Synovus Financial Corp (SNV) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus third-quarter 2015 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 Dave 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, www.Synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter with our executive management team available to answer your questions.

Before we begin, I will 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 of 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. Thank you and now I will turn it over to Kessel.

Thank you Bob, and good morning everyone. Welcome to our third-quarter earnings call.

As usual, I will walk through our third-quarter highlights, talk a little bit about our capital actions during the quarter and our go-forward capital actions and then open it up for questions. And we have our senior team here with me to answer those questions.

Let me just jump right into the third-quarter highlights. As you can see on page 3, third-quarter net income available to common shareholders of $55.4 million, $0.42 per diluted common share.

The diluted EPS increased 32.2% versus the third quarter. The adjusted diluted EPS increased 14.6% or versus the third quarter.

You may have noticed the higher tax rate for the third quarter reflects some nonrecurring items which increased our tax expense by approximately $1.6 million or $0.01 per diluted share. And Tommy will be happy to answer any questions about that as well later.

Adjusted pretax pre-credit cost income, $104.7 million. It increased $1.1 million or 1.1% versus the second quarter and $1.2 million or 1.2% versus the third quarter of 2014.

We're pleased that credit quality trends remained favorable doing the quarter. Our NPL ratio declined to 0.72% from 0.81% in the second quarter of 2015 and 1.18% in the third quarter of 2014.

Also pleased with loan growth. Total loans grew $369.4 million or 6.8% annualized on a sequential quarter basis, and it grew 6.2% versus a year ago. And we will give you a little more color on the loan growth later in the presentation.

Strong deposits growth. Average core deposits grew $592.2 million or 11.2% annualized versus the second quarter of 2015 and 10.6% versus the third quarter of 2014.

On the capital management side, we continued to execute on our plan to return excess capital to our shareholders while maintaining strong capital levels. We told you we would update during the quarter.

We completed the $250 million previously announced share repurchase program, repurchasing in total 9.1 million shares and reducing the total share count by 6.5%. And as you will see on the capital slide later, capital ratios remain strong with a common equity tier 1 ratio of 10.62%.

Moving to page 4, color on loans, total loans grew by $369.4 million as I said earlier, 6.8% annualized on a sequential quarter basis. The growth was really across all loan categories with CRE loans growing $135 million or 7.6% annualized, C&I loans growing $122.4 million or 4.7% annualized, and retail loans increasing $111.3 million or 10.9% annualized. Syndications decreased by about $15 million during the quarter.

Our specialty units again reported solid results and continue to gain traction as we build long-term customer relationships. In our corporate real estate area, the consumer mortgage portfolio continued to post strong growth. Our senior housing group saw great success, and equipment finance also grew again this quarter.

From a market perspective, the Atlanta, Tampa, Greenville, Jacksonville and Charleston markets all posted strong loan growth. And we do continue to expect loan growth in the mid-single digits for the full year of 2015.

On page 5, we are pleased with the continued growth in core deposits. Average core deposits increased $592.2 million or 11.2% annualized versus the second quarter of 2015 and $2.06 billion or 10.6% versus the third quarter of 2014. Average core deposits excluding state, county and municipal deposits grew $745.2 million or 15.9% annualized versus the second quarter and 11.4% versus the third quarter of 2014.

Total average deposits of $22.86 billion increased $393.4 million or 6.9% annualized versus the second quarter of 2015 and $1.92 billion or 9.2% versus the third quarter of 2014. Period-end core deposits increased $335 million or 6.3% annualized from the second quarter of 2015 to $21.53 billion and $2.11 billion or 10.9% versus the third quarter of 2014.

Just a little commentary about FDIC market share. We are again pleased to see with the market share data released last month which shows that we increased the number of markets in which we have top-five market share. Those markets represent about 82% of our core deposit franchise.

I will just highlight a few markets where we had the most growth. Atlanta, Birmingham, Tampa, and we are really pleased to add Charleston, South Carolina to the top-five markets this year.

Charleston grew deposits by 12% year over year. Atlanta had 8% deposit growth where we rank number five in market share.

South Carolina, the Greenville market had very nice deposit growth, 25%. Again I mentioned Charleston also and Savanna -- also in South Carolina. Savanna another great port city with great opportunities for growth, saw a 16% growth in deposits.

And in Florida, our Tampa-St. Petersburg market group approximately 13%, and Jacksonville reported about a 35% increase in deposits. And finally, Birmingham grew deposits by about 12%, ranked number four in market share there.

We had other great examples of market share. We had such a -- really a big number of our markets retain number one market share. We are pleased with the FDIC data and how our team is competing for core deposits every day.

On the retail front, to update you there on the progress of our strategy, again we've mentioned the strategy included improved sales tools and training for our front-line bankers and enhanced digital application to all customers. We are on track to achieve a 30% increase in sales productivity that we previously talked about.

Our focus on small business has seen really good results. Small business checking account balances grew by $328 million or 16.5% compared to a year ago. New merchant accounts up 21% in the same period last year while transaction volume up 46%.

We continue to see transaction migration as customers are enjoying our more convenient channels for their routine service transactions, strong increases in both mobile and ATM usage and again, decreases in teller transactions. During the quarter, 13.4% of all retail deposits were performed through a nonbranch channel. It helped contribute to a 9% year-over-year decrease in teller staffing and reduction of 13 branches in the fourth quarter of last year.

We've opened some new branches. We opened earlier this year, our new branch prototype in Nashville, a second one in Sarasota planned by year-end, a third one in Jacksonville in early 2016.

They will be smaller in size, reducing the barriers between our customers and our bankers, and will certainly come equipped with more self-serve and convenient banker-assisted technology. We are really pleased with our retail strategy and how that fits into our overall strong core deposit growth.

On page 6, you will see net interest income of $207.8 million that increased $4.1 million versus the second quarter of 2015. The net interest margin 3.14%, down one basis point from the second quarter of 2015.

The yield earning asset was 3.60%, down a basis point versus the second quarter. Yield on loans declined 4 basis points to 4.10% versus the second quarter of 2015.

Average balances ay the Fed which were inflated last quarter, average balances at the Fed decreased about $215.2 million or 14.4%. We saw 3 basis point improvement due to that factor. The effective cost of the funds remained unchanged at 46 basis points, and we expect the net interest margin to be flat to slightly down in the fourth quarter from the 3Q levels.

We are positioned to benefit from potential increases in short-term rates. I don't know when that will happen, but again, to show you the sensitivity table on the right side there, if short-term rates were to go up 100 basis points, the net estimated change in net interest income compared to unchanged would be 4.7%.

That's a slight increase from the 4.2% in the second quarter. In a 200 basis point rising rate environment, the percentage change in net interest income would be estimated at 7.2%. Again, that is up from 6.2% in the second quarter of 2015.

On page 7, talked a little bit about non-interest income obviously reflecting higher core banking fees. Third-quarter adjusted non-interest income was $67.1 million, up $211,000 or 0.3% versus the second quarter of 2015 and $3.1 million or 4.8% versus the third quarter of 2014.

Core banking fees, $33.9 million, an increase of $1.5 million or 4.7% from the second quarter driven primarily by higher service charges on deposit accounts and other service charges. Our FMS revenues were $19.8 million for the quarter, a 0.2% increase on a link quarter basis and 1.9% increase from a year ago.

During the quarter, we also continued to benefit from the ongoing targeted talent acquisition throughout our franchise. We added seven financial management services professionals in key markets like Birmingham and Atlanta.

Those talent additions are expected to generate significant additions to assets under management over the next one to two years. While we have been a little negatively impacted by the recent overall market decline, assets under management now total $10.59 billion, reflecting about a 3% increase from a year ago.

Our mortgage unit continues to have a strong year while adding to its talent pool. During the quarter, we added 13 experienced mortgage originators in key markets like Birmingham, Nashville, St. Petersburg, Tampa, Hilton Head and Orlando.

We have also made significant improvement in our efforts to increase mortgage originations with minority borrowers. The mortgage banking income was $6 million for the quarter, down about 20.6% versus the second quarter while up 27.9% from a year ago.

Revenues were approximately $1 million or 15% lower than expected. That really reflects a greater portion of overall production being allocated to portfolio mortgages versus loans originated for sale.

Total mortgage production, which includes originated for sale and portfolio is in line with expectations at $354 million for the quarter compared to the average of $335 million per quarter for the first half of 2015. For the fourth quarter, we expect a decline in mortgage revenues from 3Q levels of approximately 20%, reflecting seasonally lower volumes as well as greater portion being allocated to portfolio mortgages, again a strong part of our balance sheet. Kevin Howard can give you some color on that a little later.

Again on the SBA or government guaranteed programs, our SBA gains were $1.1 million compared to $1.4 million in the second quarter. Year to date $4 million, up $922,000 versus a year ago, and again, we had strong talent additions there and we are very encouraged by our progress in the government guaranteed lending space.

Page 8, we will talk about our continued progress on expense management. Year-to-date 2015 adjusted non-interest expense is $504.4 million, up $1.1 million or 0.2% over the prior year. Our employment expense, $285.4 million, up $5.5 million over the prior year due primarily to higher variable comp from higher mortgage and brokerage revenue, annual merit increases and higher incentive compensation.

Still a great focus on headcount. Headcount decreased by 19 or 0.4% versus the second quarter and 139 or 3.1% versus the third quarter of 2014. Again, it reflects continued implementation of efficiency initiatives that go on throughout our company every day.

Occupancy and equipment expense $79.7 million, unchanged versus the same period a year ago. Other expenses, $4.7 million lower than prior year, reflecting lower FDIC insurance and advertising expense.

Our adjusted non-interest expense for the third quarter was $170.1 million, up $3.3 million versus the second quarter. The increase was driven primarily by a $2.6 million increase in advertising expense which we had talked about in previous quarters. 2015 adjusted non-interest expense again as previously guided is expected to approximate 2014 levels right at $675 million, reflecting again continued efficiency efforts and investments in talent and technology.

On page 9, again pleased with our continued improvement in credit quality. Let me just walk you through those graphs.

On the first graph, you will see a 9.2% linked quarter reduction in nonperforming loans, now $158 million or 0.72% compared to $174 million or 0.81% in the first quarter. The year-over-year improvement is 35%.

NPAs were down 7.5% to $222 million or 1.01% compared to $240 million or 1.1% in the prior quarter and representing a 31.6% year-over-year improvement. We expect both NPLs and NPAs to decline during the fourth quarter of 2015.

Graph on the top right shows that credit costs were $10.3 million, down $2.5 million or 19.6% from the $12.8 million in the second quarter, representing a 34.4% year-over-year improvement. Provision expense was $3 million compared to $6.6 million in the second quarter. Other credit costs total $7.3 million versus $6.2 million in the second quarter of 2015.

Bottom left graph shows net charge-offs for the third quarter of $6.8 million or 0.12% compared to $5.3 million or 0.1% for the second quarter. The year-to-date net charge-off ratio is now 0.15% which is well below our original guidance. Again, better problem loan resolution and a strong pace of recoveries from key contributors there.

Graph on the bottom right shows our paste dues greater than 30 days remain at low levels, currently 18 basis points. It's also worth noting that our 90-day past dues are only one basis point.

We are really very pleased. We continue to experience significant improvement in the quality of the balance sheet while at the same time reducing our overall credit costs.

On page 10, we will walk you through our quarter-end capital ratios. I will remind you that third-quarter capital ratios include the impact of the recently completed $250 million common stock repurchase. The second-quarter 2015 capital ratios include the impact of $197.5 million in common stock repurchases.

So the third-quarter 2015 CET1 ratios, 10.62% all of our capital ratios except tangible common equity ratio or Basel III transitional, and the ratios prior to 2015 are based on Basel I rules. Tier 1 capital ratio, 10.62% versus 10.73% in the second quarter.

Total risk-based capital, 12.04% versus 12.18% in the second quarter of 2015. Leverage ratio 9.44% versus 9.48% in the second quarter. TEC ratio 10.18% versus 10.13% in the second quarter of 2015.

Third quarter Basel III common equity tier 1 ratio is estimated at 10% on a fully phased-in basis. And again, all the capital ratios are detailed there in the chart.

Going to page 11, again just a recap on capital management both past and go forward, as we said earlier, we did complete in the third quarter the $250 million share repurchase program. We used the full authorization, 9.1 million shares at an average price of $27.53. That total repurchase reduced our share count by 6.5%.

During the third quarter, repurchases totaled $52.5 million or 1.7 million shares. That completes the repurchase program that was announced on the October call a year ago.

We are pleased to announce an additional share repurchase program. The Board of Directors authorized a $300 million share repurchase program to be completed over the next 15 months, which will take us through the end of 2016.

The Board also approved a 20% increase in the quarterly common stock dividend to $0.12 per share. This dividend increase will be effective with the quarterly dividend payable in January of 2016. All of these actions reflect our continued commitment to efficient capital management as our risk profile continues to improve.

Before I go to questions, just a little bit about our go forward story which we kind of touched on. Hopefully the results are indicative of strong initiatives, but for the last quarter, looking ahead to 2016, we continue to remain actively engaged in initiatives that will generate growth specifically in areas that further diversify our balance sheet and improvement our fee income contribution.

We are onboarding revenue-generating talent at an aggressive pace, especially in our fee income producing lines while also managing expenses to support these investments in growth. We continue to refine our model and realign talent to more effectively match skills with needs and opportunities in our markets. We are very focused on C&I growth, it continues to diversify our balance sheet and it's really well-suited for our relationship banking model.

We've launched and will soon launch additional key growth initiatives that are heavily focused on growing all segments of C&I lending including expanding our middle market strategy which we talked about, added offerings in resources and government guaranteed lending, enhancing products and processes for small business lending. Just continuing to focus our bankers through targets and incentives on referrals and growth and other C&I areas like equipment financing, which had good growth this quarter and asset-based lending as well.

As we said earlier in the call we expect mid- to single-digit loan growth for the full year. Our retail sales productivity is on track to achieve our goal of a 30% increase in sales productivity per year again, so really good progress across all fronts there. Like others, we will watch and see during the fourth quarter what happens with interest rates, but the main point here is our growth plan is not dependent on increases to short- or long-term rates.

We've talked about our investment people. We will continue to invest also in technology and systems really all designed to bring greater efficiency and a better customer experience to all of our banking units.

We know that continued investments in growth require even greater diligence and expense management to fund those investments. We are actively today and every day to find new and implementing ongoing activities to generate savings for our Company. That again is a way of life around this Company.

In closing, as we near the end of another positive year, we are excited about our growth plan for the fourth quarter and 2016 and beyond. We carefully designed and built out several supporting initiatives, and we feel like we have the right talent in place to execute well in every key area.

As we repeatedly encourage our team during the crisis and we remind them every day that our focus and our energy has to be on things we can control. We can't speed up the economic recovery, we can't force an increase in interest rates, but we can execute on our plan and grow our Company leveraging our expertise, our technology products services and above all our relationship-centric banking model as we attempt to continue winning in our markets, serving all of our customers and winning new relationships.

We feel good about the rest of the year. I think, operator, now would be a great time to stop and pause for questions. And again, we have our senior team in the room with me to take any of your questions.

(Operator Instructions)

John Pancari.

Evercore ISI. Good morning. On the expense front, a couple of questions there.

Just want to get a little bit of additional color around the driver of the higher other expense. Sorry, if you've mentioned that, I might have missed it. I know that ticked up in the quarter so wanted to get color on that.

And then separately, wanted to get your updated thoughts on how you're thinking about the efficiency ratio in fourth quarter but more importantly in 2016. Where could that head? I know we are at 64% now. Where could this go barring Fed hikes? Thanks.

Hi, this is Tommy. I will try to answer your question. We have a -- I'm sorry, would you repeat the very first part of your question?

I know it was a long one. The increase in other expenses for the quarter, what drove that?

The other expenses we had $750,000 credit for reduction in unfunded commitment and reserves for losses also. That was the key to that.

Okay. And then the second part.

Second quarter in comparison to the third quarter.

And then the second part of my question was the direction of the efficiency ratio barring Fed hikes.

Yes, we've been pushing that from both sides from the revenue side and the expense side. It's moved forward slightly over a year or so, that happened every quarter. I think it was about par this time. We are continuing to push that as hard as we can by managing the expense side and also on the revenue side.

We don't have a explicit target out there. We have internal targets to move that forward, and as Kessel said a while ago, we are not counting on the interest rate movements to get it there. We are working hard to make sure we are doing what we can with what you have and moving it forward.

Okay. All right. And then lastly, Kessel, just want to hop the capital and get your updated thoughts on capital deployment particularly from an M&A perspective.

We saw what you announced in terms of buyback and the dividend. How are you thinking about M&A here given difficult rate environment? Is this something you think is ultimately going to be needed to drive growth in this type of operating environment?

We certainly think it would be additive, John, and these capital actions certainly do not preclude the ability to do any M&A action. We believe again, as we said going back almost two years ago, that we thought M&A would be in our future playbook. We thought shorter-term we need to focus on internal operations and efficient capital management. I think hopefully we benefited from that and now have a currency that would certainly allow us to look at opportunities through a different lens still with a focus on opportunities that really were great strategic and financial fits.

We are seeing a lot of opportunities. The pace of activity as many of you see just from yesterday's announcements in the South East continue to move at a pretty brisk pace.

Our focus has been on acquisition readiness, making sure that we dusted some of the cobwebs off and made sure that our team was ready with a plan. And we had again, a focus on our operating results to get our currency to a point where that could make sense.

We see a lot of opportunities. We don't feel the need to do one for the sake of doing one or to create scale just for the sake of creating scale. But we do see interesting opportunities out there that we will continue to evaluate.

Again, we want to make sure that at the end of the day, it makes Synovus stronger. That's a test I've tried to apply to several that have come across my desk very quickly. But we certainly think over time that is a way as we can grow the Company and create some scale, we can certainly improve operating results there.

These capital actions are just one action or one type of action. We certainly think that our capital ratio that these capital actions also allow for M&A activity if the right opportunity were there.

Okay, got it. One last thing on that, what would be your sweet spot in terms of targeted size of bank deals, Kessel?

John, I don't think our first one would be a game changer. I think the first one would be one that had a very high -- I guess everyone thinks this, but in my case I want a very high probability of execution success, one that does not take our team away from their core day-to-day opportunities. We think those are very great. I think the first one might be on the smaller end of the spectrum, not going to be a game changer but one that would fit in very nicely from a strategic standpoint within our current footprint.

Okay. Great. Thank you.

Michael Rose.

Raymond James. Hey guys, just want to touch on credit. Looks like you had some reserve release quarter. The reserve ratio is getting down relatively low at this point. What could we expect in terms of future releases, and you seen anything on the credit front that's causing you to pull back in any certain categories?

Hi Michael, this is Kevin. On the reserve, it's actually -- it's almost where it was two quarters ago. I think the reserve went up $2 million last quarter and down $4 million. So I'd still consider it more on a stabilized, and that's how we see it going forward. You might see the ratio tick down a bip or two, but I think as far as dollars are concerned, I think we are pretty much, at least in what I see in the next couple quarters, as being continued very stabilized.

But no particular -- we are always looking at different areas of the portfolio. We are watching manufacturing, we have seen reduction in balances there. That has been a soft spot in the economy in the South, so we are being cautious, but still a healthy portfolio.

We are watching the construction portfolio. That's ticked up during the year. We are starting to see -- we want to make sure that gets to stabilization, and we think we will do less construction going forward as we've been on a pretty strong pace the last five or six quarters. So we will watch those things and just continue to -- I think from a credit cost perspective, we think it will be pretty much what we saw, good drop again this quarter in that probably [$10 million] to [$15 million] range, and again on the reserve side probably staying pretty stabilized.

Okay. That's helpful. Just as a follow-up, it looks like you guys purchased some securities this quarter. Took a little bit of the nearer-term asset sensitivity off the table. If we are lower for longer, could we expect to see continued modest securities purchases or expect to grow that side of the portfolio?

We will just have to keep an eye on it this time. We were investing in consideration of utilization of dollars at the Fed and also felt like adding to the portfolio a little bit was useful. We will keep an eye on that how things are going on a loan standpoint and on the deposit standpoint and make a decision on a quarterly basis.

Okay. Thanks for taking my questions.

Steven Alexopoulos.

JPMorgan. Good morning everybody. I went to follow up on John's questions on expenses. At this point, given the efficiency initiatives underway, is it likely you could hold adjusted expenses relatively flat again in 2016?

Yes, let me try and take this. There is certainly upward pressure on the adjusted expense line. Our team has done a great job of taking expense out to allow for these initiatives that we've invested in, in increasing depreciation on some of the technology investments and other IT spend.

Our goal is certainly to keep that number relatively flat, but it will have some upward pressure. We are not prepared yet to give 2016 guidance, but I will tell you that our focus is on keeping that number as close to flat as possible.

There's certainly going to be some modest upward pressure. But given this rate environment, we know and we are really discussing early this morning the need for -- even though the effort is there every day, the need for an additional look at the expense line. So more to come on guidance there, but certainly our intent is to manage that line as close to flat as possible, and we will give further guidance when we complete our planning and budgeting process for 2016.

Kessel, if I could ask, with the headcount down 3% over the past year, as you look forward, could you take it down another 3% or is that going to be pretty difficult?

I think you can, Steven. Number one, and I will want to pick on branches because in my heart and soul I'm a branch banker and I love what goes on in our branches. And I tell our tellers all the time more people care about who they are than they care who I am if they serve them right.

Just the investment in technology and our focus on how we are running our branches now, we know that we will have additional opportunity to reduce the number of branches which will certainly bring down headcount. And quite frankly as much as we brought down the staffing, we can take that, we believe, even further in 2016. But it doesn't all need to come out of the branches.

We need to really make sure that systems and other processes we are investing in allow for efficiency on the back end. I won't give a lot of detail, but investing in a new loan processing system that once fully implemented, we know other organizations that have put in the same system have achieved back end savings in terms of number of people necessary.

As we realign our production talent and put talent where the opportunities are, we are increasingly focused on making sure that we have bankers with the right skill set. And we continue to look at ways to get better productivity there.

That was a long-winded way of saying we do believe we can push down headcount. There will be significant investment in new headcount that we talked about. The key is making sure that we are getting it where we can grow the revenue line and getting it out of where it's not having a material impact on either revenue or service.

Okay. That's helpful. Maybe I could just ask one question on the buybacks?

Kessel, should we be thinking about a relatively stable pace of buybacks through the next 15 months? I know the $250 million was somewhat front end loaded. How are you thinking about the new one?

You nailed it. I think it should be a pretty even pace. We won't rule out anything and we will be optimistic, but I think when we did the last one, we signaled out of the gate we'd be very aggressive.

And we think this will be a more measured steady pace over the 15 months. But we keep all the same options on the table. But I think your description is the right one.

Okay. Great. Thanks for taking my questions.

Emlen Harmon.

Hey, good morning guys, it's Jefferies. So some of your peers are starting to add some duration and redeal from the middle of the curve.

Given the increase in asset sensitivity, doesn't appear like you're giving up much of that this quarter. But how are you thinking about balancing getting a little more aggressive on rates now versus staying as levered as possible for the Fed funds increases?

This is Tommy. We've been watching closely, first of all, waiting for that rate movement to happen at some point as it will. And we been managing accordingly.

We've been unwilling to invest a lot in changing that because sometimes we think the risk may be higher than the benefits you're getting for it. We believe what you saw in the third quarter compared to the second quarter was a lift on the 200 basis point level -- moved up meaningfully. And basically for that, we are seeing more variable loans both on a current and forecasted basis.

We are also seeing fewer loans on -- with floors, and the new loans with floors will come off floors with a tighter lift and will quickly come out of those floors. We also keep an eye on the liability side and watch that closely, and same on securities side. But we feel like we are on the right place.

We will obviously -- if things don't change from an interest rate standpoint, we will be looking at things like shorter wholesale funding, growth of securities portfolio, likely an ad duration, and we will also consider more fixed loans alongside the liability opportunities that we will have. That's about where we are right now, and really hopeful things change sooner rather than later, but as Kessel said, we're not depending our Company on that.

Thank you. What is your ability to take the liquidity down further from here? That was a nice helper to keep the NIM steady this quarter.

We were -- loan to deposits a good indication, we're 96%, and we had gotten up to close 100% a year ago. We've done a lot on the deposit side to bring that forward and to have more liquidity and so forth. It doesn't have to be at 95% or 96%, but it will be closer to that than 100% we had a year ago. And so we feel like there is opportunity.

We did take the Fed balance down a good bit in the third quarter. We will see some of the impact of that on an average basis because a lot of that showed up pretty late.

You will see some cushion we believe come in on a -- with the Fed balance as we are in 2014 -- I'm sorry, we're in the fourth quarter. And so you will see some on the average side of that, and that will help the margin slightly. And so that's where we are.

Okay. Thanks for taking the questions.

Jefferson Harralson.

KBW, good morning, KBW. My question is similar to Emlen's. I want to go into the mortgage strategy of keeping more loans on the balance sheet. Is that for rate purposes? Is that a mix change of what you're originating? Is that taking a longer-term view and going spread income faster? How should this all things equal change the potential loan growth of the Company with that slight strategy change?

Yes, Jefferson, some combination of myself, D. and Kevin are all going to weigh in here. I don't know if there's significant shift in strategy. The growth is through our position program and private wealth strategy where we really beefed up our customer contact staff there, revenue generation.

We've been generating very high-quality -- Kevin was talking to me today about FICO scores within that portfolio. So we feel like that opportunity to put a really high-quality mortgage on our balance sheet is really a strong one.

So we are not backing away from the typical originate and sell strategy, but this quarter that mix was certainly more skewed to those product categories that I just talked about. Kevin, do you want to add anything on what's going on the balance sheet there?

This is D. The one thing I would add is, as we're doing -- as Kessel made the comment, it was positioned private wealth. Over 98% of those customers have deposit relationships with us as well.

And so it's a way for us to continue to expand our customer base on what we feel is a great niche and segment that we have. In addition to that, we have significant loans, other investments, and other things that we cross sell to these customers. It's intentional on the customer base that we look at.

So it sounds like these are jumbos? This is a newish jumbo strategy? Is that how to position this?

There would be a significant number of them are jumbo, but with some are not. Some we may be catching earlier in the cycle.

I guess from the -- especially on the position side and some of the others. Yes, it would go heavier toward the jumbo side.

All right, excellent. Maybe a clarification -- I think this is what Kessel was saying. Would you expect this buyback to be complete all things being equal by end of next year? Is that -- I think that's what you said, but I want to make sure that's what you --

It is, Jefferson. Last year it was a 12-month authorization, so it ran through the third quarter. It just seemed to make more sense to sync it up on an annual counter basis is how we do our stress testing and other stuff. It's a 15-month authorization. We would expect it to be completed over the 15 months.

I think the question Steven asked was also about the front end loading. We did the accelerated share repurchase in the fourth quarter last year, which front end loaded that repurchase. And the thought this time is it would be a more measured, over the 15 month program. Certainly the goal would be to complete it, and we wouldn't take any other tools off the table. But right now the plan would be to do it over the 15 months.

Makes sense. Thanks guys.

Brad Milsaps.

Sandler O'Neill. Good morning. Kessel, just back to some of your comments around the potential for M&A, just curious if you had any criteria that in terms of tangible book value dilution earn back or earnings accretion that you guys would plan to stick to if in fact you were able to find something that fit strategically?

We do. I wouldn't want to say it publicly; I can tell you that we aren't interested in any long-term earn back on tangible book. And we expect any acquisition to be accretive and to be a nice strategic fit, which may rule out a good number of the universe, and that's quite all right with us.

We really do believe our internal strategies are good and working. And we think there are opportunities that we can -- that will be actionable over the next year or so that will fit in with a short earn back and immediately accretive transactions.

Again, I have said on the road a lot that we wouldn't expect our first announcement to be a head scratcher to the investment community, and so if we do something that causes you to scratch your head, call me. I think it would be something that would be again a nice strategic fit for us. And if it happens great, and if it doesn't happen, that's okay too.

I've often said patience has been our friend in the M&A world, and I'm not caught up. I see other transactions that are interesting and that's great, and I applaud those that are doing them. But we've got a very disciplined approach to how we are going to look at those, and if they fit, they fit. If they don't, that's okay.

That's great. Very helpful. Final question. Tommy, any updates on maybe your appetite to pay off some of the higher cost debt you guys have out there?

I think some of the rate issues have given you guys a bit of an upgrade. So curious any change in thought there in how you guys might be thinking about attacking some of those higher cost pieces that are out there?

The high price deck really stands out I guess with the 2019, $300 million, and quite frankly the thought right now is the cost of getting out of that is probably too high to really get a good return on it. We will keep watching that and see if there's an opportunistic situation. We keep an eye on that constantly.

We also have subdebt that matures in 2017, $450 million. We are currently actively exploring all options that are there.

Any time really from now until later 2016, we will have some scenarios out there that we will actually execute that will be maybe some sub debt level and then another piece later on. All that hadn't been determined or timed, we are actually just looking for opportunity, looking for the market to be right, seeing where rating agencies go. So that's where we are.

Great. Thank you guys.

Nancy Bush.

NAB Research. Good morning. Yes, a couple of questions, Kessel. When I look at this quarter, it pretty definitively illustrates that you guys have left the financial crisis in the rearview mirror at this point.

And when I look at the level of investments that you are doing and branches and technologies, et cetera, did you come out of the financial crisis with a list of deferred projects? And how far down that list are you, and do you go into another list of things that put you in front of the curve?

Nancy, great question, and I love your opening statement that we've left the financial crisis in the rearview mirror. So did we come out with a deferred list? I don't know that I would call it a deferred list.

I personally felt as we came out of the crisis or even during the crisis that more of our investment felt that it was in just upgraded core system, stabilization of core systems, replacement of PCs and things that really you couldn't see a direct customer benefit. You couldn't see an efficiency play out of. I don't want to necessarily use that term deferred, but it just seemed to have the feel of investments that were not producing additional return.

As we moved out of that, I think our team does a great job of planning and prioritization. It's a continuous cycle, and so we have a list right now that would probably take us out to 2018 in terms of our ability to onboard, whether it's upgrades of mobile banking, of customer portals, of new loan systems that either have efficiency plays or customer experience plays.

So I don't think we are behind. I think we have achieved parity in a lot of our applications that we were maybe not there. It's an ongoing process, and quite frankly you know that priorities that are out on your 2016 or 2017 list you may never execute. By the time you get to those, you've re-prioritized or pushed those aside. I don't know that it's a catch up, but it is certainly a robust process that involves, in our model that involves our IT team, our operations team, and all of our business line leaders who compete for priorities to make sure that our vetting process is correct and then our execution and accountability piece is also equally as robust.

So it is - I spent a lot of time there, a lot of our senior team spends a lot of time looking at 2015 onboarding, 2016 onboarding, 2017, 2018 prioritization. It's not just money -- you certainly have to have the right amount of team.

I think your question is a good one, and again, I feel like we are in the right place with our investments and we continually challenge ourselves and quite frankly, our board challenges us on if you increase the pace of investment, what is the trade-off. If you decrease it, what is the trade-off. It's a very -- I don't want to say hotly debated subject around here, but a very robustly discussed process around here.

Second question. In a lot of your commentary, you mentioned your success in the Charleston market. I've been talking to a number of community bankers recently, and it's like the Southeast woke up at the same time and said the word Charleston.

Everybody seems to be headed that way. Can you discuss the competitive situation there and how you are positioned in that market and whether my impression that it's getting crowded is indeed correct?

I think it's getting crowded, and all the newcomers should leave and go home. We've been there a long time. We are proud of what we have done in Charleston. I don't think we just woke up there.

Rob Phillips leads our team there. We've got a great team of really experienced bankers in Charleston. We have a well positioned branch network but really experience bankers. We've always had strong board representation from the Charleston market, and so our company's history in Charleston goes way back. And I think some of our team hosted some investors on a tour of Charleston just recently. It's a great market, and it's not just -- everybody knows about Boeing and the other businesses it's attracted and a lot of great development there and a lot of other business activity in Charleston.

Yes, its competitive. I will say this, every one of our market leader says their market is the most competitive or is uniquely competitive; so I think our Charleston bankers would certainly say it's a very competitive market.

But again, I think you win in a market based on the quality of the team you have in your markets. And we have bankers there with really deep roots in the community and board members there with really deep roots in the community and a presence in that market that goes way back.

We love Charleston. It's a great place to visit but certainly a great place to bank, and I think if anyone else is thinking of coming into the market, I would urge them not to do so.

All right. Thank you.

Chris Spahr.

Must have already answered it.

Jennifer Demba.

Thank you, SunTrust Robinson Humphrey. Good morning. Question on expenses. Kessel, you mentioned reducing branches as an obvious lever.

Can you talk about where you are in terms of corporate real estate rationalization? I know Atlanta is a big project for you in the coming year, but once you're done with Atlanta's office consolidation, where do you go from there and how much opportunity is there?

It's like the technology process, Jennifer. It is ongoing. So we won't be done in Atlanta for a while or maybe never.

Quite frankly, I'm excited about not only consolidating offices in Atlanta but potentially opening more offices in Atlanta. Hopefully not the 5000 square feet variety but the smaller branch variety. We think there are some markets in Atlanta that need more investment.

So there will be consolidation and certainly additional investment there. That same process is going on today in Birmingham and Columbus and all of our major markets throughout South Carolina. As we just look at our model and we look at customer behaviors and we look at opportunities to not just consolidate office space, but to take larger retail branch facilities and maybe close two and open one that is much more in keeping with what we think today's customers' desires are without the barriers and with -- I went in our Nashville new branch last week, and it really just has a great feel of customer interaction with the tablet and mobile capability for customers walking in. So that process is ongoing, and we have a corporate real estate committee which I sit on that monthly meets to look at progress in terms of efficiency, where we might spend some money to cut some additional expense.

And I don't know that I can define in terms of what inning we're in. It really is very early and it's just an ongoing process here.

Okay. Thank you very much. My other questions have been answered.

I'm showing no further questions in queue.

Thank you operator, and just again I want to thank all of the analysts and investors and team members and board members and regulators who have dialed in today. Our story, I hope, is very consistent and one of executing against our plan, and that's what we've done during the crisis, post crisis and what we will do going forward.

Our team is very energized. Our board is very energized, and hopefully our investors are as well.

We will continue to do what we can do to focus on those things we can control and look forward to closing out the year in a very positive way and hitting the ground running in 2016. So thank you all for dialing in today and 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.