Synovus' CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.22.14 | About: Synovus Financial (SNV)

Synovus Financial Corporation (NYSE:SNV)

Q1 2014 Results Earnings Conference Call

April 22, 2014 8:30 AM ET

Executives

Pat Reynolds - Director, Investor Relations

Kessel Stelling - Chairman and CEO

Tommy Prescott - Chief Financial Officer

Kevin Howard - Chief Credit Officer

Analysts

Emlen Harmon- Jefferies & Company

John Pancari - Evercore Partners

Ken Zerbe - Morgan Stanley

Kevin Barker - Compass Point

Christopher Marinac - FIG Partners

Nancy Bush - NAB Research

David Hilder - Drexel Hamilton

Jefferson Harralson - Keefe, Bruyette, & Woods

Operator

Good morning, ladies and gentlemen. And welcome to Synovus' First Quarter 2014 Earnings Conference Call. At this time, all lines have been placed on a listen-only mode and we will open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Pat Reynolds, Director of Investor Relations. Sir, the floor is yours.

Pat Reynolds

Thank you, Kate, and thanks all of you for joining us today in the call. 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 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 maybe 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. We ask that you initially limit your time to two questions, if we have more time available after everyone’s initial two questions we will reopen the queue for follow-up questions.

And I’ll now turn it over to Kessel Stelling.

Kessel Stelling

Thank you, Pat, and good morning to everyone and thank you for joining our first quarter earnings call. I’ll move right into the highlights for the quarter. First quarter of ’14 net income available to common shareholders was $45.9 million or $0.05 per diluted common share. The quarter include pre-tax restructuring charges of $8.6 million, a $5.8 million pre-tax net gain from the Memphis transaction completed earlier this quarter, as well as $3.1 million pre-tax gain from a branch property sale.

Total reported loans grew $101.2 million sequentially or 2% on annualized basis, excluding the impact from the Memphis transaction total loans grew $190.8 million or 3.9% annualized versus fourth quarter 2013.

As you’ll see, we talk about why we had continued broad-based improvement in credit quality. Our NPL ratio declined to 1.91% from 2.08% in the fourth quarter of '13 and 2.65% in the first quarter of ’13. We are now the lowest level in six years since the first quarter of 2008.

Credit cost totaled $17.6 million, 21% decline versus the fourth quarter of ’13, down 64% from a year ago and as you will see later all of our capital ratios increased during the quarter. Our Tier 1 common equity ratio crossed the 10% threshold ending the quarter at 10.24%, up 31 basis points from the prior quarter.

Going to slide four, as I said previously, first quarter reported sequentially quarter loan growth was $101.2 million or 2% annualized, that’s the fourth consecutive quarter of reported loan growth.

Total loans excluding the impact of Memphis transaction again were $190.8 million or 3.9% annualized versus fourth quarter and to give you just a little color on that growth, C&I loans grew $131 million or 5.3% annualized, retail loans increased $24 million or 2.7% for the quarter, again excluding the impact of the Memphis transaction, the primary support there was Atlanta, Tampa with meaningful growth across retail products in Atlanta and HELOC growth in Tampa.

CRE loans grew $36 million or 2.2% annualized versus the fourth quarter, again excluding the impact of the Memphis transaction. I think of additional interest, growth in investment properties was about $104 million or 9.1% annualized and we had planned declines in one to four family properties and the land portfolio of about $68 million.

Again, we had a strong loan growth in key markets across our footprint, including Atlanta, Tampa, Jacksonville, Orlando and Charleston, and certainly others as well. The story there is our teams on the ground are getting good attraction and our Calumet acquisition in high opportunity markets are beginning to show good results.

So based on the results we are partly achieving from our growth strategies, the strong pipeline and the current economic outlook in our footprint, we expect -- continue to expect loan growth of 4% to 5% for the year.

On slide five, I’ll talk little bit about deposits. The story there improved core deposits mix on a reported basis, core deposits decreased about $198 million from year end at $19.58 billion and the reported figures are impacted by the Memphis transaction. So excluding that, core deposits were flat versus the prior quarter as growth in our low cost core deposits was offset by declines in higher cost time deposits.

Our core deposit reflects an improvement in mix with non-interest bearing deposits up 14% versus a year ago, time deposits down 8% as planned. We will talk about the margin in a little bit. Effective cost of our core deposits declined 1 basis point to 26 basis points versus the prior quarter and declined 4 basis points from the year ago.

Core deposits excluding the impact of the Memphis transaction and excluding time deposits actually increased $232.5 million or 5.8% annualize versus the fourth quarter and total deposits of $20.95 billion increased to $74.1 million or 1.4% versus the fourth quarter of ‘13. Total deposits excluding the impact for the Memphis transaction increased $265 million or 5.2% from the fourth quarter of ‘13.

On slide six, let’s talk about the margin, as you’ll see, our net interest margin was 3.39%, up 1 basis point from the fourth quarter of ‘13. Yield on earning assets increased 1 basis point to 3.86% versus 3.85% in the fourth quarter of ‘13. Effective cost of funds was unchanged from the fourth quarter 47 basis points. We continue to expect some slight downward pressure on the net interest margin during the remainder of 2014.

Slide seven, adjusted non-interest income increased $3.3 million versus the fourth quarter, $63.1 million, again $3.3 million increase, driven primarily by $3.1 million gain on a branch property sale.

Both core banking fees and FMS revenues were impacted by seasonality and fewer numbers of days in the quarter. Core banking fees were $31.2 million, down $880,000 from the fourth quarter, driven by lower transaction activity and NSF and bankcard fees.

Our FMS revenues decrease versus the prior quarter by $1.4 million to $18.1 million, that comparison reflects some elevated customer swap fees in the prior quarter and on another positive note mortgage banking income actually increased $599,000 versus the fourth quarter.

And we expect mortgage revenue during the remainder of this year to be relatively stable to increasing from first quarter ‘14 run rate due to continued benefits from our strategic talent additions that we have described on previous calls.

On slide eight, again, continued focus on expense management. Our adjusted first quarter ‘14 non-interest expense was $167.1 million, down $824,000 from the fourth quarter of ‘13. Headcount down slightly versus the fourth quarter down 3.1% versus a year ago. Employment expenses increased $1.5 million versus the fourth quarter due to seasonally higher payroll taxes.

Occupancy and equipment expenses were relatively flat versus prior quarter and we continue to evaluate our branch network part of our focus on efficiency. We closed three branches this month. Now we have 274 branches compared to 283 branches a year ago. A slight increase in FDIC expense of $1 million versus the prior quarter. Other expenses declined overall. Specialty declining by $2.2 million due mostly with lower credit workout cost.

The implementation of our previously announced new expense initiatives is certainly underway. We announced $30 million on the last call. As previously noted, each savings were expected to be offset by investments in talent, technology and marketing. We just launched our new branding campaign. Hopefully many of you have seen it watching a couple of weeks ago during the Masters that highlights the strength of our franchise and local delivery model while emphasizing the capital strength and expertise of mortgage service bank.

So excited about that investment in branding. We are excited about the investment in talent as we continue to strategically add revenue producing FTEs and we’re excited about our investments and technology. Our ATM fleet, E-channel core origination system and commercial core which I will talk about again little later.

A comment on the $8.6 million in restructuring charges awarded this quarter. It relates to targeted staff reduction which we began to implement during the quarter and planned to be completed during the remainder of this year.

On slide nine, we’ll move to credit. We talked about the broad-based improvement in credit quality. We’re pleased to see improvement both in the quality of the credit portfolio and the lower cost that resulted in the strong higher quality balance sheet. We see this very well on the slide with both credit cost and net charge-offs experienced meaningful reductions in the first quarter.

On the graph on the left, you will see the credit cost were $18 million with 21% improvement over the fourth quarter, credit cost of $22 million. Lower level from loans associated cost contributed to reduction obviously in credit cost. We expect credit cost to remain at level similar to the current and previous quarter as further credit volume improvements partially offset that provision for loan growth.

Graph on the right shows net charge-offs for the first quarter of $15 million or 0.30% annualized and $25 million, 51 basis points annualized in the fourth quarter of ‘13. Lower mark-to-market charges, lower retail charge-offs contributed to the overall reduction in net charge-offs.

Slide 10. The graph on the left highlights the continued decline in NPL inflows down to $35 million for the first quarter. This represents a 14% improvement over the fourth quarter and 58% improvement over the same quarter a year ago. It’s important to also note that our substandard accruing and special mention loan balances declined by combine of 11% first quarter ‘14. Continued reduction to these categories resulted in lower NPL inflows.

Non-performing loans ended the quarter at $384 million now below 2% at 1.91% of total loans which is an 8% improvement from the fourth quarter of ‘13 and 26% improvement from a year ago. And we anticipate continued declines from the loan levels throughout 2014. We expect that NPAs will move towards 1.5% by year end 2014 and NPLs will end closer to 1% levels.

Slide 11. To highlight strong capital ratios. All capital ratios increased versus the prior quarter primarily due to earnings and DTA accretion and with some offset in loan growth. Tier 1 common equity ended the quarter at 10.24% or 31 basis points from the prior quarter. Tier 1 capital 10.85% versus 10.54% in the fourth quarter. Total risk-based capital 13.31% versus 13% in the fourth quarter.

Leverage ratio, 9.46% versus 9.13% in the fourth quarter. Our tangible common equity ratio of 10.78% versus 10.68% in the fourth quarter of ’13 and again, first quarter ’14 Tier 1 common equity under Basel III is estimated at 10.03%, which is well in excess of minimal requirements and remind you that we still have a very significant deferred tax asset that we continue to generate regulatory capital in future periods.

And before we go to Q&A, just a little commentary about what we expect to see in the year ahead. First, a comment, first, we are pleased with our performance in the first quarter. I think it reflects continued steady progress for our company. We remain intensely focused on activities that enable us to deliver an exceptional customer experience, as we moved to the second quarter and remainder of the year.

Certainly, credit quality and efficiency are always top of mind and we expect continued momentum in both of those areas during 2014 and our team remained very focused in both areas. As I stated previously, we expect credit costs to remain at near the little levels we have experienced in past couple of quarters, and we expect additional step savings of $30 million to offset the investments we are making in technology, talent and marketing to drive growth and again, we don’t stop there. We’ll continue to push with additional expense save opportunities.

If you live in Atlanta or Birmingham markets who are supported by their television markets or even here in Columbus as you may have seen, evidence of our investment in marketing as part of our extensive internal and external branding effort currently underway. We launched for the first time a Synovus brand in television, print and digital advertising designed to help our customers, better connect our local bank division which has served us so well with the added capital infrastructure and expertise that Synovus brings to relationship. We think that boosting awareness of the Synovus brand is really important in this competitive environment, especially the business customers who want relationship banking but in many cases, need more than a community bank alone in offer.

Our efforts to grow deposits, loans and fee income including customizing our retail delivery model based on the different needs of our customers and our small medium and larger markets. We continue to emphasize our core banking products and services, while we are expanding our brokerage sales force, hiring additional loan originators, licenses, even more of our front line bankers to assist in the sale of insurance and trust services and extending our private wealth services to even more markets. We continue our work to refine the packaging and pricing of our deposit services, focusing on increasing revenues from our core line of business, expanding our treasury management, product set and developing additional revenue sources.

We’ve got an ongoing effort to assess market and business line growth opportunities. We are continuing our efforts around senior housing, equipment leasing and commercial real estate to gain even greater traction in the service of larger commercial customers. We continue to invest in enhanced technology in each channels, necessary to be competitive and offer, added flexibility to bring us to our customers banking experience. We will complete this summer roll out of our 200 new full service branch ATMs and launch our enhanced commercial banking portal and mobile banking upgrades later this year.

Again, all designed to improve that customer experience and just like every other bank and continuing with our activities over the past several years, we are actively evaluating our branch network to ensure our banking locations provide value and convenience to customers who want a physical place to transact.

We know there is a need for preserve branch banking for certain customer segment and we are working to do that just as efficiently fast as possible. And finally most importantly, we continue our investment in talent. We talk a lot about the additional experience with highly skilled team members in banking, mortgage, investment and support lines to our hardest loan team but we are investing heavily in our existing team. We have worked so hard to carry us through this crisis with additional commitments to leadership, development, training, benefits, reward and recognition, et cetera, so again, a big investment in our teams.

I think we really do have a right focus in a lot of activities underway to generate the kind of growth we expect for the year and beyond. And we are especially excited about the branding effort in many additional activities underway that we believe will generate positive results for our shareholders and a better experience for our customers.

So, operator, I will be glad to open the floor for any of the questions as we have our team standing by to take those questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question today is coming from Emlen Harmon. Please announce your affiliation then pose your question.

Emlen Harmon - Jefferies & Company

Hey, good morning. Calling from Jefferies.

Kessel Stelling

Good morning.

Emlen Harmon - Jefferies & Company

I was hoping we could just talk through the expense progression in the quarter a little bit. Obviously, expenses pretty flat quarter-over-quarter and what can sometimes be a seasonally tough quarter. You talked a little bit about some of the expense save initiatives you guys having going for the year. We actually talk through the comp line specifically and give us a sense of just kind of what’s seasonal expenses you guys are seeing in comp this year in terms of payroll taxes, any other kind of accrual increases, and just kind of what you would expect from a run rate there as we head into the second quarter?

Tommy Prescott

Yes, this is Tommy. I will take that question. At the end of the fourth quarter last year we got it that we’re going to target expense base that would be in the neighborhood of the 2013 expense base, which was $670 million. We achieved in the first quarter, I guess, a proportion of share that at $168 million, slightly under what it was in the fourth quarter last year. We’ve got the initiatives that are out there to fund our $30 million expense reduction and have it full implemented by the end of the year. That would include employee initiatives, workforce reduction declines, branch closures are always on the front of that. And then, we feel like it will have a meaningful takedown and are targeting a takedown of attorney fees. We saw a little bit of that in a linked quarter basis.

And then our discretionary spend focus things, if we can just tactically and strategically put pressure on our own company to continue to reduce things such as travel, training, supplies and the like. Kessel mentioned that we would have some offset to that, and that’s a reason that these initiatives to take expenses down now totally show up in the financial statement. And those all sets as we mentioned would include IT, marketing and talent as we look beyond just immediate quarter or two. But if we look into the future, we think those are wise and best ones for the good of the company.

Emlen Harmon - Jefferies & Company

Got you, okay. And just in terms of -- I know the comp expenses can sometimes show some seasonality in the first quarter, could you just maybe detail what kind of increases you had if anything from say FICA taxes or just comp accruals, bonus accruals?

Tommy Prescott

Yes, when we hit, you have some seasonality on both sides of the income and you certainly have some on expense side, and one of them would be the front-end loaded FICA and that type of thing and that actually more than offsets the shorter period of employment expense. So you have a net cost in the quarter. So you get some relief from that. And that’s really from on expense side, that’s the primary one that’s tied to the number of days and the seasonality.

Emlen Harmon - Jefferies & Company

Okay. Got you. Thanks guys.

Tommy Prescott

Thank you.

Operator

Thank you. Our next question today is coming from John Pancari. Please announce your affiliation then pose your question.

John Pancari - Evercore Partners

Evercore. Good morning, guys.

Kessel Stelling

Good morning, John.

John Pancari - Evercore Partners

Tommy back to the question there on comp, do you have the quantification of what FICA was for the quarter?

Tommy Prescott

Yes, so it represents about a $3 million increase in payroll taxes that you get mostly behind you in the first quarter.

John Pancari - Evercore Partners

All right. So that was a linked quarter increase of $3 million so we can expect that to decline $3 million next quarter?

Tommy Prescott

You can expect that subside almost in that amount. You still have some that pulls along in the second quarter and beyond, but this -- for the most part, it’s very front-end loaded and largely done.

John Pancari - Evercore Partners

Okay. And then also on the expense front, the other expenses declined a good amount in the quarter? I just want to see if there is something in that, it looks like, it is down about $5 million, I am not sure, if there is, if an adjustment there that we need estimate?

Tommy Prescott

Yeah. We had and that really triggers back into the GAAP disclosure as oppose to the adjusted G&A expense. But it is really we have about the $3 million letter of credit reserve that was reserved for that we were unable to -- we were able to unwind during the quarter. So that actually is in the GAAP G&A expense line, but by the time you look at the way that we’ve describe the financials in the presentation deck is actually a component of credit cost.

John Pancari - Evercore Partners

Right. So is that other operating expense line item of $20.5 million sustainable at that level or is it -- does it rebound back?

Tommy Prescott

It’s -- well, certainly, the $3 million was one-off, but I’d say without too much of a prescriptive answer, so there are, I mean, its in the same zone. It’s -- I will tell you that it’s sustainable because it -- by definition as things that pump in and out of it particularly on the credit side.

John Pancari - Evercore Partners

Okay. All right. Thanks. And if I could just ask one more thing, Kessel, on the capital front can just give us a little more thoughts on the eventual capital deployment longer term, I know you since had a 10% Basel III Tier 1 common, you paid back [part] (ph) back in third quarter of ’13 and you got the DTA recapture potential coming in? Can you talk longer term about the potential deployment opportunity, particularly buybacks?

Kessel Stelling

Yeah. John, I mean, and I will make it longer term and not certainly quarter specific as you just mentioned. We are three quarters out now from our capital raise, but as we projected and as part of our TARP exit, we believe that our capital ratio would grow substantially and they will continue as we earn at the current rate or higher and as we bring back the distal out portion of DTA. So, I think, our regulators would read that it’s premature at TARP timing, but that certainly, it is in everyone’s best interest, not just us but for the industry to manage capital efficiently to keep access to capital market.

So I think as we move through this year, you will hear us give more on specificity to how that might happen whether it comes in the form of share buyback which certainly could be attractive at the appropriate time, at the appropriate date and then also with the potential of our reserve stock split which is being voted on by our shareholders now that also gives us additional flexibility on just the dividend front to potentially increase the dividend.

So just give us another quarter or two to be more specific about that and certainly, not predicting when that might happen, but we certainly are align with our major investors about managing the capital very efficiently.

John Pancari - Evercore Partners

Okay. Thank you.

Operator

Thank you. Our next question today is coming from Ken Zerbe. Please announce your affiliation then post your question.

Ken Zerbe - Morgan Stanley

Sure. Hey guys. It’s Ken Zerbe, Morgan Stanley. And I just have question on credit cost, the guidance, I think you said it was going to be similar to last couple quarters, obviously we have seen a pretty good downward trend in credit recently, I am looking at page nine here? But if I heard right, the letter of credit, the reserve, I guess, that does, it sounds like that does reverse. So on slide nine, you’re -- I just want to make sure I am thinking about this right that instead of $18 million credit expense, it’s probably more in adjusted $21-ish million? Is that -- that's the level that you are thinking about on a go-forward basis, is that correct?

Kevin Howard

Yeah, Ken. This is Kevin. We do expect, I mean, you can call that a recovery in a way, it was a letter of credit against ORE property. They got healed and we were had at 100% reserved and some of that get healed, our LC got released. So we released our reserves to get that brining that down $2.9 million, but recoveries happen every quarter, I sort of put that in that bucket and we will have $4 million or $5 million over the last few quarters of the coverage. We expect that in the next couple of quarter. So I would say that’s not that unusual. There’s a lot of noise obviously in credit cost. But having said all that I’ll reiterate as Kessel mentioned, I do think somewhere between that goal post $18 million to $22 million of the last couple of quarters is what I think our net credit cost will be which will include the ORE expense and the provision expectations.

Ken Zerbe - Morgan Stanley

Got it, okay. And I guess, when we think about a lot of the other banks as they’ve been healing over the last several years. They’ve ended up with negative provision expense. Given your portfolio, given your credit, which is obviously improving, any -- I mean, is it just fair to assume you not quite going to get that negative provision expense at any point soon or I’m just trying to make sure that we’re not -- go ahead.

Kessel Stelling

Thank you. It’s a good point but I don’t know it will get there. We do think again, we know, we think they’re going in the right direction on overall credit cost. So we still have some work to do. I mean, we were happy that the NPLs are now below 2, NPA is around 2.5. We expect as Kessel mentioned, NPLs go below 1 and 1.5 on NPA side in the near. When I going to get there just on lower inflows coming in, which is a great sign, we’re going to have to still have some disposition, restructure strategy to get there.

That will cause some provision to happen as well as we expect loan growth. And you heard 4% to 5%, it still a number we are targeted and believe we’ll hit and with that we’ll create some provision there. I think during that time, I’m not commenting every bank where there was negative provision. There was low loan growth -- there was no loan growth. There were shrinkage going on at the same time, they were getting recovery. I don’t think that perfect storm will happen for us. I think as we’re already getting loan growth and that’s in place. So I think again, we’ll see improvement but not to that point.

Ken Zerbe - Morgan Stanley

Got it. And then just one follow-up question on the margin. I think, I heard that you said that you’d have some slight margin pressure over the rest of the year. What was it about this quarter that actually led to fairly stable margin, was it just a day count or premium amortization slowing?

Kessel Stelling

Ken, we have a little better than expected securities revenue and also on the loan front, we got a little bit better pricing on new and renewed. We don’t remember this sustainable at that level to in order to achieve our 4% to 5% growth rate but we were happy to see it going forward.

Ken Zerbe - Morgan Stanley

Got it. Okay. Thank you very much.

Operator

Thank you. Our next question is today is coming from Kevin Barker. Please announce your affiliation and pose your question.

Kevin Barker - Compass Point

Kevin Barker with Compass Point. Just want on follow-up with the DFAST submission. Do you expect the DFAST submission to push out the possibility of returning capital to shareholders or is it primarily around the recent TARP repayment?

Kessel Stelling

Well, of course, we built a good capital planning and stress testing methodology, a couple of years ago. I think the implementation that really allow us to get was a key point here in the TARP exit. We at end of March submitted the DFAST documents and we’ll see from our regulators their view on that. We think it was built on a good foundation and look forward to have a conversation with them about it.

That what we found as we understand that does not necessarily go on certainly what you do with your capital in the future and back the instructions on it were to not put any kind of mergers or any kind of stock place in it that might want to do at some point because any kind of permission that might be required to do something in the future would -- could be outside of that submission that occurred back in March.

So I think the spirit of it was to have people just send them their organic view of their company without any sort of transaction associated with it including the buybacks or whatever. But that also as we understand by not putting that in there, it doesn’t keep us from doing something between now and next year, if we so choose to work with regulators on that.

Kevin Barker - Compass Point

Did you look at it as ensuring you have maybe certain buffer from the 5% Tier 1 common equity ratio that will be publicly for the next year? Would you manage your business to ensure that you have a significant buffer over that 5% when it does get publicly disclosed?

Kessel Stelling

That is stress, we haven’t disclosed that amount and like you said the submission next year will become public data, but the spirit of it is certainly to do your best with stress assessment and make sure you have appropriate capital to create that buffer. We are confident with what we send in.

Kevin Barker - Compass Point

Okay. And it is stress test, would you expect the biggest volatility around the results that to be primarily the losses from credit or more the changes in core operating earnings from the business?

Kessel Stelling

It was probably the actual losses, we kept a careful eye on the large banks and we feel like we are in a reasonable zone as we can tell but that’s all to be determine when the smaller bank income comes in and but I think that’s the factor maybe the sizable balance sheet, what happens under stress and then just operating results that we use to have.

Kevin Barker - Compass Point

Okay. And the finally, do you expect your growth initiatives to entirely offset the 30 million in expense savings?

Kessel Stelling

Growth at least to us, we expect balance sheet to grow and to help improve our performance. We think that the expense reduction which as it paves a way to invest in the company without increasing G&A expense, all those were important ingredients of the future we believe.

Kevin Barker - Compass Point

So, net of those investments that you are making within the business, do you expect that you entirely offset the $30 million expense savings or do you think the $30 million was entirely come out of your existing expense base?

Kessel Stelling

The actual, we’ve got it at least about the same place on a G&A annual basis we were last year and we are committed to the investments that we have described earlier which is quite frankly if you add them all that, probably, meaningfully little bigger at least than the $30 million. So we have just got a big push in it. So we are -- we think the investments are incredibly important, although, near-term, mid-term, long-term and feel like that that’s work to comprise of keeping expense safe rather than a reduction that was exactly equal to $30 million that we are trying to take out of the base.

Tommy Prescott

And Kevin, I will just reiterate the point that we announced $30 million and identified expense saves and that would be offset by these investments and talent, technology and marketing, but we haven’t stop at $30 million. We disclosed what we had identified, continues to work around the clock to identify more than that as appropriate we will disclosed in the market as well.

Kevin Barker - Compass Point

Okay. Thank you for taking my questions.

Operator

Thank you. Our next question today is coming from Christopher Marinac. Please announce your affiliation then post your question.

Christopher Marinac - FIG Partners

Thanks. Good morning. I just want to clarify, the small branch gain, you said which was disclosed separate firm in the Memphis sale, that should -- should that we would be taking that out of the pre calculation as well?

Kessel Stelling

That’s what we have done, Chris, in the first slide of the deck, we took it out of pre-tax, pre-credit cost and likes it is kind of one-off item.

Christopher Marinac - FIG Partners

Got it. Okay. Just want to clarify that. Great. And then, Tommy, from the C&I growth you have this quarter, was most of that organic or all that organic in terms of generated internally?

Tommy Prescott

And I guess as far as generated internal, could you expand on the question?

Christopher Marinac - FIG Partners

Sure. I guess, the internal make a difference between kind of sourced internally from Synovus versus going through the share national credits?

Tommy Prescott

What I would end up saying is, if you are asking with the shared national credits or syndicated credits that we -- part of that -- significant part of that was in the C&I growth. But let me, I guess, answer it an additional way is of the syndicated credits that we have, 75% of them are actually inside of footprint and half of them have -- about half of them have ancillary and additional services with us. So it becomes -- we've got relationship with them. Our bankers are outcalling on these companies as well. So some of them, you would have a significant chunk of those that we are partnered with other banks.

Christopher Marinac - FIG Partners

Okay. Great, Kevin, that’s helpful. And then just last question for whomever it, just sort of, I guess your expectations are on deposits as the rest of the year goes on. I think you’ll see any competition for deposits and the change in the pricing that may be necessary?

Tommy Prescott

On the competition for deposits, I think the biggest thing is you’ve got everybody is continually focused on mix first, making sure we’re looking at the right type of core deposits. We will say it is an increased focus with us, with our team on the deposit side, both on the every day account generation but also on the balances as well. So to me, we view it as something we’ll need to continue to focus on. There’s a need to continue to drive the strength of the core franchise.

Christopher Marinac - FIG Partners

Great. Thank you for the color.

Tommy Prescott

Thanks Chris.

Operator

Thank you. Our next question today is coming from Nancy Bush. Please announce your affiliation and pose your question.

Nancy Bush - NAB Research

Hi. NAB Research. Good morning guys.

Kessel Stelling

Good morning, Nancy.

Nancy Bush - NAB Research

Tommy, a question for you. Just could you speak to the assets sensitivity of the company right now and whether it should be, I mean, are there any swaps rolling off or anything happening over the next few quarters that will increase the asset sensitivity as it looks maybe you’re getting nearer to rates going up?

Tommy Prescott

Nancy, I’ll be glad to do that. We do continue to believe that we have a reasonable amount of asset sensitivity. We run both models on ramp basis and believe that we’re 100 basis points. You could have 3.2% increase in net interest income or annualized rate over 12 months. And if that number is 200 basis points would be 5% increase over the same period.

We’ve been very conservative, I think, in our modeling. We’ve actually taken that another step. So if you had more aggressive repricing in the money market and now accounts that those numbers would lose 2.6% and 3.9% based on 100 and 200 basis point decline. We’ve -- the floors have been moving out some. That’s certainly useful back for us as the rates began to move. That’s a key strategic piece of this to have a lower level of the floors. That number was down about 2.9 billion and it’s significantly lower than it was couple of quarters ago.

We’re keeping in mind as we look into our home loan bank advances and so forth to keep a balance on the interest rate risk. But we feel like we’re well positioned for it and might frankly would like to see that begin to happen and think it would be very positive for our company.

Nancy Bush - NAB Research

If I could just ask as an addendum to that, you were historically one of the most asset sensitive banks in the industry and this is sort of pre-2008. Is it possible with your mix to get back to that position and/or is it position that you would like to be in very asset sensitive?

Tommy Prescott

We’re certainly still asset sensitive really to get back into that position right now would be pretty costly and while it might have a future benefit for the -- none of us really know when the rates are going up. And so that would be a little bit against us, the short view and so we on a daily basis try to keep a balance between the asset side and liability side. And the duration amounts of windows and so forth. So -- and plus part of this is driven by the growth from our customers and approaches laid out for lending and so forth. So we feel like we have a good balance and we do not see us trying to move along levers to increase the asset sensitivity in a large way right now. We just want to keep it where it is and move forward that way.

Nancy Bush - NAB Research

Okay. Understand that. And just quickly, Kessel, if you could mention, you may have mentioned this in your remarks and so I apologize. Just your large corporate group, what kind of progress they are making, how much they may have generated towards this quarter’s loan growth, et cetera?

Kessel Stelling

Nancy, I will touch on it and Dee might want to add a little color. And they continue to make great progress. Now earlier on, we had tremendous growth in areas like senior housing because they were not having pay-offs of a new group and now that, they are starting to see the normal charge that you actually want to see. So the lift in some of the individual components was certainly not as dramatic, but I think as Dee mentioned earlier I think that the better story now in that large corporate group is the partnerships they formed with the local bankers where we are booking credits with ancillary services.

And so we may classify it in a large corporate group, but it really fits nicely into our footprint with our core banks and co-bankers. So they are still were very pleased with the progress of that group. And again, from an individual component maybe not as much lift in some of the sectors but overall integrated very well with our team. And at the end of the day, the goal is to lever that service and product to our customer without any doubt as to whether we are one team, one Synovus, so, again, good solid performance from that large corporate group.

Nancy Bush - NAB Research

All right. Thank you.

Operator

Thank you. Our next question today is coming from David Hilder. Please announce our affiliation then post your question.

David Hilder - Drexel Hamilton

Yes. Thanks very much. I’m with Drexel Hamilton. Just a small question and a perhaps larger one. On the 200 ATMs that you will be rolling out later this year, will those replace existing ATMs or will they be added to them?

Kessel Stelling

They will replace the existing. I have been very strategic about where we put those obviously, in our higher volume because they are virtual branches. So, we think that they will also allow for potential efficiencies in branches that are either, where they are on premises or in close proximity to a branch. But we are replacing our older fleet. Again, what we think is a state-of-the-art technology to really just give our customers additional options, full service deposit capability and other capability.

David Hilder - Drexel Hamilton

Great. Thank you. And then on the Synovus advertising campaign, is that something that over time will be, will the Synovus brand be more important and perhaps some of the 28 regional or community bank names less important in your strategy?

Kessel Stelling

We think it’s very important to make sure that people understand the strength of Synovus and the strength of that local brand served us very well during the crisis. And quite frankly served us very well for 125 years in some markets, 113 in others but what was apparent is we came out of the crisis and did a lot of testing with focused groups that our footprint is that many of our customers didn’t get the connection of who the local brand was relative to Synovus or even who Synovus was and equally is important or more are the prospects in the business market that we think is so critical about success did not understand that Synovus was a large regional bank holding company with strong capital and technology support that very local feel that we think we’ve executed so crisply across our footprint.

So the idea here is to take that local brand equity and transfer it to Synovus, not remove it from the local brand but make sure that one plus one equals at least two and maybe three or four as you look at again, a local brand like a Bank of Tuscaloosa and tied that into Synovus bank. So there are no plan short-term to replace the local brands but it certainly gives us the opportunity to leverage our advertising and marketing and make sure there are customers as they move through South Carolina where we branded as NBSC into Atlanta where we branded as Bank of North Georgia or Nashville where we’re Bank of Nashville that those customers understand it’s all one bank, it’s one charter and one method of service delivery. So again on plans to change name, but certainly we want to take that goodwill associated with those local brands and get that same goodwill and excitement around the Synovus brand.

David Hilder - Drexel Hamilton

Okay. Thank you very much. That’s very helpful.

Kessel Stelling

Thank you.

Operator

Thank you. Our final questions today are coming from Jefferson Harralson. Please announce your affiliation then pose your question.

Jefferson Harralson - Keefe, Bruyette, & Woods

A very broad question just on the business model, you’re making a lot of investments, you’ve changed many years ago what the charter consolidation and I’ve got the ad campaigns and ATMs, you’re seeing definite change in the business model on the retail side and the commercial side. But maybe just give you a chance to comment on the business model changes that you’re putting into place now if any or just a bigger picture question on kind of the model, how it’s changing and how that should affect your long-term profitability?

Kessel Stelling

Sure, Jeff, and I will take a stab on that one, and you know as well we are better than most. We went from a 30 charter operating environment to one, and in some cases made immediate changes to operate as one bank. We centralized some things. We regionalized others. But our goal then and still now is to keep those decisions that are most important to the customers as local as possible and that doesn’t mean you can’t regionalize credit or centralize finance function, but it means that our local bankers need to be able to quickly decision the majority of customer requests and there has been a progression, as we in some cases might have moved too far, some cases maybe not far enough.

But it terms of overall business model change, we think the introduction of these specialists, whether it’s again asset base if we have the long time senior housing, large corporate CRE, bankers, that has now worked well as collapsed these in some cases psychological barriers of local charters and not wanting help from the mothership which again in our confederacy was kind of how we operated in the past.

On the retail side, we do think we can be more efficient in a delivery model and quite frankly make that experience better for the customer if we can get more consistent in how we deliver product and service. But at the end of the day what we want the customer see from a business model change or tweak is just that the experience gets better and that it’s as good in one market as it is the other, although we like the local flavor that our leaders bring to their service. We think that again going to the specialty lines and some of the larger corporate areas where we have people with real expertise and some of these business lines is better received quite frankly by our customer and by our local bankers. So nothing radical from the customer side other than we want them to be served by the right banker and we want to do it in efficient way and we will continue to explore opportunities, but again always keeping customer in mind but certainly looking ways to delivery it more efficiently as well.

Jefferson Harralson - Keefe, Bruyette, & Woods

And just a one follow-up, what should we expect next, is it something that with your success in the specialty business line, is it new products or new teams, new one name verticals should we expect next?

Kessel Stelling

It’s all the above. We are investing talent everyday. We’re recruiting teams and talent everyday. And I really do -- I made a point it’s quite frankly a lot easier to recruit today than it was two or three years ago or even a year ago pre TARP exit, but I think we’ve teams of bankers that see what this company is doing and see the value you have we’re bringing to the market. So it’s certainly recruiting individuals, it’s recruiting teams. Yes, it is looking at products we have comprehensive review going on right now in our retail space to make sure we have the right product for the right market segments and we will continue to look at other opportunities there as well.

Jefferson Harralson - Keefe, Bruyette, & Woods

All right. Thanks guys.

Kessel Stelling

Thanks.

Operator

Thank you. We have no further questions in the queue.

Kessel Stelling

Okay. Well, thank you, Operator, and thank you to all of you that joined in. I will close with just a brief comment. I was going to say one of you wrote that was actually Jefferson in there piece this morning that we’re grinding away towards higher profitability and I think that’s probably a fair statement that we’re grinding away. I just want to assure everyone we’re grinding away with enthusiasm and with the sense of urgency as we move along again this company’s recovery into a period of growth and opportunity both for our company and for our customer. So I think that's a fair assessment. It might feel like a grind to some of our team sometimes. And so I want to thank them for what they continue to do day in and day out to move the needle for us.

And again to all of you both shareholders, investors, analysts that are on this call we appreciate your continued support. It’s a big week for our company. We will have our Annual Shareholders Meeting on Thursday where we will say farewell to two more directors, who have reached mandatory retirement age, Neal Purcell, who has chaired audit committee through some tough times and he has done a fantastic job of providing guidance to us; and then Jimmy Yancey, former Chairman, President of company who will have celebrated 54.5 years with the company upon his retirement. So just a special thanks to those two, and again thanks to all of our teams for all that you’re doing every day to allow us to continue to make the product we’re making. So thank you all, have a great day and great rest of the week.

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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