Synovus Financial's (SNV) CEO Kessel Stelling on Q4 2015 Results - Earnings Call Transcript

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Synovus Financial Corp. (NYSE:SNV)

Q4 2015 Results Earnings Conference Call

January 19, 2015 08:30 AM ET

Executives

Bob May - Sr. Director IR and Capital Management

Kessel Stelling - Chairman and CEO

Thomas Prescott - EVP and Chief Financial Officer

Dallis Copeland - EVP and Chief Community Banking Officer

Kevin Howard - EVP and Chief Credit Officer

Analysts

Brad Milsaps - Sandler O’Neill

Emlen Harmon - Jefferies

Ebrahim Poonawala - Bank of America Merrill Lynch

Ken Zerbe - Morgan Stanley

Nancy Bush - NAB Research

Christopher Marinac - FIG Partners

Jennifer Demba - SunTrust

Jesus Bueno - Compass Point

Tyler Stafford - Stephens

Jared Shaw - Wells Fargo Securities

Operator

Good morning, ladies and gentlemen and welcome to the Synovus Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions]

Now, I would like to turn the floor over to your host, Bob May. Sir, the floor is yours.

Bob May

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

Before we begin, I will remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties, and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as may be required by law. During the call, we will reference non-GAAP financial measures related to the Company’s performance. You may see the reconciliation of these measures in the appendix of our presentation.

Thank you. And now, I will turn it over to Kessel Stelling.

Kessel Stelling

Well, thank you Bob and good morning everyone. I’d like to take you straight into the deck and on page three we’ll talk about the fourth quarter highlights. Fourth quarter net income available to common shareholders was right at $56 million or $0.43 per diluted common share. Adjusted diluted EPS was $0.44, up 4.2% versus the $0.42 in third quarter ‘15 and up 13.5% versus the $0.39 in the fourth quarter of ‘14. Adjusted pretax pre-credit costs income of $105.3 million increased 533,000 or 0.5% versus the third quarter of ‘15 and $5.7 million or 5.7% versus the fourth quarter of ‘14.

Our credit quality metrics continued to improve. Our NPA ratio declined to 0.96% from 1.01% in the third quarter ‘15 and 1.35% in the fourth quarter of ‘14. Pleased to see total loans grew $565.3 million or 10.3% annualized on a sequential quarter basis and grew $1.33 billion or 6.3% for the full year.

Average core deposits grew $556.3 million or 10.3% annualized versus the third quarter ‘15 and 11.8% versus the fourth quarter of ‘14. We continued to execute on our share repurchase plan. Our total share count decreased by 4.8% versus the fourth quarter of ‘14. Maybe a little recap there; during the quarter, we repurchased 1.2 million shares for approximately $37.1 million at an average price of $32.16 in connection with our $300 million repurchase program launched in October. Year-to-date through January the 18th of ‘16, we repurchased an additional approximately 1 million shares for $31.3 million at an average price of $30.30 and that totaled 2.2 million shares or $68.3 million at an average price of $31.28. Our capital ratios remained strong during the quarter and at year-end with the common equity tier 1 ratio of 10.37%.

Also during the fourth quarter we issued $250 million in subordinated debt with a 10-year maturity and we repurchased $46.7 million of our outstanding subordinated notes that mature in 2017. These repurchases resulted in a pretax loss of $1.5 million. Additionally earlier this month, we repurchased an additional $125 million of 2017 notes in conjunction with our tender offer. First quarter 2016 results will reflect a $4.7 million pretax loss relating to the January repurchases.

And now to slide four, little more color on the loan growth. Total loans increased by $565.3 million or 10.3% annualized on a sequential quarter basis. Growth was strong across all loan categories with C&I loans growing $248.3 million or 9.3% annualized; CRE loans growing a $185.2 million or 10.2% annualized; and retail loans increasing a $133.5 million or 12.7% annualized.

We experienced significant growth in senior housing, middle market and retail lending. Other consumer loans grew right at $78 million, primarily as a result of getting a point of sale lending partnership with GreenSky near the end of the third quarter. Consumer mortgages also grew $50.2 million during the quarter or 10.6% annualized. Corporate real estate grew a $145 million, senior housing grew a $124 million, middle market grew $69 million, our medical office also grew $54 million. From a market perspective to name a few, the Tampa, Nashville, Charleston and Birmingham markets posted strong loan growth.

On slide five, total loans increased $1.33 billion or 6.3%. For the year, I’ll give you a little color there, solid growth really across all loan categories, with C&I loans growing $524 million or 5.1%; CRE loans growing $449 million or 6.5%; and retail loans increasing almost $359 million or 9.1%. We again experienced strong growth in specialty lines including corporate real estate, senior housing, consumer mortgage, medical office, and equipment finance.

Our government guaranteed lending unit which consists primarily of SBA loans generated $122 million in total production for the year or 65% increase over 2014. We expect strong growth in production volume in 2016 which will contribute to our overall loan growth. And our strategy related to government guaranteed lending is really just an extension of our relationship-based banking approach.

For the year, corporate real estate grew $366 million; senior housing $363 million; consumer mortgage grew $245 million; medical office lending grew $120 million; and equipment finance grew $117 million. And again to highlight a few markets, we had high opportunity markets including Atlanta, Tampa, Nashville, Birmingham, Chattanooga, and Charleston, all posted strong loan growth for the year. And we do expect loan growth in the mid single-digits for 2016. Kevin Howard will provide some color on that later in the call.

On slide six, again, pleased with continued growth in core deposits. Average core deposits increased $556.3 million or 10.3% annualized versus third quarter ‘15, and $2.33 billion or 11.8% versus the fourth quarter of ‘14. 2015 average core deposits grew $1.6 billion or 8.2% from 2014. Average core deposits excluding state, county and municipal deposits grew right at $378 million or 7.7% annualized versus the third quarter and $2.21 billion or 12.6% versus the fourth quarter of ‘14. Total average deposits of $23.24 billion increased $384.2 million or 6.7% annualized versus the third quarter ‘15 and $1.91 billion or 8.9% versus the fourth quarter of ‘14.

Period end core deposits increased $648.5 million or 11.9% annualized from the third quarter ‘15 to $22.18 billion and $2.29 billion or 11.5% versus the fourth quarter ‘14. For the full year in markets that posted strong growth in average core deposits included Atlanta, Columbus, Tampa, Columbia and Athens. [Ph]

On slide seven, we cover our net interest, income increased $4.8 million or 2.3% sequentially. Net interest income was $212.6 million, up $4.8 million, 2.3% I just stated versus the third quarter ‘15 and up 2.5% in the fourth quarter ‘14. Net interest margin of 3.18% was up 4 basis points from the third quarter ‘15, and I’ll give you a little write down. Yield on earning assets was 3.63%, up 3 basis points versus the third quarter ‘15. Yield on loans declined 2 basis points to 4.08% versus 4.10% in the third quarter ‘15. New and renewed yield on loans increased 1 basis point to 3.66% versus 3.67% in the third quarter ‘15. Average balances at the Fed decreased right at $293 million to $989.9 million or 23% decline that led to 4 basis-point improvement in NIM. Just due to that factor, we also had 1 basis point improvement due to higher yield on investment securities and pleased to see our effective cost of funds move down 1 basis point in the third quarter to 45 basis points.

A little commentary on rate increases, the most recent increase in the Fed fund rates will be positive. We expect the net interest margin for the first quarter of ‘16 to be approximately 3.25%. As we move into 2016, our base assumption is that we’ll see an additional 25 basis-point increase in both the summer and after the election, but I’ll give you some color on the variables there. But these increases would allow the margin to remain in the 3.25 level for the year with some volatility within the quarters. If we don’t see any further rate increases in 2016, then the margin would see some modest pressure in the second half of the year off of that 3.25 level.

So, as the table on the slide illustrates, we see overall net income in a flat rate environment, we believe will increase due to our expectation of mid single-digit loan growth and a slight expansion in the margin. This would only accelerate if rates were to move up during the year.

So again, if you look at the interest rate sensitivity table, we’ve done a little different this quarter. So, you’ll see that the short term interest rates were flat; the estimated 2016 change in net interest income as compared to 2015 will be up 6%. If rates follow that base case which I outlined, then estimated change in net interest income as compared to ‘15 would be approximately 7% we believe. And if we saw forward rate increases, as indicated in the footnote, we believe the estimated change would be approximately 9% in net interest income.

On non-interest income, fourth quarter ‘15 adjusted non-interest income was $66.1 million, down $942,000 or 1.4% versus the third quarter ‘15 and up 2.5% versus the fourth quarter of ‘14. Core banking fees were basically flat at $33.6 million, down about $271,000 or 0.8% from the third quarter, driven primarily by lower service charges on deposit accounts. Service charges on deposit accounts were down slightly $171,000 versus the third quarter, primarily due to lower account analysis fees. FMS revenues were $19.8 million for the quarter, unchanged on a linked quarter basis and up 0.8% in the fourth quarter of ‘14.

We continue to benefit from the ongoing targeted talent [ph] acquisition throughout our franchise. These talent [ph] additions are expected to generate significant additions to assets under management over next one or two years. Additionally, while negatively impacted by the recent overall market decline, assets under management now totaled almost $11 billion, reflecting 2.3% increase from a year ago.

Mortgage banking income was $4.1 million for the quarter, down $1.8 million or 30.7% sequentially and down 15.5% from a year ago, reflecting seasonally lower production volume and market conditions. For the full year, mortgage banking income grew $5.1 million or 31.3%, reflecting higher purchase and refinancing volume. And we continue to add to our mortgage origination staff in high opportunity markets such as Tampa, Nashville and Atlanta through a greater emphasis on talent acquisition. These investments in people are driving additional mortgage origination volume as well as products and services off of our wealth team through a focused effort to cross sell these mortgage clients.

I mentioned SBA earlier, gains from the sales of government guaranteed loans, which is primarily SBA loans, $1.4 million up $263,000 or 23.5% from $1.1 million in the third quarter of 2015, $5.4 million, up $1.7 million or 45% versus a year ago. And 2015 adjusted non-interest income was $265.2 million, up almost $10 million or 3.9% versus 2014.

On slide nine, again you see our continued focus on expense management. 2015 adjusted non-interest expense $677.9 million, up $2.1 million or 0.3% over the prior up $7.4 million or 1.1% versus 2013, again reflecting our continued focus year-over-year on controlling adjusted expenses. Employment expense of $381 million, up $9 million or 2.4% over the prior year due primarily to higher production driven incentives, annual merit increases. Our headcount’s down about 59, 1.3% versus a year ago, again reflecting continued implementation of efficiency initiatives. Occupancy expense and equipment expense of a $107.5 million is up $1.7 million or 1.6% versus 2014. Other expense is down $8.5 million over the prior year, reflecting lower advertising and FDIC insurance expenses. As you recall from earlier call, during 2015 we paused on broad-based brand awareness advertising spend while we conducted a significant customer research focusing instead on targeted retail campaigns and capability advertising. And the result was a significant reduction in advertising costs compared to ‘14. We do expect spending level to increase in 2016 as we resume brand awareness activity in select high growth markets.

Adjusted non-interest expense for the fourth quarter was a $173.5 million, up $3.4 million or 2% versus the third quarter, increase was driven by $2.2 million, our increase in consulting fee and a $1.2 million charge related to some lease exit costs, partially offset by $1.8 million decline in advertising. For 2016, again intense effort on controlling adjusted non-interest expense, we believe the increase will be in the low single digits.

Slide 10 and talk a little bit about credit quality but I’ll walk you through this. On first graph you’ll see a 6.8% linked quarter reduction in non-performing assets and $215 million or 0.96% compared to $222 million or 1.01% in the third quarter. Year-over-year improvement is 25% and we expect NPAs to decline modestly in 2016. Graph on the top right shows the credit costs were $11.9 million, up $1.6 million or 15.4% from $10.3 million in the third quarter, representing a 27.6% year-over-year improvement.

Again, we believe the credit costs reached their lowest point in 2015 as we provided the loan growth in 2016 with an anticipated lower rate of charge-off, coverage and the possibility that credit costs for year will be slightly higher than 2015. Again, Kevin Howard is going to elaborate more in the Q&A, if you have some questions there. Bottom left graph shows the net charge-offs for the fourth quarter ‘15 were $3.4 million or 0.06% for the quarter compared to $6.8 million or 0.12% in the third quarter. 2015 net charge-off ratio was 0.13%, a 26 basis-point improvement from 2014 which was much improved from our original guidance. Again, a better problem loan resolution and a strong pace of recovery were key contributors. We expect net charge-offs to be in the 20 to 30 basis-point range for the full year 2016.

Graph on the bottom right shows past dues greater than 30 days. Our past dues remain at historically low levels, currently 21 basis points. Also worth noting that our 90-day past dues are only 1 basis point. And with these credit quality improvements, we believe that we still grew loan portfolio more than 6% while maintaining a very high standard for underwriting, and improvement in quality and diversity of the balance sheet.

On slide 11, a little bit about capital and just reconcile these numbers. The fourth quarter ‘15 capital ratios include the impact of $37.1 million in common stock repurchases and $250 million subordinated debt issuance. The third quarter ‘15 capital ratios include the impact of $43.1 million in common stock repurchases. Fourth quarter ‘15 CET I ratio is 10.37%, all capital ratios except tangible common equity ratio or Basel III transitional. And the ratios prior 2015 were based on Basel I rules. You’ll see the Tier 1 capital ratio of 10.37% versus 10.60% in the third quarter of ‘15.

Total risk based capital ratio of 12.70% versus 12.02% in the third quarter of ‘15 reflecting the benefit of the $250 million subordinated debt issued in December. Leverage ratio, 9.43% versus 9.45% in the third quarter; tangible common equity ratio 9.90% versus 10.18% in the third quarter ‘15; and fourth quarter ‘15 Basel III CET I is estimated 9.77% on a fully phased-in basis.

On slide 12 just a brief summary of 2015. I think a good way to summarize it is just steady progress. And there are a lot of charts here we will cover. We reported double-digit net income growth in the year; we achieved further growth in diversification of the balance sheet as just talked about. We continued improvements in credit quality, ended the year with strong capital ratios. I think the benefits of our talent realignment in 2014 were very evident in our numbers year at year-end ‘15. Our bankers and investment teams were better positioned to identify, pursue and serve strategic high potential customers by segment.

Our retail team increased sales productivity by 27% through improved staffing, process enhancements and new in branch sales tools. We opened two new branch prototypes designed to allow for faster service for routine transactions, provide an improved customer sales experience with our highly skilled universal bankers, and we showcased our latest technology that offers customers access and convenience beyond branch hours.

Our private wealth teams are now positioned in16 markets across the footprint that are able to support fee income, loan and deposit growth by working closely with the banking partners who connect them with customers and prospects on a daily basis. We think this kind of activity led to FDIC data showing another year of market share growth in many of our markets and maintaining a top five market share in the majority of markets where we serve.

Additionally, our focus on small business customers led to a 13% increase in small business checking balances over the prior year as well as 16.6% increase in merchant accounts. We continue to building our middle market lending program and sustain momentum from investments we’ve made in other specialty lending areas like senior housing, specialty healthcare. We also led middle market syndications offering our growing customer base more access to credit.

As I mentioned already, we continue to invest in SBA government guaranteed lending, and we’re very pleased with 65% increase in loan production in that area during the year. As of the SBA’s fiscal year-end of September 30, 2015, Synovus was ranked number 30 nationally in loan production up from number 41 nationally the same time in 2014.

To further drive our fee income growth, we continued on-boarding commission based mortgage talent, retail brokerage management consultants and we were very pleased the pipeline expansion and business lines like our multi-generational family asset management. Our mortgage team continued to do a great job of leveraging mortgage products to cross-sell and expand our relationship with customers. On the efficiency front, we once again tightly managed expenses during the year including further headcount reductions and ongoing streamlining of office space throughout the footprint.

We continue to see returns on technology investments that are simplifying process, set processes for our team members and customers and drawing more and more customers to our lower cost transaction channels like mobile, online and ATM banking. We still have a robust mortgage origination platform this year; we laid ground work or launching our new loan and account origination platform to new profitability and data warehouse service.

We made continued investments in protecting our customers and systems from the ever present cyber security threat replacing all customer credit cards and chip enabled cards during 2015. And for all of their efforts, our team was recognized a number of ways during the year. And I can’t recall all of them; I probably could but includes recognition as one of America’s most reputable banks by American Banker Magazine and the Reputation Institute. This was certainly an honor; we’re very proud to receive it. That kind of recognition along with many, many accomplishments made for great 2015 for our team.

From a go forward standpoint, just a couple of highlights and then we’ll move right into Q&A. Our work to drive solid performance in 2016 is well underway. As I said earlier, loan growth is expected to be mid-single digits driven by increased C&I segment penetration. We talked about middle talent acquisition, SBA government guaranteed, loan production and small business lending. We will see increases in retail lending through our growth in consumer mortgages especially in the private client and customer segment, and select lending partnerships GreenSky. And we will see continued but measured growth in CRE lending. We’ll continue to grow deposits at a pace to support loan growth. We expect, as I showed earlier on base case, the 6% increase in net interest income in 2016, which would expand if rates were to move up again.

We’ll continue to strongly emphasize cross-selling partnerships to support increases in fee income, supported by our aggressive on-boarding of mortgage brokerage and trust talents. Adjusted non-interest expense, again I said earlier is expected to increase at a low single digit rate as we invest in technology and talent to bring greater efficiencies, growth and enhance customer experience. And again every effort will be made to keep that number just as low as possible.

We’ll continue to execute our capital plan to further strengthen our position to make sure that we’re prepared should future M&A opportunities arise. And we remain very, very committed to investing in our team members and getting back to our communities including continued leadership development and the launching this quarter of our refreshed outreach program to make sure that we’re addressing the needs and strengthening communities we serve.

So, I’ll close little more but maybe it’s a great time to go to Q&A. So operator, we have our usual team here for our callers and I’ll open the floor up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Brad Milsaps. Please announce your affiliation and pose your question.

Brad Milsaps

Hey, good morning. Sandler O’Neill.

Kessel Stelling

Good morning, Brad.

Brad Milsaps

Hey, Kessel, nice quarter. Just wanted to follow-up on some of the guidance, particularly as it relates to the net interest margin. Just kind of comparing the interest rate sensitivity table that you guys disclosed on page seven of this quarter’s release versus the one you had last quarter, the up on 100 scenario; it’s the increase I think you are saying 9%, I think last quarter was around 4.7%. What maybe changed between the two? And then the flat scenario is not too far from the up 50 scenario; are you just making more -- making assumption that you have more deposit migration obviously with more rate increases, just any additional color there would be helpful.

Thomas Prescott

Hi Brad, the full map is actually different than what we had before. This is all in lift that would happen from growing loans along the way. And so I think it was handled a little differently last time. But now we’re in the real thing with it and we’ve got -- what happened [indiscernible] and believe that this is the place we will land.

Kessel Stelling

Brad, Tommy said that well. Just to say it different way to make sure all of our callers -- the sensitivity charts historically have just been on a base level of assets showing what would happen if rates -- again as Tommy said, this assumes normalized growth in assets. And so the chart is to show the increase in net interest income on that asset base as it grows as well. So, a little different twist on the presentation.

Brad Milsaps

Got it. So, it would encompass your mid single digit loan growth guidance?

Kessel Stelling

Correct. And any increase in spread or anything is associated with just normalized loan growth.

Brad Milsaps

But would still also still capture any assumptions that you guys are making about deposit migration et cetera?

Kessel Stelling

Yes.

Brad Milsaps

Okay. And then just to follow up on that, and Tom I know you’ve talked about this before in the past. You were able to deploy a fair amount of Fed funds this quarter. Would you expect that to level out here or do you think there is still some more opportunity to reduce that number?

Thomas Prescott

There is -- on a period end, I’d say we’re about down, [ph] on an average basis, there is a little bit of room there. So, there will be a modest impact in the first quarter but that’s mostly done.

Operator

We’ll take our next question from Emlen Harmon. Please announce your affiliation and pose your question.

Emlen Harmon

Hey, good morning, calling from Jefferies. On the expense guidance for the low single digits, is that a year-over-year number, are you thinking about that from kind of like a linked quarter basis, as we head out through the quarters? And I’d also just be interested to hear your perspective on how much of that increase -- well there’s obviously a lot of investment you guys are making. I guess I’m curious if there is underlying efficiencies that you are pursuing as well that go into that expense guidance.

Kessel Stelling

Yes Emlen, it is year-over-year. And I don’t know that we’ve disclose the components but it includes significant investment -- let me just give you some of the categories, significant investment in technology related customer facing projects, cyber security, so a lot of investment there; significant amount of employment related expense beyond merit as we invest in middle market lending, SBA lending and other areas. So significant increases there, then you have normal merit. We think we’ll increase our advertising spend; we’re glad to do that. So, if you add all those components in the expense base, you would have without further action more than that low single digit increase. So, it is incumbent upon our team. We’re working every day to again complete ongoing, some of the initiatives which we have carrying over from ‘15 and identify additional in ‘16.

So, it does require a very focused effort to drive cost out to hold it to that level. We included this quarter to go back and show, we’ve really been at this level for about three years. The Company is a lot larger; we’ve got a lot more loans on our balance sheet. I think that chart on page nine is very reflective of how the team has been very focused on driving cost out because all of those years required investments in new people and new technology, yet we held that number basically flat. So, we’d love to hold 2016 flat but realistically we know that at least pressure beyond that, so again the low single digits is right number.

Emlen Harmon

Then I wanted to hop over to deposit side of things. Are you guys seeing any competitive effects at all from that first rate hike that we got in December from a deposit perspective?

Dallis Copeland

This is D. Really what we’re seeing is I think most of folks are holding fairly steady with the deposit rates. I think it just has been a hyper low environment. And I think as it has moved out, we’ve been able to maintain the deposit rates in the range that we have been previously.

Operator

And we’ll take our next question from Ebrahim Poonawala. Please announce your affiliation and pose your question.

Ebrahim Poonawala

Bank of America Merrill Lynch, good morning guys. So, I guess just the first question, Kessel, I think you touched upon this in your opening comments around credit normalization. I was wondering that there has been a lot of concern around what’s happening in the high yield markets and how that translates for credit quality at the banks. I was wondering if you or Kevin can sort of touch upon in terms of, one, if you’re seeing any soft spots be it loan categories or markets; and second, what’s the risk of a material deterioration in credit relative to expectations today or do you just not see that given where unemployment and housing are trending?

Kevin Howard

I missed part of the second part of the question, but as far as soft spot -- this is Kevin by the way, still soft spot might be more on the residential land; we’re still seeing some inconsistencies, maybe in our smaller markets where the job growth has not been as robust, unemployment still more 6% or 7% versus maybe 5% and good job growth in the larger markets. So, we’re still as some of those markets are not growing as well as we’d like to be but here I think the economics are fairly challenging. So that would be more of the soft spot. And I was trying to get that second question down; if you don’t mind maybe repeating that.

Ebrahim Poonawala

Sure. Just in terms of the outlook for credit quality. Are there any particular areas where you’re seeing weakening or when you’re talking to your lenders and pulling back because of the standards that we’ve seen over the last few years?

Kevin Howard

I would say some of that has been in some of the larger credit, maybe the syndications we haven’t been getting as good a look there, from a leverage standpoint seem to be higher leverage type deals; we’re avoiding as well as some of those areas probably more than others. Again, being a little cautious in that space probably a bit more; and on the equipment lending some of the stuff we’ve been getting there, while we’ve had some positive growth, that’s become a much tougher area of the balance sheet to grow due to the risk return ratio that we normally like to see. So there’s been some challenging areas.

Ebrahim Poonawala

And just one clarification, I just want to make sure I heard this correctly. Did you say the first quarter ‘16 net interest margin will be 3.25?

Kessel Stelling

Yes, we believe it will be.

Operator

Thank you. We’ll take our next question from Ken Zerbe. Please announce your affiliation and pose your question.

Ken Zerbe

Ken Zerbe, Morgan Stanley. Just going back to the NIM, especially the chart on page seven, just want -- I get what you’re saying that includes loan growth. But if you look back the last quarter, was 4.7 and I am going to ballpark here mid-single-digits growth is roughly say 5%. So, if you have the two, you should be up closer to 10% per 100 basis-point increase. Is it fair to assume that your asset sensitivity has actually declined since last quarter?

Thomas Prescott

No. Ken, this is Tom. It slightly declined but you really are almost right; all those targets that we’re at, so it’s just a modest change.

Ken Zerbe

Sorry, a lot has not changed?

Bob May

Ken, this is Bob. So really some of it is that you increase the base with the margin going up. So, it has slightly declined on a net interest income sensitivity, but you’re getting the benefit in the base with that 125 basis-point increase that we just saw.

Ken Zerbe

Okay, understood. And sorry to make repeat what you mentioned on the call earlier. But the way I understood that was if you don’t get the two rate hikes, and I thought I heard this. But if you don’t get the two rate hikes or you need two additional rate hikes to allow your NIM to stay stable 3.25, is that broadly correct? It just seems -- I mean curious what sort of without hikes what the downward pressure has been caused by on NIM? Thank you.

Thomas Prescott

So Ken, what we’ll happen if we just stay flat, we believe we’ll see the 3.25, it will move in that direction but it may not stay there. There is still some pressure where the new and renewed is below the portfolio level. So, you see some pressure there that we’ll be taken away if we get the 50 or 100. And so we think we’ll both -- we’ll stick with the 3.25 assuming we can have another rate increase but if we don’t, we’ll have some pressure on where we are right now.

Operator

Thank you. We’ll take our next question from Nancy Bush. Please announce your affiliation and pose your question.

Nancy Bush

Yes, NAB Research. Guys, two market questions. You mentioned the Charleston was one of your top lending markets, but you didn’t mention it as being one of your strongest deposit markets. What is your sort of general funding position in that market and where the sort of funding competitive condition’s there?

Kessel Stelling

Well, D. is looking at some numbers. Let me say just overall in Charleston, and we debate every quarter, we’re going to highlight the loan deposits, but Charleston has been in general a very solid performer for us across all fronts including private wealth plus -- and other area. It is a very competitive market Nancy, as you know some recent entrance into that market through M&A, we’ve got very strong team that it has consistently performed from both loan and deposit base. D., do you have any more color on deposit side you’d like to add there?

Dallis Copeland

Kessel, one thing I would add, Charleston was a strong deposit market; it’s just that ones Kessel listed were stronger. It was up significantly for the quarter. So, it’s not it is a negative. It’s just we have four, five very, very strong markets on the deposit side.

Nancy Bush

And I’d also ask, you mentioned that Atlanta as a “high opportunity market”, you’re seeing strong loan growth there and once again I’m amazed that how tough quickly that market becomes hot. Can you just address the competitive conditions there and what kind of lending you’re mostly seeing?

Kessel Stelling

Well, it’s across all fronts. Atlanta is a very real estate oriented market. So, you always see that there strong multi-family opportunity, there is hotel opportunity. There is good small business in C&I; we’ve had good portfolio, mortgage, consumer and really across all fronts. And I agree with you Nancy, the cranes that were rusting a few years ago, they can’t get enough of them now. And we’re very, not cautious, but we’re excited of Atlanta, but making sure that we don’t try and get every opportunity there. I was there last week; we hosted two economic forecast breakfasts. We had to move it to two different venues because of the customers and prospects that attend. So, we had 500 one day and I don’t know three or four the other and had a local economist. And again, he was also very bullish on Atlanta. But as you know every bank is there and so very competitive, but I’m really proud. I was talking to Kevin the other night and D. about just the quality of our bankers there in a lot of these different specialty areas, again, private banking, wealth, real estate, middle market really across small businesses, across all fronts. We’ve got some performing bankers and I hope our competitors are on the phone wanting to hire them away, very competitive by the way for talent in Atlanta as well.

Nancy Bush

Kessel, I would just ask you one final sort of macro big picture question. I mean there is a lot of talk about recession out there right now. And I don’t know people are just spooked by the markets, but nothing we’ve seen in banking results thus far and I admit that we’re early in the process, has spoken to recession. Can you just give us your perspective on this?

Kessel Stelling

Yes. And again fresh off an economic talk on why the indicators don’t suggest that. But the last two weeks I think have maybe not shaken all of it but certainly caused us to pause. We still don’t see that on the horizon, but we don’t put blinders own as it relates to that. So we think that we’re well-positioned. Our investments have been in areas that are revenue producing. Our credit focus has been very tight. We actually I think loss some talent in the fourth quarter, because our producers thought our standards were tighter than others in the metro market and therefore they wouldn’t quite earn as good a living here. And so we are cautious. We are not planning for it but we are certainly prepared for it. And we still believe based on economic indicator; we have our own internal economic council that met last week or week and I think that that’s pretty consistent with their GDP forecast and their views on so certainly U.S. economy and certainly some use in global economy. So we are not static about the economic outlook but we are -- we think we’ve got a great plan to execute with these existing conditions.

Operator

We’ll take our next question from Christopher Marinac. Please announce your affiliation and pose your question.

Christopher Marinac

Thanks. Good morning. FIG Partners in Atlanta. Kessel, leveraging off of your last answer here to Nancy, was curious about reserves and your ability to build reserves this quarter. Would you like to do that with the loan growth forecast this year and also the positive trends we keep seeing on classified and criticized assets as well?

Kessel Stelling

Yes Chris, I’ll let Kevin take that, but certainly reserves follow formula and loan growth will cause us to provide certainly as we grow and that we continue to have the migration that will help us well. Kevin, give your thoughts about reserve and how you achieved that during the year.

Kevin Howard

I think exactly what you said Kessel. I think we certainly had releases for several consecutive years since coming off of the recession but the things we get further away from that cycle I think obviously your default and loss factors start stabilizing a little bit more. And I think that’s how I see it in 2016, 2017 and you are growing more consistently. And I think it will be probably neutral, maybe even a slight build during the year. And that sort of as Kessel mentioned in his opening remarks on credit cost being -- may have peaked from a low side in 2015 and maybe slightly up in 2016. And I think that’s exactly what’s related to I think two things, the recoveries that we’ve had at the end as we hit further from the cycle won’t be coming in and as rapid as they were, not as robust and as also the reserve build, we won’t have that release; it will be more on the flat reserve. But I don’t think it will be a big number because I think we’ve gotten a lot of our old legacy problems behind us. So, we’ve just kind of just added all up, I’m looking flat to a little elevated, during the year on the reserve. That’s what we’re thinking right now.

Christopher Marinac

And then Kessel, just a follow-up on acquisitions. Do you think anything on the small acquisition front is possible in this next year?

Kessel Stelling

Yes Chris, it’s certainly possible. We’ve been very clear in our position, our focus, and our desire to be prepared. Without going too far here, we get a lot of inbound calls; we’ve been very selective in what we’ve even chosen to screen. But I would certainly say that is a possibility.

Operator

Thank you very much. We’ll take our next question from Jennifer Demba. Please announce your affiliation and pose your question.

Jennifer Demba

Hi. Chris discovered my question. Thank you very much.

Kessel Stelling

Thanks Jennifer.

Operator

We’ll take our next question Jesus Bueno. Please announce your affiliation and pose your question.

Jesus Bueno

Hi. Compass Point. Thank you for taking my questions. Very quickly just on a buyback. You recently re-upped your buyback authorization and the fourth quarter is one of the, I guess lower overall absolute dollar amounts that you’ve used to repurchase shares. So I guess just going forward, how should we think about the buyback over the next year in terms of pace of buyback?

Thomas Prescott

This is Tommy. We put the new program out back in October. We’re down I believe to 232. And so we’re slightly below what you might see on just a daily basis but we’ve got a long time; we got the balance left to go with the 232 and we got between now and December to finish that. And you will see us going through in opportunistic way and so forth. And our attention is to complete it by the time the December hits here. And so we think [indiscernible] in 2016.

Jesus Bueno

That’s great. Thank you. And just on -- obviously loan growth was nice and you touched upon -- you mentioned the partnership with the GreenSky. So interested without point of sale partnership, do you have a I guess any targets for I guess what you expect loan balances to be from that program, and I guess in terms of your overall loan mix what size are you comfortable in terms of growing that portfolio?

Kevin Howard

This is Kevin. We did we as Kessel mentioned, we started that partnership in the third quarter and the balances toward yearend were around 75 million. We think that will be possibly up to around 200 million by the end of 2016. So, it will be a part of our consumer growth. We saw on a just long term view as far as allocation of balance sheet probably thinking right now more of that -- that point of sale type business, be it maybe 1% to 2%. I don’t think we’ll get there in ‘16 but that’s sort of our objective long term right now.

Operator

We’ll take our next question from Tyler Stafford. Please announce your affiliation and pose your question.

Tyler Stafford

Stephens. Hey, I just had a question on slide 19 on your TDRs. I just want to make sure I’m understanding the nomenclature here correctly. Is this slide stating that you have a single $200 million or $200,000 90 days past due TDR?

Kevin Howard

No, it would be $200,000 90 days. We’ve had very little past dues and that’s what that slide demonstrates. And also you can see pretty rapid reduction year-over-year I think over 36%; it’s actually a reduction of accruing TDRs. That’s a small, very small low.

Tyler Stafford

I just want to make sure that it was not representative of 1 million?

Kessel Stelling

No, at that point, we disclosed this we actually don’t have any credits in our portfolio period that approached that level now. So, if that were $200 million, there you would not -- that question would not have been answered by Kevin Howard. It would’ve been answered by somebody else.

Operator

We’ll take our next question from Jared Shaw. Please announce your affiliation and pose your question.

Jared Shaw

Wells Fargo Securities. Just following up on the margin question, as you look at the expectation for 2016, have you made or are you making any changes to the structure of new securities purchases to help shape that or is that mostly loan driven?

Kevin Howard

I’m sorry can you repeat the question?

Jared Shaw

As you look at the expectations for the margin for 2016, how much of that growth is -- or is any of that growth due to any change in structure of these securities portfolio, in terms of what you’re purchasing or the size of the portfolio?

Thomas Prescott

We’ll move forward some with the securities portfolio, and it’ll be the little bit higher yield. It’s at 195 and was 187 a quarter before. So you’ll see some uptick in that but it will not be a large driver to the net interest margin.

Jared Shaw

And what was the duration at the end of the year for that portfolio?

Thomas Prescott

The duration is 291; [ph] it was 2.7 a quarter ago.

Operator

Thank you very much. We’ll take our next question, a follow-up from Ebrahim Poonawala. Sir, your line is live.

Ebrahim Poonawala

Sorry, if I missed this. I did notice the pace of buybacks slowed a little bit relative to sort of expectations of maybe $60 million per quarter for the next five, as you work towards the $300 million authorization. Could you just remind us how should we think about that; should we think that you’re targeting to complete that or it might be more dependent on how we’re evaluating other capital deployment opportunities?

Kessel Stelling

We’re planning to complete that. We were again as we reminded in fourth quarter we had a -- market with debt offering and tender offer we had a blackout period. So, I wouldn’t read anything into the slower pace in the fourth quarter. I think you’ll see us move back to a normalized pace and our plan will be completed over the fourth quarter period.

Ebrahim Poonawala

And just one follow-up in terms of -- I’m sorry if I missed it, on the SBA guaranteed fees that we are earning, is there an expectation of what that growth could be year-over-year, as you sort of fully expand capabilities there in 2016 relative to 2015 or are we pretty much set at where we were in 4Q when we think about quarterly run rate tied to those gain on sale?

Dallis Copeland

Yes, this is D. and our expectation is we would see a similar type growth rate as our expectation for 2016 as we saw in 2015.

Kessel Stelling

Ebrahim, I’ll just add to that. We think our SBA approach, maybe not totally unique but we source most of that business through our core banking system and in bringing SBA specialist we get also invested and expand those capabilities to be able to better serve the five state footprint; we’ve had more production in Georgia relative to the others, but we’re seeing some of the others come on. So, we think it’s a good opportunity to not only growth fee income there but really land full relationships through that SBA relationship-based approach.

Operator

Gentlemen, we’re showing no further questions in the queue. I’d like to turn the floor back to you for any closing comments you’d like to make.

Kessel Stelling

Okay. Well briefly, first let me thank everyone for joining our call. I know it’s a busy day for earnings releases. So, all that joined this call, we appreciate that. I’ll just close by saying our team really is excited about 2016. As we’re serving our customers every day, we’re learning through our relationships with them how we can better serve them longer term. We’re challenging ourselves, look for new solutions, better solutions, our existing offerings to find ways to reach new customer segments and win new relationships. We know every other bank in the industry is, we really do think we have a competitive edge in our unique local leadership driven model. So, we’ll continue to invest in local bankers who are deeply embedded in our markets and are seeing effective [ph] leaders in our communities. We think those leaders better understand the opportunities exist where they live and work and can better connect all of our talent, our specialty talent and throughout the footprint connect them to the right customers and prospects. And that combined with our strategic initiative investments creates a very effective formula for driving continued growth while achieving greater efficiencies and improving financial performance.

So stay tuned for the rest of the year and the team is up and running. I’ll thank our entire team for a job well done in 2015 and I really mean that from the bottom of my heart; most of them are on this call, so thanks to them. Thanks to you who follow our Company and to our investors and customers on this call as well. And that’ll conclude our call. Look forward to talking to you talking all again soon. Thank you.

Operator

Thank you very much, ladies and gentlemen. This concludes today’s presentation. You may disconnect your lines and have a wonderful day. Thank you for your participation.

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