Synovus Financial Corp. ( SNV - Analyst Report ) reported first-quarter 2011 loss attributable to common shareholders of 12 cents per share, a significant improvement from the loss of 47 cents per share reported in the year-ago quarter and 23 cents in the prior quarter. Moreover, the quarter’s earnings were in line with the Zacks Consensus Estimate.

Excluding $24.3 million of restructuring charges, the net loss attributable to common shareholders was $69.3 million or 9 cents per common share.

Net loss decreased to $93.7 million from $229.8 million in the prior-year quarter and $180.0 million in the prior quarter. The recovery was possible due to improved credit trends with a significant decline in credit costs and stable core performance.

Quarter in Detail

In the first quarter of 2011, net interest income decreased 4.6% to $237.4 million from $248.9 million in the year-ago period and also declined 2.0% from $242.0 million in the prior quarter, due to lower loan balances. Net interest margin was 3.52%, up from 3.37% in the prior quarter driven by a decrease in the effective cost of funds, a lower negative impact of non-performing assets and a drop in excess liquidity. The margin also exceeded 3.39% reported in the prior-year quarter.

Synovus’ interest expenses also decreased 14.8% sequentially and 35.1% year over year to $61.0 million in the reported quarter.

Non-interest income plummeted 7.9% to $64.2 million in the quarter from $69.7 million in the year-ago period. The decline was attributable to a fall in fee income, lower service charges on deposit accounts and decreased mortgage banking income, partially offset by an upswing in bankcard income brokerage, fiduciary and asset management fees and other non-interest income.

Non-interest income also edged down 19.6% sequentially, mainly due to lowered NSF fees, decreased mortgage and brokerage revenues.

Total revenue decreased 5.3% to $301.6 million from $318.6 million in the year-ago period and 6.3% sequentially from $321.9 million in the prior quarter. The decline was attributable to lower net-interest income and non-interest income. Moreover, revenue also lagged the Zacks Consensus Estimate of $313.0 million.

In the first quarter of 2011, total non-interest expenses decreased 5.2% year over year to $239.7 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, partially offset by higher other operating expenses.

Total credit costs dropped 37.2% to $177.0 million in the quarter from $282.0 million in the previous quarter.

Capital Position

As of March 31, 2011, Tier 1 capital ratio, Tier 1 common equity ratio and tangible common equity/ tangible assets ratio remained modestly in line at 12.8%, 8.5% and 6.7% compared with the prior-quarter ratios of 12.8%, 8.6% and 6.7%, respectively.

At the end of the reported quarter, total non-performing assets were down 0.4% sequentially and 30.8% year over year to $1.3 billion, impacted by lower inflows. However, net charge-offs decreased to $167 million in the quarter from $385 million in the prior quarter, the lowest level since the third quarter of 2008.

Total loans edged down $588 million during the quarter compared with a $995 million decline during the fourth quarter of 2010, and a $966 million decline in the prior-year quarter. The lower rate of decline during the quarter was driven by a decrease in loan dispositions and charge-offs.

Our Take

We believe Synovus is in a recovery phase, reflected by lower non-performingassets and improving operating efficiencies, which should make the company profitable in the upcoming quarters. Furthermore, the asset disposition activity will act as a positive catalyst for the company.

Synovus currently retains its Zacks #3 Rank, which translates to a short-term ‘Hold’ rating. However, Synovus’ closest competitor - Capital City Bank Group Inc. ( CCBG - Snapshot Report ) retains a Zacks #1 Rank (a short-term ‘Strong Buy’ rating).