Why Did Synovus' (SNV) Stock Fall Despite Q3 Earnings Beat?

Driven by top-line strength, Synovus Financial 's SNV third-quarter 2018 results reported a positive earnings surprise of 3.3%. Adjusted earnings of 95 cents per share beat the Zacks Consensus Estimate of 92 cents. Also, the reported figure came in 46.2% higher than the prior-year quarter tally.

Higher revenues backed by strong loans & deposit balances drove organic growth. Notably, lower efficiency ratio and improved credit quality were tailwinds. Moreover, positive impact of rising rates was witnessed.

However, escalating expenses impacted investors' optimism which led shares of Synovus to decline 2.45%, despite an earnings beat.

Including certain non-recurring items, net income available to common shareholders came in at $99.3 million or 84 cents per share compared with $95.4 million or 78 cents per share recorded in the prior-year quarter.

Top Line Robust, Expenses Flare Up

Total adjusted revenues in the third quarter came in at $363 million, up 9.6% year over year. However, the top line lagged the Zacks Consensus Estimate of $367.9 million.

Net interest income increased 11.1% year over year to $291.6 million. Further, net interest margin expanded 26 basis points (bps) year over year to 3.89%.

Non-interest income plunged 47.1% on a year-over-year basis to $71.7 million, including Cabela's transaction fee, partly offset by investment securities losses. Lower mortgage banking income and other fee and non-interest income remained on the downside. Adjusted non-interest income was $71.2 million, up 4.1% year over year.

Non-interest expenses were $220.3 million, up 7.1% year over year. Adjusted non-interest expenses came in at $201.6 million, up 3.9% from the prior-year quarter. Notably, increase in almost all components of expenses resulted in this upswing, partially offset by lower FDIC insurance and other regulatory fees, foreclosed real estate expense, professional fees, and net restructuring charges.

Adjusted efficiency ratio came in at 55.55%, as compared with 58.59% reported in the year-earlier quarter. A decline in ratio indicates improvement in profitability.

Total deposits came in at $26.4 billion, up year over year marginally. Total net loans climbed 4.5% year over year to $25.3 billion.

Credit Quality: A Mixed Bag

Credit quality was a mixed a bag for Synovus in the reported quarter.

Non-performing loans were up 10.8% year over year to $108.4 million. The non-performing loan ratio came in at 0.42%, expanding 2 bps year over year.

However, total non-performing assets amounted to $117 million, underlining a decline of 15.6% year over year. The non-performing asset ratio shrunk 11 bps year over year to 0.46%.

Net charge-offs slumped 59.8% year over year to $15.3 million. The annualized net charge-off ratio was 0.24%, down 38 bps from the year-earlier quarter. Provision for loan losses plummeted 62.2% year over year to $15 million.

Strong Capital Position

Tier 1 capital ratio and total risk based capital ratio were 10.59% and 12.37%, respectively, compared with 10.43% and 12.30% as of Sep 30, 2017.

Also, as of Sep 30, 2018, Common Equity Tier 1 Ratio (fully phased-in) was 9.92% compared with 10.06% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 9.58% compared with 9.34% in the comparable period last year.

Capital Deployment Update

During the quarter under review, the company repurchased common stock worth $58 million.

Our Take

Synovus' results have been quite decent in the quarter. We believe the company's focus on both organic and inorganic growth, together with cost-containment efforts, will pay off and aid bottom-line expansion in subsequent years. Though escalating expenses raise concerns, lower efficiency ratio indicates optimism.

Synovus Financial Corp. Price, Consensus and EPS Surprise

Synovus Financial Corp. Price, Consensus and EPS Surprise | Synovus Financial Corp. Quote

Currently, Synovus carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

People's United Financial Inc. PBCT delivered a negative earnings surprise of 2.9% in third-quarter 2018. Net earnings of 33 cents per share lagged the Zacks Consensus Estimate by a penny. However, the reported figure improved 26.9% year over year. Elevated expenses and provisions remained major drags. However, rising rates and higher fee income supported its results.

Riding on higher revenues and lower provisions, U.S. Bancorp's USB third-quarter 2018 earnings per share of $1.06 outpaced the Zacks Consensus Estimate of $1.04. Also, the results came ahead of the prior-year earnings of 88 cents. Higher revenues, along with loan growth and lower provisions, were recorded in the quarter. Though lower mortgage banking revenues and escalating expenses were disappointing, easing margin pressure on rising rates and overall higher fee income acted as tailwinds.

Northern Trust Corporation's NTRS third-quarter earnings per share of $1.58 missed the Zacks Consensus Estimate of $1.60, owing to high costs. Earnings compared favorably with $1.20 recorded in the year-ago quarter. Escalating operating expenses acted as a headwind in the reported quarter. However, higher revenues and strong capital position were positives.

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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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