Paying back nearly $1 billion to the U.S. government, growing revenue while reducing loan losses, and the lingering possibility of mergers and acquisitions were the backdrop of a first-quarter earnings report Tuesday by Synovus Financial Corp.
The Columbus-based firm, parent company of Columbus Bank and Trust, reported a profit of $14.8 million, or 2 cents per share, in the January-March period. The two pennies met the expectations of stock market analysts surveyed by Thomson Financial.
The quarterly performance was down from a profit of $21.4 million in the same period a year ago, however. And it’s sharply lower than the $709.3 million profit in the fourth quarter of last year, when the regional bank used a deferred tax asset — accumulated during years of financial losses — to offset its income tax bite.
Synovus Chairman and Chief Executive Officer Kessel Stelling noted the bank’s income before taxes hit $47 million, it’s highest mark in five years. He attributed that to lower operating expenses and credit costs.
“We achieved broad-based credit quality improvement during the quarter, including a 40 percent reduction in non-performing loan inflows from the first quarter of last year,” he said. “Our focus on expense management continues, and our initiatives to reduce core expenses by $30 million in 2013 are well on track.”
Synovus said it is positioned to repay the $968 million it owes the federal government’s Troubled Asset Relief Program (TARP), money it took in 2007 as U.S. banks nationwide were teetering on the financial brink. Synovus owes the most of any bank still involved in the program.
Repayment will “likely” come in the third quarter of this year, said Stelling, which would be the July-September timeframe.
Synovus has used the extra cash to shore up its financial footing while working through huge amounts of loan losses connected to the housing market implosion and Great Recession that put developers and commercial customers — including the once-bankrupt Georgia resort company Sea Island — on the ropes.
“We continue to model internally the appropriate levels of capital both now and through the cycle in a stressed environment, and we share those models continually with all of our regulatory agencies,” Stelling said of TARP during a conference call with research analysts who follow the company.
He said repayment of the $968 million will come from a mix of cash, issuance of common or preferred shares of stock and taking on debt. “We’ve been positioning to repay TARP and really don’t feel like the liquidity, or even the capital, will be an impediment,” said Synovus Chief Financial Officer Tommy Prescott. “It will just be whatever is agreed upon with us and our regulators.”
Stelling noted during the first quarter that two major ratings agencies — Fitch and Standard & Poor’s — upgraded their outlooks on the bank, which has endured constant speculation that it could be bought out by another financial institution.
He pointed out the bank’s progress in putting its most difficult challenge — failed and non-performing loans — behind it slowly, but surely. In 2009, in-flows of bad loans were more than $3 billion, he said. Last year, they totalled $641 million and were down to $84 million in the first quarter. Total charge-offs have dropped from $2.2 billion in 2009 to $433 million last year and $49 million in the first quarter.
“We’ve executed in line with the expectations,” the CEO told analysts, some who pressed management on the strength of its turnaround and how it could possibly think of acquiring another bank anytime soon. Those analysts included Rick Kraemer of New York-based Weiss Multi-Strategy Advisers.
“The way I see it, at the end of the day, you still have a real earnings power problem,” he said. “Before we jump that far ahead, could you maybe lay out a clearer plan of how you dramatically improve the earnings outlook? With all of that being said, at what point do you think shareholders may be better served by you exploring other options such as a sale of the company?”
Stelling responded that Synovus hasn’t issued any forward-looking earnings guidance for some time. He reiterated the bank is sticking to its strategy of getting loans in line, reducing expenses and increasing its revenue pipeline.
Synovus Chief Banking Officer Dallis “D.” Copeland noted the bank is seeing growth in parts of Atlanta and in the Florida cities of Jacksonville and Tampas, as well as in Nashville, Tenn., and the South Carolina cities of Charleston and Greenville.
The bank also mentioned that the leashes federal and state regulators had put on it amid the banking crisis are beginning to loosen. That includes the termination of a “memorandum of understanding” between it and the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance. That was replaced by a Synovus board-approved resolution promising “continued emphasis on improving asset quality and maintaining strong levels of capital and liquidity.”
On the expense side, the company said it realized $30 million in savings during the quarter. The firm’s headcount dropped from 5,163 at the end of December to just under 4,800 at the end of March. The bank has offices in Georgia, Alabama, Florida, South Carolina and Tennessee.
On the revenue front, Synovus reported that net interest income slipped from $207.5 million in the first quarter of 2012 to $199.8 million in the first quarter of this year. Non-interest income dropped from $80.1 million a year ago to $64.7 million in the first period of 2013.
Synovus released its earnings report before the New York Stock Exchange’s opening bell Tuesday. Shares rose 13 cents, or 5 percent, to $2.67 by the end of the day.