% in the third quarter of 2014. So, just trying to give you a clear picture of the sensitivity there.

On page 8, a view of non-interest income. Fourth quarter adjusted non-interest income was $64.5 million, up 0.9% versus the third quarter of 2014 and 7.9% versus the fourth quarter of 2013.

Core banking fees were $33 million, an increase of $208,000 from the third quarter of 2014, driven by $355,000 or 4.3% increase in bank card fees. FMS revenues of $19.6 million increased $205,000 or 1.1% sequentially, driven by a $483,000 increase in fiduciary and asset management fees and mortgage banking income of $4.9 million increased $230,000 or 4.9% versus the third quarter of 2014.

On slide 9, adjusted non-interest expense up slightly year-over-year to 0.8%. I'll walk you through that. Again, adjusted fourth quarter non-interest expense was $172.4 million, up $5.7 million or 3.4% from the third quarter.

I want to break that out. Professional fees of $8 million, up $5.5 million versus the third quarter of 2014. As a reminder, the fourth quarter of 2014 reflects elevated attorney fees related to the final resolution of one credit.

The third quarter of 2014 included a $3.6 million net insurance recovery for incurred legal fees related to litigation. Again, fourth quarter elevated due to the resolution of one credit in the third quarter had a net insurance recovery so that helps shine the light on that discrepancy there.

Advertising expense $8.1 million, up $925,000 versus the third quarter. During the fourth quarter, we closed 13 branches that we'd announced in the second quarter, bringing the total number of branch reductions this year to 20. Total headcount decreased by 52 during the quarter, resulting primarily from the branch closings.

A comment about our restructuring charges for the quarter, the fourth quarter restructuring charges for the quarter, the fourth quarter restructuring charges were driven by lease exit costs for the branches that we closed during the quarter. We had disclosed, earlier this year, that cost. The amount actually ended up being lower than the $6 million estimate we provided earlier in the year, just due to more favorable exit costs there.

For the full-year, adjusted 2014 non-interest expense was $675.7 million, up 0.8%. Advertising expense of $24 million, up 15.1% versus 2013; again, major investment in our branding campaign. Our overall for full-year overall employment expense was $371.9 million, up $3.8 million or 1% versus 2013 and that includes a $3.4 million increase in production-related incentives and commissions.

Professional fees $26.4 million, down about $12 million versus 2013; reflecting, primarily, lower attorney fees. While we're talking about headcount, year-over-year headcount's down 185 or 3.9%. Again, this follows several more dramatic headcount reductions we have done in years 2011, 2012, and 2013.

The net decline this past year of 185 included the elimination of about 300 positions in connection with branch closings, further refine of our branch, staffing models as well as other efficiency initiatives and that was offset partially by workforce additions in corporate banking, IT, and our customer care centers; so again, the net was 185 year-over-year.

2015 adjusted non-interest expense, we expect the 2015 expense to approximate 2014 levels, reflecting continued efficiency efforts and investments in talent and technology and again, we'll talk more about that, but we believe 2015 will land around 2014 levels. That will require a very diligent effort on the part of our team to make sure that we are getting efficiencies where we can so that we can free up dollars for investments in customer-facing talent and technology.

On slide 10, credit quality used to be of most interest on this call. Still something that we are keenly focused on, so let me just walk you through credit quality. On the first graph, you'll see that non-conforming loans were $198 million or 0.94% compared to $242 million or 1.18% in the third quarter. The year-over-year improvement is 52.5%.

NPAs $287 million or 1.35% compared to $324 million or 1.57% in the third quarter and representing about a 47% year-over-year improvement. You may recall that our guidance at the beginning of the year was that we would end 2014 with NPAs at or below 1.5%, NPLs at or below 1%. We're pleased to have exceeded those targets in both cases and we expect both NPLs and NPAs to continue to trend downward at a modest pace in 2015.

The graph to the right shows that credit costs were $16 million, unchanged from the $16 million in the third quarter and representing approximately 27% year-over-year improvement. The bottom left graph shows that net charge-offs for the fourth quarter were $16 million or 0.31% and 0.39% year-to-date.

We're pleased to end the year below our guidance of 50 basis points for the year, which we set, I think, on our call back in January. Our expectations at this time for the charge-offs in 2015 will be in the 30 to 40 basis point range.

The graph at the bottom right shows our past dues greater than 30 days, another indicator of the improved quality of our portfolio. Again, you can see on a graph that past dues remain at low levels, currently 24 basis points. It's also worth noting that our 90 day past due are only 2 basis points.

Talk about capital, this first line will talk about capital as of year-end and then I'll try and bring you down to date on our share repurchase program. On slide 11, you'll see total common equity reflects $88.1 million reduction related to our $250 million share repurchase program announced in October of 2014, again, that is as of year-end.

Tier 1 common equity 10.28%, down 32 basis points from the prior quarter of 10.6%. Tier 1 capital 10.86% versus 11.19% in the third quarter of 2014. Total risk-based capital 12.75% versus 13.17% in the third quarter.

Our leverage ratio was 9.67% versus 9.85% in the third quarter of 2014. Tangible common equity 10.69% versus 11.04% in the third quarter of 2014.

Our 4Q Basel III common equity ratio Tier 1 is estimated at 10.17% on a fully phased-in basis. Again, as a reminder, we still have a very significant deferred tax asset that will continue to generate regulatory capital in future periods.

On slide 12, just, again, a recap of our share repurchase program and this will be as of close of business yesterday. This is current information and again, we announced a $250 million share repurchase program in October.

Also in October, we entered into an accelerated share repurchase agreement to purchase $75 million of our common stock. We repurchased 2.5 million shares upon the execution of that agreement in the fourth quarter. We repurchased 392,000 additional shares upon completion of the ASR agreement on January 13 of this year.

In total, the average purchase price pursuant to the ASR agreement was $25.84 per share. We also completed additional repurchases of common stock through open market transactions totaling 974,000 shares at an average price of $25.38 per share. As of January 26, we have $150 million in remaining repurchase authority pursuant to the repurchase program and again, as reminder, we announced in October, a 43% increase in the quarterly dividend from $0.07 to $0.10 and that dividend was paid on January 2, 2015.

I'm trying to give you a pretty good recap of the quarter and the year. Before we go into questions, I want to just talk a little bit about our go-forward story and our go-forward plan.

We try to give guidance in certain key areas including loan growth and expenses and while we're realistic about the continued challenges in growing revenue across our industry, we feel very good about the strategic plan we have in place to increase loans, deposit fee income growth, and further manage expenses. We've made tremendous progress in repositioning retail, commercial, corporate investment talent to make sure we're optimizing our outreach to targeted customer segments.

I want to talk a little bit about those. Our retail efforts for 2015 include a continued focus on retail channel optimization to both respond to more customer demand for 24/7 e-channel banking convenience and to ensure that we have a very efficient branch network and staff of bankers trained and equipped to identify and meet our customers' financial needs. We feel great about our technology investments that have allowed customers to conduct routine branch transactions outside of our branches.

Our full-service ATMs, our enhanced consumer and business online banking products, and our recently launched mobile banking app to promote deposit capture and person-to-person payment allows our customers anywhere, anytime access. As we provide them with greater convenience for routine transactions, we're also equipping our branch teams with new tools that enable a much more targeted and effective outreach to customers and prospects.

In fact, our retail strategy efforts during 2014 laid the groundwork for what we believe will be an expected 30% increase in sales productivity during 2015. We'll certainly drive stronger consumer loan and deposit growth.

Our commercial customers are served by highly skilled bankers in our community and corporate banking teams and they're supported throughout by a relationship banking model that really is particularly well-suited to this segment. We'll continue to work this year to build out that middle-market team to tap into what we believe is a high potential segment.

We expect continued growth in specialty healthcare, corporate banking, and senior housing from our prior investments in recent years in new talent there. It's talent that really does understand the nuances and needs of these highly specialized segments.

Our enhanced online business banking includes much improved treasury services toolkit that's helping our companies more conveniently manage critical core business functions. We believe investments like this will continue and will help us not only attract new customers, but also expand relationships with existing customers.

From a fee income standpoint, we think fee income and cross-sell opportunities are a major opportunity for us, especially with our financial management services team. We are totally committed to further growth through partnerships and cross-sell between areas like family asset management, which I refer to as FAM, and our corporate bankers throughout our footprint, especially leveraging opportunities in our middle-market.

We expect a greater outreach to high net worth clients through our FAM team's increased presence in markets like Birmingham. We also expect meaningful growth in some of our very core markets like Huntsville, Tuscaloosa, and Athens, where local leadership and FAM professionals are already actively partnering on potential opportunities. We've made a big investment and our private wealth teams are in place in strategic regions across the footprint where we feel there's the greatest opportunity and they're more highly trained as a result of the investments we made in training this past year.

We're also going into 2015 with more retail brokerage financial consultants, mortgage originators, and trust professionals, and more licensed private wealth and retail bankers who can generate new fee income simply because we can reach more customers. A little bit on technology, building on this past year's technology investments, this year's investments include protecting our customers from the constant and ever-changing global information security threat and also, a new, more advanced mortgage platform that's expected to make the mortgage loan process more efficient, both internally and for our customers, so we're excited about how we serve our customers better in that space.

We'll continue to invest further in our branding efforts. Most of you have heard about the Bank of Here campaign, which we launched in early 2014 and have run ads up through the recent college bowl games. This year, our focus includes promoting more capabilities of our business lines and highlighting specific products, services, and special offerings; all designed to drive and increase revenue.

As we invest in growth, we also continue to invest in efficiencies. We stated earlier that our expenses in 2015 would be in line with those in 2014, driven mainly by some of the work we've outlined today and around our retail channel and technology improvements. We fully understand the need for the ongoing pursuit of additional expense savings that exceed the dollars we've got to reinvest in revenue-generating activities. A total focus on driving our best out of the organization.

Bottom line is we maintain our focus on the fundamentals of deposit, loan, and fee income growth and extensive capital management throughout the year. We expect continued improvement in performance as result of the many investments and changes we've made over the past several quarters and quite frankly, past several years, but especially in 2014. We believe we have and continue to take the right steps to place us on a solid path to a very successful 2015.

Operator, we'll now move to the question and answer portion of our call. We have a team standing by that's ready and able to answer our questions.

(Operator Instructions)

John Pancari with Evercore ISI.

Good morning.

Good morning, John.

I appreciate the color on the expense outlook. Just want to see if you can give us your thoughts on there full-year 2015 efficiency ratio; where that could come in, just given that it seems like a lot of the low-hanging fruit's been picked on the expense side and you're looking for ongoing efficiency efforts to offset the impact of your investments? Thanks.

John, rather than try and peg a year-end efficiency ratio, because that's been maybe more than elusive target, I will just say this: we're going to continue to drive expense out of the organization. In some cases, as you know, it's going to be offset. We believe absolute levels of expenses will remain flat, with a goal to get more aggressive than that for 2015 and we certainly believe we'll have revenue lift.

We have stated in the past about our desire to push that ratio down and historically to get it back to the mid-50s where we once were. In today's environment, that mid-50s seems fairly elusive, but we do know that we can focus on what we can control, which are those expenses that we've talked about. So 2015 will, number one, reflect the efforts of the cost we took out in 2014 and then continued efforts to drive expense out. So that's probably about as close as I can get in terms of an expense outlook.

Okay. Secondly, on the margin, wanted to see if we could get some color on the magnitude of margin pressure that you expect through 2015? Do you expect a similar 2 to 3 basis points per quarter pace of compression?

Then also, does your expectation -- I think you implied that it does not -- it assumes the current rate environment. So, does that mean it does not factor in any fed hikes this year? Thanks.

That's correct. That's based on our current rate environment and slides show, again, the rate sensitivity what effect we might have on net interest income based on some rate hikes. I don't know that we've defined modest as to whether that's 2 to 3 basis points per quarter. I'll say this, and we were discussing earlier this morning our views on 2015, I think we, like a lot of banks, have to be very disciplined in our loan growth and make sure that those loans we are putting on the books provide the proper returns.

Where we see spreads getting to tight to justify what we perceive as a risk, we'll have to decide to maybe back away. I don't know that we've given it on a per quarter basis, but we certainly think there is going to be some modest pressure in the short-term based on this current rate environment.

Tommy or Kevin, I don't know if you all have anything to answer that, but the key part of fee is disciplined pricing on loans, being willing to back away, and quite frankly, a very disciplined and aggressive approach to core deposit generation where we have all of our bankers engaged across the footprint. Tommy or Kevin, I don't know if you all have any more color on that.

I'll just add that on the funding side, the ability to bring that down further and have a cushion on the margin is really probably behind us and so we don't really expect to see any benefit there. And on the earning assets side, I would say that the -- maybe the first half of the year might be more difficult from a loan pricing standpoint and you might begin to see a little more stability a little further out. But that's really about as far we can go.

Okay. Thanks for taking my questions.

Ken Zerbe from Morgan Stanley.

In terms of restructuring costs, do you have any expectations for how much that might run in 2015?

I'm sorry, restructuring cost for 2015?

Correct.

Tommy, you want to?

Kessel a while ago mentioned a way of life to manage G&A and restructuring goods with that. We really don't have a guided restructuring number for timing or whatever. We've been active for the last couple of years in bringing the expense base down and it's likely that there will be some restructuring charge, but no guidance there right now.

Those are primarily tied to people when there are reductions. Also, as we continue to look at our both corporate real estate and really all of our real estate holdings, we would continue to, again, be in market looking at opportunities to drive cost out of that real estate portfolio. So if and when we were to do something there, there could be, but in terms of trying to peg what that dollar number is, I think it would be premature to say.

Understood, but we should expect some throughout the year?

There should be some.

Okay, understood. In terms of total credit costs, obviously your portfolio continues to get better from a credit quality perspective, but it looks like the total's been pretty stable for the last year or so. Do you feel that you're at a good point with that going into 2015 or is there further downward -- the ability to reduce total credit costs next year?

Ken, this is Kevin. I think the credit costs are probably -- they've been on that steady $15 million to $20 million and that's how we see it playing out the next couple of quarters. I think there's some opportunity for some maybe a little reduction after that, but a lot of dynamics go into that. One thing is the reserve is at a point where we won't have a lot more reduction left there.

Then you're going to have loan growth, that's going to add to provision. It's just a lot of factors, but I think it's going to stay pretty stable and it's going to be more positive provision versus negative provision because our NPL's less than 1%. The cost of dealing with problem loans will definitely come down, but again, as you're growing and not reducing reserves, it'll probably offset that. I see it steady the next couple quarters.

Great, thank you very much.

Ebrahim Poonawala with Bank of America.

Good morning, guys. A question around your loan growth guidance: I understand being conservative as you look out into 2015, but can you talk about in terms of areas of strength and what is the likelihood that 2015 loan growth could resemble more of what we saw in the fourth quarter as opposed to full-year 2014?

Let me start and then I'll turn the easy part over to Kevin. We guided 4% to 5% for 2014 and tried to update that during the year. We saw softness in the third quarter, which we cautioned, and then fourth quarter, correspondingly, was much greater than expected, but a lot of that was due to timing of paydowns. So we don't see economic activity that would suggest that fourth quarter run rate is an appropriate rate to guide for 2015.

So again, Kevin, D, and I spent some time just this morning talking about what we see in 2015 based on not just the economy but our pipeline, our risk appetite, and our overall tolerance for certain balance sheet concentration. So we think the mid-single digit is appropriate.

Could there be upside? There could be. Certainly, economically it would be a great way to get it. Teams of bankers would be a great way to get it. But, Kevin, why don't you give your thoughts on where we could see or might see any upside to that estimate?

I think 4% to 6% felt like, again, we put a lot behind that. I think with us, our strategy to grow high-quality, try to hold margin when we can, and have a very mixed -- have a mixed outlook. In that 4% to 6%, probably 1/3 real estate, maybe 40% to 50% C&I, 20% to 30% retail. I think it's important to us that we stay -- if you want to control the balance of your growth quality and hold margin, that seems like what our footprint will give us.

Also, we've still got a little bit of credit work to do from getting some of the NPAs and substandard loans down. So you've still got about 1%, 1.5% hurdle there as far as when you're looking at net loan growth. So we felt that was -- everything Kessel said and trying to grow the right way is good guidance. Hopefully, we get some upside from there with a good economy next year.

Thanks for that, for the detailed discourse. Just one follow-up to that, what was the size of the [SNC] portfolio at the end of the year and what was the growth they came in the fourth quarter from the SNC portfolio?

Let me give you -- our syndicated portfolio is about 7.4% of the portfolio. Pretty good mix from industry type, but I'll just give you all the C&I detail. We had growth in several segments. We had growth of syndication of about $280 million. We really encouraged community C&I, just a little less than $50 million in growth there. Our senior housing had about $70 million direct lending in that category and equipment lending had around $25 million, so we were encouraged that it was good mix in there.

Definitely syndications was a main driver on the C&I side. I know that adds up to more than what we actually grew of C&I, but we had a little bit of reduction in where we wanted to, our non-strategic special assets portfolio. Actually, the C&I part of that came down over $70 million and we had some payoffs on the large corporate direct side -- had a little bit of reduction there. That's the mix of the C&I. Maybe a little more than what you asked for, but wanted to make sure you all understood our growth there.

I appreciate the response. Thank you very much for taking my questions.

Thank you.

Steven Alexopoulos from JPMorgan.

Good morning, everyone.

Good morning, Steven.

Maybe to first follow-up on the comments around the Shared National Credit book, which was around $1.5 billion. What percent of those would be energy-related and can you guys talk about overall energy exposure?

This is Kevin, again. We really don't have much at all on energy. It's less than $50 million and some of that is in the SNC portfolio; it's just really a couple of credits. We're just not a direct lender there at all and that's more on the oilfield, the service side of there. We've looked at the credit; again, it's a very, very small percent of our portfolio. We've avoided that part.

We do have some energy-related in the utility and power type credits; about 100, 150 of those. Those are in Alabama, Georgia, South Carolina, Florida. Of course, we don't see that having an effect as far as oil prices at all. That oil price, the whole drop there has obviously been in our footprint and considering we really don't have participation in the energy side of lending, has been really a net gain for us.

As a matter fact, some of the early financial statements we've gotten from the fourth quarter in manufacturing and transportation, some of those categories, hospitality have been real positive and gotten a lift from oil price fall during the last few months.

Okay, that's helpful. Then separately, even with buybacks, you guys still have a ton of capital. We're seeing the M&A environment pick up a bit. What are your thoughts on Synovus participating in 2015 on the M&A front? Thanks.

Steven, I'm going to stick to my story which is -- and this is our focus -- we are focused on our core operating performance right now. We feel like best use of our capital is to buy our own stock back. It's a good buy for us and so that's what we've been doing. So we'll continue to focus again on our operating performance, getting our capital managed efficiently, and hopefully, leading to a more favorable currency.

Down the road, certainly the stronger we are, the more we would be able to, in an opportunistic way to participate, but that's not our focus today. We think there will be lots of opportunity down the road and right now, the better use is really repurchasing our own shares.

Does that imply you're not having any conversations with other banks?

I would never comment on conversations with other banks. I will just say this -- there is plenty of chatter in the industry and it doesn't take much to find an investment banking book floating around on someone that's exploring opportunities. But, again, I would never comment on specific conversations.

We are keenly aware of what's going on in the market. Our Board is very well advised what's going on in the market. But, again, I wouldn't comment on any specific conversations.

I wasn't looking for specific, just if you were, in general, having conversations.

Again, our conversations would be related to our Board and our advisors and I wouldn't want to comment on conversations with other bankers. We certainly see them at all the conferences and I think every banker has a similar outlook on the challenges in the industry, so certainly those types of conversations.

Okay, fair enough. Thanks for taking my questions.

Thanks.

Jennifer Demba from SunTrust Robinson Humphrey.

Good morning. Kessel, sorry if you might have already covered this, but I'm just curious as to what your capital return thoughts are over the next one to two years in terms of buyback and dividend together?

We think those are important. We really have not wanted to get too far out ahead of our skis and want to focus on getting these first $250 million executed. We were pleased to do what we did in the fourth quarter and felt like we had a pretty good execution there. We had said previously that, under this plan, it would not take our Tier 1 common below 10%.

As we go through the DFAST process and get a better view on 2015 and beyond and also continue to have discussions with our regulators, we'll probably, again, we'll certainly have more clarity and we'll disclose, as appropriate, our thoughts about any potential follow-ons to this current capital action, including dividends. But right now, the focus is on getting that first $250 million executed.

Okay, thank you very much. Can I ask one follow-up?

Sure.

Someone asked previously about potential restructuring charges this year. You said you think adjusted or core expenses will be flattish in 2015 year-over-year. Do think your total expenses will be roughly around the area that they've been in the last couple of years in 2013 and 2014? Will they include restructuring or credit costs or et cetera?

Jennifer, take restructuring out of all those periods and the statement we made earlier suggested that we think that the 2015 mixed core expense base will be about the same level as it was in 2014, which is really about in 2014 was similar to 2013. So really make it off of where we are in 2014 and we'll be in that zone, we believe.

Okay, one more, your tax rate was lower this quarter, Tommy, versus the third quarter. Any thoughts on what you're looking at for this year?

I'd call the fourth quarter was a one-off situation. The tax rate was 32.6%. Looking back, it's normally 36% to 37% and we believe that's what it's been and that's what it will be on a go-forward basis, but we had some lower tax rates this quarter, due to adjustments in the completed tax return.

We also had some favorable adjustments related to state taxes and an estimated benefit on certain credits. So that was a one-off that we enjoyed for a quarter, but you won't see that likely going forward, more in the 36% to 37% range going forward.

Thank you very much.

Thank you.

Brad Milsaps with Sandler O'Neill.

Good morning.

Good morning, Brad.

Most of my questions have been addressed, but did want to maybe talk a little bit about deposit growth. I know you guys commented last quarter that, with the loan-deposit ratio getting close to 100%, you felt like loan and deposit growth would mirror one another.

Looking year-over-year, I know there are a lot of moving parts with the branches that were sold, but it does look like brokereds are up a fair amount. Can you just talk about your deposit strategy and how that relates to getting closer to that 100% number and whether or not you pushed that high and how you plan to fund the growth you see over the next 12 months?

It's a comprehensive strategy, really, across all of our business lines. We talked about, from a retail standpoint, how we realigned the management of our retail system to make sure that our retail bankers are all day, everyday focused on sales and service to our customers and deposit growth is a big, big piece of that.

We also think retail channel has been supplemented and improved through our improvements in technology and we've seen, just with the roll out of our mobile deposit app, a significant increase in use of that technology. Which again, our initial thought was based on that usage or those customers that are no longer going to our branches, which then raises other opportunities for us.

So, a very big push across the retail bank. We think in our commercial corporate middle-market, again, great deposit opportunity. We've made tremendous improvement in our treasury products over the last several years, including, again, business online banking; so better channels and vehicles there.

We make sure that, through all of those channels, very appropriately weighted incentive plan to make sure our bankers are focusing on the right thing. Our FMS teams continue to have great successes and they actually share them with me personally and on New Year's Eve, a big deposit opportunity that came in through our FMS team. So, it is just an all day, everyday focus here, Brad.

We know we need to fund loan growth with core deposit growth. It was easy over the last few years to let higher-priced CDs move out. I don't think there is a banker in the Synovus system today that wouldn't tell you or understand the focus on deposits. So it is an all-in strategy that all of our leaders have embraced and we're seeing good activity and good results there.

Great, thank you.

Thank you.

Emlen Harmon with Jefferies.

Good morning, everyone.

Good morning.

Tommy, just going back to the NIM guide and your expectations there, you guys noted that the NIM guide reflects the current rate environment. Obviously, a big variable that we're all facing today is movement in the ten-year that's obviously coming quite a bit early in the year. Could you just talk a little bit about how much the volatility there, one way or the other, could have an impact on the NIM guide and just how that could shift your expectations if there was a meaningful move there?

(technical difficulty) it has a little bit of impact on the securities portfolio and really not a lot on the loan portfolio. Really, the action would come on the short end of the rate moves so that's what we're looking forward to happen at some point.

Got it. Okay, thanks. Sorry if I missed this earlier, but you guys noted the professional fees were up as result of the credit workout expense. I think it was up $5.5 million quarter over quarter. Was that pretty much all workout or was there anything else in there?

Yes, the credit that was talked about was a workout and glad to get it behind us. You're also comparing against a quarter that had a $3.6 million recovery of attorney fees, too, so it distorts the Q4 to Q3. But the majority of it was the impact of that single credit settlement.

Thanks.

David Bishop with Drexel Hamilton.

Good morning, gentlemen. Kessel, you spent some time on the expense side, but fee income up over 8% year-over-year. Any sort of guidance or outlook there, given the investments you have made, especially on the FMS side, to drive that growth even further into next year?

David, it's a great question. We certainly think we'll have lift there and again, I think it's because of prior investments in talent. But just on the FMS side, where we've hired more trust professionals, more brokerage, more mortgage, we've made additions in insurance and so we think there's certainly opportunity there. We think, again, the technology investments have made banking with us a lot easier, but certainly will give us some fee opportunity there.

We have guided a specific number, but we do believe, in all of our business lines, we have the opportunity to hold our own and then grow some. We're really excited about some of those investments because the further we get from the crisis, the better story we have to tell. I think all of our leaders would say recruiting fee generators today is easier than it was a year ago and certainly (technical difficulty) years ago.

We're optimistic about the opportunity for fee lift. Very mindful, by the way, also, of the pressures on the fee side that come, some from regulatory and some from just customer behaviors. We've got to offset what we know are areas of pressure with lift through investment in people.

Got it and maybe a follow-up on deposit growth, very strong demand deposit growth this quarter. Anything seasonal on that or does that reflect maybe some new account wins like you noted on the commercial and middle market side?

I think it's both. Certainly, there's some seasonal lift there, but we see wins everyday. We may not see them everyday, there are wins everyday and we make sure we recognize those team members who are involved in wins everyday. There's some of both in those numbers.

Great, thank you.

Thank you.

Nancy Bush with NAB Research.

Good morning, guys.

Good morning.

A question about residential real estate, we're starting to see some resumption of residential real estate construction in the Atlanta area, particularly, and even the revival of some projects that were abandoned after the crisis. Can you just speak to your appetite for participating in those markets right now?

Yes, Nancy, this is Kevin. We haven't had much growth. We're still running off some of the -- there's still some of that left, some of the old book in residential. We're not getting much net growth, but we are getting some activity on the construction side. I was talking to some of our lenders the other day and some of the customers who made it through the cycle are starting to build again.

Places like Atlanta, Charleston, Orlando area, Columbus, Georgia, places that are core to us and so we have had some growth there, so we're starting to get some activity. It's good to see Atlanta, their year-over-year improvement, as a report came out recently, in home price was one of the strongest in the country. So, we were encouraged there. We're putting our toe back in the water.

It won't be a big driver for us in growth next year. Most of that real estate growth we talked about in 2015 will come from the income side. But we are encouraged that we should have at least net positive growth on the residential side in certain markets. We're in some really good markets.

Nashville's had good numbers, as well, recently, and we've some opportunities there. We've got a good mortgage company that refers builders to us. So we'll stick to what we know best and probably stay pretty conservative there and hopefully, have some good net growth.

Okay, thank you. Kessel, a question for you and Tommy, I know you are not subject to some of the Basel III pressures on the larger banks, but I'm assuming that some of those pressures will get downstreamed over the years. Would you just speak to your capital structure right now and whether you see any pressures going forward or need going forward to change the capital structure, maybe add some long-term notes or whatever?

Nancy, we disclosed the impact of the fully phased-in Tier 1 common and what it really shows is probably a pretty good flag for all the ratios, but it didn't really have a significant impact, if you [pro formaed] the end of the fourth quarter, it had a modest impact of 11 basis points. Really in the interim, that particular ratio will actually get a boost from the different methodologies in the way BPA is considered.

I think on a pro forma basis there for the transition period, it'd being more in the -- I believe it is about [10.80%] or so. And so the other ratios don't work exactly that way, but the Tier 1 does. I think, all-in, the answer to your question is we're comfortable with the impact of Basel III and don't see that it would be a game changer for us.

Tommy, just on top of that, could you just remind us how the DTA gets into regulatory capital over what period and what is the life of the DTA at this point?

We really haven't previously disclosed how long it'll take. It'd certainly be well within any of the IRS rules and in most states, we've got plenty of time, plenty of room to get there. But going forward, the disallowed DTA under Basel III, it does away with the old four quarter look back and it's really been driven by the temporary differences between GAAP and the tax return.

In this case, it's favorable to us during this transition period and that's basically the way the DTA will be operated in the go-forward. One other element of that, beyond the fact that you're now operating off of temporary differences, you also, under the rules, have to take out of the GAAP DTA, you only take out 40% until you go through your (technical difficulty). So we think we've got a good run with that and we'll continue to bring the DTA down.

Okay. Thank you.

Thanks, Nancy.

Christopher Marinac with FIG Partners.

Thanks. I want to talk about the allowance and to what extent you think the reserves will have growth this year or should we expect those to be flat in absolute dollar terms?

I think flat is the right word. We see it flattening out this year. A lot of different factors moving further away from the cycle, I don't think you'll get the reserve release we were getting and as a matter fact, we see it as neutral. Get some loan growth and it would build and problem loan reduction or mutual so see it maybe where it's at, slightly trickling down a little bit.

Okay, but provision covers charge-offs and that you add to provisions for growth for the portfolio?

That's right. We're to that point where that comes into play as we've got, again, a little further away from the credit cycle.

Okay. And at the same time, the coverage ratios, just like we saw this quarter, should continue to rise?

That's our expectation. That's correct.

Great. And then follow-up, Kessel, a separate angle from what Nancy was asking on the various markets, instead of residential, can you talk about C&I? Are there any markets where C&I has particularly accelerated this last quarter?

Any particular markets?

I will take that. This is D. I'll take the C&I. From a quarter standpoint, we did have some -- we had some positive momentum and really, across South Carolina, we also had some in our broader Tampa Bay market where we've had some expansion in C&I. Those would've been two of the strongest that we had. So that would be ballpark. In addition to that, we had a little bit more in Atlanta, as well, through both the community bank and the corporate bank.

I'll just add to that, Chris, I think what we're really seeing is across our business lines, more wins where our community bankers are partnering with the right specialty bankers to bring a level of expertise to new opportunities has really given us some wins. So sometimes, we fuss a little bit internally about where something gets booked, but the goal is doing what's best for the customer and we're seeing more and more wins as a result of partnerships throughout our footprint.

Kessel, Jacksonville would've been strong as well. I left that out.

Great guys. Thanks for the color here, appreciate it.

Thanks, Chris.

Tyler Stafford with Stephens.

Good morning, guys. Just one follow-up question on the expense topic. Kessel, last quarter, you highlighted some larger branches in the Atlanta MSA that would make sense to consolidate. Can you give us any update on how you're thinking about those branch rationalizations of those in Atlanta and then even outside of Atlanta? And then any color on how that's factoring into your expense guidance for 2015.

We're really not talking about necessarily branch consolidations in Atlanta. What we've talked about is the fact that so many of our Atlanta branches were the result of -- you look at the Atlanta bank, I think nine banks rolled up into what is now Bank of North Georgia. So by definition, you have nine former headquarter locations. Our thought in Atlanta is we have a lot of underutilized real estate and unutilized real estate where we might be in a 6,000 square-foot building or a 30,000 square-foot building and our needs are much less.

So what we're attempting to do in Atlanta is certainly consolidate space and make sure that the branches have the space they need, but more importantly, we then take that non-branch overhead and get it maybe into a more common location where we can just get our overall cost of real estate operations down. So we do have expense reduction tied to a more efficient utilization, not just in Atlanta, but throughout our footprint, but it's mainly through unutilized and underutilized.

As far as consolidation of branches, we are always looking at ways to look at that, but Atlanta is a great market for us right now. I'm not sure I need more branches to cover it, but if I had my druthers that's where I'd have some branches. But it's literally getting more efficient, state-of-the-art branches where we have lower square footage allocation, more technology in there as well.

Okay. Then on the advertising line item, that was up again this quarter. Any color on where that specific line item shakes out on a normalized basis for you guys?

We haven't giving guidance on that one line. It's part of the overall expense guidance that we've given. We invested heavily in brand advertising, which is hard to measure in ROI, but as we go into 2015, we certainly want to make sure that, as we're investing there in products and service capabilities, that we're seeing the appropriate returns. I think too early to say there, but certainly an area of great examination for us, making sure we're getting the bang for our buck there.

Okay. Thanks, guys.

Thank you.

Kevin Barker with Compass Point.

Good morning. Given you're seeing an outsized return of capital compared to peers and you have an outsized amount of growth in your regulatory capital due to the DTA, do you expect the upcoming DFAST to have an impact on your plans and your expectations for a return to capital over the next year or two?

Kevin, the DFAST process has been made pretty clear to us with regulators that the DFAST isn't the time to talk about capital maintenance and repurchases or use of capital, necessarily. It's more of a pure stress testing and other categories would go under some special review with the regulators. So, we don't see that as being a DFAST situation.

Is there a discussion with regulators regarding your DFAST results and your capital return plan?

We've been through the 2014 plan and we'll be soon into the 2015 plan where there will be exactly that, but not at the moment.

Thank you for taking my questions.

Kevin Fitzsimmons with Hovde Group.

Hi, guys, Hovde Group. Good morning.

Good morning, Kevin.

Just one quick one, there's been a pickup in M&A in the greater Atlanta area or even just middle Georgia area, just I can think of there are pending deals by Iberia, Renaissance, Service First, to name a few. When you see those kinds of things happen, how do you feel the net impact of that is for you? On one hand, does that mean if a new entrant is coming in, is that likely to lead to more pressure on loan pricing?

But on the other hand, could it be taking a smaller irrational player out and also, could it present you guys with opportunity to pick up some lenders just from the merger disruption? Thanks.

Some of those people that got taken out are friends, so I wouldn't want to call them smaller and irrational. But we look at all of it with interest. For every new entrant, there's usually somebody going out.

I can tell you how I look at it, that good competition is healthy for all of us. I have regular conversations with, not just our Atlanta bank leaders, but all of our bank leaders, about when you have someone new in the market, you, A, want to make sure you protect what you have, both in terms of business and bankers, and then yes, look at talent. Because as I've said, they're looking at talent, so look at talent that might exist in some of those banks and where we see there are opportunities.

We've got bankers with a lot of experience in Atlanta, they should know who those bankers are. So again, some good competitors coming in, some good competitors going out net/net. We always think disruption in a market is an advantage for us because we should be more stable there. But in terms of particulars for those institutions, again, they're friends and good competitors.

Okay, Kessel. I understand your point about M&A and the relative strength in the stock currency and waiting for that, but how do you think about more de novo growth other than M&A? In particular, are there markets in the Southeast that you're either not in or very, very small in relative to where you want to be that you're really on the lookout to pick up lending teams? I understand that may not be something that today is built in your expense guidance, but something that you would be opportunistic on if it came up.

Kevin, there's markets throughout that we think we have opportunities in. Certainly, in Florida, even though we're seeing good success in that Tampa market, which really goes all the way southwest of Naples, there could be opportunities there. We've dipped our toe into the water in Orlando. Smaller on a retail side, but some success there on the commercial real estate, so that market would come to mind.

We've actually seen some good success in Jacksonville. Jacksonville is a big land mass to cover with as few locations and bankers as we have. So that would be one we would keep our eye on in terms of end market.

In South Carolina, we are stronger in Charleston, where I'll be later today/tonight visiting with customers and prospects and team members. We're strong in Columbia. We think there's opportunity in the upstate, in that Greenville/Spartanburg area.

In Tennessee, we exited Memphis, but we have a small presence in Chattanooga and a growing presence in Nashville, so those markets are certainly attractive. Longer-term, if you just look at economic data, and we just hosted two back-to-back economic forecast breakfasts in Atlanta where Dr. Al Niemi of SMU spoke, he touted the competition in the Southeast over the next 10 to 20 years is going to be between Georgia and North Carolina.

That's nothing against our friends in the other states, but he was very bullish. I think if you just look at our South Carolina franchise and how it works up to the border there, then you'd have to think longer-term, North Carolina could certainly be an attractive market for us.

Okay. Thank you very much.

Jefferson Harralson with KBW.

Thanks, guys. Nice quarter. I'll ask my quarterly pace of improvement/sense of urgency question. You're not talking a lot about ROA or efficiency ratio goals and we have flat expenses because we have had -- because we're investing a lot into the future, which is a great thing and you did see it in the loan growth this quarter, but the 4% to 6% loan growth for next year, it's a good number, but not a number it seems like it could be for two years of big investment into the revenue stream. Can you just talk big picture about the pace of improvement and how you're getting there and where you're trying to go and the sense of urgency to get there?

Yes, Jefferson. We need to get you down here to take a first-hand peek at that sense of urgency. I know you and I have talked about that before. I think our team would tell you that there is a tremendous sense of urgency and I think they feel it from me every day and every night. Left here last night with that same sense and quite frankly, when this call is over today, we'll move right back into expense and budget discussions about how we move the needle beyond.

So we're trying to guide to what we can see and not guide to something that we don't have a plan to achieve yet. So I get frustrated at the pace, but yet, if you look at that first slide in the deck and look at the year-over-year improvement, I think it would show you a pace of improvement that's actually pretty remarkable.

I get it. We'd love to have efficiency ratio in the mid-50%s. We'd love to have double-digit loan growth and nobody's going to not do everything they can because we've guided mid-single digits, but we've got to base that guidance based on what we see. We've made tremendous investment in technology over the last two, three, or four years and just the increased depreciation on that means to hold expenses flat, it requires a lot of effort and I think the team has done a good job there.

So a great sense of urgency and a great push to get operating performance at a higher pace. So don't let the lack of efficiency target guidance -- we certainly have our own internal and we have a well thought out five year plan but we're just trying to give public guidance to what we think we can fairly give that guidance on.

I appreciate that. I'll be down there soon. Thanks a lot.

Thank you, Jefferson.

That was our last question. I'll now turn it back to Management for closing comments.

Again, I just want to thank everyone for being on the call, both our regular analysts and investors who are very faithful in their participation in this call. Again, we know we have customers, Board members, team members, former Board members on this call and I hope you all appreciate the story of recovery of this Company, by a continued laser focus on improved performance; again, through, as we said, through balance sheet, income growth, fee income growth and again, a very intense focus on efficiencies.

So we're pleased to finish up 2014 on what we consider a high note. We think that the plan to return to capital at the end of 2014 was a very positive way to end the year. We think the execution of that plan is another positive step for our Company and we're excited, as we move into 2015, about the opportunities ahead. Thank you all for your participation and we look forward to talking to you on the next call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.