Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SNV > SEC Filings for SNV > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for SYNOVUS FINANCIAL CORP

Form 10-Q for SYNOVUS FINANCIAL CORP


6-Aug-2014

Quarterly Report


ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Report, the words "Synovus," "the Company," "we," "us," and "our" refer to Synovus Financial Corp. together with Synovus Bank and Synovus' other wholly-owned subsidiaries, except where the context requires otherwise.
FORWARD-LOOKING STATEMENTS
Certain statements made or incorporated by reference in this Report which are not statements of historical fact including those under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Report, constitute forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act, and
Section 21E of the Exchange Act. Forward-looking statements include statements with respect to Synovus' beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, many of which are beyond Synovus' control and which may cause Synovus' actual results, performance or achievements or the commercial banking industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through Synovus' use of words such as "believes," "anticipates," "expects," "may," "will," "assumes," "predicts," "could," "should," "would," "intends," "targets," "estimates," "projects," "plans," "potential" and other similar words and expressions of the future or otherwise regarding the outlook for Synovus' future business and financial performance and/or the performance of the commercial banking industry and economy in general. Forward-looking statements are based on the current beliefs and expectations of Synovus' management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by such forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this document. Many of these factors are beyond Synovus' ability to control or predict. These factors include, but are not limited to:
(1) the risk that competition in the financial services industry may adversely affect our future earnings and growth;

(2) the risk that we may not realize the expected benefits from our efficiency and growth initiatives, which will negatively affect our future profitability;

(3) the risk that we may be required to make substantial expenditures to keep pace with the rapid technological changes in the financial services market;

(4) the risk that our enterprise risk management framework may not identify or address risks adequately, which may result in unexpected losses;

(5) the risk that our allowance for loan losses may prove to be inadequate or may be negatively affected by credit risk exposures;

(6) the risk that any future economic downturn could have a material adverse effect on our capital, financial condition, results of operations and future growth;

(7) the risk that we could realize additional losses if our levels of non-performing assets increase and/or if we determine to sell certain non-performing assets and the proceeds we receive are lower than the carrying value of such assets;


Table of Contents

(8) changes in the interest rate environment and competition in our primary market area may result in increased funding costs or reduced earning assets yields, thus reducing margins and net interest income;

(9) the risk that if we pursue acquisitions in the future as part of our growth strategy, we may not be able to complete such acquisitions or successfully integrate bank or nonbank acquisitions into our existing operations;

(10) risks related to a failure in or breach of our operational or security systems of our infrastructure, or those of our third-party vendors and other service providers, including as a result of cyber attacks, which could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses;

(11) risks related to our reliance on third parties to provide key components of our business infrastructure, including the costs of services and products provided to us by third parties, and risks related to disruptions in service or financial difficulties of a third-party vendor;

(12) the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations, or other supervisory actions or directives and any necessary capital initiatives;

(13) the impact of the Dodd-Frank Act, the capital requirements promulgated by the Basel Committee on Banking Supervision and other recent and proposed changes in governmental policy, laws and regulations, including proposed and recently enacted changes in the regulation of banks and financial institutions, or the interpretation or application thereof, including restrictions, increased capital requirements, limitations and/or penalties arising from banking, securities and insurance laws, enhanced regulations and examinations and restrictions on compensation;

(14) the risks that if economic conditions worsen or regulatory capital rules are modified, or the results of mandated "stress testing" do not satisfy certain criteria, we may be required to undertake additional strategic initiatives to improve our capital position;

(15) changes in the cost and availability of funding due to changes in the deposit market and credit market, or the way in which we are perceived in such markets, including a downgrade in our credit ratings;

(16) the impact on our borrowing costs, capital costs and our liquidity due to our status as a non-investment grade issuer;

(17) restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect our overall liquidity, which could restrict our ability to make payments on our obligations and our ability to support asset growth and sustain our operations and the operations of Synovus Bank;

(18) the risk that we may be unable to pay dividends on our Common Stock or Series C Preferred Stock or Synovus Bank may be unable to pay dividends to us;

(19) the risk that for our deferred tax assets, we may be required to increase the valuation allowance in future periods, or we may not be able to realize all of the deferred tax assets in the future;

(20) the risk that we could have an "ownership change" under Section 382 of the IRC, which could impair our ability to timely and fully utilize our net operating losses and built-in losses that may exist when such "ownership change" occurs;

(21) risks related to recent and proposed changes in the mortgage banking industry, including the risk that we may be required to repurchase mortgage loans sold to third parties and the impact of the "ability to pay" and "qualified mortgage" rules on our loan origination process and foreclosure proceedings;

(22) the costs and effects of litigation, investigations, inquiries or similar matters, or adverse facts and developments related thereto;

(23) risks related to the fluctuation in our stock price;

(24) the effects of any damages to Synovus' reputation resulting from developments related to any of the items identified above; and

(25) other factors and other information contained in this Report, other reports and filings that we make with the SEC under the Exchange Act, including, without limitation, those found in "Part I-Item 1A. Risk Factors" of Synovus' 2013 Form 10-K.

For a discussion of these and other risks that may cause actual results to differ from expectations, refer to "Part I-Item 1A. Risk Factors" and other information contained in Synovus' 2013 Form 10-K and our other periodic filings, including quarterly


Table of Contents

reports on Form 10-Q and current reports on Form 8-K, that we file from time to time with the SEC. All written or oral forward-looking statements that are made by or are attributable to Synovus are expressly qualified by this cautionary notice. You should not place undue reliance on any forward-looking statements since those statements speak only as of the date on which the statements are made. Synovus undertakes no obligation to update any forward-looking information and statements, whether written or oral, to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.
INTRODUCTION AND CORPORATE PROFILE
Synovus Financial Corp. is a diversified financial services company and a registered financial holding company headquartered in Columbus, Georgia. Synovus provides integrated financial services including commercial and retail banking, financial management, insurance, and mortgage services to its customers through locally-branded banking divisions of its wholly-owned subsidiary bank, Synovus Bank, and other offices in Georgia, Alabama, South Carolina, Florida, and Tennessee.
The following financial review summarizes the significant trends affecting Synovus' results of operations and financial condition for the six and three months ended June 30, 2014 and 2013, respectively. This discussion supplements, and should be read in conjunction with, the unaudited interim consolidated financial statements and notes thereto contained elsewhere in this Report and the consolidated financial statements of Synovus, the notes thereto, and management's discussion and analysis contained in Synovus' 2013 Form 10-K. Management's Discussion and Analysis of Financial Condition and Results of Operations are divided into key segments:
Economic Overview

Discussion of Results of Operations-Reviews Synovus' financial performance, as well as selected balance sheet items, items from the statements of income, and certain key ratios that illustrate Synovus' performance.

Credit Quality, Capital Resources and Liquidity-Discusses credit quality, market risk, capital resources, and liquidity, as well as performance trends. It also includes a discussion of liquidity policies, how Synovus obtains funding, and related performance.

Additional Disclosures-Provides comments on additional important matters including other contingencies, critical accounting policies and non-GAAP financial measures used within this Report.

A reading of each section is important to understand fully the nature of our financial performance.
ECONOMIC OVERVIEW
Despite a series of progressively declined revisions to the first quarter of 2014 gross domestic product (GDP), culminating in a final estimate of negative 2.1%, the Federal Reserve continued to proceed with U.S. Treasury and Mortgage-Backed Securities (MBS) purchase reductions at a pace that is expected to bring the Quantitative Easing (QE) process to an end by October 2014. Although second quarter GDP estimates have not been finalized, the initial estimate of 4.0% growth reflects the positive impact of several factors, including employment growth, manufacturing expansion, and increased consumption, due in part to higher consumer sentiment.
The national unemployment rate at quarter-end dropped 60 bps from the first quarter, to 6.1%. Bureau of Labor Statistics and ADP Payroll monthly job creation data were impressive (specifically in June when both measurements exceeded 280,000 new jobs), yet a significant portion of the decline was attributable to a sizable reduction in the national labor force. Within the Synovus footprint, this trend is best reflected in South Carolina, where labor force reductions, coupled with employment gains, have led to a year-over-year unemployment rate improvement of 260 bps (7.9% to 5.3%). Florida is exhibiting gains in both labor force and job growth which, although healthier for the state economy, results in a less impressive year-over-year decline in the unemployment rate (7.5% to 6.3%). Tennessee (8.4% to 6.4%) and Georgia (8.4% to 7.2%) show declines in state unemployment rates that are primarily due to more labor force declines, with the exception of major metro areas such as Atlanta-Sandy Springs-Roswell, GA MSA and Nashville-Davidson-Murfreesboro-Franklin, TN MSA, which both follow Florida's pattern. Alabama lost more jobs than labor force participants, resulting in the footprint's only increased unemployment rate of 6.8%, up from 6.4% one year earlier. The lowest second quarter Synovus footprint unemployment rate is 4.5% in Greenville-Anderson-Mauldin, SC MSA; the highest second quarter Synovus footprint unemployment rate is 8.9% in Dalton, GA MSA, although this market showed the best improvement in Georgia with a 200 bps reduction year-over-year.


Table of Contents

Manufacturing growth is evidenced by increases in the Institute for Supply Management Purchase Manager's Index from 54.9 in April to 55.3 in June, as well as the Markit PMI (Purchasing Managers' Index), which increased from 55.4 to 57.3 over the same period. Industrial production grew 6.7% in the second quarter, far better than the growth rate of 1.4% in the first quarter. Record port and rail traffic numbers were a constant throughout the second quarter as suppressed demand from first quarter excised itself from the economy. These statistics are particularly important in the Synovus footprint as manufacturing and logistics expansion in the Southeast is significant, especially near port markets, such as Charleston, Savannah, and Mobile, that will be able to accommodate post-Panamax ship volume. Inland port areas such as Greenville, SC and Atlanta, GA are seeing manufacturing, supplier, and logistics growth based on easy access to the aforementioned ports as well as an economically friendly business environment.
The Conference Board Consumer Confidence Index rose from 82.3 at the beginning of the second quarter to 85.2 at the end of June. Consumer spending, presumably muted by winter storms during the first quarter, has shown evidence of a rebound in the form of consumer credit growth and a rising number of automobile sales. First quarter automobile sales reached an annualized level of 16.4 million units in March, and by June this number had climbed to annualized sales of 17.0 million units. On the commercial front, the National Federation of Independent Businesses Small Business Optimism Index was relatively stagnant, holding at a positive yet cautious rating of 95 at quarter-end.
Despite continued tapering of MBS purchases by the Federal Reserve in the second quarter, Freddie Mac 30-year, fixed mortgage rates moved downward to 4.14% in June from 4.41% in April. The pace of permitting in residential construction (including multi-family) continued to decline as evidenced by reductions in permit volume in many MSAs within the Synovus footprint. Nationally, median single family existing home sale prices generally increased year-over-year during the quarter (5.1% annualized), though the pace has slowed substantially since peak quarters in 2013. The most recently released (for May 2014) Case-Shiller 10 and 20 City Composite Indices for sales of U.S. housing showed annualized gains of 9.4% and 9.3% annualized, respectively, compared to the prior month's (April 2014) annualized gains of 10.8% annualized, for both the 10 and 20 City Composite Indices. The decline in the rate of U.S home price appreciation indicated by the Case-Shiller Indices is reflective of a normalizing housing market driven by true market sales, not distressed or foreclosure sales.
Nationally, commercial real estate continued its recovery as asset values pushed higher, particularly in the multi-family and industrial/warehouse sectors where capitalization rates have reached historic lows, and rents have generally exceeded pre-recession levels. Premium pricing for major metro market properties has pushed investors seeking adequate yields towards secondary markets and major inland transportation hubs. CRE, and more specifically the hospitality segment, has continued to perform very well within the Synovus footprint as well. Smith Travel Research shows that of eighteen markets comprising the bulk of Synovus' hospitality portfolio and expansion areas, all except one has shown positive RevPAR (Revenue Per Available Room) growth. Though Florida is the footprint leader in CRE metric gains and job creation, South Carolina is emerging as a contender, driven by port growth, manufacturing, and logistics.
Nashville-Davidson-Murfreesboro-Franklin, TN MSA leads all Synovus footprint major MSAs with low vacancy rates for multi-family (4.0%), retail (7.9%), and office (13.7%).
Second quarter geopolitical concerns were focused on unrest in Iraq, while global economic interest continued to be centered on Europe and the persistent struggle there between creditor and debtor members. While there has been improved productivity and growth in some areas of the European community, there continues to be nagging unemployment and expense concerns in others. China's economy is slowing in time with decreased worldwide demand. There is some concern that Federal Reserve policy actions could impact developing economies over the course of 2014 and into 2015. Closer to home, Latin and South American economies are significantly impacting domestic economies in Texas and Florida. At this time, Synovus does not have direct exposure to global markets, but it will continue to monitor the impact of international developments on domestic economic activity and will determine the most appropriate strategies to pursue.


Table of Contents

DISCUSSION OF RESULTS OF OPERATIONS
Consolidated Financial Highlights
A summary of Synovus' financial performance for the six and three months ended
June 30, 2014 and 2013 is set forth in the table below.
                                Six Months Ended June 30,               Three Months Ended June 30,
(dollars in thousands,
except per share data)        2014         2013        Change          2014          2013       Change
Net interest income        $ 405,566     401,891        0.9%         205,051       202,077       1.5%
Provision for loan losses     21,795      48,773       (55.3)         12,284        13,077        (6.1 )
Non-interest income          133,569     129,813        2.9           63,388        65,092        (2.6 )
Non-interest expense         366,365     363,472        0.8          182,205       181,186         0.6
Adjusted non-interest
expense(1)                   336,558     331,582        1.5          169,498       167,777         1.0
Income before income taxes   150,975     119,459        26.4          73,950        72,906         1.4
Adjusted pre-tax,
pre-credit costs
income(1)                    195,457     198,674       (1.6)          98,941        97,989         1.0
Net income                    95,289      75,109        26.9          46,872        45,535         2.9
Net income available to
common shareholders           90,170      45,515        98.1          44,313        30,717        44.3
Net income per common
share, basic                    0.65        0.39        66.9            0.32          0.25        26.2
Net income per common
share, diluted                  0.65        0.35        84.8            0.32          0.24        34.5
Net interest margin             3.40 %      3.41      (1) bps           3.41 %        3.39       2 bps
Net charge-off ratio            0.50        0.90     (40) bps           0.69          0.61       8 bps




                                                                   Sequential
(dollars in thousands,                                               Quarter                         Year Over
except per share data)        June 30, 2014     March 31, 2014       Change        June 30, 2013    Year Change
Loans, net of deferred fees
and costs                    $  20,455,763         20,159,004       296,759       $  19,608,283      847,480
Total deposits                  20,993,467         20,950,892        42,575          20,710,703      282,764
Core deposits(1)                19,544,047         19,584,952       (40,905 )        19,372,640      171,407
Core deposits excluding time
deposits(1)                  $  16,377,551         16,364,879        12,672          15,995,424      382,127

                                                                                                       (144)
Non-performing assets ratio           1.77 %             2.46      (69) bps                3.21 %        bps
Past due loans over 90 days           0.02               0.03        (1) bp                0.02            -

Tier 1 capital               $   2,500,491          2,430,790        69,701       $   2,904,985     (404,494 )
Tier 1 common equity(1)          2,364,511          2,294,810        69,701           1,932,260      432,251
Total risk-based capital         2,958,274          2,981,130       (22,856 )         3,445,161     (486,887 )
                                                                                                       (248)
Tier 1 capital ratio                 11.01 %            10.85        16 bps               13.49 %        bps
Tier 1 common equity
ratio(1)                             10.42              10.24        18 bps                8.97      145 bps
Total risk-based capital                                                                               (296)
ratio                                13.03              13.31      (28) bps               15.99          bps
Total shareholders' equity                                                                             (196)
to total assets ratio                11.47              11.34        13 bps               13.43          bps
Tangible common equity to
tangible assets ratio(1)             10.91              10.78        13 bps                9.71      120 bps

(1) See reconciliation of "Non-GAAP Financial Measures" in this Report.

Results for the Six and Three Months Ended June 30, 2014 For the six months ended June 30, 2014, net income available to common shareholders was $90.2 million, or $0.65 per diluted common share, compared to net income available to common shareholders of $45.5 million or $0.35 per diluted common share for the six months ended June 30, 2013. For the three months ended June 30, 2014, net income available to common shareholders was $44.3 million, or $0.32 per diluted common share, compared to net income available to common shareholders of $30.7 million, or $0.24 per diluted common share, for the same period a year earlier. Net income (which does not include dividends and accretion of discount on preferred stock) for the six months ended June 30, 2014 was $95.3 million compared to net income of $75.1 million for the six months ended June 30, 2013 and was $46.9 million for the three months ended June 30, 2014 compared to $45.5 million for the same period a year earlier. The first six months of 2014 results include a $5.8 million net gain from the Memphis transaction, a $3.1 million gain on a branch property sale, and $16.3 million in restructuring charges while the first six months of 2013 results included $6.6 million in restructuring charges. The second quarter of 2014 included $7.7 million in restructuring charges compared to $1.8 million in restructuring charges for the same period a year earlier.


Table of Contents

Results for the six months ended June 30, 2014 reflect continued broad-based improvement in credit quality. Credit costs continued to decline and totaled $34.6 million for the six months ended June 30, 2014, compared to $73.3 million for the six months ended June 30, 2013. For the three months ended June 30, 2014, credit costs were $16.9 million compared to $24.0 million for the same period a year ago. Net charge-offs for the three months ended June 30, 2014 totaled $35.4 million or 0.69% of average loans annualized, up $20.2 million from $15.2 million or 0.30% of average loans annualized in the first quarter of 2014 due to the significant reduction in NPLs which had existing reserves. The year-to-date net charge-off ratio is 0.50%, compared to 0.90% for the six months ended June 30, 2013. NPL inflows were $34.3 million for the second quarter of 2014, down from $35.5 million in the first quarter of 2014, and down 48.7% from the second quarter of 2013. Total non-performing assets declined $135.1 million or 27.1% from $498.2 million at March 31, 2014 and declined $272.1 million or 42.8% from June 30, 2013.
Adjusted pre-tax, pre-credit costs income (which excludes provision for loan losses, other credit costs, restructuring charges, securities gains and losses, gain on the Memphis transaction, and certain other items) was $195.5 million for the six months ended June 30, 2014 with $98.9 million reported for the three months ended June 30, 2014 and $96.5 million reported for the three months ended March 31, 2014. The sequential quarter increase of $2.4 million in adjusted pre-tax, pre-credit costs income was driven by annualized loan growth of 5.9%, an increase in the net interest margin of two basis points, and growth in fee income from core business. Compared to the six months ended June 30, 2013, adjusted pre-tax, pre-credit costs income declined $3.2 million largely due to a $5.5 million decrease in mortgage banking income and a $5.0 million increase in adjusted non-interest expense (primarily due to an increase in advertising expense of $5.4 million). See reconciliation of "Non-GAAP Financial Measures" in this Report.
The net interest margin improved two basis points to 3.41% in the second quarter of 2014 compared to 3.39% for both the first quarter of 2014 and the second quarter of 2013. The yield on earning assets was 3.86%, unchanged from the first quarter of 2014, and the effective cost of funds declined two basis points to 0.45%. Compared to the second quarter of 2013, the yield on earning assets declined two basis points from 3.88% and the effective cost of funds declined four basis points from 0.49%.
At June 30, 2014, total loans outstanding were $20.46 billion, a sequential quarter increase of $296.8 million, or 5.9% annualized, driven by growth in C&I and retail loans. On a year-to-date basis, total loans grew $398.0 million or 4.0% annualized.
At June 30, 2014, total deposits were $20.99 billion, a sequential quarter increase of $42.6 million, or 0.8% annualized. Core deposits ended the quarter at $19.54 billion, down $40.9 million compared to the first quarter of 2014. Core deposits, excluding time deposits, increased $12.7 million compared to March 31, 2014. Compared to December 31, 2013, total deposits increased $116.7 million (excluding the impact of the Memphis transaction, total deposits increased $308.0 million or 3.0% annualized). Core deposits excluding the impact from the Memphis transaction were down $47.4 million or 0.5% annualized compared to December 31, 2013. See reconciliation of "Non-GAAP Financial Measures" in this Report.
Total shareholders' equity was $3.05 billion at June 30, 2014, up from to $2.95 billion at December 31, 2013.
Recent Developments
On April 24, 2014, at Synovus' 2014 Annual Shareholders' Meeting ("Annual Meeting"), Synovus' shareholders approved a proposal authorizing Synovus' Board of Directors to effect a one-for-seven reverse stock split of Synovus' common stock. Following the Annual Meeting, Synovus' Board of Directors authorized the . . .

  Add SNV to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SNV - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.