8-K: Synovus Reports Mixed Q2 2024 Results: Securities Loss Impacts EPS, Adjusted Earnings Show Strength

Synovus Financial Corp. reported a net loss per share of $(0.16) for the second quarter of 2024, primarily due to a significant securities loss, while adjusted earnings per share remained flat year-over-year at $1.16.

Summary

• Synovus Financial Corp. announced its financial results for the second quarter of 2024, revealing a net loss available to common shareholders of $(23.7) million, or $(0.16) per diluted share.
• This compares to a net income of $165.8 million, or $1.13 per diluted share, in the second quarter of 2023.
• The reported loss was largely due to a $257 million loss on the sale of securities.
• Adjusted net income available to common shareholders was $169.6 million, or $1.16 per diluted share, which is consistent with the second quarter of 2023.
• Pre-provision net revenue was down 98% both sequentially and year-over-year, while adjusted pre-provision net revenue increased 20% sequentially but decreased 2% year-over-year.
• Net interest income increased 4% compared to the prior quarter but decreased 5% compared to the second quarter of 2023.
• The net interest margin expanded by 16 basis points to 3.20% due to securities repositioning and other factors.
• Period-end loans declined by $216.5 million from the first quarter of 2024, while core deposits decreased by $67.6 million.
• Non-interest revenue declined significantly due to the securities loss, but adjusted non-interest revenue grew 9% sequentially and 15% year-over-year.
• Non-interest expense decreased 6% sequentially, and adjusted non-interest expense was relatively stable year-over-year.
• The provision for credit losses decreased 51% sequentially.
• The preliminary CET1 ratio rose to 10.62%.

Sentiment

Score: 4

Explanation: The sentiment is mixed due to the significant securities loss and resulting net loss, but there are some positive aspects such as the adjusted earnings, NIM expansion, and expense control. The overall tone is cautious, reflecting the challenges faced by the company.

Positives

• Adjusted earnings per share remained stable year-over-year at $1.16.
• Net interest margin saw a significant expansion of 16 basis points to 3.20%.
• Adjusted non-interest revenue showed strong growth, increasing 9% sequentially and 15% year-over-year.
• Non-interest expense decreased by 6% compared to the previous quarter.
• The provision for credit losses decreased by 51% sequentially, indicating improved credit conditions.
• The company's CET1 ratio increased to 10.62%, reflecting a stronger capital position.
• The company saw a 5% annualized growth in strategic commercial and industrial loans in the second quarter.

Negatives

• The company reported a net loss per share of $(0.16) due to a $257 million securities loss.
• Pre-provision net revenue decreased significantly by 98% both sequentially and year-over-year.
• Net interest income decreased by 5% compared to the second quarter of 2023.
• Period-end loans declined by $216.5 million from the first quarter of 2024.
• Core deposits decreased by $67.6 million from the previous quarter.
• Non-interest revenue declined significantly due to the securities loss.

Risks

• The company's earnings are vulnerable to fluctuations in securities values, as demonstrated by the $257 million loss.
• Declines in loan balances and core deposits could impact future revenue and profitability.
• The company faces challenges in maintaining net interest income growth, as evidenced by the year-over-year decrease.
• The company's non-interest revenue is subject to market conditions and may fluctuate significantly.
• The company's performance is subject to broader economic conditions and interest rate changes.

Future Outlook

The company expects 2H24 NIM expansion to be supported by continued fixed-rate asset repricing and relative stability in deposit cost. They also expect mid-single digit adjusted non-interest revenue growth supported by a robust Capital Markets pipeline. The company anticipates share repurchases throughout the remainder of 2024 and is managing CET1 at the high end of their target range of 10.0% 10.5%. Guidance incorporates a 25 basis point interest rate cut in December 2024.

Management Comments

• Our core second quarter results reflect a significant increase in earnings driven by margin expansion, strong fee income generation and reduced credit costs.
• Our focus remains firmly on execution while minimizing uncertainty in performance associated with the net interest margin and credit costs.
• Our results for the quarter demonstrate our progress toward these goals.
• The dedication of our team in providing unparalleled service to our clients and communities contributes to our strategic efforts to grow the bank and progress in key initiatives, further strengthening our relationship-centered banking approach, said Synovus Chairman, CEO and President Kevin Blair.

Industry Context

The results reflect a challenging environment for regional banks, with interest rate fluctuations and market volatility impacting earnings. The securities repositioning and its associated loss are indicative of the strategies banks are employing to manage their balance sheets in the current economic climate. The focus on core banking and fee income generation is a common theme among banks seeking to diversify revenue streams.

Comparison to Industry Standards

• Synovus's net interest margin of 3.20% is within the range of other regional banks, but the securities loss is a significant outlier compared to peers such as Truist Financial (TFC) and Regions Financial (RF), which have not reported similar losses in their recent earnings.
• The adjusted efficiency ratio of 53.1% is competitive with other well-managed regional banks, such as PNC Financial Services (PNC) and U.S. Bancorp (USB), which typically operate in the 50-60% range.
• The CET1 ratio of 10.62% is above the regulatory minimum and within the target range of many regional banks, but the company's decision to manage capital at the high end of the range may indicate a more conservative approach compared to peers.
• The loan growth decline of $216.5 million is a concern, as many regional banks are focused on growing their loan portfolios. This contrasts with banks like Fifth Third Bancorp (FITB) which have shown more stable loan growth in recent quarters.
• The company's adjusted non-interest revenue growth of 15% year-over-year is a positive sign, as many banks are struggling to grow fee income in the current environment. This is a strong result compared to peers like KeyCorp (KEY) which have seen more modest growth in this area.

Stakeholder Impact

• Shareholders will be negatively impacted by the reported net loss and the decline in share price.
• Employees may be affected by the company's cost-cutting measures and efficiency initiatives.
• Customers may experience changes in service offerings as the company focuses on core banking activities.
• Creditors may be concerned about the company's financial performance and its ability to repay debts.
• Suppliers may be impacted by the company's cost-cutting measures and changes in procurement practices.

Next Steps

• The company will host an earnings conference call at 8:30 a.m. ET on July 18, 2024.
• The company will continue to focus on executing its strategic initiatives and managing its balance sheet.
• The company expects share repurchases throughout the remainder of 2024.

Key Dates

Keywords

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