Synovus Financial (SNV) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Synovus Financial Corp.'s interim financial statements show stable total assets at $57.38 billion, Q2 2022 net income of $178.1 million, and reduced shareholders' equity Consolidated Balance Sheets Total assets reached $57.38 billion, with a shift towards loans and a $712.4 million decline in shareholders' equity due to unrealized investment losses Consolidated Balance Sheet Summary | (in thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $57,382,745 | $57,317,226 | | Loans, net | $40,796,943 | $38,884,361 | | Investment securities available for sale | $9,889,850 | $10,918,329 | | Total cash, cash equivalents, and restricted cash | $1,665,060 | $3,009,853 | | Total Liabilities | $52,798,307 | $52,020,426 | | Total deposits | $49,034,700 | $49,427,276 | | Total Shareholders' Equity | $4,584,438 | $5,296,800 | | Accumulated other comprehensive income (loss), net | $(1,026,705) | $(82,321) | Consolidated Statements of Income Q2 2022 net income decreased to $178.1 million due to a credit loss provision, despite an 11.4% increase in net interest income Consolidated Statements of Income Summary | (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $425,388 | $381,860 | $817,635 | $755,716 | | Provision for (reversal of) credit losses | $12,688 | $(24,598) | $24,088 | $(43,173) | | Non-interest revenue | $97,266 | $107,087 | $202,600 | $218,043 | | Non-interest expense | $282,051 | $270,531 | $554,501 | $537,665 | | Net income | $178,052 | $186,200 | $349,088 | $373,292 | | Net income per common share, diluted | $1.16 | $1.19 | $2.27 | $2.38 | Notes to Financial Statements Detailed disclosures cover investment securities' unrealized losses, loan portfolio growth, goodwill reallocation, and updated segment reporting - The company reorganized its internal management structure, creating a new Consumer Banking segment, leading to goodwill reallocation[72][127] - The allowance for credit losses (ACL) is estimated using a two-year forecast period, incorporating a 60% downside bias to the baseline scenario[65] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights a net income decrease due to credit loss provisions, strong net interest income growth, robust loan expansion, and stable credit quality - Net income available to common shareholders for Q2 2022 was $169.8 million, down from $177.9 million in Q2 2021, primarily due to a $12.7 million provision for credit losses versus a $24.6 million reversal[150] - Net interest income for H1 2022 increased by 8% to $817.6 million, and the net interest margin expanded by 8 bps to 3.11%, despite a $34.7 million decline in PPP fees[151][152] - Loans, excluding PPP, grew $2.21 billion (6%) in the first half of 2022, with full-year 2022 loan growth expected at or above the upper end of 6% to 8% guidance[154][163] - Credit metrics remained strong with a non-performing assets (NPA) ratio of 0.33% and a non-performing loans (NPL) ratio of 0.26% as of June 30, 2022[155] Loans Total loans increased by $1.89 billion (5%) to $41.20 billion, driven by growth in commercial and consumer portfolios, partially offset by PPP loan forgiveness Loan Portfolio Summary | Loan Portfolio (in billions) | June 30, 2022 | Dec 31, 2021 | % Change | | :--- | :--- | :--- | :--- | | Commercial and industrial | $20.78 | $19.62 | 6% | | Commercial real estate | $11.50 | $11.02 | 4% | | Consumer | $8.92 | $8.67 | 3% | | Total Loans | $41.20 | $39.31 | 5% | - Paycheck Protection Program (PPP) loan balances decreased by 78% to $86.7 million as of June 30, 2022, from $399.6 million at year-end 2021, primarily due to $316 million in forgiveness[165][166] Deposits Total deposits slightly decreased to $49.03 billion, with a shift in composition towards non-interest-bearing demand deposits and rising deposit costs Deposit Composition Summary | Deposit Composition (in billions) | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Non-interest-bearing demand deposits | $15.78 | $15.24 | | Interest-bearing demand deposits | $6.33 | $6.35 | | Money market accounts | $13.79 | $14.89 | | Public funds | $5.86 | $6.28 | | Time deposits | $2.15 | $2.43 | | Brokered deposits | $3.62 | $2.84 | | Total Deposits | $49.03 | $49.43 | Credit Quality Credit quality remained strong with non-performing loans at 0.26% and non-performing assets at 0.33%, reflecting stable trends despite economic uncertainty Credit Quality Metrics | Credit Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Non-performing loans / Total loans | 0.26% | 0.33% | | Non-performing assets / Total loans, ORE, etc. | 0.33% | 0.40% | | Net charge-offs / Average loans (YTD) | 0.18% | 0.20% | | ACL / Total loans | 1.11% | 1.19% | - Criticized and classified loans decreased by $113.9 million to $914.0 million, representing 2.2% of total loans[208][209] Capital Resources and Liquidity Capital and liquidity remained robust with a CET1 ratio of 9.46%, supported by diverse funding sources and a share repurchase program Capital Ratios Summary | Capital Ratios (Synovus Financial Corp.) | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | CET1 capital ratio | 9.46% | 9.50% | | Tier 1 risk-based capital ratio | 10.56% | 10.66% | | Total risk-based capital ratio | 12.43% | 12.61% | | Leverage ratio | 9.03% | 8.72% | - The Board of Directors authorized a $300 million share repurchase program for 2022, with $13.0 million of common stock repurchased through June 30, 2022[218] Quantitative and Qualitative Disclosures About Market Risk Synovus is asset-sensitive to interest rate changes, with a 100 bps rate increase estimated to boost net interest income by 5.5%, while actively managing LIBOR transition Estimated Net Interest Income Sensitivity to Interest Rate Changes | Change in Interest Rates | Estimated % Change in Net Interest Income (Next 12 Months) | | :--- | :--- | | +200 bps | 11.0% | | +100 bps | 5.5% | - As of June 30, 2022, Synovus had approximately $13 billion in loans tied to LIBOR maturing after June 30, 2023, with active remediation underway[242] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that Synovus' disclosure controls and procedures were effective[252] Part II. Other Information Legal Proceedings Synovus is involved in various legal proceedings, with an estimated aggregate possible loss range of zero to $5 million beyond accrued amounts - For legal matters where a loss is reasonably possible, the estimated aggregate range of loss is from zero to $5 million in excess of amounts already accrued[125] Risk Factors No material changes were reported to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the company's 2021 Form 10-K were reported for the period[257] Unregistered Sales of Equity Securities and Use of Proceeds Synovus repurchased 78,000 shares for $3.3 million in Q2 2022 under its $300 million authorization, with $287.0 million remaining Common Stock Repurchases in Q2 2022 | Period (2022) | Total Shares Repurchased (in thousands) | Average Price Paid per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | April | 25 | $42.41 | $1.1 | | May | 53 | $42.85 | $2.3 | | June | 0 | N/A | $0.0 | | Q2 Total | 78 | $42.71 | $3.3 |