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Synovus (SNV) Tops Q1 Earnings, Buys Cabela's Financial Unit

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Riding on higher revenues, Synovus Financial Corporation (SNV - Free Report) recorded a positive earnings surprise of 11.8% in first-quarter 2017. Adjusted earnings of 57 cents per share beat the Zacks Consensus Estimate of 51 cents. Also, the reported figure was up 29.8% from the prior-year quarter tally.

Higher revenues backed by strong loans & deposits balances drove organic growth. Moreover, improvement in credit quality was a positive factor, with a fall in provisions. However, escalating expenses remain a concern.

Net income available to common shareholders came in at $69.3 million or 56 cents per share compared with $50.0 million or 39 cents recorded in the prior-year quarter.

Synovus turned out to be a potential buyer of the financial unit of outdoor goods retailer, Cabela's Incorporated . The bank entered into a definitive agreement to buy Cabela's banking operation – World's Foremost Bank – which issues store-branded credit cards. Further, the bank will subsequently resell the credit card portfolio to Virginia-based Capital One Financial Corporation (COF - Free Report) on closing of the deal, while holding back about $1.2 billion brokered time deposit portfolio. Per the terms, Synovus will get $75 million from Cabela’s and Capital One.
 

Organic Growth Recorded, Expenses Moved Up

Total revenue in the first quarter was $304.1 million, up 8.1% year over year. In addition, the top line outpaced the Zacks Consensus Estimate of $301.9 million.

Net interest income increased 10.0% year over year to $239.9 million. Further, net interest margin expanded 15 basis points (bps) year over year to 3.42%.

Non-interest income climbed 13.8% year over year to $71.8 million, primarily on rise in most of expense components. Adjusted non-interest income was $66.0 million, up 3.9% year over year.

On the other hand, total non-interest expenses were $197.4 million, up 4.9% year over year, while adjusted non-interest expenses came in at $190.6 million, up 6.4% from the prior year. Notably, non-interest expenses displayed a rise in almost all components of expenses.

Total deposits came in at $25.1 billion, up 7.3% year over year. Total net loans climbed 6.7% year over year to $24.0 billion.

Credit Quality Improved

Credit quality metrics for Synovus improved in the quarter.

Net charge-offs were $6.9 million, down 6% on a year-over-year basis. The annualized net charge-off ratio was 0.12%, down 1 bp from the prior-year quarter. Provision for loan losses decreased 7.5% year over year to $8.7 million from $9.4 million as of Mar 2016.

Non-performing loans, excluding loans held for sale, were down 11.1% year over year to $158.4 million. The non-performing loan ratio was 0.65%, down 13 bps year over year.

Additionally, total non-performing assets amounted to $187.2 million, reflecting a decline of 13.6% year over year. The non-performing asset ratio contracted 18 bps year over year to 0.77%.

Capital Position: A Mixed Bag

Tier 1 capital ratio and total risk based capital ratio were 10.18% and 12.09%, respectively, compared with 10.04% and 12.25% as of Mar 31, 2016.

Further, as of Mar 31, 2017, Common Equity Tier 1 Ratio (fully phased-in) was 9.63% compared with 9.47% in the prior-year quarter. Tier 1 Leverage ratio was 9.13% compared with 9.15% in the year-ago quarter.

Capital Deployment Update

During the first quarter, the company repurchased common stock worth $15.1 million.

Our Take

Synovus’ results were quite decent in the quarter. We believe that the company’s focus on both organic and inorganic growth, together with cost containment efforts, will pay off and aid bottom-line expansion in the subsequent years. However, escalating expenses and stringent regulations continue to raise concerns.
 

Synovus Financial Corp. Price, Consensus and EPS Surprise

 

Synovus Financial Corp. Price, Consensus and EPS Surprise | Synovus Financial Corp. Quote

Currently, Synovus carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Citigroup Inc. (C - Free Report) delivered a positive earnings surprise of 8.9% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results reflect one-time adjustments of 1 cent.

Driven by net interest income, Wells Fargo & Company’s (WFC) first-quarter 2017 earnings recorded a positive surprise of about 3.1%. Earnings of $1.00 per share outpaced the Zacks Consensus Estimate by 3 cents. Moreover, the figure compared favorably with the prior-year quarter’s earnings of 99 cents per share.

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