Synovus Financial Corp. Reports Operating Results (10-Q)
Synovus Financial Corp. has a market cap of $1.53 billion; its shares were traded at around $1.98 with a P/E ratio of 24.4 and P/S ratio of 1. The dividend yield of Synovus Financial Corp. stocks is 2.1%.
Highlight of Business Operations:For our annual goodwill impairment test, a third party valuation was obtained on the investment advisory services reporting unit, which accounts for approximately 82% of the recorded goodwill. The fair value of this reporting unit was determined by equally weighting the income approach (50%) and market approach (50%) to assess goodwill for potential impairment at June 30, 2012. The income approach utilized a discounted cash flow method, which focuses on the expected future cash flow of the subject business. The market approach measures values based on what other purchasers in the market have paid for assets that can be considered reasonably similar to those being valued. The first step (Step 1) of impairment testing requires a comparison of each reporting unit's fair value to the carrying value to identify potential impairment. At June 30, 2012, we completed the most recent annual goodwill impairment evaluation. The result of the Step 1 process indicated that goodwill at the investment advisory services reporting unit was not impaired, as the estimated fair value of the reporting unit exceeded the respective carrying value; therefore, no further testing was required. The estimated fair value of this reporting unit was $23.9 million, which exceeded the carrying value of $22.5 million by $1.4 million, or 6%. The key assumptions that drove the fair value of this reporting unit under the income approach included projected revenue growth, projected EBITDA margin, projected growth in assets under management and assets under supervision, and the discount rate. The market approach determined the fair value of this reporting unit using comparisons of the reporting unit to publicly-traded companies with similar operations. Under this method, valuation multiples were: (i) derived from operating data of the selected guideline companies; (ii) evaluated and adjusted based on the strengths and weaknesses of the reporting unit relative to the selected guideline companies; and (iii) applied to the operating data of the reporting unit to arrive at an indication of value.
The carrying value of ORE was $174.9 million, $204.2 million, and $244.3 million at June 30, 2012, December 31, 2011, and June 30, 2011, respectively. As of June 30, 2012, the ORE carrying value reflects cumulative write-downs totaling approximately $244 million, or 58% of the related loans' unpaid principal balance. During the six months ended June 30, 2012 and 2011, $75.1 million and $133.5 million, respectively, of loans and other loans held for sale were foreclosed and transferred to other real estate at fair value. During the six months ended June 30, 2012 and 2011, Synovus recognized foreclosed real estate expense, net, of $43.7 million and $64.6 million, respectively. These expenses included write-downs for declines in fair value of ORE subsequent to the date of foreclosure and net realized losses resulting from sales transactions totaling $33.9 million and $54.5 million for the six months ended June 30, 2012 and 2011, respectively.
At June 30, 2012, total loans outstanding were $19.68 billion, a sequential quarter decrease of $163.6 million, or 3.3% annualized, driven by a $166.2 million decline in CRE loans. Excluding the impact of loan sales, charge-offs, foreclosures, and transfers to loans held for sale, total loans increased by approximately $29 million during the second quarter of 2012, compared to a sequential quarter decline of approximately $25 million during the first quarter of 2012, and a sequential quarter decline of approximately $168 million during the second quarter of 2011. The commercial loan pipeline continues to strengthen, and Synovus expects that the loan portfolio will continue to stabilize during the second half of 2012. Additionally, the loan portfolio mix has continued to improve; commercial and industrial and retail loans combined now represent 65.0% of total loans as of June 30,
During the second and first quarters of 2012, Synovus completed sales of distressed assets with total carrying values of $127.9 million and $135.0 million, respectively. For the second and first quarters of 2012, these asset sales were comprised of $21.8 million and $34.2 million, respectively, of investment real estate loans and ORE properties, $50.3 million and $25.8 million, respectively, of residential real estate loans and ORE properties, $25.3 million and $17.4 million, respectively, of land acquisition loans and ORE properties, $22.1 million and $49.4 million, respectively, of commercial and industrial loans and ORE properties, and $8.4 million and $8.2 million, respectively, of retail loans and ORE properties.
Average total assets for six months ended June 30, 2012 decreased $2.24 billion, or 7.7%, to $26.82 billion as compared to $29.05 billion for the first six months of 2011. Average earning assets decreased $2.03 billion, or 7.5%, in the first six months of 2012 compared to the same period in 2011 and represented 93.0% of average total assets as compared to 92.8% in 2011. The reduction in average earning assets resulted from a $1.21 billion reduction in interest bearing funds at the Federal Reserve Bank and a $982.4 million net decrease in net loans outstanding which were offset in part by a $339.8 million increase in the taxable investment securities portfolio. Average interest bearing liabilities decreased $2.77 billion, or 13.2%, to $18.21 billion in the first six months of 2012 compared to the same period in 2011. The decrease in funding sources utilized to support earning assets was driven by a $2.13 billion decrease in interest bearing deposits and a $540.1 million decrease in long-term debt which was offset in part by a $635.8 million increase in non-interest bearing demand deposits.
Read the The complete Report