Synovus Financial (SNV) 10-K 2008 FY Annual report

Exhibit 99.1

Financial Appendix ­ ­ 

Consolidated Balance Sheets as of December 31, 2008 and 2007	F-2
Consolidated Statements of Income for the Years ended December 31, 2008, 2007, and 2006	F-3
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income for the Years ended December 31, 2008, 2007, and 2006	F-4
Consolidated Statements of Cash Flows for the Years ended December 31, 2008, 2007, and 2006	F-5
Notes to Consolidated Financial Statements	F-6
Report of Independent Registered Public Accounting Firm	F-51
Management’s Report on Internal Control Over Financial Reporting	F-52
Report of Independent Registered Public Accounting Firm	F-53
Selected Financial Data	F-54
Management’s Discussion and Analysis of Financial Condition and Results of Operation	F-55
Summary of Quarterly Financial Data (Unaudited)	F-101

F-1

Consolidated Balance Sheets ­ ­ 

(In thousands, except share data)
	December 31,
	2008			2007
ASSETS
Cash and due from banks, including $24,965 and $18,946 in 2008 and 2007, respectively, on deposit to meet Federal Reserve requirements	$	524,327			682,583
Interest bearing funds with Federal Reserve Bank		1,206,168			—
Interest earning deposits with banks		10,805			10,950
Federal funds sold and securities purchased under resale agreements		388,197			76,086
Trading account assets		24,513			17,803
Mortgage loans held for sale, at fair value		133,637			153,437
Impaired loans held for sale		3,527			—
Investment securities available for sale		3,892,148			3,666,974
Loans, net of unearned income		27,920,177			26,498,585
Allowance for loan losses		(598,301	)		(367,613	)
Loans, net		27,321,876			26,130,972
Premises and equipment, net		605,019			547,437
Goodwill		39,521			519,138
Other intangible assets, net		21,266			28,007
Other assets		1,615,265			1,231,094
Total assets	$	35,786,269		$	33,064,481
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing deposits	$	3,563,619			3,472,423
Interest bearing deposits ($75,875 and $293,842 at fair value as of December 31, 2008 and 2007)		25,053,560			21,487,393
Total deposits		28,617,179			24,959,816
Federal funds purchased and securities sold under repurchase agreements		725,869			2,319,412
Long-term debt		2,107,173			1,890,235
Other liabilities		516,541			453,428
Total liabilities		31,966,762			29,622,891
Minority interest in consolidated subsidiaries		32,349			—
Shareholders’ equity:
Cumulative perpetual preferred stock — no par value. Authorized 100,000,000 shares; 967,870 shares outstanding at December 31, 2008		919,635			—
Common stock — $1.00 par value. Authorized 600,000,000 shares; issued 336,010,941 in 2008 and 335,529,482 in 2007; outstanding 330,334,111 in 2008 and 329,867,944 in 2007		336,011			335,529
Additional paid-in capital		1,165,875			1,101,209
Treasury stock, at cost — 5,676,830 shares in 2008 and 5,661,538 shares in 2007		(114,117	)		(113,944	)
Accumulated other comprehensive income		129,253			31,439
Retained earnings		1,350,501			2,087,357
Total shareholders’ equity		3,787,158			3,441,590
Total liabilities and shareholders’ equity	$	35,786,269		$	33,064,481

See accompanying notes to consolidated financial statements.

F-2

Consolidated Statements of Income ­ ­ 

(In thousands, except per share data)
	Years Ended December 31,
	2008			2007		2006
Interest income:
Loans, including fees	$	1,661,012			2,046,239		1,859,914
Investment securities available for sale:
U.S. Treasury and U.S. Government agency securities		82,856			89,597		69,834
Mortgage-backed securities		88,609			67,744		52,469
State and municipal securities		6,368			8,095		9,208
Other investments		5,415			7,290		6,915
Trading account assets		1,924			3,418		2,691
Mortgage loans held for sale		7,342			9,659		8,638
Impaired loans held for sale		93			—		—
Federal funds sold and securities purchased under resale agreements		3,382			5,258		6,422
Interest on Federal Reserve balances		391			—		—
Interest earning deposits with banks		188			1,104		375
Total interest income		1,857,580			2,238,404		2,016,466
Interest expense:
Deposits		667,453			912,472		746,669
Federal funds purchased and securities sold under repurchase agreements		38,577			92,970		72,958
Long-term debt		73,657			84,014		71,050
Total interest expense		779,687			1,089,456		890,677
Net interest income		1,077,893			1,148,948		1,125,789
Provision for losses on loans		699,883			170,208		75,148
Net interest income after provision for losses on loans		378,010			978,740		1,050,641
Non-interest income:
Service charges on deposit accounts		111,837			112,142		112,417
Fiduciary and asset management fees		48,779			50,761		48,627
Brokerage and investment banking revenue		33,119			31,980		26,729
Mortgage banking income		23,493			27,006		29,255
Bankcard fees		53,153			47,770		44,303
Net gains (losses) on sales of investment securities available for sale		45			980		(2,118	)
Other fee income		37,246			39,307		38,743
Increase in fair value of private equity investments, net		24,995			16,497		6,552
Proceeds from sale of MasterCard shares		16,186			6,304		2,481
Proceeds from redemption of Visa shares		38,542			—		—
Other non-interest income		47,795			56,281		52,441
Total non-interest income		435,190			389,028		359,430
Non-interest expense:
Salaries and other personnel expense		458,927			455,158		450,373
Net occupancy and equipment expense		124,444			112,888		100,270
FDIC insurance and other regulatory fees		25,161			10,347		8,796
Foreclosed real estate		136,678			15,736		3,294
Losses on impaired loans held for sale		9,909			—		—
Goodwill impairment		479,617			—		—
Professional fees		30,276			21,255		20,001
Visa litigation (recovery) expense		(17,473	)		36,800		—
Restructuring charges		16,125			—		—
Other operating expenses		201,957			187,910		181,799
Total non-interest expense		1,465,621			840,094		764,533
Minority interest in consolidated subsidiaries		7,712			—		—
Income (loss) from continuing operations before income taxes		(660,133	)		527,674		645,538
Income tax expense (benefit)		(77,695	)		184,739		230,435
Income (loss) from continuing operations		(582,438	)		342,935		415,103
Income from discontinued operations, net of income taxes and minority interest		—			183,370		201,814
Net income (loss)		(582,438	)		526,305		616,917
Dividends and accretion of discount on preferred stock		2,057			—		—
Net income (loss) available to common shareholders	$	(584,495	)		526,305		616,917
Basic earnings per share:
Income (loss) from continuing operations	$	(1.77	)		1.05		1.29
Net income (loss)		(1.77	)		1.61		1.92
Diluted earnings per share:
Income (loss) from continuing operations	$	(1.77	)		1.04		1.28
Net income (loss)		(1.77	)		1.60		1.90
Weighted average common shares outstanding:
Basic		329,319			326,849		321,241
Diluted		329,319			329,863		324,232

See accompanying notes to consolidated financial statements.

F-3

Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income ­ ­ 

																		Accumulated
(In thousands, except per share data)	Preferred Stock				Common Stock						Additional							Other
Years Ended December 31,	Shares				Shares						Paid-In				Treasury			Comprehensive			Retained
2008, 2007, and 2006	Issued		Amount		Issued			Amount			Capital				Stock			Income (Loss)			Earnings			Total
Balance at December 31, 2005		—	$	—		318,301		$	318,301			683,321				(113,944	)		(29,536	)		2,091,187			2,949,329
SAB No. 108 adjustment to opening shareholders’ equity		—		—		—			—			—				—			826			3,434			4,260
Postretirement unfunded health benefit obligation from adoption of SFAS No. 158, net of tax		—		—		—			—			—				—			(3,212	)		—			(3,212	)
Net Income		—		—		—			—			—				—			—			616,917			616,917
Other comprehensive income, net of tax:
Net unrealized gain on cash flow hedges		—		—		—			—			—				—			3,650			—			3,650
Change in unrealized gains/losses on investment securities available for sale, net of reclassification adjustment		—		—		—			—			—				—			13,268			—			13,268
Gain on foreign currency translation		—		—		—			—			—		��		—			12,875			—			12,875
Other comprehensive income		—		—		—			—			—				—			29,793			—			29,793
Comprehensive income		—		—		—			—			—				—			—			—			646,710
Cash dividends declared — $.78 per share		—		—		—			—			—				—			—			(251,084	)		(251,084	)
Issuance of non-vested stock		—		—		610			610			(610	)			—			—			—			—
Share-based compensation expense		—		—		—			—			23,373				—			—			—			23,373
Stock options exercised		—		—		3,459			3,459			62,051				—			—			—			65,510
Share-based compensation tax benefit		—		—		—			—			11,390				—			—			—			11,390
Ownership change at majority-owned subsidiary		—		—		—			—			6,031				—			—			—			6,031
Issuance of common stock for acquisitions		—		—		8,844			8,844			247,499				—			—			—			256,343
Balance at December 31, 2006		—		—		331,214			331,214			1,033,055				(113,944	)		(2,129	)		2,460,454			3,708,650
Cumulative effect of adoption of FIN No. 48						—			—			—				—			—			(230	)		(230	)
Net income		—		—		—			—			—				—			—			526,305			526,305
Other comprehensive income, net of tax:
Net unrealized gain on cash flow hedges		—		—		—			—			—				—			18,334			—			18,334
Change in unrealized gains/losses on investment securities available for sale, net of reclassification adjustment		—		—		—			—			—				—			31,251			—			31,251
Amortization of postretirement unfunded health benefit, net of tax		—		—		—			—			—				—			817			—			817
Gain on foreign currency translation						—			—			—				—			6,151			—			6,151
Other comprehensive income		—		—		—			—			—				—			56,553			—			56,553
Comprehensive income		—		—		—			—			—				—			—			—			582,858
Cash dividends declared — $.82 per share		—		—		—			—			—				—			—			(269,082	)		(269,082	)
Issuance of non-vested stock		—		—		552			552			(552	)			—			—			—			—
Share-based compensation expense		—		—		—			—			21,540				—			—			—			21,540
Stock options exercised		—		—		3,702			3,702			60,148				—			—			—			63,850
Share-based compensation tax benefit		—		—		—			—			15,937				—			—			—			15,937
Issuance of common stock for acquisitions		—		—		61			61			2,054				—			—			—			2,115
Spin-off of TSYS		—		—		—			—			(30,973	)			—			(22,985	)		(630,090	)		(684,048	)
Balance at December 31, 2007		—		—		335,529			335,529			1,101,209				(113,944	)		31,439			2,087,357			3,441,590
Cumulative effect of adoption of EITF IssueNo. 06-4		—		—		—			—			—				—			—			(2,248	)		(2,248	)
Cumulative effect of adoption of SFAS No. 159		—		—		—			—			—				—			—			58			58
Net loss		—		—		—			—			—				—			—			(582,438	)		(582,438	)
Other comprehensive income, net of tax:
Net unrealized gain on cash flow hedges		—		—		—			—			—				—			21,589			—			21,589
Change in unrealized gains/losses on investment securities available for sale, net of reclassification adjustment		—		—		—			—			—				—			76,045			—			76,045
Amortization of postretirement unfunded health benefit, net of tax						—			—			—				—			180			—			180
Other comprehensive income		—		—		—			—			—				—			97,814			—			97,814
Comprehensive loss		—		—		—			—			—				—			—			—			(484,624	)
Cash dividends declared — $.46 per share		—		—		—			—			—				—			—			(151,918	)		(151,918	)
Treasury shares purchased		—		—		—			—			—				(173	)		—			—			(173	)
Issuance of non-vested stock		—		—		(39	)		(39	)		39				—			—			—			—
Share-based compensation expense		—		—		—			—			13,716				—			—			—			13,716
Stock options exercised		—		—		521			521			2,481				—			—			—			3,002
Share-based compensation tax deficiency		—		—		—			—			(115	)			—			—			—			(115	)
Issuance of preferred stock and common stock warrants		967,870		919,325		—			—			48,545				—			—			—			967,870
Accretion of discount on preferred stock				310		—			—			—				—			—			(310	)		—
Balance at December 31, 2008		967,870	$	919,635		336,011		$	336,011			1,165,875				(114,117	)		129,253			1,350,501			3,787,158

See accompanying notes to consolidated financial statements.

F-4

Consolidated Statement of Cash Flows ­ ­ 

(In thousands)
	Years Ended December 31,
	2008			2007			2006
Operating Activities
Net (loss) income	$	(582,438	)		526,305			616,917
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for losses on loans		699,883			170,208			75,148
Depreciation, amortization, and accretion, net		70,615			208,270			231,288
Goodwill impairment		479,617			—			—
Equity in income of equity investments		(3,517	)		(10,463	)		(14,726	)
Deferred income tax (benefit) expense		(107,601	)		(28,057	)		(44,970	)
Decrease (increase) in interest receivable		72,611			(11,774	)		(84,457	)
(Decrease) increase in interest payable		(13,783	)		830			74,422
Minority interest in consolidated subsidiaries’ net income		7,712			47,521			48,102
Decrease (increase) in trading account assets		(6,710	)		(2,537	)		12,056
Originations of mortgage loans held for sale		(1,098,582	)		(1,328,905	)		(1,550,099	)
Proceeds from sales of mortgage loans held for sale		1,129,843			1,378,999			1,547,765
Gain on sale of mortgage loans held for sale		(9,292	)		(27,105	)		(29,211	)
Decrease (increase) in prepaid and other assets		105,865			(238,950	)		(150,668	)
(Decrease) increase in accrued salaries and benefits		(11,762	)		(33,428	)		6,781
Increase (decrease) in other liabilities		184,873			(22,877	)		6,719
Net (gains) losses on sales of investment securities available for sale		(45	)		(980	)		2,118
Gain on sale of loans		—			—			(1,975	)
Loss on sale of impaired loans held for sale		9,909			—			—
Gain on sale of other assets		—			—			(2,955	)
Net increase in fair value of private equity investments		(24,995	)		(16,497	)		(6,346	)
Gain from transfer of mutual funds		—			(6,885	)		—
Gain on sale of MasterCard shares		(16,186	)		(6,303	)		(2,481	)
Gain on redemption of Visa shares		(38,542	)		—			—
(Decrease) increase in accrual for Visa litigation		(17,473	)		36,800			—
Share-based compensation		13,716			36,509			27,163
Excess tax benefit from share-based payment arrangements		(870	)		(14,066	)		(10,460	)
Impairment of developed software		—			1,740			—
Other, net		(8,096	)		1,107			39,330
Net cash provided by operating activities		834,752			659,462			789,461
Investing Activities
Net cash paid for acquisitions		—			(12,552	)		(53,664	)
Net decrease (increase) in interest earning deposits with banks		145			8,365			(16,409	)
Net (increase) decrease in Federal funds sold and securities purchased under resale agreements		(312,111	)		25,005			(27,387	)
Net increase in interest bearing funds with Federal Reserve Bank		(1,206,168	)		—			—
Proceeds from maturities and principal collections of investment securities available for sale		1,036,368			721,679			676,492
Proceeds from sales of investment securities available for sale		165,623			25,482			130,457
Purchases of investment securities available for sale		(1,289,912	)		(1,015,303	)		(1,051,733	)
Proceeds from sale of commercial loans		—			—			32,813
Proceeds from sale of impaired loans held for sale		28,813			—			—
Net increase in loans		(2,374,091	)		(2,071,602	)		(2,498,467	)
Purchases of premises and equipment		(112,969	)		(168,202	)		(140,143	)
Proceeds from disposals of premises and equipment		2,388			790			1,201
Net proceeds from transfer of mutual funds		—			6,885			—
Proceeds from sale of MasterCard shares		16,186			6,303			2,481
Proceeds from redemption of Visa shares		38,542			—			—
Proceeds from sale of other assets		—			—			3,151
Additions to other intangible assets		—			—			(6,446	)
Contract acquisition costs		—			(22,740	)		(42,452	)
Additions to licensed computer software from vendors		—			(33,382	)		(11,858	)
Additions to internally developed computer software		—			(17,785	)		(13,973	)
Dividend paid by TSYS to minority shareholders		—			(126,717	)		(9,765	)
Net cash used in investing activities		(4,007,186	)		(2,673,774	)		(3,025,702	)
Financing Activities
Net (decrease) increase in demand and savings deposits		(900,032	)		549,001			600,371
Net increase (decrease) in certificates of deposit		1,971,859			(269,638	)		1,019,302
Net increase (decrease) in brokered deposits		2,585,536			390,384			1,067,103
Net (decrease) increase in Federal funds purchased and securities sold under repurchase agreements		(1,593,543	)		736,925			361,401
Principal repayments on long-term debt		(250,789	)		(294,269	)		(760,937	)
Proceeds from issuance of long-term debt		429,300			1,087,079			127,203
Purchase of treasury shares		(173	)		—			—
Excess tax benefit from share-based payment arrangements		870			14,066			10,460
Dividends paid to common shareholders		(199,722	)		(264,930	)		(244,654	)
Proceeds from issuance of preferred stock and common stock warrants		967,870			—			—
Proceeds from issuance of common stock		3,002			63,850			65,510
Net cash provided by financing activities		3,014,178			2,012,468			2,245,759
Effect of exchange rate changes on cash and cash equivalent balances held in foreign currencies		—			4,970			(429	)
(Decrease) increase in cash and cash equivalents		(158,256	)		3,126			9,089
Cash retained by Total System Services, Inc.		—			(210,518	)		—
Cash and due from banks at beginning of year		682,583			889,975			880,886
Cash and due from banks at end of year	$	524,327			682,583			889,975

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 of Synovus include the accounts of Synovus Financial Corp. (Parent Company) and its consolidated subsidiaries (collectively Synovus). Synovus provides integrated financial services including banking, financial management, insurance, mortgage, and leasing services through 31 wholly-owned subsidiary banks and other Synovus offices in Georgia, Alabama, South Carolina, Florida, and Tennessee.

Basis of Presentation

The accounting and reporting policies of Synovus conform to U.S. generally accepted accounting principles (GAAP) and to general practices within the banking and financial services industries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the fair value of investments; the allowance for loan losses; the valuation of other real estate; the valuation of long-lived assets, goodwill, and other intangible assets; the valuation of deferred tax assets; and the disclosures for contingent assets and liabilities. In connection with the determination of the allowance for loan losses and the valuation of certain impaired loans and other real estate, management obtains independent appraisals for significant properties and properties collateralizing impaired loans.

On December 31, 2007, Synovus completed the tax-free spin-off of Total System Services, Inc. (TSYS) common stock to Synovus shareholders. Accordingly, the results of operations and assets and liabilities of Synovus’ former majority owned subsidiary, TSYS, have been reported as discontinued operations for the years ended December 31, 2007 and 2006. As a result of the spin-off of TSYS, Synovus has only one business segment as defined by Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Synovus’ statement of cash flows for the years ended December 31, 2007 and 2006 include, without segregation, cash flows of both continuing operations and discontinued operations. See Note 2 for further discussion of discontinued operations and the TSYS spin-off.

Following is a description of the more significant of Synovus’ accounting and reporting policies.

Cash Flow Information

Supplemental disclosure of cash flow information is as follows:

	Years Ended December 31,
(In millions)	2008		2007		2006
Cash paid during the year for:
Income taxes	$	65.6		440.7		391.4
Interest		757.0		1,068.9		806.4
Non-cash investing and financing activities:
Loans receivable transferred to other real estate		436.5		111.1		33.0
Loans charged off to allowance for loan losses		486.3		131.2		72.8
Loans receivable transferred to impaired loans held for sale		50.6		—		—
Common stock issued in business combinations		—		1.9		240.6

The tax-free spin-off of TSYS common stock completed on December 31, 2007 represented a $684.0 million non-cash distribution of the net assets of TSYS, net of minority interest, to Synovus shareholders.

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.

Trading Account Assets

Trading account assets, which include both debt and equity securities, are reported at fair value. Fair value adjustments and fees from trading account activities are included as a component of other fee income. Gains and losses realized from the sale of trading account assets are determined by specific identification and are included as a component of other fee income on the trade date. Interest income on trading assets is reported as a component of interest income.

F-6

Notes to Consolidated Financial Statements ­ ­ 

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at fair value. Fair value is derived from a hypothetical-securitization model used to project the “exit price” of the loan in securitization. The bid pricing convention is used for loan pricing for similar assets. The valuation model is based upon forward settlement of a pool of loans of identical coupon, maturity, product, and credit attributes. The inputs to the model are continuously updated with available market and historical data. As the loans are sold in the secondary market and predominately used as collateral for securitizations, the valuation model represents the highest and best use of the loans in Synovus’ principal market.

Impaired Loans Held for Sale

Impaired loans held for sale are carried at the lower of aggregate cost or fair value. Impaired loans or pools of impaired loans are transferred to the impaired loans held for sale portfolio when the intent to hold the loans has changed due to portfolio management or risk mitigation strategies and when there is a plan to sell the loans within a reasonable period of time. The value of the impaired loans or pools of impaired loans is determined primarily by analyzing the underlying collateral of the loan and the estimated sales prices for the portfolio. At the time of transfer, any excess of cost over fair value which is attributable to declines in credit quality is recorded as a charge-off against the allowance for loan losses. Decreases in fair value subsequent to the transfer as well as losses from sale of these loans are recognized as a component of non-interest expense.

Investment Securities 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. Unrealized gains and losses on securities available for sale, net of the related tax effect, are excluded from earnings and are reported as a separate component of shareholders’ equity, within accumulated other comprehensive income (loss), until realized.

A decline in the fair market value of any available for sale 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 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 inconsequential.

Loans and Interest Income

Loans are reported at principal amounts outstanding less unearned income, net deferred fees and expenses, 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 method. Interest income on substantially all other loans is recognized on a level yield basis.

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 is accrued on impaired loans 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 the provision for losses on loans 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 probable loss within the loan portfolio. This analysis includes consideration of loan portfolio quality, historical performance, current economic conditions, level of nonperforming loans, loan concentrations, and review of impaired 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

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Notes to Consolidated Financial Statements ­ ­ 

the subsidiary banks’ allowances for loan losses. Such agencies may require the subsidiary banks to recognize adjustments 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 collectability of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan is considered to be impaired, it is placed on nonaccrual status and 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 less estimated selling costs is used to determine the amount of impairment. Estimated losses on collateral-dependent impaired loans are typically charged off. Estimated losses on all other impaired loans are included in the allowance for loan losses through a charge to the provision for losses on loans.

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, and loans that are measured at fair value or at the lower of cost or fair value. The allowance for loan losses for loans not considered impaired and 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, individual loan risk ratings, loan concentrations, and historical charge-off trends.

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 the straight-line method over the estimated useful lives of the related assets. Synovus reviews long-lived assets, such as premises and equipment, for impairment whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired of purchased companies, is tested for impairment at least annually, and when events or circumstances indicate that the carrying amount may not be recoverable. Synovus has established its annual impairment test date as June 30. To test for goodwill impairment, Synovus identifies its reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. Synovus then compares the carrying value of each unit to its fair value to determine whether impairment exists. Synovus performed its annual evaluation of goodwill for impairment at June 30, 2008, 2007, and 2006. Based on an adverse change in the general business environment, significantly higher loan losses, reduced net interest margin, and a decline in Synovus’ market capitalization, Synovus additionally evaluated goodwill for impairment at December 31, 2008 and 2007. Impairment losses of $479.6 million were recognized for the year ended December 31, 2008 as a result of impairment testing during the year ended December 31, 2008. No impairment losses were identified or recorded as a result of Synovus’ goodwill impairment analyses during the years ended December 31, 2007 and 2006.

Identifiable intangible assets relate primarily to core deposit premiums, resulting from the valuation of core deposit intangibles acquired in business combinations or in the purchase of branch offices, customer relationships, and customer contract premiums resulting from the acquisition of investment advisory and transaction processing businesses. These identifiable intangible assets are amortized using accelerated methods over periods not exceeding the estimated average remaining life of the existing customer deposits, customer relationships, or contracts acquired. Amortization periods range from 3 to 15 years. Amortization periods for intangible assets are monitored to determine if events and circumstances require such periods to be reduced.

Identifiable intangible assets 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 intangible assets 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 value of the assets exceeds the fair value of the assets based on the discounted expected future cash flows to be generated by the assets. Assets to be disposed of are reported at the lower of their carrying value or fair value less costs to sell.

Other Assets

Other assets include accrued interest receivable and other significant balances as described below.

Investments in Company-Owned Life Insurance Programs

Investments in 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 expense or income to be recognized under

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Notes to Consolidated Financial Statements ­ ­ 

the contract during the period. Income or expense from company-owned life insurance programs is included as a component of other non-interest income.

Synovus’ investment in company-owned life insurance programs was approximately $376.7 million at December 31, 2008, which included approximately $226.3 million of separate account life insurance policies covered by stable value agreements. At December 31, 2008, the market value of the investments underlying the separate account policies were within the coverage provided by the stable value agreements.

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. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense.

Private Equity Investments

Private equity investments are recorded at fair value on the balance sheet with realized and unrealized gains and losses included in non-interest income in the results of operations in accordance with the AICPA Audit and Accounting Guide for Investment Companies. For private equity investments, Synovus uses information provided by the fund managers in the initial determination of estimated fair value. Valuation factors such as recent or proposed purchase or sale of debt or equity, pricing by other dealers in similar securities, size of position held, liquidity of the market, comparable market multiples, and changes in economic conditions affecting the issuer are used in the final determination of estimated fair value.

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 financial instruments provides a valuable tool to assist in the management of these risks.

In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities, an Amendment of SFAS No. 133,” all derivative instruments are recorded on the consolidated balance sheet at their respective fair values, as components of other assets and other liabilities.

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 as a component of other non-interest income. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the hedged item 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 on the derivative instrument, are reported in earnings immediately as a component of other non-interest income. If the derivative instrument is not designated as a hedge, the gain or loss on the derivative instrument is recognized in earnings as a component of other non-interest income in the period of change. At December 31, 2008, Synovus does not have any derivative instruments which are measured for ineffectiveness using the short-cut method.

With the exception of commitments to fund and sell fixed-rate mortgage loans and derivatives utilized to meet the financing, interest rate and equity risk management needs of its customers, all derivatives utilized by Synovus to manage its interest rate sensitivity are 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 utilizes interest rate swap agreements to hedge the fair value risk of fixed-rate balance sheet liabilities, primarily deposit and long term debt 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

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Notes to Consolidated Financial Statements ­ ­ 

effectively hedge the fair value risks of these fixed-rate liabilities. Ineffectiveness from fair value hedges is recognized in the consolidated statements of income as other operating income.

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 and uses interest rate swap agreements to hedge the cash flow risk. These agreements entitle Synovus to receive fixed-rate interest payments and pay floating-rate interest payments. The maturity date of the agreement with the longest remaining term to maturity is July 9, 2012. These agreements allow Synovus to offset the variability of floating rate loan interest received with the variable interest payments paid on the interest rate swaps. The ineffectiveness from cash flow hedges is recognized in the consolidated statements of income as other operating income.

In 2005, Synovus entered into certain forward starting swap contracts to hedge the cash flow risk of certain forecasted interest payments on a forecasted debt issuance. Upon the determination to issue debt, Synovus was potentially exposed to cash flow risk due to changes in market interest rates prior to the placement of the debt. The forward starting swaps allowed Synovus to hedge this exposure. Upon placement of the debt, these swaps were cash settled concurrent with the pricing of the debt. The effective portion of the cash flow hedge previously included in accumulated other comprehensive income is being amortized over the life of the debt issue as an adjustment to interest expense.

Synovus also holds derivative instruments which consist of commitments to fund fixed-rate mortgage loans to customers (interest rate lock commitments) and forward commitments to sell mortgage-backed securities and 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 and the mortgage loans that are held for sale. Both the interest rate lock commitments and the forward commitments are reported at fair value, with adjustments being recorded in current period earnings. Certain forward sales commitments are accounted for as hedges of mortgage loans held for sale.

Synovus also enters into derivative financial instruments to meet the financing and interest rate risk management needs of its customers. Upon entering into these instruments to meet customer needs, Synovus enters into offsetting positions to minimize interest rate risk to Synovus. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings. These instruments, and their offsetting positions, are recorded in other assets and other liabilities on the consolidated balance sheets.

By using derivatives to hedge fair value and cash flow risks, Synovus exposes itself to potential credit risk from the counterparty to the hedging instrument. This credit risk is normally a small percentage of the notional amount and fluctuates as interest rates change. Synovus analyzes and approves credit risk for all potential derivative counterparties prior to execution of any derivative transaction. Synovus minimizes credit risk by dealing with highly rated counterparties, and by obtaining collateralization for exposures above certain predetermined limits.

Non-Interest Income

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of non-sufficient funds fees, account analysis fees, and other service charges on deposits which consist primarily of monthly account fees. Non-sufficient funds fees are recognized at the time when the account overdraft occurs. Account analysis fees consist of fees charged to certain commercial demand deposit accounts based upon account activity (and reduced by a credit which is based upon cash levels in the account). These fees, as well as monthly account fees, are recorded under the accrual method of accounting.

Fiduciary and Asset Management Fees

Fiduciary and asset management fees are generally determined based upon market values of assets under management as of a specified date during the period. These fees are recorded under the accrual method of accounting as the services are performed.

Brokerage and Investment Banking Revenue

Brokerage revenue consists primarily of commission income, which represents the spread between buy and sell transactions processed, and net fees charged to customers on a transaction basis for buy and sell transactions processed. Commission income is recorded on a trade-date basis. Brokerage revenue also includes portfolio management fees which represent monthly fees charged on a contractual basis to customers for the management of their investment portfolios and are recorded under the accrual method of accounting.

Investment banking revenue represents fees for services arising from securities offerings or placements in which Synovus acts as the agent. It also includes fees earned from providing advisory services. Revenue is recognized at the time the underwriting is completed and the revenue is reasonably determinable.

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Notes to Consolidated Financial Statements ­ ­ 

Mortgage Banking Income

Mortgage banking income consists primarily of gains and losses from the sale of mortgage loans. Mortgage loans are sold servicing released, without recourse or continuing involvement and satisfy SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” (SFAS No. 140) criteria for sale accounting. Gains (losses) on the sale of mortgage loans are determined and recognized at the time the sale proceeds are received and represent the difference between net sales proceeds and the carrying value of the loans at the time of sale adjusted for recourse obligations, if any, retained by Synovus.

Bankcard Fees

Bankcard fees consist primarily of interchange and merchant fees earned, net of fees paid, on debit card and credit card transactions. Net fees are recognized into income as they are collected.

Income Taxes

Synovus files a consolidated federal tax return with its wholly-owned and significant majority owned subsidiaries. Synovus accounts for income taxes in accordance with the asset and liability method. Deferred income 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 and operating loss and tax credit carryforwards. 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. Valuation allowances against the carrying amount of a deferred tax asset are established when necessary to reflect the decreased likelihood of full realization of a deferred tax asset in the future. Changes in the valuation allowance that result from a favorable change in circumstances that causes a change in judgment about the realization of deferred tax assets in future years should reduce income tax expense. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Synovus adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48) as of January 1, 2007. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 provides a two-step process in the evaluation of a tax position. The first step is recognition. A company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including a resolution of any related appeals or litigation processes, based upon the technical merits of the position. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Upon adoption as of January 1, 2007, Synovus recognized a $1.4 million decrease in the liability for uncertain tax positions, with a corresponding increase in retained earnings of $1.4 million as a cumulative effect adjustment.

Significant estimates used in accounting for income taxes relate to the determination of taxable income, the determination of temporary differences between book and tax bases, as well as estimates on the realizability of tax credits and utilization of net operating losses.

Share-Based Compensation

Synovus adopted SFAS No. 123R, “Share-Based Payment”, effective January 1, 2006 and elected to use the modified prospective transition method. SFAS No. 123R was effective for all unvested awards at January 1, 2006 and for all awards granted or modified, repurchased, or cancelled after that date. This statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize compensation expense over the future service period.

Prior to adoption of SFAS No. 123R, Synovus accounted for its fixed share-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 was recorded on the grant date only to the extent that the current market price of the underlying stock exceeded the exercise price on the grant date.

Postretirement Benefits

Synovus sponsors a defined benefit health care plan for substantially all of its employees and certain early retirees. The expected costs of retiree health care and other postretirement benefits are being expensed over the period that employees provide service.

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Notes to Consolidated Financial Statements ­ ­ 

Fair Value Accounting

In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. This statement did not introduce any new requirements mandating the use of fair value; rather, it unified the meaning of fair value and added additional fair value disclosures. The provisions of this statement were effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Effective January 1, 2008, Synovus adopted SFAS No. 157 for financial assets and liabilities. As permitted under FASB Staff PositionNo. FAS 157-2, Synovus has elected to defer the application of SFAS No. 157 to non-financial assets and liabilities until January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits entities to make an irrevocable election, at specified election dates, to measure eligible financial instruments and certain other instruments at fair value. As of January 1, 2008, Synovus has elected the fair value option (FVO) for mortgage loans held for sale and certain callable brokered certificates of deposit. Accordingly, a cumulative adjustment of $58 thousand ($91 thousand less $33 thousand of income taxes) was recorded as an increase to retained earnings.

In October 2008, the FASB issued FSPFAS 157-3, “Determining the Fair Value of a Financial Asset in a Market that is Not Active.” FSPFAS 157-3 is intended to provide additional guidance on how an entity should classify the application of SFAS 157 in an inactive market, and illustrates how an entity should determine fair value in an inactive market. The provisions for this statement were effective upon its issuance on October 10, 2008. The impact to Synovus is minimal, as this FSP provides clarification to existing guidance.

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, computer software, equity method investments, goodwill and other intangible assets. In addition, the income 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.

Recently Adopted Accounting Standards

In September 2006, the FASB’s Emerging Issues Task Force (EITF) reached a consensus on EITF IssueNo. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”(EITF 06-4).EITF 06-4 requires an employer to recognize a liability for future benefits based on the substantive agreement with the employee.EITF 06-4 requires a company to use the guidance prescribed in SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” and Accounting Principles Board Opinion (APB) No. 12, “Omnibus Opinion,” when entering into an endorsement split-dollar life insurance agreement and recognizing the liability.EITF 06-4 was effective for fiscal periods beginning after December 15, 2007. Synovus adopted the provisions ofEITF 06-4 effective January 1, 2008 and recognized approximately $2.2 million as a cumulative effect adjustment to retained earnings.

In November 2006, the EITF reached a consensus on EITF IssueNo. 06-10, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements”(EITF 06-10). UnderEITF 06-10, an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement. The recognition of an asset should be based on the nature and substance of the collateral, as well as the terms of the arrangement such as (1) future cash flows to which the employer is entitled and (2) employee’s obligation (and ability) to repay the employer.EITF 06-10 was effective for fiscal periods beginning after December 15, 2007. Synovus adopted the provisions ofEITF 06-10 effective January 1, 2008. There was no impact to Synovus upon adoption ofEITF 06-10.

In November 2006, the EITF reached a consensus on EITF IssueNo. 06-11, “Accounting for Income Tax Benefits of

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Notes to Consolidated Financial Statements ­ ­ 

Dividends on Share-Based Payment Awards”(EITF 06-11). Employees may receive dividend payments (or the equivalent of) on vested and non-vested share-based payment awards. UnderEITF 06-11, the Task Force concluded that a realized income tax benefit from dividends (or dividend equivalents) that are charged to retained earnings and are paid to employees for equity classified non-vested equity shares, non-vested equity share units, and outstanding equity share options should be recognized as an increase in additional paid-in capital. Once the award is settled, the Company should determine whether the cumulative tax deduction exceeded the cumulative compensation cost recognized on the income statement. If the total tax benefit exceeds the tax effect of the cumulative compensation cost, the excess would be an increase to additional paid-in capital.EITF 06-11 was effective for fiscal periods beginning after September 15, 2007. The impact of adoption ofEITF 06-11 was not material to Synovus’ financial position, results of operations or cash flows.

In November 2007, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings,” (SAB No. 109). SAB No. 109 supersedes SAB No. 105, “Application of Accounting Principles to Loan Commitments.” SAB No. 109, consistent with SFAS No. 156, “Accounting for Servicing of Financial Assets,” and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” requires that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. A separate and distinct servicing asset or liability is not recognized for accounting purposes until the servicing rights have been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained. The provisions of this bulletin were effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The impact of adoption of SAB No. 109 was an increase in mortgage revenues of approximately $1.2 million for the year ended December 31, 2008.

In December 2007, the SEC issued SAB No. 110, “Share-Based Payment,” (SAB No. 110) SAB No. 110 allows eligible public companies to continue to use a simplified method for estimating the expected term of stock options if their own historical exercise data no longer provides a reasonable basis. Under SAB No. 107, “Share-Based Payment,” the simplified method was scheduled to expire for all grants made after December 31, 2007. The provisions of this bulletin were effective on January 1, 2008. Due to the spin-off of TSYS on December 31, 2007 and recent changes to the terms of stock option agreements, Synovus elected to continue using the simplified method for determining the expected term component for all share options granted during 2008.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 resolves issues addressed in Statement No. 133 Implementation Issue No. D1, “Application of Statement No. 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS No. 155 also permits election of fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a re-measurement event, on aninstrument-by-instrument basis. The provisions of this statement were effective for all financial instruments acquired or issued after the beginning of the entity’s first fiscal year that began after September 15, 2006. Synovus adopted the provisions of SFAS No. 155 effective January 1, 2007. The impact of adoption of SFAS No. 155 was not material to Synovus’ financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets.” SFAS No. 156 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in certain situations and requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The provisions of this statement were effective as of the beginning of the first fiscal year that began after September 15, 2006. Synovus adopted the provisions of SFAS No. 156 effective January 1, 2007. The impact of adoption of SFAS No. 156 was not material to Synovus’ financial position, results of operations or cash flows.

In September 2006, the EITF reached a consensus on EITF IssueNo. 06-5, “Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB TechnicalBulletin No. 85-4”(EITF 06-5).EITF 06-5 requires that a determination of the amount that could be realized under an insurance contract should (1) consider any additional amounts beyond cash surrender value included in the contractual terms of the policy

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Notes to Consolidated Financial Statements ­ ­ 

and (2) be based on an assumed surrender at the individual policy or certificate level, unless all policies or certificates are required to be surrendered as a group. Synovus adoptedEITF 06-05 effective January 1, 2007. The impact of adoption ofEITF 06-05 was not material to Synovus’ financial position, results of operations or cash flows.

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” In December 2006, Synovus adopted the provisions of SAB No. 108, which clarifies the way that a company should evaluate an identified unadjusted error for materiality. SAB No. 108 requires that the effect of misstatements that were not corrected at the end of the prior year be considered in quantifying misstatements in the current year financial statements. Two techniques were identified as being used by companies in practice to accumulate and quantify misstatements — the “rollover” approach and the “iron curtain” approach. The rollover approach, which is the approach that Synovus previously used, quantifies a misstatement based on the amount of the error originating in the current year income statement. Thus, this approach ignores the effects of correcting the portion of the current year balance sheet misstatement that originated in prior years. The iron curtain approach quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year(s) of origination. The primary weakness of the iron curtain approach is that it does not consider the correction of prior year misstatements in the current year to be errors.

Using the rollover approach resulted in an accumulation of misstatements to Synovus’ balance sheets that were deemed immaterial to Synovus’ financial statements because the amounts that originated in each year were quantitatively and qualitatively immaterial. Synovus has elected, as allowed under SAB No. 108, to reflect the effect of initially applying this guidance by adjusting the carrying amount of the impacted accounts as of the beginning of 2006 and recording an offsetting adjustment to the opening balance of retained earnings in 2006. Accordingly, Synovus recorded a cumulative adjustment to increase retained earnings by $3.4 million upon the adoption of SAB No. 108.

The following table presents a description of the individual adjustments included in the cumulative adjustment to retained earnings:

				Nature of
				Error
				Being	Years
(In millions)	Adjustment			Corrected	Impacted
Brokered time deposits	$	(10.3	)	Adjusted to reflect incorrect use of hedges	2003-2005
Deferred income tax liability		3.8		Adjusted to reflect tax effect of incorrect use of hedges	2003-2005
Accumulated other comprehensive loss		(0.8	)	Adjusted to reflect incorrect use of hedges	2004-2005
Deferred income tax liability		10.7		Adjusted to reflect impact of calculation errors	1993-2005
Total increase in retained earnings	$	3.4

In the first quarter of 2003, Synovus entered into interest rate swaps to hedge the fair value of certain brokered time deposits. Effectiveness was measured using the short-cut method. Upon further review of these arrangements at September 30, 2005, Synovus determined that these hedges did not qualify for the shortcut method of hedge accounting as the broker placement fee for the related certificates of deposit was factored into the pricing of the swaps. The hedging relationships were redesignated on September 30, 2005, using the cumulative dollar offset method to measure effectiveness. Prior years’ adjustments were evaluated under the rollover approach and the correction of these misstatements was not material to Synovus’ results of operations in any of the years impacted. Brokered time deposits were increased by the amount of the cumulative fair value basis adjustment and the associated deferred tax liability was removed, resulting in a net decrease in shareholders’ equity of $6.5 million, to correct the incorrect use of hedge accounting.

In the fourth quarter of 2004, Synovus entered into certain forward starting interest rate swaps to hedge the future interest payments on debt forecasted to be issued in 2005. Synovus accounted for these arrangements as cash flow hedges. Upon further review of these arrangements, during the second quarter of 2005, it was determined that the swaps did not qualify for hedge accounting treatment. The hedging relationships were redesignated during the second quarter of 2005. The prior years’ adjustments were evaluated under the rollover approach and the correction of these misstatements was not material to Synovus’ results of operations in any of the years impacted. Accumulated other comprehensive losses were

F-14

Notes to Consolidated Financial Statements ­ ­ 

decreased and retained earnings were increased by $0.8 million, respectively, to correct the incorrect use of hedge accounting.

From 1993 through 2005, Synovus had errors in its calculation of deferred taxes for temporary differences related to certain business combinations and premises and equipment. The prior years’ errors were evaluated under the rollover approach and the correction of these misstatements was not material to Synovus results of operations in any of the years impacted. The deferred income tax liability was reduced by $10.7 million to correct the calculation errors.

Reclassifications

Certain prior years amounts have been reclassified to conform to the presentation adopted in 2008.

Note 2   Discontinued Operations

Transfer of Mutual Funds

During 2007, Synovus transferred its proprietary mutual funds (Synovus Funds) to a non-affiliated third party. As a result of the transfer, Synovus received gross proceeds of $8.0 million and incurred transaction related costs of $1.1 million, resulting in a pre-tax gain of $6.9 million, or $4.2 million after-tax. The net gain has been reported as a component of income from discontinued operations on the accompanying consolidated statements of income. Financial results of the business associated with the Synovus Funds for 2007 and 2006 have not been presented as discontinued operations as such amounts are inconsequential. This business did not have significant assets, liabilities, revenues, or expenses associated with it.

TSYS Spin-Off

On December 31, 2007, Synovus completed the tax-free spin-off of its shares of TSYS common stock to Synovus shareholders. The distribution of approximately 80.6% of TSYS’ outstanding shares owned by Synovus was made on December 31, 2007 to shareholders of record on December 18, 2007 (the “record date”). Each Synovus shareholder received 0.483921 of a share of TSYS common stock for each share of Synovus common stock held as of the record date. Synovus shareholders received cash in lieu of fractional shares for amounts of less than one share of TSYS common stock.

Pursuant to the agreement and plan of distribution, TSYS paid on a pro rata basis to its shareholders, including Synovus, a one-time cash dividend of $600 million or $3.0309 per TSYS share based on the number of TSYS shares outstanding as of the record date of December 17, 2007. Based on the number of TSYS shares owned by Synovus as of the record date, Synovus received $483.8 million in proceeds from this one-time cash dividend. The dividend was paid on December 31, 2007.

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” the historical consolidated results of operations of TSYS, as well as all costs associated with the spin-off of TSYS, are now presented as a component of income from discontinued operations. The balance sheet as of December 31, 2007 does not include assets and liabilities of TSYS.

F-15

Notes to Consolidated Financial Statements ­ ­ 

The following amounts have been segregated from continuing operations and included in income from discontinued operations, net of income taxes and minority interest, in the consolidated statements of income:

	Years Ended December 31,
(In thousands)	2007			2006
TSYS revenues	$	1,835,412			1,806,604
TSYS income, net of minority interest and before income taxes		335,567			327,995
Income tax expense		143,668			126,181
Income from discontinued operations, net of income taxes		191,899			201,814
Spin-off related expenses incurred by Synovus, before income taxes		13,858			—
Income tax benefit		(1,129	)		—
Spin-off related expenses incurred by Synovus, net of income tax benefit		12,729			—
Gain on transfer of mutual funds, before income taxes		6,885			—
Income tax expense		2,685			—
Gain on transfer of mutual funds, net of income taxes		4,200			—
Income from discontinued operations, net of income taxes and minority interest	$	183,370			201,814

Synovus adopted the provisions of FIN 48 as of January 1, 2007. Upon adoption, Synovus recognized a $2.0 million increase in the liability for uncertain tax positions, a corresponding decrease in minority interest of $377 thousand, and a decrease in retained earnings of $1.6 million as a cumulative effect adjustment with respect to discontinued operations.

Cash flows of discontinued operations are presented below.

	Years Ended December 31,
(In thousands)	2007			2006
Cash provided by operating activities	$	341,728			385,759
Cash used in investing activities		(162,476	)		(164,179	)
Cash used in financing activities		(376,685	)		(69,597	)
Effect of exchange rates on cash and cash equivalents		4,970			(429	)
Cash (used in) provided by discontinued operations	$	(192,463	)		151,554

Note 3   Restructuring Charges

Project Optimus, an initiative focused on operating efficiency gains and enhanced revenue growth, was launched in April 2008. Synovus expects to implement ideas associated with this project over a twenty-four month period which began in September 2008. Synovus expects to incur restructuring charges of approximately $22.0 million in conjunction with the project, including $10.9 million in severance charges and $11.1 million in other project related costs. During the twelve months ended December 31, 2008, Synovus recognized a total of $16.1 million in restructuring charges including $5.2 million in severance charges. At December 31, 2008, Synovus had an accrued liability of $2.9 million related to restructuring charges.

Note 4   Business Combinations

Effective on March 25, 2006, Synovus acquired all of the issued and outstanding common shares of Riverside Bancshares, Inc., the parent company of Riverside Bank (Riverside), headquartered in Marietta, Georgia. The aggregate purchase price was $171.4 million, consisting of 5,883,426 shares of Synovus common stock valued at $159.8 million, stock options valued at $11.4 million, and $182 thousand in direct acquisition costs. During the first quarter of 2006, concurrent with the acquisition, Riverside was merged into a subsidiary of Synovus, Bank of North Georgia. The results of operations of Riverside Bancshares have been included in Synovus’ consolidated financial statements beginning March 25, 2006.

Effective on April 1, 2006, Synovus acquired all of the issued and outstanding common shares of Banking Corporation of Florida, the parent company of First Florida Bank (First Florida), headquartered in Naples, Florida. The aggregate purchase price was $84.8 million, consisting of 2,938,791 shares of Synovus common stock valued at $80.1 million, stock options valued at $4.7 million and $24 thousand in direct acquisition

F-16

Notes to Consolidated Financial Statements ­ ­ 

costs. On April 28, 2008, First Florida was merged into a subsidiary of Synovus, Synovus Bank of Tampa Bay, and the merged entity was renamed Synovus Bank. The results of operations of First Florida have been included in Synovus’ consolidated financial statements beginning April 1, 2006.

Proforma information relating to the impact of these two acquisitions on Synovus’ consolidated financial statements, assuming such acquisitions had occurred at the beginning of the periods reported, is not presented as such impact is inconsequential.

Note 5   Trading Account Assets

The following table summarizes trading account assets at December 31, 2008 and 2007, which are reported at fair value.

(In thousands)	2008		2007
U.S. Treasury and U.S. Government agency securities	$	274		162
Mortgage-backed securities		19,422		16,839
State and municipal securities		1,753		462
Other investments		3,064		340
Total	$	24,513		17,803

Note 6   Impaired Loans Held for Sale

Loans or pools of loans are transferred to the impaired loans held for sale portfolio when the intent to hold the loans has changed due to portfolio management or risk mitigation strategies and when there is a plan to sell the loans within a reasonable period of time. The value of the loans or pools of loans is primarily determined by analyzing the underlying collateral of the loan and the external market prices of similar assets. At the time of transfer, if the fair value is less than the cost, the difference attributable to declines in credit quality is recorded as a charge-off against the allowance for loan losses. Decreases in fair value subsequent to the transfer as well as losses (gains) from sale of these loans are recognized as a component of non-interest expense.

During the year ended December 31, 2008, Synovus transferred loans with a cost basis totaling $72.7 million to the impaired loans held for sale portfolio. Synovus recognized charge-offs totaling $22.1 million on these loans, resulting in a new cost basis for loans transferred to the impaired loans held for sale portfolio of $50.6 million. The $22.1 million in charge-offs were estimated based on the estimated sales price of the portfolio through bulk sales. Subsequent to their transfer to the impaired loans held for sale portfolio, Synovus recognized additional write-downs of $3.2 million and recognized additional net losses on sales of $9.9 million. The additional write-downs were based on the estimated sales proceeds from pending sales.

The following table provides the classification of impaired loans held for sale at December 31, 2008.

(In thousands)
Commercial:
Real estate — construction	$	3,527
Total	$	3,527

Note 7   Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and estimated fair values of investment securities available for sale at December 31, 2008 and 2007 are summarized as follows:

	December 31, 2008
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. Treasury and U.S. Government agency securities	$	1,478,985		78,229		—			1,557,214
Mortgage-backed securities		2,002,855		70,288		(730	)		2,072,413
State and municipal securities		120,552		3,046		(317	)		123,281
Equity securities		131,581		—		(1,288	)		130,293
Other investments		9,021		—		(74	)		8,947
Total	$	3,742,994		151,563		(2,409	)		3,892,148

F-17

Notes to Consolidated Financial Statements ­ ­ 

	December 31, 2007
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
U.S. Treasury and U.S. Government agency securities	$	1,916,005		30,639		(1,263	)		1,945,381
Mortgage-backed securities		1,436,445		6,714		(12,836	)		1,430,323
State and municipal securities		161,697		3,178		(319	)		164,556
Equity securities		114,205		25		—			114,230
Other investments		12,560		—		(76	)		12,484
Total	$	3,640,912		40,556		(14,494	)		3,666,974

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2008 and 2007 were as follows:

	December 31, 2008
	Less than 12 Months					12 Months or Longer					Total Fair Value
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury and U.S. Government agency securities	$	—		—			—		—			—		—
Mortgage-backed securities		139,838		(535	)		27,584		(195	)		167,422		(730	)
State and municipal securities		4,724		(142	)		2,246		(175	)		6,970		(317	)
Equity securities		4,012		(1,288	)		—		—			4,012		(1,288	)
Other investments		—		—			926		(74	)		926		(74	)
Total	$	148,574		(1,965	)		30,756		(444	)		179,330		(2,409	)

	December 31, 2007
	Less than 12 Months					12 Months or Longer					Total Fair Value
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In thousands)	Value		Losses			Value		Losses			Value		Losses
U.S. Treasury and U.S. Government agency securities	$	104,857		(218	)		335,372		(1,045	)		440,229		(1,263	)
Mortgage-backed securities		356,124		(1,314	)		527,472		(11,522	)		883,596		(12,836	)
State and municipal securities		8,459		(55	)		12,745		(264	)		21,204		(319	)
Equity securities		—		—			—		—			—		—
Other investments		—		—			1,674		(76	)		1,674		(76	)
Total	$	469,440		(1,587	)		877,263		(12,907	)		1,346,703		(14,494	)

U.S. Treasury and U.S. Government agency securities.  As of December 31, 2008, Synovus did not have any unrealized losses in this securities category. As of December 31, 2007, the unrealized losses in this category consisted primarily of unrealized losses caused by interest rate increases, and not credit quality. Because Synovus had the ability and intent to hold these investments until a recovery of fair value, these investments were not considered to be other-than-temporarily impaired at December 31, 2007.

Mortgage-backed securities.  The unrealized losses on investment in mortgage-backed securities were caused by interest rate increases. At December 31, 2008, all of the collateralized mortgage obligations and mortgage-backed pass-through securities held by Synovus were issued or backed by U.S. Government agencies. These securities are rated AAA by both Moody’s and Standard and Poor’s. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because Synovus has the ability and intent to

F-18

Notes to Consolidated Financial Statements ­ ­ 

hold these investments until a recovery of fair value, which may be at maturity, Synovus does not consider these investments to be other-than-temporarily impaired at December 31, 2008 or December 31, 2007.

The amortized cost and estimated fair value by contractual maturity of investment securities available for sale at December 31, 2008 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.

	Amortized		Estimated
(In thousands)	Cost		Fair Value
U.S. Treasury and U.S. Government agency securities:
Within 1 year	$	243,706		249,131
1 to 5 years		544,728		577,287
5 to 10 years		509,538		534,357
More than 10 years		181,013		196,439
	$	1,478,985		1,557,214
State and municipal securities:
Within 1 year	$	13,811		13,936
1 to 5 years		50,739		52,029
5 to 10 years		44,599		45,916
More than 10 years		11,403		11,400
	$	120,552		123,281
Other investments:
Within 1 year	$	250		250
1 to 5 years		997		997
5 to 10 years		1,800		1,800
More than 10 years		5,974		5,900
	$	9,021		8,947
Equity securities	$	131,581		130,293
Mortgage-backed securities	$	2,002,855		2,072,413
Total investment securities:	$	3,742,994		3,892,148
Within 1 year	$	257,767		263,317
1 to 5 years		596,464		630,313
5 to 10 years		555,937		582,073
More than 10 years		198,390		213,739
Equity securities		131,581		130,293
Mortgage-backed securities		2,002,855		2,072,413
	$	3,742,994		3,892,148

A summary of sales transactions in the investment securities available for sale portfolio for 2008, 2007, and 2006 is as follows:

			Gross		Gross
			Realized		Realized
(In thousands)	Proceeds		Gains		Losses
2008	$	165,623		45		—
2007		25,482		1,056		(76	)
2006		130,547		—		(2,118	)

At December 31, 2008 and 2007, investment securities with a carrying value of $3.1 billion and $3.1 billion, respectively, were pledged to secure certain deposits, securities sold under repurchase agreements, and Federal Home Loan Bank (FHLB) advances, as required by law and contractual agreements.

Note 8   Loans

Loans outstanding, by classification, are summarized as follows:

	December 31,
(In thousands)	2008			2007
Commercial:
Commercial, financial, and agricultural	$	6,874,904			6,420,689
Owner occupied		4,521,414			4,226,707
Real estate — construction		7,336,943			8,022,179
Real estate — mortgage		4,840,423			3,877,808
Total commercial		23,573,684			22,547,383
Retail:
Real estate — mortgage		3,485,818			3,211,625
Retail loans — credit card		295,055			291,149
Retail loans — other		603,003			494,591
Total retail		4,383,876			3,997,365
Total loans		27,957,560			26,544,748
Unearned income		(37,383	)		(46,163	)
Total loans, net of unearned income	$	27,920,177			26,498,585

F-19

Notes to Consolidated Financial Statements ­ ­ 

Activity in the allowance for loan losses is summarized as follows:

	Years Ended December 31,
(In thousands)	2008			2007			2006
Balance at beginning of year	$	367,613			314,459			289,612
Allowance for loan losses of acquired subsidiaries		—			—			9,915
Provision for losses on loans		699,883			170,208			75,148
Recoveries of loans previously charged off		17,076			14,155			12,590
Loans charged off		(486,271	)		(131,209	)		(72,806	)
Balance at end of year	$	598,301			367,613			314,459

At December 31, 2008, the recorded investment in loans that were considered to be impaired was $726.1 million. Included in this amount is $618.2 million of impaired loans (which consist primarily of collateral dependent loans) for which there is no related allowance for loan losses determined in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” The allowance on these loans is zero because estimated losses on collateral dependent impaired loans included in this total have been charged-off. Impaired loans at December 31, 2008 also include $108.0 million of impaired loans for which the related allowance for loan losses is $26.2 million. At December 31, 2008, all impaired loans were on non-accrual status.

At December 31, 2007, the recorded investment in loans that were considered to be impaired was $264.9 million. Included in this amount was $233.2 million of impaired loans for which there is no related allowance for loan losses. The allowance on these loans is zero because estimated losses on collateral dependent impaired loans included in this total have been charged-off. Impaired loans at December 31, 2007 also include $31.7 million of impaired loans for which the related allowance for loan losses is $6.4 million. At December 31, 2007, all impaired loans were on non-accrual status.

The allowance for loan losses on impaired loans was determined using either the fair value of the loan’s collateral, less estimated selling costs, or discounted cash flows. The average recorded investment in impaired loans was approximately $575.4 million, $148.1 million, and $67.1 million for the years ended December 31, 2008, 2007, and 2006, respectively. There was no interest income recognized for the investment in impaired loans for the years ended December 31, 2008 and 2007, and 2006.

Loans on nonaccrual status amount to $921.7 million, $341.9 million, and $96.2 million, at December 31, 2008, 2007, and 2006, respectively.

Interest income on non-performing loans outstanding on December 31, 2008, that would have been recorded if the loans had been current and performed in accordance with their original terms was $96.8 million for the year ended December 31, 2008. Interest income recorded on these loans for the year ended December 31, 2008 was $52.2 million.

A substantial portion of the loans are secured by real estate in markets in which subsidiary banks are located throughout Georgia, Alabama, Tennessee, South Carolina, and Florida. Accordingly, the ultimate collectability 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’ subsidiary banks have made loans to certain of their executive officers and directors (including their associates and affiliates) and of the Parent Company and its significant subsidiaries, as defined. Significant subsidiaries consist of Columbus Bank and Trust Company, Bank of North Georgia, and The National Bank of South Carolina. 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 unaffiliated customers. The following is a summary of such loans outstanding and the activity in these loans for the year ended December 31, 2008.

(In thousands)
Balance at December 31, 2007	$	313,516
Adjustment for executive officer and director changes		(134,429	)
Adjusted balance at December 31, 2007		179,087
New loans		568,808
Repayments		(402,272	)
Balance at December 31, 2008	$	345,623

F-20

Notes to Consolidated Financial Statements ­ ­ 

Note 9   Goodwill and Other Intangible Assets

The following table shows the changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2007.

(In thousands)	Goodwill
Balance as of December 31, 2006	$	515,719
Goodwill acquired(1)(2)		3,419
Impairment losses		—
Balance as of December 31, 2007		519,138
Goodwill acquired		—
Impairment losses		479,617
Balance as of December 31, 2008	$	39,521

(1)	$1.9 million pertains to contingent consideration relating to the GLOBALT acquisition.
(2)	During the year ended December 31, 2007, Synovus finalized the purchase price allocation of the Riverside and First Florida acquisitions. This resulted in increases in goodwill of $1.3 million and $259 thousand for Riverside and First Florida, respectively.

Under SFAS No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets,” goodwill is required to be tested for impairment annually, or more frequently if events or circumstances indicate that there may be impairment. Synovus used the combination of the income approach utilizing the discounted cash flow (DCF) method, and the guideline company method using a combination of price to tangible book value, price to book value, and price to earnings to estimate the fair value of a reporting unit.

Impairment is tested at the reporting unit (sub-segment) level involving two steps. Step 1 compares the fair value of the reporting unit to its carrying value. If the fair value is greater than carrying value, there is no indication of impairment. Step 2 is performed when the fair value determined in Step 1 is less than the carrying value. Step 2 involves a process similar to business combination accounting where fair values are assigned to all assets, liabilities, and intangibles. The result of Step 2 is the implied fair value of goodwill. If the Step 2 implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference. The total of all reporting unit fair values is compared for reasonableness to Synovus’ market capitalization plus a control premium.

At June 30, 2008, Synovus conducted its annual goodwill impairment evaluation. As a result of this evaluation, Synovus recognized a non-cash charge for impairment of goodwill on one of its reporting units of $36.9 million (pre-tax and after-tax). The impairment charge was primarily related to a decrease in valuation based on market trading and transaction multiples of tangible book value.

At December 31, 2008, Synovus determined that goodwill impairment should be reevaluated based on an adverse change in the general business environment, significantly higher loan losses, reduced interest margins, and a decline in Synovus’ market capitalization during the second half of 2008. Historically, Synovus determined the fair value of its reporting units based on a combination of the income approach (utilizing the discounted cash flows (DCF) method), the public company comparables approach (utilizing multiples of tangible book value), and the transaction approach (utilizing readily observable market valuation multiples for closed transactions). At December 31, 2008, due to the lack of observable market data, management enhanced the valuation methodology by using discounted cash flow analyses to estimate the fair values of its reporting units.

In performing Step 1 of the goodwill impairment testing and measurement process, the estimated fair values of the reporting units with goodwill were developed using the DCF method. The results of the DCF method were corroborated with estimates of fair value utilizing market price to earnings, price to book value, price to tangible book value, and Synovus’ market capitalization plus a control premium. The results of this Step 1 process indicated potential impairment in four reporting units, as the book values of each reporting unit exceeded their respective estimated fair values.

As a result, Synovus performed Step 2 to quantify the goodwill impairment, if any, for these four reporting units. In Step 2, the estimated fair values for each of the four reporting units were allocated to their respective assets and liabilities in order to determine an implied value of goodwill, in a manner similar to the calculation performed in a business combination. Based on the results of Step 2, Synovus recognized a $442.7 million (pre-tax and after-tax) charge for goodwill impairment during the three months ended December 31, 2008, which represented a total goodwill write-off for the four reporting units. The primary driver of the goodwill impairment for these four reporting units was the decline in Synovus’ market capitalization, which declined 31% from June 30, 2008 to December 31, 2008.

F-21

Notes to Consolidated Financial Statements ­ ­ 

Other intangible assets as of December 31, 2008 and 2007 are presented in the following table:

	2008
	Gross
	Carrying		Accumulated
(In thousands)	Amount		Amortization			Impairment			Net
Other intangible assets:
Purchased trust revenues	$	4,210		(2,128	)		—			2,082
Acquired customer contracts		5,270		(3,467	)		(1,049	)		754
Core deposit premiums		46,331		(28,416	)		—			17,915
Other		666		(151	)		—			515
Total carrying value	$	56,477		(34,162	)		(1,049	)		21,266

	2007
	Gross
	Carrying		Accumulated
	Amount		Amortization			Impairment		Net
Other intangible assets:
Purchased trust revenues	$	4,210		(1,848	)		—		2,362
Acquired customer contracts		5,270		(2,863	)		—		2,407
Core deposit premiums		46,331		(23,663	)		—		22,668
Other		666		(96	)		—		570
Total carrying value	$	56,477		(28,470	)		—		28,007

Aggregate other intangible assets amortization expense for the years ended December 31, 2008, 2007, and 2006 was $5.6 million, $5.1 million, and $5.8 million, respectively. Aggregate estimated amortization expense over the next five years is: $4.5 million in 2009, $4.1 million in 2010, $3.7 million in 2011, $3.2 million in 2012, and $1.6 million in 2013.

Synovus recorded an acquired customer contracts asset impairment charge of $1.0 million during the year ended December 31, 2008. The impairment charge was recorded based on management’s estimate that the recorded values would not be recoverable and is presented in other operating expenses on the consolidated statement of income.

Note 10   Other Assets

Significant balances included in other assets at December 31, 2008 and 2007 are as follows:

(In thousands)	2008		2007
Accrued interest receivable	$	171,909		244,521
Accounts receivable		45,331		52,924
Cash surrender value of bank owned life insurance		376,746		361,737
Other real estate (ORE)		246,121		101,487
Private equity investments		123,475		55,575
Prepaid expenses		31,774		40,505
Net current income tax benefit		95,768		46,029
Net deferred income tax assets		163,270		117,172
Derivative asset positions		307,771		112,021
Miscellaneous other assets		53,100		99,123
Total other assets	$	1,615,265		1,231,094

F-22

Notes to Consolidated Financial Statements ­ ­ 

Note 11   Interest Bearing Deposits

A summary of interest bearing deposits at December 31, 2008 and 2007 is as follows:

(In thousands)	2008		2007
Interest bearing demand deposits	$	3,359,410		3,362,572
Money market accounts		8,094,452		7,557,031
Savings accounts		437,656		442,824
Time deposits under $100,000		3,274,327		2,773,815
Time deposits of $100,000 or more		9,887,715		7,351,151
Total interest bearing deposits	$	25,053,560		21,487,393

Interest bearing deposits include the unamortized balance of purchase accounting adjustments and the fair value basis adjustment for those time deposits which are hedged with interest rate swaps. Interest expense for the years ended December 31, 2008, 2007, and 2006 on time deposits of $100,000 or more was $332.4 million, $364.2 million, and $299.7 million, respectively.

The following table presents scheduled cash maturities of time deposits at December 31, 2008:

(In thousands)
Maturing within one year	$	10,677,461
between 1 — 2 years		1,923,149
2 — 3 years		260,762
3 — 4 years		115,981
4 — 5 years		104,755
Thereafter		76,933
	$	13,159,041

Note 12   Long-Term Debt and Short-Term Borrowings

Long-term debt at December 31, 2008 and 2007 consists of the following:

(In thousands)	2008		2007
Parent Company:
4.875% subordinated notes, due February 15, 2013, with semi-annual interest payments and principal to be paid at maturity	$	272,190		300,000
5.125% subordinated notes, due June 15, 2017, with semi-annual interest payments and principal to be paid at maturity		450,000		450,000
LIBOR + 1.80% debentures, due April 19, 2035 with quarterly interest payments and principal to be paid at maturity (rate of 3.80% at December 31, 2008)		10,082		10,150
Hedge-related basis adjustment		50,111		11,533
Total long-term debt — Parent Company	$	782,383		771,683
Subsidiaries:
Federal Home Loan Bank advances with interest and principal payments due at various maturity dates through 2018 and interest rates ranging from .45% to 6.09% at December 31, 2008 (weighted average interest rate of 1.50% at December 31, 2008)	$	1,317,992		1,111,420
Other notes payable and capital leases with interest and principal payments due at various maturity dates through 2031 (weighted average interest rate of 4.30% at December 31, 2008)		6,798		7,132
Total long-term debt — subsidiaries		1,324,790		1,118,552
Total long-term debt	$	2,107,173		1,890,235

The provisions of the indentures governing Synovus subordinated notes and debentures contain certain restrictions, within specified limits, on mergers, disposition of common stock or assets, and investments in subsidiaries, and limit

F-23

Notes to Consolidated Financial Statements ­ ­ 

Synovus’ ability to pay dividends on its capital stock if there is an event of default under the applicable indenture. As of December 31, 2008, Synovus and its subsidiaries were in compliance with the covenants in these agreements.

The Federal Home Loan Bank advances are secured by certain loans receivable of approximately $3.5 billion, as well as investment securities with a fair market value of approximately $68.5 million at December 31, 2008.

Synovus had an unsecured line of credit with an unaffiliated bank for $25 million which expired during the year ended December 31, 2008 in accordance with its terms. The line of credit provided for an interest rate of 50 basis points above the short-term index, as defined, and an annual commitment fee of .125% on the average daily available balance. There were no advances outstanding at December 31, 2007.

Required annual principal payments on long-term debt for the five years subsequent to December 31, 2008 are shown on the following table:

	Parent
(In thousands)	Company		Subsidiaries		Total
2009	$	—		588,533		588,533
2010		—		606,471		606,471
2011		—		78,394		78,394
2012		—		42,926		42,926
2013		272,190		2,936		275,126

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)	2008			2007			2006
Balance at December 31	$	725,869			2,319,412			1,582,487
Weighted average interest rate at December 31		.68	%		3.81	%		4.97	%
Maximum month end balance during the year	$	2,544,913			2,767,055			1,986,919
Average amount outstanding during the year		1,719,978			1,957,990			1,578,163
Weighted average interest rate during the year		2.24	%		4.75	%		4.62	%

Note 13   Cumulative Perpetual Preferred Stock

On December 19, 2008, Synovus issued to the United States Department of the Treasury (Treasury) 967,870 shares of Synovus’ Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value (the Series A Preferred Stock), having a liquidation amount per share equal to $1,000, for a total price of $967,870,000. The Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Synovus may not redeem the Series A Preferred Stock during the first three years except with the proceeds from a qualified equity offering of not less than $241,967,500. After February 15, 2012, Synovus may, with the consent of the Federal Deposit Insurance Corporation, redeem, in whole or in part, the Series A Preferred Stock at the liquidation amount per share plus accrued and unpaid dividends. The Series A Preferred Stock is generally non-voting. Prior to December 19, 2011, unless Synovus has redeemed the Series A Preferred Stock or the Treasury has transferred the Series A Preferred Stock to a third party, the consent of the Treasury will be required for Synovus to (1) declare or pay any dividend or make any distribution on our common stock, par value $1.00 per share, other than regular quarterly cash dividends of not more than $0.06 per share, or (2) redeem, repurchase or acquire Synovus common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice. A consequence of the Series A Preferred Stock purchase includes certain restrictions on executive compensation that could limit the tax deductibility of compensation that Synovus pays to executive management. The recently enacted American Recovery and Reinvestment Act and the Treasury’s February 10, 2009, Financial Stability Plan and regulations that may be adopted under these laws may retroactively affect Synovus and modify the terms of the Series A Preferred Stock. In particular, the ARRA provides that the Series A Preferred Stock may now be redeemed at any time with the consent of the Federal Deposit Insurance Corporation.

As part of the issuance of the Series A Preferred Stock, Synovus issued to the Treasury a warrant to purchase up to 15,510,737 shares of Synovus common stock (the Warrant) at an initial per share exercise price of $9.36. The Warrant provides for the adjustment of the exercise price and the number of shares of Synovus common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of our common stock, and upon certain issuances of our common stock at or below a specified price relative to the initial exercise price. The Warrant expires on December 19, 2018. If, on or prior to December 31, 2009, Synovus receives aggregate gross cash proceeds of not less

F-24

Notes to Consolidated Financial Statements ­ ­ 

than $967,870,000 from “qualified equity offerings” announced after October 13, 2008, the number of shares of common stock issuable pursuant to the Treasury’s exercise of the Warrant will be reduced by one-half of the original number of shares, taking into account all adjustments, underlying the Warrant. Pursuant to the Securities Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of Synovus common stock issued upon exercise of the Warrant.

Synovus has allocated the total proceeds received from the Treasury based on the relative fair values of the preferred shares and the warrants. This allocation resulted in the Series A Preferred Stock and the Warrants being initially recorded at amounts that are less than their respective fair values at the issuance date.

The $48.5 million discount on the Series A Preferred Stock will be accreted using a constant effective yield over the five-year period preceding the 9% perpetual dividend. Synovus records increases in the carrying amount of the preferred shares resulting from accretion of the discount by charges against retained earnings.

Note 14   Other Comprehensive Income (Loss)

The components of other comprehensive income (loss) for the years ended December 31, 2008, 2007, and 2006 are as follows:

	2008									2007									2006
	Before-			Tax			Net of			Before-			Tax			Net of			Before-		Tax			Net of
	Tax			(Expense)			Tax			Tax			(Expense)			Tax			Tax		(Expense)			Tax
(In thousands)	Amount			or Benefit			Amount			Amount			or Benefit			Amount			Amount		or Benefit			Amount
Net unrealized gains on cash flow hedges	$	34,928			(13,339	)		21,589			29,859			(11,525	)		18,334			5,909		(2,259	)		3,650
Net unrealized gains on investment securities available for sale:
Unrealized gains arising during the year		123,137			(47,064	)		76,073			51,794			(19,940	)		31,854			19,456		(7,482	)		11,974
Reclassification adjustment for (gains) losses realized in net income		(45	)		17			(28	)		(980	)		377			(603	)		2,118		(824	)		1,294
Net unrealized gains		123,092			(47,047	)		76,045			50,814			(19,563	)		31,251			21,574		(8,306	)		13,268
Amortization of postretirement unfunded health benefit, net of tax		290			(110	)		180			1,315			(498	)		817			—		—			—
Foreign currency translation gains (losses)		—			—			—			7,621			(1,470	)		6,151			16,688		(3,813	)		12,875
Other comprehensive income	$	158,310			(60,496	)		97,814			89,609			(33,056	)		56,553			44,171		(14,378	)		29,793

Cash settlements on cash flow hedges were $7.4 million, $3.1 million, and $2.5 million for the years ended December 31, 2008, 2007, and 2006 respectively, all of which were included in earnings. During 2008, 2007, and 2006, Synovus recorded cash (payments) receipts on terminated cash flow hedges of $2.2 million, ($1.3) million, and $159 thousand, respectively, which were deferred and are being amortized into earnings over the shorter of the remaining contract life or the maturity of the designated instrument as an adjustment to interest income (expense). There was one terminated cash flow hedge during 2008, two terminated cash flow hedges during 2007, and one terminated cash flow hedge during 2006. The corresponding net amortization on these settlements was approximately $17 thousand, ($816) thousand, and ($389) thousand in 2008, 2007, and 2006, respectively. The change in unrealized gains (losses) on cash flow hedges was approximately $32.8 million in 2008, $30.3 million in 2007, and $5.6 million in 2006.

F-25

Notes to Consolidated Financial Statements ­ ­ 

Note 15   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, 2008, 2007, and 2006.

	Years Ended December 31,
(In thousands, except per share data)	2008			2007		2006
Income (loss) from continuing operations	$	(582,438	)		342,935		415,103
Preferred stock dividends		2,057			—		—
Income available, (loss) attributable, to common shareholders		(584,495	)		342,935		415,103
Income from discontinued operations, net of income taxes and minority interest		—			183,370		201,814
Net income (loss) available (attributable) to common shareholders	$	(584,495	)		526,305		616,917
Weighted average common shares outstanding:
Basic		329,319			326,849		321,241
Potentially dilutive shares from assumed exercise of securities or other contracts to purchase common stock*		—			3,014		2,991
Diluted		329,319			329,863		324,232
Basic earnings per share:
Income (loss) from continuing operations	$	(1.77	)		1.05		1.29
Net income (loss)		(1.77	)		1.61		1.92
Diluted earning per share:
Income (loss) from continuing operations	$	(1.77	)		1.04		1.28
Net income (loss)		(1.77	)		1.60		1.90

* Due to the net loss attributable to common shareholders for the year ended December 31, 2008, potentially dilutive shares were excluded from the earnings per share calculation as including such shares would have been antidilutive.

Basic earnings per share is computed by dividing net income (loss) by the average common shares outstanding for the period. Diluted earnings per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The dilutive effect of outstanding options and restricted shares is reflected in diluted earnings per share by application of the treasury stock method.

The following represents potentially dilutive shares including options and warrants to purchase shares of Synovus common stock and non-vested shares that were outstanding during the periods noted below, but were not included in the computation of diluted earnings per share because the exercise price for options and warrants, and fair value of non-vested shares was greater than the average market price of the common shares during the period.

			Weighted Average
	Number		Exercise Price
Quarter Ended	of Shares		Per Share
December 31, 2008(1)		—	$	—
September 30, 2008(1)		—	$	—
June 30, 2008(1)		—	$	—
March 31, 2008(1)		—	$	—
December 31, 2007		12,577,751	$	27.69	(2)
September 30, 2007		4,902,564	$	29.38
June 30, 2007		2,500	$	32.57
March 31, 2007		2,500	$	32.57
December 31, 2006		11,863	$	30.61
September 30, 2006		4,651,345	$	29.21
June 30, 2006		5,727,935	$	28.79
March 31, 2006		5,710,605	$	28.89

(1)	Due to the net loss attributable to common shareholders for the year ended December 31, 2008, potentially dilutive shares were excluded from the earnings per share calculation as including such shares would have been antidilutive.
(2)	See the summary of stock option activity table in Note 20 for the adjustment to the exercise price of all options outstanding at December 31, 2007 in connection with the TSYS spin-off.

Note 16   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 risk. These derivative instruments consist of interest rate swaps, commitments to sell fixed-rate mortgage loans, and commitments to

F-26

Notes to Consolidated Financial Statements ­ ­ 

fund fixed-rate mortgage loans made to prospective mortgage loan customers. Mortgage rate lock commitments represent derivative instruments since it is intended that such loans will be sold.

Synovus originates first lien residential mortgage loans for sale into the secondary market and generally does not hold the originated loans for investment purposes. Mortgage loans are either converted to securities or are sold to a third party servicing aggregator.

At December 31, 2008 Synovus had commitments to fund fixed-rate mortgage loans to customers in the amount of $317.5 million. The fair value of these commitments at December 31, 2008 was an unrealized gain of $2.4 million, which was recorded as a component of mortgage banking income in the consolidated statements of income.

At December 31, 2008, outstanding commitments to sell fixed-rate mortgage loans amounted to approximately $467.2 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 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, 2008 was an unrealized loss of $3.5 million, which was recorded as a component of mortgage banking income in the consolidated statements of income.

Synovus utilizes interest rate swaps to manage interest rate risks, primarily arising from its core banking activities. These interest rate swap transactions generally involve the exchange of fixed and floating rate interest rate payment obligations without the exchange of underlying principal amounts. Entering into interest rate derivatives potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations including, but not limited to, potential amounts due or payable under each derivative contract. 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 receive fixed interest rate swap contracts at December 31, 2008 are being utilized to hedge $850 million in floating rate loans and $993.9 million in fixed-rate liabilities. A summary of interest rate contracts and their terms at December 31, 2008 and 2007 is shown below. In accordance with the provisions of SFAS No. 133, the fair value (net unrealized gains and losses) of these contracts has been recorded on the consolidated balance sheets.

			Weighted						Weighted							Net
			Average			Weighted			Average							Unrealized
	Notional		Receive			Average Pay			Maturity		Unrealized		Unrealized			Gains
(Dollars in thousands)	Amount		Rate			Rate*			In Months		Gains		Losses			(Losses)
December 31, 2008
Receive fixed swaps:
Fair value hedges	$	993,936		3.88	%		1.52	%		25	$	38,482		(1	)		38,481
Cash flow hedges		850,000		7.86	%		3.25	%		25		65,125		—			65,125
Total	$	1,843,936		5.72	%		2.31	%		25	$	103,607		(1	)		103,606
December 31, 2007
Receive fixed swaps:
Fair value hedges	$	1,957,500		4.97	%		4.87	%		25	$	20,349		(2,268	)		18,081
Cash flow hedges		800,000		8.06	%		7.25	%		34		32,340		—			32,340
Total	$	2,757,500		5.87	%		5.56	%		28	$	52,689		(2,268	)		50,421

* Variable pay rate based upon contract rates in effect at December 31, 2008 and 2007.

Synovus designates hedges of floating rate loans as cash flow hedges. These swaps hedge against the variability of cash flows from specified pools of floating rate prime based loans. Synovus calculates effectiveness of the hedging relationship quarterly using regression analysis for all cash flow hedges entered into after March 31, 2007. The cumulative dollar offset method is used for all hedges entered into prior to that date. As of December 31, 2008 cumulative ineffectiveness for Synovus’ portfolio of cash flow hedges represented a gain of approximately $242 thousand. Ineffectiveness from cash flow hedges is recognized in the consolidated statements of income as a component of other non-interest income.

F-27

Notes to Consolidated Financial Statements ­ ­ 

Synovus expects to reclassify from accumulated other comprehensive income approximately $21 million as net-of-tax income during the next twelve months, as the related payments for interest rate swaps and amortization of deferred gains (losses) are recorded.

During 2008 and 2007, Synovus terminated certain cash flow hedges which resulted in a net pre-tax gain of $2.2 million and a net pre-tax loss of $1.3 million, respectively. These gains (losses) have been included as a component of accumulated other comprehensive income (loss) and are being amortized over the shorter of the remaining contract life or the maturity of the designated instrument as an adjustment to interest income (expense). The remaining unamortized deferred gain (loss) balances at December 31, 2008 and 2007 were ($808) thousand and ($4.4) million, respectively.

Synovus terminated certain fair value hedges at the end of 2008 which resulted in a net pre-tax gain of $18.9 million. These gains have been recorded as an adjustment to the carrying value of the hedged debt obligations and are being amortized over the shorter of the remaining contract life or the maturity of the designated instrument as an adjustment to interest expense. The remaining unamortized deferred gain at December 31, 2008 was $18.9 million. There were no fair value hedges terminated during 2007.

Synovus designates hedges of fixed rate liabilities as fair value hedges. These swaps hedge against the change in fair market value of various fixed rate liabilities due to changes in the benchmark interest rate LIBOR. Synovus calculates effectiveness of the hedging relationships quarterly using regression analysis for all fair value hedges. As of December 31, 2008, cumulative ineffectiveness for Synovus’ portfolio of fair value hedges represented a gain of approximately $983 thousand. Ineffectiveness from fair value hedges is recognized in the consolidated statements of income as other non-interest income.

Synovus also enters into derivative financial instruments to meet the financing and interest rate risk management needs of its customers. Upon entering into these instruments to meet customer needs, Synovus enters into offsetting positions in order to minimize the risk to Synovus. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings. As of December 31, 2008 and 2007, the notional amount of customer related derivative financial instruments, including both the customer position and the offsetting position, was $3.71 billion and $2.96 billion, respectively. At December 31, 2008, Synovus had derivative positions for customer interest rate risk management needs with unrealized gains of $201.8 million and unrealized losses of $202.9 million for a net unrealized loss of $1.1 million. The fair value of the customer positions is reflected as a component of other assets and the offsetting position is reflected as a component of other liabilities in the consolidated balance sheet at December 31, 2008.

Loan Commitments and Letters of Credit

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 carrying amount of loan commitments and letters of credit closely approximates the fair value of such financial instruments. Carrying amounts include unamortized fee income and, in some instances, allowances for any estimated credit losses from these financial instruments. These amounts are not material to Synovus’ consolidated balance sheets.

Synovus provides credit enhancements in the form of standby letters of credit to assist certain commercial customers in obtaining long-term funding through taxable and tax-exempt bond issues. Under these agreements and under certain conditions, if the bondholder requires the issuer to repurchase the bonds, Synovus is obligated to provide funding under the letter of credit to the issuer to finance the repurchase of the bonds by the issuer. Bondholders (investors) may require the issuer to repurchase the bonds for any reason, including general liquidity needs of the investors, general industry/ market considerations, as well as changes in Synovus’ credit ratings. Synovus’ maximum exposure to credit loss in the event of nonperformance by the counterparty is represented by the contract amount of those instruments. Synovus applies the same credit policies in entering into commitments and conditional obligations as it does for loans. The maturities of the funded letters of credit range from one to fifty-nine months, and the yields on these instruments are comparable to average yields for new commercial loans. Synovus has issued approximately $1.6 billion in letters of credit related to these bond issuances. At December 31, 2008, approximately $500 million was funded under these standby letters of credit agreements, all of which is reported as a component of total loans. As of February 26, 2009, approximately $294 million has been funded subsequent to December 31, 2008 related to these bond repurchases, bringing the total amount of funding related to bond repurchases to $794 million.

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

F-28

Notes to Consolidated Financial Statements ­ ­ 

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, 2008 include the following:

(In thousands)
Standby and commercial letters of credit	$	1,753,754
Commitments to fund commercial real estate, construction, and land development loans		1,362,512
Unused credit card lines		1,535,734
Commitments under home equity lines of credit		970,500
Other loan commitments		3,513,092
Total	$	9,135,592

Lease Commitments

Synovus and its subsidiaries have entered into long-term operating leases for various facilities and equipment. Management expects that as these leases expire they will be renewed or replaced by similar leases based on need.

At December 31, 2008, minimum rental commitments under all such non-cancelable leases for the next five years and thereafter are as follows:

(In thousands)
2009	$	20,458
2010		20,051
2011		19,019
2012		18,728
2013		17,954
Thereafter		136,087
Total	$	232,297

Rental expense on facilities was $28.5 million, $24.5 million, and $19.6 million for the years ended December 31, 2008, 2007, and 2006, respectively.

Visa Litigation

Synovus is a member of the Visa USA network. Under Visa USA bylaws, Visa members are obligated to indemnify Visa USAand/or its parent company, Visa, Inc., for potential future settlement of, or judgments resulting from, certain litigation, which Visa refers to as the “covered litigation.” Synovus’ indemnification obligation is limited to its membership proportion of Visa USA. See Note 17 for further discussion of the Visa litigation.

Legal Proceedings

Synovus and its subsidiaries are subject to various legal proceedings and claims that arise in the ordinary course of its business. In the ordinary course of business, Synovus and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Synovus establishes accruals for litigation and regulatory matters when those matters present loss contingencies that Synovus determines to be both probable and reasonably estimable. In the pending regulatory matter described below, loss contingencies are not reasonably estimable in the view of management, and, accordingly, an accrual has not been established for this matter. Based on current knowledge, advice of counsel and available insurance coverage, management does not believe that the eventual outcome of pending litigationand/or regulatory matters, including the pending regulatory matter described below, will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to Synovus’ results of operations for any particular period.

As previously disclosed, the FDIC conducted an investigation of the policies, practices and procedures used by Columbus Bank and Trust Company (CB&T), a wholly owned banking subsidiary of Synovus Financial Corp. (Synovus), in connection with the credit card programs offered pursuant to its Affinity Agreement with CompuCredit Corporation (CompuCredit). CB&T issues credit cards that are marketed and serviced by CompuCredit pursuant to the Affinity Agreement. A provision of the Affinity Agreement generally requires CompuCredit to indemnify CB&T for losses incurred as a result of the failure of credit card programs offered pursuant to the Affinity Agreement to comply with applicable law. Synovus is subject to a per event 10% share of any such loss, but Synovus’ 10% payment obligation is limited to a cumulative total of $2 million for all losses incurred.

On June 9, 2008, the FDIC and CB&T entered into a settlement related to this investigation. CB&T did not admit or deny any alleged violations of law or regulations or any unsafe

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Notes to Consolidated Financial Statements ­ ­ 

and unsound banking practices in connection with the settlement. As a part of the settlement, CB&T and the FDIC entered into a Cease and Desist Order and Order to Pay whereby CB&T agreed to: (1) pay a civil money penalty in the amount of $2.4 million; (2) institute certain changes to CB&T’s policies, practices and procedures in connection with credit card programs; (3) continue to implement its compliance plan to maintain a sound risk-based compliance management system and to modify them, if necessary, to comply with the Order; and (4) maintain its previously established Director Compliance Committee to oversee compliance with the Order. CB&T has paid and expended the civil money penalty, as that payment is not subject to the indemnification provisions of the Affinity Agreement described above.

CB&T and the FDIC also entered into an Order for Restitution pursuant to which CB&T agreed to establish and maintain an account in the amount of $7.5 million to ensure the availability of restitution with respect to categories of consumers, specified by the FDIC, who activated Aspire credit card accounts issued pursuant to the Affinity Agreement on or before May 31, 2005. The FDIC may require the account to be applied if, and to the extent that, CompuCredit defaults, in whole or in part, on its obligation to pay restitution to any consumers required under the settlement agreements CompuCredit entered into with the FDIC and the Federal Trade Commission (FTC) on December 19, 2008. Those settlement agreements require CompuCredit to credit approximately $114 million to certain customer accounts that were opened between 2001 and 2005 and subsequently charged off or were closed with no purchase activity. CompuCredit has stated that this restitution involves mostly non-cash credits — in effect, reversals of amounts for which payments were never received. In addition, CompuCredit has stated that cash refunds to consumers are estimated to be approximately $3.7 million. This $7.5 million account represents a contingent liability of CB&T. At December 31, 2008, CB&T has not recorded a liability for this contingency.

Any amounts paid from the restitution account are expected to be subject to the indemnification provisions of the Affinity Agreement described above. Synovus does not currently expect that the settlement will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

On May 23, 2008, CompuCredit and its wholly owned subsidiary, CompuCredit Acquisition Corporation, sued CB&T and Synovus in the State Court of Fulton County, Georgia, alleging breach of contract with respect to the Affinity Agreement. This case has subsequently been transferred to Georgia Superior Court, CompuCredit Corp,. v. Columbus Bank and Trust Co., CaseNo. 08-CV-157010 (Ga. Super Ct.) (the “Superior Court Litigation”). CompuCredit seeks compensatory and general damages in an unspecified amount, a full accounting of the shares received by CB&T and Synovus in connection with the MasterCard and Visa initial public offerings and remittance of certain of those shares to CompuCredit, and the transfer of accounts under the Affinity Agreement to a third-party. CB&T and Synovus intend to vigorously defend themselves against these allegations. Based on current knowledge and advice of counsel, management does not believe that the eventual outcome of this case will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows. It is possible, however, that in the event of unexpected future developments the ultimate resolution of this matter, if unfavorable, may be material to Synovus’ results of operations for any particular period.

On October 24, 2008, a putative class action lawsuit was filed against CompuCredit and CB&T in the United States District Court for the Northern District of California, Greenwood v. CompuCredit, et. al., CaseNo. 4:08-cv-04878 (CW) (“Greenwood”), alleging that the solicitations used in connection with the credit card programs offered pursuant to the Affinity Agreement violated the Credit Repair Organization Act, 15 U.S.C. § 1679 (“CROA”), and the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200. CB&T intends to vigorously defend itself against these allegations. On January 22, 2009, the court in the Superior Court Litigation ruled that CompuCredit must pay the reasonable attorneys’ fees incurred by CB&T in connection with the Greenwood case pursuant to the indemnification provision of the Affinity Agreement described above. Any losses that CB&T incurs in connection with Greenwood are also expected to be subject to the indemnification provisions of the Affinity Agreement described above. Based on current knowledge and advice of counsel, management does not believe that the eventual outcome of this case will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows.

Note 17   Visa Initial Public Offering and Litigation Expense

Synovus is a member of the Visa USA network. Under Visa USA bylaws, Visa members are obligated to indemnify Visa USAand/or its parent company, Visa, Inc., for potential future settlement of, or judgments resulting from, certain litigation, which Visa refers to as the “covered litigation.” Synovus’ indemnification obligation is limited to its membership proportion of Visa USA. In November 2007, Visa announced the settlement of its American Express litigation, and disclosed in its annual report to the SEC onForm 10-K for the year ended September 30, 2007 that Visa had accrued a contingent liability for the estimated settlement of its Discover litigation. During

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Notes to Consolidated Financial Statements ­ ­ 

the second half of 2007, Synovus recognized a contingent liability in the amount of $36.8 million as an estimate for its membership proportion of the American Express settlement and the potential Discover settlement, as well as its membership proportion of the amount that Synovus estimated would be required for Visa to settle the remaining covered litigation.

Visa, Inc. completed an initial public offering (the Visa IPO) in March 2008. Visa used a portion of the proceeds from the Visa IPO to establish a $3.0 billion escrow for settlement of covered litigation and used substantially all of the remaining portion to redeem Class B and Class C shares held by Visa issuing members. In March 2008, Synovus recognized a pre-tax gain of $38.5 million on redemption proceeds received from Visa, Inc. and reduced the $36.8 million litigation accrual recognized in the second half of 2007 by $17.4 million for its pro-rata share of the $3.0 billion escrow established by Visa, Inc. In October 2008, Visa announced that it had reached an agreement in principle to settle its litigation brought against Visa in 2004 by Discover Financial Services (Discover), and also disclosed the specific terms of the settlement. Effective September 2008, Synovus recognized an additional $6.3 million accrued liability in conjunction with Visa’s settlement of the Discover litigation. In December 2008, Visa repurchased a portion of its Class B shares held by Visa members and deposited the $1.1 billion proceeds into the litigation escrow on behalf of Visa members. Accordingly, Synovus reduced its litigation accrual by $6.4 million for its membership proportion of the litigation escrow deposit.

Following the redemption, Synovus continues to hold approximately 1.43 million shares of Visa Class B common stock which are subject to restrictions until the later of March 2011 or settlement of all covered litigation. A portion of the remaining Class B shares held by Visa members may be sold by Visa as needed to provide for settlement of the covered litigation through the litigation escrow. Visa’s retrospective responsibility plan provides for settlementsand/or judgments from covered litigation to be paid from a litigation escrow to be established from proceeds from the sale of Visa Class B shares, which otherwise would be available for conversion to Visa Class A shares and then sold by Visa USA members upon the release from transfer restrictions. Visa Class B shares will convert to Class A shares upon the release from transfer restrictions using a conversion ratio maintained by Visa. When proceeds are deposited to the escrow, the conversion ratio is adjusted whereby a greater amount of Class B shares will be required to convert to one Class A share.

For the year ended December 31, 2008, the redemption of shares and changes to the accrued liability for Visa litigation resulted in a net after-tax gain of $34.2 million, or $0.10 per share. At December 31, 2008, Synovus’ accrual for the aggregate amount of Visa’s covered litigation was $19.3 million. While management believes that this accrual is adequate to cover Synovus’ membership proportion of Visa’s covered litigation based on current information, additional adjustments may be required if the aggregate amount of future settlements differs from Synovus’ estimate.

Note 18   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. In prior years, certain Synovus banks have received permission and have paid cash dividends to the Parent Company in excess of the regulatory limitations. The Federal Reserve Board also has supervisory authority that may limit the Parent Company’s ability to pay dividends in certain circumstances.

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, 2008, Synovus meets all capital adequacy requirements to which it is subject.

As of December 31, 2008, the most recent notification from the Federal Reserve Bank of Atlanta categorized all of the subsidiary banks 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 shown below. Management is not currently aware of the existence of any conditions or events occurring subsequent to December 31, 2008 which would affect the well-capitalized classification.

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Notes to Consolidated Financial Statements ­ ­ 

The following table summarizes regulatory capital information at December 31, 2008 and 2007 on a consolidated basis and for each significant subsidiary, defined as any direct subsidiary of Synovus with assets or net income exceeding 10% of the consolidated totals.

										To be Well
										Capitalized Under
						For Capital Adequacy				Prompt Corrective
	Actual					Purposes				Action Provisions
(Dollars in thousands)	2008			2007		2008		2007		2008		2007
Synovus Financial Corp.
Tier I capital	$	3,602,848			2,870,558		1,284,260		1,260,201		n/a		n/a
Total risk-based capital		4,674,476			3,988,171		2,568,520		2,520,403		n/a		n/a
Tier I capital ratio		11.22	%		9.11		4.00		4.00		n/a		n/a
Total risk-based capital ratio		14.56			12.66		8.00		8.00		n/a		n/a
Leverage ratio		10.28			8.65		4.00		4.00		n/a		n/a
Columbus Bank and Trust Company
Tier I capital	$	732,725			864,588		210,993		208,864		316,490		313,295
Total risk-based capital		798,896			912,800		421,987		417,727		527,483		522,159
Tier I capital ratio		13.89	%		16.56		4.00		4.00		6.00		6.00
Total risk-based capital ratio		15.15			17.48		8.00		8.00		10.00		10.00
Leverage ratio		12.67			11.97		4.00		4.00		5.00		5.00
Bank of North Georgia
Tier I capital	$	557,413			453,127		215,881		202,754		323,822		304,132
Total risk-based capital		625,767			514,948		431,763		405,509		539,704		506,886
Tier I capital ratio		10.33	%		8.94		4.00		4.00		6.00		6.00
Total risk-based capital ratio		11.59			10.16		8.00		8.00		10.00		10.00
Leverage ratio		8.79			9.17		4.00		4.00		5.00		5.00
The National Bank of South Carolina
Tier I capital	$	450,512			434,179		191,055		180,598		286,583		270,897
Total risk-based capital		510,517			477,196		382,111		361,196		477,639		451,495
Tier I capital ratio		9.43	%		9.62		4.00		4.00		6.00		6.00
Total risk-based capital ratio		10.69			10.57		8.00		8.00		10.00		10.00
Leverage ratio		9.04			9.39		4.00		4.00		5.00		5.00

n/a — The prompt corrective action provisions are applicable at the bank level only.

Note 19   Employment Expenses and Benefit Plans

Synovus generally provides noncontributory money purchase and profit sharing plans, 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. Synovus made aggregate contributions to these money purchase, profit sharing, and 401(k) plans, recorded as expense, for the years ended December 31, 2008, 2007, and 2006 of approximately $22.7 million, $19.5 million, and $43.1 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. Synovus recorded as expense $7.5 million, $7.3 million, and $6.7 million for contributions to these plans in 2008, 2007, and 2006, respectively.

Synovus has entered into employment agreements with certain employees 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

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Notes to Consolidated Financial Statements ­ ­ 

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 20   Share-Based Compensation

General Description of Share-Based Compensation Plans

Synovus has a long-term incentive plan under which the Compensation Committee of the Board of Directors has the authority to grant share-based compensation to Synovus employees. At December 31, 2008, Synovus had a total of 19,897,142 shares of its authorized but unissued common stock reserved for future grants under the 2007 Omnibus Plan. The Plan permits grants of share-based compensation including stock options, non-vested shares, and restricted share units. The grants generally include vesting periods ranging from three to five years and contractual terms of ten years. Stock options are granted at exercise prices which equal the fair market value of a share of common stock on the grant-date. Synovus has historically issued new shares to satisfy share option exercises.

During the first quarter of 2008, Synovus granted 2,650,000 retention stock options with an exercise price of $13.18 to certain key employees. These stock options contain a five year graded vesting schedule with one-third of the total grant amount vesting on each of the third, fourth and fifth anniversaries of the grant date. The retention stock options granted in 2008 do not include provisions for accelerated vesting upon retirement. They do, however, allow for continued vesting after retirement at age 65. Excluding the aforementioned retention grant, stock options granted during 2008, 2007 and 2006 generally become exercisable over a three-year period, with one-third of the total grant amount vesting on each anniversary of the grant-date, and expire ten years from the date of grant. Vesting for stock options granted during 2008, 2007 and 2006 generally accelerates upon retirement for plan participants who have reached age 62 and who also have no less than fifteen years of service at the date of their election to retire. Share-based compensation expense is recognized for plan participants on a straight-line basis over the shorter of the vesting period or the period until reaching retirement eligibility.

Non-vested shares and restricted share units granted in 2008, 2007 and 2006 generally vest over a three-year period, with one-third of the total grant amount vesting on each anniversary of the grant-date. Vesting for restricted share units granted during 2008 accelerates upon retirement for plan participants who have reached age 62 and who also have no less than fifteen years of service at the date of their election to retire. Non-vested shares granted to Synovus employees during 2007 and 2006 do not contain accelerated vesting provisions for retirement. Vesting for non-vested shares granted to Synovus directors during 2008, 2007 and 2006 accelerates upon retirement for plan participants who have reached age 72. Share-based compensation expense is recognized for plan participants on a straight-line basis over the shorter of the vesting period or the period until reaching retirement eligibility.

Impact of TSYS Spin-Off

As described in Note 2 to the consolidated financial statements, Synovus completed the tax-free spin-off of its shares of TSYS common stock to Synovus shareholders on December 31, 2007. Synovus’ share-based plans covering the majority of outstanding stock options on December 31, 2007 contained mandatory antidilution provisions designed to equalize the fair value of an award in an equity restructuring. Approximately 216 thousand of outstanding Synovus stock options were issued under plans of acquired banks which did not contain mandatory antidilution provisions. These options were fully vested. Thus, as a result of the spin-off transaction, all outstanding Synovus stock options were modified as described below. Additionally, all holders of non-vested shares received TSYS shares based on the distribution ratio applicable to all Synovus shares in connection with the spin-off, which are subject to the same vesting period as their non-vested Synovus shares.

Outstanding Synovus stock options held by TSYS employees on December 31, 2007 were converted to TSYS stock options utilizing an adjustment ratio of the post-spin stock price (TSYS10-day volume-weighted average post-spin stock price) to the pre-spin stock price (Synovus closing stock price immediately pre-spin).

The pre-spin and the post spin fair value of Synovus’ stock options was measured using the Black-Scholes-Merton option pricing model. Outstanding options were grouped and separately measured based on their remaining estimated life. The risk-free interest rate and expected stock price volatility assumptions were matched to the remaining estimated life of the options. The expected volatility for the pre-spin calculation was based on Synovus’ historical stock price volatility, and for the post-spin calculation, was determined using historical volatility of peer companies. The dividend yield included in the pre-spin calculation was 3.4% while the dividend yield assumption in the post-spin calculation was 6.3%.

As a result of this modification, TSYS recognized in 2007 an expense of $5.5 million for outstanding vested options. This

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Notes to Consolidated Financial Statements ­ ­ 

expense is included as a component of discontinued operations in the accompanying consolidated statement of income, net of minority interest. Outstanding Synovus stock options held by Synovus employees were converted to equalize their fair value utilizing an adjustment ratio of the post-spin stock price (Synovus10-day volume-weighted average post-spin stock price) to the pre-spin stock price (Synovus closing stock price immediately pre-spin). As a result of this modification, Synovus recognized in 2007 an expense of $2.0 million, principally due to the modification of the outstanding Synovus stock options which were issued under plans of acquired banks that did not contain mandatory antidilutive provisions. This expense is included as a component of discontinued operations in the accompanying consolidated statement of income. The changes that resulted from the aforementioned conversion of stock options due to the spin-off of TSYS are reflected in Synovus’ outstanding options as of December 31, 2007 in the tables that follow.

Share-Based Compensation Expense

Synovus’ share-based compensation costs are recorded as a component of salaries and other personnel expense in the Consolidated Statements of Income. Total share-based compensation expense for continuing operations was $13.7 million, $15.9 million and $18.0 million for 2008, 2007 and 2006, respectively. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation arrangements was $5.2 million, $5.6 million and $6.4 million for 2008, 2007 and 2006, respectively.

No share-based compensation costs have been capitalized for the years ended December 31, 2008, 2007 and 2006. Aggregate compensation expense recognized in 2007 and 2006 with respect to Synovus stock options included $2.3 million and $5.3 million, respectively, that would have been recognized in previous years had the policy under SFAS No. 123R with respect to retirement eligibility been applied to awards granted prior to January 1, 2006.

As of December 31, 2008, unrecognized compensation cost related to the unvested portion of share-based compensation arrangements involving shares of Synovus stock was approximately $15.1 million.

SFAS No. 123R requires that compensation cost be recognized net of estimated forfeitures. The estimate of forfeitures is adjusted as actual forfeitures differ from estimates, resulting in compensation cost only for those awards that actually vest. The effect of the change in estimated forfeitures is recognized as compensation cost in the period of the change in estimate. In estimating the forfeiture rate, Synovus stratified its grantees and used historical experience to determine separate forfeiture rates for the different award grants. Currently, Synovus estimates forfeiture rates for its grantees in the range of 0% to 10%.

Stock Option Awards

The weighted-average grant-date fair value of stock options granted to key Synovus employees during 2008, 2007 and 2006 was $1.85, $7.22 and $6.40, respectively. The fair value of the option grants was determined using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:

	Years Ended December 31,
	2008	2007	2006
Risk-free interest rate	3.4%	4.8	4.5
Expected stock price volatility	23.7	21.7	24.9
Dividend yield	5.2	2.6	2.8
Expected life of options	6.8 years	6.0 years	5.8 years

The expected volatility for stock option awards in 2008 was based on historical volatility of peer companies. The expected volatility for stock option awards in 2007 and 2006 was determined with equal weighting of Synovus’ implied and historical volatility. The expected life for stock options granted during 2008, 2007 and 2006 was calculated using the “simplified” method, as prescribed by the SEC’s Staff Accounting Bulletins No. 107 and 110. See Note 1 for a summary description of the provisions of SAB No. 110.

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Notes to Consolidated Financial Statements ­ ­ 

A summary of stock option activity (including performance-accelerated stock options as described below) and changes during the years ended December 31, 2008, 2007, and 2006 is presented below:

	2008					2007						2006
				Weighted-					Weighted-						Weighted-
				Average					Average						Average
				Exercise					Exercise						Exercise
Stock Options	Shares			Price		Shares			Price			Shares			Price
Outstanding at beginning of year		28,999,602		$	10.58		23,639,261		$	22.83			25,546,776		$	22.66
Options granted		3,090,911			13.17		246,660			31.93			868,966			27.66
Options assumed in connection with acquisitions		—			—		—			—			877,915			8.36
Options exercised		(722,244	)		7.18		(4,362,785	)		18.74			(3,418,550	)		18.89
Options forfeited		(90,702	)		13.54		(471,600	)		19.34			(173,050	)		27.49
Options expired		(323,387	)		12.36		(68,079	)		19.19			(62,796	)		21.01
Options converted to TSYS options on December 31, 2007 due to TSYS spin-off		—			—		(5,437,719	)		27.32			—			—
Options outstanding and price adjustment due to TSYS spin-off on December 31, 2007		—			—		15,453,864			(12.06	)		—			—
Options outstanding at end of year		30,954,180		$	10.89		28,999,602		$	10.58			23,639,261		$	22.83
Options exercisable at end of year		27,259,468		$	10.58		25,148,449		$	10.10			14,179,889		$	21.21

The following table summarizes information about Synovus’ stock options outstanding and exercisable at December 31, 2008.

	As of December 31, 2008
	Options		Options
	Outstanding		Exercisable
Weighted-average remaining contractual life		3.84 years		3.17 years
Aggregate intrinsic value	$	1,620,360	$	1,620,360

The intrinsic value of stock options exercised during the years ended December 31, 2008, 2007 and 2006 was $2.7 million, $44.6 million and $31.8 million, respectively. The total grant date fair value of stock options vested during 2008, 2007 and 2006 was $13.1 million, $33.5 million and $27.8 million, respectively. At December 31, 2008, total unrecognized compensation cost related to non-vested stock options was approximately $4.5 million. This cost is expected to be recognized over a weighted-average remaining period of 2.14 years.

Synovus granted performance-accelerated stock options to certain key executives in 2000 that fully vested during 2007. The exercise price per share was equal to the fair market value at the date of grant. The grant-date fair value was amortized on a straight-line basis over seven years with the portion related to periods from January 1, 2006 through the vesting date in 2007 being recognized in the Consolidated Statements of Income.

Summary information regarding these performance-accelerated stock options including adjustments resulting from the December 31, 2007 spin-off of TSYS is presented below. There were no performance-accelerated stock options granted during 2008, 2007, or 2006.

					Options
Year	Number		Exercise		Outstanding at
Options	of Stock		Price		December 31,
Granted	Options		Per Share		2008
2000		8,777,563	$	8.27-8.44		7,921,210

Non-Vested Shares and Restricted Share Units

In addition to the stock options described above, non-transferable, non-vested shares of Synovus common stock and restricted share units have been awarded to certain key Synovus employees and non-employee directors of Synovus. During 2008, Synovus granted 125,415 restricted share units at a weighted average grant-date fair value of $12.95. The market value of restricted share units is equal to the market value of

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Notes to Consolidated Financial Statements ­ ­ 

common stock on the date of grant and is amortized as compensation expense over the vesting period or the period until reaching retirement eligibility. Dividend equivalents are paid on outstanding restricted share units in the form of additional restricted share units that vest over the same vesting period as the original restricted share unit grant.

The weighted-average grant-date fair value of non-vested shares granted during 2008, 2007 and 2006 was $12.44, $28.37 and $27.19, respectively. The total fair value of shares vested during 2008, 2007 and 2006 was $11.2 million, $5.9 million and $235 thousand, respectively. Except for the grant of 63,386 performance-vesting shares described below, the market value of the common stock at the date of issuance is amortized as compensation expense using the straight-line method over the vesting period of the awards. Dividends are paid on non-vested shares during the holding period. These non-vested shares are entitled to voting rights.

A summary of non-vested shares outstanding (excluding the 63,386 performance-vesting shares as described below) and changes during the years ended December 31, 2008, 2007, and 2006 is presented below:

				Weighted-
				Average
				Grant-Date
Non-Vested Shares	Shares			Fair Value
Outstanding at January 1, 2006		82,583		$	27.28
Granted		616,495			27.19
Vested		(8,520	)		27.62
Forfeited		(6,004	)		27.13
Outstanding at December 31, 2006		684,554			27.19
Granted		574,601			28.37
Vested		(215,666	)		27.32
Forfeited		(20,946	)		27.23
Outstanding at December 31, 2007		1,022,543			27.83
Granted		24,391			12.44
Vested		(406,215	)		27.61
Forfeited		(63,235	)		27.67
Outstanding at December 31, 2008		577,484		$	27.35

Additionally, holders of non-vested Synovus common shares also hold 269,976 non-vested shares of TSYS common stock as of December 31, 2008 as a result of the spin-off of TSYS on December 31, 2007.

Restricted share units were granted for the first time during the year ended December 31, 2008. A summary of restricted share units outstanding as of December 31, 2008 is presented below:

				Weighted-
				Average
				Grant-Date
Restricted Share Units	Shares			Fair Value
Outstanding at January 1, 2008		—			—
Granted		125,415			12.95
Dividend equivalents granted		5,010			10.20
Vested		—			—
Forfeited		(4,000	)		12.50
Outstanding at December 31, 2008		126,425		$	12.86

As of December 31, 2008, total unrecognized compensation cost related to the foregoing non-vested shares and restricted share units was approximately $10.6 million. This cost is expected to be recognized over a weighted-average remaining period of 1.32 years.

During 2005, Synovus authorized a total grant of 63,386 shares of non-vested stock to a key executive with a performance-vesting schedule (performance-vesting shares). These performance-vesting shares have seven one-year performance periods(2005-2011) during each of which the Compensation Committee establishes an earnings per share goal and, if such goal is attained during any performance period, 20% of the performance-vesting shares will vest. Compensation expense for each tranche of this grant is measured based on the quoted market value of Synovus’ stock as of the date that each period’s earnings per share goal is determined and is recorded as a charge to expense on a straight-line basis during each year in which the performance criteria is met. No performance vesting shares vested in 2008. The total fair value of performance-vesting shares vested during 2007 and 2006 was $351 thousand and $340 thousand, respectively.

F-36

Notes to Consolidated Financial Statements ­ ­ 

The following is a summary of performance-vesting shares outstanding at December 31, 2008, 2007 and 2006:

				Weighted-
				Average
				Grant-Date
Performance-Vesting Shares	Shares			Fair Value
Outstanding at January 1, 2006		12,677			26.82
Granted		12,677			27.72
Vested		(12,677	)		26.82
Forfeited		—			—
Outstanding at December 31, 2006		12,677			27.72
Granted		—			—
Vested		(12,677	)		27.72
Forfeited		—			—
Outstanding at December 31, 2007		—			—
Granted		—			—
Vested		—			—
Forfeited		—			—
Outstanding at December 31, 2008		—		$	—

At December 31, 2008 there remained 38,032 performance-vesting shares to be granted between 2009 and 2011.

Cash received from option exercises under all share-based payment arrangements of Synovus common stock for the years ended December 31, 2008, 2007, and 2006 was $3.0 million, $63.9 million, and $65.5 million, respectively.

As stock options for the purchase of Synovus common stock are exercised and non-vested shares vest, Synovus recognizes a tax benefit or deficiency which is recorded as a component of additional paid-in capital within shareholders’ equity for tax amounts not recognized in the Consolidated Statements of Income. Synovus recognized a net tax deficiency in the amount of $115 thousand during 2008 and a net tax benefit of $15.9 million and $11.4 million for the years 2007, and 2006, respectively.

Synovus elected to adopt the alternative method of calculating the beginning pool of excess tax benefits as permitted by FASB Staff Position (FSP)No. SFAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This is a simplified method to determine the pool of excess tax benefits that is used in determining the tax effects of share-based compensation in the Consolidated Statements of Income and cash flow reporting for awards that were outstanding as of the adoption of SFAS No. 123R.

The following table provides aggregate information regarding grants under all Synovus equity compensation plans through December 31, 2008.

						(c)
	(a)			(b)		Number of shares
	Number of securities			Weighted-average		remaining available for
	to be issued			exercise price of		issuance excluding
	upon exercise of			outstanding		shares reflected
Plan Category(1)	outstanding options			options		in column(a)
Shareholder approved equity compensation plans for shares of Synovus stock		30,369,839	(2)	$	11.00		19,897,142	(3)
Non-shareholder approved equity compensation plans		—			—		—
Total		30,369,839		$	11.00		19,897,142

(1)	Does not include information for equity compensation plans assumed by Synovus in mergers. A total of 584,341 shares of common stock were issuable upon exercise of options granted under plans assumed in mergers and outstanding at December 31, 2008. The weighted average exercise price of all options granted under plans assumed in mergers and outstanding at December 31, 2008 was $5.61. Synovus cannot grant additional awards under these assumed plans.
(2)	Does not include an aggregate number of 741,941 shares of non-vested stock and restricted share units which will vest over the remaining years through 2011.
(3)	Includes 19,897,142 shares available for future grants as share awards under the 2007 Omnibus Plan.

F-37

Notes to Consolidated Financial Statements ­ ­ 

Note 21 — Fair Value Accounting

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. This statement did not introduce any new requirements mandating the use of fair value; rather, it unified the meaning of fair value and added additional fair value disclosures. The provisions of this statement are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Effective January 1, 2008, Synovus adopted SFAS No. 157 for financial assets and liabilities. As permitted under FASB Staff PositionNo. FAS 157-2, Synovus has elected to defer the application of SFAS No. 157 to non-financial assets and liabilities until January 1, 2009.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits entities to make an irrevocable election, at specified election dates, to measure eligible financial instruments and certain other instruments at fair value. As of January 1, 2008, Synovus has elected the fair value option (FVO) for mortgage loans held for sale and certain callable brokered certificates of deposit. Accordingly, a cumulative adjustment of $58 thousand ($91 thousand less $33 thousand of income taxes) was recorded as an increase to retained earnings.

In October 2008, the FASB issued FSPFAS 157-3, “Determining the Fair Value of a Financial Asset in a Market that is Not Active.” FSPFAS 157-3 is intended to provide additional guidance on how an entity should classify the application of SFAS 157 in an inactive market, and illustrates how an entity should determine fair value in an inactive market. The provisions for this statement are effective for the period ended September 30, 2008. The impact to Synovus was minimal, as this FSP provides clarification to existing guidance.

The following is a description of the assets and liabilities for which fair value has been elected, including the specific reasons for electing fair value.

Mortgage Loans Held for Sale

Mortgage loans held for sale (MLHFS) have been previously accounted for on a lower of aggregate cost or fair value basis pursuant to SFAS No. 65, “Accounting for Certain Mortgage Banking Activities” (SFAS No. 65). For certain mortgage loan types, fair value hedge accounting was utilized by Synovus to hedge a given mortgage loan pool, and the underlying mortgage loan balances were adjusted for the change in fair value related to the hedged risk (fluctuation in market interest rates) in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted (SFAS No. 133). For those certain mortgage loan types, Synovus is still able to achieve an effective economic hedge by being able tomark-to-market the underlying mortgage loan balances through the income statement, but has eliminated the operational time and expense needed to manage a hedge accounting program under SFAS No. 133. Previously under SFAS No. 65, Synovus was exposed, from an accounting perspective, only to the downside risk of market volatilities; however by electing FVO, Synovus may now also recognize the associated gains on the mortgage loan portfolio as favorable changes in the market occur.

Certain Callable Brokered Certificates of Deposit

Synovus has elected FVO for certain callable brokered certificates of deposit (CDs) to ease the operational burdens required to maintain hedge accounting for such instruments under the constructs of SFAS No. 133. Prior to the adoption of SFAS No. 159, Synovus was highly effective in hedging the risk related to changes in fair value, due to fluctuations in market interest rates, by engaging in various interest rate derivatives. However, SFAS No. 133 requires an extensive documentation process for each hedging relationship and an extensive process related to assessing the effectiveness and measuring ineffectiveness related to such hedges. By electing FVO on these previously hedged callable brokered CDs, Synovus is still able to achieve an effective economic hedge by being able tomark-to-market the underlying CDs through the income statement, but has eliminated the operational time and expense needed to manage a hedge accounting program under SFAS No. 133.

F-38

Notes to Consolidated Financial Statements ­ ­ 

The following table summarizes the impact of adopting the fair value option for these financial instruments as of January 1, 2008. Amounts shown represent the carrying value of the affected instruments before and after the changes in accounting resulting from the adoption of SFAS No. 159.

	Ending		Cumulative			Opening
	Balance Sheet		Effect			Balance Sheet
	December 31,		Adjustment			January 1,
(In thousands)	2007		Gain, net			2008
Mortgage loans held for sale	$	153,437	$	91		$	153,528
Certain callable brokered CDs		293,842		—			293,842
Pre-tax cumulative effect of adoption of the fair value option				91
Deferred tax liability				(33	)
Cumulative effect of adoption of the fair value option, net of income taxes (increase to retained earnings)			$	58

Determination of Fair Value

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy for disclosure of fair value measurements based on significant inputs used to determine the fair value. The three levels of inputs are as follows:

Level 1Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include corporate debt and equity securities, certain derivative contracts, as well as certain U.S. Treasury and U.S. Government-sponsored enterprise debt securities that are highly liquid and are actively traded inover-the-counter markets.

Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government-sponsored enterprises and agency mortgage-backed debt securities, obligations of states and municipalities, certain callable brokered certificates of deposit, collateralized mortgage obligations, derivative contracts, and mortgage loansheld-for-sale.

Level 3Unobservable inputs that are supported by little if any market activity for the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category primarily includes Federal Home Loan Bank and Federal Reserve Bank stock, collateral-dependent impaired loans, and certain private equity investments.

Following is a description of the valuation methodologies used for the major categories of financial assets and liabilities measured at fair value.

Trading Account Assets/Liabilities and Investment Securities Available for Sale

Where quoted market prices are available in an active market, securities are valued at the last traded price by obtaining feeds from a number of live data sources including active market makers and inter-dealer brokers. These securities are classified as Level 1 within the valuation hierarchy and include U.S. Treasury securities, obligations of U.S. Government-sponsored enterprises, and corporate debt and equity securities. If quoted market prices are not available, fair values are estimated by using bid prices and quoted prices of pools or tranches of securities with similar characteristics. These types of securities are classified as Level 2 within the valuation hierarchy and consist of collateralized mortgage obligations, mortgage-backed debt securities, debt securities of U.S. Government-sponsored enterprises and agencies, and state and municipal bonds. In both cases, Synovus has evaluated the valuation methodologies of its third party valuation providers to determine whether such valuations are representative of an exit price in Synovus’ principal markets. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy. These Level 3 items are primarily Federal

F-39

Notes to Consolidated Financial Statements ­ ­ 

Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock.

Mortgage Loans Held for Sale

Since quoted market prices are not available, fair value is derived from a hypothetical-securitization model used to project the “exit price” of the loan in securitization. The bid pricing convention is used for loan pricing for similar assets. The valuation model is based upon forward settlement of a pool of loans of identical coupon, maturity, product, and credit attributes. The inputs to the model are continuously updated with available market and historical data. As the loans are sold in the secondary market and predominantly used as collateral for securitizations, the valuation model represents the highest and best use of the loans in Synovus’ principal market. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.

Private Equity Investments

Private equity investments consist primarily of investments in venture capital funds. The valuation of these instruments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. Based on these factors, the ultimate realizable value of private equity investments could differ significantly from the values reflected in the accompanying financial statements. Private equity investments are valued initially based upon transaction price. Thereafter, Synovus uses information provided by the fund managers in the determination of estimated fair value. Valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the market and changes in economic conditions affecting the issuer are used in the determination of estimated fair value. These private equity investments are classified as Level 3 within the valuation hierarchy.

Private equity investments may also include investments in publicly traded equity securities, which have restrictions on their sale, generally obtained through an initial public offering. Investments in the restricted publicly traded equity securities are recorded at fair value based on the quoted market value less adjustments for regulatory or contractual sales restrictions. Discounts for restrictions are determined based upon the length of the restriction period and the volatility of the equity security. Investments in restricted publicly traded equity securities are classified as Level 2 within the valuation hierarchy.

Derivative Assets and Liabilities

Equity derivatives are valued using quoted market prices and are classified as Level 1 within the valuation hierarchy. All other derivatives are valued using internally developed models. These derivatives include interest rate swaps, floors, caps, and collars. The sale of To-be-announced (TBA) mortgage-backed securities for current month delivery or in the future and the purchase of option contracts of similar duration are derivatives utilized by Synovus’ mortgage subsidiary, and are valued by obtaining prices directly from dealers in the form of quotes for identical securities or options using a bid pricing convention with a spread between bid and offer quotations. All of these types of derivatives are classified as Level 2 within the valuation hierarchy. The mortgage subsidiary originates mortgage loans which are classified as derivatives prior to the loan closing when there is a lock commitment outstanding to a borrower to close a loan at a specific interest rate. These derivatives are valued based on the other mortgage derivatives mentioned above except there are fall-out ratios for interest rate lock commitments that have an additional input which is considered Level 3. Therefore, this type of derivative instrument is classified as Level 3 within the valuation hierarchy. These amounts, however, are insignificant.

Certain Callable Brokered Certificates of Deposit

The fair value of certain callable brokered certificates of deposit is derived using several inputs in a valuation model that calculates the discounted cash flows based upon a yield curve. Once the yield curve is constructed, it is applied against the standard certificate of deposit terms that may include the principal balance, payment frequency, term to maturity, and interest accrual to arrive at the discounted cash flow based fair value. When valuing the call option, as applicable, implied volatility is obtained for a similarly dated interest rate swaption, and it is also entered in the model. These types of certificates of deposit are classified as Level 2 within the valuation hierarchy.

F-40

Notes to Consolidated Financial Statements ­ ­ 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents all financial instruments measured at fair value on a recurring basis, including financial instruments for which Synovus has elected the fair value option as of December 31, 2008 according to the SFAS No. 157 valuation hierarchy:

								Total
								Assets/Liabilities
								at
(In thousands)	Level 1		Level 2		Level 3			Fair Value
Assets:
Trading account assets	$	478		24,035		—		$	24,513
Mortgage loans held for sale		—		133,637		—			133,637
Investment securities available for sale		4,579		3,748,330		139,239	(2)		3,892,148
Private equity investments		—		—		123,475	(3)		123,475
Derivative assets		—		305,383		2,388			307,771
Liabilities:
Brokered certificates of deposit(1)	$	—		75,875		—		$	75,875
Trading account liabilities		—		17,287		—			17,287
Derivative liabilities		—		206,340		—			206,340

(1)	Amounts represent the value of the certain callable brokered certificates of deposit for which Synovus has elected the fair value option under SFAS No. 159.
(2)	This amount primarily consists of Federal Home Loan Bank stock and Federal Reserve Bank stock of approximately $117.8 million and $4.3 million, respectively.
(3)	Amount represents the recorded value of private equity investments before minority interest. The value net of minority interest at December 31, 2008 was $85.7 million.

Changes in Fair Value — FVO Items

The following table presents the changes in fair value included in the consolidated statement of income for items which the fair value election was made. The table does not reflect the change in fair value attributable to the related economic hedges Synovus used to mitigate interest rate risk associated with the financial instruments. These changes in fair value were recorded as a component of mortgage banking income and other operating income, as appropriate, and substantially offset the change in fair value of the financial instruments referenced below.

	Year Ended December 31, 2008
	Mortgage		Other			Total Changes in
	Banking		Operating			Fair Value
(In thousands)	Income		Income			Recorded
Mortgage loans held for sale	$	2,519		—		$	2,519
Certain callable brokered CDs	$	—		(2,994	)	$	2,994

Changes in Level Three Fair Value Measurements

As noted above, Synovus uses significant unobservable inputs (Level 3) to fair-value certain assets and liabilities as of December 31, 2008. The table below includes a roll forward of the balance sheet amount for the year ended December 31, 2008 (including the change in fair value), for financial instruments of a material nature that are classified by Synovus within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis.

F-41

Notes to Consolidated Financial Statements ­ ­ 

	Investment
	Securities			Private
	Available			Equity
(In thousands)	for Sale			Investments
Balance at January 1, 2008	$	126,715		$	78,693
Total gains or (losses) (realized/unrealized):
Included in earnings		—			24,995	(1)
Included in other comprehensive income		(1,313	)		—
Purchases, sales, issuances, and settlements, net		13,837			19,787
Transfers in and/or out of Level 3		—			—
Balance at December 31, 2008	$	139,239		$	123,475
Total gains (losses) for the period included in earnings		(1,313	)		24,995	(1)

(1) Amount represents net gains from private equity investments before minority interest. The net gains after minority interest for the year ended December 31, 2008 were $16.8 million.

The table below summarizes gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recorded in earnings or changes in net assets for material Level 3 assets and liabilities for the year ended December 31, 2008.

	Year Ended
	December 31, 2008
	Investment
	Securities			Private
	Available			Equity
(In thousands)	for Sale			Investments
Total change in earnings	$	—		$	24,995
Change in unrealized losses to assets and liabilities still held at December 31, 2008		(1,313	)		—

Assets Measured at Fair Value on a Non-recurring Basis

Loans under the scope of SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” (SFAS No. 114), are evaluated for impairment using the present value of the expected future cash flows discounted at the loan’s effective interest rate, or as a practical expedient, a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from the requirements of SFAS No. 157. Impaired loans measured by applying the practical expedient in SFAS No. 114 are included in the requirements of SFAS No. 157.

Under the practical expedient, Synovus measures the fair value of collateral-dependent impaired loans based on the fair value of the collateral securing these loans. These measurements are classified as Level 3 within the valuation hierarchy. Substantially all impaired loans are secured by real estate. The fair value of this real estate is generally determined based upon appraisals performed by a certified or licensed appraiser using inputs such as absorption rates, capitalization rates, and comparables. Management also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

The fair value of collateral-dependent impaired loans (including impaired loans held for sale) totaled $729.6 million at December 31, 2008 compared to $264.9 million at December 31, 2007.

Fair Value of Financial Instruments

SFAS No. 107, “Disclosure About Fair Value of Financial Instruments” (SFAS 107), requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which Synovus did not elect the fair value option. The following table presents the carrying and estimated fair values of on-balance sheet financial instruments at December 31, 2008 and 2007. The fair value represents management’s best estimates based on a range of methodologies and assumptions.

Cash and due from banks, interest earning deposits with banks, and federal funds sold and securities purchased under resale agreements are repriced on a short-term basis; as such, the carrying value closely approximates fair value.

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. Commercial loans are further segmented into certain collateral code groupings. The fair value of the loan portfolio is calculated, in accordance with SFAS 107, by discounting contractual cash flows using estimated market discount rates which reflect the credit and interest rate risk inherent in the loan. This method of estimating fair value does

F-42

Notes to Consolidated Financial Statements ­ ­ 

not incorporate the exit-price concept of fair value prescribed by SFAS No. 157.

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 estimated to be 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 other short-term and long-term debt with fixed interest rates is calculated by discounting contractual cash flows using estimated market discount rates.

	2008				2007
	Carrying		Estimated		Carrying		Estimated
(In thousands)	Value		Fair Value		Value		Fair Value
Financial assets:
Cash and due from banks	$	524,327		524,327		682,583		682,583
Due from Federal Reserve Bank		1,206,168		1,206,168		—		—
Interest earning deposits with banks		10,805		10,805		10,950		10,950
Federal funds sold and securities purchased under resale agreements		388,197		388,197		76,086		76,086
Trading account assets		24,513		24,513		17,803		17,803
Mortgage loans held for sale		133,637		133,637		153,437		153,471
Impaired loans held for sale		3,527		3,527		—		—
Investment securities available for sale		3,892,148		3,892,148		3,666,974		3,666,974
Loans, net		27,321,876		27,227,473		26,130,972		26,143,015
Derivative asset positions		307,771		307,771		112,160		112,160
Financial liabilities:
Non-interest bearing deposits		3,563,619		3,563,619		3,472,423		3,472,423
Interest bearing deposits		25,053,560		25,209,084		21,487,393		21,502,929
Federal funds purchased and securities sold under repurchase agreements		725,869		725,869		2,319,412		2,319,412
Long-term debt		2,107,173		1,912,679		1,890,235		1,844,505
Derivative liability positions		206,340		206,340		63,494		63,494

F-43

Notes to Consolidated Financial Statements ­ ­ 

Note 22   Income Taxes

The aggregate amount of income taxes included in the consolidated statements of income and in the consolidated statements of changes in shareholders’ equity for each of the years in the three-year period ended December 31, 2008, is presented below:

(Dollars in thousands)	2008			2007			2006
Consolidated Statements of Income:
Income tax (benefit) expense related to continuing operations	$	(77,695	)		184,739			230,435
Income tax (benefit) expense related to discontinued operations		—			145,224			126,181
Consolidated Statements of Changes in Shareholders’ Equity:
Income tax (benefit) expense related to:
Cumulative effect of a change in accounting principle		33			230			—
Postretirement unfunded health benefit obligation		110			498			(1,966	)
SAB No. 108 adjustment		—			—			14,544
Unrealized gains on investment securities available for sale		47,047			19,563			8,306
Unrealized gains on cash flow hedges		13,339			11,525			2,259
Gains and losses on foreign currency translation		—			1,470			3,813
Share-based compensation		115			(15,937	)		(11,390	)
Total	$	(17,051	)		347,312			372,182

For the years ended December 31, 2008, 2007, and 2006, income tax expense (benefit) consists of:

(In thousands)	2008			2007			2006
Current:
Federal	$	20,235			203,129			234,366
State		9,671			14,955			22,767
		29,906			218,084			257,133
Deferred:
Federal		(87,810	)		(29,272	)		(27,294	)
State		(19,791	)		(4,073	)		596
		(107,601	)		(33,345	)		(26,698	)
Total income tax expense (benefit)	$	(77,695	)		184,739			230,435

Income tax expense (benefit) 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 (loss) income from continuing operations before income taxes as a result of the following:

(Dollars in thousands)	2008			2007			2006
Taxes at statutory federal income tax rate	$	(231,046	)		184,685			225,938
Tax-exempt income		(3,043	)		(3,249	)		(3,964	)
State income tax (benefit) expense, net of federal income tax expense (benefit)		(6,578	)		7,073			15,186
Tax credits		(2,474	)		(2,643	)		(4,020	)
Goodwill impairment		167,866			—			—
Other, net		(2,420	)		(1,127	)		(2,705	)
Total income tax (benefit) expense	$	(77,695	)		184,739			230,435
Effective income tax rate		(11.77	)%		35.01			35.70

F-44

Notes to Consolidated Financial Statements ­ ­ 

The tax effects of temporary differences that gave rise to significant portions of the deferred income tax assets and liabilities at December 31, 2008 and 2007 are presented below:

(In thousands)	2008			2007
Deferred income tax assets:
Provision for losses on loans	$	239,558			140,862
Finance lease transactions		19,216			18,991
Non-accrual interest		16,964			4,600
Share-based compensation		11,987			7,258
Deferred compensation		11,965			10,953
Tax credit carryforward and net operating loss		9,067			438
Visa litigation expense		7,360			14,056
Deferred revenue		6,664			6,603
Unrealized loss on derivative instruments		1,194			3,930
Other		8,154			9,659
Total deferred income tax assets		332,129			217,350
Less valuation allowance		(5,068	)		—
Total deferred income tax assets		327,061			217,350
Deferred income tax liabilities:
Excess tax over financial statement depreciation		(58,753	)		(56,632	)
Net unrealized gain on investment securities available for sale		(57,387	)		(10,039	)
Net unrealized gain on cash flow hedges		(23,758	)		(9,827	)
Purchase accounting adjustments		(8,944	)		(11,285	)
Ownership interest in partnership		(7,993	)		(6,939	)
Other		(6,956	)		(5,456	)
Total gross deferred income tax liabilities		(163,791	)		(100,178	)
Net deferred income tax assets	$	163,270			117,172

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or the entire deferred tax asset will not be realized. Synovus evaluated available evidence in considering whether a valuation allowance was needed as of December 31, 2008 pursuant to the requirements under FASB Statement No. 109. Based on this evidence, Synovus concluded it is more-likely-than-not that a portion of its Florida deferred tax assets will not be realized. Accordingly, Synovus recorded a valuation allowance of $5.1 million (net of the federal benefit on state income taxes) in 2008. If Synovus continues to experience losses, additional valuation allowances could be necessary.

In connection with the spin-off of TSYS on December 31, 2007, Synovus entered into a tax sharing agreement with TSYS, which requires TSYS to indemnify Synovus from potential income tax liabilities that may arise in future examinations as a result of TSYS’ inclusion in Synovus’ consolidated tax return filings for calendar years prior to 2008.

Synovus is subject to income taxation in the U.S. and by various state jurisdictions. Synovus’ U.S. Federal income tax return is filed on a consolidated basis, while state income tax returns are filed on both a consolidated and a separate entity basis. Synovus is no longer subject to U.S. Federal income tax examinations for years prior to 2005 and Synovus is no longer subject to income tax examinations from state and local tax authorities for years prior to 2002. Synovus federal income tax returns are not currently under examination by the IRS. However, certain state tax examinations are currently in progress. Although Synovus is unable to determine the ultimate outcome of these examinations, Synovus believes that its liability for uncertain tax positions relating to these jurisdictions for such years is adequate.

Synovus adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” as of January 1, 2007. FIN 48 establishes a single model to address accounting for uncertain income tax positions. FIN 48 clarifies the accounting for income taxes by

F-45

Notes to Consolidated Financial Statements ­ ­ 

prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosure of such positions. FIN 48 provides a two-step process in the evaluation of an income tax position. The first step is recognition. A company determines whether it is more-likely-than-not that an income tax position will be sustained upon examination, including a resolution of any related appeals or litigation processes, based upon the technical merits of the position. The second step is measurement. An income tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Upon adoption as of January 1, 2007, Synovus recognized a $1.4 million decrease in the liability for uncertain income tax positions of continuing operations, with a corresponding increase in retained earnings of $1.4 million as a cumulative effect adjustment. During the twelve months ended December 31, 2008, Synovus increased its liability for uncertain income tax positions by $0.9 million as shown in the table below.

A reconciliation of the beginning and ending amount of unrecognized income tax benefits is as follows⁽¹⁾:

(In thousands)
Balance at December 31, 2006	$	9,057
Current activity:
Additions based on tax positions related to current year		2,193
Additions for tax positions of prior years		—
Deductions for tax positions of prior years		(4,176	)
Deductions for statute of limitations expiring		—
Balance at December 31, 2007	$	7,074
Current activity:
Additions based on tax positions related to current year		766
Additions for tax positions of prior years		2,353
Deductions for tax positions of prior years		(1,690	)
Deductions for statute of limitations expiring		(482	)
Balance at December 31, 2008	$	8,021

(1) Unrecognized state income tax benefits are not adjusted for the Federal income tax impact.

Synovus recognizes accrued interest and penalties related to unrecognized income tax benefits as a component of income tax expense. Accrued interest and penalties on unrecognized income tax benefits totaled $1.5 million, $1.1 million and $1.9 million as of December 31, 2008, December 31, 2007 and January 1, 2007, respectively. The total amount of unrecognized income tax benefits as of December 31, 2008, December 31, 2007, and January 1, 2007 that, if recognized, would affect the effective income tax rate is $6.2 million, $5.4 million and $7.2 million (net of the Federal benefit on state income tax issues) respectively, which includes interest and penalties of $1.0 million, $0.7 million and $1.3 million.

The total liability for uncertain income tax positions under FIN 48 at December 31, 2008 is $6.2 million. Synovus is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, Synovus does not expect a significant payment related to these obligations within the next year. Synovus expects that approximately $1.3 million of uncertain income tax positions will be either settled or resolved during the next twelve months.

F-46

Notes to Consolidated Financial Statements ­ ­ 

Note 23   Condensed Financial Information of Synovus Financial Corp. (Parent Company only)

Condensed Balance Sheets

	December 31,
(In thousands)	2008			2007
Assets
Cash	$	2,797			2,157
Investment in consolidated bank subsidiaries, at equity		3,450,142			3,873,821
Investment in consolidated nonbank subsidiaries, at equity		149,300			60,447
Notes receivable from bank subsidiaries		363,941			140,532
Notes receivable from nonbank subsidiaries		438,134			2,382
Other assets		286,226			287,354
Total assets	$	4,690,540			4,366,693
Liabilities and Shareholders’ Equity
Liabilities:
Long-term debt	$	782,383			771,683
Other liabilities		120,999			153,420
Total liabilities		903,382			925,103
Shareholders’ equity:
Preferred stock		919,635			—
Common stock		336,011			335,529
Additional paid-in capital		1,165,875			1,101,209
Treasury stock		(114,117	)		(113,944	)
Accumulated other comprehensive income		129,253			31,439
Retained earnings		1,350,501			2,087,357
Total shareholders’ equity		3,787,158			3,441,590
Total liabilities and shareholders’ equity	$	4,690,540			4,366,693

F-47

Notes to Consolidated Financial Statements ­ ­ 

Condensed Statements of Income

	Years Ended December 31,
(In thousands)	2008			2007			2006
Income:
Cash dividends received from bank subsidiaries	$	349,462			365,024			245,687
Management and information technology fees from affiliates		115,050			117,934			107,133
Interest income		26,868			6,693			5,503
Other income		55,294			42,347			29,996
Total income		546,674			531,998			388,319
Expenses:
Interest expense		33,041			41,224			41,343
Other expenses		219,382			250,944			218,803
Total expenses		252,423			292,168			260,146
Income before income taxes and equity in undistributed net income of subsidiaries		294,251			239,830			128,173
Allocated income tax benefit		(18,390	)		(50,854	)		(45,260	)
Income before equity in undistributed net income of subsidiaries		312,641			290,684			173,433
Equity in undistributed (loss) income of subsidiaries		(895,079	)		52,251			241,670
(Loss) income from continuing operations		(582,438	)		342,935			415,103
(Loss) income from discontinued operations, net of income taxes and minority interest		—			183,370			201,814
Net (loss) income	$	(582,438	)		526,305			616,917
Dividends and accretion of discount on preferred stock		2,057			—			—
Net (loss) income available to common shareholders	$	(584,495	)		526,305			616,917

F-48

Notes to Consolidated Financial Statements ­ ­ 

Condensed Statements of Cash Flows

	Years Ended December 31,
(In thousands)	2008			2007			2006
Operating Activities
Net (loss) income	$	(582,438	)		526,305			616,917
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Equity in undistributed loss (income) of subsidiaries		895,079			(244,150	)		(443,484	)
Equity in undistributed income of equity method investees		(3,517	)		(6,107	)		(5,132	)
Depreciation, amortization, and accretion, net		24,395			20,063			22,235
Share-based compensation		13,724			21,540			9,889
Net (decrease) increase in other liabilities		(19,029	)		18,034			43,158
Gain on redemption of Visa shares		(38,450	)		—			—
Net increase in other assets		(71,513	)		(100,708	)		(37,106	)
Gain on sale of other assets		—			—			(1,940	)
Other, net		109,317			53,797			14,548
Net cash provided by operating activities		327,568			288,774			219,085
Investing Activities
Net investment in subsidiaries		(408,119	)		(71,963	)		(33,757	)
Equity method investments		—			(12,186	)		—
Purchases of premises and equipment		(41,265	)		(22,670	)		(26,941	)
Proceeds from sale of other assets		—			—			2,135
Proceeds from redemption of Visa shares		38,450			—			—
Net (increase) decrease in short-term notes receivable from bank subsidiaries		(223,409	)		26,907			30,238
Net (increase) decrease in short-term notes receivable from non-bank subsidiaries		(435,752	)		1,391			241
Net cash used in investing activities		(1,070,095	)		(78,521	)		(28,084	)
Financing Activities
Dividends paid to shareholders		(199,722	)		(264,930	)		(244,654	)
Principal repayments on long-term debt		(27,810	)		(10,310	)		(10,310	)
Purchase of treasury shares		(173	)		—			—
Proceeds from issuance of preferred stock		967,870			—			—
Proceeds from issuance of common stock		3,002			63,850			65,510
Net cash (used in) provided by financing activities		743,167			(211,390	)		(189,454	)
Increase (decrease) in cash		640			(1,137	)		1,547
Cash at beginning of year		2,157			3,294			1,747
Cash at end of year	$	2,797			2,157			3,294

For the years ended December 31, 2008, 2007, and 2006, the Parent Company paid income taxes (net of refunds received) of $57.1 million, $429.8 million, and $380.9 million, and interest in the amount of $38.1 million, $41.5 million, and $41.7 million, respectively.

F-49

Notes to Consolidated Financial Statements ­ ­ 

Note 24   Supplemental Financial Data

Components of other operating income and other operating expenses in excess of 1% of total revenues for any of the respective years are as follows:

	Years Ended December 31,
(In thousands)	2008		2007		2006
Third-party processing expenses	$	48,775		38,639		35,961

F-50

 ­ ­ 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Synovus Financial Corp.:

We have audited the accompanying consolidated balance sheets of Synovus Financial Corp. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synovus Financial Corp. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, Synovus Financial Corp. changed its method of accounting for split-dollar life insurance arrangements and elected the fair value option for mortgage loans held for sale and certain callable brokered certificates of deposit in 2008, changed its method of accounting for income tax uncertainties during 2007 and changed its method of accounting for pension and other postretirement plans and applied the provisions of Staff Accounting Bulletin No. 108 in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Synovus Financial Corp.’s internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 2, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Atlanta, Georgia

March 2, 2009

F-51

 ­ ­ 

MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING

The management of Synovus Financial Corp. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Securities Exchange Act of 1934.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.

Based on our assessment, we believe that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on the criteria set forth inInternal Control — Integrated Framework.

Richard E. Anthony	Thomas J. Prescott
Chairman &	Executive Vice President &
Chief Executive Officer	Chief Financial Officer

F-52

 ­ ­ 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Synovus Financial Corp.:

We have audited Synovus Financial Corp.’s internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Synovus Financial Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Synovus Financial Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Synovus Financial Corp. as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated March 2, 2009 expressed an unqualified opinion on those consolidated financial statements.

Atlanta, Georgia

March 2, 2009

F-53

Selected Financial Data ­ ­ 

	Years Ended December 31,
(In thousands, except per share data)	2008			2007			2006			2005			2004
Income Statement:
Total revenues(a)	$	1,513,038			1,536,996			1,487,337			1,292,166			1,186,898
Net interest income		1,077,893			1,148,948			1,125,789			965,216			859,531
Provision for losses on loans		699,883			170,208			75,148			82,532			75,319
Non-interest income		435,190			389,028			359,430			327,413			327,441
Non-interest expense		1,465,621			840,094			764,533			646,757			621,675
(Loss) income from continuing operations, net of income taxes		(582,438	)		342,935			415,103			359,050			314,941
Income from discontinued operations, net of income taxes and minority interest(b)		—			183,370			201,814			157,396			122,092
Net (loss) income		(582,438	)		526,305			616,917			516,446			437,033
Dividends on and accretion of discount on preferred stock		2,057			—			—			—			—
Net (loss) income available to common shareholders		(584,495	)		526,305			616,917			516,446			437,033
Per share data:
Basic earnings per share
(Loss) income from continuing operations		(1.77	)		1.05			1.29			1.15			1.02
Net (loss) income		(1.77	)		1.61			1.92			1.66			1.42
Diluted earnings per share
(Loss) income from continuing operations		(1.77	)		1.04			1.28			1.14			1.01
Net (loss) income		(1.77	)		1.60			1.90			1.64			1.41
Cash dividends declared		0.46			0.82			0.78			0.73			0.69
Book value per common share		8.68			10.43			11.39			9.43			8.52
Balance Sheet:
Investment securities		3,892,148			3,666,974			3,352,357			2,958,320			2,695,593
Loans, net of unearned income		27,920,177			26,498,585			24,654,552			21,392,347			19,480,396
Deposits		28,617,179			24,959,816			24,528,463			20,806,979			18,591,402
Long-term debt		2,107,173			1,890,235			1,343,358			1,928,005			1,873,247
Shareholders’ equity		3,787,158			3,441,590			3,708,650			2,949,329			2,641,289
Average total shareholders’ equity		3,435,432			3,935,910			3,369,954			2,799,496			2,479,404
Average total assets		34,051,495			32,895,295			29,831,172			26,293,003			23,275,001
Performance ratios and other data:
Return on average assets from continuing operations		(1.72	)%		1.04			1.39			1.37			1.35
Return on average assets		(1.72	)		1.60			2.07			1.96			1.88
Return on average equity from continuing operations		(17.19	)		8.71			12.32			12.43			12.70
Return on average equity		(17.19	)		13.37			18.31			18.45			17.63
Net interest margin, before fees		3.38			3.85			4.12			4.03			3.92
Net interest margin, after fees		3.47			3.97			4.27			4.18			4.21
Efficiency ratio		96.53			54.48			51.18			49.79			52.06
Dividend payout ratio(c)		nm			51.25			40.99			44.51			48.94
Average shareholders’ equity to average assets		10.09			11.96			11.30			10.65			10.65
Tangible common equity to risk-adjusted assets(d)		8.74			9.19			10.55			9.93			9.61
Tangible common equity to tangible assets		7.86			8.90			10.54			9.92			9.61
Earnings to fixed charges ratio		0.17	x		1.48	x		1.72	x		2.05	x		2.61	x
Average shares outstanding, basic		329,319			326,849			321,241			311,495			307,262
Average shares outstanding, diluted		329,319			329,863			324,232			314,815			310,330

(a)	Consists of net interest income and non-interest income, excluding securities gains (losses).
(b)	On December 31, 2007, Synovus Financial Corp. (“Synovus”) completed the tax-free spin-off of its shares of Total System Services, Inc. (“TSYS”) common stock to Synovus shareholders. In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” the historical consolidated results of operations and financial position of TSYS, as well as all costs recorded by Synovus associated with the spin-off of TSYS, are now presented as discontinued operations. Additionally, discontinued operations for the year ended December 31, 2007 include a $4.2 million after-tax gain related to the transfer of Synovus’ proprietary mutual funds to a non-affiliated third party.
(c)	Determined by dividing cash dividends declared per share by diluted net income per share.
(d)	The tangible common equity to risk-weighted assets ratio is a non-GAAP measure which is calculated as follows: (total shareholders’ equity minus preferred stock minus goodwill minus other intangible assets) divided by total risk-adjusted assets (see Table 29).

(nm) Not meaningful.

F-54

Management’s Discussion and Analysis ­ ­ 

Forward-Looking Statements

Certain statements made or incorporated by reference in this document which are not statements of historical fact, including those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this document, constitute forward-looking statements within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to Synovus’ beliefs, plans, objectives, goals, targets, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, many of which are beyond Synovus’ control and which may cause the actual results, performance or achievements of Synovus or the commercial banking industry or economy generally, to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are forward-looking statements. You can identify these forward-looking statements through Synovus’ use of words such as “believes,” “anticipates,” “expects,” “may,” “will,” “assumes,” “should,” “predicts,” “could,” “should,” “would,” “intends,” “targets,” “estimates,” “projects,” “plans,” “potential” and other similar words and expressions of the future or otherwise regarding the outlook for Synovus’ future business and financial performanceand/or the performance of the commercial banking industry and economy in general. Forward-looking statements are based on the current beliefs and expectations of Synovus’ management and are subject to significant risks and uncertainties. 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 this document. Many of these factors are beyond Synovus’ ability to control or predict. These factors include, but are not limited to: (1) competitive pressures arising from aggressive competition from other financial service providers; (2) further deteriorations in credit quality, particularly in residential construction and commercial development real estate loans, may continue to result in increased non-performing assets and credit losses, which could adversely impact us; (3) declining values of residential and commercial real estate may result in further write-downs of assets and realized losses on disposition of non-performing assets, which may increase our credit losses and negatively affect our financial results; (4) inadequacy of our allowance for loan loss reserve, or the risk that the allowance may prove to be inadequate or may be negatively affected by credit risk exposures; (5) our ability to manage fluctuations in the value of our assets and liabilities to maintain sufficient capital and liquidity to support our operations; (6) the concentration of our nonperforming assets in certain geographic regions and with affiliated borrower groups; (7) changes in the interest rate environment which may increase funding costs or reduce earning assets yields, thus reducing margins; (8) the impact on our borrowing costs, capital costs and our liquidity if we do not retain our current credit ratings; (9) restrictions or limitations on access to funds from subsidiaries, thereby restricting our ability to make payments on our obligations or dividend payments; (10) the availability and cost of capital and liquidity; (11) changes in accounting standards, particularly those related to determination of allowance for loan losses and fair value of assets; (12) slower than anticipated rates of growth in non-interest income and increased non-interest expense; (13) changes in the cost and availability of funding due to changes in the deposit market and credit market, or the way in which Synovus is perceived in such markets, including a reduction in our debt ratings; (14) the impact on our financial results if we do not have sufficient future taxable income to fully realize the benefits of deferred tax assets; (15) the strength of the U.S. economy in general and the strength of the local economies and financial markets in which operations are conducted may be different than expected; (16) the effects of and changes in trade, monetary and fiscal policies, and laws, including interest rate policies of the Federal Reserve Board; (17) inflation, interest rate, market and monetary fluctuations; (18) the impact of the Emergency Economic Stabilization Act, the American Reinvestment and Recovery Act (“ARRA”), the Financial Stability Plan and other recent and proposed changes in governmental policy, laws and regulations, including proposed and recently enacted changes in the regulation of banks and financial institutions, or the interpretation or application thereof, including restrictions, limitationsand/or penalties arising from banking, securities and insurance laws, regulations and examinations; (19) the impact on our financial results, reputation and business if we are unable to comply with all applicable federal and state regulations; (20) the costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, including, without limitation, the pending litigation with CompuCredit Corporation relating to CB&T’s Affinity Agreement with CompuCredit; (21) the volatility of our stock price; (22) the actual results achieved by our implementation of Project Optimus, and the risk that we may not achieve the anticipated cost savings and revenue increases from this initiative; (23) the impact on the valuation of our investments due to market volatility or counter party payment risk; and (24) other factors and other information contained in this document and in Synovus’ Annual Report onForm 10-K for the year ended December 31, 2008 and its other reports and filings that Synovus makes with the SEC under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to Synovus are expressly qualified by this cautionary notice. You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date on which the statements are made. Synovus undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.

F-55

Management’s Discussion and Analysis ­ ­ 

Executive Summary

The following financial review provides a discussion of Synovus’ financial condition, changes in financial condition, and results of operations as well as a summary of Synovus’ critical accounting policies. This section should be read in conjunction with the preceding audited consolidated financial statements and accompanying notes.

Industry Overview

2008 was marked by severe macro economic conditions, which negatively impacted liquidity and credit quality. Financial and credit markets declined sharply, building on issues that began in thesub-prime mortgage market in the second half of 2007 and which led to significant declines in real estate and home values. Consumer confidence across all sectors of the economy declined as rising costs fueled by unprecedented prices for crude oil in the second and third quarters of 2008 coupled with the downturns in housing and mortgage related financial services. These conditions were accompanied by a further deterioration in the labor market and rising unemployment, all of which contributed to extreme market volatility as economic fears and illiquidity persisted. Concerns regarding increased credit losses from the weakening economy negatively affected capital and earnings of most financial institutions. Financial institutions experienced significant declines in the value of collateral for real estate loans, heightened credit losses, resulting in record levels of non-performing assets, charge-offs and foreclosures. In addition, certain financial institutions failed or merged with other institutions and two of the government sponsored housing enterprises were placed into conservatorship with the U.S. government.

Liquidity in the debt markets remains low in spite of efforts by the U.S. Department of the Treasury (Treasury) and the Federal Reserve Bank (Federal Reserve) to inject capital into financial institutions. During 2008, the Federal Reserve lowered the federal funds rate seven times, including a drop of 75 basis points in December 2008. During 2008, the federal funds rate decreased from 4.25% on January 1, 2008 to 0.25% on December 31, 2008.

Various agencies of the United States government proposed a number of initiatives to stabilize the global economy and financial markets. On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA). The legislation was the result of a proposal by the Treasury in response to the financial crises affecting the banking system and financial markets and threats to investment banks and other financial institutions. Pursuant to the EESA, the Treasury has the authority to, among other things, purchase up to $700 billion of troubled assets, including mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets pursuant to the Troubled Asset Relief Plan (TARP). On October 14, 2008, the Treasury announced a program under the EESA pursuant to which it would make senior preferred stock investments in participating financial institutions (TARP Capital Purchase Program), and the Federal Deposit Insurance Corporation announced the development of a guarantee program under the systemic risk exception to the Federal Deposit Insurance Act pursuant to which the FDIC would offer a guarantee of certain financial institution indebtedness in exchange for an insurance premium to be paid to the FDIC by issuing financial institutions. On February 10, 2009, Treasury announced the Financial Stability Plan, which is intended to further stabilize financial institutions and stimulate lending across a broad range of economic sectors. On February 18, 2009, the American Recovery and Reinvestment Act (“ARRA”), a broad economic stimulus package that included restrictions on, and potential additional regulation of, financial institutions, was enacted.

Treasury, the FDIC and other governmental agencies continue to enact rules and regulations to implement the EESA, TARP, the Financial Stability Plan, the ARRA and related economic recovery programs, many of which contain limitations on the ability of financial institutions to take certain actions or to engage in certain activities if the financial institution is a participant in the TARP Capital Purchase Program or related programs. There can be no assurance as to the actual impact of the EESA, the FDIC programs or any other governmental program on the financial markets.

The severe economic conditions are expected to continue in 2009. Financial institutions likely will continue to experience heightened credit losses and higher levels of non-performing assets, charge-offs and foreclosures.

These factors negatively influenced, and likely will continue to negatively influence, earning asset yields at a time when the market for deposits is intensely competitive. As a result, financial institutions experienced, and are expected to continue to experience, pressure on credit costs, loan yields, deposit and other borrowing costs, liquidity, and capital.

About Our Business

Synovus is a financial services holding company, based in Columbus, Georgia, with approximately $36 billion in assets. Synovus provides integrated financial services including commercial and retail banking, financial management, insurance, mortgage and leasing services through 31 wholly-owned subsidiary banks and other Synovus offices in Georgia, Alabama, South Carolina, Tennessee, and Florida. At December 31, 2008,

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Management’s Discussion and Analysis ­ ­ 

our banks ranged in size from $209.0 million to $6.48 billion in total assets.

Our Key Financial Performance Indicators

In terms of how we measure success in our business, the following are our key financial performance indicators:

•   Loan Growth	•   Fee Income Growth
•   Core Deposit Growth	•   Expense Management
•   Net Interest Margin	•   Capital Strength
•   Credit Quality	•   Liquidity

Overview of 2008

In 2008, the financial services industry was significantly affected by turmoil in the financial markets, which negatively impacted liquidity and credit quality. The deterioration in the credit markets created market volatility and illiquidity, resulting in significant declines in the market values of a broad range of investment products and loans. Synovus is not immune to the impacts of these market dynamics, as our results clearly indicate through the increased provision for loan losses and total net charge-offs and the decline in our net interest margins and net interest income.

As the economy continued to deteriorate throughout 2008, Synovus continued to refine its non-performing asset disposal strategy. In addition to our individual bank teams aggressively identifying and liquidating non-performing assets, Synovus formed a separate subsidiary to purchase from time to time certain non-performing assets from our subsidiary banks, assess the economics of disposal of these assets, and centrally and effectively manage the liquidation of these assets. This entity, Broadway Asset Management (BAM), had acquired approximately $500 million of these assets as of December 31, 2008 and has identified approximately $150 million of these assets for liquidation in the near term. The $150 million identified for liquidation is comprised of foreclosed assets of approximately $67 million and impaired loans of approximately $83 million, which will be transferred to other real estate and sold upon foreclosure. In the current environment, Synovus also focused on growing deposits faster than loans. Total core deposits (total deposits less national market brokered deposits) grew 11.1% (annualized) on a sequential quarter basis and 5.1% over the 2007 year end balance.

On December 19, 2008, under the TARP Capital Purchase Program, Synovus issued to the United States Department of the Treasury 967,870 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A without par value, for a total price of $967,870,000. As part of the issuance of the Preferred Stock, Synovus also issued the United States Department of the Treasury (Treasury) a warrant to purchase up to 15,510,737 shares of Synovus common stock. While participation in TARP Capital Purchase Program may limit Synovus’ ability to take certain actions or to engage in certain activities, management believes that it will enable us to support future loan growth, improve our overall capital position and facilitate the execution of our business strategy.

For the year ended December 31, 2008, Synovus reported a net loss of approximately $584.5 million, or $1.77 per diluted common share, compared to income from continuing operations of $343 million, or $1.04 per share for 2007. The net loss in 2008 included a non-cash goodwill impairment charge of $480 million (pre-tax and after-tax). This charge had no impact on Synovus’ tangible capital levels, regulatory capital ratios, or liquidity. Excluding goodwill impairment charges of $480 million in 2008, Synovus’ net loss would have been $105 million, or $0.32 per share, for the year.

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Management’s Discussion and Analysis ­ ­ 

2008 Financial Performance vs. 2007

	Years Ended December 31,
(In thousands)	2008			2007			Change
Net (loss) income from continuing operations	$	(582,438	)		342,935			nm
Net (loss) income		( 582,438	)		526,305			nm
Net (loss) income excluding the goodwill impairment charge		(104,878	)		526,305			nm
Diluted earnings per share (EPS):
(Loss) income from continuing operations	$	(1.77	)		1.04			nm
Net (loss) income		(1.77	)		1.60			nm
Loans, net of unearned income		27,920,177			26,498,585			5.4	%
Core deposits		22,279,101			21,207,274			5.1	%
Net interest margin		3.47	%		3.97	%		(50	) bp
Nonperforming assets ratio		4.16	%		1.67	%		249	bp
Past dues over 90 days		0.14	%		0.13	%		1
Net charge-off ratio		1.71	%		0.46	%		125
Non-interest income	$	435,190			389,028			11.9	%
Non-interest expense		1,465,621			840,094			74.5	%
Non-interest expense, excluding goodwill impairment		986,004			840,094			17.4	%
Return on assets from continuing operations		(1.72	)		1.04			(275	) bp
Return on assets		(1.72	)		1.60			(331	) bp
Return on equity from continuing operations		(17.19	)		8.71			(2,590	)
Return on equity		(17.19	)		13.37			(3,056	)

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Management’s Discussion and Analysis ­ ­ 

Presentation of net income excluding the goodwill impairment charge and the tangible common equity to risk-weighted assets ratio are non-Generally Accepted Accounting Principles (Non-GAAP) financial measures. The following table reconciles (loss) income from continuing operations, comparing non-GAAP financial measures to GAAP financial measures, and illustrates the method of calculating the tangible common equity to risk-adjusted assets ratio:

Table 1  Non-GAAP Financial Measures
(In thousands, except per share data)

	Years Ended December 31,
	2008			2007			2006			2005			2004
Net (loss) income from continuing operations excluding goodwill impairment:
(Loss) income from continuing operations, as
reported	$	(582,438	)		342,935			415,103			359,050			314,941
Goodwill impairment charge		479,617			—			—			—			—
(Loss) income from continuing operations, as adjusted	$	(102,821	)		342,935			415,103			359,050			314,941
Tangible common equity to risk-adjusted assets:
Total risk-adjusted assets	$	32,106,501			31,505,022			29,930,284			26,008,796			23,590,520
Total shareholders’ equity		3,787,158			3,441,590			3,708,650			2,949,329			2,641,289
Preferred stock		(919,635	)		—			—			—			—
Goodwill		(39,521	)		(519,138	)		(515,719	)		(338,649	)		(338,853	)
Other intangible assets		(21,266	)		(28,007	)		(35,693	)		(29,263	)		(34,565	)
Tangible common equity	$	2,806,736			2,894,445			3,157,238			2,581,417			2,267,871
Tangible common equity to risk-adjusted assets		8.74	%		9.19			10.55			9.93			9.61

Synovus believes that the above non-GAAP financial measures provide meaningful information to assist investors in (a) understanding Synovus’ financial results exclusive of items that management believes are not reflective of its ongoing operating results, and (b) evaluating Synovus’ financial strength and capitalization. The non-GAAP measures should not be considered by themselves or as a substitute for the GAAP measures. The non-GAAP measures should be considered as (a) additional views of the way that Synovus’ financial measures are affected by the significant goodwill impairment charge, and (b) additional views of the strength of Synovus’ tangible capitalization using a non-GAAP financial ratio of tangible common capital and risk-weighted assets. Total risk-adjusted assets is a required measure used by banks and financial institutions in reporting regulatory capital and regulatory capital ratios to Federal regulatory agencies. Tangible common equity to risk-weighted assets is a non-GAAP financial measure utilized by many investors and investment analysts to evaluate the financial strength and capitalization of financial institutions.

Critical Accounting Policies

The accounting and financial reporting policies of Synovus conform to U.S. generally accepted accounting principles (GAAP) and to general practices within the banking and financial services industries. Synovus has identified certain of its accounting policies as “critical accounting policies.” In determining which accounting policies are critical in nature, Synovus has identified the policies that require significant judgment or involve complex estimates. The application of these policies has a significant impact on Synovus’ financial statements. Synovus’ financial results could differ significantly if different judgments or estimates are applied in the application of these policies.

Allowance for Loan Losses

Notes 1 and 8 to Synovus’ consolidated financial statements contain a discussion of the allowance for loan losses. The allowance for loan losses at December 31, 2008 was $598.3 million.

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Management’s Discussion and Analysis ­ ­ 

During the second quarter of 2007, Synovus implemented certain refinements to its allowance for loan losses methodology, specifically the way that loss factors are derived. These refinements resulted in a reallocation of the factors used to determine the allocated and unallocated components of the allowance along with a more disaggregated approach to estimate the required allowance by loan portfolio classification. These changes did not have a significant impact on the total allowance for loan losses or provision for losses on loans upon implementation.

The allowance for loan losses is determined based on an analysis which assesses the probable loss within the loan portfolio. The allowance for loan losses consists of two components: the allocated and unallocated allowances. Both components of the allowance are available to cover inherent losses in the portfolio. Significant judgments or estimates made in the determination of the allowance for loan losses consist of the risk ratings for loans in the commercial loan portfolio, the valuation of the collateral for loans that are classified as impaired loans, and the qualitative loss factors. In determining an adequate allowance for loan losses, management makes numerous assumptions, estimates and assessments. The use of different estimates or assumptions could produce different provisions for loan losses.

Commercial Loans — Risk Ratings and Loss Factors

Commercial loans are assigned a risk rating on a nine point scale. For commercial loans that are not considered impaired, the allocated allowance for loan losses is determined based upon the expected loss percentage factors that correspond to each risk rating.

The risk ratings are based on the borrowers’ credit risk profile, considering factors such as debt service history and capacity, inherent risk in the credit (e.g., based on industry type and source of repayment), and collateral position. Ratings 7 through 9 are modeled after the bank regulatory classifications of substandard, doubtful, and loss. Expected loss percentage factors are based on the probable loss including qualitative factors. The probable loss considers the probability of default, the loss given default, and certain qualitative factors as determined by loan category and risk rating. The probability of default and loss given default are based on industry data. Industry data will continue to be used until sufficient internal data becomes available. The qualitative factors consider credit concentrations, recent levels and trends in delinquencies and nonaccrual loans, and growth in the loan portfolio. The occurrence of certain events could result in changes to the expected loss factors. Accordingly, these expected loss factors are reviewed periodically and modified as necessary.

Each loan is assigned a risk rating during the approval process. This process begins with a rating recommendation from the loan officer responsible for originating the loan. The rating recommendation is subject to approvals from other members of managementand/or loan committees depending on the size and type of credit. Ratings are re-evaluated on a quarterly basis. Additionally, an independent Parent Company credit review function evaluates each bank’s risk rating process at least every twelve to eighteen months.

Impaired Loans

Management considers a loan to be impaired when the ultimate collectability of all amounts due according to the contractual terms of the loan agreement are in doubt. A majority of our impaired loans are collateral-dependent. The net carrying amount of collateral-dependent impaired loans is equal to the lower of the loans’ principal balance or the fair value of the collateral (less estimated costs to sell) not only at the date at which impairment is initially recognized, but also at each subsequent reporting period. Accordingly, our policy requires that we update the fair value of the collateral securing collateral-dependent impaired loans each calendar quarter. Impaired loans, not including impaired loans held for sale, had a net carrying value of $726.1 million at December 31, 2008. Most of these loans are secured by real estate, with the majority classified as collateral-dependent loans. The fair value of the real estate securing these loans is generally determined based upon appraisals performed by a certified or licensed appraiser. Management also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals, including selling costs.

Estimated losses on collateral-dependent impaired loans are typically charged-off. At December 31, 2008, $618.2 million, or 85.1%, of impaired loans consisted of collateral-dependent impaired loans for which there is no allowance for loan losses as the estimated losses have been charged-off. These loans are recorded at the lower of cost or estimated fair value of the underlying collateral net of selling costs. However, if a collateral-dependent loan is placed on impaired status at or near the end of a calendar quarter, management records an allowance for loan losses based on the loan’s risk rating while an updated appraisal is being obtained. At December 31, 2008, Synovus had $108.0 million in collateral-dependent impaired loans with a recorded allocated allowance for loan losses of $26.2 million, or 24.3% of the principal balance. The estimated losses on these loans will be recorded as a charge-off during the first quarter of 2009 after the receipt of a current appraisal or fair value estimate based on current market conditions, including absorption rates. Management does not expect a material difference between the current allocated allowance on these

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Management’s Discussion and Analysis ­ ­ 

loans and the actual charge-off. Additionally, as part of our problem asset strategy, management from time to time identifies certain impaired loans for liquidation through auctions or note sales. These liquidations generally result in significantly lower proceeds than traditional sales.

Retail Loans — Loss Factors

The allocated allowance for loan losses for retail loans is generally determined by segregating the retail loan portfolio into pools of homogeneous loan categories. Expected loss factors applied to these pools are based on the probable loss including qualitative factors. The probable loss considers the probability of default, the loss given default, and certain qualitative factors as determined by loan category and risk rating. Through December 31, 2007, the probability of default loss factors were based on industry data. Beginning January 1, 2008, the probability of default loss factors are based on internal default experience because this was the first reporting period when sufficient internal default data became available. Synovus believes that this data provides a more accurate estimate of probability of default considering the lower inherent risk of the retail portfolio and lower than expected charge-offs. This change resulted in a reduction in the allocated allowance for loan losses for the retail portfolio of approximately $19 million during the three months ended March 31, 2008. The loss given default factors continue to be based on industry data because sufficient internal data is not yet available. The qualitative factors consider credit concentrations, recent levels and trends in delinquencies and nonaccrual loans, and growth in the loan portfolio. The occurrence of certain events could result in changes to the loss factors. Accordingly, these loss factors are reviewed periodically and modified as necessary.

Unallocated Component

The unallocated component of the allowance for loan losses is considered necessary to provide for certain environmental and economic factors that affect the probable loss inherent in the entire loan portfolio. Unallocated loss factors included in the determination of the unallocated allowance are economic factors, changes in the experience, ability, and depth of lending management and staff, and changes in lending policies and procedures, including underwriting standards. Certain macro- economic factors and changes in business conditions and developments could have a material impact on the collectability of the overall portfolio. As an example, a rapidly rising interest rate environment could have a material impact on certain borrowers’ ability to pay. The unallocated component is meant to cover such risks.

Other Real Estate

Other real estate (ORE), 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. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense. Significant judgments and complex estimates are required in estimating the fair value of other real estate, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility, as experienced during 2008. As a result, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of other real estate. Additionally, as part of our problem asset strategy, management from time to time identifies certain ORE properties for liquidation through auctions or bulk sales. These liquidations generally result in significantly lower proceeds than traditional sales.

Private Equity Investments

Private equity investments are recorded at fair value on the balance sheet with realized and unrealized gains and losses included in non-interest income in the results of operations in accordance with the AICPA Audit and Accounting Guide for Investment Companies. For private equity investments, Synovus uses information provided by the fund managers in the initial determination of estimated fair value. Valuation factors such as recent or proposed purchase or sale of debt or equity, pricing by other dealers in similar securities, size of position held, liquidity of the market, comparable market multiples, and changes in economic conditions affecting the issuer are used in the final determination of estimated fair value. The valuation of private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. As a result, the net proceeds realized from transactions involving these assets could differ significantly from estimated fair value.

Income Taxes

Notes 1 and 22 to Synovus’ consolidated financial statements contain a discussion of income taxes. The calculation of Synovus’ income tax provision is complex and requires the use of estimates and judgments in its determination. As part of

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Management’s Discussion and Analysis ­ ­ 

Synovus’ overall business strategy, management must consider tax laws and regulations that apply to the specific facts and circumstances under consideration. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. Management closely monitors tax developments on both the state and federal level in order to evaluate the effect they may have on Synovus’ overall tax position.

Synovus evaluated available evidence in considering whether a valuation allowance was needed as of December 31, 2008 pursuant to the requirements under FASB Statement No. 109. The ability to realize the deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. Synovus considered the following possible sources of taxable income when assessing the realization of the deferred tax assets:

•  Future reversals of existing taxable temporary differences;

•  Future taxable income exclusive of reversing temporary differences and carryforwards;

•  Taxable income in prior carryback years; and

•  Tax-planning strategies.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. Synovus considered earnings before tax for the current year, and two prior years to determine whether it had cumulative losses by jurisdiction. In addition, Synovus considered the potential to carry back tax losses to offset taxable income in prior periods and the character of future reversals of existing taxable temporary differences by jurisdiction. The future profitability of Synovus is the most critical factor in determining whether an additional valuation allowance could be required. If Synovus continues to experience losses, additional valuation allowances could become necessary.

Asset Impairment

Goodwill

Under SFAS No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets,” goodwill is required to be tested for impairment annually, or more frequently if events or circumstances indicate that there may be impairment. Impairment is tested at the reporting unit(sub-segment) level involving two steps. Step 1 compares the fair value of the reporting unit to its carrying value. If the fair value is greater than carrying value, there is no indication of impairment. Step 2 is performed when the fair value determined in Step 1 is less than the carrying value. Step 2 involves a process similar to business combination accounting where fair values are assigned to all assets, liabilities, and intangibles. The result of Step 2 is the implied fair value of goodwill. If the Step 2 implied fair value of goodwill is less than the recorded goodwill, an impairment charge is recorded for the difference.

The combination of the income approach utilizing the discounted cash flow (DCF) method, and the guideline company method using a combination of price to tangible book value, price to book value, and price to earnings is used to estimate the fair value of a reporting unit. The total of all reporting unit fair values is compared for reasonableness to Synovus’ market capitalization plus a control premium.

Under the DCF method, the fair value of the reporting unit reflects the present value of the projected earnings that will be generated by each reporting unit after taking into account the revenues and expenses associated with the reporting unit, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of invested capital. Cash flows are estimated for future periods based on historical data and projections provided by management. If the actual cash flows are not consistent with Synovus’ estimates, an impairment charge may result.

Under the guideline company method using a combination of price to tangible book value, price to book value, and price to earnings market approach, the fair value of the reporting unit reflects the price at which similar companies are valued.

Synovus recorded a $479.6 million goodwill impairment charge as a result of goodwill impairment testing during 2008. Notes 4 and 9 to Synovus’ consolidated financial statements contain a discussion of goodwill. The net carrying value of goodwill as of December 31, 2008 was $39.5 million.

Should the future earnings and cash flows of the reporting units declineand/or discount rates increase, an impairment charge to goodwill may be required if carrying value exceeds the estimated fair value of the reporting unit.

Long-Lived Assets and Other Intangibles

Synovus reviews long-lived assets, such as property and equipment and other intangibles subject to amortization, including core deposit premiums and customer relationships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the actual cash flows are not

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Management’s Discussion and Analysis ­ ­ 

consistent with Synovus’ estimates, an impairment charge may result.

Synovus recorded an acquired customer contracts asset impairment charge of $1.0 million during the year ended December 31, 2008. The impairment charge was recorded based on management’s estimate that the recorded values would not be recoverable.

Acquisitions

Table 2 summarizes the acquisitions completed during the past three years.

Table 2  Acquisitions

(Dollars in thousands)

		Total		Shares
Company and Location	Date Closed	Assets		Issued		Cash
Banking Corporation of Florida Naples, Florida	April 1, 2006	$	417,787		2,938,791		—
Riverside Bancshares, Inc.  Marietta, Georgia	March 25, 2006		765,464		5,883,426		—

This information is presented in further detail in Note 4 to the consolidated financial statements.

Discontinued Operations

Transfer of Mutual Funds

During 2007, Synovus transferred its proprietary mutual funds to a non-affiliated third party. As a result of the transfer, Synovus received gross proceeds of $8.0 million and incurred transaction related costs of $1.1 million, resulting in a pre-tax gain of $6.9 million, or $4.2 million, after tax. The net gain has been reported as a component of income from discontinued operations on the 2007 consolidated statement of income. Financial results for 2007 and 2006 of the business have not been presented as discontinued operations as such amounts are inconsequential. This business did not have significant assets, liabilities, revenues, or expenses associated with it.

TSYS Spin-off

On December 31, 2007, Synovus completed the tax-free spin-off of its shares of TSYS common stock to Synovus shareholders. Synovus owned approximately 80.6% of TSYS’ outstanding shares on the date of the spin-off. Each Synovus shareholder received 0.483921 of a share of TSYS common stock for each share of Synovus common stock held as of December 18, 2007. Synovus shareholders received cash in lieu of fractional shares for amounts of less than one TSYS share.

Pursuant to the agreement and plan of distribution, TSYS paid on a pro rata basis to its shareholders, including Synovus, a one-time cash dividend of $600 million or $3.0309 per TSYS share based on the number of TSYS shares outstanding as of the record date of December 17, 2007. Synovus received $483.8 million in proceeds from this one-time cash dividend. The dividend was paid on December 31, 2007.

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and SFAS No. 146, “Accounting for Costs associated with Exit or Disposal Activities,” the current period and historical consolidated results of operations of TSYS, as well as all costs associated with the spin-off of TSYS, are now presented as income from discontinued operations. The balance sheet as of the record date of December 31, 2007 does not include assets and liabilities of TSYS.

The following table shows the components of income from discontinued operations for the years ended December 31, 2007 and 2006:

Table 3  Discontinued Operations

(In thousands)

	Years Ended December 31,
	2007			2006
TSYS net income, net of minority interest (excluding spin-off related expenses)	$	210,147			201,814
Spin-off related expenses, net of income taxes:
TSYS, net of minority interest		(18,248	)		—
Synovus		(12,729	)		—
Gain on transfer of mutual funds, net of income taxes		4,200			—
Total income from discontinued operations, net of income taxes and minority interest	$	183,370			201,814

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Management’s Discussion and Analysis ­ ­ 

See note 2 to the consolidated financial statements for further discussion regarding discontinued operations.

Cumulative Perpetual Preferred Stock

On December 19, 2008, Synovus issued to the United States Department of the Treasury (Treasury) 967,870 shares of Synovus’ Fixed Rate Cumulative Perpetual Preferred Stock, Series A without par value (the Series A Preferred Stock), having a liquidation amount per share equal to $1,000, for a total price of $967,870,000. The Series A Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Synovus may not redeem the Series A Preferred Stock during the first three years except with the proceeds from a qualified equity offering of not less than $241,967,500. After February 15, 2012, Synovus may, with the consent of the Federal Deposit Insurance Corporation, redeem, in whole or in part, the Series A Preferred Stock at the liquidation amount per share plus accrued and unpaid dividends. The Series A Preferred Stock is generally non-voting. Prior to December 19, 2011, unless Synovus has redeemed the Series A Preferred Stock or the Treasury has transferred the Series A Preferred Stock to a third party, the consent of the Treasury will be required for Synovus to (1) declare or pay any dividend or make any distribution on our common stock, par value $1.00 per share, other than regular quarterly cash dividends of not more than $0.06 per share, or (2) redeem, repurchase or acquire Synovus common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice. A consequence of the Series A Preferred Stock purchase includes certain restrictions on executive compensation that could limit the tax deductibility of compensation that Synovus pays to executive management. The recently enacted ARRA and the Treasury’s February 10, 2009 Financial Stability Plan and regulations that may be adopted under these laws may retroactively affect Synovus and modify the terms of the Series A Preferred Stock. In particular, the ARRA provides that the Series A Preferred Stock may now be redeemed at any time with the consent of the Federal Deposit Insurance Corporation.

As part of its purchase of the Series A Preferred Stock, Synovus issued the Treasury a warrant to purchase up to 15,510,737 shares of Synovus common stock (the Warrant) at an initial per share exercise price of $9.36. The Warrant provides for the adjustment of the exercise price and the number of shares of Synovus common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of our common stock, and upon certain issuances of our common stock at or below a specified price relative to the initial exercise price. The Warrant expires on December 19, 2018. If, on or prior to December 31, 2009, Synovus receives aggregate gross cash proceeds of not less than $967,870,000 from “qualified equity offerings” announced after October 13, 2008, the number of shares of common stock issuable pursuant to the Treasury’s exercise of the Warrant will be reduced by one-half of the original number of shares, taking into account all adjustments, underlying the Warrant. Pursuant to the Securities Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.

The offer and sale of the Series A Preferred Stock and the Warrant were effected without registration under the Securities Act in reliance on the exemption from registration under Section 4(2) of the Securities Act. Synovus has allocated the total proceeds received from the United States Department of the Treasury based on the relative fair values of the Series A Preferred Stock and the Warrants. This allocation resulted in the preferred shares and the Warrants being initially recorded at amounts that are less than their respective fair values at the issuance date.

The $48.5 million discount on the Series A Preferred Stock will be accreted using a constant effective yield over the five-year period preceding the 9% perpetual dividend. Synovus records increases in the carrying amount of the preferred shares resulting from accretion of the discount by charges against retained earnings.

Goodwill Impairment

Under SFAS No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets,” goodwill is required to be tested for impairment annually, or more frequently if events or circumstances indicate that there may be impairment.

The goodwill impairment analysis is a two-step test. The first step (Step 1), used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.

The second step (Step 2) involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the

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individual assets, liabilities and identifiable intangible assets as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit and, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

Synovus used the combination of the income approach utilizing the discounted cash flow (DCF) method, and the guideline company method using a combination of price to tangible book value, price to book value, and price to earnings to estimate the fair value of a reporting unit. The total of all reporting unit fair values was compared for reasonableness to Synovus’ market capitalization plus a control premium.

Synovus performed its annual goodwill evaluation at June 30, 2008. The Step 1 testing indicated potential impairment at one reporting unit, and accordingly, a Step 2 evaluation was performed. Synovus recognized a preliminary $27.0 million non-cash impairment charge during the three months ended June 30, 2008 as Step 2 calculations were not complete at the time. An additional $9.9 million non-cash goodwill impairment charge was recognized when Step 2 calculations were completed for this reporting unit during the three months ended September 30, 2008. The impairment charges for this reporting unit were primarily related to a decrease in valuation based on lower market capitalization, transaction multiples of tangible book value, and lower expected operating performance.

At December 31, 2008, Synovus determined that goodwill should be reevaluated for impairment based on an adverse change in the general business environment, significantly higher loan losses, reduced net interest margins, and a decline in Synovus’ market capitalization during the second half of 2008. Historically, Synovus determined fair value of reporting units based on the combination of the income approach, utilizing DCF method; the public company comparables approach, utilizing multiples of tangible book value; and the transaction approach, utilizing readily observable market valuation multiples for closed transactions. At December 31, 2008, management enhanced the valuation methodology by using discounted cash flows analysis due to the lack of observable market data. Thus, in performing the Step 1 of the goodwill impairment testing and measurement process, the estimated fair values of the reporting units with goodwill were developed using the DCF method. The results of the DCF method were corroborated with market price to earnings, price to book value, price to tangible book value, and Synovus’ market capitalization plus a control premium. The results of this Step 1 process indicated potential impairment in four reporting units, as the book values of each reporting unit exceeded their respective estimated fair values. As a result, Synovus performed Step 2 to quantify the goodwill impairment, if any, for these four reporting units. In Step 2, the estimated fair values for each of the four reporting units were allocated to their respective assets and liabilities in order to determine an implied value of goodwill, in a manner similar to the calculation performed in a business combination. Based on the results of Step 2, Synovus recognized a $442.7 million (pre-tax and after-tax) charge for goodwill impairment during the three months ended December 31, 2008, which represented a total goodwill write-off for each of the four reporting units. The primary driver of the goodwill impairment for these four reporting units was the decline in Synovus’ market capitalization, which declined 31% from June 30, 2008 to December 31,2008.

Restructuring Charges

Project Optimus, launched in April 2008, is a team member-driven effort to create an enhanced banking experience for our customers and a more efficient organization that delivers greater value for Synovus shareholders. As a result of this process, Synovus expects to achieve $75 million in annual run rate pre-tax earnings benefit by late 2010. This benefit consists of approximately $50 million in efficiency gains and $25 million in earnings from new revenue growth initiatives. Revenue growth is expected primarily through new sales initiatives, improved product offerings and improved pricing strategies for consumer and commercial assets and liabilities. Cost savings are expected to be generated primarily through increased process efficiencies and streamlining of support functions. This initiative includes the elimination of approximately 650 positions across the Synovus footprint. Synovus expects to incur restructuring charges of approximately $22.0 million in conjunction with the project, including approximately $10.9 million in severance charges. During the twelve months ended December 31, 2008, Synovus recognized $16.1 million in restructuring charges including $5.2 million in severance charges.

Visa Initial Public Offering and Litigation Expense

Synovus is a member of the Visa USA network. Under Visa USA bylaws, Visa members are obligated to indemnify Visa USAand/or its parent company, Visa, Inc., for potential future settlement of, or judgments resulting from, certain litigation, which Visa refers to as the “covered litigation.” Synovus’ indemnification obligation is limited to its membership proportion of Visa USA. In November 2007, Visa announced the settlement of its American Express litigation, and disclosed in

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Management’s Discussion and Analysis ­ ­ 

its annual report to the SEC onForm 10-K for the year ended September 30, 2007 that Visa had accrued a contingent liability for the estimated settlement of its Discover litigation. During the second half of 2007, Synovus recognized a contingent liability in the amount of $36.8 million as an estimate for its membership proportion of the American Express settlement and the potential Discover settlement, as well as its membership proportion of the amount that Synovus estimated would be required for Visa to settle the remaining covered litigation.

Visa, Inc. completed an initial public offering (the Visa IPO) in March 2008. Visa used a portion of the proceeds from the Visa IPO to establish a $3.0 billion escrow for settlement of covered litigation and used substantially all of the remaining portion to redeem Class B and Class C shares held by Visa issuing members. In March 2008, Synovus recognized a pre-tax gain of $38.5 million on redemption proceeds received from Visa, Inc. and reduced the $36.8 million litigation accrual recognized in the second half of 2007 by $17.4 million for its pro-rata share of the $3.0 billion escrow established by Visa, Inc. In October 2008, Visa announced that it had reached an agreement in principle to settle its litigation brought against Visa in 2004 by Discover Financial Services (Discover) and also disclosed specific terms of the settlement. Effective September 2008, Synovus recognized an additional $6.3 million accrued liability in conjunction with Visa’s settlement of the Discover litigation. In December 2008, Visa repurchased a portion of its Class B shares held by Visa members and deposited the $1.1 billion proceeds into the litigation escrow on behalf of Visa members. Accordingly, Synovus reduced its litigation accrual by $6.4 million for its membership proportion of the litigation escrow deposit.

Following the redemption, Synovus continues to hold approximately 1.43 million shares of Visa Class B common stock which are subject to restrictions until the latter of March 2011 or settlement of all covered litigation. A portion of the remaining Class B shares held by Visa members may be sold by Visa as needed to provide for settlement of the covered litigation through the litigation escrow. The ratio which will be used upon the expiration of restrictions to convert Class B shares into Class A unrestricted shares will be adjusted by Visa as additional shares are sold.

For the year ended December 31, 2008, the redemption of shares and changes to the accrued liability for Visa litigation resulted in a net after-tax gain of $34.2 million, or $0.10 per share. At December 31, 2008, Synovus’ accrual for the aggregate amount of Visa’s covered litigation was $19.3 million. While management believes that this accrual is adequate to cover Synovus’ membership proportion of Visa’s covered litigation based on current information, additional adjustments may be required if the aggregate amount of future settlements differs materially from Synovus’ estimate.

Adoption of SFAS Nos. 157 and 159

SFAS No. 157 establishes a framework for measuring fair value in accordance with GAAP, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. SFAS No. 159 permits entities to make an irrevocable election, at specified election dates, to measure eligible financial instruments and certain other items at fair value. Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Fair value is used on a non-recurring basis for collateral-dependent impaired loans. Examples of recurring use of fair value include trading account assets, mortgage loans held for sale, investment securities available for sale, private equity investments, derivative instruments, and trading account liabilities. The extent to which fair value is used on a recurring basis was expanded upon the adoption of SFAS No. 159 during the first quarter, effective on January 1, 2008. At December 31, 2008, approximately $5.21 billion, or 14.6%, of total assets were recorded at fair value, which includes items measured on a recurring and non-recurring basis.

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value determination in accordance with SFAS No. 157 requires that a number of significant judgments be made. The standard also establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Synovus has an established and well-documented process for determining fair values and fair value hierarchy classifications. Fair value is based upon quoted market prices, where available (Level 1). Where prices for identical assets and liabilities are not available, SFAS No. 157 requires that similar assets and liabilities are identified (Level 2). If observable market prices are unavailable or impracticable to obtain, or similar assets cannot be identified, then fair value is estimated using internally-developed valuation modeling techniques such as discounted cash flow analyses that primarily use as inputs market-based or independently sourced market parameters (Level 3). These modeling techniques incorporate assessments regarding assumptions that market participants would use in pricing the asset or the liability. The assessments with respect to assumptions that market participants would make are inherently difficult to determine and use of different assumptions could result in material changes to these fair value measurements.

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Management’s Discussion and Analysis ­ ­ 

The following table summarizes the assets accounted for at fair value on a recurring basis by level within the valuation hierarchy at December 31, 2008.

Table 4  Assets Accounted for at Fair Value on a Recurring Basis

(Dollars in millions)

	December 31, 2008
				Mortgage			Investment
	Trading			Loans			Securities			Private
	Account			Held			Available			Equity			Derivative
	Assets			for Sale			for Sale			Investments			Assets			Total
Level 1		3	%		—	%		—	%		—	%		—	%		—	%
Level 2		97			100			96			—			99			95
Level 3		—			—			4			100			1			5
Total		100	%		100	%		100	%		100	%		100	%		100	%
Total assets held at fair value on the balance sheet	$	24.5		$	133.6		$	3,892.1		$	123.5		$	307.8		$	4,481.5
Level 3 assets as a percentage of total assets measured at fair value																	5.09	%

The following table summarizes the liabilities accounted for at fair value on a recurring basis by level within the valuation hierarchy at December 31, 2008.

Table 5  Liabilities Accounted for at Fair value on a Recurring Basis

(dollars in millions)

	December 31, 2008
	Brokered			Trading
	Certificates			Account			Derivative
	of Deposit			Liabilities			Liabilities			Total
Level 1		—	%		—	%		—	%		—	%
Level 2		100			100			100			100
Level 3		—			—			—			—
Total		100	%		100	%		100	%		100	%
Total liabilities held at fair value on the balance sheet	$	75.9		$	17.3		$	206.5		$	299.5
Level 3 liabilities as a percentage of total assets measured at fair value											—	%

In estimating the fair values for investment securities and most derivative financial instruments, independent, third-party market prices are the best evidence of exit price and, where available, Synovus bases estimates on such prices. If such third-party market prices are not available on the exact securities that Synovus owns, fair values are based on the market prices of similar instruments, third-party broker quotes, or are estimated using industry-standard or proprietary models whose inputs may be unobservable. When market observable data is not available, the valuation of financial instruments becomes more subjective and involves substantial judgment. The need to use unobservable inputs generally results from the lack of market liquidity for certain types of loans and securities, which results in diminished observability of both actual trades and assumptions that would otherwise be available to value these instruments. When fair values are estimated based on internal models, relevant market indices that correlate to the underlying collateral are considered, along with assumptions such as interest rates, prepayment speeds, default rates, and discount rates.

The valuation for mortgage loans held for sale (MLHFS) is based upon forward settlement of a pool of loans of identical coupon, maturity, product, and credit attributes. The model is continuously updated with available market and historical data. The valuation methodology of nonpublic private equity

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Management’s Discussion and Analysis ­ ­ 

investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. Private equity investments are valued initially based upon transaction price. Thereafter, Synovus uses information provided by the fund managers in the initial determination of estimated fair value. Valuation factors such as recent or proposed purchase or sale of debt or equity of the issuer, pricing by other dealers in similar securities, size of position held, liquidity of the market and changes in economic conditions affecting the issuer are used in the final determination of estimated fair value.

Valuation methodologies are reviewed each quarter to ensure that fair value estimates are appropriate. Any changes to the valuation methodologies are reviewed by management to confirm the changes are justified. As markets and products develop and the pricing for certain products becomes more or less transparent, Synovus continues to refine its valuation methodologies. For a detailed discussion of valuation methodologies, refer to Note 21 to the consolidated financial statements as of and for the year ended December 31, 2008.

Earning Assets, Sources of Funds, and Net Interest Income

Earning Assets and Sources of Funds

Average total assets for 2008 were $34.05 billion or 3.5% over 2007 average total assets of $32.90 billion. Average earning assets for 2008 were $31.23 billion, which represented 91.7% of average total assets. Average earning assets increased $2.12 billion, or 7.3%, over 2007. The $2.12 billion increase consisted primarily of a $1.86 billion increase in average net loans and a $128.3 million increase in average investment securities available for sale. The primary funding sources for the growth in interest earning assets were a $1.68 billion increase in average deposits and a $432.0 million increase in average long-term debt.

For 2007, average total assets increased $3.06 billion, or 10.3% from 2006. Average earning assets for 2007 were $29.11 billion, which represented 88.5% of average total assets. For more detailed information on the average balance sheets for the years ended December 31, 2008, 2007, and 2006, refer to Table 7.

Net Interest Income

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 customer deposits 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 tax-equivalent basis, so that the income from assets exempt from federal income taxes is adjusted based on a statutory marginal federal tax rate of 35% in all years (See Table 6). 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 funding sources.

Net interest income for 2008 was $1.08 billion, down $71.1 million, or 6.2%, from 2007. On a taxable-equivalent basis, net interest income was $1.08 billion, down $71.0 million, or 6.2%, over 2007. During 2008, average interest earning assets increased $2.12 billion, or 7.3%, with the majority of this increase attributable to loan growth. Increases in the level of deposits and other borrowed funds were the primary funding sources for the increase in earning assets.

Net Interest Margin

The net interest margin after fees was 3.47% for 2008, down 50 basis points from 2007. The yield on earning assets decreased 175 basis points, which was partially offset by a 125 basis point decrease in the effective cost of funds. The effective cost of funds includes non-interest bearing funding sources, primarily consisting of demand deposits.

Yields on investment securities increased 9 basis points, primarily due to higher spreads on government agency debentures and mortgage-backed securities.

Loan yields, which decreased 198 basis points, were unfavorably impacted by a 296 basis point decrease in the average prime rate in 2008 as compared to 2007 and the maturity and repricing of higher yielding fixed rate loans throughout the year. Loan yields were negatively impacted as well by an increase in the cost to carry elevated levels of nonperforming assets in 2008 compared to 2007. The primary factors driving the 125 basis point decrease in the effective cost of funds were a 200 basis point decrease in the cost of money market accounts, a 128 basis point decrease in the cost of brokered time deposits and a 99 basis point decrease in the cost of non-brokered time deposits. The effective cost of funds was also negatively influenced by significant deposit pricing competition. Promotional rates on time deposit and money market products were prevalent in 2008 in our local markets. These pricing pressures limited our ability to lower rates on

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Management’s Discussion and Analysis ­ ­ 

these products in line with prime rate decreases. This competitive environment additionally resulted in a deposit mix shift to higher cost time deposit and brokered deposits.

The net interest margin after fees was 3.97% for 2007, down 30 basis points from 2006. The yield on earning assets increased 9 basis points, which was offset by a 39 basis point increase in the effective cost of funds. The effective cost of funds includes non-interest bearing funding sources, primarily demand deposits.

The yields on earning assets were positively impacted by higher realized yields on investment securities, which increased 45 basis points, primarily due to the maturity of lower yielding investments that were reinvested at higher rates available during 2007. Loan yields, which increased 4 basis points, were favorably impacted by a 10 basis point increase in the average prime rate in 2007 as compared to 2006 and the maturity and replacement of lower yielding fixed rate loans throughout the year. These positive impacts on loan yields were slightly offset by an increase in the cost to fund the elevated levels of nonperforming assets in 2007 compared to 2006. The primary factors driving the 39 basis point increase in the effective cost of funds were a 53 basis point increase in the cost of non-brokered time deposits and a customer driven shift from lower cost deposit types such as NOW and savings accounts to higher cost time deposits and money market accounts.

Table 6  Net Interest Income

(In thousands)

	Years Ended December 31,
	2008		2007		2006
Interest income	$	1,857,580		2,238,404		2,016,466
Taxable-equivalent adjustment		4,909		5,059		5,790
Interest income, taxable-equivalent		1,862,489		2,243,463		2,022,256
Interest expense		779,687		1,089,456		890,677
Net interest income, taxable-equivalent	$	1,082,802		1,154,007		1,131,579

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Management’s Discussion and Analysis ­ ­ 

Table 7  Consolidated Average Balances, Interest, and Yields

(Dollars in thousands)

	2008									2007									2006
	Average						Yield/			Average						Yield/			Average						Yield/
	Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate
Assets
Interest earning assets:
Taxable loans, net(a)(b)	$	27,382,247			1,657,647			6.05	%	$	25,467,316			2,043,589			8.02	%	$	23,254,146			1,857,005			7.99	%
Tax-exempt loans, net(a)(b)(c)		88,191			5,262			5.97			55,007			3,987			7.25			61,792			4,408			7.13
Allowance for loan losses		(418,984	)		—			—			(335,032	)		—			—			(309,658	)		—			—
Loans, net		27,051,454			1,662,909			6.15			25,187,291			2,047,576			8.13			23,006,280			1,861,413			8.09
Investment securities available for sale:
Taxable investment securities		3,596,336			176,886			4.92			3,429,175			164,631			4.80			3,009,962			129,219			4.29
Tax-exempt investment securities(c)		135,590			9,468			6.98			174,431			11,817			6.77			198,691			13,498			6.79
Total investment securities		3,731,926			186,354			4.99			3,603,606			176,448			4.90			3,208,653			142,717			4.45
Trading account assets		30,870			1,924			6.23			52,274			3,418			6.53			43,201			2,691			6.23
Interest earning deposits with banks		12,075			188			1.56			21,025			1,104			5.25			8,763			375			4.28
Due from Federal Reserve Bank		90,543			391			0.43			—			—			—			—			—			—
Federal funds sold and securities purchased under resale agreements		193,895			3,386			1.75			97,462			5,258			5.39			123,804			6,422			5.19
Mortgage loans held for sale		121,425			7,342			6.05			152,007			9,659			6.35			132,332			8,638			6.53
Total interest earning assets		31,232,188			1,862,494			5.96			29,113,665			2,243,463			7.71			26,523,033			2,022,256			7.62
Cash and due from banks		505,374									529,306									538,949
Premises and equipment, net		581,508									514,280									442,753
Other real estate		180,493									52,735									26,000
Other assets(d)		1,552,451									1,355,137									1,039,837
Assets of discontinued operations(e)		—									1,330,172									1,260,600
Total assets	$	34,052,014								$	32,895,295								$	29,831,172
Liabilities and Shareholders’ Equity Interest bearing liabilities:
Interest bearing demand deposits	$	3,158,228			35,792			1.13		$	3,125,802			68,779			2.20		$	3,006,308			57,603			1.92
Money market accounts		7,984,231			181,482			2.27			7,714,360			336,286			4.36			6,515,079			269,899			4.14
Savings deposits		452,661			1,137			0.25			483,368			2,525			0.52			542,793			3,538			0.65
Time deposits		11,463,905			449,041			3.92			10,088,353			504,882			5.00			9,196,150			415,629			4.52
Federal funds purchased and securities sold under repurchase agreements		1,719,978			38,583			2.24			1,957,990			92,970			4.75			1,578,163			72,958			4.62
Long-term debt		2,051,521			73,657			3.59			1,619,536			84,014			5.19			1,515,306			71,050			4.69
Total interest bearing liabilities		26,830,524			779,692			2.91			24,989,409			1,089,456			4.36			22,353,799			890,677			3.98
Non-interest bearing demand deposits		3,440,047									3,409,506									3,518,312
Other liabilities		345,493									246,213									234,022
Liabilities of and minority interest in discontinued operations(e)		—									314,257									355,085
Shareholders’ equity		3,435,950									3,935,910									3,369,954
Total liabilities and shareholders’ equity	$	34,052,014								$	32,895,295								$	29,831,172
Net interest income/margin					1,082,802			3.47	%					1,154,007			3.97	%					1,131,579			4.27	%
Taxable-equivalent adjustment					(4,909	)								(5,059	)								(5,790	)
Net interest income, actual					1,077,893									1,148,948									1,125,789

(a)	Average loans are shown net of unearned income. Nonperforming loans are included.
(b)	Interest income includes loan fees as follows: 2008 — $29.5 million, 2007 — $36.2 million, 2006 — $40.4 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 average net unrealized gains (losses) on investment securities available for sale of $46.7 million, ($15.1) million, and ($54.5) million for the years ended December 31, 2008, 2007, and 2006, respectively.
(e)	On December 31, 2007, Synovus completed the tax-free spin-off of its shares of TSYS common stock to Synovus shareholders; accordingly, the assets and liabilities of TSYS are presented as discontinued operations.

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Management’s Discussion and Analysis ­ ­ 

Table 8  Rate/Volume Analysis

(In thousands)

	2008 Compared to 2007									2007 Compared to 2006
	Change Due to(a)									Change Due to(a)
				Yield/			Net						Yield/			Net
	Volume			Rate			Change			Volume			Rate			Change
Interest earned on:
Taxable loans, net	$	153,577			(539,519	)		(385,942	)	$	176,832			9,752			186,584
Tax-exempt loans, net(b)		2,406			(1,131	)		1,275			(484	)		63			(421	)
Taxable investment securities		8,024			4,231			12,255			17,984			17,428			35,412
Tax-exempt investment securities(b)		(2,630	)		281			(2,349	)		(1,647	)		(34	)		(1,681	)
Trading account assets		(1,398	)		(96	)		(1,494	)		565			162			727
Interest earning deposits with banks		(470	)		(446	)		(916	)		524			206			730
Due from Federal Reserve Bank		391			—			391			—			—			—
Federal funds sold and securities purchased under resale agreements		5,198			(7,070	)		(1,872	)		(1,367	)		202			(1,165	)
Mortgage loans held for sale		(1,942	)		(375	)		(2,317	)		1,285			(264	)		1,021
Total interest income		163,156			(544,125	)		(380,969	)		193,692			27,515			221,207
Interest paid on:
Interest bearing demand deposits		713			(33,700	)		(32,987	)		2,294			8,882			11,176
Money market accounts		11,766			(166,570	)		(154,804	)		49,650			16,737			66,387
Savings deposits		(160	)		(1,228	)		(1,388	)		(386	)		(627	)		(1,013	)
Time deposits		68,778			(124,619	)		(55,841	)		40,328			48,925			89,253
Federal funds purchased and securities sold under repurchase agreements		(11,306	)		(43,081	)		(54,387	)		17,548			2,464			20,012
Other borrowed funds		22,420			(32,777	)		(10,357	)		4,888			8,076			12,964
Total interest expense		92,211			(401,975	)		(309,764	)		114,322			84,457			198,779
Net interest income	$	70,945			(142,150	)		(71,205	)	$	79,370			(56,942	)		22,428

(a)	The change in interest due to both rate and volume has been allocated to the yield/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.

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Management’s Discussion and Analysis ­ ­ 

Non-Interest Income

Non-interest income consists of a wide variety of fee generating services. Total non-interest income was $435.2 million in 2008, up 11.9% compared to 2007. Total non-interest income for 2007 was $389.0 million, up 8.2% over 2006. Table 9 shows the principal components of non-interest income.

Table 9  Non-Interest Income

(In thousands)

	2008		2007		2006
Service charges on deposits	$	111,837		112,142		112,417
Fiduciary and asset management fees		48,779		50,761		48,627
Brokerage and investment banking revenue		33,119		31,980		26,729
Mortgage banking income		23,493		27,006		29,255
Bankcard fees		53,153		47,770		44,303
Net gains (losses) on sales of investment securities available for sale		45		980		(2,118	)
Other fee income		37,246		39,307		38,743
Increase in fair value of private equity investments, net		24,995		16,497		6,552
Proceeds from sale of MasterCard shares		16,186		6,304		2,481
Proceeds from Visa IPO		38,542		—		—
Other non-interest income		47,795		56,281		52,441
Total non-interest income	$	435,190		389,028		359,430

Service charges on depositsrepresent the single largest fee income component. Service charges on deposits totaled $111.8 million in 2008, a decrease of 0.3% from the previous year, and $112.1 million in 2007, a decrease of 0.2% from 2006. Service charges on deposit accounts consist of non-sufficient funds (NSF) fees (which represent approximately two — thirds of the total), account analysis fees, and all other service charges. NSF fees decreased by $6.4 million or 8.2% over 2007. Account analysis fees were up $8.3 million or 55.1% from 2007 levels. The increase in account analysis fees was primarily due to lower earnings credits on commercial demand deposit accounts. All other service charges on deposit accounts, which consist primarily of monthly fees on consumer demand deposit and savings accounts, were down $2.1 million or 11.4% compared to 2007. The decline in all other service charges was largely due to continued market emphasis of checking accounts with no monthly service charge and a decline in check-related fees.

Fiduciary and asset management feesare derived from providing estate administration, employee benefit plan administration, personal trust, corporate trust, investment management and financial planning services. Fiduciary and asset management fees were $48.8 million for 2008, a decrease of 3.9% from the prior year, and $50.8 million for 2007, an increase of 4.4% over 2006. The decrease in fiduciary and asset management fees for 2008 over 2007 is primarily due to lower market value of assets under management. The increase for 2007 over 2006 is primarily due to an increase in managed assets in 2007 compared to 2006.

At December 31, 2008, 2007 and 2006, the market value of assets under management was approximately $7.39 billion, $9.56 billion and $8.80 billion, respectively. Assets under management at December 31, 2008 and 2007 decreased 22.7% and increased 8.7% from December 31, 2007 and 2006, respectively. The decline in 2008 was primarily due to lower equity valuations. Assets under management consist of all assets where Synovus has investment authority. Assets under advisement were approximately $3.38 billion, $3.53 billion, and $3.82 billion at December 31, 2008, 2007 and 2006, respectively. Assets under advisement consist of non-managed assets as well as non-custody assets where Synovus earns a consulting fee. Assets under advisement at December 31, 2008 and 2007 decreased 4.2% and decreased 7.8% from December 31, 2007 and 2006, respectively. Total assets under management and advisement were $10.77 billion at December 31, 2008 compared to $13.09 billion at December 31, 2007 and $12.63 billion at December 31, 2006. Many of the fiduciary and asset management fees charged are based on asset values, and changes in these values directly impact fees earned.

Brokerage and investment banking revenuewas $33.1 million in 2008, a 3.6% increase over the $32.0 million reported in 2007. Brokerage assets were $4.01 billion and $4.08 billion as of December 31, 2008 and 2007, respectively. The increase in revenue was primarily driven by increased activity within the capital markets division especially in the first half of 2008.

Total brokerage and investment banking revenue for 2007 was $32.0 million, up 19.6% over 2006. The increase in revenue was primarily driven by our retail brokerage unit. Synovus began to integrate the retail brokerage sales force into the bank structure during 2006 with the unit fully integrated in

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Management’s Discussion and Analysis ­ ­ 

2007. This resulted in accelerated revenue growth following this re-organization.

Mortgage banking incomewas $23.5 million in 2008, a 13.0% decrease from 2007 levels. Mortgage production volume was $1.21 billion in 2008, down 15.6% compared to 2007. The decline in mortgage banking income and production volume in 2008 compared to 2007 is primarily due the continued slow-down in residential housing during 2008. The 2008 results include a $1.2 million increase in mortgage revenues due to the adoption of the SEC Staff Accounting Bulletin (SAB) No. 109, “Written Loan Commitments Recorded at Fair Value through Earnings.”

Total mortgage banking income for 2007 was $27.0 million, a 7.7% decrease from 2006 levels. Total mortgage production volume was $1.43 billion in 2007, down 5.5% compared to 2006.

Bankcard feestotaled $53.2 million in 2008, an increase of 11.3% over the previous year, and $47.8 million in 2007, an increase of 7.8% from 2006. Bankcard fees consist of credit card merchant and interchange fees and debit card interchange fees. Debit card interchange fees were $20.2 million in 2008, an increase of 30.5% over the previous year, and $15.5 million in 2007, an increase of 6.3% from 2006. The increase in debit card interchange fees for 2008 was primarily driven by an increase in volume. Credit card fees were $32.9 million in 2008, an increase of 2.0% compared to 2007, and $32.3 million in 2007, an increase of 8.6% compared to 2006.

Other fee incomeincludes fees for letters of credit, safe deposit box fees, access fees for automatic teller machine use, official check issuance fees, and other miscellaneous fee-related income.

Proceeds from Visa IPOrepresents the $38.5 million gain on redemption of a portion of Synovus’ membership interest in Visa, Inc. as a result of Visa’s initial public offering (the Visa IPO). For further discussion of Visa, see the section titled “Visa Initial Public Offering and Litigation Expense.”

Other non-interest incomewas $47.8 million in 2008, compared to $56.3 million in 2007. The main components of other operating income are income from company-owned life insurance policies, insurance commissions, and other miscellaneous items.

Non-Interest Expense

2008 vs. 2007

Reported total non-interest expense for 2008 was $1.47 billion, up $625.5 million or 74.5% over 2007. Excluding changes in the Visa litigation accrual, the charge for impairment of goodwill, and restructuring charges, non-interest expense increased $184.1 million or 22.9% over 2007. Table 10 summarizes this data for the years ended December 31, 2008, 2007 and 2006.

Table 10   Non-Interest Expense

(In thousands)

	Years Ended December 31,
	2008			2007		2006
Salaries and other personnel expense	$	458,927			455,158		450,373
Net occupancy and equipment expense		124,444			112,888		100,269
FDIC insurance and other regulatory fees		25,161			10,347		8,796
Foreclosed real estate		136,678			15,736		3,294
Losses on impaired loans held for sale		9,909			—		—
Visa litigation (recovery) expense		(17,473	)		36,800		—
Goodwill impairment		479,617			—		—
Professional fees		30,276			21,255		20,001
Restructuring charges		16,125			—		—
Other operating expenses		201,957			187,910		181,800
Total non-interest expense	$	1,465,621			840,094		764,533

Total salaries and other personnel expenseincreased $3.8 million, or 0.8%, in 2008 compared to 2007. Total employees were 6,876 at December 31, 2008, down 509 or 6.9% from 7,385 employees at December 31, 2007. The most significant driver for this expense line was the decrease in the average number of employees (140) as well as the absence of executive bonuses in 2008, which were partially offset by annual merit raises and higher employee insurance costs.

Net occupancy and equipment expenseincreased $11.6 million, or 10.2% during 2008. Rent expense and building depreciation expense increased approximately $4.8 million, driven by the net addition of 7 branches in 2008 consisting of 15 branch additions, 7 closings, and 1 sale, in addition to other rent increases across the Company. Other depreciation expense increased by $3.7 million in 2008 as compared to 2007 as a result of several information technology projects.

FDIC insurance and other regulatory feesincreased $14.8 million, or 143.2% over 2007. During 2007, the FDIC reinstituted the FDIC insurance assessment. In conjunction with the reinstituted assessment, the FDIC granted credits, which were fully utilized by early 2008. The increase in FDIC

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Management’s Discussion and Analysis ­ ­ 

insurance and regulatory fees is substantially the result of expense recognized in 2008, following full recognition of credits associated with the FDIC insurance assessment.

Foreclosed real estate costsincreased $120.9 million in 2008. The increase is primarily due to additional write-downs to current fair value of other real estate, which increased $76.4 million, and net losses on the sale of other real estate, which increased $29.8 million, compared to the prior year. For further discussion of foreclosed real estate, see the section captioned “Other Real Estate.”

Losses on impaired loans held for salewere $9.9 million. For further discussion, see the section titled “Impaired Loans Held for Sale.”

Visa litigationresulted in a net recovery of $17.5 million in 2008 compared to a $36.8 million expense in 2007. During 2008, Synovus decreased its litigation accrual by a net amount of $17.5 million including a decrease for Synovus’ membership proportion of amounts deposited by Visa into a litigation escrow, and an increase in Synovus’ accrual in connection with Visa’s announcement of its litigation settlement with Discover Financial Services. For further discussion of the Visa litigation expense, see the section titled “Visa Initial Public Offering and Litigation Expense.”

Goodwill impairmentwas evaluated at June 30, 2008 and again at December 31, 2008, resulting in non-cash charges for goodwill impairment of $479.6 million in 2008. For further discussion, see the section titled “Goodwill Impairment” and Note 9 to the consolidated financial statements.

Professional feesincreased $9.0 million, or 42.4% in 2008 compared to 2007. The increase in professional fees includes legal fees paid in connection with the FDIC investigation. Legal fees paid in connection with the FDIC investigation and Synovus’ litigation with CompuCredit Corporation is discussed in further detail in the section titled “Commitments and Contingencies.”

Restructuring chargesof $16.1 million in 2008 are comprised of implementation costs for Project Optimus. During 2008, Synovus recognized a total of $16.1 million in restructuring charges including $5.2 million in severance charges. For further discussion of restructuring charges, see the section titled “Restructuring Charges.”

Other operating expensesincreased $14.0 million, or 7.5%, over 2007. The largest expense category increase was from third party processing services, which increased $10.1 million, or 26.3%, in 2008 as compared to 2007.

The efficiency ratio (non-interest expense divided by the sum of Federal taxable equivalent net interest income and non-interest income excluding net securities gains and losses) was 96.53% for 2008 (64.94% excluding goodwill impairment charges) compared to 54.45% in 2007. The net overhead ratio (non-interest expense less non-interest income — excluding net securities gains and losses divided by total average assets) was 3.03% for 2008 compared to 1.43% in 2007.

2007 vs. 2006

Non-interest expense increased $75.6 million, or 9.9%, in 2007 over 2006. Excluding the Visa litigation expense of $36.8 million, total non-interest expense increased $38.8 million or 5.1% over 2006.

Total salaries and other personnel expenseincreased $4.8 million, or 1.1%, in 2007 compared to 2006. Total employees were 7,385 at December 31, 2007, up 196 or 2.7% from 7,189 employees at December 31, 2006. In addition to merit and promotional salary adjustments, this category was also impacted by total performance-based incentive compensation which was approximately $25.0 million in 2007, a $38.3 million or 60.5% decrease from 2006 levels.

Net occupancy and equipment expenseincreased $12.6 million, or 12.6% during 2007, driven by the net addition of 19 branches in 2007. Rent expense increased by approximately $4.5 million and repairs and maintenance increased by $2.1 million in 2007 as compared to 2006.

FDIC insurance and other regulatory feesincreased $1.6 million, or 17.6% in 2007 over 2006.

Foreclosed real estate costsincreased $12.4 million, or 377.7% over 2006 due primarily to losses and expenses associated with higher levels of foreclosed real estate.

Visa litigation (recovery) expensewas $36.8 million in 2007. During 2007, Synovus recognized litigation expenses of $36.8 million associated with indemnification obligations arising from Synovus’ ownership interest in Visa.

The efficiency ratio (non-interest expense divided by the sum of federal taxable equivalent net interest income and non-interest income excluding net securities gains and losses) was 54.45% for 2007 compared to 51.18% in 2006. The net overhead ratio (non-interest expense less non-interest income - excluding net securities gains and losses divided by total average assets) was 1.43% for both 2007 and 2006.

Trading Account Assets

Synovus assists certain commercial customers in obtaining long-term funding through municipal and corporate bond issues and in certain situations provides re-marketing services for those bonds. During the three months ended September 30, 2008, Synovus purchased approximately $80.9 million of bonds issued by its customers, including $55.8 million in corporate bonds and $25.1 million in municipal bonds, that were sold

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Management’s Discussion and Analysis ­ ­ 

back prior to their maturity and could be immediately remarketed. Subsequently, Synovus has tendered substantially all of these bonds back to the respective trustees. Approximately $4.3 million of tendered bonds remained in the trading account portfolio at December 31, 2008. The remainder of the trading account assets portfolio is substantially comprised of mortgage-backed securities which are bought and held principally for sale and delivery to correspondent and retail customers of Synovus. Trading account assets are reported on the consolidated balance sheets at fair value, with unrealized gains and losses included in other non-interest income on the consolidated statements of income. Synovus recognized a net gain on trading account assets of $710 thousand for the year ended December 31, 2008 as compared to a net gain of $465 thousand for the year ended December 31, 2007, and a net gain of $1.5 million for the year ended December 31, 2006.

Impaired Loans Held for Sale

Loans or pools of loans are transferred to the impaired loans held for sale portfolio when the intent to hold the loans has changed due to portfolio management or risk mitigation strategies and when there is a plan to sell the loans within a reasonable period of time. The value of the loans or pools of loans is primarily determined by analyzing the underlying collateral of the loan and the external sales prices for the portfolio. At the time of transfer, if the fair value is less than the cost, the difference attributable to declines in credit quality is recorded as a charge-off against the allowance for loan losses. Decreases in fair value subsequent to the transfer as well as losses (gains) from sale of these loans are recognized as a component of non-interest expense.

The carrying value of impaired loans held for sale was $3.5 million at December 31, 2008. There were no impaired loans held for sale at December 31, 2007. During the year ended December 31, 2008, Synovus transferred loans with a cost basis totaling $72.7 million to the impaired loans held for sale portfolio. Synovus recognized charge-offs totaling $22.1 million on these loans, resulting in a new cost basis for loans transferred to the impaired loans held for sale portfolio of $50.6 million. The $22.1 million in charge-offs were estimated based on the estimated sales price of the portfolio through bulk sales. Subsequent to their transfer to the impaired loans held for sale portfolio, Synovus recognized additional write-downs of $3.2 million and recognized additional net losses on sales of $9.9 million. The additional write-downs were based on the estimated sales proceeds from pending liquidation sales.

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. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is recorded as a charge against the allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the value are recorded as a component of foreclosed real estate expense.

The carrying value of other real estate was $246.1 million, $101.5 million, and $25.9 million at December 31, 2008, 2007, and 2006, respectively. During the twelve months ended December 31, 2008, approximately $435.1 million of loans and $1.5 million of impaired loans held for sale were foreclosed and transferred to other real estate. The increase in other real estate during the year ended December 31, 2008 is the result of negative migration in credit quality, the declining value of real estate in certain parts of Florida and the excess supply of residential real estate in the Atlanta area. During the years ended December 31, 2008, 2007 and 2006, Synovus recognized foreclosed real estate costs of $136.7 million, $15.7 million, and $3.3 million, respectively. Other real estate costs recognized during the year ended December 31, 2008 include $47.5 million in losses resulting from the liquidation of other real estate through bulk sales and auctions, $18.2 million in net losses resulting from other sales, $50.6 million in additional write-downs due to declines in fair value subsequent to the date of foreclosure, $16.7 million in carrying costs associated with other real estate, and $3.7 million in legal and appraisal fees.

Investment Securities Available for Sale

The investment securities portfolio consists principally of debt and equity securities classified as available for sale. Investment securities available for sale 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, 2008, approximately $3.1 billion of these investment securities were pledged as required collateral for certain deposits, securities sold under repurchase agreements, and FHLB advances. See Table 12 for maturity and average yield information of the investment securities available for sale 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. Synovus held portfolio duration at a

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Management’s Discussion and Analysis ­ ­ 

relatively constant level for most of 2008. Significant declines in market rates late in the year led Synovus to modestly shorten the duration of the portfolio. The average duration of Synovus’ investment securities portfolio was 3.02 years at December 31, 2008 compared to 3.49 years at December 31, 2007.

Synovus also utilizes a significant portion of its investment portfolio to secure certain deposits and other liabilities requiring collateralization. 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, 2008, 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, 2008 and 2007, the estimated fair value of investment securities available for sale as a percentage of their amortized cost was 104.0% and 100.7%, respectively. The investment securities available for sale portfolio had gross unrealized gains of $151.6 million and gross unrealized losses of $2.4 million, for a net unrealized gain of $149.2 million as of December 31, 2008. As of December 31, 2007, the investment securities available for sale portfolio had gross unrealized gains of $40.6 million and gross unrealized losses of $14.5 million, for a net unrealized gain of $26.1 million. Shareholders’ equity included net unrealized gains of $92.1 million and $16.0 million on the available for sale portfolio as of December 31, 2008 and 2007, respectively.

During 2008, the average balance of investment securities available for sale increased to $3.73 billion, compared to $3.60 billion in 2007. Synovus earned a taxable-equivalent rate of 4.99% and 4.90% for 2008 and 2007, respectively, on its investment securities available for sale portfolio. As of December 31, 2008 and 2007, average investment securities available for sale represented 11.9% and 12.4%, respectively, of average interest earning assets.

The calculation of weighted average yields for investment securities available for sale in Table 12 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 11  Investment Securities Available for Sale

(In thousands)

	December 31,
	2008		2007		2006
U.S. Treasury and U.S. Government agency securities	$	1,557,214		1,945,381		1,770,570
Mortgage-backed securities		2,072,413		1,430,323		1,275,358
State and municipal securities		123,281		164,556		196,185
Other investments		139,240		126,714		110,244
Total	$	3,892,148		3,666,974		3,352,357

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Management’s Discussion and Analysis ­ ­ 

Table 12  Maturities and Average Yields of Investment Securities Available for Sale

(Dollars in thousands)

	December 31, 2008
	Investment Securities
	Available for Sale
	Estimated		Average
	Fair Value		Yield
U.S. Treasury and U.S. Government agency securities:
Within 1 year	$	249,131		4.53	%
1 to 5 years		577,287		5.02
5 to 10 years		534,357		5.19
More than 10 years		196,439		5.59
Total	$	1,557,214		5.07
State and municipal securities:
Within 1 year	$	13,936		6.59
1 to 5 years		52,029		7.14
5 to 10 years		45,916		7.15
More than 10 years		11,400		6.90
Total	$	123,281		7.06
Other investments:
Within 1 year	$	250		3.88
1 to 5 years		997		6.83
5 to 10 years		1,800		9.50
More than 10 years		5,900		6.93
Total	$	8,947		7.34
Equity securities	$	130,293		4.05
Mortgage-backed securities	$	2,072,413		5.02
Total investment securities:
Within 1 year	$	263,317		4.64
1 to 5 years		630,313		5.20
5 to 10 years		582,073		5.36
More than 10 years		213,739		5.51
Equity securities		130,293		4.26
Mortgage-backed securities		2,072,413		5.02
Total	$	3,892,148		5.08	%

Loans

Portfolio Composition

The loan portfolio spreads across five southeastern states with diverse economies. The Georgia banks represent a majority with 52.6% of the consolidated portfolio. South Carolina represents 15.2%, followed by Alabama with 14.4%, Florida with 13.0%, and Tennessee with 4.8%.

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Management’s Discussion and Analysis ­ ­ 

The commercial loan portfolio consists of commercial and industrial 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 sales of real estate or from other income sources such as rental income from commercial real estate. 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.

Total commercial real estate loans at December 31, 2008 were $12.18 billion or 43.6% of the total loan portfolio. As shown on Table 23, the commercial real estate loan portfolio is diversified among various property types: investment properties, 1-4 family properties, and land acquisition.

The commercial real estate loan portfolio at December 31, 2008 and 2007 includes loans in the Atlanta market totaling $2.83 billion and $3.06 billion, respectively, of which $1.28 billion and $1.69 billion, respectively, at each year end are 1-4 family property loans.

Total commercial loans at December 31, 2008 were $23.57 billion, or 84.4% of the total loan portfolio. Included in the commercial category at December 31, 2008 are $4.52 billion in loans for the purpose of financing owner-occupied properties. The primary source of repayment on these loans is revenue generated from products or services offered by the business or organization. The secondary source of repayment on these loans is the real estate.

Total retail loans as of December 31, 2008 were $4.38 billion. Retail loans consist of residential mortgages, home equity lines, credit card loans, and other retail loans. Synovus does not have indirect automobile 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 acase-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.

At December 31, 2008, Synovus had 45 loan relationships with total commitments of $50 million or more (including amounts funded). The average funded balance of these relationships at December 31, 2008 was approximately $62 million.

Portfolio Growth

At December 31, 2008, total loans outstanding were $27.92 billion, an increase of 5.4% over 2007. Average loans increased 7.4% or $1.86 billion compared to 2007, representing 86.6% of average earning assets and 79.4% of average total assets. Growth in the commercial and industrial loan portfolio was 7.0% compared to a growth rate of 2.3% for the commercial real estate portfolio. The retail portfolio grew by 9.7% with most of the growth driven by home equity lines and small business loans.

Synovus provides credit enhancements in the form of standby letters of credit to assist certain commercial customers in obtaining long-term funding through taxable and tax-exempt bond issues. Under these agreements and under certain conditions, if the bondholder requires the issuer to repurchase the bonds, Synovus is obligated to provide funding under the letter of credit to the issuer to finance the repurchase of the bonds by the issuer. Bondholders (investors) may require the issuer to repurchase the bonds for any reason, including general liquidity needs of the investors, general industry/ market considerations, as well as changes in Synovus’ credit ratings. Synovus’ maximum exposure to credit loss in the event of nonperformance by the counterparty is represented by the contract amount of those instruments. Synovus applies the same credit policies in entering into commitments and conditional obligations as it does for loans. The maturities of the funded letters of credit range from one to fifty-nine months, and the yields on these instruments are comparable to average yields for new commercial loans. Synovus has issued approximately $1.6 billion in letters of credit related to these bond issuances. At December 31, 2008, approximately $500 million was funded under these standby letters of credit agreements, all of which is reported as a component of total loans. As of February 26, 2009, approximately $294 million has been funded subsequent to December 31, 2008 related to these bond repurchases, bringing the total amount of funding related to these bond repurchases to $794 million..

Total commercial real estate loans increased by $277.4 million, or 2.3% from year-end 2007. Market conditions resulted in a net decrease in 1-4 family property loans. The investment properties portfolio increased by 20.6%, or $932.1 million, over the prior year. Approximately $195 million of the increase was driven by the aforementioned funded letters of credit. Additionally, a lack of exit capabilities in the market place with commercial mortgage backed securities (CMBS) has increased the duration of the investment properties portfolio.

Commercial and industrial loans increased by $748.9 million or 7.0% from year-end 2007. Approximately

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Management’s Discussion and Analysis ­ ­ 

$205 million of the increase was driven by the aforementioned funded letters of credit. Commercial, financial, and agricultural loans increased $454.2 million or 7.1% over 2007. Owner occupied loans increased $294.7 million or 7.0% from year end 2007.

Retail loans increased by $386.5 million or 9.7% from year-end 2007. Real estate mortgage loans grew $274.2 million, or 8.5%, driven by growth in home equity loans. Home equity loans, our primary retail loan product, increased $180.4 million or 11.7% compared to a year ago. Our home equity loan portfolio consists primarily of loans with strong credit scores, conservative debt-to-income ratios, and appropriate loan-to-value ratios. The utilization rate (total amount outstanding as a percentage of total available lines) of this portfolio at December 31, 2008 and 2007 was approximately 61% and 58%, respectively. These loans are primarily extended to customers who have an existing banking relationship with Synovus.

In addition to home equity lines, retail real estate mortgage also includes $1.76 billion in mortgage loans at December 31, 2008. Mortgage loans grew by $93.8 million or 5.6% from year end 2007. These loans are primarily extended to customers who have an existing banking relationship with Synovus.

Table 17 shows the maturity of selected loan categories as of December 31, 2008. 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 17 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.

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Management’s Discussion and Analysis ­ ­ 

Table 13  Loans by Type

(Dollars in thousands)

	2008						2007
	Total Loans			% *			Total Loans			% *
Multi-family	$	570,131			2.0	%	$	452,163			1.7	%
Hotels		984,205			3.5			614,979			2.3
Office buildings		1,003,407			3.6			953,093			3.6
Shopping centers		1,066,848			3.8			834,025			3.2
Commercial development		875,747			3.1			961,271			3.6
Other investment property		961,570			3.4			714,296			2.7
Total investment properties		5,461,908			19.4			4,529,827			17.1
1-4 family construction		1,615,378			5.8			2,238,925			8.4
1-4 family perm/mini-perm		1,416,838			5.1			1,273,843			4.8
Residential development		2,124,059			7.6			2,311,459			8.8
Total 1-4 family properties		5,156,275			18.5			5,824,227			22.0
Land acquisition		1,559,183			5.6			1,545,933			5.8
Total commercial real estate		12,177,366			43.5			11,899,987			44.9
Commercial, financial, and agricultural		6,874,904			24.6			6,420,689			24.2
Owner-occupied		4,521,414			16.2			4,226,707			16.0
Total commercial & industrial		11,396,318			40.8			10,647,396			40.2
Home equity		1,724,062			6.2			1,543,701			5.8
Consumer mortgages		1,761,756			6.3			1,667,924			6.3
Credit card		295,055			1.1			291,149			1.1
Other retail loans		603,003			2.2			494,591			1.9
Total retail		4,383,876			15.8			3,997,365			15.1
Unearned income		(37,383	)		(0.1	)		(46,163	)		(0.2	)
Total loans, net of unearned income	$	27,920,177			100.0	%	$	26,498,585			100.0	%

*  Loan balance in each category expressed as a percentage of total loans, net of unearned income.

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Management’s Discussion and Analysis ­ ­ 

Table 14  Five Year Composition of Loan Portfolio

(Dollars in thousands)

	December 31,
	2008						2007						2006						2005						2004
	Amount			% *			Amount			% *			Amount			% *			Amount			% *			Amount			% *
Commercial:
Commercial, financial, and agricultural	$	6,874,904			24.6		$	6,420,689			24.2		$	5,874,204			23.8		$	5,268,042			24.6		$	5,064,828			26.0
Owner occupied		4,521,414			16.2			4,226,707			16.0			4,054,728			16.4			3,685,026			17.2			3,399,356			17.5
Real estate — construction		7,336,943			26.3			8,022,179			30.3			7,517,611			30.5			5,745,169			26.8			4,574,364			23.5
Real estate — mortgage		4,840,423			17.3			3,877,808			14.6			3,595,798			14.6			3,392,989			15.9			3,315,863			17.0
Total commercial		23,573,684			84.4			22,547,383			85.1			21,042,341			85.3			18,091,226			84.5			16,354,411			84.0
Retail:
Real estate — mortgage		3,485,818			12.5			3,211,625			12.1			2,881,880			11.8			2,559,339			12.0			2,298,681			11.8
Retail loans — credit card		295,055			1.0			291,149			1.1			276,269			1.1			268,348			1.3			256,298			1.3
Retail loans — other		603,003			2.2			494,591			1.9			500,757			2.0			521,521			2.4			612,957			3.1
Total retail		4,383,876			15.7			3,997,365			15.1			3,658,906			14.9			3,349,208			15.7			3,167,936			16.2
Total loans		27,957,560						26,544,748						24,701,247						21,440,434						19,522,347
Unearned income		(37,383	)		(0.1	)		(46,163	)		(0.2	)		(46,695	)		(0.2	)		(48,087	)		(0.2	)		(41,951	)		(0.2	)
Total loans, net of unearned income	$	27,920,177			100.0		$	26,498,585			100.0		$	24,654,552			100.0		$	21,392,347			100.0		$	19,480,396			100.0

*  Loan balance in each category, expressed as a percentage of total loans, net of unearned income.

Table 15  Loans by State

(Dollars in thousands)

						December 31,			December 31,
	December 31, 2008					2007			2006
			As a % of			As a % of			As a % of
			Total Loan			Total Loan			Total Loan
	Total Loans		Portfolio			Portfolio			Portfolio
Georgia	$	14,663,865		52.6	%		52.5	%		52.8	%
Atlanta		5,287,116		18.9			19.9			19.8
Florida		3,631,524		13.0			13.6			13.9
West Florida		2,864,358		10.3			10.8			11.2
South Carolina		4,245,765		15.2			15.0			14.5
Tennessee		1,348,649		4.8			4.8			4.3
Alabama		4,030,374		14.4			14.1			14.5
Consolidated	$	27,920,177		100.0	%		100.0	%		100.0	%

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Management’s Discussion and Analysis ­ ­ 

Table 16  Residential Construction and Development Loans by State

(Dollars in thousands)

	December 31, 2008
			% of Total
	Residential		Residential			Residential		% of Residential
	Construction		Construction			Construction		Construction
	and		and			and		and
	Development		Development			Development		Development
	Portfolio		Portfolio			NPL		NPL
Georgia	$	2,080,950		55.6	%	$	387,500		79.3	%
Atlanta		1,085,868		29.0			220,145		45.0
Florida		406,855		10.9			50,070		10.2
West Florida		299,345		8.0			45,560		9.3
South Carolina		756,313		20.2			12,612		2.6
Tennessee		122,242		3.3			10,384		2.1
Alabama		373,077		10.0			28,448		5.8
Consolidated	$	3,739,437		100.0	%	$	489,014		100.0	%

Table 17  Loan Maturity and Interest Rate Sensitivity

(In thousands)

	December 31, 2008
			Over One Year		Over
	One Year		Through Five		Five
	Or Less		Years		Years		Total
Selected loan categories:
Commercial, financial, and agricultural	$	3,767,395		2,540,582		566,927		6,874,904
Real estate-construction		5,382,418		1,790,999		163,526		7,336,943
Total	$	9,149,813		4,331,581		730,453		14,211,847
Loans due after one year:
Having predetermined interest rates							$	1,853,369
Having floating or adjustable interest rates								3,208,665
Total							$	5,062,034

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 losses on loans is the charge to operating earnings necessary to maintain an adequate allowance for loan losses. Through the provision for losses on loans, Synovus maintains an allowance for losses on loans that management believes is adequate to absorb probable 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 payand/or collateral values. In addition, various regulatory agencies, as an integral part of their examination procedures, periodically review each 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 banks to recognize additions to their allowance for loan losses.

Allowance for Loan Losses Methodology

During the second quarter of 2007 and first quarter of 2008, Synovus implemented certain refinements to its allowance for loan losses methodology, specifically the way that loss factors are derived. These refinements resulted in a reallocation of the factors used to determine the allocated and unallocated components of the allowance along with a more disaggregated approach to estimate the required allowance by loan portfolio

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Management’s Discussion and Analysis ­ ­ 

classification. These changes did not have a significant impact on the total allowance for loan losses or provision for losses on loans upon implementation.

To determine the adequacy of the allowance for loan losses, a formal analysis is completed quarterly to assess the probable loss within the loan portfolio. This assessment, conducted by lending officers and each bank’s loan administration department, as well as an independent holding company credit review function, includes analyses of historical performance, past due trends, the level of nonperforming loans, reviews of certain impaired loans, loan activity since the previous quarter, consideration of current economic conditions, and other pertinent information. Each loan is assigned a rating, either individually or as part of a homogeneous pool, based on an internally developed risk rating system. The resulting conclusions are reviewed and approved by senior management.

The allowance for loan losses consists of two 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 percentage factors are based on the probable loss including qualitative factors. The probable loss considers the probability of default, the loss given default, and certain qualitative factors as determined by loan category and loan grade. Through December 31, 2007, the probability of default loss factors for commercial and retail loans were based on industry data. Beginning January 1, 2008, the probability of default loss factors for retail loans are based on internal default experience because this was the first reporting period when sufficient internal default data became available. Synovus believes that this data provides a more accurate estimate of probability of default considering the lower inherent risk of the retail portfolio and lower than expected charge-offs. The loss given default factors continue to be based on industry data because sufficient internal data is not yet available. The qualitative factors consider credit concentrations, recent levels and trends in delinquencies and nonaccrual loans, and growth in the loan portfolio. The occurrence of certain events could result in changes to the loss factors.

Accordingly, these loss factors are reviewed periodically and modified as necessary. 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. The unallocated component also compensates for the uncertainty in estimating loan losses. The unallocated component of the allowance is based upon economic factors, changes in the experience, ability, and depth of lending management and staff, and changes in lending policies and procedures, including underwriting standards. Certain macro-economic factors and changes in business conditions and developments could have a material impact on the collectability of the overall portfolio.

Considering current information and events regarding the borrowers’ ability to repay their obligations, management considers a loan to be impaired when the ultimate collectability 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 impairment on these loans based upon fair value estimates (net of selling costs) of the respective collateral. Any deficiency of the collateral coverage is charged against the allowance. 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.

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 19.

Total net charge-offs were $469.2 million or 1.73% of average loans for 2008 compared to $117.1 million or .46% for 2007. The residential construction and development portfolio represented $247.5 million or 52.7% of total net charge offs for 2008. Net charge offs in these categories also increased by $198.7 million from 2007 levels, representing 56% of the total increase of $352.1 million in consolidated net charge offs for the year. The West Florida market and Atlanta market represented $52.7 million and $106.9 million, respectively, of the total residential construction and development net charge-offs for 2008. Retail real estate mortgage net charge-offs, including home equity lines of credit, were $18.9 million in 2008 compared to $6.1 million in 2007.

Allocation of the Allowance for Loan Losses

As noted previously, during 2007 and 2008 Synovus implemented certain refinements to its allowance for loan losses methodology, specifically the way that loss factors are derived.

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Management’s Discussion and Analysis ­ ­ 

These refinements resulted in a reallocation of the factors used to determine the allocated and unallocated components of the allowance along with a more disaggregated approach to estimate the required allowance by loan portfolio classification. While these changes did not have a significant impact on the total allowance for loan losses or provision for losses on loans, the changes did impact the amounts allocated to each component of the portfolio.

Table 20 shows a five year comparison of the allocation of the allowance for loan losses. The allocation of the allowance for loan losses is based on several essential loss factors which could differ from the specific amounts or loan categories in which charge-offs may ultimately occur.

The allowance for loan losses to non-performing loans coverage was 64.91% at December 31, 2008, compared to 107.46% at December 31, 2007. The decline in the coverage ratio is impacted by the increase in collateral-dependent impaired loans, which have no allowance for loan losses as the estimated losses on these credits have been charged-off. Therefore, a more meaningful allowance for loan losses coverage ratio is the allowance to non-performing loans (excluding collateral-dependent impaired loans for which there is no related allowance for loan losses), which was 197.10% at December 31, 2008, compared to 337.49% at December 31, 2007. During times when non-performing loans are not significant, this coverage ratio — which measures the allowance for loan losses (which is there for the entire loan portfolio) against a small non-performing loans total — appears very large. As non-performing loans increase, this ratio will decline even with significant incremental additions to the allowance.

The allowance for loan losses allocated to non-performing loans (exclusive of collateral-dependent impaired loans which have no allowance, as the estimated losses on these loans have already been recognized) is as follows:

Table 18   Allowance for Loan Losses Allocated toNon-performing Loans

(Dollars in thousands)

	December 31,
	2008			2007
Non-performing loans, excluding collateral dependent impaired loans which have no allowance	$	303.6		$	108.9
Total allocated allowance for loan losses on above loans	$	68.5		$	20.5
Allocated allowance as a % of loans		22.6	%		18.8	%

Collateral-dependent impaired loans which have no allowance at December 31, 2008 (because they are carried at fair value net of selling costs) totaled $618.2 million, or 67.1% of non-performing loans. Synovus has recognized net charge-offs amounting to approximately 24% of the principal balance on these loans since they were placed on impaired status.

Commercial, financial and agricultural loans had an allocated allowance of $126.7 million or 1.8% of loans in the respective category at December 31, 2008, compared to $94.7 million or 1.5% at December 31, 2007. The increase in the allocated allowance is due to loan growth of 5.4% from the previous year-end and negative credit migration.

At December 31, 2008, the allocated component of the allowance for loan losses related to commercial real estate construction loans was $247.2 million, up 111.6% from $116.8 million in 2007. As a percentage of commercial real estate construction loans, the allocated allowance in this category was 3.4% at December 31, 2008, compared to 1.5% the previous year-end. The increase is primarily due to negative credit migration in the 1-4 family construction and residential development portfolios within the Atlanta and West Florida markets. As a percentage of total loans, the allowance for loan losses in this category was 26.3% of total loans, compared to 30.2% of total loans in the prior year. The decline in the allocated component as a percentage of total loans is primarily due to the increase in impaired loans which have been written down to fair value.

The unallocated allowance is .22% of total loans and 10.1% of the total allowance at December 31, 2008. This compares to .14% of total loans and 10.3% of the total allowance at December 31, 2007. The increase in the unallocated allowance during 2008 is primarily due to the macroeconomic downturn. 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 allowance. Factors considered in determining the adequacy of the unallocated allowance include economic factors, changes in the experience, ability, and depth of lending management and staff, and changes in lending policies and procedures, including underwriting standards.

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Management’s Discussion and Analysis ­ ­ 

Table 19  Allowance for Loan Losses

(Dollars in thousands)

	December 31,
	2008			2007		2006		2005		2004
Allowance for loan losses at beginning of year	$	367,613			314,459		289,612		265,745		226,059
Allowance for loan losses of acquired/divested subsidiaries, net		—			—		9,915		—		5,615
Loans charged off:
Commercial:
Commercial, financial, and agricultural		95,186			35,443		44,676		38,087		30,697
Owner occupied		11,803			1,347		2,695		2,603		613
Real estate — construction		311,716			61,055		3,899		1,367		383
Real estate — mortgage		28,640			13,318		4,795		3,972		2,532
Total commercial		447,345			111,163		56,065		46,029		34,225
Retail:
Real estate — mortgage		20,014			6,964		3,604		4,393		2,327
Retail loans — credit card		13,213			8,172		8,270		11,383		7,728
Retail loans — other		5,699			4,910		4,867		5,421		6,688
Total retail		38,926			20,046		16,741		21,197		16,743
Total loans charged off		486,271			131,209		72,806		67,226		50,968
Recoveries on loans previously charged off:
Commercial:
Commercial, financial, and agricultural		9,219			7,735		7,304		3,890		5,334
Owner occupied		397			119		185		331		712
Real estate — construction		2,673			1,713		132		50		172
Real estate — mortgage		1,035			471		729		152		114
Total commercial		13,324			10,038		8,350		4,423		6,332
Retail:
Real estate — mortgage		1,138			894		527		511		521
Retail loans — credit card		1,557			1,669		2,130		1,828		1,612
Retail loans — other		1,057			1,554		1,583		1,799		1,255
Total retail		3,752			4,117		4,240		4,138		3,388
Recoveries of loans previously charged off		17,076			14,155		12,590		8,561		9,720
Net loans charged off		469,195			117,054		60,216		58,665		41,248
Provision for losses on loans		699,883			170,208		75,148		82,532		75,319
Allowance for loan losses at end of year	$	598,301			367,613		314,459		289,612		265,745
Allowance for loan losses to loans, net of unearned income		2.14	%		1.39		1.28		1.35		1.36
Ratio of net loans charged off to average loans outstanding, net of unearned income		1.71	%		0.46		0.26		0.29		0.23

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Management’s Discussion and Analysis ­ ­ 

Table 20  Allocation of Allowance for Loan Losses

(Dollars in thousands)

	December 31,
	2008					2007					2006					2005					2004
	Amount		% *			Amount		% *			Amount		% *			Amount		% *			Amount		% *
Commercial:
Commercial, financial, and agricultural	$	126,695		24.6		$	94,741		24.2		$	74,649		23.8		$	83,995		24.6		$	77,293		25.9
Owner occupied		39,276		16.2			29,852		16.0			38,712		16.4			34,000		17.2			22,609		17.4
Real estate — construction		247,151		26.3			116,791		30.2			73,799		30.5			55,095		26.8			47,596		23.5
Real estate — mortgage		80,172		17.3			41,737		14.7			40,283		14.6			40,108		15.9			46,973		17.1
Total commercial		493,294		84.4			283,121		85.1			227,443		85.3			213,198		84.5			194,471		83.9
Retail:
Real estate — mortgage		27,656		12.5			27,817		12.1			6,625		11.8			6,445		12.0			5,335		11.8
Retail loans — credit card		11,430		1.0			10,900		1.1			8,252		1.1			8,733		1.3			8,054		1.4
Retail loans — other		5,766		2.2			8,017		1.9			9,237		2.0			8,403		2.4			7,086		3.1
Total retail		44,852		15.7			46,734		15.1			24,114		14.9			23,581		15.7			20,475		16.3
Unearned income				(0.1	)				(0.2	)				(0.2	)				(0.2	)				(0.2	)
Unallocated		60,155					37,758					62,902					52,833					50,799
Total allowance for loan losses	$	598,301		100.0		$	367,613		100.0		$	314,459		100.0		$	289,612		100.0		$	265,745		100.0

* Loan balance in each category expressed as a percentage of total loans, net of unearned income.

Nonperforming Assets and Past Due Loans

Nonperforming assets consist of loans classified as non-accrual, restructured, impaired or held for sale 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. Non-accrual 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 non-accrual status when principaland/or interest is 90 days or more past due, or earlier if it is known or expected that the collection of all principaland/or interest is unlikely. Loans past due 90 days or more, which based on a determination of collectability are accruing interest, are classified as past due loans. Non-accrual loans are reduced by the direct application of interest and principal payments to loan principal, for accounting purposes only.

Nonperforming assets increased $727.8 million to $1.17 billion at December 31, 2008 compared to year-end 2007. The nonperforming assets as a percentage of loans ratio increased to 4.16% as of December 31, 2008 compared to 1.67% as of year-end 2007. The increase in nonperforming assets was driven by residential real estate. Total nonperforming loans increased $579.6 million or 169.4% over year end 2007. 1-4 family property loans represent 58.6% of total nonperforming loans at December 31, 2008. Additionally, land acquisition loans represent 11.4% of total nonperforming loans at December 31, 2008. Nonperforming loans within the 1-4 family property and land acquisition portfolio sectors are concentrated in the Atlanta and West Florida markets, which together represent 40.2% of total nonperforming loans at December 31, 2008. At December 31, 2008, nonperforming loans in the West Florida market totaled $147.5 million while nonperforming loans in the Atlanta market totaled $352.5 million. West Florida and Atlanta represent 29.2% of our total loan portfolio at December 31, 2008.

During the three months ended December 31, 2008, Synovus continued to refine its non-performing assets disposal strategy. In addition to individual bank teams aggressively

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Management’s Discussion and Analysis ­ ­ 

identifying and liquidating non-performing assets, Synovus formed a separate non-bank subsidiary, Broadway Asset Management, Inc. (BAM), to purchase, from time to time, certain non-performing assets from its subsidiary banks and centrally manage the liquidation of these assets. During this time, BAM acquired approximately $500 million non-performing assets and identified approximately $150 million of these assets for liquidation in the near term. The $150 million identified for liquidation is comprised of foreclosed assets of approximately $67 million and impaired loans of approximately $83 million, which will be transferred to other real estate and sold upon foreclosure. Additional write-downs of approximately $50 million were recognized on the identified assets during the three months ended December 31, 2008 to reflect the estimated proceeds from liquidation.

Provision expense for the three months ended December 31, 2008 was $363.9 million, an increase of $212.5 million compared to the prior quarter. The Atlanta market accounted for $120.7 million of the total provision expense, while the West Florida market accounted for $35.7 million of the total provision expense.

Other real estate totaled $246.1 million at December 31, 2008, which represented a $144.6 million increase over year end 2007. Residential real estate represented $173.4 million of the total. The Atlanta and West Florida markets represented $144.4 million of other real estate at December 31, 2008.

As a percentage of total loans outstanding, loans 90 days past due and still accruing interest were .14% at December 31, 2008. This compares to .13% at year-end 2007. 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.

Management continuously monitors non-performing and past due loans, to prevent further deterioration regarding the condition of these loans. Potential problem loans are defined by management as certain performing loans with a well defined weakness and where there is information about possible credit problems of borrowers which causes management to have doubts as to the ability of such borrowers to comply with the present repayment terms. Management’s decision to include performing loans in the category of potential problem loans means that management has recognized a higher degree of risk associated with these loans. In addition to accruing loans 90 days past due, Synovus had approximately $830 million of potential problem commercial and commercial real estate loans at December 31, 2008. Management’s current expectation of probable losses from potential problem loans is included in the allowance for loan losses at December 31, 2008.

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Management’s Discussion and Analysis ­ ­ 

Table 21  Nonperforming Assets and Past Due Loans

(Dollars in thousands)

	December 31,
	2008			2007		2006		2005		2004
Nonperforming loans	$	921,708			342,082		96,622		82,175		80,456
Other real estate		246,121			101,487		25,923		16,500		21,492
Impaired loans held for sale		3,527			—		—		—		—
Nonperforming assets	$	1,171,356			443,569		122,545		98,675		101,948
Net charge-offs	$	469,195			239,793		134,465		63,813		117,055
Net charge-offs/average loans		1.71	%		1.18		0.99		0.95		0.46
Loans 90 days past due and still accruing interest total outstanding	$	38,794			33,663		34,495		16,023		18,138
As a % of loans		0.14	%		0.13		0.14		0.07		0.09
Total past due loans and still accruing	$	362,538			403,180		365,046		377,999		270,496
As a % of loans		1.30			1.46		1.33		1.39		1.02
Allowance for loan losses	$	598,301			367,613		314,459		289,612		265,745
Allowance for loan losses as a % of loans		2.14	%		1.39		1.28		1.35		1.36
As a % of loans and other real estate:
Nonperforming loans		3.28	%		1.29		0.39		0.38		0.41
Other real estate		0.88	%		0.38		0.11		0.08		0.11
Nonperforming assets		4.16	%		1.67		0.50		0.46		0.52
Allowance for loan losses to nonperforming loans		64.91	%		107.46		325.45		352.43		330.30

Interest income on non-performing loans outstanding on December 31, 2008, that would have been recorded if the loans had been current and performed in accordance with their original terms was $96.8 million for the year ended December 31, 2008. Interest income recorded on these loans for the year ended December 31, 2008 was $52.2 million.

Table 22  Nonperforming Assets Ratio by State

	December 31,
	2008			2007			2006
Georgia		5.28	%		1.70	%		0.37	%
Atlanta		8.61			3.06			0.87
Florida		5.52			4.12			0.46
West Florida		6.65			5.11			0.50
South Carolina		1.68			0.55			0.27
Tennessee		2.62			0.63			0.63
Alabama		1.86			0.71			0.45
Consolidated		4.16	%		1.67	%		0.50	%

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Management’s Discussion and Analysis ­ ­ 

Table 23  Composition of Loan Portfolio and Nonperforming Loans

	December 31, 2008						December 31, 2007
				Nonperforming						Nonperforming
	Loans as a			Loans as a			Loans as a			Loans as a
	Percentage			Percentage			Percentage			Percentage
	of Total			of Total			of Total			of Total
	Loans			Nonperforming			Loans			Nonperforming
Loan Type	Outstanding			Loans			Outstanding			Loans
Commercial Real Estate
Multi-family		2.0	%		0.4			1.8	%		0.5
Hotels		3.5			1.0			2.3			—
Office buildings		3.6			0.8			3.6			1.8
Shopping centers		3.8			0.4			3.2			0.2
Commercial development		3.1			2.7			3.6			2.3
Other investment property		3.4			1.0			2.6			1.3
Total Investment Properties		19.4			6.3			17.1			6.1
1-4 family construction		5.8			28.0			8.4			30.8
1-4 family perm/mini-perm		5.1			5.6			4.8			10.0
Residential development		7.6			25.1			8.7			23.3
Total 1-4 Family Properties		18.5			58.7			21.9			64.1
Land Acquisition		5.6			11.4			5.8			10.4
Total Commercial Real Estate		43.5			76.4			44.8			80.6
Commercial, Financial, Agricultural		24.6			11.4			24.3			12.2
Owner-Occupied		16.2			8.1			16.0			3.6
Total Commercial and Industrial Loans		40.8			19.5			40.3			15.8
Home Equity		6.2			0.9			5.8			1.1
Consumer Mortgages		6.3			2.9			6.3			2.0
Credit Card		1.1			—			1.1			—
Other Retail Loans		2.2			0.3			1.9			0.5
Total Retail		15.8			4.1			15.1			3.6
Unearned Income		(0.1	)		—			(0.2	)		—
Total		100.0	%		100.0	%		100.0	%		100.0	%

Table 23 shows the composition of the loan portfolio and nonperforming loans classified by loan type as of December 31, 2008 and 2007. The commercial real estate category is further segmented into the various property types determined in accordance with the purpose of the loan. Commercial real estate represents 43.5% of total loans and is diversified among many property types. These include commercial investment properties, 1-4 family properties, and land acquisition. Commercial investment properties, as shown in Table 23, represent 19.4% of total loans and 43.6% of total commercial real estate loans at December 31, 2008. No category of commercial investment properties exceeds 5% of the total loan portfolio. 1-4 family properties include 1-4 family construction, commercial 1-4 family mortgages, and residential development loans. These properties are further diversified geographically; approximately 25% of 1-4 family property loans are secured by properties in the Atlanta market and approximately 9% are secured by properties in coastal markets. Land acquisition represents less than 6% of total loans.

Deposits

Deposits provide the most significant funding source for interest earning assets. Table 24 shows the relative composition of average deposits for 2008, 2007, and 2006. Refer to Table 25 for the maturity distribution of time deposits of $100,000 or more. These larger deposits represented 34.5% and 29.5% of total deposits at December 31, 2008 and 2007, respectively. Synovus continues to maintain a strong base of large denomination time deposits from customers within the local market areas of subsidiary banks. Synovus also utilizes national market brokered time deposits as a funding source while continuing to maintain and grow its local market large denomination time

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Management’s Discussion and Analysis ­ ­ 

deposit base. Time deposits over $100,000 at December 31, 2008, 2007, and 2006 were $9.89 billion, $7.35 billion, and $7.10 billion, respectively. Interest expense for the years ended December 31, 2008, 2007, and 2006, on these large denomination deposits was $332.4 million, $364.2 million, and $299.7 million, respectively.

In 2008, Synovus continued to focus on growing in-market core deposits, particularly through the shared deposit products which allow the customer to access a higher level of FDIC insurance through our multi-bank organization. Core deposits (total deposits excluding national market brokered money market and time deposits) grew 5.1% from December 31, 2007 to December 31, 2008. Core deposit growth for the year was primarily due to growth in time deposits of $1.97 billion, which was partially offset by a decline of $983 million in money market accounts. From December 31, 2006 to December 31, 2007, core deposits grew 0.2%.

Because of our multiple charter structure, Synovus has the ability to offered certain shared deposit products that have helped to drive core deposit growth during the second half of 2008. At December 31, 2008, Synovus’ Shared CD and Money Market accounts offer customers the unique opportunity to access up to $7.8 million in FDIC insurance by spreading deposits across its 31 separately-chartered banks. Shared products at December 31, 2008 were $1.74 billion, an increase of $1.57 billion compared to December 31, 2007.

Average deposits increased $1.68 billion or 6.8%, to $26.50 billion in 2008 from $24.82 billion in 2007. Average interest bearing deposits, which include interest bearing demand deposits, money market accounts, savings deposits, and time deposits, increased $1.65 billion or 7.7% from 2007. Average non-interest bearing demand deposits increase $30.54 million or 0.9% during 2008. Average interest bearing deposits increased $2.15 billion or 11.2% from 2006 to 2007, while average non-interest bearing demand deposits decreased $108.8 million, or 3.1%. See Table 7 for further information on average deposits, including average rates paid in 2008, 2007, and 2006.

Table 24   Average Deposits

(Dollars in thousands)	2008		% *		2007		% *		2006		% *
Non-interest bearing demand deposits	$	3,440,047		13.0	$	3,409,506		13.7	$	3,518,312		15.4
Interest bearing demand deposits		3,158,228		11.9		3,125,802		12.6		3,006,308		13.2
Money market accounts		7,984,231		30.1		7,714,360		31.1		6,515,079		28.6
Savings deposits		452,661		1.7		483,368		1.9		542,793		2.4
Time deposits under $100,000		2,979,079		11.2		2,940,919		11.8		2,791,759		12.3
Time deposits $100,000 and over		8,484,823		32.1		7,147,434		28.9		6,404,391		28.1
Total average deposits	$	26,499,069		100.0	$	24,821,389		100.0	$	22,778,642		100.0
* Average deposits balance in each category expressed as percentage of total average deposits.

Table 25   Maturity Distribution of Time Deposits of $100,000 or More

(In thousands)	December 31, 2008
3 months or less	$	2,656,101
Over 3 months through 6 months		2,111,422
Over 6 months through 12 months		3,251,541
Over 12 months		1,865,728
Total outstanding	$	9,884,792

Market Risk And Interest Rate Sensitivity

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 current and potential net income. Synovus’ most significant market risk is interest rate risk. This risk arises primarily from Synovus’ core community banking activities of extending loans and accepting deposits.

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 of assets and liabilities along with the selective use of derivative instruments. Synovus manages its exposure to

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Management’s Discussion and Analysis ­ ­ 

fluctuations in interest rates through policies established by its Asset Liability Management Committee (ALCO) and approved by the Board of Directors. ALCO meets periodically and has responsibility for developing asset liability management policies, reviewing the interest rate sensitivity of the Company, and developing and implementing strategies to improve balance sheet structure and interest rate risk positioning.

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. The baseline forecast assumes an unchanged or flat interest rate environment. These simulations include all of our earning assets, liabilities and derivative instruments. Forecasted balance sheet changes, primarily reflecting loan and deposit growth expectations, are included in the periods modeled. Projected rates for new loans and deposits are based on management’s outlook and local market conditions.

The magnitude and velocity of rate changes among the various asset and liability groups exhibit different characteristics for each possible interest rate scenario; additionally, customer loan and deposit preferences can vary in response to changing interest rates. Simulation modeling enables Synovus to capture the effect of these differences. Synovus is also able to model expected changes in the shape of interest rate yield curves for each rate scenario. Simulation also enables Synovus to capture the effect of expected prepayment level changes on selected assets and liabilities subject to prepayment.

During 2008, the financial markets experienced severe stress with many markets experiencing previously unseen levels of illiquidity. Lack of properly functioning markets and a significant decline in economic activity led the Federal Reserve to implement sizable decreases in the targeted Federal Funds rate. This rate, which began the year at 4.25%, was reduced in several steps with the final decrease bringing the targeted range to 0% to .25%. Synovus entered 2008 in a moderately asset sensitive position with limited expected impact on net interest in modestly changing interest rate environments. The unexpected frequency and magnitude of rate decreases during the year resulted in a more significant impact on net interest income. Significant competitive pressures on deposit pricing as well as many deposit types reaching implied floors were primary contributors to the pressure on net interest income.

Synovus’ rate sensitivity position is indicated by selected results of net interest income simulations. In these simulations, Synovus has modeled the impact of a gradual increase in short-term interest rates of 100 and 200 basis points to determine the sensitivity of net interest income for the next twelve months. Due to short-term interest rates being at or near 0% at this time, only rising rate scenarios have been modeled. As illustrated in Table 26, the net interest income sensitivity model indicates that, compared with a net interest income forecast assuming stable rates, net interest income is projected to increase by 0.9% and increase by 3.9% if interest rates increased by 100 and 200 basis points, respectively. These changes were within Synovus’ policy limit of a maximum 5% negative change.

The actual realized change in net interest income would depend on several factors. These factors include, but are not limited to, actual realized growth in asset and liability volumes, as well as the mix experienced over these time horizons. Market conditions and their resulting impact on loan, deposit, and wholesale funding pricing would also be a primary determinant in the realized level of net interest income.

Synovus is also subject to market risk in certain of its fee income business lines. Financial management services revenues, which include trust, brokerage, and financial planning fees, can be affected by risk in the securities markets, primarily the equity securities market. A significant portion of the fees in this unit are determined based upon a percentage of asset values. Weaker securities markets and lower equity values have had an adverse impact on the fees generated by these operations. Mortgage banking income is also subject to market risk. Mortgage loan originations are sensitive to levels of mortgage interest rates and therefore, mortgage revenue could be negatively impacted during a period of rising interest rates. The extension of commitments to customers to fund mortgage loans also subjects Synovus to market risk. This risk is primarily created by the time period between making the commitment and closing and delivering the loan. Synovus seeks to minimize this exposure by utilizing various risk management tools, the primary of which are forward sales commitments and best efforts commitments.

Table 26   Twelve Month Net Interest Income Sensitivity

	Estimated change in Net Interest
Change in	Income
Short-Term	As of	As of
Interest Rates	December 31,	December 31,
(In basis points)	2008	2007
+ 200	3.9%	1.5%
+ 100	0.9%	(0.1)%
Flat	—	—
- 100	—	(1.5)%
- 200	—	(2.7)%

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Management’s Discussion and Analysis ­ ­ 

Derivative Instruments for Interest Rate Risk Management

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. 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 hedge the variability of cash flows or fair values of on-balance sheet assets and liabilities.

Interest rate derivative contracts utilized by Synovus include end-user hedges, all of which are designated as hedging specific assets or liabilities. These hedges are executed and managed in coordination with the overall interest rate risk management function. Management believes that the utilization of these instruments provides greater financial flexibility and efficiency in managing interest rate risk.

The notional amount of interest rate swap contracts utilized by Synovus as part of its overall interest rate risk management activities as of December 31, 2008 and 2007 was $1.84 billion and $2.76 billion, respectively. The notional amounts represent the amount on which calculations of interest payments to be exchanged are based.

Entering into interest rate derivatives contracts potentially exposes Synovus to the risk of counterparties’ failure to fulfill their legal obligations including, but not limited to, potential amounts due or payable under each derivative contract. This credit risk is normally a small percentage of the notional amount and fluctuates based on changes in interest rates. Synovus analyzes and approves credit risk for all potential derivative counterparties prior to execution of any derivative transaction. Synovus limits credit risk by dealing with highly-rated counterparties, and by obtaining collateralization for exposures above certain predetermined limits.

A summary of these interest rate contracts and their terms at December 31, 2008 and 2007 is shown in Table 27. The fair value (net unrealized gains and losses) of these contracts has been recorded on the consolidated balance sheets.

During 2008, a total of $1.3 billion in notional amounts of interest rate contracts matured and $377.5 million were terminated. A total notional amount of $1.8 billion matured in 2007 and $185 million were terminated. Interest rate contracts contributed additional net interest income of $42.3 million and a 14 basis point increase in the net interest margin for 2008. For 2007, interest rate contracts contributed an increase in net interest expense of $4.2 million and a 1 basis point decrease to the net interest margin.

Table 27  Interest Rate Contracts

			Weighted			Weighted			Weighted							Net
			Average			Average			Average							Unrealized
	Notional		Receive			Pay			Maturity		Unrealized		Unrealized			Gains
(Dollars in thousands)	Amount		Rate			Rate *			In Months		Gains		Losses			(Losses)
December 31, 2008
Receive fixed swaps:
Fair value hedges	$	993,936		3.88	%		1.52	%		25	$	38,482		(1	)		38,481
Cash flow hedges		850,000		7.86	%		3.25	%		25		65,125		—			65,125
Total	$	1,843,936		5.72	%		2.31	%		25	$	103,607		(1	)		103,606
December 31, 2007
Receive fixed swaps:
Fair value hedges	$	1,957,500		4.97	%		4.87	%		25	$	20,349		(2,268	)		18,081
Cash flow hedges		800,000		8.06	%		7.25	%		34		32,340		—			32,340
Total	$	2,757,500		5.87	%		5.56	%		28	$	52,689		(2,268	)		50,421
* Variable pay rate based upon contract rates in effect at December 31, 2008 and 2007

Liquidity

Liquidity represents the extent to which Synovus has readily available sources of funding needed to meet the needs of depositors, borrowers and creditors, to support asset growth, to maintain reserve requirements and to otherwise sustain our operations, at a reasonable cost, on a timely basis and without adverse consequences. Synovus generates liquidity through maturities and repayments of loans by customers, deposit growth, and access to sources of funds other than deposits, such as borrowings from third parties. Synovus believes that its

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Management’s Discussion and Analysis ­ ­ 

liquidity position is enhanced by our current capital cushion, our significant core deposit base, and our positive credit ratings, which work to both mitigate the extent to which we need to apply our liquidity to reserves and other uses, and to improve our ability to gain access to important sources of liquidity other than from Synovus’ ongoing business operations.

The Synovus Asset Liability Management Committee (ALCO), operating under liquidity and funding policies approved by the Board of Directors, actively analyzes and manages Synovus’ liquidity position in coordination with the subsidiary banks. These subsidiaries maintain liquidity in the form of cash, investment securities, and cash derived from prepayments and maturities of both their investment and loan portfolios. Liquidity is also enhanced by the acquisition of new deposits. The subsidiary banks monitor deposit flows and evaluate alternate pricing structures in an effort to retain and grow deposits. In the current market environment, customer confidence is a critical element in growing and retaining deposits. In this regard, Synovus subsidiary banks’ asset quality could play a larger role in the stability of our deposit base. In the event asset quality declined significantly from its current level, the ability to grow and retain deposits could be diminished, which in turn could reduce our liquidity.

The subsidiary banks’ strong reputation in the national deposit markets provides an additional source of liquidity. This reputation allows subsidiary banks to issue longer-term certificates of deposit across a broad geographic base to increase their liquidity and funding positions. Selected Synovus subsidiary banks have the capacity to access funding through their membership in the Federal Home Loan Bank System. At year-end 2008, most Synovus subsidiary banks had access to incremental funding, subject to available collateral and Federal Home Loan Bank credit policies, through utilization of Federal Home Loan Bank advances.

Certain Synovus subsidiary banks have access to overnight federal funds lines with various financial institutions, which can be drawn upon for short-term liquidity needs. These lines are extended at the ongoing discretion of the correspondent financial institutions with Synovus’ credit rating being a primary determinant in the continued availability of these lines. Should Synovus’ credit rating decline to a level below what is considered to be investment grade, these lines’ availability would be significantly diminished. For this reason, Synovus does not believe that being overly dependent on this funding source represents prudent liquidity management. During the second half of 2008, a period of significant financial market stress, our subsidiary banks’ utilization of this funding source was reduced in order to provide greater ongoing liquidity flexibility. As an additional short-term liquidity source, selected Synovus banks maintain collateralized borrowing accounts with the Federal Reserve Bank.

The Parent Company requires cash for various operating needs including dividends to shareholders, (including dividends on the Series A Preferred Stock), 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 and management fees from the subsidiary banks. Due to limitations resulting primarily from lower earnings in 2008, Synovus expects that dividends from subsidiaries will be significantly lower than those received in previous years. In addition, current market conditions and increases in expenses and fixed costs (including dividends on the Series A Preferred Stock) will likely continue to put additional pressure on liquidity. The Parent Company also enjoys a solid reputation and credit standing in the capital markets and has historically had the ability to raise substantial amounts of funds in the form of either short or long-term borrowings. Maintaining adequate credit ratings is essential to Synovus’ continued cost-effective access to these capital market funding sources. Given the weakened economy and current market conditions, especially the current inability of nearly all public financial services companies to access the public capital markets, there is no assurance that the Parent Company will, if it chooses to do so, be able to obtain new borrowings or issue additional equity on terms that are satisfactory, if at all. While liquidity is an ongoing challenge for all financial institutions, Synovus believes that the sources of liquidity discussed above, including existing liquid funds on hand, are sufficient to meet its anticipated funding needs for the foreseeable future. Table 28 sets forth certain information about contractual cash obligations at December 31, 2008.

The consolidated statements of cash flows detail cash flows from operating, investing, and financing activities. Cash provided by operating activities was $834.8 million for the year ended December 31, 2008, while financing activities provided $3.01 billion. Investing activities used $4.01 billion of these amounts, resulting in a net decrease in cash and cash equivalents of $158.3 million. Cash of $210.5 million was retained by TSYS as a result of the tax-free spin-off of TSYS to Synovus shareholders on December 31, 2007.

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Management’s Discussion and Analysis ­ ­ 

Table 28  Contractual Cash Obligations

	Payments Due After December 31, 2008
(In thousands)	1 Year or Less		Over 1 - 3 Years		4 - 5 Years		After 5 Years		Total
Long-term debt	$	588,000		684,105		317,173		460,852		2,050,130
Capital lease obligations		533		760		879		4,626		6,798
Operating leases		20,458		39,070		36,682		136,087		232,297
Total contractual cash obligations	$	608,991		723,935		354,734		601,565		2,289,225

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 provide a desirable level of profitability. Synovus historically has had the ability to generate internal capital growth sufficient to support the asset growth it has experienced. Total shareholders’ equity of $3.8 billion represented 10.58% of total assets at December 31, 2008.

As noted in the section titled “Cumulative Preferred Stock,” Synovus received proceeds of $967,870,000 from the sale of preferred stock and warrants to the U.S. Treasury as part of the government’s Capital Purchase Program. For regulatory capital purposes, the preferred stock issued to the Treasury is treated the same as noncumulative perpetual preferred stock as an unrestricted core capital element included in Tier 1 capital. Accordingly, the increase in regulatory capital and respective ratios at December 31, 2008 compared to December 31, 2007 is due primarily to the Treasury Department’s Capital Purchase Program.

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. Approximately 9.9% 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, 2008, Synovus and all subsidiary banks were in excess of the minimum capital requirements with a consolidated Tier I capital ratio of 11.22% and a total risk-based capital ratio of 14.56%, compared to Tier I and total risk-based capital ratios of 9.11% and 12.66%, respectively, in 2007 as shown in Table 29.

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. Synovus had a leverage ratio of 10.28% at December 31, 2008 and 8.65% at December 31, 2007, significantly exceeding regulatory requirements.

Table 29  Capital Ratios
(Dollars in thousands)

	December 31,
	2008			2007
Tier I capital:
Shareholders’ equity	$	3,787,158		$	3,441,590
Less: net unrealized gains on investment securities available for sale		(92,069	)		(16,024	)
Less: net unrealized loss on available for sale equity securities		(1,288	)		—
Less: net unrealized gains on cash flow hedges		(37,185	)		(15,415	)
Disallowed intangibles		(60,986	)		(547,278	)
Disallowed deferred tax assets		—			(6,862	)
Other deductions from Tier 1 Capital		(9,474	)		(4,464	)
Deferred tax liability on core deposit premium related to acquisitions		6,534			8,776
Qualifying trust preferred securities		10,158			10,235
Total Tier I capital		3,602,848			2,870,558

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Management’s Discussion and Analysis ­ ­ 

Tier II capital:
Qualifying subordinated debt		667,752			750,000
Eligible portion of the allowance for loan losses		403,876			367,613
Total Tier II capital		1,071,628			1,117,613
Total risk-based capital	$	4,674,476		$	3,988,171
Total risk-adjusted assets	$	32,106,501		$	31,505,022
Tier I capital ratio		11.22	%		9.11	%
Total risk-based capital ratio		14.56			12.66
Leverage ratio		10.28			8.65
Regulatory minimums (for well-capitalized status:)
Tier I capital ratio		6.00	%		6.00	%
Total risk-based capital ratio		10.00			10.00
Leverage ratio		5.00			5.00

Market and Stock Price Information

Table 30 presents stock price information For The Years Ended December 31, 2008 and 2007 based on the closing stock price as reported on the New York Stock Exchange. The stock prices shown below for 2008 reflect the adjustment of the trading price of Synovus common stock after giving effect to the spin-off of TSYS on December 31, 2007

Table 30  Stock Price Information

2008	High		Low
Quarter ended December 31, 2008	$	11.50		6.68
Quarter ended September 30, 2008		11.60		7.56
Quarter ended June 30, 2008		12.84		8.73
Quarter ended March 31, 2008		13.49		10.80
2007
Quarter ended December 31, 2007	$	28.94		22.54
Quarter ended September 30, 2007		31.47		26.42
Quarter ended June 30, 2007		33.31		30.70
Quarter ended March 31, 2007		33.39		30.61

As of February 13, 2009, there were approximately 22,188 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 30 displays high and low stock price quotations of Synovus common stock which are based on actual transactions.

Dividends

Synovus (and its predecessor companies) has paid cash dividends on its common stock in every year since 1891. As a result of the TSYS spin-off, Synovus adjusted its cash dividend so that Synovus shareholders who retained their TSYS shares would initially receive, in the aggregate, the same cash dividends per share that were paid before the spin-off. Accordingly, Synovus adjusted its quarterly cash dividend for the three months ended March 31 and June 30, 2008 to $0.17 per share, respectively. On September 10, 2008, Synovus announced that its Board of Directors had voted to reduce its dividend by 65% to $0.06 per share to further strengthen Synovus’ financial position by preserving its capital base. Dividends per share for the three months ended September 30 and December 31, 2008 were $0.06 per share. Dividends per share for the year ended December 31, 2008 were $0.46 per share. Management closely monitors trends and developments in credit quality, liquidity (including dividends from subsidiaries, which are expected to be significantly lower than those received in previous years), financial markets and other economic trends, as well as regulatory requirements, all of which impact Synovus’ capital position, and will continue to periodically review dividend levels to determine if they are appropriate in light of these factors.

Synovus’ participation in the Capital Purchase Program restricts its ability to increase the quarterly cash dividends payable on Synovus common stock. Prior to December 19, 2011, unless Synovus has redeemed the Series A preferred stock or the Treasury has transferred the Series A preferred stock to a third party, the consent of the Treasury will be required for Synovus to pay a quarterly cash dividend of more than $0.06 per share or make any distribution on its common stock. In addition, the Federal Reserve Board also has supervisory authority that may limit Synovus’ ability to pay dividends under certain circumstances. Based on guidance issued by the Federal Reserve Board on February 24, 2009, Synovus must consult with the Federal Reserve Board prior to declaring and paying any future dividends.

Table 31 presents information regarding dividends declared during the years ended December 31, 2008 and 2007. The dividends shown below for 2008 reflect the adjustment of the dividends declared on Synovus common stock after giving effect to the spin-off of TSYS on December 31, 2007.

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Management’s Discussion and Analysis ­ ­ 

Table 31  Dividends

Date Declared	Per Share
Date Paid	Amount
2008
December 9, 2008		January 2, 2009	$	.0600
September 10, 2008		October 1, 2008		.0600
June 9, 2008		July 1, 2008		.1700
March 10, 2008		April 1, 2008		.1700
2007
November 30, 2007		January 2, 2008	$	.2050
September 15, 2007		October 1, 2007		.2050
May 24, 2007		July 2, 2007		.2050
March 8, 2007		April 2, 2007		.2050

Commitments and Contingencies

Table 32 and Note 12 to the consolidated financial statements provide additional information on short-term and long-term borrowings.

Synovus and its subsidiaries are subject to various legal proceedings and claims that arise in the ordinary course of its business. In the ordinary course of business, Synovus and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Synovus establishes accruals for litigation and regulatory matters when those matters present loss contingencies that Synovus determines to be both probable and reasonably estimable. In the pending regulatory matter described below, loss contingencies are not reasonably estimable in the view of management, and, accordingly, a reserve has not been established for this matter. Based on current knowledge, advice of counsel and available insurance coverage, management does not believe that the eventual outcome of pending litigationand/or regulatory matters, including the pending regulatory matter described below, will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to Synovus’ results of operations for any particular period.

As previously disclosed, the FDIC conducted an investigation of the policies, practices and procedures used by Columbus Bank and Trust Company (CB&T), a wholly owned banking subsidiary of Synovus Financial Corp. (Synovus), in connection with the credit card programs offered pursuant to its Affinity Agreement with CompuCredit Corporation (CompuCredit). CB&T issues credit cards that are marketed and serviced by CompuCredit pursuant to the Affinity Agreement. A provision of the Affinity Agreement generally requires CompuCredit to indemnify CB&T for losses incurred as a result of the failure of credit card programs offered pursuant to the Affinity Agreement to comply with applicable law. Synovus is subject to a per event 10% share of any such loss, but Synovus’ 10% payment obligation is limited to a cumulative total of $2 million for all losses incurred.

On June 9, 2008, the FDIC and CB&T entered into a settlement related to this investigation. CB&T did not admit or deny any alleged violations of law or regulations or any unsafe and unsound banking practices in connection with the settlement. As a part of the settlement, CB&T and the FDIC entered into a Cease and Desist Order and Order to Pay whereby CB&T agreed to: (1) pay a civil money penalty in the amount of $2.4 million; (2) institute certain changes to CB&T’s policies, practices and procedures in connection with credit card programs; (3) continue to implement its compliance plan to maintain a sound risk-based compliance management system and to modify them, if necessary, to comply with the Order; and (4) maintain its previously established Director Compliance Committee to oversee compliance with the Order. CB&T has paid the civil money penalty, and that payment is not subject to the indemnification provisions of the Affinity Agreement described above.

CB&T and the FDIC also entered into an Order for Restitution pursuant to which CB&T agreed to establish and maintain an account in the amount of $7.5 million to ensure the availability of restitution with respect to categories of consumers, specified by the FDIC, who activated Aspire credit card accounts issued pursuant to the Affinity Agreement on or before May 31, 2005. The FDIC may require the account to be applied if, and to the extent that, CompuCredit defaults, in whole or in part, on its obligation to pay restitution to any consumers required under the settlement agreements CompuCredit entered into with the FDIC and the Federal Trade Commission (FTC) on December 19, 2008. Those settlement agreements require CompuCredit to credit approximately $114 million to certain customer accounts that were opened between 2001 and 2005 and subsequently charged off or were closed with no purchase activity. CompuCredit has stated that this restitution involves mostly non-cash credits — in effect, reversals of amounts for which payments were never received. In addition, CompuCredit has stated that cash refunds to consumers are estimated to be approximately $3.7 million. This $7.5 million account represents a contingent liability of CB&T. At December 31, 2008, CB&T has not recorded a liability for this contingency.

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Management’s Discussion and Analysis ­ ­ 

Any amounts paid from the restitution account are expected to be subject to the indemnification provisions of the Affinity Agreement described above. Synovus does not currently expect that the settlement will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

On May 23, 2008, CompuCredit and its wholly owned subsidiary, CompuCredit Acquisition Corporation, sued CB&T and Synovus in the State Court of Fulton County, Georgia, alleging breach of contract with respect to the Affinity Agreement. This case has subsequently been transferred to Georgia Superior Court,CompuCredit Corp,. v. Columbus Bank and Trust Co., CaseNo. 08-CV-157010 (Ga. Super Ct.) (the “Superior Court Litigation”). CompuCredit seeks compensatory and general damages in an unspecified amount, a full accounting of the shares received by CB&T and Synovus in connection with the MasterCard and Visa initial public offerings and remittance of certain of those shares to CompuCredit, and the transfer of accounts under the Affinity Agreement to a third-party. CB&T and Synovus intend to vigorously defend themselves against these allegations. Based on current knowledge and advice of counsel, management does not believe that the eventual outcome of this case will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows. It is possible, however, that in the event of unexpected future developments the ultimate resolution of this matter, if unfavorable, may be material to Synovus’ results of operations for any particular period.

On October 24, 2008, a putative class action lawsuit was filed against CompuCredit and CB&T in the United States District Court for the Northern District of California, Greenwood v. CompuCredit, et. al., CaseNo. 4:08-cv-04878 (CW) (“Greenwood”), alleging that the solicitations used in connection with the credit card programs offered pursuant to the Affinity Agreement violated the Credit Repair Organization Act, 15 U.S.C. § 1679 (“CROA”), and the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200. CB&T intends to vigorously defend itself against these allegations. On January 22, 2009, the court in the Superior Court Litigation ruled that CompuCredit must pay the reasonable attorneys’ fees incurred by CB&T in connection with the Greenwood case pursuant to the indemnification provision of the Affinity Agreement described above. Any losses that CB&T incurs in connection with Greenwood are also expected to be subject to the indemnification provisions of the Affinity Agreement described above. Based on current knowledge and advice of counsel, management does not believe that the eventual outcome of this case will have a material adverse effect on Synovus’ consolidated financial condition, results of operations or cash flows.

Synovus is a member of the Visa USA network. On October 2, 2007, the Visa organization of affiliated entities completed a series of restructuring transactions which resulted in the combination of certain of Visa’s affiliated operating companies, including Visa USA into Visa, Inc. Visa’s 2007 restructuring was part of a series of steps toward Visa, Inc.’s planned initial public offering (IPO), which was completed on March 25, 2008. Visa, Inc. used substantially all of the IPO proceeds for redemption of a portion of Visa members’ interests and establishment of an escrow fund for judgmentsand/or settlements of certain Visa USA related litigation (the “covered litigation”).

As a result of Visa’s reorganization, Synovus exchanged its membership interest in Visa USA for an equity interest in Visa, Inc. The equity interest was initially comprised of Class USA shares, which were subject to atrue-up process based on performance against projections for the trailing four quarters reported in Visa’s final and effective registration statement onForm S-1. Subsequent to thetrue-up process, Class USA shares were converted into Class B shares, which are subject to transfer restrictions until the latter of (a) the third anniversary of the effective date of Visa’s IPO, or (b) the date on which all of Visa’s covered litigation (as defined above) has been resolved.

Synovus has assigned no value to its Visa shares. Upon completion of the Visa IPO, Synovus recognized a gain of approximately $38.5 million upon the redemption of Class B shares by Visa, and will subsequently recognize a gain subject to market value of Visa’s Class A shares upon release from transfer restrictions on the remainder of its Class B shares. The amount and timing of potential future gains is not determinable at this time.

Prior to Visa’s October 2, 2007 restructuring, Visa USA members approved Visa’s restructuring plan, including its retrospective responsibility plan, which included confirmation, by Visa USA members, of their obligation under Visa USA bylaws to indemnify Visa, Inc. for potential future settlement of, or judgments resulting from the covered litigation. Synovus’ indemnification obligation is limited to its membership proportion of Visa USA. On November 7, 2007, Visa announced the settlement of its American Express litigation, and disclosed in its annual report to the SEC onForm 10-K for the year ended September 30, 2007 that Visa had accrued a contingent liability for the estimated settlement of its Discover litigation. Accordingly, during 2007, Synovus recognized a contingent liability in the amount of $36.8 million as an estimate for its membership proportion of the American Express settlement and the potential Discover settlement, as well as its membership proportion of the amount that Synovus estimates will be required for Visa to settle the remaining covered litigation. Following completion of its IPO, Visa announced that it had deposited $3.0 billion to establish an escrow fund for payment of judgmentsand/or

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Management’s Discussion and Analysis ­ ­ 

settlements of the covered litigation. Synovus reduced its contingent liability for the Visa litigation by approximately $17.4 million for its membership proportion of the amount deposited to the litigation escrow. On October 27, 2008, Visa announced the settlement of its Discover litigation, and subsequently on December 19, 2008, deposited $1.1 billion to the litigation escrow. Synovus adjusted its accrual for Visa litigation for its membership proportion of the final Discover settlement and the subsequent deposit to the litigation escrow. The amount of Synovus’ contingent liability for the Visa litigation was approximately $19.3 million at December 31, 2008. The timing for ultimate settlement of all covered litigation is not determinable at this time.

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 32  Short-Term Borrowings (Dollars in thousands)

	2008			2007			2006
Balance at December 31	$	725,869			2,319,412			1,582,487
Weighted average interest rate at December 31		.68	%		3.81	%		4.97	%
Maximum month end balance during the year	$	2,544,913			2,767,055			1,986,919
Average amount outstanding during the year	$	1,719,978			1,957,990			1,578,163
Weighted average interest rate during the year		2.24	%		4.75	%		4.62	%

Income Tax Expense

Income taxes based on income from continuing operations were a benefit of $77.7 million in 2008, down from an expense of $184.7 million in 2007, and $230.4 million in 2006. The effective income tax rate was 11.8%, 35.0%, and 35.7%, in 2008, 2007, and 2006, respectively. The change in the effective income tax rate from 2007 to 2008 was primarily attributable to the goodwill impairment charge taken in 2008 that is not deductible for tax purposes. See Note 22 to the consolidated financial statements for a detailed analysis of income taxes.

Synovus files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions, and is subject to examinations by these taxing authorities until statutory examination periods lapse. Synovus’ U.S. Federal income tax return is filed on a consolidated basis. Most state income tax returns are filed on a separate entity basis. Synovus is no longer subject to U.S. Federal income tax examinations by the IRS for years before 2005, and with few exceptions is no longer subject to income tax examinations from state and local tax authorities for years before 2002.

In the normal course of business, Synovus is subject to examinations from various income tax authorities. These examinations may alter the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. During the twelve months ended December 31, 2008, Synovus incurred an increase in the amount of unrecognized income tax benefits of $0.9 million. This increase was primarily due to increases in uncertain state income tax positions.

The total liability for uncertain income tax positions under FIN 48 at December 31, 2008 is $6.2 million. Synovus is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, Synovus does not expect a significant payment related to these income tax obligations within the next year. Synovus expects that approximately $1.3 million of uncertain income tax positions will be either settled or resolved during the next twelve months.

Synovus continually monitors and evaluates the potential impact of current events and circumstances on the estimates and assumptions used in the analysis of its income tax positions, and, accordingly, Synovus’ effective tax rate may fluctuate in the future

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 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 have historically been funded by dividends and fees received from subsidiaries, and

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Management’s Discussion and Analysis ­ ­ 

borrowings from outside sources. On December 19, 2008, the Parent Company received proceeds of $967,870,000 from the sale of preferred stock and warrants to the U.S. Treasury as part of the government’s Capital Purchase Program.

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. Due to limitations resulting primarily from lower earnings in 2008, Synovus expects that dividends from subsidiaries will be significantly lower than received in previous years.

Issuer Purchases of Equity Securities

Synovus’ participation in the Capital Purchase Program restricts its ability to repurchase its common stock. Prior to December 19, 2011, unless Synovus has redeemed the Series A preferred stock or the Treasury has transferred the Series A preferred stock to a third party, the consent of the Treasury will be required for Synovus to redeem, repurchase or acquire its common stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other limited circumstances.

The following table sets forth information regarding Synovus’ purchases of its common stock on a monthly basis during the three months ended December 31, 2008:

Table 33  Issuer Purchases of its Common Stock

							Maximum
							Number of
					Total Number of		Shares That
	Total				Shares Purchased		May Yet Be
	Number				as Part of Publicly		Purchased
	of Shares		Average Price		Announced Plans		Under the Plans
Month	Purchased(1)		Paid per Share		or Programs(2)		or Programs
October 2008		192,513	$	11.35		—		—
November 2008		—		—		—		—
December 2008		—		—		—		—
Total		192,513	$	11.35		—		—

(1)	Consists of delivery of previously owned shares to Synovus in payment of the exercise price of stock options.
(2)	Synovus does not currently have a publicly announced share repurchase plan in place.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS 141R clarifies the definitions of both a business combination and a business. All business combinations will be accounted for under the acquisition method (previously referred to as the purchase method). This standard defines the acquisition date as the only relevant date for recognition and measurement of the fair value of consideration paid. SFAS 141R requires the acquirer to expense all acquisition related costs. SFAS 141R will also require acquired loans to be recorded net of the allowance for loan losses on the date of acquisition. SFAS 141R defines the measurement period as the time after the acquisition date during which the acquirer may make adjustments to the “provisional” amounts recognized at the acquisition date. This period cannot exceed one year, and any subsequent adjustments made to provisional amounts are done retrospectively and restate prior period data. The provisions of this statement are effective for business combinations during fiscal years beginning after December 15, 2008. Synovus has not determined the impact that SFAS 141R will have on its financial position and results of operations and believes that such determination will not be meaningful until Synovus enters into a business combination.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in consolidated financial statements — An Amendment of ARB No. 51.” SFAS 160 requires noncontrolling interests to be treated as a separate component of equity, not as a liability or other item outside of equity. Disclosure requirements include net income and comprehensive income to be displayed for both the controlling and noncontrolling interests and a separate schedule that shows the effects of any transactions with the noncontrolling interests on the equity attributable to the controlling interest. The provisions of this statement are effective for fiscal years beginning after December 15, 2008. This statement should be applied prospectively except for the presentation and disclosure requirements which shall be applied retrospectively for all periods presented. Synovus does not expect the impact of SFAS 160 on its financial position, results of operations or cash flows to be material.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133.” SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Disclosure requirements include qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains/losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions for this statement are effective for fiscal years beginning after November 15, 2008. The impact to Synovus will be additional disclosure in SEC filings.

In June 2008, the FASB’s Emerging Issues Task Force (EITF) reached a consensus on EITF IssueNo. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”(EITF 03-6-1).EITF 03-6-1 requires that unvested share-based payment

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Management’s Discussion and Analysis ­ ­ 

awards that have nonforfeitable rights to dividends or dividend equivalents are participating securities and therefore should be included in computing earnings per share using the two-class method.EITF 03-6-1 is effective for financial statements issued in fiscal years beginning after December 15, 2008, and interim periods within those years. When adopted, its requirements are applied by recasting previously reported EPS data (including interim financial statements, summaries of earnings, and selected financial data. Synovus does not expect the impact ofEITF 03-6-1 on its financial position, results of operations, or cash flows to be material.

In November 2008, the FASB’s Emerging Issues Task Force (EITF) reached a consensus on EITF IssueNo. 08-6, “Equity Method Investment Accounting Considerations”(EITF 08-6).EITF 08-6 addresses questions about the potential effect of SFAS 141R and SFAS 160 on equity-method accounting under Accounting Principles Board Opinion 18, “The Equity Method of Accounting for Investments in Common Stock” (APB 18). The EITF will continue existing practices under APB 18 including the use of a cost-accumulation approach to initial measurement of the investment. The EITF will not require the investor to perform a separate impairment test on the underlying assets of an equity method investment, but under APB 18, an overall other-than-temporary impairment test of its investment is still required. Shares subsequently issued by the equity-method investee that reduce the investor’s ownership percentage should be accounted for as if the investor had sold a proportionate share of its investment, with gains or losses recorded through earnings.EITF 08-6 is effective prospectively for fiscal years beginning after December 15, 2008, which is the same effective date of SFAS 141R and SFAS 160. Synovus does not expect the impact ofEITF 08-6 on its financial position, results of operations, or cash flows to be material.

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Summary of Quarterly Financial Data (Unaudited) ­ ­ 

Presented below is a summary of the unaudited consolidated quarterly financial data for the years ended December 31, 2008 and 2007.

	Fourth			Third			Second		First
(In thousands, except per share data)	Quarter			Quarter			Quarter		Quarter
2008
Interest income	$	440,337			455,223			458,140		503,881
Net interest income		258,025			267,798			273,421		278,649
Provision for losses on loans		363,867	(1)		151,351			93,616		91,049
(Loss) income before income taxes		(741,845	)(1)(2)		(64,332	)		21,401		124,642
Net (loss) income		(635,410	)		(40,121	)		12,099		80,994
Net (loss) income available to common shareholders		(637,467	)		(40,121	)		12,099		80,994
Basic earnings per share:
(Loss) income from continuing operations		(1.93	)		(0.12	)		0.04		0.25
			��
Net (loss) income		(1.93	)		(0.12	)		0.04		0.25
Diluted earnings per share:
(Loss) income from continuing operations		(1.93	)		(0.12	)		0.04		0.24
Net (loss) income		(1.93	)		(0.12	)		0.04		0.24
2007
Interest income	$	553,787			572,317			564,492		547,899
Net interest income		286,685			290,839			288,475		282,949
Provision for losses on loans		70,642			58,770			20,281		20,515
Income from continuing operations before income taxes		79,832			125,838			166,864		155,140
Income from continuing operations		53,142			83,577			105,809		100,407
Income from discontinued operations, net of income taxes and minority interest		28,717			51,366			56,941		46,346
Net income		81,859			134,943			162,750		146,753
Basic Earnings per share:
Income from continuing operations		0.16			0.26			0.32		0.31
Net income		0.25			0.41			0.50		0.45
Diluted earnings per share:
Income from continuing operations		0.16			0.25			0.32		0.30
Net income		0.25			0.41			0.49		0.45

(1)

Synovus recognized provision expense for loan losses of $363.9 million during the fourth quarter of 2008. For further discussion of the provision for loan losses and the associated negative migration in credit quality, see the sections within Management’s Discussion and Analysis titled “Provision and Allowance for Loan Losses,” “Allocation of the Allowance for Loan Losses,” and “Nonperforming Assets and Past Due Loans.”

(2)

Synovus recognized a $442.7 million charge for impairment of goodwill during the fourth quarter of 2008. For a full discussion of goodwill impairment, see Note 9 to the consolidated financial statements and the section titled “Goodwill Impairment” in Management’s Discussion and Analysis.

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