Synovus Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Synovus Financial Corp. (SNV)

Q2 2012 Earnings Conference Call

July 24, 2012 08:30 AM ET

Executives

Kessel D. Stelling, Jr - Chairman, CEO

Thomas J. Prescott - EVP, CFO

Kevin J. Howard - Chief Credit Officer

R. Dallis (D.) Copeland, Jr - Chief Banking Officer

Patrick A. Reynolds - Director, Investor Relations

Analysts

Craig Siegenthaler – Credit Suisse Group

Jefferson Harralson - Keefe, Bruyette & Woods, Inc.

Kenneth Zerbe - Morgan Stanley & Co.

Jennifer Demba - SunTrust Robinson Humphrey

Steven Alexopoulos - JP Morgan Chase & Co. Research Division

John Pancari - Evercore Partners

Nancy Bush - NAB Research LLC

Emlen Harmon - Jefferies & Company

Kevin Fitzsimmons – Sandler O'Neill & Partners

Christopher Marinac – FIG Partners LLC

Mike Turner - Compass Point Research & Trading, LLC

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Synovus Second Quarter Earnings Conference Call. At this time, all lines have been placed on a listen-only mode and we will open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Pat Reynolds, Director of Investor Relations. Sir, the floor is yours.

Patrick A. Reynolds

Thank you, Kate, and I thank all of you for joining us today on the call. During this call, we will be referencing the slides and press release that are available within the Investor Relations section of our website at www.synovus.com.

Kessell Stelling, our Chairman and Chief Executive Officer will be our primary presenter today with our entire executive management group to answer your questions.

Before we begin, I need to remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties and the actual results could vary materially. We list these factors that might cause results to differ materially in our press release and in our SEC filings, which are available on the website. Further, we do not intend to update any forward-looking statements to reflect circumstances or events that occur after the date these statements are made. We disclaim any responsibility to do so.

During the call, we will discuss non-GAAP financial measures in reference to the Company’s performance and you can find these reconciliation of these measures to GAAP financial measures in the appendix to our presentation. Finally, Synovus is not responsible for and does not edit or guarantee the accuracy of earnings teleconference transcripts provided by third parties. The only authorized webcast is located on our website.

We respect the time available this morning and desire to answer everyone’s questions. We ask you to initially limit your time to two questions. If we have more time available after everyone’s initial two questions, we will reopen the queue for follow-up questions.

And now, I’ll turn the call over to Kessell.

Kessel D. Stelling, Jr

Thank you, Pat and thank you, Kate, and welcome everyone to our quarterly earnings call. We are going to try a little different format today. I will walk us through the deck in somewhat more abbreviated fashion than in the past and save the members of our executive team for Q&A, hopefully to allow more time for the Q&A, which I know generates a lot of interest. So the usual crew, our CFO, Tommy Prescott, Chief Credit Officer, Kevin Howard and Chief Banking Officer, D. Copeland and others are here to take questions following my presentation.

So let’s start on page 4 of your slide presentation where we do are pleased to report our fourth consecutive quarter of profitability. I think three takeaways for the quarter will be that certainly credit improvement drove profitability. We will talk about – lot about the continued stabilizing and improving of our balance sheet and our ongoing focus on core performance.

Again, but let’s start with earnings, we reported earnings of $24.8 million for the quarter compared to $21.4 million a quarter ago and compared to a net loss of $53.5 million in the second quarter of 2011. Again, quite pleased with that turn. On earnings per share basis, diluted earnings per share for the second quarter $0.03 a share compared to $0.02 a share at last quarter and a net loss of $0.07 a share in the second quarter of 2011.

Turning to slide 5, again as I said, credit costs drove the improvement. Our credit costs declined 23% sequentially. If you look at our graph at the bottom you will see fairly significant decline in credit cost from $91 million last quarter to $70 million this quarter. The same number the second quarter a year-ago was a $158 million. So, again steady significant declines in credit costs, primary drivers of performance.

The main factors in our credit costs decline, we had positive results in our semi-annual update to expected loss factors, driven by continued improvement in credit quality trends. We had lower inflow costs due to lower volume of NPL inflows and our negative migration costs improved as well. So very pleased with the decline in overall credit costs.

On slide 6, we will talk a little bit about inflows, NPL inflows decline for the fifth consecutive quarter inline with guidance as Kevin Howard had previously suggested directionally down, but certainly some quarters might have a little bump to them. But you will see again a decline, we had a $124 million of inflows in the second quarter compared to a $140 million in the first quarter of 2012 and compared to $231 million in the second quarter of 2011. Again, an 11% improvement from the first quarter, a 46% improvement from the second quarter of ’11.

I will also add that we had a meaningful decline in inflows related to residential and land portfolios and Kevin will be happy to talk about that later in the Q&A, but again very pleased with the decline in NPL inflows.

Our overall NPAs continue their steady decline. We are still not proud of the overall level, but its nice to see a number that doesn’t start with a billion you will see in a second quarter, we ended with NPAs of $961 million compared to a $1,056 billion last quarter and compared to a $1,219 billion in the second quarter of 2011. That $961 is made up of $206 million in ORE, which declined from $220 million the previous quarter and $755 million in non-performing loans, which declined from $836 million in the previous quarter.

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