After bruising quarter, Synovus sees credit stability ahead

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Synovus Financial lost $18 million for a loan to an aviation company that it had to charge off.

Synovus Financial in Columbus, Georgia, lost $18 million on a single commercial-and-industrial loan in the first quarter, raising the eyebrows of analysts and contributing to lower earnings.

But the $59.8 billion-asset bank said the loan to an aviation company that had entered bankruptcy was charged off and reserves covered the resulting loss. It accounted for the bulk of Synovus' credit issues during the quarter, and the regional lender now looks for stability as 2024 wears on.

"We expect our net charge-offs to be flat to down in the second half of the year based upon our portfolio metrics and trends," Chairman and CEO Kevin Blair told analysts during a call Thursday after posting first-quarter results. "We initiated a deep dive through our entire multifamily portfolio, very similar to what we did last year in office and similar to what we did with the hospitality industry back in Covid."

Following that process, he added, there were no other major signs of weakness.

The aviation credit in Florida accounted for 17 basis points of the bank's charge-offs, and it also represented 18 basis points of its increase in nonperforming loans. "Having resolved this credit this month, that will ultimately result in a commensurate decline in NPLs, meaning that without that credit, NPLs would have actually declined" in the first quarter sequentially, Blair said.

Synovus said its first-quarter nonperforming loans to total loans ratio increased 15 basis points from the prior quarter and 40 basis points from a year earlier to 0.81%. The net charge-off ratio for the quarter was 0.41%, up 3 basis points from the previous quarter and up 24 basis points from a year earlier.

D.A. Davidson analyst Gary Tenner called "credit weakness" the "attention getter" in Synovus' results. He also noted the bank, like many of its peers to report so far, continued to grapple with elevated deposit costs and light lending activity that resulted in net interest margin compression.

Synovus' first-quarter NIM of 3.04% was down 7 basis points from the previous quarter and down 39 basis points from a year earlier. Total deposit costs increased 17 basis points from the fourth quarter to 2.67%.

Chief Financial Officer Andrew Gregory Jr., however, said funding cost headwinds have begun to ease. While the Federal Reserve has kept interest rates at the highest point of this decade, it has not raised rates since mid-2023.

As such, looking to the rest of 2024, "we think pressure will be much more moderate than what we saw early in the year," Gregory said on the call.

Synovus said its first-quarter net interest income declined $18.4 million, or 4%, compared to the prior quarter and fell $61.9 million, or 13%, from a year earlier.

Total loans of $43.3 billion were flat from the prior quarter and down nearly 2% from a year earlier.

The bank posted first-quarter net income available to common shareholders of $114.8 million, or 78 cents per share. That was up from $60.6 million, or 41 cents for the fourth quarter, but down from $193.9 million, or $1.32, a year earlier.

A Federal Deposit Insurance Corp. special assessment of $12.8 million reduced first-quarter EPS by 7 cents. A $51 million special assessment impacted fourth quarter EPS by 26 cents. Both were imposed on Synovus along with all larger banks to replenish the FDIC's Deposit Insurance Fund following multiple regional bank failures last year.

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