10-Q: Synovus Reports Strong Q3 Earnings Amidst Pinnacle Merger

Synovus Financial Corp. announced a significant increase in Q3 and year-to-date earnings and improved credit quality, while progressing with its merger with Pinnacle Financial Partners.

Summary

• Net income available to common shareholders for Q3 2025 increased 9% to $185.6 million, or $1.33 per diluted common share, compared to $169.6 million, or $1.18 per diluted common share, for Q3 2024.
• Year-to-date net income available to common shareholders rose 121% to $575.6 million, or $4.10 per diluted common share, compared to $260.7 million, or $1.79 per diluted common share, for the same period in 2024.
• Net interest income for Q3 2025 was $474.7 million, up 8% from $440.7 million in Q3 2024, with net interest margin increasing 19 basis points to 3.41%.
• The provision for credit losses decreased 7% to $21.7 million in Q3 2025 and 65% to $35.9 million year-to-date, reflecting improved credit performance.
• Non-interest revenue for Q3 2025 increased 13% to $140.7 million, primarily driven by higher core banking fees and capital markets income.
• Non-interest expense for Q3 2025 increased 11% to $348.7 million, including $23.8 million in merger-related expenses associated with the pending merger with Pinnacle.
• Loans, net of deferred fees and costs, grew 3% to $43.75 billion at September 30, 2025, from $42.61 billion at December 31, 2024, driven by commercial and industrial (C&I) loan growth.
• Total period-end deposits decreased 2% to $50.00 billion at September 30, 2025, from $51.10 billion at December 31, 2024, mainly due to a decline in core deposits.
• Credit quality metrics improved, with non-performing assets (NPAs) at 0.53% and non-performing loans (NPLs) at 0.48% of total loans, down from 0.73% for both at December 31, 2024.
• The net charge-off ratio for Q3 2025 was 0.14% annualized, down from 0.25% in Q3 2024.
• The Common Equity Tier 1 (CET1) capital ratio strengthened to 11.22% at September 30, 2025, up 38 basis points from 10.84% at December 31, 2024.
• Synovus entered into a Merger Agreement with Pinnacle Financial Partners, Inc. on July 24, 2025, with the transaction expected to close in Q1 2026, pending approvals.
• Share repurchases have been paused in accordance with the Merger Agreement.

Sentiment

Score: 7

Explanation: The company reported strong financial performance with significant increases in earnings and improved credit quality. The strategic merger with Pinnacle is progressing, which is a long-term positive. However, the merger introduces substantial integration risks and costs, and the company has paused share repurchases. A decline in total deposits is also noted, warranting a balanced, moderately positive outlook.

Positives

• Net income available to common shareholders increased by 9% for the quarter and 121% year-to-date, demonstrating strong profitability growth.
• Diluted earnings per common share rose 13% for the quarter to $1.33 and 129% year-to-date to $4.10.
• Net interest income grew 8% for the quarter and 7% year-to-date, with net interest margin expanding by 19 basis points to 3.41% for the quarter.
• Provision for credit losses decreased significantly by 7% for the quarter and 65% year-to-date, indicating improved credit performance.
• Non-performing assets (NPAs) and non-performing loans (NPLs) ratios improved to 0.53% and 0.48% respectively, from 0.73% at December 31, 2024.
• The net charge-off ratio decreased to 0.14% annualized for the quarter and 0.17% annualized year-to-date, reflecting better asset quality.
• The CET1 capital ratio increased to 11.22%, exceeding well-capitalized requirements and demonstrating strong capital accretion.
• Loan growth of $1.14 billion from December 31, 2024, was primarily driven by C&I loans, including high-growth business lines and increased commercial line utilization.
• Average deposit costs were relatively flat quarter-over-quarter and declined 49 basis points year-over-year, supported by positive remixing into lower-cost deposits and disciplined repricing.

Negatives

• Merger-related expenses of $23.8 million were incurred during the quarter and year-to-date, impacting non-interest expense.
• Total period-end deposits decreased by $1.09 billion compared to December 31, 2024, primarily due to a $1.24 billion decrease in core deposits.
• Share repurchases have been paused through the completion of the merger with Pinnacle, limiting capital return to shareholders in the interim.
• Uninsured deposits totaled $25.71 billion at September 30, 2025, representing a significant portion of the deposit portfolio.
• Unrealized losses on investment securities available for sale (AFS) were $371.5 million at September 30, 2025.
• The amortized cost basis of investment securities held to maturity (HTM) includes a discount of $(594.5) million related to unamortized unrealized losses.

Risks

• Risks relating to the pending merger with Pinnacle, including the possibility that cost savings and synergies may not be fully realized or may take longer than anticipated.
• Disruption to business and integration challenges from the merger, potentially leading to increased costs or difficulties.
• Failure to obtain necessary regulatory and shareholder approvals for the merger, or the imposition of adverse conditions by governmental entities.
• Potential lawsuits challenging the merger, which could delay completion or incur significant defense/settlement costs.
• Increased scrutiny and additional regulatory requirements as the combined company will become a Category IV Large Financial Institution (assets > $100 billion), subject to enhanced prudential standards like CCAR and more rigorous liquidity management.
• An economic downturn, recession, persistent inflation, interest rate fluctuations, or changes in fiscal and monetary policy could adversely affect capital, financial condition, credit quality, and future growth.
• Competition in the financial services industry, including from non-traditional banking institutions like Fintechs, could impact profitability.
• Ability to attract and retain employees, particularly key personnel, may be challenging due to the merger and general industry competition.
• Adverse developments in the banking industry could impact client confidence, liquidity, and regulatory responses, potentially increasing deposit insurance assessments and regulatory scrutiny.
• Changes in the interest rate environment could lead to increased funding costs or reduced earning asset yields, compressing margins and net interest income.
• Exposure to potential losses from fraud, theft, or the failure of third-party vendors, obligors, or business partners.
• Restrictions or limitations on access to funds from historical and alternative sources of liquidity could adversely affect overall liquidity.
• Substantial expenditures may be required to keep pace with regulatory initiatives and rapid technological changes, including those related to artificial intelligence.
• Deterioration of asset quality or inadequacy of the allowance for credit losses (ACL) could result in unexpected losses.
• Concentrated operations in the Southeastern U.S. make the company vulnerable to local economic conditions, weather catastrophes, and public health issues.
• The ultimate resolution of legal proceedings, while currently not expected to be material, could have a material adverse effect on results of operations or financial condition for any particular period.

Future Outlook

The company updated its 2025 fundamental guidance, projecting end-of-period loan growth of approximately 4.5% and core deposit growth of approximately 0.5%. Adjusted revenue growth is estimated at approximately 6.5%, with adjusted non-interest expense growth of approximately 2.5%. The net charge-off ratio is expected to remain relatively stable from the year-to-date annualized rate of 0.17%, and the CET1 ratio is forecast to be approximately 11.35% at year-end. The effective income tax rate is anticipated to be around 21%. This guidance assumes two 25 basis point interest rate cuts in October and December 2025, with stable long-term rates.

Management Comments

• Year-to-date year-over-year changes were impacted by losses from sales of AFS investment securities totaling $256.7 million in connection with the strategic repositioning of the investment securities portfolio in the second quarter of 2024, higher net interest income from lower funding costs, and a decrease in provision for credit losses driven by improved credit performance, including lower net charge-offs and individually analyzed reserves.
• The increases in both the three and nine months ended September 30, 2025 included $23.8 million in merger-related expense largely related to accounting, investment banking, consulting, and legal fees in association with the pending Merger with Pinnacle.
• At September 30, 2025, loans, net of deferred fees and costs, of $43.75 billion increased $1.14 billion from December 31, 2024 primarily driven by C&I loan growth, which included increased production in our high growth business lines, specialty lending and CIB, and increased commercial line utilization.
• The ACL to loans coverage ratio at September 30, 2025 of 1.19% was 8 bps lower than December 31, 2024 primarily due to improved credit performance and the impact of strong loan growth exceeding loan provisioning.
• Total period-end deposits at September 30, 2025 decreased $1.09 billion compared to December 31, 2024 primarily due to a decline in core deposits, partially offset by an increase in brokered deposits.
• Average deposit costs of 2.23% were relatively flat in the third quarter of 2025 compared to the prior quarter and declined 49 bps compared to prior year, with the year-over-year decline supported by positive remixing within the deposit portfolio as well as the continued benefits of disciplined deposit repricing on the heels of FOMC policy rate changes since late 2024.
• At September 30, 2025, Synovus' CET1 ratio of 11.22% improved 38 bps compared to December 31, 2024, as our organic earnings supported capital accretion.
• In accordance with the Merger Agreement with Pinnacle, Synovus has paused share repurchases through the completion of the Merger.
• Management reviews the Company's capital position on an ongoing basis and believes, based on internal capital analyses and earnings projections, that Synovus is well positioned to meet relevant regulatory capital standards.
• Synovus presently believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs.

Industry Context

The banking industry continues to navigate a dynamic interest rate environment, with Synovus benefiting from disciplined deposit repricing and positive remixing into lower-cost deposits following FOMC policy rate changes. The pending merger with Pinnacle Financial Partners is a significant strategic move, positioning the combined entity to become a Category IV Large Financial Institution. This reclassification will subject the company to enhanced prudential standards by the Federal Reserve, aligning its risk management and capital planning with larger, systemically important banks. The filing also acknowledges ongoing competition from non-traditional banking institutions, such as Fintechs, highlighting the evolving landscape of financial services.

Comparison to Industry Standards

• The pending merger with Pinnacle Financial Partners, Inc. is expected to result in the combined company surpassing the $100 billion asset threshold, designating it as a Category IV Large Financial Institution under U.S. regulatory guidelines. This will subject the new entity to enhanced prudential standards by the Federal Reserve, including more rigorous capital planning (e.g., CCAR process), liquidity risk management, resolution planning, and additional governance and reporting requirements, which are benchmarks for larger banks.
• The company's CET1 capital ratio of 11.22% at September 30, 2025, exceeds the 'well-capitalized' requirements, indicating a strong capital position relative to regulatory standards for banks.

Corporate Governance

Legal Proceedings

• Subject to various legal proceedings, claims, and disputes arising in the ordinary course of business, including mortgage loan and other loan put-back claims, borrower claims, and allegations of state and federal law violations.
• Subject to regulatory and governmental examinations, information gathering requests, inquiries, and investigations.
• Management estimates the aggregate range of reasonably possible losses from outstanding litigation is from zero to $10 million in excess of any amounts accrued.
• Management believes current accruals for legal matters are adequate and does not presently believe liabilities will have a material adverse effect on consolidated financial condition, results of operations, or cash flows, but acknowledges that ultimate resolution could have a material adverse effect.

Stakeholder Impact

• Shareholders: Potential for long-term value creation from the merger, but also dilution from new share issuance and a temporary pause in share repurchases. Stronger earnings and dividends are positive.
• Employees: Uncertainty regarding future roles and potential retention challenges due to the merger integration process.
• Customers: Potential for expanded product offerings and service capabilities from the combined entity, but also possible disruption during integration.
• Regulatory Authorities: Increased oversight and enhanced prudential standards will apply to the combined company as a Category IV institution, requiring more rigorous compliance and reporting.
• Creditors: The combined entity's larger scale and enhanced regulatory oversight may provide greater stability, but integration risks could introduce short-term uncertainties.

Next Steps

• Shareholder approval of the Merger Agreement with Pinnacle Financial Partners, Inc. at a special meeting scheduled for November 6, 2025.
• Completion of the merger with Pinnacle Financial Partners, Inc. is expected in the first quarter of 2026.
• Active integration planning for the merger with Pinnacle Financial Partners, Inc. is underway, focusing on leadership, governance, and operational alignment.
• The company will include applicable and relevant required disclosures on a retrospective basis in the Income Taxes footnote in the 2025 Form 10-K, following the adoption of ASU 2023-09.
• The company will adopt new disclosure requirements for ASU 2024-03 (Disaggregation of Income Statement Expenses) for the annual period beginning January 1, 2027, and interim periods starting January 1, 2028.
• The company is considering early adoption of ASU 2025-06 (Targeted Improvements to the Accounting for Internal-Use Software) as of January 1, 2026.
• Approximately $12 million in pre-tax loss from cash flow hedges is expected to be reclassified into earnings within the next 12 months.
• Capital deployment priorities will continue to focus on loan growth and capital needs related to the merger.

Key Dates

Recommendation

Synovus delivered strong Q3 results with notable improvements in earnings, net interest income, and credit quality, indicating solid operational performance. The pending merger with Pinnacle Financial Partners is a transformative strategic move that could unlock significant long-term value and market presence. However, the merger also introduces substantial integration risks, associated costs, and increased regulatory scrutiny as the combined entity will become a Category IV institution. The temporary pause in share repurchases and a decline in core deposits are also factors to consider. Given the strong current performance balanced against the inherent uncertainties and execution risks of a large-scale merger, a 'Hold' recommendation is appropriate. Investors should monitor the merger's progress, integration success, and the company's ability to manage the new regulatory environment.

Keywords

Synovus Financial Corp, Pinnacle Financial Partners, Merger, 10-Q, Quarterly Report, Banking, Financial Services, Earnings, Net Interest Income, Credit Quality, Capital Ratios, Deposits, Loans, SEC Filing, SNV