A month has gone by since the last earnings report for Synovus Financial (
SNV Quick Quote SNV - Free Report) . Shares have added about 4.1% 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 the most recent earnings report in order to get a better handle on the important drivers.
Synovus' Q1 Earnings Top Estimates on Fee Income Growth
Synovus reported first-quarter 2021 adjusted earnings of $1.21 per share, which handily beat the Zacks Consensus Estimate of 93 cents, aided by solid mortgage banking income. Also, the bottom line increased 17.4% from the prior-year quarter figure.
Results were driven by rising fee income and reversal of provisions. Moreover, strong deposit and loan balances stoked organic growth. However, lower net interest income was an undermining factor.
Including certain non-recurring items, net income available to common shareholders came in at $178.8 million or $1.19 per share compared with the $30.2 million or 20 cents recorded in the prior-year quarter.
Revenues Climb on Higher Non-Interest Income, Expenses Down
Total revenues (fully tax-equivalent) in the first quarter came in at $485.6 million, up 1.6% from the prior-year quarter. Also, the top line surpassed the Zacks Consensus Estimate of $481.7 million.
Net interest income increased slightly year over year to $374.6 million. However, net interest margin shrunk 33 basis points (bps) to 3.04%.
Non-interest income climbed 7% on a year-over-year basis to $111 million. Substantial rise in mortgage banking, income from bank-owned life insurance, fiduciary and asset management fees and card fees drove this upside. These were partly offset by lower service charges on deposit accounts and capital markets income.
Non-interest expenses were $267.1 million, down 3% year on year. This downside mainly resulted from lower net occupancy and equipment expense, and professional fees, third-party processing and other services, professional fees, amortization of intangibles and other expenses.
Adjusted efficiency ratio came in at 54.19% compared with the 56.72% reported in the year-earlier quarter. A fall in ratio indicates an improvement in profitability.
Total deposits came in at $47.4 billion, up 1.5% sequentially. Also, total loans grew 1.4% sequentially to $38.8 billion.
Credit Quality Improves
Synovus’ credit metrics witnessed an improvement during the March-ended quarter.
Non-performing loans declined 1% year over year to $155.2 million. Non-performing loan ratio came in at 0.4%, down 1 bp. Net charge-offs increased marginally to $20.2 million. The annualized net charge-off ratio was 0.21%, stable year over year.
Further, reversal of provision for credit losses of $18.6 million was recorded in the first quarter against provision expense of $158.7 in the prior-year quarter.
Total non-performing assets amounted to $195.6 million, underlining a year-over-year jump of 3%. The non-performing asset ratio remained stable at 0.50%.
Robust Capital Position
Tier 1 capital ratio and total risk based capital ratio were 10.99% and 13.34%, respectively, compared with 9.95% and 12.29% as of Mar 31, 2020.
Moreover, as of Mar 31, 2021, Common Equity Tier 1 Ratio (fully phased-in) was 9.74% compared with the 8.70% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.80% compared with the 8.92% recorded in the year-earlier period.
Return on average assets was 1.40% compared with the prior-year quarter’s 0.32%. Return on average common equity was 15.77%, up from the 2.75%.
Excluding all paycheck protection program balance changes, the company expects loan growth of 2% to 4% in 2021. Given the current environment, it anticipates this growth to accelerate in the second half of 2021 and to be well diversified across business units, asset classes and geography. Despite continued uncertainty in the markets, the company has reasons to be optimistic about expectations for loan growth.
Management expects NII to increase driven by loan growth, deployment of liquidity, a deceleration of prepayments and further deposit cost reductions.
Regarding fee revenue, the expected decline in mortgage activity is likely to be largely offset by increases in most other categories, including core banking fees, as well as fiduciary and asset management fees. The company’s investment in treasury and payment solutions, the recently launched merchant program and various wealth management businesses are expected to provide added momentum throughout 2021. Overall, total adjusted revenues are expected to decline 1% to 4% in 2021.
The company seeks to invest about $20 million in technology and digital activities planned for 2021. On average, it expects adjusted expenses to decline between 2% and 5% in 2021. Management continues to assess, challenge and target all expense categories as it looks to improve efficiency and effectiveness and remain committed to positive operating leverage over the long term. A large portion of the annual decrease will be realized in the second half of 2021, as seasonal increases in employment tax and the previously mentioned investments in digital and technology will be more front loaded.
CET1 ratio of 9.5% is expected in 2021. The company expects an effective tax rate of 23% to 25%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 13.78% due to these changes.
At this time, Synovus has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Synovus has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.