Synovus Financial Corp. today reported financial results for the quarter ended September 30, 2011.

Third Quarter Results

• Net income available to common shareholders was $15.7 million for the third quarter of 2011, compared to a net loss of $53.5 million in the second quarter of 2011 and a net loss of $195.8 million in the third quarter of 2010.
• Diluted net income per common share for the third quarter of 2011 was $0.02 compared to a net loss per common share of $0.07 for the second quarter of 2011, and a net loss per common share of $0.25 for the third quarter of 2010.

“We are pleased to return to profitability, a key milestone for all of our stakeholders,” said Kessel D. Stelling, President and CEO of Synovus. “Our performance during the quarter was driven by stable pre-tax, pre-credit costs income; continued improvement in credit trends; and the repositioning of our investment portfolio. Additionally, core deposits were up significantly; core expenses continued to trend down; and regulatory capital ratios were strengthened. We are gaining positive traction in almost every key area necessary for long-term, sustained profitability and growth.”

Credit Trends

• Total credit costs declined for the ninth consecutive quarter to $142.5 million for the third quarter of 2011, down 9.8% from the second quarter of 2011 and down 52.6% from the third quarter of 2010.
• Net charge-offs were $138.3 million in the quarter, down from $167.2 million in the second quarter of 2011, and down from $237.2 million in the third quarter of 2010. The net charge-off ratio was 2.72% in the third quarter, down from 3.22% in the previous quarter, and down from 4.12% in the third quarter of 2010.
• Distressed asset sales were approximately $169 million during the third quarter, compared to approximately $195 million in the second quarter of 2011.
• New non-performing loan inflows were $222.0 million in the third quarter of 2011, compared to $231.1 million in the second quarter of 2011 and $421.5 million in the third quarter of 2010.
• Total non-performing assets were $1.16 billion at September 30, 2011, down $54.3 million from the previous quarter, and down $391.8 million or 25.2% from the third quarter of 2010. The non-performing asset ratio was 5.71% at September 30, 2011, compared to 5.85% at the end of the previous quarter and 6.81% at September 30, 2010.
• Potential problem commercial loans (consisting of substandard accruing loans but exclude substandard loans 90 days past due and still accruing and substandard accruing troubled debt restructurings which are reported separately) declined for the fourth consecutive quarter to $941.9 million, a 50% decrease from the peak of $1.87 billion in the third quarter of 2010.
• Total accruing troubled debt restructurings (TDRs) increased to $640.3 million in the third quarter of 2011 compared to $551.6 million in the previous quarter. The increase was primarily due to the implementation of the new TDR accounting guidance during the third quarter, which applied to all renewals and modifications entered into since January 1, 2011. The implementation of this guidance did not have a significant impact on the allowance for loan losses. At September 30, 2011, 94.5% of accruing TDRs are current as to principal and interest.
• Total delinquencies (consisting of loans 30 or more days past due and still accruing) were 0.99% of total loans at September 30, 2011, compared to 0.97% at June 30, 2011, and 1.12% at September 30, 2010.
• The allowance for loan losses was $595.4 million at September 30, 2011, or 2.96% of total loans, compared to $631.4 million or 3.08% at June 30, 2011.

Core Performance

Pre-tax, pre-credit costs income was $119.4 million for the third quarter of 2011, up $2.5 million from $116.9 million in the second quarter of 2011.

• Net interest income declined $2.4 million due primarily to lower earning asset yields.
  • Net interest margin was 3.47%, four basis points lower than the second quarter of 2011 and up 14 basis points from the third quarter of 2010.
  • Yield on earning assets was down nine basis points, while the effective cost of funds was down five basis points.
• Non-interest income, excluding net securities gains of $62.9 million, was up $3.0 million or 4.5% from the previous quarter.
  • Mortgage revenues were up $1.9 million from the prior quarter.
  • Service charges on deposits were up $0.8 million from the prior quarter.
• Total reported non-interest expense was $222.6 million for the third quarter of 2011 compared to $222.4 million for the previous quarter.
  • Core expenses (excludes restructuring charges and credit costs) were down $1.8 million from the second quarter of 2011.
  • Efficiency initiatives are on track to achieve expense savings of $75 million in 2011 and $100 million in 2012.
  • Core expenses for the first nine months of 2011 are down $67.1 million or 11.0% from the same period a year ago.
  • Total headcount is 5,285 at September 30, 2011, down 824 or 13.5% from December 31, 2010.

Balance Sheet Fundamentals

• The loan portfolio mix continued to improve with growth in owner-occupied real estate and small business loans reflecting targeted sales efforts. The combined commercial and industrial and retail portfolios now represent 63% of total loans.
• On a sequential quarter basis, total loans declined $402.7 million, with $353.1 million of the decrease in the commercial real estate portfolio. The commercial real estate portfolio now represents 37% of total loans, down from 41% a year ago and a peak of 45%.
• Total deposits ended the quarter at $23.1 billion, up $234.4 million from the previous quarter.
  • Total core deposits ended the quarter at $20.95 billion, up $767.4 million compared to the second quarter of 2011, while brokered deposits were down $533.0 million compared to the previous quarter.
  • The number of non-interest bearing demand deposit accounts increased by 3123, or 3.6% (annualized), over the second quarter of 2011.
  • Non-interest bearing demand deposits were up $372.1 million or 30.3% (annualized) from the second quarter of 2011, and up $1.00 billion or 23.6% from the third quarter of 2010.
  • Non-interest bearing deposits represent 25% of total core deposits at September 30, 2011, up from 20% at September 30, 2010.
  • The effective cost of core deposits (includes non-interest bearing deposits) continued to improve, with an effective cost of 62 basis points for the third quarter of 2011, compared to 67 basis points for the previous quarter and 95 basis points in the third quarter of 2010.

Regulatory Capital Ratios

• Tier 1 Common Equity ratio increased to 8.50% at September 30, 2011 from 8.41% at June 30, 2011.
• Tier 1 Capital ratio increased to 12.97% at September 30, 2011 from 12.84% at June 30, 2011.
• Tier 1 Leverage ratio increased to 9.87% at September 30, 2011 from 9.70% at June 30, 2011.
• Total Risk-based Capital ratio increased to 16.54% at September 30, 2011 from 16.40% at June 30, 2011.

Stelling concluded, “Core revenue growth, improved credit performance, continued execution on efficiency initiatives, and an intense focus on taking care of our customers remain the highest priorities for our team. We believe continued progress in these areas will help sustain profitability in the fourth quarter of 2011 and beyond. We are as committed as ever to building a stronger Synovus by making strategic investments in people, tools, and technologies that will help grow customer relationships and bring greater shareholder value.”