FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
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 October 31, 2000, 284,262,475 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share and per share data) 2000 1999
-------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 422,997 466,543
Interest earning deposits with banks 3,315 1,928
Federal funds sold 128,836 92,093
Mortgage loans held for sale 107,957 83,145
Investment securities available for sale 1,768,400 1,716,678
Investment securities held to maturity 275,752 277,279
Loans 10,472,173 9,077,516
Less unearned income (17,174) (9,277)
Less reserve for loan losses (143,974) (127,558)
-------------- ----------------
Loans, net 10,311,025 8,940,681
-------------- ----------------
Premises and equipment, net 476,205 437,309
Other assets 610,670 531,345
-------------- ----------------
Total assets $ 14,105,157 12,547,001
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,592,184 1,625,313
Interest bearing 8,831,457 7,814,774
Total deposits 10,423,641 9,440,087
Federal funds purchased and securities sold under agreement
to repurchase 1,305,299 1,261,391
Long-term debt 667,387 318,620
Other liabilities 287,992 235,949
-------------- ----------------
Total liabilities 12,684,319 11,256,047
-------------- ----------------
Minority interest in consolidated subsidiaries 77,298 64,285
Shareholders' equity:
Common stock - $1.00 par value;
Authorized 600,000,000 shares; issued
284,354,241 in 2000 and 282,189,425 in 1999; outstanding
284,178,977 in 2000 and 282,014,161 in 1999 284,354 282,189
Surplus 100,366 79,190
Less treasury stock - 175,264 shares in 2000 and 1999 (1,285) (1,285)
Less unamortized restricted stock (653) (1,293)
Accumulated other comprehensive loss (16,315) (30,134)
Retained earnings 977,073 898,002
-------------- ----------------
Total shareholders' equity 1,343,540 1,226,669
-------------- ----------------
Total liabilities and shareholders' equity $ 14,105,157 12,547,001
============= ================
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- -----------------------
(In thousands, except per share data) 2000 1999 2000 1999
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 697,615 551,707 247,520 193,196
Investment securities:
U.S. Treasury and U.S. Government
agencies 62,716 60,207 20,973 20,713
Mortgage-backed securities 22,584 19,202 7,656 6,616
State and municipal 7,366 6,402 2,536 2,114
Other investments 2,465 2,168 845 732
Mortgage loans held for sale 5,968 6,018 2,423 1,759
Federal funds sold 4,013 1,611 1,551 492
Interest earning deposits with banks 106 61 60 21
---------- --------- --------- ---------
Total interest income 802,833 647,376 283,564 225,643
---------- --------- --------- ---------
Interest expense:
Deposits 299,761 238,116 112,565 82,514
Federal funds purchased and
securities sold under agreement to
repurchase 59,072 24,847 19,628 9,453
Long-term debt 25,210 7,415 11,130 3,042
---------- --------- --------- ---------
Total interest expense 384,043 270,378 143,323 95,009
---------- --------- --------- ---------
Net interest income 418,790 376,998 140,241 130,634
Provision for losses on loans 33,245 25,343 9,622 8,613
---------- --------- --------- ---------
Net interest income after provision
for losses on loans 385,545 351,655 130,619 122,021
---------- --------- --------- ---------
Non-interest income:
Data processing services 414,905 357,448 141,100 126,589
Service charges on deposit accounts 55,713 51,474 19,331 18,043
Fees for trust services 16,555 15,046 5,546 5,041
Credit card fees 13,158 10,672 4,878 3,948
Securities gains (losses), net 70 874 98 159
Other operating income 110,077 99,791 33,346 33,159
---------- --------- --------- ---------
Total non-interest income 610,478 535,305 204,299 186,939
---------- --------- --------- ---------
Non-interest expense:
Salaries and other personnel expense 373,819 333,628 125,117 113,359
Net occupancy and equipment expense 164,730 151,556 54,394 53,991
Other operating expenses 150,524 142,128 50,248 48,466
---------- --------- --------- ---------
Total non-interest expense 689,073 627,312 229,759 215,816
---------- --------- --------- ---------
Minority interest in subsidiaries
net income 12,317 9,289 3,692 3,257
Income before income taxes 294,633 250,359 101,467 89,887
Income tax expense 106,758 88,308 36,736 31,882
---------- --------- --------- ---------
Net income $ 187,875 162,051 64,731 58,005
========== ========= ========= =========
Net income per share:
Basic $ 0.66 0.58 0.23 0.21
========== ========= ========= =========
Diluted 0.66 0.57 0.23 0.21
========== ========= ========= =========
Weighted average shares outstanding:
Basic 283,260 279,381 284,149 279,694
========== ========= ========= =========
Diluted 286,319 282,670 287,392 282,806
========== ========= ========= =========
Dividends declared per share $ 0.33 0.27 0.11 0.09
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
(In thousands) 2000 1999
----------- -----------
<S> <C> <C>
Operating Activities
Net Income $ 187,875 162,051
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 33,245 25,343
Depreciation, amortization, and accretion, net 59,142 54,704
Deferred income tax expense 3,195 4,895
(Increase) in interest receivable (19,613) (12,497)
Increase in interest payable 17,540 2,298
Minority interest in subsidiaries net income 12,317 9,289
(Increase) decrease in mortgage loans held for sale (24,812) 55,728
Other, net 14,971 5,564
----------- -----------
Net cash provided by operating activities 283,860 307,375
----------- -----------
Investing Activities
Cash acquired from acquisition 2,877 1,842
Net (increase) in interest earning deposits with banks (1,387) (473)
Net (increase) in federal funds sold (36,743) (1,470)
Proceeds from maturities and principal collections of investment
securities available for sale 145,662 375,762
Proceeds from sales of investment securities available for sale 8,483 27,415
Purchases of investment securities available for sale (182,298) (587,796)
Proceeds from maturities and principal collections of investment
securities held to maturity 32,513 42,891
Purchases of investment securities held to maturity (31,125) (18,706)
Net increase in loans (1,437,036) (1,012,959)
Purchases of premises and equipment (96,519) (86,988)
Proceeds from disposals of premises and equipment 2,175 4,128
Net cash paid on sale of branches (41,835) -
Proceeds from sales of other real estate 7,471 5,290
Additions to contract acquisition costs (39,846) (3,812)
Additions to computer software (29,774) (42,520)
----------- -----------
Net cash used in investing activities (1,697,382) (1,297,396)
----------- -----------
Financing Activities
Net increase in demand and savings deposits 285,681 157,059
Net increase in certificates of deposit 774,600 320,875
Net increase in federal funds purchased and securities
sold under agreement to repurchase 43,824 506,879
Principal repayments on long-term debt (1,790) (1,812)
Proceeds from issuance of long-term debt 350,326 98,800
Dividends paid to shareholders (87,728) (74,361)
Proceeds from issuance of common stock 5,063 4,907
----------- -----------
Net cash provided by financing activities 1,369,976 1,012,347
----------- -----------
(Decrease) increase in cash and cash equivalents (43,546) 22,326
Cash and cash equivalents at beginning of period 466,543 373,376
----------- -----------
Cash and cash equivalents at end of period $ 422,997 395,702
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
Part I. Financial Information Number
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (unaudited)
Nine and Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) 5
Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information
Item 6. (a) Exhibits 20
(b) Reports on Form 8-K 20
Signature Page 21
Exhibit Index 22
(11) Statement re Computation of Per Share Earnings 23
(27) Financial Data Schedule (for SEC purposes only, not
enclosed herewith)
</TABLE>
<PAGE>
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 recurring
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' 1999 annual report previously filed on Form 10-K.
Note B - Supplemental Cash Flow Information
-------------------------------------------
For the nine months ended September 30, 2000 and 1999, Synovus paid income taxes
(net of refunds received) of $114.6 million and $80.0 million, and interest of
$366.6 million and $268.1 million, respectively.
Noncash investing activities consisted of loans of approximately $6.7 million
and $3.3 million, which were foreclosed and transferred to other real estate
during the nine months ended September 30, 2000 and 1999, 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
September 30, 2000 and 1999 was $79.6 million and $59.3 million, respectively.
Comprehensive income for the nine months ended September 30, 2000 was $201.7
million compared to $137.8 million for the nine months ended September 30, 1999.
Note D - Business Combinations
------------------------------
On May 31, 2000, Synovus completed the acquisition of ProCard, Inc.(R)(ProCard),
a leading provider of software and Internet tools designed to assist
organizations with the management of purchasing, travel and fleet card programs.
Synovus issued 1,415,053 shares of common stock for all of the outstanding
common stock of ProCard. The acquisition was accounted for as a pooling of
interests, except that the financial information preceding the date of
acquisition has not been restated to include the financial position and results
of operations of ProCard since the effect was not material.
Note E - Operating Segments
---------------------------
Synovus has two reportable segments: banking operations and transaction
processing services. The banking operations segment is predominately involved in
commercial banking activities and also provides retail banking, trust, mortgage,
insurance, and brokerage services. The transaction processing services segment
consists primarily of operations at Total System Services, Inc. (TSYS), which is
primarily credit, debit, commercial and private label card processing. The
transaction processing services segment also includes related services to banks
and other card issuing institutions, the debt collection and bankruptcy
management operations at TSYS Total Debt Management, Inc. (TDM), and the
software solutions for commercial card management programs offered by ProCard.
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 nine months ended September 30,
2000 and 1999 is presented below:
Three months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Transaction
Banking Processing
(In thousands) Operations Services (c) Eliminations Consolidated
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income and non- 2000 $329,606 161,419 (3,162) (a) $487,863
interest income 1999 267,812 147,147 (2,377) (a) 412,582
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Income before taxes 2000 74,002 31,157 (3,692) (b) 101,467
1999 66,085 27,059 (3,257) (b) 89,887
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Income tax expense 2000 26,138 10,598 - 36,736
1999 23,296 8,586 - 31,882
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Net Income 2000 47,864 20,559 (3,692) (b) 64,731
1999 42,789 18,473 (3,257) (b) 58,005
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total Assets 2000 13,645,409 547,936 (88,188) (d) 14,105,157
1999 11,581,678 435,475 (40,062) (d) 11,977,091
----------------------------------------------------------------------------------------------------------------
</TABLE>
Nine months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Transaction
Banking Processing
(In thousands) Operations Services (c) Eliminations Consolidated
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income and non- 2000 $945,678 476,580 (8,947) (a) $1,413,311
interest income 1999 773,218 415,178 (5,715) (a) 1,182,681
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Income before taxes 2000 206,741 100,209 (12,317) (b) 294,633
1999 182,859 76,789 (9,289) (b) 250,359
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Income tax expense 2000 72,281 34,477 - 106,758
1999 63,780 24,528 - 88,308
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Net Income 2000 134,460 65,732 (12,317) (b) 187,875
1999 119,079 52,261 (9,289) (b) 162,051
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Total Assets 2000 13,645,409 547,936 (88,188) (d) 14,105,157
1999 11,581,678 435,475 (40,062) (d) 11,977,091
---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Principally, computerized data processing services revenues provided to
the banking segment.
(b) Minority interest in TSYS and GP Network Corporation.
(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.
Note F - 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; (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 reported to
credit bureaus or credit agencies incorrectly in August 1998. 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. The parties have
reached a settlement of this litigation in principle which is subject to, among
other things, confirmatory due diligence to be conducted by the plaintiff's
counsel, negotiation, finalization and execution of the necessary settlement
documents, and court approval under Rule 23(e) of the Federal Rules of Civil
Procedure. Payments by TSYS to settle the litigation are not expected to be
material to TSYS' financial condition or results of operations and management
expects the settlement to be substantially covered by insurance.
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 and SFAS No. 138, 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 1999 have been reclassified to conform to the presentation
adopted in 2000.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the nine months ended September 30, 2000 was $187.9 million, up
15.9% from the same period a year ago. Revenues (excluding securities gains and
losses) increased 12.9% over the same period in 1999. Diluted net income per
share for the first nine months of 2000 was $0.66, an increase of 14% over $.57
per share for the same period in 1999. Return on average assets was 1.90% and
return on average equity was 19.56% for the nine months ended September 30,
2000. This compares to a return on average assets of 1.94% and a return on
average equity of 18.79% for the first nine months of 1999.
Net income for the three months ended September 30, 2000 was $64.7 million, up
11.6% from the same period a year ago, and revenues increased 8.5% over the same
period in 1999. Diluted net income per share was $0.23 for the third quarter, up
10% over $.21 for the same period in 1999. Return on average assets was 1.87%
and return on average equity was 19.54% for the three months ended September 30,
2000. This compares to a return on average assets of 1.98% and a return on
average equity of 19.65% for the third quarter of 1999.
Two major growth areas - fee income from TSYS and core commercial lending -
continue to be primary contributors to the excellent increases in revenues.
Continued credit quality and expense control management also positively impacted
the third quarter results.
Acquisitions
On May 31, 2000, Synovus completed the acquisition of ProCard, Inc.(R)(ProCard),
a leading provider of software and Internet tools designed to assist
organizations with the management of purchasing, travel and fleet card programs.
Synovus issued 1,415,053 shares of common stock for all of the outstanding
common stock of ProCard. The acquisition was accounted for as a pooling of
interests, except that the financial information preceding the date of
acquisition has not been restated to include the financial position and results
of operations of ProCard since the effect was not material.
On September 18, 2000, Synovus signed a definitive agreement to acquire, for
stock, the $212 million asset Carolina Southern Bank. Carolina Southern is
headquartered in Spartanburg, South Carolina, and operates four full service
offices in the Spartanburg area which will be merged with The National Bank of
South Carolina, the Synovus affiliate based in Columbia, South Carolina. The
acquisition is expected to be completed during the first quarter of 2001 and
will be accounted for under the pooling of interests method.
Balance Sheet
During the first nine months of 2000, total assets increased $1.6 billion,
resulting primarily from continued strong net loan growth of $1.4 billion or
20.4% annualized. Providing the necessary funding for the balance sheet growth
during the first nine months of 2000, Synovus' deposit base grew $983.6 million,
federal funds purchased and securities sold under agreement to repurchase
increased $43.9 million, long-term debt consisting primarily of Federal Home
Loan Bank (FHLB) advances increased $348.8 million, and shareholders' equity
increased $116.9 million.
Loans
Loan growth continues to be strong in most of our markets, although it tempered
slightly in the third quarter. Net loans grew by $380.3 million during the
quarter, or 15.3% annualized. Compared to September 1999, net loans have
increased 21.6%. The growth was led primarily by our banks in larger urban
markets.
Asset Quality
Credit quality continues to be strong. However, there has been some increase in
the non-performing asset and past due over 90 days ratios since year-end 1999,
when those ratios were at historically-low levels. At year-end 1999, the
non-performing asset ratio was at its lowest level in more than 20 years and the
past due over 90 days ratio was at a historically-low level as well.
The non-performing asset ratio was .53% at September 30, 2000, compared to .38%
at year-end 1999. Non-performing assets at September 30, 2000 included a
nationally syndicated credit of $7 million that filed for bankruptcy in the
third quarter. Without this credit the non-performing asset ratio would have
been .46%. The non-performing asset ratio at June 30, 2000 was .47%. Other
increases in non-performing assets since year-end 1999 are primarily related
to a few isolated credits and management does not believe that they are
representative of a systemic problem.
The net charge-off ratio for the three months ended September 30, 2000 was .24%
unchanged from the third quarter of 1999. For the year-to-date, the net
charge-off ratio was .23%, down from .29% for the same period a year ago. Loans
90 days past due and still accruing at September 30, 2000, were $37.6 million,
or .36% of total loans, up from $16.9 million, or .19% of total loans at
December 31, 1999. 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 $144.0 million, or 1.38% of net loans, at
September 30, 2000 compared to $127.6 million, or 1.41% of net loans, at
December 31, 1999. For the nine months ended September 30, 2000, the provision
for losses on loans was 1.98 times net charge-offs compared to a coverage of
1.47 times for the nine months ended September 30, 1999. The higher provision
expense was due to the large increase in loan volume.
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 2000 1999
-------------- ------------------- -------------------
<S> <C> <C>
Nonperforming loans $ 45,974 27,924
Other real estate 9,408 6,718
------------------- -------------------
Non-performing assets $ 55,382 34,642
=================== ===================
Loans 90 days past due and still accruing $ 37,602 16,878
=================== ===================
Reserve for loan losses $ 143,974 127,558
=================== ===================
Reserve for loan losses as a % of loans 1.38% 1.41
=================== ===================
As a % of loans and other real estate:
Nonperforming loans 0.44% 0.31
Other real estate 0.09 0.07
------------------- -------------------
Non-performing assets 0.53% 0.38
=================== ===================
Reserve to nonperforming loans 313.17% 456.80
=================== ===================
</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 $1.545
billion at September 30, 2000, compared to $1.411 billion at December 31, 1999.
The ratio of total risk-based capital to risk-weighted assets was 12.81% at
September 30, 2000 compared to 13.77% at December 31, 1999. The leverage ratio
at the end of the third quarter of 2000 was 10.19% compared to 10.52% at the end
of 1999. The equity-to-assets ratio was 9.53% at September 30, 2000 compared to
9.78% at year-end 1999. The consolidated equity-to-assets ratio, exclusive of
net unrealized gains (losses) on investment securities available for sale, was
9.61% at September 30, 2000, compared to 9.97% at year-end 1999.
Synovus' liquidity position decreased moderately to 26.90% at September 30,
2000, compared to 29.46% at December 31, 1999, due to the majority of earning
assets growth being in loans. Additionally, the maturity mix of investment
securities and loans has not changed significantly during the first nine months
of 2000.
During the nine months ended September 30, 2000, on an annualized basis, net
loans increased by 20.4% while deposits increased by 13.9%. Due to the continued
strong loan growth, our funding mix has continued to change during 2000,
compared to the funding mix we had at December 31, 1999. Accordingly, long-term
debt (primarily in the form of FHLB advances) and short-term fundings
(consisting mostly of federal funds purchased) increased by a total of $392.7
million when compared to December 31, 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 $2.1
billion, that can be drawn upon for short-term liquidity needs. Synovus also has
access to a $65 million line of credit.
On November 9, 2000, Synovus filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission relating to a planned public offering of
$200 million Senior Notes Due in 2005. Synovus intends to use the net proceeds
from this offering to repay borrowings outstanding under its line of credit and
for general corporate purposes. There can be no assurance that this offering
will be completed.
During the third quarter of 1999, TSYS officially opened the first phase of its
Riverfront Campus and completed moving its downtown employees to the facility.
TSYS is leasing the Riverfront Campus under an operating lease. The lease
provides for a residual value guarantee of up to $81.3 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 did not renew several leases at the end of
September 1999 and sold two of its vacated buildings. The Campus has allowed
TSYS to consolidate several locations into one facility to improve efficiencies.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $283.9 million during the first nine months of 2000, while $1.4
billion was provided by financing activities. Investing activities utilized $1.7
billion of this amount, resulting in a decrease in cash and cash equivalents of
$43.5 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first nine months of 2000 were $13.2 billion, up
18.1% over the first nine months of 1999. Average earning assets were up 18.7%
in the first nine months of 2000 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 $908.9 million, average federal funds purchased and
securities sold under agreement to repurchase increased $586.8 million, average
long-term debt consisting primarily of Federal Home Loan Bank advances increased
$319.9 million, and average shareholders' equity increased $129.4 million. This
growth provided the funding for the $1.7 billion growth in average net loans,
the $122.3 million increase in average investment securities and the $36.7
million increase in average federal funds sold.
Net interest income was $418.8 million for the nine months ended September 30,
2000, up $41.8 million, or 11.1% over the $377.0 million reported for the nine
months ended September 30, 1999. Net interest income, on a tax-equivalent basis,
for the first nine months of 2000 increased $41.9 million, or 11.1%, over the
same period in 1999.
Net interest income was $140.2 million for the third quarter of 2000, up $9.6
million, or 7.4%, over the $130.6 million reported for the third quarter of
1999. Net interest income, on a tax-equivalent basis, for the third quarter of
2000 increased $9.6 million, or 7.3%, over the third quarter of 1999.
The year-to-date net interest margin was 4.76%, down thirty-three basis points
from the same period last year. This decrease resulted from a thirty-eight basis
point increase in the yield on earning assets, which was offset by a seventy-one
basis point increase in the effective cost of funds. The increased yield on
earning assets was due to higher yields on investment securities, loans, and
federal funds sold. The increased loan yields were primarily due to a 127 basis
point increase in the average prime rate from the first nine months of 1999
compared to the first nine months of 2000. The increased effective cost of funds
was due to higher average rates paid on interest-bearing funding. Funding
pressure from very strong loan growth has required that we increase the
utilization of purchased funds, primarily federal funds, FHLB advances, and
wholesale certificates of deposit. While continued strong loan growth could
extend this pressure, we believe that our continued focus on growing core
deposits will mitigate this trend.
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>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
(In thousands) 2000 1999 2000 1999
--------------
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest income $ 802,833 647,376 283,564 225,643
Taxable-equivalent adjustment 4,492 4,336 1,471 1,451
----------------- ---------------- ---------------- ----------------
Interest income, taxable-equivalent 807,325 651,712 285,035 227,094
Interest expense 384,043 270,378 143,323 95,009
----------------- ---------------- ---------------- ----------------
Net interest income, taxable-equivalent $ 423,282 381,334 141,712 132,085
================= ================ ================ ================
</TABLE>
Non-Interest Income
Total non-interest income during the first nine months of 2000 increased $75.2
million, or 14.0%, over the same period in 1999. This increase in non-interest
income resulted primarily from higher transaction processing services revenues
which increased $55.8 million, or 13.7%, during the nine months ended September
30, 2000, over the same period in 1999. Transaction processing revenues as a
percentage of consolidated revenues were 45.4% up from 44.9% a year ago.
For the year-to-date, banking operations' non-interest income increased 12.9%,
or $16.6 million, compared to the same period a year ago. The growth in fee
income was led by credit card fees (up $2.5 million, or 23.3%), brokerage (up
$1.2 million, or 11.6%), trust services (up $1.6 million, or 10.5%), and service
charges on deposits (up $4.2 million, or 8.2%). Additionally, other operating
income for the first nine months of 2000 included a $6.6 million gain from the
sale of five bank branches in the first quarter of 2000 and in 1999 a $2.6
million gain from the sale of a corporate investment.
Total non-interest income during the quarter ended September 30, 2000, increased
$17.4 million, or 9.3%, over the third quarter of 1999. The increase in
non-interest income resulted primarily from higher transaction processing
services revenues, which increased $12.5 million, or 8.7%, during the quarter
ended September 30, 2000, over the same period in 1999. For the quarter, banking
operations' non-interest income grew 11.2%, with increases in trust service fees
of 10%, credit card fees of 24%, brokerage revenues of 9%, mortgage banking of
16%, and service charges on deposits of 7% over the third quarter 1999.
Transaction 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 $40.5
million, or 12.1%, for the nine months ended September 30, 2000 compared to the
same period in 1999. 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 converted to THE TOTAL SYSTEM(R).
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 the size and activity of customers' portfolios. 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 and
activity of individual cardholder accounts processed for each customer.
Average cardholder accounts on file for the nine months ended September 30, 2000
were 195.1 million, a 13.0% increase over the 172.6 million average cardholder
accounts on file for the same period last year. Cardholder accounts on file at
September 30, 2000, were 186.6 million, a 6.4% decrease compared to the 199.3
million accounts on file at September 30, 1999. The change in the number of
cardholder accounts on file from September 1999 to September 2000 included a
decrease of 36.4 million accounts related to the deconversion of and/or purging
of inactive accounts by certain customers, offset by internal growth of existing
customers of 22.1 million accounts, and approximately 1.6 million accounts of
new customers.
A significant amount of TSYS' revenues is derived from long-term contracts
with large customers, including certain major customers. For the three months
ended September 30, 2000 and 1999, TSYS had three major customers. The
three major customers for the quarter and nine months ended September 30, 2000
accounted for approximately 37.4% and 36.5% of total revenues, respectively. For
the three months ended September 30, 1999, TSYS also had three major customers
that accounted for 39.0%, or $53.6 million, of total revenues. For the nine
months ended September 30, 1999, TSYS had two major customers that accounted for
29.6% of total revenues, or $115.9 million. The loss of one of TSYS'
major customers, or other significant customers, could have a material adverse
effect on TSYS' financial condition and results of operations.
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. The deconversion of the consumer credit
accounts occurred during May 2000; however, TSYS continued to receive
contractually obligated minimum processing fees from UCS until August 1, 2000.
TSYS' management believes that CITIBANK will not be a major customer for the
year 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.
Non-Interest Expense
Total non-interest expense for the nine months ended September 30, 2000,
increased $61.8 million, or 9.8%, over the same period in 1999. Management
analyzes non-interest expense in two separate components: banking operations and
transaction processing services. The following table summarizes this data for
the first nine months of 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
------------------------------- ----------------------------------
Transaction Transaction
Processing Processing
(In thousands) Banking Services Banking Services
--------------
------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Salaries and other personnel expenses $ 182,892 190,927 166,973 166,655
Net occupancy and equipment expense 44,834 119,896 41,264 110,292
Other operating expenses 85,023 65,501 80,706 61,422
------------- --------------- --------------- -----------------
Total non-interest expense $ 312,749 376,324 288,943 338,369
============= =============== =============== =================
</TABLE>
Banking operations' non-interest expense increased $23.8 million, or 8.2%, for
the nine months ended September 30, 2000, compared to the same period in 1999.
During the third quarter of 2000, non-interest expense increased $3.8 million,
or 4.0%, over the same period in 1999. Salaries and other personnel expenses,
the largest component of non-interest expense, increased $15.9 million, or 9.5%,
year-to-date over 1999. This increase is due to annual salary adjustments as
well as slightly higher incentive compensation expense in 2000. The number of
full-time equivalent employees at September 30, 2000 was 5,195, largely
unchanged from 5,173 a year ago, a trend that has been tempered by our continued
efforts in expense control management. Net occupancy and equipment expense
increased $3.6 million or 8.7% due primarily to increased depreciation on
computer equipment that was added as a result of the conversion to a new core
processing system, as well as increased service contract expenses on this
equipment. The banking operations' efficiency ratio was 56.67% in the first nine
months of 2000, compared to 58.32% a year ago.
Approximately 96% of total transaction processing services non-interest expense
relates to TSYS, with the remainder related to TDM and ProCard. The following
paragraphs provide an analysis of the non-interest expense components at TSYS.
Non-interest expense related to TSYS increased 5.4% and 10.1% for the three and
nine months ended September 30, 2000, respectively, compared to the same periods
in 1999. Employment expenses increased 14.7% for the nine months ended September
30, 2000, compared to the same period in 1999. The increase in employment
expenses is due to growth in the number of employees, normal salary increases
and related benefits. This change was offset by $6.9 million invested in
software development costs and contract acquisition costs for the nine months
ended September 30, 2000. 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 2001. The average
number of employees in the first nine months of 2000 was 4,490, a 14.0% increase
over the first nine months of 1999.
Net occupancy and equipment expense at TSYS increased 8.3% for the nine months
ended September 30, 2000, over the same period in 1999. Computer equipment and
software rentals, which represent the largest component of net occupancy and
equipment expense, increased 1.6% to $58.8 million during the first nine months
of 2000, compared to $57.8 million in the same period in 1999. Due to rapidly
changing technology in computer equipment, TSYS' equipment needs are achieved to
a large extent through operating leases. However, growth in this expense
category has been tempered by cost controls and improved productivity.
Other operating expenses at TSYS increased 1.9% for the nine months ended
September 30, 2000, compared to the same period in 1999. The growth in other
operating expenses is primarily due to increased business development costs
associated with exploring new business opportunities, both domestically and
internationally; the establishment of international offices and a data
processing center in the UK; increased transaction processing expenses
associated with the increase in the volume of accounts processed; and an
increase in the amortization of contract acquisition costs. The conversions of
Sears, Royal Bank, and Canadian Tire Acceptance Limited, begun in March 1999 and
completed early in the second quarter of 1999, contributed to the increase in
amortization of contract acquisition costs. These increases were partially
offset by expense control measures and a decrease in management fees paid to
Synovus for certain human resource functions, which TSYS assumed in 2000.
TSYS expensed $725,000 as marketing costs related to its investment in a
marketing joint venture.
Income Tax Expense
Income tax expense for the nine months ended September 30, 2000, was $106.8
million compared to $88.3 million for the same period a year ago. Income tax
expense for the third quarter of 2000 was $36.7 million compared to $31.9
million in the third quarter of 1999. The effective tax rate for the nine months
of 2000 was 36.2% compared to 35.3% for the same period in 1999.
Three Year Outlook
Synovus currently expects to grow earnings per share during the next three years
(2001-2003) by 15-18% annually. Synovus expects at least 15% growth in earnings
per share in 2001 and to be at the top of the 15-18% range by 2003. In
estimating expected growth in earnings per share, Synovus assumed, among other
things, that:
. Core banking net income will increase between 11-12% annually,
with net interest margins remaining stable, annual
loan growth will be in the 10-11% range, and credit quality trends
will remain at current levels.
. Wealth management revenues (trust, brokerage,
and insurance) will increase between 25-30% annually with the
complete integration and sales efforts of traditional bankers,
trust, brokerage, insurance, and private banking team members.
. TSYS will increase net income between 20-25% annually with
expansion of the core businesses both domestically and
internationally and additional product development and sales of
these products, such as stored value products and e-commerce
enabler systems.
. Increases in banking operations expenses will not exceed 4% annually
over the next three years.
Year 2000 Readiness Disclosure
Many computer programs were written with a two-digit date field. If these
programs were not made Year 2000 compliant, they would not be able to correctly
process date information for the year 2000 and beyond. Remediation efforts went
beyond Synovus' internal computer systems and required coordination with
customers, vendors, government entities and other third parties to assure that
their systems and related interfaces were compliant. Failure to achieve timely
remediation of Synovus' critical programs and computer systems for the Year 2000
would have had a material adverse effect on Synovus' financial condition and
results of operations.
Synovus experienced a smooth transition in passing the century date changeover.
TSYS did not experience any significant internal or external issues concerning
Y2K, and all Synovus companies, systems, facilities and clients processed
have continued to process without incident since the date changeover. Synovus
continues to monitor Y2K issues by overseeing critical tasks during the year
2000. Heightened coverage of year-end 2000 processing is planned, and Synovus
intends to maintain its monitoring process to evaluate any problems.
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.
<PAGE>
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Quantitative and qualitative disclosures about market risk were included in the
1999 annual report, which was incorporated by reference in Synovus' 1999 Form
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.
<PAGE>
PART II - OTHER INFORMATION
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
third quarter of 2000.
(1) The report filed on July 5, 2000, included the following event:
On July 5, 2000, TSYS announced that it expects its 2000 net income to
exceed its 1999 net income by 25% and expects its earnings per share to be
$.44.
(2) The report filed on August 9, 2000, included the following event:
On August 9, 2000, TSYS announced the signing of a definitive card
processing agreement with The Royal Bank of Scotland Group plc for TSYS to
process Royal Bank Group's seven million consumer and commercial card
accounts for a ten-year period.
(3) The report filed on October 19, 2000, included the following events:
On October 18, 2000, TSYS issued a press release with respect to its third
quarter 2000 earnings.
On October 19, 2000, Synovus issued a press release with respect to its
third quarter 2000 earnings.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
Date: November 14, 2000 BY: /s/ Thomas J. Prescott
-----------------------
Thomas J. Prescott
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Number Description Numbered Page
-------------- ----------- -------------
11 Statement re Computation of 23
Per Share Earnings
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
<PAGE>
6
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
Date: November 14, 2000 BY:/s/Thomas J.Prescott
Thomas J. Prescott
Executive Vice President and
Chief Financial Officer
