Synovus Financial Corp. ( SNV) shares were falling 5% in after-hours trading, after the company posted a first-quarter loss worse than Wall Street expected and was hit by a downgrade from Moody's Investors Service.

The Columbus, Ga., bank holding company reported a first- quarter net loss of $137 million, which followed a net loss of $635 million in the fourth quarter and compared to net income of $81 million in the first quarter of 2008. Fourth-quarter results included $443 million in goodwill impairment charges.

After dividends and accretion of discounts on preferred stock totaling $14 million, the company's first-quarter net loss available to common shareholder was $151 million, or 46 cents per share. The loss exceeded the Thomsen Reuters consensus estimate of a net loss of 37 cents per share.

Synovus shares had closed at $4.06 Wednesday, down 16% on the day.

Moody's quickly followed the Synovus earnings release by downgrading the company's subordinated debt to B2 from Baa1, and the financial strength rating of two of its bank subsidiaries. Columbus Bank & Trust, of Columbus, Ga. and First Commercial Bank of Birmingham, Ala, were both knocked down to D from C+, with a rating outlook of negative.

Synovus had 31 bank subsidiaries as of Dec. 31, with 15 headquartered in Georgia, representing 56% of the company's total assets. None of Synovus's subsidiaries were included in TheStreet.com's recent look at Georgia banks hard hit by the bursting of the Atlanta real estate bubble.

Synovus saw bottom-line improvement vs. the fourth quarter not only due to the large writedown of goodwill in the prior period, but a lower provision for loan losses. The company set aside $290 million in the first quarter, down from $364 million in the fourth quarter.

Here are some asset quality numbers from the company's earnings release:

Synovus Financial Corp.
- Asset Quality ($millions)
Synovus Financial Corp.

While the company's loan loss provisioning continued to keep ahead of the annualized pace of its net charge-offs (actual loan losses), its provision activity declined while charge-offs increased.

More alarming was that nonaccrual loans (mainly commercial real estate, residential construction and development loans) totaled $1.4 billion as of March 31, an increase of 56% from the previous quarter.

For community banks of the type that Synovus owns, much of the risk from souring commercial and residential construction and development loans is manifesting later in the real estate crisis. Construction and development loans have relatively short "interest only" periods during the construction phase. Once construction is completed, the loans either mature or convert into amortizing mortgages with principal and interest payments.

Because of the decline in demand (and prices) for commercial and residential real estate in the Atlanta area, developers are facing the prospect of having no tenants or buyers lined up for the completed properties.

Moody's cited the threat to capital from declining commercial property values in its announcement of its downgraded ratings for Synovus.

CEO Richard Anthony expressed confidence that Synovus would weather the storm.

"Our core deposit growth strengthens our liquidity position, and along with our strong capital position, we believe that we will be able to come out of this credit crisis as a strong bank holding company," he said in a company press release.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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