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, 1999
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, 1999, 271,328,007 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information Number
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. (a) Exhibits 25
(b) Report on Form 8-K 25
Signature Page
26
Exhibit Index 27
(11) Statement re Computation of Per Share Earnings 28
(27) Financial Data Schedule (for SEC purposes only, not
enclosed herewith)
</TABLE>
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) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 412,708 348,365
Interest earning deposits with banks 988 1,383
Federal funds sold 22,626 52,695
Mortgage loans held for sale 105,251 156,231
Investment securities available for sale 1,624,171 1,514,054
Investment securities held to maturity 289,127 303,613
Loans 7,973,427 7,420,529
Less unearned income (9,063) (8,537)
Less reserve for loan losses (115,534) (110,822)
- ----------------------------------------------------------------------------
Loans, net 7,848,830 7,301,170
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Premises and equipment, net 400,491 375,395
Other assets 470,320 445,103
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Total assets $11,174,512 10,498,009
============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,462,193 1,362,401
Interest bearing 7,503,576 7,180,397
- ----------------------------------------------------------------------------
Total deposits 8,965,769 8,542,798
Federal funds purchased and securities sold
under agreement to repurchase 664,428 496,013
Long-term debt 191,085 127,015
Other liabilities 186,566 209,489
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Total liabilities 10,007,848 9,375,315
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Minority interest in consolidated subsidiary 57,926 52,093
Shareholders' equity:
Common stock - $1.00 par value; Authorized
600,000,000 shares; issued 271,482,571 in
1999 and 270,393,657 in 1998; outstanding
271,307,307 in 1999 and 270,218,393 in 1998 271,483 270,394
Surplus 52,261 42,006
Less treasury stock - 175,264 shares in 1999
and 1998 (1,285) (1,285)
Less unamortized restricted stock (1,722) (2,545)
Accumulated other comprehensive income (loss) (14,544) 10,216
Retained earnings 802,545 751,815
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Total shareholders' equity 1,108,738 1,070,601
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Total liabilities and shareholders' equity $11,174,512 10,498,009
============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
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) 1999 1998 1999 1998
--------------- ------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $349,368 319,222 178,566 160,580
Investment securities:
U.S. Treasury and U.S. Governmment agencies 38,201 40,288 19,411 20,105
Mortgage-backed securities 12,152 7,922 6,149 3,920
State and municipal 4,203 3,513 2,102 1,826
Other investments 1,349 1,144 724 595
Mortgage loans held for sale 4,259 2,048 1,782 936
Federal funds sold 746 1,857 360 1,093
Interest earning deposits with banks 40 28 19 12
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Total interest income 410,318 376,022 209,113 189,067
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Interest expense:
Deposits 152,181 151,818 76,954 75,906
Federal funds purchased and securities sold under
agreement to repurchase 15,201 6,495 7,900 3,391
Long-term debt 4,197 3,707 2,251 1,830
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Total interest expense 171,579 162,020 87,105 81,127
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Net interest income 238,739 214,002 122,008 107,940
Provision for losses on loans 16,554 14,598 9,401 7,004
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Net interest income after provision
for losses on loans 222,185 199,404 112,607 100,936
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Non-interest income:
Data processing services 230,605 173,178 126,069 83,935
Service charges on deposit accounts 32,902 29,503 16,432 15,154
Fees for trust services 10,005 7,357 4,755 3,547
Credit card fees 6,724 5,627 3,572 3,112
Securities gains (losses), net 715 326 268 181
Other operating income 56,441 45,778 26,909 23,522
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Total non-interest income 337,392 261,769 178,005 129,451
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Non-interest expense:
Salaries and other personnel expense 214,098 184,085 109,047 89,394
Net occupancy and equipment expense 96,450 73,015 51,064 37,099
Other operating expenses 88,904 67,062 47,472 33,030
Minority interest in subsidiary's net income 6,032 4,217 3,543 2,243
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Total non-interest expense 405,484 328,379 211,126 161,766
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Income before income taxes 154,093 132,794 79,486 68,621
Income tax expense 54,985 47,369 28,567 24,409
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Net income $ 99,108 85,425 50,919 44,212
===============================================================================================
Net income per share :
Basic $ 0.37 0.32 0.19 0.17
===============================================================================================
Diluted 0.36 0.32 0.19 0.17
===============================================================================================
Weighted average shares outstanding:
Basic 270,916 262,999 271,182 263,073
===============================================================================================
Diluted 274,949 266,876 274,837 267,790
===============================================================================================
Dividends declared per share $ 0.18 0.15 0.09 0.07
===============================================================================================
</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) 1999 1998
---------------------------
<S> <C> <C>
Operating Activities
Net Income $ 99,108 85,425
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 16,554 14,598
Depreciation, amortization, and accretion, net 35,275 27,652
Deferred income tax expense (benefit) 2,644 (2,213)
Increase in interest receivable (5,476) (3,486)
Increase in interest payable 2,981 3,492
Minority interest in subsidiary's net income 6,032 4,217
Decrease (increase) in mortgage loans held for sale 50,980 (23,441)
Other, net 4,757 (1,769)
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Net cash provided by operating activities 212,855 104,475
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Investing Activities
Cash acquired from acquisition 1,842 --
Net decrease in interest earning deposits with banks 395 603
Net decrease in federal funds sold 30,069 55,341
Proceeds from maturities and principal collections of investment
securities available for sale 269,075 237,295
Proceeds from sales of investment securities available for sale 23,331 32,352
Purchases of investment securities available for sale (453,859) (305,332)
Proceeds from maturities and principal collections of investment
securities held to maturity 25,831 65,038
Purchases of investment securities held to maturity (11,559) (36,658)
Net increase in loans (564,214) (105,919)
Purchases of premises and equipment (57,935) (48,061)
Disposals of premises and equipment 1,794 322
Proceeds from sales of other real estate 4,001 5,222
Additions to contract acquisition costs (2,789) (10,980)
Additions to computer software (30,061) (19,657)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (764,079) (130,434)
- ------------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand and savings deposits 239,404 177,646
Net increase (decrease) in certificates of deposit 183,567 (62,119)
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase 168,415 (56,173)
Principal repayments on long-term debt (830) (10,690)
Proceeds from issuance of long-term debt 64,900 8,000
Dividends paid to shareholders (44,202) (38,584)
Proceeds from issuance of common stock 4,313 1,310
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 615,567 19,390
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 64,343 (6,569)
Cash and cash equivalents at beginning of period 348,365 388,134
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 412,708 381,565
============================================================================================================
</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. The accompanying unaudited
consolidated financial statements should be read in conjunction with the Synovus
Financial Corp. (Synovus) consolidated financial statements and related notes
appearing in Synovus' 1998 annual report previously filed on Form 10-K.
Note B - Supplemental Cash Flow Information
For the six months ended June 30,1999 and 1998, Synovus paid income taxes of
$46.6 million and $49.1 million, and interest of $168.6 million and $158.5
million, respectively.
Noncash investing activities consisted of loans of approximately $2.3 million
and $3.9 million, which were foreclosed and transferred to other real estate
during the six months ended June 30, 1999 and 1998, respectively.
Note C - Comprehensive Income
Other comprehensive income (loss) for Synovus consists of unrealized gains
(losses) on securities available for sale and foreign currency translation
adjustments. Comprehensive income consists of net income plus other
comprehensive income (loss). Comprehensive income for the three months ended
June 30, 1999 and 1998 was $33.0 million and $45.6 million, respectively.
Comprehensive income for the six months ended June 30, 1999 was $74.3 million
compared to $87.1 million for the six months ended June 30, 1998.
Note D - Business Combinations
On January 31, 1999, Synovus issued 333,163 shares of common stock to acquire
the remaining 80% interest in Canterbury Trust Company, Inc., which provides
trust, custody, investment and consulting services to large institutional
clients. The acquisition was accounted for as a purchase resulting in goodwill
of $5.5 million which will be amortized on a straight-line basis over fifteen
years.
On December 18, 1998, Synovus completed the acquisition of the $178 million
asset Georgia Bank & Trust (GB&T), located in Calhoun, Georgia. Synovus issued
1,811,058 shares of common stock for all the issued and outstanding shares of
GB&T.
On November 30, 1998, Synovus completed the acquisition of the $55 million asset
Bank of Georgia, located in Watkinsville, Georgia. Synovus issued 850,269 shares
of common stock for all the issued and outstanding shares of Bank of Georgia.
On September 1, 1998, Synovus completed the acquisition of the $348 million
asset Community Bank Capital Corporation (CBCC). CBCC is the parent company of
the Bank of North Georgia, located in Alpharetta, Georgia. Synovus issued
3,774,531 shares of common stock for all the issued and outstanding shares of
CBCC.
The aforementioned three acquisitions have been accounted for as poolings of
interests, except that the financial information preceding the dates of
acquisition have not been restated to include the financial position and results
of operations of these acquired entities since the effect was not material. Net
income for the six months ended June 30, 1998 would have been increased by $3.4
million if the previous periods had been restated.
Note E - Operating Segments
Synovus has two reportable segments: banking operations and computerized data
processing. The banking operations segment is predominately involved in
commercial banking activities and also provides retail banking, trust, mortgage,
and brokerage services. The data processing segment consists of TSYS'
operations, which consist primarily of credit, debit, commercial and
private-label card processing. All inter-segment services provided are charged
at the same rates as those charged to unaffiliated customers. Such services are
included in the revenues and net income of the respective segments and are
eliminated to arrive at consolidated totals.
Segment information as of and for the three and six months ended June 30, 1999
and 1998 is presented below:
Three months ended June 30, 1999
<TABLE>
<CAPTION>
Data
(In thousands) Banking Processing
Operations (c) Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income and non- 1999 $249,069 139,987 (1,938)(a) $387,118
interest income 1998 225,187 94,225 (894)(a) 318,518
Income before taxes 1999 55,034 27,995 (3,543)(b) 79,486
1998 53,606 17,258 (2,243)(b) 68,621
Income tax expense 1999 19,007 9,560 -0- 28,567
1998 18,801 5,608 -0- 24,409
Net Income 1999 36,027 18,435 (3,543)(b) 50,919
1998 34,805 11,650 (2,243)(b) 44,212
Total Assets 1999 10,811,137 396,137 (32,762)(d) 11,174,512
1998 9,088,673 318,194 (36,596)(d) 9,370,271
(a) Principally, computerized data processing service revenues provided to the
banking segment.
(b) Minority interest in the computerized data processing segment.
(c) Includes equity in income of joint ventures, which is included in
other operating income.
(d) Primarily TSYS' cash deposits with the banking operations segment.
</TABLE>
Six months ended June 30, 1999
<TABLE>
<CAPTION>
Data
(In thousands) Banking Processing
Operations (c) Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Interest income and non- 1999 $ 493,637 257,411 (3,338)(a) $ 747,710
interest income 1998 446,881 192,572 (1,662)(a) 637,791
Income before taxes 1999 112,799 47,326 (6,032)(b) 154,093
1998 104,413 32,598 (4,217)(b) 132,794
Income tax expense 1999 39,043 15,942 -0- 54,985
1998 36,671 10,698 -0- 47,369
Net Income 1999 73,756 31,384 (6,032)(b) 99,108
1998 67,742 21,900 (4,217)(b) 85,425
Total Assets 1999 10,811,137 396,137 (32,762)(d) 11,174,512
1998 9,088,673 318,194 (36,596)(d) 9,370,271
(a) Principally, computerized data processing service revenues provided to the
banking segment.
(b) Minority interest in the computerized data processing segment.
(c) Includes equity in income of joint ventures, which is included in
other operating income.
(d) Primarily TSYS' cash deposits with the banking operations segment.
</TABLE>
Note F - Legal Proceedings
Synovus and its subsidiaries are 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; (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; and (3) the receipt of commissions by that Synovus
subsidiary in connection with the sale of credit life insurance to its consumer
credit customers and the charging of an interest surcharge and a processing fee
in connection with consumer loans made by that subsidiary. 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.
On November 10, 1998, a class action complaint was filed against NationsBank of
Delaware, N.A., in the United States District Court for the Southern District of
Mississippi. On March 23, 1999, the named plaintiff amended the complaint and
named TSYS and certain credit bureaus as defendants in the case. The named
plaintiff alleges, among other things, that the defendants failed to report
properly the credit standing of each member of the putative class. The named
plaintiff has defined the class as all persons and entities within the United
States who obtained credit cards from NationsBank, and whose accounts were
purchased by or transferred to U.S. BankCard, and whose accounts were improperly
reported to credit bureaus or credit agencies. The amended complaint alleges
negligence, violation of the Fair Credit Reporting Act, breach of the duty of
good faith and fair dealing, and seeks declaratory relief, injunctive relief,
and the imposition of punitive damages. TSYS intends to vigorously contest this
lawsuit, which seeks unspecified damages. This litigation has just commenced,
and discovery is still in its initial phase; thus, TSYS is not in a position to
determine the possible exposure, if any, to TSYS.
Note G - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments on the balance sheet at fair value. The accounting for
changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately. If
the derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.
For Synovus, SFAS No. 133, as amended by SFAS No. 137, is effective January 1,
2001. On adoption, the provisions of SFAS No. 133 must be applied prospectively.
Synovus is in the process of assessing the impact that SFAS No. 133 will have on
its financial statements.
Note H - Other
Certain amounts in 1998 have been reclassified to conform to the presentation
adopted in 1999.
Note I- Pending Acquisitions
On June 28, 1999, Synovus signed a definitive merger agreement to acquire the
$306 million asset Merit Holding Corporation for stock. Merit Holding
Corporation, a multi-bank holding company based in Tucker, Georgia, was formed
in 1994 from the merger of two community banks, Mountain National Bank in
Tucker, Georgia, and Charter Bank & Trust Co. in Marietta, Georgia. Mountain
National Bank operates three full-service offices in Tucker, Stone Mountain, and
Norcross, Georgia, in addition to Merit Leasing Corporation, a wholly owned,
full-service equipment leasing company. Charter Bank & Trust Co. operates three
full-service offices, two in Cobb County and one in North Fulton County. The
acquisition will be accounted for under the pooling of interests method and is
expected to be completed during the third quarter of 1999.
On July 27, 1999, Synovus signed a definitive merger agreement to acquire Ready
Bank of Fort Walton Beach Holding Company, the parent company of the $73 million
asset Ready Bank of West Florida. Ready Bank has two banking centers in Fort
Walton Beach and Crestview, Florida. Ready Bank will be merged into Vanguard
Bank & Trust Company, Valparaiso, Florida, an existing affiliate of Synovus.
The acquisition will be accounted for under the pooling of interests method and
is expected to be completed during the fourth quarter of 1999.
On August 6, 1999, Synovus signed a definitive agreement to acquire the debt
collection and bankruptcy management business offered by Wallace & de Mayo, a
firm based in Norcross, Georgia. Synovus will issue $43,400,000 in common stock
for all of the outstanding common stock of Wallace & de Mayo. The number of
Synovus shares to be exchanged will be determined by the Average Closing Price
of Synovus common shares, as defined in the agreement. The transaction is
expected to be completed in the third quarter of 1999 and will be accounted for
under the pooling of interests method.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
As revenues for the six months ended June 30, 1999 increased 21.1% over the same
period in 1998, net income was $99.1 million, up 16.0% from the same period a
year ago. Diluted net income per share increased to $.36 for the first six
months of 1999 as compared to $.32 for the same period in 1998. Return on
average assets was 1.88% and return on average equity was 18.17% for the six
months ended June 30, 1999. This compares to a return on average assets of 1.86%
and a return on average equity of 18.55% for the first six months of 1998.
Revenues for the three months ended June 30, 1999 increased 26.4% over the same
period in 1998 and net income was $50.9 million, up 15.2% from the same period a
year ago. Diluted net income per share increased to $.19 for the second quarter
of 1999 as compared to $.17 for the same period in 1998. Return on average
assets was 1.89% and return on average equity was 18.44% for the three months
ended June 30, 1999. This compares to a return on average assets of 1.90% and a
return on average equity of 18.93% for the second quarter of 1998.
During the third and fourth quarters of 1998, Synovus completed three bank
acquisitions which were accounted for as poolings of interests; however,
financial information preceding the dates of acquisition have not been restated
since the effect was not material. Net income for the six months ended June 30,
1998 would have been increased by $3.4 million if the previous periods had been
restated.
Acquisitions
On January 31, 1999, Synovus issued 333,163 shares of common stock to acquire
the remaining 80% interest in Canterbury Trust Company, Inc., which provides
trust, custody, investment and consulting services to large institutional
clients. The acquisition was accounted for as a purchase resulting in goodwill
of $5.5 million which will be amortized on a straight-line basis over fifteen
years.
On June 28, 1999, Synovus signed a definitive merger agreement to acquire the
$306 million asset Merit Holding Corporation for stock. Merit Holding
Corporation, a multi-bank holding company based in Tucker, Georgia, was formed
in 1994 from the merger of two community banks, Mountain National Bank in
Tucker, Georgia, and Charter Bank & Trust Co. in Marietta, Georgia. Mountain
National Bank operates three full-service offices in Tucker, Stone Mountain, and
Norcross, Georgia, in addition to Merit Leasing Corporation, a wholly owned,
full-service equipment leasing company. Charter Bank & Trust Co. operates three
full-service offices, two in Cobb County and one in North Fulton County. The
acquisition will be accounted for under the pooling of interests method and is
expected to be completed during the third quarter of 1999.
On July 27, 1999, Synovus signed a definitive merger agreement to acquire Ready
Bank of Fort Walton Beach Holding Company, the parent company of the $73 million
asset Ready Bank of West Florida. Ready Bank has two banking centers in Fort
Walton Beach and Crestview, Florida. Ready Bank will be merged into Vanguard
Bank & Trust Company, Valparaiso, Florida, an existing affiliate of Synovus. The
acquisition will be accounted for under the pooling of interests method and is
expected to be completed during the fourth quarter of 1999.
On August 6, 1999, Synovus signed a definitive agreement to acquire the debt
collection and bankruptcy management business offered by Wallace & de Mayo, a
firm based in Norcross, Georgia. Synovus will issue $43,400,000 in common stock
for all of the outstanding common stock of Wallace & de Mayo. The number of
Synovus shares to be exchanged will be determined by the Average Closing Price
of Synovus common shares, as defined in the agreement. The transaction is
expected to be completed in the third quarter of 1999 and will be accounted for
under the pooling of interests method.
Balance Sheet
During the first six months of 1999, total assets increased $676.5 million,
resulting from net loan growth of $552.4 million. Providing the necessary
funding for the balance sheet growth during the first six months of 1999,
Synovus' deposit base grew $423.0 million, federal funds purchased and
securities sold under agreement to repurchase increased $168.4 million and
shareholders' equity increased $38.1 million.
Asset Quality
As measured by asset quality indicators, Synovus' asset quality remains strong.
During the first six months of 1999, non-performing loans, consisting of
nonaccrual and restructured loans, as well as loans past due greater than ninety
days and still accruing, decreased $4.6 million, while net loans increased
$552.4 million or 7.5%. Synovus' nonperforming assets ratio was .40% as of June
30, 1999, which decreased one basis point from December 31, 1998. Annualized net
charge-offs to average loans for the six months ended June 30, 1999 were .31%
compared to .33% during the first six months of 1998 and .37% for the entire
year in 1998. Net charge-offs to average loans for the quarter ended June 30,
1999, were .27% compared to .36% during the second quarter of 1998. Net credit
card charge-offs represented 50% of total net charge-offs for each of the six
months ended June 30, 1999 and 1998. Synovus' overall credit risk profile has
continued to improve with credit card loans representing only 2.9% of total
outstandings at June 30, 1999 compared to 3.5% and 3.9% at December 31, 1998 and
June 30, 1998, respectively.
Loans 90 days past due and still accruing at June 30, 1999, were $17.6 million,
or .22% of total loans, compared to $24.6 million, or .33% of total loans at
December 31, 1998, which is a decrease of $7.0 million, or 28.5%. Management
believes that the value of the underlying collateral securing these 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 was $115.5 million, or 1.45% of net loans, at June
30, 1999, compared to $110.8 million, or 1.50% of net loans, at December 31,
1998. The provision for loan losses for the six months ended June 30, 1999 was
$16.6 million, compared to $14.6 million for the same period in 1998. The higher
provision expense was due to the increase in loan volume, partially offset by
the continued improvement in asset quality.
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans $ 23,396 20,985
Other real estate 8,533 9,348
- --------------------------------------------------------------------------------
Non-performing assets $ 31,929 30,333
================================================================================
Loans 90 days past due and still accruing $ 17,575 24,628
================================================================================
Reserve for loan losses $ 115,534 110,822
================================================================================
Reserve for loan losses as a % of loans 1.45% 1.50
================================================================================
As a % of loans and other real estate:
Nonperforming loans 0.29% 0.28
Other real estate 0.11 0.13
- --------------------------------------------------------------------------------
Non-performing assets 0.40% 0.41
================================================================================
Reserve to nonperforming loans 493.82% 528.12
================================================================================
</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 $1.259
billion at June 30, 1999, compared to $1.187 billion at December 31, 1998. The
ratio of total risk-based capital to risk-weighted assets was 13.54% at June 30,
1999 compared to 13.75% at December 31, 1998. Synovus' leverage ratio at the end
of the second quarter of 1999 was 10.60% compared to 10.76% at the end of 1998.
Synovus' equity-to-assets ratio was 9.92% at June 30, 1999 compared to 10.20% at
year-end 1998.
Internal capital generation continues to support asset growth, as reflected in
the second quarter 1999 equity-to-asset ratio exclusive of net unrealized gains
(losses) on investment securities available for sale of 10.02%, compared to
10.09% at year-end 1998.
Synovus' liquidity position and sources of funds have not changed significantly
since December 31, 1998. Synovus' liquidity ratio at June 30, 1999 was 33.42%
compared to 40.18% at December 31, 1998, with the decrease being primarily due
to strong loan growth. Additionally, the maturity mix of investment securities
and loans has not changed significantly during the first six months of 1999.
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 $1.6
billion, that can be drawn upon for short-term liquidity needs. Synovus also has
access to a $25 million line of credit.
In 1997, Total System Services, Inc. (TSYS), Synovus' 80.8% owned subsidiary,
began construction of 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. 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 began moving personnel into the new campus facility in December 1998,
and should complete the move of a substantial number of its personnel into the
new facility by the end of the third quarter of 1999. With the move to the
campus, TSYS will not renew leases on certain facilities. TSYS expects the
increase in occupancy and equipment expense related to occupying the campus to
be approximately $5.3 million in 1999, net of the relinquished lease
obligations.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $212.9 million during the first six months of 1999, while $615.6
million was provided by financing activities. Investing activities utilized
$764.1 million of this amount, resulting in an increase in cash and cash
equivalents of $64.3 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 1999 were $10.7 billion, up
14.8% over the first six months average of 1998, which was $9.3 billion. Average
assets for the six months ended June 30,1998 would have increased by
approximately $575 million if 1998 financial statements had been restated for
the bank acquisitions completed during the second half of 1998. Average earning
assets were up 14.5% in the first half of 1999 over the same period a year ago
and represented 90.7% of average total assets. When compared to the same period
last year, average deposits increased $767.3 million, average shareholders'
equity increased $171.2 million, and average federal funds purchased and
securities sold under agreement to repurchase increased $387.3 million. This
growth provided the funding for the $1 billion growth in average net loans, the
$182.2 million increase in average investment securities, partially offset by
the $32.3 million decrease in average federal funds sold.
Net interest income was $238.7 million for the six months ended June 30, 1999,
up $24.7 million, or 11.6%, over the $214 million reported in the six months
ended June 30, 1998. Net interest income, on a tax-equivalent basis, for the
first half of 1999 increased $25.1 million, or 11.6%, over the same period in
1998.
Net interest income was $122.0 million for the second quarter of 1999, up $14.1
million, or 13.0%, over the $107.9 million reported for the second quarter of
1998. Net interest income, on a tax-equivalent basis, for the second quarter of
1999 increased $14.3 million, of 13.1%, over the second quarter of 1998. Net
interest income for the six and three months ended June 30, 1998 would have
increased by $12.1 million and $6.2 million, respectively, if the previous
periods had been restated for the bank acquisitions completed during the second
half of 1998.
The year-to-date net interest margin was 5.08%, down fourteen basis points from
the same period last year. This decrease resulted from a forty-four basis point
decrease in the yield on earning assets, which was partially offset by a thirty
basis point decrease in the effective cost of funds. The decreased yield on
earning assets was due to lower yields on investment securities and loans. The
decreased loan yields were primarily due to a seventy-five basis point decrease
in the average prime rate from the first six months of 1998 compared to the
first six months of 1999. The decreased effective cost of funds was due to lower
average rates paid on interest-bearing funding.
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.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
- -----------------------------------------------------------------------------------
(In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 410,318 376,022 209,113 189,067
Taxable-equivalent adjustment 2,822 2,452 1,461 1,255
- -----------------------------------------------------------------------------------
Interest income, taxable-equivalent 413,140 378,474 210,574 190,322
Interest expense 171,579 162,020 87,104 81,127
- -----------------------------------------------------------------------------------
Net interest income, taxable-equivalent $ 241,561 216,454 123,470 109,195
===================================================================================
</TABLE>
Non-Interest Income
Total non-interest income during the first six months of 1999 increased $75.6
million, or 28.9%, over the same period in 1998. This increase in non-interest
income resulted primarily from higher data processing revenues, which increased
$57.4 million, or 33.2%, during the six months ended June 30, 1999, over the
same period in 1998. Synovus started building The New Bank in 1996; a strategy
based on the belief that our customers' expectations and financial needs were
changing rapidly and dramatically. One of The New Bank components is modernized,
more responsive financial products like annuities, trust services, mortgage, and
brokerage. Synovus banks are offering these services now. During the first six
months of 1999, the banking operations segment experienced significant increases
in mortgage revenues (up $2 million or 21.3%), fees for trust services (up $2.6
million or 36.3%), credit card fees (up $1.1 million or 19.5%), and brokerage
revenues (up $1.7 million or 30.3%). Additionally, other operating income for
the first six months of 1999 included a $2.6 million gain from the sale of a
corporate investment.
Total non-interest income during the quarter ended June 30, 1999, increased
$48.6 million, or 37.5%, over the second quarter of 1998. The increase in
non-interest income resulted primarily from higher data processing revenues,
which increased $42.1 million, or 50.2%, during the quarter ended June 30, 1999,
over the same period in 1998. Non-interest income for the six and three months
ended June 30, 1998 would have increased by $3.8 million and $1.9 million
respectively, if the previous periods had been restated for the bank
acquisitions completed during the second half of 1998.
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 $50.4 million, or
30.4%, for the six months ended June 30, 1999, compared to the same period in
1998. Increased revenues from bankcard data processing services are attributable
to the growth in the card portfolios of existing customers, as well as
cardholder accounts of new customers. Increases in the volumes of authorizations
and transactions associated with the additional cardholder accounts also
contributed to the increased revenues. Processing contracts with large
customers, representing a significant portion of TSYS' total revenues, generally
provide for discounts on certain services based on increases in the level of
cardholder accounts processed. As a result, bankcard data processing revenues
and the related margins are influenced by the customer mix relative to the size
of customer bankcard portfolios, as well as the number of individual cardholder
accounts processed for each customer.
In May 1998, TSYS signed a long-term processing agreement with Sears, Roebuck
and Co. to convert and process its private-label credit card portfolio. In April
1999, the conversion of the Sears portfolio was completed. The accounts
converted in 1999, combined with the 7.5 million converted in the fourth quarter
of 1998, bring the total accounts for Sears to 65 million.
During the second quarter of 1999, TSYS received a one-time termination fee of
$6.9 million from a client which terminated its processing agreement with TSYS
as a result of its merger with a financial institution that processes in-house.
The payment is in lieu of processing fees which would have been paid throughout
the remaining life of the processing contract.
A significant amount of TSYS' revenues is derived from long-term contracts with
large customers, including certain major customers. For the three and six months
ended June 30, 1999, two major customers accounted for approximately 28% and 30%
of total revenues, respectively, compared to 35% and 32% for the three and six
months ended June 30, 1998. The loss of either one of TSYS' major customers, or
other major or significant customers, could have a material adverse effect on
TSYS' financial condition and results of operations.
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, now a part
of Citigroup after CITIBANK's merger with Travelers Group, Inc. On February
26,1999, CITIBANK notified TSYS of its decision to terminate UCS' processing
agreement with TSYS for consumer credit card accounts at the end of its original
term on August 1, 2000. TSYS' management believes that CITIBANK will continue to
be a major customer in 1999, but will not be a major customer in 2000. TSYS'
management further believes that the loss of revenues from UCS for the months of
August through December 2000, combined with decreased expenses from the
reduction in hardware and software and the redeployment of personnel, should not
have a material adverse effect on TSYS' financial condition or results of
operations for the year ending December 31, 2000.
Effective September 30, 1998, NationsBank and Bank of America merged. TSYS has
long-term processing contracts with each of these customers, with NationsBank's
ending in 2005 and Bank of America's ending in 2007, and is in the process of
assessing implications of the merger on the existing contracts with each
customer. The combination of NationsBank and Bank of America under a single
processing agreement with TSYS will reduce TSYS' revenues in 1999 and future
years because together NationsBank and Bank of America will be entitled to
receive greater discounts than either would have been entitled to receive
standing alone. Presently, negotiations to combine NationsBank and Bank of
America in a single processing agreement continue.
Non-Interest Expense
Total non-interest expense (excluding the minority interest in TSYS' net income)
for the six months ended June 30, 1999, increased $75.3 million, or 23.2%, over
the same period in 1998. Total non-interest expense for the second quarter of
1999 increased $48.1 million, or 30.1%, over the second quarter of 1998.
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 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
(In thousands) Banking TSYS Banking TSYS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $ 113,134 100,964 102,630 81,455
Net occupancy and equipment expenses 27,018 69,432 23,266 49,749
Other operating expenses 48,767 40,137 36,707 30,355
- --------------------------------------------------------------------------------
Total non-interest expense $ 188,919 210,533 162,603 161,559
================================================================================
</TABLE>
Banking operations' non-interest expense increased $26.3 million or 16.2% for
the six months ended June 30, 1999, compared to the same period in 1998. During
the second quarter of 1999, non-interest expense increased $13.5 million or
16.5% for the same period in 1998. The overall increase in banking operations'
non-interest expense is affected by the significant investments that we have
made. Such investments include expenses associated with the building of The New
Bank (which is now officially complete), the conversion of our banks to a new
information technology processing system (which was completed during March
1999), and our human resource initiatives through PDE (Personally Developing
EveryONE) which has now been underway for a full year. With The New Bank and
system conversions now completed, we estimate a lower rate of increase in
banking operations' non-interest expense in future quarters. Non-interest
expense for the six and three months ended June 30, 1998 would have increased by
$9.2 million and $4.6 million, respectively, if the previous periods had been
restated for the bank acquisitions completed during the second half of 1998.
Non-interest expense related to TSYS increased 30.3% and 44.4% for the six and
three months ended June 30, 1999, respectively, compared to the same periods in
1998. Employment expenses increased 24% for the six months ended June 30, 1999,
compared to the same period in 1998. The change in employment expenses consists
of an increase of $29.6 million associated with growth in the number of
employees, normal salary increases and related benefits, offset by $10.1 million
invested in software development costs and contract acquisition costs. The
majority of the software development costs were related to the development of a
commercial card system for TS2 which began in May 1998 and is expected to be
substantially completed in early 2000. The average number of employees in the
first six months of 1999 increased to 3,803, a 17.4% increase over the same
period of 1998.
Net occupancy and equipment expense at TSYS increased 39.6% and 44.6% for the
six and three months ended June 30, 1999, respectively, over the same periods in
1998. Computer equipment and software rentals, which represent the largest
component of net occupancy and equipment expense, increased 53.8% to $19.8
million in the second quarter of 1999, compared to $12.9 million in the same
period of 1998. During the first six months of 1999, computer equipment and
software rentals increased 44.0% to $36.4 million compared to $25.3 million in
the same period in 1998. Due to rapidly changing technology in computer
equipment, TSYS' equipment needs are achieved primarily through operating
leases. During 1998 and the first half of 1999, TSYS made significant
investments in computer software licenses and hardware related to the new East
Center data center and to accommodate increased volumes due to the expected
growth in the number of accounts associated with new customers.
Other operating expenses at TSYS increased 32.2% and 63.4% for the six and three
months ended June 30,1999, respectively, compared to the same periods in 1998.
The growth in other operating expenses for 1999 is primarily due to increased
business development costs associated with exploring new business opportunities,
both domestically and internationally, and increased amortization of conversion
costs. The conversions of Sears, Royal Bank, Canadian Tire Acceptance Limited
(CTAL), begun in March 1999 and completed early in the second quarter,
contributed to the increase in amortization of conversion costs.
Year 2000 Readiness Disclosure
Many computer programs were written with a two digit date field, and, if these
programs are not made Year 2000 compliant, they will be unable to correctly
process date information for the year 2000 and after. Through separate task
forces, Synovus is continuing its ongoing projects to assure its processing
systems will be 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 issues 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.
Banking Operations:
For the banks, the conversion of the core processing systems to Marshall &
Illsley Data Services (M&I) should provide for Year 2000 compliance for the core
applications, including loans, deposits, and sales platforms. M&I has completed
the Year 2000 renovation for its banking systems and is currently utilizing this
renovated code for all processing. During the first quarter of 1999, M&I
completed the testing phase. Since March 31, 1999, all Synovus banks are being
processed using the M&I Year 2000 renovated code. 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, have been
reviewed and all significant applications or infrastructure which need to be
modified have been identified and their renovation and testing is completed as
of June 30, 1999.
In August 1998, M&I received ITAA*2000 certification from the Information
Technology Association of America. The program examines processes and methods
used by companies to perform their year 2000 software conversions. In addition,
M&I's progress and plans are subject to periodic review and evaluation by
banking regulatory agencies. In August, 1998, M&I adopted a "Year 2000
Contingency Strategy" plan which follows all the Federal Financial Institutions
Examination Council's (FFIEC) guidelines. This plan includes an analysis of
"most reasonably likely year 2000 worst case scenarios" and M&I's planned
solutions to those scenarios. Examples of these scenarios and planned solutions
are, a power interruption at a data processing facility mitigated by an onsite
generator, and simultaneous disasters at all data processing locations mitigated
by use of a prearranged third party facility.
Business resumption contingency planning is underway at Synovus in accordance
with the FFIEC guidelines and progressing on schedule. This planning effort
addresses specific issues related to Year 2000 service interruptions.
Operational plans which will allow Synovus to operate in the event of the
disruption of services from mission critical service providers have been
completed and will be tested during the remaining months of 1999. Included in
the Synovus business resumption contingency planning are measures that address
liquidity and the ready availability of cash.
Based on currently available information, while management anticipates there
could be isolated and short-term disruptions of various services and interfaces
at its business sites, there is no expectation of extensive or protracted
systemic failures that would have a material adverse effect on the financial
condition or results of operations of Synovus.
TSYS:
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. As of December 31, 1998, TSYS had completed the
awareness, assessment, renovation, and validation phases of its Year 2000
project. During 1998, two major milestones were met. The first milestone, 100%
of all critical code converted, was achieved in April 1998. The second, 100% of
all non-critical code renovated, was completed in July 1998. As units were
renovated they were returned to production, and, as of December 31, 1998, TSYS
was fully operating in Year 2000 compliant systems. The validation phase at TSYS
included setting up a test environment, testing core system functionality and
providing test results to clients. It was during this phase that Turn of The
Century, Monthly Cycling, Leap Year and Millennium Year, and Month and
Quarter-end dates were tested. This phase concluded during October, 1998 and
results were sent to customers in November and December 1998. The implementation
phase, which allows clients the opportunity to test their specific code within a
Year 2000 environment, began in 1998. As of June 30,1999 two clients test
iterations were completed, the third test iteration is well underway, and the
TSYS contingency plan was developed, validated and completed. Clients were
allowed to test in the stand-alone testing environment during the third
iteration until August 2, 1999.
Another significant aspect of the Year 2000 project is contingency planning,
which is a process to ensure that TSYS can continue operations in the event that
information technology systems, noninformation technology systems, or vendors
are not Year 2000 compliant. In June 1999, TSYS completed its Business
Resumption Contingency Plan, or Y2K Day Plan, which is based on the TSYS
Disaster Recovery Plan. This plan sets forth processes and procedures to follow
in case TSYS experiences a problem with processing Year 2000 data or if
mission-critical service providers suffer disruption. The plan was validated by
a walk through and a role play during June 1999. An abbreviated version of the
plan was shared with clients in July 1999. A client forum to discuss the Y2K Day
Plan is scheduled for August 1999. The plan includes the following:
TSYS programming staff will be on site to immediately remediate any coding
issues encountered. The Year 2000 Communication Center will act as the nerve
center during the century changeover, monitoring processing status of over 88
business areas through 12 command posts, conveying management decisions, and
deploying resources where required.
If a power loss is experienced for any reason at TSYS Data Centers which house
mainframe and associated hardware, all of TSYS' critical systems would be
powered through battery backup and diesel generators without experiencing any
downtime. This process, referred to as TSYS' Uninterrupted Power Supply system,
has enough fuel for 72 hours. TSYS has contracts with two separate fuel
distributors to ensure that its operations could continue indefinitely. The fuel
companies have backup generators in case of a power failure to keep their fuel
pumps operational.
TSYS has service agreements with IBM's Global Services to provide, through its
business unit, Business Recovery Services, hot-site assistance and equipment for
data center and network recovery in case of a natural or man-made disaster.
Also, TSYS has contracts with other companies to receive immediate service
and/or top priority in an emergency situation. Additionally, vendor technicians
for key equipment will be on site for the period of December 31, 1999 through
January 3, 2000.
TSYS management believes that the most likely Year 2000 risks relate to third
parties with which it has material relationships. A failure or disruption of (i)
TSYS' mission-critical computer systems caused by third-party hardware/software,
(ii) third-party service/network/gateway providers, or (iii) significant clients
for an extended period, could adversely affect the financial condition and
results of operations of TSYS. TSYS' Year 2000 Project Office has reviewed
compliance and tested with TSYS' top 11 customers defined either by number of
accounts on file and/or by revenues generated and found them to be Year 2000
ready. Management believes its internal review indicates that TSYS'
mission-critical systems are Year 2000 ready; however, failure of a mission
critical third-party provider could have a material adverse effect on TSYS'
business, operations and financial results. However, based on currently
available information, while management anticipates there could be isolated and
intermittent disruptions of various services and interfaces at its business
sites related to third parties with which it has material Year 2000
relationships, there is no expectation of extensive or protracted systemic
failures that would have a material adverse effect on the financial condition or
results of operations of TSYS.
The majority of Synovus' costs in becoming Year 2000 compliant are related to
TSYS. Such costs are being expensed as incurred and are not expected to have a
material effect on Synovus' financial condition or results of operations for
1999. TSYS currently estimates the total cost for the Year 2000 project will
amount to approximately $18 million of direct costs. This amount consists
primarily of the costs associated with personnel dedicated to the Year 2000
project. During the first six months of 1999, TSYS incurred $3.7 million of
direct costs associated with the Year 2000 project and has incurred $12.7
million since project inception. The banking operations' Year 2000 remediation
costs, other than those related to the conversion to M&I, are not material.
Synovus estimates that the total cost for its banking operations Year 2000
project will be approximately $2.5 million (approximately $1.4 million incurred
in 1998, with the remainder to be incurred during 1999). These costs are
exclusive of the costs associated with the conversion to the M&I system and
consist primarily of direct personnel costs and customer notifications. The
failure of Synovus or TSYS to be Year 2000 compliant would have a material
adverse effect on Synovus' financial condition and results of operations.
The costs of the projects 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
and the cooperation of customers and vendors. However, there are no guarantees
that these estimates will be achieved and actual results could differ materially
from those anticipated.
All forward-looking statements regarding Year 2000 readiness, including
estimates, forecasts and expectations, are inherently uncertain as they are
based on various expectations and assumptions concerning future events and are
subject to numerous risks and uncertainties which could cause actual events or
results to differ materially from those projected. Important factors upon which
Synovus' Year 2000 forward-looking statements are premised include: (a)
retention of employees and contractors working on Year 2000 projects; (b) TSYS
customers' remediation of their internal systems to be Year 2000 ready and their
cooperation in timely testing; (c) no material disruption of telecommunication,
data transmission networks, payment networks, government services, utilities or
other infrastructure services and no unexpected failure of third-party products;
(d) no unexpected failures by third-parties providing services to Synovus; (e)
no undiscovered subversion of systems or program code affecting Synovus'
systems; and (f) no undiscovered material flaws in Synovus' test processes.
Income Tax Expense
Income tax expense for the six months ended June 30, 1999, was $55 million
compared to $47.4 million for the same period a year ago. Income tax expense for
the second quarter of 1999 was $28.6 million compared to $24.4 million in the
second quarter of 1998. The effective tax rate for the first six months of 1999
and 1998 was 35.7% for both periods.
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 its 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
(including "Year 2000" data systems compliance issues) are more difficult or
expensive than anticipated; (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, the Financial Accounting Standards Board, or
other authoritative bodies; (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' 1998 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 22, 1999. Following is a
summary of the proposal that was submitted to the shareholders for approval.
The proposal was to elect six nominees for Class II directors of Synovus to
serve until the 2002 Annual Meeting of Shareholders. The six nominees for
election as Class II 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 II 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 II directors was
elected.
<TABLE>
<CAPTION>
Withheld
Nominee Votes For Authority to Vote
------- --------- -----------------
<S> <C> <C>
Richard E. Anthony 961,837,258 1,238,719
Joe E. Beverly 961,856,531 1,219,447
Walter M. Deriso, Jr. 961,789,169 1,286,809
Mason H. Lampton 961,762,789 1,313,189
Elizabeth C. Ogie 961,751,652 1,324,326
Melvin T. Stith 961,277,123 1,798,855
</TABLE>
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule (for SEC purposes only, not enclosed
herewith)
(b) Report on Form 8-K
The following report on Form 8-K was filed during or subsequent to the
second quarter of 1999.
(1) The report filed on April 28, 1999, included the following event:
On April, 27, 1999, the Synovus Board of Directors renewed its Shareholder
Rights plan to take effect when the existing plan expires on May 4, 1999.
Under the new plan, Rights will be distributed as a dividend at the rate of
one Right for each share of common stock of Synovus held by shareholders of
record at the close of business on May 4, 1999. Each Right will entitle
shareholders to buy, upon occurrence of certain events, one share of common
stock for $225.
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, 1999 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 27
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 30,1999 Three Months Ended June 30, 1998
----------------------------------- ---------------------------------
Net Average Net Income Net Average Net Income
Income Shares Per Share Income Shares Per Share
------ --------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
EPS - Basic $50,919 271,182 $ 0.19 $ 44,212 263,073 $ 0.17
Effect of dilutive options 3,655 4,717
------- ------- -------- -------
EPS - Diluted $50,919 274,837 $ 0.19 $ 44,212 267,790 $ 0.17
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,1999 Six Months Ended June 30, 1998
----------------------------------- ---------------------------------
Net Average Net Income Net Average Net Income
Income Shares Per Share Income Shares Per Share
------ --------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
EPS - Basic $99,108 270,916 $ 0.37 $ 85,425 262,999 $ 0.32
Effect of dilutive options 4,043 3,877
------- ------- -------- -------
EPS - Diluted $99,108 274,959 $ 0.36 $ 85,425 266,876 $ 0.32
========================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. AS OF
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 412,708
<INT-BEARING-DEPOSITS> 988
<FED-FUNDS-SOLD> 22,626
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,624,171
<INVESTMENTS-CARRYING> 289,127
<INVESTMENTS-MARKET> 289,277
<LOANS> 8,069,615
<ALLOWANCE> 115,534
<TOTAL-ASSETS> 11,174,512
<DEPOSITS> 8,965,769
<SHORT-TERM> 664,428
<LIABILITIES-OTHER> 186,566
<LONG-TERM> 191,085
0
0
<COMMON> 271,483
<OTHER-SE> 837,255
<TOTAL-LIABILITIES-AND-EQUITY> 11,174,512
<INTEREST-LOAN> 353,627
<INTEREST-INVEST> 55,905
<INTEREST-OTHER> 786
<INTEREST-TOTAL> 410,318
<INTEREST-DEPOSIT> 152,181
<INTEREST-EXPENSE> 171,579
<INTEREST-INCOME-NET> 238,739
<LOAN-LOSSES> 16,554
<SECURITIES-GAINS> 715
<EXPENSE-OTHER> 405,484
<INCOME-PRETAX> 154,093
<INCOME-PRE-EXTRAORDINARY> 99,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,108
<EPS-BASIC> .37
<EPS-DILUTED> .36
<YIELD-ACTUAL> 5.08
<LOANS-NON> 23,396
<LOANS-PAST> 17,575
<LOANS-TROUBLED> 377
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 110,822
<CHARGE-OFFS> 15,543
<RECOVERIES> 3,701
<ALLOWANCE-CLOSE> 115,534
<ALLOWANCE-DOMESTIC> 115,534
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 26,700
</TABLE>
