Many analysts and investors already had high expectations for Synovus Financial (SNV -0.17%)
in 2021 because of the bank's attractive markets, adoption of technology, and growing fee income business lines. But another appealing aspect of the bank is its ongoing Synovus Forward initiative that is expected to increase profitability and improve efficiency to the point where Synovus is in the top quartile of its peer group. Recently, the bank announced that it would be increasing its efforts on this initiative, continuing to make the stock a compelling play long term.
Synovus Financial is a $54-billion-asset bank based in Columbus, Georgia, that also operates in Alabama, Florida, South Carolina, and Tennessee. All of the states the bank operates in have growing populations, and therefore, potentially great local and regional economies. Community and regional banks tend to strongly benefit from fast-growing economies because banks play a large role in fueling that growth.
Synovus also offers a range of products including private banking, treasury management, wealth management, mortgage services, premium finance, and international banking services. Some of these non-interest revenue products, like treasury and wealth management, have strong potential heading into this year.
Synovus acquired FCB Financial Holdings -- the parent company of Florida Community Bank -- in 2018, and closed the deal in 2019. As the economy begins to recover, the bank should be able to cross sell more of its non-interest revenue products to this group of relatively new customers.
But the bigger, more immediate program the bank is currently undertaking to drive shareholder value is Synovus Forward. The bank first embarked on the initiative at the beginning of 2020, planning to cut expenses and grow revenue to ultimately realize and add $100 million to its pre-tax income run rate. If achieved, that would grow pre-tax income by 13% from 2019 levels.
Management planned to accomplish this through a number of efficiencies such as reducing personnel at the bank, cutting third-party spend, and branch and real estate optimization. Synovus also planned to leverage customer analytics to deepen customer relationships, optimize pricing on its products and services, and deliver new products. Those efforts are proving successful so far, and are expected to be completed by the end of the year.
On the bank's most recent earnings call, Synovus management announced that they have identified additional opportunities in Synovus Forward that will lead to an added $75 million in the pre-tax income run rate by the end of 2022. These opportunities include expanding online account origination capabilities, strengthening user enrollment and utilization, and enhancing technology. Management believes that completion of Synovus Forward will help get its profitability metrics and efficiency ratio (expenses expressed as a percentage of revenue -- so lower is better) into the top quartile of its peer group.
Think long term
In some regards, the pandemic may have enabled Synovus to find more efficiencies in Synovus Forward, especially on the digital side. But in other ways, the pandemic may ultimately result in the initiative taking a little longer to show its effects. Synovus has done a good job staying on schedule during the pandemic, while dealing with a trickier credit environment and the massive Paycheck Protection Program. But getting the economy moving at a more normal clip really depends on getting the coronavirus under control.
The bank is currently projecting 2% to 4% loan growth this year, which is really nothing to get too excited about when you consider the markets Synovus is in. The bank also expects adjusted revenue to be down anywhere from 1% to 4% because of the low-rate environment.
I could certainly see this forecast improving if vaccine efforts are successful, but management said it doesn't expect revenue to begin to outpace peers until 2022, so some added patience may be required, although well worth the wait.