SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
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 Identification No.)
of incorporaiton or organization)
One Arsenal Place, 901 Front Avenue
Suite 301, Columbus, Georgia 31901
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (706) 649-2387
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 Par Value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 11, 1999, 270,805,035 shares of the $1.00 par value common
stock of Synovus Financial Corp. were outstanding, and the aggregate market
value of the shares of $1.00 par value common stock of Synovus Financial Corp.
held by non-affiliates was approximately $4,597,000,000 (based upon the closing
per share price of such stock on said date).
Portions of the 1998 Annual Report to Shareholders of Registrant are
incorporated in Parts I, II and IV of this report. Portions of the Proxy
Statement of Registrant dated March 19, 1999 are incorporated in Part III of
this report.
Registrant's Documents Incorporated by Reference
Part Number and Item
Document Incorporated Number of Form 10-K Into
by Reference Which Incorporated
Pages F-21 through Part I, Item 1, Business
F-28, and F-32 through F-55
of Registrant's 1998 Annual Report
to Shareholders
Pages F-16, and F-21 through F-23 Part I, Item 2, Properties
of Registrant's 1998 Annual Report to
Shareholders
Pages F-21 through F-23 of Part I, Item 3, Legal
Registrant's 1998 Annual Report Proceedings
to Shareholders
Pages F-51 through F-53 Part II, Item 5, Market
of Registrant's 1998 Annual for Registrant's Common
Report to Shareholders Equity and Related
Stockholder Matters
Page F-32 of Registrant's Part II, Item 6,
1998 Annual Report to Selected
Shareholders Financial Data
Pages F-32 through F-54 Part II, Item 7,
of Registrant's Management's Discussion
1998 Annual Report to and Analysis of Financial
Shareholders Condition and Results of
Operations
Page F-50 of Registrant's 1998 Part II, Item 7A, Quantitative
Annual Report to Shareholders and Qualitative Disclosures
About Market Risk
Pages F-2 through F-30, and F-55 Part II, Item 8,
of Registrant's 1998 Financial Statements and
Annual Report to Shareholders Supplementary Data
Pages 3 through 5, 7 and 22, Part III, Item 10,
of Registrant's Proxy Directors and Executive
Statement in connection with Officers of the Registrant
its Annual Shareholders' Meeting
to be held April 22, 1999
Pages 6, 9 through 12, and Part III, Item 11,
15 of Registrant's Proxy Executive Compensation
Statement in connection with its
Annual Shareholders' Meeting
to be held April 22, 1999
Pages 8 and 9, and 16 through Part III, Item 12,
20 of Registrant's Proxy Statement Security Ownership of
in connection with its Annual Certain Beneficial Owners
Shareholders' Meeting to be held and Management
April 22, 1999
Pages 15 and 16, and 18 through 22 Part III, Item 13,
of Registrant's Proxy Statement in Certain Relationships
connection with its Annual Shareholders' and Related Transactions
Meeting to be held April 22, 1999
Pages F-2 through F-30 Part IV, Item 14,
of Registrant's 1998 Exhibits, Financial Statement
Annual Report to Shareholders Schedules and Reports on
Form 8-K
Table of Contents
Item No. Caption Page No.
Part I
Safe Harbor Statement 1
1. Business 2
2. Properties 12
3. Legal Proceedings 11
4. Submission of Matters to a Vote of 12
Security Holders
Part II
5. Market for Registrant's Common Equity 12
and Related Stockholder Matters
6. Selected Financial Data 12
7. Management's Discussion and Analysis 12
of Financial Condition and Results
of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk 12
8. Financial Statements and Supplementary 12
Data
9. Changes In and Disagreements With 13
Accountants on Accounting and Financial Disclosure
Part III
10. Directors and Executive Officers of the Registrant 13
11. Executive Compensation 13
12. Security Ownership of Certain 13
Beneficial Owners and Management
13. Certain Relationships and Related 13
Transactions
Part IV
14. Exhibits, Financial Statement Schedules, 14
and Reports on Form 8-K
Part I
Safe Harbor Statement
Certain statements contained in this Annual Report on Form 10-K and the
exhibits hereto which are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act (the "Act"). In addition, certain statements in future
filings by Synovus Financial Corp.(R) ("Synovus(R)") 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 items; (ii) statements of
plans and objectives of Synovus or it's management or Board of Directors,
including those relating to banking and non-banking 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.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of the U.S. economy
in general and the strength of the local economies in which operations are
conducted; (ii) the effects of and changes in trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors of
the Federal Reserve System; (iii) inflation, interest rate, market and monetary
fluctuations; (iv) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users;
(v) changes in consumer spending, borrowing and saving habits; (vi)
technological changes (including "Year 2000" data systems compliance issues) are
more difficult or expensive than anticipated (vii) acquisitions; (viii) the
ability to increase market share and control expenses; (ix) 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; (x) the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies, the Financial
Accounting Standards Board or other authoritative bodies; (xi) changes in
Synovus' organization, compensation and benefit plans; (xii) the costs and
effects of litigation and of unexpected or adverse outcomes in such litigation;
and (xiii) 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.
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Synovus Financial Corp., Synovus, Synovus Securities, Inc., Synovus
Mortgage Corp., Columbus Bank and Trust Company and CB&T are federally
registered service marks of Synovus Financial Corp. TSYS, TS2, Total System
Services, Inc., THE TOTAL SYSTEM and TSYS Total Solutions are federally
registered service marks of Total System Services, Inc.
1
Item 1. Business
Business and Business Segments
Synovus is a $10.5 billion asset multi-financial services company which is
a registered bank holding company. Synovus conducts a broad range of financial
services through its banking and bank-related subsidiaries and affiliates.
Synovus is based in Columbus, Georgia and its stock is traded on the New York
Stock Exchange under the symbol "SNV."
Synovus is engaged in two principal business segments: banking (which
encompasses commercial banking, trust services, mortgage banking, credit card
banking and certain securities brokerage operations), and data processing (which
includes credit, debit, commercial and private-label card processing). While
each of these activities is directly related to the provision of financial
services, their separation for financial reporting purposes is appropriate under
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" and the rules of the Securities and
Exchange Commission. See Note 12 of Notes to Consolidated Financial Statements
on page F-24 of Synovus' 1998 Annual Report to Shareholders which is
specifically incorporated herein by reference.
Banking and Bank-Related Subsidiaries and Services
Synovus currently has thirty-six wholly owned first and second tier
commercial banking subsidiaries located in four states. Of the 36 bank
subsidiaries, 23 are located in Georgia with approximately $5.8 billion in
assets, seven are located in Alabama with approximately $2.1 billion in assets,
five are located in Florida with approximately $717 million in assets and one is
located in South Carolina with approximately $1.5 billion in assets. Synovus'
commercial banking subsidiaries are hereinafter sometimes collectively referred
to as the "Banks."
The Banks offer a broad range of commercial banking services, including
accepting customary types of demand and savings deposits, making individual,
consumer, commercial, installment, first mortgage and second mortgage loans,
offering money transfers, safe deposit services, trust, investment, IRA, Keogh
and corporate employee benefit and other fiduciary services, correspondent
banking services, automated banking and electronic switch services, automated
fund transfers and bank credit card services, including MasterCard and Visa
services. All of the Banks' commercial banking activities are conducted within
the United States.
The bank-related subsidiaries of Synovus are: (1) Synovus Securities,
Inc.(R), Columbus, Georgia, which specializes in professional portfolio
management for fixed-income securities, the execution of securities transactions
as a broker/dealer and the provision of individual investment advice on equity
and other securities; (2) Synovus Trust Company(sm), Columbus, Georgia, one of
the southeast's largest providers of trust services; (3) Synovus Mortgage
Corp.(R), Birmingham, Alabama, which offers mortgage services; and (4) Synovus
Technologies, Inc.(sm), Columbus, Georgia, which facilitates the use of
technology by and
2
participates in the development of new products and services for the Banks.
Bankcard Data Processing and Other Affiliates and Services
Business. Established in 1983 as an outgrowth of an on-line accounting and
bankcard data processing system developed for Synovus' subsidiary, Columbus Bank
and Trust Company(R), Total System Services, Inc.(R), ("TSYS") is now one of the
world's largest information technology processors of credit, debit, commercial
and private-label cards. Based in Columbus, Georgia, and traded on the New York
Stock Exchange under the symbol "TSS," TSYS provides a comprehensive on-line
system of data processing services marketed as THE TOTAL SYSTEM(R) servicing
issuing institutions throughout the United States, Puerto Rico, Canada, Mexico
and the Caribbean, representing more than 117 million cardholder accounts on
file as of December 31, 1998. TSYS provides card production, statement
preparation, electronic commerce services, portfolio management services,
account acquisition, credit evaluation, risk management and customer service to
clients. Synovus owns 80.8 percent of TSYS.
TSYS has four wholly owned subsidiaries: (1) Columbus Depot Equipment
Company(sm), which sells and leases computer related equipment associated with
TSYS' bankcard data processing services; (2) TSYS Total Solutions,(R) Inc.,
which provides mail and correspondence processing services and account
solicitation services; (3) Columbus Productions, Inc.(sm), which provides
full-service commercial printing and related services; and (4) TSYS Canada,
Inc., which provides programming support and assistance with the conversion of
card portfolios to TS2(R).
TSYS also holds a 49% equity interest in a joint venture company named
Total System Services de Mexico, S.A. de C.V., which provides credit card
related processing services to Mexican banks, and a 50% interest in Vital
Processing Services L.L.C., a joint venture with Visa U.S.A. Inc., that offers
fully integrated merchant transaction and related electronic information
services to financial and nonfinancial institutions and their merchant
customers.
Seasonality. Due to the seasonal nature of the credit card industry, TSYS'
revenues and results of operations have generally increased in the fourth
quarter of each year because of increased transaction and authorization volumes
during the traditional holiday shopping season.
Major Customers. A significant amount of TSYS' revenues are derived from
long-term contracts with significant customers, including certain major
customers. For the year ended December 31, 1998, BankAmerica Corporation
accounted for 21% of TSYS' total revenues. As a result, the loss of BankAmerica
Corporation, or other major or significant customers, could have a material
adverse effect on TSYS' financial condition and results of operations.
Near the end of the first quarter of 1998, AT&T completed the sale of its
Universal Card Services to CITIBANK, now a part of Citigroup after CITIBANK's
merger with
3
Travelers Group, Inc. CITIBANK accounted for approximately 13% of total
revenues for the year ended December 31, 1998. On February 26, 1999, CITIBANK
notified TSYS of its decision to terminate Universal Card Services' processing
agreement with TSYS for consumer credit card accounts at the end of its original
term on August 1, 2000. Consumer credit card accounts represented 11.4% of total
revenues derived by TSYS from Universal Card Services for the year ended
December 31, 1998. Management believes that CITIBANK will continue to be a major
customer in 1999, but will not be a major customer in 2000 and that the loss of
revenues from Universal Card Services for the months of August through December
2000, should not have a material adverse effect on TSYS' financial condition or
results of operations for the year ending December 31, 2000.
See "Non-Interest Income" under the "Financial Review" Section on pages
F-35 and F-36, "Non-Interest Expense" under the "Financial Review" Section on
pages F-36 and F-37, and Note 10 of Notes to Consolidated Financial Statements
on pages F-21 through F-23 of Synovus' 1998 Annual Report to Shareholders which
are specifically incorporated herein by reference.
Service Marks
Synovus owns the federally registered service marks of Synovus Financial
Corp., Synovus, the stylized S logo, Synovus Mortgage Corp. and Synovus
Securities, Inc. Synovus also owns additional registered service marks and other
service marks. In the opinion of management of Synovus, the loss of the right to
use such marks would not materially affect Synovus' business.
TSYS owns the federally registered service marks TSYS, TS2, Total System
Services, Inc. and THE TOTAL SYSTEM, to which TSYS believes strong customer
identification attaches. TSYS also owns additional registered service marks and
other service marks. Management does not believe the loss of such marks would
have a material impact on the business of TSYS.
Supervision, Regulation and Other Factors
General. Synovus is a registered multi-bank holding company subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System ("Board") under the Bank Holding Company Act ("BHC Act"), and by the
Georgia Banking Department under the bank holding company laws of the State of
Georgia (the "Georgia Act"). As a bank holding company, Synovus is required to
furnish the Board and the Georgia Banking Department with annual reports of the
financial condition, management and inter-company relationships of Synovus and
its subsidiaries and affiliates at the end of each fiscal year, and such
additional information as the Board and the Georgia Banking Department may
require from time to time. The Board and the Georgia Banking Department also
make examinations of Synovus and certain of its subsidiaries and affiliates.
The BHC Act and the Georgia Act require each bank holding company to obtain
the prior approval of the Board and the Georgia Banking Department before: (i)
it may acquire direct or indirect ownership or control of any voting shares of
any bank, if, after such
4
acquisition, such bank holding company will, directly or indirectly, own or
control more than 5% of the voting shares of such bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of a bank; or (iii) it may merge or consolidate with any other bank
holding company. In addition, under the Georgia Act, it is unlawful for any bank
holding company to acquire, direct or indirect, ownership or control of more
than 5% of the voting shares of any presently operating bank, unless such bank
has been in existence and continuously operating as a bank for a period of five
years or more prior to the date of making application to the Georgia Banking
Department for approval of the acquisition.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Interstate Banking Act"), effective September 29, 1995, bank holding
companies were permitted to acquire banks in any state. Under the Interstate
Banking Act, effective June 1, 1997, banks may merge or consolidate across state
lines, unless either of the states involved elected to prohibit such merger or
consolidation prior to May 31, 1997. Finally, under the Interstate Banking Act,
states may authorize banks from other states to engage in branching across state
lines.
In addition, a bank holding company is, with certain exceptions, prohibited
by the BHC Act from engaging in, or acquiring or retaining direct or indirect
control of the voting shares of any company engaged in non-banking activities.
One of the principal exceptions to this prohibition is for activities found by
the Board to be so closely related to banking, or managing or controlling banks,
as to be a proper incident thereto.
Because Synovus is a registered multi-bank holding company, its subsidiary
banks are also subject to examination, supervision and regulation by the Board.
The banks which are chartered under the banking laws of the States of Georgia,
Florida and Alabama are subject to examination, supervision and regulation by
the Georgia Banking Department, Florida Banking Department and the Alabama
Banking Department, respectively. The banks which are chartered under the
banking laws of the United States are subject to examination, supervision and
regulation by the Office of the Comptroller of the Currency ("OCC"). In
addition, the deposits of Synovus' subsidiary banks are insured by the Federal
Deposit Insurance Corporation ("FDIC") to the extent provided by law, and are
subject to examination, supervision and regulation by the FDIC.
The Georgia Banking Department, Florida Banking Department, Alabama Banking
Department, OCC and the FDIC regulate all areas of the banks' banking and trust
operations, including, where appropriate, reserves, investments, loans, mergers,
the issuance of securities, payment of dividends, interest rates, extension of
credit to officers and directors, establishment of branches, maintenance of
capital and other aspects of their operations.
Also, the payment of management fees by banking subsidiaries of a bank
holding company is subject to supervision and regulation by the Georgia Banking
Department, Florida Banking Department, Alabama Banking Department, the OCC, the
Federal Reserve and the FDIC. The payment of management fees by non-banking
subsidiaries of a bank holding company is also subject to supervision and
regulation by the Federal Reserve.
Numerous other federal and state laws, as well as regulations promulgated
by the
5
Board, the Georgia Banking Department, Florida Banking Department, Alabama
Banking Department, the OCC and the FDIC govern almost all aspects of the
operations of the banks.
Dividends. Under the laws of the State of Georgia, Synovus, as a business
corporation, may declare and pay dividends in cash or property unless the
payment or declaration would be contrary to restrictions contained in its
Articles of Incorporation, and unless, after payment of the dividend, it would
not be able to pay its debts when they become due in the usual course of its
businesses or its total assets would be less than the sum of its total
liabilities. Synovus is also subject to certain contractual and regulatory
capital re strictions that limit the amount of cash dividends that Synovus may
pay.
The primary sources of funds for Synovus' payment of dividends to its
shareholders are dividends and fees to Synovus from its banking and nonbanking
affiliates. Various federal and state statutory provisions and regulations limit
the amount of dividends that the subsidiary banks of Synovus may pay. Pursuant
to the regulations of the Georgia Banking Department, a Georgia bank must have
approval of the Georgia Banking Department to pay cash dividends if, at the time
of such payment: (i) the ratio of such banking affiliate's equity capital
(defined to include the aggregate par value of all outstanding common stock,
paid-in surplus, retained earnings, capital resources, reserves for loan losses,
aggregate par value of outstanding preferred stock which is not redeemable and
other outstanding instruments which are required to be converted into common
stock) to its adjusted total assets is less than 6%; (ii) the aggregate amount
of dividends to be declared or anticipated to be declared during the current
calendar year exceeds 50% of its net after-tax profit for the previous calendar
year; or (iii) its total classified assets in its most recent regulatory
examination exceeded 80% of its equity capital (as defined above) as reflected
in such examination. In general, the approval of the Alabama Banking Department
and the Florida Banking Department, as applicable, is required if the total of
all dividends declared by an Alabama or Florida bank, as the case may be, in any
year would exceed the total of its net profits (as defined) for that year
combined with its retained net profits for the preceding two years less any
required transfers to surplus. In addition, the approval of the OCC is required
for a national bank to pay dividends in excess of the bank's net income for the
current year plus retained net income for the preceding two years, less any
required transfers to surplus.
Federal and state banking regulations applicable to Synovus and its banking
subsidiaries require minimum levels of capital which limit the amounts available
for payment of dividends. See "Parent Company" under the "Financial Review"
Section on page F-54, and Note 13 of Notes to Consolidated Financial Statements
on pages F-25 through F-28 of Synovus' 1998 Annual Report to Shareholders which
are specifically incorporated herein by reference.
Capital Requirements. Synovus is required to comply with the capital
adequacy standards established by the Board and its banking subsidiaries must
comply with similar capital adequacy standards established by the OCC and FDIC
as applicable. There are two basic measures of capital adequacy for bank holding
companies and their banking subsidiaries that have been promulgated by the
Board, the FDIC and the OCC: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company or a
bank to be considered in compliance. See "Capital Resources" and "Dividends"
6
under the "Financial Review" Section on pages F-51 through F-53 and Note 13
of Notes to Consolidated Financial Statements on pages F-25 through F-28 of
Synovus' 1998 Annual Report to Shareholders which are specifically incorporated
herein by reference.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC- insured depository
institutions that fail to meet applicable capital requirements. See "Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the federal banking agencies have amended the risk-based
capital standards that calculate the change in an institution's net economic
value attributable to increases and decreases in market interest rates and
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures.
Commitments to Subsidiary Banks. Under the Board's policy, Synovus is
expected to act as a source of financial strength to its subsidiary banks and to
commit resources to support its subsidiary banks in circumstances when it might
not do so absent such policy. In addition, any capital loans by Synovus to any
of its subsidiary banks would also be subordinate in right of payment to
depositors and to certain other indebtedness of such bank.
In the event of Synovus' bankruptcy, any commitment by Synovus to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment. In
addition, the Federal Deposit Insurance Act provides that any financial
institution whose deposits are insured by the FDIC generally shall be liable for
any loss incurred by the FDIC in connection with the default of, or any
assistance provided by the FDIC to, a commonly controlled financial institution.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Act of
1991 ("FDICIA") establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system the federal banking
regulators are required to rate supervised institutions on the basis of five
capital categories (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized) and to take
certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, subject to a narrow
exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
Pursuant to FDICIA, the Board, the FDIC, the OCC and the Office of Thrift
Supervision ("OTS") have adopted regulations setting forth a five-tier scheme
for measuring the capital adequacy of the financial institutions they supervise.
Under the regulations, an institution would be placed in one of the following
capital categories: (i) well capitalized (an
7
institution that has a Total Capital ratio of at least 10%, a Tier 1
Capital ratio of at least 6% and a Tier 1 Leverage Ratio of at least 5%); (ii)
adequately capitalized (an institution that has a Total Capital ratio of at
least 8%, a Tier 1 Capital ratio of at least 4% and a Tier 1 Leverage Ratio of
at least 4%); (iii) undercapitalized (an institution that has a Total Capital
ratio of under 8%, a Tier 1 Capital ratio of under 4% or a Tier 1 Leverage Ratio
of under 4%); (iv) significantly undercapitalized (an institution that has a
Total Capital ratio of under 6%, a Tier 1 Capital ratio of under 3% or a Tier 1
Leverage Ratio of under 3%); and (v) critically undercapitalized (an institution
whose tangible equity is not greater than 2% of total tangible assets). The
regulations permit the appropriate Federal banking regulator to downgrade an
institution to the next lower category if the regulator determines (i) after
notice and opportunity for hearing or response, that the institution is in an
unsafe or unsound condition or (ii) that the institution has received (and not
corrected) a less-than-satisfactory rating for any of the categories of asset
quality, management, earnings or liquidity in its most recent examination.
Supervisory actions by the appropriate Federal banking regulator depend upon an
institution's classification within the five categories. Synovus' management
believes that Synovus and its significant bank subsidiaries have the requisite
capital levels to qualify as well capitalized institutions under the FDICIA
regulations. See Note 13 of Notes to Consolidated Financial Statements on pages
F-25 through F-28 of Synovus' 1998 Annual Report to Shareholders which is
specifically incorporated herein by reference.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. Federal banking agencies may not accept a capital
plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator.
Safety and Soundness Standards. The Federal Deposit Insurance Act, as
amended by FDICIA and the Riegle Community Development and Regulatory
Improvement Act of 1994, requires the federal bank regulatory agencies to
prescribe standards, by regulations or guidelines, relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, asset quality,
earnings, stock valuation and compensation, fees and benefits and such other
operational and managerial standards as the agencies deem appropriate. The
federal bank regulatory agencies
8
have adopted a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA. The guidelines establish general standards relating to
internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. In general, the guidelines require, among other
things, appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
stockholders. The federal banking agencies determined that stock valuation
standards were not appropriate. In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution that has
been given notice by an agency that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified, an
institution fails to submit an acceptable compliance plan, the agency must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized institution is
subject under the prompt corrective action provisions of FDICIA. See "Prompt
Corrective Action." If an institution fails to comply with such an order, the
agency may seek to enforce such order in judicial proceedings and to impose
civil money penalties.
Depositor Preference Statute. Legislation has been enacted providing that
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution would be afforded a
priority over other general unsecured claims against such an institution,
including federal funds and letters of credit, in the "liquidation or other
resolution" of such an institution by any receiver.
TSYS. TSYS is subject to being examined, and is indirectly regulated, by
federal and state financial institution regulatory agencies which regulate the
banks, savings institutions and credit unions for which TSYS provides bankcard
data processing services. Matters reviewed and examined by these federal and
state financial institution regulatory agencies have included TSYS' internal
controls in connection with its present performance of bankcard data processing
services, and the agreements pursuant to which TSYS provides such services.
As the Federal Reserve Bank of Atlanta has approved Synovus' indirect
ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to
direct regulation by the Board. TSYS was formed with the prior written approval
of, and is subject to regulation and examination by, the Georgia Banking
Department as a subsidiary of Columbus Bank and Trust Company and is authorized
to engage in only those activities which Columbus Bank and Trust Company itself
is authorized to engage in directly, which includes the bankcard and other data
processing services presently being provided by TSYS. As TSYS and its
subsidiaries operate as subsidiaries of Columbus Bank and Trust Company, they
are subject to regulation by the FDIC.
Employees
On February 28, 1999, Synovus had 8,625 full time employees, 3,935 of whom
are employees of TSYS.
9
Competition
Banking. Synovus and the Banks encounter vigorous competition from other
commercial banks, savings and loan associations and other financial institutions
and intermediaries in their respective market areas. Certain of the Banks are
smaller than many of the financial institutions in their respective market
areas.
The Banks compete with other banks in their respective market areas in
obtaining new deposits and accounts, making loans, obtaining branch banking
locations and providing other banking services. The Banks also compete with
savings institutions and credit unions in their respective markets for savings
and transaction deposits, certificates of deposit and various types of loans.
Competition for loans is also offered by other financial intermediaries,
including savings institutions, mortgage banking firms and real estate
investment trusts, small loan and finance companies, insurance companies, credit
unions, leasing companies and certain government agencies. Competition for time
deposits and, to a more limited extent, demand and transaction deposits is also
offered by a number of other financial intermediaries and investment
alternatives, including "money-market" mutual funds, brokerage firms, government
and corporate bonds and other securities.
In the offering of fiduciary services, the Banks and Synovus Trust Company,
a wholly owned subsidiary of Columbus Bank and Trust Company, compete with
commercial banks and savings institutions having trust powers, trust companies,
and investment advisory and brokerage firms and other individuals and firms that
offer fiduciary, escrow, or corporate trust services.
Synovus Securities competes with full-service brokerage firms. In the
offering of investment advisory and securities brokerage services, Synovus
Securities competes with banking and brokerage concerns which provide investment
advisory and broker-dealer services for fixed income portfolios.
Synovus Mortgage Corp. competes with other mortgage companies and banks
offering mortgage services in its and the Banks' market areas.
Bankcard Data Processing Subsidiary. TSYS encounters vigorous competition
in providing bankcard data processing services from several different sources.
The national market in third party bankcard data processors is presently being
provided by approximately five vendors. TSYS believes that it is the second
largest third party bankcard processor in the United States. In addition, TSYS
competes against software vendors which provide their products to institutions
which process in-house. TSYS is presently encountering, and in the future
anticipates continuing to encounter, substantial competition from bankcard
associations, data processing and bankcard computer service firms and other such
third party vendors located throughout the United States.
TSYS' major competitor in the bankcard data processing industry is First
Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which
is headquartered
10
in Omaha, Nebraska, and provides bankcard data processing services,
including authorization and data entry services. The principal methods of
competition between TSYS and First Data Resources are price, quality, features
and functionality, and reliability of service. Certain other subsidiaries of
First Data Corporation also compete with TSYS. In addition, there are a number
of other companies which have the necessary financial resources and the
technological ability to develop or acquire products and, in the future, to
provide services similar to those being offered by TSYS.
Selected Statistical Information
The "Financial Review" Section, which is set forth on pages F-32 through
F-55 of Synovus' 1998 Annual Report to Shareholders, which includes the
information encompassed within "Selected Statistical Information", is
specifically incorporated herein by reference.
Item 2. Properties
Synovus and its subsidiaries owns, in some cases subject to mortgages or
other security interests, or lease all of the real property and/or buildings on
which it is located. All of such buildings are in a good state of repair and are
appropriately designed for the purposes for which they are used.
See Note 6 and Note 10 of Notes to Consolidated Financial Statements on
page F-16, and pages F-21 through F-23, of Synovus' 1998 Annual Report to
Shareholders which are specifically incorporated herein by reference.
Columbus Bank and Trust Company owns an approximately 225,000 square foot
building known as the Uptown Center in Columbus, Georgia which provides office
space for most of its operations.
TSYS owns a 377,000 square foot production center which is located on a
40.4 acre tract of land in north Columbus, Georgia. Primarily a production
center, this facility houses TSYS' primary data processing computer operations,
statement preparation, mail handling, microfiche production, purchasing and card
production, as well as other related operations.
TSYS owns a 110,000 square foot building on a 23-acre site in Columbus,
Georgia, which accommodates current and future office space needs for technical
staff. TSYS also owns a 104,000 square foot building on an 18-acre site in
Columbus which functions as a second data center.
During 1997, TSYS entered into an operating lease for the purpose of
financing its 540,000 square foot new campus-type facility on approximately 46
acres of land in downtown Columbus, Georgia. The campus facility will
consolidate most of TSYS' multiple Columbus locations and will facilitate future
growth. The campus development will be a multiyear phased project. TSYS began
moving personnel into the new campus facilities in December 1998.
11
Item 3. Legal Proceedings
See Note 10 of Notes to Consolidated Financial Statements on pages F-21
through F- 23 of Synovus' 1998 Annual Report to Shareholders which is
specifically incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of common stock of Synovus are traded on the New York Stock Exchange
under the symbol "SNV." See "Capital Resources" and "Dividends" under the
"Financial Review" Section which are set forth on pages F-51 through F-53 of
Synovus' 1998 Annual Report to Shareholders which are specifically incorporated
herein by reference.
Item 6. Selected Financial Data
See "Five Year Selected Financial Data" under the "Financial Review"
Section which is set forth on page F-32 of Synovus' 1998 Annual Report to
Shareholders which is specifically incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The "Financial Review" Section which is set forth on pages F-32 through
F-55 of Synovus' 1998 Annual Report to Shareholders, which includes the
information encompassed by "Management's Discussion and Analysis of Financial
Condition and Results of Operations", is specifically incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" under the "Financial Review" Section which is set forth
on page F- 50 of Synovus' 1998 Annual Report to Shareholders which is
specifically incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The "Summary of Quarterly Financial Data" Section which is set forth on
page F-55, and the "Consolidated Balance Sheets, Consolidated Statements of
Income, Consolidated Statements of Changes in Shareholders' Equity, Consolidated
Statements of Cash Flows, Summary of Significant Accounting Policies, Notes to
Consolidated Financial Statements and Independent Auditors' Report" Sections
which are set forth on pages F-2 through F-30 of Synovus' 1998 Annual Report to
Shareholders are specifically incorporated herein by
12
reference.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The "ELECTION OF DIRECTORS" Section which is set forth on pages 3 through
5, the "EXECUTIVE OFFICERS" Section which is set forth on page 7 and the
"SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE SECTION" which is set
forth on page 22 of Synovus' Proxy Statement in connection with its Annual
Shareholders' Meeting to be held on April 22, 1999 are specifically incorporated
herein by reference.
Item 11. Executive Compensation
The "DIRECTORS' COMPENSATION" Section which is set forth on page 6, the
`"EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises
and Grants; and Employment Contracts and Change in Control Arrangements"
Sections which are set forth on pages 9 through 12 and the "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on
page 15 of Synovus' Proxy Statement in connection with its Annual Shareholders'
Meeting to be held on April 22, 1999 are specifically incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" Section which is
set forth on pages 8 and 9, the "PRINCIPAL SHAREHOLDERS" Section which is set
forth on pages 16 through 18, and the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS
BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - TSYS Common
Stock Ownership of Directors and Management" Section which is set forth on pages
19 and 20 of Synovus' Proxy Statement in connection with its Annual
Shareholders' Meeting to be held on April 22, 1999 are specifically incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on pages 15
and 16, the "RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF
SYNOVUS' SUBSIDIARIES AND AFFILIATES - Beneficial Ownership of TSYS Common Stock
by Columbus Bank" Section which is set forth on page 18, the "RELATIONSHIPS
BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF SYNOVUS' SUBSIDIARIES AND
AFFILIATES - Interlocking Directorates of Synovus, Columbus Bank and TSYS"
Section which is set forth on page 19, and the
13
"RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN
OF SYNOVUS' SUBSIDIARIES AND AFFILIATES - Transactions and Agreements
Between Synovus, Columbus Bank, TSYS and Certain of Synovus' Subsidiaries"
Section which is set forth on pages 20 through 22 of Synovus' Proxy Statement
in connection with its Annual Shareholders' Meeting to be held on April 22,
1999 are specifically incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of Synovus
Financial Corp. and its subsidiaries are specifically
incorporated by reference from pages F-2 through F-30 of
Synovus' 1998 Annual Report to Shareholders, in response to
Item 8, Part II, Financial Statements and Supplementary Data.
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders'
Equity - Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996
Summary of Significant Accounting Policies - December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements - December 31,
1998, 1997 and 1996
Independent Auditors' Report
2. Financial Statement Schedules
Financial Statement Schedules - None applicable because the
required information has been incorporated in the Consolidated
Financial Statements of Synovus Financial Corp. and its
subsidiaries incorporated by reference herein.
14
3. Exhibits
Exhibit
Number Description
3.1 Articles of Incorporation, as amended, of Synovus
Financial Corp. ("Synovus") incorporated by reference
to Exhibit 4(a) of Synovus' Registration Statement on
Form S-8 filed with the Securities and Exchange
Commission on July 23, 1990 (File No. 33-35926).
3.2 Bylaws, as amended, of Synovus, incorporated by
reference to Exhibit 4.2 of Synovus' Registration
Statement on Form S-3 filed with the Securities and
Exchange Commission on February 23, 1999 (File No.
333-72827).
4.1 Form of Rights Agreement incorporated by reference to
Exhibit 1 of Synovus' Registration Statement on Form
8-A dated May 3, 1989 pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended. 9.1 Voting
Lease Agreement incorporated by reference to Exhibit
9.1 of Synovus' Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, as filed with the
Commission on March 24, 1995.
10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.1 Employment Agreements of James H. Blanchard and James
D. Yancey with Synovus incorporated by reference to
Exhibit 10.1 of Synovus' Registration Statement on Form
S-1 filed with the Commission on December 18, 1990
(File No. 33-38244).
10.2 Incentive Bonus Plan of Synovus incorporated by
reference to Exhibit 10.5 of Synovus' Registration
Statement on Form S-1 filed with the Commission on
December 18, 1990 (File No. 33- 38244).
10.3 Director Stock Purchase Plan of Synovus incorporated by
reference to Exhibit 10(a) of Synovus' Registration
Statement on Form S-8 filed with the Commission on
December 3, 1984 (File No. 2-94639).
10.4 Key Executive Restricted Stock Bonus Plan of Synovus
incorporated by reference to Exhibit 10.6 of Synovus'
Registration Statement on Form S-1 filed with the
Commission on December 18, 1990 (File No. 33-38244).
15
10.5 1989 Stock Option Plan of Synovus incorporated by
reference to Exhibit "A" of Synovus' Registration
Statement on Form S-8 filed with the Commission on July
23, 1990 (File No. 33-35926), which Option Plan was
amended on March 16, 1992 to eliminate the stock
appreciation rights feature of the outstanding options
under the Plan and reduce the exercise price from $16
5/8 per share to $9.70 per share.
10.6 Consulting Agreement of H. Lynn Page with Synovus
incorporated by reference to Exhibit 10.6 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the Commission on
March 29, 1993.
10.7 Excess Benefit Agreement of Synovus incorporated by
reference to Exhibit 10.7 of Synovus' Annual Report on
Form 10-K for the fiscal year ended December 31, 1994,
as filed with the Commission on March 24, 1995.
10.8 Wage Continuation Agreement of Synovus incorporated by
reference to Exhibit 10.8 of Synovus' Annual Report on
Form 10-K for the fiscal year ended December 31, 1992,
as filed with the Commission on March 29, 1993.
10.9 1991 Stock Option Plan for Key Executives of Synovus
incorporated by reference to Exhibit 10.9 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the Commission on
March 29, 1993.
10.10 Synovus Financial Corp. 1992 Long-Term Incentive Plan
incorporated by reference to Exhibit 10.10 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the Commission on
March 29, 1993.
10.11 Agreement in Connection with Use of Aircraft
incorporated by reference to Exhibit 10.11 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the Commission on
March 29, 1993.
10.12 Life Insurance Trusts incorporated by reference to
Exhibit 10.12 of Synovus' Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, as filed
with the Commission on March 29, 1993.
10.13 Supplemental Compensation Agreement, Incentive
Compensation Agreements and Performance Compensation
Agreement with Richard E. Anthony; which Agreements
were assumed by Synovus on December 31, 1992 as a
result of its acquisition of
16
First Commercial Bancshares, Inc.; and which stock
awards made pursuant to the Agreements were converted
at a ratio of 1.5 to 1, the exchange ratio applicable
to the merger incorporated by reference to
Exhibit 10.13 of Synovus' Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, as filed
with the Commission on March 29, 1993.
10.14 1993 Split Dollar Insurance Agreement of Synovus
incorporated by reference to Exhibit 10.14 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, as filed with the Commission on
March 28, 1994.
10.15 1995 Split Dollar Insurance Agreement of Synovus
incorporated by reference to Exhibit 10.15 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as filed with the Commission on
March 24, 1995.
10.16 Synovus Financial Corp. 1994 Long-Term Incentive Plan
incorporated by reference to Exhibit 10.16 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as filed with the Commission on
March 24, 1995.
10.17 Employment Agreement of Robert V. Royall, Jr.
incorporated by reference to Exhibit 10.17 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on
March 25, 1996.
10.18 Synovus Financial Corp. Executive Bonus Plan
incorporated by reference to Exhibit 10.18 of Synovus'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on
March 25, 1996.
10.19 Change of Control Agreements incorporated by reference
to Exhibit 10.19 of Synovus' Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, as filed
with the Commission on March 25, 1996.
10.20 Consulting Agreement of Joe E. Beverly incorporated by
reference to Exhibit 10.20 of Synovus' Annual Report on
Form 10-K for the fiscal year ended December 31, 1996,
as filed with the Commission on March 6, 1997.
13.1 Certain specified pages of Synovus' 1998 Annual Report
to Shareholders which are specifically incorporated
herein by reference.
20.1 Proxy Statement, for the Annual Meeting of Shareholders
of
17
Synovus to be held on April 22, 1999, certain specified
pages of which are specifically incorporated herein
by reference.
21.1 Subsidiaries of Synovus Financial Corp.
23.1 Independent Auditors' Consents.
24.1 Powers of Attorney contained on the signature pages of
the 1998 Annual Report on Form 10-K.
27.1 Financial Data Schedule (for SEC use only).
27.2 Amended Financial Data Schedule (for SEC use only).
27.3 Amended Financial Data Schedule (for SEC use only).
27.4 Amended Financial Data Schedule (for SEC use only).
99.1 Annual Report on Form 11-K for the Synovus Financial
Corp. Employee Stock Purchase Plan for the year ended
December 31, 1998 (to be filed as an amendment hereto
within 120 days of the end of the period covered by
this report).
99.2 Annual Report on Form 11-K for the Synovus Financial
Corp. Director Stock Purchase Plan for the year ended
December 31, 1998 (to be filed as an amendment hereto
within 120 days of the end of the period covered by
this report).
Synovus agrees to furnish the Commission, upon request, a copy of each
instrument with respect to issues of long-term debt. The principal amount of any
individual instrument, which has not been previously filed, does not exceed ten
percent of the total assets of Synovus and its subsidiaries on a consolidated
basis.
(b) Reports on Form 8-K
On March 1, 1999, Synovus filed a Form 8-K with the Commission in
connection with the announcement that Universal Card Services Corp., an
affiliate of CITIBANK, notified TSYS of its decision not to renew its processing
agreement with TSYS for consumer credit card accounts at the end of its original
term on August 1, 2000.
filings\snv\10k.98
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Synovus Financial Corp. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
(Registrant)
March 16, 1999 By:/s/James H. Blanchard
----------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James H. Blanchard, James D. Yancey and Stephen
L. Burts, Jr., and each of them, his or her true and lawful attorney(s)-in-fact
and agent(s), with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
or all amendments to this report and to file the same, with all exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney(s)-in-fact and
agent(s) full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney(s)-in-fact and agent(s), or their
substitute(s), may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, this report has been signed by the following persons in
the capacities and on the dates indicated.
/s/William B. Turner Date: March 16, 1999
- -------------------------------------------------
William B. Turner,
Director and Chairman of
the Executive Committee
/s/James H. Blanchard Date: March 16, 1999
- -------------------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
/s/James D. Yancey Date: March 16, 1999
- -------------------------------------------------
James D. Yancey,
President and Director
/s/Richard E. Anthony Date: March 16, 1999
- -------------------------------------------------
Richard E. Anthony,
Vice Chairman of the Board
/s/Walter M. Deriso, Jr. Date: March 16, 1999
- -------------------------------------------------
Walter M. Deriso, Jr.,
Vice Chairman of the Board
/s/Stephen L. Burts, Jr. Date: March 16, 1999
- -------------------------------------------------
Stephen L. Burts, Jr.,
Vice Chairman of the Board
/s/Thomas J. Prescott
- ------------------------------------------------- Date: March 16, 1999
Thomas J. Prescott,
Executive Vice President, Treasurer,
Principal Accounting and Financial Officer
- -------------------------------------------------
Joe E. Beverly,
Director
/s/Richard Y. Bradley Date: March 16, 1999
- -----------------------------------------------
Richard Y. Bradley,
Director
- -------------------------------------------------
C. Edward Floyd,
Director
/s/Gardiner W. Garrard, Jr. Date: March 16, 1999
- -------------------------------------------------
Gardiner W. Garrard, Jr.,
Director
- -------------------------------------------------
V. Nathaniel Hansford,
Director
/s/John P. Illges, III Date: March 16, 1999
- -------------------------------------------------
John P. Illges, III,
Director
/s/Mason H. Lampton Date: March 16, 1999
- -------------------------------------------------
Mason H. Lampton,
Director
- -------------------------------------------------
Elizabeth C. Ogie,
Director
/s/H. Lynn Page Date: March 16, 1999
- -------------------------------------------------
H. Lynn Page,
Director
- -------------------------------------------------
Robert V. Royall, Jr.,
Director
- -------------------------------------------------
Melvin T. Stith,
Director
filings\SNV\con13.sig
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN? [LOGO]
[LOGO]
SYNOVUS(R)
FINANCIAL CORP.
FINANCIAL APPENDIX
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997.................................................................. F-2
Consolidated Statements of Income for the Years ended December 31, 1998, 1997, and 1996....................................... F-3
Consolidated Statements of Changes In Shareholders' Equity for the Years ended December 31, 1998, 1997, and 1996.............. F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997, and 1996................................... F-5
Summary of Significant Accounting Policies.................................................................................... F-6
Notes to Consolidated Financial Statements.................................................................................... F-10
Independent Auditors' Report.................................................................................................. F-30
Financial Highlights.......................................................................................................... F-31
Financial Review.............................................................................................................. F-32
Summary of Quarterly Financial Data, Unaudited................................................................................ F-55
Senior Management and Directors............................................................................................... F-56
</TABLE>
F-1
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks, including $18,422 and $12,171 for 1998 and 1997, respectively,
on deposit to meet Federal Reserve requirements (note 9)............................................. $ 348,365 388,134
Interest earning deposits with banks (note 9)........................................................... 1,383 1,272
Federal funds sold (note 9)............................................................................. 52,695 93,392
Mortgage loans held for sale (note 9)................................................................... 156,231 39,558
Investment securities available for sale (notes 2 and 9)................................................ 1,514,054 1,325,036
Investment securities held to maturity (approximate market value of $309,716
and $335,107 for 1998 and 1997, respectively) (notes 2 and 9)........................................ 303,613 330,137
Loans (notes 3 and 9)................................................................................... 7,420,529 6,576,026
Less:
Unearned income...................................................................................... (8,537) (5,712)
Reserve for loan losses.............................................................................. (110,822) (103,050)
---------- ---------
Loans, net..................................................................................... 7,301,170 6,467,264
---------- ---------
Premises and equipment, net (note 6).................................................................... 375,395 297,227
Other assets (note 4)................................................................................... 445,103 318,331
---------- ---------
Total assets................................................................................... $10,498,009 9,260,331
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (notes 5 and 9):
Non-interest bearing............................................................................... $ 1,362,401 1,256,639
Interest bearing................................................................................... 7,180,397 6,451,288
---------- ---------
Total deposits................................................................................. 8,542,798 7,707,927
Federal funds purchased and securities sold under agreement to repurchase (note 9)................... 496,013 305,868
Long-term debt (notes 6 and 9)....................................................................... 127,015 126,174
Other liabilities (notes 7 and 8).................................................................... 208,489 174,065
---------- ---------
Total liabilities.............................................................................. 9,375,315 8,314,034
---------- ---------
Minority interest in consolidated subsidiary............................................................ 52,093 42,641
Shareholders' equity (notes 1, 2, 6, 8, and 13):
Common stock -- $1.00 par value. Authorized 600,000,000 shares; issued 270,393,657 in 1998 and
262,983,414 in 1997; outstanding 270,218,393 in 1998 and 262,808,150 in 1997...................... 270,394 262,983
Surplus.............................................................................................. 42,006 17,777
Less treasury stock - 175,264 shares in 1998 and 1997................................................ (1,285) (1,285)
Less unamortized restricted stock.................................................................... (2,545) (3,734)
Accumulated other comprehensive income............................................................... 10,216 5,700
Retained earnings.................................................................................... 751,815 622,215
---------- ---------
Total shareholders' equity..................................................................... 1,070,601 903,656
Commitments and contingencies (note 10)
---------- ---------
Total liabilities and shareholders' equity..................................................... $10,498,009 9,260,331
========== =========
</TABLE>
See accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees........................................................... $655,181 615,804 560,383
Investment securities:
U.S. Treasury and U.S. Government agencies.................................. 77,869 80,369 73,167
Mortgage-backed securities.................................................. 17,331 17,050 17,971
State and municipal......................................................... 7,377 6,536 6,766
Other investments........................................................... 2,380 1,387 1,266
Mortgage loans held for sale.................................................... 5,502 2,368 1,825
Federal funds sold.............................................................. 3,558 2,086 1,866
Interest earning deposits with banks............................................ 50 73 59
-------- -------- --------
Total interest income............................................... 769,248 725,673 663,303
-------- -------- --------
Interest expense:
Deposits (note 5)............................................................... 306,275 287,260 267,349
Federal funds purchased and securities sold under agreement to repurchase....... 15,003 18,836 14,973
Long-term debt.................................................................. 7,444 7,188 6,107
-------- -------- --------
Total interest expense.............................................. 328,722 313,284 288,429
-------- -------- --------
Net interest income................................................. 440,526 412,389 374,874
Provision for losses on loans (note 3)............................................. 26,660 32,296 31,766
-------- -------- --------
Net interest income after provision for losses on loans............. 413,866 380,093 343,108
-------- -------- --------
Non-interest income:
Data processing services........................................................ 375,313 343,946 296,511
Service charges on deposit accounts............................................. 61,803 56,215 52,417
Fees for trust services......................................................... 15,341 12,645 11,438
Credit card fees................................................................ 13,581 11,001 9,105
Securities gains (losses), net (note 2)......................................... 1,299 (23) (176)
Other operating income (note 11)................................................ 94,636 65,462 56,083
-------- -------- --------
Total non-interest income........................................... 561,973 489,246 425,378
-------- -------- --------
Non-interest expense:
Salaries and other personnel expense (note 8)................................... 378,367 336,419 293,533
Net occupancy and equipment expense (notes 4 and 10)............................ 155,783 136,372 121,141
Other operating expenses (note 11).............................................. 139,498 128,502 122,362
Special FDIC assessment......................................................... -- -- 4,546
Minority interest in subsidiary's net income.................................... 10,559 9,143 7,592
-------- -------- --------
Total non-interest expense.......................................... 684,207 610,436 549,174
-------- -------- --------
Income before income taxes.......................................... 291,632 258,903 219,312
Income tax expense (note 7)........................................................ 104,524 93,667 79,708
-------- -------- --------
Net income.......................................................... $187,108 165,236 139,604
======== ======== ========
Net income per share (note 14):
Basic........................................................................... $ .71 .63 .53
======== ======== ========
Diluted......................................................................... .70 .62 .53
======== ======== ========
Weighted average shares outstanding (note 14):
Basic........................................................................... 264,666 262,221 261,299
======== ======== ========
Diluted......................................................................... 269,151 265,665 263,834
======== ======== ========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-3
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
ACCUMULATED
UNAMORTIZED OTHER
YEARS ENDED DECEMBER 31, 1998, SHARES COMMON TREASURY RESTRICTED COMPREHENSIVE RETAINED
1997, AND 1996 ISSUED STOCK SURPLUS STOCK STOCK INCOME (LOSS) EARNINGS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995................ 260,823 $260,823 -- (1,022) (2,663) 4,924 431,493 693,555
Net income ................................. -- -- -- -- -- -- 139,604 139,604
Other comprehensive loss, net of tax
(note 15):
Change in unrealized gains/losses on
investment securities available for
sale, net of reclassification
adjustment............................. -- -- -- -- -- (5,886) -- (5,886)
Loss on foreign currency translation..... -- -- -- -- -- (101) -- (101)
---------
Other comprehensive loss.................... -- -- -- -- -- -- -- (5,987)
---------
Comprehensive income........................ -- -- -- -- -- -- -- 133,617
---------
Cash dividends declared - $.19 per share.... -- -- -- -- -- -- (51,123) (51,123)
Treasury shares purchased................... -- -- -- (263) -- -- -- (263)
Issuance of restricted stock (note 8)....... 340 340 3,381 -- (3,771) -- -- (50)
Amortization of restricted stock issued
under restricted stock bonus plan (note 8) -- -- 469 -- 1,090 -- -- 1,559
Stock options exercised (note 8)............ 795 795 2,072 -- -- -- -- 2,876
Stock option tax benefit.................... -- -- 3,394 -- -- -- -- 3,394
Ownership change at majority-owned
subsidiary................................ -- -- 234 -- -- -- -- 234
Fractional shares for stock split........... (5) (5) (35) -- -- -- -- (40)
------- -------- ------ ----- ----- ------ ------- ---------
Balance at December 31, 1996................ 261,953 261,953 9,515 (1,285) (5,344) (1,063) 519,974 783,750
Net income.................................. -- -- -- -- -- -- 165,236 165,236
Other comprehensive income, net of tax -
change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment
(note 15)................................. -- -- -- -- -- 6,763 -- 6,763
---------
Comprehensive income........................ -- -- -- -- -- -- -- 171,999
---------
Cash dividends declared - $.24 per share.... -- -- -- -- -- -- (62,948) (62,948)
Issuance of restricted stock (note 8)....... 13 13 233 -- (246) -- -- --
Amortization of restricted stock issued
under restricted stock bonus plan
(note 8).................................. -- -- (45) -- 1,856 -- -- 1,811
Stock options exercised (note 8)............ 1,020 1,020 3,334 -- -- -- -- 4,354
Stock option tax benefit.................... -- -- 4,775 -- -- -- -- 4,775
Ownership change at majority-owned
subsidiary................................ -- -- -- -- -- -- (47) (47)
Fractional shares for stock split........... (3) (3) (35) -- -- -- -- (38)
------- -------- ------ ----- ----- ------ ------- ---------
BALANCE AT DECEMBER 31, 1997................ 262,983 262,983 17,777 (1,285) (3,734) 5,700 622,215 903,656
NET INCOME.................................. -- -- -- -- -- -- 187,108 187,108
OTHER COMPREHENSIVE INCOME, NET OF TAX
(NOTE 15):
CHANGE IN UNREALIZED GAINS/LOSSES ON
INVESTMENT SECURITIES AVAILABLE FOR
SALE, NET OF RECLASSIFICATION
ADJUSTMENT............................ -- -- -- -- -- 4,415 -- 4,415
GAIN ON FOREIGN CURRENCY TRANSLATION.... -- -- -- -- -- 1 -- 1
--------
OTHER COMPREHENSIVE INCOME.................. -- -- -- -- -- -- -- 4,416
--------
COMPREHENSIVE INCOME........................ -- -- -- -- -- -- -- 191,524
--------
ISSUANCE OF COMMON STOCK FOR ACQUISITIONS
(NOTE 1).................................. 6,436 6,436 14,517 -- -- 100 20,188 41,241
CASH DIVIDENDS DECLARED - $.29 PER SHARE.... -- -- -- -- -- -- (77,696) (77,696)
AMORTIZATION OF RESTRICTED STOCK ISSUED
UNDER RESTRICTED STOCK BONUS PLAN (NOTE 8) -- -- 36 -- 1,189 -- -- 1,225
STOCK OPTIONS EXERCISED (NOTE 8)............ 978 978 4,161 -- -- -- -- 5,139
STOCK OPTION TAX BENEFIT.................... -- -- 5,351 -- -- -- -- 5,351
OWNERSHIP CHANGE AT MAJORITY-OWNED
SUBSIDIARY................................ -- -- 141 -- -- -- -- 141
FRACTIONAL SHARES FOR STOCK SPLIT........... (3) (3) (77) -- -- -- -- (80)
COMMITMENT OF STOCK DONATION TO CHARITABLE
FOUNDATION................................ -- -- 100 -- -- -- -- 100
------- -------- ----- ----- ----- ------ ------- --------
BALANCE AT DECEMBER 31, 1998................ 270,394 $270,394 42,006 (1,285) (2,545) 10,216 751,815 1,070,601
======= ======== ====== ===== ===== ====== ======= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $187,108 165,236 139,604
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans........................................................... 26,660 32,296 31,766
Depreciation, amortization, and accretion, net.......................................... 60,113 49,092 43,280
Deferred income tax expense (benefit)................................................... 6,153 750 (9,483)
Increase in interest receivable......................................................... (3,152) (6,911) (1,113)
Increase in interest payable............................................................ 3,533 6,284 791
Minority interest in subsidiary's net income............................................ 10,559 9,143 7,592
Increase in mortgage loans held for sale................................................ (85,376) (2,522) (12,173)
Other, net.............................................................................. (47,500) 845 5,862
-------- -------- --------
Net cash provided by operating activities......................................... 158,098 254,213 206,126
-------- -------- --------
INVESTING ACTIVITIES
Cash acquired from acquisitions........................................................... 22,230 -- 30,113
Net (increase) decrease in interest earning deposits with banks........................... (111) 768 (947)
Net decrease (increase) in federal funds sold............................................. 50,876 (55,143) 85,583
Proceeds from maturities and principal collections of investment securities available
for sale............................................................................. 589,082 348,873 327,897
Proceeds from sales of investment securities available for sale........................... 113,047 67,932 106,207
Purchases of investment securities available for sale..................................... (846,188) (455,602) (614,952)
Proceeds from maturities and principal collections of investment securities held
to maturity......................................................................... 161,122 70,086 71,091
Purchases of investment securities held to maturity...................................... (91,790) (37,884) (53,833)
Net increase in loans..................................................................... (447,245) (566,049) (546,741)
Purchases of premises and equipment....................................................... (118,568) (66,436) (63,806)
Disposals of premises and equipment....................................................... 1,926 2,274 2,986
Proceeds from sales of other real estate.................................................. 10,453 8,001 6,852
Additions to contract acquisition costs................................................... (20,105) (17,558) (7,890)
Additions to computer software............................................................ (39,502) (15,106) (9,196)
-------- -------- --------
Net cash used in investing activities............................................. (614,773) (715,844) (666,636)
-------- -------- --------
FINANCING ACTIVITIES
Net increase in demand and savings deposits............................................... 468,250 298,374 320,638
Net (decrease) increase in certificates of deposit........................................ (165,269) 206,518 108,078
Net increase (decrease) in federal funds purchased and securities
sold under agreement to repurchase.................................................... 189,524 (33,332) 109,723
Principal repayments on long-term debt..................................................... (14,934) (9,980) (20,872)
Proceeds from issuance of long-term debt................................................... 8,320 38,871 11,340
Purchases of treasury stock................................................................ -- -- (263)
Dividends paid to shareholders............................................................. (73,927) (59,992) (48,745)
Proceeds from issuance of common stock..................................................... 4,942 4,354 2,867
-------- -------- -------
Net cash provided by financing activities.......................................... 416,906 444,813 482,766
-------- -------- -------
(Decrease) increase in cash and cash equivalents............................................. (39,769) (16,818) 22,256
Cash and cash equivalents at beginning of period............................................. 388,134 404,952 382,696
-------- -------- -------
Cash and cash equivalents at end of period................................................... $348,365 388,134 404,952
======== ======== =======
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
F-5
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS
The consolidated financial statements include the accounts of Synovus
Financial Corp. (Parent Company) and its consolidated subsidiaries, all but one
of which were wholly-owned at December 31, 1998. Synovus has 36 wholly-owned
bank subsidiaries predominantly involved in retail and commercial banking
activities and wholly-owned trust, mortgage, and broker/dealer companies which
provide the necessary infrastructure for our affiliate banks to offer trust,
mortgage, and brokerage services to our customers. Total System Services, Inc.
(TSYS), an 80.7% owned subsidiary, is a credit, debit, commercial and private
label card processing company. On January 1, 1999, TSYS issued 854,042 shares of
its common stock to Synovus in exchange for its business unit, Partnership Card
Services. The transaction increased Synovus' ownership in TSYS to 80.8%
effective January 1, 1999. In addition, the financial statements include joint
ventures of TSYS accounted for under the equity method.
The consolidated revenues are primarily contributed from the banking
operations, with TSYS' revenues contributing approximately 30% of consolidated
revenues. The banking operations' revenues are earned in four southeastern
states: Georgia (59%), Alabama (20%), South Carolina (14%), and Florida (7%).
TSYS has two major customers which together accounted for approximately 34%,
35% and 30% of its total revenues for the years ended December 31, 1998, 1997
and 1996, respectively. TSYS' revenues are generated from customers located
throughout the United States, Mexico, Puerto Rico, and Canada.
BASIS OF PRESENTATION
In preparing the consolidated financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and the reported amounts of revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the reserve for loan losses; the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans; and the disclosures for contingent assets and
liabilities. In connection with the determination of the reserve for loan
losses and the valuation of other real estate, management obtains independent
appraisals for significant properties and properties collateralizing impaired
loans.
The accounting and reporting policies of Synovus Financial Corp. and
subsidiaries (Synovus) conform to generally accepted accounting principles and
to general practices within the banking and data processing industries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The following is a description of the more significant of those
policies.
CASH FLOW INFORMATION
For the years ended December 31, 1998, 1997, and 1996, income taxes of
$91 million, $93 million, and $90 million, and interest of $325 million, $307
million, and $288 million, respectively, were paid.
Loans receivable of approximately $9 million, $8 million, and $7
million were transferred to other real estate during 1998, 1997 and 1996,
respectively.
During 1998, Synovus completed three bank acquisitions accounted for
as poolings of interests; however, financial information preceding the dates of
acquisition have not been restated to include the financial position and
results of operations of these acquired entities since the effect was not
material. These transactions resulted in the following noncash increases for
the year ended December 31, 1998: investment securities of $80.9 million, net
loans of $413.3 million, mortgage loans held for sale of $31.3 million,
premises and equipment of $16.1 million and deposits of $531.9 million, all of
which were obtained in the stock-for-stock acquisitions.
FEDERAL FUNDS SOLD, FEDERAL FUNDS PURCHASED, AND SECURITIES SOLD UNDER
AGREEMENT TO REPURCHASE
Federal funds sold, federal funds purchased, and securities sold under
agreement to repurchase generally mature in one day.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate
cost or fair value. Fair values are based upon quoted prices from secondary
market investors and forward commitments to sell. No valuation allowances were
required at December 31, 1998 or 1997.
The cost of mortgage loans held for sale is the mortgage note amount
plus certain net origination costs less discounts collected.
INVESTMENT SECURITIES
Synovus classifies its securities into two categories: available for
sale or held to maturity. Held to maturity securities are those securities for
which Synovus has the ability and intent to hold until maturity. All other
securities not included in held to maturity are classified as available for
sale.
Available for sale securities are recorded at fair value. Fair value
is determined at a specific point in time, based on quoted market prices. Held
to maturity securities are recorded at cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on securities available for sale are excluded from earnings
and are reported as a separate component of shareholders' equity, within other
comprehensive income, until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. The unrealized
gains or losses included in other comprehensive income for a security
transferred from available for sale to held to maturity are maintained and
amortized into earnings over the remaining life of the security as an
adjustment to yield in a manner consistent with the amortization or accretion
of premium or discount on the associated security.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary results in a
charge to earnings and the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield using the effective interest
method and prepayment assumptions. Dividend and interest income are recognized
when earned. Realized gains and losses for securities classified as available
for sale and held to maturity are included in earnings and are derived using
the specific identification method for determining the amortized cost of
securities sold.
F-6
Gains and losses on sales of investment securities are recognized on
the settlement date, based on the amortized cost of the specific security. The
financial statement impact of settlement date accounting versus trade date
accounting is immaterial.
LOANS AND INTEREST INCOME
Loans are reported at principal amounts outstanding, less unearned
income, including net deferred fees and the reserve for loan losses.
Interest income on consumer loans, made on a discount basis, is
recognized in a manner which approximates the level yield method. Interest
income on substantially all other loans is recognized on a level yield basis.
Loan fees, net of certain direct origination costs, are deferred and
amortized over the terms of the loans using a method which approximates a level
yield. Annual fees, net of costs, collected for credit cards are recognized on
a straight-line basis over the period the fee entitles the cardholder to use
the card.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full collection of interest or principal
or when they become contractually in default for 90 days or more as to either
interest or principal, unless they are both well-secured and in the process of
collection. When a loan is placed on nonaccrual status, previously accrued and
uncollected interest is charged to interest income on loans, unless management
believes that the accrued interest is recoverable through the liquidation of
collateral. Interest payments received on nonaccrual loans are applied as a
reduction of principal. Loans are returned to accruing status when they are
brought current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest. Such interest when ultimately collected, is
recorded as interest income in the period received. Interest on accruing
impaired loans is recognized as long as such loans do not meet the criteria for
nonaccrual classification.
RESERVE FOR LOAN LOSSES
The reserve for loan losses is established through provisions for loan
losses charged to operations. Loans are charged against the reserve for loans
losses when management believes that the collection of principal is unlikely.
Subsequent recoveries are added to the reserve. Management's evaluation of the
adequacy of the reserve for loan losses is based on a formal analysis which
assesses the risk within the loan portfolio. This analysis includes
consideration of historical performance, current economic conditions, level of
nonperforming loans, loan concentrations, and review of certain individual
loans.
Management believes that the reserve for loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the reserve for loan losses may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review Synovus'
subsidiary banks' reserves for loan losses. Such agencies may require Synovus'
subsidiary banks to recognize additions to the reserve for loan losses based
on their judgments about information available to them at the time of their
examination.
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
reserve 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 reserve for loan
losses for large pools of smaller-balance, homogeneous loans is established
through consideration of such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, adequacy of the underlying collateral,
loan concentrations, historical charge-off trends, and economic conditions that
may affect the borrowers' ability to pay.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements and purchased
internal-use software, are reported at cost, less accumulated depreciation and
amortization, which are computed using straight-line or accelerated methods over
the estimated useful lives of the related assets.
OTHER ASSETS
The following paragraphs describe some of the more significant amounts
included in other assets. Long-lived assets and certain identifiable intangibles
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
the assets described below is measured by a comparison of the carrying amount of
the asset to future undiscounted cash flows expected to be generated by the
asset. If such assets are considered impaired, the amount of impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Intangible Assets:
Goodwill, which represents the excess of cost over the fair value of
net assets acquired of purchased companies, is being amortized using the
straight-line method over periods of 5 to 25 years.
The rights to service mortgage loans for others, regardless of whether
the servicing rights are acquired through either the purchase or origination of
mortgage loans, are recognized as separate assets. The capitalized mortgage
servicing rights are evaluated for impairment based upon the fair value of
those rights. Fair value is estimated by determining the present value of the
estimated future cash flows using discount rates commensurate with the risks
involved. In determining the present value, Synovus stratifies its mortgage
servicing rights based on significant risk characteristics.
Capitalized mortgage servicing rights are amortized in proportion to
and over the period of estimated net servicing income, using a method that
approximates a level yield and taking into consideration prepayment of the
underlying loans. Management re-evaluates the terms used for amortization based
upon prepayment history and adjusts the terms as necessary.
F-7
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
Computer Software
Software development costs are capitalized from the time technological
feasibility of the software product or enhancement is established until the
software is ready for use in providing processing services to customers.
Research and development costs and computer software maintenance costs are
expensed as incurred. Software development costs related to TSYS' core TS(2)
cardholder system are amortized using the greater of the straight-line method
over the estimated useful life of 10 years or the ratio of current revenues to
current and anticipated revenues. All other software development costs and
costs of purchased computer software are amortized using the greater of the
straight-line method over the estimated useful life not to exceed 5 years or
the ratio of current revenues to current and anticipated revenues.
Investments in Bank-Owned Life Insurance Programs:
Investments in bank-owned life insurance programs are carried at the
cash surrender value of the underlying insurance contracts. The change in
contract value during the period is recorded as an adjustment of premiums paid
in determining the expense or income to be recognized under the contract during
the period. Income or expense from bank-owned life insurance programs is
included as a component of other operating income.
Investments in Joint Ventures:
TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V.
(TSYS de Mexico), a bankcard data processing operation located in Mexico, is
accounted for under the equity method, as is TSYS' 50% investment in Vital
Processing Services LLC. (Vital), a merchant processing operation headquartered
in Tempe, Arizona.
Contract Acquisition Costs:
TSYS capitalizes certain contract acquisition costs related to signing
or renewing long-term contracts. These costs, which primarily consist of cash
payments for rights to provide processing services, incremental internal
conversion and software development costs, and third-party software development
costs, are amortized using the straight-line method over the contract term
beginning when the customer's cardholder accounts are converted to TSYS'
processing system. All costs incurred prior to contract execution are expensed
as incurred.
Other Real Estate:
Other real estate, consisting of properties obtained through
foreclosure or in satisfaction of loans, is reported at the lower of cost or
fair value, determined on the basis of current appraisals, comparable sales,
and other estimates of value obtained principally from independent sources,
adjusted for estimated selling costs. Any excess of the loan balance at the
time of foreclosure over the fair value of the real estate held as collateral
is treated as a loan charge-off. Gain or loss on sale and any subsequent
adjustment to the value are recorded as a component of noninterest expense.
DERIVATIVE FINANCIAL INSTRUMENTS
As part of its overall interest rate risk management activities,
Synovus utilizes off-balance sheet derivatives to modify the repricing
characteristics of on-balance sheet assets and liabilities. The primary
instruments utilized by Synovus are interest rate swaps and purchased interest
rate floor and collar arrangements. The fair values of these off-balance sheet
derivative financial instruments are based on dealer quotes and third party
financial models.
Interest rate swaps, purchased floors, and purchased collars are
accounted for on an accrual basis, and the net interest differential, including
premiums paid, if any, is recognized as an adjustment to interest income or
expense of the related designated asset or liability. Changes in the fair
values of the swaps, purchased floors, and purchased collars are not recorded
in the consolidated statements of income because these agreements are being
treated as synthetic alterations of the designated assets or liabilities.
Synovus considers its interest rate swaps to be a synthetic alteration of an
asset or liability as long as (i) the swap is designated with a specific asset
or liability or finite pool of assets or liabilities; (ii) there is a high
correlation, at inception and throughout the period of the synthetic alteration,
between changes in the interest income or expense generated by the swap and
changes in the interest income or expense generated by the designated asset or
liability, (iii) the notional amount of the swap is less than or equal to the
principal amount of the designated asset or liability, and (iv) the swap term
is less than or equal to the expected remaining term of the designated asset or
liability. The criteria for consideration of a floor or collar as a synthetic
alteration of an asset or liability are generally the same as those for a swap
arrangement.
If the swap, purchased floor or purchased collar arrangements are
terminated before their maturity, the net proceeds received or paid are
deferred and amortized over the shorter of the remaining contract life or the
maturity of the designated asset or liability as an adjustment to interest
income or expense. If the designated asset or liability is sold or matures, the
swap agreement is marked to market and the gain or loss is included with the
gain or loss on the sale or maturity of the designated asset or liability.
Changes in the fair value of any undesignated swaps, purchased floors, and
purchased collars are included in other income in the consolidated statements
of income.
Premiums paid for purchased interest rate floor and collar agreements
are amortized to interest income or expense over the terms of the floors and
collars. Unamortized premiums are included in other assets in the consolidated
balance sheets. Amounts receivable or payable under collar and floor agreements
are accrued as an adjustment to interest income or expense.
DATA PROCESSING SERVICES
TSYS' bankcard data processing revenues are derived from long-term
processing contracts with banks and other institutions and are recognized as
revenues at the time the services are performed. TSYS' service contracts
generally contain terms ranging from 3 to 10 years.
INCOME TAXES
Synovus uses the asset and liability method to account for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Synovus files a consolidated federal income tax return with its
wholly-owned and majority-owned subsidiaries.
F-8
STOCK-BASED COMPENSATION
Synovus accounts for its fixed stock-based compensation in accordance
with the provisions set forth in Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations. In
accordance with APB Opinion No. 25, compensation expense is determined on the
grant date only to the extent that the current market price of the underlying
stock exceeds the exercise price on the grant date.
The pro forma net income and earnings per share disclosures for
employee stock-based grants made in 1995 and after are determined based upon the
fair-value-based method which is defined in Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
POSTRETIREMENT BENEFITS
Synovus sponsors a defined benefit health care plan for substantially
all of its employees and early retirees. The expected costs of retiree health
care and other postretirement benefits are being expensed over the period that
employees provide service.
SHARE AND PER SHARE RESTATEMENT
All share and per share data has been restated to reflect the April
1998 three-for-two stock split that was issued on May 21, 1998, in the form of a
50% stock dividend.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and other information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale, at one time, Synovus' entire holdings of a
particular financial instrument. Because no market exists for a portion of
Synovus' financial instruments, fair value estimates are also based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include deferred tax accounts, premises and
equipment, computer software, and goodwill. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any
of the estimates.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, "Reporting Comprehensive Income". This statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other annual financial statements. The term
"comprehensive income" is used in SFAS No. 130 to describe the total of all
components of comprehensive income including net income. "Other comprehensive
income" refers to revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current accounting
standards. Currently, "other comprehensive income" for Synovus consists of items
previously recorded as a component of shareholders' equity under SFAS No.
52,"Foreign Currency Translation", and SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Synovus has adopted the annual
financial statement reporting disclosure requirements of SFAS No. 130 effective
December 31, 1998. Prior years have also been restated.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments on the balance sheet at fair value. The accounting for
changes in the fair value i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately. If
the derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.
Synovus must adopt SFAS No. 133 by January 1, 2000; however, early
adoption is permitted. On adoption, the provisions of SFAS No. 133 must be
applied prospectively. Synovus plans to adopt SFAS No. 133 on January 1, 2000.
Synovus has not determined the impact that SFAS No. 133 will have on
its financial statements and believes that such determination will not be
meaningful until closer to the date of initial adoption.
OTHER
Certain amounts in 1997 and 1996 have been reclassified to conform
with the presentation adopted in 1998. The most significant of these changes
relates to the reclassification of mortgage loans held for sale from loans to a
separate line item, as reflected on the accompanying balance sheets.
F-9
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I BUSINESS COMBINATIONS
On December 18, 1998, Synovus completed the acquisition of the $178
million asset Georgia Bank & Trust (GB&T), located in Calhoun, Georgia.
Synovus issued 1,811,058 shares of common stock for all the issued and
outstanding shares of GB&T.
On November 30, 1998 Synovus completed the acquisition of the $55
million asset Bank of Georgia, located in Watkinsville, Georgia. Synovus issued
850,269 shares of common stock for all the issued and outstanding shares of
Bank of Georgia.
On September 1, 1998 Synovus completed the acquisition of the $348
million asset Community Bank Capital Corporation (CBCC). CBCC is the parent
company of the Bank of North Georgia, located in Alpharetta, Georgia. Synovus
issued 3,774,531 shares of common stock for all the issued and outstanding
shares of CBCC.
The aforementioned acquisitions have been accounted for as poolings of
interests, except that the financial information preceding the dates of
acquisition have not been restated to include the financial position and
results of operations of these acquired entities since the effect was not
material. The impact of these three acquisitions was an increase in net income
of approximately $3.2 million for the year ended December 31, 1998, and an
increase in total assets of approximately $645.8 million at December 31, 1998.
Net income for the years ended December 31, 1997 and 1996 would have been
increased by $7.2 million, and $4.9 million, respectively, if the previous
years had been restated.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
values of investment securities at December 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
INVESTMENT SECURITIES AVAILABLE FOR SALE GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(In thousands) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ............ $1,148,966 15,724 (1,322) 1,163,368
Mortgaged-backed securities............................ 317,237 1,936 (765) 318,408
State and municipal.................................... 11,113 273 (194) 11,192
Other investments...................................... 18,712 2,818 (444) 21,086
---------- ---------- ---------- ---------
Total............................................... $1,496,028 20,751 (2,725) 1,514,054
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(In thousands) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ............ $1,166,562 9,508 (857) 1,175,213
Mortgaged-backed securities............................ 129,575 1,156 (334) 130,397
State and municipal.................................... 910 49 -- 959
Other investments...................................... 17,174 1,745 (452) 18,467
---------- ---------- ---------- ---------
Total............................................... $1,314,221 12,458 (1,643) 1,325,036
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
INVESTMENT SECURITIES HELD TO MATURITY GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(In thousands) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ............ $ 50,996 730 (31) 51,695
Mortgaged-backed securities............................ 77,899 1,063 (101) 78,861
State and municipal.................................... 152,904 4,719 (151) 157,472
Other investments...................................... 21,814 1 (127) 21,688
---------- ---------- ---------- ---------
Total............................................... $ 303,613 6,513 (410) 309,716
========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
(In thousands) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies ............ $ 63,372 395 (108) 63,659
Mortgaged-backed securities............................ 123,519 1,030 (533) 124,016
State and municipal.................................... 124,569 4,190 (146) 128,613
Other investments...................................... 18,677 142 -- 18,819
---------- ---------- ---------- ---------
Total............................................... $ 330,137 5,757 (787) 335,107
========== ========== ========== =========
</TABLE>
F-11
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The amortized cost and estimated fair value of investment securities at
December 31, 1998 by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- ---------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
(In thousands) COST FAIR VALUE COST FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies:
Within 1 year............................................ $ 8,032 8,092 138,863 139,573
1 to 5 years............................................. 18,654 19,050 705,508 714,757
5 to 10 years............................................ 24,310 24,553 304,595 309,038
More than 10 years....................................... -- -- -- --
-------- ------- --------- ---------
$ 50,996 51,695 1,148,966 1,163,368
======== ======= ========= =========
State and municipal:
Within 1 year............................................ $ 11,424 11,534 750 752
1 to 5 years............................................. 34,036 34,860 3,566 3,484
5 to 10 years............................................ 63,776 65,563 2,420 2,551
More than 10 years....................................... 43,668 45,515 4,377 4,405
-------- ------- --------- ---------
$152,904 157,472 11,113 11,192
======== ======= ========= =========
Other investments:
Within 1 year............................................ $ 25 25 3,779 3,675
1 to 5 years............................................. 15 15 1,514 1,625
5 to 10 years............................................ 1,236 1,236 2,527 2,670
More than 10 years....................................... 20,538 20,412 10,892 13,116
-------- ------- --------- ---------
$ 21,814 21,688 18,712 21,086
======== ======= ========= =========
Mortgage backed securities................................. $ 77,899 78,861 317,237 318,408
======== ======= ========= =========
Total investment securities:
Within 1 year............................................ $ 19,481 19,651 143,392 144,000
1 to 5 years............................................. 52,705 53,925 710,588 719,866
5 to 10 years............................................ 89,322 91,352 309,542 314,259
More than 10 years....................................... 64,206 65,927 15,269 17,521
Mortgage backed securities............................... 77,899 78,861 317,237 318,408
-------- ------- --------- ---------
$303,613 309,716 1,496,028 1,514,054
======== ======= ========= =========
</TABLE>
A summary of sales transactions in the investment securities available for
sale portfolio for 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
REALIZED REALIZED
(In thousands) PROCEEDS GAINS LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998......................................................................... $113,047 1,371 (72)
1997......................................................................... 67,932 151 (174)
1996......................................................................... 106,207 514 (690)
</TABLE>
There were no sales transactions in the investment securities held to maturity
portfolio during the three years ended December 31, 1998. Securities with a
carrying value of $1,116,237 and $1,049,984 at December 31, 1998 and 1997,
respectively, were pledged to secure certain deposits and repurchase agreements
as required by law.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS
Loans outstanding, by classification, are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial:
Commercial, financial, and agricultural ..................................... $2,592,608 2,273,031
Real estate-construction .................................................... 1,122,488 835,162
Real estate-mortgage ........................................................ 1,510,169 1,302,941
--------------------------------
Total commercial .......................................................... 5,225,265 4,411,134
--------------------------------
Retail:
Real estate-mortgage ........................................................ 1,058,172 1,039,420
Consumer loans-credit card .................................................. 257,721 306,360
Consumer loans-other ........................................................ 879,371 819,112
--------------------------------
Total retail .............................................................. 2,195,264 2,164,892
--------------------------------
Total loans ............................................................... $7,420,529 6,576,026
================================
</TABLE>
Activity in the reserve for loan losses is summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year .............................. $103,050 94,683 81,384
Loan loss reserves of acquired subsidiaries ............... 6,170 -- 188
Provision for losses on loans ............................. 26,660 32,296 31,766
Recoveries of loans previously charged off ................ 5,761 7,889 6,525
Loans charged off ......................................... (30,819) (31,818) (25,180)
----------------------------------------------------
Balance at end of year .................................... $110,822 103,050 94,683
====================================================
</TABLE>
At December 31, 1998, the recorded investment in loans that were considered
to be impaired was $26.9 million (of which $18.6 million were on a nonaccrual
basis). Included in this amount is $14.1 million of impaired loans for which the
related loan loss reserve is $5.3 million, and $12.8 million of impaired loans
for which there is no related allowance determined in accordance with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan."
At December 31, 1997, the recorded investment in loans that were considered
to be impaired was $25.6 million (of which $12.6 million were on a nonaccrual
basis). Included in this amount is $17.0 million of impaired loans for which the
related loan loss reserve is $6.0 million, and $8.6 million of impaired loans
for which there is no related allowance determined in accordance with SFAS
No. 114.
F-13
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loan loss reserve amounts for impaired loans were primarily determined
using the fair value of the loans' collateral. The average recorded investment
in impaired loans was approximately $28,000,000, $30,000,000, and $40,000,000
for the years ended December 31, 1998, 1997, and 1996, respectively, and the
related amount of interest income recognized during the period that such loans
were impaired was approximately $1,504,000, $1,905,000, and $1,702,000 in 1998,
1997, and 1996, respectively.
Loans on nonaccrual status amounted to approximately $20,533,000,
$17,909,000, and $23,655,000 at December 31, 1998, 1997, and 1996, respectively.
If nonaccruing loans had been on a full accruing basis, interest income on these
loans would have been increased by approximately $1,874,000, $2,175,000, and
$2,400,000 in 1998, 1997, and 1996, respectively.
A substantial portion of Synovus' loans are secured by real estate in
markets in which subsidiary banks are located throughout Georgia, Alabama, South
Carolina, and Northwest Florida. Accordingly, the ultimate collectibility of a
substantial portion of Synovus' loan portfolio and the recovery of a substantial
portion of the carrying amount of real estate owned are susceptible to changes
in market conditions in these areas.
In the ordinary course of business, Synovus has direct and indirect loans
outstanding to certain executive officers, directors, and principal holders of
equity securities (including their associates). Management believes that such
loans are made substantially on the same terms, including interest rate and
collateral, as those prevailing at the time for comparable transactions with
other customers. The following is a summary of such loans outstanding and the
activities in these loans for the year ended December 31, 1998.
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1997............................................................................................. $143,326
Adjustment for executive officer and director changes.................................................................... (19,886)
---------
Adjusted balance at December 31, 1997.................................................................................... 123,440
New loans................................................................................................................ 60,996
Repayments............................................................................................................... (58,653)
---------
Balance at December 31, 1998............................................................................................. $125,783
=========
</TABLE>
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 OTHER ASSETS
Included in other assets are the following significant balances: mortgage
servicing rights, investments in bank-owned life insurance programs, TSYS'
computer software costs, contract acquisition costs, and investment in joint
ventures.
As of December 31, 1998 and 1997, Synovus had approximately $27,953,000
and $20,137,000, respectively, in capitalized mortgage servicing rights. There
was no valuation allowance as of December 31, 1998 and 1997. At December 31,
1998 and 1997, Synovus serviced mortgage loans for unaffiliated investors of
approximately $2,115,000,000 and $1,789,000,000, respectively.
During 1998, one of Synovus' bank subsidiaries invested $40,000,000 in a
bank-owned life insurance program. The carrying value of the underlying
insurance contract at December 31, 1998 was $40,000,000.
The following table summarizes TSYS' computer software at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Purchased computer software........................................ $68,636 39,466
TS(2).............................................................. 33,049 33,049
Other capitalized software development costs....................... 14,854 4,833
------- -------
116,539 77,348
Less accumulated amortization...................................... 50,677 34,215
------- -------
Computer software, net............................................. $65,862 43,133
======= =======
</TABLE>
Employment costs capitalized as software development costs at TSYS for the
years ended December 31, 1998, 1997, and 1996 were $10,021,000, $997,000, and
$178,000 respectively. Amortization expense related to purchased and
capitalized software development costs was $16,774,000, $11,668,000, and
$8,630,000 for the years ended December 31, 1998, 1997, and 1996, respectively.
Contract acquisition costs, net, at TSYS were $46,681,000 and $33,348,000
at December 31, 1998 and 1997, respectively. TSYS' investments in joint
ventures, net, were $28,304,000 and $21,338,000 at December 31, 1998 and 1997,
respectively.
NOTE 5 INTEREST BEARING DEPOSITS
A summary of interest bearing deposits at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest bearing demand deposits................................... $1,364,858 1,128,407
Money market accounts.............................................. 1,666,308 1,278,020
Savings accounts................................................... 454,373 446,497
Time deposits under $100,000....................................... 2,447,882 2,285,305
Time deposits over $100,000........................................ 1,246,976 1,313,059
---------- ----------
$7,180,397 $6,451,288
========== ==========
</TABLE>
Interest expense for the years ended December 31, 1998, 1997, and 1996 on
time deposits over $100,000 was $74,475,000, $68,425,000, and $62,074,000,
respectively.
F-15
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
In thousands 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
6.125% senior notes, due October 15, 2003, with semi-annual interest payments and principal
to be paid at maturity ....................................................................... $ 75,000 75,000
8.75% debenture, due May 15, 2003, with minimum annual principal payments of $120 and $1,240
at maturity .................................................................................. 1,720 1,960
-------- -------
Total Parent Company Debt............................................................. 76,720 76,960
-------- -------
Subsidiaries:
Federal Home Loan Bank advances with various interest payments and principal payments due at
various maturity dates through 2004 and interest rates ranging from 5.03% to 6.18% at
December 31, 1998............................................................................. 49,343 45,300
9.23% note payable, due October 31, 2003, with annual principal and interest payments........... 245 282
8.00% capital lease obligation payable, due in monthly principal and interest payments
through 2002.................................................................................. 173 211
Other notes payable and capital lease obligations payable, with a weighted average interest
rate of 3.55% maturing at various dates through 2000.......................................... 534 3,421
-------- -------
Total Subsidiaries Debt............................................................... 50,295 49,214
-------- -------
Total Long-Term Debt.................................................................. $127,015 126,174
======== =======
</TABLE>
The provisions of the loan and security agreements associated with some of
the promissory notes place certain restrictions, within specified limits, on
payments of cash dividends, issuance of additional debt, creation of liens upon
property, disposition of common stock or assets, and investments in
subsidiaries. As of December 31, 1998, Synovus and its subsidiaries were in
compliance with the covenants of the aforementioned loan and security
agreements.
The Federal Home Loan Bank advances are secured by certain mortgage loans
receivable as well as all of the stock of the Federal Home Loan Bank owned by
various Synovus bank affiliates.
Synovus has an unsecured line of credit, with an unaffiliated bank, for
$25 million with an interest rate of 50 basis points above the "short-term
index", as defined. There were no advances on this line of credit outstanding
at any time during the years ended December 31, 1998 or 1997.
Required annual principal payments on long-term debt for the five years
subsequent to December 31, 1998, are as follows:
<TABLE>
<CAPTION>
PARENT
(In thousands) COMPANY SUBSIDIARIES TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999...................................... $ 120 2,509 2,629
2000...................................... 120 26,339 26,459
2001...................................... 120 5,341 5,461
2002...................................... 120 5,318 5,438
2003...................................... 76,240 8,298 84,538
</TABLE>
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 INCOME TAXES
For the years ended December 31, 1998, 1997, and 1996, income tax expense
(benefit) consists of:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal......................................... $ 93,576 87,235 82,996
State........................................... 4,795 5,682 6,195
-------- ------ ------
98,371 92,917 89,191
-------- ------ ------
Deferred:
Federal......................................... 5,181 632 (8,005)
State........................................... 972 118 (1,478)
-------- ------ ------
6,153 750 (9,483)
-------- ------ ------
Total income tax expense...................... $104,524 93,667 79,708
======== ====== ======
</TABLE>
Income tax expense as shown in the consolidated statements of income
differed from the amounts computed by applying the U.S. Federal income tax
rate of 35% to pretax income as a result of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes at statutory federal income tax rate........ $102,071 90,616 76,759
Tax-exempt income................................. (2,739) (2,438) (2,859)
State income taxes, net of federal income
tax benefit...................................... 3,749 3,770 3,066
Minority interest................................. 3,696 3,200 2,657
Other, net........................................ (2,253) (1,481) 85
-------- ------ ------
Total income tax expense........................ $104,524 93,667 79,708
======== ====== ======
Effective tax rate.............................. 35.84% 36.18 36.34
======== ====== ======
</TABLE>
F-17
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The tax effects of temporary differences that gave rise to significant
portions of the deferred income tax assets and liabilities at December 31, 1998
and 1997 are presented below:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Provision for losses on loans........................................ $41,923 41,016
Other assets......................................................... 12,633 12,721
------- -------
Total gross deferred income tax assets.......................... 54,556 53,737
------- -------
Deferred income tax liabilities:
Computer Software development costs.................................. (17,210) (13,695)
Differences in depreciation.......................................... (7,653) (6,257)
Capitalization of mortgage servicing rights.......................... (7,172) (5,163)
Net unrealized gain on investment securities available for sale...... (6,850) (4,110)
Purchase accounting adjustments...................................... (1,873) (2,402)
Restricted stock awards.............................................. (495) (1,206)
Other liabilities.................................................... (5,473) (4,181)
------- -------
Total gross deferred income tax liabilities........................ (46,726) (37,014)
------- -------
Net deferred income tax assets.................................. $ 7,830 16,723
======= =======
</TABLE>
There was no valuation allowance for deferred tax assets at December 31,
1998 and 1997. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion of all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that Synovus will realize the
benefits of these deductible differences at December 31, 1998.
NOTE 8 EMPLOYEE BENEFIT PLANS
Synovus has various stock option plans under which the Compensation
Committee of the Board of Directors has the authority to grant options to key
Synovus employees. At December 31, 1998, Snyovus had 8,139,760 shares of its
authorized but unissued common stock reserved for future grants under the stock
option plans. The general terms of the existing stock option plans include
vesting periods ranging from two to three years and exercise periods ranging
from five to ten years. Such stock options are granted at exercise prices which
equal the fair market value of a share of common stock on the grant date.
On June 2, 1998, Snyovus granted 150 stock options to each employee for a
total of 1,246,650 stock options. The exercise price per share is equal to the
fair market value at the grant date of $22. The options are exercisable after
the price of the stock has doubled or after three years, whichever comes first.
Synovus applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, compensation expense for the 1998, 1997, and 1996 option plans
has not been recognized in the accompanying financial statements. However,
Synovus issued discounted options prior to 1995, the compensation cost of which
is not material.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A summary of the status of Synovus' stock option plans as of December 31,
1998, 1997, and 1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- --------------------------- -------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of period ...................... 12,935,897 $ 9.35 9,676,188 $ 5.96 7,614,891 $4.46
Options granted .................. 4,277,372 21.81 4,349,413 15.52 2,916,786 9.11
Options exercised ................ (978,199) 4.74 (1,020,627) 3.21 (795,666) 2.87
Options canceled ................. (135,977) 12.43 (69,077) 10.89 (59,823) 5.55
----------------------------------------------------------------------------------------------
Options outstanding at end of
period ....................... 16,099,093 12.55 12,935,897 9.35 9,676,188 5.96
==============================================================================================
Options exercisable at end of
period ....................... 6,044,417 $ 6.07 3,245,946 $ 4.32 2,627,832 $3.16
==============================================================================================
</TABLE>
The following is a summary of stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED
RANGE OF OPTIONS OPTIONS WEIGHTED AVERAGE EXERCISE PRICE- AVERAGE REMAINING
EXERCISE PRICES OUTSTANDING EXERCISABLE EXERCISE PRICE OPTIONS EXERCISABLE CONTRACTUAL LIFE
--------------- ----------- ----------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.35 - $ 7.10 4,958,309 4,660,970 $ 4.95 $ 4.88 3.6 years
$ 8.72 - $ 9.61 2,884,527 1,249,983 $ 9.11 $ 9.58 7.1 years
$14.28 - $22.81 8,256,257 133,464 $18.25 $14.47 7.3 years
</TABLE>
The per share weighted average fair value of stock options granted during
1998, 1997, and 1996 was $4.96, $4.29, and $4.15, respectively, using the Black
Scholes option-pricing model with the following weighted average assumptions:
expected life of 4 years, expected dividend yield of 1.3%, risk free interest
rate of 5.3%, and an expected volatility of 32%, for 1998. An expected life of 4
years, expected dividend yield of 1.4%, risk free interest rate of 6.5% and an
expected volatility of 22% were used for 1997 and 1996.
Had Synovus determined compensation expense based on the fair value at the
grant date for its stock options granted during the years 1995 through 1998
under SFAS No. 123, Synovus' net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in thousands):
As reported ...................................... $187,108 165,236 139,604
Pro forma ........................................ 179,056 160,778 137,650
Earnings per share- diluted:
As reported ...................................... .70 .62 .53
Pro forma ........................................ .66 .60 .52
</TABLE>
In addition to the stock options described above, Synovus has awarded
non-transferable, restricted shares of Synovus common stock to various key
executives under key executive restricted stock bonus plans. The market value of
the common stock at the date of issuance is included as a reduction of
shareholders' equity in the consolidated balance sheets and is amortized as
compensation expense using the straight-line method over the vesting period of
the awards. Aggregate compensation expense with respect to the foregoing Synovus
restricted stock awards was approximately $1,189,000, $1,856,000, and $1,090,000
in 1998, 1997, and 1996, respectively.
Summary information regarding outstanding restricted stock bonus plans at
December 31, 1998 is presented below:
<TABLE>
<CAPTION>
Year awards Market value
granted at award date Vesting period
------- ------------- --------------
<S> <C> <C>
1994 $ 870,000 5 years
1995 2,054,000 5 years
1996 3,771,000 5 years
1997 246,000 5 years
</TABLE>
TSYS has also awarded 1,438,800 non-transferable, restricted shares of its
common stock to various key executives under restricted stock bonus plans.
Compensation expense related to these restricted stock awards was approximately
$44,325, $357,800, and $456,619, in 1998, 1997, and 1996 respectively. These
awards were fully amortized during 1998.
F-19
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Synovus generally provides noncontributory, trusteed, money purchase,
profit sharing and 401(k) plans which cover all eligible employees. Annual
discretionary contributions to these plans are set each year by the respective
Boards of Directors of each subsidiary, but cannot exceed amounts allowable as a
deduction for federal income tax purposes. Aggregate contributions to these
money purchase, profit sharing, and 401(k) plans for the years ended December
31, 1998, 1997, and 1996 were $38,704,000, $30,795,000 and $30,125,000,
respectively.
Synovus has stock purchase plans for directors and employees whereby
Synovus makes contributions equal to one-half of employee and director
voluntary contributions. The funds are used to purchase outstanding shares of
Synovus common stock. TSYS has established director and employee stock
purchase plans, modeled after Synovus' plans except that the funds are used to
purchase outstanding shares of TSYS common stock. Synovus and TSYS contributed
$5,448,000, $4,664,000 and $3,960,000 to these plans in 1998, 1997 and 1996,
respectively.
Synovus has also entered into employment agreements with certain executive
officers for past and future services which provide for current compensation in
addition to salary in the form of deferred compensation payable at retirement
or in the event of death, total disability, or termination of employment. The
aggregate cost of these salary continuation plans and employment agreements was
not material to the consolidated financial statements.
Synovus provides certain medical benefits to qualified retirees through a
postretirement medical benefits plan. The benefit expense and accrued benefit
cost is not material to Synovus' consolidated financial statements.
NOTE 9 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying and estimated fair values of
Synovus' on-balance sheet financial instruments at December 31, 1998 and 1997.
The estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1998 1997
--------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS) VALUE FAIR VALUE VALUE FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.......................................... $ 348,365 348,365 388,134 388,134
Interest earning deposits with banks............................. 1,383 1,383 1,272 1,272
Federal funds sold............................................... 52,695 52,695 93,392 93,392
Mortgage loans held for sale..................................... 156,231 156,231 39,558 39,558
Investment securities available for sale......................... 1,514,054 1,514,054 1,325,036 1,325,036
Investment securities held to maturity........................... 303,613 309,716 330,137 335,107
Loans, net....................................................... 7,301,170 7,275,393 6,467,264 6,434,152
Purchased and originated mortgage servicing rights............... 27,953 28,890 20,137 27,931
Financial liabilities:
Non-interest bearing deposits.................................... 1,362,401 1,362,401 1,256,639 1,256,639
Interest bearing deposits........................................ 7,180,397 7,197,824 6,451,288 6,455,341
Federal funds purchased and securities sold under agreement
to repurchase................................................. 496,013 496,013 305,868 305,868
Long-term debt................................................... 127,015 128,622 126,174 125,420
</TABLE>
The carrying and estimated fair values relating to off-balance sheet
financial instruments are summarized in Note 10.
Cash and due from banks, interest earning deposits with banks, and federal
funds sold are repriced on a short-term basis; as such, the carrying value
closely approximates fair value.
The fair value of mortgage loans held for sale is based on quoted market
prices of comparable instruments.
The fair value of loans is estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type, such as commercial,
mortgage, home equity, credit card, and other consumer loans. Fixed rate
commercial loans are further segmented into certain collateral code groupings.
Commercial and other consumer loans with adjustable interest rates are assumed
to be at fair value. Mortgage loans are further segmented into fixed and
adjustable rate interest terms. Home equity and credit card loans have
adjustable interest rates and are, therefore, assumed to be at fair value. The
fair value of loans, except mortgage loans, is calculated by discounting
contractual cash flows using estimated market discount rates which reflect the
credit and interest rate risk inherent in the loan. For mortgage loans, fair
value is estimated by discounting contractual cash flows adjusted for certain
prepayment assumptions, estimated using discount rates based on secondary market
sources adjusted to reflect differences in servicing and credit costs.
In accordance with SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments", the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, interest bearing demand deposit
accounts, money market accounts, and savings accounts, is equal to the amount
payable on demand as of that respective date. The fair value of time deposits
is based on the discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for deposits of similar
remaining maturities.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short-term debt that matures within ten days is assumed to be at fair
value. The fair value of short-term and long-term debt with fixed interest
rates is calculated by discounting contractual cash flows using estimated
market discount rates.
NOTE 10 COMMITMENTS AND CONTINGENCIES
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Synovus is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers, reduce its own exposure to fluctuations in interest rates, and to
conduct lending activities. These financial instruments include commitments to
extend credit, standby and commercial letters of credit, commitments to sell
mortgage loans, and interest rate contracts. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amounts recognized in the consolidated financial statements.
Synovus' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit, and
standby and commercial letters of credit is represented by the contract amount
of those instruments. Synovus uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. For interest rate swap, collar, and floor agreements held at year
end, Synovus had insignificant credit risk.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, total commitment amounts do not necessarily
represent future cash requirements.
Loan commitments and letters of credit at December 31, 1998 include the
following:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------
<S> <C>
Standby letters of credit....................................... $ 326,076
Undisbursed construction loans.................................. 508,006
Unused credit card lines........................................ 709,344
Other loan commitments.......................................... 1,004,560
----------
Total........................................................ $2,547,986
==========
</TABLE>
Due to the short-term nature of the outstanding loan commitments, and the
likelihood that, when funded, these loans will be indexed to the then current
market rates, the off-balance sheet value closely approximates fair value.
At December 31, 1998, outstanding commitments to sell mortgage loans
amounted to approximately $150,000,000. Such commitments are entered into to
reduce Synovus' exposure to market risk arising from potential changes in
interest rates, which could affect the fair value of mortgage loans held for
sale and outstanding commitments to originate residential mortgage loans held
for sale. The commitments to sell mortgage loans are at fixed prices and are
scheduled to settle at specified dates which generally do not exceed 90 days.
The off-balance sheet value of outstanding commitments to sell mortgage loans
at December 31, 1998 closely approximated fair value.
Interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into off-balance sheet interest rate
contracts involves not only interest rate risk but also, the risk of
counterparties' failure to fulfill their legal obligations. Notional principal
amounts often are used to express the volume of these transactions, but the
amounts potentially subject to credit risk are much smaller.
The consolidated notional amount of interest rate swap, floor, and collar
contracts was $595,000,000 and $515,000,000 as of December 31, 1998 and 1997,
respectively, with a carrying amount of $280,000 and $415,000 at December 31,
1998 and 1997, respectively. The estimated net unrealized gain (loss) on these
interest rate contracts was $5,578,000 and $502,000 at December 31, 1998 and
1997, respectively.
The interest rate contracts are being utilized to hedge approximately
$773,500,000 in prime rate floating loans in Georgia and South Carolina.
F-21
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands) Weighted Weighted Weighted
Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
December 31, 1998 Amount Receive Rate Pay Rate(a)(b) In Months Gains Losses Gains (Losses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps - LIBOR $235,000 5.79% 5.33% 9 $1,220 (16) 1,204
Receive fixed forward starting
swaps - LIBOR 100,000 5.90% 5.07% 41 1,455 (16) 1,439
Receive fixed swaps - Prime 95,000 8.79% 7.75% 29 2,226 -- 2,226
-------- ---- ---- -- ------ -- -----
Total receive fixed swaps 430,000 6.48% 5.80% 21 4,901 32 4,869
-------- ---- ---- -- ------ -- -----
Weighted Weighted Weighted
Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
Amount Cap Rate Floor Rate In Months Gains Losses Gains (Losses)
- ----------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate collars 80,000 9.16% 7.91% 10 $ 256 -- 256
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate floors 85,000 7.87% 24 $ 453 -- 453
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $595,000 20 $5,610 32 5,578
======== ====== == =====
Weighted Weighted Weighted
Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
DECEMBER 31, 1997 Amount Receive Rate Pay Rate(a(b) In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Receive fixed swaps - LIBOR $255,000 5.84% 5.82% 24 $ 160 (1,072) (912)
Receive fixed forward
starting Swaps - LIBOR 25,000 7.12% 5.81% 46 388 -- 388
Received fixed swaps --
Prime 70,000 9.10% 8.50% 39 1,136 -- 1,136
-------- ---- ---- -- ------ ----- -----
Total receive fixed
swaps 350,000 6.59% 6.35% 28 1,684 (1,072) 612
-------- ---- ---- -- ------ ----- -----
Weighted Weighted Weighted
Notional Average Cap Average Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate Floor Rate In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate 80,000 9.16% 7.91% 22 -- (48) (48)
collars
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate
floors 85,000 7.87% 36 -- (62) (62)
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $515,000 29 $1,684 (1,182) 502
======== ====== ===== ===
</TABLE>
(a) Variable pay rate based upon contract rates in effect at December 31, 1998
and 1997
(b) Pay rate on forward starting swaps is based on the three month LIBOR at
December 31, 1998 and 1997.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASE COMMITMENTS
Synovus and its subsidiaries have entered into long-term operating
leases for various branch locations, corporate facilities, data processing
equipment, and furniture. Management expects that, as these leases expire,
they will be renewed or replaced by other leases. At December 31, 1998,
minimum rental commitments under all such noncancelable leases for the next
five years are as follows:
<TABLE>
<CAPTION>
Equipment
Real and
(In thousands) Property Furniture Total
- -----------------------------------------------------------------------
<S> <C> <C> <C>
1999............................. $ 8,888 70,793 79,681
2000............................. 10,161 66,709 76,870
2001............................. 8,615 32,171 40,786
2002............................. 6,783 8,896 15,679
2003............................. 2,172 953 3,125
</TABLE>
In 1997, TSYS entered into an operating lease agreement for TSYS' new
corporate campus. Under the agreement, which is guaranteed by Synovus, the
lessor is paying for the construction and development costs and has leased the
facilities to TSYS commencing upon its completion for a term of three years.
The lease provides for substantial residual value guarantees and includes
purchase options at the original cost of the property. The amount of the
residual value guarantees relative to the assets under this lease is
projected to be $87 million. The terms of this lease financing arrangement
include, among other things, that TSYS maintain certain minimum financial
ratios and requires TSYS and Synovus to provide certain information to the
lessor.
Rental expense on equipment, including cancelable leases, was $55,320,000,
$51,925,000, and $44,819,000 in 1998, 1997, and 1996, respectively. Rental
expense on facilities was $7,547,000, $7,124,000, and $6,920,000 in 1998, 1997,
and 1996, respectively.
CONTRACTUAL COMMITMENTS
In the normal course of its business, TSYS maintains processing contracts
with its customers. These processing contracts contain commitments, including,
but not limited to, minimum standards and time frames against which TSYS'
performance is measured. In the event TSYS does not meet its contractual
commitments with its customers, TSYS may incur penalties and/or certain
customers may have the right to terminate their contracts with TSYS. TSYS does
not believe that it will fail to meet its contractual commitments to an extent
that will result in a material adverse effect on its financial condition or
results of operations.
LEGAL PROCEEDINGS
Synovus is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Any litigation is vigorously defended by
Synovus and, in the opinion of management, based on consultation with external
legal counsel, any outcome of such litigation would not materially affect
Synovus' consolidated financial position or results of operations.
Currently, multiple lawsuits seeking class action treatment are pending
against one of Synovus' Alabama banking subsidiaries that involve: (1) payments
of service fees or interest rebates to automobile dealers in connection with the
assignment of automobile credit sales contracts to that Synovus subsidiary; (2)
the forced placement of insurance to protect that Synovus subsidiary's interest
in collateral for which consumer credit customers have failed to obtain or
maintain insurance; and (3) the receipt of commissions by that Synovus
subsidiary in connection with the sale of credit life insurance to its consumer
credit customers and the charging of an interest surcharge and a processing fee
in connection with consumer loans made by that subsidiary. These lawsuits seek
unspecified damages, including punitive damages. Synovus intends to vigorously
contest these lawsuits and all other litigation to which Synovus and its
subsidiaries are parties. Based upon information presently available, and in
light of legal, equitable, and factual defenses available to Synovus and it
subsidiaries, contingent liabilities arising from the threatened and pending
litigation are not considered material. It should be noted, however, that large
punitive damage awards bearing little relation to the actual damages sustained
by plaintiffs have been awarded in Alabama.
NOTE 11 SUPPLEMENTAL FINANCIAL DATA
Components of other operating income and expenses in excess of 1% of total
revenues for any of the respective years are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income associated with originating, servicing, and selling mortgage loans....... $21,302 10,663 8,671
Expenses:
Stationery, printing, and supplies.............................................. 28,133 25,913 24,104
</TABLE>
F-23
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 OPERATING SEGMENTS
Synovus has two reportable segments: banking operations and computerized
data processing. The banking operations segment is predominately involved in
commercial banking activities and also provides retail banking, trust, mortgage,
and brokerage services. The data processing segment consists of TSYS'
operations, which include credit, debit, commercial and private-label card
processing. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. 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 for the years ended December 31, 1998, 1997, and 1996
is presented below:
<TABLE>
<CAPTION>
BANKING DATA
(In thousands) OPERATIONS PROCESSING(c) ELIMINATIONS CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues...........................1998 $ 939,428 396,194 (4,401)(a) 1,331,221
................................1997 856,277 361,499 (2,857)(a) 1,214,919
................................1996 779,764 311,648 (2,731)(a) 1,088,681
Net interest income................1998 438,033 2,493 -- 440,526
................................1997 410,075 2,315 -- 412,390
................................1996 373,458 1,416 -- 374,874
Income before taxes................1998 220,404 81,787 (10,559)(b) 291,632
................................1997 196,490 71,556 (9,143)(b) 258,903
................................1996 166,460 60,444 (7,592)(b) 219,312
Income tax expense.................1998 77,568 26,956 -- 104,524
................................1997 69,589 24,078 -- 93,667
................................1996 58,701 21,007 -- 79,708
Net income.........................1998 142,836 54,831 (10,559)(b) 187,108
................................1997 126,901 47,478 (9,143)(b) 165,236
................................1996 107,759 39,437 (7,592)(b) 139,604
Total assets.......................1998 10,160,062 348,908 (10,961)(d) 10,498,009
................................1997 9,036,968 296,858 (73,495)(d) 9,260,331
................................1996 8,415,536 245,759 (48,951)(d) 8,612,344
</TABLE>
(a) Principally, data processing service revenues provided to the banking
segment.
(b) Minority interest in the data processing segment.
(c) Includes equity in income of joint ventures which is included in other
operating income.
(d) Primarily TSYS' cash deposits with the banking operations segment.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13 CONDENSED FINANCIAL INFORMATION OF SYNOVUS FINANCIAL CORP.
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash................................................................................. $ 5,025 5.025
Investment in consolidated bank subsidiaries, at equity (including TSYS)............. 1,093,343 931,250
Investment in consolidated nonbank subsidiaries, at equity........................... 31,682 6,581
Notes receivable from subsidiaries................................................... 21,463 35,717
Other assets......................................................................... 29,386 27,343
---------- ---------
Total assets................................................................... $1,180,899 1,005,916
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt....................................................................... $ 76,720 76,960
Other liabilities.................................................................... 33,578 25,300
---------- ---------
Total liabilities.............................................................. 110,298 102,260
---------- ---------
Shareholders' equity:
Common stock..................................................................... 270,394 262,983
Surplus.......................................................................... 42,006 17,777
Less treasury stock.............................................................. (1,285) (1,285)
Less unamortized restricted stock................................................ (2,545) (3,734)
Accumulated other comprehensive income........................................... 10,216 5,700
Retained earnings................................................................ 751,815 622,215
---------- ---------
Total shareholders' equity..................................................... 1,070,601 903,656
---------- ---------
Total liabilities and shareholders' equity..................................... $1,180,899 1,005,916
========== =========
</TABLE>
F-25
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from bank subsidiaries (including TSYS)......................... $120,321 97,376 61,925
Management fees.................................................................... 1,871 1,806 1,642
Interest income.................................................................... 2,237 1,853 1,678
Other income....................................................................... 5,684 2,394 3,144
-------- ------- -------
Total income.................................................................... 130,113 103,429 68,389
-------- ------- -------
Expenses:
Interest expense................................................................... 4,774 4,785 4,818
Other expenses..................................................................... 24,651 23,718 25,129
-------- ------- -------
Total expenses.................................................................. 29,425 28,503 29,947
-------- ------- -------
Income before income taxes and equity in undistributed income of subsidiaries... 100,688 74,926 38,442
Allocated income tax benefit........................................................... (8,538) (9,086) (9,526)
-------- ------- -------
Income before equity in undistributed income of subsidiaries.................... 109,226 84,012 47,968
Equity in undistributed income of subsidiaries......................................... 77,882 81,224 91,636
-------- ------- -------
Net income...................................................................... $187,108 165,236 139,604
======== ======= =======
</TABLE>
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................................... $187,108 165,236 139,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries............................. (77,882) (81,224) (91,636)
Net income of equity method investment....................................... (157) (44) (92)
Depreciation, amortization, and accretion, net............................... 1,309 847 768
Net (decrease) increase in other liabilities................................. (1,301) (2,729) 3,930
Net decrease (increase) in other assets..................................... 3,590 (6,833) 1,762
-------- --------- ---------
Net cash provided by operating activities.................................. 112,667 75,253 54,336
-------- --------- ---------
INVESTING ACTIVITIES
Net investment in subsidiaries................................................... (52,733) (5,093) (9,821)
Net (increase) decrease in notes receivable from subsidiaries.................... -- (700) (1,021)
Net decrease (increase) in short-term notes receivable from subsidiaries......... 14,254 (8,392) 3,261
Purchase of premises and equipment, net.......................................... (1,111) (190) (396)
-------- --------- ---------
Net cash used in investing activities...................................... (39,590) (14,375) (7,977)
-------- --------- ---------
FINANCING ACTIVITIES
Dividends paid to shareholders................................................... (73,927) (59,992) (48,745)
Principal repayments on long-term debt........................................... (4,289) (240) (240)
Purchase of treasury stock....................................................... -- -- (263)
Proceeds from issuance of common stock........................................... 5,139 4,354 2,867
-------- --------- ---------
Net cash used in financing activities...................................... (73,077) (55,878) (46,381)
-------- --------- ---------
Increase (decrease) in cash........................................................ -- 5,000 (22)
Cash at beginning of period........................................................ 5,025 25 47
-------- -------- ---------
Cash at end of period.............................................................. $ 5,025 5,025 25
======== ========= =========
</TABLE>
For the years ended December 31, 1998, 1997, and 1996, the Parent Company
paid income taxes of $91 million, $93 million, and $90 million, and interest in
the amounts of $5 million each year.
The amount of dividends paid to the Parent Company from each of the
subsidiary banks is limited by various banking regulatory agencies. The amount
of cash dividends available from subsidiary banks for payment in 1999, in the
aggregate, without prior approval from the banking regulatory agencies, is
approximately $92,855,000. In prior years, Synovus' banks have received
permission and have paid cash dividends to the Parent Company in excess of these
regulatory limitations.
Synovus is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Synovus'
consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Synovus must meet specific
capital guidelines that involve quantitative measures of Synovus' assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. Synovus' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Synovus, on a consolidated basis, and the Parent Company and subsidiary
banks, individually, to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets as defined, and of Tier 1 capital to average
assets, as defined. Management believes, as of December 31, 1998, that Synovus
meets all capital adequacy requirements to which it is subject.
F-27
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
As of December 31, 1998, the most recent notification from The Federal
Reserve Bank of Atlanta categorized the significant Synovus subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized Synovus and its subsidiaries must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table below. Management is not aware of the existence of any
conditions or events occurring subsequent to December 31, 1998 which would
affect Synovus' or its subsidiaries' well capitalized classifications.
Actual capital amounts and ratios for Synovus are presented in the table
below on a consolidated basis and for each significant subsidiary, as defined.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
(Amounts in thousands) ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------- ------------------- ---------------------
DECEMBER 31, 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SYNOVUS FINANCIAL CORP.
Tier I capital.........................$ 1,077,542 903,468 345,483 292,770 N/A N/A
Total risk-based capital............... 1,187,261 997,061 690,966 585,540 N/A N/A
Tier I capital ratio................... 12.48% 12.34 4.00 4.00 N/A N/A
Total risk-based capital ratio......... 13.75 13.62 8.00 8.00 N/A N/A
Leverage ratio......................... 10.76 10.02 4.00 4.00 N/A N/A
COLUMBUS BANK AND TRUST COMPANY
Tier I capital.........................$ 428,655 353,106 84,732 72,420 127,098 108,630
Total risk-based capital............... 446,192 371,986 169,463 144,840 211,829 181,050
Tier I capital ratio................... 20.24% 19.50 4.00 4.00 6.00 6.00
Total risk-based capital ratio......... 21.06 20.55 8.00 8.00 10.00 10.00
Leverage ratio......................... 21.22 18.26 4.00 4.00 5.00 5.00
THE NATIONAL BANK OF SOUTH CAROLINA
Tier I capital.........................$ 111,129 102,739 47,474 42,620 71,212 63,930
Total risk-based capital............... 125,996 116,075 94,949 85,240 118,686 106,550
Tier I capital ratio................... 9.36% 9.64 4.00 4.00 6.00 6.00
Total risk-based capital ratio......... 10.62 10.89 8.00 8.00 10.00 10.00
Leverage ratio......................... 8.02 8.00 4.00 4.00 5.00 5.00
</TABLE>
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 EARNINGS PER SHARE
The following table displays a reconciliation of the information used in
calculating basic earnings per share and diluted earnings per share for the
years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ----------------------------- -----------------------------
NET AVERAGE NET INCOME NET AVERAGE NET INCOME NET AVERAGE NET INCOME
(In thousands, except per share data) INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net Income....................... $187,108 264,666 $.71 $165,236 262,221 $.63 $139,604 261,299 $.53
Effect of dilutive options....... -- 4,485 -- 3,444 -- 2,535
-------- ------- -------- ------- -------- -------
DILUTED EPS.......................... $187,108 269,151 $.70 $165,236 265,665 $.62 $139,604 263,834 $.53
======== ======= ==== ======== ======= ==== ======== ======= ====
</TABLE>
Options to purchase 10,000 shares of common stock at $22.81 per share were
outstanding during the fourth quarter of 1998 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares.
Options to purchase 1,328,936 shares of common stock at $18.37 per share
were outstanding during the second half of 1997 but were not included in the
computation of diluted earnings per share during such period because the
options' exercise price was greater than the average market price of the
common shares.
NOTE 15 OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended
December 31, 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------- ----------------------------------- -----------------------------------
BEFORE-TAX TAX EXPENSE NET OF TAX BEFORE-TAX TAX EXPENSE NET OF TAX BEFORE-TAX TAX EXPENSE NET OF TAX
(In thousands) AMOUNT OR BENEFIT AMOUNT AMOUNT OR BENEFIT AMOUNT AMOUNT OR BENEFIT AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net unrealized
gains/losses on
investment
securities
available
for sale:
Unrealized gains
(losses) arising
during the year.. $ 8,478 (3,264) 5,214 10,974 (4,225) 6,749 (9,746) 3,752 (5,994)
Reclassification
adjustment for
(gains) losses
realized in net
income........... (1,299) 500 (799) 23 (9) 14 176 (68) 108
------- ------ ----- ------ ------ ----- ------ ----- ------
Net unrealized
gains (losses)... 7,179 (2,764) 4,415 10,997 (4,234) 6,763 (9,570) 3,684 (5,886)
Foreign currency
translation
adjustments...... 1 - 1 - - - (101) - (101)
------- ------ ----- ------ ------ ----- ------ ----- ------
Other comprehensive
income............ $ 7,180 (2,764) 4,416 10,997 (4,234) 6,763 (9,671) 3,684 (5,987)
======= ====== ===== ====== ====== ===== ====== ===== ======
</TABLE>
F-29
303 Peachtree Street, N.E.
[KPMG LOGO] Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Synovus Financial Corp.:
We have audited the accompanying consolidated balance sheets of Synovus
Financial Corp. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income changes in shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of
Synovus' management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Synovus
Financial Corp. and subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
January 11, 1999
F-30
FINANCIAL HIGHLIGHTS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
PERCENT
YEARS ENDED DECEMBER 31, 1998 1997 CHANGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE SHEETS
Assets..................................... $10,498,009 $9,260,331 13.4%
Loans, net................................. 7,301,170 6,467,264 12.9
Deposits................................... 8,542,798 7,707,927 10.8
Shareholders' equity....................... 1,070,601 903,656 18.5
Book value per share....................... 3.96 3.44 15.1
Cash dividends declared per share.......... .29 .24 20.8
Shareholders' equity to assets............. 10.20% 9.76
Reserve for loan losses to loans........... 1.50 1.57
- -----------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
Net income................................. $ 187,108 $ 165,236 13.2%
Net income per share -- basic.............. .71 .63 12.2
Net income per share -- diluted............ .70 .62 11.8
- -----------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on assets........................... 1.96% 1.87
Return on equity........................... 19.18 19.80
Net interest margin........................ 5.22 5.26
Net overhead ratio......................... 1.19 1.27
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-31
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
FINANCIAL REVIEW
SUMMARY
Synovus Financial Corp. (Synovus) has continued to improve its performance
making 1998 the most successful year in its history. Net income for 1998 was
$187.1 million, an increase of 13.2% over 1997 net income of $165.2 million.
Diluted net income per share increased to $0.70 in 1998, up 11.8% over $0.62 per
share in 1997. Return on assets continued to improve in 1998 increasing 9 basis
points to 1.96%, compared to 1.87% in 1997. Return on equity was 19.18% in 1998,
compared to 19.80% in 1997.
These record results are attributable to the strong performance of Synovus'
banking operations and Total System Services, Inc. (TSYS), Synovus' 80.7 percent
owned subsidiary. TSYS provides bankcard data processing and related services to
banks and other issuing institutions.
Synovus' banking operations results, which exclude TSYS, continued to
improve during 1998. Banking operations' net income increased 12.6% to $142.8
million, from $126.9 million in 1997. Return on assets for the year was 1.54%,
and return on equity was 18.32%, compared to 1.48% and 18.80% for 1997,
respectively.
TSYS' net income for 1998 was $54.8 million, up 15.5%, over $47.5 million
in 1997.
Synovus' total assets ended the year at $10.5 billion, a growth rate of
13.4% for 1998, resulting from net loan growth of $833.9 million, or 12.9%. This
asset growth was primarily funded by a $834.9 million, or 10.8%, increase in
total deposits. The increases in both loans and deposits reflect the continued
strength of the regional economy as well as market share gains. Shareholders'
equity grew 18.5% to $1.1 billion, which represented 10.2% of total assets.
During 1998, Synovus completed three bank acquisitions which were accounted
for as poolings of interests; however, financial information preceding the dates
of acquisition have not been restated since the effect was not material.
Included in 1998 net income is $3.2 million related to these acquisitions. The
acquisitions also contributed to the balance sheet growth, representing $581.0
million, $413.3 million, and $531.9 million, of the total increase in assets,
net loans, and deposits, respectively, for the year ended December 31, 1998.
On April 23, 1998, Synovus declared a three-for-two stock split effected
May 21, 1998, to shareholders of record on May 7, 1998. All share, per share,
and shareholders' equity amounts for all periods presented have been restated to
reflect the additional shares outstanding resulting from the stock split.
The following discussion reviews the results of operations and assesses the
financial condition of Synovus. This discussion should be read in conjunction
with the preceding consolidated financial statements and accompanying notes.
<TABLE>
<CAPTION>
Table I
FIVE YEAR SELECTED FINANCIAL DATA (Amounts in thousands, except per share data)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996(b) 1995 1994
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income................................................. $ 440,526 412,389 374,874 341,875 301,231
Provision for losses on loans....................................... 26,660 32,296 31,766 25,787 25,387
Non-interest income................................................. 561,973 489,246 425,378 340,834 274,332
Non-interest expense................................................ 684,207 610,436 549,174 477,453 411,250
Net income.......................................................... 187,108 165,236 139,604 114,583 89,452
Per share data:
Net income - basic............................................. .71 .63 .53 .44 .35
Net income - diluted........................................... .70 .62 .53 .44 .35
Cash dividends declared........................................ .29 .24 .19 .16 .13
Investment securities............................................... 1,817,667 1,655,173 1,639,091 1,487,216 1,337,702
Loans, net of unearned income....................................... 7,411,992 6,570,314 6,028,194 5,487,167 5,065,411
Deposits............................................................ 8,542,798 7,707,927 7,203,035 6,727,879 5,924,603
Long-term debt...................................................... 127,015 126,174 97,283 106,815 139,811
Average total shareholders' equity.................................. 975,737 834,726 730,541 639,426 566,562
Average total assets................................................ 9,529,096 8,815,423 8,135,587 7,498,299 6,782,659
Ratios:
Return on assets............................................... 1.96% 1.87 1.72 1.53 1.32
Return on equity............................................... 19.18 19.80 19.11 17.92 15.79
Dividend payout ratio (a)...................................... 41.52 38.10 36.62 36.69 36.90
Average shareholders' equity to average assets................. 10.24 9.47 8.98 8.53 8.35
</TABLE>
(a) Determined by dividing dividends declared by net income, including pooled
subsidiaries.
(b) 1996 selected financial data reflects the impact of the
special FDIC assessment. Without the special FDIC assessment, net income
would have been $142,400 and net income per share (basic and diluted) would
have been $.55.
F-32
ACQUISITIONS
During 1998, Synovus completed three bank acquisitions in fast growing
communities north of Atlanta: Bank of North Georgia in Alpharetta; Bank of
Georgia in Watkinsville; and Georgia Bank & Trust in Calhoun. These
acquisitions added $581 million in assets and have expanded our geographic
footprint in the Atlanta suburbs.
A list of the bank acquisitions completed during the past three years
follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
Total Shares Accounting
Company and Location Date Assets Issued Treatment
--------------------- ----------------- -------- --------- ----------------------
<S> <C> <C> <C> <C>
Georgia Bank & Trust --
Calhoun, Georgia December 18, 1998 $178,000 1,811,058 Pooling (Non-restated)
Bank of Georgia --
Watkinsville, Georgia November 30, 1998 $ 55,000 850,269 Pooling (Non-restated)
Bank of North Georgia --
Alpharetta, Georgia September 1, 1998 $348,000 3,774,531 Pooling (Non-restated)
Two Branches --
Rome, Georgia October 24, 1996 $ 46,464 N/A Purchase
</TABLE>
This information is discussed in further detail in Note I of the financial
statements.
TABLE 2
NET INTEREST INCOME
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Interest income................................................. $769,248 $725,673 $663,303
Taxable-equivalent adjustment................................... 4,541 4,418 4,595
-------- -------- --------
Interest income, taxable-equivalent.......................... 773,789 730,091 667,898
Interest expense................................................ 328,722 313,284 288,429
-------- -------- --------
Net interest income, taxable-equivalent...................... $445,067 $416,807 $379,469
======== ======== ========
</TABLE>
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST INCOME
Average total assets for 1998 were $9.5 billion, or 8.1% over 1997 average
total assets of $8.8 billion. Average earning assets for 1998 were $8.5
billion, which represented 89.6% of average total assets. A $575.5 million, or
7.9%, increase in average deposits for 1998 provided the primary funding for a
$494.2 million, or 8.0%, increase in average net loans. Average shareholders'
equity for 1998 was $975.7 million.
For 1997, average total assets increased $679.8 million, or 8.4%. Average
earning assets for 1997 were $7.9 billion, which represented 89.9% of average
total assets. For more detailed information on Synovus' average balance sheets
for the years ended 1998, 1997, and 1996, refer to Table 3.
Net interest income (interest income less interest expense) is a major
component of Synovus' net income, representing the earnings of Synovus' primary
business of gathering funds from deposit sources and investing those funds in
loans and securities. Synovus' long term objective is to manage those assets
and liabilities to provide the largest possible amount of income while
balancing interest rate, credit, liquidity, and capital risks.
Net interest income is presented in this discussion on a tax-equivalent
basis, so that the income from assets exempt from federal income taxes is
adjusted based on a statutory marginal federal tax rate of 35% in all years (See
Table 2). The net interest margin is defined as taxable-equivalent net interest
income divided by average total interest earning assets and provides an
indication of the efficiency of the earnings from balance sheet activities. The
net interest margin is affected by changes in the spread between interest
earning asset yields and interest bearing liability costs (spread rate), and by
the percentage of interest earning assets funded by non-interest bearing
liabilities.
Net interest income for 1998 was a record $440.5 million, up $28.1
million, or 6.8%, from 1997. On a taxable-equivalent basis, net interest income
was $445.0 million, up $28.3 million, or 6.8%, over 1997. During 1998, average
interest earning assets increased $606.7 million, or 7.7%, with the majority of
this increase attributable to loan growth. Increases in the level of time,
money market, and interest-bearing demand deposits were the main contributor
to the $410.1 million, or 6.2%, growth in average interest bearing liabilities.
Average interest earning assets and interest bearing liabilities of $132.8
million and $117.9 million, respectively, were acquired in connection with the
1998 acquisitions.
The 5.22% net interest margin achieved in 1998 is a 4-basis-point decrease
over the 5.26% reported for 1997. This decease is the result of lower loan and
investment yields partially offset by a lower cost of funds. Lower loan yields
resulted primarily from a lower average prime rate for 1998. Another influence
impacting the net interest margin is the percentage of earning assets funded by
non-interest bearing liabilities. Funding for Synovus' earning assets comes
from interest bearing liabilities, non-interest bearing liabilities, and
shareholders' equity. Earning assets funded by non-interest bearing liabilities
continue to provide a positive impact on the net interest margin.
During 1997, net interest income and tax-equivalent net interest income
increased 10.0% and 9.8%, respectively. Average interest earning assets grew
8.5% while interest bearing liabilities increased 7.9%. This growth, along with
a 7-basis-point improvement in the net interest margin to 5.26% from 5.19%,
contributed to Synovus' earnings. This increase was a result of higher
investment yields, loan grown, increased loan yields and a relatively flat cost
of funds. The net interest margin also increased as a result of a 6.1% increase
in average non-interest bearing demand deposits.
F-33
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
- --------------------------------------------------------------------------------
TABLE 3
CONSOLIDATED AVERAGE BALANCES, INTEREST, AND YIELDS
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
------------------------------------ --------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS:
Taxable loans, net(a)(b)................ $6,777,083 652,961 9.63% $6,272,499 $613,506 9.78%
Tax-exempt loans, net(a)(b)(c).......... 31,725 3,089 9.74 32,965 3,447 10.46
Reserve for loan losses................. (104,830) -- -- (95,648) -- --
---------- -------- ---------- --------
Loans, net............................. 6,703,978 656,050 9.79 6,209,816 616,953 9.94
---------- -------- ---------- --------
Taxable investment securities(d)........ 1,528,262 97,580 6.39 1,535,060 98,806 6.44
Tax-exempt investment securities(c)(d).. 140,139 11,049 7.88 115,284 9,805 8.51
---------- -------- ---------- --------
Total investment securities........... 1,668,401 108,629 6.51 1,650,344 108,611 6.58
---------- -------- ---------- --------
Interest earning deposits with banks.... 896 50 5.58 1,394 73 5.24
Federal funds sold...................... 65,574 3,558 5.43 32,053 2,086 6.51
Mortgage loans held for sale............ 95,699 5,502 5.75 34,223 2,368 6.92
---------- -------- ---------- --------
Total interest earning assets......... 8,534,548 773,789 9.07 7,927,830 730,091 9.21
---------- -------- ---- ---------- -------- --
Cash and due from banks................... 309,906 310,437
Premises and equipment, net............... 325,233 259,908
Other real estate......................... 9,683 11,093
Other assets(e)........................... 349,726 306,155
---------- ----------
Total assets.......................... $9,529,096 $8,815,423
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits........ $1,162,355 29,000 2.49 $1,055,227 27,343 2.59
Money market accounts................... 1,409,032 61,543 4.37 1,216,729 53,126 4.37
Savings deposits........................ 450,568 11,098 2.46 458,362 11,923 2.60
Time deposits........................... 3,614,943 204,634 5.66 3,455,046 194,868 5.64
Federal funds purchased and
securities sold under agreement
to repurchase......................... 302,980 15,003 4.95 349,929 18,836 5.38
Other borrowed funds.................... 126,318 7,444 5.89 120,759 7,188 5.95
---------- -------- ---------- --------
Total interest bearing liabilities.... 7,066,196 328,722 4.65 6,656,052 313,284 4.70
---------- -------- ---- ---------- -------- -----
SPREAD RATE........................... 4.42% 4.51%
==== =====
Non-interest bearing demand deposits...... 1,264,027 1,140,107
Other liabilities......................... 223,136 184,538
Shareholders' equity...................... 975,737 834,726
---------- ----------
Total liabilities and
shareholders' equity................ $9,529,096 $8,815,423
========== ==========
NET INTEREST INCOME/MARGIN................ 445,067 5.22% 416,807 5.26%
==== =====
Taxable-equivalent adjustment............. (4,541) (4,418)
-------- --------
Net interest income, actual............... $440,526 $412,389
======== ========
<CAPTION>
1996
------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ------
<S> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS:
Taxable loans, net(a)(b)................ $5,722,153 $557,984 9.75%
Tax-exempt loans, net(a)(b)(c).......... 33,719 3,589 10.64
Reserve for loan losses................. (87,046) -- --
---------- -------- -----
Loans, net............................. 5,668,826 561,573 9.91
---------- --------
Taxable investment securities(d)........ 1,462,733 92,404 6.32
Tax-exempt investment securities(c)(d).. 111,886 10,171 9.09
---------- --------
Total investment securities........... 1,574,619 102,575 6.51
---------- --------
Interest earning deposits with banks.... 1,221 59 4.83
Federal funds sold...................... 35,213 1,866 5.30
Mortgage loans held for sale............ 27,946 1,825 6.53
---------- --------
Total interest earning assets......... 7,307,825 667,898 9.14
---------- -------- -----
Cash and due from banks................... 312,997
Premises and equipment, net............... 234,351
Other real estate......................... 11,527
Other assets(e)........................... 268,887
----------
Total assets.......................... $8,135,587
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits........ $ 940,303 23,440 2.49
Money market accounts................... 1,034,336 41,011 3.96
Savings deposits........................ 469,714 12,305 2.62
Time deposits........................... 3,333,501 190,593 5.72
Federal funds purchased and
securities sold under agreement
to repurchase......................... 288,107 14,973 5.20
Other borrowed funds.................... 101,289 6,107 6.03
---------- --------
Total interest bearing liabilities.... 6,167,250 288,429 4.67
---------- -------- -----
SPREAD RATE........................... 4.47%
=====
Non-interest bearing demand deposits...... 1,074,676
Other liabilities......................... 163,120
Shareholders' equity...................... 730,541
----------
Total liabilities and
shareholders' equity................ $8,135,587
==========
NET INTEREST INCOME/MARGIN................ 379,469 5.19%
=====
Taxable-equivalent adjustment............. (4,595)
--------
Net interest income, actual............... $374,874
========
</TABLE>
(a) Average loans are shown net of unearned income. Nonperforming loans are
included.
(b) Interest income includes loan fees as follows: 1998 - $29,380,
1997 - $25,744, 1996 - $23,929
(c) Reflects taxable-equivalent adjustments, using the statutory federal income
tax rate of 35%, in adjusting interest on tax-exempt loans and investment
securities to a taxable-equivalent basis.
(d) Includes certain investment securities available for sale, at their
respective average amortized cost. For the years ended December 31, 1998,
1997, and 1996, the average amortized cost of these securities amounted to
$1,338,229, $1,308,234, and $1,206,522 respectively.
(e) In 1998, there was a $15,835 average net unrealized gain on investment
securities available for sale. In 1997 and 1996, there were $974, and
$3,370, respectively, of average net unrealized losses on investment
securities available for sale.
F-34
- --------------------------------------------------------------------------------
TABLE 4
RATE/VOLUME ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
-------------------------- -----------------------
CHANGE DUE TO (a) CHANGE DUE TO (a)
-------------------------- -----------------------
YIELD/ NET YIELD/ NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Taxable loans, net............................... $49,354 (9,899) 39,455 53,666 1,856 55,522
Tax-exempt loans, net (b)........................ (130) (228) (358) (80) (62) (142)
Taxable investment securities.................... (438) (788) (1,226) 4,569 1,833 6,402
Tax-exempt investment securities (b)............. 2,114 (870) 1,244 309 (675) (366)
Interest earning deposits with banks............. (27) 4 (23) 8 6 14
Federal funds sold............................... 2,182 (710) 1,472 (167) 387 220
Mortgage loans held for sale..................... 4,254 (1,120) 3,134 410 133 543
------- ------- ------ ------ ------ ------
Total interest income....................... 57,309 (13,611) 43,698 58,715 3,478 62,193
------- ------- ------ ------ ------ ------
Interest paid on:
Interest bearing demand deposits................. 2,776 (1,119) 1,657 2,865 1,038 3,903
Money market accounts............................ 8,397 20 8,417 7,232 4,883 12,115
Savings deposits................................. (203) (622) (825) (297) (85) (382)
Time deposits.................................... 9,019 747 9,766 6,949 (2,673) 4,276
Federal funds purchased and securities sold under
agreement to repurchase..................... (2,527) (1,306) (3,833) 3,213 650 3,863
Other borrowed funds............................. 331 (75) 256 1,174 (93) 1,081
------- ------- ------ ------ ------ ------
Total interest expense...................... 17,793 (2,355) 15,438 21,136 3,720 24,856
------- ------- ------ ------ ------ ------
Net interest income......................... $39,516 (11,256) 28,260 37,579 (242) 37,337
======= ======= ====== ====== ====== ======
</TABLE>
(a) The change in interest due to both rate and volume has been allocated to the
rate component.
(b) Reflects taxable-equivalent adjustments using the statutory federal income
tax rate of 35% in adjusting interest on tax-exempt loans and investment
securities to a taxable-equivalent basis.
NON-INTEREST INCOME
Non-interest income consists of a wide variety of fee generating services
viewed as traditional banking services as well as those revenues earned by TSYS.
During 1998, total non-interest income increased $72.7 million, or 14.9%.
Revenues from bankcard data processing services offered by TSYS were the largest
contributor increasing $31.4 million, or 9.1%, over 1997. Service charges on
banking operations' deposit accounts increased $5.6 million, or 9.9% in 1998.
Fees for trust services increased $2.7 million, or 21.3%, over 1997. Other
operating income increased $29.2 million, or 44.6%, in 1998 with increases in
mortgage revenues of $10.6 million, credit card servicing fees of $4.8 million,
brokerage revenues of $1.8 million, and TSYS' equity in income of joint ventures
of $3.6 million. Additionally, other operating income for 1998 included a $2.4
million gain from the sale of a corporate investment. Included in the components
of non-interest income for 1998 is $3.5 million related to the 1998 bank
acquisitions.
TSYS contributed approximately 70% of Synovus' total non-interest income in
1998 with the majority of it reported as data processing services income. TSYS'
revenues are derived from providing bankcard data processing and related
services to banks and other institutions under long-term processing contracts.
TSYS' services are provided to financial institutions and other organizations
throughout the United States, Mexico, Puerto Rico, Canada and the Caribbean.
These services are provided through TSYS' cardholder systems, TS (2) and TS (1).
Data processing services revenues are generated primarily from charges based on
the number of accounts billed, transactions and authorizations processed,
credit bureau requests, credit cards embossed and mailed, and other processing
services for cardholder accounts on file at TSYS. Cardholder accounts on file
include active and inactive issuer, private label, and commercial card accounts.
Due to the expanding use of bankcards and the increase in the number of
cardholder accounts processed by TSYS, as well as increases in the scope of
services offered, revenues relating to bankcard data processing services have
continued to grow. Processing contracts with large customers, representing a
significant portion of TSYS' total revenues, generally provide for discounts on
certain services based on increases in the level of cardholder accounts
processed. As a result, bankcard data processing revenues and the related
margins are influenced by the customer mix relative to the size of customer
bankcard portfolios, as well as the number and activity of individual cardholder
accounts processed for each customer.
The average number of TSYS' cardholder accounts on file increased 15.9% to
101.1 million in 1998, compared to 87.2 million in 1997, which represented a
21.1% increase over 72.0 million in 1996. At December 31, 1998, TSYS' cardholder
accounts on file were approximately 117.6 million, up from 92.8 million and
79.4 million at December 31, 1997 and 1996, respectively.
The increase in cardholder accounts on file at December 31, 1998, as
compared to December 31, 1997, was the result of new customers, portfolio
acquisitions, and the internal growth of existing customers. Approximately 13.3
million accounts added during 1998 were due to new customers and portfolio
acquisitions by existing customers.
F-35
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
A significant amount of TSYS' revenues are derived from long-term
contracts with large customers, including certain major customers. Two of TSYS'
customers, NationsBank and Bank of America, merged effective September 30, 1998
The new parent company of these entities is BankAmerica Corporation. Both
customers were converted to TS2 during 1997. TSYS has long-term processing
contracts with each of these customers, with NationsBank's ending in 2005 and
Bank of America ending in 2007. TSYS is in the process of assessing implications
of the merger on the existing contracts with each customer. The combination of
NationsBank and Bank of America under a single processing agreement with TSYS
will reduce TSYS' revenues in 1999 and future years because together NationsBank
and Bank of America will be entitled to receive greater discounts than either
would have been entitled to receive standing alone. BankAmerica Corporation
accounted for approximately 21%,20% and 13% of total revenues for the years
ended December 31, 1998, 1997, and 1996, respectively. The loss of BankAmerica
Corporation, or other major or significant customers, could have a material
adverse effect on TSYS' financial condition and results of operations.
Near the end of the first quarter of 1998, AT&T completed the sale of
its Universal Card Services (UCS) to Citibank, now a part of Citigroup after
Citibank's merger with Travelers Group, Inc. Citigroup accounted for
approximately 13%, 15%, and 17% of TSYS' total revenues for the years ended
December 31, 1998, 1997, and 1996, respectively. On February 26, 1999, Citigroup
notified TSYS of its decision to terminate UCS' processing agreement with TSYS
for consumer credit card accounts at the end of its original term on August 1,
2000. Consumer credit card accounts represented 11.4% of total revenues derived
by TSYS from Citigroup for the year ended December 31, 1998. TSYS' management
believes that Citigroup will continue to be a major customer in 1999, but will
not be a major customer in 2000, and that the loss of revenues from UCS for the
months of August through December 2000, should not have a material adverse
effect on TSYS' financial condition or results of operations for the year
ending December 31, 2000.
In May 1998, TSYS announced the signing of a long-term processing
agreement with Sears, Roebuck and Co. to convert and process its 65 million
private label accounts. TSYS successfully converted the first 7.2 million of
these accounts to TS2 in October 1998. The conversion of the remainder of these
accounts is anticipated to be completed during 1999.
Synovus continues to emphasize the importance of growth in
non-interest related sources of income in its banking operations via The New
Bank initiatives. Designed to identify and integrate the people, programs, and
systems Synovus will need for the 21st century, this vital strategy
incorporates new technologies, new products and services, and will position
Synovus to deliver even greater service to its customers and, ultimately,
increased value to its shareholders. Non-interest income for Synovus' banking
operations increased $35.9 million, or 29.3%, in 1998 and $12.8 million, or
11.7%, in 1997.
Service charges on deposit accounts have historically been one of the
primary sources of other income for Synovus' banking operations. In 1998,
service charges on deposit accounts increased $5.6 million, or 9.9%, primarily
as a result of increases in the number of accounts serviced and increased
volume related to activity-based fees.
Trust fees for 1998 increased $2.7 million, or 21.3%, over 1997. Fees
for trust services are derived from performing estate administration, personal
trust, corporate trust, and employee benefit plan administration. At December
31, 1998 and 1997, the total market value of assets administered by Synovus
Trust Company and subsidiary bank trust operations was approximately $6.3
billion and $5.5 billion, respectively.
Non-interest income in 1998 and 1997 has also been positively impacted
by increases in revenues from originating, servicing, and selling mortgage
loans. Mortgage revenues, a component of other operating income, were $21.3
million in 1998, a 99.8% increase over the $10.7 million earned in 1997. The low
interest rate environment was the primary reason for the large increase in loan
origination volume during 1998. Additionally, through Synovus Mortgage Corp.
(SMC), Synovus continued to build the infrastructure necessary to grow the
mortgage banking operations. SMC enhances the mortgage products offered by the
banking subsidiaries and generates additional fee income through mortgage
servicing. SMC provides expertise in the areas of products and pricing to the
subsidiary banks and serves as an outlet for placing these mortgage loans into
the secondary market while retaining the related servicing rights.
In 1997, total non-interest income increased $63.9 million, or 15.0%.
Revenues from bankcard data processing services offered by TSYS were the largest
contributor, increasing $49.9 million, or 16.0%, over 1996. Service charges on
banking operations' deposit accounts increased $3.8 million, or 7.2%, primarily
as a result of continued growth in the number of accounts serviced and
increased volume related to activity-based fees. Fees for trust services
increased $1.2 million, or 10.6%, over 1996. Other operating income increased
$11.4 million, or 17.6%, in 1997 primarily due to increased product revenues
from securities sales, credit card fees, mortgage related income, fees on
letters of credit, and public finance bond activities.
NON-INTEREST EXPENSE
Non-interest expense increased $73.8 million, or 12.1%, in 1998 over
1997. Management analyzes non-interest expense in two separate components:
banking operations and TSYS. The table below summarizes this data for the years
ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ----------------- -------------------
(In thousands) Banking TSYS Banking TSYS Banking TSYS
--------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Salaries and other personnel expense .................. $ 214,772 160,855 188,980 147,439 171,180 124,259
Net occupancy and equipment expense ................... 45,355 105,658 41,687 94,685 39,023 82,118
M&I conversion expenses ............................... 11,304 -- -- -- -- --
Other operating expenses .............................. 72,391 63,313 69,056 59,446 71,634 53,368
Minority interest in subsidiary's net income .......... 10,559 -- 9,143 -- 7,592 --
--------- ------- ------- ------- ------- -------
Total non-interest expense ......................... $ 354,381 329,826 308,866 301,570 289,429 259,745
========= ======= ======= ======= ======= =======
</TABLE>
During 1998, TSYS' operating expenses as a percentage of revenues
remained consistent with prior years at 83.2%, compared to 83.4% and 83.3% for
1997 and 1996, respectively. The principal increases in operating expenses in
1998 compared to 1997 resulted from the addition of personnel and equipment,
the additional investment in property, equipment and software, the cost of
materials associated with the services provided by all companies, particularly
the supplies related to processing the increased number of accounts; and
certain costs associated with ongoing enhancements to TS2 as well as certain
costs associated with the conversion of customers to TS2.
A significant portion of TSYS' operating expenses relates to salaries
and other personnel costs. During 1998, the average number of employees
increased to 3,382, compared to 2,895 in 1997 and 2,498 in 1996. In addition to
the growth in the number of employees, the increase in salaries and other
personnel costs is attributable to normal salary increases and related employee
benefits. Employment costs capitalized as software development and as contract
acquisition costs were $19.4 million, $4.4 million and $4.9 million in 1998,
1997 and 1996, respectively.
F-36
Computer equipment and software rentals, which represent the largest
component of TSYS' net occupancy and equipment expenses, increased $3.1
million, or 6.2%, in 1998 compared to 1997, and $6.7 million, or 15.5%, in 1997
compared to 1996. Due to rapidly changing technology in computer equipment,
TSYS' equipment needs are achieved through operating leases. The decline in the
rate of increase in equipment and software rentals is due mainly to replacing
leases of old technology with new leases at lower costs. During 1998, TSYS made
significant investments in computer software licenses related to its new East
Center and to accommodate increased volumes due to the expected growth in the
number of accounts associated with new customers. As a result, increased
amortization of computer software costs accounts for the majority of the change
in net occupancy and equipment expense.
TSYS continues to monitor and assess its building and equipment needs
as it positions itself for future growth and expansion. In 1997, construction
began on a campus-type facility which will serve as the TSYS' corporate
headquarters; house administrative, client contact and programming team
members; and allow for significant growth. TSYS has entered into an operating
lease agreement relating to the new corporate campus. Under the agreement, the
lessor has purchased the properties, is paying the construction and development
costs, and has leased the facilities to TSYS commencing upon its completion.
The lease provides for substantial residual value guarantees and includes
purchase options at the original cost of the property. Real estate taxes,
insurance, maintenance and operating expenses applicable to the leased property
will be obligations of TSYS. TSYS began moving personnel into the new campus
facility in December 1998, and should complete the move of a substantial number
of its personnel to this facility by the end of the third quarter of 1999. With
the move to the corporate campus, TSYS will not renew leases on certain
facilities. TSYS estimates the increase in net occupancy and equipment expenses
related to occupying the campus, to be approximately $5.3 million in 1999, and
$7.0 million in 2000, net of the relinquished lease obligations.
In 1998, non-interest expense for Synovus' banking operations increased
$45.5 million or 14.7%. Expenses associated with the increase in the number of
employees and normal salary increases as well as Marshall & Illsley (M&I) Data
Services' system conversion expenses were the primary reasons for this
increase. The average number of employees in banking operations increased from
4,526 in 1997 to 4,942 in 1998. This increase was primarily due to growth
within the banking subsidiaries, as they continue to develop new products and
provide additional services for their customers. During the first quarter of
1998, Synovus began the conversion of its bank data processing to the M&I
system. This conversion, which was substantially completed in 1998, will
greatly enhance the team members' capabilities to market The New Bank products
and services, by providing more customer data at the point of service. In 1998,
Synovus expensed approximately $11.3 million for this conversion. Other factors
causing an increase in non-interest expense include training related to The New
Bank initiatives and performance-based employee retirement plan expenses.
Included in the components of non-interest expense for 1998 is $4.8 million
related to the 1998 bank acquisitions.
The banking operations' efficiency ratio increased slightly to 58.22%
in 1998 compared to 56.54% in 1997. The increase was primarily due to the
expenses associated with the M&I system conversion. Excluding the impact of the
M&I system conversion expenses, banking operations' efficiency ratio improved
slightly to 56.34% in 1998 from 56.54% in 1997.
In 1997, total non-interest expense increased $61.3 million, or
11.2%,over 1996. Expenses incurred at TSYS increased $41.8 million, or 16.1%, in
1997 over 1996. In 1997, the average number of employees at TSYS increased from
2,498 in 1996 to 2,895 in 1997. This growth in employees, along with salary
increases, resulted in a $23.2 million, or 18.7%, increase in employment
expenses.
Non-interest expense for Synovus' banking operations increased $19.4
million, or 6.7%, in 1997 over 1996. The largest contributor to this expense
increase was employment expense and related primarily to additional employees
hired in 1997. The average number of employees in banking operations increased
from 4,197 in 1996 to 4,526 in 1997. This growth, primarily due to growth
within the banking subsidiaries, resulted from their continued efforts to
develop new products and provide additional services to their customers. Other
factors causing an increase in non-interest expense include normal salary
increases, training related to The New Bank initiatives, and performance-based
employee retirement plan expenses.
YEAR 2000 READINESS DISCLOSURE
Many computer programs were written with a two digit date field, and,
if these programs are not made Year 2000 compliant, they will be unable to
correctly process date information for the year 2000 and after. Through
separate task forces, Synovus is continuing its ongoing projects to assure its
processing systems will be Year 2000 compliant for its banking activities and
at TSYS. The task forces are composed of dedicated resources as well as members
from other areas within the banks and TSYS. Each Board of Directors has
reviewed the overall project plans for the banks and TSYS with progress toward
completion monitored regularly. The primary components of the plans include:
awareness - assuring a common understanding of the issue throughout Synovus;
assessment - identification of non-compliant hardware, equipment, and software
as well as suppliers and vendors; renovation - renovation, replacement or
retirement of programs; validation - testing modifications of programs
including coordination of testing with third parties and vendors; and
implementation - moving validated code to production.
Banking Operations:
For the banks, the conversion of the core processing systems to M&I
should provide for Year 2000 compliance for those applications, including
loans, deposits, and sales platforms. M&I has completed the Year 2000
renovation for its banking systems and is currently utilizing this renovated
code for all processing. During the first quarter of 1999, M&I will be
completing the testing phase in partnership with Synovus. As of the end of
February 1999, 34 of the 36 banks were being processed using the M&I renovated
code. The remaining two banks will be converted to the renovated code by the
end of March 1999. The remaining personal computer hardware platforms and
software programs as well as other ancillary systems such as ATM's, fax
machines, copiers, and phone systems have been reviewed and all significant
applications or infrastructure which need to be modified have been identified
and will continue to be renovated and tested as necessary.
Synovus' Year 2000 remediation plans are progressing on schedule. The
conversion of all Synovus bank processing to M&I is substantially complete and
the Year 2000 renovation of M&I systems has been completed. Testing of these
systems has begun and will be completed during the first quarter of 1999. In
August 1998, M&I received ITAA*2000 certification from the Information
Technology Association of America. The program examines processes and methods
used by companies to perform their year 2000 software conversions. In addition,
M&I's progress and plans are subject to periodic review and evaluation by
banking regulatory agencies. In August 1998, M&I adopted a "Year 2000
Contingency Strategy" plan. This plan includes an analysis of "most reasonably
likely year 2000 worst case scenarios" and M&I's planned solutions to those
scenarios. The plan follows all the Federal Financial Institutions Examination
Council's (FFIEC) guidelines. Examples of these scenarios and planned solutions
are, a power interruption at a data processing facility mitigated by an onsite
generator, and simultaneous disasters at all data processing locations
mitigated by the use of a prearranged third party facility.
Business resumption contingency planning is underway at Synovus in
accordance with the FFIEC guidelines. This planning effort will address
specific issues related to Year 2000 service interruptions. Operational plans
are being developed, and will be completed by June 30,1999, which will allow
Synovus to operate in the event of the disruption of services from mission
critical service providers, including M&I. Included in the Synovus business
resumption contingency planning are measures that address liquidity and the
ready availability of cash.
F-37
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
Based on currently available information, while management anticipates
there could be isolated and intermittent disruptions of various services and
interfaces at its business sites, there is no expectation of extensive or
protracted systemic failures that would have a material adverse effect on the
financial condition or results of operations of Synovus.
TSYS:
At TSYS, the core system of TS2 was designed to be Year 2000 compliant,
and TSYS is continuing its ongoing project to ensure that all of TSYS'
processing systems are Year 2000 compliant. As of December 31, 1998, TSYS had
completed the awareness, assessment, renovation, and validation phases of its
Year 2000 project. During 1998, two major renovation milestones were met. The
first milestone, 100% of all critical code converted, was achieved in April
1998. The second, 100% of all noncritical code renovated, was completed in July
1998. The validation phase at TSYS included setting up a test environment,
testing core system functionality and providing test results to clients. It was
during this phase that Turn of The Century, Monthly Cycling, Leap Year and
Millennium Year, and Month and Quarter end dates were tested. This phase
concluded during October, and results were sent to customers in November and
December 1998. The implementation phase, which allows clients the opportunity to
test their specific code within a Year 2000 environment, has commenced and all
aspects of such phase are expected to be completed by June 30,1999. Completion
of all third party interface testing is dependent upon those third parties
completing their own internal remediation. TSYS could be adversely affected to
the extent third parties with which it interfaces have not properly addressed
their Year 2000 issues.
For TSYS, another significant aspect of the Year 2000 project is
contingency planning, which is a process to ensure that TSYS can continue
operations in the event that information technology systems, noninformation
technology systems, or business relationships with vendors are not Year 2000
compliant. In January 1999, TSYS refined its Business Resumption Contingency
Plan, or Y2K Day Plan, which is based on the TSYS Disaster Recovery Plan. This
plan sets forth processes and procedures to follow in case TSYS experiences a
problem with processing Year 2000 data or if mission-critical service providers
suffer disruption. The plan includes the following.
TSYS programming staff will be on site to immediately remediate any
coding issues encountered. The Year 2000 Communication Center will act as the
nerve center during the century changeover, monitoring processing status,
conveying management decisions, and deploying resources where required.
If a power loss is experienced for any reason at TSYS Data Centers
which house mainframe and associated hardware, all critical systems would be
powered through battery backup and diesel generators without experiencing any
downtime. This process, referred to as TSYS' Uninterrupted Power Supply system,
has enough fuel for 72 hours. TSYS has contracts with two separate fuel
distributors to ensure that its operations could continue indefinitely. The
fuel companies have backup generators in case of a power failure to keep their
fuel pumps operational.
TSYS has service agreements with IBM's Global Services to provide,
through its business unit, Business Recovery Services, hot-site assistance and
equipment for data center and network recovery in case of a natural or man-made
disaster. Also, TSYS has contracts with other companies to receive immediate
service and/or top priority in an emergency situation. Additionally, vendor
technicians for key equipment will be on site for the period of December 31,
1999, through January 3, 2000.
TSYS management believes that the most likely Year 2000 risks relate
to third parties with which it has material relationships. A failure or
disruption of (i) TSYS' mission-critical computer systems caused by third-party
hardware/software, (ii) third-party service/network/gateway providers, or (iii)
significant clients for an extended period, could adversely affect the
financial condition and results of operations of TSYS. Management believes its
internal review indicates that TSYS' mission-critical systems are Year 2000
ready; however, failure of a mission critical third-party provider could have a
material adverse effect on TSYS' business, operations and financial results.
However, based on currently available information, while management anticipates
there could be isolated and intermittent disruptions of various services and
interfaces at its business sites related to third parties with which it has
material relationships, there is no expectation of extensive or protracted
systemic failures that would have a material adverse effect on the financial
condition or results of operations of TSYS.
The majority of Synovus' costs in becoming Year 2000 compliant are
related to TSYS. Such costs are being expensed as incurred and are not expected
to have a material effect on Synovus' financial condition or results of
operations for 1999. TSYS currently estimates the total cost for the Year 2000
project will amount to approximately $18 million of direct costs. This amount
consists primarily of the costs associated with personnel dedicated to the Year
2000 project. During 1998, TSYS incurred $7 million of direct costs associated
with the Year 2000 project and has incurred $9 million since project inception.
The banking operations' Year 2000 remediation costs, other than those related
to the conversion to M&I, are not material. The failure of Synovus or TSYS to
be Year 2000 compliant would have a material adverse effect on Synovus'
financial condition and results of operations.
The costs of the projects and the dates on which Synovus and TSYS
believe they will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions about future
events, including the continued availability of necessary technical resources
and the cooperation of customers and vendors. However, there are no guarantees
that these estimates will be achieved and actual results could differ
materially from those anticipated.
All forward-looking statements regarding Year 2000 readiness,
including estimates, forecasts and expectations, are inherently uncertain as
they are based on various expectations and assumptions concerning future events
and are subject to numerous risks and uncertainties which could cause actual
events or results to differ materially from those projected. Important factors
upon which Synovus' Year 2000 forward-looking statements are premised include:
(a) retention of employees and contractors working on Year 2000 projects; (b)
TSYS customers' remediation of their internal systems to be Year 2000 ready and
their cooperation in timely testing; (c) no material disruption of
telecommunication, data transmission networks, payment networks, government
services, utilities or other infrastructure services and no unexpected failure
of third-party products; (d) no unexpected failures by third-parties providing
services to Synovus; (e) no undiscovered subversion of systems or program code
affecting Synovus' system; and (f) no undiscovered material flaws in Synovus'
test processes.
INVESTMENT SECURITIES
Synovus' investment securities portfolio consists of debt and equity
securities categorized as either available for sale or held to maturity.
Investment securities provide Synovus with a source of liquidity and a
relatively stable source of income. The investment securities portfolio also
provides management with a tool to balance the interest rate risk of its loan
portfolio. At December 31, 1998, approximately $1.1 billion of these investment
securities were pledged as required collateral for certain deposits and
repurchase agreements. See Table 14 for maturity and average yield information
of the available for sale and held to maturity investment securities.
Synovus' investment strategy focuses on the use of the investment
securities portfolio to manage the interest rate risk created by the natural
mismatch inherent between the loan and deposit portfolios. With the strong loan
demand at Synovus' subsidiary banks, there is little need for investment
securities
F-38
solely to augment income or utilize unpledged deposits. As such, Synovus'
investment securities are primarily U.S. Treasuries, U.S. Government agencies,
and Government agency sponsored mortgage-backed securities, all of which have a
high degree of liquidity and limited credit risk. A mortgage-backed security
depends on the underlying pool of mortgage loans to provide a cash flow
"pass-through" of principal and interest. At December 31, 1998, substantially
all of the collateralized mortgage obligations and mortgage-backed pass-through
securities held by Synovus were issued or backed by Federal agencies.
As of December 31, 1998 and 1997, the estimated fair value of
investment securities as a percentage of their amortized cost was 101.3% and
101.0%, respectively. The investment securities portfolio had gross unrealized
gains of $27.3 million and gross unrealized losses of $3.1 million, for net
unrealized gains of $24.1 million as of December 31, 1998. As of December 31,
1997, the investment securities portfolio had a net unrealized gain of $15.8
million. In accordance with SFAS No. 115, shareholders' equity contained a net
unrealized gain of $11.2 million and $6.7 million recorded on the available for
sale portfolio as of December 31, 1998 and 1997, respectively.
During 1998, the average balance of investment securities increased to
$1.67 billion, compared to $1.65 billion in 1997. Synovus earned a
taxable-equivalent rate of 6.51% and 6.58% for 1998 and 1997, respectively, on
its investment securities portfolio. As of December 31, 1998 and 1997, average
investment securities represented 19.5% and 20.8%, respectively, of average
interest earning assets. The decrease in the percentage of average investment
securities to average interest earning assets was due to management's desire to
utilize the majority of Synovus' funding growth to fund higher yielding loan
growth.
Table 5 presents the carrying value of investment securities held to
maturity and investment securities available for sale at December 31,1998,
1997, and 1996.
TABLE 5
INVESTMENT SECURITIES
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
U.S. Treasury and U.S. Government agencies .............. $ 50,996 63,372 84,366
Mortgage-backed securities .............................. 77,899 123,519 156,319
State and municipal ..................................... 152,904 124,569 114,883
Other investments ....................................... 21,814 18,677 7,440
----------- --------- ---------
Total investment securities held to maturity .......... $ 303,613 330,137 363,008
=========== ========= =========
Investment Securities Available for Sale:
U.S. Treasury and U.S. Government agencies .............. $ 1,163,368 1,175,213 1,131,922
Mortgage-backed securities .............................. 318,408 130,397 130,893
State and municipal ..................................... 11,192 959 1,014
Other investments ....................................... 21,086 18,467 12,254
----------- --------- ---------
Total investment securities available for sa1e ........ $ 1,514,054 1,325,036 1,276,083
=========== ========= =========
Total Investment Securities
U.S. Treasury and U.S. Government agencies............... $ 1,214,364 1,238,585 1,216,288
Mortgage-backed securities .............................. 396,307 253,916 287,212
State and municipal ..................................... 164,096 125,528 115,897
Other investments ....................................... 42,900 37,144 19,694
----------- --------- ---------
Total investment securities ........................... $ 1,817,667 1,655,173 1,639,091
=========== ========= =========
</TABLE>
LOANS
Loans are the primary interest earning asset for Synovus. When
analyzing prospective loans, management assesses both interest rate objectives
and credit quality objectives in determining whether to extend a given loan and
the appropriate pricing for that loan. Operating under a decentralized
structure, management emphasizes lending in subsidiaries' respective
communities. As illustrated in Table 6, Synovus strives toward maintaining a
diversified loan portfolio to spread risk and reduce exposure to economic
downturns that may occur in different segments of the economy, geographic
locations, or in particular industries. Demonstration of that strategy results
in the fact that Synovus has no significant concentration of loans to any
single industry or borrower and no foreign loans as of the end of 1998.
Representing 78.6% of average earning assets and 70.4% of average
total assets, average net loans increased $494.2 million, or 8.0%, during 1998.
Average net loans of approximately $100 million were acquired in connection
with the 1998 acquisitions. Synovus has continued to experience growth in its
existing portfolio and market share gains through successful business
development and additional products and services offered to the current
customer base. The mix of loan products being offered focuses on meeting the
needs of customers in the markets served while maintaining adherence to sound
lending practices. As a result of this emphasis, loans have continued to grow
throughout Synovus' subsidiary markets, with the most significant growth in
Alabama and South Carolina.
Synovus has enjoyed a relatively strong average loan-to-deposit ratio
over the past three years. The average loan-to-deposit ratio for 1998, 1997 and
1996 was 86.2%, 86.1%, and 84.0%, respectively.
The growth in commercial loans was primarily centered in the larger
markets in Alabama and South Carolina. These markets have continued to
experience economic growth in 1998, especially with respect to real estate and
working capital loans. Retail real estate mortgage loans increased at a slower
rate during 1998 due to an increase in the volume of residential real estate
mortgage loans sold to third-party investors.
F-39
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
The decrease in credit card loans during 1998 was primarily due to the
termination of an affinity card relationship with a customer and the sale of
the related receivables to our former affinity partner. This portfolio
accounted for approximately $25 million of outstanding credit card receivables
at year-end 1997. Another factor contributing to the decrease in credit card
receivables is Synovus' focus on increased credit quality in the credit card
area. This strategy was necessary to address the credit issues that Synovus, as
well as the credit card industry overall, has been facing.
Synovus continued to reduce its level of nonperfoming assets as a
percentage of loans and other real estate during 1998 as a result of constant
attention and focus on loan quality while at the same time meeting the
customers' needs. Loan officers work with each customer to determine which loan
products will optimally meet their individual and specific lending needs. This
focus on underwriting loans that benefit the customer, while maintaining credit
quality standards, causes Synovus to be optimistic about the future growth and
quality of the loan portfolio.
Table 6 shows the composition of the loan portfolio at the end of the
past five years.
TABLE 6
LOANS BY TYPE
(In thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial:
Commercial, financial, and agricultural....... $2,592,608 2,273,031 2,036,689 1,931,004 1,783,928
Real estate-construction...................... 1,122,488 835,162 730,785 578,712 472,131
Real estate-mortgage.......................... 1,510,169 1,302,941 1,234,981 1,160,089 1,030,524
---------- --------- --------- --------- ---------
Total commercial........................... 5,225,265 4,411,134 4,002,455 3,669,805 3,286,583
---------- --------- --------- --------- ---------
Retail:
Real estate-mortgage.......................... 1,058,172 1,039,420 977,432 824,998 865,642
Consumer loans-credit card.................... 257,721 306,360 290,470 222,204 171,475
Consumer loans-other.......................... 879,371 819,112 768,072 784,972 756,402
---------- --------- --------- --------- ---------
Total retail............................... 2,195,264 2,164,892 2,035,974 1,832,174 1,793,519
---------- --------- --------- --------- ---------
Total loans................................ 7,420,529 6,576,026 6,038,429 5,501,979 5,080,102
Unearned income............................... (8,537) (5,712) (10,235) (14,812) (14,691)
---------- --------- --------- --------- ---------
Total loans, net of unearned income........ $7,411,992 6,570,314 6,028,194 5,487,167 5,065,411
========== ========= ========= ========= =========
</TABLE>
Commercial, financial, and agricultural loans include industrial revenue
bonds and other loans that are granted primarily on the strength of the
borrower's ability to generate repayment cash flows from income sources as well
as the borrower's general credit standing, even though such loans and bonds may
be secured by real estate or other assets. Real estate construction and mortgage
loans represent extentions of credit used as interim or permanent financing of
real estate properties that are secured by commercial real estate as well as 1-4
family residences.
Generally, retail lending decisions are made based upon the cash flow or
earning power of the borrower that represents the primary source of repayment.
However, in many lending transactions collateral is taken to provide an
additional measure of security. Transactions secured by collateral result in a
secondary source of repayment in that the collateral may be liquidated. Synovus
determines the need for collateral on a case-by-case basis. Factors considered
include the purpose of the loan, current and prospective credit-worthiness of
the customer, terms of the loan, and economic conditions.
Table 7 shows the maturity of selected loan categories as of December 31,
1998. Also provided are the amounts due after one year, classified according to
the sensitivity in interest rates.
TABLE 7
LOAN MATURITY DISTRIBUTION AND INTEREST SENSITIVITY
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
ONE OVER ONE YEAR OVER
YEAR THROUGH FIVE FIVE
OR LESS YEARS YEARS TOTAL
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
Selected loan categories:
Commercial, financial, and agricultural...... $1,764,150 614,125 214,333 2,592,608
Real estate-construction..................... 789,980 269,139 63,369 1,122,488
---------- ------- ------- ---------
Total..................................... $2,554,130 883,264 277,702 3,715,096
========== ======= ======= =========
Loans due after one year:
Having predetermined interest rates................................................ $ 648,310
Having floating interest rates..................................................... 512,656
----------
Total........................................................................... $1,160,966
==========
</TABLE>
F-40
Actual repayments of loans may differ from the contractual maturities
reflected above because borrowers have the right to prepay obligations with and
without prepayment penalties. Additionally, the refinancing of such loans or
the potential delinquency of such loans could also create differences between
the contractual maturities reflected above and the actual repayment of such
loans.
PROVISION FOR LOSSES ON LOANS AND NET CHARGE-OFFS
Despite Synovus' credit standards, internal controls, and continuous
loan review process, the inherent risk in the lending process results in
periodic charge-offs. The provision for loan losses is the charge to operating
earnings necessary to maintain an adequate reserve for loan losses. Through the
provision for loan losses, Synovus maintains a reserve for loan losses that
management believes is adequate to absorb losses within the loan portfolio.
However, future additions to the reserve may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination procedures, periodically review Synovus' subsidiary
banks' reserve for loan losses. Based on their judgments about information
available to them at the time of their examination, such agencies may require
Synovus' subsidiary banks to recognize additions to their reserve for loan
losses.
To determine the adequacy of the reserve for loan losses and the need
for potential charges to the reserve, a formal analysis is completed quarterly
to assess the risk within the loan portfolio. This assessment, conducted by
lending officers and each bank's loan administration department as well as an
independent holding company loan administration department, includes analysis
of historical performance, the level of nonperforming loans, reviews of certain
problem loans, loan activity since the last quarter, consideration of current
economic conditions, and other pertinent information. Each one of Synovus'
loans is assigned a rating, either individually or as part of a homogeneous
pool, based on an internally developed grading system. An organizationally
independent department also reviews grade assignments on an ongoing basis. The
resulting conclusions are reviewed and approved by senior management.
The reserve for loan losses consists of two main components: the
allocated and unallocated reserves. Both components of the reserve are
available to cover inherent losses in the portfolio. The allocated component of
the reserve is determined by type of loan within the commercial and retail
portfolios. Generally, the allocated reserve for commercial loans is based on
application of loss reserve factors to the components of the portfolio based on
the assigned loan grades. The estimated loss factors are based on historical
losses with established minimum loss factors for certain loan grade categories.
The allocated reserve for retail loans is generally determined on pools of
homogeneous loan categories. Loss factors applied to these pools are also based
on historical losses, current delinquency trends, changes in underwriting
standards and other factors. The unallocated component of the reserve is
established for loss exposure that may exist in the remainder of the portfolio,
but has yet to be identified. This also compensates for the uncertainty in
estimating loan losses. The unallocated component of the reserve is based upon
management's evaluation of various conditions, the effects of which are not
directly considered in the allocated reserve. These include credit
concentrations, recent levels and trends in delinquencies and non-accruals, new
credit products, changes in lending policies and procedures, changes in
personnel, and regional and local economic conditions.
In accordance with Statement of Financial Accounting Standards ("SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan", management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a loan to be impaired when the ultimate
collectibility of all amounts due, according to the contractual terms of the
loan agreement, is in doubt. When a loan becomes impaired, management calculates
the impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate. If the loan is collateral
dependent, the fair value of the collateral is used to measure the amount of
impairment The amount of impairment and any subsequent changes are recorded,
through a charge to earnings, as an adjustment to the reserve for loan losses.
When management considers a loan, or a portion thereof, as uncollectible, it is
charged against the reserve for loan losses.
Asset quality continued to improve during 1998, which resulted in a
17.5% decrease in the provision for loan losses to $26.7 million compared to
$32.3 million in 1997. Reflecting the continued strength of the Southeastern
regional economy and the emphasis on high credit quality and credit management,
the ratio of nonperforming assets to loans and other real estate is at its
lowest level in more than twenty years at .41% as of December 31, 1998,
compared to the already low level of .44% at year-end 1997. The reserve for
loan losses was 1.50% of loans, which provides coverage of 528.12% of
nonperforming loans at December 31, 1998, compared to 557.87% at year-end 1997.
Net charge-offs were $25.1 million in 1998, compared to $23.9 million
in 1997. As a percentage of average net loans, the net charge-off ratio was
.37% in 1998 compared to .38% in 1997. Credit card charge-offs represented 50%
of the total net charge-offs for 1998, compared to 57% of total net charge-offs
in 1997. Synovus, along with the rest of the credit card industry, has
experienced a trend in higher than normal credit card charge-offs in the past
two years. During 1998, Synovus continued to tighten its underwriting standards
in the credit card area to address this issue. At December 31, 1998, credit
card loans represented only 3.5% of Synovus' total loans outstanding, compared
to 4.7% at year-end 1997.
A summary, by loan category, of loans charged off, recoveries of loans
previously charged off, and additions to the reserve through provision expense
presented in Table 8.
F-41
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
TABLE 8
RESERVE FOR LOAN LOSSES
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for loan losses at beginning of year............... $103,050 94,683 81,384 75,018 67,270
Reserve for loan losses of acquired subsidiaries........... 6,170 - 188 1,001 1,535
Loans charged off during the year:
Commercial:
Commercial, financial and agricultural............. 7,271 7,229 7,790 13,746 13,809
Real estate-construction........................... 249 412 217 239 240
Real estate-mortgage............................... 2,209 2,183 2,356 1,840 1,849
-------- ------- ------ ------ ------
Total commercial............................... 9,729 9,824 10,363 15,825 15,898
-------- ------- ------ ------ ------
Retail:
Real estate-mortgage............................... 1,347 1,750 1,032 209 210
Consumer loans-credit card......................... 13,940 14,306 7,798 6,627 6,658
Consumer loans-other............................... 5,803 5,938 5,987 2,271 2,282
-------- ------- ------ ------ ------
Total retail................................... 21,090 21,994 14,817 9,107 9,150
-------- ------- ------ ------ ------
Total loans charged off........................ 30,819 31,818 25,180 24,932 25,048
-------- ------- ------ ------ ------
Recoveries of loans previously charged off during the year:
Commercial:
Commercial, financial, and agricultural............ 1,636 3,353 1,699 1,217 1,585
Real estate-construction........................... 253 99 173 50 65
Real estate-mortgage............................... 336 1,206 1,312 92 120
-------- ------- ------ ------ ------
Total commercial............................... 2,225 4,658 3,184 1,359 1,770
-------- ------- ------ ------ ------
Retail:
Real estate-mortgage............................... 202 197 352 115 149
Consumer loans-credit card......................... 1,392 737 776 1,237 1,611
Consumer loans-other............................... 1,942 2,297 2,213 1,799 2,344
-------- ------- ------ ------ ------
Total retail................................... 3,536 3,231 3,341 3,151 4,104
-------- ------- ------ ------ ------
Total loans recovered.......................... 5,761 7,889 6,525 4,510 5,874
-------- ------- ------ ------ ------
Net loans charged off during the year...................... 25,058 23,929 18,655 20,422 19,174
-------- ------- ------ ------ ------
Additions to reserve through provision expense............. 26,660 32,296 31,766 25,787 25,387
-------- ------- ------ ------ ------
Reserve for loan losses at end of year..................... $110,822 103,050 94,683 81,384 75,018
======== ======= ====== ====== ======
Reserve for loan losses to loans, net of unearned income... 1.50% 1.57 1.57 1.48 1.48
======== ======= ====== ====== ======
Ratio of net loans charged off to average loans
outstanding, net of unearned income...................... .37% .38 .32 .38 .41
======== ======= ====== ====== ======
</TABLE>
An allocation of the reserve for loan losses has been made according to the
respective amounts deemed necessary to provide for the possibility of incurred
losses within the various loan categories. Although other relevant factors are
considered, the allocation is primarily based on previous charge-off experience
adjusted for risk characteristic changes among each category. Additional
reserve amounts are allocated by evaluating the loss potential of individual
loans that management has considered impaired. The reserve for loan loss
allocation is based on historical data, subjective judgment, and estimates, and
therefore is not necessarily indicative of the specific amounts or loan
categories in which charge-offs may ultimately occur. Refer to Table 9 for a
five year comparison of the allocation of the reserve for loan losses.
The allocation of the reserve for loan losses reflects an allocated reserve
of 1.69% of commercial, financial, and agricultural loans at December 31, 1988
compared to 1.83% at December 31, 1997. The decrease is a reflection of the
lower levels of nonaccrual and impaired loans which are included in this loan
category. The allocation of the reserve for loan losses to the retail loan
portfolio reflects a consistent allocation of approximately 1.50% of year end
outstandings. Included in this amount in 1998 is a slightly higher allocation
against credit card loans based on prior year charge offs. The total reserve
amount allocated to credit card loans is lower due to the reduction in
outstandings.
The unallocated component of the reserve for loan losses increased slightly
from .33% to .35% of total loans at December 31, 1997 and 1998, respectively,
an increase of $4.8 million. Management continues to believe that this level of
unallocated reserve is appropriate in light of the increasing instability in
the worldwide economic environment, the new markets entered into through recent
acquisitions and the aggregate risk profile in the loan portfolio.
F-42
TABLE 9
ALLOCATION OF RESERVE FOR LOAN LOSSES
(Amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------- ------------- -------------
RESERVE %* RESERVE %* RESERVE %* RESERVE %* RESERVE %*
-------- --- -------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Commercial, financial and
agricultural............... $ 43,902 35% $ 41,544 34% $38,171 34% $32,810 35% $32,343 36%
Real estate-construction..... 1,340 15 1,766 13 1,163 12 570 11 562 9
Real estate-mortgage...... 6,381 20 5,562 20 5,110 20 4,392 21 4,329 20
-------- --- -------- --- ------- --- ------- --- ------- ---
Total commercial... 51,623 70 48,782 67 44,444 66 37,772 67 37,234 65
-------- --- -------- --- ------- --- ------- --- ------- ----
Retail:
Real estate-mortgage...... 1,582 14 632 16 581 16 499 15 492 17
Consumer loans-credit
card.................... 12,950 4 14,646 5 11,619 5 6,627 4 6,658 3
Consumer loans-other...... 18,435 12 17,421 12 15,088 13 14,610 14 14,277 15
-------- --- -------- --- ------- --- ------- --- ------- ---
Total retail....... 32,967 30 32,699 33 27,288 34 21,736 33 21,427 35
-------- --- -------- --- ------- --- ------- --- ------- ---
Unallocated................. 26,232 -- 21,479 -- 22,951 -- 21,876 -- 16,357 --
-------- --- -------- --- ------- --- ------- --- ------- ---
Total reserve for
loan losses...... $110,822 100% $103,050 100% $94,683 100% $81,384 100% $75,018 100%
======== === ======== === ======= === ======= === ======= ===
</TABLE>
* Loan balance in each category expressed as a percentage of total loans.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of nonaccrual loans, loans restructured due to
debtors' financial difficulties, and real estate acquired through foreclosure.
Nonaccrual loans consist of those loans on which recognition of interest income
has been discontinued. Loans may be restructured as to rate, maturity, or other
terms as determined on an individual credit basis. Demand and time loans,
whether secured or unsecured, are generally placed on nonaccrual status when
principal and/or interest is 90 days or more past due, or earlier if it is known
or expected that the collection of all principal and/or interest is unlikely.
Loans past due 90 days or more, which based on a determination of collectibility
are accruing interest, are classified as past due loans. Nonaccrual loans are
reduced by the direct application of interest and principal payments to loan
principal, for accounting purposes only. In all circumstances, the determination
of when to place loans on nonaccrual status is also based on evaluation of the
individual characteristics of each particular loan, which may result in policy
deviations in some circumstances. Table 10 presents the amount of interest
income that would have been recorded on nonaccrual loans if those loans had been
current and performing in accordance with their original terms.
Synovus' nonperforming assets increased $1.5 million to $30.3 million with
the corresponding nonperforming asset ratio improving to .41% as of December 31,
1998 compared to .44% as of year-end 1997. Synovus incurred a 5.3% increase in
nonperforming assets while increasing loans $844.5 million or 12.8%, during
1998. Loans 90 days past due and still accruing, as a percentage of total loans
outstanding, remained consistent with prior year levels at .33% at December 31,
1998 compared to .32% at year-end 1997. Management believes that sufficient
collateral value securing these loans exists to cover contractual interest and
principal payments on the loans and management further believes the resolution
of these delinquencies will not cause a material increase in nonperforming
assets.
Management continuously monitors nonperforming, impaired, and past due
loans, in order to prevent further deterioration regarding the condition of
these loans. Management is not aware of any material loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention that have
been excluded from nonperforming assets or impaired loans. Impaired loans at
December 31, 1998 and 1997 are $26.9 million and $25.6 million, respectively.
Management further believes nonperforming assets and impaired loans include any
material loans in which doubts exist as to the collectibility of amounts due
according to the contractual terms of the loan agreement.
F-43
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
TABLE 10
NONPERFORMING ASSETS AND PAST DUE LOANS
(Amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans........................................... $20,533 17,909 23,655 21,469 26,497
Restructured loans......................................... 452 563 1,625 1,733 1,900
------- ------ ------ ------ ------
Nonperforming loans.................................. 20,985 18,472 25,280 23,202 28,397
Loans 90 days past due and still accruing.................. 24,628 20,881 15,805 11,417 7,383
------- ------ ------ ------ ------
Total................................................ $45,613 39,353 41,085 34,619 35,780
======= ====== ====== ====== ======
Nonperforming assets:
Nonperforming loans(a)................................. $20,985 18,472 25,280 23,202 28,397
Other real estate...................................... 9,348 10,335 10,782 12,071 12,355
------- ------ ------ ------ ------
Total................................................ $30,333 28,807 36,062 35,273 40,752
======= ====== ====== ====== ======
Nonperforming assets to total loans and other real estate.. .41% .44 .59 .64 .80
======= ====== ====== ====== ======
Reserve for loan losses to nonperforming loans............. 528.12% 557.87 374.54 350.76 264.18
======= ====== ====== ====== ======
</TABLE>
Interest income on nonperforming loans that would have been reported for the
years ended December 31, 1998, 1997, and 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
------ ----- -----
Interest at contractual rates (b)...................................................... $2,890 3,132 3,294
Less interest recorded as income....................................................... 1,009 948 878
------ ----- -----
Reduction of interest income....................................................... $1,881 2,184 2,416
====== ===== =====
</TABLE>
(a) Nonperforming assets exclude loans 90 days past due and still accruing.
(b) Interest income that would have been recorded if the loans had been current
and performing in accordance with their original terms.
DEPOSITS
Deposits provide the most significant funding source for Synovus' interest
earning assets. Table 11 shows the relative composition of average deposits for
1998, 1997, and 1996. Refer to Table 12 for the maturity distribution of time
deposits of $100,000 or more. These larger deposits represented 14.6% and 17.0%
of total deposits at December 31, 1998 and 1997, respectively. Synovus' large
denomination time deposits are generally from customers within the local market
areas of its subsidiary banks, and, therefore, provide a greater degree of
stability than is typically associated with this source of funds. Time deposits
over $100,000 at December 31, 1998, 1997, and 1996 were $1.2 billion, $1.3
billion, and $1.1 billion, respectively. Interest expense for the years ended
December 31, 1998, 1997, and 1996 on these large denomination deposits was
$74.5 million, $68.4 million, and $62.1 million, respectively.
During 1998, Synovus' average deposits increased $575.5 million, or 7.9%,
to $7.9 billion from $7.3 billion in 1997. Average deposits of approximately
$127 million were acquired in connection with the 1998 acquisitions. Excluding
these acquisitions, average deposits increased $448.5 million. Average interest
bearing deposits for 1998, which include interest bearing demand deposits,
money market accounts, saving deposits, and time deposits, increased $451.5
million, or 7.3%, from 1997. Average non-interest bearing demand deposits
increased $123.9 million, or 10.9%, during 1998. Average interest bearing
deposits increased $407.5 million, or 7.1%, from 1996 to 1997, while average
non-interest bearing demand deposits increased $65.4 million, or 6.1%. See
Table 3 for further information on average deposits, including the average
rates paid for 1998, 1997, and 1996.
F-44
TABLE 11
AVERAGE DEPOSITS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Non-interest bearing demand deposits................ $1,264,027 1,140,107 1,074,676
Interest bearing demand deposits.................... 1,162,355 1,055,227 940,303
Money market accounts............................... 1,409,032 1,216,729 1,034,336
Savings deposits.................................... 450,568 458,362 469,714
Time deposits....................................... 3,614,943 3,455,046 3,333,501
---------- --------- ---------
Total average deposits..................... $7,900,925 7,325,471 6,852,530
========== ========= =========
</TABLE>
TABLE 12
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
3 months or less.................................................................. $ 441,860
Over 3 months through 6 months.................................................... 248,116
Over 6 months through 12 months................................................... 321,154
Over 12 months.................................................................... 235,846
----------
Total outstanding........................................................ $1,246,976
==========
</TABLE>
INTEREST RATE RISK MANAGEMENT
Managing interest rate risk is the primary goal of Synovus'
asset/liability management function. Synovus attempts to achieve consistent
growth in net interest income while limiting volatility arising from changes
in interest rates. Synovus seeks to accomplish this goal by balancing the
maturity and repricing characteristics of balance sheet assets and liabilities
along with the selective use of off-balance sheet financial instruments.
Synovus' asset/liability mix is sufficiently balanced so that the effect of
interest rates moving in either direction is not expected to be significant
over time.
Simulation modeling is the primary tool used by Synovus to measure its
interest rate sensitivity. On at least a quarterly basis, the following 24
month time period is simulated to determine the sensitivity of net interest
income to changes in interest rates. The magnitude and velocity of rate changes
among the various asset and liability groups exhibit different characteristics
for each possible interest rate scenario. Simulation modeling enables Synovus
to capture the effect of these differences. Simulation also enables Synovus to
capture the effect of expected changes in asset and liability volumes as well
as expected prepayment level changes on selected assets subject to prepayment
Synovus maintains policies designed to limit the maximum acceptable
negative impact on net interest income over a twelve month time horizon from a
gradual change in interest rates of up and down 200 basis points. The current
policy limits this change to 8% of projected net interest income under a stable
interest rate environment. As of December 31, 1998, Synovus was well within its
policy guidelines with simulations indicating that Synovus is positioned such
that its net interest income will slightly increase in a rising rate
environment and decrease by no more than 3% in a declining rate environment
Another tool utilized by Synovus' management is cumulative gap
analysis, which seeks to measure the repricing differentials, or gap, between
rate sensitive assets and liabilities over various time periods. Table 13
reflects the gap positions of Synovus' consolidated balance sheets on December
31, 1998 and 1997, at various repricing intervals. The projected deposit
repricing volumes reflect adjustments based on management's assumptions of the
expected rate sensitivity relative to the prime rate for core deposits without
contractual maturity (i.e., interest bearing checking, savings, and money
market accounts). Management believes that these adjustments allow for a more
accurate profile of Synovus' interest rate risk position. The projected
investment securities repricing reflects expected prepayments on
mortgage-backed securities and expected cash flows on securities subject to
accelerated redemption options. These assumptions are made based on the
interest rate environment as of each balance sheet date and are subject to
change as the general level of interest rates change. Management would
anticipate a modest lengthening of average investment maturities in a rising
rate environment and a more limited shortening in a declining rate environment.
While these potential changes are not depicted in the static gap analysis,
simulation modeling allows for the proper analysis of these and other relevant
potential changes. This gap analysis indicates, primarily due to the
significant volume of floating rate loans, that Synovus is asset sensitive in
the three month time frame. This asset sensitivity is largely offset in the
four to twelve month time frame resulting in a cumulative one-year gap of minus
.3% as of December 31, 1998. Management believes that adjusted gap analysis is
a useful tool for measuring interest rate risk only when used in conjunction
with its simulation model.
F-45
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
TABLE 13
INTEREST RATE SENSITIVITY
(Amounts in millions)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS
------ ------ ----- -------
<S> <C> <C> <C> <C>
Investment securities (a)..................................................... $ 169.1 318.0 987.5 325.1
Loans and mortgage loans held for sale, net of unearned income................ 3,711.9 1,070.6 2,199.5 586.2
Other......................................................................... 52.7 -- 1.4 --
-------- ------- ------- -------
Interest sensitive assets................................................... 3,933.7 1,388.6 3,188.4 911.3
-------- ------- ------- -------
Deposits...................................................................... 2,327.5 2,275.5 2,066.5 511.0
Other borrowings.............................................................. 496.9 6.1 117.0 3.1
-------- ------- ------- -------
Interest sensitive liabilities.............................................. 2,824.4 2,281.6 2,183.5 514.1
-------- ------- ------- -------
Interest rate swaps......................................................... (270.0) 25.0 245.0 --
-------- ------- ------- -------
Interest sensitivity gap............................................... $ 839.3 (868.0) 1,249.9 397.2
======== ======= ======= =======
Cumulative interest sensitivity gap.................................... $ 839.3 (28.6) 1,221.4 1,618,5
======== ======= ======= =======
Cumulative interest sensitivity gap as a percentage of total
interest sensitive assets............................................. 8.0% (0.3) 11.6 15.4
======== ======= ======= =======
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS
------ ------ ----- -------
<S> <C> <C> <C> <C>
Investment securities (a)..................................................... $ 129.0 379.6 910.5 225.3
Loans and mortgage loans held for sale, net of unearned income................ 3,537.1 1,041.2 1,879.8 151.8
Other......................................................................... 94.7 -- -- --
-------- ------- ------- -------
Interest sensitive assets................................................... 3,760.8 1,420.8 2,790.3 377.1
-------- ------- ------- -------
Deposits...................................................................... 2,190.2 2,017.2 1,708.6 535.3
Other borrowings.............................................................. 339.8 0.5 12.3 79.4
-------- ------- ------- -------
Interest sensitive liabilities.............................................. 2,530.0 2,017.7 1,720.9 614.7
-------- ------- ------- -------
Interest rate swaps......................................................... (325.0) -- 325.0 --
-------- ------- ------- -------
Interest sensitivity gap............................................... $ 905.8 (596.9) 1,394.4 (237.6)
======== ======= ======= =======
Cumulative interest sensitivity gap.................................... $ 905.8 308.9 1,703.3 1,465.7
======== ======= ======= =======
Cumulative interest sensitivity gap as a percentage of total
interest sensitive assets............................................. 10.8% 3.7 20.4 17.6
======== ======= ======= =======
</TABLE>
(a) Excludes the effect of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", consisting of net unrealized gains of $18.0
million and $10.8 million at December 31, 1998 and 1997, respectively.
F-46
TABLE 14
MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
(Amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- -----------------------
AMORTIZED AVERAGE ESTIMATED AVERAGE
COST YIELD FAIR VALUE YIELD
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies:
Within 1 year............................................. $ 8,032 5.92% $ 139,573 5.84%
1 to 5 years.............................................. 18,654 5.96 714,757 6.11
5 to 10 years............................................. 24,310 6.97 309,038 6.62
-------- ----------
Total............................................. 50,996 6.44 1,163,368 6.21
-------- ----------
State and municipal:
Within 1 year............................................. 11,424 8.74 752 7.95
1 to 5 years.............................................. 34,036 8.03 3,484 7.76
5 to 10 years............................................. 63,776 7.52 2,551 7.75
More than 10 years........................................ 43,668 8.26 4,405 6.40
-------- ----------
Total............................................. 152,904 7.94 11,192 7.23
-------- ----------
Other investments:
Within 1 year............................................. 25 7.51 3,675 7.50
1 to 5 years.............................................. 15 6.75 1,625 9.30
5 to 10 years............................................. 1,236 7.16 2,670 6.02
More than 10 years........................................ 20,538 5.25 13,116 3.80
-------- ----------
Total............................................. 21,814 5.36 21,086 5.29
-------- ----------
Mortgage backed securities..................................... 77,899 6.63 318,408 6.23
-------- ----------
Total investment securities:
Within 1 year............................................. 19,481 7.58 144,000 5.89
1 to 5 years.............................................. 52,705 7.30 719,866 6.13
5 to 10 years............................................. 89,322 7.37 314,259 6.62
More than 10 years........................................ 64,206 7.30 17,521 6.15
Mortgage backed securities................................ 77,899 6.63 318,408 6.23
-------- ----------
Total............................................. $303,613 7.16% $1,514,054 6.21%
======== ==========
</TABLE>
The calculation of weighted average yields for securities is based on the
amortized cost and effective yields of each security. The yield on state and
municipal securities is computed on a taxable-equivalent basis using the
statutory federal income tax rate of 35%. Maturity information is presented
based upon contractual maturity. Actual maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
F-47
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
OFF-BALANCE SHEET DERIVATIVES FOR INTEREST RATE RISK MANAGEMENT
As part of the overall interest rate risk management activities,
Synovus utilizes off-balance sheet derivatives to modify the repricing
characteristics of on-balance sheet assets and liabilities. The primary
instruments utilized by Synovus are interest rate swaps where Synovus receives
a fixed rate of interest and pays a floating rate tied to either the prime rate
or three month LIBOR. These swaps are utilized to convert on-balance sheet
floating rate loans to fixed rate assets, thereby reducing Synovus' overall
asset sensitivity.
Synovus also purchased interest rate floors and collars to manage its
overall interest rate risk position. Interest rate floors serve to effectively
convert floating-rate loans to fixed-rate when the prime rate falls below a
pre-specified level. These instruments are utilized to reduce asset sensitivity
in falling rate environments but not in rising rate environments. Interest rate
collars convert floating-rate loans to fixed-rate when the prime rate moves
outside of a pre-specified range. These instruments reduce overall asset
sensitivity in both falling and rising interest rate environments.
All off-balance sheet derivatives utilized by Synovus represent
end-user activities designed as hedges, all of which are linked to specific
assets or liabilities as part of overall interest rate risk management
practices. Management feels that the utilization of these instruments provides
greater financial flexibility and is a very efficient tool for managing
interest rate risk.
The notional amount of off-balance sheet derivatives utilized by
Synovus as of December 31, 1998 and 1997 was $595 million and $515 million,
respectively. The notional amounts represent the amount on which calculations
of interest payments to be exchanged are based. Although Synovus is not exposed
to credit risk equal to the notional amounts, there is exposure to potential
credit risks equal to the fair or replacement values of the swaps if the
counterparty fails to perform. This credit risk is normally a very small
percentage of the notional amount and fluctuates as interest rates change.
Synovus minimizes this risk by subjecting the transaction to the same approval
process as on-balance sheet credit activities, by dealing with only
highly-rated counterparties, and by obtaining collateral agreements for
exposure above certain predetermined limits.
F-48
<TABLE>
<CAPTION>
(Dollars in thousands) Weighted Weighted Weighted
Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
DECEMBER 31, 1998 Amount Receive Rate Pay Rate(a)(b) In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed swaps - LIBOR $ 235,000 5.79% 5.33% 9 $ 1,220 (16) 1,204
Receive fixed forward starting
swaps - LIBOR 100,000 5.90% 5.07% 41 1,455 (16) 1,439
Receive fixed swaps - Prime 95,000 8.79% 7.75% 29 2,226 -- 2,226
--------- ---- ---- -- ------- ------ -----
Total receive fixed swaps 430,000 6.48% 5.80% 21 4,901 (32) 4,869
--------- ---- ---- -- ------- ------ -----
Weighted Weighted Weighted
Notional Average Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Cap Rate Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate collars 80,000 9.16% 7.91% 10 256 -- 256
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate floors 85,000 7.87% 24 453 -- 453
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 595,000 20 $ 5,610 (32) 5,578
========= ======= ====== =====
Weighted Weighted Weighted
Notional Average Average Average Maturity Unrealized Unrealized Net Unrealized
DECEMBER 31, 1997 Amount Receive Rate Pay Rate(a)(b) In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Receive fixed swaps - LIBOR $ 255,000 5.84% 5.82% 24 $ 160 (1,072) (912)
Receive fixed forward starting
swaps - LIBOR 25,000 7.12% 5.81% 46 388 -- 388
Receive fixed swaps - Prime 70,000 9.10% 8.50% 39 1,136 -- 1,136
--------- ---- ---- -- ------- ------ -----
Total receive fixed swaps 350,000 6.59% 6.35% 28 1,684 (1,072) 612
--------- ---- ---- -- ------- ------ -----
Weighted Weighted Weighted
Notional Average Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Cap Rate Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate collars 80,000 9.16% 7.91% 22 -- (48) (48)
Weighted Weighted
Notional Average Floor Average Maturity Unrealized Unrealized Net Unrealized
Amount Rate In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchased interest rate floors 85,000 7.87% 36 -- (62) (62)
Weighted
Notional Average Maturity Unrealized Unrealized Net Unrealized
Amount In Months Gains Losses Gains (Losses)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 515,000 29 $ 1,684 (1,182) 502
========= ======= ====== =====
</TABLE>
(a) Variable pay rate based upon contract rates in effect at December 31,
1998 and 1997.
(b) Pay rate on forward starting swaps is based on the three month LIBOR
at December 31, 1998 and 1997.
The above table represents the December 31, 1998 and 1997 status of
all off-balance sheet interest rate contracts. During 1998, one contract was
terminated by the counterparty due to the exercise of a call option. There
were no maturities, offsets, or terminations in 1997. Off-balance sheet
interest rate contracts contributed additional net interest income of $651,000
and one basis point to the net interest margin for 1998. The impact of
off-balance sheet interest rate contracts for 1997 and 1996 was immaterial.
F-49
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. This risk of loss can be reflected
in either diminished current market values or reduced potential net interest
income in future periods.
Synovus' market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. The structure of Synovus' loan and
deposit portfolios is such that a significant decline in the prime rate may
adversely impact net market values and interest income. Management seeks to
manage this risk through the utilization of various tools, primarily investment
securities and off-balance sheet derivative financial instruments. The
composition and size of the investment portfolio is managed so as to reduce the
interest rate risk in the deposit and loan portfolios while at the same time
maximizing the yield generated from the portfolio. Off-balance sheet
derivatives are also utilized to reduce the risk in the combined deposit and
loan portfolios. One of the primary instruments utilized by Synovus is the
receive fixed interest rate swap which allows the company to effectively convert
on-balance sheet floating rate loans to fixed rate assets. Synovus also
utilizes interest rate floors and collars. These instruments allow the company
to further reduce its exposure to declining interest rates.
The table below presents in tabular form the contractual balances and the
estimated fair value of Synovus' on-balance sheet financial instruments and the
notional amount and estimated fair value of Synovus' off-balance sheet
derivative financial instruments at their expected maturity dates as of December
31, 1998, with comparative summary balances at December 31, 1997. The expected
maturity categories take into consideration historical prepayment experience as
well as management's expectations based on the interest rate environment as of
December 31, 1998. For core deposits without contractual maturity (i.e.,
interest bearing checking, savings, and money market accounts), the table
presents principal cash flows based on management's judgement concerning their
most likely runoff or repricing behaviors The table below presents notional
amounts and weighted-average interest rates by contractual maturity date for
off-balance sheet derivative financial instruments. Notional amounts represent
the amount on which calculations of interest payments to be exchanged are based.
Weighted average variable rates are based on market rates at the most recent
reset date for each respective swap. There have been no substantial changes in
Synovus' market risk profile from the preceding year and the assumptions are
consistent with prior year assumptions.
<TABLE>
<CAPTION>
TABLE 15
MARKET RISK INFORMATION FAIR
(Amounts in thousands) PRINCIPAL/NOTIONAL AMOUNT MATURING IN: TOTAL VALUE
RATE-SENSITIVE ASSETS: 1999 2000 2001 2002 2003 THEREAFTER 1998 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed interest rate loans $1,577,842 711,600 634,512 380,667 498,414 582,365 4,385,400 4,289,543
Average interest rate 8.84% 8.91% 8.69% 8.60% 8.55% 8.70% 8.76%
Variable interest rate loans $2,383,934 260,983 164,132 63,705 111,748 198,321 3,182,823 3,142,081
Average interest rate 9.00% 8.85% 8.75% 8.50% 8.87% 9.15% 8.97%
Fixed interest rate securities $ 453,334 312,929 251,157 186,362 190,133 325,057 1,718,972 1,743,641
Average interest rate 6.35% 6.38% 6.44% 6.16% 5.87% 6.86% 6.39%
Variable interest rate securities $ 4,472 4,449 4,480 4,543 4,628 58,097 80,669 80,129
Average interest rate 6.38% 6.37% 6.37% 6.37% 6.37% 6.31% 6.33%
Other interest bearing assets $ 52,695 1,383 54,078 54,078
Average interest rate 4.78% 6.72% 4.83%
RATE-SENSITIVE LIABILITIES:
- ----------------------------------------------------------------------------------------------------------------------------------
Savings and interest bearing checking $1,673,175 361,579 361,579 317,538 317,537 452,825 3,484,233 3,494,081
Average interest rate 3.61% 3.01% 2.78% 2.75% 2.75% 2.08% 3.11%
Fixed interest rate time deposits $2,805,655 542,885 79,100 39,959 46,276 58,188 3,572,063 3,579,296
Average interest rate 5.41% 5.85% 5.64% 5.67% 5.54% 6.64% 5.50%
Variable interest rate time deposits $ 86,856 35,685 1,560 124,101 124,447
Average interest rate 5.07% 5.10% 5.50% 5.08%
Fixed interest rate borrowings $ 4,384 488 8,935 5,465 77,070 3,138 99,480 101,087
Average interest rate 5.77% 8.08% 5.79% 5.85% 6.12% 5.94% 6.06%
Variable interest rate borrowings $ 498,548 -- 25,000 -- -- -- 523,548 523,548
Average interest rate 4.63% -- 5.03% -- -- -- 4.65%
RATE-SENSITIVE DERIVATIVE FINANCIAL
INSTRUMENTS:
- ----------------------------------------------------------------------------------------------------------------------------------
Pay variable interest rate swaps-LIBOR $ 185,000 50,000 235,000 1,204
Average pay rate 5.32% 5.38%
Average receive rate 5.87% 5.49%
Pay variable forward starting
interest rate swaps - LIBOR 25,000 75,000 100,000 1,439
Average pay rate (a) 5.07% 5.07%
Average receive rate 7.12 5.50%
Pay variable interest rate-Prime 20,000 75,000 95,000 2,226
Average pay rate 7.75% 7.75%
Average receive rate 8.94% 8.75%
Purchased interest rate collars-Prime $ 30,000 50,000 80,000 263
Average cap rate 9.00% 9.25%
Average floor rate 7.75% 8.00%
Purchased interest rate floors-Prime 45,000 40,000 85,000 726
Average floor rate 7.86% 7.88%
<CAPTION>
TABLE 15
MARKET RISK INFORMATION Fair
(Amounts in thousands) Total Value
RATE-SENSITIVE ASSETS: 1997 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Fixed interest rate loans 3,374,593 3,238,431
Average interest rate 9.04%
Variable interest rate loans 3,235,279 3,235,279
Average interest rate 9.26%
Fixed interest rate securities 1,594,732 1,610,517
Average interest rate 6.56%
Variable interest rate securities 49,626 49,626
Average interest rate 6.69%
Other interest bearing assets 94,664 94,664
Average interest rate 5.08%
RATE-SENSITIVE LIABILITIES:
- -----------------------------------------------------------------------
Savings and interest bearing checking 2,852,924 2,859,623
Average interest rate 3.41%
Fixed interest rate time deposits 3,439,813 3,437,167
Average interest rate 5.68%
Variable interest rate time deposits 158,551 158,551
Average interest rate 5.38%
Fixed interest rate borrowings 101,683 100,929
Average interest rate 6.06%
Variable interest rate borrowings 330,359 330,359
Average interest rate 5.50%
RATE-SENSITIVE DERIVATIVE FINANCIAL
INSTRUMENTS:
- -----------------------------------------------------------------------
Pay variable interest rate swaps-LIBOR 255,000 (912)
Average pay rate
Average receive rate
Pay variable forward starting
interest rate swaps - LIBOR 25,000 388
Average pay rate (a)
Average receive rate
Pay variable interest rate-Prime 70,000 1,136
Average pay rate
Average receive rate
Purchased interest rate collars-Prime 80,000 (45)
Average cap rate
Average floor rate
Purchased interest rate floors-Prime 85,000 350
Average floor rate
</TABLE>
(a) Pay rate on forward starting swaps is based on the three month LIBOR at
December 31, 1998.
F-50
LIQUIDITY
Liquidity represents the availability of funding to meet the needs of
depositors, borrowers, and creditors at a reasonable cost, on a timely basis,
and without adverse consequences. The Synovus Asset/Liability Management
Committee actively analyzes and manages Synovus' liquidity position in
coordination with similar committees at each subsidiary bank. These
subsidiaries, with the help of management, maintain liquidity in the form of
cash on deposit, federal funds, securities available for sale, and cash derived
from prepayments and maturities of both their investment and loan portfolios.
Liquidity is also enhanced by the acquisition of new deposits and the well
established core deposits of Synovus' 239 banking offices in four states. The
subsidiary banks monitor deposit flow and evaluate alternate pricing structures
to retain and grow deposits. Certain Synovus subsidiary banks maintain
correspondent banking relationships with various national and regional
financial organizations. These relationships provide access to short-term
borrowings through federal funds which allows Synovus to meet immediate
liquidity needs if required.
Synovus serves a diversity of markets. Some of these are rapidly
growing areas where loan demand outpaces the generation of deposits. However,
through loan participations and federal funds sold among Synovus' subsidiary
banks, these loans can be effectively funded by subsidiaries having lower local
loan demand. Additionally, lending is focused within the local markets served
by Synovus, enabling the development of comprehensive banking relationships.
Selected Synovus subsidiary banks maintain an additional liquidity
source through their membership in the Federal Home Loan Bank. These banks have
access to significant funding capacity through the utilization of Federal Home
Loan Bank advances.
Additionally, the Parent Company requires cash for various operating
needs including dividends to shareholders, business combinations, capital
infusions into subsidiaries, the servicing of debt, and the payment of general
corporate expenses. The primary source of liquidity for the Parent Company is
dividends from the subsidiary banks. In addition, the Parent Company has access
to a $25 million line of credit. The Parent Company enjoys an excellent
reputation and credit standing in the market place and has the ability to raise
substantial amounts of funds in the form of either short or long-term
borrowings. The Parent Company's current principal debt, senior notes totaling
$75 million at a rate of 6.125%, has been rated "A" by Standard and Poors
Corp., "A3" by Moody's Investor Service and "AA-" by Thomson Bankwatch. For a
complete description of these borrowings and other borrowings by other Synovus
subsidiaries, see Note 6 to Synovus' consolidated financial statements.
The consolidated statements of cash flows detail Synovus' cash flows
from operating, investing, and financing activities. Net cash provided by
operating activities was $158.1 million for the year ended December 31, 1998,
while financing activities provided $416.9 million. Investing activities used
$614.8 million of this amount, resulting in a net decrease in cash and cash
equivalents of $39.8 million.
Management is not aware of any trends, events, or uncertainties that
will have, or that are reasonably likely to have a material impact on Synovus'
liquidity, capital resources, or operations. Further, management is not aware
of any current recommendations by regulatory agencies which, if they were to be
implemented, would have such effect. However, as noted in the discussion under
the section titled Year 2000 Readiness Disclosure, Synovus has included
measures that address liquidity and the ready availability of cash in its
business resumption planning.
CAPITAL RESOURCES
Synovus has always placed great emphasis on maintaining a strong
capital base and continues to exceed regulatory capital requirements. Management
is committed to maintaining a capital level sufficient to assure shareholders,
customers, and regulators that Synovus is financially sound, and to enable
Synovus to sustain an appropriate degree of leverage to provide a desirable
level of profitability. Synovus has the ability to generate internal capital
growth sufficient to support the asset growth it has experienced. Total
shareholders' equity of $1.1 billion represented 10.2% of total assets at
December 31, 1998.
Regulators use a risk-adjusted calculation to aid them in their
determination of capital adequacy by weighting assets based on the credit risk
associated with on- and off-balance sheet assets. The majority of these
risk-weighted assets for Synovus are on-balance sheet assets in the form of
loans. A small portion of risk-weighted assets are considered off-balance sheet
assets and are primarily made up of letters of credit, loan commitments, and to
a lesser extent interest rate contracts, that Synovus enters into in the normal
course of business. Capital is categorized into two types: Tier I and Tier II.
The capital guidelines used by regulators require an 8% total risk-based
capital ratio of which 4% must be Tier I capital. Additionally, the regulatory
agencies define a well-capitalized bank as one that has a leverage ratio of at
least 5%, a Tier I capital ratio of at least 6% and a total risk-based capital
ratio of at least 10%. At the end of 1998, Synovus and all subsidiary banks
were in excess of the minimum capital requirements with a consolidated Tier I
capital ratio of 12.48% and a total risk-based capital ratio of 13.75%,
compared to Tier I and total risk-based capital ratios of 12.34% and 13.62%,
respectively, in 1997 as shown in Table 16.
In addition to the risk-based capital standards, a minimum leverage
ratio of 4% is required for the highest-rated bank holding companies that are
not undertaking significant expansion programs. An additional 1% to 2% may be
required for other companies, depending upon their regulatory ratings and
expansion plans. The leverage ratio is defined as Tier I capital divided by
quarterly average assets, net of certain intangibles. As of December 31, 1998,
Synovus had a leverage ratio of 10.76% compared to 10.02% at December 31, 1997.
Both ratios significantly exceed regulatory requirements.
Synovus' capital level also exceeds all requirements under the Federal
Reserve Board's guidelines. The Federal Reserve Board requires a minimum
primary capital ratio of 5.50% and a total capital ratio of 6.00% for bank
holding companies and banks. At December 31, 1998, Synovus' primary and total
capital ratios as defined by the Federal Reserve Board were 11.26% and 11.27%,
respectively, compared to 10.80% and 10.82%, respectively, at year-end 1997.
On August 31, 1998, Synovus rescinded its share repurchase plan due
to its effect on accounting for acquisitions under the pooling of interests
method.
Synovus' 80.7% ownership of TSYS is an important aspect of the market
price of Synovus common stock and should be considered in a comparison of the
relative market price of Synovus common stock to other financial services
companies. As of December 31, 1998, there were approximately 33,201 shareholders
of record of Synovus common stock, some of which are holders in nominee name
for the benefit of a number of different shareholders. Table 17 displays high
and low stock price quotations of Synovus common stock which are based on
actual transactions.
F-51
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
TABLE 16
CAPITAL RATIOS
(Amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Tier I capital:
Shareholders' equity..................................................... $ 1,070,601 903,656
Less: Unrealized gain on investment securities available for sale........ (11,166) (6,651)
Disallowed intangibles............................................... (33,986) (36,178)
Plus: Minority interest.................................................. 52,093 42,641
----------- -----------
Total Tier I capital................................................. 1,077,542 903,468
----------- -----------
Tier II capital:
Eligible portion of the reserve for loan losses.......................... 107,999 91,633
Subordinated and other qualifying debt................................... 1,720 1,960
----------- -----------
Total Tier II capital................................................ 109,719 93,593
----------- -----------
Total risk-based capital...................................................... $ 1,187,261 997,061
=========== ===========
Total risk-adjusted assets.................................................... $ 8,637,075 7,319,248
=========== ===========
Tier I capital ratio.......................................................... 12.48% 12.34
Total risk-based capital ratio................................................ 13.75 13.62
Leverage ratio................................................................ 10.76 10.02
Regulatory minimums:
Tier I capital ratio..................................................... 4.00%
Total risk-based capital ratio........................................... 8.00
Leverage ratio........................................................... 4.00
</TABLE>
TABLE 17
MARKET AND STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1998
QUARTER ENDED DECEMBER 31, 1998............................................... $24 1/16 20 3/16
QUARTER ENDED SEPTEMBER 30, 1998.............................................. 25 18 1/16
QUARTER ENDED JUNE 30, 1998................................................... 25 13/16 21 15/16
QUARTER ENDED MARCH 31, 1998.................................................. 25 13/16 20 3/4
1997
Quarter ended December 31, 1997............................................... $22 3/8 13 5/16
Quarter ended September 30, 1997.............................................. 19 5/16 14 5/16
Quarter ended June 30, 1997................................................... 18 15/16 14 1/2
Quarter ended March 31, 1997.................................................. 17 5/16 13 1/16
</TABLE>
DIVIDENDS
It is Synovus' objective to pay out at least one-third of earnings to
shareholders in cash dividends. Synovus' dividend payout ratio in 1998, 1997,
and 1996 was 41.52%, 38.10%, and 36.62%, respectively. The total dollar amount
of dividends declared increased 23.4% in 1998 to $77.7 million, from $62.9
million in 1997. Cash dividends have been paid on the common stock of Synovus
(including its predecessor companies) in every year since 1891. It is the
present intention of the Synovus Board of Directors to continue to pay cash
dividends on its common stock in accordance with the previously mentioned
objective. Table 18 presents the declared and paid dates from recent dividends,
as well as per share dividend amounts.
F-52
TABLE 18
DIVIDENDS
<TABLE>
<CAPTION>
PER SHARE
DATE DECLARED DATE PAID AMOUNT
- ------------------ ---------------- ---------
<S> <C> <C>
NOVEMBER 9, 1998 JANUARY 2, 1999 $.0733
SEPTEMBER 14, 1998 OCTOBER 1, 1998 .0733
MAY 11, 1998 JULY 1, 1998 .0733
MARCH 9, 1998 APRIL 1, 1998 .0733
November 10, 1997 January 2, 1998 .0600
September 15, 1997 October 1, 1997 .0600
May 12, 1997 July 1, 1997 .0600
March 10, 1997 April 1, 1997 .0600
</TABLE>
COMMITMENTS AND CONTINGENCIES
Synovus believes it has sufficient capital, liquidity, and future cash
flows from operations to meet operating needs over the next year. Table 19,
Note 6, and Note 10 to Synovus' consolidated financial statements provide
additional information on Synovus' short-term and long-term borrowings.
In the normal course of its business, TSYS maintains processing
contracts with its customers. These processing contracts contain commitments,
including, but not limited to, minimum standards and time frames against which
TSYS' performance is measured. In the event TSYS does not meet its contractual
commitments with its customers, TSYS may incur penalties and/or certain
customers may have the right to terminate their contracts with TSYS. TSYS does
not believe that it will fail to meet its contractual commitments to an extent
that will result in a material adverse effect on its financial condition or
results of operations.
Synovus is subject to various legal proceedings and claims which arise
in the ordinary course of its business. Any litigation is vigorously defended
by Synovus and, in the opinion of management, based consultation with external
legal counsel, any outcome of such litigation would not materially affect
Synovus' consolidated financial position or results of operations.
Currently, multiple lawsuits seeking class action treatment are
pending against one of Synovus' Alabama banking subsidiaries that involve: (1)
payment of service fees or interest rebates to automobile dealers in connection
with the assignment of automobile credit sales contracts to that Synovus
subsidiary; (2) the forced placement of insurance to protect that Synovus
subsidiary's interest in collateral for which consumer credit customers have
failed to obtain or maintain insurance; and (3) the receipt of commissions by
that Synovus subsidiary in connection with the sale of credit life insurance to
its consumer credit customers and the charging of an interest surcharge and a
processing fee in connection with consumer loans made by that subsidiary. These
lawsuits seek unspecified damages, including punitive damages. Synovus intends
to vigorously contest these lawsuits and all other litigation to which Synovus
and its subsidiaries are parties. Based upon information presently available,
and in light of legal, equitable, and factual defenses available to Synovus and
its subsidiaries, contingent liabilities arising from the threatened and
pending litigation are not considered material. It should be noted, however,
that large punitive damage awards bearing little relation to the actual damages
sustained by plaintiffs have been awarded in Alabama.
The following table sets forth certain information regarding federal
funds purchased and securities sold under agreement to repurchase, the
principal components of short-term borrowings.
TABLE 19
SHORT-TERM BORROWINGS
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Month end balance at December 31, ..................................... $ 496,013 305,868 339,200
Weighted average interest rate at December 31, ........................ 4.69% 5.73 6.22
Maximum month end balance during the year.............................. $ 496,013 514,027 421,672
Average amount outstanding during the year............................. $ 302,980 349,929 288,107
Weighted average interest rate during the year......................... 4.95% 5.38 5.20
</TABLE>
F-53
IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN?
INCOME TAX EXPENSE
As reported in the consolidated statements of income, Synovus' income
tax expense increased to $104.5 million in 1998, up from $93.7 million in 1997,
and $79.7 million in 1996. The effective income tax rate was 35.8%, 36.2%, and
36.3% in 1998, 1997, and 1996, respectively. The decline in Synovus' effective
income tax rate in 1998, as compared to 1997 and 1996, is primarily
attributable to tax credits earned and new favorable state income tax
legislation affecting TSYS. See Note 7 to Synovus' consolidated financial
statements for a detailed analysis of income taxes.
INFLATION
Inflation has an important impact on the growth of total assets in the
banking industry and may create a need to increase equity capital at higher
than normal rates in order to maintain an appropriate equity to assets ratio.
Synovus has been able to maintain a high level of equity through retention of
an appropriate percentage of its net income. Synovus copes with the effects of
inflation by managing its interest rate sensitivity gap position through its
asset/liability management program and by periodically adjusting its pricing of
services and banking products to take into consideration current costs.
PARENT COMPANY
The Parent Company's assets, primarily its investment in subsidiaries,
are funded, for the most part, by shareholders' equity. It also utilizes
short-term and long-term debt. The Parent Company is responsible for providing
the necessary funds to strengthen the capital of its subsidiaries, acquire new
business, pay corporate operating expenses, and pay dividends to its
shareholders. These operations are funded by dividends and fees received from
subsidiaries, and borrowings from outside sources.
In connection with dividend payments to the Parent Company from its
subsidiary banks, certain rules and regulations of the various state and
federal banking regulatory agencies limit the amount of dividends which may be
paid. Approximately $92.9 million in dividends could be paid in 1999 to the
Parent Company from its subsidiary banks without prior regulatory approval.
Synovus anticipates receiving regulatory approval to allow certain subsidiaries
to pay dividends in excess of their respective regulatory limits.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments on the balance sheet
at fair value. The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and, if so, on the reason for
holding it. If certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair values, cash
flows, or foreign currencies. If the hedged exposure is a fair value exposure,
the gain or loss on the derivative instrument is recognized in earnings in the
period of change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is a cash flow
exposure, the effective portion of the gain or loss on the derivative
instrument is reported initially as a component of other comprehensive income
(outside earnings) and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion of the
gain or loss is reported in earnings immediately. If the derivative instrument
is not designated as a hedge, the gain or loss is recognized in earnings in the
period of change.
Synovus must adopt SFAS No. 133 by January 1, 2000; however, early
adoption is permitted. On adoption, the provisions of SFAS No. 133 must be
applied prospectively. Synovus plans to adopt SFAS No. 133 on January 1, 2000.
Synovus has not determined the impact that SFAS No. 133 will have on
its financial statements and believes that such determination will not be
meaningful until closer to the date of initial adoption.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report which are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act (the "Act"). 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 banking and non-banking 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.
Forward-looking statements involve risks and uncertainties which may
cause actual results to differ materially from those in such statements.
Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (i) the strength of
the U.S. economy in general and the strength of the local economies in which
operations are conducted; (ii) the effects of and changes in trade, monetary and
fiscal policies, and laws, including interest rate policies of the Federal
Reserve Board; (iii) inflation, interest rate, market and monetary
fluctuations; (iv) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users;
(v) changes in consumer spending, borrowing, and saving habits; (vi)
technological changes (including "Year 2000" data systems compliance issues) are
more difficult or expensive than anticipated; (vii) acquisitions; (viii) the
ability to increase market share and control expenses; (ix) 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; (x) the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies, the Financial
Accounting Standards Board, or other authoritative bodies; (xi) changes in
Synovus' organization, compensation, and benefit plans; (xii) the costs and
effects of litigation and of unexpected or adverse outcomes in such litigation;
and (xiii) 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.
F-54
SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
Presented below is a summary of the unaudited consolidated quarterly financial
data for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
---------- --------- -------- --------
<S> <C> <C> <C> <C>
1998
INTEREST INCOME.......................... $ 199,567 193,659 189,067 186,955
========== ========= ======== ========
NET INTEREST INCOME...................... 115,485 111,039 107,940 106,062
========== ========= ======== ========
PROVISION FOR LOSSES ON LOANS............ 6,331 5,731 7,004 7,594
========== ========= ======== ========
INCOME BEFORE INCOME TAXES............... 84,618 74,220 68,621 64,173
========== ========= ======== ========
NET INCOME............................... 54,245 47,438 44,212 41,213
========== ========= ======== ========
NET INCOME PER SHARE, BASIC.............. .20 .18 .17 .16
========== ========= ======== ========
NET INCOME PER SHARE, DILUTED............ .20 .18 .17 .15
========== ========= ======== ========
1997
Interest income.......................... $ 187,803 185,047 180,409 172,414
========== ========= ======== ========
Net interest income...................... 106,783 104,843 102,608 98,155
========== ========= ======== ========
Provision for losses on loans............ 9,412 7,604 8,279 7,001
========== ========= ======== ========
Income before income taxes............... 73,292 67,130 62,227 56,254
========== ========= ======== ========
Net income............................... 47,006 43,101 39,322 35,807
========== ========= ======== ========
Net income per share, basic.............. .18 .17 .15 .14
========== ========= ======== ========
Net income per share, diluted............ .18 .16 .15 .13
========== ========= ======== ========
</TABLE>
F-55
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Synovus Financial Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
1) Title of each class of securities to which transaction applies:
___________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):
___________________________________________________________________
4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
5) Total fee paid:
___________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________
3) Filing Party:
___________________________________________________________________
4) Date Filed:
___________________________________________________________________
[LOGO](R)
SYNOVUS(R)
FINANCIAL CORP.
`
JAMES H. BLANCHARD
CHAIRMAN OF THE BOARD
March 19, 1999
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders at
10:00 a.m. on Thursday, April 22, 1999, in the South Hall of the Columbus,
Georgia Convention & Trade Center. Enclosed with this Proxy Statement are
your proxy card and the 1998 Annual Report.
We hope that you will be able to be with us and let us give you a review of
1998. Whether you own a few or many shares of stock and whether or not you plan
to attend in person, it is important that your shares be voted on matters that
come before the meeting. To make sure your shares are represented, we urge you
to complete and mail the enclosed proxy card promptly.
Thank you for helping us make 1998 a good year. We look forward to your
continued support in 1999 and another good year.
Sincerely yours,
/s/James H. Blanchard
JAMES H. BLANCHARD
Synovus Financial Corp. Post Office Box 120 Columbus, Georgia 31902-0120
SYNOVUS(R)
FINANCIAL CORP.
NOTICE OF THE 1999 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of the Shareholders of Synovus Financial Corp. will be
held at 10:00 a.m. on Thursday, April 22, 1999, in the South Hall of the
Columbus, Georgia Convention & Trade Center for the following purposes:
(1) The election of six directors for a term of three years; and
(2) The transaction of any other business as may properly come before the
Annual Meeting.
Information relating to the above matters is set forth in the accompanying
Proxy Statement.
Only shareholders of record at the close of business on February 11, 1999
will be entitled to notice of and to vote at the Annual Meeting.
/s/G. SANDERS GRIFFITH, III
G. SANDERS GRIFFITH, III
Secretary
Columbus, Georgia
March 19, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, DATE
AND SIGN THE ENCLOSED PROXY, COMPLETE AND SIGN THE CERTIFICATE OF BENEFICIAL
OWNER, AND RETURN THEM PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
TABLE OF CONTENTS
Voting Information.............................................................1
Election of Directors..........................................................3
Meetings and Committees of the Board...........................................5
Directors' Compensation........................................................6
Executive Officers.............................................................7
Stock Ownership of Directors and Executive Officers............................8
Executive Compensation.........................................................9
Stock Performance Graph.......................................................12
Compensation Committee Report on Executive Compensation.......................12
Compensation Committee Interlocks and
Insider Participation....................................................15
Transactions With Management..................................................15
Principal Shareholders........................................................16
Relationships Between Synovus, Columbus Bank and
Certain of Synovus' Subsidiaries and Affiliates..........................18
Section 16(a) Beneficial Ownership Reporting Compliance.......................22
Independent Auditors..........................................................22
General Information:
Financial Information....................................................22
Shareholder Proposals for the 2000 Proxy Statement.......................22
Director Nominees or Other Business for Presentation
at the Annual Meeting...............................................23
Solicitation of Proxies..................................................23
VOTING INFORMATION
PURPOSE
This Proxy Statement and the accompanying proxy card are being mailed to
Synovus shareholders beginning March __, 1999. The Synovus Board of Directors is
soliciting proxies to be used at the 1999 Annual Meeting of Synovus Shareholders
which will be held on April 22, 1999, at 10:00 a.m., in the South Hall of the
Columbus, Georgia Convention & Trade Center. Proxies are solicited to give all
shareholders of record an opportunity to vote on matters to be presented at the
Annual Meeting. In the following pages of this Proxy Statement, you will find
information on matters to be voted upon at the Annual Meeting of Shareholders or
any adjournment of that meeting.
WHO CAN VOTE
All shareholders of record of Synovus Common Stock as of the close of
business on February 11, 1999 are entitled to vote. Shares can be voted at the
meeting only if the shareholder is present or represented by a valid proxy.
SHARES OUTSTANDING
A majority of the votes entitled to be cast by the holders of the
outstanding shares of Synovus Common Stock must be present, either in person or
represented by proxy, in order to conduct the Annual Meeting of Synovus
Shareholders. On February 11, 1999, 270,805,035 shares of Synovus Common Stock
were outstanding.
PROXY CARD
If you sign the proxy card but do not specify how you want your shares to
be voted, your shares will be voted by the individuals named on the card (your
"proxies") in favor of the election of all listed nominees. Your proxies will
vote at their discretion on any other matter that may properly come before the
meeting and is not listed on the proxy card.
VOTING OF SHARES
Holders of Synovus Common Stock are entitled to ten votes on each matter
submitted to a vote of shareholders for each share of Synovus Common Stock owned
on February 11, 1999 which: (1) has had the same owner since February 11, 1995;
(2) was acquired by reason of participation in a dividend reinvestment plan
offered by Synovus and is held by the same owner who acquired it under such
plan; (3) is held by the same owner to whom it was issued as a result of an
acquisition of a company or business by Synovus where the resolutions adopted by
Synovus' Board of Directors approving the acquisition specifically grant ten
votes per share; (4) was acquired under any employee, officer and/or
director benefit plan maintained for one or more employees, officers and/or
directors of Synovus and/or its subsidiaries, and is held by the same owner for
whom it was acquired under any such plan; (5) is held by the same owner to whom
it was issued by Synovus, or to whom it was transferred by Synovus from treasury
shares, and the resolutions adopted by Synovus' Board of Directors approving
such issuance and/or transfer specifically grant ten votes per share; (6) was
acquired as a direct result of a stock split, stock dividend or other type of
share distribution if the share as to which it was distributed was acquired
prior to, and has been held by the same owner since, February 11, 1995; (7) has
been owned continuously by the same shareholder for a period of 48 consecutive
months prior to the record date of any meeting of shareholders at which the
share is eligible to be voted; or (8) is owned by a holder who, in addition to
shares which are owned under the provisions of (1)-(7) above, is the owner of
less than 1,139,063 shares of Synovus Common Stock (which amount has been
appropriately adjusted to reflect stock splits and with such amount to be
appropriately adjusted to properly reflect any other change in Synovus Common
Stock by means of a stock split, a stock dividend, a recapitalization or
otherwise). Shareholders of shares of Synovus Common Stock not described above
are entitled to one vote per share for each share. The actual voting power of
each holder of shares of Synovus Common Stock will be based on information
possessed by Synovus at the time of the Annual Meeting.
As Synovus Common Stock is registered with the Securities and Exchange
Commission and is traded on the New York Stock Exchange, Synovus Common Stock is
subject to the provisions of an NYSE rule which, in general, prohibits a
company's common stock and equity securities from being authorized or remaining
authorized for trading on the NYSE if the company issues securities or takes
other corporate action that would have the effect of nullifying, restricting or
disparately reducing the voting rights of existing shareholders of the company.
However, the rule contains a "grandfather" provision, under which Synovus' ten
vote provision falls, which, in general, permits grandfathered disparate voting
rights plans to continue to operate as adopted. The number of votes that each
shareholder will be entitled to exercise at the Annual Meeting will depend upon
whether each share held by the shareholder meets the requirements which entitle
one share of Synovus Common Stock to ten votes on each matter submitted to a
vote of shareholders. Shareholders of Synovus Common Stock must complete the
Certification on the proxy in order for any of the shares represented by the
proxy to be entitled to ten votes per share. All shares entitled to vote and
represented by properly executed proxies received before the polls are closed at
the Annual Meeting, and not revoked or superceded, will be voted in accordance
with instructions indicated on those proxies.
SHAREHOLDERS WHO DO NOT COMPLETE THE CERTIFICATIONS ON THEIR PROXY CARDS AND WHO
WOULD, IF THEY HAD COMPLETED SUCH CERTIFICATIONS, BE ENTITLED TO TEN VOTES PER
SHARE, WILL BE ENTITLED TO ONLY ONE VOTE PER SHARE.
SYNOVUS DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN
If you participate in this Plan, your proxy card represents shares held in
the Plan, as well as shares you hold directly in certificate form registered in
the same name.
REQUIRED VOTES--ELECTION OF DIRECTOR NOMINEES
Directors are elected by a plurality of the votes, which means the nominees
for the six director positions who receive the largest number of properly
executed votes will be elected as directors. Each share of Common Stock is
entitled to either one vote per share or ten votes per share for each of the six
director nominees as described above in the section captioned "Voting of
Shares." Cumulative voting is not permitted. Shares that are represented by
proxies which are marked "withhold authority" for the election of one or more
director nominees will not be counted in determining the number of votes cast
for those persons.
TABULATION OF VOTES
Under certain circumstances, brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned proxies to
the brokers (so-called "broker non-votes"). In such cases, and in cases where
the shareholder abstains from voting on a matter, those shares will be counted
for the purpose of determining if a quorum is present but will not be included
in the vote totals with respect to those matters and, therefore, will have no
effect on the vote.
HOW YOU CAN VOTE
Vote your choices by marking the appropriate boxes on the enclosed proxy
card. Sign and return the proxy card promptly in the enclosed self-addressed
envelope. YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY
SO YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN
PERSON.
REVOCATION OF PROXY
If you vote by proxy, you may revoke that proxy at any time before it is
voted at the meeting. You can revoke your proxy by delivering to Synovus a proxy
card bearing a later date or by attending the meeting in person and casting a
ballot.
COLUMBUS BANK AND TRUST COMPANY AND TOTAL SYSTEM SERVICES, INC.
Synovus is the owner of all of the issued and outstanding shares of
common stock of Columbus Bank and Trust Company(R)("Columbus Bank"). Columbus
Bank owns individually 80.8% of the outstanding shares of Total System Services,
Inc.(R) ("TSYS(R)"), a bankcard data processing company having 194,909,527
shares of common stock outstanding on February 11, 1999.
ELECTION OF DIRECTORS
NUMBER
At the date of this Proxy Statement, the Board of Directors of Synovus
consists of 17 members. As 20 board seats have been authorized by Synovus'
shareholders, Synovus has three directorships which remain vacant. These vacant
directorships could be filled in the future at the discretion of Synovus' Board
of Directors. This discretionary power gives Synovus' Board of Directors the
flexibility of appointing new directors in the periods between Synovus' Annual
Meetings should suitable candidates come to its attention. The Board is divided
into three classes whose terms are staggered so that the term of one class
expires at each Annual Meeting of Shareholders. The terms of office of the Class
II directors expire at the 1999 Annual Meeting, the terms of office of the Class
III directors expire at the 2000 Annual Meeting and the terms of office of the
Class I directors expire at the 2001 Annual Meeting. Six director nominees
have been nominated for election as Class II directors at this meeting. Proxies
cannot be voted at the 1999 Annual Meeting for a greater number of persons than
the number of nominees named.
NOMINEES
The following nominees have been selected by the Board for submission to
the shareholders: Richard E. Anthony, Joe E. Beverly, Walter M. Deriso, Jr.,
Mason H. Lampton, Elizabeth C. Ogie and Melvin T. Stith, each to serve a three
year term expiring at the Annual Meeting in the year 2002.
The Board believes that each director nominee will be able to stand for
election. If any nominee becomes unable to stand for election, proxies in favor
of that nominee will be voted in favor of the remaining nominees and in favor of
any substitute nominee named by the Board. If you do not wish your shares voted
for one or more of the nominees, you may so indicate on the proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
EACH OF THE NOMINEES.
BOARD OF DIRECTORS
Following is the principal occupation, age and certain other information
for each director nominee and other directors serving unexpired terms.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Synovus Year
Director First
Classifi- Elected Principal Occupation
Name Age cation Director and Other Information
- ------------------------- ----- -------- ---------- -------------------------------------
<S> <C> <C> <C> <C>
Richard E. Anthony<F1> 52 II 1993 Vice Chairman of the Board,
Synovus Financial Corp.; Chairman
of the Board, First Commercial Bank
of Birmingham (Banking Subsidiary
of Synovus)
Joe E. Beverly 57 II 1983 Chairman of the Board, Commercial
Bank, Thomasville, Georgia
(Banking Subsidiary of Synovus);
Director, Flowers Industries, Inc.
James H. Blanchard<F2> 57 I 1972 Chairman of the Board and Chief
Executive Officer, Synovus Financial
Corp.; Chairman of the Executive
Committee, Total System Services,
Inc.; Director, BellSouth Corporation
Richard Y. Bradley<F3> 60 III 1991 Partner, Bradley & Hatcher (Law
Firm); Director, Total System
Services, Inc.
Stephen L. Burts, Jr.<F4> 46 I 1992 Vice Chairman of the Board,
Synovus Financial Corp.
Walter M. Deriso, Jr.<F5> 52 II 1997 Vice Chairman of the Board,
Synovus Financial Corp.; Chairman
of the Board, Security Bank and
Trust Company, Albany, Georgia
(Banking Subsidiary of Synovus)
C. Edward Floyd, M.D. 64 I 1995 Vascular Surgeon
Gardiner W. Garrard, Jr. 58 I 1972 President, The Jordan Company
(Real Estate Development); Director,
Total System Services, Inc.
V. Nathaniel Hansford 55 I 1985 Professor and Dean Emeritus
--School of Law, University of
Alabama
John P. Illges, III 64 III 1997 Senior Vice President and Financial
Consultant, The Robinson-Humphrey
Company, Inc. (Stockbroker);
Director, Total System Services, Inc.
Mason H. Lampton 51 II 1993 Chairman of the Board and President,
The Hardaway Company (Construction Company);
Director, Total System Services, Inc.
Elizabeth C. Ogie<F6> 48 II 1993 Director, W.C. Bradley Co. (Metal
Manufacturer and Real Estate)
H. Lynn Page 58 I 1978 Director, Synovus Financial
Corp., Columbus Bank and Trust
Company and Total System Services,
Inc.
Robert V. Royall 64 I 1995 Chairman of the Board, The National
Bank of South Carolina (Banking
Subsidiary of Synovus); Director, Blue
Cross Blue Shield of South Carolina
Melvin T. Stith 52 II 1998 Dean, College of Business, Florida
State University; Director, Rexall Sundown,
Inc. and Correctional Services Corp.
William B. Turner<F6><F7> 76 III 1972 Chairman of the Executive
Committee, Columbus Bank and
Trust Company and Synovus
Financial Corp.; Advisory Director, W.
C. Bradley Co. (Metal Manufacturer
and Real Estate); Director,
Total System Services, Inc.
James D. Yancey<F8> 57 I 1978 President and Chief Operating Officer, Synovus
Financial Corp.; Chairman of the Board,
Columbus Bank and Trust Company;
Director, Total System Services, Inc.
and Shoney's, Inc.
- -------------
<FN>
<F1> Richard E. Anthony was elected Vice Chairman of Synovus in September 1995.
Prior to 1995, Mr. Anthony served, and continues to serve, as President of
Synovus Financial Corp. of Alabama and Chairman of the Board of First
Commercial Bank of Birmingham, both of which companies are subsidiaries of
Synovus.
<F2> James H. Blanchard was elected Chairman of the Board of Synovus in April
1986. Prior to 1986, Mr. Blanchard served in various capacities with
Synovus, Columbus Bank and/or TSYS, including President of Synovus.
<F3> Richard Y. Bradley formed Bradley & Hatcher in September 1995. From 1991
until 1995, Mr. Bradley served as President of Bickerstaff Clay Products
Company, Inc.
<F4> Stephen L. Burts, Jr. was elected Vice Chairman of Synovus in April 1998.
Prior to 1998, Mr. Burts served in various capacities with Synovus
and/or Columbus Bank, including Presdent of Synovus.
<F5> Walter M. Deriso, Jr. was elected Vice Chairman of Synovus in January
1997. Prior to 1997, Mr. Deriso served as President of Security Bank and
Trust Company.
<F6> Elizabeth C. Ogie is William B. Turner's niece.
<F7> William B. Turner was elected Chairman of the Executive Committee of
Synovus in April 1986. Prior to 1986, Mr. Turner served in various
capacities with Synovus and/or Columbus Bank, including Chairman of the
Board of both Synovus and Columbus Bank.
<F8> James D. Yancey was elected President and Chief Operating Officer of
Synovus in April 1998. Prior to 1998, Mr. Yancey served in various
capacities with Synovus and/or Columbus Bank, including Vice Chairman of
the Board and President of both Synovus and Columbus Bank.
</FN>
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
The business affairs of Synovus are managed under the direction of the
Board of Directors in accordance with the Georgia Business Corporation Code, as
implemented by Synovus' Articles of Incorporation and bylaws. Members of the
Board are kept informed through reports routinely presented at Board and
committee meetings by the Chief Executive Officer and other officers, and
through other means.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held seven meetings in 1998. All directors attended
at least 82% of Board and committee meetings during 1998.
COMMITTEES OF THE BOARD
Synovus' Board of Directors has three principal standing committees -- an
Executive Committee, an Audit Committee and a Compensation Committee. There is
no Nominating Committee of Synovus' Board of Directors. The following table
shows the membership of the various committees.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Executive Audit Compensation
- ---------- ----- -------------
<S> <C> <C>
William B. Turner, Chair Gardiner W. Garrard, Jr., Chair Mason H. Lampton, Chair
James H. Blanchard John P. Illges, III V. Nathaniel Hansford
James D. Yancey
Richard Y. Bradley
Gardiner W. Garrard, Jr.
</TABLE>
- --------------------------------------------------------------------------------
Executive Committee. During the intervals between meetings of Synovus'
Board of Directors, Synovus' Executive Committee possesses and may exercise any
and all of the powers of Synovus' Board of Directors in the management and
direction of the business and affairs of Synovus with respect to which specific
direction has not been previously given by Synovus' Board of Directors. During
1998, Synovus' Executive Committee held four meetings.
Audit Committee. The primary functions to be engaged in by Synovus' Audit
Committee include: (i) annually recommending to Synovus' Board the independent
certified public accountants to be engaged by Synovus for the next fiscal year;
(ii) reviewing the plan and results of the annual audit by Synovus' independent
auditors; (iii) reviewing and approving the range of management advisory
services provided by Synovus' independent auditors; (iv) reviewing Synovus'
internal audit function and the adequacy of the internal accounting control
systems of Synovus; (v) reviewing the results of regulatory examinations of
Synovus; (vi) periodically reviewing the financial statements of Synovus; and
(vii) considering such other matters with regard to the internal and independent
audit of Synovus as, in its discretion, it deems to be necessary or desirable,
periodically reporting to Synovus' Board as to the exercise of its duties and
responsibilities and, where appropriate, recommending matters in connection with
the audit function with respect to which Synovus' Board should consider taking
action. During 1998, Synovus' Audit Committee held two meetings.
Compensation Committee. The primary functions to be engaged in by Synovus'
Compensation Committee include: (i) evaluating the remuneration of senior
management and board members of Synovus and its subsidiaries and the
compensation and fringe benefit plans in which officers, employees and directors
of Synovus are eligible to participate; and (ii) recommending to Synovus' Board
whether or not it should modify, alter, amend, terminate or approve such
remuneration, compensation or fringe benefit plans. During 1998, Synovus'
Compensation Committee held four meetings.
DIRECTORS' COMPENSATION
COMPENSATION
During 1998, each of Synovus' directors received a $15,000 annual retainer,
and fees of $800 for each meeting of Synovus' Board of Directors and each
Executive Committee meeting they personally attended. Members of the Committees
of Synovus' Board of Directors (other than the Executive Committee) received
fees of $500, with the Chairmen of such Committees receiving fees of $750, for
each Committee meeting they personally attended. In addition, directors of
Synovus received an $800 fee for each board meeting from which their absence was
excused and an $800 fee for one meeting without regard to the reason for their
absence.
DIRECTOR STOCK PURCHASE PLAN
Synovus' Director Stock Purchase Plan is a non-tax-qualified, contributory
stock purchase plan pursuant to which qualifying Synovus directors can purchase,
with the assistance of contributions from Synovus, presently issued and
outstanding shares of Synovus Common Stock. Under the terms of the Director
Stock Purchase Plan, qualifying directors can elect to contribute up to $1,000
per calendar quarter to make purchases of Synovus Common Stock, and Synovus
contributes an additional amount equal to 50% of the directors' cash
contributions. Participants in the Director Stock Purchase Plan are fully vested
in, and may request the issuance to them of, all shares of Synovus Common Stock
purchased for their benefit under the Plan.
CONSULTING SERVICES
H. Lynn Page, a director and the former Vice Chairman of the Board of
Synovus, and Synovus are parties to a Consulting Agreement pursuant to which Mr.
Page was paid $24,000 by Synovus during 1998 for providing consulting and
advisory services to Synovus in connection with portfolio management and
potential opportunities for business expansion.
Joe E. Beverly, a director and the former Vice Chairman of the Board of
Synovus, and Synovus are parties to a Retirement Agreement pursuant to which Mr.
Beverly was paid $24,000 by Synovus during 1998 for providing consulting and
advisory services to Synovus relating to Synovus' affiliate banks.
EXECUTIVE OFFICERS
The following table sets forth the name, age and position with Synovus of
each executive officer of Synovus.
<TABLE>
<CAPTION>
Name Age Position with Synovus
- ----------------------- --- -------------------------------------------------
<S> <C> <C>
James H. Blanchard 57 Chairman of the Board and Chief Executive Officer
William B. Turner 76 Chairman of the Executive Committee
James D. Yancey 57 President and Chief Operating Officer
Richard E. Anthony 52 Vice Chairman of the Board
Walter M. Deriso, Jr. 52 Vice Chairman of the Board
Stephen L. Burts, Jr. 46 Vice Chairman of the Board
G. Sanders Griffith, III 45 Senior Executive Vice President, General
Counsel and Secretary
Thomas J. Prescott 44 Executive Vice President and
Chief Financial Officer
Jay C. McClung 50 Executive Vice President, Credit Administration
Calvin Smyre 51 Executive Vice President, Corporate Affairs
Anne G. Dawahare 36 Chief Information Officer
Elizabeth R. James 37 Chief People Officer
</TABLE>
G. Sanders Griffith, III serves as Senior Executive Vice President, General
Counsel and Secretary of Synovus, positions he has held since October 1995. From
1988 until 1995, Mr. Griffith served in various capacities with Synovus,
including Executive Vice President, General Counsel and Secretary. Thomas J.
Prescott was elected Executive Vice President and Chief Financial Officer of
Synovus in December 1996. From 1987 until 1996, Mr. Prescott served in various
capacities with Synovus, including Executive Vice President and Treasurer. Jay
C. McClung was elected Executive Vice President of Synovus in January 1995. From
1986 until 1995, Mr. McClung served in various capacities with Columbus Bank,
including Senior Vice President. Calvin Smyre was elected Executive Vice
President of Synovus in November 1996. From 1976 until 1996, Mr. Smyre served in
various capacities with Columbus Bank and/or Synovus, including Senior Vice
President of Synovus. Anne G. Dawahare was elected Chief Information Officer of
Synovus in July, 1998. Ms. Dawahare currently serves as President of Synovus
Technologies, Inc., a position she has held since February, 1998, and has served
in various capacities with Synovus since 1994. Elizabeth R. James was elected
Chief People Officer of Synovus in July, 1998. Ms. James currently serves as
President of Synovus Service Corp., a position she has held since June, 1996,
and has served in various capacities with Columbus Bank and/or TSYS since
1986.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth ownership of shares of Synovus Common Stock
by each director, by each executive officer named in the Summary Compensation
Table on page 9 and by all directors and executive officers as a group as of
December 31, 1998.
<TABLE>
<CAPTION>
Shares of Shares of
Synovus Shares of Synovus
Common Synovus Common Percentage of
Stock Common Stock Stock Total Shares Outstanding
Beneficially Beneficially Beneficially of Synovus Shares of
Owned with Owned with Owned with Common Synovus
Sole Voting Shared Voting Sole Voting Stock Common Stock
and Invest- and Invest- but no Invest- Beneficially Beneficially
ment Power ment Power ment Power Owned as of Owned as of
Name as of 12/31/98 as of 12/31/98 as of 12/31/98 12/31/98<F1> 12/31/98
- ---------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Richard E. Anthony 379,524 208,694 20,860 828,682 *
Joe E. Beverly 417,513 4,555 26,494 588,992 *
James H. Blanchard 1,565,234 --- 292,607 2,455,553 *
Richard Y. Bradley 20,357 131,495 --- 151,852 *
Stephen L. Burts, Jr. 218,094 --- 25,164 442,344 *
Walter M. Deriso, Jr. 31,328 3,880 --- 57,483 *
C. Edward Floyd, M.D. 1,093,933 145,270 --- 1,239,203 *
Gardiner W. Garrard, Jr. 203,665 1,363,262 --- 1,566,927 *
G. Sanders Griffith, III 84,142 --- 80,413 332,097 *
V. Nathaniel Hansford 125,340 409,776 --- 535,116 *
John P. Illges, III 296,403 512,455<F2> --- 808,858 *
Mason H. Lampton 79,268 290,951<F3> --- 370,219 *
Elizabeth C. Ogie 32,616 30,514,254<F4><F5> --- 30,546,870 11.30
H. Lynn Page 840,821 11,515 --- 852,336 *
Robert V. Royall 287,341 168,947 --- 665,470 *
Melvin T. Stith 1,176 --- --- 1,176 *
William B. Turner 72,294 30,382,576<F5> --- 30,454,870 11.27
James D. Yancey 999,693 61,677 40,999 1,416,479 *
Directors and Executive
Officers as a Group
(23 persons) 6,834,683 33,847,075 499,604 43,235,564 15.88
* Less than one percent of the outstanding shares of Synovus Common Stock.
<FN>
- ---------------------------
<F1> The totals shown for the following directors and executive officers of
Synovus include the number of shares of Synovus Common Stock that each
individual has the right to acquire within 60 days through the exercise of
stock options:
Person Number of Shares
Richard E. Anthony 219,604
Joe E. Beverly 140,430
James H. Blanchard 597,712
Stephen L. Burts, Jr. 199,086
Walter M. Deriso, Jr. 22,275
G. Sanders Griffith, III 167,542
Robert V. Royall 209,182
James D. Yancey 314,110
In addition, the other executive officers of Synovus had rights to acquire
an aggregate of 184,261 shares of Synovus Common Stock within 60 days
through the exercise of stock options.
<F2> Includes 62,667 shares of Synovus Common Stock held by a charitable
foundation of which Mr. Illges is trustee.
<F3> Includes 264,687 shares of Synovus Common Stock held in a trust for which
Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership
of such shares.
<F4> Includes 123,948 shares of Synovus Common Stock held by a charitable
foundation of which Mrs. Ogie is a trustee.
<F5> Includes 2,568,205 shares of Synovus Common Stock held by a charitable
foundation of which Mrs. Ogie and Mr. Turner are among the trustees, and
27,794,554 shares of Synovus Common Stock beneficially owned by TB&C
Bancshares, Inc., of which Mrs. Ogie and Mr.Turner are officers,
directors and shareholders.
</FN>
</TABLE>
For a detailed discussion of the beneficial ownership of TSYS Common Stock
by Synovus' named executive officers and directors and by all directors and
executive officers of Synovus as a group, see "TSYS Common Stock Ownership of
Directors and Management" on page 19.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the cash and noncash compensation for each
of the last three fiscal years for the chief executive officer of Synovus and
for the other four most highly compensated executive officers of Synovus.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------------- --------------------------------
Other Restricted Securities All
Annual Stock Underlying Other
Name and Compen- Award(s) Options/ Compen-
Principal Position Year Salary Bonus sation <F1> <F2> SARs sation (3)
- --------------------- -------- ------------- ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James H. Blanchard 1998 $635,250 $476,438 $ -0- $ -0- 211,929 $306,378
Chairman of the 1997 616,125 462,094 -0- -0- 615,113 298,654
Board and Chief 1996 589,375 442,031 2,000 350,622 294,722 322,527
Executive Officer
James D. Yancey 1998 475,000 464,750 2,000 -0- 132,126 271,639
President and Chief 1997 445,000 442,000 2,000 -0- 524,633 235,573
Operating Officer 1996 410,000 266,500 2,000 375,367 117,143 264,256
Stephen L. Burts, Jr. 1998 353,500 319,200 2,000 -0- 75,750 147,861
Vice Chairman of the 1997 343,000 310,800 2,000 -0- 273,215 133,583
Board 1996 328,000 196,800 2,000 231,008 72,089 130,106
Richard E. Anthony 1998 335,000 306,000 2,000 -0- 69,270 157,071
Vice Chairman of the 1997 310,000 282,000 2,000 -0- 78,368 109,977
Board 1996 267,625 159,500 2,000 187,684 58,572 101,004
G. Sanders Griffith, III 1998 283,750 258,450 -0- -0- 59,226 94,336
Senior Executive Vice 1997 268,000 242,850 -0- -0- 254,480 81,279
President, General 1996 256,250 153,750 -0- 180,459 56,318 82,742
Counsel and Secretary
<FN>
- ---------------------
<F1> Amount for 1998 includes matching contributions under the Director Stock
Purchase Plan of $2,000 each for Messrs. Yancey, Burts and Anthony.
Perquisites and other personal benefits are excluded because the aggregate
amount does not exceed the lesser of $50,000 or 10% of annual salary and
bonus for the named executives.
<F2> Amount consists of market value of award on date of grant. As of December
31, 1998, Messrs. Blanchard, Yancey, Burts, Anthony and Griffith held
51,561, 41,005, 25,166, 20,861 and 20,093 restricted shares, respectively,
with a value of $1,256,800, $999,497, $613,421, $508,487 and $489,767,
respectively. On July 1, 1996, restricted stock was awarded in the amount
of 36,473, 39,047, 24,030, 19,524 and 18,773 shares to Messrs. Blanchard,
Yancey, Burts, Anthony and Griffith, respectively, with the following
vesting schedule: 20% on July 1, 1997; 20% on July 1, 1998; 20% on July 1,
1999; 20% on July 1, 2000; and 20% on July 1, 2001.
<F3> The 1998 amount includes director fees of $60,200, $60,600, $29,000 and
$25,400 for Messrs. Blanchard, Yancey, Burts and Anthony, respectively, in
connection with their service as directors of Synovus and certain of its
subsidiaries; contributions or other allocations to defined contribution
plans of $28,496 for each executive; allocations pursuant to defined
contribution excess benefit agreements of $166,941, $134,822 $89,816,
$81,392 and $65,291 for each of Messrs. Blanchard, Yancey, Burts, Anthony
and Griffith, respectively; premiums paid for group term life insurance
coverage of $510 for each executive; the economic benefit of life insurance
coverage related to split-dollar life insurance policies of $1,625, $1,049,
$39, $3,456 and $39 for each of Messrs. Blanchard, Yancey, Burts, Anthony
and Griffith, respectively; and the dollar value of the benefit of premiums
paid for split-dollar life insurance policies (unrelated to term life
insurance coverage) projected on an actuarial basis of $48,606, $46,162
and $17,817 for each of Messrs. Blanchard, Yancey and Anthony,
respectively.
</FN>
</TABLE>
STOCK OPTION EXERCISES AND GRANTS
The following tables provide certain information regarding stock options
granted and exercised in the last fiscal year and the number and value of
unexercised options at the end of the fiscal year.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- -----------------------------------------------------------------------------------------
% of Total Potential
Options/ Realized Value at
SARs Exercise Assumed Annual Rates of
Options/ Granted to or Stock Price Appreciation
SARs Employees Base For Option Term<F1>
Granted in Fiscal Price Expiration ---------------------
Name (#) Year ($/Share) Date 5%($) 10% ($)
- ------------------------------ ------------ -------------- -------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
James H. Blanchard 211,779<F2> 5.3845% $20.83 01/12/08 $2,107,201 $5,044,576
150<F3> 0.0038 22.00 06/01/06 1,575 3,774
James D. Yancey 131,976<F2> 3.3555 20.83 01/12/08 1,313,161 3,143,668
150<F3> 0.0038 22.00 06/01/06 1,575 3,774
Stephen L. Burts, Jr. 75,600<F2> 1.9221 20.83 01/12/08 752,220 1,800,792
150<F3> 0.0038 22.00 06/01/06 1,575 3,774
Richard E. Anthony 69,120<F2> 1.7574 20.83 01/12/08 687,744 1,646,438
150<F3> 0.0038 22.00 06/01/06 1,575 3,774
G. Sanders Griffith, III 59,076<F2> 1.5020 20.83 01/12/08 587,806 1,407,190
150<F3> 0.0038 22.00 06/01/06 1,575 3,774
<FN>
- -----------
<F1> The dollar gains under these columns result from calculations using the
identified growth rates and are not intended to forecast future price
appreciation of Synovus Common Stock.
<F2> Options granted on January 13, 1998 at fair market value to executives as
part of the Synovus 1996 Long-Term Incentive Plan. Options become
exercisable on January 13,2000 and are transferable to family members.
<F3> Options granted on June 2, 1998 at fair market value to executives as part
of the Synovus 1996 Long-Term Incentive Plan. Options become exercisable
upon the earlier of: (a) June 2, 2001; or (b) the date the per share fair
market value of Synovus Common Stock meets or exceeds $44.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($)<F1>
Acquired on Realized -------------------------- -------------------------------
Name Exercise (#) ($) <F1> Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ ------------ --------- --------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
James H. Blanchard -0- $ -0- 597,712 / 789,542 $9,542,329/ $5,894,217
James D. Yancey -0- -0- 314,110 / 619,259 5,001,673/ 4,698,386
Stephen L. Burts, Jr. -0- -0- 199,086 / 330,215 3,271,989/ 2,448,805
Richard E. Anthony -0- -0- 219,604 / 147,638 3,927,405/ 715,366
G. Sanders Griffith, III -0- -0- 167,542 / 294,956 2,754,383/ 2,277,871
<FN>
- ----------
<F1> Market value of underlying securities at exercise or year-end, minus the
exercise or base price.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Employment Agreement with Mr. Blanchard. Synovus has entered into an
Employment Agreement with Mr. Blanchard, Chairman of the Board of Synovus. Under
this Agreement, Mr. Blanchard receives a base salary that is determined on an
annual basis by the Synovus Compensation Committee. During 1998, Synovus paid
Mr. Blanchard a base salary of $635,250 under this Employment Agreement.
The Employment Agreement with Mr. Blanchard also provides that Mr. Blanchard
will receive deferred compensation totaling $468,000 over a 10 to 15 year period
following his death, disability or other termination of employment. This
deferred compensation may be forfeited in the event Synovus terminates his
employment for cause, he violates a 2-year Covenant Not to Compete, or in the
event of his death by suicide. Mr. Blanchard's Employment Agreement
automatically renews every year and may be terminated upon 30 days prior written
notice.
Employment Agreement with Mr. Yancey. Synovus has entered into an
Employment Agreement with Mr. Yancey, President and Chief Operating Officer of
of Synovus. Under this Agreement, Mr. Yancey receives a base salary that is
determined on an annual basis by the Synovus Compensation Committee. During
1998, Synovus paid Mr. Yancey a base salary of $475,000 under this
Employment Agreement. The Employment Agreement with Mr. Yancey also provides
that Mr. Yancey will receive deferred compensation totaling $375,000 over a 10
to 15 year period following his death, disability or other termination of
employment. This deferred compensation may be forfeited in the event Synovus
terminates his employment for cause, he violates a 2-year Covenant Not to
Compete, or in the event of his death by suicide. Mr. Yancey's Employment
Agreement automatically renews every year and may be terminated upon 30 days
prior written notice.
Long-Term Incentive Plans. Under the terms of Synovus' Long-Term Incentive
Plans, which were adopted in 1992, 1994 and 1996, all awards become
automatically vested in the event of a change of control. Awards under the Plans
may include stock options, restricted stock, stock appreciation and performance
awards. Messrs. Blanchard, Yancey, Burts, Anthony and Griffith each have
restricted stock and stock options under the Long-Term Incentive Plans.
Change of Control Agreements. Synovus has entered into Change of Control
Agreements with Messrs. Blanchard, Yancey, Burts, Anthony and Griffith, and
certain other executive officers. In the event of a Change of Control, as
defined below, an executive would receive the following:
* Three times the executive's current base salary and bonus (bonus is
defined as the average bonus over the past three years measured as a
percentage multiplied by the executive's current base salary).
* Three years of medical, life, disability and other welfare benefits.
* A pro rata bonus through the date of termination for the separation
year.
* A cash amount in lieu of a long-term incentive award for the year of
separation equal to 1.5 times the normal market grant, if the
executive received a long-term incentive award in the year of
separation, or 2.5 times the market grant if not.
In order to receive these benefits, an executive must be actually or
constructively terminated within one year following a Change of Control or the
executive may voluntarily or involuntarily terminate employment during the
thirteenth month following a Change of Control. A Change of Control under these
agreements is defined as (1) the acquisition of 20% or more of the "beneficial
ownership" of Synovus' outstanding voting stock, with certain exceptions for
Turner family members, (2) the persons serving as directors of Synovus as of
January 1, 1996, and their replacements or additions, ceasing to comprise at
least two-thirds of the Board members, (3) a merger, consolidation,
reorganization or sale of Synovus' assets unless the new owners of Synovus own
more than two-thirds of the new company, no person owns more than 20% of the new
company, and two-thirds of the company's new Board members are prior Board
members of Synovus, or (4) a triggering event occurs as defined in the Synovus
Rights Agreement. In the event an executive is impacted by the Internal Revenue
Service excise tax that applies to certain Change of Control arrangements, the
executive would receive additional payments so that he or she would be in the
same position as if the excise tax did not apply. The Change of Control
agreements do not provide for any retirement benefits or perquisites.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative
shareholder return on Synovus Common Stock with the cumulative total return of
the Standard & Poor's 500 Index and the Keefe, Bruyette & Woods 50 Bank Index
for the last five fiscal years (assuming a $100 investment on December 31, 1993
and reinvestment of all dividends).
[Omitted Stock Performance Graph is represented by the following table.]
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
SYNOVUS FINANCIAL CORP., S&P 500 AND KBW 50 BANK INDEX
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Synovus $100 $100 $160 $276 $428 $477
S&P 500 $100 $101 $139 $171 $229 $294
KBW 50 $100 $ 95 $152 $215 $314 $340
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") of Synovus is responsible for
evaluating the compensation of senior management of Synovus and its subsidiaries
and Synovus Board members, as well as the compensation and other benefit plans
in which officers, employees and directors of Synovus and its subsidiaries
participate. The Committee has designed its compensation program to attract and
retain highly motivated and well-trained executives in order to create superior
shareholder value for Synovus shareholders.
Elements of Executive Compensation. The four elements of executive
compensation at Synovus are:
* Base Salary
* Annual Bonus
* Long-Term Incentives
* Other Benefits
The Committee believes that a substantial portion (though not a majority)
of an executive's compensation should be at risk based upon performance, both in
the short-term (through the annual bonus and the Synovus/TSYS Profit Sharing
Plan and the Synovus/TSYS 401(k) Savings Plan) and long-term (through long-term
incentives such as stock options and restricted stock awards). The remainder of
each executive's compensation is primarily based upon the competitive practices
of a select group of approximately 18 banks that had similar "market value
added" as Synovus during the previous ten years ("similar companies"). "Market
value added," as used by the Committee for this purpose, means the stock price
increase during the ten-year period, plus dividends, less increases to paid-in
capital. This subtraction eliminates any value added through acquisitions. The
Committee believes that this approach accurately reflects the true competitors
of Synovus and is the most appropriate market data to use for determining the
compensation of Synovus executives. The companies used for comparison under this
approach are not the same companies included in the peer group index appearing
in the Stock Performance Graph above. Each element of executive compensation is
discussed in detail below.
Base Salary. Base salary is an executive's annual rate of pay without
regard to any other elements of compensation. The primary consideration used by
the Committee to determine an executive's base salary is a market comparison of
similar positions at similar companies based upon the executive's level of
responsibility and experience. Base salaries are targeted in the median level of
similar companies. In addition to market comparisons, individual performance is
also considered in determining an executive's base salary, although it does not
weigh heavily. Based solely upon market comparisons, the Committee increased Mr.
Blanchard's base salary in 1998. The Committee also increased the base salaries
of Synovus' other executive officers in 1998 based solely upon market
comparisons.
Annual Bonus. The Committee awards annual bonuses under two different
plans, the Synovus Executive Bonus Plan (which was approved by Synovus
shareholders) and the Synovus Incentive Bonus Plan. The Committee selects the
participants in each Plan from year to year. For 1998, the Committee selected
Mr. Blanchard and Mr. Yancey to participate in the Executive Bonus Plan while
Messrs. Burts, Anthony and Griffith were selected to participate in the
Incentive Bonus Plan. Under the terms of the Plans, bonus amounts are paid as a
percentage of base pay based on the achievement of performance goals that are
established each year by the Committee. The performance goals may be chosen by
the Committee from among the following measurements:
* Return on assets;
* Net income;
* Operating income;
* Non-performing assets and/or loans as a percentage of total assets
and/or loans;
* Return on capital compared to cost of capital;
* Earnings per share and/or earnings per share growth;
* Return on equity;
* Non-interest expense as a percentage of total expense;
* Loan charge-offs as a percentage of loans;
* Productivity and expense control;
* Number of cardholder, merchant and/or other customer accounts
processed and/or converted by TSYS;
* Successful negotiation or renewal of contracts with new and/or
existing customers by TSYS;
* Stock price; and
* Asset growth.
The Committee established a payout matrix based on attainment of net income
goals during 1998 for Mr. Blanchard and Synovus' other executive officers. The
maximum percentage payouts under the Plans for 1998 were 75% for Mr. Blanchard,
65% for Mr. Yancey and 60% for Messrs. Burts, Anthony and Griffith. Synovus'
financial performance and each executive's individual performance can reduce the
bonus awards determined by the attainment of the goals, although this was not
the case for any of Synovus' executive officers. The Committee did, however,
establish a special provision that would double the bonus otherwise payable to
Messrs. Yancey, Burts, Anthony and Griffith based on the attainment of
productivity goals associated with the establishment of the "new bank" at
Synovus. Because the maximum net income target for 1998 under the Plans was
exceeded and the overall financial results of Synovus were favorable, Mr.
Blanchard and Synovus' other executive officers were awarded the maximum bonus
amount for which each executive was eligible under the Plans' payout matrix.
Although the Committee determined that significant progress had been made toward
the attainment of the "new bank" goals, the Committee elected not to pay out a
bonus associated with the "new bank" in order to reduce the bonus expenses for
the Company.
Long-Term Incentives. The Committee has awarded both stock options and
restricted stock awards to executives. Restricted stock awards are designed to
focus executives on the long-term performance of Synovus. Stock options provide
executives with the opportunity to buy and maintain an equity interest in
Synovus and to share in its capital appreciation. Executives are encouraged to
hold the shares received upon the lapse of restrictions on restricted stock
awards and upon the exercise of stock options, linking their interests to those
of Synovus' shareholders. The Committee has established a payout matrix for
long-term grants that uses total shareholder return measured by Synovus'
performance (stock price increases plus dividends) and how Synovus' total
shareholder return compares to the return of the peer group of companies
appearing in the Stock Performance Graph on page 12. For the long-term incentive
awards made in 1998, total shareholder return and peer comparisons were measured
during the 1995 to 1997 performance period. Under the payout matrix, the
Committee awarded Messrs. Blanchard, Yancey, Burts, Anthony and Griffith stock
options of 211,929, 132,126, 75,750, 69,270, and 59,226, respectively.
Benefits. Executives receive other benefits that serve a different purpose
than the elements of compensation discussed above. In general, these benefits
either provide retirement income or protection against catastrophic events such
as illness, disability and death. Executives generally receive the same benefits
offered to the employee population, with the only exceptions designed to promote
tax efficiency or to replace other benefits lost due to regulatory limits. The
Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan,
including an excess benefit plan which replaces benefits lost due to regulatory
limits (collectively the "Plan"), is the largest component of Synovus' benefits
package for executives. The Plan is directly related to the performance of
Synovus because the contributions to the Plan, up to a maximum of 14% of an
executive's compensation, depends upon Synovus' profitability. For 1998, Mr.
Blanchard and Synovus' other executive officers received a Plan contribution of
10.88% of their compensation, based upon the Plan's profitability formula. The
remaining benefits provided to executives are primarily based upon the
competitive practices of similar companies.
The Internal Revenue Code limits the deductibility for federal income tax
purposes of annual compensation paid by a publicly held corporation to its chief
executive officer and four other highest paid executives for amounts in excess
of $1 million, unless certain conditions are met. Because the Committee seeks to
maximize shareholder value, the Committee has taken steps to ensure that any
compensation paid to its executives in excess of $1 million is deductible. For
1998, Messrs. Blanchard and Yancey would have been affected by this provision,
but for the steps taken by the Committee. The Committee reserves the ability to
make awards which do not qualify for full deductibility under the Internal
Revenue Code, however, if the Committee determines that the benefits of doing so
outweigh full deductibility.
The Committee believes that its executive compensation program serves the
best interests of the shareholders of Synovus. As described above, a substantial
portion of the compensation of Synovus' executives is directly related to
Synovus' performance. The Committee believes that the performance of Synovus to
date validates its compensation philosophy.
Mason H. Lampton
V. Nathaniel Hansford
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mason H. Lampton and V. Nathaniel Hansford served as members of Synovus'
Compensation Committee during 1998. No member of the Committee is a current or
former officer of Synovus or its subsidiaries.
TRANSACTIONS WITH MANAGEMENT
During 1998, the subsidiary banks of Synovus had outstanding loans directly
to or indirectly accruing to the benefit of certain of the then directors and
executive officers of Synovus, and their related interests. These loans were
made in the ordinary course of business and were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. In the opinion of Synovus' management,
such loans do not involve more than normal risks of collectibility or present
other unfavorable features. In the future, the subsidiary banks of Synovus
expect to have banking transactions in the ordinary course of business with
Synovus' directors, executive officers and their related interests.
Gardiner W. Garrard, Jr. is President of The Jordan Company. TSYS leases
from The Jordan Company approximately 10,000 square feet of office space in
Columbus, Georgia for $5,900 per month, which lease expires on September 30,
1999. The lease was made on substantially the same terms as those prevailing at
the time for leases of comparable property between unrelated third parties.
Gardiner W. Garrard, Jr., a director of TSYS, Columbus Bank and Synovus, is an
officer, director and shareholder of The Jordan Company. Richard M. Olnick, the
brother-in-law of Gardiner W. Garrard, Jr. and a director of Columbus Bank, is
an officer, director and shareholder of The Jordan Company.
During 1998, Synovus and its subsidiaries, including Columbus Bank, paid to
W.C. Bradley Co. an aggregate of $70,000, which payments were primarily for
printing services and marketing materials provided by W.C. Bradley Co. These
payments were made in the ordinary course of business on substantially the same
terms as those prevailing at the time for comparable transactions with unrelated
third parties. Synovus' wholly owned subsidiary, Synovus Service Corp., and TSYS
lease various properties in Columbus, Georgia from W.C. Bradley Co. for office
space and storage. The rent paid for the space in 1998 by Synovus Service Corp.,
which is approximately 35,400 square feet, is approximately $88,300. The rent
paid for the space in 1998 by TSYS, which is approximately 71,915 square feet,
is approximately $714,225. The lease agreements were made on substantially the
same terms as those prevailing at the time for comparable leases for similar
facilities with an unrelated third party in Columbus, Georgia.
Columbus Bank and W.C.B. Air L.L.C. are parties to a Joint Ownership
Agreement pursuant to which they jointly own or lease aircraft. W. C. Bradley
Co. owns all of the limited liability company interests of W.C.B. Air. Columbus
Bank and W.C.B. Air have each agreed to pay fixed fees for each hour they fly
the aircraft owned and/or leased pursuant to the Joint Ownership Agreement.
Columbus Bank paid an aggregate sum of $2,867,774 for use of the aircraft during
1998 pursuant to the terms of the Joint Ownership Agreement. This amount
represents the charges incurred by Columbus Bank and its affiliated corporations
for use of the aircraft, and includes $1,328,693 for TSYS' use of the aircraft,
for which Columbus Bank was reimbursed by TSYS.
TB&C Bancshares, Inc. is a principal shareholder of Synovus. TB&C
Bancshares is a "family bank holding company" organized by William B. Turner,
and his sisters, Sarah T. Butler and Elizabeth T. Corn. TB&C Bancshares is a
party to a lease agreement pursuant to which it leases voting and certain other
rights in a total of 13,311,843 shares of Synovus Common Stock held in trust by
Synovus Trust Company, a subsidiary of Columbus Bank, as Trustee of three trusts
for the benefit of Mr. Turner, Mrs. Butler and Mrs. Corn and their respective
descendants. During 1998, TB&C Bancshares paid Synovus Trust Company, as
Trustee, $523,008 pursuant to the terms of the lease agreement, which amount
represents the fair market value of the voting rights as determined by an
independent appraiser. William B. Turner, Chairman of the Executive Committee of
Synovus and Columbus Bank and a director of TSYS, is an advisory director and
shareholder of W.C. Bradley Co. and is an officer, director and shareholder of
TB&C Bancshares. James H. Blanchard, Chairman of the Board of Synovus, Chairman
of the Executive Committee of TSYS and a director of Columbus Bank, is a
director of W.C. Bradley Co. Elizabeth C. Ogie, the niece of William B. Turner,
is a director of W.C. Bradley Co., Columbus Bank and Synovus and is an officer,
director and shareholder of TB&C Bancshares. W. Walter Miller, Jr., the
brother-in-law of Elizabeth C. Ogie, is a director of W.C. Bradley Co. and
Senior Vice President and a director of TSYS. Stephen T. Butler, the nephew of
William B. Turner, is an officer and director of W.C. Bradley Co., an officer,
director and shareholder of TB&C Bancshares and is a director of Columbus Bank.
W.B. Turner, Jr., the son of William B. Turner, is an officer and director of
W.C. Bradley Co., an officer, director and shareholder of TB&C Bancshares and a
director of Columbus Bank. John T. Turner, the son of William B. Turner, is an
officer and director of W.C. Bradley Co., a shareholder of TB&C Bancshares and a
director of Columbus Bank. Sarah T. Butler and Elizabeth T. Corn, the sisters of
William B. Turner, are shareholders of W.C. Bradley Co., are officers, directors
and shareholders of TB&C Bancshares and may be deemed to be principal
shareholders of Synovus as a result of their relationship with TB&C Bancshares.
Bradley & Hatcher, a law firm located in Columbus, Georgia, was paid
$68,043 by Synovus Trust Company for the performance of legal services on its
behalf during 1998. Richard Y. Bradley, a director of Synovus, Columbus Bank and
TSYS, is a partner of Bradley & Hatcher.
PRINCIPAL SHAREHOLDERS
The following table sets forth the number of shares of Synovus Common Stock
held by the only known holders of more than 5% of the outstanding shares of
Synovus Common Stock.
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding Shares of
Synovus Common Stock Synovus Common Stock
Name and Address of Beneficially Owned Beneficially Owned
Beneficial Owner as of 12/31/98 as of 12/31/98
- ----------------------- ------------------------- ---------------------------
<S> <C> <C>
Synovus Trust Company 36,058,461<F1> 13.34%
1148 Broadway
Columbus, Georgia 31901
TB&C Bancshares, Inc.<F2> 27,794,554 10.29
1017 Front Avenue
Columbus, Georgia 31901
William B. Turner<F2> 30,454,870<F3><F4> 11.27
P.O. Box 120
Columbus, Georgia 31902
Sarah T. Butler<F2> 30,518,649<F3><F5> 11.29
P.O. Box 120
Columbus, Georgia 31902
Elizabeth T. Corn<F2> 30,911,716<F3><F6> 11.44
P.O. Box 120
Columbus, Georgia 31902
W.B. Turner, Jr.<F2> 30,412,881<F3><F7> 11.25
P.O. Box 120
Columbus, Georgia 31902
Stephen T. Butler<F2> 30,449,230<F3><F8> 11.27
P.O. Box 120
Columbus, Georgia 31902
Elizabeth C. Ogie<F2> 30,546,870<F3><F9> 11.30
P.O. Box 120
Columbus, Georgia 31902
<FN>
- -----------------------------------
<F1> As of December 31, 1998, the banking and trust company subsidiaries of
Synovus, including Columbus Bank through its wholly owned subsidiary
Synovus Trust Company, held in various fiduciary capacities a total of
37,063,176 shares of Synovus Common Stock as to which they possessed sole
or shared voting or investment power. Of this total, Synovus Trust Company
held 21,875,439 shares as to which it possessed sole investment power,
21,400,358 shares as to which it possessed sole voting power, 907,570
shares as to which it possessed shared voting power and 14,183,022 shares
as to which it possessed shared investment power. The other banking and
trust subsidiaries of Synovus held 908,341 shares as to which they
possessed sole voting or investment power and 96,374 shares as to which
they possessed shared voting or investment power. In addition, as of
December 31, 1998, Synovus Trust Company and the banking and trust
subsidiaries of Synovus held in various agency capacities an additional
22,616,070 shares of Synovus Common Stock as to which they possessed no
voting or investment power. Of this additional amount as to which no voting
or investment power was possessed, Synovus Trust Company and the banking
and trust subsidiaries of Synovus held 22,439,097 and 176,973 shares,
respectively. Synovus and its subsidiaries disclaim beneficial ownership of
all shares of Synovus Common Stock which are held by them in various
fiduciary and agency capacities.
<F2> TB&C Bancshares, Inc. is a "family bank holding company" organized by
William B. Turner (the Chairman of Synovus' Executive Committee) and his
sisters, Sarah T. Butler and Elizabeth T. Corn. The six directors of TB&C
Bancshares, Mr. Turner, Mmes. Butler and Corn, Elizabeth C. Ogie (the
daughter of Mrs. Corn), Stephen T. Butler (the son of Mrs. Butler), and
William B. Turner, Jr. (the son of Mr. Turner), are each construed to be
the beneficial owners of the 27,794,554 shares of Synovus Common Stock
beneficially owned by TB&C Bancshares. As TB&C Bancshares owns 10.29% of
the outstanding shares of Synovus Common Stock, TB&C Bancshares is
registered as a bank holding company. To the best of Synovus' knowledge,
the shares of Synovus Common Stock beneficially owned by TB&C Bancshares
qualify for ten votes per share, subject to the completion by TB&C
Bancshares of the Certification contained on its Proxy Card.
<F3> Includes 14,482,711 shares of Synovus Common Stock individually owned by
TB&C Bancshares; 2,568,205 shares held by a charitable foundation of which
each of the directors of TB&C Bancshares is a trustee; in the case of Mrs.
Corn and Mrs. Ogie, 123,948 shares of Synovus Common Stock held by a
charitable foundation of which Mrs. Corn and Mrs. Ogie are trustees; and
13,311,843 shares of Synovus Common Stock beneficially owned by TB&C
Bancshares pursuant to a lease agreement between TB&C Bancshares and
Synovus Trust Company as Trustee of three trusts for the benefit of Mr.
Turner, Mrs. Butler and Mrs. Corn and their respective descendants.
Pursuant to the agreement, TB&C Bancshares leases from Synovus Trust
Company as Trustee of such trusts voting and certain other rights with
respect to the shares of Synovus Common Stock held in the trusts.
<F4> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mr. Turner possessed sole voting and investment power with respect
to 72,294 shares and shared voting or investment power with respect to
19,817 shares of Synovus Common Stock.
<F5> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mrs. Butler possessed sole voting and investment power with respect
to 65,430 shares and shared voting or investment power with respect to
90,460 shares of Synovus Common Stock.
<F6> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mrs. Corn possessed sole voting and investment power with respect to
6,229 shares and shared voting or investment power with respect to 418,780
shares of Synovus Common Stock.
<F7> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mr. Turner possessed sole voting and investment power with respect
to 34,481 shares and shared voting or investment power with respect to
15,641 shares of Synovus Common Stock.
<F8> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mr. Butler possesssed sole voting and investment power with respect
to 81,527 shares and shared voting or investment power with respect to
4,944 shares of Synovus Common Stock.
<F9> In addition to the shares of Synovus Common Stock described in footnote 3
above, Mrs. Ogie possessed sole voting and investment power with respect to
32,616 shares and shared voting or investment power with respect to 27,547
shares of Synovus Common Stock.
</FN>
</TABLE>
RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF
SYNOVUS' SUBSIDIARIES AND AFFILIATES
BENEFICIAL OWNERSHIP OF TSYS COMMON STOCK BY COLUMBUS BANK
The following table sets forth, the number of shares of TSYS Common Stock
beneficially owned by Columbus Bank, the only known beneficial owner of more
than 5% of the issued and outstanding shares of TSYS Common Stock, as of
December 31, 1998.
<TABLE>
<CAPTION>
Percentage of
Shares of Outstanding Shares of
TSYS Common Stock TSYS Common Stock
Name and Address of Beneficially Owned Beneficially Owned
Beneficial Owner as of 12/31/98 as of 12/31/98
- ----------------------- ------------------------ ------------------------
<S> <C> <C>
Columbus Bank
and Trust Company 156,601,938<F1><F2> 80.7%
1148 Broadway
Columbus, Georgia 31901
<FN>
- -----------------
<F1> Columbus Bank individually owns these shares.
<F2> As of December 31, 1998, Synovus Trust Company held in various fiduciary
capacities a total of 1,374,779 shares (.71%) of TSYS Common Stock. Of this
total, Synovus Trust Company held 1,052,480 shares as to which it possessed
sole voting power, 997,259 shares as to which it possessed sole investment
power, 315,149 shares as to which it possessed shared voting power and
322,299 shares as to which it possessed shared investment power. The other
banking and trust subsidiaries of Synovus held 750 shares as to which they
possesed sole voting and investment power and no shares as to which they
possessed shared voting or investment power. In addition, as of December
31, 1998, Synovus Trust Company held in various agency capacities an
additional 2,204,208 shares of TSYS Common Stock as to which it possessed
no voting or investment power. Synovus and Synovus Trust Company disclaim
beneficial ownership of all shares of TSYS Common Stock which are held by
Synovus Trust Company in various fiduciary and agency capacities.
</FN>
</TABLE>
Columbus Bank, by virtue of its ownership of 156,601,938 shares, or 80.7%
of the outstanding shares of TSYS Common Stock on December 31, 1998, presently
controls TSYS. Synovus presently controls Columbus Bank.
INTERLOCKING DIRECTORATES OF SYNOVUS, COLUMBUS BANK AND TSYS
Seven of the members of and nominees to serve on Synovus' Board of
Directors also serve as members of the Boards of Directors of TSYS and Columbus
Bank. They are James H. Blanchard, Richard Y. Bradley, Gardiner W. Garrard, Jr.,
John P. Illges, III, H. Lynn Page, William B. Turner and James D. Yancey.
Elizabeth C. Ogie serves as a member of the Board of Directors of Columbus Bank,
but does not serve as a member of the Board of Directors of TSYS. Mason H.
Lampton serves on the Board of Directors of TSYS and as an Advisory Director of
Columbus Bank.
TSYS COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of shares of TSYS Common Stock
beneficially owned by each of Synovus' directors, by each executive officer
named in the Summary Compensation Table on page 9 and by all directors and
executive officers as a group as of December 31, 1998.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares of TSYS Shares of TSYS Percentage of
Common Stock Common Stock Total Outstanding
Beneficially Beneficially Shares Shares of
Owned with Owned with of TSYS TSYS Common
Sole Voting Shared Voting Common Stock Stock
and Investment and Investment Beneficially Beneficially
Power as of Power as of Owned as of Owned as of
Name 12/31/98 12/31/98 12/31/98 12/31/98
- --------------------------- ------------------- --------------------- ------------------- -------------
<S> <C> <C> <C> <C>
Richard E. Anthony ----- ----- ----- ---
Joe E. Beverly ----- ----- ----- ---
James H. Blanchard 781,200 360,480 1,141,680 *
Richard Y. Bradley 21,329 5,000 26,329 *
Stephen L. Burts,Jr. ----- ----- ----- ---
Walter M. Deriso, Jr. 3,829 3,853 7,682 *
C. Edward Floyd, M.D. ----- ----- ----- ---
Gardiner W. Garrard, Jr. 9,717 ----- 9,717 *
G. Sanders Griffith, III 19,422<F1> ----- 19,422 *
V. Nathaniel Hansford ----- 1,549 1,549 *
John P. Illges, III 102,435 81,750 184,185 *
Mason H. Lampton 26,547 118,684<F2> 145,231 *
Elizabeth C. Ogie 10,200 40,182<F3> 50,382 *
H. Lynn Page 523,541 151,221<F4> 674,762 *
Robert V. Royall 47,500 ----- 47,500 *
Melvin T. Stith ----- ----- ----- ---
William B. Turner 157,528 576,000 733,528 *
James D. Yancey 790,064 24,000 814,064 *
Directors and Executive
Officers as a Group
(23 persons) 2,504,482 1,364,914 3,885,396 2.0
*Less than one percent of the outstanding shares of TSYS Common Stock.
<FN>
- -------------------
<F1> Includes 16,734 shares of TSYS Common Stock with respect to which Mr.
Griffith has no investment power.
<F2> Includes 28,800 shares of TSYS Common Stock held in a trust for which Mr.
Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of
such shares.
<F3> Includes 37,903 shares of TSYS Common Stock held by a charitable foundation
of which Mrs. Ogie is a trustee.
<F4> Includes 55,575 shares of TSYS Common Stock held by a charitable foundation
of which Mr. Page is a trustee.
</FN>
</TABLE>
TRANSACTIONS AND AGREEMENTS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND
CERTAIN OF SYNOVUS' SUBSIDIARIES
During 1998, Columbus Bank and certain of Synovus' other banking
subsidiaries received bankcard data processing services from TSYS. The bankcard
data processing agreement between Columbus Bank and TSYS can be terminated by
Columbus Bank upon 60 days prior written notice to TSYS or terminated by TSYS
upon 180 days prior written notice to Columbus Bank. During 1998, TSYS derived
$4,225,439 in revenues from Columbus Bank and certain of Synovus' other banking
subsidiaries for the performance of bankcard data processing services and
$175,801 in revenues from Synovus and its subsidiaries for the performance of
other data processing services. TSYS' charges to Columbus Bank and Synovus'
other banking subsidiaries for bankcard and other data processing services are
comparable to, and are determined on the same basis as, charges by TSYS to
similarly situated unrelated third parties.
Synovus Service Corp., a wholly owned subsidiary of Synovus, provides
various services to Synovus' subsidiary companies, including TSYS. TSYS and
Synovus Service Corp. are parties to Lease Agreements pursuant to which Synovus
Service Corp. leased from TSYS office space for lease payments aggregating
$26,169 during 1998 and TSYS leased from Synovus Service Corp. office space for
lease payments aggregating $27,690 during 1998. Synovus Service Corp. also paid
TSYS $199,492 during 1998 for data processing services. The terms of these
transactions are comparable to those which could have been obtained in
transactions with unaffiliated third parties.
Synovus and TSYS and Synovus Service Corp. and TSYS are parties to
Management Agreements (having one year, automatically renewable, unless
terminated, terms), pursuant to which Synovus and Synovus Service Corp. provide
certain management services to TSYS. During 1998, these services included human
resource services, maintenance services, security services, communication
services, corporate education services, travel services, investor relations
services, corporate governance services, legal services, regulatory and
statutory compliance services, executive management services performed on behalf
of TSYS by certain of Synovus' officers and financial services. As compensation
for management services provided during 1998, TSYS paid Synovus and Synovus
Service Corp. management fees of $1,283,494 and $9,892,791, respectively.
Management fees are subject to future adjustments based upon charges at the time
by unrelated third parties for comparable services.
During 1998, Synovus Trust Company served as trustee of various employee
benefit plans of TSYS. During 1998, TSYS paid Synovus Trust Company trustee's
fees under these plans of $258,184.
During 1998, Columbus Depot Equipment Company, a wholly owned subsidiary of
TSYS, and Columbus Bank and 6 of Synovus' other subsidiaries were parties to
Lease Agreements pursuant to which Columbus Bank and 6 of Synovus' other
subsidiaries leased from Columbus Depot Equipment Company computer related
equipment for bankcard and bank data processing services for lease payments
aggregating $90,569. During 1998, Columbus Depot Equipment Company sold Columbus
Bank and certain of Synovus' other subsidiaries computer related equipment for
bankcard and bank data processing services, and monitored such equipment, for
payments aggregating $1,355. The terms, conditions, rental rates and/or sales
prices provided for in these Agreements are comparable to corresponding terms,
conditions and rates provided for in leases and sales of similar equipment
offered by unrelated third parties.
During 1998, Synovus Technologies, Inc., a wholly owned subsidiary of
Synovus, paid TSYS $248,187 for data links, network services and other
miscellaneous items related to the data processing services which Synovus
Technologies provides to its customers, which amount was reimbursed to Synovus
Technologies by its customers. During 1998, Synovus Technologies paid TSYS
$24,900 primarily for computer processing services. During 1998, TSYS and
Synovus Technologies were parties to a Lease Agreement pursuant to which TSYS
leased from Synovus Technologies portions of its office building for lease
payments aggregating $220,000. The charges for processing and other services,
and the terms of the Lease Agreement, are comparable to those between unrelated
third parties.
During 1998, TSYS and Columbus Bank were parties to Lease Agreements
pursuant to which Columbus Bank leased from TSYS portions of its maintenance and
warehouse facilities for lease payments aggregating $18,411. During 1998, TSYS
and Columbus Bank were also parties to a Lease Agreement pursuant to which TSYS
leased office space from Columbus Bank for lease payments of $4,483 per month.
The terms, conditions and rental rates provided for in these Lease Agreements
are comparable to corresponding terms, conditions and rates provided for in
leases of similar facilities offered by unrelated third parties in the Columbus,
Georgia area.
In January, 1999, TSYS acquired the assets used by Columbus Bank in the
provision of collection, credit evaluation and customer service services to
credit card issuers in exchange for newly issued shares of TSYS Common Stock
valued at $20,070,000. The terms of the Asset Purchase and Exchange Agreement
executed in connection with the transaction are comparable to those between
unrelated third parties.
During 1998, Synovus, Columbus Bank and other Synovus subsidiaries paid to
Columbus Productions, Inc. and TSYS Total Solutions, Inc., wholly owned
subsidiaries of TSYS, an aggregate of $1,447,565 for printing and correspondence
services. The charges for these services are comparable to those between
unrelated third parties.
During 1998, TSYS and its subsidiaries were paid $2,342,416 of interest by
Columbus Bank in connection with deposit accounts with, and commercial paper
purchased from, Columbus Bank. These interest rates are comparable to those in
transactions between unrelated third parties.
TSYS has entered into an agreement with Columbus Bank with respect to the
use of aircraft owned or leased by Columbus Bank and W.C.B. Air L.L.C. Columbus
Bank and W.C.B.Air are parties to a Joint Ownership Agreement pursuant to which
they jointly own or lease aircraft. TSYS paid Columbus Bank $1,328,693 for its
use of the aircraft during 1998. The charges payable by TSYS to Columbus Bank in
connection with its use of this aircraft approximate charges available to
unrelated third parties in the State of Georgia for use of comparable aircraft
for commercial purposes.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Synovus'
officers and directors, and persons who own more than ten percent of Synovus
Common Stock, to file reports of ownership and changes in ownership on Forms 3,4
and 5 with the Securities and Exchange Commission and the New York Stock
Exchange. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish Synovus with copies of all Section 16(a)
forms they file.
To Synovus' knowledge, based solely on its review of the copies of such
forms received by it, and written representations from certain reporting persons
that no Forms 5 were required for those persons, Synovus believes that during
the fiscal year ended December 31, 1998 all Section 16(a) filing requirements
applicable to its officers, directors, and greater than ten percent beneficial
owners were complied with.
INDEPENDENT AUDITORS
On March 5, 1999, Synovus' Board of Directors appointed KPMG LLP as the
independent auditors to audit the consolidated financial statements of Synovus
and its subsidiaries for the fiscal year ending December 31, 1999. The Board of
Directors knows of no direct or material indirect financial interest by KPMG in
Synovus or any of its subsidiaries, or of any connection between KPMG and
Synovus or any of its subsidiaries, in any capacity as promoter, underwriter,
voting trustee, director, officer, shareholder or employee.
Representatives of KPMG will be present at Synovus' 1999 Annual Meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
GENERAL INFORMATION
FINANCIAL INFORMATION
Detailed financial information for Synovus and its subsidiaries for its
1998 fiscal year is included in Synovus' 1998 Annual Report that is being mailed
to Synovus' shareholders together with this Proxy Statement.
SHAREHOLDER PROPOSALS FOR THE 2000 PROXY STATEMENT
Any shareholder satisfying the Securities and Exchange Commission
requirements and wishing to submit a proposal to be included in the Proxy
Statement for the 2000 Annual Meeting of Shareholders should submit the proposal
in writing to the Secretary, Synovus Financial Corp., 901 Front Avenue, Suite
301, Columbus, Georgia 31901. Synovus must receive a proposal by November 22,
1999 in order to consider it for inclusion in the Proxy Statement for the 2000
Annual Meeting of Shareholders.
DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION AT THE ANNUAL MEETING
Shareholders who wish to present director nominations or other business at
the Annual Meeting are required to notify the Secretary of their intent at least
45 days but not more than 90 days before March 19, 2000 and the notice must
provide information as required in the bylaws. A copy of these bylaw
requirements will be provided upon request in writing to the Secretary, Synovus
Financial Corp., 901 Front Avenue, Suite 301, Columbus, Georgia 31901.
This requirement does not apply to the deadline for submitting shareholder
proposals for inclusion in the Proxy Statement (see "Shareholder Proposals for
the 2000 Proxy Statement" above), nor does it apply to questions a shareholder
may wish to ask at the meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be paid by Synovus. This solicitation
is being made by mail, but may also be made by telephone or in person by Synovus
officers and employees. Synovus will reimburse brokerage firms, nominees,
custodians, and fiduciaries for their out-of-pocket expenses for forwarding
proxy materials to beneficial owners.
The above Notice of Annual Meeting and Proxy Statement are sent by order of
the Synovus Board of Directors.
By Order of the Board of Directors
/s/JAMES H. BLANCHARD
JAMES H. BLANCHARD
Chairman of the Board, Synovus Financial Corp.
March 19, 1999
SUBSIDIARIES OF SYNOVUS FINANCIAL CORP.
<TABLE>
<CAPTION>
Georgia Corporations
- ---------------------
<S> <C>
Columbus Bank and Trust Company<F1> 100%
Commercial Bank 100%
Commercial Bank and Trust Company of Troup County 100%
Security Bank and Trust Company of Albany 100%
Sumter Bank and Trust Company 100%
The Coastal Bank of Georgia 100%
First State Bank and Trust Company of Valdosta 100%
Bank of Hazlehurst 100%
The Cohutta Banking Company 100%
Bank of Coweta 100%
Citizens Bank and Trust of West Georgia 100%
First Community Bank of Tifton 100%
Synovus Technologies, Inc. 100%
CB&T Bank of Middle Georgia 100%
Sea Island Bank 100%
Citizens First Bank<F2> 100%
The Citizens Bank 100%
The Citizens Bank of Cochran 100%
Athens First Bank & Trust Company<F3> 100%
Citizens & Merchants State Bank 100%
Synovus Service Corp. 100%
Bank of North Georgia 100%
Alabama Corporations
- ---------------------
Synovus Financial Corp. of Alabama 100%
Community Bank and Trust of Southeast Alabama 100%
First Commercial Bank of Huntsville 100%
The Bank of Tuscaloosa 100%
Sterling Bank 100%
First Commercial Bank of Birmingham<F4> 100%
CB&T Bank of Russell County 100%
Synovus Trust Corp. 100%
Florida Corporations
- ---------------------
Quincy State Bank 100%
2
The Tallahassee State Bank 100%
Bank of Pensacola 100%
Vanguard Bank and Trust Company 100%
First Coast Community Bank 100%
National Banking Associations
- ------------------------------
The National Bank of Walton County (GA) 100%
Peachtree National Bank (GA) 100%
First National Bank of Jasper (AL) 100%
National Bank of South Carolina (SC) 100%
<FN>
<F1> Columbus Bank and Trust Company has one majority-owned subsidiary, Total
System Services, Inc., a Georgia corporation, and two wholly-owned
subsidiaries, Synovus Trust Company and Synovus Securities, Inc., both of
which are Georgia corporations. Total System Services, Inc. has four
wholly-owned subsidiaries, Columbus Depot Equipment Company, TSYS Total
Solutions, Inc., TSYS Canada, Inc. and Columbus Productions, Inc., all of
which are Georgia corporations. Synovus Trust Company has one wholly-owned
subsidiary, Synovus Trust Company, a Florida corporation.
<F2> Citizens First Bank has one wholly-owned subsidiary, Citizens Service
Company, a Georgia corporation.
<F3> Athens First Bank & Trust Company has one wholly-owned subsidiary, Athena
Service Corporation, a Georgia corporation.
<F4> First Commercial Bank of Birmingham has three wholly-owned subsidiaries,
First Commercial Mortgage Corporation, First Commercial Credit Corporation
and Synvous Mortgage Corp., all of which are Alabama corporations.
</FN>
</TABLE>
filings\snv\subsid2.snv
3
Accountants' Consent
We consent to the incorporation by reference in the Registration Statements
(No. 333-37403 and No. 333-72827) on Form S-3 of Synovus Financial Corp. of
our report dated January 11, 1999, relating to the consolidated balance sheets
of Synovus Financial Corp. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the December 31, 1998 annual
report on Form 10-K of Synovus Financial Corp.
KPMG LLP
Atlanta, Georgia
March 16, 1999
Accountants' Consent
We consent to the incorporation by reference in the Registration Statements
(No. 33-35926, No. 33-56614, No. 2-93472, No. 2-94639, No. 33-40738, No.
33-39845, No. 33-77900, No. 33-77980, No. 33-79518, No. 33-89782, No. 33-90630,
No. 33-90632, No. 33-91690, No. 33-60473, No. 33-60475, No. 333-30937, and
No. 333-62709) on Form S-8 of Synovus Financial Corp. of our report dated
January 11, 1999, relating to the consolidated balance sheets of Synovus
Financial Corp. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998, which report appears in the December 31, 1998 annual report on Form 10-K
of Synovus Financial Corp.
KPMG LLP
Atlanta, Georgia
March 16, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Synovus Financial Corp. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SYNOVUS FINANCIAL CORP.
(Registrant)
March 16, 1999 By:/s/James H. Blanchard
----------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James H. Blanchard, James D. Yancey and Stephen
L. Burts, Jr., and each of them, his or her true and lawful attorney(s)-in-fact
and agent(s), with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
or all amendments to this report and to file the same, with all exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney(s)-in-fact and
agent(s) full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney(s)-in-fact and agent(s), or their
substitute(s), may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, this report has been signed by the following persons in
the capacities and on the dates indicated.
/s/William B. Turner Date: March 16, 1999
- -------------------------------------------------
William B. Turner,
Director and Chairman of
the Executive Committee
/s/James H. Blanchard Date: March 16, 1999
- -------------------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
/s/James D. Yancey Date: March 16, 1999
- -------------------------------------------------
James D. Yancey,
President and Director
/s/Richard E. Anthony Date: March 16, 1999
- -------------------------------------------------
Richard E. Anthony,
Vice Chairman of the Board
/s/Walter M. Deriso, Jr. Date: March 16, 1999
- -------------------------------------------------
Walter M. Deriso, Jr.,
Vice Chairman of the Board
/s/Stephen L. Burts, Jr. Date: March 16, 1999
- -------------------------------------------------
Stephen L. Burts, Jr.,
Vice Chairman of the Board
/s/Thomas J. Prescott
- -------------------------------------------------
/s/Thomas J. Prescott Date: March 16, 1999
Thomas J. Prescott,
Executive Vice President, Treasurer,
Principal Accounting and Financial Officer
- -------------------------------------------------
Joe E. Beverly,
Director
/s/Richard Y. Bradley Date: March 16, 1999
- -----------------------------------------------
Richard Y. Bradley,
Director
- -------------------------------------------------
C. Edward Floyd,
Director
/s/Gardiner W. Garrard, Jr. Date: March 16, 1999
- -------------------------------------------------
Gardiner W. Garrard, Jr.,
Director
- -------------------------------------------------
V. Nathaniel Hansford,
Director
/s/John P. Illges, III Date: March 16, 1999
- -------------------------------------------------
John P. Illges, III,
Director
/s/Mason H. Lampton Date: March 16, 1999
- -------------------------------------------------
Mason H. Lampton,
Director
- -------------------------------------------------
Elizabeth C. Ogie,
Director
/s/H. Lynn Page Date: March 16, 1999
- -------------------------------------------------
H. Lynn Page,
Director
- -------------------------------------------------
Robert V. Royall, Jr.,
Director
- -------------------------------------------------
Melvin T. Stith,
Director
filings\SNV\con13.sig
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. AS OF AND FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 348,365
<INT-BEARING-DEPOSITS> 1,383
<FED-FUNDS-SOLD> 52,695
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,514,054
<INVESTMENTS-CARRYING> 303,613
<INVESTMENTS-MARKET> 309,716
<LOANS> 7,568,223
<ALLOWANCE> 110,822
<TOTAL-ASSETS> 10,498,009
<DEPOSITS> 8,542,798
<SHORT-TERM> 496,013
<LIABILITIES-OTHER> 209,489
<LONG-TERM> 127,015
0
0
<COMMON> 270,394
<OTHER-SE> 800,207
<TOTAL-LIABILITIES-AND-EQUITY> 10,498,009
<INTEREST-LOAN> 660,683
<INTEREST-INVEST> 104,957
<INTEREST-OTHER> 3,608
<INTEREST-TOTAL> 769,248
<INTEREST-DEPOSIT> 306,275
<INTEREST-EXPENSE> 328,722
<INTEREST-INCOME-NET> 440,526
<LOAN-LOSSES> 26,660
<SECURITIES-GAINS> 1,299
<EXPENSE-OTHER> 684,207
<INCOME-PRETAX> 291,632
<INCOME-PRE-EXTRAORDINARY> 187,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,108
<EPS-PRIMARY> .71 <F1>
<EPS-DILUTED> .70 <F1>
<YIELD-ACTUAL> 5.22
<LOANS-NON> 20,985
<LOANS-PAST> 24,628
<LOANS-TROUBLED> 452
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 103,050
<CHARGE-OFFS> 30,819
<RECOVERIES> 5,761
<ALLOWANCE-CLOSE> 110,822
<ALLOWANCE-DOMESTIC> 110,822
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 26,232
<FN>
<F1> On April 23, 1998, Synovus announced a three-for-two
stock split to be issued on May 21, 1998, to shareholders
of record as of May 7, 1998. Financial data schedules
have not been restated for prior periods for this recapitalization.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 354,579 381,565 319,737
<INT-BEARING-DEPOSITS> 928 669 675
<FED-FUNDS-SOLD> 120,860 38,051 42,728
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,366,409 1,363,616 1,372,847
<INVESTMENTS-CARRYING> 313,185 301,651 310,187
<INVESTMENTS-MARKET> 317,488 306,130 319,048
<LOANS> 6,706,297 6,728,288 7,191,812
<ALLOWANCE> 105,716 106,704 110,458
<TOTAL-ASSETS> 9,376,677 9,370,271 9,840,766
<DEPOSITS> 7,889,802 7,823,454 8,026,590
<SHORT-TERM> 214,811 249,695 417,361
<LIABILITIES-OTHER> 182,465 173,002 182,975
<LONG-TERM> 117,860 123,484 129,502
0 0 0
0 0 0
<COMMON> 263,182 263,276 267,437
<OTHER-SE> 664,147 691,074 768,064
<TOTAL-LIABILITIES-AND-EQUITY> 9,376,677 9,370,271 9,840,766
<INTEREST-LOAN> 159,754 321,270 488,139
<INTEREST-INVEST> 26,421 52,867 78,643
<INTEREST-OTHER> 780 1,885 2,899
<INTEREST-TOTAL> 186,955 376,022 569,681
<INTEREST-DEPOSIT> 75,912 151,818 228,886
<INTEREST-EXPENSE> 80,893 162,020 244,640
<INTEREST-INCOME-NET> 106,062 214,002 325,041
<LOAN-LOSSES> 7,594 14,598 20,329
<SECURITIES-GAINS> 145 326 750
<EXPENSE-OTHER> 166,613 328,379 500,498
<INCOME-PRETAX> 64,173 132,794 207,014
<INCOME-PRE-EXTRAORDINARY> 41,213 85,425 132,863
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 41,213 85,425 132,863
<EPS-PRIMARY> .16<F1> .32<F1> .50<F1>
<EPS-DILUTED> .15<F1> .32<F1> .50<F1>
<YIELD-ACTUAL> 5.22 5.22 5.24
<LOANS-NON> 17,805 20,372 22,332
<LOANS-PAST> 18,783 23,426 23,938
<LOANS-TROUBLED> 525 560 390
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 103,050 103,050 103,050
<CHARGE-OFFS> 6,477 14,254 22,074
<RECOVERIES> 1,549 3,310 5,279
<ALLOWANCE-CLOSE> 105,716 106,704 110,458
<ALLOWANCE-DOMESTIC> 105,716 106,704 110,458
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 22,300 22,060 21,910
<FN>
<F1> On April 23, 1998, Synovus announced a three-for-two
stock split to be issued on May 21, 1998, to shareholders
of record as of May 7, 1998. Financial data schedules
have not been restated for prior periods for this recapitalization.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 349,373 374,088 336,065 388,134
<INT-BEARING-DEPOSITS> 1,990 848 959 1,272
<FED-FUNDS-SOLD> 8,167 46,624 45,436 93,392
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,284,565 1,322,741 1,307,114 1,325,036
<INVESTMENTS-CARRYING> 351,963 342,099 336,021 330,137
<INVESTMENTS-MARKET> 351,121 344,311 339,734 335,107
<LOANS> 6,183,621 6,393,290 6,470,944 6,609,872
<ALLOWANCE> 97,837 100,619 101,675 103,050
<TOTAL-ASSETS> 8,650,468 8,970,672 8,997,052 9,260,331
<DEPOSITS> 7,188,122 7,422,266 7,399,381 7,707,927
<SHORT-TERM> 386,885 399,138 399,441 305,868
<LIABILITIES-OTHER> 142,173 153,363 168,300 174,065
<LONG-TERM> 100,897 127,239 126,564 126,174
0 0 0 0
0 0 0 0
<COMMON> 174,705 174,953 175,101 175,322
<OTHER-SE> 621,844 656,206 688,461 728,334
<TOTAL-LIABILITIES-AND-EQUITY> 8,650,468 8,970,672 8,997,052 9,260,331
<INTEREST-LOAN> 146,023 299,308 457,270 618,172
<INTEREST-INVEST> 26,088 52,655 79,238 105,342
<INTEREST-OTHER> 303 860 1,362 2,159
<INTEREST-TOTAL> 172,414 352,823 537,870 725,673
<INTEREST-DEPOSIT> 67,855 138,386 211,823 287,260
<INTEREST-EXPENSE> 74,259 152,060 232,264 313,284
<INTEREST-INCOME-NET> 98,155 200,763 305,606 412,389
<LOAN-LOSSES> 7,001 15,280 22,884 32,296
<SECURITIES-GAINS> (32) (2) (20) (23)
<EXPENSE-OTHER> 147,131 300,166 454,595 610,436
<INCOME-PRETAX> 56,254 118,481 185,611 258,903
<INCOME-PRE-EXTRAORDINARY> 35,807 75,129 118,230 165,236
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 35,807 75,129 118,230 165,236
<EPS-PRIMARY> .21<F1> .43<F1> .68<F1> .95<F1>
<EPS-DILUTED> .20<F1> .42<F1> .67<F1> .93<F1>
<YIELD-ACTUAL> 5.21 5.24 5.25 5.26
<LOANS-NON> 26,861 24,726 21,113 18,472
<LOANS-PAST> 17,241 15,911 17,070 20,881
<LOANS-TROUBLED> 716 642 210 563
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 94,683 94,683 94,683 94,683
<CHARGE-OFFS> 5,587 14,004 22,249 31,818
<RECOVERIES> 1,740 4,661 6,357 7,889
<ALLOWANCE-CLOSE> 97,837 100,619 101,675 103,050
<ALLOWANCE-DOMESTIC> 97,837 100,619 101,675 103,050
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 22,951 23,464 23,685 21,479
<FN>
<F1>ON MARCH 10, 1997, SYNOVUS ANNOUNCED A THREE-FOR-TWO STOCK SPLIT TO BE
ISSUED ON APRIL 8, 1997, TO SHAREHOLDERS OF RECORD AS OF MARCH 21, 1997.
FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR PRIOR PERIODS FOR THIS
RECAPITALIZATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF SYNOVUS FINANCIAL CORP. FOR THE TWELVE MONTHS ENDING DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 404,952
<INT-BEARING-DEPOSITS> 2,040
<FED-FUNDS-SOLD> 38,249
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,276,083
<INVESTMENTS-CARRYING> 363,008
<INVESTMENTS-MARKET> 364,694
<LOANS> 6,065,230
<ALLOWANCE> 94,683
<TOTAL-ASSETS> 8,612,344
<DEPOSITS> 7,203,035
<SHORT-TERM> 339,200
<LIABILITIES-OTHER> 154,641
<LONG-TERM> 97,283
0
0
<COMMON> 116,424
<OTHER-SE> 667,326
<TOTAL-LIABILITIES-AND-EQUITY> 8,612,344
<INTEREST-LOAN> 562,208
<INTEREST-INVEST> 99,170
<INTEREST-OTHER> 1,925
<INTEREST-TOTAL> 663,303
<INTEREST-DEPOSIT> 267,349
<INTEREST-EXPENSE> 288,429
<INTEREST-INCOME-NET> 374,874
<LOAN-LOSSES> 31,766
<SECURITIES-GAINS> (176)
<EXPENSE-OTHER> 549,174
<INCOME-PRETAX> 219,312
<INCOME-PRE-EXTRAORDINARY> 139,604
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,604
<EPS-PRIMARY> 1.20<F1>
<EPS-DILUTED> 1.19<F1>
<YIELD-ACTUAL> 5.19
<LOANS-NON> 25,280
<LOANS-PAST> 15,805
<LOANS-TROUBLED> 1,625
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 81,384
<CHARGE-OFFS> 25,180
<RECOVERIES> 6,525
<ALLOWANCE-CLOSE> 94,683
<ALLOWANCE-DOMESTIC> 94,683
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,951
<FN>
<F1>ON MARCH 11, 1996 SYNOVUS FINANCIAL CORP. ANNOUNCED A THREE-FOR-TWO
STOCK SPLIT EFFECTIVE APRIL 8, 1996 TO SHAREHOLDERS OF RECORD AS OF
MARCH 21, 1996. PER SHARE DATA HAS BEEN RETROACTIVELY RESTATED TO REFLECT
THE ADDITIONAL SHARES OUTSTANDING RESULTING FROM THE STOCK SPLIT.
</FN>
</TABLE>
