Synovus raises cost-cutting goal, preaches patience

Synovus Financial in Columbus, Ga., said it could take a few more quarters before an aggressive efficiency effort translates into higher profits.

Executives at the $54 billion-asset company said during an earnings conference call Tuesday that it is on track to achieve $100 million in expense cuts and new revenue by the end of this year. Synovus also said it had identified $75 million in new opportunities, largely tied to added revenue, that should be realized in 2022.

But they warned that revenue will be pinched for much of this year as low interest rates weigh on loan yields and mortgage volume declines. The company has also been reinvesting some of the savings into areas such digital banking, including a new commercial platform that it rolled out in late 2020.

“Despite our overall actions to reduce expenses, it is not inhibiting our ability to continue to invest in areas of focus,” Kevin Blair, the company’s president and chief operating officer, said during the call. Blair, who will succeed Kessel Stelling as CEO in April, noted that Synovus plans to invest at least $20 million in technology projects this year.

Synovus invested in mobile and digital banking, including an online account origination platform, in 2020, said CEO Kessel Stelling.

“We believe by the end of 2021 things get to some normalized levels as it relates to rates and the environment, then we have a platform to begin growing again in 2022,” Blair said in an interview after the call.

Synovus’s challenges are shared by many banks that are cutting costs at a time when revenue is under pressure and shifting consumer preferences, exacerbated by the pandemic, are causing more management teams to take a harder look at digital offerings.

While the company’s adjusted noninterest expense is expected to decrease by 2% to 5% in 2021 from a year earlier, total adjusted revenue is forecast to fall by 1% to 4%, excluding costs tied to the efficiency effort.

Noninterest expenses fell by 4% from a quarter earlier, to $302.5 million, though the third quarter included a $45 million goodwill impairment charge. Executives noted that some fourth-quarter expenses — $14 million tied to an early retirement program that reduced headcount by 2% and $4 million associated with 13 branch closings — will save money over time.

In addition to the digital commercial platform, Synovus also upgraded its technology for Bank Secrecy Act and anti-money- laundering compliance.

“We made upgrades to our mobile and online banking portal, online account origination capabilities and other digital touch points,” Stelling said on the conference call. “We continue to invest in and grow our existing businesses, while also building out new offerings.”

Synovus’s profit rose by 73% from a quarter earlier, to $142.1 million, and earnings per share of 96 cents came in 14 cents above the mean estimate of analysts polled by FactSet Research Systems. The goodwill charge in the third quarter distorted the comparison, and the company’s loan-loss provision decreased by 74% to $11.1 million.

Revenue increased by 2% to $501 million, as Synovus benefited from $25 million in income from the Paycheck Protection Program. The net interest margin widened by 2 basis points to 3.12%.

Net charge-offs fell by 23% to $22 million, or 0.23% of total loans.

“I think 2020 again proved the valuable role banks play in our communities and in our economy,” Stelling said.

“It’s certainly been a trying season for everyone,” Stelling added. “It has been inspiring to again watch our bankers, our advisors, and support teams … caring for each other and those we serve. This might have been our finest hour, so far, and there’s so much more to come.”


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