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Why Is Synovus (SNV) Up 7.3% Since Last Earnings Report?
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A month has gone by since the last earnings report for Synovus Financial (SNV - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synovus due for a pullback? 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 catalysts.
Synovus' Q4 Earnings Miss on Higher Costs, Revenues Up
Synovus Financial’s fourth-quarter 2018 adjusted earnings of 92 cents per share lagged the Zacks Consensus Estimate of 94 cents. However, the reported figure came in 27.8% higher than the prior-year tally.
Strong loans & deposit balances contributed to higher revenues. Other positives include lower efficiency ratio and improved credit quality. However, these positives were partially offset by elevated expenses.
Including certain non-recurring items, net income available to common shareholders came in at $102 million or 87 cents per share compared with $27 million or 23 cents per share recorded in the prior-year quarter.
Adjusted earnings per share for 2018 increased to $3.64, up 43.8% from the prior year. Net income available to common shareholders was $410 million or $3.64 per share compared with $265 million or $2.53 per share recorded in 2017.
Revenues Improve, Adjusted Expenses Rise
Total adjusted revenues in the fourth quarter came in at $365.9 million, up 7.9% year over year. However, the top line lagged the Zacks Consensus Estimate of $370.8 million.
Total adjusted revenues for 2018 came in at $1.43 billion, up 4.4% year over year. Yet, the figure missed the Zacks Consensus Estimate of $1.44 billion.
Net interest income increased 10.5% year over year to $297.9 million. Further, net interest margin expanded 27 basis points (bps) year over year to 3.92%.
Non-interest income dropped 2% on a year-over-year basis to $68 million, mainly due to lower mortgage banking income, net decrease in fair value of private equity investments and other non-interest income. Adjusted non-interest income came in at $70.1 million, up 1.2% year over year.
Non-interest expenses were $209.9 million, down 7.3% year over year. Notably, decrease in almost all components of expenses resulted in this downside, partially offset by higher net occupancy and equipment expense, professional fees, merger-related expenses, and net restructuring charges. However, adjusted non-interest expenses came in at $206.1 million, up 2.5% from the prior-year quarter.
Adjusted efficiency ratio came in at 55.98% compared with 59.29% reported in the year-earlier quarter. A decline in efficiency ratio indicates improvement in profitability.
Total deposits came in at $26.7 billion, up 1.1% sequentially. Net loans climbed 1.5% from the end of the third quarter to $25.7 billion.
Credit Quality: A Mixed Bag
Credit quality remained a mixed bag for Synovus in the quarter under review.
Non-performing loans were down 7.6% year over year to $106.7 million. The non-performing loan ratio came in at 0.41%, shrinking 6 bps year over year.
Also, total non-performing assets amounted to $114.5 million, reflecting a decline of 12.4% year over year. The non-performing asset ratio contracted 9 bps year over year to 0.44%.
However, net charge-offs surged 45.3% year over year to $13 million. The annualized net charge-off ratio was 0.20%, up 5 bps from the year-ago quarter. Provision for loan losses climbed 41.8% year over year to $12.1 million.
Strong Capital Position
Synovus’ Tier 1 capital ratio and total risk based capital ratio came in at 10.7% and 12.47%, respectively, compared with 10.38% and 12.23% recorded as of Dec 31, 2017.
Additionally, as of Dec 31, 2018, the bank’s Common Equity Tier 1 Ratio (fully phased-in) was 10.04% compared with 9.99% witnessed in the year-ago quarter. The Tier 1 Leverage ratio was 9.60% compared with 9.19% in the comparable period last year.
Capital Deployment Update
During the quarter under review, the company repurchased common stock worth $40 million, while for 2018, shares worth $175 million were repurchased.
Further, Synovus board of directors authorized a new share repurchase program of up to $400 million of the company’s common stock, which will be executed during 2019. In addition, the company has approved a 20% hike in its quarterly dividend, effective from April 2019.
Notably, share repurchases worth $300 million to $350 million is expected.
Outlook
For 2019, management projects average total deposit and loan growth of around 5.5-7.5%, with deposits growing at a pace that supports loan growth, while maintaining an appropriate loan-to-deposit ratio consistent with earnings operating range of 95% to 97%.
Total revenues are projected to increase 5.5-7.5%, in line with the company’s balance sheet growth expectation. The outlook assumes no short-term rate hikes in 2019, and the post-merger adjusted NIM is likely to compress slightly as a result of the flatness of the current yield curve and the company’s plans to optimize the capital stack.
Adjusted total non-interest expenses are projected to increase 2-4%, net of synergies related to the FCB acquisition. Merger-related cost savings are likely to exceed $25 million, well ahead of original 2019 estimate of $20 million.
The company expects net charge-off ratio of 15-20 bps.
Management expects the tax rate to be at 23-24% in 2019.
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 -7.45% due to these changes.
VGM Scores
Currently, Synovus has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.
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Why Is Synovus (SNV) Up 7.3% Since Last Earnings Report?
A month has gone by since the last earnings report for Synovus Financial (SNV - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synovus due for a pullback? 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 catalysts.
Synovus' Q4 Earnings Miss on Higher Costs, Revenues Up
Synovus Financial’s fourth-quarter 2018 adjusted earnings of 92 cents per share lagged the Zacks Consensus Estimate of 94 cents. However, the reported figure came in 27.8% higher than the prior-year tally.
Strong loans & deposit balances contributed to higher revenues. Other positives include lower efficiency ratio and improved credit quality. However, these positives were partially offset by elevated expenses.
Including certain non-recurring items, net income available to common shareholders came in at $102 million or 87 cents per share compared with $27 million or 23 cents per share recorded in the prior-year quarter.
Adjusted earnings per share for 2018 increased to $3.64, up 43.8% from the prior year. Net income available to common shareholders was $410 million or $3.64 per share compared with $265 million or $2.53 per share recorded in 2017.
Revenues Improve, Adjusted Expenses Rise
Total adjusted revenues in the fourth quarter came in at $365.9 million, up 7.9% year over year. However, the top line lagged the Zacks Consensus Estimate of $370.8 million.
Total adjusted revenues for 2018 came in at $1.43 billion, up 4.4% year over year. Yet, the figure missed the Zacks Consensus Estimate of $1.44 billion.
Net interest income increased 10.5% year over year to $297.9 million. Further, net interest margin expanded 27 basis points (bps) year over year to 3.92%.
Non-interest income dropped 2% on a year-over-year basis to $68 million, mainly due to lower mortgage banking income, net decrease in fair value of private equity investments and other non-interest income. Adjusted non-interest income came in at $70.1 million, up 1.2% year over year.
Non-interest expenses were $209.9 million, down 7.3% year over year. Notably, decrease in almost all components of expenses resulted in this downside, partially offset by higher net occupancy and equipment expense, professional fees, merger-related expenses, and net restructuring charges. However, adjusted non-interest expenses came in at $206.1 million, up 2.5% from the prior-year quarter.
Adjusted efficiency ratio came in at 55.98% compared with 59.29% reported in the year-earlier quarter. A decline in efficiency ratio indicates improvement in profitability.
Total deposits came in at $26.7 billion, up 1.1% sequentially. Net loans climbed 1.5% from the end of the third quarter to $25.7 billion.
Credit Quality: A Mixed Bag
Credit quality remained a mixed bag for Synovus in the quarter under review.
Non-performing loans were down 7.6% year over year to $106.7 million. The non-performing loan ratio came in at 0.41%, shrinking 6 bps year over year.
Also, total non-performing assets amounted to $114.5 million, reflecting a decline of 12.4% year over year. The non-performing asset ratio contracted 9 bps year over year to 0.44%.
However, net charge-offs surged 45.3% year over year to $13 million. The annualized net charge-off ratio was 0.20%, up 5 bps from the year-ago quarter. Provision for loan losses climbed 41.8% year over year to $12.1 million.
Strong Capital Position
Synovus’ Tier 1 capital ratio and total risk based capital ratio came in at 10.7% and 12.47%, respectively, compared with 10.38% and 12.23% recorded as of Dec 31, 2017.
Additionally, as of Dec 31, 2018, the bank’s Common Equity Tier 1 Ratio (fully phased-in) was 10.04% compared with 9.99% witnessed in the year-ago quarter. The Tier 1 Leverage ratio was 9.60% compared with 9.19% in the comparable period last year.
Capital Deployment Update
During the quarter under review, the company repurchased common stock worth $40 million, while for 2018, shares worth $175 million were repurchased.
Further, Synovus board of directors authorized a new share repurchase program of up to $400 million of the company’s common stock, which will be executed during 2019. In addition, the company has approved a 20% hike in its quarterly dividend, effective from April 2019.
Notably, share repurchases worth $300 million to $350 million is expected.
Outlook
For 2019, management projects average total deposit and loan growth of around 5.5-7.5%, with deposits growing at a pace that supports loan growth, while maintaining an appropriate loan-to-deposit ratio consistent with earnings operating range of 95% to 97%.
Total revenues are projected to increase 5.5-7.5%, in line with the company’s balance sheet growth expectation. The outlook assumes no short-term rate hikes in 2019, and the post-merger adjusted NIM is likely to compress slightly as a result of the flatness of the current yield curve and the company’s plans to optimize the capital stack.
Adjusted total non-interest expenses are projected to increase 2-4%, net of synergies related to the FCB acquisition. Merger-related cost savings are likely to exceed $25 million, well ahead of original 2019 estimate of $20 million.
The company expects net charge-off ratio of 15-20 bps.
Management expects the tax rate to be at 23-24% in 2019.
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 -7.45% due to these changes.
VGM Scores
Currently, Synovus has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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.