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, 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) 649-2401
(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, 1998, 263,367,482 shares of the Registrant's Common
Stock, $1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
Part I. Financial Information Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 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 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. (a) Exhibits 21
(b) Reports on Form 8-K 21
Signature Page 22
Exhibit Index 23
(11) Statement re Computation of Per Share Earnings 24
(27) Financial Data Schedule (for SEC purposes only, not enclosed
herewith)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands, except share and per share data) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 381,565 388,134
Interest earning deposits with banks 669 1,272
Federal funds sold 38,051 93,392
Investment securities available for sale 1,363,616 1,325,036
Investment securities held to maturity 301,651 330,137
Loans 6,735,522 6,615,584
Less unearned income (7,234) (5,712)
Less reserve for loan losses (106,704) (103,050)
- -------------------------------------------------------------------------------------------------------------
Loans, net 6,621,584 6,506,822
- -------------------------------------------------------------------------------------------------------------
Premises and equipment, net 319,873 297,227
Other assets 343,262 318,311
- -------------------------------------------------------------------------------------------------------------
Total assets $9,370,271 9,260,331
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $1,315,261 1,256,639
Interest bearing 6,508,193 6,451,288
- -------------------------------------------------------------------------------------------------------------
Total deposits 7,823,454 7,707,927
Federal funds purchased and securities sold under agreement to repurchase 249,695 305,868
Long-term debt 123,484 126,174
Other liabilities 173,002 174,065
- -------------------------------------------------------------------------------------------------------------
Total liabilities 8,369,635 8,314,034
- -------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 46,286 42,641
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares; issued
263,275,883 in 1998 and 262,983,414 in 1997; outstanding
263,100,619 in 1998 and 262,808,150 in 1997 263,276 262,983
Surplus 19,017 17,777
Less treasury stock - 175,264 shares in 1998 and 1997 (1,285) (1,285)
Less unamortized restricted stock (3,091) (3,734)
Accumulated other comprehensive income 7,376 5,700
Retained earnings 669,057 622,215
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 954,350 903,656
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,370,271 9,260,331
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $321,270 299,308 161,516 153,285
Investment securities:
U.S. Treasury and U.S. Government agencies 40,288 39,861 20,105 20,221
Mortgage-backed securities 7,922 8,936 3,920 4,396
State and municipal 3,513 3,232 1,826 1,636
Other investments 1,144 626 595 314
Federal funds sold 1,857 813 1,093 537
Interest earning deposits with banks 28 47 12 20
- -------------------------------------------------------------------------------------------------------------
Total interest income 376,022 352,823 189,067 180,409
- -------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 151,818 138,386 75,906 70,531
Federal funds purchased and securities sold under
agreement to repurchase 6,495 10,308 3,391 5,400
Long-term debt 3,707 3,366 1,830 1,870
- -------------------------------------------------------------------------------------------------------------
Total interest expense 162,020 152,060 81,127 77,801
- -------------------------------------------------------------------------------------------------------------
Net interest income 214,002 200,763 107,940 102,608
Provision for losses on loans 14,598 15,280 7,004 8,279
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 199,404 185,483 100,936 94,329
- -------------------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 177,641 164,179 86,312 85,227
Service charges on deposit accounts 29,503 27,003 15,154 13,858
Fees for trust services 7,357 6,289 3,547 3,058
Credit card fees 5,627 4,944 3,112 2,666
Securities gains (losses), net 326 (2) 181 30
Other operating income 41,315 30,751 21,145 16,094
- -------------------------------------------------------------------------------------------------------------
Total non-interest income 261,769 233,164 129,451 120,933
- -------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 184,085 167,964 89,394 84,627
Net occupancy and equipment expense 73,015 68,207 37,099 35,206
Other operating expenses 67,062 60,442 33,030 31,288
Minority interest in subsidiary's net income 4,217 3,553 2,243 1,914
- -------------------------------------------------------------------------------------------------------------
Total non-interest expense 328,379 300,166 161,766 153,035
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 132,794 118,481 68,621 62,227
Income tax expense 47,369 43,352 24,409 22,905
- -------------------------------------------------------------------------------------------------------------
Net income $ 85,425 75,129 44,212 39,322
=============================================================================================================
Net income per share :
Basic $ 0.32 0.29 0.17 0.15
=============================================================================================================
Assuming dilution 0.32 0.28 0.17 0.15
=============================================================================================================
Weighted average shares outstanding:
Basic 262,999 261,921 263,073 262,001
=============================================================================================================
Assuming dilution 266,876 265,380 267,790 265,612
=============================================================================================================
Dividends declared per share $ 0.15 0.12 0.07 0.06
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
- -----------------------------------------------------------------------------------------------------
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 85,425 75,129
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 14,598 15,280
Depreciation, amortization, and accretion, net 27,652 24,733
Deferred income tax benefit (2,213) (1,333)
Increase in interest receivable (3,486) (5,857)
Increase in interest payable 3,492 2,485
Minority interest in subsidiary's net income 4,217 3,553
(Increase) decrease in mortgage loans held for sale (23,441) 1,934
Other, net (1,769) 3,072
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 104,475 118,996
- ------------------------------------------------------------------------------------------------------
Investing Activities
Net decrease in interest earning deposits with banks 603 1,192
Net decrease (increase) in federal funds sold 55,341 (8,375)
Proceeds from maturities and principal collections of investment
securities available for sale 237,295 87,289
Proceeds from sales of investment securities available for sale 32,352 52,172
Purchases of investment securities available for sale (305,332) (185,421)
Proceeds from maturities and principal collections of investment
securities held to maturity 65,038 39,694
Purchases of investment securities held to maturity (36,658) (19,246)
Net increase in loans (105,919) (339,338)
Purchase of premises and equipment (48,061) (35,056)
Disposal of premises and equipment 322 164
Proceeds from sale of other real estate 5,222 2,409
Additions to contract acquisition costs (10,980) (15,461)
Additions to computer software (19,657) (9,451)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (130,434) (429,428)
- ------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand and savings deposits 177,646 168,622
Net (decrease) increase in certificates of deposit (62,119) 50,609
Net (decrease) increase in federal funds purchased and securities
sold under agreement to repurchase (56,173) 59,938
Principal repayments on long-term debt (10,690) (1,744)
Proceeds from issuance of long-term debt 8,000 31,700
Dividends paid to shareholders (38,584) (31,436)
Proceeds from issuance of common stock 1,310 1,879
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,390 279,568
- ------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (6,569) (30,864)
Cash and cash equivalents at beginning of period 388,134 404,952
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $381,565 374,088
======================================================================================================
</TABLE>
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 April 23, 1998, Synovus declared a three-for-two stock split which was
effected on May 21, 1998 in the form of a 50% stock dividend. All share, per
share, and shareholders' equity amounts for all periods presented in the
accompanying consolidated financial statements have been restated to reflect the
stock split.
Note B - Supplemental Cash Flow Information
For the six months ended June 30, 1998 and 1997, Synovus Financial Corp.
(Synovus) paid income taxes of $49.1 million and $47.9 million, and interest of
$158.5 million and $149.6 million, respectively.
Noncash investing activities consisted of loans of approximately $3.9 million
and $2.3 million, which were foreclosed and transferred to other real estate
during the six months ended June 30, 1998 and 1997, respectively.
Depreciation, amortization, and accretion, net, for the six months ended June
30, 1998 and 1997 included amortization of internally developed computer
software of $1.7 million, for both periods. Internally developed computer
software had a net carrying value of $23.3 million and $26.6 million at June 30,
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 June 30, 1998 was
$45,617,000 compared to $48,451,000 for the three months ended June 30, 1997.
Total comprehensive income for the six months ended June 30, 1998 was
$87,101,000 compared to $75,901,000 for the six months ended June 30, 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is effective for the
first quarter of 2000 and is to be applied prospectively. Synovus has not made
an assessment of the expected impact that SFAS No. 133 will have on its
financial statements.
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 six months ended June 30, 1998, was $85.4 million, up $10.3
million, or 13.7%, from the same period a year ago. Diluted net income per share
increased to $.32 for the first six months of 1998 as compared to $.28 for the
same period in 1997. This performance resulted in a return on average assets of
1.86% and a return on average equity of 18.55% for the six months ended June 30,
1998. This compares to a return on average assets of 1.75% and a return on
average equity of 18.89% for the first six months of 1997.
Net income for the three months ended June 30, 1998 was $44.2 million, up $4.9
million, or 12.4%, from the same period a year ago. Diluted net income per share
increased to $.17 in the second quarter of 1998 as compared to $.15 for the
second quarter of 1997. This performance resulted in a return on average assets
of 1.90% and a return on average equity of 18.93% for the three months ended
June 30, 1998. This compares to a return on average assets of 1.80% and a return
on average equity of 19.52% for the second quarter of 1997.
On April 23, 1998, Synovus declared a three-for-two stock split which was
effected on May 21, 1998 in the form of a 50% stock dividend. All share, per
share, and shareholders' equity amounts for all periods presented have been
restated to reflect the stock split.
Acquisitions
On June 5, 1998, Synovus signed a definitive agreement to merge the $348 million
asset Community Bank Capital Corporation (CBCC) into Synovus, for stock. CBCC is
the parent company of Bank of North Georgia. Bank of North Georgia operates 6
full service offices in 3 counties north of Atlanta, as well as a full-service
mortgage division.
Another 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 was signed on April 22, 1998. The Bank
of Georgia will be merged into Athens First Bank & Trust Company, an existing
affiliate of Synovus.
All three acquisitions are expected to be completed by the end of 1998 and will
be accounted for under the pooling of interests method.
Balance Sheet
During the first six months of 1998, total assets increased $109.9 million
compared to December 31, 1997, resulting from net loan growth of $114.8 million.
Providing the necessary funding for the balance sheet growth during the first
six months of 1998, Synovus' deposit base grew $115.5 million and shareholders'
equity increased $50.7 million. This growth was partially offset by a $56.2
million decrease in federal funds purchased and securities sold under agreement
to repurchase.
Asset Quality
Synovus continues to underwrite loans that provide diversification 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 1998, nonperforming assets, consisting of
nonaccrual loans, restructured loans, and other real estate, increased $69,000,
while net loans increased $114.8 million. Synovus' nonperforming assets ratio
was .43% as of June 30, 1998, which decreased one basis point from December 31,
1997. Net charge-offs to average loans for the six months ended June 30, 1998,
were .33% compared to .30% during the first six months of 1997. Net charge-offs
to average loans for the quarter ended June 30, 1998, were .36% compared to .35%
during the second quarter of 1997.
Loans 90 days past due and still accruing increased $2.5 million, or 12.2%, from
$20.9 million at December 31, 1997 to $23.4 million at June 30, 1998. These
loans were .32% of total loans at December 31, 1997 and .35% at June 30, 1998.
Management believes that the value of the underlying collateral securing
commercial and consumer loans is generally sufficient to cover the principal and
interest 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.
The reserve for loan losses is maintained at an appropriate level based on
management's analysis of the 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 was $106.7 million, or 1.59% of net loans, at June 30, 1998, compared to
$103.1 million, or 1.56% of net loans, at December 31, 1997.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Nonperforming loans $ 20,372 18,472
Other real estate 8,504 10,335
- --------------------------------------------------------------------------------
Nonperforming assets $ 28,876 28,807
================================================================================
Loans 90 days past due and still accruing $ 23,426 20,881
================================================================================
Reserve for loan losses $ 106,704 103,050
================================================================================
Reserve for loan losses as a % of loans 1.59 % 1.56
================================================================================
As a % of loans and other real estate:
Nonperforming loans 0.30 % 0.28
Other real estate 0.13 0.16
- --------------------------------------------------------------------------------
Nonperforming assets 0.43 % 0.44
================================================================================
Reserve to nonperforming loans 523.78 % 557.87
================================================================================
</TABLE>
Capital Resources and Liquidity
Synovus continues to maintain its capital at levels that 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 $1.055
billion at June 30, 1998, compared to $997.1 million at December 31, 1997. The
ratio of total risk-based capital to risk-weighted assets was 13.92% at June 30,
1998 compared to 13.62% at December 31, 1997. Synovus' leverage ratio at the end
of the second quarter of 1998 was 10.32% compared to 10.02% at the end of 1997.
Synovus' equity-to-assets ratio increased forty-two basis points to 10.18% at
June 30, 1998, when compared to year-end 1997.
Internal capital generation continues to support asset growth, as reflected in
the second quarter 1998 equity-to-asset ratio exclusive of net unrealized gain
(loss) on investment securities available for sale of 10.11%, 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 June 30, 1998 was 39.63%
compared to 35.42% at December 31, 1997. Synovus' maturity mix of investment
securities and loan portfolios has not changed significantly during the first
six 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 as to provide adequate
funding sources 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 a
substantial residual value guarantee, 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. TSYS expects net occupancy and equipment expense to
increase in 1999 as a result of the lease.
In addition, TSYS began a $5 million expansion of its operations center in north
Columbus during 1997. This expansion includes space for the card production
services now located in downtown Columbus and will include additional space for
the mailing support functions. TSYS will begin relocating the card production
services in the fourth quarter of 1998. TSYS has also purchased 18 acres
containing a 104,000 square-foot speculative building in east Columbus which is
being prepared for an additional data center. The center is expected to be ready
for use in the fourth quarter of 1998.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $104.5 million during the first six months of 1998, while $19.4
million was provided by financing activities. Investing activities utilized
$130.4 million of this amount, resulting in a decrease in cash and cash
equivalents of $6.6 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 1998 were $9.3 billion, up 7.3%
over the first six months average of 1997, which was $8.6 billion. Average
earning assets were up 7.2% in the first half of 1998 over the same period a
year ago and represented 90.9% of average total assets. When compared to the
same period last year, average deposits increased $581.0 million and average
shareholders' equity increased $126.6 million. These increases were partially
offset by a $119.6 million decrease in average federal funds purchased and
securities sold under agreement to repurchase. This growth provided the funding
for the $479.7 million growth in average net loans, the $32.8 million increase
in average investment securities, and the $47.1 million increase in average
federal funds sold.
Net interest income was $214.0 million for the six months ended June 30, 1998,
up $13.2 million, or 6.6%, over the $200.8 million reported in the six months
ended June 30, 1997. Net interest income, on a tax-equivalent basis, for the
first half of 1998 increased $13.3 million, or 6.6%, over the same period in
1997.
Net interest income was $107.9 million for the second quarter of 1998, up $5.3
million, or 5.2%, over the $102.6 million reported for the second quarter of
1997. Net interest income, on a tax- equivalent basis, for the second quarter of
1998 increased $5.4 million, or 5.2%, over the second quarter of 1997.
The year-to-date net interest margin was 5.22%, down two basis points from the
same period last year. This decrease resulted from a four basis point decrease
in the yield on earning assets, which was offset by a one basis point decrease
in the effective cost of funds. The decreased yield on earning assets was due to
lower yields on investment securities and lower loan yields. The decreased cost
of funds was due to a higher level of non-interest bearing balances.
The tax-equivalent adjustment that is required in making 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>
Six Months Ended Three Months Ended
June 30, June 30,
- --------------------------------------------------------------------------------
(In thousands) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 376,022 352,823 189,067 180,409
Taxable-equivalent adjustment 2,452 2,350 1,255 1,201
- --------------------------------------------------------------------------------
Interest income, taxable-equivalent 378,474 355,173 190,322 181,610
Interest expense 162,020 152,060 81,127 77,801
- --------------------------------------------------------------------------------
Net interest income,taxable equivalent $ 216,454 203,113 109,195 103,809
================================================================================
</TABLE>
Non-Interest Income
Total non-interest income during the first six months of 1998 increased $28.6
million, or 12.3%, over the same period in 1997. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$13.5 million, or 8.2%, during the six months ended June 30, 1998, over the same
period in 1997. Additionally, 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. Fees for trust services increased $1.1 million, or 17.0% during
the six months ended June 30, 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 servicing fees, mortgage related income, fees on
letters of credit, and income from TSYS joint ventures.
Total non-interest income during the quarter ended June 30, 1998, increased $8.5
million, or 7.0%, over the second quarter of 1997. The increase in non-interest
income resulted primarily from higher other operating income, which increased
$5.1 million, or 31.4%, during the quarter ended June 30, 1998, over the same
period in 1997.
Data processing services revenue is derived principally from the servicing of
individual bankcard accounts for the card-issuing customers of TSYS. TSYS'
revenues increased $1.7 million, or 1.9%, for the three months ended June 30,
1998, compared to the same period in 1997. Revenues during the second quarter of
1998 were affected by the loss of two customers who were deconverted near the
end of the first quarter of 1998, as well as competitive pricing pressures and a
decrease in usage of optional services by some of TSYS' clients. During the six
months ended June 30, 1998, revenues from TSYS increased $14.9 million, or 8.6%,
compared to the same period in 1997. This increase in revenues is primarily
attributable to the growth in the card portfolios of existing customers.
Increases in the volumes of authorizations and transactions associated with the
additional cardholder accounts also contributed to the increased revenues.
During the first six months of 1998, TSYS converted approximately 20.9 million
existing cardholder accounts to TS2, bringing the total number of accounts on
TS2 at June 30, 1998, to more than 41.9 million, compared to 11.0 million at
June 30, 1997.
A significant amount of TSYS' revenues is derived from long-term contracts with
large customers, including certain major customers. For the six months and three
months ended June 30, 1998, two customers accounted for approximately 23% and
25% of TSYS' total revenues, respectively, compared to 27% for both the six and
three months ended June 30, 1997. Near the end of the first quarter of 1998,
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.
During the second quarter of 1998, TSYS announced the signing of a long-term
processing agreement with Sears, Roebuck and Co. to convert and process its 60
million private label accounts. The conversion of these accounts is anticipated
to be completed in the second quarter of 1999.
Non-Interest Expense
Total non-interest expense for the six months ended June 30, 1998, increased
$28.2 million, or 9.4%, over the same period in 1997. Total non-interest expense
for the second quarter of 1998 increased $8.7 million, or 5.7%, over the second
quarter of 1997. 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 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
(In thousands) Banking TSYS Banking TSYS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $102,054 81,455 94,678 74,772
Net occupancy and equipment expense 21,982 49,749 20,511 47,696
Other operating expenses 35,681 30,355 32,281 26,675
M&I conversion expenses 2,886 --- --- ---
Minority interest in subsidiary's net
income 4,217 --- 3,553 ---
- --------------------------------------------------------------------------------
Total non-interest expense $166,820 161,559 151,023 149,143
================================================================================
</TABLE>
In the first six months of 1998, non-interest expense for Synovus' banking
operations increased $15.8 million, or 10.5 %. During the second quarter of
1998, non-interest expense increased $7.8 million, or 10.2%, compared to the
second quarter of 1997. The primary reasons for this increase relate to normal
salary increases, additional employees, and M&I data processing conversion
expenses. The number of employees related to Synovus' banking operations as of
June 30, 1998 increased to 4,805 compared to 4,522 as of June 30, 1997.
Non-interest expense related to TSYS increased 8.3% and 1.3% for the six and
three months ended June 30, 1998, respectively, compared to the same periods in
1997. TSYS' increase in non-interest expense is also attributable to the
addition of personnel. As of June 30, 1998, the number of employees was 3,366,
up 18.1% from 2,851 employees as of June 30, 1997. The growth in other operating
expenses at TSYS during 1998 is primarily due to increased travel, legal,
telecommunications and other business development costs associated with
exploring new business opportunities.
In February 1998, TSYS announced the formation of TSYS Canada, Inc. (TCI), a
wholly-owned subsidiary headquartered in Columbus, Georgia. On February 1, 1998,
TCI opened an office in Welland, Ontario, Canada. TCI currently employs 18
programmers who are providing support and assistance with the conversion of
their card 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.
In the first half of 1998, approximately $2.9 million pre-tax was expensed on
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. Each Board of Directors has
reviewed the overall project plans for the banks and TSYS 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 and system renovation is expected to be completed in 1998.
Validation is underway and will be completed by mid-1999. The costs to bring
Synovus' systems into Year 2000 compliance are being expensed as incurred and
are not expected to have a material effect on Synovus' financial condition or
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. TSYS' Year 2000 plans called for all mission critical
systems to be renovated by the end of the second quarter of 1998 which has been
accomplished. Testing for clients and other third parties will begin in the
third quarter of 1998. Completion of all third party interface testing is
dependent upon those third parties completing their own internal remediation.
TSYS has made an assessment of non-compliant suppliers and vendors and will
schedule and coordinate testing of incoming and outgoing interfaces with
third-party vendors. TSYS could be adversely affected to the extent third
parties with which it interfaces have not properly addressed their Year 2000
issues.
For its banking operations, Synovus has addressed the Year 2000 contingency plan
requirements in accordance with the Federal Financial Institutions Examination
Council guidelines published May 13, 1998. One area of contingency planning
relates to remediation efforts. As discussed above, Synovus' Year 2000
remediation plans are progressing on schedule. Accordingly, Synovus has not
established a detailed contingency plan for its remediation efforts. In the
event that M&I does not complete the conversion of its core processing systems
to Year 2000 compliant status by the end of 1998, Synovus will then move forward
with its contingency plan. Another area of contingency planning deals with
business resumption issues in the event of a critical system failure on or about
January 1, 2000. This phase of contingency planning has begun and will be
finalized in 1999.
TSYS is currently developing its Year 2000 contingency plan and expects it will
be finalized by the end of the third quarter of 1998.
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 $1.5 million of direct costs related to the Year 2000
remediation project during the second quarter of 1998, bringing the total direct
costs for 1998 to $2.9 million. TSYS expects to incur an additional $5.1 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 six months ended June 30, 1998, was $47.4 million
compared to $43.4 million for the same period a year ago. Income tax expense for
the second quarter of 1998 was $24.4 million compared to $22.9 million in the
second quarter of 1997. The effective tax rate for the first six months of 1998
and 1997 was 35.7% and 36.6%, 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) payment of
service fees or interest rebates to automobile dealers in connection with the
assignment of automobile credit sales contracts to that Synovus subsidiary; and
(2) 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. 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 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 23, 1998. Following is a
summary of the proposal that was submitted to the shareholders for approval.
The proposal was to elect eight nominees for Class I directors of Synovus to
serve until the 2001 Annual Meeting of Shareholders. The eight nominees for
election as Class I 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 I 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 I directors was
elected.
Withheld
Nominee Votes For Authority to Vote
- --------------------------------------------------------------------------------
James H. Blanchard 801,318,491 1,621,302
Stephen L. Burts, Jr. 801,619,888 1,319,905
C. Edward Floyd 801,606,197 1,333,596
Gardiner W. Garrard, Jr. 801,593,253 1,346,540
V. Nathaniel Hansford 801,622,999 1,316,794
H. Lynn Page 801,610,777 1,329,016
Robert V. Royall 801,106,723 1,833,070
James D. Yancey 801,591,202 1,348,591
ITEM 5 - OTHER INFORMATION
Effective June 29, 1998, the Securities and Exchange Commission amended Rule
14a-4(c) under the Securities Exchange Act of 1934 (the "1934 Act") which
governs a company's use of discretionary proxy voting authority with respect to
shareholder proposals that are not being included in the company's proxy
solicitation materials pursuant to Rule 14a-8 of the 1934 Act. New Rule 14a-
4(c)(1) provides that if a proponent fails to notify the Company at least 45
days prior to the month and day of mailing of the prior years' proxy statement
(or by an earlier or later date established by an overriding advance notice
provision contained in the company's charter or bylaws), then the management
proxies named in the form of proxy distributed in connection with the company's
proxy statement would be allowed to use their discretionary voting authority to
address the matter submitted by the proponent, without discussion of the matter
in the proxy statement. The Company's bylaws contain an advance notice provision
which provides that a matter may not be brought before an annual meeting by a
proponent stockholder (the "Proponent") unless the Proponent has provided notice
thereof in writing to the Secretary of the Company (and such notice has been
received by the Secretary at the principal executive office of the Company), not
less than 60 days nor more than 120 days prior to the date of the annual
meeting. The Company's 1999 annual meeting is currently scheduled for April 22,
1999. Accordingly, for any business to be brought before the 1999 Annual Meeting
by a Proponent, written notice thereof must be provided to the Secretary by
February 22, 1999.
ITEM 6 - EXHIBITS AND REPORTS 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
second quarter of 1998.
(1) The report filed on May 14, 1998, included the following event:
On May 14, 1998, Total System Services, Inc. (TSYS), Registrant's 80.7%
owned bankcard data processing subsidiary, announced that it has signed a
ten year processing agreement with Sears, Roebuck and Co. to convert and
process its private-label portfolio on TSYS' TS2 cardholder system.
(2) The report filed on June 5, 1998, included the following event:
On June 5, 1998, Synovus Financial Corp. (Registrant) released a summary of
selected statistical data on both a pre-stock split and post-stock split
basis resulting from a three-for two stock split distributed on May 21, 1998.
(3) The report filed on July 13, 1998, included the following event:
On July 13, 1998, Synovus Financial Corp. (Registrant)
announced its earnings for the second quarter of 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: August 13, 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 24
Per Share Earnings
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
EXHIBIT 11
SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME
PER COMMON SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Three Months Ended June 30, 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 $44,212 263,073 0.17 39,322 262,001 0.15
Effect of dilutive options 4,717 3,611
- --------------------------------------------------- -------------------
EPS - assuming dilution $44,212 267,790 0.17 39,322 265,612 0.15
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Six Months Ended June 30, 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 $85,425 262,999 0.32 75,129 261,921 0.29
Effect of dilutive options 3,877 3,459
- --------------------------------------------------- -------------------
EPS - assuming dilution $85,425 266,876 0.32 75,129 265,380 0.28
=============================================================================================================
</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 SIX MONTHS ENDED
JUNE 30, 1998, 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 381,565
<INT-BEARING-DEPOSITS> 669
<FED-FUNDS-SOLD> 38,051
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,363,616
<INVESTMENTS-CARRYING> 301,651
<INVESTMENTS-MARKET> 306,130
<LOANS> 6,728,288
<ALLOWANCE> 106,704
<TOTAL-ASSETS> 9,370,271
<DEPOSITS> 7,823,454
<SHORT-TERM> 249,695
<LIABILITIES-OTHER> 173,002
<LONG-TERM> 123,484
0
0
<COMMON> 263,276
<OTHER-SE> 691,074
<TOTAL-LIABILITIES-AND-EQUITY> 9,370,271
<INTEREST-LOAN> 321,270
<INTEREST-INVEST> 52,867
<INTEREST-OTHER> 1,885
<INTEREST-TOTAL> 376,022
<INTEREST-DEPOSIT> 151,818
<INTEREST-EXPENSE> 162,020
<INTEREST-INCOME-NET> 214,002
<LOAN-LOSSES> 14,598
<SECURITIES-GAINS> 326
<EXPENSE-OTHER> 328,379
<INCOME-PRETAX> 132,794
<INCOME-PRE-EXTRAORDINARY> 85,425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,425
<EPS-PRIMARY> .32
<EPS-DILUTED> .32 <F1>
<YIELD-ACTUAL> 5.22
<LOANS-NON> 20,372
<LOANS-PAST> 23,426
<LOANS-TROUBLED> 20,372
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 103,050
<CHARGE-OFFS> 14,254
<RECOVERIES> 3,310
<ALLOWANCE-CLOSE> 106,704
<ALLOWANCE-DOMESTIC> 106,704
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,060
<FN>
<F1> 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>
