FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 July 31, 1997, 174,915,229 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)
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 18
Item 6. (a) Exhibits 18
(b) Report on Form 8-K 18
Signature Page 19
Exhibit Index 20
(11) Statement re Computation of Per Share Earnings 21
(27) Financial Data Schedule (for SEC purposes only, not
enclosed herewith)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
(In thousands, except share and per share data) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 374,088 404,952
Interest earning deposits with banks 848 2,040
Federal funds sold 46,624 38,249
Investment securities available for sale 1,322,741 1,276,083
Investment securities held to maturity 342,099 363,008
Loans 6,401,050 6,075,465
Less unearned income (7,760) (10,235)
Less reserve for loan losses (100,619) (94,683)
- ------------------------------------------------------------------------------------
Loans, net 6,292,671 5,970,547
- ------------------------------------------------------------------------------------
Premises and equipment, net 262,691 247,191
Other assets 328,910 310,274
- ------------------------------------------------------------------------------------
Total assets $8,970,672 8,612,344
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $1,186,675 1,189,973
Interest bearing 6,235,591 6,013,062
- ------------------------------------------------------------------------------------
Total deposits 7,422,266 7,203,035
Federal funds purchased and securities
sold under agreement to repurchase 399,138 339,200
Long-term debt 127,239 97,283
Other liabilities 153,363 154,641
- ------------------------------------------------------------------------------------
Total liabilities 8,102,006 7,794,159
- ------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 37,507 34,435
Shareholders' equity:
Common stock - $1.00 par value; Authorized
600,000,000 shares; issued
174,952,993 in 1997 and 174,635,319 in 1996;
outstanding 174,836,150 in 1997 and 174,518,477
in 1996 174,953 174,635
Surplus 41,707 40,312
Less treasury stock - 116,843 and 116,842 shares in
1997 and 1996, respectively (1,285) (1,285)
Less unamortized restricted stock (4,113) (5,344)
Net unrealized gain (loss) on investment securities
available for sale 660 (112)
Retained earnings 619,237 575,544
- ------------------------------------------------------------------------------------
Total shareholders' equity 831,159 783,750
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $8,970,672 8,612,344
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $299,308 274,597 153,285 138,966
Investment securities:
U.S. Treasury and U.S. Government agencies 39,861 34,996 20,221 17,850
Mortgage-backed securities 8,936 9,145 4,396 4,576
State and municipal 3,232 3,508 1,636 1,695
Other investments 626 666 314 342
Federal funds sold 813 1,153 537 455
Interest earning deposits with banks 47 26 20 11
- ---------------------------------------------------------------------------------------------------------
Total interest income 352,823 324,091 180,409 163,895
- ---------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 138,386 132,602 70,531 66,321
Federal funds purchased and securities sold under
agreement to repurchase 10,308 6,583 5,400 3,365
Long-term debt 3,366 3,090 1,870 1,522
- ---------------------------------------------------------------------------------------------------------
Total interest expense 152,060 142,275 77,801 71,208
- ---------------------------------------------------------------------------------------------------------
Net interest income 200,763 181,816 102,608 92,687
Provision for losses on loans 15,280 14,666 8,279 8,233
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 185,483 167,150 94,329 84,454
- ---------------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 164,179 137,624 85,227 70,330
Service charges on deposit accounts 27,003 25,602 13,858 13,182
Fees for trust services 6,289 5,417 3,058 2,678
Credit card fees 4,944 3,812 2,666 2,298
Securities gains (losses), net (2) (65) 30 (138)
Other operating income 30,751 27,004 16,094 14,597
- ---------------------------------------------------------------------------------------------------------
Total non-interest income 233,164 199,394 120,933 102,947
- ---------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 169,450 147,271 85,335 74,644
Net occupancy and equipment expense 68,207 57,925 35,206 29,644
Other operating expenses 58,956 61,026 30,580 29,879
Minority interest in subsidiary's net income 3,553 2,670 1,914 1,521
- ---------------------------------------------------------------------------------------------------------
Total non-interest expense 300,166 268,892 153,035 135,688
- --------------------------------------------------------------------------------------------------------
Income before income taxes 118,481 97,652 62,227 51,713
Income tax expense 43,352 34,917 22,905 18,605
- ---------------------------------------------------------------------------------------------------------
Net income $ 75,129 62,735 39,322 33,108
=========================================================================================================
Net income per share $ 0.43 0.36 0.23 0.19
=========================================================================================================
Weighted average shares outstanding 174,614 173,926 174,667 174,000
=========================================================================================================
Dividends declared per share $ 0.18 0.15 0.09 0.07
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
- -------------------------------------------------------------------------------------------------
(In thousands) 1997 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Operating Activities
Net Income $ 75,129 62,735
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 15,280 14,666
Depreciation, amortization, and accretion, net 24,733 21,109
Deferred income tax benefit (1,333) (481)
Increase in interest receivable (5,857) (4,792)
Increase (decrease) in interest payable 2,485 (1,855)
Minority interest in subsidiary's net income 3,553 2,670
Decrease (increase) in mortgage loans held for sale 1,934 (5,582)
Other, net 3,072 (9,652)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 118,996 78,818
- -------------------------------------------------------------------------------------------------
Investing Activities
Net decrease in interest earning deposits with banks 1,192 76
Net (increase) decrease in federal funds sold (8,375) 93,478
Proceeds from maturities and principal collections of investment
securities available for sale 87,289 213,681
Proceeds from sales of investment securities available for sale 52,172 71,692
Purchases of investment securities available for sale (185,421) (413,826)
Proceeds from maturities and principal collections of investment
securities held to maturity 39,694 45,001
Purchases of investment securities held to maturity (19,246) (31,881)
Net increase in loans (339,338) (294,143)
Purchase of premises and equipment (35,056) (33,264)
Disposal of premises and equipment 164 1,079
Proceeds from sale of other real estate 2,409 3,643
Additions to contract acquisition costs (15,461) (2,944)
Additions to computer software (9,451) (3,432)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (429,428) (350,840)
- -------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand and savings deposits 168,622 132,349
Net increase in certificates of deposit 50,609 61,658
Net increase in federal funds purchased and securities sold
under agreement to repurchase 59,938 79,114
Principal repayments on long-term debt (1,744) (6,492)
Proceeds from issuance of long-term debt 31,700 ---
Purchase of treasury stock --- (263)
Dividends paid to shareholders (31,436) (25,532)
Proceeds from issuance of common stock 1,879 2,116
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 279,568 242,950
- ------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (30,864) (29,072)
Cash and cash equivalents at beginning of period 404,952 382,696
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $374,088 353,624
================================================================================================
</TABLE>
Continued on next page.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Supplemental cash flow information:
For the six months ended June 30, 1997 and 1996, Synovus Financial Corp.
(Synovus) paid income taxes of $47.9 million and $46.2 million, and interest of
$149.6 million and $144.1 million, respectively.
Supplemental information of noncash investing and financing activities:
Loans of approximately $2.3 million and $2.5 million were foreclosed and
transferred to other real estate during the six months ended June 30, 1997 and
1996, respectively.
Depreciation, amortization, and accretion, net, for the six months ended June
30, 1997 and 1996 included amortization of internally developed computer
software of $1.7 million, for both periods. Internally developed computer
software had a net carrying value of $26.6 million and $29.5 million at June 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
way public business enterprises are 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 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 six months ended June 30, 1997, was $75.1 million, up $12.4
million, or 19.8%, from the same period a year ago. Net income per share
increased to $.43 in the first half of 1997 as compared to $.36 for the same
period in 1996. This performance resulted in a return on average assets of 1.75%
and a return on average equity of 18.89% for the six months ended June 30, 1997.
This compares to a return on average assets of 1.58% and a return on average
equity of 17.75% for the first six months of 1996.
Net income for the three months ended June 30, 1997, was $39.3 million, up $6.2
million, or 18.8%, from the same period a year ago. Net income per share
increased to $.23 in the second quarter of 1997 as compared to $.19 for the
second quarter of 1996. This performance resulted in a return on average assets
of 1.80% and a return on average equity of 19.52% for the three months ended
June 30, 1997. This compares to a return on average assets of 1.65% and a return
on average equity of 18.65% for the second 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.
Balance Sheet
During the first six months of 1997, total assets increased $358.3 million, or
4.2%, compared to December 31, 1996. Net loans increased $322.1 million, or
5.4%, and investment securities increased $25.7 million, or 1.6%, which was
partially offset by a $30.8 million decrease in cash. Providing the necessary
funding for the balance sheet growth during the first half of 1997, Synovus'
deposit base grew $219.2 million, federal funds purchased and securities sold
under agreement to repurchase increased $59.9 million and long-term debt
increased $30.0 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;
Newnan, Georgia; Tuscaloosa, Alabama; and Huntsville, Alabama experienced
significant loan growth of $80.8 million, $63.8 million, $18.2 million, $13.6
million, and $12.7 million, respectively, during the six months ended June 30,
1997. Indicative of the economic growth within the communities Synovus serves,
loan growth resulted from increases during the first half of 1997 in most loan
categories as detailed in the following table.
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Commercial:
Commercial, financial, and agricultural $2,190,318 2,036,689
Real estate - construction 762,387 730,785
Real estate - mortgage 1,297,276 1,234,981
- --------------------------------------------------------------------------------
Total commercial 4,249,981 4,002,455
- --------------------------------------------------------------------------------
Retail:
Real estate - mortgage 1,021,552 977,432
Consumer loans - credit card 294,492 290,470
Consumer loans - other 799,923 768,072
Mortgage loans held for sale 35,102 37,036
- --------------------------------------------------------------------------------
Total retail 2,151,069 2,073,010
- --------------------------------------------------------------------------------
Total loans 6,401,050 6,075,465
Unearned income (7,760) (10,235)
- --------------------------------------------------------------------------------
Total loans, net of unearned income $6,393,290 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 six
months of 1997, nonperforming assets, consisting of nonaccrual loans,
restructured loans, and other real estate, decreased $340,000, while net loans
increased $322.1 million. Synovus' nonperforming assets ratio was .56% as of
June 30, 1997, which decreased three basis points 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 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 $5.9 million, or 6.3%, from $94.7 million at
December 31, 1996 to $100.6 million at June 30, 1997.
Loans 90 days past due and still accruing increased $106,000, or less than 1.0%,
from $15.8 million at December 31, 1996 to $15.9 million at June 30, 1997.
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 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 1.2% 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 247.6% at June 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>
June 30, December 31,
(In thousands) 1997 1996
<S> <C> <C>
- --------------------------------------------------------------------------------
Nonperforming loans $ 24,726 25,280
Other real estate 10,996 10,782
- --------------------------------------------------------------------------------
Nonperforming assets $ 35,722 36,062
================================================================================
Loans 90 days past due and still accruing $ 15,911 15,805
================================================================================
Reserve for loan losses $100,619 94,683
================================================================================
Reserve for loan losses as a % of loans 1.57% 1.56
================================================================================
As a % of loans and other real estate:
Nonperforming loans 0.39% 0.42
Other real estate 0.17 0.17
- --------------------------------------------------------------------------------
Nonperforming assets 0.56% 0.59
================================================================================
Reserve to nonperforming loans 406.93% 374.54
================================================================================
</TABLE>
Provision for Loan Losses
During the first six months of 1997, the provision for loan losses increased
$614,000, or 4.2%, 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 June 30, 1997, was 1.57 %, compared to 1.52% as of June 30,
1996 and 1.56% as of December 31, 1996. Additionally, net charge-offs, primarily
in credit card loans, increased during the first half of 1997. Net charge-offs
to average loans for the six months ended June 30, 1997, were .30% compared to
.28% during the first six months of 1996. The amount of net charge-offs during
the first six months of 1997 was $9.3 million compared to $8.0 million during
the first six months of 1996. Net charge-offs on credit card loans increased
$3.4 million for the first six months of 1997 when compared to the first six
months of 1996, while all other charge-offs decreased $2.1 million 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.
During the second quarter of 1997, the provision for loan losses increased
$46,000, or .6%, over the same period in 1996. Net charge-offs to average loans
for the quarter ended June 30, 1997, were .35% compared to .28% during the
second 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 $920.1
million at June 30, 1997, compared to $863.3 million at December 31, 1996. The
ratio of total risk-based capital to risk-weighted assets was 13.00% at June 30,
1997, compared to 12.97% at December 31, 1996. Synovus' leverage ratio at the
end of the second quarter of 1997 was 9.51% compared to 9.36% at the end of
1996. Synovus' equity-to-assets ratio increased seventeen basis points to 9.27%
at June 30, 1997, when compared to year-end 1996.
Internal capital generation continues to support asset growth, as reflected in
the second quarter 1997 equity-to-asset ratio exclusive of net unrealized gain
(loss) on investment securities available for sale of 9.26%, compared to 9.10%
at year-end 1996.
Synovus' liquidity position has declined slightly since December 31, 1996.
Synovus' liquidity ratio remains strong as of June 30, 1997. 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 six months of 1997.
Synovus' management monitors liquidity in coordination with the appropriate
committees at each subsidiary 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 subsidiary banks have access
to overnight federal funds lines with various financial institutions, which
total approximately $1.1 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
proposed 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.
Development is scheduled to begin in the third quarter of 1997. Also, TSYS plans
to begin expansion of its operations center in 1997. This expansion will include
space for the card production services now located in downtown Columbus,
Georgia, as well as additional space for statement printing and data processing
functions. In addition, a building will be constructed on the north Columbus,
Georgia site to serve as headquarters for one of TSYS' subsidiaries. Preliminary
cost estimates for these construction projects, while not finalized, are
expected to be approximately $100 million. Financing for these projects is
expected to be through external sources as well as through the internal
generation of funds. 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 $119.0 million during the first six months of 1997, while $279.5
million was provided by financing activities. Investing activities utilized
$429.4 million of this amount, resulting in a decrease in cash and cash
equivalents of $30.9 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 1997 were $8.6 billion, up 8.3%
over the first six months of 1996 average of $8.0 billion. Average earning
assets were up 8.6% in the first half 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 $409.2
million, $129.0 million, and $91.5 million, respectively. This growth provided
the funding for the $536.1 million growth in average net loans, along with a
$97.7 million increase in average investment securities.
Net interest income was $200.8 million for the six months ended June 30, 1997,
up $19.0 million, or 10.4%, over the $181.8 million reported in the six months
ended June 30, 1996. Net interest income, on a tax-equivalent basis, for the
first half of 1997 increased $18.8 million, or 10.2%, over the same period in
1996.
Net interest income was $102.6 million for the second quarter of 1997, up $9.9
million, or 10.7%, over the $92.7 million reported for the second quarter of
1996. Net interest income, on a tax-equivalent basis, for the second quarter of
1997 increased $9.9 million, or 10.5%, over the second quarter of 1996.
The year-to-date net interest margin was 5.24%, up eight basis points from the
same period last year. This increase resulted from a six basis point decrease in
the effective cost of interest bearing liabilities, and a two 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 eight basis points in the first half of 1997,
along with maturing securities being reinvested into higher earning investments.
There was also 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 1997 and 1996.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
(In thousands) June 30, June 30,
- --------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $352,823 324,091 180,409 163,895
Taxable-equivalent adjustment 2,350 2,546 1,201 1,230
- --------------------------------------------------------------------------------
Interest income, taxable-equivalent 355,173 326,637 181,610 165,125
Interest expense 152,060 142,275 77,801 71,208
- --------------------------------------------------------------------------------
Net interest income, taxable-equivalent $203,113 184,362 103,809 93,917
================================================================================
</TABLE>
Non-Interest Income
Total non-interest income during the first six months of 1997 increased $33.8
million, or 16.9%, over the same period in 1996. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$26.6 million, or 19.3%, during the six months ended June 30, 1997, over the
same period in 1996. The increase in other operating income was primarily due to
increases in revenues from credit card servicing fees and income from TSYS joint
ventures.
Total non-interest income during the quarter ended June 30, 1997, increased
$18.0 million, or 17.5%, over the second quarter of 1996, 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 $26.7 million, or
20.7%, in the first six months of 1997, compared to the first six months of
1996. Comparing the second quarter of 1997 to the second quarter of 1996,
revenue from bankcard data processing services increased $14.9 million, or
22.6%. 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 six months of 1997, TSYS
converted approximately 4.2 million new cardholder accounts to TS2. Internal
growth of existing customers accounted for approximately 4.8 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 six and three months ended
June 30, 1997, two customers accounted for approximately 27% and 26% of TSYS'
total revenues, respectively, compared to 30% and 29% for the same periods in
1996. As a result, the loss of one of TSYS' major customers could have a
material adverse effect on TSYS' financial condition and results of operations.
The impact of these two customers on Synovus' revenues was approximately 11% and
10% for the six and three months ended June 30, 1997, respectively.
Non-Interest Expense
Total non-interest expense for the six months ended June 30, 1997, increased
$31.3 million, or 11.6%, over the same period in 1996. Total non-interest
expense for the second quarter of 1997 increased $17.3 million, or 12.8%, over
the second 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 six 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 $ 94,678 74,772 86,791 60,480
Net occupancy and equipment expense 20,511 47,696 18,814 39,111
Other operating expenses 32,281 26,675 32,885 28,141
Minority interest in subsidiary's net income 3,553 --- 2,670 ---
- ---------------------------------------------------------------------------------
Total non-interest expense $151,023 149,143 141,160 127,732
=================================================================================
</TABLE>
In the first six months of 1997, non-interest expense for Synovus' banking
operations increased $9.9 million, or 7.0%. During the second quarter of 1997,
non-interest expense increased $5.0 million , or 7.0%, compared to the second
quarter of 1996. The primary reasons for this increase relate to normal salary
increases and additional employees. The number of employees related to Synovus'
banking operations as of June 30, 1997 increased 7.6% to 4,522 compared to 4,203
as of June 30, 1996.
Non-interest expense related to TSYS increased 16.8% and 19.1% for the six and
three months ended June 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 June 30, 1997, the number of employees was 2,851,
up 10.5% from 2,580 employees as of June 30, 1996.
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 material to the financial
statements.
Income Tax Expense
Income tax expense for the six months ended June 30, 1997, was $43.4 million
compared to $34.9 million for the same period a year ago. Income tax expense for
the second quarter of 1997 was $22.9 million compared to $18.6 million in the
second quarter of 1996. The effective tax rate for the first six months of 1997
and 1996 was 36.6% and 35.8%, 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, some seeking class action treatment, are pending
against one of Synovus' Alabama banking subsidiaries that involve: (1) the sale
of credit life insurance made in connection with consumer credit transactions;
(2) payments of service fees or interest rebates to automobile dealers in
connection with the assignment of automobile credit sales contracts to that
Synovus subsidiary; and (3) the forced placement of insurance to protect that
Synovus subsidiary's interest in collateral for which consumer credit customers
have failed to obtain or maintain insurance. These lawsuits seek unspecified
damages, including punitive damages, and purport to be class actions which, if
certified, may involve many of such subsidiary's consumer credit transactions in
Alabama for a number of years. Synovus intends to vigorously contest these
lawsuits and all other litigation to which Synovus and its subsidiaries are
parties. Based upon information presently available, and in light of legal and
other defenses available to Synovus and its subsidiaries, contingent liabilities
arising from the threatened and pending litigation are not considered material.
It should be noted, however, that large punitive damage awards, bearing little
relation to the actual damages sustained by plaintiffs, have been awarded in
Alabama.
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting was held on April 17, 1997. Following is a
summary of the proposal that was submitted to the shareholders for approval.
The proposal was to elect five nominees for Class III directors of Synovus to
serve until the 2000 Annual Meeting of Shareholders. The five nominees for
election as Class III directors named below were elected by the number of
affirmative votes set forth opposite their names below, with the number of votes
withholding authority to vote for such nominees also being shown. As the
election of each of the nominees for Class III directors was approved by a
plurality of the total votes entitled to be cast by the holders of shares
represented at the meeting, each of the nominees for Class III directors was
elected.
<TABLE>
<CAPTION>
Withheld
Nominee Votes For Authority to Vote
- --------------------------------------------------------------------------------
<S> <C> <C>
Daniel P. Amos 565,208,243 468,510
Richard Y. Bradley 564,855,410 821,343
John P. Illges, III 564,965,229 711,524
William B. Turner 564,590,007 1,086,747
George C. Woodruff, Jr. 565,040,578 636,175
</TABLE>
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule (for SEC purposes only, not enclosed herewith)
(b) Report on Form 8-K
No report on Form 8-K was filed during or subsequent to the second quarter
of 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: August 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 21
Per Share Earnings
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
EXHIBIT 11
SYNOVUS FINANCIAL CORP.
<TABLE>
<CAPTION>
COMPUTATION OF NET INCOME
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
- -----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
Primary
<S> <C> <C> <C> <C>
Net income $ 75,129 62,735 39,322 33,108
===========================================================================================================
Weighted average common shares outstanding 174,614 173,926 174,667 174,000
Average common shares added, assuming
exercise of dilutive stock options 3,909 2,432 4,081 2,658
- -----------------------------------------------------------------------------------------------------------
Weighted average common shares, as adjusted 178,523 176,358 178,748 176,658
===========================================================================================================
Primary net income per common share $ 0.42 0.36 0.22 0.19
===========================================================================================================
Fully Diluted
Net income $ 75,129 62,735 39,322 33,108
===========================================================================================================
Weighted average common shares outstanding 174,614 173,926 174,667 174,000
Average common shares added, assuming
exercise of dilutive stock options 4,346 2,502 4,346 2,658
- -----------------------------------------------------------------------------------------------------------
Weighted average common shares, as adjusted 178,960 176,428 179,013 176,658
===========================================================================================================
Fully diluted net income per common share $ 0.42 0.36 0.22 0.19
===========================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 374,088
<INT-BEARING-DEPOSITS> 848
<FED-FUNDS-SOLD> 46,624
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,322,741
<INVESTMENTS-CARRYING> 342,099
<INVESTMENTS-MARKET> 344,311
<LOANS> 6,393,290
<ALLOWANCE> 100,619
<TOTAL-ASSETS> 8,970,672
<DEPOSITS> 7,422,266
<SHORT-TERM> 399,138
<LIABILITIES-OTHER> 153,363
<LONG-TERM> 127,239
0
0
<COMMON> 174,953
<OTHER-SE> 656,206
<TOTAL-LIABILITIES-AND-EQUITY> 8,970,672
<INTEREST-LOAN> 299,308
<INTEREST-INVEST> 52,655
<INTEREST-OTHER> 860
<INTEREST-TOTAL> 352,823
<INTEREST-DEPOSIT> 138,386
<INTEREST-EXPENSE> 152,060
<INTEREST-INCOME-NET> 200,763
<LOAN-LOSSES> 15,280
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 300,166
<INCOME-PRETAX> 118,481
<INCOME-PRE-EXTRAORDINARY> 75,129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,129
<EPS-PRIMARY> .42
<EPS-DILUTED> .42 <F1>
<YIELD-ACTUAL> 5.24
<LOANS-NON> 24,726
<LOANS-PAST> 15,911
<LOANS-TROUBLED> 24,726
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 94,683
<CHARGE-OFFS> 14,004
<RECOVERIES> 4,661
<ALLOWANCE-CLOSE> 100,619
<ALLOWANCE-DOMESTIC> 100,619
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,464
<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>
