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Synovus (SNV) Up 22.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Synovus Financial (SNV - Free Report) . Shares have added about 22.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Synovus' Q3 Earnings Beat on Solid Mortgage Banking

Riding on solid mortgage banking, Synovus reported third-quarter 2020 adjusted earnings of 89 cents per share, handily beating the Zacks Consensus Estimate of 48 cents. However, the reported figure comes in 8.7% lower than the prior-year quarter tally.

Results were driven by rising fee income, raising investors’ optimism which resulted in a price rally of 3.86%, post release. Moreover, strong deposit balances stoked organic growth. However, uptrend in expenses and lower net interest income were undermining factors. Also, higher provisions remain a major drag.

Including certain non-recurring items, net income available to common shareholders came in at $83.3 million or 56 cents per share compared with the loss of $1.6 million or 1 cent per share recorded in the prior-year quarter.

Net Interest Income Falls, Non-Interest Income Up, Expenses Escalate

Total revenues (fully tax-equivalent) in the third quarter came in at $492.3 million, up marginally from the prior-year quarter. Also, the top-line figure outpaced the Zacks Consensus Estimate of $467.8 million.

Net interest income declined 6.2% year over year to $377.9 million. Additionally, net interest margin shrunk 34 basis points (bps) year over year to 3.08%.

Non-interest income climbed 28.8% on a year-over-year basis to $114.4 million. Substantial rise in mortgage banking and other income drove this upside.

Non-interest expenses came in at $316.7 million, up 15% year over year. These increases mainly resulted from higher salaries and other personnel expense, net occupancy and equipment expense, third-party processing and other services and professional fees, partly offset by lower FDIC insurance and other regulatory fees, amortization of intangibles and other expenses.

Adjusted efficiency ratio came in at 53.91% as compared with the 51.71% reported in the year-earlier quarter. A rise in ratio indicates a deterioration in profitability.

Total deposits came in at $44.7 billion, up 1.1% sequentially. Yet, total loans edged down 1% sequentially to $39.5 billion.

Credit Quality: A Concern

Credit metrics deteriorated for Synovus during the September-end quarter.
Non-performing loans surged 46% year over year to $168.8 million. The non-performing loan ratio came in at 0.43%, up 11 basis points (bps) year over year.

Total non-performing assets amounted to $192.1 million, underlining a rise of 27% year over year. The non-performing asset ratio expanded 7 bps year over year to 0.49%.

Net charge-offs climbed 43.2% on a year-over-year basis to $28.5 million. The annualized net charge-off ratio was 0.29%, up 7 bps from the year-earlier quarter. Provision for loan losses soared 57% from the prior-year quarter to $43.4 million.

Robust Capital Position

Tier 1 capital ratio and total risk based capital ratio were 10.58% and 13.16%, respectively, compared with 10.27% and 12.30% as of Sep 30, 2019.

Moreover, as of Sep 30, 2020, Common Equity Tier 1 Ratio (fully phased-in) was 9.30% compared with the 8.96% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.49% compared with the 9.02% recorded in the year-earlier period.

2020 Outlook

Management expects modest downward pressure on NIM as the repricing within fixed rate asset portfolio is partially offset by continued declines in overall deposit costs and further improvements in managing liquidity costs. Excluding the potential impacts from P3 forgiveness, NII and NIM is likely to decrease slightly in the fourth quarter.

Management sees positive momentum in other fiduciary service business, including brokerage and trust. In Q4, stable revenues from core banking fees, fiduciary services and capital markets income are expected. However, declines in mortgage revenue and other income is expected.

Headcount reductions in the ongoing quarter are anticipated as part of the normal attrition and a voluntary retirement offer is extended. The voluntary retirement offer is expected to result in a onetime fourth-quarter expense of approximately $14 million and have a two-year payback. These savings are part of Synovus’ forward initiatives and will help offset expected increases to other line items, including travel and advertising in 2021 as banking activity returns closer to normal. Management continues to focus on prudent expense management. Excluding the upfront expenses associated with Synovus Forward initiatives, adjusted net interest income in the fourth quarter will be in line with the third quarter.

Currently, management does not foresee widespread deterioration in the credit portfolio. Per management, the amount of provision for credit losses going forward will keep fluctuating based on a number of factors, including economic outlook, loan growth, loan mix, risk rate migration, as well as the timing and impact of future government stimulus. Heightened levels of uncertainty and those factors could result in reductions of allowance less than net charge-offs. As the outlook becomes more stable and uncertainty declines, management expects changes in allowance to rely more heavily on the traditional factors.

Management expects core earnings will continue supporting the capital position and aid in achieving strategic objectives. Moreover, any share repurchases for the rest of the year is not expected.

On the expense front, management executed on the $25-million third-party spend program, with work streams continuing to be implemented through the early part of 2021. The plan for 13 branch closures in 2020 remains on track with additional back office real estate consolidation planned for 2021. Moreover, the company’s organizational efficiency program is a comprehensive portfolio consisting of many initiatives that will deliver reductions in personnel and other expenses, as well as cost avoidance and additional areas throughout the remainder of 2020 and 2021. Overall, $65 million in overall savings is anticipated from this program.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 18.61% due to these changes.

VGM Scores

At this time, Synovus has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Synovus has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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