Synovus Financial Corp., continuing its progress on the loan front, reported a profit of $35.8 million in the fourth quarter of 2013, down from $709.3 million in the same period of 2012.
That dramatic difference was due to an $800 million tax benefit from a year ago, with the Columbus-based regional bank using a “deferred tax asset,” or DTA, to offset its income tax bill and propel itself to profitability after three years of loan losses.
The DTA was accumulated during the long string of failed and non-performing loans that kept the parent company of Columbus Bank and Trust on the negative side of the financial ledger for a dozen consecutive quarters.
After shaking out the bloated number from 2012, Synovus ended up with net income of 4 cents per share for the October-December quarter. That compares to 78 cents per share in the same period a year ago.
Wall Street analysts were expecting the bank to report a profit of 5 cents per share. The company said a $10 million litigation expense and $3.8 million in restructuring charges cut into that, with the legal matter costing it a penny per share. Excluding those two expenses, net income would have been $44.3 million.
“We cannot comment further on pending legal matters, but refer you to our SEC filings for more details on pending lawsuits and other contingencies,” the company said in a statement on the litigation.
Overall for the quarter, Synovus Chairman and Chief Executive Officer Kessel Stelling said he was happy with the loan growth experienced by his bank, which has offices in Georgia, Alabama, Florida, South Carolina and Tennessee.
“From a geography standpoint, we were pleased to see growth in key markets, such as Atlanta, Nashville, Tampa, Savannah, Charleston and Columbus, and others throughout our five-state footprint,” he said during a conference call with financial industry analysts after the report’s release.
Total loan volume grew by $346.2 million from the third quarter of last year, the company said, while credit costs were $22.3, a far cry from the $185.8 million it saw in the same period of 2012.
“Partnerships between our local bank divisions and large corporate banking teams across our five-state footprint produced meaningful results,” Stelling said. “HELOC (home equity loans) and private client mortgages drove the growth in retail loans during the quarter. Credit quality continued to improve, and our net interest margin remained stable.”
Stelling also said the company had completed $30 million in expense reductions in 2013, and pledged to slice another $30 million in expenses in the current year.
Synovus has been cutting costs sharply for several years, looking to become smaller and more nimble in a world that is transitioning to online banking rather than traditional brick-and-mortar branches. Since 2008, the firm has sliced more than 2,000 employees from its multi-state work force, with the total payroll now under 5,000 staffers.
“We will continue to increase our investments in talent and technology and marketing, so you won’t see the expense reductions dollar for dollar” on the company’s balance sheet, the CEO said.
Interest rates, which Synovus relies on heavily to fuel its earnings, have remained at historical lows following the Great Recession that hammered the financial industry. The crisis was fueled by a housing market meltdown, with lenders approving mortgages for many consumers who could not afford them after the home-price bubble burst.
It all added up to massive loan losses for Synovus and other banks, leaving them scrambling to sell properties at distressed prices and reducing the loan values on their books.
Tuesday’s financial numbers indicate significant progress has been made by the bank, which repaid the nearly $968 million it owed the Troubled Asset Relief Program (TARP) last summer, its last major hurdle to consistent earnings growth.
In the quarter, net loan charge-offs came in at $25.1 million, down from $193.5 million a year ago, while the inflow of non-performing loans dropped from nearly $263 million to $41.2 million.
Non-performing loans — minus loans held for sale — were at just over $416 million as of Dec. 31, down from $543 million in the fourth quarter a year ago.
Non-performing assets came in at $539.6 million on Dec. 31, down from $703 million in the year-ago quarter.
Sales of distressed assets totaled $68 million, far lower than the $545 million sold in the final period of 2012. The company noted a major bulk sale of distressed assets took place at that time.
“In terms of what still has to happen, we just need to continue to execute on the very plans we laid out as far back as 2010,” Stelling said to a question from NAB Research analyst Nancy Bush about the company’s future direction.
“Today, we need to be smart about our technology investment and make sure that we marry the pace of that with the needs of our customers, the needs of our bankers,” the CEO said. “We’ve got to continue to drive expense out, not unlike any of our peers. But at the end of the day we’ve got to focus on execution at the customer level, and that’s what has to continue to happen better.”
Offering a glimpse into 2014, Stelling said the company expects to grow loans 4 to 5 percent, with mortgage revenue remaining relatively stable.
“We certainly believe our lending engine is gaining momentum as investments in talent and business lines continue to pay dividends,” he said.
As for the possibility of some type of merger or acquisition related to Synovus this year — a question posed by Raymond James analysts Michael Rose — Stelling said he expects Synovus to be the entity pursuing others, although don’t look for anything major.
“I certainly think if you look at the Southeast and you look at markets where we operate today, and markets contiguous to some of those, there are going to be opportunities — smaller, small bites, shareholder friendly, nothing exotic, nothing that’s going to be headline grabbing,” he said.
The quarterly profits, naturally, were driven by revenue. On that front, Synovus posted interest income of $233.2 million in the fourth quarter, down from $240 million a year ago. Non-interest income — which includes account service charges, credit-card fees and asset management fees — was just over $60 million, down from slightly more than $80 million in the same period of 2012.
For all of 2013, interest income was $929 million, down from just over $1 billion in 2012, while non-interest income came in at $253.5 million, compared to just under $314 million the prior year.
Net income for 2013 totaled $118.5 million, or 13 cents per diluted share, far lower than the $771.5 million, or 85 cents per share, in 2012. Again, the bloated figures in 2012 include the one-time $800 million deferred tax asset, which means in the coming year and fourth quarter the earnings numbers will return to a range more normal to investors.
Synovus did mark its 125th anniversary in October, with Stelling calling it “an appropriate way to close out a successful year defined by several important achievements, including upgrades from three rating agencies, two successful capital raises, and the redemption of our TARP obligation.”
Shares of Columbus-based Synovus Financial Corp. rose a penny to $3.69 in trading Tuesday on the New York Stock Exchange. The stock’s 52-week trading range is $2.44 per share to $3.79 per share.