Synovus Financial Corp (NYSE: SNV) reported Q2 EPS of $0.35, $0.13 worse than the analyst estimate of $0.48. Revenue for the quarter came in at $268.4 million versus the consensus estimate of $266.53 million.

Balance Sheet Fundamentals

• Total loans ended the quarter at $20.46 billion, an $847.5 million or 4.3% increase from the second quarter of 2013.
• Total loans grew $296.8 million or 5.9% annualized compared to the first quarter of 2014.
  • C&I loans grew by $181.8 million from the first quarter of 2014, or 7.2% annualized.
  • Commercial real estate loans declined by $14.5 million from the first quarter of 2014.
  • Retail loans grew by $130.0 million from the first quarter of 2014, or 14.3%
    annualized.
• Total average deposits for the quarter were $20.86 billion, up $138.4 million from the previous quarter.
• Average core deposits ended the quarter at $19.46 billion, down $27.9 million compared to the first quarter of 2014.
• Average core deposits, excluding average time deposits, grew by $163.9 million compared to the previous quarter.

Core Performance

Adjusted pre-tax, pre-credit costs income was $98.9 million for the second quarter of 2014, an increase of $2.4 million from $96.5 million for the first quarter of 2014.

• Net interest income was $205.1 million for the second quarter of 2014, up $4.5 million from $200.5 million in the previous quarter.
• The net interest margin improved two basis points to 3.41% compared to 3.39% in the first quarter of 2014. The yield on earning assets was 3.86%, unchanged from the first quarter of 2014, and the effective cost of funds declined two basis points to 0.45%.
• Total non-interest income was $63.4 million compared to $70.2 million for the first quarter of 2014.
  • The first quarter of 2014 non-interest income included a $5.8 million net gain from the Memphis transaction, a $3.1 million gain on a branch property sale, and $1.3 million in investment securities gains.
  • Mortgage banking income increased $1.8 million or 50.5% from the previous quarter.
  • Core banking fees² of $32.6 million were up $1.5 million or 4.7%, driven by higher bankcard fees.
  • Financial Management Services revenues, consisting primarily of fiduciary and asset management fees and brokerage revenue, increased $1.0 million or 5.3%.
• Total non-interest expense for the second quarter of 2014 was $182.2 million, down $2.0 million from the first quarter of 2014. Adjusted non-interest expense for the second quarter of 2014 was $169.5 million, up $2.4 million compared to $167.1 million for the first quarter of 2014 primarily due to planned increases in advertising expense.
  • Restructuring charges of $7.7 million relate to the planned closing of 13 branches across the five-state footprint during the fourth quarter of 2014.

Credit Quality

Broad-based improvement in credit quality continued.

• Total credit costs were $16.9 million in the second quarter of 2014, down 4.1% from
  $17.6 million in the first quarter of 2014 and down 29.4% from $24.0 million in the
  second quarter of 2013.
• Non-performing loan inflows were $34.3 million in the second quarter of 2014, down from $35.5 million in the first quarter of 2014 and $66.9 million in the second quarter of
  2013.
• Non-performing loans, excluding loans held for sale, were $259.5 million at June 30,
  2014, down $124.8 million or 32.5% from the previous quarter, and down $223.9 million
  or 46.3% from the second quarter of 2013. The non-performing loan ratio was 1.27% at
  June 30, 2014, down from 1.91% at the end of the previous quarter and 2.47% at June
  30, 2013.
• Net charge-offs were $35.4 million in the second quarter of 2014, up $20.2 million from
  $15.2 million in the first quarter of 2014 due to the significant reduction in NPLs which
  had existing reserves. The annualized net charge-off ratio was 0.69% in the second quarter, up from 0.30% in the previous quarter and up from 0.61% in the second quarter of 2013.

Capital Ratios

Capital ratios remained strong.

• Tier 1 Common Equity ratio was 10.41% at June 30, 2014, compared to 10.24% at March 31, 2014.
• Tier 1 Capital ratio was 11.01% at June 30, 2014, compared to 10.85% at March 31, 2014.
• Total Risk Based Capital ratio was 13.03% at June 30, 2014, compared to 13.31% at March 31, 2014.
• Tier 1 Leverage ratio was 9.69% at June 30, 2014, compared to 9.46% at March 31, 2014.
• Tangible Common Equity ratio was 10.91% at June 30, 2014, compared to 10.78% at March 31, 2014.

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