Synovus Financial Corp (SNV) 2017 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus Fourth Quarter 2016 (sic) [ First Quarter 2017 ] Earnings Conference Call.

(Operator Instructions) It is now my pleasure to turn the floor over to your host, Bob May.

Sir, the floor is yours.

Thank you, Samantha, and good morning, everyone.

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

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

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

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

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 to our presentation.

Thank you.

And now I'll turn it over to Kessel Stelling.

Thank you, Bob, and good morning to everyone.

Welcome to our first quarter earnings call.

We've got a lot to cover this morning.

So as usual, I'll walk through the deck, and the focus primarily will be on the main event, which is what we believe to be a very strong first quarter.

And then we'll close the presentation with a recap of the transaction that we announced yesterday.

So let's start with Slide 3 of the earnings presentation.

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

We reported net income available to common shareholders of $69.3 million, which represents a 39% increase versus the first quarter of 2016.

Diluted EPS was $0.56, up 5.1% versus the fourth quarter and up 44% versus the first quarter of '16.

Adjusted diluted EPS was $0.57, which represents growth of 5.4% versus $0.54 in 4Q '16 and growth of 30% versus the $0.44 reported in the first quarter of '16.

First quarter results included a $4.1 million tax benefit worth $0.03 per share from the adoption of a new accounting standard update, which requires that tax effects from share-based compensation be recorded through earnings instead of through equity.

Kevin Blair will be happy to talk more about that later.

This was the primary driver for the decrease of the effective tax rate to 32%.

The impact on this change will be significantly lower for the remainder of the year.

We currently estimate that the benefit of the rest of the year will be less than $1 million per quarter.

Total revenues were $304.1 million, up $2.4 million or 0.8% sequentially and up 8.1% versus a year ago, with net interest income increasing 10% and adjusted noninterest income increasing 4%.

The solid performance this quarter has resulted in continued progress towards all of our long-term goals.

But I just wanted to highlight that our return on assets this quarter was 0.96%, improving 6 basis points sequentially and 23 basis points versus a year ago.

Moving to the balance sheet.

Total average loans increased $313 million or 5.4% annualized on a sequential quarter basis and it grew $1.45 billion or 6.4% versus a year ago.

Total average deposits grew approximately $258 million or 4.2% annualized versus the fourth quarter of '16 and $1.71 billion or 7.4% versus the first quarter '16.

Couple of highlights on credit quality and capital.

We continue to see favorable credit quality metrics.

The NPL ratio of 0.65% continues to hold at relatively low levels and improved 13 basis points from the first quarter of '16.

Our return on average common equity increased 289 basis points versus the first quarter of '16 to 9.97%.

And we're also very pleased to see that our return on average tangible common equity increased 311 basis points versus 1Q '16 to 10.26%.

Moving to Slide 4. I want to provide a little more color on loan growth this quarter.

And as usual, Kevin and I will provide even more color in the Q&A.

The amounts on the graph represent period-end balances.

We reported quarter loans -- sequential quarter loan growth of $402 million or 6.8% annualized.

We saw balanced and diversified growth.

For the quarter, C&I loans increased $189 million or 6.6% annualized, consumer loans grew $120 million or 9.8% annualized and CRE loans grew $93 million or 5.1% annualized.

On a year-over-year basis, loans grew $1.5 billion or 6.6%.

C&I loans increased $931 million or 8.6%.

Consumer loans grew $720 million or 16.5%.

And CRE loans actually declined by $154.4 million or 2% the first quarter of '16, reflecting growth in investment properties of $121 million while seeing declines in nonstrategic 1-4 family and land and development.

Total average loans grew $313 million or 5.4% annualized versus the fourth quarter of '16 and $1.45 billion or 6.4% versus the first quarter of '16.

The quarter highlights are enhanced capabilities with broad-based growth in several strategic areas of focus.

Our senior housing specialty unit, consumer mortgage and our life insurance premium finance business as well as our small business lending efforts all posted significant growth this quarter.

Moving to Slide 5. In deposits, you'll see that first quarter '17 total average deposits, $24.92 billion, increased $257.6 million or 4.2% annualized versus the fourth quarter of '16, led by sequential quarter growth of $371.7 million or 8.5% annualized in our average core transaction deposits, partially offset by seasonal declines in state, county and municipal balances.

On a year-over-year basis, first quarter total average deposits increased $1.71 billion or 7.4% versus the first quarter of '16.

Average core transaction accounts increased $1.61 billion or 9.7% versus the first quarter of '16.

An overall increase in customer average balances and our focused efforts to attract and grow deposit relationships in small business and mass affluent segments have largely driven the year-over-year growth in core transaction balances.

Due to strong deposit growth, the loan-to-deposit ratio decreased to 96.6%, down 16 basis points versus the fourth quarter of '16 and down 42 basis points versus the first quarter of '16.

Average brokered deposits increased $286 million or 26.1% versus first quarter of '16 due largely to Synovus Securities' deposit sweep product that we rolled out in May of 2016.

And that has contributed over $300 million in deposits.

This product will have $17.4 million or 22.5% annualized sequentially as we continue to expand our assets under management.

Moving to Slide 6. You'll see net interest income is $240 million, increasing $6.4 million or 2.7% versus fourth quarter '16 and 10% versus the first quarter of '16.

The increase in net interest income was driven by strong loan growth as well as margin expansion.

Aided by the rate hikes in December and March, the net interest margin for the quarter is 3.42%, up 13 basis points from the fourth quarter of '16.

The yield on earning assets was 3.88%, up 15 basis points versus the fourth quarter of '16 with the yield on loans of 4.25%, up 11 basis points sequentially.

Yield on investment securities was 2.07%, up 14 basis points sequentially.

And with an overall focus on pricing discipline, the overall -- the effective cost of funds was 46 basis points for the quarter, up 2 basis points from the fourth quarter of '16.

Looking a little more closely at the deposit rates, the cost of interest-bearing core deposits increased 1 basis point sequentially to 0.36%, largely due to strategic repricing and mix-related changes.

And I'll call your attention to a new slide in the appendix, Page 17, which contains additional information on the current interest rate sensitivity profile as well as the investment securities and loan portfolios.

And again, Kevin Blair will be happy to speak to that later in the call.

Turning to Slide 7 and fee income.

Noninterest income for the first quarter was $72 million, down $2.2 million or 2.9% versus the fourth quarter and up 13.8% versus the first quarter of '16.

Other income this quarter included net investment securities gains of $7.7 million, partially offset by a net decrease in the fair value of private equity investments of $1.8 million.

The gain for the quarter includes a $3.4 million gain on the sale of an equity position and $4.4 million gain from the repositioning of the investment securities portfolio.

Several gains of approximately $6 million were recognized in the fourth quarter of '16.

Adjusted noninterest income of $66 million decreased $2.6 million or 3.8% versus the fourth quarter and increased 4% versus the first quarter of '16.

We experienced strong sequential quarter and year-over-year growth in fiduciary and asset management, brokerage and insurance revenues as well as mortgage banking income.

Fiduciary and asset management, brokerage and insurance revenues totaled $20.7 million, which represented a 1.6% sequential quarter increase and a strong 10.3% increase versus the same period a year ago.

The year-on-year increase is driven by 7% growth in assets under management as well as increased banker productivity as we continue to benefit from new talent additions.

We're also very pleased with a 4.3% sequential quarter increase in assets under management, which will provide momentum for the remainder of the year.

Mortgage banking income, $5.8 million for the quarter, an increase of 4.8% sequentially and an increase of 5.1% from a year ago.

Year-over-year growth was driven by our previously announced investments in talent and technology with secondary production increasing 13% versus the same quarter last year.

Total mortgage production of $279 million is up 20% versus a year ago.

Turning to Slide 8. Let's finish a few (inaudible) on expenses.

First quarter '17 total noninterest expense was $197.4 million, an increase of $4.2 million or 2.2% versus the fourth quarter of '16 and 4.9% versus the first quarter of '16.

First quarter '17 includes $6.5 million in restructuring charges, consisting primarily of termination benefits incurred in conjunction with the voluntary early retirement program offered during the quarter.

This program is part of our ongoing efficiency initiative and expected to result in annual savings of approximately $2.5 million.

That was included in our original 2017 guidance.

First quarter '17 adjusted noninterest expense was $190.6 million, increased $3.6 million or 1.9% versus the fourth quarter and $11.4 million or 6.4% versus the first quarter of '16.

Year-over-year expense growth is driven by strategic investments in talent and technology, increased advertising expenses and the Global One acquisition.

Strategic investments in talent and technology accounted for approximately $5 million of the increase as we continue to add talent and investment in technology aimed at enhancing the customer experience.

The $3.5 million increase in advertising expense is a timing-related increase as we incurred expenses this quarter associated with our brand.

And targeted advertising efforts included our ad that ran across our footprint during the Super Bowl.

Advertising expense is expected to be flat to slightly up in 2017.

In addition, $1.2 million of the year-over-year increase is due to the addition of the Global One operating expenses.

I also want to make sure you've noted the revision in the adjusted efficiency ratio calculation this quarter.

ORE expense and other credit costs have been excluded in the past but will be included going forward.

And we have restated previous quarters as well.

The change in the calculation resulted in a higher adjusted efficiency ratio of 62.25% for the first quarter, an improvement of 129 basis points from a similarly restated number in the first quarter of '16.

Had we continued to report the ratio as was calculated in 2016, the adjusted efficiency ratio would have been 60.85%, an improvement of 94 basis points from the first quarter of '16.

Turning to Slide 9. You'll see credit quality metrics continue to be favorable.

The first graph shows NPA, NPL and delinquency trends.

The NPA ratio moved up slightly 3 basis points to 0.77% compared to 0.74% the prior quarter, down significantly from 0.95% in the same quarter a year ago.

The slight increase in the quarter is due to a lower-than-usual volume of disposition activity.

It should be noted that we moved $11.6 million in loans to held-for-sale during the quarter and marked them to liquidation value.

We anticipate these loans being sold early in the second quarter.

NPLs were flat, 0.65% compared to 0.64% the prior quarter, and down from 0.78% in the first quarter of '16.

Past dues remained low at 0.26%, which is a 1 basis point improvement over the previous quarter and a 2 basis point improvement over the first quarter of '16.

Net charge-offs for the first quarter were $6.9 million or 12 basis points compared to 14 basis points in the fourth quarter and 0.13% in the first quarter of 2016.

The low level of net charge-offs this quarter is attributable to a lower level of gross charge-offs rather than high recoveries as we have seen in the past.

And again, Kevin can give you more color in that.

Provision expense, $8.7 million.

It reflects an expected increase from $6.3 million in the first quarter.

This compares to $9.4 million in the same quarter a year ago.

This increase relates to components of loan growth as well as the previously mentioned lower rate of recoveries.

The allowance for loan losses increased about $1.7 million in the first quarter to $253.5 million while the ratio declined 1 basis point to 1.05%.

Compared to a year ago, the allowance is down $1 million and the ratio declined 7 basis points.

Coverage ratios remained strong with reserve covering NPLs of 160% or 205% if you excluded the impaired loans for which the expected loss has been charged off.

On Slide 10, I won't read all the capital ratios to you, but you'll see they remained strong in the quarter.

First quarter '17 CET1 ratio is 9.86%, down 10 basis points versus the fourth quarter of '16.

Due to the increase in the phased-in and disallowed DTA under Basel III to 80% from 60%, the first quarter of '17 CET1 ratio on a fully phased-in basis is estimated at 9.63%.

You'll see total risk-based capital remained strong at 12.09% versus 12.01% in the fourth quarter of '16.

And lastly, I'll just highlight that we repurchased $15.1 million in common shares for the quarter.

As we stated in January, our repurchase volume will be opportunistic based upon our level of organic growth, liquidity levels and overarching capital levels.

Turning to Slide 11.

Just a couple of comments on our previously stated 2017 guidance.

You'll see most of the guidance remains the same.

A couple of changes, resulting balance sheet growth, the recent market rate hike, which we did not include in our previous guidance as well as overall margin assumptions.

We now expect net interest income growth between 10% to 12% for 2017 that we've previously guided at 8% to 10%.

We previously also disclosed the 2017 estimate of 36% to 37% for our effective tax rate.

As I mentioned when going over the quarterly highlights, our effective tax rate in the first quarter was 32% due to the effect of the adoption of share-based payments accounting standard update.

We currently expect our effective tax rate to be in the 34% to 35% for the full year 2017 due to continued potential tax expense volatility for the ASU but also the implementation of new tax credit strategies as our federal NOL diminishes.

And then lastly, before I transition to the announcement of yesterday, I just wanted to provide an update on our transition to a single brand, Synovus.

It's widely known that we're completing this year the transition of all 28 bank divisions to a single bank operating environment that improves efficiency and productivity both for our team and for our customers and ultimately an enhanced customer experience.

We've also announced to various channels since last fall our intention to fully transition to a single brand, culminating in 2018 with consistent Synovus signage across our footprint.

We're continuously evolving to meet the changing needs and expectations of our customers who live in a 24/7, digitally connected, highly competitive world.

And this transition to a common brand is a next important step in our long-term growth strategy to boost awareness among customers and prospects about who we are, where we are and how we could meet their needs on any scale.

It's important to note that our local teams and local leadership will remain in place during and after the brand transition.

Customers will continue to have the same relationships with local bankers and our communities can continue to count on us to be deeply engaged in their growth.

These are foundational components of our delivery model, we believe, distinguishes our brand of banking from our competitors.

And now I'll transition to the announcement of yesterday, which is the agreement with World's Foremost Bank and Capital One.

Yesterday, we entered into a definitive agreement to acquire certain assets and assume certain liabilities of World's Foremost Bank, a wholly owned subsidiary of Cabela's, Inc.

Immediately following the closing of the transaction, Synovus will sell the credit card assets and related liabilities to Capital One Bank while retaining the approximately $1.2 billion in brokered time deposit portfolio.

The transaction is expected to close in the third quarter of '17 and is subject to customary regulatory approvals as well as completion of the Cabela's and Bass Pro Shops merger announced in October of 2016.

The deposit portfolio consists of approximately $1.2 billion of brokered time deposits with a weighted average maturity of approximately 2.75 years.

The weighted average book rate of the portfolio is approximately 1.85%.

However, the rate will be marked to fair market value at the time of closing.

We intend to use the additional liquidity to fund organic loan growth as well as replace other sources of wholesale funding, such as our $800 million gross retirement deposit portfolio that is largely maturing in 2017.

In terms of the financial impact of the transaction.

And we filed the 8-K in agreement last night, so I'll refer you to that.

But pursuant to the terms of that agreement, you'll see that upon close, Synovus will receive $75 million in aggregate consideration from Cabela's and Capital One, which will be recorded in noninterest income, will be a deposit mark to equalize the book value the deposit liabilities to their fair market value based on the average rate of brokered time deposits at the time of closing, minus 10 basis points.

Given the aspects of this transaction, it's expected to be immediately accretive to earnings and to capital.

As we approach the closing of the transaction, we'll evaluate all options and alternatives for utilizing the proceeds.

Similar to our chronic efforts of evaluating and executing on restructuring opportunities, we are currently evaluating opportunities and alternatives to optimally deploy the net proceeds in areas such as organic business growth, balance sheet restructuring, extinguishment of debt and capital distribution, all ongoing strategies.

Again, this transaction gives us additional flexibility.

I'll just close by reiterating that this is an opportunistic transaction for Synovus.

It will provide additional liquidity at favorable rates as well as proceeds due to the $75 million fee that will give us additional flexibility in ongoing balance sheet restructuring efforts.

The transaction presents little operational risk and will be financially accretive immediately.

We hope to have the deal closed by the early part of the third quarter.

But just wanted to assure all, I mean, this transaction will not be a distraction from our efforts and initiatives associated for the growth of our business and the pursuit of our long-term financial goals.

If anything, this transaction will simply accelerate our achievement of those goals.

With that in mind, let me turn it back over to Bob to start the Q&A portion of our call.

Operator, we're ready for questions now.

(Operator Instructions) Your first question is coming from Emlen Harmon.

JMP Securities.

So just on the transaction, what discussions, if any, have you had with regulators just about the structure of this transaction?

And just kind of what's your degree of confidence it is going to be approved and closed by the third quarter?

Yes, thank you, Emlen.

As you know, I think regulators are not in the practice of preapproving or preobjecting transactions like this.

But we have been in very meaningful discussions with our primary regulators during the course of these negotiations.

And although we can't predict when they might approve, we have confidence that the transaction will be approved and closed.

But again, it's subject to the normal approval process.

But I think, suffice it to say that we would not have entered into a transaction that we didn't have some degree of confidence that would get approved.

But again, there's a process.

It involves multiple parties in this case, so we can only control our piece of it.

But we've had regular discussions with our primary regulators.

Got it.

And then just thinking about the financial impact of the transaction.

I mean, how do you think about how this impacts your ROA coming out of the gate?

And do you have just kind of a preliminary feel for what the IRR on this transaction is?

Let me take a high level, and then turn it over to Kevin Blair.

So this is a stand-alone transaction.

You can do the math of the $75 million tax-adjusted transaction fee.

So that speaks to itself.

I'll let Kevin speak to maybe the onboarding of the deposits, which again will be adjusted to market at the time of closing.

So it's a little tough for us to predict that now.

And then ongoing from a longer-term ROA, again keeping in mind that we've got to close the transaction, it was just announced.

But post closing, we do believe that the proceeds of the transaction would give us additional flexibility as we evaluate things such as debt restructuring, balance sheet restructuring, including accelerated sale of NPAs, NPLs, other corporate real estate.

And so to quantify the longer-term effect of that might be a little bit difficult.

But now that I've told you how difficult it will be, I'll turn it over to Kevin Blair for additional...

I really appreciate that, Kessel.

Kessel is right.

This is not a normal transaction.

So I don't think you can look at traditional IRR characteristics because we're not outlaying cash for capital for the acquisition.

It's much more of a balance sheet transaction, where, as Kessel mentioned, the $75 million, if you just drop that to the bottom line, would be naturally accretive and would drive up EPS by $0.39.

But as Kessel mentioned, we want to look at the opportunities from that proceed -- from those proceeds to be able to continue to deliver long-term, accretive earnings growth.

And so we will look at some of those actions, balance sheet restructuring, as Kessel mentioned.

In terms of the deposits, we'll onboard the $1.2 billion of deposits that Kessel mentioned that will come on at what we consider favorable rates.

It will be a fair market value with a liquidity discount.

It may be slightly dilutive to margins initially.

But as we deploy those funds into our loan portfolio both organically as well as potentially synthetically through derivatives, we'll be able to normalize the margin and be able to utilize those deposits to grow overall net interest income.

So we think that will be accretive as well once we're able to onboard and bring in those deposits.

Got it.

So I mean, maybe a better way to ask that question initially would have been, I mean, the $75 million that comes on is basically going to -- effectively going to self-capitalize the assets that you'll put on, on the other side of those liabilities?

Is that fair?

That's fair.

And look, we haven't committed to anything with the $75 million.

We have options that it provides us with a onetime benefit to look at some of the transactions, as Kessel mentioned, we look at every quarter.

It's just -- it's a onetime fee income item that we could offset with potential restructuring items.

Your next question is coming from Jared Shaw.

Wells Fargo Securities.

Just following up on that.

Should we look at this as a self-contained individual transaction, where you're effectively just taking down 2.75-year duration wholesale funds?

Or is this going to be a business sign that you stay active in going forward and that this should be able to continue to provide some additional liquidity after these initial funds run through?

No.

This is Kevin.

It's a onetime transaction.

So there's no forward flow arrangement that we would continue to receive any liquidity from this arrangement.

Okay.

And then we look at Slide 17 at the interest rate or the interest sensitivity, is that not including the impact of this...

Exactly.

That's just our interest rate sensitivity projecting at our balance sheet at the end of the first quarter.

Great, okay.

Just wanted to confirm that.

And then looking at the securities side with the gains you took this quarter, was there another larger restructuring associated with that?

Or was that just opportunistic gains?

When you look at the change in yield with that gain, was there a larger transaction behind there?

Two things.

Yes, there was a transaction behind there, as Kessel mentioned at the talking points.

We did liquidate an equity position which was $3.4 million of the $7.7 million.

There were $4.4 million of gains we took out securities book.

And I would say some of that was opportunistic gains and some of it was restructuring.

So the 14 basis points that we were able to pick up on the securities yield was a function of that.

And we think there's some potential opportunities to continue to expand that going forward.

But we're not seeing any additional large securities gains in the portfolio.

Okay.

And then on the deposit side of the interest rate sensitivity, what -- have you updated your deposit betas or any changing thoughts on deposit performance as we look at potentially increasing -- or additional rate hikes?

So yes, the deposit betas have not been updated.

We've always modeled conservatively at the, let's say, 50% range.

So when you look at Slide 17 and look at our asset sensitivity, note that we have an escalating beta that starts off, say, in the 40% range and be up 25% and goes well above 50% as we do a shock over 100%.

As you know and you've seen in our results, we haven't experienced those betas on the rate hikes that we've had to date.

But from a conservative aspect in terms of modeling the potential betas, we continue to keep it at that 50% range.

First quarter, the February rate hike looks to have created roughly low single-digit deposit beta for us.

But as there's talk in the industry and as we know that the competitive landscape can change fairly rapidly, we want to make sure that we continue to monitor that and assume that it could be much higher than what we've seen today.

Okay.

And then just finally, when you look at the tailwind of recoveries, does that really come to an end on the charge-off side?

And should we start to see net charge-offs start to normalize here?

Or is there anything you think in the pipeline that will make recoveries maybe come back out in the next few quarters?

No, I think as we go -- this is Kevin Howard.

As we get a further again away from the recession, those recoveries have been going down a little bit.

They were down probably $3.5 million from last quarter.

So that's why we've guided up.

Quite frankly, we think our gross charge-offs will stay pretty level where they've been over the last few quarters.

But our net will climb up probably in that 15 to 20 range is our expectations, again probably mainly due to slower recovery.

So we do expect that to wind down a little bit during the quarter.

And your next question is coming from Ebrahim Poonawala.

Bank of America Merrill Lynch.

Just one, first, a question on Capital.

I guess, as we sort of go through this transaction, does the approval process limit your ability, one, to do any other M&A, let's call it, a bank M&A?

And second, does it limit your ability to buy back stock in the interim period?

Yes.

We don't believe it would any way limit our ability to participate in additional M&A transactions.

We've been very clear about the strategic nature of that lens and how they would have to make again strong financial and strategic sense and not be dilutive to our shareholders.

So no, we do not believe that this would limit our go-forward opportunity in any way.

And there's a second part...

On the share purchase.

No, it won't limit share repurchase either.

If anything, we may have had a small impact in the first quarter, given that we were in a blackout window as we were negotiating this transaction that would have limited some repurchasing in the first quarter but no headwind moving forward.

Got it.

And then as follow-up to that, can you remind us, Kessel or Kevin, in terms of your appetite to buy back stock at current valuations?

You mentioned the blackout period had an impact in 1Q.

I'm just wondering the appetite today in terms of where the stock is to buy back more stock and get to that close to $200 million for the year.

Or how are you thinking about that?

I'll remind you that what we shared last quarter was we have authorization up to $200 million.

And our stance on action has really not changed.

We're looking at it on a situational basis every quarter to evaluate the current stock price, our liquidity position, the overarching capital ratios but also what our organic loan growth is.

And with that combination of factors, we're making decisions on how much shares we want to repurchase within each quarter.

So I don't think that's changed versus the original guidance.

I wouldn't read too much into the $15 million this quarter and make that a run rate.

Or conversely, I wouldn't assume that we're (inaudible).

So as we look at all of our options, we're going to take a very financially based IRR approach to doing so.

And as you said, the current price, what it is will have an impact on whether we buy back those shares or not.

And Ebrahim, I want to just follow up on your question about any effects on our longer-term ability to participate in other transactions.

Quite frankly, our focus on what we're doing every day to grow our core business, I'm not trying to minimize the complexity of this transaction because as you know, the announcement involves Bass Pro, Cabela's, Capital One and Synovus, and we each have our own work to do to get to the finish line.

But assuming closing this transaction, the due diligence on our part has been intense and largely done.

And at the point of closing, we would then need to onboard some time -- broker time deposits.

There's no system conversion.

There's no people conversion.

There's no distraction to our team either from a operational or really quite frankly from a regulatory standpoint on a go-forward basis.

So we believe again it's, as Kevin said, optimistic, a lot of work to do to get to the finish line.

But in terms of ultimate execution, it will not be a distraction to our team.

Understood.

And just on a separate topic, you had decent loan growth this quarter and there's enough uncertainty around the industry data on loan growth.

I was wondering if you can comment, Kessel, just in terms on what you're seeing on C&I, CRE across your footprint, any areas of particular strength or weakness.

And are we seeing any signs that this optimism that we've seen in sentiment surveys is translating into real demand?

This is Kevin Howard again.

Ebrahim, we're fairly optimistic about loan growth this year.

I mean, there's some pockets that we're watching a little closer, some of the multifamily, we've mentioned before, we pulled back a little bit on commitments there.

We had growth there this quarter.

But that was more funding than existing construction loans.

So we're watching sort of the Class A in certain markets there.

We're certainly watching what's going on in the retail shopping center business, certainly done a lot of closing.

I'll tell you from our perspective, we're more -- we're not really into the big department stores.

We don't have a lot of those.

It's more -- for us, it's more a strip center, smaller credit tenants, more of those type of tenants, but anyway -- so there's some things we're watching on the real estate side, but we're pretty optimistic that we'll at least have positive loan growth.

I think year-over-year in real estate, we were negative 2%.

We're thinking this year, it's more probably 0 to low single digits, maybe 3% or so.

On the C&I side, we're real optimistic of -- we've had a lot of success there.

As Kessel mentioned, a lot of different business units growing.

We had ABL, we had senior -- our senior housing, which has continued to show good growth there, premium insurance, as Kessel mentioned.

Our small business within the community banks had good positive growth there.

And something that we were a little -- something that we've seen with this quarter was our utilization was up close to 1% on the C&I side.

And that's some of our best borrowers who were drawing on their inventory receivable lines, maybe building inventory versus destocking as maybe what we've seen over the last year.

That utilization rate has actually been down slightly for several quarters in a row and bumped up during the first quarter.

So we've got optimism that we're going to be able to grow the book.

We've got a lot of different, again, businesses growing.

As I also mentioned, premium insurance was close to $40 million of net growth this quarter.

That's a good number for us.

We brought them on board last year.

So I would tell you, we get a lot of mixed signals out there.

But from an overall perspective, we believe we could maintain -- again, we've sort of guided consumer and C&I more in the 5% to 10% range this year and low single digits on the real estate, probably 0 to about 3%, as I mentioned.

Got it.

That’s helpful.

And did SNC contribute meaningfully to this quarter’s growth or no?

We had some growth there.

Some of that was in the utilization number.

That was about close to 40% of our C&I growth was in the SNC.

And I'd say this, that's the first time we've seen positive growth in the SNC portfolio in several quarters.

It's actually down the last couple of quarters.

It's been pretty flat, I say, 4, 5 quarters in a row.

So we had a little utilization there and a couple of new requests in that arena this last quarter.

So that was part of the C&I growth for the first quarter.

Okay, you have another question coming from Jennifer Demba.

A question on your expenses.

You said that the early -- the voluntary early retirement program savings that you'll have is included in your expense guidance for this year.

Curious what other net savings you think will be occurring in this year that will offset your investments.

I'll take that, Jennifer.

There's a lot of areas where we're driving efficiencies.

And there's a lot of little ones, and then some of the big ones, I'll note.

One area that you've seen us talk about over the last several quarters is on the facilities side and how we continue to consolidate many of our building and operational centers.

We have seen about a 5% reduction in overall occupancy expense as a result of that.

We expect that to continue as we find other ways to continue to consolidate facilities.

And we're opportunistically always looking for headcount efficiencies.

And that's from things like you've mentioned, the early retirement program.

But it's just from normal course of business where we're looking to be more efficient with the ability to outsource things, the ability to centralize different operations.

So that will continue as well.

And I should mention that we are always looking for branch consolidation and optimization to fill some of that void in terms of offsetting the growth in investments.

We've been very aggressive, as you know, in cutting our locations since the crisis.

We're down 23%, but we always have a list of potential opportunities for continued consolidation.

So I would say those are the majority of the opportunities.

I will note that in first quarter, we saw a fairly significant reduction in professional fees.

That was down double digits.

And that's an area across all discretionary expense lines, whether it's travel or professional fees, we're taking a much more rigorous discipline towards.

And we'll continue to manage those numbers down as well.

Okay.

Can I ask a follow-up on the Cabela's deal?

I just want to clarify something.

So you’re -- Synovus is paying for the deposit mark.

That's correct, it is an offset of $75 million fee?

You said Cabela's is paying for the deposit mark, Jennifer?

I'm sorry, Synovus is paying for it.

No, no, no.

We will be compensated for the deposit mark in addition to the $75 million.

Okay, all right.

And just one follow-up on the real estate consolidation, what's the status of your Atlanta region consolidation into that building in Cobb County?

Well, it's ongoing.

The building is coming along nicely.

We were able to light the signs on the building last week just before the opening of a new stadium.

I won't call the stadium by name, but a new stadium in Atlanta, which really is a great facility.

Congrats to our competitors in that.

But we're happy to see that building come along.

We're looking at a late summer, early fall staged move-in as we'll begin moving teams from throughout the Atlanta footprint, which we again think gives us planning leverage through having that kind of mass in one spot.

It gives us longer-term efficiency as we exit some leases from office buildings around Atlanta or sell buildings where we had excess capacity.

And quite frankly, we think the intangible in bringing those teams together as we actively work to deepen relationships, having so many of those complementary businesses under one roof just has natural, again, benefits tied to working with your teammates to deepen customer relationships.

But it will be a late summer, early fall staged move-in.

Your next question is coming from Ken Zerbe.

(Operator Instructions)

Morgan Stanley.

I guess, just on the deal, I just wanted to be really clear in terms of you mentioned it's going to be EPS-accretive.

But I guess, there's kind of 3 ways it can be, right?

So one is just the $75 million fee that you get.

So that's certainly accretive.

Or is it the $75 million, let's just say you're buying back shares with it, right?

So that's another aspect of potential accretion.

And then there's the spread on the $1.2 billion of brokered CDs.

When you guys refer to it being accretive, like, are you -- how are you thinking about the split between those 3 areas?

You nailed all 3. I mean, we're looking at it across the 3 sections or opportunities that you brought up.

I mean, naturally as we said, the $75 million is immediately accretive because it's a onetime fee income item.

What we want to do is provide further guidance around how we could potentially utilize that $75 million to take on additional balance sheet restructuring or organizational realignment-type opportunities that could create additional EPS accretion over a longer period of time.

So -- but as I said at the beginning, it's not a traditional transaction where we're pro forma-ing out the acquisition of a bank.

It's much more of just stating the fact that we'll get the deposits, we'll be able to redeploy those and get the spread off of it.

And then we'll also have the $75 million fee, which is at our discretion.

Got you.

And what kind of spread would you anticipate that you'd get on the brokered CDs in the near term, not longer term with the -- from loans?

Just assume that the book rate on the deposits we said in the deck is 1.85%.

If you just go look at our loan rate today at 4.20%, you could do the simple math there.

Now that doesn't assume any mark on the deposits.

We won't know what the final mark is with the liquidity discount until time of closing.

But you can assume that we're going to get 250 to 300 spread on those deposits.

Got it.

Because I guess I'm just trying to figure out because you do talk about over the longer term, you deployed the loans.

But I guess what I'm trying to figure out is I wouldn't imagine you're going to grow loans faster just because you have these deposits.

So is there a difference?

Like should I give you extra credit for growing loans faster just because you have them?

Or is this normal loan growth that you're going to do anyway, and then this, call, 1.85% brokered CDs is just the funding that I would have already assumed that you have taken out in the market over time anyway?

You just now accelerate the borrowing, so to speak, of these liabilities?

Yes, Ken, I think as we get closer to closing this transaction, we'll provide more guidance around that.

I mean, your thought process is correct.

I mentioned earlier that we have about $800 million of brokered CDs that are maturing.

So you could argue that a large portion of these deposits will just replace the existing wholesale funding.

But with the surplus liquidity that we have, obviously we're not going to let it sit in cash.

We're going to deploy it and get that operational spread off of the incremental liquidity.

And Ken, just to highlight, I know we've stated this several times, but those deposits will be adjusted to market and we'll be compensated for that at closing minus an additional 10 basis points.

So again, transaction's got to close.

And a lot needs to happen before then.

But I don't think you would -- well, I know you will not see any changes in our credit appetite related to the onboarding of $1.2 billion deposits.

We've been very disciplined with our approach to how we grow our loan book.

And this transaction as a stand-alone would not in any way affect our appetite, just might change the funding mix of those loans.

Got it, understood.

And how meaningful is that -- could that deposit mark actually be?

Because I know didn't throw any numbers around it, but...

Hypothetically, if you look at spot curves today, the numbers could be, just to mark-to-market for fair value, could be 10 to 15 basis points.

And then to Kessel's point, you add another 10 basis points on top of that for a liquidity discount, you can get anywhere from 10, 25 range mark-to-market in totality on the $1.2 billion.

Your next question is coming from Kevin Fitzsimmons.

It's Hovde Group.

I just want to follow up on loan growth.

I know you guys gave some color on some of the drivers of that loan growth, and I appreciate that.

It seems like some of it is the specialize areas that you guys have been focused on for several quarters.

But I just want to -- I think the answer to this is no.

But I just want to ask it because I've had some CEOs that will say, really, there's been no translation from postelection optimism into actual meaningful growth activity.

And then there'll be a few that will say, no, they're noticing this optimism actually translating into real activity.

So are you -- is the answer more the former than the latter on that, Kessel?

Or how would you characterize that?

Yes.

So thanks, Kevin.

I'll let Kevin Howard speak to that as well.

I mean, again, I think we saw optimism postelection then, I guess, dampened by confusion and uncertainty, not just related to health care but you saw commentary this morning on tax reform and does that now get pushed out past recess.

So I'm not sure we believe that the growth we've seen is related to that optimism.

I think it's just been normal business cycle.

I'll let Kevin maybe get a little color as to the nature of that growth.

But I think certainty in our economic and political environment would hopefully give us an additional boost, but I don't see a lot of it to date.

It's anecdotal that I don't see major initiatives fueled by that optimism.

Kevin, you might have a follow-up on that.

I think, I'll agree with that, Kessel.

It's hard to translate that.

I mean, I look at things kind of just to look within the numbers, as I have mentioned.

It was encouraging for us to see better utilization on some of our better borrowers building inventory maybe instead of reducing inventory.

It feels like -- I don't think anything’s worse than we were last year.

I think some things being -- maybe there's been some early disappointment, maybe some people -- some of the businesses we talked to, who are regulated, there's hope there'll be some little relief there.

I'm not talking about the banks, I'm talking about the customer side.

We'll see how that plays out.

But I think, in general, that I'm hearing more optimism than -- and again, we get mixed signals on that.

But our customers -- our consumers are borrowing at a pretty good pace.

They're drawing on their lines and making investments.

I would say it's a tough one.

We are mixed in this room on that, actually.

We had that discussion yesterday, but I would say more optimistic than pessimistic about what's going on, in general, in the economy.

Okay.

Just one quick follow-up.

Kessel, you made the point that you guys are not going to be hindered in terms of pursuing further M&A.

Can you just remind us, what -- in terms of traditional bank M&A, so apart from this transaction, what kind of fits in your sweet spot of what you'd be looking for?

And given what the sellers are looking for or asking for these days are you hopeful?

Or would you not be expecting over the next year to have a traditional deal announced?

Yes, so let me -- yes, when you say pursuing, I maybe should even add some color to that.

We've been very clear about our disciplined approach.

And suffice it to say, a large majority, if not all of the deals that have been announced over the last year, 1.5 years, have crossed somebody's desk in this company.

But for whatever reason, strategic or price, and a lot of times they go hand in hand, they haven't met our appetite.

And we don't see that changing.

We had obviously a run-up in our currency postelection, which a lot of us have given that back, but so did others.

So nothing has changed from that standpoint.

We, again, think we're an attractive franchise.

We think, reputationally, we are in good standing both within our industry and within our regulatory community, as evidenced by this transaction, and so we will get a look at transactions.

But I think transactions like we did with Global One, which we didn't really comment a lot on calls, that unit is performing very well.

And my hat’s off to that team for how they have integrated into our company and they've become a meaningful contributor both to the revenue stream and the diversification of our loan book.

So that's what we'll be looking for.

We would be looking for something that fits both financially, fits strategically, and quite frankly, fit our culture so that we -- they would integrate into our company and benefit long term our shareholders.

So I think you would see deals, if you saw a deal on a smaller end that were very disciplined -- and by the way, that means we don't do any deals over the next year, we're perfectly comfortable with that approach.

We believe all along our focus on our internal performance has been the right focus.

And we believe that has evidenced itself even this quarter with the returns on average asset, return on average tangible common equity going to plus 10% for the first time in a long time.

So no change in approach.

We are patient, and we are disciplined.

And again, we would look at what's in the market.

There's never any shortage of product in the market.

And your next question is coming from Casey Haire.

Jefferies.

So wanted to follow up on the guide, specifically the net interest income.

If I understand you correctly, the Cabela deal closes about middle of the year.

I was wondering if the NII guide for '17 of 10% to 12%, is that inclusive of what will be effectively a half-year contribution from the Cabela deal?

Or is it purely organic?

I'm sorry.

Kevin’s going to answer that, Casey.

I just wanted to make a housekeeping announcement for really everyone.

We still have a lot of followers on the line.

We are going to stay on and take as many of you as we can get to.

I know some of you have other calls to get to.

If we don't get to you today, then please follow up.

Bob May will be happy to reach out to any of you.

And we'll do a follow-up.

So Kevin, you want to take it?

Yes.

We've guided, Casey, for the guidance for the rest of 2017 that we would not include any of the pro forma aspects of the Cabela's, Capital One deal.

So the 10% to 12% is solely the organic growth that will deliver from just the Synovus growth.

And it does not include any forward rate curves that assumes rates as they ended the end of March.

Okay.

So any sort of balance sheet restructuring benefits would be gravy to this year's numbers?

That's correct.

That's correct.

Okay, great.

And then just switching to the fee guide.

You guys holding that at 2% to 4%.

By my math, that implies a pretty steep ramp from that $66 million level here in the first quarter.

I'm -- it looked like you guys had a little bit of a downdraft in that other line.

I'm just curious.

What is the driver on the fee side to hit the low end of that 2% to 4% guidance?

So in first quarter, we had some seasonal items.

So you saw that we were roughly 4% for the first quarter.

So we feel like we're on track.

A couple of areas that will increase as we move along the year will be our SBA gain on sale from the production that we are doing.

Just to put it in perspective, the quarter-over-quarter decline there was a little over $1.4 million, just given the seasonality of SBA production in the third and fourth quarter.

So we'll continue to ramp that up.

Also, there's some seasonality around service charges in the first quarter that will continue to provide a little bit of a tailwind moving forward.

And then we have significant investments, as Kessel talked about on the slide, we've been able to produce mortgage production increases of roughly 20% on a year-over-year basis.

And our brokerage and Synovus Securities area have seen revenues growing 20% and assets under management up 7% on a year-over-year basis.

So we feel like there's a lot of the raw materials, the inputs, that go into that fee income that we are very confident around that will help to deliver the 2% to 4% this year.

And just on the other income items, there were some onetime benefits associated with (inaudible) in fourth quarter as well as the SBA gains that I mentioned previously that drove the quarter-over-quarter decline.

And your next question is coming from Steven Alexopoulos.

JPMorgan.

To follow up on the deposit transaction, was this a competitive bid process that you guys participated in?

I don't want to maybe give too much color on the nature of that transaction because it was disclosed in our K and then there are other Ks that have been filed, but we have been in discussions for some time with the parties.

And we believe it was, again, a fair transaction from our standpoint.

And I would let the others speak to it from theirs as well.

But again, I think it speaks to our deep and long-term relationships in the industry, including deep relationships in the card industry.

Okay.

And then of the $1.2 billion in deposits being acquired, what's the mix of floating rate versus fixed rate?

It's all fixed-rate CDs.

All fixed rate, okay.

And if I could squeeze one more in.

The growth in other consumer loans, which was up $100 million this quarter, up over $400 million over the past year.

What types of loans are those?

That's been, as we've disclosed before, that's the lending partnerships we have with SoFi and GreenSky.

That's primarily what that is.

About 95% of it is in those 2 books.

We've stated that we would grow probably up to about 3% of our balance sheet in these lending strategies.

As we have stated over the last few years, we have been wanting to grow our consumer book.

We knew we would need to get into some partnerships to get to that.

And so that's we've allocated a small part of the balance sheet to there.

So it's the mix mainly of the relationships we have with those 2 partners.

Your next question is coming from Nancy Bush.

Nancy Bush, NAB Research.

Well, I have kind of a philosophical question about the transaction.

And given that I'm somebody who's watched Synovus for a long time, I'd never thought that I would be seeing a $1 billion of broker deposits put on the Synovus balance sheet and given the experience with funding back during the crisis, et cetera.

Was this just so attractive?

Was it the $75 million kicker?

And does this sort of signal a new attitude about funding?

I don't think it signals a new attitude, Nancy.

Again, it's onboarding $1.2 billion in broker deposits, marked to market, a 10 basis point discount applied to that, little, negligible operational risk and a $75 million transaction fee, which, again, gives us flexibility to explore or execute on a number of other strategies which have long-term benefit.

So it's opportunistic.

I don't think it's reflective of any change in attitude towards deposits.

I think it was just a good transaction for our company that's a onetime transaction.

It has, again, low execution risk, pending regulatory approval.

We'll close it.

We'll onboard CDs.

We'll receive the fee, and we'll continue on our core business.

So I don't think it's, again, reflective of any change of attitude.

What will this give you in terms of percentage of total deposits and broker deposits?

And is that 10% sort of regulatory caution still in existence?

Nancy, this is Kevin Blair.

It's going to be below 10% by a fair margin.

So as I mentioned, we have about $800 million of brokerage fees today that have an average life of roughly 6 months.

So as those mature, we’ll just be replacing those.

So it will not exceed the 10% broker threshold.

Okay.

And on the -- as the transaction plays into this, the sort of better outlook for net interest income, et cetera, and whatever opportunities these deposits may give you and the $75 million, are there any thoughts about growing some of the fee businesses at a greater rate than might otherwise had been anticipated?

And the one I'm thinking about obviously is asset management.

I think all those thoughts were already there, Nancy.

So -- and again, I don't want this transaction to overshadow what we believe was strong performance by some of those very big businesses that you just referred to.

Good quarter.

So we'll continue to look at opportunities to expand there, including from an acquisition standpoint.

Even though the Global One wasn't a fee business, it was certainly a diversification of balance sheet and revenue play for us.

So if those revenue opportunities were to present themselves on the fee side, we would certainly entertain them.

But at the end of the day, this is a stand-alone transaction, which we believe, again, gives us boost in all the areas I mentioned.

But that core focus on revenue, on loan, balance loan growth, on deposit mix is still very much ongoing.

And again, I think we had a quarter of strong results that reflect just that effort.

And your next question is coming from John Pancari.

Evercore ISI.

Okay.

So one more on the deal.

Just given, again -- certainly, a creative deal, and I get the optionality that it gives you, and you can make it as accretive as you want as you look at the reinvestment opportunities.

But now this is one of several smaller transactions you've done in succession here.

And I mean, do you have the management capacity in terms of distractions that these smaller deals can provide, I mean -- that they can bring?

Can you still look at lots of smaller type of transactions like this and not be impacted by management distraction issues?

Yes.

So John, great question.

So first of all, let me speak to this deal.

As you mentioned several, and I think this is our second.

I don't consider this a management distraction at all.

We've had a lot of lawyers involved, and a lot of them are external.

And on a call yesterday, I think, the number was put at 3,000 lawyers.

But it has not been a management distraction at all.

To me, to Kevin Howard, to D. Copeland, to Wayne Akins, to Bart Singleton, those who are running our day-to-day businesses, not to say they haven't been involved at all but basically they haven't been involved at all.

It has been a legal and financial transaction with a lot of external help.

And the execution operationally will be onboarding -- I don't know if we disclosed the number of CDs, but it's a onetime onboarding of some CDs.

There are no new relationships.

There are no new relationship managers to introduce to clients.

There is no risk of losing business.

There is no effort to try and get cost out that would require any kind of management attention.

So I mean, look at this as a lot of people will be working behind the scenes to get this closed, but it will not be the management or business leaders of Synovus involved with that.

So as it relates to that part of your question, it is a nonissue, and I would say that Global One was similar.

We kept the management of that company.

They are performing at great levels.

And other than financial updates, which are meaningful, has not been a distraction.

So I get the nature of your question.

These two, in particular, and this one, for sure, has not been a distraction at all, to any of our management that would affect day-to-day execution.

Okay, great.

And then my follow-up is just around the -- your retail -- your exposure to retail, both in the commercial real estate portfolio as well as to retailers and to direct loans in your C&I book.

Can you just help quantify your exposure there?

And sorry if I missed that earlier on the call.

So John, you are talking about the retail that's within C&I, right?

Yes, I guess, both.

If you could just help resize it up, the amount of exposure you may have on the mall and strip mall side within your commercial real estate portfolio?

And then separately, any exposure to the actual retailers in your C&I book?

Sure.

Well, we -- on the C&I book, first of all, it's -- the segments were exposed to probably more in the retail are motor vehicle, parts stores, gasoline stations, food and beverage.

That's probably 80% is really not under -- we kind of designate about 80% of that is really not under what we call significant online competition.

We're not -- we don't have any exposed to any kind of mall locations or where we think -- those issues could be -- the segments are probably a little bit more vulnerable, like we've bought in some clothing lines, accessories, electronics, things like that.

It's probably less than 10% of our book.

I'm talking about the C&I side.

So we don't -- and no real exposure at all to department stores, where we made good inventory lines.

I think a very small part of, again, the heaviest being more parts, gasoline stations, food and beverage.

That's where for the retails are coded up under in the C&I side of the retail.

On the real estate side, let me just say this.

We are not doing a lot of lending there.

I think we were down $60 million in the retail portfolio this quarter.

So you can see declines there.

We -- one thing about -- let me say about the book, it's no defaults in the last several quarters.

There are no nonperformers in the portfolio.

We're lending like everybody else there.

Strong equity requirements.

It's very stabilized portfolio.

Probably 95% of it is not in construction phase.

But as far as what you asked about is the tenant mix, I think it's what's -- where you are headed.

We are primarily grocery store-anchored, kind of, service providers and strip centers.

We have -- our largest tenant exposure is more in the drugstores and dollar stores and where we think those actually segments are performing pretty well.

We kind of pegged about 10% of that book that might be more larger box-type exposures, maybe part of a power center.

So we're kind of -- and we've had a few closing announcements that have affected us a little bit.

We know that's what you got guarantors for and sponsorship there that has helped kind of heal that.

Again, it's performing pretty good.

We don't think we are exposed.

Again, most -- out of all those announcements, I think we recorded 600 to 700 of them over the last 6 to 9 months, of stores that closed in our footprint, I think it's probably affecting 5 or 6 where we had closings.

So we are not -- we’re watching that.

We are cautious.

We are not growing that portfolio.

It's definitely something that's got our attention, but we do feel pretty good that the mix of our portfolio is more toward kind of service and dollars and drugs -- drugstores and not as much dependent on clothing and what we think are significant online competition.

So that's kind of -- and again, I mentioned before, about 15% of this is in grocery store-anchored portfolio.

Your next question is coming from Christopher Marinac.

FIG Partners in Atlanta.

Just wanted to follow up on the statement made earlier in the call about using some of the gain on the Cabela's transaction to continue restructuring.

I was curious if that is related anything to the balance sheet.

Is there more that you want to do there?

Is that tied back towards the expense initiatives that are ongoing?

This is Kevin Blair.

Yes, it's tied to both sides.

I mean, we're looking at potential balance sheet restructuring.

We mentioned -- Kessel in his comments mentioned potential bulk loan sales both on the MDA side.

We could look at other activities in the balance sheet that would restructure it to improve returns.

But I think everything -- the word that we use is it gives us optionality to look at all efforts, whether it be efficiency or balance sheet.

Okay.

Great.

And just to follow up on the margin going forward.

Do you see much benefit from the day counts getting you one more day and then 2 more days for the next 2 quarters come out?

Yes.

Do we benefit from that?

Right.

I mean should the margin be that much better than we saw the step up this quarter?

Yes.

There's some benefits to the day count, but most of our benefit and what we have projected is based on true yield changes, driven by the rate hikes.

But we've also -- as we talked about investment securities, we've been able to expand the margin there.

Plus, I did mention this earlier, we did pick up 2 to 3 basis points just on managing down our cash that we're holding in the Federal Reserve.

That mix has allowed us to increase the margin as well.

And your last question is coming from Brady Gailey.

KBW.

Maybe just one more on M&A.

Kessel, as your currency gets more valuable and maybe M&A gets a little more likely for you guys, what size bank deal would you be most interested in?

And do you have a geographic focus on where you would look to acquire other banks?

Well, size, we've said that we don't anticipate our first true bank M&A deal would be a transformational deal.

So I think it would be the -- certainly, at the smaller end of the range.

But to John's point about lots of little deals, no, we don't anticipate doing lots of little deals.

We grew loans and deposits plus $300 million this quarter just through our own internal efforts.

So again, on the lower end of maybe interesting range to the world, but for us, we would not do a whole bank M&A transaction that we didn't believe was meaningful to us from a strategic and financial sense.

And we said no -- none that would require a lot of explaining to our investors.

That said, I think it would be more likely to do something in market.

Yes, our currency is up, but so are most sellers and their expectation based on personal experience and conversations haven't changed dramatically.

So I think more likely end market where we would be able to experience significant cost saves, but equally an important end market where the bank, the bankers and the customers are attracted to the way we do business.

It is just a pure acquisition, take all the cost out and see what's left.

That's just not how we would anticipate doing things.

So it would be with, again, someone who we believe we had some synergies with their team, with their management team and with, ultimately, their customer base, in terms of what they expect from the bank and what we would anticipate from the customer relationship.

So long answer of saying certainly sub $10 billion, probably a bit smaller than that, and in our footprint, with someone who we believe we have the ability to make 1 plus 1 equal 3.

All right.

That's helpful.

And then the bond book.

You've seen some decent growth in balances in the bond book over the last couple of quarters.

Will that continue?

Or what's the forecast in the growth of the bond book?

So Brady, on that front, as I mentioned on the previous question, we've been able to manage down our cash balances.

So that's -- we've been able to reallocate that fund -- those funds into the bond book.

So I think you'll see the growth from this point forward to be fairly modest, only therefore growth and liquidity purposes from a coverage standpoint.

But yes, the growth what you saw quarter-over-quarter was largely a function of moving that cash into work from a bond perspective.

There are no further questions in queue.

Okay.

Thank you.

I'll wrap up.

And Brady, I think it’s fitting that the last question came from you, as you fill Jefferson's shoes.

I guess, this is my 27th or 28th earnings call since becoming CEO and the first earnings call where I haven't had a spirited question from Jefferson Hills.

And so we congratulate Jefferson as he transitions to the other side of the phone line.

I hope all of you that cover our friendly competitor ask him equally spirited questions as he participates in his calls going forward.

So congratulations to Jefferson.

I think, truly one of the good guys in the industry.

And I'll just close by saying thanks to all in the call.

But I really want to thank the Synovus team.

A lot of the news has been about a certainly unique transaction that we believe again has great benefit to our company.

But the real story of the quarter is the strong operating results, which come from our team throughout our 5-state footprint, executing our strategic plan every day.

And every day, they come to work, they find, do it better than they did a day before.

I think the results speak to that.

So thanks to all of you participating, especially those on the Synovus team who are on this call, and we look forward to more successful calls throughout the year.

So thank you all very much, and have a great day.

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.