Eye on Synovus Financial Corp.

| About: Synovus Financial (SNV)
Synovus Financial Corp. (NYSE:SNV) is the holding company for about 40 mainly small-town banks offering deposit accounts and consumer and business loans in Alabama, Florida, Georgia, South Carolina, and Tennessee. Through more than 350 locations, the banks provide deposits, loans, credit cards, insurance, and asset management services. Synovus also owns more than 80% of Total System Services [TSYS], one of the leading processors of credit card transactions in the US. The subsidiary, which accounts for about a third of Synovus' total revenue, also performs student loan processing, fraud detection, debt collection, and commercial printing services.

A couple of numbers pop out when you look at SNV: Return Equity [18.5%] is extremely positive, especially for a bank holding company. Of course, SNV isn't exclusively a bank holding company. The revenues and profits from Total Systems put the company in a unique position
of being a bank holding company and a credit card processor for many other banks. Another number: net interest margin. It's staying healthy in spite of the flat and negative yield curves. In 2004, it was 4.22%. In 2005, 4.32%. So far this year, it's 4.30%. In comparison, most banks are trying to stay at 3% or better to stay profitable. The fact that SNV specializes in consumer and business loans, sectors which have a higher yields than mortgages, explains the better margins.

For the latest quarter, SNV reported earnings increased by 12% when compared the same quarter last year. A large contributor was the continued high net interest income which improved by 20% compared to last year's quarter. Further net income spread seems possible as the bank is expected to grow its loan portfolio by 10% over last year. But don't anticipate double digit growth forever

With the housing market cooling and overall loan demand diminishing, high single digit growth would seem more likely beginning next year which should slow earnings growth. This year still looks very good for earnings with estimates of a 15% growth by the time the books are closed for 2006. Last year earnings per share were $1.64. Look for $1.90 this year and $2.00 next.

The holding company may be willing to part with Total Systems Services and is expected to make an announcement of its plans in the next few months. By selling the credit card processor, SNV could focus on its planned growth which is focused on buying more banks. It already has $800 million in cash for that purpose. Most likely candidates will be found in North Carolina and the Atlanta area.

One more number: 2.7% in yield. The dividend is fairly secure, taking about 40% of net profit to pay. It's been increasing annually, and if it continues at its historical rate, should be about 80 cents a share next year. Synovus has one more interesting facet: by having a portfolio of community banks, it holds the most sought after segment in the banking markets. Community banks have been selling for very high premiums as large regional and national banks look to fill holes in their areas of service to their customers. While SNV is currently looking to buy more banks, it could very easily let a few go if some larger banks just have to have one of their community lenders.

SNV 1-yr chart
SNV 1-yr chart