It has been about a month since the last earnings report for Synovus Financial (SNV). Shares have lost about 2.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synovus due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synovus Q2 Earnings & Revenues Beat
Driven by top-line strength, Synovus reported a positive earnings surprise of 1.01%. Adjusted earnings of $1.00 per share beat the Zacks Consensus Estimate of 99 cents. Also, the reported figure comes in 8.4% higher than the prior-year quarter tally.
Higher revenues, backed by strong loan balances, stoked organic growth. Notably, lower efficiency ratio and rising fee income were tailwinds. However, escalating expenses and provisions were undermining factors.
Including certain non-recurring items, net income available to common shareholders came in at $153 million or 96 cents per share compared with $108.6 million or 91 cents per share recorded in the prior-year quarter.
Top Line Robust, Expenses Flare Up
Adjusted total revenues in the second quarter came in at $488.3 million, up 35.9% year over year. Further, the top-line figure outpaced the Zacks Consensus Estimate of $479 million.
Net interest income surged 39.6% year over year to $397.3 million. Yet, net interest margin shrunk 17 basis points year over year to 3.69%.
Non-interest income climbed 22.4% on a year-over-year basis to $89.8 million, including a favorable adjustment in the fair value of private equity investments. Rise in almost all components of income drove this upside.
Non-interest expenses came in at $264.1 million, flaring up 29.4% year over year. Notably, rise in almost all components of expenses resulted in this upswing.
Adjusted efficiency ratio came in at 52.08% as compared with 56.41% reported in the year-earlier quarter. A decline in ratio indicates improvement in profitability.
Total deposits came in at $38 billion, decreasing 1.1% sequentially. Total loans, however, climbed 5.7% sequentially to $36.1 billion.
Credit Quality: A Mixed Bag
Credit quality was a mixed a bag for Synovus in the June-end quarter.
Non-performing loans were up 5.8% year over year to $124.1 million. The non-performing loan ratio came in at 0.34%, contracting 13 bps year over year.
Total non-performing assets amounted to $139.6 million, underlining a rise of 10.5% year over year. The non-performing asset ratio shrunk 11 bps year over year to 0.39%.
Net charge-offs plunged 33.7% on a year-over-year basis to $11.8 million. The annualized net charge-off ratio was 0.13%, down 16 bps from the year-earlier quarter. Provision for loan losses was up 2.8% year over year to $12.1 million.
Strong Capital Position
Tier 1 capital ratio and total risk based capital ratio were 10.09% and 12.11%, respectively, compared with 11.25% and 13.08% as of Jun 30, 2018.
Also, as of Jun 30, 2019, Common Equity Tier 1 Ratio (fully phased-in) was 9.61% compared with 10.12% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.92% compared with 10.03% recorded in the comparable period last year.
Capital Deployment Update
During the April-June quarter, the company increased the share repurchase authorization from $400 million to $725 million, and completed share buyback worth $25 million.
For 2019, management projects average total loan growth of around 5.5-7.5% and deposits growth of about 3-5%, with deposits growing at a pace that supports loan growth, while maintaining an appropriate loan-to-deposit ratio consistent with earnings operating range of 95% to 97%.
In 2019, management expects tangible NIE to decline sequentially in the third quarter and fourth quarter and average approximately $250 million.
Given full-year growth expectations, along with the current forward curve, management estimates revenue growth to be at the lower end of the 5.5% to 7.5% range.
Adjusted total non-interest expenses are projected to increase 2-4%, net of synergies related to the FCB acquisition. Merger-related cost savings are likely to exceed $30 million, well ahead of original 2019 estimate of $20 million.
The company expects net charge-off ratio of 15-20 bps.
Management expects the tax rate to be at 24-25% in 2019.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, Synovus has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Synovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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