Synovus Q2 Earnings Miss Estimates, Shares Up on Y/Y Growth

Shares of Synovus Financial Corporation (SNV) rose 1.3% to close at $23.76, after the company reported year-over-year earnings growth for the second quarter. Net income came in at 32 cents per share, up 33.3% year over year. However, results missed the Zacks Consensus Estimate of 36 cents.

Notably, per share information for the prior-year has been adjusted on account of the 1-for-7 reverse stock split in May.

Higher net interest income and lower provisions for loan losses were the positives for the quarter whereas declining mortgage banking income and non-interest income were the dampeners.

Net income available to common shareholders stood at $44.3 million, up 44.3% from the prior-year quarter.

Performance in Detail

Total revenue increased marginally to $268.4 million from the year-ago quarter.

Net interest income grew 1.5% year over year to $205.1 million driven by lower interest expenses. Moreover, net interest margin inched up 2 basis points (bps) year over year to 3.41%.

Non-interest income dipped 2.6% year over year to $63.4 million. The decline was primarily due to a fall in both mortgage banking income and brokerage revenues, partly offset by higher bankcard fees and other income.

Total non-interest expenses came in at $182.2 million, up 0.6% year over year. The rise was mainly due to higher restructuring charges and advertising expenses, partially offset by reduced foreclosed real estate expenses and professional fees.

Credit Quality

For Synovus, credit quality metrics reflected improvement. Total credit costs summed $16.9 million, down 29.6% from the year-ago quarter. Moreover, provision for loan losses decreased 6.1% year over year to $12.3 million.

However, net charge-offs totaled $35.4 million, up 18% year over year. The annualized net charge-off ratio was 0.69%, up 8 bps from the prior-year quarter.

On the other hand, nonperforming loan inflows came in at $34.3 million, down 48.7% from the year-ago quarter. Also, nonperforming loans, excluding loans held for sale, declined 46.3% year over year to $259.5 million. The nonperforming loan ratio was 1.27%, down 120bps year over year.

Additionally, total nonperforming assets amounted $363.1 million, down 42.8% from the prior-year quarter. The nonperforming asset ratio dipped 144 bps to 1.77% year over year. Total delinquencies (consisting of loans 30 or more days past due and still accruing) were 0.30% of total loans, down 11 bps from the year-ago quarter.

Capital Position

Synovus’ capital position exhibited mixed results. As of Jun 30, 2014, Tier 1 capital ratio and Tier 1 common equity ratio were 11.01% and 10.41%, respectively, compared with 13.49% and 8.97% as of Jun 30, 2013.

Tier 1 leverage ratio came in at 9.69% compared with 11.33% in the prior-year quarter. Total risk-based capital ratio and tangible common equity ratio were 13.03% and 10.91%, respectively against 15.99% and 9.71% as of Jun 30, 2013.

Total deposits totaled $21.0 billion, up 1.4% from the year-ago quarter. Total net loans climbed 4.7% to $20.2 billion year over year.

Our Take

Synovus’ sustainable top line and stable expenses aided in achieving enhanced financial results. Also, the company’s efforts to reduce nonperforming assets along with an upturn in loans and deposits acted favorably.

On the other hand, the company’s dwindling capital ratios were disappointing. Moreover, regulatory issues, low interest environment and significant exposure to residential real estate markets keep us apprehensive.

Currently, Synovus carries a Zacks Rank #3 (Hold). Among other Southeast banks, HomeTrust Bancshares, Inc. (HTBI) is slated to release its fiscal fourth-quarter (ended Jun 30) 2014 earnings on Aug 4, while United Community Banks, Inc. (UCBI) and BNC Bancorp (BNCN) are expected to release second-quarter earnings on Jul 24.