Synovus Seeks to Prove Staying Power after Tarp Exit

Synovus Financial, which endured a drubbing from the economy while overcoming massive challenges, has a large to-do list if it wants to regain relevance.

In the last year, the Columbus, Ga., company recaptured its deferred tax asset, sold $530 million in problem assets and repaid funds from the Troubled Asset Relief Program. With those obstacles out of the way, outsiders are focusing on Synovus' potential earnings power.

"Investors have bought into the story that credit improvement is happening," says Jefferson Harralson, an analyst at Keefe, Bruyette & Woods. "Since they are beyond credit [issues] and Tarp, it's all about revenue growth. … The lion's share of questions will be about profitability."

Over the rest of this year the $27 billion-asset company must control costs while keeping credit in check and finding ways to increase revenue and originate more loans, says Kevin Fitzsimmons, an analyst at Sandler O'Neill.

"They've checked these capital management steps off so investors will be looking for the kind of returns they can put up," Fitzsimmons says. "That's going to be a big focus."

To be sure, Synovus has several accomplishments to crow about. Kessel Stelling Jr., Synovus' chairman and chief executive, points to the Tarp repayment, which involved two stock offerings, ratings upgrades and strong second-quarter results as proof of how far the company has come.

Repaying Tarp "allows us to intensify our focus on customers," Stelling said in a Friday interview. "It gives us an opportunity to put another distraction behind us. It allows us to tell our story in a positive way and helps us expand … throughout our footprint."

In recent quarters, outsiders have pushed management for specifics on revenue growth. Synovus did not provide guidance on loan growth, though Stelling said he expects an increase in its overall portfolio in coming quarters. Total loans rose 1% in the second quarter from a quarter earlier, to $19.7 billion.

"It's most important to deliver on what you say," Stelling said. "We've done our best to guide on what we can and not predict things that we were not sure on."

Most of Synovus' loan growth involved its commercial and industrial book, Stelling said. Specialty areas, such as the company's senior housing group, large corporate banking and asset-based lending, also performed well.

Synovus' major markets — including Birmingham, Ala.; Columbia, S.C.; and Tampa, Fla. — are getting stronger. The overall banking industry in Georgia, including Atlanta, has improved. For instance, United Community Banks in Blairsville, Ga., announced last week that it had recaptured its deferred tax asset and had aggressively cleaned up its credit issues.

"I'm bullish on Georgia," Stelling said. "We were certainly harder hit than other areas, but it's more stable right now."

The improving health of other Georgia banks will also stiffen already intense competition for the best credits. Competition is forcing banks to be "nimble and customer focused and very responsive," Stelling said.

With a focus on improving profitability, it could become tempting for Synovus and other banks to offer unwise loan pricing and terms. But the recent past is still fresh in the minds of management teams, making it less likely that they will backslide when it comes to underwriting credits, Harralson says.

Synovus is willing to "walk away from some opportunities," Stelling said. "If we can't make money, then we aren't interested."

Besides loan growth, Synovus wants to deepen relationships with existing clients by providing additional products and services, Stelling said. Synovus has not publicly disclosed its goals for cross-selling, but Stelling said the company has been successfully offering treasury services to some clients.

"Despite our struggles, our customers have been loyal," Stelling added. "We are a relationship-based bank. That's what has guided us through" the past few years.

Management is placing a high priority on an ongoing reduction in credit costs and other expenses, Stelling said. Synovus unveiled an efficiency effort in 2011 that remains on track, and Stelling said he expects nonperforming loan inflows and chargeoffs to continue to decline.

Stelling also said he expects Synovus, once a serial acquirer, to return to making acquisitions eventually, though he would not specify when. Before the financial crisis, Synovus bought about 50 banks and other businesses as it morphed into a regional player.

Synovus generally has solid capital levels, and Harralson said he expects future announcement to include a bigger dividend, stock repurchases and possible acquisitions may be in the company's near future.

"They are going to be a very well-capitalized bank," Harralson says. "Over the next year, I would expect to see them to begin acting like one."