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 Q2 Earnings Beat Estimates, Provisions Fall
Synovus reported second-quarter 2021 adjusted earnings of $1.20 per share, which handily beat the Zacks Consensus Estimate of $1.03 per share, aided by solid mortgage banking income. Also, the bottom line compares favorably with the earnings of 23 cents per share recorded in the year-ago quarter.
Results were driven by rising NII, lower expenses and reversal of provisions. Moreover, solid capital position stoked organic growth. However, lower non-interest income and loans were undermining factors.
Including certain non-recurring items, net income available to common shareholders came in at $177.9 million or $1.19 per share compared with the $84.2 million or 57 cents recorded in the prior-year quarter.
Revenues Fall on Lower Non-Interest Income, Expenses Down
Adjusted revenues (fully tax-equivalent basis) in the second quarter came in at $488.95 million, down 11.1% from the prior-year quarter. Yet, the top line outpaced the Zacks Consensus Estimate by 0.98%.
NII inched up 1.4% year over year to $381.9 million. However, net interest margin shrunk 11 basis points (bps) to 3.02%.
Non-interest income plunged 38% on a year-over-year basis to $107.1 million. Fall in mortgage banking, income from bank-owned life insurance, capital markets income and other non-interest revenues led to this downside.
Non-interest expenses were $270.5 million, down 5% year over year. This upside mainly resulted from lower professional fees, FDIC insurance and other regulatory fees and Other operating expenses.
Adjusted tangible efficiency ratio came in at 54.41% compared with the 57.71% reported in the year-earlier quarter. A fall in ratio indicates an improvement in profitability.
Total deposits were $47.2 billion, down 0.4% sequentially. Also, total loans fell 4.2% sequentially to $38.2 billion.
Credit Quality: A Mixed Bag
Synovus’ credit metrics witnessed a mixed performance during the June-end quarter.
Non-performing loans rose 9% year over year to $161 million. Net charge-offs increased 10% to $26.5 million. The annualized net charge-off ratio was 0.28% compared with the year-ago quarter’s 0.24%. Total non-performing assets amounted to $177.8 million, underlining a marginal year-over-year jump.
Reversal of provision for credit losses of $24.6 million was recorded in the second quarter against provision expense of $141.9 in the prior-year quarter. Non-performing loan ratio came in at 0.46%, shrinking 4 bps sequentially.
Robust Capital & Profitability Ratio
Tier 1 capital ratio and total risk-based capital ratio were 10.99% and 13.25%, respectively, compared with 10.15% and 12.70% as of Jun 30, 2020.
Moreover, as of Jun 30, 2021, Common Equity Tier 1 Ratio (fully phased-in) was 9.75% compared with the 8.90% witnessed in the year-ago quarter. Tier 1 Leverage ratio was 8.72% compared with the 8.38% recorded in the year-earlier period.
Return on average assets was 1.36% compared with the prior-year quarter’s 0.71%. Return on average common equity was 15.40%, up from the 7.48%.
Excluding all paycheck protection program balance changes and third-party consumer loan, the company expects period-end loan growth at the low end of 2-4% for 2021.
Overall, total adjusted revenues are expected to decline 1% and increase 1% in 2021. It expects adjusted non-interest expenses decline between 1% and 2% for 2021.
CET1 ratio of less or equal 9.5% is expected for 2021. The company expects an effective tax rate of 22% to 24%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.06% due to these changes.
Currently, Synovus has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Synovus has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.