Apr 21, 2015
Executives
Kessel D. Stelling, Jr.
- Chairman and CEO Thomas J. Prescott - EVP and CFO Kevin J.
Howard - EVP and Chief Credit Officer R. Dallis (D.)
Copeland, Jr. - EVP and Chief Community Banking Officer Bob May - Senior Director, IR and Capital Management
Analysts
Kevin Fitzsimmons - Hovde Group Rahul Patil - Evercore Partners Jennifer Demba - SunTrust Robinson Humphrey Emlen Harmon - Jefferies Jefferson Harrelson - Keefe, Bruyette & Woods Brad Milsaps - Sandler O'Neill Ebrahim Poonawala - Bank of America Merrill Lynch Steven Alexopoulos - JPMorgan Tyler Stafford - Stephens David Bishop - Drexel Hamilton Nancy Bush - NAB Research Christopher Marinac - FIG Partners Michael Rose - Raymond James
Operator
Good morning, ladies and gentlemen, and welcome to the Synovus First Quarter 2015 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode.
The floor will be open for your questions and comments following the presentation. Now, I’d like to turn the floor over to your host, Boy 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 Web site synovus.com.
Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today with our Executive Management team available to answer your questions. Before we begin, I'll remind you that our comments may include forward-looking statements.
These statements are subject to risks and uncertainties and actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on our Web site.
We do not assume any obligation to update any forward-looking statement as a result of new information, early developments or otherwise, except as maybe 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. Due to the number of callers, we ask that you initially limit your time to two questions.
If we have more time available after everyone's initial questions, we will reopen the queue for follow-up. Thank you.
And now, I'll turn it over to Kessel Stelling.
Kessel D. Stelling, Jr.
Thank you, Bob, and good morning and welcome to all of you on the call. I’ll do a brief overview of the quarter, as is our normal group assembled here to answer your questions.
So let me begin by just walking you through the first quarter highlights. Net income available to common shareholders is $51.4 million or $0.38 per diluted common share.
Diluted earnings per share increased 15.2% versus the first quarter a year ago. Adjusted pre-tax, pre-credit costs income is 101 million, an increase of 1.4 million or 1.4% versus the fourth quarter and 4.5 million or 4.7% versus the first quarter of '14.
Credit quality trends remained favorable during the quarter. We sometimes don’t remind you of that.
NPAs decreased almost 6% on a sequential quarter basis while net charge-off ratio declined 8 basis points to 0.23%. Total average loans grew 254.1 million or 4.9% annualized versus the fourth quarter '14 and 1.03 billion or 5.1% versus the first quarter of '14.
Total loans grew $8.5 million on a sequential quarter basis and grew 4.7% versus a year ago. Average core deposits, a good story, we’ll talk about that later, but average core deposits grew 286.6 million or 5.9% annualized versus the fourth quarter '14 and 529.8 million or 2.7% versus the first quarter of 2014.
On the capital management side, we continue to return capital to shareholders during the quarter acquiring an additional $59.1 million of common stock. Since October of 2014 through April 28, '15, the company’s repurchased 160 million of common stock reducing our total share count by 6 million shares or 4.3%.
Book value per common share is $21.69, up 4.9% versus the first quarter of '14. The Basel III CET1 ratio is 10.78%.
Let’s flip to Slide 4, talk a little bit about loan growth. Again, we do expect the loan growth in the mid-single digits for 2015.
For the quarter, total loans grew $8.5 million versus the fourth quarter and 947.2 million or 4.7% versus a year ago. Total average loans again grew 254.1 million or 4.9% annualized versus the fourth quarter of '14 and 1.03 billion or 5.1% versus the first quarter of 2014.
C&I loans grew $34 million versus the fourth quarter and 346.6 million or 3.5% versus the first quarter of 2014. We experienced solid growth in our specialty lines including senior housing, equipment finance, medical office, corporate real estate and consumer mortgages and I’ll give you a little bit more color on those results.
Our senior housing grew by $71 million; equipment finance grew by $42 million; medical office portfolio grew by $41 million and our corporate real estate grew $34 million. Our consumer mortgage portfolio increased $8 million and is now up 13% versus the year ago.
First quarter also reflect an increased production in our government guaranteed lending specialty unit, which consist primarily of SBA lending. Loan production was $21 million for the quarter, up 50% from a year ago and we expect continued growth in SBA lending, which will contribute towards balance sheet and fee income growth through the remainder of the year.
The above increases were offset by an $86 million decline in our criticized and classified loans as well as seasonality including paydowns on C&I lines of approximately $60 million. Total syndications also declined.
On the retail side, credit cards and HELOCs declined by $23 million due primarily to seasonality. From a market perspective, we were pleased to see key strategic markets including Atlanta, Birmingham and Nashville closed very solid loan growth.
The loan pipeline has continued to increase quarter-over-quarter and we do expect to grow loans in the mid-single digits for the full year, as I said earlier and will give more color on that later in the call. On Slide 5, again, talking about average core deposits grew 286.6 million or 5.9%, we’re very pleased with the growth in core deposits during the quarter.
It’s an important component of our strategic focus. Our deposit strategy is comprehensive.
It’s across all of our business lines. The retail channel has been improved through our investments in technology such as the rollout of our mobile deposit app, our commercial corporate middle market lines and improved treasury products including business online banking and deposit growth was evenly spread across all consumer and small business categories led by year-over-year growth in average DDAs of 10.8%.
Additionally, we talked about the overhaul of the retail bank. We’re tracking well to our expected 30% increase in retail sales productivity following the launch of our retail strategy in the third quarter of '14, which as you’re remembering included improved sales tools and training for our frontline bankers combined with enhanced digital applications for our retail customers.
These investments have helped drive a combined 14.9% increase in total loan deposit sales by units over the first quarter of 2014 even as we reduced staff, so great momentum there. Our average core deposits again as I said 286.6 million or 5.9% annualized, 529.8 million or 2.7% versus the first quarter of 2014.
Average core deposits excluding SCM deposits grew 247.1 million or 5.7% annualized versus the fourth quarter of '14 and 3.9% versus the first quarter of '14. Average non-interest bearing DDAs were up 4.5% annualized versus fourth quarter of '14 and 10.8% versus the first quarter of '14.
Average money markets were up 10.1% annualized versus the fourth quarter '14 and 2.9% versus the first quarter of '14. Total average deposits of 21.62 billion increased 279 million or 5.3% annualized versus the fourth quarter '14 and 889.8 million or 4.3% versus the first quarter of 2014.
On Page 6, some commentary on the margin. As you see, our net interest income decreased 4.2 million versus the fourth quarter of '14 due to lower day count.
Margin of 3.28% was down 6 basis points from the fourth quarter of '14. Yield on earning assets was 3.73%, down 5 basis points from the fourth quarter of '14.
Increased balances at the Fed contributed 3 basis points of the decline and the yield on loans declined 3 basis points to 4.19% versus the fourth quarter of '14. Our effective cost of funds was 45 basis points, up 1 basis point from the fourth quarter and we do expect further downward pressure on the net interest margin in the second quarter due to loan yield pressure and the timing of liquidity deployment.
I’ll call your attention to the sensitivity chart in the upper right side of the page and you’ll see again our estimate if short-term rates were to go up 100 basis points, we would see an increase of 4.6% in net interest income. That’s up slightly from the 4.3% in the fourth quarter and a 200 basis point increase would result we estimate a 7.3% increase up from the 6.7% in the fourth quarter.
On Page 7, talk a little bit about non-interest income and again highlights were mortgage volume and SBA gains. First quarter of '15, adjusted non-interest income was 65.1 million, up 0.9% versus the fourth quarter of '14 and 3.3% versus the first quarter of '14.
Mortgage banking income was the key driver increasing 1.6 million or 32.5% versus the fourth quarter of '14 reflecting an 18.6% increase in production volume. We’re currently expecting further increases in mortgage revenue in the second quarter.
Our financial management services unit posted strong results. We continue the benefit of the ongoing targeted talent acquisition due to franchise.
FMS revenue of $20.3 million for the quarter, a 3.5% increase on a linked quarter basis and a strong 12.3% increase from a year ago, including a 16.7% increase in brokerage revenue. Assets under management now total almost $11 billion reflecting a 9.4% increase from a year ago.
Our investments in the FMS unit are expected to result in continued growth in customer relationships and revenues. For example, we’ve significantly improved the scale of resources in our insurance and financial planning capability to better position our wealth management teams to meet the needs of our growing affluent customer base.
As a result, we’re gaining new customers including new customers at our Atlanta-based global investments money management unit. Core banking fees were $31.5 million, a decrease of 1.5 million or 4.6% in the fourth quarter of '14 driven by seasonality.
Service charges on deposit accounts were down 1.2 million or 5.7% versus the fourth quarter of '14. Bankcard fees were down 459,000 or 5.4% versus the fourth quarter of '14.
And earlier I mentioned SBA lending. We have an increased focus in this line of business.
It also contributed the income of SBA gains of $1.5 million or 829,000 versus the fourth quarter and we expect an increase in SBA gains for the full year compared to a year ago. On Page 8, we’ll talk about our continued progress and quite frankly our continued focus on expense management.
You’ll see the results here. Adjusted first quarter '15 non-interest expense was $167.4 million, down $5 million or 3% from the fourth quarter of '14.
Employment expense was 96.5 million, up 4.4 million versus the fourth quarter '14 primarily due to the seasonal effect of employment taxes. Headcount decreased by 42.9% versus the fourth quarter of '14 and 177 or 3.8% versus the first quarter of '14 reflecting this continued implementation of efficiency initiatives.
Our advertising expense was 3.4 million, down 4.7 million from the fourth quarter '14. We do expect advertising expense for the remainder of the year to increase from our first quarter levels based on increased levels of advertising spend related to our branding campaign as well as our product campaigns.
Professional fees were $5.6 million, down 2.4 million from the fourth quarter of '14. And again, the fourth quarter of '14 in professional fees reflected elevated attorney fees related to the final resolution of one credit.
FDIC insurance and other regulatory fees was $7 million, down 1.2 million versus the fourth quarter of '14 primarily due to a decline in assessment rate. And again, as we said, 2015, we expect adjusted non-interest expense to approximate 2014 levels give or take 675 million reflecting our continued efficiency efforts and in many cases offset by investments in talent and technology.
On Slide 9, we’ll talk about credit quality. Again, sometimes overlooked now as we continue to show improvement but still a big improvement in credit quality.
On the first graph, you’ll see a reduction in nonperforming loans, now 194 million or 0.92% compared to 198 million or 0.94% in the fourth quarter. A year-over-year improvement is 49.5%, so significant progress there.
In the box above the graph, you’ll see that we had a meaningful reduction in ORE balances, down 12% versus the fourth quarter '14 and 32% versus the first quarter of '14. NPAs were down almost 6% to 270 million or 1.28% compared to 287 million or 1.35% in the prior quarter and representing a 46% year-over-year improvement.
NPL inflows dropped significantly down 31% compared to the fourth quarter. We continue to expect both NPLs and NPAs to continue to trend downward in a modest pace for the remainder of 2015 and I’m sure Kevin Howard will be happy to give more color on that later in the call.
The graph on the top right shows that credit costs were 15.7 million, down about three-quarters of a million dollars from the 16.4 million in the fourth quarter, representing an 11% year-over-year improvement. The bottom left graph shows that net charge-offs for the first quarter of '15 were 12 million or 23 basis points, an 8 basis point improvement from last quarter.
We believe the charge-offs for the year will remain within or below our stated guidance of 30 to 40 basis points. And then the graph on the bottom right shows our past dues greater than 30 days.
Past dues remain at low levels from 27 basis points. I think it’s also worth noting that our 90-day past dues are only 2 basis points.
On Page 10, we’ll talk a little bit about capital. I’ll only try and bring you to date.
In the first quarter, 15 capital ratios include the impact of $59.1 million in common stock repurchases during the first quarter. The fourth quarter capital ratios include the impact of $88.1 million common stock repurchase in the fourth quarter.
So let me walk you through those ratios. The first quarter '15 common equity Tier 1 ratio is 10.78%.
All capital ratios except TCE or Basel III transitional and the ratios prior to first quarter '15 were based on Basel I rules. Tier 1 common equity ratio was 10.28% in the fourth quarter of '14.
Tier 1 capital ratio of 10.78% versus 10.86% in the fourth quarter of '14. Total risk-based capital ratio is 12.64% versus 12.75% in the fourth quarter of '14.
Leverage ratio 9.65% versus 9.67% in the fourth quarter of '14. Tangible common equity ratio of 10.43% versus 10.69% in the fourth quarter of '14.
The first quarter of '15 Basel III common equity Tier 1 ratio is estimated at 10.12% on a fully phased-in business. And again, to bring you to date on the share repurchase, since October of '14 through yesterday’s date, April 20 of '15, we now repurchased $160 million in common shares or 6 million shares at an average repurchase price of $26.46 reducing the total share count by 4.3%.
So we have now $90 million of remaining repurchase authority pursuant to the repurchase program that we again announced last year. So good execution of that plan and a little more to go.
So before we go to questions, just a few comments about our go-forward story. First quarter I think was just a very solid quarter as evidenced by our strong operating performance positively impacted by continued investments in key strategic initiatives designed to improve the customer experience and build more profitable, efficient, competitive bank and I think we’re clearly demonstrating or executing on those initiatives.
Our bankers and investment experts are partnering to deepen relationships with current customers and reach out to prospects with solutions to generate loan, deposit, fee income growth. At the same time, I know what’s on your mind, we’re pursuing further expense savings and as we said earlier in the call, we’re expected to remain flat as we continually invest in talent and growth initiatives.
We had good traction with our commercial retail and FMS lines. Our realignment of talent and processes last year has sharpened our focus on meeting the specific needs of our customers wherever there are.
The strengthening of our small business lending that we highlighted earlier during the overview serves a great example of this traction. We expect continued growth in SBA lending this year through aggressive outreach as we launch expanded products like the SBA cap line [ph], the SBA Export Working Capital programs and again that’s throughout our five-state footprint and we’re excited about that.
In the appeal of our banking model to small business and middle market customers was affirmed again this year. I hope you all saw, Greenwich Associates awarded our company with 19 Customer Service Excellence in middle market, small business banking awards.
That’s meaningful to us and in many ways a great recognition of our team members but specifically they are determined based on feedback from thousands of small and middle market business representatives across the country and throughout our five-state footprint. Again, we’ve talked about it.
It’s evidenced by the numbers. We had success in growing our specialty lending line such as senior housing, medical office banking and equipment financing as well as strategic reductions in residential CD and land credits and that’s resulted in a stronger and more diversified loan portfolio.
Despite competitive pressures, we continue to exercise prudent underwriting and build long-term positive relationships that lead to increased market share. And as previously stated, we expect this single digit loan growth for the year.
Work continues to improve our retail customers’ experience and to maximize efficiency and our branch network as more and more customers’ bank electronically. Again, our current pace of increased sales productivity keeps us on track to achieve our stated 30% target for the year.
We’re continuing to leverage our FMS and private wealth teams to drive fee income across our markets and we expect that continued acquisition of more talent positioned in strategic markets to grow our customer base. Now, before we take your questions I want to reiterate our competence and our long-term growth strategy.
Like others in the industry, we are still facing some headwinds with the interest rate environment and slower growth in certain commercial lending segments and certainly stiff competition in certain segments. But we’re seeing measurable results from our investments in talent, from our investments in business lines, from our investments in technology and we believe that our positioning of local leadership and talent in our markets gives us even greater awareness of growth opportunities and greater insight into how we best meet the needs of a variety of customers.
So again, pleased with a very solid quarter. I’m excited about the remainder of the year.
Operator, now we’ll move to the question-and-answer portion of the call.
Operator
Thank you very much. Ladies and gentlemen, the floor is now open for questions.
[Operator Instructions]. We’ll take our first question from Kevin Fitzsimmons.
Please state your affiliation then pose your question. Your line is live.
Kevin Fitzsimmons
Hovde Group. Good morning, everyone.
Kessel D. Stelling, Jr.
Good morning, Kevin.
Kevin Fitzsimmons
Kessel, just wondering – looking back at the last several quarters, it looks like this is the first linked quarter in a while that you guys actually saw a decline in NII and just wondering how you look at that going forward, if that was more of a seasonal or pickup in competitive yield pressure in this quarter? How you think of it going forward, able to return to those linked quarter increases in NII?
Thanks.
Kessel D. Stelling, Jr.
Well, I think quarter-to-quarter, Kevin, we can certainly see some fluctuations. We had a big, big boost in loan growth at the end of the fourth quarter, so we reported a very strong number and linked quarter not quite so much.
We had a strong, strong deposit quarter as we really tried to climb that engine as we spoke over the last several quarters about our desire to grow – fund our loans with core deposit growth. And so we ended up with increased balances of the Fed, which don’t do a lot from an NII standpoint.
But at the end of the day, it was a two-day shorter quarter. So we do see growth there and we do believe as we continue to again grow our loan growth, we’ll see increases there.
Kevin Fitzsimmons
Okay, great. And just one quick follow up.
In the fee line, you might have said it before and maybe I missed it. You guys had a sizable uptick in mortgage and just trying to get a sense for how sustainable that is coming into this quarter and second quarter and beyond or if that’s just really the temporary effective of some refi activity you saw earlier in the quarter?
Thanks.
Kessel D. Stelling, Jr.
Well, we think the second quarter will be strong as well based on activity to-date. It’s a little harder to see out beyond the remainder of the year but we’re really encouraged by the first quarter performance and believe that the second quarter should be strong as well.
Kevin Fitzsimmons
Okay. Thank you.
Kessel D. Stelling, Jr.
Thanks, Kevin.
Operator
We’ll take our next question from John Pancari. Please state your affiliation and pose your question.
Rahul Patil
Evercore ISI. This is Rahul Patil on behalf of John.
You briefly mentioned competition, I just want to get a sense just regarding the competitive landscape that you’re seeing. Are you still seeing the same degree of loan pricing competition in your markets or has it become increasingly aggressive?
Kessel D. Stelling, Jr.
Yes. I think Kevin [ph] can answer it but let it stay with it for a minute.
I think it’s become increasingly aggressive in talking to other bankers but in talking to bankers around our footprint and quite frankly in looking at opportunities that we have here, we have seen really in the last 30 days and Kevin Howard or D. Copeland could add too, but we’ve seen pricing that quite frankly just doesn’t make sense for our company.
In some cases, it was the long-time relationships that literally gave us the last look at an opportunity to do a transaction and in a couple of cases, we passed. Now, we didn’t lose the relationship but we passed on a transaction because it just did not make sense and if others can figure out how to make money at some of the rates both floating and fixed that we see, then more power to them.
Again, we’re not losing customers but we’ve certainly seen some transactions of late that just don’t make good economic sense to us. So, Kevin, do you have anything to add to that.
Kevin J. Howard
No. I agree with that, Kessel.
I mean there’s obviously been some pressure maybe a little bit more on the real estate side than we’ve seen in the past, but I’d reiterate what you said. We got to make it make sense to match it up with our risk profile and I agree with that.
Rahul Patil
Okay. And then you indicated that you expect further NIM pressure in 2Q.
NIM was down 6 bps this quarter. I’m just trying to get a sense of how should we think about quarterly compression through 2015?
And just a follow up, are you assuming any rate hikes in 2015?
Kessel D. Stelling, Jr.
Well, so as it relates to NIM pressure, I mean again we do expect downward pressure in the second quarter of 2015 and we hope that will moderate through the back half of the year. But again, we’ve got increased liquidity, increased balances to the Fed.
And again, based on where we are today, we do see downward pressure in the second quarter again, which we hope moderates in the back half of the year. And then you had a second part of the question about rate hike that doesn’t assume rate hikes just based on current interest rates that’s what we believe.
Rahul Patil
All right, thank you.
Operator
We’ll take our next question from Jennifer Demba. Please announce your affiliation and pose your question.
Jennifer Demba
SunTrust Robinson Humphrey. My question was just answered actually.
Thanks.
Kessel D. Stelling, Jr.
Thank you, Jennifer.
Operator
The next question is coming from Emlen Harmon. Please announce your affiliation then pose your question.
Emlen Harmon
Hi. Good morning, everyone.
Calling from Jefferies. First question from me, you talked about the SBA business, it seemed like there was a real opportunity there.
Can you just kind of quantify for us kind of how much of an opportunity that is, where you’re coming from and kind of how you can leverage the existing franchise to grow that business?
Kessel D. Stelling, Jr.
We think it’s a great opportunity and I can ask D. Copeland to add some color, but we’ve seen significant improvement.
I believe we ended last fiscal year at number four in the state of Georgia and might have already moved up. We’ve had more success in Georgia.
We think there is great opportunity though throughout our footprint in Florida, Tennessee, Alabama and South Carolina. I think we’ve invested in talent throughout that footprint with sales, professionals and again covering all five states partnering with our local bankers to identifying those opportunities.
So we do think there is great opportunity. That group has momentum as we’ve added talent there and as our bankers quite frankly get more familiar with those opportunities.
Georgia has been the primary driver but we do think we have opportunities in the other states as well. D., would you like to add anything to that?
R. Dallis (D.) Copeland, Jr.
Yes. I think the biggest thing maybe to give you, I mean we were looking at where hopefully would be in the neighborhood of doubling the production that we’ve done in 2014.
Part of that will be different things. We’ll be focused on 7A, which of course helps us drive the fee income the most; 504, we’ll continue to do but we’re also making investments in a new cap line product that will be offered through all of our divisions throughout the footprint as well as the export lines that Kessel has talked about as well.
The 7A fees will come in based on completing construction in that normal cycle, but the production we see very strong throughout the remainder of this year.
Emlen Harmon
Got you. So kind of a 1.5 million I guess revenue run rate this quarter, should we expect that to grow from here?
R. Dallis (D.) Copeland, Jr.
Well, the biggest pieces, that’s going to be on the 7A sales side, so that could go up and down during the quarters as construction is completed during each of the quarters. But I think on a normalized number that would not be far off, but I would also say to make sure that we will increase production and carry loan balances higher on the SBA side as well.
Emlen Harmon
Got you, okay. Thanks.
And then just quickly hopping back to expenses, you gave us some decent color on a few lines. But one that was down notably in the quarter I guess was the advertising line.
Just remind us on seasonality there and whether we should expect that to come back for the rest of the year?
Kessel D. Stelling, Jr.
It will definitely come back. I don’t know that we’ve guided that specific line, but first quarter was down.
As many of you know, we were on air throughout our footprint for the back half of 2014 and really through college football bowl season with our European bank, which has had great success as we attempt to better link our Synovus brand with our individual bank brands. We’ve pulled back from that a little bit in the first quarter to really go back in market and test with customers and with prospects not just the effectiveness of the campaign but the linkage between again the Synovus brand and those individual bank brands.
So as we get that data, we will again be back on air and so you’ll see that line move back up. But again, I would just point to the context of the overall expense for the year we expect remain flat, advertising will come back up.
Emlen Harmon
Got it. Thanks for taking the questions.
Kessel D. Stelling, Jr.
Sure.
Operator
We’ll take our next question from Jefferson Harrelson. Please announce your affiliation then pose your question.
Jefferson Harrelson
Hi. Good morning.
KBW. I was going to take you to Page 10 of the slide deck and just ask you from the capital ratios, which one of those do you think is your main concerning ratio on the buyback?
Do you think it’s leverage or is it CET with the Basel III or using that 10.78 from the common equity Tier 1 ratio, which will be – as you buy back shares, I guess which one starts to hit your thresholds first you think?
Kessel D. Stelling, Jr.
Jefferson, I’ll give Tom a minute to think about that. My answer would be it just depends on the day and I don’t mean that pick [ph] on our regulators but when we’re laying out our capital plan, we’re trying to do a really good job to show them each of the levels, each of these ratios versus our peers.
And so with some ratios we’re going to be stronger than peers, some lower and we tend to focus on those where we’re higher and they can focus on those where we’re lower. And that’s just life.
But I don’t know if there’s a constraining ratio. We believe we had a well thought out plan.
We believe we should continue to execute on the 250. And as we near completion of that execution, we want to be clear about potential future actions, but Tommy if there’s a ratio that gives you heartburn feel free to --
Thomas J. Prescott
I’ll tell you the simple answer is all but what recently is a Tier 1 capital now common equity Tier 1 I think would be the first one that gets focused but the simple answer is all.
Jefferson Harrelson
And can you talk about that regulatory DTA this quarter, how much of it came in through regulatory capital and how much is left?
Thomas J. Prescott
Sorry, would you repeat that?
Jefferson Harrelson
Yes. On the regulatory DTA that’s currently disallowed, how much of that came into capital this quarter and how much is left?
Thomas J. Prescott
The disallowed is 288 off of a total [indiscernible] 288 is the remaining disallowed piece. Approximately 600 is the GAAP number.
So the difference between those two is the total result.
Jefferson Harrelson
Okay. And how much of it came in this quarter?
Was it around 60 million or less than that? I guess what was that number last quarter?
Thomas J. Prescott
85 for Tier 1 capital.
Kessel D. Stelling, Jr.
Jefferson we’ll follow up with you and clarify those numbers, make sure we got the answers to your question right.
Jefferson Harrelson
Perfect. Thanks, guys.
Kessel D. Stelling, Jr.
Thank you.
Operator
We’ll take our next question from Brad Milsaps. Please announce your company and then pose your question.
Brad Milsaps
Hi. Good morning.
Sandler O'Neill.
Kessel D. Stelling, Jr.
Good morning, Brad.
Brad Milsaps
Just wanted to follow up on loan growth, I appreciate the color you guys give, I understand 1Q is sometimes seasonally slow, but with your comments regarding competition, I’m just kind of curious kind of what you guys see changing in the second and third quarters to get you to the 4% to 6% or mid-single digit type guidance you’re looking for? Is it more a result of commitments you made funding in the summer months or are there other areas that you see that should snap back for you as you get into the middle part of the year?
Kessel D. Stelling, Jr.
Yes, it’s a combination and production in the first quarter was actually pretty strong. I said to our team, we can’t overuse payoff but we were impacted by some significant paydowns but our pipeline was up, our production was up.
Our activity to date through yesterday just in loan growth to date this quarter has been significant, which all again points to the guidance we gave and quite frankly these investments that we’ve made in our business units as they mature, we continue to see and as you saw in the fall, good growth there. So it’s a number of factors.
It is talking with our bankers every day. We’re viewing their 75% probability pipeline.
We’ve looked at what came in new to the pipeline, which was up significantly this quarter and again just really production outstanding to-date this quarter. So it’s clearly a little tougher to see out to the third and fourth quarters, but we feel that the mid-single digit is still a good number and hope that second quarter results will give you more evidence that that’s a good number for the year.
Brad Milsaps
That’s helpful. Just to follow up to Jefferson’s questions on the buyback.
As you think about your capital planning as it relates to liquidity, is there a level of share price where maybe looking at some of the senior and sub-debt that you have out there becomes – your appetite for maybe prepaying some of that versus a share buyback as it relates to the liquidity becomes more palatable?
Thomas J. Prescott
We considered to look at all the category looking for lineup opportunities. The issue on the debt has to do a buyout of some of it.
You have a big premium to play and we so far haven’t found our inflection point and where that might be, something that we like to execute right now, but it’s something we keep our eye on closely.
Brad Milsaps
Tom, has there been any change in how the rating agencies look at what you have out there, any update on when that could change?
Thomas J. Prescott
Yes, we stay close to them and we’ll deal with them soon, but it’s not something we can control, but it’s certainly a factor how additional outcomes might occur and in a way would impact our thoughts about taking some of the debt out.
Brad Milsaps
Great. Thank you guys very much.
Kessel D. Stelling, Jr.
Thanks, Brad.
Operator
Thank you. We’ll take our next question from Ebrahim Poonawala.
Please announce your affiliation then pose your question.
Ebrahim Poonawala
Bank of America Merrill Lynch. Good morning, guys.
Kessel D. Stelling, Jr.
Good morning.
Ebrahim Poonawala
I just had one follow-up question, Kessel. If you can sort of remind us on the branch strategy in terms of what we are doing to either cut down some of the less productive branches or less profitable branches and what’s sort of tagged on to that, where are we in terms of investing in technology both from a compliance and a front office side?
I get your expense outlook but I’m just wondering underneath that what are we doing in terms of investments on the tech and compliance fund, an update would be great on that?
Kessel D. Stelling, Jr.
Yes, let me take the branch side first and as you can imagine as we have rolled out our mobile banking app and other upgrades technology, we see less and less branch traffic and fewer teller transactions. So we have a very robust teller staffing model that we continue to update, so we look at not just staffing within a branch but then the productivity of the entire branch.
So Wayne Akins and his staff, it’s a continuous process and we continue to evaluate the number of branch locations. I think we’ve been more aggressive than many in terms of branch closures, but we continue to look at that.
And as we identify those branches that we don’t think will meet our threshold or trending in a direction that we don’t think we’ll meet, then we would certainly give additional color there. So that is an ongoing process in our retail system, which again is another advantage I think of the way we’ve aligned our retail bank now.
That focus can be all day, every day on sales and productivity and utilization and rationalization of our branch network. We also again – so that continues.
You talked about technology as it relates to compliance. That’s a continuous process as well in terms of prioritization of capital outlay for technology for any number of areas.
And as you again would expect, every area of the bank has their hand raised for more investments, specifically to regulatory and compliance. I think we’re well positioned there.
I can only speak to the most recent regulatory exams and there’s always a new bell and whistle product that will make somebody’s life easier. But again, overall, I think we’re appropriately invested there but it is a – we have a one-year, three-year and five-year technology plan and priorities change based on individual business unit needs and just based on the regulatory climate.
So again, that prioritization process is an ongoing process but I think we’re appropriately invested right now.
Ebrahim Poonawala
Understood. Thanks a lot for taking my question.
Kessel D. Stelling, Jr.
Thank you.
Operator
We’ll take our next question from Steven Alexopoulos. Please announce your affiliation then pose your question.
Steven Alexopoulos
JPMorgan. Good morning, everyone.
Kessel D. Stelling, Jr.
Good morning.
Steven Alexopoulos
I want to start, Kessel, and follow up on capital. Regarding the 90 million that’s left in this year buyback, how should we think about that pace in terms of staying similar, even running 75 million or so roughly per quarter average the last few quarters or do you slow it now that there’s 90 million left?
Kessel D. Stelling, Jr.
Well, we said all along we wanted to be aggressive out of the gate. We did accelerate share repurchase in the fourth quarter, in the first quarter where we announced and then we’ve been continuing to buy obviously in the open market.
So again, we want to be opportunistic there but I think the sooner we complete execution the better with a lot of variables. So, I don’t think this is an intentional slow down.
We want to be smart and we’re following obviously the share price. But my goal would be to have it completed obviously no later than 12 months announced, but hopefully soon on that, but there’s no target per quarter per se.
Again, just we tried to be very thoughtful but aggressive with the plan.
Steven Alexopoulos
Okay, I think that answers the question. Then just a follow up on some of the comments around loan growth.
Last year similar to this year had a seasonally soft 1Q and then you saw a real nice ramp in the second quarter. Curious, how do you view your positioning at this point compared to where you were last year, pipelines, et cetera, in terms of that momentum heading into 2Q?
Is it about the same as where we were last year?
R. Dallis (D.) Copeland, Jr.
Yes. This is D.
I’ll take that. If you go in and look at it, there are a couple of – I guess a couple of areas that I would comment on to make that point.
One would be where is the pipeline on a go-forward basis? I would say we’re slightly ahead of where we were in the same period a year ago on our pipeline to me which is a positive.
In addition to that, the new loan fundings that we had during the first quarter would have been about 17% to 18% higher than the same quarter a year ago. So that would be positive on the new loan fundings as well.
In addition to that, we have utilization on our lines of credit that would be slightly down during the first quarter, which tend to have positive momentum after the first quarter as well. So those would be three of the main things that we look at where we’re positioned this year versus where we were last year.
Steven Alexopoulos
Okay. And any change to appetite to add share national credits at this stage?
Kessel D. Stelling, Jr.
I think it’s about the same. We mentioned on this – we mentioned on the last call, Steve, last year our growth was – 25%, 30% of our growth was in that category.
It will be much less than that this year, probably about 10% to 15% this year. It’s actually down during the first quarter.
But we want to stay in that business. We want to – that’s primarily in our footprint and we want to be part of those relationships that are in our footprint.
But we think we will grow some, but certainly not at the pace last year, but we think that’s going to be offset our growth this year versus last year in other areas. Our community banks, we expect growth there more this year than last year and we expect our real estate to be somewhat in line with last year.
And then some of our plans are more seasoned now. We’ve got equipment lending that’s now over a year old, medical office unit that just started.
It’s coming off of a low base. We expect good expectation there.
So those are some of the differentiators in maybe where we were at this time versus last year as well.
Steven Alexopoulos
Okay. Thanks for the color.
Operator
We’ll take our next question from Tyler Stafford. Please announce your affiliation then pose your question.
Tyler Stafford
Good morning, guys. Stephens.
Kessel D. Stelling, Jr.
Good morning, Tyler.
Tyler Stafford
Just a question on your reserve. It continued to come down this quarter.
Any updated thoughts on where you see your reserve ratio going forward. Are we at a bottom here or could we continue see it going lower?
Kevin J. Howard
This is Kevin. I think it’s probably at a place where I think it’s in a – we’re flattened out a little bit.
We certainly think there will be different factors as we move further away from credit crisis. You don’t have the default loss factors.
They are more stabilized now but will also be offset by we’ll have loan growth. We expect, as you know, mid single digit loan growth, so we’ll have to provide for that.
So I think just all-in-all, it’s net neutral and believe the reserve sort of stays flat during 2015.
Tyler Stafford
Okay, thanks. And then just a follow up on the expenses.
The compensation line item was up pretty sharply this quarter, and I know the release called out the seasonal employment taxes that drove that up. Can you quantify the amount of employment taxes that could fall out going forward?
And then did the incentive compensation payout hit in 1Q or should we see that in 2Q?
Thomas J. Prescott
The employment taxes were 7.8 million for the first quarter, 3.7 over a quarter ago. I guess that’s a pretty good proxy to what you’ll see as it stair-steps down during the – throughout the next three quarters but it doesn’t go away and as I mentioned even in the fourth quarter, we’ll still have $3.7 million level, but it does continue to ramp down throughout.
Tyler Stafford
Okay. And then maybe just one more question on the branch topic.
You guys closed 13 back in October. Can you help us understand why we haven’t started seeing those expenses fall out of the occupancy line item yet?
It was essentially flat this quarter and I was just expecting it to come in a little bit.
Thomas J. Prescott
Yes, there’s a lot of moving parts in there. We’re fully installed on the [indiscernible] branches that came out.
Tyler Stafford
Okay. Thanks, guys.
Kessel D. Stelling, Jr.
Thanks, Tyler.
Operator
We’ll take our next question from David Bishop. Please announce your affiliation then pose your question.
David Bishop
Thank you. Drexel Hamilton.
Good morning.
Kessel D. Stelling, Jr.
Good morning, David.
David Bishop
On the deposit side, a little bit of an uptick across several categories, does that sort of reflect any sort of move to maybe extend durations ahead of the Fed moving or prefunding expected loan growth, just looking for some color in terms of what drove that increase in cost this quarter?
Thomas J. Prescott
That’s a factor I guess but the CDs in particular were at a little longer than on board at this time. But really there was a lot of other moving parts.
The desire to increase the deposit side and the duration was a factor, but really just good old-fashioned deposits growing and moving and being able to fund our loans were the key indicator.
David Bishop
Got it. Do you expect continued sort of pressure on deposits across as we move into the latter half of the year?
Thomas J. Prescott
Yes, we’ll watch carefully. We believe the loans are coming on, but obviously we outran in all deposits in the first quarter and that’s not a bad problem to have good liquidity, good – in fact [indiscernible] plays well for the second quarter, we’ll continue to be aggressive and grow in deposits, but over time we’ll size with the size of the balance sheet.
David Bishop
Got it. Then one follow-up.
I noticed about a 46% uptick in foreclosed real estate expenses. Was that just a greater activity in terms of clearing the decks on the other real estate on-site?
Kevin J. Howard
Yes, I would say that was part of – this is Kevin. We had actually gone in and reappraised, had fresh appraisals on over 40% of our existing ORE this quarter.
I don’t think that’s something to reoccur every quarter. It takes up that creative about $3 million more than probably last quarter and that’s primarily where it was.
And so we expect really that ORE foreclosure costs to kind of work down through the rest of the year.
David Bishop
Great. Thank you.
Operator
We’ll take our next question from Nancy Bush. Please announce your affiliation then pose your question.
Nancy Bush
Good morning. NAB Research.
How are you guys?
Kessel D. Stelling, Jr.
Good morning, Nancy.
Nancy Bush
Two questions. Back to the competitive landscape issue, Kessel, the wildcard in southeastern banking has always been the community banks, and can you just give us some idea whether your competition is coming from across the board, is it more aggressive in the community segment, et cetera?
Kessel D. Stelling, Jr.
Yes. From my standpoint, it’s across the board.
The transaction I referred to that we had last look before it went to a competitor was certainly a larger bank and again, I think it did not make sense to us. So we see those.
We saw one recently where it was kind of a clubbed deal of a bunch of smaller community banks and again in that case, I’m not sure. Well, I won’t comment on who did what, but it was certainly a bunch of banks that wanted a piece of a loan that maybe made sense to them but didn’t make sense to us.
But I would say that the short answer is, it is across the board but it certainly is coming from some of our large competitors as well.
Nancy Bush
Okay. Tommy, I have a question for you.
Looking forward to when the Fed begins to raise rates, if that is ever, I see your little diagram there about what happens when short rates go up 100 basis points and 200 basis points, but given that we’re looking for increases of 25 basis points to start over some kind of regular basis. How do we think about that?
Does the impact of 425 basis points equal the same as 100 or I mean how does that flow in to net interest income?
Thomas J. Prescott
Nancy, what you’re looking at is really a ramp that certainly reflect a stair-step of 25 basis points. In reality, it might be the best scenario because maybe the action that might happen on the liability side might not happen as fast as what happens on the earning asset side.
So we think it’s a likely outcome. As you said, it never happens but it does reflect the 25 basis point ramp up.
Nancy Bush
Okay, all right. Thank you.
Thomas J. Prescott
Thank you.
Operator
We’ll take our next question from Christopher Marinac. Please announce your affiliation then pose your question.
Christopher Marinac
Thanks. FIG Partners in Atlanta.
Kessel, Tommy and crew, was just curious about the loan to deposit ratio again, and then if you thought that that wouldn’t trend any higher for where it is here, how that may play out in the next several quarters?
Kessel D. Stelling, Jr.
Well, it certainly trended lower this quarter, Chris, and we said on a go-forward basis we want to fund our loan growth with core deposit growth. So I would say that quarter-to-quarter there would be slight movements, but we intend for it to stay in general in the range which we see it today.
So it was down – I’ve got the numbers somewhere, down a few percentage points this quarter and so that’s probably a pretty good go-forward level.
Christopher Marinac
Okay. And then Kessel from a big picture standpoint, as you look throughout the wide footprint of Synovus, are there any areas that have been sort of weaker economically in the past couple of quarters and perhaps may have a reversal to the positive this year that you can outline with us?
Kessel D. Stelling, Jr.
Well, Chris, you know our footprint better than most, so we certainly have some of our more world markets that have not rebounded, there’s just not a lot of growth coming from those markets. And so we’ve asked those bankers to be really smart about lowering core deposits and getting really efficient so that we can deploy those deposits in other markets where we have the opportunity and make sure that we don’t put pressure on them to go out in the market or to do anything that would compromise credit quality.
So we still have markets like that. In terms of markets that have come back, you know this because you’re there.
Atlanta’s very, very strong right now but that’s been growing. We’ve got other markets, Nashville, Charleston that are really performing well.
All of our coastal markets have really come back. Kevin, you may have some color on some that are showing particular with this year.
But the major markets are and the more urban markets are certainly stronger for us but we’ve got some, again, some good wins going on and some of our smaller markets where we’re still moving the needle in market share, we’re still getting wins, we’re still developing good partnerships with our specialty lines where bankers and some of those communities are again identifying great opportunities and getting wins. But Kevin, anymore market commentary you want to add to that.
Kevin J. Howard
The only thing I would add, Kessel I think you summed it up pretty well, is maybe Florida teams [ph]. All of our markets, our unemployment has a file in front of it, all primary markets we’re in there and that’s encouraging.
Really good improving credit trend there, real estate values. I’m not saying they’re completely recovered yet but there’s certainly uptick.
And the job growth there, maybe it’s construction, service related, but that’s good for us. We like that business.
I would just add, Kessel, that seems to be a good improving trend there and good fundamental trends and it should give a pretty good landscape for us to grow loans.
Christopher Marinac
Sounds good guys. Thank you for the color here.
I appreciate it.
Kessel D. Stelling, Jr.
Thanks, Chris.
Operator
The last question we’ll take for today will be coming from Michael Rose. Please announce your affiliation then pose your question.
Michael Rose
Raymond James. My question was actually just asked.
Thanks, guys.
Kessel D. Stelling, Jr.
All right. Thank you, Michael.
So operator, I’m assuming there’s no other questions now in the queue.
Operator
I’m showing no further questions in queue.
Kessel D. Stelling, Jr.
Okay. Let me wrap it up by thanking everyone for joining the call.
Again, I think we got a good solid quarter and showed continued execution of the many strategic initiatives that we put in place last year and in years prior, so we are excited about the rest of this year. It’s a big week for our company as we’ll have our Board and shareholders meeting, but I want to just thank all of you on the call for your interest in our company, for your support in our company and for our team members that are always on this call.
Thanks for what you do every day to make our company better. And at the end to our customers who again are regular attendees of this call.
We appreciate your support. We’ll do our part to make your customers experience even better.
So thank you all and have a good rest of the day and rest of the week.
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.