Synovus reports $44.3 million profit in second quarter

Regional bank Synovus Financial Corp. reported Tuesday a second-quarter profit of $44.3 million, up 44 percent from the $30.7 million it posted in the April-June period a year ago.

The Columbus-based bank, parent company of Columbus Bank and Trust, said its performance was the result of nearly 6 percent growth in loans, while seeing an increase in revenue from interest income and fees charged to customers.

Synovus Chairman and Chief Executive Officer Kessel Stelling also said the company will continue to keep a cautious eye on expenses, with the bank “on track” to complete its stated $30 million “efficiency initiative” while also making investments in technology, personnel and advertising when and where needed.

Those expense cuts, he said during a conference call with Wall Street analysts Tuesday, include closing 13 more bank branches across the firm’s five-state footprint by the fourth quarter of this year. The company did not say where those branch closures will be, explaining employees have been notified, but customers have not.

“We will continue to serve our customers through our other branch locations and we also offer a number of additional convenient ways to access their accounts including online banking, mobile banking, and multi-functional ATM banking services,” the company said in a statement issued through Synovus media and public relations manager Greg Hudgison.

Synovus has closed three branches in Columbus in recent years and another in Phenix City, but it also has opened others in key shopping areas and along major corridors. Companywide, it said Tuesday its Southeastern footprint includes 271 branches and 355 automated teller machines. Some of those ATM locations are stand-alone units with drive-thru lanes.

“Those closures are planned for the fourth quarter of ’14,” said Stelling on the call, noting restructuring charges of about $7.7 million were recorded this quarter. The remaining $6 million or so in costs related to exiting leased properties will come in the fourth quarter.

The second quarter overall, Stelling said, was a solid one, with the company experiencing loan growth for the fifth straight quarter. Particularly strong markets were Nashville, Tenn., Tampa, Fla., Atlanta, Athens, Ga., Greenville, S.C., Spartanburg, S.C., Charleston, S.C., and Savannah, Ga.

“Based on the quarter’s performance, based on our pipeline, based on our economic outlook and our footprint — we had previously guided 4 to 5 percent loan growth for the year — we now believe 4 to 6 percent is the more appropriate range,” the CEO said.

“We reported solid loan growth of 5.9 percent annualized, with (commercial and industrial) and retail reporting 7.2 percent and 14.3 percent growth, respectively,” Stelling said in a statement with the financial report. “The quarter also included increases in mortgage, bankcard, and brokerage fees; a 32 percent reduction in non-performing loans; and a two basis point increase in the net interest margin.”

For those holding Synovus stock, the quarterly numbers equal diluted earnings per share of 32 cents, up from 24 cents per diluted share in the same three-month period a year ago.

Stelling noted that without restructuring expenses related to the sale of Synovus’ Trust One-branded banks in Memphis, Tenn., earnings per share would have been 35 cents. The company said it had a net gain of $5.8 million from the Memphis sale, with $3.1 million more from the sale of a branch there. IberiaBank purchased the assets.

On the revenue front, Synovus reported net interest income of $192.7 million in the second quarter after a $12.3 million charge for loan losses. A year ago, those numbers were $189 million and $13 million, respectively.

Total non-interest income — including account service charges, bankcard fees and asset management fees — came in at $63.4 million in the quarter. That’s down from $65 million a year ago.

Total non-interest expenses edged slightly higher from nearly $181.2 million in the April-June period a year ago to $182.2 million in the second quarter of this year. Employee salaries and other personnel expenses accounted for roughly half of that at $92.5 million. That’s up 3.4 percent from $89.4 million a year ago.

Synovus continued to get a handle on its non-performing loans. The bank, like many other financial institutions across the U.S., was hurt severely by the Great Recession, with loan losses soaring starting in 2007 as the housing market crumbled and with the banking sector nearly going up in flames. The Columbus bank repaid the nearly $1 billion it owed the federal Troubled Asset Relief Program (TARP) a year ago, a major hurdle in its recovery.

The company said non-performing loans in the second quarter — excluding those held for sale — totaled $259.5 million, down by nearly $224 million a year ago and by $124.8 million in the first quarter of this year. Inflows of non-performing loans continued to slow, falling from nearly $67 million a year ago to $34.3 million in the current second quarter.

“We continue to successfully execute our plan for improving financial performance as evidenced by another quarter of solid operating results, really across all fronts,” Stelling told the analysts. “Our activities are continuing to be centered on enhancing the customer experience as we continue to emphasis strong local leadership as a key differentiator and a driver of our future success.”

Kevin St. Pierre, a senior analyst with Bernstein Research, said in a note issued after the earnings were released that the Synovus results were generally what he was expecting, and that he rates the bank’s stocks “market perform” with a price target of $21 per share.

Synovus shares closed at $23.45 per share Monday in trading on the New York Stock Exchange. They jumped out of the gate Tuesday morning, climbing 59 cents, or just over 2 percent, to $24.04 per share. Much of the gains disappeared by the close, however, with the stock finishing the day up 31 cents, or 1.3 percent, at $23.76 per share. The stock’s 52-week trading range is $20.18 to $26.53 per share.

St. Pierre said the stock currently is trading at a level “which we feel is appropriate, perhaps a bit generous, for a bank which we believe will have difficulty earning its cost of capital in the near term, but which also remains an attractive potential target.” Through its economic pains and subsequent recovery, Synovus has been a persistent target of speculation that it might be bought out or merged with another bank.

Stelling, who has consistently said he is simply interested in turning the bank around, said Tuesday Synovus is “successfully” executing its plan for improving financial performance and “enhancing the customer experience,” while making sure banks in local markets have strong leadership.

“We are energized about the opportunities ahead as we position Synovus as a banking leader for customers and communities across the Southeast,” he said.

Synovus now operates 28 locally branded divisions, or banks, in Georgia, Alabama, Florida, South Carolina and Tennesse, overseeing about $27 billion in assets.