Synovus Financial Corp.
Q4 2016 Earnings Call Transcript

Published: 17 Jan 2017

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Synovus Fourth Quarter 2016 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It’s now my pleasure to turn the floor over to your host, Bob May. Sir, the floor is yours.

[Bob May:]

Thank you, Paul 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 Web site, 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 will 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 Web site. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the Company’s performance. You may see the reconciliation of these measures in the appendix of our presentation. Thank you. And now I’ll turn it over to Kessel Stelling.

[Kessel Stelling:]

Well, thank you, Bob, and good morning to everyone. And welcome to our fourth quarter earnings call. As usual, I’ll walk us through the deck and then we’ll open up the floor to questions from our team here in Colombo. So, let’s start with slide three in the deck, as you’ll see profitability continue to improve during the quarter, we reported net income available to common shareholders of $66 million, which represents an 18.2% increase versus the fourth quarter of 2015. Diluted earnings per share was $0.54, up 5.6% versus the third quarter of ‘16, and up 26% versus the fourth quarter of ‘15. Adjusted diluted EPS was also $0.54, which is up 3.6% versus $0.52 in 3Q ’16 and up 22.2% versus $0.44 in fourth quarter of '15. Our return on assets was 90 basis points, improved to 2 basis points sequentially and 9 basis points versus a year ago. Total revenues were $301.7 million, up $7.5 million or 2.6% sequentially and up 8.2% versus year ago with net interest income increasing 9.8% and adjusted net interest income increasing 3%. The adjusted efficiency ratio improve to 60.32% for the quarter, and 23 basis points sequential quarter improvement and 181 basis points improvement versus a year ago. Moving to balance sheet, total average loans increased $593.4 million or 10% annualized on a sequential quarter basis, and grew $1.61 billion or 7.3% versus a year ago. Loans this quarter include our acquisition of Global One which added $357 million on October 1st of this year. We'll give more color about loan growth later in the call. Total average deposits grew $631 million or 10.4% annualized versus third quarter of '16, and 6.1% versus the fourth quarter of '15. And just a couple of highlights on the credit quality and capital, we do see favorable credit quality trend. The NPL ratio is flat compared to 3Q '16 and grew 11 basis points from the fourth quarter of '15 to 0.64%. And NPA ratio was 0.74% improving 3 basis points in the third quarter of '16 and 22 basis points from the fourth quarter of '15. Our return on average tangible common equity increased to 188 basis points versus the fourth quarter of '15 to 9.62%, a function of the share repurchase as well as growth in earnings. On the capital management front, we completed this for the $300 million share repurchase program, repurchasing 9.9 million shares at an average price of $30.41. We’ve reduced our total share count by 7.5% since inception of a program. Our capital ratios remain strong with common equity Tier 1 ratio of 9.96% unchanged versus the third quarter and compared to 10.37% a year ago. On the strategic front, as I mentioned previously, during quarter we completed the acquisition of Global One, a life insurance premium finance lender based in Atlanta. The addition of Global One aligns very well with our strategy for building balance sheet strength and further diversifying our loan portfolio. We’re pleased to report that the integration is going very well. I recently visited with Jonathan Rosen, Founder and CEO and his team, and they were excited to be a part of the Synovus family and we are excited to have them as a part of the family. Moving to slide four, little more color on loans. The amounts on this slide represent period-end balances with four sequential quarter growth of $593.5 million or 10.1% annualized, excluding the impact of Global One loan, improved $236.8 million or 4.1% annualized. 4.1% sequential quarter increase is not an indication of our expected ongoing run rate, which we expect to be higher. But again during the quarter, with the Global One acquisition, we took the opportunity to diversify the portfolio and reduce some of the non-strategic components of our CRE portfolio, reducing this component by about $63 million. C&I loans increased $536 million or 19.4% annualized. Retail loans grew $157 million or 13% annualized, partially offset by decline in CRE loans of $99.6 million or 5.3% annualized. Last quarter we said on the call, we expected long growth, including Global One for the year to be 6% to 7%. We’re pleased to report that loans grew $1.43 billion or 6.4% for the year, right in line with our expectations. C&I loan increased $779.8 million or 7.2%. Growth outside of Global One was achieved through organic direct loan originations. Retail loans grew $672 million or 15.6%, and outlived by our lending partnership portfolio of $469.3 million, which increased $393.7 million for the fourth quarter ’15, and in consumable reduced to $2.3 billion, increasing $358 million or 18.5% from the fourth quarter of ‘15. And again, CRE loans declined slightly by $28.8 million or 24% in the fourth quarter, which intended to see optimization within this category. We grew investment properties by $181 million or 3.1% while the declines in our non-strategic 1-4 family and land portfolios. As we close out the year, we’re pleased with our continued portfolio diversification. C&I loans now represent over 48% of our total loans. Retail loans have increased, implies about 21% of the portfolio, while CRE loans have now declined to the low 31% of outstanding balances. In addition to the risk mitigation associated with diversification, we’ve seen about 30 basis points of yield in a bit from the shift in more retail and C&I asset classes during the quarter. Moving to slide five, we’ll talk a little bit about projects. You’ll see more ’16 average deposits of $24.66 billion, increased $631 million or 10.4% annualized versus the third quarter of ’16. We continue to decrease through reliance on higher cost time and broker deposits, which now represent 18.8% of average for ’16 deposits versus 19.5% a year ago. In addition, our relationship banking strategy continues to deliver growth as our average core transaction accounts of $17.78 billion increased $414.1 million or 9.5% annualized versus third quarter of ‘16. Fourth quarter ’16 total average deposits increased $1.42 billion or 6.1% versus the fourth quarter of ‘15. Average core transaction accounts increased $1.21 billion or 7.3% versus the fourth quarter of '15. Average broker deposits increased $196 million or 16.5% versus the fourth quarter ’15, that leads to our bank deposits sweep product that we talked before that began in May of 2016, included over $300 million deposits. And as we measured previously, the balances in our new bank deposits sweep products have remained stable, and we expect that to gradually increase over the longer term. Moving to slide six, net interest income was $233.5 million, increasing $7.5 million or 3.3% versus the third quarter of '16, and $20.9 million or 9.8% versus the fourth quarter of '15 as a result, either balance sheet growth as well as margin enhancements, talk a little about that. Net interest margin for the quarter is 3.29%, up 2 basis points in the third quarter. The growth for the quarter is largely attributable to higher yields in the investment securities portfolio, which was a result of repositioning extensions, as well as the overall increase in the interest rate environment. Yield on earned assets of 3.73%, up 2 basis points versus the third quarter ’16 with the yield on loans of 4.14%, unchanged versus the third quarter of ‘16. Our effective cost of funds was 44 basis points, unchanged from the third quarter with cost of interesting bearing core deposits remained flat at 35 basis points versus the third quarter of ‘16. Our effective cost of core deposits, which includes non-interest bearing deposits, was 24 basis points; also unchanged versus the third quarter of ‘16. In the chart, the asset sensitivity profile historically unchanged for the quarter with floating rate loans comprising approximately 55% of our portfolio, as you’ll see, 25 basis points increase in Fed fund rate will result in annualized increase of 1.3% or $12 million in net interest income, assuming a normalized deposit base, while 100 basis points shot will provide a 4% or $40 million lift in net interest income. Turning to slide seven, you’ll see non-interest income for the fourth quarter was $74 million, up $5.9 million or 8.6% versus the third quarter of ’16 and 11.8% versus the fourth quarter of ‘15. In that category, other income includes net investment securities gains of about $5.9 million versus $59,000 in the third quarter of ’16 and $58,000 in the fourth quarter of ’15 with some positive numbers in that category. Again, adjusted non-interest income of $68.1 million is unchanged versus the third quarter, but up 3% over fourth quarter of ‘15. Core banking fees of $35.5 million, increased $689,000 or 2% from the third quarter and 1.4% from the fourth quarter of ‘15. Gains from sale of government guarantee loans $2.2 million this quarter, increased $878,000 or 67.7% in the third quarter and 57% in the fourth quarter of ‘15. We have a strong SBA pipeline as we move into ’17. Our fiduciary/asset management brokerage insurance revenues totaled $20.3 million, which represented a $787,000 or 4% sequential quarter increase, and a strong 8% increase versus the same period a year ago. The year-over-year increase is a function of our new talent additions, which we’ve talked about throughout the year. We’re very pleased with their production level. We expect to see continued benefit from these talent additions in 2017. All categories, except insurance revenues, reported revenue growth compared to prior quarter, and all categories reported revenue growth over the fourth quarter of last year. Mortgage banking income of $5.5 million for the quarter, decreased of $1.8 million or 24.9% sequentially, and increased of 33.1% from a year ago. Turning to slide eight, fourth quarter ’16 total non-interest expense was $193.2 million, an increase of $7.3 million or 3.9% versus the third quarter ’16 and 5.6% versus the fourth quarter of ’15. We’ll take you through some of those components for fourth quarter ’16 number in terms of $4.7 million charge related to changes in valuation of recent derivatives, and $1.1 million in merger related expenses. Fourth quarter ’16 adjusted non-interest expense of $187 million, and that increased %3.1 million or 1.7% versus the third quarter of ‘16, and 3.7% versus the fourth quarter of ‘15. Again, I’ll walk you through some of those components, a $1 million increase is from Global One operating expenses as they become for our Company; that expense of $101.7 million, down $282,000 or 0.3%, and increased 6.4% versus the fourth quarter of '15. Occupancy and equipment expense $27.9 million, decrease of $253,000 or 0.9% versus the third quarter of '16, and almost unchanged versus the fourth quarter of '15. Other expenses of $57.4 million, that’s an increase of $3.6 million or 6.7% sequentially and 1% versus the fourth quarter of last year. Again, some of that details; $2.2 million was the sequential quarter increase and other expense is due to gains and losses from the sale of properties held for sale. Last quarter, previously were included $1.7 million gains from sales compared to $568,000 loss, and that’s a $2.2 million swing. The remain increase was primarily due to $1.1 million increase in third-party process and expense, and very smaller increases, including expenses of about $320,000 related to Global One. We’re pleased to see fourth quarter adjusted efficiency ratio improve to 60.32% this quarter from 60.55% in previous quarter, and 62.13% a year ago. Adjusted G&A expense for the full year was $732.5 million, representing 3.3% increase versus 2015, in line with our expectations, while reported non-interest expense was $755.9 million or 5.3% versus 2015. Turning to slide nine, talk a little bit more about credits. The first graph as you’ll see provide NPA, NPL, and delinquency trends. NPA and NPL ratios continued to diminish over the course of the year with NPL decline $15 million or 8.9% from the previous year. NPAs declined $39.7 million or 18.4% from the same quarter a year ago, and were down $3.4 million or 1.9% sequentially. Past dues were flat from last quarter, remaining at historically low levels. We’re pleased to see net charge-off for the full year at the lower end of our expected guidance of 10 to 20 basis points. Net charge-offs for the year were 12 basis points to $28.7 million, net charge-offs for the fourth quarter were 14 basis points or $8.3 million. Provision expense of $6.3 million reflects a slight increase from $5.7 million in prior quarter. For the full year, provision expense is $28 million compared to $19 million last year. The allowance for loan losses ended the year at $252 million or 1.06% compared to 1.09% the previous quarter. This represents a sequential quarter decline of about $2.1 million compared to prior quarter, and $738,000 decrease from a year ago. About 2 basis points of that decrease is attributable to the acquisition of Global One in the quarter. Kevin can give you a little more color on that during the call. And I mentioned in recent quarter, I’ll say again, I am proud with all of our bankers and our credit team for their ability to continue to significantly grow our loan portfolio in a very diverse manner, while maintaining great discipline in credit risk. And that’s just obviously evidenced by the results we were reporting today. Moving to slide 10, talk little about capital ratios, as you can see, remain strong and largely unchanged for the quarter. Fourth quarter '16 CET1 ratio is 9.96%, unchanged versus the third quarter, well above regulatory amendments. Tier 1 capital ratio is 10.08% versus 10.5% in the third quarter of '16. And you can see now that this allowed DDAs to continue to decline Tier 1 capital now with CET1 capital. Total risk-based capital ratio is 12.01% versus 12.04% in the third quarter ‘16. The leverage ratio for the quarter 8.99% versus 8.98% in 3Q '16; tangible common equity ratio, 9.09% versus 9.28% in the third quarter; and the disallowed ETA continues to decline at $218.3 million now down 36% from a year ago. And lastly, the fourth quarter ’16 CET1 is estimated at 9.52% on a fully phased in basis. Continuing with capital management on slide 11, just as reminder, in 2016 our capital actions included our $300 million common stock repurchase program, $9.9 million shares at an average price of $30.41 adjusted previously as it reduced our share count by 7.6%. The previous $250 million share repurchase program reflected reduction of 9.1 million shares for an average price of $27.53. We also returned over $322 million to common shareholders during the year with repurchases of $263 million common stock and just over $59 million in common dividends. Our 2017 capital actions include; our Board of Directors authorizing a share repurchase program of up to $200 million; it will be completed during 2017. The size and timing of these repurchases will be depended on the local organic business growth, targeted capital levels, as well as ongoing valuation of alternatives, capital strategies. Also, our Board of Directors approved 25% increase in our quarterly common stock dividend with $0.15 per share, which we expected with quarterly dividend payable in April of ‘17. Slide 12 again just shows the summary of recap of what we consider to be great in 2016. I will just get a couple of highlights. Again, profitability continues to improve during 2016, and we reported net income available to common shareholder of $236.5 million, which represents a $20.7 million or 9.6% increase versus 2015; diluted EPS for the year of $1.89, up 16.7% versus 2015. Adjusted diluted EPS $1.98 was up 20.1% versus 2017 -- 2015. Total revenue were $1.16 billion, up $73.9 million or 6.8% versus 2015, with net interest income increasing 8.7% and non-interest income growing by 3% for the year. The 2016 adjusted efficiency ratio improved to 61.06%, an 87 basis point improvement -- a 181 basis point improvement versus 2015. From a balance sheet prospective, we’ll continue to see diversified growth with total average loans increasing $1.56 billion or 7.2% versus 2015. Our efforts to grow and expand relationships, we had a total average deposit growth of $1.33 billion or 5.9% versus 2015. The credit quality and capital management activities remain positive. Again, our NPL ratio of 64 basis points improved 11 basis points in 2015. Our NPA ratio of 0.74% improved 22 basis points in 2015. And again, lastly, as we generate growth in earnings as well to continue to optimize our capital levels, our return on average tangible common equity increased 98 basis points versus 2015 to 8.52%. Work is already well underway to make 2017 another great year. So, I’ll spend just a couple of minutes talking about the 2017 outlook, and long-term targets. I think everyone will agree this, continue to be a lot of uncertainty economically in 2017, especially with the new evolving global landscape. We expect ’17 to be another solid year for our Company. From a balance sheet perspective, we expect to continue the growth trends experienced in 2016 with average loan growth between 5% and 7%, and average total deposit growth of 5% to 7% as well. As a result, from the balance sheet growth and our expectations to continue to enhance the net interest margin, we expect net interest income growth between 18% to 10%. So just to note, significant changes require rate environment today, despite the headwind, our investors and fee income generating businesses will continue to provide positive momentum with adjusted non-interest income growth of 2% to 4%, we believe. On the expense front, we are expecting total non-interest expenses to increase 2% to 4% with our focus on maintain positive operating leverage, continuing to drive down our adjusted efficiency ratio. We don’t see significant changes in the credit environment, at this time, or an underlying quality with NPLs and NPAs is expected to remain relatively flat for the year. We expect the net charge-off ratio in the range of 15 basis points to 20 basis points as recoveries continue to moderate, as well as the loan loss reserve ratio that will trend slightly downward but remain above 1%. And as I previously mentioned, we’re increasing the common shareholder dividend of $0.15 per share and have authorization for up to $200 million in share repurchases in 2017. And again, as I mentioned previously, the size and the timing of the repurchases will be on the level of organic business growth, targeted capital levels, as well as ongoing valuation of alternative capital strategies. And lastly, we’ve included our long-term growth targets on this Slide. They’re not new. But our ability to deliver on our 2017 expectations positions Company to continue to make meaningful progress, we’re proceeding and seeing these financial objectives, again 10% plus EPS growth, return on assets of 1% plus and an adjusted efficiency ratio over the long-term of below 16%. So, with that I will take the call to operator. And we will be glad to open the floor for questions.

[Operator:]

Thank you, ladies and gentlemen, the floor is now open for questions [Operator Instruction]. And the first question is coming from Jefferson Harralson. Jefferson your line is live. Please announce your affiliation, and pose your question.

[Jefferson Harralson:]

I think, I’ll start with that guidance page. Can you talk about the base you’re using for that expense number? And can you talk about, I think, you said there was no rate hike there, but already are using the forward curve in some way. Or is this just rate unchanged as far as your spread guidance?

[Kevin Blair:]

Jefferson, this Kevin Blair. I’ll take the first one on expense. For the guidance, we’re using the total non-interest expense as our base line, so not using our adjusted numbers. And that’s where we give you the 2% to 4% growth. And we’ve gotten used to sharing the adjusted total non-interest expense. If you were go off of that number, excluding those one-time items, the guidance will be closer to 3% to 5% growth rate. As it relates to the rate hikes, we built the plan assuming no changes in rate, so no rate hikes. We’re not even using the forward curve, that’s why we gave you the additional table of net interest income. But the shareholder asset sensitivity position would be, if we were to receive a rate hike during the year. Obviously, timing of that rate hike would determine how much of the incremental annualized income we would benefit from in any given year.

[Jefferson Harralson:]

And while I have you, Kevin, as a new CFO, how are you seeing the excess liquidity do you have, excess liquidity there? And so you took some securities gains this quarter. But how are you thinking about repositioning, if you are, the familiar balance sheet?

[Kevin Blair:]

I think, if you look at the tables, you will see that we have average cash, as I said, roughly little less than $1 billion for the quarter. But by period end, we were actually closer to $500 million. So, I think we have ample liquidity, and I think you will see us manage with less cash going forward, just to provide a little bit of yield enhancement. As it relates to the bond portfolio, we took the opportunity with the rate backup in the fourth quarter to reposition a portion of the portfolio. We’re still largely concentrated in NBS securities, but we took an opportunity with, as I said, as rate backup to extend the portfolio where duration now is little over 3.5 years, where prior quarter was about 2.5 years. So, we’re able to get, as you saw on the yield, about 9 basis points of security yield enhancement. Just from the repositioning as well as the rate backup.

[Operator:]

Thank you. And the next question is coming from Brad Milsaps. Brad, your line is live. Please announce your affiliation, and pose your question.

[Brad Milsaps:]

Brad Milsaps with Sandler O'Neill. Just to follow-up on Jefferson's question. Any other things you are thinking about, Kevin, for the balance sheet. I know at some point you discussed the possibility of maybe having some derivatives, et cetera. So anything else that's in the guidance that -- or are you thinking about that would also be in the guidance or maybe not be in the guidance around NII?

[Kevin Blair:]

Yes, as we say that NII forecast is basically steady state. So we didn’t include a lot of macro hedges doing same on the balance sheet side. Obviously, with the volatile nature of the interest rate market, going forward, it's going to determine how we monetize that assets sensitivity. So either, we're going to get some benefit from rate hikes or we have the opportunity to monetize some of that asset sensitivity through derivatives. We have, as I mentioned to Jefferson, we’ve taken out the opportunity to extend the bond portfolio slightly. We’ll continue to look at that, as well as managing down cash levels in order to improve them in that way. I've also mentioned in the past that we’re thinking about different assets classes in terms of what we’re bringing on and what we’re portfolioing. And we’ll continue to do that from a production standpoint, so that we’re maximizing the yield on the balance sheet outside of the bond.

[Brad Milsaps:]

And maybe just one follow-up for Kevin, or maybe Bob, we talked during the quarter a fair amount about your tax rate, and kind of how that could change if corporate tax rates go lower. Any change to kind of what you guys have been talking about, maybe now that you've had more time to pencil-out what may or may not happen, just curious how to think about that under say, a 25% or 20% federal rate?

[Kevin Blair:]

Brad, as we look forward, I mean, we’re still anticipating a tax rate for ’17 between 36% and 37%. Obviously, if there is a change in the corporate rate, it would have an impact, a one-time non-cash impact to our ETA. If that were to happen retroactive through January 1st of 2017 that number could be as much as $130 million of one-time P&L hit. Obviously, with the lower effective tax rate, we would then earn that back over approximately two years. I think more likely, we would expect to see a corporate tax rate adjustment for 2018. And as we talked about our diminishing ETA, that rate off for 2018 would be approximately $70 million $80 million, which would have roughly a one-year, or slightly over one year payback. So, those are the numbers. And we’re not trying to guess and say when it happens or what the rate is. But just to give you some ranges for the change, if that corporate tax rate were to change in '17 and '18, or '18. Does that help?

[Brad Milsaps:]

Yes, that’s helps, that’s consistent. Thank you.

[Operator:]

Thank you. And the next question is coming from Jared Shaw. Jared, your line is live. Please announce your affiliation, and pose your question.

[Jared Shaw:]

Good morning. Jared Shaw with Wells Fargo Securities. Just certainly backup on the securities repositioning, so I am assuming that happened post election, and we should be able to see a little more benefit to yields with the full benefit in the quarter on that. Is that correct?

[Kevin Blair:]

Yes, that’s correct. It was happening during the quarter, I think, a large portion of the restructuring happened post elections. Obviously, rates were much higher at the end of December than they were today. But I would think it's fair to say, what you said, which is there is more upside to the bond yields.

[Jared Shaw:]

And then what was the principle amount of the restructuring, do you have that handy?

[Kevin Blair:]

It's roughly $350 million.

[Jared Shaw:]

And then on the capital management side, obviously, with the stock 30% higher than your average cost last year. Could you just walk us through your thoughts on appetite for actually using that buyback this year? And if not, would we expect or could we expect to see other capital management tools being deployed?

[Kessel Stelling:]

Jared, this is Kessel, I’ll take that. Our priorities really haven't changed. We’ve always said organic loan growth is growing on the business, so that’s the use of that and that still is a priority. There are other factors that could govern the pace and appetite for buyback, share price is certainly one of those. But just again kind of a guide, obviously, we would expect continue to be able to fund growth, do share repurchase. We think, again with increased share price, the ability to do strategic transactions, non-bank transactions, like Global One, for example, are still there; our M&A posture hasn’t changed. Again, our stock price is up, but relative to other banks, everyone else is up. We’ll continue to look at opportunities that can make strategic sense, that are earnings accretive and non-dilutive to our shareholders. So a lot of factors driving that, but at the end of day, our plans to manage the capital as efficiently as we can, making sure that there is really dry-powder for all the priorities that I mentioned.

[Operator:]

Thank you. The next question is coming from Kevin Fitzsimmons. Kevin, your line is live. Please announce your affiliation, and pose your question.

[Kevin Fitzsimmons:]

Hovde Group. Good morning guys. Can we just talk a little bit about mortgage, I guess, not a big surprise that we saw big fall-off this quarter? And can you talk a little bit about how much of that seasonal, how much of that is just with what we’ve seen happened with rates? And how we should be looking at that going forward? I would assume there’d be another leg-down next quarter. And while we’re talking about it, if you can talk about how we should view expenses did. Was there a variable component within expenses that went down this quarter or maybe it lags, and we see more next quarter? Thanks.

[Kevin Blair:]

Kevin, I’ll start off with mortgage. If you look at the number for the quarter of $5.5 million, it was down roughly $1.8 million quarter-over-quarter. From my view, in the third quarter, we actually had a release of a mortgage rep and warrant reserve there of roughly $8,000. So quarter-over-quarter it was really more like a decline of $1 million. But when you compare that to the same quarter of last year, we’re actually up 33%, Kessel mentioned, which represents about $1.4 million in growth. So, I would say that the fourth quarter was a seasonal quarter, it always is. But we are facing additional headwind based on the increased rate. As we look at total production for the quarter, we have $336 million of total production, which was down versus the third quarter, but again up 36% versus the same quarter last year. So, as we look out into 2017 around mortgage, we’re optimistic that some of the investments we made on the sale side will continue to generate organic growth on the purchase market, aside, we do expect like the industry to see decline in refinance volumes. But we think that all-in-all the decline in refinance volume can be made up by our investments in new loan originators that will continue to get a higher share wallet from a purchase money perspective. And then your second question was around expenses?

[Kevin Fitzsimmons:]

Well, it was expenses tied to mortgage. In other words, if you’re having less production, are you seeing it actually down in related expenses?

[Kevin Blair:]

Like anything, we manage every one of our businesses from a productivity land. So as we look at revenue growth, as I just shared with you, I think we’re optimistic that we can overcome some of the headwinds there. So, expenses would follow through with the revenue growth. If we were to see a large decline in volumes, obviously, we have a flexible workforce. And so we would manage expenses appropriately to ensure that we have a proper operating leverage.

[Kevin Fitzsimmons:]

If I can just ask quick follow-on loan growth, so the decline in commercial real-estate or as you guys put it, the non-strategic parts of commercial real-estate. It sounded like you, Kessel you’d said, you were taking the opportunity to take that down because of the acquisition coming in. Is that more like a one-time thing? Or is that -- do you see that as being more of a deliberate headwind going over the course of 2017 that you would be rationing down more of that commercial real-estate?

[Kessel Stelling:]

Yes, couple of points there, Kevin, and then I’ll turn it over to Kevin Howard, because he is feeling very neglected so far today. But essentially, a year ago the slowdown from construction part of our commercial real-estate business. Demand is still very strong. We’ve already been very selective to make sure we save dry powder for those relationship-based customers. And pricing has been good as well. The reduction is just past quarter. We’re lowering the land and single family resi. So, I just think the overall mix of the commercial real-estate portfolio has strengthened here, and we’ve been able to do that because of, again the addition of loans on the areas. But Kevin, do you want to talk a little bit about the real-estate, may be in general, and just how you’re seeing that portfolio in terms of mix and growth?

[Kevin Blair:]

I think, Kessel, you covered a good bit of it. That was intentional as we’ve had our construction portfolio, get really around 20% in the construction phase. We like to manage that part of 2010 and ’15. We did pull back earlier in the year, intentionally. We’ve had all the way back to back double-digit growth in commercial real-estate. So, anyway, we would enter the year. It was flat. We did expect to see probably have more pay-downs than we expected this quarter, and as well as the deliberate pull back in construction early in the year. We have that engine backup a little bit, we’re going to do more construction in 2017, started that over the last four or five months. We’ll start to get some increase in balance in that part of the portfolio. And I guess, we ended the year right at even flat on overall commercial real estate part of that was also successful, and you've mentioned we’ve been averaging probably $60 million, $70 million, $80 million in quarter of the revenue rundown land and residential and potential nonstrategic part of real estate. I think that subsides a little bit during 2017, I think which was end of that. I think that part of the portfolio stay stable. We get the investment construction a little bit more, a little bit more velocity in 2017. So, I think overall in real estate probably I expect somewhere probably 2%, 3%, 4% growth wherein the flat in 2016. And we are still seeing get to good look, lot of our longtime developers have already begun for which we expect to see a little bit more along those lines in 2017.

[Operator:]

Thank you. The next question is coming from Tyler Stafford. Tyler your line is live. Please announce your affiliation and pose your question.

[Tyler Stafford:]

Tyler Stafford from Stephens. Maybe one last one for Kevin on the loan portfolio. Kevin, do you have what the current utilization rate on the C&I book is now? And then, within your loan growth guidance for the year, is that primarily based on the new business pipeline or are you expecting any pickup in the utilization rate?

[Kevin Blair:]

Utilization actually stay flat, it's in the mid 40s. I think somewhere around 45% to 46%. We actually -- we talked about that this morning, me and Curtis Perry, we coped with, lead our lines there. We are usually getting lift in the fourth quarter. So, we have the C&I growth even excluding the Entaire, we had pretty good growth there with very little utilization that we normally get. I think the last three years we’ve averaged $150 million to $200 million lift to seasonality in the fourth quarter. We didn't really get it. I think it was like $20 million this quarter. So, that’s a little different, but we do expect to see more that. There does seem to be a little more optimism. We do expect maybe a little more CapEx than in 2016 that maybe hardly existed in 2016. So, I think it’s going to improve. So, we should get some utilization there hopefully out of the manufacturing portfolio. I was telling in a meeting this morning. We were talking about manufacturing portfolio had seven straight quarters of decline and we had actually $20 million of increases there. So, that’s a positive sign. Going into next year as we talked about, we do expect some utilization improvement in 2017, that will help for the part of -- we're optimistic about the growth next year be in more in the mid-to upper single-digits versus kind of the middle as we were in last year. We have had a lot of more minimal in C&I. We had our community bank at almost a $100 million of net growth a lot of that small business professional service, very good quarter there, a lot of momentum in their pipeline going into this year. Obviously, senior housing has been steady for us had nice growth within the quarter. As we’ve mentioned before, we made investments in middle market banking and maybe elsewhere over the last year. We expect to see some lift there as well as Entaire acquisition. As we had been in the fourth quarter now, we’ve seen they've have put a lot of loans that we think withdrawal into next year as well. So, we’re optimistic about the C&I side as well as what you've asked about the utilization. That's one we like to see that is free, if existing some of the lines that have been in place. And again, what I've mentioned before the manufacturing could be a positive for us going into the next year.

[Tyler Stafford:]

Very helpful, thanks Kevin. And then just maybe one last follow-up on that. Can you talk about the pace of growth you'd expect to see out of the Entaire portfolio?

[Kevin Blair:]

Well, we had, again I think we ended the -- when we had the acquisition, when implied, we were close to $900 million in commitments, and as we mentioned about $350 million to $360 million of balances, we've already seen that and commitments go above 1 billion. So, that was a 100 million in the first quarter of committed growth, and I think we had 30 or 40 actually of that in balances during the year. We do expect to see maybe I was kind of thinking about 100 to 400 in commitments that we could see in the next year. So for us balanced growth, you might see sort of the same pace I've just mentioned maybe 40 million to 50 million during quarter incremental growth there. So, again that's good C&I secured lending as well as we hope as a good piece of what we're trying to do there on C&I side.

[Operator:]

Thank you. The next question is coming from Jennifer Demba. Jennifer your line is live.

[Jennifer Demba:]

My question is for Kevin Howard. Kevin, multifamily portfolio grew quite a bit last year, but it's still around 6% of your loan portfolio. Just talk about what you're expecting in terms of growth in 2017? And, can you talk about the composition of that portfolio, if you have that information on hand geographically by type et cetera?

[Kevin Howard:]

Yes, sure. Thanks Jennifer. The multifamily, the pace of growth with multifamily, you're right, it was closely for 12.5%. I think for the year, last quarter that did come down as like I've mentioned most of that construction pullback probably affected the multifamily portfolio, the most. That's our highest level of construction of all the types is in multifamily. I think about a third of it is considered in that phase. That came down during the year. I think we still have some positive growth there in the fourth quarter. I think it's close to $15 million for the quarter. So overall, we have grown probably 10% to 15% in the last two to three years in multifamily. I think that's probably looks more like 5 to 10 next year. And I think as part of that the demand is not as what it was kind of other recovery recession of, seems like '13, '14 and '15 was kind of also chart. So, I think, we will see growth there, but maybe not as the pace that have been in the last three years especially the construction side of it. But the mix is primarily Atlanta, Nashville, Orlando, Tampa and Charleston are big part of the mix as far as geography is concerned, it's about 15% of it is due to housing, a lot of that, some of the college market that we're in around the South, that's kind of the as far as the mix of geography, that's kind of our top four to five markets that we have apartments in.

[Jennifer Demba:]

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

[Kevin Howard:]

Well, apartment is in -- that's stabilized, again part of the portfolio is in construction and lease up. Right now, everything we're seeing is getting leased up to the pro forma. And that’s part of what concerned is little bit. Jennifer, earlier in the year, we have seen some aggressive rent targets in markets like Nashville parts of Atlanta and Charleston like that, that we saw earlier in the year. We pulled back a little bit. And I’ll tell you what I've been going back and following up with some of the loans that we've pulled back and didn't do, we still are seeing, didn’t hit their targets. Just when you see the job growth numbers that are happening in those markets, you can see why they're getting the rent growth. They are as aggressive as I have ever seen them. Some of the pro forma that’s why again it's scooped this a little bit, we thought we would sit on the sideline and watch a little bit more than participate. But again, I have not seen, there is a few one-off I've heard about that were involved in where we're having to make some concessions to get leased up, but for the most part, it's performing real well. We are in the mid 90s on our stabilized properties that are built in that phase. So, while it has been very aggressive as far as rent growth and the activity of pace of construction, it seems to be absorbing real well. We are watching that real close, Jennifer.

[Operator:]

Thank you. You have a next question, is coming from Nancy Bush. Nancy, your line is live. Please announce your affiliation and pose your question.

[Nancy Bush:]

Yes, NAB Research. This is a question for you Kessel. I mean, we are all trying to sort of parse out what the new regulatory environment is going to be? But, one of the things I hear consistently is that the asset size limitation on classification as a community bank is going to be pushed upward and pushed dramatically. And that there will be benefits to the larger community banks. I mean, are you going to fall within that classification now in your understanding and how does that change things?

[Kessel Stelling:]

Nancy, great question. We actually talked about that particular question yesterday as part of our overall planning and budgeting. And as I said, the real short answer is, we don’t know because like you, we are trying to really read between lines and see where those white lines, as I said white lines might move. But for example, the $50 billion threshold -- we are bumping 30 now, so the $50 billion threshold has certainly been one that we had kept our eyes on and our Intel says that moves, goes away or moves or goes to some formula. Again, I don't think anyone is sure. And, if that happens, that would certainly be a benefit for us, and I am not suggesting that we're overregulated. But I would just say that the closer you get to the 50, the more you get regulated as if you are a 50 as you approach that quarter. And so, we certainly think that the moving of that line would give us some potential relief. Now, I had to quantify that relief from a financial standpoint, it's a little more difficult. We are very proud of our DFAST process. We think it's made us a better bank. So, we wouldn't go away from a lot of what we are doing there. But certainly, the pace of new regulation could slow and that would be a benefit to us and we're just watching like you, all the different discussions in terms of different regulatory lines and different ideas and thoughts of how this administration might move forward. So, again, the tone would suggest that we'll have -- again maybe not less regulation, but a slower pace of new regulation. And, again, as lines like the 50 move, we certainly think that would be a benefit to us.

[Nancy Bush:]

Is there any thought that you would be able to pick up some revenues that have been foregone like because there is a lot of talk about, not having a forego Durbin revenues as you go over to $10 billion mark. Would any of that fall as a positive to you that you understand right now?

[Kessel Stelling:]

Well, we’re not planning on Durbin revenues, but certainly if yet that was a change, that could be a lift. I mean, I've heard a lot of talk about a lot of things, but not to criticize our political process. It’s a lot either talking a lot of things that there is actually planned comprise and implement. So, that will be one area if we could get lift, but it's certainly not based into our budget anyway.

[Nancy Bush:]

Okay, and also just as the valuations. Yours like everybody else has been pushed up since November 8th. Any thoughts about how that -- has that impacted your thought about doing bank deals? Or as everybody says expectation, sellers' expectations have been pushed up as well? But what do you see sort of in the bank acquisition environment around you right now?

[Kessel Stelling:]

Well, there's a lot of chatter as you would imagine. But, you’re right. So, everyone, but for the most part, that you've said, have moved together. But I think, it is certainly increased the chatter banks that might be sellers may feel like, they've got pretty full valuation now and any putting into that could may be a nice exit strategy. It hasn’t changed our view. Now, certainly with the $40 plus stock, your ability to do non-bank deals has improved and in some cases may be a bank deal. But our focus continuously organic growth and any deals we work to do, again we have to just make very strong financial strategic sense and be one that clearly made us a better company and really allowed our shareholders to understand and support what we would do and because of again the disciplined I think we've maintained throughout this whole process.

[Operator:]

Thank you. And the next question is coming from Ebrahim Poonawala. Ebrahim, your line is live. Please announce your affiliation and pose your question.

[Ebrahim Poonawala:]

Ebrahim Poonawala from Bank of America Merrill Lynch. Just had a very couple of quick follow-up question. One, just following up on expenses, Kessel, I was wondering if you can remind us of any sort of additional real estate consolidation opportunities on that front? And where we stand in terms of branch consolidation, new branch openings?

[Kessel Stelling:]

Well, from real estate opportunities where we are -- that is a fulltime effort here to look for ways to consolidate real estate. We’ve taken actions in Birmingham. We are -- taken action in Atlanta and those are ongoing as we get closer to move-in of a new facility we're releasing at Atlanta. We'll be able to move a good number of our business groups together and exit some leases and some Atlanta high rises. And that effort really does go throughout the system, but it is more obvious in the major markets. From a brand consolidation, again, we have nothing as of yet that I want to tell you what hasn’t has announced but that lens is a continuous look as well. And we are always looking at branches that we can consolidate right size. We actually have a new location we'll actually be opening as well, but primarily we continue to plan right size, decrease the number of facilities and get more efficient in the space. We have some opportunities in Atlanta right now where we will through construction decrease our utilization of existing facilities. And again, we’ve been only aggressive end of branch closures since the prices, I think we’re right at about 23% overall rate of closures. And that’s according to our data, second highest among our peers. And we continue to look at ways to get more efficiently with the branch footprint.

[Ebrahim Poonawala:]

Understood, and just separately switching to deposit cost. Obviously, the rate hike would really seem to have a significant impact. You’ve seen cost of interest, bank deposits go down over the last year. I would appreciate, if you can comment on in terms of as you guys look out through '17, and if we do get multiple rate hikes, just sort of what the temperature is in terms of deposit pricing competition some of the hot markets to be Atlanta, Florida?

[Kevin Blair:]

Ebrahim, this is Kevin Blair. I’ll take that on deposit pricing. You’re right, we’ve been able over the last year is continuing to reduce the overall cost of fund from the deposits where it stands today. And again, we’re fairly optimistic based on this last rate hike that we saw in December, as we monitors the competitive landscape, we haven’t seen a lot of movement on standard rates from our competitors which allows us to continue to be very disciplined in terms of rate being rate going forward. Now, in the tables that we provided around the sensitivities, you’ll note under the 25 basis points shot we have roughly a 1.3% increase in net interest income. Conversely, when you look at a 100 basis points, you only see roughly 4% and that’s just a diminishing returns. We do believe that the initial rate hike had paid us roughly the 50% range, and we consider that somewhat normalized. The betas we received over these last rate hikes, I would consider to be low. But as we go out and we have future rate hikes, we expect the betas to continue to increase and that’s why you see a little bit of the diminishment from the 25 basis points rate hike up to the 100. And those numbers could be 50 to 60, but as we’ve said in the past that’s a best guess. I mean it really is predicated on what the market does, and what our competitors are doing from a pricing stand point. But we’re hopeful that we’ll be able to continue to have a good expense discipline on the cost to fund side that will allow us to enhance the margin even more in 2017. Does that help?

[Ebrahim Poonawala:]

That’s helpful. And, if I can take in one more last question, just wonder to get an update in terms of the online lender partnerships what that portfolio was at the quarter end? And how much of that growth this quarter came from those two partnerships?

[Kevin Howard:]

Ebrahim, this is Kevin Howard. Within the -- as of yearend, we’re around $470 million of those at growth around 2% of the balance sheet. I think we’ve put a cap of around or at least have guided that would go up to about 3%. So, we’ll get a little bit more growth this year. The quarter was about a 125 million this during the fourth quarter of growth, if you combine all of those partnerships.

[Operator:]

Thank you. The next question is coming from Christopher Marinac. Christopher, your line is live. Please announce your affiliation and pose your questions.

[Christopher Marinac:]

Thanks. Good morning. FIG Partners in Atlanta. Just a follow-up for Kevin Howard. Kevin as the Fed fund rates moved up, what happens to the new loan yields that you're doing for new incremental loans? Are they commensurately higher about 25 basis points or what's the sort of the competitive dynamic?

[Kevin Blair:]

Chris, this is Kevin Blair. I'll take that one. Obviously, we look at new loan and new and renewed loan yields for the quarter. We saw roughly a 10 basis point increased quarter-over-quarter and that only had, if you can think about the Fed funds only going to effect for really 15 days in the quarter. So, yes, we are seeing an increase in new loans reduction. You will note for the quarter, we saw loan yields coming in basically flat that was much more of a mixed issue because we saw 2 basis points of improvement quarter-over-quarter in commercial loan yields instead about 2 basis points contraction in retail, but that was more of a mix related story. So, yes, we are seeing that. And our hope is that we'll continue to see margin or yield expansion as Fed fund rates picked up and cash incentive funds. But we have about 55% of our loans are tied toward the floating index most of that being one month LIBOR.

[Christopher Marinac:]

Okay, great. That's helpful. And as Kevin well I have for you just a follow-up question on the tax comments earlier. Does it matter if the tax bill is retroactive? Or does it matter really when the tax bill is enacted in terms of when you may have to take a onetime charge?

[Kevin Blair:]

Yes, it does. Look, if it doesn't effect this year and it's retroactive, that's where I gave you the number of roughly a $130 million. If its perspective obviously that number for '17 would be lower, if it's mix for variable tax rate, hybrid tax rate for '17. And then for '18, if it doesn't effect for '18 that number goes down to $80 million to $90 million. So the timing and window rate goes into effect those were we impact the DTA write-down.

[Christopher Marinac:]

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

[Kevin Blair:]

That's right.

[Operator:]

Thank you. And the next question is coming from Casey Haire. Casey, your line is live. Please announce your affiliation and pose your question.

[Casey Haire:]

Jefferies. Thanks guys. So, Kevin Blair, I just wanted to clarify the expense guide. I'm a little bit confused, if I take the GAAP expense number in 2016 of around 756, and I grow that 2% to 4%. That implies the number of around 771 to 787 or so, which in turn implies a core expense guide of 5 to 7. Am I thinking about that incorrectly or is that right?

[Kevin Blair:]

Look, I think you got to assume what are the other adjusted expenses that would that come in those numbers. But if you're right, incentive base line is 756. We're guiding 2% to 4% there for '17. And then if you look at the adjusted numbers and this is where I was trying to give you a number. Take our adjusted number of 732 and look at that number on a scale of 3% to 5%, and I think you will come back to a number of that meets both of the criteria.

[Casey Haire:]

Okay, all right. So, there will be some adjustments this year?

[Kevin Blair:]

Look, here, so. I would tell you on that is. Kessel said earlier, it's not like we have a bunch of adjustments planned. But we're constantly looking for a new efficiency and productivity initiatives. And so, if we come across opportunities to take onetime charges to help us from a long-term perspective, we're going to evaluate those. I do expect those to be less than they were this year. Obviously, we had $23 million in onetime expense including the Entaire acquisition. But I am never going to say never. We're going to constantly look for things that are the right things to do for the long-term and that may includes the onetime expenses.

[Casey Haire:]

Okay, understood. And then on the mortgage banking front and it sounds like you expect the purchase to sort of pick up the slack from on re-fi this year. So, does the fee guide for 2017 does that presume that mortgage banking kind of holds the level we saw in 2016?

[Kevin Blair:]

There is two sides of the mortgage equation I placed there, the secondary fee that you're talking about and then as you know we have been growing portfolio and mortgages roughly 20% year-over-year. So, some of the revenue that we will get from the growth and production moving for re-fi and purchase will go up on balance sheet, so that won't find its way in secondary revenue. But we are optimistic as we continue to gain traction on the secondary or in the corresponding business as well as I mentioned upfront, adding mortgage always. That loss of refinance activity will be made up with secondary purchase of money. And that’s where we will able to keep the fee income fairly stable year-over-year.

[Casey Haire:]

Understood. Okay. And just lastly on the -- you mentioned the loan yield is coming in about 10 basis points higher. Where is the new money yield on securities purchases today versus that 192 existing?

[Kevin Blair:]

It's over 2%. I mean, it's in the mid 250 range.

[Casey Haire:]

Okay, great. And just -- sorry just lastly on the, I know it's sort of DTA and AOCI swing this quarter and you guys are largely holding your securities book available for sales. Is there a thought to maybe designate some of these securities held-to-maturity and protect against see unrealized loss?

[Kevin Blair:]

There has always been opportunity. I like the flexibility. We like the flexibility of keeping it available for sale just as we have the ability to restructure when we need to. But as you see that we had a $50 million change in AOCI this quarter. And so, we'll continue to monitor that as we look at interest rates. But at this point, we feel very comfortable with our AFS status.

[Operator:]

Thank you. And the next question is coming from John Pancari. John, your line is live. Please announce your affiliation and pose your question.

[John Pancari:]

John Pancari, Evercore ISI. Quick follow-up on the tax rate, just because management team's commentary is getting quite a bit of attention as earning season around the likelihood of any corporate tax cuts getting competed way. I mean either via a loan pricing or anything else. Can you just give us your thoughts on that in terms of, if you do see a net benefit even aside from the revaluation of the DTA? What if the likelihood that the industry and likelihood that Synovus specifically could compete that benefit away overtime?

[Kessel Stelling:]

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

[John Pancari:]

Yes, just giving the competitive dynamic of the industry is still intensifying in general that there is the tendency of the banking sectors as a whole that could compete away, yes?

[Kessel Stelling:]

Look, the way I look at that is either so many assumptions as we think about the lower tax rate. As we said in the past, even if we get a lower ETR and knowing what the effective tax basis will be, and we're not sure that there won't be changes there. So, until, we figure out what the ultimate benefit is. So look, it's like any industry, we are in a competitive environment. We want to make sure that we continue to invest in our business and just because we receive a tax benefit, I don’t think it will change the way in which we invest. We are investing today for the future. So, I'd like to think that some of that benefit will follow the bottom line. But if we get a lower effective tax rate and we have higher growth from an economic standpoint then obviously expenses and some of that benefit would be eaten up through the P&L. But I think, it's too early to say what the outcome of lower effective tax rate until we actually see went on and what the ultimate tax basis will be as well.

[Operator:]

Thank you. There are no more questions in the queue.

[Kessel Stelling:]

All right, I'll answer to more question. Just I want to thank everybody for being on call, investors, analysts, friends of the Company. So, I want to thank our team members many of who are on the call for the great work and great year. And I know, looking to the call to this morning, we had some of our market leaders, we had some of the leaders with our key business around the system on this call. So, I just -- again thank you for what you done for our Company and thanks for what you’ll continue to do with we move forward into a very positive 2017. So, thank you all. Look forward to talking to you soon.

[Operator:]

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.