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 June 30, 1995
Commission File Number 1-10312
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 July 31, 1995, 76,732,927 shares of the Registrant's
Common Stock, $1.00 par value, were outstanding.
<PAGE>
SYNOVUS FINANCIAL CORP.
INDEX
Page
Part I. Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income (unaudited)
Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flow (unaudited)
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 18
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 Earnings 22
(27) Financial Data Schedule (for SEC purposes only,
not enclosed herewith)
<PAGE>
Part I. Financial Information
Item 1 - Financial Statements
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION> June 30, December 31,
(In thousands, except share and per share data) 1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 330,939 344,637
Interest earning deposits with banks 2,251 1,172
Federal funds sold 128,480 43,907
Investment securities available for sale 851,093 804,769
Investment securities held to maturity 501,874 532,933
Loans 5,379,897 5,089,567
Less unearned income (16,480) (14,691)
Less reserve for loan losses (82,492) (75,018)
--------- ---------
Loans, net 5,280,925 4,999,858
Premises and equipment 209,849 203,106
Other assets 264,427 245,697
--------- ---------
Total assets $ 7,569,838 7,176,079
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,037,577 983,056
Interest bearing 5,467,377 4,941,547
--------- ---------
Total deposits 6,504,954 5,924,603
Short-term borrowings 162,787 412,082
Long-term debt 123,835 139,811
Other liabilities 108,517 97,220
--------- ---------
Total liabilities 6,900,093 6,573,716
--------- ---------
Minority interest in consolidated subsidiary 25,063 22,483
Shareholders' equity:
Common stock - $1.00 par value; Authorized
600,000,000 shares; issued 76,779,245 in 1995
and 76,134,451 in 1994; outstanding 76,734,472
in 1995 and 75,633,387 in 1994 76,779 76,134
Surplus 123,285 118,782
Less treasury stock (1,043) (7,680)
Less unamortized restricted stock (1,098) (1,538)
Net unrealized loss on investment
securities available for sale 2,568 (20,744)
Retained earnings 444,191 414,926
--------- ---------
Total shareholders' equity 644,682 579,880
--------- ---------
Total liabilities and shareholders' equity $ 7,569,838 7,176,079
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION> Six Months Ended Three Months Ended
June 30, June 30,
(In thousands, except per share data) ________________ ________________
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 254,743 192,828 131,239 101,074
Investment securities:
U.S. Treasury and U.S. Govt. 28,128 26,684 14,230 13,649
Mortgage-backed securities 8,134 9,082 4,019 4,559
State and municipal 3,693 3,945 1,825 1,935
Other investments 691 849 329 430
Federal funds sold 2,213 1,566 1,643 700
Deposits with other banks 60 17 33 7
------- ------- ------- -------
Total interest income 297,662 234,971 153,318 122,354
------- ------- ------- -------
Interest expense:
Deposits 119,670 83,204 64,037 42,451
Short-term borrowings 6,316 4,263 2,698 2,652
Long-term debt 4,337 4,842 2,074 2,462
------- ------- ------- -------
Total interest expense 130,323 92,309 68,809 47,565
------- ------- ------- -------
Net interest income 167,339 142,662 84,509 74,789
Provision for losses on loans 10,984 11,566 5,739 5,566
------- ------- ------- -------
Net interest income
after provision for
losses on loans 156,355 131,096 78,770 69,223
------- ------- ------- -------
Non-interest income:
Data processing services 106,290 81,022 55,853 42,373
Service charges on
deposit accounts 22,575 20,202 11,695 10,557
Fees for trust services 4,721 4,266 2,283 2,124
Other operating income 20,958 24,079 10,994 10,589
Securities gains/(losses), net (15) 520 228 (14)
------- ------- ------- -------
Total non-interest income 154,529 130,089 81,053 65,629
------- ------- ------- -------
Non-interest expense:
Salaries and other
personnel expense 122,220 100,486 62,035 51,595
Net occupancy and
equipment expense 48,024 39,853 24,416 20,215
Other operating expenses 59,257 51,545 30,427 26,874
Minority interest in
subsidiary's net income 2,077 1,841 1,157 1,005
------- ------- ------- -------
Total non-interest expense 231,578 193,725 118,035 99,689
------- ------- ------- -------
Income before income taxes 79,306 67,460 41,788 35,163
Income tax expense 28,636 24,443 15,188 12,565
------- ------- ------- -------
Net income $ 50,670 43,017 26,600 22,598
======= ======= ======= =======
Net income per share $ 0.67 0.57 0.35 0.30
======= ======= ======= =======
Weighted average shares outstanding 76,192 74,878 76,519 75,095
======= ======= ======= =======
Dividends declared per share $ 0.2700 0.2250 0.1350 0.1125
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> Six Months Ended
June 30,
-----------------
1995 1994
(In thousands) ------- --------
<S> <C> <C>
Operating Activities
Net Income $ 50,670 43,017
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for losses on loans 10,984 11,566
Depreciation, amortization, and accretion, net 18,815 18,030
Deferred income tax expense 581 2,734
Increase in interest receivable (6,275) (519)
Increase in interest payable 9,378 1,814
Minority interest in
subsidiary's net income 2,077 1,841
(Increase) decrease in mortgage
loans held for sale (10,529) 13,549
Other, net (23,881) (11,050)
------- -------
Net cash provided by
operating activities 51,820 80,982
------- -------
Investing Activities
Cash acquired from acquisitions 4,431 6,204
Net decrease in interest earning
deposits with banks 798 1,030
Net (increase) decrease in federal funds sold (75,418) 83,600
Proceeds from maturities of investment
securities available for sale 56,570 132,707
Proceeds from sales of investment
securities available for sale 80,035 100,153
Purchases of investment securities
available for sale (104,364) (215,521)
Proceeds from maturities of investment securities
held to maturity 28,470 57,211
Purchases of investment securities
held to maturity (25,347) (122,571)
Net increase in loans (225,573) (220,779)
Purchase of premises and equipment (18,979) (25,996)
Disposal of premises and equipment 885 247
Proceeds from sale of other real estate 3,122 5,440
Additions to internally
developed computer software. (3,559) (10,351)
------- -------
Net cash used in
investing activities (278,929) (208,626)
------- -------
Financing Activities
Net increase in demand and savings deposits 22,164 74,119
Net increase (decrease) in
certificates of deposit 477,471 (22,034)
Net increase (decrease) in
short-term borrowings (249,560) 15,641
Principal repayments long-term debt (17,875) (938)
Proceeds from long-term debt 1,898 12,006
Dividends paid to shareholders (21,246) (16,236)
Purchase of treasury stock (827) 0
Cash proceeds from sale of stock 1,386 958
------- -------
Net cash provided by
financing activities 213,411 63,516
------- -------
Decrease in cash and cash equivalents (13,698) (64,128)
Cash and cash equivalents at beginning of period 344,637 355,512
------- -------
Cash and cash equivalents at end of period $ 330,939 291,384
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental cash flow information:
For the six months ended June 30, 1995 and 1994, Synovus Financial Corp.
(Synovus) paid income taxes of $34.0 million and $23.4 million, and interest of
$120.9 million and $90.5 million, respectively.
Supplemental information of noncash investing and financing activities:
Loans of approximately $3.5 million and $3.3 million were transferred to other
real estate during the six months ended June 30, 1995 and 1994, respectively.
Upon consummation of certain business combinations, Synovus has transferred
certain held to maturity securities of the acquired subsidiaries 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 $27.7 million during the six months ended June 30, 1995, and
investment securities with an estimated fair value of $5.2 million and
amortized cost of $5.3 million during the six months ended June 30, 1994.
See accompanying notes to consolidated financial statements.
<PAGE>
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.
<PAGE>
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 June 30, 1995, compared to December 31, 1994, and
results of operations for the three and six month periods ended
June 30, 1995, compared to the three and six month periods ended
June 30, 1994. All periods have been restated for the
acquisition of NBSC, 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 six months of 1995, total assets increased
$393.8 million, or 5.5%, when compared to December 31, 1994.
The primary factors related to the increase in assets were a net
loans increase of $281.1 million, or 5.6%, and an investment
securities decrease of $15.3 million, or 1.1%. Also
contributing to the increase in total assets was an $84.6
million increase in federal funds sold. The growth in the
balance sheet was primarily funded by a $580.4 million, or 9.8%,
increase in deposits. The strong increase in deposits resulted
in a $249.3 million decrease in short-term 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.
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. In the first six months of 1995 loans
increased approximately $281.1 million, which was primarily
related to a $38.4 million increase in commercial loans to
businesses for working capital, and a $132.1 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.
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.
<PAGE>
Synovus does not regularly engage in trading or holding
financial derivatives. Synovus may invest in collateralized
mortgage obligations (CMOs) and in U.S. Government agency
securities containing mandatory coupon adjustments (step-up
bonds). At June 30, 1995, the held to maturity portfolio
included CMOs with an estimated fair value of $.9 million and
an amortized cost of $1.0 and step-up bonds with an estimated
fair value of $52.9 and amortized cost of $53.4. At June 30,
1995, Synovus' available for sale portfolio included CMOs with
an estimated fair value of $7.5 million and amortized cost of
$7.8 and step-up bonds with an estimated fair value of $17.4 and
amortized cost of $17.7. Management purchases these securities
under policies providing for specific evaluation of the extra
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 $2.6 million at June 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 six months of 1995. The average
portfolio rate for the six months ended June 30, 1995, increased
22 basis points to 6.26% 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 June 30, 1995, the
estimated fair value of investment securities as a percentage of
their amortized cost was 100.5%. Investment securities with a
fair value of $27.1 million and an amortized cost of $27.7
million were transferred during the six months ended June 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 portfolios of PSB and 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 six
months ended June 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.
Synovus' deposit growth in the first six 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 $54.5 million in the first six months of 1995
to $1.0 billion. Time deposits increased $511.2 million or 15.9%
in the first half of 1995.
Asset Quality
Synovus' asset quality continued to improve during the first six
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.
<PAGE>
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 .76%
as of June 30, 1995, compared to .80% as of December 31, 1994.
During the first six months of 1995, nonperforming assets
remained relatively flat, increasing only $.2 million, or .6%,
while net loans increased $281.1 million, or 5.6%. The reserve
for loan losses increased $7.5 million, or 10.0%, to $82.5
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 net
loans increased from .16% as of December 31, 1994 to .22% as of
June 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
increased from 155.85% as of December 31, 1994, to 157.03% as of
June 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.
<PAGE>
<TABLE>
<CAPTION> June 30, December 31,
1995 1994
-------- -----------
(in thousands)
<S> <C> <C>
Nonperforming Loans $ 24,715 28,397
Other Real Estate 16,277 12,356
------ ------
Nonperforming Assets $ 40,992 40,753
====== ======
Loans 90 Days Past Due and Still
Accruing 11,541 7,383
====== ======
Reserve for Loan Losses $ 82,492 75,018
====== ======
Reserve for Loan Losses as a % of Loans 1.54 % 1.48
==== ====
As a % of Loans and Other Real Estate:
Nonperforming Loans 0.46 % 0.56
Other Real Estate 0.30 0.24
---- ----
Nonperforming Assets 0.76 % 0.80
==== ====
Reserve to Nonperforming Loans 333.77 % 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 $698.6 million at June 30,
1995, compared to $660.9 million at December 31, 1994. The
ratio of total risk-based capital to risk-weighted assets was
12.24% at June 30, 1995, compared to 12.36% at year-end 1994.
This slight decrease was due to strong loan growth. At June 30,
1995, Synovus' leverage ratio was 8.43%, compared to 8.45% at
December 31, 1994. Synovus' equity-to-assets ratio was 8.52% at
June 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
July 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.
<PAGE>
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 could be called upon if a mismatch was to
occur.
The consolidated statements of cash flows detail Synovus' cash
flows from operating, investing, and financing activities. Net
cash provided by operating activities was $51.8 million for the
first six months of 1995, while financing activities provided
$213.4 million. Investing activities used $278.9 million of
this amount, resulting in a net decrease in cash and cash
equivalents of $13.7 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
time.
<PAGE>
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 (approximately one
quarter) during a rising rate environment and will decrease
slightly in the near term during a declining rate environment.
Synovus' net interest margin for the first six months of 1995 was
up 14 basis points to 5.05% compared to the same period in 1994.
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 June 30, 1995, the one year cumulative gap was a
$601 million (8% 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 six months ended June 30, 1995, net interest income, on
a taxable-equivalent basis, increased $24.4 million, or 16.8%,
over the six months ended June 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 six months of 1995 was
5.19%, up 28 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 second
quarter of 1995 increased $9.6 million, or 12.5%, over the
second quarter of 1994. The net interest margin was 5.14% for
the current quarter, up 7 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.
<PAGE>
<TABLE>
<CAPTION> Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Interest income $ 297,662 234,971 153,318 122,354
Taxable-equivalent adjustment 2,776 3,003 1,368 1,515
------- ------- ------- -------
Interest income, taxable-
equivalent 300,438 237,974 154,686 123,869
Interest expense 130,323 92,309 68,809 47,565
------- ------- ------- -------
Net interest income, taxable-
equivalent $ 170,115 145,665 85,877 76,304
======= ======= ======= =======
</TABLE>
Provision for Loan Losses
During the first six months of 1995, the provision for loan
losses decreased $.6 million, or 5.0% over the same period in
1994. Annualized net charge-offs to average net loans for the
six months ended June 30, 1995, were .17% compared to .36%
during the first six months of 1994. The provision for loan
losses increased $.2 million, or 3.1%, during the second quarter
of 1995 when compared to the second quarter of 1994. Net
charge-offs to average net loans were .22% during the second
quarter of 1995, compared to .29% during the second quarter of
1994. The reserve for loan losses to loans was 1.54% as of June
30, 1995, and 1.48% at December 31, 1994. The primary reason
for the year-to-date decrease in the provision for loan losses
was due to the overall improvement in credit quality. This
improvement can be seen in Synovus' decrease in net charge-offs
as a percentage of average loans and in Synovus' lower
nonperforming asset ratio as a percentage of loans and other
real estate.
Non-Interest Income
Total non-interest income during the first six months of 1995
increased $24.4 million, or 18.8%, over the same period in 1994.
The increase in non-interest income resulted largely from
higher data processing services revenue, which increased $25.3
million, or 31.2%, during the six months ended June 30, 1995,
over the same period in 1994. Other increases in non-interest
income for the period include a $2.4 million, or 11.7%, 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.
<PAGE>
Total non-interest income during the quarter ended June 30,
1995, increased $15.4 million, or 23.5%, over the second 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 22.2% of total revenues for the three
months and six months ended June 30, 1995, respectively,
compared to 24.4% and 23.9% for the same periods in 1994. In
June 1995, a new 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
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 agreement a new, mutually agreeable conversion schedule
will be established. The 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 12.8% and 12.7% of TSYS' total
revenues for the three months and six months ended June 30, 1995,
respectively, compared to 12.0% for each of the same
periods in 1994. TSYS' existing agreement with NationsBank
expires in September of 1995, and TSYS and NationsBank continue
their negotiations to extend their processing relationship.
Although failure to extend this processing relationship would
have a material adverse impact on TSYS' future revenues and
results of operations, management believes these negotiations
will result in a new, extended processing agreement.
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 in 1996. The
processing agreement with Bank of America, including definitive
amendments 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.
<PAGE>
Non-Interest Expense
Total non-interest expense for the six months ended June 30,
1995, increased $37.9 million, or 19.5%, over the same period in
1994. Of this increase, $13.6 million related to banking
operations. The primary reasons for the increase in the banking
operations' expenses were additional employees hired in 1994,
salary increases, FDIC insurance increases, professional fee
increases, 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 $21.7 million, or
21.6%, net occupancy and equipment expense increased $8.2
million, or 20.5%, and other operating expenses increased $7.7
million, or 15.0%. 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.
The project to develop the core TS2 bankcard processing and
support software concluded in late September 1994 with the
successful conversion of First Omni Bank's 750,000 cardholder
accounts. Costs associated with this project were capitalized,
and amortization of the capitalized software development costs
began in October 1994, over a useful life of ten years.
Amortization expense associated with core TS2 will be
approximately $3.3 million in 1995. The estimated useful life
was determined by management based upon such factors as the life
of the original Total System, the average life of its present
customer base, the contractual terms of its customers processing
agreements, and the credit card processing marketplace,
including the projected rate of technological change. Costs
associated with the development of additional features of TS2
will continue to be capitalized upon establishing technological
feasibility and amortized when they become available for general
customer use. Costs associated with conversions to TS2 , as
well as the timing of individual bank conversions, have not been
determined. Management believes that the amortization of these
increased software development and contract acquisition costs in
1995 and future years will be substantially offset by increases
in revenue from existing customers and new customers
attributable to the expanded product offerings of TS2 and its
relative technological superiority as compared to alternatives
currently available in the marketplace.
<PAGE>
Income Tax Expense
Income tax expense for the six months ended June 30, 1995, was
$28.6 million compared to $24.4 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 36.1% for the first six months of 1995
compared to 36.2% for the first six months of 1994. The
decrease in the effective tax rate was primarily the result of
the realization of certain tax planning strategies, including
the recognition of research and experimentation credits for
ongoing development activities and a reduction in effective
state income tax rates.
Net Income
The combination of the above factors resulted in net income for
the first six months of 1995 of $50.7 million. This is an
increase of $7.7 million, or 17.8%, over the first six months of
1994. This performance resulted in a return on average assets
of 1.40% and a return on average equity of 16.69% for the six
month period ended June 30, 1995. This compares to a return on
average assets of 1.30% and a return on average equity of 15.60%
for the first six months of 1994.
Net income for the three months ended June 30, 1995, increased
$4.0 million, or 17.7% over the same period for 1994. This
performance provided Synovus with a return on average assets of
1.44% and a return on average equity of 17.04% for the three
months ended June 30, 1995. This compares to a return on
average assets of 1.35% and a return on average equity of 16.30%
for the three months ended June 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.
<PAGE>
On January 1, 1995, the provisions of SFAS No. 114 and 118 were
adopted. 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 collateralized dependent
loans. Prior to 1995, the allowance for loan losses was based
upon non-discounted cash flows or the fair value of the 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 an impaired 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 June 30,
1995:
<TABLE>
Loan Loss
Balance Reserve
June 30, June 30,
(in thousands) 1995 1995
--------- ---------
<S> <C> <C>
Impaired loans, nonaccruing, with loan
loss reserve $ 23,658 5,578
Impaired loans, nonaccruing, with no
loan loss reserve 1,058 0
Impaired loans, accruing, with loan
loss reserve 3,490 2,453
Impaired loans, accruing, with no
loan loss reserve 12,111 0
------ -----
Total $ 40,317 8,031
====== =====
</TABLE>
<PAGE>
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". SFAS No. 122
amends FASB Statement No. 65 which required a mortgage banking
enterprise to recognize as separate assets the acquired rights
to service mortgage loans for others. SFAS No. 122 permits the
recognition of mortgage servicing rights as assets whether
acquired or produced through loan originations. SFAS No. 122
also requires the assessment of capitalized mortgage servicing
rights for impairment to be based upon the current fair value of
those rights.
SFAS No. 122 applies prospectively in fiscal years beginning
after December 15, 1995, and permits earlier adoption in an
interim period for which financial information has not been
issued. Synovus will adopt SFAS No. 122 effective July 1, 1995.
The financial impact of SFAS No. 122 in not expected to be
significant to the third quarter financial statements.
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. 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting was held on April 13, 1995. Three proposals
were submitted to the shareholders for approval. The first proposal was to fix
the number of Synovus' directors at twenty (20). The number of affirmative votes
cast for Proposal #1 represented in person or by proxy at the meeting was
408,595,868, or 94.5% of the votes entitled to be cast by the holders of all the
issued and outstanding shares of Synovus common stock. A total of 2,726,633
votes were cast against Proposal #1 and a total of 1,605,052 votes abstained
from voting on Proposal #1. As the affirmative vote of at least 66 2/3% of the
votes entitled to be cast by the holders of all of the issued and outstanding
shares of Synovus common stock was required for approval of Proposal #1, such
proposal was approved. The second proposal was to elect eight nominees for Class
I directors of Synovus. The eight nominees for election as Class I directors
named hereinbelow were elected by the number of affirmative votes set forth
opposite their names hereinbelow, with the number of votes withholding authority
to vote for such nominees also being shown.
<TABLE>
<CAPTION> Withheld Authority
Nominee Votes For to Vote
------- --------- ------------------
<S> <C> <C>
James H. Blanchard 406,053,388 4,378,098
Stephen L. Burts, Jr. 406,055,066 4,375,419
C. Edward Floyd 405,149,718 5,281,768
Gardiner W. Garrard, Jr. 406,018,556 4,412,930
V. Nathaniel Hansford 406,075,710 4,355,776
H. Lynn Page 405,951,593 4,479,893
Robert V. Royall, Jr. 406,057,474 4,374,012
James D. Yancey 406,059,997 4,371,488
</TABLE>
As the election of each of the nominees for Class I directors was approved by a
plurality of the total votes entitled to be cast by the holders of shares
represented at the meeting, each of the nominees for Class I directors was
elected.
The third proposal was to approve Synovus' 1994 Long Term Incentive
Plan. The number of affirmative votes cast for Proposal #3 represented in person
or by proxy at the meeting was 394,378,482, or 96.8% of the votes cast thereon.
A total of 13,062,973 votes were cast against Proposal #3 and a total 2,890,031
votes abstained from voting on Proposal #3. As the affirmative vote of a
majority of the votes cast on Proposal #3 was required for approval, such
proposal was approved.
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 second
quarter of 1995.
(1) The report filed on April 28, 1995, included the following event:
On April 28, 1995, Synovus announced that it had completed its acquisition
of Citizens & Merchants Corporation, Douglasville, Georgia.
<PAGE>
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.
Date: August 11, 1995 BY:/s/ Stephen L. Burts, Jr.
-------------------------
Stephen L. Burts, Jr.
President and
Chief Financial Officer
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Sequentially
Exhibit Number Description Numbered Page
-------------- ----------- -------------
<S> <C> <C>
11 Statement re Computation of
Per Share Earnings 22
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
</TABLE>
<TABLE>
EXHIBIT 11
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(UNAUDITED)
Six Months Ended Three Months Ended
<CAPTION> June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary
- -------
Net income $ 50,670,128 43,016,655 26,600,297 22,597,818
========== ========== ========== ==========
Average common shares outstanding 76,191,684 74,877,652 76,519,304 75,095,473
Average common shares added, assuming
exercise of dilutive stock options 733,422 831,501 780,928 823,694
---------- ---------- ---------- ----------
Average common shares, as adjusted 76,925,106 75,709,153 77,300,232 75,919,167
========== ========== ========== ==========
Net income per common share $ 0.66 0.57 0.34 0.30
========== ========== ========== ==========
Assuming Full Dilution
- ----------------------
Net income $ 50,670,128 43,016,655 26,600,297 22,597,818
========== ========== ========== ==========
Adjustments:
Interest expense on subordinated
debentures 68,237 68,237 34,118 34,118
Income tax effect on such interest
expense (23,883) (23,883) (11,941) (11,941)
---------- ---------- ---------- ----------
Net Income, as adjusted $ 50,714,482 43,061,009 26,622,474 22,619,995
========== ========== ========== ==========
Average common shares outstanding 76,191,684 74,877,652 76,519,304 75,095,473
Average common shares added, assuming
exercise of dilutive stock options 842,288 854,269 842,288 854,269
Average common shares to be issued,
assuming conversion of subordinated
debentures 301,947 301,947 301,947 301,947
---------- ---------- ---------- ----------
Average common shares, as adjusted 77,335,919 76,033,868 77,663,539 76,251,689
========== ========== ========== ==========
Net income per common share, assuming
full dilution $ 0.66 0.57 0.34 0.30
========== ========== ========== ==========
</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
JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 330,939
<INT-BEARING-DEPOSITS> 2,251
<FED-FUNDS-SOLD> 128,480
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 851,093
<INVESTMENTS-CARRYING> 501,874
<INVESTMENTS-MARKET> 504,779
<LOANS> 5,363,417
<ALLOWANCE> 82,492
<TOTAL-ASSETS> 7,569,838
<DEPOSITS> 6,504,954
<SHORT-TERM> 162,787
<LIABILITIES-OTHER> 108,517
<LONG-TERM> 123,835
<COMMON> 76,779
0
0
<OTHER-SE> 567,903
<TOTAL-LIABILITIES-AND-EQUITY> 7,569,838
<INTEREST-LOAN> 254,743
<INTEREST-INVEST> 40,646
<INTEREST-OTHER> 2,273
<INTEREST-TOTAL> 297,662
<INTEREST-DEPOSIT> 119,670
<INTEREST-EXPENSE> 10,653
<INTEREST-INCOME-NET> 167,339
<LOAN-LOSSES> 10,984
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 231,578
<INCOME-PRETAX> 79,306
<INCOME-PRE-EXTRAORDINARY> 79,306
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,670
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 5.19
<LOANS-NON> 24,715
<LOANS-PAST> 11,541
<LOANS-TROUBLED> 15,602
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 75,018
<CHARGE-OFFS> 7,027
<RECOVERIES> 2,516
<ALLOWANCE-CLOSE> 82,492
<ALLOWANCE-DOMESTIC> 65,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,638
</TABLE>
