Synovus Financial (SNV) is coming off its most profitable quarter in four years and now everyone wants to know when the Columbus, Ga., company plans to repay the Troubled Asset Relief Program.
In an earnings call with analysts and investors Tuesday, Chief Executive Kessel D. Stelling fielded numerous questions about Tarp and he assured callers that his goal is to redeem its $968 million of preferred shares as soon as possible. Whether that is this year, next year or beyond depends on its ability to continue shedding problem assets, maintaining earnings momentum and, perhaps most importantly, recovering an $814 million deferred-tax asset it shoved off its books during its prolonged string of money-losing quarters.
"We will exit [Tarp] when it makes sense," Stelling said, noting that the company has so far paid roughly $152 million of dividends to the Treasury. He added that when the time comes to exit the program, the $27 billion-asset Synovus would likely do so by using a combination of cash on hand and newly issued equity and/or debt.
Asked if the company could conceivably repay Tarp before its auditors give it the go-ahead to recover the deferred-tax asset, Stelling said that he would expect the two events to happen simultaneously.
Synovus swung to profit of $21.4 million in the first quarter from a loss of $93.7 million in the same period last year on the strength of vastly improved credit quality. With nonperforming loans down 54% year over year, to $140 million, and potential problem commercial loans reduced by 63%, to $685 million, Synovus was able to cut its loan-loss provision by more than half, to $66 million.
Earnings were also aided by a 15% increase in loans originated by its specialty finance division and a 31% increase in noninterest income, to $84.1 million, that was driven largely by a surge in mortgage lending.
Synovus' earnings per share of two cents per share beat estimates of analysts surveyed by Thomson Reuters by a penny.
Overall, though, revenue growth remains a challenge. Total loans declined by nearly $600 million year over year, which led to a 12% decline in interest income. Bank card fees declined 29% as a result of new caps on interchange fees while service charges on deposit accounts — another key source of fee income — dipped more than 10%.
Stelling expressed confidence that loan activity will pick up in the coming quarters. He said that the pipeline for commercial loans is "robust" and that the company continues to look for opportunities to hire talented and well-connected bankers throughout its market area who can bring in fresh business. He also pointed out that a recent decision to confine its problem loans to a dedicated group of bankers "frees existing bankers to get back to the day-to-day business of generating revenue."
Still, Stelling said that Synovus would be "aggressive" about cutting expenses if revenue growth fails to meet expectations. The company last year closed roughly 30 branches and eliminated more than 800 jobs as part of a broad plan to cut expenses by roughly $100 million annually.
"All of our team leaders know that if we don't grow revenues, we have to adjust expenses accordingly," he said Tuesday.
Synovus' shares were up 2.2% in midday trading Tuesday, to $2.12. The stock is up more than 50% since the start of the year.