Synovus Financial Corp. said today it is dumping $530 million in bad or poorly performing loans from its books to ultimately position itself to pay back the nearly $1 billion in TARP money it still owes the U.S. government.
The regional banking firm, headquartered in downtown Columbus, said it completed a “bulk sale of distressed assets” on Monday. Before the year is out, it will have gotten rid of $530 million in soured loans altogether.
“The sale of these distressed assets is an important and strategic step in our continued efforts to further strengthen our balance sheet, improve asset quality, and enhance future earnings,” Synovus Chairman and Chief Executive Officer Kessel Stelling said in a statement.
Synovus spokesman Greg Hudgison said the company does not plan to comment further on the move before the Jan. 22 release of its fourth-quarter earnings report, with full-year 2012 financial results also being reported at that time.
The bank, which has offices in five Southeastern states and is the parent company of Columbus Bank and Trust, said it will take pre-tax charges — or writeoffs — of $155 million in the current quarter because of the loan purge.
The $530 million total breaks down to $400 million in non-performing loans, which are notes that are past due 90 days or more. Another $110 million in loans are classified as “substandard,” with borrowers having significant cash flow problems that may cause them to miss a payment. And there are $20 million in “special mention” loans, those in which a customer requires closer scrutiny because of specific issues, such as a net loss on a recent financial statement.
The bank reiterated its intention to use a $787 million deferred tax asset to improve its financial position, a move that could be completed by the end of this year. The deferred tax asset, accrued through three long years of financial losses at Synovus, are being used to offset tax obligations.
Synovus, which has reported four straight quarterly profits after the string of losses, said its series of strategic moves should put it in position to repay the $968 million it owes under the Troubled Asset Relief Program (TARP). That moment could arrive as soon as the upcoming April-June quarter or certainly before the end of 2013, the company said.
Several weeks ago, as the firm was reporting a $16 million third-quarter profit, Stelling referred to the financial rebound by the bank as a “long journey.” He also noted state and federal regulators will have to approve its TARP repayment plan.
TARP was the conduit for federal money received by many U.S. banks as the financial sector began to spin out of control in 2007 amid an unraveling housing market and deteriorating economy. Commonly referred to as a bailout program, banks sold securities to the government in exchange for the funds, with the companies also paying interest on the cash.
Synovus has steadily been working through the 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.
On the residential side, the company was hit particularly hard by homebuilders going out of business in Atlanta, coastal areas of Florida and in a number of its South Carolina markets. Both speculative houses already built and yet-to-be-developed lots were part of the toxic property mix.
The possibilities for repaying TARP include using existing cash, the company has said, while it could also raise money through the sale of common stock shares in the bank, which operates in Georgia, Alabama, Florida, South Carolina and Tennessee.