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Synovus (SNV) to See $23M NCO in Q3 From Bankrupt Borrower
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Synovus Financial Corp. (SNV - Free Report) has announced that it expects an increase in net charge-offs (NCO) due to exposure in a $218.5-million nationally syndicated credit. The borrower had filed for Chapter 11 bankruptcy on Mar 20, 2023, which was converted into Chapter 7 proceedings on Aug 24, 2023.
SNV had 10.75% participation in a $218.5-million nationally syndicated credit. At the time of Chapter 11 bankruptcy filing, Synovus reported the loan as a non-performing loan. As of the second-quarter 2023 end, there were reserves related to this credit of around 10% of the outstanding loan amount.
Now, after being converted to the Chapter 7 liquidation on Aug 24, 2023, Synovus expects minimal recovery on the loan. This is expected to result in a third-quarter charge-off of $23 million.
The company also recently sold its medical office portfolio, consisting of $1.2 billion of funded loans (or $1.3 billion of total loan commitments). This is expected to result in an after-tax net loss of $21 million in third-quarter 2023. This will be recorded under non-interest expenses. Charge-offs of $23 million related to the sale will not be reflected in the income statement as they were fully reserved in the allowance for credit losses at the end of second-quarter 2023.
Amid these developments, Synovus expects net charge-offs/average loans at or near the high end of its previously stated 0.30-0.40% for the second half of 2023. This includes the expected charge-off and excludes the impacts of the sale of the medical office loan portfolio.
Excluding the charge-off and the sale of its medical office loan portfolio, the net charge-off/average loan ratio is projected to be at or below the lower end of the guided range.
Markedly, the loan portfolio of Synovus comprises majorly commercial and industrial, and commercial real estate loans (80.8% of the total loans as of Jun 30, 2023). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending.
Moreover, in case of any economic downturn, the asset quality of these credit categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials and credit quality if the economic situation worsens.
Over the past six months, shares of SNV have declined 6.3% against the industry’s rise of 3.1%.
Image Source: Zacks Investment Research
Currently, SNV carries a Zacks Rank #4 (Sell).
Finance Stocks Worth a Look
A couple of better-ranked stocks from the same industry are First Business Financial Services (FBIZ - Free Report) and Citizens Financial Services (CZFS - Free Report) .
First Business Financial’s current-year earnings estimates have been unrevised over the past 30 days. FBIZ shares have edged down 0.8% over the past three months. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Citizens Financial Services’ current-year earnings has been revised 74% upward over the past 30 days. Over the past three months, CZFS’ share price has decreased 38.9%. The stock currently carries a Zacks Rank #2.
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Synovus (SNV) to See $23M NCO in Q3 From Bankrupt Borrower
Synovus Financial Corp. (SNV - Free Report) has announced that it expects an increase in net charge-offs (NCO) due to exposure in a $218.5-million nationally syndicated credit. The borrower had filed for Chapter 11 bankruptcy on Mar 20, 2023, which was converted into Chapter 7 proceedings on Aug 24, 2023.
SNV had 10.75% participation in a $218.5-million nationally syndicated credit. At the time of Chapter 11 bankruptcy filing, Synovus reported the loan as a non-performing loan. As of the second-quarter 2023 end, there were reserves related to this credit of around 10% of the outstanding loan amount.
Now, after being converted to the Chapter 7 liquidation on Aug 24, 2023, Synovus expects minimal recovery on the loan. This is expected to result in a third-quarter charge-off of $23 million.
The company also recently sold its medical office portfolio, consisting of $1.2 billion of funded loans (or $1.3 billion of total loan commitments). This is expected to result in an after-tax net loss of $21 million in third-quarter 2023. This will be recorded under non-interest expenses. Charge-offs of $23 million related to the sale will not be reflected in the income statement as they were fully reserved in the allowance for credit losses at the end of second-quarter 2023.
Amid these developments, Synovus expects net charge-offs/average loans at or near the high end of its previously stated 0.30-0.40% for the second half of 2023. This includes the expected charge-off and excludes the impacts of the sale of the medical office loan portfolio.
Excluding the charge-off and the sale of its medical office loan portfolio, the net charge-off/average loan ratio is projected to be at or below the lower end of the guided range.
Markedly, the loan portfolio of Synovus comprises majorly commercial and industrial, and commercial real estate loans (80.8% of the total loans as of Jun 30, 2023). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending.
Moreover, in case of any economic downturn, the asset quality of these credit categories might deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials and credit quality if the economic situation worsens.
Over the past six months, shares of SNV have declined 6.3% against the industry’s rise of 3.1%.
Image Source: Zacks Investment Research
Currently, SNV carries a Zacks Rank #4 (Sell).
Finance Stocks Worth a Look
A couple of better-ranked stocks from the same industry are First Business Financial Services (FBIZ - Free Report) and Citizens Financial Services (CZFS - Free Report) .
First Business Financial’s current-year earnings estimates have been unrevised over the past 30 days. FBIZ shares have edged down 0.8% over the past three months. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Citizens Financial Services’ current-year earnings has been revised 74% upward over the past 30 days. Over the past three months, CZFS’ share price has decreased 38.9%. The stock currently carries a Zacks Rank #2.