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SYNOVUS FINANCIAL CORP (SNV)·Q2 2017 Earnings Summary

Executive Summary

  • EPS of $0.60, up from $0.56 in Q1 and $0.46 in Q2 2016; ROA reached 1.00% and ROCE 10.34%, reflecting continued margin expansion and operating leverage .
  • Net interest margin rose to 3.51% (up 9 bps QoQ, 24 bps YoY) on higher loan yields; efficiency ratio improved to 59.90% from 64.84% in Q1 and 65.11% in Q2 2016 .
  • Loans and deposits grew: total loans ended at $24.43B; average deposits were $24.99B; core transaction deposits increased $261.3M QoQ (5.8% annualized) .
  • Credit quality broadly favorable (NPA ratio 0.73%), but net charge-offs increased to $15.7M (0.26% annualized), warranting monitoring into 2H17 .
  • 2017 outlook reiterated: average loan growth 5–7%, NII growth 12–14%, adjusted non-interest income growth 2–4%, expense growth 2–4%, ETR 34–35%, NCOs 15–20 bps; share repurchases up to $200M; Q2 repurchases totaled $30.2M .

What Went Well and What Went Wrong

What Went Well

  • EPS +29.6% YoY and +7.1% QoQ; ROA at 1.00% and efficiency ratio below 60%, with CEO highlighting “30 percent year-over-year increase in earnings per share…efficiency ratio below 60 percent” .
  • Net interest income +4.7% QoQ and +13.4% YoY; NIM up to 3.51% on higher earning asset yields (+11 bps QoQ) while effective cost of funds rose modestly (+2 bps) .
  • Loan and deposit growth continued: loans +$172M QoQ (2.8% annualized), consumer loans +$207M QoQ (16.3% annualized), average deposits +$72.9M QoQ (1.2% annualized); core transaction deposits +$261.3M QoQ .

What Went Wrong

  • Net charge-offs rose to $15.7M (0.26% annualized) vs. $6.9M (0.12%) in Q1, driven largely by C&I; NCOs increased across categories MoQ .
  • Total non-interest income declined 4.4% QoQ (to $68.7M), reflecting absence of Q1 investment securities gains; adjusted non-interest income did improve, but headline NIR was lower QoQ .
  • Commercial real estate loans contracted $45.0M QoQ and $93.4M YoY; CRE exposure continued to decline, contributing less to loan growth mix .

Financial Results

MetricQ2 2016Q4 2016Q1 2017Q2 2017
Net income to common ($M)$57.9 $66.0 $69.3 $73.4
Diluted EPS ($)$0.46 $0.54 $0.56 $0.60
Net interest income ($M)$221.4 $233.5 $239.9 $251.1
Total non-interest income ($M)$67.9 $74.0 $71.8 $68.7
Net interest margin (%)3.27 3.29 3.42 3.51
Efficiency ratio (%)65.11 63.98 64.84 59.90
ROA (%)0.83 0.90 0.96 1.00
ROCE (%)8.26 9.42 9.97 10.34

Segment and mix details (non-interest income components):

Non-Interest Income Component ($M)Q2 2016Q1 2017Q2 2017
Service charges on deposits$20.24 $19.77 $19.82
Fiduciary & asset mgmt fees$11.58 $12.15 $12.52
Brokerage revenue$7.34 $7.23 $7.21
Mortgage banking income$5.94 $5.77 $5.78
Bankcard fees$8.35 $8.19 $8.25
Other fee income$5.28 $4.87 $6.16
Other non-interest income$9.05 $8.02 $10.30
Total non-interest income$67.89 $71.84 $68.70

Key banking KPIs:

KPIQ2 2016Q1 2017Q2 2017
Total loans (period-end, $B)$23.06 $24.26 $24.43
Total avg loans ($B)$22.68 $23.78 $24.10
Total avg deposits ($B)$23.61 $24.92 $24.99
Avg core transaction deposits ($B)$16.85 $18.15 $18.41
NPL ratio (%)0.67 0.65 0.65
NPA ratio (%)0.81 0.77 0.73
Net charge-offs ($M)$6.13 $6.92 $15.68
NCO ratio (annualized, %)0.11 0.12 0.26
CET1 (transitional, %)10.01 9.86 10.02
TCE ratio (%)9.52 9.04 9.15

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average loan growthFY 2017Not disclosed5%–7% Set/Maintained
Average total deposit growthFY 2017Not disclosed5%–7% Set/Maintained
Net interest income growth (assumes no further rate changes)FY 2017Not disclosed12%–14% Set/Maintained
Adjusted non-interest income growthFY 2017Not disclosed2%–4% Set/Maintained
Total non-interest expense growthFY 2017Not disclosed2%–4% Set/Maintained
Effective tax rateFY 2017Not disclosed34%–35% Set/Maintained
Net charge-off ratioFY 2017Not disclosed15–20 bps Set/Maintained
Share repurchasesFY 2017Up to $200M Up to $200M; Q2 completed $30.2M Maintained; execution updated

Earnings Call Themes & Trends

Note: We attempted to read the Q2 2017 earnings call transcript but encountered a retrieval error (“database inconsistency”). We searched for the transcript and confirmed its listing dated July 18, 2017, but could not access its contents for full review. The table below therefore relies on press release and supplemental materials; we will update with Q&A once transcript access is restored .

TopicPrevious Mentions (Q4 2016, Q1 2017)Current Period (Q2 2017)Trend
Net interest margin trajectoryNIM 3.29% in Q4; 3.42% in Q1 with earning asset yield up 15 bps QoQ 3.51% in Q2; earning asset yield up 11 bps; cost of funds +2 bps Improving NIM on loan yield; modest funding cost headwind
Loan mix (C&I vs. CRE vs. Consumer)Q4: C&I +19.4% annualized; CRE down; Consumer up Q2: C&I +0.3% QoQ (annualized), Consumer +16.3%, CRE −2.4% Continued tilt toward C&I/Consumer; CRE contracting
Deposit growth and core fundingQ4 avg deposits +10.4% annualized; Q1 avg deposits +4.2% annualized Avg deposits +1.2% annualized; core transaction deposits +$261M Growth moderating QoQ; core mix strengthening
Credit qualityNPA ratio improved from 0.81% (Q2’16) to 0.74% (Q4); NCOs 0.14% in Q4; 0.12% in Q1 NPA ratio 0.73%; NCOs 0.26% with higher C&I NCOs Asset quality stable overall; NCOs elevated
Capital returnQ4 authorized $200M buyback; dividend to $0.15 CET1 10.02%; repurchased $30.2M in Q2 Ongoing repurchases; capital ratios improved
Strategic actionsQ1: agreement re WFB assets and sale to Capital One; $75M consideration; closing expected Q3 No update in press release; outlook focus on 2017 targets Transaction pending; operational focus maintained

Management Commentary

  • “We are pleased with our second quarter performance, highlighted by a 30 percent year-over-year increase in earnings per share…an efficiency ratio below 60 percent for the quarter.” — Kessel Stelling, Chairman & CEO .
  • On Q1 strategic transaction: “This transaction will provide Synovus with additional liquidity to support organic growth, as well as incremental capital…accelerate progress toward achieving our stated long-term ROA and efficiency goals.” — Kessel D. Stelling .

Q&A Highlights

We attempted to read the full Q2 2017 earnings call transcript but encountered a tool retrieval error and were unable to access the Q&A. We will supplement this section with analyst themes and management clarifications once transcript access is restored .

Estimates Context

S&P Global Wall Street consensus for Q2 2017 EPS and revenue was unavailable due to a data access limit (“Daily Request Limit Exceeded”). As a result, we cannot quantify beats/misses versus consensus for EPS and revenue for Q2 2017 at this time. We will update comparisons when SPGI data access is restored.

Where estimates may adjust: Given NIM acceleration and PPNR strength (adjusted efficiency ratio down to 59.56%), we would expect upward revisions to NII outlook and potentially modest adjustments to credit cost assumptions given the NCO uptick in Q2 .

Key Takeaways for Investors

  • Margin expansion is the primary driver of EPS growth; NIM at 3.51% with further upside tied to loan yield mix and rate environment .
  • Operating discipline evident: efficiency ratio at 59.90% (adjusted 59.56%), supporting sustainable PPNR growth even with softer headline NIR QoQ .
  • Growth mix favoring Consumer and C&I while CRE exposure declines; supports diversified earning asset yields and potentially steadier fee generation .
  • Watch credit: elevated NCOs to 0.26% (C&I-driven) amid otherwise stable NPA/NPL ratios; assess whether Q2 was a one-off or a trend into 2H17 .
  • Capital return remains active (Q2 buybacks $30.2M) with CET1 10.02%; provides flexibility while funding organic growth .
  • 2017 guidance intact: 5–7% average loan/deposit growth, 12–14% NII growth, expense growth 2–4%; sets baseline for modeling 2H17 .
  • Near-term trading implications: positive bias on margin/efficiency narrative; monitor subsequent disclosures on the WFB/Capital One transaction timeline and any credit developments .

Additional detail references and cross-checks

  • Non-GAAP reconciliations and adjusted metrics trend (Q2 adjusted efficiency ratio 59.56%; Total revenues as defined in reconciliation $321.449M) .
  • Average balances and yields/rates detail supporting NIM drivers .
  • Credit composition and NCO by type (C&I NCO ratio 0.38% in Q2) .
  • Prior-quarter and prior-year baselines for trajectory analysis: Q4 2016 and Q1 2017 press releases and tables .