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, 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 July 31, 2000, 284,099,622 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
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) 5
Six Months Ended June 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 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 19
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>
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) 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 451,110 466,543
Interest earning deposits with banks 759 1,928
Federal funds sold 120,648 92,093
Mortgage loans held for sale 130,768 83,145
Investment securities available for sale 1,755,734 1,716,678
Investment securities held to maturity 273,846 277,279
Loans 10,084,966 9,077,516
Less unearned income (13,732) (9,277)
Less reserve for loan losses (140,539) (127,558)
---------------------------------------------------------------------------------------------------------
Loans, net 9,930,695 8,940,681
---------------------------------------------------------------------------------------------------------
Premises and equipment, net 467,120 437,309
Other assets 555,248 531,345
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Total assets $ 13,685,928 12,547,001
=========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,678,714 1,625,313
Interest bearing 8,453,417 7,814,774
---------------------------------------------------------------------------------------------------------
Total deposits 10,132,131 9,440,087
Federal funds purchased and securities sold under agreement to repurchase 1,386,979 1,261,391
Long-term debt 571,205 318,620
Other liabilities 229,863 235,949
---------------------------------------------------------------------------------------------------------
Total liabilities 12,320,178 11,256,047
---------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 71,585 64,285
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares;
issued 284,261,191 in 2000 and 282,189,425 in 1999; outstanding
284,085,928 in 2000 and 282,014,161 in 1999 284,261 282,189
Surplus 99,738 79,190
Less treasury stock - 175,264 shares in 2000 and 1999 (1,285) (1,285)
Less unamortized restricted stock (996) (1,293)
Accumulated other comprehensive loss (31,180) (30,134)
Retained earnings 943,627 898,002
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Total shareholders' equity 1,294,165 1,226,669
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 13,685,928 12,547,001
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 450,095 358,511 233,996 183,267
Investment securities:
U.S. Treasury and U.S. Government agencies 41,743 39,494 20,838 20,036
Mortgage-backed securities 14,928 12,586 7,628 6,386
State and municipal 4,830 4,288 2,469 2,145
Other investments 1,620 1,436 797 747
Mortgage loans held for sale 3,545 4,259 2,019 1,782
Federal funds sold 2,462 1,119 1,231 520
Interest earning deposits with banks 46 40 22 19
--------------------------------------------------------------------------------------------------------------------
Total interest income 519,269 421,733 269,000 214,902
--------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 187,196 155,602 98,576 78,661
Federal funds purchased and securities sold under
agreement to repurchase 39,444 15,394 20,641 7,996
Long-term debt 14,080 4,373 8,203 2,344
--------------------------------------------------------------------------------------------------------------------
Total interest expense 240,720 175,369 127,420 89,001
--------------------------------------------------------------------------------------------------------------------
Net interest income 278,549 246,364 141,580 125,901
Provision for losses on loans 23,623 16,730 12,712 9,515
--------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 254,926 229,634 128,868 116,386
--------------------------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 273,805 230,859 139,860 126,199
Service charges on deposit accounts 36,382 33,431 18,579 16,679
Fees for trust services 11,009 10,005 5,250 4,755
Credit card fees 8,280 6,724 4,362 3,572
Securities gains (losses), net (28) 715 (27) 268
Other operating income 76,731 66,632 37,539 32,000
--------------------------------------------------------------------------------------------------------------------
Total non-interest income 406,179 348,366 205,563 183,473
--------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 248,702 220,269 124,817 112,044
Net occupancy and equipment expense 110,336 97,565 56,537 51,627
Other operating expenses 100,276 93,662 51,084 50,056
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Total non-interest expense 459,314 411,496 232,438 213,727
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Minority interest in subsidiary's net income 8,625 6,032 4,664 3,542
Income before income taxes 193,166 160,472 97,329 82,590
Income tax expense 70,022 56,426 35,577 29,277
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Net income $ 123,144 104,046 61,752 53,313
====================================================================================================================
Net income per share :
Basic $ 0.44 0.37 0.22 0.19
====================================================================================================================
Diluted 0.43 0.37 0.22 0.19
====================================================================================================================
Weighted average shares outstanding:
Basic 282,810 279,221 283,457 279,509
====================================================================================================================
Diluted 285,776 282,598 286,605 282,470
====================================================================================================================
Dividends declared per share $ 0.22 0.18 0.11 0.09
====================================================================================================================
</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) 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net Income $ 123,144 104,046
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 23,623 16,730
Depreciation, amortization, and accretion, net 39,299 35,713
Deferred income tax expense 2,424 2,644
(Increase) decrease in interest receivable (15,359) (5,453)
(Decrease) increase in interest payable 3,489 2,760
Minority interest in subsidiary's net income 8,625 6,032
(Increase) decrease in mortgage loans held for sale (47,623) 50,980
Other, net (14,502) 7,285
------------------------------------------------------------------------------------------------
Net cash provided by operating activities 123,120 220,737
------------------------------------------------------------------------------------------------
Investing Activities
Cash acquired from acquisition 2,877 2,061
Net decrease in interest earning deposits with banks 1,169 395
Net (increase) decrease in federal funds sold (28,555) 30,069
Proceeds from maturities and principal collections of investment
securities available for sale 103,191 285,178
Proceeds from sales of investment securities available for sale 4,726 23,331
Purchases of investment securities available for sale (148,116) (474,556)
Proceeds from maturities and principal collections of investment
securities held to maturity 28,753 24,904
Purchases of investment securities held to maturity (25,475) (11,559)
Net increase in loans (1,047,084) (579,445)
Purchases of premises and equipment (67,328) (58,278)
Proceeds from disposals of premises and equipment 710 1,794
Net cash paid on sale of branches (41,835) -
Proceeds from sales of other real estate 4,985 4,001
Additions to contract acquisition costs (254) (2,789)
Additions to computer software (20,782) (30,061)
------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,233,018) (784,955)
------------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in demand and savings deposits 289,064 236,096
Net increase in certificates of deposit 479,707 183,567
Net increase in federal funds purchased and securities
sold under agreement to repurchase 125,504 168,415
Principal repayments on long-term debt (9,171) (1,080)
Proceeds from issuance of long-term debt 261,525 73,550
Dividends paid to shareholders (56,464) (47,405)
Proceeds from issuance of common stock 4,300 4,313
------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,094,465 617,456
------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (15,433) (53,238)
Cash and cash equivalents at beginning of period 466,543 398,073
------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 451,110 451,311
================================================================================================
</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' 1999 annual report previously filed on Form 10-K.
Note B - Supplemental Cash Flow Information
-------------------------------------------
For the six months ended June 30, 2000 and 1999, Synovus paid income taxes (net
of refunds received) of $74.8 million and $46.6 million, and interest of $237.2
million and $172.6 million, respectively.
Noncash investing activities consisted of loans of approximately $3.9 million
and $2.3 million, which were foreclosed and transferred to other real estate
during the six months ended June 30, 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
June 30, 2000 and 1999 was $62.7 million and $34.8 million, respectively.
Comprehensive income for the six months ended June 30, 2000 was $122.1 million
compared to $78.4 million for the six months ended June 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 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 six months ended June 30, 2000
and 1999 is presented below:
<TABLE>
<CAPTION>
Three months ended June 30, 2000 and 1999
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Transaction
Banking Processing
(In thousands) Operations Services (c) Eliminations Consolidated
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<S> <C> <C> <C> <C> <C>
Interest income and non- 2000 $315,628 162,005 (3,070) (a) $474,563
interest income 1999 255,037 145,276 (1,938) (a) 398,375
--------------------------------------------- --------------------------------------------------------
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Income before taxes 2000 64,236 37,757 (4,664) (b) 97,329
1999 56,999 29,133 (3,542) (b) 82,590
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Income tax expense 2000 22,453 13,124 - 35,577
1999 19,717 9,560 - 29,277
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Net Income 2000 41,782 24,634 (4,664) (b) 61,752
1999 37,283 19,572 (3,542) (b) 53,313
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Total Assets 2000 13,278,334 508,916 (101,322) (d) 13,685,928
1999 11,126,102 403,933 (32,763) (d) 11,497,272
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Six months ended June 30, 2000 and 1999
-----------------------------------------------------------------------------------------------------------------------
Transaction
Banking Processing
(In thousands) Operations Services (c) Eliminations Consolidated
-----------------------------------------------------------------------------------------------------------------------
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Interest income and non- 2000 $616,072 315,161 (5,785) (a) $925,448
interest income 1999 505,406 268,031 (3,338) (a) 770,099
--------------------------------------------- --------------------------------------------------------
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Income before taxes 2000 132,739 69,052 (8,625) (b) 193,166
1999 116,773 49,731 (6,032) (b) 160,472
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Income tax expense 2000 46,143 23,879 70,022
1999 40,484 15,942 56,426
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Net Income 2000 86,596 45,173 (8,625) (b) 123,144
1999 76,290 33,788 (6,032) (b) 104,046
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Total Assets 2000 13,278,334 508,916 (101,322) (d) 13,685,928
1999 11,126,102 403,933 (32,763) (d) 11,497,272
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</TABLE>
(a) Principally computerized data processing services revenues provided to the
banking segment.
(b) Minority interest in TSYS.
(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.
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the six months ended June 30, 2000 was $123.1 million, up 18.4%
from the same period a year ago. Revenues (excluding securities gains and
losses) increased 15.3% over the same period in 1999. Diluted net income per
share for the first six months of 2000 was $0.43, an increase of 17% over $.37
per share for the same period in 1999. Return on average assets was 1.91% and
return on average equity was 19.58% for the six months ended June 30, 2000. This
compares to a return on average assets of 1.91% and a return on average equity
of 18.34% for the first six months of 1999.
Net income for the three months ended June 30, 2000 was $61.8 million, up 15.8%
from the same period a year ago, and revenues increased 12.3% over the same
period in 1999. Diluted net income per share was $0.22 for the second quarter,
up 14% over $.19 for the same period in 1999. Return on average assets was 1.88%
and return on average equity was 19.40% for the three months ended June 30,
2000. This compares to a return on average assets of 1.92% and a return on
average equity of 18.56% for the second quarter of 1999.
Two major growth areas - fee income from TSYS and core commercial lending - were
the primary contributors to our strong results. Continued credit quality and
expense control management also positively impacted the second 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.
Balance Sheet
During the first six months of 2000, total assets increased $1.1 billion,
resulting primarily from continued strong net loan growth of $990.0 million or
22.3% annualized. Providing the necessary funding for the balance sheet growth
during the first six months of 2000, Synovus' deposit base grew $692.0 million,
federal funds purchased and securities sold under agreement to repurchase
increased $125.6 million, long-term debt consisting primarily of Federal Home
Loan Bank (FHLB) advances increased $252.6 million, and shareholders' equity
increased $67.5 million.
Loans
Loan growth was even more robust than what we have experienced in previous
quarters. Net loans grew by $578.7 million during the quarter, or 24.52%
annualized. Compared to June 1999, net loans have increased 23.3%. The growth
was led primarily by our banks in larger urban markets.
Asset Quality
As measured by asset quality indicators, Synovus' asset quality remains strong.
Annualized net charge-offs to average loans for the six months ended June 30,
2000 were .22% compared to .31% for the first six months of 1999. Net
charge-offs to average loans for the quarter ended June 30, 2000 were .25%
compared to .29% for the second quarter of 1999. During the first six months of
2000, nonperforming loans (consisting of nonaccrual and restructured loans)
increased $11.7 million while loans increased $990.0 million. Synovus'
nonperforming assets ratio was .47% as of June 30, 2000, compared to .38% at
December 31, 1999. Loans past due over 30 days are only 0.91% of total loans
compared to 0.81% at December 31, 1999.
Loans 90 days past due and still accruing at June 30, 2000, were $17.3 million,
or .17% of total loans, largely unchanged 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 $140.5 million, or 1.40% of net loans, at June
30, 2000 compared to $127.6 million, or 1.41% of net loans, at December 31,
1999. For the six months ended June 30, 2000, the provision for losses on loans
was 2.22 times net charge-offs compared to a coverage of 1.37 times for the six
months ended June 30, 1999. The higher provision expense was due to the large
increase in loan volume.
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 2000 1999
-------------- ------------------- -------------------
<S> <C> <C>
Nonperforming loans $ 39,632 27,924
Other real estate 7,839 6,718
------------------- -------------------
Non-performing-assets $ 47,471 34,642
=================== ===================
Loans 90 days past due and still accruing $ 17,293 16,878
=================== ===================
Reserve for laon losses $ 140,539 127,558
=================== ===================
Reserve for laon losses as a % of loans 1.40% 1.41
=================== ===================
As a % of loans and other real estate:
Nonperforming loans 0.39% 0.31
Other real estate 0.08 0.07
------------------- -------------------
Non-performing assets 0.47% 0.38
=================== ===================
Reserve to nonperforming loans 354.61% 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 $1.502
billion at June 30, 2000, compared to $1.411 billion at December 31, 1999. The
ratio of total risk-based capital to risk-weighted assets was 13.03% at June 30,
2000 compared to 13.77% at December 31, 1999. The leverage ratio at the end of
the second quarter of 2000 was 10.28% compared to 10.52% at the end of 1999. The
equity-to-assets ratio was 9.46% at June 30, 2000 compared to 9.78% at year-end
1999. The equity-to-assets ratio, exclusive of net unrealized gains
(losses) on investment securities available for sale, was 9.64% at June 30,
2000, compared to 9.97% at year-end 1999.
Synovus' liquidity position decreased moderately to 27.09% at June 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 six months of 2000.
During the six months ended June 30, 2000, on an annualized basis, net loans
increased by 22.3% while deposits increased by 14.7%. 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 $252.6
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 $35 million line of credit.
During the third quarter of 1999, TSYS officially opened the first phase of its
Riverfront Campus and essentially completed moving the majority of 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 consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Operating activities provided
net cash of $123.1 million during the first six months of 2000, while $1.1
billion was provided by financing activities. Investing activities utilized $1.2
billion of this amount, resulting in a decrease in cash and cash equivalents of
$15.4 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 2000 were $12.9 billion, up
18.1% over the first six months of 1999. Average earning assets were up 18.4% in
the first half of 2000 over the same period a year ago and represented 91.5% of
average total assets. When compared to the same period last year, average
deposits increased $864.0 million, average shareholders' equity increased $120.7
million, and average federal funds purchased and securities sold under agreement
to repurchase increased $656.6 million. This growth provided the funding for the
$1.7 billion growth in average net loans, the $146.7 million increase in average
investment securities and the $30.1 million increase in average federal funds
sold.
Net interest income was $278.5 million for the six months ended June 30, 2000,
up $32.2 million, or 13.1% over the $246.4 million reported for the six months
ended June 30, 1999. Net interest income, on a tax-equivalent basis, for the
first half of 2000 increased $32.3 million, or 13.0%, over the same period in
1999.
Net interest income was $141.6 million for the second quarter of 2000, up $15.7
million, or 12.5%, over the $125.9 million reported for the second quarter of
1999. Net interest income, on a tax-equivalent basis, for the second quarter of
2000 increased $15.7 million, or 12.3%, over the second quarter of 1999.
The year-to-date net interest margin was 4.86%, down twenty-five basis points
from the same period last year. This decrease resulted from a thirty-two basis
point increase in the yield on earning assets, which was offset by a fifty-seven
basis point increase in the effective cost of funds. The increased yield on
earning assets was due to higher yields on investment securities and loans. The
increased loan yields were primarily due to a 122 basis point increase in the
average prime rate from the first half of 1999 compared to the first half 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>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
(In thousands) 2000 1999 2000 1999
--------------
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Interest income $ 519,269 421,733 269,000 214,902
Taxable-equivalent adjustment 3,021 2,885 1,531 1,493
----------------- ---------------- ---------------- ----------------
Interest income, taxable-equivalent 522,290 424,618 270,531 216,395
Interest expense 240,720 175,369 127,420 89,001
----------------- ---------------- ---------------- ----------------
Net interest income, taxable-equivalent $ 281,570 249,249 143,111 127,394
================= ================ ================ ================
</TABLE>
Non-Interest Income
Total non-interest income during the first six months of 2000 increased $57.8
million, or 16.6%, over the same period in 1999. This increase in non-interest
income resulted primarily from higher transaction processing revenues which
increased $42.9 million, or 18.6%, during the six months ended June 30, 2000,
over the same period in 1999. Transaction processing revenues as a percentage of
consolidated revenues were 46.0% up from 45.1% a year ago.
For the year-to-date, banking operations' non-interest income increased 13.8%,
or $11.8 million, compared to the same period a year ago. The growth in fee
income was led by service charges on deposits (up $3.0 million, or 8.8%), credit
card fees (up $1.6 million, or 23.1%), brokerage (up $.9 million, or 12.6%), and
trust services (up $1.0 million, or 10.3%). Additionally, other operating income
for the first six months of 2000 included a $6.6 million gain from the sale of
five bank branches in the first quarter of 2000 and a $2.6 million gain from the
sale of a corporate investment in the first half of 1999.Total non-interest
income during the quarter ended June 30, 2000, increased $22.1 million, or
12.0%, over the second quarter of 1999. The increase in non-interest income
resulted primarily from higher transaction processing revenues, which increased
$13.7 million, or 10.8%, during the quarter ended June 30, 2000, over the same
period in 1999. For the quarter, banking operations' non-interest income grew
12.9%, with increases in service charges of 11%, trust service fees of 11%,
credit card fees of 22%, and brokerage revenues of 6% over the second 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 $32.9
million, or 15.2%, for the six months ended June 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. 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 six months ended June 30, 2000 were
200.4 million, which was an increase of approximately 24.9% over the average of
160.5 million for the same period in 1999. Cardholder accounts on file at June
30, 2000, were 181.4 million, a 5.5% decrease from the 192.0 million accounts on
file at June 30, 1999. The change in the number of cardholder accounts on file
from June 1999 to June 2000 included the deconversion of the 33.5 million
consumer credit accounts of Universal Card Services, the decrease of 9.4 million
accounts related to the deconversion of and/or purging of inactive accounts by
other customers, internal growth of existing customers of 22.3 million
cardholder accounts, and approximately 10.0 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
June 30, 2000 three major customers accounted for approximately 36.2% of total
revenues compared to 33.2% for the three months ended June 30, 1999. For the
three months ended June 30, 1999 there was an additional major customer which
accounted for 12.4% of total revenues. This customer was not a major customer
for the three months ended June 30, 2000. For the six months ended June 30,
2000, four major customers accounted for approximately 47.1% of total revenues
compared to 45.0% for the six months ended June 30, 1999. The loss of one of
TSYS' major customers, or other significant customers, could have 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. The deconversion of the consumer credit accounts
occurred during May 2000; however, TSYS will continue 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 six months ended June 30, 2000, increased
$47.8 million, or 11.6%, 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 six 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 $ 126,307 122,395 111,060 109,209
Net occupancy and equipment expense 29,864 80,472 27,709 69,856
Other operating expenses 57,076 43,200 54,442 39,220
------------- --------------- --------------- -----------------
Total non-interest expense $ 213,247 246,067 193,211 218,285
============= =============== =============== =================
</TABLE>
Banking operations' non-interest expense increased $20.0 million, or 10.4%, for
the six months ended June 30, 2000, compared to the same period in 1999. During
the second quarter of 2000, non-interest expense increased $10.9 million, or
11.2%, over the same period in 1999. Salaries and other personnel expenses, the
largest component of non-interest expense, increased $15.2 million, or 13.7%,
year-to-date over 1999. This increase is due to annual salary adjustments as
well as higher compensation accruals primarily due to incentive targets being
achieved earlier in 2000. The number of full-time equivalent employees at June
30, 2000 was 5,222, down from 5,300 a year ago, a trend that has been tempered
by our continued efforts in expense control management. Net occupancy and
equipment expense increased $2.2 million or 7.8% 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 57.65% in the
first half of 2000, compared to 59.32% 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 5.9% and 12.7% for the three and
six months ended June 30, 2000, respectively, compared to the same periods in
1999. Employment expenses increased 12.6% for the six months ended June 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 $3.9 million invested in software
development costs and contract acquisition costs for the six months ended June
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 2000. The average number of employees
in the first six months of 2000 increased to 4,413, a 16.0% increase over the
first six months of 1999.
Net occupancy and equipment expense at TSYS increased 11.2% and 15.0% for the
three and six months ended June 30, 2000, respectively, over the same periods in
1999. Computer equipment and software rentals, which represent the largest
component of net occupancy and equipment expense, increased 4.7% to $20.8
million in the second quarter of 2000, compared to $19.8 million in the same
period of 1999. During the first six months of 2000, equipment and software
rentals increased 11.5% to $40.6 million compared to $36.4 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. During
1999 and the first six months of 2000, TSYS made investments in computer
software licenses and hardware to accommodate increased volumes due to the
expected growth in the number of accounts associated with new and existing
customers.
Other operating expenses at TSYS decreased 7.8% and increased 9.0% for the three
and six months ended June 30, 2000, respectively, compared to the same periods
in 1999. The decrease in expenses for the quarter is the result of expense
control and a decrease in management fees paid to Synovus for human resource
functions. TSYS assumed the human resource responsibilities from Synovus in
2000. The growth in other operating expenses for the six months ended June 30,
2000 is primarily due to increased business development costs associated with
exploring new business opportunities, both domestically and internationally; the
establishment of an international office in London; 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.
Income Tax Expense
Income tax expense for the six months ended June 30, 2000, was $70.0 million
compared to $56.4 million for the same period a year ago. Income tax expense for
the second quarter of 2000 was $35.6 million compared to $29.3 million in the
second quarter of 1999. The effective tax rate for the six months of 2000 was
36.2% compared to 35.2% in the same period in 1999.
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 the Company's financial condition
and results of operations.
Synovus experienced a smooth transition in passing the century date changeover.
Synovus did not experience any significant internal or external issues
concerning Year 2000, and all Synovus companies, systems, facilities and clients
processed, and have continued to process, without incident since the date
changeover. Synovus will continue to monitor Year 2000 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.
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.
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 20, 2000. Following are
summaries of the proposals that were submitted to the shareholders for approval.
The first proposal was to elect three nominees for Class III directors of
Synovus to serve until the 2003 Annual Meeting of Shareholders. The three
nominees for election as Class III directors named below were elected by the
number of affirmative votes set forth opposite their names below, with the
number of votes withholding authority to vote for such nominees also being
shown. As the election of each of the nominees for Class III directors was
approved by a plurality of the total votes entitled to be cast by the holders of
shares represented at the meeting, each of the nominees for Class III directors
were elected.
<TABLE>
<CAPTION>
Withheld
Nominee Votes For Authority to Vote
---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Richard Y. Bradley 675,757,522.3708 8,621,789.0800
John P. Illges, III 676,525,060.5130 7,854,250.9993
William B. Turner 676,003,238.3806 8,376,073.1317
</TABLE>
The second proposal was to approve the Synovus 2000 Long - Term Incentive Plan.
The proposal was approved by 601,995,774 affirmative votes, with 25,522,361
against votes, 14,326,327 abstain votes and 42,534,849 non-votes. As the
affirmative rate of a majority of the votes cast was required for approval, such
proposal was approved.
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
second quarter of 2000.
(1) The report filed on May 31, 2000, included the following event:
On May 31, 2000, Total System Services, Inc. ("TSYS"), an 80.8 percent
owned subsidiary of Synovus Financial Corp., announced the signing of a
letter of intent with The Royal Bank of Scotland Group plc in connection
with the negotiation of a definitive agreement for TSYS to process Royal
Bank Group's seven million consumer and commercial card accounts for a
ten-year period.
(2) 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.
(3) 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.
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 14, 2000 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 23
Per Share Earnings
27 Financial Data Schedule
(for SEC purposes only, not
enclosed herewith)
