FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001
Commission File Number 1-10312
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Georgia 58-1134883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Front Avenue
P. O. Box 120
Columbus, Georgia 31902
(Address of principal executive offices)
(706) 649-2401
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
At July 31, 2001, 290,703,500 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
SYNOVUS FINANCIAL CORP.
INDEX
Page
Part I. Financial Information Number
------
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 2001 and December 31, 2000 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows (unaudited) 5
Six Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. (a) Exhibits 23
(b) Report on Form 8-K 23
Signature Page 24
Exhibit Index 25
(11) Statement re Computation of Per Share Earnings
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In thousands, except share and per share data) 2001 2000
- ---------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 542,219 558,054
Interest earning deposits with banks 4,664 3,806
Federal funds sold 151,409 375,765
Mortgage loans held for sale 224,038 108,234
Investment securities available for sale 2,065,125 1,807,039
Investment securities held to maturity -- 270,889
Loans, net of unearned income 11,604,690 10,751,887
Allowance for loan losses (159,600) (147,867)
- ---------------------------------------------------------------------------------------------------
Loans, net 11,445,090 10,604,020
- ---------------------------------------------------------------------------------------------------
Premises and equipment, net 546,935 526,988
Other assets 674,650 653,297
- ---------------------------------------------------------------------------------------------------
Total assets $ 15,654,130 14,908,092
===================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 1,822,592 1,726,817
Interest bearing 9,738,923 9,434,893
- ---------------------------------------------------------------------------------------------------
Total deposits 11,561,515 11,161,710
Federal funds purchased and securities sold under agreement
to repurchase 1,205,577 1,039,900
Long-term debt 910,940 840,859
Other liabilities 337,049 367,562
- ---------------------------------------------------------------------------------------------------
Total liabilities 14,015,081 13,410,031
- ---------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiaries 88,490 80,890
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares;
issued 290,790,149 in 2001 and 284,818,042 in 2000;
outstanding 290,614,885 in 2001 and 284,642,778 in 2000 290,790 284,818
Surplus 143,219 107,652
Treasury stock - 175,264 shares in 2001 and 2000 (1,285) (1,285)
Unamortized restricted stock (57) (381)
Accumulated other comprehensive income 23,715 5,936
Retained earnings 1,094,177 1,020,431
- ---------------------------------------------------------------------------------------------------
Total shareholders' equity 1,550,559 1,417,171
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 15,654,130 14,908,092
===================================================================================================
See accompanying notes to consolidated financial statements.
3
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------
Interest income:
Loans, including fees $ 508,764 450,095 252,043 233,996
Investment securities:
U.S. Treasury and U.S. Government agencies 36,845 41,743 17,611 20,838
Mortgage-backed securities 18,047 14,928 9,563 7,628
State and municipal 5,735 4,830 2,901 2,469
Other investments 1,723 1,620 835 797
Mortgage loans held for sale 6,437 3,545 3,770 2,019
Federal funds sold 2,942 2,462 1,227 1,231
Interest earning deposits with banks 154 46 84 22
- ----------------------------------------------------------------------------------------------------------
Total interest income 580,647 519,269 288,034 269,000
- ----------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 228,088 187,196 108,967 98,576
Federal funds purchased and securities sold
under agreement to repurchase 24,890 39,444 11,653 20,641
Long-term debt 27,368 14,080 13,526 8,203
- ----------------------------------------------------------------------------------------------------------
Total interest expense 280,346 240,720 134,146 127,420
- ----------------------------------------------------------------------------------------------------------
Net interest income 300,301 278,549 153,888 141,580
Provision for losses on loans 24,157 23,623 13,170 12,712
- ----------------------------------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 276,144 254,926 140,718 128,868
- ----------------------------------------------------------------------------------------------------------
Non-interest income:
Data processing services 310,739 284,692 160,437 145,676
Service charges on deposit accounts 41,205 36,382 21,168 18,579
Fees for trust services 12,578 11,009 6,788 5,250
Brokerage revenue 8,485 8,380 4,159 3,883
Mortgage banking income 18,666 9,708 10,197 5,562
Credit card fees 9,753 8,280 5,341 4,362
Securities gains (losses), net 846 (28) 428 (27)
Other fee income 8,477 6,961 4,140 3,485
Other operating income 45,969 40,795 20,080 18,793
- ----------------------------------------------------------------------------------------------------------
Total non-interest income 456,718 406,179 232,738 205,563
- ----------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and other personnel expense 271,709 248,702 137,441 124,817
Net occupancy and equipment expense 117,815 110,336 60,541 56,537
Other operating expenses 101,655 100,276 51,061 51,084
- ----------------------------------------------------------------------------------------------------------
Total non-interest expense 491,179 459,314 249,043 232,438
- ----------------------------------------------------------------------------------------------------------
Minority interest in subsidiaries' net income 9,232 8,625 5,027 4,664
Income before income taxes 232,451 193,166 119,386 97,329
Income tax expense 84,951 70,022 43,771 35,577
- ----------------------------------------------------------------------------------------------------------
Net income $ 147,500 123,144 75,615 61,752
==========================================================================================================
Net income per share :
Basic $ 0.51 0.44 0.26 0.22
==========================================================================================================
Diluted 0.50 0.43 0.26 0.22
==========================================================================================================
Weighted average shares outstanding:
Basic 289,018 282,810 290,315 283,457
==========================================================================================================
Diluted 294,741 285,776 296,218 286,605
==========================================================================================================
Dividends declared per share $ 0.26 0.22 0.13 0.11
==========================================================================================================
See accompanying notes to consolidated financial statements.
4
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
- ----------------------------------------------------------------------------------------------------------
(In thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------------
Operating Activities
Net Income $ 147,500 123,144
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for losses on loans 24,157 23,623
Depreciation, amortization, and accretion, net 42,806 39,299
Deferred income tax expense 3,028 2,424
Decrease (increase) in interest receivable 7,769 (15,359)
(Decrease) increase in interest payable (3,511) 3,489
Minority interest in subsidiaries' net income 9,232 8,625
(Increase) in mortgage loans held for sale (115,804) (47,623)
Other, net (32,621) (14,502)
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 82,556 123,120
- ----------------------------------------------------------------------------------------------------------
Investing Activities
Cash acquired from acquisition 8,330 2,877
Net (increase) decrease in interest earning deposits with banks (845) 1,169
Net decrease (increase) in federal funds sold 247,806 (28,555)
Proceeds from maturities and principal collections of investment
securities available for sale 539,664 103,191
Proceeds from sales of investment securities available for sale 117,064 4,726
Purchases of investment securities available for sale (578,872) (148,116)
Proceeds from maturities and principal collections of investment
securities held to maturity -- 28,753
Purchases of investment securities held to maturity -- (25,475)
Net increase in loans (725,599) (1,047,084)
Purchases of premises and equipment (71,528) (67,328)
Proceeds from disposals of premises and equipment 3,580 710
Net cash paid on sale of branches -- (41,835)
Proceeds from sales of other real estate 6,416 4,985
Additions to contract acquisition costs (11,711) (254)
Additions to computer software (29,784) (20,782)
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (495,479) (1,233,018)
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Net increase in demand and savings deposits 225,388 289,064
Net (decrease) increase in certificates of deposit (6,034) 479,707
Net increase in federal funds purchased and securities
sold under agreement to repurchase 165,677 125,504
Principal repayments on long-term debt (3,083) (9,171)
Proceeds from issuance of long-term debt 66,512 261,525
Dividends paid to shareholders (67,890) (56,464)
Proceeds from issuance of common stock 16,518 4,300
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 397,088 1,094,465
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (15,835) (15,433)
Cash and cash equivalents at beginning of period 558,054 466,543
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 542,219 451,110
==========================================================================================================
See accompanying notes to consolidated financial statements.
5
SYNOVUS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
- -------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normally recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included. The accompanying unaudited
consolidated financial statements should be read in conjunction with the Synovus
Financial Corp. (Synovus) consolidated financial statements and related notes
appearing in the 2000 annual report previously filed on Form 10-K.
Note B - Supplemental Cash Flow Information
- -------------------------------------------
For the six months ended June 30, 2001 and 2000, Synovus paid income taxes (net
of refunds received) of $87.2 million and $74.8 million, and interest of $283.9
million and $237.2 million, respectively.
Noncash investing activities consisted of loans of approximately $9.1 million
and $3.9 million, which were foreclosed and transferred to other real estate
during the six months ended June 30, 2001 and 2000, respectively. Additionally,
in conjunction with the adoption of Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities",
on January 1, 2001, Synovus reclassified investment securities held to maturity
with a book value of $270.9 million to the available for sale category.
Note C - Other Comprehensive Income (Loss)
- ------------------------------------------
Other comprehensive income (loss) consists of net unrealized gains (losses) on
securities available for sale, net unrealized gains (losses) on cash flow
hedges, and foreign currency translation adjustments. Comprehensive income
consists of net income plus the change in other comprehensive income (loss).
Comprehensive income for the three months ended June 30, 2001 and 2000 was $77.7
million and $62.7 million, respectively. For the six months ended June 30, 2001
and 2000, comprehensive income was $165.3 million and $122.1 million,
respectively.
Note D - Business Combinations
- ------------------------------
On February 16, 2001, Synovus completed the acquisition of the $200 million
asset Carolina Southern Bank of Spartanburg, SC. Synovus issued 3,188,558 shares
of its common stock, and merged the bank into its affiliate bank, The National
Bank of South Carolina. The acquisition was accounted for as a pooling of
interests, except that the financial information preceding the date of
acquisition has not been restated to include the financial position and results
of operations since the effect was not material.
On February 28, 2001, Synovus completed the acquisition of Creative Financial
Group, Ltd., based in Atlanta, GA, and its operating unit Robert Andrew
Securities, Inc. The companies currently operate as divisions of Synovus Wealth
Management, the integrated asset management unit of Synovus. Synovus issued
937,701 shares of its common stock and has accounted for the
6
transaction as a pooling of interests, except that the financial information
preceding the date of acquisition has not been restated to include the financial
position and results of operations since the effect was not material.
On June 29, 2001, Synovus announced that it had signed a definitive agreement to
acquire FABP Bancshares, Inc. (FABP), of Pensacola, FL. FABP is a one-bank
holding company that owns First American Bank of Pensacola, N.A., which will be
merged into its affiliate Bank of Pensacola. The acquisition, valued at
approximately $100 million, is expected to be consummated in the fourth quarter
of 2001, pending regulatory and shareholder approval. Synovus will account for
the acquisition under the pooling of interests method.
Note E - Operating Segments
- ---------------------------
Synovus has two reportable segments: banking operations and transaction
processing services. The banking operations segment is predominately involved in
commercial banking activities and also provides retail banking, trust, mortgage,
insurance, and brokerage services. The transaction processing services segment
consists primarily of operations at TSYS, which primarily provides card
processing services to its clients, including debit, commercial, retail, stored
value, and consumer cards. The transaction processing services segment also
includes related services to banks and other card issuing institutions, as well
as debt collection and bankruptcy management operations at TSYS Total Debt
Management, Inc. (TDM), and the software solutions for commercial card
management programs offered by ProCard. All inter-segment services provided are
charged at the same rates as those charged to unaffiliated customers. Such
services are included in the revenues and net income of the respective segments
and are eliminated to arrive at consolidated totals.
Segment information as of and for the three and six months ended June 30, 2001
and 2000 is presented below:
Three months ended June 30, 2001 and 2000
Transaction
Banking Processing
(In thousands) Operations Services (a) Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
Interest income and non- 2001 $348,421 176,200 (3,849) (b) $520,772
interest income 2000 315,819 162,005 (3,261) (b) 474,563
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 2001 83,343 41,070 (5,027) (c) 119,386
2000 64,234 37,759 (4,664) (c) 97,329
- --------------------------------------------------------------------------------------------------------------------
Income tax expense 2001 29,358 14,413 - 43,771
2000 22,452 13,125 - 35,577
- --------------------------------------------------------------------------------------------------------------------
Net Income 2001 53,984 26,658 (5,027) (c) 75,615
2000 41,783 24,633 (4,664) (c) 61,752
- --------------------------------------------------------------------------------------------------------------------
Total Assets 2001 15,092,127 609,037 (47,034) (d) 15,654,130
2000 13,278,334 508,916 (101,322) (d) 13,685,928
- --------------------------------------------------------------------------------------------------------------------
7
Six months ended June 30, 2001 and 2000
Transaction
Banking Processing
(In thousands) Operations Services (a) Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------
Interest income and non- 2001 $702,565 343,128 (8,328) (b) $1,037,365
interest income 2000 616,528 315,161 (6,241) (b) 925,448
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 2001 165,762 75,921 (9,232) (c) 232,451
2000 132,738 69,053 (8,625) (c) 193,166
- --------------------------------------------------------------------------------------------------------------------
Income tax expense 2001 58,521 26,430 - 84,951
2000 46,142 23,880 - 70,022
- --------------------------------------------------------------------------------------------------------------------
Net Income 2001 107,241 49,491 (9,232) (c) 147,500
2000 86,596 45,173 (8,625) (c) 123,144
- --------------------------------------------------------------------------------------------------------------------
Total Assets 2001 15,092,127 609,037 (47,034) (d) 15,654,130
2000 13,278,334 508,916 (101,322) (d) 13,685,928
- --------------------------------------------------------------------------------------------------------------------
(a) Includes equity in income of joint ventures, which is included in other
operating income.
(b) Principally, data processing service revenues provided to the banking
operations segment.
(c) Minority interest in TSYS and GP Network Corporation.
(d) Primarily, TSYS' cash deposits with the banking operations segment.
Note F - Legal Proceedings
- --------------------------
Synovus and its subsidiaries are subject to various legal proceedings and claims
which arise in the ordinary course of its business. Any litigation is vigorously
defended and, in the opinion of management, based on consultation with external
legal counsel, any outcome of such litigation would not materially affect the
consolidated financial position or results of operations.
Currently, multiple lawsuits seeking class action treatment are pending against
one of the Alabama banking subsidiaries that involve: (1) payment of service
fees or interest rebates to automobile dealers in connection with the assignment
of automobile credit sales contracts to that subsidiary; (2) the forced
placement of insurance to protect that subsidiary's interest in collateral for
which consumer credit customers have failed to obtain or maintain insurance; and
(3) the receipt of commissions by that subsidiary in connection with the sale of
credit life insurance to its consumer credit customers and the charging of an
interest surcharge and a processing fee in connection with consumer loans made
by that subsidiary. These lawsuits seek unspecified damages, including punitive
damages. Synovus intends to vigorously contest these lawsuits and all other
litigation to which Synovus and its subsidiaries are parties. Based upon
information presently available, and in light of legal, equitable, and factual
defenses available to Synovus and its subsidiaries, contingent liabilities
arising from the threatened and pending litigation are not considered material.
It should be noted, however, that large punitive damage awards, bearing little
relation to the actual damages sustained by plaintiffs, have been awarded in
Alabama.
In November 1998, a class action complaint was filed against NationsBank of
Delaware, N.A., in the United States District Court for the Southern District of
Mississippi. On March 23, 1999, the named plaintiff amended the complaint and
named TSYS and certain credit bureaus as
8
defendants in the case. The named plaintiff alleges, among other things, that
the defendants failed to report properly the credit standing of each member of
the putative class. The named plaintiff has defined the class as all persons and
entities within the United States who obtained credit cards from NationsBank,
and whose accounts were purchased by or transferred to U.S. BankCard, and whose
accounts were reported to credit bureaus or credit agencies incorrectly in
August 1998. The amended complaint alleges negligence, violation of the Fair
Credit Reporting Act, breach of the duty of good faith and fair dealing, and
seeks declaratory relief, injunctive relief, and the imposition of punitive
damages. The parties have reached a settlement of this litigation, which is
subject to court approval under Rule 23(e) of the Federal Rules of Civil
Procedure. The United States District Court for the Southern District of
Mississippi preliminarily approved the settlement on May 10, 2001. Payments by
TSYS to settle the litigation are not expected to be material to its financial
condition or results of operations and management expects the settlement to be
substantially covered by insurance.
Note G - Derivative Financial Instruments
- -----------------------------------------
As part of its overall interest rate risk management activities, Synovus
utilizes interest rate related derivatives to manage its exposure to various
types of interest rate risks. With the exception of commitments to fund and sell
fixed-rate mortgage loans, all off-balance sheet derivatives utilized by Synovus
represent end user activities designed as hedges of on-balance sheet assets or
liabilities. Synovus does not speculate using derivative instruments.
Synovus' risk management policies emphasize the management of interest rate risk
within acceptable guidelines. Synovus' objective in maintaining these policies
is to achieve consistent growth in net interest income while limiting volatility
arising from changes in interest rates. Risks to be managed include both fair
value and cash flow risks. Utilization of derivative financial instruments
provides a valuable tool to assist in the management of these risks.
Synovus utilizes interest rate swap agreements to hedge the fair value risk of
fixed-rate balance sheet liabilities, primarily deposit liabilities. Fair value
risk is measured as the volatility in the value of these liabilities as interest
rates change. Interest rate swaps entered into to manage this risk are designed
to have the same notional value as well as similar interest rates and interest
calculation methods. These agreements entitle Synovus to receive fixed-rate
interest payments and pay floating-rate interest payments based on the notional
amount of the swap agreements. Swap agreements structured in this manner allow
Synovus to perfectly hedge the fair value risks of these fixed-rate liabilities.
Synovus is potentially exposed to interest rate cash flow risk due to its
holding of loans whose interest payments are based on floating rate indices.
Synovus continually monitors changes in these exposures and their impact on its
risk management activities. These agreements, whose terms are for up to five
years, entitle Synovus to receive fixed-rate interest payments and pay
floating-rate interest payments. These agreements allow Synovus to offset the
variability of floating rate loan interest with the variable interest payments
due on the interest rate swaps. Synovus assesses the effectiveness of these
hedges by comparing the timing, frequency, and magnitude of changes in its
interest rate to that of the interest rate referenced in the swap agreements.
Changes in the fair value of interest rate swaps designated as hedges of the
variability of cash flows associated with floating rate loans are reported in
other comprehensive income. These
9
amounts are subsequently reclassified into interest income as a yield adjustment
of the hedged loans.
By using off-balance sheet derivatives to hedge fair value and cash flow risks,
Synovus exposes itself to potential credit risk. This potential credit risk is
equal to the fair or replacement values of the swaps if the counterparty fails
to perform on its obligations under the swap agreements. 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 highly rated counterparties, and by obtaining collateral agreements for
exposures above predetermined limits.
Synovus also holds derivative instruments which consist of commitments to fund
fixed-rate mortgage loans to customers and forward commitments to sell
individual fixed-rate mortgage loans. Synovus' objective in obtaining the
forward commitments is to mitigate the interest rate risk associated with the
commitments to fund the fixed-rate mortgage loans. Both the rate-lock
commitments and the forward commitments are reported at fair value, with
adjustments being recorded in current period earnings, and are not accounted for
as hedges.
Note H - Recent Accounting Pronouncements
- -----------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS
133". SFAS No. 133 and SFAS No. 138 standardize the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standards, entities are required to carry all derivative
instruments on the balance sheet at fair value. The accounting for changes in
the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, on the reason for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of exposures
to changes in fair values, cash flows, or foreign currencies. If the hedged
exposure is a fair value exposure, the gain or loss on the derivative instrument
is recognized in earnings in the period of change, together with the offsetting
loss or gain on the hedged item attributable to the risk being hedged. If the
hedged exposure is a cash flow exposure, the effective portion of the gain or
loss on the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings), and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss are reported in earnings immediately. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.
Synovus adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In accordance
with the transition provisions of SFAS No. 133, Synovus recorded a net-of-tax
cumulative-effect gain of $765.0 thousand in accumulated other comprehensive
income to recognize at fair value all derivatives that are designated as
cash-flow hedging instruments. As of June 30, 2001, the net-of-tax fair value of
these derivatives carried as a component of other comprehensive income was $4.0
million. Synovus expects to reclassify from accumulated other comprehensive
income approximately $2.8 million as net-of-tax earnings during the next twelve
months, as the related payments from interest rate swaps are recorded. Upon
adoption of SFAS No. 133, gains and losses on derivatives that were previously
deferred as adjustments to the carrying amount of hedged items were not
adjusted.
10
In connection with the adoption of SFAS No. 133, on January 1, 2001, Synovus
reclassified its investment securities held to maturity portfolio to the
available for sale category.
In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", was issued. SFAS No. 140
is effective for all transfers and servicing of financial assets and
extinguishments of liabilities after March 31, 2001. The Statement is effective
for recognition and reclassification of collateral and disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Due to the nature of its activities, Synovus does not expect
a material change to its results of operations as a result of adopting SFAS No.
140.
In July 2001, the FASB issued Statement No. 141 (SFAS No. 141), "Business
Combinations" and Statement No. 142 (SFAS No. 142), "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001, as well as
purchase method business combinations completed after June 30, 2001. SFAS No.
141 also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of".
Synovus is required to adopt the provisions of SFAS No. 141 immediately, except
with regard to business combinations initiated prior to July 1, 2001, which it
expects to account for using the pooling of interests method, and SFAS No. 142
effective January 1, 2002.
Furthermore, goodwill and intangible assets determined to have an indefinite
useful life acquired in a purchase business combination completed after June 30,
2001, but before SFAS No. 142 is adopted in full will not be amortized, but will
continue to be evaluated for impairment in accordance with the appropriate
pre-SFAS No. 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized and tested for impairment in accordance with the appropriate pre-SFAS
accounting requirements prior to the adoption of SFAS No. 142.
SFAS No. 141 will require upon the adoption of SFAS No. 142, that Synovus
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and make any necessary reclassifications in
order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, Synovus will be required to
reassess the useful lives and residual values of all intangible assets acquired,
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, Synovus will be required to test
the intangible asset for impairment in accordance with the provisions of SFAS
No. 142 within the first interim period. Any impairment loss will be measured as
of the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
11
In connection with SFAS No. 142's transitional goodwill impairment evaluation,
the Statement will require Synovus to perform an assessment of whether there is
an indication that goodwill (and equity-method goodwill) is impaired as of the
date of adoption. To accomplish this, Synovus must identify its reporting units
and determine the carrying value of each reporting unit by assigning the assets
and liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. Synovus will then have up to six
months from the date of adoption to determine the fair value of each reporting
unit and compare it to the reporting unit's carrying amount. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired and Synovus must perform the
second step of the transitional impairment test. In the second step, Synovus
must compare the implied fair value of the reporting unit's goodwill, determined
by allocating the reporting unit's fair value to all of its assets (recognized
and unrecognized) and liabilities in a manner similar to a purchase price
allocation in accordance with SFAS No. 141, to its carrying amount, both of
which would be measured as of the date of adoption. This second step is required
to be completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the statement of earnings.
And finally, any unamortized negative goodwill (and equity-method negative
goodwill) existing at the date SFAS No. 142 is adopted must be written off as
the cumulative effect of a change in accounting principle.
As of the date of adoption, Synovus expects to have unamortized goodwill of
approximately $27.2 million, which will be subject to the transition provisions
of SFAS No. 141 and SFAS No. 142. Amortization expense related to goodwill was
$2.6 million and $1.5 million for the year ended December 31, 2000 and the six
months ended June 30, 2001, respectively. Because of the extensive effort needed
to comply with adopting SFAS No. 141 and SFAS No. 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the financial
statements at the date of this report, including whether Synovus will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle.
Note I - Other
- --------------
Certain amounts in 2000 have been reclassified to conform to the presentation
adopted in 2001.
12
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the six months ended June 30, 2001 was $147.5 million, up 19.8%
from the same period a year ago. Revenues (excluding securities gains and
losses) increased 10.4% over the same period in 2000. Diluted net income per
share for the first six months of 2001 was $0.50, an increase of 16.1% over
$0.43 per share for the same period in 2000. Return on average assets was 1.98%
and return on average equity was 20.02% for the six months ended June 30, 2001.
This compares to a return on average assets of 1.91% and a return on average
equity of 19.58% for the first six months of 2000.
Net income for the three months ended June 30, 2001 was $75.6 million, up 22.4%
from the same period a year ago, and revenues (excluding securities gains and
losses) increased 11.2% over the same period in 2000. Diluted net income per
share was $0.26 for the second quarter, up 18.5% over $0.22 for the same period
in 2000. Return on average assets was 2.00% and return on average equity was
19.96% for the three months ended June 30, 2001. This compares to a return on
average assets of 1.88% and a return on average equity of 19.40% for the second
quarter of 2000.
Major contributors to the growth in net income include strong growth in loans
and fee income. Expense control management also positively impacted the growth
in net income.
Acquisitions
On February 16, 2001, Synovus completed the acquisition of the $200 million
asset Carolina Southern Bank of Spartanburg, SC. Synovus issued 3,188,558 shares
of its common stock, and merged the bank into its affiliate bank, The National
Bank of South Carolina. The acquisition was accounted for as a pooling of
interests, except that the financial information preceding the date of
acquisition has not been restated to include the financial position and results
of operations since the effect was not material.
On February 28, 2001, Synovus completed the acquisition of Creative Financial
Group, Ltd., based in Atlanta, GA, and its operating unit Robert Andrew
Securities, Inc. The companies currently operate as divisions of Synovus Wealth
Management, the integrated asset management unit of Synovus. Synovus issued
937,701 shares of its common stock and has accounted for the transaction as a
pooling of interests, except that the financial information preceding the date
of acquisition has not been restated to include the financial position and
results of operations since the effect was not material.
On June 29, 2001, Synovus announced that it had signed a definitive agreement to
acquire FABP Bancshares, Inc. (FABP), of Pensacola, FL. FABP is a one-bank
holding company that owns First American Bank of Pensacola, N.A., which will be
merged into its affiliate Bank of Pensacola. The acquisition, valued at
approximately $100 million, is expected to be consummated in the fourth quarter
of 2001, pending regulatory and shareholder approval. Synovus will account for
the acquisition under the pooling of interests method.
13
Balance Sheet
During the first six months of 2001, total assets increased $746.0 million,
resulting primarily from net loan growth of $852.8 million, or 15.9% annualized.
Additionally, mortgage loans held for sale increased by $115.8 million while
federal funds sold decreased by $224.4 million. Providing the necessary funding
for the balance sheet growth during the first six months of 2001, the deposit
base grew $399.8 million, federal funds purchased increased $165.7 million,
long-term debt consisting primarily of Federal Home Loan Bank (FHLB) advances
increased $70.1 million, and shareholders' equity increased $133.4 million.
Loans
Since year-end of 2000, loans have increased by $852.8 million, or 15.9%
annualized (excluding the acquisition of Carolina Southern, loans grew by $711.1
million, or 13.3% annualized). Compared to a year ago, loans grew by 15.2%. Our
banks in larger urban markets were the primary contributors to this growth.
Asset Quality
Credit quality continues to be strong. The nonperforming assets ratio was 0.49%
at June 30, 2001, down from 0.52% at year-end 2000. The decline was due in part
to the sale of a national syndicated credit.
The net charge-off ratio for the six months ended June 30, 2001 was 0.26%,
compared to 0.22% a year ago. Net charge-offs to average loans for the quarter
ended June 30, 2001 were 0.26% compared to 0.25% for the second quarter of 2000.
Loans 90 days past due and still accruing at June 30, 2001, were $39.6 million,
or 0.34% of total loans, up from $33.6 million, or 0.32% of total loans at
December 31, 2000. These loans are in the process of collection, and management
believes that sufficient collateral value securing these loans exists to cover
contractual interest and principal payments on the loans. Management further
believes the resolution of these delinquencies will not cause a material
increase in nonperforming assets.
The allowance for loan losses was $159.6 million, or 1.38% of net loans, at June
30, 2001 compared to $147.9 million, or 1.38% of net loans, at December 31,
2000. For the six months ended June 30, 2001, the provision for losses on loans
was 1.65 times net charge-offs compared to a coverage of 2.22 times for the six
months ended June 30, 2000.
14
June 30, December 31,
(In thousands) 2001 2000
- -------------- ------------------- -------------------
Nonperforming loans $ 40,168 41,709
Other real estate 16,458 13,898
------------------- -------------------
Nonperforming assets $ 56,626 55,607
=================== ===================
Loans 90 days past due and still accruing $ 39,634 33,587
=================== ===================
Allowance for loan losses $ 159,600 147,867
=================== ===================
Allowance for loan losses as a % of loans 1.38% 1.38%
=================== ===================
As a % of loans and other real estate:
Nonperforming loans 0.35% 0.39
Other real estate 0.14 0.13
------------------- -------------------
Nonperforming assets 0.49% 0.52
=================== ===================
Allowance to nonperforming loans 397.33% 354.52
=================== ===================
Capital Resources and Liquidity
Synovus continues to maintain its capital at levels that exceed the minimum
regulatory guidelines. Additionally, based on internal calculations and previous
regulatory exams, each of the subsidiary banks is currently in compliance with
regulatory capital guidelines. Total risk-based capital was $1.740 billion at
June 30, 2001, compared to $1.605 billion at December 31, 2000. The ratio of
total risk-based capital to risk-weighted assets was 12.71% at June 30, 2001
compared to 12.72% at December 31, 2000. The leverage ratio at the end of the
second quarter of 2001 was 10.43% compared to 10.24% at the end of 2000. The
equity-to-assets ratio was 9.91% at June 30, 2001 compared to 9.51% at year-end
2000. The consolidated equity-to-assets ratio, exclusive of net unrealized gains
(losses) on investment securities available for sale, was 9.73% at June 30,
2001, compared to 9.46% at year-end 2000.
Synovus' liquidity position and sources of funds have not changed significantly
since December 31, 2000. The liquidity ratio was 32.26% at June 30, 2001,
compared to 31.37% at December 31, 2000. Additionally, the maturity mix of
investment securities and loans has not changed significantly during the first
six months of 2001.
Synovus' management monitors liquidity in coordination with the appropriate
committees at each subsidiary bank. Management must ensure that adequate
liquidity, at a reasonable cost, is available to meet the cash flow needs of
depositors, borrowers, and creditors. Management constantly monitors and
maintains appropriate levels of assets and liabilities so as to provide adequate
funding sources to meet estimated customer withdrawals and future loan requests.
Additionally, subsidiary banks have access to overnight federal funds lines with
various financial institutions, which total approximately $2.6 billion, that can
be drawn upon for short-term liquidity needs. Synovus also has access to a $25
million line of credit with an unaffiliated banking organization.
The consolidated statements of cash flows detail cash flows from operating,
investing, and financing activities. Operating activities provided net cash of
$82.6 million during the first six months of 2001, while $397.1 million was
provided by financing activities. Investing activities
15
used $495.5 million of this amount, resulting in a decrease in cash and cash
equivalents of $15.8 million.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 2001 were $15.0 billion, up
15.8% over the first six months of 2000. Average earning assets were up 14.8% in
the first half of 2001 over the same period last year and represented 90.0% of
average total assets. When compared to the same period last year, average
deposits increased $1.6 billion, average federal funds purchased and securities
sold under agreement to repurchase decreased $294.5 million, average long-term
debt consisting primarily of FHLB advances increased $410.4 million, and average
shareholders' equity increased $220.6 million. This growth provided the funding
for the $1.6 billion growth in average net loans and the $31.6 million increase
in average federal funds sold.
Net interest income was $300.3 million for the six months ended June 30, 2001,
up $21.8 million, or 7.8% over the $278.5 million reported for the six months
ended June 30, 2000. Net interest income, on a tax-equivalent basis, for the
first half of 2001 increased $22.3 million, or 7.9%, over the same period in
2000.
Net interest income was $153.9 million for the second quarter of 2001, up $12.3
million, or 8.7% over the $141.6 million reported for the second quarter of
2000. Net interest income, on a tax-equivalent basis, for the second quarter of
2001 increased $12.6 million, or 8.8%, over the second quarter of 2000.
The year-to-date net interest margin was 4.58%, down twenty-eight basis points
from the same period last year. This decrease resulted from a twenty-one basis
point decrease in the yield on earning assets, and a seven basis point increase
in the effective cost of funds. The decreased yield on earning assets was due to
lower yields on loans, primarily due to a 252 basis point decrease in the
average prime rate in 2001. The increased effective cost of funds was due to
higher average rates paid on interest-bearing funding. Funding pressure from
very strong loan growth has required that we increase the utilization of
wholesale funding sources, primarily FHLB advances and brokered certificates of
deposit. On a sequential quarter basis, the net interest margin is up 6 basis
points while net interest income is up $7.5 million. Improved core deposits
growth and strong focus on loan and deposit pricing were the key margin drivers
during the second quarter. We expect further improvement in the net interest
margin as fixed rate deposits continue to reprice during the second half of the
year.
The tax-equivalent adjustment that is required in making yields on tax-exempt
loans and investment securities comparable to taxable loans and investment
securities is shown in the following table. The taxable-equivalent adjustment is
based on a 35% federal income tax rate.
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
(In thousands) 2001 2000 2001 2000
- -------------- ----------------- ---------------- ---------------- ----------------
Interest income $ 580,647 519,269 288,034 269,000
Taxable-equivalent adjustment 3,525 3,021 1,833 1,531
----------------- ---------------- ---------------- ----------------
Interest income, taxable-equivalent 584,172 522,290 289,867 270,531
Interest expense 280,346 240,720 134,146 127,420
----------------- ---------------- ---------------- ----------------
Net interest income, taxable-equivalent $ 303,826 281,570 155,721 143,111
================= ================ ================ ================
16
Non-Interest Income
Total non-interest income during the first six months of 2001 increased $50.5
million, or 12.4%, over the same period in 2000. The increase in non-interest
income resulted from a 25.3% increase in banking operations' fee income and an
8.4% increase in transaction processing services revenues. Transaction
processing services revenues as a percentage of consolidated revenues were
44.3%, compared to 45.1% a year ago.
For the year-to-date, banking operations' non-interest income increased 25.3%,
or $24.6 million, compared to the same period a year ago. The growth in
non-interest income was led by net mortgage revenue (up $9.0 million, or 92.3%),
service charges on deposits (up $4.8 million, or 13.3%), fees for trust services
(up $4.8 million, or 14.3%), and credit card fees (up $1.5 million, or 17.8%).
Creative Financial Group, acquired in the first quarter of 2001, added $2.2
million in revenue to Synovus Wealth Management. Total non-interest income
during the quarter ended June 30, 2001 increased $13.6 million, or 29.0%, over
the second quarter of 2000. The increase in non-interest income was led by net
mortgage revenue (up $4.6 million, or 83.3%), service charges on deposits (up
$2.6 million, or 13.9%), and fees for trust services (up $1.5 million, or
29.3%). Creative Financial Group contributed $1.2 million in revenue for the
quarter ended June 30, 2001.
Transaction processing services revenues consist of TSYS, TDM, and ProCard's
revenues. The majority of these revenues are generated by TSYS from card
processing and electronic commerce services to card-issuing institutions in the
United States, Mexico, Canada, Honduras, United Kingdom, and the Caribbean.
TSYS' revenues from bankcard data processing services increased $15.0 million,
or 11.9%, for the three months ended June 30, 2001 compared to the same period
in 2000. During the six months ended June 30, 2001, TSYS' revenues from bankcard
data processing services increased $22.3 million, or 9.0%. Increased revenues
from bankcard data processing services are attributable to the growth in the
card portfolios of existing customers, as well as cardholder accounts of new
customers converted to THE TOTAL SYSTEM(R). Processing contracts with large
customers, representing a significant portion of TSYS' revenues, generally
provide for discounts on certain services based on the size and activity of
customers' portfolios. As a result, bankcard data processing revenues and the
related margins are influenced by the customer mix relative to the size of
customer bankcard portfolios, as well as the number and activity of individual
cardholder accounts processed for each customer.
Average cardholder accounts on file for the three months ended June 30, 2001
were 199.2 million, an increase of approximately 4.1% from the average of 191.3
million for the same period in 2000. For the first six months of 2001, average
cardholder accounts were 198.8 million, a 0.8% decrease compared to the 200.4
million accounts on file for the same period last year. Cardholder accounts on
file at June 30, 2001 were 202.1 million, an 11.4% increase compared to the
181.4 million accounts on file at June 30, 2000. The change in cardholder
accounts on file from June 2000 to June 2001 included the deconversion of 3.7
million accounts, the addition of approximately 16.2 million accounts
attributable to the internal growth of existing clients, and approximately 8.2
million accounts for new clients.
A significant amount of TSYS' revenues is derived from long-term contracts with
large customers, including certain major customers. For the three months ended
June 30, 2001, TSYS had two major customers. The two major customers for the
quarter ended June 30, 2001
17
accounted for approximately 28.7%, or $46.7 million, of total revenues. For the
three months ended June 30, 2000, TSYS had three major customers that accounted
for 36.2%, or $54.4 million, of total revenues. For the six months ended June
30, 2001, TSYS had two major customers. The two major customers for the six
months ended June 30, 2001 accounted for approximately 28.5%, or $90.0 million,
of total revenues. For the six months ended June 30, 2000, TSYS had four major
customers that accounted for 47.1%, or $139.3 million, of total revenues. The
loss of one of TSYS' major customers, or other significant customers, could have
a material adverse effect on TSYS' financial condition and results of
operations.
Non-Interest Expense
Total non-interest expense for the six months ended June 30, 2001, increased
$31.9 million, or 6.9%, over the same period in 2000. Management analyzes
non-interest expense in two separate components: banking operations and
transaction processing services. The following table summarizes this data for
the first six months of 2001 and 2000.
2001(*) 2000(*)
------------------------------- ----------------------------------
Transaction Transaction
Processing Processing
(In thousands) Banking Services Banking Services
- -------------- ------------- --------------- --------------- -----------------
Salaries and other personnel expenses $ 136,004 135,922 126,513 122,395
Net occupancy and equipment expense 31,357 86,472 29,886 80,472
Other operating expenses 63,447 44,794 61,116 43,200
------------- --------------- --------------- -----------------
Total non-interest expense $ 230,808 267,188 217,515 246,067
============= =============== =============== =================
(*) The added totals are greater than the consolidated totals due to
inter-segment balances which are eliminated in consolidation.
Banking operations' non-interest expense increased $13.3 million, or 6.1%, for
the six months ended June 30, 2001, compared to the same period in 2000. During
the second quarter of 2001, non-interest expense increased $6.9 million, or
6.2%, over the same period in 2000. Salaries and other personnel expenses, the
largest component of non-interest expense, increased $9.5 million, or 7.5%,
year-to-date over 2000. This increase is due primarily to annual salary
adjustments. The number of full-time equivalent employees at June 30, 2001 was
5,398, compared to 5,222 a year ago. Net occupancy and equipment expense
increased $1.5 million or 4.9%. Other operating expenses increased $2.3 million
or 3.8%. The banking operations' efficiency ratio was 54.46% in the first half
of 2001, compared to 57.65% a year ago.
Approximately 94% of total transaction processing services non-interest expense
relates to TSYS, with the remainder related to TDM and ProCard. The following
paragraphs provide an analysis of the non-interest expense components at TSYS.
Non-interest expense related to TSYS increased 7.2% and 6.4% for the three and
six months ended June 30, 2001, respectively, compared to the same period in
2000. Employment expenses increased $5.7 million, or 10.1%, for the three months
ended June 30, 2001, compared to the same period in 2000. For the six months
ended June 30, 2001, employment expenses increased $10.1 million, or 8.9%,
compared to the same period in 2000. The change in employment expenses consists
of increases of $8.1 million and $20.3 million for the three and six months
ended June 30, 2001, respectively, associated with the growth in the number of
employees, normal salary increases and related benefits. These increases were
partially offset by $2.4 million and $10.2 million invested in capitalized
software development costs and contract acquisition costs for the three and six
18
months ended June 30, 2001, respectively. Capitalized software development costs
relate to the continued development of a commercial card system for TS2(R) which
began in May 1998 and is expected to be substantially complete in the third
quarter of 2001, and enhancements to expand international functionality. The
average number of employees in the second quarter of 2001 increased to 4,821, a
7.9% increase over 4,467 in the same period of 2000. For the first six months of
2001, the average number of employees was 4,779, an 8.3% increase over the first
six months of 2000.
Net occupancy and equipment expense at TSYS increased $3.0 million, or 7.4% for
the three months ended June 30, 2001, over the same period in 2000. For the six
months ended June 30, 2001, net occupancy and equipment expense increased $5.1
million, or 6.4%, over the same period in 2000. Computer equipment and software
rentals, which represent the largest component of net occupancy and equipment
expense, remained the same in the second quarter of 2001, compared to the same
period in 2000. Due to rapidly changing technology in computer equipment, TSYS'
equipment needs are achieved to a large extent through operating leases.
During 2000, TSYS established a processing data center in Europe and purchased a
building to house client service personnel. Although it only began processing
accounts for its new European clients during the second quarter of 2001, TSYS
had to build the necessary infrastructure in order to begin processing those
accounts in 2001. Through the first six months of 2001, TSYS incurred $12.0
million of net operating expense related to the expansion in Europe.
Income Tax Expense
Income tax expense for the six months ended June 30, 2001, was $85.0 million
compared to $70.0 million for the same period a year ago. The effective tax rate
for the first six months of 2001 was 36.5% compared to 36.2% for the same period
in 2000.
Three Year Outlook
Synovus currently expects to grow earnings per share during the next three years
(2001-2003) by 15-18% annually. Synovus expects at least 15% growth in earnings
per share in 2001 and to be at the top of the 15-18% range by 2003. In
estimating expected growth in earnings per share, Synovus assumed, among other
things, that:
* Core banking net income will increase between 11-12% annually,
with net interest margins remaining stable. Annual loan growth will
be in the 10-11% range, and credit quality trends will remain at
current levels.
* Wealth management revenues (trust, brokerage, and insurance) will increase
between 25-30% annually with the complete integration and sales efforts
of traditional bankers, trust, brokerage, insurance, and private banking
team members.
* TSYS will increase net income by approximately 20% in 2001 and between
20-25% annually in 2002 and 2003 with expansion of the core businesses
both domestically and internationally, market acceptance of its stored
value products and e-commerce enabling systems, and aggressive expense
management.
* Increases in banking operations expenses will not exceed 4% annually over
the next three years.
19
Forward-Looking Statements
Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the "Act"). These forward-looking
statements include, among others, statements regarding Synovus' expected growth
in net income for the years 2001 through 2003 and the assumptions underlying
such statements. In addition, certain statements in future filings by Synovus
with the Securities and Exchange Commission, in press releases, and in oral and
written statements made by or with the approval of Synovus which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Act. Examples of forward-looking statements include, but are not
limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure, efficiency
ratios, and other financial terms; (ii) statements of plans and objectives of
Synovus or its management or Board of Directors, including those relating to
products or services; (iii) statements of future economic performance; and (iv)
statements of assumptions underlying such statements. Words such as "believes,"
"anticipates," "expects," "intends," "targeted," and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those contemplated by such
forward-looking statements. A number of factors could cause actual results to
differ materially from those contemplated by the forward-looking statements.
Many of these factors are beyond Synovus' ability to control or predict. These
factors include, but are not limited to: (i) Synovus' inability to increase its
revenues derived from wealth management (trust, brokerage and insurance); (ii)
TSYS' inability to achieve its net income goals for the years 2001 through 2003;
(iii) Synovus' inability to achieve its net income goals for core banking; (iv)
the strength of the U.S. economy in general and the strength of the local
economies in which operations are conducted; (v) the effects of and changes in
trade, monetary and fiscal policies, and laws, including interest rate policies
of the Federal Reserve Board; (vi) inflation, interest rate, market and monetary
fluctuations; (vii) the timely development and acceptance of new products and
services and perceived overall value of these products and services by users;
(viii) changes in consumer spending, borrowing, and saving habits; (ix)
technological changes are more difficult or expensive than anticipated; (x)
acquisitions; (xi) the ability to increase market share and control expenses;
(xii) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities, and insurance) with which
Synovus and its subsidiaries must comply; (xiii) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory agencies,
the Financial Accounting Standards Board, or other authoritative bodies; (xiv)
changes in Synovus' organization, compensation, and benefit plans; (xv) the
costs and effects of litigation and of unexpected or adverse outcomes in such
litigation; and (xvi) the success of Synovus at managing the risks involved in
the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and Synovus undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
20
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Quantitative and qualitative disclosures about market risk were included in the
2000 annual report, which was incorporated by reference in Synovus' 2000 Form
10-K. There have been no significant changes in the contractual balances,
weighted-average interest rates, or the estimated fair values of Synovus'
on-balance sheet financial instruments.
21
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting was held on April 25, 2001. Following are
summaries of the proposals that were submitted to the shareholders for approval.
The first proposal was to elect eight nominees for Class I directors of Synovus
to serve until the 2004 Annual Meeting of Shareholders. The eight nominees for
election as Class I directors named below were elected by the number of
affirmative votes set forth opposite their names below, with the number of votes
withholding authority to vote for such nominees also being shown. As the
election of each of the nominees for Class I directors was approved by a
plurality of the total votes entitled to be cast by the holders of shares
represented at the meeting, each of the nominees for Class I directors were
elected.
Withheld Authority
Nominee Votes For to Vote
- ------------------------------------------------------------------------------
James H. Blanchard 518,195,563.4359 4,031,995.0117
C. Edward Floyd 512,559,844.5851 9,667,713.8625
Gardiner W. Garrard, Jr. 517,190,676.1809 5,036,882.2667
V. Nathaniel Hansford 518,252,321.3023 3,975,237.1453
Alfred W. Jones III 518,127,618.4866 4,099,939.9610
H. Lynn Page 518,245,503.0632 3,982,055.3844
Robert V. Royall 517,990,094.3115 4,237,464.1361
James D. Yancey 518,101,222.8934 4,126,335.5542
The second proposal was to reapprove the Synovus Financial Corp. Executive Bonus
Plan. The proposal was approved by 503,389,880.9572 affirmative votes, with
11,920,190.0665 against votes, and 6,917,487.4239 abstain votes. As the
affirmative rate of a majority of the votes cast was required for approval, such
proposal was approved.
22
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(b) Report on Form 8-K
The following report on Form 8-K was filed subsequent to the second quarter
of 2001.
The report filed on July 18, 2001, included the following event:
On July 18, 2001, Synovus issued a press release with respect to its
second quarter 2001 earnings.
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
Date: August 14, 2001 BY: /s/ Thomas J. Prescott
-----------------------
Thomas J. Prescott
Executive Vice President and
Chief Financial Officer
24
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
11 Statement re Computation of Per Share Earnings
25