Synovus Financial Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.22.13 | About: Synovus Financial (SNV)

Synovus Financial (NYSE:SNV)

Q3 2013 Earnings Call

October 22, 2013 8:30 am ET

Executives

Patrick A. Reynolds - Director of Investor Relations

Kessel D. Stelling - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of Synovus Bank and Chief Executive Officer of Synovus Bank

Roy Dallis Copeland - Chief Banking Officer, Executive Vice President, Chief Banking Officer of Synovus Bank and Executive Vice President of Synovus Bank

Thomas J. Prescott - Chief Financial Officer, Executive Vice President, Chief Financial Officer of Synovus Bank and Executive Vice President of Synovus Bank

Kevin J. Howard - Chief Credit Officer, Executive Vice President, Chairman of Credit Risk Committee, Chief Credit Officer of Synovus Bank and Regional Chief Executive Officer of Synovus Bank

Analysts

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

John G. Pancari - Evercore Partners Inc., Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Emlen B. Harmon - Jefferies LLC, Research Division

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Ken A. Zerbe - Morgan Stanley, Research Division

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to Synovus' Third Quarter 2013 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Pat Reynolds. Sir, the floor is yours.

Patrick A. Reynolds

Thank you, Tom, and thanks all of you for joining us on the call today.

During the call, we will be referencing the slides and press release that are available within the Investor Relations section of our website at www.synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer all of your questions.

Before I begin, I need to remind you that our comments may include forward-looking statements. These statements are subject to risk and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, further developments, or otherwise, except as may be required by the law.

During the call, we will discuss non-GAAP financial measures in reference to the company's performance, and you can see the reconciliation of these measures and our GAAP financial measures in the Appendix to our presentation.

Finally, Synovus is not responsible for and does not edit or guarantee the accuracy of earnings teleconference transcripts provided by third parties. The only authorized webcast is located on our website. We do respect the time available this morning and desire to answer everyone's questions. [Operator Instructions]

I will now turn it over to Kessel Stelling.

Kessel D. Stelling

Well, thank you, Pat, and I'd again like to welcome all of you to the call as well, and I will walk us through our third quarter highlights and we will open it up for questions for the team. Third quarter net income available to common shareholders was $37.2 million, up $6.5 million or 21.1% in the second quarter of '13 and up $21.1 million or 132% from $16 million a year ago. Earnings were $0.04 per diluted common share, up from $0.03 per diluted common share for the second quarter of '13 and $0.02 per diluted common share for the third quarter of 2012. I'd like to again point out that 2000 earnings are now fully taxed at 37.4%, while the third quarter '12 earnings reflected a $211,000 tax benefit.

Pre-tax income of $73.5 million compared to second quarter pre-tax income of $72.9 million, and up $42.9 million or 141% versus the third quarter of 2012 pre-tax income of $30.5 million.

Total loans grew $103.3 million sequentially, or 2.1% on annualized basis. Credit quality, again, continues to improve. Our NPL ratio declined to 2.29% from 2.74% in the second quarter of '13 and 3.55% in the third quarter of 2012. Our net charge-off ratio declined to 0.47% in the third quarter from 0.61% in the second quarter of '13 and 1.97% in the third quarter of 2012. We'll talk about capital ratios later, but I'll just highlight strong capital position post-TARP redemption, with Tier 1 common equity now approaching 10%.

Take you to Page 5 in the deck. Again, we talked about loans. Third quarter '13 reported sequential core loan growth of $103.3 million or 2.1% annualized. Retail loans grew $83.3 million, or 9.5% annualized. C&I loans grew $18.1 million or 0.7% annualized. And CRE loans grew $3.2 million. We currently expect fourth quarter loan growth to be moderately stronger than the third quarter, probably in the neighborhood of 3%, plus or minus.

Take you to Page 6. Again, pleased to see that core deposits grew $326 million or 6.7% annualized from the second quarter of '13. Total core deposits increased $326 million, or 6.7%, again, annualized. Core deposits, excluding time deposits, increased $133.5 million or 3.3% annualized versus second quarter. Total deposits of about $21 billion grew $263.2 million, or 5% annualized from second quarter of '13. And I'll point out broker deposits declined about $63 million from second quarter and now represent only 6.1% of our total deposits.

You probably saw recently released FDIC deposit share data. We were pleased to see that we retained top 5 in market share in markets that represent about 80% of our core deposit franchise. And again, pleased to see the strong market share of our bank divisions throughout the Southeast.

On Slide 7, we had a slight increase in net interest income and in the net interest margin. Net interest income increased $1.9 million versus the second quarter of '13. Our net interest margin was 3.40%, up from 3.39% in the second quarter. Yield on earning assets, 3.89%, up 1 basis point from the second quarter of '13. Our effective cost of funds was 49 basis points, unchanged from the second quarter. We expect a slight downward pressure on the net interest margin during the fourth quarter of '13.

On Slide 8, total third quarter of '13 noninterest income was $63.6 million, $1.5 million decrease from the second quarter and $9.7 million decrease from the third quarter of 2012. The decline versus the second quarter was driven by a $2 million decrease in mortgage banking income. The decline versus the third quarter of '12 was driven by $5.5 million decrease in investment securities gains and a $3.9 million decrease in mortgage banking income.

Core banking fees, $32 million, an increase of $329,000 versus the second quarter of '13. Our FMS revenues of $17.9 million decreased $2 million versus the second quarter, $732,000 versus the third quarter of 2012. That sequential quarter decline was driven primarily by decreases in trust services fees, brokerage revenue and fees from customer interest rate swaps. We currently expect fourth quarter '13 mortgage banking income to decline modestly from 3Q levels. We expect core banking fees and FMS revenues to be moderately higher than 3Q levels.

On Slide 9, as you'll see, year-to-date adjusted noninterest expense, down $18.3 million or 3.5%, while headcount decreased 6.2%. Adjusted noninterest expense was $171 million in the third quarter of '13, an increase of approximately $3.3 million or 1.9% versus the second quarter. Again, primarily driven by a $3.3 million increase in employment expense on -- and elevated levels of professional fees. We currently expect a modest decline in the fourth quarter '13 adjusted noninterest expense line from 3Q '13 levels. Our $30 million expense reduction initiative is on target, to be fully implemented by year end. Again, headcount declined 312 positions, or 6.2% in the third quarter of 2012, and it declined 238 since year end 2012. Additional expense reductions from this decline will be realized in 2014.

I've talked about it on many calls, but I will just say again, expense management is a way of life for us. You'll recall that we adjusted expenses by $95 million in 2011 and another $25 million in 2012. Headcount has decreased by approximately 36% since year end 2007, and our branch count has declined at 283 from 332 at year end 2007.

Again, as a reminder, we've improved these -- we've achieved these improvement in cost structure while continuing to make substantial investments in talent and technology. Our continued focus on efficiencies, as well as expected declines in credit-related expenses will yield further expense reductions in 2014 and we will share those efforts with you as we feel appropriate.

On Page 10, continued improvements in all credit metrics as you can see from the graphs here. The trend lines on this page, again, are a strong indicator of how our credit has continued to perform. The 4 charts together provide just a really strong illustration of across-the-board improvement as we continue -- that we continue to experience on our loan portfolio. I'll go into more detail on each of these in the following slides.

I'll point out, though, in addition to the metrics shown here, several other key credit metrics improved and I believe were worth mentioning. Special Mention loans declined $476 million, or 32% from a year ago, and declined about $26 million on a linked quarter basis. Substandard accruing loans decreased $380 million or 39% compared to a year ago and about $15 million sequentially.

Accruing TDRs declined $125 million or 18% from a year ago, and $61 million or 10% from the second quarter of '13. And past dues continue at very low levels at just 0.04% of total loans.

On Slide 11, again, credit cost and net charge-offs continue to trend lower. Credit cost for the quarter were $22 million, down from $24 million in the second quarter of '13 and $86 million a year ago. Contributors to the improvement include lower NPL inflows and mark-to-market changes, lower disposition costs and an overall lower level of problem loans, as our bankers and credit support here in Columbus continue to do an excellent job in resolving the lingering issues from the crisis. We previously stated that credit cost for the second half of the year were expected to be lower in the first half. That's probably pretty obvious do you now. Based on third quarter trends, we now expect that fourth quarter '13 credit cost will be similar to the previous 2 quarters, which will result in a meaningful decline in credit cost versus the first half of the year.

Net charge-offs were 23% lower in the third quarter than in the second quarter, totaling $23 million or 0.47% compared to $30 million or 0.61% in the second quarter. Again, you'll recall that we've guided that quarter-to-date charge-offs would fall below 1% by year end 2013. We've achieved that target in the second quarter, and pleased to see that further improvement in the third quarter now with an annualized year-to-date net charge-off ratio of 0.75%. Again, improvement in charge-offs, largely due to the same factors that drove the credit cost improvement, which primarily related to the overall level of problem loans.

On Slide 12, we'll talk about inflows and total NPLs. Total NPL inflows continued to decline. Inflows of $47 million in the third quarter represent a 30% improvement over second quarter and almost 60% improvement over the same quarter a year ago. We believe that NPL inflows will remain at these lower levels, again, due to the improving trends that we've seen throughout the year in our substandard and special mention credits.

Nonperforming loans ended the quarter at $451 million or 2.29% of total loans, which is a 36% improvement from a year ago and a 7% improvement from the second quarter. We expect NPLs to continue to trend downward to less than 2% of total loans by year-end, driven by reduced NPL inflows levels, continued execution of problem asset resolution strategies and an increasing volume of upgrades.

On Slide 13, again, we show loan portfolio by risk grade. Again, pleased that past [ph] rated loans increased $177 million from the second quarter of '13, now, 90% of total loans, up from 89% last quarter and 84% total loans a year ago. Equally pleased that special mention substandard accruing and nonperforming loans all declined during the quarter.

In Slide 14, again, will reflect the strong capital ratios post-TARP redemption that I referred to earlier. I'll remind you that they reflect the common preferred stock offerings, which generated about $300 million in net proceeds that were completed during the third quarter, in conjunction with the July '13 $968 billion TARP redemption.

I'll highlight the ratios for you that I've already mentioned earlier. Tier 1 common equity now approximately 9.93%; Tier 1 capital, 10.55%; total risk based capital, 13.04%; leverage ratio of 8.96%; and tangible common equity ratio at 10.61%. I'll also point out that the 3Q '13 Tier 1 common equity ratio, under Basel III, is estimated at 9.72%, about a 21-basis-point decline from current levels.

I'll also call your attention to the disallowed portion of the deferred tax asset. At the end of the third quarter, net asset is $647.8 million, and as a percentage of risk-weighted assets, 2.98%. So that's a quick summary of the third quarter highlights. We'll have more to say during the Q&A, and certainly, more to say in our close. But at this time, operator, I'd like to open it up for questions from the audience.

Question-and-Answer Session

Operator

[Operator Instructions] And we will take our first question from the line of Jennifer Demba with SunTrust.

Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Just curious about your loan growth comments, the outlook for fourth quarter, just curious as to what's driving that expectation of stronger growth right now and what kind of loan growth expectations you might have for the next few quarters, based on what you're seeing within your own pipeline and the competition out there?

Kessel D. Stelling

Jennifer, let me take a high-level and then Kevin and D can fill in gaps as they see them. Really, from a fourth quarter standpoint, current pipeline, as well as just what we expect in terms of seasonal draws in the fourth quarter and maybe a little, again, moderating credit burn. But we see 3% and possibly as high as 4% in the quarter. I've said 3%, plus or minus. I'd certainly like to see it on the high end of that, but it's, again, based on a very in-depth review of pipeline and reviews with all of our bank division CEOs and specialty line groups. And again, I'll let Kevin or D add to that. As far as for next year, we think we can push that number north in the 4% to 5% range. And again, it's based on what has been a pretty long-term investment in talent over the cycle and those -- a lot of them we talked about. Some are more recent in terms of equipment financing expansion into Orlando, additions to large Corporate Banking teams in Nashville and around the footprint. So again, based on pipeline activity and pretty thorough projections from those groups, we think that, that number moves into the 4% to 5% range in the not-too-distant future. As far as the types of loans, Kevin and D, you all want to add anything about that?

Roy Dallis Copeland

Kessel, this is D. I'll take that. If you take -- go in and look at the pipeline, our pipeline's evenly broken out. It's about half-and-half on the -- from a commercial side on CRE and C&I. So we feel positive, and to maybe give a little more depth of other comments that you've made. Our pipeline is as strong now as it's been in the cycle. So we do feel positive for additional growth there. In addition, I would say for the fourth quarter, and really as we step into next year, we do see some reduction in some of the larger paydowns that we have had over last year to 18 months. But I think -- and then, as you get into 2014, I think the last factor that I would add would be, as we have worked through these problem credits, we've worked on both dispositions in a heavier level, as well as working problem credits out of the bank, and our expectation is that will reduce as well. So that's -- would be the color I would add to it.

Operator

We'll take our next question from the line of John Pancari with Evercore.

John G. Pancari - Evercore Partners Inc., Research Division

Could you give us a little more color on expense trends in the quarter? Specifically, the OREO costs and where you think they could go to from here? And then also on the comp side and where that could go?

Thomas J. Prescott

Yes, John, this is Tommy. I'll take the general G&A and then Kevin will talk about the ORE cost. In the second quarter, we thought that we'd see some additional expense reduction in the third quarter. And basically, it was a component of 2 factors. One was we had some one-offs in the second quarter that we thought would go away and that is what happened. We also have an elevated level of litigation costs of attorney fees and other professional fees, and we thought that would go down. It actually went up during the quarter. So our guidance for the fourth quarter would be that, we will continue to push our leverage -- expense lever and we do believe we'll see some improvement and some modest lowering of the expense base on an adjusted basis in the fourth quarter. And maybe Kevin can take on the ORE outlook.

Kevin J. Howard

John, this is Kevin. Our ORE did spike up, so our overall credit cost, as Kessel pointed out, did come down, and that was following a pretty significant decline from the first to the second quarter as well. But our ORE position did go up from the 11% to 15%. I'll tell what that was. We sold a higher mix of ORE probably than we had expected in the dispositions. And before the end of the quarter, we got some of the older ORE under contract and we've broken down a little bit more. There's an extra $2 million to $3 million there right toward the end of the quarter that we'll sell into this quarter. So it did go up a little bit, but as far as looking forward, I see the ORE, and the includes ORE expense and other credit cost expense, not really related to provision, to be more of about a $10 million run rate over the next few quarters. And we're pretty comfortable with that number, going forward. It can move around a little bit, but $10 million is a good number to model for both ORE expense and other nonprovision credit cost the next few quarters.

John G. Pancari - Evercore Partners Inc., Research Division

Okay, so based on that, and I guess maybe some implied downside room in the professional fees, assuming that you still see some of those costs come out. Then I assume -- is it fair to assume that a 180 level per quarter in total expenses is a good run rate to assume?

Kevin J. Howard

John, we haven't guided that specifically. We're 181 and we talked about moving it down a little bit, and we think that's what will happen. I think we described it as modestly and so we believe we can drop a little bit from the Q3 level.

Operator

Our next question comes from the line of Jefferson Harralson from KBW.

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

I'll ask my first question on the expense line, follow-up with John. Is the -- could you talk about the year-over-year increase in other expenses? And kind of what's driving that? What's in there that might be kind of semi credit related that could come down over time?

Thomas J. Prescott

So your question is on the...

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Yes, the other expenses?

Thomas J. Prescott

Other operating expenses is $27 million in the third quarter. Year-over-year did you say?

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Yes, year-over-year -- well, year-over-year is up and, if you take it altogether, it seems like there's some, probably some credit-related things in there or some -- as credit improves, possibly might be some credit-related element in there that could come down, just kind of, be interested to know what's in that number and think about that within the run rate as well?

Thomas J. Prescott

The other operating expense in the third quarter were $27.4 million compared to $24.8 million, same quarter a year ago. And the third quarter of '12 had $2 million litigation contingency reversal, which kind of pulled it back in a little bit and distorts the comparison a little bit. And then our advertising is up significantly, almost $2 million over the prior year. And on a linked-quarter basis, we're at $27.4 million compared to $27.6 million. And really, the changes in the advertising being up as a key element to that difference.

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

And my follow-up I want to ask about the regulatory DTA. If I have my numbers right, it was 711 last quarter it went to 647.8 you're mentioning this quarter. How should we expect that to -- I guess can you talk about the differential, if I'm right about that number. How can we think about that over time? Is that kind of a once a year type of thing where you look to move that into capital? Or is that just as you make money that's going to pretty much lower than DTA?

Thomas J. Prescott

So quarterly, look at the 4 quarters out in the future, you adjusted every quarter, you take away the whole quarter and put the new 4 quarters out one into your estimates of ability to earn pre-tax income and you calculate it that way. So it adjusts every quarter.

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

1

Okay, so how much of your regulatory DTA is in the capital ratios right now?

Thomas J. Prescott

The disallowed piece is $647 million. That's a little over $100 million that we've taken out so far.

Operator

Our next question comes from the line of Erika Najarian with Bank of America.

Unknown Analyst

This is Ebraham. I had a quick question on in terms of when we look at future reserve release, we're about at 1.6% right now. And when you look at reserves to loans and reserves to NPLs, are we at a point where we're close to the bottom? Or do you think that the reserves, when you look at reserves to NPLs, the ratio essentially could trend lower as as NPLs go down, any thoughts?

Kevin J. Howard

Yes. This is Kevin. We have had reserve go down from 171 to 162, as you pointed out. We did see our coverage ratios actually tick up a little bit. So that was encouraging. Of course, that has a lot to do with our reduction in NPLs and we expect that going forward. Our risk models have been consistent all the way through the cycle and they do model more reduction in overall reserves. Of course, that assumes continued portfolio improvement, charge-offs stay at these lower levels. So we do expect that has potential to get an upgrade in credit. There's a couple of other things that could neutralize that a little bit, debt production, which is loan growth. You heard D and Kessel talk about loan growth over the next few quarters. So that will add to the reserves and we're always watching the environment, the economic factors that are out there. There are qualitative factors to that. So, and new regulatory, any new guidance that could come out, so we are conscious of that. I don't want -- we don't want to over release for any means too quick out of the recovery. But what we do see, the number kind of at the pace it's on probably slows down a little bit, percentage of reserve. But certainly, there's a lot of factors that that involves, but we see just a slight reduction going forward.

Unknown Analyst

All right. And if I can just sneak in one of follow-up question. In terms of expenses, I appreciate the color that you provided. I guess the question is, can we see the adjusted efficiency ratio move meaningfully from the 64% right now, given the rate back job [ph] ? Or do you expect that to remain close to the current levels, all else equal?

Kessel D. Stelling

Let me take a stab at that. This is Kessel. I want to be little clear about that. We will drive that number down. And I know Tommy said we're not going to guide to a particular number or maybe level, but expenses were stubbornly high this quarter, and most of that was out of our control. Litigation-related expense, again, that is somewhat frustrating, but a part of this cycle. And we'll get that behind us and we will drive that number down, we will drive additional cuts through a number of different opportunities with our branch system, with our overall real estate management, with credit-related expenses that are not, again, in credit cost but certainly tied to the cycle and overall, again, efficiency efforts that although not necessarily publicized or ongoing every day within our company. So without guiding to an expense number or an efficiency ratio, the efforts here are very intense to make sure that we drive down from 3Q levels and allow us, quite frankly, to continue to invest heavily in talent throughout our footprint and technology to better serve our customers and the cycle or the timing doesn't always line up, so that the investment might occur before the subsequent cuts are reflected, but those efforts will continue and we will drive that number down.

Operator

Our next question comes of the line of Emlen Harmon with Jeffreys.

Emlen B. Harmon - Jefferies LLC, Research Division

I was hoping to talk a little bit more about the loan growth. I guess just to be clear, when you're talking about kind of 4%, 5% growth over the first few quarters and next year, I just wanted to make sure that's on a quarter-over-quarter basis. And just kind of also would like to understand, kind of what the runoff has been, underlying production you feel like has been holding you back and whether you guys have kind of identified those runoff portfolios and how much is left to go there?

Kessel D. Stelling

I'll let Kevin or D talk about the runoff, but the numbers we're referring to are annualized numbers, just like this quarter was 2%, 2.1% on an annualized basis. We believe the fourth quarter could be in, again, in that 3% to 4% on annualized basis. So those are annualized numbers.

Emlen B. Harmon - Jefferies LLC, Research Division

Got you.

Kevin J. Howard

This is Kevin. I'll touch on the runoff and let D take it from here. But we had -- we think, by the end of the year, somewhere between $300 million or $400 million, whether it's disposition, be it run out of the bank, restructure or just loans that we're pushing down is that much -- it's been about much of the runoff mainly and obviously through the residential C&D and the land portfolio. We just think at the NPA levels we're expected to be going into next year, that should be cut in half. I mean, that could be a $150 million to $200 million number, which 2 or 3 years ago, it was $700 million and $800 million. So that right there is a little bit of a lift swimming against the credit burn that we've had 2 of the 7 years. So that level is off somewhat during next year. And D, you might want to add.

Roy Dallis Copeland

I guess the only thing I would end up adding is as Kevin kind of made comment there, you look at the your land acquisition and your development, that is -- that will continue to go down, but it's -- I think as you can see this quarter, we actually grew in the retail loans as well as commercial real estate, as well as C&I, in all 3 of those categories. From what we see from a pipeline standpoint, we see all 3 of those categories with positive momentum going into next year. I would say the retail is a little higher than it probably will be on a go-forward basis, but I think we'll more than overcome that in the CRE and the investment real estate as well as the C&I side.

Emlen B. Harmon - Jefferies LLC, Research Division

Got you, thanks. And then I guess another one on loan growth as well. So you guys -- following the redemption of TARP, has that generated new opportunities for you? Are you seeing a chance to go in, I guess, with new -- kind of new credits that were maybe passing before?

Kessel D. Stelling

I think in general, just removing the TARP stigma, as some might refer to it, changes the perception of our company with borrowers who might have been, maybe not reluctant, but at least in the back of their mind had some doubts about the company. So I do think it not only as we said often put the offensive spring in the step in our bankers, but it certainly was a shot in the arm to our customer base and I think in our, probably more so in our larger corporate efforts, where, again, credit ratings and associated conversation around those are maybe more of an issue than in some of our local markets. So overall, I don't know that we can quantify the number, but I think it does open doors and just from a mindset both from a bankers' and from the customers, I think it's certainly been a positive.

Operator

We'll take our next question from the line of Steven Alexopoulos with JP Morgan.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Kessel, I appreciate not wanting to give specific expense guidance, but we look at pre-credit cost income it's basically just trended down, right, over the past year. From a high level, what are your thoughts on the ability to drive this, and do you see enough revenue leverage to offset the higher environmental cost?

Kessel D. Stelling

Yes, Steven. We do think we've said how long [ph] we need to stabilize the balance sheet and that we have reported loan growth 2 quarters in a row. And we see that, again, trending up as not only production increases, but the credit burn decreases. So we think we have the opportunity for revenue lift, from just an overall balance sheet standpoint. We needed stability in the margin even though we still expect some downward pressure. We were pleased to see the margin actually increase 1 basis point this quarter. We'll still see continued pressure from our mortgage banking income, but as we've said, we made some investments. We're taking cost out of the back room as are our all of our competitors, but we're actually adding commission originators in higher growth mortgage where we just have not had a presence, primarily the state of Florida where we had strong banking operations in Tampa, the Panhandle, Jacksonville and not mortgage penetration. So we think we can partially offset the decline in refinancing activity with new purchase activity to the mortgage side. And then we think, again, over the next quarter, we could see increases in core banking fees, moderately higher, increases in overall FMS fees, excluding mortgage moderately higher. And we just got drive down the other costs, whether it's associated with the credit cycle or anything else that was maybe tied to our former operating structure. We get asked a lot about that model where we went from 30 charters, I guess it went down 42, but 30 charters to 1, and we've taken a lot of cost out. But as that model matures and we get a better handle for making sure we're staffing that model properly and focusing on the customers in the back room more efficiently. We think there's more cost to come out there. So a long way of saying, yes, we do believe we can turn that time. I think we'll do it through the efforts I just outlined.

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Okay. And maybe just one other question. Can you give some color on loan purchases in the quarter? Are you finding that a less attractive option here, given slowing growth?

Thomas J. Prescott

We -- on the loan purchases. You're talking about syndications, I guess?

Steven A. Alexopoulos - JP Morgan Chase & Co, Research Division

Yes.

Thomas J. Prescott

Our syndication balance is just as a hardcore balances were actually slightly down quarter-over-quarter. So we did not -- we had some that paid off. We did acquire some, but on a net basis, they were down quarter-over-quarter.

Operator

Up next, we have Ken Zerbe with Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

Just a question on C&I growth. Obviously, you mentioned you had a strong pipeline in C&I, you do expect growth there. But can you comment on the competitive environment? We've just heard so many negative statements during the quarter about how competitive it is. How much yield pressure there is. Are you seeing the same levels of competition in your market and is the growth that you're expecting -- I mean, are you willing to take lower yield? Are you willing to compete on price to show the growth?

Thomas J. Prescott

On the C&I side, absolutely, we are seeing pressure I mean that's what's going on in the market. I would say especially on the short-term rates, I would say it's actually eased off or backed off a little bit on the long term in the last couple of months. But from the C&I side, we do see that pressure. We have passed on a lot of credits during the quarter for pricing. We've actually let a couple go because of the competition that we're looking at from a pricing standpoint. Hopefully, as you will see, we've tried to maintain margin as best as we can and balance that with growth for the long term. And so that's a conversation we have really every day. To give a little color, I guess on the C&I pipeline, it's up roughly about 20% quarter-over-quarter. We just have to make sure we're doing it at the right pricing and making sure we make those decisions individually based on the credit and the customer involved.

Kessel D. Stelling

And Ken, I'll just add that for the quarter we reported loan growth of over $103 million. Yield earning assets went up 1 basis point for the quarter. That probably illustrates we could have certainly grown a lot more if we were just trying to show a growth pattern that made a nice steady chart, but it's -- every day, it's a battle out there. And our bankers I think do a very good job of knowing when to walk away and sometimes maybe we help that here in terms of walking away and not putting in credit on the books that, again, will make for a great growth story, but long term, we can't live with. And I'll also point out that D mentioned, syndications being slightly down but we're getting growth from some newer business lines like Senior Housing where we think we actually have the best team on the ground in our markets and we're getting opportunities that give us appropriate yield where we just have, again, [indiscernible] to bring expertise to the market that allows us to capitalize on the opportunities out there. But it is a daily battle and we're not going to, as Tommy says every other day, "Don't do something stupid." We're not going to do things stupid just to show loan growth.

Ken A. Zerbe - Morgan Stanley, Research Division

Understood. And then just one quick follow-up. You mentioned, if I heard right, that you expect to see reduction in paydowns? How much visibility do actually have in those? Or you're talking more scheduled maturities?

Thomas J. Prescott

Two things. I'm talking more about not the scheduled maturities. That was the actual maturities in loans that would be real estate projects that it had hit the finished construction and go permanent. The visibility we have in those, we know the draw schedules, we are very involved in conversations with the bankers on tracking that and so we have been able to see what we would do in those paydowns based on feedback and progress of each of those larger customers. But we'll continue to have, as we always have had it, but we expect it to be a little bit more reduced.

Operator

Our next question comes from the line of Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Can we just talk about capital for a second, Kessel? Now, post-TARP repayment, you have this higher level of tangible common equity. How do you view the dividend? How do you view the prospect of buybacks? I would suspect maybe with being so close to having repaid TARP, and perhaps going into more of a formalized stress testing process that, that's something that we have to sort of put on the back burner. But I just wanted to kind of get your thoughts on how to look at that?

Kessel D. Stelling

Kevin, you said it well, and to my regulatory friends who are also on this call, I think you've answered the question for me. But we said clearly during capital raise and we were asked did you -- why didn't you talk about it then? We did think it appropriate to talk about giving back capital as we launched a capital raise. So it's back burner event, certainly in terms of the next several quarters. But clearly, you can see how capital will build with the disallowed portion of the DTA and just normal earnings flowing back in. So you will see those ratios build and at the appropriate time, we'll have those discussions as we go through, again, stress testing and just ongoing discussions with our regulators about capital management. We understand the need to manage it very efficiently. And to the specifics, we were -- and this will be -- come as no big surprise. We were at a conference, I won't give out free advertising this morning, at a conference in New York a couple of months ago where that question posed on an interactive basis to the audience full of analysts and the overwhelming response from that audience was they would like to see a share buyback. So we didn't expect anything differently. For our institutional shareholders, they would certainly like to see that. To our retail shareholders, they'd like to see a dividend increase and right now, we need to focus on core earnings on pre-tax, pre-credit, on continuing to drive credit costs down. And at the appropriate time, it will be a fun conversation to have. And at the appropriate time in the future, we'll talk about ways to efficiently manage the capital and where possible return it to the shareholders.

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Great. Just a quick follow-up. There's been a lot of questions on expenses during the call. But just looking ahead, you sort of had alluded to that you're going to look at areas like your branch system. Are these -- are the things that are on the table, would they include looking at specific markets such as your exit out of Memphis a few months ago? Or are they going to be just more very kind of bite-sized type of approach to the expenses?

Thomas J. Prescott

I'm not sure I refer them -- refer to them as bite-size, we've got a lot of effort looking at the overall footprint. As it relates to specific markets, we did announce during the quarter, the exit in Memphis and the sale of our branches there. Quite frankly, we'd like to focus our effort on making markets more efficient and growing market. We've had great activity in Nashville. I've mentioned the large corporate banking additions and the growth we've had there. Our Florida footprint, not as mature in maybe Jacksonville, but certainly doing well and doing well in Tampa and along the Panhandle and again, the Alabama, Georgia, South Carolina markets are as core as you get. So no plans to exit markets. We've just finished a comprehensive strategic review with every market leader and shared our expectations on what each leader needs to do to move the needle and be relevant in their markets and if they're already relevant, become more relevant. So again, no plans to exit markets, but certainly plans to take meaningful bites out of the expense base.

Operator

[Operator Instructions] Our next question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Just had a follow-up here on C&I. What is the new money yield at Synovus today relative to the current portfolio yield of 4.37?

Thomas J. Prescott

You're talking about the basically from the new and renewed, the new rate, is that what you're talking about?

Craig Siegenthaler - Crédit Suisse AG, Research Division

Exactly.

Thomas J. Prescott

Yes. A lot of it depends on the quarterly basis on the mix that we had. Kessel made a comment earlier on the Senior Housing and the strong yield that we are able to have on it. I would say we are seeing pressure on the larger C&I side as that comes in as well as in market -- as well as competition. It is seeing a little pressure on that rate, though, overall.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And just in terms of magnitude, is 40, 60 basis points below the current yield or is it something much closer?

Thomas J. Prescott

I'm sorry. I didn't understand the question?

Craig Siegenthaler - Crédit Suisse AG, Research Division

So relative to the 4.37, I'm just wondering in terms of magnitude. Is it 40 to 60 basis points below the new money yield today? Or is it something much closer to the current rate?

Thomas J. Prescott

It would be less than your 40 to 60 basis points.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Okay, got it. And then just a second question. You're hearing a lot of competitors complaining about investors going out in terms of term in the CRE and C&I markets. Are you guys doing any loans of 10 years maturity or greater today on a commercial side?

Kessel D. Stelling

Craig, we lost you there. Do we still have the call? Operator?

[Technical Difficulty]

Operator

Okay, Mr. Stelling?

Kessel D. Stelling

Yes.

Operator

Okay. Your line is live. Craig your line also.

Kessel D. Stelling

[indiscernible] If you could repeat that one for us?

Craig Siegenthaler - Crédit Suisse AG, Research Division

All right, perfect. So I just had a question on the maturity. Are you guys underwriting any commercial loans today with the maturity of 10 years or greater? Because you're hearing a lot of banks complaining about other institutions, investors, insurance companies really extending out in terms of duration of maturity.

Kessel D. Stelling

We would have very few credits that would be 10 year or more in maturities and the ones that we would have would be very long-term customers with very -- with very long relationships. We would tend more to -- we tend to be shorter than that and really over the last several quarters, our overall maturity and our book of loan really has not moved very far.

Kevin J. Howard

We're mainly a short term 3 to 5 year lender on those type assets, and it's rare we even get past 5, 5 to 10 on those type of credits.

Thomas J. Prescott

And Craig, I think, I think what you're also probably hearing, which I'm not sure we addressed was that we are seeing some longer-term fixed rates, not just maturities, but longer-term fixed rates, which we have been very reluctant to compete against. So where we're seeing, again, a maturity with some variable rate protection, that might be one thing. But when it's a flat out long-term fixed-rate, we're just not a long-term fixed-rate lender. We have seen that in the market and been willing to walk away from some of that.

Operator

Gentlemen, we have no further questions in queue at this time.

Kessel D. Stelling

Okay. Well, thank you, operator, and thanks to all of you, who are on the call today, both the analyst and investor community and our team members and other friends of the company throughout the footprint. I want just to give you a quick, quick summary of the quarter. I think sometimes, we all forget here that we're less than 90 days post-TARP redemption, which again, represented a long, long journey. We began this quarter with upgrades from Fitch, from Moody's, from S&P. We completed successful common preferred stock offerings and then we, again, our TARP redemption on July 26, which provided about a $0.04 per share annualized boost to EPS based on that current run rate. It now puts our bankers back on offense and allows us to really focus on customers and on growth. I think, again, the highlights of the quarter, we're continuing to improve in credit quality, loan growth and really solid growth in core deposits. We probably talked enough about expenses, but we did have about elevated professional fees and other expenses related to loan workouts and foreclosed real estate, and we expect those to decline going forward, and we will work diligently to make sure that occurs. We expect the continued improvement in credit quality. And again, I think loans will grow, as I mentioned, 3% to 4% and maybe 4% to 5% next year. We were especially pleased to see the strong market share data across the Southeast where more than, again, 80% of our total deposits were in markets where we have top 5 market share. The key investments we've made throughout the cycle and the more recent ones including Nashville, Tampa, Orlando, wealth teams in Charleston and Naples, Fort Myers are again, beginning to produce results and again I think give us strong encouragement for the future.

So again, in closing, it's a very big time for our company. We celebrate our 125th anniversary later this month. We'll ring the bell in New York Stock Exchange, but that will be a couple of hour diversion. I will assure all of you, we are as focused or more focused than ever on core operating results. So although we'll celebrate the past, we're even more excited about the future. And I thank all of you, again, analyst investors, shareholders and general board members and team members on the call for your continued support of our company. Hope you all have a great day.

Operator

Thank you very much, 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.

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