A Regional Bank Stock That Deserves a Second Look

Banks have gone through one of the worst phases in their history, and some are still very much in their recovery phase, so it's difficult to make a strong call on the banking industry as a whole. However, regional banks have been making an impressive comeback, and I'm optimistic on quite a few of them. Synovus Financial (NYSE: SNV  ) , in particular, compels me to dig in and evaluate its return-generating capacity.

Evaluating profitability
Return on equity is a crucial metric that evaluates how effectively a company is using its capital. In Synovus' case, the figure stands at negative 23.7%. On an absolute basis, this looks dismal.

But to get a complete picture, we need to look at it from a relative point of view. Synovus' ROE has been showing improvement and has reached its highest point since 2008. A year ago, it stood at -49.3%. In fact, its negative ROE is still better than that of some of its peers, including Flagstar Bancorp (NYSE: FBC  ) , which stands at -27.7%, and BankAtlantic Bancorp (NYSE: BBX  ) , which is at -261.8%.

Stability
Synovus' Tier 1 capital ratio of 12.8% is much better than that of BankAtlantic, which stands at 9.7%, and Marshall & Ilsley (NYSE: MI  ) , which is at 11%.

Furthermore, the bank is improving on the earnings front. Although it reported a first-quarter loss of $93.7 million, that's a 48% improvement over the preceding quarter. More importantly, it witnessed a significant decline in its credit costs and net chargeoffs.

Valuation
Taking forward P/E into account, Synovus, at 12.6, looks more appealing than its rivals. Peer banks Marshall and Flagstar look more expensive, with their P/Es standing at 19.7 and 26.4, respectively.

On the other hand, Synovus' price-to-book ratio of 0.9, though low on an absolute basis, is higher than that of Marshall's 0.65 and Flagstar's 0.75. This isn't necessarily a bad thing, though. It could be interpreted as a vote of confidence in the quality of assets the company is sitting on.

Yield
In terms of divided yield, Synovus has an edge over its peers. It offers a decent current yield of 1.9%, while Marshall offers 0.5% and Flagstar and BankAtlantic don't offer any.

The Foolish bottom line
Synovus' attractive fundamentals and recovering metrics make me think it could be a potential investment. If you're the type of investor who focuses on a company's stability and ability to grow, keep an eye on this one.

Fool contributor Zeeshan Siddique owns none of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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