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 March 31, 1998
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 April 30, 1998, 263,057,734 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)
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income (unaudited)
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 18
Part II. Other Information
Item 6. (a) Exhibits 19
(b) Reports on Form 8-K 19
Signature Page 20
Exhibit Index 21
(11) Statement re Computation of Per Share Earnings 22
(27) Financial Data Schedule (for SEC purposes
only, not enclosed herewith)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(In thousands, except share and per share data) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 354,579 388,134
Interest earning deposits with banks 928 1,272
Federal funds sold 120,860 93,392
Investment securities available for sale 1,366,409 1,325,036
Investment securities held to maturity 313,185 330,137
Loans 6,712,216 6,615,584
Less unearned income (5,919) (5,712)
Less reserve for loan losses (105,716) (103,050)
- -----------------------------------------------------------------------------------------------------------
Loans, net 6,600,581 6,506,822
- -----------------------------------------------------------------------------------------------------------
Premises and equipment, net 302,589 297,227
Other assets 317,546 318,311
- -----------------------------------------------------------------------------------------------------------
Total assets $9,376,677 9,260,331
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $1,244,560 1,256,639
Interest bearing 6,645,242 6,451,288
- -----------------------------------------------------------------------------------------------------------
Total deposits 7,889,802 7,707,927
Federal funds purchased and securities sold under agreement to repurchase 214,811 305,868
Long-term debt 117,860 126,174
Other liabilities 182,465 174,065
- -----------------------------------------------------------------------------------------------------------
Total liabilities 8,404,938 8,314,034
- -----------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 44,410 42,641
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares;
issued 263,181,583 in 1998 and 262,983,414 in 1997; outstanding
263,006,319 in 1998 and 262,808,150 in 1997 263,182 262,983
Surplus 18,748 17,777
Less treasury stock - 175,264 shares in 1998 and 1997 (1,285) (1,285)
Less unamortized restricted stock (3,416) (3,734)
Accumulated other comprehensive income 5,971 5,700
Retained earnings 644,129 622,215
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 927,329 903,656
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,376,677 9,260,331
===========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
(In thousands, except per share data) 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans, including fees $159,754 146,023
Investment securities:
U.S. Treasury and U.S. Government agencies 20,183 19,640
Mortgage-backed securities 4,002 4,540
State and municipal 1,687 1,596
Other investments 549 312
Federal funds sold 764 276
Interest earning deposits with banks 16 27
- ----------------------------------------------------------------------------------------------------
Total interest income 186,955 172,414
- ----------------------------------------------------------------------------------------------------
Interest expense:
Deposits 75,912 67,855
Federal funds purchased and securities sold under
agreement to repurchase 3,104 4,908
Long-term debt 1,877 1,496
- ----------------------------------------------------------------------------------------------------
Total interest expense 80,893 74,259
- ----------------------------------------------------------------------------------------------------
Net interest income 106,062 98,155
Provision for losses on loans 7,594 7,001
- ----------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 98,468 91,154
- ----------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 91,329 78,952
Service charges on deposit accounts 14,349 13,145
Fees for trust services 3,810 3,231
Credit card fees 2,515 2,278
Securities gains (losses), net 145 (32)
Other operating income 20,170 14,657
- ----------------------------------------------------------------------------------------------------
Total non-interest income 132,318 112,231
- ----------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 94,691 83,337
Net occupancy and equipment expense 35,916 33,001
Other operating expenses 34,032 29,154
Minority interest in subsidiary's net income 1,974 1,639
- ----------------------------------------------------------------------------------------------------
Total non-interest expense 166,613 147,131
- ----------------------------------------------------------------------------------------------------
Income before income taxes 64,173 56,254
Income tax expense 22,960 20,447
- ----------------------------------------------------------------------------------------------------
Net income $ 41,213 35,807
====================================================================================================
Net income per share :
Basic $ 0.16 0.14
====================================================================================================
Assuming dilution 0.15 0.13
====================================================================================================
Weighted average shares outstanding:
Basic 262,924 261,840
====================================================================================================
Assuming dilution 267,479 265,317
====================================================================================================
Dividends declared per share $ 0.07 0.06
====================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
- -----------------------------------------------------------------------------------------------------------
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 41,213 35,807
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 7,594 7,001
Depreciation, amortization, and accretion, net 13,076 12,038
Deferred income tax expense (benefit) (1,922) (641)
Increase in interest receivable (595) (1,733)
Increase in interest payable 4,955 2,413
Minority interest in subsidiary's net income 1,974 1,639
(Increase) decrease in mortgage loans held for sale (51,039) 8,939
Other, net 14,414 8,757
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,670 74,220
- -----------------------------------------------------------------------------------------------------------
Investing Activities
Net decrease in interest earning deposits with banks 344 50
Net (increase) decrease in federal funds sold (27,468) 30,082
Proceeds from maturities and principal collections of investment
securities available for sale 116,878 49,085
Proceeds from sales of investment securities available for sale 21,882 33,747
Purchases of investment securities available for sale (179,507) (105,188)
Proceeds from maturities and principal collections of investment
securities held to maturity 27,489 23,351
Purchases of investment securities held to maturity (10,546) (12,430)
Net increase in loans (50,314) (131,177)
Purchase of premises and equipment (17,378) (18,152)
Disposal of premises and equipment 65 54
Proceeds from sale of other real estate 3,824 810
Additions to contract acquisition costs (5,457) (14,614)
Additions to computer software (7,149) (6,472)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (127,337) (150,854)
- -----------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand and savings deposits 110,296 22,115
Net increase (decrease) in certificates of deposit 71,579 (37,028)
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase (91,057) 47,685
Principal repayments on long-term debt (8,314) (1,386)
Proceeds from issuance of long-term debt --- 5,000
Dividends paid to shareholders (19,300) (15,705)
Proceeds from issuance of common stock 908 374
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 64,112 21,055
- -----------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (33,555) (55,579)
Cash and cash equivalents at beginning of period 388,134 404,952
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $354,579 349,373
===========================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
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 April 23, 1998, Synovus declared a three-for-two stock split
which will be effective on May 21, 1998 in the form of a 50%
stock dividend. Accordingly, the stock split has been
recognized in these consolidated financial statements by
reclassifying $86.9 million, the par value of the additional
shares resulting from the split, from surplus and retained
earnings to common stock. All shares outstanding and per share
amounts have been restated to reflect the stock split.
Note B - Supplemental Cash Flow Information
For the three months ended March 31, 1998 and 1997, Synovus
Financial Corp. (Synovus) paid income taxes of $1.8 million and
$4.8 million, and interest of $75.9 million and $71.8 million,
respectively.
Noncash investing activities consisted of loans of approximately
$2.2 million and $1.4 million which were foreclosed and
transferred to other real estate during the three months ended
March 31, 1998 and 1997, respectively.
Depreciation, amortization, and accretion, net, for the three
months ended March 31, 1998 and 1997 included amortization of
internally developed computer software of $.8 million, for both
periods. Internally developed computer software had a net
carrying value of $24.1 million and $27.4 million at March 31,
1998 and 1997, respectively.
Note C - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (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 an annual
financial statement that is displayed in equal prominence with
the other annual financial statements. For interim period
financial statements, enterprises are required to disclose a
total for comprehensive income in those financial statements.
The term "comprehensive income" is used in SFAS No. 130 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 solely of items previously recorded as a
component of shareholders' equity under SFAS No. 52, "Foreign
Currency Translation", and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Synovus has adopted
the interim-period disclosure requirements of SFAS No. 130
effective March 31, 1998 and will adopt the annual financial
statement reporting and disclosure requirements of SFAS No. 130
effective December 31, 1998.
Total comprehensive income for the three months ended March 31,
1998 was $41,484,000 compared to $27,450,000 for the three
months ended March 31, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No.
131 supercedes SFAS No. 14, "Financial Reporting in Segments of
a Business Enterprise", and establishes new 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
financial 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. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but
comparative information for interim periods in the initial year
of application shall be reported in financial statements for
interim periods in the second year of application. Synovus does
not expect that SFAS No. 131 will require significant revision
of prior disclosures.
Note D - Other
Certain amounts in 1997 have been reclassified to conform with
the presentation adopted in 1998.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the three months ended March 31, 1998, was $41.2
million, up $5.4 million, or 15.1%, from the same period a year
ago. Basic net income per share increased to $.16 in the first
three months of 1998 as compared to $.14 for the same period in
1997. This performance resulted in a return on average assets of
1.81% and a return on average equity of 18.16% for the three
months ended March 31, 1998. This compares to a return on
average assets of 1.70% and a return on average equity of 18.23%
for the first three months of 1997.
On April 23, 1998, Synovus declared a three-for-two stock split
which will be effective on May 21, 1998 in the form of a 50%
stock dividend. Accordingly, the stock split has been
recognized in these consolidated financial statements by
reclassifying $86.9 million, the par value of the additional
shares resulting from the split, from surplus and retained
earnings to common stock. All shares outstanding and per share
amounts have been restated to reflect the stock split.
Acquisitions
On April 15, 1998, Synovus announced a letter of intent to merge
the $348 million asset Community Bank Capital Corporation (CBCC)
into Synovus, for stock. CBCC is the parent company of the Bank
of North Georgia. The Bank of North Georgia operates 6 full
service offices in 3 counties north of Atlanta, as well as a
full-service mortgage company.
A second acquisition in the fast growing communities north of
Atlanta was announced on April 20, 1998. Synovus announced a
letter of intent to acquire the $161 million asset Georgia Bank
& Trust, for stock. Georgia Bank & Trust is headquartered in
Calhoun, Georgia and operates 3 full service offices in Calhoun
and Gordon County.
A definitive agreement to acquire, for stock, the $55 million
asset Bank of Georgia located in Oconee County, Georgia near
Athens was announced on April 22, 1998. The Bank of Georgia
will be merged into Athens First Bank & Trust, an existing
affiliate of Synovus. All three acquisitions should be
completed during the third quarter of 1998.
Balance Sheet
During the first three months of 1998, total assets increased
$116.3 million compared to December 31, 1997, resulting from
net loan growth of $93.8 million. Providing the necessary
funding for the balance sheet growth during the first three
months of 1998, Synovus' deposit base grew $181.9 million and
shareholders' equity increased $23.7 million. This balance sheet
growth was partially offset by a $91.1 million decrease in
federal funds purchased and securities sold under agreement to
repurchase.
Loans
Synovus continues to increase its loan portfolio through a
constant focus on meeting the needs of customers in the markets
served while maintaining adherence to sound lending practices.
As a result of this continued focus, loans have continued to
grow throughout Synovus' affiliate markets, with the most
significant growth at five subsidiaries which are headquartered
in Columbia, South Carolina; Birmingham, Alabama; Tuscaloosa,
Alabama; Huntsville, Alabama and Athens, Georgia. These five
subsidiaries experienced significant loan growth of $17.9
million, $14.6 million, $9.9 million, $7.9 million, and $7.7
million, respectively, during the three months ended March 31,
1998. Loan growth resulted from increases during the first
three months of 1998 in the loan categories as detailed in the
following table.
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Commercial:
Commercial, financial, and agricultural $2,263,635 2,273,031
Real estate - construction 855,232 835,162
Real estate - mortgage 1,359,251 1,302,941
- -----------------------------------------------------------------------
Total commercial 4,478,118 4,411,134
- -----------------------------------------------------------------------
Retail:
Real estate - mortgage 1,030,134 1,039,420
Consumer loans - credit card 291,737 306,360
Consumer loans - other 821,630 819,112
Mortgage loans held for sale 90,597 39,558
- -----------------------------------------------------------------------
Total retail 2,234,098 2,204,450
- -----------------------------------------------------------------------
Total loans 6,712,216 6,615,584
Unearned income (5,919) (5,712)
- -----------------------------------------------------------------------
Total loans, net of unearned income $6,706,297 6,609,872
=======================================================================
</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 three months of 1998, nonperforming assets, consisting of
nonaccrual loans, restructured loans, and other real estate,
decreased $2.2 million, while net loans increased $93.8 million.
Synovus' nonperforming assets ratio was .40% as of March 31,
1998, which decreased four basis points from December 31, 1997.
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 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 $2.6
million, or 2.6%, from $103.1 million at December 31, 1997 to
$105.7 million at March 31, 1998. The primary factors related
to this reserve increase were credit card charge-offs and loan
growth.
Loans 90 days past due and still accruing decreased $2.1
million, or 11.2%, from $20.9 million at December 31, 1997 to
$18.8 million at March 31, 1998. These loans were .32% of total
loans at December 31, 1997 and .28% at March 31, 1998.
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 4.3% of Synovus' total loan portfolio and
have decreased since December 31, 1997. 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 288.9% at March 31, 1998, compared to
261.9% at year-end 1997. 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>
March 31, December 31,
(In thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans $ 17,805 18,472
Other real estate 8,793 10,335
- ---------------------------------------------------------------------
Nonperforming assets $ 26,598 28,807
=====================================================================
Loans 90 days past due and still accruing $ 18,783 20,881
=====================================================================
Reserve for loan losses $105,716 103,050
=====================================================================
Reserve for loan losses as a % of loans 1.58% 1.56
=====================================================================
As a % of loans and other real estate:
Nonperforming loans 0.27% 0.28
Other real estate 0.13 0.16
- ---------------------------------------------------------------------
Nonperforming assets 0.40% 0.44
=====================================================================
Reserve to nonperforming loans 593.73% 557.87
=====================================================================
</TABLE>
Provision for Loan Losses
During the first three months of 1998, the provision for loan
losses increased $593,000 or 8.5%, over the same period in 1997.
The increase in the provision was necessary primarily to
maintain the level of loan loss reserve coverage of outstanding
loans, due to growth in the loan portfolio. The reserve to
loans ratio as of March 31, 1998 was 1.58%, compared to 1.58% as
of March 31, 1997 and 1.56% as of December 31, 1997. Net
charge-offs to average loans for the three months ended March
31, 1998, were .30% compared to .25% during the first three
months of 1997. The amount of net charge-offs during the first
three months of 1998 was $4.9 million compared to $3.8 million
during the first three months of 1997. Net charge-offs on
credit card loans increased $327,000 for the first three months
of 1998 when compared to the first three months of 1997, while
all other charge-offs increased $754,000 for the same period.
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 $1,024.9 million at March 31, 1998, compared to
$997.1 million at December 31, 1997. The ratio of total
risk-based capital to risk-weighted assets was 13.77% at March
31, 1998 compared to 13.62% at December 31, 1997. Synovus'
leverage ratio at the end of the first quarter of 1998 was
10.13% compared to 10.02% at the end of 1997. Synovus'
equity-to-assets ratio increased thirteen basis points to 9.89%
at March 31, 1998, when compared to year-end 1997.
Internal capital generation continues to support asset growth,
as reflected in the first quarter 1998 equity-to-asset ratio
exclusive of net unrealized gain (loss) on investment securities
available for sale of 9.83%, compared to 9.70% at year-end 1997.
Synovus' liquidity position and sources of funds have not
changed materially since December 31, 1997. Synovus' liquidity
ratio at March 31, 1998 was 39.88% compared to 35.42% at
December 31, 1997. Synovus' maturity mix of investment
securities and loan portfolios have not changed significantly
during the first three months of 1998.
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 $1.4 billion, that can be drawn upon for
short-term liquidity needs. Synovus also holds a $20 million
line of credit.
In 1997, Total System Services, Inc. (TSYS) began construction
on a campus-type facility which will serve as TSYS' corporate
headquarters. TSYS entered into an operating lease agreement
relating to the new corporate campus. Under the agreement, the
lessor has purchased the land, is paying for construction and
development costs, and has leased the property to TSYS
commencing upon its completion, which is expected to be in 1999.
The lease provides for substantial residual value guarantees,
up to $87 million, and includes purchase options at the original
cost of the property. Real estate taxes, insurance,
maintenance, and operating expenses applicable to the leased
property are obligations of TSYS.
In addition, TSYS began a $5 million expansion of its operations
center in north Columbus, Georgia during 1997. This expansion
will include additional space for the card production services
now located in downtown Columbus, Georgia and will include
additional space for statement printing function.
The consolidated statements of cash flows detail Synovus' cash
flows from operating, investing, and financing activities.
Operating activities provided net cash of $29.7 million during
the first three months of 1998, while $64.1 million was provided
by financing activities. Investing activities utilized $127.3
million of this amount, resulting in a decrease in cash and cash
equivalents of $33.5 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first quarter of 1998 were $9.2
billion, up 8.2% over the first quarter of 1997 average of $8.5
billion. Average earning assets were up 8.0% in the first
quarter of 1998 over the same quarter a year ago and represented
90.9% of average total assets. When compared to the same period
last year, average deposits increased $625.1 million and average
shareholders' equity increased $124.1 million. These increases
were partially offset by a $120.0 million decrease in average
federal funds purchased and securities sold under agreement to
repurchase. This growth provided the funding for the $551.9
million growth in average net loans, along with a $23.8 million
increase in average investment securities.
Net interest income was $106.1 million for the first quarter of
1998, up $7.9 million, or 8.1%, over the $98.2 million reported
for the first quarter of 1997. Net interest income, on a
tax-equivalent basis, for the first quarter of 1998 increased
$8.0 million, or 8.0%, over the first quarter of 1997.
The net interest margin was 5.22% for the current quarter, up
one basis point from the same period last year. This increase
resulted from a five basis point increase in the yield on
earning assets which was partially offset by a four basis point
increase in the effective cost of funds. The increased yield on
earning assets was primarily due to higher yields on investment
securities and higher loan yields. The improvement in loan
yields was primarily due to a 24 basis point increase in the
average prime rate during the first three months of 1998 as
compared to the first three months of 1997 resulting from a
prime rate increase in March 1997. The increased cost of funds
was due to moderately higher rates being paid on certificates of
deposit and increases in the cost of money market accounts.
These increases were partially offset by a higher level of
non-interest bearing balances.
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 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- -------------------------------------------------------------
(In thousands) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Interest income $186,955 172,414
Taxable-equivalent adjustment 1,197 1,149
- -------------------------------------------------------------
Interest income, taxable-equivalent 188,152 173,563
Interest expense 80,893 74,259
- -------------------------------------------------------------
Net interest income, taxable-equivalent $107,259 99,304
=============================================================
</TABLE>
Non-Interest Income
As a part of its New Bank Initiatives, Synovus continually
sharpens its focus on utilizing its 34 subsidiary banks as
distribution channels for offering targeted products to
customers throughout its market areas. Total non-interest
income during the first three months of 1998 increased $20.1
million, or 17.9%, over the same period in 1997. This increase
in non-interest income resulted primarily from higher data
processing revenues, which increased $12.4 million, or 15.7%,
during the three months ended March 31, 1998, over the same
period in 1997. Fees for trust services increased $579,000, or
17.9%, during the three months ended March 31, 1998, over the
same period in 1997. The increase in other operating income was
primarily due to increased product revenues from securities
sales, credit card fees, mortgage related income, fees on
letters of credit, and income from TSYS joint ventures.
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 $10.6 million, or 14.2%, in the three months
ended March 31, 1998, compared to the same period in 1997.
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. Bankcard data processing revenues during the first
quarter of 1998 were also affected by two significant items.
These items include an increase in revenues due to a termination
fee received from a customer which was offset by a decrease in
revenues resulting from a pricing adjustment with another
customer. The net effect of these items was a $1.5 million
increase in bankcard data processing revenues. 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 three months of 1998, TSYS converted
approximately 2.1 million existing cardholder accounts to TS2,
bringing the total number of accounts on TS2 at March 31, 1998,
to more than 21.8 million, compared to 10.1 million at March 31,
1997.
A significant amount of TSYS' revenues is derived from long-term
contracts with large customers, including certain major
customers. For the three months ended March 31, 1998 and 1997,
two customers accounted for approximately 20% and 27% of TSYS'
total revenues, respectively. Near the end of the first
quarter, AT&T, a major customer of TSYS, completed the sale of
its Universal Card Services (UCS) to Citibank. TSYS and AT&T -
UCS (now Citibank) have a processing contract with a term until
August 2000, and, at the customer's instruction, TSYS is
proceeding with converting these accounts to TS2 during 1998.
The long-term effect of the sale of AT&T's credit card business
on TSYS' financial condition and results of operations cannot be
determined at this time. In April 1998, two of TSYS' customers,
NationsBank and Bank of America, announced their intent to
merge. As a result, if the merger is completed, the percentage
of revenues derived from major customers will increase. The
loss of either one of TSYS' major customers, or other
significant customers, could have a material adverse effect on
TSYS' financial condition and results of operations.
Non-Interest Expense
Total non-interest expense for the three months ended March 31,
1998, increased $19.5 million, or 13.2%, over the same period in
1997. Management analyzes non-interest expense in two separate
components: banking operations and TSYS. The following table
summarizes this data for the first three months of 1998 and
1997.
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------
(In thousands) Banking TSYS Banking TSYS
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $51,283 43,210 46,398 36,939
Net occupancy and equipment expense 10,942 24,367 10,161 22,840
Other operating expenses 17,695 16,189 16,621 12,533
M&I conversion expenses 953 --- --- ---
Minority interest in subsidiary's net
income 1,974 --- 1,639 ---
- ---------------------------------------------------------------------------
Total non-interest expense $82,847 83,766 74,819 72,312
===========================================================================
</TABLE>
In the first three months of 1998, non-interest expense for
Synovus' banking operations increased $8.0 million, or 10.7%.
The primary reasons for this increase relate to normal salary
increases, additional employees, and data processing conversion
expenses. The number of employees related to Synovus' banking
operations as of March 31, 1998 increased to 4,712 compared to
4,393 as of March 31, 1997 to support Synovus' expansion.
Non-interest expense related to TSYS increased 15.8% for the
first quarter of 1998, compared to the same period in 1997.
TSYS' increase in non-interest expense is also attributable to
the addition of personnel. As of March 31, 1998, the number of
employees was 3,277, up 17.6% from 2,787 employees as of March
31, 1997.
In February 1998, TSYS announced the formation of TSYS Canada,
Inc. (TCI), a wholly-owned subsidiary headquartered in Columbus,
Georgia, to support new customers, such as Royal Bank of Canada
and Canadian Tire Acceptance Limited. On February 1, 1998, TCI
opened an office in Welland, Ontario, Canada. TCI currently
employs 15 programmers who are providing TSYS Canadian clients
with support and assistance with the conversion of their various
portfolios to TS2.
During the first quarter of 1998, Synovus began the conversion
of its bank data processing to the Marshall & Illsley (M&I) Data
Services' system. This conversion, which is expected to be
substantially completed in 1998, will greatly enhance Synovus'
team members' capabilities to market the "New Bank's" products
and services, by providing more customer data at the point of
service. Additionally, the Marshall & Illsley data processing
platform is expected to be Year 2000 compliant, which will allow
resources to be allocated to the conversion and to other data
processing areas that had originally been allocated for Year
2000 compliance. In the first quarter, approximately $1 million
pre-tax was expensed to begin this conversion. The total
non-recurring conversion expenses for this conversion are
expected to be approximately $12 million in 1998.
Through separate task forces, Synovus is continuing its ongoing
projects to assure its processing systems are Year 2000
compliant for its banking activities and at TSYS. The task
forces are composed of dedicated resources as well as members
from other areas within the banks and TSYS. The overall project
plans for the banks and TSYS have been reviewed by their Boards
of Directors with progress toward completion monitored
regularly. The primary components of the plans include:
awareness - assuring a common understanding of the issue
throughout Synovus; assessment - identification of non-compliant
hardware, equipment, and software as well as suppliers and
vendors; renovation - renovation, replacement or retirement of
programs; validation - testing modifications of programs
including coordination of testing with third parties and
vendors; and implementation - moving validated code to
production. Both companies are progressing according to their
plans with system renovation expected to be completed in 1998.
Validation will begin in 1998 and is expected to be completed by
mid-1999. The cost to bring Synovus' systems into Year 2000
compliance are being expensed as incurred and are not expected
to have a material effect on the results of operations for 1998
or 1999. For the banks, the conversion of the core processing
systems to M&I will provide for Year 2000 compliance for those
applications which include loans, deposits, and sales platforms.
M&I expects its systems to be Year 2000 compliant by year-end
1998; Synovus management is monitoring their progress. The
remaining personal computer hardware platforms and software
programs as well as other ancillary systems such as ATM's, fax
machines, copiers, and phone systems are being reviewed and no
significant applications or infrastructure which need to be
modified have been identified.
At TSYS, the core system of TS2 was designed to be Year 2000
compliant, and TSYS is continuing its ongoing project to ensure
that all of TSYS' processing systems are Year 2000 compliant.
The modification phase for the balance of TSYS processing
systems is underway in accordance with its overall plan. TSYS
is also communicating regularly with its clients on its progress
and future plans.
The majority of Synovus' costs in becoming Year 2000 compliant
is related to TSYS. TSYS is utilizing existing internal
resources to complete the Year 2000 project. TSYS incurred $1.4
million of direct costs related to the Year 2000 remediation
project during the first quarter of 1998. TSYS expects to incur
an additional $6.6 million of direct costs during the remainder
of 1998 and approximately $6.0 million in 1999. Based upon
progress to date, TSYS does not expect the cost of the Year 2000
project to significantly impact its financial condition and
results of operations. The failure of Synovus and TSYS to be
Year 2000 compliant would have a material adverse effect on each
company's financial condition and results of operations.
The costs of the project and the dates on which Synovus and TSYS
believe they will complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing
numerous assumptions about future events, including the
continued availability of necessary technical resources.
However, there are no guarantees that these estimates will be
achieved and actual results could differ materially from those
anticipated.
Income Tax Expense
Income tax expense for the three months ended March 31, 1998,
was $23.0 million compared to $20.4 million for the same period
a year ago. The effective tax rate was 35.8% and 36.3% in 1998
and 1997, 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, one on April 21, 1997 and
the other on June 11, 1997, 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.
Forward-Looking Statements
Certain statements contained in this filing which are not
statements of historical fact constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act (the "Act"). In addition, certain
statements in future filings by Synovus with the Securities and
Exchange Commission, in press releases, and in oral and written
statements made by or with the approval of Synovus which are not
statements of historical fact constitute forward-looking
statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i)
projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital
structure and other financial terms; (ii) statements of plans
and objectives of Synovus or it's management or Board of
Directors, including those relating to products or services;
(iii) statements of future economic performance; and (iv)
statements of assumptions underlying such statements. Words
such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of
identifying such statements.
Forward-looking statements involve risks and uncertainties which
may cause actual results to differ materially from those in such
statements. Factors that could cause actual results to differ
from those discussed in the forward-looking statements include,
but are not limited to: (i) the strength of the U.S. economy in
general and the strength of the local economies in which
operations are conducted; (ii) the effects of and changes in
trade, monetary and fiscal policies, and laws, including
interest rate policies of the Federal Reserve Board; (iii)
inflation, interest rate, market and monetary fluctuations; (iv)
the timely development of and acceptance of new products and
services and perceived overall value of these products and
services by users; (v) changes in consumer spending, borrowing,
and saving habits; (vi) technological changes; (vii)
acquisitions; (viii) the ability to increase market share and
control expenses; (ix) the effect of changes in laws and
regulations (including laws and regulations concerning taxes,
banking, securities, and insurance) with which Synovus and its
subsidiaries must comply; (x) the effect of changes in
accounting policies and practices, as may be adopted by the
regulatory agencies as well as the Financial Accounting
Standards Board; (xi) changes in Synovus' organization,
compensation, and benefit plans; (xii) the costs and effects of
litigation and of unexpected or adverse outcomes in such
litigation; and (xiii) the success of Synovus at managing the
risks involved in the foregoing.
Such forward-looking statements speak only as of the date on
which such statements are made, and Synovus undertakes no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement
is made to reflect the occurrence of unanticipated events.
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Quantitative and qualitative disclosures about market risk were
included in the annual report which was incorporated by
reference in Synovus' 1997 10-K. There have been no significant
changes in the contractual balances and the estimated fair value
of Synovus' on-balance sheet financial instruments, the notional
amount and estimated fair value of the company's off-balance
sheet derivative financial instruments, or weighted-average
interest rates.
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) Reports on Form 8-K
The following reports on Form 8-K were filed during or
subsequent to the first quarter of 1998.
(1) The report filed on March 9, 1998, included the following event:
On March 9, 1998, Synovus Financial Corp. (Registrant)
announced a 22.2% increase in its quarterly dividend. Also,
Total System Services, Inc. (TSYS), Registrant's 80.7% owned
bankcard data processing subsidiary, announced that it is
engaged in negotiations with Sears, Roebuck and Co. to support
Sears' private-label credit card accounts.
(2) The report filed on April 23, 1998, included the following event:
On April 23, 1998, Synovus Financial Corp. (Registrant)
announced a three-for-two stock split to be issued on
May 21, 1998 to shareholders of record as of May 7, 1998.
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: May 14, 1998 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 Per Share 22
Earnings.
27 Financial Data Schedule (for SEC purposes
only, not enclosed herewith)
EXHIBIT 11
<TABLE>
<CAPTION>
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------------------------------------
Net Average Net Income Net Average Net Income
Income Shares per Share Income Shares Per Share
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $41,213 262,924 0.16 35,807 261,840 0.14
Effect of dilutive options 0 4,555 0 3,477
- ------------------------------------------------------- -------------------
EPS - assuming dilution $41,213 267,479 0.15 35,807 265,317 0.13
==============================================================================================================
</TABLE>
All information presented in Exhibit 11 reflects the three-for-two stock split
declared by the Synovus Board of Directors on April 23, 1998, effective May 21,
1998, to shareholders of record on May 7, 1998.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE THREE MONTHS ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 354,579
<INT-BEARING-DEPOSITS> 928
<FED-FUNDS-SOLD> 120,860
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,366,409
<INVESTMENTS-CARRYING> 313,185
<INVESTMENTS-MARKET> 317,488
<LOANS> 6,706,297
<ALLOWANCE> 105,716
<TOTAL-ASSETS> 9,376,677
<DEPOSITS> 7,889,802
<SHORT-TERM> 214,811
<LIABILITIES-OTHER> 182,465
<LONG-TERM> 117,860
0
0
<COMMON> 263,182
<OTHER-SE> 664,147
<TOTAL-LIABILITIES-AND-EQUITY> 9,376,677
<INTEREST-LOAN> 159,754
<INTEREST-INVEST> 26,421
<INTEREST-OTHER> 780
<INTEREST-TOTAL> 186,955
<INTEREST-DEPOSIT> 75,912
<INTEREST-EXPENSE> 80,893
<INTEREST-INCOME-NET> 106,062
<LOAN-LOSSES> 7,594
<SECURITIES-GAINS> 145
<EXPENSE-OTHER> 166,613
<INCOME-PRETAX> 64,173
<INCOME-PRE-EXTRAORDINARY> 41,213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,213
<EPS-PRIMARY> .16
<EPS-DILUTED> .15<F1>
<YIELD-ACTUAL> 5.22
<LOANS-NON> 17,805
<LOANS-PAST> 18,783
<LOANS-TROUBLED> 17,805
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 103,050
<CHARGE-OFFS> 6,477
<RECOVERIES> 1,549
<ALLOWANCE-CLOSE> 105,716
<ALLOWANCE-DOMESTIC> 105,716
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,000
<FN> On April 23, 1998, Synovus announced a three-for-two
stock split to be issued on May 21, 1998, to shareholders of record as of
May 7, 1998. Financial data schedules have not been restated for prior
periods for this recapitalization.
</FN>
</TABLE>
