FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2002
Commission File Number 1-10312
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Georgia 58-1134883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Front Avenue
P. O. Box 120
Columbus, Georgia 31902
(Address of principal executive offices)
(706) 649-2401
(Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
At 296,443,509 shares of the Registrant's Common Stock,
$1.00 par value, were outstanding.
>
SYNOVUS FINANCIAL CORP.
INDEX
Page
Part I. Financial Information Number
------
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Income (unaudited)
Six and Three Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows (unaudited) 5
Six Months Ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. (a) Exhibits 31
(b) Reports on Form 8-K 31
Signature Page 32
Exhibit Index 33
(11) Statement re Computation of Per Share Earnings
(99.1) Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(99.2) Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
SYNOVUS FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In thousands, except share and per share data) 2002 2001
------------ -------------
ASSETS
Cash and due from banks $ 592,323 648,179
Interest earning deposits with banks 4,268 3,884
Federal funds sold and securities purchased under resale agreement 108,645 23,673
Mortgage loans held for sale 174,042 397,940
Investment securities available for sale 2,094,544 2,088,287
Loans, net of unearned income 13,201,121 12,417,917
Allowance for loan losses (180,321) (170,769)
------------ -------------
Loans, net 13,020,800 12,247,148
------------ -------------
Premises and equipment, net 598,515 572,618
Other assets 722,645 673,162
------------ -------------
Total assets $ 17,315,782 16,654,891
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 2,067,367 1,984,523
Interest bearing 10,874,120 10,161,675
------------ -------------
Total deposits 12,941,487 12,146,198
Federal funds purchased and securities sold under repurchase agreements 979,089 1,345,822
Long-term debt 1,165,563 1,052,943
Other liabilities 306,430 316,344
------------ -------------
Total liabilities 15,392,569 14,861,307
------------ -------------
Minority interest in consolidated subsidiaries 109,014 98,638
Shareholders' equity:
Common stock - $1.00 par value; Authorized 600,000,000 shares;
issued 296,571,108 in 2002 and 294,849,028 in 2001; outstanding
296,395,844 in 2002 and 294,673,764 in 2001 296,571 294,849
Surplus 197,819 171,257
Treasury stock - 175,264 shares in 2002 and 2001 (1,285) (1,285)
Unamortized restricted stock (191) (82)
Accumulated other comprehensive income 39,518 29,338
Retained earnings 1,281,767 1,200,869
------------ -------------
Total shareholders' equity 1,814,199 1,694,946
------------ -------------
Total liabilities and shareholders' equity $ 17,315,782 16,654,891
============ =============
See accompanying notes to consolidated financial statements.
3
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- -------------------
(In thousands, except per share data) 2002 2001 2002 2001
----------- ----------- --------- ---------
Interest income:
Loans, including fees $ 449,218 508,764 225,749 252,043
Investment securities:
U.S. Treasury and U.S. Government agencies 29,380 36,845 14,439 17,611
Mortgage-backed securities 21,954 18,047 11,005 9,563
State and municipal 5,740 5,735 2,850 2,901
Other investments 2,227 1,723 1,387 835
Mortgage loans held for sale 7,445 6,437 2,842 3,770
Federal funds sold and securities purchased
under resale agreements 759 2,942 392 1,227
Interest earning deposits with banks 27 154 13 84
----------- ----------- --------- ---------
Total interest income 516,750 580,647 258,677 288,034
----------- ----------- --------- ---------
Interest expense:
Deposits 130,781 228,088 64,687 108,967
Federal funds purchased and securities sold
under repurchase agreements 9,936 24,890 4,433 11,653
Long-term debt 28,075 27,368 14,216 13,526
----------- ----------- --------- ---------
Total interest expense 168,792 280,346 83,336 134,146
----------- ----------- --------- ---------
Net interest income 347,958 300,301 175,341 153,888
Provision for losses on loans 33,087 24,157 19,978 13,170
----------- ----------- --------- ---------
Net interest income after provision
for losses on loans 314,871 276,144 155,363 140,718
----------- ----------- --------- ---------
Non-interest income:
Electronic payment processing services 330,535 308,640 170,469 159,299
Service charges on deposit accounts 45,231 41,205 23,059 21,168
Fees for trust services 14,367 12,578 7,451 6,788
Brokerage revenue 9,233 8,485 4,589 4,159
Mortgage banking income 17,193 18,666 8,454 10,197
Credit card fees 10,599 9,753 5,803 5,341
Securities gains, net 1,889 846 960 428
Other fee income 9,538 8,477 4,792 4,140
Other operating income 41,483 45,969 22,183 20,080
----------- ----------- --------- ---------
Non-interest income before reimbursable items
and impairment loss on private equity investment 480,068 454,619 247,760 231,600
Reimbursable items 117,022 122,122 60,032 59,560
Impairment loss on private equity investment (8,355) - (8,355) -
----------- ----------- --------- ---------
Total non-interest income 588,735 576,741 299,437 291,160
----------- ----------- --------- ---------
Non-interest expense:
Salaries and other personnel expense 281,630 271,709 139,559 137,441
Net occupancy and equipment expense 119,506 117,815 58,437 60,541
Other operating expenses 112,062 99,556 57,676 49,923
----------- ----------- --------- ---------
Non-interest expense before reimbursable items 513,198 489,080 255,672 247,905
Reimbursable items 117,022 122,122 60,032 59,560
----------- ----------- --------- ---------
Total non-interest expense 630,220 611,202 315,704 307,465
----------- ----------- --------- ---------
Minority interest in subsidiaries' net income 10,713 9,232 5,625 5,027
Income before income taxes 262,673 232,451 133,471 119,386
Income tax expense 94,026 84,951 47,576 43,771
----------- ----------- --------- ---------
Net income $ 168,647 147,500 85,895 75,615
=========== =========== ========= =========
Net income per share :
Basic $ 0.57 0.51 0.29 0.26
=========== =========== ========= =========
Diluted 0.56 0.50 0.29 0.26
=========== =========== ========= =========
Weighted average shares outstanding:
Basic 295,280 289,018 295,629 290,315
=========== =========== ========= =========
Diluted 300,033 294,741 300,282 296,218
=========== =========== ========= =========
Dividends declared per share $ 0.30 0.26 0.15 0.13
=========== =========== ========= =========
See accompanying notes to consolidated financial statements.
4
SYNOVUS FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------------
(In thousands) 2002 2001
----------- ------------
Operating Activities
Net Income $ 168,647 147,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 33,087 24,157
Depreciation, amortization, and accretion, net 45,432 42,806
Deferred income tax expense 4,973 3,028
Decrease in interest receivable 1,044 7,769
Decrease in interest payable (12,764) (3,511)
Minority interest in subsidiaries' net income 10,713 9,232
Decrease (increase) in mortgage loans held for sale 223,898 (115,804)
Other, net 7,104 (32,621)
----------- ------------
Net cash provided by operating activities 482,134 82,556
----------- ------------
Investing Activities
Business acquisitions, net of cash acquired 323 8,330
Net increase in interest earning deposits with banks (384) (845)
Net(increase) decrease in federal funds sold
and securities purchased under resale agreements (84,972) 247,806
Proceeds from maturities and principal collections of
investment securities available for sale 311,007 539,664
Proceeds from sales of investment securities available for sale 84,093 117,064
Purchases of investment securities available for sale (386,682) (578,872)
Net increase in loans (806,739) (725,599)
Purchases of premises and equipment (73,149) (71,528)
Proceeds from disposals of premises and equipment 2,927 3,580
Proceeds from sales of other real estate 8,093 6,416
Additions to contract acquisition costs (27,684) (11,711)
Additions to computer software (34,005) (29,784)
----------- ------------
Net cash used by investing activities (1,007,172) (495,479)
----------- ------------
Financing Activities
Net increase in demand and savings deposits 657,960 225,388
Net increase (decrease) in certificates of deposit 137,329 (6,034)
Net (decrease) increase in federal funds purchased
and securities sold under repurchase agreements (366,733) 165,677
Principal repayments on long-term debt (280) (3,083)
Proceeds from issuance of long-term debt 112,900 66,512
Dividends paid to shareholders (80,856) (67,890)
Proceeds from issuance of common stock 8,862 16,518
----------- ------------
Net cash provided by financing activities 469,182 397,088
----------- ------------
Decrease in cash and cash equivalents (55,856) (15,835)
Cash and cash equivalents at beginning of period 648,179 558,054
----------- ------------
Cash and cash equivalents at end of period $ 592,323 542,219
=========== ============
See accompanying notes to consolidated financial statements.
5
SYNOVUS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normally recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included. The accompanying unaudited
consolidated financial statements should be read in conjunction with the Synovus
Financial Corp. (Synovus) consolidated financial statements and related notes
appearing in the 2001 annual report previously filed on Form 10-K.
Note B - Supplemental Cash Flow Information
- -------------------------------------------
For the six months ended June 30, 2002 and 2001, Synovus paid income taxes (net
of refunds received) of $76.9 million and $87.2 million, respectively. For the
six months ended June 30, 2002 and 2001, Synovus paid interest of $181.6 million
and $283.9 million, respectively.
Noncash investing activities consisted of loans of approximately $10.4 million
and $9.1 million, which were foreclosed and transferred to other real estate
during the six months June 30, 2002 and 2001, respectively.
Note C - Other Comprehensive Income (Loss)
- ------------------------------------------
Other comprehensive income (loss) consists of net unrealized gains (losses) on
securities available for sale, net unrealized gains (losses) on cash flow
hedges, and foreign currency translation adjustments. Comprehensive income
consists of net income plus the change in other comprehensive income (loss).
Comprehensive income for the three months ended June 30, 2002 and 2001 was
$107.6 million and $77.7 million, respectively. For the six months ended June
30, 2002 and 2001, comprehensive income was $178.8 million and $165.3 million,
respectively.
Note D - Business Combinations
- ------------------------------
On May 31, 2002, Synovus acquired 100 percent of the outstanding common shares
of GLOBALT, Inc. (GLOBALT). The acquisition was accounted for using the purchase
method of accounting, and accordingly, the results of GLOBALT's operations have
been included in the consolidated financial statements beginning June 1, 2002.
GLOBALT is a premier provider of investment advisory services based in Atlanta,
Georgia, offering a full line of distinct large cap and mid cap growth equity
strategies and products. GLOBALT's assets under management at June 30, 2002 were
approximately $1.21 billion. GLOBALT now operates as a wholly-owned subsidiary
of Synovus and as a part of Synovus Financial Management Services, the financial
management unit of Synovus.
6
The aggregate purchase price was $20.0 million, consisting of 702,433 shares of
Synovus common stock valued at $19.0 million, $0.9 million in cash, and $100
thousand in direct acquisition costs (which consist primarily of external legal
and accounting fees). The value of the common shares issued was determined based
on the average market price of Synovus' common stock over the 2-day period
before and after the terms of the acquisition were agreed to and announced.
The terms of the merger agreement provide for additional consideration to the
former GLOBALT shareholders. Such consideration will be based on a multiple of
earnings before interest, taxes, and depreciation, as defined, for each of the
three years ending December 31, 2004, 2005, and 2006.
Synovus is continuing the process of determining the purchase price allocation
relating to the GLOBALT acquisition. The purchase price allocation has been
preliminarily determined as follows:
-------------------------------------------------------------------------------------------
At May 31,
(In thousands) 2002
-------------------------------------------------------------------------------------------
Cash $ 323
Accounts receivable 822
Property, plant, and equipment 303
Intangible assets 4,422
Goodwill 15,509
---------------------
Total assets acquired 21,379
---------------------
Accounts payable 1,157
Notes payable 200
Deferred tax liability 17
---------------------
Total liabilities assumed 1,374
---------------------
Net assets acquired $ 20,005
=====================
Of the $19.9 million of acquired intangible assets, $15.5 million was allocated
to goodwill will not be deductible for tax purposes. The identifiable intangible
assets consist of customer contracts and employment/non-compete agreements. The
customer contracts have an estimated fair value of $4.3 million, with a
weighted-average useful life of 10 years. The employment/non-compete agreements
have an estimated fair value of $91 thousand, and a weighted-average useful life
of 4 years.
Note E - Operating Segments
- ---------------------------
Synovus has two reportable segments: Financial Services (formerly banking
operations) and Transaction Processing Services. The Financial Services segment
is predominately involved in commercial banking activities and also provides
retail banking, trust, mortgage, insurance, leasing, and brokerage services. The
Transaction Processing Services segment consists of operations at Total System
Services, Inc. (TSYS) and ProCard. TSYS provides electronic payment processing
services and other related services to card issuing institutions. TSYS Total
Debt Management (TDM), acquired by TSYS from Synovus on January 1, 2002,
provides recovery collections work, bankruptcy process management, legal account
management, and skip tracing. ProCard provides software and Internet tools
designed to assist organizations with
7
the management of purchasing, travel, and fleet card programs. With the
exception of the newly adopted accounting pronouncements discussed in Note H,
the accounting policies of these segments are the same as those described in the
summary of significant accounting policies in the 2001 annual report previously
filed on Form 10-K. All inter-segment services provided are charged at the same
rates as those charged to unaffiliated customers. Such services are included in
the revenues and net income of the respective segments and are eliminated to
arrive at consolidated totals.
Segment information as of and for the three and six months ended June 30, 2002
and 2001 is presented in the following tables:
Three months ended June 30, 2002 and 2001
- -------------------------------------------------------------------------------------------------------------------------
Transaction
Financial Processing
(In thousands) Services Services (a) Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
Total revenues before reimbursable 2002 $238,996 187,739 (3,634) (c) $423,101
Items and impairment loss on private equity
investment 2001 213,735 175,051 (3,297) (c) 385,489
- -------------------------------------------------------------------------------------------------------------------------
Reimbursable items 2002 - 60,032 - 60,032
2001 - 59,560 - 59,560
- -------------------------------------------------------------------------------------------------------------------------
Impairment loss on private 2002 (8,355) - - (8,355)
Equity investment 2001 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total revenue (b) 2002 230,641 247,771 (3,634) (c) 474,778
2001 213,735 234,611 (3,297) (c) 445,049
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 2002 94,915 44,180 (5,624) (d) 133,471
2001 83,343 41,070 (5,027) (d) 119,386
- -------------------------------------------------------------------------------------------------------------------------
Income tax expense 2002 33,422 14,154 - 47,576
2001 29,358 14,413 - 43,771
- -------------------------------------------------------------------------------------------------------------------------
Net income 2002 61,493 30,026 (5,624) (d) 85,895
2001 53,984 26,658 (5,027) (d) 75,615
- -------------------------------------------------------------------------------------------------------------------------
Total assets 2002 16,671,054 714,947 (70,219) (e) 17,315,782
2001 15,092,127 606,176 (47,035) (e) 15,651,268
- -------------------------------------------------------------------------------------------------------------------------
8
Six months ended June 30, 2002 and 2001
- -------------------------------------------------------------------------------------------------------------------------
Transaction
Financial Processing
(In thousands) Services Services (a) Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total revenues before reimbursable 2002 $470,803 363,509 (6,286) (c) $828,026
items and impairment loss on private equity
investment 2001 420,728 341,009 6,817) (c) 754,920
- -------------------------------------------------------------------------------------------------------------------------
Reimbursable items 2002 - 117,022 - 117,022
2001 - 122,122 - 122,122
- -------------------------------------------------------------------------------------------------------------------------
Impairment loss on private 2002 (8,355) - - (8,355)
equity investment 2001 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total revenue (b) 2002 462,448 480,531 (6,286) (c) 936,693
2001 420,728 463,131 (6,817) (c) 877,042
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 2002 188,703 84,682 (10,712) (d) 262,673
2001 165,762 75,921 (9,232) (d) 232,451
- -------------------------------------------------------------------------------------------------------------------------
Income tax expense 2002 66,615 27,411 - 94,026
2001 58,521 26,430 - 84,951
- -------------------------------------------------------------------------------------------------------------------------
Net income 2002 122,088 57,271 (10,712) (d) 168,647
2001 107,241 49,491 (9,232) (d) 147,500
- -------------------------------------------------------------------------------------------------------------------------
Total assets 2002 16,671,054 714,947 (70,219) (e) 17,315,782
2001 15,092,127 606,176 (47,035) (e) 15,651,268
- -------------------------------------------------------------------------------------------------------------------------
(a) Includes equity in income of joint ventures which is included in other operating income.
(b) Consists of net interest income and non-interest income.
(c) Principally, electronic payment processing service revenues provided to the Financial Services segment.
(d) Minority interest in TSYS and GP Network Corporation (a TSYS subsidiary).
(e) Primarily TSYS' cash deposits with the Financial Services segment.
Segment information for the changes in the carrying amount of goodwill for the
six months ended June 30, 2002 are as follows:
- -----------------------------------------------------------------------------------------------------------------
Transaction
Financial Processing
(In thousands) Services Services Total
- ------------------------------------------------------------------------------------------------------------------
Balance as of January 1, 2002 23,363 3,608 26,971
Goodwill acquired - - -
Impairment losses - - -
Other (*) - (1) (1)
---------------------- --------------------- --------------
Balance as of March 31, 2002 23,363 3,607 26,970
Goodwill acquired 15,509 - 15,509
Impairment losses - - -
Other (*) - 12 12
---------------------- --------------------- --------------
Balance as of June 30, 2002 38,872 3,619 42,491
====================== ===================== ==============
(*) Consists of foreign currency translation adjustments for GP Network
Corporation.
9
Other intangible assets (excluding goodwill) as of June30, 2002 and 2001 are
held by Financial Services, and are presented in the table below.
- ---------------------------------------------------------------------------------------------------------------------
Other Intangible Assets
(In thousands) June 30, 2002 June 30, 2001
- -------------- ------------- -------------
Purchased Trust Revenues $4,210 4,048
Acquired Customer Contracts 4,295 -
Employment Contracts / Non-competition Agreements 89 -
Core Deposit Premiums 3,148 4,334
----- -----
Total Carrying Value $11,742 8,382
======= =====
- ---------------------------------------------------------------------------------------------------------------------
Note F - Legal Proceedings
- --------------------------
Synovus and its subsidiaries are subject to various legal proceedings and claims
that 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 the consolidated financial position or results of operations.
Currently, a lawsuit seeking class action treatment is pending against one of
the Alabama banking subsidiaries that involves the receipt of commissions by
that subsidiary in connection with the sale of credit life insurance to its
consumer credit customers and the charging of an interest surcharge and a
processing fee in connection with consumer loans made by that subsidiary. This
lawsuit seeks unspecified damages, including punitive damages. Synovus intends
to vigorously contest this lawsuit and all other litigation to which Synovus and
its subsidiaries are parties. Based upon information presently available, and
light of legal, equitable, and factual defenses available to Synovus and its
subsidiaries, contingent liabilities arising from the threatened and pending
litigation are not considered material. It should be noted, however, that large
punitive damage awards, bearing little relation to the actual damages sustained
by plaintiffs, have been awarded in Alabama. Two lawsuits seeking class action
treatment that were previously pending against the same Alabama banking
subsidiary that involved: (1) payment of service fees or interest rebates to
automobile dealers in connection with the assignment of automobile credit sales
contracts to that subsidiary; and (2) the forced placement of insurance to
protect that subsidiary's interest in collateral for which consumer credit
customers have failed to obtain or maintain insurance were dismissed on the
motion of the plaintiffs on August 6, 2002.
Note G - Derivative Instruments
- -------------------------------
As part of its overall interest rate risk management activities, Synovus
utilizes interest rate related derivative instruments to manage its exposure to
various types of interest rate risks. With the exception of commitments to fund
and sell fixed-rate mortgage loans, all derivative instruments utilized by
Synovus represent end user activities designed as either a hedge of a recognized
fixed-rate asset or liability (a fair value hedge), or a hedge of a forecasted
transaction or of the variability of future cash flows of a floating rate asset
or liability (cash flow hedge). Synovus does not speculate using derivative
instruments.
Synovus' risk management policies emphasize the management of interest rate risk
within acceptable guidelines. Synovus' objective in maintaining these policies
is to achieve consistent growth in net interest income while limiting volatility
arising from changes in interest rates. Risks to be managed include both fair
value and cash flow risks. Utilization of derivative instruments provides a
valuable tool to assist in the management of these risks.
10
Synovus utilizes interest rate swap agreements to hedge the fair value risk of
fixed-rate liabilities, primarily deposit liabilities. Fair value risk is
measured as the volatility in the value of these liabilities as interest rates
change. Interest rate swaps entered into to manage this risk are designed to
have the same notional value as well as similar interest rates and interest
calculation methods. These agreements entitle Synovus to receive fixed-rate
interest payments and pay floating-rate interest payments based on the notional
amount of the swap agreements. Swap agreements structured in this manner allow
Synovus to effectively hedge the fair value risks of these fixed-rate
liabilities.
Synovus is potentially exposed to cash flow risk due to its holding of loans
whose interest payments are based on floating rate indices. Synovus monitors
changes in these exposures and their impact on its risk management activities.
These agreements, whose original terms are for up to five years, entitle Synovus
to receive fixed-rate interest payments and pay floating-rate interest payments.
The maturity date of the last agreement is June 1, 2004. These agreements allow
Synovus to offset the variability of floating rate loan interest with the
variable interest payments due on the interest rate swaps.
The effective portion of changes in the fair value of interest rate swaps
designated as hedges of the variability of cash flows associated with floating
rate loans are reported in accumulated other comprehensive income. These amounts
are subsequently reclassified into interest income as the hedged cash flows
affect earnings. The ineffective portion of the gain on hedging derivative
instruments, which is reported in earnings, is not material.
By using derivatives to hedge fair value and cash flow risks, Synovus exposes
itself to potential credit risk. This potential credit risk is equal to the fair
or replacement values of the swaps if the counterparty fails to perform on its
obligations under the swap agreements. This credit risk is normally a very small
percentage of the notional amount and fluctuates as interest rates change.
Synovus minimizes this risk by subjecting the transaction to the same approval
process as other credit activities, by dealing with highly rated counterparties,
and by obtaining collateral agreements for exposures above predetermined limits.
Synovus also holds derivative instruments which consist of commitments to fund
fixed-rate mortgage loans to customers and forward commitments to sell
individual fixed-rate mortgage loans. Synovus' objective in obtaining the
forward commitments is to mitigate the interest rate risk associated with the
commitments to fund the fixed-rate mortgage loans. Both the rate-lock
commitments and the forward commitments are reported at fair value, with
adjustments being recorded in current period earnings, and are not accounted for
as hedges.
Note H - Recent Accounting Pronouncements
- -----------------------------------------
As a result of the Financial Accounting Standards Board's (FASB's) Emerging
Issues Task Force Issue No. 01-14 (EITF 01-14), formerly known as Staff
Announcement Topic D-103, "Income Statement Characterization of Reimbursements
Received for `Out-of-Pocket' Expenses Incurred," reimbursements received by TSYS
for out-of-pocket expenses have been included in revenue. Historically, Synovus
has not reflected such reimbursements in its consolidated statements of income.
The largest reimbursable items for which TSYS is reimbursed by clients are
postage and express courier charges.
EITF 01-14 was adopted as of January 1, 2002. Upon application of EITF 01-14,
comparative financial statements for prior periods have been restated to provide
consistent presentation.
11
In July 2001, the FASB issued Statement No. 141 (SFAS No. 141), "Business
Combinations" and Statement No. 142 (SFAS No. 142), "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS No.
141 also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets".
Synovus adopted the provisions of SFAS No. 141 effective July 1, 2001, and
adopted the provisions of SFAS No. 142 effective January 1, 2002.
SFAS No. 141 required upon the adoption of SFAS No. 142 that Synovus evaluate
its existing intangible assets and goodwill that were acquired in prior purchase
business combinations, and make any necessary reclassifications to conform with
the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon
adoption of SFAS No. 142, Synovus was required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments. In addition, to the extent an intangible asset
was identified as having an indefinite useful life, Synovus was required to test
the intangible asset for impairment in accordance with the provisions of SFAS
No. 142. Any impairment would have been measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle.
As of June 30, 2002, Synovus has determined the fair value of each reporting
unit and compared it to the reporting unit's carrying amount, including goodwill
allocated to the reporting unit. Based on this analysis, Synovus has determined
there are no goodwill impairment losses to be recognized as the cumulative
effect of a change in accounting principle, since fair values of each reporting
unit exceeded the reporting unit's carrying value.
The table below illustrates net income excluding goodwill amortization, net of
tax, for the six and three months ended June 30, 2001.
- -----------------------------------------------------------------------------------------------------------------------
Net Income Excluding Goodwill Amortization Expense Six Months Ended Three Months Ended
(in thousands) June 30, 2001 June 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
Net Income, as reported $ 147,500 75,615
==================== =================
Deductible goodwill amortization expense 313 157
Non-deductible goodwill amortization expense 1,147 576
-------------------- -----------------
Total goodwill amortization expense 1,460 733
Tax benefit - goodwill amortization expense (*) 122 61
-------------------- -----------------
Total goodwill amortization expense, net of tax 1,338 672
-------------------- -----------------
Net Income excluding goodwill amortization expense, net of tax $
148,838 76,287
==================== =================
(*) Using marginal tax rate of 38.9%
- ---------------------------------------------------------------------------------------------------------------------
12
In June 2001, the FASB issued Statement No. 143 (SFAS No. 143), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 applies to all
entities. SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain lease obligations.
SFAS No. 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management does not expect the adoption of SFAS
No. 143 to have a material effect on its financial condition or results of
operations.
In October 2001, the FASB issued Statement No. 144 (SFAS No. 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception
to consolidation for a subsidiary for which control is likely to be temporary.
SFAS No. 144 improves financial reporting by requiring that one accounting model
be used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired, and by broadening the presentation of discontinued
operations to include more disposal transactions.
SFAS No. 144 was effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The provisions are to be applied prospectively. Synovus adopted SFAS No.
144 on January 1, 2002. The adoption of SFAS No. 144 was not material to
Synovus' financial condition or results of operations.
In April 2002, the FASB issued Statement No. 145 (SFAS No. 145), "Recission of
FASB Statements No. 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 updates, clarifies, and simplifies existing
accounting pronouncements. SFAS No. 145 requires that in certain circumstances
previous items classified as extraordinary that do not meet the criteria in
Opinion 30 must be reclassified. The Statement is effective for fiscal years
beginning after May 15, 2002. Management does not expect the adoption of SFAS
No. 145 to have a material effect on Synovus' financial condition or
results of operations.
In July 2002, the FASB issued Statement No. 146 (SFAS No. 146), "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3 (EITF No. 94-3), "Liability
Recognition for Certain employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. The Statement is effective
prospectively for exit or disposal activities initiated after December
13
31, 2002. Management does not anticipate that SFAS No. 146 will have a material
impact on Synovus' financial condtion or results of operations.
Note I - Subsequent Event
- -------------------------
On July 31, 2002, Synovus completed the acquisition of Community Financial
Group, Inc. (Community Financial). Community Financial is a $500 million asset
bank holding company and the parent company of The Bank of Nashville,
headquartered in Nashville, Tennessee. Synovus issued 3,065,385 shares of its
common stock for all the issued and outstanding shares of Community Financial.
Synovus is in the process of determining the purchase price allocation relating
to this acquisition. The process is expected to be completed by September 30,
2002.
Note J - Other
- --------------
Certain amounts in 2001 have been reclassified to conform to the presentation
adopted in 2002.
14
ITEM 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Net income for the six months ended June 30, 2002 was $168.6 million, up 14.3%
from the same period a year ago. Diluted net income per share for the first six
months of 2002 was $0.56, an increase of 12.3% over $0.50 per share for the same
period in 2001. Return on average assets was 2.04% and return on average equity
was 19.46% for the six months ended June 30, 2002. This compares to a return on
average assets of 1.98% and a return on average equity of 20.02% for the first
six months of 2001.
Net income for the three months ended June 30, 2002 was $85.9 million, up 13.6%
from the same period a year ago. Diluted net income per share was $0.29 for the
second quarter, up 12.0% over $0.26 for the same period in 2001. Return on
average assets was 2.05% and return on average equity was 19.40% for the three
months ended June 30, 2002. This compares to a return on average assets of 2.00%
and a return on average equity of 19.96% for the second quarter of 2001.
Major contributors to the growth in net income were 14% loan growth over last
year, coupled with continued strong credit quality and a net interest margin of
4.71%, up from 4.61% last year. Additionally, TSYS increased net income by 13%
over last year.
Critical Accounting Policies
The accounting and financial reporting policies of Synovus conform to accounting
principles generally accepted in the United States of America and to general
practices within the banking and electronic payment processing industries.
Following is a description of the accounting policies applied by Synovus which
are deemed "critical." In determining which accounting policies are "critical"
in nature, Synovus has identified the policies that require significant judgment
or involve complex estimates. The application of these policies has a
significant impact on Synovus' financial statements. Synovus' financial results
could differ significantly if different judgments or estimates are applied.
Allowance for Loan Losses:
The allowance for loan losses is established through provisions for loan losses
charged to operations. Loans are charged against the allowance for loan losses
when management believes that the collection of principal is unlikely.
Subsequent recoveries are added to the allowance. Management's evaluation of the
adequacy of the allowance 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 allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance 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 the subsidiary banks'
allowances for loan losses. Such agencies may require the subsidiary banks to
15
recognize additions to the allowance for loan losses based on their judgments
about information available to them at the time of their examination.
Management, considering current information and events regarding a borrowers'
ability to repay its 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 allowance for
loan losses through a charge to the provision for losses on loans. Subsequent
recoveries are added to the allowance for loan losses. Cash receipts for
accruing loans are applied to principal and interest under the contractual terms
of the loan agreement. Cash receipts on impaired loans for which the accrual of
interest has been discontinued are applied first to principal and then to
interest income.
The accounting for impaired loans described above 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 allowance 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.
Certain economic and interest rate factors could have a material impact on the
determination of the allowance for loan losses. The depth, duration, and
dispersion of any economic recession all have an impact on the credit risk
profile of the loan portfolio. Additionally, a rapidly rising interest rate
environment which may cause rates to reach double digits could as well have a
material impact on certain borrowers' ability to pay.
Our current assumptions are that modest economic growth will occur during the
second half of 2002. With respect to the interest rate environment, Synovus
currently anticipates that interest rates will be stable during the last half of
2002.
In the event of another economic down turn, in which there is a wide dispersion
in all sectors of our economy, and/or significant rise in interest rates
creating higher borrowing costs and tightening corporate profits, Synovus'
credit costs could increase significantly.
Another factor that we have considered in the determination of the allowance for
loan losses is loan concentrations to individual borrowers or industries. At
June 30, 2002, Synovus had 27 individual credit relationships that exceeded $25
million with none exceeding $156 million.
A significant portion of the loan portfolio is in the commercial real estate
sector. However, these loans are diversified by geography, industry, and loan
type.
Synovus is closely monitoring its loan portfolio under the current environment.
We have not identified any systemic problem segments within our portfolio.
16
Contract Acquisition Costs:
TSYS capitalizes contract acquisition costs related to signing or renewing
long-term contracts. These costs, primarily consisting of cash payments for
rights to provide processing services and internal conversion and software
development costs, are amortized using the straight-line method over the
contract term beginning when the client's cardholder accounts are converted to
the system and generating revenues. All costs incurred prior to contract
execution are expensed as incurred.
The amortization of contract acquisition costs associated with cash payments is
recorded net of revenues in TSYS consolidated statements of income. The
amortization of contract acquisition costs associated with conversion activity
is recorded as other operating expenses in TSYS' consolidated statements of
income. TSYS evaluates the carrying value of contract acquisition costs for
impairment for each client on the basis of whether these costs are fully
recoverable from expected undiscounted net operating cash flows of the related
contract. The determination of expected undiscounted net operating cash flows
requires management to make estimates.
These costs may become impaired with the loss of a contract, the financial
decline of a client, termination of conversion efforts after a contract is
signed, diminished prospects for current clients, or if TSYS' estimates of
future cash flows differ from actual results. Capitalized contract acquisition
costs are classified in other assets.
Software Development Costs:
TSYS develops software that is used in providing electronic payment processing
and other services to clients. Software development costs are capitalized once
technological feasibility of the software product has been established. Costs
incurred prior to establishing technological feasibility are expensed as
incurred. Technological feasibility is established when TSYS has completed all
planning, designing, coding, and testing activities that are necessary to
determine that a product can be produced to meet its design specifications,
including functions, features and technical performance requirements.
Capitalization of costs ceases when the product is available to clients for
general use. TSYS evaluates the unamortized capitalized costs of software
development as compared to the net realizable value of the software product
which is determined by projected future net cash flows. The amount by which the
unamortized software development costs exceed the net realizable value is
written off. Software development costs are amortized using the greater of (1)
the straight-line method over its estimated useful life (which ranges from 3-10
years) or (2) the ratio of current revenues to total anticipated revenue over
its useful life.
Software development costs may become impaired in situations where development
efforts are abandoned due to the viability of the planned project becoming
doubtful or due to technological obsolescence of the planned software product.
Business Combinations
Refer to notes D and I of the Notes to Consolidated Financial Statements for a
discussion of business combinations.
17
Balance Sheet
During the first six months of 2002, total assets increased $660.9 million.
Loans increased by $783.2 million, or 12.7 % annualized. Federal funds sold
increased by $85.0 million, while mortgage loans held for sale decreased by
$223.9 million. Providing the necessary funding for the balance sheet growth
during the first six months of 2002, the deposit base grew $795.3 million,
long-term debt consisting primarily of Federal Home Loan Bank (FHLB) advances
increased $112.6 million, and shareholders' equity increased $119.3 million.
These increases were partially offset by a $366.7 million decrease in Federal
funds purchased.
Loans
Since year-end 2001, loans have increased by $783.2 million, or 12.7%
annualized. Compared to a year ago, loans grew by 13.8%. Since year-end, 20 of
our 38 banks have reported annualized double-digit loan growth. Compared to a
year ago, 24 of our banks had double-digit growth. The majority of our loan
growth continues to be in the commercial real estate sector. A strong real
estate sector in some of our larger markets as well as the coastal regions of
Georgia and Florida contributed to the growth in this sector. These loans are
diversified by geography, industry, and loan type.
The following table shows the composition of the loan portfolio at June 30, 2002
and December 31, 2001.
- -------------------------------------------------------------------------------------------------------------
Loans by Type June 30, 2002 December 31, 2001
(In thousands) Amount %* Amount %*
- -------------------------------------------------------------------------------------------------------------
Commercial:
Commercial, financial
and agricultural $ 4,305,774 32.6 4,004,042 32.2
Real estate - construction 2,856,962 21.6 2,665,877 21.4
Real estate - mortgage 3,380,949 25.6 3,138,748 25.3
---------- ---- --------- ----
Total commercial 10,543,685 79.7 9,808,667 78.9
---------- ---- --------- ----
Retail:
Real estate - mortgage 1,635,388 12.4 1,553,154 12.4
Consumer loans -
credit card 222,996 1.7 234,651 1.9
Consumer loans - other 822,685 6.2 843,169 6.8
---------- ---- --------- ----
Total retail 2,681,069 20.3 2,630,974 21.1
---- ----
Total loans 13,224,754 100.0 12,439,641 100.0
====== =====
Unearned income (23,633) (21,724)
---------- ----------
Total loans, net of
unearned income $13,201,121 12,417,917
=========== ===========
*Loan balance in each category, expressed as a percentage of total loans.
- ---------------------------------------------------------------------------------------------------------------------
Asset Quality
While charge-offs for the first six months of 2002 have been higher than
historical levels, asset quality has remained strong during 2002. The net charge
off ratio for the first six months of 2002 was .37% compared to .30% for the
year ended December 31, 2001. The nonperforming assets ratio is 0.57% at June
30, 2002, compared to 0.54% at year-end 2001. The increase in
18
nonperforming loans was due primarily to a large real estate credit added to
non-accrual status during the second quarter of 2002. This increase was
partially offset by the charge-off of a large commercial credit in the trucking
and transportation industry. Other real estate increased by $5.7 million,
which included the foreclosure on a $2 million residential development loan.
Loans 90 days past due and still accruing at June 30, 2002 were $34.5 million,
or 0.26% of total loans, up from $27.1 million, or 0.22% of total loans at
December 31, 2001. Past due levels are lower than a year ago, when loans past
due over 90 days were .34% of total loans. These loans are in the process of
collection, and management believes that sufficient collateral value securing
these loans exists to cover contractual interest and principal payments on the
loans. Management further believes the resolution of these delinquencies will
not cause a material increase in nonperforming assets.
The allowance for loan losses is $180.3 million, or 1.37% of net loans, at June
30, 2002 compared to $170.8 million, or 1.38% of net loans, at December 31,
2001. For the six months ended June 30, 2002, the provision for losses on loans
was $33.1 million compared to $24.2 million for the six months ended June 30,
2001. For the three months ended June 30, 2002 the provision for loan losses was
$20.0 million compared to $13.2 million for the same period a year ago. The
higher provision expense is primarily due to higher charge-offs (including a $5
million charge-off related to the previously mentioned credit in the trucking
and transportation industry) as well as robust loan growth. The provision to net
charge-offs coverage for the three and six months ended June 30, 2002 was 1.38
times and 1.41 times, respectively.
- ----------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 2002 2001
- -------------- ------------------- -------------------
Nonperforming loans $ 53,679 51,585
Other real estate 21,615 15,867
------------------- -------------------
Nonperforming assets $ 75,294 67,452
=================== ===================
Loans 90 days past due and still accruing $ 34,542 27,134
=================== ===================
Allowance for loan losses $ 180,321 170,769
=================== ===================
Allowance for loan losses as a % of loans 1.37 % 1.38
=================== ===================
As a % of loans and other real estate:
Nonperforming loans 0.41 % 0.41
Other real estate 0.16 0.13
------------------- -------------------
Nonperforming assets 0.57 % 0.54
=================== ===================
Allowance to nonperforming loans 335.92 % 331.04
- -----------------------------------------------------------------------------------------------------------------------
Management continuously monitors nonperforming, impaired, and past due loans, to
prevent further deterioration regarding the condition of these loans. Management
is not aware of any material loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have been excluded from
nonperforming assets or impaired loans. Management further believes
nonperforming assets and impaired loans include all material loans in which
doubts exist as to the collectibility of amounts due according to the
contractual terms of the loan agreement.
19
Capital Resources and Liquidity
Synovus has always placed great emphasis on maintaining a strong capital base
and continues to exceed regulatory capital requirements. Additionally, based on
internal calculations and previous regulatory exams, each of the subsidiary
banks is currently in compliance with regulatory capital guidelines. Total
risk-based capital was $2.015 billion at June 30, 2002, compared to $1.905
billion at December 31, 2001. The ratio of total risk-based capital to
risk-weighted assets was 12.82% at June 30, 2002 compared to 12.95% at December
31, 2001. The leverage ratio at the end of the second quarter of 2002 was 10.94%
compared to 10.86% at the end of 2001. The equity-to-assets ratio was 10.48% at
June 30, 2002 compared to 10.17% at year-end 2001. The equity-to-assets ratio,
exclusive of net unrealized gains (losses) on investment securities available
for sale, was 10.25% at June 30, 2002, compared to 9.98% at year-end 2001.
Synovus' liquidity position and sources of funds have not changed significantly
since December 31, 2001. The liquidity ratio was 23.47% at June 30, 2002,
compared to 27.16% at December 31, 2001. Additionally, the maturity mix of
investment securities and loans has not changed significantly during the first
six months of 2002.
Synovus' management actively analyzes and manages the liquidity position in
coordination with the appropriate committees at subsidiary banks. Management
must ensure that adequate liquidity, at a reasonable cost, is available to meet
the cash flow needs of depositors, borrowers, and creditors. Management
constantly monitors and maintains appropriate levels of assets and liabilities
so as to provide adequate funding sources to meet estimated customer withdrawals
and future loan requests.
Additionally, subsidiary banks have access to overnight Federal funds lines with
various financial institutions, which total approximately $2.6 billion and can
be drawn upon for short-term liquidity needs. Synovus also has access to a $25
million line of credit with an unaffiliated banking organization.
The consolidated statements of cash flows detail cash flows from operating,
investing, and financing activities. Operating activities provided net cash of
$482.1 million during the first six months of 2002, while $1.007 billion was
used by investing activities. Financing activities provided $469.1 million of
this amount, resulting in a decrease in cash and cash equivalents of $55.9
million.
In 1997, TSYS entered into an operating lease agreement with a special purpose
entity (SPE) for the TSYS corporate campus. The business purpose of the SPE was
to provide a means of financing TSYS' corporate campus. The assets and
liabilities of the SPE consist solely of the cost of the building and the loans
from a consortium of banks. The cost of the building and the outstanding
principal balance of the debt included on the financial statements of the SPE
both approximate $93.5 million. The lease, which is guaranteed by Synovus,
provides for substantial residual value guarantees. The amount of TSYS' residual
value guarantee relative to the assets under this lease is approximately $81.4
million. In accordance with current accounting principles, no asset or
obligation is recorded on Synovus' consolidated balance sheets.
20
The terms of this lease financing arrangement require, among other things, that
TSYS maintain certain minimum financial ratios and provide certain information
to the lessor. TSYS is also subject to interest rate risk associated with the
lease on its campus facilities because of the short-term variable rate nature of
the SPE's debt. The payments under the operating lease arrangement, which can be
locked in for six month intervals, are tied to the London Interbank Offered Rate
(LIBOR) plus a margin of 45 basis points for the secured portion and a margin of
135 basis points for the unsecured portion. In the event that LIBOR rates
increase, operating expenses could increase proportionately.
The campus lease expires November 2002. TSYS has the option to either renew the
lease subject to prevailing market rates or purchase the property at its
original cost. TSYS is currently evaluating which option to pursue.
Earning Assets, Sources of Funds, and Net Interest Income
Average total assets for the first six months of 2002 were $16.7 billion, up
11.2% over the first six months of 2001. Average earning assets were up 11.9% in
the first six months of 2002 over the same period last year and represented
90.4% of average total assets. When compared to the same period last year,
average deposits increased $1.1 billion, average Federal funds purchased and
securities sold under repurchase agreements increased $141.8 million, average
long-term debt consisting primarily of FHLB advances and two senior notes
increased $233.9 million, and average shareholders' equity increased $262.3
million. This growth provided the funding for the $1.6 billion growth in average
net loans and a $45.7 million growth in average mortgage loans held for sale.
Net interest income was $348.0 million for the six months ended June 30, 2002,
up $47.7 million, or 15.9% over the $300.3 million reported for the six months
ended June 30, 2001. Net interest income, on a tax-equivalent basis, for the
first six months of 2002 increased $47.7 million, or 15.7%, over the same period
in 2001.
The year-to-date 2002 net interest margin was 4.74%, up sixteen basis points
from the prior year-to-date. This increase resulted from a 180 basis point
decrease in the yield on earning assets which was offset by a 196 basis point
decrease in the effective cost of funds. The decreased yield on earning assets
was primarily due to lower yields on loans. This was largely due to a 323 basis
point decrease in the average Prime rate as compared to the prior year-to-date.
The decreased effective cost of funds was due to lower average rates paid on
interest-bearing funding.
Net interest income was $175.3 million for the second quarter of 2002, up $21.5
million, or 13.9% over the $153.9 million reported for the second quarter of
2001. Net interest income, on a tax-equivalent basis, for the second quarter of
2002 increased $21.4 million, or 13.7%, over the second quarter in 2001.
The second quarter 2002 net interest margin was 4.71%, up ten basis points from
the same period last year. This increase resulted from a one hundred sixty-seven
basis point decrease in the yield on earning assets which was offset by a 176
basis point decrease in the effective cost of funds. The decreased yield on
earning assets was primarily due to lower yields on loans. This was largely due
to a 259 basis point decrease in the average Prime rate as compared to the
second quarter of 2001. The decreased effective cost of funds was due to lower
average rates paid on interest-bearing funding. On a sequential quarter basis,
the net interest margin was down 6 basis
21
points while net interest income was up $2.7 million. The moderate decrease in
the margin was primarily due to the composition of loan growth this year. Loan
growth has been strongly concentrated in Prime-based floating rate commercial
and home equity loans. Due to the current shape of the yield curve, these loans
currently have lower yields than our existing loan portfolio. Should the Prime
rate increase from its current historically low level, the yield on these loans
will increase which would have a beneficial impact on our interest income.
Assuming that the Prime rate remains unchanged for the remainder of the year,
Synovus expects that its net interest margin will remain in the 4.70% range.
However, a decrease in the Prime rate from current levels would result in a
lower interest rate margin and moderately lower than expected net interest
income.
The tax-equivalent adjustment that is required in making yields on tax-exempt
loans and investment securities comparable to taxable loans and investment
securities is shown in the table below. The taxable-equivalent adjustment is
based on a 35% Federal income tax rate.
- ---------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------- ---------------------------------
(In thousands) 2002 2001 2002 2001
- -------------- --------------- ----------- -------------- -----------
Interest income $ 516,750 580,647 258,677 288,034
Taxable-equivalent adjustment 3,542 3,525 1,771 1,833
--------------- ----------- -------------- -----------
Interest income, taxable-equivalent 520,292 584,172 260,448 289,867
Interest expense 168,792 280,346 83,336 134,146
--------------- ----------- -------------- -----------
Net interest income, taxable-equivalent $ 351,500 303,826 177,112 155,721
======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------
Non-Interest Income
Total non-interest income during the first six months of 2002 increased $12.0
million, or 2.1%, over the same period in 2001. Total non-interest income
excluding reimbursable items and an impairment loss on a private equity
investment during the first six months of 2002 increased $25.4 million, or 5.6%,
over the same period in 2001.
For the year-to-date, Financial Services' reported non-interest income was down
5.2% as compared to the same period a year ago. Non-interest income for the six
months ended June 30, 2001 included a $10 million pre-tax gain from the sale of
our ownership in the Star System ATM network. Excluding this gain as well as the
$8.4 million impairment loss on a private equity investment, non-interest income
is up 10.7% over the prior year. Service charges on deposits, the single largest
component of Financial Services non-interest income, are up 9.8% over the prior
year. Financial Management Services and insurance revenues increased 16.3% over
the same period last year. Additionally, mortgage revenues were down 7.9%
compared to the same period a year ago after increasing by over 90% in 2001. The
decrease in mortgage revenues was primarily driven by market conditions, with
mortgage production for the six months ended June 30, 2002 being $427 million,
down 30% from $614 million for the same period in 2001.
For the three months ended June 30, 2002, Financial Services' reported
non-interest income was down 7.1% as compared to the second quarter last year.
Excluding the $8.4 million impairment loss, non-interest income is up 6.7% over
the prior year. Mortgage revenues were down 17.1% compared to the second quarter
of 2001, after increasing by 83% in 2001. The decrease in mortgage revenues was
primarily driven by market conditions. Financial Management Services
22
and insurance revenues increased 13.9% over the second quarter last year, while
service charges on deposits increased 8.9%.
Financial Services' fee income as a percentage of total revenues - excluding
securities gains and losses as well as the impairment loss - was 26.02% for the
first six months of 2002, and 26.68% for the second quarter of 2002.
Transaction Processing Services' revenues consist of revenues from TSYS and
ProCard. The majority of these revenues are derived from providing electronic
payment processing and related services to banks and other institutions,
generally under long-term processing contracts. TSYS' services are provided
throughout the United States, Mexico, Canada, Honduras, the Caribbean, and
Europe. TSYS also offers merchant services to financial institutions and other
organizations in Japan.
TSYS' revenues from electronic payment processing services increased $9.2
million, or 6.5%, and $19.0 million, or 7.0%, for the three and six months ended
June 30, 2002, respectively, compared to the same periods in 2001. TSYS revenues
for the second quarter 2001 also included a one-time nonrecurring deconversion
penalty of $7.5 million from two departing clients. Excluding the nonrecurring
fee received in 2001, revenues from recurring operations before reimbursable
items would have increased 15.1% for the second quarter of 2002 compared to the
same period in 2001. Due to the number of cardholder accounts processed by TSYS
and the expanding use of cards, as well as increases in the scope of services
offered to clients, revenues relating to electronic payment processing services
have continued to grow.
Average cardholder accounts on file for the three months ended June 30, 2002
were 229.1 million, an increase of approximately 15.0% over the average of 199.2
million for the same period in 2001. Average cardholder accounts on file for the
six months ended June 30, 2002 were 226.7 million, an increase of approximately
14.1% over the average of 198.8 million for the same period in 2001. Cardholder
accounts on file at June 30, 2002 were 226.7 million, a 12.2% increase compared
to the 202.1 million accounts on file at June 30, 2001. The change in cardholder
accounts on file from June 2001 to June 2002 included the deconversion and
purging of 14.6 million accounts, the addition of approximately 22.3 million
accounts attributable to the internal growth of existing clients, and
approximately 16.9 million accounts for new clients.
TSYS expects to continue expanding its market share in the consumer, retail and
commercial card arenas. TSYS' future growth in consumer cards is dependent upon
new clients, international expansion and continued internal growth of clients'
portfolios.
A significant amount of TSYS' revenues is derived from long-term contracts with
large clients, including certain major clients. For the three months ended June
30, 2002, TSYS had two major clients. The two major clients for the quarter
ended June 30, 2002 accounted for approximately 34.4%, or $81.6 million, of
TSYS' total revenues. For the three months ended June 30, 2001, TSYS had two
major clients that accounted for 37.3%, or $82.4 million, of TSYS' total
revenues. The two major clients for the six months ended June 30, 2002 accounted
for approximately 34.4%, or $158.8 million, of TSYS' revenues. For the six
months ended June 30, 2001, TSYS had two major clients that accounted for 37.3%,
or $162.7 million, of its revenues. The loss of one of TSYS' major clients, or
other significant clients, could have a material adverse effect on TSYS'
financial condition and results of operations.
23
In October 2001, TSYS announced it had signed a 10-year extension to its
long-term credit card processing agreement with one of its major clients,
Providian Financial Corporation (Providian), which included a cash payment for
processing rights of $12.7 million. In late 2001 and in 2002, Providian made
several announcements regarding concerns about its financial status, related
changes in management and the sale of a portion of its portfolio. As a result of
these announcements, TSYS management is actively monitoring Providian's
financial status through frequent interaction with Providian's senior
management.
In April 2002, TSYS announced that it had entered into a five-year agreement
with Accenture valued in excess of $120 million to provide processing services
for the U.S. Department of Education. TSYS began processing all new originations
for the Department of Education on April 26, 2002. The agreement also involves
converting all existing student records to TSYS' new stand-alone platform during
several phases. The conversion phases are scheduled to begin and to be completed
during the first half of 2003 and TSYS estimates it should have a total of 10
million records at that point. Revenues generated from Accenture in 2002 related
to processing student loans will not be material.
On August 6, 2002, TSYS announced the signing of a 10-year outsourcing agreement
with Canadian Imperial Bank of Commerce (CIBC) to process more than 5 million
Visa accounts. The portfolio will be converted in early 2003 to TS2. In a
separate agreement, TSYS announced in January 2002 that it would process the new
"entourage" line of American Express products for CIBC, including Canada's first
nationwide chip card. TSYS has supported other CIBC card products since 1994.
Non-Interest Expense
Total non-interest expense for the six months ended June 30, 2002 increased
$19.0 million, or 3.1%, over the same period in 2001. Total non-interest expense
excluding reimbursable items for the six months ended June 30, 2002 increased
$24.1 million, or 4.9%. Management analyzes non-interest expense in two separate
components: Financial Services and Transaction Processing Services. The
following tables summarize this data for the six and three months ended June 30,
2002 and 2001.
Six Months Ended Six Months Ended
June 30, 2002(*) June 30, 2001(*)
------------------------------- ---------------------------------
Transaction Transaction
Financial Processing Financial Processing
(In thousands) Services Services Services Services
- -------------- ------------- --------------- ------------- -----------------
Salaries and other personnel expenses $ 137,494 144,406 136,004 135,922
Net occupancy and equipment expense 33,555 85,950 31,357 86,472
Other operating expenses
before reimbursable items 69,609 48,471 63,447 42,695
Reimbursable items -- 117,022 -- 122,122
------------- --------------- ------------- -----------------
Other operating expenses 69,609 165,493 63,447 164,817
------------- --------------- ------------- -----------------
Total non-interest expense $ 240,658 395,849 230,808 387,211
======= ======= ======= =======
24
Three Months Ended Three Months Ended
June 30, 2002(*) June 30, 2001(*)
------------------------------- ---------------------------------
Transaction Transaction
Financial Processing Financial Processing
(In thousands) Services Services Services Services
- -------------- ------------- --------------- ------------- -----------------
Salaries and other personnel expenses $ 65,350 74,350 68,946 68,605
Net occupancy and equipment expense 16,717 41,720 15,891 44,657
Other operating expenses
before reimbursable items 33,682 27,490 32,384 20,721
Reimbursable items -- 60,032 -- 59,560
------------- --------------- ------------- ----------------
Other operating expenses 33,682 87,522 32,384 80,281
------------- --------------- ------------- ----------------
Total non-interest expense $ 115,749 203,592 117,221 193,543
============= =============== ============= ================
(*) The added totals are greater than the consolidated totals due to
inter-segment balances which are eliminated in consolidation.
Financial Services' non-interest expense increased $9.9 million, or 4.3%, for
the six months ended June 30, 2002, compared to the same period in 2001. For the
three months ended June 30, 2002 non-interest expense decreased $1.5 million or
1.3% compared to the same period in 2001. The number of full-time equivalent
employees at June 30, 2002 was 5,572, compared to 5,398 a year ago.
The second quarter 2002 results reflect a reduction in incentive compensation
expense. The incentive compensation awards are determined based upon the
achievement of internal financial performance targets. Through the six months
ended June 30, 2002 the financial performance for the Financial Services segment
was below the targets set forth for incentive pay purposes. Accordingly, the
incentive compensation expense for the second quarter of 2002 was approximately
$7 million lower than the incentive compensation expense levels for the same
period a year ago.
Approximately 98% of total Transaction Processing Services' non-interest expense
relates to TSYS, with the remainder related to ProCard. The following paragraphs
provide an analysis of the non-interest expense components at TSYS. Non-interest
expense related to TSYS increased 7.5% and 4.3% for the three and six months
ended June 30, 2002, respectively, compared to the same period in 2001.
Employment expenses increased $8.4 million, or 13.4%, for the three months ended
June 30, 2002, compared to the same period in 2001. Employment expenses
increased $12.9 million, or 10.4%, for the six months ended June 30, 2002,
compared to the same period in 2001. The addition of employees associated with
the acquisition of TDM increased employment expenses $2.9 million and $6.3
million for the three and six months ended June 30, 2002. The remaining change
in employment expenses is associated with the growth in the number of employees,
normal salary increases, and related benefits. The average number of employees
in the second quarter of 2002 increased to 5,179, a 7.4% increase over 4,821 in
the same period of 2001. The average number of employees for the first six
months of 2002 increased to 5,165, an 8.1% increase over 4,779 in the same
period of 2001. At July 31, 2002, TSYS had 4,946 full-time and 245 part-time
employees.
Net occupancy and equipment expense at TSYS decreased $2.8 million, or 6.4%, for
the three months ended June 30, 2002, and remained the same for the six months
ended June 30, 2002, respectively, over the same periods in 2001. Computer
equipment and software rentals, which represent the largest component of net
occupancy and equipment expense, decreased approximately $4.1 million in the
second quarter of 2002, compared to the same period of 2001.
25
Computer equipment and software rentals decreased approximately $3.6 million in
the first six months of 2002, compared to the same period of 2001. $4.2 million
of this decrease is the result of recent legislation whereby TSYS received
refunds of sales and use tax previously paid to the state of Georgia in 2001 for
various equipment and software programs, including leased equipment and
software.
During 2000, TSYS established a data processing center in Europe and purchased a
building to house client services personnel. Although it only began processing
accounts for its new European clients in mid-2001, TSYS had to build the
necessary infrastructure in order to begin processing those accounts in 2001.
Through the first six months of 2001, TSYS incurred $12.0 million of net
operating expense related to the expansion in Europe.
For the second quarter of 2002, other operating expenses at TSYS increased $8.1
million, or 40.6%, compared to the same period in 2001. TSYS' other operating
expenses for the first six months of 2002 increased $8.6 million, or 20.7%,
compared to the same period in 2001. During the second quarter of 2002, TSYS
added to client contingencies and transaction processing reserves related to
client specific situations.
Income Tax Expense
Income tax expense for the six months ended June 30, 2002 was $94.0 million
compared to $85.0 million for the same period a year ago. The effective tax rate
for the first six months of 2002 was 35.8% compared to 36.5% for the same period
in 2001.
Income tax expense for the three months ended June 30, 2002 was $47.6 million
compared to $43.8 million for the same period a year ago. The effective tax rate
for the three months ended June 30, 2002 was 35.6% compared to 36.7% for the
same period in 2001.
Earnings Outlook
Though today's business environment is marked with uncertainty, we cautiously
reiterate our expectations of at least 15% growth in earnings per share in 2002
and to be in the 15-18% range of earnings growth for 2003. In estimating
expected growth in earnings per share, Synovus assumed, among other things,
that:
* Banking services' net income will increase between 12-14% annually,
with net interest margins remaining stable. Annual loan growth will be
in the 10-11% range, and credit quality will remain solid.
* Financial Management Services and insurance revenues will increase
between 25-30% annually.
* TSYS will increase net income by 20% in 2002 and by at least 20-25% in
2003.
* Increases in Financial Services' expenses will not exceed 4% annually.
Synovus expects to continue its strategy of selling banking locations in low
growth markets and aggressively redeploying the capital and resources derived
from exiting these markets into high growth markets. As part of this strategy,
Synovus intends to exit several banking markets in the current year and expects
to recognize a gain from the sale of its banking locations in these markets in
the second half of 2002.
26
Forward-Looking Statements
Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the "Act"). These forward-looking
statements include, among others, statements regarding management's belief
concerning the expected impact on Synovus of recent accounting pronouncements;
management's belief with respect to the adequacy of the allowance for loan
losses, the impact of the resolution of certain loan delinquencies on
nonperforming assets, and the inclusion of all material loans in which doubt
exists as to collectibility in nonperforming assets and impaired loans; the
expected range of its net interest margin (assuming that the Prime rate remains
unchanged for the remainder of 2002); Synovus' expected growth in earnings per
share for 2002 and 2003; the expected redeployment of capital derived from the
anticipated sale of several of its banking locations; and the assumptions
underlying such statements, including, with respect to Synovus' expected
increases in earnings per share; expected increases in banking services' net
income and loan growth; expected annual increases in Financial Management
Services' revenues; expected annual increases in net income of TSYS; and
expected annual increases in Financial Services' expenses. In addition, certain
statements in future filings by Synovus with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the approval of Synovus which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure, and other financial terms; (ii) statements of
plans and objectives of Synovus or its management or Board of Directors,
including those relating to products or services; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those contemplated by such
forward-looking statements. A number of factors could cause actual results to
differ materially from those contemplated by the forward-looking statements.
Many of these factors are beyond Synovus' ability to control or predict. These
factors include, but are not limited to: (i) Synovus' inability to increase its
revenues derived from Financial Management Services and insurance; (ii) TSYS'
inability to achieve its net income goals for the years 2002 and 2003 (whether
arising out of TSYS' inability to successfully bring new products and services
to market, adverse developments with respect to TSYS' sub-prime clients, TSYS'
inability to control expenses, or otherwise); (iii) Synovus' inability to
achieve its net income goals for banking services; (iv) TSYS' inability to sign
new clients; (v) Synovus' inability to control Financial Services' expenses;
(vi) the strength of the U.S. economy in general and the strength of the local
economies in which operations are conducted; (vii) the effects of and changes in
trade, monetary and fiscal policies, and laws, including interest rate policies
of the Federal Reserve Board; (viii) inflation, interest rate, market and
monetary fluctuations; (ix) the timely development of and acceptance of new
products and services and perceived overall value of these products and services
by users; (x) changes in consumer spending, borrowing, and saving habits; (xi)
technological changes are more difficult or expensive than anticipated; (xii)
acquisitions; (xiii) the ability to increase market share and control expenses;
(xiv) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities, and insurance) with which
Synovus and its subsidiaries must comply; (xv) the effect
27
of changes in accounting policies and practices, as may be adopted by the
regulatory agencies, the Financial Accounting Standards Board, or other
authoritative bodies; (xvi) changes in Synovus' organization, compensation, and
benefit plans; (xvii) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; (xviii) a deterioration in credit quality
or a reduced demand for credit; (xix) Synovus' inability to successfully manage
any impact from slowing economic conditions or consumer spending; (xx) the
occurrence of catastrophic events that could impact Synovus or TSYS or its major
clients' operating facilities, communication systems and technology or that has
a material negative impact on current economic conditions or levels of consumer
spending; (xxi) successfully managing the potential both for patent protection
and patent liability in the context of rapidly developing legal framework for
expansive software patent protection; (xxii) Synovus' inability to divest itself
of assets in low growth markets and successfully redeploy the capital derived
from divestitures; and (xxiii) the success of Synovus at managing the risks
involved in the foregoing.
Such forward-looking statements speak only as of the date on which such
statements are made, and Synovus undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
28
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Quantitative and qualitative disclosures about market risk were included in the
2001 annual report, which was incorporated by reference in Synovus' 2001 Form
10-K. There have been no significant changes in the contractual balances,
weighted-average interest rates, or the estimated fair values of Synovus'
financial instruments.
29
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting was held on April 24, 2002. Following are
summaries of the proposals that were submitted to the shareholders for approval.
The first proposal was to elect eight nominees for Class II directors of Synovus
to serve until the 2005 Annual Meeting of Shareholders. The eight nominees for
election as Class II directors named below were elected by the number of
affirmative votes set forth opposite their names below, with the number of votes
withholding authority to vote for such nominees also being shown. As the
election of each of the nominees for Class II directors was approved by a
plurality of the total votes entitled to be cast by the holders of shares
represented at the meeting, each of the nominees for Class II directors were
elected.
- ------------------------------------- ----------------------------------- -----------------------------------
Nominee Votes For Withheld Authority to Vote
- ------------------------------------- ----------------------------------- -----------------------------------
Daniel P. Amos 557,888,488.5983 4,770,037.2752
- ------------------------------------- ----------------------------------- -----------------------------------
Richard E. Anthony 557,963,359.8373 4,695,166.0362
- ------------------------------------- ----------------------------------- -----------------------------------
Joe E. Beverly 558,034,217.6783 4,624,308.1952
- ------------------------------------- ----------------------------------- -----------------------------------
Walter M. Deriso, Jr. 556,773,721.6660 5,884,804.2075
- ------------------------------------- ----------------------------------- -----------------------------------
Elizabeth R. James 556,739,991.9917 5,918,533.8818
- ------------------------------------- ----------------------------------- -----------------------------------
Mason H. Lampton 558,376,779.6811 4,281,746.1924
- ------------------------------------- ----------------------------------- -----------------------------------
Elizabeth C. Ogie 557,947,209.3716 4,711,316.5019
- ------------------------------------- ----------------------------------- -----------------------------------
Melvin T. Stith 557,671,257.4994 4,987,268.3741
- ------------------------------------- ----------------------------------- -----------------------------------
The second proposal was to approve the Synovus Financial Corp. 2002 Long-Term
Incentive Plan. The proposal was approved by 536,811,200 affirmative votes, with
19,294,625 against votes, and 6,552,701 abstain votes. As the affirmative rate
of a majority of the votes cast was required for approval, such proposal was
approved.
30
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement re Computation of Per Share Earnings
(99.1) Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(99.2) Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following reports on Form 8-K were filed subsequent to the second
quarter of 2002.
The report filed on July 12, 2002, included the following event:
Effective August 1, 2002, Synovus announced that it will begin
utilizing Mellon Investor Services LLC as its new transfer
agent, registrar and dividend disbursing agent for Synovus
common stock. In order to facilitate an orderly transition of
Dividend Reinvestment and Direct Stock Purchase Plan accounts
from EquiServe Trust Company, N.A. to Mellon Investor Services
LLC, no transactions in these accounts will be processed from
July 19, 2002 through August 1, 2002.
The report filed on July 17, 2002, included the following event:
On July 17, 2002, Synovus issued a press release with respect
to its second quarter 2002 earnings.
The report filed on August 7, 2002, included the following event:
On August 7, 2002, the Chief Executive Officer and Chief
Financial Officer of Synovus Financial Corp. executed the
sworn statements required by SEC Order 4-460. The sworn
statements were delivered to the SEC on August 8, 2002.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
Date: August 14, 2002 BY: /s/ Thomas J. Prescott
-----------------------
Thomas J. Prescott
Executive Vice President and
Chief Financial Officer
32
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- ------------
11 Statement re Computation of Per Share Earnings
99.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
33