Synovus Financial Corp (SNV) 2019 Q1 法說會逐字稿

Good day, and welcome to the Synovus Financial First Quarter 2019 Earnings Conference Call and Webcast.

(Operator Instructions) Please note, today's event is being recorded.

I would now like to turn the conference over to Steve Adams, Senior Director of Investor Relations and Corporate Development.

Please go ahead, sir.

Thank you, Rocco.

Good morning, everyone.

During the call today, we'll be referencing slides and a 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 get started, 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 the 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 I'll now turn the call over to Kessel Stelling.

Well, thank you, Steve, and good morning to everyone, and welcome to our first quarter 2019 earnings call.

As usual, I'm joined this morning by our Synovus senior leadership team.

I'll walk us through the earnings presentation, and then we'll open the line for questions.

So I'll start in the earnings deck on Slide 3, which provides a high-level summary of our first quarter financial performance.

As we've already reported, we began this quarter by completing the acquisition of FCB on January 1, which had a material impact on this quarter's results.

Diluted EPS was $0.72 for the quarter.

On an adjusted basis, diluted EPS was $0.98, up 7.6% from the previous quarter and up 15.1% from the same period a year ago.

Adjusted EPS excludes $49.7 million in merger-related expenses associated with the FCB acquisition, which impacted EPS by $0.27.

We continued to generate solid balance sheet growth during the quarter with period-end organic loan and deposit growth of $400 million and $424 million, respectively, excluding the impact of acquired balances.

This quarter's results also reflect a higher effective tax rate at 25.2% compared to our full year expectation of 23% to 24%.

The higher effective tax rate is largely due to nondeductible merger-related expenses incurred during the period, other disallowances and increased state taxes.

We also executed our previously announced capital optimization plans this quarter, including the issuance of $300 million in subordinated debt and subsequent share repurchases totaling $320 million or 8.5 million shares.

We continue to benefit from a relatively stable credit environment with the nonperforming asset ratio at 44 basis points.

The impact of the merger on our operating efficiency was evident this quarter, as the adjusted tangible efficiency ratio was 50.24%, down 718 basis points year-over-year, while our other adjusted profitability metrics also showed improvement.

The adjusted return on average assets was 1.45%, up 9 basis points sequentially and year-over-year, while adjusted return on average tangible common equity surpassed our long-term target at 17.52%, up 229 basis points from a year ago.

We're pleased to report that we're ahead of schedule in executing on cost savings related to the FCB acquisition.

And we now expect that cost savings in 2019 will likely exceed $30 million, well ahead of the $20 million we originally modeled.

So moving to Slide 4 and loans.

Total loans increased $9.7 billion during the quarter, which included $9.29 billion of loans acquired through the merger with FCB.

Excluding these acquired loans, period-end loans increased $400.1 million sequentially.

We were pleased to see broad-based loan growth this quarter, with C&I up $56 million, CRE up $151 million and consumer loans up $185 million.

In the consumer category, we continue to see growth in our mortgage and HELOC portfolios, which grew a combined $85 million, while other consumer loans, including our lending partnerships, were up $106 million.

In CRE, growth was evident across several subcategories, including multifamily, shopping centers and other investment properties, while land acquisition, warehouses and 1-4 family perm/mini perm all experienced declines.

We experienced C&I growth both in our legacy Synovus and new South Florida middle market banking teams as well as in our lending specialties, including ABL and insurance premium finance.

These gains were partially offset by a small decline in our senior housing group as well as a seasonal decline in commercial line utilization.

As expected, FCB elevated our growth profile in the first quarter with approximately $214 million in organic growth coming from that team.

The mix within our loan portfolio has shifted slightly as a result of the consolidation with FCB, but it remains in line with the targets indicated in our strategic plan.

C&I loans remain the largest component of our balance sheet, representing 45% of total loans, while CRE and consumer represent 29% and 26%, respectively.

Turning to Slide 5 and deposits.

Total period-end deposits increased $11.35 billion or 43%.

This increase included $10.93 billion in acquired balances associated with FCB.

Excluding those acquired balances, total deposits grew $424 million sequentially.

The growth was driven largely by the continued market preference for CDs, which increased nearly $615 million and now represent approximately 20% of our deposit base after the consolidation with FCB.

DDAs, including both interest- and noninterest-bearing deposits, increased $77 million, while savings and money market balances declined $170 million.

Brokered deposits also declined $99 million during the quarter and represented 7.1% of total deposits at period end.

We did experience a small seasonal decline in noninterest-bearing deposits during the first quarter, but our underlying account growth trends remain very positive.

As of quarter end, our loan-to-deposit ratio was 93.6%, down from 97.1% at the end of the prior quarter and demonstrated that we remain well positioned from a liquidity standpoint to continue managing the balance sheet prudently in the midst of competitive deposit market.

Moving to Slide 6. Net interest income was $397 million, increasing $99 million or 33% versus previous quarter and $123 million or 45% versus the first quarter of '18.

The increase this quarter was largely due to the FCB acquisition.

The net interest margin for the quarter, including the impact of purchase accounting accretion, was 3.78%, down 14 basis points from the previous quarter.

Net interest income and margin were favorably impacted by $7.4 million of loan accretion and $11 million of deposit premium amortization.

Excluding the impact of purchase accounting adjustments, the core net interest margin was 3.59%.

As we indicated last quarter, there are a number of factors that we expected would lead to a reduction in the core net interest margin.

These include the FCB merger, the issuance of subordinated debt during the quarter and the continued mix shift in the market to CDs and other interest-bearing funding sources.

The net interest margin decline for the quarter included an 11 basis point increase in earning asset yields and a 25 basis point increase in the effective cost of funds.

Turning to Slide 7 and fee income.

Total noninterest income for the quarter was $79.4 million, up $11.4 million versus the prior quarter and $12.3 million versus the same period a year ago.

Noninterest income in the quarter included a favorable fair value mark to private equity investments of $858,000 compared to an unfavorable $2.1 million in the previous quarter.

Adjusted noninterest income of $78.4 million increased $8.4 million compared to the fourth quarter.

The growth in adjusted noninterest income this quarter was largely attributed to FCB, which provided $7.3 million of the $8.4 million sequential increase.

Core banking fees of $36.8 million were essentially flat from last quarter, including $1.8 million additional income from FCB.

Excluding FCB, core banking fees were negatively impacted by seasonally lower service charges and card fees as well as lower levels of SBA gains this quarter compared to the prior quarter.

Fiduciary/asset management, brokerage and insurance revenues of $24.5 million were also flat sequentially and increased $1.1 million or 4.8% from a year ago.

We continue to be pleased with the steady growth in our brokerage and trust businesses as assets under management grew in the first quarter to $14.95 billion, up 5.7% over the same period last year.

The addition of FCB had no impact on our reported results in this category, and we remain focused on aggressively adding talent that will help us capitalize on the significant market opportunity that exists in South Florida.

Mortgage revenues of $5 million were up $1.3 million or 34% sequentially, including $204,000 from FCB.

Mortgage revenue during the quarter was driven by strong secondary market activity and continued growth in our MLO base, which is up year-over-year by 10%.

Additionally, our new digital mortgage application tool has helped drive a 35% increase in total submitted applications year-over-year, with the percentage of applications submitted online increasing from 12% a year ago to over 50% currently.

Finally, other income of $13.1 million increased $10.3 million sequentially, including $5.3 million attributed to FCB largely in the areas of swap fee income and BOLI income.

Turning to Slide 8. Total noninterest expense was $292.4 million.

As I mentioned earlier, there were significant merger-related expenses totaling $49.7 million during the quarter.

On an adjusted basis, noninterest expense of $242.7 million increased $36.3 million or 17.6% versus the fourth quarter of '18.

The growth in noninterest expense from FCB was $26.8 million.

Other expenses driving the sequential increase in quarterly noninterest expense included a seasonal increase in employment taxes and 401(k) expense as well as an increase in the amortization of intangibles of $3.1 million.

As I mentioned earlier, acquisition-related cost savings were running ahead of our initial estimates.

As we progress through the rest of this year, it's likely that the total cost savings realized in 2019 will exceed $30 million.

Our continued focus on maintaining expense discipline and positive operating leverage throughout the merger and integration is clearly paying off with an adjusted tangible efficiency ratio of 50.24% for the quarter compared to 55.98% the prior quarter and 57.42% a year ago, an improvement of 718 basis points year-over-year.

Turning to Slide 9 and credit quality.

You'll see that our credit quality metrics remain stable with NPAs flat at 44 basis points, NPL down slightly to 40 basis points and past dues at a healthy 25 basis points.

Additionally, loans past due 90 days and more remain at an insignificant level.

The graph at the top right shows that net charge-offs increased from $13 million to $17.1 million, while the annualized net charge-off ratio was 19 basis points.

The increase in charge-offs was primarily attributable to a higher level of recoveries in the prior quarter with gross charge-off remaining in line with last quarter's level.

On the bottom left, you'll notice that provision expense increased from $12.1 million to $23.6 million.

There are a few drivers of this increase I'll touch on.

During the quarter, we experienced an accelerated rate of new and renewed loan production with the addition of FCB.

We increased the loan loss reserve and experienced a lower level of recoveries and upgrades compared to previous quarters in 2018.

The underlying strength of our portfolio is evident in our credit metrics, including the NPA, NPL and past due trends that you see on this page, as well as our special mention and substandard accruing loan ratios, which you can find on Page 22 in the appendix.

Accordingly, we expect provision expense for the remainder of the year to be primarily a function of charge-offs, growth in funded production and maintaining the reserve at or near its current level.

On the bottom right, you'll see that the reserve increased by $6.4 million compared to last quarter.

The ratio, however, is lower at 0.72% compared to 0.97% last quarter due to the FCB purchase accounting.

The reserve continues to cover NPLs over 2x or if you exclude NPLs where the expected loss has been charged off, the reserve covers NPLs almost 3x.

Moving to the capital on Slide 10.

Our capital ratios remain strong following the acquisition and continue to be well above regulatory requirements.

On January 1, we closed the merger with FCB with consideration of $1.6 billion in common stock.

Subsequent to the merger, our regulatory capital ratios did come down as we executed on a capital optimization strategy that includes significant common stock repurchases as part of our $400 million authorization for 2019.

In total, we repurchased 8.5 million shares totaling $320 million, reducing our share count by 7.3% from January 1, 2019.

The share repurchase activity was largely funded by a public offering of $300 million in Tier 2 qualifying fixed-to-fixed subordinated notes priced at 5.90%, which closed on February 7.

As a result of these activities, our CET1 and total risk-based capital ratios declined to 9.44% and 11.98%, respectively, at quarter end.

While these levels are lower than they were last quarter, they remain well within our desired operating ranges for 2019, and we expect them to continue to increase slightly throughout the year.

So turning to Slide 11.

As most of you know, we completed the merger with Florida Community Bank on January 1. And the transition of FCB's systems, customers, branches and branding to Synovus is on track to conclude in just 13 days on Monday, May 6. When we announced the acquisition last summer, we noted FCB's strong sales culture, capabilities and commitment to service.

Everything we've seen thus far has validated this observation, including the seamless alignment of our teams into a consistent operating model and the successful efforts to retain key customers and team members.

I, along with many others from our leadership team, have spent a considerable amount of time throughout Florida over the past weeks and months visiting team members, customers; attending sales meetings, training sessions; visiting branches in other locations.

And the enthusiasm and the excitement and the commitment of that team is very evident, both to me and to others.

We've also noted that the addition of FCB would elevate our growth profile.

As you can see in the upper-right corner of this slide, this was certainly evident in the first quarter as FCB contributed $214 million or 53% of our organic loan growth, providing significant upside to our first quarter growth rate relative to the prior year.

Transition communications with FCB customers took place in the first quarter, and team member training on everything from product sales and productivity to benefits and procurement will conclude in the next few days.

Last week, we announced the addition of a well-respected and highly established private wealth team in South Florida.

And we brought on a number of private wealth professionals, both in legacy Synovus and FCB markets in the state.

As noted in the lower right-hand corner of the slide, we're rapidly approaching completion of all branding and infrastructure transitions, including a substantial upgrade of the ATM fleet for Florida customers, which will introduce new capabilities and functionality that are consistent with the Synovus experience.

From a financial standpoint, we've realized accelerated cost savings, and we're already seeing substantial opportunity for revenue synergies, especially in the areas of wealth management, capital markets and community banking.

We remain convinced that the acquisition's financial benefits will exceed the originally stated targets of 6.5% EPS accretion, 17-plus percent ROATCE and IRR of 17%.

And finally, as we've previously communicated, Kent Ellert announced his decision to retire at the end of 2019.

We could not be more grateful to Kent for his leadership throughout the transition and for his deep commitment to seeing it through.

From the outset, he's been a stabilizing force in getting legacy FCB team members, customers, investors and supporters on board and excited about the relationship and the potential of our combined companies.

From now until his official retirement at year-end, he'll be focused on helping the Florida team drive organic growth and retain key business.

And after retirement, he'll continue to serve in an advisory capacity with us through the end of 2021.

Turning to Slide 12.

Slide 12 outlines the guidance for 2019 that we provided on our call last quarter and which remains largely unchanged today.

There continues to be global economic uncertainty on the horizon, but our team remains focused on executing against our strategic priorities, which we believe will ultimately drive us to achieve our stated financial objectives.

From a balance sheet perspective, while the first quarter was impacted by typical seasonal patterns, we remain confident in our ability to deliver on our target of 5.5% to 7.5% growth in both loans and deposits in 2019.

While our ability to grow earning assets and acquire new customers remains on track, we know that the current interest rate environment makes it more difficult to grow revenue through margin expansion.

Given the benefit of purchase accounting accretion in 2019 and continued solid results in our fee income businesses, our revenue guidance remains unchanged for 2019.

However, due to the current rate environment, a full quarter of higher funding cost from the subordinated debt issue and continued mix shift into CD funding, we do expect to experience moderate compression in our core margin over the remainder of this year.

Kevin can provide more color on the puts and takes of the margin in Q&A.

We renew our expectations that total noninterest expense will increase between 2% to 4% for the year.

As we continue to generate additional efficiency from the merger, we'll also deploy a portion of the savings into new investments in talent and resources that will drive additional revenue growth.

While our current effective tax rate of 25.2% is above the guidance of 23% to 24% set for the year, we continue to plan for and execute on a number of tax strategies that will drive a lower effective tax rate over the second half of the year.

As a result, we expect the effective tax rate for the full year will be within our stated range.

We remain confident that our portfolio is well positioned for the next downturn, regardless of when that might occur.

We're not seeing any material deterioration in credit quality metrics today, with NPLs and NPAs expected to remain relatively flat for the year.

For the full year, we maintain an expectation for a net charge-off ratio in the 15 to 20 basis point range.

Our final purchase accounting adjustments related to the FCB loan portfolio were right in line with our expectations, and we believe the mark on that portfolio is more than sufficient to cover expected losses.

As we announced last quarter, our expectation for 2019 was to complete share repurchases in the range of $300 million to $350 million.

As we reported this morning, we've largely fulfilled this goal with total share repurchases to date of $320 million.

The size and timing of any additional repurchases in 2019 will continue to be situational and dependent primarily on the level of organic business growth, alternative uses of capital and customary regulatory approval.

So before we open the line for questions, as always, I really do want to acknowledge the hard work of our team in driving through a busy quarter and, once again, delivering solid results in the midst of product launches, FCB integration work, talent realignments and other labor-intensive tasks that could have very easily caused distractions and fatigue.

Our team also remain fully committed to the core growth, leveraging our strong reputation as a relationship-centric, locally present bank to expand existing and attract new customers.

During the first quarter, we also introduced a refreshed 3-year growth plan that's built around 6 core strategies: expanding sources of growth; building high-performing teams; differentiating the customer experience; transforming our digital capabilities; leveraging data as an asset; and modernizing our core bank to create efficiency, scale and speed.

The process of communicating and educating our team about where we're going and the role they play in our future success has been energizing to all.

We've been able to clearly point to the tactics already deployed this year and those now underway that will support our direction and continue to prove us -- move us closer to meeting our short- and long-term objectives, such as our new private wealth talent additions in South and Central Florida as well as our continued and aggressive recruiting of strong talent across all of our geographies and lines of business; disruptions in our markets and industry, our local relationship approach and our strong reputation and brand are opening doors for us to top talent that can further differentiate our level of service to customers and prospects; culmination of our merger with FCB in early May and already realizing the potential of our combined team; more strategically aligning our lines of business to foster stronger partnerships that can better serve our customers; piloting and launching key components of our more highly personal mass-affluent offerings with plans for the gradual release of more features throughout the year; continued investments in transforming our digital capabilities and the early success we've seen from our launch of the new mobile and online banking and online mortgage application experience; the intentional and increased activity to ensure that we provide an inclusive and diverse work environment for our team; and the community outreach that stirs the heart of our team, including our April Here Matters initiative, is fostering outreach efforts in nearly every single market across our footprint throughout the month.

These are just a few of the proof points behind our road map to becoming a more competitive, high-performing bank.

And we're all excited about the continued progress that we'll share with you throughout the year.

So with that, operator, we'll now open the floor for questions.

(Operator Instructions) And today's first question comes from Ebrahim Poonawala of BofA.

So I guess first question for Kevin around just the outlook for the core and the GAAP margin.

Would appreciate if you could put a little bit of framework around the pressure that Kessel alluded to in his comments around margin outlook going into 2Q and for the rest of the year and just touch on the GAAP margin with the accretable yield.

Yes, Ebrahim, I think where it makes sense to start is let's just start for the quarter, so it gives you a better baseline for what happened this past quarter.

As Kessel mentioned, our core margin declined 33 basis points for the quarter.

Roughly 26 basis points of that decline was a result of the merger math as well as the remixing of the securities portfolio.

So that comprised 26 basis points of the change.

We had 3 basis point reduction quarter-over-quarter.

That was a function of the issuance of the Tier 2 qualifying sub debt.

And then we had another 4 basis points of compression during the quarter, and let me just provide a little bit of color on that 4 basis points.

As you recall, back in fourth quarter, we saw our interest-bearing deposits, the cost of those increased 14 basis points.

This quarter, despite the shift in CDs, we only saw that cost of interest-bearing deposits increase 13 basis points.

So it was actually 1 basis point below what it would've been the previous quarter.

However, as you're also aware, the change in LIBOR this quarter was only 15 basis points versus the 25 basis points that we had the previous quarter, which resulted in about 5 basis points lower accretion on the loan yield side.

So that makes up for the 1 basis point lower on interest-bearing deposits, but also 5 basis points lower on the yield on loans.

That's the 4 basis points we saw a contraction this quarter.

Now with the transition and what that means for the rest of the year, this quarter and second quarter, we will see additional compression associated with the sub debt just given the fact that we didn't see the full quarter impact.

That should be roughly 1.5 points.

We largely offset that 1.5 points with additional accretion on the earning asset side largely coming out of the securities book, but we will continue to see a bit of a headwind on the repricing of our interest-bearing deposits.

Similar to this past quarter, the shift in CDs as well as the pricing of CDs resulted in the increase.

We'll see another 5 to 6 basis points of repricing on interest-bearing deposits in the second quarter and then potentially another 2 to 3 basis points in the third quarter.

Post those 2 quarters and the rightsizing of the CD pricing that is occurring, we expect the margin to be stable thereafter.

And so the core margin could see compression of another 7 to 9 basis points from the current levels.

Now as it relates to PAA, we did have 19 basis points for the quarter.

We expect that to be fairly stable for the rest of the year.

But as net interest income grows, we expect a range of PAA between 15 and 20 basis points.

So when you take your core margin and add that back, I think you'll see that the total margin would still be in the 3.70-plus range.

Hopefully, that's very detailed and helpful.

That's very detailed.

And just moving to a separate topic on expenses.

When looking at the adjusted expenses for the quarter at $243 million, the FCB expense savings seem to be running ahead of sort of, at least, my expectations.

Can you talk about the $27 million in expenses tied to FCB?

Like what -- where they bottom out?

Or if you just want to talk about the $253 million expense run rate and what the outlook is for that, either of those.

Yes.

It's hard to talk about the $27 million because that baseline will continue to decline throughout the year.

But as we've been very clear, we'll be adding new expenses back into their P&L associated with the build-out of our community bank and our brokerage platform.

So as Kessel mentioned in the talking points, we do expect the total expenses that we'll be able to save this year to exceed $30 million.

As it relates to our total number, and again, remember that we guided on a tangible expense basis, and so the $240 million or $239 million that would have been the actual for the quarter, we do expect that number to increase for the rest of the year.

You should expect to see a tangible expense number on a quarterly basis somewhere around the $247 million to $250 million range.

And that's a function of a couple of different things: some seasonality as it relates to some of the projects that we're doing, both from a digital and technical standpoint; also adding new talent in our South Florida franchise; but also we will have the merit increase that comes into effect in the middle of this year, which will also drive up total expenses.

So the $240 million that you saw this quarter will increase for the final 3 quarters.

But we will continue to be within our range, and we expect to be in the lower end of that stated range that we gave for the year.

And the next question today comes from Ken Zerbe of Morgan Stanley.

I guess maybe just the provision, a small question here, but the provision obviously came a little bit higher.

I see your NCO guidance didn't change, and your expectations of the provision is going to be a function of charge-offs and obviously loan production, et cetera.

My question is really, could we see provision staying in the $20 million range?

Or was there anything else unusual in there that would drop it back down to sort of the sub-$20 million range?

So Ken, this is Kevin.

I'll take that.

Kessel's comments are spot on.

If you just take the roll math of 17.5 basis points for the year, it would largely fund that roughly $16 million per quarter.

As you say around variability, the level of charge-offs itself would obviously drive the level of provision.

But let's just assume it comes in the middle of the range, that's roughly $16 million.

And then growth, if you look at our growth targets for the year, it would call for it to be in the middle of our range, somewhere around $2 billion worth of growth in the final 3 quarters.

So if you funded that production with a 100 basis point provision, it could add $600,000, $700,000 -- or I'm sorry, $6 million or $7 million per quarter in provision.

So all else held constant, you would see a provision in that $20 million-plus range.

Now the other wild card here is recoveries.

You heard Kessel mention that, that we've had stronger recoveries in the previous year, so that could come into play as well.

But on a baseline provision, the $20 million number is pretty much down the middle.

Got you.

Okay.

That helps.

And then just in terms of the CDs, obviously, the $600 million that you guys brought on in the quarter, I understand that CD growth is a part of your core NIM compression.

What rates are you paying?

Like during the quarter, what rate did you bring on this $600 million of CDs?

And is that kind of the same rate where you would expect to be paying over the next couple of quarters?

Yes, it's a really good question, Ken.

The quarterly production for new CDs of the combined organization was right at $220 million, and the average portfolio rate on our CD book is right at $201 million.

So you could see that's what's driving the compression of the margin.

As we look forward, and look, we were very pleased with the level of liquidity we were able to raise in the first quarter, and that puts us in a very strong position the rest of the year, so we can be a little more selective around pricing on our promotional rates.

And so we expect that $220 million number to come in a little bit for the final 3 quarters, and that will reduce the gap between the new pricings and what's rolling off and where the portfolio is.

And that's the function of the NIM compression I mentioned to Ebrahim where we're up 13 basis points this quarter and will drop to 5 to 6 and then 2 to 3, that's just the equilibrium of that portfolio rate equaling our production rate over the next 2 quarters.

And the next question today comes from Brady Gailey of KBW.

So the buyback was notable this quarter.

I mean, you did $320 million and that's relative to your guidance of $300 million to $350 million, and we're only 90 days in.

I mean how should we think about the likelihood of you all doing notably more buybacks beyond the $300 million to $350 million this year?

Brady, it's also a very good question.

Kessel mentioned the repurchase will be situational from this point forward.

Obviously, we will evaluate our organic loan growth for the rest of this year.

We'll also look at parent liquidity, which, obviously, we had.

And we'll monitor our capital ratios.

As Kessel mentioned, just looking at our earnings potential for the rest of the year, those capital ratios will continue to increase modestly.

And so it will create capacity for share repurchase as well as the -- we have the liquidity to do it as well.

So we'll continue to monitor that.

Obviously, the price of our stock has an influence on how much we would want to do as we do look at IRRs on share repurchase.

But we have the capacity, and as Kessel mentioned, we continually review that not only in a baseline scenario, but we do run some stress scenarios to say what if we were to go through an economic downturn.

So through all of those scenarios and all of the factors, we'll evaluate that.

And if we deem it appropriate, we'll pursue additional share repurchases, obviously, with the approval of our regulatory bodies.

Okay.

And then my second question was just on the FCB cost saves.

I mean it's great to see 2019 coming at $30 million, which is $10 million higher than you thought.

I mean when you take a step back and look at the entire transaction, I think you all were estimating $40 million of total cost saves to be harvested.

Has that $40 million number changed at all?

Or is this just more a function of you guys realizing it faster than you thought?

Brady, this is Kessel.

We feel good about the $40 million.

We don't want to wave that victory flag yet because we are enthusiastic about reinvesting some of it.

But if you just follow the activity to date, the accelerated cost saves to date, I'll just say today we feel good about the $40 million and the opportunity to go beyond that potentially with reinvestment or to the bottom line.

And we'll give more color on that as we get a little further along.

And our next question today comes from Jennifer Demba of SunTrust.

Just quick question on -- congratulations to Kent on his upcoming retirement.

Just curious as to what you'll be doing in terms of leadership following his retirement and just wanted an update on your progress in hiring a new CFO.

Thanks, Jennifer.

Maybe I should take both of those.

One of the, I think, beauties of the FCB model is Kent has and had assembled a very strong group of leaders, seasoned bankers throughout the state of Florida.

Obviously, he was a key driver of those sales efforts and customer contacts.

We have, as part of the original transition plan, quickly integrated those business units into our model.

Sean Simpson from Columbus went down in a major community banking role in the Tampa area.

The CRE and middle market C&I teams have blended very well into our wholesale bank team led by Kevin Howard and our middle market team led by Kevin Horton.

So right now, that position is not filled.

And we are planning on Kent going 150 miles an hour until December 31.

As we get closer to that, we'll look at that overall model and decide how we might supplement the efforts that he was so key in.

But we're confident in the team that's there.

And so we'll continue to assess that market, our model, the model that we've assimilated and see if there are additional needs for leadership there.

Again, a lot of confidence.

I participated in a meeting of all of their senior bankers and then they let me stay for a little bit of their sales meeting the next morning and then kicked me out.

But I've got confidence that they're a very, very well-disciplined group of bankers.

And so more to come on that.

As to the CFO search, I think, I probably said to you a month or 2 ago that I hope to do it by the shareholder meeting, and so that's why you've asked the question and I have failed.

But we're close.

We have a strong, strong slate of candidates.

I think the job is very appealing to a lot of strong finance leaders throughout the country with very diverse backgrounds.

It's really just been a matter of scheduling interviews throughout the second round.

We want our Audit Committee to weigh in, and we're close.

So just give me a month.

With confidence, I'd say it's a May announcement.

And it's exciting for a lot of reasons because it will allow Kevin Blair to transfer totally to the revenue side, which we think is great opportunity not just with the FCB franchise, but really the entire go-to-market delivery model that Kevin Howard, Bart Singleton and Wayne Akins are leading, and our company is really excited about that.

So I think it will be a mid- to late May announcement.

If we don't get it done by Memorial Day, I owe you a dinner.

But I think it'll be soon.

And the timing really has been schedules, and we're really excited about the candidates.

And our next question today comes from Brad Milsaps of Sandler O'Neill.

Kevin, appreciate all the color on the NIM.

I was curious if you could kind of reset where the bucket -- buckets, I guess, of accretion income were at the end of the quarter.

Just trying to get a sense of the useful life of that.

I understand you think it will be about 15 to 20 basis points this year, but just want to get a sense of what you have left and kind of how that might impact 2020 with everything you have going on.

Yes.

Brad, obviously, CECL throws a little wrench in that going forward.

But just for this year, we expect the deposits and the FHLB premiums to continue, and that's roughly running $11 million a quarter.

And that will be consistent for the rest of this year.

It is a 12-month amortization, so that would end at the end of this year.

On the lending front, as we shared, $7.4 million in this quarter, obviously, we have to calculate that every quarter, but we don't expect that to change for the rest of this year based on our modeled output.

But then when we go to CECL, as you likely know, the loans that are in our PCI by analogy will be marked through the CECL process, and that will only receive the rate marks in 2020 going forward.

And it's hard to estimate what that number is.

But if we're getting close to $7 million a quarter today, it's going to be closer to $7 million on the year as we think about the rate mark in 2020 going forward.

And our next question today comes from Nancy Bush of NAB Research.

Kessel, a question for you and sort of looking back at the announcement of the FCB deal, and I think -- I congratulate you on your metrics.

They're certainly working out faster and better than anyone had expected.

But given the fact that your stock is still down pretty dramatically from pre-deal announcement, is there anything that could have been done, do you think, to cushion that impact?

Or do you just think you sort of get that back over time?

Nancy, I hope we get it back over time sooner rather than later.

I think the capital optimization is one step to do that.

But yes, I think about your question, by the way, every day and what we could be doing differently.

I think at the end of the day, we've got to execute.

I think this team has a multiyear track record on delivering on what we say.

I think there was some natural skepticism in the market, more than I would have thought, more than I would have hoped for.

And I think we've just got to put it out.

And we've been called in an affectionate way grinders, and I've told our team that -- we talk about that every week, we got to grind it out and, hopefully, show the results.

I think this quarter is a good step in the right direction.

I think credit was an issue.

And again, we were pleased this quarter with credit performance, both of legacy Synovus and legacy FCB, which, by the way, was exactly what we anticipated.

We like the bankers there.

We like the book of business.

And so there was a little noise at the end of last year, which, we believe, was noise, but we needed that to settle down.

So we'll continue to look at ways to better share the message, but at the end of the day, it is execute and show the results.

And that's what this team is focused on every day.

Okay.

Secondly, on the CD, the shift to CDs, is this happening across the franchise?

Or is this a Florida-centric mix shift?

Because Florida has always been, as you know, a CD market.

So could you just speak to that a little bit?

No.

Nancy, this is Kevin Blair.

It is happening across our footprint.

It just -- Kessel mentioned in his prepared remarks, but it's a shift in the demand of our consumers who, quite frankly, see maybe the apex of the rate environment and are trying to lock in some rates at this point in the curve.

So it's not isolated.

As you know, the Florida franchise is probably more competitive from a rate standpoint.

But all of our markets, all 5 states -- or all of the states that we serve saw CD production pick up this quarter.

Okay.

If I could just add one short question, Kessel.

The build-out of the community bank in Florida, can you just give us some color on that, how you're doing it, how far in that progression are you, how you're really accomplishing that?

Yes.

Well, I'll give you just some high level.

As I mentioned, so with the retirement of D. Copeland at year-end, we consolidated the retail and community banks throughout our footprint, and that was not just driven by the retirement.

There was so much overlap between those 2 business units that we really thought our go-to-market strategy would be much more seamless by combining those 2. And as I'd mentioned, we took one of our top executives here.

He has moved to Tampa to lead that community bank effort in that market.

Again, Wayne Akins is building out his both retail and commercial teams with a great mix, by the way, of legacy FCB leaders and legacy Synovus leaders to kind of drive and maybe reshape some of the results that are driven through the community bank franchise.

That was not an area of focus of FCB, and they were very good at what they did.

But we believe with the introduction of our products, with our training, just the new ATM capabilities that we introduced to their retail network, you will begin to see results there.

I was in Fort Lauderdale just a couple weeks ago, saw a hole cut the side of a building, which is not something you normally want to see in your branch behind a teller line, but they were installing the new Synovus ATM.

So it's gradual, but it's leadership driven.

It's product driven.

It's training driven.

And we are -- we're well underway there.

We think it gives us, again, great opportunity in small business, on the retail side.

And we really haven't touched on the private wealth side, but we've been very successful adding talent in South Florida in the wage space, in the brokerage space, in the -- and some of the other wealth areas.

Nancy, let me just -- one comment I'll add there, Kessel covered it.

We run a metric that Wayne has calculated.

Looking at the number of households within a 3-mile radius around our branches and looking at what that brings to us in that South Florida marketplace, it would increase the number of prospective households in our footprint by 45%.

So that gives you an order of magnitude of the opportunity.

We're not saying that it's easy to go take all of those customers.

But just in terms of magnitude of opportunity, it's immense.

And today's next questions come from Steven Alexopoulos of JPMorgan.

So Kessel, when you announced the Florida Community deal, you told us that you signed a 5-year contract to retain Kent, which made sense because Kent was integral to the growth story there.

I don't understand why is he now leaving well before this contract expires.

Well, the 5 years was a noncompete.

You can't force somebody to work, so the 5 years is really related to the noncompete.

We had certainly hoped that Kent would want to go a lot longer, but things change when you sell a bank.

I've sold one.

Others have sold one.

When you're not the CEO anymore, I think Kent is as enthusiastic about driving the results.

I think this quarter shows it.

I think he's very involved in helping us recruit people and retain customers.

I think he'll be energetic until the date of his retirement in December.

And again, he has agreed to stay on in a consulting role for 2 years beyond that.

And so the 5 years is the term of the noncompete.

So we think the model we work behind, Kent has been a big part of helping us piece it together, of getting the groups integrated, of helping identify his key leaders.

So I can't speak specifically for Kent other than to say he's been a tremendous resource and very supportive of the go-forward strategy, and I think he will be for years to come.

He's not competing against us.

I hope he'll stay a big shareholder and a big cheerleader, both as a, again, full-time leader through the end of the year, consultant for 2 years beyond that and then again hopefully for years beyond that.

One of the things, I think, if you know Kent, he's very, very keen on and committed to the success of his team.

And as he said to me many times, he wanted to choose a platform where his team could succeed and where his customers would be well treated.

And I think he still believes that very much.

So beyond that, I probably can't give you much more color, but we're excited about the go-forward leadership team and how it will deliver the results we had said.

Okay.

That's helpful.

And then just for a follow-up.

Looking at the $214 million of organic loan growth from Florida Community in the quarter, it's down a bit from the organic growth that they were reporting before the deal was announced.

Was it just a softer quarter?

Or is this a better organic run rate under Synovus?

It's probably closer to more organic.

We've said that on a year-over-year basis, we expected to see growth of 10% to 12% from FCB.

So it's a little lighter than that, and that was mainly due to some of the mortgage pay-downs that they had.

So in their wholesale bank, they actually had another $250 million growth quarter.

That was encumbered a little bit by the mortgage runoff.

But we think it can increase slightly from here, but it's probably more organic at this level than it would have been in the past, and that's what we've signaled, Steven, as a result of the continued growth of their book.

And as their pay-downs and payoffs continue to increase as a percentage of their production, it's just going to result in less portfolio growth.

Is any of the slowdown tied to Synovus tightening the credit box there?

None.

As we've shared in the past, from a credit standpoint that our credit policies align very well and that as we've executed in the first quarter, we've largely executed under the same model, under the same policies.

And I don't believe it's had any impact into production or resulting loan growth.

And Steven, I'll just add.

We have Bob Derrick here with us.

We haven't given him much breathing room today, our new Chief Credit Officer.

But even in our prep yesterday, we talked about that number and could that be impacted by tightening, and Bob and I and Kevin discussed that.

And as Bob shared with me, look, there's no more tension with an FCB team than there is a legacy Synovus team or someone that joins us from another company, that it takes a while to get used to each other.

But it's not from a credit policy standpoint.

I sat with their top producers a couple of weeks ago and asked that very question.

So you got to get used to appraisal policies and when you update environmentals and issues like that.

But from an overall credit box, that has not been an issue.

We'll get better.

We'll get better accustomed to their volumes and their speed, to their velocity at quarter end, things that we learned from.

But from a pure credit policy, we felt really good going in that we understood their policy and their box.

And again, spent a lot of time with -- and Bob was very involved with Kent, with Jim Baiter, with their team to make sure that there were no showstoppers there.

So I think it's just -- it was just a very natural number this quarter, and we'll continue to get better with the credit process.

And I think it's also important to note, Steven, that, that doesn't include what Kessel talked about earlier, which is the expansion of small business and consumer lending.

So you've yet to see that sort of loan growth that will come from that franchise.

And our next question today comes from Tyler Stafford of Stephens.

Just a couple of follow-ups for me.

Nice to see the $30 million of cost saves this year.

How much, if any of that, did you guys recognize already in the first quarter on an annualized basis?

It's a large percentage of that, Tyler.

We haven't broken out the first quarter savings, again, because that number, and we'll give you full reconciliation as we proceed throughout the year, but it's hard to evaluate it because again, the baseline continues to change as we add new resources back in FCB.

But we cut -- just to give you a reference point, we cut -- we're down about 75 FTEs since the beginning of the year in that FCB franchise.

And so between the personnel savings as well as contractual savings and the like, we've gotten the run rate largely building into where we need to be for $30 million.

Okay.

Got it.

And can you just, Kevin, clarify if that $247 million to $250 million expense range per quarter for the rest of the year includes or excludes the intangible amortization?

It currently excludes the intangible amortization.

So yes.

Okay.

Got it.

And then just last for me.

Can you just talk about where you stand with the FCB deposit remix, either on the public side or the wholesale funds and just how that factors into the margin outlook for the rest of the year?

Yes.

So it's a question I meant to cover earlier, Tyler, and thank you for bringing it back up.

When I -- we talked about this last year.

We talked about potentially running off $0.5 billion worth of public funds deposits that were at a slightly higher rate.

A lot of their public fund deposits were in CDs.

And so that has not occurred at this point.

It will occur throughout this year.

We're still on track to be able to reduce that by $0.5 billion, which will allow us to replace that or just generate a higher loan-to-deposit ratio, and that'll give us a benefit on the margin.

Outside of that, we really haven't had an opportunity to remix the portfolio.

Obviously, after conversion is complete, we'll have our branch platform.

Wayne Akins and his team will work with the legacy FCB team members to be able to sell our products and our functionality, which will allow us to further remix the deposits.

But the biggest opportunity, as we've said in the past, will be the build-out of the community bank and private wealth management.

That's the business unit that today FCB has not focused on, that when attracting those new households, we will be able to generate a tremendous amount of new low-cost deposits that we have not had to date.

So it's going to take time, but the margin guidance that we've given you for the rest of this year is -- provides very little of that benefit.

It's more so of a just roll forward of what we see on the rates.

And our next question today comes from Garrett Holland of Baird.

The adjusted efficiency ratio was solid in the quarter, near 50%, despite the higher investment spending.

Just wanted your thoughts on where you think the efficiency ratio can trend over intermediate term.

So Garrett, for the year, we think the efficiency ratio is going to settle in right at that 50% and 50.25%.

So it may tick down a little bit based on the savings that we'll continue to garner from FCB.

And to your point, we still believe that provides us with ample CapEx and operating expense to continue to invest in technology and in resources.

And so that's partly why we've been a little less exact on the cost savings out of FCB because the quicker that we can build out some of these sub lines of business and product orientation in their market, the more revenue synergies we're going to have in future years.

So the efficiency ratio for us will be something that we continue to manage.

And as we've stated in the past, if we see revenue compression from NIM, then we'll manage expenses even lower.

But we feel like, for this year, we can tick it down a little more.

But we're, right now, in a rangebound number in that low 50% range.

That's helpful.

And you touched on my next question.

Could you help us size the revenue synergy potential with FCB following conversion?

I would say big, but that doesn't help you.

Just kidding.

We haven't -- it really depends on the number of resources that we're able to bring in because when we look at revenue synergies, I can give you some rough estimates of what we think we could sell through the branch network.

But it really comes down to how many brokers we have in market, how many private wealth management advisers we have in market, how many community bankers we're able to bring on.

So it's very difficult to do that at this point.

We just know that it's going to be a material amount, and that's -- when we announced the deal, we said it's as much a bet on Synovus as it is on FCB of being able to fully deliver all of those products and capabilities.

And our next question comes from Michael Rose of Raymond James.

Most of my questions have been asked and answered.

But if I look at the core Synovus loan growth this quarter, about $186 million, it looks like about 70% of that was SoFi and GreenSky, about $130 million change quarter-to-quarter, and you guys are at about 4.8% now.

What's the desire to move that back up to closer to where it was, 6% range, as we move forward?

Yes, Michael, good question.

We really don't have a goal to increase it back to the 6%.

We've always said mid-single digits, and we leveraged some larger purchases in the first quarter, to your point, just to make it a more relative size of the overall balance sheet.

But for the rest of the year, we do not have outsized levels of purchases planned for the rest of this year.

It was more of a first quarter stabilization of just getting that as a percentage of the overall balance sheet back in a more normalized level.

Okay.

So that would imply that ex SoFi and GreenSky that you would expect legacy Synovus growth to actually accelerate from here.

And I guess what are the bigger drivers of that as we move forward?

Yes, I mean, that's been seasonal for us the last several years.

If you just look back to first quarter of 2018, you saw that we were growing at roughly 1.5 points.

So we're up to 3%.

And so what you'll see for the rest of this year is that we will accelerate our growth in our core C&I and CRE categories, but we'll also see some elevated growth in some of our specialty areas.

We've talked about growth in some of our asset-based lending categories.

We've talked about growth in consumer lending.

That would be direct consumer lending on our side.

So it's really about -- and we'll continue in the areas that we're growing now, mortgage, our premium finance business.

So you'll see the growth continue in the areas that we're successful in, but you'll see C&I and CRE really pick up in the latter half of the year.

Okay.

Final one for me.

Just going back to the efficiency guidance, appreciate that.

Can you just give some of the puts and takes around some of the hiring initiatives?

I think there's been 8 or 9 deals announced in the Atlanta market since the beginning of 2017.

Clearly, in Florida, you've brought on some teams.

Can you just kind of break down the opportunities from a hiring set perspective and how you balance that off against the cost reductions?

Yes.

This is Kessel.

Let me take that because we've been very clear here that, number one, we need to take care of our own business.

So we need to focus on FCB integration, we need to focus on retaining our own team members, both legacy Synovus and FCB because everyone talks about disruption.

We certainly, with this transaction, have some as well.

So our focus is internal on our team making sure that we're properly incenting and rewarding those.

That said, though, to your point, there has been significant market disruption throughout our footprint.

And I really think, and I say this often around here, our brand should sell itself regardless of disruption.

We've been very clear as a company on what we are, who we are, what type of clients we want to bank, quite frankly, what type of clients we don't want to bank.

And we think that's very attractive to bankers who have a history of serving our industry.

Whenever there's disruption though, we hopefully get another look.

So we're certainly not picking on anybody and not selling against any deal that has been announced because people can do the same with us.

But we make sure that as we see disruption, as we see combinations, as we see companies come together, if we think that we're a better home for the bankers to better serve their clients, we're certainly going to put our best foot forward.

So we actively involve our entire senior team.

We're involved in recruiting efforts.

We've used our Board in recruiting efforts.

I'm certainly personally involved in recruiting efforts.

And we try and use every benefit/compensation tool that we can to make sure that we put our best foot forward.

So it's ongoing.

It was ongoing before some of the more recent mergers that everyone talks about, and it'll be ongoing well into '19 and '20.

But again, first and foremost, we've got to make sure we're taking care of our own team.

And our next question today comes from Jared Shaw of Wells Fargo.

This is actually Timur Braziler filling in for Jared.

Just one follow-up for me going back to Steve's question on the Florida Community loan growth.

What was the composition of that growth this quarter?

Was it primarily in CRE?

Or was it well mixed?

It was really across the board.

And we saw growth in CRE and C&I in FCB.

They had roughly $90 million worth of growth in C&I.

And in CRE, they had about $147 million worth of growth.

So they really saw it in both sides.

As I mentioned earlier, the only place they saw a decline was in their mortgage portfolio due to some elevated pay-downs.

Okay.

And as we think about loan growth going forward, is there going to be kind of a planned remix of that composition with a more of an emphasis on C&I?

Or are you pretty much going to let the legacy business kind of run at the same composition that it had pre-acquisition?

Not a real recomposition of the growth.

What we've said in the past is that CRE, based on the elevated pay-downs, may grow at a slightly slower pace maybe towards the lower end of our guidance, and C&I could be growing at a faster pace, but that's just based on our business mix, where we're getting elevated growth in premium finance, and we have some other specialty C&I businesses that we're investing in.

So it's less of a desired outcome based on the asset class.

It's much more of where we've invested some of our money for growth in terms of C&I.

And ladies and gentlemen, at this time, I see no further questions.

I'd like to turn the conference back over to the management team for any final remarks.

All right.

Well, thank you, Rocco, and thanks to all of you.

We've gone a little longer than normal, and we're happy to do that.

If there are any follow-up questions, I would encourage you to reach out to our team, to Steve Adams and he'll get -- either get your answer or get the right one of us on the phone with you to get your answer.

We appreciate your interest and support of our company.

I just want to close again by thanking our team.

And I want to quit referring to the FCB team or the legacy Synovus team.

It's one team, but a lot of people have been working a lot of long hours, both to get us to the January 1 close date and to then deliver what I consider to be great results for the first quarter in the face of a lot of other activities that take a lot of hours to get those done.

And so as we move forward to 13 days out, or however many days we have left now, again, our team has really gone above and beyond to make sure that we're -- yes, we're focused on delivering the results.

You see today we're also laser focused on taking care of our customers.

So just a big thank you to the team.

I'm sure we'll execute well conversion weekend.

And then we look forward to sharing with you next quarter's results on our July call.

So thanks to all of you, and have a great day.

Thank you, sir.

Today's conference has now concluded, and we thank you all for attending today's presentation.

You may now disconnect your lines, and have a wonderful day.