Synovus Financial Corporation’s SNV third-quarter 2015 earnings of 42 cents per share came in line with the Zacks Consensus Estimate. The figure, however, compared favorably with the prior-year quarter earnings of 32 cents.
Results reflected improved top-line performance driven by higher mortgage banking revenues. Moreover, fall in provisions acted as a tailwind. However, increase in adjusted expenses was the undermining factor. Nonetheless, loan and deposit balances were on an upswing with improvement in credit metrics.
Net income available to common shareholders increased 25.2% year over year to $55.4 million.
Performance in Detail
Total revenue (net of interest expense) for the quarter was $274.8 million, up 1.7% from $270.2 million in the prior-year quarter. However, the figure was almost in line with the Zacks Consensus Estimate.
Net interest income inched up 0.7% year over year to $207.8 million. However, net interest margin declined 23 basis points year over year to 3.14%.
Non-interest income climbed 4.8% year over year to $67.1 million. The increase was primarily due to elevated mortgage-banking revenues, which was up nearly 28% year over year. Further, all other categories, excluding brokerage revenues, witnessed a year-over-year improvement.
Total non-interest expenses were $177.9 million, down 8.2% year over year; while adjusted non-interest expenses were $170.3 million, up 2% year over year. Non-interest expenses mainly reflected higher professional fees, salaries and other personnel expense, third-party processing expense and other operating expenses.
Total deposits came in at $22.8 billion, up 8.5% year over year. Total net loans climbed 6.4% year over year to $21.6 billion.
Credit Quality
Credit quality metrics for Synovus reflected improvement in the quarter.
Net charge-offs totaled $6.8 million, down 44.8% year over year. The annualized net charge-off ratio was 0.12%, down 12 basis points (bps) year over year. Provision for loan losses declined 23.1% year over year to $3 million.
Nonperforming loans, excluding loans held for sale, dropped 35% year over year to $157.6 million. The nonperforming loan ratio was 0.72%, down 46 bps year over year.
Additionally, total nonperforming assets amounted to $222 million, down 31.6% year over year. The nonperforming asset ratio dipped 56 bps to 1.01% year over year.
Capital Position
Synovus’ capital position remained strong. The company provided capital ratios under Basel III transitional, as of Sep 30, 2015; while the prior-year quarter ratios are under Basel I rules.
Tier 1 capital ratio and total risk-based capital ratio were 10.62% and 12.04%, respectively, compared with 11.19% and 13.17% as of Sep 30, 2014.
As of Sep 30, 2015 Common Equity Tier 1 Ratio (fully phased-in) stood at 10.00%. Tier 1 Leverage ratio was 9.44% compared with 9.85% in the prior-year quarter.
Capital Deployment
Synovus completed the repurchase of shares worth $250 million (program initiated in fourth-quarter 2014) during the quarter.
Concurrent with the earnings release, the company announced a new $300-million share buyback program, which will be executed in the following 15 months.
Additionally, the company hiked its quarterly common stock dividend by 20% to 12 cents per share. The dividend is payable in Jan 2016.
Our Viewpoint
We believe the company’s efforts toward reducing expenses and streamlining business will gradually pay off and 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, a low rate environment and stringent regulations continue to keep us apprehensive.
Synovus’ shares soared 2.6% after the company announced results on Oct 20. We believe a surge in profits as well as encouraging capital deployment news cheered investors. However, the stock was down 2.1% to $30.34 on Oct 21.
Currently, Synovus carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Among other Southeast banks, Regions Financial Corporation’s RF third-quarter 2015 earnings from continuing operations came in at 19 cents per share, missing the Zacks Consensus Estimate by a penny. Moreover, earnings declined from the prior-year quarter figure of 21 cents per share. Higher expenses primarily led to lower-than-expected results.
BancorpSouth, Inc. BXS delivered a negative earnings surprise for the third quarter as operating earnings of 36 cents per share lagged the Zacks Consensus Estimate of 37 cents. The figure was, however, up 12.5% year over year.
Results were adversely impacted by negative Mortgage Servicing Rights (“MSR”) adjustment of $5.3 million, which led to a slight decline in net revenue. However, it was partly mitigated by a fall in expenses as well as negative provisions. Credit quality metrics and capital ratios depicted a mixed picture.
First Horizon National Corp. FHN came out with third-quarter earnings per share of 29 cents, which beat the Zacks Consensus Estimate by 31.8%. Moreover, the bottom line improved 52.6% year over year.
Results reflected lower revenues, which were more than offset by a steeper fall in expenses as well as provisions. Further, the quarter witnessed double-digit loan growth in its regional banking franchise, First Tennessee Bank, and a rise in the fixed-income sales revenues. Increase in deposits and improved credit quality were among the other major positives.
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