Synovus Financial Corp. (NYSE: SNV) today reported financial results for the quarter ended March 31, 2019.

First Quarter 2019 Highlights

• Diluted EPS of $0.72; adjusted diluted EPS of $0.98, up 7.6% sequentially and 15.1% year over year.
• Organic loan and deposit growth¹ of $400.1 million and $423.7 million, respectively.
• Return on average assets (ROA) of 1.06%, adjusted ROA of 1.45%.
• Return on average common equity (ROE) of 10.98%, adjusted ROE of 15.03%.
• Adjusted return on average tangible common equity (ROATCE) of 17.52%.
• Non-performing asset (NPA) ratio of 0.44%.
• Efficiency ratio of 61.29%, adjusted tangible efficiency ratio of 50.24%.
• Completed acquisition of FCB Financial Holdings, Inc.; merger-related expenses impacting EPS by $0.27.
• Completed issuance of $300 million in subordinated debt.
• Executed share repurchases of $320 million or 8.5 million shares.

“We are pleased with our first quarter results, with solid gains in earnings per share, balanced growth in loans and deposits, and strong contributions from our newly acquired FCB franchise,” said Kessel D. Stelling, Synovus chairman and CEO. “We continued to demonstrate prudent expense discipline while investing in a number of strategically important initiatives, including transforming our digital capabilities, improving the customer experience, and recruiting and investing in high-performing talent. We also continued our capital optimization program by executing $320 million in share repurchases.

“As the May 6 FCB conversion date approaches, we are very pleased with the crisp execution of the FCB integration, including seamless alignment of our teams into an efficient and synergistic operating model, successful retention of key customers and team members, and realization of merger-related cost savings ahead of plan,” Stelling concluded.

Balance Sheet

• Total loans ended the quarter at $35.63 billion, up $9.69 billion or 37.3% from the previous quarter, including FCB-acquired loan balances of $9.29 billion.
  • Fair value discount on acquired loans was $169 million.
  • Excluding FCB-acquired balances, period-end loans increased $400.1 million from the fourth quarter of 2018, including:
    • Commercial and industrial loans up $55.9 million
    • Consumer loans up $184.7 million
    • CRE loans up $151.5 million
  • Legacy FCB contributed $213.7 million in organic loan growth in the first quarter.
• Total deposits ended the quarter at $38.08 billion, up $11.35 billion or 42.5% from fourth quarter 2018, including FCB-acquired deposit balances of $10.93 billion.
  • Excluding FCB-acquired deposit balances, period-end deposits increased $423.7 million from the fourth quarter of 2018, including:
    • CDs up $614.6 million
    • DDAs² up $77.4 million
    • MMA/Savings down $169.1 million
    • Brokered deposits down $99.2 million
  • The loan to deposit ratio was 93.6%, down from 97.1% in the prior quarter.

Core Performance

• Results are impacted by the merger with FCB, which closed on January 1, 2019.
• Total revenues were $476.5 million in the first quarter, up $110.6 million or 30.2% from the previous quarter, and up $135.1 million or 39.6% in the first quarter 2018.
• Net interest income was $397.2 million, up $99.2 million or 33.3% from the previous quarter and up $122.9 million or 44.8% from the first quarter 2018.
• Net interest margin was 3.78%, down 14 basis points from the previous quarter, which includes $18.8 million or 19 basis points of purchase accounting accretion. Yield on earning assets was 4.80%, up 11 basis points from the previous quarter, and the effective cost of funds was 1.02%, up 25 basis points from the fourth quarter of 2018.
• Total non-interest income was $79.4 million, up $11.4 million from the previous quarter and up $12.3 million or 18.4% from first quarter 2018.
  • Non-interest income in the quarter included a favorable adjustment in the fair value of private equity investments of $858 thousand compared to an unfavorable adjustment of $2.1 million in the prior quarter.
  • Adjusted non-interest income was $78.4 million, up $8.4 million from the previous quarter.
    • Legacy FCB contributed adjusted non-interest income of $7.3 million during the quarter.
  • Core banking fees³ were $36.8 million, flat from the previous quarter, including $1.8 million in additional income from FCB.
  • Fiduciary and asset management fees, brokerage revenue, and insurance revenues were $24.5 million, down $161 thousand from the previous quarter.
  • Mortgage banking income was $5.1 million, up $1.3 million from the fourth quarter of 2018, including $204 thousand from FCB.
• Total non-interest expense was $292.4 million, up $82.5 million or 39.3% from the previous quarter and up 49.8% from the first quarter 2018.
  • First quarter 2019 results included merger-related expenses of $49.7 million, which impacted EPS by $0.27.
  • Adjusted non-interest expense was $242.7 million, up $36.3 million or 17.6% from the previous quarter and up $44.5 million or 22.5% from the first quarter 2018.
    • Non-interest expense associated with FCB was $26.8 million.
  • Employment expense of $139.4 million increased $25.9 million or 22.8% from the previous quarter.
  • Occupancy and equipment expense of $38.4 million increased $4.1 million or 12.1% from the fourth quarter of 2018.
  • Amortization of intangibles was $3.1 million in the first quarter of 2019.
  • Other expenses were $64.8 million in the quarter, up $6.2 million or 10.5% from the previous quarter and up $11.9 million or 22.5% from the first quarter 2018.
• Efficiency ratio for the first quarter was 61.29% as compared to 57.34% in the previous quarter and 57.16% in the first quarter 2018.
  • Adjusted tangible efficiency ratio for the first quarter was 50.24% as compared to 55.98% in the previous quarter and 57.42% in the first quarter 2018.
• As a result of non-deductible merger-related expenses, other disallowances, and increased state taxes, the effective tax rate was 25.2% in the quarter.

Credit Quality

• The non-performing loan ratio was 0.40% at March 31, 2019, compared to 0.41% at the end of the previous quarter and 0.48% at March 31, 2018.
• The non-performing asset ratio was 0.44% at March 31, 2019, unchanged from the previous quarter and down from 0.53% at March 31, 2018.
• The annualized net charge-off ratio was 0.19% in the first quarter as compared to 0.20% in the previous quarter and 0.07% in the first quarter 2018.
• Total delinquencies (consisting of loans 30 or more days past due and still accruing) remain low at 0.25% of total loans at March 31, 2019, as compared to 0.22% in the previous quarter and 0.22% at March 31, 2018.

Capital

• First quarter 2019 includes the impact of $1.6 billion in stock consideration issued in the FCB acquisition.
• During the first quarter 2019, Synovus repurchased $320 million in common stock, as part of the previously announced share repurchase program. Additionally, Synovus declared common stock dividends of $0.30 per share, a 20% increase from the previous quarter.
• On February 7, Synovus completed a public offering of $300 million in subordinated debt.
• Common Equity Tier 1 ratio was 9.44% at March 31, 2019, down from 9.95% at December 31, 2018.
• Tier 1 Capital ratio was 9.93% at March 31, 2019, down from 10.61% at December 31, 2018.
• Total Risk Based Capital ratio was 11.98% at March 31, 2019, down from 12.37% at December 31, 2018.
• Tier 1 Leverage ratio was 8.77% at March 31, 2019, down from 9.60% at December 31, 2018.
• Tangible Common Equity ratio was 8.30% at March 31, 2019, compared to 8.81% at December 31, 2018.