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Synovus (SNV) Q1 Earnings Miss, Provisions Up on Coronavirus Woes

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Synovus Financial (SNV - Free Report) reported first-quarter 2020 adjusted earnings of 21 cents per share, missing the Zacks Consensus Estimate of 31 cents. Also, the reported figure comes in 79% lower than the prior-year quarter tally.

Results were negatively impacted by lower net interest income and higher provisions on the coronavirus scare. However, rising fee income and downtrend in expenses were tailwinds, boosting investors’ optimism. This resulted in a 7.7% share-price rally, following the release. Moreover, strong loan and deposit balances stoked organic growth.

Including certain non-recurring items, net income available to common shareholders came in at $30.2 million or 20 cents per share compared with the $117 million or 72 cents per share recorded in the prior-year quarter.

Net Interest Income Falls, Non-Interest Income Up, Expenses Down

Adjusted total revenues in the first quarter came in at $473.4 million, down marginally from the prior-year quarter. However, the top-line figure outpaced the Zacks Consensus Estimate of $459.1 million.

Net interest income declined 6% year over year to $373.3 million. Also, net interest margin shrunk 24 basis points (bps) year over year to 3.35%.

Non-interest income climbed 30.8% on a year-over-year basis to $103.9 million. Rise in almost all components of income drove this upside.

Non-interest expenses came in at $276.3 million, down 5.5% year over year. These decreases mainly resulted from lower FDIC insurance and other regulatory fees, advertising expenses and amortization of intangibles. Higher salaries and other personnel expense, net occupancy and equipment expense, third-party processing and other services, professional fees and other expenses were on the downside.

Adjusted efficiency ratio came in at 56.72% as compared with the 50.24% reported in the year-earlier quarter. A rise in ratio indicates deterioration in profitability.

Total deposits came in at $39.8 billion, up 3.6% sequentially. Total loans climbed 3% sequentially to $38.3 billion.

Credit Quality: A Concern

Credit metrics deteriorated for Synovus in the March-end quarter.

Non-performing loans were up 8.6% year over year to $156.3 million. The non-performing loan ratio came in at 0.41%, up 1 basis point year over year.

Total non-performing assets amounted to $190 million, underlining a rise of 22.3% year over year. The non-performing asset ratio expanded 6 bps year over year to 0.50%.

Net charge-offs climbed 17.5% on a year-over-year basis to $20.1 million. The annualized net charge-off ratio was 0.21%, up 2 bps from the year-earlier quarter. Provision for loan losses increased significantly from the prior-year quarter to $158.7 million on coronavirus concerns and reflecting first quarter under Current Expected Credit Loss (CECL).

Strong Capital Position

Tier 1 capital ratio and total risk based capital ratio were 9.97% and 12.31%, respectively, compared with 10.01% and 12.06% as of Mar 31, 2019.

Also, as of Mar 31, 2020, Common Equity Tier 1 Ratio (fully phased-in) was 8.72% compared with the 9.52% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.94% compared with the 8.81% recorded in the year-earlier period.

Capital-Deployment Update

During the January-March period, the company repurchased 450,000 shares for a total value of $16.2 million in common stock. Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” from the coronavirus pandemic.
 
Our Take

Synovus’ results were decent in the March-end quarter. We believe the company’s focus on both organic and inorganic growth, together with its cost-containment efforts, will pay off and aid bottom-line expansion in subsequent years. Though elevated fee income and lower expenses indicate optimism, lower net interest income and higher provisions raise concerns.
 

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

Currently, Synovus carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Evercore (EVR - Free Report) reported first-quarter 2020 adjusted earnings per share of $1.21, beating the Zacks Consensus Estimate of $1.03. However, results were down 27% from the prior-year quarter’s $1.66 per share.

PNC Financial (PNC - Free Report) delivered first-quarter earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38 amid coronavirus concerns. The bottom line, however, reflected a 25.3% decline from the prior-year quarter’s reported figure.

Regions Financial (RF - Free Report) recorded adjusted earnings of 15 cents per share in the March-end quarter, missing the Zacks Consensus Estimate of 19 cents. The figure plummeted 59.5%, year over year.

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