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Regional banking saw another bright spot yesterday morning thanks to a positive showing from Synovus Financial (NYSE: SNV ) . Its $12.8 million profit is slightly down from $15.7 million last quarter, but it's still a fair sight better than the massive losses leading up to the tail end of last year. Synovus continues to pare down its non-performing assets and bad loans in a big way, which looks to put it back on the road to long-term stability.
Breaking down the numbers
Synovus kept itself in the black, handily beating lukewarm analyst estimates that predicted only a breakeven quarter. A number of financial metrics continue to improve for Synovus:
- Credit costs keep shrinking in a big way, down to $90.5 million from $281.7 million just a year ago. Costs have dropped for 10 straight quarters.
- Charge-offs declined more slowly in sequential quarters, but they fell to $113.5 million, a huge improvement from the year-ago quarterly charge-offs of $385.2 million.
- Synovus' loan book continues to show signs of improving health. Delinquent loans dropped to 0.74% of the total, down from the prior quarter's 0.99%.
- The bank now reports $779.6 million in problematic loans, $1.09 billion lower than its peak five quarters ago.
- Non-performing loan inflows are 36% lower than they were a year ago.
- Core deposits shrank by $323.2 million from the prior quarter, and brokered deposits were lower by $374.5 million. Synovus views this as a positive in helping reduce costs.
- Core deposits now cost the bank 29 basis points less than they did a year ago. Core expenses, which include employment costs as well as management costs, declined $95.3 million for the year.
- Synovus saw its Tier 1 capital ratio and leverage ratio increase slightly.
Regions Financial (NYSE: RF ) , which also reported yesterday, took a loss related to its Morgan Keegan sale. Without that one-time charge, Regions would also have reported profitability. With the banking picture improving in many places, this should encourage nervous investors that have fretted about continuing economic weakness. But things aren't all smiles and sunshine yet.
Not quite out of the woods
However, Synovus bucks the trend of growing loan volumes seen at JPMorgan Chase (NYSE: JPM ) , Wells Fargo (NYSE: WFC ) , and Citigroup (NYSE: C ) . As Morgan Housel notes, Wells Fargo's loan book grew by 1.3%, Citi's grew by almost 2%, and JPMorgan's increased 4.4%. Synovus has $1.5 billion less on its loan book than it did last year, a 7% reduction. Though it's critical for the bank to reduce its bad loans, shrinking its loan book could reduce future revenue. It'll be something to watch in the next earnings report.
Another red flag: TARP. Synovus still has nearly a billion dollars outstanding, but CEO Kessel Stelling admitted in the bank's conference call that repayment would not be a "near-term event." At current profit levels, TARP might get paid off in about 19 years, if Synovus puts every penny toward repayment. In other words, Synovus still has work to do in growing its earnings, but investors should be encouraged by progress made on multiple fronts.
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