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Synovus cleans up balance sheet with World's Foremost Bank transaction

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Synovus cleans up balance sheet with World's Foremost Bank transaction

Columbus, Ga.-based Synovus Financial Corp. said its balance sheet is still under construction while the company works through the $1.1 billion in brokered time deposits acquired from World's Foremost Bank in a transaction that closed Sept. 25.

On an earnings call Oct. 17, Synovus said the deposits will help the company accelerate its balance sheet restructuring strategy while providing a liquidity boost that could fuel the creation of new earning assets. Chairman, President and CEO Kessel Stelling Jr. said the deal was "not strategic but opportunistic," adding that the 14-basis-point discount on such a high volume of deposits was the right approach to improving internal returns.

"When we come out of it, we'll have a stronger balance sheet and a lot more earnings power," Stelling said.

Synovus has already moved to dispose some "old assets." In the third quarter, the company logged a $7 million expense related to the accelerated disposition of other real estate owned. The company also repositioned its bond portfolio and logged an $8 million loss after selling approximately $485 million in investment securities.

Physically, Synovus is also trimming its holdings by opening up some corporate real estate and a number of former branch locations for sale.

The company says the restructuring will result in incremental 5% earnings per share accretion into 2018 through increased net interest income, lower provision expense and lower noninterest expense growth. Asked if Synovus has anything else on its checklist of restructuring activities, Stelling said management is taking it quarter-by-quarter as part of an "ongoing evaluation process."

FIG Partners analyst Christopher Marinac said in an interview that the clean up should further improve the company's return on assets, which increased in the third quarter to an adjusted figure of 1.05%. "The company could be more efficient with its balance sheet and I think this is a multi-quarter, multi-step process which could be a significant step forward for them," Marinac said, adding that the restructuring activities could push ROA up to 1.10%.

Chief executive Stelling said the third-quarter results are "noisy" due to the transaction close, but said investors should be excited about a "unified Synovus brand in 2018." The company reported net income applicable to common shareholders of $95.4 million, or 78 cents per share, from net income of $62.7 million, or 51 cents per share, in the third quarter of the prior year. The S&P Capital IQ consensus estimate for normalized EPS for the third quarter was 65 cents.

As of 1:37 p.m. ET on Oct. 17, shares of Synovus had fallen 1.82% to $45.80.

Market prices and index values are current as of the time of publication and are subject to change.