It has been about a month since the last earnings report for Synovus Financial Corp. (SNV - Free Report) . Shares have added about 5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SNV 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 catalysts.
Synovus Beats Q1 Earnings Estimates, Revenues Rise
Driven by top-line strength, Synovus pulled off a positive earnings surprise of 10.3% in first-quarter 2018. Adjusted earnings of 86 cents per share beat the Zacks Consensus Estimate of 78 cents. Also, the reported figure came in 50.9% higher than the prior-year quarter tally.
Higher revenues backed by strong loans & deposits balances drove organic growth. Notably, lower efficiency ratio and improved credit quality were the tailwinds. Moreover, positive impact of rising rates was witnessed. However, escalating expenses remain a concern.
Including certain non-recurring items, net income available to common shareholders came in at $100.6 million or 84 cents per share compared with $69.3 million or 56 cents per share recorded in the prior-year quarter.
Top-Line Strength Reflected, Expenses Flare Up
Total adjusted revenues in the first quarter were $344.4 million, up 10.5% year over year.
NII increased 14.3% year over year to $274.3 million. Further, net interest margin expanded 36 bps year over year to 3.78%.
Non-interest income decreased 6.7% on a year-over-year basis to $67 million, including net decreased fair value of private equity investments.
Lower mortgage banking income was on the downside. Adjusted non-interest income was $70.1 million, up 6.2% year over year.
Non-interest expenses were $195.2 million, down 1.1% year over year, including lower litigation contingency accruals. Adjusted non-interest expenses came in at $197.8 million, up 3.8% from the prior-year quarter. Notably, increase in almost all components of expenses led to the rise, partially offset by lower advertising expenses, foreclosed real estate expense and other operating expenses.
Adjusted efficiency ratio came in at 57.42% compared with 62.25% reported in the year-earlier quarter. A decline in ratio indicates improvement in profitability.
Total deposits came in at $26.3 billion, up 4.6% year over year. Total net loans climbed 2.6% to $24.9 billion.
Credit Quality Marks Improvement
Credit quality metrics for Synovus improved in the quarter.
Net charge-offs plunged 37.7% year over year to $4.3 million. The annualized net charge-off ratio was 0.07%, down 5 bps from the year-earlier quarter. Provision for loan losses slipped 47.3% to $12.8 million.
Non-performing loans were down 24.2% year over year to $120.1 million. The non-performing loan ratio came in at 0.48%, contracting 17 bps.
Additionally, total non-performing assets amounted to $131.2 million, underlining a decline of 29.9% year over year. The non-performing asset ratio shrunk 24 bps to 0.53%.
Strong Capital Position
Tier 1 capital ratio and total risk-based capital ratio were 10.51% and 12.37%, respectively, compared with 10.18% and 12.08% as of Mar 31, 2017.
Also, as of Mar 31, 2018, Common Equity Tier 1 Ratio (fully phased-in) was 10.01% compared with 9.63% in the year-ago quarter. Tier 1 Leverage ratio was 9.37% compared with 9.13% a year ago.
Capital Deployment Update
During the quarter under review, the company repurchased common stock worth $26.7 million.
For 2018, management projects average loan and average total deposits growth of around 4-6%.
Net interest income is projected to grow in the range of 11-13%, on assumptions of a 25 bps rate hike in September.
Also, management remains focused on achieving adjusted non-interest income growth of 4-6%.
Total non-interest expenses are projected to increase 0-3%. Also, management expects to maintain positive operating leverage.
The company expects net charge-off ratio of 15-25 bps.
Management expects the tax rate to be 23% to 24% in 2018.
The company expects EPS (earnings per share) to grow more than 10%.
Management projects adjusted efficiency ratio to be lower than 60%.
Ongoing efficiency initiative is expected to result in annual savings of approximately $2.5 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter
Synovus Financial Corp. Price and Consensus
At this time, SNV has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise SNV has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.