-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eg+ufHy2xgz8r27fJDkKlZWQukUlWhW3EAXICYdnD6wQeSkUd9SpNiCiVG+wX57u hPvUD1I71R2A6GwXKZeAUg== 0000018349-99-000012.txt : 19990317 0000018349-99-000012.hdr.sgml : 19990317 ACCESSION NUMBER: 0000018349-99-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNOVUS FINANCIAL CORP CENTRAL INDEX KEY: 0000018349 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 581134883 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10312 FILM NUMBER: 99566200 BUSINESS ADDRESS: STREET 1: 901 FRONT AVENUE STREET 2: STE 301 CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: P.O.BOX 120 CITY: COLUMBUS STATE: GA ZIP: 31902 FORMER COMPANY: FORMER CONFORMED NAME: CB&T BANCSHARES INC DATE OF NAME CHANGE: 19890912 10-K 1 10K 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. - ------------------ 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 EX-13.1 2 ANNUAL REPORT FINANCIALS IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN? [LOGO] [LOGO] SYNOVUS(R) FINANCIAL CORP. FINANCIAL APPENDIX 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
F-1 IF NOT US, WHO? IF NOT HERE, WHERE? IF NOT NOW, WHEN? CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
DECEMBER 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- 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 ========== =========
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)
YEARS ENDED DECEMBER 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- 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 ======== ======== ========
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)
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 - ---------------------------------------------------------------------------------------------------------------------------------- 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 ======= ======== ====== ===== ===== ====== ======= =========
See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED DECEMBER 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- 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 ======== ======== =======
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:
DECEMBER 31, 1998 ------------------------------------------------------ INVESTMENT SECURITIES AVAILABLE FOR SALE GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury and U.S. Government agencies ............ $1,148,966 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 ========== ========== ========== =========
DECEMBER 31, 1997 ------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------------------- 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 ========== ========== ========== =========
DECEMBER 31, 1998 ------------------------------------------------------ INVESTMENT SECURITIES HELD TO MATURITY GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury and U.S. Government agencies ............ $ 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 ========== ========== ========== =========
DECEMBER 31, 1997 ------------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR (In thousands) COST GAINS LOSSES VALUE - ---------------------------------------------------------------------------------------------------------------- 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 ========== ========== ========== =========
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.
INVESTMENT SECURITIES INVESTMENT SECURITIES HELD TO MATURITY AVAILABLE FOR SALE -------------------------- --------------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED (In thousands) COST FAIR VALUE COST FAIR VALUE - ----------------------------------------------------------------------------------------------------------------------------------- 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 ======== ======= ========= =========
A summary of sales transactions in the investment securities available for sale portfolio for 1998, 1997, and 1996 is as follows:
GROSS GROSS REALIZED REALIZED (In thousands) PROCEEDS GAINS LOSSES - ------------------------------------------------------------------------------------------------------------------------------------ 1998......................................................................... $113,047 1,371 (72) 1997......................................................................... 67,932 151 (174) 1996......................................................................... 106,207 514 (690)
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:
(In thousands) DECEMBER 31, 1998 1997 - ----------------------------------------------------------------------------------------------------------------- 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 ================================
Activity in the reserve for loan losses is summarized as follows:
(In thousands) DECEMBER 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- 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 ====================================================
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.
(In thousands) - ----------------------------------------------------------------------------------------------------------------------------------- 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 =========
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:
(In thousands) 1998 1997 - ---------------------------------------------------------------------------------------------- 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 ======= =======
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:
(In thousands) 1998 1997 - ------------------------------------------------------------------------------------------------- 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 ========== ==========
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:
In thousands 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ 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 ======== =======
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:
PARENT (In thousands) COMPANY SUBSIDIARIES TOTAL - --------------------------------------------------------------------------------------------------- 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
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:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------ 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 ======== ====== ======
Income tax expense as shown in the consolidated statements of income differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to pretax income as a result of the following:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------ 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 ======== ====== ======
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:
(In thousands) 1998 1997 - --------------------------------------------------------------------------------------------- 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 ======= =======
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:
1998 1997 1996 ---------------------------- --------------------------- ------------------------- WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG. SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------------------------- ---------------------------- ------------------------- 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 ==============================================================================================
The following is a summary of stock options outstanding at December 31, 1998:
WEIGHTED AVERAGE WEIGHTED RANGE OF OPTIONS OPTIONS WEIGHTED AVERAGE EXERCISE PRICE- AVERAGE REMAINING EXERCISE PRICES OUTSTANDING EXERCISABLE EXERCISE PRICE OPTIONS EXERCISABLE CONTRACTUAL LIFE --------------- ----------- ----------- ---------------- ------------------- ----------------- $ 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
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:
YEARS ENDED DECEMBER 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- 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
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:
Year awards Market value granted at award date Vesting period ------- ------------- -------------- 1994 $ 870,000 5 years 1995 2,054,000 5 years 1996 3,771,000 5 years 1997 246,000 5 years
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.
1998 1997 --------------------------- ---------------------------- CARRYING ESTIMATED CARRYING ESTIMATED (IN THOUSANDS) VALUE FAIR VALUE VALUE FAIR VALUE - ------------------------------------------------------------------------------------------------------------------------------- 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
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:
(In thousands) - ---------------------------------------------------------------------------- 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 ==========
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 - ------------------------------------------------------------------------------
(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 - ----------------------------------------------------------------------------------------------------------------------------------- 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 ======== ====== ===== ===
(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:
Equipment Real and (In thousands) Property Furniture Total - ----------------------------------------------------------------------- 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
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:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- 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
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:
BANKING DATA (In thousands) OPERATIONS PROCESSING(c) ELIMINATIONS CONSOLIDATED - ----------------------------------------------------------------------------------------------------------------------------- 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
(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)
DECEMBER 31, 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- 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 ========== =========
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)
YEARS ENDED DECEMBER 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ======== ======= =======
F-26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED DECEMBER 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 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 ======== ========= =========
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.
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 - ---------------------------------------------------------------------------------------------------------------------------- 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
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.
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 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ======== ======= ==== ======== ======= ==== ======== ======= ====
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:
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 - ------------------------------------------------------------------------------------------------------------------------------------ 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) ======= ====== ===== ====== ====== ===== ====== ===== ======
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)
PERCENT YEARS ENDED DECEMBER 31, 1998 1997 CHANGE - ----------------------------------------------------------------------------------------------------- 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 - -----------------------------------------------------------------------------------------------------
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 I FIVE YEAR SELECTED FINANCIAL DATA (Amounts in thousands, except per share data) YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1998 1997 1996(b) 1995 1994 ------------------------------------------------------------ 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
(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)
Total Shares Accounting Company and Location Date Assets Issued Treatment --------------------- ----------------- -------- --------- ---------------------- 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
This information is discussed in further detail in Note I of the financial statements. TABLE 2 NET INTEREST INCOME (In thousands)
YEARS ENDED DECEMBER 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- 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 ======== ======== ========
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)
1998 1997 ------------------------------------ -------------------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ------- -------- ------ ------- -------- ------ 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 ======== ======== 1996 ------------------------------------ AVERAGE YIELD/ BALANCE INTEREST RATE ------- -------- ------ 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 ========
(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)
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 ------ ---- ------ ------ ---- ------ 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 ======= ======= ====== ====== ====== ======
(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:
1998 1997 1996 -------------------- ----------------- ------------------- (In thousands) Banking TSYS Banking TSYS Banking TSYS --------- ------- ------- ------- ------- ------- 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 ========= ======= ======= ======= ======= =======
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)
DECEMBER 31, ------------------------------------------ 1998 1997 1996 ------------------------------------------ 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 =========== ========= =========
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)
December 31, ------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------------- 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 ========== ========= ========= ========= =========
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)
DECEMBER 31, 1998 --------------------------------------------- ONE OVER ONE YEAR OVER YEAR THROUGH FIVE FIVE OR LESS YEARS YEARS TOTAL ---------- ------- ------- --------- 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 ==========
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)
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 -------------------------------------------------------- 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 ======== ======= ====== ====== ======
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)
DECEMBER 31, ------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------------- -------------- ------------- ------------- ------------- RESERVE %* RESERVE %* RESERVE %* RESERVE %* RESERVE %* -------- --- -------- --- ------- --- ------- --- ------- --- 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% ======== === ======== === ======= === ======= === ======= ===
* 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)
DECEMBER 31, ------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------------- 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 ======= ====== ====== ====== ======
Interest income on nonperforming loans that would have been reported for the years ended December 31, 1998, 1997, and 1996 is summarized as follows:
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 ====== ===== =====
(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)
YEARS ENDED DECEMBER 31, --------------------------------------------- 1998 1997 1996 --------------------------------------------- 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 12 MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE (In thousands)
DECEMBER 31, 1998 ----------------- 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 ==========
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)
DECEMBER 31, 1998 -------------------------------------------- 0-3 4-12 1-5 OVER 5 MONTHS MONTHS YEARS YEARS ------ ------ ----- ------- 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 ======== ======= ======= ======= DECEMBER 31, 1997 -------------------------------------------- 0-3 4-12 1-5 OVER 5 MONTHS MONTHS YEARS YEARS ------ ------ ----- ------- 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 ======== ======= ======= =======
(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)
DECEMBER 31, 1998 ---------------------------------------------------------- INVESTMENT SECURITIES INVESTMENT SECURITIES HELD TO MATURITY AVAILABLE FOR SALE -------------------------- ----------------------- AMORTIZED AVERAGE ESTIMATED AVERAGE COST YIELD FAIR VALUE YIELD ---------- ---------- ------------ --------- 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% ======== ==========
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
(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) - ----------------------------------------------------------------------------------------------------------------------------------- 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 ========= ======= ====== =====
(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 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 - ---------------------------------------------------------------------------------------------------------------------------------- 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% TABLE 15 MARKET RISK INFORMATION Fair (Amounts in thousands) Total Value RATE-SENSITIVE ASSETS: 1997 1997 - ----------------------------------------------------------------------- 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
(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)
DECEMBER 31, -------------------------- 1998 1997 -------------------------- 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 17 MARKET AND STOCK PRICE INFORMATION
HIGH LOW --------- -------- 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
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
PER SHARE DATE DECLARED DATE PAID AMOUNT - ------------------ ---------------- --------- 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
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)
1998 1997 1996 --------------------------------------- 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
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.
FOURTH THIRD SECOND FIRST QUARTER QUARTER QUARTER QUARTER ---------- --------- -------- -------- 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 ========== ========= ======== ========
F-55 EX-20.1 3 PROXY STATEMENT 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. - --------------------------------------------------------------------------------
Synovus Year Director First Classifi- Elected Principal Occupation Name Age cation Director and Other Information - ------------------------- ----- -------- ---------- ------------------------------------- Richard E. Anthony 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 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 60 III 1991 Partner, Bradley & Hatcher (Law Firm); Director, Total System Services, Inc. Stephen L. Burts, Jr. 46 I 1992 Vice Chairman of the Board, Synovus Financial Corp. Walter M. Deriso, Jr. 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 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 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 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. - ------------- 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. 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. Richard Y. Bradley formed Bradley & Hatcher in September 1995. From 1991 until 1995, Mr. Bradley served as President of Bickerstaff Clay Products Company, Inc. 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. 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. Elizabeth C. Ogie is William B. Turner's niece. 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. 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.
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. - --------------------------------------------------------------------------------
Executive Audit Compensation - ---------- ----- ------------- 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.
- -------------------------------------------------------------------------------- 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.
Name Age Position with Synovus - ----------------------- --- ------------------------------------------------- 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
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.
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 12/31/98 - ---------------------- --------------- -------------- -------------- -------------- -------------- 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 --- 808,858 * Mason H. Lampton 79,268 290,951 --- 370,219 * Elizabeth C. Ogie 32,616 30,514,254 --- 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 --- 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. - --------------------------- 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. Includes 62,667 shares of Synovus Common Stock held by a charitable foundation of which Mr. Illges is trustee. 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. Includes 123,948 shares of Synovus Common Stock held by a charitable foundation of which Mrs. Ogie is a trustee. 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.
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. - --------------------------------------------------------------------------------
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 SARs sation (3) - --------------------- -------- ------------- ------------ ------------- ------------- ------------ ------------ 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 - --------------------- 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. 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. 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 $17,817 for each of Messrs. Blanchard, Yancey and Anthony, respectively.
STOCK OPTION EXERCISES AND GRANTS The following tables provide certain information regarding stock options granted and exercised in the last fiscal year and the number and value of unexercised options at the end of the fiscal year. - --------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR Individual Grants - ----------------------------------------------------------------------------------------- % of Total Potential Options/ Realized Value at SARs Exercise Assumed Annual Rates of Options/ Granted to or Stock Price Appreciation SARs Employees Base For Option Term Granted in Fiscal Price Expiration --------------------- Name (#) Year ($/Share) Date 5%($) 10% ($) - ------------------------------ ------------ -------------- -------------- --------------- ---------- --------- James H. Blanchard 211,779 5.3845% $20.83 01/12/08 $2,107,201 $5,044,576 150 0.0038 22.00 06/01/06 1,575 3,774 James D. Yancey 131,976 3.3555 20.83 01/12/08 1,313,161 3,143,668 150 0.0038 22.00 06/01/06 1,575 3,774 Stephen L. Burts, Jr. 75,600 1.9221 20.83 01/12/08 752,220 1,800,792 150 0.0038 22.00 06/01/06 1,575 3,774 Richard E. Anthony 69,120 1.7574 20.83 01/12/08 687,744 1,646,438 150 0.0038 22.00 06/01/06 1,575 3,774 G. Sanders Griffith, III 59,076 1.5020 20.83 01/12/08 587,806 1,407,190 150 0.0038 22.00 06/01/06 1,575 3,774 - ----------- 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. 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. 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 $44.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($) Acquired on Realized -------------------------- ------------------------------- Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------ ------------ --------- --------------------------- ------------------------------- 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 - ---------- Market value of underlying securities at exercise or year-end, minus the exercise or base price.
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.]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN SYNOVUS FINANCIAL CORP., S&P 500 AND KBW 50 BANK INDEX 1993 1994 1995 1996 1997 1998 Synovus $100 $100 $160 $276 $428 $477 S&P 500 $100 $101 $139 $171 $229 $294 KBW 50 $100 $ 95 $152 $215 $314 $340
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.
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 - ----------------------- ------------------------- --------------------------- Synovus Trust Company 36,058,461 13.34% 1148 Broadway Columbus, Georgia 31901 TB&C Bancshares, Inc. 27,794,554 10.29 1017 Front Avenue Columbus, Georgia 31901 William B. Turner 30,454,870 11.27 P.O. Box 120 Columbus, Georgia 31902 Sarah T. Butler 30,518,649 11.29 P.O. Box 120 Columbus, Georgia 31902 Elizabeth T. Corn 30,911,716 11.44 P.O. Box 120 Columbus, Georgia 31902 W.B. Turner, Jr. 30,412,881 11.25 P.O. Box 120 Columbus, Georgia 31902 Stephen T. Butler 30,449,230 11.27 P.O. Box 120 Columbus, Georgia 31902 Elizabeth C. Ogie 30,546,870 11.30 P.O. Box 120 Columbus, Georgia 31902 - ----------------------------------- 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. 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. 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. 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. 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. 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. 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. 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. 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.
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.
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 - ----------------------- ------------------------ ------------------------ Columbus Bank and Trust Company 156,601,938 80.7% 1148 Broadway Columbus, Georgia 31901 - ----------------- Columbus Bank individually owns these shares. 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.
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. - --------------------------------------------------------------------------------
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 - --------------------------- ------------------- --------------------- ------------------- ------------- 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 ----- 19,422 * V. Nathaniel Hansford ----- 1,549 1,549 * John P. Illges, III 102,435 81,750 184,185 * Mason H. Lampton 26,547 118,684 145,231 * Elizabeth C. Ogie 10,200 40,182 50,382 * H. Lynn Page 523,541 151,221 674,762 * 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. - ------------------- Includes 16,734 shares of TSYS Common Stock with respect to which Mr. Griffith has no investment power. 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. Includes 37,903 shares of TSYS Common Stock held by a charitable foundation of which Mrs. Ogie is a trustee. Includes 55,575 shares of TSYS Common Stock held by a charitable foundation of which Mr. Page is a trustee.
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 EX-21.1 4 SUBSIDIARIES SUBSIDIARIES OF SYNOVUS FINANCIAL CORP.
Georgia Corporations - --------------------- Columbus Bank and Trust Company 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 100% The Citizens Bank 100% The Citizens Bank of Cochran 100% Athens First Bank & Trust Company 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 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% 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. Citizens First Bank has one wholly-owned subsidiary, Citizens Service Company, a Georgia corporation. Athens First Bank & Trust Company has one wholly-owned subsidiary, Athena Service Corporation, a Georgia corporation. 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.
filings\snv\subsid2.snv 3 EX-23.1 5 INDEPENDENT AUDITOR'S CONSENT 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 EX-24.1 6 POWERS OF ATTORNEY 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 EX-27.1 7 FINANCIAL DATA SCHEDULE
9 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. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 348,365 1,383 52,695 0 1,514,054 303,613 309,716 7,568,223 110,822 10,498,009 8,542,798 496,013 209,489 127,015 0 0 270,394 800,207 10,498,009 660,683 104,957 3,608 769,248 306,275 328,722 440,526 26,660 1,299 684,207 291,632 187,108 0 0 187,108 .71 .70 5.22 20,985 24,628 452 0 103,050 30,819 5,761 110,822 110,822 0 26,232 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.
EX-27.2 8 AMENDED FINANCIAL DATA SCHEDULE
9 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. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1998 DEC-31-1998 DEC-31-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998 MAR-31-1998 JUN-30-1998 SEP-30-1998 354,579 381,565 319,737 928 669 675 120,860 38,051 42,728 0 0 0 1,366,409 1,363,616 1,372,847 313,185 301,651 310,187 317,488 306,130 319,048 6,706,297 6,728,288 7,191,812 105,716 106,704 110,458 9,376,677 9,370,271 9,840,766 7,889,802 7,823,454 8,026,590 214,811 249,695 417,361 182,465 173,002 182,975 117,860 123,484 129,502 0 0 0 0 0 0 263,182 263,276 267,437 664,147 691,074 768,064 9,376,677 9,370,271 9,840,766 159,754 321,270 488,139 26,421 52,867 78,643 780 1,885 2,899 186,955 376,022 569,681 75,912 151,818 228,886 80,893 162,020 244,640 106,062 214,002 325,041 7,594 14,598 20,329 145 326 750 166,613 328,379 500,498 64,173 132,794 207,014 41,213 85,425 132,863 0 0 0 0 0 0 41,213 85,425 132,863 .16 .32 .50 .15 .32 .50 5.22 5.22 5.24 17,805 20,372 22,332 18,783 23,426 23,938 525 560 390 0 0 0 103,050 103,050 103,050 6,477 14,254 22,074 1,549 3,310 5,279 105,716 106,704 110,458 105,716 106,704 110,458 0 0 0 22,300 22,060 21,910 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.
EX-27.3 9 AMENDED FINANCIAL DATA SCHEDULE
9 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. 1,000 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997 349,373 374,088 336,065 388,134 1,990 848 959 1,272 8,167 46,624 45,436 93,392 0 0 0 0 1,284,565 1,322,741 1,307,114 1,325,036 351,963 342,099 336,021 330,137 351,121 344,311 339,734 335,107 6,183,621 6,393,290 6,470,944 6,609,872 97,837 100,619 101,675 103,050 8,650,468 8,970,672 8,997,052 9,260,331 7,188,122 7,422,266 7,399,381 7,707,927 386,885 399,138 399,441 305,868 142,173 153,363 168,300 174,065 100,897 127,239 126,564 126,174 0 0 0 0 0 0 0 0 174,705 174,953 175,101 175,322 621,844 656,206 688,461 728,334 8,650,468 8,970,672 8,997,052 9,260,331 146,023 299,308 457,270 618,172 26,088 52,655 79,238 105,342 303 860 1,362 2,159 172,414 352,823 537,870 725,673 67,855 138,386 211,823 287,260 74,259 152,060 232,264 313,284 98,155 200,763 305,606 412,389 7,001 15,280 22,884 32,296 (32) (2) (20) (23) 147,131 300,166 454,595 610,436 56,254 118,481 185,611 258,903 35,807 75,129 118,230 165,236 0 0 0 0 0 0 0 0 35,807 75,129 118,230 165,236 .21 .43 .68 .95 .20 .42 .67 .93 5.21 5.24 5.25 5.26 26,861 24,726 21,113 18,472 17,241 15,911 17,070 20,881 716 642 210 563 0 0 0 0 94,683 94,683 94,683 94,683 5,587 14,004 22,249 31,818 1,740 4,661 6,357 7,889 97,837 100,619 101,675 103,050 97,837 100,619 101,675 103,050 0 0 0 0 22,951 23,464 23,685 21,479 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.
EX-27.4 10 AMENDED FINANCIAL DATA SCHEDULE
9 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. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 404,952 2,040 38,249 0 1,276,083 363,008 364,694 6,065,230 94,683 8,612,344 7,203,035 339,200 154,641 97,283 0 0 116,424 667,326 8,612,344 562,208 99,170 1,925 663,303 267,349 288,429 374,874 31,766 (176) 549,174 219,312 139,604 0 0 139,604 1.20 1.19 5.19 25,280 15,805 1,625 0 81,384 25,180 6,525 94,683 94,683 0 22,951 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.
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