Last week, Synovus Financial Corp.(SNV) reported third-quarter 2011 income attributable to common shareholders of 2 cents per share, a significant improvement from the loss of 25 cents per share reported in the year-ago quarter and 7 cents in the prior quarter. Moreover, the Zacks Consensus Estimate was a loss of 3 cents per share.
Net income was $15.7 million compared with a net loss of $195.8 million in the prior-year quarter and $53.5 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
Net interest income decreased 6.9% to $228.6 million from $245.5 million in the year-ago period and plummeted 1.0% from $231.0 million in the prior quarter, due to lower earnings asset yields. Net interest margin was 3.47%, down 4 basis points sequentially. However, the margin exceeded 3.33% reported in the prior-year quarter, driven by a decrease in the effective cost of funds.
Synovus’ interest expenses slipped 6.5% sequentially and 34.1% year over year to $53.4 million in the reported quarter.
Non-interest income climbed 63.1% to $133.4 million in the quarter from $81.8 million in the year-ago period. The increase was attributable to a rise in fiduciary and asset management fees, partly offset by lower service charges on deposit accounts and decreased mortgage banking income.
Moreover, non-interest income edged up significantly on a sequential basis, mainly due to increased investment securities gains.
Total revenue spiked 10.6% to $362.0 million from $327.3 million in the year-ago period and 21.2% sequentially from $298.8 million in the prior quarter. The increase was attributable to higher non-interest income. Moreover, revenue also outpaced the Zacks Consensus Estimate of $301.0 million.
Total non-interest expenses decreased 17.3% year over year to $222.6 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 9.8% to $142.5 million in the quarter from $157.9 million in the previous quarter. Further, Synovus plans to achieve $75 million in expense savings in 2011 and $100 million in 2012, attributable to its efficiency initiatives.
Capital Position
As of September 30, 2011, Tier 1 capital ratio, Tier 1 common equity ratio and Tier 1 leverage ratio increased to 12.97%, 8.50% and 9.87%, respectively, compared with prior quarter’s ratios of 12.84%, 8.41% and 9.70%, respectively.
Total non-performing assets were down 4.5% sequentially and 25.2% year over year to $1.2 billion, driven by lower inflows. Moreover, net charge-offs decreased to $138.3 million in the quarter from $167.2 million in the prior quarter and slipped from $237.2 million in the year-ago period.
Total deposits were $23.1 billion, up $234.4 million from the prior quarter. The effective cost of core deposits continued to improve, with an effective cost of 62 basis points for the quarter, compared with 67 basis points in the prior quarter and 95 basis points in the prior-year quarter.
Our Take
We believe Synovus is in a recovery phase, driven by lower non-performingassets and improving operating efficiencies, which should make the company more 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 #2 Rank, which translates to a short-term ‘Buy’ rating. Moreover, Synovus’ closest competitor – Capital City Bank Group Inc. (CCBG) retains a Zacks #2 Rank.
