EXHIBIT 13.1
LOGO(R)
SYNOVUS(R)
FINANCIAL CORP.
FINANCIAL APPENDIX
Consolidated Statements of Condition as of December 31, 1996 and 1995 ................................. F-2
Consolidated Statements of Income for the Years ended December 31, 1996, 1995, and 1994 ............... F-3
Consolidated Statements of Changes In Shareholders' Equity for the Years ended December 31,
1996, 1995, and 1994.............................................................................. F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1996, 1995, and 1994 ........... F-5
Summary of Significant Accounting Policies ............................................................ F-6
Notes to Consolidated Financial Statements ............................................................ F-10
Independent Auditors' Report .......................................................................... F-28
Financial Highlights .................................................................................. F-29
Financial Review ...................................................................................... F-30
Summary of Quarterly Financial Data, Unaudited ........................................................ F-51
Envisioning. Exploring. Evolving. F-1
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
December 31, 1996 1995
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ASSETS
Cash and due from banks, including cash deposits of $28,445 and $31,144 for 1996 and 1995, respectively,
on deposit to meet Federal Reserve requirements (note 9).............................................. $ 404,952 382,696
Interest earning deposits with banks (note 9).............................................................. 2,040 1,093
Federal funds sold (note 9)................................................................................ 38,249 123,832
Investment securities available for sale (notes 2 and 9)................................................... 1,276,083 1,106,298
Investment securities held to maturity (approximate market value of $364,694
and $386,579 for 1996 and 1995, respectively) (notes 2, 6, and 9)..................................... 363,008 380,918
Loans (notes 3, 6, and 9).................................................................................. 6,075,465 5,526,842
Less:
Unearned income ...................................................................................... (10,235) (14,812)
Reserve for loan losses .............................................................................. (94,683) (81,384)
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Loans, net ................................................................................. 5,970,547 5,430,646
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Premises and equipment, net (notes 6 and 9)................................................................ 247,191 220,197
Other assets (notes 4 and 9) .............................................................................. 310,274 281,915
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Total assets ............................................................................... $8,612,344 7,927,595
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (notes 5 and 9):
Non-interest bearing ............................................................................ $1,189,973 1,141,716
Interest bearing ................................................................................ 6,013,062 5,586,163
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Total deposits ............................................................................. 7,203,035 6,727,879
Federal funds purchased and securities sold under agreement to repurchase (note 9)................... 339,200 229,477
Long-term debt (notes 6 and 9)........................................................................ 97,283 106,815
Other liabilities (notes 7 and 8) .................................................................... 154,641 142,079
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Total liabilities........................................................................... 7,794,159 7,206,250
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Minority interest in consolidated subsidiary .............................................................. 34,435 27,790
Shareholders' equity (notes 1, 2, 6, 8, and 13):
Common stock - $1.00 par value. Authorized 600,000,000 shares; issued 116,423,546 in 1996 and 115,921,043
in 1995; outstanding 116,345,651 in 1996 and 115,855,148 in 1995 ................................ 116,424 115,921
Surplus .............................................................................................. 98,523 88,381
Less treasury stock - 77,895 and 65,895 shares in 1996 and 1995, respectively ....................... (1,285) (1,022)
Less unamortized restricted stock .................................................................... (5,344) (2,663)
Net unrealized gain (loss) on investment securities available for sale ............................... (112) 5,774
Retained earnings .................................................................................... 575,544 487,164
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Total shareholders' equity ................................................................. 783,750 693,555
Commitments (note 10)...................................................................................... -- --
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Total liabilities and shareholders' equity ................................................. $8,612,344 7,927,595
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-2 S Y N O V U S F I N A N C I A L C O R P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years ended December 31, 1996 1995 1994
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Interest income:
Loans, including fees ........................................................................ $ 562,208 525,080 415,242
Investment securities:
U.S. Treasury and U.S. Government agencies .............................................. 73,167 59,866 53,479
Mortgage-backed securities .............................................................. 17,971 15,975 17,456
State and municipal ..................................................................... 6,766 7,397 7,772
Other investments ....................................................................... 1,266 1,357 1,611
Federal funds sold ........................................................................... 1,866 6,006 2,787
Interest earning deposits with banks ......................................................... 59 107 35
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Total interest income ......................................................... 663,303 615,788 498,382
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Interest expense:
Deposits (note 5) ............................................................................ 267,349 253,761 176,919
Federal funds purchased and securities sold under agreement to repurchase .................... 14,973 12,092 10,021
Long-term debt ............................................................................... 6,107 8,060 10,211
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Total interest expense ........................................................ 288,429 273,913 197,151
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Net interest income ........................................................... 374,874 341,875 301,231
Provision for losses on loans (note 3) ............................................................ 31,766 25,787 25,387
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Net interest income after provision for losses on loans ....................... 343,108 316,088 275,844
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Non-interest income:
Data processing services ..................................................................... 296,511 236,125 178,122
Service charges on deposit accounts .......................................................... 52,417 46,657 41,447
Fees for trust services ...................................................................... 11,438 9,649 8,796
Credit card fees ............................................................................. 9,105 7,288 7,703
Securities gains (losses), net (note 2) ...................................................... (176) 368 (721)
Other operating income ....................................................................... 56,083 40,747 38,985
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Total non-interest income ..................................................... 425,378 340,834 274,332
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Non-interest expense:
Salaries and other personnel expense (note 8) ................................................ 297,912 252,479 211,531
Net occupancy and equipment expense (notes 4 and 10).......................................... 121,141 99,629 83,419
Other operating expenses (note 11) ........................................................... 117,983 120,012 111,975
Special FDIC assessment ...................................................................... 4,546 -- --
Minority interest in subsidiary's net income ................................................. 7,592 5,333 4,325
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Total non-interest expense .................................................... 549,174 477,453 411,250
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Income before income taxes .................................................... 219,312 179,469 138,926
Income tax expense (note 7) ....................................................................... 79,708 64,886 49,474
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Net income .................................................................... $139,604 114,583 89,452
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Net income per share .............................................................................. $ 1.20 1.00 .79
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Weighted average shares outstanding ............................................................... 116,133 114,954 112,750
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Envisioning. Exploring. Evolving. F-3
Net
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Unreal-
(In thousands, except per share data) ized
Gain/
Unamort- (Loss)on
ized Securities
Shares Common Treasury Restric- Avail. Retained
Years ended December 31, 1996, 1995, and 1994 Issued Stock Surplus Stock ted Stock for Sale Earnings Total
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Balance at December 31, 1993 ......................... 112,352 $112,352 75,173 (2,974) (1,672) 11,643 352,475 546,997
Issuance of common stock for acquisitions (note 1) ... 1,646 1,646 3,107 -- -- -- 5,802 10,555
Net income ........................................... -- -- -- -- -- -- 89,452 89,452
Cash dividends declared - $.30 per share ............. -- -- -- -- -- -- (30,298) (30,298)
Cash dividends of pooled subsidiary prior to
acquisition ..................................... -- -- -- -- -- -- (2,708) (2,708)
Treasury shares purchased ............................ -- -- -- (6,013) -- -- -- (6,013)
Issuance of restricted stock (note 8) ................ 98 98 1,123 455 (1,676) -- -- --
Amortization of restricted stock issued under
restricted stock bonus plan (note 8) ............ -- -- -- -- 1,421 -- -- 1,421
Amortization of subsidiary restricted stock bonus
plan (note 8) ................................... -- -- 499 -- -- -- -- 499
Stock options exercised (note 8) ..................... 106 106 312 852 -- -- -- 1,270
Stock option tax benefit ............................. -- -- 692 -- -- -- -- 692
Repayment of obligation of employee stock ownership
plans at subsidiaries ........................... -- -- -- -- 389 -- (26) 363
Net unrealized gain (loss) on investment securities
available for sale (note 2)...................... -- -- -- -- -- (32,387) 229 (32,158)
Ownership change at majority-owned subsidiary ........ -- -- (192) -- -- -- -- (192)
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Balance at December 31, 1994 ......................... 114,202 114,202 80,714 (7,680) (1,538) (20,744) 414,926 579,880
Issuance of common stock for acquisitions (note 1) ... 793 793 4,228 6,078 -- 183 547 11,829
Net income ........................................... -- -- -- -- -- -- 114,583 114,583
Cash dividends declared - $.36 per share ............. -- -- -- -- -- -- (42,042) (42,042)
Treasury shares purchased ............................ -- -- -- (1,303) -- -- -- (1,303)
Issuance of restricted stock (note 8) ................ 135 135 1,919 -- (2,054) -- -- --
Amortization of restricted stock issued under
restricted stock bonus plan (note 8) ............ -- -- 493 -- 779 -- -- 1,272
Stock options exercised (note 8) ..................... 338 338 347 1,883 -- -- -- 2,568
Repayment of obligation of employee stock ownership
plan at subsidiary .............................. -- -- -- -- 150 -- -- 150
Net unrealized gain on investment securities available
for sale (note 2) ............................... -- -- -- -- -- 26,335 -- 26,335
Ownership change at majority-owned subsidiary ........ -- -- (4) -- -- -- -- (4)
Loss on foreign currency translation ................. -- -- -- -- -- -- (850) (850)
Conversion of subordinated debentures into common
stock (note 6) .................................. 453 453 684 -- -- -- -- 1,137
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Balance at December 31, 1995 ......................... 115,921 115,921 88,381 (1,022) (2,663) 5,774 487,164 693,555
Net income ........................................... -- -- -- -- -- -- 139,604 139,604
Cash dividends declared - $.44 per share ............. -- -- -- -- -- -- (51,123) (51,123)
Treasury shares purchased ............................ -- -- -- (263) -- -- -- (263)
Issuance of restricted stock (note 8) ................ 151 151 3,570 -- (3,771) -- -- (50)
Amortization of restricted stock issued under restricted
stock bonus plan (note 8) ....................... -- -- 469 -- 1,090 -- -- 1,559
Stock options exercised (note 8) ..................... 354 354 2,513 -- -- -- -- 2,867
Stock option tax benefit ............................. -- -- 3,394 -- -- -- -- 3,394
Net unrealized loss on investment securities available
for sale (note 2) ............................... -- -- -- -- -- (5,886) -- (5,886)
Ownership change at majority-owned subsidiary ........ -- -- 234 -- -- -- -- 234
Loss on foreign currency translation ................. -- -- -- -- -- -- (101) (101)
Fractional shares for stock split .................... (2) (2) (38) -- -- -- -- (40)
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Balance at December 31, 1996 ......................... 116,424 $116,424 98,523 (1,285) (5,344) (112) 575,544 783,750
====================================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4 S Y N O V U S F I N A N C I A L C O R P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31, 1996 1995 1994
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Operating Activities
Net income .......................................................................... $139,604 114,583 89,452
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans ............................................... 31,766 25,787 25,387
Depreciation, amortization, and accretion, net .............................. 43,280 38,617 38,409
Deferred income tax benefit ................................................. (15,921) (4,171) (1,097)
Increase in interest receivable ............................................. (1,113) (9,973) (6,701)
Increase in interest payable ................................................ 791 14,680 7,316
Minority interest in subsidiary's net income ................................ 7,592 5,333 4,325
(Increase) decrease in mortgage loans held for sale ......................... (12,173) (15,398) 13,944
Other, net .................................................................. 6,788 (17,009) (3,122)
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Net cash provided by operating activities ........................... 200,614 152,449 167,913
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Investing Activities
Cash acquired from acquisitions ..................................................... 30,113 4,431 9,056
Net (increase) decrease in interest earning deposits with banks ..................... (947) 1,956 553
Net (increase) decrease in federal funds sold ....................................... 85,583 (70,770) 137,464
Proceeds from maturities and principal collections of investment securities
available for sale ............................................................... 327,897 173,109 192,186
Proceeds from sales of investment securities available for sale ..................... 106,207 136,502 182,972
Purchases of investment securities available for sale ............................... (614,952) (394,406) (347,177)
Proceeds from maturities and principal collections of investment securities
held to maturity ................................................................. 71,091 82,837 87,943
Purchases of investment securities held to maturity ................................. (53,833) (92,966) (141,153)
Net increase in loans ............................................................... (546,741) (385,228) (566,101)
Purchases of premises and equipment ................................................. (63,806) (48,212) (41,938)
Disposals of premises and equipment ................................................. 2,986 1,888 1,007
Proceeds from sales of other real estate ............................................ 6,852 12,032 9,078
Additions to purchased computer software ............................................ (9,018) -- --
Additions to internally developed computer software ................................. (178) (2,617) (10,624)
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Net cash used in investing activities ............................... (658,746) (581,444) (486,734)
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Financing Activities
Net increase in demand and savings deposits ......................................... 320,638 193,870 87,229
Net increase in certificates of deposit ............................................. 108,078 528,690 135,539
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase ............................................... 109,723 (182,870) 142,125
Principal repayments on long-term debt .............................................. (20,872) (33,682) (36,204)
Proceeds from issuance of long-term debt ............................................ 11,340 1,823 17,006
Purchases of treasury stock ......................................................... (263) (1,303) (6,013)
Dividends paid to shareholders ...................................................... (51,123) (42,042) (33,006)
Proceeds from issuance of common stock .............................................. 2,867 2,568 1,270
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Net cash provided by financing activities ........................... 480,388 467,054 307,946
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Increase (decrease) in cash and cash equivalents ............................................ 22,256 38,059 (10,875)
Cash and cash equivalents at beginning of period ............................................ 382,696 344,637 355,512
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Cash and cash equivalents at end of period ..................................................$ 404,952 382,696 344,637
=============================================================================================================================
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
Envisioning. Exploring. Evolving. F-5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
The consolidated financial statements include the accounts of Synovus
Financial Corp. (Parent Company) and its consolidated subsidiaries, all but one
of which were wholly-owned at December 31, 1996. Synovus has 34 wholly-owned
bank subsidiaries predominantly involved in commercial banking activities, a
wholly-owned trust company, mortgage company, and broker/dealer company. Total
System Services, Inc. (TSYS), an 80.7% owned subsidiary, is a bankcard data
processing company. In addition, the financial statements include joint ventures
of TSYS accounted for using the equity method of accounting.
The consolidated revenues are primarily contributed from the banking
operations, with TSYS' revenues contributing over 25% of consolidated revenues.
The banking operation's revenues are earned in four southeastern states: Georgia
(59%), Alabama (20%), South Carolina (13%), and Florida (8%). TSYS has two major
customers which account for approximately 29% of their revenues. All of TSYS'
revenues are generated from customers located in North America.
Basis of Presentation
In preparing the consolidated financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the reserve for loan losses; the valuation of
real estate acquired in connection with foreclosures or in satisfaction of
loans; and the disclosures for contingent assets and liabilities. In connection
with the determination of the reserve for loan losses and the valuation of other
real estate, management obtains independent appraisals for significant
properties and properties collateralizing impaired loans.
The accounting and reporting policies of Synovus Financial Corp. and
subsidiaries (Synovus) conform to generally accepted accounting principles and
to general practices within the banking and technology industries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The following is a description of the more significant of those
policies.
Cash Flow Information
For the years ended December 31, 1996, 1995, and 1994, income taxes of $90
million, $68 million, and $48 million, and interest of $288 million, $259
million, and $190 million, respectively, were paid.
Loans receivable of approximately $7 million, $9 million, and $8 million
were transferred to other real estate during 1996, 1995, and 1994, respectively.
Investment securities held to maturity with an amortized cost of
approximately $161 million and $5 million were transferred during 1995 and 1994,
respectively, to investment securities available for sale. No transfers were
made in 1996.
Federal Funds Sold, Federal Funds Purchased, and Securities Sold Under Agreement
to Repurchase
Federal funds sold, federal funds purchased, and securities sold under
agreement to repurchase generally mature in one day.
Investment Securities
Synovus classifies its securities into three categories: trading, available
for sale, or held to maturity. An insignificant amount of trading securities at
the broker/dealer company are bought and held principally for the purpose of
selling them in the near term. Held to maturity securities are those securities
for which Synovus has the ability and intent to hold until maturity. All other
securities not included in trading or held to maturity are classified as
available for sale.
Trading and available for sale securities are recorded at fair value. Fair
value is determined at a specific point in time, based on quoted market prices.
Held to maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized gains and losses on trading
securities are included in earnings. Unrealized gains and losses, net of the
related tax effect, on securities available for sale are excluded from earnings
and are reported as a separate component of shareholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized gains and losses are recognized in earnings for
transfers into trading securities. The unrealized gains or losses included in
the separate component of shareholders' equity for a security transferred from
available for sale to held to maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary results in a charge to
earnings resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield using the effective interest
method and prepayment assumptions. Dividend and interest income are recognized
when earned. Realized gains and losses for securities classified as available
for sale and held to maturity are included in earnings and are derived using the
specific identification method for determining the amortized cost of securities
sold.
Gains and losses on sales of investment securities are recognized on the
settlement date, based on the amortized cost of the specific security. The
financial statement impact of settlement date accounting versus trade date
accounting was immaterial.
F-6 S Y N O V U S F I N A N C I A L C O R P.
Loans and Interest Income
Loans are reported at principal amounts outstanding, less unearned income
and the reserve for loan losses.
First mortgage loans held for sale are reported at the lower of aggregate
cost or fair value. Fair values are based upon quoted prices from secondary
market investors and forward commitments to sell. No valuation allowances were
required at December 31, 1996 or 1995.
Interest income on consumer loans, made on a discount basis, is recognized
in a manner which approximates the level yield method. Interest income on
substantially all other loans is recognized on a level yield basis.
Loan fees, net of certain direct origination costs, are deferred and
amortized over the terms of the loans using a method which approximates the
level yield method. Annual fees, net of costs, collected for credit cards are
recognized on a straight-line basis over the period the fee entitles the
cardholder to use the card.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the full collection of interest or principal or
when they become contractually in default for 90 days or more as to either
interest or principal, unless they are both well-secured and in the process of
collection. When a loan is placed on nonaccrual status, previously accrued and
uncollected interest for the fiscal year in which the loan is placed on
nonaccrual status is charged to interest income on loans, unless management
believes that the accrued interest is recoverable through the liquidation of
collateral. Interest payments received on nonaccrual loans are applied as a
reduction of principal. Loans are returned to accruing status when they are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest. Such interest, when ultimately collected, is
recorded as interest income in the period received. Interest on accruing
impaired loans is recognized as long as such loans do not meet the criteria for
nonaccrual classification.
Reserve for Loan Losses
The reserve for loan losses is established through provisions for loan
losses charged to operations. Loans are charged against the reserve for loan
losses when management believes that the collection of principal is unlikely.
Subsequent recoveries are added to the reserve. Management's evaluation of the
adequacy of the reserve for loan losses is based on a formal analysis which
assesses the risk within the loan portfolio. This analysis includes
consideration of historical performance, current economic conditions, level of
nonperforming loans, loan concentrations, and review of certain individual
loans.
Management believes that the reserve for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the reserve for loan losses may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review Synovus' subsidiary
banks' reserves for loan losses. Such agencies may require Synovus' subsidiary
banks to recognize additions to the reserve for loan losses based on their
judgments about information available to them at the time of their examination.
Synovus adopted the provisions of Statement of Financial Accounting
Standard (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", on January 1, 1995. Management, considering
current information and events regarding the borrowers' ability to repay their
obligations, considers a loan to be impaired when the ultimate collectibility of
all amounts due, according to the contractual terms of the loan agreement, is in
doubt. When a loan is considered to be impaired, the amount of impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate. If the loan is collateral-dependent, the
fair value of the collateral is used to determine the amount of impairment.
Impairment losses are included in the reserve for loan losses through a charge
to the provision for losses on loans. Subsequent recoveries are added to the
reserve for loan losses. The adoption of SFAS No. 114 did not have a material
effect on the consolidated financial statements and prior periods have not been
restated.
SFAS No. 114 applies to all loans, except for large pools of smaller
balance homogeneous loans that are collectively evaluated for impairment, loans
that are measured at fair value or at the lower of cost or fair value, and debt
securities. The reserve for loan losses for large pools of smaller balance
homogeneous loans is established through consideration of such factors as
changes in the nature and volume of the portfolio, overall portfolio quality,
adequacy of the underlying collateral, loan concentrations, historical
charge-off trends, and economic conditions that may affect the borrowers'
ability to pay.
Premises and Equipment
Premises and equipment, including leasehold improvements, are reported at
cost, less accumulated depreciation and amortization, which are computed using
straight-line or accelerated methods over the estimated useful life of the
related asset.
Other Assets
The following paragraphs describe some of the more significant amounts
included in other assets.
On January 1, 1996, Synovus adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
disposed of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of the assets described below is measured by a
comparison of the carrying amount of the asset to future undiscounted cash flows
expected to be generated by the asset. If such assets are considered impaired,
the amount of impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this statement did not have a material impact on
Synovus' consolidated financial statements or liquidity.
Envisioning. Exploring. Evolving. F-7
Other Real Estate:
Other real estate, consisting of properties obtained through foreclosure or
in satisfaction of loans, is reported at the lower of cost or fair value,
determined on the basis of current appraisals, comparable sales, and other
estimates of value obtained principally from independent sources, adjusted for
estimated selling costs. Any excess of the loan balance at the time of
foreclosure over the fair value of the real estate held as collateral is treated
as a loan charge-off. Gain or loss on sale and any subsequent adjustment to the
value are recorded as a component of non-interest expense.
Originated and Purchased Mortgage Servicing Rights:
Effective July 1, 1995, Synovus adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights", which requires that a mortgage banking enterprise
recognize as separate assets, rights to service mortgage loans for others
regardless of whether the servicing rights are acquired through either the
purchase or origination of mortgage loans. SFAS No. 122 also requires that
capitalized mortgage servicing rights be evaluated for impairment based upon the
fair value of those rights, including those rights purchased before adoption of
SFAS No. 122. Fair value is estimated by determining the present value of the
estimated future cash flows using discount rates commensurate with the risks
involved. In determining the present value, Synovus stratifies its mortgage
servicing rights based on risk characteristics including loan types, note rates,
and note terms.
Capitalized mortgage servicing rights are amortized in proportion to and
over the period of estimated net servicing income, using a method that
approximates level yield and taking into consideration prepayment of the
underlying loans. Management re-evaluates the terms used for amortization based
upon prepayment history and adjusts the terms as necessary.
Intangibles:
Goodwill, which represents the excess of cost over the fair value of net
assets acquired of purchased companies, is being amortized using the
straight-line method over periods of 15 to 40 years.
Core deposit premiums resulting from the valuation of core deposit
intangibles acquired in business combinations or in the purchase of branch
offices are amortized using accelerated methods over periods not exceeding the
estimated average remaining life of the existing customer deposit bases
acquired. Amortization periods range from 10 to 18 years.
Intangible amortization periods are monitored to determine if events and
circumstances require such periods to be reduced.
Computer Software:
Software development costs are capitalized from the time technological
feasibility of the software product or enhancement is established until the
software is ready for use in providing processing services to customers.
Research and development costs and other computer software maintenance costs
related to software development are expensed as incurred. Software development
costs related to the core of TS2 are amortized using the greater of the
straight-line method over the estimated useful life of ten years or the ratio of
current revenues to current and anticipated revenues. All other software
development costs and costs of purchased software are amortized using the
greater of the straight-line method over the estimated useful lives of three to
five years or the ratio of current revenues to current and anticipated revenues.
Investment in Joint Ventures:
TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V.
("TSYS de Mexico"), a bankcard data processing operation located in Mexico, is
accounted for using the equity method of accounting, as is TSYS' 50% investment
in Vital Processing Services L.L.C. ("Vital"), a merchant processing operation
headquartered in Phoenix, Arizona.
Contract Acquisition Costs:
TSYS capitalizes certain contract acquisition costs related to signing a
long-term contract. These costs, which primarily consist of cash payments for
rights to provide processing services, incremental internal conversion and
software development costs, and third-party software development costs, are
amortized using the straight-line method over the contract term beginning when
the customer's cardholder accounts are converted to TSYS' processing system.
Derivative Financial Instruments:
Premiums paid for purchased interest rate floor and collar agreements are
amortized to interest income over the terms of the floors and collars.
Unamortized premiums are included in other assets in the consolidated statements
of condition. Amounts receivable or payable under collar and floor agreements
are accrued as an addition to or reduction of interest income.
Data Processing Services
TSYS' bankcard data processing revenues are derived from long-term
processing agreements with banks and nonbank institutions and are recognized as
revenues at the time the services are performed. TSYS' processing agreements
generally contain terms ranging from three to ten years.
Income Taxes
Synovus accounts for income taxes in accordance with the provisions of SFAS
No. 109, "Accounting for Income Taxes". Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-8 S Y N O V U S F I N A N C I A L C O R P.
Stock - Based Compensation
Synovus accounts for its fixed stock-based compensation in accordance with
the provisions set forth in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock issued to Employees," and related interpretations. In
accordance with APB Opinion No. 25, compensation expense is recorded on the
grant date only to the extent that the current market price of the underlying
stock exceeds the exercise price on the grant date.
On October 23, 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period of the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock-based grants made in 1995 and future years as if the
fair-value-based method had been applied as defined in SFAS No. 123. Synovus has
elected to continue to apply the provisions set forth in APB Opinion No. 25 and
follow the disclosure provisions of SFAS No. 123.
Postretirement Benefits
Synovus sponsors a defined benefit health care plan for substantially all
employees and early retirees. Synovus accounts for the cost of retiree health
care and other postretirement benefits in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
expected costs of such postretirement benefits are being expensed over the
period that employees provide service.
Net Income per Share
Net income per common share is based on the weighted average number of
shares outstanding. The effect of dilutive stock options on net income per share
is insignificant. All share and per share data has been restated to reflect the
April 1996 three-for-two stock split, which was effected on April 8, 1996, in
the form of a 50% stock dividend.
Disclosure About the Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires all entities to disclose the fair value of financial instruments, both
assets and liabilities (on- and off-balance sheet), for which it is practicable
to estimate fair value.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale, at one time, Synovus' entire holdings of a particular
financial instrument. Because no market exists for a portion of Synovus'
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include deferred tax accounts, premises and
equipment, and goodwill. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of the estimates.
Recent Accounting Pronouncements
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
was amended by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. SFAS No. 125 is to be applied
prospectively to transfers and servicing of financial assets and extinguishments
of liabilities after December 31, 1996. This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management does not expect that the adoption of SFAS No. 125 will
have a material impact on Synovus' financial position, results of operations, or
liquidity.
Other
Certain amounts in 1995 and 1994 have been reclassified to conform with the
presentation adopted in 1996.
Envisioning. Exploring. Evolving. F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 Business Combinations
On October 24, 1996, Synovus completed the acquisition of two full-service
banking centers in Rome, Georgia. Synovus acquired approximately $49 million in
deposits and $12 million in loans from the two banking centers. The acquisition
was accounted for as a purchase.
On April 28, 1995, Synovus completed the acquisition of Citizens &
Merchants Corporation (CMC), the parent company of the $52 million asset,
Citizens & Merchants State Bank, Douglasville, Georgia. Synovus issued 939,704
shares of common stock for all the issued and outstanding shares of CMC. This
transaction has been accounted for as a pooling of interests, except that the
financial statements for periods prior to the acquisition were not restated
since the effect was not material.
On February 28,1995, Synovus completed the acquisition of NBSC Corporation
(NBSC), the parent company of the $1.1 billion asset, The National Bank of South
Carolina, Columbia, South Carolina. Synovus issued 11,894,022 shares of common
stock for all the issued and outstanding shares of NBSC. This acquisition has
been accounted for as a pooling of interests and, accordingly, the financial
statements for all periods presented have been restated to include the financial
condition and results of operations of this entity. Synovus' financial
statements for the year ended December 31, 1994 have been restated for the NBSC
acquisition as follows:
1994
-------------------------
Before
(In thousands, except per share data) Acquisition Restated
- --------------------------------------------------------------------------------
Net interest income ................................ $ 259,502 301,231
================================================================================
Net income ......................................... $ 86,448 89,452
================================================================================
Net income per share ............................... $ .86 .79
================================================================================
On January 31, 1995, Synovus completed the acquisition of the $43 million
asset Peach State Bank (PSB), Riverdale, Georgia. Synovus issued 399,747
treasury shares for all of the issued and outstanding shares of PSB. This
acquisition was accounted for as a purchase.
Effective October 31, 1994, Synovus completed the acquisition of State
Bancshares, Inc. (SBI), the parent company of the $62 million asset, Coffee
County Bank, Enterprise, Alabama. Synovus issued 823,319 shares of common stock
for all of the issued and outstanding shares of SBI. This acquisition has been
accounted for as a pooling of interests, except that financial statements for
periods prior to the acquisition were not restated since the effect was not
material.
Effective May 31, 1994, Synovus completed the acquisition of PNB
Bankshares, Inc. (PNB), the parent company of the $78 million asset, Peachtree
National Bank, Peachtree City, Georgia. Synovus issued 822,320 shares of common
stock for all of the issued and outstanding shares of PNB. This acquisition has
been accounted for as a pooling of interests, except that the financial
statements for periods prior to the acquisition were not restated since the
effect was not material.
- --------------------------------------------------------------------------------
F-10 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 2 Investment Securities
The carrying and estimated fair values of investment securities are
summarized as follows:
December 31, 1996
------------------------------------------------
Investment Securities Available for Sale Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $1,132,122 5,262 (5,462) 1,131,922
Mortgage-backed securities ................. 131,313 652 (1,072) 130,893
State and municipal ........................ 965 57 (8) 1,014
Other investments .......................... 11,865 719 (330) 12,254
- -----------------------------------------------------------------------------------------------
Total .................................... $1,276,265 6,690 (6,872) 1,276,083
===============================================================================================
December 31, 1995
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $ 996,129 10,466 (2,309) 1,004,286
Mortgage-backed securities ................. 87,741 758 (303) 88,196
State and municipal ........................ 1,251 72 (1) 1,322
Other investments .......................... 12,254 678 (438) 12,494
- ---------------------------------------------------------------------------------------------
Total .................................... $1,097,375 11,974 (3,051) 1,106,298
============================================================================================
December 31, 1996
-----------------------------------------------
Investment Securities Held to Maturity Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $ 84,366 381 (635) 84,112
Mortgage-backed securities ................. 156,319 16,685 (16,745) 156,259
State and municipal ........................ 114,883 2,521 (541) 116,863
Other investments .......................... 7,440 20 -- 7,460
- ----------------------------------------------------------------------------------------------
Total .................................... $ 363,008 19,607 (17,921) 364,694
==============================================================================================
December 31, 1995
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies $ 81,772 1,415 (607) 82,580
Mortgage-backed securities ................. 171,275 1,629 (1,477) 171,427
State and municipal ........................ 121,761 4,779 (115) 126,425
Other investments .......................... 6,110 37 -- 6,147
- ---------------------------------------------------------------------------------------------
Total .................................... $ 380,918 7,860 (2,199) 386,579
=============================================================================================
On December 21, 1995, Synovus exercised an option permitted by the "Special
Report - a Guide to Implementation of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities - Questions and Answers" to make a one
time transfer of securities held to maturity to securities available for sale.
This transfer was made to add further liquidity and flexibility to the portfolio
which enabled Synovus to more effectively manage its interest rate risk
position. The amortized cost and estimated fair value of the securities
transferred was $133.7 million and $133.9 million, respectively.
On February 28, 1995, immediately following the acquisition, Synovus
transferred certain held to maturity securities of NBSC to the available for
sale portfolio to adhere to Synovus' existing asset-liability management policy
and interest rate risk strategy. This transfer consisted of investment
securities with an estimated fair value of $27.1 million and an amortized cost
of $27.4 million.
Envisioning. Exploring. Evolving. F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and estimated fair value of investment securities at
December 31, 1996 and 1995, are shown below by contractual maturity. Expected
maturities will differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without call or prepayment
penalties.
Investment Securities Investment Securities
Held to Maturity Available for Sale
December 31, 1996 December 31, 1996
----------------------- ---------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- -----------------------------------------------------------------------------------------------
U. S. Treasury and U. S. Government agencies:
Within 1 year ............................. $ 9,751 9,676 232,609 232,843
1 to 5 years .............................. 34,332 34,217 578,797 579,671
5 to 10 years ............................. 40,283 40,219 302,741 301,406
More than 10 years ........................ -- -- 17,975 18,002
- -----------------------------------------------------------------------------------------------
$ 84,366 84,112 1,132,122 1,131,922
===============================================================================================
Mortgage-backed securities:
Within 1 year ............................. $ 4,715 4,714 1,130 1,137
1 to 5 years .............................. 62,540 61,961 35,288 35,019
5 to 10 years ............................. 28,611 28,915 43,380 42,853
More than 10 years ........................ 60,453 60,669 51,515 51,884
- -----------------------------------------------------------------------------------------------
$ 156,319 156,259 131,313 130,893
===============================================================================================
State and municipal:
Within 1 year ............................. $ 18,290 18,392 30 30
1 to 5 years .............................. 42,253 43,269 -- --
5 to 10 years ............................. 33,536 34,131 411 420
More than 10 years ........................ 20,804 21,071 524 564
- -----------------------------------------------------------------------------------------------
$ 114,883 116,863 965 1,014
===============================================================================================
Other investments:
Within 1 year ............................. $ -- -- 516 526
1 to 5 years .............................. 1,832 1,852 2,482 2,699
5 to 10 years ............................. 265 265 1,025 1,093
More than 10 years ........................ 5,343 5,343 7,842 7,936
- -----------------------------------------------------------------------------------------------
$ 7,440 7,460 11,865 12,254
===============================================================================================
Total investment securities:
Within 1 year ............................. $ 32,756 32,782 234,285 234,536
1 to 5 years .............................. 140,957 141,299 616,567 617,389
5 to 10 years ............................. 102,695 103,530 347,557 345,772
More than 10 years ........................ 86,600 87,083 77,856 78,386
- -----------------------------------------------------------------------------------------------
$ 363,008 364,694 1,276,265 1,276,083
===============================================================================================
A summary of sales transactions in the investment securities available for sale
portfolio for 1996, 1995, and 1994 is as follows:
Gross Gross
Realized Realized
(In thousands) Proceeds Gains Losses
- -------------------------------------------------------------------------------
1996 $106,207 514 (690)
1995 136,502 1,164 (796)
1994 182,972 957 (1,678)
There were no sales transactions in the investment securities held to
maturity portfolio during the three years ended December 31, 1996. Securities
with a carrying value of $968,431,000 and $879,232,000 at December 31, 1996 and
1995, respectively, were pledged to secure certain deposits as required by law.
- --------------------------------------------------------------------------------
F-12 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 Loans
Loans outstanding, by classification, are summarized as follows:
(In thousands)
December 31, 1996 1995
- ----------------------------------------------------------------------------
Commercial:
Commercial, financial, and agricultural ... $ 2,036,689 1,931,004
Real estate-construction .................. 730,785 578,712
Real estate-mortgage ...................... 1,234,981 1,160,089
- ----------------------------------------------------------------------------
Total commercial ........................ 4,002,455 3,669,805
- ----------------------------------------------------------------------------
Retail:
Real estate-mortgage ...................... 977,432 824,998
Consumer loans-credit card ................ 290,470 222,204
Consumer loans-other ...................... 768,072 784,972
Mortgage loans held for sale .............. 37,036 24,863
- ----------------------------------------------------------------------------
Total retail ............................ 2,073,010 1,857,037
- ----------------------------------------------------------------------------
Total loans ............................. $ 6,075,465 5,526,842
============================================================================
Activity in the reserve for loan losses is summarized as follows:
(In thousands)
December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Balance at beginning of year .............. $81,384 75,018 67,270
Loan loss reserves of acquired subsidiaries 188 1,001 1,535
Provision for losses on loans ............. 31,766 25,787 25,387
Recoveries of loans previously charged off 6,525 4,510 5,874
Loans charged off ......................... (25,180) (24,932) (25,048)
- ------------------------------------------------------------------------------
Balance at end of year .................... $94,683 81,384 75,018
==============================================================================
As discussed in the Summary of Significant Accounting Policies, Synovus
adopted SFAS No. 114 and SFAS No. 118 effective January 1, 1995. No adjustment
to the loan loss reserve was needed upon adoption of SFAS No. 114 and SFAS No.
118. The table below illustrates the impaired loans and related amounts included
in the reserve for loan losses at December 31, 1996 and 1995.
December 31, 1996 December 31, 1995
--------------------- ----------------------
Allocated Allocated
Loan Loan Loss Loan Loan Loss
(In thousands) Balance Reserve Balance Reserve
- --------------------------------------------------------------------------------------------------------
Impaired loans, nonaccruing, with loan loss reserve .... $ 8,320 3,895 $13,083 5,619
Impaired loans, nonaccruing, with no loan loss reserve . 9,572 -- 7,151 --
Impaired loans, accruing, with loan loss reserve ....... 2,136 1,084 16,479 5,031
Impaired loans, accruing, with no loan loss reserve .... 10,365 -- 15,644 --
Impaired loans, accruing, partially charged off ........ 5,485 850 329 62
- --------------------------------------------------------------------------------------------------------
Total .............................................. $35,878 5,829 $52,686 10,712
========================================================================================================
Envisioning. Exploring. Evolving. F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
These loan loss reserve amounts, for impaired loans, were primarily
determined using the fair value of the loans' collateral. The average recorded
investment in impaired loans was approximately $40,000,000 and $87,000,000 for
the years ended December 31, 1996 and 1995, respectively, and the related amount
of interest income recognized during the period that such loans were impaired
was approximately $1,702,000 and $5,695,000 in 1996 and 1995, respectively.
Loans on nonaccrual status amounted to approximately $23,655,000,
$21,469,000, and $26,497,000 at December 31, 1996, 1995, and 1994, respectively.
If nonaccruing loans had been on a full accruing basis, interest income on these
loans would have been increased by approximately $2,400,000, $2,606,000, and
$2,931,000 in 1996, 1995, and 1994, respectively.
A substantial portion of Synovus' loans are secured by real estate in
markets in which subsidiary banks are located throughout Georgia, Alabama, South
Carolina, and Northwest Florida. Accordingly, the ultimate collectibility of a
substantial portion of Synovus' loan portfolio and the recovery of a substantial
portion of the carrying amount of real estate owned are susceptible to changes
in market conditions in these areas.
At December 31, 1996, Synovus Mortgage Corp. serviced mortgage loans for
unaffiliated investors in the amount of $1,551,608,000. This company carries
errors and omissions insurance in the amount of $2,500,000.
The following table presents information for mortgage loans held for sale
as of December 31, 1996 and 1995:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Beginning balance ..................................... $ 24,863 9,465
Loans originated during the year ...................... 297,117 213,645
Loans sold during the year ............................ (284,944) (198,247)
- -------------------------------------------------------------------------------
Ending balance ........................................ $ 37,036 24,863
================================================================================
In the ordinary course of business, Synovus has direct and indirect loans
outstanding to certain executive officers, directors, and principal holders of
equity securities (including their associates). Management believes that such
loans are made substantially on the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other customers. The following is a summary of such loans outstanding and the
activities in these loans for the year ended December 31, 1996.
(In thousands)
- ------------------------------------------------------------------
Balance at December 31, 1995 .......................... $ 127,418
Adjustment for executive officer and director changes . 595
- ------------------------------------------------------------------
Adjusted balance at December 31, 1995 ................. 128,013
New loans ............................................. 64,356
Repayments ............................................ (50,155)
- ------------------------------------------------------------------
Balance at December 31, 1996 .......................... $ 142,214
===================================================================
- --------------------------------------------------------------------------------
F-14 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 Other Assets
Included in other assets are four significant balances: purchased and
originated mortgage servicing rights, computer software costs, contract
acquisition costs, net, and investment in joint ventures, net.
Synovus adopted SFAS No. 122 as of July 1, 1995, and has capitalized all
mortgage servicing rights since the adoption date. As of December 31, 1996 and
1995, Synovus had approximately $17,212,000 and $8,569,000, respectively, in
capitalized mortgage servicing rights. There was no valuation allowance as of
December 31, 1996 and 1995.
The following table summarizes TSYS' computer software at December 31, 1996
and 1995:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------
TS2 .............................................................. $33,049 33,049
Other internally developed software, including enhancements to TS2 5,524 5,346
Purchased computer software ...................................... 25,865 17,138
- --------------------------------------------------------------------------------------
64,438 55,533
Less accumulated amortization .................................... 24,718 16,317
- --------------------------------------------------------------------------------------
Computer software, net ........................................... $39,720 39,216
======================================================================================
Capitalized internal computer software development costs, related to the
bankcard data processing, for the years ended December 31, 1996, 1995, and 1994
were $178,000, $2,617,000, and $10,624,000, respectively. Amortization expense
related to computer software costs was $8,630,000, $7,358,000, and $3,669,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
- --------------------------------------------------------------------------------
Contract acquisition costs, net, at TSYS were $19,646,000 and $17,628,000
at December 31, 1996 and 1995, respectively. Investment in joint ventures, net,
was $15,348,000 and $4,507,000 at December 31, 1996 and 1995, respectively.
Note 5 Deposits
The following table presents deposits as of December 31, 1996 and 1995:
(Balances in thousands) 1996 1995
- --------------------------------------------------------------
Non-interest bearing demand deposits $1,189,973 1,141,716
Interest bearing demand deposits ... 1,022,398 932,351
Money market accounts .............. 1,136,795 925,861
Savings accounts ................... 462,023 465,491
Time deposits under $100,000 ....... 2,268,942 2,238,560
Time deposits over $100,000 ........ 1,122,904 1,023,900
- --------------------------------------------------------------
$7,203,035 6,727,879
==============================================================
Interest expense for the years ended December 31, 1996, 1995, and 1994 on
time deposits over $100,000 was $62,074,000, $57,259,000 and $31,865,000,
respectively.
- --------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 Long-Term Debt
Long-term debt at December 31, 1996 and 1995 consists of the following:
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Parent Company:
6.125% senior notes, due October 15, 2003, with semi-annual interest payments and principal to be paid at
maturity ............................................................................................ $75,000 75,000
8.75% debenture, due May 15, 2004, with annual principal payments of $120,000 and $1,360,000 at maturity . 2,200 2,440
- ----------------------------------------------------------------------------------------------------------------------------
Total Parent Company Debt ........................................................ 77,200 77,440
- ----------------------------------------------------------------------------------------------------------------------------
Subsidiaries:
Federal Home Loan Bank advances with monthly interest payments and principal payments due at various
maturity dates through 2004 and interest rates ranging from 5.03% to 5.81% at December 31, 1996 .. 15,960 26,300
9.23% note payable, due October 31, 2003, with annual principal and interest payments .................... 317 348
8.00% capital lease obligation payable, due in monthly principal and interest payments through 2002 ...... 244 274
Other notes payable and capital lease obligations payable, with a weighted average interest
rate of 5.36%, maturing at various dates through 2000 ............................................ 3,562 2,453
- ----------------------------------------------------------------------------------------------------------------------------
Total Subsidiaries Debt .......................................................... 20,083 29,375
- ----------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt ............................................................. $97,283 106,815
============================================================================================================================
The more significant debt agreements held by the Parent Company provide for
certain limitations on: payments of cash dividends, issuance of additional debt,
creation of liens upon property, disposition of common stock or assets, and
investments in subsidiaries. As of December 31, 1996, the most restrictive of
these limit payment of cash dividends to a maximum of $139,604,000.
The Federal Home Loan Bank advances are secured by certain mortgage loans
receivable as well as all of the stock of the Federal Home Loan Bank owned by
Synovus.
Mandatory convertible subordinated debentures of $1,137,280 matured on
August 19, 1995. In accordance with the terms of these debentures, Synovus
issued 452,829 shares of common stock to extinguish the debentures.
The capital lease obligations payable and certain notes payable are secured
by land, buildings, and equipment with a net carrying value at December 31,
1996, of approximately $1,009,000.
Synovus has an unsecured line of credit, with an unaffiliated bank, for $20
million with an interest rate of 50 basis points above the "short-term index",
as defined. There were no advances on this line of credit outstanding at any
time in the years ended December 31, 1996 or 1995.
Required annual principal payments on long-term debt for the five years
subsequent to December 31, 1996, are as follows:
Parent
(In thousands) Company Subsidiaries Total
- --------------------------------------------------------------------------------
1997....................$120 11,307 11,427
1998.................... 120 7,079 7,199
1999.................... 120 382 502
2000.................... 120 307 427
2001.................... 120 289 409
- --------------------------------------------------------------------------------
F-16 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7 Income Taxes
For the years ended December 31, 1996, 1995, and 1994, income tax expense
(benefit) consists of:
(In thousands) 1996 1995 1994
- --------------------------------------------------------
Currently payable:
Federal .......... $ 89,655 65,009 46,304
State ............ 5,974 4,048 4,267
- -------------------------------------------------------
95,629 69,057 50,571
- -------------------------------------------------------
Deferred:
Federal .......... (14,664) (3,792) (997)
State ............ (1,257) (379) (100)
- -------------------------------------------------------
(15,921) (4,171) (1,097)
- -------------------------------------------------------
Total income taxes $ 79,708 64,886 49,474
=======================================================
Income tax expense as shown in the consolidated statements of income
differed from the amounts computed by applying the U.S. Federal income tax rate
of 35% to pretax income as a result of the following:
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
Taxes at statutory federal income tax rate .......... $76,759 62,814 48,624
Tax-exempt income ................................... (2,859) (2,956) (3,654)
State income taxes, net of federal income tax benefit 3,066 2,385 2,709
Minority interest ................................... 2,657 1,867 1,514
Other, net .......................................... 85 776 281
- ---------------------------------------------------------------------------------------------
Total income tax expense .......................... $79,708 64,886 49,474
=============================================================================================
Effective tax rate ................................ 36.34% 36.15% 35.61
=============================================================================================
The significant components of deferred income tax benefit for the years
ended December 31, 1996, and 1995, and 1994 are as follows:
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)in net tax benefit (exclusive of the components listed below) .............. $13,085 (9,065) 17,339
Adjustments to deferred income tax assets and liabilities for enacted tax rate change .......... -- -- 240
Change in valuation allowance .................................................................. (383) (418) 406
Change in deferred income tax assets and liabilities related to net unrealized gain (loss)
on securities available for sale ............................................................. 3,219 13,788 (16,555)
Deferred tax assets of acquired companies ...................................................... -- (134) (333)
- ------------------------------------------------------------------------------------------------------------------------------------
$15,921 4,171 1,097
====================================================================================================================================
Envisioning. Exploring. Evolving. F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The tax effects of temporary differences that gave rise to significant
portions of the deferred income tax assets and liabilities at December 31, 1996
and 1995 are presented below:
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax assets:
Provision for losses on loans ........................................................... $38,226 32,244
Net unrealized loss on investment securities available for sale ......................... 69 --
Other ................................................................................... 12,400 11,610
- -----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred income tax assets ................................................ 50,695 43,854
Less valuation allowance .............................................................. -- (383)
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax assets ..................................................... 50,695 43,471
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Differences in depreciation ............................................................. (5,612) (6,220)
Restricted stock awards ................................................................. (1,180) (1,206)
Computer software development costs ..................................................... (14,314) (14,958)
Net unrealized gain on investment securities available for sale ......................... -- (3,150)
Pension ................................................................................. -- (241)
Purchase accounting adjustments ......................................................... (1,571) (1,338)
Other, net .............................................................................. (6,366) (7,791)
- -----------------------------------------------------------------------------------------------------------------------------------
Total gross deferred income tax liabilities .......................................... (29,043) (34,904)
- -----------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax assets .................................................... $21,652 8,567
===================================================================================================================================
There was no valuation allowance for deferred tax assets as of December 31,
1996, compared to the December 31, 1995 allowance of $383,000. The net change in
the total valuation allowance for the years ended December 31, 1996 and 1995 was
a decrease of $383,000 and $418,000, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely than
not that Synovus will realize the benefits of these deductible differences, net
of the existing valuation allowances, at December 31, 1996.
- --------------------------------------------------------------------------------
Note 8 Employee Benefit Plans
Under various stock option plans, Synovus has granted options for 4,300,528
shares of common stock to officers of Synovus and its subsidiaries. Synovus has
expensed $813,000, $1,016,000 and $1,129,000 in 1996, 1995, and 1994,
respectively, related to the compensation element of these plans. At December
31, 1996, unamortized deferred compensation expense of $3,856,000 related to
these options remained and will be amortized over the vesting period through
1997. The options outstanding at December 31, 1996 had a weighted average
exercise price of $13.59.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $19.67 and $21.66, respectively, using the Black Scholes
option-pricing model with the following weighted-average assumptions: expected
life of 4 years, expected dividend yield of 1.4%, risk free interest rate of
6.5% and an expected volatility of 22%, for both years.
Synovus applies APB Opinion No. 25 in accounting for the stock option plans
and, accordingly, compensation costs for the 1996 and 1995 option plans have not
been recognized in the accompanying financial statements. However, Synovus
issued discounted options prior to 1995, the compensation cost of which has been
included in income as described above.
In addition to the stock options described above, Synovus has awarded
non-transferable, restricted shares of Synovus common stock to various key
executives under key executive restricted stock bonus plans. The market value of
the common stock at the date of issuance is included as a reduction of
shareholders' equity in the consolidated statements of condition and is
amortized as compensation expense using the straight-line method over the
vesting period of the awards. Aggregate compensation expense with respect to the
foregoing Synovus restricted stock awards was approximately $1,090,000, $779,000
and $1,421,000 in 1996, 1995 and 1994, respectively.
F-18 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Summary information regarding outstanding restricted stock bonus plans at
December 31, 1996 is presented below:
Year awards Market value
granted at award date Vesting period
- --------------------------------------------------------------------------------
1994 870,000 5 years
1995 2,054,000 5 years
1996 3,771,000 5 years
In 1992, TSYS also awarded 959,200 non-transferable, restricted shares of
its common stock to various key executives under restricted stock bonus plans.
The aggregate market value of the awards issued was $3,134,050, and is being
amortized on a straight-line basis over the five to six year vesting periods of
the awards.
In accordance with APB Opinion No. 25, approximately $738,000 and $205,000
in compensation expense has been recorded in 1996 and 1995, respectively, for
the restricted stock awards granted in 1996 and 1995. Had Synovus determined
compensation cost based on the fair value at the grant date for its stock
options and restricted stock awards under SFAS No. 123, Synovus' net income
would have been reduced to the pro forma amounts indicated below:
Years ended December 31,
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Net income:
As reported ........ $139,604 114,583
Pro forma .......... 137,650 114,107
Earnings per share:
As reported ......... 1.20 1.00
Pro forma ........... 1.19 .99
Pro forma net income reflects only options and awards granted in 1996 and
1995. The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net income amounts presented
above. The pro forma net income amount above does not include compensation cost
that would be recorded over the options' vesting periods of 2 to 3 years or
compensation cost for options granted prior to January 1, 1995.
Stock option activity during the years ended December 31, 1996, 1995, and
1994 is as follows:
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of period .............. 3,384,396 2,815,332 2,376,516
Options granted ......................................... 1,296,349 1,237,686 813,266
Options exercised ....................................... (353,629) (654,615) (266,114)
Options cancelled ....................................... (26,588) (14,007) (108,336)
- -------------------------------------------------------------------------------------------------------------------
Options outstanding at end of period .................. 4,300,528 3,384,396 2,815,332
===================================================================================================================
Options exercisable at end of period .................. 1,167,925 1,112,034 883,713
===================================================================================================================
Options' prices per share:
Options granted during the period ..................... $ 19.63 to 21.63 6.49 to 15.17 4.76 to 12.75
Options exercised during the period ................... $ 3.03 to 15.70 3.03 to 7.80 2.75 to 7.22
Options outstanding at end of period .................. $ 3.03 to 21.63 3.03 to 15.17 3.03 to 12.75
- -------------------------------------------------------------------------------------------------------------------
In 1994, Synovus had noncontributory, trusteed pension plans (collectively
referred to as "Plan") covering substantially all employees over 20 1/2 years of
age. Total pension expense recorded in the accompanying financial statements was
approximately $652,000, $3,195,000, and $1,516,000 in 1996, 1995, and 1994,
respectively.
In 1995, Synovus terminated the Plan. During the years ended December 31,
1996 and 1995, Synovus settled the accumulated benefit obligation of
approximately $15,849,000. The expenses incurred in 1996 and 1995 primarily
relate to the loss on settlement of the terminated Plan.
Envisioning. Exploring. Evolving. F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1995, Synovus adopted a defined-contribution, money purchase plan to
replace the terminated pension plan referred to above. In addition, Synovus
generally provides noncontributory, trusteed, profit sharing and 401(k) plans
which cover all eligible employees. Annual discretionary contributions to these
profit sharing and 401(k) plans are set each year by the respective Boards of
Directors of each subsidiary, but cannot exceed amounts allowable as a deduction
for federal income tax purposes. Aggregate contributions to these money
purchase, profit sharing, and 401(k) plans for the years ended December 31,
1996, 1995 and 1994 were $30,125,000, $23,238,000, and $12,853,000,
respectively.
Synovus has stock purchase plans for directors and employees whereby
Synovus makes contributions equal to one-half of employee and director voluntary
contributions. The funds are used to purchase outstanding shares of Synovus
common stock. TSYS has established director and employee stock purchase plans,
modeled after Synovus' plans except that the funds are used to purchase
outstanding shares of TSYS common stock. Synovus and TSYS contributed
$3,069,000, $2,623,000 and $1,949,000 to these plans in 1996, 1995, and 1994,
respectively.
Synovus has also entered into employment agreements with certain executive
officers for past and future services which provide for current compensation in
addition to salary in the form of deferred compensation payable at retirement or
in the event of death, total disability, or termination of employment. The
aggregate cost of these salary continuation plans and employment agreements was
not material to the consolidated financial statements.
Synovus provides certain medical benefits to qualified retirees through a
postretirement medical benefits plan. The benefit expense and accrued benefit
cost was not material to Synovus' consolidated financial statements.
- --------------------------------------------------------------------------------
Note 9 Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of Synovus' on-balance sheet financial instruments at December 31, 1996 and
1995. The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties.
1996 1995
---------------------------- -----------------------
Carrying Estimated Carrying Estimated
(In thousands) Value Value Fair Value Value Fair Value
- --------------------------------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks ................................... $ 404,952 404,952 382,696 382,696
Interest earning deposits with banks ...................... 2,040 2,040 1,093 1,093
Federal funds sold ........................................ 38,249 38,249 123,832 123,832
Investment securities available for sale .................. 1,276,083 1,276,083 1,106,298 1,106,298
Investment securities held to maturity .................... 363,008 364,694 380,918 386,579
Loans ..................................................... 5,970,547 5,848,317 5,430,646 5,393,786
Purchased and originated mortgage servicing rights ........ 17,212 20,499 8,569 9,844
Financial liabilities:
Non-interest bearing deposits ............................. $1,189,973 1,189,973 1,141,716 1,141,716
Interest bearing deposits ................................. 6,013,062 6,017,256 5,586,163 5,590,868
Federal funds purchased and securities sold under agreement
to repurchase ........................................ 339,200 339,200 229,477 229,477
Long-term debt ............................................ 97,283 94,818 106,815 105,874
The carrying amounts and estimated fair values relating to off-balance
sheet financial instruments are summarized in Note 10.
Cash and due from banks, interest earning deposits with banks, and federal
funds sold are repriced on a short-term basis, as such, the carrying value
closely approximates market.
Fair value of loans is estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as commercial,
mortgage, home equity, credit card, and other consumer loans. Fixed rate
commercial loans are further segmented into certain collateral code groupings.
Commercial and other consumer loans with adjustable interest rates are assumed
to be at fair value. Mortgage loans are further segmented into fixed and
adjustable rate interest terms. Home equity and credit card loans have
adjustable interest rates and are, therefore, assumed to be at fair value. The
fair value of loans, except mortgage loans, is calculated by discounting
contractual cash flows using estimated market discount rates which reflect the
credit and interest rate risk inherent in the loan. For mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for certain
prepayment assumptions, estimated using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit costs.
In accordance with SFAS No. 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand accounts, interest bearing demand
deposits, money market accounts, and savings accounts, is equal to the amount
payable on demand as of that respective date. The fair value of time deposits is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
F-20 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Short-term debt that matures within ten days is assumed to be at fair
value. The fair value of short-term and long-term debt with fixed interest rates
is calculated by discounting contractual cash flows using estimated market
discount rates.
- --------------------------------------------------------------------------------
Note 10 Commitments
Off-Balance Sheet Financial Instruments
Synovus is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers,
reduce its own exposure to fluctuations in interest rates, and to conduct
lending activities. These financial instruments include commitments to extend
credit, standby and commercial letters of credit, and interest rate swaps,
floors and collars. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated financial statements.
Synovus' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit, and
standby and commercial letters of credit is represented by the contract amount
of those instruments. Synovus uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. For interest rate swap, collar, and floor agreements held at year
end, Synovus had insignificant credit risk.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, total commitment amounts do not necessarily
represent future cash requirements.
Loan commitments and letters of credit at December 31, 1996 and 1995
include the following:
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------
Standby letters of credit .................................................. $ 321,891 255,230
Undisbursed construction loans ............................................ 341,457 316,139
Unused credit card lines .................................................. 659,423 552,831
Other loan commitments ..................................................... 817,206 700,227
Commitments to sell mortgage loans.......................................... 23,000 36,000
- --------------------------------------------------------------------------------------------------------
Total .................................................................... $2,162,977 1,860,427
========================================================================================================
Due to the short-term nature of the outstanding loan commitments, and the
likelihood that, when funded, these loans will be indexed to the then current
market rates, the off-balance sheet value closely approximates fair value.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into off-balance sheet interest rate
contracts involves not only interest rate risk but also, the risk of
counterparties' failure to fulfill their legal obligations. Notional principal
amounts often are used to express the volume of these transactions, but the
amounts potentially subject to credit risk are much smaller.
In October of 1995, Synovus and its subsidiary bank, Columbus Bank and
Trust Company, entered the interest rate swap market for interest rate risk
management purposes. In January of 1996, another subsidiary bank, The National
Bank of South Carolina, also entered the interest rate swap market. The
consolidated notional amount of interest rate swap, floor, and collar contracts
was $450,000,000 and $125,000,000 as of December 31, 1996 and 1995,
respectively, with a carrying amount of $410,000, primarily related to the
interest rate floor agreements in 1996, and no carrying amount in 1995. The
estimated net unrealized (loss) gain on these interest rate contracts was
($1,935,000) and $1,776,000 at December 31, 1996 and 1995, respectively.
These interest rate contracts are being utilized to hedge approximately
$585,000,000 in prime rate floating loans in Georgia and South Carolina.
Envisioning. Exploring. Evolving. F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
December 31, 1996 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
(In thousands) Amount Receive Rate Pay Rate<F1> In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps -LIBOR $235,000 5.79 5.53 32 $ -- (2,200) (2,200)
Receive Fixed Swaps - Prime 70,000 9.12 8.25 43 630 -- 630
- -----------------------------------------------------------------------------------------------------------------------------------
Total Receive Fixed Swaps 305,000 6.55 6.15 35 630 (2,200) (1,570)
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------
<FN>
<F1>Variable pay rate based upon contract rates in effect at December 31, 1996
and 1995.
</FN>
Weighted Weighted Weighted
Notional Average Cap Average Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate Floor Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Collars 80,000 9.16 7.91 34 -- (445) (445)
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Floors 65,000 7.83 48 80 -- 80
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $450,000 37 $ 710 (2,645) (1,935)
====================================================================================================================================
Weighted Weighted Weighted
December 31, 1995 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
(In thousands) Amount Receive Rate Pay Rate<F1> In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps - LIBOR $125,000 5.98% 5.88 46 $1,776 -- $1,776
===================================================================================================================================
- -------
<FN>
<F1>Variable pay rate based upon contract rates in effect at December 31, 1996
and 1995.
</FN>
Lease Commitments
Synovus has entered into long-term operating leases for various branch
locations, data processing equipment, and furniture. Management expects that, as
these leases expire, they will be renewed or replaced by other leases. At
December 31, 1996, minimum rental commitments under all such noncancelable
leases aggregated $118,647,000 of which the following approximate amounts are
due for the next five years:
Equipment
Real and
(In thousands) Property Furniture Total
- --------------------------------------------------------------------------------
1997....................... $5,909 26,888 32,797
1998....................... 5,617 25,221 30,838
1999....................... 4,996 19,264 24,260
2000....................... 4,765 8,038 12,803
2001....................... 3,613 88 3,701
Rental expense on equipment, including cancelable leases, was $44,819,000,
$33,445,000, and $25,111,000 in 1996, 1995, and 1994, respectively. Rental
expense on facilities was $6,920,000, $6,144,000, and $5,586,000 in 1996, 1995,
and 1994, respectively.
Contract Commitments
In the normal course of its business, TSYS maintains processing and
conversion agreements with its customers. These agreements contain contractual
commitments, including, but not limited to, minimum standards and time frames
against which TSYS' performance is measured. In the event TSYS does not meet its
contractual commitments with its customers, TSYS may incur penalties and/or
certain customers may have the right to terminate their agreements with TSYS.
TSYS does not believe that it will fail to meet its contractual commitments to
an extent that will result in a material adverse effect on its financial
condition or results of operations.
Legal Proceedings
Synovus is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Any litigation is vigorously defended by
Synovus and, in the opinion of management, based on consultation with external
legal counsel, any outcome of such litigation would not materially affect
Synovus' consolidated financial position or results of operations.
F-22 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Currently, multiple lawsuits, some seeking class action treatment, are
pending against one of Synovus' Alabama banking subsidiaries that involve: (1)
the sale of credit life insurance made in connection with consumer credit
transactions; (2) payments of service fees or interest rebates to automobile
dealers in connection with the assignment of automobile credit sales contracts
to that Synovus subsidiary; and (3) the forced placement of insurance to protect
that Synovus subsidiary's interest in collateral for which consumer credit
customers have failed to obtain or maintain insurance. These lawsuits seek
unspecified damages, including punitive damages, and purport to be class actions
which, if certified, may involve many of such subsidiary's consumer credit
transactions in Alabama for a number of years. Synovus intends to vigorously
contest these lawsuits and all other litigation to which Synovus and its
subsidiaries are parties. Based on information presently available, and in light
of legal and other defenses available to Synovus and its subsidiaries,
contingent liabilities arising from the threatened and pending litigation are
not considered material. It should be noted; however, that large punitive damage
awards, bearing little relation to the actual damages sustained by plaintiffs,
have been awarded in Alabama.
- --------------------------------------------------------------------------------
Note 11 Supplemental Financial Data
Components of other operating expenses in excess of 1% of total revenues
for any of the respective periods are as follows:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Stationery, printing, and supplies............. $24,104 23,692 19,552
FDIC insurance ................................ 1,469 7,849 12,742
- --------------------------------------------------------------------------------
Note 12 Industry Segments
Synovus operates principally in the banking industry through its subsidiary
banks, mortgage servicing company, trust company, and broker/dealer company.
Synovus also operates in the computerized data processing industry through its
majority-owned subsidiary, TSYS, which primarily provides bankcard data
processing for unaffiliated financial institutions and for Synovus. All,
inter-segment services provided are charged at the same rates as unaffiliated
customers, are included in the revenues and net income of the respective
segments, and are eliminated to arrive at consolidated totals.
Industry segment information for the years ended December 31, 1996, 1995,
and 1994 is presented below.
General Total Banking Data
(In thousands) Banking Corporate Operations Processing Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues.......................... 1996 $ 779,764 -- 779,764 311,648 (2,731)<F1> 1,088,681
1995 709,774 -- 709,774 249,708 (2,860)<F1> 956,622
1994 586,917 -- 586,917 187,571 (1,774)<F1> 772,714
Net income........................ 1996 121,808 (14,049) 107,759 39,437 (7,592)<F2> 139,604
1995 105,692 (13,506) 92,186 27,730 (5,333)<F2> 114,583
1994 83,983 (12,696) 71,287 22,490 (4,325)<F2> 89,452
Identifiable assets............... 1996 8,371,958 42,578 8,414,536 246,759 (48,951) 8,612,344
1995 7,719,615 51,478 7,771,093 199,000 (42,498) 7,927,595
1994 6,989,998 55,111 7,045,109 165,042 (34,072) 7,176,079
Capital expenditures<F3>......... 1996 34,508 676 35,184 28,622 -- 63,806
1995 22,835 269 23,104 25,108 -- 48,212
1994 19,117 320 19,437 22,501 -- 41,938
Depreciation and
amortization on premises,
equipment, and purchased
software ....................... 1996 16,344 360 16,704 19,108 -- 35,812
1995 13,999 332 14,331 17,126 -- 31,457
1994 12,871 365 13,236 13,472 -- 26,708
- ---------------------
<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.
- --------------------------------------------------------------------------------------------------------------------
</FN>
Envisioning. Exploring. Evolving. F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 13 Condensed Financial Information of Synovus Financial Corp.
(Parent Company only)
Condensed Statements of Condition
(In thousands)
December 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Assets
Cash ........................................................................... $ 25 47
Investment in consolidated bank subsidiaries, at equity (including TSYS) ....... 836,466 736,379
Investment in consolidated nonbank subsidiaries, at equity ..................... 7,799 6,775
Notes receivable from subsidiaries ............................................. 25,613 27,853
Other assets ................................................................... 19,076 24,040
- -----------------------------------------------------------------------------------------------------------------------
Total assets ...................................................... $888,979 795,094
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders Equity
Long-term debt ................................................................. $ 77,200 77,440
Other liabilities .............................................................. 28,029 24,099
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities ................................................. 105,229 101,539
- -----------------------------------------------------------------------------------------------------------------------
Shareholders equity:
Common stock ........................................................... 116,424 115,921
Surplus ................................................................ 98,523 88,381
Less treasury stock .................................................... (1,285) (1,022)
Less unamortized restricted stock ...................................... (5,344) (2,663)
Net unrealized gain (loss) on investment securities available for sale . (112) 5,774
Retained earnings ...................................................... 575,544 487,164
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders equity ......................................... 783,750 693,555
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders equity ......................... 888,979 795,094
=======================================================================================================================
F-24 S Y N O V U S F I N A N C I A L C O R P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Condensed Statements of Income
(In thousands)
Years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends received from bank subsidiaries (including TSYS) .......................... $ 61,925 76,464 72,800
Dividends received from nonbank subsidiaries ........................................ -- -- 300
Management fees ..................................................................... 1,642 2,511 3,586
Interest income ..................................................................... 1,678 2,149 1,425
Other income ........................................................................ 3,144 2,616 2,330
- ----------------------------------------------------------------------------------------------------------------------------
Total income ................................................................ 68,389 83,740 80,441
- ----------------------------------------------------------------------------------------------------------------------------
Expenses:
Interest expense .................................................................... 4,818 6,046 6,874
Other expenses ...................................................................... 25,129 23,904 19,758
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses .............................................................. 29,947 29,950 26,632
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed income of subsidiaries 38,442 53,790 53,809
Allocated income tax benefit ................................................................ (9,526) (9,246) (6,931)
- ----------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed income of subsidiaries ................ 47,968 63,036 60,740
Equity in undistributed income of subsidiaries .............................................. 91,636 51,547 28,712
- ----------------------------------------------------------------------------------------------------------------------------
Net income .................................................................. $139,604 114,583 89,452
============================================================================================================================
Envisioning. Exploring. Evolving. F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Condensed Statements of Cash Flows
(In thousands)
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income .............................................................. $ 139,604 114,583 89,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries ........ (91,636) (51,547) (28,712)
Net income of equity method investment .................. (92) (78) (337)
Depreciation, amortization, and accretion, net .......... 768 739 1,312
Net increase in other liabilities ....................... 3,930 5,723 5,474
Net decrease (increase) in other assets ................. 4,142 8,799 (10,632)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ....... 56,716 78,219 56,557
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Net investment in subsidiaries .......................................... (9,821) (9,835) (11,005)
Cash from merged parent company operations .............................. -- 515 --
Net (increase) decrease in notes receivable from subsidiaries .......... (1,021) 1,200 1,700
Net decrease (increase) in short-term notes receivable from subsidiaries 3,261 (4,765) (6,907)
Purchase of premises and equipment, net ................................. (396) (266) (301)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ........... (7,977) (13,151) (16,513)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Dividends paid to shareholders .......................................... (51,123) (42,042) (33,006)
Net decrease in short-term borrowings ................................... -- -- (5,404)
Principal repayments on long-term debt .................................. (240) (25,620) (2,166)
Proceeds from issuance of long-term debt ................................ -- -- 5,000
Purchase of treasury stock .............................................. (263) (1,303) (6,013)
Proceeds from issuance of common stock .................................. 2,865 3,705 1,270
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities ........... (48,761) (65,260) (40,319)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in cash ................................................................ (22) (192) (275)
Cash at beginning of period ..................................................... 47 239 514
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at end of period ........................................................... $ 25 47 239
====================================================================================================================================
Supplemental Information: For the years ended December 31, 1996, 1995, and
1994, the Parent Company paid income taxes of $90 million, $68 million, and $48
million, and interest in the amounts of $5 million, $6 million, and $7 million,
respectively.
The amount of dividends paid to the Parent Company from the subsidiary
banks is limited by various banking regulatory agencies. The amount of cash
dividends available from subsidiary banks for payment in 1997, without prior
approval from the banking regulatory agencies, is approximately $84,111,000. In
prior years, Synovus' banks have received permission and have paid cash
dividends to the Parent Company in excess of these regulatory limitations.
As a result of the regulatory limitations, at December 31, 1996,
approximately $752,355,000 of the Parent Company's investment in net assets of
subsidiary banks of $836,466,000, as shown in the accompanying condensed
statements of condition, was restricted from transfer by subsidiary banks to the
Parent Company in the form of cash dividends.
Synovus is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Synovus'
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Synovus must meet specific
capital guidelines that involve quantitative measures of Synovus' assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. Synovus capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Synovus on a consolidated basis, and the Parent Company and subsidiary
banks, individually, to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets as defined, and of Tier I capital to average
assets, as defined. Management believes, as of December 31, 1996, that Synovus
meets all capital adequacy requirements to which it is subject.
F-26 S Y N O V U S F I N A N C I A L C O R P.
As of December 31, 1996, the most recent notification from The Federal
Reserve Bank of Atlanta categorized the significant Synovus subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized Synovus and its subsidiaries must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below. Management is not aware of the existence of any
conditions or events occurring subsequent to December 31, 1996 which would
affect Synovus or its subsidiaries well capitalized classifications.
Actual capital amounts and ratios for Synovus are presented in the table
below on a consolidated basis and for each significant subsidiary, as defined.
To be Well
Capitalized Under
For Capital Prompt Corrective
(In thousands) Actual Adequacy Purposes Action Provisions
-------------------- ------------------- ---------------------
December 31, 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Synovus Financial Corp.
Tier I capital ...................... $777,708 674,165 266,279 239,157 399,418 358,735
Total risk-based capital ............ 863,261 751,423 532,557 478,313 665,697 597,891
Tier I capital ratio ................ 11.68% 11.28 4.00 4.00 6.00 6.00
Total risk-based capital ratio ...... 12.97 12.57 8.00 8.00 10.00 10.00
Leverage ratio ...................... 9.36 8.71 4.00 4,00 5.00 5.00
Columbus Bank and Trust Company
Tier I capital ...................... $298,610 251,561 65,598 57,078 98,397 85,617
Total risk-based capital ............ 316,045 267,303 131,196 114,156 163,994 142,696
Tier I capital ratio ................ 18.21% 17.63 4.00 4.00 6.00 6.00
Total risk-based capital ratio ...... 19.27 18.73 8.00 8.00 10.00 10.00
Leverage ratio ...................... 17.12 15.87 4.00 4.00 5.00 5.00
The National Bank of South Carolina
Tier I capital ...................... $ 94,373 84,324 38,455 34,836 57,682 52,254
Total risk-based capital ............ 106,396 94,583 76,909 69,672 96,137 87,090
Tier I capital ratio ................ 9.82% 9.68 4.00 4.00 6.00 6.00
Total risk-based capital ratio ...... 11.07 10.86 8.00 8.00 10.00 10.00
Leverage ratio ...................... 7.88 7.70 4.00 4.00 5.00 5.00
Envisioning. Exploring. Evolving. F-27
[logo] KPMG Peat Marwick LLP
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Synovus Financial Corp.:
We have audited the accompanying consolidated statements of condition of
Synovus Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholders equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of Synovus'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Synovus
Financial Corp. and subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
January 21, 1997
Member Firm of
Klynveld Peat Marwick Goerdeler
F-28 S Y N O V U S F I N A N C I A L C O R P.
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
Percent
Years ended December 31, 1996 1995 Change
- ---------------------------------------------------------------------------------------------------------------------------
Statements of Condition
Assets ........................................................... 8,612,344 7,927,595 8.6%
Loans, net ....................................................... 5,970,547 5,430,646 9.9
Deposits ......................................................... 7,203,035 6,727,879 7.1
Shareholders' equity ............................................. 783,750 693,555 13.0
Book value per share ............................................. 6.74 5.99 12.5
Cash dividends declared per share ................................ .44 .36 22.2
Equity to assets ................................................. 9.10% 8.75
Reserve for loan losses to loans ................................. 1.56 1.48
- ---------------------------------------------------------------------------------------------------------------------------
Statements of Income
Net income before special FDIC assessment ........................ 142,400 114,583 24.3%
Net income after special FDIC assessment ......................... 139,604 114,583 21.8
Net income per share before special FDIC assessment .............. 1.23 1.00 23.0
Net income per share after special FDIC assessment ............... 1.20 1.00 20.6
- ---------------------------------------------------------------------------------------------------------------------------
Performance Ratios
Return on assets before special FDIC assessment .................. 1.75% 1.53
Return on assets after special FDIC assessment .................. 1.72 1.53
Return on equity before special FDIC assessment .................. 19.49 17.92
Return on equity after special FDIC assessment .................. 19.11 17.92
Net interest margin .............................................. 5.19 5.15
Net overhead ratio before special FDIC assessment ................ 1.37 1.75
Net overhead ratio after special FDIC assessment ................. 1.43 1.75
- ----------------------------------------------------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-29
FINANCIAL REVIEW
Summary
Synovus Financial Corp. (Synovus) has continued to improve performance with
the most successful year in its history. Net income for 1996 was $139.6 million,
increasing 21.8% over the $114.6 million earned in 1995. Net income per share
increased to $1.20 in 1996, up 20.6% from the $1.00 earned in 1995. Return on
assets continued to improve in 1996 increasing 19 basis points to 1.72%,
compared to 1.53% in 1995. Return on equity also improved to 19.11% in 1996,
compared to 17.92% in 1995.
These record results are attributable to significant improvements in
Synovus' banking operations and at Total System Services, Inc. (TSYS), Synovus'
majority owned bankcard processing subsidiary. During 1996, net interest income
and non-interest income grew 9.7% and 24.8%, respectively, over 1995, while
non-interest expense increased 15.0% and the provision for loan losses increased
23.2%.
Synovus' banking operations results, which exclude TSYS, also continued to
improve during 1996. Net income for Synovus banking operations increased 16.9%
to $107.8 million from $92.2 million in 1995. Return on assets for Synovus
banking operations improved in 1996 increasing 10 basis points to 1.36%,
compared to 1.26% in 1995. Return on equity allocated to Synovus banking
operations also improved to 17.88% in 1996, compared to 17.31% in 1995.
On September 30, 1996, legislation was approved to recapitalize the Savings
Association Insurance Fund. Due to this recapitalization, Synovus paid a special
assessment to the Federal Deposit Insurance Corporation (FDIC) of approximately
$2.8 million on an after-tax basis, which represents approximately $.03 per
share for the year of 1996. Synovus' consolidated statement of income for 1996
includes this special assessment.
The following paragraph discusses the financial results for 1996, before
the FDIC special assessment. Net income for 1996 was $142.4, up $27.8 million,
or 24.3%, from the same period a year ago. Net income per share increased 23.0%
during the year, from $1.00 in 1995 to $1.23 in 1996. Synovus' core operations
strong performance resulted in a return on average assets of 1.75% and a return
on average equity of 19.49% for 1996. This compared to a return on average
assets and a return on average equity of 1.53% and 17.92%, respectively, in
1995.
Synovus' total assets ended the year at $8.6 billion, a growth rate of 8.6%
for 1996, resulting from net loan growth of $539.9 million, or 9.9%. This asset
growth was primarily funded by a $475.2 million increase, or 7.1%, in total
deposits. The increases in both loans and deposits reflect a strong Southeastern
economic environment as well as market share gains. Shareholders' equity grew
13.0% to $783.8 million, which represented 9.10% of total assets.
The following discussion reviews the results of operations and assesses the
financial condition of Synovus. This discussion should be read in conjunction
with the preceding consolidated financial statements and accompanying notes.
On March 11, 1996, Synovus declared a three-for-two stock split effected
April 8, 1996, to shareholders of record on March 21, 1996. Share and per share
data for all periods presented have been restated to reflect the additional
shares outstanding resulting from the stock split.
- --------------------------------------------------------------------------------
Table 1
Five Year Selected Financial Data (In thousands, except per share data)
Years Ended December 31,
----------------------------------------------------------------------------
1996<F2> 1995 1994 1993 1992
----------------------------------------------------------------------------
Net interest income ................................... $ 374,874 341,875 301,231 263,213 241,203
Provision for losses on loans ......................... 31,766 25,787 25,387 24,924 33,302
Income before extraordinary item ...................... 139,604 114,583 89,452 80,379 66,685
Net income ............................................ 139,604 114,583 89,452 77,467 66,685
Per share data:
Income before extraordinary item .............. 1.20 1.00 .79 .74 .61
Net income .................................... 1.20 1.00 .79 .71 .61
Cash dividends declared ....................... .44 .36 .30 .25 .21
Long-term debt ........................................ 97,283 106,815 139,811 143,481 143,215
Average total equity .................................. 730,541 639,426 566,562 505,027 444,565
Average total assets .................................. 8,135,587 7,498,299 6,782,659 6,141,794 5,702,968
Ratios:
Return on assets before extraordinary item..... 1.72% 1.53 1.32 1.31 1.17
Return on assets after extraordinary item ..... 1.72 1.53 1.32 1.26 1.17
Return on equity before extraordinary item..... 19.11 17.92 15.79 15.92 15.00
Return on equity after extraordinary item ..... 19.11 17.92 15.79 15.34 15.00
Dividend payout ratio <F1>..................... 36.62 36.69 36.90 35.10 28.59
Average equity to average assets .............. 8.98 8.53 8.35 8.22 7.80
- ----------
<FN>
<F1> Determined by dividing dividends declared by net income, including pooled
subsidiaries.
<F2> 1996 selected financial data reflects the impact of the special FDIC
assessment. Without the special FDIC assessment, net income would have been
$142,400 and net income per share would have been $1.23.
</FN>
- --------------------------------------------------------------------------------
F-30 S Y N O V U S F I N A N C I A L C O R P.
Acquisitions
On October 24, 1996, Synovus completed the acquisition of two full-service
banking centers in Rome, Georgia. Synovus acquired approximately $49 million in
deposits and $12 million in loans from the two banking centers. The acquisition
was accounted for as a purchase.
The 1995 merger activity resulted in Synovus' entry into South Carolina and
an expanded presence in Georgia. The merger with NBSC Corporation of Columbia,
South Carolina, represents the largest in our history. NBSC brings a veteran
management team and an opportunity to provide products and services to the
growing markets in South Carolina.
In addition, the mergers with Douglasville, Georgia, based Citizens &
Merchants Corporation and Riverdale, Georgia, based Peach State Bank continue to
provide Synovus with access to the growth in the Atlanta suburbs.
A list of the bank acquisitions completed during the past three years
follows:
(Dollars in thousands)
Acquired Shares Financial
Company and Location Date Assets Issued Statement Presentation
- ----------------------------------------- ---------------- ----------- --------- -----------------------
Two branches October 24, 1996 $ 46,464 N/A Purchase
Rome, Georgia
Citizens & Merchants Corporation April 28, 1995 $ 52,000 939,704 Pooling (Non-restated)
Douglasville, Georgia
NBSC Corporation February 28, 1995 $1,100,000 11,894,022 Pooling (Restated)
Columbia, South Carolina
Peach State Bank January 31, 1995 $ 43,000 399,747 Purchase
Riverdale, Georgia
State Bancshares, Inc. October 31, 1994 $ 62,000 823,318 Pooling (Non-restated)
Enterprise, Alabama
PNB Bankshares, Inc. May 31, 1994 $ 78,000 822,319 Pooling (Non-restated)
Peachtree City, Georgia
This information is discussed in further detail in Note 1 of the
financial statements.
- --------------------------------------------------------------------------------
Table 2
Net Interest Income
(In thousands)
Years Ended December 31,
--------------------------------------
1996 1995 1994
--------------------------------------
Interest income .............................................. $ 663,303 615,788 498,382
Taxable-equivalent adjustment ................................ 4,595 5,107 5,599
- ------------------------------------------------------------------------------------------------------
Interest income, taxable-equivalent ................ 667,898 620,895 503,981
Interest expense ............................................. 288,429 273,913 197,151
- ------------------------------------------------------------------------------------------------------
Net interest income, taxable-equivalent ............ $ 379,469 346,982 306,830
======================================================================================================
- --------------------------------------------------------------------------------
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for 1996 were $8.1 billion, or 8.5% over 1995 average
total assets of $7.5 billion. Average earning assets for 1996 were $7.3 billion,
which represented 90% of average total assets. A $473.2 million, or 7.4%,
increase in average deposits for 1996 provided the funding for a $449.9 million,
or 8.6%, increase in average net loans. Average shareholders' equity for 1996
was $730.5 million.
For 1995, average total assets increased $715.6 million, or 10.6%. Average
earning assets for 1995 were $6.7 billion, which represented 90% of average
total assets. For more detailed information on Synovus' average statement of
condition for the years ended 1996, 1995, and 1994, refer to Table 3.
Net interest income (interest income less interest expense) is the largest
component of Synovus' net income. This major source of income represents the
earnings of Synovus' primary business of gathering funds from deposit sources
and investing those funds in loans and securities. Synovus' long term objective
is to manage those assets and liabilities to provide the largest possible amount
of income while balancing interest rate, credit, liquidity, and capital risks.
Envisioning. Exploring. Evolving. F-31
Net interest income is presented in this discussion on a tax-equivalent
basis, so that the income from assets exempt from federal income taxes is
adjusted based on a statutory marginal federal tax rate of 35% in all years (See
Table 2). The net interest margin is defined as taxable-equivalent net interest
income divided by average total interest earning assets and provides an
indication of the efficiency of the earnings from balance sheet activities. The
net interest margin is affected by changes in the spread between interest
earning asset yields and interest bearing costs (spread rate), and by the
percentage of interest earning assets funded by interest bearing liabilities.
Net interest income for 1996 was a record $374.9 million, up $33.0 million,
or 9.7%, from 1995. On a taxable-equivalent basis, net interest income was
$379.5 million, up $32.5 million, or 9.4%, over 1995. During 1996, average
interest earning assets increased $567.7 million, or 8.4%, with the majority of
this increase attributable to loan growth. Increases in the level of time
deposits were the main contributor to the $432.9 million, or 7.5%, growth in
average interest bearing liabilities.
The 5.19% net interest margin achieved in 1996 is a 4 basis point increase
over the 5.15% reported for 1995. This increase is the result of higher
investment yields, loan growth, lower cost of funds, increased loan fees, and
recovery of interest on loans. The reinvestment yield for securities was
relatively strong in 1996 due to higher market rates. The effective cost of
funds declined 21 basis points since January 1996 due to maturities of prior
year promotional CD's and general repricing during the current year. Another
influence impacting the net interest margin is the percentage of earning assets
funded by interest bearing liabilities. Funding for Synovus' earning assets
comes from interest bearing liabilities, non-interest bearing liabilities, and
shareholders' equity. Earning assets funded by non-interest bearing liabilities
continue to provide a positive impact on the net interest margin.
The 1996 net interest margin steadily increased in each quarter of 1996.
The first quarter net interest margin was 5.13% and increased 11 basis points,
during 1996, to the fourth quarter net interest margin of 5.24%.
During 1995, net interest income and tax-equivalent net interest income
increased 13.5% and 13.1%, respectively. Average interest earning assets grew
10.8% while interest bearing liabilities increased 9.9%. This growth, along with
a 10 basis point improvement in the net interest margin to 5.15% from 5.05%,
contributed to Synovus' earnings. The net interest margin also increased as a
result of a 10.5% increase in average non-interest bearing demand deposits. The
decrease in the spread rate of 8 basis points was the result of a 92 basis point
increase in the yield on earning assets offset by a 100 basis point increase in
the rate paid on interest bearing liabilities. The higher average prime rate
experienced during 1995 resulted in the repricing of interest earning assets
upward, while depositors moved funds temporarily held in transaction accounts to
higher paying time deposits which resulted in a higher interest-bearing cost of
funds.
Despite the growth in net interest income and the strong net interest
margin, the margin declined from a first quarter high of 5.25% to 5.10% in the
fourth quarter of 1995. This decline during 1995 primarily resulted from a shift
of transaction-oriented deposit accounts to time deposits and a decrease in the
prime rate during the second half of the year. Synovus sought to manage this
decline through the use of product and pricing management as well as hedging
opportunities using off-balance sheet derivatives. These activities are
discussed further in the "Off-Balance Sheet Derivatives for Interest Rate Risk
Management" section of this report.
F-32 S Y N O V U S F I N A N C I A L C O R P.
- --------------------------------------------------------------------------------
Table 3
Consolidated Average Balances, Interest, and Yields
(In thousands)
1996 1995 1994
---------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------
Assets
Interest earning assets:
Taxable loans, net<F1><F2> ...............$5,750,099 559,809 9.74% $5,288,863 522,258 9.87% $4,643,731 412,086 8.87%
Tax-exempt loans, net<F2><F3> ............ 33,719 3,589 10.64 38,044 4,230 11.12 45,755 4,747 10.37
Reserve for loan losses .................. (87,046) -- (80,034) -- (70,893) --
---------- ------- --------- ------- --------- -------
Loans, net ....................... 5,696,772 563,398 9.89 5,246,873 526,488 10.03 4,618,593 416,833 9.03
---------- ------- --------- ------- --------- -------
Taxable investment securities<F4> ........ 1,462,733 92,404 6.32 1,270,063 77,198 6.08 1,270,976 72,546 5.71
Tax-exempt investment securities<F3><F4>.. 111,886 10,171 9.09 120,064 11,096 9.24 123,437 11,780 9.54
---------- ------ --------- ------ --------- ------
Total investment securities ...... 1,574,619 102,575 6.51 1,390,127 88,294 6.35 1,394,413 84,326 6.05
---------- ------- --------- ------ --------- ------
Interest earning deposits with banks ..... 1,221 59 4.83 1,828 107 5.85 641 35 5.46
Federal funds sold ....................... 35,213 1,866 5.30 101,334 6,006 5.93 68,196 2,787 4.09
---------- ------- --------- ------ --------- ------
Total interest earning assets .... 7,307,825 667,898 9.14 6,740,162 620,895 9.21 6,081,843 503,981 8.29
---------- ------- --------- ------- --------- -------
Cash and due from banks .......................... 312,997 298,328 284,651
Premises and equipment, net ...................... 234,351 209,415 197,313
Other real estate ................................ 11,527 13,582 15,182
Other assets <F5>................................. 268,887 236,812 203,670
---------- ---------- ---------
Total assets .....................$8,135,587 $7,498,299 $6,782,659
========== ========== =========
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits .........$ 940,303 23,440 2.49 $ 887,694 23,947 2.70 $ 873,992 22,614 2.59
Money market accounts .................... 1,034,336 41,011 3.96 915,710 36,817 4.02 863,081 26,126 3.03
Savings deposits ......................... 469,714 12,305 2.62 475,962 13,746 2.89 510,380 14,226 2.79
Time deposits ............................ 3,333,501 190,593 5.72 3,113,375 179,251 5.76 2,574,468 113,953 4.43
Federal funds purchased and
securities sold under agreement
to repurchase .................... 288,107 14,973 5.20 216,342 12,092 5.59 235,858 10,021 4.25
Other borrowed funds ..................... 101,289 6,107 6.03 125,317 8,060 6.43 159,900 10,211 6.39
--------- ------- --------- ------- --------- -------
Total interest bearing liabilities 6,167,250 288,429 4.67 5,734,400 273,913 4.78 5,217,679 197,151 3.78
--------- ------- ---- --------- ------- ---- --------- ------- ----
Spread rate ...................... 4.47% 4.43% 4.51%
==== ==== ====
Non-interest bearing demand deposits ............. 1,074,676 986,582 892,800
Other liabilities ................................ 163,120 137,891 105,618
Shareholders' equity ............................. 730,541 639,426 566,562
--------- ------- -------
Total liabilities and
shareholders' equity .....$8,135,587 $7,498,299 $6,782,659
========== ========= =========
Net interest income/margin ...................... 379,469 5.19% 346,982 5.15% 306,830 5.05%
==== ==== ====
Taxable-equivalent adjustment ................... (4,595) (5,107) (5,599)
-------- ------- -------
Net interest income, actual .....................$ $374,874 $341,875 $301,231
======= ======== ========
- ---------
<FN>
<F1> Average loans are shown net of unearned income. Nonperforming loans are
included.
<F2> Interest income includes loan fees as follows: 1996 - $23,929, 1995 -
$20,825, 1994 - $19,140.
<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, 1996,
1995, and 1994, the average amortized cost of these securities amounted to
$1,206,522, $881,063, and $863,655, respectively.
<F5> In 1996, 1995, and 1994, there were $3,370, $7,674, and $8,293,
respectively, of average net unrealized losses on investment securities
available for sale.
</FN>
- --------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-33
- --------------------------------------------------------------------------------
Table 4
Rate/Volume Analysis
(In thousands)
1996 Compared to 1995 1995 Compared to 1994
------------------------------ ----------------------------------
Change Due to <F1> Change Due to <F1>
------------------------------ ----------------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
- -----------------------------------------------------------------------------------------------------------------------------------
Interest earned on:
Taxable loans, net .............................. $ 45,546 (7,995) 37,551 57,249 52,923 110,172
Tax-exempt loans, net <F2> ...................... (481) (160) (641) (800) 283 (517)
Taxable investment securities ................... 11,711 3,495 15,206 (52) 4,704 4,652
Tax-exempt investment securities <F2>............ (756) (169) (925) (322) (362) (684)
Interest earning deposits with banks ............ (36) (12) (48) 65 7 72
Federal funds sold .............................. (3,919) (221) (4,140) 1,354 1,865 3,219
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income ................... 52,065 (5,062) 47,003 57,494 59,420 116,914
- -----------------------------------------------------------------------------------------------------------------------------------
Interest paid on:
Interest bearing demand deposits ................ 1,419 (1,926) (507) 355 978 1,333
Money market accounts ........................... 4,769 (575) 4,194 1,593 9,098 10,691
Savings deposits ................................ (180) (1,261) (1,441) (959) 479 (480)
Time deposits ................................... 12,674 (1,332) 11,342 23,853 41,445 65,298
Federal funds purchased and securities sold under
agreement to repurchase ................. 4,011 (1,130) 2,881 (829) 2,900 2,071
Other borrowed funds ............................ (1,545) (408) (1,953) (2,210) 59 (2,151)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense .................. 21,148 (6,632) 14,516 21,803 54,959 76,762
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income ..................... $ 30,917 1,570 32,487 35,691 4,461 40,152
===================================================================================================================================
<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 adjusting interest on tax-exempt loans and investment
securities to a taxable-equivalent basis.
</FN>
- --------------------------------------------------------------------------------
Non-Interest Income
Non-interest income consists of a wide variety of fee generating services
viewed as traditional banking services along with revenues earned by TSYS,
Synovus' bankcard data processing company. During 1996, total non-interest
income increased $84.5 million, or 24.8%. Revenues from bankcard data processing
services offered by TSYS were the largest contributor increasing $60.4 million,
or 25.6%, over 1995. Service charges on banking operations' deposit accounts
increased $5.8 million, or 12.3%. Fees for trust services increased $1.8
million, or 18.5%, over 1995. Other operating income increased $15.3 million, or
37.6%, in 1996 due to increased product revenues from securities sales, fees on
letters of credit, and public finance bond activities.
TSYS contributed approximately 70% of Synovus' total non-interest income in
1996 with the majority of this reported as data processing services income. Data
processing services income is derived principally from the servicing of
individual bankcard accounts for the card issuing customers of TSYS. The growth
in TSYS is evidenced by the average number of total cardholder accounts
processed by TSYS, which was approximately 72.0 million in 1996, compared to
53.1 million in 1995, and 39.5 million in 1994. TSYS currently processes 79.4
million cardholder accounts across the United States, Puerto Rico, Canada, and
Mexico.
During 1996, approximately 6.5 million cardholder accounts of new customers
were added to THE TOTAL SYSTEM. At December 31, 1996, cardholder accounts on
file included 3.4 million accounts of banks being processed for Total System
Services de Mexico, S.A. de C.V. ("TSYS de Mexico"), TSYS' Mexican joint
venture; the conversion of these accounts to THE TOTAL SYSTEM was completed in
July 1995. The remaining growth in cardholder accounts is primarily a result of
portfolio growth of existing customers.
On August 16, 1995, TSYS and Visa U.S.A. Inc. ("Visa") announced an
agreement in principle to merge their merchant and point-of-sale processing
operations. On May 1, 1996, the joint venture, known as Vital Processing
Services L.L.C. ("Vital"), became operational and began offering fully
integrated merchant transaction and related electronic information services to
financial and nonfinancial institutions and their merchant customers. Vital is
structured with its own management team and separate Board of Directors and has
its corporate headquarters in Phoenix, Arizona, with other locations in
Columbus, Georgia, and Atlanta, Georgia. TSYS and Visa are equal owners in the
joint venture.
Since 1994, TSYS has been servicing commercial cards which include
purchasing cards, corporate, and company business cards for employees. At
December 31, 1996, TSYS was processing approximately 3.1 million commercial card
accounts, a 42.5% increase over the approximately 2.0 million being processed at
year-end 1995, representing a 53.8% increase over the 1.3 million at year-end
1994. Commercial card revenue is included in revenues from bankcard processing.
F-34 S Y N O V U S F I N A N C I A L C O R P.
A significant amount of the TSYS' revenues are derived from certain major
customers who are processed under long-term contracts. For the years ended
December 31, 1996, 1995, and 1994, two customers accounted for approximately
29%, 34%, and 36% of total revenues, respectively. As a result, the loss of one
of TSYS' major customers could have a material adverse effect on TSYS' financial
condition and results of operations.
During 1996, TSYS converted and began processing approximately 4.5 million
accounts for Bank of America. TSYS' conversion schedule for 1997 anticipates
conversion of all of Bank of America's remaining accounts. In addition, during
the second quarter of 1996, TSYS and Bank of America amended their processing
agreement to, among other things, eliminate the financial penalties and
termination rights associated with prior conversion delays. TSYS management
believes all of Bank of America's cardholder accounts will be successfully
converted to TS2.
Synovus continues to emphasize the importance of growth in non-interest
related sources of income in its banking operations via "The New Bank"
initiatives. Designed to identify and integrate the people, programs, and
systems Synovus will need for the 21st century, this vital strategy incorporates
new technologies, new products and services, and will position Synovus to
deliver even greater service to its customers and, ultimately, increased value
to our shareholders. Non-interest income reported by Synovus' banking operations
increased $15.5 million, or 16.4%, in 1996 and $5.1 million, or 5.7%, in 1995.
Service charges on deposit accounts have historically been one of the
primary sources of other income for Synovus' banking operations. In 1996,
service charges on deposit accounts increased $5.8 million, or 12.3%, as a
result of increases in the number of accounts serviced and increased volume
related to activity based fees.
On January 1, 1995, Synovus formed Synovus Trust Company, a new subsidiary
in which to consolidate all Synovus' Georgia trust operations. This new
subsidiary is expected to bring continued efficiencies and expertise to this
banking service. Trust fees for 1996 increased $1.8 million, or 18.5%, over
1995. Fees for trust services are derived from performing estate administration,
personal trust, corporate trust, and employee benefit plan administration. At
December 31, 1996 and 1995, total market value of assets administered by Synovus
Trust Company and subsidiary bank trust operations was approximately $4.8
billion and $3.5 billion, respectively.
Non-interest income in 1996 and 1995 has also been positively impacted by
increases in revenues from mortgage banking and related servicing. In June of
1994, Synovus Mortgage Corp. was formed to enhance the mortgage products offered
by the banking subsidiaries and to generate additional fee income through
mortgage servicing. Synovus Mortgage Corp. provides expertise in the areas of
products and pricing to the subsidiary banks and serves as an outlet for placing
these mortgage loans into the secondary market while retaining the related
servicing rights. The adoption of Statement of Financial Accounting Standards
(SFAS) No. 122, "Accounting for Mortgage Servicing Rights", in July of 1995, had
an immaterial favorable impact on non-interest income. Mortgage loan origination
volume and increased revenue from the growth in the portfolio of loans serviced
for others were the major factors driving the mortgage revenue increases.
In 1995, total non-interest income increased $66.5 million, or 24.2%.
Revenues from bankcard data processing services offered by TSYS were the largest
contributor increasing $58.0 million, or 32.6%, over 1994. Service charges on
banking operations' deposit accounts increased $5.2 million, or 12.6%, primarily
as a result of continued growth in the number of accounts serviced and increased
fee structure. Fees for trust services increased $.9 million, or 9.7%, over
1994. Other operating income increased $1.8 million, or 4.5%, in 1995 primarily
due to acquisitions in 1995, merchant fees on credit cards and gains on sales of
other real estate.
Non-Interest Expense
Non-interest expense increased $71.7 million, or 15.0%, in 1996 over 1995.
Management analyzes non-interest expense in two separate components: banking
operations and TSYS. The table below summarizes this data for the years ended
December 31, 1996, 1995, and 1994:
1996 1995 1994
- ------------------------------------------------------------------------------------------
(In thousands) Banking TSYS Banking TSYS Banking TSYS
- ------------------------------------------------------------------------------------------
Salaries and other personnel expense $173,653 124,259 157,533 94,946 138,480 73,051
Net occupancy and equipment expense 39,023 82,118 35,080 64,549 32,136 51,283
Other operating expenses ........... 69,161 53,368 72,721 47,291 83,836 28,139
Minority interest .................. 7,592 -- 5,333 -- 4,325 --
- ------------------------------------------------------------------------------------------
Total non-interest expense .... $289,429 259,745 270,667 206,786 258,777 152,473
==========================================================================================
Non-interest expense related to TSYS increased $53.0 million, or 25.6%, in
1996 over 1995 with a significant portion of this increase being employment
expenses. The average number of employees increased from 2,087 in 1995 to 2,498
in 1996. This growth in employees, along with salary increases, resulted in a
$29.3 million, or 30.9%, increase in employment expenses.
As a percentage of revenues, TSYS' operating expenses increased in 1996 to
83.3%, compared to 82.8% and 81.2% for 1995 and 1994, respectively. The
principal increases in operating expenses resulted from the addition of
personnel and equipment; the cost of materials associated with the services
provided by all companies, particularly the supplies related to processing the
increased number of accounts on THE TOTAL SYSTEM; certain processing provisions;
and certain costs associated with the conversion of customers to TS2 and the
start-up of TSYS de Mexico.
A significant portion of TSYS' operating expenses relates to salaries and
other personnel costs. During 1996, the average number of employees increased to
2,498, compared to 2,087 in 1995 and 1,874 in 1994. In addition to the growth in
number of employees, the increase in salaries and other personnel costs is
attributable to normal salary increases and related employee benefits. In 1996,
due to TSYS' excellent financial performance, employees were awarded the maximum
401(k) contribution of 5.0%, or $4.0 million, compared to 2.7%, or $1.6 million,
in 1995; there was no contribution in 1994 as the 401(k) plan was established in
1995. Nonemployee compensation, including contract programmers, also contributed
to the change in employment expenses. Nonemployee compensation increased $2.2
million, or 54.1%, in 1996 compared to 1995. However, nonemployee compensation
decreased $2.5 million, or 38.4%, in 1995 compared to 1994, primarily due to the
completion of core TS2 in late 1994, reducing the total number of contract
programmers utilized from
Envisioning. Exploring. Evolving. F-35
that point forward. Employment costs related to internally developed software
and contract acquisition costs capitalized in 1996 were $4.9 million, compared
to $8.4 million and $14.5 million in 1995 and 1994, respectively, the majority
of which related to the development of TS2. These decreases in capitalization
are a major component of the increases in employment expense, particularly in
comparing 1995 to 1994. Since the completion of core TS2, employment expenses
capitalized relate primarily to enhancements to TS2 and costs associated with
the conversion of customers under new long-term contracts to TS2.
In 1996, non-interest expense for Synovus' banking operations increased
$18.8 million, or 6.9%. The majority of increased expenses were in employment
expense and related primarily to additional employees hired in 1996. The average
number of employees in banking operations increased from 4,038 in 1995 to 4,197
in 1996. This growth was primarily due to growth within the banking
subsidiaries, as they continue to develop new products and provide additional
services to their customers. Other factors causing an increase in non-interest
expense include normal salary increases, training related to "The New Bank"
initiatives, and performance-based employee retirement plan expenses. The
banking operations efficiency ratio improved from 60.95% in 1995 to 58.36% in
1996. These improvements were primarily the result of increased revenues,
expense control, and a decrease in the FDIC insurance rate.
Increases in non-interest expense were partially offset by a $6.4 million
decrease in FDIC premium expense, prior to the special FDIC assessment, in 1996
compared to 1995 due to the lowering, in 1996, of the FDIC assessment rate on
deposits. FDIC premium expense decreased in 1996 even though a special
assessment of $4.5 million, $2.8 million after tax, was imposed by the FDIC to
recapitalize the Savings Association Insurance Fund. Synovus believes that the
current banking legislation will result in additional 1997 reductions in FDIC
insurance paid by the well-capitalized banks.
Quality service for Synovus' customers, provided in the most efficient
manner, continues to be a priority. During 1995, Synovus continued its
"modernization" effort, under which all banking support functions are being
reviewed for potential improvements. Synovus is investing in improved
technology, such as platform automation, and is standardizing certain support
processes. Synovus continues to reorganize and refocus its resources whenever it
can more effectively and efficiently deliver products and services to its
customers. Synovus believes that this effort will provide a greatly improved
product delivery mechanism and will increase the productivity of the support
functions.
In 1995, total non-interest expense increased $66.2 million, or 16.1%, over
1994. Expenses incurred at TSYS increased $54.3 million, or 35.6%, in 1995 over
1994 as TSYS prepared for expansion of its fee-generating services. In 1995, the
average number of employees at TSYS increased from 1,874 in 1994 to 2,087 in
1995. Employee additions were necessary to serve the growing cardholder base.
Remaining increases in employment expenses were due to normal salary increases,
related benefits and a new employee retirement plan. Increases in equipment and
occupancy expenses were also required in 1995, as compared to 1994, as TSYS
obtained substantial new, technologically-advanced equipment in order to meet
its business needs.
Non-interest expense for Synovus' banking operations increased $11.9
million, or 4.6%, in 1995 over 1994. New hires, salary increases and related
benefits, a new employee retirement plan, and a $3.2 million expense related to
the termination of the previous employee retirement plan account for most of
this increase. Increases in non-interest expense were partially offset by a $4.9
million decrease in FDIC premium expense.
Investment Securities
Synovus' investment securities portfolio consists of debt and equity
securities which are categorized as either available for sale or held to
maturity. Synovus Securities, Inc., Synovus' wholly-owned broker/dealer company,
has an insignificant balance of trading investment securities used to facilitate
business. Investment securities provide Synovus with a source of liquidity and a
relatively stable source of income. The investment securities portfolio also
provides management with a tool to balance interest rate risk and credit risk
related to the loans on the balance sheet. At December 31, 1996, approximately
$968.4 million of these investment securities were pledged as required
collateral for certain deposits. See Table 14 for maturity and average yield
information for the available for sale and held to maturity investment
securities.
Synovus' investment strategy focuses on the use of the investment
securities portfolio to manage the interest rate risk created by the natural
mismatch inherent in the loan and deposit portfolios. With the strong loan
demand at Synovus' subsidiary banks, there is little need for investment
securities solely to augment income or utilize uninvested deposits. As such,
Synovus' investment securities are primarily U.S. Treasuries, U.S. Government
agencies, and Government agency sponsored mortgage-backed securities, all of
which have a high degree of liquidity and limited credit risk. A mortgage-backed
security depends on the underlying pool of mortgage loans to provide a cash flow
"pass-through" of principal and interest. At December 31, 1996, substantially
all of the collateralized mortgage obligations and mortgage-backed pass-through
securities held by Synovus were issued or backed by Federal agencies.
As of December 31, 1996 and 1995, the estimated fair value of investment
securities as a percentage of their amortized cost was 100.1% and 101.0%,
respectively. The investment securities portfolio had gross unrealized gains of
$26.3 million and gross unrealized losses of $24.8 million, for a net unrealized
gain of $1.5 million as of December 31, 1996. As of December 31, 1995, the
investment securities portfolio had a net unrealized gain of $14.6 million. In
accordance with SFAS No. 115, shareholders' equity contained a net unrealized
loss of $.1 million and a net unrealized gain of $5.8 million recorded on the
available for sale portfolio as of December 31, 1996 and 1995, respectively.
During 1996, the average balance of investment securities increased to $1.6
billion, compared to $1.4 billion in 1995. Synovus earned a taxable-equivalent
rate of 6.51% and 6.35% for 1996 and 1995, respectively, on its investment
securities portfolio. As of December 31, 1996 and 1995, average investment
securities represented 21.5% and 20.6%, respectively, of average interest
earning assets. This increase in the percentage of average investment securities
to average interest earning assets is due to management's efforts to capitalize
on higher investment yields available in the market. Refer to Table 3 for more
information on average investment securities.
On December 21, 1995, Synovus exercised an option allowed by "Special
Report - a Guide to Implementation of FASB No. 115, Accounting for Certain
Investments in Debt and Equity Securities - Questions and Answers" to make a one
time transfer of investment securities held to maturity to investment securities
available for sale. This transfer was made to add further liquidity and
flexibility to the portfolio which enabled Synovus to more effectively manage
its interest rate risk position. The amortized cost and estimated fair value of
the investment securities transferred was $133.7 million and $133.9 million,
respectively.
Table 5 presents the carrying value of investment securities held to
maturity and investment securities available for sale at December 31, 1996,
1995, and 1994.
F-36 S Y N O V U S F I N A N C I A L C O R P.
- --------------------------------------------------------------------------------
Table 5
Investment Securities
(In thousands)
December 31,
----------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Securities Held to Maturity:
U.S. Treasury and U.S. Government agencies ........................ $ 84,366 81,772 159,354
Mortgage-backed securities ........................................ 156,319 171,275 243,220
State and municipal ............................................... 114,883 121,761 121,834
Other investments ................................................. 7,440 6,110 8,525
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity .................... $363,008 380,918 532,933
====================================================================================================================================
Investment Securities Available for Sale:
U.S. Treasury and U.S. Government agencies ........................ $1,131,922 1,004,286 767,544
Mortgage-backed securities ........................................ 130,893 88,196 24,413
State and municipal ............................................... 1,014 1,322 1,491
Other investments ................................................. 12,254 12,494 11,321
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale .................. $1,276,083 1,106,298 804,769
====================================================================================================================================
Total Investment Securities:
U.S. Treasury and U.S. Government agencies ........................ $1,216,288 1,086,058 926,898
Mortgage-backed securities ........................................ 287,212 259,471 267,633
State and municipal ............................................... 115,897 123,083 123,325
Other investments ................................................. 19,694 18,604 19,846
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities ..................................... $1,639,091 1,487,216 1,337,702
====================================================================================================================================
- --------------------------------------------------------------------------------
Loans
Loans are the primary interest earning asset for Synovus. When analyzing
prospective loans, management assesses both interest rate objectives and credit
quality objectives in determining whether to extend a given loan and the
appropriate pricing for that loan. Operating under a decentralized structure,
management emphasizes lending in subsidiaries' respective communities. As
illustrated in Table 6, Synovus strives toward maintaining a diversified loan
portfolio to spread risk and reduce exposure to economic downturns that may
occur in different segments of the economy, geographic locations, or in
particular industries. Demonstration of that strategy results in the fact that
Synovus does not have any concentration of loans to any single industry or
borrower, no foreign loans, and has no highly leveraged transaction credits as
of the end of 1996.
Representing 78% of average earning assets and 70% of average total assets,
net loans increased $539.9 million, or 9.9%, during 1996. Continued market share
gains through successful business development and additional products and
services offered to the current customer base has afforded Synovus this loan
growth. Synovus continues to increase its loan portfolio through a constant
focus on meeting the needs of customers in the markets served while maintaining
adherence to sound lending practices. As a result of this continued focus, loans
have continued to grow throughout Synovus' subsidiary markets, with the most
significant growth at four subsidiaries headquartered in Columbus, Georgia;
Columbia, South Carolina; Birmingham, Alabama; and Valparaiso, Florida. These
four banks experienced loan growth of $118.7 million, $90.2 million, $54.3
million, and $29.3 million, respectively for the year ended December 31, 1996
over the same period in 1995. Columbus Bank and Trust Company, the lead bank,
experienced an increase in credit card loan balances of $68.3 million which
included the purchase of a $34.1 million credit card portfolio in the first half
of 1996. The remainder of the loan growth was distributed throughout the
remaining subsidiary banks.
Synovus has enjoyed a relatively strong average loan-to-deposit ratio over
the past three years. The average loan-to-deposit ratio for 1996, 1995, and 1994
was 84.2%, 83.5%, and 82.1%, respectively.
The growth in commercial loans was primarily centered in the larger markets
in Alabama, South Carolina, and Georgia. These markets have experienced economic
growth in 1996, especially with respect to real estate and working capital
loans. Real estate construction and commercial real estate mortgage loans
increased in 1996 due to economic growth in many of the Southeastern communities
Synovus subsidiary banks serve. In addition to the purchase of the credit card
portfolio, credit card loan growth has been most dramatically impacted by the
increased number of customer accounts in several subsidiary banks. The growth in
mortgage loans held for sale is mostly attributable to underwriting mortgage
loans that are sold to third party investors, while retaining the servicing of
those loans at Synovus Mortgage Corp. Synovus' mortgage loans held for sale are
pre-committed extensions and are generally held less than thirty days, after
which the loans are sold in the market to an unaffiliated investor. The increase
in retail real estate mortgage loans from 1995 to 1996 results primarily from an
increased emphasis on the mortgage loan products offered by certain subsidiaries
as well as a favorable interest rate market for residential mortgage loans.
Synovus has reduced nonperforming assets as a percent of loans during 1996
as a result of constant attention and focus on loan quality while at the same
time meeting the customers' needs. Loan officers work with each customer to
determine which loan products will optimally meet their individual and specific
lending needs. This focus on underwriting loans that benefit the customer, while
maintaining credit quality standards, causes Synovus to be optimistic about the
future growth and quality of the loan portfolio.
Envisioning. Exploring. Evolving. F-37
- --------------------------------------------------------------------------------
Table 6 shows the composition of the loan portfolio at the end of the past
five years.
Table 6
Loans by Type
(In thousands)
December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------------
Commercial:
Commercial, financial, and agricultural ......... $ 2,036,689 1,931,004 1,783,928 1,567,310 1,423,124
Real estate-construction ........................ 730,785 578,712 472,131 414,801 376,641
Real estate-mortgage ............................ 1,234,981 1,160,089 1,030,524 890,297 817,905
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial ........................ 4,002,455 3,669,805 3,286,583 2,872,408 2,617,670
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ............................ 977,432 824,998 865,642 760,530 690,563
Consumer loans-credit card ...................... 290,470 222,204 171,475 150,653 136,794
Consumer loans-other ............................ 768,072 784,972 756,402 664,554 603,418
Mortgage loans held for sale .................... 37,036 24,863 9,465 23,409 11,744
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail ............................ 2,073,010 1,857,037 1,802,984 1,599,146 1,442,519
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans ............................. 6,075,465 5,526,842 5,089,567 4,471,554 4,060,189
Unearned income ................................. (10,235) (14,812) (14,691) (18,148) (25,371)
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income ..... $ 6,065,230 5,512,030 5,074,876 4,453,406 4,034,818
====================================================================================================================================
- --------------------------------------------------------------------------------
Table 7
Loan Maturity Distribution and Interest Sensitivity
(In thousands)
December 31, 1996
---------------------------------------------
One Over One Year Over
Year Through Five Five
Or Less Years Years Total
- ------------------------------------------------------------------------------------------------------------------------
Selected loan categories:
Commercial, financial, and agricultural ......................... $1,262,025 661,886 112,778 2,036,689
Real estate-construction ........................................ 496,568 196,279 37,938 730,785
- -----------------------------------------------------------------------------------------------------------------------
Total ................................................... $1,758,593 858,165 150,716 2,767,474
=======================================================================================================================
Loans due after one year:
Having predetermined interest rates ............................................................... $ 560,852
Having floating interest rates .................................................................... 448,029
- -----------------------------------------------------------------------------------------------------------------------
Total ..................................................................................... $1,008,881
=======================================================================================================================
- --------------------------------------------------------------------------------
F-38 S Y N O V U S F I N A N C I A L C O R P.
Commercial, financial, and agricultural loans include industrial revenue
bonds and other loans that are granted primarily on the strength of the
borrower's ability to generate repayment cash flows from income sources as well
as the borrower's general credit standing, even though such loans and bonds may
be secured by real estate or other assets. Real estate construction and mortgage
loans represent extensions of credit used as interim or permanent financing of
commercial properties that are secured by real estate as well as 1-4 family
first mortgage loans.
Generally, retail lending decisions are made based upon the cash flow or
earning power of the borrower which represents the primary source of repayment.
However, in many lending transactions collateral is taken to provide an
additional measure of security. Transactions secured by collateral result in a
secondary source of repayment in that the collateral may be liquidated. Synovus
determines the need for collateral on a case-by-case basis. Factors considered
include the current and prospective credit-worthiness of the customer, terms of
the loan, and economic conditions.
Provision for Losses on Loans and Net Charge-Offs
Despite Synovus' credit standards, internal controls, and continuous loan
review process, the inherent risk in the nature of lending results in periodic
charge-offs. The provision for loan losses is the charge to operating earnings
necessary to maintain an adequate reserve for loan losses. Through the provision
for loan losses, Synovus maintains a reserve for loan losses that management
believes is adequate to absorb losses within the loan portfolio. However, future
additions to the reserve may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination procedures, periodically review Synovus' subsidiary banks'
reserve for loan losses. Based on their judgments about information available to
them at the time of their examination, such agencies may require Synovus'
subsidiary banks to recognize additions to their reserve for loan losses.
In order to determine the adequacy of the reserve for loan losses and to
determine the need for potential charges to the reserve, a formal analysis is
completed quarterly to assess the risk within the loan portfolio. This
assessment, conducted by lending officers, as well as an independent loan
administration department, includes analysis of historical performance, the
level of nonperforming loans, specific analysis of certain problem loans, loan
activity since the last quarter, consideration of current economic conditions,
and other pertinent information. The resulting conclusions are reviewed and
approved by senior management.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan", management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when the ultimate collectibility of all amounts due, according to the
contractual terms of the loan agreement, is in doubt. When a loan becomes
impaired, management calculates the impairment based on the present value of
expected future cash flows discounted at the loan's effective interest rate. If
the loan is collateral dependent, the fair value of the collateral is used to
measure the amount of impairment. The amount of impairment and any subsequent
changes are recorded, through a charge to earnings, as an adjustment to the
reserve for loan losses. When management considers a loan, or a portion thereof,
as uncollectible, it is charged against the reserve for loan losses.
Through improved underwriting standards and the resolution of certain
identified problem assets, Synovus' asset quality continued to improve during
1996 as measured by asset quality indicators. The most dramatic improvement,
with respect to charge offs experienced in 1996, was the significant reduction
in commercial, financial, and agricultural loan charge offs. This improvement
was driven by a closer monitoring of work out loans, improvement in several real
estate markets, and a more proactive identification of potential problem loans.
However, other consumer loan charge offs increased due to personal bankruptcies
and other consumer related issues currently plaguing the banking industry. In
response, Synovus management has increased collection efforts, tightened credit
scoring, and become more focused on past due monitoring.
Synovus' provision for loan losses during 1996 was $31.8 million, up 23.2%,
compared to $25.8 million in 1995. Nonperforming assets as a percent of loans
and other real estate are at their lowest level in more than ten years and the
reserve is 374.5% of nonperforming loans. The increase in the provision for loan
losses is primarily a result of managements ongoing assessment of the loan
portfolio and the potential for increased loan weaknesses in light of the
slowing economy. Synovus was able to reduce the nonperforming asset ratio to its
lowest level in over ten years to .59% as of December 31, 1996. Net charge-offs
of $18.7 million were 8.7% lower in 1996 compared to $20.4 million in 1995. As,
a percent of average net loans, the net charge-off ratio improved from .38% in
1995 to .32% in 1996. A summary, by loan category, of loans charged off,
recoveries of loans previously charged off, and additions to the reserve through
provision expense is presented in Table 8.
Envisioning. Exploring. Evolving. F-39
- --------------------------------------------------------------------------------
Table 8
Reserve for Loan Losses
(In thousands)
Years Ended December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------
Reserve for loan losses at beginning of year .......................... $81,384 75,018 67,270 61,336 55,279
Reserve for loan losses of acquired subsidiaries ...................... 188 1,001 1,535 -- 8
Loans charged off during the year:
Commercial:
Commercial, financial, and agricultural ............... 7,790 13,746 13,809 13,097 17,761
Real estate-construction .............................. 217 239 240 228 309
Real estate-mortgage .................................. 2,356 1,840 1,849 1,753 2,378
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial .............................. 10,363 15,825 15,898 15,078 20,448
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage .................................. 1,032 209 210 200 271
Consumer loans-credit card ............................ 7,798 6,627 6,658 6,315 8,563
Consumer loans-other .................................. 5,987 2,271 2,282 2,164 2,935
Mortgage loans held for sale -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail .................................. 14,817 9,107 9,150 8,679 11,769
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans charged off ....................... 25,180 24,932 25,048 23,757 32,217
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off during the year:
Commercial:
Commercial, financial, and agricultural ............... 1,699 1,217 1,585 1,287 1,339
Real estate-construction .............................. 173 50 65 52 55
Real estate-mortgage .................................. 1,312 92 120 97 101
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial .............................. 3,184 1,359 1,770 1,436 1,495
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage .................................. 352 115 149 121 126
Consumer loans-credit card ............................ 776 1,237 1,611 1,308 1,362
Consumer loans-other .................................. 2,213 1,799 2,344 1,902 1,981
Mortgage loans held for sale -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail .................................. 3,341 3,151 4,104 3,331 3,469
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans recovered ......................... 6,525 4,510 5,874 4,767 4,964
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans charged off during the year ................................. 18,655 20,422 19,174 18,990 27,253
- ------------------------------------------------------------------------------------------------------------------------------------
Additions to reserve through provision expense ........................ 31,766 25,787 25,387 24,924 33,302
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses at end of year ................................ $94,683 81,384 75,018 67,270 61,336
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses to loans ...................................... 1.56% 1.48 1.48 1.51 1.52
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net loans charged off during the year to average
net loans outstanding during the year ......................... .32% .38 .41 .45 .68
====================================================================================================================================
- --------------------------------------------------------------------------------
An allocation of the reserve for loan losses has been made according to the
respective amounts deemed necessary to provide for the possibility of incurred
losses within the various loan categories. Although other relevant factors are
considered, the allocation is primarily based on previous charge-off experience
adjusted for risk characteristic changes among each category. Additional reserve
amounts are allocated by evaluating the loss potential of individual loans that
management has considered impaired. The reserve for loan loss allocation is
based on subjective judgment and estimates, and therefore is not necessarily
indicative of the specific amounts or loan categories in which charge-offs may
ultimately occur. The adoption of SFAS No. 114 in 1995 did not have a material
effect on the consolidated financial statements and prior years have not been
restated. Refer to Table 9 for a five year comparison of the allocation of the
reserve for loan losses.
F-40 S Y N O V U S F I N A N C I A L C O R P.
- --------------------------------------------------------------------------------
Table 9
Allocation of Reserve for Loan Losses
(In thousands)
December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------
Reserve %* Reserve %* Reserve %* Reserve %* Reserve %*
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial:
Commercial, financial, and
agricultural ................ $38,171 34% $32,810 35% $32,343 36% $28,539 35% $28,427 35%
Real estate-construction ............ 1,163 12 570 10 562 9 496 9 494 9
Real estate-mortgage ................ 5,110 20 4,392 21 4,329 20 3,820 20 3,805 20
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial ............ 44,444 66 37,772 66 37,234 65 32,855 64 32,726 64
- ------------------------------------------------------------------------------------------------------------------------------------
Retail:
Real estate-mortgage ................ 581 16 499 15 492 17 434 17 432 17
Consumer loans-credit card .......... 11,619 5 6,627 4 6,658 3 6,315 3 8,563 3
Consumer loans-other ................ 15,088 13 14,610 14 14,277 15 12,159 15 9,838 15
Mortgage loans held for sale ........ -- -- -- 1 -- -- -- 1 -- 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail ................ 27,288 34 21,736 34 21,427 35 18,908 36 18,833 36
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated ......................... 22,951 -- 21,876 -- 16,357 -- 15,507 -- 9,777 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total reserve for loan losses $94,683 100% $81,384 100% $75,018 100% $67,270 100% $61,336 100%
====================================================================================================================================
* Loan balance in each category expressed as a percentage of total loans.
- --------------------------------------------------------------------------------
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, loans restructured due to
debtors' financial difficulties, and real estate acquired through foreclosure
and repossession. Nonaccrual loans consist of those loans on which recognition
of interest income has been discontinued. Loans may be restructured as to rate,
maturity, or other terms as determined on an individual credit basis. Demand and
time loans, whether secured or unsecured, are generally placed on nonaccrual
status when principal and/or interest is 90 days or more past due, or earlier if
it is known or expected that the collection of all principal and/or interest is
unlikely. Any loan past due 90 days or more, and based on a determination of
collectibility not classified as nonaccrual, is classified as a past due loan.
Nonaccrual loans are reduced by the direct application of interest receipts to
loan principal, for accounting purposes only. Any payments in excess of the
interest that would have been earned had the loan been an accruing loan, are
applied to the principal balance. In all circumstances, the determination of
when to place loans on nonaccrual status is also based on evaluation of the
individual characteristics of each particular loan, which may result in policy
deviations in some circumstances. Table 10 presents the amount of interest
income that would have been recorded on nonaccrual loans if the loans had been
current and performing in accordance with their original terms.
Synovus' nonperforming assets increased $.8 million to $36.1 million with a
corresponding nonperforming asset ratio improving to .59% as of December 31,
1996 compared to .64% as of year end 1995. Synovus incurred a small increase in
nonperforming assets while increasing loans $548.6 million, or 9.9%, during
1996. During 1996, the reserve for loan losses increased $13.3 million, or
16.3%, to $94.7 million. Based on managements analysis of potential risk within
the loan portfolio, additions are periodically made to maintain the reserve for
loan losses at an appropriate level. Loans 90 days past due and still accruing
increased $4.4 million during 1996. Management believes that sufficient
collateral value securing these loans exists to cover contractual interest and
principal payments on the loans and management further believes the resolution
of these delinquencies will not cause a material increase in nonperforming
assets.
Envisioning. Exploring. Evolving. F-41
- --------------------------------------------------------------------------------
Table 10
Nonperforming Assets
(In thousands)
December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------
Nonaccrual loans ........................................ $23,655 21,469 26,497 30,296 45,812
Restructured loans ...................................... 1,625 1,733 1,900 224 135
- -------------------------------------------------------------------------------------------------------------
Nonperforming loans ..................... 25,280 23,202 28,397 30,520 45,947
90 days past due and still accruing loans ............... 15,805 11,417 7,383 9,870 11,106
- -------------------------------------------------------------------------------------------------------------
Total ................................... $41,085 34,619 35,780 40,390 57,053
=============================================================================================================
Nonperforming assets:
Nonperforming loans <F1>......................... $25,280 23,202 28,397 30,520 45,947
Other real estate ............................... 10,782 12,071 12,355 15,838 18,986
- -------------------------------------------------------------------------------------------------------------
Total ................................... $36,062 35,273 40,752 46,358 64,933
=============================================================================================================
Nonperforming assets to total loans and other real estate .59% .64 .80 1.04 1.60
=============================================================================================================
Reserve for loan losses to nonperforming loans .......... 374.54% 350.76 264.18 220.41 133.49
=============================================================================================================
- ---------
<FN>
<F1>Nonperforming assets exclude loans 90 days past due and still accruing.
</FN>
Nonaccrual Restructured Total
Year ended December 31, 1996: ---------- ------------ -----
Interest at contracted rates <F2>........................ $3,226 68 3,294
Interest recorded as income ............................. 826 52 878
- -------------------------------------------------------------------------------------------------------------
Reduction of interest income during 1996 $2,400 16 2,416
=============================================================================================================
- --------
<FN>
<F2>Interest income that would have been recorded if the loans had been current
and performing in accordance with their original terms.
</FN>
- --------------------------------------------------------------------------------
Each one of Synovus' loans is assigned a rating, either individually or as
part of a homogeneous pool, based on an internally developed grading system. An
organizationally independent department also reviews grade assignments on an
ongoing basis. Management continuously monitors nonperforming, impaired, and
past due loans, in order to prevent further deterioration regarding the
condition of these loans. Management is not aware of any material loans
classified for regulatory purposes as loss, doubtful, substandard, or special
mention that have been excluded from nonperforming assets or impaired loans.
Impaired loans at December 31, 1996 and 1995 are $35.9 million and $52.7
million, respectively. Management further believes nonperforming assets and
impaired loans include any material loans in which doubts exist as to the
collectibility of amounts due according to the contractual terms of the loan
agreement.
Deposits
Deposits provide the most significant funding source for Synovus interest
earning assets. Table 11 shows the relative composition of average deposits for
1996, 1995, and 1994. Refer to Table 12 for the maturity distribution of time
deposits of $100,000 or more. These larger deposits represented 15.6% and 15.2%
of total deposits at December 31, 1996 and 1995, respectively. Synovus' large
denomination time deposits are generally from customers within the local market
area, therefore, provide a greater degree of stability than is typically
associated with this source of funds. Time deposits over $100,000 at December
31, 1996, 1995, and 1994 were $1.1 billion, $1.0 billion, and $.8 billion,
respectively. Interest expense for the years ended December 31, 1996, 1995, and
1994 on these large denomination deposits was $62.1 million, $57.3 million, and
$31.9 million, respectively.
For 1996, Synovus' average deposits increased $473.2 million, or 7.4%, to
$6.9 billion from $6.4 billion in 1995. Average interest bearing deposits for
1996, which include interest bearing demand deposits, money market accounts,
saving deposits, and time deposits, increased $385.1 million, or 7.1%, from
1995. This strong deposit growth occurred throughout several of the Synovus
subsidiary banks who used targeted time and money market deposit programs to
increase their deposits during 1996. Additionally, the acquisition of two
branches in Rome, Georgia, provided an increase in deposits of $46.4 million.
Average non-interest bearing demand deposits increased $88.1 million, or 8.9%,
during 1996. Average interest bearing deposits increased $570.8 million, or
11.8%, from 1994 to 1995, while non-interest bearing demand deposits increased
$93.8 million, or 10.5%. See Table 3 for further information on average
deposits, including the average rates paid for 1996, 1995, and 1994.
F-42 S Y N O V U S F I N A N C I A L C O R P.
- --------------------------------------------------------------------------------
Table 11
Average Deposits
(In thousands)
Years Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Non-interest bearing demand deposits $1,074,676 986,582 892,800
Interest bearing demand deposits ... 940,303 887,694 873,992
Money market accounts .............. 1,034,336 915,710 863,081
Savings deposits ................... 469,714 475,962 510,380
Time deposits ...................... 3,333,501 3,113,375 2,574,468
- --------------------------------------------------------------------------------
Total average deposits ..... $6,852,530 6,379,323 5,714,721
================================================================================
- --------------------------------------------------------------------------------
Table 12
Maturity Distribution of Time Deposits of $100,000 or More
(In thousands)
December 31, 1996
- --------------------------------------------------------------------------------
3 months or less ......................................... $ 528,310
Over 3 months through 6 months ........................... 209,794
Over 6 months through 12 months .......................... 204,242
Over 12 months ........................................... 180,558
- --------------------------------------------------------------------------------
Total outstanding ................................ $1,122,904
================================================================================
Interest Rate Risk Management
Managing interest rate risk is the primary goal of Synovus' asset/liability
management function. Synovus attempts to achieve consistent growth in net
interest income while limiting volatility arising from changes in interest
rates. Synovus seeks to accomplish this goal by balancing the maturity and
repricing characteristics of balance sheet assets and liabilities along with the
selective use of off-balance sheet financial instruments. Synovus'
asset/liability mix is sufficiently balanced so that the effect of interest
rates moving in either direction is not expected to be significant over time.
Simulation modeling is the primary tool used by Synovus to measure its
interest rate sensitivity. On at least a quarterly basis, the remainder of the
current year and the next full fiscal year are simulated to determine the
sensitivity of net interest income to changes in interest rates. The magnitude
and velocity of rate changes among the various asset and liability groups
exhibit different characteristics for each possible interest rate scenario.
Simulation modeling enables Synovus to capture the effect of these differences
as well as the effect of changes in asset and liability volumes.
Synovus maintains policies designed to limit the maximum acceptable
negative impact on net interest income over a twelve month time horizon from a
ratable change in interest rates of 200 basis points. The current policy limits
this change to 8% of projected net interest income under a stable interest rate
environment. As of December 31, 1996, Synovus was well within its policy
guidelines with simulations indicating that Synovus is positioned such that its
net interest income will slightly increase in a rising rate environment and
decrease by no more than 4% in a declining rate environment.
Another tool utilized by Synovus' management is cumulative gap analysis,
which seeks to measure the repricing differentials, or gap, between rate
sensitive assets and liabilities over various time periods. Table 13 reflects
the gap positions of Synovus' consolidated balance sheet on December 31, 1996
and 1995, at various repricing intervals. The projected deposit repricing
volumes reflect adjustments based on managements assumptions of the expected
rate sensitivity relative to the prime rate for core deposits without
contractual maturity (i.e., interest bearing checking, savings, and money market
accounts). Management believes that these adjustments allow for a more accurate
profile of Synovus interest rate risk position. The projected investment
securities repricing reflects expected prepayments on mortgage-backed securities
and expected cash flows on securities subject to accelerated redemption options.
These assumptions are made based on the interest rate environment as of December
31, 1996 and are subject to change as the general level of interest rates
change. This gap analysis indicates that Synovus was moderately asset sensitive
at December 31, 1996, with a cumulative one-year gap of 2.6%. Management
believes that adjusted gap analysis is a useful tool for measuring interest rate
risk only when used in conjunction with its simulation model.
Envisioning. Exploring. Evolving. F-43
- --------------------------------------------------------------------------------
Table 13
Interest Rate Sensitivity
(In millions)
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
0-3 4-12 1-5 Over 5
Months Months Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities <F1>...................................................... $ 102.3 327.6 929.4 280.0
Loans, net of unearned income .................................................. 3,108.9 1,016.2 1,628.9 311.2
Other .......................................................................... 40.3 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive assets .............................................. 3,251.5 1,343.8 2,558.3 591.2
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits ....................................................................... 2,298.9 1,435.1 654.7 1,624.4
Other borrowings ............................................................... 352.4 .3 6.2 77.6
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive liablilities ........................................ 2,651.3 1,435.4 660.9 1,702.0
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps .................................................... (305.0) -- 305.0 --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap ....................................... $ 295.2 (91.6) 2,202.4 (1,110.8)
====================================================================================================================================
Cumulative interest sensitivity gap ............................ $ 295.2 203.6 2,406.0 1,295.2
====================================================================================================================================
Cumulative interest sensitivity gap as a percentage of total
interest sensitive assets .................................. 3.8% 2.6 31.1 16.7
====================================================================================================================================
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
0-3 4-12 1-5 Over 5
Months Months Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities <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 19.2 75.0
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitive liabilities ......................................... 2,241.7 1,462.9 821.0 1,396.9
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps .................................................... (125.0) -- 125.0 --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap ....................................... $ 668.6 (441.6) 1,503.50 (537.8)
====================================================================================================================================
Cumulative interest sensitivity gap ............................ $ 668.6 227.0 1,730.50 1,192.7
====================================================================================================================================
Cumulative interest sensitivity gap as a percentage of
total interest sensitive assets ............................ 9.4% 3.2 24.3 16.8
===================================================================================================================================
<FN>
<F1> Excludes the effect of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", consisting of net unrealized losses in the
amount of $.2 million in 1996 and net unrealized gains of $8.9 million in
1995.
</FN>
- --------------------------------------------------------------------------------
F-44 S Y N O V U S F I N A N C I A L C O R P.
Table 14
Maturities of Investment Securities and Average Yields
(In thousands)
Investment Securities Investment Securities
Held to Maturity Available for Sale
December 31, 1996 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
Amortized Average Estimated Average
Cost Yield Fair Value Yield
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury and U.S. Government agencies:
Within 1 year ..................................... $ 9,751 6.06% $ 232,843 5.67%
1 to 5 years ...................................... 34,332 6.28 579,671 6.17
5 to 10 years ..................................... 40,283 7.21 301,406 7.08
More than 10 years ................................ -- -- 18,002 7.44
- --------------------------------------------------------------------------------------------------------------------
Total ............................. 84,366 6.70 1,131,922 6.37
- --------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities:
Within 1 year ..................................... 4,715 5.69 1,137 5.78
1 to 5 years ...................................... 62,540 5.88 35,019 5.93
5 to 10 years ..................................... 28,611 6.73 42,853 6.41
More than 10 years ................................ 60,453 6.95 51,884 6.72
- --------------------------------------------------------------------------------------------------------------------
Total ............................. 156,319 6.44 130,893 6.45
- --------------------------------------------------------------------------------------------------------------------
State and municipal:
Within 1 year ..................................... 18,290 8.82 30 9.81
1 to 5 years ...................................... 42,253 8.75 -- --
5 to 10 years ..................................... 33,536 8.34 420 6.73
More than 10 years ................................ 20,804 13.89 564 8.93
- -------------------------------------------------------------------------------------------------------------------
Total ............................. 114,883 9.57 1,014 8.02
- -------------------------------------------------------------------------------------------------------------------
Other investments:
Within 1 year ..................................... -- -- 526 5.95
1 to 5 years ...................................... 1,832 7.09 2,699 9.76
5 to 10 years ..................................... 265 7.83 1,093 6.24
More than 10 years ................................ 5,343 4.22 7,936 3.88
- -------------------------------------------------------------------------------------------------------------------
Total ............................. 7,440 5.06 12,254 5.40
- -------------------------------------------------------------------------------------------------------------------
Total investment securities:
Within 1 year ..................................... 32,756 7.55 234,536 5.67
1 to 5 years ...................................... 140,957 6.85 617,389 6.17
5 to 10 years ..................................... 102,695 7.45 345,772 6.99
More than 10 years ................................ 86,600 8.45 78,386 6.61
- -------------------------------------------------------------------------------------------------------------------
Total ............................. 363,008 7.46 $1,276,083 6.37%
===================================================================================================================
The calculation of weighted average yields for securities is based on the
amortized cost and effective yields of each security weighted for the scheduled
maturity of each security. The yield on state and municipal securities is
computed on a taxable-equivalent basis using the statutory federal income tax
rate of 35% for 1996. Maturity information is calculated based upon scheduled
maturity or call dates, no prepayment assumptions have been utilized in making
these estimates.
- --------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-45
Off-Balance Sheet Derivatives for Interest Rate Risk Management
As part of our overall interest rate risk management activities, Synovus
utilizes off-balance sheet derivatives to modify the repricing characteristics
of on-balance sheet assets and liabilities. The primary instruments utilized by
Synovus are interest rate swaps where Synovus receives a fixed rate of interest
and pays a floating rate tied to either the prime rate or 3 month LIBOR. These
swaps effectively convert on-balance sheet floating rate loans to fixed rate
assets, thereby reducing Synovus overall asset sensitivity.
The nature of these transactions is essentially the same as purchasing a
fixed-rate security funded with a floating-rate liability. All swaps utilized by
Synovus represent end-user activities designed as hedges, all of which are
linked to specific assets as part of overall interest rate risk management
practices. Management feels that the utilization of these instruments provides
greater financial flexibility and is a very efficient tool for managing interest
rate risk.
Synovus also utilizes interest rate floors and collars to manage its
overall interest rate risk position. Interest rate floors serve to effectively
convert floating-rate loans to fixed-rate when the prime rate falls below a
prespecified level. These instruments are utilized to reduce asset sensitivity
in falling rate environments but not in rising rate environments. Interest rate
collars convert floating-rate loans to fixed-rate when the prime rate moves
outside of a prespecified range. These instruments reduce overall asset
sensitivity in both falling and rising interest rate environments. All floors
and collars utilized by Synovus represent end-user activities for the purpose of
interest rate risk management.
The notional amount of off-balance sheet derivatives utilized by Synovus as
of December 31, 1996, was $450 million. The notional amounts represent the
amount on which calculations of interest payments to be exchanged are based.
Although Synovus is not exposed to credit risk equal to the notional amounts,
there is exposure to potential credit risks equal to the fair or replacement
values of the swaps if the counterparty fails to perform. This credit risk is
normally a very small percentage of the notional amount and fluctuates as
interest rates change. Synovus minimizes this risk by subjecting the transaction
to the same approval process as on-balance sheet credit activities, by dealing
with only highly-rated counterparties, and by obtaining collateral agreements
for exposure above certain predetermined limits.
Weighted Weighted Weighted
December 31, 1996 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
(In thousands) Amount Receive Rate Pay Rate<F1> In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps -LIBOR $235,000 5.79 5.53 32 $ -- (2,200) (2,200)
Receive Fixed Swaps - Prime 70,000 9.12 8.25 43 630 -- 630
- -----------------------------------------------------------------------------------------------------------------------------------
Total Receive Fixed Swaps 305,000 6.55 6.15 35 630 (2,200) (1,570)
- -----------------------------------------------------------------------------------------------------------------------------------
- ------
<FN>
<F1>Variable pay rate based upon contract rates in effect at December 31, 1996
and 1995.
</FN>
Weighted Weighted Weighted
Notional Average Cap Average Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate Floor Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Collars 80,000 9.16 7.91 34 -- (445) (445)
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Floors 65,000 7.83 48 80 -- 80
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $450,000 37 $ 710 (2,645) (1,935)
====================================================================================================================================
Weighted Weighted Weighted
December 31, 1995 Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
(In thousands) Amount Receive Rate Pay Rate<F1> In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps - LIBOR $125,000 5.98% 5.88 46 $1,776 -- $1,776
===================================================================================================================================
- ------
<FN>
<F1>Variable pay rate based upon contract rates in effect at December 31, 1996
and 1995.
</FN>
The above table represents the December 31, 1996 and 1995 status of all
off-balance sheet interest rate contracts. There were no maturities, offsets, or
terminations in 1996 or 1995. Off-balance sheet interest rate contracts
contributed additional net interest income of $719,000 and contributed one
basis point to the net interest margin for 1996. The impact of off-balance sheet
interest rate contracts for 1995 was immaterial
F-46 S Y N O V U S F I N A N C I A L C O R P.
Liquidity
Liquidity represents the availability of funding to meet the needs of
depositors, borrowers, and creditors at a reasonable cost, on a timely basis,
and without adverse consequences. Management actively analyzes and manages
Synovus' liquidity position in coordination with similar committees at each
subsidiary bank. These subsidiaries, with the help of management, maintain
liquidity in the form of cash on deposit, federal funds, securities available
for sale, and cash derived from prepayments and maturities of both their
investment and loan portfolios. Liquidity is also enhanced by the acquisition of
new deposits and the well established core deposits of Synovus' 216 banking
offices in four states. The subsidiary banks monitor deposit flow and evaluate
alternate pricing structures to retain and grow deposits. Certain Synovus
subsidiary banks maintain correspondent banking relationships with various
national and regional financial organizations. These relationships provide
access to short-term borrowings through federal funds which allows Synovus to
meet immediate liquidity needs if required.
Synovus serves a diversity of markets. Some of these are rapidly growing
areas where loan demand outpaces the generation of deposits. However, through
the loan participations between Synovus' subsidiary banks, these loans can be
funded by subsidiaries having lower local loan demand. Additionally, lending is
focused within the local markets served by Synovus, enabling the development of
comprehensive banking relationships.
Additionally, the Parent Company requires cash for various operating needs
including dividends to shareholders, business combinations, capital infusions
into subsidiaries, the servicing of debt, and the payment of general corporate
expenses. The primary source of liquidity for the Parent Company is dividends
from the subsidiary banks. In addition, the Parent Company has access to a $20
million line of credit. The Parent Company enjoys an excellent reputation and
credit standing in the market place and has the ability to raise substantial
amounts of funds in the form of either short or long-term borrowings. The Parent
Company's current principal debt, senior notes totaling $75 million at a rate of
6.125%, has been rated "A" by Standard and Poors Corp., "A3" by Moodys Investor
Service and "AA" by Thomson Bankwatch. For a complete description of these
borrowings and other borrowings by other Synovus subsidiaries, see Note 6 to
Synovus consolidated financial statements.
The consolidated statements of cash flows detail Synovus' cash flows from
operating, investing, and financing activities. Net cash provided by operating
activities was $200.6 million for the year ended December 31, 1996, while
financing activities provided $480.4 million. Investing activities used $658.7
million of this amount, resulting in a net increase in cash and cash equivalents
of $22.3 million.
Management is not aware of any trends, events, or uncertainties that will
have, or that are reasonably likely to have a material impact on Synovus'
liquidity, capital resources, or operations. Further, management is not aware of
any current recommendations by regulatory agencies which, if they were to be
implemented, would have such effect.
Capital Resources and Dividends
Synovus has always placed great emphasis on maintaining a strong capital
base and continues to exceed all minimum regulatory capital requirements.
Management is committed to maintaining a capital level sufficient to assure
shareholders, customers, and regulators that Synovus is financially sound, and
to enable Synovus to sustain an appropriate degree of leverage to provide a
desirable level of profitability. Synovus has the ability to generate internal
capital growth sufficient to support the asset growth it has experienced. Total
shareholders equity of $783.8 million represented 9.10% of total assets at
December 31, 1996.
Regulators use a risk-adjusted calculation to aid them in their
determination of capital adequacy by weighting assets based on the credit risk
associated with on- and off-balance sheet assets. The majority of these
risk-weighted assets are on-balance sheet assets for Synovus in the form of
loans. A small portion of risk-weighted assets are considered off-balance sheet
assets and are primarily made up of letters of credit, loan commitments, and to
a lesser extent interest rate contracts, that Synovus enters into in the normal
course of business. Capital is categorized into two types: Tier I and Tier II.
The capital guidelines used by regulators require an 8% total risk-based capital
ratio of which 4% must be Tier I capital. Additionally, the regulatory agencies
define a well-capitalized bank as one which has a leverage ratio of at least 5%,
a Tier I capital ratio of at least 6%, and a total risk-based capital ratio of
at least 10%. At the end of 1996, Synovus and all subsidiary banks were in
excess of the minimum capital requirements with a consolidated Tier I capital
ratio of 11.68% and a total risk-based capital ratio of 12.97%, compared to Tier
I and total risk-based capital ratios of 11.28% and 12.57%, respectively, in
1995 as shown in Table 15.
In addition to the risk-based capital standards, a minimum leverage ratio
of 4% is required for the highest-rated bank holding companies which are not
undertaking significant expansion programs. An additional 1% to 2% may be
required for other companies, depending upon their regulatory ratings and
expansion plans. The leverage ratio is defined as Tier I capital divided by
quarterly average assets, net of certain intangibles. As of December 31, 1996,
Synovus had a leverage ratio of 9.36%, which significantly exceeds the
regulatory requirements.
Synovus' capital level also exceeds all requirements under the Federal
Reserve Board's guidelines. The Federal Reserve Board requires a minimum primary
capital ratio of 5.50% and a total capital ratio of 6.00% for bank holding
companies and banks. At December 31, 1996, Synovus' primary and total capital
ratios as defined by the Federal Reserve Board were 10.07% and 10.09%,
respectively, compared to 9.49% and 9.52%, respectively, at year end 1995.
During the third quarter of 1994, Synovus announced its plan to acquire up
to 1,125,000 shares of Synovus common stock in the open market. Through December
31, 1996, 543,900 shares of Synovus common stock have been purchased under this
plan at an average price of $15.67. Of these shares, 399,747 shares were used in
1995 to acquire Peach State Bank. Approximately 78,000 shares were issued to
employees for vested stock option exercises. The remaining shares under this
plan along with other treasury shares acquired before this plan amount to 77,895
as of December 31, 1996. These shares will be used to fund incentive stock award
plans and other employee benefit plans.
Synovus' 80.7% ownership of TSYS is an important aspect of the market price
of Synovus common stock and should be considered in a comparison of the relative
market price of Synovus common stock to other financial service companies. As of
December 31, 1996, there were approximately 28,000 shareholders of record of
Synovus common stock, some of which are holders in nominee name for the benefit
of a number of different shareholders. Table 16 displays high and low quotations
of Synovus common stock which are based on actual transactions.
Envisioning. Exploring. Evolving. F-47
- --------------------------------------------------------------------------------
Table 15
Capital Ratios <F1>
(In thousands)
December 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
Tier I capital:
Shareholders' equity .................................................... $ 783,750 693,555
Adjustment for SFAS No. 115 ............................................. 112 (5,774)
Plus: Minority interest ................................................. 34,435 27,790
Less: Disallowed intangibles ............................................ (40,589) (41,406)
- --------------------------------------------------------------------------------------------------------------------------
Total Tier I capital ............................................ 777,708 674,165
- --------------------------------------------------------------------------------------------------------------------------
Tier II capital:
Eligible portion of the reserve for loan losses ......................... 83,353 74,818
Subordinated and other qualifying debt .................................. 2,200 2,440
- --------------------------------------------------------------------------------------------------------------------------
Total Tier II capital ........................................... 85,553 77,258
- --------------------------------------------------------------------------------------------------------------------------
Total risk-based capital ........................................................ $ 863,261 751,423
==========================================================================================================================
Total risk-adjusted assets ...................................................... $ 6,656,966 5,978,913
==========================================================================================================================
Tier I capital ratio ............................................................ 11.68% 11.28
Total risk-based capital ratio .................................................. 12.97 12.57
Leverage ratio .................................................................. 9.36 8.71
Regulatory minimums:
Tier I capital ratio .................................................... 4.00%
Total risk-based capital ratio .......................................... 8.00
Leverage ratio .......................................................... 4.00
- --------
<FN>
<F1>Risk-based capital ratios, for both years presented, were prepared using
risk-based capital rules finalized in November, 1994, which exclude the
impact of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".
- --------------------------------------------------------------------------------
</FN>
Table 16
Market and Stock Price Information
High Low
- ----------------------------------------------------------------------------------------------------------
1996
Quarter ended December 31, 1996 ............................................ $ 33 3/8 26 1/8
Quarter ended September 30, 1996 ........................................... 27 1/4 21 7/8
Quarter ended June 30, 1996 ................................................ 24 21 1/8
Quarter ended March 31, 1996 ............................................... 22 7/8 17 1/2
1995
Quarter ended December 31, 1995 ............................................ $ 20 1/8 16 5/8
Quarter ended September 30, 1995 ........................................... 18 1/8 15
Quarter ended June 30, 1995 ................................................ 15 1/4 12 7/8
Quarter ended March 31, 1995 ............................................... 13 1/8 11 7/8
- --------------------------------------------------------------------------------
Dividends
It is Synovus' objective to pay out approximately one-third of earnings to
shareholders in cash dividends. Synovus' dividend payout ratio in 1996, 1995,
and 1994 was 36.62%, 36.69%, and 36.9%, respectively. The total dollar amount of
dividends declared increased 21.6% in 1996 to $51.1 million, from $42.0 million
in 1995. Cash dividends have been paid on the common stock of Synovus (including
its predecessor companies) in every year since 1891. It is the present intention
of the Synovus Board of Directors to continue to pay cash dividends on its
common stock in accordance with the previously mentioned objective. Table 17
presents the declared and paid dates from recent dividends, as well as per share
dividend amounts.
F-48 S Y N O V U S F I N A N C I A L C O R P.
- --------------------------------------------------------------------------------
Table 17
Dividends
Per Share
Date Declared Date Paid Amount
November 18, 1996 January 2, 1997 $ .11
September 9, 1996 October 1, 1996 .11
May 13, 1996 July 1, 1996 .11
March 11, 1996 April 1, 1996 .11
November 13, 1995 January 2, 1996 .09
September 11, 1995 October 2, 1995 .09
May 8, 1995 July 3, 1995 .09
February 14, 1995 April 3, 1995 .09
- --------------------------------------------------------------------------------
Commitments
Synovus believes it has sufficient capital, liquidity, and future cash
flows from operations to meet operating needs over the next year. Table 18, Note
6, and Note 10 to Synovus' consolidated financial statements provide additional
information on Synovus short-term and long-term borrowings.
In the normal course of its business, TSYS maintains processing and
conversion agreements with its customers. These agreements contain contractual
commitments, including, but not limited to, minimum standards and time frames
against which TSYS' performance is measured. In the event TSYS does not meet its
contractual commitments with its customers, TSYS may incur penalties and/or
certain customers may have the right to terminate their agreements with TSYS.
TSYS does not believe that it will fail to meet its contractual commitments to
an extent that will result in a material adverse effect on its financial
condition or results of operations.
Synovus is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Any litigation is vigorously defended by
Synovus and, in the opinion of management, based on consultation with external
legal counsel, any outcome of such litigation would not materially affect
Synovus' consolidated financial position or results of operations.
Currently, multiple lawsuits, some seeking class action treatment, are
pending against one of Synovus' Alabama banking subsidiaries that involve: (1)
the sale of credit life insurance made in connection with consumer credit
transactions; (2) payments of service fees or interest rebates to automobile
dealers in connection with the assignment of automobile credit sales contracts
to that Synovus subsidiary; and (3) the forced placement of insurance to protect
that Synovus subsidiarys' interest in collateral for which consumer credit
customers have failed to obtain or maintain insurance. These lawsuits seek
unspecified damages, including punitive damages, and purport to be class actions
which, if certified, may involve many of such subsidiarys' consumer credit
transactions in Alabama for a number of years. Synovus intends to vigorously
contest these lawsuits and all other litigation to which Synovus and its
subsidiaries are parties. Based upon information presently available, and in
light of legal and other defenses available to Synovus and its subsidiaries,
contingent liabilities arising from the threatened and pending litigation are
not considered material. It should be noted; however, that large punitive damage
awards, bearing little relation to the actual damages sustained by plaintiffs,
have been awarded in Alabama.
- --------------------------------------------------------------------------------
Table 18
Short-Term Borrowings
(In thousands)
The following table sets forth certain information regarding federal funds
purchased and securities sold under agreement to repurchase, the principal
components of short-term borrowings.
1996 1995 1994
- ----------------------------------------------------------------------------------------
Month end balance for year ended December 31, ........ $339,200 229,477 412,082
Weighted average interest rate at December 31,........ 6.22% 5.65 5.40
Maximum month end balance during the year ............ $421,672 362,035 412,082
Average amount outstanding during the year ........... $288,107 216,342 235,858
Weighted average interest rate during the year ....... 5.20% 5.59 4.25
- --------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-49
Income Tax Expense
As reported in the consolidated statements of income, Synovus' income tax
expense increased to $79.7 million in 1996, up from $64.9 million in 1995, and
$49.5 million in 1994. The effective tax rate was 36.3%, 36.2%, and 35.6% in
1996, 1995, and 1994 , respectively. The increases in both 1996 and 1995 were
primarily the result of increases in pre-tax income and in the relative
percentage of taxable income to total income. The increase in 1995 was affected
by a decrease in certain research and experimentation credits. See Note 7 to
Synovus' consolidated financial statements for a detailed analysis of income
taxes.
Inflation
Inflation has an important impact on the growth of total assets in the
banking industry and may create a need to increase equity capital at higher than
normal rates in order to maintain an appropriate equity to assets ratio. Synovus
has been able to maintain a high level of equity through retention of an
appropriate percentage of its net income. Synovus copes with the effects of
inflation by managing its interest rate sensitivity gap position through its
asset/liability management program and by periodically adjusting its pricing of
services and banking products to take into consideration current costs.
Parent Company
The Parent Companys assets, primarily its investment in subsidiaries, are
funded, for the most part, by shareholders' equity. It also utilizes short-term
and long-term debt. The Parent Company is responsible for providing the
necessary funds to strengthen the capital of its subsidiaries if necessary,
acquire new subsidiaries, pay corporate operating expenses, and pay dividends to
its shareholders. These operations are funded by dividends and fees received
from subsidiaries, and borrowings from outside sources.
In connection with dividend payments to the Parent Company from its
subsidiary banks, certain rules and regulations of the various state and federal
banking regulatory agencies limit the amount of dividends which may be paid.
Approximately $152.5 million in dividends, inclusive of 1997 net income, could
be paid in 1997 to the Parent Company from its subsidiary banks without prior
regulatory approval. Synovus anticipates receiving regulatory approval to allow
certain subsidiaries to pay dividends in excess of their respective regulatory
limits.
Forward-Looking Statements
The following appears in accordance with the Securities Litigation Reform
Act: These financial statements and financial review include forward-looking
statements that involve inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from those in the
forward-looking statements. Those factors include fluctuations in interest
rates, inflation, government regulations, loss of a major TSYS customer, and
economic conditions and competition in the geographic business areas in which
Synovus conducts its operations.
F-50 S Y N O V U S F I N A N C I A L C O R P.
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Summary of Quarterly Financial Data (Unaudited)
(In thousands, except per share data)
Presented below is a summary of the unaudited consolidated quarterly financial
data for the years ended December 31, 1996 and 1995.
Fourth Third Second First
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------
1996
Interest income ........................................$170,603 168,609 163,895 160,196
==============================================================================================
Net interest income .................................... 97,426 95,632 92,687 89,129
==============================================================================================
Provision for losses on loans .......................... 9,089 8,011 8,233 6,433
==============================================================================================
Income before income taxes ............................. 66,132 55,528 51,713 45,939
==============================================================================================
Net income ............................................. 41,661 35,208 33,108 29,627
==============================================================================================
Net income per share ................................... .36 .30 .29 .26
==============================================================================================
1995
Interest income ........................................$160,683 157,443 153,318 144,344
==============================================================================================
Net interest income .................................... 88,274 86,262 84,509 82,830
==============================================================================================
Provision for losses on loans .......................... 8,589 6,214 5,739 5,245
==============================================================================================
Income before income taxes ............................. 52,966 47,197 41,788 37,518
==============================================================================================
Net income ............................................. 33,634 30,279 26,600 24,070
==============================================================================================
Net income per share ................................... .29 .26 .23 .21
==============================================================================================
- --------------------------------------------------------------------------------
Envisioning. Exploring. Evolving. F-51