Shares of Synovus Financial Corporation (SNV) rose 1.5% in one day’s trading after the company reported fourth-quarter 2014 earnings on Jan 27, before the market opened. The company’s adjusted earnings of 39 cents per share came in 11.4% ahead of both the Zacks Consensus Estimate and prior-year quarter earnings.
Better-than-expected results were driven by strong top-line growth – a rise in net interest and non-interest income. Bottom line was also complemented by lower expenses. Further, improvement in credit metrics and capital ratios were witnessed during the quarter.
Including the impact of restructuring charges, litigation settlement expenses and visa indemnification charges, fourth-quarter net income available to common shareholders came in at $50.6 million or 37 cents per share, versus $35.8 million or 26 cents in the prior-year quarter.
For 2014, net income available to common shareholders increased 56.1% year over year to $185 million or $1.33 per share.
Performance in Detail
Total revenue for the fourth quarter was $272 million, up 2.8% year over year. The results were almost in line with the Zacks Consensus Estimate of $272.7 million.
Net interest income climbed 1.6% year over year to $207.5 million driven by lower interest expenses. However, net interest margin inched down 4 basis points (bps) year over year to 3.34%.
Non-interest income inched 7.3% up year over year to $64.5 million. The rise was due to an increase in mortgage-banking revenues, fiduciary and asset management fees, and bankcard fees.
Total non-interest expenses stood at $184.9 million, down 3.1% year over year; while adjusted non-interest expenses were $172.4 million, up 2.7% year over year. The rise was mainly due to higher restructuring charges related to lease exit cost for closure of 13 branches during the reported quarter.
Total deposits came in at $21.5 billion, up 3.1% from the year-ago quarter. Total net loans climbed 5.5% year over year to $20.8 billion. Excluding the impact of the Memphis branches’ sale, total loans for 2014, increased 5.6% year over year; while average core deposits advanced 3.7% year over year.
Credit Quality
Credit quality metrics for Synovus reflected improvement in the quarter.
Net charge-offs totaled $16.3 million, down 35.3% year over year. The annualized net charge-off ratio was 0.31%, down 20 bps from the prior-year quarter.
Nonperforming loans, excluding loans held for sale, dropped 52.5% year over year to $197.8 million. The nonperforming loan ratio was 0.94%, down 114 bps year over year.
Additionally, total nonperforming assets amounted to $286.8 million, down 46.8% from the prior-year quarter. The nonperforming asset ratio dipped 132 bps to 1.35% year over year.
Capital Position
Synovus’ capital position, too, exhibited improvement. As of Dec 31, 2014, Tier 1 capital ratio and Tier 1 common equity ratio were 10.86% and 10.28%, respectively, compared with 10.54% and 9.93% as of Dec 31, 2013.
Tier 1 leverage ratio came in at 9.67% compared with 9.13% in the prior-year quarter. Total risk-based capital ratio and tangible common equity ratio, as percentages of tangible assets, were 12.75% and 10.69%, respectively, against 13.00% and 10.68% as of Dec 31, 2013.
Capital Deployment Activities
Synovus repurchased shares worth $88.1 million during the fourth quarter under the $250 million share buyback program announced in Oct 2014. The company also repurchased 392,000 additional shares upon completion of the ASR agreement on Jan 13, 2015, at an average price of $25.84 per share, and additional common stock through open market transactions totaling 974,000 shares at an average price of $25.38 per share.
Outlook
Synovus expects modest downward pressure on the net interest margin in 2015, given the current rate environment. Also, it anticipates expenses to approximately scale the 2014 levels, reflecting continued efforts toward efficiency and investments in talent and technology.
The company expects revenue growth environment to be challenging in the upcoming year. However, retail strategy efforts undertaken in 2014 are projected to boost sales productivity by 30% during 2015, which will likely drive stronger consumer loan and deposit growth.
Loan growth is expected within 4–6%, while credit costs are estimated in the range of $15–$20 million in the quarters ahead. Further, non-performing loans and assets are expected to continue their modest decrease in 2015; while net charge-offs would be in a range of 30–40 bps.
For 2015, Synovus will work toward optimization of its retail channel and increasing the number of retail brokerage, financial consultants, trust professionals and mortgage originators, in order to reach new customers and generate better fee income. Also, the company will continue to invest in branding efforts.
Further, Synovus remains focused on deploying capital through share repurchases, despite rebound in M&A activities in the industry. Also, the company anticipates 2015 tax rate in the 36–37% range.
Our Take
Synovus’ efforts toward reducing expenses and streamlining business are expected to aid bottom-line expansion in the subsequent years. Moreover, the company exhibits a healthy capital position and strong credit metrics which we believe will support its future performance.
However, weakness in the economy, along with a low rate environment and stringent regulations, continue to keep us apprehensive.
Currently, Synovus carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Among other Southeast banks, Regions Financial Corporation (RF) reported fourth-quarter 2014 earnings from continuing operations of 14 cents per share, which missed the Zacks Consensus Estimate by 7 cents due to lower revenues.
Moreover, Popular, Inc.’s (BPOP) fourth-quarter earnings of 41 cents per share lagged the Zacks Consensus Estimate of 48 cents; while Hancock Holding Company (HBHC) reported fourth-quarter operating earnings of 56 cents per share, lagging the Zacks Consensus Estimate of 58 cents.
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