What to Infer From Synovus' Narrowed Losses?

Synovus Financial (NYS: SNV) has reported yet another quarterly loss. But even with dark clouds on the horizon, there are certain silver linings worth noting. For instance, the Columbus, Ga.-based bank experienced a sharp decline in its net loss as it narrowed its provision for loan losses (PLL) significantly.

The quarter in detail
The bank saw its net loss drop by a whopping 78%, to $53.5 million, as compared to the year-ago quarter. This was primarily due to a significant drop in PLL, which declined by more than half, to $120.2 million from $298.9 million during the same period last year. Total credit costs declined for the eighth straight quarter. While nonperforming assets fell by $353.8 million, they still stood at 5.85% of assets. Let's take a look at the bank's core operations before coming to a Foolish conclusion.

The negatives
On a sequential basis, Synovus' net interest income (NII) declined $6.5 million, primarily due to decreased loan balances. Noninterest income, however, rose 5.7% from the prior quarter, led by increases in mortgage revenues and bank card fees. These were offset a bit by lower service charges on deposits.

The trend of banks cutting down their PLL shows that banks are feeling confident about doing away with such safety measures. But while other regional banks, such as KeyCorp (NYS: KEY) and Huntington Bancshares (NAS: HBAN) , have been reporting profits on improving credit quality, Synovus failed to break its recent trend of posting losses. Besides, it's still struggling to pay back bailout money of almost $1 billion that it owes the government.

The Foolish bottom line
Synovus' improving credit quality is an encouraging signal and I feel it will help the bank report profits eventually. But it will have to strengthen its core operations before I consider it a Foolish buy.

Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in this article.Try any of our Foolish newsletter services free for 30 days. 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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