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, 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 October 31, 1996, 116,324,277 shares of the Registrant's Common
Stock, $1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (unaudited)
Nine and Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 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 17
(b) Report on Form 8-K 17
Signature Page 18
Exhibit Index 19
(11) Statement re Computation of Per Share Earnings 20
(27) Financial Data Schedule (for SEC purposes only, not
enclosed herewith)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
September 30, December 31,
(In thousands, except share and per share data) 1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 348,734 382,696
Interest earning deposits with banks 1,028 1,093
Federal funds sold 3,712 123,832
Investment securities available for sale 1,229,339 1,106,298
Investment securities held to maturity 357,487 380,918
Loans 5,955,573 5,526,842
Less unearned income (11,894) (14,812)
Less reserve for loan losses (92,654) (81,384)
- -------------------------------------------------------------------------------------------------------
Loans, net 5,851,025 5,430,646
- ------------------------------------------------------------------------------------------------------
Premises and equipment, net 239,920 220,197
Other assets 303,980 281,915
- -------------------------------------------------------------------------------------------------------
Total assets $ 8,335,225 7,927,595
======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,095,550 1,141,716
Interest bearing 5,781,987 5,586,163
- ------------------------------------------------------------------------------------------------------
Total deposits 6,877,537 6,727,879
Federal funds purchased and securities sold under
agreement to repurchase 421,672 229,477
Long-term debt 109,418 106,815
Other liabilities 151,536 142,079
- ------------------------------------------------------------------------------------------------------
Total liabilities 7,560,163 7,206,250
======================================================================================================
Minority interest in consolidated subsidiary 31,880 27,790
Shareholders' equity:
Common stock - $1.00 par value; authorized 600,000,000 shares; issued
116,391,144 in 1996 and 115,921,043 in 1995; outstanding 116,313,249
in 1996 and 115,855,148 in 1995 116,391 115,921
Surplus 94,780 88,381
Less treasury stock - 77,895 and 65,895 shares in 1996
and 1995, respectively (1,285) (1,022)
Less unamortized restricted stock (5,755) (2,663)
Net unrealized gain (loss) on investment securities
available for sale (7,364) 5,774
Retained earnings 546,415 487,164
- ------------------------------------------------------------------------------------------------------
Total shareholders' equity 743,182 693,555
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 8,335,225 7,927,595
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------- ---------------
(In thousands, except per share data) 1996 1995 1996 1995
---------------- ----------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 417,296 389,321 142,699 134,578
Investment securities:
U.S. Treasury and U.S. Government agencies 54,001 43,349 19,005 15,221
Mortgage-backed securities 13,651 12,040 4,506 3,906
State and municipal 5,122 5,545 1,614 1,852
Other investments 977 1,018 311 327
Federal funds sold 1,614 3,744 461 1,531
Interest earning deposits with banks 39 88 13 28
- ---------------------------------------------------------------------------------------------------------
Total interest income 492,700 455,105 168,609 157,443
- ---------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 199,509 186,054 66,907 66,384
Federal funds purchased and securities sold under
agreement to repurchase 11,137 9,127 4,554 2,811
Long-term debt 4,606 6,323 1,516 1,986
- ---------------------------------------------------------------------------------------------------------
Total interest expense 215,252 201,504 72,977 71,181
- ---------------------------------------------------------------------------------------------------------
Net interest income 277,448 253,601 95,632 86,262
Provision for losses on loans 22,677 17,198 8,011 6,214
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 254,771 236,403 87,621 80,048
- ---------------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 214,360 169,113 76,736 62,823
Service charges on deposit accounts 38,816 34,414 13,214 11,839
Fees for trust services 8,208 7,036 2,791 2,315
Credit card fees 6,278 5,358 2,466 1,979
Securities gains (losses), net (36) -- 29 15
Other operating income 41,181 28,370 14,177 10,780
- ---------------------------------------------------------------------------------------------------------
Total non-interest income 308,807 244,291 109,413 89,751
- ---------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 221,892 186,718 74,621 64,498
Net occupancy and equipment expense 90,063 74,022 32,138 25,998
Other operating expenses 89,043 89,953 28,017 30,685
Special FDIC assessment 4,546 -- 4,546 --
Minority interest in subsidiary's net income 4,854 3,498 2,184 1,421
- ---------------------------------------------------------------------------------------------------------
Total non-interest expense 410,398 354,191 141,506 122,602
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 153,180 126,503 55,528 47,197
Income tax expense 55,237 45,554 20,320 16,918
- ---------------------------------------------------------------------------------------------------------
Net income <F1> $ 97,943 80,949 35,208 30,279
=========================================================================================================
Net income per share <F1> $ 0.84 0.71 0.30 0.26
=========================================================================================================
Weighted average shares outstanding 116,066 114,662 116,295 115,398
=========================================================================================================
Dividends declared per share $ 0.33 0.27 0.11 0.09
=========================================================================================================
<FN>
<F1>Includes special FDIC assessment of $2.8 million, after-tax, or $.024 per
share, for the nine and three months ended September 30, 1996. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further discussion.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
--------------------------
(In thousands) 1996 1995
--------------------------
<S> <C> <C>
Operating Activities
Net Income $ 97,943 80,949
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 22,677 17,198
Depreciation, amortization, and accretion, net 32,076 29,429
Deferred income tax expense 17 572
Increase in interest receivable (3,000) (7,997)
Increase in interest payable 1,549 14,300
Minority interest in subsidiary's net income 4,854 3,498
Increase in mortgage loans held for sale (5,601) (20,849)
Other, net (10,462) (6,769)
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 140,053 110,331
- ----------------------------------------------------------------------------------------------------
Investing Activities
Cash acquired from acquisitions --- 4,431
Net decrease in interest earning deposits with banks 65 1,769
Net decrease in federal funds sold 120,120 10,519
Proceeds from maturities of investment securities available for sale 279,394 107,109
Proceeds from sales of investment securities available for sale 84,497 111,847
Purchases of investment securities available for sale (509,392) (238,303)
Proceeds from maturities of investment securities held to maturity 58,623 45,513
Purchases of investment securities held to maturity (35,673) (62,266)
Net increase in loans (437,455) (315,109)
Purchase of premises and equipment (47,103) (30,460)
Disposal of premises and equipment 1,972 942
Proceeds from sale of other real estate 4,342 7,781
Additions to internally developed computer software (5,601) (3,992)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (486,211) (360,219)
- -----------------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in demand and savings deposits 84,877 (25,369)
Net increase in certificates of deposit 64,781 477,643
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase 192,195 (193,060)
Principal repayments on long-term debt (7,397) (19,200)
Proceeds from issuance of long-term debt 10,000 1,638
Purchase of treasury stock (263) (1,303)
Dividends paid to shareholders (38,318) (31,668)
Proceeds from issuance of common stock 6,321 3,257
- ----------------------------------------------------------------------------------------------------
Net cash provided by financing activities 312,196 211,938
- ----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (33,962) (37,950)
Cash and cash equivalents at beginning of period 382,696 344,637
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 348,734 306,687
====================================================================================================
</TABLE>
Continued on next page.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental cash flow information:
For the nine months ended September 30, 1996 and 1995, Synovus Financial Corp.
(Synovus) paid income taxes of $68.7 million and $48.9 million, and interest of
$213.7 million and $187.1 million, respectively.
Supplemental information of noncash investing and financing activities:
Loans of approximately $4.7 million and $5.5 million were foreclosed and
transferred to other real estate during the nine months ended September 30, 1996
and 1995, respectively.
Depreciation, amortization, and accretion, net, for the nine months ended
September 30, 1996 included amortization of internally developed computer
software of $2.5 million. Internally developed computer software had a net
carrying value of $28.9 million and $31.4 million at September 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 - Acquisition
On October 24, 1996, Synovus completed the acquisition of two NationsBank
full-service banking centers in Rome, Georgia. Synovus acquired approximately
$49 million in deposits and $12 million in loans from the two banking centers.
The acquisition was accounted for as a purchase.
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 the presentation
adopted in 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the nine months ended September 30, 1996, was $97.9 million, up
$17.0 million, or 21.0%, from the same period a year ago. Net income per share
increased to $.84 in the first nine months of 1996 as compared to $.71 for the
same period in 1995. This performance resulted in a return on average assets of
1.62% and a return on average equity of 18.19% for the nine months ended
September 30, 1996. This compares to a return on average assets of 1.46% and a
return on average equity of 17.27% for the first nine months of 1995.
Net income for the three months ended September 30, 1996, was $35.2 million, up
$4.9 million, or 16.3% from the same period a year ago. Net income per share
increased to $.30 in the third quarter of 1996 as compared to $.26 for the third
quarter of 1995. This performance resulted in a return on average assets of
1.70% and a return on average equity of 19.02% for the three months ended
September 30, 1996. This compares to a return on average assets of 1.58% and a
return on average equity of 18.32% for the third quarter of 1995.
On September 30, 1996, legislation was approved to recapitalize the Savings
Association Insurance Fund. Due to this recapitalization, Synovus will pay a
special assessment to the Federal Deposit Insurance Corporation (FDIC) of
approximately $2.8 million on an after-tax basis, which represents $.024 per
share for the third quarter of 1996. Synovus' consolidated statements of income
for the nine and three months ended September 30, 1996, include this special
assessment.
The following paragraph discusses the financial results for the nine months
ended September 30, 1996, before the FDIC special assessment. Net income for the
nine months ended September 30, 1996, was $100.7 million, up $19.8 million, or
24.4%, from the same period a year ago. Net income per share increased to $.87
in the first nine months of 1996 as compared to $.71 for the same period in
1995. This performance resulted in a return on average assets of 1.67% and a
return on average equity of 18.71% for the nine months ended September 30, 1996.
This compares to a return on average assets of 1.46% and a return on average
equity of 17.27% for the first nine months of 1995.
The following paragraph discusses the financial results for the three months
ended September 30, 1996, before the FDIC special assessment. Net income for the
three months ended September 30, 1996, was $38.0 million, up $7.7 million, or
25.5% from the same period a year ago. Net income per share increased to $.33 in
the third quarter of 1996 as compared to $.26 for the third quarter of 1995.
This performance resulted in a return on average assets of 1.84% and a return on
average equity of 20.53% for the three months ended September 30, 1996. This
compares to a return on average assets of 1.58% and a return on average equity
of 18.32% for the third 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 nine months of 1996, total assets increased $407.6 million, or
5.1%, compared to December 31, 1995. Net loans increased $420.4 million, or
7.7%, and investment securities increased $99.6 million, or 6.7%. Providing the
necessary funding for the balance sheet growth during the first half of 1996,
Synovus' deposit base grew $149.7 million, or 2.2%, and net federal funds
purchased increased $312.3 million.
Loans
Synovus continues to increase its 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, loans have
continued to grow throughout Synovus' affiliate markets, with the most
significant growth at four affiliates headquartered in Columbia, South Carolina;
Columbus, Georgia; Birmingham, Alabama; and Valparaiso, Florida. These four
banks experienced significant loan growth of $111.5 million, $94.6 million,
$57.1 million, and $34.9 million, respectively, during the nine months ended
September 30, 1996. Indicative of the economic growth within the communities
Synovus serves, loan growth resulted from increases during the first nine months
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>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
(In thousands)
Commercial:
Commercial, financial, and agricultural $ 1,999,123 1,931,004
Real estate-construction 603,534 578,712
Real estate-mortgage 1,335,240 1,160,089
- --------------------------------------------------------------------------------
Total commercial 3,937,897 3,669,805
- --------------------------------------------------------------------------------
Retail:
Real estate-mortgage 837,172 824,998
Credit card 271,599 222,204
Installment-other 878,481 784,972
Mortgage loans held for sale 30,424 24,863
- --------------------------------------------------------------------------------
Total retail 2,017,676 1,857,037
- --------------------------------------------------------------------------------
Total loans 5,955,573 5,526,842
Unearned income (11,894) (14,812)
- --------------------------------------------------------------------------------
Total loans, net of unearned income $ 5,943,679 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 nine months of 1996, nonperforming assets, consisting of nonaccrual
loans, restructured loans, and other real estate, decreased $.2 million, while
net loans increased $420.4 million. Synovus' nonperforming assets ratio was .59%
as of September 30, 1996, which has improved five basis points 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 $11.3 million, or 13.8%, from $81.4 million at
December 31, 1995 to $92.7 million at September 30, 1996.
Loans 90 days past due and still accruing decreased $.5 million, or 4.3%, 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; however,
management does not consider these trends to be significant to the overall
credit quality of Synovus. 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 276.5% at September 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>
September 30, December 31,
(In thousands) 1996 1995
------------- --------------
<S> <C> <C>
Nonperforming loans $ 22,580 23,202
Other real estate 12,477 12,071
- --------------------------------------------------------------------------------
Nonperforming assets $ 35,057 35,273
================================================================================
Loans 90 days past due and still accruing $ 10,931 11,417
================================================================================
Reserve for loan losses $ 92,654 81,384
================================================================================
Reserve for loan losses as a % of loans 1.56% 1.48
================================================================================
As a % of loans and other real estate:
Nonperforming loans 0.38% 0.42
Other real estate 0.21 0.22
- --------------------------------------------------------------------------------
Nonperforming assets 0.59% 0.64
================================================================================
Reserve to nonperforming loans 410.33% 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 $827.5 million at September 30, 1996, compared to $751.4 million at
December 31, 1995. The ratio of total risk-based capital to risk-weighted assets
was 12.70% at September 30, 1996 compared to 12.57% at December 31, 1995.
Synovus' leverage ratio at the end of the third quarter of 1996 was 9.07%
compared to 8.71% at the end of 1995. Synovus' equity-to-assets ratio increased
seventeen basis points to 8.92% at September 30, 1996, when compared to year-end
1995.
Internal capital generation continues to support asset growth, as reflected in
the third quarter 1996 equity-to-asset ratio exclusive of unrealized gain (loss)
on investment securities available for sale of 9.00%, 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
nine 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 $140.1 million during the first nine months of 1996, while $312.2
million was provided by financing activities. Investing activities utilized
$486.2 million of this amount, resulting in a decrease in cash and cash
equivalents of $34.0 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first nine months of 1996 were $8.1 billion, up
8.9% over the first nine months of 1995 average of $7.4 billion. Average earning
assets were up 8.9% in the first nine months 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
$500.7 million and $92.5 million, respectively. This growth provided the funding
for the $432.3 million growth in average net loans, along with a $203.5 million
increase in average investment securities.
Net interest income was $277.4 million for the nine months ended September 30,
1996, up $23.8 million, or 9.4%, over the $253.6 million reported in the nine
months ended September 30, 1995. Net interest income, on a tax-equivalent basis,
for the first nine months of 1996 increased $23.4 million, or 9.1%, over the
same period in 1995.
Net interest income was $95.6 million for the third quarter of 1996, up $9.4
million, or 10.9%, over the $86.3 million reported for the third quarter of
1995. Net interest income, on a tax-equivalent basis, for the third quarter of
1996 increased $9.2 million, or 10.5%, over the third quarter of 1995.
The year-to-date net interest margin was 5.18%, up two basis points from the
same period last year. This increase resulted from an eight basis point decrease
in the effective cost of interest bearing liabilities, offset by a six basis
point decrease in the yield on interest earning assets. The decrease in the
effective cost of interest bearing liabilities was primarily due to promotional
certificates of deposit maturing and being reinvested in lower yield deposit
instruments and a $94.3 million, or 9.7%, increase in non-interest bearing
deposits. Approximately half of the loan portfolio floats with changes in the
prime rate. The average prime rate decreased 58 basis points from the first nine
months of 1995 to the first nine months of 1996. The negative impact of this
decrease was mitigated by reinvesting matured securities into higher earning
investments, 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>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------- -----------------
(In thousands) 1996 1995 1996 1995
---------- ------- -------- ------
<S> <C> <C> <C> <C>
Interest income $ 492,700 455,105 168,609 157,443
Taxable-equivalent adjustment 3,732 4,148 1,186 1,372
- ----------------------------------------------------------------------------------
Interest income, taxable-equivalent 496,432 459,253 169,795 158,815
Interest expense 215,252 201,504 72,977 71,181
- ----------------------------------------------------------------------------------
Net interest income, taxable-equivalent $ 281,180 257,749 96,818 87,634
==================================================================================
</TABLE>
Provision for Loan Losses
During the first nine months of 1996, the provision for loan losses increased
$5.5 million, or 31.9%, 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 September 30, 1996, was 1.56%, compared to
1.54% as of September 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 nine months of 1996. Net charge-offs to average loans for the
nine months ended September 30, 1996, were .27% compared to .23% during the
first nine months of 1995. The amount of net charge-offs during the first nine
months of 1996 was $11.4 million compared to $9.2 million during the first nine
months of 1995. Management continues to focus on early detection of problem
loans and timely resolution of those identified loans.
During the third quarter of 1996, the provision for loan losses increased $1.8
million, or 28.9%, over the same period in 1995. Net charge-offs to average
loans for the quarter ended September 30, 1996, were .23% compared to .34%
during the third quarter of 1995.
Non-Interest Income
Total non-interest income during the first nine months of 1996 increased $64.5
million, or 26.4%, over the same period in 1995. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$45.2 million, or 26.8%, during the nine months ended September 30, 1996, over
the same period in 1995. Other increases in non-interest income during the
period include a $4.4 million, or 12.8%, 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 $12.8 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 September 30, 1996, increased
$19.7 million, or 21.9%, over the third 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 $44.9 million, or
28.8%, in the first nine months of 1996, compared to the first nine months of
1995. Comparing the third quarter of 1996 to the third quarter of 1995, revenue
from bankcard data processing services increased $14.0 million, or 24.1%.
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 is derived from certain major customers
who are processed under long-term contracts. For the three and nine months ended
September 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 nine months ended September 30, 1996.
TSYS has had two successful conversions of certain Bank of America cardholder
accounts to 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 nine months ended September 30, 1996,
increased $56.2 million, or 15.9%, over the same period in 1995. Total
non-interest expense for the third quarter of 1996 increased $18.9 million, or
15.4%, over the third 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 nine months of 1996 and 1995.
<TABLE>
1996 1995
-------------------- ---------------
(In thousands) Banking TSYS Banking TSYS
---------- ------- -------- ------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $ 130,027 91,865 118,298 68,420
Net occupancy and equipment expense 28,902 61,161 26,075 47,947
Other operating expenses 48,764 40,279 56,229 33,724
Special FDIC assessment 4,546 --- --- ---
Minority interest in subsidiary's net income 4,854 --- 3,498 ---
- ---------------------------------------------------------------------------------------
Total non-interest expense $ 217,093 193,305 204,100 150,091
=======================================================================================
</TABLE>
In the first nine months of 1996, non-interest expense for Synovus' banking
operations increased $13.0 million, or 6.4%, compared to the first nine months
of 1995. During the third quarter of 1996, non-interest expense for Synovus'
banking operations increased $8.7 million, or 12.9%, compared to the third
quarter of 1995. This increase is mainly attributable to a special assessment of
approximately $2.8 million, after-tax, imposed by the FDIC to recapitalize the
Savings Association Insurance Fund. Additional reasons for the increased
expenses relate primarily to normal salary increases and additional employees.
The number of employees related to Synovus' banking operations as of September
30, 1996, increased to 4,219 compared to 4,094 as of September 30, 1995.
Year-to-date non-interest expense for Synovus' banking operations, before the
special assessment, was $212.5 million up $8.4 million or 4.1%. Non-interest
expense for the quarter, before the special assessment, was $71.4 million up
$4.1 million or 6.2%.
Non-interest expense related to TSYS increased 18.4% and 28.8% for the three and
nine months ended September 30, 1996, respectively, compared to the same periods
in 1995. Increases in expenses are reflected in most 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 nine months ended September 30, 1996, was $55.2
million compared to $45.6 million for the same period a year ago. Income tax
expense for the third quarter of 1996 was $20.3 million compared to $16.9
million in the third quarter of 1995. The effective tax rate for the first nine
months of 1996 and 1995 was 36.1% and 36.0%, respectively.
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 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 third 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: November 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 20
Per Share Earnings.
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
EXHIBIT 11
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------
1996 1995 1996 1995
-------------------------- --------------------
<S> <C> <C> <C> <C>
Primary
Net income $ 97,943 80,949 35,208 30,279
==========================================================================================================
Weighted average common shares outstanding 116,066 114,662 116,295 115,398
Average common shares added, assuming
exercise of dilutive stock options 1,682 1,121 1,890 1,395
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares, as adjusted 117,748 115,783 118,185 116,793
==========================================================================================================
Primary net income per common share $ 0.83 0.70 0.30 0.26
==========================================================================================================
Fully Diluted
Net income $ 97,943 80,949 35,208 30,279
==========================================================================================================
Weighted average common shares outstanding 116,066 114,662 116,295 115,398
Average common shares added, assuming
exercise of dilutive stock options 2,087 1,470 2,086 1,470
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares, as adjusted 118,153 116,132 118,381 116,868
==========================================================================================================
Fully diluted net income per common share $ 0.83 0.70 0.30 0.26
==========================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 348,734
<INT-BEARING-DEPOSITS> 1,028
<FED-FUNDS-SOLD> 3,712
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,229,339
<INVESTMENTS-CARRYING> 357,487
<INVESTMENTS-MARKET> 356,675
<LOANS> 5,943,679
<ALLOWANCE> 92,654
<TOTAL-ASSETS> 8,335,225
<DEPOSITS> 6,877,537
<SHORT-TERM> 421,672
<LIABILITIES-OTHER> 151,536
<LONG-TERM> 109,418
0
0
<COMMON> 116,391
<OTHER-SE> 626,791
<TOTAL-LIABILITIES-AND-EQUITY> 8,335,225
<INTEREST-LOAN> 417,296
<INTEREST-INVEST> 73,751
<INTEREST-OTHER> 1,653
<INTEREST-TOTAL> 492,700
<INTEREST-DEPOSIT> 199,509
<INTEREST-EXPENSE> 215,252
<INTEREST-INCOME-NET> 277,448
<LOAN-LOSSES> 22,677
<SECURITIES-GAINS> (36)
<EXPENSE-OTHER> 410,398
<INCOME-PRETAX> 153,180
<INCOME-PRE-EXTRAORDINARY> 97,943
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,943
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<YIELD-ACTUAL> 5.18
<LOANS-NON> 22,580
<LOANS-PAST> 10,931
<LOANS-TROUBLED> 17,182
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,384
<CHARGE-OFFS> 15,794
<RECOVERIES> 4,387
<ALLOWANCE-CLOSE> 92,654
<ALLOWANCE-DOMESTIC> 3,749
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 88,905
</TABLE>
