Synovus Financial Corporation (SNV) reported its third-quarter 2012 net income of 2 cents per share, in line with the Zacks Consensus Estimate and the year-ago quarter. Net income came in at $16.0 million compared with $15.7 million in the prior-year quarter.
The company's performance was buoyed by improved credit trends with a significant decline in credit costs along with continued expense control. Yet, lower revenue aided by reduced net interest income was a dampener.
Performance in Detail
Total revenue plunged 22.7% to $320.9 million from $415.4 million in the year-ago period. The decrease resulted from both lower non-interest and interest income. However, revenue surpassed the Zacks Consensus Estimate of $282.0 million.
Net interest income decreased 7.1% to $212.3 million from $228.6 million in the year-ago period, primarily due to lower interest income. However, net interest margin was 3.51%, up 4 basis points (bps) year over year.
Non-interest income plummeted 45.1% to $73.2 million in the quarter from $133.4 million in the year-ago period. The decline was primarily due to lower bankcard fees, reduced investment securities gains and a decline in fiduciary and asset management fees. These negatives were partially offset by a rise in mortgage banking income.
Total non-interest expenses dropped 14.0% year over year to $191.5 million. The drop in expenses was mainly due to lower FDIC insurance and other regulatory fees, reduced foreclosed real estate expenses along with low restructuring charges. Total credit costs dropped 39.9% to $85.6 million from $142.5 million in the prior-year quarter.
For Synovus, credit quality improved significantly during the quarter. Net charge-offs were $96.5 million, down 30.3% from $138.3 million in the prior-year quarter. Moreover, the annualized net charge-off ratio was 1.97%, down from 2.72% in the prior-year comparable quarter.
Non-performing loan inflows were $114.8 million, reflecting a 48.3% plunge from $222.0 million in the comparable quarter last year. Additionally, non-performing loans, excluding loans held for sale, were $700.2 million as of September 30, 2012, down 19.7% from the prior-year quarter. The non-performing loan ratio was 3.55%, down from 4.34% as of September 30, 2011.
Total non-performing assets were $899.4 million, down 22.8% year over year. The non-performing asset ratio was 4.51% compared with 5.71% in the year-ago quarter. Total delinquencies (consisting of loans 30 or more days past due and still accruing) were 0.55% of total loans, down from 0.99% as of September 30, 2011.
As of September 30, 2012, Tier 1 capital ratio and Tier 1 common equity ratio increased to 13.23% and 8.73%, respectively, compared with prior-year quarter's ratios of 12.97% and 8.50%, respectively. Moreover, Tier 1 leverage ratio improved to 10.97% from 9.87% in the prior-year quarter.
Total deposits were $20.8 billion, down 9.8% from $23.1 billion in the year-ago quarter. Yet, total core deposits increased 4.9% year over year to $19.9 billion.
The effective cost of core deposits continued to decline, with an effective cost of 34 basis points, down from 62 basis points in the prior-year quarter.
We believe Synovus is in a recovery phase, driven by lower non-performing assets and improving operating efficiencies, which should make the company more profitable in the upcoming quarters. Furthermore, the company's planned expense-saving initiatives will act as a positive catalyst. However, repayment of funds, generated through Troubled Asset Relief Program (TARP), is unlikely to take place in the near term.
Shares of Synovus currently retain a Zacks #3 Rank, which translates to a short-term Hold rating. However, among its peers, Cardinal Financial Corp. (CFNL) retains a Zacks #1 Rank (a short-term Strong Buy rating).