ANNUAL REPORT 1995
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LOGO(R)
SYNOVUS(R)
FINANCIAL CORP.
FINANCIAL APPENDIX
Consolidated Statements of Condition as of December 31, 1995 and 1994 ................................. F-2
Consolidated Statements of Income for the Years ended December 31, 1995, 1994, and 1993 ............... F-3
Consolidated Statements of Shareholders' Equity for the Years ended December 31, 1995, 1994, and 1993.. F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1995, 1994, and 1993 ........... F-5
Summary of Significant Accounting Policies ............................................................ F-6
Notes to Consolidated Financial Statements ............................................................ F-10
Independent Auditors' Report .......................................................................... F-26
Financial Highlights .................................................................................. F-27
Financial Review ...................................................................................... F-28
Summary of Quarterly Financial Data, Unaudited ........................................................ F-48
F-1
SYNOVUS FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
December 31, 1995 1994
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ASSETS
Cash and due from banks, including cash deposits of $31,144 and $33,693 for 1995 and 1994, respectively,
on deposit to meet Federal Reserve requirements ...................................................... $ 382,696 344,637
Interest earning deposits with banks ...................................................................... 1,093 1,172
Federal funds sold ........................................................................................ 123,832 43,907
Investment securities available for sale (note 2) ......................................................... 1,106,298 804,769
Investment securities held to maturity (approximate market value of $386,579
and $510,504 for 1995 and 1994, respectively) (notes 2 and 6) ........................................ 380,918 532,933
Loans (notes 3 and 6) ..................................................................................... 5,526,842 5,089,567
Less:
Unearned income ...................................................................................... (14,812) (14,691)
Reserve for loan losses (note 3) ..................................................................... (81,384) (75,018)
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Loans, net ................................................................................. 5,430,646 4,999,858
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Premises and equipment, net (note 6) ...................................................................... 220,197 203,106
Other assets (notes 4 and 8) .............................................................................. 281,915 245,697
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Total assets ............................................................................... $7,927,595 7,176,079
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (note 5):
Non-interest bearing ............................................................................ $1,141,716 983,056
Interest bearing ................................................................................ 5,586,163 4,941,547
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Total deposits ............................................................................. 6,727,879 5,924,603
Federal funds purchased and securities sold under agreement to repurchase ............................ 229,477 412,082
Long-term debt (note 6) .............................................................................. 106,815 139,811
Other liabilities (notes 7 and 8) .................................................................... 142,079 97,220
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Total liabilities........................................................................... 7,206,250 6,573,716
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Minority interest in consolidated subsidiary .............................................................. 27,790 22,483
Shareholders'equity (notes 1, 2, 6, 8, and 12):
Common stock - $1.00 par value. Authorized 600,000,000 shares; issued 77,280,695 in 1995 and 76,134,451
in 1994; outstanding 77,236,765 in 1995 and 75,633,387 in 1994 .................................. 77,281 76,134
Surplus .............................................................................................. 127,021 118,782
Less treasury stock - 43,930 and 501,064 shares in 1995 and 1994, respectively ....................... (1,022) (7,680)
Less unamortized restricted stock .................................................................... (2,663) (1,538)
Net unrealized gain (loss) on investment securities available for sale ............................... 5,774 (20,744)
Retained earnings .................................................................................... 487,164 414,926
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Total shareholders' equity .................................................................. 693,555 579,880
Commitments (note 9) --- ---
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Total liabilities and shareholders' equity ..................................................$7,927,595 7,176,079
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-2
ANNUAL REPORT 1995
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CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years ended December 31, 1995 1994 1993
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Interest income:
Loans, including fees ........................................................................ $ 525,080 415,242 361,744
Investment securities:
U.S. Treasury and U.S. Government agencies .............................................. 59,866 53,479 48,948
Mortgage-backed securities .............................................................. 15,975 17,456 17,671
State and municipal ..................................................................... 7,397 7,772 9,307
Other investments ....................................................................... 1,357 1,611 2,875
Federal funds sold ........................................................................... 6,006 2,787 3,200
Interest earning deposits with banks ......................................................... 107 35 127
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Total interest income ......................................................... 615,788 498,382 443,872
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Interest expense
Deposits (note 5) ............................................................................ 253,761 176,919 164,644
Federal funds purchased and securities sold under agreement to repurchase .................... 12,092 10,021 5,045
Long-term debt ............................................................................... 8,060 10,211 10,970
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Total interest expense ........................................................ 273,913 197,151 180,659
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Net interest income ........................................................... 341,875 301,231 263,213
Provision for losses on loans (note 3) ............................................................ 25,787 25,387 24,924
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Net interest income after provision for losses on loans ....................... 316,088 275,844 238,289
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Non-interest income
Data processing services ..................................................................... 236,125 178,122 148,364
Service charges on deposit accounts .......................................................... 46,657 41,447 39,160
Fees for trust services ...................................................................... 9,649 8,796 8,923
Credit card fees ............................................................................. 7,288 7,703 7,493
Securities gains (losses), net (note 2) ...................................................... 368 (721) 1,108
Other operating income ....................................................................... 40,747 38,985 31,214
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Total non-interest income ..................................................... 340,834 274,332 236,262
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Non-interest expense:
Salaries and other personnel expense (note 8) ................................................ 252,479 211,531 180,414
Net occupancy and equipment expense (notes 4 and 9) .......................................... 99,629 83,419 72,679
Other operating expenses (note 10) ........................................................... 120,012 111,975 94,258
Minority interest in subsidiary's net income .................................................. 5,333 4,325 3,896
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Total non-interest expense .................................................... 477,453 411,250 351,247
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Income before income taxes and extraordinary item ............................. 179,469 138,926 123,304
Income tax expense (note 7) ....................................................................... 64,886 49,474 42,925
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Income before extraordinary item .............................................. 114,583 89,452 80,379
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Extraordinary item-loss related to early extinguishment of debt (net of income tax benefit of $1,568) --- --- 2,912
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Net income .................................................................... $ 114,583 89,452 77,467
====================================================================================================================================
Net income per share:
Income before extraordinary item ............................................................. $ 1.50 1.19 1.09
Extraordinary item ........................................................................... --- --- (.04)
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Net income .................................................................... $ 1.50 1.19 1.05
====================================================================================================================================
Weighted average shares outstanding ............................................................... 76,636 75,167 74,009
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
SYNOVUS FINANCIAL CORP.
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Net
CONSOLIDATED STATEMENTS OF 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, 1995, 1994, and 1993 Issued Stock Surplus Stock ted Stock for Sale Earnings Total
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Balance at December 31, 1992 .............................66,842 $ 66,842 75,696 (2,974) (1,792) -- 278,235 416,007
Issuance of common stock for acquisition ................. 6,593 6,593 23,484 -- (750) -- 23,964 53,291
Issuance of common stock by pooled subsidiary prior to
acquisition ............................................ 1,269 1,269 11,724 -- -- -- -- 12,993
Net income ............................................... -- -- -- -- -- -- 77,467 77,467
Cash dividends declared - $.373 per share ................ -- -- -- -- -- -- (24,880) (24,880)
Cash dividends of pooled subsidiary prior to acquisition . -- -- -- -- -- -- (2,311) (2,311)
Issuance of restricted stock ............................. 3 3 23 -- (26) -- -- --
Amortization of restricted stock issued under restricted
stock bonus plan (note 8) .............................. -- -- -- -- 746 -- -- 746
Amortization of subsidiary restricted stock bonus plan.... -- -- 497 -- -- -- -- 497
Stock options exercised................................... 196 196 1,258 -- -- -- -- 1,454
Repayment of obligation of employee stock ownership
plan at subsidiary...................................... -- -- -- -- 150 -- -- 150
Net unrealized gain on investment securities available
for sale................................................ -- -- -- -- -- 11,643 -- 11,643
Purchase of fractional shares upon acquisition............ (2) (2) (58) -- -- -- -- (60)
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Balance at December 31, 1993 .............................74,901 74,901 112,624 (2,974) (1,672) 11,643 352,475 546,997
Issuance of common stock for acquisitions ................ 1,097 1,097 3,656 -- -- -- 5,802 10,555
Net income ............................................... -- -- -- -- -- -- 89,452 89,452
Cash dividends declared - $.450 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 ............................. 65 65 1,156 455 (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 ... -- -- 499 -- -- -- -- 499
Stock options exercised .................................. 71 71 347 852 -- -- -- 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 ..................................... -- -- -- -- -- (32,387) 229 (32,158)
Ownership change at majority-owned subsidiary ............ -- -- (192) -- -- -- -- (192)
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Balance at December 31, 1994 .............................76,134 76,134 118,782 (7,680) (1,538) (20,744) 414,926 579,880
Issuance of common stock for acquisitions ................ 529 529 4,492 6,078 -- 183 547 11,829
Net income ............................................... -- -- -- -- -- -- 114,583 114,583
Cash dividends declared - $.540 per share................. -- -- -- -- -- -- (42,042) (42,042)
Treasury shares purchased ................................ -- -- -- (1,303) -- -- -- (1,303)
Issuance of restricted stock............................. 90 90 1,964 -- (2,054) -- -- --
Amortization of restricted stock issued under restricted
stock bonus plan (note 8) .............................. -- -- 493 -- 779 -- -- 1,272
Stock options exercised .................................. 226 226 459 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 ............................................... -- -- -- -- -- 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) ............................................... 302 302 835 -- -- -- -- 1,137
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Balance at December 31, 1995 .............................77,281 $ 77,281 127,021 (1,022) (2,663) 5,774 487,164 693,555
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
ANNUAL REPORT 1995
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31, 1995 1994 1993
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Operating Activities
Net income ................................................................. $ 114,583 89,452 77,467
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary item - loss related to early extinguishment of debt, net .... -- -- 2,912
Provision for losses on loans ............................................. 25,787 25,387 24,924
Depreciation, amortization, and accretion, net ............................ 38,617 38,409 32,843
Deferred income tax benefit ............................................... (4,171) (1,097) (1,062)
(Increase) decrease in interest receivable ................................ (9,973) (6,701) 2,775
Increase (decrease) in interest payable ................................... 14,680 7,316 (1,868)
Minority interest in subsidiary's net income .............................. 5,333 4,325 3,896
(Increase) decrease in mortgage loans held for sale ....................... (15,398) 13,944 (11,665)
Other, net ................................................................ (17,009) (3,122) (191)
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Net cash provided by operating activities ............................... 152,449 167,913 130,031
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Investing Activities
Cash acquired from acquisitions ............................................ 4,431 9,056 30,362
Net business aquisitions by subsidiary ..................................... -- -- 88,997
Net decrease in interest earning deposits with banks ....................... 1,956 553 100
Net (increase) decrease in federal funds sold .............................. (70,770) 137,464 67,734
Proceeds from maturities of investment securities available for sale ....... 173,109 192,186 24,182
Proceeds from sales of investment securities available for sale ............ 136,502 182,972 43,613
Purchases of investment securities available for sale ...................... (394,406) (347,177) (78,544)
Proceeds from maturities of investment securities held to maturity ......... 82,837 87,943 343,760
Proceeds from sales of investment securities held to maturity .............. -- -- 33,803
Purchases of investment securities held to maturity ........................ (92,966) (141,153) (566,335)
Net increase in loans ...................................................... (385,228) (566,101) (431,564)
Purchases of premises and equipment ........................................ (48,212) (41,938) (52,885)
Disposals of premises and equipment ........................................ 1,888 1,007 9,645
Proceeds from sale of other real estate .................................... 12,032 9,078 13,622
Additions to internally developed computer software ........................ (2,617) (10,624) (11,688)
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Net cash used in investing activities ................................... (581,444) (486,734) (485,198)
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Financing Activities
Net increase in demand and savings deposits ................................ 193,870 87,229 279,355
Net increase in certificates of deposit .................................... 528,690 135,539 43,001
Net (decrease) increase in federal funds purchased and securities
sold under agreement to repurchase ....................................... (182,870) 142,125 122,457
Principal repayments on long-term debt ..................................... (33,682) (36,204) (86,446)
Extraordinary item - loss related to early extinguishment of debt, net ..... -- -- (2,912)
Proceeds from issuance of long-term debt ................................... 1,823 17,006 92,260
Purchase of treasury stock ................................................. (1,303) (6,013) --
Dividends paid to shareholders ............................................. (42,042) (33,006) (27,191)
Proceeds from issuance of common stock ..................................... 2,568 1,270 14,447
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Net cash provided by financing activities ............................... 467,054 307,946 434,971
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Increase (decrease) in cash and cash equivalents ............................. 38,059 (10,875) 79,804
Cash and cash equivalents at beginning of period ............................. 344,637 355,512 275,708
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Cash and cash equivalents at end of period ................................... $ 382,696 344,637 355,512
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
SYNOVUS FINANCIAL CORP.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
The consolidated financial statements include the accounts of Synovus
Financial Corp. (Parent Company) and its subsidiaries, all but one of which were
wholly-owned at December 31, 1995. Synovus has 34 wholly-owned bank affiliates
predominantly involved in commercial banking activities and a wholly-owned
broker/dealer company. Total System Services, Inc. (TSYS), an 80.8% owned
subsidiary, is a bankcard data processing company.
The consolidated revenues are primarily contributed from the banking
operations, with TSYS' revenues contributing approximately one quarter of
consolidated revenues. The banking operations revenues are earned in four
southeastern states: Georgia (61%), Alabama (20%), South Carolina (11%), and
Florida (8%). TSYS has two major customers which account for approximately 34%
of their revenues. The remainder of TSYS' revenues are generated from customer
institutions located in North America.
Basis of Presentation
In preparing the 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, 1995, 1994, and 1993, income taxes of $68
million, $48 million, and $42 million, and interest of $259 million, $190
million, and $183 million, respectively, were paid.
Loans receivable of approximately $9 million, $8 million, and $16 million
were transferred to real estate acquired in settlement of loans during 1995,
1994, and 1993, respectively.
Investment securities held to maturity with an amortized cost of
approximately $161 million, $5 million, and $791 million were transferred during
1995, 1994, and 1993, respectively, to investment securities available for sale.
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. Trading securities 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. Held
to maturity securities are recorded at amortized 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. Unrealized gains or losses associated
with transfers of securities from held to maturity to available for sale are
recorded as a separate component of shareholders' equity. 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
ANNUAL REPORT 1995
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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 market. No valuation allowances were required at December 31, 1995 or
1994.
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 a level
yield. 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, timely 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 only 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
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. 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. Loans are charged against the reserve for loan losses when
management believes that the collection of principal is unlikely.
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' affiliate banks'
reserve for loan losses. Such agencies may require Synovus' affiliate 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.
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
Included in other assets are other real estate, originated and purchased
mortgage servicing rights, intangibles, and computer software as described in
the paragraphs below.
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", as an amendment to SFAS No. 65, "Accounting for
Certain Mortgage Banking Activities". SFAS No. 122 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
F-7
SYNOVUS FINANCIAL CORP.
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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. Goodwill and core deposit
premiums are reviewed for impairment on the basis of whether these assets are
fully recoverable from expected undiscounted cash flows of the related business
units.
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 providing processing services to customers are amortized using
the greater of the straight-line method over the estimated useful life or the
ratio of current revenues to current and anticipated revenues.
The carrying value of computer software costs is reviewed for impairment,
and impairment is recognized when the expected undiscounted future cash flows
derived from such intangible assets are less than their carrying value.
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.
Postretirement Benefits
Synovus sponsors a defined benefit health care plan for substantially all
employees and early retirees. Effective January 1, 1993, Synovus adopted SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", which established a new accounting principle for the cost of retiree
health care and other postretirement benefits. Effective in 1993, the expected
costs of such postretirement benefits are being expensed over the period that
employees provide service. Prior to 1993, Synovus recognized these benefits on
the pay-as-you-go method (i.e., cash basis).
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
March 1993 three-for-two stock split, which was effective on April 1, 1993, 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.
F-8
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
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.
The following summarizes the fair value of financial instruments at
December 31, 1995 and 1994.
December 31, 1995 December 31, 1994
------------------- -----------------
Carrying Fair Carrying Fair
(In thousands) Note Value Value Value Value
- ----------------------------------------------------------------------------------------------------------------------------
Federal funds sold ...................................................... -- $123,832 123,832 43,907 43,907
Investment securities available for sale ................................ 2 1,106,298 1,106,298 804,769 804,769
Investment securities held to maturity .................................. 2 380,918 386,579 532,933 510,504
Loans, net unearned income .............................................. 3 5,512,030 5,475,170 5,074,876 4,993,463
Deposits ................................................................ 5 6,727,879 6,732,584 5,924,603 5,915,483
Federal funds purchased and securities sold under agreement to repurchase 6 229,477 229,477 412,082 412,082
Long-term debt .......................................................... 6 106,815 105,874 139,811 129,658
Commitments ............................................................. 9 1,860,427 1,860,427 1,656,510 1,656,510
Interest rate swaps ..................................................... 9 -- 1,776 -- --
Other
Certain amounts in 1994 and 1993 have been reclassified to conform with
presentation adopted in 1995.
Recent Accounting Pronouncements
On October 23, 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation" was issued. SFAS No. 123 allows companies to retain the current
approach set forth in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", for recognizing stock-based compensation expense
in the basic financial statements; however, companies are encouraged to adopt a
new accounting method based on the estimated fair value of employee stock
options. Companies that do not follow the new fair value based method will be
required to provide expanded disclosures in the footnotes. SFAS No. 123 is
effective for fiscal years ended December 31, 1996, and Synovus intends to
provide such information in expanded disclosures in the footnotes.
F-9
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 Business Combinations
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 626,469
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 7,929,348 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 years ended December 31, 1994 and 1993 have been restated for
the NBSC acquisition as follows:
1994 1993
----------------------- -----------------------
Before Before
(In thousands, except per share data) Acquisition Restated Acquisition Restated
- ------------------------------------------------------------------------------------------------------------------------
Net interest income .................................................. $ 259,502 301,231 229,063 263,213
=========================================================================================================================
Income before extraordinary item ..................................... $ 86,448 89,452 74,058 80,379
Extraordinary item - loss related to early extinguishment of debt (net
of income tax benefit of $1,568) ................................... -- -- 2,912 2,912
- -----------------------------------------------------------------------------------------------------------------------
Net income ........................................................... $ 86,448 89,452 71,146 77,467
========================================================================================================================
Net income per share:
Income before extraordinary item ..................................... $ 1.29 1.19 1.11 1.09
Extraordinary item ................................................... -- -- (.04) (.04)
- ------------------------------------------------------------------------------------------------------------------------
Net income ........................................................... $ 1.29 1.19 1.07 1.05
=======================================================================================================================
On January 31, 1995, Synovus completed the acquisition of the $43 million
asset Peach State Bank (PSB), Riverdale, Georgia. Synovus issued 266,498
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
Banchares, Inc. (SBI), the parent company of the $62 million asset, Coffee
County Bank, Enterprise, Alabama. Synovus issued 548,879 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 548,213 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
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 2 Investment Securities
The carrying and approximate market values of investment securities are
summarized as follows:
December 31, 1995
-----------------------------------------------
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 $ 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, 1994
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $ 798,990 286 (31,732) 767,544
Mortgage-backed securities ................. 24,819 160 (566) 24,413
State and municipal ........................ 1,523 -- (32) 1,491
Other investments .......................... 11,355 741 (775) 11,321
- ----------------------------------------------------------------------------------------------
Total .................................... $ 836,687 1,187 (33,105) 804,769
==============================================================================================
December 31, 1995
-------------------------------------------------
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 $ 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
=============================================================================================
December 31, 1994
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $ 159,354 24 (9,326) 150,052
Mortgage-backed securities ................. 243,220 152 (13,725) 229,647
State and municipal ........................ 121,834 1,893 (1,531) 122,196
Other investments .......................... 8,525 84 -- 8,609
- -----------------------------------------------------------------------------------------------
Total .................................... $ 532,933 2,153 (24,582) 510,504
===============================================================================================
Prior to January 1, 1994, unrealized losses on mutual funds were included
in retained earnings. However, these amounts, $229,000, have been reclassified
and included in the net unrealized gain (loss) component of shareholders' equity
effective December 31, 1994.
On December 21, 1995, Synovus exercised an option permitted by the "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 securities held to maturity to securities available for sale.
This transfer was made to add further liquidity and flexibility to the portfolio
that will enable 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. Such transfers consisted of investment
securities with an estimated fair value of $27.1 million and an amortized cost
of $27.4 million.
F-11
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994, 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, 1995 December 31, 1995
----------------------- ---------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government Agencies:
Within 1 year ............................. $ 14,924 14,994 241,142 241,688
1 to 5 years .............................. 44,615 44,708 553,647 557,958
5 to 10 years ............................. 22,233 22,878 200,840 204,131
More than 10 years ........................ -- -- 500 509
- ---------------------------------------------------------------------------------------------
$ 81,772 82,580 996,129 1,004,286
=============================================================================================
Mortgage-backed securities:
Within 1 year ............................. $ 1,692 1,710 1,237 1,239
1 to 5 years .............................. 73,793 72,846 34,702 34,612
5 to 10 years ............................. 22,174 22,465 11,577 11,644
More than 10 years ........................ 73,616 74,406 40,225 40,701
- ---------------------------------------------------------------------------------------------
$ 171,275 171,427 87,741 88,196
=============================================================================================
State and municipal:
Within 1 year ............................. $ 17,986 18,265 299 298
1 to 5 years .............................. 52,596 54,225 594 668
5 to 10 years ............................. 35,218 36,717 100 98
More than 10 years ........................ 15,961 17,218 258 258
- ---------------------------------------------------------------------------------------------
$ 121,761 126,425 1,251 1,322
=============================================================================================
Other investments:
Within 1 year ............................. $ 98 99 3,329 3,382
1 to 5 years .............................. 1,832 1,869 3,005 3,325
5 to 10 years ............................. 265 265 2,082 2,251
More than 10 years ........................ 3,915 3,914 3,838 3,536
- ---------------------------------------------------------------------------------------------
$ 6,110 6,147 12,254 12,494
=============================================================================================
Total investment securities:
Within 1 year ............................. $ 34,700 35,068 246,007 246,607
1 to 5 years .............................. 172,836 173,648 591,948 596,563
5 to 10 years ............................. 79,890 82,325 214,599 218,124
More than 10 years ........................ 93,492 95,538 44,821 45,004
- ---------------------------------------------------------------------------------------------
$ 380,918 386,579 1,097,375 1,106,298
=============================================================================================
A summary of investment security sales transactions for 1995, 1994, and 1993 is
as follows:
Investment Securities Held to Maturity Investment Securities Available for Sale
-------------------------------------- ---------------------------------------
Gross Gross Gross Gross
Realized Realized Realized Realized
(In thousands) Proceeds Gains Losses Proceeds Gains Losses
- ----------------------------------------------------------------------------------------------------------
1995....................$ -- -- -- 136,502 1,164 (796)
1994.................... -- -- -- 182,972 957 (1,678)
1993.................... 33,803 333 (69) 43,613 844 --
Securities with a carrying value of $879,232,000 and $879,038,000 at December
31, 1995 and 1994, respectively, were pledged to secure certain deposits as
required by law.
- --------------------------------------------------------------------------------
F-12
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 Loans
Loans outstanding, by classification, are summarized as follows:
December 31,
--------------------------
1995 1994
--------------------------
Commercial:
Commercial, financial, and agricultural ... $ 1,931,004 1,783,928
Real estate-construction .................. 578,712 472,131
Real estate-mortgage ...................... 1,160,089 1,030,524
- --------------------------------------------------------------------------------
Total commercial ........................ 3,669,805 3,286,583
- --------------------------------------------------------------------------------
Retail:
Real estate-mortgage ...................... 824,998 865,642
Installment loans-credit card ............. 222,204 171,475
Installment loans-other ................... 784,972 756,402
Mortgage loans held for sale .............. 24,863 9,465
- --------------------------------------------------------------------------------
Total retail ............................ 1,857,037 1,802,984
- --------------------------------------------------------------------------------
Total loans ............................. $ 5,526,842 5,089,567
================================================================================
Activity in the reserve for loan losses is summarized as follows:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Balance at beginning of year .............. $ 75,018 67,270 61,336
Loan loss reserves of acquired subsidiaries 1,001 1,535 --
Provision for losses on loans ............. 25,787 25,387 24,924
Recoveries of loans previously charged off 4,510 5,874 4,767
Loans charged off ......................... (24,932) (25,048) (23,757)
- --------------------------------------------------------------------------------
Balance at end of year .................... $ 81,384 75,018 67,270
================================================================================
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, 1995.
Allocated
Loan Loan Loss
(In thousands) Balance Reserve
- --------------------------------------------------------------------------------
Impaired loans, nonaccruing, with loan loss reserve .... $13,083 5,619
Impaired loans, nonaccruing, with no loan loss reserve . 7,151 --
Impaired loans, accruing, with loan loss reserve ....... 35,833 13,255
Impaired loans, accruing, with no loan loss reserve .... 23,735 --
Impaired loans, accruing, partially charged off ........ 329 62
- --------------------------------------------------------------------------------
Total .............................................. $80,131 18,936
================================================================================
F-13
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
These loan loss reserve amounts were primarily determined using the fair
value of the loans' collateral. The average recorded investment in impaired
loans was approximately $87,000,000 for the year ended December 31, 1995 and the
related amount of interest income recognized during the period that such loans
were impaired was approximately $5,695,000.
Loans on nonaccrual status amounted to approximately $21,469,000,
$26,497,000, and 30,296,000 at December 31, 1995, 1994, and 1993, respectively.
If nonaccruing loans had been on a full accruing basis, interest income on these
loans would have been increased by approximately $2,606,000, $2,931,000, and
$2,632,000 in 1995, 1994, and 1993, respectively.
A substantial portion of Synovus' loans are secured by real estate in
markets in which affiliate 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, 1995, an affiliate company serviced mortgage loans for
unaffiliated investors in the amount of $664,931,000. This company carries error
and omissions insurance in the amount of $1,000,000. Synovus records servicing
fee income on these loans based upon the outstanding balance of the loans
serviced.
The following table presents information for mortgage loans held for sale
as of December 31, 1995 and 1994:
December 31,
---------------------
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
Beginning balance ..................................... $ 9,465 23,409
Loans originated during the year ...................... 213,645 210,056
Loans sold during the year ............................ (198,247) (224,000)
- --------------------------------------------------------------------------------
Ending balance ........................................ $ 24,863 9,465
================================================================================
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.
The following table presents information for the fair value of loans as of
December 31, 1995 and 1994:
1995 1994
---------------------- -----------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------------------------------
Adjustable rate loans, net of unearned income ................... $ 3,197,420 3,239,448 2,730,818 2,727,760
Fixed rate loans, net of unearned income ........................ 2,314,610 2,235,722 2,344,058 2,265,703
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, 1995 (in thousands).
Balance at December 31, 1994 .......................................................................... $ 135,645
Adjustment for executive officer and director changes ................................................. (9,399)
- -----------------------------------------------------------------------------------------------------------------------
Adjusted balance at December 31, 1994 ................................................................. 126,246
New loans ............................................................................................. 66,482
Repayments ............................................................................................ (65,310)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 .......................................................................... $ 127,418
========================================================================================================================
- --------------------------------------------------------------------------------
F-14
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 Other Assets
Included in other assets are two significant balances; purchased and
originated mortgage servicing rights, and computer software costs.
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, 1995,
Synovus had approximately $8,569,000 in capitalized mortgage servicing rights,
the fair value of which was approximately $9,844,000 and, at year end 1995,
there was no valuation allowance.
The following table summarizes TSYS computer software at December 31, 1995
and 1994:
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
TS2 ......................................................................................... $33,049 33,049
Other internally developed software, including enhancements to TS2 .......................... 5,346 3,804
Purchased computer software ................................................................. 17,138 11,781
- ------------------------------------------------------------------------------------------------------------------------------------
55,533 48,634
Less accumulated amortization ............................................................... 16,317 9,394
- ------------------------------------------------------------------------------------------------------------------------------------
Computer software, net ...................................................................... $39,216 39,240
====================================================================================================================================
Capitalized software development costs, related to the bankcard data
processing, for the years ended December 31, 1995, 1994, and 1993 were
$2,617,000, $10,624,000, and $11,688,000, respectively. Amortization expense
related to computer software costs was $7,358,000, $3,669,000 and $2,175,000 for
the years ended December 31, 1995, 1994, and 1993, respectively.
- --------------------------------------------------------------------------------
Note 5 Deposits
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. The following table presents fair value information on deposits as
of December 31, 1995 and 1994:
1995 1994
------------------------------ ---------------------------
Carrying Estimated Carrying Estimated
(In thousands) Value Fair Value Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits ....................... $1,141,716 1,141,716 983,056 983,056
Interest bearing demand deposits ........................... 932,351 932,351 911,869 911,869
Money market accounts ...................................... 925,861 925,861 843,619 843,619
Savings accounts ........................................... 465,491 465,491 485,989 485,989
Time deposits .............................................. 3,262,460 3,267,165 2,700,070 2,690,950
- ------------------------------------------------------------------------------------------------------------------------------------
$6,727,879 6,732,584 5,924,603 5,915,483
====================================================================================================================================
Time deposits over $100,000 at December 31, 1995, 1994, and 1993, were
$1,023,900,000, $804,936,000, and $688,332,000, respectively. Interest expense
for the years ended December 31, 1995, 1994, and 1993 on these large
denomination deposits was $57,259,000, $31,865,000, and $27,605,000,
respectively.
- --------------------------------------------------------------------------------
F-15
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 Long-Term Debt
Long-term debt consists of the following:
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
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
9.50% promissory notes, due October 31, 1995, with interest due monthly............................................. -- 13,000
Unsecured revolving credit agreement, due May 1, 1995, with interest due quarterly at .50% below the prime rate..... -- 12,500
8.75% Debenture, due May 15, 2004, with annual principal payments of $120,000 and $1,600,000 at maturity............ 2,440 2,560
- ------------------------------------------------------------------------------------------------------------------------------------
Total Parent Company Debt ..................................................................................... 77,440 103,060
- ------------------------------------------------------------------------------------------------------------------------------------
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 5.90% at December 31, 1995............... 26,300 34,140
12.00% mandatory convertible subordinated debentures, due August 19, 1995, with interest payments
due semi-annually. (See details below regarding conversion)................................................... -- 1,137
9.23% note payable, due October 31, 2003, with annual principal and interest payments.............................. 348 376
8.00% capital lease obligation payable, due in monthly principal and interest payments through 2002................ 274 301
Other notes payable and capital lease obligations payable, with a weighted average interest
rate of 5.44%, maturing at various dates through 2000......................................................... 2,453 797
- ------------------------------------------------------------------------------------------------------------------------------------
Total Subsidiaries Debt.................................................................................. 29,375 36,751
- ------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt.....................................................................................$106,815 139,811
====================================================================================================================================
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, 1995, the most restrictive of
these allow for the payment of cash dividends up to a maximum of $114,583,000.
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 301,886 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,
1995, of approximately $829,000.
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, 1995 or 1994.
Required annual principal payments on long-term debt for the five years
subsequent to December 31, 1995, are as follows:
Parent
(In thousands) Company Subsidiaries Total
- --------------------------------------------------------------------------------
1996....................$120 12,503 12,623
1997.................... 120 8,104 8,224
1998.................... 120 7,079 7,199
1999.................... 120 382 502
2000.................... 120 307 427
F-16
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Short-term and long-term debt with adjustable interest rates are assumed to
be at fair value. Short-term debt that matures within ten days is also 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. The following table presents fair value
information on short-term and long-term debt as of December 31, 1995 and 1994:
1995 1994
------------------------- --------------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------------------------
Long-term debt with adjustable interest rates.......... $ -- -- 12,500 12,500
Long-term debt with fixed interest rates............... 106,815 105,874 127,311 117,158
- --------------------------------------------------------------------------------------------------------------------
Note 7 Income Taxes
Income tax expense (benefit) attributable to income before extraordinary item
consists of:
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Currently payable:
Federal .......... $ 65,009 46,304 39,634
State ............ 4,048 4,267 4,353
- --------------------------------------------------------------------------------
69,057 50,571 43,987
- --------------------------------------------------------------------------------
Deferred:
Federal .......... (3,792) (997) (989)
State ............ (379) (100) (73)
- --------------------------------------------------------------------------------
(4,171) (1,097) (1,062)
- --------------------------------------------------------------------------------
Total income taxes $ 64,886 49,474 42,925
================================================================================
Income tax expense attributable to income before extraordinary item differed
from the amounts computed by applying the U.S. Federal income tax rate of 35%
to pretax income before extraordinary item as a result of the following:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------
Taxes at statutory federal income tax rate .......... $ 62,814 48,624 43,156
Tax-exempt income ................................... (2,956) (3,654) (4,287)
State income taxes, net of federal income tax benefit 2,385 2,709 2,782
Minority interest ................................... 1,867 1,514 1,364
Other, net .......................................... 776 281 (90)
- ----------------------------------------------------------------------------------------
Total income tax expense .......................... $ 64,886 49,474 42,925
========================================================================================
Effective tax rate ................................ 36.15% 35.61 34.81
=========================================================================================
The significant components of deferred income tax expense for the years
ended December 31, 1995 and 1994 are as follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in net tax benefit (exclusive of the components listed below) .............. $ (9,065) 17,339 208
Adjustments to deferred income tax assets and liabilities for enacted tax rate change .......... -- 240 786
Change in valuation allowance .................................................................. (418) 406 95
Change in deferred income tax assets and liabilities related to net unrealized gain (loss)
on securities available for sale ............................................................. 13,788 (16,555) (27)
Deferred tax assets of acquired companies ...................................................... (134) (333) --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4,171 1,097 1,062
====================================================================================================================================
F-17
SYNOVUS FINANCIAL CORP.
- -------------------------------------------------------------------------------
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, 1995
and 1994 are presented below:
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax assets:
Provision for losses on loans ........................................................... $ 32,244 28,406
Net unrealized loss on investment securities available for sale ......................... -- 10,638
Other ................................................................................... 11,610 8,857
- ------------------------------------------------------------------------------------------------------------------------------------
Total gross deferred income tax assets ................................................ 43,854 47,901
Less valuation allowance .............................................................. (383) (801)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax assets ..................................................... 43,471 47,100
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Differences in depreciation ............................................................. (6,220) (5,134)
Restricted stock awards ................................................................. (1,206) (1,163)
Computer software development costs ..................................................... (14,958) (13,050)
Net unrealized gain on investment securities available for sale ......................... (3,150) --
Pension ................................................................................. (241) (2,111)
Purchase accounting adjustments ......................................................... (1,338) (1,593)
Other, net .............................................................................. (7,791) (6,417)
- ------------------------------------------------------------------------------------------------------------------------------------
Total gross deferred income tax liabilities .......................................... (34,904) (29,468)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax assets .................................................... $ 8,567 17,632
====================================================================================================================================
The valuation allowance for deferred tax assets as of December 31, 1995 and
1994 was $383,000, and $801,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1995 and 1994 was a
decrease of $418,000 and an increase of $406,000, 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, 1995.
- --------------------------------------------------------------------------------
Note 8 Employee Benefit Plans
In 1994 and 1993, Synovus had noncontributory, trusteed pension plans
(collectively referred to as "Plan") covering substantially all employees over
201/2 years of age. Total pension expense recorded in the accompanying financial
statements was approximately $1,516,000 and $1,182,000, in 1994 and 1993,
respectively.
In 1995, Synovus terminated the Plan and began to settle the benefit
obligations. During the year ended December 31, 1995, approximately $15,849,000
of the accumulated benefit obligation was settled with a loss on settlement of
$3,195,000. The remaining obligations will be settled in 1996 with an expected
loss on settlement of approximately $600,000.
In 1995, Synovus adopted a 7% defined-contribution, money purchase plan to
replace the terminated pension plan 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 affiliate, 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 were $23,238,000, $12,853,000, and $12,107,000,
in 1995, 1994, and 1993, 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
$2,623,000, $1,949,000, and $1,552,000 to these plans in 1995, 1994, and 1993,
respectively.
F-18
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Synovus has 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
estimated present value of the deferred compensation is being accrued over the
remaining expected term of active employment. Aggregate compensation expense
under the foregoing employment agreements, together with the cost of salary
continuation plans for certain other officers, was approximately $260,000,
$460,000, and $377,000 in 1995, 1994, and 1993, respectively.
Synovus provides certain medical benefits to qualified retirees through a
postretirement medical benefits plan. The benefit expense and accrued benefit
cost are not material to Synovus' consolidated financial statements.
Under key executive restricted stock bonus plans, Synovus has awarded an
aggregate of 232,732 non-transferable, restricted shares of Synovus common stock
to various key executives. 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 restricted stock awards was
approximately $779,000, $1,421,000, and $746,000 in 1995, 1994, and 1993,
respectively.
Year plan Market value
adopted at award date Vesting period
- --------------------------------------------------------------------------------
1990 $ 185,000 5 years
1992 1,576,000 4 years
1994 870,000 5 years
1995 2,054,000 5 years
TSYS has awarded 653,400 non-transferable, restricted shares of its common
stock to various key executives under restricted stock bonus plans. The
aggregate market value of the shares is being amortized on a straight-line basis
over the vesting period of the awards. The amounts and terms of common stock
issued under restricted stock bonus awards are summarized as follows:
Year plan Market value
adopted at award date Vesting period
- --------------------------------------------------------------------------------
1985 $ 228,125 10 years
1990 165,886 70 months
1992 1,801,250 6 years
1992 1,332,800 5 years
Under the various stock option plans, Synovus has granted options for
2,256,264 shares of common stock to officers of Synovus and its affiliates.
Synovus has expensed $1,016,000, $1,129,000, and $1,074,000 in 1995, 1994, and
1993, respectively, related to the compensation element of these plans. At
December 31, 1995, unamortized deferred compensation expense of $2,239,000
related to these options remained and will be amortized over the vesting period
through 1997. The options outstanding at December 31, 1995, had an average price
of $15.17.
Additional information relating to these stock options is as follows:
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of period .............. 1,876,888 1,584,344 1,462,687
Options granted ......................................... 825,124 542,177 334,279
Options exercised ....................................... (436,410) (177,409) (212,622)
Options cancelled ....................................... (9,338) (72,224) --
- -------------------------------------------------------------------------------------------------------------------
Options outstanding at end of period .................. 2,256,264 1,876,888 1,584,344
===================================================================================================================
Options exercisable at end of period .................. 741,356 589,142 491,291
===================================================================================================================
Options' prices per share:
Options granted during the period ..................... $ 9.74 to 22.75 7.14 to 19.12 9.72 to 10.67
Options exercised during the period ................... $ 4.55 to 11.70 4.12 to 10.83 3.93 to 15.23
Options outstanding at end of period .................. $ 4.55 to 22.75 4.55 to 19.12 3.93 to 15.23
- -------------------------------------------------------------------------------------------------------------------
F-19
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9 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. 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 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, 1995 and 1994
include the following:
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------
Standby letters of credit .................................................. $ 255,230 192,162
Undisbursed construction loans ............................................ 316,139 269,549
Unused credit card lines .................................................. 552,831 557,270
Other loan commitments ..................................................... 700,227 624,029
Commitments to sell mortgage loans.......................................... 36,000 13,500
- ------------------------------------------------------------------------------------------------------
Total .................................................................... $1,860,427 1,656,510
======================================================================================================
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 interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts, but also the interest rate risk associated with
hedged positions. 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. The consolidated notional amount of interest rate swap
contracts is $125,000,000 with no carrying amount and an estimated fair value of
$1,776,000 at December 31, 1995.
These interest rate swaps have been entered into to convert floating rate
assets to fixed rate assets. The weighted average fixed rate is 5.98% and the
variable rate, based on three month LIBOR, was 5.88% at December 31, 1995, with
contract maturities in October 1999.
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, 1995, minimum rental commitments under all such noncancellable
leases aggregated $84,296,000 of which the following approximate amounts are due
for the next five years:
Equipment
Real and
(In thousands) Property Furniture Total
- --------------------------------------------------------------------------------
1996....................... $5,136 26,253 31,389
1997....................... 4,253 22,484 26,737
1998....................... 3,650 5,203 8,853
1999....................... 2,999 3,919 6,918
2000....................... 2,632 1,453 4,085
Rental expense on equipment, including cancellable leases, was $33,445,000,
$25,111,000, and $21,716,000 in 1995, 1994, and 1993, respectively. Rental
expense on facilities was $6,144,000, $5,586,000, and $4,659,000 in 1995, 1994,
and 1993, respectively.
F-20
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Contract Commitments
In the normal course of its business, TSYS maintains processing agreements
with its customers. These processing 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.
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 some 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 plantiffs,
have been awarded in Alabama.
- --------------------------------------------------------------------------------
Note 10 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) 1995 1994 1993
- --------------------------------------------------------------------------------
Stationery, printing, and supplies............. $23,692 19,552 16,240
FDIC insurance ................................ 7,849 12,742 11,450
- --------------------------------------------------------------------------------
F-21
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11 Industry Segments
Synovus operates principally in the banking industry through its affiliate
banks and broker/dealer company. Synovus also operates in the computerized data
processing industry through its majority-owned subsidiary, TSYS, which 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, 1995, 1994,
and 1993 is presented below.
Data General
(In thousands) Banking Processing Corporate Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------
Revenues.......................... 1995 $ 709,774 249,708 -- (2,860)<F1> 956,622
1994 586,917 187,571 -- (1,774)<F1> 772,714
1993 529,722 152,074 -- (1,662)<F1> 680,134
Net income........................ 1995 105,692 27,730 (13,506) (5,333)<F2> 114,583
1994 83,983 22,490 (12,696) (4,325)<F2> 89,452
1993 76,364 20,223 (15,224) (3,896)<F2> 77,467
Identifiable assets............... 1995 7,719,615 199,000 51,478 (42,498) 7,927,595
1994 6,989,998 165,042 55,111 (34,072) 7,176,079
1993 6,508,231 133,339 34,267 (19,663) 6,656,174
Capital expenditures<F3>......... 1995 22,835 25,108 269 -- 48,212
1994 19,117 22,501 320 -- 41,938
1993 30,786 21,630 469 -- 52,885
Depreciation and
amortization on premises,
equipment, and purchased
software ....................... 1995 13,999 17,126 332 -- 31,457
1994 12,871 13,472 365 -- 26,708
1993 11,834 12,556 280 -- 24,670
- ---------------------
<FN>
<F1> Principally, data processing service revenues provided to the banking segment.
<F2> Minority interest in the data processing segment.
<F3> Excludes expenditures related to data processing subsidiary's capitalization
of internal software development costs.
- --------------------------------------------------------------------------------------------------------------------
F-22
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12 Condensed Financial Information of Synovus Financial Corp.
(Parent Company only)
Condensed Statements of Condition
(In thousands)
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Cash .......................................................................................... $ 47 239
Investment in consolidated bank subsidiaries, at equity ....................................... 736,379 639,801
Investment in consolidated nonbank subsidiaries, at equity .................................... 6,775 4,874
Notes receivable from subsidiaries ............................................................ 27,853 24,288
Other assets .................................................................................. 24,040 33,069
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets ........................................................................ $ 795,094 702,271
====================================================================================================================================
Liabilities and Shareholders' Equity
Long-term debt ................................................................................ $ 77,440 103,060
Other liabilities ............................................................................. 24,099 19,331
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities ................................................................... 101,539 122,391
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock ............................................................................. 77,281 76,134
Surplus .................................................................................. 127,021 118,782
Less treasury stock ...................................................................... (1,022) (7,680)
Less unamortized restricted stock ........................................................ (2,663) (1,538)
Net unrealized gain (loss) on investment securities available for sale ................... 5,774 (20,744)
Retained earnings ........................................................................ 487,164 414,926
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity .......................................................... 693,555 579,880
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity .......................................... $ 795,094 702,271
====================================================================================================================================
F-23
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Condensed Statements of Income
(In thousands)
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends received from bank subsidiaries .............................................. $ 76,464 72,800 46,407
Dividends received from nonbank subsidiaries ........................................... -- 300 733
Management fees ........................................................................ 2,511 3,586 3,273
Interest income ........................................................................ 2,149 1,425 546
Other income ........................................................................... 2,616 2,330 1,851
- ------------------------------------------------------------------------------------------------------------------------------------
Total income ...................................................................... 83,740 80,441 52,810
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Interest expense ....................................................................... 6,046 6,874 6,983
Other expenses ......................................................................... 23,904 19,758 17,103
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses .................................................................... 29,950 26,632 24,086
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed income of subsidiaries ..... 53,790 53,809 28,724
Allocated income tax benefit ................................................................ (9,246) (6,931) (3,585)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed income of subsidiaries ...................... 63,036 60,740 32,309
Equity in undistributed income of subsidiaries .............................................. 51,547 28,712 48,070
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item .................................................. 114,583 89,452 80,379
Extraordinary item - loss related to early extinguishment of debt (net of income tax
benefit of $1,568)..................................................................... -- -- 2,912
- ------------------------------------------------------------------------------------------------------------------------------------
Net income ........................................................................ $ 114,583 89,452 77,467
====================================================================================================================================
F-24
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Condensed Statements of Cash Flows
(In thousands)
Years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income ..................................................................... $ 114,583 89,452 77,467
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries ..................... (51,547) (28,712) (48,070)
Net income of equity method investment ............................... (78) (337) (329)
Extraordinary item - loss related to early extinguishment of debt, net -- -- 2,912
Depreciation, amortization, and accretion, net ....................... 739 1,312 1,326
Net increase in other liabilities .................................... 5,723 5,474 5,383
Net decrease (increase) in other assets .............................. 8,799 (10,632) (1,047)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ....................... 78,219 56,557 37,642
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Net investment in subsidiaries ................................................. (9,835) (11,005) (22,180)
Cash from merged parent company operations ..................................... 515 -- --
Net decrease (increase) in notes receivable from subsidiaries .................. 1,200 1,700 (400)
Net increase in short-term notes receivable from subsidiaries .................. (4,765) (6,907) (11,481)
Purchase of premises and equipment, net ........................................ (266) (301) (913)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ........................... (13,151) (16,513) (34,974)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Dividends paid to shareholders ................................................. (42,042) (33,006) (27,191)
Net decrease in short-term borrowings .......................................... -- (5,404) (620)
Principal repayments on long-term debt ......................................... (25,620) (2,166) (69,065)
Extraordinary item - loss related to early extinguishment of debt, net ......... -- -- (2,912)
Proceeds from issuance of long-term debt ....................................... -- 5,000 82,500
Purchase of treasury stock ..................................................... (1,303) (6,013) --
Proceeds from issuance of common stock ......................................... 3,705 1,270 14,447
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities ........................... (65,260) (40,319) (2,841)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in cash .................................................................... (192) (275) (173)
Cash at beginning of period ......................................................... 239 514 687
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of period ............................................................... $ 47 239 514
====================================================================================================================================
Supplemental Information: For the years ended December 31, 1995, 1994, and
1993, the Parent Company paid income taxes of $68 million, $48 million, and $42
million, and interest in the amounts of $6 million, $7 million, and $7 million,
respectively.
The amount of dividends paid to the Parent Company from the affiliate banks
is limited by various banking regulatory agencies. The amount of cash dividends
available from subsidiary banks for payment in 1996, without prior approval from
the banking regulatory agencies, is approximately $98,375,000. 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, 1995,
approximately $644,779,000 of the Parent Company's investment in net assets of
subsidiary banks of $743,154,000, 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.
The Federal Reserve Board issues guidelines for insured banks' minimum
capital requirements. The capital requirements are based upon the perceived risk
inherent in the assets of the company. The minimum risk-based capital required
is 8% of which 4% must be Tier 1 Capital. Synovus exceeded minimum levels of
required regulatory capital at December 31, 1995.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established five capital categories for banks and bank holding companies. The
bank regulators adopted regulations defining these five capital categories in
September 1992. Under the regulations, each bank is classified into one of the
five categories (well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized) based on its
level of risk-based capital as measured by the bank's Tier 1 capital ratio,
total risk-based capital ratio, leverage ratio, and supervisory rating. FDICIA
defines "well-capitalized" banks or bank holding companies as entities having a
total risk-based capital ratio of 10% or higher, a Tier I risk-based capital
ratio of 6% or higher, and a leverage ratio of 5% or higher. At December 31,
1995, Synovus and its bank subsidiaries have adequate capital to be classified
as well-capitalized institutions under the FDICIA regulations.
- --------------------------------------------------------------------------------
F-25
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
[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, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
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, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in the summary of significant accounting policies and note 2,
Synovus changed its method of accounting for investments to adopt the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", at December 31, 1993.
/s/KPMG Peat Marwick LLP
January 26, 1996
Member Firm of
Klynveld Peat Marwick Goerdeler
F-26
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
Percent
Years ended December 31, 1995 1994 Change
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Condition
Assets ................................................ $7,927,595 7,176,079 10.5%
Loans, net ............................................ 5,430,646 4,999,858 8.6
Deposits .............................................. 6,727,879 5,924,603 13.6
Shareholders' equity .................................. 693,555 579,880 19.6
Book value per share .................................. 8.98 7.67 17.1
Cash dividends declared per share ..................... .54 .45 20.0
Equity to assets ...................................... 8.75% 8.08
Reserve for loan losses to loans ...................... 1.48 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Income
Net income ............................................ $ 114,583 89,452 28.1%
Net income per share .................................. 1.50 1.19 25.6
- ------------------------------------------------------------------------------------------------------------------------------------
Performance Ratios
Return on assets ...................................... 1.53% 1.32
Return on equity ...................................... 17.92 15.79
Net interest margin ................................... 5.15 5.05
Net overhead ratio .................................... 1.75 1.95
- ------------------------------------------------------------------------------------------------------------------------------------
F-27
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
Summary
Synovus Financial Corp. (Synovus) has continued to improve performance with
the most successful year in its history. Net income for 1995 was $114.6 million,
increasing 28.1% over the $89.5 million earned in 1994. Net income per share
increased to $1.50 in 1995, up 25.6% from the $1.19 earned in 1994. Return on
assets continued to improve in 1995 increasing 21 basis points to 1.53%,
compared to 1.32% in 1994. Return on equity also improved to 17.92% in 1995,
compared to 15.79% in 1994.
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 1995, net interest income
and non-interest income grew 13.5% and 24.2%, respectively, over 1994 while
non-interest expense increased 16.0% and the provision for loan losses increased
only 1.6%.
Synovus' banking operations results, which exclude TSYS, also continued to
improve during 1995. Net income for Synovus' banking operations increased 29.3%
to $92.2 million from $71.3 million in 1994. Return on assets for Synovus'
banking operations improved in 1995 increasing 19 basis points to 1.26%,
compared to 1.07% in 1994. Return on equity allocated to Synovus' banking
operations also improved to 17.31% in 1995, compared to 15.01% in 1994.
Synovus' total assets ended the year at $7.9 billion, a growth rate of
10.5% over 1994. This growth resulted from an $803.3 million increase, or 13.6%,
in total deposits. Net loans grew $430.8 million, or 8.6%. The increases in both
loans and deposits reflect a strong Southeastern economic environment as well as
market share gains. Shareholders' equity grew 19.6% to $693.6 million, which
represented 8.75% 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 8, 1993, Synovus declared a three-for-two stock split effective
April 1, 1993, to shareholders of record on March 18, 1993. Share and per share
data for all periods presented have been retroactively 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,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ........................................ $341,875 301,231 263,213 241,203 203,728
Provision for losses on loans .............................. 25,787 25,387 24,924 33,302 29,161
Income before extraordinary item ........................... 114,583 89,452 80,379 66,685 51,959
Net income ................................................. 114,583 89,452 77,467 66,685 51,959
Per share data:
Income before extraordinary item ...................... 1.50 1.19 1.09 .92 .74
Net income ............................................ 1.50 1.19 1.05 .92 .74
Cash dividends declared ............................... .540 .450 .373 .310 .267
Long-term debt ............................................. 106,815 139,811 143,481 143,215 109,794
Average total equity ....................................... 639,426 566,562 505,027 444,565 383,352
Average total assets ....................................... 7,498,299 6,782,659 6,141,794 5,702,968 4,966,446
Ratios:
Return on assets before extraordinary item ............ 1.53% 1.32 1.31 1.17 1.05
Return on assets after extraordinary item ............. 1.53 1.32 1.26 1.17 1.05
Return on equity before extraordinary item ............ 17.92 15.79 15.92 15.00 13.55
Return on equity after extraordinary item ............. 17.92 15.79 15.34 15.00 13.55
Dividend payout ratio (a) ............................. 36.69 36.90 35.10 28.59 30.79
Average equity to average assets ...................... 8.53 8.35 8.22 7.80 7.72
(a) Determined by dividing dividends declared by net income, including pooled subsidiaries.
- --------------------------------------------------------------------------------
F-28
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
Acquisitions
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 two years follows:
(Dollars in thousands)
Acquired Shares Financial
Company and Location Date Assets Issued Statement Presentation
- -----------------------------------------------------------------------------------------------------------------------------------
Citizens & Merchants Corporation April 28, 1995 $ 52,000 626,469 Pooling (Non-restated)
Douglasville, Georgia
NBSC Corporation February 28, 1995 $1,100,000 7,929,348 Restated Pooling
Columbia, South Carolina
Peach State Bank January 31, 1995 $ 43,000 266,498 Purchase
Riverdale, Georgia
State Bancshares, Inc. October 31, 1994 $ 62,000 548,879 Pooling (Non-restated)
Enterprise, Alabama
PNB Bankshares, Inc. May 31, 1994 $ 78,000 548,213 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,
----------------------------------------------------
1995 1994 1993
----------------------------------------------------
Interest income .......................................................... $615,788 498,382 443,872
Taxable-equivalent adjustment ............................................ 5,107 5,599 6,830
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income, taxable-equivalent ............................ 620,895 503,981 450,702
Interest expense ......................................................... 273,913 197,151 180,659
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income, taxable-equivalent ........................ $346,982 306,830 270,043
====================================================================================================================================
- --------------------------------------------------------------------------------
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for 1995 were $7.5 billion, or 10.6% over 1994 average
total assets of $6.8 billion. Average earning assets for 1995 were $6.7 billion,
which represented 90% of average total assets. A $664.6 million, or 11.6%,
increase in average deposits for 1995 provided the funding for a $628.3 million,
or 13.6%, increase in average net loans. Average shareholders' equity for 1995
ended the year at $639.4 million.
For 1994, average total assets increased $640.9 million, or 10.4%. Average
earning assets for 1994 were $6.1 billion, which represented 90% of average
total assets. For more detailed information on Synovus average statement of
condition for the years ended 1995, 1994, and 1993, 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.
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.
F-29
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
Net interest income for 1995 was a record $341.9 million, up $40.6 million,
or 13.5%, from 1994. On a taxable-equivalent basis, net interest income was
$347.0 million, up $40.2 million, or 13.1%, over 1994. During 1995, average
interest earning assets increased $658.3 million, or 10.8%, with the majority of
this growth being in loans. Increases in the level of time deposits were the
main contributor to the $516.7 million, or 9.9%, growth in average interest
bearing liabilities.
The 5.15% net interest margin achieved in 1995 is a 10 basis point increase
over the 5.05% reported for 1994. This increase was primarily due to a 92 basis
point increase in interest earning asset yields and a greater contribution from
non-interest bearing funding sources. In 1995, the earning asset mix shifted
more toward loans versus investment securities. This mix change had a favorable
impact on the overall earning asset yield. Increases in the rate paid on
interest bearing liabilities are primarily attributable to two factors. One
factor is the continued repricing of deposits upward during 1995 with a general
lag in deposit repricing as compared to interest earning assets. The other
factor is the change in the mix of interest bearing liabilities as customers
began moving their deposits back to higher paying time deposits from lower
paying transaction accounts, as their expectations of the market rates changed
in 1995. 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.
During 1994, net interest income and tax-equivalent net interest income
increased 14.4% and 13.6%, respectively. Average interest earning assets grew
10.0% while interest bearing liabilities increased 8.6%. This growth, along with
a 16 basis point improvement in the net interest margin to 5.05% from 4.89%,
contributed to Synovus' earnings. The increase in the spread rate of 11 basis
points was the result of a 13 basis point increase in the yield on earning
assets offset by a 2 basis point increase in the rate paid on interest bearing
liabilities. The net interest margin also increased as a result of a 14.8%
increase in average non-interest bearing demand deposits. The increasing market
rates experienced during 1994 resulted in the repricing of interest earning
assets upward, while depositors reinvested funds from maturing time deposits
into savings accounts, interest bearing demand accounts, and money market
accounts on a temporary basis, as their expectations were for further increases
in market rates.
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. 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-30
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 3
Consolidated Average Balances, Interest, and Yields
(In thousands)
1995 1994 1993
----------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Interest earning assets:
Taxable loans, net <F1><F2>........ $5,288,863 522,258 9.87% $4,643,731 412,086 8.87% $4,175,384 358,366 8.58%
Tax-exempt loans, net <F2><F3>..... 38,044 4,230 11.12 45,755 4,747 10.37 54,048 5,197 9.62
Reserve for loan losses ........... (80,034) -- (70,893) -- (66,057) --
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net ................... 5,246,873 526,488 10.03 4,618,593 416,833 9.03 4,163,375 363,563 8.73
- -----------------------------------------------------------------------------------------------------------------------------------
Taxable investment securities <F4> . 1,270,063 77,198 6.08 1,270,976 72,546 5.71 1,115,237 69,494 6.23
Tax-exempt investment securities<F3><F4>120,064 11,096 9.24 123,437 11,780 9.54 137,744 14,318 10.39
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities .. 1,390,127 88,294 6.35 1,394,413 84,326 6.05 1,252,981 83,812 6.69
- -----------------------------------------------------------------------------------------------------------------------------------
Interest earning deposits with banks 1,828 107 5.85 641 35 5.46 2,324 127 5.46
Federal funds sold ................ 101,334 6,006 5.93 68,196 2,787 4.09 107,850 3,200 2.97
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 6,740,162 620,895 9.21 6,081,843 503,981 8.29 5,526,530 450,702 8.16
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks ................ 298,328 284,651 273,921
Premises and equipment, net ............ 209,415 197,313 183,665
Other real estate ...................... 13,582 15,182 19,045
Other assets <F5>....................... 236,812 203,670 138,633
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets ................. $7,498,299 $6,782,659 $6,141,794
===================================================================================================================================
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits .. $ 887,694 23,947 2.70% $ 873,992 22,614 2.59% $ 780,292 20,512 2.63%
Money market accounts ............. 915,710 36,817 4.02 863,081 26,126 3.03 829,275 23,529 2.84
Savings deposits .................. 475,962 13,746 2.89 510,380 14,226 2.79 434,037 12,643 2.91
Time deposits ..................... 3,113,375 179,251 5.76 2,574,468 113,953 4.43 2,443,877 107,960 4.42
Federal funds purchased and
securities sold under agreement
to repurchase ................ 216,342 12,092 5.59 235,858 10,021 4.25 158,050 5,045 3.19
Other borrowed funds .............. 125,317 8,060 6.43 159,900 10,211 6.39 157,181 10,970 6.98
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities................. 5,734,400 273,913 4.78 5,217,679 197,151 3.78 4,802,712 180,659 3.76
- -----------------------------------------------------------------------------------------------------------------------------------
Spread rate .................. 4.43% 4.51% 4.40%
===================================================================================================================================
Non-interest bearing demand deposits ... 986,582 892,800 777,973
Other liabilities ...................... 137,891 105,618 56,082
Shareholders' equity ................... 639,426 566,562 505,027
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity .... $7,498,299 $6,782,659 $6,141,794
===================================================================================================================================
Net interest income/margin ............ 346,982 5.15% 306,830 5.05% 270,043 4.89%
===================================================================================================================================
Taxable-equivalent adjustment ......... (5,107) (5,599) (6,830)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income, actual ........... $341,875 $301,231 $263,213
===================================================================================================================================
- ----------------
<FN>
<F1> Average loans are shown net of unearned income. Nonperforming loans are included.
<F2> Interest income includes loan fees as follows: 1995 - $20,825, 1994 - $19,140, 1993 - $19,176.
<F3> 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.
<F4> Includes certain investment securities available for sale, at their respective average amortized cost. For the years ended
December 31, 1995, 1994, and 1993, the average amortized cost of these securities amounted to $881,063, $863,655, and $55,781,
respectively.
<F5> In 1995 and 1994 there were $7,674 and $8,293, respectively, of average net unrealized losses on investment securities
available for sale. Synovus adopted SFAS No. 115 on December 31, 1993. Prior to that date, the average recorded balance of net
unrealized gains or losses was insignificant.
- --------------------------------------------------------------------------------
F-31
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 4
Rate/Volume Analysis
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
1995 Compared to 1994 1994 Compared to 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Change Due to <F1> Change Due to <F1>
- ------------------------------------------------------------------------------------------------------------------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
- ------------------------------------------------------------------------------------------------------------------------------------
Interest earned on:
Taxable loans, net .............................. $ 57,249 52,923 110,172 40,197 13,523 53,720
Tax-exempt loans, net <F2>....................... (800) 283 (517) (797) 347 (450)
Taxable investment securities ................... (52) 4,704 4,652 9,705 (6,653) 3,052
Tax-exempt investment securities <F2>............ (322) (362) (684) (1,487) (1,051) (2,538)
Interest earning deposits with banks ............ 65 7 72 (92) -- (92)
Federal funds sold .............................. 1,354 1,865 3,219 (1,177) 764 (413)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income ...................... 57,494 59,420 116,914 46,349 6,930 53,279
- ------------------------------------------------------------------------------------------------------------------------------------
Interest paid on:
Interest bearing demand deposits ................ 355 978 1,333 2,463 (361) 2,102
Money market accounts ........................... 1,593 9,098 10,691 959 1,638 2,597
Savings deposits ................................ (959) 479 (480) 2,224 (641) 1,583
Time deposits ................................... 23,853 41,445 65,298 5,769 224 5,993
Federal funds purchased and securities sold under
agreement to repurchase .................... (829) 2,900 2,071 2,482 2,494 4,976
Other borrowed funds ............................ (2,210) 59 (2,151) 190 (949) (759)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense ..................... 21,803 54,959 76,762 14,087 2,405 16,492
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income ........................ $ 35,691 4,461 40,152 32,262 4,525 36,787
====================================================================================================================================
- ---------
<FN>
<F1>The change in interest due to both rate and volume has been allocated to the
rate component.
<F2>Reflects taxable-equivalent adjustments using the statutory federal income
tax rate of 35% in 1995 and 1994 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 1995, total non-interest
income increased $66.5 million, or 24.2%. The majority of this increase was due
to growth at TSYS.
TSYS contributed approximately 70% of Synovus' total non-interest income in
1995 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 53.1 million in 1995, compared to
39.3 million in 1994, and 32.5 million in 1993. TSYS currently processes 63
million cardholder accounts across the United States, Puerto Rico, Canada, and
Mexico.
A significant amount of TSYS' revenues are derived from certain major
customers. For the years ended December 31, 1995, 1994, and 1993, two customers
accounted for approximately 34%, 36%, and 37% of revenues, respectively. As a
result, the loss of one of these major customers could have a material adverse
effect on TSYS' results of operations.
In January of 1996, TSYS successfully completed the conversion of
approximately 20,000 Bank of America cardholder accounts to TS2, and in early
February of 1996, Bank of America began opening new cardholder accounts on TS2.
TSYS' conversion schedule with Bank of America contemplated completion of the
conversion of the balance of Bank of America's cardholder accounts by the end of
1996; however, there have been delays and this conversion schedule may be
changed and portions of Bank of America's cardholder accounts may be converted
in 1997. While delays in Bank of America's conversion schedule allow Bank of
America certain remedies, including the receipt of financial penalties and the
right to terminate its relationship with TSYS, TSYS' management believes all of
Bank of America's cardholder accounts will be successfully converted. The
conversion and processing of Bank of America's cardholder accounts is not
expected to have a material impact on TSYS' 1996 financial condition or results
of operations.
Revenues derived from the processing of TSYS' merchant account customers
who accept certain private label cards, as well as bankcards, are included in
data processing services income. Due to a significantly higher volume of
transactions and item charges per individual account than consumer cardholder
accounts, merchant accounts generally provide more revenue per account
processed. At year-end 1995, TSYS was processing over 600,000
F-32
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
merchant accounts, a 57.9% increase over the 380,000 accounts being processed at
year-end 1994; 269,000 merchant accounts were being processed at year-end 1993.
The majority of the increase in merchant accounts being processed is
attributable to the over 100,000 merchant accounts converted in connection with
TSYS joint venture with a number of banks in Mexico, Total System Services de
Mexico, S.A. de C.V., (TSYS de Mexico). Additionally 40,000 merchant accounts of
an existing customer previously processed by another processor contributed to
the increase. Revenues from merchant accounts processing were approximately
$12.9 million, $9.2 million, and $7.0 million in 1995, 1994, and 1993,
respectively.
Synovus continues to emphasize the importance of growth in non-interest
related sources of income in its banking operations. Synovus looks to develop
new sources of non-interest related income and to reprice services and products
to reflect their related costs and value to customers. Non-interest income
reported by Synovus banking operations increased $5.1 million, or 5.7%, in 1995.
Excluding the $2.9 million gain on the sale of certain credit card accounts
recorded in 1994, banking operations non-interest income increased $7.8 million,
or 9.1%.
Service charges on deposit accounts have historically been one of the
primary sources of other income for Synovus' banking operations. In 1995,
service charges on deposit accounts increased $5.2 million, or 13.0%, as a
result of increases in the number of accounts serviced and increased fee
structures.
On January 1, 1995, Synovus formed Synovus Trust Company, a new affiliate
in which to consolidate all Synovus' Georgia trust operations. This new
affiliate is expected to bring continued efficiencies and expertise to this
banking service. Trust fees for 1995 increased $.9 million, or 9.7%, over 1994.
Fees for trust services are derived from performing estate administration,
personal trust, corporate trust, and employee benefit plan administration. At
December 31, 1995 and 1994, total market value of assets administered by Synovus
Trust Company and affiliate bank trust operations was approximately $3.5 billion
and $2.6 billion, respectively.
Non-interest income in 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 affiliates and to generate additional fee income through mortgage
servicing. Synovus Mortgage Corp. provides expertise in the areas of products
and pricing to the affiliate banks and serves as an outlet for placing these
mortgage loans into the secondary market while retaining the related servicing
rights. The adoption of SFAS No. 122, in July of 1995, had a small favorable
impact on non-interest income.
In 1994, total non-interest income increased $38.1 million, or 16.1%.
Revenues from bankcard data processing services offered by TSYS were the largest
contributor increasing $29.8 million, or 20.1%, over 1993. Service charges on
banking operations deposit accounts increased $2.3 million, or 5.8%, primarily
as a result of continued growth in the number of accounts serviced. Fees for
trust services fell slightly, less than 2%, in 1994 from an extremely strong
1993. Other operating income increased $7.8 million, or 24.9%, in 1994 primarily
due to two acquisitions in 1994, increases in gains on sales of other real
estate, merchant fees on credit cards, and a $2.9 million gain on the sale of
certain credit card accounts.
Non-Interest Expense
Non-interest expense increased $66.2 million, or 16.1%, in 1995 over 1994.
Management analyzes non-interest expense in two separate components: banking
operations and TSYS. The table below summarizes this data for 1995, 1994, and
1993:
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands) Banking TSYS Banking TSYS Banking TSYS
- ------------------------------------------------------------------------------------------------------------------------------------
Salaries and other personnel expense ................ $157,533 94,946 138,480 73,051 125,897 54,517
Net occupancy and equipment expense ................. 35,080 64,549 32,136 51,283 29,258 43,421
Other operating expenses ............................ 72,721 47,291 83,836 28,139 72,737 21,521
Minority Interest ................................... 5,333 -- 4,325 -- 3,896 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense ..................... $270,667 206,786 258,777 152,473 231,788 119,459
====================================================================================================================================
Non-interest expense related to TSYS increased $54.3 million, or 35.6%, in
1995 over 1994 with a significant portion of this increase being employment
expenses. The average number of employees increased from 1,874 in 1994 to 2,087
in 1995. This growth in employees along with salary increases and a new employee
retirement plan resulted in a $21.9 million, or 30.0%, increase in employment
expenses.
As TSYS expanded its fee-generating services, equipment rental,
depreciation, and amortization expense related to the acquisition of facilities,
equipment, and computer software increased. Total occupancy and equipment
expenses increased $13.3 million, or 25.9%, in 1995. A significant portion of
this increase can be attributed to the amortization of TS2, which commenced in
October 1994 and amounted to $3.3 million in 1995 compared to $.8 million in
1994. TSYS continues to monitor and assess its building and equipment needs as
it positions itself for future growth and expansion.
Other operating expenses at TSYS increased $19.2 million, or 68.1%, in 1995
over 1994. A number of factors contributed to this increase. The volume of
supplies related to the processing of accounts increased due to the growth in
number of accounts serviced, coupled with an increase in the costs of supplies,
especially paper. Travel expenses were up significantly in 1995 due to travel
necessitated by the startup of TSYS de Mexico, which required a significant
amount of on-site training. Other operating expenses also increased in 1995 as a
result of certain provisions made for contractual or negotiated processing
commitments. These provisions were deemed necessary in view of the increased
risks associated with the significant growth in the number of accounts
processed. Also contributing to the growth in other operating expenses are costs
related to the conversion of clients to TS2.
In 1995, non-interest expense for Synovus banking operations increased
$11.9 million, or 4.6%. The majority of increased expenses were in employment
expense and related primarily to additional employees hired in 1995. The average
number of employees in banking operations increased from 4,025 in 1994 to 4,272
in 1995. This growth was primarily due to growth within the banking affiliates,
with a portion of this increase related to acquisitions. Other factors causing
an increase in non-interest expense include salary increases, a new employee
retirement plan, and a $3.2 million expense related to the termination of the
previous employee retirement plan. The banking operations efficiency ratio
improved from 64.76% in 1994 to 60.95% in 1995. These improvements were
primarily the result of increased revenues, expense control, and a decrease in
the FDIC insurance rate.
F-33
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
Increases in non-interest expense were partially offset by a $4.9 million
decrease in FDIC premium expense in 1995 over 1994 due to the lowering, in 1995,
of the FDIC assessment rate on deposits. Synovus believes that the current
banking legislation will result in additional 1996 reductions in FDIC insurance
paid by the well-capitalized banks. Additionally, deposits of approximately $600
million, guaranteed by the Savings Association Insurance Fund, may be subject to
a one-time assessment which would result in a $4 million to $6 million pre-tax
charge to 1996 earnings.
Quality service for Synovus' customers, provided in the most efficient
manner, continues to be a priority. During 1994, Synovus embarked upon a
"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 believes that this effort will provide a greatly improved
product delivery mechanism and will increase the productivity of the support
functions.
Efforts are also directed toward the development of new banking services as
well as enhancements to existing banking services. Recent developments are in
the areas of touchtone banking, on-line capabilities, and new investment
management services. Synovus continues to reorganize and refocus its resources
whenever it can more effectively and efficiently deliver products and services
to its customers. Some of these efforts are being accomplished through a new
non-bank subsidiary, Synovus Administrative Services Corp. (SASC). SASC will
provide future efficiency by eliminating some of the duplicative functions that
exist among Synovus affiliates.
In 1994, total non-interest expense increased $60.0 million, or 17.1%, over
1993. Expenses incurred at TSYS increased $33.0 million, or 27.6%, in 1994 over
1993 as TSYS prepared for expansion of its fee-generating services. In 1994, the
average number of employees at TSYS increased from 1,504 in 1993 to 1,874 in
1994. The Quickstart programmer class which began in the second quarter of 1994
added 100 analyst trainees upon enrollment. Employee additions were also
necessary to serve the growing cardholder base. Remaining increases in
employment expenses were due to normal salary increases and related benefits.
Increases in equipment and occupancy expenses were also required in 1994, as
compared to 1993, as TSYS obtained substantial new, technologically-advanced
equipment in order to meet its business needs.
Non-interest expense for Synovus' banking operations increased $27.0
million, or 11.6%, in 1994 over 1993. New hires, salary increases, and related
benefits account for most of this increase. Other factors include FDIC insurance
increases related to deposit growth, professional fee increases, and general
increases related to two acquisitions completed in 1994.
In October of 1993, Synovus issued ten year, non-callable Senior notes
totaling $75 million at a rate of 6.125%. A portion of the proceeds were used to
prepay $45 million in long-term debt that carried a higher rate than the new
issue. This prepayment resulted in a one-time after-tax charge of $2.9 million
that was expensed in the third quarter of 1993 and has reduced interest costs in
subsequent years.
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 has an insignificant balance of trading investment securities
used to facilitate business at Synovus Securities, Inc., Synovus' wholly-owned
broker/dealer company. 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, 1995,
approximately $879.2 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' affiliate banks, there is little need for investment
securities solely to augment income or utilize uninvested deposits. Therefore,
Synovus maintains a fairly conservative posture with respect to the types of
investment securities in which it invests. 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. 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, 1995, 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, 1995 and 1994, the estimated fair value of investment
securities as a percentage of their amortized cost was 101.0% and 96.0%,
respectively. During 1995, the bond market performance was strong due to
expectations of future interest rate declines. This strong performance had a
positive impact on the market value of Synovus' investment securities portfolio.
The investment securities portfolio had gross unrealized gains of $19.8 million
and gross unrealized losses of $5.2 million, for a net unrealized gain of $14.6
million as of December 31, 1995. As of December 31, 1994, the investment
securities portfolio had a net unrealized loss of $54.3 million. In accordance
with SFAS No. 115, shareholders' equity contained a net unrealized gain of $5.8
million and a net unrealized loss of $20.7 million recorded on the available for
sale portfolio as of December 31, 1995 and 1994, respectively. Table 5 presents
the carrying value of investment securities held to maturity and investment
securities available for sale at December 31, 1995, 1994, and 1993.
During 1995, the average balance of investment securities remained flat at
$1.4 billion as compared to 1994. Synovus earned a taxable-equivalent rate of
6.35% and 6.05% for 1995 and 1994, respectively, on its investment securities
portfolio. As of December 31, 1995 and 1994, average investment securities
represented 20.6% and 22.9%, respectively, of average interest earning assets.
This decrease in the percentage of average investment securities to average
interest earning assets is due to strong growth in the loan portfolio. 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 that will enable 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.
F-34
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 5
Investment Securities
(In thousands)
December 31,
----------------------------------------------------
1995 1994 1993
----------------------------------------------------
Investment Securities Held to Maturity:
U.S. Treasury and U.S. Government agencies .......................... $ 81,772 159,354 89,111
Mortgage-backed securities .......................................... 171,275 243,220 244,586
State and municipal ................................................. 121,761 121,834 135,041
Other investments ................................................... 6,110 8,525 7,243
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity .............................. $ 380,918 532,933 475,981
====================================================================================================================================
Investment Securities Available for Sale:
U.S. Treasury and U.S. Government agencies .......................... $1,004,286 767,544 807,353
Mortgage-backed securities .......................................... 88,196 24,413 49,092
State and municipal ................................................. 1,322 1,491 939
Other investments ................................................... 12,494 11,321 14,984
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale ............................ $1,106,298 804,769 872,368
====================================================================================================================================
Total Investment Securities:
U.S. Treasury and U.S. Government agencies .......................... $1,086,058 926,898 896,464
Mortgage-backed securities .......................................... 259,471 267,633 293,678
State and municipal ................................................. 123,083 123,325 135,980
Other investments ................................................... 18,604 19,846 22,227
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities .................................... $1,487,216 1,337,702 1,348,349
====================================================================================================================================
- -------------------------------------------------------------------------------
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 affiliates 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 only $1.5 million in highly leveraged
transaction credits as of the end of 1995.
Representing 78% of average earning assets and 70% of average total assets,
net loans increased $430.8 million, or 8.6%, during 1995. 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. In addition, the acquisitions of Citizens & Merchants Corporation and
Peach State Bank contributed approximately $60.0 million in loan growth.
Synovus has enjoyed a relatively strong average loan-to-deposit ratio over
the past three years. The average loan-to-deposit ratio for 1995, 1994, and 1993
was 83.5%, 82.1%, and 80.3%, respectively.
The loan growth during 1995 was primarily internally generated through an
ever increasing focus on affiliate bank customers. 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 1995, especially
with respect to real estate and working capital loans. Real estate construction
and commercial real estate mortgage loans increased in 1995 due to economic
growth in many of the Southeastern communities Synovus affiliate banks serve.
Credit card loan growth has been most dramatically impacted by the increased
number of customer accounts in several affiliate banks. Other installment loans
have increased with targeted consumer loan products offered at selected
affiliate 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-commited extensions and are
generally held less than thirty days, after which the loans are sold in the
market to an unaffiliated investor. The slight decrease in retail real estate
mortgage loans from 1994 to 1995 results primarily from the fact that Synovus
has generated more mortgage loans for sale versus loans retained as interest
earning assets. In addition, the decrease in mortgage loan interest rates during
1995 encouraged refinancings, which also reduced retail real estate mortgage
loans.
Synovus has reduced nonperforming assets during 1995 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.
The composition of the loan portfolio at the end of the past five years, as
shown in Table 6 and Table 7, presents the maturity distribution of selected
categories within the loan portfolio.
F-35
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 6
Loans by Type
(In thousands)
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial:
Commercial, financial, and agricultural ............ $1,931,004 1,783,928 1,567,310 1,423,124 1,358,425
Real estate-construction ........................... 578,712 472,131 414,801 376,641 359,518
Real estate-mortgage ............................... 1,160,089 1,030,524 890,297 817,905 779,765
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial .............................. 3,669,805 3,286,583 2,872,408 2,617,670 2,497,708
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ............................... 824,998 865,642 760,530 690,563 659,170
Installment loans-credit card ...................... 222,204 171,475 150,653 136,794 130,575
Installment loans-other ............................ 784,972 756,402 664,554 603,418 575,985
Mortgage loans held for sale ....................... 24,863 9,465 23,409 11,744 12,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail .................................. 1,857,037 1,802,984 1,599,146 1,442,519 1,377,895
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans ................................... 5,526,842 5,089,567 4,471,554 4,060,189 3,875,603
Unearned income .................................... (14,812) (14,691) (18,148) (25,371) (31,214)
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned .................. $5,512,030 5,074,876 4,453,406 4,034,818 3,844,389
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Table 7
Loan Maturity Distribution and Interest Sensitivity
(In thousands)
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
One Over One Year Over
Year Through Five Five
Or Less Years Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Selected loan categories:
Commercial, financial, and agricultural ................ $1,015,108 680,264 235,632 1,931,004
Real estate-construction ............................... 439,671 93,886 45,155 578,712
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................. $1,454,779 774,150 280,787 2,509,716
====================================================================================================================================
Loans due after one year:
Having predetermined interest rates ...................................................................... $ 510,175
Having floating interest rates ........................................................................... 544,762
- ------------------------------------------------------------------------------------------------------------------------------------
Total ............................................................................................... $1,054,937
===================================================================================================================================
- --------------------------------------------------------------------------------
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.
F-36
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
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' affiliate 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'
affiliate banks to recognize additions to their reserve for loan losses.
- --------------------------------------------------------------------------------
Table 8
Reserve for Loan Losses
(In thousands)
Years Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------
Reserve for loan losses at beginning of year ......................... $75,018 67,270 61,336 55,279 45,512
Reserve for loan losses of acquired affiliates ....................... 1,001 1,535 -- 8 7,135
Loans charged off during year:
Commercial:
Commercial, financial, and agricultural .................... 13,746 13,809 13,097 17,761 16,731
Real estate-construction ................................... 239 240 228 309 291
Real estate-mortgage ....................................... 1,840 1,849 1,753 2,378 2,240
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial ...................................... 15,825 15,898 15,078 20,448 19,262
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ....................................... 209 210 200 271 255
Installment loans-credit card .............................. 6,627 6,658 6,315 8,563 8,066
Installment loans-other .................................... 2,271 2,282 2,164 2,935 2,765
Mortgage loans head for sale ............................... -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail .......................................... 9,107 9,150 8,679 11,769 11,086
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans charged off ............................... 24,932 25,048 23,757 32,217 30,348
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off during the year:
Commercial:
Commercial, financial, and agricultural .................... 1,217 1,585 1,287 1,339 1,030
Real estate-construction ................................... 50 65 52 55 42
Real estate-mortgage ....................................... 92 120 97 101 78
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial ...................................... 1,359 1,770 1,436 1,495 1,150
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ....................................... 115 149 121 126 97
Installment loans-credit card .............................. 1,237 1,611 1,308 1,362 1,048
Installment loans-other .................................... 1,799 2,344 1,902 1,981 1,524
Mortgage loans held for sale ............................... -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail .......................................... 3,151 4,104 3,331 3,469 2,669
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans recovered ................................. 4,510 5,874 4,767 4,964 3,819
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off during year .................................... 20,422 19,174 18,990 27,253 26,529
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to reserve through provision expense ....................... 25,787 25,387 24,924 33,302 29,161
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses at end of year ............................... $81,384 75,018 67,270 61,336 55,279
====================================================================================================================================
Reserve for loan losses to loans ..................................... 1.48% 1.48 1.51 1.52 1.44
====================================================================================================================================
Ratio of net loans charged off during the year to average
net loans outstanding during the year ........................... .38% .41 .45 .68 .78
====================================================================================================================================
- --------------------------------------------------------------------------------
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 review is
prepared, quarterly, to assess the risk within the loan portfolio. This review,
conducted by lending officers, as well as an independent loan administration
department, includes analyses of historical performance, the level of
nonperforming loans, specific analyses 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.
F-37
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
In accordance with SFAS No. 114, 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
1995 as measured by asset quality indicators.
Synovus' provision for loan losses during 1995 was $25.8 million, up 1.6%,
compared to $25.4 in 1994. Nonperforming assets are at their lowest level in
more than ten years and the reserve is 350.8% of nonperforming loans. The slight
increase in the provision for loan losses is primarily a result of management's
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 .64% as of
December 31, 1995. Net charge-offs of $20.4 million were 6.5% higher in 1995
compared to $19.2 million in 1994. However, as a percent of average net loans,
the net charge-off ratio improved from .41% in 1994 to .38% in 1995. 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.
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. In 1995, Synovus adopted SFAS No. 114, and prior years have
not been restated to reflect this accounting change. Refer to Table 9 for a five
year comparison of the allocation of the reserve for loan losses.
- --------------------------------------------------------------------------------
Table 9
Allocation of Reserve for Loan Losses
(In thousands)
December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------
Reserve %* Reserve %* Reserve %* Reserve %* Reserve %*
-------------------------------------------------------------------
Commercial:
Commercial, financial and
agricultural ...................................... $32,810 35% $32,343 36% $28,539 35% $28,427 35% $27,214 35%
Real estate-construction ............................... 570 10 562 9 496 9 494 9 473 9
Real estate-mortgage ................................... 4,392 21 4,329 20 3,820 20 3,805 20 3,643 20
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial .................................. 37,772 66 37,234 65 32,855 64 32,726 64 31,330 64
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ................................... 499 15 492 17 434 17 432 17 414 17
Installment loans-credit card .......................... 6,627 4 6,658 3 6,315 3 8,563 3 8,066 3
Installment loans-other ................................ 14,610 14 14,277 15 12,159 15 9,838 15 9,550 15
Mortgage loans held for sale ........................... -- 1 -- -- -- 1 -- 1 -- 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail for loan losses ...................... 21,736 34 21,427 35 18,908 36 18,833 36 18,030 36
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated ............................................ 21,876 -- 16,357 -- 15,507 -- 9,777 -- 5,919 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total reserve for loan losses ..................... $81,384 100% $75,018 100% $67,270 100% $61,336 100% $55,279 100%
====================================================================================================================================
* Loan amount 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 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
F-38
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
interest that would have been earned had the loan been an accruing loan, is
applied to the principal balance. If the principal amount of the loan is well
collateralized, interest income on such loans will be recognized as interest
income in the period in which payments are received. 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 received on nonaccrual loans if the
loans had been current and performing in accordance with their original terms.
Synovus' nonperforming assets declined $5.5 million to $35.3 million, with
a corresponding nonperforming asset ratio improving to .64% as of December 31,
1995 compared to .80% as of year end 1994. Synovus was able to reduce
nonperforming assets while increasing loans $437.2 million, or 8.6%, during
1995. During 1995, the reserve for loan losses increased $6.4 million, or 8.5%,
to $81.4 million. Based on management's 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 $4.0 million during 1995. 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.
- --------------------------------------------------------------------------------
Table 10
Nonperforming Assets
(In thousands)
December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------
Nonaccrual loans ..................................................... $21,469 26,497 30,296 45,812 43,246
Restructured loans ................................................... 1,733 1,900 224 135 819
- ------------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans ........................................ 23,202 28,397 30,520 45,947 44,065
90 days past due and still accruing loans ............................ 11,417 7,383 9,870 11,106 14,224
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................................................... $34,619 35,780 40,390 57,053 58,289
====================================================================================================================================
Nonperforming assets:
Nonperforming loans <F1>......................................... $23,202 28,397 30,520 45,947 44,065
Other real estate ............................................... 12,071 12,355 15,838 18,986 19,246
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................................................... $35,273 40,752 46,358 64,933 63,311
====================================================================================================================================
Nonperforming assets to total loans and other real estate ............ .64% .80 1.04 1.60 1.64
====================================================================================================================================
Reserve for loan losses to nonperforming loans ....................... 350.76% 264.18 220.41 133.49 125.45
====================================================================================================================================
Non- Rest-
accrual tructured Total
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
Interest at contracted rates <F2>............................... $3,670 200 3,870
Interest recorded as income .................................... 1,064 197 1,261
- -----------------------------------------------------------------------------------------------------------------------------------
Reduction of interest income during 1995 ............................ $2,606 3 2,609
====================================================================================================================================
- -------
<FN>
<F1>Nonperforming assets exclude loans 90 days past due and still accruing.
<F2>Interest income that would have been recorded, if the loans had been current
and 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.
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
1995, 1994, and 1993. Refer to Table 12 for the maturity distribution of time
deposits of $100,000 or more. These larger deposits represented 15.2%
F-39
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
and 13.6% of total deposits at December 31, 1995 and 1994, respectively.
Synovus' large denomination time deposits are generally from customers within
the local market area, therefore, providing a greater degree of stability than
is typically associated with this source of funds.
For 1995, Synovus' average deposits increased $664.6 million, or 11.6%, to
$6.4 billion from $5.7 billion in 1994. Average interest bearing deposits for
1995, which include interest bearing demand deposits, money market accounts,
saving deposits, and time deposits, increased $570.8 million, or 11.8%, from
1994. This strong deposit growth occurred throughout several of the Synovus
affiliate banks who used targeted time deposit programs to increase their
deposits during 1995. Average non-interest bearing demand deposits increased
$93.8 million, or 10.5%, during 1995. Average interest bearing deposits
increased $334.4 million, or 7.5%, from 1993 to 1994, while non-interest bearing
demand deposits increased $114.8 million, or 14.8%. See Table 3 for further
information on average deposits, including the average rates paid for 1995,
1994, and 1993.
- --------------------------------------------------------------------------------
Table 11
Average Deposits
(In thousands)
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits .................................. $986,582 892,800 777,973
Interest bearing demand deposits ...................................... 887,694 873,992 780,292
Money market accounts ................................................. 915,710 863,081 829,275
Savings deposits ...................................................... 475,962 510,380 434,037
Time deposits ......................................................... 3,113,375 2,574,468 2,443,877
- ------------------------------------------------------------------------------------------------------------------------------------
Total average deposits ........................................... $6,379,323 5,714,721 5,265,454
====================================================================================================================================
- --------------------------------------------------------------------------------
Table 12
Maturity Distribution of Time Deposits of $100,000 or More
(In thousands)
Time Deposits at
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
3 months or less................................................................................... $ 422,176
Over 3 months through 6 months .................................................................... 185,451
Over 6 months through 12 months ................................................................... 213,497
Over 12 months .................................................................................... 202,776
- ---------------------------------------------------------------------------------------------------------------------------
Total outstanding ............................................................................. $1,023,900
===========================================================================================================================
- --------------------------------------------------------------------------------
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. This modeling,
combined with historical experience, indicates that Synovus is positioned such
that its net interest income will generally increase slightly in the near term
during a rising rate environment and decrease slightly 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, 1995
and 1994, at various repricing intervals. The projected deposit repricing
volumes reflect adjustments based on management's 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. This gap analysis indicates
that Synovus was moderately asset sensitive at December 31, 1995, with a
cumulative one-year gap of 3.2%. Management believes that adjusted gap analysis
is a useful tool for measuring interest rate risk only when used in conjunction
with its simulation model.
F-40
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 13
Interest Rate Sensitivity
(In millions)
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
0-3 4-12 1-5 Over 5
Months Months Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities <F1>............................................... $ 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 21.3 72.9
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive liabilities ..................................... 2,241.7 1,462.9 823.1 1,394.8
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps ................................................ (125.0) -- 125.0 --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap ...................................... $ 668.6 (441.6) 1,501.4 (535.7)
====================================================================================================================================
Cumulative interest sensitivity gap ........................... $ 668.6 227.0 1,728.4 1,192.7
====================================================================================================================================
Cumulative interest sensitivity gap as a percentage
of total interest sensitive assets........................... 9.4% 3.2 24.3 16.8
====================================================================================================================================
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
0-3 4-12 1-5 Over 5
Months Months Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities <F1>.............................................. $ 55.5 153.9 836.0 324.2
Loans, net of unearned income .......................................... 2,597.8 784.7 1,388.0 304.4
Other .................................................................. 45.1 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive assets ......................................... 2,698.4 938.6 2,224.0 628.6
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits ............................................................... 1,905.4 1,062.0 699.4 1,274.7
Other borrowings ....................................................... 412.1 29.3 31.5 79.0
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive liabilities .................................... 2,317.5 1,091.3 730.9 1,353.7
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap ...................................... $ 380.9 (152.7) 1,493.1 (725.1)
====================================================================================================================================
Cumulative interest sensitivity gap ........................... $ 380.9 228.2 1,721.3 996.2
====================================================================================================================================
Cumulative interest sensitivity gap as a percentage
of total interest sensitive assets ........................ 5.9% 3.5 26.5 15.4
====================================================================================================================================
- -----------
<FN>
<F1> Excludes the effect of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", consisting of net
unrealized gains in the amount of $8.9 million in 1995 and net unrealized losses of $31.9 million in 1994.
- --------------------------------------------------------------------------------
F-41
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 14
Maturities of Investment Securities and Average Yields
(In thousands)
Investment Securities Investment Securities
Held to Maturity Available for Sale
December 31, 1995 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Average Estimated Average
Cost Yield Fair Value Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and U.S. Government agencies:
Within 1 year ........................ $ 14,924 6.80% $ 241,688 5.81%
1 to 5 years ......................... 44,615 6.55 557,958 6.03
5 to 10 years ........................ 22,233 7.44 204,131 7.02
More than 10 years ................... -- -- 509 7.75
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................... $ 81,772 6.84% $ 1,004,286 6.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Within 1 year ........................ $ 1,692 7.43% $ 1,239 7.41%
1 to 5 years ......................... 73,793 5.93 34,612 6.46
5 to 10 years ........................ 22,174 7.24 11,644 6.96
More than 10 years ................... 73,616 7.15 40,701 6.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................... $171,275 6.64% $ 88,196 6.62%
- ------------------------------------------------------------------------------------------------------------------------------------
State and municipal:
Within 1 year ........................ $ 17,986 9.63% $ 298 10.51%
1 to 5 years ......................... 52,596 8.70 668 11.77
5 to 10 years ........................ 35,218 8.68 98 6.62
More than 10 years ................... 15,961 10.60 258 8.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................... $121,761 9.08% $ 1,322 10.41%
- ------------------------------------------------------------------------------------------------------------------------------------
Other investments:
Within 1 year ........................ $ 98 4.04% $ 3,382 9.03%
1 to 5 years ......................... 1,832 7.09 3,325 8.15
5 to 10 years ........................ 265 7.92 2,251 7.64
More than 10 years ................... 3,915 5.82 3,536 5.76
- ------------------------------------------------------------------------------------------------------------------------------------
Total ...................... $ 6,110 6.27% $ 12,494 7.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities:
Within 1 year ........................ $ 34,700 8.29% $ 246,607 5.87%
1 to 5 years ......................... 172,836 6.95 596,563 6.08
5 to 10 years ........................ 79,890 7.93 218,124 7.03
More than 10 years ................... 93,492 7.69 45,004 6.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total ....................... $380,918 7.46% $ 1,106,298 6.24%
====================================================================================================================================
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 1995.
- --------------------------------------------------------------------------------
F-42
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
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. As of December 31, 1995, all
off-balance sheet derivatives were interest rate swaps where Synovus receives a
fixed rate of interest and pays a floating rate. These swaps have the effect of
converting on-balance sheet floating rate assets to fixed rate assets, thereby
reducing the natural asset sensitivity of Synovus' core banking business.
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 position.
The notional amount of interest swaps utilized by Synovus as of December
31, 1995, was $125 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 Average
December 31, 1995 Notional Average Average Maturity Unrealized Unrealized Net
(In thousands) Amount Receive Rate Pay Rate In Months Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps $125,000 5.98% 5.88% 46 1,776 -- 1,776
The above table represents the December 31, 1995 status of all off-balance
sheet derivative positions at Synovus and its affiliate bank, Columbus Bank and
Trust Company. There were no maturities, offsets, or terminations in 1995.
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
affiliate bank. These affiliates, 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' 211 banking
offices in four states. The affiliate banks monitor deposit flow and evaluate
alternate pricing structures to retain and grow deposits. Certain Synovus
affiliate 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' affiliate banks, these loans can be
funded by affiliates 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 affiliates, the servicing of debt, and the payment of general corporate
expenses. The primary source of liquidity for the Parent Company is dividends
from the affiliate 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 Moody's Investor
Service and "AA-" by Thomson Bankwatch. For a complete description of these
borrowings and other borrowings by other Synovus affiliates, 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 $152.4 million for the year ended December 31, 1995, while
financing activities provided $467.1 million. Investing activities used $581.4
million of this amount, resulting in a net increase in cash and cash equivalents
of $38.1 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
F-43
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
growth sufficient to support the asset growth it has experienced. Total
shareholders' equity of $693.6 million represented 8.75% of total assets at
December 31, 1995.
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 swaps, that Synovus makes 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 1
capital ratio of at least 6%, and a total risk-based capital ratio of at least
10%. At the end of 1995, Synovus and all affiliate banks were in excess of the
minimum capital requirements with a consolidated Tier 1 capital ratio of 11.28%
and a total risk-based capital ratio of 12.57%, compared to Tier I and total
risk-based capital ratios of 11.04% and 12.36%, respectively, in 1994 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, 1995,
Synovus had a leverage ratio of 8.71%, 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, 1995, Synovus' primary and total capital
ratios as defined by the Federal Reserve Board were 9.49% and 9.52%,
respectively, compared to 9.18% and 9.23%, respectively, at year end 1994.
During the third quarter of 1994, Synovus announced its plan to acquire up
to 750,000 shares of Synovus common stock in the open market. Through December
31, 1995, 362,600 shares of Synovus common stock have been purchased under this
plan at an average price of $23.51. Of these shares, 266,498 shares were used in
1995 to acquire Peach State Bank. Approximately 52,000 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 43,930
as of December 31, 1995. These shares will be used to fund incentive stock award
plans and other employee benefit plans. The remaining shares to be purchased
under the stock repurchase plan will be purchased based on market conditions
over the next two years.
Synovus' 80.8% 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, 1995, there were approximately 17,000 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.
F-44
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 15
Capital Ratios <F1>
(In thousands)
December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Tier I capital:
Shareholders' equity ............................................................ $ 693,555 579,880
Adjustment for SFAS No. 115 ..................................................... (5,774) 20,744
Plus: Minority interest ......................................................... 27,790 22,483
Less: Disallowed intangibles .................................................... (41,406) (32,890)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier I capital ....................................................... 674,165 590,217
- ------------------------------------------------------------------------------------------------------------------------------------
Tier II capital:
Eligible portion of the reserve for loan losses ................................. 74,818 66,947
Subordinated and other qualifying debt .......................................... 2,440 3,697
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier II capital ...................................................... 77,258 70,644
- ------------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital ............................................................. $ 751,423 660,861
====================================================================================================================================
Total risk-adjusted assets ........................................................... $5,978,913 5,347,687
====================================================================================================================================
Tier I capital ratio ................................................................. 11.28% 11.04
Total risk-based capital ratio ....................................................... 12.57 12.36
Leverage ratio ....................................................................... 8.71 8.45
Regulatory Minimums:
Tier I capital ratio ............................................................ 4.00%
Total risk-based capital ratio .................................................. 8.00
Leverage ratio .................................................................. 4.00
- -----------
<FN>
<F1> Risk-based capital ratios, for both years presented, were prepared using risked-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
- ------------------------------------------------------------------------------------------------------------------------------------
1995
Quarter ended December 31, 1995 ............................................. $30 1/4 25
Quarter ended September 30, 1995 ............................................ 27 1/4 22 1/2
Quarter ended June 30, 1995 ................................................. 22 7/8 19 1/4
Quarter ended March 31, 1995 ................................................ 19 3/4 17 3/4
1994
Quarter ended December 31, 1994 ............................................. $19 7/8 18
Quarter ended September 30, 1994 ............................................ 19 3/8 16 5/8
Quarter ended June 30, 1994 ................................................. 18 1/2 16 3/4
Quarter ended March 31, 1994 ................................................ 19 1/4 16 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends
It is Synovus' objective to pay out approximately one-third of earnings to
shareholders in cash dividends. Synovus' dividend payout ratio in 1995, 1994,
and 1993 was 36.69%, 36.90%, and 35.10%, respectively. The total dollar amount
of dividends declared increased 28.5% in 1995 to $42.0 million, from $33.0
million in 1994. 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-45
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Table 17
Dividends
Per Share
Date Declared Date Paid Amount
- --------------------------------------------------------------------------------
November 13, 1995 January 2, 1996 $ .1350
September 11, 1995 October 2, 1995 .1350
May 8, 1995 July 3, 1995 .1350
February 14, 1995 April 3, 1995 .1350
November 14, 1994 January 3, 1995 .1125
September 12, 1994 October 1, 1994 .1125
May 9, 1994 July 1, 1994 .1125
February 23, 1994 April 1, 1994 .1125
- --------------------------------------------------------------------------------
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 9 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 agreements
with its customers. These processing 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.
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 some 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 plantiffs,
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, one of the
principal components of short-term borrowings.
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Month end balance for year ended December 31, ........................... $229,477 412,082 260,619
Weighted average interest rate at December 31, .......................... 5.65% 5.40 2.81
Maximum month end balance during the year ............................... $362,035 412,082 260,619
Average amount outstanding during the year .............................. $216,342 235,858 158,050
Weighted average interest rate during the year .......................... 5.59% 4.18 3.01
- --------------------------------------------------------------------------------
F-46
ANNUAL REPORT 1995
- --------------------------------------------------------------------------------
Income Tax Expense
As reported in the consolidated statements of income, Synovus' income tax
expense increased to $64.9 million in 1995, up from $49.5 million in 1994, and
$42.9 million in 1993. The effective tax rate was 36.2%, 35.6%, and 34.8% in
1995, 1994, and 1993 , respectively. The increases in both 1995 and 1994 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 also
affected by a decrease in certain research and experimentation credits. Factors
affecting 1994 were fewer state tax credits and loss carryovers in 1994 as
compared to 1993. 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 earnings. 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 Company's assets, primarily its investment in affiliates, 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 affiliates if necessary,
acquire new affiliates, pay corporate operating expenses, and pay dividends to
its shareholders. These operations are funded by dividends and fees received
from affiliates, and borrowings from outside sources.
In connection with dividend payments to the Parent Company from its
affiliate banks, certain rules and regulations of the various state and federal
banking regulatory agencies limit the amount of dividends which may be paid. As
of December 31, 1995, $98.4 million in dividends could be paid in 1996 to the
Parent Company from its affiliates without prior regulatory approval. Synovus
anticipates receiving regulatory approval to allow affiliates to pay dividends
in excess of these regulatory limits.
F-47
SYNOVUS FINANCIAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1995 and 1994.
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
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 .................................. .44 .39 .35 .32
====================================================================================================================================
1994
Interest income ....................................... $135,736 127,675 122,354 112,617
====================================================================================================================================
Net interest income ................................... 81,100 77,469 74,789 67,873
====================================================================================================================================
Provision for losses on loans ......................... 8,358 5,463 5,566 6,000
====================================================================================================================================
Income before income taxes ............................ 33,613 37,853 35,163 32,297
====================================================================================================================================
Net income ............................................ 21,752 24,683 22,598 20,419
====================================================================================================================================
Net income per share .................................. .29 .33 .30 .27
====================================================================================================================================
- --------------------------------------------------------------------------------
F-48