On July 22, Synovus Financial Corp. (SNV) reported second-quarter loss of 36 cents per share, which significantly improved from the loss of $1.82 per share reported in the prior-year quarter. However, quarterly results missed the Zacks Consensus Estimate of a loss of 31 cents.
Net loss decreased to $242.6 million from $601.2 million in the second quarter of 2009. The recovery is attributed to improved credit trends, strong balance sheet with a significant capital raise and improved corporate structure.
Quarter in Detail
Net interest income decreased 2.6% to $250 million from $256.6 million in the year-ago period but increased 0.5% from $248.9 million in the prior quarter. The year over year decline was primarily due to an increase in Synovus’ interest expenses, which soared 31.4% to $87.7 million.
Non-interest income declined 28.3% to $74 million from $103.2 million in the year-ago period. The decline was attributed to a decrease in mortgage banking income, fee income and service charges on deposit accounts, partially offset by an upswing in fiduciary and asset management fees.
Total revenues decreased 9.9% to $324 million from $359.8 million in the year-ago period. However, revenue surpassed the Zacks Consensus Estimate of $322 million.
Total non-interest expenses decreased 34.3% year over year to $258.8 million. The decline in expenses was primarily attributable to lower salaries and other personnel expense, FDIC insurance and other regulatory fees, foreclosed real estate expense and losses on other loans held for sale, partially offset by higher professional fees and other operating expenses.
Total credit costs decreased 11% to $353 million from $395 million in the first quarter of 2010.
Capital Position
In June 2010, Synovus consolidated 30 separate bank charters into a single charter, which improved capital management and cash flow, simplified regulatory oversight, and positioned the company to leverage efficiencies.
In May, Synovus completed a $1.1 billion capital raise, which enhanced its strategic flexibility needed to resolve credit issues and future growth opportunities.
As of June 30, 2010, Tier 1 capital ratio, Tier 1 common equity ratio and tangible common equity/tangible assets ratio increased to 13.3%, 9.5% and 7.6% from 9.7%, 6.0% and 5.1% in the first quarter of 2010.
At the end of the reported quarter, total nonperforming assets were down $270 million or 15% sequentially to $1.6 billion, impacted by lower inflows, asset dispositions and charge-offs.
Synovus’ closest competitor, SunTrustBanks, Inc. (STI), also reported a tempering in losses for the second quarter of 2010. Another peer, Regions Financial Corp. (RF) will announce its second quarter results on July 27.
We believe Synovus is on a recovering phase, reflected by lower nonperforming assets, capital raise and improving operating efficiencies, which should render the company profitable in the upcoming quarters.
Synovus currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Considering the fundamentals, we are maintaining a Neutral recommendation on the stock.
Read the full analyst report on “SNV”
Read the full analyst report on “STI”
Read the full analyst report on “RF”
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