Synovus Financial Corp ( SNV Quick Quote SNV - Free Report) is well-positioned for decent revenue growth, backed by strong loans and deposits. However, rising expenses on account of technological investments might impede bottom-line growth.
SNV’s loans witnessed a compound annual growth rate (CAGR) of 12.2% in the last five years (2017-2021). In addition, total deposits have seen a CAGR of 13.4% over the past three years ended 2021, backed by continued growth in core transaction deposit accounts.
With the recovery of the U.S economy, the lending scenario is expected to improve in the upcoming period. Notably, management expects period-end loan growth of 6-8% (excluding all paycheck protection program or PPP balances), given the strong loan pipeline, while deposits are anticipated to increase 3-5%.
The company is making significant progress on its "Synovus Forward" initiative, which was announced in March 2020. In 2021, it achieved a pre-tax run-rate benefit of approximately $110 million on the back of organizational efficiency, cost savings, branch consolidations and balance sheet management initiatives.
Efficiency initiatives in 2022 entail the closing of an additional 15% of its branch locations, with an estimated run-rate savings of $12 million by the 2022 end. Through continued real estate optimization and efforts to expand products, Synovus remains on track to achieve total pre-tax run rate savings of $175 million by the 2022 end, with an additional $65 million (comprising $15-$20 million in expense savings and $45-$50 million in revenue benefits).
SNV’s credit quality trends are expected to continue to show broad-based improvement on economic recovery. Although the company recorded provisions expenses of $11.4 million in the first quarter of 2022, the credit quality ratios remain strong and near historic lows. This also shows in the company’s net charge-offs to average loans of 0.19% in the first quarter of 2022, which improved from 0.21% in the prior-year quarter.
However, Synovus has witnessed a rise in expenses. Though costs declined in 2021, the same witnessed a CAGR of 9.9% over the last four years (ended 2021). Further, the rising trend continued in first-quarter 2022. Management expects adjusted non-interest expenses to grow between 3% and 6% in 2022. Longer-term investments in talent, technology and improving customer experiences are expected to inflate expenses and limit its bottom-line expansion.
Long-term debt of $805 million, as of Mar 31, 2022, decreased significantly sequentially, while cash and due from banks of $557.2 million witnessed an uptrend from the prior year. However, given limited liquidity and such a high debt burden, the company might not meet debt obligations in the near term if the economic situation worsens.
The loan portfolio of Synovus comprises majorly commercial and industrial as well as commercial real estate loans. Such high exposure can be risky for the company, especially if the economy and overall real estate sector weaken.
Currently, SNV carries a Zacks Rank #3 (Hold). Over the past year, shares of the company have declined 18.5%, wider than the 12.3% fall recorded by the
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Image Source: Zacks Investment Research Stocks That Warrant a Look
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Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past six months, shares of IBCP have declined 20.6%.
Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 20.2%.