-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WFZzQ8WaNPnRBYxfcJVb5RWDNyt6fOj/aOHCdufqFvzJU79wun820rwxvo/DhYoU idSEw5J4zSgd4V0jwO0HLA== 0000018349-00-000020.txt : 20000516 0000018349-00-000020.hdr.sgml : 20000516 ACCESSION NUMBER: 0000018349-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNOVUS FINANCIAL CORP CENTRAL INDEX KEY: 0000018349 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 581134883 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10312 FILM NUMBER: 630470 BUSINESS ADDRESS: STREET 1: 901 FRONT AVENUE STREET 2: STE 301 CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: P.O.BOX 120 CITY: COLUMBUS STATE: GA ZIP: 31902 FORMER COMPANY: FORMER CONFORMED NAME: CB&T BANCSHARES INC DATE OF NAME CHANGE: 19890912 10-Q 1 1ST QUARTER 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 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 April 30, 2000, 282,384,852 shares of the Registrant's Common Stock, $1.00 par value, were outstanding. SYNOVUS FINANCIAL CORP. INDEX Page Part I. Financial Information Number Item 1. Financial Statements Consolidated Balance Sheets (unaudited) March 31, 2000 and December 31, 1999 3 Consolidated Statements of Income (unaudited) Three Months Ended March 31, 2000 and 1999 4 Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 Part II. Other Information Item 6. (a) Exhibits 18 (b) Report on Form 8-K 18 Signature Page 19 Exhibit Index 20 (11) Statement re Computation of Per Share Earnings 21 (27) Financial Data Schedule (for SEC purposes only, not enclosed herewith) PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SYNOVUS FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, December 31, (In thousands, except share and per share data) 2000 1999 ASSETS Cash and due from banks $ 434,739 466,543 Interest earning deposits with banks 1,096 1,928 Federal funds sold 141,538 92,093 Mortgage loans held for sale 105,525 83,145 Investment securities available for sale 1,738,905 1,716,678 Investment securities held to maturity 282,966 277,279 Loans 9,504,460 9,077,516 Less unearned income (11,881) (9,277) Less reserve for loan losses (134,035) (127,558) - --------------------------------------------------------------------------------------------- Loans, net 9,358,544 8,940,681 - --------------------------------------------------------------------------------------------- Premises and equipment, net 435,199 437,309 Other assets 549,728 531,345 - --------------------------------------------------------------------------------------------- Total assets $ 13,048,240 12,547,001 ============================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 1,637,516 1,625,313 Interest bearing 8,052,720 7,814,774 - --------------------------------------------------------------------------------------------- Total deposits 9,690,236 9,440,087 Federal funds purchased and securities sold under agreement to repurchase 1,387,081 1,261,391 Long-term debt 421,469 318,620 Other liabilities 225,417 235,949 - --------------------------------------------------------------------------------------------- Total liabilities 11,724,203 11,256,047 - --------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiary 67,408 64,285 Shareholders' equity: Common stock - $1.00 par value; Authorized 600,000,000 shares; issued 282,457,748 in 2000 and 279,536,185 in 1999; outstanding 282,282,485 in 2000 and 279,268,328 in 1999 282,458 282,189 Surplus 80,385 79,190 Less treasury stock - 175,264 shares in 2000 and 1999 (1,285) (1,285) Less unamortized restricted stock (1,192) (1,293) Accumulated other comprehensive loss (32,119) (30,134) Retained earnings 928,382 898,002 - --------------------------------------------------------------------------------------------- Total shareholders' equity 1,256,629 1,226,669 - --------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 13,048,240 12,547,001 =============================================================================================
See accompanying notes to consolidated financial statements. SYNOVUS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended March 31, --------------------- (In thousands, except per share data) 2000 1999 ---------------------- Interest income: Loans, including fees $ 216,099 175,244 Investment securities: U.S. Treasury and U.S. Government agencies 20,905 19,458 Mortgage-backed securities 7,300 6,200 State and municipal 2,361 2,143 Other investments 823 689 Mortgage loans held for sale 1,526 2,477 Federal funds sold 1,231 599 Interest earning deposits with banks 24 21 - ----------------------------------------------------------------- Total interest income 250,269 206,831 - ----------------------------------------------------------------- Interest expense: Deposits 88,620 76,941 Federal funds purchased and securities sold under agreement to repurchase 18,803 7,398 Long-term debt 5,877 2,029 - ----------------------------------------------------------------- Total interest expense 113,300 86,368 - ----------------------------------------------------------------- Net interest income 136,969 120,463 Provision for losses on loans 10,911 7,215 - ----------------------------------------------------------------- Net interest income after provision for losses on loans 126,058 113,248 - ----------------------------------------------------------------- Non-interest income: Data processing services 133,945 104,660 Service charges on deposit accounts 17,803 16,752 Fees for trust services 5,759 5,250 Credit card fees 3,918 3,152 Securities gains (losses), net (1) 447 Other operating income 39,192 34,632 - ----------------------------------------------------------------- Total non-interest income 200,616 164,893 - ----------------------------------------------------------------- Non-interest expense: Salaries and other personnel expense 123,885 108,225 Net occupancy and equipment expense 53,799 45,938 Other operating expenses 49,192 43,606 - ----------------------------------------------------------------- Total non-interest expense 226,876 197,769 - ----------------------------------------------------------------- Minority interest in subsidiary's net income 3,961 2,490 Income before income taxes 95,837 77,882 Income tax expense 34,445 27,149 - ----------------------------------------------------------------- Net income $ 61,392 50,733 ================================================================= Net income per share: Basic $ 0.22 0.18 ================================================================= Diluted 0.22 0.18 ================================================================= Weighted average shares outstanding: Basic 282,163 278,930 ================================================================= Diluted 284,951 282,723 ================================================================= Dividends declared per share $ 0.11 0.09 =================================================================
See accompanying notes to consolidated financial statements. SYNOVUS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, --------------------- (In thousands) 2000 1999 --------------------- Operating Activities Net Income $61,392 50,733 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans 10,911 7,215 Depreciation, amortization, and accretion, net 19,037 16,471 Deferred income tax expense (benefit) 1,448 (583) (Increase) decrease in interest receivable (3,887) 158 (Decrease) increase in interest payable (1,447) 4,165 Minority interest in subsidiary's net income 3,961 2,490 (Increase) decrease in mortgage loans held for sale (22,380) 48,319 Other, net (30,680) 15,027 - -------------------------------------------------------------------------------------- Net cash provided by operating activities 38,355 143,995 - -------------------------------------------------------------------------------------- Investing Activities Cash acquired from acquisition - 2,061 Net decrease in interest earning deposits with banks 832 334 Net (increase) decrease in federal funds sold (49,445) 27,727 Proceeds from maturities and principal collections of investment securities available for sale 54,263 165,539 Proceeds from sales of investment securities available for sale 576 16,374 Purchases of investment securities available for sale (80,348) (257,210) Proceeds from maturities and principal collections of investment securities held to maturity 12,527 14,997 Purchases of investment securities held to maturity (18,223) (6,876) Net increase in loans (462,221) (231,098) Purchases of premises and equipment (16,925) (26,269) Proceeds from disposals of premises and equipment 358 1,618 Net cash paid on sale of branches (41,835) - Proceeds from sales of other real estate 2,996 1,740 Additions to contract acquisition costs - (1,903) Additions to computer software (4,527) (10,163) - -------------------------------------------------------------------------------------- Net cash used in investing activities (601,972) (303,129) - -------------------------------------------------------------------------------------- Financing Activities Net increase (decrease) in demand and savings depos 198,873 (84,839) Net increase in certificates of deposit 128,003 2,271 Net increase in federal funds purchased and securities sold under agreement to repurchase 125,690 176,629 Principal repayments on long-term debt (136) (581) Proceeds from issuance of long-term debt 102,985 9,900 Dividends paid to shareholders (25,394) (20,441) Proceeds from issuance of common stock 1,792 2,436 - -------------------------------------------------------------------------------------- Net cash provided by financing activities 531,813 85,375 - -------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (31,804) (73,759) Cash and cash equivalents at beginning of period 466,543 398,073 - -------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $434,739 324,314 ======================================================================================
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 three months ended March 31, 2000 and 1999, Synovus paid income taxes (net of refunds received) of $11.3 million and $(2.2) million, and interest of $114.7 million and $82.2 million, respectively. Noncash investing activities consisted of loans of approximately $2.9 million and $1.7 million, which were foreclosed and transferred to other real estate during the three months ended March 31, 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 March 31, 2000 and 1999 was $59.4 million and $43.6 million, respectively. Note D - Business Combinations On March 6, 2000, Synovus announced an agreement to acquire 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. ProCard stockholders will receive shares of Synovus stock with an aggregate market value of $30 million with the actual number of shares to be issued to be based upon the average closing price, as defined in the merger agreement. This transaction will be accounted for as a pooling of interests, except that the financial information preceding the date of acquisition will not be restated to include the financial position and results of operations of the acquired entity since the effect is not material. The acquisition is expected to be completed in the second quarter. 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 as well as the debt collection and bankruptcy management operations at TSYS Total Debt Management, Inc. (TDM). 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 months ended March 31, 2000 and 1999 is presented below: Three months ended March 31, 2000 and 1999
Transaction Banking Processing (In thousands) Operations Services(c) Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Interest income and non- 2000 $301,417 152,183 (2,715) (a) $450,885 Interest income 1999 250,746 122,378 (1,400) (a) 371,724 - --------------------------------------------- ------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Income before taxes 2000 64,543 35,255 (3,961) (b) 95,837 1999 57,284 23,088 (2,490) (b) 77,882 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Income tax expense 2000 23,690 10,755 34,445 - 1999 20,767 6,382 27,149 - - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Net Income 2000 40,853 24,500 (3,961) (b) 61,392 1999 36,517 16,706 (2,490) (b) 50,733 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Assets 2000 12,638,896 472,582 (63,238) (d) 13,048,240 1999 10,574,461 377,225 (9,125) (d) 10,942,561 (a) Principally computerized data processing service 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. This lawsuit seeks unspecified damages. Though settlement negotiations have occurred, these negotiations have to date not resulted in a definitive settlement agreement among the parties. TSYS is not in a position to determine its possible exposure, if any, as a result of this litigation. Note G - Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. For Synovus, SFAS No. 133, as amended by SFAS No. 137, is effective January 1, 2001. On adoption, the provisions of SFAS No. 133 must be applied prospectively. Synovus is in the process of assessing the impact that SFAS No. 133 will have on its financial statements. Note H - Other Certain amounts in 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 three months ended March 31, 2000 was $61.4 million, up 21.0% from the same period a year ago. Revenues (excluding securities gains and losses) increased 18.5% over the same period in 1999. Diluted net income per share increased to $.22 for the first three months of 2000 as compared to $.18 for the same period in 1999. Return on average assets was 1.95% and return on average equity was 19.75% for the three months ended March 31, 2000 up from 1.91% and 18.10%, respectively, for the first three months of 1999. Acquisitions On March 6, 2000, Synovus announced an agreement to acquire 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. ProCard stockholders will receive shares of Synovus stock with an aggregate market value of $30 million with the actual number of shares to be issued to be based upon the average closing price, as defined in the merger agreement. This transaction will be accounted for as a pooling of interests, except that the financial information preceding the date of acquisition will not be restated to include the financial position and results of operations of the acquired entity since the effect is not material. The acquisition is expected to be completed in the second quarter. Balance Sheet During the first three months of 2000, total assets increased $501.2 million, resulting primarily from strong net loan growth of $417.9 million or 18.7% annualized. Providing the necessary funding for the balance sheet growth during the first three months of 2000, Synovus' deposit base grew $250.1 million, federal funds purchased and securities sold under agreement to repurchase increased $125.7 million, long-term debt consisting primarily of FHLB advances increased $102.8 million and shareholders' equity increased $30.0 million. Asset Quality As measured by asset quality indicators, Synovus' asset quality remains strong. During the first three months of 2000, nonperforming loans (consisting of nonaccrual and restructured loans) and loans past due greater than ninety days and still accruing increased $5.0 million. Synovus' nonperforming assets ratio was .45% as of March 31, 2000, compared to .38% at December 31, 1999, remaining in the low range it has been in for the last two years. Annualized net charge-offs to average loans for the three months ended March 31, 2000 were .19% compared to .34% during the first three months of 1999. Loans 90 days past due and still accruing at March 31, 2000, were $15.6 million, or .16% of total loans, down from $16.9 million, or .19% of total loans at December 31, 1999, which is a decrease of $1.3 million, or 7.7%. 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 $134.0 million, or 1.41% of net loans, at March 31, 2000 compared to $127.6 million, or 1.41% of net loans, at December 31, 1999. For the three months ended March 31, 2000, the provision for losses on loans was 2.46x net charge-offs compared to 1.12x for the three months ended March 31, 1999. The higher provision expense was due to the large increase in loan volume, somewhat offset by continued strong asset quality.
March 31, December 31, (In thousands) 2000 1999 - -------------- ------------------- ------------------- Nonperforming loans $ 34,170 27,924 Other real estate 8,803 6,718 ------------------- ------------------- Non-performing assets $ 42,973 34,642 =================== =================== Loans 90 days past due and still accruing $ 15,621 16,878 =================== =================== Reserve for loan losses $ 134,035 127,558 =================== =================== Reserve for loan losses as a % of loans 1.41% 1.41 =================== =================== As a % of loans and other real estate: Nonperforming loans 0.36% 0.31 Other real estate 0.09 0.07 ------------------- ------------------- Non-performing assets 0.45% 0.38 =================== =================== Reserve to nonperforming loans 392.27% 456.80 =================== ===================
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 $1.454 billion at March 31, 2000, compared to $1.411 billion at December 31, 1999. The ratio of total risk-based capital to risk-weighted assets was 13.40% at March 31, 2000 compared to 13.77% at December 31, 1999. The leverage ratio at the end of the first quarter of 2000 was 10.40% compared to 10.52% at the end of 1999. The equity-to-assets ratio was 9.63% at March 31, 2000 compared to 9.78% at year-end 1999. Internal capital generation continues to support asset growth, as reflected in the first quarter 2000 equity-to-assets ratio exclusive of net unrealized gains (losses) on investment securities available for sale of 10.00%, compared to 10.13% at year-end 1999. Synovus' liquidity position decreased moderately to 27.40% at March 31, 2000, compared to 29.46% at December 31, 1999, due to the majority of earning asset growth being in loans. Additionally, the maturity mix of investment securities and loans has not changed significantly during the first three months of 2000. During the three months ended March 31, 2000, on an annualized basis, net loans increased by 18.7% while deposits increased by 10.6%. 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 Federal Home Loan Bank advances) and short-term fundings (consisting mostly of federal funds purchased) increased by a total of $228.5 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 $1.9 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 $81.4 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 and sold two of its vacated buildings. In the fourth quarter of 1999, TSYS made a payment representing a contract acquisition investment of $10.0 million to a prospective client. Subsequently, the prospective client announced its intention to exit the credit card business through a sale of its accounts in 2000. Under the terms of the arrangement, the prospective client agreed to repay the $10.0 million in the event a processing agreement is not executed by July 1, 2000. The consolidated statements of cash flows detail Synovus' cash flows from operating, investing, and financing activities. Operating activities provided net cash of $38.4 million during the first three months of 2000, while $531.8 million was provided by financing activities. Investing activities utilized $602.0 million of this amount, resulting in a decrease in cash and cash equivalents of $31.8 million. Earning Assets, Sources of Funds, and Net Interest Income Average total assets for the first three months of 2000 were $12.7 billion, up 17.5% over the first three months of 1999. Average earning assets were up 17.7% in the first three months of 2000 over the same period a year ago and represented 90.6% of average total assets. When compared to the same period last year, average deposits increased $817.6 million, average shareholders' equity increased $113.4 million, and average federal funds purchased and securities sold under agreement to repurchase increased $671.7 million. This growth provided the funding for the $1.6 billion growth in average net loans, the $169.7 million increase in average investment securities and the $26.8 million increase in average federal funds sold. Net interest income was $137.0 million for the three months ended March 31, 2000, up $16.5 million, or 13.7% over the $120.5 million reported in the three months ended March 31, 1999. Net interest income, on a tax-equivalent basis, for the first three months of 2000 increased $16.6 million, or 13.6%, over the same period in 1999. The year-to-date net interest margin was 4.90%, down twenty basis points from the same period last year. This decrease resulted from an eighteen basis point increase in the yield on earning assets, which was offset by a thirty-eight 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 94 basis point increase in the average prime rate from the first three months of 1999 compared to the first three 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 help 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.
Three Months Ended March 31, ------------------------------------- (In thousands) 2000 1999 - -------------- ----------------- ----------------- Interest income $ 250,269 206,831 Taxable-equivalent adjustment 1,490 1,392 ----------------- ----------------- Interest income, taxable-equivalent 251,759 208,223 Interest expense 113,300 86,368 ----------------- ----------------- Net interest income, taxable-equivalent $ 138,459 121,855 ================= =================
Non-Interest Income Total non-interest income during the first three months of 2000 increased $35.7 million, or 21.7%, over the same period in 1999. This increase in non-interest income resulted primarily from higher transaction processing revenues, which increased $29.3 million, or 28.0%, during the three months ended March 31, 2000, over the same period in 1999. For the year-to-date, banking operations' non-interest income increased 14.6% or $6.4 million compared to the same period a year ago. The growth in fee income was led by service charges on deposits (up $1.1 million or 6.3%), credit card fees (up $.8 million or 24.3%), brokerage (up $.7 million or 18.7%, a component of which are retail brokerage revenues which increased by approximately 30%), and trust services (up $.5 million or 10.0%). Additionally, other operating income included a $6.6 million gain from the sale of five bank branches in the first quarter of 2000 and a $2.0 million gain from the sale of a corporate investment in the first quarter of 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 $26.9 million, or 28.0%, for the three months ended March 31, 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 of individual cardholder accounts processed for each customer. Average cardholder accounts on file for the three months ended March 31, 2000, were 209.4 million, which was an increase of approximately 59.8% over the average of 131.0 million for the same period in 1999. Cardholder accounts on file at March 31, 2000, were 209.5 million, a 36.4% increase over the 153.6 million accounts on file at March 31, 1999. The increase in cardholder accounts on file from March 1999 to March 2000 included net internal growth of existing customers of 5.1 million cardholder accounts and approximately 50.8 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 March 31, 2000, four major customers accounted for approximately 48% of total revenues, compared to 44% for the three months ended March 31, 1999. 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. 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. In March 2000, TSYS announced its intention to launch a new wholly owned subsidiary, DotsConnect.com, Inc. (DotsConnect), to focus exclusively on the electronic payments (e-payments) market. DotsConnect will deliver premier e-payments software that allows buyers and sellers to conduct commerce electronically. The business of DotsConnect will focus on four areas: business-to-consumer financial services applications, Web hosting, business-to-business financial services applications, and electronic bill presentment and payment. DotsConnect will be headquartered in Columbus, Georgia, with an office in Atlanta, Georgia. DotsConnect commenced operations on May 1, 2000, with approximately 30 team members comprising the initial DotsConnect team. Non-Interest Expense Total non-interest expense for the three months ended March 31, 2000, increased $29.1 million, or 14.7%, 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 three months of 2000 and 1999.
2000 1999 --------------------------------- --------------------------------- Transaction Transaction Processing Processing (In thousands) Banking Services Banking Services - -------------- --------------- ---------------- -------------- ----------------- Salaries and other personnel expenses $ 64,570 59,315 57,811 50,414 Net occupancy and equipment expense 14,594 39,205 13,003 32,935 Other operating expenses 25,866 23,326 25,086 18,520 --------------- ---------------- -------------- ----------------- Total non-interest expense $ 105,030 121,846 95,900 101,869 =============== ================ ============== =================
Banking operations' non-interest expense increased $9.1 million or 9.5% for the three months ended March 31, 2000, compared to the same period in 1999. Salaries and other personnel expenses, the largest component of non-interest expense, increased $6.8 million or 11.7%. 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 March 31, 2000 was 5,173 a minimal increasefrom 5,144 a year ago, a trend that has been tempered by our continued efforts in expense control management. Net occupancy and equipment expense increased $1.6 million or 12.2% 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 56.9% in the first quarter of 2000, compared to 58.9% a year ago. Approximately 97% of total transaction processing services non-interest expense relates to TSYS, with the remainder related to TDM. The following paragraphs provide an analysis of the non-interest expense components at TSYS. Non-interest expense related to TSYS increased 20.5% or $20.1 million for the three months ended March 31, 2000, compared to the same period in 1999. Employment expenses increased 17.4% for the three months ended March 31, 2000, compared to the same period in 1999. The increase in employment expenses is due to growth in the number of employees and normal salary increases and related benefits. This change was offset by $3.0 million invested in software development costs for the three months ended March 31, 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 quarter of 2000 increased to 4,336, a 10.8% increase over the 3,915 in the same period of 1999. Net occupancy and equipment expense at TSYS increased 19.2% for the three months ended March 31, 2000, over the same period in 1999. Computer equipment and software rentals, which represent the largest component of net occupancy and equipment expense, increased 19.5% to $19.9 million in the first quarter of 2000, compared to $16.6 million in the same period of 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 three 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 increased 31.9% for the three months ended March 31, 2000, compared to the same period in 1999. The growth in other operating expenses for 2000 is primarily due to increased business development costs associated with exploring new business opportunities, both domestically and internationally; the establishment of a new international office in London; increased transaction processing expenses associated with the increase in the volume of accounts processed, and amortization of increased 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 three months ended March 31, 2000, was $34.4 million compared to $27.1 million for the same period a year ago. The effective tax rate for the first quarter of 2000 was 35.9% compared to 34.9% in the same quarter of 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 Synvous intends to maintain its reporting methods 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. ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K (a) Exhibits (11) Statement re Computation of Per Share Earnings (27) Financial Data Schedule (for SEC purposes only, not enclosed herewith) (b) Report on Form 8-K The following report on Form 8-K was filed during the first quarter of 2000. (1) The report filed on January 12, 2000, included the following event: On January 12, 2000, Synovus Financial Corp. ("Registrant") announced earnings for the year ended December 31, 1999. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNOVUS FINANCIAL CORP. Date: May 12, 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 22 Per Share Earnings 27 Financial Data Schedule (for SEC purposes only, not enclosed herewith) SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNOVUS FINANCIAL CORP. Date: May 12, 2000 BY:________________________ Thomas J. Prescott Executive Vice President and Chief Financial Officer EX-11 2 COMPUTATION OF NET INCOME EXHIBIT 11 SYNOVUS FINANCIAL CORP. COMPUTATION OF NET INCOME PER COMMON SHARE (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999 ---------------------------------- --------------------------------- Net Average Net Income Net Average Net Income Income Shares per Share Income Shares Per Share ---------------------------------- ---------------------------------- EPS - Basic $ 61,392 282,163 $ 0.22 $ 50,733 278,930 $ 0.18 Effect of dilutive options 2,788 3,793 -------------------------------------------------------------------------- EPS - Diluted $ 61,392 284,951 $ 0.22 $ 50,733 282,723 $ 0.18 ==========================================================================
EX-27 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATMENTS OF SYNOVUS FINANCIAL CORP. AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-2000 434,739 1,096 141,538 0 1,738,905 282,966 278,922 9,598,104 134,035 13,048,240 9,690,236 1,387,081 225,417 421,469 0 0 282,458 974,171 13,048,240 217,625 31,389 1,255 250,269 88,620 113,300 136,969 10,911 (1) 226,876 95,837 61,392 0 0 61,392 0.22 0.22 4.90 34,170 15,621 2,110 0 127,558 6,979 2,545 134,035 134,035 0 25,852
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