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Synovus (SNV) Stock Falls 7% as Q4 Earnings Miss, Costs Rise

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Synovus Financial’s SNV shares lost 7.1% in response to fourth-quarter 2019 results. The company reported adjusted earnings of 94 cents per share, lagging the Zacks Consensus Estimate of 97 cents. However, the bottom line was 3.1% higher than the prior-year quarter figure.

Escalating expenses and provisions were the undermining factors. However, higher revenues along with strong loan and deposit balances supported the company’s performance. Lower efficiency ratio was another positive.

Including certain non-recurring items, net income available to common shareholders came in at $143.4 million or 97 cents per share compared with $101.9 million or 87 cents per share recorded in the prior-year quarter.

For 2019, adjusted earnings of $3.90 per share jumped 7.3% from the prior year. Also, it outpaced the consensus estimate of $3.66. After adjustments, net income available to common shareholders came at 540.9 million or $3.47 per share compared with $410.5 million or $3.47 for 2018.

Top Line Rises, Expenses Flare Up

Total revenues for the fourth quarter came in at $497.2 million, up 35.9% year over year. Further, the top line outpaced the consensus estimate of $483.9 million. Also, adjusted total revenues of $492.1 million improved 33.6% year over year.

For 2019, total revenues were $2 billion, up 36.6%. Also, the top line surpassed the Zacks Consensus Estimate of $1.9 billion. Further, adjusted total revenues of $2 billion increased 35.9% from prior year.

Net interest income (NII) improved 34% to $399.3 million year over year. However, net interest margin shrunk 27 basis points (bps) to 3.65%.

Non-interest income climbed 44.1% to $98 million, including a favorable adjustment in the fair value of private equity investments. Rise in almost all components of income drove this upside.

Non-interest expenses were $266.1 million, flaring up 26.8% year over year. Notably, rise in almost all components of expenses resulted in this increase.

Efficiency ratio came in at 53.44% compared with 57.34% reported in the year-earlier quarter. A decline in ratio indicates improvement in profitability.

Total deposits totaled $38.4 billion, increasing 2.6% sequentially. Total loans climbed 2% from the prior quarter to $37.2 billion.

Credit Quality: Mixed Bag

Non-performing loans were down 4.8% year over year to $101.6 million. Non-performing loan ratio came in at 0.27%, contracting 14 bps.

However, total non-performing assets amounted to $137.5 million, rising 20.1% year over year. Non-performing asset ratio shrunk 7 bps to 0.37%.

Also, net charge-offs rose 32.4% on a year-over-year basis to $8.8 million. Annualized net charge-off ratio was 0.10%, down 10 bps. Provision for loan losses was up significantly to $24.5 million.

Capital Position

Tier 1 capital ratio and total risk-based capital ratio were 10.24% and 12.25%, respectively, compared with 10.61% and 12.37% as of Dec 31, 2018.

Also, as of Dec 31, 2019, Common Equity Tier 1 Ratio (fully phased-in) was 8.94% compared with 9.92% in the year-ago quarter. Tier 1 Leverage ratio was 9.16% compared with 9.60% recorded a year ago.

Capital Deployment Update

During the quarter, the company repurchased $36.5 million in common stock or 1.1 million shares. Concurrent with the results, the company announced a dividend hike of 10%, bringing the quarterly amount to 33 cents per share. The increase will be effective April 2020.

2020 Outlook

Management expects NII, excluding purchase accounting adjustments, to grow between 0% and 3%. Also, adjusted non-interest income is likely to rise 3-6%.

Adjusted non-interest expenses are projected to increase 3-5%.

Our Take

Synovus’ December-ended quarter results were not impressive. Despite certain cost-saving initiatives, the company’s investments in technology and talent, and to improve customer experience have kept expenses on the higher end. Also, escalating provisions remain a concern. However, the bank’s focus on organic growth, together with its strong capital and balance sheet position, is likely to aid top-line expansion.

Synovus Financial Corp. Price, Consensus and EPS Surprise

Synovus Financial Corp. Price, Consensus and EPS Surprise

Synovus Financial Corp. price-consensus-eps-surprise-chart | Synovus Financial Corp. Quote

Zacks Rank

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

State Street’s STT fourth-quarter 2019 adjusted earnings of $1.98 per share outpaced the Zacks Consensus Estimate of $1.70. Also, the figure was 18.6% above the prior-year quarter level.

People's United Financial Inc. PBCT reported fourth-quarter 2019 operating earnings of 37 cents per share, which surpassed the Zacks Consensus Estimate of 33 cents. Also, the bottom line increased 2.8% year over year.

Riding on higher mortgage banking fees, Citizens Financial Group (CFG - Free Report) delivered a positive earnings surprise of 3.1% in fourth-quarter 2019. Adjusted earnings per share came in at 99 cents, beating the Zacks Consensus Estimate of 96 cents. Also, the bottom line rose 1% year over year.

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