Bank DTAs Could Feather Your Nest

NEW YORK (TheStreet) -- Deferred tax assets can be a silver lining for some patient long-term bank stock investors.

Many bank holding companies that saw the worst of the banking crisis beginning in 2008 have large amounts of deferred tax assets (DTA), and depending on the banks' ability to show sustained profits, the realization of the DTA can add a boost to the bottom line.

Sterling Financial (STSA) of Spokane, Wash., saw its second-quarter bottom line boosted by a $288.8 million release of its entire deferred tax assets valuation allowance. The company reported second-quarter earnings of $320.9 million, or $5.13 a share.

Synovus Financial (SNV) of Columbus, Ga., had $802 million in deferred tax assets as of June 30, and said on July 24 that it expects "to reverse substantially all of the [$800 million] DTA valuation allowance once we have demonstrated a sustainable return to profitability, perhaps at the point we have significantly improved credit quality and experienced consecutive profitable quarters with a forecast of sufficient continued profitability."

The company also said that the DTA valuation allowance "could be reversed as a single event or over a period of time," depending on earnings and credit quality forecasts. This could be a very significant even for Synovus's investors.

After 12 quarters of consecutive net losses, Synovus returned to profitability during the third quarter of last year. During the second quarter of 2012, the company reported net income of $75.4 million, boosted by a tax benefit of $2.2 million. After paying dividends on preferred shares held by the government for $967.9 million in bailout assistance received through the Troubled Assets Relief Program, or TARP, second-quarter net income available to common shareholders was $46.2 million, or six cents a share.

Synovus is a difficult example for investors looking to milk DTA releases, as the company's coming repayment of TARP complicates matters, but the bank's management has made some candid remarks on the timing of DTA release.

During Synovus's second-quarter earnings call, CEL Kessel Stelling said that the timing of the recapture of deferred tax assets is uncertain and that "key to the DTA reversal is our full review on earnings, and that includes the revenue side of the equation." Stelling also said that the DTA recapture is "likely a 2013 event," as is the TARP repayment.

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