Fitch Affirms Synovus Financial at 'BB+/B' Following Mid-Tier Regional Peer Review; Outlook Positive

Fitch Ratings has affirmed Synovus Financial Corp.'s (SNV) and its primary bank subsidiary, Synovus Bank ratings, at 'BB+/B'. The Rating Outlook remains Positive. A complete list of ratings follows at the end of this release.

The rating action follows a periodic review of the mid-tier regional banking group, which includes BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Republic Bank (FRC), Fulton Financial Corp (FULT), People's United Financial Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Webster Financial Corp. (WBS), Wintrust Financial Corp (WTFC), and UMB Financial Corporation (UMB).

Company-specific rating rationales for the other banks are published separately.

KEY RATING DRIVERS - IDRs, VRs AND SENIOR DEBT

Fitch upgraded SNV's ratings in November 2014. Similarly, today's action reflects Fitch's view that SNV's financial condition continues to improve and converge with higher rated banks. The Outlook Positive reflects Fitch's expectation that management will continue to execute on its strategies to rehabilitate SNV to a stronger financial condition by improving earnings performance while maintaining a reasonable risk appetite and a strong risk management framework. SNV's ratings remain relatively low as compared to its peer group despite the upgrade.

Fitch views SNV's weak asset quality and core earnings performance as key constraints to SNV's rating in the near-term. However, both have significantly improved since Fitch's last rating action and are expected to remain on a positive trajectory going forward while the company maintains reasonable capital levels.

Fitch calculates SNV's NPAs at 2.98% at 4Q'14, an improvement of 240bps year-over-year but still well-above those levels of higher rated banks. Over the same time period, the dollar volume of NPAs has dropped 40% as management has remained successful in working out of problem loans and disbursing foreclosed property. Fitch notes that the reduction in NPAs has not come at the cost of significantly higher credit costs evidenced by year-to-date (YTD) net charge-offs (NCOs) of 40bps.

Today's action also reflects the bank's strong capital profile. SNV reports the highest tangible common equity ratio among its peer group and a strong estimated, fully phased-in Basel III CET1 ratio of 10.2% well above the 7% requirement. The bank recently announced an increase in its quarterly dividend and the initiation of a share buyback program. Capital management has been in line with Fitch's expectations given SNV's continued improvement in its financial condition. Fitch expects that SNV will continue to distribute some of this excess capital to shareholders; however, these distributions will be constrained by regulatory and internal stress testing, and as such, SNV's capital ratios will likely stay elevated over the near term. Fitch also observes that SNV has nearly $500 million in a disallowed deferred tax asset (DTA) that will continue to accrete into Tier 1 capital going forward, providing additional support to regulatory capital ratios and capital distributions.

After experiencing net losses from 2009 to 2011 due to poor asset quality, SNV has been able to generate more reasonable returns over recent periods, primarily due to lower credit-related costs (provisions, litigations costs, OREO expenses and, etc.). In 2014, the company generated a ROA of 74bps, a reasonable improvement over SNV's 2013 ROA of 61bps, but a level that remains below higher rated peer averages.

SNV, similar to the industry as a whole, continues to benefit from reserve releases. Fitch observes that reserve releases accounted for 15% of pre-tax earnings in 2014. Fitch observes that while this level if above current industry and peer levels, SNV also emerged from the crisis later than most and thus would be expected to have reserve releases start/end later than industry. That said, Fitch sees reserve releases diminishing going forward given continued loan growth and as allowance levels approach more normalized levels. Furthermore, Fitch expects SNV's ROA to remain below industry and peer averages as well as those long-term historical returns of investment grade banks over the next four to six quarters. Fitch views this relatively lower level of earnings as a constraint on SNV's current ratings.

Also reflected in today's rating action is Fitch's view that SNV's risk management practices are relatively strong compared to those banks of similar size. Fitch recognizes the level of investment in risk management systems the bank has needed to make over recent years as it has been rehabilitated. Fitch views these systems as an integral part of management's ability to execute on its strategic plan of reducing problem assets, managing capital, maintaining SNV's strong franchise and underwriting of new loans as the company now seeks to grow its loan portfolio after a long period of shrinking it.

RATING SENSITIVITIES - IDRs, VRs AND SENIOR DEBT

Fitch anticipates that over the near to mid-term, SNV's financial and credit profile will continue to improve and converge with that of higher rated banks. To the extent that Fitch observes continued asset quality improvement that brings asset quality metrics such as NPAs, NCOs, NPL inflows, etc. in line with higher rated peers, additional positive rating action is likely.

As noted above, Fitch expects SNV's core earnings power to be fairly tepid relative to higher rated peers over the next four to six quarters. Once Fitch observes earnings performance consistently in line with those banks in higher rating categories, Fitch would likely take positive rating action. Although unexpected, to the extent that earnings remain depressed and Fitch foresees little uplift over the long term, SNV's Outlook could be revised to Stable from Positive. In general, Fitch views further upward momentum in SNV's ratings over the long-term given the strength of its franchise in its operating market, de-risking of balance sheet since the financial crisis, and various improvements made in its risk management program.

Finally, although not expected, negative rating pressures could result if SNV were to manage capital more aggressively in payout levels or through or growth. Moreover, should wholesale funding revert back to the level it was leading up to the 2007-2009 financial crisis, negative rating action could ensue

KEY RATING DRIVERS - HOLDING COMPANY

The IDR and VR of SNV is equalized with its operating company, Synovus Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING SENSITIVITIES - HOLDING COMPANY

Should SNV's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for SNV given the strength of the holding company liquidity profile.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

SNV has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, SNV is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

SNV's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by SNV and by various issuing vehicles are all notched down from SNV or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by SNV and its subsidiaries are primarily sensitive to any change in SNV's VR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

SNV's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by SNV and its subsidiaries are primarily sensitive to any change in SNV's long- and short-term IDRs.

Fitch has affirmed the following ratings with a Positive Outlook:

Synovus Financial Corp.

--Long-term IDR at 'BB+';

--Short-term IDR at 'B'.

--Viability Rating at 'bb+';

--Senior unsecured at 'BB+';

--Subordinated debt at 'BB';

--Preferred stock at 'B';

--Support '5';

--Support Floor 'NF'.

Synovus Bank

--Long-term IDR at 'BB+';

--Short-term IDR at 'B'.

--Viability Rating at 'bb+';

--Long-term deposits at 'BBB-';

--Short-term deposits at 'F3'.

--Support '5';

--Support Floor 'NF'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--U.S. Banking Quarterly comment: 4Q14 (Jan. 28, 2015)

--U.S. Banks: The Risks with Energy Slide (Jan. 16, 2015)

--U.S. Basel III and Dodd Frank Act Regulatory Guide (Nov. 21, 2014)

--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);

--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014)

--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);

--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);

--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);

--'Index Trend Analysis - 4Q14 (Fitch Fundamentals Index Remains Neutral)' (January 2015);

--'Risk Radar Global 3Q14' (Sept. 15, 2014);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);

--'Rating Considerations for U.S. Bank Holdco & Opcos' (Update on Position Outlined in 1Q14) (Dec. 1, 2014)

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978962

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