Synovus' Surprise Profit


The wait is finally over. For the first time since the second quarter of 2008, SynovusFinancial (NYS: SNV) swung to a quarterly profit and also signaled a positive outlook for the next quarter. The Southeastern bank was hit pretty badly during the mortgage crisis of 2008 and suffered 12 consecutive quarterly losses. But this time out, helped by a fall in loan loss provisions and a gain on investment securities, it posted higher-than-expected profits, sending its shares up 13%.

Thirteenth time's the charm
Analysts surveyed by Thomson Reuters expected Synovus to report a loss of $0.03 a share, and they weren't expecting it to report profits before next quarter. But, contrary to estimates, it reported a profit of $30.2 million, or $0.02 a share. The company had posted a loss of $181.4 million a year earlier.

Low interest rates continue to batter revenues and most banks across the board haven't really seen any significant top-line growth. Synovus' net interest income dropped for the quarter but, thanks to a $62.9-million gain in the sale of investment securities, it recorded a 63% increase in its non-interest income. This coupled with a 60% drop in its provision for loan losses helped Synovus nearly triple its top line and enabled it to finally report numbers in the black.

Regional banks are back
The proof, if you will, that regional banks have finally made a turnaround is their improving credit quality and strengthening capital position. Regions Financial (NYS: RF) , for instance, posted a healthy profit in its most recent quarter in which its provisions declined and its credit quality improved. Despite reporting numbers in the red, Flagstar Bancorp (NYS: FBC) saw its provisions decrease by 41%.

For Synovus, along with declining provisions, net charge-offs fell by 42%. The bank also strengthened its capital position, with a Tier 1 capital ratio of 12.97%, above the 12.84% it reported last quarter.

The Foolish bottom line
Since the mortgage crisis back in 2008, Synovus has made a concerted effort to bring down bad loans and at the same time raise capital. It has laid off more than 800 workers since the close of last year and has also shut down a number of branches in an attempt to cut down some of its core expenses. The bank is also set to delve more into commercial lending.

Synovus is still vulnerable to industrywide trends. A lethargic economy with low demand for loans coupled with low interest rates will continue to weigh on its top line. Even then, Synovus expects to post numbers in the black, which is the biggest positive. To follow Synovus' return to profitability, click here to add it your own personalized Watchlist.

At the time thisarticle was published Fool contributor Shubh Datta doesn't own any shares in the companies listed above. 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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