Synovus Financial Corp (SNV) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus second-quarter 2016 earnings conference call.

(Operator Instructions)

Now I would like to turn the floor over to your host, Bob May. Sir, the floor is yours.

Thank you and good morning, everyone. During the call we will be referencing the slides and press release that are available within the investor relations section of our website, synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today with our Executive Management Team available to answer your questions.

Before we begin, I'll remind you that our comments made include forward-looking statements. These statements are subject to risk 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.

Thank you, Bob, and good morning, everyone.

Thank you for joining us on our second-earnings call. I will walk through the highlights, give you a little view on the rest of the year and than happy to take your questions with the rest of the team.

Just a slight change in the lineup today. Many of you know, we announced earlier this year, Tommy Prescott had announced his retirement effective later in the year. We announced last week the appointment of Kevin Blair effective August 17. And so we were planning to celebrate Tommy's 63rd straight earnings call today, but he had a tree fall on his home last night.

We had a pretty violent storm come through Columbus and I just saw the pictures so we gave Tommy a pass so he can deal with the damage to his home and get his family back under a dry roof. So we wish him the best of the luck and we'll say a little bit more about Tommy. But, in his place, most of you know Bob May, and Bob will assume that role today and help us with any of your questions.

With that, let me move right into the second-quarter highlights. Second-quarter net income available common shareholders was $57.9 million, or $0.46 per diluted common share. Adjusted diluted EPS was $0.49. That excludes a $5.8 million restructuring charge, up 13.1% versus $0.43 in the first quarter of 2016, and up 16.9% versus the $0.42 in second quarter 2015. Second quarter 2016 also reflects a lower tax rate and the benefit of an $800,000 discreet adjustment on state taxes.

Total revenues were $289.3 million, up $8.1 million, or 2.9% sequentially, and up 7% versus a year ago. Total loans grew $302.7 million, or 5.3% annualized on a sequential quarter basis and grew $1.57 billion, or 7.3% versus a year ago.

Total average deposits grew $397.8 million, or 6.9% annualized versus the first quarter of 2016 and 5.1% versus the second quarter of 2015. Please also see improvement in credit quality metrics; our NPL ratio declined to 0.67% from 0.78% in the first quarter. And NPLs decreased 13.5% from first quarter 2016, as well.

On our share repurchase, 8 million common shares, or $236.2 million, have been repurchased under the $300 million program from program inception in October 2015 through June 30 of 2016. Total share count has been reduced by 6.2% from a year ago. During the quarter, we repurchased 2 million common shares for $60.5 million at an average price of $30.02.

Capital ratios remained strong with common equity Tier 1 ratio of 10.02% versus 10.04% in the first quarter of 2016 and 10.73% in the second quarter of 2015. Our adjusted ROA was 88 basis points compared to 81 basis points in the first quarter of 2016.

Moving to slide 4, a little additional color on loans. As I said earlier, total loans grew $303 million, or 5.2% annualized on a sequential quarter basis, 7.3% versus the second quarter of 2015. Retail loans grew $261 million, or 24.1% annualized. C&I loans increased $146 million, or 5.4% annualized, partially offset by a decline in CRE loans of $106 million, or 5.6%.

On a year-to-date basis, loans have increased 5.7% annualized; retail loans grew $332.6 million, or 15.6% annualized. C&I loans increased $183.3 million, or 3.4% annualized, and CRE loans grew $113 million, or 3.1%. Loans increased across most specialty lines with solid growth in consumer mortgages and our lending partnership with Greenstein, our new partnership with SoFi, senior housing, asset-based lending and medical office.

Our government guaranteed lending production totaled $22.5 million compared to $17.8 million in the previous quarter. And from a market perspective, we generated strong loan growth in key markets such as Atlanta, Nashville, Columbus, Tampa, Jacksonville and Athens, and we do expect continued loan growth in the mid single digit range, that 4% to 6% range for 2016.

Slide 5, a little more color on deposits. Total average deposits $23.61 billion, an increase of $397.8 million, or 6.9%, versus the first quarter and they increased $1.14 billion, or 5.1%, versus the second quarter of 2015. Period-end total deposits increased $476 million, or 8.2% annualized sequentially, and $1.28 billion, or 5.6%, versus a year ago, reflecting continued growth in our deposit portfolio.

Broker deposits increased $291.6 million versus the first quarter and reflect the addition of a new bank deposit sweep product now being offered to our Synovus Securities customers, which added $307.7 million in deposits as of June 30, 2016. Average core deposits increased $156 million, or 2.8% annualized versus the first quarter, and $1.36 billion, or 6.5% versus a year ago.

Average core deposits, excluding SCMs deposits, increased $316.7 million, or 6.5% versus the fourth quarter, and grew $1.36 billion, or 7.3% versus the second quarter of 2015. Our period-end core deposits, excluding SCMs, increased $233.8 million, or 4.7% sequentially, and $1.27 billion, or 6.7% versus the second quarter of 2015. And we continue to expect our deposit strategy will yield core deposit growth, which will support our loan growth.

Slide 6 talks about the NIM. You'll see net interest income $221.4 million, up $3.3 million, or 1.5%, versus the first quarter 2016, and up 8.7% versus the second quarter of 2015. OUr net interest margin, again, was unchanged from first quarter of 2016, actually up 12 basis points versus the second quarter of 2015. Yield on earning assets was 3.73%, unchanged versus the first quarter, yield on loans, 4.15%, also unchanged versus the first quarter.

Our new and renewed yield to loans increased 4 basis points to 3.85% versus 3.81% in first quarter of 2016. Our effective cost of funds remained unchanged at 46 basis points and our cost of interest-bearing core deposits was down 1 basis point to 0.36%. We continue to expect that the increase in net interest income for the full year in a flat rate environment as compared to 2015 will be approximately 7.5%. The NIM could experience slight downward pressure in the third quarter of 2016 in that flat rate environment.

On slide 7, talk about non-interest income. For the second quarter, total non-interest income was $68 million, up $4.7 million, or 7.5% versus the first quarter of 2016, and down 1.4% versus the second quarter of 2015. Adjusted noninterest income, which excluded investments, securities, gains, net was up 7.6% versus the first quarter and up 1.6% versus the second quarter of 2015. Core banking fees were $33.8 million, up $488,000, or 1.5% from the first quarter of 2016.

Service charges on deposit accounts increased $530,000 or 2.7% versus the first quarter of 2016. Gains from sales of government guaranteed loans, primarily SBA loans, were $716,000 this quarter compared to $711,000 in the first quarter, relatively flat.

FMS revenues were $20.5 million for the quarter, up $1.5 million, or 8.1% sequentially and up 4% versus a year ago. Brokerage revenue increased $855,000, or 13.2% during the quarter. Mortgage banking income was $5.9 million for the quarter, up $457,000, or 8.3% sequentially, and then 20.9% from a year ago. Other non-interest income was $2.2 million, primarily due to a $900,000 gain from private equity investments, which in the first quarter, reflected a $390,000 loss.

On slide 8, we'll focused on non-interest expense. Second-quarter 2016 adjusted non-interest expense was $182.4 million, up $3.1 million, or 1.7% versus the first quarter. Employment expense was $97.1 million, down $4.3 million, or 4.2%, reflecting a seasonal declining in payroll taxes. Advertising expense was $7.4 million, up right at $5 million, as result of resuming brand awareness activities. We expect that the second half of 2016 will approximate the first half of 2016 expense.

ORE expense was $4.6 million, up $1.9 million versus the first quarter, primarily due to disposition related cost. The adjusted efficiency ratio improved to 61.54% this quarter compared to 61.92% in the first quarter of 2016, and again, we remain very focused on achieving our long-term goal of an adjusted efficiency ratio below 60%. Our 2016 adjusted non-interest expense is expected to be slightly up versus 2015.

In the second quarter, the results included $5.8 million in restructuring charges, approximately $5 million of these charges related to our continued corporate real estate optimization activities. We are also to new to evaluate our branch network while employing additional digital and online capabilities to increase convenience for our customers, while lowering transaction costs, and have identified this quarter three branch consolidations to be completed by year-end, which will be in addition to the four branches that we closed earlier this year. We now expect our branch network to be 250 locations by year-end, which will represent almost a 23% reduction from year-end 2010.

Again, I've touched on credit quality. Continue to improvement in credit quality. NPA is down 13.5% from the prior quarter, while our NPA ratio declined 81 basis points from 95 basis points last quarter and 1.11% from the same quarter a year ago.

NPLs in the quarter also down 13.5% from the first quarter, while the NPL ratio decreased to 67 basis points from 78 basis points in the first quarter. Provision expense was $6.7 million, reflecting a decrease of $2.7 million from $9.4 million in first quarter. Year-to-date provision expense is $16.1 million compared to $11 million last year.

The decrease in the second quarter was primarily attributable to an increase in the volume of recoveries, as well as broad-based improvement on credit portfolios. However, we do expect the level of recoveries to subside in the second half of the year, which could cause provision expense to increase modestly compared to the first half. Kevin Howard will be happy to give you more color on that later in the call.

Net charge-offs decreased by $1.2 million, moving to $6.1 million, or 11 basis points, from $7.4 million, or 13 basis points, in the prior quarter and up from $5.3 million, or 10 basis points, in the second quarter of 2015. As you know, we guided at the beginning of the year that charge-off for the year would be between 20 to 30 basis points. We're pleased with the first two quarters of the year and based on better-than-expected credit performance, we now believe we will be below that guidance and our expectations for the second half of the year are the charge-off will be between 10 and 20 basis points.

Past dues decreased 24 basis points, which continues to be a very acceptable level of past due loans. It is down from 28 basis points in the first quarter of 2016 and flat compared to 24 basis points in the second quarter of 2015. 90-day past dues increased to 3 basis points compared to 1 basis point in first quarter of 2016 and 2 basis points in the second quarter of 2015.

Again, we are very pleased with the credit performance we experienced in the second quarter, as well as in the past few years. Our bankers and our crediting have remained very disciplined while also producing solid loan growth rate in July. We expect the remainder of this year to be very favorable for a balance sheet quality standpoint.

Touch on capital on slide 10 and I'm going to give you a little color in what some of these ratios include and don't include. The second-quarter 2016 capital ratios include the impact of $60.5 million in common stock repurchases and the phase-out of sub debt maturing second quarter of 2017. The first-quarter 2016 capital ratios include the impact of $110.9 million in common stock repurchases and early extinguishment of $124.7 million of sub debt on the 2017 notes. Second-quarter 2015 capital ratios include the impact of $50.3 million in common stock repurchases.

Let me just run through some of those ratios. The second-quarter 2016 CET1 ratio is 10.02% versus 10.04% in the first quarter. Tier 1 capital 10.06% versus 10.04% in the first quarter of 2016, and as you'll see, as the disallowed DTAs continue to decline that Tier 1 capital has now begun to exceed CT1.

Total risk-based 12.05% versus 12.25% on the first quarter 2016. The leverage ratio 9.1% versus 9.15% in the first quarter of 2016. Our tangible common equity ratio 9.52% versus 9.62% in the first quarter of 2016 and our 2Q 2016 Basel III CT1 ratio is estimated at 9.49% on a fully phased-in basis.

Again, before I briefly reiterate our key areas of focus for 2016, I'd like to take a moment to acknowledge and thank our team for the continued commitment to delivering exceptional service to our customers, clearly a driver of our success, and for investing and strengthening our communities across the Southeast. We were very grateful to be named by the American Banker and the Reputation Institute as number two of 2016 of most reputable banks, actually number one among prospect non-customers, and by Georgia Trend Magazine as one of the best places to work in our headquarters state.

I think the American Banker recognition demonstrates our commitment to exceptional service and serves as continued validation of our relationships that are modeled through leaders and bankers who are embedded in our local markets. And the Georgia Trend recognition reflects our ongoing commitment to fostering a people-first work environment, and again, that we've received similar awards in other areas of our footprint.

I also again want to thank Tommy Prescott who might be listening today. He wished me luck. After seeing pictures of his house, I wished him luck as well, but this would have been Tommy's 63rd, I believe, earnings call. Many of you all have commented on him in a very positive way. I know Lily and Daniel reminded me that Nancy Bush, who is probably on the call, called Tommy our secret weapon during the financial crisis.

So best wishes to Tommy today and we'll have a more appropriate way to say farewell to Tommy. He will be with us in the coming months to assist in a seamless transition, as you would expect him to do. So feel free to drop him notes, but he is still with us, and after today, will be working hard again.

So let's talk again about the remainder of 2016. We remain committed to delivering greater value to customers through our relationship-based approach while using new predictive analytics tools to enhance relationships and improve our profitability. Hopefully you saw some of those results this quarter. We are constantly bringing on new revenue-generating accounts to help drive net growth, especially in areas like mortgage, retail brokerage, other wealth management lines and specialty lenders.

And in the C&I space, we continue to hear success stories from partnerships across our product lines as we strategically pursue more profitable and total relationships. Our team's focus on business lines has led to an 8.3% increase in small business TBAs, a 28% increase in emergent sales and a 33% increase in new small business car sales during the first half of 2016, and we expect continued momentum from our team for the second half of the year.

We are also taking a number of steps to achieve our long-term goal of an adjusted efficiency ratio of below 60%, including the implementation of new internal systems that represent significant investments in a more efficient processing of loans and improved customer experience. We are also preparing for the 2017 transition of all of our bank divisions into a single processing environment.

We're already operating on a single platform, but we believe the elimination of multi-bank processing represents another big step, along with an effort to simplify our operating environment in a post-charter consolidation. It will bring in efficiency, reduced risk, and facilitate faster execution of new technology solutions that better serve our customers in this rapidly changing environment. So a lot of activities underway.

Certainly, we enter the second half of the year fully alert to the current economic climate, including the thought of lower rate for longer, but we remain optimistic about our ability to improve profitability in the third and fourth quarters. I've talked about our team. I think it's been proven they have a level of expertise and a passion for our customers and community that, combined with solid execution of our strategic priorities, will result in continued growth and progress for our Company.

I'll be happy to talk about any of that in the Q&A session. So now, operator, I will open up the floor for questions, and again, the usual team is here and Bob May will take questions on our financials. So we will open it up now for questions.

Thank you very much. Ladies and gentlemen, the floor is now open for questions.

(Operator Instructions)

We'll take our first question from Brad Milsaps. Please announce your affiliation and then pose your question.

Brad Milsaps of Sandler O'Neill.

Hello, Kessel. I appreciate the color on the branch consolidations and the restructuring charges you took this quarter. Just maybe wanted to jump into that a little bit more. It looks like you expect expenses to be maybe slightly up for the year. It would seem that maybe the second half, you could get maybe a little bit more leverage based on your run rate right now. Just kind of curious -- as you look out, can you quantify a little more what we might expect from some of these -- the most recent restructuring charge in terms of dollar change? Or is most of this going to be reinvested back in the franchise and in other ways that might offset?

Brad, thanks for the question.

Most of what you'll see in these branch announcements were anticipated when we gave our expense guidance earlier in the year, so these would not -- well, there certainly will be savings, but not incremental to our guidance. It's really part of our ongoing business model. I think this past quarter we certainly had, related to our corporate real estate optimization, and specifically in Atlanta, some transactions that we believe -- long-term again -- are the right things do for our Company. They are in our previous guidance.

But I can tell you the team this morning at about 6 AM was talking about additional ways to drive expense lines. So nothing to revise in the way of guidance, but I can tell you a very robust effort underway to look at, again, additional branches, additional real estate optimization, additional efficiencies from some of these processes I've talked about to continue to drive positive operating leverage.

Great, yes. I mean, you guys have done a great job in that regards.

Just looking year over year, the adjusted expense is up maybe 6% or 7%. Is that principally because maybe you accelerated some of the advertising that wasn't there last year? I know you gave some guidance around that number for the back half, but just want to make sure I'm clear on that.

Yes, advertising is a big driver, and again, up significantly this quarter. And those expenses are somewhat lumpy, but we believe it's a great investment that will, again, over time, drive revenue. But that's the primary driver.

Okay, great. And then just one housekeeping, maybe for Bob. Just on the tax rate -- what might be a good number to use going forward? I know that can kind of bounce around quite a bit, but just curious what your thoughts were there?

Yes, it bounced around. We had the discrete item in the first quarter and then it went the other way in the second quarter, but overall, we still feel comfortable with a 36% to 37% tax rate for the year.

Okay, great. Thank you.

Okay. We'll take our next question from Kevin Fitzsimmons. Please announce your affiliation and then pose your question.

Kevin Fitzsimmons, Hovde Group.

Kessel, I appreciate the continued outlook you all provide on the margin and on NII. Can you drill down a little deeper into the margin on your outlook for possible slight downward pressure on the margin? It was impressive that it stayed stable this quarter, but given what we've seen post-Brexit with the 10-year and what the yield curve has done, what levers do you have to only keep it at that point, at a slight downward pressure, given what seems to be a less accommodative environment in front of us? Just if you can talk about positives and negatives in terms of the margin. Thanks.

Hello, Kevin. It's Bob.

On the margin, we guided the slight pressure, and really it's because of the shift down in the yield curve. I mean overall, we have about 12% of the earning assets are in the bond portfolio and about 45% are in the fixed-rate. And so that's where the pressure is coming. The variable side and the credit spreads on the CRE side are actually improving. But just with the, for 2016, we really wouldn't expect a lot of pressure because it would take a little bit longer for that to get into the balance sheet. We have a pretty short duration bond and loan portfolio on the fixed side. So it's really more of a 2017 event, if we ended up having low for long, that you could see modest pressure in 2017. Though the levers, as you mentioned, are we're going to still focus on the deposit pricing, as well as continue to focus on the risk-adjustment profitability within the overall portfolio.

Great. Thanks, Bob. And just one quick follow-up.

I think on last quarter's call, Kessel, we talked about the buybacks and it being more of a balanced pace probably for the quarters remaining in 2016. Are you still expecting that? And how you feel about buybacks with where the stock is here today? Thanks.

Thanks, Kevin.

And we do expect, as you all recall, the plan we announced last October was a five-quarter call, so we have two quarters, obviously, left and we expect that to be balanced over the remainder of the year. We certainly watch the price of the stock, and again, without getting into the details of where our levers are, we expect it just to be balanced and play out over the rest of the year in a fairly normalized fashion.

Okay, great. Thank you.

Thank you. We'll take our next question from Nancy Bush. Please announce your affiliation then pose your question.

Please give Tommy my congratulations. Tell him I hope to retire someday, but I've got to stop spending money first. (laughter) Two questions.

The strong retail loan growth, Kessel -- it seems like you've sort of handed off loan growth to retail now, versus wholesale; and I'm wondering if that's a deliberate effort, or if that's a pay-off for some of your investments you made quarters ago? Or what's going on in that handoff?

I will let Kevin Howard -- I don't know that we handed it off, but we certainly have been very intentional about balance sheet diversification. You will notice this quarter, CRE came down. We had announced last -- well, we guided last quarter that we had slowed down our construction lending so the offshoot of that was, again, growth in other areas like retail, portfolio mortgages, our partnerships with GreenSky and SoFi, and the mortgage product.

Great growth in our physician mortgage program and some of our other very targeted portfolios there. So I don't want our four C&I bankers or any of our specialty lenders to think we've handed off what we expect them to do. But it has been very intentional and we're very pleased.

Kevin, do want to add a little color on that?

Yes. I would say over the last two or three years, we wanted to rebalance the balance sheet and grow more diversified and I think that's a part of the strategy there. We were pleased with the consumers. But we've been investing in growing our mortgage Company for the last several years in the right markets. More boots on the ground in key markets has been important for us, and we've had double-digit growth there now for about the last couple of years, actually.

But also, as we started trying to -- well, one of the initiatives we had to rebalance was to move our consumer loans a little closer from 18%, 19%. And this won't happen overnight, but maybe over the next three to five years, move it closer to about 25%, part of the risk management initiative and just growing the consumer more. We think that adds a lot of value to the Company. And so we have stuck our toe in the water a little bit, as Kessel mentioned, on some of the indirect lending. That's not been a big play in our playbook compared to others, but it is something we've wanted to do. We're probably allocating 2% to 3% of our balance sheet there over the next couple of years in those initiatives, so that will help boost growth as well. I think that's just, again, as Kessel mentioned, an overall more balanced approach to our growth as maybe we were historically before the recession.

Yes, Kessel, I would just ask along with that, when you mentioned that you're slowing down CRE and, given the warning that we've had, pretty strong warning from the OCC in the past few months. Was that part of it? Were you seeing what the Comptroller has warned about? Or are you just -- was slowing down CRE just part of this rebalancing?

It was part of rebalancing and we certainly are -- and saying to you that we're not OCC regulated; we stay pretty much involved with all of our regulators to make sure we understand their current thinking and their longer-term thinking. And I think Kevin and his team do a really good job of looking at, not just the next quarter or two, but look out over a year or two, because obviously, when you add construction loans, those balances really had a longer tail to build. And looking at where, at the pace we were on with construction lending, where that might take us in the out years, we just felt like it was prudent -- and certainly consistent with regulatory guidance, it was prudent to slow down the on-boarding of new construction loans. And we felt like we had a very focused team that could fill those gaps elsewhere.

Okay, great. And just a second question.

In the wealth management results, you had a very strong sequential rise in those results. And I'm wondering how much of that is market impact, and how much of that is new accounts? If you could just -- you've been ramping up your emphasis in that business and I'm wondering if we're finally starting to see some good results?

I don't have an exact breakout there, Nancy. I will tell you that it certainly reflects the impact of some of our hiring. We've added some great team members over the past quarter and quarters and years. And some of that business takes a little longer in cycle. You saw, again, good increases in brokerage this past quarter, so some of it I think is market. And quite frankly, I think as our Company continues to heal -- and I probably don't want to overplay the reputation because you know have that can slip from year to year -- but I do think our Company has been better position in a lot of these markets. And the further we get from the crisis, the better story our bankers have to tell and I think that certainly plays out on the wealth side. So I would say it's a combination of initial talent and certainly market conditions as well.

Okay. Thank you.

Okay. We'll take our next question from Ebrahim Poonawala. Please announce your affiliation and then pose your question.

From Merrill Lynch. Just a quick follow-up on the question around loan growth.

I think, as we look out for the back half of the year, just in terms of -- Kessel, I would love to get your thoughts around the overall health of the real estate market in the Southeast and the opportunities -- maybe at some point you decide to dial back end growth on CRE? Just what's your outlook on that for the next 6 to 12 months?

You asked me, so I don't want to avoid it. I'm going to let Kevin give you more color, but I will tell you that there is still healthy demand out there and the opportunities that we see have good sponsorship, strong equity in those credits and pricing has actually gotten better. So we are in no way abandoning that sector. We've got a great team. We just, again, want to temper that production a little bit to give us that balance sheet diversification.

I know Kevin has spoken to groups recently on the overall health. So Kevin, why don't you take the outlook, because we certainly have some very strong areas and some areas that might give you a little bit of concern.

Yes. We are not at all abandoning real estate. It was obviously down a little bit this quarter, but we would like that to be more flat than down over the rest of the year. So we will have to make new construction loans in the second half of the year to be flat, because obviously there's a lot of pay-off velocity there. So I want to make sure everybody understands we are moving in that direction.

We're watching some markets. We had probably more construction in the second half of the year than we expected. But we pulled back intentionally there as a balance sheet, management approach. But we're watching certain markets that have had a lot of units come on board that we may watch the absorption there of that, such as at the multi-family area, places like Atlanta and Nashville. Those are strong job growth, good wage growth in those markets, so I think they can absorb it fine. But there have been a lot of units in a couple of those markets that we want to watch more than maybe participate in for a couple of quarters and see how that absorbs.

But again, we are sticking to the market. I mean there's great job growth in -- 30,000 plus in Tampa, more than that in Orlando. Good job growth and wage growth and very low unemployment in places like Charleston. Obviously, Nashville, Atlanta -- sort of off the charts. So I mean, their economies are good for real estate. There has been a lot of construction over the last year, year and a half, in those markets. So we're going to be cautious. We're going to participate, stay with these builders who we've been with for a very long time, and so we'll put on some good real estate in the second half of the year.

That's helpful. And I think just switching quickly to expenses.

I'm sorry if I missed it, around, as we go forward, should we still expect restructuring charges to be persistent on a quarterly basis? Or do we see that fade away, given that sort of most of the restructuring that you probably had to do on the real estate side is behind?

Well, I don't know that I would call them persistent. There are very strict accounting rules about when we have set to restructuring charges or not. I will say this, that we continue to look for ways to improve long-term operating performance, and if those ways include any restructuring related to additional real estate or branch exits, we would certainly have those, but I can't be a lot more specific than that.

But, again, our interest is ongoing and the evaluation of all of those real estate facilities in long-term -- we know there will be some, but to predict when and how much in what quarters is a little difficult to do. But again, the focus is on improving the long-term operating performance.

Got it. Thanks for taking my questions.

Okay. We'll take our next question from Emlen Harmon. Please announce your affiliation and then pose your question.

Calling from Jefferies.

On the repurchases, heard your message about just keeping that, leveling that out across the back half of the year. Could you remind us what the constraining financial factor is on repurchases? And just what prevents you from re-upping that program sooner than next year?

Well, we announced, it's really in sync with our capital plan and we, after our stress test in capital planning announced again to get it in a calendar year sync, we announced in October of last year, a five-year $300 million, and we thought that really did play well into our capital plan. It kept our capital levels at ratios we thought were appropriate for our Company. So we'll complete that through the remainder of this year and give appropriate updates at the completion of that plan. There's no one binding constraint, but again, this is what -- $300 million was authorized. We're actually ahead of just a normalized pace to retire that. But obviously, all capital ratios are important. We referenced total risk-base of CET1, total Tier 1, liquidity, a lot of binding or influencing constraints there.

So we'll give updates on a 2017 plan a little later, but we think we're really appropriately on pace with this plan, and again, pleased with the execution thus far this year.

Okay, great. Thanks.

I was hoping we could get a quick update on the SBA business -- what fees look like there this quarter? Any hiring? Just a trajectory on that.

I'll let D. Copeland take that.

From the SBA standpoint, we did -- over the first half of the year, we added seven new product specialists which are across the footprint. They work in conjunction with our bankers, so they are not responsible for 100% of the production. It is really the banker group that works with them. So they came in late first quarter, early second quarter.

Also, just to give everyone a feel, we have seen good momentum for the second half of the year with that. We have, I guess, one good step that we have in closing right now with our SBA team more than we actually closed for the first half of the year. So we should see significant improvement in the volume there. In addition to that, our pipeline is the largest pipeline in SBA that we've ever had, and so we should see good momentum for the second half of the year with SBA.

I think fees there were around $700,000 last quarter. Do you have a sense of what that would look like this quarter?

It was roughly the same.

Okay. Great. Thank you.

Thank you very much. We'll take our next question from Jefferson Harralson. Please announce your affiliation and then pose your question.

Hello. KBW.

Just ask you guys about the SoFi relationship and the GreenSky relationship. If you could just talk about -- I think I understand the GreenSky one, but can you talk about how the SoFi relationship works and what type of growth you expect to get out of it, if you can?

Again, we're, over the next couple years, we think that could be 2% to 3% of our balance sheet. You can call that maybe in balances $500 million to $600 million. In that range is what we would expect. Probably a mix of the two. We like these two. We feel like they are among the most conservative approaches in this business. And again, we're kind of putting our toe in the water there. But we like the fact that the GreenSky part is big-ticket purchases, home improvement. SoFi is more student loan, refinance, and high-quality underwritten on both of those. That is what we like there, versus maybe some other approaches of debt consolidation. We have avoided that side, our internet lending, and more approach of these two.

Again, we expect -- we've had good growth because we start with zero balances a year ago. But I think we will start to get some pay-offs there and I don't think we will have huge incremental growth there over the next year or two, but we see it being, again, probably in that 2% to 3% range over the next year and a half or so.

How big is the book now of those two combined?

If you combined them, they are about 1% -- I think $240 million, $250 million, in that range.

All right. And then lastly, how do you think about losses and reserving for those two books?

Not to get into too much detail there, because these are partners of ours, but we have reserved appropriately for that, for one of the relationships, and we have kind of a credit waterfall for the other. So I will probably avoid the specifics there, but we think we've got appropriate reserve and appropriate waterfall in the losses as well on the other recovery.

All right. Thanks, guys.

Thank you. We'll take our next question from Jesus Bueno. Please announce your affiliation and then pose your question. Jesus, your line is live.

Oh, yes. Sorry about that. Jesus Bueno, Compass Point. Good morning, everyone.

Jumping to the NIM stability -- it was good to see the NIM stable quarter over quarter. If you just go into kind of the puts and takes of that, and whether -- obviously there's strong loan growth on the consumer side -- whether mix changes had any impact on that number?

This is Bob.

Really, when we were able to hold the loan yields flat, as you saw within the press release tables, and that's really because of just the focus on pricing and spreads within the whole portfolio. The pressure that we expect to see in the first quarter is really because of the yield curve shift downward on the fixed loan side, not necessarily on credit spreads overall. So we were able to increase in the quarter, overall, new and renewed loan pricing. And we think we can essentially keep that going forward, but there's just going to be some natural pressure from that lower yield curve on the long end. And then on the deposit side, you can see we continued to keep deposits flat and we'll continue to balance that growth in pricing.

Got it. That's helpful. Thank you.

And just on the provision -- we see credit continue to improve, and obviously the first quarter the provision was higher than the run rate last year. But I guess going forward, how should we think about the provision and what to expect there?

Our provision has been a little bit lower than we expected in the first half of the year. Again, that's a couple of reasons: I think we've good problem loan resolution, but also the recoveries have been coming in maybe a little more robust than I would have thought. That's part of the reason we gathered a little higher on the charge-off. That's kind of an unpredictable component sometime as far as the recoveries, but that has sort of driven provision down a little bit.

I expect it to look more, in the second half of the year, like it did in the first quarter, so there's going to be, again, recoveries could drive some volatility in there. But I think with where we are at from a balance sheet quality standpoint, and our outlook of credit, I think it probably looks more like the first quarter than -- the second half of the year versus this quarter in particular. We were pleased with that, but not sure that, that recovery level will hold.

Got it. Thank you.

And I might slip one more question in on the SoFi agreement. Is this a flow purchase agreement? Or is it more ad hoc, you can just kind of evaluate it on a month-to-month or quarter-to-quarter?

We have an agreement with them to purchase some of the loans we have. We want a certain part of that in our footprint. And we have an agreement over the next, I think, year, year and a half, I believe it is, to purchase a certain amount on a per-quarter basis. Certainly that's in the contract. There's room. We see things that are different than expected on both sides, but that's something that we have negotiated over the next year and a half.

That's great. Thank you very much for taking my questions.

Okay. We'll take our next question from Jared Shaw. Please announce your affiliation and then pose your question.

Jared Shaw with Wells Fargo.

If you could just, Shawn, on the SoFi and GreenSky, what was the purchase or origination this quarter with those channels?

We had net growth, if you add them both up, around $100 million, $105 million, adding both of those up together as far as the net growth.

And then the actual gross originations?

I'm going to guess it was around the $140 million, $150 million range maybe. No, it's probably more like $125 million or so. Yes, a little bit lower than that. There's still some pay-off velocity that we've been in one of those programs now a year, so we're starting to experience a pay-off that's somewhere around $125 million. I think that is in the right ballpark. And then we had the net, obviously incremental growth was about $105 million.

Okay. Thank you. And then just you had mentioned earlier on some of the new systems, integration or new systems on conversions -- is that more just generally efficiencies that you are seeking out on your own? Or will there be charges with that in more of a formal systems conversion? Or is that more of a, like a Six Sigma of best practices seeking efficiencies?

Most of what we've described has been in our expense run rate as we go along. Our [Go Loan] system, our Genesis -- several of those have been, again, longer-term investments that, quite frankly, over time, we think give us some benefit; but they have been in our run rate. There will be some ongoing in the future that you could certainly add to the expense version. That's just part of banking life these days, but these have been ongoing investments.

Great. Thank you.

Okay. We'll take our next question from Christopher Marinac. Please announce your affiliation and then pose your question.

FIG Partners in Atlanta.

Kessel, I wanted to ask about how you manage capital in future quarters? And to what extent acquisitions could play a role in the future?

Thanks, Chris. Somehow I expected that question from you. And thank you for your comments in the recent American Banker article.

It is a robust plan, Chris, that doesn't start and end with the calendar year. And Bob May has been a driver of that. It involves our Board, it involves our risk committee, it involves our audit committee, it involves continuous discussions with our regulators, and it's tailored to our Company -- not versus any set industry standards. Obviously, we are little more concentrated in real estate than some peers and we try, and we do factor that into our stress testing and overall capital plan. So again, we feel like it was a well-thought-out and -executed plan in 2016 and as we get to the completion of that plan, we'll get more color on 2017.

Now, how that factors into M&A -- we've said and always felt that it gave us flexibility. And certainly with a share repurchase plan, you can always slow that down if you feel that's prudent -- and I'm not suggesting you would. I've just said we'll complete that through the remainder of the year, but it gives us flexibility.

But again, we've tried to be very clear that our focus is on our internal returns and hopefully the results reflect that and we will continue to see and evaluate opportunities in the market, both unconventional banks and some specialty areas as well. We've had a chance to see a lot of those, but we will remain very focused and disciplined and strategic in that evaluation. But, the short answer is the capital plan gives us flexibility and we believe it's appropriate given our risk profile.

Great. Thanks for the background on that.

And it gets us back to the SoFi and GreenSky questions of earlier. As you have success with the portfolio, would you consider adding additional vendors into those initiatives? Or did that just get too complicated?

We have explored that. Again, we've probably led more with conservatism there, as we're just getting in maybe a little later than others, trying to go a little bit strategically, again, our indirect side of our consumer portfolio. But we have looked at several over the last couple of years. There's potential maybe next year or so. We look at this, evaluate it, have some success, and add a little bit, maybe one or two more partners. That's a possibility.

Chris, I will just add that historically maybe Synovus, as a Company, has been accused or thought of as moving slow. And as it relates to these partnerships, I would just say we've been very deliberate and our teams have been very engaged in evaluating multiple partnership opportunities and looking at [back rooms] and discussing with management.

I know Wayne Akins and his team have been very involved; Kevin and his team; I've been in on-site visits with one of our partners. So again, I think we would continue to look, but it is not something we believe replaces our core asset generating machine. It's just a diversification and growth opportunity, but we will be very deliberate and, quite frankly, I'm pleased that we are as deliberate as we are in that space.

Sounds good. Thanks, Kessel. I appreciate it.

Okay. We'll take our next question from John Pancari. Please announce your affiliation and then pose your question.

Evercore ISI.

Back to M&A, Kessel. I know you had alluded to it that you would continue to evaluate traditional banks as well as specialty areas. I guess on the specialty areas, what type of businesses would you look at? And then, separately, in terms of traditional whole-bank M&A, could you just remind us what would be an optimal target size? I know some banks have expressed interest in buying larger bank targets because of the time required to acquire and integrate, and it may not be worth it for smaller banks. So what's your thought there? And then also geographic opportunities?

I will respond to that, John, on multiple fronts, and knowing that we have a few investors that encourage me to never even speak to M&A, but when I get asked a question, I'll certainly do it for you.

In the specialty area, we've really seen some different, intriguing opportunities, different types of asset classes. I don't want to go into specific ones, but they would be opportunities that would complement our existing business, maybe give us some diversity, maybe bring some skill sets into our Company that we don't currently have -- and not in a transformational way, but just strategic opportunities that we think would actually be irresponsible for us not to look at and evaluate. So, again, I won't get into any particular types, but certainly opportunity there.

In terms of anything big, I just think, again, our focus needs to be on our internal returns and our currency, even though we are pleased with the three-year track, five-year track, we know that, in a big transaction, it could be tougher and so we don't see a big transaction on the horizon. We think that it would be, again, prudent to look at opportunities that give us something we don't have: market share in a market where we already have a good presence; management in a market where we don't have much of a presence; overall leadership. But not just an acquisition to do headlines.

So we will be very careful, both from any kind of tangible book value dilution and make sure that it's something that, not just financially makes sense, but strategically makes sense as well. And again, given your comment on geography, it would be more likely, obviously, to be in footprint, because for us to consider an opportunity, we have to make sure we're on the higher end of some of the cost saves that you see [print] in the market. And typically, your higher cost saves are going to come from in-market opportunities.

So those are just kind of some of the broad parameters. And again, it's not where our core focus is, but we certainly have the opportunity to review these types of transactions on a very regular basis.

All right. That's helpful, Kessel. Thank you.

The second question is just around -- it's really on credit, but I know you've seen historically some pretty good growth post-crisis in some of your wholesale businesses, whether it be some of the larger corporate loans, your national CRE, or any of the shared national credits you put on. Have you seen any adverse migration in those portfolios -- outside of energy -- where you're seeing any cracks in any of these corporate-related relationships? Thanks.

John, I will take that. Knock on wood, but no. We have not seen very little migration there. We have, obviously, as you mentioned, avoided the energy side, which was good. But we haven't really had issues there. It's an area that's struggling to grow. There's a lot of acquisition. We'd like to see more expansion, capital expenditure-type opportunities and drawing on lines there. But so that's been a little slower than what we thought, but we're certainly positioned. We've had good years -- a lot of good years of growth, several years in a row there -- but as far as negative migration, we've had very little -- one or two -- smaller issues and that's been about it.

Great. Okay. Thanks for taking my questions.

Okay. We'll take our next question from Jennifer Demba. Please announce your affiliation and then pose your question.

Thank you. Jennifer Demba, SunTrust Robinson Humphrey.

Kevin, I have a question on the investment commercial real estate portfolio. About 25% is now multi-family. Could you talk about just your internal concentration limits within the CRE portfolio, and how you look at it these days?

Yes. I think we have focused the last -- probably coming out of the crisis, we tried to complete, as we've mentioned before, a switch in the type of real estate we're lending. We were probably, at that time, in the mid-40%s going into the crisis. We're in the low 30%s. We want to get that down to about 30% of the balance sheet. I think we are at 32% now.

But I think the big thing for us is, we are highly -- we want that to be at the income-producing side versus the residential. It was 80%/20% residential-related. It's completely reversed. It's 80% income-producing. We're watching that.

If are going to have one of the segments that's a little higher than the other -- it's fairly balanced between office, multi-family, not as much in hotel and shopping centers, but pretty balanced portfolio. If we're going to have one that's probably on the higher side, we like the multi-family space. That portfolio performs better than any we had during the crisis. And we've got a lot of legacy developers who bank with us; we've got a strong large real estate corporate team that has brought in some new business for us. Again, it's elevated. I think it will level off, but over the last couple of years, it's just been some of the -- again, some of our legacy customers coming back and borrowing again that made it through. Some of the best advantage of underwriting that I've seen in 25 years has been in the last two or three years. Now, we all watch and know those levels, and that's one of the reasons we've pulled back in construction is, we have seen some rent growth in a couple of markets accelerate maybe higher than our appetite, so we've pulled back in a couple of those markets. They're are strong markets, but we're still a little cautious there.

We've got to be careful on all this money coming into the US that has driven cap rates down. We're not lending into those cap rates. I can assure you, we're going to underwrite the property based on potential cash flow maybe versus value, and so just the space is doing good to us. It's got a mix of student housing that has fit our community base well. I think 15% to 20% of it is student-related. So you've good diversity in the multi-family as well and a good diversity in the geography, but it has had a high pace of growth over the last couple of years. We are conscious of that, and I think you'll see that more level off over the next few quarters.

We're going to stay in that business. It's a good business. It has very low loss rates associated with it, like I mentioned, but we're going to be a little cautious on construction there.

What geographic areas are you concerned maybe over-building in multi-family today, Kevin?

We have been a little conscious of all the units in Atlanta. There's been quite a bit of new construction there, although it's got incredible job growth. Numbers, I think, will absorb it, but we're conscious there. As well as Nashville. Nashville is a great diverse market -- 30,000 plus, I think, year-over-year job growth and good jobs. So I think it can handle it, but it is still a little rich for us, probably.

Those are couple in particular that we've been watching, but we're still real bullish there. But again, when we see numbers, rent growth outpace wage growth at that pace, from our underwriting standpoint, we're going to probably pull back and watch that a little bit more.

Thank you.

Any more questions, operator?

Okay. It looks like we are running right at the end of star time. I would like to turn the floor back to your speakers for any closing comments they'd like to make.

Okay. Thank you. And we didn't show any more calls in the queue, so if there were, feel free to follow up with a call to Bob May and we'll be happy to respond to you guys.

I want to thank you everyone again today for being on the call. Again, we thought a quarter of very solid progress and really a result of a lot of great efforts by our team.

I do want to close again with a thank you to Tommy Prescott. He hasn't gone anywhere. As a matter of fact, it's odd his seat next to me right now is empty. I don't know if that says something about Tommy or something about me, but nobody took the seat today. We hope Tommy will be back in probably later today or tomorrow. But I just want to say this about Tommy. When I joined the team here in Columbus, February of 2010, I was welcomed with open arms by most of the people in this room, but I think more so than most, Tommy and our former General Counsel, Sam Hatcher, kind of held my hand in the early days and kept me from jumping off a ledge. The windows wouldn't open, so that was part of it as well.

But he has been such a -- and Sam had said he would retire when we paid off TARP and I think two minutes after the TARP announcement, Sam told me he was retiring and Tommy has stayed beyond that, but has certainly been a friend and confidant of mine and been a steady hand on this Company and on this Company's financial reporting and performance during some of those difficult times and, quite frankly, during some very good times. So I just want to say a public thanks to Tommy again. I hope some of you will reach out to him. He will be with us in the transition, but on the next earnings call, Kevin Blair should be joining us.

Again, thank you to Tommy and really thank you for all of the team here across our five-state footprint who, I think, just day in, day out goes above and beyond to make sure that our customers and our shareholders get the performance they are expecting. Thank you all. Have a great day and look forward to talking to you in the very near future.

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.