FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number 1-10312
[Logo] SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Georgia 58-1134883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Front Avenue
P. O. Box 120
Columbus, Georgia 31902
(Address of principal executive offfices)
(706) 649-2197
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES __X__ NO _____
At October 31, 1995, 77,202,472 shares of the Registrant's Common
Stock, $1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
Page
Part I. Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income (unaudited)
Three and Nine Months Ended September 30, 1995 and 1994 4
Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. (a) Exhibits 19
(b) Reports on Form 8-K 19
Signature Page 20
Exhibit Index 21
(11) Statement re Computation of Per Share 22
(27) Financial Data Schedule (for SEC purposes only,
not enclosed herewith)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION> September 30, December 31,
1995 1994
------------ -----------
(In thousands,
except share and per share data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 306,687 344,637
Interest earning deposits with banks 1,280 1,172
Federal funds sold 42,543 43,907
Investment securities available for sale 899,625 804,769
Investment securities held to maturity 521,474 532,933
Loans 5,474,200 5,089,567
Less unearned income (15,582) (14,691)
Less reserve for loan losses (84,051) (75,018)
------------ ------------
Loans, net 5,374,567 4,999,858
Premises and equipment 211,248 203,106
Other assets 267,128 245,697
------------ ------------
Total assets $ 7,624,552 7,176,079
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,006,993 983,056
Interest bearing 5,450,600 4,941,547
------------ ------------
Total deposits 6,457,593 5,924,603
Short-term borrowings 219,287 412,082
Long-term debt 122,249 139,811
Other liabilities 134,341 97,220
------------ ------------
Total liabilities 6,933,470 6,573,716
------------ ------------
Minority interest in consolidated subsidiary 26,283 22,483
Shareholders' equity:
Common stock - $1.00 par value; authorized
600,000,000 shares; issued 77,240,477 in 1995
and 76,134,451 in 1994; outstanding 77,196,547
in 1995 and 75,633,387 in 1994 77,240 76,134
Surplus 126,495 118,782
Less treasury stock (1,022) (7,680)
Less unamortized restricted stock (2,895) (1,538)
Net unrealized gain (loss) on
investment securities 735 (20,744)
Retained earnings 464,246 414,926
------------ ------------
Total shareholders' equity 664,799 579,880
Total liabilities and ------------ ------------
shareholders' equity $ 7,624,552 7,176,079
=========== ============
</TABLE>
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months
<CAPTION> September 30, September 30,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
Interest Income:
Loans, including fees $ 389,321 299,973 134,578 107,145
Investment securities:
U.S. Treasury and
U.S. Government agencies 43,349 40,012 15,221 13,328
Mortgage-backed securities 12,040 13,276 3,906 4,194
State and municipal 5,545 5,870 1,852 1,925
Other investments 1,018 1,247 327 398
Federal funds sold 3,744 2,241 1,531 675
Deposits with other banks 88 27 28 10
------- ------- ------- -------
Total interest income 455,105 362,646 157,443 127,675
------- ------- ------- -------
Interest expense:
Deposits 186,054 128,035 66,384 44,831
Short-term borrowings 9,127 7,086 2,811 2,823
Long-term debt 6,323 7,394 1,986 2,552
------- ------- ------- -------
Total interest expense 201,504 142,515 71,181 50,206
------- ------- ------- -------
Net interest income 253,601 220,131 86,262 77,469
Provision for losses on loans 17,198 17,029 6,214 5,463
------- ------- ------- -------
Net interest income after
provision for losses on loans 236,403 203,102 80,048 72,006
------- ------- ------- -------
Non-interest income:
Data processing services 169,113 126,847 62,823 45,825
Service charges on deposit accounts 34,414 30,670 11,839 10,468
Fees for trust services 7,036 6,414 2,315 2,148
Other operating income 33,728 34,341 12,770 10,262
Securities gains, net -- 564 15 44
------- ------- ------- -------
Total non-interest income 244,291 198,836 89,762 68,747
------- ------- ------- -------
Non-interest expense:
Salaries and other personnel expense 186,718 154,439 64,498 53,953
Net occupancy and equipment expense 74,022 61,120 25,998 21,267
Other operating expenses 89,953 78,126 30,696 26,581
Minority interest in subsidiary's
net income 3,498 2,940 1,421 1,099
------- ------- ------- -------
Total non-interest expense 354,191 296,625 122,613 102,900
------- ------- ------- -------
Income before income taxes 126,503 105,313 47,197 37,853
Income tax expense 45,554 37,613 16,918 13,170
------- ------- ------- -------
Net income $ 80,949 67,700 30,279 24,683
======= ======= ======= =======
Net income per share $ 1.06 0.90 0.39 0.33
======= ======= ======= =======
Weighted average shares outstanding 76,441 75,040 76,932 75,359
======= ======= ======= =======
Dividends declared per share $ 0.4050 0.3375 0.1350 0.1125
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> Nine Months Ended
September 30,
1995 1994
(In thousands) --------- ---------
<S> <C> <C>
Operating Activities
Net Income $ 80,949 67,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans 17,198 17,029
Depreciation, amortization, and accretion, net 29,429 27,307
Deferred income tax expense 572 3,622
Increase in interest receivable (7,997) (3,117)
Increase in interest payable 14,300 7,170
Minority interest in subsidiary's net income 3,498 2,940
(Increase) decrease in mortgage loans held for sale (20,849) 8,177
Other, net (6,769) (10,732)
--------- ---------
Net cash provided by, operating activities 110,331 120,096
--------- ---------
Investing Activities
Cash acquired from acquisitions 4,431 6,204
Net decrease in interest earning deposits with banks 1,769 1,366
Net decrease in federal funds sold 10,519 141,020
Proceeds from maturities of investment securities
available for sale 107,109 150,761
Proceeds from sales of investment securities
available for sale 111,847 130,404
Purchases of investment securities available for sale (238,303) (270,422)
Proceeds from maturities of investment securities
held to maturity 45,513 73,353
Purchases of investment securities held to maturity (62,266) (131,271)
Net increase in loans (315,109) (371,947)
Purchase of premises and equipment (30,460) (33,388)
Disposal of premises and equipment 942 533
Proceeds from sale of other real estate 7,781 7,421
Additions to internally developed computer software (3,992) (12,598)
--------- ---------
Net cash used in investing activities (360,219) (308,564)
--------- ---------
Financing Activities
Net (decrease) increase in demand and savings deposits (25,369) 62,853
Net increase in certificates of deposit 477,643 117,535
Net decrease in short-term borrowings (193,060) (34,056)
Principal repayments on long-term debt (19,200) (1,026)
Proceeds from long-term debt 1,638 12,006
Dividends paid to shareholders (31,668) (24,494)
Purchase of treasury stock (1,303) --
Cash proceeds from sale of stock 3,257 1,072
--------- ---------
Net cash provided by financing activities 211,938 133,890
--------- ---------
Decrease in cash and cash equivalents (37,950) (54,578)
Cash and cash equivalents at beginning of period 344,637 355,512
--------- ---------
Cash and cash equivalents at end of period $ 306,687 300,934
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental cash flow information:
For the nine months ended September 30, 1995 and 1994, Synovus Financial Corp.
(Synovus) paid income taxes of $48.9 million and $31.9 million, and interest of
$187.1 million and $137.8 million, respectively.
Supplemental information of noncash investing and financing activities:
Loans of approximately $5.5 million and $5.4 million were transferred to other
real estate during the nine months ended September 30, 1995 and 1994,
respectively.
Upon consummation of the NBSC business combination, Synovus transferred certain
held to maturity securities of the acquired subsidiary to the available for sale
portfolio to adhere to Synovus' existing asset-liability management policy and
interest rate risk strategy. Such transfers consisted of investment securities
with an estimated fair value of $27.1 million and an amortized cost of $27.4
million during the nine months ended September 30, 1995, and investment
securities with an estimated fair value of $5.2 million and amortized cost of
$5.3 million during the nine months ended September 30, 1994.
On August 12, 1995, Synovus converted $1.1 million in 12% subordinated
debentures into 302,886 shares of Synovus common stock.
Depreciation, amortization, and accretion, net for the nine months ended
September 30, 1995, includes amortization of internally developed software
of $2.5 million. Which has a current net value of $14.8 million
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normally occurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included.
Note B - Acquisitions
On January 31, 1995, Synovus completed the acquisition of the $43 million asset
Peach State Bank (PSB), a bank organized and existing under the state laws of
Georgia and headquartered in Riverdale, Georgia. Synovus issued approximately
266,726 shares of Synovus common stock for all the issued and outstanding shares
of PSB. The acquisition was accounted for using the purchase method of
accounting. As of January 31, 1995, PSB represented .71% of Synovus'
consolidated assets.
On February 28, 1995, Synovus completed the acquisition of the $1.1 billion
asset NBSC Corporation (NBSC), a bank holding company organized and existing
under the state laws of South Carolina and headquartered in Columbia, South
Carolina. Synovus issued approximately 7,930,236 shares of Synovus common stock
for all the issued and outstanding shares of NBSC. This acquisition has been
accounted for as a pooling of interests and, accordingly, the financial
statements for all periods presented have been restated to include the financial
condition and results of operations of this entity. As of February 28, 1995,
NBSC represented 17.76% of Synovus' consolidated assets and 11.45% of
consolidated net income for the two months ended February 28, 1995.
On April 28, 1995, Synovus completed the acquisition of the $52 million asset
Citizens & Merchants Corporation (CMC), a bank holding company organized and
existing under the state laws of Georgia and headquartered in Douglasville,
Georgia. Synovus issued approximately 626,481 shares of Synovus common stock for
all the issued and outstanding shares of CMC. This transaction has been
accounted for as a pooling of interests, except that the financial statements
for periods prior to the acquisition were not restated since the effect was not
material. As of April 30, 1995, CMC represented .71% of Synovus' consolidated
assets and 1.0% of Synovus' consolidated net income for the four months ended
April 30, 1995.
Note C - Other
Certain amounts in 1994 have been reclassified to conform with presentation
adopted in 1995.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition of Synovus at September
30, 1995, compared to December 31, 1994, and results of operations for the three
and nine month periods ended September 30, 1995, compared to the three and nine
month periods ended September 30, 1994. All periods have been restated for the
acquisition of NBSC, which has been accounted for as a pooling of interests.
These comments should be read in conjunction with Synovus' unaudited
consolidated financial statements and accompanying notes appearing in this
report.
Balance Sheet
During the first nine months of 1995, total assets increased $448.5 million, or
6.2%, when compared to December 31, 1994. The primary factors related to the
increase in assets were a net loans increase of $374.7 million, or 7.5%, and an
investment securities increase of $83.4 million, or 6.2%. The growth in the
balance sheet was primarily funded by a $533.0 million, or 9.0%, increase in
deposits. The strong increase in deposits offset the need for short-term
borrowings, which resulted in a $192.8 million reduction in those borrowings.
The balance sheet growth is attributable to internal growth and the acquisition
of PSB and CMC both completed in the first half of 1995, for which prior year
financial statements were not restated. The combined effect of PSB and CMC, as
of their acquisition dates, on Synovus' balance sheet, was an increase in total
assets of $93.1 million, an increase in net loans of $58.6 million, and an
increase in deposits of $75.4 million.
Loans
Synovus' loan growth since December 31, 1994 is mainly attributable to internal
growth derived from an improving economy in the regions we serve. Our
affiliates, through a system of community banks, are well positioned to benefit
from these improvements. Affiliates headquartered in three of the markets we
serve, Columbus, Georgia, Birmingham, Alabama, and Columbia, South Carolina
experienced significant loan growth of $59.4 million, $59.7 million, and $36.4
million, respectively, since December 31, 1994. In the first nine months of 1994
loans increased approximately $374.7 million, which was primarily related to an
$89.3 million increase in commercial loans to businesses for working capital,
and a $210.0 million increase in commercial mortgages on apartment buildings,
office buildings, and single family construction related loans. These new loans
are representative of the economic growth occurring in the markets we serve.
<TABLE>
Loans by Type
(amounts in thousands) September 30, June 30, March 31, December 31,
<CAPTION> 1995 1995 1995 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commercial & Agricultural $ 1,875,370 1,824,518 1,776,997 1,786,095
Real Estate Construction 396,081 383,132 344,070 326,571
Mtg. Loans Held for Sale 29,447 18,981 14,892 8,598
Other Mortgages 2,165,621 2,157,284 2,135,408 2,025,191
Consumer 992,099 979,502 939,842 928,421
--------- --------- --------- ---------
Total $ 5,458,618 5,363,417 5,211,209 5,074,876
========= ========= ========= =========
</TABLE>
Investments
The investment portfolio consists of debt securities which provide Synovus with
a source of liquidity and a long-term, relatively stable source of income.
Additionally, the investment portfolio provides a balance to interest rate and
credit risk in other categories of the balance sheet while providing a vehicle
for the investment of available funds and supplying securities to pledge as
required collateral for certain deposits.
Synovus invests in collateralized mortgage obligations (CMOs) and in U.S.
Government agency securities containing mandatory coupon adjustments (step-up
bonds). At September 30, 1995, the held to maturity portfolio included CMOs with
an estimated fair value and an amortized cost of $.9 million and step-up bonds
with an estimated fair value and an amortized cost of $52.4 million. At
September 30, 1995, Synovus' available for sale portfolio included CMOs with an
estimated fair value of $6.6 million and amortized cost of $6.6 million and
step-up bonds with an estimated fair value of $23.7 million and amortized cost
of $23.2 million. Management purchases these securities under policies providing
for specific evaluation of the additional risks associated with such investments
at the time of purchase and on an ongoing basis. In the opinion of management,
the terms of the step-up bonds do not expose Synovus to risk of loss of
principal; additionally, the effect of the price volatility of these bonds is
not material to the consolidated financial statements.
The net unrealized gain on investment securities available for sale, net of
income taxes, amounted to $.7 million at September 30, 1995, compared to a net
unrealized loss of $20.7 million at December 31, 1994. The increase in the
market value of the investments was primarily due to a general increase in bond
prices during the first nine months of 1995. The average portfolio rate for the
nine months ended September 30, 1995, increased 27 basis points to 6.31% over
the year ended December 31, 1994. This improvement is generally attributable to
lower yielding securities that matured during this time period and were
reinvested in higher yielding securities. On September 30, 1995, the estimated
fair value of investment securities as a percentage of their amortized cost was
100.2%. Investment securities with a fair value of $27.1 million and an
amortized cost of $27.4 million were transferred during the nine months ended
September 30, 1995 from investment securities held to maturity, to investment
securities available for sale. Consistent with provisions in SFAS No. 115,
"Accounting for Debt Securities", we have restructured the investment portfolio
of NBSC to ensure that their asset/liability and interest rate risk strategies
conform to those of Synovus. Investment securities of approximately $5.3 million
were transferred during the nine months ended September 30, 1994 and were
related to the restructuring of the investment portfolio of Peachtree National
Bank to ensure that their asset/liability and interest rate risk strategies
conform to those of Synovus.
Deposits
Synovus' deposit growth in the first nine months of 1995 is mainly attributable
to increased public funds, deposit campaigns, and internal growth as our
affiliates continue to improve their market share in the communities they serve.
In addition, the general increase in deposit rates has encouraged customers to
return to investing via certificates of deposits and other banking deposit
products. Non-interest bearing demand deposits increased $23.9 million in the
first nine months of 1995 to $1.0 billion. Interest bearing deposits increased
$509.1 million or 10.3% in the first nine months of 1995.
Asset Quality
Synovus' asset quality continued to improve during the first nine months of 1995
as measured by general asset quality indicators. The improvement was the result
of improved underwriting, the resolution of certain problem assets, and the
general improvement in economic conditions.
The Synovus loan policy emphasizes diversification of markets served with an
emphasis on small and middle market businesses. Commercial credits are closely
monitored for cash flows, liquidity, financial condition, and collateral
adequacy. Management's emphasis on knowing the market and the borrower has
resulted in consistently improving asset quality ratios.
Nonperforming assets consist of nonaccrual loans, restructured loans, and other
real estate. The nonperforming asset ratio as a percentage of loans and other
real estate has improved to .74% as of September 30, 1995, compared to .80% as
of December 31, 1994. During the first nine months of 1995, nonperforming assets
remained relatively flat, decreasing only $.2 million, or .5%, while net loans
increased $374.7 million, or 7.5%. The reserve for loan losses increased $9.0
million, or 12.0%, to $84.1 million. Additions to the reserve for loan losses
are made periodically to maintain the reserve at an appropriate level based on
management's analysis of potential risk in the loan portfolio. The amount of the
loan loss provision is a function of the level of loans outstanding, the level
of nonperforming loans, historical loan loss experience, the amount of loan
charge-offs in the given period, and the current and anticipated economic
conditions.
Loans 90 days past due and still accruing as a percentage of loans, net of
unearned income, decreased from .16% as of December 31, 1994 to .14% as of
September 30, 1995. Management believes that the value of the collateral
securing these 90 days past due and still accruing loans is sufficient to cover
principal and interest payments on the loans and management does not expect a
material increase in nonperforming assets in future periods as a result of the
resolution of these delinquencies.
The reserve to nonperforming assets and loans 90 days past due and still
accruing increased from 155.8% as of December 31, 1994, to 173.5% as of
September 30, 1995. Management continues to focus on asset quality with an
emphasis on proactive management of problem assets, early detection of potential
problem assets, and timely charge-offs. The Synovus asset quality strategy
adequately identifies problem loans in a timely manner and management believes
that current loan loss reserves will adequately provide for potential future
loan charge-offs.
<TABLE>
September 30, December 31,
<CAPTION> 1995 1994
---------- ----------
(in thousands)
<S> <C> <C>
Nonperforming Loans $ 26,550 28,397
Other Real Estate 14,004 12,356
---------- ----------
Nonperforming Assets $ 40,554 40,753
========== ==========
Loans 90 Days Past Due and
Still Accruing $ 7,879 7,383
========== ==========
Reserve for Loan Losses $ 84,051 75,018
========== ==========
Reserve for Loan Losses as 1.54 % 1.48
a % of Loans ========== ==========
As a % of Loans and Other Real Estate:
Nonperforming Loans 0.49 % 0.56
Other Real Estate 0.25 0.24
---------- ----------
Nonperforming Assets 0.74 % 0.80
========== ==========
Reserve to Nonperforming Loans 316.57 % 264.17
========== ==========
</TABLE>
Capital Resources and Liquidity
Synovus continues to maintain its capital at levels which significantly exceed
the minimum regulatory guidelines. Additionally, based on internal calculations
and previous regulatory exams, each of Synovus' subsidiary banks is currently in
compliance with regulatory capital and liquidity guidelines. Synovus' total
risk-based capital was $723.3 million at September 30, 1995, compared to $660.9
million at December 31, 1994. The ratio of total risk-based capital to
risk-weighted assets was 12.40% at September 30, 1995, compared to 12.36% at
year-end 1994. At September 30, 1995, Synovus' leverage ratio was 8.59%,
compared to 8.45% at December 31, 1994. Synovus' equity-to-assets ratio was
8.72% at September 30, 1995, compared to 8.08% at December 31, 1994.
During the third quarter of 1994, Synovus announced its plan to acquire up to
750,000 shares of Synovus common stock. As of October 31, 1995, 341,828 shares
of Synovus common stock have been purchased under this plan at an average price
of $19.98. Approximately 266,726 and 30,102 of these shares were used to acquire
PSB and NBSC, respectively. The remaining shares will be used to fund an
incentive stock award plan, implemented in July 1994, and other employee benefit
plans. These shares will be purchased based on market conditions in a systematic
pattern over the next two years.
Synovus' liquidity position and sources of funds have improved since December
31, 1994, primarily due to the increases in deposits allowing for the purchase
of more liquid assets. Factors affecting liquidity, including the maturity mix
of Synovus' investment securities and loan portfolios, have not changed
significantly since that time. Synovus has had a decrease in borrowed funds
directly related to the aforementioned increase in deposits.
One of the primary functions of asset/liability management is to assure adequate
liquidity and maintain an appropriate balance between interest earning assets
and interest bearing liabilities. Liquidity management involves the matching of
the cash flow requirements of customers, either depositors withdrawing funds or
borrowers needing loans, and the ability of Synovus to meet those requirements.
Management monitors and maintains appropriate levels of assets and liabilities
so that maturities of assets will provide adequate funds to meet estimated
customer withdrawals and loan requests. In addition, both the affiliate banks
and Synovus have strong correspondent relationships which can be utilized to
meet short-term liquidity needs.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Net cash provided by operating
activities was $110.3 million for the first nine months of 1995, while financing
activities provided $211.9 million. Investing activities used $360.2 million of
this amount, resulting in a net decrease in cash and cash equivalents of $38.0
million. Synovus' loan growth is primarily funded by its growth in deposits.
Added liquidity is available through federal funds purchased and a $20 million
line of credit held by Synovus. Currently there is no outstanding balance on the
line of credit.
Interest Rate Risk Management
Managing interest rate risk is of primary importance to Synovus, and management
utilizes numerous tools to minimize interest rate risk and its impact on
Synovus' operations. Synovus manages portfolio assets by matching them with
funding sources that have similar repricing characteristics. The Synovus
asset/liability management strategies emphasize balancing loans, investments,
federal funds, and deposits to ensure that exposure to interest rate risk is
within acceptable levels. Synovus' asset/liability mix is sufficiently balanced
so that the effect of interest rates moving in either direction is not expected
to be significant over the medium-term.
Synovus determines sensitivity of earnings to changes in interest rates by
assessing the impact on net interest income of multiple rising and falling rate
scenarios through the use of a simulation model, which estimates the impact, on
net interest income resulting from changes in interest rates, earning assets,
and interest bearing liabilities. This simulation model, combined with
historical experience, indicates that Synovus' balance sheet is positioned so
that its net interest income will generally increase slightly in the near term
during a rising rate environment and will decrease slightly in the near term
during a declining rate environment. The duration of the effect on net interest
income of changes in interest rates is impacted by market conditions regarding
funding sources at the time of the rate changes.
Another tool available to Synovus' management is the cumulative gap analysis.
The cumulative gap represents the net position of assets and liabilities subject
to repricing in specified time periods. At September 30, 1995, the one year
cumulative gap was a $935 million (12.3% of total assets) net liability
position. Generally, a liability sensitive gap indicates that there would be a
net negative impact on net interest income in an increasing rate environment,
however since all interest rates and yields do not adjust at the same velocity,
the interest rate sensitivity gap is only a general indicator of the potential
effects of interest rate changes on net income. Management believes that
simulation modeling provides a more complete analysis of its interest rate risk
position and therefore, places a lesser reliance on information derived from gap
analysis.
Net Interest Income
For the nine months ended September 30, 1995, net interest income, on a
taxable-equivalent basis, increased $32.2 million, or 14.8%, over the nine
months ended September 30, 1994. This increase was due to increased levels of
earning assets, an increase in the net interest margin and the impact of
non-restated acquisitions. The net interest margin for the first nine months of
1995 was 5.16%, up 18 basis points from the same period of 1994. The majority of
the increase in the net interest margin is attributed to increases in the yield
of earning assets, primarily loans, due to the rising prime rate environment
partially offset by an increase in cost of funds.
Net interest income, on a tax-equivalent basis, for the third quarter of 1995
increased $8.7 million, or 11.1%, over the third quarter of 1994. The net
interest margin was 5.11% for the current quarter, down 2 basis points from the
same quarter last year. The taxable-equivalent adjustment required to make
yields on tax-exempt loans and investment securities comparable to taxable loans
and investment securities is shown in the following table. The
taxable-equivalent adjustment is based on a 35% federal income tax rate in both
1995 and 1994.
<TABLE>
Nine Months Ended Three Months Ended
<CAPTION> September 30, September 30,
1995 1994 1995 1994
(in thousands) ------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 455,105 362,646 157,443 127,675
Taxable-equivalent adjustment 4,148 4,441 1,372 1,438
------- ------- ------- -------
Interest income,
taxable-equivalent 459,253 367,087 158,815 127,675
Interest Expense 201,504 142,515 71,181 50,206
------- ------- ------- -------
Net interest income,
taxable-equivalent $ 267,749 224,572 87,634 78,907
========= ======= ====== =======
</TABLE>
Provision for Loan Losses
During the first nine months of 1995, the provision for loan losses increased
$.2 million, or 1.0% over the same period in 1994. Annualized net charge-offs to
average net loans for the nine months ended September 30, 1995, were .23%
compared to .35% during the first nine months of 1994. The provision for loan
losses increased $.8 million, or 13.7%, during the third quarter of 1995 when
compared to the third quarter of 1994. Net charge-offs to average net loans were
.34% during the third quarter of 1995, compared to .33% during the third quarter
of 1994. The reserve for loan losses to loans was 1.54% as of September 30,
1995, and 1.48% at December 31, 1994. The primary reason for the year-to-date
increase in the provision for loan losses was due to continued loan growth.
Non-Interest Income
Total non-interest income during the first nine months of 1995 increased $45.5
million, or 22.9%, over the same period in 1994. The increase in non-interest
income resulted largely from higher data processing services revenue, which
increased $42.3 million, or 33.3%, during the nine months ended September 30,
1995, over the same period in 1994. Other increases in non-interest income for
the period include a $3.7 million, or 12.2%, increase in service charges on
deposit accounts, principally as a result of increased volume and higher fee
structures on deposit accounts. The decrease in other operating income was due
to a non-recurring gain of $2.9 million on the sale of a credit card portfolio
in the first quarter of 1994.
Total non-interest income during the quarter ended September 30, 1995, increased
$21.0 million, or 30.6%, over the third quarter of 1994, for primarily the same
reasons as indicated above. Data processing services revenue is derived
principally from the servicing of individual bankcard accounts for the card
issuing customers of Total System Services, Inc. (TSYS), Synovus'
majority-owned, publicly traded subsidiary. AT&T Universal Card Services Corp.
(AT&T) continues to be a major customer of TSYS, accounting for 22.0% and 22.1%
of total revenues for the three months and nine months ended September 30, 1995,
respectively, compared to 25.3% and 24.4% for the same periods in 1994. In June
1995, an amendment to the processing agreement between TSYS and AT&T relative to
the conversion of AT&T's accounts to a customized version of the new cardholder
processing software system, TS2, was signed. The amended agreement voids the
previously agreed upon imposition of a 5% discount on AT&T's processing fees
which was effective from June 1, 1995, until the conversion of AT&T's accounts
to TS2. Under the amended agreement, a new, mutually agreeable conversion
schedule will be established. TSYS and AT&T are currently discussing the
timing of AT&T's conversion to TS2. The amended agreement further states that
there will be no penalties payable, or additional processing fee discounts
granted, by TSYS to AT&T for any failure to complete the conversion in
accordance with the new schedule, nor will there be any premiums payable by
AT&T to TSYS for completion of the conversion prior to the completion date
established under the new agreement.
NationsBank accounted for 12.4% and 12.6% of TSYS' total revenues for the three
months and nine months ended September 30, 1995, respectively, compared to 11.9%
and 12.1% for the same periods in 1994. TSYS' processing agreement with
NationsBank expired in September of 1995. On October 25,1995, TSYS announced the
execution of a new agreement with NationsBank to continue processing its credit
card portfolio.
In March of 1994, TSYS announced the signing of a long-term credit card
processing agreement with Bank of America. Due to delays in software systems
development, on January 5, 1995, TSYS announced that it had reached an agreement
in principle with Bank of America regarding amendments to their credit card
processing agreement under which, among other things, the conversions of Bank of
America's credit card accounts will be deferred beyond their contractually
specified completion dates. On March 15, 1995, TSYS and Bank of America executed
a definitive amendment to the credit card processing agreement reflecting the
terms of the agreement in principle. The completion of the conversions of Bank
of America's credit card accounts is now scheduled to be accomplished during
1996, and when accomplished, is expected to have a positive impact on TSYS'
results of operations. The processing agreement with Bank of America, including
the definitive amendment and related payments by TSYS, are not expected to have
a significant impact on TSYS' 1995 results of operations. TSYS' processing
agreement with Bank of America will extend for 10 years, subject to its terms
and conditions, from the date of the complete conversion of Bank of America's
accounts to TS2.
Non-Interest Expense
Total non-interest expense for the nine months ended September 30, 1995,
increased $57.6 million, or 19.4%, over the same period in 1994. Of this
increase, $18.5 million related to banking operations. The primary reasons for
the increase in the banking operations' expenses were additional employees hired
in 1994, salary increases, a new employee retirement plan, and other general
increases related to acquisitions completed in the last half of 1994 and the
first half of 1995. Salaries and other personnel expense increased $32.3
million, or 20.9%, net occupancy and equipment expense increased $12.9 million,
or 21.1%, and other operating expenses increased $11.8 million, or 15.1%. The
remainder of the increase in non-interest expense is in large part due to the
expansion of fee-generating services of TSYS, which is principally related to
additional personnel and added depreciation and amortization expense for the
acquisition of facilities, equipment, and computer software. These expenses are
the result of TSYS' efforts to build operating capacities for future business
opportunities, while providing additional services to existing customers.
During 1994, Synovus embarked upon a "modernization" effort, under which all
banking operations support functions are being reviewed for potential
improvements. Synovus is investing in improved technology, such as platform
automation, and is standardizing certain support processes in order to more
effectively and efficiently serve its customers. We believe that this effort
will provide us with a greatly improved product delivery mechanism and will
increase the productivity of our support functions.
Income Tax Expense
Income tax expense for the nine months ended September 30, 1995, was $45.6
million compared to $37.6 million for the same period last year. This increase
was primarily the result of an increase in pre-tax income and an increase in the
relative percentage of taxable income to total income. This resulted in an
effective income tax rate of 36.0% for the first nine months of 1995 compared to
35.7% for the first nine months of 1994. The increase in the effective tax rate
is due to a decrease in certain research and development credits with the
completion of the core TSYS' new cardholder processing system, TS2.
Net Income
The combination of the above factors resulted in net income for the first nine
months of 1995 of $80.9 million. This is an increase of $13.2 million, or 19.6%,
over the first nine months of 1994. This performance resulted in a return on
average assets of 1.46% and a return on average equity of 17.27% for the nine
month period ended September 30, 1995. This compares to a return on average
assets of 1.35% and a return on average equity of 16.12% for the first nine
months of 1994.
Net income for the three months ended September 30, 1995, increased $5.6
million, or 22.7%, over the same period for 1994. This performance provided
Synovus with a return on average assets of 1.58% and a return on average equity
of 18.32% for the three months ended September 30, 1995. This compares to a
return on average assets of 1.44% and a return on average equity of 17.13% for
the three months ended September 30, 1994.
Accounting and Regulatory Matters
The Financial Accounting Standards Board (FASB) has issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which requires that all
creditors value all specifically reviewed loans for which it is probable that
the creditor will be unable to collect all amounts due according to the terms of
the loan agreement at either the present value of expected cash flows, market
price of the loan, or value of the underlying collateral. Discounted cash flows
are required to be computed at the loan's original effective interest rate. SFAS
No. 114 is required for fiscal years beginning after December 15, 1994.
The FASB also has issued SFAS No. 118, "Accounting by Creditors for impairment
of a Loan - Income Recognition and Disclosures," that amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest income on an
impaired loan and by requiring additional disclosures about how a creditor
recognizes interest income related to impaired loans. SFAS No. 118 is to be
implemented concurrently with SFAS No. 114.
On January 1, 1995, Synovus adopted the provisions of SFAS No. 114 and 118.
Under the new standard, the 1995 allowance for loan losses related to loans that
are identified for evaluation in accordance with SFAS No. 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans. Prior to
1995, the allowance for loan losses was based upon non-discounted cash flows or
the fair value of the collateral on collateral dependent loans. The adoption of
SFAS No.114 and 118 required no increase to the allowance for loan losses and
had no impact on net income in the first half of 1995. The impact to historical
and current amounts related to in-substance foreclosures was not material, and
accordingly, historical amounts have not been restated.
A loan is considered impaired when the ultimate collectibility of the loan's
principal is in doubt, wholly or partially, and all cash receipts are applied to
principal. When this doubt does exist, cash receipts are applied under the
contractual terms of the loan agreement first to principal and then to interest
income. Once the recorded principal balance has been reduced to zero, future
cash receipts are applied to interest income, to the extent that any interest
has been foregone . Future cash receipts are recorded as recoveries of any
amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled debt
restructuring after January 1, 1995. For these accruing impaired loans, cash
receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting.
The table below illustrates the impaired loans and related amounts included in
the allowance for loan losses at September 30, 1995:
<TABLE>
Loan Loss
Balance Reserve
<CAPTION> September 30, September 30,
1995 1994
--------- ---------
<S> <C> <C>
(In thousands)
Impaired loans, nonaccruing,
with loan loss reserve $ 24,894 8,059
Impaired loans, nonaccruing,
with no loan loss reserve 1,656 0
Impaired loans, accruing,
with loan loss reserve 6,517 2,506
Impaired loans, accruing,
with no loan loss reserve 12,704 0
--------- ---------
Total $ 45,771 $ 10,565
========= =========
</TABLE>
These loan loss reserve amounts were primarily determined using the fair value
of the loans' collateral.
In May 1995, the FASB issued SFAS No.122, "Accounting for Mortgage Servicing
Rights", as an ammendment to FAS 65, "Accounting for Certain Mortgage
Activites". This statement is effective for fiscal years beginning after
December 15, 1995, however earlier adoption is permitted. Synovus adopted SFAS
No.122 effective July 1, 1995. SFAS No.122 requires that a mortgage banking
enterprise recognize as separate assets, rights to service mortgage loans for
others regardless of whether their servicing rights are acquired through either
the purchase or origination of mortgage loans. The statement also requires that
the mortgage banking enterprise assess its capitalized mortgage servicing rights
for impairment based upon the fair value of those rights, including those rights
purchased before adoption of SFAS No.122. Impairment should be recognized
through a valuation allowance. As a result of the adoption of SFAS No.122,
Synovus recognized a pre-tax gain of $.4 million during the three month period
ended September 30, 1995. During the three month period ended September 30,
1995, Synovus capitalized all mortgage servicing rights. At September 30, 1995,
Synovus had capitalized approximately $2.2 million in mortgage servicing rights,
the fair value of these servicing rights was approximately $2.6 million and
their was no valuation allowance. Fair value was estimated by determining
the present value of the estimated future cash flows using discount rates
commensurate with the risks involved. In determining the present value, Synovus
stratifies its mortgage servicing rights based on risk characteristics including
loan types, note rates, origination dates, and note terms.
Legal Proceedings
Synovus and its subsidiaries are subject to lawsuits in the ordinary course of
business. Currently, multiple lawsuits seeking class action treatment are
pending against one of Synovus' Alabama banking subsidiaries that involve: (1)
the sale of credit life insurance made in connection with consumer credit
transactions, and (2) payments of service fees or interest rebates to automobile
dealers in connection with the assignment of automobile credit sales contracts
to that Synovus subsidiary. The same subsidiary has been named as one of several
defendants in an action claiming that the assignment of such automobile credit
sales contracts is illegal or improper because the automobile dealers are not
licensed by the Alabama Banking Department. These lawsuits seek unspecified
damages, including punitive damages, and purport to be class actions which, if
certified, may involve many of such subsidiary's consumer credit transactions in
Alabama for a number of years. In one of the lawsuits incolving the sale of
credit life insurance, the Synovus banking subsidiary withdrew its objections to
class certification in an action pending in its resident county and class
certification has been established. Synovus intends to vigorously contest these
lawsuits and all other litigation to which it and its subsidiaries are parties.
Based upon information presently available, and in light of legal and other
defenses available to Synovus and its subsidiaries, contingent liabilities
arising from the threatened and pending litigation are not considered material.
It should be noted, however, that large punitive damage awards, bearing little
relation to the actual damages sustained by plaintiffs, have been awarded in
Alabama.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule (for SEC purposes only,
not enclosed herewith)
(b) Report on Form 8-K
The following report on Form 8-K was filed during or subsequent to the third
quarter of 1995.
(1) The report filed on October 25, 1995, included the following event:
On October 25, 1995, Total System Services, Inc. announced the renewal of a
long-term contract with NationsBank to continue processing its credit card
portfolio through September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
BY:/s/ Stephen L. Burts, Jr.
Date: November 14, 1995 Stephen L. Burts, Jr.
President and CFO
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description Numbered Page
11 Statement re Computation of 22
Per Share Earnings.
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
<TABLE>
EXHIBIT 11
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(UNAUDITED)
Nine Months Ended Three Months Ended
<CAPTION> September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
- -------
Net income $ 80,948,898 67,699,901 30,278,770 24,683,246
========== ========== ========== ==========
Average common shares outstanding 76,441,141 75,039,946 76,931,918 75,359,241
Average common shares added, assuming
exercise of dilutive stock options 749,207 832,599 930,234 861,756
---------- ---------- ---------- ----------
Average common shares, as adjusted 77,190,348 75,872,545 77,862,152 76,220,997
========== ========== ========== ==========
Net income per common share $ 1.05 0.89 0.39 0.32
========== ========== ========== ==========
Assuming Full Dilution
- ----------------------
Net income $ 80,948,898 67,699,901 30,278,770 24,683,246
========== ========== ========== ==========
Adjustments:
Interest expense on subordinated
debentures 0 102,355 0 34,118
Income tax effect on such interest
expense 0 (35,824) 0 (11,941)
---------- ---------- ---------- ----------
Net Income, as adjusted $ 80,948,898 67,766,432 30,278,770 24,705,423
========== ========== ========== ==========
Average common shares outstanding 76,441,141 75,039,946 76,931,918 75,359,241
Average common shares added, assuming
exercise of dilutive stock options 983,085 882,597 983,085 882,597
Average common shares to be issued,
assuming conversion of subordinated
debentures 0 301,947 0 301,947
---------- ---------- ---------- ----------
Average common shares, as adjusted 77,424,226 76,224,490 76,224,490 76,543,785
========== ========== ========== ==========
Net income per common share, assuming
full dilution $ 1.05 0.89 0.89 0.32
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 306,687
<INT-BEARING-DEPOSITS> 1,280
<FED-FUNDS-SOLD> 42,543
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 899,625
<INVESTMENTS-CARRYING> 521,474
<INVESTMENTS-MARKET> 522,859
<LOANS> 5,458,618
<ALLOWANCE> 84,051
<TOTAL-ASSETS> 7,624,552
<DEPOSITS> 6,457,593
<SHORT-TERM> 219,287
<LIABILITIES-OTHER> 134,341
<LONG-TERM> 122,249
<COMMON> 77,240
0
0
<OTHER-SE> 587,559
<TOTAL-LIABILITIES-AND-EQUITY> 7,624,552
<INTEREST-LOAN> 389,321
<INTEREST-INVEST> 61,952
<INTEREST-OTHER> 3,832
<INTEREST-TOTAL> 455,105
<INTEREST-DEPOSIT> 186,054
<INTEREST-EXPENSE> 15,450
<INTEREST-INCOME-NET> 253,601
<LOAN-LOSSES> 17,198
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 354,191
<INCOME-PRETAX> 126,503
<INCOME-PRE-EXTRAORDINARY> 126,503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,949
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 5.16
<LOANS-NON> 26,550
<LOANS-PAST> 9,758
<LOANS-TROUBLED> 19,221
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 75,018
<CHARGE-OFFS> 12,696
<RECOVERIES> 3,530
<ALLOWANCE-CLOSE> 84,051
<ALLOWANCE-DOMESTIC> 67,099
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,952
</TABLE>
