Synovus Posts Impressive Q1 Earnings, Revs up Y/Y - Analyst Blog

Shares of Synovus Financial Corporation SNV rose 1.84% to close at $3.32, after the company reported encouraging first-quarter 2014 results. Driven by lower provisions, net income of 5 cents per share in the reported quarter more than doubled from 2 cents in the prior-year quarter. However, results were in line with the Zacks Consensus Estimate.

Strong top-line performance and a marked improvement in credit quality were the tailwinds for the quarter. Moreover, the company's capital ratios and elevated deposits and loans depict its strong position. Yet, lower-than-expected mortgage banking income and surge in expenses was a headwind.

Net income available to common shareholders stood at $45.9 million, significantly up from $14.8 million in the prior-year quarter.

Performance in Detail

Total revenue increased 1.2% to $298.6 million from $295.1 million in the year-ago quarter. The upsurge was due to increase in non-interest income, partially offset by lower interest income. Moreover, reported revenues surpassed the Zacks Consensus Estimate of $263.0 million.

Net interest income increased 0.4% year over year to $200.5 million in the quarter, primarily due to lower interest expenses. However, owing to persistent pressure, net interest margin contracted 4 basis points year over year to 3.39%.

Non-interest income jumped 8.4% year over year to $70.2 million. The upswing was primarily due to higher other non-interest income, partially offset mainly by a fall in both mortgage banking income and brokerage revenues.

Total non-interest expenses increased 1.0% year over year to $184.2 million. The rise was mainly due to higher restructuring charges, partially offset by reduced foreclosed real estate expenses.

Credit Quality

For Synovus, credit quality significantly improved during the reported quarter. Net charge-offs were $15.2 million, substantially down by 63.9% year over year. Moreover, the annualized net charge-off ratio was 0.30%, down from 1.18% in the prior-year quarter.

Total credit costs were $17.6 million, down 64.3% from $49.3 million in the prior-year quarter. Provision for loan losses was $9.5 million, down 73.4% year over year.

Nonperforming loan inflows were $35.0 million, down 58.3% from $83.9 million in the prior-year quarter. Additionally, nonperforming loans, excluding loans held for sale, were $384.9 million as of Mar 31, 2014, down 25.0% year over year. The nonperforming loan ratio was 1.91%, down from 2.65% as of Mar 31, 2013.

Total nonperforming assets were $498.2 million, down 26.5% year over year. The nonperforming asset ratio was 2.46% compared with 3.47% in the prior-year quarter. Total delinquencies (consisting of loans 30 or more days past due and still accruing) were 0.37% of total loans, down from 0.46% as of Mar 31, 2013.

Capital Position

Synovus exhibited a strong capital position. As of Mar 31, 2014, Tier 1 capital ratio and Tier 1 common equity ratio were 10.85% and 10.24%, respectively, compared with 13.50% and 8.93% in the prior-year quarter.

Tier 1 leverage ratio came in at 9.46% compared with 11.27% in the prior-year quarter. Total risk-based capital ratio and tangible common equity ratio were 13.31% and 10.78%, respectively, as of Mar 31, 2014, compared with 16.45% and 9.89% as of Mar 31, 2013.

Total deposits, as of Mar 31, 2014, were $21.0 billion, up 1.9% from $20.6 billion as of Mar 31, 2013. Total net loans came in at $19.9 billion, up 4.7% from $19.0 billion as of Mar 31, 2013.

Our Viewpoint

Synovus has commendably recovered from the financial crunch, thanks to lower non-performing assets and improving operating efficiencies. Moreover, repayment of Troubled Asset Relief Program (TARP) dues depicts sustainable earnings in the upcoming quarters. However, regulatory issues, low interest environment and significant exposure to residential real estate markets remain matters of concern.

Shares of Synovus currently carry a Zacks Rank #2 (Buy). Among other Southeast banks, United Community Banks, Inc. UCBI is expected to release March-quarter end results on Apr 24, while Capital City Bank Group Inc. CCBG on Apr 28 and HomeTrust Bancshares, Inc. HTBI on May 5.