Nearly four years after receiving $968 million from the federal Troubled Asset Relief Program, Synovus Financial Corp. today laid out its best estimate to date for when it will be paid back.
Kessel Stelling, the Columbus-based regional bank’s chairman and chief executive officer, said the company’s financial models indicate that could come as soon as next spring or possibly next fall.
“It’s been a long journey and we are happy to be where we are today,” said Stelling, addressing stock market analysts during a conference call. “But this next step will require certainly additional modeling and additional negotiations with all of our primary regulators to exit in a way that’s satisfactory to them, and that it’s also efficient and satisfactory to all of our other constituencies.”
The CEO’s comments came shortly after Synovus issued its third-quarter earnings report before the New York Stock Exchange’s opening bell. The company reported a profit of $16 million, or 2 cents per share, which was a penny less than expected by Wall Street analysts surveyed by research firm Thomson Financial.
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In the same July-September period a year ago, the parent company of Columbus Bank and Trust posted a profit of $15.7 million or 2 cents per share. In the second quarter of this year, net income came in at $24.8 million or 3 cents per share.
“To sum up our quarterly results with the obvious — our fifth consecutive quarter of profitability with some significant reductions in expenses, some margin expansion, overall credit improvement, loan portfolio growth and growth in the pipeline,” Stelling said during the analyst call. “I think the takeaway there is we’ve come through this cycle as a strong, healthy franchise and excited about the days ahead.”
Synovus has been slicing and dicing loan losses from its balance sheet for several quarters, making steady progress. Its five profitable quarters in a row have come on the heels of three painful years of financial losses.
But repayment of TARP money to the U.S. government remains a major hurdle. The next step, however, will be the recovery of a $787 million deferred tax asset that was accrued because of the company’s financial losses and eventually will be used to offset taxes owed as more profits materialize. Stelling said DTA recovery could come before the end of this year, but might be pushed into next year’s second quarter.
Pressed by analysts for more on how Synovus might come up with the money to pay back TARP funds, Stelling said the company — with regulatory approval — would likely use existing cash through a dividend from the bank to the parent holding firm.
“If there is a shortfall, we would access the capital markets to plug that gap,” said the CEO, noting the company currently has $371 million in cash on hand.
The bank has been steadily working its way through the Mount Everest-sized loan losses it racked up from failed residential real estate development loans and commercial development loans. Most notable in the latter category was several hundred millions of dollars loaned to failed Sea Island Co., a coastal Georgia resort development that went into bankruptcy before being bought by private investors.
Synovus, which has banks in Georgia, Alabama, Florida, South Carolina and Tennessee, was hit hard — just as many other financial institutions were — as the housing market unraveled in 2007 and 2008, with the overall financial industry being pushed to the brink of disaster. It all led to the worst U.S. economic downturn since the Great Depression.
However, the progress made so far in the bank’s recovery can be found in the January-September financial figures released today by Synovus. Over the nine months, it recorded a profit of $62.2 million, or 7 cents per share, compared to a net loss of $131.5 million, or 17 cents per share, in the same period of 2011.
Shares of Synovus stock (Ticker: SNV) have been treading near the upper end of its 52-week high of $2.51 for several weeks. After the release of earnings data today, shares slipped briefly before venturing up a couple of cents amid an overall down day for the markets.
In a quick brief on the bank’s performance, Bernstein Research analyst Kevin St. Pierre noted the additional information on the timing of TARP repayment, the decline in loan net charge-offs, and growth in the commercial and industrial loan sector. Consumer loans were up 4 percent, while commercial real-estate loans were down 9 percent from the previous quarter.
“We continue to see the investment case for SNV as relatively simple: Return to sustainable profitability on the back of credit improvement and expense reduction,” wrote St. Pierre, who expects the deferred tax asset to add 86 cents to the stock’s value. “We maintain an outperform rating on SNV with a price target of $3.00.”