Oct 20, 2015
Executives
Bob May - Senior Director, Investor Relations and Capital Management Kessel Stelling - Chairman and Chief Executive Officer Thomas Prescott - Chief Financial Officer Kevin Howard - Chief Credit Officer Dallis Copeland - Chief Community Banking Officer
Analysts
John Pancari - Evercore ISI Michael Rose - Raymond James Steven Alexopoulos - JPMorgan Emlen Harmon - Jefferies Jefferson Harralson - KBW Brad Milsaps - Sandler O’Neill Nancy Bush - NAB Research Jennifer Demba - SunTrust, Robinson Humphrey
Operator
Good morning, ladies and gentlemen and welcome to the Synovus Third 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, Dave 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, 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 to our presentation. Thank you.
And now, I will turn it over to Kessel.
Kessel Stelling
Thank you, Bob and good morning everyone. Welcome to our third quarter earnings call.
As usual, I will walk through our third quarter highlights, talk a little bit about our capital actions during the quarter and go-forward capital actions and then open it up for questions. And we have our senior team here with me to answer those questions.
So, let me just jump right into the third quarter highlights. As you can see on Page 3, third quarter net income available to common shareholders, $55.4 million, $0.42 per diluted common share.
The diluted EPS increased 32.2% versus the third quarter. The adjusted diluted EPS increased 14.6% versus the third quarter.
You may have noticed a higher tax rate for the third quarter reflects some non-recurring items, which increased our tax expense by approximately $1.6 million, or $0.01 per diluted share. And Tommy will be happy to answer any questions about that as well later.
Adjusted pre-tax pre-credit cost income, $104.7 million. It increased $1.1 million or 1.1% versus the second quarter and $1.2 million or 1.2% versus the third quarter of ‘14.
We are pleased the credit volume trends remained favorable during the quarter. Our NPL ratio declined to 0.72% from 0.81% in the second quarter of ‘15 and 1.18% in the third quarter of ‘14.
Also pleased with loan growth, total loans grew $369.4 million or 6.8% annualized on a sequential quarter basis and increased 6.2% versus a year ago. We will give you a little more color on the loan growth later in the presentation.
Strong deposit growth, average core deposits grew $592.2 million or 11.2% annualized versus the second quarter of ‘15 and 10.6% versus the third quarter of ‘14. On the capital management side, we continued to execute our plan to return excess capital to our shareholders while maintaining strong capital levels.
We told you we would update during the quarter, we completed a $250 million previously announced share repurchase program, repurchasing in total 9.1 million shares and reducing the total share count by 6.5%. And as you will see on the capital slide later, capital ratios remained strong with a common equity Tier 1 ratio of 10.62%.
Moving to Page 4, we are going to cover on loans. Total loans grew by $369.4 million, as I said earlier, 6.8% annualized on a sequential quarter basis.
The growth was really across all loan categories with CRE loans growing $135 million or 7.6% annualized, C&I loans growing $122.4 million or 4.7% annualized, and retail loans increasing $111.3 million or 10.9% annualized. Syndications decreased by about $15 million during the quarter.
Our specialty units again reported solid results and continued to gain traction as we build long-term customer relationships. Total growth [ph] in our corporate real estate area, the consumer mortgage portfolio continued to post strong growth.
Our senior housing saw great success and the equipment finance also improved again this quarter. From a market perspective, the Atlanta, Tampa, Greenville, Jacksonville and Charleston markets all posted strong loan growth and we do continue to expect loan growth in the mid single-digits for the full year 2015.
On Page 5, we are pleased with the continued growth in core deposits. Average core deposits increased $592.2 million or 11.2% annualized versus the second quarter ‘15 and $2.06 billion or 10.6% versus the third quarter of ‘14.
Average core deposits, excluding state, county and municipal deposits grew $745.2 million or 15.9% annualized versus the second quarter and 11.4% versus the third quarter of ‘14. Total average deposits of $22.86 billion increased $393.4 million or 6.9% annualized versus second quarter of ‘15 and $1.92 billion or 9.2% versus the third quarter of ‘14.
Period end core deposits increased $335 million or 6.3% annualized from the second quarter of ‘15 to $21.53 billion and $2.11 billion or 10.9% versus third quarter of ‘14. Just a little commentary about FDIC market share, we are again pleased to see with the market share data released last month, which shows that we increased the number of markets in which we have top five market share and those markets represent about 82% of our core deposit franchise.
I will just highlight a few markets where we had the most growth, Atlanta, Birmingham, and Tampa. And we are really pleased to add Charleston, South Carolina to the top five markets this year.
Charleston grew deposits by 12% year-over-year. Atlanta had 8% deposit growth, where we ranked number five in market share.
South Carolina is great in the market and had very nice deposit growth, 25%. Again, I will mention Charleston and also in Savannah – I mean also in South Carolina.
Savannah, another great port city with great opportunities for growth saw a 16% growth in deposits. And in Florida, our Tampa, St.
Petersburg market grew 5.13% and Jacksonville reported about 35% increase in deposits. And then finally, Birmingham grew deposits by about 12%, ranked number four in market share there.
We had other great examples of market share. We had such a really – a big number of our markets retain number one market share.
So we are pleased with FDIC data and how our team is competing for core deposits everyday. On the regional front and I will take you there on the progress from our cost [ph] strategy.
Again, as we have mentioned, we – the strategy included improved sales tools and training for our frontline bankers and enhanced digital application for our customers. We are on track to achieve the 30% increase in sales productivity that we previously talked about.
Our focus on small business is seeing really good results. Small business checking account balances grew by $328 million or 16.5% compared to a year ago.
New merchant accounts up 21% from the same period last year, resulting transaction volume up 46%. We continue to see transaction migration as customers are enjoying our more convenient channels for their routine service transactions, strong increases in both mobile and ATM deposit usage and again, decrease in teller transactions.
During the quarter, a 13.4% of all retail deposits were performed through a non-branch channel. It’s now contributed to a 9% year-over-year decrease in teller staffing and the reduction of 13 branches in the fourth quarter of last year.
We have opened some new branches. We have opened earlier this year our new branch prototype in Nashville, second one in Sarasota and by year end the third one in Jacksonville in early ‘16.
They will be smaller in size, reducing the barriers between our customers, our bankers and will certainly come equipped with more self-serving convenient banker assisted technology. So really pleased with our retail strategy and how that fits into our overall, strong core deposit growth.
On Page 6, you will see net interest income, $207.8 million. It increased $4.1 million versus the second quarter of ’15, the net interest margin 3.14%, down one basis point from the second quarter of ‘15.
Yield on earning assets was 360, down a basis point versus the second quarter. The yield on loans declined 4 basis points to 4.10 basis points versus the second quarter ‘15.
Average balances at the Fed, which were inflated last quarter. Average balance of the Fed decreased about $215.2 million or 14.4%.
We saw a 3 basis point improvement in the end due to that factor. The effective cost of funds remained unchanged at 46 basis points and we expect the net interest margin to be flat to slightly down in the fourth quarter from the 3Q levels.
We are positioned to benefit from potential increases in short-term rates. I don’t know when that will happen.
But just again, to show you the sensitivity table on the right side there, short-term rates will go up 100 basis points. The net estimated change in net interest income compared to unchanged would be 4.7%.
That will slightly increase from the 4.2% in the second quarter and a 200 basis point rising rate environment. The percentage change in net interest income would be estimated at 7.2%.
Again, that’s up from 6.2% in the second quarter of ‘15. On Page 7, talk a little bit about non-interest income, obviously reflecting higher core banking fees.
Third quarter adjusted non-interest income was $67.1 million, up $211,000 or 0.3% versus second quarter of ‘15 and $3.1 million or 4.8% versus the third quarter of ‘14. Core banking fees $33.9 million, an increase of $1.5 million or 4.7% from the second quarter, driven primarily by higher service charges on deposit accounts and other service charges.
Our FMS revenues were $19.8 million for the quarter, 0.2% increase on linked quarter basis and 1.9% increase from a year ago. During the quarter, we also continued to benefit from the ongoing targeted talent acquisition throughout our franchise.
We added seven financial management services professionals in key markets like Birmingham and Atlanta and those talent additions are expected to generate significant additions to assets under management over the next 1 to 2 years. And while we have been a little negatively impacted by the recent overall market decline, assets under management now totaled $10.59 billion, reflecting about a 3% increase from a year ago.
Our mortgage unit continues to have a strong year while adding this talent pool. During the quarter, we added 13 experienced mortgage originators in key markets like Birmingham, Nashville, St.
Petersburg, Tampa, Hilton Head and Orlando. We have also made significant improvement in our efforts to increase mortgage originations with minority borrowers.
The mortgage banking income was $6 million for the quarter, down about 20.6% versus the second quarter while up 27.9% from a year ago. The revenues were up approximately $1 million or 15% lower than expected and that really just reflects a greater portion of overall production being allocated to portfolio mortgages versus loans originated for sale.
Total mortgage production, which includes originated for sale in portfolio, is in line with expectations at $354 million for the quarter compared to average of $335 million per quarter for the first half of 2015. For the fourth quarter, we expect a decline in mortgage revenues from 3Q level of approximately 20%, reflecting seasonally lower volumes as well as greater portion being allocated to portfolio mortgages, again a strong part of our balance sheet.
Kevin Howard can give you some color on that a little later. Again, on the SBA, our government guaranteed programs, our SBA gains were $1.1 million compared to $1.4 million in the second quarter, year-to-date, $4 million, up $922,000 versus a year ago.
And again, we had strong talent additions there and we are very encouraged by our progress in the government guaranteed lending space. Page 8, we will talk about our continued progress on expense management.
Year-to-date 2015, adjusted non-interest expense is $504.4 million, up $1.1 million or 0.2% over the prior year. Our employment expense $285.4 million, up $5.5 million over the prior year due primarily to higher variable cost from higher mortgage and brokerage revenue, annual merit increases and higher incentive compensation.
Still a great focus on headcount. Headcount increased by 19 or 0.4% versus the second quarter at 139 or 3.1% versus the third quarter ‘14.
Again, it reflects continued implementation of efficiency initiatives that go on throughout our company every day. Occupancy and equipment expense $79.7 million unchanged versus the same period a year ago.
Other expenses, $4.7 million lower than prior year, reflecting lower FDIC insurance and advertising expense. Our adjusted non-interest expense for the third quarter was $170.1 million, up $3.3 million versus the second quarter.
The increase was driven primarily by a $2.6 million increase in advertising expense, which we had talked about in previous quarters. 2015 adjusted non-interest expense, again as previously guided, is expected to approximate 2014 levels right at $675 million, reflecting again continued efficiency efforts and investments in talent and technology.
On Page 9, again I am pleased with our continued improvement in credit quality. Let me just walk you through those graphs.
On the first graph, you will see a 9.2% linked quarter reduction in non-performing loans, now $158 million or 0.72% compared to $174 million or 0.81% in the first quarter. The year-over-year improvement was 35%.
NPAs were down 7.5% to $222 million or 1.01% compared to $240 million or 1.1% in the prior quarter and representing a 31.6% year-over-year improvement. We expect both NPLs and NPAs to decline during the fourth quarter of 2015.
Graph on the top right shows the credit cost of $10.3 million, down $2.5 million or 19.6% from the $12.8 million in the second quarter, representing a 34.4% year-over-year improvement. Provision expense was $3 million compared to $6.6 million in the second quarter.
Other credit costs totaled $7.3 million versus $6.2 million in the second quarter of ‘15. Bottom left graph shows net charge-offs for the third quarter, $6.8 million or 0.12% compared to $5.3 million or 0.10% for the second quarter.
And year-to-date, net charge-off ratio is now 0.15%, which is well below our original guidance. Again, better loan resolution and a strong piece of recoveries are key contributors three.
Graph on the bottom right shows our past dues greater than 30 days remain at low levels, currently 18 basis points. It’s also worth noting that our 90-day past dues are only one basis point.
We are really very pleased we continue to experience significant improvement in the quality of the balance sheet, while at the same time, reducing our overall credit cost. On Page 10 I was going to walk you through our quarter end capital ratios.
I will remind you the third quarter capital ratios include the impact of the recently completed $250 million common stock repurchase. The second quarter ‘15 capital ratios included the impact of $197.5 million in common stock repurchases.
So the third quarter ‘15 CET I ratio is 10.62%. All of our capital ratios, except tangible common equity ratio or Basel III transitional ratios prior to 2015 based on Basel I rules.
Tier 1 capital ratio, 10.62% versus 10.73% in the second quarter, total risk based capital 12.04% versus 12.18% in the second quarter of ‘15. Leverage ratio, 9.44% versus 9.48% in the second quarter, TCE ratio 10.18% versus 10.13% in the second quarter of ‘15.
Third quarter Basel III common equity Tier 1 ratio is estimated at 10% on a fully phased-in basis. And again, all the capital ratios are detailed there in the chart.
Going to Page 11, again just kind of recap on capital management, both past and go forward, as we said earlier we did complete in the third quarter the $250 million share repurchase program. We used the full authorization, 9.1 million shares at an average price of $27.53.
That total repurchase has reduced our share count by 6.5%. During the third quarter, repurchases totaled $52.5 million or 1.7 million shares.
So that completes the repurchase program that was announced on the October call a year ago. We are pleased to announce an additional share repurchase program.
The Board of Directors authorized a $300 million share repurchase program to be completed over the next 15 months, which will take us through the end of 2016. The Board also approved 20% increase in the quarterly common stock dividend to $0.12 per share.
This dividend increase will be effective with a quarterly dividend payable in January of ‘16. All of these actions reflect our continued commitment to efficient capital management as our risk profile continues to improve.
So before I go to questions just a little bit about our go forward story, which we kind of touched on, hopefully the results are indicative of strong initiatives. But for the last quarter, look ahead to 2016 we continue to remain actively engaged in initiatives that will generate growth simply in areas that further diversify our balance sheet and improve our fee income contribution.
We are on-boarding revenue generating talent at an aggressive pace, especially in our fee income producing lines while also managing expenses to support these investments in growth. We will continue to refine our model and realign talent to more effectively match skills with needs and opportunities in our markets.
We are very focused on C&I growth. It continues to diversify our balance sheet and it’s really well suited for our relationship banking model.
We have launched and will soon launch additional key growth initiatives that are heavily focused on growing all segments of C&I lending, including expanding our middle market strategy which we have talked about add offerings and resources in government guaranteed lending, enhancing products and processes for small business lending and just continuing to focus our bankers to the targets and incentives in referrals and growth in other C&I areas like equipment financing, which had good growth this quarter and asset-based lending as well. As we said earlier in the call, we expect mid single-digit loan growth for the full year.
Our retail sales productivity is on track to achieve our goal of 30% increase in sales productivity for the year, again – so really good progress across on all the fronts there. And like others, we will watch and see during the fourth quarter what happens with interest rates, but the main point here is our growth plan is not dependent on increases to short-term or long-term rates.
We have talked about our investment in people. We will continue to invest also in technology and systems.
We are really all designed to bring greater efficiency and a better customer experience to all of our banking units. We know the continued investments in growth require even greater diligence and expense management to fund those investments.
We are actively today and everyday identifying new and implementing ongoing activities that generate savings for our company and that again is a way of life around this company. So, in closing, as we near the end of another positive year, we are really excited about our growth plans for the fourth quarter and 2016 and beyond.
We carefully designed and built out several supporting initiatives and we feel like we have the right talent in place to execute well at every key area. As we repeatedly encourage our team during the crisis, we remind them everyday that our focus and our energy has to be on things we can control.
We can’t speed up the economic recovery. We can’t force an increase in interest rates, but we can execute on our plan and grow our company leveraging our expertise, our technology, product services, and really above all, our relationship-centric banking model as we attempt to continue winning our markets, serving all of our customers and winning new relationships.
So, we feel good about the rest of the year. I think, operator, now it would be a great time to stop and pause for questions.
And again, we have our senior team in the room with me to take any of your questions.
Operator
Thank you very much. [Operator Instructions] Okay.
We will take our first question from John Pancari. Please announce your affiliation and pose your question.
John Pancari
Evercore ISI. Good morning.
Kessel Stelling
Good morning, John.
John Pancari
On the expense fronts, couple of questions there. Just want to get a little bit of additional color around the driver of the higher other expense, sorry if you have mentioned that, I might have missed it.
But just I know that ticked up in the quarter, so want to get color on that. And then separately, I wanted to get your updated thoughts on how you are thinking about the efficiency ratio, in fourth quarter, but more importantly in 2016, where could that head, I know we are at 64% now, where can this go barring Fed hikes?
Thanks.
Thomas Prescott
Hi, this is Tommy. I will try to answer your question.
I am sorry would you repeat the very first part of your question?
John Pancari
Yes, I know it was a long one. The increase in other expenses in the quarter, what drove that?
Thomas Prescott
On the other expenses, we had $750,000 credit for reduction and unfunded commitment and reserves for the losses also. That was the key to that.
John Pancari
Okay. And then the second part was....
Thomas Prescott
The second quarter in comparison to the third quarter.
John Pancari
Right, right. Okay.
And then the second part of my question was just the direction of the efficiency ratio barring Fed hikes?
Thomas Prescott
We have been pushing that from both sides from the revenue side and the expense side. It’s moved forward slightly over a year or so.
That happened every quarter. I think it was about par this time.
We are continuing to push that hard as we can by managing the expense side and also on the revenue side. We don’t have explicit target out there.
We have the internal targets to move that forward and as Kessel said while ago, we are not counting on the interest rate movements to get it there. We are really working hard to make sure that we are doing what we can with what we have and moving it forward.
John Pancari
Okay, alright right. And then lastly, Kessel just want to hop the capital, I want to get your updated thoughts on capital deployment, particularly from an M&A perspective.
I mean, we saw what you announced in terms of buyback and the dividend, but how do you think about M&A here given the difficult rate environment and is this something you think is ultimately going to be needed to really drive growth in this type of operating environment?
Kessel Stelling
Yes, we certainly think it would be additive, John. And these capital actions certainly do not preclude the ability to do any M&A action.
We believe again as we said, I guess, going back almost 2 years ago, we thought M&A would be in our future playbook. We thought shorter term we needed to focus on internal operations and efficient capital management.
I think hopefully, we benefited from that and now have a currency that would certainly allow us to look at opportunities through a different lens, still with the focus on opportunities that really were just great, strategic and financial fits. We are seeing a lot of opportunities.
The pace of activity as many of you see, just from I guess yesterday’s announcements in the Southeast continue to move in a pretty brisk pace. Our focus has been on acquisition readiness, making sure that we dusted some of the cobwebs off and make sure that our team was ready with the plan and we had again a focus on our operating results to get our currency to a point where that could make sense.
So we see a lot of opportunities. We don’t feel the need to do one for the sake of doing one, which creates scale for the – just for the sake of creating scale.
But we do see interesting opportunities out there that we will continue to evaluate. Again, we want to make sure that it – at the end of the day it makes Synovus stronger and that’s a test that I am trying to apply to several.
They have come across my desk very quickly, but we did certainly think over time that is a way as we can grow the company and create some scale. We can certainly improve operating results there.
So these capital actions are just one action or one type of action. We certainly think that our capital ratios, that these capital actions also will allow for M&A activity, if the right opportunity were there.
John Pancari
Okay, got it. And one last thing on that, but what will be your sweet spot in terms of targeted size of bank deals, Kessel?
Kessel Stelling
Well, John I don’t think our first one would be a game changer. I mean the first one will be one, that at a very high – I guess everyone thinks this, but in my case, I want a very high probability of execution success.
One that does not take our team away from their core day-to-day opportunities, we think those are very great. So I think the first one might be on the smaller end of the spectrum, not going to be a game changer, but one that would fit in very nicely from a strategic standpoint within our current footprint.
John Pancari
Okay, great. Thank you.
Kessel Stelling
Thanks, John.
Operator
Thank you very much. We will take our next question from Michael Rose.
Please announce your affiliation and pose your question.
Michael Rose
Raymond James. Hi guys.
Just wanted to touch on credit, it looks like you had some reserve release this quarter. The reserve ratio is getting down relatively low at this point.
What could we expect in terms of future releases and then you are seeing anything on the credit front that’s causing you to pull back in any certain categories? Thanks.
Kevin Howard
Hi Michael, this is Kevin. On the reserve, it’s actually – it’s almost where it was two quarters ago.
I think the reserve went up $2 million last quarter and down $4 million. So I would still consider it more on a stabilized and that’s kind of how we see it going forward.
We are around – you might see the ratio tick down a 1 or 2 bps, but I think as far as dollars are concerned, I think we are pretty much – at least in the – what I see the next couple of quarters as being continued very stabilized. But no particular – I mean we are always looking at different areas of the portfolio.
We are watching manufacturing. We have seen reduction in balances there.
That’s been our soft spot of the economy in the south. So, we are being cautious, but still a healthy portfolio for us.
We are watching the construction portfolio. We – that’s ticked up during the year.
We are starting to see – we want to make sure that gets to stabilization and we think we will do less construction going forward as we have been on a pretty strong pace in the last five quarters or six quarters. So we will watch those things and just continue to I think we – from a credit cost perspective, we think it will be pretty much we saw good drop again in this quarter in that 5, 10 to 15 range and again kind of on the reserve side probably staying pretty stabilized.
Michael Rose
Okay, that’s helpful. And then just as a follow-up, it looks like you guys purchased some securities this quarter, took a little bit of the near-term asset sensitivity off the table.
If we are lower for longer, should we expect to see continued modest securities purchases or expect to grow outside of the portfolio?
Thomas Prescott
Yes, we will just have to keep an eye on. At this time, we were investing in consideration of utilization of dollars at the Fed and also felt like just adding to the portfolio a little bit was useful, but we will kind of keep an eye on how things are going on the loan standpoint and on the deposit standpoint and make the decision on a quarterly basis.
Michael Rose
Okay, thanks for taking my questions.
Thomas Prescott
Alright.
Kessel Stelling
Thanks, Michael.
Operator
Thank you. We will take our next question from Steven Alexopoulos.
Please announce your affiliation and pose your question.
Steven Alexopoulos
JPMorgan. Good morning, everybody.
Kessel Stelling
Good morning, Steven.
Steven Alexopoulos
I want to just follow up on John’s questions on expenses. At this point, given the efficiency initiatives underway, is it likely you could hold adjusted expenses relatively flat again in 2016?
Thomas Prescott
Yes, let me try and tell you this point. There is certainly upward pressure on the adjusted expense line.
We – I think, our team has done a great job of taking expense out to allow for these initiatives that we have invested in, included in increasing depreciation on some of the technology investments and other IT spend. So, our goal is certainly to keep that number relatively flat.
That minute we will have some upward pressure, we are not prepared yet to give 2016 guidance, but I will tell you that our focus is on keeping that number as close to flat as possible. There is certainly going to be some modest upward pressure.
But given this rate environment, we know – and we are really discussing early this morning the need for, even though the effort is there every day, the need for an additional look at the expense line, so more to come on guidance there, but certainly, our intent is to manage that line as close to flat as possible. And we will give further guidance when we complete our planning and budgeting process for 2016.
Steven Alexopoulos
And Kessel, if I could ask with the headcount down 3% over the past year as you look forward, could you take it down another 3% or is that going to be pretty difficult at this point?
Kessel Stelling
I think you can – I think you can, Steven. I mean number one and I don’t want to just pick on branches, because my heart and soul, I am a branch banker and I love what goes on in our branches and I tell our tellers all the time, more people care about who they are than they care who I am if they serve them right, but just the investment in technology and our focus on how we are running our branches now, we know that we will have additional opportunity to reduce the number of branches, which will certainly bring down the headcount.
And quite frankly, as much as we brought down the staffing per branch, we can take that we believe even further in 2016, but it doesn’t only come out of the branches. We need to really make sure that systems and other processes we are investing in allow for efficiency on the back end.
I won’t get into a lot of detail, but investing in a new loan processing system that once fully implemented we know other organizations that have put in the same system have achieved back-end savings in terms of number of people necessary. As we realigned our production talent and put talent where the opportunities are, we are increasingly focused on making sure that we have bankers with the right skill set.
And so we continue to look at ways to get better productivity there. So, that was a really longwinded way of saying, no, we do believe we can push down headcount.
There will be, by the way, significant investment in new headcount that we talked about. The key is making sure that we are getting it where can really grow revenue line and getting it out of where it’s not having a material impact on either revenue or service.
Steven Alexopoulos
Okay, that’s helpful. Maybe I could ask just one question on the buybacks, Kessel, should we be thinking about a relatively stable pace of buybacks through the next 15 months?
I know that $250 million was somewhat front-end loaded, how are you thinking about the new one?
Kessel Stelling
Steve, I think you nailed it. I think it should be a pretty even paced.
I mean we won’t rule out anything and we will be opportunistic, but I think when we did the last one, we kind of signal out of the gate we would be very aggressive and we think this will be a more measured, steady pace over the 15 months, but we would keep all of the same options on the table, but I think your description is the right one.
Steven Alexopoulos
Okay, great. Thanks for taking my questions.
Kessel Stelling
Thanks.
Operator
Thank you. We will take our next question from Emlen Harmon.
Please announce your affiliation and pose your question.
Emlen Harmon
Hey, good morning guys. It’s Jefferies.
So some of your peers are starting to add some duration and repeal from the middle of the curve. Given the increase in asset sensitivity, it doesn’t appear like you are giving up much of that this quarter, but just how are you thinking about balancing giving a little bit more aggressive on rates now versus staying as levered as possible to the Fed Funds increases?
Thomas Prescott
Yes, this is Tommy. We have been watching closely the – first of all, waiting for that great late movement to happen at some point as it will and we have been managing accordingly.
We have been really unwilling to invest a lot in saying that because of – sometimes we think the risk might be higher than the benefits we are getting for it. We believe – what you saw in the third quarter compared to the second quarter was a lift on the 200 basis point level moved up meaningfully and basically there – for that, we are seeing more variable loans both on a current and a forecasted basis.
We are also seeing fewer loans on what floors and then the new loans with floors will come off floors with a tighter look and will quickly come out of those floors. We also keep an eye on the liability side and watch that closely and same on the securities side.
But we feel like we are really on the right place. We will obviously – if things don’t change from an interest rate standpoint, we will be looking at things like the shorter wholesale funding.
We will grow the securities portfolio likely and add duration and then we will also consider more fixed loans alongside the liability opportunities that we will have, and that’s kind of where we are right now really, really helpful things change sooner rather than later, but as Kessel said, we are not depending on our company on that.
Emlen Harmon
Got it. Thank you.
And then just what is – what’s your ability to take the liquidity down further from here that was a nice helper to keep the NIM steady this quarter?
Thomas Prescott
Yes, we were – our loan to deposit is a good indication with 96%. And we had gotten up to close to 100% a year ago.
We have done a lot on the deposit side. To bring that forward and to have all liquidity and so forth, it doesn’t have to be at 95% or 96%, but it will be closer to that than the 100% that we had a year ago.
And so we feel like there is opportunity. We did take the debt balance down a good debt end of third quarter.
We will see some of the impact of that on an average basis, because a lot of that showed up pretty late. You will see some cushion come – we believe coming on a – with the Fed balance as we are in 2014 and – I am sorry, we are in the fourth quarter and you will see some on the average side of that and that will help the margins slightly.
And so that’s where we are.
Emlen Harmon
Okay, thanks. Thanks for taking the questions.
Operator
Thank you. We will take our next question from Jefferson Harralson.
Please announce your affiliation and pose your question.
Jefferson Harralson
KBW. Good morning.
KBW. My question is kind of similar to Emlen’s one and I want to go into the mortgage strategy of keeping more loans on the balance sheet.
Is that for rate purposes? Is that a mix change to what you are originating?
Is that just taking a longer term view and growing spread income faster? How should this, all things equals, change the potential loan growth of the company with that slight strategy change?
Kessel Stelling
Yes. Jefferson, some combination of myself, D, and Kevin may all weigh in here.
I don’t know there is a significant shift in strategy. Really, the growth is through our position program and private wealth strategy where we really beefed up our customer contact staff there, our revenue generation and we have really been generating very high quality.
Kevin was talking to me today about FICO scores within that portfolio. So we feel like that opportunity to put a really high quality mortgage in our balance sheet is really a strong win.
So we are not backing away from the typical originate and the sales strategy. But this quarter, that mix was certainly more skewed to those product categories than I just talked about.
Kevin, do you want to add anything on what’s going on the balance sheet there?
Dallis Copeland
Yes, this is D. The one thing I would add is, as we are doing those – as Kessel made the comment, it was positioned in private wealth, over 98% of those customers have deposit relationships with us as well.
And so it’s really a way for us to continue to expand our customer base on what we feel is a great niche and segment that we have. In addition to that, we have significant loans, other investments and other things that we have cross-sell to these customers.
So it’s intentional on the customer base that we look at.
Jefferson Harralson
Okay. So it sounds like these are jumbos, this is kind of a newest jumbo strategy that had positioned us?
Kessel Stelling
There would be a significant number of them are jumbo, but with some are not. Some we may be catching earlier in the cycle.
I guess from the – especially on the position side and some of the others. But yes, it would go heavier towards the jumbo side.
Jefferson Harralson
Alright, excellent. Now just maybe a clarification, I think this is what Kessel was saying, would you expect this buyback to be complete, all things equal by end of next year, is that what you are – I think that’s what you said, but I just wanted to make sure that’s what you are…?
Kessel Stelling
Yes. I think it is, Jefferson it is, as last year was a 12-month authorization.
So it ran through the third quarter. It just seemed to make more sense to sync it up on an annual calendar basis, that’s how we do our stress testing and other stuff.
So, it’s a 15-month authorization. We would expect it to be completed over the 15 months.
I think that the question Steven asked was really also about the front end loading. We did the accelerated share repurchase in the fourth quarter last year which really front-end loaded that repurchase.
And the thought this time is it would be a more measured over the 15-month program. Certainly the goal would be to complete it.
And we wouldn’t take any other tools off the table. But right now, the plan would be to do it over the 15 months.
Jefferson Harralson
Alright, it makes sense. Thanks guys.
Kessel Stelling
Alright. Thank you.
Operator
Thank you. We will take our next question from Brad Milsaps.
Please announce your affiliation and pose your question.
Brad Milsaps
Sandler O’Neill. Hi, good morning.
Kessel Stelling
Good morning, Brad.
Brad Milsaps
Kessel, just back to some of your comments around the potential for M&A, just curious if you had any criteria that in terms of tangible book value dilution, earn back or earnings accretion that you guys would plan to stick to, if in fact you were able to find something that fits strategically?
Kessel Stelling
Yes. We do, I wouldn’t want to state it public.
Well, I can tell you that we are not interested in any long-term earn back on tangible book. And we expect any acquisition to be accretive and to be a nice strategic fit, which may rule out a good number of the universe and that’s quite all light with us.
We really do believe our internal strategies are good and working. And we think there are opportunities that we can – that will be actionable over the next year or so that will fit in with a short earn back in a immediately accretive transaction.
So again, I have said on the road a lot that we wouldn’t expect our first announcement to be a head scratcher to the investment community. And so if we do something that causes you to scratch your ahead, call me.
But I think it would be something that would be again a nice strategic fit for us and if it happens, great. And if it doesn’t happen, that’s okay too.
I have said often, patience I think has been our friend in the M&A world. And I am not caught up.
I see other transactions that are interesting and that’s great. And I applaud those that are doing them, but we have got again a very disciplined approach to how we are going to look at those.
And if they fit, they fit. And if they don’t, that’s okay.
Brad Milsaps
No, that’s great. Very helpful.
And then just final question, Tommy, any updates on maybe your appetite for somebody to pay off some of the higher cost debt that you guys have out there? I know that – I think some of the rate issues have – maybe give me guys a bit of an upgrade.
So, just kind of curious, any change in thought there on how you guys might be thinking about attacking some of those higher cost pieces that are out there?
Thomas Prescott
Yes, the high price debt really stands out, I guess, was the 2019, $300 million. And quite frankly, the thought right now is that the cost of getting out of that is probably too high to really get a good return on it.
We will keep watching that and see if there is an opportunistic kind of situation in this. We keep an eye on that constantly and look at it.
We also have some debt that matures in 2017, $450 million. We will – we are currently actively exploring all the options that are there.
We – anytime, really, from now until later ‘16, we will have some scenarios out there that we will actually execute that will be maybe some sub-debt level and then another piece later on. And all that hasn’t been determined or timed.
We are actually just looking for opportunities, looking for the market we were, I assume where the rating agencies go. So, that’s where we are.
Brad Milsaps
Great. Thank you, guys.
Operator
Thank you. We will take our next question from Nancy Bush.
Please announce your affiliation and pose your question.
Nancy Bush
NAB Research. Good morning.
Kessel Stelling
Good morning, Nancy.
Nancy Bush
Yes, a couple of questions, Kessel. When I look at this quarter, it pretty definitively illustrates that you guys have left the financial crisis in the rearview mirror at this point.
And when I look at the level of investments that you are doing in branches and technologies, etcetera, did you come out of the financial crisis with a list of deferred projects and how far down that list are you? And then do you go into sort of another list of things that put you in front of the curve?
Kessel Stelling
Yes, Nancy, great question. And I love your opening statement that we have left the financial crisis in the rearview mirror.
So, we come out with a deferred list. I don’t know if I’ll call it deferred list.
I personally felt, as we came out of the crisis or even during the crisis, that more of our investment felt that it was in just upgraded core systems, stabilization of core systems, replacement of PCs and things that really you couldn’t see a direct customer benefit. You couldn’t see an efficiency play out of.
So, I don’t want to necessarily use that term deferred, but it just seemed to have the feel of investments that were not producing additional return. As we moved out of that, I think our team does a great job of planning and prioritization and it’s a continuous cycle.
And so we have a list right now that would probably take us out to 2018 in terms of our ability to onboard, whether its upgrades of mobile banking, of customer portals, of new loan systems that either has efficiency plays or customer experience plays. So, I don’t think we are behind.
I think we actually have achieved parity in a lot of our applications that we were maybe not there, but it’s an ongoing process. And quite frankly, you noted that priorities that are happening in ‘16 or ‘17 list, you may never ever execute that by the time you get to those, you reprioritize or push those aside, so it is a – I don’t know that it’s a catch up, but it is certainly a robust process that involves – in our model, it involves our IT team, our operations team and all of our business line leaders who compete for priorities to make sure that our vetting process is correct and then our execution and accountability piece is also equally as robust.
So, it is a – I spent a lot of time there. A lot of our senior team spends a lot of time looking at ‘15 on-boarding, ‘16 on-boarding, ‘17, ‘18 prioritization and it’s not just money.
It’s – you certainly have to have the right amount of team. I think your question is a good one.
And again, I feel like we are in the right place with our investment. And we continually challenge ourselves.
And quite frankly, our Board challenges us on if you increase the pace of investment, what’s the trade-off, if you decrease it, what’s the trade-off. And it’s a very I don’t want to say hotly debated subject around here, but a very again robustly discussed process around here.
Nancy Bush
Okay. Second question, in a lot of your commentary you mentioned your success in the Charleston market.
And I have been talking to a number of community bankers recently, and it’s sort of like the Southeast woke up at the same time and said the word Charleston. Everybody seems to be headed that way.
So can you just discuss the competitive situation there and how you are positioned in that market and whether my impression that it’s getting a little crowded is indeed correct?
Kessel Stelling
Well, yes, I think it’s getting crowded. And all the newcomers should leave and go home.
We have been there a long time. And we are real proud of what we have done in Charleston.
So, I don’t think we just woke up there. Rob Phillips leads our team there.
We have got a great team of really experienced bankers in Charleston. We have got a well positioned branch network, but really experienced bankers.
We have always had strong Board representation from the Charleston market. And so our company’s history in Charleston goes way back.
And I think part – some of our team hosted some investors on a tour of Charleston just recently. It’s just a great market and it’s not just for what mode, I mean, everybody knows about Boeing and the other businesses attracted and a lot of great development there, a lot of other business activity in Charleston.
So, yes, it’s competitive. I won’t say this, every one of our market leader says their market is the most competitive or is uniquely competitive.
So I think our Charleston bankers would certainly say it’s a very competitive market. But again, I think your win in a market is based on the quality of the team you have in your market.
And we have bankers there with really deep roots in the community and Board members there with really deep roots in the community and a presence in that market that really goes way back. So we love Charleston.
It’s a great place to visit, but certainly a great place to bank and I think if anyone else is thinking of coming into the market, I will just urge them not to do so.
Nancy Bush
Alright. Thank you.
Kessel Stelling
Thanks Nancy.
Operator
Thank you. We will take our next question from Chris Spahr.
Please announce your affiliation and pose your question.
Kessel Stelling
Must have already answered it.
Operator
Looks like we lost Chris, we will take our next question from Jennifer Demba. Please announce your affiliation and pose your question.
Jennifer Demba
Thank you. SunTrust, Robinson Humphrey.
Good morning.
Kessel Stelling
Good morning.
Jennifer Demba
Question on expenses, Kessel, you mentioned reducing branches is an obvious lever, can you talk about where you are in terms of corporate real estate rationalization, I know Atlanta is a big project for you in the coming year. But once you are done with Atlanta’s office consolidation, where do you go from there and how much opportunity is there incrementally?
Kessel Stelling
I think it’s kind of like the technology process, Jennifer. It’s ongoing.
So we won’t be done in Atlanta for a while or maybe never. And quite frankly, I am excited about not only consolidating offices in Atlanta but potentially opening more offices in Atlanta.
Hopefully, not the 5,000 square foot variety, but the smaller branch variety. We think there are some markets in Atlanta that need more investment.
So it’s – there will be again the consolidation and then certainly additional investment there. That same process is going on today in Birmingham and really Columbus and all of our major markets throughout South Carolina as we just look at our model, as we look at customer behaviors and we look at opportunities to not just consolidate office space but to take larger regional branch facilities and may be close two and open one that is really much more in keeping with what we think today’s customer desires are, without the barriers and with the – I went in our Nashville new branch last week.
It really just has a great feel of customer interaction, a lot of tablet and mobile capability for customers walking in. So that process is ongoing and we have a corporate real estate committee, which I sit on that monthly meets to look at progress in terms of efficiency, where we might spend some money to cut some additional expense.
And I don’t know that I can define it in terms of what inning we are in. It really is what I say fairly early and it’s just an ongoing process here.
Jennifer Demba
Okay, thank you very much. My other questions have been answered.
Kessel Stelling
Thanks, Jennifer.
Operator
Okay, I am showing no further questions in queue.
Kessel Stelling
Alright. Well, thank you operator.
And just again, I want to thank all of the analysts and investors and team members and board members and regulators who have dialed in today. Our story, I hope, is very consistent and is one of executing against our plan and that’s what we have done during the crisis, post crisis and what we’ll do going forward.
Our team is very energized, our board is very energized and hopefully, our investors are as well, but we will continue to do what we can do, focus on those things we can control and look forward to closing out the year in a very positive way and hitting the ground running in 2016. So, thank you all for dialing in today and hope you all have a great day.
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.