Synovus Financial Corp (SNV) 2016 Q4 法說會逐字稿

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

(Operator Instructions)

It's now my pleasure to turn the floor over to your host, Bob May.

Thank you, Paul, and good morning, everyone.

During the call, we will be referencing the slides and the press release that are available within the Investor Relations' section of our website, Synovus.com.

Kessel Stelling, Chairman and Chief Executive Officer will be our primary presenter today, with our Executive Management Team available to answer your questions.

Before we begin, I'll remind you that our comments may include forward-looking statements.

These statements are subject to risks and uncertainties, and the actual results could vary materially.

We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website.

We do not assume any obligation to update any forward-looking statements as a result of new information, early development or otherwise except as may be required by law.

During the call, we will reference non-GAAP financial measures related to the Company's performance.

You may see the reconciliation of these measures in the appendix to our presentation.

Thank you, and now I'll turn it over to Kessel Stelling.

Well, thank you Bob, and good morning to everyone, and welcome to our fourth-quarter earnings call.

As usual, I'll walk us through the deck, and then we'll open up the floor to questions from our team here in Columbus.

So let's start with slide 3 in the deck.

As you'll see, profitability continued to improve during the quarter.

We reported net income available to common shareholders of $66 million, it represents an 18.2% increase versus the fourth quarter of 2015.

Diluted earnings per share was $0.54, up 5.6% versus the third quarter of 2016, and up 26% versus the fourth quarter of 2015.

Adjusted diluted EPS was also $0.54, which was up 3.6% versus $0.52 in 3Q 2016, and up 22.2% versus the $0.44 in the fourth quarter of 2015.

Our return on assets was 90 basis points, improving 2 basis points sequentially, and 9 basis points versus a year ago.

Total revenues were $301.7 million, up $7.5 million or 2.6% sequentially, and up 8.2% versus a year ago, with net interest income increasing 9.8% and adjusted net interest income increasing 3%.

The adjusted efficiency ratio improved to 60.32% for the quarter, a 23 basis point sequential-quarter improvement, and 181 basis point improvement versus a year ago.

Moving to the balance sheet.

Total average loans increased $583.4 million or 10% annualized on a sequential-quarter basis, and grew $1.61 billion or 7.3% versus a year ago.

Loans this quarter include our acquisition of Global One which added $357 million on October 1 of this year.

We'll give more color about loan growth later in the call.

Total average deposits grew $631 million or 10.4% annualized versus third quarter of 2016, and 6.1% versus the fourth quarter of 2015.

And just a couple of highlights on the credit quality and capital.

We continue to see favorable credit quality trends.

The NPL ratio was flat compared to 3Q 2016, it improved 11 basis points from fourth-quarter 2015 to 0.64%, and our NPA ratio was 0.74% improving 3 basis points from the third quarter of 2016, and 22 basis points from the fourth quarter of 2015.

Our return on average tangible common equity increased 188 basis points versus the fourth quarter of 2015 to 9.62%, a function of the share repurchases, as well as growth in earnings.

On the capital management front, we completed this quarter the $300 million share repurchase program, repurchasing 9.9 million shares at an average price of $30.41, which reduced our total share count by 7.5% since the inception of the program.

Our capital ratio remains strong with Common Equity Tier 1 ratio of 9.96%, unchanged versus the third quarter, and compared to the 10.37% a year ago.

On the strategic front, as I mentioned previously, during the quarter we completed the acquisition of Global One, a life insurance premium finance lender based in Atlanta.

The addition of Global One aligns very well with our strategy for building balance sheet strength, and further diversifying our loan portfolio.

We're pleased to report the integration is going very well.

I recently visited with Jonathan Rosen, founder and CEO and his Team, and they are excited to be a part of the Synovus family, and we are excited to have them as a part of the family.

Moving to slide 4, a little more color on loans.

The amounts on this slide represent period-end balances.

We reported sequential quarter growth of $593.5 million or 10.1% annualized.

Excluding the impact of Global One, loans grew $236.8 million or 4.1% annualized.

The 4.1% sequential-quarter increase is not an indication of our expected ongoing run rate which we expect to be higher.

But again during the quarter, with the Global One acquisition we took the opportunity to diversify the portfolio and reduce some of the nonstrategic components of our CRE portfolio, reducing this component by about $63 million.

C&I loans increased $536 million or 19.4% annualized.

Our retail loans grew $157 million or 13% annualized, partially offset by the decline in CRE loans of $99.6 million or 5.3% annualized.

Last quarter we said on the call that we expected loan growth including Global One, for the year to be 6% to 7%.

We're pleased to report that loans grew $1.43 billion or 6.4% for the year, right in line with our expectations.

C&I loans increased $779.8 million or 7.2%.

The growth outside of Global One, is attributable to organic direct loan originations.

Retail loans grew $672 million or 15.6%.

And that was led by our lending partnership portfolio of $469.3 million, which increased $393.7 million in the fourth quarter of 2015.

And then, consumer mortgages of $2.30 billion increasing $358 million or 18.5% from the fourth quarter of 2015.

And again, CRE loans declining slightly by $28.8 million or 0.4% in the fourth quarter, as we continue to see optimization within this category.

We grew investment properties by $181 million or 3.1%, while seeing declines in our nonstrategic one-to-four family and land portfolios.

As we close out the year, we're pleased with our continued portfolio diversification.

C&I loans now represent over 48% of our total loans.

Retail loans have increased to comprise about 21% of the portfolio, while CRE loans have now declined in the low 31% of outstanding balances.

In addition to the risk mitigation associated with diversification, we've seen about 30 basis points of yield and a bit, from a shift into more retail and C&I asset classes during the quarter.

Moving to slide 5. We'll talk a little bit about deposits.

You'll see fourth-quarter 2016 average deposits of $24.66 billion increased $631 million, or 10.4% annualized versus third quarter of 2016.

We continue to decrease the reliance on higher cost time-brokered deposits, which now represent 18.8% of average fourth-quarter 2016 deposits versus 19.5% a year ago.

In addition, our relationship banking strategy continues to deliver growth, as our average core transaction accounts of $17.78 billion, increased $414.1 million or 9.5% annualized versus the third quarter of 2016.

Fourth-quarter 2016 total average deposits increased $1.42 billion or 6.1% versus the fourth quarter of 2015.

Average core transaction accounts increased $1.21 billion or 7.3% versus the fourth quarter of 2015.

Average brokered deposits increased $196 million or 16.5% versus the fourth quarter of 2015.

That's due to our bank deposit sweep product we've talked about before, that began May of 2016, contributed over $300 million in deposits.

And as we noted previously, the balances in our new bank deposit sweep product have remained stable, and we expect that to gradually increase over the longer term.

Moving to slide 6. Net interest income of $233.5 million, increasing $7.5 million or 3.3% versus the third quarter of 2016, and $20.9 million or 9.8% versus the fourth quarter of 2015 as a result of continued balance sheet growth, as well as margin enhancement.

I'll talk a little bit about that.

Net interest margin for the quarter was 3.29%, up 2 basis points from the third quarter.

The growth in the quarter is largely attributable to higher yields in the investment securities portfolio, which was a result of repositioning and extensions, as well as the overall increase in the interest rate environment.

Yield on earning assets, 3.73%, up 2 basis points versus the third quarter of 2016, with the yield on loans of 4.14%, unchanged versus the third quarter of 2016.

Our effective cost of funds was 44 basis points, unchanged from the third quarter, with cost of interest-bearing core deposits remained flat at 35 basis points versus the third quarter of 2016.

Our effective cost of core deposits which includes non-interest bearing deposits was 24 basis points, also unchanged versus the third quarter of 2016.

As you see in the chart, the asset sensitivity profile was largely unchanged for the quarter, with floating rate loans comprising approximately 55% of our portfolio.

As you'll see, a 25-basis-point increase in the Fed fund rate will result in an annualized increase of 1.3% or $12 million in net interest income, assuming a normalized deposit beta, while a 100-basis-point shot will provide 4% or $40 million lift in net interest income.

Turning to slide 7. You'll see non-interest income for the fourth quarter of $74 million, up $5.9 million or 8.6% versus the third quarter of 2016, and 11.8% versus the fourth quarter of 2015.

In that category, other income includes net investment securities gains of about $5.9 million versus $59,000 in the third quarter of 2016, and $58,000 in the fourth quarter of 2015, but some positive numbers in that category.

Again, adjusted non-interest income of $68.1 million is unchanged versus the third quarter, but up 3% over the fourth quarter of 2015.

Core banking fees of $35.5 million increased $689,000 or 2% from the third quarter, and 1.4% from the fourth quarter of 2015.

Gains from sale of government guaranteed loans of $2.2 million this quarter increased $878,000 or 67.7% from the third quarter, 57% from the fourth quarter of 2015, and we have a strong SBA pipeline as we move into 2017.

Our fiduciary asset management, brokerage insurance revenues totaled $20.3 million which represented a $787,000 or 4% sequential-quarter increase, and a strong 8% increase versus the same period a year ago.

The year-over-year increase is the function of our new talent additions which we've talked about throughout the year.

We're very pleased with their production levels.

We expect to see continued benefit from these talent additions in 2017.

All categories except insurance revenue reported revenue growth compared to the prior quarter, and all categories reported revenue growth over the fourth quarter of last year.

Mortgage banking income was $5.5 million for the quarter, decreased $1.8 million or 24.9% sequentially, and it increased 33.1% from a year ago.

Turning to slide 8. Fourth-quarter 2016 total non-interest expense was $193.2 million, an increase of $7.3 million or 3.9% versus third quarter of 2016, and 5.6% versus the fourth quarter of 2015.

We'll take you through some of those components.

The fourth-quarter 2016 number includes a $4.7 million charge related to changes in the valuation of the Visa derivative, and $1.1 million in merger-related expenses.

Fourth-quarter 2016 adjusted non-interest expense, $187 million.

That increased $3.1 million or 1.7% versus the third quarter of 2016, and 3.7% versus the fourth quarter of 2015.

Again, I'll walk you through some of those components.

A $1 million of the increase is from Global One operating expenses, as they become part of our Company.

Employment expense, $101.7 million, down $282,000 or 0.3%, and it increased 6.4% versus the fourth quarter of 2015.

Occupancy and equipment expense, $27.9 million, a decrease of $253,000 or 0.9% versus the third quarter of 2016, and almost unchanged versus the fourth quarter of 2015.

Other expenses of $57.4 million, that's an increase of $3.6 million or 6.7% sequentially, and 1% versus the fourth quarter of last year.

Again, some of that detail, $2.2 million of the sequential-quarter increase and other expenses is due to gains and losses from the sale of properties held for sale last quarter.

The previous quarter included $1.7 million in gains from sales, compared to a $568,000 loss in the current quarter, that's $2.2 million swing.

The remaining increase was primarily due to a $1.1 million increase in third-party processing expense, and various smaller increases including expenses of about $320,000 related to Global One.

We're pleased to see the fourth-quarter adjusted efficiency ratio improved to 60.32% this quarter, from 60.55% the previous quarter, and 62.13% a year ago.

Adjusted G&A expense for the full year was $732.5 million, representing a 3.3% increase versus 2015, in line with our expectations, while reported non-interest expense was $755.9 million, up 5.3% versus 2015.

Turning to slide 9, talk a little bit more about credit.

The first graph, as you'll see provides NPA, NPL and delinquency trends.

NPA, NPL ratios continued to diminish over the course of year, with NPLs declining $15 million or 8.9% from the previous year.

NPAs declining $39.7 million or 18.4% from the same quarter a year ago, and were down $3.4 million or 1.9% sequentially.

Past dues were flat from last quarter, remaining at historically low levels.

We're pleased to see net charge-offs for the full year at the lower end of our stated guidance of 10 to 20 basis points.

Net charge-offs for the year were 12 basis points or $28.7 million.

Net charge-offs for the fourth quarter were 14 basis points or $8.3 million.

Provision expense of $6.3 million reflects a slight increase from $5.7 million in prior quarter.

For the full year, provision expense was $28 million, compared to $19 million last year.

The allowance for loan losses ended the year at $252 million, or 1.06% compared to 1.09% the previous quarter.

This represents a sequential-quarter decline of about $2.1 million compared with prior quarter, and a $738,000 decrease from a year ago.

About 2 basis points of that decrease is attributable to the acquisition of Global One during the quarter, and Kevin can give you a little more color on that during the call.

And I mentioned in recent quarters, I'll say it again, how proud we are of our bankers and our credit team for their ability to continue to significantly grow our loan portfolio in a very diverse manner, while maintaining great discipline and credit risk.

And that's just obviously evidenced by the results we're reporting today.

Moving to slide 10, talk a little bit about capital.

Capital ratios, as you can see remained strong, and were largely unchanged for the quarter.

Fourth-quarter 2016 CET1 ratio, 9.96%, unchanged versus the third quarter, well above regulatory minimum.

Tier 1 capital ratio was 10.08% versus 10.05% in the third quarter of 2016.

You can see now, as the disallowed DTA continues to decline, Tier 1 capital now exceeds CET1 capital.

Total risk-based capital ratios,12.01% versus 12.04% in the third quarter of 2016.

The leverage ratio for the quarter, 8.99% versus 8.98% in 3Q 2016.

Tangible common equity ratio, 9.09% versus 9.28% in the third quarter, and the disallowed DTA continues to decline at $218.3 million now, down 36% from a year ago.

And lastly, the fourth-quarter 2016 CET1 is estimated at 9.52% on a fully phased-in basis.

Continuing with capital management on slide 11.

Just as a reminder, in 2016 our capital actions included our $300 million common stock repurchase program, 9.9 million shares at an average price of $30.41, as I just said previously.

It reduced our share count by 7.6%, and the previous $250 million share repurchase program reflected a reduction of 9.1 million shares at an average price of $27.53.

We also returned over $322 million to common shareholders during the year, with repurchases of $263 million in common stock, and just over $59 million in common dividends.

Our 2017 capital actions include our Board of Directors authorizing a share repurchase program of up to $200 million to be completed during 2017.

The size and timing of these repurchases will be dependent on the level of organic business growth, targeted capital levels, as well as ongoing evaluation of alternative capital strategies.

Also, our Board of Directors approved a 25% increase in our quarterly common stock dividend to $0.15 per share, which will be effective with the quarterly dividend payable in April of 2017.

Slide 12, again just shows a summary, a recap of what we consider to be a great 2016.

I'll just hit a couple of the highlights again.

Profitability continued to improve during 2016, and we reported net income available to common shareholders of $236.5 million, which represents a $20.7 million or 9.6% increase versus 2015.

Diluted EPS for the year, $1.89, up 16.7% versus 2015.

Adjusted diluted EPS, $1.98, was up 20.1% versus 2017 -- 2015, I'm sorry.

Total revenues were $1.16 billion, up $73.9 million or 6.8% versus 2015, with net interest income increasing 8.7%, and non-interest income growing by 2% for the year.

For 2016, adjusted efficiency ratio improved to 61.06%, 181 basis point improvement versus 2015.

From a balance sheet perspective, we continue to see diversified growth, with total average loans increasing $1.56 billion or 7.2% versus 2015.

Our efforts to grow and expand relationships led to total average deposit growth of $1.33 billion or 5.9% versus 2015.

Credit quality, capital management activity remained positive.

Again, our NPL ratio of 64 basis points improved 11 basis points in 2015, and our NPA ratio of 0.74% improved 22 basis points from 2015.

And again, lastly, as we generated growth in earnings as well as continue to optimize our capital levels, our return on average tangible common equity increased 98 basis points versus 2015 to 8.52%.

Work is already well under way to make 2017 another great year.

So I'll spend just a couple minutes, talking about the 2017 outlook and long-term targets.

I think everyone will agree, there continues to be a lot uncertainty economically in 2017, especially with the new and evolving political landscape.

But we expect 2017 to be another solid year for our Company.

From a balance sheet perspective, we expect to continue the growth trends experienced in 2016, with average loan growth between 5% and 7%, and average total deposit growth of 5% to 7% as well.

As a result of the balance sheet growth, our expectation is to continue to enhance the net interest margin, we expect net interest income growth between 8% to 10%.

This assumes no significant changes in the current rate environment today.

Despite some headwinds, our investments in fee income generating businesses will continue to provide positive momentum, with adjusted non-interest income growth of 2% to 4%, we believe.

On the expense front, we are expecting total non-interest expenses to increase 2% to 4%, with our focus on maintaining positive operating leverage continuing to drive down our adjusted efficiency ratio.

We don't see any significant changes in the credit environment at this time or in underlying quality, with NPLs; NPA is expected to remain relatively flat for the year.

We expect the net charge-off ratio in the range of 15 to 20 basis points, as [recoveries] continue to moderate, as well as a loan loss reserve ratio that will trend slightly downward, but remain above 1%.

As I previously mentioned, we're increasing the common shareholder dividend to $0.15 per share, and have authorization for up to $200 million of share repurchases in 2017.

And again, as I mentioned previously, the size and timing of the repurchase will be dependent on the level of organic business growth targeted capital levels, as well as an ongoing evaluation of alternative capital strategies.

And lastly, we've included our long-term growth targets on this slide.

They're not new, but our ability to deliver on our 2017 expectations positions the Company to continue to make meaningful progress towards achieving and sustaining these financial objectives, again, 10%-plus EPS growth, return on assets of 1%-plus, and adjusted efficiency ratio over the long term of below [60]%.

So with that, I will take the calls, operator, and we will be glad to open the floor to questions.

Thank you.

(Operator Instructions)

The first question is coming from Jefferson Harralson.

Jefferson, your line is live.

Please announce your affiliation, and pose your question.

Hi, thanks.

I think I'll start with that guidance page.

Can you talk about the base you're using for that expense number?

And can you talk about -- I think you said there was no rate hikes in there, but are you using the forward curve in some way?

Or is this just rates unchanged as far as your spread guidance?

Hey, Jefferson, this is Kevin Blair.

I'll take the first one on expense.

For the guidance, we're using the total non-interest expense as our baseline, so not using our adjusted numbers, and that's where we give you the 2% to 4% growth.

We've gotten used to sharing the adjusted total non-interest expense.

If you were to go off of that number, excluding those one-time items, the guidance would be closer to a 3% to 5% growth rate.

As it relates to the rate hikes, we built the plan assuming no changes in rate, so no rate hikes.

We're not using the forward curve.

That's why we gave you the additional table of the interest income slide, to show what our asset sensitivity position would be, if we were to receive a rate hike during the year.

Obviously, timing of that rate hike would determine how much of the incremental annualized income we would benefit from in any given year.

Okay.

Makes sense.

And while I have you, Kevin, as a new CFO, how are you seeing the excess liquidity?

Do you have excess liquidity there?

And I saw you took some security gains this quarter.

But how are you thinking about kind of repositioning if you are, the Synovus balance sheet?

Jefferson, a good question.

I think if you look at the table, you'll see that we had average cash, as I said, of roughly a little less than $1 billion for the quarter, but by period end, we were actually closer to $500 million.

So I think we have ample liquidity, and I think you'll see us manage with less cash going forward, just to provide a little bit of yield enhancement.

As it relates to the bond portfolio, we took the opportunity with the rate back up in the fourth quarter to reposition of a portion of the portfolio.

We're still largely concentrated in NBS securities, but we took an opportunity with, as I said with the rate back up, to extend the portfolio where our duration now is a little over 3.5 years, where prior quarter it was about 2.5.

So we're able to get, as you saw on the yield, about 9 basis points of security yield enhancement, just from the repositioning, as well as the rate back up.

All right.

Great.

Thanks, guys.

Thank you.

And the next question is coming from Brad Milsaps.

Brad, your line is live.

Please announce your affiliation, and pose your question.

Hi, Brad Milsaps, with Sandler O'Neill.

How are you guys?

Good morning, Brad.

Just to follow up on Jefferson's question.

Any other things you're thinking about, Kevin, for the balance sheet?

I know at some point, you discuss the possibility of maybe adding some derivatives, et cetera.

Anything else that's in the guidance that -- or that you're thinking about that would also be in the guidance, or maybe not be in the guidance around NII?

Yes, as we just stated, NII forecast is basically steady state.

So we didn't include a lot of macro hedges or anything on the balance sheet side.

Obviously, with the volatile nature of the interest rate market going forward, it's going to determine how we monetize that asset sensitivity.

So either we're going to get some benefits from rate hikes, or we have the opportunity to monetize some of that asset sensitivity through derivatives.

We have, as I mentioned to Jefferson, we've taken the opportunity to extend the bond portfolio slightly.

We'll continue to look at that, as well as managing down cash levels, in order to improve NIM that way.

I also mentioned in the past how we're thinking about different asset classes, in terms of what we're bringing on what we're portfolioing.

And we'll continue to do that from a production standpoint, so that we're maximizing the yield on the balance sheet, outside of the bond book.

Okay.

And maybe just one follow-up for Kevin, or maybe Bob.

We talked during the quarter a fair amount about your tax rate, and kind of how that could change if corporate tax rates go lower.

Any change to kind of what you guys have been talking about, maybe now that you've had more time to kind of pencil out what may or may not happen?

Just kind of curious how to think about that under say, a 25% or 20% federal rate?

Yes.

So Brad, as we look forward, we're still anticipating a tax rate for 2017 between 36% and 37%.

Obviously, if there's a change in the corporate tax rate, it would have an impact, a one-time non-cash impact to our DTA.

If that were to happen retroactive to January 1, 2017, that number could be as much as $130 million of one-time P&L hit.

Obviously, with the lower effective tax rate, we would then earn that back over approximately two years.

I think more likely, we would expect to see a corporate tax rate adjustment for 2018.

As we talked about our diminishing DTA, that write-off for 2018 would be approximately $70 million to $80 million, which would have roughly a one year, slightly over a one year payback.

So those are the numbers.

We're not trying to guess, and say when it happens or what the rate is, but just to give you some ranges for the change, if that corporate tax rate were to change in 2017 and 2018 -- or 2018.

Does that help?

Yes, that helps, that's consistent.

Thank you.

Thank you.

And the next question is coming from Jared Shaw.

Jared, your line is live.

Please announce your affiliation, and pose your question.

Hi, good morning, Jared Shaw, with Wells Fargo Securities.

Good morning.

Good morning.

Just circling back up on the securities repositioning.

So I'm assuming that happened post election, and we should be able to see a little more benefit to yields with the full benefit in the quarter on that?

Is that correct?

Yes, that's correct.

It was happening during the quarter.

I think a large portion of the restructuring happened post election.

Obviously, rates were much higher at the end of December than they are today.

But I would think it's fair to say what you've stated, which is there's more upside to the bond yield.

And then, what was the principal amount of the restructuring?

Do you have that handy?

It's roughly $350 million.

Okay.

Thanks.

And then on the capital management side, obviously with the stock 30% higher than your average cost last year, can you just walk us through your thoughts on appetite for actually using that buyback this year?

And if not, would we expect, or could we expect to see other capital management tools being deployed?

Yes, Jared, this is Kessel.

I'll take that.

Our priorities really haven't changed.

We've always said organic loan growth is -- growing our own business is the best use of that, and that still is a priority.

There are other factors that could govern the pace and appetite for buyback.

Share price is certainly one of those, but just, again kind of a guide post.

We would expect to continue to be able to, again fund growth, do share repurchases we think, again with increased share price, the ability to do strategic transactions.

Nonbank transactions like Global One, for example, are still here, our M&A posture hasn't changed.

Again, our stock price is up, but relative to other banks, most everyone else is up.

We'll continue to look at opportunities that could make strategic sense, that are earnings accretive, and non-dilutive to our shareholders.

So a lot of factors driving that.

But at the end of the day, our plan is to manage the capital as efficiently as we can, making sure that there's really dry powder for all the priorities that I mentioned.

Great.

Thank you.

Thank you.

The next question is coming from Kevin Fitzsimmons.

Kevin, your line is live.

Please announce your affiliation, and pose your question.

Hovde Group.

Good morning, guys.

Good morning, Kevin.

Can we just talk a little bit about mortgage?

I guess, not a big surprise that we saw a big fall-off this quarter.

And can you talk a little bit about how much of that's seasonal, how much of that is just with what we've seen happen with rates, and how we should be looking at that going forward?

I would assume there'd be another leg down next quarter, but -- and while we're talking about it, if you can talk about how we should view expenses?

Did -- was there a variable component within expenses that went down this quarter, but maybe it lags, and we see more next quarter?

Thanks.

So Kevin, I'll start off with mortgage.

If you look at the number for the quarter at $5.5 million, it was down roughly $1.8 million quarter over quarter.

Remind you, in the third quarter we actually had a release of a mortgage rep and warrant reserve there of roughly $800,000.

So quarter over quarter, it was really more like a decline of $1 million.

But when you compare that to the same quarter last year, we're actually up 33% as Kessel mentioned, which represents about $1.4 million in growth.

So I would say, that the fourth quarter was a seasonal quarter.

It always is, but we are facing additional headwinds based on the increased rates.

As we looked at total production for the quarter, we had $336 million of total production, which was down versus the third quarter.

But again, up 36% versus the same quarter last year.

So as we look out into 2017 around mortgage, we're optimistic that some of the investments we've made on the sales side will continue to generate organic growth on the purchase market side.

We do expect, like the industry, to see a decline in refinance volumes.

But we think that all in all, the decline in refinance volumes can be made up by our investments in new loan originators, that will continue to get a higher share of wallet from a purchase money perspective.

And then, your second question was around expenses?

Well, it was expenses tied to mortgage.

In other words, if you're having less production, are you seeing a ratcheted down in related expenses?

Like anything, we manage every one of our businesses from a productivity lens.

So as we look at revenue growth, as I just shared with you, I think we're optimistic that we can overcome some of the headwinds there.

So expenses would follow suit with the revenue growth.

If we were to see a large decline in volume, obviously, we have a flexible workforce.

And so, we would manage expenses appropriately to ensure that we have the proper operating leverage.

Got it.

If I can just ask a quick follow-on on loan growth.

The decline in commercial real estate, or as you guys put it, the nonstrategic parts of commercial real estate, it sounded like you -- Kessel, you said you were taking the opportunity to take that down because of the acquisition coming in.

Is that more of like a one-time thing, or is that -- do you see that as being more of a deliberate headwind going over the course of 2017, that you'd be ratcheting down more of that commercial real estate?

Yes, a couple points there, Kevin, and I'll turn it over to Kevin Howard, because he's feeling very neglected so far today.

(laughter) But now, listen, we were very intentional a year ago to slowdown the construction part of our commercial real estate business.

The demand is still very strong there.

We've been very selective, to make sure we save dry powder for good relationship-based customers, and the pricing has been good as well.

And the reduction this past quarter, were more in the land and single family resi.

So I just think the overall mix of the commercial real estate portfolio has strengthened here, and we've been able to do that because of, again the addition of loans in those other areas.

But Kevin, you want to talk a little about real estate maybe in general, and just how you're seeing that portfolio in terms of mix and growth?

Yes, I think, Kessel, you covered a good bit of it.

The -- that was intentional, as we have had our construction portfolio, it really around 20% in the construction phase.

We like to manage that probably between 10% and 15%.

We did pull back earlier in the year intentionally.

We have had, by the way back to back double-digit growth in commercial real estate.

So anyway, we went into the year.

It was flat.

We did expect to see it -- it probably had more pay-downs than we expected this quarter, as well as the deliberate pullback in construction earlier in the year.

We have revved that engine back up a little bit.

We're going to do more construction in 2017, started that over the last four or five months.

We'll start to get some increase in balances on that part of the portfolio.

And I guess, we ended the year right at even flat on overall commercial real estate.

Part of that was also, as Kessel and you mentioned, we've been averaging probably $60 million, $70 million, $80 million, a quarter of the resi rundown, land in residential, intentional nonstrategic partner real estate.

I think that subsides a little bit during 2017.

I think we're towards the end of that.

I think that part of the portfolio stays stable.

We get the investment construction a little bit more, a little bit more velocity in early 2017.

So I think overall in real estate, it probably, I expect somewhere probably 2%, 3%, 4% growth, where it was flat in 2016.

And we are still seeing -- getting some good looks, a lot of our long-time developers are borrowing again.

So we expect to see a little bit more along those lines in 2017.

Okay.

Thanks.

Thank you.

The next question is coming from Tyler Stafford.

Tyler, your line is live.

Please announce your affiliation, and pose your question.

Hey, good morning, guys.

Tyler Stafford from Stephens.

Maybe one last one for Kevin on the loan portfolio.

Kevin, do you have what the current utilization rate on the C&I book is now?

And then, within your loan growth guidance for the year, is that primarily based on the new business pipeline, or are you expecting any pick-up in the utilization rate?

Utilization actually stayed flat.

It's in the mid-40%s, I think somewhere around 45%, 46%.

We actually -- we talked about that this morning, me and Curtis, [Cary], D. Copeland, that lead our lines there.

We usually get a lift in the fourth quarter.

So we had the C&I growth.

Even excluding the Entaire, we had pretty good growth there, with very little utilization that we normally get.

I think the last three year's, we've averaged $150 million to $200 million lift to seasonality in the fourth quarter.

We didn't really get it.

I think it was more like $20 million this quarter.

So that was a little different, but we do expect to see more of that.

There does seem to be a little more optimism.

We do expect maybe a little more CapEx than in 2016, that maybe hardly existed in 2016.

So I think it's going to improve.

So we should get some utilization there, hopefully out of the manufacturing portfolio.

I was telling -- in a meeting this morning, we were talking about the manufacturing portfolio, it had seven straight quarters of decline, and we had actually $20 million of increases there.

So that's a positive sign, going into next year, as we talked about, so we do expect some utilization improvement in 2017.

That will help.

That's sort of part of why we are optimistic about the growth next year, being with more in the mid to upper single-digits, versus kind of the middle as we were last year.

We've got a lot of momentum on C&I.

We had our community bank had almost $100 million in net growth, a lot of that's small business, professional services, a very good quarter there.

A lot of momentum in their pipelines going into this year.

Obviously, senior housing has been steady for us, had nice growth within the quarter.

As we mentioned before, we made investments in middle market banking, and in ABL as well over the last year.

We expect to see some lift there, as well as the Entaire acquisition.

As we had them, in the fourth quarter, now we've seen they've put on a lot of loans that we think will draw into next year as well.

So we're optimistic about the C&I side, as well as what you asked about, the utilization.

That's one we like to see.

That was free.

It's existing, some of the lines that have been in place.

And again, what I mentioned before the manufacturing could be a positive for us going into next year.

Very helpful.

Thanks, Kevin.

And then just maybe, one last follow-up on that.

Can you talk about the pace of growth you'd expect to see out of the Entaire portfolio?

Well, we had, again, I think we ended the -- when we had the acquisition went in play, we were close to $900 million in commitments, and as we mentioned about $350 million, $360 million of balances.

We've already seen that, and commitments go above $1 billion.

So that was $100 million in the first quarter of committed growth.

And I think we had $30 million or $40 million, actually of that, in balances during the year.

We do expect to see maybe -- I'm kind of thinking about $100 million a quarter in commitments that we could see next year.

So far as balance growth, you might see sort of this same pace I just mentioned, maybe $40 million, $50 million during each quarter, incremental growth there.

So that's, again that's good C&I secured lending as well, that we hope is a good piece of what we're trying to do there on the C&I side.

Okay.

Great.

Thanks, guys.

Thank you.

The next question is coming from Jennifer Demba.

Jennifer, your line is live.

Thank you.

Good morning.

Good morning.

My question's for Kevin Howard.

Kevin, multi-family portfolio, it grew quite a bit last year, but it's still around 6% of your total loan portfolio.

Just talk about what you're expecting in terms of growth in 2017.

And can you talk about the composition of that portfolio, if you have that information on-hand geographically, by type, et cetera?

Yes, sure.

Thanks, Jennifer.

The multi-family, the pace of growth for multi-family, you're right, it was close to 12%, 12.5% I think for the year.

The last quarter, that did come down.

Like I mentioned, most of that construction pull-back probably affected the multi-family portfolio the most.

That's our highest level of construction, of all the loan types is in multi-family, I think about a third of it is considered in that phase.

That came down during the year.

I think we still had some positive growth there in the fourth quarter.

I think it was close to $15 million for the quarter.

So overall, we have grown probably 10% to 15% in the last two, three years in multi-family.

I think that's probably looks more like 5% to 10% next year.

And I think as part of that is, the demand is not what it was -- coming out of the recovery.

The recession of 2013, 2014, 2015 was kind of off the charts.

So I don't think -- I think we'll see growth there, but maybe not at the pace it has been the last three years, especially the construction side of it.

But the mix is, primarily Atlanta, Nashville, Orlando, Tampa, and Charleston are a big part of the mix, as far as geography is concerned.

It's about 15% of it is student housing, a lot of that, some of the college markets that we're in around the south.

That's kind of the, as far as the mix of geography, that's kind of our top four, five markets that we have apartments in.

Kevin, do you know what percentage of your clients are offering rent concessions right now, and what their occupancy rates look like these days?

Well, the part that is in -- that's stabilized, again, part of the portfolio is in construction and lease-up.

Right now, everything we're seeing is getting leased up to the pro formas.

And that's part of what concerned us a little bit, Jennifer, earlier in the year.

We have seen some aggressive rent targets in markets like Nashville, parts of Atlanta and Charleston like that, that we saw early in the year.

We pulled back a little bit.

And I'll tell you, when I've gone back, and followed up on some of the loans that we pulled back and didn't do.

We still are seeing, they've hit their targets.

Just when you see the job growth numbers that are happening in those markets, you can see why they're hitting the rent growth.

They are as aggressive as I've ever seen them, some of the pro formas there.

That's why I, again, exclude this a little bit We thought we would sit on the sideline, and watch a little bit more than participate.

But again, I have not seen -- there's a few one-offs I heard about that we're involved in, where we're having to make some concessions to get leased up.

But for the most part, it's performing real well.

We're in the mid-90%s on our stabilized properties that are built in that phase.

So while it has been very aggressive as far as rent growth, and the activity of pace of construction, it seems to be absorbing real well.

We're watching that real close, Jennifer.

Thanks, Kevin.

Thank you.

The next question is coming from Nancy Bush.

Nancy, your line is live.

Please announce your affiliation, and pose your question.

Yes, NAB Research.

This is a question for you, Kessel.

I mean, we're all trying to sort of parse out what the new regulatory environment is going to be, but one of the things I hear consistently is that the asset size limitation on classification as a community bank is going to be pushed upward, and pushed upward dramatically, and that there will be benefits to the larger community banks.

I mean, are you going to fall within that, within that classification now in your understanding, and how does that change things?

Nancy, great question.

We actually talked about that particular question yesterday, just as part of our overall planning and budgeting.

And the real short answer is, we don't know, because like you, we're trying to really read between the lines, and see where those white lines, if they stay white lines, might move.

But for example, the $50 billion threshold -- and we're bumping $30 billion now.

So the $50 billion threshold has certainly been one that we have kept our eyes on, and our intel says that moves, goes away, or moves or goes to some formula.

Or again, I don't think anyone is sure.

And if that happens, that would certainly be a benefit for us.

And I'm not suggesting that we're over-regulated.

But I will just say the closer you get to the $50 billion, the more you get regulated, as if you were a $50 billion as you approach that club.

And so, we certainly think that the moving of that line would give us some potential relief.

Now how to quantify that relief from a financial standpoint is a little more difficult.

We're very proud of our [DFAST] process.

We think it's made us a better bank.

So we wouldn't go away from a lot of what we're doing there.

But certainly, the pace of new regulation could slow, and that would be a benefit to us.

And we're just watching like you, all of the different discussions, in terms of different regulatory lines, and different ideas and thoughts of how this administration might move forward.

So again, the tone would suggest that we'll have, again maybe not less regulation, but a slower pace of new regulation.

And, again, as lines like the $50 billion move, we certainly think that would be a benefit to us.

Is there any thought that you would be able to pick up some revenues that have been foregone like -- because there's a lot of talk about not having to forego Durbin revenues as you go over the $10 billion mark.

Would any of that fall as a positive to you, that you understand right now?

Well, I mean, we're not planning on Durbin revenue, but certainly, if that were to change, that could be a lift.

I've heard a lot of talk about a lot of things, but and not to criticize our political process.

It's a lot easier to talk about a lot of those things, than it is to actually find compromise and implement.

So that would one area we could get lift, but it is certainly not baked into our budget in any way.

Okay.

And also, just as the valuations, yours like everybody else's have been pushed up since November 8, any thoughts about how that -- has that impacted your thought about doing bank deals, or as everybody says, expectations, sellers' expectations have been pushed up as well.

But what do you see sort of in the bank acquisition environment around you right now?

Yes.

Well, there's a lot of chatter, as you would imagine.

Right.

But you're right, so everyone -- for the most part, values have moved together.

But I think it has certainly increased the chatter, banks that might be sellers may feel like they've got pretty full valuation now, and any premium to that could maybe -- could be a nice exit strategy.

It hasn't changed our view.

Now certainly with a $40-plus stock, your ability to do nonbank deals has improved, and in some cases, maybe a bank deal.

But our focus continues to be organic growth.

And any deals we were to do, again would have to just make very strong financial strategic sense, and be ones that clearly made us a better Company, and really allow our shareholders to understand and support what we were doing, because of, again, the discipline I think we've maintained throughout this whole process.

All right.

Thank you.

Thank you, Nancy.

Thank you.

The next question is coming from Ebrahim Poonawala.

Ebrahim, your line is live.

Please announce your affiliation and pose your question.

Good morning.

Ebrahim Poonawala from Bank of America-Merrill Lynch.

Good morning.

I just had a very -- a couple of quick follow-up questions.

One, just following up on expenses.

Kessel, I was wondering if you could remind us of any sort of additions, real estate consolidation opportunities on that front, and where we stand in terms of branch consolidation, new branch openings?

Yes.

Well, from real estate opportunities, we are -- that is a full-time effort here to look for ways to consolidate real estate.

We've taken actions in Birmingham.

We are -- have taken actions in Atlanta, and those are ongoing as we get closer to a move-in of a new facility we're leasing in Atlanta.

We'll be able to move a good number of our business groups together, and exit some leases in some Atlanta high rises.

And that effort really does go throughout the system, but it is more obvious in the major markets.

From a branch consolidation, again, we have nothing as of yet that's on the table that hasn't been announced, but that lens is a continuous look as well.

We're always looking at branches we can consolidate, right-size.

We actually have a new location we'll actually be opening as well.

But primarily, we continue to try and right-size, decrease the number of facilities, and get more efficient in the space.

We have some opportunities in Atlanta right now, where we will through construction decrease our utilization of existing facilities.

And again, we've been on the aggressive end of branch closures since the [crisis].

I think we're right about at 23% overall rate of closures, and that's according to our data, second highest among our peers.

But we continue to look at ways to get more efficient with the branch footprint.

Understood.

And just separately, switching to -- on deposit costs.

Obviously, I mean, the first rate hike nowadays seemed to have a significant impact.

You've seen costs of interest-bearing deposits go down over the last year.

I would appreciate if you can comment on, in terms of how you guys look out to 2017, and if we do get multiple rate hikes, just sort of what the temperature is in terms of deposit pricing competition, in some of the hot markets, be it Atlanta, Florida?

Ebrahim, this is Kevin Blair.

I'll take that on deposit pricing.

You're right, we've been able over the last year to contain to reduce the overall cost of funds from the depository standpoint.

And again, we're fairly optimistic based on this last rate hike that we saw in December, as we monitor the competitive landscape, we haven't seen a lot of movement on standard rates from our competitors, which allows us to continue to be very disciplined in terms of raising rates going forward.

Now in the table that we provided around the sensitivities, you'll note under the 25 basis point shot, we have roughly a 1.3% increase in net interest income.

Conversely, when you look at 100 basis points, you only see roughly 4%, and that's just the diminishing returns.

We do believe that the initial rate hike had betas in roughly the 50% range, and we consider that somewhat normalized.

The betas we received over these last two rate hikes, I would consider to be low.

But as we go out, and we have future rate hikes, we expect the betas to continue to increase, and that's why you see a little bit of a diminishment from the 25 basis rate hike up to the 100.

And those numbers could be 50 to 60, but as we've said in the past, that's a best guess.

I mean, it really is predicated on what the market does, and what our competitors are doing from a pricing standpoint.

But we're hopeful that we'll be able to continue to have a good expense discipline on the cost of funds side, that will allow us to enhance the margin even more in 2017.

Does that help?

That's helpful.

And if I can sneak in one more last question.

Just wanted to get an update in terms of the online lender partnerships, what that portfolio was at the quarter end, and how much of that growth this quarter came from those two partnerships?

Ebrahim, this is Kevin Howard.

[We can literally] within the -- as of year end, we're around $470 million of those, that growth is around 2% of the balance sheet.

I think we put a cap of around, or at least have guided, that we'd go up to about 3%.

So we'll get a little bit more growth this year.

The quarter was about $125 million, just during the fourth-quarter of growth, if you combined all of those partnerships.

Got it.

Thanks for taking my questions.

Thank you.

The next question is coming from Christopher Marinac.

Christopher, your line is live.

Please announce your affiliation, and pose your question.

Thanks.

Good morning.

FIG Partners in Atlanta.

Just a follow-up for Kevin Howard.

Kevin, as the Fed fund rates moved up, what happens to new loan yields that you're doing for new incremental loans?

Are they commensurately higher by 25 basis points, or what's the sort of competitive dynamic?

Chris, this is Kevin Blair.

I'll take that one.

Yields, obviously, as we look at new loan and new and renewed loan yields for the quarter, we saw roughly a 10 basis point increase quarter-over-quarter.

And that only had, as you can think about the Fed funds only going into effect for really 15 days of the quarter.

So yes, we are seeing an increase in new loan production.

You'll note for the quarter, we saw loan yields coming in basically flat.

That was much more of a mix issue, because we saw 2 basis points of improvement quarter over quarter in commercial loan yields, and as I said, about a 2 basis point contraction in retail.

But that was more of a mix-related story.

So yes, we are seeing that.

And our hope is that we'll continue to see margin or yield expansion as Fed fund rate picks up, and Kessel said it upfront, but we have about 55% of our loans are tied towards the floating index, most of that being one month LIBOR.

Okay.

Great.

That's helpful.

And then, Kevin, while I have you, just a follow-up question on your tax comments earlier.

Does it matter if the tax bill is retroactive, or does it matter really when the tax bill is enacted, in terms of when you may have to take a one-time charge?

Yes, it does.

Well, look, if it goes into effect this year and it's retroactive, that's where I gave you the number of roughly $130 million.

If it's prospective, obviously, that number for 2017 would be lower, if it's a mix or variable tax rate, a hybrid tax rate for 2017.

And then for 2018, if it goes in effect for 2018 that number goes down to $80 million to $90 million.

So the timing and when the rate goes into effect does largely impact the DTA write-down.

Okay.

So it's really a structure of the tax change, in addition to kind of when it's enacted?

That's right.

Got it.

Okay.

Just want to clarify.

Thanks, guys.

Appreciate it.

Thanks, Chris.

Thank you.

And the next question is coming from Casey Haire.

Casey, your line is live.

Please announce your affiliation and pose your question.

Yes, Jefferies.

Thanks, guys.

So Kevin Blair, just wanted to clarify the expense guide.

I'm a little bit confused.

If I take the GAAP expense number in 2016 of around $756 [million] and I grow that 2% to 4%, that implies a number of around $771 [million] to $787 [million] or so, which in turn implies a core expense guide of 5% to 7%.

Am I thinking about that incorrectly, or is that right?

Well, look, I think you got to assume one of the other adjusted expenses that would come into those numbers.

But if you're right, (inaudible) baseline is $756 [million], we're guiding 2% to 4% there for 2017.

And then if you look at the adjusted numbers, and this is where I was trying to give you our take, our adjusted number of $732 [million], and look at that number on a scale of 3% to 5%, and I think you'll come back to a number that meets both of the criteria.

Okay.

So the -- all right.

So there will be some adjustments this year?

Well, here's what I would tell you on that is -- Kessel said it earlier.

It's not like we have a bunch of adjustments planned, but we're constantly looking for new efficiency and productivity initiatives.

And so, if we come across opportunities to take one-time charges to help us from a long-term perspective, we're going to evaluate those.

I do expect those to be less than they were this year.

Obviously, we had $23 million of one-time expense including the Entaire acquisition, but I'm never going to say never.

We're going to constantly look for things that are the right things to do for the long-term, and that may include some one-time expenses.

Okay.

Understood.

And then, on the mortgage banking front, it sounds like you expect purchase to sort of pick up the slack from refi this year.

So does the fee guide for 2017, does that presume that mortgage banking kind of holds the level we saw in 2016?

Well, there's two sides to the mortgage equation.

Obviously, there's the secondary fee piece that you're talking about, and then as you know, we've been growing our portfolio of mortgages roughly 20% year over year.

So some of the revenue that we'll get from the growth in production, moving from refi into purchase will go on balance sheet.

So it won't find its way into secondary revenue.

But we're optimistic, as we continue to gain traction in the secondary -- in the correspondent business, as well as I mentioned upfront, adding mortgage on [lows], that the loss of refinance activity will be made up with secondary purchase money.

And that's where we'll be able to keep the fee income fairly stable year over year.

Understood.

Okay.

And just lastly, on the -- you mentioned the loan yields coming in about 10 basis points higher.

Where is the new money yield on securities purchases today, versus that 1.92% existing?

It's over 2%.

I mean, it's in the mid 2.50% range.

Okay.

Great.

And sorry, just lastly.

On the -- I noticed there was a decent AOCI swing this quarter, and you guys are largely holding your securities book available-for-sale.

Is there a thought to maybe designate some of these securities held-to-maturity, and protect against the unrealized loss?

There's always that opportunity.

We, I like the flexibility.

We like the flexibility of keeping it available-for-sale, just because we have the ability to restructure when we need to.

But you see it, we had a $50 million change in AOCI this quarter.

And so, we'll continue to monitor that, as we look at interest rates.

But at this point, we feel very comfortable with our AFS status.

Great.

Thank you guys.

Thank you.

Thank you.

The next question is coming from John Pancari.

John, your line is live.

Please announce your affiliation, and pose your question.

Good morning.

John Pancari, of Evercore ISI.

Quick follow-up on the tax rate.

Just because management team's commentary is getting quite a bit of attention this earnings seasonal around the likelihood of any corporate tax cuts getting competed away.

I mean, either via loan pricing or anything else.

Can you just give us your thoughts on that in terms of, if you do see a net benefit even aside from the revaluation of the DTA, what is the likelihood that the industry -- and the likelihood that Synovus specifically could compete that benefit away over time?

I mean, John, are you talking about how we would spend the benefit of a lower effective tax rate?

Yes, just given the competitive dynamic of the industry is still intensifying in general, that there's the tendency of the banking sector as a whole, that could compete it away, yes.

Look, the way I look at that is, there's so many assumptions as we think about the lower tax rate.

As we said in the past, even if we get a lower ETR, and knowing what the effective tax basis will be, and we're not sure that there won't be changes there.

So until we figure out what the ultimate benefit is -- so look, we're -- just like any industry, we're in a competitive environment.

We want to make sure we continue to invest in our business.

And just because we receive a tax benefit, I don't think it would change the way in which we invest.

We're investing today for the future.

So I'd like to think that some of that benefit would fall to the bottom line.

But if we get a lower effective tax rate, and we have higher growth from an economic standpoint, then obviously expenses and some of that benefit would be eaten up through the P&L.

But I think it's too early to say what the outcome of lower effective tax rate is, until we actually see when it's done, and what the ultimate tax basis would be as well.

Okay.

All right.

Thank you.

That's it from me.

Thanks, John.

Thank you.

There are no more Q&A questions in the queue.

All right.

Now if there are no more questions, just want to thank everybody for being on the call, investors, analysts, friends of the Company.

Also want to thank our team members, who many of whom are on the call, for the great work and the great year.

And I know, in looking at the call to you this morning, we had some of our market leaders.

We had some of the leaders of our fee businesses around the system on this call.

So just again, thank you for what you've done for our Company, and thanks for what you'll continue to do, as we move forward into a very positive 2017.

So thank you all.

Look forward to talking to you soon.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may disconnect your phone lines at this time, and have a wonderful day.

Thank you for your participation.