SCHEDULE 14A INFORMATION
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240.14a-12
Synovus Financial Corp.
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[LOGO](R)
SYNOVUS(R)
JAMES H. BLANCHARD
CHAIRMAN OF THE BOARD
March 14, 2002
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders at
10:00 a.m. on Wednesday, April 24, 2002, in the South Hall of the Columbus,
Georgia Convention & Trade Center. Enclosed with this Proxy Statement are
your proxy card and the 2001 Annual Report.
We hope that you will be able to be with us and let us give you a review of
2001. 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 vote promptly.
Thank you for helping us make 2001 a good year. We look forward to your
continued support in 2002 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)
NOTICE OF THE 2002 ANNUAL MEETING OF SHAREHOLDERS
TIME............... 10:00 a.m. E.T.
Wednesday, April 24, 2002
PLACE.............. South Hall
Columbus, Georgia Convention & Trade Center
801 Front Avenue
Columbus, Georgia 31901
ITEMS OF BUSINESS.. (1) To elect eight directors to serve until the Annual
Meeting of Shareholders in 2005.
(2) To approve the Synovus Financial Corp.2002 Long-Term
Incentive Plan.
(3) To transact such other business as may properly
come before the meeting and any adjournment thereof.
WHO MAY VOTE....... You can vote if you were a shareholder of record on
February 15, 2002.
ANNUAL REPORT...... A copy of the Annual Report is enclosed.
PROXY VOTING....... Your vote is important. Please vote in one of these ways:
(1) Use the toll-free telephone number shown on the
proxy card;
(2) Visit the web site listed on your proxy card;
(3) Mark, sign, date and promptly return the enclosed
proxy card in the postage-paid envelope provided; or
(4) Submit a ballot at the Annual Meeting.
/s/G. Sanders Griffith, III
G. SANDERS GRIFFITH, III
Secretary
Columbus, Georgia
March 14, 2002
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, PLEASE VOTE YOUR SHARES PROMPTLY.
TABLE OF CONTENTS
Voting Information.............................................................1
Election of Directors..........................................................3
Board of Directors.............................................................6
Audit Committee Report.........................................................8
Directors' Compensation........................................................9
Executive Officers.............................................................9
Stock Ownership of Directors and Executive Officers...........................10
Directors' Proposal to Approve the Synovus Financial Corp.
2002 Long-Term Incentive Plan............................................11
Executive Compensation........................................................16
Stock Performance Graph.......................................................20
Compensation Committee Report on Executive Compensation.......................20
Compensation Committee Interlocks and
Insider Participation....................................................23
Transactions With Management..................................................24
Principal Shareholders........................................................26
Relationships Between Synovus, Columbus Bank, TSYS and
Certain of Synovus' Subsidiaries and Affiliates..........................27
Section 16(a) Beneficial Ownership Reporting Compliance.......................30
Independent Auditors..........................................................30
General Information:
Financial Information....................................................31
Shareholder Proposals for the 2003 Proxy Statement.......................31
Director Nominees or Other Business for Presentation
at the Annual Meeting...............................................31
Solicitation of Proxies..................................................31
Householding.............................................................31
Financial Appendix...........................................................F-1
PROXY STATEMENT
VOTING INFORMATION
PURPOSE
This Proxy Statement and the accompanying proxy card are being mailed to
Synovus shareholders beginning March 14, 2002. The Synovus Board of Directors is
soliciting proxies to be used at the 2002 Annual Meeting of Synovus Shareholders
which will be held on April 24, 2002, 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
You are entitled to vote if you were a shareholder of record of Synovus
stock as of the close of business on February 15, 2002. Your shares can be voted
at the meeting only if you are 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 stock must be present, either in person or
represented by proxy, in order to conduct the Annual Meeting of Synovus
Shareholders. On February 15, 2002, 294,807,278 shares of Synovus stock were
outstanding.
PROXY CARD
The Board has designated two individuals to serve as proxies to vote the
shares represented by proxies at the Annual Meeting of Shareholders.
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 designated proxies in favor of the
election of all of the director nominees and in accordance with the directors'
recommendations on the other proposal listed on the proxy card. The designated
proxies will vote in their discretion on any other matter that may properly come
before the meeting. At the date the Proxy Statement went to press, we did not
anticipate that any other matters would be raised at the Annual Meeting.
VOTING OF SHARES
Holders of Synovus stock are entitled to ten votes on each matter submitted
to a vote of shareholders for each share of Synovus stock owned on February 15,
2002 which: (i) has had the same owner since February 15, 1998; (ii) 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; (iii) 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;
(iv) 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; (v) 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; (vi) 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 15, 1998; (vii) has been
owned continuously by the same shareholder for a period of 48 consecutive months
prior to the record date of any
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meeting of shareholders at which the share is eligible to be voted; or (viii) is
owned by a holder who, in addition to shares which are owned under the
provisions of (i)-(vii) above, is the owner of less than 1,139,063 shares of
Synovus 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 stock by means of a stock split, a stock dividend, a
recapitalization or otherwise). Shareholders of shares of Synovus 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 stock will be based on
information possessed by Synovus at the time of the Annual Meeting.
As Synovus stock is registered with the Securities and Exchange Commission
and is traded on the New York Stock Exchange, Synovus 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 stock to ten votes on each matter submitted to a vote of shareholders.
Shareholders of Synovus 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 in person or by properly
completed 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 CERTIFY ON THEIR PROXY CARDS THAT THEY ARE 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 eight
nominees who receive the largest number of properly executed votes will be
elected as directors. 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.
REQUIRED VOTES - OTHER MATTERS
The affirmative vote of a majority of the votes cast (in person or by
proxy and entitled to vote at the Annual Meeting) is needed to approve the
Synovus 2002 Long-Term Incentive Plan.
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. In addition, if a broker indicates on the proxy card that
it does not have discretionary authority on other matters considered at the
meeting, those shares will not be counted in determining the number of votes
cast with respect to those matters.
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HOW YOU CAN VOTE
You may vote by proxy or in person at the meeting. To vote by proxy, you
may select one of the following options:
Vote By Telephone:
You can vote your shares by telephone by calling the toll-free telephone
number (at no cost to you) shown on your proxy card. Telephone voting is
available 24 hours a day, seven days a week. Easy-to-follow voice prompts allow
you to vote your shares and confirm that your instructions have been properly
recorded. Our telephone voting procedures are designed to authenticate the
shareholder by using individual control numbers. If you vote by telephone, you
do NOT need to return your proxy card.
Vote By Internet:
You can also choose to vote on the Internet. The web site for Internet
voting is shown on your proxy card. Internet voting is available 24 hours a day,
seven days a week. You will be given the opportunity to confirm that your
instructions have been properly recorded, and you can consent to view future
proxy statements and annual reports on the Internet instead of receiving them in
the mail. If you vote on the Internet, you do NOT need to return your proxy
card.
Vote By Mail:
If you choose to vote by mail, simply mark your proxy card, date and sign
it, sign the Certification and return it in the postage-paid envelope provided.
REVOCATION OF PROXY
If you vote by proxy, you may revoke that proxy at any time before it is
voted at the meeting. You may do this by (a) signing another proxy card with a
later date and returning it to us prior to the meeting, (b) voting again by
telephone or on the Internet prior to the meeting, or (c) 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 81.1% of the outstanding shares of Total System Services, Inc.(R)
("TSYS(R)"), an electronic transaction processing company.
ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
ALL NOMINEES.
NUMBER
At the date of this Proxy Statement, the Board of Directors of Synovus
consists of 18 members. As 20 board seats have been authorized by Synovus'
shareholders, Synovus has two 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
I directors expire at the 2004 Annual Meeting, the terms of office of the Class
II directors expire at the 2002 Annual Meeting and the terms of office of the
Class III directors expire at the 2003 Annual Meeting. Eight director nominees
have been nominated for election as Class II directors at this meeting. Proxies
cannot be voted at the 2002 Annual Meeting for a greater number of persons than
the number of nominees named.
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NOMINEES
The following nominees have been selected by the Corporate Governance
Committee and approved by the Board for submission to the shareholders:
Daniel P. Amos, Richard W. Anthony, Joe E. Beverly, Walter M. Deriso, Jr.,
Elizabeth R. James, Mason H. Lampton, Elizabeth C. Ogie and Melvin T. Stith.
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 upon the recommendation of the
Corporate Governance Committee. If you do not wish your shares voted for one or
more of the nominees, you may so indicate on the proxy.
MEMBERS OF THE 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
------------------------- ----- -------- ---------- -------------------------------------
Daniel P. Amos 50 II 2001 Chief Executive Officer and Director,
AFLAC Incorporated (Insurance Holding
Company)
Richard E. Anthony 55 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 60 II 1983 Chairman of the Board, Commercial
Bank, Thomasville, Georgia
(Banking Subsidiary of Synovus);
Director, Flowers Foods, Inc. and
Plum Creek Timber Company, Inc.
James H. Blanchard 60 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 63 III 1991 Partner, Bradley & Hatcher (Law
Firm); Director, Total System
Services, Inc.
Walter M. Deriso, Jr. 55 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. 67 I 1995 Vascular Surgeon
Gardiner W. Garrard, Jr. 61 I 1972 President, The Jordan Company
(Real Estate Development); Director,
Total System Services, Inc.
V. Nathaniel Hansford 58 I 1985 President, North Georgia College
and State University
4
John P. Illges, III 67 III 1997 Senior Vice President and Financial
Consultant, Retired, The Robinson-Humphrey
Company, Inc. (Stockbroker);
Director, Total System Services, Inc.
Elizabeth R. James 40 II 2001 Vice Chairman of the Board, Chief Information
Officer and Chief People Officer,
Synovus Financial Corp.
Alfred W. Jones III 44 I 2001 Chairman of the Board and Chief Executive
Officer, Sea Island Company (Real Estate
Development and Mangement); Director,
Total System Services, Inc.
Mason H. Lampton 54 II 1993 Chairman of the Board and President,
The Hardaway Company and Chairman of the
Board, Standard Concrete Products
(Construction Companies);
Director, Total System Services, Inc.
Elizabeth C. Ogie 51 II 1993 Private Investor
H. Lynn Page 61 I 1978 Director, Synovus Financial
Corp., Columbus Bank and Trust
Company and Total System Services,
Inc.
Melvin T. Stith 55 II 1998 Dean, College of Business, Florida
State University; Director,
Correctional Services Corp.
William B. Turner 79 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 60 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.
-------------
Daniel P. Amos was elected as a director of Synovus in July 2001 by
Synovus' Board of Directors to fill a vacant Board seat. Mr. Amos
previously served as a director of Synovus from 1991 until 1998, when he
resigned as a director as required by federal banking regulations to join
the board of a company affiliated with a Japanese bank.
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.
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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.
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.
V. Nathaniel Hansford was elected President of North Georgia College and
State University in July 1999. Prior to 1999, Mr. Hansford served as
Professor and Dean Emeritus of the University of Alabama School of Law.
Elizabeth R. James was elected as a director of Synovus in July 2001
by Synovus' Board of Directors to fill a vacant Board seat. Ms. James was
elected Vice Chairman of Synovus in May 2000. Prior to 2000, Ms. James
served in various capacities with Synovus, Columbus Bank and/or TSYS,
including Chief Information Officer and Chief People Officer of Synovus.
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.
BOARD OF DIRECTORS
CORPORATE GOVERNANCE PHILOSOPHY
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.
The role of the Board of Directors is to effectively govern the affairs of
Synovus for the benefit of its shareholders and other constituencies, which
include Synovus employees, customers and the communities in which it does
business. The Board strives to ensure the success and continuity of business
through the election of qualified management. It is also responsible for
ensuring that Synovus' activities are conducted in a responsible and ethical
manner. The Corporate Governance Committee conducts an annual review of
corporate governance procedures. A majority of Synovus' directors are
independent, nonemployee directors.
SUBMISSION OF DIRECTOR CANDIDATES
Shareholders who wish to suggest qualified candidates for consideration
as directors of Synovus by the Corporate Governance Committee should write to:
Corporate Secretary, Synovus Financial Corp., 901 Front Avenue, Suite 301,
Columbus, Georgia 31901, stating in detail the qualifications of such persons.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four meetings in 2001. All directors attended
at least 75% of Board and committee meetings held during their tenure during
2001. The average attendance by directors at the aggregate number of Board and
committee meetings they were scheduled to attend was 99%.
COMMITTEES OF THE BOARD
Synovus' Board of Directors has four principal standing committees -- an
Executive Committee, an Audit Committee, a Corporate Governance Committee and a
Compensation Committee. The following table shows the membership of the various
committees.
6
-------------------------------------------------------------------------------------------------------------------------
Executive Audit Corporate Governance Compensation
---------- ----- -------------------- -------------
William B. Turner, Chair John P. Illges, III, Chair Richard Y. Bradley, Chair Gardiner W. Garrard, Jr., Chair
James H. Blanchard H. Lynn Page Daniel P. Amos V. Nathaniel Hansford
Richard Y. Bradley Melvin T. Stith C. Edward Floyd Alfred W. Jones III
Gardiner W. Garrard, Jr. Elizabeth C. Ogie Mason H. Lampton
John P. Illges, III
Mason H. Lampton
James D. Yancey
--------------------------------------------------------------------------------------------------------------------------
Executive Committee. Synovus' Executive Committee held five meetings in
2001. 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.
Audit Committee. Synovus' Audit Committee held five meetings in 2001. Its
Report begins on page 8. The primary functions to be engaged in by Synovus'
Audit Committee include:
. Monitoring the quality and integrity of Synovus' financial reporting
process and systems of internal controls regarding finance,
accounting, regulatory and legal compliance;
. Monitoring the independence and performance of Synovus' independent
auditors and internal auditing activities; and
. Providing an avenue of communication among the independent auditors,
management, internal audit and the Board of Directors.
Corporate Governance Committee. Synovus' Corporate Governance Committee
held three meetings in 2001. The primary functions to be engaged in by Synovus'
Corporate Governance Committee include:
. Making recommendations to the Board regarding the governance of
Synovus as reflected in Synovus' Articles of Incorporation and bylaws;
. Making recommendations to the Board regarding Board administration,
including developing criteria for selecting and retaining Board
members, seeking qualified candidates for the Board and recommending
assignment of Board members to appropriate Board committees;
. Making recommendations to the Board regarding a policy and program
regarding director compensation and annual assessment of Board
performance;
. Establishing procedures for the Chief Executive Officer's annual
performance review; and
. Establishing procedures for annual reviews of succession planning
and management development.
Compensation Committee. Synovus' Compensation Committee held five
meetings in 2001. Its Report on Executive Compensation begins on page 20. The
primary functions to be engaged in by Synovus' Compensation Committee include:
. The design and oversight of Synovus' executive compensation program;
. The design and oversight of all compensation and benefit programs in
which employees, officers and directors of Synovus are eligible to
participate; and
. Performing an annual evaluation of the Chief Executive Officer.
7
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is comprised of three
directors who the Board and Audit Committee believe are independent as
defined in the New York Stock Exchange's listing standards.
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee assists the Board with fulfilling its oversight
responsibility regarding the quality and integrity of Synovus' financial
reporting process. In discharging its oversight responsibilities regarding the
audit process, the Audit Committee:
. Reviewed and discussed with management Synovus' audited financial
statements as of and for the year ended December 31, 2001;
. Discussed with KPMG LLP, Synovus' independent auditors, the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees); and
. Received from KPMG LLP the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and has discussed with KPMG LLP
their independence.
Based upon the review and discussions referred to in the preceding
paragraph, the Audit Committee recommended to the Board of Directors that the
audited financial statements referred to above be included in Synovus' Annual
Report on Form 10-K for the year ended December 31, 2001, to be filed with the
Securities and Exchange Commission.
This Audit Committee Report shall not be deemed incorporated by reference
in any document previously or subsequently filed with the Securities and
Exchange Commission that incorporates by reference all or any portion of this
Proxy Statement, except to the extent Synovus specifically requests that the
Report be specifically incorporated by reference.
The Audit Committee
John P. Illges, III
H. Lynn Page
Melvin T. Stith
FEES PAID TO KPMG LLP
The following table presents fees for professional audit services rendered
by KPMG LLP for the audit of Synovus' annual financial statements for 2001, and
fees billed for other services rendered by KPMG LLP. All amounts include fees
for services provided to TSYS by KPMG.
Audit fees, including out-of-pocket expenses $ 779,000
==========
Financial information systems design and implementation $ 0
==========
All other fees, including out of pocket expenses:
Audit related fees (1) 651,000
Other non-audit services (2) 1,094,000
----------
Total all other fees $1,745,000
==========
(1) Audit related fees consisted principally of audits of financial
statements of employee benefit plans, reviews of registration
statements, issuance of consents and other filing matters related to
such registration statements, audits of financial statements of
subsidiaries, synthetic lease compliance reports, reports on data
center reviews, assistance to internal audit in certain computer
control technical audits and the performance of other procedures
to meet applicable regulatory requirements.
8
(2) Other non-audit fees consisted of tax compliance and tax planning
associated with international operations, expatriate tax services and
assistance with certain network security matters.
The Audit Committee has considered whether the provision of the non-audit
services to Synovus described above is compatible with maintaining KPMG's
independence.
DIRECTORS' COMPENSATION
COMPENSATION
During 2001, directors received the following compensation:
Annual retainer $20,000
Attendance fee for each Board meeting $ 1,800
Attendance fee for each Executive Committee meeting,
including the chairman $ 1,800
Attendance fee for each committee meeting chaired,
other than executive $ 1,200
Attendance fee for committee meetings,
other than executive $ 750
Directors may elect to defer all or a portion of their cash compensation.
Deferred amounts are deposited into one or more investment funds chosen by the
director. All deferred fees are payable in cash.
DIRECTOR STOCK PURCHASE PLAN
Synovus' Director Stock Purchase Plan is a nontax-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 stock. Under the terms of the Director Stock
Purchase Plan, qualifying directors can elect to contribute up to $5,000 per
calendar quarter to make purchases of Synovus 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 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 2001 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 2001 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 60 Chairman of the Board and Chief Executive Officer
9
William B. Turner 79 Chairman of the Executive Committee
James D. Yancey 60 President and Chief Operating Officer
Richard E. Anthony 55 Vice Chairman of the Board
Walter M. Deriso, Jr. 55 Vice Chairman of the Board
Elizabeth R. James 40 Vice Chairman of the Board, Chief Information
Officer and Chief People Officer
G. Sanders Griffith, III 48 Senior Executive Vice President, General
Counsel and Secretary
Thomas J. Prescott 47 Executive Vice President and
Chief Financial Officer
Mark G. Holladay 46 Executive Vice President and
Chief Credit Officer
Calvin Smyre 54 Executive Vice President, Corporate Affairs
G. Sanders Griffith, III was elected Senior Executive Vice President,
General Counsel and Secretary of Synovus in 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. Mark G. Holladay was
elected Executive Vice President and Chief Credit Officer of Synovus in April
2000. From 1974 until 2000, Mr. Holladay served in various capacities with
Columbus Bank, including Executive 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.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth ownership of shares of Synovus stock by each
director, by each executive officer named in the Summary Compensation Table on
page 16 and by all directors and executive officers as a group as of December
31, 2001.
Shares of Shares of Shares of
Synovus Stock Synovus Stock Synovus Stock Total Percentage of
Beneficially Beneficially Beneficially Shares of Outstanding
Owned with Owned with Owned with Synovus Shares of
Sole Voting Shared Voting Sole Voting Stock Synovus 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 12/31/01 as of 12/31/01 as of 12/31/01 12/31/01 12/31/01
---------------------- --------------- -------------- -------------- -------------- --------------
Daniel P. Amos 301 365,140 --- 365,441 *
Richard E. Anthony 434,845 192,694 8,584 1,046,234 *
Joe E. Beverly 420,200 4,100 --- 528,790 *
James H. Blanchard 943,604 211,360 112,968 2,693,812 *
Richard Y. Bradley 22,907 84,887 --- 107,794 *
Walter M. Deriso, Jr. 32,812 589 --- 251,076 *
C. Edward Floyd, M.D. 836,348 252,547 --- 1,088,895 *
Gardiner W. Garrard, Jr. 204,147 927,075 --- 1,131,222 *
G. Sanders Griffith, III 101,310 --- 60,330 546,638 *
V. Nathaniel Hansford 127,422 415,612 --- 543,034 *
John P. Illges, III 281,053 441,429 --- 722,482 *
Elizabeth R. James 13,152 105 --- 107,064 *
Alfred W. Jones III 4,684 --- --- 4,684 *
Mason H. Lampton 92,106 279,761 --- 371,867 *
Elizabeth C. Ogie 57,620 2,841,782 --- 2,899,402 1.0
H. Lynn Page 758,116 11,515 --- 769,631 *
10
Melvin T. Stith 2,914 102 --- 3,016 *
William B. Turner 2,138,960 4,653,357 --- 6,792,317 2.3
James D. Yancey 1,030,156 61,677 --- 1,964,347 *
Directors and Executive
Officers as a Group
(22 persons) 7,618,264 8,175,527 182,369 19,717,752 6.6
* Less than one percent of the outstanding shares of Synovus stock.
---------------------------
The totals shown for the following directors and executive officers of
Synovus include the number of shares of Synovus 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 410,111
Joe E. Beverly 104,490
James H. Blanchard 1,425,880
Walter M. Deriso, Jr. 217,675
G. Sanders Griffith, III 384,998
Elizabeth R. James 93,807
James D. Yancey 872,514
In addition, the other executive officers of Synovus have rights to acquire
an aggregate of 318,483 shares of Synovus stock within 60 days through
the exercise of stock options.
Includes 276,187 shares of Synovus stock held in a trust for which
Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership
of such shares.
Includes 2,568,205 shares of Synovus stock held by a charitable
foundation of which Mrs. Ogie and Mr. Turner are among the trustees.
For a detailed discussion of the beneficial ownership of TSYS stock
by Synovus' named executive officers and directors and by all directors and
executive officers of Synovus as a group, see "TSYS Stock Ownership of
Directors and Management" on page 27.
DIRECTORS' PROPOSAL TO APPROVE THE SYNOVUS FINANCIAL CORP.
2002 LONG-TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
Synovus' compensation program includes long-term performance awards under
the Synovus Financial Corp. 2002 Long-Term Incentive Plan (the "2002 Plan"). The
purpose of the 2002 Plan is to attract, retain, motivate and reward employees
and non-employee directors who make a significant contribution to Synovus'
long-term success, and to enable such employees and non-employee directors to
acquire and maintain an equity interest in Synovus. Subject to approval by
Synovus' shareholders, compensation paid pursuant to the 2002 Plan is intended,
to the extent reasonable, to qualify for tax deductibility under Section 162(m)
of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder, as may be amended from time to time ("Section 162(m)").
Eligibility and Participation. Any employee of Synovus and any non-employee
director of Synovus, which is approximately 11,121 persons, is eligible to be
selected to participate in the 2002 Plan. The Committee, as described below, has
discretion to select participants from year to year.
Shares Subject to the Plan. The aggregate number of shares of Synovus
stock which may be granted to participants pursuant to awards granted
under the 2002 Plan may not exceed fourteen million (14,000,000).
11
Awards Under the 2002 Plan. Pursuant to the 2002 Plan, Synovus may grant
long-term performance awards to participants in the form of stock options,
stock appreciation rights ("SARs"), restricted stock or performance awards.
Stock Options. The Committee may grant options under the 2002 Plan in the
form of qualified incentive stock options, nonqualified stock options or a
combination thereof. Non-employee directors, however, are not eligible to
receive qualified incentive stock options. Options may be granted either alone
or in tandem with other awards granted under the 2002 Plan. Subject to the
limits described herein, the Committee shall have discretion in determining the
number of shares subject to options granted to each participant.
The option price of nonqualified stock options may be equal to, or more or
less than, one hundred percent (100%) of the fair market value of a share of
Synovus stock on the date the option is granted. The option price of qualified
incentive stock options shall be at least equal to one hundred percent (100%) of
the fair market value of a share of Synovus stock on the date the option is
granted. Options shall expire at such times as the Committee determines at the
time of grant; provided, however, that no option shall be exercisable later than
the tenth anniversary of its grant.
Options granted under the 2002 Plan shall be exercisable at such times and
subject to such restrictions and conditions as the Committee shall approve;
provided that no option may be exercisable prior to six months following its
grant. The option exercise price shall be payable in cash, by check or by such
other instrument as deemed acceptable by the Committee. Payment of the exercise
price and any withholding tax due at exercise may also be made through any
program approved by the Committee (including a broker-dealer cashless exercise
program).
Options may only be transferred under the laws of descent and distribution
and shall be exercisable only by the participant during his lifetime unless
otherwise specified by the Committee at or after grant. The participant's rights
in the event of termination of employment shall be specified by the Committee at
or after grant.
Stock Appreciation Rights. SARs granted under the 2002 Plan may be granted
alone or in conjunction with all or part of any option granted under the 2002
Plan. Subject to the terms of the 2002 Plan, the Committee shall have discretion
to determine the terms and conditions of any SAR granted under the 2002 Plan.
With respect to an SAR granted in conjunction with an option, the grant price
shall be equal to the option price of the related option, and such SAR shall
terminate upon the termination or exercise of the related option. No SAR granted
under the 2002 Plan may be exercisable prior to six months following its grant,
except in the case of death (other than by suicide) or disability of the
participant. The term of any SAR shall be determined by the Committee, provided
that such term may not exceed ten years.
SARs granted alone may be exercised upon the terms and conditions as are
imposed by the Committee. An SAR granted in conjunction with an option may be
exercised only with respect to the shares of stock of Synovus for which
the related option is exercisable. SARs granted in connection with an incentive
stock option shall expire no later than the expiration of such incentive stock
option; the value of the payout for such SARs may be no more than one hundred
percent (100%) of the difference between the incentive stock option option price
and the fair market value of the shares subject to such incentive stock option
at exercise and may be exercised only when the fair market value of the shares
subject to the incentive stock option exceeds the incentive stock option option
price.
Upon exercise, a participant will receive the difference between the fair
market value of a share of stock on the date of exercise and the grant
price multiplied by the number of shares with respect to which the SAR is
exercised. Payment due upon exercise may be in cash, in shares having a fair
market value of the SAR being exercised, or in a combination of cash and shares,
as determined by the Committee. The Committee may impose such restrictions on
the exercise of SARs as may be required to satisfy the requirements of Section
16 of the Securities Exchange
12
Act. SARs may only be transferred under the laws of descent and distribution and
shall be exercisable only by the participant during his lifetime.
Restricted Stock. Restricted stock may be granted in such amounts and
subject to such terms and conditions as determined by the Committee. The
Committee shall impose such conditions and/or restrictions on any shares of
restricted stock as it deems advisable, including, but not limited to, a
graduated vesting schedule and/or conditioning the grant of restricted stock on
the attainment of performance goals. Each participant who is awarded restricted
stock shall be issued a stock certificate in respect of such restricted stock,
which shall be held in escrow by an escrow agent designated by the Committee, as
provided under the 2002 Plan.
During the six month period following the date of grant of restricted
stock, or such longer period as may be determined by the Committee, restricted
stock may not be sold, transferred, pledged or assigned. The minimum period for
the lapse of all restrictions on restricted stock is three years. Except as
limited by the 2002 Plan, the Committee may provide for the lapse of such
restrictions or may accelerate or waive such restrictions based on performance
or in the event of extraordinary, nonrecurring situations such as retirement,
disability or death.
Participants holding restricted stock shall have all of the rights of
stockholders of Synovus, including the right to dividends, unless the Committee
determines otherwise at the time of grant. Dividends or distributions credited
during the restriction period and paid in shares shall be subject to the same
restrictions as the shares of restricted stock with respect to which they were
paid. All rights with respect to restricted stock shall be available only during
a participant's lifetime, and each restricted stock award agreement shall
specify whether the participant has a right to receive unvested restricted
shares in the event of termination of employment.
Performance Awards. Shares of stock and/or a payment in cash may be awarded
under the 2002 Plan in the amounts and subject to the terms and conditions as
determined by the Committee. The Committee may set performance objectives which,
depending on the extent to which they are met, will determine the value of
performance awards that will be paid out to participants. Participants shall
receive payment of performance awards earned, in cash and/or shares of stock, if
the specified performance objectives have been obtained during a designated
performance period (the minimum performance period is one year). The Committee
may also establish a minimum level of performance below which no performance
award may be payable.
In the event a participant's employment is terminated by reason of death
(other than by suicide), disability or retirement during a performance period,
the participant shall receive a prorated payout of the performance award at the
time and in the amount determined by the Committee. In the event employment is
terminated for any other reason, the participant's rights to any performance
award shall be forfeited. performance awards may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. A participant's rights under the 2002
Plan shall be exercisable only by the participant during his lifetime.
Objective Performance Measures. Performance objectives applicable to awards
granted under the 2002 Plan, as determined by the Committee, shall be chosen
from among the following alternatives, unless and until the Committee proposes a
change in such measures for shareholder vote or applicable tax and/or securities
laws change to permit Committee discretion to alter such performance measures
without obtaining shareholder approval: (i) total shareholder return; (ii)
return on equity; (iii) earnings per share growth; and (iv) return on assets.
Maximum Amount Payable to Any Participant. The maximum number of shares
which may be awarded in any calendar year to any one participant is two million
(2,000,000). The maximum cash amount which may be awarded in any calendar year
to any participant is $1 million.
13
Adjustments in Connection With Certain Events. The 2002 Plan provides that
the Committee shall make a substitution or adjustment in the number of shares
reserved for issuance under the 2002 Plan, in the number and option price of
shares subject to outstanding options and in the number of shares subject to
SARs, restricted stock or performance awards, as it deems appropriate and
equitable in connection with a change in corporate structure affecting Synovus'
stock.
Duration of the 2002 Plan. The 2002 Plan shall remain in effect from the
date it is adopted by Synovus' Board until the date terminated by the Committee
or Synovus' Board of Directors; provided, however, that no award shall be
granted on or after the tenth anniversary of the 2002 Plan's effective date;
provided further, however, that no future awards will be granted to Synovus'
"covered employees," as defined below, unless shareholder approval of the 2002
Plan is obtained.
Administration. The 2002 Plan will be administered by a committee of the
Board of Directors of Synovus (the "Committee") which will be comprised of no
fewer than two members who must be "outside directors" within the meaning of
Section 162(m). At least two of the Committee's members must be directors of
both Synovus and TSYS. Initially, the administering committee shall be the
Compensation Committee of Synovus' Board.
The Committee shall have authority to: (i) determine individuals to whom
awards will be granted; (ii) determine the terms and conditions upon which
awards shall be granted, including any restriction based on performance or other
factors; (iii) determine whether and to what extent awards shall be deferred;
and (iv) make all other determinations, perform all other acts, exercise all
other powers, and establish any other procedures it deems necessary, appropriate
or advisable in administering the 2000 Plan and maintaining compliance with
applicable law.
Amendment of the 2002 Plan. Synovus' Board of Directors may amend, alter or
discontinue the 2002 Plan at any time except that no such amendment, suspension
or discontinuation of the 2002 Plan may affect an existing award under the 2002
Plan without the affected participant's consent. In addition, no amendment,
alteration or discontinuation shall be made, without the approval of
shareholders, which would: (i) increase the total number of shares reserved
under the 2002 Plan; (ii) decrease the option price of any option to less than
one hundred percent (100%) of the fair market value of a share on the date of
grant; (iii) change the participants or class of participants eligible to
participate in the 2002 Plan; or (iv) materially increase the benefits accruing
to participants. Furthermore, no amendment may reprice previously granted stock
options by lowering the exercise price or canceling outstanding stock options
with subsequent grants of replacement stock options with lower exercise prices.
Change in Control. Unless otherwise determined by the Committee at grant,
in the event of a change in control of Synovus, as defined in the 2002 Plan, the
vesting of any outstanding awards granted under the 2002 Plan shall be
accelerated and all such awards shall be fully exercisable.
Federal Income Tax Consequences of the 2002 Plan. The income tax
consequences under current federal tax law to participants and to Synovus and
its subsidiaries of incentive compensation awarded under the 2002 Plan is
generally as described below. Local and state tax authorities, however, may also
tax incentive compensation awarded under the 2002 Plan.
Consequences to Participants. Generally, for federal income tax purposes, a
participant will realize ordinary income and will incur tax liability upon
receipt of the payment of an award under the 2002 Plan in an amount equal to
such payment, if in cash, or the fair market value of any unrestricted shares of
stock received. The tax consequences to participants of the individual types of
awards which may be granted under the 2002 Plan are described below.
Qualified Incentive Stock Options. With respect to options which qualify as
incentive stock options, a participant will not recognize ordinary income
for federal income tax purposes at the time options are granted or
exercised. If the participant disposes of shares acquired by
14
exercise of an incentive stock option before the expiration of two years
from the date the options are granted, or within one year after the
issuance of shares upon exercise of the incentive stock option, the
participant will recognize in the year of disposition: (a) ordinary income,
to the extent that the lesser of either (1) the fair market value of the
shares on the date of option exercise or (2) the amount realized on
disposition exceeds the option price; and (b) capital gain (or loss), to
the extent that the amount realized on disposition differs from the fair
market value of the shares on the date of option exercise. Any compensation
included in an employee's gross income will be subject to federal
employment taxes. If the shares are sold after expiration of these holding
periods, the participant will realize capital gain or loss (assuming the
shares are held as capital assets) equal to the difference between the
amount realized on disposition and the option price.
Nonqualified Stock Options. With respect to options which do not qualify as
incentive stock options, the participant will recognize no income upon
grant of the option and, upon exercise, will recognize ordinary income to
the extent of the difference between the amount paid by the participant for
the shares and the fair market value of the shares on the date of option
exercise. Any compensation included in an employee's gross income will be
subject to federal employment taxes. Upon a subsequent disposition of the
shares received under the option, the participant will recognize capital
gain or loss, as the case may be, to the extent of the difference between
the fair market value of the shares at the time of exercise and the amount
realized on the disposition (assuming the shares are held as capital
assets).
Stock Appreciation Rights. Ordinary income will be recognized by a
participant upon the exercise of an SAR, in an amount equal to the cash
received or the fair market value of the shares received on the exercise
date. Any compensation included in an employee's gross income will be
subject to federal employment taxes.
Restricted Stock. Participants holding restricted stock will recognize
ordinary income in the year in which the restrictions lapse, in the amount
of the fair market value of the shares as of the date of lapse of the
restrictions, unless the participant elects to include the fair market
value of the shares as of the date of grant in ordinary income at that
time. Any compensation included in an employee's gross income will be
subject to federal employment taxes.
Performance Awards. Ordinary income will be recognized by a participant in
the year in which it is received in an amount equal to the amount of the
performance award on the date of receipt. Any compensation included in an
employee's gross income will be subject to federal employment taxes.
Consequences to Synovus and Its Subsidiaries. In general, Synovus will
receive an income tax deduction at the same time and in the same amount as the
amount which is taxable to the employee as compensation, except as provided
below. To the extent a participant realizes capital gains, as described above,
Synovus and its subsidiaries will not be entitled to any deduction for federal
income tax purposes.
Under Section 162(m), compensation paid by a public company in excess of $1
million for any taxable year to "covered employees" generally is not deductible
by the company or its affiliates for federal income tax purposes unless it is
related to the performance of the company, is paid pursuant to a plan approved
by shareholders of the company and meets certain other requirements.
Generally, "covered employees" is defined under Section 162(m) as any
individual who is the chief executive officer or is among the four other highest
paid executive officers named in the summary compensation table in the company's
proxy statement, other than the chief executive officer, as of the last day of
the taxable year. It is anticipated that future awards will qualify as
performance based for purposes of Section 162(m), except for restricted stock
not subject to preestablished performance goals. Synovus does not presently
anticipate making any such awards. However, Synovus reserves the ability to make
awards which do not qualify for full deductibility under Section 162(m) if the
Committee determines that the benefits of so doing outweigh full deductibility.
15
NEW PLAN BENEFITS
The following table shows proposed grants of options of Synovus stock to
certain of Synovus' executive officers under the 2002 Plan for fiscal year 2001:
Number of Shares Subject to Options Granted
Name and
Principal Position Synovus 2002 Plan
-------------------- --------------------
James H. Blanchard 65,520
Chairman of the
Board and Chief
Executive Officer
James D. Yancey 49,590
President and Chief
Operating Officer
Richard E. Anthony 24,600
Vice Chairman of the
Board
G. Sanders Griffith, III 20,475
Senior Executive Vice
President, General
Counsel and Secretary
Elizabeth R. James 18,000
Vice Chairman of the
Board
Executive Group 233,913
Nonexecutive Director
and Nominee Group
Nonexecutive Officer
Employee Group
Amounts represent proposed grants to executives based upon Synovus'
performance during the 1999-2001 performance period.
Amounts are not determinable.
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.
16
--------------------------------------------------------------------------------------------------------------------
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
--------------------- -------- ------------- ------------ ------------- ------------- ------------ ------------
James H. Blanchard 2001 $714,000 $571,200 $15,000 -0- 72,489 $266,637
Chairman of the 2000 685,000 -0- 4,000 -0- 1,092,875 255,980
Board and Chief 1999 656,000 492,000 1,500 -0- 670,901 302,977
Executive Officer
James D. Yancey 2001 540,500 432,400 20,000 -0- 45,737 178,419
President and Chief 2000 515,000 -0- 4,000 -0- 557,758 205,787
Operating Officer 1999 490,000 318,500 2,000 -0- 106,537 244,078
Richard E. Anthony 2001 397,500 236,513 10,000 106,688 12,778 118,085
Vice Chairman of the 2000 375,000 -0- 4,000 145,624 416,217 123,330
Board 1999 358,000 214,500 -0- -0- 59,822 137,958
G. Sanders Griffith, III 2001 333,125 198,209 -0- -0- 21,574 68,490
Senior Executive Vice 2000 316,000 -0- -0- -0- 427,279 63,210
President, General 1999 300,500 180,300 -0- -0- 50,275 82,951
Counsel and Secretary
Elizabeth R. James 2001 275,000 163,625 -0- -0- 16,595 57,171
Vice Chairman of the 2000 221,500 -0- -0- -0- 410,290 33,827
Board 1999 189,000 113,400 -0- -0- 19,075 46,707
---------------------
Amount for 2001 includes matching contributions under the Synovus Director
Stock Purchase Plan of $5,000 for Mr. Blanchard and $10,000 for Messrs.
Yancey, Anthony and Deriso and matching contributions under the TSYS
Director Stock Purchase Plan of $10,000 for each of Mr. Blanchard and
Mr. Yancey. 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.
On January 17, 2001, restricted stock was awarded in the amount of 4,259
shares to Mr. Anthony with the following vesting schedule: 20% on January
17, 2002, 2003, 2004, 2005 and 2006. As of December 31, 2001, Mr. Anthony
held 8,584 restricted shares with a value of $215,028.
The 2001 amount includes director fees of $68,800, $68,800, $27,200 and
$12,676 for Messrs. Blanchard, Yancey and Anthony and Mrs. James,
respectively, in connection with their service as directors of Synovus and
certain of its subsidiaries; contributions or other allocations to defined
contribution plans of $27,200 for each executive; allocations pursuant to
defined contribution excess benefit agreements of $87,040, $59,280,
$36,400, $26,100 and $16,800 for each of Messrs. Blanchard, Yancey, Anthony
and Griffith and Mrs. James, respectively; premiums paid for group life
insurance coverage of $900, $900, $716, $600 and $495 for each of Messrs.
Blanchard, Yancey, Anthony and Griffith and Mrs. James, respectively;
the economic benefit of life insurance coverage related to split-dollar
life insurance policies of $5,953, $3,588, $2,586 and $3,285 for each of
Messrs. Blanchard, Yancey, 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 $76,744, $18,651, $23,983 and $11,305 for each of
Messrs. Blanchard, Yancey, Anthony and Griffith, respectively.
STOCK OPTION EXERCISES AND GRANTS
The following tables provide certain information regarding stock options
granted and exercised in the last fiscal year and the number and value of
unexercised options at the end of the fiscal year.
17
------------------------------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------
% of Total Potential
Options/ Realized Value at
SARs Exercise Assumed Annual Rates of
Options/ Granted to or Stock Price Appreciation
SARs Employees Base For Option Term
Granted in Fiscal Price Expiration ---------------------
Name (#) Year ($/Share) Date 5%($) 10% ($)
------------------------------ ------------ -------------- -------------- --------------- ---------- ---------
James H. Blanchard 72,489 4.34% $26.44 01/16/11 $914,811 $2,192,067
James D. Yancey 45,737 2.74 26.44 01/16/11 577,201 1,383,087
Richard E. Anthony 12,778 0.76 26.44 01/16/11 161,258 386,407
G. Sanders Griffith, III 21,574 1.29 26.44 01/16/11 272,264 652,398
Elizabeth R. James 16,595 .99 26.44 01/16/11 209,429 501,833
-----------
The dollar gains under these columns result from calculations using the
identified growth rates and are not intended to forecast future price
appreciation of Synovus stock.
Options granted on January 17, 2001 at fair market value. Options become
exercisable on January 17, 2003. Options are transferable to family
members.
-----------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($)
Acquired on Realized -------------------------- -------------------------------
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------ ------------ --------- --------------------------- -------------------------------
James H. Blanchard -0- $-0- 1,333,005 / 1,890,514 $14,000,389 / $13,031,549
James D. Yancey -0- -0- 814,756 / 828,645 8,187,782 / 6,459,742
Richard E. Anthony 33,020 760,781 393,894 / 429,145 4,362,144 / 3,059,403
G. Sanders Griffith, III 32,279 687,220 357,719 / 561,503 3,383,008 / 4,323,580
Elizabeth R. James -0- -0- 83,517 / 427,035 651,114 / 3,017,986
----------
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 entered into an Employment
Agreement with Mr. Blanchard, Chairman of the Board of Directors and Chief
Executive Officer of Synovus, effective September 13, 1999. Under the Employment
Agreement, Mr. Blanchard agreed to serve as Chairman and CEO of Synovus for five
years, and to remain employed by Synovus for seven years. Under this Agreement,
Mr. Blanchard receives a base salary that is determined on an annual basis by
the Synovus Compensation Committee. During 2001, Synovus paid Mr. Blanchard a
base salary of $714,000 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.
Employment Agreement with Mr. Yancey. Synovus has entered into an
Employment Agreement with Mr. Yancey, President and Chief Operating Officer of
of Synovus. Mr. Yancey's Employment Agreement automatically renews every year
and may be terminated upon 30 days prior
18
written notice. Under this Agreement, Mr. Yancey receives a base salary that is
determined on an annual basis by the Synovus Compensation Committee. During
2001, Synovus paid Mr. Yancey a base salary of $540,500 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.
Long-Term Incentive Plans. Under the terms of Synovus' 1992, 1994, 2000
and 2002 Long-Term Incentive Plans, all awards become automatically vested in
the event of a Change of Control, as defined below, unless otherwise determined
by the Committee at grant. Awards under the Plans may include stock options,
restricted stock, stock appreciation and performance awards. Messrs. Blanchard,
Yancey, Anthony and Griffith and Mrs. James each have, or will have with respect
to the proposed 2002 Long-Term Incentive Plan, 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, Anthony and Griffith and Mrs. James,
and certain other executive officers. In the event of a Change of Control, 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: (i) the acquisition of 20% or more of the "beneficial
ownership" of Synovus' outstanding voting stock, with certain exceptions for
Turner family members; (ii) 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; (iii) a merger, consolidation,
reorganization or sale of Synovus' assets unless the prior 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 new company's Board members are prior Board
members of Synovus; or (iv) 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.
19
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative
shareholder return on Synovus 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, 1996 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
1996 1997 1998 1999 2000 2001
---- ---- ---- ----- ----- -----
Synovus $100 $155 $173 $146 $203 $192
S&P 500 $100 $133 $171 $208 $189 $166
KBW 50 $100 $146 $158 $153 $183 $176
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") of Synovus is responsible for the
design and oversight of the Synovus executive compensation program, 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.
20
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 banks similar in size to Synovus, with a premium added to reflect the past
performance of Synouvs and the technology component of TSYS' business ("similar
companies"). The Committee believes that this approach 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 on
page 20. 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
comparable positions within 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 2001, as well as the base salaries of Synovus'
other executive officers.
Annual Bonus. The Committee awards annual bonuses under two different
plans, the Synovus Executive Bonus Plan (which was approved by Synovus
shareholders in 2001) and the Synovus Incentive Bonus Plan. The Committee
selects the participants in each Plan from year to year. For 2001, the Committee
selected Messrs. Blanchard and Yancey to participate in the Executive Bonus Plan
while Messrs. Anthony and Griffith and Mrs. James 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.
21
The Committee established a payout matrix based on attainment of net income
goals during 2001 for Mr. Blanchard and Synovus' other executive officers. The
maximum percentage payouts under the Plans for 2001 were 100% for Messrs.
Blanchard and Yancey and 70% for Messrs. Anthony and Griffith and Mrs. James.
The Committee also established a "super bonus" payout matrix that increased the
bonus amount otherwise payable if certain "stretch" net income goals were
attained. Synovus' financial performance and each executive's individual
performance can reduce the bonus awards determined by the attainment of the
goals. Based upon a recommendation from Synovus' management, the Committee
execised downward discretion and lowered the bonus amounts that would otherwise
have been payable based upon Synovus' attainment of net income goals for 2001.
Based upon Synovus' net income and the exercise of downward discretion discussed
above, Mr. Blanchard and Synovus' other executive officers were awarded the
bonus amounts set forth in the Summary Compensation Table.
Long-Term Incentives. The Committee has awarded long-term incentives in the
form of 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 20. For the
long-term incentive awards made in 2001, total shareholder return and peer
comparisons were measured during the 1998 to 2000 performance period. Under the
payout matrix, the Committee awarded Messrs. Blanchard, Yancey, Anthony and
Griffith and Mrs. James stock options of 72,489, 45,737, 12,778, 21,574 and
16,595, respectively, which options become exercisable on January 16, 2003. In
addition, the Committee awarded Mr. Anthony 4,259 restricted shares, which
restricted shares vest 20% per year over a five-year period beginning on January
17, 2002 and ending on January 17, 2006.
Other Benefits. Executives receive other benefits that serve a different
purpose than the elements of compensation discussed above. In general, these
benefits provide retirement income and 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, depend upon Synovus' profitability. For
2001, Mr. Blanchard and Synovus' other executive officers received a Plan
contribution of nine percent 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. When
necessary to meet the requirements for deductibility under the Internal Revenue
Code, members of the Committee may abstain from voting on performance based
compensation. For 2001, Messrs. Blanchard, Yancey, Anthony and Griffith 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.
22
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.
The Compensation Committee
Gardiner W. Garrard, Jr.
V. Nathaniel Hansford
Alfred W. Jones III
Mason H. Lampton
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Gardiner W. Garrard, Jr., Alfred W. Jones III, Mason H. Lampton and
V. Nathaniel Hansford served as members of Synovus' Compensation Committee
during 2001. No member of the Committee is a current or former officer of
Synovus or its subsidiaries.
During 2001, TSYS and a banking subsidiary of Synovus paid an aggregate
of $335,871 in gross commissions to Jordan Real Estate Brokerage, LLC, $125,830
of which was retained by Jordan Real Estate Brokerage, LLC as net commissions,
in connection with the location of office space in the Atlanta, Georgia area.
Jordan Real Estate Brokerage, LLC is a wholly owned subsidiary of The Jordan
Company, whose relationship with Synovus is described below.
On May 18, 2000, Synovus, Garrard & Jordan Investments, LLC and Gardiner W.
Garrard, III, together with an unrelated individual, formed Total Technology
Ventures, LLC ("TTV"), a Georgia limited liability company, for the purpose of
providing certain administrative services to TTP Fund, L.P., a venture capital
fund formed in the first quarter of 2001 (the "Fund"). Garrard & Jordan
Investments, LLC was formed by The Jordan Company to invest in TTV. Gardiner W.
Garrard, Jr., a director of Synovus, TSYS and Columbus Bank, owns 40% of the
outstanding stock of The Jordan Company and serves as its President, and his
wife and son, Gardiner W. Garrard, III, each own 4% of its outstanding stock.
Pursuant to the organizational documents of TTV, Synovus, Garrard & Jordan
Investments, LLC and Gardiner W. Garrard, III made initial capital commitments
to TTV in the respective amounts of $1,200,000, $400,000 and $200,000. As of the
date hereof, 75% of the total capital commitments to TTV have been funded.
Synovus, Garrard & Jordan Investments, LLC and Gardiner W. Garrard, III hold the
following percentage interests in TTV: 60%, 20% and 10%, respectively. Synovus
serves as the manager of TTV. Gardiner W. Garrard, III has responsibility for
the day-to-day operations of TTV.
Synovus has made a capital commitment of $25 million to the Fund, which
currently represents an approximately 77% interest in the Fund, and Synovus will
receive a 5% carried interest in the Fund. As of February 28, 2002, Synovus had
funded approximately 39% of its capital commitment to the Fund through capital
contributions of approximately $9,700,000. The Fund is managed by Total
Technology Partners, LLC, its general partner (the "General Partner"), an entity
in which Gardiner W. Garrard, III and Garrard and Jordan Investments, LLC each
own an approximately 33% capital interest. The General Partner will receive a
15% carried interest in the Fund. The General Partner entered into an agreement
with TTV pursuant to which TTV provides certain administrative services to the
General Partner. As reduced effective January 1, 2002, the fee payable quarterly
by the General Partner to TTV for such services equals the management fee
received quarterly by the General Parter from the Fund, subject to certain
23
adjustments and reductions. Prior to the reduction of such fees, TTV advanced to
the General Partner the difference between fees due to TTV (which previously
exceeded management fees payable by the Fund) and management fees received by
the General Partner. As of December 31, 2001, the outstanding advances to the
General Partner were approximately $195,000 and the General Partner had paid
$238,732 in cash to TTV for the year then ending. The advances bore interest at
18% through December 31, 2001 and beginning January 1, 2002, will bear interest
at the prime rate.
In May 2000 and August 2000, respectively, Synovus invested on behalf of
the Fund an aggregate of $5,500,000. On March 13, 2001, Synovus sold these
investments to the Fund for an aggregate purchase price of $5,766,293,
representing the total cost of the investments (including transaction costs),
plus a carrying cost of 8% per annum accruing from the date of each investment.
During 2001, Synovus paid $66,831 to subsidiaries of the Sea Island
Company in connection with lodging in the Sea Island, Georgia area. Alfred W.
Jones III, a director of Synovus and TSYS, is an officer, director and
shareholder of the Sea Island Company.
TRANSACTIONS WITH MANAGEMENT
During 2001, 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.
Synovus and a subsidiary of TSYS leased various properties in Columbus,
Georgia from W.C. Bradley Co. for office space and storage during 2001. The
rent paid for the space by Synovus, which is approximately 35,400 square feet,
was $96,489. The rent paid for the space by TSYS' subsidiary, which is
approximately 9,558 square feet, was approximately $167,905.
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 $2,406,645 for use of the aircraft during
2001 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 $956,408 for TSYS' use of the aircraft,
for which Columbus Bank was reimbursed by TSYS.
Prior to its liquidation on August 13, 2001, TB&C Bancshares, Inc. was
a family bank holding company and a principal shareholder of Synovus. For family
financial planning reasons relating to the TB&C Bancshares' shareholders and to
simplify the ownership structure of Synovus, TB&C Bancshares and Synovus, upon
approval of their respective Boards of Directors and the Synovus Audit
Committee, entered into an agreement on February 16, 2001, under which the
14,309,182 shares of Synovus stock owned by TB&C Bancshares were acquired by
Synovus on August 13, 2001 in a tax-free exchange for an equal number of newly
issued shares of such stock, which were distributed in liquidation to the TB&C
Bancshares' shareholders. At the time of TB&C Bancshares' liquidation, its
shareholders consisted of 20 trusts for the benefit of William B. Turner and his
sisters, Sarah T. Butler and Elizabeth T. Corn, their three respective spouses,
and their 14 adult children (together, in each case, with their respective
descendants).
24
Nine of the lifetime beneficiaries of these trusts (each of whom also serves as
trustee of his or her trust) were deemed to beneficially own more than 5% of
Synovus stock prior to, but not after, TB&C Bancshares' liquidation because they
could be deemed (as a result of their significant indirect ownership as trustees
and beneficiaries of their respective trusts of shares of TB&C Bancshares' stock
and/or their positions as directors of TB&C Bancshares) to beneficially own all
of the shares of Synovus stock held by TB&C Bancshares. The other 11 lifetime
beneficiaries (and trustees) of these trusts are family members of such nine
individuals.
The following shares of Synovus stock were distributed to each trust
and were equal to each shareholder's pro rata portion of the Synovus shares
previously owned by TB&C Bancshares.
Trust For The Benefit of the Individual's Relationship to Number of Synovus
Following Individuals and Synovus Prior to Shares Received
His/Her Descendants TB&C Liquidation in Liquidation
---------------------------- -------------------------------------- ---------------------
William B. Turner Director and Principal Shareholder 2,065,336
Sue Marie Turner (wife of Principal Shareholder 2,065,335
William B. Turner)
Sarah T. Butler Principal Shareholder 2,205,314
Clarence C. Butler (husband of Principal Shareholder 2,208,967
Sarah T. Butler)
Elizabeth T. Corn Principal Shareholder 2,096,947
Lovick P. Corn (husband of Principal Shareholder 2,103,766
Elizabeth T. Corn)
W.B. Turner, Jr. Principal Shareholder 91,600
Stephen T. Butler Principal Shareholder 111,156
Elizabeth C. Ogie Director and Principal Shareholder 114,015
11 other Turner, Butler and Adult children of William B. and Sue Marie 1,246,746
Corn family members Turner, Sarah T. and Clarence C. Butler and
Elizabeth T. and Lovick P. Corn
William B. Turner and Elizabeth C. Ogie continue to serve as directors
of Synovus.
Son of William B. and Sue Marie Turner.
Son of Sarah T. and Clarence B. Butler.
Daughter of Elizabeth T. and Lovick P. Corn.
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 was an officer, director and (together with his wife) a
shareholder of TB&C Bancshares prior to its liquidation described above. 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 Columbus
Bank and Synovus and was 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 a director of TSYS. Stephen T. Butler, the
nephew of William B. Turner, is an officer and director of W.C. Bradley Co., was
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., was an officer, director and shareholder of TB&C
Bancshares and is a director of Columbus Bank. John T. Turner, the son of
William B. Turner, is an officer and director of W.C. Bradley Co., was a
shareholder of TB&C Bancshares and is 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. and were are officers, directors and (together with their
husbands) shareholders of TB&C Bancshares.
During 2001, Synovus and its wholly owned subsidiaries and TSYS paid to
Communicorp, Inc. $284,281 and $927,871, respectively, for printing, marketing
and promotional services
25
provided by Communicorp, Inc. to Synovus and its wholly owned subsidiaries and
TSYS. Communicorp, Inc. is a wholly owned subsidiary of AFLAC Incorporated.
Daniel P. Amos, a director of Synovus, is Chief Executive Officer and a director
of AFLAC Incorporated.
Bradley & Hatcher, a law firm located in Columbus, Georgia, was paid
approximately $31,200 for the performance of legal services on behalf of certain
of Synovus' subsidiaries during 2001. Richard Y. Bradley, a director of Synovus,
Columbus Bank and TSYS, is a partner of Bradley & Hatcher.
For information about transactions with entities that are affiliates of
Gardiner W. Garrard, Jr. and Alfred W. Jones III, directors of Synovus, see
"Compensation Committee Interlocks and Insider Participation" immediately above.
PRINCIPAL SHAREHOLDERS
The following table sets forth the number of shares of Synovus stock
held by the only known holders of more than 5% of the outstanding shares of
Synovus stock as of January 1, 2002.
Percentage of
Shares of Outstanding Shares of
Synovus Stock Synovus Stock
Name and Address of Beneficially Owned Beneficially Owned
Beneficial Owner as of 1/1/02 as of 1/1/02
----------------------- ----------------------- ---------------------------
Synovus Trust Company 36,783,221 12.5%
1148 Broadway
Columbus, Georgia 31901
-----------------------------------
The shares of Synovus stock held by Synovus Trust Company are voted by
the Senior Manager of Synovus Trust Company's Investment Division.
As of January 1, 2002, 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
38,076,437 shares of Synovus stock as to which they possessed sole or
shared voting or investment power. Of this total, Synovus Trust Company
held 35,439,389 shares as to which it possessed sole investment power,
35,233,035 shares as to which it possessed sole voting power, 764,968
shares as to which it possessed shared voting power and 851,486 shares
as to which it possessed shared investment power. The other banking and
trust subsidiaries of Synovus held 1,107,595 shares as to which they
possessed sole voting power, 904,837 shares as to which they possessed sole
investment power, 129,309 shares as to which they possessed shared voting
power and 142,417 shares as to which they possessed shared investment
power. In addition, as of January 1, 2002, Synovus Trust Company and the
banking and trust subsidiaries of Synovus held in various agency capacities
an additional 20,483,809 and 117,288 shares, respectively (a total of
20,601,097), of Synovus stock as to which they possessed no voting or
investment power. Synovus and its subsidiaries disclaim beneficial
ownership of all shares of Synovus stock which are held by them in various
fiduciary and agency capacities.
26
RELATIONSHIPS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND CERTAIN OF
SYNOVUS' SUBSIDIARIES AND AFFILIATES
BENEFICIAL OWNERSHIP OF TSYS STOCK BY COLUMBUS BANK
The following table sets forth, the number of shares of TSYS stock
beneficially owned by Columbus Bank, the only known beneficial owner of more
than 5% of the issued and outstanding shares of TSYS stock, as of
January 1, 2002.
--------------------------------------------------------------------------------
Percentage of
Shares of Outstanding Shares of
TSYS Stock TSYS Stock
Name and Address of Beneficially Owned Beneficially Owned
Beneficial Owner as of 1/1/02 as of 1/1/02
----------------------- ------------------------ ------------------------------
Columbus Bank
and Trust Company 159,630,980 81.1%
1148 Broadway
Columbus, Georgia 31901
-----------------
Columbus Bank individually owns these shares.
As of January 1, 2002, Synovus Trust Company held in various fiduciary
capacities a total of 2,233,104 shares (1.13%) of TSYS stock. Of this
total, Synovus Trust Company held 1,954,713 shares as to which it possessed
sole voting power, 1,926,074 shares as to which it possessed sole
investment power, 232,440 shares as to which it possessed shared voting
power and 238,840 shares as to which it possessed shared investment power.
In addition, as of January 1, 2002, Synovus Trust Company held in various
agency capacities an additional 1,892,951 shares of TSYS stock as to
which it possessed no voting or investment power. Synovus and Synovus Trust
Company disclaim beneficial ownership of all shares of TSYS stock
which are held by Synovus Trust Company in various fiduciary and agency
capacities.
Columbus Bank, by virtue of its ownership of 159,630,980 shares, or 81.1%
of the outstanding shares of TSYS stock on January 1, 2002, 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
and Alfred W. Jones III serves 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 STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of shares of TSYS stock
beneficially owned by each of Synovus' directors, by each executive officer
named in the Summary Compensation Table on page 16 and by all directors and
executive officers as a group as of December 31, 2001.
27
----------------------------------------------------------------------------------------------------------
Shares of Shares of
TSYS Stock TSYS Stock Percentage of
Beneficially Beneficially Total Outstanding
Owned with Owned with Shares of Shares of
Sole Voting Shared Voting TSYS Stock TSYS Stock
and Investment and Investment Beneficially Beneficially
Power as of Power as of Owned as of Owned as of
Name 12/31/01 12/31/01 12/31/01 12/31/01
--------------------------- ------------------- --------------------- ------------------- -------------
Daniel P. Amos --- --- --- ---
Richard E. Anthony --- --- --- ---
Joe E. Beverly --- --- --- ---
James H. Blanchard 785,999 360,480 1,146,479 *
Richard Y. Bradley 24,216 5,000 29,216 *
Walter M. Deriso, Jr. 3,829 3,929 7,758 *
C. Edward Floyd, M.D. --- --- --- ---
Gardiner W. Garrard, Jr. 16,424 --- 16,424 *
G. Sanders Griffith, III 19,422 --- 19,422 *
V. Nathaniel Hansford --- 1,560 1,560 *
John P. Illges, III 106,358 81,750 188,108 *
Elizabeth R. James 16,870 --- 16,870 *
Alfred W. Jones III 562 --- 562 *
Mason H. Lampton 42,199 47,426 89,625 *
Elizabeth C. Ogie 7,200 46,171 53,371 *
H. Lynn Page 442,462 137,526 579,988 *
Melvin T. Stith --- --- --- ---
William B. Turner 166,093 576,000 742,093 *
James D. Yancey 771,612 24,000 795,612 *
Directors and Executive
Officers as a Group
(22 persons) 2,405,196 1,283,842 3,689,038 2.0
*Less than one percent of the outstanding shares of TSYS stock.
-------------------
Includes 16,734 shares of TSYS stock with respect to which Mr.
Griffith has no investment power.
Includes 28,800 shares of TSYS stock held in a trust for which Mr.
Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of
such shares.
TRANSACTIONS AND AGREEMENTS BETWEEN SYNOVUS, COLUMBUS BANK, TSYS AND
CERTAIN OF SYNOVUS' SUBSIDIARIES
During 2001, 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 2001, TSYS derived
$12,893,460 in revenues from Columbus Bank and certain of Synovus' other banking
subsidiaries for the performance of bankcard data processing services and
$480,285 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.
28
TSYS and Synovus are parties to a Lease Agreement pursuant to which
Synovus leased from TSYS office space for lease payments aggregating $454,926
during 2001. Synovus also paid TSYS $24,900 during 2001 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 are parties to Management Agreements pursuant to which
Synovus provided certain management services to TSYS. During 2001, 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 2001, TSYS
paid Synovus aggregate management fees of $8,569,278. In addition, Synovus and
TSYS are parties to Management Agreements pursuant to which TSYS provided
management services to Synovus in connection with TSYS' assistance in managing
the businesses of ProCard, Inc. and TSYS Total Debt Management, Inc., both of
which were wholly owned subsidiaries of Synovus during 2001. As compensation for
management services provided during 2001, Synovus paid TSYS management fees of
$1,497,000 in connection with TSYS Total Debt Management, Inc. and $303,000 in
connection with ProCard, Inc. Management fees are subject to future adjustments
based upon charges at the time by unrelated third parties for comparable
services.
During 2001, Synovus Trust Company served as trustee of various employee
benefit plans of TSYS. During 2001, TSYS paid Synovus Trust Company trustee's
fees under these plans of $558,303.
During 2001, Columbus Depot Equipment Company, a wholly owned subsidiary of
TSYS, and Columbus Bank and five of Synovus' other subsidiaries were parties to
Lease Agreements pursuant to which Columbus Bank and five of Synovus' other
subsidiaries leased from Columbus Depot Equipment Company computer related
equipment for bankcard and bank data processing services for lease payments
aggregating $68,903. The terms, conditions and rental rates provided for
in these Agreements are comparable to corresponding terms, conditions and rates
provided for in leases of similar equipment offered by unrelated third parties.
During 2001, Synovus paid TSYS $81,025 for data links, network services
and other miscellaneous items related to the data processing services
which Synovus provides to its customers, which amount was reimbursed to Synovus
by its customers. During 2001, Synovus paid TSYS $24,900 primarily for computer
processing services. During 2001, TSYS paid Synovus $100,697 for lockbox
services. The charges for processing and other services are comparable to those
between unrelated third parties.
During 2001, pointpathbank, N.A., a wholly owned subsidiary of Synovus,
paid DotsConnect, Inc., a wholly owned subsidiary of TSYS during 2001, $470,424
in connection with Web hosting services and Columbus Bank paid DotsConnect
$70,184 in connection with online customer support services. During 2001,
DotsConnect paid Columbus Bank $211,878 in connection with its lease of
furniture and equipment from Columbus Bank. The lease payments and charges paid
for these services are comparable to those between unrelated third parties.
During 2001, Synovus, Columbus Bank and other Synovus subsidiaries paid to
Columbus Productions, Inc. and TSYS Total Solutions, Inc., wholly owned
subsidiaries of TSYS during 2001, an aggregate of $6,348,746 for printing,
correspondence and facilities management services. The charges for these
services are comparable to those between unrelated third parties.
During 2001, Columbus Bank leased office space from TSYS for lease payments
of $39,405. During 2001, TSYS and its subsidiaries were paid $2,305,617 of
interest by Columbus Bank in connection with deposit accounts with, and
commercial paper purchased from, Columbus Bank.
29
The lease payments and interest rates are comparable to those in transactions
between unrelated third parties.
In January 2002, TSYS acquired TSYS Total Debt Management, Inc. from
Synovus in exchange for newly issued shares of TSYS stock valued at $43,500,000.
The terms of the Share Exchange Agreement executed in connection with the
transaction are comparable to those 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 $956,408 for its
use of the aircraft during 2001. 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
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, 2001 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with, except for the following.
Although Messrs. Deriso, Hansford, Stith and Yancey each filed one late report,
none of them reported any transactions late. Mr. Prescott filed one late report,
which reported one transaction late. Mr. Page filed one late report, which
reported two transactions late. Mr. Smyre filed one late report, which reported
four transactions late. Mr. Lampton filed no late reports, but reported one
transaction late.
INDEPENDENT AUDITORS
On March 5, 2002, 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, 2002. 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' 2002 Annual Meeting
with the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
30
GENERAL INFORMATION
FINANCIAL INFORMATION
Consolidated financial statements for Synovus and its subsidiaries are
attached as a Financial Appendix to this Proxy Statement and are included in the
Annual Report on Form 10-K as filed with the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. A copy of the 2001 Form 10-K
(excluding exhibits) will be furnished, without charge, by writing to the
Corporate Secretary, Synovus Financial Corp., 901 Front Avenue, Suite 301,
Columbus, Georgia 31901.
SHAREHOLDER PROPOSALS FOR THE 2003 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 2003 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 15,
2002 in order to consider it for inclusion in the Proxy Statement for the 2003
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 between
December 16, 2002 and January 29, 2003 and the notice must provide information
as required in the bylaws, or the persons appointed as proxies may exercise
their discretionary voting authority with respect to the proposal. 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 2003 Proxy Statement" above), nor does it apply to questions a
shareholder may wish to ask at the meeting.
SOLICITATION OF PROXIES
Synovus will pay the cost of soliciting proxies. Proxies may be solicited
on behalf of Synovus by directors, officers or employees by mail, in person or
by telephone, facsimile or other electronic means. Synovus will reimburse
brokerage firms, nominees, custodians, and fiduciaries for their out-of-pocket
expenses for forwarding proxy materials to beneficial owners.
HOUSEHOLDING
The Securities and Exchange Commission recently adopted amendments to
its proxy rules which permit companies and intermediaries, such as brokers and
banks, to satisfy delivery requirements for proxy statements with respect to two
or more shareholders sharing the same address by delivering a single proxy
statement to those shareholders. This method of delivery, often referred to as
householding, should reduce the amount of duplicate information that
shareholders receive and lower printing and mailing costs for companies. Synovus
is not householding proxy materials for its shareholders of record in connection
with its 2002 Annual Meeting. However, we have been notified that certain
intermediaries will household proxy materials. If you hold your shares of
Synovus stock through a broker or bank that has determined to household proxy
materials:
. Only one annual report and proxy statement will be delivered
to multiple shareholders sharing an address unless you notify
your broker or bank to the contrary;
. You can contact Synovus by calling (706) 649-5220 or by
writing Director of Investor Relations, Synovus Financial
Corp., P.O. Box 120, Columbus, Georgia 31902 to request a
separate copy of the annual report and proxy statement for the
2002 Annual Meeting and
31
for future meetings or you can contact your bank or broker to
make a similar request; and
. You can request delivery of a single copy of annual reports or
proxy statements from your bank or broker if you share the
same address as another Synovus shareholder and your bank or
broker has determined to household proxy materials.
The above Notice of Annual Meeting and Proxy Statement are sent by order of
the Synovus Board of Directors.
/s/James H. Blanchard
JAMES H. BLANCHARD
Chairman of the Board
March 14, 2002
32
FINANCIAL APPENDIX
Consolidated Balance Sheets as of December 31, 2001 and 2000 ................................ F-2
Consolidated Statements of Income for the Years ended December 31, 2001, 2000, and 1999 ..... F-3
Consolidated Statements of Changes In Shareholders' Equity
for the Years ended December 31, 2001, 2000, and 1999 .................................... F-4
Consolidated Statements of Cash Flows
for the Years ended December 31, 2001, 2000, and 1999 .................................... F-5
Notes to Consolidated Financial Statements .................................................. F-6
Report of Financial Responsibility .......................................................... F-23
Independent Auditors' Report ................................................................ F-24
Selected Financial Data ..................................................................... F-25
Financial Review ............................................................................ F-26
Summary of Quarterly Financial Data, Unaudited .............................................. F-48
F-1
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
DECEMBER 31,
------------------------------------
2001 2000
------------ ----------
ASSETS
Cash and due from banks, including $7,714 and $10,017 in 2001 and 2000,
respectively, on deposit to meet Federal Reserve requirements .............. $ 648,179 558,054
Interest earning deposits with banks ........................................... 3,884 3,806
Federal funds sold and securities purchased under resale agreements ............ 23,673 375,765
Mortgage loans held for sale ................................................... 397,940 108,234
Investment securities available for sale (note 3) .............................. 2,088,287 1,807,039
Investment securities held to maturity (fair value of $275,233) (note 3) ....... -- 270,889
Loans, net of unearned income (note 4) ......................................... 12,417,917 10,751,887
Allowance for loan losses (note 4) ............................................. (170,769) (147,867)
------------ ----------
Loans, net ......................................................... 12,247,148 10,604,020
------------ ----------
Premises and equipment, net .................................................... 572,618 526,988
Other assets (note 5) .......................................................... 676,218 653,297
------------ ----------
Total assets ....................................................... $ 16,657,947 14,908,092
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing ................................................... $ 1,984,523 1,726,817
Interest bearing (note 6) .............................................. 10,161,675 9,434,893
------------ ----------
Total deposits ..................................................... 12,146,198 11,161,710
Federal funds purchased and securities sold
under repurchase agreements (note 7) ..................................... 1,345,822 1,039,900
Long-term debt (note 7) .................................................... 1,052,943 840,859
Other liabilities (note 15) ................................................ 319,400 367,562
------------ ----------
Total liabilities .................................................. 14,864,363 13,410,031
------------ ----------
Minority interest in consolidated subsidiaries ................................. 98,638 80,890
Shareholders' equity (notes 2, 3, 11, and 13):
Common stock-- $1.00 par value. Authorized 600,000,000 shares;
issued 294,849,028 in 2001 and 284,818,042 in 2000; outstanding
294,673,764 in 2001 and 284,642,778 in 2000 .............................. 294,849 284,818
Surplus .................................................................... 171,257 107,652
Treasury stock--175,264 shares ............................................. (1,285) (1,285)
Unamortized restricted stock ............................................... (82) (381)
Accumulated other comprehensive income ..................................... 29,338 5,936
Retained earnings .......................................................... 1,200,869 1,020,431
------------ ----------
Total shareholders' equity ......................................... 1,694,946 1,417,171
------------ ----------
Commitments and contingencies (note 10)
Total liabilities and shareholders' equity ......................... $ 16,657,947 14,908,092
============ ==========
See accompanying notes to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
------------------------------------------
(In thousands, except per share data) 2001 2000 1999
---------- --------- -------
Interest income:
Loans, including fees ...................................................... $ 989,352 956,570 758,517
Investment securities:
U.S. Treasury and U.S. Government agencies ............................. 69,316 83,528 81,140
Mortgage-backed securities ............................................. 38,331 30,337 26,167
State and municipal .................................................... 11,649 9,949 8,650
Other investments ...................................................... 3,415 3,426 2,907
Mortgage loans held for sale ............................................... 14,216 8,095 7,659
Federal funds sold and securities purchased under resale agreements ........ 4,397 5,736 2,879
Interest earning deposits with banks ....................................... 212 164 88
---------- --------- -------
Total interest income .............................................. 1,130,888 1,097,805 888,007
---------- --------- -------
Interest expense:
Deposits (note 6) .......................................................... 404,661 420,173 323,752
Federal funds purchased and securities sold under repurchase agreements .... 42,643 78,445 39,427
Long-term debt (note 7) .................................................... 53,793 36,855 11,534
---------- --------- -------
Total interest expense ............................................. 501,097 535,473 374,713
---------- --------- -------
Net interest income ................................................ 629,791 562,332 513,294
Provision for losses on loans (note 4) ......................................... 51,673 44,341 34,007
---------- --------- -------
Net interest income after provision for losses on loans ............ 578,118 517,991 479,287
---------- --------- -------
Non-interest income:
Data processing services ................................................... 643,566 580,969 507,652
Service charges on deposit accounts ........................................ 86,539 76,002 70,161
Fees for trust services .................................................... 26,509 22,204 20,031
Brokerage revenue .......................................................... 16,363 16,063 14,076
Mortgage banking income .................................................... 38,272 21,741 21,196
Credit card fees ........................................................... 21,184 19,129 15,123
Securities gains, net (note 3) ............................................. 1,722 781 1,202
Other fee income ........................................................... 17,199 15,110 7,968
Other operating income (note 18) ........................................... 86,343 81,514 82,356
---------- --------- -------
Total non-interest income .......................................... 937,697 833,513 739,765
---------- --------- -------
Non-interest expense:
Salaries and other personnel expense (notes 12 and 13) ..................... 566,084 495,477 457,741
Net occupancy and equipment expense (notes 5 and 10) ....................... 235,652 225,675 208,197
Other operating expenses (note 18) ......................................... 204,227 202,122 190,611
---------- --------- -------
Total non-interest expense ......................................... 1,005,963 923,274 856,549
---------- --------- -------
Minority interest in subsidiaries' net income .................................. 19,859 16,495 13,188
Income before income taxes ......................................... 489,993 411,735 349,315
Income tax expense (note 15) ................................................... 178,377 149,178 124,008
---------- --------- -------
Net income ......................................................... $ 311,616 262,557 225,307
========== ========= =======
Net income per share (notes 9 and 13):
Basic ...................................................................... $ 1.07 .93 .80
========== ========= =======
Diluted .................................................................... 1.05 .92 .80
========== ========= =======
Weighted average shares outstanding (notes 9 and 13):
Basic ...................................................................... 290,304 283,552 280,016
========== ========= =======
Diluted .................................................................... 295,850 286,882 283,355
========== ========= =======
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share data)
UNAMORTIZED
SHARES COMMON TREASURY RESTRICTED
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 ISSUED STOCK SURPLUS STOCK STOCK
--------------------------------------------- ------- --------- ------- -------- -----------
Balance at December 31, 1998 .................................... 278,807 $ 278,807 59,657 (5,099) (2,545)
Net income ...................................................... -- -- -- -- --
Other comprehensive loss, net of tax (note 8):
Change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment ......................... -- -- -- -- --
Loss on foreign currency translation ......................... -- -- -- -- --
Other comprehensive loss ..................................... -- -- -- -- --
Comprehensive income ............................................ -- -- -- -- --
Issuance of common stock for acquisitions (note 2) .............. 2,325 2,325 9,269 -- --
Issuance of treasury stock for purchase acquisition (note 2) .... -- -- -- 1,860 --
Cash dividends declared -- $.36 per share ....................... -- -- -- -- --
Cash dividends of pooled subsidiaries prior to acquisition ...... -- -- -- -- --
Amortization of restricted stock (note 13) ...................... -- -- -- -- 1,252
Stock options exercised (note 13) ............................... 1,150 1,150 5,620 -- --
Stock option tax benefit ........................................ -- -- 7,390 -- --
Retirement of subsidiary's treasury stock upon acquisition ...... (93) (93) (1,861) 1,954 --
Ownership change at majority-owned subsidiary ................... -- -- (985) -- --
Commitment of stock donation to charitable foundation ........... -- -- 100 -- --
------- --------- ------- ------ ------
BALANCE AT DECEMBER 31, 1999 .................................... 282,189 282,189 79,190 (1,285) (1,293)
Net income ...................................................... -- -- -- -- --
Other comprehensive income, net of tax (note 8):
Change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment ......................... -- -- -- -- --
Loss on foreign currency translation ......................... -- -- -- -- --
Other comprehensive income ................................... -- -- -- -- --
Comprehensive income ............................................ -- -- -- -- --
Issuance of common stock for acquisition (note 2) ............... 1,415 1,415 16,934 -- --
Cash dividends declared - $.44 per share ........................ -- -- -- -- --
Amortization of restricted stock (note 13) ...................... -- -- -- -- 1,009
Stock options exercised (note 13) ............................... 1,209 1,209 8,806 -- --
Issuance of restricted stock .................................... 5 5 92 -- (97)
Stock option tax benefit ........................................ -- -- 3,594 -- --
Ownership change at majority-owned subsidiary ................... -- -- (964) -- --
------- --------- ------- ------ ------
BALANCE AT DECEMBER 31, 2000 .................................... 284,818 284,818 107,652 (1,285) (381)
NET INCOME ...................................................... -- -- -- -- --
OTHER COMPREHENSIVE INCOME, NET OF TAX (NOTE 8):
NET UNREALIZED GAIN ON CASH FLOW HEDGES ...................... -- -- -- -- --
CHANGE IN UNREALIZED GAINS/LOSSES ON
INVESTMENT SECURITIES AVAILABLE FOR SALE,
NET OF RECLASSIFICATION ADJUSTMENT .......................... -- -- -- -- --
LOSS ON FOREIGN CURRENCY TRANSLATION ......................... -- -- -- -- --
OTHER COMPREHENSIVE INCOME ................................... -- -- -- -- --
COMPREHENSIVE INCOME ............................................ -- -- -- -- --
ISSUANCE OF COMMON STOCK FOR ACQUISITIONS (NOTE 2) .............. 7,666 7,666 26,588 -- --
CASH DIVIDENDS DECLARED - $.51 PER SHARE ........................ -- -- -- -- --
AMORTIZATION OF RESTRICTED STOCK (NOTE 13) ...................... -- -- -- -- 299
STOCK OPTIONS EXERCISED (NOTE 13) ............................... 2,365 2,365 20,923 -- --
STOCK OPTION TAX BENEFIT ........................................ -- -- 16,363 -- --
OWNERSHIP CHANGE AT MAJORITY-OWNED SUBSIDIARY ................... -- -- (269) -- --
------- --------- ------- ------ ------
BALANCE AT DECEMBER 31, 2001 .................................... 294,849 $ 294,849 171,257 (1,285) (82)
======= ========= ======= ====== ======
(In thousands, except per share data)
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 INCOME (LOSS) EARNINGS TOTAL
--------------------------------------------- -------------- ---------- ---------
Balance at December 31, 1998................................................... 10,475 770,622 1,111,917
Net income..................................................................... -- 225,307 225,307
Other comprehensive loss, net of tax (note 8):
Change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment ........................................ (39,913) -- (39,913)
Loss on foreign currency translation ........................................ (223) -- (223)
-------- ---------
Other comprehensive loss .................................................... (40,136) -- (40,136)
---------
Comprehensive income ........................................................... -- -- 185,171
---------
Issuance of common stock for acquisitions (note 2) ............................. (473) 6,335 17,456
Issuance of treasury stock for purchase acquisition (note 2) ................... -- -- 1,860
Cash dividends declared -- $.36 per share ...................................... -- (98,460) (98,460)
Cash dividends of pooled subsidiaries prior to acquisition ..................... -- (5,774) (5,774)
Amortization of restricted stock (note 13) ..................................... -- -- 1,252
Stock options exercised (note 13) .............................................. -- -- 6,770
Stock option tax benefit ....................................................... -- -- 7,390
Retirement of subsidiary's treasury stock upon acquisition ..................... -- -- --
Ownership change at majority-owned subsidiary .................................. -- (28) (1,013)
Commitment of stock donation to charitable foundation .......................... -- -- 100
------- ---------- ---------
BALANCE AT DECEMBER 31, 1999 ................................................... (30,134) 898,002 1,226,669
Net income ..................................................................... -- 262,557 262,557
Other comprehensive income, net of tax (note 8):
Change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment ........................................ 36,199 -- 36,199
Loss on foreign currency translation ........................................ (129) -- (129)
------- ---------
Other comprehensive income .................................................. 36,070 -- 36,070
---------
Comprehensive income ........................................................... -- -- 298,627
---------
Issuance of common stock for acquisition (note 2) .............................. -- (15,246) 3,103
Cash dividends declared - $.44 per share ....................................... -- (124,882) (124,882)
Amortization of restricted stock (note 13) ..................................... -- -- 1,009
Stock options exercised (note 13) .............................................. -- -- 10,015
Issuance of restricted stock ................................................... -- -- --
Stock option tax benefit ....................................................... -- -- 3,594
Ownership change at majority-owned subsidiary .................................. -- -- (964)
------- ---------- ---------
BALANCE AT DECEMBER 31, 2000 ................................................... 5,936 1,020,431 1,417,171
Net income ..................................................................... -- 311,616 311,616
Other comprehensive income, net of tax (note 8):
Net unrealized gain on cash flow hedges ..................................... 6,081 -- 6,081
Change in unrealized gains/losses on
investment securities available for sale,
net of reclassification adjustment ......................................... 18,341 -- 18,341
Loss on foreign currency translation ........................................ (1,488) -- (1,488)
------- ---------
Other comprehensive income .................................................. 22,934 -- 22,934
---------
Comprehensive income ........................................................... -- -- 334,550
---------
Issuance of common stock for acquisitions (note 2) ............................. 468 17,371 52,093
Cash dividends declared - $.51 per share ....................................... -- (148,549) (148,549)
Amortization of restricted stock (note 13) ..................................... -- -- 299
Stock options exercised (note 13) .............................................. -- -- 23,288
Stock option tax benefit ....................................................... -- -- 16,363
Ownership change at majority-owned subsidiary .................................. -- -- (269)
------- ---------- ---------
BALANCE AT DECEMBER 31, 2001 ................................................... 29,338 1,200,869 1,694,946
======= ========== =========
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) YEARS ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------ ---------- ----------
OPERATING ACTIVITIES
Net income ................................................................. $ 311,616 262,557 225,307
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans .......................................... 51,673 44,341 34,007
Depreciation, amortization, and accretion, net ......................... 87,200 80,502 72,475
Deferred income tax expense (benefit) .................................. 11,342 (4,459) 144
Decrease (increase) in interest receivable ............................. 25,914 (30,544) (7,449)
(Decrease) increase in interest payable ................................ (23,448) 25,106 9,204
Minority interest in subsidiaries' net income .......................... 19,859 16,495 13,188
(Increase) decrease in mortgage loans held for sale .................... (289,706) (25,089) 73,086
Other, net ............................................................. (16,590) 85,416 33,334
------------ ---------- ----------
Net cash provided by operating activities ......................... 177,860 454,325 453,296
------------ ---------- ----------
INVESTING ACTIVITIES
Cash acquired from acquisitions ............................................ 17,906 2,877 7,639
Net increase in interest earning deposits with banks ....................... (65) (1,878) (339)
Net decrease (increase) in federal funds sold and
securities purchased under resale agreements ...................... 375,542 (283,672) (11,477)
Proceeds from maturities and principal collections of
investment securities available for sale .......................... 896,836 198,078 453,143
Proceeds from sales of investment securities available for sale ............ 212,395 33,553 48,472
Purchases of investment securities available for sale ...................... (1,017,514) (262,299) (695,526)
Proceeds from maturities and principal collections of
investment securities held to maturity ............................ -- 37,591 63,875
Purchases of investment securities held to maturity ........................ -- (31,126) (32,781)
Net increase in loans ...................................................... (1,326,774) (1,762,348) (1,416,486)
Purchases of premises and equipment ........................................ (146,663) (170,559) (124,462)
Proceeds from disposals of premises and equipment .......................... 14,194 4,081 8,315
Net cash paid on sale of branches .......................................... (11,037) (96,135) (55,641)
Proceeds from sales of other real estate ................................... 15,930 10,136 8,520
Additions to contract acquisition costs .................................... (27,194) (41,713) (15,812)
Refund of contract acquisition costs ....................................... -- 10,000 --
Additions to computer software ............................................. (55,038) (72,685) (54,189)
------------ ---------- ----------
Net cash used in investing activities ............................. (1,051,482) (2,426,099) (1,816,749)
------------ ---------- ----------
FINANCING ACTIVITIES
Net increase in demand and savings deposits ................................ 734,795 918,781 174,703
Net (decrease) increase in certificates of deposit ......................... (131,891) 955,153 432,420
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements ....................... 293,948 (221,575) 758,104
Principal repayments on long-term debt ..................................... (3,006) (3,778) (2,030)
Proceeds from issuance of long-term debt ................................... 185,438 525,786 186,849
Purchases of treasury stock by majority-owned subsidiary ................... -- (2,077) (1,291)
Dividends paid to shareholders ............................................. (142,083) (119,012) (98,837)
Proceeds from issuance of common stock ..................................... 26,546 10,007 6,702
------------ ---------- ----------
Net cash provided by financing activities ......................... 963,747 2,063,285 1,456,620
------------ ---------- ----------
Increase in cash and cash equivalents .......................................... 90,125 91,511 93,167
Cash and cash equivalents at beginning of period ............................... 558,054 466,543 373,376
------------ ---------- ----------
Cash and cash equivalents at end of period ..................................... $ 648,179 558,054 466,543
============ ========== ==========
See accompanying notes to consolidated financial statements.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 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, 2001. Synovus has 38 wholly-owned
bank subsidiaries predominantly involved in retail and commercial banking
activities. Other wholly-owned subsidiary business activities include trust,
mortgage, insurance, brokerage, software solutions provider, and debt collection
and bankruptcy management. Total System Services, Inc. (TSYS), an 80.8% owned
subsidiary, provides bankcard data processing and related services to banks and
other card-issuing institutions. In addition, the financial statements include
joint ventures accounted for under the equity method.
Synovus has two reportable segments: Financial Services and Transaction
Processing Services. For the year ended December 31, 2001, revenues (defined as
net interest income plus non-interest income) from the Financial Services
segment represent 55.8% of the consolidated revenues, while the Transaction
Processing Services segment represents the remaining 44.2% of consolidated
revenues. The Financial Services' revenues are earned in four southeastern
states: Georgia (61%), Alabama (18%), South Carolina (14%), and Florida (7%).
Transaction Processing Services are provided to financial institutions and other
organizations throughout the United States, Mexico, Canada, Honduras, the
Caribbean, and Europe. TSYS also offers merchant services to financial
institutions and other organizations in Japan.
BASIS OF PRESENTATION
In preparing the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America,
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 allowance 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 allowance 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 accounting principles generally accepted in
the United States of America and to general practices within the banking and
bankcard 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, 2001, 2000, and 1999, income taxes of
$186 million, $143 million, and $106 million, and interest of $525 million, $510
million, and $367 million, respectively, were paid.
Loans receivable of approximately $15 million, $15 million, and $4
million were transferred to other real estate during 2001, 2000, and 1999,
respectively.
FEDERAL FUNDS SOLD, FEDERAL FUNDS PURCHASED, SECURITIES PURCHASED UNDER RESALE
AGREEMENTS, AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Federal funds sold, federal funds purchased, securities purchased under
resale agreements, and securities sold under repurchase agreements 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 recorded
at December 31, 2001 or 2000.
The cost of mortgage loans held for sale is the mortgage note amount
plus certain net origination costs less fees collected.
INVESTMENT SECURITIES
In connection with the adoption of Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities" on January 1, 2001, Synovus reclassified its investment securities
held to maturity portfolio to the available for sale category.
In 2000, Synovus classified its securities into two categories:
available for sale or held to maturity. Held to maturity securities were those
securities for which Synovus had the ability and intent to hold until maturity.
All other securities not included in held to maturity were 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 were 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
accumulated 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 accumulated 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.
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, net deferred fees, and the allowance for loan losses.
Interest income on consumer loans, made on a discount basis, is
recognized in a manner which approximates the level yield
F-6
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 fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest. Interest on accruing impaired loans is recognized
as long as such loans do not meet the criteria for nonaccrual classification.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collection of principal is
unlikely. Subsequent recoveries are added to the allowance. Management's
evaluation of the adequacy of the allowance for loan losses is based on a formal
analysis which assesses the risk within the loan portfolio. This analysis
includes consideration of historical performance, current economic conditions,
level of nonperforming loans, loan concentrations, and review of certain
individual loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the subsidiary banks'
allowances for loan losses. Such agencies may require the subsidiary banks to
recognize additions to the allowance for loan losses based on their judgments
about information available to them at the time of their examination.
Management, considering current information and events regarding a
borrower's ability to repay its obligations, considers a loan to be impaired
when the ultimate collectibility of all principal and interest amounts due,
according to the contractual terms of the loan agreement, is in doubt. When a
loan is considered to be impaired, the amount of impairment is measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate. If the loan is collateral-dependent, the fair value of
the collateral is used to determine the amount of impairment. Impairment losses
are included in the allowance for loan losses through a charge to the provision
for losses on loans. Subsequent recoveries are added to the allowance for loan
losses.
The accounting for impaired loans described above applies to all loans,
except for large pools of smaller-balance, homogeneous loans that are
collectively evaluated for impairment, loans that are measured at fair value or
at the lower of cost or fair value, and debt securities. The allowance for loan
losses for large pools of smaller- balance, homogeneous loans is established
through consideration of such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, adequacy of the underlying collateral,
loan concentrations, historical charge-off trends, and economic conditions that
may affect the borrowers' ability to pay.
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.
Intangibles:
Goodwill, which represents the excess of cost over the fair value of
net assets acquired of purchased companies, is amortized using the straight-line
method over periods of 5 to 40 years.
Core deposit premiums resulting from the valuation of core deposit
intangibles acquired in business combinations or in the purchase of branch
offices are amortized using accelerated methods over periods not exceeding the
estimated average remaining life of the existing customer deposit bases
acquired. Amortization periods range from 10 to 18 years.
Amortization periods for intangible assets are monitored to determine
if events and circumstances require such periods to be reduced.
Software Development Costs:
TSYS develops software that is used in providing transaction processing
services to clients. Software development costs are capitalized once
technological feasibility of the software has been established. Costs incurred
prior to establishing technological feasibility are expensed as incurred.
Technological feasibility is established when TSYS has completed all planning,
designing, coding, and testing activities that are necessary to determine that a
product can be produced to meet its design specifications, including functions,
features, and technical performance requirements. Capitalization of costs ceases
when the product is available for general use. TSYS evaluates the unamortized
capitalized costs of software development as compared to the net realizable
value of the development which is determined by projected future cash flows. The
amount by which the unamortized capitalized costs exceed the net realizable
value are written off. Software development costs are amortized using the
greater of (1) the straight-line method over the estimated useful life (which
ranges from 3 - 10 years) or (2) the ratio of current revenues to current
anticipated revenues.
Investments in Company-Owned Life Insurance Programs:
Premiums paid for company-owned life insurance programs are recorded at
the net realizable 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
F-7
expense or income to be recognized under the contract during the period. Income
or expense from company-owned life insurance programs is included as a component
of other operating income.
Investment in Joint Ventures:
TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V.
(TSYS de Mexico), a bankcard data processing operation located in Mexico, is
accounted for using the equity method, as is TSYS' 50% investment in Vital
Processing Services L.L.C. (Vital), a merchant processing operation
headquartered in Tempe, Arizona.
Contract Acquisition Costs:
TSYS capitalizes contract acquisition costs related to signing or
renewing long-term contracts. These costs, primarily consisting of cash payments
for rights to provide processing services and internal conversion and software
development costs, are amortized using the straight-line method over the
contract term beginning when the client's cardholder accounts are converted to
the system. All costs incurred prior to contract execution are expensed as
incurred. The amortization of these costs is recognized in other expenses.
Other Real Estate:
Other real estate, consisting of properties obtained through
foreclosure or in satisfaction of loans, is reported at the lower of cost or
fair value, determined on the basis of current appraisals, comparable sales, and
other estimates of value obtained principally from independent sources, adjusted
for estimated selling costs. Any excess of the loan balance at the time of
foreclosure over the fair value of the real estate held as collateral is treated
as a loan charge-off. Gain or loss on sale and any subsequent adjustment to the
value are recorded as a component of non-interest expense.
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment of
SFAS 133". SFAS No. 133 and SFAS No. 138 standardize the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standards, entities are required to carry all
derivative instruments on the balance sheet at fair value. The accounting for
changes in 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 accumulated 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 are 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 adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001.
As part of its overall interest rate risk management activities,
Synovus utilizes interest rate related derivative instruments to manage its
exposure to various types of interest rate risks. With the exception of
commitments to fund and sell fixed-rate mortgage loans, all derivative
instruments utilized by Synovus represent end user activities designed as either
a hedge of a recognized fixed-rate asset or liability (a fair value hedge), or a
hedge of a forecasted transaction or of the variability of future cash flows of
a floating rate asset or liability (cash flow hedge). Synovus does not speculate
using derivative instruments.
Synovus' risk management policies emphasize the management of interest
rate risk within acceptable guidelines. Synovus' objective in maintaining these
policies is to achieve consistent growth in net interest income while limiting
volatility arising from changes in interest rates. Risks to be managed include
both fair value and cash flow risks. Utilization of derivative instruments
provides a valuable tool to assist in the management of these risks.
Synovus utilizes interest rate swap agreements to hedge the fair value
risk of fixed-rate liabilities, primarily deposit liabilities. Fair value risk
is measured as the volatility in the value of these liabilities as interest
rates change. Interest rate swaps entered into to manage this risk are designed
to have the same notional value as well as similar interest rates and interest
calculation methods. These agreements entitle Synovus to receive fixed-rate
interest payments and pay floating-rate interest payments based on the notional
amount of the swap agreements. Swap agreements structured in this manner allow
Synovus to effectively hedge the fair value risks of these fixed-rate
liabilities.
Synovus is potentially exposed to cash flow risk due to its holding of
loans whose interest payments are based on floating rate indices. Synovus
monitors changes in these exposures and their impact on its risk management
activities. These agreements, whose terms are for up to five years, entitle
Synovus to receive fixed-rate interest payments and pay floating-rate interest
payments. The maturity date of the last agreement is June 1, 2004. These
agreements allow Synovus to offset the variability of floating rate loan
interest with the variable interest payments due on the interest rate swaps.
The effective portion of changes in the fair value of interest rate
swaps designated as hedges of the variability of cash flows associated with
floating rate loans are reported in accumulated other comprehensive income.
These amounts are subsequently reclassified into interest income as the hedged
cash flows affect earnings. The ineffective portion of the gain on hedging
derivative instruments, which is reported in earnings, is not material.
By using derivative instruments to hedge fair value and cash flow
risks, Synovus exposes itself to potential credit risk. This potential credit
risk is equal to the fair or replacement values of the swaps if the counterparty
fails to perform on its obligations under the swap agreements. This credit risk
is normally a very small percentage of the notional amount and fluctuates as
interest rates change. Synovus minimizes this risk by subjecting the transaction
to the same approval process as other credit activities, by dealing with highly
rated counterparties, and by obtaining collateral agreements for exposures above
predetermined limits.
Synovus also holds derivative instruments which consist of commitments
to fund fixed-rate mortgage loans to customers and forward commitments to sell
individual fixed-rate mortgage loans. Synovus' objective in obtaining the
forward commitments is to mitigate the interest rate risk associated with the
commitments to fund the fixed-rate mortgage loans. Both the rate-lock
commitments and the forward commitments are reported at fair value, with
adjustments being recorded in current period earnings, and are not accounted for
as hedges.
In accordance with the transition provisions of SFAS No. 133, Synovus
recorded a net-of-tax cumulative-effect gain of $.8 million in accumulated other
comprehensive income to recognize at fair
F-8
value all derivative instruments that are designated as cash flow hedges. As of
December 31, 2001, the net-of-tax fair value of these derivative instruments and
the unamortized balance of deferred gains for terminated derivative instruments
carried as a component of accumulated other comprehensive income was $6.1
million. Synovus expects to reclassify from accumulated other comprehensive
income approximately $4.1 million as net-of-tax earnings during the next twelve
months, as the related payments from interest rate swaps and amortization of
deferred gains are recorded. During 2001, Synovus terminated certain cash flow
hedges which resulted in a net pre-tax gain of $3.3 million. Such gain is
included as a component of accumulated other comprehensive income and is being
amortized over the shorter of the remaining contract life or the maturity of the
designated asset as an adjustment to interest income. The remaining unamortized
deferred gain balance at December 31, 2001 was $2.8 million. Upon adoption of
SFAS No. 133, gains and losses on derivative instruments that were previously
deferred as adjustments to the carrying amounts of hedged items were not
adjusted.
BANKCARD PROCESSING REVENUES
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 service is performed. Bankcard data processing revenues
are generated primarily from charges based on the number of accounts billed,
transactions and authorizations processed, statements mailed, and other
processing services for cardholder accounts on file. Most of these contracts
have prescribed minimums. The terms of contracts generally range from three to
ten years in length.
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.
STOCK-BASED COMPENSATION
Synovus accounts for its fixed stock-based compensation in accordance
with the provisions set forth in Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations. In
accordance with APB Opinion No. 25, compensation expense is recorded on the
grant date only to the extent that the current market price of the underlying
stock exceeds the exercise price on the grant date.
The pro forma net income and earnings per share disclosures for
employee stock-based grants made in 1995 and future years are determined based
upon the fair-value-based method which is defined in 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.
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, the entire holdings of a particular
financial instrument. Because no market exists for a portion of the 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 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 income taxes, premises and
equipment, capitalized contract acquisition costs, computer software,
investments in joint ventures, 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.
OTHER
Certain amounts in 2000 and 1999 have been reclassified to conform with
the presentation adopted in 2001.
NOTE 2 BUSINESS COMBINATIONS
On December 7, 2001, Synovus completed the acquisition of the $304
million asset FABP Bancshares, Inc. (FABP), of Pensacola, Florida, the parent
company of First American Bank of Pensacola, N.A. Synovus issued 3,539,751
shares of its common stock for all the issued and outstanding shares of FABP.
On February 28, 2001, Synovus completed the acquisition of Creative
Financial Group, Ltd. (Creative Financial), based in Atlanta, Georgia, and its
operating unit Robert Andrew Securities, Inc. At the acquisition date, Creative
Financial had $546 million in assets under management. The companies operate as
divisions of Synovus Financial Management Services, the integrated asset
management unit of Synovus. Synovus issued 937,701 shares of its common stock
for all the issued and outstanding shares of these two entities.
On February 16, 2001, Synovus completed the acquisition of the $200
million asset Carolina Southern Bank of Spartanburg, South Carolina. Synovus
issued 3,188,558 shares of its common stock, and merged the bank into its
affiliate bank, The National Bank of South Carolina.
On May 31, 2000, Synovus completed the acquisition of ProCard, Inc.(R)
(ProCard), a provider of software and Internet tools designed to assist
organizations with the management of purchasing, travel and fleet card programs.
Synovus issued 1,415,053 shares of common stock for all of the outstanding
capital stock of ProCard.
On October 31, 1999, Synovus completed the acquisitions of Ready Bank
of Fort Walton Beach Holding Company, Inc. with $65 million in assets, and
Horizon Bancshares, Inc. with $60 million in assets. Synovus issued 1,946,416
shares of common stock for all the issued and outstanding shares of these two
entities.
The aforementioned acquisitions have been accounted for as poolings of
interests, except that the financial information preceding
F-9
the dates of acquisition have not been restated to include the financial
condition and results of operations of these entities since the effect was not
material. Net income for the years ended December 31, 2001, 2000 and 1999 would
have been increased by $3.0 million, $8.0 million, and $8.4 million,
respectively, if the prior periods had been restated for these acquisitions.
On September 30, 1999, Synovus completed the acquisition of the $306
million asset Merit Holding Corporation. Merit Holding Corporation (Merit) was
the parent company of Mountain National Bank in Tucker, Georgia, and Charter
Bank & Trust Co. in Marietta, Georgia. Synovus issued 5,995,085 shares of common
stock for all the issued and outstanding shares of Merit.
On September 30, 1999, Synovus completed the acquisition of the debt
collection and bankruptcy management business offered by Wallace & de Mayo
(WDM), a firm based in Norcross, Georgia. Synovus issued 2,339,624 shares of
common stock for all of the outstanding common stock of WDM. Effective September
30, 1999, WDM operates as TSYS Total Debt Management, Inc. (TDM), a wholly-owned
subsidiary of Synovus.
The aforementioned two acquisitions have been accounted for as poolings
of interests. Accordingly, the financial statements for all prior periods
presented have been restated to include the financial condition and results of
operations of these two entities.
On January 31, 1999, Synovus issued 333,163 shares of common stock to
acquire the remaining 80% interest in Canterbury Trust Company, Inc., which
provides trust, custody, investment and consulting services to large
institutional clients. The acquisition was accounted for as a purchase resulting
in goodwill of $5.5 million, which is being amortized on a straight-line basis
over fifteen years.
On January 29, 1999, Merit acquired Source Capital Group I, Inc.
(Source Capital Group), an Atlanta-based equipment leasing company, in exchange
for 100,000 shares of Merit's common stock (equivalent of 125,330 Synovus
shares), valued at approximately $2.2 million. Synovus issued an additional
45,488 shares of its common stock to the former Source Capital Group
shareholders on October 1, 1999. These shares represented additional
consideration under the terms of the purchase agreement. The acquisition has
been accounted for as a purchase resulting in goodwill of $2.2 million, which is
being amortized on a straight-line basis over fifteen years.
NOTE 3 INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated
fair values of investment securities at December 31, 2001 and 2000 are
summarized as follows:
INVESTMENT SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 2001
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
(In thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- ---------
U.S. Treasury and U.S. Government agencies........ $ 1,024,849 27,460 (1,108) 1,051,201
Mortgage-backed securities ....................... 725,441 12,254 (2,290) 735,405
State and municipal .............................. 236,742 6,525 (621) 242,646
Other investments ................................ 58,900 487 (352) 59,035
----------- ------ ------ ---------
Total ........................................ $ 2,045,932 46,726 (4,371) 2,088,287
=========== ====== ====== =========
DECEMBER 31, 2000
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
(In thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- ---------
U.S. Treasury and U.S. Government agencies........ $1,307,988 9,353 (3,048) 1,314,293
Mortgage-backed securities ....................... 433,036 5,197 (1,426) 436,807
State and municipal .............................. 35,146 408 (278) 35,276
Other investments ................................ 19,707 2,714 (1,758) 20,663
----------- ------ ------ ---------
Total......................................... $1,795,877 17,672 (6,510) 1,807,039
=========== ====== ====== =========
INVESTMENT SECURITIES HELD TO MATURITY
DECEMBER 31, 2001
---------------------------------------------------------------------
GROSS GROSS ESTIMATED
(In thousands) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ----------- ---------
U.S. Treasury and U.S. Government agencies........ $ 11,717 49 (64) 11,702
Mortgage-backed securities ....................... 38,592 356 (73) 38,875
State and municipal .............................. 183,744 4,703 (374) 188,073
Other investments ................................ 36,836 -- (253) 36,583
----------- ------ ------ ---------
Total ........................................ $ 270,889 5,108 (764) 275,233
=========== ====== ====== =========
F-10
The amortized cost and estimated fair value of investment securities at
December 31, 2001 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
AVAILABLE FOR SALE
(In thousands) --------------------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
------------ ----------
U.S. Treasury and
U.S. Government agencies:
Within 1 year ...................... $ 106,486 108,416
1 to 5 years ....................... 617,517 633,978
5 to 10 years ...................... 281,419 289,383
More than 10 years ................. 19,427 19,424
------------ ----------
1,024,849 1,051,201
------------ ----------
State and municipal:
Within 1 year ...................... 12,174 12,286
1 to 5 years ....................... 65,876 67,793
5 to 10 years ...................... 96,133 98,819
More than 10 years ................. 62,559 63,748
------------ ----------
236,742 242,646
------------ ----------
Other investments:
Within 1 year ...................... 3,462 3,300
1 to 5 years ....................... 11,673 11,873
5 to 10 years ...................... 157 157
More than 10 years ................. 43,608 43,705
------------ ----------
58,900 59,035
------------ ----------
Mortgage-backed securities ............. 725,441 735,405
------------ ----------
Total investment securities:
Within 1 year ...................... 122,122 124,002
1 to 5 years ....................... 695,066 713,644
5 to 10 years ...................... 377,709 388,359
More than 10 years ................. 125,594 126,877
Mortgage-backed securities ......... 725,441 735,405
------------ ----------
$ 2,045,932 2,088,287
============ ==========
A summary of sales transactions in the investment securities available
for sale portfolio for 2001, 2000, and 1999 is as follows:
(In thousands) GROSS GROSS
PROCEEDS REALIZED GAINS REALIZED LOSSES
--------- -------------- ---------------
2001 ..... $ 212,395 4,293 (2,571)
2000 ..... 33,553 842 (61)
1999 ..... 48,472 1,252 (50)
There were no sales transactions in the investment securities held to
maturity portfolio during the two years ended December 31, 2000. In connection
with the adoption of Statement of Financial Accounting Standards (SFAS) No. 133,
Synovus reclassified its investment securities held to maturity portfolio to the
available for sale category on January 1, 2001.
At December 31, 2001 and 2000, securities with a carrying value of $1.6
billion were pledged to secure certain deposits and repurchase agreements as
required by law.
NOTE 4 LOANS
Loans outstanding, by classification, are summarized as follows:
DECEMBER 31
(In thousands) -------------------------------
2001 2000
------------ ----------
Commercial:
Commercial, financial,
and agricultural ................. $ 4,004,042 3,747,047
Real estate-construction ........... 2,665,877 2,411,489
Real estate-mortgage ............... 3,138,748 2,336,234
------------ ----------
Total commercial ............... 9,808,667 8,494,770
------------ ----------
Retail:
Real estate-mortgage ............... 1,553,154 1,184,437
Consumer loans - credit card ....... 234,651 233,137
Consumer loans - other ............. 843,169 855,933
------------ ----------
Total retail ................... 2,630,974 2,273,507
------------ ----------
Total loans .................... 12,439,641 10,768,277
------------ ----------
Unearned income .................... (21,724) (16,390)
------------ ----------
Total loans, net
of unearned income ........... $ 12,417,917 10,751,887
============ ==========
Activity in the allowance for loan losses is summarized as follows:
DECEMBER 31
(In thousands) -------------------------------------------------
2001 2000 1999
----------- ------- -------
Balance at beginning
of year ......................... $ 147,867 127,558 114,109
Allowance for loan losses
of acquired subsidiaries ........ 6,217 -- 2,928
Provision for losses on loans ..... 51,673 44,341 34,007
Recoveries of loans
previously charged off .......... 6,817 8,128 6,957
Loans charged off ................. (41,805) (32,160) (30,443)
----------- ------- -------
Balance at end of year ............ $ 170,769 147,867 127,558
=========== ======= =======
At December 31, 2001, the recorded investment in loans that were
considered to be impaired was $62.4 million (of which $38.0 million were on a
nonaccrual basis). Included in this amount is $44.7 million of impaired loans
for which the related loan loss allowance is $16.6 million, and $17.7 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, 2000, the recorded investment in loans that were
considered to be impaired was $46.8 million (of which $37.6 million were on a
nonaccrual basis). Included in this amount is $43.9 million of impaired loans
for which the related loan loss allowance is $13.9 million, and $2.9 million of
impaired loans for which there is no related allowance determined in accordance
with SFAS No. 114.
The allowance for loan losses for impaired loans was primarily
determined using the fair value of the loans' collateral. The average recorded
investment in impaired loans was approximately $63.8 million, $43.6 million, and
$26.5 million for the years ended December 31, 2001, 2000, and 1999,
respectively, and the related amount of interest income recognized during the
period that such loans were impaired was approximately $3.2 million, $2.4
million, and $1.5 million for the years ended December 31, 2001, 2000, and 1999,
respectively.
F-11
Loans on nonaccrual status amounted to approximately $51.2 million,
$40.9 million, and $26.7 million at December 31, 2001, 2000, and 1999,
respectively. If nonaccrual loans had been on a full accruing basis, interest
income on these loans would have been increased by approximately $3.0 million,
$2.2 million, and $2.6 million for the years ended December 31, 2001, 2000, and
1999, respectively.
A substantial portion of the loans is 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 the 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 activity in these loans for the year ended December 31, 2001.
(In thousands)
Balance at December 31, 2000 ................ $ 118,055
Adjustment for executive officer
and director changes ...................... 30,253
-----------
Adjusted balance at December 31, 2000 ....... 148,308
New loans ................................... 283,146
Repayments .................................. (262,157)
-----------
Balance at December 31, 2001 ................ $ 169,297
===========
NOTE 5 OTHER ASSETS
Included in other assets are the following significant balances:
company-owned life insurance programs, TSYS' computer software costs, contract
acquisition costs, and investments in joint ventures.
At December 31, 2001 and 2000, Synovus maintained certain company-owned
life insurance programs with a carrying value of approximately $125.8 million
and $118.2 million, respectively.
The following table summarizes TSYS' computer software at December 31,
2001 and 2000:
(In thousands) 2001 2000
------------ -------
Purchased computer software ............ $ 199,021 177,629
TS(2) .................................. 33,049 33,049
Other capitalized software
development costs .................... 50,617 32,468
------------ -------
282,687 243,146
Less accumulated amortization .......... (111,797) (97,692)
------------ -------
Computer software, net ................. $ 170,890 145,454
============ =======
Amortization expense related to purchased and capitalized software
development costs at TSYS was $29.6 million, $25.7 million, and $21.6 million
for the years ended December 31, 2001, 2000, and 1999, respectively.
During 2001, TSYS ceased developing a software project. The project was
reevaluated to determine its utilization in a new customer service platform.
TSYS expensed $1.2 million of costs of this project in employment and other
operating expenses that were originally capitalized.
During 2000, TSYS ceased development of two software projects. The
projects were reevaluated to determine their utilization in a new design plan.
Based on its review, TSYS expensed $6.1 million of costs as employment and other
operating expenses that were originally capitalized on those projects.
Capitalized contract acquisition costs at TSYS, net of accumulated
amortization, were $87.1 million and $75.1 million at December 31, 2001 and
2000, respectively. Amortization expense related to contract acquisition costs
was $6.6 million, $7.2 million, and $11.8 million, for the years ended December
31, 2001, 2000, and 1999, respectively.
Investment in joint ventures consists of TSYS' 49% investment in Total
System Services de Mexico, S.A. de CV (TSYS de Mexico) and TSYS' 50% investment
in Vital Processing Services, L.L.C. (Vital). Both investments are accounted for
using the equity method. Other assets include $51.6 million and $45.6 million in
recorded balances related to these investments at December 31, 2001 and 2000,
respectively.
NOTE 6 INTEREST BEARING DEPOSITS
A summary of interest bearing deposits at December 31, 2001 and 2000 is
as follows:
(In thousands) 2001 2000
------------- ---------
Interest bearing demand deposits ............ $ 1,916,259 1,749,971
Money market accounts ....................... 2,641,879 2,148,051
Savings accounts ............................ 420,311 404,806
Time deposits under $100,000 ................ 2,497,625 2,577,912
Time deposits of $100,000 or more ........... 2,685,601 2,554,153
------------- ---------
Total interest bearing deposits ......... $ 10,161,675 9,434,893
============= =========
Interest expense on time deposits of $100,000 or more for the years
ended December 31, 2001, 2000, and 1999 was $144.9 million, $138.1 million, and
$82.7 million, respectively.
The following table presents scheduled maturities of time deposits at
December 31, 2001:
Time Deposits with Maturities over 1 Year
(In thousands) DECEMBER 31, 2001
-----------------
Maturing within one year .......... $ 4,153,904
between 1 - 2 years ........... 686,582
2 - 3 years ........... 154,314
3 - 4 years ........... 110,010
4 - 5 years ........... 53,767
thereafter ............ 24,649
------------
$ 5,183,226
============
F-12
NOTE 7 LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt at December 31, 2001 and 2000 consists of the following:
(In thousands) 2001 2000
------------ --------
Parent Company:
7.25% senior notes, due December 15, 2005, with semi-annual interest payments
and principal to be paid at maturity ............................................................... $ 200,000 200,000
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 with minimum annual principal payments of $120 and $1,000 at maturity .............. -- 1,240
------------ --------
Total long-term debt - Parent Company .......................................................... 275,000 276,240
------------ --------
Subsidiaries:
Federal Home Loan Bank advances with interest and principal payments due at
various maturity dates through 2011 and interest rates ranging from 1.87% to
8.37% at December 31, 2001 (weighted average interest rate is 4.54% at
December 31, 2001) ................................................................................. 777,675 564,285
Other notes payable and capital lease obligations payable with interest and principal payments
due at various maturity dates through 2005 and interest rates ranging from 2.05% to 15.00%
at December 31, 2001 ............................................................................... 268 334
------------ --------
Total long-term debt - subsidiaries ............................................................ 777,943 564,619
------------ --------
Total long-term debt ........................................................................... $ 1,052,943 840,859
============ ========
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, 2001, Synovus and its subsidiaries were in
compliance with the covenants of the loan and security agreements.
The Federal Home Loan Bank advances are secured by certain mortgage
loans receivable of approximately $1.15 billion, as well as investment
securities of approximately $111.6 million at December 31, 2001.
Synovus has an unsecured line of credit with an unaffiliated bank for
$25 million with an interest rate of 45 basis points above the short-term index,
as defined. The line of credit requires an annual commitment fee of .125% on the
average daily available balance and draws can be made on demand (subject to
compliance with certain restrictive covenants). There were no advances
outstanding at December 31, 2001 and 2000.
Required annual principal payments on long-term debt for the five years
subsequent to December 31, 2001 are as follows:
(In thousands) PARENT COMPANY SUBSIDIARIES TOTAL
-------------- ------------ -------
2002 ..... $ -- 57,860 57,860
2003 ..... 75,000 354,000 429,000
2004 ..... -- 133,755 133,755
2005 ..... 200,000 65,000 265,000
2006 ..... -- 78,000 78,000
The following table sets forth certain information regarding federal
funds purchased and securities sold under repurchase agreements, the principal
components of short-term borrowings.
(In thousands) 2001 2000
------------ ---------
Balance at December 31, ................ $ 1,345,822 1,039,900
Weighted average interest
rate at December 31, ................. 1.67% 6.67
Maximum month end
balance during the year .............. $ 1,551,534 1,446,393
Average amount outstanding
during the year ...................... $ 1,153,878 1,248,983
Weighted average interest
rate during the year ................. 3.70% 6.28
F-13
NOTE 8 OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the years ended
December 31, 2001, 2000, and 1999, are as follows:
2001 2000 1999
------------------------------ ----------------------------- ---------------------------
(In thousands) BEFORE- TAX NET OF BEFORE- TAX NET OF BEFORE- TAX NET OF
TAX EXPENSE TAX TAX EXPENSE TAX TAX EXPENSE TAX
AMOUNT OR BENEFIT AMOUNT AMOUNT OR BENEFIT AMOUNT AMOUNT OR BENEFIT AMOUNT
-------- ---------- ------ ------- ---------- ------ ------- ---------- ------
Net unrealized gain
on cash flow hedges ............ $ 9,821 (3,740) 6,081 -- -- -- -- -- --
Net unrealized gains/losses on
investment securities available
for sale:
Unrealized gains (losses)
arising during the year ..... 31,331 (11,931) 19,400 59,237 (22,558) 36,679 (63,698) 24,524 (39,174)
Reclassification adjustment
for (gains) losses realized
in net income ............... (1,722) 663 (1,059) (781) 301 (480) (1,202) 463 (739)
-------- ------- ------ ------ ------- ------ ------- ------ -------
Net unrealized gains (losses) .... 29,609 (11,268) 18,341 58,456 (22,257) 36,199 (64,900) 24,987 (39,913)
Foreign currency translation
adjustments .................... (1,488) -- (1,488) (129) -- (129) (223) -- (223)
-------- ------- ------ ------ ------- ------ ------- ------ -------
Other comprehensive income (loss) $ 37,942 (15,008) 22,934 58,327 (22,257) 36,070 (65,123) 24,987 (40,136)
======== ======= ====== ====== ======= ====== ======= ====== =======
Components of the before tax net unrealized gain on cash flow hedges for the
year ended December 31, 2001 are as follows: On January 1, 2001, Synovus
recorded a cumulative effect gain of $1.3 million to recognize hedges at fair
value upon adoption of SFAS No. 133. Cash settlements were $2.2 million, all of
which were released into earnings. Also during 2001, Synovus recorded cash
settlements on terminated hedges of $3.3 million which were deferred and are
being amortized into earnings over the shorter of the remaining contract life or
the maturity of the designated asset as an adjustment to interest income. The
corresponding amortization on these settlements was approximately $.5 million.
Additionally, the change in unrealized gains on cash flow hedges was
approximately $5.7 million.
NOTE 9 EARNINGS PER SHARE
The following table displays a reconciliation of the information used
in calculating basic and diluted earnings per share (EPS) for the years ended
December 31, 2001, 2000, and 1999.
2001 2000 1999
----------------------------- ---------------------------- ----------------------------
(In thousands, WEIGHTED NET WEIGHTED NET WEIGHTED NET
except per share data) NET AVERAGE INCOME NET AVERAGE INCOME NET AVERAGE INCOME
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- -------- --------- -------- -------- --------- -------- -------- ---------
BASIC EPS ........................ $311,616 290,304 $ 1.07 $262,557 283,552 $ .93 $225,307 280,016 $ .80
Effect of dilutive options ....... 5,546 3,330 3,339
-------- ------- -------
DILUTED EPS ...................... $311,616 295,850 $ 1.05 $262,557 286,882 $ .92 $225,307 283,355 $ .80
======== ======== ======= ======== ======= ======= ======== ======= =======
The following represents options to purchase shares of Synovus common
stock that were outstanding during the periods noted below, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
WEIGHTED AVERAGE
QUARTER NUMBER EXERCISE PRICE
ENDED OF SHARES PER SHARE
------- ---------- ----------------
December 31, 2001 ...................... 4,675,645 $ 27.87
September 30, 2001 ..................... 2,500 $ 32.57
March 31, 2001 ......................... 3,444 $ 28.12
September 30, 2000 ..................... 5,891,850 $ 21.83
June 30, 2000 .......................... 7,478,050 $ 21.30
March 31, 2000 ......................... 10,530,800 $ 20.52
December 31, 1999 ...................... 6,260,596 $ 21.87
September 30, 1999 ..................... 6,383,651 $ 21.82
June 30, 1999 .......................... 3,666,048 $ 22.60
NOTE 10 DERIVATIVE INSTRUMENTS, COMMITMENTS AND CONTINGENCIES
DERIVATIVE INSTRUMENTS
As part of its overall interest rate risk management activities,
Synovus utilizes derivative instruments to manage its exposure to various types
of interest rate risks. These derivative instruments consist of commitments to
sell fixed-rate mortgage loans, interest rate swaps, and purchased interest rate
floors. The interest rate lock commitments made to prospective mortgage loan
customers also represent derivative instruments since it is intended that such
loans will be sold.
At December 31, 2001, Synovus had commitments to fund fixed-rate
mortgage loans to customers in the amount of $99.8 million. The fair value of
these commitments was insignificant.
At December 31, 2001, outstanding commitments to sell fixed- rate
mortgage loans amounted to approximately $343.0 million. Such commitments are
entered into to reduce the 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
F-14
commitments to originate residential mortgage loans for resale. The commitments
to sell mortgage loans are at fixed prices and are scheduled to settle at
specified dates that generally do not exceed 90 days. The fair value of
outstanding commitments to sell mortgage loans at December 31, 2001 was $2.2
million.
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 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 notional amount of interest rate swap and floor contracts was $265
million and $520 million as of December 31, 2001 and 2000, respectively, with a
carrying amount of $9.3 million and $6.0 thousand at December 31, 2001 and 2000,
respectively. The estimated net unrealized gain on these interest rate contracts
was $3.6 million at December 31, 2000.
These interest rate contracts are being utilized to hedge $165 million
in prime rate floating loans and $100 million in fixed-rate deposits in Georgia
and South Carolina.
A summary of interest rate contracts and their terms at December 31,
2001 and 2000 is shown below. In accordance with the provisions of SFAS No. 133,
the fair value (net unrealized gain) of these contracts has been recorded on the
consolidated balance sheet beginning January 1, 2001. Prior to the adoption of
SFAS No. 133 (2000 and prior years), the fair value of these instruments was
considered off-balance sheet and not recorded on the financial statements.
LOAN COMMITMENTS
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.
These financial instruments include commitments to extend credit and standby and
commercial letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the consolidated financial statements.
The 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.
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, 2001 include the
following:
(In thousands)
Standby letters of credit ................... $ 1,086,884
Undisbursed construction loans .............. 818,872
Unused credit card lines .................... 518,037
Other loan commitments ...................... 1,270,939
-----------
Total ................................... $ 3,694,732
===========
WEIGHTED WEIGHTED WEIGHTED WEIGHTED NET
AVERAGE AVERAGE AVERAGE AVERAGE UNREALIZED
(Dollars in thousands) NOTIONAL RECEIVE PAY RATE FLOOR MATURITY UNREALIZED UNREALIZED GAINS
AMOUNT RATE (*) RATE IN MONTHS GAINS LOSSES (LOSSES)
--------- -------- -------- -------- --------- ---------- ---------- ----------
DECEMBER 31, 2001
RECEIVE FIXED SWAPS:
FAIR VALUE HEDGES (LIBOR) ............... $ 100,000 6.55% 2.08% n/a 32 $ 2,600 (514) $ 2,086
CASH FLOW HEDGES (Prime) ................ 165,000 8.66% 4.75% n/a 17 7,173 -- 7,173
--------- -------- ---- --------
TOTAL ................................... $ 265,000 7.87% 3.74% 23 9,773 (514) 9,259
========= ======== ==== ========
DECEMBER 31, 2000
Receive fixed swaps - LIBOR ............. $ 180,000 6.92% 6.55% n/a 20 $ 2,521 (132) 2,389
Receive fixed swaps - Prime ............. 320,000 8.76% 9.50% n/a 26 1,645 (393) 1,252
--------- -------- ---- --------
Total receive fixed swaps ........... 500,000 8.10% 8.44% 24 4,166 (525) 3,641
--------- -------- ---- --------
Purchased interest rate floors .......... 20,000 n/a n/a 8.00% 2 -- (6) (6)
--------- -------- ---- --------
Total ................................... $ 520,000 23 $ 4,166 (531) 3,635
========= ======== ==== ========
(*) Variable pay rate based upon contract rates in effect at December 31, 2001
and 2000.
F-15
Due to the short-term nature of the outstanding loan commitments, and
the likelihood that when funded, these loans will be indexed to then current
market rates, the off-balance sheet value closely approximates fair value.
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, 2001, minimum
rental commitments under all such noncancelable leases for the next five years
are as follows:
(In thousands)
2002 ........... $ 106,699
2003 ........... 80,577
2004 ........... 49,989
2005 ........... 30,993
2006 ........... 20,779
Thereafter ..... 21,200
In 1997, TSYS entered into an operating lease agreement for its
corporate campus. Under the agreement, which is guaranteed by Synovus, the
lessor paid for the construction and development costs and has leased the
facilities to TSYS for a term of three years which began in November 1999. 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 approximately $81.4
million. The terms of this lease financing arrangement require, among other
things, that TSYS maintain certain minimum financial ratios and provide certain
information to the lessor.
Rental expense on equipment and furniture, including cancelable leases,
was $79.7 million, $82.3 million, and $55.3 million for the years ended December
31, 2001, 2000, and 1999, respectively. Rental expense on facilities was $16.1
million, $16.3 million, and $11.0 million for the years ended December 31, 2001,
2000, and 1999, respectively.
CONTRACTUAL COMMITMENTS
In the normal course of its business, TSYS maintains processing
contracts with its clients. These processing contracts contain commitments,
including but not limited to, minimum standards and time frames against which
its performance is measured. In the event that TSYS does not meet its
contractual commitments with its clients, TSYS may incur penalties and/or
certain clients 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 and its subsidiaries are subject to various legal proceedings
and claims that arise in the ordinary course of its business. Any litigation is
vigorously defended by Synovus and, in the opinion of management, based on
consultation with external legal counsel, any outcome of such litigation would
not materially affect its consolidated financial position or results of
operations.
Currently, multiple lawsuits seeking class action treatment are pending
against one of the 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 subsidiary; (2) the
forced placement of insurance to protect that subsidiary's interest in
collateral for which consumer credit customers have failed to obtain or maintain
insurance; and (3) the receipt of commissions by that subsidiary in connection
with the sale of credit life insurance to its consumer credit customers and the
charging of an interest surcharge and a processing fee in connection with
consumer loans made by that subsidiary. 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.
NOTE 11 REGULATORY REQUIREMENTS AND RESTRICTIONS
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 2002, in the
aggregate, without prior approval from the banking regulatory agencies, is
approximately $162.6 million. In prior years, certain 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 the 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
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. 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 I capital to risk-weighted assets as defined, and of Tier I capital to
average assets, as defined. Management believes that as of December 31, 2001,
Synovus meets all capital adequacy requirements to which it is subject.
As of December 31, 2001, the most recent notification from the Federal
Reserve Bank of Atlanta categorized all of the banking 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 on the following page. Management is not aware of the
existence of any conditions or events occurring subsequent to December 31, 2001
which would affect the well-capitalized classification.
Actual capital amounts and ratios for Synovus are presented in the
table on the following page on a consolidated basis and for each significant
subsidiary, as defined.
F-16
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
(Dollars in thousands) ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------------ -------------------- -----------------------
2001 2000 2001 2000 2001 2000
---------- --------- --------- --------- ---------- -------
SYNOVUS FINANCIAL CORP.
Tier I capital $1,730,753 1,455,576 588,459 504,814 n/a n/a
Total risk-based capital 1,904,660 1,605,365 1,176,919 1,009,629 n/a n/a
Tier I capital ratio 11.76% 11.54 4.00 4.00 n/a n/a
Total risk-based capital ratio 12.95 12.73 8.00 8.00 n/a n/a
Leverage ratio 10.86 10.24 4.00 4.00 n/a n/a
COLUMBUS BANK AND TRUST COMPANY
Tier I capital $ 712,788 602,918 140,210 125,556 210,315 188,334
Total risk-based capital 745,189 628,484 280,421 251,112 350,526 313,890
Tier I capital ratio 20.33% 19.21 4.00 4.00 6.00 6.00
Total risk-based capital ratio 21.26 20.02 8.00 8.00 10.00 10.00
Leverage ratio 23.35 20.77 4.00 4.00 5.00 5.00
THE NATIONAL BANK OF SOUTH CAROLINA
Tier I capital $ 199,247 151,308 77,252 66,279 115,878 99,418
Total risk-based capital 223,394 172,036 154,504 132,558 193,130 165,697
Tier I capital ratio 10.32% 9.13 4.00 4.00 6.00 6.00
Total risk-based capital ratio 11.57 10.38 8.00 8.00 10.00 10.00
Leverage ratio 9.03 7.99 4.00 4.00 5.00 5.00
NOTE 12 EMPLOYMENT EXPENSES AND BENEFIT PLANS
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, 2001, 2000, and 1999 were $47.0 million, $40.1 million, and $46.5 million,
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 $8.2
million, $7.3 million, and $6.4 million, to these plans in 2001, 2000, and 1999,
respectively.
Synovus has 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 is
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 the consolidated financial statements.
NOTE 13 STOCK-BASED COMPENSATION
Synovus has various stock option plans under which the Compensation
Committee of the Board of Directors has the authority to grant options to
Synovus employees. At December 31, 2001, Synovus had 493,587 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.
During 1999, Synovus granted options to purchase 150 shares of stock to
each employee for a total of 1,546,650 stock options. The exercise price per
share is equal to the fair market value at the grant date of $19.19. The options
are exercisable after the price of the stock has doubled or after three years,
whichever comes first.
Synovus has granted performance-accelerated stock options to certain
key executives. The exercise price per share is equal to the fair market value
at the date of grant. The options are exercisable in equal installments when the
per share market price of Synovus common stock exceeds $40, $45, and $50.
However, all options may be exercised after seven years from the grant date.
Summary information regarding these performance-accelerated stock
options for the years ended December 31, 2001, 2000, and 1999 is presented
below:
YEAR OPTIONS NUMBER OF EXERCISE PRICE
GRANTED STOCK OPTIONS PER SHARE
------------ ------------- ---------------
1999 500,000 $19.06
2000 4,100,000 $17.69 - $18.06
2001 2,600,000 $28.99
Synovus applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly, compensation expense for the option grants has not been
recognized in the accompanying financial statements.
F-17
A summary of the status of Synovus' stock option plans as of December
31, 2001, 2000, and 1999 and changes during the years then ended is presented
below:
2001 2000 1999
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- ---------
Options outstanding at beginning of period .. 23,219,413 $ 16.87 19,440,950 $ 16.28 16,364,209 $ 12.84
Options granted ............................. 5,171,295 26.59 5,635,430 17.36 4,589,819 21.13
Options exercised ........................... (2,406,374) 9.99 (1,104,392) 6.77 (1,347,711) 5.02
Options cancelled ........................... (405,516) 19.72 (752,575) 20.28 (165,367) 17.27
---------- --------- ---------- --------- ---------- ---------
Options outstanding at end of period .... 25,578,818 $ 19.44 23,219,413 $ 16.87 19,440,950 $ 16.28
========== ========= ========== ========= ========== =========
Options exercisable at end of period .... 11,707,401 $ 14.57 10,649,279 $ 11.30 8,456,609 $ 8.72
========== ========= ========== ========= ========== =========
The following is a summary of stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -----------------------------
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OPTIONS REMAINING YEARS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------------------ ---------- ---------------- ---------------- --------- ----------------
$ 1.31 - $ 1.75 .... 51,311 6.1 years $ 1.67 51,311 $ 1.67
$ 2.63 - $ 3.14 .... 208,107 1.2 years $ 2.64 208,107 $ 2.64
$ 4.51 - $ 6.74 .... 2,179,582 1.2 years $ 5.98 2,179,582 $ 5.98
$ 8.74 - $13.28 .... 2,245,423 3.7 years $ 9.45 2,179,355 $ 9.43
$14.17 - $21.31 .... 13,202,192 6.3 years $ 17.94 5,371,422 $ 18.13
$22.00 - $32.57 .... 7,692,203 7.8 years $ 25.84 1,717,624 $ 22.54
The per share weighted average fair value of stock options granted
during 2001, 2000, and 1999 was $8.56, $6.42, and $5.41, respectively. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 2001, 2000, and 1999, respectively: risk-free interest rates of
4.6%, 6.4%, and 5.3%; expected volatility of 31%, 36%, and 36%; expected life of
5.7 years, 6.3 years, and 4.3 years; and dividend yield of 1.8%, 2.3%, and 1.7%.
Had Synovus determined compensation expense based on the fair value at
the grant date for its stock options granted during the years 1995 through 2001
under SFAS No. 123, net income would have been reduced to the pro forma amounts
indicated below:
(In thousands, except YEARS ENDED DECEMBER 31,
per share data) -------------------------------------------
2001 2000 1999
--------- ------- -------
Net income
As reported ......................... $ 311,616 262,557 225,307
Pro forma ........................... 295,032 251,012 213,662
Earnings per share-diluted:
As reported ......................... 1.05 0.92 0.80
Pro forma ........................... 1.00 0.87 0.75
In addition to the stock options described above, non- transferable,
restricted shares of Synovus common stock have been awarded 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 sheet 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 $.3 million, $1.0 million, and $1.3
million for the years ended December 31, 2001, 2000, and 1999, respectively.
Summary information regarding outstanding restricted stock bonus plans at
December 31, 2001 is presented in the table below.
YEAR AWARDS MARKET VALUE VESTING
GRANTED AT AWARD DATE PERIOD
----------- ------------- --------
1997 ..... $ 246,000 5 years
2000 ..... 97,646 5 years
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS
The table on the following page presents the carrying and estimated
fair values of on-balance sheet financial instruments at December 31, 2001 and
2000. 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.
The carrying and estimated fair values relating to derivative
instruments and 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 with fixed rates of
interest is based on quoted prices from secondary market investors and forward
commitments to sell.
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
F-18
2001 2000
------------------------------ ----------------------------
(In thousands) CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ---------- ---------- ----------
Financial assets:
Cash and due from banks ........................... $ 648,179 648,179 558,054 558,054
Interest earning deposits with banks .............. 3,884 3,884 3,806 3,806
Federal funds sold and securities purchased
under resale agreements .......................... 23,673 23,673 375,765 375,765
Mortgage loans held for sale ...................... 397,940 397,940 108,234 108,234
Investment securities available for sale .......... 2,088,287 2,088,287 1,807,039 1,807,039
Investment securities held to maturity ............ -- -- 270,889 275,233
Loans, net ........................................ 12,247,148 12,404,806 10,604,020 10,592,117
Financial liabilities:
Non-interest bearing deposits ..................... 1,984,523 1,984,523 1,726,817 1,726,817
Interest bearing deposits ......................... 10,161,675 10,224,724 9,434,893 9,432,433
Federal funds purchased and securities sold
under repurchase agreements ...................... 1,345,822 1,345,822 1,039,900 1,039,900
Long-term debt .................................... 1,052,943 1,084,543 840,859 826,331
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 with
fixed rates of interest, 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 accounts, interest bearing demand deposits, money
market accounts, and savings accounts, is equal to the amount payable on demand
as of that respective date. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.
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 15 INCOME TAXES
For the years ended December 31, 2001, 2000, and 1999, income tax
expense (benefit) consists of:
(In thousands) 2001 2000 1999
--------- ------- -------
Current:
Federal ......................... $ 159,427 144,514 117,038
State ........................... 7,608 9,123 6,826
--------- ------- -------
167,035 153,637 123,864
--------- ------- -------
Deferred:
Federal ......................... 9,551 (3,755) 122
State ........................... 1,791 (704) 22
--------- ------- -------
11,342 (4,459) 144
--------- ------- -------
Total income tax expense ...... $ 178,377 149,178 124,008
========= ======= =======
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:
(Dollars in thousands) 2001 2000 1999
--------- ------- -------
Taxes at statutory
federal income tax rate ......... $ 171,498 144,107 122,260
Tax-exempt income ................. (3,986) (3,638) (3,200)
State income taxes, net of
federal income tax benefit ...... 6,110 5,472 4,450
Minority interest ................. 6,951 5,773 4,616
Other, net ........................ (2,196) (2,536) (4,118)
--------- ------- -------
Total income tax expense ........ $ 178,377 149,178 124,008
========= ======= =======
Effective income tax rate ....... 36.40% 36.23 35.50
========= ======= =======
At December 31, 2001 and 2000, Synovus had state income tax credit
carryforwards of $3.2 million and $3.8 million, respectively. The credits will
begin to expire in the year 2008. 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 income tax assets become
deductible, management believes that it is more likely than not that Synovus
will realize the benefits of these deductible differences, net of existing
valuation allowances, at December 31, 2001. The valuation allowance for deferred
tax assets was $1.4 million at December 31, 2001 and 2000.
For the year ended December 31, 2001, deferred tax assets increased by
$4.3 million as a result of the acquisitions of Carolina Southern Bank, Creative
Financial, Robert Andrew Securities, and FABP. As noted in Note 2, Synovus has
accounted for these acquisitions as non-restated poolings; accordingly, the
prior year deferred tax balances have not been restated.
The tax effects of temporary differences that gave rise to significant
portions of the deferred income tax assets and liabilities at December 31, 2001
and 2000, are presented in the following table.
F-19
(In thousands) 2001 2000
---------- -------
Deferred income tax assets:
Provision for losses on loans ............................................. $ 68,890 60,998
State tax credits ......................................................... 3,170 3,828
Other assets .............................................................. 11,138 13,491
---------- -------
Total gross deferred income tax assets ................................. 83,198 78,317
Less valuation allowance .................................................. (1,400) (1,400)
---------- -------
Total net deferred income tax assets ................................... 81,798 76,917
---------- -------
Deferred income tax liabilities:
Computer software development costs ....................................... (24,726) (17,662)
Differences in depreciation ............................................... (32,051) (28,542)
Net unrealized gain on investment securities available for sale ........... (16,095) (4,242)
Net unrealized gain on cash flow hedges ................................... (3,740) --
Ownership interest in partnership ......................................... (4,877) (3,616)
Other liabilities ......................................................... (7,461) (7,327)
---------- -------
Total gross deferred income tax liabilities ............................ (88,950) (61,389)
---------- -------
Net deferred income tax (liability) asset ................................. $ (7,152) 15,528
========== =======
NOTE 16 OPERATING SEGMENTS
Synovus has two reportable segments: Financial Services and Transaction
Processing Services. The Financial Services segment is predominantly involved in
commercial banking activities and also provides retail banking, trust, mortgage,
insurance, and brokerage services. The Transaction Processing Services segment
consists primarily of operations at TSYS, which primarily provides card
processing services to its clients, including debit, commercial, retail, stored
value and consumer cards. The Transaction Processing Services segment also
includes related services to banks and other card issuing institutions as well
as TDM's debt, collection and bankruptcy management operations, and the software
solutions for commercial card management programs offered by ProCard. The
accounting policies of these 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, 2001, 2000, and
1999 is presented below:
FINANCIAL TRANSACTION PROCESSING
(In thousands) YEAR SERVICES SERVICES (A) ELIMINATIONS CONSOLIDATED
---- ----------- ---------------------- ------------ ------------
Total revenue (b) ................. 2001 $ 874,307 705,233 (12,052) (c) 1,567,488
2000 761,736 647,122 (13,013) (c) 1,395,845
1999 693,726 568,613 (9,280) (c) 1,253,059
Net interest income ............... 2001 627,315 2,476 -- 629,791
2000 557,531 4,801 -- 562,332
1999 511,464 1,830 -- 513,294
Income before taxes ............... 2001 348,890 160,962 (19,859) (d) 489,993
2000 292,402 135,828 (16,495) (d) 411,735
1999 253,571 108,932 (13,188) (d) 349,315
Income tax expense ................ 2001 123,498 54,879 -- 178,377
2000 101,964 47,214 -- 149,178
1999 88,251 35,757 -- 124,008
Net income ........................ 2001 225,392 106,083 (19,859) (d) 311,616
2000 190,438 88,614 (16,495) (d) 262,557
1999 165,320 73,175 (13,188) (d) 225,307
Total assets ...................... 2001 16,047,941 664,982 (54,976) (e) 16,657,947
2000 14,379,117 607,635 (78,660) (e) 14,908,092
1999 12,142,344 464,969 (60,312) (e) 12,547,001
(a) Includes equity in income of joint ventures which is included in other
operating income.
(b) Consists of net interest income and non-interest income.
(c) Principally, data processing service revenues provided to the Financial
Services segment.
(d) Minority interest in TSYS and GP Network Corporation.
(e) Primarily TSYS' cash deposits with the Financial Services segment.
F-20
NOTE 17 CONDENSED FINANCIAL INFORMATION OF SYNOVUS FINANCIAL CORP.
(PARENT COMPANY ONLY)
DECEMBER 31,
CONDENSED BALANCE SHEETS ----------------------------------
(In thousands) 2001(*) 2000
---------- ---------
ASSETS
Cash........................................................................... $ 556 50
Investment in consolidated bank subsidiaries, at equity (including TSYS)....... 1,761,158 1,476,618
Investment in consolidated nonbank subsidiaries, at equity..................... 23,246 45,995
Notes receivable from subsidiaries............................................. 139,338 156,187
Other assets................................................................... 98,935 52,105
---------- ---------
Total assets........................................................... $2,023,233 1,730,955
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt............................................................. $ 275,000 276,240
Other liabilities.......................................................... 53,287 37,544
---------- ---------
Total liabilities...................................................... 328,287 313,784
---------- ---------
Shareholders' equity:
Common stock............................................................... 294,849 284,818
Surplus.................................................................... 171,257 107,652
Treasury stock............................................................. (1,285) (1,285)
Unamortized restricted stock............................................... (82) (381)
Accumulated other comprehensive income..................................... 29,338 5,936
Retained earnings.......................................................... 1,200,869 1,020,431
---------- ---------
Total shareholders' equity............................................. 1,694,946 1,417,171
---------- ---------
Total liabilities and shareholders' equity............................. $2,023,233 1,730,955
========== =========
(*) Effective January 1, 2001, Synovus Service Corp. (team services
support) and Synovus Technologies, Inc. (information technology) were
merged into Synovus Financial Corp. Parent Company.
YEARS ENDED DECEMBER 31,
CONDENSED STATEMENTS OF INCOME -----------------------------------------------
(In thousands) 2001(*) 2000 1999
-------- ------- -------
Income:
Dividends received from bank subsidiaries (including TSYS)........ $169,157 141,849 153,689
Management fees................................................... 1,053 1,678 2,125
Interest income................................................... 10,288 1,281 3,301
Other income...................................................... 70,328 3,630 10,066
-------- ------- -------
Total income.................................................. 250,826 148,438 169,181
-------- ------- -------
Expenses:
Interest expense.................................................. 19,293 8,802 4,878
Other expenses.................................................... 113,477 25,350 25,217
-------- ------- -------
Total expenses................................................ 132,770 34,152 30,095
-------- ------- -------
Income before income taxes and equity in
undistributed income of subsidiaries...................... 118,056 114,286 139,086
Allocated income tax benefit.......................................... (19,633) (11,036) (6,404)
-------- ------- -------
Income before equity in undistributed income of subsidiaries...... 137,689 125,322 145,490
Equity in undistributed income of subsidiaries........................ 173,927 137,235 79,817
-------- ------- -------
Net income........................................................ $311,616 262,557 225,307
======== ======= =======
(*) Effective January 1, 2001, Synovus Service Corp. (team services
support) and Synovus Technologies, Inc. (information technology) were
merged into Synovus Financial Corp. Parent Company.
F-21
YEARS ENDED DECEMBER 31,
CONDENSED STATEMENTS OF CASH FLOWS -----------------------------------------------
(In thousands) 2001(*) 2000 1999
--------- ------- -------
OPERATING ACTIVITIES
Net income............................................. $ 311,616 262,557 225,307
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries..... (173,927) (137,235) (79,817)
Net income of equity method investments............ (13,444) (14,084) (60)
Depreciation, amortization, and accretion, net..... 15,082 736 1,705
Net increase (decrease) in other liabilities....... 9,552 3,557 2,270
Net (increase) decrease in other assets............ (25,978) 5,541 (4,233)
Other, net......................................... 12,937 (2,765) (114)
--------- ------- -------
Net cash provided by operating activities...... 135,838 118,307 145,058
--------- ------- -------
INVESTING ACTIVITIES
Net investment in subsidiaries......................... (39,882) (70,858) (55,836)
Net decrease (increase) in short-term notes
receivable from subsidiaries......................... 21,381 (143,204) (2,280)
--------- ------- -------
Net cash used in investing activities.......... (18,501) (214,062) (58,116)
--------- ------- -------
FINANCING ACTIVITIES
Dividends paid to shareholders......................... (142,083) (119,012) (93,923)
Principal repayments on long-term debt................. (1,240) (240) (240)
Proceeds from issuance of long-term debt............... -- 200,000 --
Proceeds from issuance of common stock................. 26,546 10,007 6,702
--------- ------- -------
Net cash (used in) provided by
financing activities......................... (116,777) 90,755 (87,461)
--------- ------- -------
Increase (decrease) in cash................................ 506 (5,000) (519)
Cash at beginning of period................................ 50 5,050 5,569
--------- ------- -------
Cash at end of period...................................... $ 556 50 5,050
========= ======= =====
(*) Effective January 1, 2001, Synovus Service Corp. (team services
support) and Synovus Technologies, Inc. (information technology) were
merged into Synovus Financial Corp. Parent Company.
For the years ended December 31, 2001, 2000, and 1999, the Parent
Company paid income taxes of $166 million, $136 million, and $103 million,
respectively, and interest in the amount of $19 million, $9 million, and $5
million, respectively, each year.
NOTE 18 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:
YEARS ENDED DECEMBER 31,
(In thousands) -------------------------------------------
2001 2000 1999
------- ------ ------
Income:
Third-party services on credit cards and other consumer loans...... $41,732 36,280 37,698
Expenses:
Stationery, printing, and supplies................................. 35,388 33,062 33,700
Third-party processing services.................................... 26,691 21,557 20,018
F-22
SYNOVUS FINANCIAL CORP.
REPORT OF FINANCIAL RESPONSIBILITY
The management of Synovus Financial Corp. (Synovus) is responsible for
the integrity and objectivity of the consolidated financial statements and other
financial information presented in this report. These statements have been
prepared in accordance with generally accepted accounting principles and
necessarily include amounts based on judgments and estimates by management.
Synovus maintains internal accounting control policies and related
procedures designed to provide reasonable assurance that assets are safeguarded,
that transactions are executed in accordance with management's authorization and
properly recorded, and that accounting records may be relied upon for the
preparation of reliable published annual and interim financial statements and
other financial information. The design, monitoring and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls and policies and procedures.
KPMG, LLP independent auditors are engaged to audit the Company's
consolidated financial statements.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with Synovus management, internal auditors
and independent auditors to review matters relating to the quality of financial
reporting and internal accounting controls. Both the internal auditors and the
independent auditors have unrestricted access to the Committee.
/s/ James H. Blanchard
--------------------------------------------------
James H. Blanchard
Chairman of the Board and Chief Executive Officer
/s/ Thomas J. Prescott
--------------------------------------------------
Thomas J. Prescott
Executive Vice President and Chief Financial Officer
January 16, 2002
F-23
[KPMG LOGO] 303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Synovus Financial Corp.:
We have audited the accompanying consolidated balance sheets of Synovus
Financial Corp. and subsidiaries (Synovus) as of December 31, 2001 and 2000, 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,
2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements,
Synovus changed its method of accounting for derivative instruments and hedging
activities in 2001.
/s/ KPMG LLP
---------------------------
January 16, 2002
F-24
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share data) --------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- --------- --------- --------- -------
INCOME STATEMENT:
Total revenues(a) $ 1,565,766 1,395,064 1,251,857 1,035,979 927,398
Net interest income 629,791 562,332 513,294 455,065 425,920
Provision for losses on loans 51,673 44,341 34,007 26,882 32,485
Non-interest income 937,697 833,513 739,765 582,213 501,412
Non-interest expense 1,005,963 923,274 856,549 695,812 618,691
Net income 311,616 262,557 225,307 196,465 170,829
PER SHARE DATA:
Net income - basic 1.07 0.93 0.80 0.72 0.63
Net income - diluted 1.05 0.92 0.80 0.71 0.63
Cash dividends declared 0.51 0.44 0.36 0.29 0.24
Book value 5.75 4.98 4.35 3.99 3.50
BALANCE SHEET:
Investment securities 2,088,287 2,077,928 1,993,957 1,877,473 1,702,681
Loans, net of unearned income 12,417,917 10,751,887 9,068,239 7,603,605 6,752,154
Deposits 12,146,198 11,161,710 9,440,087 8,797,412 7,928,211
Long-term debt 1,052,943 840,859 318,620 131,802 131,492
Shareholders' equity 1,694,946 1,417,171 1,226,669 1,111,917 937,222
Average total shareholders' equity 1,548,030 1,303,634 1,165,426 1,013,334 865,232
Average total assets 15,375,004 13,466,385 11,438,696 9,827,925 9,067,237
PERFORMANCE RATIOS AND OTHER DATA:
Return on average assets 2.03% 1.95 1.97 2.00 1.88
Return on average equity 20.13 20.14 19.33 19.39 19.74
Net interest margin 4.65 4.70 5.07 5.23 5.28
Efficiency ratio(b) 53.80 55.35 58.15 58.01 56.45
Dividend payout ratio(c) 47.67 47.56 43.70 39.55 36.85
Average shareholders' equity to average assets 10.07 9.68 10.19 10.31 9.54
Average shares outstanding, basic 290,304 283,552 280,016 272,416 269,285
Average shares outstanding, diluted 295,850 286,882 283,355 277,223 273,152
(a) Consists of net interest income and non-interest income, excluding
securities gains (losses).
(b) For the Financial Services segment.
(c) Determined by dividing dividends declared (excluding pooled
subsidiaries) by consolidated net income.
F-25
FINANCIAL REVIEW
INTRODUCTION
To better understand financial trends and performance, Synovus analyzes
certain financial data in two separate components: Financial Services and
Transaction Processing Services.
Financial Services represents 55.8% of consolidated revenues and 72.3%
of net income for 2001; 54.5% of consolidated revenues and 72.5% of net income
for 2000; and 55.3% of consolidated revenues and 73.4% of net income for 1999.
Transaction Processing Services are provided by majority-owned Total
System Services, Inc. (TSYS), wholly-owned TSYS Total Debt Management, Inc.
(TDM) and wholly-owned ProCard, Inc. (ProCard). TSYS provides bankcard data
processing and related services to banks and other institutions, generally under
long-term processing contracts. TDM is a debt collection and bankruptcy
management business. ProCard is a provider of software and Internet tools to
assist organizations with the management of purchasing, travel and fleet card
programs. TSYS represented 92.2% and 97.1% of 2001's total transaction
processing revenues and net income, respectively.
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 as well as the selected financial data.
CRITICAL ACCOUNTING POLICIES
The accounting and financial reporting policies of Synovus conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking and bankcard data processing industries.
Following is a description of the accounting policies applied by Synovus which
are deemed "critical". Critical accounting policies are defined as policies
which are very important to the portrayal of Synovus' financial condition and
results of operations, and that require management's most difficult, subjective,
or complex judgments. Synovus' financial results could differ significantly if
different judgments or estimates are applied in the application of these
policies.
Allowance for Loan Losses:
The allowance for loan losses is established through provisions for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collection of principal is
unlikely. Subsequent recoveries are added to the allowance. Management's
evaluation of the adequacy of the allowance for loan losses is based on a formal
analysis which assesses the risk within the loan portfolio. This analysis
includes consideration of historical performance, current economic conditions,
level of nonperforming loans, loan concentrations, and review of certain
individual loans.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance for loan losses may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the subsidiary banks'
allowances for loan losses. Such agencies may require the subsidiary banks to
recognize additions to the allowance for loan losses based on their judgments
about information available to them at the time of their examination.
Management, considering current information and events regarding a
borrowers' ability to repay its obligations, considers a loan to be impaired
when the ultimate collectibility of all amounts due, according to the
contractual terms of the loan agreement, is in doubt. When a loan is considered
to be impaired, the amount of impairment is measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate.
If the loan is collateral-dependent, the fair value of the collateral is used to
determine the amount of impairment. Impairment losses are included in the
allowance for loan losses through a charge to the provision for losses on loans.
Subsequent recoveries are added to the allowance for loan losses. Cash receipts
for accruing loans are applied to principal and interest under the contractual
terms of the loan agreement. Cash receipts on impaired loans for which the
accrual of interest has been discontinued are applied first to principal and
then to interest income.
The accounting for impaired loans described above applies to all loans,
except for large pools of smaller-balance, homogeneous loans that are
collectively evaluated for impairment, loans that are measured at fair value or
at the lower of cost or fair value, and debt securities. The allowance for loan
losses for large pools of smaller-balance, homogeneous loans is established
through consideration of such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, adequacy of the underlying collateral,
loan concentrations, historical charge-off trends, and economic conditions that
may affect the borrowers' ability to pay.
Certain economic and interest rate factors could have a material impact
on the determination of the allowance for loan losses. The depth, duration, and
dispersion of any economic recession all have an impact on the credit risk
profile of the loan portfolio. Additionally, a rapidly rising interest rate
environment which may cause rates to reach double digits could as well have a
material impact on certain borrowers' ability to pay.
Our current assumptions are that an economic recovery will occur during
the second half of 2002 and that the depth of the recession will have already
peaked prior to the last half of 2002. Additionally, we are assuming that the
dispersion of the recession will have primarily had its greatest impact on the
industrial production, travel, and entertainment industries. With respect to the
interest rate environment, Synovus currently anticipates that interest rates
will be increasing slightly by the end of 2002.
In the event of a dramatic downturn in this recession, in which there
is a wide dispersion in all sectors of our economy, and/or a significant rapid
rise in interest rates to double-digit levels creating higher borrowing costs
and tightening corporate profits, Synovus' credit costs could increase
significantly.
Another factor that we have considered in the determination of the
allowance for loan losses is loan concentrations to individual borrowers or
industries. At December 31, 2001, Synovus had 23 individual credit relationships
that exceeded $25.0 million with none exceeding $150 million.
A significant portion of the loan portfolio is in the commercial real
estate sector. However, as further discussed in the section entitled "Loans" in
this Financial Review, these loans are diversified by geography, industry, and
loan type.
Synovus is closely monitoring certain portions of its loan portfolio
that we believe have a higher credit risk profile under the current environment
based solely upon their industry classification. These credits (grouped by
industry) and the approximate aggregate amounts outstanding at December 31, 2001
are as follows: hotels and motels $485.0 million, restaurants $209.0 million,
automobile dealers $160.0 million, golf courses $72.0 million, travel
industry/air transportation $28.0 million, and insurance carriers $20 million.
Based on current information, we have not identified any problem credits
included in these categories which are not already classified as nonperforming
or impaired loans. However, if the economic recovery takes longer than expected,
the allowance for loan losses could be impacted by adverse developments in these
credits.
F-26
Refer to the section entitled "Provision and Allowance for Loan Losses"
beginning on page F-36 for an additional discussion of the key assumptions and
methods used in determining the allowance for loan losses, as well as the
inherent risks in estimating the allowance.
Contract Acquisition Costs:
TSYS capitalizes contract acquisition costs related to signing or
renewing long-term contracts. These costs, primarily consisting of cash payments
for rights to provide processing services and internal conversion and software
development costs, are amortized using the straight-line method over the
contract term beginning when the client's cardholder accounts are converted to
the system. All costs incurred prior to contract execution are expensed as
incurred.
The amortization of these costs in other operating expenses is
recognized in other expenses. TSYS evaluates the carrying value of contract
acquisition costs for impairment on the basis of whether these costs are fully
recoverable from expected undiscounted net operating cash flows of the related
contract. The determination of expected undiscounted net operating cash flows
requires management to make estimates.
These costs may become impaired with the loss of a contract, the
financial decline of a client, termination of conversion efforts after a
contract is signed, diminished prospects for current clients, or if TSYS'
estimates of future cash flows differ from actual results. Capitalized contract
acquisition costs are classified as a component of other assets.
Software Development Costs:
TSYS develops software that is used in providing transaction processing
services to clients. Software development costs are capitalized once
technological feasibility of the software has been established. Costs incurred
prior to establishing technological feasibility are expensed as incurred.
Technological feasibility is established when TSYS has completed all planning,
designing, coding, and testing activities that are necessary to determine that a
product can be produced to meet its design specifications, including functions,
features, and technical performance requirements. Capitalization of costs ceases
when the product is available to clients for general use. TSYS evaluates the
unamortized capitalized costs of software development as compared to the net
realizable value of the development which is determined by projected future cash
flows. The amount by which the unamortized software development costs exceed the
net realizable value are written off. Software development costs are amortized
using the greater of (1) the straight-line method over the estimated useful life
(which ranges from 3 - 10 years), or (2) the ratio of current revenues to
current anticipated revenues.
Software development costs may become impaired in situations where
development efforts are abandoned due to the viability of the planned project
becoming doubtful or due to technological obsolescence of the planned project.
ACQUISITIONS
Table 1 summarizes the acquisitions completed during the past three
years.
TABLE 1 ACQUISITIONS
(Dollars in thousands)
TOTAL SHARES ACCOUNTING
COMPANY AND LOCATION DATE ASSETS ISSUED TREATMENT
-------------------------------------- ---------------- -------- --------- ----------------------
FABP Bancshares, Inc ................. December 1, 2001 $304,000 3,539,751 Pooling (Non-restated)
Pensacola, Florida
Creative Financial Group, Ltd ........ February 28, 2001 $ 150 937,701 Pooling (Non-restated)
Atlanta, Georgia
Carolina Southern Bank ............... February 16, 2001 $200,000 3,188,558 Pooling (Non-restated)
Spartanburg, South Carolina
ProCard, Inc. ........................ May 31, 2000 $ 5,300 1,415,053 Pooling (Non-restated)
Golden, Colorado
Ready Bank of Fort Walton Beach
Holding Company, Inc. .............. October 31, 1999 $ 65,000 902,785 Pooling (Non-restated)
Ft. Walton Beach, Florida
Horizon Bancshares, Inc .............. October 31, 1999 $ 60,000 1,043,631 Pooling (Non-restated)
Pensacola, Florida
Wallace & de Mayo .................... September 30, 1999 $ 7,000 2,339,624 Pooling
Norcross, Georgia
Merit Holding Corporation ............ September 30, 1999 $306,000 5,995,085 Pooling
Tucker, Georgia
Canterbury Trust Company, Inc ........ January 31, 1999 $ 7,400 333,163 Purchase
Birmingham, Alabama
This information is discussed in further detail in Note 2 of the consolidated
financial statements.
F-27
SUMMARY
The Synovus family of companies had another successful year in 2001.
Net income for 2001 was $311.6 million, an increase of 18.7% over 2000 net
income of $262.6 million. Diluted net income per share increased to $1.05 in
2001, up 15.1% over $0.92 per share in 2000. Return on assets was 2.03% in 2001,
compared to 1.95% in 2000. Return on equity was 20.13% in 2001, compared to
20.14% in 2000.
Major contributors to the growth in net income include strong growth in
loans and fee income. An improving net interest margin and expense management
also positively impacted the growth in net income.
Financial Services' net income for 2001 was $225.4 million, up 18.4%
from $190.4 million in 2000. Return on assets for the year was 1.52%, and return
on equity was 19.21%, compared to 1.46% and 19.18%, respectively, for 2000.
Transaction Processing Services' net income for 2001 was $106.1
million, up 19.7% from $88.6 million in 2000. Successful conversion of TSYS'
first European clients, expense control, and a holiday shopping season that met
the company's expectations were the key drivers for 2001.
Total assets ended the year at $16.7 billion, a growth rate of 11.7%
for 2001, resulting primarily from net loan growth of $1.7 billion, or 15.5%.
This asset growth was funded in large part by a $984.5 million, or 8.8%,
increase in total deposits. Additional funding was provided by long-term debt.
Shareholders' equity grew 19.6% to $1.7 billion, which represented 10.17% of
total assets.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST INCOME
Average total assets for 2001 were $15.4 billion, or 14.2% over 2000
average total assets of $13.5 billion. Average earning assets for 2001 were
$13.7 billion, which represented 89.1% of average total assets. A $1.2 billion,
or 14.1%, increase in average deposits for 2001 provided the primary funding for
a $1.6 billion, or 15.8%, increase in average net loans. The other primary
funding source was a $332 million increase in average long-term debt, consisting
of Federal Home Loan Bank advances and parent company senior debt. Average
shareholders' equity for 2001 was $1.5 billion.
For 2000, average total assets increased $2.0 billion, or 17.7%.
Average earning assets for 2000 were $12.1 billion, which represented 89.6% of
average total assets. For more detailed information on the average balance
sheets for the years ended December 31, 2001, 2000, and 1999, refer to Table 3.
Net interest income (interest income less interest expense) is a major
component of net income, representing the earnings of the primary business of
gathering funds from deposit and other sources and investing those funds in
loans and investment securities. Our long-term objective is to manage those
assets and liabilities to maximize net interest income while balancing interest
rate, credit, liquidity, and capital risks.
Net interest income is presented in this discussion on a
taxable-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 2001 was a record $629.8 million, up $67.5
million, or 12.0%, from 2000. On a taxable-equivalent basis, net interest income
was $637 million, up $68.7 million, or 12.1%, over 2000. During 2001, average
interest earning assets increased $1.6 billion, or 13.3%, with the majority of
this increase attributable to loan growth. Increases in the level of deposits
and notes payable were the main contributors to the $1.4 billion, or 13.9%,
growth in average interest bearing liabilities.
During 2001, Synovus experienced a steady increase in its net interest
margin, compared to the margin for the quarter ended December 31, 2000. The
margin for the quarter ended December 31, 2001 was 4.80% up from 4.55% for the
quarter ended December 31, 2000. The increase was driven primarily by a
significant reduction in the cost of funds. This decrease was due to a continued
significant downward repricing of fixed rate deposits and a continued
improvement in the deposit mix. Our focus on growing in-market core deposits,
particularly money market, NOW, and demand deposit accounts is the primary
catalyst for our improved deposit mix. Continued strong loan growth throughout
2001 also helped boost the margin within the year. For the year, the net
interest margin was 4.65%, compared to 4.70% in 2000.
During 2000, net interest income and tax-equivalent net interest income
increased 9.6%. Average interest earning assets grew 18.2% while interest
bearing liabilities increased 20.1%. The net interest margin of 4.70% is a 37
basis point decrease from the 5.07% reported in 1999. While the margin decreased
steadily during the year, most of the decline occurred in the second half of the
year. The margin for the fourth quarter was 4.53%, compared to 4.90% for the
first quarter. This decrease is primarily the result of strong loan growth
exceeding the growth of lower cost deposits. This growth created the need to
utilize higher cost wholesale funding to fund a significant portion of our loan
growth which, while profitable on a spread basis, produces a lower overall net
interest margin.
TABLE 2 NET INTEREST INCOME
(In thousands) YEARS ENDED DECEMBER 31,
----------------------------------------------
2001 2000 1999
---------- --------- -------
Interest income ............ $1,130,888 1,097,805 888,007
Taxable-equivalent
adjustment ............... 7,249 6,047 5,309
---------- --------- -------
Interest income,
taxable-equivalent ..... 1,138,137 1,103,852 893,316
Interest expense ........... 501,097 535,473 374,713
---------- --------- -------
Net interest income,
taxable-equivalent ..... $ 637,040 568,379 518,603
========== ========= =======
F-28
TABLE 3 CONSOLIDATED AVERAGE BALANCES, INTEREST, AND YIELDS
2001 2000
------------------------------------- --------------------------------------
(Dollars in thousands) AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ -------- ----- ------------ -------- -----
ASSETS
INTEREST EARNING ASSETS:
Taxable loans, net(a)(b) ................ $ 11,487,866 986,090 8.58% $ 9,931,373 953,814 9.60%
Tax-exempt loans, net(a)(b)(c) .......... 55,230 4,938 8.94 41,501 4,151 10.00
Allowance for loan losses ............... (158,488) -- -- (138,769) -- --
------------ -------- ----- ------------ ------------ -----
Loans, net ........................... 11,384,608 991,028 8.70 9,834,105 957,965 9.74
------------ -------- ----- ------------ ------------ -----
Taxable investment securities(d) ........ 1,787,515 111,062 6.21 1,872,383 117,291 6.26
Tax-exempt investment securities(c)(d) .. 232,312 17,223 7.41 197,791 14,601 7.38
------------ -------- ----- ------------ ------------ -----
Total investment securities .......... 2,019,827 128,285 6.35 2,070,174 131,892 6.37
------------ -------- ----- ------------ ------------ -----
Interest earning deposits with banks .... 4,862 211 4.34 2,062 164 7.95
Federal funds sold and securities
purchased under resale agreements ..... 92,868 4,397 4.73 86,730 5,736 6.61
Mortgage loans held for sale ............ 198,395 14,216 7.17 101,010 8,095 8.01
------------ -------- ----- ------------ ------------ -----
Total interest earning assets ........ 13,700,560 1,138,137 8.31 12,094,081 1,103,852 9.13
------------ -------- ----- ------------ ------------ -----
Cash and due from banks ................. 429,024 381,601
Premises and equipment, net ............. 545,637 462,338
Other real estate ....................... 15,002 8,780
Other assets(e) ......................... 684,781 519,585
------------ ------------
Total assets ......................... $ 15,375,004 $ 13,466,385
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits ....... $ 1,654,570 30,956 1.87 $ 1,423,625 37,399 2.63
Money market accounts .................. 2,354,665 76,958 3.27 1,910,172 91,822 4.81
Savings deposits ....................... 419,074 5,682 1.36 436,305 9,358 2.14
Time deposits .......................... 5,229,961 291,065 5.57 4,696,386 281,594 6.00
Federal funds purchased and
securities sold under
repurchase agreements ................ 1,153,878 42,643 3.70 1,248,983 78,445 6.28
Other borrowed funds ................... 909,963 53,793 5.90 578,366 36,855 6.37
------------ -------- ----- ------------ ------------ -----
Total interest bearing liabilities .. 11,722,111 501,097 4.27 10,293,837 535,473 5.18
------------ -------- ----- ------------ ------------ -----
SPREAD RATE ......................... 4.04% 3.95%
==== ====
Non-interest bearing demand deposits ...... 1,693,911 1,562,096
Other liabilities ......................... 410,952 306,818
Shareholders' equity ...................... 1,548,030 1,303,634
------------ ------------
Total liabilities and
shareholders' equity .............. $ 15,375,004 $ 13,466,385
============ ============
NET INTEREST INCOME/MARGIN ................ 637,040 4.65% 568,379 4.70%
==== ====
Taxable-equivalent adjustment ............. (7,249) (6,047)
-------- ------------
Net interest income, actual ............... $ 629,791 $ 562,332
=========== ===========
1999
-------------------------------------
(Dollars in thousands) AVERAGE YIELD/
BALANCE INTEREST RATE
------------ -------- -----
ASSETS
INTEREST EARNING ASSETS:
Taxable loans, net(a)(b) ................ $ 8,186,544 756,202 9.24%
Tax-exempt loans, net(a)(b)(c) .......... 31,510 3,493 11.09
Allowance for loan losses ............... (119,626) -- --
------------ ---------- -----
Loans, net ........................... 8,098,428 759,695 9.38
------------ ---------- -----
Taxable investment securities(d) ........ 1,798,853 110,214 6.13
Tax-exempt investment securities(c)(d) .. 170,744 12,781 7.49
------------ ---------- -----
Total investment securities .......... 1,969,597 122,995 6.24
------------ ---------- -----
Interest earning deposits with banks .... 1,562 88 5.63
Federal funds sold and securities
purchased under resale agreements ..... 57,730 2,879 4.99
Mortgage loans held for sale ............ 102,524 7,659 7.47
------------ ---------- -----
Total interest earning assets ........ 10,229,841 893,316 8.73
------------ ---------- -----
Cash and due from banks ................. 340,478
Premises and equipment, net ............. 408,443
Other real estate ....................... 8,773
Other assets(e) ......................... 451,161
------------
Total assets ......................... $ 11,438,696
============
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Interest bearing demand deposits ....... $ 1,355,301 30,429 2.25
Money market accounts .................. 1,796,114 73,280 4.08
Savings deposits ....................... 466,879 10,085 2.16
Time deposits .......................... 3,963,862 209,958 5.30
Federal funds purchased and
securities sold under
repurchase agreements ................ 786,954 39,427 5.01
Other borrowed funds ................... 199,091 11,534 5.79
------------ ---------- -----
Total interest bearing liabilities .. 8,568,201 374,713 4.37
------------ ---------- -----
SPREAD RATE ......................... 4.36%
=====
Non-interest bearing demand deposits ...... 1,450,547
Other liabilities ......................... 254,522
Shareholders' equity ...................... 1,165,426
------------
Total liabilities and
shareholders' equity .............. $ 11,438,696
============
NET INTEREST INCOME/MARGIN ................ 518,603 5.07%
=====
Taxable-equivalent adjustment ............. (5,309)
----------
Net interest income, actual ............... $ 513,294
=========
(a) Average loans are shown net of unearned income. Nonperforming loans
are included.
(b) Interest income includes loan fees as follows: 2001 - $50.3 million;
2000 - $40.8 million; 1999 - $37.2 million.
(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,
2001, 2000, and 1999, the average amortized cost of these securities
amounted to $2.0 billion, $1.8 billion, and $1.7 billion, respectively.
(e) Includes average net unrealized gains (losses) on investment securities
available for sale of $39.2 million, ($40.5) million, and ($9.1)
million for the years ended December 31, 2001, 2000, and 1999,
respectively.
F-29
TABLE 4 RATE/VOLUME ANALYSIS
2001 COMPARED TO 2000 2000 COMPARED TO 1999
--------------------------------- -------------------------------
(In thousands) CHANGE DUE TO(A) CHANGE DUE TO(A)
--------------------------------- -------------------------------
YIELD/ NET YIELD/ NET
VOLUME RATE CHANGE VOLUME RATE CHANGE
-------- -------- ------ ------ ------ -------
Interest earned on:
Taxable loans, net ....................... $149,423 (117,147) 32,276 161,222 36,390 197,612
Tax-exempt loans, net(b) ................. 1,373 (586) 787 1,108 (450) 658
Taxable investment securities ............ (5,313) (916) (6,229) 4,507 2,570 7,077
Tax-exempt investment securities(b) ...... 2,548 74 2,622 2,026 (206) 1,820
Interest earning deposits with banks ..... 223 (176) 47 28 48 76
Federal funds sold and securities
purchased under resale agreements ...... 406 (1,745) (1,339) 1,447 1,410 2,857
Mortgage loans held for sale ............. 7,801 (1,680) 6,121 (113) 549 436
-------- -------- ------- -------- ------ -------
Total interest income ................ 156,461 (122,176) 34,285 170,225 40,311 210,536
-------- -------- ------- -------- ------ -------
Interest paid on:
Interest bearing demand deposits ......... 6,074 (12,517) (6,443) 1,537 5,433 6,970
Money market accounts .................... 21,380 (36,244) (14,864) 4,654 13,888 18,542
Savings deposits ......................... (369) (3,307) (3,676) (660) (67) (727)
Time deposits ............................ 32,015 (22,545) 9,470 38,824 32,812 71,636
Federal funds purchased and securities
sold under repurchase agreements ....... (6,165) (29,744) (35,909) 23,148 15,870 39,018
Other borrowed funds ..................... 21,318 (4,272) 17,046 21,960 3,361 25,321
-------- -------- ------- -------- ------ -------
Total interest expense ............... 74,253 (108,629) (34,376) 89,463 71,297 160,760
-------- -------- ------- -------- ------ -------
Net interest income .................. $ 82,208 (13,547) 68,661 $ 80,762 (30,986) 49,776
======== ======== ======= ======== ======= ======
(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 TSYS, TDM and ProCard's revenues as
well as a wide variety of fee generating services from the Financial Services
segment. Non-interest income totaled $937.7 million in 2001, an increase of
12.5% from the previous year and $833.5 million in 2000, an increase of 12.7%
from 1999. Revenues from bankcard data processing and other services offered by
TSYS were the largest contributors, increasing $62.6 million, or 10.8% in 2001,
and increasing $69.1 million, or 14.1% in 2000 over the previous year. TSYS, TDM
and ProCard's combined revenues represented 74.9% of consolidated non-interest
income in 2001 compared to 77.1% in 2000. Financial Services' non-interest
income increased $42.8 million, or 21.0% in 2001, and $21.9 million or 12.0% in
2000. The increase in Financial Services' non-interest income in 2001 was led by
increases in mortgage banking, service charges on deposits, trust revenues, and
credit card fees.
TSYS contributed approximately 71.3% of total non-interest income in
2001 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, generally under long-term processing
contracts. TSYS' services are provided through its cardholder systems, TS(2) and
TS(1), to financial institutions and other organizations throughout the United
States, Mexico, Canada, Honduras, the Caribbean, and Europe. TSYS currently
offers merchant services to financial institutions and other organizations in
Japan. TSYS revenues also include revenues from its joint ventures, TSYS de
Mexico and Vital, both of which are accounted for using the equity method.
Bankcard data processing revenues are generated primarily from charges
based on the number of accounts billed, transactions and authorizations
processed, statements mailed, credit bureau requests, credit cards embossed and
mailed, and other processing services for cardholder accounts on file.
Cardholder accounts on file include active and inactive consumer credit, retail,
debit, stored value, and commercial card accounts. Due to the number of
card-holder accounts processed by TSYS and the expanding use of cards, as well
as increases in the scope of services offered to clients, revenues relating to
bankcard data processing services have continued to grow. Processing contracts
with large clients, representing a significant portion of TSYS' total revenues,
generally provide for discounts on certain services based on the size and
activity of clients' portfolios. Therefore, bankcard data processing revenues
and the related margins are influenced by the client mix relative to the size of
client card portfolios, as well as the number and activity of individual
cardholder accounts processed for each client.
Due to the somewhat 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. Furthermore, growth in card
portfolios of existing clients, the conversion of cardholder accounts of new
clients to TSYS' processing platforms, and the loss of cardholder accounts
impact the results of operations from period to period. Another factor, among
others, which may affect TSYS' revenues and results of operations from time to
time is the sale by a client of its business, its card portfolio, or a segment
of its accounts to a party which processes cardholder accounts internally or
uses another third-party processor. Consolidation in the financial services and
retail industries could favorably or unfavorably impact TSYS' financial
condition and results of operations in the future.
F-30
The average number of cardholder accounts on file increased 5.9% to
206.1 million in 2001, compared to 194.6 million in 2000, which represented a
7.9% increase over 180.4 million in 1999. At December 31, 2001, TSYS' cardholder
accounts on file were approximately 218.5 million, compared to 195.2 million and
206.2 million at December 31, 2000 and 1999, respectively. The change in
cardholder accounts on file at December 31, 2001, as compared to December 31,
2000, included the deconversion of 7.9 million accounts, the addition of
approximately 14.8 million accounts attributable to the internal growth of
existing clients, and approximately 16.4 million accounts added for new clients.
The change in cardholder accounts on file at December 31, 2000, as compared to
December 31, 1999, included the deconversion of 36.9 million accounts of
Universal Card Services (UCS) and others, the addition of approximately 24.8
million accounts attributable to the internal growth of existing clients, and
approximately 1.1 million accounts added for new clients.
TSYS provides card processing services to its clients including
commercial, retail, and consumer cards. Commercial cards include purchasing
cards, corporate cards, and fleet cards for employees. Retail cards include
private label and gift cards. Consumer cards include Visa and MasterCard bank
and debit cards as well as American Express cards and stored value cards.
A significant amount of TSYS' revenues is derived from long-term
contracts with large clients, including certain major clients. In September
1999, TSYS announced a new ten-year agreement with the Bank of America
Corporation to continue processing its credit card portfolio until 2009. Bank of
America accounted for approximately 16% of TSYS' revenues for each of the years
ended December 31, 2001, 2000, and 1999.
Near the end of the first quarter of 1998, AT&T completed the sale of
UCS to CITIBANK, a part of Citigroup. CITIBANK accounted for approximately 13%
of TSYS' revenues for the year ended December 31, 1999. On February 26, 1999,
CITIBANK 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. Although it remains a client, CITIBANK was not a major client of
TSYS for the years ended December 31, 2001 and 2000.
TSYS has a long-term processing relationship with Providian Financial
Corporation (Providian), one of the largest bankcard issuers in the nation. In
October 2001, TSYS announced it signed a multi-year extension to its long-term
credit card-processing agreement with Providian, which included a cash payment
for processing rights of $12.7 million. Providian accounted for approximately
13% and 11% of TSYS' revenues for the years ended December 31, 2001 and 2000,
respectively. Providian was not a major client in 1999. In late 2001, Providian
made several announcements regarding concerns about its financial status,
related changes in management, and the sale of a portion of its portfolio. As a
result of these announcements, TSYS management is actively monitoring
Providian's status through frequent interaction. The loss of Providian, or any
other major or significant clients, could have a material adverse effect on
TSYS' financial condition and results of operations.
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
retail accounts. TSYS successfully completed the conversion in May 1999. In
January 2000, TSYS announced a one-year extension of its long-term retail
processing agreement with Sears until 2010. Sears accounted for approximately
10% of TSYS' revenues for the year ended December 31, 2000. Sears was not a
major client in 2001, nor was it a major client in 1999.
TSYS' share of income from its equity in joint ventures was $17.8
million, $15.6 million, and $12.3 million for the years ended December 31, 2001,
2000, and 1999, respectively. The increase in 2001 is primarily due to Vital's
improved operating results as a result of increased volume.
Synovus continues to emphasize the importance of growth in its
Financial Services fee income. During 2001, Synovus took an important step by
increasing the accessibility of its financial services offerings. Our five
primary product categories, including banking, financial management, mortgage,
insurance, and leasing services, are now further integrated and provided to our
customers through our strong network of 38 affiliate banks and other Synovus
offices. Additionally, we enhanced our affiliate banking network in 2001 by
strengthening our needs-based selling system, or Sales Management System, which
touches virtually every customer and banking team member. These efforts resulted
in non-interest income for Financial Services increasing by $42.8 million or
21.0%, in 2001, with increases in mortgage banking income of $16.5 million or
76.0%, service charges on deposits of $10.5 million or 13.9%, trust service fees
of $4.3 million or 19.4%, and credit card fees of $2.1 million or 10.7%. Total
Financial Services' non-interest income as a percentage of total Financial
Services' revenues (excluding securities gains and losses) was 28.1% in 2001, up
from 26.7% in 2000. See Table 5 for a complete summary of Financial Services'
non-interest income.
TABLE 5 FINANCIAL SERVICES' NON-INTEREST INCOME
(In thousands)
---------------------------------
2001 2000 1999
-------- ------- -------
Service charges on deposits .... $86,539 76,002 70,161
Fees for trust services ........ 26,509 22,204 20,354
Credit card fees ............... 21,184 19,129 15,123
Mortgage banking income ........ 38,272 21,741 21,196
Brokerage revenue .............. 16,363 16,063 14,076
Securities gains, net .......... 1,722 781 1,197
Other fee income ............... 17,199 15,110 12,918
Other operating income ......... 39,204 33,175 27,237
-------- ------- -------
Total non-interest income ... $246,992 204,205 182,262
======== ======= =======
Service charges on deposit accounts represent the single largest fee
income component for Financial Services. The main factors that contributed to
the 13.9% increase in service charges in 2001 were increases in the number of
individual and commercial accounts, transaction volume growth, and the effect of
pricing increases in certain service charges.
Fees for trust services are derived from providing estate
administration services, personal trust and investment management services,
corporate trust, and employee benefit plan administration. Fees for trusts under
wills and agreements were $8.0 million in 2001, an increase of $1.6 million or
25.8% over $6.4 million in 2000. Family asset management fees were $4.9 million,
an increase of $1.4 million or 38.5% over $3.5 million in 2000. During 2001,
Synovus acquired a trust portfolio consisting primarily of personal trust
accounts. This portfolio contributed approximately $.9 million in trust revenues
for 2001. At December 31, 2001 and 2000, the total market value of trust assets
administered by Synovus was approximately $8.3 billion and $8.0 billion,
respectively. Synovus added $700.0 million in new trust assets during 2001.
However, on a year-over-year basis, the overall market value of total trust
assets administered by Synovus was impacted by a general decline in the market
value of the underlying equity securities.
F-31
Mortgage banking revenues increased by $16.5 million or 76.0% over
2000. As mortgage interest rates reached historically low levels, loan
originations increased significantly. Total mortgage production volume during
2001 was $2.3 billion, up 118.4% from $1.1 billion in 2000. This resulted in
mortgage origination revenues and secondary marketing gains of $36.6 million
during 2001, compared to $19.5 million in 2000. The increase in these revenues
was partially offset by lower mortgage servicing revenues which were $1.3
million in 2001, down from $2.2 million in 2000. The decrease in servicing
revenues was due to the sale of a substantial portion of the servicing portfolio
in the fourth quarter of 2000. The 2001 servicing revenues include fees for the
subservicing of the portfolio that was sold in 2000. These fees ceased in April
2001 when the portfolio transfer was completed.
Other fee income includes fees for letters of credit, safe deposit box
fees, access fees for teller machine use, official check issuance fees, and
other miscellaneous fee-related income. These fees increased $2.1 million or
13.8% over 2000 primarily from a $1.8 million increase in letter of credit fees.
Other operating income was $39.2 million in 2001, compared to $33.2
million in 2000. The main components of other operating income are income from
company-owned life insurance policies, insurance commissions, financial planning
and asset management fees, and other items discussed below.
Creative Financial, acquired in the first quarter of 2001, contributed
$4.5 million in financial planning and asset management revenues for the year
ended December 31, 2001. During 2001 and 2000, Synovus continued its strategy to
sell underperforming branches to allow it to aggressively reinvest those
resources in higher growth markets. Gross gains from the sale of certain bank
branches were $3.7 million in 2001, compared to $12.0 million in 2000. In 2001,
other operating income included a $10.0 million pre-tax gain from the sale of
the Star System ATM network, which represented our ownership interest in the
network. The 2000 results include a $1.8 million pre-tax gain from the sale of
the mortgage servicing rights portfolio.
In 2000, Financial Services' non-interest income increased $21.9
million, or 12.0%, with increases in service charges on deposit accounts of $5.8
million or 8.3%, credit card fees of $4.0 million or 26.5%, other fee income of
$2.2 million or 17.0%, and brokerage revenue of $2.0 million or 14.1%. Other
operating income for 2000 includes $6.2 million from income earned on
company-owned life insurance compared to $2.8 million in 1999, gross gains from
the sale of certain bank branches of $12.0 million, and a $1.8 million gain from
the sale of the mortgage servicing rights portfolio. Total Financial Services'
non-interest income as a percentage of total Financial Services' revenues was
26.7% in 2000, up from 26.3% in 1999.
NON-INTEREST EXPENSE
Management analyzes non-interest expense in two separate components:
Financial Services and Transaction Processing Services. Table 6 summarizes this
data for the years ended December 31, 2001, 2000, and 1999.
Financial Services:
While Financial Services' average assets grew by 13.7% and revenues
(excluding securities gains and losses) grew by 14.7%, expenses increased 11.5%
in 2001. This increase was due primarily to higher incentive compensation
expenses in 2001, which were significantly reduced in 2000. The banks in higher
growth markets, as well as the mortgage, trust, and brokerage units experienced
higher than average increases in expenses while the back office and support
units were generally flat over the prior year. Our focus on headcount growth
containment continued during 2001, resulting in an average headcount of 5,325
employees compared to an average of 5,191 employees in 2000. The increase was
due primarily to acquisitions completed in 2001. The fundamental growth in
Financial Services' expense was only 6.7% in 2001 compared to a year ago. The
fundamental growth excludes the impact of acquisitions and the above referenced
increase in incentive compensation expenses.
The trend in our efficiency ratio is a reflection of the progress that
we are making in expense management. The Financial Services' efficiency ratio
was 53.80% in 2001, compared to 55.35% in 2000 and 58.15% in 1999. Our goal is
that our focus on expense control management will allow us to continue to make
improvements in this area. The 17.7% or $42.5 million increase in employment
expenses in 2001 compared to 2000 was primarily due to the above referenced
increase in incentive compensation expense, as well as a moderate increase in
headcount and normal merit and promotional salary adjustments.
The single largest component of other operating expenses is fees paid
to third-party providers of processing services. These fees were $25.3 million
in 2001, up $4.2 million or 20.1% over 2000 due primarily to higher transaction
volume. This increase was offset by lower advertising, training, and consulting
expenses, which decreased by $4.2 million in the aggregate compared to 2000
levels.
Non-interest expense increased $18.8 million, or 4.6%, in 2000 over
1999. Throughout 2000, Financial Services benefited from continuing emphasis on
expense control management and headcount growth containment, which resulted in a
slight decrease in the number of employees in Financial Services from 5,205 at
December 31, 1999 to 5,182 at December 31, 2000. Additionally, total
non-interest expense for 2000 was impacted by a reduction in incentive
compensation for the Financial Services segment, resulting in a $12.0 million
decrease in employment expenses. This
TABLE 6 NON-INTEREST EXPENSE
(In thousands)
2001(*) 2000(*) 1999(*)
------------------------- ------------------------- -------------------------
TRANSACTION TRANSACTION TRANSACTION
FINANCIAL PROCESSING FINANCIAL PROCESSING FINANCIAL PROCESSING
SERVICES SERVICES SERVICES SERVICES SERVICES SERVICES
--------- ----------- --------- ----------- --------- -----------
Salaries and other personnel expense ... $ 283,172 283,462 240,658 255,266 234,467 224,078
Net occupancy and equipment expense .... 62,904 172,770 60,533 165,180 55,441 152,799
Other operating expenses ............... 127,668 88,038 123,802 90,848 116,241 82,804
--------- ------- ------- ------- ------- -------
Total non-interest expense ......... $ 473,744 544,270 424,993 511,294 406,149 459,681
========= ======= ======= ======= ======= =======
(*) The added totals are greater than the consolidated totals due to
inter-segment balances which are eliminated in consolidation.
F-32
decrease was offset by normal increases in salaries and higher employee group
health insurance costs.
Approximately $3.4 million of the $5.1 million increase in occupancy
and equipment expense during 2000 relates to increased depreciation on computer
equipment added as a result of the conversion to a new core processing system,
as well as the amortization of a human resources information system that was
implemented in 2000. Other factors contributing to the increase in occupancy and
equipment expenses during 2000 consist of additional carrying costs for new
branch offices and other banking facilities added during 2000 and the latter
part of 1999.
Other operating expenses increased $7.6 million or 6.5% over 1999.
Increases in advertising, training, and third-party processing services
contributed $3.9 million of the total increase.
Transaction Processing Services:
Approximately 95% of total Transaction Processing Services'
non-interest expense relates to TSYS, with the remainder related to TDM and
ProCard. The following discussion provides an analysis of the non-interest
expense components at TSYS.
During 2001, TSYS' operating expenses as a percentage of revenues
decreased to 79.2%, compared to 81.3% and 83.5% for 2000 and 1999, respectively.
The decrease in the ratio was primarily a result of a concerted emphasis on
expense control, a focus on improved processes, lower provisions for bad debt
expense, lower provisions for transaction processing accruals, and a reduction
in amortization of contract acquisition costs.
A significant portion of TSYS' operating expenses relates to salaries
and other personnel costs. Salaries and other personnel expense increased 9.5%
in 2001 over 2000, compared to 13.5% in 2000 over 1999. During 2001, the average
number of employees increased to 4,933, compared to 4,606 in 2000 and 4,106 in
1999. The change in total employment costs consists of increases of $39.6
million, $37.2 million and $61.7 million in 2001, 2000 and 1999, respectively.
The increase in total employment costs is associated with the growth in the
number of employees, normal salary increases, and related employee benefits.
These increases were reduced by $17.2 million, $9.1 million, and $14.9 million
in 2001, 2000 and 1999, respectively, which were capitalized as software
development and contract acquisition costs.
Net occupancy and equipment expense increased 4.1% in 2001 over 2000,
compared to 7.2% in 2000 over 1999. Computer equipment and software rentals,
which represent the largest components of net occupancy and equipment expense,
remained consistent in 2001 and 2000. Due to rapidly changing technology in
computer equipment and software, TSYS' equipment and software needs are
fulfilled primarily through operating leases. In anticipation of the
deconversion of a significant client in 2000, TSYS made a concerted effort to
improve processing productivity and implemented significant cost controls.
During 1999, TSYS made significant investments in computer software licenses
related to a new data center located in east Columbus to accommodate increased
volumes and expected growth in the number of accounts associated with new and
existing clients. As additional software licenses are acquired, net occupancy
and equipment expense may increase as a result of the amortization of the costs
associated with these new licenses.
TSYS continues to monitor and assess its building, software, and
computer equipment needs as it positions itself for future growth and expansion.
TSYS has entered into an operating lease agreement relating to its corporate
campus. Under the agreement, the lessor, a special purpose entity, purchased the
land, obtained financing from a syndicate of banks, paid the construction and
development costs, and leased the facilities to TSYS. 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 are the obligations of
TSYS. TSYS began moving personnel into the campus facility in December 1998, and
completed the move of a substantial number of its personnel by the end of the
third quarter of 1999. With the move to the corporate campus, TSYS did not renew
leases on certain facilities. The increase in net occupancy and equipment
expenses related to occupying the campus was $9.6 million in 2000 and $6.4
million in 1999, net of the relinquished lease obligations.
In December 2000, TSYS purchased a 40,000 square-foot building and
equipment in York, England for approximately $13.0 million. The building houses
client service and administrative personnel for TSYS Europe. TSYS has leased
back 17,000 square-feet to the previous owner. Although it only began processing
accounts for its new European clients during the last six months of 2001, TSYS
had to build the necessary infrastructure to begin processing those accounts in
2001. During 2001, TSYS incurred $16.4 million of operating expenses, net of
revenues, related to the expansion in Europe.
Other operating expenses decreased 3.0% in 2001 compared to 2000, and
increased 4.7% in 2000 compared to 1999. Other operating expenses were impacted
by the amortization of contract acquisition costs, the provision for bad debt
expense, and the provision of transaction processing accruals. Amortization of
contract acquisition costs was $6.5 million, $7.5 million, and $12.3 million in
2001, 2000, and 1999, respectively. For 2001, 2000, and 1999, transaction
processing provisions were $1.4 million, $5.7 million, and $6.9 million,
respectively.
INVESTMENT SECURITIES
The investment securities portfolio consists of debt and equity
securities categorized as available for sale. In connection with the adoption of
Statement of Financial Accounting Standards (SFAS) No. 133, Synovus reclassified
its investment securities held to maturity portfolio to the available for sale
category. 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
and deposit portfolios. At December 31, 2001, approximately $1.6 billion of
these investment securities were pledged as required collateral for certain
deposits and repurchase agreements. See Table 16 for maturity and average yield
information of the investment securities portfolio.
The investment strategy focuses on the use of the investment securities
portfolio to manage the interest rate risk created by the inherent mismatch
between the loan and deposit portfolios. Due to strong loan demand at subsidiary
banks, there is little need for investment securities to augment income or
utilize unpledged deposits. As such, the investment securities are primarily
U.S. Government agencies and Government agency sponsored mortgage-backed
securities, both 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, 2001, 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, 2001 and 2000, the estimated fair value of
investment securities as a percentage of their amortized cost was 102.1% and
100.7%, respectively. The investment securities portfolio had gross unrealized
gains of $46.7 million and gross unrealized losses of $4.4 million, for a net
unrealized gain of $42.3 million as of December 31, 2001. As of December 31,
2000, the investment securities portfolio had a net unrealized gain of $15.5
F-33
million. In accordance with SFAS No. 115, shareholders' equity included a net
unrealized gain of $26.0 million and $7.2 million recorded on the available for
sale portfolio as of December 31, 2001 and 2000, respectively.
During 2001, the average balance of investment securities decreased to
$2.02 billion, compared to $2.07 billion in 2000. Synovus earned a
taxable-equivalent rate of 6.35% and 6.37% for 2001 and 2000, respectively, on
its investment securities portfolio. As of December 31, 2001 and 2000, average
investment securities represented 14.7% and 17.1%, respectively, of average
interest earning assets.
Table 7 presents the carrying value of investment securities at
December 31, 2001, 2000, and 1999.
TABLE 7 INVESTMENT SECURITIES
(In thousands)
DECEMBER 31,
---------------------------------------------
2001 2000 1999
----------- --------- ---------
Investment Securities Available for Sale:
U.S. Treasury and U.S. Government agencies ........... $ 1,051,201 1,314,293 1,287,953
Mortgage-backed securities ........................... 735,405 436,807 392,780
State and municipal .................................. 242,646 35,276 15,126
Other investments .................................... 59,035 20,663 20,819
----------- --------- ---------
Total investment securities available for sale ... $ 2,088,287 1,807,039 1,716,678
=========== ========= =========
Investment Securities Held to Maturity:
U.S. Treasury and U.S. Government agencies ........... $ -- 11,717 24,914
Mortgage-backed securities ........................... -- 38,592 53,698
State and municipal .................................. -- 183,744 169,745
Other investments .................................... -- 36,836 28,922
----------- --------- ---------
Total investment securities held to maturity ..... $ -- 270,889 277,279
=========== ========= =========
Total Investment Securities:
U.S. Treasury and U.S. Government agencies ........... $ 1,051,201 1,326,010 1,312,867
Mortgage-backed securities ........................... 735,405 475,399 446,478
State and municipal .................................. 242,646 219,020 184,871
Other investments .................................... 59,035 57,499 49,741
----------- --------- ---------
Total investment securities ...................... $ 2,088,287 2,077,928 1,993,957
=========== ========= =========
LOANS
Since lending activities are a significant source of revenue, our main
objective is to adhere to sound lending practices. When analyzing prospective
loans, management considers both interest rate 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 the local markets we serve. Synovus strives towards 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. Table 8 illustrates that a significant portion of the
loan portfolio is in the real estate sector. However, as discussed further
herein, these loans are diversified by geography, industry and loan type. The
loan policy discourages loans to highly speculative real estate developments,
highly leveraged transactions, and other industries known for excessive risk.
Table 8 on the following page shows the composition of the loan
portfolio at the end of the past five years.
In 2001, Synovus continued to experience strong loan growth. At
year-end 2001, total loans were $12.4 billion, up 15.5% over 2000. Average loans
increased 15.7% or $1.6 billion compared to 2000, representing 84.3% of average
earning assets and 75.1% of average total assets. The company experienced growth
in the 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 customer needs.
As a result of this emphasis, loans have continued to grow throughout the
subsidiary markets.
The loan portfolio spreads across four southeastern states with diverse
economies. The Georgia affiliate banks represent a majority, with 58% of the
consolidated portfolio. The Alabama affiliate banks represent 18%, followed by
South Carolina with 15% and Northwest Florida with 9%. The growth by geographic
market during 2001 was as follows: Georgia 13%; South Carolina 18%; Alabama 9%;
and Northwest Florida 46% which was primarily attributable to the acquisition of
FABP. The larger markets, where certain sectors of the economy have remained
strong, contributed the majority of the loan growth: $286 million in North
Atlanta, GA; $199 million in Columbus, GA; $71 million in Birmingham, AL; $65
million in Brunswick, GA; $59 million in Charleston, SC; $49 million in Athens,
GA; $45 million in Carrollton, GA; and $36 million in Columbia, SC.
Additionally, most of our affiliate banks continued to experience
market share gains due to our decentralized banking franchise which has
benefited from continued consolidation in the banking industry. For the year
ended December 31, 2001, 24 of our 38 banks experienced double-digit loan
growth.
The commercial loan portfolio consists of commercial, financial,
agricultural, and real estate loans. These loans are granted primarily on the
borrower's general credit standing and on the strength of the borrower's ability
to generate repayment cash flows from income sources. Real estate construction
and mortgage loans are secured by commercial real estate as well as 1 - 4 family
residences, and represent extensions of credit used as interim or permanent
financing of real estate properties. At December 31, 2001, commercial real
estate construction and mortgage loans included approximately $884.3 million in
loans secured by 1 - 4 family residences while approximately $986.0 million of
loans secured by owner-occupied commercial real estate properties were included
in the commercial real estate mortgage category.
As of December 31, 2001, the commercial loan portfolio comprised 79% of
total loans, compared to 79% and 75% in 2000 and
F-34
TABLE 8 LOANS BY TYPE
(In thousands)
DECEMBER 31,
------------------------------------------------------------------------
2001 2000 1999
---------------------- ------------------- -------------------
AMOUNT %(*) AMOUNT %(*) AMOUNT %(*)
------------ ----- --------- ----- --------- -----
Commercial:
Commercial, financial, and agricultural ..... $ 4,004,042 32.2% 3,747,047 34.8 3,012,293 33.2
Real estate - construction .................. 2,665,877 21.4 2,411,489 22.4 1,792,813 19.7
Real estate - mortgage ...................... 3,138,748 25.3 2,336,234 21.7 1,983,766 21.9
------------ ----- ---------- ----- --------- -----
Total commercial ......................... 9,808,667 78.9 8,494,770 78.9 6,788,872 74.8
------------ ----- ---------- ----- --------- -----
Retail:
Real estate-mortgage ........................ 1,553,154 12.4 1,184,437 11.0 1,089,217 12.0
Consumer loans - credit card ................ 234,651 1.9 233,137 2.2 237,546 2.6
Consumer loans - other ...................... 843,169 6.8 855,933 7.9 961,881 10.6
------------ ----- ---------- ----- --------- -----
Total retail ............................. 2,630,974 21.1 2,273,507 21.1 2,288,644 25.2
------------ ----- ---------- ----- --------- -----
Total loans .............................. 12,439,641 100.0 10,768,277 100.0 9,077,516 100.0
===== ===== =====
Unearned income ............................. (21,724) (16,390) (9,277)
------------ ---------- ---------
Total loans, net of unearned income ...... $ 12,417,917 10,751,887 9,068,239
============ ========== =========
DECEMBER 31,
-------------------------------------------
1998 1997
------------------- -------------------
AMOUNT %(*) AMOUNT %(*)
--------- ----- --------- -----
Commercial:
Commercial, financial, and agricultural ..... 2,547,935 33.5 2,236,355 33.1
Real estate - construction .................. 1,318,070 17.3 1,011,559 15.0
Real estate - mortgage ...................... 1,540,459 20.2 1,333,561 19.7
--------- ----- --------- -----
Total commercial ......................... 5,406,464 71.0 4,581,475 67.8
--------- ----- --------- -----
Retail:
Real estate-mortgage ........................ 1,058,172 13.9 1,039,420 15.4
Consumer loans - credit card ................ 257,721 3.4 306,360 4.5
Consumer loans - other ...................... 889,785 11.7 830,611 12.3
--------- ----- --------- -----
Total retail ............................. 2,205,678 29.0 2,176,391 32.2
--------- ----- --------- -----
Total loans .............................. 7,612,142 100.0 6,757,866 100.0
===== =====
Unearned income ............................. (8,537) (5,712)
--------- ---------
Total loans, net of unearned income ...... 7,603,605 6,752,154
========= =========
(*) Loan balance in each category, expressed as a percentage of total loans.
1999, respectively. During 2001, commercial, financial, and agricultural loans
grew by 7%, real estate construction loans grew by 11%, and real estate mortgage
loans grew by 34%. The 34% growth in commercial real estate mortgage loans
during 2001 is partially due to a large number of credits that were classified
as real estate construction in 2000 and were transferred to the mortgage
category upon completion of the projects. Additionally, a strong real estate
sector in some of our larger markets as well as the coastal regions of Georgia
and Florida contributed to the growth in this category.
It is important to note that since most of our markets have experienced
strong economic growth, especially with respect to real estate, Synovus conducts
ongoing reviews to monitor rapid increases in real estate property values in
these markets or any significant overbuilding. Another consideration is the
diversification of the types of underlying real estate. For example, real estate
construction loans are spread primarily between multi-family, retail, and
residential real estate.
Retail loans consist of residential mortgages, equity lines, credit
card loans, installment loans and other credit line loans. 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.
Collateral securing these loans provides 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.
As of December 31, 2001, the retail loan portfolio comprised 21% of
total loans, compared to 21% and 25% in 2000 and 1999, respectively. Real estate
mortgage loans increased 31%, while credit card and other consumer loans
remained largely unchanged from prior year levels.
Table 9 shows the maturity of selected loan categories as of December
31, 2001. Also provided are the amounts due after one year, classified according
to the sensitivity in interest rates.
Actual repayments of loans may differ from the contractual maturities
reflected in Table 9 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 create differences between the
contractual maturities and the actual repayment of such loans.
TABLE 9 LOAN MATURITY AND INTEREST RATE SENSITIVITY
(In thousands)
DECEMBER 31, 2001
-----------------------------------------------------------------
ONE OVER ONE YEAR OVER
YEAR THROUGH FIVE FIVE
OR LESS YEARS YEARS TOTAL
----------- --------- ------- -----------
Selected loan categories:
Commercial, financial, and agricultural ... $ 2,860,464 1,001,822 141,756 4,004,042
Real estate-construction .................. 2,016,753 557,283 91,841 2,665,877
----------- --------- ------- -----------
Total ................................. $ 4,877,217 1,559,105 233,597 6,669,919
=========== ========= ======= ===========
Loans due after one year:
Having predetermined interest rates ............................................................. $ 1,511,175
Having floating interest rates .................................................................. 281,527
-----------
Total ....................................................................................... $ 1,792,702
===========
F-35
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Despite credit standards, internal controls, and a 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 allowance for loan losses. Through the
provision for loan losses, Synovus maintains an allowance for loan losses that
management believes is adequate to absorb losses within the loan portfolio.
However, future additions to the allowance may be necessary based on changes in
economic conditions, as well as changes in assumptions regarding a borrower's
ability to pay and/or collateral values. In addition, various regulatory
agencies, as an integral part of their examination procedures, periodically
review the subsidiary banks' allowance for loan losses. Based on their judgments
about information available to them at the time of their examination, such
agencies may require the subsidiary banks to recognize additions to their
allowance for loan losses.
To determine the adequacy of the allowance for loan losses and the need
for potential charges to the allowance, 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 analyses of
historical performance, past due trends, the level of nonperforming loans,
reviews of certain impaired loans, loan activity since the last quarter,
consideration of current economic conditions, and other pertinent information.
Each one of the 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. During 2000, Synovus made changes to its loan grading system which
resulted in greater stratification of risks within the portfolio. The new
grading system has not resulted in a significant change in the overall amounts
of the allowance although it has resulted in some changes in the allocation by
loan type. Improved historical charge-off data under the new grading system
contributed to additional changes in the allocation during 2001.
The allowance for loan losses consists of two main components: the
allocated and unallocated allowances. Both components of the allowance are
available to cover inherent losses in the portfolio. The allocated component of
the allowance is determined by type of loan within the commercial and retail
portfolios. The allocated allowance for commercial loans includes an allowance
for impaired loans which is determined as described in the following paragraph.
Additionally, the allowance for commercial loans includes an allowance for
non-impaired loans which is based on application of loss reserve factors to the
components of the portfolio based on the assigned loan grades. The allocated
allowance for retail loans is generally determined on pools of homogeneous loan
categories. Loss factors applied to these pools are based on average historical
losses for the past two years, current delinquency trends, and other factors.
The unallocated component of the allowance is established for losses that
specifically exist in the remainder of the portfolio, but have yet to be
identified. This also compensates for the uncertainty in estimating loan losses.
The unallocated component of the allowance is based upon management's evaluation
of various conditions, the effects of which are not directly considered in the
allocated allowance. These include credit concentrations, recent levels and
trends in delinquencies and nonaccrual loans, new credit products, changes in
lending policies and procedures, changes in personnel, and regional and local
economic conditions.
Considering current information and events regarding the borrowers'
ability to repay their obligations, management considers a loan to be impaired
when the ultimate collectibility of all principal and interest 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 allowance for loan losses. When management considers a loan, or a portion
thereof, as uncollectible, it is charged against the allowance for loan losses.
A majority of Synovus' impaired loans are collateral-dependent. Accordingly,
Synovus has determined the required allowance on these loans based upon fair
value estimates (net of selling costs) of the respective collateral. The
required allowance (or the actual losses) on these impaired loans could differ
significantly if the ultimate fair value of the collateral is significantly
different from the fair value estimates used by Synovus in estimating such
potential losses.
Reflecting the emphasis on high credit quality and credit management,
the ratio of nonperforming assets to total loans at December 31, 2001 is .54%,
compared to .52% as of December 31, 2000. The allowance for loan losses was
1.38% of loans, which provides coverage of 331% of nonperforming loans at
December 31, 2001, compared to 355% at year-end 2000.
The provision for loan losses during the year was $51.7 million, up
16.5% from $44.3 million in 2000. Net charge-offs were $35.0 million in 2001,
compared to $24.0 million in 2000. As a percentage of average net loans, the net
charge-off ratio was .30% in 2001, compared to .24% in 2000.
A summary by loan category of loans charged off, recoveries of loans
previously charged off, and additions to the allowance through provision expense
is presented in Table 10.
An allocation of the allowance for loan losses has been made according
to the respective amounts 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 allowance amounts are allocated by evaluating the loss
potential of individual loans that management has considered impaired. The
allocation of the allowance for loan losses 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 11 for a five year comparison of the allocation of the
allowance for loan losses. The allowance for loan losses allocated to the
commercial real-estate construction, commercial real estate-mortgage, and
consumer loans-other portfolio has changed significantly when compared to the
amounts allocated in 1999 and prior years. This change was due in large part to
the growth in the construction and mortgage loan portfolio. Additionally, the
new grading system and current credit quality indicators have also impacted the
allocation in 2001 and 2000.
The unallocated component of the allowance for loan losses decreased
from .28% to .20% of total loans at December 31, 2000 and 2001, respectively.
Management believes that this level of unallocated allowance is adequate to
provide for probable losses that are inherent in the loan portfolio and that
have not been fully provided through the allocated reserves. Factors considered
in determining the adequacy of the unallocated reserve included the robust loan
growth in our larger markets, the level of real estate loans most of which are
collateralized by properties in the southeastern United States, as well as the
aggregate credit risk profile in the loan portfolio. These factors are tempered
by the increased allocation to the commercial portfolio provided by the new loan
grading system as well as the seasoning of certain loan portfolios acquired
through recent acquisitions.
F-36
Certain economic and interest rate factors could have a material impact
on the determination of the allowance for loan losses. The depth, duration, and
dispersion of any economic recession all have an impact on the credit risk
profile of the loan portfolio. Additionally, a rapidly rising interest rate
environment which may cause rates to reach double digits could have a material
impact on certain borrower's ability to pay.
TABLE 10 ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
DECEMBER 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
-------- ------- ------- ------- ------
Allowance for loan losses at beginning of year ............... $147,867 127,558 114,109 105,705 97,455
Allowance for loan losses of acquired subsidiaries ........... 6,217 -- 2,928 6,170 --
Loans charged off:
Commercial:
Commercial, financial, and agricultural ............. 17,806 11,825 9,457 7,559 7,424
Real estate - construction .......................... 307 482 538 249 412
Real estate - mortgage .............................. 1,294 1,336 1,099 2,209 2,417
-------- ------- ------- ------- -------
Total commercial ................................ 19,407 13,643 11,094 10,017 10,253
-------- ------- ------- ------- -------
Retail:
Real estate-mortgage ................................ 1,750 2,052 1,598 1,347 1,750
Consumer loans - credit card ........................ 11,579 9,961 11,592 13,939 14,308
Consumer loans - other .............................. 9,069 6,504 6,159 5,838 6,001
-------- ------- ------- ------- -------
Total retail .................................... 22,398 18,517 19,349 21,124 22,059
-------- ------- ------- ------- -------
Total loans charged off ......................... 41,805 32,160 30,443 31,141 32,312
-------- ------- ------- ------- -------
Recoveries on loans previously charged off:
Commercial:
Commercial, financial, and agricultural ............. 2,448 2,990 2,594 2,360 3,499
Real estate-construction ............................ 38 258 45 253 99
Real estate-mortgage ................................ 132 357 363 336 1,229
-------- ------- ------- ------- -------
Total commercial ................................ 2,618 3,605 3,002 2,949 4,827
-------- ------- ------- ------- -------
Retail:
Real estate-mortgage ................................ 680 945 295 202 197
Consumer loans-credit card .......................... 1,166 895 1,359 1,392 737
Consumer loans-other ................................ 2,353 2,683 2,301 1,950 2,316
-------- ------- ------- ------- -------
Total retail .................................... 4,199 4,523 3,955 3,544 3,250
-------- ------- ------- ------- -------
Total loans recovered ........................... 6,817 8,128 6,957 6,493 8,077
-------- ------- ------- ------- -------
Net loans charged off ........................................ 34,988 24,032 23,486 24,648 24,235
-------- ------- ------- ------- -------
Provision expense ............................................ 51,673 44,341 34,007 26,882 32,485
-------- ------- ------- ------- -------
Allowance for loan losses at end of year ..................... $170,769 147,867 127,558 114,109 105,705
======== ======= ======= ======= =======
Allowance for loan losses to loans, net of unearned income ... 1.38% 1.38 1.41 1.50 1.57
======== ======= ======= ======= =======
Ratio of net loans charged off to average loans
outstanding, net of unearned income ........................ 0.30% 0.24 0.29 0.35 0.37
======== ======= ======= ======= =======
TABLE 11 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
DECEMBER 31,
------------------------------------------------------------------
2001 2000 1999
------------------- ----------------- -----------------
AMOUNT %(*) AMOUNT %(*) AMOUNT %(*)
--------- ----- ------- ----- ------- -----
Commercial:
Commercial, financial, and agricultural ..... $ 70,166 32.2 58,034 34.8 54,011 33.2
Real estate-construction .................... 23,368 21.4 13,410 22.4 3,380 19.7
Real estate-mortgage ........................ 25,754 25.3 18,488 21.7 9,324 21.9
--------- ----- ------- ----- ------- -----
Total commercial ........................ 119,288 78.9 89,932 78.9 66,715 74.8
--------- ----- ------- ----- ------- -----
Retail:
Real estate-mortgage ........................ 1,503 12.4 2,160 11.0 1,634 12.0
Consumer loans-credit card .................. 9,803 1.9 11,320 2.2 11,877 2.6
Consumer loans-other ........................ 15,268 6.8 14,613 7.9 20,200 10.6
--------- ----- ------- ----- ------- -----
Total retail ............................ 26,574 21.1 28,093 21.1 33,711 25.2
--------- ----- ------- ----- ------- -----
Unallocated ................................. 24,907 -- 29,842 -- 27,132 --
--------- ----- ------- ----- ------- -----
Total allowance for loan losses ............. $ 170,769 100.0% 147,867 100.0 127,558 100.0
========= ===== ======= ===== ======= =====
DECEMBER 31,
----------------------------------------
1998 1997
----------------- -----------------
AMOUNT %(*) AMOUNT %(*)
------- ----- ------- -----
Commercial:
Commercial, financial, and agricultural ..... 45,431 33.5 43,003 33.1
Real estate-construction .................... 1,822 17.3 2,166 15.0
Real estate-mortgage ........................ 6,381 20.2 5,562 19.7
------- ----- ------- -----
Total commercial ........................ 53,634 71.0 50,731 67.8
------- ----- ------- -----
Retail:
Real estate-mortgage ........................ 1,582 13.9 632 15.4
Consumer loans-credit card .................. 12,950 3.4 14,646 4.5
Consumer loans-other ........................ 18,555 11.7 17,498 12.3
------- ----- ------- -----
Total retail ............................ 33,087 29.0 32,776 32.2
------- ----- ------- -----
Unallocated ................................. 27,388 -- 22,198 --
------- ----- ------- -----
Total allowance for loan losses ............. 114,109 100.0 105,705 100.0
======= ===== ======= =====
(*) Loan balance in each category expressed as a percentage of total loans.
F-37
Our current assumptions are that an economic recovery will occur during
the second half of 2002 and that the depth of the recession will have already
peaked prior to the last half of 2002. Additionally, we are assuming that the
dispersion of the recession will have primarily had its greatest impact on the
industrial production, travel, and entertainment industries. With respect to the
interest rate environment, Synovus currently anticipates that interest rates
will be increasing slightly by the end of 2002.
In the event of a dramatic downturn in this recession, in which there
was a wide dispersion in all sectors of our economy, and/or a significant rapid
rise in interest rates to double-digit levels creating higher borrowing costs
and tightening corporate profits, Synovus' credit costs could increase
significantly.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets consist of loans classified as nonaccrual or
restructured, and real estate acquired through foreclosure. 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. 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. Table 12 presents the amount of interest income that would have
been recorded on non-performing loans if those loans had been current and
performing in accordance with their original terms.
Nonperforming assets increased $11.8 million to $67.4 million with the
corresponding nonperforming asset ratio increasing to .54% as of December 31,
2001 compared to .52% as of year-end 2000. The increase in nonperforming assets
is primarily related to one large commercial credit in the trucking and
transportation industry and management does not see a systemic problem in a
particular segment of the portfolio or any particular bank.
As a percentage of total loans outstanding, loans 90 days past due and
still accruing interest decreased from prior year levels to .22% at December 31,
2001, compared to .31% at year-end 2000. These loans are in the process of
collection, and management believes that sufficient collateral value securing
these loans exists to cover contractual interest and principal payments on the
loans. Management further believes the resolution of these delinquencies will
not cause a material increase in nonperforming assets.
Management continuously monitors nonperforming, impaired, and past due
loans, to prevent further deterioration regarding the condition of these loans.
Management is not aware of any material loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention that have been excluded from
nonperforming assets or impaired loans. Impaired loans at December 31, 2001 and
2000 are $62.4 million and $46.8 million, respectively. Management further
believes nonperforming assets and impaired loans include all material loans in
which doubts exist as to the collectibility of amounts due according to the
contractual terms of the loan agreement.
TABLE 12 NONPERFORMING ASSETS AND PAST DUE LOANS
(Dollars in thousands)
DECEMBER 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
------- ------ ------ ------ ------
Nonaccrual loans ............................................ $51,163 40,863 26,672 20,756 18,304
Restructured loans .......................................... 423 846 1,252 452 563
------- ------ ------ ------ ------
Nonperforming loans ..................................... 51,586 41,709 27,924 21,208 18,867
Loans 90 days past due and still accruing ................... 27,134 33,587 16,878 24,640 20,963
------- ------ ------ ------ ------
Total ............................................... $78,720 75,296 44,802 45,848 39,830
======= ====== ====== ====== ======
Nonperforming assets:
Nonperforming loans(a) .................................. $51,586 41,709 27,924 21,208 18,867
Other real estate ....................................... 15,867 13,898 6,718 9,536 10,545
------- ------ ------ ------ ------
Total ............................................... $67,453 55,607 34,642 30,744 29,412
======= ====== ====== ====== ======
Nonperforming assets to total loans and other real estate ... 0.54% 0.52 0.38 0.40 0.43
======= ====== ====== ====== ======
Allowance for loan losses to nonperforming loans ............ 331.04% 354.52 456.80 538.05 560.26
======= ====== ====== ====== ======
Interest income on nonperforming loans that would have been reported
for the years ended December 31, 2001, 2000, and 1999 is summarized as follows:
-------------------------------
2001 2000 1999
------- ----- -----
Interest at contractual rates(b) .................................................... $ 6,550 3,586 3,177
Less interest recorded as income .................................................... 3,593 1,329 569
------- ----- -----
Reduction of interest income ..................................................... $ 2,957 2,257 2,608
======= ===== =====
(a) Nonperforming assets exclude loans 90 days past due and still accruing
interest.
(b) Interest income that would have been recorded if the loans had been current
and performing in accordance with their original terms.
F-38
TABLE 13 AVERAGE DEPOSITS
(Dollars in thousands)
DECEMBER 31,
----------------------------------------------------------------------
2001 %(*) 2000 %(*) 1999 %(*)
----------- ----- ---------- ----- --------- -----
Non-interest bearing demand deposits ... $ 1,693,911 14.9 1,562,096 15.6 1,450,547 16.0
Interest bearing demand deposits ....... 1,654,570 14.6 1,423,625 14.2 1,355,301 15.0
Money market accounts .................. 2,354,665 20.7 1,910,172 19.0 1,796,114 19.9
Savings deposits ....................... 419,074 3.7 436,305 4.3 466,879 5.2
Time deposits under $100,000 ........... 2,608,502 23.0 2,492,611 24.9 2,436,688 27.0
Time deposits $100,000 and over ........ 2,621,459 23.1 2,203,775 22.0 1,527,174 16.9
----------- ----- ---------- ----- --------- -----
Total average deposits ............. $11,352,181 100.0 10,028,584 100.0 9,032,703 100.0
=========== ===== ========== ===== ========= =====
(*) Average deposits balance in each category expressed as percentage of total
average deposits.
DEPOSITS
Deposits provide the most significant funding source for interest
earning assets. Table 13 shows the relative composition of average deposits for
2001, 2000, and 1999. Refer to Table 14 for the maturity distribution of time
deposits of $100,000 or more. These larger deposits represented 22.1% and 22.9%
of total deposits at December 31, 2001 and 2000, respectively. Large
denomination time deposits are generally from customers within the local market
areas of subsidiary banks, and, therefore, provide a greater degree of stability
than is typically associated with this source of funds. Synovus also utilizes
national market brokered deposits as a funding source while continuing to
maintain and grow its local market large denomination time deposit base. Time
deposits over $100,000 at December 31, 2001, 2000, and 1999 were $2.7 billion,
$2.6 billion, and $1.8 billion, respectively. Interest expense for the years
ended December 31, 2001, 2000, and 1999, on these large denomination deposits
was $144.9 million, $138.1 million, and $82.7 million, respectively.
In 2001, Synovus continued to focus on growing in-market core deposits,
particularly money market, NOW, and non-interest bearing demand deposits, with
the objective of reducing the overall cost of funds. During 2001, average
deposits increased $1.32 billion or 13.2%, to $11.3 billion from $10.0 billion
in 2000. Average interest bearing deposits for 2001, which include interest
bearing demand deposits, money market accounts, savings deposits, and time
deposits, increased $1.19 billion or 14.1% from 2000. Average non-interest
bearing demand deposits increased $131.8 million or 8.4% during 2001. Average
interest bearing deposits increased $884.3 million or 11.7% from 1999 to 2000,
while average non-interest bearing demand deposits increased $111.5 million, or
7.7%. See Table 3 for further information on average deposits, including the
average rates paid in 2001, 2000, and 1999.
TABLE 14 MATURITY DISTRIBUTION OF TIME DEPOSITS
OF $100,000 OR MORE
(In thousands)
DECEMBER 31, 2001
-----------------
3 months or less ................... $ 932,185
Over 3 months through 6 months ..... 540,863
Over 6 months through 12 months .... 680,989
Over 12 months ..................... 531,564
----------
Total outstanding .............. $2,685,601
==========
INTEREST RATE RISK MANAGEMENT
Managing interest rate risk is a primary goal of the 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 assets and liabilities along with the selective use of
derivative instruments.
Simulation modeling is the primary tool used by Synovus to measure its
interest rate sensitivity. On at least a quarterly basis, the following
twenty-four month time period is simulated to determine a baseline net interest
income forecast and the sensitivity of this forecast to changes in interest
rates. These simulations include all of the company's earning assets,
liabilities and derivative instruments. Forecasted balance sheet changes,
primarily reflecting loan and deposit growth forecasts, are included in the
periods modeled. 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 prepayment level changes on selected assets and liabilities
subject to prepayment.
Synovus maintains policies designed to limit the maximum acceptable
negative impact on net interest income over twelve and twenty-four month time
horizons from a gradual change in short-term interest rates of up and down 200
basis points. These policies specify the maximum allowable negative change in
net interest income in the rising and declining rate scenarios from the stable
rate scenarios. The current policy limits this change to 5% of projected net
interest income for the twelve-month time horizon and 7% for the twenty-four
month time horizon.
Due to actions taken by the Federal Reserve Board in 2001, short-term
interest rates ended the year at their lowest level in several decades. For the
year, the targeted federal funds rate declined 475 basis points to 1.75%.
Synovus believes that further declines in this rate are unlikely; however,
Synovus has modeled its exposure to a further gradual 100 basis point decline in
this rate to .75%. In this scenario, net interest income for 2002 would decrease
by approximately .8% as compared to an unchanged interest rate environment. In a
gradually rising interest rate environment, Synovus would expect 2002 net
interest income to increase as compared to an unchanged interest rate
environment. These increases would be approximately 2.6% for a gradual 100 basis
point increase and 5.2% for a gradual 200 basis point increase. The actual
change in net interest income would also depend on the specific changes in asset
and liability volumes and mix experienced over these time horizons. Market
conditions and their resulting
F-39
impact on loan and deposit pricing are also a primary determinant of the
realized net interest income.
Synovus also utilizes simulation modeling to evaluate the longer-term
interest rate risk position of the company. Synovus measures this position by
simulating the market value of equity in changing rate environments. The model
estimates the impact of an immediate 200 basis point rate shock on the present
value of the future cash flows of all assets, liabilities, and derivative
instruments. Synovus maintains a policy guideline limiting the maximum allowable
change in the market value of equity in both rising and declining rate shocks.
This policy limits the maximum allowable change to an amount equal to 15% of
shareholders' equity. Synovus was within this guideline at year-end.
Another tool utilized by 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 15 reflects the gap
positions of the consolidated balance sheets at December 31, 2001 and 2000, 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 the
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 changes.
Management would anticipate a lengthening of average investment maturities in a
rising rate environment and a more moderate 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 a cumulative three-month
gap of positive 6.7% and a cumulative one-year gap of minus .5% as of December
31, 2001. These gap measurements would indicate an asset sensitive positioning
in the short term with a more balanced position over longer time periods.
Management believes that adjusted gap analysis is a useful tool for measuring
interest rate risk only when used in conjunction with its simulation model.
TABLE 15 INTEREST RATE SENSITIVITY
(Dollars in millions)
DECEMBER 31, 2001
--------------------------------------------------------
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS
-------- -------- ------- -------
Investment securities(*) ...................................... $ 222.0 398.4 1,054.8 370.9
Loans, net of unearned income ................................. 6,403.9 1,535.7 3,800.6 677.7
Mortgage loans held for sale .................................. 397.9 -- -- --
Other ......................................................... 27.6 -- -- --
-------- -------- ------- -------
Interest sensitive assets ................................. 7,051.4 1,934.1 4,855.4 1,048.6
-------- -------- ------- -------
Deposits ...................................................... 3,962.3 3,116.9 2,701.0 381.4
Other borrowings .............................................. 1,821.8 5.2 482.8 89.1
-------- -------- ------- -------
Interest sensitive liabilities ............................ 5,784.1 3,122.1 3,183.8 470.5
-------- -------- ------- -------
Interest rate swaps ....................................... (265.0) 105.0 145.0 15.0
-------- -------- ------- -------
Interest sensitivity gap .............................. $1,002.3 (1,083.0) 1,816.6 593.1
======== ======== ======= =======
Cumulative interest sensitivity gap ................... $1,002.3 (80.7) 1,735.9 2,329.0
======== ======== ======= =======
Cumulative interest sensitivity gap as a percentage
of total interest sensitive assets .................. 6.7% (0.5) 11.7 15.6
======== ======== ======= =======
DECEMBER 31, 2001
--------------------------------------------------------
0-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS
-------- -------- ------- -------
Investment securities(*) ...................................... $ 131.3 199.0 960.6 775.8
Loans, net of unearned income ................................. 5,054.1 1,581.8 3,552.5 563.5
Mortgage loans held for sale .................................. 108.2 -- -- --
Other ......................................................... 378.0 -- -- 1.8
-------- -------- ------- -------
Interest sensitive assets ................................. 5,671.6 1,780.8 4,513.1 1,341.1
-------- -------- ------- -------
Deposits ...................................................... 3,072.5 3,373.0 2,448.0 541.4
Other borrowings .............................................. 1,527.9 1.7 301.9 49.3
-------- -------- ------- -------
Interest sensitive liabilities ............................ 4,600.4 3,374.7 2,749.9 590.7
-------- -------- ------- -------
Interest rate swaps ....................................... (500.0) 135.0 365.0 --
-------- -------- ------- -------
Interest sensitivity gap .............................. $ 571.2 (1,458.9) 2,128.2 750.4
======== ======== ======= =======
Cumulative interest sensitivity gap ................... $ 571.2 (887.7) 1,240.5 1,990.9
======== ======== ======= =======
Cumulative interest sensitivity gap as a percentage
of total interest sensitive assets .................. 4.3% (6.7) 9.3 14.6
======== ======== ======= =======
(*) Excludes the effect of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", consisting of net unrealized gains of $42.4
million and $9.9 million at December 31, 2001 and 2000, respectively.
F-40
The calculation of weighted average yields for investment securities in
Table 16 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.
TABLE 16 MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS
DECEMBER 31, 2001
-------------------------------
(Dollars in thousands) INVESTMENT SECURITIES
AVAILABLE FOR SALE
-------------------------------
ESTIMATED AVERAGE
FAIR VALUE YIELD
---------- -------
U.S. Treasury and
U.S. Government agencies:
Within 1 year .................. $ 108,416 5.90%
1 to 5 years ................... 633,978 5.68
5 to 10 years .................. 289,383 6.38
More than 10 years ............. 19,424 6.63
---------- ----
Total ...................... 1,051,201 5.91
---------- ----
State and municipal:
Within 1 year .................. 12,286 7.03
1 to 5 years ................... 67,793 6.86
5 to 10 years .................. 98,819 7.27
More than 10 years ............. 63,748 7.66
---------- ----
Total ...................... 242,646 7.24
---------- ----
Other investments:
Within 1 year .................. 3,300 5.84
1 to 5 years ................... 11,873 6.69
5 to 10 years .................. 157 4.22
More than 10 years ............. 43,705 5.75
---------- ----
Total ...................... 59,035 5.93
---------- ----
Mortgage-backed securities ......... 735,405 6.26
---------- ----
Total investment securities:
Within 1 year .................. 124,002 6.01
1 to 5 years ................... 713,644 5.80
5 to 10 years .................. 388,359 6.60
More than 10 years ............. 126,877 6.84
Mortgage backed securities ..... 735,405 6.26
---------- ----
Total ...................... $2,088,287 6.19%
========== ====
DERIVATIVES INSTRUMENTS FOR INTEREST RATE RISK MANAGEMENT
As part of its overall interest rate risk management activities,
Synovus utilizes certain derivative instruments to modify the repricing
characteristics of 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 LIBOR. These swaps are
utilized to effectively convert on-balance sheet floating rate loans to fixed
rate assets and to convert fixed-rate liabilities to floating rate liabilities.
Interest rate contracts 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 believes 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 interest rate swap and floor contracts utilized
by Synovus as of December 31, 2001 and 2000, was $265 million and $520 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.
A summary of interest rate contracts and their terms at December 31,
2001 and 2000 is shown in Table 17. In accordance with the provisions of SFAS
No. 133, the fair value (net unrealized gain) of these contracts was recorded on
the consolidated balance sheet beginning January 1, 2001. Prior to the adoption
of SFAS No. 133 (2000 and prior years), the fair value of these instruments was
considered off-balance sheet and not recorded on the financial statements.
During 2001, there were six maturities and six terminations. There were
five maturities and eight terminations in 2000. Interest rate contracts
contributed additional net interest income of $6.4 million and a five basis
point increase in the net interest margin for 2001. For 2000, interest rate
contracts contributed to a decrease in net interest income of $2.3 million and a
two basis point decrease in the net interest margin.
TABLE 17 INTEREST RATE CONTRACTS
WEIGHTED NET
(Dollars in thousands) WEIGHTED WEIGHTED WEIGHTED AVERAGE UNREALIZED
NOTIONAL AVERAGE AVERAGE AVERAGE MATURITY UNREALIZED UNREALIZED GAINS
AMOUNT RECEIVE RATE PAY RATE(*) FLOOR RATE IN MONTHS GAINS LOSSES (LOSSES)
-------- ------------ ----------- ---------- --------- ---------- ---------- ----------
DECEMBER 31, 2001
RECEIVE FIXED SWAPS:
FAIR VALUE HEDGES (LIBOR) .......... $100,000 6.55% 2.08% n/a 32 $ 2,600 (514) 2,086
CASH FLOW HEDGES (PRIME) ........... 165,000 8.66% 4.75% n/a 17 7,173 -- 7,173
-------- ------- ---- -----
TOTAL .............................. $265,000 7.87% 3.74% 23 9,773 (514) 9,259
-------- ------- ---- -----
DECEMBER 31, 2000
Receive fixed swaps - LIBOR ........ $180,000 6.92% 6.55% n/a 20 $ 2,521 (132) 2,389
Receive fixed swaps - Prime ........ 320,000 8.76% 9.50% n/a 26 1,645 (393) 1,252
-------- ------- ---- -----
Total receive fixed swaps .. 500,000 8.10% 8.44% 24 4,166 (525) 3,641
-------- ------- ---- -----
Purchased interest rate floors ..... 20,000 n/a n/a 8.00% 2 -- (6) (6)
-------- ------- ---- -----
Total .............................. $520,000 23 $ 4,166 (531) 3,635
======== ======= ==== =====
(*) Variable pay rate based upon contract rates in effect at December 31,
2001 and 2000.
F-41
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.
Market risk arises primarily from interest rate risk inherent in
Synovus' lending and deposit taking activities. The structure of the loan and
deposit portfolios is such that a decline in the prime rate and other market
rates may negatively impact net market values and interest income. Management
seeks to manage this risk through the utilization of various tools, primarily
investment securities and derivative 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. Derivative instruments are also utilized to reduce
the risk in the 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 hedge the market risk created by on-balance sheet
floating rate loans and fixed rate deposits. These swaps allow Synovus to reduce
the exposure to declining interest rates inherent in its combined deposit and
loan portfolios.
Table 18 presents in tabular form the contractual balances and the
estimated fair value of on-balance sheet financial instruments and the notional
amount and estimated fair value of derivative instruments at their expected
maturity dates as of December 31, 2001, with comparative summary balances at
December 31, 2000. Investment securities' cash flows are reflected at their
contractual maturity date, except for mortgage-backed securities' cash flows
which are reflected in the period in which they are expected to prepay taking
into consideration historical prepayment experience and current interest rate
levels. 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 judgment concerning their most likely runoff or
repricing behaviors. Table 18 presents notional amounts and weighted-average
interest rates by contractual maturity date for derivative 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 tied to LIBOR and the
December 31, 2001 prime rate for each respective swap tied to prime. There have
been no substantial changes in the market risk profile from the preceding year
and the assumptions are consistent with prior year assumptions.
TABLE 18 MARKET RISK INFORMATION
(Dollars in thousands)
PRINCIPAL/NOTIONAL
AMOUNT MATURING IN: 2002 2003 2004 2005 2006
---------- --------- --------- ------- -------
RATE-SENSITIVE ASSETS:
Fixed interest rate loans .................. $2,232,212 1,111,597 1,278,355 640,266 770,393
Average interest rate ...................... 7.79% 8.35% 7.97% 8.16% 7.72%
Variable interest rate loans ............... $4,985,293 136,436 117,313 146,482 186,603
Average interest rate ...................... 5.15% 6.12% 6.28% 6.73% 6.49%
Fixed interest rate securities ............. $ 381,371 276,229 302,854 260,727 214,425
Average interest rate ...................... 6.18% 6.05% 6.10% 5.77% 5.91%
Variable interest rate securities .......... $ 13,760 7,483 4,374 2,730 1,814
Average interest rate ...................... 6.25% 6.23% 6.22% 6.22% 6.23%
Equity securities .......................... $ -- -- -- -- --
Average interest ........................... -- -- -- -- --
Other interest bearing assets .............. $ 425,497 -- -- -- --
Average interest rate ...................... 6.35% -- -- -- --
RATE-SENSITIVE LIABILITIES:
Savings and interest bearing checking ...... $2,922,286 445,380 445,380 402,783 402,782
Average interest rate ...................... 1.58% 1.18% 1.18% 1.12% 1.12%
Fixed interest rate time deposits .......... $4,071,766 686,582 154,315 110,010 53,767
Average interest rate ...................... 4.15% 4.20% 4.92% 6.39% 4.83%
Variable interest rate time deposits ....... $ 58,301 26,644 126 -- --
Average interest rate ...................... 3.20% 3.14% 3.35% -- --
Fixed interest rate borrowings ............. $ 5,160 116,000 28,755 260,000 78,000
Average interest rate ...................... 4.77% 5.41% 5.11% 6.95% 4.15%
Variable interest rate borrowings .......... $1,398,790 313,000 105,000 5,000 --
Average interest rate ...................... 1.68% 4.35% 5.66% 5.68% --
RATE-SENSITIVE DERIVATIVE INSTRUMENTS:
Pay variable interest rate swaps - LIBOR ... $ 50,000 20,000 -- -- 15,000
Average pay rate ........................... 2.23% 2.11% -- -- 1.79%
Average receive rate ....................... 7.19% 7.30% -- -- 4.00%
Pay variable interest rate swaps - Prime ... $ 55,000 65,000 45,000 -- --
Average pay rate ........................... 4.75% 4.75% 4.75% -- --
Average receive rate ....................... 8.40% 8.79% 8.78% -- --
Purchased interest rate floors - Prime ..... $ -- -- -- -- --
Average strike rate ........................ -- -- -- -- --
(Dollars in thousands)
FAIR FAIR
PRINCIPAL/NOTIONAL TOTAL VALUE TOTAL VALUE
AMOUNT MATURING IN: THEREAFTER 2001 2001 2000 2000
---------- --------- --------- --------- ---------
Rate-sensitive assets:
Fixed interest rate loans .................. 677,702 6,710,525 6,868,183 6,448,988 6,437,516
Average interest rate ...................... 7.61% 7.93% 8.76%
Variable interest rate loans ............... 135,265 5,707,392 5,707,392 4,302,899 4,302,468
Average interest rate ...................... 5.52% 5.29% 9.94%
Fixed interest rate securities ............. 510,542 1,946,148 1,987,425 1,953,346 1,967,853
Average interest rate ...................... 6.78% 6.22% 6.48%
Variable interest rate securities .......... 15,877 46,038 46,829 68,930 69,003
Average interest rate ...................... 5.54% 6.00% 6.67%
Equity securities .......................... 53,746 53,746 54,033 44,490 45,416
Average interest ........................... -- -- --
Other interest bearing assets .............. -- 425,497 425,497 487,805 487,805
Average interest rate ...................... -- 6.35% 6.68%
Rate-sensitive liabilities:
Savings and interest bearing checking ...... 359,838 4,978,449 4,978,449 4,302,835 4,302,405
Average interest rate ...................... 0.91% 1.39% 3.85%
Fixed interest rate time deposits .......... 21,626 5,098,066 5,161,101 5,058,307 5,056,283
Average interest rate ...................... 5.18% 4.24% 6.33%
Variable interest rate time deposits ....... 89 85,160 85,174 73,751 73,745
Average interest rate ...................... 3.39% 3.18% 6.03%
Fixed interest rate borrowings ............. 89,060 576,975 598,970 356,285 346,986
Average interest rate ...................... 5.36% 5.91% 6.75%
Variable interest rate borrowings .......... -- 1,821,790 1,831,395 1,524,474 1,519,245
Average interest rate ...................... -- 2.38% 6.50%
Rate-sensitive derivative instruments:
Pay variable interest rate swaps - LIBOR ... 15,000 100,000 2,086 180,000 2,389
Average pay rate ........................... 1.80% 2.08% 6.55%
Average receive rate ....................... 6.00% 6.55% 6.92%
Pay variable interest rate swaps - Prime ... -- 165,000 7,173 320,000 1,252
Average pay rate ........................... -- 4.75% 9.50%
Average receive rate ....................... -- 8.66% 8.76%
Purchased interest rate floors - Prime ..... -- -- -- 20,000 --
Average strike rate ........................ -- -- 8.00%
F-42
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. Synovus' strong capital position, solid core
deposit base, and excellent credit ratings are the cornerstones of its liquidity
management activities.
The Synovus Asset/Liability Management Committee actively analyzes and
manages the liquidity position in coordination with similar committees at
subsidiary banks. These subsidiaries maintain liquidity in the form of cash on
deposit, 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 253 banking offices in four states. The subsidiary banks monitor
deposit flow and evaluate alternate pricing structures to retain and grow
deposits. Liquidity is also enhanced by the subsidiary banks' strong reputation
in the national deposit markets. This reputation allows subsidiary banks to
issue longer-term certificates of deposit to enhance their liquidity and funding
positions.
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
lines, which allows Synovus to meet immediate liquidity needs if required. These
lines total approximately $2.9 billion and are extended at the ongoing
discretion of the correspondent financial institutions. Synovus' strong credit
rating is a primary determinant in the continued availability of these lines.
Should Synovus' credit rating decline to a level below investment grade, these
lines' availability would be significantly diminished. For this reason, Synovus
maintains additional sources of liquidity including a collateralized borrowing
account with the Federal Reserve Bank.
Synovus serves diverse 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 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. At year-end 2001,
these banks had access to additional funding of approximately $1.2 billion,
subject to available collateral and Federal Home Loan Bank credit policies,
through 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. As a short-term liquidity source, the
Parent Company has access to a $25 million line of credit with an unaffiliated
banking organization. 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 utilized this capability in December 2000 by issuing $200 million of
five year maturity senior debt. This debt bears a coupon interest rate of 7.25%
and is rated "A" by Standard & Poors Corp. and "A2" by Moody's Investor Service.
For a complete description of these borrowings and other borrowings by Synovus
subsidiaries, see Note 7 to the consolidated financial statements.
The consolidated statements of cash flows detail cash flows from
operating, investing, and financing activities. Net cash provided by operating
activities was $178 million for the year ended December 31, 2001, while
financing activities provided $964 million. Investing activities used $1.1
billion of this amount, resulting in a net increase in cash and cash equivalents
of $90.1 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 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.
Table 19 sets forth certain information about contractual cash
obligations at December 31, 2001.
TABLE 19 CONTRACTUAL CASH OBLIGATIONS
PAYMENTS DUE AFTER DECEMBER 31, 2001
(In thousands) --------------------------------------------------------------------------------
1 YEAR OR LESS 1 - 3 YEARS 4 - 5 YEARS AFTER 5 YEARS TOTAL
-------------- ----------- ----------- ------------- ---------
Long term debt $ 57,860 562,755 343,000 89,060 1,052,675
Capital lease obligations 135 133 -- -- 268
Operating leases 106,699 130,566 51,772 21,200 310,237
-------------- ----------- ----------- ------------- ---------
Total contractual cash obligations $164,694 693,454 394,772 110,260 1,363,180
============== =========== =========== ============= =========
In 1997, TSYS entered into an operating lease agreement with a special
purpose entity (SPE) for its corporate campus. The business purpose of the SPE
was to provide a means of financing TSYS' corporate campus. The assets and
liabilities of the SPE consist solely of the cost of the building and the loans
from a consortium of banks. Both the cost of the building and the outstanding
principal balance of the debt resident within the financial statements of the
SPE approximate $93.5 million. The lease, which is guaranteed by Synovus,
provides for substantial residual value guarantees. The amount of the residual
value guarantees relative to the assets under this lease is approximately $81.4
million.
Due to the nature of the lease, no asset or obligation is recorded on
Synovus' consolidated balance sheet. The terms of this lease financing
arrangement require, among other things, that TSYS maintain certain minimum
financial ratios and provide certain information to the lessor. TSYS is also
subject to interest rate risk associated with this lease. The payments under the
operating lease arrangement, which can be locked in for six month intervals, are
tied to the floating London Interbank Offered Rate (LIBOR). In the event that
LIBOR rates increase, operating expenses could increase proportionately.
F-43
The campus lease expires in November 2002. TSYS has the option to
either renew the lease subject to prevailing market rates or purchase the
property at its original cost. TSYS is currently evaluating which option to
pursue. As a result, TSYS and/or Synovus will have a future cash obligation,
with respect to the corporate campus, beyond the lease expiration of November
2002.
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 $1.69 billion represented 10.17% of total assets at
December 31, 2001.
TABLE 20 CAPITAL RATIOS
DECEMBER 31,
(Dollars in thousands) --------------------------------------
2001 2000
------------ ------------
Tier I capital:
Shareholders' equity .................. $ 1,694,946 $ 1,417,171
Net unrealized gain on investment
securities available for sale ....... (26,047) (7,239)
Net unrealized gain on
cash flow hedges .................... (6,081) --
Disallowed intangibles ................ (30,703) (35,246)
Minority interest ..................... 98,638 80,890
------------ ------------
Total Tier I capital ............... 1,730,753 1,455,576
------------ ------------
Tier II capital:
Eligible portion of the allowance
for loan losses ..................... 170,769 147,867
Subordinated and other
qualifying debt ..................... -- 1,240
Eligible portion of unrealized gain
on equity securities ................ 3,138 682
------------ ------------
Total Tier II capital .............. 173,907 149,789
------------ ------------
Total risk-based capital ................. $ 1,904,660 1,605,365
============ =========
Total risk-adjusted assets ............... $ 14,711,486 12,620,358
============ ==========
Tier I capital ratio ..................... 11.76% 11.54
Total risk-based capital ratio ........... 12.95 12.73
Leverage ratio ........................... 10.86 10.24
Regulatory minimums
(for well-capitalized status):
Tier I capital ratio .................. 6.00%
Total risk-based capital ratio ........ 10.00
Leverage ratio ........................ 5.00
The regulatory banking agencies 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 primarily consist of letters of credit and loan commitments
that Synovus enters into in the normal course of business. Capital is
categorized into two types: Tier I and Tier II. As a financial holding company,
Synovus and its subsidiary banks are required to maintain capital levels
required for a well-capitalized institution, as defined in the regulations. 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 December 31, 2001, Synovus and all
subsidiary banks were in excess of the minimum capital requirements with a
consolidated Tier I capital ratio of 11.76% and a total risk-based capital ratio
of 12.95%, compared to Tier I and total risk-based capital ratios of 11.54% and
12.73%, respectively, in 2000 as shown in Table 20.
In addition to the risk-based capital standards, a minimum leverage
ratio of 4% is required for the highest-rated financial 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, 2001,
Synovus had a leverage ratio of 10.86% compared to 10.24% at December 31, 2000.
Both ratios significantly exceed regulatory requirements.
Capital levels also exceed 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 financial holding
companies and banks. At December 31, 2001, primary and total capital ratios as
defined by the Federal Reserve Board were 11.35% and 11.35%, respectively,
compared to 10.68% and 10.69%, respectively, at year-end 2000.
The 80.8% 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, 2001, there were approximately 66,060 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 21 displays high and low stock
price quotations of Synovus common stock which are based on actual transactions.
TABLE 21 MARKET AND STOCK PRICE INFORMATION
HIGH LOW
------ -----
2001
QUARTER ENDED DECEMBER 31, 2001 ........ $28.00 23.00
QUARTER ENDED SEPTEMBER 30, 2001 ....... 34.45 24.63
QUARTER ENDED JUNE 30, 2001 ............ 31.77 26.00
QUARTER ENDED MARCH 31, 2001 ........... 28.31 24.04
2000
Quarter ended December 31, 2000 ........ $27.19 19.31
Quarter ended September 30, 2000 ....... 21.44 17.94
Quarter ended June 30, 2000 ............ 20.94 17.56
Quarter ended March 31, 2000 ........... 19.19 14.50
DIVIDENDS
It is Synovus' objective to pay out at least one-third of earnings to
shareholders in cash dividends. The dividend payout ratio was 47.67%, 47.56%,
and 43.70% in 2001, 2000, and 1999, respectively. The total dollar amount of
dividends declared increased 18.9% in 2001 to $148.5 million, from $124.9
million in
F-44
2000. 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 22
presents the declared and paid dates for recent dividends, as well as per share
dividend amounts.
TABLE 22 DIVIDENDS
PER SHARE
DATE DECLARED DATE PAID AMOUNT
--------------------- --------------- --------
2001
DECEMBER 10, 2001 JANUARY 2, 2002 $0.1275
AUGUST 21, 2001 OCTOBER 1, 2001 0.1275
MAY 15, 2001 JULY 2, 2001 0.1275
FEBRUARY 20, 2001 APRIL 2, 2001 0.1275
2000
December 11, 2000 January 2, 2001 $0.1100
September 11, 2000 October 2, 2000 0.1100
May 15, 2000 July 1, 2000 0.1100
March 20, 2000 April 1, 2000 0.1100
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,
Table 23, Note 7, and Note 10 to the consolidated financial statements provide
additional information on short-term and long-term borrowings.
In the normal course of its business, TSYS maintains processing
contracts with its clients. These processing contracts contain commitments,
including, but not limited to, minimum standards and time frames against which
its performance is measured. In the event TSYS does not meet its contractual
commitments with its clients, 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 and its subsidiaries are subject to various legal proceedings
and claims which arise in the ordinary course of its business. Any litigation is
vigorously defended and, in the opinion of management, based on consultation
with external legal counsel, any outcome of such litigation would not materially
affect the consolidated financial position or results of operations.
Currently, multiple lawsuits seeking class action treatment are pending
against one of the 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 subsidiary; (2) the
forced placement of insurance to protect that subsidiary's interest in
collateral for which consumer credit customers have failed to obtain or maintain
insurance; and (3) the receipt of commissions by that subsidiary in connection
with the sale of credit life insurance to its consumer credit customers and the
charging of an interest surcharge and a processing fee in connection with
consumer loans made by that subsidiary. 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.
SHORT-TERM BORROWINGS
The following table sets forth certain information regarding federal
funds purchased and securities sold under repurchase agreements, the principal
components of short-term borrowings.
TABLE 23 SHORT-TERM BORROWINGS
(Dollars in thousands)
2001 2000 1999
---------- --------- -------
Balance at December 31, ........ $1,345,822 1,039,900 1,261,391
Weighted average interest
rate at December 31, ......... 1.67% 6.67 5.49
Maximum month end
balance during the year ...... $1,551,534 1,446,393 1,261,391
Average amount outstanding
during the year .............. $1,153,878 1,248,983 786,954
Weighted average interest
rate during the year ......... 3.70% 6.28 5.01
INCOME TAX EXPENSE
As reported in the consolidated statements of income, income tax
expense increased to $178.4 million in 2001, up from $149.2 million in 2000, and
$124.0 million in 1999. The effective income tax rate was 36.4%, 36.2%, and
35.5% in 2001, 2000, and 1999, respectively. See Note 15 of the 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 deals 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
businesses, fund internal growth, 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 $162.6 million in dividends could be paid in 2002 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.
F-45
RECENTLY ISSUED ACCOUNTING STANDARDS
Synovus adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In
accordance with the transition provisions of SFAS No. 133, Synovus recorded a
net-of-tax cumulative-effect gain of $.8 million in accumulated other
comprehensive income to recognize at fair value all derivative instruments that
are designated as cash flow hedges. As of December 31, 2001, the net-of-tax fair
value of these derivative instruments and the unamortized balance of deferred
gains for terminated derivative instruments carried as a component of
accumulated other comprehensive income was $6.1 million. Synovus expects to
reclassify from accumulated other comprehensive income approximately $4.1
million as net-of-tax earnings during the next twelve months, as the related
payments from interest rate swaps and amortization of deferred gains are
recorded. During 2001, Synovus terminated certain cash flow hedges which
resulted in a net pre-tax gain of $3.3 million. Such gain is included as a
component of accumulated other comprehensive income and is being amortized over
the shorter of the remaining contract life or the maturity of the designated
asset as an adjustment to interest income. The remaining unamortized deferred
gain balance at December 31, 2001 was $2.8 million. Upon adoption of SFAS No.
133, gains and losses on derivative instruments that were previously deferred as
adjustments to the carrying amounts of hedged items were not adjusted.
In connection with the adoption of SFAS No. 133, on January 1, 2001,
Synovus reclassified its investment securities held to maturity portfolio to the
available for sale category.
In July 2001, the FASB issued Statement No. 141 (SFAS No. 141),
"Business Combinations" and Statement No. 142 (SFAS No. 142), "Goodwill and
Other Intangible Assets". SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS No. 141 also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values and reviewed for impairment in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of".
Synovus adopted the provisions of SFAS No. 141 effective July 1, 2001,
and adopted the provisions of SFAS No. 142 effective January 1, 2002.
SFAS No. 141 requires upon the adoption of SFAS No. 142 that Synovus
evaluate its existing intangible assets and goodwill that were acquired in prior
purchase business combinations, and make any necessary reclassifications to
conform with the new criteria in SFAS No. 141 for recognition apart from
goodwill. Upon adoption of SFAS No. 142, Synovus will be required to reassess
the useful lives and residual values of all intangible assets acquired, and make
any necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, Synovus will be required to test
the intangible asset for impairment in accordance with the provisions of SFAS
No. 142 within the first interim period. Any impairment loss will be measured as
of the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement will require Synovus to perform an assessment of
whether there is an indication that goodwill (and equity-method goodwill) is
impaired as of the date of adoption. To accomplish this, Synovus must identify
its reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. Synovus
has until June 30, 2002 to determine the fair value of each reporting unit and
compare it to the reporting unit's carrying amount. To the extent a reporting
unit's carrying amount exceeds its fair value, an indication exists that the
reporting unit's goodwill may be impaired and Synovus must perform the second
step of the transitional impairment test. In the second step, Synovus must
compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with SFAS No. 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the statement of income.
At December 31, 2001, Synovus has unamortized goodwill in the amount of
$27.0 million, which will be subject to the transition provisions of SFAS No.
141 and SFAS No. 142. Amortization expense related to goodwill was $3.0 million
and $2.6 million for the years ended December 31, 2001 and December 31, 2000,
respectively. Because of the extensive effort needed to comply with adopting
SFAS No. 141 and SFAS No. 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the financial statements at the date of
this report, including whether Synovus will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
In August 2001, the FASB issued Statement No. 143 (SFAS No. 143),
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 applies to all entities. SFAS No. 143 applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain lease obligations.
SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Management does not anticipate the adoption
of SFAS No. 143 to have a material effect on its financial condition or results
of operations.
In October 2001, the FASB issued Statement No. 144 (SFAS No. 144),
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of a segment of a business (as
previously defined in that Opinion). This Statement also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary.
SFAS No. 144 improves financial reporting by requiring that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.
F-46
SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years. The provisions are to be applied prospectively. Management does not
anticipate the adoption of SFAS No. 144 to have a material effect on its
financial condition or results of operations.
In November 2001, the FASB released Staff Announcement Topic D-103,
"Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." The FASB Staff Announcement clarified
interpretations of EITF 99-19, "Reporting Revenue Gross as a Principal versus
Net as an Agent", stating that the Staff believes that reimbursements received
for out-of-pocket expenses should be characterized as revenue.
The reimbursements and corresponding out-of-pocket expenses that meet
the criteria for gross reporting, as outlined in the Staff Announcement, are
incurred primarily at TSYS. Historically, TSYS has recorded such reimbursements
as a reduction of expense, with the largest reimbursed expenses being postage
and express courier charges.
The Staff Announcement is effective for financial reporting periods
beginning after December 15, 2001. Upon application of this Staff Announcement,
comparative financial statements for prior periods will be reclassified to
provide consistent presentation.
Synovus does not expect the new Staff Announcement to have any impact
on its financial position or net income. However, TSYS' operating and net income
margins will be reduced as a result of the gross-up of revenues and expenses for
reimbursable expenses.
EARNINGS OUTLOOK
Notwithstanding the evolving economic conditions, Synovus is cautiously
optimistic that the southeastern economy will support its earnings per share
growth targets. Considering these factors, Synovus presently expects to grow
earnings per share in 2002 and 2003 by 15-18% annually. In estimating expected
growth in earnings per share, Synovus assumed, among other things, that:
- Banking services' net income will increase between 12-14%
annually, with net interest margins remaining stable. Annual
loan growth will be in the 10-11% range, and credit quality
will remain solid.
- Financial Management Services and insurance revenues will
increase between 25-30% annually.
- TSYS will increase net income by 20% in 2002 and by at least
20-25% in 2003.
- Increases in Financial Services' expenses will not exceed 4%
annually over the next two years.
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"). These
forward-looking statements include, among others, statements regarding
management's belief concerning the adequacy of the allowance for loan losses;
TSYS' belief with respect to its ability to meet its contractual commitments;
management's belief with respect to the economic and interest rate environments
and their impact on Synovus; management's belief with respect to the resolution
of certain loan delinquencies and the inclusion of all material loans in which
doubt exists as to collectibility in nonperforming assets and impaired loans;
the expected impact on Synovus of recent accounting pronouncements; Synovus'
expected growth in earnings per share for 2002 and 2003 and the assumptions
underlying such statements, including, with respect to Synovus' expected
increases in banking services' net income and loan growth; expected annual
increases in Financial Management Services' revenues; expected annual increases
in net income of TSYS; and expected annual increases in Financial Services'
expenses. In addition, certain statements in future filings by Synovus with the
Securities and Exchange Commission, in press releases, and in oral and written
statements made by or with the approval of Synovus which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Act. Examples of forward-looking statements include, but are not limited to: (i)
projections of revenues, income or loss, earnings or loss per share, the payment
or non-payment of dividends, capital structure, efficiency ratios and other
financial terms; (ii) statements of plans and objectives of Synovus or its
management or Board of Directors, including those relating to products or
services; (iii) statements of future economic performance; and (iv) statements
of assumptions underlying such statements. Words such as "believes,"
"anticipates," "expects," "intends," "targeted," and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. A number of factors could cause
actual results to differ materially from those contemplated by the
forward-looking statements in the Annual Report. Many of these factors are
beyond Synovus' ability to control or predict. These factors include, but are
not limited to: (i) Synovus' inability to increase its revenues derived from
Financial Management Services and insurance; (ii) TSYS' inability to achieve its
net income goals for the years 2002 through 2003; (iii) Synovus' inability to
achieve its net income goals for banking services; (iv) Synovus' inability to
control Financial Services' expenses; (v) the strength of the U.S. economy in
general and the strength of the local economies in which operations are
conducted; (vi) the effects of and changes in trade, monetary and fiscal
policies, and laws, including interest rate policies of the Federal Reserve
Board; (vii) inflation, interest rate, market and monetary fluctuations; (viii)
the timely development of and acceptance of new products and services and
perceived overall value of these products and services by users; (ix) changes in
consumer spending, borrowing, and saving habits; (x) technological changes are
more difficult or expensive than anticipated; (xi) acquisitions; (xii) the
ability to increase market share and control expenses; (xiii) 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; (xiv) 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; (xv) changes in
Synovus' organization, compensation, and benefit plans; (xvi) the costs and
effects of litigation and of unexpected or adverse outcomes in such litigation;
(xvii) a deterioration in credit quality or a reduced demand for credit; (xviii)
Synovus' inability to successfully manage any impact from slowing economic
conditions or consumer spending; (xix) the occurrence of catastrophic events
that could impact Synovus or TSYS or its major customers' operating facilities,
communication systems and technology or that has a material negative impact on
current economic conditions or levels of consumer spending; (xx) successfully
managing the potential both for patent protection and patent liability in the
context of rapidly developing legal framework for expansive software patent
protection; and (xxi) 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-47
SUMMARY OF QUARTERLY FINANCIAL DATA
Presented below is a summary of the unaudited consolidated quarterly financial
data for the years ended December 31, 2001 and 2000.
(In thousands, except per share data)
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- -------
2001
INTEREST INCOME .................. $269,488 280,753 288,034 292,613
======== ======= ======= =======
NET INTEREST INCOME .............. 170,772 158,718 153,888 146,413
======== ======= ======= =======
PROVISION FOR LOSSES ON LOANS .... 16,717 10,799 13,170 10,987
======== ======= ======= =======
INCOME BEFORE INCOME TAXES ....... 133,694 123,848 119,386 113,065
======== ======= ======= =======
NET INCOME ....................... 85,211 78,905 75,615 71,885
======== ======= ======= =======
NET INCOME PER SHARE, BASIC ...... .29 .27 .26 .25
======== ======= ======= =======
NET INCOME PER SHARE, DILUTED .... .29 .27 .26 .25
======== ======= ======= =======
2000
Interest income .................. $294,972 283,564 269,000 250,269
======== ======= ======= =======
Net interest income .............. 143,542 140,241 141,580 136,969
======== ======= ======= =======
Provision for losses on loans .... 11,096 9,622 12,712 10,911
======== ======= ======= =======
Income before income taxes ....... 117,102 101,467 97,329 95,837
======== ======= ======= =======
Net income ....................... 74,682 64,731 61,752 61,392
======== ======= ======= =======
Net income per share, basic ...... .26 .23 .22 .22
======== ======= ======= =======
Net income per share, diluted .... .26 .23 .22 .22
======== ======= ======= =======
F-48
APPENDIX A
SYNOVUS FINANCIAL CORP.
Post Office Box 120, Columbus, Georgia 31902-0120
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD April 24, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
By signing on the reverse side, I hereby appoint Thomas J. Prescott and Liliana
McDaniel as Proxies, each with full power of substitution, and hereby authorize
them to represent and to vote as designated below all the shares of common stock
of Synovus Financial Corp. held on record by me or with respect to which I am
entitled to vote on February 15, 2002 at the Annual Meeting of Shareholders
to be held on April 24, 2002 or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH ANY
INSTRUCTION INDICATED HEREIN. IF NO INDICATION IS MADE, IT WILL BE VOTED IN
FAVOR OF THE PROPOSALS LISTED HEREIN.
The Board of Directors is not aware of any matters likely to be presented for
action at the Annual Meeting of Shareholders other than the matters listed
herein. However, if any other matters are properly brought before the Annual
Meeting, the persons named in this Proxy or their substitutes will vote upon
such other matters in accordance with their best judgement. This Proxy is
revocable at any time prior to its use.
By signing on the reverse side, I acknowledge receipt of NOTICE of said ANNUAL
MEETING and said PROXY STATEMENT and hereby revoke all Proxies heretofore given
by me for said ANNUAL MEETING.
IN ADDITION TO VOTING AND SIGNING THE PROXY, YOU MUST ALSO COMPLETE AND SIGN THE
CERTIFICATION TO BE ENTITLED TO TEN VOTES PER SHARE.
IF YOU DO NOT VOTE BY PHONE OR OVER THE INTERNET,
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name appears on this Proxy. When shares are held by
joint tenants, both must sign. When signing in a fiduciary or representative
capacity, give your full title as such. If a corporation, please sign in full
corporate name by an authorized officer. If a partnership, please sign in full
partnership name by an authorized person.
[X] PLEASE MARK VOTES AS
IN THIS EXAMPLE
PROXY CERTIFICATE OF BENEFICIAL OWNER
THE BOARD OF DIRECTORS RECOMMENDS A INSTRUCTIONS:Please provide the required
VOTE FOR THE PROPOSALS LISTED BELOW. information. THIS CERTIFICATE MUST BE
SIGNED TO BE VALID. If you do not com-
1. Proposal to elect as directors plete and sign this Certificate of Bene-
to serve until the Annual ficial Owner, your shares covered by the
Meeting of Shareholders in 2005. Proxy to the left will be voted on the
basis of one vote per share.
(01) Daniel P. Amos Yes No
(02) Richard W. Anthony A. Are you the beneficial owner, [ ] [ ]
(03) Joe E. Beverly in all capacities, of more than
(04) Walter M. Deriso, Jr. 1,139,063 shares of Synovus Common
(05) Elizabeth R. James Stock?
(06) Mason H. Lampton
(07) Elizabeth C. Ogie If you answered "No" to Question A,
(08) Melvin T. Stith do not answer B or C. Your shares
represented by the Proxy to the left
With- For all are entitled to ten votes per share.
For hold Except
[ ] [ ] [ ] Yes No
B. If your answer to question A [ ] [ ]
INSTRUCTION: To withhold authority to was "Yes", have you acquired
vote for any individual nominee, mark more than 1,139,063 shares of
the "For All Except" box and strike a Synovus Common Stock since
line through that nominee's name in the February 15, 1998 (including
list above. Your shares will be voted shares received as a stock dividend)?
for the remaining nominee(s). If you answered "No" to Question B,
do not answer Question C. Your shares
2. Proposal to Approve the represented by the Proxy to the left
Synovus Financial Corp. 2002 are entitled to ten votes per share.
Long-Term Incentive Plan.
C. If you answered "Yes" to Question B,
please describe the date and nature
For Against Abstain of your acquisition of all shares of
[ ] [ ] [ ] Synovus Common Stock you have
acquired since February 15, 1998
CONTROL NUMBER: (including shares acquired as a
RECORD DATE SHARES: result of a stock dividend). Your re-
sponse to Question C will determine
which of the shares represented by
the Proxy will be entitled to ten
votes per share.
________________________________________
________________________________________
________________________________________
To the best of my knowledge and belief,
the information provided herein is true
and correct. I understand that the Board
of Directors of Synovus Financial Corp.
may require me to provide additional
information or evidence to document my
beneficial ownership of these shares and
I agree to provide such evidence if so
requested.
Please be sure to sign and [Date ]
date this Proxy. [Date ]
Shareholder Shareholder
sign here Co-owner sign here sign here Co-owner sign here
SYNOVUS FINANCIAL CORP.
DETATCH CARD DETATCH CARD
VOTE BY TELEPHONE VOTE BY INTERNET
It's fast, convenient, and immediate! It's fast, convenient, and your vote
Call Toll-Free on a Touch-Tone Phone is immediately confirmed and posted.
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/snv
There is NO CHARGE for this call.
3. Enter your Control Number located
on your Proxy Card.
3. Enter your Control Number located 4. Follow the instructions provided.
on your Proxy Card.
4. Follow the recorded instructions.
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to
http://www.eproxyvote.com/snv anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
APPENDIX B
SYNOVUS FINANCIAL CORP.
2002 LONG-TERM INCENTIVE PLAN
SECTION 1. General Purpose of Plan
-----------------------------------
The name of this plan is the Synovus Financial Corp. 2002 Long-Term Incentive
Plan (the "Plan"). The purpose of the Plan is to enable Synovus Financial Corp.
(the "Corporation") and its Subsidiaries to attract, retain, motivate, and
reward employees and non-employee directors who make a significant contribution
to the Corporation's long-term success, and to enable such employees and
non-employee directors to acquire and maintain an equity interest in Synovus
Financial Corp.
SECTION 2. Definitions
-----------------------
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Award" means any award of Stock Options, Stock Appreciation Rights,
Restricted Stock, or Performance Awards, whether in cash or stock or
a combination thereof, authorized by the Committee under this Plan.
b. "Board" means the Board of Directors of the Corporation or the
Executive Committee of the Board of Directors of the Corporation.
c. "Cause" means a felony conviction of a Participant or the failure of
a Participant to contest prosecution for a felony, or a
Participant's willful misconduct, dishonesty, embezzlement, fraud,
deceit or civil rights violations, any of which acts cause the
Corporation or any Subsidiary liability or loss, as determined by
the Board.
d. "Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto.
e. "Committee" means the Compensation Committee, or any other committee
of the Board appointed for the purpose of administering the Plan,
which committee shall consist exclusively of two or more
Disinterested Persons, at least two of whom are directors of both
the Corporation and of TSYS. In the context of Awards made to
employees of TSYS, the term "Committee" shall mean only those
members of the Committee who are directors of both the Corporation
and of TSYS.
f. "Commission" means the Securities and Exchange Commission.
g. "Corporation" means Synovus Financial Corp.
h. "Disability" means total and permanent physical or mental disability
or incapacity of an employee to fulfill at any time or from time to
time his normal duties as an employee, as certified in writing by
two competent physicians, one of which shall be selected by the
Committee and the other of which shall be selected by the employee
or his duly appointed guardian or legal or personal representative.
In addition, for purposes of determining Disability as it applies to
any Incentive Stock Option, the term "Disability" shall be
interpreted consistently with Code Sections 421-424.
i. "Disinterested Person" is a person who meets both (i) the definition
of "disinterested person" as set forth in Rule 16b-3 as promulgated
by the Commission under the Exchange Act, or any successor
1
definition adopted by the Commission, and (ii) the definition of
"outside director" as set forth in Code Section 162(m), as amended
from time to time.
j. "Early Retirement" means retirement from active employment with the
Corporation or any Subsidiary pursuant to the early retirement
provisions of the applicable Corporation or Subsidiary pension plan.
k. "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor thereto.
l. "Fair Market Value" means, as of any given date, the closing price
of the Stock on such date (or if no transactions were reported on
such date on the next preceding date on which transactions were so
reported) in the principal market in which such Stock is traded on
such date as reported in The Wall Street Journal (or any other
publication designated by the Committee) except that, with respect
to grants of Restricted Stock, "Fair Market Value" for Restricted
Stock on the date of grant shall be determined as of the time and
date of the Restricted Stock grant by the Compensation Committee.
m. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
n. "Non-Employee Director" means a member of the Board who is
not an employee of the Corporation or its Subsidiaries.
o. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
p. "Normal Retirement" means retirement from active employment with the
Corporation or any Subsidiary on or after the normal retirement date
specified in the applicable Corporation or Subsidiary pension plan.
q. "Participant" means any employee of the Corporation and its
Subsidiaries or Non-Employee Director designated by the Committee
to receive an Award under the Plan.
r. "Performance Award" means an award of shares of Stock or cash to a
Participant pursuant to Section 9 contingent upon achieving certain
performance goals.
s. "Plan" means this Synovus Financial Corp. 2002 Long-Term Incentive
Plan.
t. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 8.
u. "Retirement" means Normal or Early Retirement under the applicable
Corporation or Subsidiary pension plan.
v. "Stock" means the common stock of the Corporation or any successor
corporation.
w. "Stock Appreciation Right" means a right granted under Section 7,
which entitles the holder to receive a cash payment or an award of
Stock or, if applicable, as a credit against the purchase price of a
related Stock Option, in an amount equal to the difference between
(i) the Fair Market Value of the Stock covered by such right at the
date the right is granted and (ii) the Fair Market Value
2
of the Stock covered by such right at the date the right is
exercised, unless otherwise determined by the Committee pursuant to
Section 7, multiplied by the number of shares covered by the right.
x. "Stock Option" means any option to purchase shares of Stock granted
to Participants pursuant to Section 6.
y. "Subsidiary" means any corporation (other than Synovus Financial
Corp.) in an unbroken chain of corporations beginning with the
Corporation if each of the corporations (other than the last
corporation in the unbroken chain) owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in the chain.
z. "TSYS" means Total System Services, Inc., a Subsidiary of the
Corporation of which approximately 19% of the stock is publicly
held.
SECTION 3. Administration
--------------------------
The Plan shall be administered by the Committee, at least two of whom are
directors of both the Corporation and of TSYS, which Committee shall at all
times consist of not less than two Disinterested Persons. Whenever under this
Plan, any act or decision is to be made with respect to Awards made to employees
of TSYS, including without limitation the selection of TSYS employees for the
grant of Awards and the establishment, administration and certification of
attainment of relevant performance goals, if any, such act or decision shall be
made by, and the term "Committee" in that context shall mean, only those members
of the Committee who are directors of both the Corporation and of TSYS.
The Committee shall have the power and authority to grant to eligible
Participants, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock; or (iv) Performance Awards.
In particular, the Committee shall have the authority:
(i) to select the employees of the Corporation and its Subsidiaries
and Non-Employee Directors to whom Stock Options, Stock
Appreciation Rights, Restricted Stock, or Performance Awards or
a combination of the foregoing from time to time will be
granted hereunder;
(ii) to grant Incentive Stock Options, Non-Qualified Stock Options,
Stock Appreciation Rights, Restricted Stock, or Performance
Awards, or a combination of the foregoing, hereunder;
(iii) to determine the number of shares of Stock to be covered by
each such Award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder
including, but not limited to, any restriction on any Award
and/or the shares of Stock relating thereto based on
performance and/or such other factors as the Committee may
determine, in its sole discretion, and any vesting acceleration
features based on performance and/or such other factors as the
Committee may determine, in its sole discretion;
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an Award under this Plan shall be deferred either automatically
or at
3
the election of a Participant, including providing for
and determining the amount (if any) of deemed earnings on any
deferred amount during any deferral period.
Subject to Section 10, the Committee shall have the authority to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
Plan as it shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any agreements
relating thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan shall
be final and binding on all persons, including the Corporation and all Plan
Participants.
SECTION 4. Stock Subject to Plan
---------------------------------
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 14,000,000. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been subject to option cease to be subject to
option without having been exercised, or if any shares subject to any Restricted
Stock, Stock Appreciation Rights, or Performance Awards granted hereunder are
forfeited or such Awards are otherwise terminated without having been exercised,
such shares shall again be available for distribution in connection with future
Awards under the Plan in each case to the full extent available pursuant to the
rules and interpretations of the Securities and Exchange Commission under
Section 16 of the Exchange Act. In the event that prior to the Award's
cancellation, termination, expiration, or lapse, the holder of the Award at any
time received one or more "benefits of ownership" pursuant to such Award (as
defined by the Securities and Exchange Commission, pursuant to any rule or
interpretation promulgated under Section 16 of the Exchange Act), the Stock
subject to such Award shall not be available for regrant under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, or other change in corporate structure affecting the Stock, a
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options granted under the Plan and in the number of
shares subject to Stock Appreciation Rights, Restricted Stock or Performance
Awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, in order to preserve each Participant's
rights substantially proportionate to the Participant's rights existing prior to
such event, provided that the number of shares subject to any Award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Corporation upon the exercise of any Stock
Appreciation Rights associated with any Stock Option the price of which is
adjusted.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Stock with respect to one or more Awards that may be granted to any
one Participant in any calendar year shall be 2,000,000.
SECTION 5. Eligibility
-----------------------
Any employee of the Corporation or any of its Subsidiaries or any Non-Employee
Director is eligible to be granted Stock Options, Stock Appreciation Rights,
Restricted Stock or Performance Awards. The Participants under the Plan shall be
selected from time to time by the Committee, in its sole discretion, from among
those
4
eligible, and the Committee shall determine, in its sole discretion, the
number of shares covered by each Award or grant.
SECTION 6. Stock Options
-------------------------
Stock Options may be granted either alone or in addition to other Awards granted
under the Plan. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve, and the provisions of Stock Option
Awards need not be the same with respect to each optionee.
The Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options (subject to the provisions of Section 15 of the Plan) and (ii)
Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options (in each
case with or without Option Price Adjustment Rights or Stock Appreciation
Rights); provided, however, that Non-Employee Directors shall be eligible to
receive only Non-Qualified Stock Options, and shall not be eligible to receive
Incentive Stock Options. To the extent that any Stock Option does not qualify as
an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code.
Stock Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of
grant. The option price per share of Stock may be equal to or more or
less than the Fair Market Value of the Stock on the date of grant,
except that the option price for any Incentive Stock Option shall be
not less than 100% of the Fair Market Value of the Stock on the date
of the grant of the Stock Option (determined without regard to any
Stock Appreciation Rights). If the option is an Incentive Stock Option
and if the employee to whom the Incentive Stock Option is granted owns
directly or indirectly more than 10% of the total combined voting
power of all classes of Stock immediately before the grant of the
option, then the option price per share of Stock must be at least 110%
of the Fair Market Value of the Stock on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten
years after the date such Stock Option is granted. If the option is an
Incentive Stock Option and if the employee to whom the Incentive Stock
Option is granted owns directly or indirectly more than 10% of the
total combined voting power of all classes of Stock immediately before
the grant of the option, then the term of the option may not exceed
five years.
(c) Exercisability. Subject to paragraph (j) of this Section 6 with
respect to Incentive Stock Options, Stock Options shall be exercisable
at such time or times and subject to such terms and conditions as
shall be determined by the Committee at grant, provided, however, that
except as provided in paragraphs (f) and (g) of Section 6, unless a
longer vesting period is otherwise determined by the
5
Committee at grant, no Stock Option shall be exercisable for a period
of six months after the date of the grant of the option. If the
Committee provides, in its discretion, that any Stock Option is
exercisable only in installments, the Committee may waive such
installment exercise provision at any time in whole or in part based
on performance and/or such other factors as the Committee may
determine in its sole discretion.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
at any time during the exercise period described in Section 6(c) by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased, accompanied by payment in full of
the purchase price, in cash, by check or such other instrument as may
be acceptable to the Committee. If approved and as determined by the
Committee, in its sole discretion, at or after grant, payment in full
or in part may also be made in the form of unrestricted Stock owned by
the optionee (based on the Fair Market Value of the Stock on the date
the option is exercised, as determined by the Committee). Payment of
the exercise price of a Stock Option and any withholding tax due at
exercise also may be made through any program or procedure (including
but not limited to a broker-dealer cashless exercise program) if
approved by the Committee. No shares of Stock resulting from the
exercise of a Stock Option shall be issued until full payment therefor
has been made. An optionee shall have the rights to dividends or other
rights of a stockholder with respect to shares subject to the option
when the optionee has given written notice of exercise and has paid in
full for such shares.
(e) Transferability of Options.
(1) Incentive Stock Options. No Incentive Stock Option shall be
transferable by the optionee, otherwise than by will or by the
laws of descent and distribution, or be subject to attachment,
execution or similar process. All Incentive Stock Options shall
be exercisable, during the optionee's lifetime, only by the
optionee.
(2) Non-Qualified Stock Options. Non-Qualified Stock Options shall
likewise be non-transferable by the optionee, otherwise than by
will or by the laws of descent and distribution, and not subject
to attachment, execution or similar process; provided, however,
that the Committee may by resolution or after grant designate
existing or future Non-Qualified Stock Options as "transferable,"
meaning that the optionee may sign an agreement which transfers
all or a portion of such Non-Qualified Stock Option (either
exercisable or non-exercisable) to (A) a member of the optionee's
Immediate Family, (B) any trust or trusts in which members of the
optionee's Immediate Family have more than a fifty percent (50%)
beneficial interest, (C) any entity in which optionee and/or
members of the optionee's Immediate Family own more than fifty
percent (50%) of the voting interests, or (D) any foundation in
which optionee and/or optionee's Immediate Family members control
the management of the foundation's assets, subject to such terms
and conditions as the Committee may establish. The form of
agreement pursuant to which such options are transferred must be
approved by the Committee and executed by the optionee,
transferee and the Company. Following transfer, any such options
shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, except that the
term "optionee" shall be deemed to refer to the transferee
subject to any terms and conditions established by the Committee.
Subsequent transfers of such transferred options shall be
prohibited, except by will or the laws of descent and
distribution. For purposes of this Subsection, "Immediate Family"
means the optionee's child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling,
mother-in-law, father-in-law,
6
son-in-law, daughter-in-law, brother-in-law, sister-in-law,
nephew or niece of the optionee (including by adoption), and any
person sharing the optionee's household (other than a tenant or
employee).
(f) Termination by Death (other than by suicide). Unless otherwise
determined by the Committee at or after grant, if: (i) any optionee
who is an employee terminates employment with the Corporation or any
Subsidiary by reason of death (other than by suicide), or (ii) any
optionee who is a Non-Employee Director terminates service on the
Board by reason of death (other than by suicide), then any Stock
Option held by such optionee may thereafter be immediately exercised,
to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the optionee under
the will of the optionee until the expiration of the stated term of
such Stock Option.
(g) Termination by Reason of Disability. Unless otherwise determined by
the Committee at or after grant, if: (i) any optionee who is an
employee terminates employment with the Corporation or any Subsidiary
by reason of Disability, or (ii) any optionee who is a Non-Employee
Director terminates service on the Board by reason of Disability, then
any Stock Option held by such optionee may thereafter be exercised, to
the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall
determine at or after grant), until the expiration of the stated term
of such Stock Option. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after
the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated
as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by
the Committee at or after grant, if: (i) any optionee who is an
employee terminates employment with the Corporation or any Subsidiary
by reason of Normal or Early Retirement, or (ii) any optionee who is a
Non-Employee Director retires from the Board pursuant to the
provisions of the Corporation's By-laws, then any Stock Option held by
such optionee may thereafter be exercised to the extent it was
exercisable at the time of such Retirement (or on such accelerated
basis as the Committee shall determine at or after grant), but may not
be exercised after the expiration of the stated term of such Stock
Option; and, provided that if the optionee dies within such period any
unexercised Stock Option held by such optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of
death (or on such accelerated basis as the Committee shall determine
at or after grant), for the remainder of the stated term of the Stock
Option. In the event of termination of employment of an optionee who
is an employee by reason of Retirement, if an Incentive Stock Option
is exercised after the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be treated
as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee at or
after grant, if: (i) an optionee who is an employee terminates
employment with the Corporation or any Subsidiary for Cause or for
death by reason of suicide or for any reason other than Disability or
Normal or Early Retirement or death other than by suicide, or (ii) any
optionee who is a Non-Employee Director terminates service with the
Board for any reason other than death (excluding suicide), Disability
or retirement pursuant to the provisions of the Corporation's By-laws,
then any Stock Option held by such optionee shall thereupon terminate,
except that such Stock Option held by an employee optionee may be
exercised to the extent such Stock Option could have been exercised on
the date of cessation of employment for the lesser of three months
from the date of termination or the balance of such Stock Option's
term if the optionee's employment with the Corporation or any
Subsidiary is involuntarily terminated by the optionee's employer
without Cause.
7
(j) Limit on Value of Incentive Stock Options First Exercisable Annually.
The aggregate Fair Market Value (determined at the time of grant) of
the Stock for which "incentive stock options" within the meaning of
Section 422 of the Code are exercisable for the first time by an
optionee during any calendar year under the Plan (and/or any other
stock option plans of the Corporation or any Subsidiary) shall not
exceed $100,000.
SECTION 7. Stock Appreciation Rights
-------------------------------------
(a) Grant and Exercise When Granted in Conjunction With Stock Options.
Stock Appreciation Rights may be granted alone or in conjunction with
all or part of any Stock Option granted under the Plan and may contain
terms and conditions different from those of the related Stock Option,
except as otherwise provided below. In the case of a Non-Qualified
Stock Option, such rights may be granted either at or after the time
of the grant of such Non-Qualified Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of
the grant of such Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer
be exercisable upon the termination or exercise of the related
Stock Option, except that, unless otherwise provided by the
Committee at the time of grant, a Stock Appreciation Right granted
with respect to less than the full number of shares covered by a
related Stock Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination
of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (c) of this Section 7, by surrendering
the applicable portion of the related Stock Option. Upon such
exercise and surrender, the optionee shall be entitled to receive
an amount determined in the manner prescribed in paragraph (c) of
this Section 7. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.
(b) Grant and Exercise When Granted Alone. Stock Appreciation Rights may
be granted at the discretion of the Committee in a manner not related
to an award of a Stock Option. The Committee shall have the discretion
to determine the terms and conditions of any Stock Appreciation Rights
not related to a Stock Option Award. A Stock Appreciation Right
granted under this Section 7(b) is not exercisable for a period of six
months from the date of grant, unless a longer period is otherwise
determined by the Committee. The Stock Appreciation Right, granted
under Section 7(b), shall be exercisable in accordance with Section
7(c) over a period not to exceed ten years. Any Stock Appreciation
Right which is outstanding on the last day of the exercisable period
shall be automatically exercised on such date for cash or Common
Stock, as determined by the Committee, without any action by the
holder if, on that date, the Fair Market Value of the Stock exceeds
the exercise price of the Stock Appreciation Right.
(c) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the
Plan, as shall be determined from time to time by the
Committee, including the following:
8
(i) Stock Appreciation Rights granted pursuant to Section 7(a) shall
be exercisable only at such time or times and to the extent that
the Stock Options to which the Stock Appreciation Rights relate
shall be exercisable in accordance with the provisions of Section
6 and this Section 7 of the Plan; provided, however, that any
Stock Appreciation Right granted subsequent to the grant of the
related Stock Option shall not be exercisable during the first
six months of the term of the Stock Appreciation Right, except
that this additional limitation shall not apply in the event of
death other than by suicide or Disability of the optionee prior
to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right granted pursuant
to Section 7(a), an optionee shall be entitled to receive an
amount in cash or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock over the option price
per share specified in the related Stock Option, multiplied by
the number of shares in respect of which the Stock Appreciation
Right shall have been exercised, with the Committee having the
right to determine the form of payment. Upon the exercise of a
Stock Appreciation Right granted pursuant to Section 7(b), the
holder shall be entitled to receive an amount in cash or shares
of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the Fair Market Value of one share of
Stock at the date the Stock Appreciation Right was granted
multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii)No Stock Appreciation Right shall be transferable by the holder,
other than by will or the laws of descent and distribution, or be
subject to attachment, execution or similar process. All Stock
Appreciation Rights shall be exercisable, during the holder's
lifetime, only by the holder.
(iv) Upon the exercise of a Stock Appreciation Right granted pursuant
to Section 7(a), the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in Section
4 of the Plan on the number of shares of Stock to be issued under
the Plan.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option pursuant to Section 7(a), may be exercised
only if and when the market price of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Stock
Option.
(vi) In its sole discretion, the Committee may provide, at the time of
grant of a Stock Appreciation Right under this Section 7, that
such Stock Appreciation Right can be exercised only in the event
of a "Change of Control" (as defined in Section 12 below).
Furthermore, the Committee may provide, at the time of grant of
any Stock Appreciation Right, that such Stock Appreciation Right
can be exercised only upon the attainment of specified
performance goals or other such criteria as the Committee may
determine in its sole discretion.
(vii)In the discretion of the Committee, if the Plan is approved by
the shareholders of the Corporation in accordance with Section 15
of the Plan, a Stock Appreciation Right may provide that any
exercise by a Participant of all or a portion of a Stock
Appreciation Right for cash, may only be made during the period
beginning on the
9
third business day following the date of the Corporation's
release of its quarterly or annual summary statements of earnings
to the public and ending on the twelfth business day following
such date; provided, however, that the foregoing shall not apply
to any exercise by a Participant of a Stock Appreciation Right
for cash where the date of exercise is automatic or fixed in
advance under the Plan and is outside the control of the
Participant.
SECTION 8. Restricted Stock
----------------------------
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other Awards granted under the Plan. The Committee
shall determine the employees of the Corporation and its Subsidiaries
and Non-Employee Directors to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be
awarded, the price, if any, to be paid by the recipient of Restricted
Stock (subject to Section 8(b) hereof), the time or times within which
such Awards may be subject to forfeiture, the nature of the
restrictions, including any performance requirements, the
circumstances under which restrictions will lapse and all other
conditions of the Awards. The Committee may also condition the grant
of Restricted Stock upon the attainment of specified performance
goals, or such other criteria as the Committee may determine, in its
sole discretion. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an Award of
shares of Restricted Stock shall not have any rights with respect to
such Award, unless and until such recipient has executed an agreement
evidencing the Award (a "Restricted Stock Award Agreement") and has
delivered a fully executed copy thereof to the Corporation, and has
otherwise complied with the then applicable terms and conditions.
(i) Awards of Restricted Stock must be accepted within a period of
thirty days (or such shorter period as the Committee may specify)
after the Award date by executing a Restricted Stock Award
Agreement and paying whatever price, if any, is required.
(ii) Each Participant who is awarded Restricted Stock shall be issued
a stock certificate in respect of such shares of Restricted Stock
to be held in escrow as described below.
Such certificate shall be registered in the name of the
Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions
applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the
shares of stock represented hereby are subject to
the terms and conditions (including forfeiture)
of the Synovus Financial Corp. 2002 Long-Term
Incentive Plan and a Restricted Stock Award
Agreement entered into between the registered
owner and Synovus Financial Corp. Copies of such
Plan and Agreement are on file in the offices of
Synovus Financial Corp., One Arsenal Place, 901
Front Avenue, Suite 301, Columbus, Georgia, 31901."
(iii)The Committee shall require that the stock certificate
evidencing such shares be held in escrow by Synovus Trust Company
("STC"), or any other escrow agent designated by the Committee
until the restrictions thereon shall have lapsed, and that, as a
10
condition of any Restricted Stock Award, the Participant shall
have delivered a stock power, endorsed in blank, relating to the
Stock covered by such Award. In the event the Participant has
obtained a loan to purchase the Restricted Stock or to pay any
taxes due with respect to the Restricted Stock, STC or other
escrow agent shall have the right to require that the shares
continue to be held in escrow until such loan is repaid.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 8 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and Restricted Stock Award
Agreements, during the period of six months after the Award or
such longer period as may be set by the Committee commencing on
the grant date (the "Restriction Period"), the Participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits, the
Committee may, in its sole discretion, provide for the lapse of
such restrictions in installments and may accelerate or waive
such restrictions in whole or in part based on performance and/or
such other factors as the Committee may determine, in its sole
discretion. Notwithstanding the foregoing, the minimum
Restriction Period for the lapse of all restrictions on
Restricted Stock shall be three (3) years.
(ii) Except as provided in paragraph (c)(i) of this Section 8, the
Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Corporation,
including the right to receive any dividends, unless the
Committee shall declare otherwise at the time of the Award.
Dividends paid in cash with respect to shares of
Restricted Stock shall not be subject to any
restrictions or subject to forfeiture. Dividends paid
in Stock of the Corporation or Stock received in
connection with a stock split with respect to
Restricted Stock shall be subject to the same
restrictions as on such Restricted Stock. Certificates
for shares of unrestricted Stock shall be delivered to
the Participant promptly after, and only after, the
period of forfeiture shall expire without forfeiture in
respect of such shares of Restricted Stock and the
repayment of any loans obtained to purchase the
Restricted Stock or to pay any taxes due with respect
to the Restricted Stock.
(iii)Subject to the provisions of the Restricted Stock Award Agreement
and this Section 8, upon termination of employment for any reason
during the Restriction Period, all shares still subject to
restriction (together with any price paid for such shares by the
Participant) shall be forfeited by the Participant, unless
otherwise determined by the Committee.
(iv) The Committee may, in its sole discretion, waive in whole or in
part any or all restrictions with respect to any Participant's
shares of Restricted Stock, such as in the event of the
Participant's Retirement, Disability or Death or in the other
extraordinary, nonrecurring situations.
SECTION 9. Performance Awards
------------------------------
(a) Administration. Shares of Stock and/or a payment in cash may be
distributed under the Plan to an employee upon the attainment of
performance objectives, as a Performance Award. The
11
Committee shall determine the employees of the Corporation and its
Subsidiaries and Non-Employee Directors to whom Performance Awards are
granted, the terms and conditions of the performance objectives, the
term of the performance period (the minimum performance period term
shall be one year), and the value and form of the payment of the
Performance Award.
(b) Performance Objectives. The Committee, in its sole discretion may
establish, under this Section 9, performance objectives either in
terms of Corporation-wide objectives or in terms of objectives that
are related to the specific performance of an employee or a bank, a
group, division, department, or Subsidiary within the Corporation in
which a Participant who is an employee is employed. A minimum level of
performance, at the discretion of the Committee, may be established.
If, at the end of the performance period, the specified objectives
have been attained, the Participant is deemed to have fully earned
the Performance Award. If such performance objectives are only
partially attained, the Participant may be deemed by the Committee
to have partly earned the Performance Award and would become
eligible to receive a portion of the total Award, as determined by
the Committee. If a required minimum level of achievement has not
been met, as determined by the Committee, the Participant is
entitled to no portion of the Performance Award. If, at the end of
the performance period, performance exceeds the target, the
Participant, at the Committee's discretion, may receive a multiple
of the Performance Award. The Committee may adjust the payment of
Awards or the performance objectives if events occur or
circumstances arise which would cause a particular payment or set
of performance objectives to be inappropriate as a measure of
performance.
(c) Terms and Conditions. A Participant to whom a Performance Award has
been granted is given performance objectives to be reached over a
specified period, the "performance period." Generally this period
shall be not less than one year.
Any Participant granted a Performance Award pursuant to this
Section 9 who by reason of death (other than by suicide),
Disability or Retirement (or, in the case of a Non-Employee
Director, retires from the Board pursuant to the provisions of the
Corporation's By-laws) either terminates employment or ceases
service as a member of the Board before the end of the performance
period is entitled to receive a portion of any earned Performance
Award. The Committee, in its discretion, will determine the amount
of the Performance Award earned, if any, and the time at which
payment will be made.
A Participant who terminates employment for any other reason,
including death by suicide, forfeits all rights under the
Performance Award.
SECTION 10. Amendments and Termination
---------------------------------------
The Board may amend, alter, or discontinue the Plan at any time, but no
amendment, alteration, or discontinuation shall be made which affects an
existing Award under the Plan without the optionee's or Participant's consent.
If stockholder approval of this Plan is obtained, no amendment, alteration or
discontinuation shall be made by the Board which, without the approval of the
stockholders, would:
(a) increase the total number of shares reserved for the purpose of the
Plan, except as provided for in accordance with Section 4 of the Plan;
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(b) decrease the option price of any Stock Option to less than 100% of the
Fair Market Value on the date of the granting of the option, except as
provided for in accordance with Section 4 of the Plan;
(c) change the Participants or class of Participants eligible to
participate in the Plan;
(d) extend the maximum option period under paragraph (b) of Section 6 of
the Plan; or
(e) materially increase in any other way the benefits accruing to
Participants.
The Committee may amend the terms of any Award or option theretofore granted,
prospectively or retroactively, but no such amendment shall affect an existing
Award under the Plan without the Participant's consent. In addition, no such
amendment shall have the effect of repricing previously granted Stock Options by
lowering the exercise price of any previously granted Stock Options, or
cancelling outstanding Stock Options with subsequent replacements or regrant of
Stock Options with lower exercise prices.
SECTION 11. Change of Control
------------------------------
The following provisions shall apply in the event of a "Change of Control," as
defined in this Section 11:
(a) Unless otherwise determined by the Committee at grant, in the event of
a "Change of Control" as defined in paragraph (c) of this Section 11,
the vesting of any outstanding Stock Options, Stock Appreciation
Rights, Restricted Stock or Performance Awards shall be accelerated so
that all Awards not previously exercisable and vested are fully
exercisable and vested.
(b) Unless otherwise determined by the Committee at grant, if a
Participant who is an employee terminates employment for any reason
following a Change of Control, any outstanding Stock Options, Stock
Appreciation Rights, Restricted Stock or Performance Awards granted to
the Participant that are not fully exercisable and vested shall become
fully exercisable and vested as of the date of such termination of
employment and any obligations to pay amounts to the Corporation or
any Subsidiary in connection with an Award shall be terminated as of
the date of such termination of employment.
(c) For purposes of this Section 11, a "Change of Control" means the
happening of any of the following:
(i) when any "person," as such term is used in Section 13(d) and
14(d) of the Exchange Act (other than the Corporation or a
Subsidiary or any Corporation employee benefit plan (including
its trustee)), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly of
securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities;
(ii) the occurrence of a transaction requiring stockholder approval
for the acquisition of the Corporation by an entity other than
the Corporation or a Subsidiary through purchase of assets, or by
merger, or otherwise;
(iii)the filing of an application with any regulatory authority
having jurisdiction over the ownership of the Corporation by any
"person," as defined in the preceding paragraph,
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to acquire 20% or more of the combined voting power of the
Corporation's then outstanding securities; or
(iv) the occurrence of a "Triggering Event" as such term is defined in
the Rights Agreement dated April 28, 1999, by and between the
Corporation and Trust Company Bank, the provisions of which are
incorporated herein by this reference.
(d) For purposes of this Section 11, a "Change of Control" shall not
result from any transaction precipitated by the Corporation's
insolvency, appointment of a conservator, or determination by a
regulatory agency that the Corporation is insolvent, nor from any
transaction initiated by the Corporation in regard to creating a
holding company of which the Corporation would be a primary entity,
nor from any transaction initiated by the Corporation in regard to
converting from a publicly traded company to a privately held company.
SECTION 12. General Provisions
-------------------------------
(a) All certificates for shares of Stock delivered under the Plan shall be
subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the
Stock is then listed, and any applicable Federal or state securities
or other laws, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.
(b) Nothing set forth in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The
Corporation and its Subsidiaries specifically reserve the right to
terminate (whether by dismissal, discharge, retirement or otherwise)
any Participant's employment with the Company or a Subsidiary at any
time at will. Neither the granting of an Award nor the adoption of the
Plan shall confer upon any employee of the Corporation or its
Subsidiaries any right to continued employment with the Corporation or
a Subsidiary, as the case may be, nor shall it interfere in any way
with the right of the Corporation or a Subsidiary to terminate the
employment of any of its employees at any time.
(c) Each Participant shall, no later than the date as of which the value
of an Award first becomes includable in the gross income of the
Participant for Federal income tax purposes, pay to the Corporation,
or make arrangements satisfactory to the Committee regarding payment
of, any Federal, state, or local taxes of any kind required by law to
be withheld with respect to the Award. The obligations of the
Corporation under the Plan shall be conditional on such payment or
arrangements and the Corporation (and, where applicable, its
Subsidiaries), shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to
the Participant. A Participant may irrevocably elect to have the
withholding tax obligations or, in the case of all Awards hereunder
except Stock Options which have related Option Price Adjustment Rights
or Stock Appreciation Rights, if the Committee so determines, any
additional tax obligation with respect to any Awards hereunder
satisfied by (a) having the Corporation withhold shares of Stock
otherwise deliverable to the Participant with respect to the Award or
(b) delivering to the Corporation shares of unrestricted Stock;
provided, however, that if the Participant is an "officer" of the
Corporation within the meaning of Section 16 of the Exchange Act, no
such election shall be made (i) unless the Plan has been approved by
shareholders in
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accordance with Section 15 of the Plan and (ii) such election is made
either (a) during one of the "window" periods described in section
(c)(3)(iii) of Rule 16b-3 promulgated under the Exchange Act, or (b)
at least six months prior to the date income is recognized with
respect to the Award.
(d) No members of the Board or the Committee, nor any officer or employee
of the Corporation acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan,
and all members of the Board or the Committee and each and any officer
or employee of the Corporation acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the
Corporation in respect of any such action, determination or
interpretation provided such individual first gives the Corporation an
opportunity, at its own expense, to handle and defend any legal action
before such individual undertakes to handle and defend such legal
action.
(e) The existence of Stock Options, Stock Appreciation Rights, Restricted
Stock and Performance Awards shall not affect the right or power of
the Corporation and its shareholders to make adjustments,
recapitalizations, reorganizations, or other changes to the
Corporation's capital structure or its business; issue bonds,
debentures, preferred or prior preference stocks affecting the
Corporation's Common Stock or the rights thereof; dissolve or
liquidate the Corporation, or sell or transfer any part of its assets
or business; or any other corporate act, whether of a similar
character or otherwise.
(f) The validity, interpretation, and administration of the Plan and of
any rules, regulations, determinations, or decisions made thereunder,
and the rights of any and all persons having or claiming to have any
interest therein or thereunder, shall be determined exclusively in
accordance with the laws of the State of Georgia, except where those
laws may be superseded by the laws of the United States of America.
Without limiting the generality of the foregoing, the period within
which any action in connection with the Plan must be commenced shall
be governed by the laws of the State of Georgia.
(g) The obligation of the Corporation to make payment of Awards in Stock
shall be subject to all applicable laws, rules and regulations, and to
such approvals by government agencies as may be required. The
Corporation shall be under no obligation to register under the
Securities Act of 1933, as amended from time to time ("1993 Act"), any
of the shares of Stock paid under the Plan. If the Stock paid under
the Plan may in certain circumstances be exempt from registration
under the 1933 Act, the Corporation may restrict the transfer of such
Stock in such manner as it deems advisable to ensure the availability
of any such exemption.
SECTION 13. Cash Awards and Loans
----------------------------------
The Committee, in its sole discretion, at any time may authorize special cash
Awards to Participants to enable them to fund the exercise price of a Stock
Option or any taxes that must be paid or withheld upon the exercise of a Stock
Option or Stock Appreciation Right to fund the purchase price (if any) of
Restricted Stock or any taxes that must be paid or withheld with respect to
Restricted Stock, or to fund any taxes that must be paid or withheld with
respect to any Performance Award. The Committee in its sole discretion, at any
time, may assist a Participant in obtaining a loan for any funds required in
connection with any aspect of the Plan, including without limitation the
exercise or purchase price of any Award and any taxes that must be paid or
withheld in connection with any Award.
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SECTION 14. Accounting
-----------------------
It is the intent of the Board that the accounting expenses for any Awards under
this Plan to employees of Subsidiaries be charged to the Subsidiaries employing
such employees and not to the Corporation. The Board of Directors and the
Committee shall have the right to adopt any policies and procedures required in
order to carry out this intent.
SECTION 15. Effective Date of Plan
-----------------------------------
The Plan shall become effective upon the earlier of its adoption by the Board of
Directors or by the Executive Committee of the Board of Directors; provided,
however, that Incentive Stock Options awarded hereunder shall be automatically
converted into Non-Qualified Stock Options if shareholder approval of the Plan
is not obtained within twelve months of the Plan's effective date.
SECTION 16. Term of Plan
-------------------------
No Stock Option, Stock Appreciation Right, Restricted Stock or Performance Award
shall be granted pursuant to the Plan on or after the tenth anniversary of the
effective date of the Plan, but Awards theretofore granted may extend beyond
that date.
SECTION 17. Execution
----------------------
IN WITNESS WHEREOF, the Corporation has caused this Plan to be signed by its
duly authorized officers effective as of this 1st day of March, 2002.
SYNOVUS FINANCIAL CORP.
By:/s/G. Sanders Griffith, III
Title: Senior Executive Vice President
General Counsel and Secretary
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