Synovus Financial Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.21.14 | About: Synovus Financial (SNV)

Synovus Financial (NYSE:SNV)

Q4 2013 Earnings Call

January 21, 2014 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

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

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

Ken A. Zerbe - Morgan Stanley, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

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

Erika Najarian - BofA Merrill Lynch, Research Division

Emlen B. Harmon - Jefferies LLC, Research Division

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

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

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

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

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

Nancy A. Bush - NAB Research, LLC, Research Division

Michael Rose - Raymond James & Associates, Inc., Research Division

Christopher W. Marinac - FIG Partners, LLC, Research Division

Keith Murray - ISI Group Inc., Research Division

Kevin Barker - Compass Point Research & Trading, LLC, Research Division

Operator

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

Patrick A. Reynolds

Thank you, Kate, and thanks to 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, www.synovus.com. Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today, with our executive management team available to answer your questions.

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

During the call, we will discuss non-GAAP financial measures in reference to the company's performance. You may 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] With that, I will now turn it over to Kessel Stelling.

Kessel D. Stelling

Thank you, Pat, and good morning to everyone and thank you for joining our fourth quarter earnings call. We'll comment about the year and certainly the highlights of the fourth quarter.

I'll start with net income for the fourth quarter. Net income available to common shareholders, $35.8 million, or $0.04 per diluted common share. Excluding the litigation loss contingency expense and restructuring charges, our fourth quarter '13 net income available to common shareholders was $44.3 million, or $0.05 per diluted share.

A comment on the litigation loss contingency; the fourth quarter results include a $10 million pretax charge of loss contingency accruals with respect to outstanding legal matters, which reduced earnings per share by $0.01. Every quarter, we review legal matters and other contingencies and adjust our accruals as required under the accounting rules. We cannot comment further on pending legal matters, but we refer you to our SEC filings for more detail on any pending lawsuits and other contingencies.

Our fourth quarter '13 pretax pre-credit cost income was $96.3 million, an increase of $868,000 from the third quarter of '13.

Total loans grew $346.2 million sequentially, or 7% on an annualized basis, and we continue to see broad-based improvement in credit quality. The NPL ratio declined 2.08% from 2.29% in the third quarter of '13. NPL inflows decreased to $41.2 million, a decline of $6.3 million, or 13.2%, from the third quarter of '13.

On Page 5, again, fourth quarter '13 sequential quarter loan growth was $346.2 million, or 7% annualized, our third consecutive quarter of reported loan growth. The 7% was stronger than the 3% to 4% previously guided. Stronger performance was primarily a result of stronger fundings, partially driven by seasonal draw activity and delay in several large paydowns.

From a geography standpoint, we were pleased to see growth in key markets such as Atlanta, Nashville, Tampa, Savannah, Charleston and Columbus and certainly others throughout our 5-state footprint. We were especially pleased to see C&I loan growth of $272.5 million, or 11.1% annualized, as we continue to build a powerful linkage between our local bank divisions and large corporate lenders to drive core growth.

In both small and large markets, we expanded existing customer relationships through the partnerships with the local relationship managers and large corporate bankers. This resulted in over $100 million of the growth this quarter and it occurred in such markets such as Rome, Tampa and Savannah. So again, very pleased with traction and the chemistry between, again, our large corporate teams and our local bankers.

Retail loans provided $75.6 million in net growth for the quarter, increasing 8.4% on annualized basis. The retail loan growth was driven by HELOC and consumer mortgages. HELOCs were up $38 million, or 9.7%. Consumer mortgages increased $36 million, or 9.7% as well annualized on a sequential-quarter basis. This was driven by growth in private client mortgages. CRE loans remained relatively flat versus the third quarter. But within that category, the investment properties portfolio grew by about $50 million, or 4.4% annualized. Net growth was offset by planned reductions in 1-to-4 family residential properties and land.

On Page 6, again, as we had previously guided, and you'll recall, on our thoughts for 2014, we do expect loan growth of 4% to 5% in 2014. You'll see in the bar charts on the right, 5-quarter footprint of our loan growth. We certainly believe our lending engine is gaining momentum, as investments in talent and business lines continue to pay dividends. As previously mentioned, we're expanding relationships and partnerships between local bankers and large corporate groups. Our pipelines remain solid and the economic outlook in our footprint is now more favorable for loan growth.

We do expect in the first quarter for growth to moderate from the fourth quarter levels due to seasonality and the sale of our Memphis branches completed earlier this month, which I will comment on in just a little bit. So again, 4% to 5% for the year. First quarter, again, may be a little more modest than that.

On Page 7, on core deposits, you'll see core deposits were up slightly, an increase of $84.1 million, or 1.7% annualized from 3Q '13. Average core deposits grew 8.3% annualized, versus the prior quarter. Core deposits, excluding time deposits, increased $156 million, or 3.8% annualized, to $16.28 billion. Our noninterest-bearing demand deposits grew $284 million during the quarter. On overall, total deposits of $20.88 billion declined about $97 million, or 1.8% annualized, from the third quarter due to $181 million decrease in broker deposits, which now represent only 5.2% of our total deposits.

On Page 8, you'll see that we saw stability in both net interest income and the net interest margin. Net interest income increased $360,000, versus the third quarter of '13. Our net interest margin was 3.38% compared to 3.40% in the third quarter of '13. The yield on earning assets of 3.85% was down 4 basis points from the third quarter, and the effective cost of funds of 47 basis points was down 2 basis points from the third quarter of '13. We do expect slight downward pressure on the net interest margin during 2014. We'd certainly expect to see a benefit from any potential rate increases.

I'll take you to Slide 9. Noninterest income down from the third quarter due to the decline in mortgage revenue and the losses on private equity investments. Fourth quarter '13, noninterest income, excluding securities gains, net was $59.8 million, a $2.6 million decrease from the third quarter of '13. The decline, as mentioned, was driven by a $2.4 million decrease in mortgage banking income and private equity investment losses of $2.1 million. The fourth quarter '13 mortgage revenue was impacted both by decline in refinancing volume and seasonality.

Core banking fees, $32.1 million, compared to $32 million in the third quarter of '13. Stability with a slight uptick there. Our FMS revenues were $19.5 million. It increased $1.6 million versus the third quarter '13, driven by increases in fees from customer interest rate swaps and trust services. And again, we expect mortgage revenue during 2014 to be relatively stable to increasing from our 4Q '13 run rate, as we continue to see benefit from the strategic talent additions and growth in purchase originations offset declines in refinancing volume.

On Page 10, again, adjusted fourth quarter '13 noninterest expense was $167.9 million, down $3.2 million, or 1.8% versus the third quarter of '13. We experienced declines in almost every expense category. Adjusted noninterest expense for the year was $670.5 million, down $22 million, or 3.1% compared to prior year, driven by the benefit from efficiency initiatives as headcount declined 5.4%. We did, during the quarter, complete full implementation of $30 million in expense reduction initiatives that were announced in January of '13.

In 2014, just a little color about the look forward there. We do expect new expense savings initiatives of approximately $30 million that will be implemented during 2014, and efforts are under way there. Additional efforts are ongoing, but again, we have $30 million in additional savings planned at this time, and we will continue to increase our investments in talent, technology and marketing, so you won't see the expense reductions dollar-for-dollar, but you'll continue to see very strong focus on the expense line from our company.

On Page 11, moving into credit, continued broad-based improvement in credit quality. This slide provides a graphical illustration of the trends in our credit portfolio. You can see our credit indicators remain favorable, as we continue to improve the quality of the balance sheet. I'll go into more detail in each of these metrics on the following slides. But in addition to the metrics here, just a few other key credit indicators that improved that I believe were worth mentioning. Special Mention loans declined from $526 million, or 38% from a year ago, and decreased approximately $167 million, or 17% on a linked-quarter basis. So again, a decline of $526 million from a year ago and $167 million on a linked-quarter basis.

Substandard accruing loans decreased $131 million, or 19%, compared to a year ago, and up $53 million, or 9%, sequentially. Past dues continue to be at very low levels, with past dues over 90 days at only 0.02% of total loans. Total past-dues at 0.3% -- 0.36% of total loans. You'll see additional detail on each of those items in the Appendix.

Credit costs and net charge-offs, down significantly from the prior year. Credit costs for the quarter were $22 million, in line with our guidance, which was again the credit costs would remain within the range of the past 2 quarters, which were $24 million and $22 million, respectively. I think it's obvious this continued low level of credit costs can be attributed to the fact that our level of problem loans has reduced significantly during the past year.

In fact, credit costs were 40% lower in the second half of '13 than in the first quarter. And moving into 2014, we expect credit costs this first half of the year to remain near current levels, due in part to the provisions of the loan growth and the costs associated with the remaining legacy problem credits. And we believe that credit costs will begin to trend downward in the second half of this year.

Net charge-offs for 2013 were $135 million, or 0.69%, compared to $483 million, or 2.45% in 2012. For the quarter, charge-offs were $25 million, or 0.51%.

On Slide 13, NPL inflows and NPLs continued to decline in 2013. We do expect further improvement in 2014. As you'll see, NPL inflows came in at $41 million in the fourth quarter, which represented a 13% improvement over the third quarter. As we've mentioned in previous -- in recent quarters, our substandard accruing of special mention loan balances, continue to reduce, which has resulted in lower NPL inflows.

Nonperforming loans ended the quarter at $416 million, or 2.08% of total loans, which is a 23% improvement from a year ago and an 8% improvement from the third quarter of '13.

On Slide 14, again, a little color on our capital ratios. They remain strong. Most capital ratios were stable versus the prior quarter due to loan growth and an increase in unused loan commitments, and we're glad to see that. I'll walk through some of the key ratios there. Tier 1 common equity was 9.93%, same as the prior quarter. Our Tier 1 capital ratio, 10.54% versus 10.55% in the third quarter of '13. Our total risk-based capital ratio, 13% versus 13.04% in the third quarter of '13. Leverage ratio, 9.13% versus 8.96% in the third quarter of '13. Tangible common equity ratio, 10.68% versus 10.61% in the third quarter of '13.

Our fourth quarter '13 Tier 1 common equity ratio under Basel III is estimated at 9.72%. And, again, I'll refer you to the bottom line on the chart, which shows the future benefits we expect from our disallowed DTAs decreasing the regulatory capital in future periods, 277 basis points as a percentage of risk-weighted assets.

So that's the highlights for the quarter and a little color on 2014. Before we go to Q&A, I'd like to make just a brief statement about the sale of certain branches and corresponding loans and deposits in the Memphis market. As mentioned earlier, we did complete the sale of certain assets and liabilities from our Memphis operations to IberiaBank this past weekend. The sale included approximately $90 million in loans and $195 million in deposits. We expect to record during the first quarter a net pretax gain of approximately $5 million relating to this transaction. I'll also add that because of a nondisclosure agreement with purchaser, we will be limited in any additional color we can give on that transaction, but I certainly tried to hit the key points with that statement.

So with that, operator, we will move to question-and-answers, and I'll be happy, along with the rest of our executive team, be happy to answer any questions that our audience might have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is coming from Ken Zerbe at Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

I just had a question on the expenses. Given the additional $30 million that we're talking about for 2014, you mentioned that, that was going to be offset with other initiatives. On a -- I was hoping you could give us some framework on a net basis. Should we actually expect expenses to be down on a year-over-year basis, given the new investments? Or -- and if so, maybe some magnitude would be helpful.

Thomas J. Prescott

Yes, this is Tommy. I'll take this one. We believe that the noninterest expense on an adjusted basis, excluding credit costs, will be very similar to all of 2013, which really if you look at the run rate in the fourth quarter of $168 million, 4 of those is similar to the $670 million total expense base for the year. We have a lot of reinvestment to do. We're coming -- we're doing catch-up and sum-up, so there is a large amount that will make this company better, but we will buffer the increase in that by this $30 million takeout.

Ken A. Zerbe - Morgan Stanley, Research Division

Okay, that's helpful. And then just the other question I had. In terms of the C&I loan growth, are you -- when we think about the growth on the sort of an annualized basis, are we seeing a commensurate growth in the underlying economic activity, such that you're performing in line with the market? Or do you think that you're taking share of the market?

Roy Dallis Copeland

Ken, this is D. I would say that from the 4% or 5% that we talked about for 2014 and the 7% that we took in the fourth quarter, it would be the latter of the 2 comments that you make. It would be more taking share. I don't think the market is giving us that much at this point.

Operator

Our next question today is coming from Craig Siegenthaler at Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

So first on the securities portfolio, the blended yield here is about 1.94%. And I'm just wondering, what is the kind of blended yield on the securities that you added in the fourth quarter relative that level? And also, can you talk about the mix of the securities you've been adding? And also the duration relative to kind of the in-force portfolio today.

Thomas J. Prescott

Yes, Craig, this is Tommy. We did have modest portfolio growth in the fourth quarter. It was selected by an opportunity. The purchases that we had were primarily 10- and 15-year amortization NBS. It went along with well-structured CMOs and a risk profile similar to a 15-year mortgage-backed security. The yield on that -- those that we added would have been about 2.25% and they're 10- to 15-year pass-throughs.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it, helpful. And then maybe just a question, it's probably best for D here. But just if you dig a little deeper in the investor CRE portfolio, or the investor commercial real estate portfolio, I find it interesting that multifamily, which is one of the fastest-growing segments in the industry here, declined sequentially, while hotels and also office had a nice increase. Can you talk about general competition here, like pricing, term, what you're seeing from competitors within kind of each of these commercial real estate buckets? Is there anything that really jumped out at you in the fourth quarter?

Roy Dallis Copeland

Let me, I guess, make a couple of comments to that, first on the multifamily. If you look at really for the second half of the year, we would have had pretty good growth in multifamily, and the third quarter was strong. We did have a couple of payoffs in the fourth quarter that netted out multifamily home, a normal real estate cycle that I would say finished construction and took those to the permanent market, which actually to me is a tremendous positive for us as that cycle is taking place. We still have a lot of activity in the CRE world. And then, I guess, more to your comment on what we're seeing from rates, it is competitive. The rate, there has been a pressure on the rates that we feel like we do have opportunity to grow that, but it will be in the CRE side. And that continued to have some reductions on the land in the other categories.

Kevin J. Howard

Yes, this is Kevin. I may add to that. I'll reiterate what D said on price and there is going to be a little pressure there, but we've been pleased that we haven't had to make structure concessions. I think we've sticked to our policy. I think there's been good opportunities. It is an odd mix on the growth of hotels. For the year, hotels is 0% growth. We just had a few that closed during the quarter, had some good draws on in places like Birmingham, Nashville, Columbus and places in Tampa, as well.

And on the office, you saw that spike up, that was the highest. We're not doing constructions back there. It's a lot of -- it's a medical-related, and it's also some refinances. Some of the -- the permanent market in office is not very robust and some of those opportunities we've had a chance to refinance on existing properties. They're already cash-flowing. I don't think we'll be leading in office and hotel in 2014. I think our leader will still be multifamily, but it is good to see some good quality coming out of the other segments of the portfolio. Maybe a little more balanced in 2014, obviously led by, we think, still the multifamily because we've already booked a lot of credit that will draw up there in 2014.

Operator

Next question today is coming from Steven Alexopoulos at JPMorgan.

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

How much of the $346 million in loan growth this quarter was from purchased loans? And when you think about the 4% to 5% loan growth guidance next year, or actually this year, 2014, how much of that are you expecting from purchase and how much from loan originations?

Roy Dallis Copeland

Yes, I'll take that. This is D. From the purchased loans, we would be in the neighborhood of -- it's a little less than $100 million. I think it's in the ballpark of about $80 million in net growth from an overall purchase loans. But to give you a feel, I guess, from an overall loan originations for the quarter are what I'll call purchase of syndicated loans were less than 10% of the overall new originations that were done during the quarter. We do expect to have, I'll say, controlled growth in the 2014 in our 4% to 5% growth. But it will not be, I guess, a large -- the largest part of the growth for next year, by any means.

Kessel D. Stelling

Yes, I think the growth for next year, which we're projecting at 4% to 5%, will be -- we kind of model maybe that's 10% of that number. But I think what we're excited about is kind of the balanced growth opportunities. You're starting to see a little bit of commercial real estate. That won't be our lead, but coupled with C&I and the retail and then some of the purchase added in there, that's why we're comfortable with that. One, it will not threaten any concentration limits we have, and it's very balanced growth. So that's kind of how the outlook looks for '14.

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

That's very helpful. And maybe just one question on capital. Assuming mid-single digit balance sheet growth for the year, your excess capital position will likely build. How are you thinking about capital return? Any changes in thoughts there through the year?

Roy Dallis Copeland

Steven, no changes of thoughts. We obviously will continue to model and manage our capital in as efficient a way as possible. Again, not to be overly repetitive, but we are just 2 quarters beyond the capital wave, so we are as interested in making sure we are efficient with our capital management as our investors are, and we'll continue to look at our capital relative to our stress testing, relative to our growth expectations and, certainly, relative to regulatory conversations and expectations as well.

Operator

Our next question today is coming from Erika Najarian at Bank of America Merrill Lynch.

Erika Najarian - BofA Merrill Lynch, Research Division

I appreciate the color that you've given us on the expense outlook for 2014 so far. But if we take a step back and we think about the earnings profile of this company over the next 2 years, the run rate efficiency ratio for this quarter was 72% on a GAAP basis and 63% on an adjusted basis. What are your midterm goals for the efficiency ratio, as we think about the next year or 2?

Thomas J. Prescott

Erika, this is Tommy. We really don't have an advertised timeline on a goal. We certainly want to improve the efficiency ratio. We'd like to do all that we can on the revenue side. The reality of it is, we've got to do it on both sides over time to get back to where we want to be. We've got a history in the mid-50s, we've got a longer history in the low '50s, but we think an aspirational view without giving you any timeline would be to get back in the mid-50s and to do it on top line and bottom line.

Erika Najarian - BofA Merrill Lynch, Research Division

And could -- is that achievable in the current rate environment, where the short rate is where it is and the yield curve is steepening?

Thomas J. Prescott

Well, there's a lot of moving parts. We'd love to have a little boost to help that, but we'll -- directionally, we're good with that. We'd love to have some rate to help us complete that.

Erika Najarian - BofA Merrill Lynch, Research Division

And just one more follow-up on the capital question. And we hear you loud and clear in terms of the timing, but how much time do you believe is an appropriate time to warehouse the excess capital before more seriously thinking about redeploying it back to shareholders?

Kessel D. Stelling

Erika, given the very wide audience on the call, I'm going to make sure my comments stay very consistent. I really don't want to be time specific. I mean, we were pleased to see, actually, capital ratios remain steady quarter-over-quarter because of loan growth and that's something we certainly like to see continue. But as we, again, move further in our recovery -- because we still believe as you all know our NPLs, NPAs are still at elevated levels, but as our credit profile continues to improve, as our earnings get stronger, as our stress testing again progresses, it's certainly top of mind to us. But I just would not want to be any more time specific than we have been.

Operator

Our next question today is coming from Emlen Harmon at Jefferies.

Emlen B. Harmon - Jefferies LLC, Research Division

You noted a strong economic environment; it's supporting the loan growth outlook. Could you give us any color, I guess, on what you're seeing specifically that gives you that confidence?

Kessel D. Stelling

Yes, Kevin, I'll comment on that. I think for us, it's good to see construction coming back to our neck of the woods, so to speak, in the Southeast; multifamily, wonderful work, start to see better numbers there; year-over-year, housing prices and starts up in almost every one of our markets, just a few ones that aren't are 1% or 2% down. So, again, unemployment across-the-board is down significantly. As we go into 2014, we're in the 5s, 6s and 7s versus the 7s, 8s and 9s like we were on unemployment rate going into 2013. We have a half dozen markets in the 5.5% to 6% range on unemployment.

Manufactured was good. That was our leading growth segment in C&I this last quarter, that and health care. So the manufactured -- we're staying just in the Southeast, the general lower cost operations in the manufactured spaces is some good opportunity as well. So there are a lot of things that give us a lot more confidence as we're going into 2014, certainly versus the previous years that are positive. So that's sort of our outlook. And that's why I, again, take all those factors, unemployment, real estate, manufacturing, that gives us an opportunity -- we certainly got the talent now lined up to be able to grow a lot more diversified over the next couple of years.

Emlen B. Harmon - Jefferies LLC, Research Division

Got you. That's helpful. And then where do you see the margin stopping out in the current rate environment? You've got a lot of positive things going, the loan growth is improving, just fewer nonperformers, and the rate environment helping. I guess, could you give us a sense of whether we do see a bottom in that in 2014?

Kessel D. Stelling

Yes, it's a daily balance between growing the loan book and managing the margin. We've guided that we believe in 2014, we'll continue see some downward pressure on the margin. That really goes along with pushing hard on the loan book and so forth. We really haven't guided to an actual floor and really see this pressure being out there as long as you're growing loans in this kind of environment. So we'll watch that quarter by quarter, and update it as we see it, but that's really all we put out so far.

Operator

Our next question today is coming from John Pancari at Evercore.

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

Back to the expenses, real quick. Just want to ask a question around the cost save program one different way. How much of the $30 million do you expect could actually fall out of the bottom line or, conversely, how much of the $30 million do you think you'll reinvest with the business investments?

Thomas J. Prescott

The $30 million will be deployed throughout the year, with some of it early and some of it pushed out. So there's a lot of other moving parts that really are beyond just a strategic lift-out. We're pushing as hard as we can on every lever on the expense side. So it's not -- as Kessel said, you won't see it directly on the financials for the reason that it's being deployed throughout the year and also the reinvestments. So that's, I guess, the way we would describe it for now.

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

Okay. So pretty much full redeployment of that savings?

Thomas J. Prescott

Yes.

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

Okay. And then secondarily, I want to ask just around new loan yields. Given the competition that you've cited and your last answer just around the predictability around the margin, given the growing loans in this environment, can you give us a little bit of color about where you're originating new C&I and new CRE paper in this market?

Roy Dallis Copeland

Yes, this is D. And I guess what I would look at is the new and renewed loan rates. We are in the, I guess, high 3s, in the 3.80s -- mid 3.80s ballpark is where that overall average rate is. And that would be -- there is some fix, some floating and that would be with the blend -- a blend of the fix and floating, being slightly more floating than fixed.

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

Okay, that's total loans?

Roy Dallis Copeland

Yes.

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

And do you happen to have a breakout by portfolio or no?

Roy Dallis Copeland

No, I did not.

Operator

Our next question today is coming from Jefferson Harralson at KBW.

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

I wanted to ask about the nature of the projects both in your $30 million cost savings and the nature of the projects in your $30 million reinvestment.

Kessel D. Stelling

Jefferson, I'll start, and Tommy or certainly anyone on the team can chime in. It's really -- on the expense side, it's more of the same. Certainly, headcount is part of it. Our most desired way there is through attrition. But as some of the processes that we have put in place and the groups we've formed over the last couple of years, as those mature, we continue to look at ways to deliver credit more efficiently both on the background now and the front lines. So no broad category there.

We just need to continue to push costs out, and headcount and personnel expense is always going to be the biggest component of that. We continue to look at our branch structure. We think we've been pretty aggressive at our branch repositioning. But certainly, we think there may be additional opportunities there to reposition or potentially close some branches where we can keep the revenue associated with the location and redirect the traffic to another branch. So some there.

And then really across the board, whether it's procurement, whether it's real estate, whether it's, again, just delivering service more efficiently both to our internal customers and to our external customers, it's all in the buckets we described previously. Now as far as where the investment is, we talk about talent. We're really pleased with the talent we've invested in over the past several years.

And as we've said, you don't always see the revenue lift from that talent right away. So you take an expense burden and see revenue lift later. But we continue to actively recruit talent to help us capitalize on where we see either high-opportunity markets or high-opportunity business lines. And it's a big part of our business, and I will just add that recruiting today is a much more positive story than maybe recruiting a couple or 3 years ago. So they'll certainly be in talent.

Technology, as we, again, try and meet the changing, I guess, needs and desires of our customer base, whether it's for online banking, remote banking, different mobile applications, we feel like that just needs to be a continued investment and we've got ways to go there. So there. And then we mentioned marketing, advertising over the past couple of years.

We've pretty much acquired business through guerrilla warfare and just had one-on-one contact with bankers. And we do think, as we come out of this, we need to do a better job of telling the Synovus story and telling the strength of the franchise through the local brands, but make sure that our customers and, quite frankly, prospects get back Synovus connection, get what that means and get the fact that we are one bank with, again, local delivery model, but that capital and infrastructure and, certainly, expertise from maybe the larger bank holding companies, and you'll see and hear more about that as we go through the year, as we tell that story.

And we're actually excited about that investment, because we think that investment will pay big dividends in the out years. We've done a lot of work with focus groups over the last year, our internal customers and prospects, about positioning on how to best tell that story. And we are excited, really, to make that investment because of the impact we think it will have on future growth.

Operator

Our next question today is coming from Jennifer Demba at SunTrust.

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

Jefferson just covered one of my questions, but the other one is on the income growth. Kessel, you mentioned you thought you'd see some mortgage growth off the fourth quarter run rate this year. What are your expectations for the other fee income categories this year?

Kessel D. Stelling

Well, let me take part of it and let Tommy take part of it. I think on mortgage, what we've said was we expect, we do expect growth of run rate similar to the fourth quarter as we see those investments and additional production talent pay off, so similar to the fourth quarter run rate. We were pleased to see the stability in core banking income this past quarter as we've looked at products and fee structures, again, through the lens of -- I think, we have customers who will pay for value, but we got to be very careful about where we tweak or adjust fees. But we do see the opportunity for stability in fee lift. Tommy, you may have some color on certain areas that you want to add to that?

Thomas J. Prescott

Yes. Jennifer, in the fourth quarter, we had a $2.1 million adjustment to our private equity fund that I can't say is one-off but those things move both ways. But I would not expect that to be a normal burden in the future quarters. So that's one piece of it. Kessel mentioned the mortgage direction. And also, as we've grown the balance sheet, as we will do with the loans and deposits, we would expect some lift to occur to help stabilize and move forward the other components of this. So that's the disclosure that we've gotten so far.

Operator

Our next question today is coming from Todd Hagerman from Sterne Agee.

Todd L. Hagerman - Sterne Agee & Leach Inc., Research Division

Just a couple of questions on credit quality. I have to have a credit quality question, but I'm just curious. Number one, asset sales have kind of stabilized here in the last few quarters. I'm kind of curious what the expectations are there. And then secondly, with the improvement in credit quality pretty much across the board over the last few quarters, I'm just curious with the reserve release coming, kind of steadily coming down over the course of '13, how should we think about kind of the ongoing improvement and how you guys view the appropriate coverage ratios in light of the expected loan growth going into '14?

Kevin J. Howard

Thanks,. This is Kevin. On the dispositions, we'll continue. I think, we've guided 50 to 75 most of last year. Dial that back a little bit, more toward 40 to 60. We don't have a lot of inflows coming in. We're also doing a little bit more restructuring credit. And we occasionally get to upgrade some credits, which is what we'd rather do. So we thought we'll dial that back a little bit. But we'll continue that pace at least 2 or 3 quarters and then evaluate.

Our NPAs are coming down, probably, 30 or so basis points a quarter. We expect that, I think, NPAs should get -- we should -- we're trying to cut that in half in 2014. So maybe 1.5% by the end of year would be a good number, so -- but yet still keep that disposition pays. The results there, the market -- we're, again, price lift has helped us on execution and efficiency. So again, we'll continue there.

From a loan loss, I'll try to cover what I think you asked on loan loss reserve coverages. Despite the loan loss reserve coming down, we've got an appendix slide, Page 25, that illustrates that. It came down 9 basis points. Our coverage ratios, both over our loan loss reserve coverage and what we call our coverage ratio, both of those came down -- or, excuse me, went up from 91% to 95%. So our coverage ratios both went up and, when we exclude the charge-off loans, that went up as well. So coverages, I think, will continue to go up and you still will see some reduction in loan loss reserve, not at the pace probably we've been, 9 to 10 basis points.

I don't think -- I mean, there could be an event or something that changes that. But we expect that pace, again, to continue down, but not as much or as steep as it has been. And at the same thing, we expect our coverage ratios to improve. And I -- what you said, your credit is improving, and so you'll get some natural loan loss reductions there that'll be upgrading credits, dispositions of credits that had reserve. But offsetting that is what you pointed out, loan growth. And so we will have to provide there.

I think we've provided this last quarter increased reserve, maybe 3 or 4 basis points just on loan growth this past year are within -- or this past quarter are due to the some good number we had in growth. So again, the pace will come down, a little slower due to those offsetting factors such as loan growth over through 2014.

Operator

Our next question today is coming from Kevin Fitzsimmons of Sandler O'Neill.

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

Most of my questions have been asked and answered. Just real quickly. If you guys could just give an update on how the process for the stress testing is going, and whether any system requirements you're finding along the way is contributing to the need to reinvest, which you talked about quite a bit today?

Kessel D. Stelling

Kevin, we've -- a couple of years ago, we sort of replanted. Our capital planning system had some third-party help and developed what we think is a very solid platform that really helped us through the TARP exit and so forth. We are not taking anything for granted or minimizing what has to be done over the next couple of months, but we feel very comfortable with process and outcome.

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

Okay. Okay, thanks. And then just one real quick follow-up. It seems like a lot of the theme today has been about, like, stability, talk about fee revenues, talking about expenses. And just, Kessel, I wanted to get your feel about your confidence level in positive operating leverage. It seems like the expense levels, we have the savings being offset by the reinvestment. But then on the revenue side, we have some margin slippage being offset by what's pretty decent loan growth. So just trying to get a feel for our revenues going be able to grow in excess of what we see happening on the expense side.

Kessel D. Stelling

Yes, we believe so, Kevin. I mean, if you look at the bulk of our loan growth or, as it occurred in the fourth quarter, I mean, some of that growth actually doesn't provide you much lift as you book that loan, build the reserve or make the provision for that loan and earn very little off of the loan during the quarter. So we began the year as we had guided, that we thought loan growth will be a little softer in the fourth quarter. So we begin the year with a stronger base than we had, quite frankly, anticipated. And so keeping the margin stable, we know there is going to be some slight pressure there.

But with additional growth there, we do see the opportunity, again, to see revenue lift there. So we -- so, I guess, the short answer to your question is, yes, we'd like to not only offset the investment with a comparable expense cover -- and, quite frankly, we'd like to go further. But we're not prepared today to add to the $30 million that we've identified. But certainly, we'll keep an eye on that revenue needle. And if it does not perform as we expect it to, we can and will go deeper on the expense side.

There is just a fine line, as you well know, and we're pleased with that balance right now. We'd like, again, to see expenses come down further. We'd like to see some of the costs associated with the regulatory burdens come down. But we've got to be very measured as we do that. So again, right now, we'd like to see expenses flat. If we can go further, we'll do that and see revenue lift from increased spread income.

Operator

Our next question today is coming from Nancy Bush from NAB Research, LLC.

Nancy A. Bush - NAB Research, LLC, Research Division

Couple of questions for you. Could you just speak to the dynamics of the wealth management business now and whether that business is going to be receiving some of this investment in 2014?

Kessel D. Stelling

Yes, Nancy, I'll take a stab at that. We continue to really invest in all of our business lines both with product, with technology. You may have seen we recently announced a new director of our BAM group, which continues to receive recognition and accolades. So I don't know that we would get into proportional investment, but we do think there are wealth opportunities. We've added some wealth teams throughout the footprint, and so that will receive some of the investment. We, quite frankly, think there are great opportunities for us there in partnering our wealth teams with our, again, local bankers in some cases embedded in the local bank divisions.

Nancy A. Bush - NAB Research, LLC, Research Division

Yes. And, Kessel, I've got sort of a subjective second question for you and I appreciate that this might be difficult to answer. I mean, I think that we would all recognize the experience you guys went through in 2008 to 2013 was extraordinary. And if you just had to quantify how far back the bank has come percentage-wise or however you want to quantify it, and what is yet to be done at Synovus to get back to "normal" or "new normal" or whichever direction you're headed? And I'm kind of excluding credit quality from that, because it seems to be on a glide path. We know it's getting better. But if you could just take us through the rest of the company?

Kessel D. Stelling

Yes, well, gosh, Nancy. That's a tough one. I guess, depending on which moment in time I went back to, it'd be tough to throw a percentage out there. You followed our company for so long that I know you know the tough days. But we think back when classifying the capital loan, you want to exclude credit, was extraordinarily high and how far we've come to here. But just if you look at our operating model, I think this will speak to what's got to be done. Up until Memorial Day of 2010, we operated under 30 different legal operating charters. And we consolidated 28 of those 30 on Memorial Day weekend and 2 the following June.

And I think that to me, if you look back, was a transformational day for our company, some might say not in a positive way. But I think it was a very positive way, both from the ability to help achieve $100 million in cost cuts as we moved forward and when I hear our team express anxiety over that, I just say, "Look back and if we added $100 million back in to our run rate, things wouldn't be so rosy today." So the ability to get cost out then and the ability to greatly enhance our overall risk management, our overall credit process, our delivery of credit and, quite frankly, to deliver it in a way that was better for the customer, and I think certainly, when you move away from that model, you take the organization through a lot of change.

And it was tough for our frontline bankers. I don't want to minimize that. They were on the call today. I respect greatly the way they embraced it. And there were some bumpy times along the road there. So in terms of what still has to happen, we just need to continue to execute on the very plan we laid out as far back as 2010. During the -- again, back to your percentage question, during the crisis, I was asked often about morale, about denying the rumors of where I was or who I was talking to, and my message over and over to the team was, "Look, we've got the plan. We've just got to execute it."

So today, we need to be smart about our technology investment and make sure that we marry the pace of that with the needs of our customer and needs of our bankers. We've got to continue to drive expense out and, not unlike any other of our peers, but at the end of the day, we've got to focus on execution at the customer level. And that's what has to continue to happen better. We talked about how our frontline bankers are doing. They're doing a great job. We've talked about and had a synergy and chemistry between our large corporate teams and the local bankers. And again, you followed our company historically. If you go a way back, when you had your own local charter, you really didn't want any help from "headquarters."

And now we see, as I mentioned earlier with the partnerships in Rome and Savannah and Tampa, great success stories where local bankers reached out for expertise and were able to win business that we might not otherwise have won. So a very short summary of your question is, we've got to continue to execute, and execute with the customer in mind, make sure that our customers see that differentiation of how we're going to deliver it at the local level. But a very quick ability to bring in resources comparable to any of our large bank brethren and just overall make that customer experience better at Synovus.

So it's execution and it's execution every day. I know I get asked by investors often about the timeline and the pace and I can tell you today, just like last quarter, our senior team, our leaders throughout the full footprint feel a sense of urgency to continue to show, again, stability in some areas, growth and positive revenue in others and we'll continue to focus on that.

Operator

Our next question today is coming from Michael Rose of Raymond James.

Michael Rose - Raymond James & Associates, Inc., Research Division

I don't know if this has been touched on, but can you give us your updated thoughts on M&A and what that will play in the future of Synovus?

Kessel D. Stelling

Yes, Michael, it's -- our focus now would really be acquisition-readiness. And what I mean by that is we're focused on our core operating performance, both the systems that allow us to do what we do and the execution at the -- again, at the local levels to continue to grow the franchise. So our projections for this year, that 3% to 4% to 5% loan growth and the investment in talent, that's all geared to, of course, core operating performance and, again, making sure that we are ready when the opportunity presents itself.

It's not, again, a part of the core playbook. I certainly think if you look at the Southeast and you look at markets where we operate today and markets that are contiguous to some of those, there are going to be opportunities - smaller, small bites, shareholder-friendly, nothing exotic, nothing that's going to be headline-grabbing. But I would say, again, that's certainly not a near-term priority for us. But the work to allow this company to be ready for that is already under way, and we'll look at it at the appropriate time.

Operator

Our next question today is coming from Christopher Marinac at FIG Partners.

Christopher W. Marinac - FIG Partners, LLC, Research Division

Kessel, we've seen Synovus the last several quarters do more with community bank loans. I just wanted to confirm that those are including in the C&I balance and also kind of what that portends in terms of Synovus being a bigger player in the correspondence space going forward?

Kessel D. Stelling

Yes, look, Kevin, indeed, they are included in the C&I categories. And those ones that were disclosed, again, by those banks were -- again, we were happy to participate in that -- in those transactions with what I consider 2 fine banks. And the real story here, Chris, I think is that not that we didn't before, but we have very specific expertise in that space drew some of those talent additions that allows us to underwrite and be competitive in that space that, again, might be more attractive to banks within our footprint. That's not a part of our key strategy to drive the 4% to 5% loan growth, but we'll be opportunistic there. And again, as you well know, Synovus at one time had a very large correspondent banking machine. We'll look at those business lines, as we do all others continuously. But we were, again, happy to be a part of the transactions that you're probably referring to, and we, quite frankly, pass on some. But as we see other opportunities, we'd certainly be interested there.

Operator

Our next question today is coming from Keith Murray of ISI Group.

Keith Murray - ISI Group Inc., Research Division

You mentioned commitments grew in the quarter. Could you just talk about the level of growth this quarter versus previous, and then if you've seen any change in utilization?

Kessel D. Stelling

This is Kessel. On the utilization, we didn't see any big changes there, pretty flat on the retail side and slightly up, I think, just 1% or 2% on the C&I side. So no real significant move from the utilization sides of the fundings.

Thomas J. Prescott

Yes, and the only movement would be there, it would be similar to the points Kessel made earlier on some seasonality and some draws that took place during the quarter.

Keith Murray - ISI Group Inc., Research Division

Okay. And then would you mind giving an update on your thoughts on the liquidity coverage ratio, and does that impact pricing for commitments, and might that have to change going forward?

Thomas J. Prescott

I'll be glad to do that. This is Tommy. We obviously study liquidity on a daily basis. We are comfortable with where it is and where it's going. We'll keep -- really keep that needle at a stable level, I guess. As we grow loans, we'll be more aggressive on the deposit side. We've got a very large ramp that's available over time on the wholesale funding side. We've shrunk those numbers to a minimum. And so we believe that we're well-positioned to move into 2014.

Operator

Our final question today is coming from Kevin Barker at Compass Point.

Kevin Barker - Compass Point Research & Trading, LLC, Research Division

Could you give us some color on the decline in mortgage banking income? Was it primarily due to lower volumes, or was it a combination of lower volumes and gain-on-sale margins?

Thomas J. Prescott

It was actually a combination. We did have -- a significant piece of it was from lower volumes. During the quarter, the -- I think we were up in the $190 million range in a quarter ago and the $140 million range this quarter. So that is a big driver of that. And, of course, there has been a continuous shift out of refi into purchase mortgage. That's hopefully finding some equilibrium in that to go along with our additional producers out there we hope can stabilize and move that forward.

Kevin Barker - Compass Point Research & Trading, LLC, Research Division

So are you seeing a pickup in margins just starting out the first few weeks of this year, or is it just too early to tell?

Kessel D. Stelling

You're talking about margins of mortgages or...

[Audio Gap]

Kevin Barker - Compass Point Research & Trading, LLC, Research Division

And then there's been a significant pickup in home equity lending in the back half of this year, and I guess some of this is attributed to broad increases in home prices. But we've seen some of your competitors continue to show significant declines in home equity while others are selectively growing that portfolio. Could you talk about the opportunity to grow the home equity balances, the types of products and the expected yields on home equity?

Roy Dallis Copeland

Yes, this is D. We do see the opportunity to grow our home equity lines. This has been very intentional for us. We have -- we do those in our footprint with existing customer base. We also are able to do it with the right types of loan-to-values and are able to do it with very strong credit scores. And so, really, it's more of a need that is driven by the customer base that we have. We have been able to -- we have done some promotional rates to start off to help aid the growth, but they're short term and actually have solid go-to rates, I guess, I would say, on a go-forward basis. But we're -- we like it, what we're seeing, and we feel like it is core to the customer base that we have.

Operator

We have no further questions in the queue.

Kessel D. Stelling

All right. Well, thank you very much. And again, thanks to all of you listening in today, both investors, shareholders, team members and just friends of the company who continue to show their support for the interest in our company.

I just don't want to close the call out without just a very brief recap of 2013, because it was a very very, again, strong transformational year for our company, and just a couple of highlights to remind everyone. We had all of the MOUs, both at the bank and holding companies lifted through the State of Georgia, FDIC and Federal Reserve. We had 2 successful capital offerings in July. We redeemed a TARP obligation in July. We received upgrades from 3 ratings agencies.

And we, again, celebrated our 125th anniversary by ringing the closing bell in the New York Stock Exchange in early November. We're pleased with the performance seen, and we see strong growth in targeted areas of our loan portfolio during 2013 and in 3 consecutive quarters of reported loan growth to end the year, improved product offerings and technology that really make us better with what we do with the customer and we continue to work on ways to enhance our customer experience.

Broad-based improvement in credit quality. I know Todd asked that question and Kevin was happy to get the credit question, but we're pleased with the progress but still very focused on the work yet to be done and, again, as we said, continued focus on the expense base, measuring the pace of expense cut there and offsetting that with continued investment. But that's a daily focus of our company to close 2013 and, certainly, to start 2014.

So as we move into 2014, again, our capital position is very strong. Our customers remain our central focus. We'll continue to focus on growth and execution, again, while never taking our eye off of the expense management. And we're excited about the strategic investments in technology, talent and marketing that improve the customer experiences for future loan growth. And again, we do expect further improvement in credit quality.

So thank you all for joining us today. And we look forward to sharing the continued results of our company on the future earnings call. And so I hope you all have a great day. And thank you, again, for your interest.

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.

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