Jan 27, 2015
Executives
Bob May - Senior Director, Investor Relations and Capital Management Kessel Stelling - Chairman and Chief Executive Officer Thomas Prescott - Executive Vice President and Chief Financial Officer Kevin Howard - Executive Vice President and Chief Credit Officer Dallis Copeland - Executive Vice President and Chief Community Banking Officer
Analysts
John Pancari - Evercore ISI Ken Zerbe - Morgan Stanley Ebrahim Poonawala - Bank of America Steven Alexopoulos - JPMorgan Jennifer Demba - SunTrust Robinson Humphrey Brad Milsaps - Sandler O'Neill Emlen Harmon - Jefferies David Bishop - Drexel Hamilton Nancy Bush - NAB Research Christopher Marinac - FIG Partners Tyler Stafford - Stephens Kevin Barker - Compass Point Kevin Fitzsimmons - Hovde Group Jefferson Harrelson - KBW
Operator
Good morning, ladies and gentlemen, and welcome to the Synovus fourth quarter and yearend 2014 earnings conference call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Bob May, Investor Relations for Synovus.
Sir, the floor is yours.
Bob May
Thank you and good morning, everyone. During the call we will be referencing the slides and press release that are available within the Investor Relations section of our website synovus.com.
Kessel Stelling, Chairman and Chief Executive Officer, will be our primary presenter today with our Executive Management team available to answer your questions. Before we begin, I'll 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 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 Stelling
Thank you, Bob, and good morning, everyone. I want to thank all of you for joining our call, especially those of you in Boston, New York and really throughout the northeast, who have probably gone a little above and beyond today to get on to this call, so we hope you are all doing well.
Before we get into the fourth quarter results, I want to call your attention to Page 3, which is a slide. It really just takes a snapshot at the significant progress in 2014 to strengthen the franchise.
So just a few highlights there, before I get into the fourth quarter results. You'll see from a profitability standpoint, net income available to common shareholders for 2014 was $185 million, got a 56% increase from $118.6 million for 2013.
Diluted earnings per share were $1.33 for 2014, up 50.5% from $0.88 in 2013. From a balance sheet standpoint, total loans ended the year at $21.1 billion, growing a little over $1 billion or 5.2% from 2013.
If you exclude the impact from the sale of our Memphis branches, total loans grew $1.13 billion or 5.6%. Low-cost core deposits ended the year at $16.72 billion, up $589 million or 3.7% from 2013.
This excludes the impact from the sale of the Memphis branches. Credit quality continued really broad-based improvement across all fronts there.
I'd just call your attention to a couple of highlights. Total non-performing loans have declined a little over 52% from 2013, as the NPL ratio ended the year at 0.94%, down 114 basis points from 2013.
The net charge-off ratio for 2014 was 39 basis points, down 30 basis points from 2013. And the allowance to non-performing loans coverage ratio has increased from 95.43% in 2013 to 197.22% in 2014.
So great improvement there. And from a capital standpoint, stronger capital ratios.
Tier 1 common equity ratio increased 35 basis points from 2013 to 10.28%. And book value per common shares increased 5.4% over last year to $21.42.
And just as a reminder, this is after $88.1 million common stock repurchase during the fourth quarter and a 43% increase in the quarterly common stock dividend that was paid on January 2, 2015. So a really solid year.
I know you want to hear about the fourth quarter. So I'll take you to Page 4, and we'll jump right into the fourth quarter highlights.
Fourth quarter net income available to common shareholders was $50.6 million or $0.37 per diluted common share. Diluted EPS increased 16% versus the third quarter of '14.
Net income available to common shareholders was $53.2 million or $0.39 per diluted common share, after excluding the impact of restructuring charges, litigation settlement expenses and Visa indemnification charges. This compares to $51.3 million or $0.37 per diluted common share, excluding the impact of restructuring, net litigation and Visa indemnification charges for the third quarter of '14.
And just as a reminder, the third quarter of '14 pre-tax pre-credit cost income included the benefit of a $3.6 million net insurance recovery for incurred legal fees related to litigation, which is excluded from the non-GAAP EPS of $0.37 for the third quarter. Another fourth quarter highlight, total reported loans grew $509.1 million or 9.8% sequentially on an annualized basis.
Average core deposits, excluding state, county and municipals, grew $150.7 million or 3.4% annualized versus the third quarter of '14. And our NPL ratio declined to 0.94% from 1.18% in the third quarter.
Total past dues, again, performing well. Past dues over 30 days were 0.24% compared to 0.35% in the third quarter of '14, just another indicator of the overall strong performance in our credit portfolio.
On Page 5, a little more detail or color on the loan growth. As I mentioned on the previous page, $509 million, 9.8% sequentially and a little over $1 billion or 5.2% for the year, it was supported really across the footprint, but in particular by growth in Tampa, Atlanta, Pensacola, Jacksonville and Charleston.
A breakout of that loan growth, C&I loans increased $275.9 million or 10.9%, CRE increased $155.9 million or 9.2% and retail increased $79.2 million or 8.2%. So good loan growth for the quarter and we were pleased with that, and again for the full year, as I stated, 5.2%.
We currently expect loan growth for 2015 in the mid-single digits and we'll be happy to talk a little more about that later on the call. On Page 6, again, a little more about our deposit story.
Average core deposits, excluding SCM deposits, grew $150.7 million or 3.4%. Average core deposits increased $289.7 million or 5.9% versus the third quarter.
And total average deposits of $21.34 billion increased almost $400 million or 7.5% versus the third quarter of 2014. On Page 7, a little bit about the margin.
We had guided some modest pressure there. Net interest income continued to expand.
It was up about $1.2 million versus the third quarter, driven by higher loan balances. Our net interest margin was 3.34%, down 3 basis points from the third quarter of '14.
Yield on earning asset was 3.78%, down 3 basis points versus third quarter. The yield on loans declined 7 basis points to 4.22% versus the third quarter.
And our new and renewed yield on loans declined about 16 basis points to 3.69% versus 3.85% in the third quarter. Our effective cost of funds was 44 basis points unchanged from the third quarter, and we'll speak to this later, but we do expect a modest downward pressure on the net interest margin during 2015, under our current rate environment.
I'll call your attention to the right side of that slide, where we try and to give you a look at our net interest income sensitivity. And again, the short-term rates would go up 100 basis points.
Estimated percentage change as compared to unchanged would be 4.3% increase. That's a slight increase from the 4% that we reported in the third quarter.
And the same analysis on 200 basis points, that increase would be 6.7%, an increase from the 6.3% in the third quarter of '14, so just trying to give you a clear picture of the sensitivity there. On Page 8, a view of non-interest income.
Fourth quarter adjusted non-interest income was $64.5 million, up 0.9% versus the third quarter of '14 and 7.9% versus the fourth quarter of '13. Core banking fees were $33 million, an increase of $208,000 from the third quarter of '14, driven by $355,000 or 4.3% increase in bankcard fees.
FMS revenues, $19.6 million, increased $205,000 or 1.1% sequentially, driven by $483,000 increase in fiduciary and asset management fees. And mortgage banking income of $4.9 million, increased $230,000 or 4.9% versus the third quarter of 2014.
On Slide 9, adjusted non-interest expense up slightly year-over-year 0.8%. I'll walk you through that.
Again, adjusted fourth quarter non-interest expense was $172.4 million, up $5.7 million or 3.4% from the third quarter. And I want to break that out; professional fees $8 million, up $5.5 million versus the third quarter of '14.
As a reminder, the fourth quarter of '14 reflects elevated attorney fees related to the final resolution of one credit. The third quarter of '14 included a $3.6 million net insurance recovery for incurred legal fees related to litigation.
So again, fourth quarter elevated due to the resolution of one credit and the third quarter had a net insurance recovery, so that helps shine the light on that discrepancy there. Advertising expense $8.1 million, up $925,000 versus the third quarter.
During the fourth quarter, we closed the 13 branches that we announced in the second quarter, bringing the total number of branch reduction this year to 20. Total headcount decreased by 52 during the quarter, resulting primarily from the branch closings.
And a comment about our restructuring charges for the quarter. The fourth quarter restructuring charges were driven by lease exist cost for the branches that we closed during the quarter.
We had disclosed earlier this year that cost, the amount actually ended up being lower than the $6 million estimate we provided earlier in the year, just due to more favorable exit costs there. For the full year, adjusted 2014 non-interest expense was $675.7 million, up 0.8%.
Advertising expense of $24 million, up $15.1 million versus 2013, again, major investment in our branding campaign. For the full year, our overall employment expense was $371.9 million, up $3.8 million or 1% versus 2013, and that includes a $3.4 million increase in production-related incentives and commissions.
Professional fees $26.4 million, down about $12 million versus 2013, reflecting primarily lower attorney fees. And now we're talking about headcount.
Year-over-year headcount is down 185 or 3.9%. Again this follows several more dramatic headcount reductions we have done in year's '11 and '12 and '13.
Net decline this past year, 185 included the elimination of about 300 positions in connection with branch closings, further requirement of our branch staffing model as well as other efficiency initiatives. And that was offset partially by workforce additions in corporate banking, IT and our customer care centers.
So again, the net was a 185 year-over-year. 2015 adjusted non-interest expense.
We expect the 2015 expense to approximate 2014 levels reflecting continued efficiency efforts and investments in talent and technology. And again, we'll talk more about that.
But we believe 2015 will land around 2014 levels. That will require very diligent effort on the part of our team to make sure that we are getting efficiencies where we can, so that we can free up dollars for investments in customer-facing, talent and technology.
On Slide 10, credit quality used to be I guess of most interest on this call. Still something that we are keenly focused on, so let me just you through credit quality.
On the first graph, you'll see that non-performing loan were $198 million or 0.94% compared to $242 million or 1.18% in the third quarter. The year-over-year improvement is 52.5%.
NPA is $287 million or 1.35% compared to $324 million or 1.57% in the third quarter and representing about a 47% year-over-year improvement. You may recall that our guidance at the beginning of the year was that we would end 2014 with NPAs at or below 1.5% and NPL at or below 1%.
We're pleased to have exceeded those targets in both cases. And we expect both NPLs and NPAs to continue to trend downward with a modest pace in 2015.
The graph at the right shows that credit costs were $16 million, unchanged from the $16 million in the third quarter and representing approximately 27% year-over-year improvement. Bottom left graph shows that net charge-offs for the fourth quarter were $16 million or 0.31% and 0.39% year-to-date.
We're pleased to end the year below our guidance of 50 basis points for the year, which we said, I think on our call back in January. Our expectations at this time for the charge-offs in 2015 will be in the 30 basis points to 40 basis points range.
In the graph, the bottom right shows our past dues greater than 30 days, another indicator of the improved quality of our portfolio. Again, you can see on that graph that past dues remain at low levels currently 24 basis points.
It's also worth noting that our 90 day past dues are only 2 basis points. Talk about capital.
This first slide we'll talk about capital as of yearend and then I'll try and bring you down to date on our share repurchase program. So on Slide 11, you'll see total common equity reflects $88.1 million reduction related to our $250 million share repurchase program announced in October of 2014.
And again that as of yearend, Tier 1 common equity 10.28%, down 32 basis points from the prior quarter of 10.60%. Tier 1 capital, 10.86% versus 11.19% in the third quarter of '14.
Total risk based capital 12.75% versus 13.17% in the third quarter. Our leverage ratio was 9.67% versus 9.85% in the third quarter of '14.
Tangible common equity 10.69% versus 11.04% in the third quarter of '14. Our 4Q Basel III common equity ratio Tier 1 is estimated at 10.17% on a fully phased-in basis.
And again as a reminder, we still have a very significant deferred tax asset that will continue to generate regulatory capital in future periods. On Slide 12, well, just again a recap of our share repurchase program and this will be as of close of business yesterday, so this is current information.
Again, we announced $250 million share repurchase program in October. Also, in October we entered into an accelerated share repurchase agreement to purchase $75 million of our common stock.
We repurchased 2.5 million shares upon the execution of that agreement in the fourth quarter. We repurchased 392,000 additional shares upon completion of the ASR agreement on January 13, 2015.
In total, the average purchase price pursuant to the ASR agreement is $25.84 per share. We also completed additional repurchases of common stock through open market transactions totaling 974,000 shares at an average price of $25.38 per share.
As of January 26, we have $150 million in remaining repurchase authority pursuant to the repurchase program. And again as a reminder, we announced in October, a 43% increase in the quarterly dividend from $0.07 to $0.10 and that dividend was paid on January 2, 2015.
So I'm trying to give you a pretty good recap of the quarter and the year. Before we go into questions, I want to just talk a little bit about our go-forward story, our go-forward plan.
We try to give guidance in certain key areas, including loan growth and expenses. And so while we're realistic about the continued challenges in growing revenue across our industry, we feel very good about the strategic plan we have in place to increase loan, deposit, fee income growth and further manage expenses.
We've made tremendous progress in repositioning retail, commercial, corporate investment talent to make sure we're optimizing our outreach to targeted customer segments. I want to talk a little bit those.
Our retail efforts for 2015 include a continued focus on retail channel optimization to both, respond to more customer demand for 24x7 e-channel banking convenience and to ensure that we have a very efficient branch network, staffed bankers, trained and equipped to identify and meet our customers' financial needs. We feel great about our technology investments that have allowed customers to conduct routine branch transactions outside of our branches, our full service ATMs, our enhanced consumer and business online banking products and our recently launched mobile banking app to promote deposit capture and person-to-person payments really allows our customers anywhere anytime access.
And as we provide them with greater convenience for routine transactions, we're also equipping our branch teams with new tools that enable a much more targeted and effective outreach to customers and prospects. In fact our retail strategy efforts during 2014 laid the groundwork for what we believe will be an expected 30% increase in sales productivity during 2015, it will certainly drive stronger consumer loan and deposit growth.
Our commercial customers are served by highly skilled bankers and our community corporate banking teams, and they're supported throughout by our relationship banking model. It really is particularly well-suited for this segment.
We'll continue to work this year to build out that middle market team to tap into what we believe is a high potential segment. We expect continued growth in specialty healthcare, corporate banking and senior housing from our prior investments in recent years and new talent there, and as talent really does understand the nuances and needs of these highly specialized segments.
Our enhanced online business banking includes a much improved treasury services toolkit that's helping our companies more conveniently manage critical core business functions, and we believe investments like this will continue and will help us not only attract new customers, but also expand relationships with existing customers. From a fee income standpoint, we think fee income and cross-sell opportunities are a major opportunity for us, especially with our financial management services team.
We are totally committed to further grow through partnerships and cross-sell between areas like family asset management, which I'll refer to as FAM and our corporate bankers throughout our footprint, especially leveraging opportunities in our middle market. We expect a greater outreach to high network clients through our FAM team's increased presence in markets like Birmingham.
We also expect meaningful growth in some of our very core markets like Huntsville, Tuscaloosa and Athens, where local leadership and FAM professionals are already actively partnering on potential opportunities. We've made a big investment and our private wealth teams are in place in strategic regions across the footprint, where we feel there is a greatest opportunity, and they're more highly trained as a result of the investments we made in training this past year.
We'll also go into 2015 with more retail brokerage, financial consultants, mortgage originators and trust professionals, and more licensed private wealth and retail bankers who can generate new fee income, simply because we can reach more customers. A little bit on the technology.
So building on this past year's technology investments, this year's investments include protecting our customers from the constant and ever-changing global information security threat and also a new more advanced mortgage platform is expected to make the mortgage loan process more efficient, both internally and for our customers. So we're excited about how we serve our customers better in that space.
We'll continue to invest further in our branding efforts. Most of you have heard about the Bank of Here campaign, which we launched in early 2014, and have run ads up through the recent college bowl games.
This year our focus includes promoting more capabilities of our business lines and highlighting specific product services and special offerings, all designed to drive and increase revenue. And as we invest in growth, we also continue to invest in efficiencies.
We stated earlier that our expenses in 2015 would be in line with those in 2014, driven mainly by some of the work we've outlined today and around our retail chain and technology improvements. We fully understand the need for the ongoing pursuit of additional expense savings that exceed the dollar we got to reinvest in revenue generating activities.
So a total focus in driving our best out of the organization. So bottomline is we maintain our focus on the fundamentals of deposit, loan and fee income growth and extensive capital management throughout the year, we expect continued improvement in performance and result of the many investments and changes we made over the past several quarter, and quite frankly, past several years, but especially in 2014.
We believe, we have and continue to take the right steps to place us on a solid path to a very successful 2015. So operator, we'll now move to the question-and-answer portion of our call.
And we have a team standing by, that's ready and able to answer our questions.
Operator
[Operator Instructions] Our first question today is with John Pancari with Evercore ISI.
John Pancari
I appreciate the color on the expense outlook. Just wanted to see if you can give us your thoughts on the full year '15 efficiency ratio?
Where that could come in, just given that it seems like a lot of the low-hanging fruit have been pegged on the expense side and you're looking for ongoing efficiency efforts to offset the impact of your investments?
Kessel Stelling
Rather than try and peg yearend efficiency ratio, because that's been mainly more of an allusive target, I will just say that this, we're going to continue to drive expense out of the organization, and in some cases, as you know, its going to be offset. So we believe absolute levels of expenses will remain flat with a goal to get more aggressive than that for 2015.
And we certainly believe we'll have revenue lift. We have stated in the past about our desire to push that ratio down, and historically to get it back to the mid-50s where we were, and in today's environment that mid-50s seems fairly allusive, but we do know that we can focus on what we control, which are those expenses that we talked about.
And so 2015 will, number one, reflect the efforts of the cost we took out in 2014 and then continued efforts to drive expense out. So that's probably about as close as I can get in terms of an expense outlook.
John Pancari
And then, secondly, on the margin, I wondered to see if you can give some color on the magnitude of margin pressure that you expect through '15. Do you expect a similar 2 basis points to 3 basis points per quarter based compression?
And then also does your expectation, I think you implied that does not, and assumed the current rate environment. So does that mean it does not factor in any fed hikes this year?
Kessel Stelling
Yes, that's correct. That's based on our current rate environment and we tried to show again the rate sensitivity, what effect we might have on net interest income based on some rate hikes.
So I don't know that we've defined modest, and so whether that's 2 basis points to 3 basis points per quarter. And I'll say this, and we were discussing earlier this morning our views on 2015, I think, we, like a lot of banks have to be very disciplined in our loan growth and make sure that those loans we are putting on the books and provide a proper returns.
And where we see spreads getting too tight to justify what we perceive as a risk, we'll have to decide to maybe back away. So I don't know that we've given it on a per quarter basis, but we certainly think there is going to be some modest pressure in the short-term based on this current rate environment.
Tommy or Kevin, I don't know if you have anything to answer that, but the key part is disciplined pricing on loans, being willing to back away and then quite frankly a very disciplined and aggressive approach to core deposit generation where we have all of our bankers engaged across the footprint. Tommy or Kevin, I don't know if you'll have any more color on this.
Thomas Prescott
I'll just add that, on the funding side with the developed leadership, bring that down further and have a [indiscernible] the margin that's really probably behind us. So we don't really expect to see any benefit there.
And on the earning asset side I would say that maybe the first half of the year might be more difficult from a loan pricing standpoint and you might we're going to see a little more stability move a further out, but that's where the branch part look good.
Operator
Our next question is with Ken Zerbe from Morgan Stanley.
Ken Zerbe
In terms of restructuring cost, do you have any expectations for how much that might run in 2015?
Kessel Stelling
Restructuring cost for 2015?
Ken Zerbe
Correct.
Kessel Stelling
Tommy, you want to?
Thomas Prescott
Kessel, while ago mentioned kind of a way we'd like to manage G&A and restructuring goods with that, we really don't have a guided restructuring number or really timing on whatever it is. We've been active for the last couple of years in bringing the expense base down and it's likely that there will be some restructuring charge, but no guidance there right now.
Kessel Stelling
These are primarily tied obviously to people when there are reductions and also as we continue to look at our both corporate real estate and really all of our real estate holding, we would continue to again be in market looking at opportunities to drive cost out of that real estate portfolio. So if and when we want to do something there, there could be, but in terms of trying to peg what that dollar number is going to be, it would be premature to say.
Ken Zerbe
Understood. But we should expect some throughout the year?
Kessel Stelling
There should be some.
Ken Zerbe
And then second question, in terms of total credit costs, obviously your portfolio continues to get better from a credit quality perspective, but it looks like the total has been pretty stable for the last year or so. Do you feel that you are at a good point with that, sort of going into 2015 or is there further downward, the ability to reduce total credit costs next year?
Kevin Howard
I think credit costs were probably, they've been that steady between $15 million and $20 million, and that's how we see it playing out in the next couple of quarters. I think there is some opportunity for some, maybe a little reduction after that.
But I think lot of dynamics going to that. One thing is the reserve is kind of at a point where we will have a lot more reduction left there and then you're going to have loan growth that's going to add to provisions.
So there's just a lot of factors. But I think it's going to stay pretty steady.
I mean it's going to be more positive provision versus negative provision customers. Our NPL is less than 1%, so the cost of dealing with problem loans will definitely come down.
But again, as you're growing and not reducing reserves will probably offset that. So I see it kind of steady in the next couple of quarters.
Operator
Our next question is with Ebrahim Poonawala from Bank of America.
Ebrahim Poonawala
Just a question I guess around your loan growth guidance. I understand being conservative, as you sort of look out into '15, but can you talk about in terms of areas of strength and whether what's the likelihood that '15 loan growth could resemble more of what we saw in fourth quarter and the -most of full year '14?
Kessel Stelling
Yes. Let me start and then I'll turn the easy part over to Kevin.
So we guided 4% to 5% for 2014, and I'm trying to update that during the year. We saw softness in the third quarter, which we cautioned.
And then fourth quarter correspondently was much greater than expected, but a lot of that was due to timing of pay down. So we don't see economic activity that would suggest that fourth quarter run rate is an appropriate rate to guide for 2015.
So again, Kevin, D, and I spent some time just this morning talking about what we see in '15 based on not just the economy, but our pipeline, our risk appetite and our overall tolerance for certain balance sheet concentration. So we think the mid-single digit is appropriate.
Could there be upside? There could be.
Certainly, economically it would be a great way to get teams of bankers. It would be a great way to get it.
But Kevin, why don't you give your thoughts on where we could see or might see any upside to that estimate.
Kevin Howard
Yes. I think 4% to 6% is just felt like, again, we've put a lot behind that.
I think with us, our strategy to grow high quality, try to hold margin when we can, and have a mixed outlook, in that 4% to 6% probably a-third real estate, maybe 40% to 50% C&I, 20% to 30% retail. So I think it's important to us that we stay, if we want to control the balance of your growth, the quality and hold margin that seems like what our footprint will give us.
And also we've still got a little bit of credit work to do from getting some of the NPAs and substandard loans down, so you've still got about 1% or so, 1%, 1.5% hurdle there as far as when you're looking at net loan growth. So we thought that was everything Kessel said, and trying to grow the right way, as he guided.
Hopefully, we get some upside from there with a good economy next year.
Ebrahim Poonawala
Just one follow-up to that, what was the size of the SMid portfolio at the end of the year? And what was the growth that came in the fourth quarter from the SMid portfolio?
Kevin Howard
Our syndicated portfolio is about 7.4% of the portfolio, pretty good mix from industry type. But I wanted to give you all the C&I detail.
We had growth in several segments. We had growth of syndication of about $280 million.
Our community, we really encouraged community C&I, just a little less than $50 million in growth there. Our senior housing had about $70 million direct lending in that category.
Equipment lending had around $25 million. So we were encouraged that it was good mix in there.
Well, definitely syndications was a main driver on the C&I side. I know that adds up to more than what we actually grew C&I, but we had a little bit of reduction where we wanted to, our non-strategic special assets portfolio.
Actually the C&I part of that came down over $70 million. And we had some payoffs on the large corporate direct side, had a little bit of reduction there.
So that's kind of the mix of the C&I. Maybe a little more than what you asked for, but wanted to make sure you'll understood our growth there.
Operator
Our next question is from Steven Alexopoulos from JPMorgan.
Steven Alexopoulos
Maybe the first follow-up on the comments around the shared national credit book, which I guess is around $1.5 billion. What percent of those would be energy-related?
And can you guys talk about overall energy exposure?
Kevin Howard
Yes. This is Kevin, again.
We really don't have much at all on the energy. It's less than $50 million.
And some of that is in the SMid portfolio, it's just really a couple of credits. So we are just not a direct lender there at all.
And that's more on the oilfield at the service side up there, so we don't feel like there we've looked at those credits. Again, it's a very, very small percent of our portfolio.
So we sort of avoid that part. We do have some energy-related in the utility and power type credits, about 100, 150 of those, those are in Alabama, Georgia, South Carolina and Florida, of course, we don't see that have an effect as far as oil prices at all.
And so that oil price, the whole drop there has obviously been in our footprint, and considering we really don't have participation in the energy side of lending have been really a net gain for us. As a matter of fact, some of the early financial statements we've gotten from the fourth quarter in manufacture and transportation, some of those categories, hospitality have been real positive and got a lift from oil price fall during the last few months.
Steven Alexopoulos
And then, separately, even with buybacks, you guys still have a ton of capital, and we're seeing the M&A environment pick up a bit. What are your thoughts on Synovus participating in 2015 on the M&A front?
Kessel Stelling
Well, Steven, I'm going to stick to my story which is, and this is our focus, we are focused on our core operating performance. Right now we feel like maybe the best use of our capital is buy our own stock back.
It's a good buy for us, and so that's what we've been doing. So we'll continue to focus again on our operating performance, getting our capital managed efficiently, and hopefully leading to a more favorable currency.
And so down the road, certainly, the stronger we are, the more we would be able to and opportunistically to participate, but that's not our focus today. We think there will be lots of opportunity down the road, and right now the better use is really repurchasing our own shares.
Steven Alexopoulos
Kessel, does that imply you are not having any conversations with other banks?
Kessel Stelling
I would never comment on conversations with other banks. I will just say this, there is plenty of chatter in the industry and it doesn't take much to find investment banking book floating around on someone that's exploring opportunities.
But again, I would never comment on specific conversations. We are keenly aware of what's going on in the market.
Our board is very well advised on what's going on in the market, but again, I wouldn't comment on any specific conversations.
Steven Alexopoulos
I wasn't looking for a specific, just if you are in general having conversations?
Kessel Stelling
Again, our conversations will be related to our board and our advisors, and I wouldn't want to comment on conversations with banker. We certainly see them in all conferences, and I think every banker has a similar outlook on the challenges in the industry, so certainly those types of conversations.
Operator
Our next question is with Jennifer Demba from SunTrust Robinson Humphrey.
Jennifer Demba
Kessel, sorry if you might have already covered this, but I am just curious as to what your capital return thoughts are over the next one to two years in terms of buyback and dividend together?
Kessel Stelling
Well, we think both are important. We really have not wanted to get too far out ahead of our SKUs and want to focus on getting this first $250 million executed.
We were pleased to do what we did in the fourth quarter, it felt like we had a pretty good execution there. We had said previously that under this plan it would not take our Tier 1 common below 10%.
As we go through the deepest process and get a better view on 2015 and beyond and also continue to have discussions with our regulators, again, we'll certainly have more clarity. We'll disclose, as appropriate, our thoughts about any potential follow-ons to this current capital action, including dividend.
But right now the focus is on getting that first $250 million executed.
Jennifer Demba
Can I ask one follow-up?
Kessel Stelling
Sure.
Jennifer Demba
Someone asked previously about potential restructuring charges this year. You said, you think adjusted or core expenses will be flattish in '15 year-over-year.
So do you think your total expenses will be roughly around the area that they've been in the last couple of years in '13 and '14? Will it include restructuring or credit cost or et cetera?
Thomas Prescott
Jennifer, if you take restructuring out of all those periods, and the statement we made earlier suggested that we think that the '15, it's core expense base will be about the same level as it was in '14, which is really about this -- and '14 was similar to '13. So really kind of make it all for where we are in '14 and it will be in that time we believe.
Jennifer Demba
One more, your tax rates was lower this quarter, Tommy, versus the third quarter. Any thoughts on what you're looking at for this year?
Thomas Prescott
Look, I'd tell the fourth quarter was kind of a one-off situation. The tax rate was 32.6%.
Looking back, it's normally 36% to 37%, and we believe that's what it's been, that's what it will be on a go-forward basis. But we have some lower tax rates this quarter due to adjustments in the completed tax return.
We also had some favorable adjustments related to state taxes and estimated benefit on certain credit. So that was kind of a one-off that we enjoyed throughout the quarter, but you'll see that likely going forward, more in the 36% to 37% range going forward.
Operator
Our next question is coming from Brad Milsaps with Sandler O'Neill.
Brad Milsaps
Most of my questions have been addressed, but did want to maybe talk a little bit about deposit growth. I know you guys commented last quarter that with the loan deposit ratio getting closed on 100% you kind of felt like, loan and deposit growth would sort of mirror one another.
Looking year-over-year, I know there are a lot of moving parts with the branches that were sold, but it does look like brokerage dropped a fair amount. Can you just talk about your deposit strategy and how that relates to getting closer to that 100% number?
And whether or not you push that higher and how you're planning to fund the growth you see over the next 12 months?
Kessel Stelling
Well, I mean it's a comprehensive strategy really across all of our business lines. So we talked about from a retail standpoint, how we realign the management of our retail system to make sure that our retail bankers are all day, everyday focused on sales and service to our customers, and deposit growth is a big, big peace of that.
We also think the retail channel has been supplemented and improved through our improvements in technology. And we've seen just with one our mobile deposit app, a significant increase in use of that technology, which again our initial thought was based on that usage of those customers that no longer go into our branches, which then raises other opportunities for us, so a very big push across the retail bank.
We think, in our commercial corporate middle market, again, great deposit opportunity. We've made tremendous improvement in our treasury products over the last several years, including again business online banking, so better channels and vehicles there.
And we make sure that through all of those channels are very, very appropriately weighted incentive plan to make sure our bankers are focused doing the right thing. Our FMS teams continue to have great successes, and they're actually sharing with me partially.
On New Year's Eve a big deposit opportunity came in through our FMS team. So it is just an all day, everyday focus here, Brad.
We know we need to fund loan growth with core deposit growth. It was easy on the last few years to let higher price CDs move out.
But I don't think there is a banker in the Synovus system today that wouldn't tell you or understand the focus on deposit. So it's an all-in strategy that all of our leaders have embraced and we're seeing good activity and good results there.
Operator
Our next question is coming from Emlen Harmon with Jefferies.
Emlen Harmon
Tommy, just going back to the NIM guide and your expectations there, you guys noted that the NIM guide reflects the current rate environment. Obviously, kind of a big variable that we're all facing today is movement in the tenure that's obviously coming quite a bit earlier in the year.
Could you just talk a little bit about how much the volatility there one way or the other could have an impact on the NIM guide? And just how that could shift your expectations, if there was a meaningful move there?
Thomas Prescott
The tenure really it has a little bit impact on the securities portfolio, and really not a lot on the loan portfolio. So really the action would come on the short-end of the rate move, so that's what we're looking forward to happen that overboard.
Emlen Harmon
And then, just a quick one, sorry if I missed this earlier, but do you guys noted the professional fees were up, as a result of kind of the credit workout expense. I think it was up $5.5 million quarter-over-quarter.
Was that pretty much all workout or is there anything else in there?
Thomas Prescott
The credit that was talked about was a workout and glad to get it behind us. And if you also compare against a quarter that had a $3.6 million recovery of attorney fees, so it kind of distorts the Q4 to Q3, but the majority of it was the impact of that single credit settlement.
Operator
Our next question is with David Bishop with Drexel Hamilton.
David Bishop
Kessel, you spoke about, obviously you spent some time on the expense side, but fee income up over 8% I think year-over-year. Any sort of guidance or outlook there, given the investments you have made especially on the FMS side to drive that growth even further into next year?
Kessel Stelling
David, it's a great question. We certainly think we'll have lift there.
And again, I think it's because of prior investments and talent. But just, again, on the FMS side, where we've hired more trust professionals, more brokerage, more mortgage, we've made additions in insurance, and so we think there is certainly opportunity there.
We think again the technology investments we have made, banking with us a lot easier, but certainly it will give us some of the opportunity there. So we haven't guided a specific number, but we do believe in really all of our business lines.
We have the opportunity to hold around and then grow. So I'm really excited about some of those investments, because the further we get from the crises, the better story we have to tell.
And I think all of our leaders would say, recruiting fee generators today is easier than it was a year ago and certainly [indiscernible] years ago. So we're optimistic about the opportunity to be with.
Very mindful by the way also of the pressures on the fee side that come some from regulatory and some from just customer behavior. So we got to offset what we know are areas of pressure with lift through investment in people.
David Bishop
And then maybe a follow-up on deposit growth, very strong demand deposit growth this quarter. Anything seasonal on that or does that reflect maybe some new account wins like you noted on the commercial and middle market side?
Kessel Stelling
I mean certainly there is some seasonal lift there, but we see wins everyday. When they're out, we see them everyday, there are wins everyday.
And we make sure we recognize those team members who are involved in wins everyday. So there is some bulk in those numbers.
Operator
Our next question is with Nancy Bush with NAB Research.
Nancy Bush
A question about residential real estate, we are starting to see some resumption of residential real estate construction in the Atlanta area, particularly, and even the revival of some projects that were abandoned after the crises. Can you just speak to your appetite for participating in those markets right now?
Kevin Howard
We haven't had much growth. We're still running off still some of that left, some of the old book in residential.
Not getting much net growth, but we are getting some activity on the construction site. I stop into some of our lenders the other day, and some of the customers who made it through the cycle are starting to build again in places like Atlanta, Charleston, Orlando area and Columbus, Georgia places that are core to us.
And so we have had some growth there, as we're starting to get some activity. It's good to see Atlanta, I mean, there year-over-year improvement, and some report came out recently that home price was one of the strongest in the country.
So we were encouraged there. We're kind of putting our toe back in the water.
It won't be a big driver for us in growth next year. Most of that real estate growth we talked about in 2015 will come from the income side.
So we are encouraged that we should have at least net positive growth on the residential side in certain markets. We're in some really good markets.
National had good numbers as well recently and had some opportunities there. And we've got a good mortgage company that refers builders to us.
So we'll stick to what we know best, probably stay pretty conservative there and hopefully have some good net growth.
Nancy Bush
Kessel, a question for you and Tommy. I mean, I know you guys are not subject to some of the Basel III pressures on the larger banks, but I am assuming that some of those pressures will get downstreamed over the years.
Would you just speak to your capital structure right now and whether you see any pressures going forward or lead going forward to sort of change the capital structure maybe add some long-term notes whatever?
Thomas Prescott
We disclosed the impact of fully phased-in Tier 1 common, and what it really shows is probably a pretty good flag for all the ratios, and it didn't really have a significant impact. If you pro forma at the end of the fourth quarter, it had a modest impact of like 11 basis points.
And so really in the interim that particular ratio will actually get a boost from a different methodology in a way the DTA is considerate and I think our pro forma basis there for the transition period, it'd be more in, I believe, just about 10.80% or so. And so the other ratios work exactly that way the Tier 1 does.
And so I think all-in answer to your question is we are comfortable with the impact of Basel III and obviously that it will be a gamer changer for us.
Nancy Bush
Tommy, just on top of that, could you just remind us how the DTA gets into regulatory capital over what period? And sort of what is the life of the DTA at this point?
Thomas Prescott
We really have previously disclosed how long it will take. It certainly be with well within any of our escrows and in most states we got plenty of time, plenty of room to get there.
But going forward, the disallowed DTA under Basel III, it does away withheld fourth quarter look back, and its really then driven by the temporary differences between GAAP and the tax return. And in this case, it's favorable to us during this transition period and that's basically the way the DTA will be operated in the go-forward.
I guess one other element to that beyond the fact that you're now operating on for temporary differences, you also under the rules have to take out of the GAAP DTA, you only take out 40% until you're out [indiscernible]. So we think we've got a good run with that and we'll continue to bring those, the DTA down.
Operator
Our next question is with Christopher Marinac with FIG Partners.
Christopher Marinac
I want to talk about the allowance and to what extent you think the reserves will have growth this year or should we expect those to be flat kind of in absolute dollar terms?
Kevin Howard
I think flat is the right word. We see it kind of flatten out this year.
A lot of different factors move in further away from the cycle. I don't think you'll get the reserve release we were getting and as a matter of fact, I think, we see it as neutral.
Get some loan growth that would build in problem loan reduction kind of our mutual. So kind of see it maybe where it's at, slightly trickling down a little bit.
Christopher Marinac
But Kevin, provision sort of covers charge-offs and then you will add to provision for growth for the portfolio?
Kevin Howard
That's right. We're kind of to that point where that comes into play, as we've gotten again a little further away from the credit cycle.
Christopher Marinac
And at the same time the coverage ratio is just like we saw this quarter should continue to rise?
Kevin Howard
That's our expectations. That's correct.
Christopher Marinac
And then a follow-up, Kessel, just I guess a separate angle from what Nancy was asking on the various markets instead of residential. Can you talk about C&I, are there any markets where C&I has particularly accelerated this last quarter?
Kessel Stelling
Any particular markets.
Dallis Copeland
I'll take the C&I from a quarter standpoint. We had some positive momentum in really across South Carolina.
We also had some in our broader Tampa Bay market, where we had some expansion in C&I. Those would have been two of the strongest that we have.
So that would be ballpark. In addition to that we had a little bit more in Atlanta as well through both community bank and the corporate bank.
Kessel Stelling
And I'll just add to that Chris, I think what we're really seeing is across our business lines more and more wins, where our community bankers are partnering with the right specialty banker, it I think bring a level of expertise to new opportunities, it's really given us some win. So sometimes we fuss a little bit internally about where something gets booked, but the goal is doing what's best for the customer and we are seeing more and more wins as a result of partnerships throughout our footprint.
Dallis Copeland
And Kessel, Jacksonville would have been strong as well. I left that out.
Operator
Our next question comes from Tyler Stafford with Stephens.
Tyler Stafford
Just one follow-up question on the expense topic. Kessel, last quarter you highlighted some larger branches in the Atlanta, I must say, that would make sense to consolidate.
Can you give us any update on how you're thinking about those branch rationalizations of those in Atlanta and then even outside of Atlanta? And then any color on how that's factoring into your expense guidance for 2015?
Kessel Stelling
Well, we're really not talking about necessarily branch consolidations in Atlanta. What we've talked about is the fact that so many of our Atlanta branches were the result of, if you look at the Atlanta Bank, I think nine banks rolled up into what is now Bank of North Georgia.
So by definition you have nine former headquarter locations. So our thought in Atlanta is, we have a lot of underutilized real estate and unutilized real estate, where we might be in 6,000 square foot building or 30,000 square foot building and our needs are much less.
And so what we're attempting to do in Atlanta is certainly consolidate space and make sure that the branches have the space they need, but more importantly we then take that non-branch overhead and get it maybe into a more common location, where we can just get our overall cost of real estate operations down. So we do have expense reduction tied to a more efficient utilization, not just in Atlanta, but throughout our footprint, but it's mainly through unutilized and underutilized.
And as far as consolidation of branches, we are always looking at ways to look at that, but Atlanta is a great market for us right now. And I'm not sure I need more branches to cover it, but if I had my brothers, that's where I'd had some branches, but it's literally getting more efficient, state-of-the-art branches, where we have lower square footage allocation, more technology in there as well.
Tyler Stafford
And then on the advertising line item that was up again this quarter. Any color on where that specific line item kind of shakes out on a normalized basis for you guys?
Kessel Stelling
Well, we haven't given guidance on that one line. Its part of the overall expense guidance that we've given.
We invested heavily in brand advertising, which is hard measured ROI, but as we go in to 2015 we certainly want to make sure that as we're investing there in products and service capabilities, that we're seeing the appropriate returns. And so I think too early to say there, but certainly an area of great examination for us making sure we're getting the bang for our buck there.
Operator
Our next question is with Kevin Barker with Compass Point.
Kevin Barker
Given you're seeing in outsized return of capital compared to peers and you have an outsized amount growth in your regulatory capital due to the DTA, do you expect the upcoming DFAST to have an impact on your plans and your expectations for return of capital over the next year or two?
Thomas Prescott
Kevin, the DFAST process has been made pretty clear us with regulators that that the DFAST isn't the time to talk about capital maintenance and repurchases or use of capital necessarily, it's more a just pure stress testing and the other categories would go under some kind of special review with the regulators. So we don't see that as being a DFAST situation.
Kevin Barker
Is there a discussion with regulators regarding your DFAST results and your capital return plan?
Thomas Prescott
Well, we've been through the '14 plan and we'll be entering soon into the '15 plan, whether it would be exactly that, but not at the moment.
Operator
Our next question is with Kevin Fitzsimmons with Hovde Group.
Kevin Fitzsimmons
Most of my questions have been asked and answered already. Just one quick one.
There is been a pick up in M&A in the greater Atlanta area or even just middle Georgia area, just I can think of there are pending deals by Iberia, Renaissance, Service First, to name a few. So when you see those kind of things happen, how do you feel the net impact of that is for you?
On one hand, does that mean, if a new entrant is coming in, is that likely to lead to more pressure on loan pricing, but on the other hand could it be taking a smaller irrational player out? And also, could it present you guys with opportunity to pick up some lenders just from the merger disruption?
Kessel Stelling
Well, some of those people who got taken out are friends, so I wouldn't want to call them smaller and irrational. But now, we look at all with interest and for every new entrant there is usually somebody going out.
I would tell you how I look at it, that good competition is healthy for all others. I have regular conversations with not just our Atlanta bank leaders, but all of our bank leaders about when you have someone new in the market; you, a, want to make sure you protect what you have both in terms of business and bankers; and then yes, look at talent, because as I've said, they're looking at talent.
So look at talent that might exist in some of those banks and where we see there are opportunities. We've got bankers who have lot of experience in Atlanta.
They should know who those bankers are. So again some good competitors coming in and some good competitors going out, net-net we always think disruption in a market is an advantage for us, because we should be more stable there.
But in terms of particularly for those institutions, again they're friends and good competitors.
Kevin Fitzsimmons
Kessel, I understand your point about M&A and the relative strength in the stock currency, I'm waiting for that. But how do you think about more de novo growth other than M&A?
In particular, are there markets in the Southeast that you're either not in or very, very small and relative to where you want to be that you're really on the lookout to pick up lending teams? And I understand that may not be something that today is built in your expense guidance, but the something that just you would be opportunistic on if it came out?
Kessel Stelling
Kevin, there is markets throughout that we think we have opportunities in. Certainly, in Florida, even though we're seeing good success in that Tampa market, which really goes all the way Southwest to Naples, there could be opportunities there.
We've kind of dipped our toe into the water in Orlando, smaller on a retail side, but some success there on the commercial real estate, so that market would come to mind. We've actually seen some good success in Jacksonville.
Jacksonville is a big landmass to cover with those few locations and bankers we have. So that would be one we would keep our eye on in terms of end market.
In South Carolina, we are stronger in Charleston, where I'll be later today visiting with customers and prospects and team members. We are strong in Columbia.
We think there is opportunity in the upstate, in that Greenville, Spartanburg area. In Tennessee, again, we exit Memphis, but we have a small presence in Chattanooga and a growing presence in Nashville.
So those markets are certainly attractive. And then, longer term, if you just look at economic data, and we just hosted two back-to-back economic forecast breakfast in Atlanta, where Dr.
Al Niemi of SMU spoke, he accounted the competition in the southeast over the next 10, 20 years is going to be between Georgia and North Carolina. There is nothing against our friends near the state, but we're very bullish.
And so I think if you look at our South Carolina franchise and how it works up to the border there, then you have to think longer-term North Carolina could certainly be an attractive market for us.
Operator
Our last question today is coming from Jefferson Harrelson with KBW.
Jefferson Harrelson
I guess, a lot of them have been asked and answered. I'll ask my quarterly pace of improvement, sense of urgency question.
You're not talking a lot about ROA or efficiency ratio goals, and we have flat expenses and we have had these, because we're investing a lot into the future, which is a great thing. And it did see in the loan growth his quarter, but you're not -- with the 4% to 6% loan growth for next year, it's a good number, but not a number that seems like it could be for two years of big investment into revenue stream.
So can you just talk big picture about the case improvement and how you're getting there and where you're trying to go and the sense of urgency to get there?
Kessel Stelling
Yes, Jefferson, we need to get you down here and take a firsthand peak at that sense of urgency. I know, you and I talked about that before.
So I think our team would tell you that there is a tremendous sense of urgency, and I think they feel it from me every day and every night, and left here last night with that same sense. And quite frankly, when this call is over today, we'll move right back into expense and budget discussions about how we more the needle beyond.
So we're trying to guide what we can see and not guide to something that we don't have a plan to achieve yet. So, yes, I get frustrated if the pace -- but, yes, if you look at that first slide in the deck and look at the year-over-year improvement, I think it would show you a pace of improvement that's actually pretty remarkable.
So I get it. We love to have efficiency ratio in the mid-50s.
We love to have double-digit loan growth. And nobody is going to not do it whenever they can, because we've guided mid-single digits, but we've got to base that guidance based on what we see.
We make tremendous investment and technology over the last two, three, four years, and just the increased depreciation on that means to get hold expenses flat, it requires a lot of effort and our team has done a good job there. So a great sense of urgency and a great push to get operating performance at a higher pace.
So don't let the lack of efficiency target guidance. We certainly have our own internal and we have a well thought-out five-year plan, but we are just trying to give public guidance to what we think we can fairly give that guidance on.
End of Q&A
Operator
That was our last question. I'll now turn it back to management for closing comments.
End of Q&A
Kessel Stelling
Well, I just want to thank everyone for being on the call, both our regular analysts and investors, who are very faithful in their participation in this call. And again, we know we have customers, board members, team members, all our board members on this call, and I hope you all appreciate the story of recovery of this company with a continued laser focus on improved performance, again through, as we said through balance sheet, income growth, fee income growth and again a very intense focus on efficiency.
So we're pleased to finish up 2014 on what we consider a high note. We think that the plan to return capital at the end of '14 was a very positive way to end the year.
We think the execution of that plan made another positive step for our company, and we are excited as we move into '15 and about the opportunity there is. So thank you all for your participation.
And we look forward to talking to you on the next call. Thank you.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call.
You may disconnect your phone lines at this time. And have a wonderful day.
Thank you for your participation.