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Why Is Synovus (SNV) Down 0.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Synovus Financial (SNV - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Synovus due for a breakout? 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 Q3 Earnings & Revenue Beat Estimates

Synovus reported third-quarter 2021 adjusted earnings of $1.20 per share, which beat the Zacks Consensus Estimate of $1.07 per share, aided by solid revenues. Also, the bottom line compares favorably with the earnings of 89 cents per share recorded in the year-ago quarter.

Results were driven by rising net interest and fee income, lower expenses, as well as reversal of provisions. Solid loan and deposit balances stoked organic growth. However, shrinking net interest margin was the undermining factor.

Net income available to common shareholders came in at $178.5 million or $1.21 per share compared with the $83.3 million or 56 cents per share recorded in the prior-year quarter.

Revenues Rise, Expenses Down, Loans and Deposits Up

Total revenues in the third quarter came in at $499.87 million, up 1.7% from the prior-year quarter. Also, the top line outpaced the Zacks Consensus Estimate of $488.03 million.

NII increased 2% year over year to $384.9 million. However, net interest margin shrunk 9 basis points (bps) to 3.01%.

Non-interest income increased marginally on a year-over-year basis to $114.9 million. Rise in all components, except mortgage banking income, capital markets income and net investment securities losses, led to this upside.

Non-interest expenses were $267 million, down 16% year on year. This downside mainly resulted from all components other than a rise in net occupancy, equipment, and software expenses.

Adjusted tangible efficiency ratio came in at 52.96% compared with 53.83% reported in the year-earlier quarter. A fall in this ratio indicates an improvement in profitability.

Total deposits came in at $47.7 billion, up 1.1% sequentially. Moreover, total loans showed a marginal improvement sequentially, coming in at $38.3 billion.

Improved Credit Quality

Synovus’ credit metrics witnessed a robust performance during the September-end quarter.

Non-performing loans fell 8% year over year to $155.5 million. Net charge-offs decreased 28% to $20.5 million. The annualized net charge-off ratio was 0.22% compared with the year-ago quarter’s 0.29%.

Further, reversal of provision for credit losses of $7.9 million was recorded in the third quarter against provision expenses of $43.4 million in the prior-year quarter.

Total non-performing assets amounted to $172.4 million, underlining a 10.3% year-over-year fall. Non-performing loan ratio came in at 0.45%, shrinking 4 bps sequentially.

Mixed Capital Position, Profitability Ratios Improve

Tier 1 capital ratio and total risk-based capital ratio were 10.83% and 12.96%, respectively, compared with 10.57% and 13.16% as of Sep 30, 2020.

Moreover, as of Sep 30, 2021, Common Equity Tier 1 (CET1) capital ratio (fully phased-in) was 9.63% compared with 9.3% witnessed in the year-ago quarter. Tier 1 leverage ratio was 8.82% compared with 8.48% recorded in the year-earlier period.

Return on average assets was 1.34% compared with the prior-year quarter’s 0.69%. Return on average common equity was 14.96%, up from the prior-year quarter’s 7.28%.

Outlook

Fourth Quarter 2021

Fourth-quarter non-interest revenues are expected to decline sequentially due to the ongoing normalization of mortgage fee income, seasonality of its brokerage business and absence of others seen in the third quarter.

The net interest margin is expected to remain under pressure due to the excess liquidity environment. Fourth-quarter adjusted non-interest expenses are likely to be in line with the third-quarter reported level.

The company expects paycheck protection program (PPP) fees to decline $8-$12 million in the fourth quarter.

2021

Excluding all paycheck protection program balance changes and third-party consumer loans, the company expects period-end loan growth at the lower end of 2-4%.

Total adjusted revenues (non-GAAP) are expected to be in the higher end of -1% to 1%. It expects adjusted non-interest expenses (non-GAAP) to decline between 1% and 2%. This excludes fees associated with additional phases of Synovus Forward.

CET1 ratio of less or equal 9.5% is expected. The company expects an effective tax rate of in the lower half of 22-24%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Synovus has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Synovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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