How many readers wish they could go back in time and pick up shares of Bank of America during the worst days of the financial crisis? Or Goldman Sachs, the best-run investment bank on Wall Street, which could seemingly do no wrong until the fall of 2008? Both of these firms received lifelines from billionaire Warren Buffett during the nadir of the market plunge.

As we all know, these specific opportunities are gone forever, unless we are eager for another financial system collapse. All is not lost, however. The purpose of this article is to inform readers that a hidden gem still exists in the banking sector, and a rising tide hasn't lifted all boats at least not just yet.

Consider the case of Columbus, Ga.-headquartered Synovus Financial (NYSE: SNV). This overlooked regional bank is one of few financial institutions that has yet to repay TARP, the government's Troubled Asset Relief Program.

On Dec. 13, management quietly announced that Synovus had completed the strategic bulk sale of distressed assets. This is elegant language for the bank selling non-performing assets and substandard loans, which indicates the borrowers of these monies were unable to pay interest back to the bank. As the Synovus chief executive stated in a recent press release, the strategic sale of these assets enables the bank to strengthen its balance sheet, thereby improving its operational performance and standpoint with regulators. The CEO went further to say the bank should be able to repay TARP as early as the second quarter of 2013.

The Synovus company name originates from the word synergy and Latin word novus, meaning stronger and better than the rest. The Latin dictionary also tells me novus is a term for unusual, and that word accurately describes the opportunity we are presented with today.

Here are five more reasons why Synovus Financial is poised to spring higher in 2013:

  • Sell-side research analysts have increasingly become bullish on the stock, following the news of the strategic bulk asset sale. On Jan. 8, Wall Street firm Keefe, Bruyette, & Woods upgraded Synovus to Outperform from Market Perform, and raised its price target from $2.50 to $3.25. The KBW analysts that cover the stock are located in Atlanta.
  • Synovus is poised to benefit from recapturing the large deferred tax asset on its balance sheet. While the DTA recapture is a non-cash accounting transaction, $787 million in assets will add nearly $1 per share to Synovus book value. As of Sept. 30, tangible book value stood at $2.07.
  • The recent bulk sale of distressed assets enables management to focus on repaying $968 million to the U.S. government. While this is a large sum of money, Synovus currently has more than $900 million in cash on its balance sheet with only $100 million in maturing debt this year.
  • On a fundamental basis, Synovus has enjoyed five consecutive quarters of profitability going back to September 2011. The company's net interest margin is also expanding and loan portfolio improving.
  • Short interest in Synovus continues to move lower, indicating that sellers are beginning to cover their positions. The NASDAQ OMX exchange informs me that short interest reached a 12-month high of 63 million shares during January 2012. Overall short interest has declined to 47 million shares, or 6.05% of outstanding shares, as of Dec. 31, 2012.

Once Synovus is able to recapture its deferred tax asset and repay the government in 2013, the company becomes an attractive acquisition target for a larger financial suitor. Even if the company's stock doubles this year and I believe it will Synovus will still have a market capitalization under $5 billion. The bank operates in an attractive Southeast market and is significantly smaller than BB&T (NYSE: BBT) and SunTrust (NYSE: STI), which have market capitalizations of $22 billion and $16 billion, respectively. Bank industry consolidation is a long-term theme that will continue well into the future. Certainly, Synovus is more likely to be an acquiree than an acquirer.

Furthermore, the main purpose of Wall Street research analysts is to provide investment advice to institutional investors, which have millions of dollars in working capital. With a market capitalization of only $2 billion, it will not take a lot of institutional buying to send the share price of Synovus significantly higher.

  Synovus Financial BB&T SunTrust
Market Cap ($) 2.1 billion 21.7 billion 15.7 billion
EPS (TTM) $0.08 $2.70 $3.59
P/E 31.8x 11.4x 8.1x
Ann. Dividend/Yield $0.04/1.53% $0.80/2.59% $0.20/0.68%
Beta 1.5 1.1 1.7
Short Interest 6.05% 1.09% 2.25%

In reviewing the Southeast banking market as a whole, neighbors BB&T and SunTrust both reported fourth quarter earnings during the past week. BB&T beat on earnings and revenue, sending its stock higher by more than 2% on Wednesday. The company achieved record net income, and net interest margin remained strong at 3.84%.

On Friday, SunTrust reported a strong fourth quarter as well, earning $3.59 per share in 2012 compared to only $0.94 per share in 2011.  Overall, regional banks such as BB&T, SunTrust, and Synovus are beginning to outshine larger money center banks such as Bank of America and Citigroup.

Foolish Bottom Line

Synovus Financial is scheduled to release its fourth quarter and full year 2012 results on Tuesday, Jan. 22 at 8:30 a.m. Consensus analyst estimates for Tuesday stand at a loss of 9 cents per share on revenue of $279 million.

I recently initiated a long position in Synovus as I decided to use dollar-cost averaging ahead of the earnings call. If management delivers a solid quarter, the stock will move higher and the cost basis of my position will increase as I buy more shares. It’s even possible the company could announce the deferred tax asset recapture as soon as Tuesday.

If Synovus disappoints, I will take advantage of the short-term sell-off to complete my investment. Either way, I feel comfortable that a fabulous long-term story is intact for investors with a 12-month time frame.

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