Shares of Synovus Financial Corporation SNV have lost over 13% so far this year based on a number of factors including margin pressure amid a slow rise in interest rates and weak fee income growth. However, the recent trend in estimate revisions for its future earnings based on factors like expectations of continued loan growth, share buybacks and improving asset quality raises hope for impressive performances in the near term.
We note that credit quality trends continue to show broad-based improvement. This is expected to continue in the near term with a modest decline in non-performing assets. Net charge-offs are projected to be within the 20 to 30 basis point range in 2016.
Further, we view loan growth as a key upside potential for Synovus this year, given the healthy economy across its footprint and continued investments in several areas including Small Business Administration (SBA) and mortgage units. Government-guaranteed lending production, which comprises mainly SBA loans, is expected to increase by more than 50% from the 2015 level. We remain confident that the company is well positioned to achieve its overall 2016 loan growth target of mid-single-digit range.
Also, the company is focused on a number of technology and efficiency initiatives while preparing to transition to a more streamlined bank processing platform. Notably, since 2010, the company has consolidated 20.4% of the branch network, with the number increasing to 22% including the additional consolidation of four branches this quarter. We believe related expense savings could drive revenue growth opportunities. For 2016, excluding non-core restructuring and litigation charges, management targets to keep expenses stable with the prior year. Moreover, the adjusted efficiency ratio is expected to be below 60% over the long term.
Over the last few years Synovus disposed a bulk of its distressed assets. It expects asset disposition to continue in the near future and further strengthen its balance sheet, improve asset quality and boost future earnings.
Additionally, ongoing share buybacks remain a catalyst for the stock. While estimate revisions have been stable lately, prior to the Q2 earnings, the Zacks Consensus Estimate of 47 cents per share for the second-quarter 2016 reflects an increase from 42 cents in the prior-year quarter.
Synovus currently has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the finance space include Franklin Flagstar Bancorp Inc. FBC, HomeStreet, Inc. HMST and First Mid-Illinois Bancshares, Inc. FMBH. All three stocks sport a Zacks Rank #1 (Strong Buy).
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