A month has gone by since the last earnings report for Synovus Financial (SNV). Shares have lost about 10.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Synovus Q4 Earnings Miss Estimates, Costs Increase
Synovus reported fourth-quarter 2019 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.
In 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 in 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.
In 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.
NII improved 34% to $399.3 million year over year. However, net interest margin shrunk 27 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, up 26.8% year over year. Notably, rise in almost all components of expenses resulted in this increase.
Efficiency ratio was 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.
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.
Management expects NII, excluding purchase accounting adjustments, to grow between 0% and 3%. Purchase accounting adjustments are expected to reduce revenues by about $90 million. Also, net interest margin is anticipated to be down slightly, assuming flat interest rates and similar balance sheet mix.
Adjusted non-interest income is likely to rise 3-6%. Continued growth in fee income is a function of expanding in higher opportunity markets, product areas such as treasury and payment solutions as well as in expansion of the share of wallet with existing relationships.
Adjusted non-interest expenses are projected to increase 3-5%. The primary drivers include continued investments in people, processes and technology that will have relative short-term paybacks. These investments will be partially offset by savings realized during the execution of the company’s strategic efficiency initiatives. In first-quarter 2020, expenses are likely to be little higher due to the seasonal impact of personnel expense.
Management expects period-end assets to grow 4-7%.
The company expects net charge-off ratio of 15-25 bps.
The company plans to repurchase 2-3 million shares in 2020.
Given the current loan growth profile and expectations for the economy, the company anticipates adding up to 10 bps to the allowance for credit losses ratio through 2020 to account for the change in provisioning to the life of loans.
Management expects the tax rate to be 23-25% for 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.7% due to these changes.
Currently, Synovus has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.