Data Unit's Profits Fuel Synovus' Growth
Eight acquisitions since 1989 have demonstrated that Synovus Corp. really knows how to make technology work for shareholders.
On Tuesday, the Columbus, Ga., bank holding company announced its latest and biggest deal so far, the $41 million purchase of Athens First Bank and Trust Co. in Georgia, which has $513 million in assets.
Besides doubling its assets in just three years, to $4 billion, Synovus also enjoys exceptional benefits because it controls a profitable data processing unit.
30% of Earnings
That unit, Total System Services Inc., contributes 30% of the holding company's earnings. Its stock, which trades separately, fetches a fat 35 times earnings.
That hefty market multiple helps lift the price-to-earnings ratio of the bank holding company stock to about 15 times, or about twice the banking industry average. And with each acquisition, the data processing unit can generate even higher profits.
"It gives up pretty good currency to do transactions," treasurer Stephen L. Burts Jr. said.
The First Corp. purchase price represents the value of approximately 1,080,000 shares of Synovus, plus $23.3 million in cash.
Investors had already factored the deal into the price of stock in Synovus. Shares were unchanged at $61.25 as of Wednesday at 2 p.m.
The deal is expected to be nondilutive, thanks in part to the price earnings ratio of Synovus stock.
The strong capital position, low level of nonperforming loans, and profitability of the acquired unit, Athens First Bank & Trust Co., also helps, Mr. Burts said.
Athens First has $42 million of capital, or about 8.4% of assets, and enjoys a respectable 0.8% return on assets.
The bank, which has loans of approximately $380 million, has loan-loss reserves equal to 1% of loans, and nonperforming assets of 1.44% of loans.
Synovus grew to about $4 billion in asset size with the acquisition. It is projecting earnings of about $1.10 a share, up roughly 8% from 1990.
Conversion to Bank Status
At Synovus' insistence, the seller, Bankers First Corp., Augusta, Ga., converted Athens Federal Savings and Loan Association from thrift to bank status.
"We had them beef up the loan-loss reserves," Mr. Burts said. "We're getting it pretty clean."
The sale leaves Bankers First, which had been under pressure to improve capital ratios, with $948 million of assets and a tangible equity to assets ratio of 6.5%.
Synovus' acquisition strategy has been "opportunistic" and earnings driven, said the treasurer Mr. Burts.
40 Acquisitions in 14 Years
It has pieced together a network of 25 banks in more than 40 acquisitions since Georgia legalized out-of-county mergers for state banks in 1977.
In many deals, including several branch acquisitions from the Resolution Trust Corp., Synovus has sought economies of scale by buying banks within its markets and merging back offices.
With the Athens First deal, it is entering a new market. The former thrift boasts a 28% share of the deposit market in Clarke County, regarded as a strong banking market because of the presence of the University of Georgia.
Table : A Georgia Bank Doubles Its Size
Acquisition by Synovus Financial Corp. Assets Announced (inBank date millions)Carroll 12/90 $31.9
Bancsheares 12/90 84.9
Savings 10/90 513.4
Bankshares 8/90 125.0
Federal 7/90 131.6
CommBank 6/90 21.5
Copr. 8/89 105.2
Pensacola 8/89 51.4
Banks 1/89 144.5
Source: SNL Securities