Force Aids Synovus (SNV) review despite high costs – May 23, 2022
Synovus Financial Corporation (SNV – Free Report) is well positioned for decent revenue growth, backed by strong loans and deposits. However, increased spending due to technology investments could hamper earnings growth.
SNV loans have grown at a compound annual growth rate (CAGR) of 12.2% over the past five years (2017-2021). Additionally, total deposits grew at a CAGR of 13.4% over the past three years ending in 2021, supported by continued growth in core transaction deposit accounts.
With the recovery of the US economy, the lending scenario should improve over the coming period. Notably, management expects period-end loan growth of 6-8% (excluding Paycheck Protection Program or PPP balances) given the strong loan pipeline, while deposits are expected to increase by 3 to 5%.
The company is making significant progress in its “Synovus Forward” initiative, which was announced in March 2020. In 2021, it realized a pre-tax benefit of approximately $110 million through organizational efficiencies, cost savings costs and branch consolidations. and balance sheet management initiatives.
Efficiency initiatives in 2022 involve closing an additional 15% of its branches, with ongoing savings estimated at $12 million by the end of 2022. Through continued real estate optimization and efforts to expand its products, Synovus remains on track to deliver total pretax run rate savings of $175 million by the end of 2022, with an additional $65 million (including $15-20 million in cost savings and $45-50 million in revenue).
SNV’s credit quality trends are expected to continue to show broad-based improvement as the economy recovers. Although the company recorded provision charges of $11.4 million in the first quarter of 2022, credit quality ratios remain strong and near historic lows. This is also seen in the company’s net write-offs to average loans of 0.19% in the first quarter of 2022, which improved from 0.21% in the year-ago quarter.
However, Synovus has experienced an increase in expenses. Although costs decreased in 2021, they also recorded a CAGR of 9.9% over the past four years (ending 2021). Additionally, the upward trend continued in the first quarter of 2022. Management expects adjusted non-interest expense to increase between 3% and 6% in 2022. Longer-term investments in talent, technology and improving the customer experience are expected to inflate spending and limit their bottom-line expansion.
Long-term debt of $805 million, as of March 31, 2022, decreased significantly sequentially, while cash and bank receivables of $557.2 million trended upward from the prior year . However, given the limited liquidity and such high indebtedness, the company may not honor its short-term obligations if the economic situation deteriorates.
Synovus’ loan portfolio primarily comprises commercial and industrial real estate loans as well as commercial real estate loans. Such high exposure can be risky for the company, especially if the economy and the real estate sector as a whole weaken.
Currently, SNV carries a Zacks rank #3 (Hold). Over the past year, the company’s shares have fallen 18.5%, wider than the 12.3% drop recorded by the industry.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image source: Zacks Investment Research
Actions worth a look
A few higher ranked stocks in the banking sector are Independent banking company (IBCP – free report) and Civista Bancshares, Inc. (CIVB – free report). IBCP and CIVB currently have a Zacks rank of 2 (buy).
The independent bank’s Zacks consensus estimate for current-year earnings has been revised higher in the past 30 days. Over the past six months, IBCP shares have fallen 20.6%.
Civista Bancshares has also seen an upward revision to 2022 earnings estimates over the past 30 days. Over the past six months, CIVB shares are down 20.2%.