Synovus Financial Corp. (SNV) reported adjusted earnings per share of 84 cents for the third quarter of 2023, missing the Zacks Consensus Estimate by 2 cents. This represents a decline of 37.3% compared to the previous year. The results were negatively impacted by the rise in provisions due to the challenging operating outlook, a decrease in net interest income (NII), and higher expenses. However, there was some support from an increase in non-interest revenues and higher interest rates.
Revenues Decline and Expenses Rise
During the third quarter, total revenues fell 5.5% to $550.3 million, exceeding the Zacks Consensus Estimate of $542.5 million. NII decreased by 7.3% to $443.2 million due to higher deposit costs, although this was partially offset by higher asset yields. Non-interest revenues increased by 2.7% to $107.1 million, driven by higher fiduciary and asset management fees, brokerage revenue, card fees, and income from bank-owned life insurance.
Expenses increased by 20.2% to $353.5 million compared to the prior year, primarily due to increases in various expense components. The adjusted tangible efficiency ratio increased to 55.01%, indicating a decrease in profitability. The company reported a 1.5% sequential decrease in total loans to $43.68 billion and a marginal increase in total deposits to $50.2 billion as of September 30, 2023.
Credit Quality Deteriorates
The non-performing loans for Synovus Financial Corp. rose significantly to $280.5 million, leading to a substantial increase in total non-performing assets to the same amount. The non-performing assets ratio increased by 32 basis points to 0.64% from the prior-year quarter. Net charge-offs also increased significantly to $66.8 million, resulting in a net charge-off ratio of 0.61% compared to 0.04% in the previous year. Provision for credit losses was $72.6 million, showing a significant increase from the prior year.
Capital Ratios Improve While Profitability Ratios Decline
As of September 30, 2023, Synovus Financial Corp.’s Tier 1 capital ratio and total risk-based capital ratio improved to 11.18% and 13.12%, respectively, compared to the same quarter last year. The Common Equity Tier 1 capital ratio also increased to 10.13% from 9.52% in the prior year. The Tier 1 leverage ratio improved to 9.38% from 9.04% in the year-earlier period. However, the return on average assets decreased to 0.64% from the previous year’s 1.39%, and the return on average common equity declined to 8.2% from 18.7%.
Our Analysis and Conclusion
While the increase in non-interest revenues is expected to support Synovus Financial Corp.’s finances in the upcoming period, the rising provision for credit losses and operating expenses are concerning. Investors and traders should closely monitor the company’s performance in relation to these factors. At this time, Synovus carries a Zacks Rank #3 (Hold), and further analysis is recommended before making any investment decisions.
Performance of Other Major Banks
In comparison, Wells Fargo & Company (WFC) reported third-quarter adjusted earnings per share of $1.39, beating the Zacks Consensus Estimate by 14 cents. The figure represents a 6.9% increase from the previous year. Citigroup Inc. (C) also surpassed expectations, reporting earnings per share (excluding divestiture-related impacts) of $1.52, surpassing the Zacks Consensus Estimate by 26 cents.
