Synovus Financial Corp (SNV) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Synovus' Third 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, and good morning, everyone. During the call, we will be referencing the slides and press release that are available within the Investor Relations section of our website, synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer your questions.

Before we begin, I'll remind you that our comments 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.

(Operator Instructions) 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 third quarter earnings call. As is customary, I'll walk us through the earnings presentation, and then we'll open the line up for questions to -- for myself and our -- other members of our executive team.

I'm going to start with Slide 3, which provides a summary for the quarter. Just as a reminder, the results of the quarter reflect a $75 million Cabela's transaction fee as well as the impact from various balance sheet restructuring actions that we completed during the quarter. I'll walk you through that in more detail on Slides 4 and 5.

So diluted earnings per share were $0.78 for the quarter. On an adjusted basis, diluted earnings per share were $0.65, up 7% from the previous quarter and up 25% from the same period a year ago.

Return on average assets was 1.27% on a reported basis. On an adjusted basis, return on average assets was 1.05%, up 4 basis points sequentially and up 15 basis points from a year ago.

We continue to generate positive operating leverage, with total adjusted revenues, excluding the Cabela's fee, increasing by 12.4% versus a year ago while adjusted expenses increased by 5.5%.

On the balance sheet side, we continue to have balanced growth, with average loans increasing $1.36 billion or almost 6% versus a year ago and average deposits growing $1.26 billion or 5% versus a year ago.

From a credit quality perspective, again, driven by the balance sheet restructuring actions that we took this quarter, the nonperforming assets ratio declined to 57 basis points, a 20 basis point improvement from a year ago and the lowest level since 2006.

And lastly, in terms of capital management and overall returns, we continue to see improvement in capital efficiency with a reported ROE of 13.24% and an adjusted ROE of 10.92%, up 184 basis points from a year ago. Adjusted return on average tangible common equity improved to 11.19%, up 44 basis points from the previous quarter and up 203 basis points from a year ago.

Moving to Slide 4. It provides a summary of the Cabela's and Capital One transaction that we completed last month. As previously disclosed, this was an opportunistic transaction, and it included the assumption of $1.1 billion in brokered CDs with a weighted average remaining maturity of approximately 2.5 years and an average weighted rate of 1.83%, which represented a discount to market rates of approximately 14 basis points as of the date of closing, which was September 25, 2017. Again, the transaction also yielded a $75 million fee, which is reflected as a component of noninterest income.

During the third quarter, concurrent with this transaction, we initiated various balance sheet restructuring actions, which will continue into the fourth quarter. Through the execution of these actions, we expect to generate an incremental 5% earnings per share accretion into 2018 through increased net interest income, lower provision expense and lower noninterest expense growth.

In addition to the financial benefits of the transaction, we were also pleased to receive the feedback from our primary regulators is part of the approval, which was part of the -- noted the overall strength of our company as well as our financial performance.

On Slide 5, continuing on the specific impacts of the Cabela's transaction as well as other selected items during the quarter, we'll be happy to answer question about any of these, but let me walk through those again. The $75 million fee is a onetime positive benefit, which was partially offset by additional items listed on this schedule. The next 4 items relate to our balance sheet restructuring items. As you'll see, the provision expense of approximately $28 million relates to the transfer of $78 million in loans, consisting primarily of nonperforming loans, to held for sale. Additionally, we recorded ORE expense of $7 million in the quarter for discounts to fair value related to completed and planned accelerated ORE dispositions. The $8 million loss relates to a bond portfolio repositioning. During the quarter, we sold investment securities totaling approximately $485 million with a duration of 3.7 years and a yield of 1.65%. We reinvested the proceeds into securities with a duration of 4.8 years and a 2.45% yield.

The $1.7 million in asset impairment charges relates to corporate real estate in former branch locations, which we have marked for sale. We now intend to dispose of these properties in an accelerated time frame, which required a discount to the price in order to lead to an early sale. The $2 million increase in our Global One earnout liability is the result of better-than-expected results and not related to the Cabela's transaction. The increase was booked as part of our annual evaluation process. We're very pleased with the performance of Global One, the synergies that have been created within our wealth management business. Since the acquisition just a year ago, total loans have increased by 40% to almost $500 million while maintaining a track record of 0 principal losses. So again, very pleased with that acquisition. Additionally, during the fourth quarter, we expect to incur a pretax charge of approximately $25 million in conjunction with the previously announced redemption of our $300 million principal senior notes that are due in 2019. Again, that will be recorded in the fourth quarter.

Moving to Slide 6. You'll see loans grew 1% sequentially and 6% a year ago. The amounts on the graph represent period-end balances. Loan growth on a sequential quarter basis was $56.8 million or, again, 0.9% annualized. When adjusted to exclude the transfers to held for sale, sequential quarter growth was $135 million or 2.2%. I'll give you a little color on that. C&I loans increased $25 million during the quarter. The growth was driven by strong performance in our specialty areas, including senior housing and Global One as well as growth within our community banking unit, which was partially offset by an approximately $75 million bond in revolving commercial line utilization. For the quarter, consumer loans increased $286 million or 21.5% annualized, with consumer mortgages increasing $100.6 million or 16.2% annualized. The growth in consumer mortgages was broad-based, with the private wealth position jumbo and affordable mortgage programs all contributing. We also continue to see solid growth in our lending partnerships, which increased $216 million during the quarter. Additional partnership balance is required during the quarter due to the expected increase of liquidity from the Cabela's transaction. And again, as we remain focused on diversification and credit risk mitigation, CRE loans declined $178.3 million or 9.5% annualized. For the quarter, the nonstrategic categories of 1 to 4 family and land and development loans decreased by a total of $72 million.

On a year-over-year basis, loans grew $1.22 billion or 5.3% on a period-end basis. And again, C&I loans increased $718.1 million or 6.5%, consumer loans grew $750.1 million or 15.6%, and CRE loans declined by $245.6 million or 3.3%, reflecting growth in investment properties of $26 million while seeing a $272 million reduction in the 1 to 4 family and land and development portfolios.

Total average loans grew $150 million or 2.4% annualized versus the second quarter '17 and $1.36 billion or 5.9% versus the third quarter a year ago. And again, we continue to be pleased with our efforts to drive portfolio diversification. C&I loans now represent 48% of our total loans, consumer loans have increased to 23% of the portfolio, and CRE loans have now declined to less than 30% of our outstanding loan balances.

Moving to Slide 7 on deposits. Average deposits grew 4.7% sequentially and 5.2% from a year ago. Total average deposits of $25.29 billion increased $295.2 million or 4.7% annualized versus the second quarter of '17. The growth in average deposits for the quarter included an increase in brokered time deposits of approximately $168 million, with $72 million of that increase coming from the Cabela's transaction, which was on our books for only 6 days. During the quarter, average core transaction deposits of $18.6 billion increased $194 million or 4.2% sequentially. On a year-over-year basis, total average deposits increased $1.26 billion or 5.2%. Several of the average core transaction deposits increased $1.24 billion or 7.1% versus a year ago. An overall increase in the customer average balances and our focused efforts to attract and grow deposit relationships in the small business and mass affluent segments have largely driven the year-over-year growth in core transaction balances. And again, with a very disciplined approach to pricing and a shift in mix to lower-cost deposits, we're very pleased to have strong year-over-year deposit growth while maintaining stable deposit costs.

Moving to Slide 8. Net interest income, $262.6 million, increasing $11.5 million or 4.6% versus the second quarter '17 and 16.2% versus the third quarter of '16. Increase is driven by growth in loans as well as margin expansion. You'll see that net interest margin for the quarter is 3.63%, up 12 basis points from the previous quarter and up 36 basis points from a year ago.

The yield on earning assets was 4.11%, up 12 basis points sequentially and up 40 basis points from a year ago. Yield on loans was 4.49%, up 13 basis points sequentially and up 36 basis points from a year ago, reflecting the benefits of additional pricing rigor as well as the change in mix, with the growth in consumer portfolio providing some higher yields.

Effective cost of funds, again, remain unchanged at 48 basis points. Cost of interest-bearing deposits increased 3 basis points during the quarter as we've increased deposit rates at various products and segments. However, given our overall pricing discipline, deposit betas have remained well below our model levels. In addition, the June payoff of our $280 million sub debt helped offset the increase in the cost of deposits experienced during the quarter. And Page 17 in the appendix includes additional information on the interest rate sensitivity as well as investment securities and loan portfolios.

Moving to Slide 9 on noninterest income. Total noninterest income in the quarter was $135.4 million, up $67 million versus the prior quarter, up $67.3 million from a year ago. Other income includes a $75 million Cabela's transaction fee, partially offset by $8 million in investment securities losses.

Adjusted noninterest income, $68.4 million. It decreased $1.6 million or 2.3% versus the prior quarter and remained unchanged versus the same period a year ago. Again, a little more detail here. Core banking fees, $33.1 million, declined $1.1 million or 3.2% sequentially and $1.6 million or 4.7% versus a year ago. The second quarter decline was largely due to a $744,000 decrease in SBA gains, partially offset by a $435,000 increase in service charges on deposit accounts. On a year-to-date basis, very pleased with the SBA gains of $3.8 million, up $1.1 million versus a year ago.

Fiduciary/asset management, brokerage and insurance revenues of $21.2 million, representing an increase of $541,000 or 2.6% sequentially and $1.6 million or 8.3% from a year ago. The increase was driven by solid growth in assets under management, which ended the quarter at $13 billion, up 15% from a year ago. And again, our talent acquisition and market expansion strategies are really paying off. They are resulting in new customer wins and continued growth in the business at an accelerated pace. So really pleased with that. One example of that would be our Family Asset Management unit where year-to-date revenues are $10.5 million, up 8% from a year ago. And again, we're seeing significant growth in new accounts brought in by new hires within our financial consultants group.

Mortgage revenues, $5.6 million, declined 3% sequentially, $1.7 million, or 23% from a year ago. Mortgage production was $165 million during the quarter, down 2% sequentially, down 14% from a year ago. The decrease in production was largely due to an overall lower refinancing volume.

Moving to Slide 10 on noninterest expense. Total noninterest expense, $205.6 million. It increased $14 million or 7.2% sequentially and increased 10.6% from a year ago. As we discussed earlier on Slide 5, the quarter included ORE and other impairment charges totaling $8.8 million. Additionally, personnel expense increased on a sequential quarter basis by $4.5 million due primarily to merit increases, higher production-related incentives and higher health insurance expense.

Adjusted noninterest expense was $194.1 million and increased $2.7 million or 1.4% sequentially, 5.5% from a year ago. Again, the year-over-year increase in expenses is driven by strategic investments in talent and technology, which we believe are paying off; higher third-party processing expense due to the sourcing fee of our third-party lending partnerships; and the addition of Global One. And our run rate, through positive operating leverage, though, you'll see the adjusted efficiency ratio for the quarter was 58.59%, improving from 59.56% in the previous quarter and down from 62.41% a year ago.

Moving to Slide 11, the credit quality. You'll see in several of the graphs, you'll see the impact of the transfers to held for sale that I've mentioned earlier. Again, we transfer or morph to liquidation the value of approximately $96 million in assets in the third quarter at a cost of approximately $35 million. $78 million of these were loans. $18 million were ORE properties.

First graph shows you the NPA, NPL and delinquency trends. The NPA ratio decreased by 16 basis points to 0.57% compared to 0.73% last quarter and 0.77% in the same quarter a year ago. Over the next 3 to 6 months, we plan to sell about $38.3 million in assets that are currently in held for sale, which we expect will further improve the NPA ratio. The NPL ratio declined by 25 basis points to 0.40% compared to 0.65% in the second quarter, 0.64% in the third quarter of '16. The full impact of the transfers is reflected in this ratio since it does not include held for sale as the NPA ratio does. Past due to 0.35%, plus the increase of 8 basis points over the prior quarter and over the same quarter of 2016. This increase relates primarily due to timing issues with several credits and does not reflect a trend.

Net charge-offs in the second quarter were $38.1 million or 0.62% compared to 0.26% in the second quarter and 0.12% in the second quarter of '16. Excluding the charge-offs on the held-for-sale transfers and accelerated dispositions, net charge-offs would have been 6 basis points for the quarter and 15 basis points year-to-date, well within our guidance of 15 to 20 basis points for the year. We'll update that in just a little bit.

Provision expense for the quarter was $39.7 million compared to $10.3 million in the prior quarter and $5.7 million in the third quarter '16. On a fundamental basis, excluding the cost of the held-for-sale transfers and dispositions, provision expense would have been $12 million, an expected increase of approximately $1.7 million over the previous quarter.

The allowance for loan losses increased by $1.6 million in the third quarter to $249.7 million, with the ratio remaining flat at 1.02%. Compared to a year ago, the allowance is up $4.1 million, and the ratio was down by 7 basis points. Coverage ratios increased significantly given the reduction in NPLs. The reserve covers NPLs at 255% or 336% if you exclude impaired loans, to which the expected loss has been charged off. These coverage ratios compare to 156% and 217%, respectively, in the second quarter of '17. And again, as you'll see in the charts above, the acceleration of our held-for-sale and disposition strategy has just further strengthened our balance sheet or our NPL ratio down to the lowest level since 2006. These transactions and some great work of our special assets group and very disciplined approach by our lending teams have really contributed to a much stronger quality balance sheet.

Slide 12. Again maintaining strong capital ratios. You will see strong quarter, with growth in earnings outpacing growth in risk-weighted assets. The CET1 ratio, 10.04%, up 2 basis points sequentially on a fully phased-in basis, that would be estimated at 9.87%. Tier 1 capital, 10.41% versus 10.37% the previous quarter. The total risk-based capital ratio, 12.28% versus 12.24% the previous quarter. Tangible common equity ratio, 8.88% compared to 9.15% for the previous quarter given the period-ending growth in cash resulting from Cabela's transaction. And also, as expected, the disallowed DTA continues to decline and is now $113 million, down $137 million from a year ago. And lastly, we repurchased approximately $91 million in common shares for the quarter at an average price per share of $42.69, bringing us to right at $136 million year-to-date for 2017. If you combine last year's fourth quarter repurchase activities with those in 2017, common shares outstanding are down 1.6% from a year ago.

On Slide 13, and this has been in our previous presentation, so just to give an update on our outlook and trying to exclude the effects of this transaction. We remain optimistic in delivering on our full year financial outlook, and again, we're trying to isolate Cabela's transaction and the associated balance sheet restructuring actions from this 2017 guidance. So if you go to balance sheet, year-to-date results have been aligned with our annual guidance. Given our pipeline activities as well as anticipated seasonal growth, we expect to continue this growth trend for both average loan and deposit growth in the middle of the 5% to 7% range for the year. Given the balance sheet growth as well as a stable margin in the fourth quarter, we remain confident in delivering net interest income growth between 12% and 14% for 2017. Based on performance to date and our expectation for the fourth quarter, we believe we'll close the year closer to the higher end of the stated range. And again, in keeping with previous guidance, this assumes no further rate hikes this year. However, we remain in an asset-sensitive position and have potential upside if additional rate hike occurs this year.

Our investments and our execution in our fee income-producing businesses will position us to deliver adjusted noninterest income growth in the 2% to 4% range for the year, again, as we guided. Given some of the softness in service charges in the refinance mortgage environment, we do expect our performance to fall towards the lower end of this range and will also affirm our expectations that total noninterest expense will increase between 2% and 4% for the year, but we expect that number to be on the higher end of our guidance.

We continue to expect the effective tax rate to be in the 34% to 35% range for 2017. We do think our effective tax rate for the fourth quarter is expected to be a little lower than third quarter levels due to the execution of some new tax credit strategies. We don't see -- foresee significant changes in the credit environment or underlying quality in the fourth quarter. We benefited from the balance sheet restructuring actions taken in the third quarter, so we do maintain an expectation for the net charge-off ratio to fall well within the 15 to 20 basis points for the year. And we expect the loan loss reserve ratio will remain above 1%.

Lastly, as we announced at the end of the year, we have authorization for up to $200 million in share repurchases in 2017. We completed repurchases of $135.9 million through the third quarter. And similar to previous quarters, the size and timing of repurchases in the fourth quarter will continue to be situational and primarily dependent on the level of organic business growth.

Before we go to questions, and I'm sure you'll have many, I will just say, again, we are trying our best to isolate the specific transactions in the third quarter that you would find of interest. And -- again, but our team is ready to go into greater detail on that transaction and the related restructuring activities and what that means for a go-forward look. But before we go to your questions, I just want to reiterate, we believe it really was a very busy and solid quarter for our team and, quite frankly, an exciting quarter for our team as we completed a transaction that many doubted we had the capability to pull off. We had a lot of team members working on the fourth or the fifth of 5 conversions to our single-bank operating platform. We'll complete the last one in November. The one we did last was during the hurricane weekends. So compliments to our team. But even better, that's good for our customers because it's all designed to enhance the customer experience and set us up for the conversion to a single brand in 2018, which will -- again, will provide for a great customer experience and allow us to really leverage our brand as a bank for our communities in the Southeast.

So excited about what we'll do in the fourth quarter. We're really excited about how that tees us up for 2018 with a lot of new opportunities for our customers, including the launching of a new mobile and online blanking platform, the launch of a new strategy for meeting the total relationship needs of our mass fluent, high-net worth segments. And again, most of our efforts leading into '18, customer focused and will help our customers and hopefully reflect in our financials. So again, a busy quarter, somewhat noisy quarter but an exciting quarter for our company, and we're well positioned to move into 2018 as we finish the year strong.

With that, operator, we will move to questions from our callers, and our team is standing by.

(Operator Instructions) Our first question today is coming from Ebrahim Poonawala.

Bank of America Merrill Lynch. I was wondering, Kevin, if you could sort of start with just your thought process around the cash that you will receive from these deposits as we think about its impact, one, as you -- as we fully reflect the CDs at 1.83%, the debt restructuring and sort of your thoughts around the cash deployment, what's sort of the exit margin that you're thinking of coming out of all these transactions? And then just the time line of how quickly do you expect to redeploy that cash into securities or loans?

Ebrahim, I'll start with the cash part of that. So as you saw at the end of the quarter, our balance sheet was a little bloated with cash at the Fed, a little over $1.2 billion. The idea is that we will use many of the deposits that we have today to replace maturing brokered CDs that we have in the fourth quarter. We have roughly $500 million of brokered CDs that are maturing in the fourth quarter, and we'll leverage these new CDs to replace those. In addition to that, we're looking at increasing our earning assets as a result of having liquidity. To your point, we've gone a little longer on the curve with these deposits, which carry a slightly higher cost than what we've been putting on as a normal brokered CD for us. So we'll take advantage of adding some additional organic asset generation from those deposits. In terms of the margin, as it relates primarily to the debt, what you should think about is being able to call or redeem that debt in the beginning part of November, which carries a coupon of 7 7/8%, and as we're looking today for various options, whether we would reissue a full $300 million or we would use the combination of debt and cash, but we could get a much lower rate going forward, which could create somewhere between $12 million and $14 million of NII benefit in 2018, depending on what option we choose. Obviously, that will change based upon the type of debt that we would issue and the size of that. But that's what we're thinking about there.

Understood. And I guess just switching to loan growth, just wanted to, one, get your sense -- I believe, Kessel, you mentioned the $75 million in paydown in C&I lines of credit. Just would love to get your thoughts around, do you expect to rebound there? And just overall, your outlook for C&I growth as we think in the fourth quarter into 2018.

Yes. Ebrahim, I'll let Kevin take most of that. But that's 2 quarters in a row we've had declines in utilization. We feel good about our pipelines going into the fourth quarter and hopefully a rebound in utilization. But Kevin has a little more color on that. So I'll let him speak to that.

Yes, Ebrahim. This is Kevin. Say, that was a lot of utilization that was -- that's been kind of bothering us the last 2 to 3 quarters. Our expectation for the fourth quarter is maybe that's bottomed out a little bit and we think kind of going forward. Usually, we get some seasonality lift in the fourth quarter anyway. That's been several years in a row. So we don't expect to kind of -- maybe that at least flattens out or bottoms out on that this coming quarter. We're off to a decent start already. We had good growth, and we'll continue good growth in senior housing. We've had ABL, and as Kessel mentioned, our premium insurance has grown as well. We had small business and community bank grow this quarter. The something that's been sort of flat to down the last few quarters, and it seems to be getting momentum going into the fourth quarter, end of the year. So I think we'll be within our targets, as we stated in our guidance. And I think this quarter was just -- again, you got a -- you had the held-for-sale move, which was -- half of that was in the C&I book, some of these older C&I owner occupied that won't repeat itself; the utilization; and then a lot of momentum in some of those other areas. So we thought C&I is going to pick up fourth quarter and moving into next year. We're optimistic there.

And just following up on loan growth, the lending partnerships seem to be growing very, very strongly. Do we still want to cap it at 4% of earning assets? Or do we see that number going higher over the next few quarters?

We've been real pleased with what we've seen from a credit quality, from a return there. We actually went -- we sort of guided it in 3%. We went through that in this last quarter. We felt, with the liquidity that we had through the Cabela's transaction, that we actually did a little bit more in that area than we have in previous quarters. So we're in that 3 and -- a little over 3.5%, I think, right now. But we see that as -- and we'll evaluate that quarter-to-quarter, and -- but what we've seen so far, we'll probably continue with that momentum. I can see maybe sometime next -- maybe next year, that being sort of a mid-single-digits mark for us in our portfolios. So again, we'll evaluate that and keep you up-to-date, but we're optimistic there as well that we'll continue to grow those areas. As part of our consumer strategy, as we've mentioned over the last few years, we have wanted consumer to be a much bigger part of the balance sheet than it had previously. And I think we're up to around 22% now, and we were at 15%, 16% just 4 or 5 years ago. So that and a strong mortgage franchise has helped get us there at this point.

Our next question today is coming from Tyler Stafford.

Tyler Stafford from Stephens. First one for me, just on expenses, just a clarification question in terms of your outlook for the year. And I'm looking at Page 42 in your slide deck. It looks like the expense range for 2017 with the 2% to 4% expense growth is on the 2016 GAAP expense base. So that $771 million to $786 million range is a GAAP expense number, which I think would imply a nice stepdown in the 4Q adjusted expenses. And I just want to make sure I'm thinking about that correctly.

So Tyler, this is Kevin Blair. I'll take that. So when you're looking at Slide 42, I think the most important thing is to note just where we are. We are using the GAAP numbers, so it's total reported. And ensuring that everyone backs out what we consider to be the 3 transactions that were associated with the balance sheet restructuring: the $7.1 million in ORE, the $1.7 million in facilities marks and then the anticipated $25 million cost for the redemption of the security. So if you back into that number, that would suggest that for the year in the fourth quarter, we would have a number from a stated standpoint, from a GAAP standpoint that would be somewhere in the $195 million to $200 million range, which would put us, as we -- as Kessel said, towards the higher end of our stated range.

Okay, got it, and that clears it up. And then just secondly, you mentioned the lower provisioning going forward given the restructuring you did this quarter. Can you give us any framework to think about the benefit to the provision line item that you'd expect to see? And could you -- Kevin, could you -- could we expect to see any allowance release going forward as a result?

This is Kevin Howard. I'll walk you through that. I mean, I think in the fourth quarter, we're not giving really any specific guidance on the quarter. We do expect it's likely our provision will be lower than the third quarter. Obviously, with the actions we took in the held-for-sale activities, we won't have that drag on our provision that had been there for a few quarters. So we do expect that to be a little better. As far as 2018, I mean, we had expected an increasing provision primarily due to less recoveries, expected loan growth, potential increase in the loan loss reserve and really an expected normalization of credit costs associated with this -- with all the consumer loan growth we've had over the last few years as that sort of normalizes. I will say, I think now with the liquidation of most of our ORE and movement of so many loans to held for sale, I think that'll help offset that. Then I think that increase could be maybe just modest maybe but not as much as I think we anticipated. I'll go ahead and just kind of tell you what we're thinking of charge-offs as well. Our early thought on '18 is we originally expected to see an increase in charge-offs. We sort of teed that up, I think, again, with sort of cleaning up some of the older drag-owned credit calls, thinking more like '17, stay in that 15 to 20 basis points. The loan loss ratio, kind of assuming a credit environment that doesn't change, is more likely to be now flat, maybe slightly down, but I'll guide flat there. And of course, that is how we see it today, and we'll probably guide more specific in '18 on a later date as we -- maybe in the next earnings call.

Our next question today is coming from Brad Milsaps.

Sandler O'Neill. Hey, Kessel, obviously not surprised that you guys used some of the gain to clean up some credit this quarter, but maybe a little surprised at maybe the severity of the haircut that you took on some of the loans to move out, particularly considering it looks like it came mostly out of the owner-occupied CRE bucket as well as the consumer mortgages. Just kind of curious what -- was it just, hey, we could be more aggressive because we had the gain? Or did you clear yourself out of some segment that was really problematic at this point in the cycle that kind of -- sort of drove that kind of larger severity there?

Yes. We'll tag-team it. I think it was not cycle driven. At any time you decide to accelerate and move things in a little more rapid fashion, the haircut it's going to get us a little more. Kevin, you can talk about the specific asset class there that was in that -- in those loans.

It was no question a lot of older real estate that we had been difficult to move, and we've been real efficient about moving assets. We haven't done a big bulk sale in 2012. We've always expect -- we've always said we wanted to be efficient with that and not get in a hurry and work it down over time. The -- we were going to be opportunistic about -- this opportunity with the transaction obviously made us think about the next few quarters and what we've been selling and just sort of really almost clean up the old assets left in the recession. And it was a lot of community owner occupied, but there was a lot of older buildings that we've owned for a long time. There was a lot of land in development in there as well. And it was an opportunity. And it's not only the costs associated with marking those down, and -- but it's also all the soft cost that goes with it. It's the paying taxes. It's the mowing the grass. It's the maintenance, the ordering appraisals every quarter that we have to do to mark those assets and make sure they're valued appropriately. And we just wanted to be more aggressive, kind of look out over the next few quarters, talk about what we thought we would sell and just go ahead and get that to a value that we felt would clean that up. And we plan to move most or all of those assets over the next -- over either this quarter or the next quarter. We won't get in a big hurry there, but I can see with their mark that we could move them much quicker. So that's our thoughts on that.

Okay, that's helpful. And maybe just one follow-up on your accretion guidance related to the transaction -- all the transactions you undertook this quarter with the repositioning and the gain and the NPA sale, et cetera. Is that accretion incrementally on top of maybe what folks have already assumed? Or is that sort of your view of the transaction in totality? Just trying to get a sense of that. Is that 5% number on top of kind of what might already be assumed out there?

No, Brad, it's hard to say what -- this is Kevin Blair. It's hard to say what each person would assume in their consensus. So our 5% is off our internal forecast. I will tell you, though, that in general, total consensus is not far off from our forecast. And I want to break down that 5% just so that everybody has clarity around that. We've already talked about the debt extinguishment and the ability to benefit from the range of $12 million to $14 million just by replacing that with cheaper debt. We've already executed on the bond portfolio repositioning, and Kessel mentioned that in his talking points. But we're able to reposition a little less than $500 million and pick up 80 basis points on those bonds. Kevin talked about the reduction in provision that we'll see next year and being able to maintain charge-offs in that 15 to 20 basis point range and keeping the reserve fairly flat. And then he also noted that we would be able to save some other operating expenses associated with the OREO -- or the ORE properties. So when you add up those 3 segments or those 4 components, that's how we get to the 5%. And I really can't speak to what others have put in there. It's incremental to what we had in 2018.

And just to be clear, you said that your forecast was pretty close to kind of where numbers where, and so this could be incremental?

Yes. I mean, again, I'm trying to pick [apart the pieces of] that. But yes, I mean, it's -- I think we're all in the same ballpark.

Our next question today is coming from Jennifer Demba.

Kevin, just a follow-up question on asset quality. Could you just talk about the composition of the rest of the nonperforming loans, $97 million or so, in terms of granularity, your composition? Can you just give us some rough idea of what's left?

Yes. I think it's probably about half of it or a little more than half is in the C&I space. It's a lot of smaller business. And I think that some loans we can work through without the disposition. The disposition is sort of a last resort, quite frankly. And we sort of left -- what was left was things we felt that there certainly could be some pain in there but things we could have more likelihood to work out without going to disposition. So right now, it's about actually 2/3 is in the C&I bucket, only about $11 million left in the real estate and about $20 million, $25 million in the consumer, which most of that is some mortgages that, that might go the disposition route. But most of the others are things we think we'll work through without having to do that. And that's something -- that's our desire, is to try to work with the customer and work them through tough times and not having the last resort of going to the disposition side.

Our next question today is coming from Brady Gailey.

With KBW. So you all did a good job of laying out all the different balance sheet restructuring actions that you took in the fourth quarter and those that, going forward, you still have some loans in OREO you want to sell as a part of this. But is there anything else on the action list to do from a balance sheet restructuring point of view? Or has it all pretty much been done?

Well, what we plan to do is done, Brady. But it is a constant evaluation quarter-to-quarter in terms of opportunities, whether it's branch rationalization or other corporate real estate activities. So there's no holdback this quarter, but it's an ongoing evaluation process. But I think the bulk of what you would expect were reflected in this quarter, again, not just because we have the ability to do it. We thought it was the right economic decision given our forward view on activities here. So again, it's a constant evaluation process, but you've seen the bulk of it.

And just to add, the $25 million in debt obviously will happen next quarter, but we've stated that obviously.

No, okay. And then, Kevin, on the margin, as we look to fourth quarter, it seems like we're going to have a couple of moving parts in both directions, with the bond yield going up a little bit and the debt payoff but then also the dilution from the deposits and the cash. So how should we think about the margin in the fourth quarter? I mean, is the right way to think about it is it should be pretty stable here at the 3.63% level?

Yes. What we've said is it's a stable margin. I think Kessel alluded to that in his talking points. You're spot on in what's in the components. We're going to get a benefit from paying off the debt. There's going to be a little bit of a dilution that happens just as a result of bringing on that cash. But we want to be -- the velocity of being able to use that cash, I mentioned earlier paying off the $500 million of maturity in brokered CDs, we also have some FHLB wholesale funding that we can also eliminate. So we're going to be as expedient as we can in deploying the cash and get the benefit. We haven't talked about a rate hike in December. But obviously, if we get a mid-December rate hike, we'll start to see LIBOR rates move sooner so we could get a basis point on that if that would happen. So I would think about it as a stable fourth quarter margin.

Our next question today is coming from Michael Rose.

Yes, Raymond James. Just wanted to get your thoughts on capital and buybacks beyond this year. I think most of us assume you'll finish out the program. The DTA obviously is continuing to wind down, but your capital levels are still pretty strong. So given where you're trading, I mean, should we expect continued buybacks as we move into 2018 and beyond?

Michael, this is Kevin Blair. The way I would think about it is that our payout ratio is -- as we've had this year, is in the mid-70% range. I think that's a comfortable level for us going forward. And as we look to produce a capital plan for our regulators and also that we'll share with the investors in the first quarter of next year, I would anticipate continuing to have share repurchase as one of the levers we have to manage capital. We've been very clear that we want to make sure that we use our capital first and foremost on organic growth, which means that we want to continue to fund the loan business both on the community, corporate, FMS and retail side of the house. But as we have additional capital, and we've been clear where we think we have additional capital, we would continue to use share repurchase as a way to distribute that capital back to the shareholder.

Our next question today is coming from John Pancari.

Evercore ISI. Okay, so just given the color that you gave us around expenses, could you just help give a little bit of thought around how the efficiency ratio could stack up for the quarter as well as how you're thinking about the trajectory of the ratio as you move through '18?

John, this is Kevin Blair. We obviously expect the efficiency ratio to continue to decline. We feel like the revenue growth that we have, we've noted the positive operating leverage of having the revenue growth in excess of the low teens and expense growth in the 4% to 5% range, so we expect efficiency ratio to continue to decline. We'll give more guidance as we enter '18 in terms of what our next year goal will be on efficiency ratio. But we see no path forward that doesn't include continuing to maintain a level of positive operating leverage, which should mean that the efficiency ratio continues to decline. At what pace will be determined at how fast revenue is growing and how fast rates are being changed from a tightening perspective. But we continue to see a path forward of a lower efficiency ratio.

All right, Kevin. And then I got on the call late, so sorry if I missed it. But in terms of -- I heard your margin commentary for next quarter in terms of stable. How are you thinking about the trajectory beyond that? I know you didn't formally give guidance for '18 yet, but just trying to think about how the dynamics all play out in terms of eventual upward pressure on deposit costs but also the benefit of higher rates. And then did you comment yet at all on your expectation for deposit betas?

No. It's a good question. So look, on Slide 17, we give our asset sensitivity positioning. And what we would say is that moving forward, even in a plus 100, we have close to 4% upside in NII. And so even modeling in much more what I would consider aggressive betas, and then that's near yet where we're modeling close to a 60 to 65 beta, we're still seeing continued expansion of the margin and growth in NII. As we look into next year, we've talked a little bit about the impacts of the Cabela's transaction. We talked about the benefit from the bond repositioning that we undertook in third quarter. We've talked about the debt extinguishment. That's going to give us somewhere around $14 million to $18 million of additional NII just from those transactions. So that should create a little bit of accretion into the NIM. But it's really going to be for next year as we give the guidance. We'll give guidance without rate hikes. Again, not knowing whether that's going to occur or not, we still think there's upside to that. But you've nailed the one criteria that will determine how much it is, and it's deposit betas. On Slide 17, for the next 25 rate hike, we actually have increased the deposit betas closer to 40% versus the low single teens that we had -- or the low teens that we had this past quarter. So we do expect the incremental benefit from each rate hike to diminish a bit.

Our next question today is coming from Jared Shaw.

Jared Shaw with Wells Fargo Securities. Just following up on the commercial loan growth trends, can you tell us what the utilization rate moved to and what you're expecting as a normal utilization rate? And are you surprised that the commercial growth has been as low as it has been? Or is that not really a surprise for you?

This is Kevin. I'll take that. On the utilization rate, we were in around the 43%, 44% range. For us, we've normally -- and it can be -- every bank, the composition of their C&I portfolio can be different. Ours is -- we typically like -- are in the mid to upper 40s. And that's a big number if it moves down. I think it's moved down 2%, 2.5%, close to there, during the year. And that's about a 3, 4 -- $3.5 billion, $4 billion working capital, that size. When we talk about utilizations, our existing customers that are with us at the beginning of the quarter and the end of the quarter, and that's the -- what we're kind of alluding to, and that's been down. We felt this year, going into the year, quite frankly, that, that might be at least par or a little bit up. We can speculate. We've talked to a lot of our -- it's a little bit of that -- the same story, wait and see. Some of it is customers using cash. Their balance sheets are stronger. They're using cash versus debt in some places. There are some of us -- talking to one of our line leaders this morning, there's -- a lot of people have generated capital and, again -- and are paying down debt, whether it be in capital cash, whatever they're using. So anyway, that's been down a little bit. We do think that sort of picks back up or at least bottoms out, so we hope so. That might be one surprise we've had. Clearly, on the other side is we had an abnormal amount of payoffs on the CRE side this quarter. Some of that drop was -- that was close to $200 million of a decline. That's unusual. I suppose some of that attributed to the held-for-sale actions we took. A lot of it was the investment real estate. We kind of felt that would be closer to breakeven. We have, sort of by self-selection, moved -- our shopping centers have sort of been declining there by our choice. But on the multifamily side, we normally average probably, in a given quarter -- I was talking to my real estate team yesterday, $75 million to $100 million in payoffs. It's a highly liquid portfolio. We underwrite to pay off. It was over $200 million this quarter. And that put a decline in multifamily of close to $90 million. That contributed probably as much as anything to our investment real estate, which is usually a little bit positive on that growth. It was down this quarter. I don't think -- I don't see that repeating itself on a regular basis. I think it was a timing issue on the CRE side. I'm not saying we're going to be growing it robustly, but our kind of mission there is to kind of stay even, and there was a pretty significant decline this quarter. So I kind of attribute this quarter in a timing quarter, and again, we're just -- things we're seeing and discussing with our lines of businesses, that we see a pretty good quarter coming our way in loan growth. And that's our outlook right now moving into next year.

Okay. And then -- and I'm sorry if I missed this in what you'd said. But when you look at the loans, the remaining loans that you think could still be restructured, have you already taken a credit mark on those? Or would that occur as you actually get a market price and sell them?

You're talking about the loans, Jared, that are moved into held for sale?

Well, yes, I guess. Or does the held-for-sale balance reflect ultimately everything that would be sold? Or is there still going to be more transitions? So I guess it's a 2-part thing. The ones that are already held for sale, have those been marked with an assumed credit mark? And then would there be more moving into held for sale?

Well, there could always be. I mean, we'll have future inflows that we will move and mark as a normal process. What this transaction helped us is really get rid of some of the older ones that have been around a long time, as a lot of older [bid engine needs]. And yes, we've marked those correctly on the held for sale, as we stated.

Our next question today is coming from Emlen Harmon.

JMP Securities. Just on the asset sensitivity, we did see that increase this quarter in your 100 basis point scenario. Does that come in a little bit as you start to reinvest some of the proceeds from Cabela's on the longer end? Or just what were the drivers of the pickup there?

It was just that, Emlen. It was the fact that we brought on that $1.1 billion that was fixed rate that was a little longer than the 2-year duration. So that's what increased the asset sensitivity.

Okay. And you saw that come in a bit as you start to deploy some of those -- some of that liquidity?

So think about it relative to the second quarter where we were roughly at 3.2%, up 100. We're at 3.9% today. I think as we start to deploy some of that, you would see that moderate closer to the 3.2%, obviously the 3.9% being a high watermark.

Got you. And then just one quick one on the -- for your expense outlook. I can see where the midpoint would imply the expenses are down quarter-over-quarter in the fourth quarter. Curious if there's a fair amount of variability in the outlook for the fourth quarter just based on the range that you gave us. How much have kind of hit in the low end versus the high end of that as it related to kind of core versus noncore items? And kind of what could be the drivers of hitting one end or the other?

Are you talking specifically about expenses?

Yes, sorry.

Yes, no. Look, as I said earlier in the call, I think you would expect to have a number somewhere around $195 million to $200 million, which would push us towards that high end of the range. And the drivers to even have a range that large is there's a lot of discretionary expenses that we have on a quarterly basis that would include marketing expenses. Those are the type of items that are probably the most volatile, and that's what will determine where we fall within that range. But as Kessel said in the guidance, we do expect to be towards that higher end of the range.

Our next question today is coming from Steven Alexopoulos.

JPMorgan. I wanted to follow up on the adjusted expenses coming in at the upper end of the 2% to 4% range. Is there something unique to 2017? Why wouldn't expense growth continue at this pace even beyond 2017?

No. It's a good point, and we'll give 2018 guidance. When you think about 2017, there are a lot of items in there that are recurring and some of them that are onetime. We've had some specific expenses related to single bank that were built into this year, Steven, which obviously, as Kessel mentioned, we'll finish the final wave in November. We've also increased some project-related expenses as it relates to our technology enhancements, our ATM networks. So there will be certain things that we'll have this year that may be part of our capital plan that we wouldn't have to do in the future. From a staffing and salary perspective, there were some things that, on a year-over-year basis, have driven up our total expenses, including a 20% increase in employee benefits associated with health care. I'd like to think that going forward that we won't see that type of increase. And so if you and I can walk down each line item. There's kind of give and takes on each one. I would think long term, and we'll give guidance -- we've said in the past, that 2% to 4% range is not as important to us as the operating leverage. And we want to make sure that moving forward that if we have revenue growth of 10%, it allows us to have up to 5% expense growth, so that will allow us to reinvest in our business. If revenue growth is a little lighter than that, then we need to dial back our expense growth to match that to maintain that 2x operating leverage.

That's helpful. And maybe, Kessel, what are your current thoughts on bank M&A here as a tool to improve scale and get further efficiencies?

Yes. Steven, that hasn't really changed. We've said all along our focus was internal and on improving our internal returns and hopefully leading to an increased currency value. We have been very diligent in our process. We've looked at opportunities. And again, we'll highlight the nonbank and Global One, again, a part of a very, very disciplined process, looked at a lot of opportunities to come to that one. And then coming back to the Cabela's transaction, which was not strategic but opportunistic, and we looked at that one as a chance to onboard over $1 billion in deposits at a 14 basis point discount. We could accelerate some balance sheet restructuring activities, the bond portfolio, the loans, ORE, dispose of some corporate real estate. And we come out of it with a stronger balance sheet and a lot more earnings power. So we take that into our consideration as we go into 2018. There'll be opportunities there, but we've said all along we don't have to do a whole bank M&A deal to continue to improve our operating performance, and I think the proof of that is in what we've done. But it doesn't mean we won't look, and it doesn't mean, quite frankly, that others haven't sought us out. But -- so we have the capital to do it. I think we have the horsepower do it. I think we have the regulatory standing to do it, as evidenced by the approval of the Cabela's transaction. But internally, our appetite is the same, that is, if it makes strong strategic and financial sense, we would look at it. If it doesn't, we'll continue to invest in our own people, in people from other banks and in teams of people from other banks. And that's been so far, I think, the right approach, and we'll continue to look at it that way.

That's helpful, Kessel. If I could squeeze one more in. You're not working with much of a tangible book multiple. I hear that you're very selective with M&A deals. But if you were to pursue a deal, how do you think about an acceptable range of tangible book earnback, like a period?

I'll take that, Steven. So what we have said in the past that anything that exceeds 5 years is something that we wouldn't want to look at. And so our currency today is trading at 2x. I mean, obviously, that would limit who we would look at. But there's not a fixed target. Kessel mentioned it, it's a financial equation, but it's also a strategic equation. But we're not going to go out there and do something that's a 5-year-plus earnback and try to convince The Street that it was a good financial transaction.

And Steven, I would just add to that, and even if it was a 3- or 4-year earnback, if we don't think it's a good cultural fit, if we don't think it adds a lot of value, we're not interested in doing a deal just because we can say it was a short earnback or make good financial sense. It's got to make sense on all fronts. And I think that's why we've stayed the course so far, and we'll continue to evaluate opportunities based on kind of the parameters Kevin laid out.

Our next question today is coming from Nancy Bush.

NAB Research. I have a question for you on the acquired brokered CDs. Do these tend to be primarily commercial CDs or retail CDs? Could you just give us a little color on that?

Nancy, they're largely institutional CDs that's coming from other banks and institutional clients. So these are not consumers.

Okay, got you. Secondly, I mean, in this process, you obviously -- I mean, this process took a while. You obviously dealt with Capital One and established a relationship there. Do you see any sort of future opportunities with them?

I wouldn't speak specifically to Cap One, Nancy. And they're a great institution. Our company has a very long history with them. But this most recent transaction was limited to very transaction specific. Again, I think we were pleased that we have standing in the industry both with other companies and regulators to maybe play a part in helping this transaction happen. But again, I wouldn't speak to any future opportunities there, but we certainly like this transaction.

Okay. And if I could just ask, if we could go back to the issue of the assets upon which you took resolution issues this quarter, could we just get a very rough sort of percentage breakdown of sort of what was precrisis and what was postcrisis in that bundle of assets?

We took our best guess as to how we're looking at that vintage the other day, Nancy. This is Kevin. About 2/3 of it was crisis assets, and about 1/3 happened over the last 2, 3, 4 years ago. Very little obviously that's happened over the last year or 2. Those are ones we're trying to work through. But about 2/3 of that.

In the after-crisis assets, was there any sort of common denominator that you can find? I guess we're just sort of looking at, okay, why did this go into the pot?

It was a small number. It would be some small business probably in there, well, I know that's in there, not much real estate because we've had, knock on wood, very little influence coming out of real estate over the last couple of years. And so it's going to be some small business, owner occupied-type properties as well.

Our final question today is coming from Chris Marinac.

FIG Partners in Atlanta. Kessel and Kevin, the adjusted ROA is as strong as it's been in many, many quarters. I'm curious if this measure is something that you're more focused on. And would the trajectory of the ROA be even better in the future quarters?

Yes, Chris. Great question. We have been -- I think we're focused on a lot of other metrics as well. We're pleased to see the improvement in the return on average tangible common equity as well. But the ROA was kind of a rallying point for our team because we were sub-1% for so long. We made it very clear that to get north of 1%, we had to get there, and our team is -- going into 2017 -- when I say our team, our entire team, knew that, that was a nonnegotiable corporate financial goal that everyone can play a part helping us achieve. So that was somewhat of a psychological victory for us when we hit it, but it certainly wasn't an endpoint. We made it very clear that was just not even a pause along the journey, maybe just an "atta boy" along the journey. And pleased to see, again, the adjusted go to 1.05%, and we think that can continue to move. So it is one metric. It's one of many that we and our board look at. And I know, again, you and some of our other investors are looking at a lot of other metrics as well. But again, I'm pleased to see the trajectory there.

We have no further questions in the queue at this time.

All right. Thank you, operator. And thanks to all of you on the call; to our team for executing on the results and allowing us to have this call, and we appreciate that; to all of our shareholders who dialed in; and to all of you who follow us. Again, it was a noisy quarter, it was a busy quarter, but at the end of the day, it was a really good quarter both in terms of core fundamentals and the completion of a transaction that has long-term strategic financial benefit. So we're pleased with it. We're excited about fourth quarter as we finish the year strong and, again, move to this unified Synovus brand in 2018. So thank you all for being on the call. I hope you have a great rest of the day and great rest of the week.

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.