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3 Things You Need to Know About This Regional Bank

By Dave Koppenheffer – Mar 11, 2014 at 7:00AM

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Synovus has been diligent with its cost cutting initiative. However, investors need to know how the bank plans on allocating its future capital.

"Pleased with continuing shift in mix of our balance sheet as we continue to come out of this very tough time period for our Company."

-Kessel Stelling, CEO, Synovus

The story for Synovus Financial (SNV 0.77%) in 2013 -- similar to KeyCorp (KEY -0.96%) and Regions Financial (RF 0.27%) -- was cutting costs and pushing toward greater efficiency.

Stelling referred to the cost-cutting effort as "painful", but it proves Synovus is acting with a sense of urgency. This will continue to be a theme into 2014. How the bank plans to utilize its future capital, however, will be important to understand.

Synovus' three most important strategies for putting its capital to work:

  1. Talent
  2. Technology
  3. Brand recognition

Today, I'll dig into these three strategic initiatives while comparing its progress to other regional banks.

"So talent is one piece of the investment."
Stelling suggested the bank would invest in new talent, "both to complement existing teams and allow us to continue to explore other business lines."

I'm more concerned with the quality of the banks underwriting, rather than how many products the bank offers. One great way to judge this is by looking at net charge-offs, which are the percent of loans a bank is owed but is unlikely to recover. 

All three banks got hit hard during the financial crisis, and none more so than Synovus. While the company has made tremendous strides, I'm unsure if expanding business lines is the right move. Personally, I favor banks sticking to their core businesses. KeyCorp, has been one such bank. 

"Technology's a big piece of it"
Banks need to leverage technology to strengthen core operating systems and improve efficiency. For instance, Synovus has recently added 200 new ATMs, which act as virtual bank branches. Second, technology provides a more relevant and functional customer experience. This means improving the bank's e-channel and having mobile capabilities.

Regional banks, ultimately, don't have the resources to keep pace with larger banks. This is why -- while growing capabilities is essential -- I'm more interested in banks that improve on the existing advantage it has over larger banks. Regional banks provide a regional experience customers appreciate -- and if Synovus becomes focused on creating the same experience as a Bank of America, it will lose.

Advertising and brand recognition
Of the three allocation priorities, this one struck me as the most important. As of today, Synovus operates under 29 different locally branded names. Stelling suggested, "We do believe we have an opportunity to connect those brands through greater branding on the Synovus name." 

Growing the brand will take big advertising dollars, and Synovus certainly isn't known for its marketing spend. Looking to Regions and KeyCorp, those companies spent $100 million and $50 million in 2013, respectively. We should also keep in mind both banks are larger than Synovus, and Regions has been ramping up while KeyCorp has been winding down. Marketing spend for Synovus should fall somewhere in the $15 million to $30 million range. 

Branding can improve customer confidence. So, while this will be a difficult mountain to climb, it's necessary. 

Bullish or bearish?
I won't say I'm bearish on Synovus, I'm just not that interested. When I look to invest in a bank, I look for some form of lasting competitive advantage, or at least something that separates it from the pack. As I compare Synovus to banks like Keycorp and Regions, nothing really stands out.

With that said, I think Stelling's priorities are in line. Strengthening the banks future through cost cutting makes sense. The most interesting story will be whether Synovus can build its brand name. If its successful and can associate its name with something lasting, that could make it a more alluring investment opportunity. 

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool owns shares of KeyCorp. We Fools may not 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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