Synovus Financial Corporation
) reported its first-quarter 2013 net income of 2 cents per
share, in line with the Zacks Consensus Estimate. However,
results significantly plummeted from earnings of 78 cents per
share in the prior quarter.
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Decline in non-interest expenses and marked improvement in credit
quality were the tailwinds for the quarter. Moreover, the
company's capital ratios depict its strong position. However,
these positives were offset by a lower top line and fall in
deposits and loans of the company.
Net income available to common shareholders came in at $14.8
million compared with $709.3 million in the last quarter.
Notably, prior-quarter results include an income tax benefit of
roughly $800 million from the recapture of substantially all of
the deferred tax asset valuation allowance.
Performance in Detail
Total revenue declined 7.8% to $295 million from $320 million in
the preceding quarter. The decrease resulted from lower interest
as well as reduced non-interest income. However, revenue
surpassed the Zacks Consensus Estimate of $274.0 million.
Net interest income decreased 3.4% to $200 million from $207
million in the prior quarter, primarily due to lower interest
income. Moreover, net interest margin was 3.43%, down 2 basis
points sequentially, due to a fall in the yield on earning assets
of 4 basis points, partially offset by a 2 basis-point decline in
the effective cost of funds.
Non-interest income fell 18.8% to $65 million in the quarter from
$80 million in the prior quarter. The decrease was primarily due
to lower bankcard fees, reduced investment securities gain and a
drop in mortgage banking income. These negatives were partially
offset by higher brokerage revenues and elevated fiduciary and
asset management fees.
On the flip side, total non-interest expenses declined 14.6%
sequentially to $182 million. The dip was mainly due to lower
salaries and other personnel expenses, reduced professional fees
along with decreased foreclosed real estate expenses.
For Synovus, credit quality significantly improved during the
reported quarter. Net charge-offs were $57.3 million,
substantially down from $193.5 million in the prior quarter.
Moreover, the annualized net charge-off ratio was 1.18%, down
from 3.94% in the prior quarter.
Non-performing loan inflows were $83.9 million, down
significantly from $262.7 million in the fourth quarter of 2012.
Additionally, non-performing loans, excluding loans held for
sale, were $513.2 million as of Mar 31, 2013, down 5.5% from the
prior quarter. The non-performing loan ratio was 2.65%, down from
2.78% as of Dec 31, 2012.
Total non-performing assets were $677.6 million, down 3.6%
sequentially. The non-performing asset ratio was 3.47% compared
with 3.57% in the prior quarter. Total delinquencies (consisting
of loans 30 or more days past due and still accruing) were 0.46%
of total loans, down from 0.54% as of Dec 31, 2012.
Synovus exhibited a strong capital position. As of Mar 31, 2013,
Tier 1 capital ratio and Tier 1 common equity ratio were 13.50%
and 8.93%, respectively, up from 13.24% and 8.72% in the prior
Moreover, Tier 1 leverage ratio improved to 11.27% from 11.00% in
the prior quarter. Total risk-based capital ratio and tangible
common equity ratio also increased to 16.45% and 9.89%,
respectively, as of Mar 31, 2013, up from 16.18% and 9.66% as of
Dec 31, 2012.
Total deposits, as of Mar 31, 2013, were $20.6 billion, down 2.4%
from $20.8 billion in the prior quarter. The decrease reflected a
fall in Negotiable Order of Withdrawal (NOW) account balances as
well as lower non-interest bearing demand deposits.
Core deposits, at the end of the quarter were $19.2 billion, down
4% from the prior quarter. Core deposits, excluding time
deposits, decreased $634.6 million compared to the last quarter.
The effective cost of core deposits (includes non-interest
bearing deposits) stood at 30 basis points, in line with the
fourth quarter of 2012. Total reported loans inched down $173.8
million sequentially to $19.4 billion.
During the quarter, Fitch upgraded its rating outlook on Synovus
and its subsidiaries from 'Negative' to 'Positive'. The rating
revision came on the back of constantly improving asset quality
metrics of the company.
Fitch stated that the credit risk of the company has stabilized
and it is persistently looking to trim down the high levels of
problem credits in the near term. Further, Fitch believes that
the company's strong capital base is adequate to absorb credit
losses in the future. This rating outlook revision depicts the
creditworthiness of the company and will instill investors'
We believe though Synovus is in a recovery phase, driven by lower
non-performing assets and improving operating efficiencies,
repayment of Troubled Asset Relief Program (TARP) dues is
unlikely to take place in the near term. Further, 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 #3 (Hold).
However, other South-east banks, which are worth considering,
American National Bankshares Inc.
Crescent Financial Bancshares, Inc.
). All three companies carry a Zacks Rank #1 (Strong Buy).