Synovus Trims Losses Significantly

Zacks Equity Research
July 29, 2011

Synovus Financial Corp. (NYSE:SNV - News) reported second-quarter 2011 loss attributable to common shareholders of 6 cents per share, a significant improvement from the loss of 36 cents per share reported in the year-ago quarter and 9 cents in the prior quarter. Moreover, the quarter’s earnings were in line with the Zacks Consensus Estimate.

Including $3.1 million of restructuring charges, net loss attributable to common shareholders was $53.5 million or 7 cents per common share.

Operating net loss decreased to $50.4 million from $242.6 million in the prior-year quarter and $69.3 million in the prior quarter. The recovery was possible due to improved credit trends with a significant decline in credit costs and continued implementation of efficiency initiatives.

Quarter in Detail

In the second quarter of 2011, net interest income decreased 7.6% to $231.0 million from $250.0 million in the year-ago period and plummeted 2.7% from $237.4 million in the prior quarter, due to lower loan balances.

Net interest margin was 3.51%, down by 1 basis point sequentially. However, the margin exceeded 3.34% reported in the prior-year quarter, driven by a decrease in the effective cost of funds.

Synovus’ interest expenses slipped 6.4% sequentially and 34.9% year over year to $57.1 million in the reported quarter.

Non-interest income plummeted 8.3% to $67.8 million in the quarter from $74.0 million in the year-ago period. The decline was attributable to a fall in fee income, lower service charges on deposit accounts and decreased mortgage banking income, partially offset by an upswing in bankcard income brokerage, fiduciary and asset management fees and other non-interest income.

However, non-interest income edged up 5.6% sequentially, mainly due to increased mortgage and brokerage revenues.

Total revenue inched down 7.8% to $298.8 million from $324.0 million in the year-ago period and 0.9% sequentially from $301.6 million in the prior quarter. The decline was attributable to lower net-interest income. Moreover, revenue also lagged the Zacks Consensus Estimate of $305.0 million.

In the second quarter of 2011, total non-interest expenses decreased 14% year over year to $222.4 million. The decline was mainly due to lower foreclosed real estate expense and FDIC insurance and other regulatory fees, lower salaries and other personnel expense, professional fees, data processing expense, net occupancy and equipment expense and other operating expenses.

Total credit costs dropped 10.8% to $157.9 million in the quarter from $177.1 million in the previous quarter. Further, Synovus plans to achieve $75 million in expense savings in 2011, attributed to its efficiency initiatives.

Capital Position

As of June 30, 2011, Tier 1 capital ratio, Tier 1 common equity ratio and tangible common equity/ tangible assets ratio remained modestly in line at 12.8%, 8.4% and 6.6%, respectively, compared with the prior quarter ratios of 12.8%, 8.5% and 6.7%, respectively.

At the end of the reported quarter, total non-performing assets were down 7.7% sequentially and 25.0% year over year to $1.2 billion, impacted by lower inflows. However, net charge-offs increased to $167.2 million in the quarter from $166.9 million in the prior quarter and slipped from $433.1 million in the year-ago period.

Total deposits were $22.9 billion, down $330.9 million from the prior quarter, driven mainly by a planned reduction of national market brokered deposits and a continued wind-down of the Shared Deposits program.

Our Take

We believe Synovus is in a recovery phase, driven by lower non-performingassets and improving operating efficiencies, which should make the company profitable in the upcoming quarters. Furthermore, the planned expenses savings by the company will act as a positive catalyst for Synovus.

Synovus currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. However, Synovus’ closest competitor - Capital City Bank Group Inc. (NasdaqGS:CCBG - News) retains a Zacks #1 Rank (a short-term Strong Buy rating).

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