8-K: Synovus Financial Corp. Reports First Quarter 2024 Earnings, Impacted by FDIC Assessment

Synovus Financial Corp. announced its first quarter 2024 results, showing a decrease in earnings per share compared to the previous year, partially offset by strategic growth in key commercial lending categories and core deposits.

Summary

• Synovus Financial Corp. reported a net income available to common shareholders of $114.8 million, or $0.78 per diluted share, for the first quarter of 2024.
• This compares to $193.9 million, or $1.32 per diluted share, in the first quarter of 2023, and $60.6 million, or $0.41 per diluted share, in the fourth quarter of 2023.
• The first quarter 2024 results were impacted by a $12.8 million FDIC special assessment, which reduced both reported and adjusted EPS by $0.07.
• Pre-provision net revenue was $215.0 million, a 58% increase sequentially but a 26% decrease compared to the first quarter of 2023.
• Net interest income declined by 4% compared to the prior quarter and 13% compared to the first quarter of 2023, primarily due to a decline in average earning assets and higher funding costs.
• Net interest margin was 3.04%, down from the previous quarter due to higher deposit costs.
• Period-end loans decreased by $94.6 million from the fourth quarter of 2023, while commercial and industrial loans increased by $132.8 million or 1% from the prior quarter.
• Period-end core deposits increased by $165.1 million sequentially to $44.9 billion, driven by time deposit growth.
• Non-interest revenue increased by 131% sequentially but declined by 11% compared to the first quarter of 2023.
• Non-interest expense decreased by 9% sequentially, while adjusted non-interest expense decreased by 10% to $318.9 million.
• The provision for credit losses was $54.0 million, a 19% increase sequentially.
• The preliminary CET1 ratio rose to 10.38% due to core earnings accretion, despite $29.9 million in common stock repurchases.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are some positive aspects like core deposit growth and expense control, the significant year-over-year decline in earnings and net interest income, along with the impact of the FDIC assessment, weigh negatively on the overall outlook.

Positives

• Core commercial lending growth was achieved, with commercial and industrial loans increasing by 1% from the prior quarter.
• Core deposits increased by $165.1 million sequentially, indicating positive deposit growth.
• Non-interest revenue saw a significant sequential increase of 131%.
• Non-interest expense was well controlled, with a 10% sequential decrease in adjusted expenses.
• The CET1 ratio improved to 10.38%, reflecting a strong capital position.
• The company is focused on deepening client relationships and building a more risk-resilient bank.

Negatives

• Diluted earnings per share decreased significantly compared to the first quarter of 2023.
• Net interest income declined by 13% compared to the first quarter of 2023.
• Net interest margin compressed due to higher deposit costs.
• Period-end loans declined by $94.6 million from the fourth quarter of 2023.
• Non-interest revenue declined by 11% compared to the first quarter of 2023.
• The provision for credit losses increased by 19% sequentially.

Risks

• The company is facing pressure on net interest income due to declining average earning assets and higher funding costs.
• There is a risk of continued pressure on net interest margin due to higher deposit costs.
• The company is experiencing soft loan demand and higher loan paydowns.
• There is a risk of further credit losses, as indicated by the increased provision for credit losses.
• The company is exposed to potential impacts from economic conditions and market activity.

Future Outlook

The company expects NIM to be relatively stable in 2Q24 and higher in 2H24, supported by fixed-rate asset repricing and hedge maturities. They also expect low to mid-single digit adjusted non-interest revenue growth and relatively flat YoY expense guidance, excluding the impact of FDIC special assessments. The company anticipates opportunistic share repurchases throughout 2024, dependent on loan growth and economic conditions.

Management Comments

• Synovus Chairman, CEO and President Kevin Blair stated that the first quarter results demonstrate tangible progress on strategic priorities.
• He also noted the company's focus on raising the bar on service, deepening client relationships, and building a more risk-resilient bank.

Industry Context

The results reflect a challenging environment for regional banks, with pressure on net interest margins due to higher funding costs and a competitive lending landscape. The company's focus on core commercial lending and deposit growth aligns with industry trends emphasizing relationship-based banking and risk management.

Comparison to Industry Standards

• Synovus's CET1 ratio of 10.38% is within the targeted range of 10.0-10.5%, indicating a solid capital position compared to many regional banks.
• The company's net interest margin of 3.04% is lower than some peers, reflecting the impact of higher deposit costs, but is expected to improve in the second half of the year.
• The company's focus on core C&I loan growth is consistent with strategies of other regional banks seeking to optimize their loan portfolios.
• The company's adjusted efficiency ratio of 58.9% is better than some peers, indicating good expense management.
• The company's non-performing loan ratio of 0.81% is slightly higher than some peers, but is still within an acceptable range.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share.
• Employees may be affected by ongoing cost control measures.
• Customers may benefit from the company's focus on deepening client relationships.
• Creditors will be impacted by the company's financial performance and risk profile.

Next Steps

• The company will continue to focus on core C&I loan growth and core deposit growth.
• They will continue to manage expenses and optimize their balance sheet.
• The company will monitor credit quality and manage risk.
• They will execute on their capital management framework.
• The company will hold an earnings conference call on April 18, 2024.

Key Dates

Keywords

earnings, financial results, net income, EPS, loans, deposits, net interest income, non-interest revenue, non-interest expense, credit losses, CET1 ratio, FDIC assessment