After announcing earnings this morning, Synovus Financial's stock shot up nearly 4% in early trading this morning before retreating to a loss. Investors looking for the reason behind the move don't have to look any further than a couple of one-time gains during the quarter.
At first glance, it appears that the bank did outstandingly during the quarter, improving net income from a modest $16 million during the third quarter to a phenomenal $712.8 million during the fourth quarter. However, it is important to look past this gaudy number to determine how the bank could improve its net income by such a substantial margin.
In the earnings release, the bank points to two specific events during the quarter that led to the strong performance. The first was an income tax benefit of approximately $800 million from the recapture of a deferred tax valuation allowance, while the second, and perhaps more importantly, was the sale of $545 million in distressed assets. According to CEO Kessel D. Stelling, this sale "accelerates quality improvement and also enhances our future financial performance." That is probably what the market wanted to hear the most, but Synovus still has a lot of work ahead of it before it truly gets the benefit of the doubt from investors again.
One more improvement needed
Perhaps the biggest thing holding Synovus back from truly returning to its pre-financial crisis levels is the nearly $1 billion in TARP funds that are still impacting performance at the bank. Until the bank can get out from under the thumb of these obligations, it will probably continue to be an also-ran in the world of regional banking. However, Stelling indicate that the asset recapture and bulk sale should allow the bank to repay its TARP obligations by the end of the year, which would only boost its performance going forward. This is definitely something to keep an eye on throughout the remainder of the year.
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The article Why Synovus Financial Jumped After Its Earnings Announcement originally appeared on Fool.com.
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