A month has gone by since the last earnings report for Synovus Financial (SNV). Shares have added about 3.3% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synovus due for a pullback? 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 Q1 Earnings Miss, Provisions Up on Coronavirus Woes
Synovus reported first-quarter 2020 adjusted earnings of 21 cents per share, missing the Zacks Consensus Estimate of 31 cents. Also, the reported figure comes in 79% lower than the prior-year quarter tally.
Results were negatively impacted by lower net interest income and higher provisions on the coronavirus scare. However, rising fee income and downtrend in expenses were tailwinds, boosting investors’ optimism. Moreover, strong loan and deposit balances stoked organic growth.
Including certain non-recurring items, net income available to common shareholders came in at $30.2 million or 20 cents per share compared with the $117 million or 72 cents per share recorded in the prior-year quarter.
Net Interest Income Falls, Non-Interest Income Up, Expenses Down
Adjusted total revenues in the first quarter came in at $473.4 million, down marginally from the prior-year quarter. However, the top-line figure outpaced the Zacks Consensus Estimate of $459.1 million.
Net interest income declined 6% year over year to $373.3 million. Also, net interest margin shrunk 24 basis points (bps) year over year to 3.35%.
Non-interest income climbed 30.8% on a year-over-year basis to $103.9 million. Rise in almost all components of income drove this upside.
Non-interest expenses came in at $276.3 million, down 5.5% year over year. These decreases mainly resulted from lower FDIC insurance and other regulatory fees, advertising expenses and amortization of intangibles. Higher salaries and other personnel expense, net occupancy and equipment expense, third-party processing and other services, professional fees and other expenses were on the downside.
Adjusted efficiency ratio came in at 56.72% as compared with the 50.24% reported in the year-earlier quarter. A rise in ratio indicates deterioration in profitability.
Total deposits came in at $39.8 billion, up 3.6% sequentially. Total loans climbed 3% sequentially to $38.3 billion.
Credit Quality: A Concern
Credit metrics deteriorated for Synovus in the March-end quarter.
Non-performing loans were up 8.6% year over year to $156.3 million. The non-performing loan ratio came in at 0.41%, up 1 basis point year over year.
Total non-performing assets amounted to $190 million, underlining a rise of 22.3% year over year. The non-performing asset ratio expanded 6 bps year over year to 0.50%.
Net charge-offs climbed 17.5% on a year-over-year basis to $20.1 million. The annualized net charge-off ratio was 0.21%, up 2 bps from the year-earlier quarter. Provision for loan losses increased significantly from the prior-year quarter to $158.7 million on coronavirus concerns and reflecting first quarter under Current Expected Credit Loss.
Strong Capital Position
Tier 1 capital ratio and total risk based capital ratio were 9.97% and 12.31%, respectively, compared with 10.01% and 12.06% as of Mar 31, 2019.
Also, as of Mar 31, 2020, Common Equity Tier 1 Ratio (fully phased-in) was 8.72% compared with the 9.52% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.94% compared with the 8.81% recorded in the year-earlier period.
During the January-March period, the company repurchased 450,000 shares for $16.2 million in common stock.
Management expects NII to remain relatively flat. Also, net interest margin is anticipated to be down 4-5 bps for every 25 bps decrease in interest rates. The company expects the majority of the impacts from March rate cuts to be realized in the second quarter.
Loans from the Paycheck Protection Program are expected to serve as a primary engine for loan growth. Under the existing economic conditions, the company expects consumer portfolio to decline in the near term as it witnessed a decrease in unsecured lending and third-party partnership purchases.
Adjusted non-interest income is likely to rise as the economy stabilizes.
Management expects coronavirus outbreak-related expenses between $5 million and $6 million for the second quarter. The company expects adjusted expenses to remain relatively stable sequentially before declining in the second half of the year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -46.69% due to these changes.
At this time, Synovus has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Synovus has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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