Synovus Financial Corp (SNV) 2015 Q2 法說會逐字稿

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

(Operator Instructions)

Now I'd like to turn the floor over to your host, Bob May. 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. A list of these factors that might cause results to differ materially are 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. Thank you and now I'll turn it over to Kessel Stelling.

Thank you, Bob. Good morning, everyone. Welcome to the call.

As normal, I'll walk us through the deck and review the highlights and then, at the conclusion, our usual team is here to answer any of your questions. Let's go right to the deck, page 3, and review second quarter highlights.

As you'll see from the release and the deck, second quarter income available to common shareholders was $53.2 million or $0.40 per diluted common share. Diluted EPS increased 5.2% versus the first quarter of 2015 and 25.5% versus the second quarter of 2014. Net income available to common shareholders was $55.9 million or $0.42 per diluted common share, excluding litigation contingency expense.

Our adjusted pre-tax, pre-credit costs income was $103.6 million. It increased $2.6 million or 2.6% versus the first quarter of 2015 and $4.7 million or 4.7% versus the second quarter of 2014.

Credit quality trend remained favorable during the quarter; again, strong asset quality numbers overall. Our NPL declined ratio declined to 0.81% from 0.92% in the first quarter of 2015 and from 1.27% in the second quarter of 2014, while net charge-off ratio declined 13 basis points to 0.10%.

Total loans grew $388.7 million or 7.4% on a sequential quarter basis and grew 5.1% versus a year ago. Also, strong core deposit growth. Average core deposits grew $889.9 million or 17.8% annualized versus the first quarter of 2015 and 7.4% versus the second quarter of 2014.

On the capital management side, we continued to execute our plan to return excess capital to shareholders, while maintaining strong capital levels. Since October of 2014, we've now repurchased $202.9 million or 7.5 million shares, reducing our total share count by 5.4%. As you can see later, capital ratios remained strong with a common equity Tier 1 ratio of 10.73%.

I'll now take you to slide 4 and go into a little more color on the loan growth. As I had previously mentioned, loan growth of $388.7 million, 7.4% annualized sequentially. I'll give you a little color.

It was really across all loan categories with CRE loans growing $164.3 million or 9.5% annualized, retail loans growing $127 million or 13% annualized and C&I loans growing by $97 million or 3.8% annualized. Only $41 million or 11% of the total loan growth this quarter was from syndications and again, Kevin Howard will give a little more color on the loan growth later in the presentation.

I'm pleased that our specialty units again reported solid results and continued to gain traction as we build long-term customer relationships and good customer acquisition in that space. Corporate real estate grew $111 million.

The consumer mortgage portfolio increased $91 million or 21.5% annualized. Senior housing grew by $42 million. Equipment finance grew by $27 million. Our SBA and government guaranteed lending had strong loan production of $36 million, up 74% versus the first quarter of 2015 and 111% versus the second quarter of 2014.

Year-to-date production there of $57 million, up 84% versus year-to-date 2014 through the second quarter. The net growth in that portfolio is $11.4 million. It's a growing area of our Company. We think the third quarter production will be stronger than quarter two. And then our medical office portfolio, another of our new specialty lines, grew by $10 million during the quarter.

Also pleased to see strong growth across our geographic markets from a market perspective. Key strategic markets including Atlanta, Nashville, Tampa, Jacksonville, and Columbus all posted solid loan growth and we continue to expect loan growth in the mid-single digits for the full year.

Take you to page 5; again, a strong deposit story, as we said. Average core deposit is up approximately $890 million or almost 18% versus the first quarter. We're really pleased with the continued growth in core deposits, as well as the improved mix compared to last year.

The results from our retail strategy are encouraging. We have almost achieved our expected 30% increase in retail sales productivity.

We're currently at 28.3% following the launch of our retail strategy in the third quarter 2014, which we've talked about really since then. And that included improved sales tools, training for front-line bankers, enhanced digital applications for our retail customers, all of which have contributed to our deposit growth. Our small business deposit balances grew by $293 million from the second quarter of 2014 and new merchant accounts are up 21% over the same period.

Transaction migration continues as our customers are enjoying more convenient channels for the routine service transactions with increases in both mobile and ATM deposit usage and decreases in teller transactions. Simply put, our investments in technology are paying off and we're real pleased to see this. The transaction migration also will allow reduction of 13 branches in the fourth quarter of 2014 and an overall decrease in teller staffing compared to last year.

A couple of updates. Apple Pay launched in early June and our E&B credit card issuance has begun and we're really pleased with all of our advances there.

Transaction accounts continue to grow. Average balances for checking account continue to increase. Again, I gave you the average core deposit. The period end core deposits increased $698.2 million or 13.7% annualized from the first quarter of 2015 to $21.2 billion and $1.66 billion or 8.5% versus the second quarter of 2014.

Average core deposits, excluding state, county, and municipal deposits, grew $836.4 million or 18.9% annualized versus the first quarter of 2015 and 8.4% versus the second quarter of 2014. Finally, total average deposits were $22.47 billion increased $851.1 million or 15.8% annualized versus the first quarter and $1.6 billion or 7.7% versus the second quarter of 2014.

On slide 6, we'll talk about net interest income and our net interest margin. Our net interest income was $203.6 million, an increase of $381,000 from the first quarter of 2015. The net interest margin 3.15% down 13 basis points from the first quarter of 2015. I'll take you through that decline.

Yield on earning assets was 3.61%, down 12 basis points versus the first quarter. Yield on loans declined 5 basis points to 4.14% versus the first quarter.

The new and renewed yield on loans decreased 10 basis points to 3.70 versus 3.80 in the first quarter of 2015. And again, the increased balances at the Fed contributed 7 basis points of the decline. Of the 13 basis point decline, over half of that was just based on increased balances at the Fed, which Tommy will talk about a little later.

We do expect the margin to be flat to slightly down in the second half of 2015 from 2Q15 levels, as modest loan yield pressure is offset by liquidity deployment. Again, Tommy will give more color on that. You'll see the net interest income sensitivity on the chart to the right and again, if we were to see a 100 basis point increase in short-term rates, the change in our net interest income would approximate 4.2%. On the 200 basis point increase, the estimated increase would be 6.2% in net interest income.

Slide 7, we had growth in non-interest income driven by higher mortgage volume and core banking fees. I'll take you through those numbers. The 2Q 2015 adjusted non-interest income was $66.8 million, up $1.7 million or 2.6% versus the first quarter and $3.5 million or 5.5% versus the second quarter of 2014.

Our mortgage unit had another strong quarter, as we continue to benefit from the rate environment, as well as strategic talent additions, investments in key markets, enhanced product offerings. Our mortgage banking income was $7.5 million, a 15.8% increase from the first quarter, reflecting a 20% increase in production volume. And we expect that mortgage banking income for the second half of the year will be similar to our year-to-date levels.

We also anticipate more aggressive talent additions for mortgage originators in the second half of the year as a result of our story and improved recruiting and our practices. Especially in key strategic markets like Tampa, like Atlanta, and like Nashville. We presently have a strong pipeline of account additions and our sales group in specific markets is allowing us to create more secondary income. We are encouraged -- encouraged there.

Core banking fees were $32.4 million, an increase of $876,000 or 2.8% from the first quarter of 2015, driven primarily by higher service charges on deposit accounts and bank card fees. Service charges on deposit accounts were up $661,000 or 3.5% versus the first quarter. Bank card fees up $422,000 or 5.2% versus the first quarter of 2015.

I mentioned SBA, SBA gains of $1.4 million compared to $1.5 million in the first quarter; year-to-date $2.8 million up $1.6 million over one year ago. FMS revenues were $19.8 million for the quarter, a 2.8% increase on a linked quarter basis and a 3.7% increase from a year ago. Assets under management now total $10.75 billion, reflecting a 4.3% increase from a year ago. And our strategies in the FMS unit are expected to continue to result in growth and revenues and customer relationships through talent acquisition, new lines of business, and realigned incentive plans.

On slide 8, we talk about our continued progress on expense management. Adjusted 2Q 2015 non-interest expense was $166.9 million, down $495,000 or 0.3% from the first quarter. I'll take you through some of those components.

Employment expense was $94.6 million, down $1.9 million versus the first quarter, reflecting $2.9 million seasonal decline in employment taxes partially offset by a $1.1 million increase in insurance expense and higher commissions and incentives.

Headcount decreased by 26 or 0.6% versus the first quarter and 197 or 4.2% versus the second quarter of 2014, reflecting the continued implementation of efficiency initiatives. And again, as we say often, it is a continuous process here and we look every day for ways to drive down expense.

Advertising expense $2.9 million down $578,000 versus the first quarter. We do expect advertising expense for the second half of the year to increase from the first half levels based on increased levels of spend related to our branding campaign, as well as various product campaigns.

Special fees $6.4 million, up $823,000 versus the first quarter, due to higher attorney fees and as we guide our 2015 adjusted non-interest expense, we'd expect it to approximate 2014 levels. That's give or take $675 million reflecting the continued efficiency efforts and investments in talent and technology. If you do the math, the second half of 2015 adjusted non-interest expense would be higher than the first half; again, due to advertising technology, IT spend, annual merit increases.

On slide 9, credit quality again, a long story of our Company, but continues to show great improvement. On the first graph, you'll see a 10.6% linked quarter reduction in non-performing loans now $174 million or 0.81% compared to $194 million or 0.92% for the first quarter. Year-over-year improvement is 33.1%. NPAs were down 11.1% to $240 million or 1.1% compared to $270 million or 1.28% in the prior quarter and representing right at a 34% year-over-year improvement.

NPL inflows dropped 17.9% compared to the first quarter and we expect both NPLs and NPAs to continue to climb at a modest pace for the remainder of 2015. The graph on the top right shows that credit costs were $12.8 million, down $2.9 million or 18.2% from $15.7 million in the first quarter and representing a 24.3% year-over-year improvement. Revision expense was $6.6 million compared to $4.4 million in the first quarter. Other credit costs declined 45.2% linked quarter to $6.2 million from $11.3 million in the first quarter of 2015.

We've previously guided credit costs to be at $15 million to $20 million per quarter. We now believe they'll be at the lower end of that range and possibly even better.

The bottom left graph shows that net charge-offs for the second quarter of 2015 were $5.3 million or 0.10% for the quarter, a13 basis point improvement from last quarter. We feel confident these charge-offs will end 2015 below our previously guided range of 30 basis points to 40 basis points due to the continued significant credit improvements that we've experience.

The graph on the bottom right shows past-dues greater than 30 days. Past dues remain at low levels, currently 24 basis points, and it's also worth noting that our 90 day past dues are only 2 basis points. Again, we're very pleased that we continue to experience significant improvement in our key credit metrics, while also reducing our credit costs.

On slide 10, we'll talk a little bit about capital ratios and they're strong and let me just review some of those for you. As a reminder the second quarter 2015 capital ratios include the impact of $50.3 million in common stock repurchases. The first quarter 2015 capital ratios include the impact of $59.1 million in common stock repurchases.

So 2Q15 common equity Tier 1 ratios, 10.73%. All capital ratios except TCE or Basel III transition on the ratios prior to the first quarter 2015 were based on Basel I rules. The Tier 1 capital ratio 10.73% versus 10.8% in the first quarter of 2015. Total risk-based capital of 12.18% versus 12.65% in the first quarter of 2015.

Leverage ratio 9.48% versus 9.66% in the first quarter of 2015. And again, TCE ratio of 10.13% versus 10.43% in the first quarter of 2015. Our second-quarter Basel III CET1 ratio is estimated at 10.09% on a fully phased-in basis.

And then just a quick recap on our share repurchase. Since October 2014 through July 20, yesterday, we've repurchased $202.9 million or 7.5 million shares at an average repurchase price of $26.94, reducing the total share count by 5.4%. So we have $47.1 million in remaining repurchase authority pursuant to the share repurchase program that we had previously approved and announced.

Before we go to questions, just a little bit about our go-forward story. We've reviewed the financials in detail.

Another one of the highlights of the quarter was our recent recognition as one of America's most reputable banks by American Banker magazines and a reputation institute. Synovus was one of only three banks to be ranked in the top 10 among customers and non-customers and we were specifically recognized for our leadership presence and our deep commitment to our communities. We're very proud of that coming out of this long financial crisis.

There's really no better validation then our local leadership, our relationship banking delivery model and our ability to return to a position of strength post-crisis and continue to report improved performance core effort. The core, we believe, is driven primarily by the way we were able to and are able to personally connect with our customers in our local markets.

Looking ahead to the last half of the year, we expect our brand of banking to continue to drive new customer acquisition. Our realignment of talent with an increased focus on reaching out to targeted customer segments continues to pay off as we see an increase in referrals that lead to expanded relationships with existing customers and really, in our ability to reach new and different kind of customers.

The growth in our customer base is expected to generate loan growth in line with guidance, as well as continued core deposit growth. We said earlier, we're pleased that our retail sales productivity continues to improve with a 28.3% increase over 2014. We're already very close to our 2015 year-end target of a 30% improvement where it continues to enhance the way we deliver products and services to customers as we continue to invest in e-channel technology and branch design that will just optimize the customer experience, while maximizing the efficiencies.

We feel good about our efforts to boost fee income. We've had aggressive outreach by our family asset management team, which you know functions as a traditional family office serving multi-generational wealth clients.

We've greeted strong partnerships and bankers that have created a great pipeline for potential growth in the second half of the year. We've launched new business line through Synovus trust and again, I'm pleased with that strategy. We're our planning to aggressively hire commission-based mortgage originators and retail growth-rich consultants by year-end. Finally, as we as we wind down our current share repurchase program, we'll continue to provide updates on the next steps in our ongoing capital management plan.

So in closing, as we move forward along the second half of the year, we're confident about our growth plan. We believe it provides the right road map for further accelerating performance. No doubt there continues to be headwinds putting pressure on the entire industry, but our team is clearly demonstrating its ability to overcome the challenges and find solutions that will allow us to win relationships and new business from customers and prospects in a variety of segments.

With that, operator, I will pause and we'll be happy to take questions from the callers on the line.

(Operator Instructions)

Kevin Fitzsimmons, Hovde Group.

Kessel, one question on the margin, I understand a big piece of that decline was the from the increased balance at the Fed. Just trying to dig a little deeper on why all that occurred. Is this really part of a more deliberate strategy ahead of rising rates to lock in more low cost funding even though there's not the place to put it to work near-term, in terms of loan growth? Or is it more just a factor of the environment that just the loan growth is not coming in as much as you would hope relative to the deposit growth? Thanks.

Kevin, great question. It really wasn't any kind of bet or strategy that relates to rates. It really was a strategy as it relates to core deposits. And you know, we said, going back towards the end of last year, that we would fund our loan growth this year with core deposit growth. Our loan deposit ratio was at the high end of where we thought it needed to be and certainly started this year with a strong focus on, again, relationship banking and core deposit growth and account acquisition.

Our retail strategy is having great success. Our bankers are having great success. So, yes, the deposit machine has maybe outstripped the loan machine through the first half of the year, but we believe it's a good, solid strategy and it's really a validation of our post-crisis model. It wasn't so much a bet on rates as it was, again, a deliberate strategy to increase the focus, increase the productivity of the retail side, and the result of strong core deposit growth we're very pleased with. As it relates to balances at the Fed, Tommy will talk more about that. I'm sure he's going to get a margin question, so I'll let him comment on that when that question comes up.

I guess I'm just wondering if you guys are being just a little conservative on this? Is there a chance the margin could improve over the course of the back half of the year as you put this excess liquidity to work? Or is it just that the offsetting loan yield pressure is just going to offset that?

That's probably a great transition to the question I thought Tommy would get. I'll let Tommy address that.

Yes, Kevin, it sounds like the question -- I'll just kind of take your view into the third quarter and our outlook on that. I'd like to help describe where we're headed. We have had the tremendous deposit outcome and as Kessel mentioned, a good problem to have. But the impact on the margin is truly a timing difference and it will settle at some point. You've got to keep in mind that the impact on the margin of excess liquidity does have the same impact as the loan yields and the pressure that's on investment securities and the cost of funds and so forth.

It's bad optics, but it doesn't have the same impact on that interest income, which you all know that, I know. As we move into the third quarter, we've guided flat to slightly down and we've done that because we believe that there will be some continuation of loan yields. We're trying to grow loans in a very competitive market out there and so the rest of that equation -- that's the biggest part of the core equation. The rest of it will be what's the excess dollars at the Fed and we believe that our attention will be that to pull some of that excess liquidity down.

We'll continue to grow deposits, but probably not at the same pace that you've seen. And we'll also deploy excess liquidity by funding loans, adding securities, and our attention would be to bring the liquidity rate as soon as we can to the excess liquidity down to $1 billion or less all the way in the range of $1 billion down to $700 million. I don't know that all that can happen in the third quarter, but directionally, that's where we're headed.

Ebrahim Poonawala, Merrill Lynch.

I guess first question, Kessel, just in terms of loan growth and you provided good color in your prepared remarks. I think as we look at your guidance for mid-single-digit and the 7.4% you put up in the second quarter, should we think about third quarter, given where the economy is and your comments earlier, that we are probably, like a 2Q growth run rate would be sustainable, at least looking out into 3Q, if not to the second half of the year?

I think we believe our guidance is still good guidance. If you go back to the first quarter, we obviously were a lot softer in the first quarter. For us, obviously, there are timing differences. So we were pleased with growth in the second quarter and so on a year-to-date basis, we're right within our guidance. Based on hyper-competitive rates, which we often back away from and other competitive bankers in the market, we still believe our guidance is solid, but are not raising that. That's not to say that any given quarter might be less or greater than 2Q, but no revised guidance towards the back half.

Understood. Just a separate question and a follow-up on the net interest margin. The cost of deposits went up. I'm assuming part of that is your promotional approach in getting deposit growth. I'm not sure if you or Tommy can talk about in terms of what we should expect in terms of cost of deposits going forward and if you're at all seeing funding pressures from other banks within your markets?

Yes, when we really started up the deposit machine back late last year, we had campaigns, products, price and incentives focused with the front line team members to make sure that the deposits were as important as loans and we were willing, also, to have some promotional items. But I could see us backing away from that in the second half of the year and I think there's opportunity for stable and maybe later in the year, possibly some downward movement in the cost of funding. That's the way we see it.

That's helpful. Thanks for taking my questions.

David Bishop, Drexel Hamilton.

I think you mentioned, during the preamble, the 28.3% growth in retail accounts and retail products. What is that specifically referring to? Is that the number of accounts per household, the growth in those fees? Just trying to get some color in terms of what you're particularly measuring there.

It's really just unit sales of deposit or loan products by FTE and the branches. So obviously, as sales go up, we get lift there and as staffing does down. But we're just measuring the unit sales per FTE in the branch system.

Got it. I noted the good growth in terms of the commercial real estate loan portfolio there. Any commentary in terms of the types of projects as the tenor or the size of loans you're willing to make there moved up a little bit? Just maybe give some color in terms of what you're seeing in terms of that market that's adding some resilience?

David, this is Kevin. Obviously, we saw the saw the primary growth in the investment real estate side. It was pretty mixed, multifamily, some of the construction draws we had there, loans we had put on the books in the fourth and first quarter starting to draw up. That drove some of the growth. We did some growth in office, some refinance there, not as much construction, very little construction on office.

But we've had some opportunities on some refinance coming out of the permanent markets and really good strong credit there, had actually some areas we haven't seen a lot of growth in, hotels and shopping centers. Not a lot there, but some growth, so adding that all up it was pretty meaningful. Still had the residential book shrink a little bit. So the net growth of commercial real estate was good, driven by the -- which has been strategic for us to grow the income producing side.

Great. Thank you.

Jefferson Harralson, KBW.

I'd like to ask about the shared national credit exam. Are the results there in the numbers today or are they coming in third quarter? Is there anything interesting coming out of that exam that changes things for you guys?

Jeff, this is Kevin again. We got the results, as I think most everybody did, in the middle of June and we went ahead and ran those. We had probably three or four downgrades. They looked at all of them. I think it's a $1.8 billion portfolio, so we were pretty pleased with the results. We did go ahead and run that and absorb that during the second quarter. There was no really industry bias. I think all four of them were in four different industries, so really no concentration in that work.

All right. My follow-up was asset sensitivity, did you guys become more asset sensitive this quarter? I don't have my former presentation in front of me, but with all the cash, it seems like you should be getting a lot more asset sensitive or are there some offsets somewhere?

Jefferson, this is Tommy. It's similar to where we've been, still at a very strong asset-sensitive level. We were slightly lower than in the first quarter as we remit some of the balance sheet and so forth, but still in good standing and waiting to see the actual movement in the interest in the rates.

You kind of said it, but how much excess cash do have? And I'll pass to the next person. How much excess cash is there?

We've got -- you talking about cash in the parent?

Not really. Just at the Fed and all cash accounts to redistribute into loans or securities at some point.

We were at $500 million.

Okay. All right. Thanks, guys.

Tyler Stafford, Stephens.

Jefferson just hit my main two questions. I'm just curious on updated thoughts about M&A from here. How are you thinking about it? Do you feel like we're at a point now where you might consider small deal or is it just still a little bit too early?

Let me talk about our focus, which is still internal and it is every day and we're executing our updated 5-year plan. We're pleased with the continued financial performance. We said, really, as soon as we exited TARP and as we've been very clear about our capital plan and use of excess capital that we thought we would wanted to return excess to our shareholders. That said, there's an active market out there. We sometimes refer to it here as book of the week club in terms of deals that are floating around. But it's not our focus.

Could there be something that might get our interest? There could be, but it would have to be something that strategically was, again, at the right time, at the right price, in the right market that was just clearly in the best long-term interest of our shareholders. It doesn't guide our everyday thinking, but we are certainly aware of opportunity out there, as I'm sure most of our competitors are, as well.

Okay. I know you talked more broadly about expenses for the back half of the year. Specifically, on the professional fees, I know the presentation called out some heavy attorney fees that drove that line item up this quarter. With the $4 million-plus litigation expense this quarter, could we see that line item tail off or would that be elevated, just given the litigation?

Given any given quarter you're going to see some movement moving around, but over the year, those two categories are ones that we expect to continue on a year-to-year basis in a positive way for us.

Okay. That's it for me, guys. I appreciate it.

Nancy Bush, NAB Research.

Kessel, could you just talk a little bit about competitive conditions in the Atlanta market? That's been a market that, I think, is just now sort of beginning to come out and I'm wondering if new entrants are flocking into the lending market there and if you could just also just discuss demand there?

I would say strong to both new entrants, competition, and demand. Our Atlanta bank is doing very well. When I say our Atlanta bank, our entire team in Atlanta, we have a strong core team at Bank of North Georgia where we have our traditional retail business, commercial, strong private banking, great success stories coming there from private banking, private wealth, and partnerships throughout our Company. Our middle market and large corporate teams, corporate real estate, all of those teams are working well in Atlanta, but we see a lot of competition there.

There are some new entrants and certainly, not to be dismissive of them, but competition is from those core, mainstream Atlanta banks that have been there for a long time. On a certain sized deals, we go right into the community banks, send them the larger deals, we'll run into the regionals or super regionals or in some cases, the national players. So, healthy market, healthy competitive competition. Kevin, I don't know, you might have a little more color on the types of transactions you're seeing coming out of Atlanta?

We're seeing a little of all of them. Mortgage, had a lot of success on the mortgage side. The commercial real estate side has been really good. We've got a lot of good customers who got through the cycle and are building again. We're actually doing some home building in certain segments there, mainly driven by the North Side of Atlanta.

The job growth is off the charts in Atlanta. It's our largest, by far, of any of those kind of indicators. We're seeing from the home values, resales now, our data shows above 200,000 new homes, close to 300,000. With the exception of maybe some south and on the east side a little bit, I'd say Atlanta is fully recovered on the residential side. So we've been pleased with not only the type of quality of growth, but the mix has been pretty good as well.

Okay. Tommy, a question for you. I just want to make I understand this. On your rate sensitivity chart, you show short-term increase of a 100 bps gives you up 4.2% in net interest income, I believe. I just want to make sure that's a short term, that's not across the curve and therefore, does that mean with the 25 bps that we're expecting in September or December or whenever it comes, you get proportionally 1% or whatever. Could you just go into the mathematics there a little bit?

I think you described it well as a one-year ramp, just like the 200 would be. It's bigger bites on the 200.

Okay. Thank you.

Steve Alexopoulos, JPMorgan.

I wanted to start on capital. How much excess capital do you guys estimate you currently have?

Steve, I don't want to put a number on that. We felt like the [$250 million] we announced was the right number at the right time for us and we needed to execute that before we signaled any additional. Excess capital is in the eyes of us and the eyes of regulators and the eyes of those on this call. Sometimes they're going to be three different numbers, so I'd really rather just address it by saying we continue to look at our capital plan, evaluate the results of our [DBAS] process, really in all of our internal capital planning and to the extent we can, again, comment on additional capital actions, which is probably where you're headed, we'll do that at the appropriate time.

Kessel, following up on your earlier comments that you're not prioritizing M&A, is there any reason we shouldn't expect buybacks to continue at some pace going forward?

We believe the current buyback program has been effective and we've been pleased with the execution of that. From a mathematical standpoint, I don't want to disagree with your theory. We believe there are a number of different ways to manage capital efficiency, but share repurchase has -- we've led with that and so absent factors that I wouldn't really be aware of today, I'm not going to disagree with your basic premise. I just wouldn't want to get out ahead of ourselves. Again, we were very clear that we wanted to execute on the original plan and once we had done that, towards the end of that, which we're obviously heading the last quarter, we'll comment on additional capital actions as we see appropriate, as we're able to do that.

Okay, fair enough. Maybe to switch gears to expenses for a minute, just looking at the expense guidance that you gave, how much will you spend on IT and technology in 2015? Is that a headwind we should be thinking about for 2016 as well?

What we've said, without breaking it down by component, that the back half -- that we still believe we'll be at the $675 million run rate, so you can do that math to get a number for the back half. That's really not just technology/IT, it's advertising, which, quite frankly, I'm anxious to spend. I think we have a very, very effective launch of our brand campaign. We've got a lot of feedback. We've been somewhat quiet and we want to make sure we're back with the second phase of that campaign. It'll be a mix of technology, IT investments.

We continue to, again, introduce tools that make the customer experience better, but it will also be advertising and investment in people in the back half. That's why we just, again, we're not breaking it out by category. We haven't gotten to 2016 guidance publicly. We are clearly looking at our 2016 run rates and trying to find that right balance of investments and expense cut. To the point we think we can guide to 2016, we'll certainly do that, but I will tell you that there is certainly a bias towards driving expense out of our model in everything that we do around here.

Okay. Thanks for taking my questions.

Jennifer Demba, SunTrust.

My question is on expenses. Kessel, can you give us an update on how you're thinking about your corporate real estate consolidation and any further branch consolidation you're thinking about over the next 12, 18 months?

Sure. Just talking about corporate real estate as a whole, that is an ongoing. We have a very small, dedicated group of which I'm a part of. Maybe I'm not part of the dedicated piece, but I'm a part of the group that meets on a very regular basis to look at ways to drive occupancy costs out of our model. We've talked publicly about Atlanta, just because that's the biggest opportunity, even though that is also our biggest opportunity for growth. Because of our acquisition model there, we do think there is an opportunity to reduce our overall square footage there and get more efficient and while doing that, create branding opportunity by getting bankers together in both our core bank teams and our specialty groups in Atlanta that in some cases, don't know each other too well. So we'd love to do that.

That overall corporate real estate effort, though, is not limited to Atlanta. We've been very aggressive here in Columbus about how we have tried to better utilize real estate and lease out excess capacity. We've said we'd use professionals to do that. We've done the same thing and continue to do it in Birmingham and really, across the footprint, we look for ways to get more efficient with our space there. From a branch standpoint, we mentioned what we closed in the fourth quarter and with the introduction of technology and just overall customer behavior, we've certainly seen teller transactions continue to decline and we've adjusted our teller staffing model to address that.

But we will have more opportunities for branch closures. It's an ongoing process. Wayne Akins leads that effort. We discussed it, I think, as recently as yesterday, from the lens in which we look at branch activity and short-term versus long-term and look for opportunities to get more efficient there. Nothing to announce now, but over the next 12 to 18 months, quite frankly, I wouldn't mind opening a branch or two or more, but it would not look like the branch of the past. It would be 1,200 to 1,800 square feet and use a lot a lot more technology. And while we are doing that, we do have to look for ways to take out of our footprint some of the larger, less efficient branches. So net/net, I believe we would certainly have fewer branches 12 to 18 months from now.

Kessel, just to follow-up, where would you like to add scale in terms of your branches? What markets?

I think Atlanta is a great opportunity. Our market share there is good, but it's small relative to the pie. We think we've got a great team there. I think you know our team led by Rob Garcia at Bank of North Georgia and the specialty groups. That's such a big market.

As you know, when we define Atlanta, we really, our Atlanta footprint goes almost to the Alabama border on the West to Covington on the East to Casper, Georgia on the North and maybe Noonan on the South. I may have missed somebody. But there are some good opportunities in Atlanta where we believe maybe with a little more density, not of big branches, but using a hub and spoke system that we could possibly grow some there. We'd love to wave a magic wand and make all of our 7,000 square foot branches go away and replace them with newer. You can't do that overnight, but that's, overall, that's the direction we're headed.

Thanks.

Brad Milsaps, Sandler O'Neill.

You guys have been doing a great job on improving credit. You've guided to total credit costs in that $15 million to $20 million range. You've done better than that the last few quarters. Do you think you're at a better run rate now for provisioning and OREO costs going forward? I know a lot will depend on loan growth, but just kind of curious in your thoughts there around ongoing credit costs.

This is Kevin, Brad. Kessel mentioned it on the formal remarks on the front end of the call that we are guiding toward the lower end. We want to keep our guidance in place from $15 million to $20 million. We do believe it has a chance to be below that guidance. We're going to stay conservative right now and stay in that range, but there's certainly -- we're optimistic and I think there's opportunity to be below that. I think this last quarter reflected that.

A lot of it is we definitely had to add on provisions for loan growth and that's a good cost to have. The legacy problems have subsided faster and more efficient than we thought and that's probably where we've been under our guidance. Our hope is to continue that same trend going forward the rest of the year and be at the lower end or below credit guidance that we issued.

Great. Thank you.

Thank you.

Christopher Marinac, FIG Partners.

Kessel, given what you said about the buyback a few questions go, I just was curious on to what extent the stock price has helped your decision making in speed and timing in past quarters and is that a factor going forward?

Yes, Chris. We're glad we found a front end and pushed it like we said we were going to do and we discussed the ASR and we executed I guess last year. So the average price of $26-plus has been -- I think we executed very well with the help of our friends in the investment community. So we continue to watch that price. I don't watch it every day in terms of what we're buying back, but we're trying to be smart about it. Again, we think it's still been a very good buy for our shareholders to see us pull 7.5 million shares off the market at those average prices.

Okay, great. Thanks for that color. A separate question for Kevin, just about the SBA business and is there an opportunity for you to do more? Maybe just a reminder to remind us on what you do in SBA and where your sweet spots are.

This is D. Let me take that. From an SBA standpoint, we have, as an intentional investment at the beginning of the year in SBA, we, for the first half of the year, on a production standpoint, almost doubled what we had done from the first half of last year. In addition to that, same thing, we had almost doubled in fee income. The way we do SBA I think is an important piece. We do it within our footprint currently and we engage the local bankers, but yet, we have designated SBA reps to help those bankers in the footprint.

It is widespread across the entire footprint today and that is how we're originating those loans. We expect the second half to be a lot closer to the first half of this year as opposed to dropping off. We do not think it's an anomaly for the first half.

Great, D. Thanks very much for that info.

Thanks, Chris.

Emlen Harmon, Jefferies.

Some of your peers have been adding a duration in anticipation of the curve flattening as the short end increases. Just given the liquidity build, would that be prudent for you guys, just given your balance sheet structure and how are you thinking about that?

This is Tommy. I think we're well-positioned for that, currently. Honestly, when you go back through the place we've been, assuming that there would be rate changes, you wouldn't want a bad bet to take for long time. Nobody really knows when that will actually change and I think we're well-positioned as we stand.

Got it. No point at that duration. Could you maybe just give us a little bit of color on the loan categories that are most driving the loan yield compression? Just been kind of curious if it's a competition effect versus a mix effect adding some lower yielding categories.

This is D. What I would say on the NIM compression is mainly across the board. It's highly competitive in all of the different segments with which we are competing. Even the variable rate corporate debt has seen tremendous pressure, as well as the community and even the retail side. I would say we see pressure across the board and that's one of the things we have to watch on a daily basis to make sure we're selective to do what's profitable for us and the bank folks that we think we can build long-term relationships with.

Got it. Thanks for taking the questions.

[Chris Farr], CLSA.

Good morning. What is the funding cost for your core deposits this quarter and how does it compare to prior quarters?

It was up 1 basis point.

I guess I'm trying to relate this to what you have in your deck versus what you might have in your supplement. It is up 1 basis point this quarter?

That's correct.

Okay. And where do you think it could go? I know this ties into some of the questions that we had earlier in the call, but where do you think this would go over the next few quarters? The core deposit's the one that you talk about being up so much this quarter.

I think it's flat to possibly down a little later in the year.

And that is in the context of also just your interest rate sensitivity and what the Fed may do as well?

That's correct.

Okay. And then I didn't fully understand your interest rate sensitivity question that came up earlier, because it does appear it is down on a quarter-over-quarter basis. If it's not necessarily related to extended duration, can you just tell me what the drivers were on the lower sensitivity quarter over quarter?

Yes, the lower sensitivity was just change in the mix. We had more money market accounts than CDs, that was a factor. Just the fact that we had a greater level of deposits was a factor.

So the type of deposits as well?

Correct.

Okay, but it's not on the asset side, it's mostly on the liability side?

Mostly on the on the liability side.

There's no derivatives or off balance sheet items that it might be attributed to any that action as well?

None.

All right and then I think actually, that's all my questions. Thank you very much.

Thanks, Chris.

Michael Rose, Raymond James.

A couple of quick questions, just to ask the capital question one more time. Are you comfortable continuing to pay out 100% of earnings now maybe through the next year or so?

Again, Mike, I don't want to [raise] the percentage of earnings. We have a wide audience on this call, so I'd like to say that we're going to continue to look at certainly earnings are part of the equation, overall capital levels are part of the equation, concentrations are a part of that equation. So without getting specific about what percent of what, I'd like to just say we're going to be very mindful of how important efficient capital management is to us and we'll continue to try to speak to that when appropriate.

Fair enough. I had to try. Just as a follow-up, if we assume that maybe rates are lower for longer and maybe we don't get a rate increase in the back half of the year, how would that cause you to maybe reevaluate your expense base to adjust to maybe a lower for longer type of environment? Thanks.

We're not waiting. If we waited for rates to come up, we'd still have a much higher run rate. We think whether rates go up in the near term or not, driving expense out is critical to us and really to every player in our industry. Maybe you add more on the production side as earnings increase, but we've been very mindful that when we add people, it's got to generate revenue. We need to look for ways to get expense out.

Certainly, we would benefit from rising rates, but it's not causing us to pause on expense initiatives. In fact, even as we prepared for this call yesterday, we were in other meetings talking about ways to drive expense out and rate movement doesn't add to or temper our enthusiasm there. We know it's got to be done, so we'll continue to do that.

Okay. Because obviously, you guys have done a good job taking out expenses out of the system. But I guess, relative to a few years ago, what would be the levers that you might pull relative to some of the low hanging fruit from a couple years ago?

I'm showing no further questions in the queue. I'd like to turn the floor over back to your host for any closing comments they'd like to make.

Thank you, David. If there was a follow up in there, I'm sorry we missed that and we'll certainly follow back up. Just send us an e-mail if you had a follow-up question. I just want to thank all of the -- certainly the callers, the analysts, the questioners. We thank and respect very much what you do and how you follow our Company. Thanks for your attention this morning, to our shareholders, to our team members who call in because of their interest in our Company, not just short-term but long-term, thank you all for all being on the call. We'll continue, as a Management team and leadership team, to execute on this plan we described and are excited about the back half of 2015 and 2016 as we continue to execute to drive improved financial performance. Thank you all. I hope you all have a great day.

Thank you very much, ladies and gentlemen. This concludes today's presentation. You may disconnect your lines and have a wonderful day. Thank you for your participation.