Has Synovus Financial Started to Turn the Corner?

Much-maligned regional bank Synovus Financial (NYSE: SNV  ) reported first-quarter earnings this morning, and it pretty much went as expected. With consensus estimates pegging the Georgia bank at $0.02 earnings per share, Synovus didn't disappoint and met that number, and the stock has risen in trading today.

This year truly could be a make or break year for the bank. With nearly $1 billion in TARP obligations still impeding its performance, the bank really needed to show impressive progress in order to pay off those obligations as planned by the third quarter. Did the bank start the year off on the right foot? Or will it be playing catch up in quarters to come?

So far, so good
The first quarter pre-tax income of $46.6 million was the highest the bank has seen in nearly five years. This would not have been possible without significant reductions in the cost of credit and expenses.Credit costs also reached their lowest levels in five years, down to $49.3 million for the quarter. This was a substantial decrease from the first quarter of last year, which came in at $90.9 million. 

Expenses were also down year over year, with interest expense declining 26.7% and noninterest expenses down 10.3%. The largest decline in noninterest expense was from foreclosure-related expenses, which experienced a 52.4% decline from the first quarter of last year.

Better performing loans
The decline in foreclosure expenses could be a product of having fewer nonperforming loans from quarter to quarter, thus reducing the amount of loans that actually reach foreclosure. Nonperforming loans have declined $322.8 million since the end of the first quarter last year, a reduction of 38.6%, and net charge-offs have declined by a similar percentage as well.Obviously, a nonperforming loan is more likely to result in foreclosure, so by reducing the amount of NPLs, the bank can have some control over foreclosure expenses down the road.

One last thing
I'd be remiss if I didn't mention net interest margin, a very important metric in seeing how well a bank is generating income on the money it lends. Like most banks, Synovus has experienced a squeeze in its NIM over the past year. It has declined a total of 12 basis points since the first quarter of 2012, though the decline was a very modest 2 basis points during the first quarter of this year. Nevertheless, CEO Kessel D. Stelling is optimistic, expecting "modest loan growth for the remainder of 2013."

The bottom line
There is still plenty of time remaining in 2013, and it seems that Synovus has started 2013 off on the right foot. It is going to take some work, but the bank has the potential to exit 2013 in a much better position than it entered the year, especially if it can repay its TARP obligations as planned.

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