Synovus Financial Corp (SNV) 2015 Q4 法說會逐字稿

Welcome to the Synovus fourth-quarter 2015 earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. Now, I'd like to turn the floor over to your host, Bob May. Sir, the floor is yours.

Thank you. 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 at 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 made include forward-looking statements. These statements are subject to risks and uncertainties and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website.

We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the Company's performance. You may see the reconciliation of these measures in the appendix of our presentation. Thank you. Now, I'll turn it over to Kessel Stelling.

Well, thank you, Bob. Good morning, everyone. I'd like to take you straight into the deck. On page 3, we'll talk about the fourth-quarter highlights. Fourth-quarter net income available to common shareholders was right at $56 million or $0.43 per diluted common share. Adjusted diluted EPS was $0.44 up 4.2% versus the $0.42 in third-quarter 2015, up 13.5% versus the $0.39 in the fourth quarter of 2014. Adjusted pre-tax pre-credit cost income was $105.3 million, increased $533,000 or 0.5% versus the third-quarter 2015 and $5.7 million or 5.7% versus the fourth quarter of 2014.

Our credit quality metrics continued to improve. Our NPA ratio declined to 0.96% from 1.01% in the third-quarter 2015 and 1.35% in the fourth quarter of 2014. Pleased to see that total loans grew $565.3 million or 10.3% annualized on a sequential-quarter basis and grew $1.33 billion or 6.3% for the full year. Average core deposits grew $556.3 million or 10.3% annualized versus the third-quarter 2015 and 11.8% versus the fourth quarter of 2014.

We continued to execute on our share repurchase plan. Our total share count decreased by 4.8% versus the fourth quarter of 2014. To give you a little recap there, during the quarter, we repurchased 1.2 million shares for approximately $37.1 million at an average price of $32.16 in connection with our $300 million repurchase program launched in October. Year-to-date through January 18 of 2016, we repurchased an additional, approximately, 1 million shares for $31.3 million at an average price of $30.30 and now total 2.2 million shares or $68.3 million at an average price of $31.28.

Our capital ratios remained strong during the quarter and at year end, with a common equity Tier 1 ratio of 10.37%. Also during the fourth quarter, we issued $250 million in subordinated debt with a 10-year maturity. We repurchased $46.7 million of our outstanding subordinated notes that mature in 2017. These repurchases resulted in the pre-tax loss of $1.5 million. Additionally, earlier this month, we repurchased an additional $125 million of the 2017 notes in conjunction with our tender offer. First quarter of 2016 results will reflect a $4.7 million pre-tax loss relating to the January repurchases.

Now to slide 4, a little more color on the loan growth. Total loans increased by $565.3 million or 10.3% annualized on a sequential-quarter basis. Growth was firm across all loan categories with: C&I loans growing $248.3 million or 9.3% annualized; CRE loans growing $185.2 million or 10.2% annualized; and retail loans increasing $133.5 million or 12.7% annualized.

We experienced significant growth in senior housing, middle market and retail lending. Other consumer loans grew, right at, $78 million, primarily as a result of beginning a point of sale lending partnership with GreenSky near the end of the third quarter. Consumer mortgages also grew $50.2 million during the quarter or 10.6% annualized.

Corporate real estate grew $145 million. Senior housing grew $124 million. Middle market grew $69 million. Our medical office also grew $54 million. From a market perspective, to name a few: the Tampa, Nashville, Charleston and Birmingham markets posted strong loan growth.

On slide 5, total loans increased $1.33 billion or 6.3% for the year. I'll give a little color there, solid growth really across all loan categories with: C&I loans growing $524 million or 5.1%; CRE loans growing $449 million or 6.5%; and retail loans increasing almost $359 million or 9.1%. We, again, experienced strong growth in specialty lines including corporate real estate, senior housing, consumer mortgage, medical office and equipment finance.

Our government guaranteed lending unit, which consists primarily of SBA loans, generated $122 million in total production for the year, a 65% increase over 2014. We expect strong growth in production volume in 2016 which will contribute to our overall loan growth. Our strategy lending to government guaranteed lending is really an extension of our relationship-based banking approach.

For the year: corporate real estate grew $366 million; senior housing $363 million; consumer mortgage grew $245 million; medical office lending grew $120 million; and equipment finance grew $117 million. Again, to highlight a few markets, we had high opportunity markets including Atlanta, Tampa, Nashville, Birmingham, Chattanooga and Charleston. All post strong loan growth for the year. We do expect loan growth in the mid single-digits for 2016. Kevin Howard will provide some color on that later in the call.

On slide 6, again, pleased with the continued growth in core deposits. Average core deposits increased $556.3 million or 10.3% annualized versus the third-quarter 2015 and $2.33 billion or 11.8% versus the fourth quarter of 2014. 2015 average core deposits grew $1.6 billion or 8.2% from 2014. Average core deposits, excluding state, county and municipal deposits, grew right at $378 million or 7.7% annualized versus the third quarter and $2.21 billion or 12.6% versus the fourth quarter of 2014.

Total average deposits of $23.24 billion increased $384.2 million or 6.7% annualized versus the third-quarter 2015 and $1.91 billion or 8.9% versus the fourth quarter of 2014. Period-end core deposits increased $648.5 million or 11.9% annualized from the third-quarter 2015 to $22.18 billion and $2.29 billion or 11.5% versus the fourth quarter of 2014. For the full year, the markets that posted strong growth in average core deposits included Atlanta, Columbus, Tampa, Columbia and Athens.

On slide 7, we'll cover on net interest income. It increased $4.8 million or 2.3% sequentially. Net interest income was $212.6 million, up $4.8 million or 2.3% as I just stated, versus the third-quarter 2015 and up 2.5% in the fourth quarter of 2014. Net interest margin of 3.18% was up 4 basis points from the third quarter of 2015. I'll give you a little break down there, the yield on earning assets was 3.63%, up 3 basis points versus the third-quarter 2015. Yield on loans declined 2 basis points to 4.08% versus 4.10% in the third-quarter 2015.

New and renewed yield on loans decreased 1 basis point to 3.66% versus 3.67% in the third-quarter 2015. Average balances at the Fed decreased right at $293 million to $989.9 million or a 23% decline. That led to a 4 basis point improvement in NIM, just due to that factor. We also had 1 basis point improvement due to higher yield on investment securities. Pleased to see our effective cost of funds move down 1 basis point from the third quarter to 45 basis points.

A little commentary on rate increases, the most recent increase in the Fed fund rates will be positive. As we expect, the net interest margin for the first quarter of 2016 to be approximately 3.25%. As we move into 2016, our base assumption is that we'll see an additional 25 basis point increase in both the summer and after the election. We will give you some color on the variables there, but these increases will allow the margin to remain at 3.25% level for the year with some volatility within the quarters.

If we don't see any further rate increases in 2016, then the margin would see some modest pressure in the second half of the year off of that 3.25% level. So as the table on the slide illustrates, we'll see overall net income in a flat rate environment, we believe will increase due to our expectation of mid single-digit loan growth and a slight expansion in the margin. This would only accelerate if rates were to move up during the year.

So, again, if you look at the interest rate sensitivity table, we've done a little different this quarter. So you'll see, if the short-term interest rates were flat, the estimated 2016 change in net interest income as compared to 2015 would be up 6%. If rates follow that base case which I outlined then the estimated change in net interest income as compared to 2015 would be up approximately 7%, we believe. If we saw four -- with rate increases as indicated in the footnote, we believe the estimated change would be approximately 9% in net interest income.

On non-interest income, fourth-quarter 2015 adjusted non-interest income was $66.1 million, down $942,000 or 1.4% versus the third-quarter 2015 and up 2.5% versus the fourth quarter of 2014. Core banking fees were basically flat at $33.6 million, down about $271,000 or 0.8% in the third quarter driven primarily by lower service charges on deposit accounts.

Service charges on deposit accounts were down slightly, $171,000 versus the third quarter primarily due to lower account analysis fees. FMS revenues were $19.8 million for the quarter, unchanged on a linked-quarter basis and up 0.8% in the fourth quarter of 2014.

We continue to benefit from the ongoing targeted channel acquisition throughout our franchise. These channel additions are expected to generate significant additions to Assets Under Management over the next one or two years. Additionally, while negatively impacted by the recent overall market decline, Assets Under Management now total almost $11 billion reflecting a 2.3% increase from a year ago.

Mortgage banking income was $4.1 million for the quarter, down $1.8 billion or 30.7% sequentially and down 15.5% from a year ago reflecting seasonally lower production volume and market conditions. For the full year, mortgage banking income grew $5.1 million or 31.3% reflecting higher purchase and refinancing volume. We continue to add to our [mortgage] origination staff in high-opportunity markets such as Tampa, Nashville and Atlanta through a greater emphasis on talent acquisition.

These investments in people are driving an additional mortgage origination volume as well as products and services offered by our wealth team through a focused effort to cross-sell these mortgage clients. I mentioned SBA earlier, gains from the sales of government guaranteed loans, primarily SBA loans, $1.4 million up $263,000 or 23.5% from $1.1 million in the third quarter. For 2015, $5.4 million up $1.7 million or 45% versus a year ago. 2015 adjusted non-interest income was $265.2 million, up almost $10 million or 3.9% versus 2014.

On slide 9, again, you can see our continued focus on expense management. 2015 adjusted non-interest expense $677.9 million up $2.1 million or 0.3% of the prior year, up $7.4 million or 1.1% versus 2013, again reflecting our continued focus year-over-year on controlling adjusted expenses. Employment expense $381 million, up $9 million or 2.4% of the prior year due primarily to higher production driven incentives, annual merit increases.

Our headcount is down to about 59, 1.3% versus a year ago, again, reflecting continued implementation of efficiency initiatives. Occupancy and expense -- equipment expense of $107.5 million was up $1.7 million or 1.6% versus 2014. Other expenses down $8.5 million over the prior year reflecting lower advertising and FDIC insurance expenses.

As you recall from earlier calls during 2015, we paused on broad based brand awareness advertising spend while we conducted significant customer research, focusing instead on targeted retail campaigns and capability advertising. The result was a significant reduction in advertising costs compared to 2014. We do expect spending levels to increase in 2016 as we resume brand awareness activities in select high-growth markets.

Adjusted non-interest expense for the fourth quarter was $173.5 million, up $3.4 million or 2% versus the third quarter. Increase was driven by a $2.2 million increase in consulting fees and a $1.2 million charge related to some lease exit costs, partially offset by a $1.8 million decline in advertising. For 2016, again, intense effort on controlling adjusted non-interest expense. We believe the increase will be in the low single-digits.

Slide 10, I talked a little bit about credit quality, but I'll walk you through this. On the first graph, you'll see a 6.8% linked-quarter reduction in non-performing assets. Now, $215 million or 0.96% compared to $222 million or 1.01% in the third quarter. Year-over-year improvement is 25%. We expect NPAs to decline modestly in 2016.

The graph on the top right shows that credit cost were $11.9 million, up $1.6 million or 15.4% from $10.3 million in the third quarter representing a 27.6% year-over-year improvement. Again, we believe that credit costs reach their lowest point in 2015. As we provide for loan growth in 2016, with an anticipated lower rate of charge off coverage, there's a possibility that credit cost for the year will be slightly higher than 2015. Again, Kevin Howard can elaborate more in the Q&A if you have some questions there.

Bottom left graph shows the net charge-offs for the fourth-quarter 2015 were $3.4 million or 0.06% for the quarter compared to $6.8 million or 0.12% for the third quarter. 2015 net charge-off ratio was 0.13%, a 26 basis point improvement from 2014 which was much improved from our original guidance. Again, a better problem loan resolution and a strong pace of recovery is your key contributors. We expect net charge-offs to be within the 20 to 30 basis point range for the full-year 2016.

The graph on the bottom right shows past dues greater than 30 days. Our past dues remain at historically low levels, currently 21 basis points. Also worth noting that our 90-day past dues are only 1 basis point. With these credit quality improvements, we're pleased that we still grew the loan portfolio by more than 6% while maintaining a very high standard for underwriting and improving the quality and diversity of the balance sheet.

On slide 11, a little bit about capital, just to reconcile these numbers. The fourth-quarter 2015 capital ratio includes the impact of $37.1 million in common stock repurchases and $250 million subordinated debt issuance. The third-quarter 2015 capital ratios included the impact of $43.1 million in common stock repurchases. Fourth-quarter 2015 CET1 ratio was 10.37%, all capital ratios except tangible common equity ratio or Basel III transitional.

The ratios prior to 2015 were based on Basel I rules. You'll see the Tier 1 capital ratio 10.37% versus 10.60% in the third-quarter 2015. Total risk-based capital ratio 12.70% versus 12.02% in the third-quarter 2015 reflecting the benefit of the $250 million subordinated debt issued in December. Leverage ratio, 9.43% versus 9.45% in the third quarter. Tangible common equity ratio, 9.90% versus 10.18% in the third-quarter 2015. Forth-quarter 2015 Basel III CET1 is estimated at 9.77% on a fully phased-in basis.

On slide 12, just a brief summary of 2015. I think a good way to summarize it is just steady progress. There are a lot of charts here. I'll give you a little color. We reported double-digit net income growth for the year. We achieved further growth and diversification of the balance sheet as I just talked about. We continued improvements in credit quality and ended the year with strong capital ratios.

I think the benefits of our talent realignment in 2014 were very evident in our numbers at year-end 2015. Our bankers and investment teams were better positioned to identify, pursue and serve strategic high potential customers by segment. Our retail team increased sales productivity by 27% through improved staffing, process enhancements and new in branch sales tools.

We opened two new branch prototypes designed to allow for faster service for routine transactions, provide an improved customer sales experience with our highly skilled universal bankers. We showcased our latest technology that offers customers access and convenience beyond branch hours.

Our private wealth teams are now positioned in 16 markets across the footprint, better able to support fee income, loan and deposit growth by working closely with our banking partners who connect them with the customers and prospects on a daily basis. We think this kind of activity led to FDIC data showing another year of market share growth in many of our markets and the maintaining of top five market share in the majority of markets where we serve.

Additionally, our focus on small business customers led to a 13% increase in small business checking balances over the prior year, as well as a 16.6% increase in merchant accounts. We continue building out our middle market lending program and sustain momentum from investments we've made in other specialty lending areas like senior housing and specialty health care. We also led middle market syndications offering our growing customer base more access to credit.

As I mentioned earlier, we continue to invest in SBA government guaranteed lending. We're very pleased with a 65% increase in loan production in that area during the year. As of the SBA's fiscal year end of September 30, 2015, Synovus was ranked number 34 nationally in loan production, up number 41 nationally at the same time in 2014.

To further drive fee income growth, we continued on-boarding commission based mortgage talent and retail brokerage management consultants. We were very pleased with pipeline expansion and business lines like our multi-generational family asset management. Our mortgage team continued to do a great job of leveraging mortgage products to cross-sell and expand our relationship with customers.

On the efficiency front, we once again tightly managed expenses during the year including further headcount reductions and the ongoing streamline of office space throughout the footprint. We continue to see returns on technology investments that are simplifying process -- set processes for our team members and customers and drawing more and more customers to our lower cost transaction channel like mobile, online and ATM banking.

We still have a robust mortgage origination platform. This year, we laid the ground work for launching our new loan account origination platforms and new profitability and data warehouse tools. We made continued investments to protecting our customer and systems from the ever present cyber security threat replacing all customer credit cards with chip-enabled cards during 2015. For all of their efforts, our team was recognized in a number of ways during the year. I can't recall all of them.

I probably could -- but includes recognition as one of Americas most reputable banks by American Banker Magazine and the Reputation Institute. This was certainly an honor. We're very proud to receive this. That kind of recognition along with many, many accomplishments made for great 2015 for our team.

From a go-forward standpoint, just a couple highlights and then we'll move right into Q&A. Our work to drive solid performance is, in 2016, is well underway. As I said earlier, loan growth is expected to be mid single-digits driven by increased C&I segment penetration. We talked about middle market, talent acquisition, SBA government guaranteed, loan production and small business lending.

I think we'll see increases in retail lending through our growth in consumer mortgages, especially in the private client and customer segment and select lending partnerships like GreenSky. We'll see continued but measured growth in CRE lending. We're beginning to grow deposits at a pace to support loan growth. We expect, as I showed earlier on the base case, a 6% increase in net interest income in 2016 which would expand if rates were to move up again.

We'll continue to strongly emphasize cross-selling partnership to support increases in fee income, supported by our aggressive on-boarding and mortgage brokerage and trust talent. Adjusted non-interest expense, again, I said earlier is expected to increase in a low single-digit rate as we invest in technology and talent to bring greater efficiencies growth and enhance customer experience. Again, every effort will be made to keep that number just as low as possible.

We'll continue to execute our capital plan to further strengthen our position to make sure that we're prepared as future M&A opportunities arise. We remain very, very committed to investing in our team members and getting back to our communities including continued leadership development and the launching this quarter of our refreshed outreach program to make sure that we're addressing the needs and strengthening communities we serve.

So, I'll close a little more, but maybe it's a great time to go to Q&A. So Operator, we have our usual team here for our callers. I'll open the floor up for questions.

(Operator Instructions)

Brad Milsaps.

(Operator Instructions)

Sandler O'Neill.

Hey, Kessel. Nice quarter, just wanted to follow-up on some of the guidance, particularly as it relates to the net interest margin. Just kind of comparing the interest rate sensitivity table that you guys disclosed on page 7 of this quarter's release versus the one you had last quarter -- the up 100 scenario. It's -- the increase, I think you're saying 9%. I think last quarter, it was around 4.7%. What maybe changed between the two?

Then -- the flat scenario is not too far from the up 50 scenario. Are you just making more -- making an assumption that you have more deposit migration obviously with more rate increases? Just any additional color there would be helpful.

Yes. Brad, the pool map is actually different than what we had before. This is the all-in including the lift that would happen from growing loans along the way. So I think it was handled a little differently last time. But now we're in the real thing with it. We've got what happened on December 17. We believe that this is the place we're going to land.

Brad, Tommy said that well. Just to say it a different way to make sure all of our callers -- the sensitivity charts historically have just been on a base level of assets, showing what would happen if rates rise. This, again, as Tommy said, this assumes normalized growth in assets. So the chart is to show the increase in net interest income on that asset base as it grows as well. So a little different twist on the presentation.

Got it. So it would encompass kind of your mid single-digit loan growth guidance?

Right.

Correct. Any increase in spread or anything that's associated with just normalized loan growth.

Got it. But would still also still capture any assumptions you guys are making about deposit migration, et cetera?

Yes.

Okay. Then just to follow-up on that. Tommy, I know you've talked about this before in the past. You were able to deploy a fair amount of Fed funds this quarter. Would you expect that to level out here? Or do you think there's still more opportunity to reduce that number?

Yes. This -- on a period end, I'd say we're about done pulling it down. On an average basis, there's a little bit of room there. So there will be a modest impact in the first quarter but that's mostly done.

Okay. Thank you, guys, very helpful.

Thanks, Brad.

Emlen Harmon.

(Operator Instructions)

Jefferies.

On the expense guide for the low single-digits, is that a year-over-year number? Are you thinking about that from kind of like a linked-quarter basis as we head out through the quarters? I would also just be interested to hear your perspective on how much of that increase -- well, there's obviously a lot of investment you guys are making, I'd just be curious if there's underlying efficiencies that you're pursuing as well that go into that expense guide.

Yes, Emlen. It is year-over-year. I don't know that we've disclosed the components. But it includes significant investment. Let me just give you some of the categories. Significant investment in technology related customer facing projects, cyber security. So a lot of investment there. A significant amount of employment related expense beyond merit as we invest in middle market lending, SBA lending and other areas. So significant increases there than you have normal merit. We think, it will increase our advertising spend. We're glad to do that.

So if you add all those components into the expense base, you would have without further action more than that low single-digit increase. So it is incumbent upon our team. We're working every day to again complete ongoing -- some of the initiatives that we have, carrying over from 2015 and identify additional in 2016.

So it does require again a very focused effort to drive costs out to hold it to that level. We included this quarter a chart to kind of go back and show we've really been at this level for about three years. The Company is a lot larger, we've got a lot more loans on our balance sheet.

I think that chart on page 9 is very reflective of how the team has been very focused on driving costs out. Because all of those years required investments in new people and in new technology. Yet we held that number basically flat. So and we would love to hold 2016 flat but realistically, we note that there will be pressure beyond that. So again, we think low single-digits is the right number here.

Got it. That's helpful, thanks. So then wanted to hop over to the deposit side of things. Are you guys seeing any competitive effects at all from that first rate hike that we got in December from a deposit perspective?

This is D. Really what we're seeing is, I think most folks are holding fairly steady with deposit rates. I think it just has been at a hyper low environment. I think as you -- as it has moved out, we've been able to maintain the deposit rates in the range that we have been previously.

All right. Thanks for taking my questions.

Thank you.

Ebrahim Poonawala.

(Operator Instructions)

Bank of America Merrill Lynch.

So I guess just the first question, Kessel. I think you touched upon this in your opening comments around credit normalization. I was wondering, as there's been a lot of concern around what's happening in the high end markets and how that translates for credit quality at the banks. I was wondering if you or Kevin can sort of touch upon in terms of: one, if you're seeing soft spots be it loan categories or markets; and second, what's the risk from a material deterioration in credit relative to expectations today? Or do you just not see that given where unemployment and housing are trending?

Okay. I missed part of the second part of the question but as far as soft spots -- this is Kevin by the way. Still soft spots might be more on the residential land. We're still seeing some inconsistencies maybe in our smaller markets where the job growth has not been as robust.

Unemployment is still more of 6% or 7% versus maybe 5% and good job growth in the larger markets. So we're still in some of those markets are not growing as well as we would like to be but again I think the economics are fairly challenging. So that would be more of the soft spot. I was trying to get that second question down. If you don't mind maybe repeating that?

Sure. Just in terms of the outlook for credit quality. Are there any particular areas where you're seeing weakening? Or where you're talking to your lenders and pulling back because of sort of the standards that we've seen over the last few years?

It's not -- just I would say -- some of that has been in some of the larger credits maybe the syndications we haven't been getting as good of a look there from a leverage standpoint. It seemed to be higher leverage type deals we're avoiding as well as some of those areas probably more than others. Again, being a little cautious in that space probably a little bit more -- on the equipment lending, some of the stuff we've been getting there while we've had some positive growth, that's become a much tougher area of the balance sheet to grow due to sort of the risk return ratio that we normally like to see. So there's been some challenging areas.

Understood. Just one clarification. I just want to make sure I heard this correctly. Did you say the first quarter of 2016 net interest margin will be 3.25%?

Yes. We believe it will be.

It will be. All right. Thanks for taking my questions I'll get back in the queue.

Thank you.

Ken Zerbe.

(Operator Instructions)

Ken Zerbe, Morgan Stanley.

Just going back to the NIM, especially that chart on page 7 that you have. I just want to make sure -- I get what you're saying that includes loan growth but if you look back at the last quarter, it was 4.7%. I'm going to ballpark here mid single-digits growth is roughly say 5%. So if you add the two, you should be up closer to 10% per 100 basis point increase. Is it fair to assume that your asset sensitivity has actually declined since last quarter?

Ken, this is Tommy. Its slightly declined, but you really are almost right on the target that we're at. So it's just a modest change.

I'm sorry say that again, a lot has not changed?

Ken, this is Bob. So really some of it is that you increase the base with the margin going up. So it is slightly declined on the net interest income sensitivity but you're getting the benefit in the base with that one 25 basis point increase that we just saw.

Got it. Okay, understood. I'm sorry to make you repeat what you mentioned on the call earlier, but the way I understood it was if you don't get the two rate hikes -- I thought I heard this, but if you don't get the two rate hikes -- or you need two additional rate hikes to allow your NIM to stay stable at 3.25%. Is that broadly correct? Because it just seems -- I'm curious what, without rate hikes, what the downward pressure is being caused by on NIM? Thank you.

So Ken, what will happen if we just stay flat. We believe that we will see the 3.25%, it'll move in that direction but it may not stay there. There's still some pressure where the new and renewed is below the portfolio level. So you'll see some pressure there that will be taken away if we get the 50 or the 100. So we think that we'll stick with the 3.25% assuming we can have another rate increase, but if we don't then we'll have some pressure on where we are right now.

Okay. That makes sense. Thank you very much.

Thanks, Ken.

Nancy Bush.

(Operator Instructions)

NAB Research.

Guys, two market questions. You mentioned that Charleston was one of your hot lending markets, but you didn't mention it as being one of your strongest deposit markets. What is your sort of general funding position in that market? What are the sort of funding competitive conditions there?

Well, D. is looking at some numbers. Let me just say this overall in Charleston, we debated every quarter who we were going to highlight in loans or deposits. But Charleston has been, in general, a very solid performer for us across all fronts, including private wealth, trust and other areas. It is a very competitive market. Nancy, as you know, some recent entrants into that market through M&A. We've got a very strong team that has consistently performed from both a loan and deposit base. D., do you have anymore color on the deposit side you'd like to add there?

Yes, Kessel. One thing I would add, Charleston was a strong deposit market. It's just the ones Kessel listed were stronger. It was up significantly for the quarter. So it's not that it's a negative. We have four or five very strong markets on the deposit side.

Okay. I'd also ask -- you mentioned that Atlanta as a quote, high opportunity market, you were seeing strong loan growth there. Once again, I'm amazed at how quickly that market becomes hot. Can you just address the competitive conditions there? What kind of lending you're mostly seeing?

Well, it's across all fronts. Atlanta is a very real estate oriented market, so you will always see that. There's strong multi-family opportunity. There's hotel opportunity. There's good small business and C&I. We've had good portfolio mortgage, consumer and really across all fronts. I agree with you, Nancy. The cranes that were rusting a few years ago, they can't get enough of them now.

We're very -- not cautious, but we're excited about Atlanta. But I'm making sure that we don't try and get every opportunity there. I was there last week. We hosted two economic forecast breakfasts. We had to move it to two different venues because of the customers and prospects that attend. So we had 500 one day and I don't know, 300 or 400 the other and had a local economist speak. Again, he was also very bullish on Atlanta, but as you know every bank is there and so very competitive.

But I'm really proud. I was talking to Kevin the other night and D. about just the quality of our bankers there in a lot of these different specialty areas again, private banking, wealth, real estate, middle market, really across small business. Across all fronts, we've got some high performing bankers. I hope our competitors are on the phones wanting to hire them away. Very competitive by the way for talent in Atlanta as well.

Right. Yes, Kessel, I would just ask you one final macro big picture question. There is a lot of talk about recession out there right now. I don't know if people are just spooked by the markets, but nothing we've seen in banking results thus far -- I admit that we're early in the process, has spoken to recession. Can you just give us your perspective on this?

Yes. I'm again fresh off an economic talk on why the indicators don't suggest that. But, gosh the last two weeks I think have, maybe not shaken all of us but certainly caused us to pause. We still don't see that on the horizon but we don't put blinders on as it relates to that. So we think that we're well-positioned.

Our investments have been in areas that are revenue producing. Our credit focus has been very tight. We actually, I think, lost some talent in the fourth quarter because our producers thought our standards were tighter than others in the metro market; therefore, they wouldn't quite earn as good a living here. So we're cautious.

We're not planning for it but we're certainly prepared for it. We still believe based on economic indicators -- we have our own internal economic council that met last week or the week before and I attended that. Pretty consistent with their GDP forecast and their views on certainly the US economy and certainly some views on the global economy. So we're not ecstatic about the economic outlook but we are -- we think we've got a great plan to execute through these existing conditions.

Okay. Thank you.

Christopher Marinac.

(Operator Instructions)

FIG Partners in Atlanta.

Kessel, leveraging off of your last answer here to Nancy, was curious about reserves and your ability to build reserves this quarter. Would you like to do that with the loan growth forecast this year? Also the positive trends, we keep seeing on classified and criticized assets as well.

Yes, Chris, I'll let Kevin take that but certainly reserves follow a formula in loan growth will cause us to provide certainly as we grow and if we continue to have migration that will help as well. Kevin give your thoughts about reserve and how you see that during the year?

I think exactly what you said, Kessel. I think we certainly had releases for several consecutive years of since coming off of the recession. But I think as we get further away from that cycle, I think obviously your default and loss factors start stabilizing a little bit more. I think that's how I kind of see it in 2016, 2017 and you're growing more consistently. I think it will be neutral maybe even a slight build during the year.

That's sort of -- as Kessel mentioned in his opening remarks on credit costs being potentially -- may have peaked from a low side in 2015. It may be slightly up in 2016. I think that's exactly where it's related to. I think two things. The recoveries that we've had again as we get further from the cycle won't be coming in as rapid as they were not as robust and is also the reserve build we won't have that release; it will be more of a flat reserve build.

But I don't think it will be a big number because I think we've gotten a lot of our old legacy problems behind us. So just kind of add it all up. I'll look at flat to a little elevated during the year on the reserve. That's what we are thinking right now.

Okay. Great, that's helpful. Then, Kevin, just a follow-up on acquisitions. Do you think anything on the small acquisition front is possible in this next year?

Yes, Chris, it's certainly possible. We've been very clear in our position, our focus and our desire to be prepared without going too far here. We get a lot of inbound calls. We've been very selective in what we've even chosen to screen but I would certainly say that is a possibility.

Okay. Super. Thanks again, everybody.

Thanks, Chris.

Jennifer Demba.

(Operator Instructions)

Chris just covered my question, thank you very much.

Thanks, Jennifer.

Jesus Bueno.

(Operator Instructions)

Compass Point.

Very quickly, just on the buyback, you recently re-upped your buyback authorization. The fourth quarter is one of the, I guess, the lower overall absolute dollar amounts that you've used to repurchase shares. So I guess just going forward, how should we think about the buyback over the next year in terms of pace of buybacks?

Yes, this is Tommy. We put the new program out back in October. We're down now I believe to $232 million. So we're slightly below what you might see on just a daily basis. But we've got a long time, we've got the balance left to go with the $232 million. We've got between now and December to finish that. You'll see us going through in an opportunistic way and so forth. Our intention is to complete it by the time December gets here. So we think we'll be off to the races in 2016.

That's great. Thank you. Just on obviously loan growth was nice. You touched upon -- you mentioned the partnership with GreenSky. So interested the point of sale partnership. Do you have any targets for what you expect loan balances to be from that program? I guess in terms of your overall loan mix, what size are you comfortable in terms of growing that portfolio?

Yes, this is Kevin. We did. As Kessel mentioned, we started that partnership in the third quarter. Their balances toward year-end were around $75 million. We think that will be possibly up to around $200 million by the end of 2016. So it will be a part of our consumer growth. We sort of just long term view as far as allocation of the balance sheet probably thinking right now more of that point of sale type business being maybe 1% to 2%. Don't think we'll get there in 2016 but that's sort of our objective long term right now.

That's great. Thank you very much. Those are all my questions, thanks.

Thank you.

Tyler Stafford.

(Operator Instructions)

Stephens.

I just had a question on slide 19 on your TDRs. I just want to make sure I'm understanding the nomenclature here correctly. Is this slide stating you have a single $200 million or $200,000 90-day past due TDR?

No, it would be a $200,000 90-day. We've had very little past dues and that's what that slide demonstrates and also you can see pretty rapid reduction year-over-year. I think over 36% is actually a reduction of accruing TDRs. That's a small, very small loan.

Yes, I just want to make sure that [end] was not representative of millions.

No. Tyler, to that point we've disclosed this. We actually don't have any credits in our portfolio, period, that approach that level now. So if that were $200 million there, that question would not have been answered by Kevin Howard, it would have been answered by somebody else.

Got it. Just checking. Okay. That's it for me guys. Thanks.

Thank you.

Jared Shaw.

Wells Fargo Securities.

Just following up on the margin question, as you look at the expectation for 2016, have you made or are you making any changes to the structure of new securities purchases to help shape that? Or is that mostly loan driven?

I'm sorry, Jared, can you repeat the question?

Sure. As you look at the expectation for the margin for 2016, how much of that growth is -- or is any of that growth due to any change of structure of the securities portfolio, in terms of what you're purchasing or around the size of the portfolio?

We'll move forward some with the securities portfolio. It will be at a little bit higher yield. It's at [1.95] now and was [1.87] a quarter before, so you'll see some uptick in that but it will not be a large driver to the net interest margin.

Okay. What was the duration at the end of the year for the portfolio?

The duration is [2.91] but was [2.7] a quarter ago.

Great. Thank you very much.

Thank you.

Thanks, Jared.

Ebrahim Poonawala.

Sorry if I missed this, I did notice the pace of buybacks slowed a little bit relative to further expectations of maybe $60 million per quarter for the next five as you work towards the $300 million authorization. Could you just remind us, how should we think about that? Should we think that you are targeting the complete debt or it might be more dependent on how you're evaluating other capital deployment opportunities?

We are planning to complete that. We were -- again as a reminder in the fourth quarter, we had a -- we're in the market with a debt offering and tender offer. We had a blackout period. So I wouldn't read anything into the slower pace in the fourth quarter. I think you'll see us move back to a normalized pace. Our plans would be to complete it over the four-quarter period.

Very clear. Then one follow-up in terms of -- I'm sorry if I missed it, on the SBA guaranteed fees that we are owning, is there an expectation of what that growth could be year-over-year as you sort of fully expand capabilities there in 2016 relative to 2015? Or are we pretty much set at where we were in 4Q when we think about quarterly run rate tied to those gain on sale?

Yes, this is D. In our expectations, we would see a similar type growth rate as our expectation for 2016 as we saw in 2015.

Understood. Thanks again for taking my questions.

Sure. Ebrahim, I'll just add to that. We think our SBA approach, maybe not totally unique, but we source most of that business through our core banking system and then bring an SBA specialist. We can also go invested and expanded those capabilities to be able to better serve the five-state footprint. We've had more production in Georgia relative to the others, but we're seeing some of the others come on, so we think that it's a good opportunity to not only grow fee income there but really land full relationships through that SBA relationship based approach.

Understood. Thanks, Kessel.

Thank you.

Gentlemen, I'm showing no further questions in the queue. I'd like to turn the floor back to you for any closing comments you'd like to make.

Okay. Well briefly, first let me thank everyone for joining our call. I know it was a busy day for earnings releases, so for those of you all that joined this call, we appreciate that. I'll just close by saying our team really is excited about 2016. As we're serving our customers every day, we're learning through our relationships with them how we can better serve them longer term.

We're challenging ourselves to look for new solutions, better solutions to our existing offerings to find ways to reach new customer segments and win new relationships. We know every other bank in the industry is but we really do think we have a competitive edge in our unique local leadership driven model. So we'll continue to invest in local bankers who are deeply embedded in our markets, that are seen as go to leaders in their communities.

We think those leaders better understand the opportunity that exists where they live and work and can better connect all of our talent, our specialty talent and throughout the footprint, connect them to the right customer and prospects. That combined with our strategic initiatives investments creates a very effective formula for driving continued growth or achieving greater efficiencies and improving financial performance.

So stay tuned for the rest of the year. The team is off and running. I'll thank our entire team for a job well done in 2015. I really mean that from the bottom of my heart. Most of them are on this call, so thanks to them, thanks to you who follow our Company and to our investors and customers on this call as well. That will conclude our call. Look forward to talking to you all again soon. Thank you.

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