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Loan Growth, Rising Rates Aid Synovus (SNV) Despite High Costs

Synovus Financial Corp’s SNV organic growth strategy is backed by rising loans, and improvement in deposit pricing and rate hikes. However, higher costs on growth initiatives and the lack of diversification in the loan portfolio are major concerns for Synovus.

The Zacks Consensus Estimate for the company’s current-year earnings has been unrevised in the past 30 days. In the past month, shares of the company have gained 8.2% compared with the industry’s rise of 1.7%.

The company currently carries a Zacks Rank #3 (Hold).


Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research


Synovus’ loans witnessed a compound annual growth rate (CAGR) of 12.2% in the last five years (2017-2021). Total deposits saw a CAGR of 13.4% over the past three years ended 2021, backed by continued growth in core transaction deposit accounts.

Thus, Synovus is well-poised to bolster net interest income (NII) in the quarters ahead, driven by a favorable lending environment, and improvement in deposit pricing. Management expects loan growth to be 11% (excluding all paycheck protection program or PPP balances) for 2022.

The company is making significant progress on its "Synovus Forward" initiative, which was announced in March 2020. Efficiency initiatives in 2022 entail closing an additional 15% of its branch locations. Through continued real estate optimization and efforts to expand products, Synovus remains on track to achieve pre-tax run rate savings of $175 million by 2022 end.

Recovering from the adverse impacts of the financial crisis, Synovus has been substantially reducing criticized and classified loans. Although the company recorded provisions for credit losses of $49.6 million in the first nine months of 2022, credit quality metrics remain strong and near historical-low levels. This is reflected in non-performing assets (NPA) and non-performing loan (NPL) ratios, which improved in the third quarter, while the net charge-off ratio remained historically low.

However, Synovus has witnessed a rise in expenses. Though costs declined in 2021, the same witnessed a CAGR of 9.9% over the last four years (ended 2021). In third-quarter 2022, the company raised minimum wages, which are expected to increase expenses by $2 million for the fourth quarter and $9 million annually. Management expects adjusted non-interest expenses to rise 7-8% in 2022. Long-term investments in talent, technology and improving customer experiences are expected to inflate expenses and limit its bottom-line expansion.

Long-term debt of $4.4 billion as of Sep 30, 2022, increased from Dec 31, 2021. Cash and due from banks of $516.16 million witnessed a similar uptrend. Also, its total debt/total capital of 51.2% and times-interest earned ratio of 17.8 at the end of the third quarter of 2022 deteriorated sequentially. Given limited liquidity and a high debt burden, the company might not meet debt obligations in the near term if the economic situation worsens.

Limited liquidity, along with unfavorable debt/equity ratio and payout rate, makes capital deployment activities seem unsustainable.

The loan portfolio of Synovus comprises majorly commercial and industrial, and commercial real estate loans (79% as of Sep 30, 2022). High exposure can be risky for the company, especially if the economy and overall real estate sector weaken.

Stocks Worth a Look

A couple of stocks from the finance space worth considering are BOK Financial Corporation BOKF and F.N.B FNB.

The Zacks Consensus Estimate for BOKF’s current fiscal-year earnings has moved 3% higher in the past 30 days. In the past six months, its shares have rallied 21.6%. Currently, BOKF sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

FNB currently carries a Zacks Rank #2 (Buy). Its earnings estimates for the current year have been unrevised over the past 30 days. In the past six months, its shares have rallied 15.6%.

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Synovus Financial Corp. (SNV) : Free Stock Analysis Report

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