Following a slump in mortgage banking income, Synovus Financial Corporation (SNV - Analyst Report) reported its fourth-quarter 2013 net income of 5 cents per share, in line with the Zacks Consensus Estimate. However, results compared favorably with the prior-year quarter adjusted loss of 10 cents.
Including one-time items, net income available to common shareholders stood at $35.8 million or 4 cents per share as compared with $709.3 million or 78 cents per share in the prior-year quarter.
Decline in non-interest expenses and a marked improvement in credit quality were the tailwinds for the quarter. Moreover, the company’s capital ratios and elevated deposits and loans depict its strong position. Yet, lower top-line performance mainly driven by lower-than-expected mortgage banking income was a headwind.
For full-year 2013, net income available to common shareholders was $118.6 million or 13 cents per share, significantly down from $771.5 million or 85 cents per share in the prior year. Moreover, results lagged the Zacks Consensus Estimate by a penny.
Performance in Detail
Total revenue fell 8.3% to $293.5 million from $320.1 million in the year-ago quarter. The decline was due to decrease in interest as well as non-interest income. However, reported revenues surpassed the Zacks Consensus Estimate of $272.0 million.
For full-year 2013, total revenue was $1.18 billion, down 10.6% from $1.32 billion in the year-ago period. However, revenue surpassed the Zacks Consensus Estimate of $1.09 billion.
Net interest income fell 1.5% year over year to $204.3 million in the quarter, primarily due to lower interest income. Additionally, owing to persistent pressure, net interest margin contracted 7 basis points year over year to 3.38%.
Non-interest income fell 24.9% year over year to $60.2 million. The decline was primarily due to fall in both mortgage banking income and gains from investment securities.
Total non-interest expenses declined 10.6% year over year to $190.7 million. The decrease was mainly due to gains on other loans held for sale compared with a loss in the prior-year quarter. Moreover, reduced foreclosed real estate expenses and lower professional fess were the positives.
Notably, Synovus plans additional expense reductions of about $30 million in 2014. Moreover, strategic investments in talent, technology and marketing are on track to support future growth.
For Synovus, credit quality significantly improved during the reported quarter. Net charge-offs were $25.1 million, substantially down by 87% year over year. Moreover, the annualized net charge-off ratio was 0.51%, down from 3.94% in the prior-year quarter.
Nonperforming loan inflows were $41.2 million, down 84.3% from $262.7 million in the prior-year quarter. Additionally, nonperforming loans, excluding loans held for sale, were $416.3 million as of Dec 31, 2013, down 23.4% year over year. The nonperforming loan ratio was 2.08%, down from 2.78% as of Dec 31, 2012.
Total nonperforming assets were $539.6 million, down 23.2% year over year. The nonperforming asset ratio was 2.67% compared with 3.57% in the prior-year quarter. Total delinquencies (consisting of loans 30 or more days past due and still accruing) were 0.36% of total loans, down from 0.54% as of Dec 31, 2012.
Distressed asset sales were about $68 million in the final quarter, compared with $545 million in the prior-year quarter. Notably, fourth-quarter 2012 included completion of a bulk asset sale in Dec 2012.
Synovus exhibited a strong capital position. As of Dec 31, 2013, Tier 1 capital ratio and Tier 1 common equity ratio were 10.54% and 9.93% respectively, compared with 13.24% and 8.72% in the prior-year quarter.
Tier 1 leverage ratio came in at 9.13% compared with 11.00% in the prior-year quarter. Total risk-based capital ratio and tangible common equity ratio were 13.00% and 12.53%, respectively, as of Dec 31, 2013, compared with 16.18% and 12.07% as of Dec 31, 2012.
Total deposits, as of Dec 31, 2013, were $20.9 billion, up 22.4% from $21.1 billion as of Dec 31, 2012. Total net loans came in at $19.8 billion, up 3.1% from $19.2 billion as of Dec 31, 2012.
In our opinion, Synovus has commendably recovered from the financial crunch, thanks to lower non-performing assets and improving operating efficiencies. Moreover, repayment of Troubled Asset Relief Program (TARP) dues depicts sustainable earnings in the upcoming quarters. However, regulatory issues, low interest environment and significant exposure to residential real estate markets remain matters of concern.
Shares of Synovus currently carry a Zacks Rank #3 (Hold). Some better-ranked Southeast banks that are worth considering include Capital City Bank Group Inc. (CCBG - Snapshot Report) , Simmons First National Corporation (SFNC - Snapshot Report) and United Bankshares Inc. (UBSI - Snapshot Report) . All these 3 carry a Zacks Rank #1 (Strong Buy).