FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1999 Commission File Number 1-10312 [LOGO] SYNOVUS FINANCIAL CORP. (Exact name of registrant as specified in its charter) Georgia 58-1134883 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 901 Front Avenue P. O. Box 120 Columbus, Georgia 31902 (Address of principal executive offices) (706) 649-2401 (Registrants' telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO_________ At October 31, 1999, 279,805,942 shares of the Registrant's Common Stock, $1.00 par value, were outstanding. PART I. FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS SYNOVUS FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, (In thousands, except share and per share data) 1999 1998 - ---------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 395,702 373,376 Interest earning deposits with banks 1,856 1,383 Federal funds sold 78,862 77,392 Mortgage loans held for sale 100,503 156,231 Investment securities available for sale 1,715,215 1,569,490 Investment securities held to maturity 283,518 307,983 Loans 8,609,231 7,612,142 Less unearned income (9,559) (8,537) Less reserve for loan losses (122,560) (114,109) - ---------------------------------------------------------------------------------------------- Loans, net 8,477,112 7,489,496 - ---------------------------------------------------------------------------------------------- Premises and equipment, net 417,668 381,385 Other assets 506,655 454,856 - ---------------------------------------------------------------------------------------------- Total assets $ 11,977,091 10,811,592 - ---------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits: Non-interest bearing $ 1,550,820 1,433,929 Interest bearing 7,724,526 7,363,483 - ---------------------------------------------------------------------------------------------- Total deposits 9,275,346 8,797,412 Federal funds purchased and securities sold under agreement to repurchase 1,010,166 503,287 Long-term debt 228,790 131,802 Other liabilities 216,143 215,081 - ---------------------------------------------------------------------------------------------- Total liabilities 10,730,445 9,647,582 - ---------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiary 60,801 52,093 Shareholders' equity: Common stock - $1.00 par value; Authorized 600,000,000 shares; issued 279,902,088 in 1999 and 278,589,470 in 1998; outstanding 279,726,824 in 1999 and 278,414,206 in 1998 279,902 278,589 Surplus 69,267 57,725 Less treasury stock - 175,264 shares in 1999 and 1998 (1,285) (1,285) Less unamortized restricted stock (1,500) (2,545) Accumulated other comprehensive income (loss) (13,815) 10,475 Retained earnings 853,276 768,958 - ---------------------------------------------------------------------------------------------- Total shareholders' equity 1,185,845 1,111,917 - ---------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 11,977,091 10,811,592 =============================================================================================== See accompanying notes to consolidated financial statements. SYNOVUS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, - ---------------------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------- Interest income: Loans, including fees $ 552,050 498,497 193,285 170,207 Investment securities: U.S. Treasury and U.S. Government agencies 60,207 61,416 20,713 19,789 Mortgage-backed securities 19,202 12,310 6,616 4,242 State and municipal 6,402 5,478 2,114 1,934 Other investments 2,168 1,848 732 646 Mortgage loans held for sale 6,018 3,369 1,759 1,321 Federal funds sold 1,611 4,035 492 1,454 Interest earning deposits with banks 61 39 21 11 - ---------------------------------------------------------------------------------------------- Total interest income 647,719 586,992 225,732 199,604 - ---------------------------------------------------------------------------------------------- Interest expense: Deposits 238,116 234,678 82,513 79,037 Federal funds purchased and securities sold under agreement to repurchase 24,847 10,476 9,453 3,810 Long-term debt 7,415 5,843 3,043 1,956 - ---------------------------------------------------------------------------------------------- Total interest expense 270,378 250,997 95,009 84,803 - ---------------------------------------------------------------------------------------------- Net interest income 377,341 335,995 130,723 114,801 Provision for losses on loans 25,343 20,551 8,613 5,781 - ---------------------------------------------------------------------------------------------- Net interest income after provision for losses on loans 351,998 315,444 122,110 109,020 - ---------------------------------------------------------------------------------------------- Non-interest income: Data processing services 357,105 264,843 126,500 91,665 Service charges on deposit accounts 51,474 45,949 18,043 15,905 Fees for trust services 15,046 11,104 5,041 3,747 Credit card fees 10,672 9,276 3,948 3,649 Securities gains (losses), net 874 750 159 428 Other operating income 99,791 85,967 33,159 30,668 - ---------------------------------------------------------------------------------------------- Total non-interest income 534,962 417,889 186,850 146,062 - ---------------------------------------------------------------------------------------------- Non-interest expense: Salaries and other personnel expense 333,628 287,292 113,359 97,465 Net occupancy and equipment expense 151,556 114,401 53,991 40,227 Other operating expenses 142,128 107,881 48,466 37,321 Minority interest in subsidiary's net income 9,289 7,139 3,257 2,921 - ---------------------------------------------------------------------------------------------- Total non-interest expense 636,601 516,713 219,073 177,934 - ---------------------------------------------------------------------------------------------- Income before income taxes 250,359 216,620 89,887 77,148 Income tax expense 88,308 76,369 31,882 27,540 - ---------------------------------------------------------------------------------------------- Net income $ 162,051 140,251 58,005 49,608 ============================================================================================== Net income per share : Basic $ 0.58 0.52 0.21 0.18 ============================================================================================== Diluted 0.57 0.51 0.21 0.18 ============================================================================================== Weighted average shares outstanding: Basic 279,381 271,155 279,694 272,681 ============================================================================================== Diluted 282,670 276,237 282,806 276,721 ============================================================================================== Dividends declared per share $ 0.27 0.22 0.09 0.07 ============================================================================================== See accompanying notes to consolidated financial statements. SYNOVUS FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, - --------------------------------------------------------------------------------------- (In thousands) 1999 1998 - --------------------------------------------------------------------------------------- Operating Activities Net Income $ 162,051 140,251 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on loans 25,343 20,551 Depreciation, amortization, and accretion, net 54,704 43,542 Deferred income tax expense (benefit) 4,895 (3,697) Increase in interest receivable (12,497) (3,645) Increase in interest payable 2,298 5,948 Minority interest in subsidiary's net income 9,289 7,139 Decrease (increase) in mortgage loans held for sale 55,728 (28,725) Other, net 5,564 7,104 - ------------------------------------------------------------------------------------ Net cash provided by operating activitie 307,375 188,468 - ------------------------------------------------------------------------------------ Investing Activities Cash acquired from acquisition 1,842 13,231 Net (increase) decrease in interest earning deposits with banks (473) 1,099 Net (increase) decrease in federal funds sold (1,470) 52,143 Proceeds from maturities and principal collections of investment securities available for sale 375,762 435,299 Proceeds from sales of investment securities available 27,415 66,351 for sale Purchases of investment securities available for sale (587,796) (536,305) Proceeds from maturities and principal collections of investment securities held to maturity 42,891 125,623 Purchases of investment securities held to maturity (18,706) (70,373) Net increase in loans (1,012,959) (289,706) Purchases of premises and equipment (86,988) (75,888) Disposals of premises and equipment 4,128 637 Proceeds from sales of other real estate 5,290 7,329 Additions to contract acquisition costs (3,812) (16,283) Additions to computer software (42,520) (24,520) - ------------------------------------------------------------------------------------ Net cash used in investing activities (1,297,396) (311,363) - ------------------------------------------------------------------------------------ Financing Activities Net increase in demand and savings deposits 157,059 95,916 Net increase (decrease) in certificates of deposit 320,875 (75,913) Net increase (decrease) in federal funds purchased and securities sold under agreement to repurchase 506,879 115,897 Principal repayments on long-term debt (1,812) (12,965) Proceeds from issuance of long-term debt 98,800 11,887 Purchases of treasury stock -- (3,792) Distributions paid to shareholders prior to acquisition (4,865) (3,631) Dividends paid to shareholders (69,496) (58,782) Proceeds from issuance of common stock 4,907 7,845 - ------------------------------------------------------------------------------------ Net cash provided by financing activities 1,012,347 76,462 - ------------------------------------------------------------------------------------ Increase (decrease) in cash and cash equivalents 22,326 (46,433) Cash and cash equivalents at beginning of period 373,376 420,419 - ------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 395,702 373,986 ==================================================================================== See accompanying notes to consolidated financial statements. SYNOVUS FINANCIAL CORP. INDEX Page Part I. Financial Information Number Item 1. Financial Statements Consolidated Balance Sheets (unaudited) September 30, 1999 and December 31, 1998 3 Consolidated Statements of Income (unaudited) Nine and Three Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Part II. Other Information Item 6. (a) Exhibits 24 (b) Report on Form 8-K 24 Signature Page 25 Exhibit Index 26 (10) Employment Agreement of James H. Blanchard (11) Statement re Computation of Per Share Earnings (27) Financial Data Schedule (for SEC purposes only, not enclosed herewith) SYNOVUS FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. All adjustments consisting of normally occurring accruals which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by this report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Synovus Financial Corp. (Synovus) consolidated financial statements and related notes appearing in Synovus' 1998 annual report previously filed on Form 10-K. Note B - Supplemental Cash Flow Information For the nine months ended September 30,1999 and 1998, Synovus paid income taxes of $80.0 million and $71.7 million, and interest of $268.1 million and $245.0 million, respectively. Noncash investing activities consisted of loans of approximately $3.3 million and $5.6 million, which were foreclosed and transferred to other real estate during the nine months ended September 30, 1999 and 1998, respectively. Note C - Comprehensive Income Other comprehensive income (loss) for Synovus consists of unrealized gains (losses) on securities available for sale and foreign currency translation adjustments. Comprehensive income consists of net income plus other comprehensive income (loss). Comprehensive income for the three months ended September 30, 1999 and 1998 was $59.3 million and $59.0 million, respectively. Comprehensive income for the nine months ended September 30, 1999 was $137.8 million compared to $151.2 million for the nine months ended September 30, 1998. Note D - Business Combinations On January 31, 1999, Synovus issued 333,163 shares of common stock to acquire the remaining 80% interest in Canterbury Trust Company, Inc., which provides trust, custody, investment and consulting services to large institutional clients. The acquisition was accounted for as a purchase resulting in goodwill of $5.5 million which will be amortized on a straight-line basis over fifteen years. On December 18, 1998, Synovus completed the acquisition of the $178 million asset Georgia Bank & Trust (GB&T), located in Calhoun, Georgia. Synovus issued 1,811,058 shares of common stock for all the issued and outstanding shares of GB&T. On November 30, 1998, Synovus completed the acquisition of the $55 million asset Bank of Georgia, located in Watkinsville, Georgia. Synovus issued 850,269 shares of common stock for all the issued and outstanding shares of Bank of Georgia. On September 1, 1998, Synovus completed the acquisition of the $348 million asset Community Bank Capital Corporation (CBCC). CBCC is the parent company of the Bank of North Georgia, located in Alpharetta, Georgia. Synovus issued 3,774,531 shares of common stock for all the issued and outstanding shares of CBCC. The aforementioned three acquisitions have been accounted for as poolings of interests, except that the financial information preceding the dates of acquisition have not been restated to include the financial position and results of operations of these acquired entities since the effect was not material. Net income for the nine months ended September 30, 1998 would have been increased by $3.9 million if the previous periods had been restated. On September 30, 1999, Synovus completed the acquisition of the $306 million asset Merit Holding Corporation. Merit Holding Corporation is the parent company of Mountain National Bank in Tucker, Georgia, and Charter Bank & Trust Co. in Marietta, Georgia. Synovus issued 5,995,085 shares of common stock for all the issued and outstanding shares of Merit Holding Corporation. On September 30, 1999, Synovus completed the acquisition of the debt collection and bankruptcy management business offered by Wallace & de Mayo, a firm based in Norcross, Georgia. Synovus issued 2,339,624 shares of common stock for all of the outstanding common stock of Wallace & de Mayo (WDM). Effective September 30, 1999, WDM operates as TSYS Total Debt Management, Inc. (TTDM), a wholly-owned subsidiary of Synovus. The aforementioned two acquisitions have been accounted for as poolings of interests. Accordingly, the financial statements for all periods presented have been restated to include the financial condition and results of operations of these two entities. On October 31, 1999, Synovus completed the acquisitions of Ready Bank of West Florida, with $65 million in assets, and Horizon Bank of Florida, with $60 million in assets. Both transactions will be accounted for as poolings of interests, except that the financial information preceding the dates of acquisition will not be restated to include the financial position and results of operations of these acquired entities since the effect is not material. Note E - Operating Segments Synovus has two reportable segments: banking operations and transaction processing services. The banking operations segment is predominately involved in commercial banking activities and also provides retail banking, trust, mortgage, and brokerage services. The transaction processing segment consists primarily of operations at Total System Services, Inc. (TSYS), which include credit, debit, commercial and private-label card processing. The transaction processing services segment also includes TTDM's debt collection and bankruptcy management operations. All inter-segment services provided are charged at the same rates as those charged to unaffiliated customers. Such services are included in the revenues and net income of the respective segments and are eliminated to arrive at consolidated totals. Segment information as of and for the three and nine months ended September 30, 1999 and 1998 is presented below: Three months ended September 30, 1999, and 1998 Transaction (In thousands) Banking Processing Operations Services(c) Eliminations Consolidated Interest income and 1999 $268,385 146,574 (2,377)(a) $412,582 non-interest income 1998 236,222 110,774 (1,330)(a) 345,666 Income before taxes 1999 66,085 27,059 (3,257)(b) 89,887 1998 53,708 26,361 (2,921)(b) 77,148 Income tax expense 1999 23,296 8,586 - 31,882 1998 18,996 8,544 - 27,540 Net Income 1999 42,789 18,473 (3,257)(b) 58,005 1998 34,713 17,816 (2,921)(b) 49,608 Total Assets 1999 11,574,711 435,475 (33,095)(d) 11,977,091 1998 9,834,830 336,420 (23,638)(d) 10,147,612 Nine months ended September 30, 1999, and 1998 Transaction (In thousands) Banking Processing Operations Services(c) Eliminations Consolidated Interest income and non 1999 $774,579 413,817 (5,715)(a) $1,182,681 interest income 1998 691,778 316,095 (2,992)(a) 1,004,881 Income before taxes 1999 173,570 86,078 (9,289)(b) 250,359 1998 151,273 72,486 (7,139)(b) 216,620 Income tax expense 1999 63,780 24,528 - 88,308 1998 55,693 20,676 - 76,369 Net Income 1999 109,790 61,550 (9,289)(b) 162,051 1998 95,581 51,809 (7,139)(b) 140,251 Total Assets 1999 11,574,711 435,475 (33,095)(d) 11,977,091 1998 9,834,830 336,420 (23,638)(d) 10,147,612 (a) Principally, computerized data processing service revenues provided to the banking segment. (b) Minority interest in TSYS. (c) Includes equity in income of joint ventures, which is included in other operating income. (d) Primarily TSYS' cash deposits with the banking operations segment. Note F - Legal Proceedings Synovus and its subsidiaries are subject to various legal proceedings and claims which arise in the ordinary course of its business. Any litigation is vigorously defended by Synovus and, in the opinion of management, based on consultation with external legal counsel, any outcome of such litigation would not materially affect Synovus' consolidated financial position or results of operations. Currently, multiple lawsuits seeking class action treatment, are pending against one of Synovus' Alabama banking subsidiaries that involve: (1) payment of service fees or interest rebates to automobile dealers in connection with the assignment of automobile credit sales contracts to that Synovus subsidiary; (2) the forced placement of insurance to protect that Synovus subsidiary's interest in collateral for which consumer credit customers have failed to obtain or maintain insurance; and (3) the receipt of commissions by that Synovus subsidiary in connection with the sale of credit life insurance to its consumer credit customers and the charging of an interest surcharge and a processing fee in connection with consumer loans made by that subsidiary. These lawsuits seek unspecified damages, including punitive damages. Synovus intends to vigorously contest these lawsuits and all other litigation to which Synovus and its subsidiaries are parties. Based upon information presently available, and in light of legal, equitable, and factual defenses available to Synovus and its subsidiaries, contingent liabilities arising from the threatened and pending litigation are not considered material. It should be noted, however, that large punitive damage awards, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in Alabama. On November 10, 1998, a class action complaint was filed against NationsBank of Delaware, N.A., in the United States District Court for the Southern District of Mississippi. On March 23, 1999, the named plaintiff amended the complaint and named TSYS and certain credit bureaus as defendants in the case. The named plaintiff alleges, among other things, that the defendants failed to report properly the credit standing of each member of the putative class. The named plaintiff has defined the class as all persons and entities within the United States who obtained credit cards from NationsBank, and whose accounts were purchased by or transferred to U.S. BankCard, and whose accounts were reported to credit bureaus or credit agencies incorrectly. The amended complaint alleges negligence, violation of the Fair Credit Reporting Act, breach of the duty of good faith and fair dealing, and seeks declaratory relief, injunctive relief, and the imposition of punitive damages. This lawsuit seeks unspecified damages. This litigation is in its initial phases, and, though settlement negotiations have occurred, these negotiations have to date been unproductive. TSYS is not in a position to determine its possible exposure, if any, as a result of this litigation. Note G - Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding it. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair values, cash flows, or foreign currencies. If the hedged exposure is a fair value exposure, the gain or loss on the derivative instrument is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside earnings) and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss is reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. For Synovus, SFAS No. 133, as amended by SFAS No. 137, is effective January 1, 2001. On adoption, the provisions of SFAS No. 133 must be applied prospectively. Synovus is in the process of assessing the impact that SFAS No. 133 will have on its financial statements. Note H - Other Certain amounts in 1998 have been reclassified to conform to the presentation adopted in 1999. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary As revenues for the nine months ended September 30, 1999 increased 21.0% over the same period in 1998, net income was $162.1 million, up 15.5% from the same period a year ago. Diluted net income per share increased to $.57 for the first nine months of 1999 as compared to $.51 for the same period in 1998. Return on average assets was 1.94% and return on average equity was 18.79% for the nine months ended September 30, 1999. This compares to a return on average assets of 1.95% and a return on average equity of 19.01% for the first nine months of 1998. Revenues for the three months ended September 30, 1999 increased 21.9% over the same period in 1998 and net income was $58.0 million, up 16.9% from the same period a year ago. Diluted net income per share increased to $.21 for the third quarter of 1999 as compared to $.18 for the same period in 1998. Return on average assets was 1.98% and return on average equity was 19.65% for the three months ended September 30, 1999. This compares to a return on average assets of 2.01% and a return on average equity of 19.13% for the third quarter of 1998. During the third and fourth quarters of 1998, Synovus completed three bank acquisitions which were accounted for as poolings of interests; however, financial information preceding the dates of acquisition have not been restated since the effect was not material. Net income for the nine months ended September 30, 1998, would have been increased by $3.9 million if the previous periods had been restated. Acquisitions On January 31, 1999, Synovus issued 333,163 shares of common stock to acquire the remaining 80% interest in Canterbury Trust Company, Inc., which provides trust, custody, investment and consulting services to large institutional clients. The acquisition was accounted for as a purchase resulting in goodwill of $5.5 million which will be amortized on a straight-line basis over fifteen years. On September 30, 1999, Synovus completed the acquisition of the $306 million asset Merit Holding Corporation. Merit Holding Corporation is the parent company of Mountain National Bank in Tucker, Georgia, and Charter Bank & Trust Co. in Marietta, Georgia. Synovus issued 5,995,085 shares of common stock for all the issued and outstanding shares of Merit Holding Corporation. On September 30, 1999, Synovus completed the acquisition of the $7 million asset Wallace & de Mayo (WDM). WDM is a debt collection and bankruptcy management business based in Norcross, Georgia. Synovus issued 2,339,624 shares of common stock for all of the outstanding common stock of Wallace & de Mayo. Effective September 30, 1999, WDM operates as TSYS Total Debt Management, Inc. (TTDM), a wholly-owned subsidiary of Synovus. The aforementioned two acquisitions have been accounted for as poolings of interests. Accordingly, the financial statements for all periods presented have been restated to include the financial condition and results of operations of these two entities. Balance Sheet During the first nine months of 1999, total assets increased $1.2 billion, resulting primarily from strong net loan growth of $987.6 million or 13.2% and net increase in investment securities of $121.3 million or 6.5%. Providing the necessary funding for the balance sheet growth during the first nine months of 1999, Synovus' deposit base grew $477.9 million, federal funds purchased and securities sold under agreement to repurchase increased $506.9 million and shareholders' equity increased $73.9 million. Asset Quality As measured by asset quality indicators, Synovus' asset quality remains strong. During the first nine months of 1999, non-performing loans (consisting of nonaccrual and restructured loans) and loans past due greater than ninety days and still accruing, decreased $2.3 million, while loans increased $996.1 million or 13.1%. Synovus' nonperforming assets ratio was .41% as of September 30, 1999, which increased one basis point from December 31, 1998. Annualized net charge-offs to average loans for the nine months ended September 30, 1999 were .29% compared to .32% during the first nine months of 1998 and .35% for the entire year in 1998. Net charge-offs to average loans for the quarter ended September 30, 1999, were .24% compared to .33% during the third quarter of 1998. Net credit card charge-offs represented 46% of total net charge-offs for the nine months ended September 30, 1999 compared to 60% for the same period in 1998. Synovus' overall credit risk profile has continued to improve with credit card loans representing only 2.7% of total outstandings at September 30, 1999 compared to 3.4% and 3.5% at December 31, 1998 and September 30, 1998, respectively. Loans 90 days past due and still accruing at September 30, 1999, were $16.9 million, or .20% of total loans, compared to $24.6 million, or .32% of total loans at December 31, 1998, which is a decrease of $7.7 million, or 31.3%. Management believes that the value of the underlying collateral securing these commercial and consumer loans is generally sufficient to cover the principal and interest on these loans and management does not expect a material increase in nonperforming assets in future periods as a result of the resolution of these delinquencies. The reserve for loan losses was $122.6 million, or 1.43% of net loans, at September 30, 1999, compared to $114.1 million, or 1.50% of net loans, at December 31, 1998. The provision for loan losses for the nine months ended September 30, 1999 was $25.3 million, compared to $20.6 million for the same period in 1998. The higher provision expense was due to the increase in loan volume, somewhat offset by continued strong asset quality. For the nine months ended September 30, 1999, the provision for losses on loans was 1.47 times net charge-offs compared to 1.24 for the nine months ended September 30, 1998. September 30, December 31, (In thousands) 1999 1998 - -------------------------------------------------------------------------------- Nonperforming loans $ 26,628 21,208 Other real estate 8,668 9,536 - -------------------------------------------------------------------------------- Non-performing assets $ 35,296 30,744 ================================================================================ Loans 90 days past due and still accruing $ 16,877 24,640 ================================================================================ Reserve for loan losses $122,560 114,109 ================================================================================ Reserve for loan losses as a % of loans 1.43% 1.50 ================================================================================ As a % of loans and other real estate: Nonperforming loans 0.31% 0.28 Other real estate 0.10 0.12 - -------------------------------------------------------------------------------- Non-performing assets 0.41% 0.40 ================================================================================ Reserve to nonperforming loans 460.27% 538.05 ================================================================================ Capital Resources and Liquidity Synovus continues to maintain its capital at levels that exceed the minimum regulatory guidelines. Additionally, based on internal calculations and previous regulatory exams, each of Synovus' subsidiary banks is currently in compliance with regulatory capital guidelines. Synovus' total risk-based capital was $1.345 billion at September 30, 1999, compared to $1.231 billion at December 31, 1998. The ratio of total risk-based capital to risk-weighted assets was 13.70% at September 30, 1999 compared to 14.00% at December 31, 1998. Synovus' leverage ratio at the end of the third quarter of 1999 was 10.52% compared to 10.82% at the end of 1998. Synovus' equity-to-assets ratio was 9.90% at September 30, 1999 compared to 10.28% at year-end 1998. Internal capital generation continues to support asset growth, as reflected in the third quarter 1999 equity-to-asset ratio exclusive of net unrealized gains (losses) on investment securities available for sale of 9.99%, compared to 10.20% at year-end 1998. Synovus' liquidity position decreased moderately to 28.65% at September 30, 1999, compared to 39.87% at December 31, 1998, due to the majority of earning asset growth being in loans. Additionally, the maturity mix of investment securities and loans has not changed significantly during the first nine months of 1999. During the nine months ended September 30, 1999, net loans increased by 13.2% while deposits increased by 5.4%. Due to the strong loan growth, our funding mix has changed during 1999, compared to the funding mix we had at December 31, 1998. Accordingly, long-term debt (primarily in the form of Federal Home Loan Bank advances) and short-term fundings (consisting mostly of federal funds purchased) increased by a total of $603.9 million when compared to December 31, 1998. Synovus' management monitors liquidity in coordination with the appropriate committees at each subsidiary bank. Management must ensure that adequate liquidity, at a reasonable cost, is available to meet the cash flow needs of depositors, borrowers, and creditors. Management constantly monitors and maintains appropriate levels of assets and liabilities so as to provide adequate funding sources to meet estimated customer withdrawals and future loan requests. Additionally, Synovus subsidiary banks have access to overnight federal funds lines with various financial institutions, which total approximately $1.8 billion, that can be drawn upon for short-term liquidity needs. Synovus also has access to a $25 million line of credit. During the third quarter of 1999, TSYS officially opened the first phase of its Riverfront Campus and essentially completed moving the majority of its downtown employees to the facility. TSYS is leasing the Riverfront Campus under an operating lease. The lease provides for a residual value guarantee of up to $87 million, and includes purchase options at the original cost of the property. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of TSYS. TSYS expects the increase in occupancy and equipment expense related to occupying the campus to be approximately $5.3 million in 1999, net of the relinquished lease obligations. The consolidated statements of cash flows detail Synovus' cash flows from operating, investing, and financing activities. Operating activities provided net cash of $307.4 million during the first nine months of 1999, while $1,012.3 million was provided by financing activities. Investing activities utilized $1,297.4 million of this amount, resulting in an increase in cash and cash equivalents of $22.3 million. Earning Assets, Sources of Funds, and Net Interest Income Average total assets for the first nine months of 1999 were $11.2 billion, up 16.1% over the first nine months average of 1998, which was $9.6 billion. Average assets for the nine months ended September 30,1998 would have increased by approximately $220 million if 1998 financial statements had been restated for the bank acquisitions completed during the second half of 1998. Average earning assets were up 15.8% in the first nine months of 1999 over the same period a year ago and represented 90.2% of average total assets. When compared to the same period last year, average deposits increased $903.3 million, average shareholders' equity increased $167.2 million, and average federal funds purchased and securities sold under agreement to repurchase increased $411.9 million. This growth provided the funding for the $1.1 billion growth in average net loans, the $242.0 million increase in average investment securities, partially offset by the $49.9 million decrease in average federal funds sold. Net interest income was $377.3 million for the nine months ended September 30, 1999, up $41.3 million, or 12.3%, over the $336.0 million reported in the nine months ended September 30, 1998. Net interest income, on a tax-equivalent basis, for the first nine months of 1999 increased $41.9 million, or 12.3%, over the same period in 1998. Net interest income was $130.7 million for the third quarter of 1999, up $15.9 million, or 13.9%, over the $114.8 million reported for the third quarter of 1998. Net interest income, on a tax-equivalent basis, for the third quarter of 1999 increased $16.0 million, or 13.8%, over the third quarter of 1998. Net interest income for the nine and three months ended September 30, 1998 would have increased by $17.2 million and $5.1 million, respectively, if the previous periods had been restated for the bank acquisitions completed during the second half of 1998. The year-to-date net interest margin was 5.09%, down sixteen basis points from the same period last year. This decrease resulted from a forty-four basis point decrease in the yield on earning assets, which was partially offset by a twenty-eight basis point decrease in the effective cost of funds. The decreased yield on earning assets was due to lower yields on investment securities and loans. The decreased loan yields were primarily due to a 63 basis point decrease in the average prime rate from the first nine months of 1998 compared to the first nine months of 1999. The decreased effective cost of funds was due to lower average rates paid on interest-bearing funding. The tax-equivalent adjustment that is required in making yields on tax-exempt loans and investment securities comparable to taxable loans and investment securities is shown in the following table. The taxable-equivalent adjustment is based on a 35% federal income tax rate. Nine Months Ended Three Months Ended September 30, September 30, - -------------------------------------------------------------------------------------- (In thousands) 1999 1998 1999 1998 - -------------------------------------------------------------------------------------- Interest income $ 647,719 586,992 225,732 199,604 Taxable-equivalent adjustment 4,336 3,811 1,451 1,324 - -------------------------------------------------------------------------------------- Interest income, taxable-equivalent 652,055 590,803 227,183 200,928 Interest expense 270,378 250,997 95,009 84,803 - -------------------------------------------------------------------------------------- Net interest income, taxable-equivalent $ 381,677 339,806 132,174 116,125 ====================================================================================== Non-Interest Income Total non-interest income during the first nine months of 1999 increased $117.1 million, or 28.0%, over the same period in 1998. This increase in non-interest income resulted primarily from higher data processing revenues, which increased $92.3 million, or 34.8%, during the nine months ended September 30, 1999, over the same period in 1998. For the year-to-date, banking operations' non-interest income increased 20.6% or $21.9 million compared to the same period a year ago. The growth in fee income was led by service charges on deposits up $5.5 million or 12.0%, trust services up 35.6% or $4.0 million, brokerage up 24.3% or $2.0 million, and mortgage up 13.5% or $1.9 million. Additionally, other operating income for the first nine months of 1999 included a $3.1 million gain from the sale of a corporate investment. Total non-interest income during the quarter ended September 30, 1999, increased $40.8 million, or 27.9%, over the third quarter of 1998. The increase in non-interest income resulted primarily from higher data processing revenues, which increased $34.8 million, or 38.0%, during the quarter ended September 30, 1999, over the same period in 1998. Additionally, banking operations' non-interest income increased 16.1% or $5.9 million during the quarter ended September 30, 1999, compared to the same period a year ago. Service charges on deposits, trust services, and mortgage revenues represented most of the increase. Non-interest income for the nine and three months ended September 30, 1998 would have increased by $5.3 million and $1.5 million respectively, if the previous periods had been restated for the bank acquisitions completed during the second half of 1998. Data processing services revenue is derived principally from the servicing of individual bankcard accounts for the card-issuing customers of TSYS. TSYS' revenues from bankcard data processing services increased $92.3 million, or 34.8%, for the nine months ended September 30, 1999, compared to the same period in 1998. Increased revenues from bankcard data processing services are attributable to the growth in the card portfolios of existing customers, as well as cardholder accounts of new customers. Increases in the volumes of authorizations and transactions associated with the additional cardholder accounts also contributed to the increased revenues. Processing contracts with large customers, representing a significant portion of TSYS' total revenues, generally provide for discounts on certain services based on increases in the level of cardholder accounts processed. As a result, bankcard data processing revenues and the related margins are influenced by the customer mix relative to the size of customer bankcard portfolios, as well as the number of individual cardholder accounts processed for each customer. In May 1998, TSYS signed a long-term processing agreement with Sears, Roebuck and Co. to convert and process its private-label credit card portfolio. In April 1999, the conversion of the Sears portfolio was completed. The accounts converted for Sears in 1999, combined with the 7.5 million converted in the fourth quarter of 1998 and the internal growth in the portfolio, bring the total accounts for Sears to 66 million. During the second quarter of 1999, TSYS received a one-time termination fee of $6.9 million from a client which terminated its processing agreement with TSYS as a result of its merger with a financial institution that processes in-house. The payment is in lieu of processing fees which would have been paid throughout the remaining life of the processing contract. A significant amount of TSYS' revenues is derived from long-term contracts with large customers, including certain major customers. For the three months ended September 30, 1999, three major customers accounted for approximately 38% of total revenues, compared to 36% for the three months ended September 30, 1998. For the nine months ended September 30, 1999, two major customers accounted for approximately 30% of total revenues, compared to 35% for the nine months ended September 30, 1998. The loss of one of TSYS' major customers, or other significant customers, could have a material adverse effect on TSYS' financial condition and results of operations. Near the end of the first quarter of 1998, AT&T, a major customer of TSYS, completed the sale of its Universal Card Services (UCS) to CITIBANK, now a part of Citigroup after CITIBANK's merger with Travelers Group, Inc. On February 26,1999, CITIBANK notified TSYS of its decision to terminate UCS' processing agreement with TSYS for consumer credit card accounts at the end of its original term on August 1, 2000. TSYS' management believes that CITIBANK will continue to be a major customer in 1999, but will not be a major customer in 2000. TSYS' management further believes that the loss of revenues from UCS for the months of August through December 2000, combined with decreased expenses from the reduction in hardware and software and the redeployment of personnel, should not have a material adverse effect on TSYS' financial condition or results of operations for the year ending December 31, 2000. Effective September 30, 1998, NationsBank and Bank of America merged. TSYS had long-term processing contracts with each of these customers, with NationsBank's ending in 2005 and Bank of America's ending in 2007. In September 1999, TSYS announced a new ten-year agreement with the combined entity, known as Bank of America, to continue processing its credit card portfolio until 2009. The combination of NationsBank and Bank of America under a single processing agreement with TSYS will reduce TSYS' revenues in 1999 and future years because together NationsBank and Bank of America will be entitled to receive greater discounts than either would have been entitled to receive standing alone. TSYS expects its new processing agreement to produce a net profit margin consistent with its historical net profit margins. Non-Interest Expense Total non-interest expense (excluding the minority interest in TSYS' net income) for the nine months ended September 30, 1999, increased $117.7 million, or 23.1%, over the same period in 1998. Total non-interest expense for the third quarter of 1999 increased $40.8 million, or 23.3%, over the third quarter of 1998. Management analyzes non-interest expense in two separate components: banking operations and transaction processing services. The following table summarizes this data for the first nine months of 1999 and 1998. 1999 1998 - ---------------------------------------------------------------------------------------- Transaction Transaction Processing Processing (In thousands) Banking Services Banking Services - ---------------------------------------------------------------------------------------- Salaries and other personnel expenses $ 173,693 159,935 161,578 125,714 Net occupancy and equipment expense 41,264 110,292 36,765 77,636 Other operating expenses 73,240 68,888 58,471 49,410 - ---------------------------------------------------------------------------------------- Total non-interest expense $ 288,197 339,115 256,814 252,760 ======================================================================================== Banking operations' non-interest expense increased $31.4 million or 12.2% for the nine months ended September 30, 1999, compared to the same period in 1998. During the third quarter of 1999, non-interest expense increased $4.5 million or 5.0%, compared to the same period in 1998. As expected, banking operations' non-interest expense increased at a lower rate when compared to the increases that we have been experiencing in previous quarters. Additionally, when compared to the second quarter of 1999, non-interest expense decreased $2.3 million, the first decline in six consecutive quarters. During the previous quarters, non-interest expense increased at a faster pace due to the significant investments that we made: building of The New Bank (completed in April 1999), the conversion of our banks to a new information technology processing system (completed during March 1999), and our human resource intiatives through PDE (Personally Developing EveryONE - now underway for over one year). Non-interest expense for the nine and three months ended September 30, 1998 would have been $14.2 million and $5.1 million higher, respectively, if the previous periods had been restated for the bank acquisitions completed during the second half of 1998. Approximately 97% of total transaction processing services non-interest expense relates to TSYS, with the remainder related to TTDM. The following paragraphs provide an analysis of the non-interest expense components at TSYS. Non-interest expense related to TSYS increased 35.1% or $85.1 million and 44.5% or $9.0 million for the nine and three months ended September 30, 1999, respectively, compared to the same periods in 1998. Employment expenses increased 28.2% and 37.2% for the nine and three months ended September 30, 1999, respectively, compared to the same periods in 1998. The increase in employment expenses is due to growth in the number of employees, normal salary increases and related benefits, offset by $12.8 million and 2.7 million invested in software development costs and contract acquisition costs for the nine and three months ended September 30, 1999, respectively. The majority of the software development costs were related to the development of a commercial card system for TS2 which began in May 1998 and is expected to be substantially completed in early 2000. The average number of employees in the third quarter of 1999 increased to 4,081, an 18.8% increase over the 3,434 in the same period of 1998. For the first nine months of 1999, the average number of employees was 3,938, a 17.2% increase over the first nine months of 1998. Net occupancy and equipment expense at TSYS increased 42.7% and 48.4% for the nine and three months ended September 30, 1999, respectively, over the same periods in 1998. Computer equipment and software rentals, which represent the largest component of net occupancy and equipment expense, increased 57.6% to $21.4 million in the third quarter of 1999, compared to $13.6 million in the same period of 1998. During the first nine months of 1999, computer equipment and software rentals increased 48.7% to $57.8 million compared to $38.9 million in the same period in 1998. Due to rapidly changing technology in computer equipment, TSYS' equipment needs are achieved primarily through operating leases. During 1998 and the first half of 1999, TSYS made significant investments in computer software licenses and hardware related to the new East Center data center and to accommodate increased volumes due to the expected growth in the number of accounts associated with new customers. Other operating expenses at TSYS increased 40.2% and 56.2% for the nine and three months ended September 30,1999, respectively, compared to the same periods in 1998. The growth in other operating expenses for 1999 is primarily due to increased business development costs associated with exploring new business opportunities, both domestically and internationally; the establishment of a new international office in London, and increased amortization of contract acquisition costs. The conversions of Sears, Royal Bank, and Canadian Tire Acceptance Limited (CTAL), begun in March 1999 and completed early in the second quarter, contributed to the increase in amortization of contract acquisition costs. Year 2000 Readiness Disclosure Many computer programs were written with a two digit date field, and, if these programs are not made Year 2000 compliant, they will be unable to correctly process date information for the year 2000 and after. Through separate task forces, Synovus is continuing its ongoing projects to assure its processing systems will be Year 2000 compliant for its banking activities and at TSYS. The task forces are composed of dedicated resources as well as members from other areas within the banks and TSYS. Each Board of Directors has reviewed the overall project plans for the banks and TSYS with progress toward completion monitored regularly. The primary components of the plans include: awareness - assuring a common understanding of the issues throughout Synovus; assessment - identification of non-compliant hardware, equipment, and software as well as suppliers and vendors; renovation - renovation, replacement or retirement of programs; validation - testing modifications of programs including coordination of testing with third parties and vendors; and implementation - moving validated code to production. Banking Operations: For the banks, the conversion of the core processing systems to Marshall & Illsley Data Services (M&I) has provided for Year 2000 compliance for the core applications, including loans, deposits, and sales platforms. M&I has completed the Year 2000 renovation for its banking systems and is currently utilizing this renovated code for all processing. During the first quarter of 1999, M&I completed the testing phase. Since March 31, 1999, all Synovus banks are being processed using the M&I Year 2000 renovated code. The remaining personal computer hardware platforms and software programs, as well as other ancillary systems such as ATM's, fax machines, copiers, and phone systems, have been reviewed and all significant applications or infrastructure which need to be modified have been identified and their renovation and testing was completed as of June 30, 1999. In August 1998, M&I received ITAA*2000 certification from the Information Technology Association of America. The program examines processes and methods used by companies to perform their year 2000 software conversions. In addition, M&I's progress and plans are subject to periodic review and evaluation by banking regulatory agencies. In August, 1998, M&I adopted a "Year 2000 Contingency Strategy" plan which follows all the Federal Financial Institutions Examination Council's (FFIEC) guidelines. This plan includes an analysis of "most reasonably likely year 2000 worst case scenarios" and M&I's planned solutions to those scenarios. Examples of these scenarios and planned solutions are, a power interruption at a data processing facility mitigated by an onsite generator, and simultaneous disasters at all data processing locations mitigated by use of a prearranged third party facility. Business resumption contingency planning is underway at Synovus in accordance with the FFIEC guidelines and progressing on schedule. This planning effort addresses specific issues related to Year 2000 service interruptions. Operational plans which will allow Synovus to operate in the event of the disruption of services from mission critical service providers have been completed and will be tested during the remaining months of 1999. Included in the Synovus business resumption contingency planning are measures that address liquidity and the ready availability of cash. Based on currently available information, while management anticipates there could be isolated and short-term disruptions of various services and interfaces at its business sites, there is no expectation of extensive or protracted systemic failures that would have a material adverse effect on the financial condition or results of operations of Synovus. TSYS: At TSYS, the core system of TS2 was designed to be Year 2000 compliant, and TSYS is continuing its ongoing project to ensure that all of TSYS' processing systems are Year 2000 compliant. As of December 31, 1998, TSYS had completed the awareness, assessment, renovation, and validation phases of its Year 2000 project. During 1998, two major milestones were met. The first milestone, 100% of all critical code converted, was achieved in April 1998. The second, 100% of all non-critical code renovated, was completed in July 1998. As units were renovated they were returned to production, and, as of December 31, 1998, TSYS was fully operating in Year 2000 compliant systems. The validation phase at TSYS included setting up a test environment, testing core system functionality and providing test results to clients. It was during this phase that Turn of The Century, Monthly Cycling, Leap Year and Millennium Year, and Month and Quarter-end dates were tested. This phase concluded during October, 1998 and results were sent to customers in November and December 1998. The implementation phase, which allowed clients the opportunity to test their specific code within a Year 2000 environment, began in 1998. As of September 30,1999 all three client test iterations were completed. Another significant aspect of the Year 2000 project is contingency planning, which is a process to ensure that TSYS can continue operations in the event that information technology systems, noninformation technology systems, or vendors are not Year 2000 compliant. In June 1999, TSYS completed its Business Resumption Contingency Plan, or Y2K Day Plan, which is based on the TSYS Disaster Recovery Plan. This plan sets forth processes and procedures to follow in case TSYS experiences a problem with processing Year 2000 data or if mission-critical service providers suffer disruption. The plan was validated by a walk-through and a role play during June 1999. An abbreviated version of the plan was shared with clients in July 1999. A client forum to discuss the Y2K Day Plan was conducted in August 1999. The plan includes the following: TSYS programming staff will be on site from December 26, 1999 to January 5, 2000 to immediately remediate any coding issues encountered. The Year 2000 Command Center will act as the nerve center during the century changeover, monitoring processing status of over 88 business areas through 12 command posts, conveying management decisions, and deploying resources where required. If a power loss is experienced for any reason at TSYS Data Centers which house mainframe and associated hardware, all of TSYS' critical systems would be powered through battery backup and diesel generators without experiencing any downtime. This process, referred to as TSYS' Uninterrupted Power Supply system, has enough fuel for 72 hours. TSYS has contracts with two separate fuel distributors to ensure that its operations could continue indefinitely. The fuel companies have backup generators to keep their fuel pumps operational in case of a power failure. TSYS has service agreements with IBM's Global Services to provide, through its business unit, Business Recovery Services, hot-site assistance and equipment for data center and network recovery in case of a natural or man-made disaster. Also, TSYS has contracts with other companies to receive immediate service and/or top priority in an emergency situation. Additionally, vendor technicians for key equipment will be on site for the period of December 31, 1999 through January 3, 2000. TSYS management believes that the most likely Year 2000 risks relate to third parties with which it has material relationships. A failure or disruption of (i) TSYS' mission-critical computer systems caused by third-party hardware/software, (ii) third-party service/network/gateway providers, or (iii) significant clients for an extended period, could adversely affect the financial condition and results of operations of TSYS. TSYS' Year 2000 Project Office has reviewed compliance and tested with TSYS' top 11 customers defined by number of accounts on file and/or by revenues generated and found them to be Year 2000 ready. Management believes its internal review indicates that TSYS' mission-critical systems are Year 2000 ready; however, failure of a mission critical third-party provider could have a material adverse effect on TSYS' business, operations and financial results. However, based on currently available information, while management anticipates there could be isolated and intermittent disruptions of various services and interfaces at its business sites related to third parties with which it has material Year 2000 relationships, there is no expectation of extensive or protracted systemic failures that would have a material adverse effect on the financial condition or results of operations of TSYS. The majority of Synovus' costs in becoming Year 2000 compliant are related to TSYS. Such costs are being expensed as incurred and are not expected to have a material effect on Synovus' financial condition or results of operations for 1999. TSYS currently estimates the total cost for the Year 2000 project will amount to approximately $18 million of direct costs. This amount consists primarily of the costs associated with personnel dedicated to the Year 2000 project. During the first nine months of 1999, TSYS incurred $5.0 million of direct costs associated with the Year 2000 project and has incurred $14.0 million since project inception. The banking operations' Year 2000 remediation costs, other than those related to the conversion to M&I, are not material. Synovus estimates that the total cost for its banking operations Year 2000 project will be approximately $2.5 million (approximately $1.4 million incurred in 1998, with the remainder to be incurred during 1999). These costs are exclusive of the costs associated with the conversion to the M&I system and consist primarily of direct personnel costs and customer notifications. The failure of Synovus or TSYS to be Year 2000 compliant would have a material adverse effect on Synovus' financial condition and results of operations. The costs of the projects and the dates on which Synovus and TSYS believe they will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions about future events, including the continued availability of necessary technical resources and the cooperation of customers and vendors. However, there are no guarantees that these estimates will be achieved and actual results could differ materially from those anticipated. All forward-looking statements regarding Year 2000 readiness, including estimates, forecasts and expectations, are inherently uncertain as they are based on various expectations and assumptions concerning future events and are subject to numerous risks and uncertainties which could cause actual events or results to differ materially from those projected. Important factors upon which Synovus' Year 2000 forward-looking statements are premised include: (a) retention of employees and contractors working on Year 2000 projects; (b) TSYS customers' remediation of their internal systems to be Year 2000 ready and their cooperation in timely testing; (c) no material disruption of telecommunication, data transmission networks, payment networks, government services, utilities or other infrastructure services and no unexpected failure of third-party products; (d) no unexpected failures by third-parties providing services to Synovus; (e) no undiscovered subversion of systems or program code affecting Synovus' systems; and (f) no undiscovered material flaws in Synovus' test processes. Income Tax Expense Income tax expense for the nine months ended September 30, 1999, was $88.3 million compared to $76.4 million for the same period a year ago. Income tax expense for the third quarter of 1999 was $31.9 million compared to $27.5 million in the third quarter of 1998. The effective tax rate for the third quarter of 1999 was 35.5% compared to 35.7% in the same quarter of 1998. The effective tax rate for the first nine months of 1999 and 1998 was 35.3% for both periods. Forward-Looking Statements Certain statements contained in this filing which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"). In addition, certain statements in future filings by Synovus with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of Synovus which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial terms; (ii) statements of plans and objectives of Synovus or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: (i) the strength of the U.S. economy in general and the strength of the local economies in which operations are conducted; (ii) the effects of and changes in trade, monetary and fiscal policies, and laws, including interest rate policies of the Federal Reserve Board; (iii) inflation, interest rate, market and monetary fluctuations; (iv) the timely development of and acceptance of new products and services and perceived overall value of these products and services by users; (v) changes in consumer spending, borrowing, and saving habits; (vi) technological changes (including "Year 2000" data systems compliance issues) are more difficult or expensive than anticipated; (vii) acquisitions; (viii) the ability to increase market share and control expenses; (ix) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and insurance) with which Synovus and its subsidiaries must comply; (x) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, the Financial Accounting Standards Board, or other authoritative bodies; (xi) changes in Synovus' organization, compensation, and benefit plans; (xii) the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and (xiii) the success of Synovus at managing the risks involved in the foregoing. Such forward-looking statements speak only as of the date on which such statements are made, and Synovus undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk were included in the annual report which was incorporated by reference in Synovus' 1998 10-K. There have been no significant changes in the contractual balances and the estimated fair value of Synovus' on-balance sheet financial instruments, the notional amount and estimated fair value of the company's off-balance sheet derivative financial instruments, or weighted-average interest rates. ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K (a) Exhibits (10) Employment Agreement of James H. Blanchard (11) Statement re Computation of Per Share Earnings (27) Financial Data Schedule (for SEC purposes only, not enclosed herewith) (b) Report on Form 8-K The following report on Form 8-K was filed during the third quarter of 1999. (1) The report filed on September 30, 1999, included the following events: On September 29, 1999, Total System Services, Inc. ("TSYS"), an 80.8 percent owned subsidiary of Synovus Financial Corp., announced a ten-year agreement with Bank of America to continue processing its credit card portfolio until 2009. The new agreement extends the existing agreement by two years and includes the card portfolios of Bank of America and NationsBank which merged in 1998. On September 30, 1999, TSYS announced that it expects its 1999 net income to exceed its 1998 net income by at least 23 percent and that it expects its 2000 net income to exceed its 1999 projected net income by at least 13 to 15 percent. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNOVUS FINANCIAL CORP. Date: November 15, 1999 BY: /s/ Thomas J. Prescott ---------------------------- Thomas J. Prescott Executive Vice President and Chief Financial Officer INDEX TO EXHIBITS Sequentially Exhibit Number Description Numbered Page 10 Employment Agreement of 27 James H. Blanchard 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule (for SEC purposes only, not enclosed herewith)