-----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, R/j5hOdxpuQJaapq72B6e42+TiTgrSiX8jifBIbe/aRNHB/vVC8Hf1zu5EpHgN6j 6YBQn1DCpclG0XW2C43+ng== 0000018349-97-000013.txt : 19970307 0000018349-97-000013.hdr.sgml : 19970307 ACCESSION NUMBER: 0000018349-97-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970306 SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10312 FILM NUMBER: 97551665 BUSINESS ADDRESS: STREET 1: ONE ARSENAL PLACE STE 301 STREET 2: 901 FRONT AVE 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-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended 1996 or ---- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to _________ Commission file number 1-10312 SYNOVUS FINANCIAL CORP. (Exact Name of Registrant as specified in its charter) Georgia 58-1134883 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) One Arsenal Place, 901 Front Avenue Suite 301, Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 649-2387 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- Common Stock, $1.00 Par Value New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 12, 1997, 116,369,039 shares of the $1.00 par value common stock of Synovus Financial Corp. were outstanding, and the aggregate market value of the shares of $1.00 par value common stock of Synovus Financial Corp. held by non-affiliates was approximately $2,681,624,314 (based upon the closing per share price of such stock on said date). Portions of the 1996 Annual Report to Shareholders of Registrant are incorporated in Parts I, II and IV of this report. Portions of the Proxy Statement of Registrant dated March 7, 1997 are incorporated in Part III of this report. Registrant's Documents Incorporated by Reference Part Number and Item Document Incorporated Number of Form 10-K Into by Reference Which Incorporated - ----------------------- ---------------------------- Pages F-10, F-21 through Part I, Item 1, Business F-27, and F-30 through F-51 of Registrant's 1996 Annual Report to Shareholders Pages F-16, and F-21 through F-23 Part I, Item 2, Properties of Registrant's 1996 Annual Report to Shareholders Pages F-21 through F 23 of Part I, Item 3, Legal Registrant's 1996 Annual Report Proceedings to Shareholders Pages F-47 through F-49 Part II, Item 5, Market of Registrant's 1996 Annual for Registrant's Common Report to Shareholders Equity and Related Stockholder Matters Page F-30 of Registrant's Part II, Item 6, 1996 Annual Report to Selected Shareholders Financial Data Pages F-30 through F-50 Part II, Item 7, of Registrant's Management's Discussion 1996 Annual Report to and Analysis of Financial Shareholders Condition and Results of Operations Pages F-2 through F-28, and F-51 Part II, Item 8, of Registrant's 1996 Financial Statements and Annual Report to Shareholders Supplementary Data Pages 3 through 6, 9 and 10, Part III, Item 10, and 25 of Registrant's Proxy Directors and Executive Statement in connection with Officers of the Registrant its Annual Shareholders' Meeting to be held April 17, 1997 Pages 10 through 14, and Part III, Item 11, 17 through 19 of Registrant's Proxy Executive Compensation Statement in connection with its Annual Shareholders' Meeting to be held April 17, 1997 Pages 6 through 8, and 20 through Part III, Item 12, 23 of Registrant's Proxy Statement Security Ownership of in connection with its Annual Certain Beneficial Shareholders' Meeting to be held Owners and Management April 17, 1997 Pages 17 through 19, 22, 24, and 25 Part III, Item 13, of Registrant's Proxy Statement in Certain Relationships connection with its Annual Shareholders' and Related Transactions Meeting to be held April 17, 1997 Pages F-2 through F-28 Part IV, Item 14, of Registrant's 1996 Exhibits, Financial Statement Annual Report to Shareholders Schedules and Reports on Form 8-K Table of Contents Item No. Caption Page No. - ------- -------- -------- Part I 1. Business 2. Properties 3. Legal Proceedings 4. Submission of Matters to a Vote of Security Holders Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8. Financial Statements and Supplementary Data 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and Related Transactions Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Item 1. Business. Business and Business Segments. Synovus Financial Corp.(R) ("Synovus(R)") is an $8.6 billion asset multi-financial services company which is a registered bank holding company as defined under federal law in the bank Holding Company Act of 1956, as amended (the "BHCA"), and under the bank holding company laws of the State of Georgia (the "Georgia Act"). As a bank holding company, Synovus is subject to supervision and regulation by the Board of Governors of the Federal Reserve System ("Board") and the Department of Banking and Finance of the State of Georgia ("Georgia Banking Department"). Synovus conducts a broad range of financial services through its banking and bank-related subsidiaries and affiliates. Synovus is engaged in two principal business segments: banking (which encompasses commercial banking, trust services, mortgage banking, credit card banking and certain securities brokerage operations), and bankcard data processing. While each of these activities is directly related to the provision of financial services, their separation for financial reporting purposes is appropriate under Statement of Financial Accounting Standards No. 14 and the rules of the Securities and Exchange Commission ("SEC"). See Note 12 of Notes to Consolidated Financial Statements on page F-23 of Synovus' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. Banking and Bank-Related Subsidiaries and Services. Synovus currently has thirty-four wholly owned first and second tier commercial banking subsidiaries located in four states. Of the 34 bank subsidiaries, 21 are located in Georgia with approximately $5 billion in assets, seven are located in Alabama with approximately $1.8 billion in assets, five are located in Florida with approximately $603 million in assets and one is located in South Carolina with approximately $1.3 billion in assets. Synovus' commercial banking subsidiaries are hereinafter sometimes collectively referred to as the "Banks." The Banks offer a broad range of commercial banking services, including accepting customary types of demand and savings deposits, making individual, consumer, commercial, installment, first mortgage and second mortgage loans, offering money transfers, safe deposit services, trust, investment, IRA, Keogh and corporate employee benefit and other fiduciary services, correspondent banking services, automated banking and electronic switch services, automated fund transfers and bank credit card services, including MasterCard and Visa services. All of the Banks' commercial banking activities are conducted within the United States. - ------------------ Synovus Financial Corp., Synovus, Synovus Securities, Inc., Columbus Bank and Trust Company and CB&T are federally registered service marks of Synovus Financial Corp. TSYS and TS2 are federally registered service marks and Total System Services, Inc. is a service mark of Total System Services, Inc. 1 Synovus owns the federally registered service marks of Synovus Financial Corp., Synovus, the stylized S logo and Synovus Securities, Inc. Synovus also owns other service marks. In the opinion of management of Synovus, the loss of the right to use such marks would not materially affect Synovus' business. The bank-related subsidiaries of Synovus are: (1) Synovus Securities, Inc.(R), Columbus, Georgia ("Synovus Securities"), which specializes in professional portfolio management for fixed-income securities, the execution of securities transactions as a broker/dealer and the provision of individual investment advice on equity and other securities; (2) Synovus Trust Company, Columbus, Georgia, one of the southeast's largest providers of trust services; (3) Synovus Mortgage Corp., Birmingham, Alabama, which offers mortgage servicing; and (4) Synovus Data Corp., Columbus, Georgia, which provides general bank data processing services to Synovus and its banking subsidiaries. Bankcard Data Processing and Other Affiliates and Services. Business. Established in 1983 as an outgrowth of an on-line accounting and bankcard data processing system developed for Synovus' wholly owned subsidiary, Columbus Bank and Trust Company(R) ("CB&T(R)"), Total System Services, Inc.(sm) ("TSYS(R)") is now one of the world's largest credit, debit, commercial and private-label card processing companies. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TOTAL SYSTEM SERVICES, INC.," TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEM(sm), servicing issuing institutions throughout the United States, Puerto Rico, Canada and Mexico, representing more than 79 million cardholder accounts. TSYS provides card production, domestic and international clearing, statement preparation, customer service support, merchant accounting, and management support. Synovus owns 80.7 percent of TSYS. TSYS has four wholly owned subsidiaries: (1) Columbus Depot Equipment Company(sm) ("CDEC(sm)"), which sells and leases computer related equipment associated with TSYS' bankcard data processing services and Bank data processing services provided by an affiliate; (2) Mailtek, Inc.(sm) ("Mailtek"), which provides full-service direct mail production services and offers data processing, list management, laser printing, computer output microfiche, card embossing, encoding and mailing services; (3) Lincoln Marketing, Inc.(sm) ("LMI"), which provides correspondence, fulfillment, telemarketing, data processing and mailing services; and (4) Columbus Productions, Inc.(sm) ("CPI"), which provides full-service commercial printing and related services. TSYS also holds a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V., which provides credit card related processing services to Mexican banks, and a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. that combines the front-end authorization and back-end accounting and settlement processing of merchants. 2 Service Marks. TSYS owns a family of service marks containing the name Total System, and the federally registered service marks TSYS and TS2, to which TSYS believes strong customer identification attaches. TSYS also owns service marks associated with its subsidiaries. Management does not believe the loss of such marks would have a material impact on the business of TSYS. Major Customers. A significant amount of TSYS' revenues are derived from certain major customers who are processed under long-term contracts. For the year ended December 31, 1996, AT&T Universal Card Services Corp. and NationsBank accounted for 17.6% and 11.9%, respectively, of TSYS' total revenues. As a result, the loss of one of TSYS' major customers could have a material adverse effect on TSYS' results of operations. See "Non-Interest Income" under the "Financial Review" Section on pages F-34 and F-35, "Non-Interest Expense" under the "Financial Review" Section on pages F-35 and F-36, and Note 10 of Notes to Consolidated Financial Statements on pages F-21 through F-23 of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. Acquisitions Consummated During 1996. See Note 1 of Notes to Consolidated Financial Statements on page F-10 and "Acquisitions" under the "Financial Review" Section on page F-31 of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference for a detailed description of the acquisitions consummated by Synovus during 1996. Supervision, Regulation and Other Factors. Synovus is a registered multi-bank holding company, subject to supervision and regulation by the Board under the BHCA, and by the Georgia Banking Department under the Georgia Act. As a bank holding company, Synovus is required to furnish the Board and the Georgia Banking Department with annual reports of the financial condition, management and inter-company relationships of Synovus and its subsidiaries and affiliates at the end of each fiscal year, and such additional information as the Board and the Georgia Banking Department may require from time to time. The Board and the Georgia Banking Department also make examinations of Synovus and certain of its subsidiaries and affiliates. The BHCA and the Georgia Act require each bank holding company to obtain the prior approval of the Board and the Georgia Banking Department before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank, if, after such acquisition, such bank holding company will, directly or indirectly, own or control more than 5% of the voting shares of such bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of a bank; or (iii) it may merge or consolidate with any other bank holding company. In addition, under the Georgia Act, it is unlawful for any bank holding company to acquire, direct or indirect, 3 ownership or control of more than 5% of the voting shares of any presently operating bank, unless such bank has been in existence and continuously operating as a bank for a period of five years or more prior to the date of making application to the Georgia Banking Department for approval of said acquisition. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act"), effective September 29, 1995, bank holding companies were permitted to acquire banks in any state. Under the Interstate Banking Act, effective June 1, 1997, banks may merge or consolidate across state lines, unless both of the states involved either authorize such merger or consolidation at an earlier date or either of the states involved elect to prohibit such merger or consolidation prior to May 31, 1997. Finally, under the Interstate Banking Act, states may authorize banks from other states to engage in branching across state lines. In addition, a bank holding company is, with certain exceptions, prohibited by the BHCA from engaging in, or acquiring or retaining direct or indirect control of the voting shares of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Board to be so closely related to banking, or managing or controlling banks, as to be a proper incident thereto. The Board has issued guidelines for the implementation of risk-based capital requirements by U.S. banks and Bank holding companies. See "Capital Resources and Dividends" under the "Financial Review" Section on pages F-47 through F-49 and Note 13 of Notes to Consolidated Financial Statements on pages F-24 through F-27 of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. Under the Board's current policy, Synovus is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support its subsidiary banks in circumstances when it might not do so absent such policy. In addition, any capital loans by Synovus to any of its subsidiary banks would also be subordinate in right of payment to depositors and to certain other indebtedness of such Bank. As a result of the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with: (i) the default of a commonly controlled FDIC insured depository institution; or (ii) any assistance provided by the FDIC to a commonly controlled FDIC insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. All of Synovus' subsidiary banks are FDIC insured depository institutions within the meaning of FIRREA. 4 The principal source of funds for the payment of dividends by Synovus is dividends paid to it by its subsidiary banks. Various federal and state statutory provisions limit the assessment of dividends that may be paid to Synovus by its subsidiary banks. See "Parent Company" under the "Financial Review" Section on page F-50, and Note 13 of Notes to Consolidated Financial Statements on pages F-24 through F-27 of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires the various federal banking regulatory agencies to issue regulations on a broad range of issues including capital standards, non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation, additional disclosure regarding loans and deposits to enhance consumer protection, limits on state Bank powers, audit requirements and examination requirements. Various federal regulatory agencies have adopted regulations which, among other matters, implement provisions of FDICIA that require or permit the respective federal regulatory agencies to take specific supervisory actions when FDIC-insured institutions come within one of five specific capital categories. The five capital categories are designated as (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized and (5) critically undercapitalized. FDICIA defines well capitalized banks or bank holding companies as entities having a total risk-based capital ratio of 10% or higher, a Tier 1 risk-based capital ratio of 6% or higher and a leverage ratio of 5% or higher. At December 31, 1996 Synovus and its significant bank subsidiaries had adequate capital to be classified as well capitalized institutions under the FDICIA regulations. See Note 13 of Notes to Consolidated Financial Statements on pages F-24 through F-27 of Synovus' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. FIRREA and FDICIA provide the federal banking agencies with significantly expanded powers to take enforcement action against institutions which fail to comply with capital or other standards. Such action may include the termination of deposit insurance by the FDIC. Because Synovus is a registered multi-bank holding company, the Banks are also subject to examination, supervision and regulation by the Board. The Banks which are chartered under the banking laws of the States of Georgia, Florida and Alabama are subject to examination, supervision and regulation by the Georgia Banking Department, Florida Banking Department and the Alabama Banking Department, respectively. The Banks which are chartered under the banking laws of the United States are subject to examination, supervision and regulation by the Office of the Comptroller of the Currency ("OCC"). In addition, the deposits of the Banks are insured by the FDIC to the extent provided by law, and are subject to examination, supervision and regulation by the FDIC. The Georgia Banking Department, Florida Banking Department, Alabama Banking Department, OCC and the FDIC regulate all areas of the Banks' banking and trust operations,including, where appropriate,reserves,investments,loans, mergers, the 5 issuance of securities, payment of dividends, interest rates, extension of credit to officers and directors, establishment of branches, maintenance of capital and other aspects of their operations. Also, the payment of management fees by banking subsidiaries of a bank holding company is subject to supervision and regulation by the Georgia Banking Department, Florida Banking Department, Alabama Banking Department, the OCC, the Board and the FDIC. The payment of management fees by non-banking subsidiaries of a bank holding company is also subject to supervision and regulation by the Board. Numerous other federal and state laws, as well as regulations promulgated by the Board, the Georgia Banking Department, Florida Banking Department, Alabama Banking Department, the OCC and the FDIC govern almost all aspects of the operations of the Banks. Employees. During 1996, the average number of employees of Synovus was 6,695, which number includes 2,498 persons who are employees of TSYS. Competition. Banking. Synovus and the Banks encounter vigorous competition from other commercial banks, savings and loan associations and other financial institutions and intermediaries in their respective market areas. Certain of the Banks are smaller than many of the financial institutions in their respective market areas. The Banks compete with other banks in their respective market areas in obtaining new deposits and accounts, making loans, obtaining branch banking locations and providing other banking services. The Banks also compete with savings institutions and credit unions in their respective markets for savings and transaction deposits, certificates of deposit and various types of loans. Competition for loans is also offered by other financial intermediaries, including savings institutions, mortgage banking firms and real estate investment trusts, small loan and finance companies, insurance companies, credit unions, leasing companies and certain government agencies. Competition for time deposits and, to a more limited extent, demand and transaction deposits is also offered by a number of other financial intermediaries and investment alternatives, including "money-market" mutual funds, brokerage firms, government and corporate bonds and other securities. In the offering of fiduciary services, the Banks and Synovus Trust Company, a wholly owned subsidiary of CB&T, compete with commercial banks and savings institutions having trust powers, trust companies, and investment advisory and brokerage firms and other individuals and firms that offer fiduciary, escrow, or corporate trust services. 6 Synovus Securities competes with full-service brokerage firms. In the offering of investment advisory and securities brokerage services, Synovus Securities competes with banking and brokerage concerns which provide investment advisory and broker-dealer services for fixed income portfolios. Bankcard Data Processing Subsidiary. TSYS encounters vigorous competition in providing bankcard data processing services from several different sources. The national market in third party bankcard data processors is presently being provided by approximately five vendors. TSYS believes that it is the second largest third party bankcard processor in the United States. In addition, TSYS competes against software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from bankcard associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. TSYS' major competitor in the bankcard data processing industry is First Data Resources, Inc., which is headquartered in Omaha, Nebraska, and provides bankcard data processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price and the type and quality of services provided. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS. Selected Statistical Information. The "Financial Review" Section, which is set forth on pages F-30 through F-51 of Synovus' 1996 Annual Report to Shareholders, which includes the information encompassed within "Selected Statistical Information", is specifically incorporated herein by reference. Item 2. Properties. Synovus and its subsidiaries own, in some cases subject to mortgages or other security interests, or lease all of the real property and/or buildings on which it is located. All of such buildings are in a good state of repair and are appropriately designed for the purposes for which they are used. See Note 6 and Note 10 of Notes to Consolidated Financial Statements on page F-16, and pages F-21 through F-23, of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. CB&T occupies an approximately 225,000 square foot building known as the Uptown Center in Columbus, Georgia which provides office space for most of its operations. 7 TSYS occupies a 252,000 square foot production center which is located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily a production center, this facility houses TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production and purchasing, as well as other related operations. Additional space will be added to this facility in 1997 to house TSYS' card production services. During 1995, TSYS purchased a 110,000 square foot building on a 23 acre site in Columbus, Georgia to accommodate current and future space needs. On March 7, 1996, TSYS announced its plans to purchase approximately 50 acres in downtown Columbus, Georgia, on which it will begin building a campus-like complex for its corporate headquarters in 1997. Item 3. Legal Proceedings. See Note 10 of Notes to Consolidated Financial Statements on pages F-21 through F-23 of Synovus' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Shares of common stock of Synovus are traded on the New York Stock Exchange under the symbol "SNV." See "Capital Resources and Dividends" under the "Financial Review" Section which is set forth on pages F-47 through F-49 of Synovus' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. On October 31, 1994, Synovus issued 823,319 shares of its $1.00 par value common stock to the shareholders of State Bancshares, Inc., the parent company of the $62 million asset Coffee County Bank, in exchange for all 53,000 of the issued and outstanding shares of $.10 par value common stock of State Bancshares, Inc. The securities were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 as they were issued to a limited number of persons. The securities were subsequently registered with a Form S-3 Registration Statement on November 21, 1994. Item 6. Selected Financial Data. See "Five Year Selected Financial Data" under the "Financial Review" Section which is set forth on page F-30 of Synovus' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The "Financial Review" Section which is set forth on pages F-30 through F-50 of Synovus' 1996 Annual Report to Shareholders, which includes the information encompassed by "Management's Discussion and Analysis of Financial Condition and Results of Operations", is specifically incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The "Summary of Quarterly Financial Data" Section which is set forth on page F- 51, and the "Consolidated Statements of Condition, Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders' Equity, Consolidated Statements of Cash Flows, Summary of Significant Accounting Policies, Notes to Consolidated Financial Statements and Independent Auditors' Report" Sections which are set forth on pages F-2 through F-28 of Synovus' 1996 Annual Report to Shareholders are specifically incorporated herein by reference. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 10. Directors and Executive Officers of the Registrant. The "ELECTION OF DIRECTORS - Information Concerning Directors and Nominees" Section which is set forth on pages 3 and 4, the "ELECTION OF DIRECTORS - -Information Concerning Directors and Nominees for Class III Directors General Information" Section which is set forth on pages 4 through 6, the "ELECTION OF DIRECTORS - Executive Officers" Section which is set forth on pages 9 and 10, and the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE SECTION" which is set forth on page 25 of Synovus' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 17, 1997 are specifically incorporated herein by reference. Item 11. Executive Compensation. The "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; Compensation of Directors; Employment Contracts and Change in Control Arrangements; and Compensation Committee Interlocks and Insider Participation" Sections which are set forth on pages 10 through 14 and pages 17 through 19 of Synovus' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 17, 1997 are specifically incorporated herein by reference. 9 Item 12. Security Ownership of Certain Beneficial Owners and Management. The "ELECTION OF DIRECTORS - Information Concerning Directors and Nominees for Class III Directors - Synovus Common Stock Ownership of Directors and Management" Section which is set forth on pages 6 through 8, the "PRINCIPAL SHAREHOLDERS" Section which is set forth on pages 20 and 21, and the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - TSYS Common Stock Ownership of Directors and Management" Section which is set forth on pages 22 and 23 of Synovus' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 17, 1997 are specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider Participation Section" which is set forth on pages 17 through 19, "EXECUTIVE COMPENSATION" -Transactions with Management" Section which is set forth on page 19, the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - Beneficial Ownership of TSYS Common Stock by Columbus Bank" Section which is set forth on page 22, the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - Interlocking Directorates of Synovus, Columbus Bank and TSYS" Section which is set forth on page 22, and the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - Transactions and Agreements Between Synovus, Columbus Bank, TSYS and Certain of Synovus' Subsidiaries" Section which is set forth on pages 24 and 25 of Synovus' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 17, 1997 are specifically incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements The following Consolidated Financial Statements of Synovus Financial Corp. and its subsidiaries are specifically incorporated by reference from pages F-2 through F-28 of Synovus' 1996 Annual Report to Shareholders, in response to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Statements of Condition - December 31, 1996 and 1995 Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and 1994 10 Consolidated Statements of Changes in Shareholders' Equity - Years Ended December 31,1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 Summary of Significant Accounting Policies - December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements - December 31, 1996, 1995 and 1994 Independent Auditors' Report 2. Financial Statement Schedules Financial Statement Schedules - None applicable because the required information has been incorporated in the Consolidated Financial Statements of Synovus Financial Corp. and its subsidiaries incorporated by reference herein. 3. Exhibits Exhibit Number Description 3.1 Articles of Incorporation, as amended, of Synovus Financial Corp. ("Synovus") incorporated by reference to Exhibit 4(a) of Synovus' Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 23, 1990 (File No. 33-35926). 3.2 Bylaws, as amended, of Synovus. 4.1 Form of Rights Agreement incorporated by reference to Exhibit 1 of Synovus' Registration Statement on Form 8-A dated May 3, 1989 pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. 9.1 Voting Lease Agreement incorporated by reference to Exhibit 9.1 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 24, 1995. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 11 10.1 Employment Agreements of James H. Blanchard and James D. Yancey with Synovus incorporated by reference to Exhibit 10.1 of Synovus' Registration Statement on Form S-1 filed with the Commission on December 18, 1990 (File No. 33-38244). 10.2 Incentive Bonus Plan of Synovus incorporated by reference to Exhibit 10.5 of Synovus' Registration Statement on Form S-1 filed with the Commission on December 18, 1990 (File No. 33-38244). 10.3 Director Stock Purchase Plan of Synovus incorporated by reference to Exhibit 10(a) of Synovus' Registration Statement on Form S-8 filed with the Commission on December 3, 1984 (File No. 2-94639). 10.4 Key Executive Restricted Stock Bonus Plan of Synovus incorporated by reference to Exhibit 10.6 of Synovus' Registration Statement on Form S-1 filed with the Commission on December 18, 1990 (File No. 33-38244). 10.5 1989 Stock Option Plan of Synovus incorporated by reference to Exhibit "A" of Synovus' Registration Statement on Form S-8 filed with the Commission on July 23, 1990 (File No.33-35926), which Option Plan was amended on March 16, 1992 to eliminate the stock appreciation rights feature of the outstanding options under the Plan and reduce the exercise price from $16 5/8 per share to $9.70 per share. 10.6 Employment Agreements of John T. Oliver, Jr. and Richard E. Anthony with Synovus and Consulting Agreement of H. Lynn Page with Synovus incorporated by reference to Exhibit 10.6 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.7 Excess Benefit Agreement of Synovus incorporated by reference to Exhibit 10.7 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 24, 1995. 12 10.8 Wage Continuation Agreement of Synovus incorporated by reference to Exhibit 10.8 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.9 1991 Stock Option Plan for Key Executives of Synovus incorporated by reference to Exhibit 10.9 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.10 Synovus Financial Corp. 1992 Long-Term Incentive Plan incorporated by reference to Exhibit 10.10 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.11 Agreement in Connection with Use of Aircraft incorporated by reference to Exhibit 10.11 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.12 Life Insurance Trusts incorporated by reference to Exhibit 10.12 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.13 Supplemental Compensation Agreement, Incentive Compensation Agreements and Performance Compensation Agreement with Richard E. Anthony; which Agreements were assumed by Synovus on December 31, 1992 as a result of its acquisition of First Commercial Bancshares, Inc.; and which stock awards made pursuant to the Agreements were converted at a ratio of 1.5 to 1, the exchange ratio applicable to the merger incorporated by reference to Exhibit 10.13 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 29, 1993. 10.14 1993 Split Dollar Insurance Agreement of Synovus incorporated by reference to Exhibit 10.14 of Synovus' Annual Report on Form 10-K for the fiscal year ended 13 December 31, 1993, as filed with the Commission on March 28, 1994. 10.15 1995 Split Dollar Insurance Agreement of Synovus incorporated by reference to Exhibit 10.15 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 24, 1995. 10.16 Synovus Financial Corp. 1995 Long-Term Incentive Plan incorporated by reference to Exhibit 10.16 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 24, 1995. 10.17 Employment Agreement of Robert V. Royall, Jr. and Employment and Retirement Agreements of William L. Pherigo incorporated by reference to Exhibit 10.17 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 25, 1996. 10.18 Synovus Financial Corp. Executive Bonus Plan incorporated by reference to Exhibit 10.18 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 25, 1996. 10.19 Change of Control Agreements incorporated by reference to Exhibit 10.19 of Synovus' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 25, 1996. 10.20 Consulting Agreement of Joe E. Beverly. 11.1 Statement of Computation of Net Income Per Common Share. 13.1 Certain specified pages of Synovus' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. 20.1 Proxy Statement, for the Annual Meeting of Shareholders of Synovus to be held on April 17, 1997, 14 certain specified pages of which are specifically incorporated herein by reference. 21.1 Subsidiaries of Synovus Financial Corp. 23.1 Independent Auditors' Consents. 24.1 Powers of Attorney contained on the signature pages of the 1996 Annual Report on Form 10-K. 27.1 Financial Data Schedule (for SEC use only). 99.1 Annual Report on Form 11-K for the Synovus Financial Corp. Employee Stock Purchase Plan for the year ended December 31, 1996 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report). 99.2 Annual Report on Form 11-K for the Synovus Financial Corp. Director Stock Purchase Plan for the year ended December 31, 1996 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report). Synovus agrees to furnish the Commission, upon request, a copy of each instrument with respect to issues of long-term debt. The principal amount of any individual instrument, which has not been previously filed, does not exceed ten percent of the total assets of Synovus and its subsidiaries on a consolidated basis. (b) Reports on Form 8-K. None. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Synovus Financial Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNOVUS FINANCIAL CORP. (Registrant) March 5, 1997 By:/s/James H. Blanchard --------------------- James H. Blanchard, Chairman of the Board and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, James D. Yancey and Stephen L. Burts, Jr., and each of them, his or her true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/William B. Turner Date: March 5, 1997 - ------------------------------------ William B. Turner, Director and Chairman of the Executive Committee /s/James H. Blanchard Date: March 5, 1997 - ----------------------------------- James H. Blanchard, Chairman of the Board and Principal Executive Officer 16 /s/John T. Oliver, Jr. Date: March 5, 1997 - ------------------------------ John T. Oliver, Jr., Director and Vice Chairman of the Executive Committee /s/James D. Yancey Date: March 5, 1997 - ------------------------------ James D. Yancey, Vice Chairman of the Board /s/Richard E. Anthony Date: March 5, 1997 - ----------------------------- Richard E. Anthony, Vice Chairman of the Board /s/Walter M. Deriso, Jr. Date: March 5, 1997 - ----------------------------- Walter M. Deriso, Jr., Vice Chairman of the Board /s/Stephen L. Burts, Jr. Date: March 5, 1997 - ---------------------------- Stephen L. Burts, Jr., President /s/G. Sanders Griffith, III Date: March 5, 1997 - ----------------------------- G. Sanders Griffith, III, Senior Executive Vice President, General Counsel and Secretary /s/Thomas J. Prescott Date: March 5, 1997 - ------------------------------ Thomas J. Prescott, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Jay C. McClung Date: March 5, 1997 - ------------------------------ Jay C. McClung, Executive Vice President /s/Calvin Smyre Date: March 5, 1997 - ----------------------------- Calvin Smyre, Executive Vice President 17 - ---------------------------------- Date: Daniel P. Amos, Director /s/Joe E. Beverly Date: March 5, 1997 - ---------------------------------- Joe E. Beverly, Director /s/Richard Y. Bradley Date: March 5, 1997 - --------------------------------- Richard Y. Bradley, Director /s/C. Edward Floyd Date: March 5, 1997 - -------------------------------- C. Edward Floyd, Director /s/Gardiner W. Garrard, Jr. Date: March 5, 1997 - --------------------------------- Gardiner W. Garrard, Jr., Director /s/V. Nathaniel Hansford Date: March 5, 1997 - -------------------------------- V. Nathaniel Hansford, Director /s/John P. Illges, III Date: March 5, 1997 - -------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 5, 1997 - ------------------------------- Mason H. Lampton, Director - ------------------------------- Date: Elizabeth C. Ogie, Director 18 /s/H. Lynn Page Date: March 5, 1997 - --------------------------- H. Lynn Page, Director /s/William L. Pherigo Date: March 5, 1997 - ---------------------------- William L. Pherigo, Director /s/Robert V. Royall, Jr. Date: March 5, 1997 - ---------------------------- Robert V. Royall, Jr., Director /s/George C. Woodruff, Jr. Date: March 5, 1997 - --------------------------- George C. Woodruff, Jr., Director 19 filings\SNV\nonconfo.sig EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 As Amended Effective January 24, 1997 BYLAWS OF SYNOVUS FINANCIAL CORP. ARTICLE I. OFFICES Section 1. Principal Office. The principal office for the transaction of the business of the corporation shall be located in Muscogee County, Georgia, at such place within said County as may be fixed from time to time by the Board of Directors. Section 2. Other Offices. Branch offices and places of business may be established at any time by the Board of Directors at any place or places where the corporation is qualified to do business, whether within or without the State of Georgia. ARTICLE II. SHAREHOLDERS' MEETINGS Section 1. Meetings, Where Held. Any meeting of the shareholders of the corporation, whether an annual meeting or a special meeting, may be held either at the principal office of the corporation or at any place in the United States within or without the State of Georgia. Section 2. Annual Meeting. The annual meeting of the shareholders of the corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as is determined by the Board of Directors of the corporation each year. Provided, however, that if the Board of Directors shall fail to set a date for the annual meeting of shareholders in any year, that the annual meeting of the shareholders of the corporation shall be held on the fourth Thursday in April of each year; provided, that if said day shall fall upon a legal holiday, then such annual meeting shall be held on the next day thereafter ensuing which is not a legal holiday. In addition to any other applicable requirements, for business to properly come before the meeting, notice of any nominations of persons for election to the Board of Directors or of any other business to be brought before an annual meeting of shareholders by a shareholder must be provided in writing to the Secretary of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the date of the meeting and such 1 business must constitute a proper subject to be brought before such meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the Proxy Statement in connection with such annual meeting as a nominee and to serving as a director if elected), and evidence reasonably satisfactory to the corporation that such nominee has no interests that would limit such nominee's ability to fulfill his or her duties of office; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation that are owned beneficially and held of record by such shareholder and such beneficial owner. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2. The Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that business has not been properly brought before the meeting in accordance with the provisions of this Section 2, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 3. Special Meetings. A special meeting of the shareholders of the corporation, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, the President, any Vice President, a majority of the Board of Directors, or one or more shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. Such a call for a special meeting must state the purpose of the meeting. This section, as it relates to the call of a special meeting of the shareholders of the corporation by one or more shareholders representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. Section 4. Notice of Meetings. Unless waived, written notice of each annual meeting and of each special meeting of the shareholders of the corporation shall be given to each shareholder of record entitled to vote, either personally or by first class mail (postage prepaid) addressed to such shareholder at his last known address, not less than ten (10) days nor more than seventy (70) days prior to said meeting. Such written notice shall specify the place, day and hour of the meeting; and in the case of a special meeting, it shall also 2 specify the purpose or purposes for which the meeting is called. Section 5. Waiver of Notice. Notice of an annual or special meeting of the shareholders of the corporation may be waived by any shareholder, either before or after the meeting; and the attendance of a shareholder at a meeting, either in person or by proxy, shall of itself constitute waiver of notice and waiver of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except when a shareholder attends solely for the purpose of stating, at the beginning of the meeting, an objection or objections to the transaction of business at such meeting. Section 6. Quorum, Voting and Proxy. Shareholders representing a majority of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation shall constitute a quorum at a shareholders' meeting. Any shareholder may be represented and vote at any shareholders' meeting by written proxy filed with the Secretary of the corporation on or before the date of such meeting; provided, however, that no proxy shall be valid for more than 11 months after the date thereof unless otherwise specified in such proxy. The common stock of the corporation shall have the following voting rights: (a) Except as otherwise provided in paragraph (b) below, every holder of record of the common stock shall be entitled to one (1) vote in person or by proxy on each matter submitted to a vote at a meeting of shareholders for each share of the common stock held of record by such holder as of the record date of such meeting. (b) Notwithstanding paragraph (a) above, every holder of record of a share of the common stock meeting any one of the following criteria, shall be entitled to ten (10) votes in person or by proxy on each matter submitted to a vote at a meeting of shareholders for each share of the common stock held of record by such holder as of the record date of such meeting which: (1) has had the same beneficial owner since April 24, 1986; or (2) has had the same beneficial owner for a continuous period of greater than 48 months prior to the record date of such meeting; or (3) is held by the same beneficial owner to whom it was issued by the corporation in or as a part of an acquisition of a banking or non-banking company by the corporation where the resolutions adopted by the corporation's Board of Directors approving said acquisition specifically reference and grant such rights; or (4) is held by the same beneficial owner to whom it was issued by the corporation, or to whom it transferred by the corporation from treasury shares held by the corporation, and the resolutions adopted by the corporation's Board of 3 Directors approving such issuance and/or transfer specifically reference and grant such rights; or (5) was acquired under any employee, officer and/or director benefit plan maintained for one or more employees, officers and/or directors of the corporation, and/or its subsidiaries, and is held by the same beneficial owner for whom it was acquired under the terms and provisions of such plan; or (6) was acquired by reason of participation in a dividend reinvestment plan approved by the corporation and is held by the same beneficial owner for whom it was acquired under the terms and provisions of such plan; or (7) is owned by a holder who, in addition to shares which are beneficially owned under the provisions of paragraph (b) (1)-(6) above, is the beneficial owner of less than 100,000 shares of common stock of the corporation, with such amount to be appropriately adjusted to properly reflect any change in the shares of common stock of the corporation by means of a stock split, a stock dividend, a recapitalization or otherwise occurring after April 24, 1986. (c)For purposes of paragraphs (b) above and (e) below: (1) any transferee of a share of the common stock receiving such stock: (i) by gift; or (ii) by bequest, devise or otherwise through the law of inheritance, descent and distribution from a descendant's estate; or (iii) by distribution from a trust holding such stock for the benefit of such transferee; or (2) any corporate transferee receiving such common stock solely in exchange for the capital stock of such corporate transferee prior to December 31, 1986, provided that the transferor(s) of such common stock and their respective donees, legatees and devises own all of the issued and outstanding shares of capital stock of such corporate transferee; shall be deemed in each case to be the same beneficial owner as the transferor. Any transfer of any share of the capital stock of a corporate transferee described in subparagraph c(2) above, other than by means described in subparagraph c(l) above shall disqualify all shares of the common stock held by such corporate transferee from the operation of this paragraph c. (d) For purposes of paragraph (b) above, shares of the common stock acquired pursuant to a stock option shall be deemed to have been acquired on the date the option 4 was granted, and any shares of common stock acquired by the beneficial owner as a direct result of a stock split, stock dividend or other type of distribution of shares with respect to existing shares ("Dividend Shares") will be deemed to have been acquired and held continuously from the date on which the shares with regard to which the Dividend Shares were issued were acquired. (e) For purposes of paragraph (b) above, any share of the common stock held in "street" or "nominee" name shall be presumed to have been acquired by the beneficial owner subsequent to April 24, 1986 and to have had the same beneficial owner for a continuous period of less than 48 months prior to the record date of the meeting in question. This presumption shall be rebuttable by presentation to the corporation's Board of Directors by such beneficial owner of evidence satisfactory to the corporation's Board of Directors that such share has had the same beneficial owner continuously since April 24, 1986 or such share has had the same beneficial owner for a period greater than 48 months prior to the record date of the meeting in question. (f) For purposes of this section, a beneficial owner of a share of common stock is defined to include a person or group of persons who, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares (1) voting power, which includes the power to vote, or to direct the voting of such share of common stock, (2) investment power, which includes the power to direct the sale or other disposition of such share of common stock, (3) the right to receive, retain or direct the distribution of the proceeds of any sale or other disposition of such share of common stock, or (4) the right to receive or direct the disposition of any distributions, including cash dividends, in respect of such share of common stock. For purposes of paragraphs (a) through (e) above, all determinations concerning beneficial ownership, changes therein, or the absence of any such change, shall be made by the corporation's Board of Directors. Written procedures designed to facilitate such determinations shall be established by the corporation's Board of Directors and refined from time to time. Such procedures shall provide, among other things, the manner of proof of facts that will be accepted and the frequency with which such proof may be required to be renewed. The corporation's Board of Directors shall be entitled to rely on all information concerning beneficial ownership of the common stock coming to its attention from any source and in any manner reasonably deemed by it to be reliable, but the corporation shall not be charged with any other knowledge concerning the beneficial ownership of the common stock. Any disputes arising concerning beneficial ownership, changes therein, or the absence of any such changes, pursuant to this paragraph (f), shall be definitively resolved by a determination of the corporation's Board of Directors made in good faith. Section 7. Voting Rights. The voting rights of shares of common stock of the corporation shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. Section 8. No Meeting Necessary When. Any action required by law or permitted to be taken at any shareholders' 5 meeting may be taken without a meeting if, and only if, written consent, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of the shareholders and shall be filed with the Secretary and recorded in the Minute Book of the corporation. ARTICLE III. DIRECTORS Section 1. Number. The Board of Directors of the corporation shall consist of not less than 8 nor more than 60 Directors. The number of Directors may vary between said minimum and maximum, and within said limits, the shareholders representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation may, from time to time, by resolution fix the number of Directors to comprise said Board. This section, as it relates to, from time to time, fixing the number of Directors of the corporation by the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. Section 2. Election and Tenure. The Board of Directors of the corporation shall be divided into three classes serving staggered 3-year terms, with each class to be as nearly equal in number as possible. At the first annual meeting of the shareholders of the corporation on or after the date of adoption of this provision, all members of the Board of Directors shall be elected with the terms of office of Directors comprising the first class to expire at the first annual meeting of the shareholders of the corporation after their election, the terms of office of Directors comprising the second class to expire at the second annual meeting of the shareholders of the corporation after their election and the terms of office of Directors comprising the third class to expire at the third annual meeting of the shareholders of the corporation after their election, and as their terms of office expire, the Directors of each class will be elected to hold office until the third succeeding annual meeting of the shareholders of the corporation after their election. In such elections, the nominees receiving a plurality of votes shall be elected. This section, as it relates to the division of the Board of Directors into three classes serving staggered 3-year terms, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. Section 3. Powers. The Board of Directors shall have authority to manage the affairs and exercise the powers, privileges and franchises of the corporation as they may deem expedient for the interests of the corporation, subject to the terms of the Articles of 6 Incorporation, bylaws, any valid Shareholders' Agreement, and such policies and directions as may be prescribed from time to time by the shareholders of the corporation. Section 4. Meetings. The annual meeting of the Board of Directors shall be held without notice immediately following the annual meeting of the shareholders of the corporation, on the same date and at the same place as said annual meeting of the shareholders. The Board by resolution may provide for regular meetings, which may be held without notice as and when scheduled in such resolution. Special meetings of the Board may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, the President, or by any two or more Directors. Section 5. Notice and Waiver; Quorum. Notice of any special meeting of the Board of Directors shall be given to each Director personally or by mail, telegram or cablegram addressed to him at his last known address, at least one day prior to the meeting. Such notice may be waived, either before or after the meeting; and the attendance of a Director at any special meeting shall of itself constitute a waiver of notice of such meeting and of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except where a Director states, at the beginning of the meeting, any such objection or objections to the transaction of business. A majority of the Board of Directors shall constitute a quorum at any Directors' meeting. Section 6. No Meeting Necessary, When. Any action required by law or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if written consent, setting forth the action so taken, shall be signed by all the Directors. Such consent shall have the same force and effect as a unanimous vote of the Board of Directors and shall be filed with the Secretary and recorded in the Minute Book of the corporation. Section 7. Voting. At all meetings of the Board of Directors each Director shall have one vote and, except as otherwise provided herein or provided by law, all questions shall be determined by a majority vote of the Directors present. Section 8. Removal. Any one or more Directors or the entire Board of Directors may be removed from office, with or without cause, by the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation at any shareholders' meeting with respect to which notice of such purpose has been given. This section, as it relates to the removal of Directors of the corporation by the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the 7 corporation. Section 9. Vacancies. Any vacancy occurring in the Board of Directors caused by an increase in the number of Directors may be filled by the shareholders of the corporation for a full classified 3-year term, or such vacancy may be filled by the Board of Directors until the next annual meeting of the shareholders. Any vacancy occurring in the Board of Directors caused by the removal of a Director shall be filled by the shareholders, or if authorized by the shareholders, by the Board of Directors, for the unexpired term of the Director so removed. Any vacancy occurring in the Board of Directors caused by a reason other than an increase in the number of Directors or removal of a Director may be filled by the Board of Directors, or the shareholders, for the unexpired term of the Director whose position is vacated. Vacancies in the Board of Directors filled by the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors, though less than a quorum, or the sole remaining Director, as the case may be. Section 10. Dividends. The Board of Directors may declare dividends payable in cash or other property out of the unreserved and unrestricted net earnings of the current fiscal year, computed to the date of declaration of the dividend, or the preceding fiscal year, or out of the unreserved and unrestricted earned surplus of the corporation, as they may deem expedient. Section 11. Committees. In the discretion of the Board of Directors, said Board from time to time may elect or appoint, from its own members, an Executive Committee, an Audit Committee, a Nominating Committee, a Corporate Development Committee, a Compensation Committee and such other committee or committees as said Board may see fit to establish. Each such committee shall consist of two or more Directors, and each shall possess such powers and be charged with such responsibilities, subject to the limitations imposed herein these bylaws and by applicable law, as the Board by resolution may from time to time prescribe. Executive Committee The Executive Committee shall, during the intervals between meetings of the corporation's Board of Directors, possess and may exercise any and all powers of the corporation's Board of Directors in the management and direction of the business and affairs of the corporation in which specific direction has not been given by the corporation's Board of Directors. Nominating Committee The Nominating Committee shall possess the power and be charged with the responsibility of: (i) evaluating the performance of incumbent directors and non-directors in determining whether or not they should be nominated for re-election, or election in the 8 first instance, by the shareholders to serve upon the Board of Directors of the corporation; and (ii) recommending to the Board of Directors of the corporation whether or not the Board should nominate such individuals for re-election or election, as the case may be, by the shareholders to serve upon the Board of Directors of the corporation. Compensation Committee The Compensation Committee shall possess the power and be charged with the responsibility of: (i) evaluating the remuneration of senior management and members of the Board of Directors of the corporation and the compensation and fringe benefit plans in which officers, employees and directors of the corporation are eligible to participate; and (ii) recommending to the Board of Directors of the corporation whether or not it should modify or approve such remuneration, compensation or fringe benefit plans. Corporate Development Committee The Corporate Development Committee shall possess the power and be charged with the responsibility of reviewing with and assisting the management of the corporation in the formalization of plans and strategies with regard to the future expansion and growth of, and the overall operation of, the market areas served by, and the services provided by the corporation and its subsidiaries, including, but not limited to, plans and strategies in connection with acquisitions by the corporation of control of organizations and firms engaged in banking activities and activities determined by the Board of Governors of the Federal Reserve System to be closely related to banking, the provision by the corporation and its subsidiaries of additional services to the customers in the market areas served by the corporation and its subsidiaries and the expansion of the market areas served by the corporation and its subsidiaries. Audit Committee The Audit Committee shall possess the power and be charged with the responsibility of: (i) reviewing and determining the independence of the independent auditors to be engaged by the corporation to perform the annual audit and interim reviews of the financial condition of the corporation and its subsidiaries (hereinafter referred to as the "corporation's independent auditors"); (ii) reviewing, determining and maintaining the independence of the corporation's internal auditors by assisting management of the corporation in the formulation of the job description of the head of the corporation's internal audit division and providing for direct reporting by the corporation's internal auditors to it in all matters relating to the audit function; (iii) instituting, directing and supervising investigations in matters relating to the audit function to be made by the corporation's internal auditors of the corporation and/or its subsidiaries; (iv) reviewing and approving each professional service to be provided by the corporation's independent auditors for the corporation and/or its subsidiaries prior to the performance of such services; (v) reviewing and approving the range of management advisory services provided by the corporation's independent auditors; (vi) reviewing the adequacy by the corporation's and its subsidiaries' systems of internal accounting controls; (vii) reviewing the scope and results of the corporation's procedures for internal auditing of the 9 corporation and its subsidiaries; (viii) reviewing the results of regulatory examination of the corporation and its subsidiaries; (ix) reviewing the corporation's independent auditor's plan and results of its audit engagement; (x) periodically reviewing with the corporation's independent auditors with the assistance of management of the corporation the financial statement of the corporation and consolidated financial statements of the corporation and its subsidiaries with the primary goal of such review being to insure that such financial statements fairly present the financial results of the corporation in conformity with generally accepted accounting principles; (xi) reviewing and recommending to the Board of Directors of the corporation any engagement or termination of the corporation's independent auditors; and (xii) considering such other matters with regard to the internal and independent audit of the corporation and its subsidiaries as, in its discretion, it deems to be desirable, periodically reporting to the Board of Directors of the corporation as to the exercise of its duties and responsibilities and, where appropriate, recommending to the Board of Directors matters in connection with the audit function upon which it should consider taking action. Section 12. Officers, Salaries and Bonds. The Board of Directors shall elect all officers of the corporation and fix their compensation. The fact that any officer is a Director shall not preclude him from receiving a salary or from voting upon the resolution providing the same. The Board of Directors may or may not, in their discretion, require bonds from either or all of the officers and employees of the corporation for the faithful performance of their duties and good conduct while in office. Section 13. Compensation of Directors. Directors, as such shall be entitled to receive compensation for their service as Directors and such fees and expenses, if any, for attendance at each regular or special meeting of the Board and any adjournments thereof, as may be fixed from time to time by resolution of the Board, and such fees and expenses shall be payable even though an adjournment be had because of the absence of a quorum; provided, however, that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of either standing or special committees may be allowed such compensation as may be provided from time to time by resolution of the Board for serving upon and attending meetings of such committees. Section 14. Advisory Directors. The Board of Directors of the corporation may at its annual meeting, or from time to time thereafter, appoint any individual to serve as a member of an Advisory Board of Directors of the corporation. Any individual appointed to serve as a member of an Advisory Board of Directors of the corporation shall be entitled to attend all meetings of the Board of Directors and may participate in any discussion thereat, but such individual may not vote at any meeting of the Board of Directors or be counted in determining a quorum for such meeting. It shall be the duty of members of the Advisory Board of Directors of the corporation to advise and provide general policy advice to the Board of Directors of the corporation at such times and places and in such groups and committees as may be determined from time to time by the Board of Directors, but such 10 individuals shall not have any responsibility or be subject to any liability imposed upon a director or in any manner otherwise deemed a director. The same compensation paid to directors for their services as directors shall be paid to members of an Advisory Board of Directors of the corporation for their services as advisory directors. Each member of the Advisory Board of Directors except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding annual meeting of the Board of Directors and thereafter until his successor shall have been appointed. Section 15. Emeritus Directors. When a member of the Board of Directors or the Advisory Board of Directors of the corporation, as the case may be: (a) attains seventy (70) years of age or, (b) prior to his attainment of seventy (70) years of age, retires from his principal occupation, under the retirement policy and criteria established from time to time by the Board of Directors of the corporation (except for a member of the Board of Directors or the Advisory Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer of the corporation; or (2) who was sixty (60) years of age on June 14, 1973), such director shall automatically, at his option, either (i) retire from the Board of Directors or the Advisory Board of Directors of the corporation, as the case may be; or (ii) be appointed as a member of the Emeritus Board of Directors of the corporation. A member of the Board of Directors or the Advisory Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer of the corporation; or (2) who was sixty (60) years of age on June 14, 1973, may, at his option, either: (a) continue his service as a member of the Board of Directors or the Advisory Board of Directors of the corporation, as the case may be; or (b) be appointed as a member of the Emeritus Board of Directors of the corporation. Members of the Emeritus Board of Directors of the corporation shall be appointed annually by the Chairman of the Board of Directors of the corporation at the Annual Meeting of the Board of Directors of the corporation, or from time to time thereafter. Each member of the Emeritus Board of Directors of the corporation, except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding Annual Meeting of the Board of Directors of the corporation. Any individual appointed as a member of the Emeritus Board of Directors of the corporation may, but shall not be required to, attend meetings of the Board of Directors of the corporation and may participate in any discussions thereat, but such individual may not vote at any meeting of the Board of Directors of the corporation or be counted in determining a quorum at any meeting of the Board of Directors of the corporation, as provided in Section 5 of Article III of the bylaws of the corporation. It shall be the duty of the members of the Emeritus Board of Directors of the corporation to serve as goodwill ambassadors of the corporation, but such individuals shall not have any responsibility or be subject to any liability imposed upon a member of the Board of Directors of the corporation or in any manner otherwise be deemed to be a member of the Board of Directors of the corporation. Each member of the Emeritus Board of Directors of the corporation shall be paid such compensation as may be set from time to time by the Chairman of the Board of Directors of the corporation and shall remain eligible to participate in any Director Stock Purchase Plan maintained by, or participated in, from time to time by the corporation according to the terms and conditions thereof. 11 ARTICLE IV. OFFICERS Section 1. Selection. The Board of Directors at each annual meeting shall elect or appoint a President (who shall be a Director), a Secretary and a Treasurer, each to serve for the ensuing year and until his successor is elected and qualified, or until his earlier resignation, removal from office, or death. The Board of Directors, at such meeting, may or may not, in the discretion of the Board, elect a Chairman of the Board, one or more Vice Chairmen of the Board, one or more Chairmen of the Board-Emeritus and/or one or more Vice Presidents and, also may elect or appoint one or more Assistant Vice Presidents and/or one or more Assistant Secretaries and/or one or more Assistant Treasurers. When more than one Vice President is elected, they may, in the discretion of the Board, be designated Executive Vice President, First Vice President, Second Vice President, etc., according to seniority or rank, and any person may hold two or more offices, except that the President shall not also serve as the Secretary. Section 2. Removal, Vacancies. Any officers of the corporation may be removed from office at any time by the Board of Directors, with or without cause. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors. Section 3. Chairman of the Board. The Chairman of the Board of Directors, when and if elected, shall, whenever present, preside at all meetings of the Board of Directors and at all meetings of the shareholders. The Chairman of the Board of Directors shall have all the powers of the President in the event of his absence or inability to act, or in the event of a vacancy in the office of the President. The Chairman of the Board of Directors shall confer with the President on matters of general policy affecting the business of the corporation and shall have, in his discretion, power and authority to generally supervise all the affairs of the corporation and the acts and conduct of all the officers of the corporation, and shall have such other duties as may be conferred upon the Chairman of the Board by the Board of Directors. Section 4. President. If there be no Chairman of the Board or Vice Chairman of the Board elected, or in their absence, the President shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. The immediate supervision of the affairs of the corporation shall be vested in the President. It shall be his duty to attend constantly to the business of the corporation and maintain strict supervision over all of its affairs and interests. He shall keep the Board of Directors fully advised of the affairs and condition of the corporation, and shall manage and operate the business of the corporation pursuant to such policies as may be prescribed from time to time by the Board of Directors. The President shall, subject to approval of the Board, hire and fix the compensation of all employees and agents of the corporation, other than officers, and any person thus hired shall be removable at his pleasure. 12 Section 5. Vice President. Any Vice President of the corporation may be designated by the Board of Directors to act for and in the place of the President in the event of sickness, disability or absence of said President or the failure of said President to act for any reason, and when so designated, such Vice President shall exercise all the powers of the President in accordance with such designation. The Vice Presidents shall have such duties as may be required of, or assigned to, them by the Board of Directors, the Chairman of the Board or the President. Section 6. Secretary. It shall be the duty of the Secretary to keep a record of the proceedings of all meetings of the shareholders and Board of Directors; to keep the stock records of the corporation; to notify the shareholders and Directors of meetings as provided by these bylaws; and to perform such other duties as may be prescribed by the Chairman of the Board, President or Board of Directors. Any Assistant Secretary, if elected, shall perform the duties of the Secretary during the absence or disability of the Secretary and shall perform such other duties as may be prescribed by the Chairman of the Board, President, Secretary or Board of Directors. Section 7. Treasurer. The Treasurer shall keep, or cause to be kept, the financial books and records of the corporation, and shall faithfully account for its funds. He shall make such reports as may be necessary to keep the Chairman of the Board, the President and Board of Directors fully informed at all times as to the financial condition of the corporation, and shall perform such other duties as may be prescribed by the Chairman of the Board, President or Board of Directors. Any Assistant Treasurer, if elected, shall perform the duties of the Treasurer during the absence or disability of the Treasurer, and shall perform such other duties as may be prescribed by the Chairman of the Board, President, Treasurer or Board of Directors. ARTICLE V. CONTRACTS, ETC. Section 1. Contracts, Deeds and Loans. All contracts, deeds, mortgages, pledges, promissory notes, transfers and other written instruments binding upon the corporation shall be executed on behalf of the corporation by the Chairman of the Board, if elected, the President, or by such other officers or agents as the Board of Directors may designate from time to time. Any such instrument required to be given under the seal of the corporation may be attested by the Secretary or Assistant Secretary of the corporation. Section 2. Proxies. The Chairman of the Board, any Vice Chairman of the Board, the President, any Executive Vice President, Secretary or Treasurer of the corporation shall have full power and authority, on behalf of the corporation, to attend and to act and to vote at any meetings of the shareholders, bond holders or other security holders of any corporation, 13 trust or association in which the corporation may hold securities, and at and in connection with any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such securities and which as owner thereof the corporation might have possessed and exercised if present, including the power to execute proxies and written waivers and consents in relation thereto. In the case of conflicting representation at any such meeting, the corporation shall be represented by its highest ranking officer, in the order first above stated. Notwithstanding the foregoing, the Board of Directors may, by resolution, from time to time, confer like powers upon any other person or persons. ARTICLE VI. CHECKS AND DRAFTS Checks and drafts of the corporation shall be signed by such officer or officers or such other employees or persons as the Board of Directors may from time to time designate. ARTICLE VII. STOCK Section 1. Certificates of Stock. The certificates for shares of capital stock of the corporation shall be in such form as shall be determined by the Board of Directors. They shall be numbered consecutively and entered into the stock book of the corporation as they are issued. Each certificate shall state on its face the fact that the corporation is a Georgia corporation, the name of the person to whom the shares are issued, the number and class of shares (and series, if any) represented by the certificate and their par value, or a statement that they are without par value. In addition, when and if more than one class of shares shall be outstanding, all share certificates of whatever class shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued by the corporation. Section 2. Signature; Transfer Agent; Registrar. Share certificates shall be signed by the President or Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, and shall bear the seal of the corporation or a facsimile thereof. The Board of Directors may from time to time appoint transfer agents and registrars for the shares of capital stock of the corporation or any class thereof, and when any share certificate is countersigned by a transfer agent or registered by a registrar, the signature of any officer of the corporation appearing thereon may be a facsimile signature. In case any officer who signed, or whose facsimile signature was placed upon, any such certificate shall have died or ceased to be such officer before such certificate is issued, it may nevertheless be issued with the same effect as if he continued to be such officer on the date of issue. 14 Section 3. Stock Book. The corporation shall keep at its principal office, or at the office of its transfer agent, wherever located, with a copy at the principal office of the corporation, a book, to be known as the stock book of the corporation, containing in alphabetical order the name of each shareholder of record, together with his address, the number of shares of each kind, class or series of stock held by him and his social security number. The stock book shall be maintained in current condition. The stock book, including the share register, or the duplicate copy thereof maintained at the principal office of the corporation, shall be available for inspection by any shareholder at any meeting of the shareholders upon request and shall also be made available for inspection and copying upon the request of any shareholder owning in excess of 2% of the corporation's common stock, which request must be made in accordance with the provisions of ss. 14-2- 1602 of the Official Code of Georgia Annotated, as amended. The information contained in the stock book and share register may be stored on punch cards, magnetic tape, or any other approved information storage devices related to electronic data processing equipment, provided that any such method, device, or system employed shall first be approved by the Board of Directors, and provided further that the same is capable of reproducing all information contained therein, in legible and understandable form, for inspection by shareholders or for any other proper corporate purpose. Section 4. Transfer of Stock; Registration of Transfer. The stock of the corporation shall be transferred only by surrender of the certificate and transfer upon the stock book of the corporation. Upon surrender to the corporation, or to any transfer agent or registrar for the class of shares represented by the certificate surrendered, of a certificate properly endorsed for transfer, accompanied by such assurances as the corporation, or such transfer agent or registrar, may require as to the genuineness and effectiveness of each necessary endorsement and satisfactory evidence of compliance with all applicable laws relating to securities transfers and the collection of taxes, it shall be the duty of the corporation, or such transfer agent or registrar, to issue a new certificate, cancel the old certificate and record the transactions upon the stock book of the corporation. Section 5. Registered Shareholders. Except as otherwise required by law, the corporation shall be entitled to treat the person registered on its stock book as the owner of the shares of the capital stock of the corporation as the person exclusively entitled to receive notification, dividends or other distributions, to vote and to otherwise exercise all the rights and powers of ownership and shall not be bound to recognize any adverse claim. Section 6. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than seventy (70) nor less than ten (10) days before the date of any such meeting nor more 15 than seventy (70) days prior to any other action. In each case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting and any adjournment thereof, to express such consent or dissent, or to receive payment of such dividend or such allotment of rights, or otherwise be recognized as shareholders for any other related purpose, notwithstanding any registration of a transfer of shares on the stock book of the corporation after any such record date so fixed. Section 7. Lost Certificates. When a person to whom a certificate of stock has been issued alleges it to have been lost, destroyed or wrongfully taken, and if the corporation, transfer agent or registrar is not on notice that such certificate has been acquired by a bona fide purchaser, a new certificate may be issued upon such owner's compliance with all of the following conditions, to-wit: (a) He shall file with the Secretary of the corporation, and the transfer agent or the registrar, his request for the issuance of a new certificate, with an affidavit setting forth the time, place and circumstances of the loss; (b) He shall also file with the Secretary, and the transfer agent or the registrar, a bond with good and sufficient security acceptable to the corporation and the transfer agent or the registrar, or other agreement of indemnity acceptable to the corporation and the transfer agent or the registrar, conditioned to indemnify and save harmless the corporation and the transfer agent or the registrar from any and all damage, liability and expense of every nature whatsoever resulting from the corporation's or the transfer agent's or the registrar's issuing a new certificate in place of the one alleged to have been lost; and (c) He shall comply with such other reasonable requirements as the Chairman of the Board, the President or the Board of Directors of the corporation, and the transfer agent or the registrar shall deem appropriate under the circumstances. Section 8. Replacement of Mutilated Certificates. A new certificate may be issued in lieu of any certificate previously issued that may be defaced or mutilated upon surrender for cancellation of a part of the old certificate sufficient in the opinion of the Secretary and the transfer agent or the registrar to duly identify the defaced or mutilated certificate and to protect the corporation and the transfer agent or the registrar against loss or liability. Where sufficient identification is lacking, a new certificate may be issued upon compliance with the conditions set forth in Section 7 of this Article VII. ARTICLE VIII. INDEMNIFICATION AND REIMBURSEMENT Subject to any express limitations imposed by applicable law, every person now or hereafter serving as a director, officer, employee or agent of the corporation and all former directors and officers, employees or agents shall be indemnified and held harmless by the corporation from and against the obligation to pay a judgement, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), and reasonable expenses (including attorneys' fees and disbursements) that may be imposed upon or incurred by him or her in connection with or resulting from 16 any threatened, pending, or completed, action, suit, or proceeding, whether civil, criminal, administrative, investigative, formal or informal, in which he or she is, or is threatened to be made, a named defendant or respondent: (a) because he or she is or was a director, officer, employee, or agent of the corporation; (b) because he or she is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; or (c) because he or she is or was serving as an employee of the corporation who was employed to render professional services as a lawyer or an accountant to the corporation; regardless of whether such person is acting in such a capacity at the time such obligation shall have been imposed or incurred, if (i) such person acted in a manner he or she believed in good faith to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, if such person had no reasonable cause to believe his or her conduct was unlawful or (ii), with respect to an employee benefit plan, such person believed in good faith that his or her conduct was in the interests of the participants in and beneficiaries of the plan. Reasonable expenses incurred in any proceeding shall be paid by the corporation in advance of the final disposition of such proceeding if authorized by the Board of Directors in the specific case, or if authorized in accordance with procedures adopted by the Board of Directors, upon receipt of a written undertaking executed personally by or on behalf of the director, officer, employee, or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation, and a written affirmation of his or her good faith belief that he or she has met the standard of conduct required for indemnification. The foregoing rights of indemnification and advancement of expenses shall not be deemed exclusive of any other right to which those indemnified may be entitled, and the corporation may provide additional indemnity and rights to its directors, officers, employees or agents to the extent they are consistent with law. The provisions of this Article VIII shall cover proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. In the event of death of any person having a right of indemnification or advancement of expenses under the provisions of this Article VIII, such right shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. If any part of this Article VIII should be found to be invalid or ineffective in any proceeding, the validity and effect of the remaining provisions shall not be affected. ARTICLE IX. MERGERS, CONSOLIDATIONS AND OTHER DISPOSITIONS OF ASSETS The affirmative vote of the shareholders of the corporation representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation shall be required to approve any merger or 17 consolidation of the corporation with or into any corporation, and the sale, lease, exchange or other disposition of all, or substantially all, of the assets of the corporation to or with any other corporation, person or entity, with respect to which the approval of the corporation's shareholders is required by the provisions of the corporate laws of the State of Georgia. This Article shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders representing at least 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation. ARTICLE X. CRITERIA FOR CONSIDERATION OF TENDER OR OTHER OFFERS Section 1. Factors to Consider. The Board of Directors of the corporation may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider any or all of the following: (i) whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation; (ii) whether a more favorable price could be obtained for the corporation's securities in the future; (iii) the impact which an acquisition of the corporation would have on the employees, depositors and customers of the corporation and its subsidiaries and the communities which they serve; (iv) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees, depositors and customers of the corporation and its subsidiaries and the future value of the corporation's stock; (v) the value of the securities, if any, that the offeror is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the offeror or any other entity whose securities are being offered; and (vi) any antitrust or other legal or regulatory issues that are raised by the offer. Section 2. Appropriate Actions. If the Board of Directors determines that an offer should be rejected, it may 18 take any lawful action to accomplish its purpose including, but not limited to, any or all of the following: (i) advising shareholders not to accept the offer; (ii) litigation against the offeror; (iii) filing complaints with governmental and regulatory authorities; (iv) acquiring the corporation's securities; (v) selling or otherwise issuing authorized but unissued securities of the corporation or treasury stock or granting options or rights with respect thereto; (vi) acquiring a company to create an antitrust or other regulatory problem for the offeror; and (vii) soliciting a more favorable offer from another individual or entity. ARTICLE XI. AMENDMENT Except as otherwise specifically provided herein, the bylaws of the corporation may be altered, amended or added to by the affirmative vote of the shareholders of the corporation representing 66 2/3% of the votes entitled to be cast by the holders of all of the issued and outstanding shares of common stock of the corporation present and voting therefor at a shareholders' meeting or, subject to such limitations as the shareholders may from time to time prescribe, by a majority vote of all the Directors then holding office at any meeting of the Board of Directors. files\bylaws.snv 19 EX-10.20 3 EXHIBIT 10.20 EXHIBIT 10.20 STATE OF GEORGIA COUNTY OF MUSCOGEE RETIREMENT AGREEMENT THIS AGREEMENT is made and entered into effective as of the 1st day of January 1997, by and among JOE E. BEVERLY, an individual resident of the State of Georgia ("Beverly"), SYNOVUS FINANCIAL CORP., a business corporation organized and existing under the laws of the State of Georgia ("Synovus"), and COMMERCIAL BANK, a banking corporation organized and existing under the laws of the State of Georgia ("Commercial Bank"); WITNESSETH: WHEREAS, Beverly has decided to retire from his position as an employee of Synovus, effective December 31, 1996; and WHEREAS, Synovus and Commercial Bank desire to retain the services of Beverly after such retirement; NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein, Beverly, Synovus and Commercial Bank, intending to be legally bound, do hereby agree as follows: Section I SERVICES TO BE PROVIDED 1.1 Beverly shall continue to serve as a director and Chairman of the Board of Directors of Commercial Bank from the effective date of this Agreement through January 1, 2002. While Chairman of Commercial Bank, Mr. Beverly will continue to maintain and develop business relationships on behalf of Commercial Bank and will continue his involvement in the community on behalf of Commercial Bank. Synovus and Commercial Bank will re-evaluate Beverly's continued service as a director and as Chairman of Commercial Bank at the expiration of this five-year period. As of the date of this Agreement, it is Beverly's desire to remain affiliated with Commercial Bank indefinitely. 1 1.2 Beverly will remain as a member of the Board of Directors of Synovus until the expiration of his current term, which will expire at the 1999 Synovus Annual Shareholder's Meeting. At the expiration of his current term, Beverly's continued service as a member of the Board of Directors of Synovus will be re-evaluated. During Beverly's tenure as a member of the Board of Directors of Synovus, Beverly agrees to be available to provide such consulting and advisory services as may be requested from time to time by the Chairman of the Board of Directors of Synovus. 1.3 Beverly will serve as a member of the Boards of Directors of the Tallahassee State Bank and the Quincy State Bank during his tenure as Chairman of Commercial Bank. Beverly will resign from the Boards of Directors of Tallahassee State Bank and Quincy State Bank if requested by Synovus upon its determination that Beverly's continued service in such positions is inconsistent with Synovus' management and/or ownership of such banks. 1.4 During Beverly's term as Chairman of Commercial Bank hereunder, Beverly will not provide services of any sort to, or assist in any way, with or without compensation, any financial institution (including, but not limited to, a bank and/or a bank holding and/or a savings and loan association and/or a savings and loan association holding company) that competes with Synovus, Commercial Bank, or any affiliate or subsidiary of Synovus or Commercial Bank without the prior written permission of the Chairman or President of Synovus, which permission will not be unreasonably withheld. Beverly shall be free to provide consulting or other services to any financial institution that does not compete with Synovus, Commercial Bank or any affiliate or subsidiary of Synovus or Commercial Bank. For purposes of this Agreement, the term "compete" means providing consulting or other services to a financial institution having a place of business in any county of any state in which county Synovus, Commercial Bank or any affiliate or subsidiary of Synovus or Commercial Bank then has an office. Section II COMPENSATION 2.1 During Beverly's tenure as Chairman of Commercial Bank, Commercial Bank agrees to pay Beverly an annual fee for his community involvement and business development services. This fee will be equal to the FICA taxable base ($62,700 for 1996) for the year in which services are provided. This annual fee will be payable on a monthly basis in twelve equal installments (would be monthly 2 installments of $5,225 for 1996) less any applicable state and federal withholding taxes and less applicable employee FICA taxes (Commercial Bank will pay applicable employer FICA taxes), unless otherwise agreed by Beverly and Commercial Bank. If the FICA taxable wage base is subsequently repealed, the fee will be capped at the FICA taxable wage base amount immediately prior to repeal. 2.2 Synovus agrees to reimburse Commercial Bank for $24,000 of the annual fee paid to Beverly pursuant to Section 2.1 of this Agreement each year, with such amount representing the services being provided by Beverly on behalf of Synovus. 2.3 Commercial Bank will pay Beverly's and his spouse's premiums (both employee and employer premiums) for coverage under the Synovus Retiree Health Plan (Health Plan) as long as Beverly or his spouse is eligible for coverage under the Health Plan. The premiums paid by Commercial Bank shall be tax-free to Beverly and his spouse. In the event Commercial Bank is unable to pay Beverly's premiums on a tax-free basis, Commercial Bank agrees to gross-up such premiums for taxes so that Beverly would be in the same position as if the premiums were paid on a tax-free basis. Beverly will not participate in other employee benefit plans including, without limitation, profit sharing, pension, 401(k), stock purchase and health and welfare plans. 2.4 As an employee of Synovus, Beverly will receive a long-term incentive award (in the form of restricted stock and stock options) for 1996 in accordance with the Synovus 1994 Long-Term Incentive Plan. Although Beverly will not receive future grants of long-term incentive awards after 1996, Beverly will continue to vest in all such awards made prior to 1997 during his tenure as Chairman of Commercial Bank. 2.5 As a member of the Boards of Directors of Synovus, Commercial Bank, Tallahassee State Bank and Quincy State Bank, Beverly will continue to receive director's retainer fees, attendance fees and committee attendance fees in addition to all other compensation set forth in this Agreement. Beverly will be paid committee fees at Commercial Bank in accordance with present policies. 2.6 During his tenure as Chairman of Commercial Bank, Beverly will have the use of an automobile and a cellular telephone at the expense of Commercial Bank. Beverly agrees to reimburse Commercial Bank for personal telephone calls and to pay 3 taxes for the personal use of the automobile in accordance with Internal Revenue Service rules and regulations. 2.7 During his tenure as Chairman of Commercial Bank, Beverly will be reimbursed by Commercial Bank for all reasonable business development expenses he incurs. Reasonable business development expenses includes, without limitation, dues to the National Trust of Historic Preservation, Georgia Trust for Historic Preservation, Thomasville Rod & Gun Club, Duck Haven Gun Club and Glen Arven Country Club as well as unreimbursed expenses incurred by Mr. Beverly in attending State of Georgia Department of Natural Resources meetings. 2.8 Synovus will reimburse Beverly the expenses of preparing Beverly's 1996 Federal and State income tax returns (that will be prepared in 1997) in accordance with the past arrangements for such services. 2.9 During his tenure as Chairman of Commercial Bank, Beverly will continue to maintain his present office in Thomasville, Georgia unless and until needed by Synovus or Commercial Bank. In the event Synovus or Commercial Bank needs Beverly's present office, Beverly will be provided another office in Thomasville, Georgia for the remainder of his tenure as Chairman of Commercial Bank. In addition, Beverly will be provided with access to (but not the exclusive services of) a secretary by Commercial Bank during his tenure as Chairman of Commercial Bank. Section III CHANGE OF CONTROL AGREEMENT 3.1 The Change of Control Agreement by and between Synovus and Beverly effective as of January 1, 1996 ("Control Agreement") is hereby terminated in its entirety effective January 1, 1997 except that, in the event of a Change of Control as defined in Section 2 of the Control Agreement, the definition of which is incorporated herein by this reference, Company agrees that Company's financial obligation to provide retiree health benefits under Section 2.3 of this Agreement and to pay deferred compensation to Beverly pursuant to Section IV of this Agreement will be paid to Beverly irrespective of whether Beverly provides services after his initial term as Chairman of Commercial Bank and as a Director of Synovus under Section I of this Agreement. 4 Section IV EMPLOYMENT AGREEMENT 4.1 Beverly's employment under that certain Employment Agreement entered into on the 15th day of January 1979, by and among Beverly and Synovus, as amended (the "Employment Agreement"), is hereby terminated as of December 31, 1996. The parties hereto agree that such termination shall be deemed a voluntary termination so that the deferred compensation provisions of Paragraph III(C)(iii) of the Employment Agreement shall apply in accordance with the terms thereof. In consideration of the covenants and obligations set forth herein, the parties hereto agree that the obligations and covenants of Beverly under Paragraph VI of the Employment Agreement are hereby cancelled, except as set forth in Section 7.6 of this Agreement. Section V DEATH OR DISABILITY 5.1 Beverly's engagement and all of Company's financial obligations under this Agreement (excluding the deferred compensation provisions of Paragraph III(C)(iii) of the Employment Agreement) shall terminate upon Beverly's death or total and permanent disability, except that Company's obligation to pay Beverly (or Beverly's surviving spouse's) retiree health premiums under Section 2.3 of this Agreement shall continue notwithstanding Beverly's death or total and permanent disability. For purposes of this Agreement, the term "total and permanent disability" shall mean the substantial physical or mental inability of Beverly to fulfill his duties under this Agreement as certified to in writing by two (2) competent physicians practicing in Thomasville, Georgia, one of whom shall be selected by the Chairman of Synovus and the other of whom shall be selected by Beverly or his duly appointed guardian or legal representative. Section VI CONFIDENTIALITY 6.1 Beverly agrees that during the term of his engagement under this Agreement, and as long as he is receiving benefits or payments hereunder, he will not disclose any secret or confidential information of Synovus, Commercial Bank and 5 any affiliate or subsidiary of Synovus or Commercial Bank, with such information including, without limitation, existing or potential customers or accounts, and the terms and provisions of the relationships of such customers and accounts, of Synovus, Commercial Bank and their affiliates and subsidiaries. Beverly also agrees not to solicit the business of any existing or potential customers or accounts of Synovus, Commercial Bank and their affiliates and subsidiaries on behalf of any financial institution (other than Synovus, Commercial Bank, and their affiliates and subsidiaries) during the term of his engagement under this Agreement and as long as he is receiving benefits or payments hereunder. Section VII MISCELLANEOUS 7.1 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Georgia without regard to its conflict or choice of law provisions. 7.2 Notices. All notices or other communications required or permitted hereunder or necessary and convenient in connection herewith shall be in writing and delivered in person or by express delivery service or postage prepaid first-class mail, return receipt requested, to the following addresses: If to Beverly: Mr. Joe E. Beverly 1132 Gordon Avenue Thomasville, GA 31792 If to Synovus: Synovus Financial Corp. P. O. Box 120 Columbus, GA 31902 If to Commercial Bank: Commercial Bank P. O. Box 710 Thomasville, GA 31792 6 or to such other addresses as Beverly, Synovus or Commercial Bank may designate by notice to the other parties hereto in the manner set forth in this Section VII. 7.3 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof and may not be changed or amended except upon written amendment executed by the parties hereto. 7.4 Assignment. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Beverly hereunder shall not be assignable in whole or in part by Beverly. 7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which, when executed, shall be deemed an original instrument. 7.6 Early Termination. Beverly shall have the right to terminate this Agreement at any time by providing 30 days prior written notice of such termination to Synovus and Commercial Bank. In the event of the early termination of this Agreement, all of Beverly's obligations under Section I of this Agreement shall terminate and all of the obligations of Synovus and Commercial Bank to make payments and provide benefits to Beverly under Sections II and III of this Agreement shall also terminate as of the effective date of the Agreement's termination. Notwithstanding the foregoing, Company's obligation to pay Beverly deferred compensation pursuant to Section IV of this Agreement will continue in the event of the early termination of this Agreement; provided, however, that Beverly agrees to abide by the covenant set forth in Paragraph VI(a) of the Employment Agreement (provided that such covenant shall only apply to any financial institution having a place of business in any county of any state in which county Synovus, Commercial Bank or any affiliate or subsidiary of Synovus or Commercial bank then has an office) during the period of time he receives deferred compensation pursuant to the Employment Agreement, unless Beverly receives the prior written permission of the Chairman or President of Synovus to violate such covenant, which permission will not be unreasonably withheld. 7.7 Amendment. This Agreement may be amended only in a written agreement signed by each party hereto. 7 IN WITNESS WHEREOF, Synovus and Commercial Bank have caused this Agreement to be executed on their behalf and Beverly has hereunto set his hand and seal, as of the day and year first above written. SYNOVUS FINANCIAL CORP. By: /s/G. Sanders Griffith, III Name: G. Sanders Griffith, III Title: Senior Executive Vice President COMMERCIAL BANK By: /s/Frederick D. Jefferson Name: Frederick D. Jefferson Title: President /s/Joe E. Beverly (L.S.) Joe E. Beverly 8 EX-11.1 4 EXHIBIT 11.1 EXHIBIT 11.1 SYNOVUS FINANCIAL CORP.
COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED) Twelve Months Ended Three Months Ended December 31, December 31, - ------------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Primary Net income $ 139,604 114,583 41,661 33,634 ================================================================================================================== Weighted average common shares outstanding 116,133 114,954 116,332 115,823 Average common shares added, assuming exercise of dilutive stock options 1,893 1,164 2,401 1,517 - ------------------------------------------------------------------------------------------------------------------ Weighted average common shares, as adjusted 118,026 116,118 118,733 117,340 ================================================================================================================== Primary net income per common share $ 1.18 0.99 0.35 0.29 ================================================================================================================== Fully Diluted Net income $ 139,604 114,583 41,661 33,634 ================================================================================================================== Weighted average common shares outstanding 116,133 114,954 116,332 115,823 Average common shares added, assuming exercise of dilutive stock options 2,488 1,583 2,488 1,583 - ------------------------------------------------------------------------------------------------------------------ Weighted average common shares, as adjusted 118,621 116,537 118,820 117,406 ================================================================================================================== Fully diluted net income per common share $ 1.18 0.98 0.35 0.29 ==================================================================================================================
All information presented in Exhibit 11.1 reflects the three-for-two stock split declared by the Synovus Board of Directors on March 11, 1996, effective April 8, 1996, to shareholders of record on March 21, 1996. EX-13.1 5 EXHIBIT 13.1 EXHIBIT 13.1 LOGO(R) SYNOVUS(R) FINANCIAL CORP. FINANCIAL APPENDIX Consolidated Statements of Condition as of December 31, 1996 and 1995 ................................. F-2 Consolidated Statements of Income for the Years ended December 31, 1996, 1995, and 1994 ............... F-3 Consolidated Statements of Changes In Shareholders' Equity for the Years ended December 31, 1996, 1995, and 1994.............................................................................. F-4 Consolidated Statements of Cash Flows for the Years ended December 31, 1996, 1995, and 1994 ........... F-5 Summary of Significant Accounting Policies ............................................................ F-6 Notes to Consolidated Financial Statements ............................................................ F-10 Independent Auditors' Report .......................................................................... F-28 Financial Highlights .................................................................................. F-29 Financial Review ...................................................................................... F-30 Summary of Quarterly Financial Data, Unaudited ........................................................ F-51
Envisioning. Exploring. Evolving. F-1
CONSOLIDATED STATEMENTS OF CONDITION (In thousands, except share data) December 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks, including cash deposits of $28,445 and $31,144 for 1996 and 1995, respectively, on deposit to meet Federal Reserve requirements (note 9).............................................. $ 404,952 382,696 Interest earning deposits with banks (note 9).............................................................. 2,040 1,093 Federal funds sold (note 9)................................................................................ 38,249 123,832 Investment securities available for sale (notes 2 and 9)................................................... 1,276,083 1,106,298 Investment securities held to maturity (approximate market value of $364,694 and $386,579 for 1996 and 1995, respectively) (notes 2, 6, and 9)..................................... 363,008 380,918 Loans (notes 3, 6, and 9).................................................................................. 6,075,465 5,526,842 Less: Unearned income ...................................................................................... (10,235) (14,812) Reserve for loan losses .............................................................................. (94,683) (81,384) - ------------------------------------------------------------------------------------------------------------------------------------ Loans, net ................................................................................. 5,970,547 5,430,646 - ------------------------------------------------------------------------------------------------------------------------------------ Premises and equipment, net (notes 6 and 9)................................................................ 247,191 220,197 Other assets (notes 4 and 9) .............................................................................. 310,274 281,915 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets ............................................................................... $8,612,344 7,927,595 ==================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits (notes 5 and 9): Non-interest bearing ............................................................................ $1,189,973 1,141,716 Interest bearing ................................................................................ 6,013,062 5,586,163 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits ............................................................................. 7,203,035 6,727,879 Federal funds purchased and securities sold under agreement to repurchase (note 9)................... 339,200 229,477 Long-term debt (notes 6 and 9)........................................................................ 97,283 106,815 Other liabilities (notes 7 and 8) .................................................................... 154,641 142,079 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities........................................................................... 7,794,159 7,206,250 - ------------------------------------------------------------------------------------------------------------------------------------ Minority interest in consolidated subsidiary .............................................................. 34,435 27,790 Shareholders' equity (notes 1, 2, 6, 8, and 13): Common stock - $1.00 par value. Authorized 600,000,000 shares; issued 116,423,546 in 1996 and 115,921,043 in 1995; outstanding 116,345,651 in 1996 and 115,855,148 in 1995 ................................ 116,424 115,921 Surplus .............................................................................................. 98,523 88,381 Less treasury stock - 77,895 and 65,895 shares in 1996 and 1995, respectively ....................... (1,285) (1,022) Less unamortized restricted stock .................................................................... (5,344) (2,663) Net unrealized gain (loss) on investment securities available for sale ............................... (112) 5,774 Retained earnings .................................................................................... 575,544 487,164 - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity ................................................................. 783,750 693,555 Commitments (note 10)...................................................................................... -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity ................................................. $8,612,344 7,927,595 ====================================================================================================================================
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-2 S Y N O V U S F I N A N C I A L C O R P.
CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Interest income: Loans, including fees ........................................................................ $ 562,208 525,080 415,242 Investment securities: U.S. Treasury and U.S. Government agencies .............................................. 73,167 59,866 53,479 Mortgage-backed securities .............................................................. 17,971 15,975 17,456 State and municipal ..................................................................... 6,766 7,397 7,772 Other investments ....................................................................... 1,266 1,357 1,611 Federal funds sold ........................................................................... 1,866 6,006 2,787 Interest earning deposits with banks ......................................................... 59 107 35 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest income ......................................................... 663,303 615,788 498,382 - ------------------------------------------------------------------------------------------------------------------------------------ Interest expense: Deposits (note 5) ............................................................................ 267,349 253,761 176,919 Federal funds purchased and securities sold under agreement to repurchase .................... 14,973 12,092 10,021 Long-term debt ............................................................................... 6,107 8,060 10,211 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest expense ........................................................ 288,429 273,913 197,151 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income ........................................................... 374,874 341,875 301,231 Provision for losses on loans (note 3) ............................................................ 31,766 25,787 25,387 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for losses on loans ....................... 343,108 316,088 275,844 - ------------------------------------------------------------------------------------------------------------------------------------ Non-interest income: Data processing services ..................................................................... 296,511 236,125 178,122 Service charges on deposit accounts .......................................................... 52,417 46,657 41,447 Fees for trust services ...................................................................... 11,438 9,649 8,796 Credit card fees ............................................................................. 9,105 7,288 7,703 Securities gains (losses), net (note 2) ...................................................... (176) 368 (721) Other operating income ....................................................................... 56,083 40,747 38,985 - ------------------------------------------------------------------------------------------------------------------------------------ Total non-interest income ..................................................... 425,378 340,834 274,332 - ------------------------------------------------------------------------------------------------------------------------------------ Non-interest expense: Salaries and other personnel expense (note 8) ................................................ 297,912 252,479 211,531 Net occupancy and equipment expense (notes 4 and 10).......................................... 121,141 99,629 83,419 Other operating expenses (note 11) ........................................................... 117,983 120,012 111,975 Special FDIC assessment ...................................................................... 4,546 -- -- Minority interest in subsidiary's net income ................................................. 7,592 5,333 4,325 - ------------------------------------------------------------------------------------------------------------------------------------ Total non-interest expense .................................................... 549,174 477,453 411,250 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes .................................................... 219,312 179,469 138,926 Income tax expense (note 7) ....................................................................... 79,708 64,886 49,474 - ------------------------------------------------------------------------------------------------------------------------------------ Net income .................................................................... $139,604 114,583 89,452 ==================================================================================================================================== Net income per share .............................................................................. $ 1.20 1.00 .79 ==================================================================================================================================== Weighted average shares outstanding ............................................................... 116,133 114,954 112,750 ====================================================================================================================================
See accompanying summary of significant accounting policies and notes to consolidated financial statements. Envisioning. Exploring. Evolving. F-3
Net CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Unreal- (In thousands, except per share data) ized Gain/ Unamort- (Loss)on ized Securities Shares Common Treasury Restric- Avail. Retained Years ended December 31, 1996, 1995, and 1994 Issued Stock Surplus Stock ted Stock for Sale Earnings Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 ......................... 112,352 $112,352 75,173 (2,974) (1,672) 11,643 352,475 546,997 Issuance of common stock for acquisitions (note 1) ... 1,646 1,646 3,107 -- -- -- 5,802 10,555 Net income ........................................... -- -- -- -- -- -- 89,452 89,452 Cash dividends declared - $.30 per share ............. -- -- -- -- -- -- (30,298) (30,298) Cash dividends of pooled subsidiary prior to acquisition ..................................... -- -- -- -- -- -- (2,708) (2,708) Treasury shares purchased ............................ -- -- -- (6,013) -- -- -- (6,013) Issuance of restricted stock (note 8) ................ 98 98 1,123 455 (1,676) -- -- -- Amortization of restricted stock issued under restricted stock bonus plan (note 8) ............ -- -- -- -- 1,421 -- -- 1,421 Amortization of subsidiary restricted stock bonus plan (note 8) ................................... -- -- 499 -- -- -- -- 499 Stock options exercised (note 8) ..................... 106 106 312 852 -- -- -- 1,270 Stock option tax benefit ............................. -- -- 692 -- -- -- -- 692 Repayment of obligation of employee stock ownership plans at subsidiaries ........................... -- -- -- -- 389 -- (26) 363 Net unrealized gain (loss) on investment securities available for sale (note 2)...................... -- -- -- -- -- (32,387) 229 (32,158) Ownership change at majority-owned subsidiary ........ -- -- (192) -- -- -- -- (192) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 ......................... 114,202 114,202 80,714 (7,680) (1,538) (20,744) 414,926 579,880 Issuance of common stock for acquisitions (note 1) ... 793 793 4,228 6,078 -- 183 547 11,829 Net income ........................................... -- -- -- -- -- -- 114,583 114,583 Cash dividends declared - $.36 per share ............. -- -- -- -- -- -- (42,042) (42,042) Treasury shares purchased ............................ -- -- -- (1,303) -- -- -- (1,303) Issuance of restricted stock (note 8) ................ 135 135 1,919 -- (2,054) -- -- -- Amortization of restricted stock issued under restricted stock bonus plan (note 8) ............ -- -- 493 -- 779 -- -- 1,272 Stock options exercised (note 8) ..................... 338 338 347 1,883 -- -- -- 2,568 Repayment of obligation of employee stock ownership plan at subsidiary .............................. -- -- -- -- 150 -- -- 150 Net unrealized gain on investment securities available for sale (note 2) ............................... -- -- -- -- -- 26,335 -- 26,335 Ownership change at majority-owned subsidiary ........ -- -- (4) -- -- -- -- (4) Loss on foreign currency translation ................. -- -- -- -- -- -- (850) (850) Conversion of subordinated debentures into common stock (note 6) .................................. 453 453 684 -- -- -- -- 1,137 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 ......................... 115,921 115,921 88,381 (1,022) (2,663) 5,774 487,164 693,555 Net income ........................................... -- -- -- -- -- -- 139,604 139,604 Cash dividends declared - $.44 per share ............. -- -- -- -- -- -- (51,123) (51,123) Treasury shares purchased ............................ -- -- -- (263) -- -- -- (263) Issuance of restricted stock (note 8) ................ 151 151 3,570 -- (3,771) -- -- (50) Amortization of restricted stock issued under restricted stock bonus plan (note 8) ....................... -- -- 469 -- 1,090 -- -- 1,559 Stock options exercised (note 8) ..................... 354 354 2,513 -- -- -- -- 2,867 Stock option tax benefit ............................. -- -- 3,394 -- -- -- -- 3,394 Net unrealized loss on investment securities available for sale (note 2) ............................... -- -- -- -- -- (5,886) -- (5,886) Ownership change at majority-owned subsidiary ........ -- -- 234 -- -- -- -- 234 Loss on foreign currency translation ................. -- -- -- -- -- -- (101) (101) Fractional shares for stock split .................... (2) (2) (38) -- -- -- -- (40) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 ......................... 116,424 $116,424 98,523 (1,285) (5,344) (112) 575,544 783,750 ====================================================================================================================================
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-4 S Y N O V U S F I N A N C I A L C O R P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income .......................................................................... $139,604 114,583 89,452 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans ............................................... 31,766 25,787 25,387 Depreciation, amortization, and accretion, net .............................. 43,280 38,617 38,409 Deferred income tax benefit ................................................. (15,921) (4,171) (1,097) Increase in interest receivable ............................................. (1,113) (9,973) (6,701) Increase in interest payable ................................................ 791 14,680 7,316 Minority interest in subsidiary's net income ................................ 7,592 5,333 4,325 (Increase) decrease in mortgage loans held for sale ......................... (12,173) (15,398) 13,944 Other, net .................................................................. 6,788 (17,009) (3,122) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities ........................... 200,614 152,449 167,913 - ----------------------------------------------------------------------------------------------------------------------------- Investing Activities Cash acquired from acquisitions ..................................................... 30,113 4,431 9,056 Net (increase) decrease in interest earning deposits with banks ..................... (947) 1,956 553 Net (increase) decrease in federal funds sold ....................................... 85,583 (70,770) 137,464 Proceeds from maturities and principal collections of investment securities available for sale ............................................................... 327,897 173,109 192,186 Proceeds from sales of investment securities available for sale ..................... 106,207 136,502 182,972 Purchases of investment securities available for sale ............................... (614,952) (394,406) (347,177) Proceeds from maturities and principal collections of investment securities held to maturity ................................................................. 71,091 82,837 87,943 Purchases of investment securities held to maturity ................................. (53,833) (92,966) (141,153) Net increase in loans ............................................................... (546,741) (385,228) (566,101) Purchases of premises and equipment ................................................. (63,806) (48,212) (41,938) Disposals of premises and equipment ................................................. 2,986 1,888 1,007 Proceeds from sales of other real estate ............................................ 6,852 12,032 9,078 Additions to purchased computer software ............................................ (9,018) -- -- Additions to internally developed computer software ................................. (178) (2,617) (10,624) - ----------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities ............................... (658,746) (581,444) (486,734) - ----------------------------------------------------------------------------------------------------------------------------- Financing Activities Net increase in demand and savings deposits ......................................... 320,638 193,870 87,229 Net increase in certificates of deposit ............................................. 108,078 528,690 135,539 Net increase (decrease) in federal funds purchased and securities sold under agreement to repurchase ............................................... 109,723 (182,870) 142,125 Principal repayments on long-term debt .............................................. (20,872) (33,682) (36,204) Proceeds from issuance of long-term debt ............................................ 11,340 1,823 17,006 Purchases of treasury stock ......................................................... (263) (1,303) (6,013) Dividends paid to shareholders ...................................................... (51,123) (42,042) (33,006) Proceeds from issuance of common stock .............................................. 2,867 2,568 1,270 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities ........................... 480,388 467,054 307,946 - ----------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents ............................................ 22,256 38,059 (10,875) Cash and cash equivalents at beginning of period ............................................ 382,696 344,637 355,512 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period ..................................................$ 404,952 382,696 344,637 =============================================================================================================================
See accompanying summary of significant accounting policies and notes to consolidated financial statements. Envisioning. Exploring. Evolving. F-5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Operations The consolidated financial statements include the accounts of Synovus Financial Corp. (Parent Company) and its consolidated subsidiaries, all but one of which were wholly-owned at December 31, 1996. Synovus has 34 wholly-owned bank subsidiaries predominantly involved in commercial banking activities, a wholly-owned trust company, mortgage company, and broker/dealer company. Total System Services, Inc. (TSYS), an 80.7% owned subsidiary, is a bankcard data processing company. In addition, the financial statements include joint ventures of TSYS accounted for using the equity method of accounting. The consolidated revenues are primarily contributed from the banking operations, with TSYS' revenues contributing over 25% of consolidated revenues. The banking operation's revenues are earned in four southeastern states: Georgia (59%), Alabama (20%), South Carolina (13%), and Florida (8%). TSYS has two major customers which account for approximately 29% of their revenues. All of TSYS' revenues are generated from customers located in North America. Basis of Presentation In preparing the consolidated financial statements in accordance with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the reserve for loan losses; the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans; and the disclosures for contingent assets and liabilities. In connection with the determination of the reserve for loan losses and the valuation of other real estate, management obtains independent appraisals for significant properties and properties collateralizing impaired loans. The accounting and reporting policies of Synovus Financial Corp. and subsidiaries (Synovus) conform to generally accepted accounting principles and to general practices within the banking and technology industries. All significant intercompany accounts and transactions have been eliminated in consolidation. The following is a description of the more significant of those policies. Cash Flow Information For the years ended December 31, 1996, 1995, and 1994, income taxes of $90 million, $68 million, and $48 million, and interest of $288 million, $259 million, and $190 million, respectively, were paid. Loans receivable of approximately $7 million, $9 million, and $8 million were transferred to other real estate during 1996, 1995, and 1994, respectively. Investment securities held to maturity with an amortized cost of approximately $161 million and $5 million were transferred during 1995 and 1994, respectively, to investment securities available for sale. No transfers were made in 1996. Federal Funds Sold, Federal Funds Purchased, and Securities Sold Under Agreement to Repurchase Federal funds sold, federal funds purchased, and securities sold under agreement to repurchase generally mature in one day. Investment Securities Synovus classifies its securities into three categories: trading, available for sale, or held to maturity. An insignificant amount of trading securities at the broker/dealer company are bought and held principally for the purpose of selling them in the near term. Held to maturity securities are those securities for which Synovus has the ability and intent to hold until maturity. All other securities not included in trading or held to maturity are classified as available for sale. Trading and available for sale securities are recorded at fair value. Fair value is determined at a specific point in time, based on quoted market prices. Held to maturity securities are recorded at cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses on trading securities are included in earnings. Unrealized gains and losses, net of the related tax effect, on securities available for sale are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized gains and losses are recognized in earnings for transfers into trading securities. The unrealized gains or losses included in the separate component of shareholders' equity for a security transferred from available for sale to held to maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security. A decline in the market value of any available for sale or held to maturity security below cost that is deemed other than temporary results in a charge to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield using the effective interest method and prepayment assumptions. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available for sale and held to maturity are included in earnings and are derived using the specific identification method for determining the amortized cost of securities sold. Gains and losses on sales of investment securities are recognized on the settlement date, based on the amortized cost of the specific security. The financial statement impact of settlement date accounting versus trade date accounting was immaterial. F-6 S Y N O V U S F I N A N C I A L C O R P. Loans and Interest Income Loans are reported at principal amounts outstanding, less unearned income and the reserve for loan losses. First mortgage loans held for sale are reported at the lower of aggregate cost or fair value. Fair values are based upon quoted prices from secondary market investors and forward commitments to sell. No valuation allowances were required at December 31, 1996 or 1995. Interest income on consumer loans, made on a discount basis, is recognized in a manner which approximates the level yield method. Interest income on substantially all other loans is recognized on a level yield basis. Loan fees, net of certain direct origination costs, are deferred and amortized over the terms of the loans using a method which approximates the level yield method. Annual fees, net of costs, collected for credit cards are recognized on a straight-line basis over the period the fee entitles the cardholder to use the card. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued when reasonable doubt exists as to the full collection of interest or principal or when they become contractually in default for 90 days or more as to either interest or principal, unless they are both well-secured and in the process of collection. When a loan is placed on nonaccrual status, previously accrued and uncollected interest for the fiscal year in which the loan is placed on nonaccrual status is charged to interest income on loans, unless management believes that the accrued interest is recoverable through the liquidation of collateral. Interest payments received on nonaccrual loans are applied as a reduction of principal. Loans are returned to accruing status when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Such interest, when ultimately collected, is recorded as interest income in the period received. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual classification. Reserve for Loan Losses The reserve for loan losses is established through provisions for loan losses charged to operations. Loans are charged against the reserve for loan losses when management believes that the collection of principal is unlikely. Subsequent recoveries are added to the reserve. Management's evaluation of the adequacy of the reserve for loan losses is based on a formal analysis which assesses the risk within the loan portfolio. This analysis includes consideration of historical performance, current economic conditions, level of nonperforming loans, loan concentrations, and review of certain individual loans. Management believes that the reserve for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the reserve for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review Synovus' subsidiary banks' reserves for loan losses. Such agencies may require Synovus' subsidiary banks to recognize additions to the reserve for loan losses based on their judgments about information available to them at the time of their examination. Synovus adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures", on January 1, 1995. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when the ultimate collectibility of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. If the loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impairment losses are included in the reserve for loan losses through a charge to the provision for losses on loans. Subsequent recoveries are added to the reserve for loan losses. The adoption of SFAS No. 114 did not have a material effect on the consolidated financial statements and prior periods have not been restated. SFAS No. 114 applies to all loans, except for large pools of smaller balance homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value or at the lower of cost or fair value, and debt securities. The reserve for loan losses for large pools of smaller balance homogeneous loans is established through consideration of such factors as changes in the nature and volume of the portfolio, overall portfolio quality, adequacy of the underlying collateral, loan concentrations, historical charge-off trends, and economic conditions that may affect the borrowers' ability to pay. Premises and Equipment Premises and equipment, including leasehold improvements, are reported at cost, less accumulated depreciation and amortization, which are computed using straight-line or accelerated methods over the estimated useful life of the related asset. Other Assets The following paragraphs describe some of the more significant amounts included in other assets. On January 1, 1996, Synovus adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be disposed of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the assets described below is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered impaired, the amount of impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this statement did not have a material impact on Synovus' consolidated financial statements or liquidity. Envisioning. Exploring. Evolving. F-7 Other Real Estate: Other real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs. Any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is treated as a loan charge-off. Gain or loss on sale and any subsequent adjustment to the value are recorded as a component of non-interest expense. Originated and Purchased Mortgage Servicing Rights: Effective July 1, 1995, Synovus adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights", which requires that a mortgage banking enterprise recognize as separate assets, rights to service mortgage loans for others regardless of whether the servicing rights are acquired through either the purchase or origination of mortgage loans. SFAS No. 122 also requires that capitalized mortgage servicing rights be evaluated for impairment based upon the fair value of those rights, including those rights purchased before adoption of SFAS No. 122. Fair value is estimated by determining the present value of the estimated future cash flows using discount rates commensurate with the risks involved. In determining the present value, Synovus stratifies its mortgage servicing rights based on risk characteristics including loan types, note rates, and note terms. Capitalized mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, using a method that approximates level yield and taking into consideration prepayment of the underlying loans. Management re-evaluates the terms used for amortization based upon prepayment history and adjusts the terms as necessary. Intangibles: Goodwill, which represents the excess of cost over the fair value of net assets acquired of purchased companies, is being amortized using the straight-line method over periods of 15 to 40 years. Core deposit premiums resulting from the valuation of core deposit intangibles acquired in business combinations or in the purchase of branch offices are amortized using accelerated methods over periods not exceeding the estimated average remaining life of the existing customer deposit bases acquired. Amortization periods range from 10 to 18 years. Intangible amortization periods are monitored to determine if events and circumstances require such periods to be reduced. Computer Software: Software development costs are capitalized from the time technological feasibility of the software product or enhancement is established until the software is ready for use in providing processing services to customers. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. Software development costs related to the core of TS2 are amortized using the greater of the straight-line method over the estimated useful life of ten years or the ratio of current revenues to current and anticipated revenues. All other software development costs and costs of purchased software are amortized using the greater of the straight-line method over the estimated useful lives of three to five years or the ratio of current revenues to current and anticipated revenues. Investment in Joint Ventures: TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V. ("TSYS de Mexico"), a bankcard data processing operation located in Mexico, is accounted for using the equity method of accounting, as is TSYS' 50% investment in Vital Processing Services L.L.C. ("Vital"), a merchant processing operation headquartered in Phoenix, Arizona. Contract Acquisition Costs: TSYS capitalizes certain contract acquisition costs related to signing a long-term contract. These costs, which primarily consist of cash payments for rights to provide processing services, incremental internal conversion and software development costs, and third-party software development costs, are amortized using the straight-line method over the contract term beginning when the customer's cardholder accounts are converted to TSYS' processing system. Derivative Financial Instruments: Premiums paid for purchased interest rate floor and collar agreements are amortized to interest income over the terms of the floors and collars. Unamortized premiums are included in other assets in the consolidated statements of condition. Amounts receivable or payable under collar and floor agreements are accrued as an addition to or reduction of interest income. Data Processing Services TSYS' bankcard data processing revenues are derived from long-term processing agreements with banks and nonbank institutions and are recognized as revenues at the time the services are performed. TSYS' processing agreements generally contain terms ranging from three to ten years. Income Taxes Synovus accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes". Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-8 S Y N O V U S F I N A N C I A L C O R P. Stock - Based Compensation Synovus accounts for its fixed stock-based compensation in accordance with the provisions set forth in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock issued to Employees," and related interpretations. In accordance with APB Opinion No. 25, compensation expense is recorded on the grant date only to the extent that the current market price of the underlying stock exceeds the exercise price on the grant date. On October 23, 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period of the fair value of all stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock-based grants made in 1995 and future years as if the fair-value-based method had been applied as defined in SFAS No. 123. Synovus has elected to continue to apply the provisions set forth in APB Opinion No. 25 and follow the disclosure provisions of SFAS No. 123. Postretirement Benefits Synovus sponsors a defined benefit health care plan for substantially all employees and early retirees. Synovus accounts for the cost of retiree health care and other postretirement benefits in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The expected costs of such postretirement benefits are being expensed over the period that employees provide service. Net Income per Share Net income per common share is based on the weighted average number of shares outstanding. The effect of dilutive stock options on net income per share is insignificant. All share and per share data has been restated to reflect the April 1996 three-for-two stock split, which was effected on April 8, 1996, in the form of a 50% stock dividend. Disclosure About the Fair Value of Financial Instruments SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires all entities to disclose the fair value of financial instruments, both assets and liabilities (on- and off-balance sheet), for which it is practicable to estimate fair value. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale, at one time, Synovus' entire holdings of a particular financial instrument. Because no market exists for a portion of Synovus' financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred tax accounts, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Recent Accounting Pronouncements In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 was amended by SFAS No. 127, which defers the effective date of certain provisions of SFAS No. 125 until January 1, 1998. SFAS No. 125 is to be applied prospectively to transfers and servicing of financial assets and extinguishments of liabilities after December 31, 1996. This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Management does not expect that the adoption of SFAS No. 125 will have a material impact on Synovus' financial position, results of operations, or liquidity. Other Certain amounts in 1995 and 1994 have been reclassified to conform with the presentation adopted in 1996. Envisioning. Exploring. Evolving. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1 Business Combinations On October 24, 1996, Synovus completed the acquisition of two full-service banking centers in Rome, Georgia. Synovus acquired approximately $49 million in deposits and $12 million in loans from the two banking centers. The acquisition was accounted for as a purchase. On April 28, 1995, Synovus completed the acquisition of Citizens & Merchants Corporation (CMC), the parent company of the $52 million asset, Citizens & Merchants State Bank, Douglasville, Georgia. Synovus issued 939,704 shares of common stock for all the issued and outstanding shares of CMC. This transaction has been accounted for as a pooling of interests, except that the financial statements for periods prior to the acquisition were not restated since the effect was not material. On February 28,1995, Synovus completed the acquisition of NBSC Corporation (NBSC), the parent company of the $1.1 billion asset, The National Bank of South Carolina, Columbia, South Carolina. Synovus issued 11,894,022 shares of common stock for all the issued and outstanding shares of NBSC. This acquisition has been accounted for as a pooling of interests and, accordingly, the financial statements for all periods presented have been restated to include the financial condition and results of operations of this entity. Synovus' financial statements for the year ended December 31, 1994 have been restated for the NBSC acquisition as follows:
1994 ------------------------- Before (In thousands, except per share data) Acquisition Restated - -------------------------------------------------------------------------------- Net interest income ................................ $ 259,502 301,231 ================================================================================ Net income ......................................... $ 86,448 89,452 ================================================================================ Net income per share ............................... $ .86 .79 ================================================================================
On January 31, 1995, Synovus completed the acquisition of the $43 million asset Peach State Bank (PSB), Riverdale, Georgia. Synovus issued 399,747 treasury shares for all of the issued and outstanding shares of PSB. This acquisition was accounted for as a purchase. Effective October 31, 1994, Synovus completed the acquisition of State Bancshares, Inc. (SBI), the parent company of the $62 million asset, Coffee County Bank, Enterprise, Alabama. Synovus issued 823,319 shares of common stock for all of the issued and outstanding shares of SBI. This acquisition has been accounted for as a pooling of interests, except that financial statements for periods prior to the acquisition were not restated since the effect was not material. Effective May 31, 1994, Synovus completed the acquisition of PNB Bankshares, Inc. (PNB), the parent company of the $78 million asset, Peachtree National Bank, Peachtree City, Georgia. Synovus issued 822,320 shares of common stock for all of the issued and outstanding shares of PNB. This acquisition has been accounted for as a pooling of interests, except that the financial statements for periods prior to the acquisition were not restated since the effect was not material. - -------------------------------------------------------------------------------- F-10 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
Note 2 Investment Securities The carrying and estimated fair values of investment securities are summarized as follows: December 31, 1996 ------------------------------------------------ Investment Securities Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------- U. S. Treasury and U. S. Government agencies $1,132,122 5,262 (5,462) 1,131,922 Mortgage-backed securities ................. 131,313 652 (1,072) 130,893 State and municipal ........................ 965 57 (8) 1,014 Other investments .......................... 11,865 719 (330) 12,254 - ----------------------------------------------------------------------------------------------- Total .................................... $1,276,265 6,690 (6,872) 1,276,083 =============================================================================================== December 31, 1995 ----------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------- U. S. Treasury and U. S. Government agencies $ 996,129 10,466 (2,309) 1,004,286 Mortgage-backed securities ................. 87,741 758 (303) 88,196 State and municipal ........................ 1,251 72 (1) 1,322 Other investments .......................... 12,254 678 (438) 12,494 - --------------------------------------------------------------------------------------------- Total .................................... $1,097,375 11,974 (3,051) 1,106,298 ============================================================================================ December 31, 1996 ----------------------------------------------- Investment Securities Held to Maturity Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------- U. S. Treasury and U. S. Government agencies $ 84,366 381 (635) 84,112 Mortgage-backed securities ................. 156,319 16,685 (16,745) 156,259 State and municipal ........................ 114,883 2,521 (541) 116,863 Other investments .......................... 7,440 20 -- 7,460 - ---------------------------------------------------------------------------------------------- Total .................................... $ 363,008 19,607 (17,921) 364,694 ============================================================================================== December 31, 1995 ------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------- U. S. Treasury and U. S. Government agencies $ 81,772 1,415 (607) 82,580 Mortgage-backed securities ................. 171,275 1,629 (1,477) 171,427 State and municipal ........................ 121,761 4,779 (115) 126,425 Other investments .......................... 6,110 37 -- 6,147 - --------------------------------------------------------------------------------------------- Total .................................... $ 380,918 7,860 (2,199) 386,579 =============================================================================================
On December 21, 1995, Synovus exercised an option permitted by the "Special Report - a Guide to Implementation of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities - Questions and Answers" to make a one time transfer of securities held to maturity to securities available for sale. This transfer was made to add further liquidity and flexibility to the portfolio which enabled Synovus to more effectively manage its interest rate risk position. The amortized cost and estimated fair value of the securities transferred was $133.7 million and $133.9 million, respectively. On February 28, 1995, immediately following the acquisition, Synovus transferred certain held to maturity securities of NBSC to the available for sale portfolio to adhere to Synovus' existing asset-liability management policy and interest rate risk strategy. This transfer consisted of investment securities with an estimated fair value of $27.1 million and an amortized cost of $27.4 million. Envisioning. Exploring. Evolving. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The amortized cost and estimated fair value of investment securities at December 31, 1996 and 1995, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Investment Securities Investment Securities Held to Maturity Available for Sale December 31, 1996 December 31, 1996 ----------------------- --------------------- Amortized Estimated Amortized Estimated (In thousands) Cost Fair Value Cost Fair Value - ----------------------------------------------------------------------------------------------- U. S. Treasury and U. S. Government agencies: Within 1 year ............................. $ 9,751 9,676 232,609 232,843 1 to 5 years .............................. 34,332 34,217 578,797 579,671 5 to 10 years ............................. 40,283 40,219 302,741 301,406 More than 10 years ........................ -- -- 17,975 18,002 - ----------------------------------------------------------------------------------------------- $ 84,366 84,112 1,132,122 1,131,922 =============================================================================================== Mortgage-backed securities: Within 1 year ............................. $ 4,715 4,714 1,130 1,137 1 to 5 years .............................. 62,540 61,961 35,288 35,019 5 to 10 years ............................. 28,611 28,915 43,380 42,853 More than 10 years ........................ 60,453 60,669 51,515 51,884 - ----------------------------------------------------------------------------------------------- $ 156,319 156,259 131,313 130,893 =============================================================================================== State and municipal: Within 1 year ............................. $ 18,290 18,392 30 30 1 to 5 years .............................. 42,253 43,269 -- -- 5 to 10 years ............................. 33,536 34,131 411 420 More than 10 years ........................ 20,804 21,071 524 564 - ----------------------------------------------------------------------------------------------- $ 114,883 116,863 965 1,014 =============================================================================================== Other investments: Within 1 year ............................. $ -- -- 516 526 1 to 5 years .............................. 1,832 1,852 2,482 2,699 5 to 10 years ............................. 265 265 1,025 1,093 More than 10 years ........................ 5,343 5,343 7,842 7,936 - ----------------------------------------------------------------------------------------------- $ 7,440 7,460 11,865 12,254 =============================================================================================== Total investment securities: Within 1 year ............................. $ 32,756 32,782 234,285 234,536 1 to 5 years .............................. 140,957 141,299 616,567 617,389 5 to 10 years ............................. 102,695 103,530 347,557 345,772 More than 10 years ........................ 86,600 87,083 77,856 78,386 - ----------------------------------------------------------------------------------------------- $ 363,008 364,694 1,276,265 1,276,083 ===============================================================================================
A summary of sales transactions in the investment securities available for sale portfolio for 1996, 1995, and 1994 is as follows: Gross Gross Realized Realized (In thousands) Proceeds Gains Losses - ------------------------------------------------------------------------------- 1996 $106,207 514 (690) 1995 136,502 1,164 (796) 1994 182,972 957 (1,678) There were no sales transactions in the investment securities held to maturity portfolio during the three years ended December 31, 1996. Securities with a carrying value of $968,431,000 and $879,232,000 at December 31, 1996 and 1995, respectively, were pledged to secure certain deposits as required by law. - -------------------------------------------------------------------------------- F-12 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Note 3 Loans Loans outstanding, by classification, are summarized as follows: (In thousands) December 31, 1996 1995 - ---------------------------------------------------------------------------- Commercial: Commercial, financial, and agricultural ... $ 2,036,689 1,931,004 Real estate-construction .................. 730,785 578,712 Real estate-mortgage ...................... 1,234,981 1,160,089 - ---------------------------------------------------------------------------- Total commercial ........................ 4,002,455 3,669,805 - ---------------------------------------------------------------------------- Retail: Real estate-mortgage ...................... 977,432 824,998 Consumer loans-credit card ................ 290,470 222,204 Consumer loans-other ...................... 768,072 784,972 Mortgage loans held for sale .............. 37,036 24,863 - ---------------------------------------------------------------------------- Total retail ............................ 2,073,010 1,857,037 - ---------------------------------------------------------------------------- Total loans ............................. $ 6,075,465 5,526,842 ============================================================================
Activity in the reserve for loan losses is summarized as follows:
(In thousands) December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Balance at beginning of year .............. $81,384 75,018 67,270 Loan loss reserves of acquired subsidiaries 188 1,001 1,535 Provision for losses on loans ............. 31,766 25,787 25,387 Recoveries of loans previously charged off 6,525 4,510 5,874 Loans charged off ......................... (25,180) (24,932) (25,048) - ------------------------------------------------------------------------------ Balance at end of year .................... $94,683 81,384 75,018 ==============================================================================
As discussed in the Summary of Significant Accounting Policies, Synovus adopted SFAS No. 114 and SFAS No. 118 effective January 1, 1995. No adjustment to the loan loss reserve was needed upon adoption of SFAS No. 114 and SFAS No. 118. The table below illustrates the impaired loans and related amounts included in the reserve for loan losses at December 31, 1996 and 1995. December 31, 1996 December 31, 1995 --------------------- ---------------------- Allocated Allocated Loan Loan Loss Loan Loan Loss (In thousands) Balance Reserve Balance Reserve - -------------------------------------------------------------------------------------------------------- Impaired loans, nonaccruing, with loan loss reserve .... $ 8,320 3,895 $13,083 5,619 Impaired loans, nonaccruing, with no loan loss reserve . 9,572 -- 7,151 -- Impaired loans, accruing, with loan loss reserve ....... 2,136 1,084 16,479 5,031 Impaired loans, accruing, with no loan loss reserve .... 10,365 -- 15,644 -- Impaired loans, accruing, partially charged off ........ 5,485 850 329 62 - -------------------------------------------------------------------------------------------------------- Total .............................................. $35,878 5,829 $52,686 10,712 ========================================================================================================
Envisioning. Exploring. Evolving. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- These loan loss reserve amounts, for impaired loans, were primarily determined using the fair value of the loans' collateral. The average recorded investment in impaired loans was approximately $40,000,000 and $87,000,000 for the years ended December 31, 1996 and 1995, respectively, and the related amount of interest income recognized during the period that such loans were impaired was approximately $1,702,000 and $5,695,000 in 1996 and 1995, respectively. Loans on nonaccrual status amounted to approximately $23,655,000, $21,469,000, and $26,497,000 at December 31, 1996, 1995, and 1994, respectively. If nonaccruing loans had been on a full accruing basis, interest income on these loans would have been increased by approximately $2,400,000, $2,606,000, and $2,931,000 in 1996, 1995, and 1994, respectively. A substantial portion of Synovus' loans are secured by real estate in markets in which subsidiary banks are located throughout Georgia, Alabama, South Carolina, and Northwest Florida. Accordingly, the ultimate collectibility of a substantial portion of Synovus' loan portfolio and the recovery of a substantial portion of the carrying amount of real estate owned are susceptible to changes in market conditions in these areas. At December 31, 1996, Synovus Mortgage Corp. serviced mortgage loans for unaffiliated investors in the amount of $1,551,608,000. This company carries errors and omissions insurance in the amount of $2,500,000. The following table presents information for mortgage loans held for sale as of December 31, 1996 and 1995:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Beginning balance ..................................... $ 24,863 9,465 Loans originated during the year ...................... 297,117 213,645 Loans sold during the year ............................ (284,944) (198,247) - ------------------------------------------------------------------------------- Ending balance ........................................ $ 37,036 24,863 ================================================================================
In the ordinary course of business, Synovus has direct and indirect loans outstanding to certain executive officers, directors, and principal holders of equity securities (including their associates). Management believes that such loans are made substantially on the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other customers. The following is a summary of such loans outstanding and the activities in these loans for the year ended December 31, 1996. (In thousands) - ------------------------------------------------------------------ Balance at December 31, 1995 .......................... $ 127,418 Adjustment for executive officer and director changes . 595 - ------------------------------------------------------------------ Adjusted balance at December 31, 1995 ................. 128,013 New loans ............................................. 64,356 Repayments ............................................ (50,155) - ------------------------------------------------------------------ Balance at December 31, 1996 .......................... $ 142,214 =================================================================== - -------------------------------------------------------------------------------- F-14 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 4 Other Assets Included in other assets are four significant balances: purchased and originated mortgage servicing rights, computer software costs, contract acquisition costs, net, and investment in joint ventures, net. Synovus adopted SFAS No. 122 as of July 1, 1995, and has capitalized all mortgage servicing rights since the adoption date. As of December 31, 1996 and 1995, Synovus had approximately $17,212,000 and $8,569,000, respectively, in capitalized mortgage servicing rights. There was no valuation allowance as of December 31, 1996 and 1995. The following table summarizes TSYS' computer software at December 31, 1996 and 1995:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------------- TS2 .............................................................. $33,049 33,049 Other internally developed software, including enhancements to TS2 5,524 5,346 Purchased computer software ...................................... 25,865 17,138 - -------------------------------------------------------------------------------------- 64,438 55,533 Less accumulated amortization .................................... 24,718 16,317 - -------------------------------------------------------------------------------------- Computer software, net ........................................... $39,720 39,216 ======================================================================================
Capitalized internal computer software development costs, related to the bankcard data processing, for the years ended December 31, 1996, 1995, and 1994 were $178,000, $2,617,000, and $10,624,000, respectively. Amortization expense related to computer software costs was $8,630,000, $7,358,000, and $3,669,000 for the years ended December 31, 1996, 1995, and 1994, respectively. - -------------------------------------------------------------------------------- Contract acquisition costs, net, at TSYS were $19,646,000 and $17,628,000 at December 31, 1996 and 1995, respectively. Investment in joint ventures, net, was $15,348,000 and $4,507,000 at December 31, 1996 and 1995, respectively. Note 5 Deposits The following table presents deposits as of December 31, 1996 and 1995: (Balances in thousands) 1996 1995 - -------------------------------------------------------------- Non-interest bearing demand deposits $1,189,973 1,141,716 Interest bearing demand deposits ... 1,022,398 932,351 Money market accounts .............. 1,136,795 925,861 Savings accounts ................... 462,023 465,491 Time deposits under $100,000 ....... 2,268,942 2,238,560 Time deposits over $100,000 ........ 1,122,904 1,023,900 - -------------------------------------------------------------- $7,203,035 6,727,879 ============================================================== Interest expense for the years ended December 31, 1996, 1995, and 1994 on time deposits over $100,000 was $62,074,000, $57,259,000 and $31,865,000, respectively. - -------------------------------------------------------------------------------- Envisioning. Exploring. Evolving. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Long-Term Debt Long-term debt at December 31, 1996 and 1995 consists of the following: (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Parent Company: 6.125% senior notes, due October 15, 2003, with semi-annual interest payments and principal to be paid at maturity ............................................................................................ $75,000 75,000 8.75% debenture, due May 15, 2004, with annual principal payments of $120,000 and $1,360,000 at maturity . 2,200 2,440 - ---------------------------------------------------------------------------------------------------------------------------- Total Parent Company Debt ........................................................ 77,200 77,440 - ---------------------------------------------------------------------------------------------------------------------------- Subsidiaries: Federal Home Loan Bank advances with monthly interest payments and principal payments due at various maturity dates through 2004 and interest rates ranging from 5.03% to 5.81% at December 31, 1996 .. 15,960 26,300 9.23% note payable, due October 31, 2003, with annual principal and interest payments .................... 317 348 8.00% capital lease obligation payable, due in monthly principal and interest payments through 2002 ...... 244 274 Other notes payable and capital lease obligations payable, with a weighted average interest rate of 5.36%, maturing at various dates through 2000 ............................................ 3,562 2,453 - ---------------------------------------------------------------------------------------------------------------------------- Total Subsidiaries Debt .......................................................... 20,083 29,375 - ---------------------------------------------------------------------------------------------------------------------------- Total Long-Term Debt ............................................................. $97,283 106,815 ============================================================================================================================
The more significant debt agreements held by the Parent Company provide for certain limitations on: payments of cash dividends, issuance of additional debt, creation of liens upon property, disposition of common stock or assets, and investments in subsidiaries. As of December 31, 1996, the most restrictive of these limit payment of cash dividends to a maximum of $139,604,000. The Federal Home Loan Bank advances are secured by certain mortgage loans receivable as well as all of the stock of the Federal Home Loan Bank owned by Synovus. Mandatory convertible subordinated debentures of $1,137,280 matured on August 19, 1995. In accordance with the terms of these debentures, Synovus issued 452,829 shares of common stock to extinguish the debentures. The capital lease obligations payable and certain notes payable are secured by land, buildings, and equipment with a net carrying value at December 31, 1996, of approximately $1,009,000. Synovus has an unsecured line of credit, with an unaffiliated bank, for $20 million with an interest rate of 50 basis points above the "short-term index", as defined. There were no advances on this line of credit outstanding at any time in the years ended December 31, 1996 or 1995. Required annual principal payments on long-term debt for the five years subsequent to December 31, 1996, are as follows:
Parent (In thousands) Company Subsidiaries Total - -------------------------------------------------------------------------------- 1997....................$120 11,307 11,427 1998.................... 120 7,079 7,199 1999.................... 120 382 502 2000.................... 120 307 427 2001.................... 120 289 409
- -------------------------------------------------------------------------------- F-16 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Note 7 Income Taxes For the years ended December 31, 1996, 1995, and 1994, income tax expense (benefit) consists of: (In thousands) 1996 1995 1994 - -------------------------------------------------------- Currently payable: Federal .......... $ 89,655 65,009 46,304 State ............ 5,974 4,048 4,267 - ------------------------------------------------------- 95,629 69,057 50,571 - ------------------------------------------------------- Deferred: Federal .......... (14,664) (3,792) (997) State ............ (1,257) (379) (100) - ------------------------------------------------------- (15,921) (4,171) (1,097) - ------------------------------------------------------- Total income taxes $ 79,708 64,886 49,474 =======================================================
Income tax expense as shown in the consolidated statements of income differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to pretax income as a result of the following:
(In thousands) 1996 1995 1994 - --------------------------------------------------------------------------------------------- Taxes at statutory federal income tax rate .......... $76,759 62,814 48,624 Tax-exempt income ................................... (2,859) (2,956) (3,654) State income taxes, net of federal income tax benefit 3,066 2,385 2,709 Minority interest ................................... 2,657 1,867 1,514 Other, net .......................................... 85 776 281 - --------------------------------------------------------------------------------------------- Total income tax expense .......................... $79,708 64,886 49,474 ============================================================================================= Effective tax rate ................................ 36.34% 36.15% 35.61 =============================================================================================
The significant components of deferred income tax benefit for the years ended December 31, 1996, and 1995, and 1994 are as follows:
(In thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease)in net tax benefit (exclusive of the components listed below) .............. $13,085 (9,065) 17,339 Adjustments to deferred income tax assets and liabilities for enacted tax rate change .......... -- -- 240 Change in valuation allowance .................................................................. (383) (418) 406 Change in deferred income tax assets and liabilities related to net unrealized gain (loss) on securities available for sale ............................................................. 3,219 13,788 (16,555) Deferred tax assets of acquired companies ...................................................... -- (134) (333) - ------------------------------------------------------------------------------------------------------------------------------------ $15,921 4,171 1,097 ====================================================================================================================================
Envisioning. Exploring. Evolving. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The tax effects of temporary differences that gave rise to significant portions of the deferred income tax assets and liabilities at December 31, 1996 and 1995 are presented below:
(In thousands) 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred income tax assets: Provision for losses on loans ........................................................... $38,226 32,244 Net unrealized loss on investment securities available for sale ......................... 69 -- Other ................................................................................... 12,400 11,610 - ----------------------------------------------------------------------------------------------------------------------------------- Total gross deferred income tax assets ................................................ 50,695 43,854 Less valuation allowance .............................................................. -- (383) - ----------------------------------------------------------------------------------------------------------------------------------- Net deferred income tax assets ..................................................... 50,695 43,471 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred income tax liabilities: Differences in depreciation ............................................................. (5,612) (6,220) Restricted stock awards ................................................................. (1,180) (1,206) Computer software development costs ..................................................... (14,314) (14,958) Net unrealized gain on investment securities available for sale ......................... -- (3,150) Pension ................................................................................. -- (241) Purchase accounting adjustments ......................................................... (1,571) (1,338) Other, net .............................................................................. (6,366) (7,791) - ----------------------------------------------------------------------------------------------------------------------------------- Total gross deferred income tax liabilities .......................................... (29,043) (34,904) - ----------------------------------------------------------------------------------------------------------------------------------- Net deferred income tax assets .................................................... $21,652 8,567 ===================================================================================================================================
There was no valuation allowance for deferred tax assets as of December 31, 1996, compared to the December 31, 1995 allowance of $383,000. The net change in the total valuation allowance for the years ended December 31, 1996 and 1995 was a decrease of $383,000 and $418,000, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that Synovus will realize the benefits of these deductible differences, net of the existing valuation allowances, at December 31, 1996. - -------------------------------------------------------------------------------- Note 8 Employee Benefit Plans Under various stock option plans, Synovus has granted options for 4,300,528 shares of common stock to officers of Synovus and its subsidiaries. Synovus has expensed $813,000, $1,016,000 and $1,129,000 in 1996, 1995, and 1994, respectively, related to the compensation element of these plans. At December 31, 1996, unamortized deferred compensation expense of $3,856,000 related to these options remained and will be amortized over the vesting period through 1997. The options outstanding at December 31, 1996 had a weighted average exercise price of $13.59. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $19.67 and $21.66, respectively, using the Black Scholes option-pricing model with the following weighted-average assumptions: expected life of 4 years, expected dividend yield of 1.4%, risk free interest rate of 6.5% and an expected volatility of 22%, for both years. Synovus applies APB Opinion No. 25 in accounting for the stock option plans and, accordingly, compensation costs for the 1996 and 1995 option plans have not been recognized in the accompanying financial statements. However, Synovus issued discounted options prior to 1995, the compensation cost of which has been included in income as described above. In addition to the stock options described above, Synovus has awarded non-transferable, restricted shares of Synovus common stock to various key executives under key executive restricted stock bonus plans. The market value of the common stock at the date of issuance is included as a reduction of shareholders' equity in the consolidated statements of condition and is amortized as compensation expense using the straight-line method over the vesting period of the awards. Aggregate compensation expense with respect to the foregoing Synovus restricted stock awards was approximately $1,090,000, $779,000 and $1,421,000 in 1996, 1995 and 1994, respectively. F-18 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Summary information regarding outstanding restricted stock bonus plans at December 31, 1996 is presented below:
Year awards Market value granted at award date Vesting period - -------------------------------------------------------------------------------- 1994 870,000 5 years 1995 2,054,000 5 years 1996 3,771,000 5 years
In 1992, TSYS also awarded 959,200 non-transferable, restricted shares of its common stock to various key executives under restricted stock bonus plans. The aggregate market value of the awards issued was $3,134,050, and is being amortized on a straight-line basis over the five to six year vesting periods of the awards. In accordance with APB Opinion No. 25, approximately $738,000 and $205,000 in compensation expense has been recorded in 1996 and 1995, respectively, for the restricted stock awards granted in 1996 and 1995. Had Synovus determined compensation cost based on the fair value at the grant date for its stock options and restricted stock awards under SFAS No. 123, Synovus' net income would have been reduced to the pro forma amounts indicated below:
Years ended December 31, (In thousands) 1996 1995 - ------------------------------------------------------------------------------- Net income: As reported ........ $139,604 114,583 Pro forma .......... 137,650 114,107 Earnings per share: As reported ......... 1.20 1.00 Pro forma ........... 1.19 .99
Pro forma net income reflects only options and awards granted in 1996 and 1995. The full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above. The pro forma net income amount above does not include compensation cost that would be recorded over the options' vesting periods of 2 to 3 years or compensation cost for options granted prior to January 1, 1995. Stock option activity during the years ended December 31, 1996, 1995, and 1994 is as follows:
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ Options outstanding at beginning of period .............. 3,384,396 2,815,332 2,376,516 Options granted ......................................... 1,296,349 1,237,686 813,266 Options exercised ....................................... (353,629) (654,615) (266,114) Options cancelled ....................................... (26,588) (14,007) (108,336) - ------------------------------------------------------------------------------------------------------------------- Options outstanding at end of period .................. 4,300,528 3,384,396 2,815,332 =================================================================================================================== Options exercisable at end of period .................. 1,167,925 1,112,034 883,713 =================================================================================================================== Options' prices per share: Options granted during the period ..................... $ 19.63 to 21.63 6.49 to 15.17 4.76 to 12.75 Options exercised during the period ................... $ 3.03 to 15.70 3.03 to 7.80 2.75 to 7.22 Options outstanding at end of period .................. $ 3.03 to 21.63 3.03 to 15.17 3.03 to 12.75 - -------------------------------------------------------------------------------------------------------------------
In 1994, Synovus had noncontributory, trusteed pension plans (collectively referred to as "Plan") covering substantially all employees over 20 1/2 years of age. Total pension expense recorded in the accompanying financial statements was approximately $652,000, $3,195,000, and $1,516,000 in 1996, 1995, and 1994, respectively. In 1995, Synovus terminated the Plan. During the years ended December 31, 1996 and 1995, Synovus settled the accumulated benefit obligation of approximately $15,849,000. The expenses incurred in 1996 and 1995 primarily relate to the loss on settlement of the terminated Plan. Envisioning. Exploring. Evolving. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In 1995, Synovus adopted a defined-contribution, money purchase plan to replace the terminated pension plan referred to above. In addition, Synovus generally provides noncontributory, trusteed, profit sharing and 401(k) plans which cover all eligible employees. Annual discretionary contributions to these profit sharing and 401(k) plans are set each year by the respective Boards of Directors of each subsidiary, but cannot exceed amounts allowable as a deduction for federal income tax purposes. Aggregate contributions to these money purchase, profit sharing, and 401(k) plans for the years ended December 31, 1996, 1995 and 1994 were $30,125,000, $23,238,000, and $12,853,000, respectively. Synovus has stock purchase plans for directors and employees whereby Synovus makes contributions equal to one-half of employee and director voluntary contributions. The funds are used to purchase outstanding shares of Synovus common stock. TSYS has established director and employee stock purchase plans, modeled after Synovus' plans except that the funds are used to purchase outstanding shares of TSYS common stock. Synovus and TSYS contributed $3,069,000, $2,623,000 and $1,949,000 to these plans in 1996, 1995, and 1994, respectively. Synovus has also entered into employment agreements with certain executive officers for past and future services which provide for current compensation in addition to salary in the form of deferred compensation payable at retirement or in the event of death, total disability, or termination of employment. The aggregate cost of these salary continuation plans and employment agreements was not material to the consolidated financial statements. Synovus provides certain medical benefits to qualified retirees through a postretirement medical benefits plan. The benefit expense and accrued benefit cost was not material to Synovus' consolidated financial statements. - -------------------------------------------------------------------------------- Note 9 Fair Value of Financial Instruments The following table presents the carrying amounts and estimated fair values of Synovus' on-balance sheet financial instruments at December 31, 1996 and 1995. The estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.
1996 1995 ---------------------------- ----------------------- Carrying Estimated Carrying Estimated (In thousands) Value Value Fair Value Value Fair Value - -------------------------------------------------------------------------------------------------------------------- Financial assets: Cash and due from banks ................................... $ 404,952 404,952 382,696 382,696 Interest earning deposits with banks ...................... 2,040 2,040 1,093 1,093 Federal funds sold ........................................ 38,249 38,249 123,832 123,832 Investment securities available for sale .................. 1,276,083 1,276,083 1,106,298 1,106,298 Investment securities held to maturity .................... 363,008 364,694 380,918 386,579 Loans ..................................................... 5,970,547 5,848,317 5,430,646 5,393,786 Purchased and originated mortgage servicing rights ........ 17,212 20,499 8,569 9,844 Financial liabilities: Non-interest bearing deposits ............................. $1,189,973 1,189,973 1,141,716 1,141,716 Interest bearing deposits ................................. 6,013,062 6,017,256 5,586,163 5,590,868 Federal funds purchased and securities sold under agreement to repurchase ........................................ 339,200 339,200 229,477 229,477 Long-term debt ............................................ 97,283 94,818 106,815 105,874
The carrying amounts and estimated fair values relating to off-balance sheet financial instruments are summarized in Note 10. Cash and due from banks, interest earning deposits with banks, and federal funds sold are repriced on a short-term basis, as such, the carrying value closely approximates market. Fair value of loans is estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type, such as commercial, mortgage, home equity, credit card, and other consumer loans. Fixed rate commercial loans are further segmented into certain collateral code groupings. Commercial and other consumer loans with adjustable interest rates are assumed to be at fair value. Mortgage loans are further segmented into fixed and adjustable rate interest terms. Home equity and credit card loans have adjustable interest rates and are, therefore, assumed to be at fair value. The fair value of loans, except mortgage loans, is calculated by discounting contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loan. For mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for certain prepayment assumptions, estimated using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. In accordance with SFAS No. 107, the fair value of deposits with no stated maturity, such as non-interest bearing demand accounts, interest bearing demand deposits, money market accounts, and savings accounts, is equal to the amount payable on demand as of that respective date. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. F-20 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Short-term debt that matures within ten days is assumed to be at fair value. The fair value of short-term and long-term debt with fixed interest rates is calculated by discounting contractual cash flows using estimated market discount rates. - -------------------------------------------------------------------------------- Note 10 Commitments Off-Balance Sheet Financial Instruments Synovus is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers, reduce its own exposure to fluctuations in interest rates, and to conduct lending activities. These financial instruments include commitments to extend credit, standby and commercial letters of credit, and interest rate swaps, floors and collars. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated financial statements. Synovus' exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, and standby and commercial letters of credit is represented by the contract amount of those instruments. Synovus uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For interest rate swap, collar, and floor agreements held at year end, Synovus had insignificant credit risk. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements. Loan commitments and letters of credit at December 31, 1996 and 1995 include the following:
(In thousands) 1996 1995 - ------------------------------------------------------------------------------------------------------ Standby letters of credit .................................................. $ 321,891 255,230 Undisbursed construction loans ............................................ 341,457 316,139 Unused credit card lines .................................................. 659,423 552,831 Other loan commitments ..................................................... 817,206 700,227 Commitments to sell mortgage loans.......................................... 23,000 36,000 - -------------------------------------------------------------------------------------------------------- Total .................................................................... $2,162,977 1,860,427 ========================================================================================================
Due to the short-term nature of the outstanding loan commitments, and the likelihood that, when funded, these loans will be indexed to the then current market rates, the off-balance sheet value closely approximates fair value. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. Entering into off-balance sheet interest rate contracts involves not only interest rate risk but also, the risk of counterparties' failure to fulfill their legal obligations. Notional principal amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. In October of 1995, Synovus and its subsidiary bank, Columbus Bank and Trust Company, entered the interest rate swap market for interest rate risk management purposes. In January of 1996, another subsidiary bank, The National Bank of South Carolina, also entered the interest rate swap market. The consolidated notional amount of interest rate swap, floor, and collar contracts was $450,000,000 and $125,000,000 as of December 31, 1996 and 1995, respectively, with a carrying amount of $410,000, primarily related to the interest rate floor agreements in 1996, and no carrying amount in 1995. The estimated net unrealized (loss) gain on these interest rate contracts was ($1,935,000) and $1,776,000 at December 31, 1996 and 1995, respectively. These interest rate contracts are being utilized to hedge approximately $585,000,000 in prime rate floating loans in Georgia and South Carolina. Envisioning. Exploring. Evolving. F-21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Weighted Weighted Weighted December 31, 1996 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized (In thousands) Amount Receive Rate Pay Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Receive Fixed Swaps -LIBOR $235,000 5.79 5.53 32 $ -- (2,200) (2,200) Receive Fixed Swaps - Prime 70,000 9.12 8.25 43 630 -- 630 - ----------------------------------------------------------------------------------------------------------------------------------- Total Receive Fixed Swaps 305,000 6.55 6.15 35 630 (2,200) (1,570) - ----------------------------------------------------------------------------------------------------------------------------------- - ------------ Variable pay rate based upon contract rates in effect at December 31, 1996 and 1995.
Weighted Weighted Weighted Notional Average Cap Average Average Maturity Unrealized Unrealized Net Unrealized Amount Rate Floor Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Interest Rate Collars 80,000 9.16 7.91 34 -- (445) (445)
Weighted Weighted Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized Amount Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Interest Rate Floors 65,000 7.83 48 80 -- 80
Weighted Notional Average Maturity Unrealized Unrealized Net Unrealized Amount In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Total $450,000 37 $ 710 (2,645) (1,935) ====================================================================================================================================
Weighted Weighted Weighted December 31, 1995 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized (In thousands) Amount Receive Rate Pay Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Receive Fixed Swaps - LIBOR $125,000 5.98% 5.88 46 $1,776 -- $1,776 =================================================================================================================================== - ------- Variable pay rate based upon contract rates in effect at December 31, 1996 and 1995.
Lease Commitments Synovus has entered into long-term operating leases for various branch locations, data processing equipment, and furniture. Management expects that, as these leases expire, they will be renewed or replaced by other leases. At December 31, 1996, minimum rental commitments under all such noncancelable leases aggregated $118,647,000 of which the following approximate amounts are due for the next five years:
Equipment Real and (In thousands) Property Furniture Total - -------------------------------------------------------------------------------- 1997....................... $5,909 26,888 32,797 1998....................... 5,617 25,221 30,838 1999....................... 4,996 19,264 24,260 2000....................... 4,765 8,038 12,803 2001....................... 3,613 88 3,701
Rental expense on equipment, including cancelable leases, was $44,819,000, $33,445,000, and $25,111,000 in 1996, 1995, and 1994, respectively. Rental expense on facilities was $6,920,000, $6,144,000, and $5,586,000 in 1996, 1995, and 1994, respectively. Contract Commitments In the normal course of its business, TSYS maintains processing and conversion agreements with its customers. These agreements contain contractual commitments, including, but not limited to, minimum standards and time frames against which TSYS' performance is measured. In the event TSYS does not meet its contractual commitments with its customers, TSYS may incur penalties and/or certain customers may have the right to terminate their agreements with TSYS. TSYS does not believe that it will fail to meet its contractual commitments to an extent that will result in a material adverse effect on its financial condition or results of operations. 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. F-22 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Currently, multiple lawsuits, some seeking class action treatment, are pending against one of Synovus' Alabama banking subsidiaries that involve: (1) the sale of credit life insurance made in connection with consumer credit transactions; (2) payments of service fees or interest rebates to automobile dealers in connection with the assignment of automobile credit sales contracts to that Synovus subsidiary; and (3) the forced placement of insurance to protect that Synovus subsidiary's interest in collateral for which consumer credit customers have failed to obtain or maintain insurance. These lawsuits seek unspecified damages, including punitive damages, and purport to be class actions which, if certified, may involve many of such subsidiary's consumer credit transactions in Alabama for a number of years. Synovus intends to vigorously contest these lawsuits and all other litigation to which Synovus and its subsidiaries are parties. Based on information presently available, and in light of legal and other 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. - -------------------------------------------------------------------------------- Note 11 Supplemental Financial Data Components of other operating expenses in excess of 1% of total revenues for any of the respective periods are as follows:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Stationery, printing, and supplies............. $24,104 23,692 19,552 FDIC insurance ................................ 1,469 7,849 12,742 - --------------------------------------------------------------------------------
Note 12 Industry Segments Synovus operates principally in the banking industry through its subsidiary banks, mortgage servicing company, trust company, and broker/dealer company. Synovus also operates in the computerized data processing industry through its majority-owned subsidiary, TSYS, which primarily provides bankcard data processing for unaffiliated financial institutions and for Synovus. All, inter-segment services provided are charged at the same rates as unaffiliated customers, are included in the revenues and net income of the respective segments, and are eliminated to arrive at consolidated totals. Industry segment information for the years ended December 31, 1996, 1995, and 1994 is presented below.
General Total Banking Data (In thousands) Banking Corporate Operations Processing Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------------- Revenues.......................... 1996 $ 779,764 -- 779,764 311,648 (2,731) 1,088,681 1995 709,774 -- 709,774 249,708 (2,860) 956,622 1994 586,917 -- 586,917 187,571 (1,774) 772,714 Net income........................ 1996 121,808 (14,049) 107,759 39,437 (7,592) 139,604 1995 105,692 (13,506) 92,186 27,730 (5,333) 114,583 1994 83,983 (12,696) 71,287 22,490 (4,325) 89,452 Identifiable assets............... 1996 8,371,958 42,578 8,414,536 246,759 (48,951) 8,612,344 1995 7,719,615 51,478 7,771,093 199,000 (42,498) 7,927,595 1994 6,989,998 55,111 7,045,109 165,042 (34,072) 7,176,079 Capital expenditures......... 1996 34,508 676 35,184 28,622 -- 63,806 1995 22,835 269 23,104 25,108 -- 48,212 1994 19,117 320 19,437 22,501 -- 41,938 Depreciation and amortization on premises, equipment, and purchased software ....................... 1996 16,344 360 16,704 19,108 -- 35,812 1995 13,999 332 14,331 17,126 -- 31,457 1994 12,871 365 13,236 13,472 -- 26,708 - --------------------- Principally, data processing service revenues provided to the banking segment. Minority interest in the data processing segment. Excludes expenditures related to data processing subsidiary's capitalization of internal software development costs. - --------------------------------------------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
Note 13 Condensed Financial Information of Synovus Financial Corp. (Parent Company only) Condensed Statements of Condition (In thousands) December 31, 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- Assets Cash ........................................................................... $ 25 47 Investment in consolidated bank subsidiaries, at equity (including TSYS) ....... 836,466 736,379 Investment in consolidated nonbank subsidiaries, at equity ..................... 7,799 6,775 Notes receivable from subsidiaries ............................................. 25,613 27,853 Other assets ................................................................... 19,076 24,040 - ----------------------------------------------------------------------------------------------------------------------- Total assets ...................................................... $888,979 795,094 - ----------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders Equity Long-term debt ................................................................. $ 77,200 77,440 Other liabilities .............................................................. 28,029 24,099 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities ................................................. 105,229 101,539 - ----------------------------------------------------------------------------------------------------------------------- Shareholders equity: Common stock ........................................................... 116,424 115,921 Surplus ................................................................ 98,523 88,381 Less treasury stock .................................................... (1,285) (1,022) Less unamortized restricted stock ...................................... (5,344) (2,663) Net unrealized gain (loss) on investment securities available for sale . (112) 5,774 Retained earnings ...................................................... 575,544 487,164 - ----------------------------------------------------------------------------------------------------------------------- Total shareholders equity ......................................... 783,750 693,555 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders equity ......................... 888,979 795,094 =======================================================================================================================
F-24 S Y N O V U S F I N A N C I A L C O R P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
Condensed Statements of Income (In thousands) Years ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Income: Dividends received from bank subsidiaries (including TSYS) .......................... $ 61,925 76,464 72,800 Dividends received from nonbank subsidiaries ........................................ -- -- 300 Management fees ..................................................................... 1,642 2,511 3,586 Interest income ..................................................................... 1,678 2,149 1,425 Other income ........................................................................ 3,144 2,616 2,330 - ---------------------------------------------------------------------------------------------------------------------------- Total income ................................................................ 68,389 83,740 80,441 - ---------------------------------------------------------------------------------------------------------------------------- Expenses: Interest expense .................................................................... 4,818 6,046 6,874 Other expenses ...................................................................... 25,129 23,904 19,758 - ---------------------------------------------------------------------------------------------------------------------------- Total expenses .............................................................. 29,947 29,950 26,632 - ---------------------------------------------------------------------------------------------------------------------------- Income before income taxes and equity in undistributed income of subsidiaries 38,442 53,790 53,809 Allocated income tax benefit ................................................................ (9,526) (9,246) (6,931) - ---------------------------------------------------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries ................ 47,968 63,036 60,740 Equity in undistributed income of subsidiaries .............................................. 91,636 51,547 28,712 - ---------------------------------------------------------------------------------------------------------------------------- Net income .................................................................. $139,604 114,583 89,452 ============================================================================================================================
Envisioning. Exploring. Evolving. F-25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------
Condensed Statements of Cash Flows (In thousands) Years ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net income .............................................................. $ 139,604 114,583 89,452 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries ........ (91,636) (51,547) (28,712) Net income of equity method investment .................. (92) (78) (337) Depreciation, amortization, and accretion, net .......... 768 739 1,312 Net increase in other liabilities ....................... 3,930 5,723 5,474 Net decrease (increase) in other assets ................. 4,142 8,799 (10,632) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities ....... 56,716 78,219 56,557 - ------------------------------------------------------------------------------------------------------------------------------------ Investing Activities Net investment in subsidiaries .......................................... (9,821) (9,835) (11,005) Cash from merged parent company operations .............................. -- 515 -- Net (increase) decrease in notes receivable from subsidiaries .......... (1,021) 1,200 1,700 Net decrease (increase) in short-term notes receivable from subsidiaries 3,261 (4,765) (6,907) Purchase of premises and equipment, net ................................. (396) (266) (301) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities ........... (7,977) (13,151) (16,513) - ------------------------------------------------------------------------------------------------------------------------------------ Financing Activities Dividends paid to shareholders .......................................... (51,123) (42,042) (33,006) Net decrease in short-term borrowings ................................... -- -- (5,404) Principal repayments on long-term debt .................................. (240) (25,620) (2,166) Proceeds from issuance of long-term debt ................................ -- -- 5,000 Purchase of treasury stock .............................................. (263) (1,303) (6,013) Proceeds from issuance of common stock .................................. 2,865 3,705 1,270 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities ........... (48,761) (65,260) (40,319) - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in cash ................................................................ (22) (192) (275) Cash at beginning of period ..................................................... 47 239 514 - ------------------------------------------------------------------------------------------------------------------------------------ Cash at end of period ........................................................... $ 25 47 239 ====================================================================================================================================
Supplemental Information: For the years ended December 31, 1996, 1995, and 1994, the Parent Company paid income taxes of $90 million, $68 million, and $48 million, and interest in the amounts of $5 million, $6 million, and $7 million, respectively. The amount of dividends paid to the Parent Company from the subsidiary banks is limited by various banking regulatory agencies. The amount of cash dividends available from subsidiary banks for payment in 1997, without prior approval from the banking regulatory agencies, is approximately $84,111,000. In prior years, Synovus' banks have received permission and have paid cash dividends to the Parent Company in excess of these regulatory limitations. As a result of the regulatory limitations, at December 31, 1996, approximately $752,355,000 of the Parent Company's investment in net assets of subsidiary banks of $836,466,000, as shown in the accompanying condensed statements of condition, was restricted from transfer by subsidiary banks to the Parent Company in the form of cash dividends. Synovus is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Synovus' consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Synovus must meet specific capital guidelines that involve quantitative measures of Synovus' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Synovus capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require Synovus on a consolidated basis, and the Parent Company and subsidiary banks, individually, to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 1996, that Synovus meets all capital adequacy requirements to which it is subject. F-26 S Y N O V U S F I N A N C I A L C O R P. As of December 31, 1996, the most recent notification from The Federal Reserve Bank of Atlanta categorized the significant Synovus subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized Synovus and its subsidiaries must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. Management is not aware of the existence of any conditions or events occurring subsequent to December 31, 1996 which would affect Synovus or its subsidiaries well capitalized classifications. Actual capital amounts and ratios for Synovus are presented in the table below on a consolidated basis and for each significant subsidiary, as defined.
To be Well Capitalized Under For Capital Prompt Corrective (In thousands) Actual Adequacy Purposes Action Provisions -------------------- ------------------- --------------------- December 31, 1996 1995 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Synovus Financial Corp. Tier I capital ...................... $777,708 674,165 266,279 239,157 399,418 358,735 Total risk-based capital ............ 863,261 751,423 532,557 478,313 665,697 597,891 Tier I capital ratio ................ 11.68% 11.28 4.00 4.00 6.00 6.00 Total risk-based capital ratio ...... 12.97 12.57 8.00 8.00 10.00 10.00 Leverage ratio ...................... 9.36 8.71 4.00 4,00 5.00 5.00 Columbus Bank and Trust Company Tier I capital ...................... $298,610 251,561 65,598 57,078 98,397 85,617 Total risk-based capital ............ 316,045 267,303 131,196 114,156 163,994 142,696 Tier I capital ratio ................ 18.21% 17.63 4.00 4.00 6.00 6.00 Total risk-based capital ratio ...... 19.27 18.73 8.00 8.00 10.00 10.00 Leverage ratio ...................... 17.12 15.87 4.00 4.00 5.00 5.00 The National Bank of South Carolina Tier I capital ...................... $ 94,373 84,324 38,455 34,836 57,682 52,254 Total risk-based capital ............ 106,396 94,583 76,909 69,672 96,137 87,090 Tier I capital ratio ................ 9.82% 9.68 4.00 4.00 6.00 6.00 Total risk-based capital ratio ...... 11.07 10.86 8.00 8.00 10.00 10.00 Leverage ratio ...................... 7.88 7.70 4.00 4.00 5.00 5.00
Envisioning. Exploring. Evolving. F-27 [logo] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Synovus Financial Corp.: We have audited the accompanying consolidated statements of condition of Synovus Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of Synovus' management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synovus Financial Corp. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/KPMG Peat Marwick LLP January 21, 1997 Member Firm of Klynveld Peat Marwick Goerdeler F-28 S Y N O V U S F I N A N C I A L C O R P.
FINANCIAL HIGHLIGHTS (In thousands, except per share data) Percent Years ended December 31, 1996 1995 Change - --------------------------------------------------------------------------------------------------------------------------- Statements of Condition Assets ........................................................... 8,612,344 7,927,595 8.6% Loans, net ....................................................... 5,970,547 5,430,646 9.9 Deposits ......................................................... 7,203,035 6,727,879 7.1 Shareholders' equity ............................................. 783,750 693,555 13.0 Book value per share ............................................. 6.74 5.99 12.5 Cash dividends declared per share ................................ .44 .36 22.2 Equity to assets ................................................. 9.10% 8.75 Reserve for loan losses to loans ................................. 1.56 1.48 - --------------------------------------------------------------------------------------------------------------------------- Statements of Income Net income before special FDIC assessment ........................ 142,400 114,583 24.3% Net income after special FDIC assessment ......................... 139,604 114,583 21.8 Net income per share before special FDIC assessment .............. 1.23 1.00 23.0 Net income per share after special FDIC assessment ............... 1.20 1.00 20.6 - --------------------------------------------------------------------------------------------------------------------------- Performance Ratios Return on assets before special FDIC assessment .................. 1.75% 1.53 Return on assets after special FDIC assessment .................. 1.72 1.53 Return on equity before special FDIC assessment .................. 19.49 17.92 Return on equity after special FDIC assessment .................. 19.11 17.92 Net interest margin .............................................. 5.19 5.15 Net overhead ratio before special FDIC assessment ................ 1.37 1.75 Net overhead ratio after special FDIC assessment ................. 1.43 1.75 - ----------------------------------------------------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-29 FINANCIAL REVIEW Summary Synovus Financial Corp. (Synovus) has continued to improve performance with the most successful year in its history. Net income for 1996 was $139.6 million, increasing 21.8% over the $114.6 million earned in 1995. Net income per share increased to $1.20 in 1996, up 20.6% from the $1.00 earned in 1995. Return on assets continued to improve in 1996 increasing 19 basis points to 1.72%, compared to 1.53% in 1995. Return on equity also improved to 19.11% in 1996, compared to 17.92% in 1995. These record results are attributable to significant improvements in Synovus' banking operations and at Total System Services, Inc. (TSYS), Synovus' majority owned bankcard processing subsidiary. During 1996, net interest income and non-interest income grew 9.7% and 24.8%, respectively, over 1995, while non-interest expense increased 15.0% and the provision for loan losses increased 23.2%. Synovus' banking operations results, which exclude TSYS, also continued to improve during 1996. Net income for Synovus banking operations increased 16.9% to $107.8 million from $92.2 million in 1995. Return on assets for Synovus banking operations improved in 1996 increasing 10 basis points to 1.36%, compared to 1.26% in 1995. Return on equity allocated to Synovus banking operations also improved to 17.88% in 1996, compared to 17.31% in 1995. On September 30, 1996, legislation was approved to recapitalize the Savings Association Insurance Fund. Due to this recapitalization, Synovus paid a special assessment to the Federal Deposit Insurance Corporation (FDIC) of approximately $2.8 million on an after-tax basis, which represents approximately $.03 per share for the year of 1996. Synovus' consolidated statement of income for 1996 includes this special assessment. The following paragraph discusses the financial results for 1996, before the FDIC special assessment. Net income for 1996 was $142.4, up $27.8 million, or 24.3%, from the same period a year ago. Net income per share increased 23.0% during the year, from $1.00 in 1995 to $1.23 in 1996. Synovus' core operations strong performance resulted in a return on average assets of 1.75% and a return on average equity of 19.49% for 1996. This compared to a return on average assets and a return on average equity of 1.53% and 17.92%, respectively, in 1995. Synovus' total assets ended the year at $8.6 billion, a growth rate of 8.6% for 1996, resulting from net loan growth of $539.9 million, or 9.9%. This asset growth was primarily funded by a $475.2 million increase, or 7.1%, in total deposits. The increases in both loans and deposits reflect a strong Southeastern economic environment as well as market share gains. Shareholders' equity grew 13.0% to $783.8 million, which represented 9.10% of total assets. The following discussion reviews the results of operations and assesses the financial condition of Synovus. This discussion should be read in conjunction with the preceding consolidated financial statements and accompanying notes. On March 11, 1996, Synovus declared a three-for-two stock split effected April 8, 1996, to shareholders of record on March 21, 1996. Share and per share data for all periods presented have been restated to reflect the additional shares outstanding resulting from the stock split. - -------------------------------------------------------------------------------- Table 1
Five Year Selected Financial Data (In thousands, except per share data) Years Ended December 31, ---------------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------------------------------------- Net interest income ................................... $ 374,874 341,875 301,231 263,213 241,203 Provision for losses on loans ......................... 31,766 25,787 25,387 24,924 33,302 Income before extraordinary item ...................... 139,604 114,583 89,452 80,379 66,685 Net income ............................................ 139,604 114,583 89,452 77,467 66,685 Per share data: Income before extraordinary item .............. 1.20 1.00 .79 .74 .61 Net income .................................... 1.20 1.00 .79 .71 .61 Cash dividends declared ....................... .44 .36 .30 .25 .21 Long-term debt ........................................ 97,283 106,815 139,811 143,481 143,215 Average total equity .................................. 730,541 639,426 566,562 505,027 444,565 Average total assets .................................. 8,135,587 7,498,299 6,782,659 6,141,794 5,702,968 Ratios: Return on assets before extraordinary item..... 1.72% 1.53 1.32 1.31 1.17 Return on assets after extraordinary item ..... 1.72 1.53 1.32 1.26 1.17 Return on equity before extraordinary item..... 19.11 17.92 15.79 15.92 15.00 Return on equity after extraordinary item ..... 19.11 17.92 15.79 15.34 15.00 Dividend payout ratio ..................... 36.62 36.69 36.90 35.10 28.59 Average equity to average assets .............. 8.98 8.53 8.35 8.22 7.80 - ---------- Determined by dividing dividends declared by net income, including pooled subsidiaries. 1996 selected financial data reflects the impact of the special FDIC assessment. Without the special FDIC assessment, net income would have been $142,400 and net income per share would have been $1.23.
- -------------------------------------------------------------------------------- F-30 S Y N O V U S F I N A N C I A L C O R P. Acquisitions On October 24, 1996, Synovus completed the acquisition of two full-service banking centers in Rome, Georgia. Synovus acquired approximately $49 million in deposits and $12 million in loans from the two banking centers. The acquisition was accounted for as a purchase. The 1995 merger activity resulted in Synovus' entry into South Carolina and an expanded presence in Georgia. The merger with NBSC Corporation of Columbia, South Carolina, represents the largest in our history. NBSC brings a veteran management team and an opportunity to provide products and services to the growing markets in South Carolina. In addition, the mergers with Douglasville, Georgia, based Citizens & Merchants Corporation and Riverdale, Georgia, based Peach State Bank continue to provide Synovus with access to the growth in the Atlanta suburbs. A list of the bank acquisitions completed during the past three years follows:
(Dollars in thousands) Acquired Shares Financial Company and Location Date Assets Issued Statement Presentation - ----------------------------------------- ---------------- ----------- --------- ----------------------- Two branches October 24, 1996 $ 46,464 N/A Purchase Rome, Georgia Citizens & Merchants Corporation April 28, 1995 $ 52,000 939,704 Pooling (Non-restated) Douglasville, Georgia NBSC Corporation February 28, 1995 $1,100,000 11,894,022 Pooling (Restated) Columbia, South Carolina Peach State Bank January 31, 1995 $ 43,000 399,747 Purchase Riverdale, Georgia State Bancshares, Inc. October 31, 1994 $ 62,000 823,318 Pooling (Non-restated) Enterprise, Alabama PNB Bankshares, Inc. May 31, 1994 $ 78,000 822,319 Pooling (Non-restated) Peachtree City, Georgia
This information is discussed in further detail in Note 1 of the financial statements. - -------------------------------------------------------------------------------- Table 2
Net Interest Income (In thousands) Years Ended December 31, -------------------------------------- 1996 1995 1994 -------------------------------------- Interest income .............................................. $ 663,303 615,788 498,382 Taxable-equivalent adjustment ................................ 4,595 5,107 5,599 - ------------------------------------------------------------------------------------------------------ Interest income, taxable-equivalent ................ 667,898 620,895 503,981 Interest expense ............................................. 288,429 273,913 197,151 - ------------------------------------------------------------------------------------------------------ Net interest income, taxable-equivalent ............ $ 379,469 346,982 306,830 ======================================================================================================
- -------------------------------------------------------------------------------- Earning Assets, Sources of Funds, and Net Interest Income Average total assets for 1996 were $8.1 billion, or 8.5% over 1995 average total assets of $7.5 billion. Average earning assets for 1996 were $7.3 billion, which represented 90% of average total assets. A $473.2 million, or 7.4%, increase in average deposits for 1996 provided the funding for a $449.9 million, or 8.6%, increase in average net loans. Average shareholders' equity for 1996 was $730.5 million. For 1995, average total assets increased $715.6 million, or 10.6%. Average earning assets for 1995 were $6.7 billion, which represented 90% of average total assets. For more detailed information on Synovus' average statement of condition for the years ended 1996, 1995, and 1994, refer to Table 3. Net interest income (interest income less interest expense) is the largest component of Synovus' net income. This major source of income represents the earnings of Synovus' primary business of gathering funds from deposit sources and investing those funds in loans and securities. Synovus' long term objective is to manage those assets and liabilities to provide the largest possible amount of income while balancing interest rate, credit, liquidity, and capital risks. Envisioning. Exploring. Evolving. F-31 Net interest income is presented in this discussion on a tax-equivalent basis, so that the income from assets exempt from federal income taxes is adjusted based on a statutory marginal federal tax rate of 35% in all years (See Table 2). The net interest margin is defined as taxable-equivalent net interest income divided by average total interest earning assets and provides an indication of the efficiency of the earnings from balance sheet activities. The net interest margin is affected by changes in the spread between interest earning asset yields and interest bearing costs (spread rate), and by the percentage of interest earning assets funded by interest bearing liabilities. Net interest income for 1996 was a record $374.9 million, up $33.0 million, or 9.7%, from 1995. On a taxable-equivalent basis, net interest income was $379.5 million, up $32.5 million, or 9.4%, over 1995. During 1996, average interest earning assets increased $567.7 million, or 8.4%, with the majority of this increase attributable to loan growth. Increases in the level of time deposits were the main contributor to the $432.9 million, or 7.5%, growth in average interest bearing liabilities. The 5.19% net interest margin achieved in 1996 is a 4 basis point increase over the 5.15% reported for 1995. This increase is the result of higher investment yields, loan growth, lower cost of funds, increased loan fees, and recovery of interest on loans. The reinvestment yield for securities was relatively strong in 1996 due to higher market rates. The effective cost of funds declined 21 basis points since January 1996 due to maturities of prior year promotional CD's and general repricing during the current year. Another influence impacting the net interest margin is the percentage of earning assets funded by interest bearing liabilities. Funding for Synovus' earning assets comes from interest bearing liabilities, non-interest bearing liabilities, and shareholders' equity. Earning assets funded by non-interest bearing liabilities continue to provide a positive impact on the net interest margin. The 1996 net interest margin steadily increased in each quarter of 1996. The first quarter net interest margin was 5.13% and increased 11 basis points, during 1996, to the fourth quarter net interest margin of 5.24%. During 1995, net interest income and tax-equivalent net interest income increased 13.5% and 13.1%, respectively. Average interest earning assets grew 10.8% while interest bearing liabilities increased 9.9%. This growth, along with a 10 basis point improvement in the net interest margin to 5.15% from 5.05%, contributed to Synovus' earnings. The net interest margin also increased as a result of a 10.5% increase in average non-interest bearing demand deposits. The decrease in the spread rate of 8 basis points was the result of a 92 basis point increase in the yield on earning assets offset by a 100 basis point increase in the rate paid on interest bearing liabilities. The higher average prime rate experienced during 1995 resulted in the repricing of interest earning assets upward, while depositors moved funds temporarily held in transaction accounts to higher paying time deposits which resulted in a higher interest-bearing cost of funds. Despite the growth in net interest income and the strong net interest margin, the margin declined from a first quarter high of 5.25% to 5.10% in the fourth quarter of 1995. This decline during 1995 primarily resulted from a shift of transaction-oriented deposit accounts to time deposits and a decrease in the prime rate during the second half of the year. Synovus sought to manage this decline through the use of product and pricing management as well as hedging opportunities using off-balance sheet derivatives. These activities are discussed further in the "Off-Balance Sheet Derivatives for Interest Rate Risk Management" section of this report. F-32 S Y N O V U S F I N A N C I A L C O R P. - -------------------------------------------------------------------------------- Table 3
Consolidated Average Balances, Interest, and Yields (In thousands) 1996 1995 1994 --------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate --------------------------------------------------------------------------------- Assets Interest earning assets: Taxable loans, net ...............$5,750,099 559,809 9.74% $5,288,863 522,258 9.87% $4,643,731 412,086 8.87% Tax-exempt loans, net ............ 33,719 3,589 10.64 38,044 4,230 11.12 45,755 4,747 10.37 Reserve for loan losses .................. (87,046) -- (80,034) -- (70,893) -- ---------- ------- --------- ------- --------- ------- Loans, net ....................... 5,696,772 563,398 9.89 5,246,873 526,488 10.03 4,618,593 416,833 9.03 ---------- ------- --------- ------- --------- ------- Taxable investment securities ........ 1,462,733 92,404 6.32 1,270,063 77,198 6.08 1,270,976 72,546 5.71 Tax-exempt investment securities.. 111,886 10,171 9.09 120,064 11,096 9.24 123,437 11,780 9.54 ---------- ------ --------- ------ --------- ------ Total investment securities ...... 1,574,619 102,575 6.51 1,390,127 88,294 6.35 1,394,413 84,326 6.05 ---------- ------- --------- ------ --------- ------ Interest earning deposits with banks ..... 1,221 59 4.83 1,828 107 5.85 641 35 5.46 Federal funds sold ....................... 35,213 1,866 5.30 101,334 6,006 5.93 68,196 2,787 4.09 ---------- ------- --------- ------ --------- ------ Total interest earning assets .... 7,307,825 667,898 9.14 6,740,162 620,895 9.21 6,081,843 503,981 8.29 ---------- ------- --------- ------- --------- ------- Cash and due from banks .......................... 312,997 298,328 284,651 Premises and equipment, net ...................... 234,351 209,415 197,313 Other real estate ................................ 11,527 13,582 15,182 Other assets ................................. 268,887 236,812 203,670 ---------- ---------- --------- Total assets .....................$8,135,587 $7,498,299 $6,782,659 ========== ========== ========= Liabilities and Shareholders' Equity Interest bearing liabilities: Interest bearing demand deposits .........$ 940,303 23,440 2.49 $ 887,694 23,947 2.70 $ 873,992 22,614 2.59 Money market accounts .................... 1,034,336 41,011 3.96 915,710 36,817 4.02 863,081 26,126 3.03 Savings deposits ......................... 469,714 12,305 2.62 475,962 13,746 2.89 510,380 14,226 2.79 Time deposits ............................ 3,333,501 190,593 5.72 3,113,375 179,251 5.76 2,574,468 113,953 4.43 Federal funds purchased and securities sold under agreement to repurchase .................... 288,107 14,973 5.20 216,342 12,092 5.59 235,858 10,021 4.25 Other borrowed funds ..................... 101,289 6,107 6.03 125,317 8,060 6.43 159,900 10,211 6.39 --------- ------- --------- ------- --------- ------- Total interest bearing liabilities 6,167,250 288,429 4.67 5,734,400 273,913 4.78 5,217,679 197,151 3.78 --------- ------- ---- --------- ------- ---- --------- ------- ---- Spread rate ...................... 4.47% 4.43% 4.51% ==== ==== ==== Non-interest bearing demand deposits ............. 1,074,676 986,582 892,800 Other liabilities ................................ 163,120 137,891 105,618 Shareholders' equity ............................. 730,541 639,426 566,562 --------- ------- ------- Total liabilities and shareholders' equity .....$8,135,587 $7,498,299 $6,782,659 ========== ========= ========= Net interest income/margin ...................... 379,469 5.19% 346,982 5.15% 306,830 5.05% ==== ==== ==== Taxable-equivalent adjustment ................... (4,595) (5,107) (5,599) -------- ------- ------- Net interest income, actual .....................$ $374,874 $341,875 $301,231 ======= ======== ======== - --------- Average loans are shown net of unearned income. Nonperforming loans are included. Interest income includes loan fees as follows: 1996 - $23,929, 1995 - $20,825, 1994 - $19,140. Reflects taxable-equivalent adjustments, using the statutory federal income tax rate of 35%, in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis. Includes certain investment securities available for sale, at their respective average amortized cost. For the years ended December 31, 1996, 1995, and 1994, the average amortized cost of these securities amounted to $1,206,522, $881,063, and $863,655, respectively. In 1996, 1995, and 1994, there were $3,370, $7,674, and $8,293, respectively, of average net unrealized losses on investment securities available for sale.
- -------------------------------------------------------------------------------- Envisioning. Exploring. Evolving. F-33 - -------------------------------------------------------------------------------- Table 4
Rate/Volume Analysis (In thousands) 1996 Compared to 1995 1995 Compared to 1994 ------------------------------ ---------------------------------- Change Due to Change Due to ------------------------------ ---------------------------------- Yield/ Net Yield/ Net Volume Rate Change Volume Rate Change - ----------------------------------------------------------------------------------------------------------------------------------- Interest earned on: Taxable loans, net .............................. $ 45,546 (7,995) 37,551 57,249 52,923 110,172 Tax-exempt loans, net ...................... (481) (160) (641) (800) 283 (517) Taxable investment securities ................... 11,711 3,495 15,206 (52) 4,704 4,652 Tax-exempt investment securities ............ (756) (169) (925) (322) (362) (684) Interest earning deposits with banks ............ (36) (12) (48) 65 7 72 Federal funds sold .............................. (3,919) (221) (4,140) 1,354 1,865 3,219 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income ................... 52,065 (5,062) 47,003 57,494 59,420 116,914 - ----------------------------------------------------------------------------------------------------------------------------------- Interest paid on: Interest bearing demand deposits ................ 1,419 (1,926) (507) 355 978 1,333 Money market accounts ........................... 4,769 (575) 4,194 1,593 9,098 10,691 Savings deposits ................................ (180) (1,261) (1,441) (959) 479 (480) Time deposits ................................... 12,674 (1,332) 11,342 23,853 41,445 65,298 Federal funds purchased and securities sold under agreement to repurchase ................. 4,011 (1,130) 2,881 (829) 2,900 2,071 Other borrowed funds ............................ (1,545) (408) (1,953) (2,210) 59 (2,151) - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense .................. 21,148 (6,632) 14,516 21,803 54,959 76,762 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income ..................... $ 30,917 1,570 32,487 35,691 4,461 40,152 =================================================================================================================================== The change in interest due to both rate and volume has been allocated to the rate component. Reflects taxable-equivalent adjustments using the statutory federal income tax rate of 35% in adjusting interest on tax-exempt loans and investment securities to a taxable-equivalent basis.
- -------------------------------------------------------------------------------- Non-Interest Income Non-interest income consists of a wide variety of fee generating services viewed as traditional banking services along with revenues earned by TSYS, Synovus' bankcard data processing company. During 1996, total non-interest income increased $84.5 million, or 24.8%. Revenues from bankcard data processing services offered by TSYS were the largest contributor increasing $60.4 million, or 25.6%, over 1995. Service charges on banking operations' deposit accounts increased $5.8 million, or 12.3%. Fees for trust services increased $1.8 million, or 18.5%, over 1995. Other operating income increased $15.3 million, or 37.6%, in 1996 due to increased product revenues from securities sales, fees on letters of credit, and public finance bond activities. TSYS contributed approximately 70% of Synovus' total non-interest income in 1996 with the majority of this reported as data processing services income. Data processing services income is derived principally from the servicing of individual bankcard accounts for the card issuing customers of TSYS. The growth in TSYS is evidenced by the average number of total cardholder accounts processed by TSYS, which was approximately 72.0 million in 1996, compared to 53.1 million in 1995, and 39.5 million in 1994. TSYS currently processes 79.4 million cardholder accounts across the United States, Puerto Rico, Canada, and Mexico. During 1996, approximately 6.5 million cardholder accounts of new customers were added to THE TOTAL SYSTEM. At December 31, 1996, cardholder accounts on file included 3.4 million accounts of banks being processed for Total System Services de Mexico, S.A. de C.V. ("TSYS de Mexico"), TSYS' Mexican joint venture; the conversion of these accounts to THE TOTAL SYSTEM was completed in July 1995. The remaining growth in cardholder accounts is primarily a result of portfolio growth of existing customers. On August 16, 1995, TSYS and Visa U.S.A. Inc. ("Visa") announced an agreement in principle to merge their merchant and point-of-sale processing operations. On May 1, 1996, the joint venture, known as Vital Processing Services L.L.C. ("Vital"), became operational and began offering fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers. Vital is structured with its own management team and separate Board of Directors and has its corporate headquarters in Phoenix, Arizona, with other locations in Columbus, Georgia, and Atlanta, Georgia. TSYS and Visa are equal owners in the joint venture. Since 1994, TSYS has been servicing commercial cards which include purchasing cards, corporate, and company business cards for employees. At December 31, 1996, TSYS was processing approximately 3.1 million commercial card accounts, a 42.5% increase over the approximately 2.0 million being processed at year-end 1995, representing a 53.8% increase over the 1.3 million at year-end 1994. Commercial card revenue is included in revenues from bankcard processing. F-34 S Y N O V U S F I N A N C I A L C O R P. A significant amount of the TSYS' revenues are derived from certain major customers who are processed under long-term contracts. For the years ended December 31, 1996, 1995, and 1994, two customers accounted for approximately 29%, 34%, and 36% of total revenues, respectively. As a result, the loss of one of TSYS' major customers could have a material adverse effect on TSYS' financial condition and results of operations. During 1996, TSYS converted and began processing approximately 4.5 million accounts for Bank of America. TSYS' conversion schedule for 1997 anticipates conversion of all of Bank of America's remaining accounts. In addition, during the second quarter of 1996, TSYS and Bank of America amended their processing agreement to, among other things, eliminate the financial penalties and termination rights associated with prior conversion delays. TSYS management believes all of Bank of America's cardholder accounts will be successfully converted to TS2. Synovus continues to emphasize the importance of growth in non-interest related sources of income in its banking operations via "The New Bank" initiatives. Designed to identify and integrate the people, programs, and systems Synovus will need for the 21st century, this vital strategy incorporates new technologies, new products and services, and will position Synovus to deliver even greater service to its customers and, ultimately, increased value to our shareholders. Non-interest income reported by Synovus' banking operations increased $15.5 million, or 16.4%, in 1996 and $5.1 million, or 5.7%, in 1995. Service charges on deposit accounts have historically been one of the primary sources of other income for Synovus' banking operations. In 1996, service charges on deposit accounts increased $5.8 million, or 12.3%, as a result of increases in the number of accounts serviced and increased volume related to activity based fees. On January 1, 1995, Synovus formed Synovus Trust Company, a new subsidiary in which to consolidate all Synovus' Georgia trust operations. This new subsidiary is expected to bring continued efficiencies and expertise to this banking service. Trust fees for 1996 increased $1.8 million, or 18.5%, over 1995. Fees for trust services are derived from performing estate administration, personal trust, corporate trust, and employee benefit plan administration. At December 31, 1996 and 1995, total market value of assets administered by Synovus Trust Company and subsidiary bank trust operations was approximately $4.8 billion and $3.5 billion, respectively. Non-interest income in 1996 and 1995 has also been positively impacted by increases in revenues from mortgage banking and related servicing. In June of 1994, Synovus Mortgage Corp. was formed to enhance the mortgage products offered by the banking subsidiaries and to generate additional fee income through mortgage servicing. Synovus Mortgage Corp. provides expertise in the areas of products and pricing to the subsidiary banks and serves as an outlet for placing these mortgage loans into the secondary market while retaining the related servicing rights. The adoption of Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights", in July of 1995, had an immaterial favorable impact on non-interest income. Mortgage loan origination volume and increased revenue from the growth in the portfolio of loans serviced for others were the major factors driving the mortgage revenue increases. In 1995, total non-interest income increased $66.5 million, or 24.2%. Revenues from bankcard data processing services offered by TSYS were the largest contributor increasing $58.0 million, or 32.6%, over 1994. Service charges on banking operations' deposit accounts increased $5.2 million, or 12.6%, primarily as a result of continued growth in the number of accounts serviced and increased fee structure. Fees for trust services increased $.9 million, or 9.7%, over 1994. Other operating income increased $1.8 million, or 4.5%, in 1995 primarily due to acquisitions in 1995, merchant fees on credit cards and gains on sales of other real estate. Non-Interest Expense Non-interest expense increased $71.7 million, or 15.0%, in 1996 over 1995. Management analyzes non-interest expense in two separate components: banking operations and TSYS. The table below summarizes this data for the years ended December 31, 1996, 1995, and 1994:
1996 1995 1994 - ------------------------------------------------------------------------------------------ (In thousands) Banking TSYS Banking TSYS Banking TSYS - ------------------------------------------------------------------------------------------ Salaries and other personnel expense $173,653 124,259 157,533 94,946 138,480 73,051 Net occupancy and equipment expense 39,023 82,118 35,080 64,549 32,136 51,283 Other operating expenses ........... 69,161 53,368 72,721 47,291 83,836 28,139 Minority interest .................. 7,592 -- 5,333 -- 4,325 -- - ------------------------------------------------------------------------------------------ Total non-interest expense .... $289,429 259,745 270,667 206,786 258,777 152,473 ==========================================================================================
Non-interest expense related to TSYS increased $53.0 million, or 25.6%, in 1996 over 1995 with a significant portion of this increase being employment expenses. The average number of employees increased from 2,087 in 1995 to 2,498 in 1996. This growth in employees, along with salary increases, resulted in a $29.3 million, or 30.9%, increase in employment expenses. As a percentage of revenues, TSYS' operating expenses increased in 1996 to 83.3%, compared to 82.8% and 81.2% for 1995 and 1994, respectively. The principal increases in operating expenses resulted from the addition of personnel and equipment; the cost of materials associated with the services provided by all companies, particularly the supplies related to processing the increased number of accounts on THE TOTAL SYSTEM; certain processing provisions; and certain costs associated with the conversion of customers to TS2 and the start-up of TSYS de Mexico. A significant portion of TSYS' operating expenses relates to salaries and other personnel costs. During 1996, the average number of employees increased to 2,498, compared to 2,087 in 1995 and 1,874 in 1994. In addition to the growth in number of employees, the increase in salaries and other personnel costs is attributable to normal salary increases and related employee benefits. In 1996, due to TSYS' excellent financial performance, employees were awarded the maximum 401(k) contribution of 5.0%, or $4.0 million, compared to 2.7%, or $1.6 million, in 1995; there was no contribution in 1994 as the 401(k) plan was established in 1995. Nonemployee compensation, including contract programmers, also contributed to the change in employment expenses. Nonemployee compensation increased $2.2 million, or 54.1%, in 1996 compared to 1995. However, nonemployee compensation decreased $2.5 million, or 38.4%, in 1995 compared to 1994, primarily due to the completion of core TS2 in late 1994, reducing the total number of contract programmers utilized from Envisioning. Exploring. Evolving. F-35 that point forward. Employment costs related to internally developed software and contract acquisition costs capitalized in 1996 were $4.9 million, compared to $8.4 million and $14.5 million in 1995 and 1994, respectively, the majority of which related to the development of TS2. These decreases in capitalization are a major component of the increases in employment expense, particularly in comparing 1995 to 1994. Since the completion of core TS2, employment expenses capitalized relate primarily to enhancements to TS2 and costs associated with the conversion of customers under new long-term contracts to TS2. In 1996, non-interest expense for Synovus' banking operations increased $18.8 million, or 6.9%. The majority of increased expenses were in employment expense and related primarily to additional employees hired in 1996. The average number of employees in banking operations increased from 4,038 in 1995 to 4,197 in 1996. This growth was primarily due to growth within the banking subsidiaries, as they continue to develop new products and provide additional services to their customers. Other factors causing an increase in non-interest expense include normal salary increases, training related to "The New Bank" initiatives, and performance-based employee retirement plan expenses. The banking operations efficiency ratio improved from 60.95% in 1995 to 58.36% in 1996. These improvements were primarily the result of increased revenues, expense control, and a decrease in the FDIC insurance rate. Increases in non-interest expense were partially offset by a $6.4 million decrease in FDIC premium expense, prior to the special FDIC assessment, in 1996 compared to 1995 due to the lowering, in 1996, of the FDIC assessment rate on deposits. FDIC premium expense decreased in 1996 even though a special assessment of $4.5 million, $2.8 million after tax, was imposed by the FDIC to recapitalize the Savings Association Insurance Fund. Synovus believes that the current banking legislation will result in additional 1997 reductions in FDIC insurance paid by the well-capitalized banks. Quality service for Synovus' customers, provided in the most efficient manner, continues to be a priority. During 1995, Synovus continued its "modernization" effort, under which all banking support functions are being reviewed for potential improvements. Synovus is investing in improved technology, such as platform automation, and is standardizing certain support processes. Synovus continues to reorganize and refocus its resources whenever it can more effectively and efficiently deliver products and services to its customers. Synovus believes that this effort will provide a greatly improved product delivery mechanism and will increase the productivity of the support functions. In 1995, total non-interest expense increased $66.2 million, or 16.1%, over 1994. Expenses incurred at TSYS increased $54.3 million, or 35.6%, in 1995 over 1994 as TSYS prepared for expansion of its fee-generating services. In 1995, the average number of employees at TSYS increased from 1,874 in 1994 to 2,087 in 1995. Employee additions were necessary to serve the growing cardholder base. Remaining increases in employment expenses were due to normal salary increases, related benefits and a new employee retirement plan. Increases in equipment and occupancy expenses were also required in 1995, as compared to 1994, as TSYS obtained substantial new, technologically-advanced equipment in order to meet its business needs. Non-interest expense for Synovus' banking operations increased $11.9 million, or 4.6%, in 1995 over 1994. New hires, salary increases and related benefits, a new employee retirement plan, and a $3.2 million expense related to the termination of the previous employee retirement plan account for most of this increase. Increases in non-interest expense were partially offset by a $4.9 million decrease in FDIC premium expense. Investment Securities Synovus' investment securities portfolio consists of debt and equity securities which are categorized as either available for sale or held to maturity. Synovus Securities, Inc., Synovus' wholly-owned broker/dealer company, has an insignificant balance of trading investment securities used to facilitate business. Investment securities provide Synovus with a source of liquidity and a relatively stable source of income. The investment securities portfolio also provides management with a tool to balance interest rate risk and credit risk related to the loans on the balance sheet. At December 31, 1996, approximately $968.4 million of these investment securities were pledged as required collateral for certain deposits. See Table 14 for maturity and average yield information for the available for sale and held to maturity investment securities. Synovus' investment strategy focuses on the use of the investment securities portfolio to manage the interest rate risk created by the natural mismatch inherent in the loan and deposit portfolios. With the strong loan demand at Synovus' subsidiary banks, there is little need for investment securities solely to augment income or utilize uninvested deposits. As such, Synovus' investment securities are primarily U.S. Treasuries, U.S. Government agencies, and Government agency sponsored mortgage-backed securities, all of which have a high degree of liquidity and limited credit risk. A mortgage-backed security depends on the underlying pool of mortgage loans to provide a cash flow "pass-through" of principal and interest. At December 31, 1996, substantially all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by Synovus were issued or backed by Federal agencies. As of December 31, 1996 and 1995, the estimated fair value of investment securities as a percentage of their amortized cost was 100.1% and 101.0%, respectively. The investment securities portfolio had gross unrealized gains of $26.3 million and gross unrealized losses of $24.8 million, for a net unrealized gain of $1.5 million as of December 31, 1996. As of December 31, 1995, the investment securities portfolio had a net unrealized gain of $14.6 million. In accordance with SFAS No. 115, shareholders' equity contained a net unrealized loss of $.1 million and a net unrealized gain of $5.8 million recorded on the available for sale portfolio as of December 31, 1996 and 1995, respectively. During 1996, the average balance of investment securities increased to $1.6 billion, compared to $1.4 billion in 1995. Synovus earned a taxable-equivalent rate of 6.51% and 6.35% for 1996 and 1995, respectively, on its investment securities portfolio. As of December 31, 1996 and 1995, average investment securities represented 21.5% and 20.6%, respectively, of average interest earning assets. This increase in the percentage of average investment securities to average interest earning assets is due to management's efforts to capitalize on higher investment yields available in the market. Refer to Table 3 for more information on average investment securities. On December 21, 1995, Synovus exercised an option allowed by "Special Report - a Guide to Implementation of FASB No. 115, Accounting for Certain Investments in Debt and Equity Securities - Questions and Answers" to make a one time transfer of investment securities held to maturity to investment securities available for sale. This transfer was made to add further liquidity and flexibility to the portfolio which enabled Synovus to more effectively manage its interest rate risk position. The amortized cost and estimated fair value of the investment securities transferred was $133.7 million and $133.9 million, respectively. Table 5 presents the carrying value of investment securities held to maturity and investment securities available for sale at December 31, 1996, 1995, and 1994. F-36 S Y N O V U S F I N A N C I A L C O R P. - -------------------------------------------------------------------------------- Table 5
Investment Securities (In thousands) December 31, ---------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Securities Held to Maturity: U.S. Treasury and U.S. Government agencies ........................ $ 84,366 81,772 159,354 Mortgage-backed securities ........................................ 156,319 171,275 243,220 State and municipal ............................................... 114,883 121,761 121,834 Other investments ................................................. 7,440 6,110 8,525 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities held to maturity .................... $363,008 380,918 532,933 ==================================================================================================================================== Investment Securities Available for Sale: U.S. Treasury and U.S. Government agencies ........................ $1,131,922 1,004,286 767,544 Mortgage-backed securities ........................................ 130,893 88,196 24,413 State and municipal ............................................... 1,014 1,322 1,491 Other investments ................................................. 12,254 12,494 11,321 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities available for sale .................. $1,276,083 1,106,298 804,769 ==================================================================================================================================== Total Investment Securities: U.S. Treasury and U.S. Government agencies ........................ $1,216,288 1,086,058 926,898 Mortgage-backed securities ........................................ 287,212 259,471 267,633 State and municipal ............................................... 115,897 123,083 123,325 Other investments ................................................. 19,694 18,604 19,846 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities ..................................... $1,639,091 1,487,216 1,337,702 ====================================================================================================================================
- -------------------------------------------------------------------------------- Loans Loans are the primary interest earning asset for Synovus. When analyzing prospective loans, management assesses both interest rate objectives and credit quality objectives in determining whether to extend a given loan and the appropriate pricing for that loan. Operating under a decentralized structure, management emphasizes lending in subsidiaries' respective communities. As illustrated in Table 6, Synovus strives toward maintaining a diversified loan portfolio to spread risk and reduce exposure to economic downturns that may occur in different segments of the economy, geographic locations, or in particular industries. Demonstration of that strategy results in the fact that Synovus does not have any concentration of loans to any single industry or borrower, no foreign loans, and has no highly leveraged transaction credits as of the end of 1996. Representing 78% of average earning assets and 70% of average total assets, net loans increased $539.9 million, or 9.9%, during 1996. Continued market share gains through successful business development and additional products and services offered to the current customer base has afforded Synovus this loan growth. Synovus continues to increase its loan portfolio through a constant focus on meeting the needs of customers in the markets served while maintaining adherence to sound lending practices. As a result of this continued focus, loans have continued to grow throughout Synovus' subsidiary markets, with the most significant growth at four subsidiaries headquartered in Columbus, Georgia; Columbia, South Carolina; Birmingham, Alabama; and Valparaiso, Florida. These four banks experienced loan growth of $118.7 million, $90.2 million, $54.3 million, and $29.3 million, respectively for the year ended December 31, 1996 over the same period in 1995. Columbus Bank and Trust Company, the lead bank, experienced an increase in credit card loan balances of $68.3 million which included the purchase of a $34.1 million credit card portfolio in the first half of 1996. The remainder of the loan growth was distributed throughout the remaining subsidiary banks. Synovus has enjoyed a relatively strong average loan-to-deposit ratio over the past three years. The average loan-to-deposit ratio for 1996, 1995, and 1994 was 84.2%, 83.5%, and 82.1%, respectively. The growth in commercial loans was primarily centered in the larger markets in Alabama, South Carolina, and Georgia. These markets have experienced economic growth in 1996, especially with respect to real estate and working capital loans. Real estate construction and commercial real estate mortgage loans increased in 1996 due to economic growth in many of the Southeastern communities Synovus subsidiary banks serve. In addition to the purchase of the credit card portfolio, credit card loan growth has been most dramatically impacted by the increased number of customer accounts in several subsidiary banks. The growth in mortgage loans held for sale is mostly attributable to underwriting mortgage loans that are sold to third party investors, while retaining the servicing of those loans at Synovus Mortgage Corp. Synovus' mortgage loans held for sale are pre-committed extensions and are generally held less than thirty days, after which the loans are sold in the market to an unaffiliated investor. The increase in retail real estate mortgage loans from 1995 to 1996 results primarily from an increased emphasis on the mortgage loan products offered by certain subsidiaries as well as a favorable interest rate market for residential mortgage loans. Synovus has reduced nonperforming assets as a percent of loans during 1996 as a result of constant attention and focus on loan quality while at the same time meeting the customers' needs. Loan officers work with each customer to determine which loan products will optimally meet their individual and specific lending needs. This focus on underwriting loans that benefit the customer, while maintaining credit quality standards, causes Synovus to be optimistic about the future growth and quality of the loan portfolio. Envisioning. Exploring. Evolving. F-37 - -------------------------------------------------------------------------------- Table 6 shows the composition of the loan portfolio at the end of the past five years.
Table 6 Loans by Type (In thousands) December 31, --------------------------------------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------------------------------------------- Commercial: Commercial, financial, and agricultural ......... $ 2,036,689 1,931,004 1,783,928 1,567,310 1,423,124 Real estate-construction ........................ 730,785 578,712 472,131 414,801 376,641 Real estate-mortgage ............................ 1,234,981 1,160,089 1,030,524 890,297 817,905 - ------------------------------------------------------------------------------------------------------------------------------------ Total commercial ........................ 4,002,455 3,669,805 3,286,583 2,872,408 2,617,670 - ------------------------------------------------------------------------------------------------------------------------------------ Retail: Real estate-mortgage ............................ 977,432 824,998 865,642 760,530 690,563 Consumer loans-credit card ...................... 290,470 222,204 171,475 150,653 136,794 Consumer loans-other ............................ 768,072 784,972 756,402 664,554 603,418 Mortgage loans held for sale .................... 37,036 24,863 9,465 23,409 11,744 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail ............................ 2,073,010 1,857,037 1,802,984 1,599,146 1,442,519 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans ............................. 6,075,465 5,526,842 5,089,567 4,471,554 4,060,189 Unearned income ................................. (10,235) (14,812) (14,691) (18,148) (25,371) - ------------------------------------------------------------------------------------------------------------------------------------ Total loans, net of unearned income ..... $ 6,065,230 5,512,030 5,074,876 4,453,406 4,034,818 ====================================================================================================================================
- --------------------------------------------------------------------------------
Table 7 Loan Maturity Distribution and Interest Sensitivity (In thousands) December 31, 1996 --------------------------------------------- One Over One Year Over Year Through Five Five Or Less Years Years Total - ------------------------------------------------------------------------------------------------------------------------ Selected loan categories: Commercial, financial, and agricultural ......................... $1,262,025 661,886 112,778 2,036,689 Real estate-construction ........................................ 496,568 196,279 37,938 730,785 - ----------------------------------------------------------------------------------------------------------------------- Total ................................................... $1,758,593 858,165 150,716 2,767,474 ======================================================================================================================= Loans due after one year: Having predetermined interest rates ............................................................... $ 560,852 Having floating interest rates .................................................................... 448,029 - ----------------------------------------------------------------------------------------------------------------------- Total ..................................................................................... $1,008,881 =======================================================================================================================
- -------------------------------------------------------------------------------- F-38 S Y N O V U S F I N A N C I A L C O R P. Commercial, financial, and agricultural loans include industrial revenue bonds and other loans that are granted primarily on the strength of the borrower's ability to generate repayment cash flows from income sources as well as the borrower's general credit standing, even though such loans and bonds may be secured by real estate or other assets. Real estate construction and mortgage loans represent extensions of credit used as interim or permanent financing of commercial properties that are secured by real estate as well as 1-4 family first mortgage loans. Generally, retail lending decisions are made based upon the cash flow or earning power of the borrower which represents the primary source of repayment. However, in many lending transactions collateral is taken to provide an additional measure of security. Transactions secured by collateral result in a secondary source of repayment in that the collateral may be liquidated. Synovus determines the need for collateral on a case-by-case basis. Factors considered include the current and prospective credit-worthiness of the customer, terms of the loan, and economic conditions. Provision for Losses on Loans and Net Charge-Offs Despite Synovus' credit standards, internal controls, and continuous loan review process, the inherent risk in the nature of lending results in periodic charge-offs. The provision for loan losses is the charge to operating earnings necessary to maintain an adequate reserve for loan losses. Through the provision for loan losses, Synovus maintains a reserve for loan losses that management believes is adequate to absorb losses within the loan portfolio. However, future additions to the reserve may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination procedures, periodically review Synovus' subsidiary banks' reserve for loan losses. Based on their judgments about information available to them at the time of their examination, such agencies may require Synovus' subsidiary banks to recognize additions to their reserve for loan losses. In order to determine the adequacy of the reserve for loan losses and to determine the need for potential charges to the reserve, a formal analysis is completed quarterly to assess the risk within the loan portfolio. This assessment, conducted by lending officers, as well as an independent loan administration department, includes analysis of historical performance, the level of nonperforming loans, specific analysis of certain problem loans, loan activity since the last quarter, consideration of current economic conditions, and other pertinent information. The resulting conclusions are reviewed and approved by senior management. In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when the ultimate collectibility of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan becomes impaired, management calculates the impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate. If the loan is collateral dependent, the fair value of the collateral is used to measure the amount of impairment. The amount of impairment and any subsequent changes are recorded, through a charge to earnings, as an adjustment to the reserve for loan losses. When management considers a loan, or a portion thereof, as uncollectible, it is charged against the reserve for loan losses. Through improved underwriting standards and the resolution of certain identified problem assets, Synovus' asset quality continued to improve during 1996 as measured by asset quality indicators. The most dramatic improvement, with respect to charge offs experienced in 1996, was the significant reduction in commercial, financial, and agricultural loan charge offs. This improvement was driven by a closer monitoring of work out loans, improvement in several real estate markets, and a more proactive identification of potential problem loans. However, other consumer loan charge offs increased due to personal bankruptcies and other consumer related issues currently plaguing the banking industry. In response, Synovus management has increased collection efforts, tightened credit scoring, and become more focused on past due monitoring. Synovus' provision for loan losses during 1996 was $31.8 million, up 23.2%, compared to $25.8 million in 1995. Nonperforming assets as a percent of loans and other real estate are at their lowest level in more than ten years and the reserve is 374.5% of nonperforming loans. The increase in the provision for loan losses is primarily a result of managements ongoing assessment of the loan portfolio and the potential for increased loan weaknesses in light of the slowing economy. Synovus was able to reduce the nonperforming asset ratio to its lowest level in over ten years to .59% as of December 31, 1996. Net charge-offs of $18.7 million were 8.7% lower in 1996 compared to $20.4 million in 1995. As, a percent of average net loans, the net charge-off ratio improved from .38% in 1995 to .32% in 1996. A summary, by loan category, of loans charged off, recoveries of loans previously charged off, and additions to the reserve through provision expense is presented in Table 8. Envisioning. Exploring. Evolving. F-39 - --------------------------------------------------------------------------------
Table 8 Reserve for Loan Losses (In thousands) Years Ended December 31, ------------------------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------------------------ Reserve for loan losses at beginning of year .......................... $81,384 75,018 67,270 61,336 55,279 Reserve for loan losses of acquired subsidiaries ...................... 188 1,001 1,535 -- 8 Loans charged off during the year: Commercial: Commercial, financial, and agricultural ............... 7,790 13,746 13,809 13,097 17,761 Real estate-construction .............................. 217 239 240 228 309 Real estate-mortgage .................................. 2,356 1,840 1,849 1,753 2,378 - ------------------------------------------------------------------------------------------------------------------------------------ Total commercial .............................. 10,363 15,825 15,898 15,078 20,448 - ------------------------------------------------------------------------------------------------------------------------------------ Retail: Real estate-mortgage .................................. 1,032 209 210 200 271 Consumer loans-credit card ............................ 7,798 6,627 6,658 6,315 8,563 Consumer loans-other .................................. 5,987 2,271 2,282 2,164 2,935 Mortgage loans held for sale -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total retail .................................. 14,817 9,107 9,150 8,679 11,769 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans charged off ....................... 25,180 24,932 25,048 23,757 32,217 - ------------------------------------------------------------------------------------------------------------------------------------ Recoveries of loans previously charged off during the year: Commercial: Commercial, financial, and agricultural ............... 1,699 1,217 1,585 1,287 1,339 Real estate-construction .............................. 173 50 65 52 55 Real estate-mortgage .................................. 1,312 92 120 97 101 - ------------------------------------------------------------------------------------------------------------------------------------ Total commercial .............................. 3,184 1,359 1,770 1,436 1,495 - ------------------------------------------------------------------------------------------------------------------------------------ Retail: Real estate-mortgage .................................. 352 115 149 121 126 Consumer loans-credit card ............................ 776 1,237 1,611 1,308 1,362 Consumer loans-other .................................. 2,213 1,799 2,344 1,902 1,981 Mortgage loans held for sale -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total retail .................................. 3,341 3,151 4,104 3,331 3,469 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans recovered ......................... 6,525 4,510 5,874 4,767 4,964 - ------------------------------------------------------------------------------------------------------------------------------------ Net loans charged off during the year ................................. 18,655 20,422 19,174 18,990 27,253 - ------------------------------------------------------------------------------------------------------------------------------------ Additions to reserve through provision expense ........................ 31,766 25,787 25,387 24,924 33,302 - ------------------------------------------------------------------------------------------------------------------------------------ Reserve for loan losses at end of year ................................ $94,683 81,384 75,018 67,270 61,336 - ------------------------------------------------------------------------------------------------------------------------------------ Reserve for loan losses to loans ...................................... 1.56% 1.48 1.48 1.51 1.52 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net loans charged off during the year to average net loans outstanding during the year ......................... .32% .38 .41 .45 .68 ====================================================================================================================================
- -------------------------------------------------------------------------------- An allocation of the reserve for loan losses has been made according to the respective amounts deemed necessary to provide for the possibility of incurred losses within the various loan categories. Although other relevant factors are considered, the allocation is primarily based on previous charge-off experience adjusted for risk characteristic changes among each category. Additional reserve amounts are allocated by evaluating the loss potential of individual loans that management has considered impaired. The reserve for loan loss allocation is based on subjective judgment and estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which charge-offs may ultimately occur. The adoption of SFAS No. 114 in 1995 did not have a material effect on the consolidated financial statements and prior years have not been restated. Refer to Table 9 for a five year comparison of the allocation of the reserve for loan losses. F-40 S Y N O V U S F I N A N C I A L C O R P.
- -------------------------------------------------------------------------------- Table 9 Allocation of Reserve for Loan Losses (In thousands) December 31, ------------------------------------------------------------------------------------ 1996 1995 1994 1993 1992 ------------------------------------------------------------------------------------ Reserve %* Reserve %* Reserve %* Reserve %* Reserve %* - ------------------------------------------------------------------------------------------------------------------------------------ Commercial: Commercial, financial, and agricultural ................ $38,171 34% $32,810 35% $32,343 36% $28,539 35% $28,427 35% Real estate-construction ............ 1,163 12 570 10 562 9 496 9 494 9 Real estate-mortgage ................ 5,110 20 4,392 21 4,329 20 3,820 20 3,805 20 - ------------------------------------------------------------------------------------------------------------------------------------ Total commercial ............ 44,444 66 37,772 66 37,234 65 32,855 64 32,726 64 - ------------------------------------------------------------------------------------------------------------------------------------ Retail: Real estate-mortgage ................ 581 16 499 15 492 17 434 17 432 17 Consumer loans-credit card .......... 11,619 5 6,627 4 6,658 3 6,315 3 8,563 3 Consumer loans-other ................ 15,088 13 14,610 14 14,277 15 12,159 15 9,838 15 Mortgage loans held for sale ........ -- -- -- 1 -- -- -- 1 -- 1 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail ................ 27,288 34 21,736 34 21,427 35 18,908 36 18,833 36 - ------------------------------------------------------------------------------------------------------------------------------------ Unallocated ......................... 22,951 -- 21,876 -- 16,357 -- 15,507 -- 9,777 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total reserve for loan losses $94,683 100% $81,384 100% $75,018 100% $67,270 100% $61,336 100% ====================================================================================================================================
* Loan balance in each category expressed as a percentage of total loans. - -------------------------------------------------------------------------------- Nonperforming Assets Nonperforming assets consist of nonaccrual loans, loans restructured due to debtors' financial difficulties, and real estate acquired through foreclosure and repossession. Nonaccrual loans consist of those loans on which recognition of interest income has been discontinued. Loans may be restructured as to rate, maturity, or other terms as determined on an individual credit basis. Demand and time loans, whether secured or unsecured, are generally placed on nonaccrual status when principal and/or interest is 90 days or more past due, or earlier if it is known or expected that the collection of all principal and/or interest is unlikely. Any loan past due 90 days or more, and based on a determination of collectibility not classified as nonaccrual, is classified as a past due loan. Nonaccrual loans are reduced by the direct application of interest receipts to loan principal, for accounting purposes only. Any payments in excess of the interest that would have been earned had the loan been an accruing loan, are applied to the principal balance. In all circumstances, the determination of when to place loans on nonaccrual status is also based on evaluation of the individual characteristics of each particular loan, which may result in policy deviations in some circumstances. Table 10 presents the amount of interest income that would have been recorded on nonaccrual loans if the loans had been current and performing in accordance with their original terms. Synovus' nonperforming assets increased $.8 million to $36.1 million with a corresponding nonperforming asset ratio improving to .59% as of December 31, 1996 compared to .64% as of year end 1995. Synovus incurred a small increase in nonperforming assets while increasing loans $548.6 million, or 9.9%, during 1996. During 1996, the reserve for loan losses increased $13.3 million, or 16.3%, to $94.7 million. Based on managements analysis of potential risk within the loan portfolio, additions are periodically made to maintain the reserve for loan losses at an appropriate level. Loans 90 days past due and still accruing increased $4.4 million during 1996. Management believes that sufficient collateral value securing these loans exists to cover contractual interest and principal payments on the loans and management further believes the resolution of these delinquencies will not cause a material increase in nonperforming assets. Envisioning. Exploring. Evolving. F-41 - -------------------------------------------------------------------------------- Table 10 Nonperforming Assets (In thousands)
December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------------- Nonaccrual loans ........................................ $23,655 21,469 26,497 30,296 45,812 Restructured loans ...................................... 1,625 1,733 1,900 224 135 - ------------------------------------------------------------------------------------------------------------- Nonperforming loans ..................... 25,280 23,202 28,397 30,520 45,947 90 days past due and still accruing loans ............... 15,805 11,417 7,383 9,870 11,106 - ------------------------------------------------------------------------------------------------------------- Total ................................... $41,085 34,619 35,780 40,390 57,053 ============================================================================================================= Nonperforming assets: Nonperforming loans ......................... $25,280 23,202 28,397 30,520 45,947 Other real estate ............................... 10,782 12,071 12,355 15,838 18,986 - ------------------------------------------------------------------------------------------------------------- Total ................................... $36,062 35,273 40,752 46,358 64,933 ============================================================================================================= Nonperforming assets to total loans and other real estate .59% .64 .80 1.04 1.60 ============================================================================================================= Reserve for loan losses to nonperforming loans .......... 374.54% 350.76 264.18 220.41 133.49 ============================================================================================================= - --------- Nonperforming assets exclude loans 90 days past due and still accruing.
Nonaccrual Restructured Total Year ended December 31, 1996: ---------- ------------ ----- Interest at contracted rates ........................ $3,226 68 3,294 Interest recorded as income ............................. 826 52 878 - ------------------------------------------------------------------------------------------------------------- Reduction of interest income during 1996 $2,400 16 2,416 ============================================================================================================= - -------- Interest income that would have been recorded if the loans had been current and performing in accordance with their original terms.
- -------------------------------------------------------------------------------- Each one of Synovus' loans is assigned a rating, either individually or as part of a homogeneous pool, based on an internally developed grading system. An organizationally independent department also reviews grade assignments on an ongoing basis. Management continuously monitors nonperforming, impaired, and past due loans, in order to prevent further deterioration regarding the condition of these loans. Management is not aware of any material loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have been excluded from nonperforming assets or impaired loans. Impaired loans at December 31, 1996 and 1995 are $35.9 million and $52.7 million, respectively. Management further believes nonperforming assets and impaired loans include any material loans in which doubts exist as to the collectibility of amounts due according to the contractual terms of the loan agreement. Deposits Deposits provide the most significant funding source for Synovus interest earning assets. Table 11 shows the relative composition of average deposits for 1996, 1995, and 1994. Refer to Table 12 for the maturity distribution of time deposits of $100,000 or more. These larger deposits represented 15.6% and 15.2% of total deposits at December 31, 1996 and 1995, respectively. Synovus' large denomination time deposits are generally from customers within the local market area, therefore, provide a greater degree of stability than is typically associated with this source of funds. Time deposits over $100,000 at December 31, 1996, 1995, and 1994 were $1.1 billion, $1.0 billion, and $.8 billion, respectively. Interest expense for the years ended December 31, 1996, 1995, and 1994 on these large denomination deposits was $62.1 million, $57.3 million, and $31.9 million, respectively. For 1996, Synovus' average deposits increased $473.2 million, or 7.4%, to $6.9 billion from $6.4 billion in 1995. Average interest bearing deposits for 1996, which include interest bearing demand deposits, money market accounts, saving deposits, and time deposits, increased $385.1 million, or 7.1%, from 1995. This strong deposit growth occurred throughout several of the Synovus subsidiary banks who used targeted time and money market deposit programs to increase their deposits during 1996. Additionally, the acquisition of two branches in Rome, Georgia, provided an increase in deposits of $46.4 million. Average non-interest bearing demand deposits increased $88.1 million, or 8.9%, during 1996. Average interest bearing deposits increased $570.8 million, or 11.8%, from 1994 to 1995, while non-interest bearing demand deposits increased $93.8 million, or 10.5%. See Table 3 for further information on average deposits, including the average rates paid for 1996, 1995, and 1994. F-42 S Y N O V U S F I N A N C I A L C O R P. - --------------------------------------------------------------------------------
Table 11 Average Deposits (In thousands) Years Ended December 31, - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Non-interest bearing demand deposits $1,074,676 986,582 892,800 Interest bearing demand deposits ... 940,303 887,694 873,992 Money market accounts .............. 1,034,336 915,710 863,081 Savings deposits ................... 469,714 475,962 510,380 Time deposits ...................... 3,333,501 3,113,375 2,574,468 - -------------------------------------------------------------------------------- Total average deposits ..... $6,852,530 6,379,323 5,714,721 ================================================================================
- -------------------------------------------------------------------------------- Table 12 Maturity Distribution of Time Deposits of $100,000 or More (In thousands) December 31, 1996 - -------------------------------------------------------------------------------- 3 months or less ......................................... $ 528,310 Over 3 months through 6 months ........................... 209,794 Over 6 months through 12 months .......................... 204,242 Over 12 months ........................................... 180,558 - -------------------------------------------------------------------------------- Total outstanding ................................ $1,122,904 ================================================================================ Interest Rate Risk Management Managing interest rate risk is the primary goal of Synovus' asset/liability management function. Synovus attempts to achieve consistent growth in net interest income while limiting volatility arising from changes in interest rates. Synovus seeks to accomplish this goal by balancing the maturity and repricing characteristics of balance sheet assets and liabilities along with the selective use of off-balance sheet financial instruments. Synovus' asset/liability mix is sufficiently balanced so that the effect of interest rates moving in either direction is not expected to be significant over time. Simulation modeling is the primary tool used by Synovus to measure its interest rate sensitivity. On at least a quarterly basis, the remainder of the current year and the next full fiscal year are simulated to determine the sensitivity of net interest income to changes in interest rates. The magnitude and velocity of rate changes among the various asset and liability groups exhibit different characteristics for each possible interest rate scenario. Simulation modeling enables Synovus to capture the effect of these differences as well as the effect of changes in asset and liability volumes. Synovus maintains policies designed to limit the maximum acceptable negative impact on net interest income over a twelve month time horizon from a ratable change in interest rates of 200 basis points. The current policy limits this change to 8% of projected net interest income under a stable interest rate environment. As of December 31, 1996, Synovus was well within its policy guidelines with simulations indicating that Synovus is positioned such that its net interest income will slightly increase in a rising rate environment and decrease by no more than 4% in a declining rate environment. Another tool utilized by Synovus' management is cumulative gap analysis, which seeks to measure the repricing differentials, or gap, between rate sensitive assets and liabilities over various time periods. Table 13 reflects the gap positions of Synovus' consolidated balance sheet on December 31, 1996 and 1995, at various repricing intervals. The projected deposit repricing volumes reflect adjustments based on managements assumptions of the expected rate sensitivity relative to the prime rate for core deposits without contractual maturity (i.e., interest bearing checking, savings, and money market accounts). Management believes that these adjustments allow for a more accurate profile of Synovus interest rate risk position. The projected investment securities repricing reflects expected prepayments on mortgage-backed securities and expected cash flows on securities subject to accelerated redemption options. These assumptions are made based on the interest rate environment as of December 31, 1996 and are subject to change as the general level of interest rates change. This gap analysis indicates that Synovus was moderately asset sensitive at December 31, 1996, with a cumulative one-year gap of 2.6%. Management believes that adjusted gap analysis is a useful tool for measuring interest rate risk only when used in conjunction with its simulation model. Envisioning. Exploring. Evolving. F-43 - --------------------------------------------------------------------------------
Table 13 Interest Rate Sensitivity (In millions) December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 0-3 4-12 1-5 Over 5 Months Months Years Years - ------------------------------------------------------------------------------------------------------------------------------------ Investment securities ...................................................... $ 102.3 327.6 929.4 280.0 Loans, net of unearned income .................................................. 3,108.9 1,016.2 1,628.9 311.2 Other .......................................................................... 40.3 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitive assets .............................................. 3,251.5 1,343.8 2,558.3 591.2 - ------------------------------------------------------------------------------------------------------------------------------------ Deposits ....................................................................... 2,298.9 1,435.1 654.7 1,624.4 Other borrowings ............................................................... 352.4 .3 6.2 77.6 - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitive liablilities ........................................ 2,651.3 1,435.4 660.9 1,702.0 - ------------------------------------------------------------------------------------------------------------------------------------ Interest rate swaps .................................................... (305.0) -- 305.0 -- - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitivity gap ....................................... $ 295.2 (91.6) 2,202.4 (1,110.8) ==================================================================================================================================== Cumulative interest sensitivity gap ............................ $ 295.2 203.6 2,406.0 1,295.2 ==================================================================================================================================== Cumulative interest sensitivity gap as a percentage of total interest sensitive assets .................................. 3.8% 2.6 31.1 16.7 ==================================================================================================================================== December 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------ 0-3 4-12 1-5 Over 5 Months Months Years Years - ------------------------------------------------------------------------------------------------------------------------------------ Investment securities ...................................................... $ 48.5 232.2 764.8 432.8 Loans, net of unearned income .................................................. 2,861.9 789.1 1,434.7 426.3 Other .......................................................................... 124.9 -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitive assets .............................................. 3,035.3 1,021.3 2,199.5 859.1 - ------------------------------------------------------------------------------------------------------------------------------------ Deposits ....................................................................... 2,012.2 1,450.3 801.8 1,321.9 Other borrowings ............................................................... 229.5 12.6 19.2 75.0 - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitive liabilities ......................................... 2,241.7 1,462.9 821.0 1,396.9 - ----------------------------------------------------------------------------------------------------------------------------------- Interest rate swaps .................................................... (125.0) -- 125.0 -- - ------------------------------------------------------------------------------------------------------------------------------------ Interest sensitivity gap ....................................... $ 668.6 (441.6) 1,503.50 (537.8) ==================================================================================================================================== Cumulative interest sensitivity gap ............................ $ 668.6 227.0 1,730.50 1,192.7 ==================================================================================================================================== Cumulative interest sensitivity gap as a percentage of total interest sensitive assets ............................ 9.4% 3.2 24.3 16.8 =================================================================================================================================== Excludes the effect of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", consisting of net unrealized losses in the amount of $.2 million in 1996 and net unrealized gains of $8.9 million in 1995.
- -------------------------------------------------------------------------------- F-44 S Y N O V U S F I N A N C I A L C O R P.
Table 14 Maturities of Investment Securities and Average Yields (In thousands) Investment Securities Investment Securities Held to Maturity Available for Sale December 31, 1996 December 31, 1996 - --------------------------------------------------------------------------------------------------------------------- Amortized Average Estimated Average Cost Yield Fair Value Yield - --------------------------------------------------------------------------------------------------------------------- U.S. Treasury and U.S. Government agencies: Within 1 year ..................................... $ 9,751 6.06% $ 232,843 5.67% 1 to 5 years ...................................... 34,332 6.28 579,671 6.17 5 to 10 years ..................................... 40,283 7.21 301,406 7.08 More than 10 years ................................ -- -- 18,002 7.44 - -------------------------------------------------------------------------------------------------------------------- Total ............................. 84,366 6.70 1,131,922 6.37 - -------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities: Within 1 year ..................................... 4,715 5.69 1,137 5.78 1 to 5 years ...................................... 62,540 5.88 35,019 5.93 5 to 10 years ..................................... 28,611 6.73 42,853 6.41 More than 10 years ................................ 60,453 6.95 51,884 6.72 - -------------------------------------------------------------------------------------------------------------------- Total ............................. 156,319 6.44 130,893 6.45 - -------------------------------------------------------------------------------------------------------------------- State and municipal: Within 1 year ..................................... 18,290 8.82 30 9.81 1 to 5 years ...................................... 42,253 8.75 -- -- 5 to 10 years ..................................... 33,536 8.34 420 6.73 More than 10 years ................................ 20,804 13.89 564 8.93 - ------------------------------------------------------------------------------------------------------------------- Total ............................. 114,883 9.57 1,014 8.02 - ------------------------------------------------------------------------------------------------------------------- Other investments: Within 1 year ..................................... -- -- 526 5.95 1 to 5 years ...................................... 1,832 7.09 2,699 9.76 5 to 10 years ..................................... 265 7.83 1,093 6.24 More than 10 years ................................ 5,343 4.22 7,936 3.88 - ------------------------------------------------------------------------------------------------------------------- Total ............................. 7,440 5.06 12,254 5.40 - ------------------------------------------------------------------------------------------------------------------- Total investment securities: Within 1 year ..................................... 32,756 7.55 234,536 5.67 1 to 5 years ...................................... 140,957 6.85 617,389 6.17 5 to 10 years ..................................... 102,695 7.45 345,772 6.99 More than 10 years ................................ 86,600 8.45 78,386 6.61 - ------------------------------------------------------------------------------------------------------------------- Total ............................. 363,008 7.46 $1,276,083 6.37% ===================================================================================================================
The calculation of weighted average yields for securities is based on the amortized cost and effective yields of each security weighted for the scheduled maturity of each security. The yield on state and municipal securities is computed on a taxable-equivalent basis using the statutory federal income tax rate of 35% for 1996. Maturity information is calculated based upon scheduled maturity or call dates, no prepayment assumptions have been utilized in making these estimates. - -------------------------------------------------------------------------------- Envisioning. Exploring. Evolving. F-45 Off-Balance Sheet Derivatives for Interest Rate Risk Management As part of our overall interest rate risk management activities, Synovus utilizes off-balance sheet derivatives to modify the repricing characteristics of on-balance sheet assets and liabilities. The primary instruments utilized by Synovus are interest rate swaps where Synovus receives a fixed rate of interest and pays a floating rate tied to either the prime rate or 3 month LIBOR. These swaps effectively convert on-balance sheet floating rate loans to fixed rate assets, thereby reducing Synovus overall asset sensitivity. The nature of these transactions is essentially the same as purchasing a fixed-rate security funded with a floating-rate liability. All swaps utilized by Synovus represent end-user activities designed as hedges, all of which are linked to specific assets as part of overall interest rate risk management practices. Management feels that the utilization of these instruments provides greater financial flexibility and is a very efficient tool for managing interest rate risk. Synovus also utilizes interest rate floors and collars to manage its overall interest rate risk position. Interest rate floors serve to effectively convert floating-rate loans to fixed-rate when the prime rate falls below a prespecified level. These instruments are utilized to reduce asset sensitivity in falling rate environments but not in rising rate environments. Interest rate collars convert floating-rate loans to fixed-rate when the prime rate moves outside of a prespecified range. These instruments reduce overall asset sensitivity in both falling and rising interest rate environments. All floors and collars utilized by Synovus represent end-user activities for the purpose of interest rate risk management. The notional amount of off-balance sheet derivatives utilized by Synovus as of December 31, 1996, was $450 million. The notional amounts represent the amount on which calculations of interest payments to be exchanged are based. Although Synovus is not exposed to credit risk equal to the notional amounts, there is exposure to potential credit risks equal to the fair or replacement values of the swaps if the counterparty fails to perform. This credit risk is normally a very small percentage of the notional amount and fluctuates as interest rates change. Synovus minimizes this risk by subjecting the transaction to the same approval process as on-balance sheet credit activities, by dealing with only highly-rated counterparties, and by obtaining collateral agreements for exposure above certain predetermined limits.
Weighted Weighted Weighted December 31, 1996 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized (In thousands) Amount Receive Rate Pay Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Receive Fixed Swaps -LIBOR $235,000 5.79 5.53 32 $ -- (2,200) (2,200) Receive Fixed Swaps - Prime 70,000 9.12 8.25 43 630 -- 630 - ----------------------------------------------------------------------------------------------------------------------------------- Total Receive Fixed Swaps 305,000 6.55 6.15 35 630 (2,200) (1,570) - ----------------------------------------------------------------------------------------------------------------------------------- - ------ Variable pay rate based upon contract rates in effect at December 31, 1996 and 1995.
Weighted Weighted Weighted Notional Average Cap Average Average Maturity Unrealized Unrealized Net Unrealized Amount Rate Floor Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Interest Rate Collars 80,000 9.16 7.91 34 -- (445) (445)
Weighted Weighted Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized Amount Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Interest Rate Floors 65,000 7.83 48 80 -- 80
Weighted Notional Average Maturity Unrealized Unrealized Net Unrealized Amount In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Total $450,000 37 $ 710 (2,645) (1,935) ====================================================================================================================================
Weighted Weighted Weighted December 31, 1995 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized (In thousands) Amount Receive Rate Pay Rate In Months Gains Losses Gains (Losses) - ----------------------------------------------------------------------------------------------------------------------------------- Receive Fixed Swaps - LIBOR $125,000 5.98% 5.88 46 $1,776 -- $1,776 =================================================================================================================================== - ------ Variable pay rate based upon contract rates in effect at December 31, 1996 and 1995.
The above table represents the December 31, 1996 and 1995 status of all off-balance sheet interest rate contracts. There were no maturities, offsets, or terminations in 1996 or 1995. Off-balance sheet interest rate contracts contributed additional net interest income of $719,000 and contributed one basis point to the net interest margin for 1996. The impact of off-balance sheet interest rate contracts for 1995 was immaterial F-46 S Y N O V U S F I N A N C I A L C O R P. Liquidity Liquidity represents the availability of funding to meet the needs of depositors, borrowers, and creditors at a reasonable cost, on a timely basis, and without adverse consequences. Management actively analyzes and manages Synovus' liquidity position in coordination with similar committees at each subsidiary bank. These subsidiaries, with the help of management, maintain liquidity in the form of cash on deposit, federal funds, securities available for sale, and cash derived from prepayments and maturities of both their investment and loan portfolios. Liquidity is also enhanced by the acquisition of new deposits and the well established core deposits of Synovus' 216 banking offices in four states. The subsidiary banks monitor deposit flow and evaluate alternate pricing structures to retain and grow deposits. Certain Synovus subsidiary banks maintain correspondent banking relationships with various national and regional financial organizations. These relationships provide access to short-term borrowings through federal funds which allows Synovus to meet immediate liquidity needs if required. Synovus serves a diversity of markets. Some of these are rapidly growing areas where loan demand outpaces the generation of deposits. However, through the loan participations between Synovus' subsidiary banks, these loans can be funded by subsidiaries having lower local loan demand. Additionally, lending is focused within the local markets served by Synovus, enabling the development of comprehensive banking relationships. Additionally, the Parent Company requires cash for various operating needs including dividends to shareholders, business combinations, capital infusions into subsidiaries, the servicing of debt, and the payment of general corporate expenses. The primary source of liquidity for the Parent Company is dividends from the subsidiary banks. In addition, the Parent Company has access to a $20 million line of credit. The Parent Company enjoys an excellent reputation and credit standing in the market place and has the ability to raise substantial amounts of funds in the form of either short or long-term borrowings. The Parent Company's current principal debt, senior notes totaling $75 million at a rate of 6.125%, has been rated "A" by Standard and Poors Corp., "A3" by Moodys Investor Service and "AA" by Thomson Bankwatch. For a complete description of these borrowings and other borrowings by other Synovus subsidiaries, see Note 6 to Synovus consolidated financial statements. The consolidated statements of cash flows detail Synovus' cash flows from operating, investing, and financing activities. Net cash provided by operating activities was $200.6 million for the year ended December 31, 1996, while financing activities provided $480.4 million. Investing activities used $658.7 million of this amount, resulting in a net increase in cash and cash equivalents of $22.3 million. Management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on Synovus' liquidity, capital resources, or operations. Further, management is not aware of any current recommendations by regulatory agencies which, if they were to be implemented, would have such effect. Capital Resources and Dividends Synovus has always placed great emphasis on maintaining a strong capital base and continues to exceed all minimum regulatory capital requirements. Management is committed to maintaining a capital level sufficient to assure shareholders, customers, and regulators that Synovus is financially sound, and to enable Synovus to sustain an appropriate degree of leverage to provide a desirable level of profitability. Synovus has the ability to generate internal capital growth sufficient to support the asset growth it has experienced. Total shareholders equity of $783.8 million represented 9.10% of total assets at December 31, 1996. Regulators use a risk-adjusted calculation to aid them in their determination of capital adequacy by weighting assets based on the credit risk associated with on- and off-balance sheet assets. The majority of these risk-weighted assets are on-balance sheet assets for Synovus in the form of loans. A small portion of risk-weighted assets are considered off-balance sheet assets and are primarily made up of letters of credit, loan commitments, and to a lesser extent interest rate contracts, that Synovus enters into in the normal course of business. Capital is categorized into two types: Tier I and Tier II. The capital guidelines used by regulators require an 8% total risk-based capital ratio of which 4% must be Tier I capital. Additionally, the regulatory agencies define a well-capitalized bank as one which has a leverage ratio of at least 5%, a Tier I capital ratio of at least 6%, and a total risk-based capital ratio of at least 10%. At the end of 1996, Synovus and all subsidiary banks were in excess of the minimum capital requirements with a consolidated Tier I capital ratio of 11.68% and a total risk-based capital ratio of 12.97%, compared to Tier I and total risk-based capital ratios of 11.28% and 12.57%, respectively, in 1995 as shown in Table 15. In addition to the risk-based capital standards, a minimum leverage ratio of 4% is required for the highest-rated bank holding companies which are not undertaking significant expansion programs. An additional 1% to 2% may be required for other companies, depending upon their regulatory ratings and expansion plans. The leverage ratio is defined as Tier I capital divided by quarterly average assets, net of certain intangibles. As of December 31, 1996, Synovus had a leverage ratio of 9.36%, which significantly exceeds the regulatory requirements. Synovus' capital level also exceeds all requirements under the Federal Reserve Board's guidelines. The Federal Reserve Board requires a minimum primary capital ratio of 5.50% and a total capital ratio of 6.00% for bank holding companies and banks. At December 31, 1996, Synovus' primary and total capital ratios as defined by the Federal Reserve Board were 10.07% and 10.09%, respectively, compared to 9.49% and 9.52%, respectively, at year end 1995. During the third quarter of 1994, Synovus announced its plan to acquire up to 1,125,000 shares of Synovus common stock in the open market. Through December 31, 1996, 543,900 shares of Synovus common stock have been purchased under this plan at an average price of $15.67. Of these shares, 399,747 shares were used in 1995 to acquire Peach State Bank. Approximately 78,000 shares were issued to employees for vested stock option exercises. The remaining shares under this plan along with other treasury shares acquired before this plan amount to 77,895 as of December 31, 1996. These shares will be used to fund incentive stock award plans and other employee benefit plans. Synovus' 80.7% ownership of TSYS is an important aspect of the market price of Synovus common stock and should be considered in a comparison of the relative market price of Synovus common stock to other financial service companies. As of December 31, 1996, there were approximately 28,000 shareholders of record of Synovus common stock, some of which are holders in nominee name for the benefit of a number of different shareholders. Table 16 displays high and low quotations of Synovus common stock which are based on actual transactions. Envisioning. Exploring. Evolving. F-47 - --------------------------------------------------------------------------------
Table 15 Capital Ratios (In thousands) December 31, - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Tier I capital: Shareholders' equity .................................................... $ 783,750 693,555 Adjustment for SFAS No. 115 ............................................. 112 (5,774) Plus: Minority interest ................................................. 34,435 27,790 Less: Disallowed intangibles ............................................ (40,589) (41,406) - -------------------------------------------------------------------------------------------------------------------------- Total Tier I capital ............................................ 777,708 674,165 - -------------------------------------------------------------------------------------------------------------------------- Tier II capital: Eligible portion of the reserve for loan losses ......................... 83,353 74,818 Subordinated and other qualifying debt .................................. 2,200 2,440 - -------------------------------------------------------------------------------------------------------------------------- Total Tier II capital ........................................... 85,553 77,258 - -------------------------------------------------------------------------------------------------------------------------- Total risk-based capital ........................................................ $ 863,261 751,423 ========================================================================================================================== Total risk-adjusted assets ...................................................... $ 6,656,966 5,978,913 ========================================================================================================================== Tier I capital ratio ............................................................ 11.68% 11.28 Total risk-based capital ratio .................................................. 12.97 12.57 Leverage ratio .................................................................. 9.36 8.71 Regulatory minimums: Tier I capital ratio .................................................... 4.00% Total risk-based capital ratio .......................................... 8.00 Leverage ratio .......................................................... 4.00 - -------- Risk-based capital ratios, for both years presented, were prepared using risk-based capital rules finalized in November, 1994, which exclude the impact of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". - --------------------------------------------------------------------------------
Table 16 Market and Stock Price Information High Low - ---------------------------------------------------------------------------------------------------------- 1996 Quarter ended December 31, 1996 ............................................ $ 33 3/8 26 1/8 Quarter ended September 30, 1996 ........................................... 27 1/4 21 7/8 Quarter ended June 30, 1996 ................................................ 24 21 1/8 Quarter ended March 31, 1996 ............................................... 22 7/8 17 1/2 1995 Quarter ended December 31, 1995 ............................................ $ 20 1/8 16 5/8 Quarter ended September 30, 1995 ........................................... 18 1/8 15 Quarter ended June 30, 1995 ................................................ 15 1/4 12 7/8 Quarter ended March 31, 1995 ............................................... 13 1/8 11 7/8
- -------------------------------------------------------------------------------- Dividends It is Synovus' objective to pay out approximately one-third of earnings to shareholders in cash dividends. Synovus' dividend payout ratio in 1996, 1995, and 1994 was 36.62%, 36.69%, and 36.9%, respectively. The total dollar amount of dividends declared increased 21.6% in 1996 to $51.1 million, from $42.0 million in 1995. Cash dividends have been paid on the common stock of Synovus (including its predecessor companies) in every year since 1891. It is the present intention of the Synovus Board of Directors to continue to pay cash dividends on its common stock in accordance with the previously mentioned objective. Table 17 presents the declared and paid dates from recent dividends, as well as per share dividend amounts. F-48 S Y N O V U S F I N A N C I A L C O R P. - -------------------------------------------------------------------------------- Table 17
Dividends Per Share Date Declared Date Paid Amount November 18, 1996 January 2, 1997 $ .11 September 9, 1996 October 1, 1996 .11 May 13, 1996 July 1, 1996 .11 March 11, 1996 April 1, 1996 .11 November 13, 1995 January 2, 1996 .09 September 11, 1995 October 2, 1995 .09 May 8, 1995 July 3, 1995 .09 February 14, 1995 April 3, 1995 .09 - --------------------------------------------------------------------------------
Commitments Synovus believes it has sufficient capital, liquidity, and future cash flows from operations to meet operating needs over the next year. Table 18, Note 6, and Note 10 to Synovus' consolidated financial statements provide additional information on Synovus short-term and long-term borrowings. In the normal course of its business, TSYS maintains processing and conversion agreements with its customers. These agreements contain contractual commitments, including, but not limited to, minimum standards and time frames against which TSYS' performance is measured. In the event TSYS does not meet its contractual commitments with its customers, TSYS may incur penalties and/or certain customers may have the right to terminate their agreements with TSYS. TSYS does not believe that it will fail to meet its contractual commitments to an extent that will result in a material adverse effect on its financial condition or results of operations. 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, some seeking class action treatment, are pending against one of Synovus' Alabama banking subsidiaries that involve: (1) the sale of credit life insurance made in connection with consumer credit transactions; (2) payments of service fees or interest rebates to automobile dealers in connection with the assignment of automobile credit sales contracts to that Synovus subsidiary; and (3) the forced placement of insurance to protect that Synovus subsidiarys' interest in collateral for which consumer credit customers have failed to obtain or maintain insurance. These lawsuits seek unspecified damages, including punitive damages, and purport to be class actions which, if certified, may involve many of such subsidiarys' consumer credit transactions in Alabama for a number of years. 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 and other 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. - --------------------------------------------------------------------------------
Table 18 Short-Term Borrowings (In thousands) The following table sets forth certain information regarding federal funds purchased and securities sold under agreement to repurchase, the principal components of short-term borrowings. 1996 1995 1994 - ---------------------------------------------------------------------------------------- Month end balance for year ended December 31, ........ $339,200 229,477 412,082 Weighted average interest rate at December 31,........ 6.22% 5.65 5.40 Maximum month end balance during the year ............ $421,672 362,035 412,082 Average amount outstanding during the year ........... $288,107 216,342 235,858 Weighted average interest rate during the year ....... 5.20% 5.59 4.25
- -------------------------------------------------------------------------------- Envisioning. Exploring. Evolving. F-49 Income Tax Expense As reported in the consolidated statements of income, Synovus' income tax expense increased to $79.7 million in 1996, up from $64.9 million in 1995, and $49.5 million in 1994. The effective tax rate was 36.3%, 36.2%, and 35.6% in 1996, 1995, and 1994 , respectively. The increases in both 1996 and 1995 were primarily the result of increases in pre-tax income and in the relative percentage of taxable income to total income. The increase in 1995 was affected by a decrease in certain research and experimentation credits. See Note 7 to Synovus' consolidated financial statements for a detailed analysis of income taxes. Inflation Inflation has an important impact on the growth of total assets in the banking industry and may create a need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Synovus has been able to maintain a high level of equity through retention of an appropriate percentage of its net income. Synovus copes with the effects of inflation by managing its interest rate sensitivity gap position through its asset/liability management program and by periodically adjusting its pricing of services and banking products to take into consideration current costs. Parent Company The Parent Companys assets, primarily its investment in subsidiaries, are funded, for the most part, by shareholders' equity. It also utilizes short-term and long-term debt. The Parent Company is responsible for providing the necessary funds to strengthen the capital of its subsidiaries if necessary, acquire new subsidiaries, pay corporate operating expenses, and pay dividends to its shareholders. These operations are funded by dividends and fees received from subsidiaries, and borrowings from outside sources. In connection with dividend payments to the Parent Company from its subsidiary banks, certain rules and regulations of the various state and federal banking regulatory agencies limit the amount of dividends which may be paid. Approximately $152.5 million in dividends, inclusive of 1997 net income, could be paid in 1997 to the Parent Company from its subsidiary banks without prior regulatory approval. Synovus anticipates receiving regulatory approval to allow certain subsidiaries to pay dividends in excess of their respective regulatory limits. Forward-Looking Statements The following appears in accordance with the Securities Litigation Reform Act: These financial statements and financial review include forward-looking statements that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include fluctuations in interest rates, inflation, government regulations, loss of a major TSYS customer, and economic conditions and competition in the geographic business areas in which Synovus conducts its operations. F-50 S Y N O V U S F I N A N C I A L C O R P. - --------------------------------------------------------------------------------
Summary of Quarterly Financial Data (Unaudited) (In thousands, except per share data) Presented below is a summary of the unaudited consolidated quarterly financial data for the years ended December 31, 1996 and 1995. Fourth Third Second First Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------- 1996 Interest income ........................................$170,603 168,609 163,895 160,196 ============================================================================================== Net interest income .................................... 97,426 95,632 92,687 89,129 ============================================================================================== Provision for losses on loans .......................... 9,089 8,011 8,233 6,433 ============================================================================================== Income before income taxes ............................. 66,132 55,528 51,713 45,939 ============================================================================================== Net income ............................................. 41,661 35,208 33,108 29,627 ============================================================================================== Net income per share ................................... .36 .30 .29 .26 ============================================================================================== 1995 Interest income ........................................$160,683 157,443 153,318 144,344 ============================================================================================== Net interest income .................................... 88,274 86,262 84,509 82,830 ============================================================================================== Provision for losses on loans .......................... 8,589 6,214 5,739 5,245 ============================================================================================== Income before income taxes ............................. 52,966 47,197 41,788 37,518 ============================================================================================== Net income ............................................. 33,634 30,279 26,600 24,070 ============================================================================================== Net income per share ................................... .29 .26 .23 .21 ==============================================================================================
- -------------------------------------------------------------------------------- Envisioning. Exploring. Evolving. F-51 EX-20.1 6 EXHIBIT 20.1 EXHIBIT 20.1 [LOGO](R) SYNOVUS(Registration Mark) FINANCIAL CORP. JAMES H. BLANCHARD CHAIRMAN OF THE BOARD March 7, 1997 Dear Shareholder: The Annual Meeting of the Shareholders of Synovus Financial Corp. will be held on April 17, 1997 in the South Hall of the Columbus, Georgia Convention & Trade Center, beginning at 10:00 o'clock A.M., E.T., for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. We encourage you to attend the Annual Meeting of Shareholders and let us give you a review of 1996. Whether you own a few or many shares of stock and whether or not you plan to attend in person, it is important that your shares be voted on matters that come before the meeting. To make sure your shares are represented, we urge you to complete the enclosed Proxy Card, including the Certificate of Beneficial Owner on the reverse side of the Proxy, and mail it to us promptly. Thank you for helping us make 1996 a good year. We look forward to your continued support in 1997 and another good year. Sincerely yours, /s/James H. Blanchard JAMES H. BLANCHARD Synovus Financial Corp. Post Office Box 120 Columbus, Georgia 31902-0120 SYNOVUS(R) FINANCIAL CORP. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 17, 1997 NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Synovus Financial Corp. ("Synovus") will be held in the South Hall of the Columbus, Georgia Convention & Trade Center, on April 17, 1997, at 10:00 o'clock A.M., E.T., for: (1) The election of five nominees as Class III directors of Synovus to serve until the 2000 Annual Meeting of Shareholders; and (2) The transaction of such other business as may properly come before the Annual Meeting. Information relating to the above matters is set forth in the accompanying Proxy Statement. Only shareholders of record at the close of business on February 12, 1997 will be entitled to notice of and to vote at the Annual Meeting. /s/G. Sanders Griffith, III G. SANDERS GRIFFITH, III Secretary Columbus, Georgia March 7, 1997 WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING IN PERSON, PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY, COMPLETE AND SIGN THE CERTIFICATE OF BENEFICIAL OWNER ON THE REVERSE SIDE OF THE ENCLOSED PROXY, AND RETURN THEM PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES. SYNOVUS(R) FINANCIAL CORP. PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS To Be Held April 17, 1997 I. INTRODUCTION A. Purposes of Solicitation -- Terms of Proxies. The Annual Meeting of the Shareholders ("Annual Meeting") of Synovus Financial Corp. ("Synovus") will be held on April 17, 1997 for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and in this Proxy Statement. The enclosed Proxy is solicited BY AND ON BEHALF OF SYNOVUS' BOARD OF DIRECTORS in connection with such Annual Meeting, or any adjournment thereof. The costs of the solicitation of Proxies by Synovus' Board of Directors will be paid by Synovus. Forms of Proxies and Proxy Statements will also be distributed through brokers, banks, nominees, custodians and other like parties to the beneficial owners of shares of the $1.00 par value common stock of Synovus ("Synovus Common Stock"), and Synovus will reimburse such parties for their reasonable out-of-pocket expenses therefor. Synovus' mailing address is Post Office Box 120, Columbus, Georgia 31902-0120. The shares represented by the Proxy in the accompanying form, which when properly executed, returned to Synovus' Board of Directors and not revoked, will be voted in accordance with the instructions specified in such Proxy. If a choice is not specified in a Proxy, the shares represented by such Proxy will be voted "FOR" the election of the five nominees for election as Class III directors of Synovus named herein. Each Proxy granted may be revoked in writing at any time before the authority granted thereby is exercised. Attendance at the Annual Meeting will constitute a revocation of the Proxy for such Annual Meeting if the maker thereof elects to vote in person. This Proxy Statement and the enclosed Proxy are being first mailed to shareholders on or about March 7, 1997. B. Shareholder Proposals. From time to time, Synovus' shareholders may present proposals which may be proper subjects for inclusion in Synovus' Proxy Statement for consideration at Synovus' Annual Meeting. To be considered for inclusion, shareholder proposals must be submitted on a timely basis. Proposals for Synovus' 1998 Annual Meeting must be received by Synovus no later than November 7, 1997, and any such proposals, as well as any questions related thereto, should be directed to Secretary, Synovus Financial Corp., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. 1 C. Director Nominees or Other Business for Presentation at the Annual Meeting. Shareholders who wish to present director nominations or other business at the Annual Meeting are required to notify the Secretary of their intent at least 60 days but not more than 120 days before the meeting and the notice must provide information as required in the bylaws. A copy of these bylaw requirements will be provided upon request in writing to Secretary, Synovus Financial Corp., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. This requirement does not affect the deadline for submitting shareholder proposals for inclusion in the Proxy Statement nor does it preclude discussion by any shareholder of any business properly brought before the Annual Meeting. D. Securities Entitled to Vote and Record Date. Only shareholders of record at the close of business on February 12, 1997 are entitled to vote at the Annual Meeting, or any adjournment thereof. As of that date, there were 116,369,039 shares of Synovus Common Stock outstanding and entitled to vote. Synovus owned 77,895 shares of Synovus Common Stock on February 12, 1997 as treasury shares, which are not considered to be outstanding and are not entitled to be voted at the Annual Meeting. In accordance with the amendment to Synovus' Articles of Incorporation which was adopted by the shareholders of Synovus and became effective on April 24, 1986 (the "Voting Amendment"), a holder of Synovus Common Stock will be entitled to ten votes on each matter submitted to a vote of shareholders for each share of Synovus Common Stock beneficially owned on February 12, 1997 which: (1) has had the same beneficial owner since February 12, 1993; (2) was acquired by reason of participation in a dividend reinvestment plan offered by Synovus and is held by the same beneficial owner for whom it was acquired under such plan; (3) is held by the same beneficial owner to whom it was issued as a result of an acquisition of a company or business by Synovus where the resolutions adopted by Synovus' Board of Directors approving such issuance specifically reference and grant such rights; (4) was acquired under any employee, officer and/or director benefit plan maintained for one or more employees, officers and/or directors of Synovus and/or its subsidiaries, and is held by the same beneficial owner for whom it was acquired under any such plan; (5) is held by the same beneficial owner to whom it was issued by Synovus, or to whom it was transferred by Synovus from treasury shares, and the resolutions adopted by Synovus' Board of Directors approving such issuance and/or transfer specifically reference and grant such rights; (6) was acquired as a direct result of a stock split, stock dividend or other type of share distribution if the share as to which it was distributed was acquired prior to, and has been held by the same beneficial owner since, February 12, 1993; (7) has been beneficially owned continuously by the same shareholder for a period of 48 consecutive months prior to the record date of any meeting of shareholders at which the share is eligible to be voted; or (8) is owned by a holder who, in addition to shares which are beneficially owned under the provisions of (1)-(7) above, is the beneficial owner of less than 506,250 shares of Synovus Common Stock (which amount has been appropriately adjusted to reflect the three-for-two stock splits effected in the form of 50% stock dividends paid on October 1, 1986, October 3, 1988, April 1, 1993 and April 8, 1996, respectively, and with such amount to be appropriately adjusted to properly reflect any other change in Synovus Common Stock by means of a stock split, a stock dividend, a recapitalization or otherwise occurring after April 24, 1986). Shareholders of shares of Synovus Common Stock not described above are entitled to one vote per share for each such share. The actual voting power of each holder of shares of Synovus Common Stock will be based on information possessed by Synovus at the time of the Annual Meeting. As Synovus Common Stock is registered with the Securities and Exchange Commission ("SEC") and is traded on the New York Stock Exchange ("NYSE"), Synovus Common Stock is subject to the provisions of an NYSE rule which, in general, prohibits a company's common stock and equity securities from being authorized or remaining authorized for trading on the NYSE if the company issues securities or takes other corporate action that would have the effect of nullifying, restricting or disparately reducing the voting rights of existing shareholders of the company. However, such rule 2 contains a "grandfather" provision, under which Synovus' Voting Amendment falls, which, in general, permits grandfathered disparate voting rights plans to continue to operate as adopted. The number of votes that each shareholder will be entitled to exercise at the Annual Meeting will depend upon whether each share held by the shareholder meets the requirements which entitle one share of Synovus Common Stock to ten votes on each matter submitted to a vote of shareholders. Shareholders of Synovus Common Stock must complete the Certification on the reverse side of the Proxy in order for any of the shares represented by the Proxy to be entitled to ten votes per share. SHAREHOLDERS AND BENEFICIAL OWNERS WHO DO NOT COMPLETE THE CERTIFICATIONS ON THE REVERSE SIDES OF THEIR PROXY CARDS AND WHO WOULD, IF THEY HAD COMPLETED SUCH CERTIFICATIONS, BE ENTITLED TO TEN VOTES PER SHARE, WILL BE ENTITLED TO ONLY ONE VOTE PER SHARE. E. Columbus Bank and Trust Company and Total System Services, Inc. Synovus is the owner of all of the issued and outstanding shares of voting common stock of Columbus Bank and Trust Company(R)("Columbus Bank"). Columbus Bank owns individually 80.7% of the outstanding shares of Total System Services, Inc.(SM) ("TSYS(R)"), a bankcard data processing company having 129,289,680 shares of $.10 par value voting common stock ("TSYS Common Stock") outstanding on February 12, 1997. II. ELECTION OF DIRECTORS A. Information Concerning Directors and Nominees. (1) Number and Classification of Directors. In accordance with the vote of shareholders taken at Synovus' 1995 Annual Meeting, the number of members of Synovus' Board of Directors was set at 20. Synovus' Board of Directors is currently comprised of 20 members. The 20 members who comprise Synovus' Board of Directors are divided into three classes of directors: Class I directors, Class II directors and Class III directors, with each of such Classes of directors serving staggered 3-year terms. At Synovus' 1995 Annual Meeting, Class I directors were elected to serve 3-year terms to expire at Synovus' 1998 Annual Meeting and at Synovus' 1996 Annual Meeting, Class II directors were elected to serve 3-year terms to expire at Synovus' 1999 Annual Meeting. The terms of office of the Class III directors expire at Synovus' 1997 Annual Meeting. Given the division of Synovus' Board of Directors into three classes, shareholders who do not favor the policies of Synovus' Board of Directors would require at least two Annual Meetings of Shareholders to replace a majority of the members of the Board. (2) Nominees for Class III Directors and Vote Required. Synovus' Board of Directors has selected five nominees which it proposes for election to Synovus' Board as Class III directors. The nominees for Class III directors of Synovus will be elected to serve 3-year terms that will expire at Synovus' 2000 Annual Meeting. The five nominees for Class III directors of Synovus are: Daniel P. Amos, Richard Y. Bradley, John P. Illges, III, William B. Turner and George C. Woodruff, Jr. Proxies cannot be voted at the 1997 Annual Meeting for a greater number of persons than the number of nominees named. Under Georgia law, a majority of the issued and outstanding shares of Synovus Common Stock entitled to vote must be represented at the 1997 Annual Meeting to constitute a quorum. However, as is allowed by Georgia law, under Synovus' bylaws and the Voting Amendment, a majority of the 3 votes entitled to be cast by the holders of all of the issued and outstanding shares of Synovus Common Stock entitled to vote must be represented at the 1997 Annual Meeting in order to constitute a quorum. Under both Georgia law and Synovus' bylaws, all shares represented at the meeting, including shares abstaining and withholding authority, are counted for purposes of determining whether a quorum exists. The nominees for election as directors at the Annual Meeting who receive the greatest number of votes (a plurality), a quorum being present, shall become directors at the conclusion of the tabulation of votes. Thus, once a quorum has been established, abstentions and broker non-votes have no effect upon the election of directors. The shares represented by Proxies executed for Synovus' 1997 Annual Meeting in such manner as not to withhold authority to vote for the election of any nominee for Synovus' Board of Directors shall be voted "FOR" the election of the five nominees for Class III directors on Synovus' Board named herein. If any nominee for Class III director of Synovus becomes unavailable for any reason before Synovus' 1997 Annual Meeting, the shares represented by executed Proxies may be voted for such substitute nominee as may be determined by the holders of such Proxies. It is not anticipated that any nominee will be unavailable for election. SYNOVUS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE FIVE NOMINEES FOR ELECTION AS CLASS III DIRECTORS ON SYNOVUS' BOARD SET FORTH HEREIN. B. Information Concerning Directors and Nominees for Class III Directors. (1) General Information. The following table sets forth the name, age, principal occupation and employment (which, except as noted, has been for the past five years) of each of the five nominees for election as Class III directors of Synovus and the remaining directors who will continue to serve on Synovus' Board of Directors, his or her director classification, length of service as a director of Synovus, any family relationships with other directors or executive officers of Synovus, and any Board of Directors of which he or she is a member with respect to any company with a class of securities registered with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or any company which is subject to the requirements of Section 15(d) of that Act, including TSYS, or any company registered with the SEC as an investment company under the Investment Company Act of 1940 ("Public Company").
Synovus Year Director First Principal Occupation Classifi- Elected and Other Directorships Name Age cation Director of Public Companies - ------------------------- ----- -------- ---------- ------------------------ Daniel P. Amos 45 III 1991 Chief Executive Officer and Director, AFLAC Incorporated (Insurance Holding Company) Richard E. Anthony 50 II 1993 Vice Chairman of the Board, Synovus Financial Corp.; Chairman of the Board, First Commercial Bank of Birmingham (Banking Subsidiary of Synovus) Joe E. Beverly 55 II 1983 Chairman of the Board, Commercial Bank, Thomasville, Georgia (Banking Subsidiary of Synovus); Director, Flowers Industries, Inc. James H. Blanchard 55 I 1972 Chairman of the Board and Chief Executive Officer, Synovus Financial Corp.; Chairman of the Executive Committee, Total System Services, Inc.; Director, BellSouth Corporation 4 Richard Y. Bradley 58 III 1991 Partner, Bradley & Hatcher (Law Firm); Director, Total System Services, Inc. Stephen L. Burts, Jr. 44 I 1992 President, Synovus Financial Corp. Walter M. Deriso, Jr. 50 II 1997 Vice Chairman of the Board, Synovus Financial Corp.; Chairman of the Board, Security Bank and Trust Company, Albany, Georgia (Banking Subsidiary of Synovus) C. Edward Floyd, M.D. 62 I 1995 Vascular Surgeon Gardiner W. Garrard, Jr. 56 I 1972 President, The Jordan Company (Real Estate Development); Director, Total System Services, Inc. V. Nathaniel Hansford 53 I 1985 Professor and Dean Emeritus --School of Law, University of Alabama John P. Illges, III 62 III 1997 Senior Vice President and Financial Consultant, The Robinson-Humphrey Company, Inc. (Stockbroker); Director, Total System Services, Inc. Mason H. Lampton 49 II 1993 President, The Hardaway Company (Construction Company); Director, Total System Services, Inc. Elizabeth C. Ogie 46 II 1993 Director, W.C. Bradley Co. (Metal Manufacturer and Real Estate) John T. Oliver, Jr. 67 II 1993 Vice Chairman of the Executive Committee, Synovus Financial Corp.; Chairman of the Board, First National Bank of Jasper (Banking Subsidiary of Synovus) H. Lynn Page 56 I 1978 Vice Chairman of the Board (Retired) and Director, Synovus Financial Corp., Columbus Bank and Trust Company and Total System Services, Inc. William L. Pherigo 55 II 1995 President and Chief Executive Officer, The National Bank of South Carolina (Banking Subsidiary of Synovus) Robert V. Royall, Jr. 62 I 1995 Chairman of the Board, The National Bank of South Carolina (Banking Subsidiary of Synovus); Director, Blue Cross Blue Shield of South Carolina; Secretary of Commerce, State of South Carolina William B. Turner 74 III 1972 Chairman of the Executive Committee, Columbus Bank and Trust Company and Synovus Financial Corp.; Advisory Director, W. C. Bradley Co. (Metal Manufacturer and Real Estate); Director, Total System Services, Inc. George C. Woodruff, Jr. 68 III 1972 Real Estate and Personal Investments; Director, Total System Services, Inc. and United Cities Gas Company James D. Yancey 55 I 1978 Vice Chairman of the Board, Synovus Financial Corp. and Columbus Bank and Trust Company; Director, Total System Services, Inc. 5 - ------------- Richard E. Anthony was elected Vice Chairman of Synovus in September, 1995. Prior to 1995, Mr. Anthony served, and continues to serve, as President of Synovus Financial Corp. of Alabama and Chairman of the Board of First Commercial Bank of Birmingham, both of which companies are subsidiaries of Synovus. James H. Blanchard was elected Chairman of the Board of Synovus in April, 1986. Prior to 1986, Mr. Blanchard served in various capacities with Synovus, Columbus Bank and/or TSYS, including President of Synovus. Richard Y. Bradley formed Bradley & Hatcher in September, 1995. From 1991 until 1995, Mr. Bradley served as President of Bickerstaff Clay Products Company, Inc. Stephen L. Burts, Jr. was elected President of Synovus in March, 1992. Prior to 1992, Mr. Burts served in various capacities with Synovus and/or Columbus Bank, including Executive Vice President and Treasurer. Walter M. Deriso, Jr. was elected Vice Chairman of Synovus in January, 1997. Prior to 1997, Mr. Deriso served as President of Security Bank and Trust Company. Mr. Deriso was elected as a director of Synovus in January, 1997 by Synovus' Board of Directors to fill the unexpired term of a vacant Class II board seat. John P. Illges, III was elected as a director of Synovus in January, 1997 by Synovus' Board of Directors to fill the unexpired term of a vacant Class III board seat. Mr. Illges previously served as an Advisory Director of Synovus. Elizabeth C. Ogie is William B. Turner's niece. John T. Oliver, Jr. was elected Vice Chairman of the Executive Committee of Synovus in September, 1995. Prior to 1995, Mr. Oliver served, and continues to serve, as Chairman of the Board of Synovus Financial Corp. of Alabama and First National Bank of Jasper, both of which companies are subsidiaries of Synovus. William L. Pherigo was elected President and Chief Executive Officer of The National Bank of South Carolina effective January, 1996. Prior to 1996, Mr. Pherigo served as President and Chief Operating Officer of The National Bank of South Carolina. William B. Turner was elected Chairman of the Executive Committee of Synovus in April, 1986. Prior to 1986, Mr. Turner served in various capacities with Synovus and/or Columbus Bank, including Chairman of the Board of both Synovus and Columbus Bank. James D. Yancey was elected Vice Chairman of the Board of Synovus in March, 1992. Prior to 1992, Mr. Yancey served in various capacities with Synovus and/or Columbus Bank, including Vice Chairman of the Board and President of both Synovus and Columbus Bank.
(2) Synovus Common Stock Ownership of Directors and Management. The following table sets forth, as of December 31, 1996, the number of shares of Synovus Common Stock beneficially owned by each of Synovus' directors and Synovus' five most highly compensated executive officers. To the best of Synovus' knowledge, all shares of Synovus Common Stock beneficially owned by such persons qualify for ten votes per share, subject to the completion by such persons of the Certifications contained on the reverse side of their Proxy Cards. Information relating to beneficial ownership of Synovus Common Stock is based upon information furnished by each person or entity using "beneficial ownership" concepts set forth in the rules of the SEC under Section 13(d) of the Exchange Act. 6
Shares of Shares of Synovus Shares of Synovus Common Synovus Common Percentage of Stock Common Stock Stock Total Shares Outstanding Beneficially Beneficially Beneficially of Synovus Shares of Owned with Owned with Owned with Common Synovus Sole Voting Shared Voting Sole Voting Stock Common Stock and Invest- and Invest- but no Invest- Beneficially Beneficially ment Power ment Power ment Power Owned as of Owned as of Name as of 12/31/96 as of 12/31/96 as of 12/31/96 12/31/96 12/31/96 - ---------------------- ------------------ -------------- -------------- -------------- -------------- Daniel P. Amos 30,435 203,868 --- 237,918 .20% Richard E. Anthony 231,505 30,754 17,786 280,045 .24 Joe E. Beverly 240,507 2,025 22,602 265,134 .23 James H. Blanchard 720,749 4,460 164,598 889,807 .76 Richard Y. Bradley 8,133 56,221 --- 64,354 .06 Stephen L. Burts, Jr. 107,579 --- 21,212 128,791 .11 Walter M. Deriso, Jr. 13,987 1,663 --- 15,650 .01 C. Edward Floyd, M.D. 485,903 67,498 --- 553,401 .48 Gardiner W. Garrard, Jr. 88,481 635,938 --- 724,419 .62 V. Nathaniel Hansford 90,729 145,895 --- 236,624 .20 John P. Illges, III 247,356 116,445 --- 363,801 .31 Mason H. Lampton 77,462 128,693 --- 206,155 .18 Elizabeth C. Ogie 15,610 13,557,182 --- 13,572,792 11.67 John T. Oliver, Jr. 345,304 41,302 20,827 407,433 .35 H. Lynn Page 373,688 5,118 --- 378,806 .33 William L. Pherigo 184,395 --- 7,676 192,071 .16 Robert V. Royall, Jr. 235,223 75,087 --- 310,310 .27 William B. Turner 41,649 13,503,372 --- 13,545,021 11.64 George C. Woodruff, Jr. 56,605 30,000 --- 86,605 .07 James D. Yancey 453,585 27,412 34,615 515,612 .44 - --------------------------- Includes 34,050 shares of Synovus Common Stock held by a charitable foundation of which Mr. Amos is a trustee. Includes 14,675 shares of Synovus Common Stock with respect to which Mr. Anthony has options to acquire. Includes 18,783 shares of Synovus Common Stock with respect to which Mr. Beverly has options to acquire. Includes 38,151 shares of Synovus Common Stock with respect to which Mr. Blanchard has options to acquire. Includes 24,800 shares of Synovus Common Stock with respect to which Mr. Burts has options to acquire. Includes 27,852 shares of Synovus Common Stock held by a charitable foundation of which Mr. Illges is trustee. Includes 117,639 shares of Synovus Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. Includes 52,869 shares of Synovus Common Stock held by a charitable foundation of which Mrs. Ogie is a trustee. 7 Includes 1,141,425 shares of Synovus Common Stock held by a charitable foundation of which Mrs. Ogie and Mr. Turner are among the trustees, and 12,353,139 shares of Synovus Common Stock beneficially owned by TB&C Bancshares, Inc., of which Mrs. Ogie and Mr. Turner are officers, directors and shareholders. Includes 18,468 shares of Synovus Common Stock with respect to which Mr. Oliver has options to acquire. Includes 45,427 shares of Synovus Common Stock held by a charitable foundation of which Mr. Oliver is trustee. Includes 84,055 shares of Synovus Common Stock with respect to which Mr. Pherigo has options to acquire. Includes 92,969 shares of Synovus Common Stock with respect to which Mr. Royall has options to acquire. Includes 30,000 shares of Synovus Common Stock held by a charitable foundation of which Mr. Woodruff is a trustee. Includes 24,588 shares of Synovus Common Stock with respect to which Mr. Yancey has options to acquire.
The following table sets forth information, as of December 31, 1996, with respect to the beneficial ownership of Synovus Common Stock by all directors and executive officers of Synovus as a group. To the best of Synovus' knowledge, all shares of Synovus Common Stock beneficially owned by all directors and executive officers of Synovus qualify for ten votes per share, subject to the completion by such persons of the Certifications contained on the reverse sides of their Proxy Cards.
Percentage of Shares of Outstanding Shares of Synovus Common Stock Synovus Common Stock Name of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ----------------------- ------------------------ ---------------------------- All directors and executive officers of Synovus as a group 19,658,540 16.84% (includes 24 persons)
For a detailed discussion of the beneficial ownership of TSYS Common Stock by Synovus' named executive officers and directors and by all directors and executive officers of Synovus as a group, see Section V(C) hereof captioned "TSYS Common Stock Ownership of Directors and Management." C. Board Committees and Attendance. The business and affairs of Synovus are under the direction of Synovus' Board of Directors. During 1996, Synovus' Board of Directors held six regular meetings and two special meetings. During 1996, each of Synovus' incumbent directors attended at least 75% of the aggregate meetings of Synovus' Board of Directors and the Committees thereof on which he or she sat. Synovus' Board of Directors has three principal committees -- an Audit Committee, a Compensation Committee and an Executive Committee. There is no Nominating Committee of Synovus' Board of Directors. Audit Committee. The members of the Audit Committee of Synovus' Board of Directors are: Gardiner W. Garrard, Jr., Chairman, and George C. Woodruff, Jr. The primary functions engaged in by Synovus' Audit Committee include: (i) annually recommending to Synovus' Board the independent certified public accountants ("Independent Auditors") to be engaged by Synovus for the next fiscal year; (ii) reviewing the plan and results of the annual audit by Synovus' Independent Auditors; (iii) reviewing and approving the range of management advisory services provided by Synovus' Independent Auditors; (iv) reviewing Synovus' internal audit function and the adequacy of the 8 internal accounting control systems of Synovus and its subsidiaries; (v) reviewing the results of regulatory examinations of Synovus and its subsidiaries; (vi) periodically reviewing the financial statements of Synovus and the consolidated financial statements of Synovus and its subsidiaries; and (vii) considering such other matters with regard to the internal and independent audit of Synovus and its subsidiaries as, in its discretion, it deems to be necessary or desirable, periodically reporting to Synovus' Board as to the exercise of its duties and responsibilities and, where appropriate, recommending matters in connection with the audit function with respect to which Synovus' Board should consider taking action. During 1996, Synovus' Audit Committee held one meeting. Compensation Committee. The members of the Compensation Committee of Synovus' Board of Directors are: Gardiner W. Garrard, Jr., Chairman, and Mason H. Lampton. The primary functions engaged in by Synovus' Compensation Committee include: (i) evaluating the remuneration of senior management and board members of Synovus and its subsidiaries and the compensation and fringe benefit plans in which officers, employees and directors of Synovus and its subsidiaries are eligible to participate; and (ii) recommending to Synovus' Board whether or not it should modify, alter, amend, terminate or approve such remuneration, compensation or fringe benefit plans. During 1996, Synovus' Compensation Committee held five meetings. Executive Committee. The members of Synovus' Executive Committee are: William B. Turner, Chairman, James H. Blanchard, Gardiner W. Garrard, Jr., George C. Woodruff, Jr., James D. Yancey, John T. Oliver, Jr. and Richard Y. Bradley. During the intervals between meetings of Synovus' Board of Directors, Synovus' Executive Committee possesses and may exercise any and all the powers of Synovus' Board of Directors in the management and direction of the business and affairs of Synovus with respect to which specific direction has not been previously given by Synovus' Board of Directors. During 1996, Synovus' Executive Committee held three meetings. D. Executive Officers. The following table sets forth the name, age and position with Synovus of each present executive officer of Synovus.
Name Age Position with Synovus - ---------------------------- ------- ------------------------------------ James H. Blanchard 55 Chairman of the Board and Chief Executive Officer William B. Turner 74 Chairman of the Executive Committee John T. Oliver, Jr. 67 Vice Chairman of the Executive Committee James D. Yancey 55 Vice Chairman of the Board Richard E. Anthony 50 Vice Chairman of the Board Walter M. Deriso, Jr. 50 Vice Chairman of the Board Stephen L. Burts, Jr. 44 President G. Sanders Griffith, III 43 Senior Executive Vice President, General Counsel and Secretary Thomas J. Prescott 42 Executive Vice President and Chief Financial Officer Jay C. McClung 48 Executive Vice President, Credit Administration Calvin Smyre 49 Executive Vice President, Corporate Affairs
Synovus' executive officers serve at the pleasure of Synovus' Board of Directors. All of the executive officers of Synovus are members of Synovus' Board of Directors, except G. Sanders Griffith, III, Thomas J. Prescott, Jay C. McClung and Calvin Smyre. 9 G. Sanders Griffith, III serves as Senior Executive Vice President, General Counsel and Secretary of Synovus, positions he has held since October, 1995. From 1988 until 1995, Mr. Griffith served in various capacities with Synovus, including Executive Vice President, General Counsel and Secretary. Thomas J. Prescott was elected Executive Vice President and Chief Financial Officer of Synovus in December, 1996. From 1987 until 1996, Mr. Prescott served in various capacities with Synovus, including Executive Vice President and Treasurer. Jay C. McClung was elected Executive Vice President of Synovus in January, 1995. From 1986 until 1995, Mr. McClung served in various capacities with Columbus Bank, including Senior Vice President. Calvin Smyre was elected Executive Vice President of Synovus in November, 1996. From 1976 until 1996, Mr. Smyre served in various capacities with Columbus Bank and/or Synovus, including Senior Vice President of Synovus. III. EXECUTIVE COMPENSATION (1) Summary Compensation Table. The following table summarizes the cash and noncash compensation for each of the last three fiscal years for the chief executive officer of Synovus and for the other four most highly compensated executive officers of Synovus.
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards -------------------------------------------------------- -------------------------------- Other Restricted Securities All Annual Stock Underlying Other Name and Compen- Award(s) Options/ Compen- Principal Position Year Salary Bonus sation SARs sation - --------------------- ------ ------------- ------------ ------------- ------------- ------------ ------------ James H. Blanchard 1996 $589,375 $442,031 $2,000 $350,622 130,987 $322,527 Chairman of the 1995 475,000 356,250 2,000 454,664 79,844 240,351 Board and Chief 1994 337,650 253,238 2,000 146,246 38,151 146,943 Executive Officer James D. Yancey 1996 410,000 266,500 2,000 375,367 52,063 264,256 Vice Chairman 1995 345,000 224,250 2,000 263,579 46,286 201,192 of the Board 1994 273,310 177,652 2,000 94,254 24,588 133,817 Stephen L. Burts, Jr. 1996 328,000 196,800 2,000 231,008 32,039 130,106 President and Chief 1995 272,500 168,500 1,833 162,206 28,484 110,172 Financial Officer 1994 208,050 129,830 -0- 56,252 14,675 61,360 Joe E. Beverly 1996 281,875 169,125 2,000 238,211 33,040 148,261 Vice Chairman 1995 257,500 154,500 2,000 167,254 29,373 125,699 of the Board 1994 234,660 140,796 2,000 72,002 18,783 95,406 Richard E. Anthony 1996 267,625 159,500 2,000 187,684 26,032 101,004 Vice Chairman of the 1995 -- -- -- -- -- -- Board 1994 -- -- -- -- -- -- - --------------------- Amount for 1996 includes matching contributions under the Director Stock Purchase Plan of $2,000 each for Messrs. Blanchard, Yancey, Beverly, Burts and Anthony. Perquisites and other personal benefits are excluded because the aggregate amount does not exceed the lesser of $50,000 or 10% of annual salary and bonus for the named executives. 10 Amount consists of value of award, net of consideration paid by the executive. As of December 31, 1996, Messrs. Blanchard, Yancey, Burts, Beverly and Anthony held 45,133, 34,615, 21,212, 22,602 and 17,786 restricted shares, respectively, with a value of $1,449,898, $1,112,007, $681,436, $726,089 and $571,375, respectively. On July 1, 1996, restricted stock was awarded in the amount of 16,210, 17,354, 10,680, 11,013 and 8,677 shares to Messrs. Blanchard, Yancey, Burts, Beverly and Anthony, respectively, with the following vesting schedule: 20% on July 1, 1997; 20% on July 1, 1998; 20% on July 1, 1999; 20% on July 1, 2000; and 20% on July 1, 2001. On September 5, 1995, restricted stock was awarded in the amount of 26,615, 15,429, 9,495, 9,791 and 7,715 shares to Messrs. Blanchard, Yancey, Burts, Beverly and Anthony, respectively, with the following vesting schedule: 20% on September 4, 1996; 20% on September 4, 1997; 20% on September 4, 1998; 20% on September 4, 1999; and 20% on September 4, 2000. On June 29, 1994, restricted stock was awarded in the amount of 12,717, 8,196, 4,892, 6,261 and 4,892 shares to Messrs. Blanchard, Yancey, Burts, Beverly and Anthony, respectively, with the following vesting schedule: 20% on June 28, 1995; 20% on June 28, 1996; 20% on June 28, 1997; 20% on June 1998; and 20% on June 28, 1999. Dividends are paid on all restricted shares. The 1996 amount includes director fees of $56,700, $57,900, $29,000, $43,600 and $20,600 for Messrs. Blanchard, Yancey, Burts, Beverly and Anthony, respectively, in connection with their service as directors of Synovus and certain of its subsidiaries; contributions or other allocations to defined contribution plans of $28,932 for each executive; allocations pursuant to defined contribution excess benefit agreements of $184,532, $129,192, $65,869, $55,236 and $50,752 for each of Messrs. Blanchard, Yancey, Burts, Beverly and Anthony, respectively; premiums paid for group term life insurance coverage of $720 for each executive; the economic benefit of life insurance coverage related to split-dollar life insurance policies of $1,339, $846, $39 and $529 for each of Messrs. Blanchard, Yancey, Burts and Beverly, respectively; and the dollar value of the benefit of premiums paid for split-dollar life insurance policies (unrelated to term life insurance coverage) projected on an actuarial basis of $50,304, $46,666, $5,546 and $19,244 for each of Messrs. Blanchard, Yancey, Burts and Beverly, respectively. Disclosure is not required for 1995 and 1994.
(2) Stock Option Exercises and Grants. The following tables provide certain information regarding stock options granted and exercised in the last fiscal year and the number and value of unexercised options at the end of the fiscal year.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR Individual Grants - ----------------------------------------------------------------------------------------- % of Total Potential Options/ Realized Value at SARs Exercise Assumed Annual Rates of Options/ Granted to or Stock Price Appreciation SARs Employees Base For Option Term Granted in Fiscal Price Expiration --------------------- Name (#) Year ($/Share) Date 5%($) 10% ($) - ------------------------------ ------------ -------------- -------------- --------------- ---------- --------- James H. Blanchard 130,987 10.26% $21.63 06/30/04 $1,353,096 $3,240,618 James D. Yancey 52,063 4.08% 21.63 06/30/04 537,811 1,288,039 Stephen L. Burts, Jr. 32,039 2.51% 21.63 06/30/04 330,963 792,645 Joe E. Beverly 33,040 2.59% 21.63 06/30/04 341,303 817,410 Richard E. Anthony 26,032 2.04% 21.63 06/30/04 268,911 644,032 - ----------- Options granted on July 1, 1996 at fair market value to executives in tandem with restricted stock awards as part of the Synovus 1994 Long-Term Incentive Plan. Options become exercisable on July 1, 1998. 11 The dollar gains under these columns result from calculations using the identified growth rates and are not intended to forecast future price appreciation of Synovus Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($) Acquired on Realized -------------------------- ------------------------------- Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------ ------------ --------- --------------------------- ------------------------------- James H. Blanchard -0- -0- 38,151 / 210,831 $786,864 / $2,728,464 James D. Yancey -0- -0- 24,588 / 98,349 507,128 / 1,331,180 Stephen L. Burts, Jr. -0- -0- 24,800 / 60,523 590,635 / 819,196 Joe E. Beverly -0- -0- 18,783 / 62,413 387,399 / 844,774 Richard E. Anthony -0- -0- 14,675 / 82,926 302,672 / 1,407,269 - ---------- Market value of underlying securities at exercise or year-end, minus the exercise or base price.
(3) Compensation of Directors. Compensation. During 1996, each of Synovus' directors received a $15,000 annual retainer, and fees of $800 for each meeting of Synovus' Board of Directors and each Executive Committee meeting they personally attended. Members of the Committees of Synovus' Board of Directors (other than the Executive Committee) received fees of $500, with the Chairmen of such Committees receiving fees of $750, for each Committee meeting they personally attended. In addition, directors of Synovus received an $800 fee for each board meeting from which their absence was excused and an $800 fee for one meeting without regard to the reason for their absence. Director Stock Purchase Plan. Synovus' Director Stock Purchase Plan ("DSPP") is a non-tax-qualified, contributory stock purchase plan pursuant to which qualifying directors can purchase, with the assistance of contributions from Synovus, presently issued and outstanding shares of Synovus Common Stock. Under the terms of the DSPP, qualifying directors can elect to contribute up to $1,000 per calendar quarter to make purchases of Synovus Common Stock, and Synovus contributes an additional amount equal to 50% of the director's cash contribution. Participants in the DSPP are fully vested in, and may request the issuance to them of, all shares of Synovus Common Stock purchased for their benefit thereunder. Consulting Agreement. H. Lynn Page, a director and the former Vice Chairman of the Board of Synovus, and Synovus are parties to a Consulting Agreement pursuant to which Mr. Page was paid $24,000 by Synovus during 1996 for providing consulting and advisory services to Synovus in connection with portfolio management and potential opportunities for business expansion. (4) Employment Contracts and Change in Control Arrangements. Blanchard Employment Agreement. On October 13, 1977, Synovus entered into an Employment Agreement with James H. Blanchard ("Blanchard"), Chairman of the Board of Synovus, whereunder Synovus paid Blanchard a salary of $589,375 during 1996. The base salary paid to Blanchard is determined by the Compensation Committee of the Board of Directors of Synovus on an annual basis. The Blanchard Employment Agreement provides that Synovus shall pay deferred compensation of $468,000 to Blanchard or his beneficiaries over a 10 to 15 year period in the event of Blanchard's death, total disability or termination of employment, subject to certain conditions of forfeiture in the 12 event Synovus terminates Blanchard's employment "for cause" (as defined), in the event of his violation of his 2-year Covenant Not to Compete, or in the event of his death by suicide. The Blanchard Employment Agreement is automatically renewable annually and is subject to termination on 30 days written notice. Yancey Employment Agreement. On December 8, 1977, effective January 1, 1977, Synovus entered into an Employment Agreement with James D. Yancey ("Yancey"), Vice Chairman of the Board of Synovus and Columbus Bank, whereunder Synovus paid Yancey a salary of $410,000 during 1996. The base salary paid to Yancey is determined by the Compensation Committee of the Board of Directors of Synovus on an annual basis. The Yancey Employment Agreement provides that Synovus shall pay deferred compensation of $375,000 to Yancey or his beneficiaries over a 10 to 15 year period in the event of the death, total disability or termination of employment of Yancey, subject to certain conditions of forfeiture in the event Synovus terminates Yancey's employment "for cause" (as defined), in the event of his violation of his 2-year Covenant Not to Compete, or in the event of his death by suicide. The Yancey Employment Agreement is automatically renewable annually and is subject to termination on 30 days written notice. Beverly Employment Agreement. On January 15, 1979, Synovus entered into an Employment Agreement with Joe E. Beverly ("Beverly"), Vice Chairman of the Board of Synovus, whereunder Beverly was paid a salary of $281,875 during 1996. The base salary paid to Beverly is determined by the Compensation Committee of the Board of Directors of Synovus on an annual basis. The Beverly Employment Agreement provides that Synovus shall pay deferred compensation of $375,000 to Beverly or his beneficiaries over a 10 to 15 year period in the event of Beverly's death, total disability or termination of employment, subject to certain conditions of forfeiture in the event Synovus terminates Beverly's employment "for cause" (as defined), in the event of his violation of his 2-year Covenant Not to Compete, or in the event of his death by suicide. The Beverly Employment Agreement was terminated effective December 31, 1996 in connection with Mr. Beverly's retirement as Vice Chairman of Synovus. Under a consulting arrangement between Synovus and Mr. Beverly, Mr. Beverly will be paid $24,000 annually for a five year period beginning in 1997 for providing consulting and advisory services to Synovus. Anthony Employment Agreement. On December 31, 1992, Synovus entered into an Employment Agreement with Richard E. Anthony ("Anthony"), Vice Chairman of the Board of Synovus, whereunder Anthony was paid a salary of $267,625 during 1996. The base salary paid to Anthony is determined by the Compensation Committee of the Board of Directors of Synovus on an annual basis. The Anthony Employment Agreement is for a five year term. Long-Term Incentive Plans. Messrs. Blanchard, Yancey, Burts, Beverly and Anthony each hold shares of restricted stock of Synovus and options to purchase stock of Synovus which were issued pursuant to the Synovus Financial Corp. 1992 and 1994 Long-Term Incentive Plans. Under the terms of the Synovus Financial Corp. 1992 and 1994 Long-Term Incentive Plans, in the event of a change in control of Synovus, the vesting of any stock options, stock appreciation and other similar rights, restricted stock and performance awards will be accelerated so that all awards not previously exercisable and vested will become fully exercisable and vested. Change of Control Agreements. Effective January 1, 1996, Synovus entered into Change of Control Agreements ("Agreements") with Messrs. Blanchard, Yancey, Burts, Beverly and Anthony and certain other executive officers. The Change of Control Agreements provide severance pay and continuation of certain benefits in the event of a Change of Control. In order to receive benefits under the Agreements, the executive's employment must be terminated involuntarily, without cause, whether actual or "constructive" within one year following a Change of Control or the executive may voluntarily or involuntarily terminate employment during the thirteenth month following a Change of Control. Generally, a "Change of Control" is deemed to occur in any of the following circumstances: (1) the acquisition by any person of 20% or more of the "beneficial ownership" of Synovus' 13 outstanding voting stock, with certain exceptions for Turner family members; (2) the persons serving as directors of Synovus as of January 1, 1996 and those replacements or additions subsequently approved by a two-thirds (2/3) vote of the Board ceasing to comprise at least two-thirds (2/3) of the Board; (3) a merger, consolidation, reorganization or sale of Synovus' assets unless (a) the previous beneficial owners of Synovus own more than two-thirds (2/3) of the new company, (b) no person owns more than 20% of the new company, and (c) two-thirds (2/3) of the new company's Board were members of the incumbent Board which approved the business combination; or (4) a "triggering event" occurs as defined in the Synovus Rights Agreement. Under the Agreements, severance pay would equal three times current base salary and bonus, with bonus being defined as the average of the previous three years measured as a percentage of base salary multiplied by current base salary. Medical, life, disability and other welfare benefits will be provided at the expense of Synovus for three years with the level of coverage being determined by the amount elected by the executive during the open enrollment period immediately preceding the Change of Control. Executives would also receive a short-year bonus for the year of separation based on the greater of a half year's maximum bonus or pro rata maximum bonus to the date of termination and a cash amount in lieu of a long-term incentive award for the year of separation. If the executive has already received a long-term incentive award in the separation year, the amount would equal 1.5 times the market grant and if the executive has not, the amount would equal 2.5 times the market grant. Executives who are impacted by the Internal Revenue Service excise tax that applies to certain change of control agreements would receive additional gross up payments so that they are in the same position as if there were no excise tax. The Agreements do not provide for retirement benefits or perquisites. Notwithstanding anything to the contrary set forth in any of Synovus' previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Performance Graph and Compensation Committee Report on Executive Compensation shall not be incorporated by reference into any such filings. (5) Stock Performance Graph. The following graph compares the yearly percentage change in cumulative shareholder return on Synovus Common Stock with the cumulative total return of the Standard & Poor's 500 Index and the Keefe, Bruyette & Woods 50 Bank Index for the last five fiscal years (assuming a $100 investment on December 31, 1991 and reinvestment of all dividends). 14 [Omitted Stock Performance Graph is represented by the following table.]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN SYNOVUS FINANCIAL CORP., S&P 500 AND KBW 50 BANK INDEX 1991 1992 1993 1994 1995 1996 Synovus $100 $131 $162 $161 $260 $447 S&P 500 $100 $108 $118 $120 $165 $203 KBW 50 $100 $128 $135 $128 $205 $288
(6) Compensation Committee Report on Executive Compensation. The Compensation Committee (the "Committee") of the Board of Directors of Synovus is responsible for evaluating the remuneration of senior management and board members of Synovus and its subsidiaries and the compensation and fringe benefit plans in which officers, employees and directors of Synovus and its subsidiaries are eligible to participate. Because Synovus' mission is to create superior shareholder value by retaining and attracting well-trained and highly-motivated people who deliver the very best quality customer service, the Committee's executive compensation policies are designed to attract and retain highly-motivated and well-trained executives in order to create superior shareholder value. Elements of Executive Compensation. The four elements of executive compensation at Synovus are: o Base Salary o Annual Bonus o Long-Term Incentives o Other Benefits The Committee believes that a substantial portion, though not a majority, of an executive's compensation should be "at-risk" based upon Synovus' short-term performance (through the annual bonus and the Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan) and long-term performance (through long-term incentives including stock options and restricted stock awards). The remainder of each executive's compensation is primarily based upon the competitive practices of a select group of approximately 18 banks that had similar "market value added" as Synovus during the previous ten years ("similar companies"). "Market value added," or 15 "MVA," as used by the Committee in this context, equals stock price increase during the ten-year period, plus dividends for the ten-year period, minus increases to paid-in capital during such period. This subtraction eliminates value added through acquisitions. The Committee believes the MVA approach accurately reflects Synovus' competitors and represents the most appropriate market data for the compensation of Synovus executives. The companies used for comparison under the "MVA" approach are not the same companies included in the peer group index appearing in the Stock Performance Graph above. A description of each element of executive compensation and the factors and criteria used by the Committee in determining these elements is discussed below: Base Salary. Base salary is an executive's annual rate of pay without regard to any other elements of compensation. The primary consideration in determining an executive's base salary is a market comparison of the base salaries at similar companies for similar positions based upon the executive's level of responsibility and experience. Base salaries are targeted at the median level of the similar companies used in the comparison. In addition to market comparisons, individual performance (measured by the quality of Synovus' strategic plan, the executive's management responsibilities and development, and the executive's industry and civic involvement) is also considered in determining an executive's base salary, although these factors do not weigh heavily in determining base salary. Based solely upon market comparisons, the Committee increased Mr. Blanchard's base salary in 1996. The Committee also increased the base salaries of Synovus' other executive officers in 1996 based solely upon market comparisons. Annual Bonus. Annual bonuses are awarded pursuant to the terms of Synovus' Executive Bonus Plan and Synovus' Incentive Bonus Plan (collectively the "plans"). The Committee has the discretion from year-to-year to select participants in the Executive Bonus Plan, which was approved by the shareholders of Synovus in 1996. For 1996, the Committee selected Mr. Blanchard and Mr. Yancey to participate in the Executive Bonus Plan, while the Committee selected Messrs. Burts, Beverly and Anthony to participate in the Incentive Bonus Plan. Under the terms of the plans, bonus amounts are paid as a percentage of base pay based on the achievement of previously established performance goals. The performance measures for such goals may be chosen by the Committee from among the following for Synovus, any of its business segments and/or any of its business units: (i) return on assets; (ii) net income; (iii) operating income; (iv) nonperforming assets and/or loans as a percentage of total assets and/or loans; (v) return on capital compared to cost of capital; (vi) earnings per share and/or earnings per share growth; (vii) return on equity; (viii) noninterest expense as a percentage of total expense; (ix) loan charge-offs as a percentage of total loans; (x) productivity and expense control; (xi) number of cardholder, merchant and/or other customer accounts processed and/or converted by TSYS; (xii) successful negotiation or renewal of contracts with new and/or existing customers by TSYS; (xiii) stock price; and (xiv) asset growth. For Mr. Blanchard and Synovus' other executive officers, the Committee established a payout matrix based upon the attainment of net income targets during 1996. Synovus' financial performance and individual performance, separate from the performance goals established at the beginning of the year, can reduce bonus awards determined by the attainment of the established goals, although this was not the case for any of Synovus' executive officers. The maximum percentage payouts under the plans for 1996 were 75% for Mr. Blanchard, 65% for Mr. Yancey and 60% for Messrs. Burts, Beverly and Anthony. Because the maximum net income target for 1996 under the plans was exceeded and the overall financial results of Synovus were favorable, Mr. Blanchard and Synovus' other executive officers were awarded the maximum bonus amount for which each executive was eligible under the plans. Long-Term Incentives. The two types of long-term incentives awarded to executives to date are stock options and restricted stock awards. Restricted stock awards are designed to focus executives on the long-term performance of Synovus. Stock options provide executives with the opportunity to buy and maintain an equity interest in Synovus and to share in the appreciation of the value of Synovus Common Stock. Executives are encouraged to hold the shares received upon the lapse of 16 restrictions on restricted stock awards and upon the exercise of stock options, linking their interests to those of Synovus' shareholders. In 1994, the Committee established a payout matrix for future long-term incentive grants that uses total shareholder return as measured by Synovus' performance (stock price increases plus dividends) and how Synovus' total shareholder return compares to the return of the peer group of companies appearing in the Stock Performance Graph above. For the long-term incentive awards made in 1996, total shareholder return and peer comparisons were measured during the 1993 through 1995 performance period. Applying the results of the 1993 through 1995 performance period to the payout matrix, the Committee granted Mr. Blanchard and Synovus' other executive officers restricted stock awards and stock options in 1996. Benefits. Benefits offered to executives serve a different purpose than the other elements of total compensation. In general, these benefits provide either retirement income or protection against catastrophic events such as illness, disability and death. Executives generally receive the same benefits offered to the general employee population, with the only exceptions designed to promote tax efficiency or to replace other benefits lost due to regulatory limits. The Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan, including an excess benefit arrangement designed to replace benefits lost due to regulatory limits (collectively the "Plan"), is the largest component of Synovus' benefits package for executives. The Plan is directly related to corporate performance because the amount of contributions to the Plan (to a maximum of 14% of an executive's compensation) is a function of Synovus' profitability. For 1996, Mr. Blanchard and Synovus' other executive officers received a Plan contribution of 12% of their compensation based upon the profitability formula under the Plan. The remaining benefits provided to executives are primarily based upon the competitive practices of similar companies. In 1993, the Internal Revenue Code of 1986, as amended (the "Code"), was amended to limit the deductibility for federal income tax purposes of annual compensation paid by a publicly held corporation to its chief executive officer and four other highest paid executives for amounts greater than $1 million unless certain conditions are met. Because the Committee seeks to maximize shareholder value, the Committee has taken steps to ensure the deductibility of compensation in excess of $1 million. For 1996, Messrs. Blanchard and Yancey would have been affected by this provision but for the steps taken by the Committee. However, the Committee reserves the ability to make awards which do not qualify for full deductibility under Section 162(m) of the Code if the Committee determines that the benefits of so doing outweigh full deductibility. The Committee believes that the executive compensation policies serve the best interests of the shareholders and of Synovus. A substantial portion of the compensation of Synovus' executives is directly related to and commensurate with Synovus' performance. The Committee believes that the performance of Synovus to date validates the Committee's compensation philosophy. Gardiner W. Garrard, Jr. Mason H. Lampton (7) Compensation Committee Interlocks and Insider Participation. William B. Turner, Gardiner W. Garrard, Jr., George C. Woodruff, Jr. and Mason H. Lampton served as members of Synovus' Compensation Committee during 1996. Messrs. Garrard, Woodruff and Lampton are not current or former officers or employees of Synovus or its subsidiaries. Mr. Turner is Chairman of the Executive Committee of Synovus and Columbus Bank, a director of TSYS and, during 1996, was Chairman of the Executive Committee of W.C. Bradley Co. James H. Blanchard, Chairman of the Board of Synovus and Chairman of the Executive Committee of TSYS, serves as a director of Columbus Bank and W.C. Bradley Co. James D. Yancey is Vice Chairman of the Board of Synovus and Columbus Bank and is a director of TSYS. During 1996, Synovus and its subsidiaries, including Columbus Bank, paid to W.C. Bradley Co. an aggregate of $17,395, which 17 payments were primarily for printing services and marketing materials provided by W.C. Bradley Co. These payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties. Synovus' wholly owned subsidiary, Synovus Service Corp., and TSYS lease various properties in Columbus, Georgia, from W.C. Bradley Co. for office space and storage. The rent paid for the space in 1996 by Synovus Service Corp., which is approximately 35,400 square feet, is approximately $83,230. The rent paid for the space in 1996 by TSYS, which is approximately 71,915 square feet, is approximately $688,403. The lease agreements were made on substantially the same terms as those prevailing at the time for comparable leases for similar facilities with an unrelated third party in Columbus, Georgia. Columbus Bank and W.C. Bradley Co. are equal partners in B&C Company, a Georgia general partnership formed to acquire, own and operate aircraft for their mutual benefit and the benefit of their affiliated corporations and their employees. Columbus Bank and W.C. Bradley Co. have each agreed to remit to B&C Company fixed fees for each hour they fly the aircraft owned and/or leased by B&C Company, plus certain other amounts for engine startup and reserves and other items, and have agreed to fly such aircraft for a fixed number of hours each per year. For use of such aircraft during 1996, Columbus Bank paid to B&C Company an aggregate sum of $1,394,014. This amount represents the charges incurred by Columbus Bank and its affiliated corporations for use of B&C Company aircraft, and includes $600,953 for TSYS' use of such aircraft, for which Columbus Bank was reimbursed by TSYS. CGK Investment Company is a Georgia general partnership formed by: (1) Grove Investment Co., a family partnership comprised of William B. Turner and certain of his descendants; (2) Kidoga Investment Company, a family partnership comprised of Sarah T. Butler (the sister of William B. Turner) and certain of her descendants; and (3) Cornfield Investment Company, a family partnership comprised of Elizabeth T. Corn (the sister of William B. Turner) and certain of her descendants. During 1996, Columbus Bank purchased 4.03 acres of land in Columbus, Georgia from CGK Investment Company for $953,000 on which it is constructing a residential lending facility. The purchase price represents the fair market value of the property as determined by independent appraisers. TB&C Bancshares, Inc. is a principal shareholder of Synovus. TB&C Bancshares, Inc. is a "family bank holding company" organized by William B. Turner, and his sisters, Sarah T. Butler and Elizabeth T. Corn. TB&C Bancshares, Inc. is a party to a lease agreement pursuant to which it leases voting and certain other rights in a total of 5,916,378 shares of Synovus Common Stock held in trust by Synovus Trust Company, a subsidiary of Columbus Bank, as Trustee of three trusts for the benefit of Mr. Turner, Mrs. Butler and Mrs. Corn and their respective descendants. During 1996, TB&C Bancshares, Inc. paid Synovus Trust Company, as Trustee, $523,008 pursuant to the terms of the lease agreement, which amount represents the fair market value of the voting rights as determined by an independent appraiser. William B. Turner, Chairman of the Executive Committee of Synovus and Columbus Bank and a director of TSYS, was an officer, director and shareholder of W.C. Bradley Co. during 1996 and is an officer, director and shareholder of TB&C Bancshares, Inc. James H. Blanchard, Chairman of the Board of Synovus, Chairman of the Executive Committee of TSYS and a director of Columbus Bank, is a director of W.C. Bradley Co. Elizabeth C. Ogie, the niece of William B. Turner, is a director of W.C. Bradley Co., Columbus Bank and Synovus and is an officer, director and shareholder of TB&C Bancshares, Inc. W. Walter Miller, Jr., the brother-in-law of Elizabeth C. Ogie, is a director of W.C. Bradley Co. and Senior Vice President and a director of TSYS. Stephen T. Butler, the nephew of William B. Turner, is an officer and director of W.C. Bradley Co., an officer, director and shareholder of TB&C Bancshares, Inc. and is a director of Columbus Bank. Samuel M. Wellborn, III, Chairman of the Board of Columbus Bank, is a director of W.C. Bradley Co. W.B. Turner, Jr., the son of William B. Turner, is an officer and director of W. C. Bradley Co., an officer, director and shareholder of TB&C Bancshares, Inc. and a director of Columbus Bank. John T. 18 Turner, the son of William B. Turner, is an officer and director of W.C. Bradley Co., a shareholder of TB&C Bancshares, Inc. and a director of Columbus Bank. Sarah T. Butler and Elizabeth T. Corn, the sisters of William B. Turner, are shareholders of W.C. Bradley Co., are officers, directors and shareholders of TB&C Bancshares, Inc. and may be deemed to be principal shareholders of Synovus as a result of their relationship with TB&C Bancshares, Inc. Gardiner W. Garrard, Jr. is President of The Jordan Company. TSYS leases from The Jordan Company approximately 10,000 square feet of office space in Columbus, Georgia for $5,900 per month, which lease expires on September 30, 1999. The lease was made on substantially the same terms as those prevailing at the time for leases of comparable property between unrelated third parties. During 1996, The Jordan Company received payments from a third party lessor of $116,440 in connection with its representation of TSYS as leasing agent in securing office space in Atlanta, Georgia. The payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties. Gardiner W. Garrard, Jr., a director of TSYS, Columbus Bank and Synovus, is an officer, director and shareholder of The Jordan Company. Richard M. Olnick, the brother-in-law of Gardiner W. Garrard, Jr. and a director of Columbus Bank, is an officer, director and shareholder of The Jordan Company. George C. Woodruff, Jr. is a shareholder of George C. Woodruff Co. During 1996, George C. Woodruff Co. received payments of $4,019, $39,157 and $39,087 in connection with office space leased by, and landscaping services provided for, Synovus, Columbus Bank and TSYS, respectively. These payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties. George C. Woodruff, Jr. is a director of Synovus, Columbus Bank and TSYS. (8) Transactions with Management. During 1996, the subsidiary banks of Synovus had outstanding loans directly to or indirectly accruing to the benefit of certain of the then directors and executive officers of Synovus, and their related interests. These loans were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. In the opinion of Synovus' management, such loans do not involve more than normal risks of collectibility or present other unfavorable features. In the future, the subsidiary banks of Synovus expect to have banking transactions in the ordinary course of business with Synovus' directors, executive officers and their related interests. During 1996, Synovus and its wholly owned subsidiaries and TSYS paid to Communicorp, Inc. an aggregate of $487,081 and $504,389, respectively. These payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties, and were primarily for various printing and business communication services provided by Communicorp, Inc. to Synovus and its wholly owned subsidiaries and TSYS. Communicorp, Inc. is a wholly owned subsidiary of AFLAC Incorporated. Daniel P. Amos, a director of Synovus and Columbus Bank, is Chief Executive Officer and a director of AFLAC Incorporated. Bradley & Hatcher, a law firm located in Columbus, Georgia, performed legal services on behalf of Synovus Trust Company during 1996 and was retained by TSYS in 1996 to perform legal services on its behalf. Richard Y. Bradley, a director of Synovus, Columbus Bank and TSYS, is a partner of Bradley & Hatcher. For information about transactions with companies that are affiliates of William B. Turner, Gardiner W. Garrard, Jr. and George C. Woodruff, Jr., directors of Synovus, See Section III (7) hereof captioned "Compensation Committee Interlocks and Insider Participation." 19 IV. PRINCIPAL SHAREHOLDERS The following table sets forth the number of shares of Synovus Common Stock held by the only known holders of more than 5% of the outstanding shares of Synovus Common Stock.
Percentage of Shares of Outstanding Shares of Synovus Common Stock Synovus Common Stock Name and Address of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ----------------------- ------------------------- --------------------------- Synovus Trust Company 16,259,195 13.97% 1148 Broadway Columbus, Georgia 31901 TB&C Bancshares, Inc. 12,353,139 10.62 1017 Front Avenue Columbus, Georgia 31901 William B. Turner 13,545,021 11.64 P.O. Box 120 Columbus, Georgia 31902 Sarah T. Butler 13,563,087 11.66 P.O. Box 120 Columbus, Georgia 31902 Elizabeth T. Corn 13,734,924 11.81 P.O. Box 120 Columbus, Georgia 31902 W.B. Turner, Jr. 13,516,173 11.62 P.O. Box 120 Columbus, Georgia 31902 Stephen T. Butler 13,532,736 11.63 P.O. Box 120 Columbus, Georgia 31902 Elizabeth C. Ogie 13,572,792 11.67 P.O. Box 120 Columbus, Georgia 31902 - ----------------------------------- As of December 31, 1996, the banking and trust company subsidiaries of Synovus, including Columbus Bank through its wholly owned subsidiary Synovus Trust Company ("Synovus Trust"), held in various fiduciary capacities a total of 16,662,012 shares of Synovus Common Stock as to which they possessed sole or shared voting or investment power. Of this total, Synovus Trust held 9,930,911 shares as to which it possessed sole investment power, 8,796,482 shares as to which it possessed sole voting power, 292,441 shares as to which it possessed shared voting power and 6,328,284 shares as to which it possessed shared investment power. The other banking subsidiaries of Synovus held 377,345 shares as to which they possessed sole voting or investment power and 25,472 shares as to which they possessed shared voting and investment power. In addition, as of December 31, 1996, Synovus Trust and the banking subsidiaries of Synovus held in various agency capacities an additional 9,981,359 shares of Synovus Common Stock as to which they possessed no voting or investment power. Of this additional amount as to which no voting or investment power was possessed, Synovus Trust and the banking subsidiaries of Synovus held 9,784,999 and 196,360 shares, respectively. Synovus and its subsidiaries disclaim beneficial ownership of all shares of Synovus Common Stock which are held by them in various fiduciary and agency capacities. 20 TB&C Bancshares, Inc. ("TB&C") is a "family bank holding company" organized by William B. Turner (the Chairman of Synovus' Executive Committee) and his sisters, Sarah T. Butler and Elizabeth T. Corn. The six directors of TB&C, Mr. Turner, Mmes. Butler and Corn, Elizabeth C. Ogie (the daughter of Mrs. Corn), Stephen T. Butler (the son of Mrs. Butler), and William B. Turner, Jr. (the son of Mr. Turner), are each construed to be the beneficial owners of the 12,353,139 shares of Synovus Common Stock beneficially owned by TB&C. As TB&C owns 10.62% of the outstanding shares of Synovus Common Stock, TB&C is registered as a bank holding company. To the best of Synovus' knowledge, the shares of Synovus Common Stock beneficially owned by TB&C qualify for ten votes per share, subject to the completion by TB&C of the Certification contained on the reverse side of its Proxy Card. Includes 6,436,761 shares of Synovus Common Stock individually owned by TB&C; 1,141,425 shares held by a charitable foundation of which each of the directors of TB&C is a trustee; in the case of Mrs. Corn and Mrs. Ogie, 52,869 shares of Synovus Common Stock held by a charitable foundation of which Mrs. Corn and Mrs. Ogie are trustees; and 5,916,378 shares of Synovus Common Stock benefically owned by TB&C pursuant to a lease agreement between TB&C and Synovus Trust as Trustee of three trusts for the benefit of Mr. Turner, Mrs. Butler and Mrs. Corn and their respective descendants. Pursuant to the agreement, TB&C leases from Synovus Trust as Trustee of such trusts voting and certain other rights with respect to the shares of Synovus Common Stock held in such trusts. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mr. Turner possessed sole voting and investment power with respect to 41,649 shares and shared voting or investment power with respect to 8,808 shares of Synovus Common Stock. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mrs. Butler possessed sole voting and investment power with respect to 29,080 shares and shared voting or investment power with respect to 39,443 shares of Synovus Common Stock. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mrs. Corn possessed sole voting and investment power with respect to 2,769 shares and shared voting or investment power with respect to 184,722 shares of Synovus Common Stock. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mr. Turner possessed sole voting and investment power with respect to 16,341 shares and shared voting or investment power with respect to 5,268 shares of Synovus Common Stock. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mr. Butler possesssed sole voting and investment power with respect to 35,974 shares and shared voting or investment power with respect to 2,198 shares of Synovus Common Stock. In addition to the shares of Synovus Common Stock described in footnote 3 above, Mrs. Ogie possessed sole voting and investment power with respect to 15,610 shares and shared voting or investment power with respect to 9,749 shares of Synovus Common Stock.
21 V. RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES A. Beneficial Ownership of TSYS Common Stock by Columbus Bank. The following table sets forth, as of December 31, 1996, the number of shares of TSYS Common Stock beneficially owned by Columbus Bank, the only known beneficial owner of more than 5% of the issued and outstanding shares of TSYS Common Stock.
Percentage of Shares of Outstanding Shares of TSYS Common Stock TSYS Common Stock Name and Address Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ----------------------- ------------------------ ------------------------ Columbus Bank and Trust Company 104,401,292 80.7% 1148 Broadway Columbus, Georgia 31901 - ----------------- Columbus Bank individually owns these shares. As of December 31, 1996, Synovus Trust held in various fiduciary capacities a total of 743,852 shares (.57%) of TSYS Common Stock. Of this total, Synovus Trust held 569,414 shares as to which it possessed sole voting power, 580,570 shares as to which it possessed sole investment power and 163,282 shares as to which it possessed shared voting and investment power. In addition, as of December 31, 1996, Synovus Trust held in various agency capacities an additional 1,291,408 shares of TSYS Common Stock as to which it possessed no voting or investment power. Synovus and Synovus Trust disclaim beneficial ownership of all shares of TSYS Common Stock which are held by Synovus Trust in various fiduciary and agency capacities.
Columbus Bank, by virtue of its ownership of 104,401,292 shares, or 80.7% of the outstanding shares of TSYS Common Stock on December 31, 1996, presently controls TSYS. Synovus presently controls Columbus Bank. B. Interlocking Directorates of Synovus, Columbus Bank and TSYS. Eight of the members of and nominees to serve on Synovus' Board of Directors also serve as members of the Boards of Directors of TSYS and Columbus Bank. They are James H. Blanchard, Richard Y. Bradley, Gardiner W. Garrard, Jr., John P. Illges, III, H. Lynn Page, William B. Turner, George C. Woodruff, Jr. and James D. Yancey. Daniel P. Amos and Elizabeth C. Ogie serve as members of the Board of Directors of Columbus Bank but do not serve as members of the Board of Directors of TSYS. Mason H. Lampton serves on the Board of Directors of TSYS and as an Advisory Director of Columbus Bank. C. TSYS Common Stock Ownership of Directors and Management. The following table sets forth, as of December 31, 1996, the number of shares of TSYS Common Stock beneficially owned by each of Synovus' directors and Synovus' five most highly compensated executive officers. 22
Shares of TSYS Shares of TSYS Percentage of Common Stock Common Stock Total Outstanding Beneficially Beneficially Shares Shares of Owned with Owned with of TSYS TSYS Common Sole Voting Shared Voting Common Stock Stock and Investment and Investment Beneficially Beneficially Power as of Power as of Owned as of Owned as of Name 12/31/96 12/31/96 12/31/96 12/31/96 - --------------------------- ------------------- --------------------- ------------------- ------------- Daniel P. Amos ----- 547,200 547,200 .42% Richard E. Anthony ----- ----- ----- --- Joe E. Beverly ----- ----- ----- --- James H. Blanchard 520,800 240,902 761,702 .59 Richard Y. Bradley 13,770 ----- 13,770 .01 Stephen L. Burts,Jr. ----- ----- ----- --- Walter M. Deriso, Jr. 2,512 2,512 5,024 .004 C. Edward Floyd, M.D. ----- ----- ----- --- Gardiner W. Garrard, Jr. 6,022 ----- 6,022 .005 V. Nathaniel Hansford ----- 1,000 1,000 .001 John P. Illges, III 122,294 ----- 122,294 .09 Mason H. Lampton 17,521 68,440 85,961 .07 Elizabeth C. Ogie 6,800 19,280 26,080 .02 John T. Oliver, Jr. ----- ----- ----- --- H. Lynn Page 421,589 63,764 485,353 .38 William L. Pherigo 1,000 ----- 1,000 .001 Robert V. Royall, Jr. 10,000 ----- 10,000 .01 William B. Turner 101,886 384,000 485,886 .38 George C. Woodruff, Jr. 76,092 ----- 76,092 .06 James D. Yancey 533,510 16,000 549,510 .43 - -------------- Includes 19,200 shares of TSYS Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. Includes 52,869 shares of TSYS Common Stock held by a charitable foundation of which Mrs. Ogie is a trustee.
The following table sets forth information, as of December 31, 1996, with respect to the beneficial ownership of TSYS Common Stock by all directors and executive officers of Synovus as a group.
Percentage of Shares of Outstanding Shares of TSYS Common Stock TSYS Common Stock Name of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ------------------------------ ----------------------- ---------------------- All directors and executive officers of Synovus as a group 3,192,380 2.47% (includes 24 persons)
23 D. Transactions and Agreements Between Synovus, Columbus Bank, TSYS and Certain of Synovus' Subsidiaries. During 1996, Columbus Bank and 29 of Synovus' other banking subsidiaries received bankcard data processing services from TSYS. The bankcard data processing agreement between Columbus Bank and TSYS can be terminated by Columbus Bank upon 60 days prior written notice to TSYS or terminated by TSYS upon 180 days prior written notice to Columbus Bank. During 1996, TSYS derived $1,809,847 in revenues from Columbus Bank and 29 of Synovus' other banking subsidiaries from the performance of bankcard data processing services and $128,411 in revenues from Synovus and its subsidiaries from the performance of other data processing services. TSYS' charges to Columbus Bank and Synovus' other subsidiaries for bankcard and other data processing services are comparable to, and are determined on the same basis as, charges by TSYS to similarly situated unrelated third parties. Synovus Service Corp. ("SSC"), a wholly owned subsidiary of Synovus, provides various services to Synovus' subsidiary companies, including TSYS. TSYS and SSC are parties to Lease Agreements pursuant to which SSC leased from TSYS office space for lease payments aggregating $107,449 during 1996, and TSYS leased from SSC office space for lease payments aggregating $34,472 during 1996. The terms of these transactions are comparable to those which could have been obtained in transactions with unaffiliated third parties. Synovus and TSYS and SSC and TSYS are parties to Management Agreements (having one year, automatically renewable, unless terminated, terms), pursuant to which Synovus and SSC provide certain management services to TSYS. During 1996, these services included human resource services, maintenance services, security services, communication services, corporate education services, travel services, investor relations services, corporate governance services, legal services, regulatory and statutory compliance services, executive management services performed on behalf of TSYS by certain of Synovus' officers and financial services. As compensation for management services provided during 1996, TSYS paid Synovus and SSC management fees of $1,079,706 and $8,583,648, respectively. Management fees are subject to future adjustments based upon charges at the time by unrelated third parties for comparable services. During 1996, Synovus Trust Company served as trustee of various employee benefit plans of TSYS. During 1996, TSYS paid Synovus Trust Company trustee's fees under these plans of $151,525. During 1996, Columbus Depot Equipment Company ("CDEC"), a wholly owned subsidiary of TSYS, and Columbus Bank and 25 of Synovus' other subsidiaries were parties to Lease Agreements pursuant to which Columbus Bank and 25 of Synovus' other subsidiaries leased from CDEC computer related equipment for bankcard and bank data processing services for lease payments aggregating $152,262. During 1996, CDEC sold Columbus Bank and certain of Synovus' other subsidiaries computer related equipment for bankcard and bank data processing services for payments aggregating $23,073. In addition, CDEC was paid $15,375 by Columbus Bank and certain of Synovus' other subsidiaries for monitoring such equipment. The terms, conditions, rental rates and/or sales prices provided for in these Agreements are comparable to corresponding terms, conditions and rates provided for in leases and sales of similar equipment offered by unrelated third parties. During 1996, Synovus Data Corp., a wholly owned subsidiary of Synovus, paid TSYS $303,554 for data links, network services and other miscellaneous items related to the data processing services which Synovus Data Corp. provides to its customers, which amount was reimbursed to Synovus Data Corp. by its customers. During 1996, Synovus Data Corp. paid TSYS $31,825 primarily for computer processing services. During 1996, TSYS and Synovus Data Corp. were parties to a Lease Agreement pursuant to which TSYS leased from Synovus Data Corp. portions of its office building for lease 24 payments aggregating $240,000. The charges for processing and other services, and the terms of the Lease Agreement, are comparable to those between unrelated third parties. During 1996, TSYS and Columbus Bank were parties to Lease Agreements pursuant to which Columbus Bank leased from TSYS portions of its maintenance and warehouse facilities for lease payments aggregating $11,628. During 1996, TSYS and Columbus Bank were also parties to a Lease Agreement pursuant to which TSYS leased office space from Columbus Bank for lease payments of $4,483 per month. The terms, conditions and rental rates provided for in these Lease Agreements are comparable to corresponding terms, conditions and rates provided for in leases of similar facilities offered by unrelated third parties in the Columbus, Georgia area. During 1996, Synovus, Columbus Bank and other Synovus subsidiaries paid to Columbus Productions, Inc. and Lincoln Marketing, Inc., wholly owned subsidiaries of TSYS, an aggregate of $753,065 for printing and correspondence services. The charges for these services are comparable to those between unrelated third parties. During 1996, TSYS purchased 35,349 shares of Synovus Common Stock from Synovus for $764,422 and simultaneously granted the shares to certain executive officers of TSYS as restricted stock awards. The per share purchase price of such shares was equal to the fair market value of a share of Synovus Common Stock on the date of purchase. During 1996, TSYS and its subsidiaries were paid $1,392,543 of interest by Columbus Bank in connection with deposit accounts with, and commercial paper purchased from, Columbus Bank. These interest rates are comparable to those in transactions between unrelated third parties. TSYS has entered into an agreement with Columbus Bank with respect to the use of aircraft owned or leased by B&C Company, a Georgia general partnership in which Columbus Bank and W.C. Bradley Co. are equal partners. TSYS paid Columbus Bank $600,953 for its use of the B&C Company aircraft during 1996. The charges payable by TSYS to Columbus Bank in connection with its use of this aircraft approximate charges available to unrelated third parties in the State of Georgia for use of comparable aircraft for commercial purposes. VI. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires Synovus' officers and directors, and persons who own more than ten percent of Synovus Common Stock, to file reports of ownership and changes in ownership on Forms 3,4 and 5 with the SEC and the New York Stock Exchange. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish Synovus with copies of all Section 16(a) forms they file. To Synovus' knowledge, based solely on its review of the copies of such forms received by it, and written representations from certain reporting persons that no Forms 5 were required for those persons, Synovus believes that during the fiscal year ended December 31, 1996 all Section 16(a) filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with, except that Dr. Floyd filed one amended Form 4 reporting one transaction late; Mr. Royall filed three amended Forms 4 reporting three transactions late, and filed one amended Form 3 to correctly report the amount of shares of Synovus Common Stock held in his ESOP account; Mr. Garrard filed a Form 5 reporting eight transactions late and one amended Form 4 reporting three transactions late; Mr. Pherigo filed one amended Form 4 reporting one transaction late; Mr. Smyre filed one amended Form 3 to correctly report derivative securities benefically owned by him; Mr. Blanchard reported three transactions late on a Form 5; and Mr. Woodruff reported three transactions late on a Form 5. 25 VII. INDEPENDENT AUDITORS On February 28, 1997, Synovus' Board of Directors appointed KPMG Peat Marwick LLP, Certified Public Accountants, as the independent auditors to audit the consolidated financial statements of Synovus and its subsidiaries for the fiscal year ending December 31, 1997. The Board of Directors knows of no direct or material indirect financial interest by KPMG Peat Marwick LLP in Synovus or any of its subsidiaries, or of any connection between KPMG Peat Marwick LLP and Synovus or any of its subsidiaries, in any capacity as promoter, underwriter, voting trustee, director, officer, shareholder or employee. Representatives of KPMG Peat Marwick LLP, Certified Public Accountants, will be present at Synovus' 1997 Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. VIII. FINANCIAL INFORMATION WITH REFERENCE TO SYNOVUS AND ITS SUBSIDIARIES CONTAINED IN SYNOVUS' 1996 ANNUAL REPORT Detailed financial information for Synovus and its subsidiaries for their 1996 fiscal year is included in Synovus' 1996 Annual Report that is being mailed to Synovus' shareholders together with this Proxy Statement. IX. OTHER MATTERS As of the time of the preparation of this Proxy Statement, Synovus' Board of Directors has not been informed of any matters to be presented by or on behalf of Synovus' Board of Directors or its management for action at Synovus' 1997 Annual Meeting which are not referred to herein. If any other matters come before the Annual Meeting or any adjournment thereof, it is the intention of the persons named in the accompanying Proxy to vote thereon in accordance with their best judgment. Synovus' shareholders are urged to vote, date and sign the enclosed Proxy solicited on behalf of Synovus' Board of Directors and return it at once in the envelope which is enclosed for that purpose. This should be done whether or not the shareholder plans to attend Synovus' 1997 Annual Meeting. By Order of the Board of Directors /s/James H. Blanchard JAMES H. BLANCHARD Chairman of the Board, Synovus Financial Corp. Columbus, Georgia March 7, 1997 26 EX-21.1 7 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF SYNOVUS FINANCIAL CORP.
Georgia Corporations Stock Ownership - -------------------------------------------------------------------------------- Columbus Bank and Trust Company 100% Commercial Bank 100% Commercial Bank and Trust Company of Troup County 100% Security Bank and Trust Company of Albany 100% Sumter Bank and Trust Company 100% The Coastal Bank of Georgia 100% First State Bank and Trust Company of Valdosta 100% Bank of Hazlehurst 100% Synovus Securities, Inc. 100% The Cohutta Banking Company 100% Bank of Coweta 100% Citizens Bank and Trust of West Georgia 100% First Community Bank of Tifton 100% Synovus Data Corp. 100% CB&T Bank of Middle Georgia 100% Sea Island Bank 100% 1 Citizens First Bank 100% The Citizens Bank 100% The Citizens Bank of Cochran 100% Athens First Bank & Trust Company 100% Citizens & Merchants State Bank 100% Synovus Service Corp. 100% Alabama Corporations - -------------------- Synovus Financial Corp. of Alabama 100% Community Bank and Trust of Southeast Alabama 100% First Commercial Bank of Huntsville 100% The Bank of Tuscaloosa 100% Sterling Bank 100% First Commercial Bank of Birmingham 100% CB&T Bank of Russell County 100% Florida Corporations - -------------------- Quincy State Bank 100% The Tallahassee State Bank 100% Bank of Pensacola 100% 2 Vanguard Bank and Trust Company 100% First Coast Community Bank 100% Arizona Corporations - -------------------- Sumbank Life Insurance Company 100% National Banking Associations - ----------------------------- The National Bank of Walton County (GA) 100% Peachtree National Bank (GA) 100% First National Bank of Jasper (AL) 100% National Bank of South Carolina (SC) 100% - -------- Columbus Bank and Trust Company has one majority-owned subsidiary, Total System Services, Inc., a Georgia corporation, and one wholly-owned subsidiary, Synovus Trust Company, a Georgia corporation. Total System Services, Inc. has four wholly-owned subsidiaries, Columbus Depot Equipment Company, Mailtek, Inc., Lincoln Marketing, Inc. and Columbus Productions, Inc., all of which are Georgia corporations. Citizens First Bank has one wholly-owned subsidiary, Citizens Service Company, a Georgia corporation. Athens First Bank & Trust Company has one wholly-owned subsidiary, Athena Service Corporation, a Georgia corporation. First Commercial Bank of Birmingham has three wholly-owned subsidiaries, First Commercial Mortgage Corporation, First Commercial Credit Corporation and Synvous Mortgage Corp., all of which are Alabama corporations.
filings\subsid2.snv 3 EX-23.1 8 EXHIBIT 23.1 EXHIBIT 23.1 Accountants' Consent The Board of Directors Synovus Financial Corp.: We consent to the incorporation by reference in the Registration Statements (No. 33-35926, No. 33-56614, No. 33-40738, No. 33-39845, No. 2-93472, No. 2-94639, No. 33-77900, No. 33-77980, No. 33-79518, No. 33-89782, No. 33-90630, No. 33-90632, No. 33-91690, No. 33-60473, and No. 33-60475) on Form S-8 of Synovus Financial Corp. of our report dated January 21, 1997, relating to the consolidated statements of condition of Synovus Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three- year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of Synovus Financial Corp. KPMG PEAT MARWICK LLP Atlanta, Georgia March 5, 1997 Accountants' Consent The Board of Directors Synovus Financial Corp.: We consent to the incorporation by reference in the Registration Statements (No. 33-85948 and No. 333-2611) on Form S-3 of Synovus Financial Corp. of our report dated January 21, 1997, relating to the consolidated statements of condition of Synovus Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of Synovus Financial Corp. KPMG PEAT MARWICK LLP Atlanta, Georgia March 5, 1997 EX-24.1 9 EXHIBIT 24.1 EXHIBIT 24.1 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Synovus Financial Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYNOVUS FINANCIAL CORP. (Registrant) March 5, 1997 By:/s/James H. Blanchard --------------------- James H. Blanchard, Chairman of the Board and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, James D. Yancey and Stephen L. Burts, Jr., and each of them, his or her true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/William B. Turner Date: March 5, 1997 - ------------------------------------ William B. Turner, Director and Chairman of the Executive Committee /s/James H. Blanchard Date: March 5, 1997 - ----------------------------------- James H. Blanchard, Chairman of the Board and Principal Executive Officer /s/John T. Oliver, Jr. Date: March 5, 1997 - ------------------------------ John T. Oliver, Jr., Director and Vice Chairman of the Executive Committee /s/James D. Yancey Date: March 5, 1997 - ------------------------------ James D. Yancey, Vice Chairman of the Board /s/Richard E. Anthony Date: March 5, 1997 - ----------------------------- Richard E. Anthony, Vice Chairman of the Board /s/Walter M. Deriso, Jr. Date: March 5, 1997 - ----------------------------- Walter M. Deriso, Jr., Vice Chairman of the Board /s/Stephen L. Burts, Jr. Date: March 5, 1997 - ---------------------------- Stephen L. Burts, Jr., President /s/G. Sanders Griffith, III Date: March 5, 1997 - ----------------------------- G. Sanders Griffith, III, Senior Executive Vice President, General Counsel and Secretary /s/Thomas J. Prescott Date: March 5, 1997 - ------------------------------ Thomas J. Prescott, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Jay C. McClung Date: March 5, 1997 - ------------------------------ Jay C. McClung, Executive Vice President /s/Calvin Smyre Date: March 5, 1997 - ----------------------------- Calvin Smyre, Executive Vice President - ---------------------------------- Date: Daniel P. Amos, Director /s/Joe E. Beverly Date: March 5, 1997 - ---------------------------------- Joe E. Beverly, Director /s/Richard Y. Bradley Date: March 5, 1997 - --------------------------------- Richard Y. Bradley, Director /s/C. Edward Floyd Date: March 5, 1997 - -------------------------------- C. Edward Floyd, Director /s/Gardiner W. Garrard, Jr. Date: March 5, 1997 - --------------------------------- Gardiner W. Garrard, Jr., Director /s/V. Nathaniel Hansford Date: March 5, 1997 - -------------------------------- V. Nathaniel Hansford, Director /s/John P. Illges, III Date: March 5, 1997 - -------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 5, 1997 - ------------------------------- Mason H. Lampton, Director - ------------------------------- Date: Elizabeth C. Ogie, Director /s/H. Lynn Page Date: March 5, 1997 - --------------------------- H. Lynn Page, Director /s/William L. Pherigo Date: March 5, 1997 - ---------------------------- William L. Pherigo, Director /s/Robert V. Royall, Jr. Date: March 5, 1997 - ---------------------------- Robert V. Royall, Jr., Director /s/George C. Woodruff, Jr. Date: March 5, 1997 - --------------------------- George C. Woodruff, Jr., Director EX-27.1 10 EXHIBIT 27.1 (FDS)
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 404,952 2,040 38,249 0 1,276,083 363,008 364,694 6,065,230 94,683 8,612,344 7,203,035 339,200 154,641 97,283 0 0 116,424 667,326 8,612,344 562,208 99,170 1,925 663,303 267,349 288,429 374,874 31,766 (176) 549,174 219,312 139,604 0 0 139,604 1.20 1.20 5.19 25,280 15,805 25,280 0 81,384 25,180 6,525 94,683 94,683 0 22,951
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