Synovus (SNV) Rides on Loans & High Rates as Costs Rise
Synovus Financial Corp. SNV is focused on its organic growth strategy as reflected by continued loan and deposits growth. Amid the current high-interest-rate regime, net interest income is expected to rise. Also, decent liquidity will drive capital deployment activities. Yet, rising expenses may impede near-term bottom-line growth. Also, muted mortgage banking income and a lack of diversification in its loan portfolio are woes.
Synovus’ deposits are well-diversified across industries and geographies in Southeast regions. Also, the company’s floating-rate loan portfolio is well-positioned in the current high interest-rate regime. In 2023, management expects total loan balances to be stable to up 2%, while core deposits (excluding brokered accounts) growth is estimated in the 1-4% band.
SNV’s spread income benefits from higher interest rates. As the Federal Reserve is expected to keep rates high in the near term, the metric is likely to witness moderate growth due to an increase in funding costs. Going forward, decent loan demand will offer support to the metric, thereby driving top-line growth. Management expects adjusted revenues to rise 1-2% in 2023.
Its debt (comprising long-term debt and other short-term borrowings) of $2.7 billion as of Sep 30, 2023, decreased from $4.71 billion as of Dec 31, 2022. Cash, cash equivalents and restricted cash were $2.13 billion as of the same date. Given the company’s decent cash levels and favorable access to debt markets, capital deployment activities seem sustainable.
In March 2023, the company announced a 12% sequential hike in its quarterly dividend to 38 cents per share. Also, the company has a share repurchase authorization worth $300 million, which was announced in January 2023. In the near term, as SNV aims to strengthen its capital position due to the uncertain economic and regulatory environment, share buybacks are unlikely. In 2023, management estimates the common equity tier 1 ratio to be more than 10%.
However, Synovus has witnessed a rise in expenses. The metric witnessed a compound annual growth rate of 1.7% over the last four years (ended 2022) with the rising trend continuing in the first nine months of 2023. Moreover, management expects adjusted expenses to increase 4-5% in 2023. Investments in talent, new initiatives, infrastructure as well as FDIC and healthcare costs are expected to inflate expenses and limit its bottom-line expansion.
While the company’s mortgage income increased in 2019 and 2020, supported by low mortgage rates, the same witnessed a decline in 2021, 2022 and the first nine months of 2023. High mortgage rates have been adversely impacting mortgage origination volumes and refinancing activities. Thus, the company’s mortgage banking business performance is expected to get hurt in the quarters ahead, thereby impeding fee income.
The loan portfolio of Synovus comprises majorly commercial and industrial as well as commercial real estate loans (80.5% of total loans as of Sep 30, 2023). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
SNV’s shares have gained 16.4% in the past six months compared with the industry’s rise of 11.9%.
Image Source: Zacks Investment Research
The company currently has a Zacks Rank #3 (Hold).
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are WSFS Financial Corporation WSFS and Byline Bancorp BY.
Earnings estimates for WSFS have remained unchanged for 2023 over the past 30 days at $4.47. The company’s shares have gained 5.9% over the past six months. WSFS Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Byline Bancorp’s earnings estimates have moved 1.4% north for the current year at $2.83 over the past 30 days. In six months’ time, BY’s shares have gained 15%. The company carries a Zacks Rank #2 at present.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Synovus Financial Corp. (SNV) : Free Stock Analysis Report
WSFS Financial Corporation (WSFS) : Free Stock Analysis Report
Byline Bancorp, Inc. (BY) : Free Stock Analysis Report
