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, 1996
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 offices)
(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, 1996, 116,287,735 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)
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (unaudited)
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1996 and 1995 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 16
(b) Report on Form 8-K 16
Signature Page 17
Exhibit Index 18
(11) Statement re Computation of Per Share Earnings 19
(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>
June 30, December 31,
(In thousands, except share and per share data) 1996 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 353,624 382,696
Interest earning deposits with banks 1,017 1,093
Federal funds sold 30,354 123,832
Investment securities available for sale 1,207,384 1,106,298
Investment securities held to maturity 367,490 380,918
Loans 5,816,645 5,526,842
Less unearned income (12,884) (14,812)
Less reserve for loan losses (88,056) (81,384)
Loans, net 5,715,705 5,430,646
Premises and equipment, net 235,405 220,197
Other assets 287,882 281,915
Total assets $ 8,198,861 7,927,595
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,106,360 1,141,716
Interest bearing 5,815,526 5,586,163
Total deposits 6,921,886 6,727,879
Federal funds purchased and securities sold under 308,591 229,477
agreement to repurchase
Long-term debt 100,323 106,815
Other liabilities 121,475 142,079
Total liabilities 7,452,275 7,206,250
Minority interest in consolidated subsidiary 29,974 27,790
Shareholders' equity:
Common stock - $1.00 par value; authorized 600,000,000 shares; issued
116,182,332 in 1996 and 115,921,043 in 1995; outstanding 116,104,437 in
1996 and 115,855,148
in 1995 116,182 115,921
Surplus 90,664 88,381
Less treasury stock - 77,895 and 65,895 shares in 1996 (1,285) (1,022)
and 1995, respectively
Less unamortized restricted stock (2,347) (2,663)
Net unrealized gain (loss) on investment securities (10,708) 5,774
available for sale
Retained earnings 524,106 487,164
Total shareholders' equity 716,612 693,555
Total liabilities and shareholders' equity $ 8,198,861 7,927,595
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 138,966 131,239 274,597 254,743
Investment securities:
U.S. Treasury and U.S. Government agencies 17,850 14,230 34,996 28,128
Mortgage-backed securities 4,576 4,019 9,145 8,134
State and municipal 1,695 1,825 3,508 3,693
Other investments 342 329 666 691
Federal funds sold 455 1,643 1,153 2,213
Interest earning deposits with banks 11 33 26 60
Total interest income 163,895 153,318 324,091 297,662
Interest expense:
Deposits 66,321 64,037 132,602 119,670
Federal funds purchased and securities sold
under agreement to repurchase 3,365 2,698 6,583 6,316
Long-term debt 1,522 2,074 3,090 4,337
Total interest expense 71,208 68,809 142,275 130,323
Net interest income 92,687 84,509 181,816 167,339
Provision for losses on loans 8,233 5,739 14,666 10,984
Net interest income after provision
for losses on loans 84,454 78,770 167,150 156,355
Non-interest income:
Data processing services 70,330 55,853 137,624 106,290
Service charges on deposit accounts 13,182 11,695 25,602 22,575
Fees for trust services 2,678 2,283 5,417 4,721
Credit card fees 2,298 1,836 3,812 3,379
Securities gains (losses), net (138) 228 (65) (15)
Other operating income 14,251 9,169 26,658 17,590
Total non-interest income 102,601 81,064 199,048 154,540
Non-interest expense:
Salaries and other personnel expense 74,644 62,035 147,271 122,220
Net occupancy and equipment expense 29,644 24,416 57,925 48,024
Other operating expenses 29,879 30,438 61,026 59,268
Minority interest in subsidiary's net income 1,521 1,157 2,670 2,077
Total non-interest expense 135,688 118,046 268,892 231,589
Income before income taxes 51,367 41,788 97,306 79,306
Income tax expense 18,259 15,188 34,571 28,636
Net income $ 33,108 26,600 62,735 50,670
Net income per share $ 0.29 0.23 0.54 0.44
Weighted average shares outstanding 116,000 114,779 115,950 114,288
Dividends declared per share $ 0.11 0.09 0.22 0.18
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
(In thousands) 1996 1995
<S> <C> <C>
Operating Activities
Net Income $ 62,735 50,670
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 14,666 10,984
Depreciation, amortization, and accretion, net 21,109 18,815
Deferred income tax (benefit) expense (481) 581
Increase in interest receivable (4,792) (6,275)
(Decrease) increase in interest payable (1,855) 9,378
Minority interest in subsidiary's net income 2,670 2,077
Increase in mortgage loans held for sale (5,582) (10,529)
Other, net (12,596) (23,881)
Net cash provided by operating activities 75,874 51,820
Investing Activities
Cash acquired from acquisitions --- 4,431
Net decrease in interest earning deposits with banks 76 798
Net decrease (increase) in federal funds sold 93,478 (75,418)
Proceeds from maturities of investment securities available for sale 213,681 56,570
Proceeds from sales of investment securities available for sale 71,692 80,035
Purchases of investment securities available for sale (413,826) (104,364)
Proceeds from maturities of investment securities held to maturity 45,001 28,470
Purchases of investment securities held to maturity (31,881) (25,347)
Net increase in loans (294,143) (225,573)
Purchase of premises and equipment (33,264) (18,979)
Disposal of premises and equipment 1,079 885
Proceeds from sale of other real estate 3,643 3,122
Additions to internally developed computer software (3,432) (3,559)
Net cash used in investing activities (347,896) (278,929)
Financing Activities
Net increase in demand and savings deposits 132,349 22,164
Net increase in certificates of deposit 61,658 477,471
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase 79,114 (249,560)
Principal repayments on long-term debt (6,492) (17,875)
Proceeds from issuance of long-term debt --- 1,898
Purchase of treasury stock (263) (827)
Dividends paid to shareholders (25,532) (21,246)
Proceeds from issuance of common stock 2,116 1,386
Net cash provided by financing activities 242,950 213,411
Decrease in cash and cash equivalents (29,072) (13,698)
Cash and cash equivalents at beginning of period 382,696 344,637
Cash and cash equivalents at end of period $ 353,624 330,939
</TABLE>
Continued on next page.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental cash flow information:
For the six months ended June 30, 1996 and 1995, Synovus Financial Corp.
(Synovus) paid income taxes of $46.2 million and $34.0 million, and interest of
$144.1 million and $120.9 million, respectively.
Supplemental information of noncash investing and financing activities:
Loans of approximately $2.5 million and $3.5 million were foreclosed and
transferred to other real estate during the six months ended June 30, 1996 and
1995, respectively.
Depreciation, amortization, and accretion, net, for the six months ended June
30, 1996 and 1995 includes amortization of internally developed computer
software of $1.7 million. Internally developed computer software has a net
carrying value of $29.5 million and $32.0 million at June 30, 1996 and 1995,
respectively.
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.
On March 11, 1996, Synovus declared a three-for-two stock split which was
effected on April 8, 1996 in the form of a 50% stock dividend. All share, per
share data, and shareholders' equity account balances for all periods presented
in the accompanying consolidated financial statements have been restated to give
effect to the stock split.
Note B - Pending Acquisition
On May 24, 1996, Synovus entered into an Agreement with NationsBank providing
for the acquisition of two full-service banking centers in Rome, Georgia.
Synovus will acquire approximately $58.5 million in deposits and $14.5 million
in loans from the two banking centers. The acquisition will be accounted for as
a purchase and is expected to be completed in the fourth quarter of 1996.
Note C - Recent Accounting Pronouncement
On October 23, 1995, SFAS No. 123, "Accounting for Stock-Based Compensation",
was issued. SFAS No. 123 allows companies to retain the current approach set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", for recognizing stock-based compensation expense in the
basic financial statements; however, companies are encouraged to adopt a new
accounting method based on the estimated fair value of employee compensation.
Companies that do not adopt the new fair value based method will be required to
provide expanded disclosures. SFAS No. 123 is effective for the fiscal year
ending December 31, 1996, and Synovus intends to provide such information in
expanded disclosures in the footnotes to the financial statements.
Note D - Other
Certain amounts in 1995 have been reclassified to conform with presentation
adopted in 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the six months ended June 30, 1996, was $62.7 million, up $12.1
million, or 23.8%, from the same period a year ago. Net income per share
increased to $.54 in the first half of 1996 as compared to $.44 for the first
half of 1995. This performance resulted in a return on average assets of 1.58%
and a return on average equity of 17.75% for the six months ended June 30, 1996.
This compares to a return on average assets of 1.40% and a return on average
equity of 16.69% for the first six months of 1995.
Net income for the three months ended June 30, 1996, was $33.1 million, up $6.5
million, or 24.5% from the same period a year ago. Net income per share
increased to $.29 in the second quarter of 1996 as compared to $.23 for the
second quarter of 1995. This performance resulted in a return on average assets
of 1.65% and a return on average equity of 18.65% for the three months ended
June 30, 1996. This compares to a return on average assets of 1.44% and a return
on average equity of 17.04% for the second quarter of 1995.
On March 11, 1996, Synovus declared a three-for-two stock split which was
effected on April 8, 1996 in the form of a 50% stock dividend. All share, per
share data, and shareholders' equity account balances for all periods presented
in the accompanying consolidated financial statements have been restated to give
effect to the stock split.
Balance Sheet
During the first six months of 1996, total assets increased $271.3 million, or
3.4%, compared to December 31, 1995. Net loans increased $285.1 million, or
5.2%, and investment securities increased $87.7 million, or 5.9%. Providing the
necessary funding for the balance sheet growth during the first half of 1996,
Synovus' deposit base grew $194.0 million, or 2.9%, and net federal funds
purchased increased $172.6 million.
Loans
Synovus continues to increase its internal loan portfolio through a constant
focus on meeting the needs of customers in the markets served while maintaining
adherence to sound lending practices. As a result of this continued focus, four
affiliates headquartered in Columbia, South Carolina; Columbus, Georgia;
Birmingham, Alabama; and Valparaiso, Florida experienced significant loan growth
of $78.7 million, $44.3 million, $27.6 million, and $22.8 million, respectively,
during the six months ended June 30, 1996. Indicative of the economic growth
within the communities Synovus serves, loan growth resulted from increases
during the first half of 1996 in all loan categories as detailed below. In
addition, during April of 1996, Synovus' lead bank, Columbus Bank and Trust
Company, purchased $34 million in credit card loans.
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1996 1995
<S> <C> <C>
Commercial:
Commercial, financial, and agricultural $1,984,748 1,931,004
Real estate-construction 649,152 578,712
Real estate-mortgage 1,192,903 1,160,089
Total commercial 3,826,803 3,669,805
Retail:
Real estate-mortgage 840,178 824,998
Credit card 258,815 222,204
Installment-other 860,404 784,972
Mortgage loans held for sale 30,445 24,863
Total retail 1,989,842 1,857,037
Total loans 5,816,645 5,526,842
Unearned income (12,884) (14,812)
Total loans, net of unearned income $5,803,761 5,512,030
</TABLE>
Asset Quality
Synovus continues to underwrite loans that provide further diversification
within the loan portfolios of the markets served while emphasizing customer
relationships in small and middle market businesses. Commercial credits are
routinely monitored for cash flows, liquidity, financial condition, and
collateral adequacy. Management continues to focus on maintaining a high quality
loan portfolio by knowing the markets served, as well as the individual
borrowers, and continuing emphasis on loan officer training. As measured by
general asset quality indicators, Synovus' asset quality remains strong. During
the first six months of 1996, nonperforming assets, consisting of nonaccrual
loans, restructured loans, and other real estate, increased $1.8 million, while
net loans increased $285.1 million. Synovus' nonperforming assets ratio was .64%
as of June 30, 1996, which was unchanged from December 31, 1995.
The reserve for loan losses is maintained, through periodic additions to the
reserve, at an appropriate level based on management's analysis of the potential
risk inherent within the loan portfolio. When determining the amount of loan
loss provision, several relevant factors are considered. These relevant factors
include the level of nonperforming loans, impaired loan balances, historical
loan loss experience, the amount of loan losses charged against the reserve in
the given period, and the current and anticipated economic conditions. Synovus'
reserve for loan losses increased $6.7 million, or 8.2%, from $81.4 million at
December 31, 1995 to $88.1 million at June 30, 1996.
Loans 90 days past due and still accruing increased $1.6 million, or 14.3%,
since December 31, 1995. Management believes that the value of the underlying
collateral securing commercial loans is sufficient to cover the principal and
interest payments on these loans and management does not expect a material
increase in nonperforming assets in future periods as a result of the resolution
of these delinquencies. Synovus, as well as the overall industry, has
experienced an increase in credit card and installment loan past dues.
Management continues to resolve these past dues either through collection or
charge-off. After consideration of the current trend issues described above,
with respect to both Synovus and the banking industry as a whole, management
believes that the reserve for loan losses adequately reflects the reserves
needed for any charge-offs related to the resolution of these loans.
The reserve to nonperforming loans and loans 90 days past due and still accruing
was 224.1% at June 30, 1996, compared to 235.1% at year-end 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.
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1996 1995
<S> <C> <C>
Nonperforming loans $ 26,240 23,202
Other real estate 10,875 12,071
Nonperforming assets $ 37,115 35,273
Loans 90 days past due and still accruing $ 13,049 11,417
Reserve for loan losses $ 88,056 81,384
Reserve for loan losses as a % of loans 1.52% 1.48
As a % of loans and other real estate:
Nonperforming loans 0.45% 0.42
Other real estate 0.19 0.22
Nonperforming assets 0.64% 0.64
Reserve to nonperforming loans 335.58% 350.76
</TABLE>
Capital Resources and Liquidity
Synovus continues to maintain its capital at levels which 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 $799.1 million at June 30, 1996, compared to $751.4 million at
December 31, 1995. The ratio of total risk-based capital to risk-weighted assets
was 12.60% at June 30, 1996 compared to 12.57% at December 31, 1995. Synovus'
leverage ratio at the end of the second quarter of 1996 was 8.92% compared to
8.71% at the end of 1995. Synovus equity-to-assets ratio decreased one basis
point to 8.74% at June 30, 1996, when compared to year-end 1995.
Internal capital generation continues to support asset growth, as reflected in
the 8.85% equity-to-asset ratio exclusive of unrealized gain (loss) on
investment securities available for sale, compared to 8.69% at year-end 1995.
Synovus' liquidity position and sources of funds have improved since December
31, 1995, due to an increase in liquid assets, primarily investment securities,
and a reduction in pledging requirements. Synovus' maturity mix of investment
securities and loan portfolios have not changed significantly during the first
six months of 1996.
Synovus' management monitors liquidity in coordination with the appropriate
committees at each affiliate bank. Management must ensure that appropriate
liquidity, at a reasonable cost, is available to meet the cash flow needs of
depositors, borrowers, and creditors. Management constantly monitors and
maintains appropriate levels of assets and liabilities so that maturities of
assets can provide adequate funding to meet estimated customer withdrawals and
future loan requests. Additionally, Synovus and its affiliate banks have access
to short-term borrowings, such as federal funds, through correspondent banking
relationships and a $20 million line of credit held by Synovus.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $75.9 million during the first six months of 1996, while $243.0
million was provided by financing activities. Investing activities utilized
$347.9 million of this amount, resulting in a decrease in cash and cash
equivalents of $29.1 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 1996 were $8.0 billion, up 9.2%
over the first six months of 1995 average of $7.3 billion. Average earning
assets were up 9.1% in the first half of 1996 over the same period a year ago
and represented 91% of average total assets. When compared to the same period
last year, average deposits and average shareholders' equity increased $543.8
million and $98.7 million, respectively. This growth provided the funding for
the $423.4 million growth in average net loans, along with a $205.5 million
increase in average investment securities.
Net interest income was $181.8 million for the six months ended June 30, 1996,
up $14.5 million, or 8.7%, over the $167.3 million reported in the six months
ended June 30, 1995. Net interest income, on a tax-equivalent basis, for the
first half of 1996 increased $14.2 million, or 8.4%, over the same period in
1995.
Net interest income was $92.7 million for the second quarter of 1996, up $8.2
million, or 9.7%, over the $84.5 million reported for the second quarter of
1995. Net interest income, on a tax-equivalent basis, for the second quarter of
1996 increased $8.0 million, or 9.4%, over the second quarter of 1995.
The year-to-date net interest margin was 5.16%, down three basis points from the
same period last year. This decrease resulted from a five basis point increase
in the cost of interest bearing liabilities and a three basis point decrease in
the yield on interest earning assets. These factors were partially offset by an
increased benefit from non-interest bearing accounts. The increase in the cost
of interest bearing liabilities was primarily due to the change in the mix of
interest bearing liabilities as customers began moving their deposits back to
higher paying time deposits from lower paying transaction accounts during 1995
as their expectations of the market rates changed. Approximately half of the
loan portfolio floats with changes in the prime rate. While the average prime
rate decreased 63 basis points in the first half of 1996, the negative impact of
this decrease was mitigated by purchases of investment securities at higher
earning rates, improvement in loan fee income, and fundamental loan growth in
the current year.
The tax-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 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 1996 1995 1996 1995
<C> <C> <C> <C> <C>
Interest income $163,895 153,318 324,091 297,662
Taxable-equivalent adjustment 1,230 1,368 2,546 2,776
Interest income, taxable-equivalent 165,125 154,686 326,637 300,438
Interest expense 71,208 68,809 142,275 130,323
Net interest income, taxable-equivalent $ 93,917 85,877 184,362 170,115
</TABLE>
Provision for Loan Losses
During the first six months of 1996, the provision for loan losses increased
$3.7 million, or 33.5%, over the same period in 1995. The increase in the
provision was necessary primarily to maintain the level of loan loss reserve
coverage of outstanding loans, due to strong growth in the loan portfolio, which
included the purchase of $34 million in credit card loans during April of 1996.
The reserve to net loans ratio as of June 30, 1996, was 1.52%, compared to 1.54%
as of June 30, 1995 and 1.48% as of December 31, 1995. Additionally, net
charge-offs, primarily in credit card and installment loans, grew somewhat
during the first half of 1996. Net charge-offs to average loans for the six
months ended June 30, 1996, were .28% compared to .17% during the first six
months of 1995. The amount of net charge-offs during the first six months of
1996 was $8.0 million compared to $4.5 million during the first six months of
1995. Management continues to focus on early detection of problem loans and
timely resolution of those identified loans.
During the second quarter of 1996, the provision for loan losses increased $2.5
million, or 43.5%, over the same period in 1995. Net charge-offs to average
loans for the quarter ended June 30, 1996, were .28% compared to .22% during the
second quarter of 1995.
Non-Interest Income
Total non-interest income during the first six months of 1996 increased $44.5
million, or 28.8%, over the same period in 1995. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$31.3 million, or 29.5%, during the six months ended June 30, 1996, over the
same period in 1995. Other increases in non-interest income during the period
include a $3.0 million, or 13.4%, increase in service charges on deposit
accounts, principally due to increased volume and fee structures on deposit
accounts. The increase in other operating income, of $9.1 million, was primarily
due to increases in revenues from mortgage banking and related servicing fees,
specialty printing services revenue, and income from Total System Services, Inc.
(TSYS) joint ventures. TSYS is a majority-owned, publicly traded subsidiary of
Synovus.
Total non-interest income during the quarter ended June 30, 1996, increased
$21.5 million, or 26.6%, over the second quarter of 1995, 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 TSYS. TSYS'
revenues from bankcard data processing services increased $29.8 million, or
30.5%, in the first six months of 1996, compared to the first six months of
1995. Comparing the second quarter of 1996 to the second quarter of 1995,
revenue from bankcard data processing services increased $13.6 million, or
26.4%. Increased revenues from bankcard data processing are attributable to the
conversion of cardholder accounts of new customers and growth in the card
portfolios of existing customers. Increases in the volume of authorizations and
transactions associated with the additional cardholder accounts, as well as
growth in new services offered, also contributed to the increased revenues.
A significant amount of TSYS' revenues are derived from certain major customers
who are processed under long-term contracts. For the three and six months ended
June 30, 1996, two customers accounted for approximately 29% and 30% of TSYS'
total revenues, respectively. As a result, the loss of one of TSYS' major
customers could have a material adverse effect on TSYS' results of operations.
The impact of these two customers on Synovus' revenues was approximately 11% for
the three and six months ended June 30, 1996.
TSYS has converted approximately 4.5 million of Bank of America's cardholder
accounts to its new cardholder system, TS2. Conversions to TS2 of remaining
portions of Bank of America's cardholder accounts are currently expected to
continue into 1997. Management believes all of Bank of America's cardholder
accounts will be successfully converted to TS2.
During the second quarter, TSYS and Bank of America amended their processing
agreement to, among other things, eliminate the financial penalties and
termination rights associated with prior conversion delays. The conversion and
processing of Bank of America's cardholder accounts is not expected to have a
material impact on TSYS' 1996 financial condition or results of operations.
Non-Interest Expense
Total non-interest expense for the six months ended June 30, 1996, increased
$37.3 million, or 16.1%, over the same period in 1995. Total non-interest
expense for the second quarter of 1996 increased $17.6 million, or 14.9%, over
the second quarter of 1995. Management analyzes non-interest expense in two
separate components: banking operations and TSYS. The following table summarizes
this data for the first six months of 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
(In thousands) Banking TSYS Banking TSYS
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $ 82,478 64,793 77,154 45,066
Net occupancy and equipment expense 18,814 39,111 16,960 31,064
Other operating expenses 37,198 23,828 40,668 18,600
Minority interest in subsidiary's net 2,670 --- 2,077 ---
income
Total non-interest expense $ 141,160 127,732 136,859 94,730
</TABLE>
In the first six months of 1996, non-interest expense for Synovus' banking
operations increased $4.3 million, or 3.1%. During the second quarter of 1996
non-interest expense increased $2.3 million, or 3.3%, compared to the second
quarter of 1995. The majority of increased expenses were in employment expense
and relate primarily to normal salary increases and additional employees. The
number of employees as of June 30, 1996 increased to 4,203 compared to 4,037 as
of June 30, 1995. The decrease in other operating expenses is due to the
lowering of the FDIC assessment rate on deposits from that in place during the
first half of 1995.
Non-interest expense related to TSYS increased 31.3% and 34.8% for the three and
six months ended June 30, 1996, respectively, compared to the same periods in
1995. Increases in expenses are reflected in all categories and are attributable
to the addition of personnel and equipment; the cost of materials associated
with the services provided by all of TSYS' companies, particularly the supplies
related to processing the increased number of accounts; and certain processing
provisions and expenses associated with the conversion of customers to TS2.
Income Tax Expense
Income tax expense for the six months ended June 30, 1996, was $34.6 million
compared to $28.6 million for the same period a year ago. Income tax expense for
the second quarter of 1996 was $18.3 million compared to $15.2 million in the
second quarter of 1995. The effective tax rate for the first six months of 1996
and 1995 was 35.5% and 36.1%, respectively. The decrease in the effective tax
rate is due to the effect of certain tax planning strategies and a reduction in
the effective state income tax rates.
Legal Proceedings
Synovus is subject to various legal proceedings and claims which arise in the
ordinary course of its business. Any litigation is vigorously defended by
Synovus and, in the opinion of management, based on consultation with external
legal counsel, any outcome of such litigation would not materially affect
Synovus' consolidated financial position.
Currently, multiple lawsuits, some 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;
(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; and (3) the forced placement of insurance to protect that
Synovus subsidiary's interest in collateral for which consumer credit customers
have failed to obtain or maintain insurance. 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 Synovus 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 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 25, 1996. Following is a
summary of the two proposals that were submitted to the shareholders for
approval.
The first proposal was to elect seven nominees for Class II directors of Synovus
to serve until the 1999 Annual Meeting of Shareholders. The seven nominees for
election as Class II directors named below were elected by the number of
affirmative votes set forth opposite their names below, with the number of votes
withholding authority to vote for such nominees also being shown. As the
election of each of the nominees for Class II 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 II directors was
elected.
<TABLE>
<CAPTION>
Withheld
Nominee Votes For Authority to Vote
<S> <C> <C>
Richard E. Anthony 557,669,756 1,095,320
Joe E. Beverly 557,689,023 1,076,053
Mason H. Lampton 557,598,554 1,166,522
John L. Moulton 557,680,744 1,084,332
Elizabeth C. Ogie 557,541,849 1,223,226
John T. Oliver, Jr. 557,731,665 1,033,410
William L. Pherigo 557,684,207 1,080,869
</TABLE>
The second proposal was to approve Synovus' Executive Bonus Plan. The number of
affirmative votes cast for this proposal represented in person or by proxy at
the meeting was 527,699,675, or 95.8%, of the votes cast thereon. A total of
23,310,436 votes were cast against this proposal and a total of 7,754,964 votes
abstained from voting. As the affirmative vote of a majority of the votes cast
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
No report on Form 8-K was filed during or subsequent to the second quarter
of 1996.
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 13, 1996 BY: /s/ Stephen L. Burts, Jr.
Stephen L. Burts, Jr.
President and Chief Financial Officer
INDEX TO EXHIBITS
Sequentially
Exhibit Number Description Numbered Page
11 Statement re Computation of 19
Per Share Earnings.
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
EXHIBIT 11
<TABLE>
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Primary
<S> <C> <C> <C> <C>
Net income $ 33,108 26,600 62,735 50,670
Weighted average common shares outstanding 116,000 114,779 115,950 114,288
Average common shares added, assuming
exercise of dilutive stock options 1,772 1,171 1,620 1,097
Weighted average common shares, as adjusted 117,772 115,950 117,570 115,385
Primary net income per common share $ 0.28 0.23 0.53 0.44
Fully Diluted
Net income $ 33,108 26,600 62,735 50,670
Adjustments:
Interest expense on subordinated debentures --- 34 --- 68
Income tax effect on such interest expense --- (12) --- (24)
Net income, as adjusted $ 33,108 26,622 62,735 50,714
Weighted average common shares outstanding 116,000 114,779 115,950 114,288
Average common shares added, assuming
exercise of dilutive stock options 1,772 1,260 1,675 1,260
Average common shares to be issued, assuming
conversion of subordinated debentures --- 453 --- 453
Weighted average common shares, as adjusted 117,772 116,492 117,625 116,001
Fully diluted net income per common share $ 0.28 0.23 0.53 0.44
</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, 1996, 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 353,624
<INT-BEARING-DEPOSITS> 1,017
<FED-FUNDS-SOLD> 30,354
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,207,384
<INVESTMENTS-CARRYING> 367,490
<INVESTMENTS-MARKET> 362,750
<LOANS> 5,803,761
<ALLOWANCE> 88,056
<TOTAL-ASSETS> 8,198,861
<DEPOSITS> 6,921,886
<SHORT-TERM> 308,591
<LIABILITIES-OTHER> 121,475
<LONG-TERM> 100,323
0
0
<COMMON> 116,182
<OTHER-SE> 600,430
<TOTAL-LIABILITIES-AND-EQUITY> 8,198,861
<INTEREST-LOAN> 274,597
<INTEREST-INVEST> 48,315
<INTEREST-OTHER> 1,179
<INTEREST-TOTAL> 324,091
<INTEREST-DEPOSIT> 132,602
<INTEREST-EXPENSE> 142,275
<INTEREST-INCOME-NET> 181,816
<LOAN-LOSSES> 14,666
<SECURITIES-GAINS> (65)
<EXPENSE-OTHER> 268,892
<INCOME-PRETAX> 97,306
<INCOME-PRE-EXTRAORDINARY> 62,735
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,735
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 5.16
<LOANS-NON> 26,240
<LOANS-PAST> 13,049
<LOANS-TROUBLED> 16,779
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,384
<CHARGE-OFFS> 10,722
<RECOVERIES> 2,728
<ALLOWANCE-CLOSE> 88,056
<ALLOWANCE-DOMESTIC> 3,564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 84,492
</TABLE>
