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Synovus (SNV) Up 3.4% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Synovus Financial Corp . SNV . Shares have added about 3.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Synovus Beats on Q4 Earnings; Expenses High

Buoyed by higher revenues, Synovus recorded a positive earnings surprise of 1.9% in fourth-quarter 2016. Adjusted earnings of $0.54 per share beat the Zacks Consensus Estimate by $0.01. Also, the reported figure was up 22.2% from the prior-year quarter tally.

Higher revenues backed by strong loans & deposits balances drove organic growth. However, escalating expenses remain a concern. Moreover, significant increase in provision for loan losses added to the woes.

Net income available to common shareholders was $66 million or $0.54 per share compared with $55.8 million or $0.43 in the prior-year quarter.

For full-year 2016, net income available to common shareholders was $236.5 million or $1.89 per share, significantly up from $215.8 million or $1.62 per share in the prior year. However, results were in line with the Zacks Consensus Estimate.

Organic Growth & Expenses Rise

For full-year 2016, total revenue (excluding gain on investment securities) was $1.16 billion, up 6.8% from the year-ago period. However, revenues lagged the Zacks Consensus Estimate of $1.17 billion.

Total revenue in the fourth quarter was $301.7 million, up 8.2% year over year. Moreover, the top line outpaced the Zacks Consensus Estimate of $300 million.

Net interest income increased 9.8% year over year to $233.5 million. Further, net interest margin expanded 11 bps year over year to 3.29%.

Non-interest income increased 11.8% year over year to $74 million, primarily on increased fiduciary and asset management fees, mortgage-banking revenues, brokerage and other non-interest income. However, the rise was partially offset by decrease in fee income.

Total non-interest expenses were $193.2 million, up 5.6% year over year while adjusted non-interest expenses came in at $187 million, up 3.8% from a year ago. Notably, non-interest expenses exhibited a rise in almost all components of expenses and also recorded merger-related expenses of $1.1 million.

Total deposits came in at $24.6 billion, up 6.0% year over year. Total net loans climbed 6.3% year over year to $23.6 billion.

Credit Quality: A Motley

Credit quality metrics for Synovus were a mixed bag in the quarter.

Net charge-offs were $8.3 million, significantly up on a year-over-year basis. The annualized net charge-off ratio was 0.12%, down 1 bp from the prior-year quarter. Provision for loan losses increased 24.7% year over year to $6.3 million from $5.0 million in Dec 2015.

Non-performing loans, excluding loans held for sale, were down 8.9% year over year to $153.4 million. The non-performing loan ratio was 0.64%, down 11 bps year over year.

Additionally, total non-performing assets amounted to $175.7 million, reflecting a decline of 18.4% year over year. The non-performing asset ratio contracted 22 bps year over year to 0.74%.

Capital Position: A Mixed Bag

Tier 1 capital ratio and total risk based capital ratio were 10.08% and 12.01%, respectively, compared with 10.37% and 12.70% as of Dec 31, 2015.

Further, as of Dec 31, 2016, Common Equity Tier 1 Ratio (fully phased-in) was 9.52% compared with 9.77% in the prior-year quarter. Tier 1 Leverage ratio was 8.99% compared with 9.43% in the year-ago quarter.

Capital Deployment Update

During 2016, Synovus returned over $322 million to shareholders through common share repurchases and dividends. Notably, during the fourth quarter, the company completed the $300 million common stock buy-back program resulting in the repurchase of 9.9 million shares.

2017 Outlook

Management projects average loan and average total deposits growth of around 5-7%.

Net interest income is projected to grow in the range of 8-10%. Also, management remains focused on achieving adjusted non-interest income growth of 2-4%.

Total non-interest expense is projected to increase 2-4%. Also, management expects to maintain positive operating leverage.

The company's loan loss reserve ratio is expected to be above 1%, though a slightly downward trend is likely to be witnessed. Further, it expects net charge-off ratio of 15 to 20 bps. Non-performing assets and liabilities are expected to be relatively flat in 2017.

Long-term Targets

The company expects EPS (earnings per share) to grow more than 10%.

Return on assets of 1% has been projected.

Management projects adjusted efficiency ratio to be lower than 60%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend for fresh estimates. There have been five upward revisions for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There have been six upward revisions in the last two months.

Synovus Financial Corp. Price and Consensus

Synovus Financial Corp. Price and Consensus | Synovus Financial Corp. Quote

VGM Scores

At this time, Synovus's stock has a subpar Growth Score of 'D', however its Momentum is doing a bit better with a 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks ''style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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