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SYNOVUS FINANCIAL CORP (SNV)·Q2 2018 Earnings Summary

Executive Summary

  • Q2 2018 delivered strong profitability and revenue growth: diluted EPS $0.91 (+8% q/q, +53% y/y), adjusted EPS $0.92; total revenues $359.3M (+5% q/q, +12% y/y), NIM expanded to 3.86% (+8 bps q/q, +35 bps y/y) .
  • Efficiency improved: adjusted efficiency ratio fell to 56.41% (from 57.42% in Q1 2018; 59.56% in Q2 2017), reflecting expense discipline despite higher other operating expenses .
  • Credit quality remained favorable (NPA ratio 0.50%) but net charge-offs rose sequentially to 0.29% annualized as consumer credit and C&I normalized from unusually low levels in Q1 .
  • Strategic catalyst: announced definitive agreement to acquire FCB Financial Holdings for ~$2.9B; expected ~6.5% EPS accretion in 2020 with ~$40M pretax synergies, TBVPS dilution ~3.3% and earnback <2 years .

What Went Well and What Went Wrong

What Went Well

  • Revenue and NIM expansion: total revenues reached $359.3M (+$17.9M q/q) and NIM rose to 3.86% on higher earning asset yields (+16 bps q/q), with effective cost of funds up just 8 bps .
  • Balanced loan growth with consumer momentum: period-end loans $25.13B (+$251M q/q, +$704M y/y); consumer loans +18.0% annualized q/q, C&I +5.8% annualized q/q; CRE declined per strategy to de-risk .
  • Management tone: “another solid quarter… strong momentum” highlighting unified brand transition and Series D preferred issuance; ROA 1.42%, ROE 15.39% underscored improved returns .

What Went Wrong

  • Sequential uptick in net charge-offs: NCOs rose to $17.8M (0.29% annualized) from $4.3M (0.07%) in Q1, reflecting normalization from unusually benign credit in Q1 and mix effects from growth in consumer/C&I .
  • Rising deposit costs: cost of interest-bearing core deposits climbed to 0.57% (+11 bps q/q), mirroring broader rate pressures; effective cost of funds up to 0.61% (+8 bps q/q) .
  • Non-interest expense increased: reported NIE $204.1M (+$8.9M q/q) on higher other operating expense (+$4.8M) and occupancy (+$1.2M), partially offset by a litigation recovery; Visa derivative valuation expense of $2.3M weighed on GAAP .

Financial Results

MetricQ2 2017Q1 2018Q2 2018
Total Revenues (FTE, $USD Millions)$320.097 $341.446 $359.380
Adjusted Total Revenues ($USD Millions)$321.449 $344.502 $359.417
Net Interest Income ($USD Millions)$251.097 $274.284 $284.577
Total Non-Interest Income ($USD Millions)$68.701 $67.046 $73.387
Diluted EPS ($)$0.60 $0.84 $0.91
Adjusted Diluted EPS ($)$0.61 $0.86 $0.92
Net Interest Margin (%)3.51% 3.78% 3.86%
Efficiency Ratio (%)59.90% 57.16% 56.78%
Adjusted Efficiency Ratio (%)59.56% 57.42% 56.41%

Segment/Composition detail (non-interest income):

Non-Interest Income Category ($USD Millions)Q2 2017Q1 2018Q2 2018
Service charges on deposit accounts$20.252 $19.940 $19.999
Fiduciary & asset management fees$12.524 $13.435 $13.983
Brokerage revenue$7.210 $8.695 $8.900
Mortgage banking income$5.784 $5.047 $4.839
Card fees$10.041 $10.199 $10.833
Other fee income$6.164 $4.618 $5.259
Income from BOLI$3.272 $4.217 $3.733
Other non-interest income$4.807 $3.951 $7.174
Investment securities (losses)/gains, net$(0.001) $0.000 $(1.296)
Change in fair value of private equity investments, net$(1.352) $(3.056) $(0.037)
Total non-interest income$68.701 $67.046 $73.387

Key KPIs:

KPIQ2 2017Q1 2018Q2 2018
Period-end Loans ($USD Billions)$24.43 $24.88 $25.13
Total Average Deposits ($USD Billions)$24.99 $25.79 $26.27
ROA (%)1.00% 1.34% 1.42%
ROE (%)10.34% 14.62% 15.39%
NPA Ratio (%)0.73% 0.53% 0.50%
Net Charge-off Ratio (annualized, %)0.26% 0.07% 0.29%
CET1 Ratio (transitional, %)10.02% 9.99% 10.11%
Tangible Common Equity Ratio (%)9.15% 8.79% 8.77%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Average loan growthFY 2018n/a4%–6% n/a
Average total deposit growthFY 2018n/a4%–6% n/a
Net interest income growthFY 2018n/a11%–13% n/a
Adjusted non-interest income growthFY 2018n/a4%–6% n/a
Total non-interest expense growthFY 2018n/a0%–3% n/a
Effective tax rateFY 2018n/a23%–24% n/a
Net charge-off ratioFY 2018n/a15–25 bps n/a
Share repurchasesFY 2018n/aUp to $150M n/a
Common dividend per share (year)FY 2018n/aUp 67% to $1.00 n/a

Note: Prior guidance ranges not disclosed in documents retrieved; management presented 2018 outlook ranges above .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2017, Q1 2018)Current Period (Q2 2018)Trend
Net interest margin and rate sensitivityNIM 3.65% in Q4 2017; 3.78% in Q1 2018; sensitivity to +25–100 bps short-rate increases disclosed NIM 3.86%; YE loan yield 4.88%; +25 bps → ~1.04% NII lift; +100 bps → ~2.98% NII lift Improving NIM with asset yield tailwinds; still watching deposit costs
Deposit mix and sweep productCore deposits growth; introduction of sweep MMA product moved from brokered post Feb 28, 2018 Avg deposits +$480M q/q; core deposits +$509M q/q; sweep MMA $310M avg in Q2 (vs $112M Q1) Core strengthening, less reliance on brokered; higher cost of core deposits
Credit qualityNPA ratio 0.53% in Q1 2018; NCOs 0.07% NPA ratio 0.50%; NCOs 0.29%; allowance/loans ~1.00% Stable NPAs; NCOs normalizing upward from unusually low Q1
Consumer lending partnerships (GreenSky, SoFi)Active programs; balances growing [slide context]$1.44B balances (~5.7% of total loans); credit card utilization 22.6%; charge-offs 2.09% YTD Growing consumer exposure; performance metrics within plan
Capital actionsSeries D preferred issuance anticipated; share repurchases ongoing Issued $200M Series D preferred; repurchased $50M common in Q2; CET1 10.11% Capital strengthened; flexibility for M&A and buybacks
Strategic M&An/aAnnounced acquisition of FCB Financial Holdings for ~$2.9B; synergy and accretion targets disclosed Clear Southeast footprint expansion; integration plan in place

Management Commentary

  • “This was another solid quarter of performance for Synovus, with strong earnings and revenue growth… we successfully completed our transition to a unified brand, completed a public offering of $200 million of Series D Preferred Stock, and were ranked among American Banker’s most reputable banks for the fourth consecutive year.” — Kessel Stelling, Chairman & CEO .
  • Capital and credit highlights emphasized: CET1 10.11% (fully phased-in CET1 10.05%); NPA ratio 0.50%; share repurchases $50M in Q2 .

Q&A Highlights

  • The full Q2 2018 earnings call transcript could not be retrieved due to a document system error. We reviewed management’s slide presentation and press release for themes and metrics, but detailed Q&A content and clarifications are unavailable from our document tools at this time .

Estimates Context

  • Consensus EPS and revenue estimates for Q2 2018 were unavailable due to S&P Global request limits. Values retrieved from S&P Global.*
  • Implication: In absence of published consensus figures, the strong q/q and y/y trends in EPS, revenues, and NIM expansion suggest potential upward estimate revisions for FY 2018 net interest income and adjusted EPS, subject to deposit cost and credit normalization dynamics .

Key Takeaways for Investors

  • Earnings power inflecting: EPS grew q/q and y/y with NIM expansion and revenue momentum; efficiency improving despite cost pressures — supportive for near-term sentiment .
  • Credit normalization bears watching: NCOs rose sequentially to 0.29% annualized; monitor consumer/C&I credit trends as portfolios scale, though NPAs remain low at 0.50% .
  • Deposit cost pressure manageable: core deposit costs rose to 0.57% but were offset by asset yield gains; expect continued competition for deposits into H2 .
  • Capital flexibility enhanced: $200M Series D issuance and buybacks ($50M in Q2) support the FCB acquisition and potential continued repurchases; CET1 10.11% .
  • Strategic catalyst: FCB deal expands Florida presence, targets ~$40M synergies and ~6.5% EPS accretion in 2020; integration execution and regulatory approvals are the next milestones .
  • Guidance consistent with balanced growth: 2018 outlook (loans/deposits +4%–6%, NII +11%–13%, NIE +0%–3%, tax rate 23%–24%, NCOs 15–25 bps) frames mid-teens ROE sustainability vs rising deposit costs .
  • Trading setup: Positive momentum from robust q/q metrics and M&A announcement; watch market reaction to credit normalization and deposit beta in coming quarters .

Other relevant Q2 2018 press releases:

  • Synovus to Acquire FCB Financial Holdings, Inc. for $2.9 Billion; joint investor call aligned with earnings call .

Prior quarter references and trend data were sourced from the supplemental information accompanying the Q2 2018 8-K (includes Q1 2018 and Q2 2017 figures) .