Should This Southeastern Bank Be in Your Portfolio?

Southeastern bank Synovus (NYS: SNV) recently posted profits for the second consecutive quarter after three long years of continuous quarterly losses. While the credit quality improved for the regional player in the quarter, the loan books need a push.


  • Synovus has seen an improvement in its credit quality. Delinquent loans as a percentage of total loans fell to 0.74% as compared to 0.99% in the previous quarter. Synovus has seen its non-performing loans decline for the seventh straight quarter. NPLs fell to $189.2 million in the fourth quarter, a fall of 14.8% from the year-ago period.
  • The company's provision for loan losses has been on the decline, falling for the fourth consecutive time in this quarter. In fact, this quarter's loan loss provision declined by a staggering 78% from the previous year. Falling provisions are good as they help the company to grow revenue, and also offer a chance to improve profitability.
  • Tier 1 capital ratio stands at 12.94%, indicating a healthy balance sheet.


  • Synovus has yet to repay the $1 billion it received as a part of TARP. What worries me is that in a recent conference call, management stated that "repayment of TARP is not a near-term event," although the company isn't ignoring it completely. Fellow regional player Regions Financial (NYS: RF) is in the same boat, as it has yet to repay the $3.5 billion received from the government. However, it has taken steps with this in mind, including selling Morgan Keegan to Raymond James Financial (NYS: RJF) .
  • Another potential problem is Synovus' loan growth. In its most recent quarter, its loan book declined by 7% (or $1.5 billion). This comes at a time when growing loan volumes have become a trend at banks. Citigroup's loans grew by 2% and JPMorgan Chase reported a 4.4% increase in the most recent quarter. Regions Financial also witnessed a growth in its loan portfolio, particularly in its middle market and industrial customer segment, which grew by 11%.


  • Low interest rates have been a major problem for banks so far, but now it may turn out to be a boon. Low interest rates may lure customers into taking on more loans, thus giving banks such as Synovus a chance to grow their loan portfolios.
  • As fellow Fool Dan Caplinger points out, a recovery in the housing market might help Synovus reduce its bad loans going forward, and also make it a good gamble. The market is already showing signs of recovery as the recent inflow of positive data suggest.


  • The European crisis might end up dampening the U.S. economic scenario -- not a good thing.
  • While low interest rates may provide an opportunity, it also offers very little room for top-line growth. Plus, with the U.S. economy currently characterized by slow growth and high unemployment, the chance of delinquencies also rises.

Synovus' credit quality has definitely improved, but the company must look to grow its loans in order to remain competitive. To stay up to date on how Synovus plans to increase its loan portfolio, simply click here and add the stock to your own personalized watchlist.

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At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of JPMorgan Chase and Citigroup. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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