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January 28
Shrinkage was the name of the game during the fourth quarter at Synovus Financial Corp. — and it wasn't all bad.
On the downside, the $30 billion-asset banking company reported lower core deposits and net loans. But it also aggressively rid its balance sheet of problem assets, letting it report a narrower loss for the quarter.
The Columbus, Ga., company disposed of $573 million of distressed assets — the most ever in one reporting period. This drove its nonperforming assets to their lowest level in two years.
Synovus said it expects more of the same but would not estimate by how much.
"In any given quarter our bankers are in [the] market with a lot of assets, and what we close is largely dependent on the appetite of the buyers and the realization rates that we think we can achieve," said Kessel D. Stelling, Synovus' president and chief executive, during a conference call Friday.
Of course, banks of all sizes have been shedding assets that soured during the recession. But "it's a bigger disposition number than I've seen from many companies," said Kevin Fitzsimmons, a managing director at Sandler O'Neill & Partners LP.
Synovus is "being proactive in doing what they can as opposed to sitting back and waiting for these [problem assets] to take care of themselves," he said. "It attacks the main issue."
Improvement was reported not only in the volume of nonperforming assets but also in the inflows of problem loans and the level of potential problem loans, said Christopher Marinac, the managing principal and research director at FIG Partners LLC. Combined, they declined to 89% of capital reserves, compared with 104% in the third quarter, Marinac said. "It's the best sign of progress you can ask for," he said. "That's a very important change," especially in the eyes of regulators.
Net loans totaled $20.9 billion, down 4% from the third quarter and 15% from the year earlier. The company was able to find some silver lining in the fact that net loans declined.
"We normally don't talk about shrinkage as a positive, and shrinkage isn't positive," Stelling said, "but there has been a dramatic improvement in the behavior of that portfolio as shrinkage from net paydowns continued to moderate." The decline in loans outstanding from net paydowns was about $80 million, compared with $320 million in the third quarter, he said. Paydowns exclude the impact of loan sales, transfers to loans held for sale, chargeoffs and foreclosures.
Core deposits dipped 5%, to $21.3 billion. But excluding time deposits, core deposits actually rose 2% from the third quarter and 4% from the year earlier, to $15.4 billion. "One positive effect — and it may be one of the few positive effects — of the declining loan portfolio is, we are able to fund more of our assets with core deposits," Stelling said. "So we have intentionally brought our time-deposit and brokered-deposit rates down, and you would see that again reflected in the margin this quarter."
At Synovus, unlike at many banks, the net interest margin improved, up 12 basis points from a year earlier, to 3.37%.
Credit costs fell for the sixth straight quarter, to the lowest level in two years, the bank said. They were $282 million, compared to $301 million in the third quarter. Nonperforming assets were $1.28 billion in the fourth quarter, down 30% from $1.83 billion the year earlier. Chargeoffs totaled $385 million, including $225 million on loan sales and transfers to loans held for sale.
Though Synovus will continue to focus on cleaning up its balance sheet, this does not mean it will not also try to make money the old-fashioned way. Specifically, it is increasing its focus on commercial banking. "Bankers across our footprint who have been spending most of their time dealing with problems — as those problems come down, we get them back to the fun part of banking," he said, "which is taking care of customers and hopefully taking care of someone else's customers as we do see opportunities not just for organic growth but … certainly taking market share from competitors."
