On Jul 3, 2013, we have upgraded our recommendation on
Synovus Financial Corporation
) to Neutral from Underperform, based on the company's prudent
expense management, strong capital ratios and improved credit
quality. However, the company reported first-quarter 2013 net
income in line with the Zacks Consensus Estimate. Lower top line
and declining deposits and loans were the headwinds.
FARMERS CAP KY (FFKT): Free Stock Analysis
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SYNOVUS FINL CP (SNV): Free Stock Analysis
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In the current competitive banking environment, Synovus continues
to reduce operating costs, implement strategies to broaden its
loan portfolio and increase non-interest income. Since 2010, the
company has ushered strategic initiatives to reduce expenses and
streamline its processes. Notably, the expense reduction measure
has led to a non-interest expense fall of 10.5% in 2011 and 9.7%
in 2012 and 14.6% sequential fall in first-quarter 2013.
Synovus is well positioned from a balance sheet perspective. As
of Mar 31, 2013, its capital ratios were at a well-capitalized
level. Notably, about $687 million of net deferred tax assets
(DTAs) continue to be excluded from regulatory capital as of Mar
31, 2013. The prohibited DTAs are expected to decrease over time,
and thereby create additional regulatory capital in the future.
Despite the macro pressure, Synovus' credit quality continues to
normalize. Credit metrics have been gradually improving since
2009 through first-quarter 2013. Further, we are impressed with
the overall improvement in delinquencies and net charge-offs.
This is expected to continue, thereby boosting future earnings.
However, the ongoing low interest rate environment has kept
Synovus' total revenue under pressure. Interest rates have
remained within the range of 0%-0.25% since 2009. Moreover, total
loans decreased to $19.5 billion over the course of 5 years from
$27.9 billion in 2008. The decline in loans and lower realized
yields on investment securities are expected to keep net interest
income under pressure in the upcoming quarters.
For Synovus, over the last 60 days, the Zacks Consensus Estimate
for 2013 and 2014 remained stable at 11 cents and 17 cents per
share, respectively. Hence, Synovus currently carries a Zacks
Rank #3 (Hold).
Other Stocks to Consider
Some well performing Southeast banks include
First M&F Corporation
Home Bancshares, Inc.
(Conway, AR) (
Farmers Capital Bank Corporation
). All of these stocks carry a Zacks Rank #1 (Strong Buy).