Update: Synovus lays out TARP plan, releases second-quarter earnings report early

Regional bank to use $680 million in cash, two stock sales to repay $968 million to Troubled Asset Relief Program

tadams@ledger-enquirer.comJuly 18, 2013 

Sitting in on a conference call Thursday with Synovus Financial Corp. executives, NAB Research analyst Nancy Bush remarked off the bat, “Congratulations on being free at last.”

The line drew chuckles among the regional bank’s executives, although Synovus Chairman and Chief Executive Officer Kessel Stelling quickly shot back: “Not yet.”

The reality is that the Columbus-based regional bank, which has endured a financial crisis like no other it has seen, took a major step toward setting itself free from the bonds of the federal Troubled Asset Relief Program and putting itself on a path to grow its business once again.

Synovus, in an unusual move, accelerated the release of its second-quarter earnings report from July 25 to Thursday. While doing so, it also laid out specific plans for repaying $968 million owed to TARP, the program it embraced heading into the Great Recession and the U.S. housing and banking crises.

“Our team is certainly not celebrating today,” Stelling said during the analyst call. “We have executed a step in a plan that we laid out many quarters ago. But I will tell you the team is energized and ready to go to work tomorrow and continue to execute on any strategies that we have laid out for you.”

Synovus, parent company of Columbus Bank and Trust, had signaled repeatedly over the past year that it would likely repay the TARP money — redeeming 967,870 preferred stock shares, it is called — in the current third quarter of 2013.

Though it did not lay out the specific date for finalizing the process, Synovus did say that more than two-thirds of the money, about $680 million, will come from existing cash. The remainder will be funded through two securities offerings — $185 million in common stock and $130 million in preferred stock.

“Today’s announcement of our planned TARP redemption represents the culmination of a journey to return Synovus to a position of strength,” said Stelling. “We laid out and successfully executed a clear, deliberate and aggressive plan to return Synovus to sustainable profitability.”

Paying back TARP should help. Synovus owes the most money of any bank remaining in the program, which was commonly referred to as a “bank bailout” at the recession’s peak.

The company said Thursday that TARP has been reducing net income to common shareholders by about $59 million each year. After it is repaid, the firm’s earnings per share should gain 4 cents, it said.

Once the preferred stock is redeemed and no longer a drag on earnings, the U.S. Treasury will still hold warrants to purchase 15.5 million shares of Synovus common stock at $9.36 per share. The company said it will “evaluate” a potential buyback of those warrants from the U.S. government to avoid that.

Synovus, which oversees $27 billion in assets, has branches and offices in Georgia, Alabama, Florida, South Carolina and Tennessee.

The last five years have been brutal for the bank as it worked steadily to dump failed and underperforming real-estate loans from its books. The process included a painful restructuring of its entire operation, with more than 2,000 employees or positions being eliminated and some branches closing.

The bank finally turned its first profit in three years in the third quarter of 2011. That set up the recovery of a deferred tax asset — generated through the financial losses — in the fourth quarter of last year.

In April and May, the Federal Reserve Bank of Atlanta, the Federal Deposit Insurance Corp., and Georgia banking regulators lifted memorandums of understanding concerning Synovus’ problems.

On the conference call Thursday, Stelling said the company remains under a “continuous exam program” with regulatory agencies and that he doesn’t expect any big change soon.

“I don’t think we’ll let our guard down at all or expect anything different from what we’ve always had,” he said. “We have a very rigorous process.”

The news concerning TARP somewhat overshadowed the earnings data released by the bank. It reported net income of $30.7 million, or 3 cents per diluted share, in the April-June quarter. That’s up from $24.8 million, or 3 cents per share, in the second quarter of 2012.

The highlights included a sharp decline in credit costs, falling charge-offs related to problem loans, and non-performing loan inflows that continue to slow as the company shakes off the financial fatigue. It also said total loans grew a solid $240 million in the quarter.

“We’ve still got some work to do. We’ll still have to spend some money to write down those problem loans,” said Synovus Chief Credit Officer Kevin Howard, explaining the general trend will be declining loan expenses amid occasional “bumpiness.”

Net interest income for the quarter came in at $202 million, up slightly from the first quarter, while non-interest income was slightly higher at $65 million. The latter includes bankcard fees, mortgage income, asset management fees, brokerage revenue and service charges on deposits.

While he also acknowledged there is plenty of work ahead of Synovus and its management and employees, Stelling said he believes the company is in a much better position today following the relentless struggles. He closed out the conference call by thanking the firm’s employees.

“We’re a strong banking franchise coming out of a long, very tough period,” he said. “But we’re a strong franchise in a thriving geography throughout our five-state footprint. I think our numbers prove that it’s a great model driven by relationship-based banking.”

Shares of Synovus stock rose 8 cents, or 2.6 percent, to $3.09 in trading Thursday on the New York Stock Exchange. The earnings data and TARP information were released after the market’s close. The stock’s 52-week trading range is $1.81 to $3.15 per share.

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