A month has gone by since the last earnings report for Synovus Financial (SNV - Free Report) . Shares have lost about 0.7% 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 catalysts.
Synovus’ Q3 Earnings Beat, Revenue Rise
Driven by top-line strength, Synovus Financial’s third-quarter 2018 results reported a positive earnings surprise of 3.3%. Adjusted earnings of 95 cents per share beat the Zacks Consensus Estimate of 92 cents. Also, the reported figure came in 46.2% higher than the prior-year quarter tally.
Higher revenues backed by strong loans & deposit balances drove organic growth. Notably, lower efficiency ratio and improved credit quality were tailwinds. Moreover, positive impact of rising rates was witnessed.
However, escalating expenses impacted investors’ optimism which led shares of Synovus to decline 2.45%, despite an earnings beat.
Including certain non-recurring items, net income available to common shareholders came in at $99.3 million or 84 cents per share compared with $95.4 million or 78 cents per share recorded in the prior-year quarter.
Top Line Robust, Expenses Flare Up
Total adjusted revenues in the third quarter came in at $363 million, up 9.6% year over year. However, the top line lagged the Zacks Consensus Estimate of $367.9 million.
Net interest income increased 11.1% year over year to $291.6 million. Further, net interest margin expanded 26 basis points (bps) year over year to 3.89%.
Non-interest income plunged 47.1% on a year-over-year basis to $71.7 million, including Cabela’s transaction fee, partly offset by investment securities losses. Lower mortgage banking income and other fee and non-interest income remained on the downside. Adjusted non-interest income was $71.2 million, up 4.1% year over year.
Non-interest expenses were $220.3 million, up 7.1% year over year. Adjusted non-interest expenses came in at $201.6 million, up 3.9% from the prior-year quarter. Notably, increase in almost all components of expenses resulted in this upswing, partially offset by lower FDIC insurance and other regulatory fees, foreclosed real estate expense, professional fees, and net restructuring charges.
Adjusted efficiency ratio came in at 55.55%, as compared with 58.59% reported in the year-earlier quarter. A decline in ratio indicates improvement in profitability.
Total deposits came in at $26.4 billion, up year over year marginally. Total net loans climbed 4.5% year over year to $25.3 billion.
Credit Quality: A Mixed Bag
Credit quality was a mixed a bag for Synovus in the reported quarter.
Non-performing loans were up 10.8% year over year to $108.4 million. The non-performing loan ratio came in at 0.42%, expanding 2 bps year over year.
However, total non-performing assets amounted to $117 million, underlining a decline of 15.6% year over year. The non-performing asset ratio shrunk 11 bps year over year to 0.46%.
Net charge-offs slumped 59.8% year over year to $15.3 million. The annualized net charge-off ratio was 0.24%, down 38 bps from the year-earlier quarter. Provision for loan losses plummeted 62.2% year over year to $15 million.
Strong Capital Position
Tier 1 capital ratio and total risk based capital ratio were 10.59% and 12.37%, respectively, compared with 10.43% and 12.30% as of Sep 30, 2017.
Also, as of Sep 30, 2018, Common Equity Tier 1 Ratio (fully phased-in) was 9.92% compared with 10.06% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 9.58% compared with 9.34% in the comparable period last year.
Capital Deployment Update
During the quarter under review, the company repurchased common stock worth $58 million.
For 2018, management projects average total deposits growth of around 4-6%, but average loan guidance of 4% to 6% is expected to be under pressure. Nevertheless, management expects to achieve 4.5% loan growth for 2018, on stronger sales and pipeline momentum.
Given the current interest rate environment as well as expectations around pricing and balance sheet growth, management expects net interest income growth for 2018 to fall within the top end of guidance of 11-13%.
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 also continues to expect the loan loss reserve ratio to remain above 1%.
Management expects the tax rate to be at 21% to 22% 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 a downward trend in fresh estimates.
At this time, Synovus has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Synovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.