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, 1997
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, 1997, 175,032,318 shares of the Registrant's Common
Stock, $1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
Page
Part I. Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income (unaudited)
Nine and Three Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 6. (a) Exhibits 20
(b) Report on Form 8-K 20
Signature Page 21
Exhibit Index 22
(11) Statement re Computation of Per Share Earnings 23
(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>
<CAPTION>
September 30, December 31,
(In thousands, except share and per share data) 1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 336,065 404,952
Interest earning deposits with banks 959 2,040
Federal funds sold 45,436 38,249
Investment securities available for sale 1,307,114 1,276,083
Investment securities held to maturity 336,021 363,008
Loans 6,477,274 6,075,465
Less unearned income (6,330) (10,235)
Less reserve for loan losses (101,675) (94,683)
-------------- -----------
Loans, net 6,369,269 5,970,547
-------------- -----------
Premises and equipment, net 264,101 247,191
Other assets 338,087 310,274
-------------- -----------
Total assets $8,997,052 8,612,344
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $1,151,869 1,189,973
Interest bearing 6,247,512 6,013,062
-------------- -----------
Total deposits 7,399,381 7,203,035
Federal funds purchased and securities sold under agreement to repurchase 399,441 339,200
Long-term debt 126,564 97,283
Other liabilities 168,300 154,641
-------------- -----------
Total liabilities 8,093,686 7,794,159
-------------- -----------
Minority interest in consolidated subsidiary 39,804 34,435
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares; issued
175,100,973 in 1997 and 174,635,319 in 1996; outstanding
174,984,130 in 1997 and 174,518,477 in 1996 175,101 174,635
Surplus 42,576 40,312
Less treasury stock - 116,843 and 116,842 shares in 1997 and 1996, respectively (1,285) (1,285)
Less unamortized restricted stock (3,811) (5,344)
Net unrealized gain (loss) on investment securities available for sale 4,393 (112)
Retained earnings 646,588 575,544
-------------- -----------
Total shareholders' equity 863,562 783,750
-------------- -----------
Total liabilities and shareholders' equity $8,997,052 8,612,344
============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- ---------------------
(In thousands, except per share data) 1997 1996 1997 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $457,270 417,296 157,962 142,699
Investment securities:
U.S. Treasury and U.S. Government agencies 60,326 54,001 20,465 19,005
Mortgage-backed securities 13,093 13,651 4,157 4,506
State and municipal 4,857 5,122 1,625 1,614
Other investments 962 977 336 311
Federal funds sold 1,302 1,614 489 461
Interest earning deposits with banks 60 39 13 13
-------- --------- ---------- --------
Total interest income 537,870 492,700 185,047 168,609
-------- --------- ---------- --------
Interest expense:
Deposits 211,823 199,509 73,437 66,907
Federal funds purchased and securities sold under
agreement to repurchase 15,144 11,137 4,836 4,554
Long-term debt 5,297 4,606 1,931 1,516
-------- --------- ---------- --------
Total interest expense 232,264 215,252 80,204 72,977
-------- --------- ---------- --------
Net interest income 305,606 277,448 104,843 95,632
Provision for losses on loans 22,884 22,677 7,604 8,011
-------- --------- ---------- --------
Net interest income after provision
for losses on loans 282,722 254,771 97,239 87,621
-------- --------- ---------- --------
Non-interest income:
Data processing services 252,018 214,360 87,839 76,736
Service charges on deposit accounts 41,058 38,816 14,055 13,214
Fees for trust services 9,426 8,208 3,137 2,791
Credit card fees 7,832 6,278 2,888 2,466
Securities gains (losses), net (20) (36) (18) 29
Other operating income 47,170 41,181 16,419 14,177
-------- --------- ---------- --------
Total non-interest income 357,484 308,807 124,320 109,413
-------- --------- ---------- --------
Non-interest expense:
Salaries and other personnel expense 254,868 221,892 85,418 74,621
Net occupancy and equipment expense 103,304 90,063 35,097 32,138
Other operating expenses 90,324 89,043 31,368 28,017
Special FDIC assessment -- 4,546 -- 4,546
Minority interest in subsidiary's net income 6,099 4,854 2,546 2,184
-------- --------- ---------- --------
Total non-interest expense 454,595 410,398 154,429 141,506
-------- --------- ---------- --------
Income before income taxes 185,611 153,180 67,130 55,528
Income tax expense 67,381 55,237 24,029 20,320
-------- --------- ---------- --------
Net income <F1> $118,230 97,943 43,101 35,208
======== ========= ========== ========
Net income per share <F1> $ 0.68 0.56 0.25 0.20
======== ========= ========== ========
Weighted average shares outstanding 174,720 174,099 174,930 174,442
======== ========= ========== ========
Dividends declared per share $ 0.27 0.22 0.09 0.07
======== ========= ========== ========
- --------------
<FN>
<F1>Includes special FDIC assessment of $2.8 million, after-tax, or $.016 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>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
(In thousands) 1997 1996
--------- --------
<S> <C> <C>
Operating Activities
Net Income $118,230 97,943
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 22,884 22,677
Depreciation, amortization, and accretion, net 36,737 32,076
Deferred income tax expense (benefit) (1,982) 17
Increase in interest receivable (6,219) (3,000)
Increase in interest payable 6,951 1,549
Minority interest in subsidiary's net income 6,099 4,854
Increase in mortgage loans held for sale (6,308) (5,601)
Other, net 1,270 (4,367)
--------- --------
Net cash provided by operating activities 177,662 146,148
--------- --------
Investing Activities
Net decrease in interest earning deposits with banks 1,081 65
Net (increase) decrease in federal funds sold (7,187) 120,120
Proceeds from maturities and principal collections of investment
securities available for sale 191,329 279,394
Proceeds from sales of investment securities available for sale 58,531 84,497
Purchases of investment securities available for sale (274,298) (509,392)
Proceeds from maturities and principal collections of investment
securities held to maturity 57,457 58,623
Purchases of investment securities held to maturity (30,894) (35,673)
Net increase in loans (415,298) (437,455)
Purchase of premises and equipment (46,992) (47,103)
Disposal of premises and equipment 912 1,972
Proceeds from sale of other real estate 3,820 4,342
Additions to contract acquisition costs (16,378) (6,095)
Additions to computer software (10,079) (5,601)
---------- ---------
Net cash used in investing activities (487,996) (492,306)
---------- ---------
Financing Activities
Net increase in demand and savings deposits 70,342 84,877
Net increase in certificates of deposit 126,004 64,781
Net increase in federal funds purchased and securities sold
under agreement to repurchase 60,241 192,195
Principal repayments on long-term debt (7,419) (7,397)
Proceeds from issuance of long-term debt 36,700 10,000
Purchase of treasury stock --- (263)
Dividends paid to shareholders (47,186) (38,318)
Proceeds from issuance of common stock 2,765 6,321
---------- ---------
Net cash provided by financing activities 241,447 312,196
---------- ---------
Decrease in cash and cash equivalents (68,887) (33,962)
Cash and cash equivalents at beginning of period 404,952 382,696
---------- ---------
Cash and cash equivalents at end of period $336,065 348,734
========== =========
</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, 1997 and 1996, Synovus Financial
Corp. (Synovus) paid income taxes of $73.3 million and $68.7 million, and
interest of $225.3 million and $213.7 million, respectively.
Supplemental information of noncash investing activities:
Loans of approximately $3.8 million and $4.7 million were foreclosed and
transferred to other real estate during the nine months ended September 30,
1997 and 1996, respectively.
Depreciation, amortization, and accretion, net, for the nine months ended
September 30, 1997 and 1996 included amortization of internally developed
computer software of $2.5 million, for both periods. Internally developed
computer software had a net carrying value of $25.8 million and $28.9 million at
September 30, 1997 and 1996, 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 10, 1997, Synovus declared a three-for-two stock split which was
effected on April 8, 1997 in the form of a 50% stock dividend. All share and
shareholders' equity amounts for all periods presented in the accompanying
consolidated financial statements have been restated to give effect to the stock
split.
Note B - Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 125
was amended by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Effective January 1, 1997, Synovus adopted the provisions of SFAS
No. 125 on a prospective basis. The impact of SFAS No. 125 on Synovus' financial
statements was not material.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 supersedes Accounting Principles Board Opinion No. 15 "Earnings Per Share"
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential issuable common stock. SFAS No. 128 replaces the presentation of
primary EPS with a presentation of basic EPS and fully diluted EPS with diluted
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator for the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. The expected impact on Synovus'
financial statements of the provisions of SFAS No. 128 is not expected to be
material.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure". SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. Synovus does not expect that SFAS No.
129 will require significant revision of prior disclosures since SFAS No. 129
lists required disclosures that had been included in a number of previously
existing separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
SFAS No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. The term "comprehensive income" is used in the SFAS to
describe the total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues, expenses, gains and
losses that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, "other comprehensive income" for
Synovus consists of items previously recorded directly in equity under SFAS No.
52, "Foreign Currency Translation," and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 130 is effective for
financial statements beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
disclosures made by public business enterprises to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. Synovus does not expect that SFAS No. 131 will require
significant revision of prior disclosures.
Note C - Off-Balance Sheet Derivative Financial Instruments
As part of its overall interest rate risk management activities, Synovus
utilizes off-balance sheet derivatives to modify the repricing characteristics
of on-balance sheet assets and liabilities. The primary instruments utilized by
Synovus are interest rate swaps and interest rate floor and cap arrangements.
The fair values of these off-balance sheet derivative financial instruments are
based on dealer quotes and third party financial models.
Interest rate swaps, floors and caps are accounted for on an accrual basis, and
the net interest differential, including premiums paid, if any, is recognized as
an adjustment to interest income or expense of the related designated asset or
liability. Changes in the fair values of the swaps, floors and caps are not
recorded in the consolidated statements of income because these agreements are
being treated as a synthetic alteration of an asset or liability as long as (i)
the swap is designated with a specific asset or liability or finite pool of
assets or liabilities; (ii) there is high correlation, at inception and
throughout the period of the synthetic alteration, between changes in the
interest income or expense generated by the swap and changes in the interest
income or expense generated by the designated asset or liability; (iii) the
notional amount of the swap is less than or equal to the principal amount of the
designated asset or liability; and (iv) the swap term is less than or equal to
the expected remaining term of the designated asset or liability. The criteria
for consideration of a floor or cap as a synthetic alteration of an asset or
liability are generally the same as those for a swap arrangement.
If the swap, floor or cap arrangements are terminated before their maturity, the
net proceeds received or paid are deferred and amortized over the shorter of the
remaining contract life or the maturity of the designated asset or liability as
an adjustment to interest income or expense. If the designated asset or
liability is sold or matures, the swap agreement is marked to market and the
gain or loss is included with the gain or loss on the sale or maturity of the
designated asset or liability. Changes in the fair value of any undesignated
swaps, floors and caps are included in other income in the consolidated
statement of income.
Note D - Other
Certain amounts in 1996 have been reclassified to conform with the presentation
adopted in 1997.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the nine months ended September 30, 1997, was $118.2 million, up
$20.3 million, or 20.7%, from the same period a year ago. Net income per share
increased to $.68 in the first nine months of 1997 as compared to $.56 for the
same period in 1996. This performance resulted in a return on average assets of
1.81% and a return on average equity of 19.29% for the nine months ended
September 30, 1997. This compares to a return on average assets of 1.62% and a
return on average equity of 18.19% for the first nine months of 1996.
Net income for the three months ended September 30, 1997, was $43.1 million, up
$7.9 million, or 22.4%, from the same period a year ago. Net income per share
increased to $.25 in the third quarter of 1997 as compared to $.20 for the third
quarter of 1996. This performance resulted in a return on average assets of
1.92% and a return on average equity of 20.03% for the three months ended
September 30, 1997. This compares to a return on average assets of 1.70% and a
return on average equity of 19.02% for the third quarter of 1996.
On March 10, 1997, Synovus declared a three-for-two stock split which was
effected on April 8, 1997 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.
On September 30, 1996, legislation was approved to recapitalize the Savings
Association Insurance Fund. Due to this recapitalization, Synovus paid a special
assessment to the Federal Deposit Insurance Corporation (FDIC) of approximately
$2.8 million on an after-tax basis, which represented $.016 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, 1997 as compared to the nine months ended September 30,
1996, before the FDIC special assessment. Net income for the nine months ended
September 30, 1997, was $118.2 million, up $17.5 million, or 17.4%, from the
same period a year ago. Net income per share increased to $.68 in the first nine
months of 1997 as compared to $.58 for the same period in 1996. This performance
resulted in a return on average assets of 1.81% and a return on average equity
of 19.29% for the nine months ended September 30, 1997. This compares to a
return on average assets of 1.67% and a return on average equity of 18.71% for
the first nine months of 1996.
The following paragraph discusses the financial results for the three months
ended September 30, 1997 as compared to the three months ended September 30,
1996, before the FDIC special assessment. Net income for the three months ended
September 30, 1997, was $43.1 million, up $5.1 million, or 13.4%, from the same
period a year ago. Net income per share increased to $.25 in the third quarter
of 1997 as compared to $.22 for the third quarter of 1996. This performance
resulted in a return on average assets of 1.92% and a return on average equity
of 20.03% for the third quarter of 1997. This compares to a return on average
assets of 1.84% and a return on average equity of 20.53% for the third quarter
of 1996.
Balance Sheet
During the first nine months of 1997, total assets increased $384.7 million, or
4.5%, compared to December 31, 1996. Net loans increased $398.7 million, or
6.7%, which was partially offset by a $68.9 million decrease in cash. Providing
the necessary funding for the balance sheet growth during the first nine months
of 1997, Synovus' deposit base grew $196.3 million, federal funds purchased and
securities sold under agreement to repurchase increased $60.2 million, long-term
debt increased $29.3 million, and equity increased $79.8 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, five
subsidiaries headquartered in Columbus, Georgia; Columbia, South Carolina;
Birmingham, Alabama; Thomasville, Georgia; and Huntsville, Alabama experienced
significant loan growth of $84.0 million, $44.4 million, $41.1 million, $17.5
million, and $17.1 million, respectively, during the nine months ended September
30, 1997. Indicative of the economic growth within the communities Synovus
serves, loan growth resulted from increases during the first nine months of 1997
in most loan categories as detailed in the following table.
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1997 1996
----------- -----------
<S> <C> <C>
Commercial:
Commercial, financial, and agricultural $2,183,989 2,036,689
Real estate - construction 800,882 730,785
Real estate - mortgage 1,288,450 1,234,981
------------ ------------
Total commercial 4,273,321 4,002,455
------------ ------------
Retail:
Real estate - mortgage 1,047,283 977,432
Consumer loans - credit card 297,910 290,470
Consumer loans - other 815,416 768,072
Mortgage loans held for sale 43,344 37,036
------------ ------------
Total retail 2,203,953 2,073,010
------------ ------------
Total loans 6,477,274 6,075,465
Unearned income (6,330) (10,235)
------------ ------------
Total loans, net of unearned income $6,470,944 6,065,230
============ ============
</TABLE>
Asset Quality
Synovus continues to underwrite loans that provide 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 1997, nonperforming assets, consisting of nonaccrual loans,
restructured loans, and other real estate, decreased $3.7 million, while net
loans increased $398.7 million. Synovus' nonperforming assets ratio was .50% as
of September 30, 1997, a nine basis point decrease from December 31, 1996.
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 factors include
the level of loan growth, 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 $7.0 million, or 7.4%,
from $94.7 million at December 31, 1996 to $101.7 million at September 30, 1997.
The primary factors necessitating this reserve increase were credit card
charge-offs and loan growth.
Loans 90 days past due and still accruing increased $1.3 million, or 8.0%, from
$15.8 million at December 31, 1996 to $17.1 million at September 30, 1997.
However, these loans were .26% of total loans at both December 31, 1996 and
September 30, 1997. The majority of the increase in loans 90 days past due and
still accruing is related to credit card loans. Management believes that the
value of the underlying collateral securing commercial and consumer loans is
generally 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 loan
charge-offs; however, management does not consider these trends to be
significant to the overall credit quality of Synovus. Credit card loans
represent 4.6% of Synovus' total loan portfolio and only 1.9% of the loan
growth. After consideration of the factors described above, 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 266.3% at September 30, 1997, compared to 230.5% at year-end 1996.
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>
September 30, December 31,
(In thousands) 1997 1996
------------ ------------
<S> <C> <C>
Nonperforming loans $ 21,113 25,280
Other real estate 11,237 10,782
------------ ------------
Nonperforming assets $ 32,350 36,062
============ ============
Loans 90 days past due and still accruing $ 17,070 15,805
============ ============
Reserve for loan losses $101,675 94,683
============ ============
Reserve for loan losses as a % of loans 1.57% 1.56
============ ============
As a % of loans and other real estate:
Nonperforming loans 0.33% 0.42
Other real estate 0.17 0.17
------------ ------------
Nonperforming assets 0.50% 0.59
============ ============
Reserve to nonperforming loans 481.56% 374.54
============ ============
</TABLE>
Provision for Loan Losses
During the first nine months of 1997, the provision for loan losses increased
$207,000, or .9%, over the same period in 1996. 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. The reserve to
loans ratio as of September 30, 1997, was 1.57%, compared to 1.56% as of
September 30, 1996 and 1.56% as of December 31, 1996. Additionally, net
charge-offs, primarily in credit card loans, increased during the first nine
months of 1997. Net charge-offs to average loans for the nine months ended
September 30, 1997, were .34% compared to .27% during the first nine months of
1996. The amount of net charge-offs during the first nine months of 1997 was
$15.9 million compared to $11.4 million during the first nine months of 1996.
Net charge-offs on credit card loans increased $5.3 million for the first nine
months of 1997 when compared to the first nine months of 1996, while all other
charge-offs decreased $846,000 for the same period. In response to these credit
card charge-offs, management has increased collection efforts, tightened credit
scoring, more closely monitored available credit lines, and become more focused
on past due monitoring.
The provision for loan losses remained fairly consistent in the third quarter of
1997 as compared to the same period in 1996. Net charge-offs to average loans
for the quarter ended September 30, 1997, were .41% compared to .23% during the
third quarter of 1996.
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 guidelines. Synovus' total risk-based capital was $952.9
million at September 30, 1997, compared to $863.3 million at December 31, 1996.
The ratio of total risk-based capital to risk-weighted assets was 13.35% at
September 30, 1997, compared to 12.97% at December 31, 1996. Synovus' leverage
ratio at the end of the third quarter of 1997 was 9.71% compared to 9.36% at the
end of 1996. Synovus' equity-to-assets ratio increased fifty basis points to
9.60% at September 30, 1997, when compared to year-end 1996.
Internal capital generation continues to support asset growth, as reflected in
the third quarter 1997 equity-to-assets ratio exclusive of net unrealized gain
(loss) on investment securities available for sale of 9.56%, compared to 9.10%
at year-end 1996.
Synovus' liquidity position has declined slightly since December 31, 1996. This
decline is due to a decrease in liquid assets, primarily cash and other
marketable securities. Synovus' maturity mix of investment securities and loan
portfolios has not changed significantly during the first nine months of 1997.
Synovus' liquidity ratio, liquid or readily marketable assets as a percentage of
unsecured liabilities, remains strong as of September 30, 1997 at 35.05%.
Synovus' management monitors liquidity in coordination with the appropriate
committees at each subsidiary bank. Management must ensure that adequate
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 subsidiary banks have access to
overnight federal funds lines with various financial institutions, which total
approximately $1.3 billion, that can be drawn upon for short-term liquidity
needs. Synovus also holds a $20 million line of credit.
Total System Services, Inc. (TSYS) formally unveiled the design plan for its
corporate campus at a press conference following a preview of the design at its
annual shareholders' meeting on April 14, 1997. The campus will serve as TSYS'
corporate headquarters and will house administrative, client contact, and
programming team members and will allow for significant growth. Ground was
broken on the project in September and development of the campus is underway.
TSYS expects to enter into an operating lease agreement for the purpose of
financing construction costs for the new corporate campus. Under the agreement,
the lessor would purchase the properties, pay for the construction costs and
thereafter lease the facilities to TSYS. The initial lease term would be three
years. The lease would provide for substantial residual value guarantees and
would include purchase options at original cost of the property. Real estate
taxes, insurance, maintenance and operating expenses applicable to the leased
property would be obligations of TSYS.
Also, TSYS began expansion of its operations center in 1997. This expansion will
include space for the card production services now located in downtown Columbus,
Georgia. In addition, a building is nearing completion on the north Columbus,
Georgia site to serve as headquarters for one of TSYS' subsidiaries. These two
construction projects are expected to be approximately $12 million. TSYS is a
majority-owned, publicly traded subsidiary of Synovus.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $177.7 million during the first nine months of 1997, while $241.4
million was provided by financing activities. Investing activities utilized
$488.0 million of this amount, resulting in a decrease in cash and cash
equivalents of $68.9 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first nine months of 1997 were $8.7 billion, up
8.3% over the first nine months of 1996 average of $8.1 billion. Average earning
assets were up 8.5% in the first nine months of 1997 over the same period a year
ago and represented 91% of average total assets. When compared to the same
period last year, average deposits, average federal funds purchased and
securities sold under agreement to repurchase, and average shareholders' equity
increased $441.5 million, $90.5 million, and $100.3 million, respectively. This
growth provided the funding for the $542.2 million growth in average net loans,
along with an $89.7 million increase in average investment securities.
Net interest income was $305.6 million for the nine months ended September 30,
1997, up $28.2 million, or 10.1%, over the $277.4 million reported in the nine
months ended September 30, 1996. Net interest income, on a tax-equivalent basis,
for the first nine months of 1997 increased $28.0 million, or 9.9%, over the
same period in 1996.
Net interest income was $104.8 million for the third quarter of 1997, up $9.2
million, or 9.6%, over the $95.6 million reported for the third quarter of 1996.
Net interest income, on a tax-equivalent basis, for the third quarter of 1997
increased $9.2 million, or 9.5%, over the third quarter of 1996.
The year-to-date net interest margin was 5.25%, up seven basis points from the
same period last year. This increase resulted from a two basis point decrease in
the effective cost of interest bearing liabilities, and a five basis point
increase in the yield on interest earning assets. The decrease in the effective
cost of interest bearing liabilities was primarily due to higher cost
certificates of deposit maturing and being reinvested in lower yield deposit
instruments. Approximately half of the loan portfolio floats with changes in the
prime rate. The increase in the yield on interest earning assets resulted from
an average prime rate increase of fourteen basis points in the first nine months
of 1997, along with maturing securities being reinvested into higher earning
investments. Strong loan growth also contributed to an improvement in the
earning asset mix.
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 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
(In thousands) September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $537,870 492,700 185,047 168,609
Taxable-equivalent adjustment 3,543 3,732 1,193 1,186
-------- ------- -------- -------
Interest income, taxable-equivalent 541,413 496,432 186,240 169,795
Interest expense 232,264 215,252 80,204 72,977
-------- ------- -------- -------
Net interest income, taxable-equivalent $309,149 281,180 106,036 96,818
======== ======= ======= =======
</TABLE>
Non-Interest Income
Total non-interest income during the first nine months of 1997 increased $48.7
million, or 15.8%, over the same period in 1996. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$37.7 million, or 17.6%, during the nine months ended September 30, 1997, over
the same period in 1996. Additionally, increases in revenues from service
charges on deposit accounts, credit card servicing fees and income from TSYS
joint ventures contributed to the overall increase in non-interest income.
Total non-interest income during the quarter ended September 30, 1997, increased
$14.9 million, or 13.6%, over the third quarter of 1996, resulting primarily
from increased data processing revenues, service charges on deposit accounts,
and credit card servicing fees.
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 $37.2 million, or
18.5%, in the first nine months of 1997, compared to the first nine months of
1996. Comparing the third quarter of 1997 to the third quarter of 1996, revenue
from bankcard data processing services increased $10.5 million, or 14.6%.
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. During the first nine months of 1997, TSYS
converted approximately 4.5 million new cardholder accounts to TS2. Internal
growth of existing customers accounted for approximately 6.2 million additional
cardholder accounts. 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.
During the first quarter of 1997, TSYS successfully completed the conversions of
Bank of America's remaining cardholder accounts to TS2. Near the end of the
first quarter of 1997, TSYS announced an extension of its long-term processing
contract with NationsBank, a major customer, to the year 2005.
A significant amount of TSYS' revenues is derived from certain major customers
who are processed under long-term contracts. For the nine and three months ended
September 30, 1997, two customers combined accounted for approximately 26% and
25% of TSYS' total revenues, respectively, compared to 30% and 29% for the same
periods in 1996. The impact of these two customers on Synovus' revenues was
approximately 10.4% and 9.9% for the nine and three months ended September 30,
1997, respectively. Recently, one of these major customers of TSYS announced its
intention to sell its credit card business by mid 1998. TSYS and the major
customer have a contract that runs until August 2000, and at the customer's
instruction, TSYS is proceeding with converting the customer's accounts to TS2
in 1998. TSYS' management remains optimistic that it will be successful in
retaining the processing of this credit card business after its sale and the
expiration of the current contract. However, the loss of either of TSYS' major
customers could have a material adverse effect on TSYS' financial condition and
results of operations.
During the third quarter of 1997, TSYS announced that one of its subsidiaries,
Lincoln Marketing, Inc., had changed its name to TSYS Total Solutions, Inc. The
new name reflects the full range of solutions that TSYS offers in the
marketplace. TSYS Total Solutions, Inc. has been a wholly owned subsidiary of
TSYS since 1992.
Non-Interest Expense
Total non-interest expense for the nine months ended September 30, 1997,
increased $44.2 million, or 10.8%, over the same period in 1996. Total
non-interest expense for the third quarter of 1997 increased $12.9 million, or
9.1%, over the third quarter of 1996. 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 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------------ -----------------
(In thousands) Banking TSYS Banking TSYS
---------- ------- -------- -------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $143,590 111,278 130,027 91,865
Net occupancy and equipment expense 31,234 72,070 28,902 61,161
Other operating expenses 49,081 41,243 48,764 40,279
Special FDIC assessment --- --- 4,546 ---
Minority interest in subsidiary's net income 6,099 --- 4,854 ---
-------- ------- -------- -------
Total non-interest expense $230,004 224,591 217,093 193,305
======== ======= ======== =======
</TABLE>
In the first nine months of 1997, non-interest expense for Synovus' banking
operations increased $12.9 million, or 5.9%. During the third quarter of 1997,
non-interest expense increased $3.0 million , or 4.0%, compared to the third
quarter of 1996. The primary reasons for this increase relate to normal salary
increases and additional employees which was partially offset by a decrease in
FDIC assessment. The number of employees related to Synovus' banking operations
as of September 30, 1997 increased 8.2% to 4,564 compared to 4,219 as of
September 30, 1996.
Non-interest expense related to TSYS increased 16.2% and 15.1% for the nine and
three months ended September 30, 1997, respectively, compared to the same
periods in 1996. TSYS' increase in non-interest expense is also attributable to
the addition of personnel. As of September 30, 1997, the number of employees was
3,039, up 17.2% from 2,594 employees as of September 30, 1996.
Synovus signed a letter of intent with Marshall & Ilsley Corporation to
outsource certain data processing functions in 1998. Contract negotiations are
still underway, as such, management cannot fully estimate the impact on 1998.
Synovus and TSYS are continuing the ongoing project to ensure that processing
systems are year 2000 compliant. For Synovus and TSYS, the project is expected
to be completed in the fourth quarter of 1998, with the testing phase to be
performed in 1999. TS2 was designed to be year 2000 compliant. The preliminary
estimate of the expected internal and external resources needed to complete the
entire project for both Synovus and TSYS is not expected to be material to the
financial position or results of operations.
Income Tax Expense
Income tax expense for the nine months ended September 30, 1997, was $67.4
million compared to $55.2 million for the same period a year ago. Income tax
expense for the third quarter of 1997 was $24.0 million compared to $20.3
million in the third quarter of 1996. The effective tax rate for the first nine
months of 1997 and 1996 was 36.3% and 36.1%, 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 or results of operations.
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; (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. Two of the actions in which the sale of credit life
insurance is at issue have been certified as class actions and have been deemed
to include consumer credit customers of the subsidiary over a 20-year period.
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, equitable, and factual defenses available to
Synovus and its subsidiaries, contingent liabilities arising from the threatened
and pending litigation are not considered material. It should be noted, however,
that large punitive damage awards, bearing little relation to the actual damages
sustained by plaintiffs, have been awarded in Alabama.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule (for SEC purposes only, not enclosed
herewith)
(b) Report on Form 8-K
The following report on Form 8-K was filed during the third quarter of 1997.
(1) The report filed on August 15, 1997, included the following event:
On August 15, 1997, Synovus Financial Corp. released a summary of selected
statistical data on both a pre-stock split and post-stock split basis
resulting from a three-for-two stock split distributed on April 8, 1997.
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, 1997 BY: /s/ Thomas J. Prescott
----------------------------------
Thomas J. Prescott
Executive Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
Sequentially
Exhibit Number Description Numbered Page
- -------------- ---------------------------- -------------
11 Statement re Computation of 23
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>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ----------------------
1997 1996 1997 1996
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Primary
Net income $118,230 97,943 43,101 35,208
========= ======== ========= =========
Weighted average common shares outstanding 174,720 174,099 174,930 174,442
Average common shares added, assuming
exercise of dilutive stock options 3,897 2,527 4,102 2,836
--------- -------- --------- ---------
Weighted average common shares, as adjusted 178,617 176,626 179,032 177,278
========= ======== ========= =========
Primary net income per common share $ 0.66 0.55 0.24 0.20
========= ======== ========= =========
Fully Diluted
Net income $118,230 97,943 43,101 35,208
========= ======== ========= =========
Weighted average common shares outstanding 174,720 174,099 174,930 174,442
Average common shares added, assuming
exercise of dilutive stock options 3,897 3,138 4,102 3,138
--------- -------- --------- ---------
Weighted average common shares, as adjusted 178,617 177,237 179,032 177,580
========= ======== ========= =========
Fully diluted net income per common share $ 0.66 0.55 0.24 0.20
========= ======== ========= =========
</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, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 336,065
<INT-BEARING-DEPOSITS> 959
<FED-FUNDS-SOLD> 45,436
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,307,114
<INVESTMENTS-CARRYING> 336,021
<INVESTMENTS-MARKET> 339,734
<LOANS> 6,470,944
<ALLOWANCE> 101,675
<TOTAL-ASSETS> 8,997,052
<DEPOSITS> 7,399,381
<SHORT-TERM> 399,441
<LIABILITIES-OTHER> 168,300
<LONG-TERM> 126,564
0
0
<COMMON> 175,101
<OTHER-SE> 688,461
<TOTAL-LIABILITIES-AND-EQUITY> 8,997,052
<INTEREST-LOAN> 457,270
<INTEREST-INVEST> 79,238
<INTEREST-OTHER> 1,362
<INTEREST-TOTAL> 537,870
<INTEREST-DEPOSIT> 211,823
<INTEREST-EXPENSE> 232,264
<INTEREST-INCOME-NET> 305,606
<LOAN-LOSSES> 22,884
<SECURITIES-GAINS> (20)
<EXPENSE-OTHER> 454,595
<INCOME-PRETAX> 185,611
<INCOME-PRE-EXTRAORDINARY> 118,230
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,230
<EPS-PRIMARY> .66
<EPS-DILUTED> .66 <F1>
<YIELD-ACTUAL> 5.25
<LOANS-NON> 21,113
<LOANS-PAST> 17,070
<LOANS-TROUBLED> 21,113
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 94,683
<CHARGE-OFFS> 22,249
<RECOVERIES> 6,357
<ALLOWANCE-CLOSE> 101,675
<ALLOWANCE-DOMESTIC> 101,675
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 16,794
<FN>
<F1> On March 10, 1997, Synovus announced a three-for-two
stock split to be issued on April 8, 1997, to shareholders of record as of
March 21, 1997. Financial data schedules have not been restated for prior
periods for this recapitalization.
</FN>
</TABLE>
