Update: Regional bank Synovus triggers deferred tax asset to push fourth-quarter profit to 78 cents per share

tadams@ledger-enquirer.comJanuary 22, 2013 

Finally triggering an accounting move to save money on its income tax liability, Synovus Financial Corp. reported this morning net income of 78 cents per share in the fourth quarter of 2012.

The company, which has its corporate headquarters in downtown Columbus, posted the profit on net income of $712.8 million.

The performance compares to net income of $12.8 million, or one penny, in the October-December period in 2011.

Without using what is known as a “deferred tax asset” of roughly $800 million in the quarter, Wall Street analysts who follow the regional bank had been expecting a loss of as much as 9 cents per share.

One analyst who follows the company, Kevin St. Pierre of Bernstein Research, issued a quick note following the issuance of the financial report, declaring in his header, “At Long Last, DTA Recovery.” St. Pierre, who has been consistently bullish on Synovus and its outlook, said he rates the bank “outperform” with a target price of $3 per share.

The bank’s stock jumped more than 3 percent, from $2.71 per share to $2.82, out of the gate in trading on the New York Stock Exchange. But only a few minutes into the trading session had floated back down to around the previous day’s close of $2.71 per share.

The deferred tax asset was accrued through the mountain of financial losses Synovus suffered the last several years, with the company digesting a constant flow of loan losses related to the housing market meltdown and Great Recession, along with bad investments in commercial entities such as Sea Island Co., a luxury Georgia resort that went bankrupt and was sold to private investment firms.

Synovus Chairman and Chief Executive Officer Kessel Stelling, in a statement, called the triggering of the deferred tax asset a “huge step” toward the company’s recovery from three years of financial losses that led to two major restructurings that swept about 2,000 employees off the payroll and shuttered a number of bank branches.

“The recapture of the deferred tax asset is a significant milestone that reflects years of progress and further demonstrates our company’s return to a position of strength,” Stelling said. “Additionally, the successful execution of the bulk sale during the fourth quarter accelerates credit quality improvement and also enhances our future financial performance.”

The company noted it dumped a load of “distressed” properties in the fourth quarter, $545 million worth, which included a bulk sale in early December. It took a pre-tax charge, or write-off, of $157 million in the process.

Synovus now will turn its attention to repaying the $968 million it essentially borrowed from the U.S. government and its Troubled Asset Relief Program (TARP). It owes the most of any bank remaining in the program. Stelling has said that move could occur sometime between the second quarter (April-June) and the end of this year.

Naturally, the deferred tax asset also boosted full-year earnings for Synovus. It recorded a profit of 85 cents per share on net income of $775 million. That compares to a loss of nearly $119 million, or 15 cents per share, for all of 2011.

Synovus has offices throughout the Southeast, in Georgia, Alabama, Florida, South Carolina and Tennessee. Locally, it is the parent company of Columbus Bank and Trust and CB&T of East Alabama.

While Synovus did report an increase of $1.7 million in salaries and personnel expenses, “due primarily to incentive compensation,” Stelling noted core expenses were down by $25 million in 2012 and more than $95 million in 2011.

“We have made substantial progress in aligning our operating costs with the current size of our organization,” the CEO said. “... We have identified new expense savings initiatives of approximately $30 million, with the implementation of these initiatives already under way and continuing throughout 2013. We remain keenly focused on improving efficiency while we also strategically invest in talent and infrastructure that drive growth and improve our customers’ experience.” The bank said the $545 million in distressed asset sales were sharply higher than the $110 million it experienced in the third quarter of 2012. In the fourth quarter of 2011, such sales totaled $147 million.

The inflow of non-performing loans were nearly $262 million in the fourth quarter, significantly higher than in the previous quarter or the same October-December period of 2011.

Still, total non-performing loans were $543 million, down nearly $157 million from the third quarter and nearly $340 million lower than the fourth quarter of 2011, a drop of more than 38 percent.

Stelling pointed out net loan growth for the company rose sharply in the quarter and for the year, up $345 million and $589 million respectively. He also noted “positive growth trends” in the firm’s mortgage and investment business.

“While we are certainly mindful of the continued headwinds facing our entire industry, including slow growth as well as economic and political uncertainty, we are encouraged by our momentum heading into 2013,” the CEO said.

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