Buoyed by higher revenues, Synovus Financial Corporation SNV recorded a positive earnings surprise of 4.0% in third-quarter 2016. This helped the stock gain nearly 1% following the release. Adjusted earnings of 52 cents per share beat the Zacks Consensus Estimate by 2 cents. Also, the reported figure compared favorably with the prior-year quarter tally of 42 cents.
Higher revenues backed by strong loans & deposits balances drove the organic growth. However, escalating expenses remain a concern. Moreover, significant increase in provision for loan losses added to its woes.
Net income available to common shareholders was $62.7 million or 51 cents per share compared with $55.4 million or 42 cents per share in the prior-year quarter.
Organic Growth Reflected; But Expenses Moved Up, Too
Total revenue (excluding gain on investment securities) in the third quarter was $294.1 million, up 7.0% from $275 million in the prior-year quarter. However, the top line marginally lagged the Zacks Consensus Estimate of $296 million.
Net interest income increased 8.8% year over year to $226 million. Moreover, net interest margin expanded 13 basis points (bps) year over year to 3.27%.
Non-interest income was slightly up 1.6% year over year to $68.2 million. The rise was primarily due to increased fiduciary and asset management fees, mortgage-banking revenues, brokerage and insurance income. However, the increase was partially offset by a slight decrease in core banking fees (including service charges on deposit accounts, bankcard fees and other miscellaneous service charges).
On the other hand, total non-interest expenses were $185.9 million, up 4.5% year over year, while adjusted non-interest expenses came in at $183.9 million, up 3.6% from a year ago. Notably, non-interest expenses exhibited a rise in almost all components of expenses and also recorded first-time merger-related expense of $0.55 million.
Total deposits came in at $24.2 billion, up 6.1% year over year. Total net loans climbed 6.4% year over year to $23.3 billion.
Credit Quality: A Mixed Bag
Credit quality metrics for Synovus were a mixed bag in the quarter.
Net charge-offs were $6.9 million, up 2.5% year over year. The annualized net charge-off ratio was 0.12%, stable with the prior-year quarter. Provision for loan losses increased significantly year over year to $5.7 million from $3 million in Sep 2015.
Non-performing loans, excluding loans held for sale, were down 6.0% year over year to $148.2 million. The non-performing loan ratio was 0.64%, down 8 bps year over year.
Additionally, total non-performing assets amounted to $179.1 million, reflecting a decline of 19.3% year over year. The non-performing asset ratio contracted 24 bps year over year to 0.77%.
Capital Position: A Mixed Bag
Tier 1 capital ratio and total risk based capital ratio were 10.07% and 12.05%, respectively, compared with 10.6% and 12.02% as of Sep 30, 2015.
Further, as of Sep 30, 2016, Common Equity Tier 1 Ratio (fully phased-in) was 9.49% compared with 9.98% in the prior-year quarter. Tier 1 Leverage ratio was 8.98% compared with 9.45% in the year-ago quarter.
Effective Sep 29, 2016, Synovus entered into an accelerated share repurchase agreement (ASR) to buy back $50 million worth of common stock. This agreement is part of a $300 million share repurchase program. The ASR is scheduled to be settled on or before Dec 28, following which the repurchase program will be completed.
Results of Synovus reflect a decent performance in the quarter. We believe that the company’s focus on both organic and inorganic growth, together with cost containment efforts will gradually pay off and aid bottom-line expansion in subsequent years. However, a persistent low rate environment and stringent regulations, continue to keep us apprehensive.
SYNOVUS FINL CP Price, Consensus and EPS Surprise
At present, Synovus carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other Southeast banks, First Horizon National Corporation FHN posted earnings per share of 27 cents for third-quarter 2016, surpassing the Zacks Consensus Estimate of 25 cents. Better-than-expected results were aided by a rise in both net interest income and non-interest income. The company experienced strong growth in loans and deposits. However, rising operating expenses and a significant increase in provisions for loan losses were the downsides.
Regions Financial Corporation RF recorded third-quarter 2016 earnings from continuing operations of 24 cents per share, which surpassed the Zacks Consensus Estimate of 21 cents. Significantly lower provisions and higher fee revenues drove better-than-expected results. However, these were partially offset by a rise in operating expenses.
Next we have Trustmark Corporation TRMK that is slated to release third-quarter earnings on Oct 25.
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