Synovus Financial Corp. today reported financial results for the quarter ended September 30, 2020.

Third Quarter 2020 Highlights

• Diluted EPS of $0.56; adjusted diluted EPS of $0.89.

  • Non-cash goodwill impairment charge of $44.9 million, or $0.30 per share, driven by lower rate forecast impact to mortgage reporting unit.

• Period-end loan decline of $364.5 million or 1% sequentially; net increase of approximately $245 million excluding the impact of Paycheck Protection Program (PPP) loan payoffs and asset dispositions.

  • As of September 30, slightly less than 1% of loans were receiving a principal and interest deferral, down from 15% in May.

• Core transaction deposits (non-interest bearing, NOW/savings, and money market deposits excluding public and brokered funds) increased $1.56 billion or 5% sequentially.

• Total deposit costs of 0.39% down 14 bps from the second quarter due to pricing diligence and product remixing.

• Net interest income of $377.0 million was stable with the second quarter; net interest margin of 3.10% vs. 3.13% in 2Q20.

• Non-interest revenue declined $59.1 million sequentially and increased $25.7 million compared to prior year; investment losses of $1.3 million compared to gains of $78.1 million in the second quarter.

  • Adjusted non-interest revenue increased $20.3 million sequentially due primarily to higher net mortgage revenue and core banking fees.

• Non-interest expense increased $32.5 million sequentially and $40.3 million compared to prior year.

  • Adjusted non-interest expense declined $7.7 million sequentially due primarily to lower employment expense.

• Provision for credit losses of $43.4 million; allowance for credit losses coverage ratio (to loans) of 1.68%, or 1.80% excluding PPP loans.

• Credit quality metrics remain relatively stable, with the non-performing loan ratio and net charge-off ratio of 0.43% and 0.29%, respectively.

• Preliminary CET1 and Total Risk Based Capital ratios improved to 9.30% and 13.16%, respectively.

Third Quarter Summary

“The third quarter reflected strong operating performance, highlighted by growth in core transaction deposits of $1.6 billion and adjusted fee income growth of $20 million, as well as disciplined expense management, all contributing to improved profitability,” said Kessel D. Stelling, Synovus Chairman and CEO. “We continued to strengthen our balance sheet, growing total risk-based capital by 46 basis points to 13.16 percent, the highest level since 2014. The responsiveness of team members and their unwavering support of customers — especially those managing through this challenging credit cycle — demonstrates the effectiveness of our local relationship delivery model and our ability to execute even in the face of uncertainty. These strengths, along with an improving economy, contributed to a solid third quarter and position us well for the fourth quarter and coming year.”

Balance Sheet

• Total loans ended the quarter at $39.55 billion, down $364.5 million or 1% sequentially.

• Commercial and industrial (C&I) loans sequential growth of $75.9 million.

  • PPP loan payoffs of approximately $77 million in the third quarter.

  • C&I line utilization of 40% compared to 41% in the prior quarter.

• Consumer loans decreased by $577.9 million sequentially, primarily as a result of approximately $467 million in strategic dispositions of out-of-footprint mortgages, student loans, and GreenSky loans.

• Total deposits ended the quarter at $44.67 billion, up $471.3 million or 1% sequentially.

• Core transaction deposits increased $1.56 billion or 5% sequentially.

  • Broad-based growth in all categories including MMA, DDA, NOW, and savings deposits offset the $1.16 billion strategic decline in time deposits and $381.0 million decline in brokered deposits.

• 3Q20 total deposit costs of 39 bps declined by 14 bps from 2Q20.

Core Performance

• Total revenues were $492.4 million in the third quarter, down $58.6 million sequentially.

• Net interest income of $377.0 million was stable from the second quarter, benefiting from favorable trends in deposit pricing and remixing.

  • PPP fee accretion of $11.9 million, up $2.7 million from the second quarter.

• Net interest margin was 3.10%, down 3 bps from the prior quarter.

• Non-interest revenue decreased $59.1 million, or 34% sequentially, and increased $25.7 million, or 29% year-over-year. The sequential decrease was largely attributable to $69.4 million of securities gains as a result of repositioning the investment portfolio in the second quarter.

• Adjusted non-interest revenue increased $20.3 million, or 21% sequentially, and $24.4 million, or 27% year-over-year. Net mortgage revenue increased $7.7 million and core banking fees increased $4.9 million sequentially.

• Non-interest expense increased $32.5 million, or 11% sequentially. Adjusted non-interest expense decreased $7.7 million, or 3% sequentially.

  • Non-cash goodwill impairment charge of $44.9 million driven by lower rate forecast impact to mortgage reporting unit.

  • Employment expense decreased $4.6 million primarily as a result of lower commissions, lower headcount, and reduced COVID-related staffing expenses.

• Provision for credit losses of $43.4 million; allowance for credit losses coverage ratio (to loans) of 1.68%, or 1.80% excluding PPP loans.

• Tax expense was $39.8 million, an increase of $8.9 million driven by higher taxable pre-tax income.

  • Year-to-date effective tax rate of 24.95% (impacted by non-deductible goodwill impairment).

Capital

• CET1 ratio improved 40 bps during the quarter to 9.30% primarily due to earnings and settlement of balance sheet activities completed in the second quarter.

• Total risk-based capital of 13.16% is the highest since 2014.